Provincial Power Supply Project

Completion Report

Project Number: 28191 Loan Number: 1794 August 2008

Cambodia: Provincial Power Supply Project

CURRENCY EQUIVALENTS

Currency Unit – riel (KR)

At Appraisal At Project Completion (as of 15 August 1999) (as of 28 July 2006) KR1.00 = $0.00026 $0.00024 $1.00 = KR3,844.50 KR4,188.43 SDR1.00 = $1.358 $1.435

ABBREVIATIONS

ADB – Asian Development Bank AFD – Agence Française de Développement EA – executing agency EDC – Electricité du Cambodge EIRR – economic internal rate of return FIRR – financial internal rate of return GMS – Greater Mekong Subregion IPP – independent power producer LV – low voltage MIME – Ministry of Industry, Mines and Energy MV – medium voltage ROA – return on assets PCB – polychlorinated biphenyl TA – technical assistance

WEIGHTS AND MEASURES V (volt) – unit of electrical voltage kV (kilovolt) – 1,000 V W (watt) – unit of active power kW (kilowatt) – 1,000 W MVA (megavolt ampere) – 1,000,000 volt-amperes MVAR (megavolt ampere reactive) – electrical capacity measure MW (megawatt) – 1,000,000 W Wh (watt-hour) – unit of energy kWh (kilowatt-hour) – 1,000 Wh MWh (megawatt-hour) – 1,000,000 Wh

NOTES

(i) The fiscal year (FY) of the Government is from 1 January to 31 December. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2000 ends on 31 December 2000. (ii) In this report, “$” refers to US dollars.

Vice President C. Lawrence Greenwood Jr., Operations 2 Director General A. Thapan, Southeast Asia Department Director A. Goswami, Cambodia Resident Mission (CARM) Team leader N. Ouk, Senior Project Implementation Officer, CARM Team member A. Goffeau, Portfolio Management Specialist, CARM S. San, Assistant Project Analyst, CARM

CONTENTS Page

BASIC DATA i MAP vi I. PROJECT DESCRIPTION 1 II. EVALUATION OF DESIGN AND IMPLEMENTATION 2 A. Relevance of Design and Formulation 2 B. Project Outputs 2 C. Project Costs 3 D. Disbursements 4 E. Project Schedule 5 F. Implementation Arrangements 5 G. Conditions and Covenants 6 H. Related Technical Assistance 7 I. Consultant Recruitment and Procurement 7 J. Performance of Consultants, Contractors, and Suppliers 9 K. Performance of the Borrower and the Executing Agency 9 L. Performance of the Asian Development Bank 10 III. EVALUATION OF PERFORMANCE 10 A. Relevance 10 B. Effectiveness in Achieving Outcome 10 C. Efficiency in Achieving Outcome and Outputs 11 D. Preliminary Assessment of Sustainability 11 E. Impact 12 IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 13 A. Overall Assessment 13 B. Lessons 13 C. Recommendations 13

APPENDIXES 1. Project Framework 16 2. Appraisal and Actual Project Costs 19 3. Currency Equivalents 20 4. Projected and Actual Disbursements 21 5. Detailed Outputs of the Infrastructure Component 22 6. Project Implementation Schedule 25 7. Chronology of Major Events 26 8. Organization Chart of Electricité du Cambodge 28 9. Status of Compliance with Major Loan Covenants 29 10. Financial and Economic Reevaluation 32 11. Financial Performance of Electricité du Cambodge 41

BASIC DATA A. Loan Identification

1. Country Kingdom of Cambodia 2. Loan Number 1794-CAM(SF) 3. Project Title Provincial Power Supply 4. Borrower Kingdom of Cambodia 5. Executing Agency Electricité du Cambodge

6. Original Loan Amount SDR14,379,000 ($18.6 million equivalent) Net Loan Amount SDR13,092,728 ($19.4 million equivalent)

7. Project Completion Report Number 1046-CAM

B. Loan Data 1. Appraisal – Date Started 20 July 2000 – Date Completed 3 August 2000

2. Loan Negotiations – Date Started 19 October 2000 – Date Completed 20 October 2000

3. Date of Board Approval 5 December 2000

4. Date of Loan Agreement 5 April 2001

5. Date of Loan Effectiveness – In Loan Agreement 4 July 2001 – Actual 1 August 2001 – Number of Extensions 1

6. Closing Date – In Loan Agreement 31 December 2004 – Actual 5 April 2007 – Number of Extensions 2

7. Terms of Loan – Interest Rate 1% per annum (grace period) 1.5% per annum (thereafter) – Maturity (years) 32 – Grace Period (years) 8

8. Disbursements a. Dates Initial Disbursement Final Disbursement Time Interval

04 January 2002 05 April 2007 63 months

Effective Date Original Closing Date Time Interval

01 August 2001 31 December 2004 41 months

b. Amount ($)

a Original Last Revised Net Amount Amount Undisbursed Category b c Allocation Allocation Available Disbursed Balance 1A 2.71 5.90 5.90 5.78 0.12 1B 0.40 0.00 0.00 0.00 0.00 2A 8.54 11.42 11.42 10.77 0.65 2B 0.77 0.00 0.00 0.00 0.00 3A 0.70 0.24 0.24 0.18 0.06 3B 1.62 1.53 1.53 1.46 0.07 4 0.88 1.15 1.15 0.91 0.24 5 0.26 0.30 0.30 0.29 0.01 6 2.72 0.79 0.79 0.00 0.79 Total 18.60 21.33 21.33 19.39 1.94 a 1A = Generating Equipment (4 Towns), 1B = Generating Equipment (Stung Treng), 2A = Distributing Equipment (7 Towns), 2B = Distributing Equipment (Stung Treng), 3A = Capacity Building (Trainers for EDC Center), 3B = Other Capacity Building, 4 = Consulting Services, 5 = Interest Charge, and 6 = Unallocated. b The difference between the original amount and the revised total amount was due to the exchange rate variation between the SDR and the dollar. c An undisbursed loan amount of SDR1,286,272.03 million (equivalent to $1,942,515 million) was canceled at the loan closing date on 5 April 2007.

9. Local Costs (Financed) Appraisal Actual - Amount ($ million) 6.49 0.13 - Percent of Local Cost 53.9% 14.0% - Percent of Total Cost 26.8% 0.6%

C. Project Data 1. Project Cost ($ million) Cost Appraisal Estimates Actual Foreign Exchange Cost 12.13 23.89 Local Currency Cost 12.04 1.09 Total 24.17 24.98

2. Financing Plan ($ million) Appraisal Estimates Actual Cost Foreign Local Total Foreign Local Total Implementation Costs ADB 11.87 6.04 17.91 18.97 0.13 19.10 AFD 0.00 0.00 0.00 4.63 0.00 4.63 EDC 0.00 0.45 0.45 0.00 0.00 0.00 Government 0.00 5.10 5.10 0.00 0.96 0.96 Total 11.87 11.59 23.46 23.60 1.09 24.69 IDC Costs ADB 0.26 0.45 0.71 0.29 0.00 0.29 AFD 0.00 0.00 0.00 0.00 0.00 0.00 EDC 0.00 0.00 0.00 0.00 0.00 0.00 Government 0.00 0.00 0.00 0.00 0.00 0.00 Grand Total 12.13 12.04 24.17 23.89 1.09 24.98 ADB = Asian Development Bank, AFD = Agence Française de Développement, EDC = Electricité du Cambodge, IDC = interest during construction.

iii

3. Cost Breakdown by Project Component ($ million) Appraisal Estimate Actual Project Component Foreign Local Total Foreign Local Total

A. Base Cost 1. Infrastructurea 7.42 8.97 16.39 19.51 1.01 20.52 2. Strengthening Provincial Power System 0.11 0.44 0.55 0.10 0.08 0.18 3. Strengthening Capacity of EDC/ MIME 1.75 0.33 2.08 3.08 0.00 3.08 4. Consulting Services 0.79 0.09 0.88 0.91 0.00 0.91 Subtotal (A) 10.07 9.83 19.90 23.60 1.09 24.69

B. Contingencies 1. Physical 1.00 0.98 1.98 0.00 0.00 0.00 2. Price 0.80 0.78 1.58 0.00 0.00 0.00 Subtotal (B) 1.80 1.76 3.56 0.00 0.00 0.00

C. Service Charge During Construction 0.26 0.45 0.71 0.29 0.00 0.29

Total 12.13 12.04 24.17 23.89 1.09 24.98 EDC = Electricité du Cambodge, MIME = Ministry of Industry, Mines and Energy. a Including land acquisition and compensation costs.

4. Project Schedule Item Appraisal Estimate Actual Consultants Contract Contract Date Mar 2001 15 Nov 2001 Consultant Supervision Completion Jun 2004 31 Dec 2006 Distribution Works Bidding Jul 2001–Jul 2002 Jul 2002–Dec 2003 Supply and Installation Jul 2002–Sep 2003 Jan 2004–Sep 2006 Generating Works Bidding Jul 2001–May 2002 Jul 2002–Dec 2003 Supply and Installation May 2002–Jun 2003 Jan 2004–Oct 2005 Commissioning Jul 2003–Jun 2004 Oct 2005–Oct 2006 Capacity Building Apr 2001–Jun 2004 Varies by activities (see Appendix 5) Other Milestones: 1. 9 February 2005: Approval of first extension of loan closing date to 31 December 2005. 2. 6 June 2005: Approval of minor change in project scope. 3. 19 December 2005: Approval of second extension of loan closing date to 31 December 2006. 4. 5 April 2007: Closing of loan accounts.

5. Project Performance Report Ratings Ratings Implementation Period Development Implementation Objectives Progress

From 1 January 2000 to 31 December 2000 Satisfactory Satisfactory From 1 January 2001 to 31 December 2001 Satisfactory Satisfactory From 1 January 2002 to 31 December 2002 Satisfactory Satisfactory From 1 January 2003 to 31 December 2003 Satisfactory Satisfactory From 1 January 2004 to 28 February 2004 Satisfactory Satisfactory From 1 January 2005 to 31 December 2005 Satisfactory Satisfactory From 1 January 2006 to 31 March 2006 Satisfactory Satisfactory

D. Data on Asian Development Bank Missions No. of No. of Specialization Name of Mission Date Persons Person-Days of Membersa Fact-Finding 10–24 Feb 2000 4 42 a, b, c Appraisal 20 Jul–3 Aug 2000 7 74 a, b, c, d, e, h, Loan Inception 26–30 Mar 2001 2 10 a, i Review 1 27–30 Apr 2002 1 4 a Review 2 28–29 Oct 2002 1 2 a Review 3 20–21 Feb 2003 1 2 a Review 4 9–12 Feb 2004 2 8 a, i Review 5 4–29 Nov 2004 2 12 f, g Review 6 15–22 Jul 2005 2 4 f, g Review 7 9–16 Dec 2005 2 6 g, f Review 8 17 Mar–4 Apr 2006 2 6 g, f Review 9 27 Sep–6 Oct 2006 2 6 g, f Project Completion Review 24 Mar–8 April 2008 2 36 g, c a a – engineer, b – financial analyst, c – consultant, d – economist, e – social development specialist, f – portfolio management specialist, g – project implementation officer, h – counsel, i – project analyst.

I. PROJECT DESCRIPTION

1. Cambodia’s power infrastructure had suffered from years of neglect resulting from nearly three decades of war and political instability. The generation and distribution facilities were in poor condition due to their age and lack of proper maintenance. System losses were very high, and reliability and quality of power supply were inadequate. In 1992, the Asian Development Bank (ADB) approved the Special Rehabilitation Assistance Loan1 to support the country’s rehabilitation of essential physical and social infrastructure. Under that loan, the energy component focused on the provision of emergency generating systems in Phnom Penh. This was followed by rehabilitation of the electricity systems in Phnom Penh and in the two important provincial towns of Siem Reap and Sihanoukville.2 The Provincial Power Supply Project (the Project) was formulated to address issues in other major provincial towns. It was included in ADB’s lending program for 2000 and was prepared and formulated based on the findings of a technical assistance (TA) project3 completed in 1998. Given changes in political and economic circumstances in 1997 and 1998, the study findings were updated under a small-scale TA4 conducted in 1999. The Project was appraised from 20 July to 4 August 2000.

2. The Project’s long-term objective was to stimulate economic growth and thereby reduce urban poverty in the selected provincial towns and semi-urban areas. A longer-term goal was to create an enabling environment for private sector participation in the future power system expansion. The Project comprised two parts: Infrastructure (Part A) and Capacity Building (Part B). At appraisal, Part A was to replace and/or expand the electricity distribution systems in eight provincial towns.5 In five of these,6 new diesel generators were to be provided to meet forecast demand up to the end of 2006. Part B of the Project was to (i) build institutional capacity by creating suitable management, operation, and maintenance organizations in the provincial centers so the new systems are efficient and financially viable; (ii) strengthen the skills in the Electricité du Cambodge (EDC) head office; (iii) expand the scope of training available at EDC’s ADB-funded training center in Phnom Penh; and (iv) set up a data-gathering system upon which to base future hydropower development. The project framework, comparing appraisal targets with the achievements of the Project, is in Appendix 1.7

3. The Borrower was the Kingdom of Cambodia, and the Ministry of Economy and Finance, acting on behalf of the Borrower, relent the ADB loan proceeds to EDC, the Project’s Executing Agency (EA). An ADB loan8 of $18.6 million equivalent from ADB’s Special Funds resources financed part of the foreign currency cost and local currency cost of the Project. The French Government, through the Agence Française de Développement (AFD), provided a grant of EUR3.75 million to the Government to cofinance the Project.

1 ADB. 1992. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Kingdom of Cambodia for the Special Rehabilitation Assistance Project. Manila (Loan 1199-CAM [SF]). 2 ADB. 1994. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Kingdom of Cambodia for the Power Rehabilitation Project. Manila (Loan 1345-CAM [SF]). 3 ADB. 1996. Technical Assistance to the Kingdom of Cambodia for the Power Rehabilitation II Project. Manila (TA 2629–CAM). 4 ADB. 1999. Technical Assistance to the Kingdom of Cambodia for the Update of Power Rehabilitation II Project Preparation Study. Manila (TA 3256–CAM). 5 In Banlung, Kampot, Kompong Speu, Prey Veng, Sisophon, Stung Treng, Svay Rieng, and Takeo. 6 In Kampot, Prey Veng, Sisophon, Stung Treng, and Takeo. 7 The project framework at appraisal has been modified to be in line with the revised design and monitoring framework that ADB has since been adopted. 8 Loan 1794–CAM (SF) was approved for the equivalent of $18.6 million on 5 December 2000.

II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

4. The Project was formulated to address the power sector issues identified during appraisal while meeting the Government’s development objectives in the power sector. It was in line with ADB’s sector strategy. The Project remains consistent with ADB’s sector strategy in Cambodia, which prioritizes achieving sustainable economic growth, and is in line with the Government’s broad development strategy. ADB’s country strategy emphasizes that adequate supply of reliable and affordable power is a prerequisite for private sector-led economic growth. The strategy focuses on expanding power generation, transmission, and distribution systems. One of the most important aspects of the Government’s economic policy as outlined in its current development strategy9 is developing the energy sector to respond effectively to the increasing needs for low-cost electricity. Therefore, the Project was highly relevant to the needs of the power sector in Cambodia.

5. The power sources to the provincial centers were mostly supplied by small, inefficient independent power producers (IPPs) with a significant degree of natural monopoly power. This was hindering the wider economic development. ADB’s strategy was to progressively establish a reliable and efficient system in provincial towns under the operational control of the EDC from a mixture of government, IPP, and import power sources. This, in turn, was to facilitate regional economic development and expand local markets for rural produce. Without such balanced regional development, there was likely to be continued migration to Phnom Penh and the major commercial centers, leaving rural areas in a continually depressed state. In addition to funding physical infrastructure, the Project aimed to promote human resource development. Two main areas of weakness in Cambodia’s power sector were identified: (i) in EDC, where financial management, forecasting, and system planning skills needed strengthening; and (ii) in the provinces, where trained and educated staff were in very short supply.

B. Project Outputs

1. Part A: Infrastructure

6. The original scope of Part A included rehabilitating and expanding the medium voltage (MV) and low voltage (LV) distribution systems in eight provincial towns10 and installing new generating equipment in five provincial towns.11 During the final project implementation stage, savings under the ADB loan and AFD grant were identified. As requested by the Government, both ADB and AFD approved in September 2005 the use of loan and grant savings to cover rehabilitation and expansion of the distribution system in Battambang town. Appendix 5 provides detailed outputs for each project province, and the main outputs under this component are summarized in para. 7.

7. The total outputs in all project provinces provided distribution works included (i) rehabilitating or constructing 228 kilometers (km) of existing 10 kilovolt (kV) MV line and/or upgrading to 22 kV line, (ii) installing 66 overhead and ground-mounted 22 kV switchgear, (iii) installing 188 overhead and/or ground-mounted distribution transformers and substations (including LV switchgear and capacitors), (iv) installing 556 km of 400/230 V low voltage

9 Ministry of Planning. 2005. National Strategic Development Plan, 2006–2010. Royal Government of Cambodia. 10 Banlung, Kampong Speu, Kampot, Prey Veng, Sisophon, Stung Treng, Svay Rieng, and Takeo. 11 Banteay Meanchey, Kampot, Prey Veng, Stung Treng, and Takeo.

3 distribution using bundled conductors and/or reusing existing conductors, (v) installing pole- mounted metering boxes and 46,447 sets of customer metering, (vi) installing 19,508 poles of different sizes, and (vii) installing two sets of main transformers. The generation works included (i) constructing five new diesel power plant facilities, including civil and building works; and (ii) installing four 250 kilowatt (kW), eleven 500 kW, and four 1,000 kW diesel generators and such associated systems as transformers and protecting systems.

2. Part B: Capacity Building

8. As envisaged at appraisal, the Project provided training for provincial staff from EDC and the Ministry of Industry, Mines and Energy (MIME) plus computers and software programs for eight EDC provincial offices. During project implementation, other office equipment (such as furniture) was found to be existing and sufficient within the eight EDC provincial offices, so provision of these items was deleted from the Project’s original scope. A financial management advisor to EDC was recruited and conducted on-the-job training for staff of EDC’s Finance and Accounting Department in various aspects of financial management, including financial planning and forecasting as well as accounting and cost control. A planning advisor to EDC was not financed under the ADB loan, as envisaged at appraisal, but eventually was financed under a World Bank project. Savings from financing the services of the planning advisor were utilized to extend the services of the financial advisor.

9. The Project financed construction of a dormitory building at the EDC Training Center for trainees from EDC and MIME provincial offices, as envisaged at appraisal. The ADB loan was used to finance basic furniture for the dormitory building, and the AFD grant covered provisions of training equipment. As envisaged, phase II of training funded by the AFD grant focused mainly on constructing and maintaining high voltage transmission systems as well as power utility management and system planning. The Project also funded hydrological equipment and training on hydrological data collection and interpretation, as envisaged at appraisal.

C. Project Costs

10. At appraisal, the Project was estimated to cost $24.17 million. Foreign exchange cost accounted for $12.13 million (about 50% of the estimated total), including $0.26 million for service charges and interest during construction. Local currency cost was estimated at $12.04 million (50% of the estimated cost), including local taxes and duties estimated at about $2.89 million. ADB was to provide a loan for the equivalent of $18.6 million from its Special Funds resources to finance 77% of the project cost and 100% of the foreign exchange cost. The Borrower was to fund the remaining cost, equivalent to $5.55 million. The appraisal estimates included physical contingencies and provisions for price escalation on the foreign exchange and local currency costs, as well as an estimate of the service charge during construction. At appraisal, the Government had sought parallel cofinancing from AFD of about $2.5 million on a grant basis to finance the infrastructure in Stung Treng provincial town and partial provision of trainers at the EDC Training center. It was uncertain at that stage, however, whether AFD would approve its request. The Government therefore requested that the related costs be included in the ADB loan, and the Government would later request ADB to reallocate or cancel the relevant portion of the loan funds if AFD financing was approved. AFD actually approved a grant in the amount of EUR 3.75 million, exceeding the amount envisaged at appraisal of the ADB loan, and the grant agreement (Grant CKH 105601N) was signed on 20 November 2001. As envisaged at appraisal, the AFD grant was used to cover costs for rehabilitating the distribution system, installing generating equipment in Stung Treng, and training activities at EDC Training Center. Subsequently, ADB reallocated the funds originally allocated to cover the infrastructure in Stung

Treng to finance additional generation and distribution works in Battambang, Kampot, and Sisophon, as requested by the Government in February 2005 (para. 12).

11. The actual project cost, including the extended scope (paras. 12 and 13), was $24.98 million. The foreign exchange cost was equivalent to $23.89 million (about 96% of the total), and local currency cost was equivalent to $1.09 million (4%). ADB financed the equivalent of $19.39 million, or about 78% of the project cost. The AFD grant accounted for $4.63 million equivalent, or 18% of the cost. The Government funded the remaining local currency cost, equivalent to $0.96 million excluding local taxes and duties. The actual cost covered by the Government and percentage of local cost were lower than estimated at appraisal, given that the Government decided to exclude taxes and duties for electrical equipment supplied in the generating and distribution works contracts (infrastructure component) in an effort to improve EDC’s financial performance.

12. For the Project’s infrastructure component, the actual cost including additional works in Battambang, Kampot, and Sisophon was $20.52 million compared with an appraisal estimate of $16.39 million (excluding the contingencies of $3.57 million). The actual cost was just slightly higher that the appraisal estimate for this component, including contingencies. As requested by the Government, ADB approved on 7 September 2005 the use of loan savings under this component to cover additional generating works in Kampot and Sisophon plus rehabilitating and expanding parts of the distribution systems in Battambang (feeders F1 and F3), given that the connected loads in these provinces had increased faster than anticipated. AFD also approved on 1 September 2005 the use of its grant proceeds for financing the remaining parts of distribution systems in Battambang (feeders F2 and F4).

13. The actual cost for the capacity building component was $3.26 million, exceeding the appraisal estimate of $2.63 million. This reflected the extended scope of training at EDC Training Center funded under the AFD grant. The actual cost of consulting services for construction supervision was $0.91 million, compared with an appraisal estimate of $0.88 million. The slight increase in consulting services costs was attributed to delays in implementing the infrastructure works, which required an extension of the consulting services (para. 16). The Government requested in June 2005 to use loan savings of $0.29 million under the capacity building component to partly finance a detailed feasibility study for the transmission line from Kampot to Sihanoukville in preparation for the next ADB-financed power project.12 The pre-feasibility study for this transmission line was funded under an ADB TA project,13 but the remaining funds under this TA were not adequate to wholly finance the detailed feasibility study.

14. Appendix 2 compares the actual detailed costs for each component of the Project with appraisal estimates. For cost comparison, local currency costs incurred by EDC and payments in euro funded under the AFD grant have been converted into dollars at that rate prevailing at the time of each transaction. The average exchange rates used are in Appendix 3.

D. Disbursements

15. A disbursement schedule was not included in the appraisal documents. Based on the implementation schedule prepared at appraisal, however, the projected disbursements were developed and are shown in Appendix 4 with the actual disbursements. The loan was disbursed

12 ADB. 2006. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Kingdom of Cambodia for the Second Power Transmission and Distribution Project. Manila (Loan 2261-CAM [SF]). 13 ADB. 2003. Technical Assistance to the Kingdom of Cambodia for the Power Distribution and Greater Mekong Subregion Transmission Project. Manila (TA 4078–CAM).

5 more slowly than envisaged at appraisal because of delays in implementing the infrastructure component, and especially in the distribution works contract (para. 28). Loan proceeds were disbursed in accordance with ADB’s Loan Disbursement Handbook. Disbursements from the loan account were completed on 5 April 2007, the actual date of loan closing. ADB canceled the remaining balance of SDR1,286,272.03, reducing the size of the loan to SDR13,092,727.97.

E. Project Schedule

16. The ADB Board approved the loan on 5 December 2000. The Loan Agreement was signed on 5 April 2001, and the loan became effective on 1 August 2001.14 The original closing date of the loan was 31 December 2004, although this was extended twice at the request of the Borrower to 31 December 2006. The loan extensions were required to enable completing the original project scope and additional distribution works using loan savings. As envisaged at appraisal, the Project was to be implemented over 44 months, from April 2001 to December 2004, with infrastructure and capacity building components completed by June 2004. This time frame excluded selection of consultant activities, which had started under advance procurement action in January 2001. The generation works in five provincial towns were completed between August and October 2005, but the distribution works were only completed during February to April 2006. The additional distribution works in Battambang were completed in December 2006. Actual implementation thus required about 68 months, from April 2001 to December 2006. Construction of a dormitory at the EDC Training Center was awarded in August 2005 and completed in April 2006. Training activities at EDC Training Center commenced in February 2004 and were completed in January 2006. Appendix 6 compares the actual implementation schedule with the appraisal schedule, while Appendix 7 shows a chronology of the main events.

17. ADB approved the Government’s request for the first extension of the loan closing date from 1 January 2005 to 31 December 2005 and the reallocation of loan proceeds in response to the Government’s request to use budget allocated for generation and distribution works in Stung Treng, which were actually funded from the AFD grant, to finance additional distribution works in Battambang. As requested by the Borrower in November 2005, ADB approved a second extension of the loan closing date to 31 December 2006 to enable completion of remaining project activities, and especially the additional distribution works in Battambang.

F. Implementation Arrangements

18. The implementing arrangements were as envisaged at appraisal. The organizational structure of EDC, the Project’s EA, is in Appendix 8. The Director of EDC’s Corporate Planning and Projects Department was assigned as the Project Director. The Project Management Office No. 1 of this department undertook daily project management activities with support of the implementation consultants. This office was headed by a senior electrical engineer and supported by another 12 site engineers and/or supervisors. Project Management Office No. 1 was responsible for coordinating implementation activities with EDC’s Finance and Accounting Department and MIME. The implementation arrangements worked well and resulted in the establishment of permanent project management offices within EDC’s organization structure in place of ad hoc project implementation units.

14 Loan effectiveness was originally to be on 4 July 2001, but it had to be extended once as submission of the legal opinions, a condition of loan effectivity, did not occur until 4 August 2001.

G. Conditions and Covenants

19. The Government and EDC generally complied with the standard loan covenants, but EDC did not comply satisfactorily with its financial covenants. The principal financial covenants for the Project focused on adjusting tariffs to achieve at least cash breakeven in EDC branches from fiscal year (FY) 2001, achieving a 6% rate of return in each individual project province from the first year of operating the project facilities, achieving a debt service coverage ratio of at least 1.2 from FY2002, and reducing the distribution losses to less than 17%. The status of compliance with key financial loan covenants is summarized in paras. 20–23, and details of compliance with the key loan covenants are in Appendix 9.

20. While project preparation had identified and addressed significant issues related to EDC’s financial performance, compliance with loan covenants (and particularly by achieving cash breakeven and then a 6% rate of return in each individual project province) is not achievable in the provinces, where, given the recent rapid rise in fuel costs, power is sourced from diesel generators. Since increasing in real terms the tariffs applied to each individual province would achieve very little financially and would suppress economic benefits, the Government has implemented a policy of cross-subsidization between the provinces to encourage balanced national development and effectively provide welfare to the poor provinces. In recognition of this situation, ADB agreed during appraisal of a forthcoming power project15 that EDC’s financial performance should be assessed on a consolidated basis rather than according to individual EDC provincial branches. Therefore, it was stipulated in the Loan Agreement and Project Agreement of ongoing Loan 2052-CAM that the financial covenants in paras. 4(b) and 5 and Schedule 6 of the Loan Agreement and Sections 2.15, 2.16, 2.17, and 2.19 of the Project Agreement for Loan 1794-CAM are repealed and replaced by para. 7(c) in Schedule 6 of the Loan Agreement and Sections 2.15 through 2.18 of the Project Agreement for Loan 2052-CAM effective after the signing of the latter project in November 2004.

21. EDC consolidated operations did not achieve cash breakeven because of its substantial operating losses during 2000–2005, which were mainly caused by (i) steep increase in fuel prices, (ii) high price of power purchased from IPPs, and (iii) EDC’s not being able to automatically adjust tariffs to customers. To improve EDC’s financial performance, the Government rationalized tariffs effective from 1 November 2005 by (i) introducing an automatic adjustment to the cost of EDC’s power purchases in dollar terms; (ii) having a single tariff level for industrial and commercial consumers; and (iii) rationalizing the lifeline tariffs, for instance by subsidizing rates charged for consumption not exceeding 50 kWh/month. With these adjustments, EDC made a net profit in FY2006. EDC’s financial viability is still subject to fuel oil price and foreign exchange fluctuations, however, given that most power comes from diesel generators and that tariff increases lag behind rapidly rising fuel costs incurred in hard currency.

22. EDC has satisfactorily complied with the debt to equity ratio covenant from FY2005. Despite cumulative losses of KR87 billion in 2002 and KR146 billion in 2004, EDC’s financial performance improved given that the Government converted to equity the following funds: (i) $25 million of the ADB loan, (ii) $15 million from the Japanese-funded Phnom Penh distribution project, and (iii) additional contributions of about $20 million from 2002–2003. The debt to equity ratio improved from 0.45 in 2005 to 0.39 in 2006.

15 ADB. 2003. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Kingdom of Cambodia for the GMS Transmission Project. Manila (Loan 2052-CAM [SF]).

23. EDC has fully complied with the distribution losses covenant, as such losses declined from 16% in 2000 to 11% in 2005. This significant improvement was achieved as EDC has taken the following measures: (i) requesting industrial and large commercial customers to install capacitors to maintain the minimum power factors, (ii) setting up vigilance squads to conduct surprise checks at costumers’ premises to detect energy theft, (iii) introducing energy audit systems, and (iv) implementing incentive schemes.

H. Related Technical Assistance

24. No related TA was associated with the Project.

I. Consultant Recruitment and Procurement

1. Consultant Recruitment

25. Consultants were recruited in accordance with ADB’s Guidelines on the Use of Consultants. Implementation consultants were recruited to assist EDC in procurement activities and supervision of generating and distribution works. As envisaged at appraisal, the consultants were to be fielded by March 2001. Despite approval of advance action, a consulting services contract was not signed until 15 November 2001 while the loan was declared effective on 1 August 2001. As envisaged, the implementation consultant contract included 23 person-months of international and 25 person-months of domestic consultants. Given the need to undertake additional site surveys and to oversee additional works financed under loan savings (paras. 12 and 28), an extension of services from key consultant staff members was required. Actual implementation consultant inputs totaled 31 person-months of international and 25 person- months of domestic consultants.

26. As envisaged at appraisal, two capacity building consultants, a planning management advisor, and a planning advisor were expected to be funded under the Project and recruited as individual consultants. A contract for the services of a financial management advisor recruited as an individual consultant was signed in January 2003, and his total intermittent inputs of 12 person-months, including a 5-month extension to the original contract, were completed in May 2005. Because a planning advisor was recruited and financed under a World Bank project,16 a similar position under this Project was not required. Funds originally allocated for the services of the planning advisor were used to extend the services of the financial management advisor.

2. Procurement

27. The procurement of goods and services under the Project was carried out in accordance with ADB’s Procurement Guidelines, as envisaged at appraisal. Procurement of works was divided into three contract packages: generating works, distribution works, and constructing a dormitory at the EDC Training Center.

a. Generating Works

28. Given an 8-month delay in appointing the implementation consultants and the need to undertake site surveys in each project provincial town with more details than envisaged at appraisal, preparation of the design report and bidding documents was behind the original

16 World Bank. 2003. Project Appraisal Document on a Proposed Credit to the Royal Government of Cambodia for a Cambodia Rural Electrification and Transmission Project. Washington, DC (IDA Credit 3840- KH).

8 schedule. The first draft bid documents for diesel power plant facilities were submitted to ADB for comments in December 2002. After incorporating ADB comments on the draft documents, an invitation for bids on this turnkey contract was issued on 21 February 2003. The bids were received and opened on 28 May 2003. Bids evaluation for this contract was a lengthy exercise, as the technical bids were reviewed and evaluated in detail, and clarifications were sought for certain such technical aspects as net electrical output, fuel consumption, and transformer losses. The bid evaluation report was submitted to ADB on 1 August 2003. ADB sought clarifications on evaluation of commercial terms and conditions and requested EDC to submit the signed record of bid opening. After receiving these from EDC on 9 October 2003 and addressing the issue of financial covenant (para. 29), ADB approved the bid evaluation report on 18 December 2003. The contract agreement was signed on 30 December 2003, which was 18 months after the time envisaged at appraisal.

b. Distribution Works

29. The bidding process for the distribution works was also delayed, and it commenced on 21 February 2003. As for procurement of the generation works, the Government’s Procurement Committee spent considerable time in evaluating commercial terms and conditions and technical requirements of the bids. Bids were received and opened on 28 May 2003, and EDC submitted the bid evaluation report to ADB on 1 August 2003. The four lowest bidders generally accepted the commercial terms and conditions of the bidding documents, and there were no deviations from payment terms, liquidated damages, and performance security. The technical requirements were also generally satisfied, and thus no price adjustments were applied. A loan covenant required that any contract under Part A of the Project would only be awarded if EDC is in compliance with financial loan covenants. Although the bid evaluation report was acceptable, ADB could not object to awarding this contract as a number of financial loan covenants were not complied with. Following the approval of Loan 2052-CAM: GMS Transmission Project on 15 December 2003, the financial covenants under this Project were eventually repealed and altered in line with the financial covenants under Loan 2052-CAM. ADB could then approve the award of the contract on 18 December 2003, and EDC signed the contract agreement with the lowest evaluated bidder on 30 December 2003, which was 19 months after the time envisaged at appraisal.

c. Training Center Facilities

30. Bid documents for constructing a dormitory building for the EDC Training Center were issued on 28 January 2005, and bids were submitted on 10 March 2005. A contract for the construction was awarded on 22 August 2005, and works were completed in March 2006. Preparation of the bid documents was delayed, given it was the first time for EDC staff to prepare bid documents without assistance from international consultants. Terms of reference for the consultants included preparing bid documents of turnkey contracts for generating and distribution works but not preparation of bid documents for the dormitory building.

d. Hydrology Network

31. Three sets of river gauging equipment arrived in Phnom Penh during April–May 2003. Installation of this equipment was delayed and commenced only in January 2004, soon after EDC and MIME decided that the three gauging stations should be located in Battambang, Stung Russey Chrum, and Stung Tatey. Installation was completed in February 2004, and training sessions in hydrology data processing were conducted during January–March 2004. Hydrology data at these gauging stations have been used to design hydropower projects in these areas.

J. Performance of Consultants, Contractors, and Suppliers

1. Consultants

32. The project implementation consultants followed their terms of reference as modified from time to time. A first contract variation was issued mainly for undertaking site surveys in each provincial town with more details than envisaged during appraisal and to carry out baseline socioeconomic surveys, as the original contract documents did not include these works. Given this, preparation of the design report could not commence until June 2002 (that is 18 months after loan approval) and was completed in December 2002. A second contract variation was provided for preparation of bid evaluation reports for the two turnkey contracts. The last contract variation was required to prepare and supervise additional distribution works using loan savings. The overall performance of the consultants was rated satisfactory.

33. The financial management advisor intermittently supporting EDC during January 2003– May 2005 also performed satisfactorily. The consultant provided advice and assistance to strengthen financial forecasting and planning, as well as assisted EDC in implementing a uniform system of accounts for all EDC branches. EDC reported that training related to financial management conducted or arranged by this consultant was valuable.

2. Contractors

34. The performance of the contractor for the generating works contract was satisfactory. Overall, the Project Completion Review Mission confirmed the good quality of electrical equipment and power plants completed under this contract. There was no significant malfunctioning of generators and other generating plant facilities supplied and built under the contract.

35. The Mission noted that the quality of distribution works was satisfactory. Although the generating works had been completed, the 1-year delay in completing the distribution works compared with the original contract schedule caused delay in operating the entire new electrical systems built under the Project. That affected the economic and financial benefits of the Project. Taking into account this delay, the performance of the contractor for the distribution works was rated partly satisfactory.

36. The performance of the contractor constructing the Training Center dormitory was satisfactory. The contractor completed its work on schedule and the quality of the building was good.

3. Suppliers

37. The performances of the suppliers of office equipment for the EDC Training Center, computers and software for EDC provincial offices, and hydrological equipment were satisfactory. EDC confirmed that the equipment delivered was in good condition and met the technical specifications.

K. Performance of the Borrower and the Executing Agency

38. Overall, EDC successfully implemented the Project, with assistance from the consultants. EDC has gradually gained knowledge and experience in managing major power

10 projects funded by multilateral financial institutions and by the private sector. However, EDC’s absorptive capacity is still limited when it comes to simultaneously implementing several major projects. The Government’s counterpart funds were made available in a timely manner, and the independent monitoring agency for resettlement activities confirmed that compensation payments for project affected peoples were completed before the awards of the generating and distribution contracts. The performances of the Borrower and EA are considered satisfactory.

L. Performance of ADB

39. ADB cooperated well with the government agencies involved in formulating the Project and processing the loan. ADB conducted 12 review missions during project implementation, including three joint review missions with AFD during 2004–2006. The review missions included visits to the project sites, as well meetings in Phnom Penh with the stakeholders concerned. The Project was originally administered by what was then the Mekong Infrastructure Division, but administration was transferred to the Cambodia Resident Mission after a review mission fielded in February 2004. ADB had three project officers involved during project implementation. The Borrower and EDC recognized the positive role that the ADB missions played in providing advice on technical issues, preparation and evaluation of bid documents, and matters of loan administration. Overall, the performance of ADB is rated satisfactory.

III. EVALUATION OF PERFORMANCE

A. Relevance

40. The Project was consistent with the Government’s development goals in the sector as follow: (i) develop a generation and transmission grid, (ii) upgrade provincial towns’ electrification, and (iii) develop and implement a rural electrification plan.17 It was also in line with ADB’s energy sector strategy in Cambodia, which aimed to promote geographically balanced development and strengthen EDC’s management capacity and financial autonomy.18 The Project remains consistent with the current Government’s strategy,19 which aims to improve generation and distribution facilities in key provincial urban centers and rural areas. It is also in line with the current ADB strategy, which continues to focus on expanding power generation, transmission, and distribution systems.20 The Project is considered highly relevant.

B. Effectiveness in Achieving Outcome

41. The Project is rated effective. It substantially achieved the outcomes envisaged at appraisal. All project provincial towns reported increased economic activity as a result of the power supply’s improved availability and reliability. Typically, three or four electric welding fabricators, which are small businesses manufacturing security grids for doors and windows, have been established in each project town, together with a similar number of air conditioned tourist hotels, ice factories, and other businesses. Svay Rieng has a new university about to open, and another garment factory is under development. The improved power supply boosted business confidence in the town. Overall, most of the expected outcomes indicated in the design and monitoring framework were realized.

17 Ministry of Planning. 1995. Socioeconomic Development Plan, 1996–2000. Royal Government of Cambodia. 18 ADB. 2000. Cambodia: Country Operational Strategy. Manila. 19 Ministry of Planning. 2005. National Strategic Development Plan, 2006–2010. Royal Government of Cambodia. 20 ADB. 2005. Cambodia: Country Strategy and Program, 2005–2009. Manila.

42. The investment in the distribution systems is highly successful in reducing losses and significantly increasing the electrification ratio, particularly for the poorer households. But the approximately 2-year delay in implementing the Project and the rapid rise in the price of diesel oil have both acted against its viability—particularly in the provincial towns of Kampot, Prey Veng, Stung Treng Takeo, and to a lesser extent Banlung. In hindsight, the capital invested in the well-established diesel generation station may well have been better invested in extended MV feeders, whether at 22 kV or 33 kV, to neighboring grids. In their new role as standby generators, the installations are somewhat overdesigned and should be devalued accordingly. Had the generator stations been built to the original schedule, at least the communities would have received better use of the investment.

43. The technical training was highly successful, as evidenced by the fact that the generation plants and distribution networks are being satisfactorily maintained. Of course, these are still relatively new.

C. Efficiency in Achieving Outcome and Outputs

44. The Project is rated as efficient in achieving its outcome and outputs, despite delays in implementation. In estimating the financial internal rate of return (FIRR) and economic internal rate of return (EIRR) for this Project, each of the project provincial towns was evaluated as at appraisal. During the implementation period, the demand for and value of electricity has significantly increased in the major provincial centers. The price of diesel oil has risen to such an extent, meanwhile, that private extensions from the neighboring grids have become viable and have been constructed to the major provincial centers of Banteay Meanchey, Battambang, Kampong Speu, and Kampot. Connection of Takeo and Angtassom to the national grid is likely in 2009, and Svay Rieng was connected to the Vietnamese grid as part of this Project. In the poorer provinces of Banlung, Prey Veng, and Stung Treng, the operations are not viable due to the high diesel oil prices, and an FIRR could not be determined. For the infrastructure component, the recalculated EIRR was 70% compared to 19% at appraisal, and the recalculated FIRR was estimated at 45% compared to 4.2% at appraisal. Appendix 10 provides details on the methodology and assumptions underlying the FIRR and EIRR calculations. Recent years’ balance sheets and income statements for EDC operations are in Appendix 11.

D. Preliminary Assessment of Sustainability

45. Sustainability of the Project is considered likely. Svay Rieng and Kampot distribution systems were connected to the Vietnamese grid, whereas the Banteay Meanchey and Battambang distribution networks were connected to the Thailand grid. Connection of Takeo to the national grid is likely in 2009 as part of the Greater Mekong Subregion (GMS) Transmission Project.21 This means that the generation components of the project in Banteay Meanchey, Kampot, and shortly Takeo are relegated to the secondary role of providing standby generation. The installations are somewhat overdesigned for this role, but, since the grid connections are nonsecure and thus unreliable, the generators provide a worthwhile backup to the power supply. An analysis of whether or not they would be better relocated to a more productive use in isolated provinces indicates that this would be better left until the load has increased enough to justify a secure grid connection. As standby stations, they could be devalued to the equivalent cost of a single generator station, so as not to unduly suppress the return on assets. The Government has virtually standardized the power price in the major provincial centers with a

21 ADB. 2003. Report and Recommendation of the President to the Board of Directors on a proposed Loan to the Kingdom of Cambodia for the GMS Transmission Project. Manila (Loan 2052–CAM).

12 resultant degree of cross-subsidization to encourage balanced development of the nation, and as an equitable means of welfare distribution. A practical solution for improving power systems in Banlung and Stung Treng is to construct long distribution feeders at 22 kV or 33 kV to Viet Nam and Laos. Increasing tariffs in these provinces to be more consistent with the other provincial centers is likely to depress consumption and reduce overall economic growth even further.

46. The main threats to the reliability of supply include the lack of a strict regime of vegetation clearance for the long rural feeders in the dry season, when access is available, and the single 115/22 kV transformer supplying Battambang. An alternative transformer—either new or secondhand—should be provided so that the existing transformer can be adequately maintained. From a long-term viability perspective, extended MV feeder supplies should be investigated for Banlung, Prey Veng, and Stung Treng.

E. Impact

1. Environmental Impact

47. No significant environmental impacts were envisaged in the initial environmental examination. Exhaust emissions of the new diesel generators comply with Cambodian and international standards. Most of the old generators have not been used or have been relegated to standby duty. Thus, the level of emissions, even from the increased capacity of the new plant, are less than those from the old plant. The new power plants’ levels of noise and vibration are also less than those of previous plants and less than the recommended maximum levels at the site boundary. The new transformers installed in all substations do not generate waste oil. The use of underground cables in the central parts of the towns and of standard meter boxes has improved the appearance of the provincial towns. The Project Completion Review Mission noted, however, that old generating and distribution facilities had not been completely removed.

2. Socioeconomic Impact

48. The Project’s socioeconomic impact was significant. The total number of electricity consumers increased by 11% in 2007 relative to the previous year, while the number of residential consumers grew by 15%. Total consumption rose by 67% and residential consumption by 61%, which means that average consumption increased by 50% and average residential consumption by 40%. These values indicate that a greater proportion of poorer households are now being supplied with electricity. All provincial power supplies reported having implemented a program to assist new low-income residential customers with the initial costs of connecting to the electricity supply. The Project Completion Review Mission noted, however, that only a small number of customers had taken up the offer. Most of those remaining preferred to borrow from relatives and friends rather than publicly to admit being in need of assistance. More details on socioeconomic impacts in the project provincial towns are in Appendix 10.

3. Resettlement/Social Impact

49. A resettlement plan was prepared and approved by ADB in August 2000. A loan covenant22 required that the resettlement plan be fully implemented and verified prior to issuance of bid documents. An independent monitoring agency was recruited to monitor implementation of the resettlement plan. A monitoring report submitted to ADB on 6 May 2006

22 Loan Agreement, Schedule 4, para. 8 (b).

13 confirmed that the resettlement necessitated by the Project had been completed in accordance with the procedures and conditions of the resettlement plan. No indigenous peoples and/or ethnic minority issue arose during project implementation. The cost estimated at appraisal for land acquisition and compensation was $200,000, and the actual cost was $190,935.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

50. Based on a review of its relevance, effectiveness, efficiency, and sustainability, the Project is considered successful. As envisaged, a well-designed generating and distribution system was installed in the provincial project towns. During project implementation, the demand for and value of electricity has significantly increased in the major provincial centers. The price of diesel rose to such an extent that private extensions from the neighboring grids have become viable, and these have been constructed to four major project provinces. The reconstruction and expansion of the distribution network is regarded as highly successful in reducing both technical and commercial losses. There is clear evidence that adequate and reliable power has stimulated development of small businesses and provided power to more poor households.

51. Still, the 2-year delay in completing the Project, along with rising fuel prices, has rather stranded the generation assets. Their operating costs are too high, and grid connection has already superseded these assets or is now a high priority. An economic analysis indicated that, in the medium term, the generators should not be moved to more isolated towns, and it would be better to use them as standby generators to support a nonsecure grid connection until a secure grid connection can be justified. As standby generators, they are overdesigned in the sense that they provide a much more reliable supply than is necessary for that mode of operation.

B. Lessons

52. Although all project components were successfully implemented as envisaged, implementation delays have acted against the Project’s viability. These mostly related to lags in recruiting the implementation consultants and subsequent delay in procuring the two major turnkey contracts. These contracts were awarded about 18 months behind schedule. Preparing complex turnkey bid documents during the project preparation stage and using advanced procurement actions could reduce the risks of late project start-up and implementation delays.

53. The risk of investing in long-term transmission and distribution assets, with their degree of natural monopoly and mature technology, is far less than that of investing in competitive generator assets where energy conversion efficiency is relatively low. Future investments should be better made on distribution or transmission assets rather than on generator assets.

C. Recommendations

1. Project-Related

a. Future Monitoring

54. The Project will continue to deliver its full benefits if all project facilities are well maintained. Overall, EDC is implementing the maintenance and servicing requirements for the generating facilities. There appears to be no system, however, for recording the number and

14 duration of outages on the distribution network. Such a system is necessary to assess the extent of outages, determine common courses, and justify such corrective actions as a proactive vegetation clearance program. This is an important part of reliability centered maintenance for the distribution network. Without that, the vegetation problem may, for example, build up unnoticed to suddenly cause a severe reliability problem in the wet season. It is recommended that such a recording system be insisted upon as part of EDC’s good maintenance obligations.

55. It is a concern that the distribution systems may not be adequately reinforced as the load increases, leading (as in the past) to overloading plant, excessive voltage drops, and excessive losses. As the load grows, distribution networks are augmented by installing more distribution substations between the MV and LV networks, whereby the LV radial feeders are shorted. As the number of distribution substations rises, more MV feeders are created to connect them (as otherwise the overall reliability of the network will decrease). To address this issue, it is recommended that EDC undertake a rolling annual review of the network conditions to ensure the work plans and budgets are adequate to maintain the distribution networks at the current standard. Also, diesel consumption for auxiliary plant in some provinces is excessive, and an investigation and/or monitoring system is needed.

b. Covenants

56. The financial covenant on achieving at least cash breakeven for EDC’s consolidated operations has not been fully complied with. Moreover, the covenant on maintaining a debt service coverage ratio of 1.2 times or more was not met. During appraisal of the subsequent power project (footnote 21), it was realized that the financial target applied for individual EDC branches was unrealistic, since meeting the target would have required unacceptable tariff increases in some provinces. The agreement for Loan 2052-CAM has repealed all the financial covenants under this Project and replaced them with targets for cash breakeven for EDC’s consolidated operations and debt to equity ratio. It is recommended that EDC’s financial performance be closely monitored through the two ongoing power projects.

57. The current tariff has an excessive welfare initial step of 50 kWh per month. Given the increased efficiency of modern appliances, this step is somewhat excessive considering the needs of the poorer households. The Government should consider reducing this step to 1 kWh per day before considering an overall tariff increase. This will more effectively target the welfare component while encouraging energy efficiency.

c. Timing of Project Performance Evaluation Report Preparation

58. A mission to prepare a project performance audit report, if required, could be fielded at any time, as all project facilities and components have been completed and revenue streams are occurring.

2. General

59. It is recommended that ADB or qualified consultants assist the EA in evaluating complex turnkey contracts, especially when the EA is not familiar with the evaluation of technical aspects and with ADB’s bid procedures or bid evaluation. The EA or consultants should engage in a dialogue with ADB prior to submitting bid documents or bid evaluation reports so that matters related to policy and judgments are agreed in advance of officially submitting the documents. In a country where the government’s procurement committee is comprised of several agencies,

15 major procurement delay can occur if the bid documents or bid evaluation reports are not in line with ADB guidelines and procedures and thus need to be revised.

60. While the level of administrative skills has obviously improved, as indicated by the better performance in limiting bad debts, the ethos in the provincial offices needs further improvement in order to provide an efficient public service. For instance, the commercial concept of proactively encouraging conversion of rice mills in the area to electric motive power in order to improve the systems load factor, plant utilization, and overall profitability seem to be alien. It is recommended that at least one staff member in each of the provincial branches be trained as a technical market advisor, responsible for instilling a competitive market culture, developing potential markets, and reviewing the technical operation and maintenance procedures with respect to maximizing the value of the power supply to the community.

PROJECT FRAMEWORK 16

Appraisal Performance Key Issues and

Design Summary Project Achievement 1 Appendix Indicators/Targets Recommendations Impact Stimulate economic growth with indirect Increase sales of power in the project towns Total sales of power in the It is recommended that at least poverty reduction benefits for the urban to at least 5% of EDC sales in Battambang, project towns in 2007 are one staff member in each of the poor and the surrounding populations. Kampong Cham, Phnom Penh, Siem Reap, estimated at 55,725 MWh, provincial branches be trained and Sihanoukville by 2007. higher than the 20,291 MWh as a technical market advisor, envisaged at appraisal. responsible for instilling a competitive market culture, developing potential markets, and reviewing the technical operation and maintenance procedures with respect to maximizing the value of the power supply to the community. Outcome Expand the availability of reliable power Provision of 24 hour electricity supply to Electricity supply is provided 24 The distribution systems may in eight provincial towns and in villages consumers by end of: hours daily in the project not be adequately reinforced as along the transmission route to the Year Consumers receiving New provinces. The total customers the load increases, leading to Viet Nam border, with tariffs that will improved electricity Consumers in the project provinces overloading plant, excessive achieve a 4% rate of return in each town service increased from 53,232 in 2006 voltage drops, and excessive by 2005. 2004 21,000 3,000 to 59,261 in 2007. losses. It is recommended that 2010 0 10,000 EDC undertake a rolling annual Create suitable management and Reduce transmission and distribution losses Total 2007 losses in project review of the conditions of the operating organizations in the provincial in the eight provincial medium voltage and provinces were between 8 and network to ensure the work towns so that the systems are efficient low voltage networks by 2004 to less than 14%, except in Banlung where plans and budgets are adequate and financially viable. 18% of energy received. total losses were 20%. to maintain the distribution networks at the current Strengthen the capacity of Electricité du Provincial power utility to have operation Operation and maintenance standard. Cambodge (EDC) to enable it to become and maintenance budget of at least 2% of budget allocated, but amount financially viable by appointing a financial the capital cost of the works. varies between provinces. management adviser. Financial covenants met by 2001. Financial covenants not fully met.

Encourage private sector participation by Private sector contracts should be awarded Private sector contracts are appointing a planning adviser. under competitive bidding procedures. awarded under competitive bidding procedures.

Appraisal Performance Key Issues and Design Summary Project Achievement Indicators/Targets Recommendations Outputs Part A: Infrastructure a. New diesel generating sets in five Provincial power utilities functional and Provincial power utilities Delays in completing the provincial towns, including improved fuel ready to operate eight provincial systems by operated from mid-2006. distribution works were due to storage facilities mid-2003. poor performance of a b. Supply to Kampong Speu from the contractor. proposed substation on the 115-kilovolt Revised tariff structure in place by mid-2004 Revised tariff structure in place (kV) transmission line from Kirrom with weighted average tariff of less than from mid-2005. hydropower plant $0.22/kWh (in 2000 prices) and for all towns c. 22 kV line from substations in to breakeven in their first full year of Viet Nam to supply Svay Rieng and the operation. villages along route d. Rehabilitation and extension of the distribution networks in eight towns

Part B: Capacity Building a. Provincial power systems The Project will be implemented in The Project was implemented (i) Train staff in technical and managerial accordance with Cambodian environmental in accordance with Cambodian skills law and ADB guidelines by the EDC environmental law and ADB (ii) Refurbish and equip offices in each Environmental Unit. guidelines by the EDC project town Environmental Unit. b. Strengthen head office capacity of EDC and Ministry of Industry, Mines and Energy (MIME) (i) Provide a financial planning adviser For 2001 and thereafter, all EDC branch EDC branch offices prepared It is recommended that a system for EDC offices will prepare financial statements and financial statements and EDC for recording the number and (ii) Provide an adviser to EDC’s 5-year forecasts, and head office will head office prepared duration of outages on the Corporate Planning Department produce consolidated accounts for audit. consolidated accounts from distribution network should be (iii) Provide trainers for the existing 2001. One-year forecasts were developed as part of the EDC Training Center in Phnom Penh prepared by EDC branch good maintenance obligations. offices.

(iv) Construct a dormitory at the Training Dormitories will be constructed for students Construction of dormitory was 1 Appendix Center and provide student transport and staff by end-2003. completed in April 2006. (v) Train MIME staff to collect and Gauges established on three rivers with Gauges were established on interpret flow data for future hydropower staff trained in current metering and three rivers in February 2004. development. calculation of daily flows by January 2002. Training was conducted during January–March 2004. 17

Appraisal Performance Key Issues and 18 Design Summary Project Achievement Indicators/Targets Recommendations Activitiesa Advance procurement of implementation Procurement of implementation Delays occurred in recruiting the 1 Appendix consultants by Mar 2001 consultants: November 2001 consultants, preparing bidding documents, and implementing Loan effectivity by Feb 2001 Loan effectiveness: Aug 2001 the contracts. Preparing complex turnkey bid documents Preliminary design by Sep 2001 Preliminary design: Sep 2002 during the project preparation stage and using advanced Issue first bid documents by Oct 2001 First bid documents issued: procurement actions could Dec 2002 reduce the risk of late project Award all contracts by May 2002–July start-up and implementation 2002 All contracts awarded: Dec delays. 2003–Aug 2005 Installation by Jan 2003–May 2004 Installation: May 2004–Dec 2006

Inputs Procurement and installation of Land/compensation: $0.2 million Land/compensation: $0.19 No major issue. Actual input equipment, services of implementation Equipment: $16.2 million million amounts are similar to those consultants, trainers, and capacity Consultants: $0.9 million Civil works and equipment: estimated at appraisal. building specialists. Training/capacity building: $2.6 million $20.33 million Contingencies and other costs: $4.3 million Consultants: $0.91 million Total: $24.2 million Training/capacity building: $3.26 million Contingencies and other costs: $0.29 million Total: $24.98 million a The activities were included as performance indicators/targets for inputs in the project framework at appraisal.

Appendix 2 19

APPRAISAL AND ACTUAL PROJECT COSTS ($ million)

Appraisal Estimate Actual Project Component Foreign Local Total Foreign Local Total

A. Base Cost 1. Infrastructurea 7.42 8.97 16.39 19.51 1.01 20.52 2. Strengthening Provincial Power System 0.11 0.44 0.55 0.10 0.08 0.18 3. Strengthening Capacity of EDC/MIME 1.75 0.33 2.08 3.08 0.00 3.08 4. Consulting Services 0.79 0.09 0.88 0.91 0.00 0.91 Subtotal (A) 10.07 9.83 19.90 23.60 1.09 24.69

B. Contingencies 1. Physical 1.00 0.98 1.98 0.00 0.00 0.00 2. Price 0.80 0.78 1.58 0.00 0.00 0.00 Subtotal (B) 1.80 1.76 3.56 0.00 0.00 0.00

C. Service Charge During Construction 0.26 0.45 0.71 0.29 0.00 0.29 Total 12.13 12.04 24.17 23.89 1.09 24.98 EDC = Electricité du Cambodge; MIME = Ministry of Industry, Mines and Energy. a Civil works and equipment ($20.33 million) and land acquisition/compensation ($0.19 million).

20 Appendix 3

CURRENCY EQUIVALENTS (annual averages)

(1 January–31 December) KR per $1.00

1998 3,748.28 1999 3,828.91 2000 3,849.54 2001 3,887.61 2002 4,014.92 2003 4,007.03 2004 4,062.21 2005 4,187.17 2006a 4,188.43 KR = Kingdom of Cambodia riels. a 2006 Exchange Rate is based on 1 January–31 July 2006. Source: Asian Development Bank.

Appendix 4 21

PROJECTED AND ACTUAL DISBURSEMENTS ($ million)

Year Projected Actual

2000 0.00 0.000 2001 0.50 0.000 2002 2.60 0.445 2003 6.20 0.554 2004 9.30 4.657 2005 0.00 9.233 2006 0.00 4.179 2007 0.00 0.322 Total 18.60 19.390 Source: Asian Development Bank’s Loan Financial Information System.

22 Appendix 5

DETAILED OUTPUTS OF THE INFRASTRUCTURE COMPONENT

I. Banlung

Distribution Facilities • 2,450 meters (m) of 22-kilovolt (kV) overhead lines and/or underground cables. • 7 overhead and ground-mounted 22 kV switchgear. • 11 overhead and/or ground-mounted distribution transformers and substations including low voltage (LV) switchgear and capacitors. • 23,000 m of 400/230-volt (V) LV distribution using bundled conductors and/or reuse of existing conductors (on existing poles where suitable). • Installation of pole-mounted metering boxes and 2,238 sets of customer metering. • 526 concrete poles of varying lengths.

II. Kampot

Distribution Facilities • 23,240 m of 22 kV overhead lines and/or underground cables. • 9 overhead and ground-mounted 22 kV switchgear. • 23 overhead and/or ground-mounted distribution transformers and substations including LV switchgear and capacitors. • 62,000 m of 400/230 V LV distribution using bundled conductors and/or reuse of existing conductors (on existing poles where suitable). • Installation of pole-mounted metering boxes and 4,579 sets of customer metering. • 2,136 concrete poles of varying sizes.

Generating Facilities • Diesel power plant facilities, including all civil and building works for surrounding areas (temporary works, site surveys, and soil investigation). Plant comprising four generators (2 x 500 kW and 2 x 1,000 kW); associated step-up transformers; earthing and lightning protection system; medium voltage (MV) switchgear; battery chargers; fuel oil, lubrication oil, and waste oil storage; fuel oil distribution system; and LV system for all buildings and roads.

III. Kampong Speu

Distribution Facilities • 19,400 m of 22 kV overhead lines and/or underground cables. • 8 overhead and ground-mounted 22 kV switchgear. • 17 overhead and/or ground-mounted distribution transformers and substations including LV switchgear and capacitors. • 75,500 m of 400/230 V LV distribution using bundled conductors and/or reuse of existing conductors (on existing poles where suitable). • Installation of pole-mounted metering boxes and 3,659 sets of customer metering. • 2,416 concrete poles of varying sizes.

IV. Prey Veng

Distribution Facilities • 9,300 m of 22 kV overhead lines and/or underground cables. • 2 overhead and ground-mounted 22 kV switchgear.

Appendix 5 23

• 11 overhead and/or ground-mounted distribution transformers and substations including LV switchgear and capacitors. • 33,500 m of 400/230 V LV distribution using bundled conductors and/or reuse of existing conductors (on existing poles where suitable). • Installation of pole-mounted metering boxes and 2,584 sets of customer metering. • 1,164 concrete poles of varying sizes.

Generating Facilities • Diesel power plant facilities, including all civil and building works for surrounding areas (temporary works, site surveys, and soil investigation). Plant comprising four generators (2 x 500 kW and 2 x 250 kW); associated step-up transformers; earthing and lightning protection system; medium voltage switchgear; battery chargers; fuel oil, lubrication oil, and waste oil storage; fuel oil distribution system; and LV system for all buildings and roads.

V. Banteay Meanchey

Distribution Facilities • 37,900 m of 22 kV overhead lines and/or underground cables. • 8 overhead and ground-mounted 22 kV switchgear. • 37 overhead and/or ground-mounted distribution transformers and substations including LV switchgear and capacitors. • 117,600 m of 400/230 V LV distribution using bundled conductors and/or reuse of existing conductors (on existing poles where suitable). • Installation of pole-mounted metering boxes and 10,489 sets of customer metering. • 4,352 concrete poles of varying sizes.

Generating Facilities • Diesel power plant facilities, including all civil and building works for surrounding areas (temporary works, site surveys, and soil investigation). Plant comprising four generators (2 x 500 kW and 2 x 1,000 kW); associated step-up transformers; earthing and lightning protection system; MV switchgear; battery chargers; fuel oil, lubrication oil, and waste oil storage; fuel oil distribution system; and LV system for all buildings and roads.

VI. Stung Treng

Distribution Facilities • 10,300 m of 22 kV overhead lines and/or underground cables. • 4 overhead and ground-mounted 22 kV switchgear. • 10 overhead and/or ground-mounted distribution transformers and substations including LV switchgear and capacitors. • 29,800 m of 400/230 V LV distribution using bundled conductors and/or reuse of existing conductors (on existing poles where suitable). • Installation of pole-mounted metering boxes and 1,986 sets of customer metering. • 1,029 concrete poles of varying sizes.

24 Appendix 5

Generating Facilities • Diesel power plant facilities, including all civil and building works for surrounding areas (temporary works, site surveys, and soil investigation). Plant comprising four generators (2 x 500 kW and 2 x 250 kW); associated step-up transformers; local service transformer; earthing and lightning protection system; MV switchgear; battery chargers; fuel oil, lubrication oil, and waste oil storage; fuel oil distribution system; and LV system for all buildings and roads.

VII: Svay Rieng

Distribution Facilities • 84,800 m of 22 kV overhead lines and/or underground cables. • 14 overhead and ground-mounted 22 kV switchgear. • 27 overhead and/or ground-mounted distribution transformers and substations including LV switchgear and capacitors. • 85,500 m of 400/230 V LV distribution using bundled conductors and/or reuse of existing conductors (on existing poles where suitable). • Installation of pole-mounted metering boxes and 4,222 sets of customer metering. • 3,932 concrete poles of varying sizes.

VIII. Takeo

Distribution Facilities • 28,600 m of 22 kV overhead lines and/or underground cables. • 10 overhead and ground-mounted 22 kV switchgear. • 28 overhead and/or ground-mounted distribution transformers and substations including LV switchgear and capacitors. • 78,000 m of 400/230 V LV distribution using bundled conductors and/or reuse of existing conductors (on existing poles where suitable). • Installation of pole-mounted metering boxes and 5,095 sets of customer metering. • 2,610 concrete poles of varying sizes.

Generating Facilities • Diesel power plant facilities, including all civil and building works for surrounding areas (temporary works, site surveys, and soil investigation). Plant comprising three generators (3 x 500 kW); associated step-up transformers; earthing and lightning protection system; MV switchgear; battery chargers; fuel oil, lubrication oil, and waste oil storage; fuel oil distribution system; and LV system for all buildings and roads.

IX. Battambang

Distribution Facilities • Two sets of main transformers (2 MVA and 4 MVA) at power plant. • 8,000 m of 22 kV overhead lines and 3,600 m of MV underground cables. • 4 sets of 22 kV switchgear. • 24 pole-mounted distribution transformers and 5 substations including LV switchgear and capacitors. • 51,000 m of 400/230 V LV distribution using bundled conductors. • Installation of pole-mounted metering boxes and 11,595 sets of customer metering. • 1,343 concrete poles of varying sizes.

PROJECT IMPLEMENTATION SCHEDULE

2001 20022003 2004 2005 2006 Task Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Part A: Infrastructure

1 Loan Effectiveness

2 Procurement of Consultants

3 Preliminary Design

4 Bidding for Distribution Equipment

5 Bidding for Generating Equipment

6 Supply and Installation of Distribution Equipment

7 Supply and Installation of Generation Sets

8 Commissioning

Part B: Capacity Building

9 a. Establish Provincial Power Utility

10 b. Strengthen Head Office Capacity

i. Financial Management Advisor

ii. Planning Advisor

iii. Staff for EDC Training Center

iv. Training Center Facilities

v. Hydrological Data Collection

11 Loan Closing

EDC = Electricité du Cambodge 6 Appendix Appraisal Actual Appraisal Actual 25 Source: EDC

26 Appendix 7

CHRONOLOGY OF MAJOR EVENTS

Year and Date Event

Project Processing 2000 10–24 February Fact-Finding Mission 20 July–3 August Appraisal Mission 5 December Asian Development Bank (ADB) Board approval

Project Implementation 2001 26–30 March Loan Inception Mission 5 April Loan Agreement signed 29 June Signing of Subsidiary Loan Agreement between Ministry of Economy and Finance and Electricité du Cambodge (EDC) 1 August Loan effectiveness 15 November Signing of project implementation consultants contract 20 November Signing of Grant Agreement between Ministry of Economy and Finance and Agence Française de Développement

2002 26–30 April ADB Review Mission 1 28–29 October ADB Review Mission 2

2003 21 February Issuing of bids for Package 1: Diesel Power Plant Facilities and Package 2: Power Distribution Works 20–21 February ADB Review Mission 3 28 May Opening of bids for Package 1 and Package 2 1 August Bid evaluation reports for Package 1 and Package 2 submitted to ADB. 18 December ADB’s Procurement Committee approved the contract awards for Package 1 and Package 2. 30 December Signing of Package 1 and Package 2 contracts

2004 9–12 February ADB Review Mission 4 1 March Delegation of project administration to Cambodia Resident Mission 4–29 November ADB Review Mission 5

2005 7 January ADB approves first extension of the loan closing date and reallocation of loan proceeds. 28 January Issuing of bid documents for construction of a dormitory building at EDC Training Center 10 March Submission of bids for construction of a dormitory building at EDC Training Center 6 June ADB approves a minor change in project scope.

Appendix 7 27

Year and Date Event 15–22 July ADB Review Mission 6 22 August Awarding of a contract for construction of a dormitory building at EDC Training Center 9–16 December ADB Review Mission 7 19 December ADB approves second extension of loan closing date.

2006 17 March–4 April ADB Review Mission 8 27 September–6 October ADB Review Mission 9

2007 5 April Closing of loan account

2008 24 March–8 April ADB Project Completion Review Mission

ORGANIZATION CHART OF ELECTRICITÉ DU CAMBODGE

Board of Directors 8 Appendix

Secretary of the Board

Managing Director

Secretariat of Managing Director Inspection Office

Data Processing Office Internal Audit Office

Deputy Managing Deputy Managing Deputy Managing Director of Director of Planning & Technique Director of Administration Finance

Generation Administration Finance and Department Department Accounting Department

Corporate Planning Training Business & Project Center Department Department

Distribution Provincial Electricity Units Department

Autonomous Units Transmission Department

Appendix 9 29

STATUS OF COMPLIANCE WITH MAJOR LOAN COVENANTS

Reference Covenant in Loan Status of Compliance Agreement Project Implementation 1. EDC shall ensure that throughout Project Loan Complied with. implementation the PIU shall be headed by a Agreement senior staff member with experience and (LA), qualifications acceptable to the Bank as Project Schedule 6, Manager and shall further include an adequate para. 1 number of suitably qualified experienced administrative and technical staff assigned on a full-time basis.

2. Notwithstanding any other provision in LA, Para. 8 Complied with. Schedule 4 and except as the Bank may (a), otherwise agree, the Borrower and EDC shall Schedule 4 not award any contract for goods and services to be provided for Part A of the Project, unless and until the Bank shall have determined that EDC is in compliance with the covenants sets forth in para. 6, Schedule 6 of the LA and Sections 2.15, 2.16 and 2.19 of the annually

3. Promptly after physical completion of the Project Complied with. Project, not later than 3 months, EdC shall Agreement prepare and furnish a Project Completion (PA), Report. Section 2.08 (c) 4. EDC shall carry out the Project with due PA, Section Complied with. diligence and efficiency, and in conformity with 2.01 sound administrative, financial, engineering, environmental and power utility practices.

5. EDC shall make available the funds, facilities, PA, Section Complied with. services, equipment and other resources which 2.02 are required for the carrying out of the Project

6. In the carrying out of the Project, EDC shall PA, Section Complied with. employ competent and qualified consultants and 2.03 contractors, acceptable to the Bank, to an extent and upon terms and conditions satisfactory to the Bank.

6. EDC shall carry out the Project in accordance PA, Section Complied with. with plans, design standards, specifications, 2.04 work schedules and construction methods acceptable to the Bank.

30 Appendix 9

Reference Covenant in Loan Status of Compliance Agreement Financial Note: From FY 2004, paras. 4(b), 5 and Schedule 6 of the Loan Agreement and Sections 2.15, 2.16, 2.17 and 2.19 of the Project Agreement for this Project are repealed and replaced by para. 7 (c), Schedule 6 of Loan Agreement (LA), and Sections 2.15 through 2.18 of Project Agreement (PA) for Loan 2052-CAM.

7. EDC shall take the necessary measures, PA, Section Partly complied with. including application to appropriate authorities 2.15 (a) The Government approved for tariff adjustments, to ensure that its automatic tariff adjustments operations in Phnom Penh, Siem Reap, effective 1 November 2005. SihanoukVille and Kompong Cham will (i) for Section 2.18 of the PA for FY2001 and each fiscal year thereafter, achieve Loan 2052-CAM requires that at least cash break-even; (ii) for FY2002, earn EDC consolidate operations an annual return of at least 5% of the average should produce a revenue net value of EdC's fixed assets in operations; breakeven for FY 2004 and and (iii) for FY2003 and each fiscal year maintain thereafter. thereafter, earn an annual return of at least 6% FY 2004: operating losses. of the average net value of EdC's fixed assets in FY 2005: operating losses. operations. FY 2006: operating profit of Riel 14.27 billion

8. EDC shall take necessary measures, PA, Section Partly complied with. including application to appropriate authorities 2.15 (b) Operations of project facilities for tariff adjustments, to ensure that the commence in FY 2006. operations of each Project town will (i) for their Section 2.18 of the PA for respective first full fiscal year of operations and Loan 2052-CAM requires that each fiscal year thereafter, achieve cash break- EDC consolidate operations even, (ii) for their respective first full fiscal years should produce a revenue of operation, earn an annual return of at least breakeven for FY 2004 and 3% of the average net revalue of their respective maintain thereafter. fixed assets in operation, and (ii) for each fiscal FY 2004: operating loss of year after their respective first full fiscal years of 45.78 billion operations, earn an annual return of at least 4 FY 2005: operating loss of percent of the average net revalue of its 54.82 billion respective fixed assets in operation. FY 2006: operating profit of Riel 14.27 billion 9. EDC shall not incur any additional debt unless PA, Section Complied with. a reasonable forecast of the revenues and 2.16 (a) Section 2.16 of the PA for expenditures of EdC shows that the estimated Loan 2052-CAM requires that net revenues of EdC for each year during the the debt to equity ratio should term of the debt to be incurred shall be at least be less than 1.5 1.2 times the estimated debt service FY 2004: 0.25 requirements of EdC in such year on all debt of FY 2005: 0.45 EdC including the debt to be incurred. FY 2006: 0.39

Appendix 9 31

Reference Covenant in Loan Status of Compliance Agreement 10. EDC shall take all necessary measures to PA, Section Complied with. reduce distribution losses in its transmission and 2.19 FY 2001: 14.7% distribution network in Phnom Penh to not more FY 2002: 13.1% than 19 percent in FY2001, not more than 18 FY 2003: 12.7% percent in FY2002, and not more than 17 FY 2004: 13.1% percent in FY2003 and thereafter. FY 2005: 11.4% FY 2006: 10.7% 11. The Borrower and EDC shall ensure that for LA, Partly complied with. FY 2001 EDC's accounts receivable in respect Schedule 6, FY 2001: 4.0 of electricity sales shall be at a level of 3 months para. 6 FY 2002: 4.6 or less of sales, and that such level shall be FY 2003: 3.0 maintained. FY 2004: 2.23 FY 2005: 2.10 FY 2006: 1.71 Environmental 12. EDC shall: (i) test the transformer oil in LA, Complied with. transformers to be replaced under the project for Schedule 6, the presence of polychlorinated biphenyl (PCB) para. 7 and if PCB is found to be present, dispose of the oil in an environmentally acceptable manner; (ii) ensure compliance with international air pollution emission standard; (iii) adopt appropriate silencing measures to limit noise levels to less than 100 decibels at the plant sites and less than 40 decibels at a distance of 200 meters from the plant site; and (iv) implement adequate measures to prevent oil leakage into the soil.

Social 13. The Borrower shall ensure that people LA, Complied with. affected by the Project, because of loss of land Schedule 6, as a result of the Project, will be compensated in para. 8 a timely manner in accordance with the ADB handbook on Resettlement and compensation measures set out in the Resettlement Plan agreed upon between the Borrower and Bank.

32 Appendix 10

FINANCIAL AND ECONOMIC REEVALUATION

A. General

1. The methodology and assumptions adopted in the financial and economic reevaluation of each project province generally followed those used at appraisal. The financial and economic benefits were quantified by comparing the cases with and without the Project and were assessed in real 2008 values using a common set of assumptions for all provinces. Economic and financial reevaluation of the combined effects of the provinces also was carried out. The assumptions in the appraisal report were modified, where necessary, based on updated information, but the key assumption that the cost savings for replacing the existing electricity supply was $0.243/kWh (kilowatt-hour) was retained as the best estimate available. The notional economic life of diesel generation is taken to be 15 years of normal use, and for distribution networks 30 years is used as at appraisal. The actual system losses (technical and nontechnical) for 2007 were used. These varied between 7.6% and 20%. It was assumed that distribution technical losses would roughly increase with the square of the load until the optimal load for each network was reached and thereafter be held constant by progressive augmentation of the network.

B. Costs

2. The costs of construction were derived from the actual costs incurred for each component, excluding interest and other charges during construction. Operating costs and asset base values have been taken from the draft set of accounts only and have not been audited. The economic costs were derived from their financial costs by excluding taxes and duties, and by converting the nontradable components to the world price numeraire using a standard conversion factor of 0.9, as at appraisal. For the economic analysis, they were adjusted to constant 2008 values. Annual operation and maintenance costs for the distribution components were estimated to be 2% of the capital costs, while those for the generation components were taken as the remainder of the current operating costs for each province. The average consumer surpluses for domestic and nondomestic consumers are KR1,152/kWh and KR1,947/kWh, respectively, as derived from the demand curve estimation. The cost of diesel fuel per liter increases in real terms by 2% annually from the 2007 cost to the provinces. A sensitivity check was made with a 5% annual real increase, but, since Prey Veng and Strung Treng are the only provinces heavily dependent on diesel generation in the medium term, the overall impact on the Project is minor. Prey Veng and Strung Treng provinces are already in difficulties with the current oil price, and the only feasible solution to improving their viability is a long feeder connection to the grid. The carbon dioxide environmental pollution cost for thermal and diesel generation is $0.10/kWh. The average discounted energy cost in $/kWh has been determined on the basis of both economic and financial costs.

C. Benefits

3. The primary economic benefits from the projects are those benefits the economy receives from having a reliable, adequate supply of electricity and the overall decrease in pollution obtained from increases in the efficiency of its production and distribution. The basis for assessing benefits to the economy is the increase in the so-called “consumer surplus” the customer receives from having a cheaper source of electricity, that is to say, the increased difference between the benefit the consumer receives by using the electricity and the price paid. This approach assumes consumers are fully aware of the benefits that electricity provides,

Appendix 10 33 which appears to be the case in the provincial centers but not necessarily in relatively isolated rural communities.

4. The estimate of the gain in consumer surplus was derived from establishing the demand curve for electricity in the provincial centers. The demand for electricity is continually rising as technology improves the productivity, availability, and affordability of appliances and as the average household income increases. A study of the rapidly growing electricity consumption in the provincial centers indicated that the demand curve used in the original project assessment was no longer appropriate, and a new relationship was required to assess the economic benefits to the economy.

5. The provincial towns in the Project differ widely by their levels of commercial development, as indicated by their proportions of commercial consumption and average household expenditure. Moreover, the benefits of a reliable and adequate power supply are clearly different for a household than for a commercial establishment, manufacturer, or government service department.

6. A reasonable relationship was established between household monthly consumption of electricity, tariff, average household expenditure, and the proportion of domestic consumers (as a proxy for the level of commercialization). Similarly, a loose relationship was found between the average monthly consumption for commercial, industrial, and government service sector consumers; tariff; and the proportion of domestic consumption. Nevertheless, efforts to distinguish between the commercial and industrial sector and the government sector proved futile. The difficulty in establishing the relationship stems not from the strength of the underlying relationship but from the estimation process, due to the partial standardization of tariffs in the provincial centers and the difficulty in classifying businesses that serve as both domestic premises and commercial operations. Since the tariff is frequently the same, the need to classify customers by their consumption pattern and reliability requirements is not apparent to provincial EDC staff.

7. The relationships were formulated to give a constant average value of consumer surplus as the demand curves continue to expand along with the economy, and price elasticity varies directly with the tariff. The following graph illustrates how the demand curves have changed over the implementation period of the Project for an “average” provincial center.

34 Appendix 10

Demand Curves for Electricity in the Provincial Towns 6000

5000

4000

3000

Riels/kWh 2000

1000

0 0 102030405060708090100 Customer kWh/month

Original Proposal Domestic Nondomestic

8. These demand curves with the relevant parameters provided the basis for determining the economic benefits of the electricity supply in each provincial town. The constant consumer surplus is the net benefit to the consumer, to which was added the tariff paid to give the total benefit, and from which the production, distribution, and environmental pollution were deducted to give the net economic benefit. As with the original analysis in the project proposal, the values were “also adjusted by the standard conversion factor of 0.9 to convert financial prices to economic border prices.”

9. During the project implementation period, the demand for and value of electricity has significantly increased in the major provincial centers. Meanwhile, diesel oil prices have risen to such an extent that private extensions from the neighboring grids have become viable and have been constructed to the major provincial centers of Banteay Meanchey, Battambang, Kampong Speu, and Kampot. Connection of Takeo and Angtassom to the national grid is likely in 2009, and Svay Rieng was connected to the Vietnamese grid as part of this Project. In the poorer provinces of Banlung, Prey Veng, and Stung Treng, the operations are not viable due to the high diesel oil prices and their financial internal rates of return (FIRRs) could not be determined. The government has virtually standardized the power price in the major provincial centers (resulting in cross-subsidization to encourage balanced national development) as an equitable means of welfare distribution. The only practical solution for Stung Treng and Banlung is to construct long distribution feeders at 22 kV or 33 kV to Viet Nam and Laos. Increasing tariffs in Banlung to be more consistent with those of the other provincial centers is likely to depress consumption and even further reduce overall economic growth.

Appendix 10 35

Economic and Financial Summary Economic Financial Province EIRR FIRR NPV @12% Discounted Discounted % % $ million $/kWh $/kWh Kampong Speu 33% (1%) 1 0.23 0.17 Takeo and Angtassom 26% 6% 5 0.24 0.19 Kampot 37% 74% 13 0.16 0.14 Svay Rieng 32% 5% 9 0.15 0.15 Prey Veng —a —a -1 0.49 0.39 Stung Treng —a —a -2 0.42 0.33 Banlung 72% 17% 6 0.16 0.14 Banteay Meanchey 58% 100% 32 0.17 0.14 Battambang 55% 104% 26 0.17 0.17 Overall 40% 41% 88 0.27 0.23 EIRR = economic internal rate of return, FIRR = financial internal rate of return, kWh = kilowatt-hour, NPV = net present value. a EIRR and FIRR could not be determined. Source: Consultant estimates.

10. The values in the above table are calculated on the basis of the existing tariffs, which are generally adequate where grid connection is available, and an ongoing 2% annual real increase in the diesel fuel price. As it is assumed that the diesel price does not effect the grid power price to any extent, however, further increases affect only those provinces already in difficulties.

Economic and Financial Summary 2009 Change in Consumption Real Tariff Nonresi- EIRR FIRR 2010 ROA Increase Residential dential Province % % % % MWh MWh Kampong Speu 34% 8% 4% 6.0% (3.6%) (2.3%) Takeo and Angtassom 24% 10% 4% 6.0% (5.0%) (2.9%) Kampot 37% 74% 24% —b —c —c Svay Rieng 32% 5% 14% —b —c —c Prey Veng 19% 12% (8%) 8.5% (8.5%) (5.0%) Stung Treng —a —a (10%) —b —c —c Banlung 72% 17% 7% —b —c —c Banteay Meanchey 58% 100% 38% —b —c —c Battambang 55% 104% 49% —b —c —c Overall 41% 43% 20% —b —c —c EIRR = economic internal rate of return, FIRR = financial internal rate of return, MWh = megawatt-hour, ROA = return on assets. a EIRR and FIRR could not be determined. b Tariff is not expected to increase. c It is assumed that the consumption remains unchanged. Source: Consultant estimates

11. In the above table, provinces that are not expected to make a 4% return on assets (ROA) as specified in the supplementary agreement have been given an assumed tariff increase to improve their financial performance. This tariff rise is expected to reduce consumption by the percentages shown, although this will be offset by the normal load growth. In the case of Prey Veng, it appears that no amount of tariff increase will make that province’s power supply viable, and a structural change should be investigated.

36 Appendix 10

12. The economic internal rate of return (EIRR) and FIRR values for Kampong Speu are somewhat distorted by the costs’ of the 115/22 kV substation not being explicitly included, as the substation was provided as part of the Kirrom power station contract. The EIRR for Banlung is high because generation is substantially hydro-based and therefore has a lower environmental impact cost. Overall, the Project appears favorably because of the higher value of electricity and the new grid interconnections. The Project does, however, highlight the fact that investing into a distribution network natural monopoly to increase its coverage and lower losses has a substantially lower risk profile than that for competitive generation assets. The situation in each project province after completion of the Project is briefly summarized below.

(i) Banlung

13. Because Banlung is mostly supplied by two 0.48 megawatt (MW) mini hydro stations, 8 kilometers (km) from the provincial center, the overall losses are 20%. As additional generation will be from diesel located locally, average losses have been assumed to progressively diminish to be comparable with those of the other provinces as the total load grows. Hydro generation reduces the environmental pollution cost in the short term, boosting the EIRR to 72%. The subproject’s net present value (NPV) is $5.6 million and the FIRR is only 17%. The average discounted energy cost is $0.16/kWh. At present, generation and distribution unserved energy is estimated to be 3.3 MWh.

14. It appears that the Banlung power supply will achieve an ROA of about 6%, due to the hydro generation, so no increase in the tariff is warranted. It should be noted that this is the least well modeled province, due to a lack of consistent information.

(ii) Battambang

15. Refurbishment for the distribution network at Battambang was financed from the savings made in implementing the remainder of the Project. The independent power producer generators have vacated the city. The only supplies are via a single-circuit compact transmission line from the substation at Banteay Meanchey to a single transformer 115/22 kV substation on the city fringe plus a single EDC diesel generator that has been derated to 0.8 MW. The largest threat to the power supply is a major fault in, or accidental damage to, the single transformer. Normally, a load of 7–8 MW would justify a second transformer so that each could be properly maintained. An older transformer would be adequate as a standby, even one with high losses, since it is not needed for continuous operation. To reinstall standby generators at the old power station seems a retrograde step and would probably be more expensive than a secondhand transformer. The present unserved energy is estimated at 1.6 MW annually, but this will increase rapidly unless the step-down transformer is properly maintained. The EIRR and FIRR for the subproject are 55% and 104%, respectively. The subproject’s NPV is $26 million, and the average discounted energy cost is $0.17/kWh.

16. The Battambang power supply appears to be returning 50% on its “draft” asset base. However, the value of the subproject’s assets does not seem to have been included in the asset base as it has been with the other provinces. Including these assets at the project value yields a more credible ROA of 22%. Despite such a large margin for error, a tariff rise is not warranted. As in the case of Sisophon, the FIRR is very high, as there appear to be no charges associated with having provided the original capital base. Presumably, this has been absorbed in EDC’s consolidated accounts, so that all the net operating income is attributed to this subproject.

Appendix 10 37

(iii) Kampot

17. The 2-year delay in establishing the power supply in Kampot has severely affected the viability of the generation component. In hindsight, if the increasing fuel price had been anticipated, an alternative MV feeder from Viet Nam would most likely have been the preferred option. Kampot is already supplied via a private 44 km 22 kV feeder from Ha Tien in Viet Nam. The 2-0.5 MW and 2-1 MW diesels are only used in isolated mode, to provide standby supply to facilitate maintenance of the long supply feeder. They may also prove useful, as the load grows, to supply one of the local feeders in isolation as a form of peaking plant or as voltage support in parallel operation. A well-maintained MV feeder of this type and length would have an average outage time of 16 hours annually, but recent experience indicates that 100 hours annually would be more appropriate, given that maintenance is undertaken in a manner to minimize the cost to the private company rather than to maximize the value of the service to the community. With the generators providing a standby supply for maintaining the feeder, and the reported good initial reliability of the local MV feeders, the expected unserved energy is now just 0.7 MWh annually.

18. The generators had a high reported auxiliary consumption of 7% in 2007. Whether this was due to the mode of operation is not known, but a more typical value of 2% was assumed for the remainder of the analysis. The 10% annual growth rate for the load in the proposal was used in this evaluation, even though the load growth over the last year was 15% (as this is considered part of the extended initial catch-up phase). At that growth rate, the existing generation will provide full standby capacity until about 2015. It will also cover the daytime shoulder period (when most feeder maintenance is undertaken) until nearly 2020. Alternatively, the generators could be relocated to an isolated provincial center with EDC’s cooperation. This strategy is even more marginal than at Takeo province, however, since the supply is not as reliable and is not within EDC’s control. Keeping the generators in a standby-and-support role yields an EIRR of 36.5%, NPV of $13.2 million, an FIRR of 74%, and an average discounted energy cost of $0.16/kWh. If they were relocated to a more suitable provincial center, by comparison, their EIRR would be 37.2%, NPV would be $13.6 million, and FIRR would be 74.6%. Given that the availability of the feeder supply could easily be poorer than expected, there is considerable downside and negligible gain for Kampot were the generators to be relocated. Thus, it would be preferable to leave them in place.

19. The current real tariff rate should return 8% on the asset base investment in 2008 and increase steadily thereafter, making a positive contribution to the government’s tariff cross- subsidization fund for the provincial centers.

(iv) Kampong Speu

20. The distribution network at Kampong Speu is supplied by a 3 MV feeder from the 115/22 kV Grid Substation supplied by the China Electric Power Technology Import and Export Corporation from the transmission line between Kirrom hydropower station and Phnom Penh. Although Kampong is physically supplied part of the time directly from Kirrom at $0.07 (KR278)/kWh, this power is part of the overall production mix for Phnom Penh (where the overall average operating cost is KR642/kWh). The latter value is considered appropriately as the cost of supply, and it is assumed to remain constant in real terms due to the imminent 230 kV interconnection with Viet Nam.

21. At present, the distribution system appears to be well maintained and operating efficiently with total losses estimated at 7.5%. These consist of MV loss of 1.5%, total transformation loss of 1%, LV loss of 2.8%, and nontechnical loss of 2.2%. There is adequate

38 Appendix 10 spare capacity to allow for load growth—assumed to be 12% annually in the original proposal— and the losses will increase to 10% as the current network loading limit is reached.

22. The EIRR is 33%, and the FIRR is a dubious –1%. Both of these values are somewhat overstated as the cost of the most significant component—the China Electric Power Technology Import and Export Corporation substation—is not reflected in the cost. The substation is provided under the overall contract to purchase power from the Kirrom hydropower plant. As the average cost of supply in Phnom Penh is used in the calculation, the cost does include a component for transformation substations. This cost is very much lower than that for Kampong Speu, due to the economies of scale in the city. Presumably, a lower price for Kirrom power could have been negotiated if the Kampong Speu substation had not been included in the agreement. The cost of the substation is assumed to be about $2.5 million. If this is included as an opportunity cost in the overall calculation, the EIRR becomes a low 7% and the FIRR is not computable (since the branch would always make a loss).

23. The EIRR is reduced by roughly half due to including the environmental pollution component. The NPV of the economic benefits is –$1 million or $1.2 million, depending on whether or not the opportunity cost of the 115/22 kV substation is included. Similarly, the average discounted energy cost is either $0.30 or $0.23/kWh.

24. A 6% real tariff increase in 2009 would achieve the covenanted ROA of 4%, increasing the EIRR and FIRR to 34% and 8%, respectively, but decreasing the residential and nonresidential consumption, respectively, by 3.6% and 2.3%.

25. There is an alternative emergency supply to the province via interconnection with a relatively long 22 kV feeder supply from Phnom Penh, which should be adequate to allow maintenance of the 115/22 kV transformer during off-peak periods. The current expected unserved energy is therefore 0.7 MWh annually.

(v) Prey Veng

26. Although the 10% growth rate of the original proposal was used, Prey Veng’s location limits expansion of the provincial center and defines the extent of the distribution network. Prey Veng is wholly dependent on the diesel generation, and, while the other operating costs are comparable with the remaining provincial supplies, the branch is always projected to operate at such a loss that the EIRR and FIRR are not computable. The NPV of the project is –$1 million (meaning that the EIRR is less than 12%), and the average discounted energy cost is $0.49/kWh. Total losses are still about 16%, partly due to locating the power station outside the town for environmental reasons. The losses are about double those expected, and they greatly contribute to the province’s unsatisfactory financial performance. The present generation and distribution unserved energy is estimated to be 2.1 MWh annually.

27. Clearly, either the tariff should be increased, which is not government policy, or an alternative grid supply constructed in the next 3–5 years. If a long feeder was provided similar to that supplying Kampot, and even at the current tariff level, then the EIRR and FIRR would be about 18% and 9%, respectively, the NPV on the current investment would be $1.5 million, and the discounted energy cost would fall to $0.30/kWh.

28. A 10% real increase in the tariff improves the EIRR to 10%, but the FIRR remains non- computable. Such a tariff increase would cause a 10% decrease in residential consumption and a 5.8% decrease in nonresidential consumption. The best FIRR achievable is 12.5% with a long

Appendix 10 39 feeder interconnection and an 8.5% real tariff increase. This would yield an EIRR of 19%, together with decreased consumption of 8.5% and 5% for the residential and nonresidential sectors, respectively, and an ROA of around –8%.

(vi) Sisophon

29. Sisophon and Mongkul Borei are supplied by both a 3 MW diesel power station and a 115 kV independent power producer transmission line from Thailand via a 115/22 kV single- transformer substation. While the transmission line has double-circuit construction, the two circuits are joined, presumably to lower the cost of the substation. This means reliability of the supply is substantially less than that possible for a marginally more expensive substation. The diesel generators are nevertheless currently adequate to provide a standby supply to the provincial center, and the expected unserved energy is only 1.6 MVA annually (due almost entirely to the distribution system). The EIRR and FIRR for the subproject are 58% and 100%, respectively, while the NPV is $32 million and average discounted energy cost is $0.17/kWh.

30. Removing the generators to a location where they could be better utilized would only marginally increase the EIRR, and that does not appear to be worthwhile from the province’s viewpoint. Moreover, keeping the generators in place would allow the 115/22 kV transformer to be moved to Battambang in the case of a major failure of the same type of transformer there.

31. The Sisophon power supply appears presently to have a 7% ROA, which should rise to about 35% as the load increases due to the relatively low-cost power from Thailand. Together with Battambang, this province helps to cross-subsidize the poorer provincial centers.

(vii) Stung Treng

32. Stung Treng is similar to Prey Veng in that it is totally dependent on diesel generation for the foreseeable future, but it has a higher 12% growth rate. At the current tariff level, the branch is always projected to operate at such a loss. The EIRR and FIRR are not computable and the NPV is –$1.8 million. The average discounted energy cost is $0.42/kWh. The present generation and distribution unserved energy is estimated to be 2.1 MWh annually.

33. Again, if a long feeder was provided from Viet Nam or Laos by 2012, say, then at the present tariff level, the EIRR and FIRR, respectively, would be about 22% and 27%, NPV on the present investment would be $2.6 million, and discounted energy cost would fall to $0.24/kWh.

34. A 12.5% real rise in the tariff would improve the EIRR to 10%, but the FIRR remains non-computable. Such tariff increase would cause a 12.2% decrease in residential consumption and a 7.2% decline in nonresidential consumption. The best FIRR achievable is 34.5% with a long feeder interconnection and a 10% real tariff increase. This would yield an EIRR of 22%, together with decreased consumption of 10% and 6% for the residential and nonresidential sectors, respectively, and an ROA of around –3%.

(viii) Svay Rieng

35. Svay Rieng is supplied via a double-circuit, 22 kV trunk feeder that is 36 km long from Prey Vor in Kampong Ro, on the Vietnamese border, with a load-breaking interconnection point about 13 km from Svay Rieng. The trunk feeders supply a switching station in the provincial center. Additionally, there are two distribution feeders, a 1.2 MW diesel generator for standby power, and a two-capacitor bank (2-0.5 MVAR + 1M VAR) to provide voltage support. At

40 Appendix 10 present, the 0.5 MVAR capacitors provide a voltage increment too large for the lightly loaded feeders. The weakness in the design is that, although there is an interconnection switching, metering, and earthing station at the border, the entire network is supplied via a single, long 22 kV feeder in Viet Nam, which necessitates having the single standby 1.2 MW generator.

36. The reported operating cost of EDC’s Svay Rieng provincial office is disproportionately high due to the operation of the other isolated networks in this province, which are less efficiently run branches than the Svay Rieng town branch. Allocating the operating cost on a somewhat favorable energy consumption basis gives an EIRR of 32%, NPV of $8.6 million, FIRR of 5.5%, and average discounted energy cost of $0.15/kWh. The relatively low tariff of KR650/kWh, Svay Reing’s strategic location, and major road access appear to be facilitating rapid development of the local area. The current unserved energy due to unplanned outages on the feeders is estimated at 15 MWh annually. While that seems high, alternative interconnections with Viet Nam are being planned.

37. Svay Reing appears to be making a very substantial ROA of around 30%, due to the relatively low-cost power supply from Viet Nam, and perhaps also due to the more or less favorable allocation of operating costs in the estimation. Nevertheless, as there is a reasonable margin for error, no real increase in tariffs is warranted.

(ix) Takeo

38. The 2-year delay in establishing the power supply in Takeo and Angtassom has severely affected the generation component’s viability, in that, as construction of the 230 kV transmission line between Chau Doc in Viet Nam and Phnom Penh has finally commenced, grid supply is assumed to be available at the 230/22 kV Takeo substation in 2010. Therefore, the generators would only be operational for 4 years. Assuming only one transformer is installed at the Takeo substation (and a preliminary analysis shows that, due to the 230 kV source, the second would not be justified based on reliability until the maximum demand reaches 12 MW), the generators could either be maintained as a partial standby supply or relocated to a more isolated village. Three 0.5 MW diesel-generator sets are installed, and, as the peak load is already over their 1 MW firm capacity, there is a reasonable risk of load shedding. This risk is acceptable in view of the imminent supply from the 230/22 kV Takeo substation.

39. The generators could be maintained almost indefinitely as a partial standby for the commercial center and the maintenance and operational staff utilized for distribution. Still the generators’ relevance will progressively decline as the load grows. Under this scenario, the EIRR and FIRR for the combined project would be 25.7% and 6%, respectively, assuming the tariffs are not raised. While the real tariff is inadequate in the short term due to the rising cost of diesel fuel, it is appropriate in the medium term, when grid supply will be available. On this basis, the NPV of the economic benefit is $5 million and the average discounted energy cost is $0.24/kWh.

40. Relocating the generators to another provincial center acceptable to the EDC would only marginally increase the overall EIRR and FIRR to 26.1% and 6.4%, respectively. The present expected unserved energy is 106 MWh annually, as the generator’s firm capacity has been exceeded.

41. A 6% real tariff increase in 2009 would achieve the covenanted ROA of 4% in 2010, boosting the FIRR to 10% but decreasing the EIRR to 24%, since the residential and nonresidential consumption would decrease by 5% and 2.9%, respectively.

Appendix 11 41

FINANCIAL PERFORMANCE OF ELECTRICITÉ DU CAMBODGE (EDC)

I. Consolidated Income Statement (KR’000)