Energy and the Millennium Development Goals (MDGs)
Even as the MDGs only carry two energy-specific performance indicators (No. 27 GDP per unit of energy use and No. 28 Carbon dioxide emissions per capita), energy is critical to the achievement of all the goals... More
This summary of the World Bank’s experience in the East Asia and Pacific (EAP) energy sector over the past 15 years is based on reviews conducted by the Bank’s Operations Evaluations Department (OED) and project Implementation Completion Reports.
Power Sector Operations Have Dominated
Power sector operations account for roughly 80 percent of the 68 energy lending operations in EAP involving $12.2 billion since 1990. These operations cut across the power sector: generation, transmission and distribution, rural electrification, renewable energy, and end-user energy efficiency. But power generation (primarily coal-fired and hydroelectric) and transmission and distribution have dominated the EAP portfolio each accounting for roughly a third of all operations. Policy advice has been delivered as part of these operations or as Analytical and Advisory Activities (AAA) outputs.
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Since 1993, IDA has contributed to the post-war rehabilitation of the Phnom Penh transmission and distribution system as well as the establishment of a power sector reform framework. The Phnom Penh Power Rehabilitation project helped bring access to 55,000 new customers (increasing the total to over 88,000 by the project’s close), it reduced system losses from 24 percent to 16.5 percent and phased out institutional inefficiencies in the retail sub-sector. On the sector reform front, the project supported the corporatization of Electricite de Cambodge and the development of the Electricity Act of 2001 which allowed the establishment of the Electricity Authority of Cambodia as an independent regulator. IDA has also supported the formulation of a sector strategy intended to help GoC in establishing its policy and action plans regarding:
- investment priorities for generation and transmission;
- defining a policy for private participation; and
- a pilot program for rural electrification.
But, despite these achievements, the government still lacks the ability for long-term planning in the power sector and Electricite de Cambodge finances remain weak. The need to leverage the Bank’s involvement to strengthen capacity building for long-term planning is an important lesson from the Cambodia experience to date.
Cambodia Energy Priorities and Challenges
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The Bank’s China energy operations have been acclaimed as a success ‘without equal in the Bank’ by OED. During the 1990-2004 period, China was the Bank’s dominant borrower in energy with nearly $6.2 billion in IBRD loans and some $150 million in Global Environment Facility (GEF) funding. Operations involving generation plants (which accounted for roughly a quarter of all China energy operations since 1990) were used as targeted opportunities to demonstrate the benefits of modern technology and management methods, international procurement, and good resettlement practices to the rest of the sector. A handful of transmission projects also transferred modern technology and built capacity. Most of these projects included substantial institutional development components (training, studies, consulting services) ranging from 2 percent to 9 percent of the loan amount. While the Bank’s role in the overall expansion of China’s electric infrastructure was relatively small, it helped build 20 percent of the country’s transmission lines and 20 gigawatts of generation capacity. It also pioneered the first 300MW, 600MW, and 900MW generating plants in China. The Bank significantly supported the development of some of China’s best electric utilities. The achievements of this period paved the way for more ambitious policy reforms of the late 1990s when the Bank played a lead role in power market design. Research and analytical activities focused on energy conservation have also made an important contribution in China.
Some key lessons from the Bank’s China experience are:
an incremental approach to institutional development, initially emphasizing technology transfer and capacity building, can be extremely effective;
internal Bank factors (such as staff continuity, caliber of individual task managers, the existence of a dedicated pool of expertise such as the Asia Alternative Energy Program are critical to building up and sustaining an effective long-term dialogue;
it is important for Bank staff not to lose sight of strong fundamentals while pursuing the introduction of market forces; and
a two-pronged approach that combines high-level policy dialogue with central authorities and a direct operational involvement with a representative set of provincial authorities is essential to success.
China Energy Priorities and Challenges
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Operations in Indonesia’s power sector account for the second largest portion of lending between 1990 and 2004 with some $2.1 billion in IBRD Sector Investment Loans. The physical components of repeated operations have met with success. For example, the Bank helped improve the capacity, efficiency, and reliability of the Java-Bali transmission system and distribution network (notwithstanding problems faced in land acquisition in some cases) as well as the Sumatera and Kalimantan transmission systems. The Bank also supported the successful and timely operation of the Suralaya and Banjarmasin coal-fired power plants despite PLN (Perusahaan Listrik Negara), a government owned power utility continued financial weakness. The Bank also built PLN capacity for managing the economic use of coal for electricity generation, for environmental management in both the coal and power sectors and, to some extent, for transmission system planning.
Two successive rural electrification projects brought electricity access to 10 million households mainly through grid extension and contributed to the increase in Indonesia’s household electrification rate from 32 percent in 1994 to 53 percent in 1999. These projects also built some capacity in PLN for an economic and sustainable rural electrification program. The Asian financial crisis did not allow a grid-connected renewables project to become effective. The crisis also forced the closure of a project intended to disseminate solar home systems through a major market development effort.
Given these successes, the fundamental objective of building an efficient and financially viable power sector in Indonesia remains far from achieved. This is despite a decade of multiple Bank Sector Investment Loans which have carried significant components for unbundling PLN operations, for improving PLN’s financial position, and otherwise supporting the agenda for sector restructuring away from a PLN monopoly and towards a competitive market structure. In part, the Government of Indonesia’s lack of willingness to take necessary steps has not allowed the Bank to make an impact in this important area. And the situation was compounded by the Bank’s own lack of practical experience in the early stages of its involvement in preparing the process and timeline of power sector restructuring from a government-owned monopoly to a competitive market system. With deeper global experience in this area, the Bank has adapted its approach in recent years.
Indonesia Energy Priorities and Challenges
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IDA has supported the Nam Ngum project which became a main source for export earnings for Laos. IDA has also supported the commercialization of Electricite du Laos (EdL) through multiple credits. The partial risk guarantee for the Nam Theun 2 project supports another major contribution to Laos’ export earnings. EdL’s finances were strongly impacted by the steep currency devaluations brought on by the Asian financial crisis. Significant improvements resulted from an IDA-supported Financial Recovery Plan which brought the utility in line with financial covenants in 2002. However, continued improvements in planning, financing strategy, and operations are required to maintain the good performance. IDA’s Southern Province Rural Electrification project has supported EdL’s remarkable effort to increase electricity access from 16 percent of households in 1995 to 38 percent in 2003. IDA has made a substantial contribution to this effort having financed 25-35 percent of the connections at the country level. GEF has contributed substantially to the off-grid component of this electrification effort by supporting implementation activities totaling some 5,000 households to date.
Lao PDR Energy Priorities and Challenges
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The Bank interventions in the supply of coal, heat and power services helped prevent collapse in these sectors. The coal project helped upgrade the physical and institutional capacity of Bagunuur coal mine with the key achievement of commercializing its operation. The project also played an important role in improving coal supply to the central energy system. However, the energy sector remains inefficient and sector governance remained weak. Progress in advancing the energy sector along a more commercial footing is the main goal of the ongoing electricity sector project (including through capacity building in the Energy Regulatory Authority).
Lessons learned from the past decade’s Bank interventions in Mongolia’s power sector include the need for a close assessment of the trade-offs between short-term support and the incentives for long-term reforms; the need for a combined approach to maximize leverage in supporting difficult reforms; and the need to develop alternative energy sources to reach the rural population.
Mongolia Energy Priorities and Challenges
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Since 1990, all six completed power projects met their physical targets by extending the country’s transmission systems, establishing the National Power Coorporation (NPC) national load dispatch center, and improving the performance of many rural electric cooperatives. But these achievements were marred by significant delays and implementation problems due to weak project management, bureaucratic delays in procurement and intractable right-of-way issues.
Despite the achievement of physical objectives, and the partial achievement of sector reform and promotion of private sector participation, the overall outcome of three recently completed projects was rated unsatisfactory mainly because the borrower, NPC, was faced with a serious financial crisis and its growing deficit was a major factor in the deteriorating fiscal position of the country. In recent months, substantial progress has been made by the authorities to place NPC on the path to financial recovery. However, the turnaround of NPC finances is tenuous in nature as continued implementation of power sector reform and privatization remains to be a daunting challenge.
The main lessons of the experience are:
power sector reform requires a multi-year, phased approach and it is important to avoid creating unrealistic implementation expectations and, therefore, sufficient flexibility in project implementation is necessary;
significant risk analysis and risk management are required when reform is attempted in a highly uncertain operating environment (for example, the risk inherent in the high financial cost of the IPP program);
right-of-way and compensation payment issues should be resolved prior to project construction.
Philippines Energy Priorities and Challenges
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Through two major operations in Vietnam’s power sector, International Development Association (IDA) has supported the rehabilitation and strengthening of the transmission and distribution systems, the conversion of generating plants from open to combined cycle operations, and the development of demand-side management business programs through Electricity of VietNam (EVN), the state-owned corporation. IDA has also supported a rural energy project to expand rural electricity access through grid extension, to establish rural electrification institutional mechanisms across the sector, and to promote the application of alternative energy sources in remote areas. Household access to electricity increased dramatically from 50 percent in 1995 to 81 percent in 2003 and the OED Country Assistance Evaluation for Vietnam (2001) attributes this success partially to IDA’s successful power projects. Through a partial risk guarantee to the 715MW gas-fired Phu My 2 BOT power project, IDA facilitated GoV’s mobilization of private sector financing for large-scale infrastructure development.
These projects not only met their physical objectives but also made significant contribution in strengthening institutional capacity for planning and business management in the country’s power companies, supported the corporatization and strengthening of EVN, a government owned power utility, provided input into the recently enacted electricity law, assisted the government in introducing private participation in the generation sector (which took longer than initially expected) and helped formulate an integrated national strategy for rural electrification.
Some areas remain in the category of ‘work in progress’ such as the establishment of a sound legal and regulatory framework, clearly defined roles of private capital and ownership in the sector, and the implementation of tariff policies that will allow EVN to achieve long-term financial sustainability and make the sector attractive to private investors. Improvements in Vietnam’s involuntary resettlement policy also remain in this category.
The major lessons from these projects are that long-run stakeholder ownership is necessary for successful reform implementation. The same lesson applies to the full participation of local rural authorities in the design and implementation of institutional changes. Finally, the appointment of an Independent Monitoring Agency to oversee resettlement plan implementation is important to minimize problems involving displaced persons and to identify problem areas on land acquisition and compensation issues, thus avoiding protracted disputes.
Vietnam Energy Priorities and Challenges
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Regional Power Trade
The Bank has played a key role in developing the foundation for power trade in the Greater Mekong Sub-region (GMS). In collaboration with the Asian Development Bank and with ESMAP support, the Bank has supported the GMS Power Forum and its associated Experts Group through economic and sector work since 1997. This engagement was critical in making the regional trade concept acceptable to stakeholders; developing uniform guidelines acceptable to all parties (policymakers, transmission system operators, and developers); clarifying the gains to be made from trade (not only for the power sector but also for regional competitiveness, the environment, and poverty alleviation); identifying the inadequacies of the transmission infrastructure (in-country as well as regionally); and convincing stakeholders that a gradual development of regional trade through bi-lateral trading is practical and desirable. This work culminated in the signing of an Inter-Governmental Agreement on regional power trade by all GMS countries in 2002.
Asia Alternative Energy Program (ASTAE)
This partnership was established in 1991 by the World Bank and donors to support the transition to environmentally sustainable energy use in developing countries in Asia. ASTAE was able to meet its strategic objective of mainstreaming alternative energy into the World Bank’s energy sector activities by promoting the preparation and implementation of renewable energy and energy efficiency components in the World Banks projects. For the period FY98-00, about 12% of the Banks power sector lending in Asia was for alternate energy components/projects. In line with the changing priorities of the World Bank and the development community as a whole, ASTAE has now included in its objectives access to modern energy services. For the coming three years, ASTAE performance targets are: facilitating Bank and GEF commitments providing access to 1 million households, installation of 1 GW renewable energy capacity, and avoiding the installation of 1 GW of electricity capacity through efficient energy measures. The program will will also focus more on cross-sector applications of renewable energy.
|The Asia Alternative Energy (ASTAE) program has enabled the World Bank to promote renewable energy and energy efficiency |
applications across Asia. More...
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More Information on Results:
Implementation Completion Reports
Asia Alternative Energy Program (ASTAE)
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