Technical Assistance Report

Project Number: 38456 November 2006

Islamic Republic of Pakistan: Preparing the Power Distribution Enhancement Multitranche Financing Facility
(Financed by the Japan Special Fund)

The views expressed herein are those of the consultant and do not necessarily represent those of ADBs members, Board of Directors, Management, or staff, and may be preliminary in nature.

CURRENCY EQUIVALENTS (as of 16 November 2006) Currency Unit PRe1.00 $1.00 = = Pakistan rupee/s (PRe/PRs) $0.0165 PRs60.73

ADB CSPU ESA FESCO GESCO HESCO IESCO IA kV LESCO MESCO MOWP NEPRA PEPCO PESCO PPTA QESCO TA WAPDA

ABBREVIATIONS Asian Development Bank country strategy and program update environmental and social assessment Faisalabad Electric Supply Company Gujranwala Electricity Supply Company Hyderabad Electric Supply Company Islamabad Electric Supply Company implementing agency kilovolt Lahore Electric Supply Company Multan Electric Supply Company Ministry of Water and Power National Electric Power Regulatory Authority Pakistan Electric Power Company Peshawar Electric Supply Company project preparatory technical assistance Quetta Electric Supply Company technical assistance Water and Power Development Authority

Targeting Classification Sector Subsector Theme Subtheme

TECHNICAL ASSISTANCE CLASSIFICATION General intervention Energy Transmission and distribution Sustainable economic growth Fostering infrastructure development

(i)

NOTES The fiscal year (FY) of the Government and its agencies ends on 30 June. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2006 ends on 30 June 2006. In this report, "$" refers to US dollars.

(ii)

Vice President Director General Director

L. Jin, Group Operations 1 J. Miranda, Central and West Asia Department S. OSullivan, Infrastructure Division, Central and West Asia Department (CWRD) R. Stroem, Principal Energy Specialist, CWRD A. Aleem, Programs Officer, Pakistan Resident Mission L. Blanchetti-Revelli, Social Development and Resettlement Specialist, CWRD S. Tu, Environmental Specialist, CWRD

Team leader Team members

I.

INTRODUCTION

1. Project preparatory technical assistance (PPTA) for the Power Distribution Enhancement Multitranche Financing Facility is included in the 20062008 country strategy and program update1 (CSPU) of the Asian Development Bank (ADB). An ensuing loan project is included in the lending program for 2007. The ADB Fact-Finding Mission visited Pakistan from 9 to 17 March 2006, and reached an understanding with the Government concerning the objective, scope, costs, financing, implementation arrangements, and the consultants outline terms of reference for the PPTA.2 The PPTA design and monitoring framework is provided in Appendix 1. 2. Pakistans eight distribution companies3 were established through a restructuring and unbundling of the power wing of the Water and Power Development Authority (WAPDA). Distribution companies are responsible for channeling electricity from the transmission substations at 132 kilovolts (kV) to the consumers. The end users are classified as bulk, industrial, commercial, or household consumers. The distribution network is composed of lines and grid stations of 132kV and lower voltage capacities, and each distribution company is responsible for constructing, operating, and maintaining the power distribution facilities within each dedicated geographic area. As of mid-2005, the distribution system of Pakistan consisted of 28,196 kilometers (km) of 132kV lines, 7,552 km of 66kV lines, 212,929 km of 11kV lines, 149,985 km of 0.4kV lines, 457 132kV substations, and 195 66kV substations. Overall, the distribution system is overstressed, and needs to be upgraded, augmented, and expanded. In addition, the financial health and sustainability of the distribution companies need to be assessed, as technical and non-technical losses are depleting the companies. II. ISSUES

3. Pakistans Medium-Term Development Framework 20052010 4 (MTDF) sets out a challenging infrastructure investment program, in order to achieve a consistent 8% annual growth in gross domestic product (GDP). The overarching goal of the Government is poverty reduction through economic development. An increase in the supply of infrastructure services creates economic opportunities in both urban and rural areas. As the power sector is a fundamental component of the infrastructure sector, the distribution system needs to be strengthened and expanded to support the Governments economic growth target and its poverty reduction efforts. 4. Electricity demand in Pakistan is forecasted to grow by 8.3% a year during 20052015. To cope with this growth in demand, it is estimated that Pakistan will require an additional 2,000 megawatts (MWs) annually, which will need to be evacuated through the transmission and distribution systems. Substantial investments will be needed to strengthen the distribution system to (i) handle the power generated by additional power plants, and (ii) rehabilitate and augment the current system to maintain the current electricity supply to meet the growing demand. The eight distribution companies have individual development programs for 2005 2012. The Government has approved several schemes included in these programs.
1 2 3

ADB. 2005. Country Strategy and Program Update (2006-2008): Islamic Republic of Pakistan. Manila. The TA first appeared in ADB Business Opportunities on 12 April 2006. The eight distribution companies are as follows: Faisalabad Electric Supply Company (FESCO), Gujranwala Electricity Supply Company (GESCO), Hyderabad Electric Supply Company (HESCO), Islamabad Electric Supply Company (IESCO), Lahore Electric Supply Company (LESCO), Multan Electric Supply Company (MESCO), Peshawar Electric Supply Company (PESCO), and Quetta Electric Supply Company (QESCO). Planning Commission of the Government of Pakistan. 2005. Medium-Term Development Framework (20052010). Islamabad.

2 Investments are required to ensure that the high number of customers needing electricity are connected without delay. Pending applications for electricity connection was 163,071 as of June 2005, implying substantial investment would be required including consumer meters. 5. The official transmission and distribution losses in Pakistan were 22.7% in fiscal year (FY) 2004; distribution losses accounted for 15.3%. Substantial losses in the distribution system are caused by (i) shortage of distribution lines and transformers, (ii) insufficiently long distribution lines, (iii) inadequate voltage profile of distribution system, and (iv) a large number of unmetered customers. Distribution losses need to be reduced to attain efficient power supply. To ensure (i) reliable and high-quality electricity supply to all customers, and (ii) an efficient distribution system, the scope of work of the ensuing loan needs to include investments in subprojects for enhancement, rehabilitation, and expansion of the distribution systems of all distribution companies. 6. From experience, delays in preparing environmental and social assessment (ESA) reports are particularly pronounced. The following issues need to be addressed: (i) strengthening distribution companies capacity and ability to address ESA issues, and (ii) the need for implementation consultants that would assist the distribution companies in completing ESAs on time. The distribution companies have been informed that no subproject can be evaluated or approved unless there is a satisfactory environmental impact assessment and summary environmental impact assessment inclusive of resettlement plans as appropriate. 7. Financial restructuring and sustainability of the distribution companies are major concerns. The World Bank, which has traditionally been the lead agency in this regard, is driving the interaction with the distribution companies, the Pakistan Electric Power Company (PEPCO), 5 WAPDA, and the Government to ensure progress in these areas. The balance sheets of WAPDA and the successor companies, inclusive of the distribution companies, were restructured by reflecting the past conversions of debt into equity in their balance sheets. As a result of this, and additional debt-to-equity swaps for some distribution companies, all of the distribution companies now have positive net worth and equity-to-debt ratio of at least 20:80. This important action should make it easier for distribution companies to approach commercial lenders, develop more sustainable financial recovery plans, and undertake investment projects. However, it will also depend on the new tariffs,6 as well as on the ability of the companies to accurately meter, bill, and collect from each customer. The National Electric Power Regulatory Authority (NEPRA) and the Ministry of Water and Power (MOWP) are in the process of finalizing the tariff for each distribution company. During the implementation of the PPTA, the tariffs will be reviewed and assessed together with other financial and economic parameters. 8. The determination and notification of a specific tariff for each distribution company is still pending. A full financial assessment of the distribution companies cannot be conducted at this time, but the tariffs should be in place by the time the PPTA is being implemented. Accordingly, a financial assessment of the distribution companies will be done under the PPTA. A preliminary assessment undertaken by the World Bank showed that based on the existing tariffs, Hyderabad Electric Supply Company (HESCO), Multan Electric Supply Company (MESCO), Peshawar Electric Supply Company (PESCO), and Quetta Electric Supply Company (QESCO) would be unable to meet operational expenditure and debt service requirements. They would not have any internal resources to finance investments and, accordingly, would not be viable
5

The Pakistan Electric Power Company (PEPCO) was established in 1998 to oversee and drive the restructuring and unbundling of the power sector and in particular the unbundling of WAPDA. The Chairman of PEPCO holds all the shares on behalf of the President of Pakistan, in the unbundled entities. With the existing tariffs, several distribution companies are not financially viable.

3 borrowers. It is expected that these financial issues will be addressed in the tariff determination process. 9. Public sector intervention is the optimal financing modality at this time. Distribution companies are not yet at the point where at least the more advanced distribution companies can be privatized. One distribution company, Faisalabad Electric Supply Company (FESCO), is part of the Governments privatization program, and the privatization advisor has brought the transaction to a relatively advance state. However, without a specific tariff determination and notification for FESCO, attracting private energy sector companies to bid for FESCO will be difficult. To ensure the timely development of the distribution subsector countrywide, and accommodate the individual development of each distribution company, a multitranche financing facility modality will provide the required flexibility for the individual distribution companies and the subsector as a whole. At the same time, it will also ensure incentives through access to capital when required, after meeting predetermined milestones for successive tranches. 10. The PPTA would need to discuss rural electrification with MOWP to ensure a predictable future for the distribution companies in terms of rural-electrification developments. Rural electrification is generally not financially viable for distribution companies because it requires construction of relatively long distribution lines from the grid system to low-density areas. An effective rural-electrification policy that includes subsidies would be required. 11. Although Pakistan has a well-established power sector regulator that has received ADB capacity-building support in the past, the relationship between NEPRA and the distribution companies should be evaluated to address deficiencies. This issue would be addressed during the implementation of the PPTA. III. A. Impact and Outcome THE TECHNICAL ASSISTANCE

12. The purpose of the PPTA is to support the Governments strategy for continued poverty reduction through sustained economic growth. The PPTA will assist in the preparation of a power distribution enhancement project to ensure a sufficient and stable power supply through the distribution system in Pakistan to the end consumers. The project will improve system stability and security, reduce losses, and improve the reliability of supply through (i) the construction and upgrading of 132 kV, 66 kV, 32 kV, and 11 kV distribution lines; (ii) construction of 132 kV substations and 66 kV substations; (iii) extension of 132 kV and 66 kV substations; (iv) and upgrading and installation of the metering system and meters. B. Methodology and Key Activities

13. Key activities to be undertaken under the PPTA cover four major areas: (i) technical project design; (ii) economic and financial evaluations; (iii) compliance with the national and ADBs safeguard policies; and (iv) links between economic growth, poverty, and the power sector. The four major areas will include the following scope. 14. For finalization of the technical project design, a detailed review of load forecasts will be undertaken to ensure least-cost technical design and economic viability of the proposed subprojects. Feasibility studies will be reviewed, and procurement plans will be prepared.

4 15. In addition to a financial analysis of the project, the financial management capabilities and the financial performance of the implementing agencies will be assessed. These financial management issues are important as the distribution companies have relatively recently been unbundled from WAPDA, and accordingly, separate financial management systems need to be developed for the distribution companies. Interaction with NEPRA would ensure full knowledge concerning the tariff application and determination matters related to the distribution operations of each distribution company and the power sector overall. In addition to an economic analysis of the project, economic subsidies involved in the current tariff structure and the extent of crosssubsidization between major consumer groups and regions will be analyzed. Existing estimates for costs of unserved energy due to unreliability of the system will be updated, and several scenarios for the load growth forecast of each distribution company will be developed. 16. To ensure compliance with ADBs safeguard polices for the environment and involuntary resettlement, field surveys will be undertaken along the planned alignment of the distribution lines, the sites of the new grid stations, and the access roads to identify any environmental impacts and to prepare an inventory of all land and project-affected households. Mitigation measures will be identified, implementation arrangements will be proposed, and cost estimates will be calculated. An initial environmental examination and a summary initial environmental examination will be prepared. A full resettlement plan will also be prepared since the temporary and permanent loss of productive means for affected persons could be significant. The resettlement plan will include design of public information, disclosure and grievance procedures, and costing of compensation. The projects impacts are not expected to cause any specific cultural or social impact on any socioeconomic group, including indigenous people, or exclude any from benefiting from the proposed subprojects. Therefore, no specific indigenous peoples plan is required. The summary initial social and poverty analysis is provided as Appendix 2. 17. To analyze the way in which the proposed distribution project is linked to poverty reduction, a detailed poverty analysis will be undertaken, making use of existing surveys and provincial data combined with field consultations. The assessment will be carried out at three levels: (i) direct, (ii) indirect, and (iii) macroeconomic effects. Particular attention will be paid to sector shifts in production activities and unskilled labor intensity of employment opportunities. Indicators for benefit monitoring will also be prepared. 18. The rationale for the proposed 132/66/33/11 kV distribution lines and the new 132kV and 66 kV substations is closely related to specific generation expansion projects. Thus, any delay in the construction of those plants, or a change in the location of the plants, would make the proposed investments in the distribution lines and substation unjustifiable. This is a potential risk for project economic and financial viability. C. Cost and Financing

19. The total cost of the PPTA is estimated at $1,100,000 equivalent. The Government has requested ADB to finance $900,000 equivalent. The PPTA will be financed on a grant basis by the Japan Special Fund, funded by the Government of Japan. The Government will finance the remaining $200,000 equivalent of local currency costs through in-kind contributions of the executing and implementing agencies. These will include office accommodation and facilities, local communication, counterpart staff, data, and other information needed for the PPTA. Detailed cost estimates are provided in Appendix 3. The Government has been advised that ADBs approval of the PPTA does not commit ADB to finance any ensuing project.

5 D. Implementation Arrangements

20. PEPCO, as the Executing Agency for the PPTA, has nominated each distribution company to be an implementing agency (IA). The distribution companies acquired varied levels of experience with implementing externally funded projects when they were bundled under WAPDA. PEPCO will assist the PPTA consultants in liaising with government ministries, agencies, provincial authorities, in obtaining data and documentation. PEPCO and IAs will liaise with MOWP and provinces affected by the proposed power distribution project to ensure coordination and understanding of the proposed project. It is also envisioned that the distribution companies will utilize additional assistance from the TA Loan for Infrastructure Development.7 An amount of $2.6 million has been allocated to the distribution companies under this facility. 21. The PPTA will require about 14 person-months of international and 62 person-months of national consulting services. The outline terms of reference for the consultants are provided in Appendix 4. The PPTA will be carried out over a 6-month period beginning in February 2007. At the initial stage of TA implementation, a workshop for provincial and district compensation councils will be held to determine the work to be undertaken by the consultants and ADBs requirements related to resettlement. Tripartite workshops (including the IAs) will be held after the submission of the inception, interim, and draft final reports. The consultants will prepare status reports for their specific scopes of work, highlighting any issues that could become critical for the timely completion of the PPTA. The consultants will arrange for other workshops and onthe-job training for IAs/MOWP staff and for provincial and local governments, as necessary. Three domestic consultant teams will each be assigned to work with three distribution companies, under the guidance of the international consulting team. The international consultants will have expertise in project and energy economics, financial analysis and financial management, power systems, and especially in distribution system planning, environmental impact assessment, resettlement, and other social issues. A consulting firm or consortium of firms will be engaged by ADB in accordance with its Guidelines on the Use of Consultants (April 2006). Recruitment of consultants will be under the quality and cost-based selection procedures, and simplified technical proposals will be requested. Equipment to be financed under the TA will be procured in accordance with ADBs Procurement Guidelines (April 2006). IV. THE PRESIDENT'S DECISION

22. The President, acting under the authority delegated by the Board, has approved the provision of technical assistance not exceeding the equivalent of $900,000 on a grant basis to the Government of Pakistan for preparing the Power Distribution Enhancement Multitranche Financing Facility, and hereby reports this action to the Board.

TA Loan No. 2178-PAK (ADB. 2005. Report and Recommendation of the President to the Board of Directors on a Proposed Technical Assistance Loan and Technical Assistance Grant to the Islamic Republic of Pakistan for Infrastructure Development. Manila, amounting to $25 million). Two components of the TA Loan are earmarked for the distribution companies: (i) institutional capacity building of the distribution companies in the areas of planning, project identification, development, and implementation; and (ii) specific preparatory work of subprojects intended for tranche II of the proposed multitranche financing facility.

Appendix 1

DESIGN AND MONITORING FRAMEWORK

Design Summary Impact Increased electricity supply, both quantity and quality, to all consumers Performance Targets/Indicators Amount of electricity supplied through the distribution network Reduced technical and non-technical loss of electricity in the distribution system Data Sources/Reporting Mechanisms Energy sector yearbook Assumptions and Risks Assumptions The Asian Development Bank (ADB) approves the project for financing. The Government and ADB sign loan documents. The project is implemented efficiently and effectively.

Energy sector yearbook

Outcome The design of and feasibility study for a power distribution enhancement project agreed by the Government and ADB Aide Memoire of the FactFinding Mission confirmed by the Government Letter from the Government confirming the Aide Memoire.

Assumptions Government priorities do not change. The Government does not seek other sources of funding. Power sector reforms continue.

Outputs 1. Technical assessment completed 2. Financial and economic analysis completed 3. Financial management assessment completed 4. Social safeguard assessment reports completed 5. Project feasibility report completed Activities with Milestones 1.1 Review and analyze historical technical data to establish distribution system constraints. 1.2 Develop technical solutions to address system constraints. 2.1 Assess the financial management system. 2.2. Assess the financial parameters of the sector. Project feasibility report inclusive of technical, financial, economic, social safeguard, and environmental matters submitted to the Government and ADB The Government confirms receipt of the project feasibility report. ADB confirms receipt of the project feasibility report.

Assumptions Established project ownership Appropriate stakeholder consultations

Risk The Executing Agency delays preparation of project proposal reports.

Inputs ADB: $900,000 Government: $200,000 equivalent 4 ADB missions: 1 inception mission, and 3 review and/or tripartite missions

3.1. Review future distribution investment plans and assess requirements of individual projects. 4.1 Develop a project feasibility report for each Implementing Agency.

Appendix 2

INITIAL POVERTY AND SOCIAL ANALYSIS

A. Linkages to the Country Poverty Analysis
Yes No Is the sector identified as a national priority in country poverty partnership agreement? Yes No

Is the sector identified as a national priority in country poverty analysis?

Contribution of the sector or subsector to reduce poverty in Pakistan: The Government is committed to reducing poverty in the country, through economic development. One way to tackle poverty by enhancing economic growth is through infrastructure development. The power sector, in particular, will need a considerable amount of investments to meet the growth requirements. Electrification constitutes a national goal because of its influence on achieving other development goals. Although electrification and electricity consumption are not meant be considered as outcomes, they are considered to be fundamental inputs for poverty reduction and economic growth. Consumption patterns are skewed in terms of nonpoor and poor consumers, as electricity consumption by the poor tends to be determined by affordability of appliances. Despite these patterns, the high connection ratios across most provinces suggest that capital investments in the power sector are inclusive of the poor in two ways: (i) directly as consumers, and (ii) indirectly through the creation of off-farm employment opportunities in the private sector and economic growth. The poor are disproportionately burdened by the unreliable supply of quality power. Compared to nonpoor households, they are (i) less able to resort to alternative sources of power, and (ii) less diversified in income sources. The loss of an income source has a greater impact on a poor household. On the other hand, access to a reliable power supply can attract commercial and micro industrial activities, which in turn may enable the poor to diversify income sources through the increased availability of employment opportunities. Access to on-grid power supply is also expected to improve households living standards and give them new opportunities to generate income. Positive impacts are also expected in health, especially for women, following the shift from fuel to on-grid sources of electricity. Finally, a more reliable and secure supply of energy can drastically improve the quality of sanitation, health care and other social services, particularly education. The ability of provincial governments to fulfill economic development plans to support social development and off-farm job creation depends on the availability of sufficient power to support expansion of commercial and industrial activities.

B. Poverty Analysis
What type of poverty analysis is needed?

Targeting Classification: General Intervention

Pakistan has a complex social structure. To better understand the projects impact on poverty and its diverse social dimensions, the PPTA will need to use national consultants to prepare a social impact assessment and a poverty impact assessment. A Gender Action Plan (GAP) will also be prepared to assess the projects anticipated impacts on women and to ensure the design of mitigation measure if negative impacts occur. A socioeconomic survey will be carried out as a basis for such assessments. Analysis on resettlement and Indigenous People will be necessary to the social assessment, although, at present, the project is not expected to affect them. A poverty impact assessment will be undertaken separately. From the results of these analyses, the consultants will prepare a resettlement plan, which is expected to be comprehensive, and incorporate mitigation measures and their costs into the projects cost estimates. The poverty impact assessment will include a poverty profile, an assessment of the direct and indirect impacts on the poor, and detailed information on the beneficiaries, particularly the poorest and the most vulnerable groups. Finally, the consultants will analyze willingness to pay, tariffs, and affordability to improve understanding of the general impacts (positive and negative) on the poor and other vulnerable groups.

Appendix 2

C. Participation Process
Is there a stakeholder analysis? Is there a participation strategy? Yes Yes No No

D. Gender Development
Strategy to Maximize Impacts on Women. Given the particular social and economic disadvantaged condition of women in the Pakistani society, gender will be carefully taken into account in undertaking participatory activities. Findings will be included in the project design. Has an output been prepared? Yes No

E. Social Safeguards and Other Social Risks

Item Significant/ Not Significant/ None Significant Resettlement Not significant None Plan Required Strategy to Address Issues The distribution network will be designed in consultation with local authorities (provinces, districts, and communes) and people residing in affected areas to minimize impacts. To assess the project impacts, an inventory of all land and project-affected households will be carried out during the feasibility study. The resettlement study will include (i) number of affected households; (ii) area of impact; (iii) impact on livelihood, in particular businesses; (iv) types of crops affected; (v) housing; and (vi) affected common properties and access to public services. Affordability of electricity consumption is determined by affordability of appliances, rather than by tariffs. Residential electrification coverage in the directly targeted provinces is high. Connection costs for potential new consumers in these areas are regarded as affordable. The project will result in both permanent and temporary employment for maintenance, operation of project facilities, and construction.

Full Short None

Significant Affordability Not significant None Significant Labor Not significant None Significant Indigenous Peoples Not significant Not known Significant Other Risks and/or Vulnerabilities Not significant None

Yes No

Yes No

The project is not expected to cause any specific cultural or social impact on indigenous people, or exclude any from benefiting from the proposed investment project.

Yes No

The most relevant vulnerability is related to gender conditions throughout the country. Particular care will be taken to adequately address gender-related issues.

Yes No

Appendix 3

COST ESTIMATES AND FINANCING PLAN ($'000) Total Cost

Item A. Asian Development Bank Financinga 1. Consultants a. Remuneration and Per Diem i. International Consultants ii. National Consultants b. International and Local Travel c. Reports and Communications 2. Equipment b 3. Training, Seminars, and Workshops 4. Surveys 5. Miscellaneous Administration and Support Costs 6. Representative for Contract Negotiations 7. Contingencies Subtotal (A) B. Government Financing 1. Office Accommodation 2. Transport 3. Remuneration and Per Diem of Counterpart Staff 4. Others Subtotal (B) Total
a b

350.0 250.0 70.0 25.0 80.0 15.0 5.0 15.0 5.0 85.0 900.0

25.0 15.0 135.0 25.0 200.0 1,100.0

Financed by the Japan Special Fund, funded by the Government of Japan. Equipment to be procured will include the following: desktop computer with standard office software, printer, scanner, photocopier, and facsimile machine. c Includes office facilities and local communication. Source: Asian Development Bank estimates.

10

Appendix 4

OUTLINE TERMS OF REFERENCE FOR CONSULTANTS 1. In relation to the purpose and key activities of the technical assistance (TA), the consultants scope of work will cover four major areas: (i) technical project design; (ii) economic and financial evaluations; (iii) compliance with the safeguard policies of the Asian Development Bank (ADB); and (iv) links between economic growth, poverty reduction, and the power sector. A. 2. Engineering Aspects (international, 4 person-months; national, 20 person-months) The consultants will be responsible for the following tasks: (i) Review the distribution systems (132kV and below) of the eight distribution companies, review their midterm investment plans and subproject proposal reports, and identify priority subprojects for ADB funding including customer connection facilities. The eight distribution companies are Faisalabad Electric Supply Company (FESCO), Gujranwala Electricity Supply Company (GESCO), Hyderabad Electric Supply Company (HESCO), Islamabad Electric Supply Company (IESCO), Lahore Electric Supply Company (LESCO), Multan Electric Supply Company (MESCO), Peshawar Electric Supply Company (PESCO), and Quetta Electric Supply Company (QESCO). Based on the review of the distribution systems (132kV and 66kV), determine whether the proposed subprojects provide cost-effective solutions for meeting the required distribution system capability. Review and examine, from a technical perspective, the appropriateness of forecasting the demand for electricity from the eight distribution companies. Forecast the demand for the next 10 years, factoring in the distribution system capacity and the planned expansion subprojects. Review the planning criteria of the eight distribution companies and, if necessary, propose modifications of the criteria. Review and update project cost estimates, separating foreign exchange and local currency cost. Prepare a list of materials, equipment, and works necessary to implement the subprojects. Prepare project implementation and procurement arrangements, including contract packaging in accordance with ADBs Procurement Guidelines, and a project implementation schedule. Prepare the engineering designs and technical specifications of all subprojects proposed for ADB funding, in accordance with relevant technical standards. Prepare a bill of quantities for all materials specified in the engineering design, and calculate detailed cost estimates for each contract package (break down into foreign exchange and local currency). Prepare detailed project implementation schedules that show anticipated progress of works and expenditures for each contract package. The schedules should take into account seasonal climatic conditions. Prepare engineering drawings that are required for preparation of bidding documents. Prepare bidding documents required for the subprojects following ADBs Guidelines for Procurement (2006) and relevant ADBs standard bidding documents.

(ii)

(iii)

(iv)

(v)

(vi)

(vii)

Appendix 4

11

(viii)

Assess the capacities of the eight distribution companies to implement a project. In the case of inadequate capacity, propose measures for capacity building. Prepare terms of reference for project-implementation consulting services including social and environmental impact monitoring. Prepare request for proposal (RFP) documents in accordance with ADBs Guidelines on the Use of Consultants (April 2006).

B.

Financial Analysis (international, 3 person-months; national, 9 person-months)

3. In accordance with Guidelines for the Financial Governance and Management of Investment Projects Financed by the Asian Development Bank (2001), the consultant will conduct a financial analysis of the proposed Project and financial performance of the implementing agencies (IAs), i.e., the eight distribution companies. This will include preparation of relevant sections of the report and recommendation of the President (RRP) of ADB as outlined below. The consultant will:
(i)

perform financial impacts analyses of the project and subprojects at the distribution company level to determine its financial rate of return in accordance with ADBs Guidelines for the Financial Governance and Management of Investment Projects Financed by the Asian Development Bank, identify all risks to project revenue and costs, and conduct relevant sensitivity analysis; prepare, together with the engineer, an entire project cost estimate, separating foreign exchange and local currency, including physical and price contingencies, interest during construction, commitment fee, and other financing charges; review the most current audited and/or unaudited financial statements of IAs to assess (a) historical financial performance, (b) retail tariff levels, (c) capital structure, and (d) sufficient generation of internal funds to ensure sustainability of ongoing operations (i.e., self-finance a reasonable percentage of capital expenditures and service existing debt); review recent audited project accounts of IAs to determine proper accounting and cost control; prepare an appendix to the RRP briefly summarizing past historical and projected financial performance, which will include 10-year pro forma financial statements (balance sheet, income statement, statement of cash flows) for IAs; and assess IAs financial management capabilities, which will include a review of earlier ADB and other lender studies of MOWP and IAs, and a review of the country diagnostic study of accounting and auditing prepared for Pakistan.

(ii)

(iii)

(iv)

(v)

(vi)

C.

Economic Evaluation (international, 1 person-months; national, 9 person-months)

4. In accordance with ADBs Guidelines for the Economic Analysis of Projects1, the consultant will undertake the following tasks, including preparation of relevant sections of the RRP:

ADB. 1997. Guidelines for the Economic Analysis of Projects. Manila.

12

Appendix 4

(i)

Conduct an economic and distributional evaluation of the Project by comparing withand without-project cases for different load growth scenarios. This will include calculation of the economic internal rate of return (EIRR), taking into account economic costs and benefits in accordance with ADBs Guidelines for the Economic Analysis of Projects and Guidelines for the Financial Governance and Management of Investment Projects Financed by the Asian Development Bank. Identify all risks to project revenue and costs and conduct relevant sensitivity analysis. Analyze the economic subsidies involved in the current tariff structure and the extent of cross-subsidization between major consumer groups and regions; and review the appropriateness of the existing lifeline tariff block. Update existing estimates of costs of unserved energy due to unreliability of the system; and develop several scenarios for the load growth forecast. Identify stakeholders and conduct a distributional analysis of net project benefits in accordance with ADBs Handbook for Integrating Poverty Impact Assessment in the Economic Analysis for Projects2; calculate the poverty impact ratio (PIR) and the cost effectiveness of the Project in reducing poverty; and undertake appropriate risk and sensitivity analysis with respect to the PIR.

(ii)

(iii)

(iv)

D.

Environmental Aspects (international, 2 person-months; national, 12 person-months)

5. In accordance with the relevant guidelines and policies for environmental assessment, the consultants will undertake the following tasks, including preparation of relevant sections of the RRP as outlined below. (i) Conduct an initial environmental examination (IEE) for the distribution lines and substations, in accordance with ADBs Environment Policy (2002), taking into account the likely impacts associated with their locations, designs, and construction activities, as well as the long-term impacts during operation, including identification of environmental issues from activities directly induced by the Project. Recommend appropriate environmental mitigation measures for identified significant impacts and monitoring plans to address these impacts; and assess the environmental benefits of the proposed activities and any capacity-strengthening measures that may be needed for the implementation of environmental management and monitoring plans. Prepare an IIE report and its summary based on the environmental assessment requirements of ADBs Environmental Guidelines for Selected Infrastructure Development Projects 3 , and any applicable procedures or guidelines for environmental assessment as required by the Government. Assess the environmental impacts of each subproject, undertake an IEE, and present the findings in an IEE report and its summary. When preparing the reports, refer to ADBs Environmental Guidelines for Selected Infrastructure Projects, ADBs Environmental Assessment Guidelines, and any applicable procedures or guidelines for environmental assessment required by the Government.

(ii)

(iii)

(iv)

2 3

ADB. 2001. Handbook for Integrating Poverty Impact Assessment in the Economic Analysis of Projects. Manila. ADB. 1993. Environmental Guidelines for Selected Infrastructure Development Projects. Manila.

Appendix 4

13

(v)

If the IEE recommends undertaking a full environmental impact assessment (EIA), conduct the EIA and prepare the report and its summary, including an environmental management plan to implement mitigation measures.

E.

Poverty Analysis (international, 2 person-months)

6. The consultant will analyze the development impact of the proposed Project and its potential impact on poverty reduction in accordance with ADBs Handbook on Poverty and Social Analysis4 and Handbook for Integrating Poverty Impact Assessment in the Economic Analysis of Projects5. The consultant will: (i) based on a review of existing studies, data, and development plans, prepare a socioeconomic and poverty profile of primary project beneficiaries in the target provinces; include gender and local ethnic minoritys profile and their poverty status, and an analysis of deprivation and causes of poverty and vulnerability in the area; analyze access to electricity, affordability, consumption levels, and consumer satisfaction across socioeconomic groups in target provinces; assess the determinants and elasticities of demand for power by socioeconomic groups; and conduct demand projections under different growth scenarios; analyze sector growth impacts of the proposed Project on the country level and its impacts on the poor; and review bottlenecks for poverty reduction and potential constraints for small- and medium-scale enterprise development in relationship the power sector; and in accordance with ADBs Handbook on Poverty and Social Analysis and Handbook for Integrating Poverty Impact in Economic Analysis of Projects, analyze the social, poverty, and development impact of subprojects. Prepare a poverty impact assessment and a summary poverty and social analysis according to the ADB format. Identify the impact on indigenous peoples, and prepare an appropriate indigenous peoples plan, as necessary, in accordance with ADBs Policy on Indigenous Peoples.

(ii)

(iii)

(iv)

F.

Resettlement, Indigenous Peoples, Gender and Other Social Aspects (international, 2 person-months; national, 12 person-months).

7. In accordance with all relevant policies, handbooks, and guidelines of ADB and in particular with ADBs Policy on Involuntary Resettlement (1995), Policy on Indigenous People (1998), and Handbook on Resettlement, the consultants will prepare a full resettlement plan, and, if needed, an indigenous peoples development plan (IPDP) in full consultation with affected people and other stakeholders. The consultants will also prepare relevant sections of the RRP, a gender action plan (GAP), and other relevant documents. Other responsibilities include the following: (i) Assist the Executing Agency and IAs in designing the Project in order to minimize the resettlement effects, inclusive of developing a land acquisition and resettlement framework (LARF).

4 5

ADB. 2001. Handbook on Poverty and Social Analysis. Manila. ADB. 2001. Handbook for Integrating Poverty Impact Assessment in the Economic Analysis of Projects. Manila.

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Appendix 4

(ii)

Identify and prepare socioeconomic profiles of the project-affected communities in the project areas in terms of household sizes, demographic trends, income sources and levels, occupations, socioeconomic conditions, social service infrastructure, and social organizations, in accordance with relevant ADB guidelines and publications and the requirements of Pakistan. Prepare a GAP and local ethnic minority profiles, assess the need for an IPDP, and carry out any further surveys as necessary. Undertake a full census and inventory of lost assets (in terms of loss of homes, agricultural and other lands; or loss of access to current income-generating activities, including impacts caused by permanent or temporary acquisition) of affected people and a baseline socioeconomic survey of the affected population. Determine the scope and magnitude of likely resettlement effects, and list likely losses of households, agricultural lands, business and income opportunities, as well as affected communal assets and public buildings. Prepare an entitlements matrix listing all likely effects, both of permanent and of temporary land acquisition, and a study to determine the replacement costs of all categories of losses. Prepare an indicative budget for land acquisition and resettlement costs with specific sourcing and approval process. Prepare an implementation schedule consistent with all the resettlement plan requirements, ensuring that all compensations are carried out prior to the beginning of civil works. Prepare a grievance mechanism and appeal procedures, and mechanisms for disclosing the resettlement plan to affected persons in an easy-to-understand form and manner. Disclose on ADBs website and detail in the resettlement plan. Since the Project is likely to involve significant6 resettlement, a resettlement plan should be prepared with full participation of stakeholders, including the Executing Agency and IAs, and meet ADB policy requirements. Prepare an entitlement matrix listing all likely effects, permanent and temporary, and a study to determine the replacement costs of all categories of losses. Prepare an indicative, itemized budget for land acquisition and resettlement costs with specific costing and approval process. if the subprojects are likely to involve significant resettlement (footnote 1), prepare a resettlement plan with full participation of stakeholders, including the Executing Agency and IAs. Prepare (a) a short resettlement plan if the resettlement aspects of the investment subprojects are classified as not significant; (b) a summary resettlement plan; and (c) an indigenous peoples development plan, if required.

(iii)

(iv)

(v)

(vi)

(vii)

(viii)

G.

Reporting and Workshop Requirements

8. The consultants will prepare inception, interim, draft final report, and final reports. Workshops among MOWP/IAs, ADB, and the consultants will be held after the submission of the
6

Resettlement is significant where 200 or more people experience major impacts. Major impacts are defined as when the affected people are physically displaced from housing and/or more than 10% of their productive assets (income generating) are lost.

Appendix 4

15

inception, interim, and draft final reports. Other stakeholders will be invited to attend as needed. The consultants will also prepare status reports for their specific scopes of work highlighting any issues that could become critical for the timely completion of the TA and that require attention from MOWP/IAs and/or ADB. The consultants will arrange for other workshops and on-the-job training for IAs staff.