Pakistan: Power Distribution Enhancement Investment Program- Tranche 1

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Lessons

Adequate equipment and timely implementation and updating of expansion plans are required to maintain and ensure the reliable and efficient operation of project assets.

The assets installed under this project require regular maintenance and overhaul to ensure their reliable and efficient operation. Most project transformers are already heavily loaded, and the load will continue to increase if augmentation or expansion is not done on time. Updating of expansions plans is therefore necessary to ensure adequate capacity and electricity supply to consumers. So is the provision of adequate maintenance equipment to ensure smooth operation of the assets. As effective and timely technical support for grid station managers would avoid the need to replace equipment and improve the sustainability of the project and distribution company ((DISCO) operations, maintenance support arrangements such as having experts readily available to advise station managers on equipment failures need to be explored.

Project Cycle Stage:

Completion and Evaluation

A thorough assessment of the existing human resource and institutional capacities in the executing and implementing agencies (EAs/IAs) is crucial to the successful implementation of projects.

The DISCOs that implemented this project lacked basic understanding of ADB project administration policies and processes, a major challenge that led to subproject delays. Significant delays were also noted in several important activities such as the opening of letters of credit, nomination of inspection team members to witness type tests and pre-shipment inspections, and approval of design drawings and data specifications. Obvious weaknesses in decision making and contract management and the need to hire a second financial management consultant because of nonperformance by the first firm exacerbated the problems. So did the persistent understaffing of project management units, lack of authority of the project staff, and the frequent transfer of trained staff members to other units of their organizations. A careful assessment of the existing EA/IA capacities and institutional issues that could hamper the implementation of the project should have been undertaken during the design stage. This would have enabled the preparation and subsequent execution of measures to mitigate the risks associated with EA/IA capacity and institutional issues, including the realignment of functions, human resource allocations, training and capacity building, and targeted implementation support from ADB and other relevant agencies. (Preparation, Implementation: power distribution projects, EA/IA capacity assessment, EA/IA capacity development, project staffing, implementation arrangements)

Project Cycle Stage:

Preparation

Implementation

The multitranche financing facility (MFF) modality is most suitable for the type of investments required by a distribution asset operator.

There are multiple projects to be financed with ever-changing demand. The availability of guaranteed funds that may be drawn over up to 10 years under the MFF modality allows for subprojects that are ready or more urgent to be absorbed by earlier tranches. Delays caused by technical challenges can be remedied by transferring the subproject to subsequent tranches and transfer of cancelled loan amounts to subsequent tranches may be done. Furthermore, the MFF modality as a long-term financing approach has helped establish a more conducive environment for IA capacity building in project related matters including safeguards and procurement. In addition to the more positive project planning and preparation cycles of different tranches, this modality also helped in ensuring proper funding support amid the DISCOs’ overall unpredictable budgeting environment, and such is most suitable for their needs.

Project Cycle Stage:

Preparation

Continuous monitoring of project expenses against the budget baseline will help ensure efficient financial management and support better estimation of future project costs.

This project’s budget was overestimated, therefore resulting in some loan surplus. Part of the surplus was utilized for new subprojects while the remaining amount was cancelled. Building on this experience, the DISCOs’ design and procurement departments have decided to coordinate and maintain a database of all equipment purchased along with associated costs. This database will be regularly updated. They have also agreed to continuously monitor project expenses against the budget baselines to ensure efficient financial management as well as allow for better future project estimations.

Project Cycle Stage:

Preparation

Implementation

Background

In May 2005, the government of Pakistan started implementing a series of integrated activities in line with the power sector development strategy it adopted under its Medium-Term Development Framework, 2005–2010. The strategy envisaged additional power generation, transmission, and distribution capacities to ensure sufficient electricity supply to meet the projected 8% per annum growth over the plan period. Subsequently, the power distribution companies (DISCOs), in coordination with the Ministry of Water and Power, prepared the Power Distribution Sector Road Map 2008–2017. The road map 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 government sought financing from the Asian Development Bank (ADB), the World Bank, and other multilateral and bilateral funding agencies to meet this requirement. In response, ADB approved the Power Distribution Enhancement Investment Program, a multitranche financing facility (MFF) for $810 million. Tranche 1 of the MFF was approved in September 2008, comprising two loans worth $252 million. Tranche 1 project’s envisaged impact was improvement in the distribution infrastructure and management. Its intended outcome was removal of power system bottlenecks, resulting in the reduction of transmission and distribution losses through distribution system rehabilitation, augmentation, and expansion covering the eight DISCOs.

The project included physical investments in subprojects covering (i) secondary transmission grid (STG) augmentation, extension, conversion, and rehabilitation; (ii) STG transmission lines; and (iii) energy loss reduction through the installation of capacitors. Its aggregate expected output was the completion of 146 subprojects adding 2,200 megavolt-amperes (MVA) of transformer capacity, reduction in losses, increase in reliability, and improvement in power quality. Because of savings, 180 subprojects were completed by project closing. Through these subprojects, 2,588 MVA of transformer capacity and 24 kilometers (km) of transmission lines were added to the system. The outputs have supported operational load and system management, ensured more reliability and quality of power supply, improved voltage profiles, and reduced energy losses. More importantly, the outputs have enabled the DISCOs to serve more customers and provide relief to the existing overloaded network, improving electricity sales and revenues.

For medium- and low-voltage networks, 23 subprojects to reduce energy loss and improve distribution were successfully executed. Besides distribution capacitors, they comprised distribution transformers, construction equipment, switchgear, energy meters, and maintenance equipment, altogether causing energy losses to drop to 18.76% at project completion against the target of 20.60%.

At the impact level, the project helped to increase electricity sales by 11,000 gigawatt-hours (GWh) in 2015. This was 1,000 GWh short of the target, but nonetheless indicates good improvement in the electric distribution capability of the DISCOs. Village electrification rates improved substantially, increasing from 61.2% in 2007 to 79.7% in 2015, well above the 75% target. Overall outages in the Pakistan Electric Power Company (PEPCO) system were reduced by 9% in 2015 compared with 2009.

The Pakistan Electric Power Company (PEPCO) served as the executing agency, and the DISCOs, the implementing agencies.

Project Information

Project Name:

Power Distribution Enhancement Investment Program- Tranche 1

Report Date:

October, 2020

Main Sector:

Energy

Country:

Pakistan

Project Number:

38456-023