TECHNICAL ASSISTANCE COMPLETION REPORT

Division: SEID Technical Assistance No. and Name: Amount Approved: US$ 575,000 TA2653-PHI – - Interconnection Engineering Revised Amount: $575,000 Project Executing Agency: National Source of Funding: Japan TA Amount Undisbursed: TA Amount Utilized: Power Corporation (NPC) Special Fund $77,243 $497,757 Date Closing Date Approval: Signing: Fielding of Consultants: Original: Actual: 30 Sep 1996 18 Nov 1996 15 Jan 1997 31 Aug 1997 23 Feb 2001

Description

The technical assistance to the for the Leyte-Mindanao Interconnection Engineering (the TA) involved the preparation of a comprehensive technical, economic, and financial feasibility study of the construction of an interconnection between the Leyte and Mindanao electricity transmission grids, thereby interconnecting all the three regional grids, namely , Leyte (), and Mindanao, as the Luzon and Leyte grids are already interconnected. The Interconnection will therefore allow reserve electricity generation capacity to be shared by the three grids, thereby avoiding duplication and further reducing costs. The feasibility study formed the first part of the Leyte-Mindanao Interconnection Engineering Project, also financed by the TA Loan 1474-PHI (Leyte-Mindanao Interconnection Engineering Project). The TA and the associated TA loan were closely interrelated. In particular, the marine survey completed under the loan was designed to provide key input data for the feasibility study.

Objectives and Scope

The objective of the TA was to prepare the feasibility study of the proposed Interconnection. The study covered the technical, economic, financial, environmental and social aspects of the Interconnection.

Evaluation of Inputs

Completion of the feasibility study was delayed by more than 3 years due to (i) the inability of NPC to provide required data in a timely fashion, (ii) the delay in the delivery of survey data due to the nonpayment of invoices, (iii) the decision to include a least-cost generation planning study in order to provide more robust inputs for the economic and financial analyses, (iv) the decision to update all planning studies to incorporate 1998 Power Development Plan data, and (v) the decision to commission a second marine survey to investigate alternative routes for the submarine cable. The delay was outside the control of the consultant, and generally considered necessary to ensure proper investigation of the feasibility of this technically complex project. Apart from the delay, project implementation proceeded as envisaged at appraisal. The performance of the consultant was satisfactory, and there was ongoing and useful dialogue among the consultant, NPC, and ADB throughout the TA.

Evaluation of Outputs

The feasibility reports produced as a result of the TA were of high quality. They established that the studied interconnection was technically feasible and that its economic and financial benefits would be high, though those were evaluated on the assumption of an aggregated electricity industry. While some of the work was undertaken in the consultant’s home office, there was a high level of interaction between the consultant and NPC through intensive communication. In addition, the panel of experts mechanism, funded by the associated TA loan, facilitated transferring some skills in feasibility study. These undoubtedly increased the skill and experience of NPC in this type of technically complex project.

Overall Assessment and Rating

The TA is rated as partly successful although its output was of high quality. The Government decided to defer the construction of the studied interconnection after completion of the TA because of the restructuring of the electricity industry, while the project preparation was almost completed under the TA and its associated TA loan. Because the outputs of the TA were not fully utilized, it was not possible to rate the TA as successful.

Major Lessons Learned

The quality of the TA was improved as a result of the contribution of the panel of experts who undertook an independent review of the work of the consultant. As a result of this review, changes were made to the feasibility reports, which resulted in improvements to the recommended approach. This does not question the quality of work of the consultant but does demonstrate the value of an independent review of technically complex projects.

Recommendations and Follow-Up Actions

The Government has decided to defer the construction of the studied interconnection. In view of the fact that the TA found not only that the studied interconnection was feasible, but also that the economic argument for constructing it was compelling, ADB should maintain a dialogue with the Government to ensure that industry restructuring allows such economically beneficial capital investment to proceed. In addition, a TA to promote good governance and effective regulation in the electricity industry, proposed for 2003, should be pursued. Effective regulation will be necessary to ensure that the transmission concessionaire has financial incentives to proceed with economically efficient extensions.

Prepared by Toru Hayakawa Designation Financial Specialist