India: Madhya Pradesh Power Sector Investment Program (Tranche 5)

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Lessons

The multitranche financing facility (MFF) modality favors continued improvements in project implementation, operation and maintenance (O&M), and capacity and institutional development.

This project, the fifth under the MFF-supported Madhya Pradesh Power Sector Investment Program, had benefited from the build-up of capacities and experiences in earlier projects. While smoothening implementation and resulting in better use of the loan funds, these accumulated capacities and experiences had also enhanced the sustainability of the independent power distribution companies that acted as executing agencies (EAs). Overall, the project has demonstrated that the MFF modality is most favorable for continued improvements in O&M, and human resource development and financial management, which should be especially relevant for the autonomous operation and self−reliant growth of newly created, independent power sector entities. Having the project management units (PMUs) run by experienced and properly ranked technical managers, the project has also shown, is crucial to success.

Early contracting of works fosters timely project completion.

Procurement of works under the internationally competitive bidding (ICB) method takes 6−9 months to be completed in most ADB−assisted projects. Selected contractors would then need another 6−9 months to finalize the scope of works, and a further 6 months to have the equipment manufactured and delivered to the sites. This typically long process resulted in a 2−year extension of this project’s implementation period, which could have been shortened had the project been fully designed and tendered before loan signing. However, as it would be difficult, due to lack of resources, for many borrowing countries to take advance actions on procurement, it might be helpful to consider allotting greater time for the implementation of projects using the ICB procurement method. More time should also be allotted to consulting services recruitment.

Delegation of project administration to the resident missions improves project implementation support and monitoring quality.

Support by the Asian Development Bank (ADB) for the distribution companies improved substantially after project administration was assigned to an experienced staff in the India resident mission. The quality of monitoring had also improved with the delegation of project administration to the resident mission.

More stringent bid evaluation criteria boost the chances of selecting the most suitable contractors.

The project terminated the services of 12 international contractors due to poor performance. The bid evaluation criteria, particularly those related to financial soundness and technical experience, should be strengthened to avoid ensure the selection of the most suitable contractors. Procurement efficiency should also be enhanced in future projects.

Reducing the number of tranches can cut administrative costs and implementation periods.

4 tranches may have been adequate to implement the investment program. This would have cut the program’s administrative cost and implementation period. ADB could consider building into the design of future MFFs the flexibility to reduce the number of tranches by increasing the scope and loan amounts of later tranches. Such a decision should be based on an evidence-based assessment that the PMUs are already capable of implementing fewer but larger tranches than envisaged at appraisal.

Background

In mid−2000s, Madhya Pradesh in central India suffered from high electricity losses and poor service levels due to antiquated electrical distribution systems, particularly in the rural areas. This was the result of many years of insufficient funding for the expansion and maintenance of the systems. Over time, the decades-old wiring and equipment caused numerous and prolonged power outages, low voltage, and an increasing inability to connect new consumers. Extensive power theft because of illegal connections and a lack of metering exacerbated the problem. As the state’s population grew and farmers relied increasingly on irrigation, the need for better power distribution became urgent.

In response, the government of Madhya Pradesh developed a road map that called for the expansion of the power transmission system and systemic refurbishment of the distribution system. Following the restructuring of the Madhya Pradesh State Electricity Board that created 5 independent generation, transmission, and distribution companies, the state government, through the Ministry of Finance, requested for a $620 million-loan from the Asian Development Bank (ADB) to cover part of the $1 billion investment requirement of the road map.

The Madhya Pradesh Power Sector Investment Program was developed as a multitranche financing facility (MFF) to facilitate individual loans to the transmission and distribution companies over 5 years. It was delivered in 6 tranches, developed as individual loans, with each loan supporting a specific project. Approved in August 2007 for a loan of $166 million, project 5 focused on expanding and improving the distribution systems in the rural areas. It also supported institutional and capacity development of the 3 distribution companies (DISCOM) earlier created.

Although some changes and reductions in works were made, the outputs identified at appraisal were generally achieved by DISCOM−C in the central part of the state, DISCOM−E in the eastern part, and DISCOM−W in the west. New high-voltage distribution systems were constructed; inefficient low-voltage lines were converted to high-voltage lines; aged transformer substations were renovated and modernized, and new ones were built; and information technologies were enhanced through the introduction of a supervisory control and data acquisition system and transformer metering.

Technical optimization was ensured to improve the project design based on actual conditions. Tapping at the nearest connection, which reduced the length of distribution lines to be converted, and the use of global positioning system (GPS) in surveys and testing were successfully shown as good examples of technical optimization in rural electrification. Overall, the project helped alleviate electricity shortage and improve system reliability. The resulting improved services fostered economic growth and better living conditions in the project areas.

Implementation took longer than estimated, due to the unforeseen long time it took for the distribution cable and equipment to be procured and the termination of 12 works contracts. Appraisal cost estimate was $270.20 million but actual project cost totaled $163.80 million. Utilized ADB loan was $134.1 million.

ADB’s South Asia Department rated the project successful. DISCOM−C, DISCOM−E, and DISCOM−C were the executing agencies. A dedicated project management unit in each DISCOM took charge of implementation.

Project Information

Project Name:

Madhya Pradesh Power Sector Investment Program (Tranche 5)

Report Date:

July, 2017

Main Sector:

Energy

Country:

India

Project/Modality:

Loan

Themes:

Environmentally Sustainable growth

Inclusive Economic Growth

Governance and Capacity Development

No gender elements

Sub Sector:

Electricity transmission and distribution

Report Rating:

Successful