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Asian Development Bank Rates Pakistan’s Renewable Energy Development Program “Less than Successful”

The Independent Evaluation Department (IED) of the Asian Development Bank (ADB) has rated the Renewable Energy Development Sector Investment Program for Pakistan as ‘less than successful’, ‘less than relevant’, and ‘less than effective’ due to design deficiency, methodological issues, and financial and operational risks prevalent in the power sector.

In its validation report, IED stated that the total cost of the multi-tranche financing facility investment program was $2.2 billion, with 23.2 percent from the Asian Development Bank (ADB), 40.9 percent from the private sector, 18.2 percent from other financiers, and 17.7 percent from the government.

Tranche 1’s total cost was $145 million equivalent, with an ADB loan covering 80 percent and the government financing the balance. At completion, tranche 1’s actual total cost (and of the multi-tranche financing facility program) was $144.7 million, with 77.9 percent from the ADB and the balance from the government.

Problems With The Program

The program completion report rated the program as ‘less than relevant’ due to design deficiency. It was less than effective, given the partial achievement of its outcome and outputs. It was also ‘less than efficient’ due to methodological issues in establishing the economic internal rate of return.

The reevaluated economic internal rate of return (EIRR) for the six subprojects as a whole was below the weighted average cost of capital, and there were financial and operational risks prevalent in the power sector, suggesting ‘less than likely sustainability’. Overall, this validation assesses the program as ‘less than successful’.

According to the design and monitoring framework, the program’s expected impact was inclusive economic growth and reduction in carbon dioxide emissions. The program’s intended outcome was increased production and the use of clean energy through financially sustainable renewable energy sources.

Its planned outputs had three components. First, the construction of small to medium-size hydropower stations and other sources of renewable energy units. Second, the preparation of feasibility studies and other due diligence work on new renewable energy schemes. Third, the introduction of a capacity development program at the federal, provincial, and project levels.

Tranche 1’s expected impact and the intended outcome were fully aligned with that of the program, with its planned outputs focusing on Khyber Pakhtunkhwa and Punjab. The program completion report (PCR) rated the program as ‘less than effective’. The materials available for this validation did not contain records of the approved changes in the design and monitoring framework, and the program’s intended outcome was partially achieved.

In 2015, the share of renewable energy generation in the total generation was 1.35 percent, below the 1.5 percent target, and the physical outputs were partially delivered.

The PCR rated the program as ‘efficient’, as the 16.4 percent reevaluated EIRR of the four completed plants combined, including Marala and Pakpattan in the Punjab, and Ranolia and Machai in Khyber Pakhtunkhwa exceeded the 12 percent benchmark.

The sensitivity analysis under adverse scenarios suggested that the program was highly likely to remain economically viable. A 10 percent increase in operation and maintenance costs combined with a 10 percent decrease in benefits would result in an EIRR of 13.3 percent. The environmental benefits of avoided carbon dioxide emissions were not quantified or included in the reevaluation.

The PCR rated the performance of the borrower and the executing agency as ‘less than satisfactory’. As the representative of the borrower, the Economic Affairs Division of the Ministry of Economic Affairs and Statistics demonstrated weak ownership during program implementation. The release of counterpart funds was also delayed and important implementation issues were not responded to in a timely manner.

As the executing agency at the federal level, the Alternative Energy Development Board’s performance was below expectations. Its efforts to facilitate implementation and completion were less than effective despite advisory assistance from the consultants.

The performance of the provincial implementing agencies had been below expectation until 2015 when the program administration was delegated to the resident mission. On the whole, this validation assessed the performance of the borrower and the Alternative Energy Development Board (AEDB) as ‘less than satisfactory’. The PCR also rated the ADB’s performance as ‘less than satisfactory’.

At the appraisal, the ADB’s Central and West Asia Department and the Pakistan Resident Mission worked closely with the AEDB to ensure timely program preparation and approval. The program was approved by the ADB’s Board of Directors within a month of the government’s periodic financing request. However, the program design and the use of the multi-tranche financing facility, in particular, were inappropriate in this context. The program had significant delays, cancellations, and underutilization of available funds, and effectively became a stand-alone loan project.

The ADB could have considered design changes to address the issues. This validation assessed its performance as ‘less than satisfactory’.

The report noted that an increase from 19.5 GW in 2006 to 162.6 GW in 2030 was needed to meet the increasing demand in the country. This capacity requires financing of $150 billion for Pakistan’s power sector. The government delegated the authority to provinces to generate capacities of up to 50 MW and to emphasize renewable energy targeted as 3.5 percent of the total energy supply mix by 2015 and six percent by 2030.

Additionally, physical investments for renewable energy in the $150 billion power sector investment plan were projected to reach $13.9 billion by 2030, of which $2.2 billion were expected by 2015.

courtesy: propakistani

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