Philippines - Power Transmission & Rehabilitation

 ICRR 10068 Report Number : ICRR10068 ICR Review Operations Evaluation Department 1. Project Data : OEDID: OEDID : L3626 Project ID : P004610 Project Name : Power Transmission & Rehabilitation Country : Philippines Sector : Distribution & Transmission L/C Number : Loan 3626-PH Partners involved : Prepared by : Sunil Mathrani (Consultant), OEDST Reviewed by : Alain A. Barbu Group Manager : Roger H. Slade Date Posted : 06/25/1998 2. Project Objectives, Financing, Costs and Components : The project, supported by a loan of US$ 110 million, was approved in FY94. An amount of US$58.5 million (53%) was canceled. The actual project cost was about US$ 96 million, (vs. US$160 million estimated at appraisal). The main objective was to alleviate power shortages in Luzon . Related objectives were to improve the performance of the energy sector by implementing measure contained in an Energy Sector Plan agreed with the Bank and to ensure the financial viability of the power utility, NPC . The project was originally designed to provide key electricity transmission links to bring power to major urban centers from new private power plants that were being built concurrently and to rehabilitate part of an old thermal NPC power plant . 3. Achievement of Relevant Objectives : The project substantially achieved the physical objective of facilitating the transmission of up to 1200MW of additional power within Luzon. However, the thermal plant rehabilitation component was dropped from the scope of project at the request of NPC and half the initial loan amount was therefore canceled . Some policy improvements took place as a result of the Energy Sector Plan, particularly relating to deregulation of the oil industry . 4. Significant Achievements : The project was an essential counterpart of the ‘fast track’ IPP program and thus contributed to the elimination of costly power shortages which had plagued the economy in the early 1990s. 5. Significant Shortcomings : There was no improvement in NPCs financial performance, despite this being one of the project ’s stated objectives. The financial problems of NPC were not correctly diagnosed at appraisal . The economic analysis of the project at appraisal was also unsatisfactory . No risk analysis was carried out . The project’s quality at entry was therefore unsatisfactory. The project also failed to make much headway with the restructuring of the power sector, a key reform issue in the Energy Sector Plan . 6. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Unsatisfactory Unsatisfactory Institutional Dev .: Partial Modest Sustainability : Uncertain Uncertain Bank Performance : Deficient Unsatisfactory On account of deficiencies at appraisal, although supervision was satisfactory . Borrower Perf .: Satisfactory Unsatisfactory On account of poor Government performance in implementing power sector reforms. Quality of ICR : Satisfactory 7. Lessons of Broad Applicability : Conventional economic rate of return analysis is poorly suited to an environment where higher -cost, sub-optimal investments are required to eliminate power shortages . In the case of this project, the transmission investments to bring power from higher-cost plants are likely to be underutilized now that the power crisis is over . The main economic benefits were reaped in the first few years when power was scarce and the value of avoiding outages was very high. The quantification of benefits and the estimation of the economic rate of return is therefore critically dependent on the estimated value of unserved energy . 8. Audit Recommended? Yes No 9. Comments on Quality of ICR : The ICR is of good quality. The financial and policy reform issues are well presented . The ex-post calculation of the EIRR is particularly noteworthy for its thoroughness and for exposing the weaknesses of the conventional, over-simplistic approach that is often used in project appraisals .