Cambodia: Second Power Transmission and Distribution Project

Transcription

1 Validation Report Reference Number: PVR-464 Project Number: Loan Number: 2261 December 2016 Cambodia: Second Power Transmission and Distribution Project Independent Evaluation Department

2 ABBREVIATIONS ADB Asian Development Bank EDC Electricité du Cambodge EIRR economic internal rate of return FIRR financial internal rate of return GWh gigawatt-hour JICA Japan International Cooperation Agency km kilometer kv kilovolt kwh kilowatt-hour MEF Ministry of Economy and Finance O&M operation and maintenance PCR project completion report PMO project management office VAT value-added tax WACC weighted average cost of capital NOTE In this report, $ refers to US dollars Key Words adb, asian development bank, cambodia, distribution, energy sector, lessons, performance evaluation, power sector, project completion report, transmission, validation The guidelines formally adopted by the Independent Evaluation Department (IED) on avoiding conflict of interest in its independent evaluations were observed in the preparation of this report. To the knowledge of IED management, there were no conflicts of interest of the persons preparing, reviewing, or approving this report. The final ratings are the ratings of IED and may or may not coincide with those originally proposed by the consultant engaged for this report. In preparing any evaluation report, or by making any designation of or reference to a particular territory or geographic area in this document, IED does not intend to make any judgments as to the legal or other status of any territory or area.

3 PROJECT BASIC DATA Project Number PCR Circulation Date 11 May 2016 Loan Number 2261 PCR Validation Date Dec 2016 Project Name Second Power Transmission and Distribution Project Sector and subsector Energy Electricity transmission and distribution Theme and subtheme Sustainable economic growth Fostering physical infrastructure development Safeguard categories Environment B Involuntary Resettlement B Indigenous Peoples C Country Cambodia Approved Actual ADB Financing ($ million) ($ million) ($ million) ADF: Total Project Costs OCR: 0.00 Loan Borrower Beneficiaries Others Cofinancier JICA Total Cofinancing Approval Date 4 Oct 2006 Effectiveness Date 1 Mar Jan 2008 Signing Date 1 Dec 2006 Closing Date 31 Dec Mar 2015 Project Officers IED Review Director S. Hasnie X. Humbert P. Hattle D. Schmidt O. Nida Location ADB headquarters ADB headquarters ADB headquarters ADB headquarters Cambodia Resident Mission N. Subramaniam, Officer-in-Charge, IED2 From Oct 2006 Jan 2009 Feb 2011 Nov 2011 May 2012 To Dec 2008 Dec 2010 Nov 2011 Apr 2012 Mar 2015 Team members L. Hauck, Senior Evaluation Specialist, IED2 M. Gatti, Principal Evaluation Specialist, IED2 F. D. De Guzman, Senior Evaluation Officer, IED2 P. Choynowski, Consultant ADB = Asian Development Bank; ADF = Asian Development Fund; IED2 = Independent Evaluation Department, Division 2; JICA = Japan International Cooperation Agency; OCR = ordinary capital resources; PCR = project completion report. A. Rationale I. PROJECT DESCRIPTION 1. In 2006, the power sector in Cambodia was highly fragmented, with 24 isolated power systems located in various provincial cities. The lack of an integrated, high-voltage transmission system and the reliance on high-cost imported diesel fuel to support diesel generators made electricity in Cambodia among the costliest in the world. The government recognized that the high electricity cost and insufficient supply constrained economic growth and stymied investments. In 2004, the government developed the Rectangular Strategy, a comprehensive strategy to guide the country s development with emphasis on agriculture, the private sector,

4 2 infrastructure, and capacity building. 1 The government made the establishment of a reliable power supply and transmission grid a top priority in this strategy to acknowledge the power sector s importance in the country s development. The government s power sector development strategy aimed to provide adequate, reliable, and stable power supply at affordable prices throughout the country. 2 The key policy framework consisted of (i) intensifying investments in power generation and transmission, (ii) connecting the country s transmission lines to power grids in neighboring countries to allow Cambodia to import electricity at lower cost and possibly engage in power trading, (iii) establishing a legal and regulatory framework, (iv) promoting private sector participation, and (v) expanding provincial and rural electrification. The government was also committed to providing reliable and affordable electricity service to 90% of villages and 70% of rural households by The Electricité du Cambodge (EDC) is the state utility responsible for electricity delivery in Cambodia. Developing the national grid by constructing transmission lines and distributing facilities were priority investments in the transmission master plan of EDC, including lines and facilities from Kampot to Sihanoukville. In September 2006, the Board of Directors of the Asian Development Bank (ADB) approved a $20 million loan from ADB Special Fund resources 3 to (i) extend the 230 kilovolt (kv) double-circuit transmission lines from Kampot to Sihanoukville; (ii) construct 230 kv grid substations at Veal Renh and Sihanoukville and a 230 kv line bay at Kampot; (iii) construct a medium- and low-voltage 22 kv double-circuit distribution line network connecting Sihanoukville and the surrounding area to the 230 kv substation; (iv) provide consulting services to EDC; and, (v) improve the efficiency and operation of EDC through the Second Power Transmission and Distribution Project. The total cost of the project was estimated at $52.36 million. The Japan Bank for International Cooperation 4 approved a $22.30 million loan, and a counterpart $10.06 million of government funds were committed to the project. The project was expected to (i) provide reliable, sufficient, and less costly power supply to Sihanoukville and Kampot provinces, including rural areas in the transmission line corridor; (ii) reduce the tariffs for consumers and the distribution losses; and (iii) make the commercial and industrial sectors more competitive. Through a separate ADB-supported project, 5 EDC was also building a 230 kv transmission line from the border with Viet Nam to Takeo and on to both Kampot and Phnom Penh. Together, the two projects would allow EDC to import lower-cost electricity from Viet Nam to meet the power demand in Phnom Penh, Takeo, Kampot, and ultimately, Sihanoukville. A project completion report was prepared in May B. Expected Impacts, Outcomes, and Outputs 3. At appraisal, the expected impacts of the project were (i) extension of the national power grid in the region and provision of reliable, adequate, and affordable electricity; and (ii) improvement in the quality of power supply in the southern region. The project s outcome indicators were (i) an increase in the 230 kv transmission lines, substations, and distribution facilities in the project area; and (ii) EDC energy sales and consumption in the project area 1 Royal Government of Cambodia The Rectangular Strategy for Growth, Employment, Equity, and Efficiency in Cambodia. Phnom Penh. 2 Ministry of Industry, Mines and Energy Cambodia Energy Strategy. Phnom Penh. 3 ADB Report and Recommendation of the President to the Board of Directors Proposed Loan to the Kingdom of Cambodia: Second Power Transmission and Distribution Project. Manila. 4 The Japan Bank for International Cooperation merged with the Japan International Cooperation Agency (JICA) during the project implementation period. Subsequent references in this validation refer to JICA. The JICA loan was to finance the 230 kv line from Kampot to the substations at Veal Renh and Sihanoukville. 5 ADB Report and Recommendation of the President to the Board of Directors to the Kingdom of Cambodia for the Greater Mekong Subregion Transmission Project. Manila. 6 ADB Completion Report Second Power Transmission and Distribution Project (Cambodia). Manila.

5 3 increase from 20 gigawatt-hour (GWh) to 45 GWh; (iii) about 25,000 people are served by the power grid; and (iv) financial ratio targets of EDC are fully met and distribution loss is kept at less than 16%. The targeted outputs were (i) a 230 kv transmission line from Kampot to Sihanoukville with a length of 78 kilometers (km); (ii) three new substations at Veal Renh, Sihanoukville, and Kampot; (iii) associated medium- and low-voltage distribution systems along the 230 kv transmission corridor; (iv) the operation and maintenance (O&M) capacity of EDC branches at Kampot and Sihanoukville are strengthened; and (v) training programs for EDC staff are fully implemented. C. Provision of Inputs 4. The project was approved on 4 October 2006, the loan agreement was signed on 1 December 2006, and the loan became effective on 29 January 2008.The target date for loan effectiveness was 1 March 2007 but was delayed due to delayed compliance with two conditions, which are (i) that the government should allocate additional funds to the Ministry of Economy and Finance (MEF) to offset past-due input value-added tax (VAT) owed by EDC, and (ii) that the government should allocate funds to the MEF to offset accounts receivable from government institutions and agencies and local authorities. Upon MEF confirmation that these budget items would be submitted to the National Assembly in early 2008, the ADB Board approved a waiver of these loan effectiveness conditions on 14 January The loan was scheduled to be closed on 31 December 2010, but was actually closed on 10 March Delays in submitting the proposals of the implementation consultants (submitted December 2007) and the technical evaluation report (submitted June 2008) also delayed the signing of the contract with the implementation consultants until December months later than anticipated at appraisal. Awarding of turnkey contracts was delayed due to incomplete bid submissions and the processing time needed to review the bids. The construction schedule was also delayed due to the slow land acquisition process for the Sihanoukville substation and for additional works required. 5. At completion, the actual project cost was $66.2 million. ADB financed $20.6 million (31%), Japan International Cooperation Agency (JICA) financed $28.8 million (43%), and EDC and the government financed $16.8 million (26%). The project changed its scope due to lower forecast in electrical load growth at Veal Renh, and a rapid increase in the Sihanoukville electrical load based on the 2010 feasibility study done by the project implementation consultants. Thus, the Veal Renh 230 kv substation was dropped while the 22 kv distribution line to Sihanoukville was replaced with a 115 kv line and another 115 kv substation was added. JICA agreed to finance the 115 kv line and substation, increasing its loan from the approved $22.3 million at appraisal to $28.8 million. To connect the Sihanoukville area to the grid, the 22 kv lines were built based on the project design at appraisal. EDC used its own funds to connect all households along the transmission line route to the grid, and funded the land acquisition for the 115 kv substation at Sihanoukville. The cost differences at completion were due to these changes in scope the Veal Renh substation had an estimated cost of $12.7 million, the Sihanoukville 115 kv substation and the lines cost $14.9 million, and the land acquired for the Sihanoukville substation was $3.3 million. EDC needed to purchase the land as the government land originally dedicated for this substation was not technically viable for the project. The total cost of the 230 kv, 115 kv, and 22 kv lines was $31.9 million, compared with the appraisal estimate of $25.5 million. The project completion report (PCR) estimated that 7 The PCR reported two closing dates: 10 March 2015 (Basic Data, p. i) and 30 Nov 2014 (para. 18). This validation used the information presented in the Basic Data section.

6 4 implementation delays increased costs by $7 million ($4 million for the lines and $3 million for the 230 kv substation) Project implementation consultants assisted EDC in project engineering, procurement, supervision of installation and construction, final testing and commissioning, quality assurance, design and implementation of environmental management and resettlement plans, and other technical inputs. Required for project supervision were 40 person-months of international consulting services and 45 person-months of national consulting services. Actual inputs from project implementation consultants totaled 69 person-months of international and 64 personmonths of domestic consultants. The increase in project implementation consultants inputs was mainly due to additional design works and implementation delays. 7. Capacity-building programs were all delivered as planned at appraisal. These programs (i) strengthened EDC s provincial operational capability; (ii) provided training in the O&M of highvoltage transmission systems; (iii) improved EDC s data management system through hardware and software purchased to establish a consolidated data platform; and (iv) trained staff in social, resettlement, and environmental management issues by financing higher-level education for two EDC staff. The two staff completed their master s degrees in social and environmental fields at the Asian Institute of Technology in Thailand. JICA also financed training programs in operations and maintenance of high-voltage systems for some 70 EDC staff. A data platform was established. 8. The project was classified as Category B for environmental impacts. The initial environmental assessment noted that the project was expected to cross the buffer zone of Bokor National Park. The route through the national park was selected over alternatives across the coastal plain because it would (i) create the least visual impact, (ii) cross fewer tidal areas, (iii) involve the resettlement of the fewest households, and (iv) provide greater line reliability from lower salt pollution of the line. 9. The project was classified as Category B for resettlement impacts. A total of 887,000 square meters of land was acquired for the project, and 1,658 square meters of structures and 53,000 trees were affected. Although the transmission line route was selected to minimize resettlement impacts, 445 households were affected along the route, with 12 requiring resettlement. The project was classified as Category C for indigenous peoples as it did not affect any indigenous peoples or ethnic minorities. D. Implementation Arrangements 10. As planned at appraisal, the project was implemented by EDC. The director of the Corporate Planning and Projects Department headed EDC s two permanent project management offices (PMOs). The first PMO handled the daily project management activities supported by project implementation consultants, while the second PMO managed other projects financed by bilateral development partners. The first PMO, which was headed by a senior engineer and supported by a number of experienced engineers and construction site supervisors, was responsible for coordinating implementation activities with concerned 8 The PCR (para. 14) states: At appraisal, the project was estimated to cost $52.36 million. Foreign exchange cost accounted for $31.59 million (approximately 60% of the estimated total), including $0.33 million for interest during construction. Local currency cost was estimated at $20.77 million (40% of the estimated cost). The breakdown is not provided for the final costs. This validation has interpreted this PCR statement as the imported items and/or costs paid for in foreign currency compared with the locally sourced items paid for in local currency, rather than as a cost to the project for the use of loans denominated in foreign currency.

7 5 departments and offices within EDC. The Social, Environment, and Public Relations Office of EDC, was responsible for implementing environmental and social safeguards aspects. Financial management arrangements were implemented as planned. 11. Major loan covenants were generally complied with, including the following key financial covenants: (i) minimum debt service coverage ratio, (ii) debt equity ratio, (iii) revenue breakeven, and (iv) accounts receivable. Covenants for the submission of the (i) audited financial statements for the project account, (ii) auditor s opinion on compliance with financial covenants, (iii) management letter, and (iv) audited financial statements for EDC operations were also complied with. However, one financial covenant (the offsetting of the input VAT owed by EDC to the government) and one sector covenant (the annual submission of power development plans) were only partially complied with. The MEF is to offset all past-due input VAT owed by EDC to the government against EDC s VAT liability, but EDC did not pass on the newly imposed VAT to its customers. This partial compliance with a sector covenant did not affect power sector planning as EDC submitted power development plans when updates were required, although not annually. II. EVALUATION OF PERFORMANCE AND RATINGS A. Relevance of Design and Formulation 12. The PCR rated the project relevant. The project was to address the power sector issues identified during appraisal while meeting the government s development objectives. As Cambodia s only deepwater port, Sihanoukville was significant to the country s economy and providing high-voltage transmission capacity to the city was expected to catalyze further investment and economic growth. Demand for electricity in the city increased sharply over the last 10 years, although a few large consumers still chose to generate their own power rather than take supply from EDC. Once EDC demonstrated that it can continue to provide high-quality and secure power supply to the city, rapid growth in electricity demand is expected. 13. At the time of appraisal, the project was in line with the ADB country strategy and program for Cambodia for , which indicated that adequate supply of reliable and affordable power was a prerequisite for a private sector-led economic growth. In its National Strategic Development Plan, , the government recognized the importance of developing the energy sector and electricity network to promote socioeconomic development and reduce poverty. Thus, developing the energy sector to respond effectively to the increasing need for low-cost electricity was one of the government s most important economic policies. 14. Energy sector development remains an important component of the Rectangular Strategy for Growth, Employment, Equity and Efficiency: Phase III, , which is the government s current development strategy. This strategy prioritizes increasing electricity supply capacity, reducing tariffs, and expanding the national grid electricity infrastructure into rural areas while strengthening institutional mechanisms and management capability. The government s power sector development strategy aims to provide adequate, reliable, and stable power supply at affordable prices throughout the country. The ADB country partnership strategy for supports the government s economic reform priorities and embeds Strategy 2020 s three strategic agendas of inclusive economic growth, environmentally sustainable growth, and regional integration into ADB operations in Cambodia. This validation assesses the project relevant.

8 6 B. Effectiveness in Achieving Project Outcomes and Outputs 15. The PCR rated the project effective. It indicated that the project substantially achieved the outcome envisaged at appraisal. The 230 kv power grid and associated distribution facilities in the southern region were expanded and strengthened while EDC s operational efficiency and performance were improved. The four outcome indicators were considered in the PCR, noted some difficulties with the indicators selected at appraisal, but inferred project effectiveness from the overall result. The first outcome indicator was for an increase in 230 kv transmission lines, substations, and distribution facilities in Sihanoukville. However, this outcome indicator lacked a quantitative baseline, making a meaningful and objective assessment impossible. The second outcome indicator was for a 125% increase in EDC s energy sales in the project area from 2006 to The project was not completed until 2014, by which time EDC s annual electricity sales were 600% higher than in If performance was assessed based on the annual demand growth, it can be said that the target was easily surpassed. The third outcome indicator was an increase in the number of customer connections. Again, no baseline was provided and the target was ambiguous, referring only to the number of customers served by the power grid. The fourth indicator referred to EDC s performance against covenanted financial ratios and against a distribution loss cap of 16%. However, the financial ratios and distribution losses relate only to EDC as a whole, thus, there is no apparent link between the outcome and the fourth outcome indicator. Therefore, although the performance targets were met, no inference of project effectiveness can be drawn. 16. The PCR suggested that data on peak demand and measure of network reliability performance for Sihanoukville would have provided more meaningful performance targets. The PCR reported that the energy consumption in Sihanoukville increased from 20 GWh in 2005 to 141 GWh in 2014, and since 2009, there has been continuous improvement in all EDC operational and financial performance indicators. At the time of the PCR preparation, EDC readily exceeded the requirements in the financial covenants while distribution loss was kept at less than 16%. The ongoing training program of EDC has continually improved the medium and low-voltage O&M capacity of the EDC branch staff. 17. The primary function of the transmission facilities built under the project was materially different to the function identified at appraisal. Instead of delivering grid electricity to Sihanoukville, which was the main project rationale, the 230 kv transmission line and substation are now mainly used to export coal-fired electricity to Phnom Penh via Kampot. In the view of the PCR, this is more relevant to the government s development goals for the energy sector. To date, 360 megawatts of privately-owned baseload plant were commissioned in Sihanoukville, representing around 20% of the country s available generating capacity. Almost 500 megawatts are expected to be in service by the end of This capacity will underpin the grid expansion plans of EDC and the government. It will also allow the country to reduce its dependence on imported electricity from Viet Nam during the dry season and to replace old and inefficient diesel and fuel-oil plants. 18. The project construction outputs changed as a result of the 2010 feasibility study (PCR, para. 7).The outputs delivered were (i) 230 kv transmission lines with 82 km constructed; (ii) a new 230 kv substation at Sihanoukville constructed, the Kampot 230 kv substation expanded, while the Veal Renh substation was dropped; and (iii) 22 kv medium voltage lines were put up with 40 km constructed. The four training programs for EDC staff were fully implemented (PCR, para ).

9 7 19. This validation rates the program effective. C. Efficiency of Resource Use in Achieving Outcomes and Outputs 20. The PCR rated the project efficient based on a financial internal rate of return (FIRR) of 25.9% (compared with an estimated 13.2% FIRR at appraisal) and an economic internal rate of return (EIRR) of 61.0% (20.9% EIRR at appraisal). This validation discusses the FIRR in the sustainability assessment, as this is an indicator for the sustainability rating. 21. The PCR considered the project s benefits as (i) displacement of electricity importation from Viet Nam (a cost saving), (ii) displacement of a fuel oil plant in Phnom Penh and output from inefficient diesel and heavy fuel oil generating stations in Sihanoukville and Phnom Penh, and (iii) increased consumption from newly connected and existing customers in Phnom Penh and Sihanoukville (incremental output). Demand forecasts for Phnom Penh and Sihanoukville were updated from the appraisal figure using the actual demand during Induced demand was valued at current prevailing tariffs (averaging $0.25 per kilowatt-hour [kwh]). Costs used were (i) the project investment cost of $54.96 million (adjusted using the world price numeraire of 1.1), (ii) O&M costs of 2% of capital costs, (iii) incremental cost of generation (using the power supply from the Sihanoukville coal-fired plant), and (iv) other costs incurred to serve the increased number of customers. Detailed calculations were not presented in the PCR. 22. This validation considers the PCR estimate of 61% EIRR seems excessively high, noting that it is possible that benefits were double-counted compared with the electricity volume transmitted. The PCR did not provide details of the transmission volume allocated of imported power from Viet Nam, nor the data allocated toward displacement of domestic sources. It is also not possible to determine how the delayed implementation was accounted for in the calculation, although it appears that funds to finance construction were not advanced until construction was ready to proceed. The PCR seems to have correctly identified the project economic benefits, but there was no discussion on how they were quantified or valued. For example, resource cost savings should not have been adjusted by the standard conversion factor because these are tradables. However, benefits from incremental output should have been adjusted by the standard conversion factor because willingness to pay is a non-tradable. The EIRR estimate in the PCR seems to have left out the economic costs of land acquisition and resettlement. The PCR stated that it used the world price numeraire and a shadow exchange rate factor of 1.1. This is inconsistent with ADB guidelines for economic analysis. If border (world) price is the numeraire, then tradables such as transmission and distribution equipment should not be adjusted. Only non-tradables are adjusted and they should be adjusted by the standard conversion factor, not the shadow exchange rate factor. The shadow exchange rate factor adjusts tradables only when domestic price is numeraire. The PCR did not mention how local labor was shadow-priced, whether local labor costs were adjusted by a shadow wage rate factor. Local labor is a non-tradable and the cost should have been adjusted by the standard conversion factor. While this validation is not able to confirm the EIRR rate of the PCR, it appears likely that the project s EIRR is at least equivalent to the appraisal calculation, because even with the increase in economic costs since appraisal, the increase in demand and transmission capacity since appraisal has been well above forecasts at appraisal and end-user prices have not reduced as much as forecast at appraisal. 23. Although the primary criterion for the efficiency rating is the EIRR, this validation also considers the 4-year delay in project implementation, which added $7 million to the project s cost (para. 5). However, it appears that the delay resulted in a more robust transmission

10 8 network, because the project was able to install the equipment needed (and to drop the equipment not needed) based on the 2010 assessment that recognized that electricity demand had increased far beyond expectations at appraisal. Although the delay added costs, it also produced a revised project design that avoided the cost of installing an inadequate network for Sihanoukville. This validation considers that if the EIRR is at least equal to the 20.9% calculated at appraisal, the criteria for highly efficient would be met. The delay in implementation detracts from the rating, although the final project provided the needed infrastructure and capacity building. Taking together the information available from the PCR, this validation assesses the project efficient. D. Preliminary Assessment of Sustainability 24. The PCR rated the project likely sustainable. Project transmission facilities enabled EDC to increase electricity sales in Phnom Penh and to increase sales in Sihanoukville. 25. The PCR stated that the ability of EDC to maintain its transmission and distribution assets and to operate them efficiently were improved significantly while the new head office and regional staff gained valuable experiences in this area. The construction of three baseload power stations in Sihanoukville and the rapid demand growth in Sihanoukville over the last 10 years indicated that the project transmission and distribution capacity will be fully utilized. 26. The financial performance and position of the project were relatively strong and increased electricity sales are expected to provide further growth as enabled by the project. The new baseload generation in Sihanoukville relieved the country s dependence on electricity imports from Viet Nam, particularly during the dry season. Although the primary fuel for the new generation (coal) was imported, a degree of energy independence was achieved due to the new transmission capacity. EDC staff members who received training under this project contributed to enhancing the O&M capabilities of EDC. 27. The project s FIRR at completion was estimated at 25.9%, above the project s weighted average cost of capital (WACC) estimated at appraisal to be 4.3%. The PCR did not recalculate the WACC at project completion. The PCR considered the capital and operating costs of the project, the cost of electricity purchases, and the benefits of the electricity sales. Detailed calculation for the FIRR were not presented in the PCR. 28. The PCR did not provide details on how the FIRR was recalculated and therefore, it is not possible for this validation to assess its validity. The PCR also did not provide financial statements (income statement, balance sheet, and funds flow statement) for the past 5 years, although the financial position of EDC appears to be sound, having complied with the financial loan covenants (para. 11 and PCR, Appendix 7). Thus, it was not possible to validate EDC s financial performance as related to the sustainability of the project.however, given the increased uptake of electricity in the project area and the project s delivery of electricity to Phnom Penh, it is reasonable to expect that the FIRR at completion exceeds the FIRR estimated at appraisal (13.2%).Although the WACC was not recalculated, the project is financed with loans and budget allocations from the government and the EDC, and the margins and charges are not reported to have changed. This validation rates the project likely sustainable.

11 9 E. Impact 29. The PCR did not rate the impact, but stated in its overall assessment that the impact on the country s economy is expected to be very significant. The intended impact was (i) the national power grid in the region is extended and provides reliable, adequate, and affordable electricity; and (ii) the quality of power supply in the southern region improves. Impact performance targets at appraisal were (i) increased electrification ratio from 17% in 2005 to 30% in 2010, (ii) reduced average tariff in Sihanoukville from $0.13 $0.20 per kwh in 2006 to $0.08 per kwh by 2010, and (iii) all towns and villages along the transmission lines provided with access to the national power grid. 30. The PCR reported the results while noting some limitations in the indicators. The electrification ratio was achieved by 2010 although the project was not completed until 2014, suggesting that this was not an appropriate indicator. The reduction to $0.08 per kwh in electricity price in Sihanoukville was not achieved. The basis for such a low tariff target was not explained at appraisal. The tariff required to maintain EDC s financial viability is not expected to reach $0.08 per kwh. The towns and villages along the transmission line have access to grid power, although the provision of the medium- and low-voltage circuits along the route were included in the project design, and therefore, the PCR considers this may not have been an appropriate impact indicator. 31. The PCR also indicated that (i) connection to the national grid has reduced tariffs in the project area by as much as $0.05 per kwh, (ii) electricity supply was more reliable and of higher quality, (iii) confidence in EDC s ability to maintain supply is expected to encourage large commercial and industrial electricity consumers to connect to the grid, and (iv) operational efficiency has increased across EDC s network with the project s connection of the new baseload supply to the grid. This validation rates the project s impact satisfactory. 9 III. OTHER PERFORMANCE ASSESSMENTS A. Performance of the Borrower and Executing Agency 32. The PCR rated the performance of the borrower and executing agency satisfactory. It indicated that EDC successfully implemented the project with support and advisory services from implementation consultants. EDC acted as both employer and as project manager of the three main turnkey contracts and mobilized its own engineers to monitor work progress at the project sites on a daily basis. Project implementation consultants inputs were used only when critical engineering supervising works were required. This highlighted a marked increase in EDC s confidence to supervise construction works, which is a positive indicator of its improved technical capacity compared to its work in previous ADB-financed projects. Government and EDC counterpart funds were made available on a timely basis and resettlement activities were carried out in accordance with the resettlement plan. This validation rates the borrower and executing agency performance satisfactory. 9 Beginning May 2016, IED adopts the ratings terminology of the April 2016 Guidelines for the Evaluation of Public Sector Operations on development impacts. In this terminology, a satisfactory rating coincides with the significant rating that was used before.

12 10 B. Performance of the Asian Development Bank 33. The PCR rated ADB performance satisfactory. The project was originally administered from ADB headquarters but administration was transferred to the Cambodia Resident Mission in April 2012 to allow for closer monitoring and timely follow-up actions and assistance. ADB had four project officers involved in project implementation and conducted 13 review missions and special loan administration missions. The missions included site visits and meetings in Phnom Penh, Kampot, and Sihanoukville with project stakeholders. ADB missions provided (i) advice on technical issues; (ii) assistance in preparing and evaluating bid documents; and (iii) monitoring, including participation in a number of monthly progress meetings after the project administration was delegated to the resident mission. This validation rates ADB performance satisfactory. IV. OVERALL ASSESSMENT, LESSONS, AND RECOMMENDATIONS A. Overall Assessment and Ratings 34. The PCR rated the project successful. It was implemented in accordance with arrangements identified during appraisal and, with the exception of initial implementation delays, performed beyond expectations identified at appraisal. Visits by the PCR mission to project sites showed that the project facilities were of high quality, were well-maintained, and were functioning without interruption. The addition of a 115 kv transmission line and substation late in project implementation was a minor change in scope and demonstrated the project s flexibility to accommodate this change. 35. Although this is only link in Cambodia s national grid, the impact of the project on the country s economy is expected to be significant. Providing a reliable and cheaper electricity supply in Sihanoukville should catalyze investment in the area, including the special economic zone. As the country s only deepwater port, its further development is likely to be enhanced now that reliable power supply is in place. In Phnom Penh, the project s impact was also evident with the sharp increase in electricity sales after the project s commissioning in Given that this demand was either not being met or was being met by expensive alternative fuel sources prior to the project, the economic impact of this increase in grid-supplied electricity consumption was also significant. 36. This validation concurs with the ratings of the PCR and also rates the project successful overall. Overall Ratings Criteria PCR IED Review Relevance Relevant Relevant Effectiveness in Effective Effective achieving outcome Efficiency in achieving Efficient Efficient outcome and outputs Preliminary assessment Likely Likely of sustainability sustainable sustainable Overall Assessment Successful Successful Impact Significant Satisfactory Reason for Disagreement and/or Comments

13 11 Criteria PCR IED Review Reason for Disagreement and/or Comments Borrower and executing Satisfactory Satisfactory agency Performance of ADB Satisfactory Satisfactory Quality of PCR Satisfactory Please refer to para. 41. ADB = Asian Development Bank, IED = Independent Evaluation Department, PCR = project completion report. Note: This report uses the ratings terminology of the April 2016 Guidelines for the Evaluation of Public Sector Operations. Source: ADB Independent Evaluation Department. B. Lessons 37. The PCR identified three lessons. First, to minimize delays in achieving loan effectiveness, it was recommended that the proposed loan effectiveness conditions be reviewed and discussed with the borrower and the executing agency during appraisal. Second, to address start-up issues, ADB should assist the executing agency in implementing start-up tasks, such as consultant recruitment and the preparation of comprehensive feasibility studies and detailed engineering designs. Third, the delegation of project administration to the Cambodia Resident Mission helped facilitate closer working relationships between ADB staff and key government and EDC officials, which should greatly benefit future projects. This validation finds these lessons valuable and has no other lesson to offer. C. Recommendations for Follow-Up 38. The PCR suggested eight recommendations. The six project-related recommendations are: (i) for future electricity transmission investments, the short- and long-term planning contexts of the project should be fully articulated and realistic alternatives to the project explored; (ii) EDC should detail all project transactions and reconcile them against the asset values in local currency in EDC s asset register, providing ADB a more complete financial report of the project; (iii) financial reporting requirements of ADB should be clearly explained during project preparation; (iv) to reduce delays in bid evaluation, bidder prequalification should include strict verification of the certificates and references submitted by bidders, and evaluation of the complete list of key personnel; (v) to shorten bid evaluation time frame, technical documents such as technical data sheets, drawings, process descriptions, and manuals should be scrutinized along with formal checks on bid completeness; and (vi) to reduce delays, the detailed engineering design process should include regular meeting cycles, fixed dates for comments on the design and design revisions, and that technical discussions require the presence of the contractor s designers. 39. The two general recommendations were (i) capacity building impacts and outcomes should be given greater consideration in project design and monitoring framework, particularly after project implementation and in follow-on projects; and (ii) noting the number of indicators that were not measurable, include project appraisal technical specialists who will set appropriate targets and pinpoint data sources when developing the indicators. This validation finds these recommendations appropriate and has no other recommendations to offer.

14 12 V. OTHER CONSIDERATIONS AND FOLLOW-UP A. Monitoring and Evaluation Design, Implementation, and Utilization 40. The report and recommendation of the President stated that a number of measurable performance targets were to be selected during the implementation stage to serve as indicators for the project performance monitoring and evaluation system. The number of electricity customers and the demand in various categories were to be monitored using the EDC consumer database, with a separate category for the poor consumers. Efficiencies in utility operations were to be measured by the data on distribution losses, energy sales, employeecustomer ratio, and average cost of service. The degree of compliance with financial covenants was to indicate the financial performance of EDC throughout the implementation period. The effectiveness of the demand management and consumer services component of the project was to be monitored by the Sihanoukville branch of EDC. Within the first year of connections, a baseline survey was to be carried out by EDC to monitor connection rates of householders, electricity expenditures, and other indicators. Two years after the baseline survey, an impact survey was to be carried out by EDC to monitor the project s sustainability and development impact. This requirement was covenanted and the PCR confirmed that the covenant was complied with. However, the PCR did not discuss the project performance management system. Therefore, it is not possible to assess the monitoring and evaluation design, implementation, and utilization of the project performance management system. B. Comments on Project Completion Report Quality 41. The PCR presented the changed project scope and costs in usable detail and considered the indicators provided in the design and monitoring framework. Experiences in project implementation were used to develop useful lessons. The major shortcoming was in the presentation of the EIRR and FIRR calculations to support the efficiency and sustainability ratings (paras. 23 and 28). These EIRR and FIRR calculations are critical components of the project assessment and should be presented with clear statements of assumptions and calculations in accordance with ADB requirements. Overall, the PCR Quality was at the low end of satisfactory. C. Data Sources for Validation 42. Data sources included the report and recommendation of the President, PCR, and loan review mission reports. D. Recommendation for Independent Evaluation Department Follow-Up 43. To confirm the project s economic efficiency and financial sustainability, a project performance evaluation report may be considered in 2017.