ADB's Tranche-1 project: IED titles 'successful but less than effective'

The Independent Evaluation Department (IED) of Asian Development Bank (ADB) titled its "Power Transmission Enhancement Investment Programme-Tranche-1 project" successful, relevant, likely sustainable but less than effective.
ADB approved a multi-tranche financing facility (MFF) of $800 million under a framework financing agreement with the government of Pakistan on Dec 13, 2006, or about 20 percent of National Transmission & Dispatch Company (NTDC)'s estimated required investment of around $3.9 billion during the 10-year period of fiscal year 2007-16 to overcome capacity constraints.
The programme was to be implemented in four tranches. Tranche 1 of the project was financed by a loan of $226 million from ADB's ordinary capital resources (OCR), and including high priority subprojects to overcome existing transmission constraints. It was to entail installation of 500 kV and 220 kV4 transformers with an aggregate capacity of 6,125 megavolt-ampere (MVA) at 18 locations nationwide, and three relatively short transmission lines totalling 50 kilometres.
An investment programme support component was included in tranche 1, funded by a loan of SDR 6.8 million ($10 million equivalent) from ADB's Asian Development Fund (ADF).
The IED validation report uploaded on the ADB website stated the Project Completion Report (PCR) rated tranche 1 relevant. The intended outcome was aligned with the government's development strategy and to ADB's country and energy sector strategies. At the time of appraisal, consumers experienced load shedding of between 4 and 8 hours, which substantially reduced socio-economic activities.
The report further states that power generation and transmission capacities required major increases to address the power shortage. There was a need for the government to encourage the private sector to invest in power generation, and the public sector to increase power transmission capacity. Both generation and transmission capacities were projected to increase power availability to 26,663 MW by 2019, for an estimated peak demand of 26,439 MW on the transmission system to eventually eliminate the deficit.
The net addition of the 220 kV transformer capacity under tranche 1 was 3,328 MVA or 19.5 percent of the total NTDC capacity in 2013. In total this was 45 percent of the 7,828 MVA total transformer capacity added by NTDC during 2007-2013. These investments eliminated transformer overloading for the specific substations and an outage of one transmission line or transformer (n-1 condition) no longer resulted in load shedding.
With the enhanced capacity of the transmission system, transmission losses were reduced from 3.8 percent in 2007 to 2.6 percent in 2016 - a 1.2 percent decrease, while the annual input to NTDC's power system increased from 86 tera watt hour (TWh) to 101 TWh.
As a result of the project, an additional 1.2 TWh was transmitted to the distribution networks, and the subprojects contributed significantly to the improved reliability of the country's power supply.
The PCR rated tranche 1 less than effective since (i) the report and recommendation of the president (RRP) did not include a specific design and monitoring framework (DMF) for tranche 1 nor describe the outcomes separately; and (ii) three of the four outcomes identified for the multi-tranche financing facility (MFF) were not aligned with the outputs and, therefore, it was partly achieved. The DMF adequacy assessment should also be done under the section on relevance - for being a design flaw - as the subprojects did contribute effectively to the programme's and the sector's objectives.
An important shortcoming in the formulation of tranche 1 was that the RRP did not include a specific DMF for tranche 1. Hence, there is not a suitable DMF to measure its results, and the outcomes for the MFF programme were not fully aligned with the outputs of tranche 1.
The economic internal rate of return (EIRR) was recalculated at project completion, using the same approach used during tranche 1 appraisal. The changes in scope-exclusion of static volt-ampere reactive (VAR) compensator, addition of six new substations, and a new transmission line-were factored in. Benefits accrued from the sale of additional power delivered through the new and augmented transformers.
The EIRR was recalculated to be 21.5 percent, and the economic net present value at 12 percent discount rate was Rs 9.1 billion. This EIRR is much lower than the 36.8 percent at appraisal. Sensitivity assumptions, with reduced benefits and decreased value of resource savings, both by 10 percent, show the project to be robust and remain above the economic opportunity cost of 12 percent, and higher than the 18 percent required for a rating of highly efficient. On this basis, the PCR rated tranche 1 highly efficient.