India: Uttarakhand Power Sector Investment Program - Tranche 3 | Lessons by Independent Evaluation, Asian Development Bank

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Lessons

Successful implementation of infrastructure projects requires adequate social preparation and continued engagement with the local communities.

The project was successful in engaging with local communities and addressing their immediate needs with social infrastructure and support services. This helped gain their trust and buy-in for the project.

Adequate institutional capacity in the EA and IA is crucial to the execution of the MFF within the approved period.

The use of the MFF proved premature for Uttarakhand, still a new state with weak capacity. Other financing options would have been more appropriate.

Grant funding, while beneficial for end-users, may not be appropriate for a revenue-earning agency like the PTCUL.

Uttarakhand, being a special category state, is entitled to receiving in grant form 90% of the external debt fund accessed by the central government for the project. However, the Central Electricity Regulatory Commission Tariff Regulation does not allow its return, interest, and depreciation in the revenue calculation. While grant funding may benefit end-users due to a lower tariff, it may not be an appropriate funding model for a revenue-earning agency like PTCUL.

Effective risk mitigation requires adequate planning and prompt action.

The project DMF had indicated a risk factor in achieving the project outcome should the HPP projects not be completed on time. However, the risk mitigation measures were not adequately planned and actioned.

Having a suitable EA is critical to project success.

UED core functions are administrative in nature. Its priority and focus are on policy formulation and regulation of the energy sector for the state. UED also does not have adequate project management and engineering staff. UED’s role as executing agency for this project was therefore conflicting and less effective. Since the PMO also had little capacity beyond performing its role as secretariat, finding a more suitable EA should have been prioritized.

A need-based approach to capacity development optimizes project learning opportunities.

The project’s institutional strengthening component did not have a need-based approach to capacity development. This would have made the component more functional and aligned to the needs in project implementation. The project could also have benefitted from the provision of cross-learning opportunities in project management, technical competency, and social engineering among UPSIP key institutions and other utilities. In the absence of a strong project management office and lack of project ownership by the UED, the midterm review of late 2012 should have done more in developing cross-learning opportunities within the project.

Background

At the request of the Government of India (GOI), the Asian Development Bank (ADB) approved in March 2006 a 4-tranche, $300 million multitranche financing facility (MFF) to help implement the Uttarakhand Power Sector Investment Program (UPSIP). The UPSIP aimed to meet the priority infrastructure requirements identified in Uttarakhand’s roadmap for state energy sector development.

Tranche 3 of the MFF, covering the construction of a 400/220/132 kilovolt (kV) Srinagar substation and capacity strengthening, was approved in January 2009. It was processed parallel to tranche 2 which, together with tranche 4, financed the construction of transmission lines for the evacuation of hydropower from Uttarakhand river basins to the northern grid of India. As with the other MFF tranches, it sought to contribute to the economic development of Uttarakhand and India’s northern region through expanded power supply at competitive prices. As of UPSIP preparation, Uttarakhand was among the poorest states of India, only 8 years old, and had an annual per capita electricity consumption less than half the national average.

Under tranche 3, the Srinagar substation was constructed according to the technical design set at appraisal. Two existing transmission lines had been looped-in-looped-out to the substation, significantly improving the operational flexibility and voltage regulation of the state grid. Moreover, the project had provisioned circuit bays whose transmission lines continued to be constructed even after MFF tranche 4 closed in March 2016. Installation of transmission lines of HPPs still under construction had also been provisioned under the project.

Site visits by the project completion report (PCR) mission confirmed the successful establishment of a sound power substation through the project. The evacuation of energy in 2016, the first year of project completion reached 1,274 gigawatt-hours (GWh)—equivalent to 290 megawatts at 50% load factor. At appraisal, the project envisaged evacuating 21,900 GWh of hydropower per year. Utilization of the facility is expected to increase over the next few years, with project outcome expected to be achieved by 2023 upon the completion of pipelined HPPs.

For capacity/institutional strengthening, the project consistently lagged in this area due to the late staffing of the project management office (PMO) and low level of ownership by the EA, the Uttarakhand Energy Department (UED). Capacity development commenced only in June 2015, and while the PMO prepared a 3-year training program, it was not fully implemented because of the project’s closing in March 2016. The project should have undertaken the appropriate training sessions, particularly those related to ADB requirements and operational procedures, early enough to support more effective project implementation.

Despite a 55-month delay in completion, the PCR rated the project successful. Actual total project cost was $34.24 million, 32% lower than the estimate at appraisal. Responding to a GOI request, ADB cancelled $2.6 million from the total tranche3 loanof $30.6 million in March 2015. At project closing, the net disbursed amount was $25.4 million, 91.26% of the available ADB $28.0 million loan.

The UED was the EA and the Power Transmission Company of Uttarakhand Limited (PTCUL), the implementing agency (IA).

Project Information

Project Name:

Uttarakhand Power Sector Investment Program - Tranche 3

Report Date:

September, 2017

Main Sector:

Energy

Country:

India

Project Number:

37139-043

Project/Modality:

Loan

Themes:

Inclusive Economic Growth

Environmentally Sustainable growth

Governance and Capacity Development

Sub Sector:

Electricity transmission and distribution

Loan Number:

2502

Source of Funding:

OCR

Date Approved:

8 January 2009

Report Rating:

Successful

Lessons