Project Performance Audit Report on the Power Rehabilitation Project in Cambodia

Asian Development Bank

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ASIAN DEVELOPMENT BANK PPA:CAM 28113 PROJECT PERFORMANCE AUDIT REPORT ON THE POWER REHABILITATION PROJECT (Loan 1345-CAM[SF]) IN CAMBODIA July 2003 CURRENCY EQUIVALENTS Currency Unit – riel (KR) At Appraisal At Completion At Operations Evaluation August 1994 August 1999 April 2003 KR1.00 = $0.0004 $0.00026 $0.00025 $1.00 = KR2,500 KR3,850 KR3,950 ABBREVIATIONS ACCPAC – Accounting Package (integrated accounting software) ADB – Asian Development Bank EA – executing agency EAC – Electricity Authority of Cambodia EdC – Electricité du Cambodge EIRR – economic internal rate of return FIRR – financial internal rate of return HFO – heavy fuel oil IAP – international accounting practice IPP – independent power producer MEF – Ministry of Economy and Finance MIME – Ministry of Industry, Mines and Energy O&M – operation and maintenance OEM – Operations Evaluation Mission PCR – project completion report PPAR – project performance audit report SCF – standard conversion factor SDR – special drawing rights TA – technical assistance UNDP – United Nations Development Programme VAT – value added tax WB – World Bank WEIGHTS AND MEASURES GWh – gigawatt-hour (1 million kWh) kV – kilovolt kWh – kilowatt-hour MW – megawatt (1 million watt) NOTES (i) The fiscal year (FY) ...

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• Publié par: Obbi
• Nombre de lectures: 20
• Langue: English

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            ASIAN DEVELOPMENT BANK PPA:CAM 28113                    

     

 

 

PROJECT PERFORMANCE AUDIT REPORT     ON THE     POWER REHABILITATION PROJECT (Loan 1345-CAM[SF])   IN

CAMBODIA                                 July 2003

 

  CURRENCY EQUIVALENTS   Currency Unit – riel (KR)    At Appraisal At Completion At Operations Evaluation  August 1994 August 1999 April 2003       KR1.00 = $0.0004 $0.00026 $0.00025 $1.00 = KR2,500 KR3,850 KR3,950   ABBREVIATIONS     ACCPAC – Accounting Package (integrated accounting software)  ADB    Development Bank– Asian  EA – executing agency  EAC – Electricity Authority of Cambodia  EdC – Electricité du Cambodge  EIRR – economic internal rate of return  FIRR – financial internal rate of return  HFO – heavy fuel oil  IAP – international accounting practice  IPP – independent power producer  MEF – Ministry of Economy and Finance  MIME – Ministry of Industry, Mines and Energy  O&M – operation and maintenance  OEM – Operations Evaluation Mission  PCR – project completion report  PPAR – project performance audit report  SCF – standard conversion factor  SDR – special drawing rights  TA – technical assistance  UNDP – United Nations Development Programme  VAT – value added tax  WB – World Bank   WEIGHTS AND MEASURES      gigawatt-hour (1 million kWh)GWh –  kV – kilovolt  kWh – kilowatt-hour  MW – megawatt (1 million watt)    NOTES   (i) The fiscal year (FY) of the Government ends on 31 December. (ii) In this report, “$” refers to US dollars.   Operations Evaluation Department, PE-622    

CONTENTS 

    BASIC DATA EXECUTIVE SUMMARY MAP   I. BACKGROUND  A. Rationale  B. Formulation  C. Purpose and Outputs  D. Cost, Financing, and Executing Arrangements  E. Completion and Self-Evaluation  F. Operations Evaluation   II. PLANNING AND IMPLEMENTATION PERFORMANCE  A. Formulation and Design  B. Achievement of Outputs  C. Cost and Scheduling  D. Procurement and Construction  E. Organization and Management   III. ACHIEVEMENT OF PROJECT PURPOSE  A. Operational Performance  B. Performance of the Operating Entity     C. Financial and Economic Reevaluation     D. Sustainability   IV. ACHIEVEMENT OF OTHER PROJECT IMPACTS  A. Socioeconomic Impact  B. Environmental Impact  C. Impact on Institutions and Policy   V. OVERALL ASSESSMENT  A. Relevance  B. Efficacy  C. Efficiency  D. Sustainability  E. Institutional Development and Other Impacts  F. Overall Project Rating  G. Assessment of ADB and Borrower Performance   VI. ISSUES, LESSONS, AND FOLLOW -UP ACTIONS  A. Key Issues for the Future  B. Lessons Identified  C. Follow-Up Actions   APPENDIXES  1. Estimated and Actual Project Costs 2. Loan Disbursements 3. Implementation Schedule 4. Electricité du Cambodge Financial Performance 5. Financial Performance of Individual Project Areas 6. Financial and Economic Reevaluation  

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    BASIC DATA Power Rehabilitation Project (Loan 1345-CAM[SF])   Institution Building Technical Assistance TA No. TA Name Type Person-Months Amount Approval Date TA 2243 Power Sector Manpower ADTA 15.0 $500,000 15 Dec 1994 Development and Training   ADTA = advisory and o perational technical assistance, TA = technical assistance.   KEY PROJECT DATA($ million)As per ADB Loan Documents Actual Total Project Cost 35.3 31.5 Foreign Exchange Cost 27.0 25.9 ADB Loan Amount/Utilization 28.2 25.9 ADB Loan Amount/Cancellation 2.2    ADB = Asian Development Bank.   KEY DATES   Expected Actual Fact-Finding 9–20 May 1994 Appraisal 17–26 Aug 1994 Loan Negotiations 14–16 Nov 1994 Board Approval 15 Dec 1994 Loan Agreement 3 Mar 1995 Loan Effectiveness 1 Jun 1995 15 May 1995 First Disbursement 18 Dec 1995 Project Completion 30 Jun 1999 30 Jun 2000 Loan Closing 31 Dec 1999 26 Sep 2000 Months (effectiveness to completion) 49.0 61.5   ECONOMIC AND FINANCIAL INTERNAL RATES OF RETURN      (%)FIRR (%) EIRR    Appraisal PPAR PPAR PCRAppraisal PCR Phnom Penh  24.1 37.4 6.6 8.9 18.3 44.3 Sihanoukville  9.1 13.6 15.2    15.6 24.9 16.1 Siem Reap  12.9      14.9      11.9                19.8 33.2 15.5 EIRR = economic internal rate of return, FIRR = financial i nternal rate of return, PCR = project completion report, PPAR = project performance audit report.   BORROWER of Cambodia Kingdom EXECUTING AGENCY Ministry of Industry, Mines and Energy Electricité du Cambodge MISSION DATA Type of Mission No. of Missions Person-Days Consultation Fact-Finding 1 20 Appraisal 1 60 Project Administration  Review 6 25  Pr Operati o o je n c s t     E C v o a m lu p a l t e i t o io n 1 n 3 1    0 75 1 

                                                     1  i s s i o n M o m p r i s e d c . H a n g W h e T p e r a t i o n s O v a l u a t i o n E e a d e r ) ,/ M i s s i o n L S p e c i a l i s t  ( E v a l u a t i o n G. Brown (International Staff Consultant), and E. Orr (Local Staff Consultant). The Mission visited Cambodia from 31 March to 16 April 2003.

 

EXECUTIVE SUMMARY   In 1994 when the Power Rehabilitation Project (the Project) was appraised, Cambodia was emerging from a period of political turmoil and civil war that had lasted for two decades. As a result, the electricity infrastructure had suffered from years of neglect. The generation and distribution facilities were in extremely poor condition because of age and lack of proper maintenance. The capacity of the power supply was inadequate, system losses were unacceptably high, and the reliability and quality of supply were poor. The expertise necessary for proper management and maintenance of the power system was not available.   The Project was formulated to address those issues. Its design emerged from an ongoing policy dialogue between the Government and the Asian Development Bank and complemented the efforts of other aid agencies. It recognized the urgent need to rehabilitate the physical electricity supply infrastructure to help stimulate economic growth. In addition, the Project was designed to strengthen the institutional arrangements supporting the supply of electricity within Cambodia.   The Project consisted of (i) construction of a new 5-megawatt diesel power station in Sihanoukville; (ii) rehabilitation and expansion of the high- and low-voltage distribution systems in Sihanoukville, Siem Reap, and the northeast of Phnom Penh; (iii) provision of a technical training center, and training aids to train the staff of Electricité du Cambodge (EdC) in construction, operation, and maintenance techniques for electricity generation and distribution systems; and (iv) provision of a modern commercially based accounting system in Sihanoukville and Siem Reap.   The Project was implemented largely as planned in terms of scope, cost, and schedule. The power station and distribution systems installed under the Project are well designed, operated, and maintained. Since commissioning, EdC has maintained the power station engines and generators in accordance with the manufacturer’s recommendations. The distribution systems contain no moving parts, are inherently designed for a much longer life, and need less regular maintenance. These networks were designed to standards developed prior to project commencement and so are similar to networks funded by other external assistance agencies. A major design objective was reliability. Accordingly, the high-voltage distribution system backbone is fully underground in urban areas, while the overhead low-voltage distribution uses aerial bundled conductors. The high-voltage network backbone has ample capacity to meet the foreseeable electricity demand in the project areas and can be extended to serve the surrounding areas. Electrical losses in the project areas are now around 15%, compared with up to 50% at the time of appraisal.   The new training center on the outskirts of Phnom Penh is well managed and continues to meet EdC’s ongoing staff training requirements. After completion of the Project, a training advisor, funded under a French grant, worked with EdC staff through mid-2001 and assisted with the development of course curricular and detailed training materials. This has contributed to the success of the training component. The training center will be used to train staff from other provincial capitals as their distribution networks are absorbed into EdC.   The attempt to install a modern integrated accounting package in Sihanoukville and Siem Reap was not successful, and the accounting software provided under the Project has not been used in either office since early 1998. Accounts in both offices are now kept on spreadsheets, using hardware and software provided under the Project. These accounts meet all requirements of EdC, the Ministry of Mines and Energy, and the Ministry of Economy and

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Finance and are a significant advance from the paper-based accounting methods that were used at appraisal. On hindsight, the objective of moving to a modern integrated accounting system appears to have been overly ambitious.   EdC is a much more professional and better managed organization than it was at the time of appraisal. It was corporatized in 1997 in accordance with one of the loan covenants, and its compliance with other nonfinancial loan covenants has further contributed to its becoming a more disciplined and better structured organization. Since completion of the Project, reform has continued in the power sector. In particular, the passing of the Electricity Law in February 2001 has led to the establishment of the Electricity Authority of Cambodia as an independent regulator.      The Project had no unintended socioeconomic impacts during construction and operation. It has significantly reduced the visual impact of electricity distribution by replacing the proliferation of conductors that existed prior to rehabilitation with a limited number of larger conductors, designed and installed in an aesthetic way. No adverse environmental impacts were anticipated at appraisal and none have occurred. Nevertheless, the Project has not been able to replace the large number of inefficient, small, privately owned generators to the extent envisaged at appraisal in either Sihanoukville or Siem Reap, where even relatively small businesses such as restaurants still rely on private generation to meet the bulk of their electricity requirements.    Overall, the Project is rated successful. The performance of both ADB and the Government is rated satisfactory.   The key issue for the future of EdC is the need to improve its financial performance so as to ensure long-term sustainability. EdC’s financial problems arise from its high generating costs, due to its almost exclusive reliance on oil-fired, low-speed reciprocating engines. This problem is exacerbated by the fact that it is very heavily taxed. As current tariffs in Cambodia are the highest in the region, efforts must focus on reducing costs, particularly the cost of generation, rather than raising revenues through increasing tariffs. The prospects for reducing generation costs are good, particularly over the longer term. In the shorter term, cost reduction efforts must focus on possible tax reductions, replacement of diesel with heavy fuel oil, and further loss reduction initiatives.   It is therefore recommended that a policy dialogue be initiated with the Government over the economic impact of the current high level of taxation and the appropriate level of taxation to be applied to EdC. It may be that tariff reductions resulting from lower levels of taxation will stimulate economic growth to the extent that the loss of revenue to the Government will be fully offset.   The Project has yielded four main lessons. First,   support for the introduction of a commercially based accounting system in Sihanoukville and Siem Reap was inadequate. The transition to the use of a computerized state-of-the-art accounting system required a major cultural shift, which necessarily takes a significant time to implement and establish. The consultant should have been required to assist with preparing the annual accounts for 1997 and also to be available as required throughout 1998. Second, questions arise on the extent of the relevance of the accounting system that was implemented to the requirements of EdC’s provincial officers. There is little evidence of systematic needs analysis undertaken to determine exactly what was required. Such an analysis could well have identified the need for a less complex customer billing system. Third, EdC’s inability to utilize the automatic plant control

 

 

simulator highlights the lack of coordination between the delivery of the equipment and completion of civil works. Lastly, a project design weakness was the absence of policy components that address broader sector issues such as high tariff and reliance on oil-fired power generation, which resulted in less than expected socioeconomic impacts of the Project.  

 

 

 

I. BACKGROUND

  A. Rationale   1. At the time of project appraisal in 1994, electricity infrastructure in Cambodia was suffering from years of neglect due to a long civil war. The generation and distribution facilities were in extremely poor condition because of age and lack of proper maintenance. The capacity of the power supply was inadequate, system losses were unacceptably high, and the reliability and quality of supply were poor. The expertise necessary for proper maintenance of the system was not available. The Project 1  was formulated to address these issues while meeting the Government’s objectives for the power sector and consistent with the Asian Development Bank for the sector. This was the fir ( re A s D u B m )  e s d t   ra o t p e e g r y a   tions in Cambodia in 1992 alth s o t  ug A h D   B a   n l   o e a a n r   l t ie o r     th e e m   e e r n g e e r n g c y y     s l e o c a t n o 2 e   d A   e a rf c t l   ud a  in  DBr   component for rehabilitating electricity supply facilities in Phnom Penh.   B. Formulation   2. The design of the Project emerged from an ongoing policy dialogue between the Government and ADB. It complemented the efforts of other aid agencies and recognized the urgent need to rehabilitate the physical electricity supply infrastructure to help stimulate economic growth. Furthermore, it recognized the need to strengthen the institutional arrangements supporting the supply of electricity within Cambodia, following neglect throughout the civil war.    3. During the Country Programming Mission in January 1994, the Government requested ADB assistance to rehabilitate the power generation and distribution facilities in Siem Reap and Sihanoukville, continue the rehabilitation and upgrading of the distribution system in Phnom Penh, and provide a technical training facility for Electricite du Cambodge (EdC). The Project was processed without project preparatory technical assistance (TA). ADB staff formulated the Project on the basis of information gathered in a Fact-Finding Mission in May 1994 and an Appraisal Mission in August 1994. Loan negotiations were completed in November 1994.   C. Purpose and Outputs   4. The Project had two major objectives. The first was to rehabilitate and expand the power supply infrastructure in a part of Phnom Penh (the political and commercial center of the country with a population of 600,000), Sihanoukville (the only maritime port in the country with a population of 80,000), and Siem Reap (the major tourist city with a population of 69,000), thereby assisting EdC to meet the increasing demand for electricity efficiently and economically and supporting economic growth. The second was to provide training and support to EdC staff in technical and administrative areas to ensure that sufficient skills exist in the organization to operate and maintain the rehabilitated systems. In conjunction with the loan, an attached advisory TA 3  was provided for the preparation of a manpower development and training program for EdC.                                                      1     Loan 1345-CAM(SF):Power Rehabilitation Project, for $28.2 million equivalent, approved on 15 December   1994.   2  Loan 1199-CAM:Special Rehabilitation Assistance Loan, for $67.7 million, approved on 26 November 1992. The power sector component consisted of construction of an 18 megawatt (MW) power plant in Phnom Penh, provision of urgently needed spare parts for 7x2.1 MW generating sets, and reinforcement and rehabilitation of part of the distribution system in Phnom Penh. The total cost of these facilities was $19.0 million. 3    TA 2243-CAM:Power Sector Manpower Development and Training, for $500,000, approved on 15 December 1994.  

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5. At appraisal, the Project had the following components:    (i) construction of a diesel power plant of 5 MW in Sihanoukville; (ii) rehabilitation and expansion of the medium- and low-voltage distribution networks in Sihanoukville; (iii) construction of a diesel power plant of 1 MW in Siem Reap; (iv) rehabilitation and expansion of the medium- and low-voltage distribution networks in Siem Reap; (v) rehabilitation and expansion of the Phnom Penh distribution system; (vi) establishment of a technical training center in Phnom Penh to train EdC staff in all aspects of power generation and distribution; and (vii) introduction of a commercially based accounting system at the provincial level.   6. Financing to construct the 1 MW diesel power plant in Siem Reap was later cancelled after it was agreed that this plant would be financed by French grant aid. The unutilized loan amount was reallocated to extend the coverage of the high- and low-voltage distribution systems in Siem Reap. Furthermore, a cheaper skid-mounted power station design was used at Sihanoukville, allowing more funds to be diverted to distribution system rehabilitation.   D. Cost, Financing, and Executing Arrangements   7. The estimated project cost at appraisal was $35.3 million equivalent, comprising foreign exchange of $27 million and local currency of $8.3 million equivalent. The approved ADB loan of $28.2 million was to be used to finance the entire foreign exchange cost of the Project and a portion of the local currency cost amounting to $1.2 million. The Government was to meet the remaining local currency cost of $7.1 million equivalent. Details of the cost breakdown by project component are in Appendix 1.   8. The Ministry of Industry, Mines, and Energy (MIME) through EdC was the Executing Agency (EA) for the Project. The general manager of EdC was responsible for overall management of project implementation and for liaison between the Government and ADB. Given the limited experience of EdC management in implementing projects of this size, three departments––project implementation, planning, and corporate finance––were initially supported by foreign advisors, funded by the loan. A project management unit within the Project Implementation Department of EdC was responsible for the day-to-day management of procurement contracts. International consultants, financed under the loan, supervised the design, procurement, and implementation of the project contracts.   E. Completion and Self-Evaluation   9.   The project completion report (PCR), circulated in November 2001, rated the Project highly successful because it was implemented almost as conceived in terms of scope, project cost, and implementation schedule. The PCR provided a comprehensive overview of the project scope and implementation. After successful implementation of the Project, significant improvements were achieved in the availability, reliability, and quality of the power supply in the project areas. The technical training center in Phnom Penh was completed although delayed and met the requirements identified in the associated TA (footnote 3). The PCR also considered the TA highly successful in meeting its objectives in developing appropriate training programs for EdC.  

 

  

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10. The main issues identified in the PCR included (i) inadequate fluency in English of EdC staff that reduced the effectiveness of training and increased the cost of operating the technical training center, and (ii) noncompliance with some financial covenants that were deemed too tough for a newly corporatized EdC. The PCR also indicated concerns about future operation and maintenance (O&M) of project facilities in view of the high cost of spares for the generating equipment. Some observations in the PCR relating to the training center and introduction of a commercially based accounting system were inconsistent with the findings of the Operations Evaluation Mission (OEM). The economic analysis in the PCR produced considerably higher economic returns for the project components compared with the appraisal estimates. The OEM did not find sufficient evidence of a larger consumer surplus as claimed in the PCR (para. 57).   F. Operations Evaluation   11. This project performance audit report (PPAR) reviews the findings of the PCR and assesses the Project in terms of relevance, efficacy, efficiency, sustainability, and institutional and other developmental impacts. The assessment is based on a review of ADB documents, discussion with ADB staff, and findings of the OEM. The OEM visited Phnom Penh, Siem Reap, and Sihanoukville during 31 March–16 April 2003 and held discussions with representatives from MIME, Electricity Authority of Cambodia (EAC), and EdC. The views of ADB’s concerned departments were taken into account in finalizing the PPAR. Copies of the draft PPAR were forwarded to Ministry of Economy and Finance, MIME, EAC, and EdC on 21 May 2003 with a request that comments be provided within 2 weeks. Although the request was followed up subsequently, no comments were received. It was, therefore, assumed that the Government and EdC endorsed the PPAR.   II. PLANNING AND IMPLEMENTATION PERFORMANCE   A. Formulation and Design   12. The Project was formulated with the objective of rehabilitating the physical electricity supply infrastructure in Phnom Penh, Sihanoukville, and Siem Reap and to strengthen the institutional management and structure of EdC. The Project conformed to the Government strategy for the power sector in the short and medium term and was in line with ADB’s interim term strategy 4 for the power sector in Cambodia.   13. Rehabilitation of the distribution system in Phnom Penh was seen as a priority because of Phnom Penh’s importance to the national economy as the political and commercial center. This component of the Project was designed to complement similar rehabilitation work in other parts of the city that had been financed by the French and Irish governments and by the World Bank (WB), in addition to work financed by ADB under a previous emergency loan (footnote 2).   14. The rehabilitation of the electricity generation and distribution systems in Sihanoukville was seen as important, as Sihanoukville is Cambodia’s only seaport. Similarly, rehabilitation of the distribution system in Siem Reap would support the development of a tourist industry, as Siem Reap is the gateway to the world famous Angkor temple complex.   15. The distribution system design was consistent with the technical standards that had been developed by EdC, with the assistance of advisors funded by the United Nations                                                      4 the power sector in Cambodia was set out in the Economic Review and Bank ADB’s interim term strategy for Operations Paper circulated to the Board in June 1994.