Learning Curves

IED

EnergySectorintheGreater MekongSubregion

March2009

Thisreportpresentsthefindings,lessons,andrecommendationsofanindependentassessmentof ADBsassistancetotheenergysectorduring19922007intheGreaterMekongSubregion(GMS), comprisingCambodia,LaoPeoplesDemocraticRepublic,Myanmar,GuangxiZhuang AutonomousRegionandYunnanProvinceinthePeoplesRepublicofChina,Thailand,and VietNam. Theevaluation1foundthatADBsGMSenergyprogramhasresultedinsignificanteconomicbenefits totheparticipatingcountries.AnimportantapparentbenefitoftheGMSenergyprogramhasbeen thedemonstrationeffect.Thereisclearevidencethatinvestorconfidenceinundertakingpower exportprojectsintheregionhasrisenstronglyinrecentyears.

Background TheGreaterMekongSubregion(GMS)countries havediverseenergyresourcesthatareunevenly distributedamongthemembercountries.Althoughthe subregioniswellendowedwithhydropowerandfossil fuelresources,mostoftheexploitableresourcesare locallyconcentrated. TheinstitutionalsetupoftheGMSenergyprogram hasevolvedoverthepast15years.Therearenowtwo separateinstitutionalstructures:theEnergySector ForumandtheRegionalPowerTradeCoordination Committee. Theenergysectoristhesecondlargestsectorinthe GMS,afterthetransportsector.Thetotalenergy investmentcostsundertheGMSprogramhave amountedto$1.7billion,17%ofthetotalGMSproject costsof$10.3billion.Todate,AsianDevelopmentBank (ADB)hasprovidedabout$185.4millionadditional andconcessionaryassistancefortheGMSenergysector, ofwhich95%($176.3million)areloans,while$9.1 millionaretechnicalassistance(TA)grants.ADB lendingtothesectorhasconsistedoffourloans:three totheLaoPeoplesDemocraticRepublic(LaoPDR)and onetoCambodia.Threeoftheloansfinancedthe constructionofhydropowerstationsintheLaoPDR aimedatexportingpowertoThailand:theNamLeuk HydropowerProject(surplusenergy),theTheun HinbounHydropowerProject,andtheNamTheun2 HydropowerProject.Inaddition,anotherloan,the
Independent Evaluation Department Asian Development Bank

GMSTransmissionProject,financedtheconstructionof powertransmissioninfrastructureinCambodialinking PhnomPenhwiththeborderofVietNam.TheGMS energysectorhasreceived17TAgrantsamountingto $9.1million,ofwhichninehavebeenforproject preparation.AdvisoryTAhasfocusedmainlyon assistingthesubregionalEnergyPowerForum, preparinganindicativeregionalmasterplan, formulatingtradeagreements,developingaGMS energysectorstrategy,andaddressingissuesrelatedto environmentallysustainabledevelopmentofelectricity infrastructureintheGMS. SummaryofFindings TheoverallratingfortheADBassistanceduringthe evaluationperiodissuccessful.TheGMSprogramhas grownovertheyearstobecomeamajorregional cooperationinitiativeofADB,andtheGMScountries.It hasresultedinsignificanteconomicbenefitstothe participatingcountriesandhascontributedtorising investorconfidenceinundertakingpowerexport projectsintheregion. ThetopdownassessmentoftheGMSenergysector strategyisratedsuccessful,withsomeareasneeding improvement.TheGMSenergyprojectswereallpriority projectswithintheindividualgovernmentpublic investmentprogramsandtheGMSenergyprogramis fullyinlinewithADBssectorandthematicpriorities. Thesequencingofenergysectoractivitiesisconsidered

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appropriateandcoordinationintheenergysectorhas beengood.TheGMSprogramhasservedasaplatform, resultinginmutualbenefitsthatwouldotherwisebe unavailablesolelythroughnationalinitiativesor projectssothatthevalueadditionoftheGMSenergy sectorisratedsubstantial. ADBperformedbestincoordinatingwithother developmentpartnersandcapacitybuilding.Foraid coordination,ADBandtheWorldBankhaveworked closelyontheGMSenergyprogramsinceitsinception, andbyallaccountsithasbeenagoodpartnership. ThebottomupassessmentofADBsassistanceto theGMSenergysectorisbasedontheTheunHinboun (19941998)andtheNamLeuk(19962002)projects. TheGMSprogramisratedhighlyrelevantand effective.TheGMSprogramsupportedADBsEnergy Policyandcontinuestobeconsistentwithcurrent policy,whichhasregionalcooperationasacontinuing objective.Thetwohydropowercaseprojects,achieved most,ifnotall,oftheirplannedoutputs/outcomes. Withtheireconomicinternalratesofreturns reestimatedandbasedontheseandimplementation delays,theNamLeukProjectisassessedaslessefficient andTheunHinbounProjectisassessedasefficient. Giventherelativeimportanceoftheprojectsinthe sector,overall,theGMSenergysectorisrated efficient. Overall,theGMSenergyoperationisratedlikely sustainable.TheunHinbounisconsideredphysically sustainable,providedpreventivemaintenanceis continued.Thereestimatedfinancialinternalrateof returnfortheNamLeukProjectisaround4%,whichis sufficienttocoverthecostofcapitalbutnotsufficientto covertaxespayablebyElectricitduLaos,raising concernsabouttheprojectssustainability.The willingnesstopayestimateimpliesthatthereis considerableconsumersurplusintheLaoPDR,which couldbetappedthroughtariffincreasesandcould improvethefinancialviabilityoftheproject. Significantpositiveimpactsmainlybenefitingthe tradingcountriesLaoPDRandThailandintermsof revenues,accesstoelectricity,employment,and improvedinfrastructurearealreadyevident. Whileperformancewasratedsuccessful,thereare someareasneedingimprovement.ADBhasbeenrela tivelylessproactiveincoordinatingwithotherdevelop mentpartnersintheenergysector,suchastheMekong RiverCommission,mainlyduetotheCommissions lackofcapacitytoimplementitshydropowerstrategy andprogram,andtheAssociationofSoutheastAsian Nations.However,thereisgoodscopeforfuture
Learning Curves available @ www.adb.org/evaluation/

collaborationtoimprove.Addressingproblemsthatlead tohighsystemlosseswouldalsoincreasethelikelihood oftheGMSenergyprojectssustainability. Theevaluationidentifiessomelessons,including (i)effectiveinstitutionalarrangementswithstrong governmentownershippromoteandenhanceco operationamongmembercountries;(ii)theGMSenergy programsinternalandinterprogramcoordinationwith othersectorscouldstillbeimproved;and(iii)thereisa needtoenhancetheinstitutionalandpolicyframeworks ofmembercountriestoensurethatenvironmentaland socialcostsinenergysystemsremainreasonable. Recommendations

Theevaluationmaderecommendationstothefollowing strategicareasofADBsoperationsintheGMSenergy sector: Promoteotherenergyinvestmentsbesidespower trading.Moreattentionshouldbegivento supportingotherenergyinvestmentsbesidespower trading,consistentwithADBsinitiativesforenergy efficiencyandclimatechange. Expandcofinancing.ADBshouldbemorestrategic inprovidingassistancebyleveragingits concessionalresourcestomobilizefinancingfrom theprivatesectorandotherdevelopmentpartners. Payattentiontosafeguardimplementation.More creativityandflexibilityareneededinaddressing safeguardimplementationonhighimpactenergy projects.

Feedback ADBManagementsresponseappreciatesthestudy andagreeswiththeoverallassessment,conclusion,and recommendationsmade.Managementnotedthat significanteconomicbenefitshavealreadyflowedfrom bilateralpowerarrangementsevenifmultilateralpower tradingmaystilltakeanotherdecadetoberealized. ManagementagreedthatADBassistancetotheenergy sectorshouldbemoremindfuloftheneedtoaddress socialandenvironmentalcosts.WhentheseLearning CurveswerepreparedChairsSummaryofthe DevelopmentEffectivenessCommitteeDiscussions wasnotavailablefordisclosuretothepublic.Thestudy wascompletedinDecember2008.
1

ADB.2008.EnergySectorintheGreaterMekongSubregion. SectorAssistanceProgramEvaluation.Manila.Available: www.adb.org/Documents/SAPE/REG/SAPREG2008 51/SAPREG200851.pdf

Team Leader: Marco Gatti, Tel +63 2 632 6306, mgatti@adb.org