ISLAMABAD: The Independent Evaluation Department (IED) of the Asian Development Bank (ADB) has rated the “Energy Efficiency Investment Programme” for Pakistan less than successful, less than relevant, and less than effective due to design deficiencies, poor coordination, and weak institutional capacity.
The IED in its validation report stated that ADB approved a multi-tranche financing facility (MFF) of $780 million in 2009 for the Energy Efficiency Investment Programme in Pakistan in response to the government’s request to support its energy efficiency program.
The MFF was designed with four tranches to finance projects on supply and demand side efficiency and investment program management. Tranche 1 focused on two specific projects: The National Compact Fluorescent Lamp (CFL) Project and the Investment Program Management Support Project. Tranche 2 was aimed at improving energy efficiency among industrial consumers.
Tranche 3 would have financed rehabilitating or replacing inefficient thermal power plants. Tranche 4 would have paid for the upgrade of gas compressors. The government’s focus on demand management lessened with the change in government, which prioritized increasing supply. Institutional inertia slowed down the implementation and tranches 2, 3, and 4 were eventually cancelled. The MFF and tranche 1 are the subjects of this validation.
The MFF and tranche 1 loans were approved in September 2009. Tranche 1 comprised an ADB ordinary capital resources (OCR) loan and an Asian Development Fund (ADF) loan, both became effective in July 2010; and a co-financing loan from Agence Française de Développement (AFD) which became effective in August 2010. The loan and project agreements were signed in April 2010 for the ADB loans and July 2010 for the AFD loan.
Project completion of tranche 1 was delayed by more than two years for the OCR loan, more than 1 year for the ADF loan, and more than two years for the AFD loan. The OCR loan was extended twice while the ADF loan was extended once. The OCR loan financially closed in May 2015, ADF loan in March 2019, and the AFD loan in June 2015.
Tranche 1 was delayed due to lack of project ownership within the government, overambitious targets in its design and monitoring framework (DMF), procurement delays due to the cumbersome approval process, CFL distribution delays attributable to poor and lower than expected up-take from customers, and poor consultants’ performance. The whole program financially closed in March 2019.
At appraisal, the MFF’s total estimated cost was $1,180 million, with $780 million from ADB, $200 million from AFD, and the balance from the government. The program completion report (PCR) indicated that tranche 1’s total estimated cost was $100 million, including $30 million from ADB’s OCR and €20 million ($25 million) from AFD for the National CFL Project and $20 million from ADB’s ADF for the Investment Program Management Support Project.
At completion, the actual total cost was $69.4 million. There were several investment cancellations during project implementation including the number of CFL units, consulting services were not fully utilized, the lamp waste management facility (LWMF) was not procured, and the incremental program management office (PMO) staff was only partially implemented. Additionally, competitive bids from CFL suppliers totalled $42.9 million, instead of the anticipated $56.0 million.
The PCR rated the program less than relevant. At appraisal, the program and its intended outcomes were aligned with the government’s policies. During implementation, energy efficiency was not any more a high priority for the government. Since 2010, the principal goal of its energy policy has been to increase generation capacity and transmission infrastructure, making the expected outputs designed at appraisal less relevant. Not surprisingly, the institutional ownership of the project weakened at the implementation stage.
The program's overly ambitious DMF targets seriously affected the delivery of its intended outputs and outcomes. Some indicators were not easily attributable to this investment program.
The PCR rated the program less than effective. Policy implementation was slow due to poor coordination and weak institutional capacity resulting in substantial delays. The program’s planned outcomes were mainly not achieved. For the period 2012–2019, household energy bills increased. The installed capacity of renewable generation (including hydropower) increased from 6,627 MW to 11,768 MW but did not increase the share in the generation mix. Moreover, tariffs for commercial customers rose. By 2020, utilities and financial and operating performance did not improve. Private sector interest in establishing energy service companies appeared to be limited. As of 2020, load shedding remained a problem in many, if not all DISCO service areas. The share as a percentage of overall energy use of energy imports (including natural gas) increased to 24.1 per cent in 2014. Also, fuel imports had been relatively constant as a percentage of merchandise imports.
The program’s planned outputs were, in general, not achieved. The National Energy Efficiency and Conservation Authority, whose role was to mainstream energy efficiency, was established in 2016, 7 years behind schedule. As of 2019, the minimum energy performance standards for equipment and appliances were not established and the public procurement guidelines, revised to mandate energy efficiency by 2011, were not in place. From 2010 to 2018, electricity peak demand rose from 21,029 MW to 30,268 MW, an annual growth rate of 4.7 per cent, while greenhouse gas emissions were not reduced by 1 million tons of carbon dioxide equivalent (tCO2e) from 2010. Gas, coal, and oil consumption increased in the periods of 2013–2014 and 2017–2018. However, a 10-year national energy efficiency action plan was adopted by 2010.
The PCR rated the project less than efficient. There were multiple delays under tranche 1. Distribution of CFLs was delayed by up to three years and the program actual completion date was more than two years for each loan. The LWMF was dropped from the project scope.
The PCR rated the project less than likely sustainable. At appraisal, the project’s financial internal rate of return (FIRR) was estimated at 97.62%, which was well beyond the usual 8%–10% for energy projects in this sector. The PCR provided a recalculated FIRR of 22.7% with revised assumptions used at appraisal.
The PCR rated the program and tranche 1 development impact less than satisfactory. The anticipated impacts of tranche 1 were only partially achieved. As of 2020, load shedding remains throughout Pakistan. The goal of saving 4.5 megatons of oil equivalent of energy savings per year, starting from 2014, was not achieved. The carbon dioxide emissions rose by 2.7 per cent in absolute terms.
The program’s target outcomes were not achieved. The weighted average tariff across categories of residential users went increased by 6.9 per cent annually from 2010 to 2018. During the same period, the peak load increased with an annual growth rate of 4.7 per cent. Several of tranche 1’s target outcomes were partially achieved. The annual energy savings targets were not achieved. The LWMF was not established. This validation assesses the development impact of the MFF and tranche 1 less than satisfactory.
The PCR rated ADB's performance less than satisfactory. The MFF, as the financing modality, was not the best option for this program. The program ran into significant delays, cancellations, and underutilisation of available funds.
Copyright Business Recorder, 2022
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