MASINLOC THERMAL POWER) PROJECT (Loan 1042-PHI
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ASIAN DEVELOPMENT BANK PPA: PHI 24212 PROJECT PERFORMANCE AUDIT REPORT ON THE SIXTEENTH POWER (MASINLOC THERMAL POWER) PROJECT (Loan 1042-PHI) IN THE PHILIPPINES October 2002 CURRENCY EQUIVALENTS Currency Unit – Peso (P) At Appraisal At Project Completion At Operations Evaluation (as of October 1990) (as of January 1999) (as of May 2002) P1.00 = $0.0388 = $0.0250 = $0.0202 $1.00 = P25.78 = P40.00 = P49.47 ABBREVIATIONS ADB – Asian Development Bank CEMS – continuous emissions monitoring system DENR – Department of Environment and Natural Resources ECC – environmental compliance certificate EIRR – economic internal rate of return ESP – electrostatic precipitator EIS – environmental impact study FBC – fluidized bed combustion FIRR – financial internal rate of return IPP – independent power producer LGU – local government unit MCDO – Municipal Cooperative Development Office MTPP – Masinloc Thermal Power Plant NGO – nongovernment organization NOx – nitrogen oxide NPC – National Power Corporation OEM – Operations Evaluation Mission O&M – operation and maintenance PAF – project-affected family PCR – project completion report PMO – project management office PPA – power purchasing agreement PPAR – project performance audit report SED – Social Engineering Department SO2 – sulfur dioxide TA – technical assistance UF – under frequency WTP – willingness-to-pay NOTES (i) The fiscal year (FY) of the Government ends on 31 December. (ii) In this report, “$” refers to US dollars. Operations Evaluation Department, PE-605 WEIGHTS AND MEASURE GWh (gigawatt-hour) – 1,000,000 kWh Hz (hertz) – unit of frequency equal to per second km (kilometer) – 1,000 meters kV (kilovolt) – 1,000 volts kWh (kilowatt-hour) – 1,000 watt-hours m (meter) – unit of length (metric) MVA (megavolt-ampere) – 1,000,000 volt-amperes MW (megawatt) – 1,000,000 watts MWh (megawatt-hour) – 1,000 kWh CONTENTS Page BASIC DATA iii EXECUTIVE SUMMARY iv MAP vii I. BACKGROUND 1 A. Rationale 1 B. Formulation 1 C. Purpose and Outputs 2 D. Cost, Financing, and Executing Arrangements 2 E. Completion and Self-Evaluation 3 F. Operations Evaluation 3 II. PLANNING AND IMPLEMENTATION PERFORMANCE 4 A. Formulation and Design 4 B. Achievement of Outputs 5 C. Cost and Scheduling 6 D. Procurement and Construction 7 E. Organization and Management 8 III. ACHIEVEMENT OF PROJECT PURPOSE 8 A. Operational Performance 8 B. Performance of the Operating Entity 9 C. Financial and Economic Reevaluation 10 D. Sustainability 11 IV. ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS 11 A. Socioeconomic Impact 11 B. Environmental Impact 12 C. Impacts on Institution and Policy 13 V. OVERALL ASSESSMENT 14 A. Relevance 14 B. Efficacy 14 C. Efficiency 14 D. Sustainability 14 E. Institutional Development and Other Impacts 15 F. Overall Project Rating 15 G. Assessment of Asian Development Bank and Borrower Performance 15 VI. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS 16 A. Key Issues for the Future 16 B. Lessons Identified 16 C. Follow-Up Actions 17 ii APPENDIXES 1. Project Cost and Financing Plan 19 2. Project Schedule 20 3. Generation Output Data for Masinloc Thermal Power Plant 21 4. Unit Outage/Availability for Masinloc Thermal Power Plant 23 5. Compliance with Major Loan Covenants 24 6. Reevaluation of Financial and Economic 25 Internal Rates of Return 7. Resettlement and Social Impact Evaluation 31 8. Environmental Monitoring Results 39 9. Organization Chart: National Power Corporation 41 BASIC DATA PROJECT PREPARATION/INSTITUTION BUILDING TA No. Name Type Person- Amount Approval Months ($) Date 1405 Environmental Management of Coal- ADTA 50 636,000 30 Oct 1990 Based Power Generation KEY PROJECT DATA ($ million) As per ADB Loan Actual Documents Total Project Cost 441.0 429.3 Foreign Exchange Cost 350.0 393.5 ADB Loan Amount/Utilization 200.0 196.8 ADB Loan Amount/Cancellation 3.2 Amount of Cofinancing 150.0 149.0 KEY DATES Expected Actual Fact-Finding 12–23 Mar 1990 Appraisal 30 May–15 Jun 1990 Loan Negotiations 18 Jul 1990 25–26 Sep 1990 Board Approval 15 Aug 1990 30 Oct 1990 Loan Agreement 19 Apr 1991 Loan Effectiveness 18 Jul 1991 23 Dec 1994 First Disbursement 28 Dec 1994 Project Completion 1 Oct 1994 18 Jun 1998 Loan Closing 30 Jun 1995 7 Jan 1999 Months (effectiveness to completion) 38 42 ECONOMIC AND FINANCIAL RATES OF RETURN (%) Appraisal PCR PPAR Economic Internal Rate of Return 14.5 28.8 29.7 Financial Internal Rate of Return 14.9 17.2 21.4 BORROWER National Power Corporation GUARANTOR Republic of the Philippines EXECUTING AGENCY National Power Corporation MISSION DATA No. of Missions No. of Person-Days Fact-Finding 1 58 Appraisal 1 107 Project Administration Review 6 57 Project Completion 1 6 Operations Evaluation1 1 9 ADTA = advisory technical assistance, PCR = project completion report, PPAR = project performance audit report. 1 The Mission comprised C.C. Yu, Evaluation Specialist (Mission Leader); R. Rinker, Evaluation Specialist; W.M. Lewis, Power Engineer (international consultant); and A. Corpuz, Resettlement and Social Impact Specialist (domestic consultant). EXECUTIVE SUMMARY In 1987, the resumption of economic growth in the Philippines caused power shortages in the main grids. In Luzon, such shortages reached severe levels in 1989 and the first half of 1990. The Asian Development Bank's (ADB) operational strategy in the power sector in the Philippines in the late 1980s focused on augmenting of power-generating capacity (including restoring the capacity of existing power stations) to meet the growing demand for power for economic development and to facilitate poverty reduction. The Project aimed to increase the base-load generating capacity of the Luzon grid to meet efficiently and economically the projected capacity and energy requirements, and to assist the Government in its efforts to diversify the country’s energy sources and reduce oil dependency. The Project was to cover Stage I of the Masinloc Thermal Power Scheme, and was to include the boiler and turbo-generator for the first 300-megawatt unit and associated coal and ash handling equipment, harbor facilities for unloading seaborne coal, cooling water and fresh water systems, powerhouse, and stack common to both the first and second units (the second unit with identical design was financed under a separate ADB loan). The Project was designed to use imported high-quality bituminous coal. A technical assistance grant was attached to the Project to help improve capacity of the National Power Corporation (NPC), the Executing Agency, in environmental monitoring and management. On 30 October 1990, the ADB Board approved a loan of $200.0 million for the Project. The total project cost was estimated at $441.0 million equivalent, including $350.0 million foreign exchange and $91.0 million local currency equivalent. The foreign exchange cost was to be jointly financed by ADB ($200.0 million), Export-Import Bank of Japan ($120.0 million), and NPC ($30.0 million); while the local currency cost was to be financed by NPC ($61.0 million equivalent) and Export-Import Bank of Japan ($30.0 million equivalent). Due to a series of unforeseen events related to land acquisition, resettlement, and obtaining the environmental compliance certificate (ECC), the ADB loan did not become effective until 23 December 1994. The Operations Evaluation Mission (OEM), which held discussions in Manila and visited Masinloc Thermal Power Plant (MTPP) during 20–31 May 2002, confirmed that all project components were implemented as envisaged at appraisal. Although not a direct part of the Project, the originally planned 230-kilovolt transmission lines from MTPP to the Hermosa substation in Bataan was rerouted to the Labrador substation in Pangasinan because of the eruption of Mt. Pinatubo in 1991. Despite the initial delay of about 3.5 years due to environmental and social concerns, the execution of the Project under a turnkey contract was efficient and within the budget and revised time schedule. Considering the initial delay, it is likely that compared with multicontract packaging, the turnkey approach resulted in cost savings and reduced the construction period, perhaps by as much as a year. Generally, the OEM found MTPP’s design and equipment to be least-cost, in conformance with the environmental standards, and of high quality. The total project cost amounted to $429.3 million equivalent, 3% below the appraisal estimate. However, there was a cost overrun on foreign exchange costs— the actual cost was $393.5 million compared with the appraisal estimate of $350.0 million— because the civil works contract was awarded to a foreign subcontractor. ADB financing amounted to $196.8 million, and the balance of $3.2 million was cancelled. After one extension, the loan was closed on 7 January 1999, about 3.5 years after the scheduled loan closing date. The OEM regards MTPP’s operation and maintenance to date as satisfactory. The upkeep appears to be according to generally accepted utility practice. Since their commissioning in June and December 1998, the two units have been used to meet part of the v base load in the Luzon grid. During the initial operating period, their output suffered from transmission constraints and equipment outages. However, in 2001 and the first four months of 2002, the plant factor has exceeded 70% and availability 80% for both units, despite the generation capacity surplus in Luzon due to a large number of independent power producers (IPPs). This was attributable to MTPP’s relatively low generation costs and the fact that, from the viewpoint of system stability, there are some problems in using the large 600 megawatt units at the IPP plant in Sual for meeting base load in the relatively small grid in Luzon. Overall, MTPP has been providing stable and economical power supply for Luzon, and has helped improve conditions for economic development and investments amid the current public debate on the role of IPPs in power supply in the Philippines. Coal-fired power generation projects generally have major environmental impacts in the form of air emissions, discharge of cooling water and wastewater, and ash handling.