Report and Recommendation of the President to the Board of Directors
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Report and Recommendation of the President to the Board of Directors Sri Lanka Project Number: 38628 December 2009 Proposed Asian Development Fund Grant Lao People's Democratic Republic: Greater Mekong Subregion Northern Power Transmission Project CURRENCY EQUIVALENTS (as of 11 December 2009) Currency Unit – kip (KN) KN1.00 = $0.00012 $1.00 = KN8,489 ABBREVIATIONS ADB – Asian Development Bank CEMP – construction environmental management plan EDCF – Economic Development Cooperation Fund of Korea Eximbank EDL – Electricite du Laos EGAT – Electricity Generating Authority of Thailand EIRR – economic internal rate of return FIRR – financial internal rate of return GMS – Greater Mekong Subregion HPP – hydropower plant ICB – international competitive bidding IEE – initial environmental examination IPP – independent power producer JICA – Japan International Cooperation Agency Korea Eximbank – Export–Import Bank of Korea MEM – Ministry of Energy and Mines MOF – Ministry of Finance NCB – national competitive bidding PAF – project affected family PEMP – project environmental management plan PIC – project implementation consultant PMU – project management unit PPME – project performance monitoring and evaluation TA – technical assistance T&D – transmission and distribution WACC – weighted average cost of capital WEIGHTS AND MEASURES GWh – gigawatt-hour (1,000,000 kWh) km – kilometer kV – kilovolt (1,000 volts) kWh – kilowatt-hour (1,000 watt-hours) m2 – square meter MVA – megavolt-ampere MW – megawatt (1,000,000 watts) NOTE In this report, "$" refers to US dollars. Vice-President C. Lawrence Greenwood, Jr., Operations 2 Director General A. Thapan, Southeast Asia Department (SERD) Director A. Jude, Energy and Water Division, SERD Team leader D. T. Bui, Energy Economist, SERD Team members E. Baardsen, Senior Infrastructure Specialist, SERD R. Butler, Social Development Specialist, SERD H. Chen, Counsel, Office of the General Counsel M. Paterno, Financial Analysis Specialist, SERD M. Sultana, Senior Social Development Specialist, SERD 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. CONTENTS Page GRANT AND PROJECT SUMMARY i MAP I. THE PROPOSAL 1 II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1 A. Performance Indicators and Analysis 1 B. Analysis of Key Problems and Opportunities 3 III. THE PROPOSED PROJECT 8 A. Impact and Outcome 8 B. Outputs 9 C. Special Features 10 D. Project Investment Plan 11 E. Financing Plan 12 F. Implementation Arrangements 12 IV. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS 16 A. Benefits 16 B. Impacts 18 C. Risks and Assumptions 20 V. ASSURANCES AND CONDITIONS 21 A. Specific Assurances 21 B. Grant Effectiveness Conditions 23 VI. RECOMMENDATION 23 APPENDIXES 1. Design and Monitoring Framework 24 2. Lao Energy Sector Strategy Assessment and Road Map 26 3. Development Partner Coordination 31 4. Cost Estimate and Financing Plan 34 5. Project Implementation Schedule 37 6. Procurement Plan 38 7. Credit to Poor Households—Funds Flow Chart 41 8. Economic Analysis of the Project 42 9. Financial Analysis of the Project 48 10. Resettlement Plan and Resettlement Framework 50 11. Summary Poverty Reduction and Social Strategy 55 SUPPLEMENTARY APPENDIXES (available on request) A. Terms of Reference for Consultancy Services for Project Implementation B. Terms of Reference for Senior Policy Advisor to Ministry of Energy and Mines C. Financial Analysis of Electricite du Laos D. Initial Environmental Examination E. Resettlement Plan F. Resettlement Framework GRANT AND PROJECT SUMMARY Recipient Lao People's Democratic Republic (Lao PDR) Classification Targeting classification: Targeted intervention—Geographic Sector (subsector): Energy (electricity transmission and distribution) Theme (subtheme): Economic growth (widening access to markets and economic opportunities); regional cooperation and integration (cross- border infrastructure) Location impact: Rural (medium impact); regional (medium impact) Partnership: Export–Import Bank of Korea (Korea Eximbank) Environment Category B. An initial environmental examination was prepared. Assessment Project Description The project will (i) construct 398 kilometers (km) of 115-kilovolt (kV) transmission lines with associated 115/22 kV substations, and erect about 1,100 km of new 22 kV medium- and low-voltage distribution lines to expand access to grid electricity to consumers in western Vientiane, Xaignabouli, and Phongsali provinces of the Lao PDR; (ii) provide no- interest credit to poor households in the project areas to help them connect to the distribution grid; and (iii) provide consulting services, including a project implementation consultant to Electricite du Laos (EDL) and advisory services to the Ministry of Energy and Mines (MEM). The construction of the transmission and distribution facilities comprises three modules. The Asian Development Bank (ADB) will finance module 1, and Korea Eximbank will finance modules 2 and 3. Module 1 consists of (i) a 98 km single-circuit 115 kV transmission line from Paklay to Nonhai, and (ii) a 74.6 km single-circuit 115 kV transmission line from Paklay to the Lao PDR–Thailand border near Kenthao for interconnection with the Electricity Generating Authority of Thailand (EGAT)–Provincial Electricity Authority via the Thali substation in Loei province in Thailand. Module 1 will also construct a new 115kV/22kV substation at Paklay and expand two existing 115kV/22kV substations at Nonhai and Xaignabouli. The cross-border interconnection between Paklay (Lao PDR) and Thali (Thailand) will facilitate power trading between the EDL and EGAT– Provincial Electricity Authority systems. The project under module 2 will extend a new 115 kV transmission network from the proposed Paklay substation to be built under module 1 northward to the existing Xayabury substation, where it will connect with EDL's transmission network. Module 3 will consist of a 115 kV transmission line linking the existing Namo substation in Oudomxai province with a new substation at Boun Nua in Phongsali province. Under modules 2 and 3, the project will erect distribution lines emanating from Nonhai, Paklay, Xayabury, Namo, and Boun Nua substations. ii Rationale For the Lao PDR, poverty reduction and improvement of living standards are important development goals that are not achievable without the provision of basic essential services such as access to education, health care, clean water, and electricity. Of the total 960,000 households in the country, about 560,000 (58%) have access to electricity. In Xaignabouli province, only 50% of households are electrified, which is lower than the national average. Phongsali province has the lowest percentage of electrified households in the country—only 13%. Poverty is widespread where electricity is not made available to households. For example, in Phongsali province, 60% of households are considered poor, while in some districts of Xaignabouli province, the percentage of poor households is as high as 50%. Recognizing the importance of provision of electricity for poverty reduction and for raising living conditions, the government has set a target of electrifying 70% of total households by 2010, 80% by 2015, and 90% by 2020. A strong transmission and distribution (T&D) network nationwide is necessary to ensure reliable electrical supply to the population and to achieve the electrification targets. Presently, the T&D network of EDL does not cover the entire country. For example, Phongsali province and parts of Xaignabouli are not covered by EDL's T&D system. The ADB-financed Northern Area Rural Power Distribution Project is currently building the T&D system covering the area from Louangphrabang Phrabang to Oudomxai and onward to Louang-Namtha. At Louangphrabang it interconnects with the existing Nam Ngum 1 transmission system that covers Vientiane capital and central region of the Lao PDR. This project will construct the much needed T&D system in Xaignabouli and Phongsali provinces and in western Vientiane province. Together with previous ADB-financed projects, it will help gradually build up a nationwide T&D system to allow the government reach the rural electrification and poverty reduction goal. Consumers in Phongsali province currently rely on limited electricity imports from the People's Republic of China or from individual privately owned diesel generation sets. Similarly, consumers in Xaignabouli province rely on electricity imports from Thailand. Electricity imports in these two provinces are supplied at 22 kV and are more expensive ($0.08 per kilowatt-hour [kWh]) than EDL's supply (about $0.05 per kWh). But more importantly, many households still do not have access to electricity. Currently, a 22 kV transmission line provides imported electricity from Thailand to southern Xaignabouli province. Once the project's 115 kV cross-border interconnection line is built, it will replace the current 22 kV transmission line used for power import. This 115 kV cross-border interconnection will have a much higher load-carrying capacity and lower voltage drop; hence, it will deliver a higher quality electricity supply. The 115 kV interconnection can be utilized for both import and export of electricity. Such a two-way power trade will be possible and beneficial to the Lao PDR and Thailand