Pakistan: Power Distribution Enhancement Investment Program – Tranche 3 | Lessons by Independent Evaluation, Asian Development Bank

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Lessons

Strong alignment of project outputs with the outcome and impact specified in the design and monitoring framework (DMF) promotes better performance and performance ratings.

Albeit with some delays, this project successfully delivered its planned outputs, mostly in excess of targets. Despite this, it was not given the highest performance rating primarily because some impact and outcome targets set out in the DMF were not achieved. In future, care should be taken to ensure that the impact and outcome targets specified in the DMF are fully supported by and well aligned with the planned outputs. Weak alignment of indicators and targets in the results chain can lead to a lower performance rating even if the project ends up with delivering more outputs than initially intended.

Project Cycle Stage:

Preparation

Early implementation support, especially in situations where the executing agency (EA) is unfamiliar with the project delivery approach, is crucial to the timely implementation of projects.

The use of turnkey contracts in this project was new to the EA. The facility management consultant (FMC) tasked with preparing and providing management support for the delivery of these contracts was appointed almost 1.5 years after project approval and lasted for only 1 year due to poor performance. A new firm was hired 1.5 years after the termination of the previous FMC. The absence of consultants during the interim delayed the finalization of the engineering design for turnkey subprojects and the completion of related safeguards documentation in previous tranches. Had experienced implementation support been available sooner, the time required to put in place the turnkey projects could have been reduced.

Project Cycle Stage:

Implementation

Having a dedicated project manager is crucial to implementation success.

The project management unit (PMU) of each of the eight distribution companies (DISCOs), which served as implementing agencies (IA), was organized along functional lines, without a clear project responsibility system. Project management thus tended to be reactive, and this made the project prone to delays. In situations where activities such as planning, design, procurement, and construction are delegated to various departments and undertaken by persons not directly reporting to the PMU, it would be of key importance to assign a dedicated project manager to assume responsibility for, take ownership, and ensure the successful completion of the project.

Project Cycle Stage:

Preparation

Implementation

Early implementation of capacity-related risk mitigation measures strengthens a project’s potential for success.

Project implementation was characterized by several challenges stemming from lack of capacity in the executing agency (EA) and implementing agencies (IAs). Advance contracting was expected for the project’s turnkey and equipment packages, but this did not happen. Right-of-way, land acquisition, and safeguard issues hampered the timely implementation of several subprojects. Delays in the submission of audited financial statements were also encountered. These challenges can be minimized in future projects through the conduct of a thorough and comprehensive EA and IA capacity assessment and the early implementation of capacity-related risk mitigation measures. Procurement risks may also be further mitigated through proper contract packaging, which carefully considers the market and existing capacity in the EA/IA, and the augmentation of said capacity through consultancy arrangements.

Project Cycle Stage:

Preparation

Implementation

The multitranche financing facility (MFF) modality has the flexibility to enable borrower governments and power sector companies to effectively respond to the multiple and ever-growing investment requirements in the energy sector.

Of the total $245 million loan approved for the project, $32.19 million was cancelled. The cancelled amount represented $13.80 million in savings and $18.39 million in unconsummated payments due to still outstanding balances in civil works, as of project completion. As the government financed all the remaining works under the project, the entire cancelled amount was effectively freed for use in other ongoing and subsequent tranches of the MFF. This demonstrates the suitability of the MFF in financing the type of investments required by a distribution asset operator, which is often faced with the pressing need to finance multiple projects amid the increasing demand for electricity in most countries. The 10-year availability of the MFF allows for subprojects that become ready or more urgent to be picked up by earlier tranches. In some cases, delays caused by technical challenges can be remedied by transferring a subproject to subsequent tranches.

Project Cycle Stage:

Preparation

Background

In May 2005, the government of Pakistan began implementing a series of integrated activities to ensure adequate power supply to meet the projected 8% annual economic growth set out in its Medium-Term Development Framework, 2005−2010. Subsequently, in coordination with the Ministry of Water and Power, the power distribution companies (DISCOs) prepared the Power Distribution Sector Road Map, which recommended short- (priority), medium-, and long-term system improvement projects and detailed the investment needs. The total investment requirement for the DISCOs from 2008 to 2017 was estimated at $5.2 billion. The investments were to consist of improvements in the secondary transmission grid, power distribution, and energy loss reduction, to realize which the government sought financing from the Asian Development Bank (ADB), World Bank, and other multilateral and bilateral funding agencies.

In response, ADB approved an $810 million multitranche financing facility (MFF) for the Power Distribution Enhancement Investment Program in September 2008. To be provided in four tranches, the MFF focused on addressing distribution capacity shortfalls that at the time resulted in regular system outages and supply interruptions. The third tranche, covered by this report, supported physical investments to upgrade the secondary transmission systems through (i) i) new or upgraded substations, (ii) new transmission lines, and (iii) additions or augmentations to transformers within existing substations. It was approved for a loan of $245 million in December 2012 and was envisaged to finance 106 subprojects that were to add 1,881 megavolt amperes (MVA) of transformer capacity and 791 kilometers (km) of new transmission lines and upgrade 399 kilometers (km) of the existing 66 kilovolt (kV) and 132 kV transmission lines. To utilize loan savings, the number of subprojects was raised twice during implementation of the tranche 3 project: to 117 in August 2015 and 128 in September 2017, 93 of which were completed by the tranche and MFF closing date of 30 June 2018. The government financed the remaining 35 unfinished subprojects, 23 of which were completed in May 2019 and the rest are targeted for completion in September 2019.

At completion, the project achieved its intended outcome of rehabilitated, augmented, and expanded power distribution systems, exceeding 2 of its 3 outcome targets. Against the revised target of 2,396 MVA, 3,496 MVA of additional distribution capacity was installed by 2018. Transmission and distribution losses were reduced from 20.5% in 2012 to 17.95% in 2017, against a target of 19.50%. The energy savings target was also substantially achieved, with the project saving 236.38 gigawatt-hours (GWh) of energy in 2017, as compared to its 274 GWh target.

Attainment of its intended outcome enabled the project to significantly contribute to removing distribution system constraints by 2018. Electricity sales consequently rose by 6,000 GWh during the same year. Village electrification rate increased from 76% in 2011 to 82% in 2017. Outages for 132 kV feeders, comprising 94% of the project scope, were reduced by 81% between 2012 and 2017, although overall outages in the Pakistan Electric Power Company (PEPCO) system declined by just 3%. Overall thus, the project was able to achieve its envisaged impact to provide reliable and quality power supply and expanded service coverage.

PEPCO was the project executing agency and the country’s eight DISCOs were the implementing agencies.

Project Information

Project Name:

Power Distribution Enhancement Investment Program – Tranche 3

Report Date:

September, 2019

Main Sector:

Country:

Project Number:

Report Type:

Project/Modality:

MFF

Themes:

Inclusive Economic Growth

SDG:

Goal 9: Industry, Innovation, and Infrastructure

Goal 8: Decent Work and Economic Growth

Sub Sector:

Electricity transmission and distribution

Loan Number:

2972

Source of Funding:

OCR

Date Approved:

14 December 2012

Report Rating:

Successful

Lessons