Technical Assistance Report Project Number: 45240 Research and Development Technical Assistance (RDTA) November 2011 Assessment of Power Sector Reform in Asia and the Pacific The views expressed herein are those of the consultant and do not necessarily represent those of ADB s members, Board of Directors, Management, or staff, and may be preliminary in nature.
ABBREVIATIONS ADB Asian Development Bank CoP DMC community of practice developing member country ERD OECD TA TASF Economics and Research Department Organisation for Economic Co-operation and Development technical assistance Technical Assistance Special Fund TECHNICAL ASSISTANCE CLASSIFICATION Type Research and development technical assistance (RDTA) Targeting classification General intervention Sector (subsector) Energy (Energy sector development ) Themes (subthemes) Economic growth (promoting economic efficiency and enabling business environment); environmental sustainability (environmental policy and legislation); private sector development (private sector investment); governance (public administration) Location impact National (high); regional (medium) Partnerships Potential collaboration with energy planning and statistical agencies, local research institutions, and development partners NOTE In this report, $ refers to US dollars. Vice-President Chief Economist Assistant Chief Economist Team leader Team members Peer reviewer U. Schäfer-Preuss, Knowledge Management and Sustainable Development C. Rhee, Economics and Research Department (ERD) C.Y. Park, Economic Analysis and Operations Support Division, ERD K.Y. Nam, Senior Economist, ERD D. Bui, Senior Energy Economist, Southeast Asia Department M.E. Khan, Principal Economist, ERD J. Liston, Principal Energy Specialist, Central and West Asia Department (CWRD) L. Mtchedlishvili, Energy Specialist, CWRD K. Mulqueeny, Senior Counsel, Office of the General Counsel J. Samson, Economics Officer, ERD P. Wijayatunga, Senior Energy Specialist, South Asia Department J. Tian, Advisor, Regional and Sustainable Development Department In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.
I. INTRODUCTION 1. Rapid population and economic growth in Asia and the Pacific continue to create high levels of demand for energy and electricity. Given the increasing scale of energy and electricity use, about 800 million people still have no access to basic electricity services in Asia and the Pacific. 1 Now and in the foreseeable future, the increasing trend and pattern of energy use are expected to create far-reaching environmental consequences such as climate change. Achieving energy security, mitigating the impacts of climate change, and improving energy access for all will require a strong and more responsive energy sector to deliver structural as well as policy reforms to boost power sector development toward achieving more inclusive and environmentally sustainable economic growth. 2. In the last 40 years, the Asian Development Bank (ADB) has been providing assistance to its developing member countries (DMCs) in the energy sector, particularly on power expansion programs and infrastructure, institutional capacity building, power sector reforms, governance, and efficiency improvements. Promotion of institutional and policy reforms to enhance the operational efficiency and sustainability of energy operations and infrastructure in the DMCs is among the core areas of ADB s Strategy 2020. 2 In support of this framework, ADB s Energy Policy 3 considered energy sector reform, capacity building, and governance as important pillars in helping DMCs provide reliable, adequate, and affordable energy to achieve inclusive growth in a socially, economically, and environmentally sustainable way. 3. In light of this, the technical assistance (TA) aims to review and conduct an assessment of the ongoing power sector reform in Asia and the Pacific. It will evaluate the outcomes of reforms in at least three countries 4 in the region and build on relevant ADB project experiences and research outputs on power sector reforms 5 to provide insight toward more effective policy and an improved regulatory and operational environment for power sector development in the DMCs. In consultation with the regional departments, the Energy CoP, and other departments, the concept paper prepared for the TA was approved on 19 September 2011 by ADB s vicepresident (knowledge management and sustainable development). The design and monitoring framework is in Appendix 1. 6 1 Asian Development Bank s Energy for All Initiative. http://beta.adb.org/sectors/energy/programs/energy-for-allinitiative 2 ADB. 2008. Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank, 2008 2020. Manila. http://www.adb.org/documents/policies/strategy2020/strategy2020-print.pdf 3 ADB. 2009. Energy Policy. Manila. http://www.adb.org/documents/policies/energy-policy/energy-policy-2009.pdf 4 Country selection will proceed in consultation with the regional departments and will be subject to the support of, and issue of no-objection letters by, participating countries. Proposed countries include Georgia, Sri Lanka, Viet Nam, and others to be decided. 5 The TA will build on studies conducted by the ERD (ADB.2003. Restructuring and Regulatory Reform in the Power Sector: Review of Experiences and Issues. ADB Economics Working Paper Series No. 52. Manila: Asian Development Bank, OGC work on sector reforms and regulatory framework in ASEAN countries; and relevant projects (ADB. 2004. Technical Assistance to Viet Nam for Roadmap for Power Sector Reform. Manila, ADB. 2010. Technical Assistance for Study on a South Asia Regional Power Exchange. Manila, ADB. 2009. Technical Assistance for Central Asia Regional Economic Cooperation: Power Sector Regional Master Plan. Manila and ADB. 2011. Technical Assistance for the Assessment and Implications of Rationalizing and Phasing-out Fossil Fuel Subsidy. Manila). 6 The TA first appeared in the business opportunities section of ADB s website on 24 October 2011.
2 II. ISSUES 4. Although countries in Asia and the Pacific have been undertaking power sector reforms during in the last 20 years, results have been mixed in terms of physical, economic, and institutional milestones, particularly in the areas of market structure, private participation, and regulatory framework. Most have generally been tentative and incomplete, and remain works in progress. The reform initiatives have mainly been focused on institutions and processes that influence the relationship between power utilities and the public sector; the limited efficiency of public sector management, accountability, legal framework, and information flows have often resulted to inadequate services and incentives to meet consumer demands efficiently. Although the importance of institutions and their undertakings have emerged amid large investment needs in the power sector, the sector has yet to create an enabling environment in which investors and operators can face reasonable commercial risks, and in which consumers, regulators, and other stakeholders honor the contractual rights of power suppliers to recover their revenues. This has discouraged private sector investment in the power sector. 5. Countries in Asia and the Pacific looked at successful experiences of sector reform from countries of the Organisation for Economic Co-operation and Development (OECD) like Australia and the United Kingdom, in terms of effective privatization and competition in the power sector, through radical market liberalization both in the wholesale and retail markets for electricity. This has resulted in improved performance of their power sectors (i.e., reduced supply costs, high service quality, improved investment decisions, and innovation in supplying customers). Building on the success of OECD experiences, many Asian countries over the last 20 years have started to initiate power sector reform to address key reform challenges such as: (i) weak initial starting conditions of reform implementation; (ii) power market restructuring in the electricity supply industry, where large state-owned structures remain technically lacking under vertically integrated systems; (iii) less developed power sector with limited power supply capacity; (iv) fiscal pressure, in particular, disenchantment with the poor performance of publicly-owned utilities; (v) rapid power demand growth including demand for access to electricity supply from currently unconnected households which offer unfavorable conditions for restructuring, in turn, allowing insufficient time for introducing reform; and (vi) weak governance of the power market. 6. Since the power sector will continue to play a key role in the region s rapid economic growth, it is highly relevant to revisit and assess the power sector reform developments, determine the relative success and performances of some selected countries in achieving the targeted reform outcomes, and draw lessons for knowledge sharing that can improve reform planning perspectives among other developing countries in the region. Questions that remain to be answered are: (i) how successful the reforms have been and (ii) whether the reforms have contributed to the power sector development in the region. Moreover, it is necessary to address shortcomings in terms of policies and their implementation that need to be overcome going forward. III. THE TECHNICAL ASSISTANCE 7. The TA project will review and assess ongoing power sector reform in selected DMCs in Asia and the Pacific, where the power sector development agenda (i) remains high in the development strategy and policy priorities of the national government; (ii) has achieved significant physical, economic, and institutional reform milestones that have demonstrated either
3 successful outcomes or generated relevant experiences and lessons useful for other ADB member countries to learn from; and (iii) has continued to support ongoing reform objectives targeted to achieve improved power sector development. A. Impact and Outcome 8. The impact will be successful power sector reform that will bring reliable, accessible, and secure power supply to DMCs toward achieving environmentally sustainable and inclusive economic growth. The outcome will be the formulation of effective policies and regulatory measures, leading to an improved operational environment for the power sector of DMCs. B. Methodology and Key Activities 9. The TA will deliver three main outputs: (i) a comprehensive assessment of the power sector reform agenda of the participating DMCs, (ii) knowledge sharing and policy dialogues among various stakeholders, and (iii) dissemination workshops. 10. Assessment of the power sector reforms. A comprehensive assessment of the power sector reform agenda of each of the participating DMCs will be conducted to bring out the issues and major challenges that have undermined the pursuit of sustainable power sector development. The assessment will also serve as guidelines to government or policy makers for better planning and formulation of long-term energy policy and strategies. Since each of the country experiences in power sector reform may be unique and country-specific, the study will be conducted in collaboration with the national government, local research institutes, and development partners. 11. The assessment will have two components. The first component will constitute an overall review of the ongoing power sector reform to provide insights on the progress and its pattern in light of sustainable power sector development. It will conduct a comprehensive literature review and scoping work to examine the driving forces of the power sector reform and assess implementation experiences in selected countries. The review will include key aspects such as institution building, the regulatory framework, structural and functional unbundling of the power sector, deregulation, private sector participation, and tariff settings. The second component will assess the advantages and disadvantages of different reform models of ongoing power sector reform in selected DMCs to address the effects on power sector development; and evaluate the outcomes of the power sector reform using several social, economic, and environmental performance parameters for sustainable energy development. Details are in Appendix 2. 12. The findings will inform about the impacts of reform on power sector development and identify the existing issues, challenges and constraints for further reform as well as discuss policy implications. The findings from this TA are expected to provide a benchmark for DMCs decision makers seeking to identify options based on their own policy contexts, priorities, and needs. 13. Knowledge sharing. During implementation, the TA will facilitate knowledge sharing and policy dialogue through local and regional consultation workshops. This output will bring together various stakeholders to discuss key issues, challenges, and experiences in undertaking power sector reforms as well as highlight best practices and lessons learned. 14. Dissemination workshops. Key findings of the study will be disseminated through public seminars, workshops, and roundtable discussions aimed at reaching relevant policy
4 makers and other national agencies in the countries covered by this TA, as well as in other DMCs. Key findings and lessons from this TA are expected to provide DMCs with relevant insights and information that can contribute to their power sector planning and decision making, and provide guidance to ADB s regional and country energy operations. C. Cost and Financing 15. The TA is estimated to cost $ 714,000. The TA will be financed on a grant basis by ADB s Technical Assistance Special Fund (TASF-IV). Details of the cost estimates and financing plan are in Appendix 3. TA fund disbursement will be in accordance with ADB s Technical Assistance Disbursement Handbook (2010, as amended from time to time). D. Implementation Arrangements 16. ADB, through the Economics and Research Department, will be the executing agency for the TA. The TA will be implemented from November 2011 to March 2014, in coordination with ADB regional departments and in partnership with representatives from the governments, the private sector, academe, and multilateral organizations. 17. The TA will require the services of individual international and national consultants. The recruitment of individual consultants will be in accordance with ADB s Guidelines on the Use of Consultants (2010, as amended from time to time). The TA will require 14 person-months of international and 54 person-months of national consulting input. The outline terms of reference for consultants are in Appendix 4. 18. The Economics and Research Department will report on the progress of the TA through regular updates on the project information documents. The key findings of the TA will be disseminated through seminars, workshops, and media. IV. THE PRESIDENT'S DECISION 19. The President, acting under the authority delegated by the Board, has approved the provision of technical assistance not exceeding the equivalent of $714,000 on a grant basis for the Assessment of Power Sector Reform in Asia and the Pacific, and hereby reports this action to the Board.
Appendix 1 5 DESIGN AND MONITORING FRAMEWORK Design Summary Impact Performance Targets and Indicators with Baselines Data Sources and Reporting Mechanisms Assumptions and Risks Assumptions Successful power sector development that provides reliable, accessible, and secure power supply to DMCs toward environmentally sustainable and inclusive economic growth Governments take concrete actions to deepen and improve power sector reforms Actions may include start of own and assisted initiatives Medium-term energy development plans, policy pronouncement, and legislation Media reports Political economy factors can be suitably managed to support energy sector reforms. Energy sector development, inclusive growth, and climate change will remain topics of interest among governments and researchers. Governments interested in using study findings for policy formulation. Risk Outcome Energy planning agencies and policy makers in participating DMCs may not be able to translate the research findings into workable policy options because of lack of awareness of the study findings. Assumptions Effective policies, regulatory framework, and operational environment for power sector development in the DMCs By December 2014, some of the key TA recommendations taken up by governments to support improved power sector reform and development Medium-term energy development plans, policy pronouncements, and legislation Annual energy reports Media reports Governments are interested in using inputs from the project in formulating policies. Data and information can be collected using reasonable sources. Risks Delays in appropriate implementation of recommended power sector reform policies and strategies Lack of support for suggested measures
6 Appendix 1 Design Summary Outputs Performance Targets and Indicators with Baselines Data Sources and Reporting Mechanisms Assumptions and Risks 1. Assessment report on the power sector reform agenda of each of the participating DMCs 2. Knowledge sharing and policy dialogue, through local and regional consultation workshops By September 2013, A minimum of three country papers completed Final report published By December 2013, At least three in-country multi-stakeholder workshops conducted Two regional workshops conducted 3. Dissemination By December 2013, report launch, media coverage, and media uptake At least three dissemination events conducted (in-country and/or international, and attendance of participants) TA completion report publications Summary of workshop proceedings Media launch and monitor report Publication of final report, policy briefs, and opinion pieces Assumption Competent technical experts and resource persons will be available and hired on time. Risks Lack of appropriate and timely data to conduct extensive analysis Delays in, and poor quality of, report submission Distribution of reports and TA-related dissemination materials TA completion report Activities with Milestones 1. Initial assessment (Q1 2012) 1.1 Consultation mission 1.2 Engagement of consultants 1.3.Preparation of background issues paper and inception report preparation 2. Study development and consultations (Q2 2012 Q3 2013) 2.1 Conduct of inception and consultation workshop 2.2 Conduct of field studies and data gathering 2.3 Analysis and preparation of initial draft country reports 2.4 Submission of initial country analysis and reports to DMCs 2.5 Preparation for final synthesis report 2.6 Conduct of finalization workshop 2.7 Finalization of study reports 3. Production and dissemination of knowledge products (Q3 Q4 2013) 3.1 Publication of country papers and final reports 3.2 Dissemination of findings through Asian Development Bank s and/or Economics and Research Department websites, media, seminars, and/or workshops Inputs: ADB: $714,000 Consultants: $463,000 International and local travel: $116,800 Reports and Communications: $10,500 Workshops, seminars, and conferences: $78,000 Miscellaneous administration: $10,000 Contingencies: $35,700 ADB = Asian Development Bank, DMC = developing member country, Q = quarter, TA = technical assistance.
Appendix 2 7 PROPOSED LIST OF SOCIAL, ECONOMIC, AND ENVIRONMENTAL PARAMETERS FOR THE POWER SECTOR REFORM ASSESSMENT Dimension Theme Parameters Social Equity Accessibility Share of households without electricity Affordability Share of households income spent in electricity Economic Environmental Use and production patterns Overall use of electricity Overall productivity Supply efficiency End use Diversification (supply mix by fuel source) Tariffs/Prices Security Supply/Fuel stocks Imports Climate change Air quality Electricity use per capita Electricity use per unit of gross domestic product Efficiency of electricity conversion and distribution Electricity intensities by sector (agriculture, industrial, service/commercial, household) Electricity generation by fuel type Renewable share in electricity Electricity prices (with and without tax subsidy) Fuel stocks/resources Imports Greenhouse gas emission Ambient concentrations of air pollution in urban areas Source: International Atomic Energy Agency 2005. Energy Indicators for Sustainable Development: Guidelines and Methodologies. Vienna.
8 Appendix 3 a COST ESTIMATES AND FINANCING PLAN ($ 000) Total Item Cost Asian Development Bank Financing a 1. Consultants a. Remuneration and per diem i. International consultants 226.00 ii. National consultants 237.00 b. International and local travel 116.80 c. Reports and communications b 10.50 2. Workshops, seminars, and conferences c 78.00 3. Miscellaneous administration and support costs 10.00 4. Contingencies 35.70 Total 714.00 Financed by the Asian Development Bank s (ADB s) Technical Assistance Special Fund (TASF-IV). b Includes publication-related costs. c Includes workshop-related costs such as meeting venue, logistics, hotel, and per diem of participants, honorarium of resource persons, and miscellaneous costs. Source: Asian Development Bank estimates.
Appendix 4 9 OUTLINE TERMS OF REFERENCE FOR CONSULTANTS 1. The consultants for the Asian Development Bank (ADB)-financed study on the Assessment of Power Sector Reform in Asia and the Pacific will provide a comprehensive analysis by (i) reviewing ongoing power sector reform, to provide insights on the progress and its pattern in light of sustainable power sector development; (ii) examining the driving forces of the power sector reform and assessing implementation experiences in selected countries, including key aspects of institutional building, regulatory framework, structural and functional unbundling of the power sector, deregulation, private sector participation, and tariff settings; (iii) assessing the advantages and disadvantages of different reform models of ongoing power sector reform in selected developing member countries (DMCs); and (iv) evaluating outcomes of the power sector reform using several performance parameters for sustainable energy development. A. International Consultants 2. Lead consultant or energy economist (4 person-months). The lead consultant will have at least 10 years of extensive experience in analyzing energy or power sector development, and preferably hold an advanced degree in energy economics or other relevant degree related to fields of energy development. He or she should have expert knowledge of power sector operations and reforms in Asia and the Pacific, covering relevant power sector related issues such as public private partnership, public policy administration and governance, regulations, and tariffs. The international expert should have a proven track record serving as a project advisor or team leader in similar assignments, and have demonstrated high capacity in leading and guiding a team of experts toward achieving high-quality outputs. He or she should be able to distill, synthesize, and perform in-depth analysis of complex power sector reform challenges and development issues in the Asian context; and draw key policy messages and recommendations for policy makers, development partners, and other key stakeholders. 3. The main responsibilities of the lead consultant will be to (i) (ii) (iii) (iv) (v) review relevant literature and prepare a background issues paper leading to a design and framework for the conduct of the study in selected ADB DMCs; distill and synthesize key power sector reform and development issues, as well as international best practices from relevant literature, that can serve as a benchmark for power sector reform in the Asian context, and jointly prepare a report on best practices; provide technical inputs in the overall concept and methodology framework developed by the ADB project team leader and study team, and prepare for the in-depth power sector reform country studies; provide overall guidance, expert advice, and smooth monitoring of the technical assistance (TA) implementation and activities; and ensure that the ADB project team leader and study team are informed of the developments and progress of the TA study by regularly reporting to the ADB project team leader; collaborate with the international energy specialists or economists on the development of the in-depth country study methodology and analytical framework consistent with the overall framework objectives of the TA study;
10 Appendix 4 (vi) (vii) (viii) (ix) (x) lead preparations and drafting of the final TA report, with other team experts; consolidate reports from each participating sector specialist and respective DMCs into a synthesis and final TA report; and carry out overall assessment based on (a) reviewing outcomes of the ongoing power sector reform in selected DMCs; (b) assessing best practices and lessons learned from power sector reform that will be crucial in the continued development and improvement of the power sector in Asia and the Pacific; and (c) evaluating the outcomes of the power sector reform using several performance parameters for sustainable energy development; provide advice and guidance to the other consultants in the team, including critically reviewing and commenting on their reports; participate and present the issues paper at the project inception workshop and the final reports at conferences and workshops, as required, and incorporate the comments received in the final output; facilitate and participate in project workshops and consultations to present the findings of the research study to key stakeholders; and perform other tasks that may be required to ensure successful and timely completion of the study. 4. Country energy specialist or economist (8 person-months). The international expert will have a minimum of 6 years experience in the fields of energy operations, with extensive knowledge of development and energy related issues in power sector reform in Asia and the Pacific, including public private partnership, public policy administration and governance, regulations, and tariffs. An advanced degree in economics or other related fields relevant to energy sector development is preferred. He or she will have demonstrated strong skills and capacity in terms of conducting applied economic research and energy development policy analysis of key energy and power reform sector constraints and issues, and should have extensive or expert knowledge of economic and energy development issues in Asia and the Pacific. In coordination with the lead consultant, the international expert will be responsible for further developing the detailed concept, design, and methodology to undertake the in-depth country study, involving (i) a review of the ongoing power sector reform in selected DMCs; (ii) assessment of best practices of power sector reform to address the effects on power sector development; and (iii) evaluation of the outcomes of the power sector reform using several performance parameters for sustainable energy development. 5. The tasks of the specialist will include, but not be limited to (i) (ii) (iii) reviewing relevant literature, visiting selected DMCs (as required), and providing necessary inputs to the lead consultant in conducting the study; collaborating with the lead consultant in distilling international best practices from relevant literature that can serve as a benchmark for power sector reform in the Asian context, and jointly preparing a report on best practices; leading and guiding the national consultants (energy economists or sector specialists) to review the ongoing power sector reform in selected DMCs, identifying the existing issues and challenges, and analyzing the impact of power sector reform on sustainable power sector development;
Appendix 4 11 (iv) (v) (vi) (vii) helping prepare, finalize, and consolidate country reports on (a) reviewing the ongoing power sector reform in selected DMCs; (b) assessing best practices of power sector reform to address the effects on power sector development; and (c) evaluating the outcomes of the power sector reform using several performance parameters for sustainable energy development; assisting the lead consultant in preparing the synthesis report; participating in project workshops and consultations to present the findings of the research study to key stakeholders; and performing other tasks that may be required to ensure successful and timely completion of the study. 6. Copy editor (2 person-months). Under the supervision of the ADB project team leader, a copy editor will be engaged to ensure that reports and other publications adhere to ADB style and conform to high publication standards. The consultant should possess expertise in copy editing and desktop publishing, and preferably have extensive experience in similar assignments involving the preparation of economic publications. B. National Consultants 7. Energy economist or energy specialist or sector specialist (32 person-months). The national expert will have extensive and expert knowledge of existing national energy and economic policy issues of the selected country, and have demonstrated strong capacity in conducting quantitative and policy-oriented analysis of power development in the country, particularly on power sector reforms. Under the supervision of the lead consultant and international energy economist, the national experts will (i) (ii) (iii) (iv) (v) review relevant and up-to-date literature and background materials on power sector development in the country; and collect, process, and analyze relevant country information and performance parameters, and local data; under the guidance of the lead consultant and the international energy economist, prepare draft country reports on (a) reviewing the ongoing power sector reform in selected DMCs; (b) identifying key constraints or issues of power sector reforms in the country; (c) assessing best practices of power sector reform to address the effects on power sector development; and (c) evaluating the outcomes of the power sector reform using several performance parameters for sustainable energy development, taking into account comments received from reviewers during the course of the project; participate in the workshops and consultations and assist in the dissemination of the research findings to relevant stakeholders, as needed; facilitate review of country reports with other relevant stakeholders; and perform other tasks that may be required to ensure successful and timely completion of the country reports.
12 Appendix 4 8. Research analyst (20 person-months). The research analyst will have an advanced degree in economics or relevant fields. Experience in economics and/or the energy sector will be an advantage. The consultant will work under the direction and supervision of the project team leader to (i) (ii) (iii) (iv) (v) (vi) (vii) provide research and TA to the project team leader and other members of the study team; compile and maintain a database of all data collected or used during the preparation of the study; support the project team leader to organize and facilitate meetings, consultations, and workshops/seminars, including logistical requirements, documentation, secretariat services, dissemination of information and materials, and related support; participate in the events above and lead the preparation of event proceedings; provide inputs and assist the project team leader in preparing and finalizing project reports and various publications, as required by the project team leader; assist the project team leader in the management of the day-to-day activities and administrative matters related to project implementation; and perform other tasks relevant to this TA as may be assigned by the ADB project team leader. 9. Graphic or layout artist (2 person-months). The graphic or layout artist will lay out the text, tables, and charts; and convert the files into the required format for publication.