Technical Assistance Report
Project Number: 38183 May 2006
Independent State of Samoa: Preparing the Power Sector Expansion Program (Cofinanced by the Government of Australia)
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.
CURRENCY EQUIVALENTS (as of 17 May 2006) Currency Unit – tala (ST) ST1.00 = $0.362 $1.00 = ST2.762
ABBREVIATIONS
ADB – Asian Development Bank AusAID – Australian Agency for International Development CDM – clean development mechanism EMP – environmental management and monitoring plan EPC – Electric Power Corporation IEE – initial environmental examination MOF – Ministry of Finance PDD – project design document RF – resettlement framework RP – resettlement plan TA – technical assistance
WEIGHTS AND MEASURES GWh (gigawatt-hour) – 1,000,000 kilowatt-hour kW – kilowatt kWh – 1,000 watt-hour MW (megawatt) – 1,000 kilowatt watt – unit of active power
TECHNICAL ASSISTANCE CLASSIFICATION Targeting Classification – General intervention Sector – Energy Subsector – Renewable energy generation Theme – Sustainable economic growth Subtheme – Fostering physical infrastructure development
NOTES (i) The fiscal year (FY) of the Government ends on 31 December.
(ii) In this report, "$" refers to US dollars.
Vice President C. Lawrence Greenwood, Jr., Operations Group 2 Director General P. Erquiaga, Pacific Department (PARD) Director I. Bhushan, Pacific Operations Division, PARD
Team leader C. Litwin, Senior Economist, PARD Team members E. Brotoisworo, Senior Safeguards Specialist, PARD S. Blaik, Urban Development Specialist, PARD B. Reid, Financial Management Specialist, PARD
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I. INTRODUCTION
1. During high-level country consultations in Manila in February 2006, the Government of Samoa reconfirmed its request to the Asian Development Bank (ADB) for a project preparatory technical assistance (TA) to continue its support for the power sector. The Government requested a strategic and long-term approach to the sector. The TA is included in ADB’s country strategy and program update (CSPU) 2005–2006 for Samoa. 1 Following the Government’s request, a TA fact-finding mission was fielded to Samoa from 6 to 10 March 2006 and reached an understanding with the Government on the TA’s outcomes, outputs, financing plan, implementation arrangements, and outline terms of reference. 2 The design and monitoring framework is in Appendix 1.
2. The TA will help the Government and the Electric Power Corporation (EPC) develop a power sector expansion program consisting of (i) a reform program to enable private sector participation and enhance efficiency in the sector; (ii) a program to reform EPC’s internal business and management processes to enhance governance and cost-efficiency of the utility; and (iii) preparation of a least-cost power sector investment plan to diversify the country’s energy resources, meet future load growth, and reduce the burden of diesel imports. The TA is expected to lead to another TA to help implement the agreed reform program and an ensuing sector loan3 for EPC’s power system expansion program.
II. ISSUES
3. Developing indigenous and renewable energy resources to reduce the economy’s risk exposure to foreign exchange fluctuations and fuel price increases is a high development priority for the country and articulated in the Government’s Statement for the Development of Samoa 2005–2007. Imports of petroleum products accounted for 15% of Samoa’s total import expenditure in FY2005. EPC’s Corporate Plan (2005) identifies diversification through development of indigenous and renewable energy resources as a key priority to reduce current reliance on diesel as the primary source of energy. Fuel is by far the single largest expense item, representing 74% of total generation costs and 51% of EPC’s overall costs. This leaves EPC, and ultimately electricity consumers, highly exposed to changes in world market oil prices and foreign exchange rates.
4. In 2005, ADB assessed EPC’s financial management performance. The findings indicated that EPC has struggled to improve its financial performance, primarily because of inadequate cost recovery and poor revenue collections. The assessment also proposed strengthening EPC’s management and corporate governance capabilities to enhance transparency and cost-efficiency in the sector. EPC, as a corporate entity, has full autonomy of its daily operations and is governed by the Public Bodies (Performance and Accountability) Act (2001), but such autonomy has yet to be fully exercised. Improved business procedures and management and corporate governance of EPC are essential for cost-effective and financially sustainable delivery of electricity services.
1 ADB. 2004. Country Strategy and Program Update 2005–2006: Samoa. Manila, where the TA was initially listed as “Supporting Energy Sector Reforms” ($300,000). 2 The TA first appeared in ADB Business Opportunities as “Preparing the Power Sector Development Program” on 15 March 2006. 3 The proposed financing for the investment plan could also be considered under a multi-tranche financing framework.
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5. Tariffs are approved by the Cabinet. An automatic tariff adjustment mechanism was established through a Cabinet directive in 2001. The mechanism was intended to enable timely tariff adjustments through a transparent and depoliticized process. While the mechanism allows changes in fuel prices and exchange rates to be automatically reflected in the tariff, it does not provide incentives for EPC to improve its operational efficiency. However, tariffs have not been adjusted regularly as expected. The first tariff increase since November 2001—15% in May 2005—was approved by the Cabinet.
6. The lack of a regulatory and appropriate pricing framework hampers the power sector’s capacity to deliver adequate electricity services to end consumers. EPC is currently the sole operator, generator, and distributor of electricity through the grid. A regulatory environment conducive to private sector participation is essential to enhance the capacity to meet future demand and improve sector efficiency.
7. EPC’s long-term planning capacity remains weak. EPC does not systematically forecast demand or prepare power system plans. Individual project investments are planned and implemented ad hoc. While EPC’s annual corporate plans indicate a list of investment projects planned for the near future, investment needs are not accompanied by financing plans. Given rising oil prices and growing power demand, there is an urgent need (i) to develop a strategic and long-term approach to diversify power-generation sources, (ii) reduce system losses, and (iii) improve reliability.
III. THE TECHNICAL ASSISTANCE
A. Impact and Outcome
8. The TA will (i) develop a power sector reform program to encourage private sector participation, including options for regulation; (ii) develop a program to reform EPC’s internal business and management procedures to enhance governance and cost-efficiency of the utility; and (iii) prepare a least-cost power sector investment plan to diversify energy resources, meet future load growth, and reduce the burden of diesel imports. The success of this TA is envisaged to lead to further TA support for reforms that will facilitate cost-efficient and reliable electricity services to end consumers, and to an ensuing loan to support the power system expansion program. The investment plan will help the country and EPC, and ultimately end consumers, reduce exposure to global fuel prices by promoting indigenous and renewable energy resources.
B. Methodology and Key Activities
9. The sector structure, investment requirements, and regulatory and pricing framework needs for Samoa’s small open economy will be examined in detail to meet the reform objectives and to facilitate private sector participation. Advice on policy matters and stakeholder communication will be provided throughout the TA. The TA will help the Government promote renewable energy resources and private sector participation.
10. The TA activities are grouped into three components:
(i) Component 1 comprises the development of an agreed time-bound regulatory reform program for the power sector. This work involves (a) assessing options for effective and independent regulation, (b) developing a legal and regulatory framework to implement the road map, (c) determining roles and functions of a
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regulatory body, (d) developing an independent power producer framework, and (e) developing a tariff framework. The regulatory work involves a number of key stakeholders. It is important that the process of developing a regulatory road map involve high-level consultations and workshops to reach consensus on the overall framework for reforms and the road map to implement it.
(ii) Component 2 comprises the preparation of a reform program of EPC’s corporate governance arrangements, and internal performance management and measurement structures and processes. The work will be highly consultative and involve the EPC board and management. EPC’s reform program will focus on strengthening governance arrangements in (a) the roles and functions of the EPC board versus management and development of procedures for decision making to enhance operational efficiency; (b) performance management and incentive systems; (c) internal planning, budgeting, and procurement arrangements, including a fuel audit; and (d) land acquisition, resettlement, and social development.
(iii) Component 3 includes the development of a prioritized least-cost power sector investment plan to meet growing demand and reduce the burden of fuel imports. This work includes (a) demand forecasts and development of an optimized least- cost plan, including identification of subprojects; (b) preliminary design of prioritized core subprojects; (c) assessment and projection of EPC’s financial performance; (d) financial and economic analyses of the investment program, including risk analysis; (e) preparation of environmental and social assessments to ensure compliance with ADB’s safeguard policies; and (f) preparation of a clean development mechanism screening process for core subprojects. To facilitate timely project implementation, bid documents for the core subprojects will be prepared.
11. A hydropower scheme of 2–5 MW on Vaitai stream on Savai’i, and an associated 22 kV transmission line are envisaged to constitute the core subprojects. The power system on Savai’i is isolated from the Upolu system, and project aims to replace unreliable diesel generation. A least-cost analysis of technically feasible hydropower alternatives will be conducted. The feasibility study will examine the technical and economic feasibility of an associated water supply scheme. 12. Since individual subprojects—some of which may not yield benefits if considered in isolation—form part of a power sector investment plan, the economic and financial analyses of the project will be conducted using a time-slice approach. A distributional analysis will be conducted to assess the distribution of net benefits and cross-subsidies across key stakeholders. Risks and the implications of various delay scenarios of generation plants for financial and economic results will be analyzed. Financial due diligence and projections will be conducted with respect to EPC’s financial performance, and financial performance measures established. 13. To ensure compliance with ADB’s safeguard policies on the environment, involuntary resettlement, and indigenous peoples, the TA will review EPC’s work and government procedures and, if necessary, conduct supplementary detailed field surveys for core subprojects. To identify environmental impacts and to prepare an inventory of all land and other affected assets and socioeconomic assessment of project-affected households, the surveys will cover (i) planned generation sites, (ii) alignment of the transmission lines and sites of substations and power stations, and (iii) any necessary access roads. All information will be disaggregated by
4 gender. In accordance with ADB’s policies, a resettlement plan (RP) will be prepared for core subprojects and a resettlement framework (RF) to guide the preparation of subprojects under the proposed loan. The RP will include (i) necessary compensation and income-restoration measures, (ii) the most suitable implementation arrangements, (iii) design of public information, (iv) disclosure and grievance procedures, and (v) costing of compensation and income- restoration measures. The initial poverty and social analysis is in Appendix 2.
14. The TA will prepare an initial environmental examination in accordance with ADB’s Environmental Assessment Guidelines (2003), particularly the guidelines for environmental assessment of sector loans. Subprojects will be assessed according to ADB’s guidelines; environmental assessment and review procedures, including criteria for subproject selection, will be established for subprojects to be identified under the loan. The environmental assessment will (i) review and evaluate the environmental soundness of the concept, approach, and prospective sites of the core subprojects; (ii) identify major environmental concerns; and (iii) explore mitigation measures and a monitoring plan. Any adverse impacts identified will be considered by the project design and implementation. A comprehensive estimation of the cost of mitigation measures and the associated environmental management plan is to be undertaken and included in the project cost estimates. Environmental assessment and the resulting environmental management plans aim to prevent, reduce, or ameliorate adverse effects on the environment and third parties. Field visits for data collection will be conducted and public consultations with local interest groups will be undertaken to ensure that their views and concerns are considered in the project design.
C. Cost and Financing
15. The total cost of the TA is estimated to be $885,000 equivalent. The Government of Samoa has requested ADB to finance $750,000 equivalent. $450,000 equivalent of the TA will be financed on a grant basis from ADB’s TA funding program, and $300,000 equivalent of the TA will be financed on a grant basis by the Government of Australia. The Government of Samoa will finance the balance of the TA, equivalent to $135,000, by providing office accommodation and facilities and counterpart staff. The Government of Samoa has been informed that approval of the TA does not commit ADB to finance any ensuing project. The details of the cost estimates and financing plan are in Appendix 3.
D. Implementation Arrangements
16. The Ministry of Finance (MOF) will, as the Executing Agency, have oversight responsibility over TA implementation. MOF will also be involved in policy discussions on the reform program. MOF has assigned EPC as the TA Implementing Agency. EPC will be involved in day-to-day activities of TA implementation and will nominate counterpart staff with adequate capacity in engineering and power system planning, finance, environment, and social areas, before fielding of consultants. EPC will assign counterpart staff for field visits. EPC will also provide all necessary assistance to the TA consultants in liaising with other government ministries and agencies, and in obtaining necessary data and documentation, including maps for routing of transmission lines and locations of feasible generation sites.
17. A firm will be engaged to provide 19.5 person-months of international and 6.0 person- months of domestic consulting services. The international team will consist of a regulatory expert (3.0 person-months), a corporate governance and institutional development expert (2.0 person-months), a financial management specialist (2.0 person-months), a power system planner (3.0 person-months), a hydropower engineer (3.0 person-months), a renewable energy
5 expert (1.5 person-months), a power economist (2.0 person-months), an environment specialist (1.5 person-months), and a resettlement specialist (1.5 person-months). The international team will be supported by domestic experts in engineering (2 person-months), environment (2 person-months), and resettlement (2 person-months). The firm will be engaged by ADB in accordance with the Guidelines on the Use of Consultants by the Asian Development Bank and Its Borrowers. The domestic consultants will be associated with the international consultants. The firm will be recruited using quality- and cost-based selection procedures; simplified technical proposals will be requested. Outline terms of reference for consultants are in Appendix 4.
18. The TA will be implemented with intermittent consultancy services over 8 months, from September 2006 to May 2007. TA implementation will be monitored by ADB TA review missions and regular communications with MOF, EPC, and the team of consultants. Close communication with the Australian Agency for International Development (AusAID) will take place throughout the TA. At the initial stage of the TA, a meeting of the consultants, EPC, AusAID, and ADB will discuss the consultants’ work and ADB’s safeguard requirements. Reporting arrangements will include submission of (i) an inception report within 4 weeks after services start; (ii) an interim report within 2 months of fielding of the consultants, which will be discussed at a meeting of the consultants, EPC, AusAID, and ADB; and (iii) a draft final report to be discussed during a second quadripartite meeting with EPC, AusAID, and ADB. The final report, incorporating comments of EPC, AusAID, and ADB, will be submitted within 3 weeks of receiving comments. The consultants will prepare status reports for their specific scope of work, highlighting any issues that could become critical for the timely TA completion. The consultants will prepare a stand-alone document for a 10-year road map for the power sector, including investment plans and requirements, regulatory reforms, and corporate governance reform of EPC. The report should be suitable for publication by ADB.
19. Specific reporting arrangements, dissemination, and workshops will apply to the regulatory and corporate governance work. Emphasis will be placed on consultations and the interactive process with stakeholders. The regulatory expert will first prepare an inception report outlining the detailed work plan. The consultants will prepare reports that describe the scope and terms of reference of work required on specific tasks under the reform program. They will also prepare a final report that summarizes the recommended and agreed reform program and associated time-bound road map to implement it.
IV. THE PRESIDENT'S DECISION
20. The President, acting under the authority delegated by the Board, has approved (i) ADB administering a portion of technical assistance not exceeding the equivalent of $300,000 to be financed on a grant basis by the Government of Australia, and (ii) ADB providing the balance not exceeding the equivalent of $450,000 on a grant basis, to the Government of the Independent State of Samoa for preparing the Power Sector Expansion Program, and hereby reports this action to the Board.
6 Appendix 1
DESIGN AND MONITORING FRAMEWORK
Design Performance Data Sources/Reporting Assumptions Summary Targets/Indicators Mechanisms and Risks Impact Assumptions Improved Economic growth Gross domestic product • Political stability macroeconomic • Stable or reduced fuel management through Reduced fuel imports Trade data prices reduced exposure to • Stable exchange rates foreign exchange rate • Environment conducive movements and global to private sector fuel prices participation • Effective stakeholder Improved electricity Consumption data EPC consumer base data consultations services to all • Capacity to mitigate consumers social and
environmental impacts Improved capacity of EPC’s power system System’s operations reports effectively and on time the sector to meet expansion program demand growth Asian Development Bank (ADB) review missions Diversification of Private sector energy sources participation EPC’s annual reports
Improved use of Generation capacity by indigenous and source EPC’s audited financial renewable energy accounts resources
Electric Power EPC’s cost data Corporation (EPC) and end consumers become less exposed to movements in foreign exchange rates and global fuel prices Outcome Assumptions Power sector reform Memorandum of • Sustained Government program, reform understanding signed commitment to reforms program of EPC’s between the • Least-cost indigenous internal business and Government and ADB resources management procedures, and least- cost investment plan for the power sector, including feasibility design of core subprojects agreed by the Government and ADB Outputs Assumptions 1. Component 1 Quadripartite meetings • EPC can fully exercise Development of a Agreed prioritized its autonomy under the power sector reform sector reform program Workshops Public Bodies road map: by February 2007 (Performance and ADB review missions Accountability) Act (2001)
Appendix 1 7
Design Performance Data Sources/Reporting Assumptions Summary Targets/Indicators Mechanisms and Risks (i) options for effective Ongoing communication • The EPC board is and independent with the Government, EPC, committed to good regulation and the Australian Agency governance and (ii) legal and regulatory Agreed regulatory for International reforms framework framework by March Development (AusAID) • Government’s (iii) specification of the 2007 commitment to roles and functions of a Consultants’ reports and depoliticize tariff-setting regulatory body ongoing communication • Timely recruitment and (iv) independent power fielding of consultants producer (IPP) • Effective collaboration framework with EPC and capacity (v) tariff framework Agreed tariff framework of counterpart staff by May 2007
2. Component 2 Agreed prioritized Development of a reform program for reform program for EPC by February 2007 EPC’s (i) internal business processes and management (ii) corporate governance procedures (iii) fuel audit
3. Component 3 (i) Least-cost power Finalization of least- sector expansion plan cost plan by February 2007
(ii) Preliminary design Preliminary design of prioritized core completed by February subprojects 2007
(iii) Assessment and Financial due diligence projection of EPC’s completed by February financial performance 2007
(iv) Financial and Financial and economic economic analyses of due diligence the investment program completed by February 2007
(v) Compliance with Safeguard plans ADB’s safeguard completed and policies approved by the Government by March 2007
(vi) Preparation for a CDM screening clean development process completed by mechanism (CDM) March 2007 screening process for core subprojects
8 Appendix 1
Design Performance Data Sources/Reporting Assumptions Summary Targets/Indicators Mechanisms and Risks (vii) Preparation of bid Completion of bid documents for core documents by April subprojects 2007 Activities with Milestones Inputs 1. Component 1: Regulatory road map (September 2006–May 2007) • ADB: $450,000 1.1 Options for effective regulation of the power sector • Government of 1.2 Legal and regulatory framework Australia: $300,000 1.3 Institutional arrangements and the roles and functions of a regulatory body • Government of Samoa 1.4 IPP framework • Electric Power 1.5 Tariff framework Corporation: $135,000
2. Component 2: Reform program of EPC’s corporate governance arrangements • Beneficiaries and (September 2006–May 2007) project-affected people 2.1. The roles and functions of the EPC board versus its management • Private sector 2.2. Performance management and incentive systems • Consultants: 19.5 2.3 Internal planning, budgeting, and procurement arrangements person-months international and 6.0 3. Component 3: Prioritized least-cost power system expansion program person-months (September 2006–May 2007) domestic—$498,000 3.1. Preparation of an 8–10-year investment plan 3.2. Preliminary design of prioritized core subprojects 3.3. Financial and economic due diligence 3.4 Compliance with social and environmental safeguards 3.5 CDM screening process 3.6 Procurement packaging and preparation of bid documents
Appendix 2 9
INITIAL POVERTY AND SOCIAL ANALYSIS
A. Linkages to the Country Poverty Analysis
Is the sector identified as a national Yes Is the sector identified as a national Yes priority in country poverty analysis? priority in country poverty partnership No agreement? No
Contribution of the sector or subsector to reduce poverty in Samoa:
The Government has identified the development of indigenous energy resources as a key priority for diversifying economic growth. Increased private sector foreign and local investments are critical for sustainable economic growth and for increasing jobs. Reliable power supply is important for continued diversification of the production base, which will create jobs and increase productivity in agriculture and the service sectors.
Samoa is a small open economy, highly vulnerable to global energy prices. Diesel comprises about 15% of total imports. Increased use of indigenous resources will reduce the impact of increased energy prices on the trade balance and thus help improve external balances and economic growth.
While about 95% of the population in Samoa has access to electricity, poor service delivery has significantly contributed to hardship.a Much of the service industry relies on high-cost captive power as backup. The poor quality of supply hampers economic growth and job creation.
With recent hikes in energy prices, the pressure on increases in power tariffs has intensified. The poor spend a larger share of their income on fuel and energy, including electricity, than the nonpoor. The fiscal space to support subsidies to the poor is very limited. Diversification toward indigenous and renewable energy resources will help reduce the pressure on tariff increases in the longer term and possibly avoid the opportunity cost of fiscal expenditure on power subsidies to make energy affordable for the poor.
The poor quality and unreliable supply of power disproportionately burden the poor, who are less able to resort to cost- effective alternative sources of power, and have a direct impact on expenditure for electricity and often greatly inconvenience users, particularly women. Any jobs foregone because of poor and unreliable supply can also have a major impact because the loss of one income source may have larger impacts for the poor than for the nonpoor. The poor mention poor power delivery as a major hardship (footnote a).
B. Poverty Analysis Targeting Classification: General intervention
What type of poverty analysis is needed? The poverty analysis will be an integral part of the social and participatory analysis and focus on vulnerability, particularly to fuel and energy prices. The Electric Power Corporation’s (EPC) disaggregated consumer base data, tariff blocks, and cross-subsidies will be assessed through the economic and financial analyses. A distribution analysis of net benefits and subsidies will be conducted across key stakeholders.
C. Participation Process
Is there a stakeholder analysis? Yes No EPC has consulted some stakeholders affected by the core subproject, the Vaitai hydropower scheme. However, further consultations and stakeholder analysis are required. The stakeholder analysis, as part of the economic and social assessments, will mainly be qualitative.
Is there a participation strategy? Yes No A full participation strategy shall be designed under the project preparatory technical assistance (TA) and will be implemented before and during construction. The strategy shall include ongoing consultations on the project with affected people throughout the TA, disclosure of public information, compensation and resettlement, and grievance procedures.
10 Appendix 2
D. Gender Development
Strategy to maximize impacts on women: The project is unlikely to cause any specific cultural or social impacts or exclude any socioeconomic groups, including women, from its benefits. Measures to mitigate potential adverse impacts on women resulting from project resettlement will be detailed in the resettlement framework and plan. Data collected for the project shall be disaggregated by gender.
Has an output been prepared? Yes No
E. Social Safeguards and Other Social Risks
Item Significant/ Plan Required Not Significant/ Strategy to Address Issues None The core subproject was designed following consultations Significant with the local authorities and people to avoid culturally Full Resettlement and environmentally sensitive areas and to minimize Not significant resettlement requirements. A socioeconomic survey of at Short least 20% of the households affected by the project will be None undertaken during the pre-feasibility study of the core None subproject. An initial assessment of the proposed core subproject indicates no significant resettlement impacts.
A resettlement plan for the core subproject and a resettlement framework for subprojects to be identified under the loan will be prepared. Affordability and the existing lifeline tariff will be assessed Significant as part of the social analysis, as will the number of Yes Affordability disconnections of small consumers. Policy dialogue on Not significant tariffs will be based on the TA findings. No
None
Significant Yes Labor Not significant No
None Ethnic minority groups are not expected to be adversely Significant affected by the project. The project is not likely to cause Yes Indigenous any specific cultural or social impacts or exclude any Peoples Not significant socioeconomic groups, including ethnic minority groups, No from its benefits. None Any adverse impacts on indigenous or ethnic minority groups caused by project resettlement shall be mitigated through the resettlement plan.
Significant Yes Other Risks and/or Not significant No Vulnerabilities None a ADB. 2002. Priorities of the People: Hardship in Samoa. Manila.
Appendix 3 11
COST ESTIMATES AND FINANCING PLAN ($'000)
Total Item Cost A. Asian Development Bank (ADB) Financinga 1. Consultants a. Remuneration and Per Diem for International Consultants 250.0 b. International and Local Travel 90.0 c. Reports and Communications 5.0 2. Surveys 30.0 3. Miscellaneous Administration and Support Costs 5.0 4. Representative for Contract Negotiationsb 12.0 5. Contingencies 58.0 Subtotal (A) 450.0
B. Government of Australia Financing 1. Consultants a. Remuneration and Per Diem i. International Consultants 225.0 ii. Domestic Consultants 30.0 b. International and Local Travel 30.0 2. Workshops 3.0 3. Contingencies 12.0 Subtotal (B) 300.0
C. Government Financing 1. Office Accommodation 60.0 2. Remuneration and Per Diem of Counterpart Staff 55.0 3. Others 20.0 Subtotal (C) 135.0
Total 885.0 a Financed by ADB’s technical assistance (TA) funding program. b Provision for transportation and accommodation expenses of Government representatives attending TA contract negotiations. Source: ADB estimates.
12 Appendix 4
OUTLINE TERMS OF REFERENCE FOR CONSULTANTS
A. Regulatory Expert (international, 3.0 person-months)
1. The consultant will first conduct a diagnostic of the power sector to assess the work required and prepare an inception report with a detailed work plan. The consultant will determine the main tasks and transition issues that need to be resolved to reform the power sector. The issues can be grouped into (i) private sector participation, (ii) legal and regulatory requirements, (iii) tariff policy and regulation, and (iv) institutional arrangements. The consultant will propose options for the stakeholders’ consideration and identify the costs and benefits associated with each option.
2. The consultant will establish priorities for addressing these issues and propose measures to resolve possible constraints, including relevant political decisions. The consultant will prepare a feasible time-bound road map for reforms. The consultant will prepare briefing notes and conduct at least three major workshops to discuss the options and reach consensus on the best solutions. A key aspect of this work is to build consensus and ensure the Government’s and other stakeholders’ ownership of the reform program. Taking into account the Government’s decisions during this process, the consultant will outline the scope of work and implementation arrangements, and prepare the technical assistance (TA) cost estimates to implement the power sector regulatory road map.
B. Corporate Governance and Institutional Development Expert (international, 2.0 person- months)
3. The scope of this work, which will be grounded on the findings and proposals made in the financial management assessment of the Electric Power Corporation (EPC) in 2005, is to develop a reform program of EPC. The work will consider the work under TA 4513-SAM.1 The consultant will conduct at least two workshops to discuss the findings and recommendations and reach consensus on the reform agenda. The consultant will do the following: (i) Assess EPC’s corporate governance arrangements and identify specific strengthening actions. (ii) Prepare a diagnostic of current corporate roles, decision making, and procedures of the EPC’s board versus its management. Recommend roles, functions, and decision-making procedures in line with the Public Bodies (Performance and Accountability) Act (2001) to improve EPC’s operational efficiency. (iii) Assess EPC’s performance management and incentive systems, and identify specific measures to strengthen EPC’s management structures, incentives, and capacities. (iv) Assess, together with the financial management specialist, EPC’s strategic and corporate planning processes and performance measurement systems. Identify specific measures to improve internal planning, procurement, and budgeting, and to establish benchmarking and measurement techniques to measure the efficiency of operational units and processes (e.g., revenue collection and procurement). (v) Prepare a time-bound implementation plan for the reform program.
C. Financial Management Specialist (international, 2.0 person-months)
4. In accordance with the Asian Development Bank’s (ADB) Guidelines on Financial Management and Analysis of Projects (2005), the consultant will prepare (i) a financial analysis of EPC’s power system expansion program consistent with the economic analysis, and (ii) update the financial performance assessment of EPC (2005).
1 ADB. 2004. Technical Assistance to the Independent State of Samoa for Strengthening State-Owned Corporate Governance. Manila (TA 4513-SAM, approved on 20 December, for $400,000).
Appendix 4 13
5. The financial analysis of EPC’s proposed investment plan will be carried out as follows: (i) preparing a financial analysis of the proposed investment plan and the Vaitai hydropower scheme, including calculating the financial internal rate of return and weighted average cost of capital, taking into account all the financial costs and benefits; (ii) identifying all risks to investment plan revenue and costs and conducting sensitivity analyses on the financial results; (iii) preparing a detailed financing plan for the investment plan, including proposed ADB lending, any prospective cofinancing, and counterpart funds for local currency expenditures; (iv) reviewing EPC’s tariff structure to determine whether the true cost of supply is being adequately recovered and/or being subsidized through a transparent mechanism; and (v) identifying the specific sources and projecting revenue to ensure the financial viability of the investment plan, taking into account the reduction of technical line losses and any improvements in operational efficiency.
6. The assessment of EPC’s financial performance will be carried out as follows: (i) review of the most current audited and/or unaudited financial statements of EPC to assess (a) historical financial performance, (b) retail tariff levels, (c) capital structure, and (d) sufficient generation of internal funds to ensure sustainability of ongoing operations (i.e., self-finance a reasonable percentage of capital expenditures and service existing debt); and (ii) review recent audited and/or unaudited project accounts of EPC to determine proper accounting and cost control, update EPC’s financial model, and assess performance from 2005. The consultant will recommend financial performance measures and ratios for EPC and recommend specific time-bound actions that will ensure EPC’s ability to comply with such measures/ratios in pro-forma statements.
7. EPC’s financial management capabilities will be assessed along with recommendations for institutional strengthening of financial management along with a recommended time-bound implementation. This will include a plan for implementing the recommendations of the Financial Management Assessment of EPC (Final Report, 2005). The consultant will also (i) assess EPC’s financial and tariff reporting to its board and shareholders (of EPC’s financial audited accounts); (ii) prepare a reporting format and process for EPC management for financial and tariff reporting; (iii) recommend changes to the EPC auditor’s terms of engagement, to require that the issues raised in the 2005 financial management assessment be addressed; and (iv) prepare a fuel management audit and recommend actions to ensure safeguards against unauthorized use of fuel.
D. Power System Planner (international, 3.0 person-months) and Hydropower Engineer (international, 3.0 person-months; domestic, 2.0 person-months)
8. The scope of the power system planning and hydropower engineering work consists of (i) preparation of a least-cost investment plan and (ii) preliminary design and implementation arrangements for core subprojects. The consultants will do the following: (i) Assess EPC’s power system expansion plans, capacity for project implementation, and method of prioritizing projects. Identify areas for improving power system planning and assess requirements for specific assistance. (ii) Assess the source and magnitude of technical and non-technical losses. Propose prioritized measures to reduce losses and estimate the costs and benefits of such loss reduction. (iii) Assess the scope for an energy efficiency program. Prepare a program to improve efficiency and estimate the energy savings in accordance with ADB’s energy efficiency initiative. (iv) Using generation and system planning analyses (i.e., load flow and stability studies), prepare and justify a time-bound, optimized, and diversified 8–10-year least-cost expansion plan for meeting forecast demand on Upolu and Savai’i islands, and prepare a sensitivity analyses to analyze how changes in key variables, including demand, would affect the average cost of supply and subproject prioritization.
14 Appendix 4
(v) Identify gaps in the ADB TA 3985-SAM2 feasibility study of the core subproject and verify the project’s technical feasibility and the suitability of sites identified for the intake, powerhouse, and penstock route. (vi) Identify technically feasible options to supply water to the communities on the south coast of Savai’i with water discharged from the hydropower station. (vii) Prepare the preliminary design (civil, mechanical, and electrical) for the first batch of prioritized subprojects containing the major indicative scope. Recommend a procurement method for core subprojects. Prepare implementation and procurement arrangements, contract packaging, and a subproject implementation schedule. Draft bid documents for the procurement of the core subprojects and associated components. Prepare a preliminary procurement plan in accordance with ADB Procurement Guidelines (April 2006). (viii) Prepare and confirm detailed cost estimates for the core subprojects. The prices determined shall reflect the realistic cost of equipment to be sourced from prospective suppliers and contractors and take into account the procurement method and EPC’s procurement capacity. (ix) Prepare selection criteria for the least-cost design of subprojects to be funded under the investment program. (x) Prepare templates for subproject engineering analysis and train EPC staff to prepare the relevant engineering documentation for submission to ADB. (xi) Prepare terms of reference and outline a feasible implementation schedule for consultant inputs required to implement the core subprojects and the power sector expansion plan.
E. Renewable Energy Expert (international, 1.5 person-months)
9. The scope of work for the renewable energy expert will consist of (i) an assessment of renewable projects to be included under EPC’s least-cost investment plan and their feasibility for the clean development mechanism (CDM), and (ii) the preparation of documentation for CDM. The consultant will (i) review studies on the potential for renewable energy sources in Samoa, (ii) identify feasible projects to be included under the investment plan, and (iii) provide recommendations for implementation. The work will include an assessment of the potential of bio- fuel production and recommend measures for institutional and economic viability. The consultant will also (i) review EPC’s efforts to date on wind power generation and recommend the best sites for positioning anemometers on Upolu and Savai’i islands; (ii) review the use of photovoltaic cells for electricity generation in Samoa and determine their effectiveness, especially in remote areas of Upolu and Savai’i; and (iii) recommend maintenance and other arrangements for ensuring viability applicable to Samoa.
10. On the basis of the least-cost expansion plan, climate change policies, and associated institutional and regulatory framework, the consultant will (i) assess the scope for promoting CDM projects; (ii) prepare a report on developments in the emission reduction market, including factors that may influence the price for emission reduction credits, and on the players in the market, and assess the potential market for emission reduction credits from the projects under the investment plan; (iii) collect technical information on the Vaitai hydropower scheme, including the need and justification of the project’s size and magnitude, and assess the eligibility of the project for ADB’s CDM facility3—a CDM project design document (PDD)4 will be prepared for the Vaitai hydropower
2 ADB. 2002. Technical Assistance to the Independent State of Samoa for Preparing the Sava’i Renewable Energy Project . Manila (TA 3985-SAM, approved on 15 November, for $300,000). 3 ADB. 2003. Clean Development Mechanism Facility. Manila.
Appendix 4 15 scheme; (iv) help EPC prepare a strategy to market emission reduction credits, and develop in- house capacity to provide the requirements for a CDM project and the necessary documentation; and (v) provide information on the market for emission reduction.
F. Power Economist (international, 2.0 person-months)
11. The consultant will prepare (i) an economic analysis of the least-cost power system expansion program, and (ii) a least-cost analysis of the Vaitai hydropower scheme to meet forecast demand. The least-cost and economic analysis will take into account the possibility of accessing the carbon credit markets. The consultant will ensure that the work is consistent with the work of the financial analysis and will conduct the economic due diligence in accordance with ADB’s Guidelines for Economic Analysis of Projects, Handbook for Integrating Risk Analysis in the Economic Analysis of Projects, and Handbook for Integrating Poverty Impact Assessment in the Economic Analysis of Projects. The scope is as follows: (i) review forecasts for EPC’s power system and for the Vaitai hydropower scheme; (ii) prepare demand forecast scenarios by major consumer category corresponding to high-, low-, and base-case scenarios; (iii) prepare an economic least-cost analysis of feasible alternatives to the Vaitai hydropower scheme; and (iv) prepare an economic analysis of the proposed expansion program consistent with the financial analysis.
12. Based on the least-cost investment plan, the consultant will (i) calculate the long-run marginal cost to assess cost recovery of power tariffs and cross-subsidies,5 (ii) provide an analysis of the distribution of the net benefits, (iii) identify risks and prepare realistic delay and project cost scenarios to analyze the implications in terms of least cost and for the expansion program for meeting forecast demands, (iv) conduct sensitivity analysis on the economic results and assess the implications on the distribution of net benefits, and (iv) conduct a risk analysis using at-risk or other similar programs of key risks and assumptions.
G. Environment Specialist (international, 1.5 person-months; domestic, 2.0 person-months)
13. The consultants will assess environmental impact and prepare initial environmental examination (IEE), or an environmental impact assessment (EIA) if warranted, in accordance with ADB’s Environmental Policy (2002), Environmental Assessment Guidelines (2003), particularly Guidelines on Environmental Assessment of Sector Loan, Operations Manual (OM) Section F1 on Environmental Considerations in ADB Operations (2003), and comply with the Government's environmental assessment requirements and procedures. The EIA should also follow the relevant aspects of the World Bank’s Sectoral Guidelines on Dams and Reservoir, as presented in the Technical Paper Number 14C: Environmental Assessment Sourcebook, Volume II.
14. The consultants will review, validate, and update the draft IEE and the summary IEE of the Savai’i Renewable Energy Project (June 2005) and provide an updated environmental management plan (EMP) and monitoring plan following ADB guidelines, including matrixes to reflect the overall IEE findings and recommendations. The scope of work will consist of (i) field work and assessment, including (a) field surveys and quantitative sampling to fill any gaps in affected areas, particularly the dam site, inundation areas (if significant areas are to be inundated), or other areas affected by the project directly and indirectly, including power stations and substations, power transmission lines, access roads, quarry and borrow sites, and affected lands;
4 The Simplified Project Design Document for Small-scale CDM Project Activities (SSC-PDD) is available on the UNFCCC CDM site http://cdm.unfccc.int/Reference/Documents which lists the requirements for the PDD for small- scale CDM projects. 5 Dole, David. 2003. Setting User Charges for Public Services: Policies and Practice at the Asian Development Bank. ERD Technical Note No. 9. Manila: ADB; and Dole, David, and Ian Bartlett. 2004. Beyond Cost Recovery: Setting User Charges for Financial, Economic, and Social Goals. ERD Technical Note No. 10. Manila: ADB.
16 Appendix 4
(b) screening for the presence of fisheries resources, including availability of migratory fish species, rare, threatened, or endangered species, and other ecologically sensitive habitat, and their issues; (c) alternative assessment of the dam sites; (d) baseline information, including physical and/or chemical analyses on air quality, water quality, and noise; and (e) sociocultural and economic characteristics, including identification of possible occurrence of cultural heritage and archaeological sites, and management of impacts; (ii) consultations with the affected people and stakeholders in the project area during environmental assessment study to explore their perceptions, suggestions, and acceptance of the project, and prepare a record of the public consultations; (iii) an assessment of the institutional capacity of EPC and other agencies involved in implementing the EMP, proposed training to enable EPC to implement the EMP and monitoring plan, and assistance to EPC in securing environmental clearance for the core subproject as required by the Government.
15. Aside from the sample IEE (Savai’i hydropower), the consultant will prepare (i) a sector impact assessment and an environmental assessment and review procedure (EARP) for the sector project describing the overall procedures for environmental assessment and review of subprojects, including selection criteria for the follow-up subprojects; and (ii) an overall IEE assessing the generic environmental impacts with an overall environmental management plan. The overall IEE should include a section on EARP and a section on the sample IEE.
16. Considering the sensitivity of hydropower projects to climatic conditions, review the country climate risk profiles (produced under RETA 6204-REG6) and, based on it, assess the impacts of climate change on the project, and recommend adaptation measures to climate change in the project design.
H. Resettlement Specialist (international, 1.5 person-months; domestic, 2.0 person-months)
17. The resettlement specialist will prepare a resettlement framework (RF) and the resettlement plans (RP) for the core subproject, the Vaitai hydropower scheme, and associated components. The RF and RPs shall comply with the relevant ADB policies and operations manuals, particularly the Policy on Involuntary Resettlement (1995) and Operations Manual F2 on Involuntary Resettlement (2003). When preparing the RF and RPs, the resettlement specialist shall use as a guide Handbook on Resettlement: A Guide to Good Practice (1998) and Handbook on Poverty and Social Analysis (2001). The plans will be disclosed to affected people and the framework endorsed by EPC. The scope of work is as follows: (i) assess EPC’s capacity to administer a land acquisition program in compliance with ADB requirements; (ii) review government policies and guidelines and/or procedure on land acquisition and resettlement and identify any gaps between ADB’s and the Government’s policies; where necessary, propose measures to bridge the gap; (iii) train EPC’s land acquisition, resettlement, and social development staff on the procedures required for EPC compliance with ADB’s land acquisition and resettlement policies; (iv) undertake social analysis and assess the nature of the core subproject impacts on the poor, ethnic minorities, and other vulnerable groups; (v) develop an RP for the core subproject, including an inventory of losses, an entitlements matrix, a detailed budget, implementation schedules, a management and monitoring framework, and grievance and appeals procedures; (vi) prepare a monitoring program, covering implementation arrangements and cost estimates, to monitor RP implementation; (vii) prepare a draft participation strategy outlining stakeholders’ involvement at different stages of the project cycle for each core subproject.
6 ADB. 2004. Technical Assistance for Mainstreaming Environmental Considerations in Economic and Development Planning Processes in Selected Pacific Developing Member Countries. Manila (TA 6204-REG, approved on 3 December, for $600,000).