Pakistan: Power Distribution Enhancement Investment Program

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Lessons

Timely and adequate updates, regular maintenance, and a sufficiently skilled personnel complement are vital to the reliable and efficient operation of project assets.

The ADB project team noted that the new equipment installed, especially transformers, were heavily loaded within a year of commissioning. To meet the ever-growing consumer demand and keep losses to a minimum, the distribution companies (DISCOs) have to ensure timely and adequate upgrades to the power systems. Assets installed under the program also require regular maintenance and overhauls to ensure reliable and efficient operation. Although the program included supply of some operation and maintenance equipment and trainings, the DISCOs must ensure that adequate staff and equipment are available and used in a timely manner. DISCOs could explore having experts readily available to advise station managers on equipment failures as a maintenance support arrangement. (Completion: sustainability power distribution projects, O&M power distribution projects)

Project Cycle Stage:

Completion and Evaluation

Addressing potential capacity constraints, which could risk timely implementation, requires the conduct of a thorough capacity assessment during project preparation.

A major challenge leading to the delay of subprojects was the DISCOs’ lack of understanding of ADB project administration policies and guidelines. Weak contract management and delayed action on important project requirements such as the opening of letter of credit, nomination of inspection team members to witness type tests and pre-shipment inspections, approval of drawings and design data also held up implementation. So did weak decision making and the need to hire second financial management consultant firm due to nonperformance by the first firm. In cases where the executing agency is unfamiliar with the project delivery approach planned at appraisal, it would be helpful to conduct a capacity assessment exercise that would give a better picture of the challenges at hand. This way, appropriate actions and capacity-building exercises can be planned to fill the gaps identified.

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.

The MFF modality is considered suitable for the needs of this program’s DISCOs and resulted in the effective implementation of the individual tranche projects. The transfer of canceled loan amounts to subsequent tranches allowed new subprojects to be identified and added to the program. This flexibility enabled greater utilization of the allocated funds for the program. Delays caused by technical challenges were remedied by transferring a subproject to subsequent tranches. Equally important, the MFF’s long-term financing approach has helped establish a more conducive environment for IA capacity building in project related matters including safeguards and procurement.

Project Cycle Stage:

Preparation

Background

In May 2005, the government of Pakistan began implementing a series of integrated activities in line with the power sector development strategy set out in its Medium-Term Development Framework. That framework envisaged additional power generation, transmission, and distribution capacities to ensure sufficient electricity supply to meet the 8% annual economic growth projected for the planning period 2005–2010. Subsequently, in coordination with the Ministry of Water and Power, the power distribution companies (DISCOs) prepared the Power Distribution Sector Road Map for 2008–2017. The road map recommended short- (priority), medium-, and long-term system improvement projects and detailed the investment needs.

The government sought financing from the Asian Development Bank (ADB), the World Bank, and other multilateral and bilateral funding agencies to meet the investment requirement for the DISCOs, estimated at $5.2 billion. In response, ADB approved a multitranche financing facility (MFF) of up to $810 million for the Power Distribution Enhancement Investment Program. The program comprised four projects with five loans, involving (i) the augmentation and extension of 132-kilovolt (kV) power transformers at secondary transmission grid (STG) substations, (ii) construction of STG substations, (iii) construction of transmission lines, (iv) reduction of energy loss through the replacement of overloaded distribution transformers with higher-capacity ones and the improvement of power distribution through additional transformer capacity on the 11 kV feeders, and (v) establishment of strategic spares (spare power transformers for emergencies).

The program completed all four tranches as planned. Tranche 1, comprising two loans totaling $252.0 million, covered (i) the augmentation, extension, conversion, and rehabilitation of the STG; (ii) construction of STG lines; and (iii) installation of capacitors to reduce energy loss. Tranche 2, with one loan for $242 million, supported (i) the continued augmentation, extension, conversion, and rehabilitation of the STG; (ii) continued construction of STG transmission lines; and (iii) continued installation of capacitors to reduce energy loss. Tranche 3, a single loan of $245 million, supported (i) the augmentation, extension, conversion, and installation of substations; and (ii) conversion, replacement, and extension of STG lines. Tranche 4, a loan for $167.2 million, financed components of the development road map and expansion of the distribution sector.

Most of the program’s subprojects were commissioned within the respective project completion dates. The 796 subprojects that were completed resulted in a 17,399 megavolt-ampere increase in throughput capacity and a 2,112 km increase in the length of transmissionlines throughout Pakistan. Of its four tranches, the MFF’s last tranche had the most profound impact on the DISCOs’ power distribution network. Its outputs included (i) the augmentation of 181 substations; (ii) the extension of 111 substations; (iii) the commissioning of 5 substations; and (iv) the conversion of 6 substations. All the targets were surpassed owing to the effective utilization of savings.

Enhanced capacity at 636 stations substations and the construction of 35 new ones and additional transmission lines resulted in a more reliable and efficient power distribution network and contributed to the successful implementation of the village electrification program, with 85.2% of villages electrified by 2018. They also increased the sales of the DISCOs, with benefits accruing to commercial and residential customers, as well as villages, schools and hospitals. The program’s indirect impacts included an increase in income and job opportunities, which helped increase the growth in real gross domestic product from an average of 3.6% in 2007–2015 to 5.3% in 2016–2018. The DISCOs’ restructuring was completed, and as of program completion, they have operated as independent entities after their unbundling from the Water and Power Development Authority.

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

Project Information

Project Name:

Power Distribution Enhancement Investment Program

Report Date:

October, 2020

Main Sector:

Energy

Country:

Pakistan

Project Number:

38456-013

Report Type: