Validation Report
Reference Number: PVR-464
Project Number: 37041-013
Loan Number: 2261
December 2016
Cambodia: Second Power Transmission
and Distribution Project
Independent Evaluation Department
ABBREVIATIONS
ADB
EDC
EIRR
FIRR
GWh
JICA
km
kV
kWh
MEF
O&M
PCR
PMO
VAT
WACC
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Asian Development Bank
Electricité du Cambodge
economic internal rate of return
financial internal rate of return
gigawatt-hour
Japan International Cooperation Agency
kilometer
kilovolt
kilowatt-hour
Ministry of Economy and Finance
operation and maintenance
project completion report
project management office
value-added tax
weighted average cost of capital
NOTE
In this report, “$” refers to US dollars
Key Words
adb, asian development bank, cambodia, distribution, energy sector, lessons, performance
evaluation, power sector, project completion report, transmission, validation
The guidelines formally adopted by the Independent Evaluation Department (IED) on avoiding
conflict of interest in its independent evaluations were observed in the preparation of this report.
To the knowledge of IED management, there were no conflicts of interest of the persons
preparing, reviewing, or approving this report. The final ratings are the ratings of IED and may or
may not coincide with those originally proposed by the consultant engaged for this report.
In preparing any evaluation report, or by making any designation of or reference to a particular
territory or geographic area in this document, IED does not intend to make any judgments as to
the legal or other status of any territory or area.
PROJECT BASIC DATA
Project Number
Loan Number
Project Name
Sector and subsector
Theme and subtheme
Safeguard categories
Country
ADB Financing
($ million)
PCR Circulation Date
37041-013
11 May 2016
PCR Validation Date
2261
Dec 2016
Second Power Transmission and Distribution Project
Energy
Electricity transmission and distribution
Sustainable economic growth
Fostering physical infrastructure
development
Environment
B
Involuntary Resettlement
B
Indigenous Peoples
C
Approved
Actual
Cambodia
($ million)
($ million)
ADF: 20.00
Total Project Costs
52.36
66.20
OCR: 0.00
Loan
20.00
20.60
Borrower
Beneficiaries
10.06
0.00
16.80
0.00
0.00
0.00
22.30
28.80
Others
Cofinancier
JICA
Total Cofinancing
Approval Date
4 Oct 2006
Effectiveness Date
Signing Date
1 Dec 2006
Closing Date
S. Hasnie
X. Humbert
P. Hattle
D. Schmidt
O. Nida
Location
ADB headquarters
ADB headquarters
ADB headquarters
ADB headquarters
Cambodia Resident Mission
Project Officers
IED Review
Director
Team members
1 Mar 2007
29 Jan
2008
31 Dec 2010
10 Mar
2015
To
Dec 2008
Dec 2010
Nov 2011
Apr 2012
Mar 2015
From
Oct 2006
Jan 2009
Feb 2011
Nov 2011
May 2012
N. Subramaniam, Officer-in-Charge, IED2
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.
I.
A.
PROJECT DESCRIPTION
Rationale
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,
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 2030.
2.
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 resources3 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 2016.6
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
2
3
4
5
6
Royal Government of Cambodia. 2004. The Rectangular Strategy for Growth, Employment, Equity, and Efficiency
in Cambodia. Phnom Penh.
Ministry of Industry, Mines and Energy. 2005. Cambodia Energy Strategy. Phnom Penh.
ADB. 2006. 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.
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.
ADB. 2003. Report and Recommendation of the President to the Board of Directors to the Kingdom of Cambodia
for the Greater Mekong Subregion Transmission Project. Manila.
ADB. 2016. Completion Report Second Power Transmission and Distribution Project (Cambodia). Manila.
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 2008. The loan was
scheduled to be closed on 31 December 2010, but was actually closed on 10 March 2015.7
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 2008—21 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.
4
implementation delays increased costs by $7 million ($4 million for the lines and $3 million for
the 230 kV substation).8
6.
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.
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.
A.
EVALUATION OF PERFORMANCE AND RATINGS
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 2005–2009, 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, 2006–2010, 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, 2013–2018, 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 2014–2018 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.
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 2010. The project was not completed until 2014, by which time EDC’s annual electricity sales
were 600% higher than in 2006. 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 2017. 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. 12–13).
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 2010–2014. 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
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.
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.
A.
OTHER PERFORMANCE ASSESSMENTS
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.
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.
A.
OVERALL ASSESSMENT, LESSONS, AND RECOMMENDATIONS
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 2014. 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
Relevance
Effectiveness in
achieving outcome
Efficiency in achieving
outcome and outputs
Preliminary assessment
of sustainability
Overall Assessment
Impact
PCR
Relevant
Effective
IED Review
Relevant
Effective
Efficient
Efficient
Likely
sustainable
Successful
Significant
Likely
sustainable
Successful
Satisfactory
Reason for Disagreement
and/or Comments
11
Criteria
Borrower and executing
agency
Performance of ADB
Quality of PCR
PCR
Satisfactory
IED Review
Satisfactory
Satisfactory
Satisfactory
Satisfactory
Reason for Disagreement
and/or Comments
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.
12
V.
A.
OTHER CONSIDERATIONS AND FOLLOW-UP
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.