Completion Report

Project Number: 38456-034 Loan Number: 2972 September 2019

Pakistan: Power Distribution Enhancement

Investment Program – Tranche 3

This document is being disclosed to the public in accordance with ADB’s Access to Information Policy.

CURRENCY EQUIVALENTS

Currency unit – Pakistan rupee(s) (Pre/PRs)

At Appraisal At Project Completion (7 December 2012) (30 June 2018)

PRe1.00 = $0.01035 $0.00823 $1.00 = PRs96.605 PRs121.550

ABBREVIATIONS ADB – Asian Development Bank AGP – Auditor General of Pakistan AEFS – audited entity financial statement APFS – audited project financial statement CPS – Country Partnership Strategy DISCO – distribution company DMF – design and monitoring framework EIRR – economic internal rate of return FESCO – Faisalabad Electric Supply Company FIRR – financial internal rate of return FMC – facility management consultant GEPCO – Gujranwala Electric Power Company HESCO – Hyderabad Electric Supply Company IESCO – Islamabad Electric Supply Company LESCO – Lahore Electric Supply Company MEPCO – Multan Electric Power Company MFF – multitranche financing facility NEPRA – National Electric Power Regulatory Authority NTDC – National Transmission and Despatch Company PEPCO – Pakistan Electric Power Company PESCO – Peshawar Electric Supply Company PMU – project management unit QESCO – Quetta Electric Supply Company STG – secondary transmission grid T&D – transmission and distribution

WEIGHTS AND MEASURES GWh – gigawatt-hour km – kilometer kV – kilovolt kWh – kilowatt-hour MVA – megavolt ampere

NOTES

(i) The fiscal year (FY) of the Government of the Islamic Republic of Pakistan ends on 30 June. “FY” before a calendar year denotes the year in which the fiscal year ends, e.g., FY2018 ends on 30 June 2018.

(ii) In this report, “$” refers to United States dollars. Vice-President Shixin Chen, Operations 1 Director General Werner Liepach, Central and West Asia Department (CWRD) Director Ashok Bhargava, Energy Division, CWRD Xiaohong Yang, Country Director, Pakistan Resident Mission (PRM) Team leader Ehtesham Zafar Khattak, Senior Project Officer (Infrastructure), PRM Team members Anjum Asif, Senior Operations Assistant, PRM Khurram Shahzad, Associate Project Analyst, PRM Muhammad Ali Sheikh, Associate Financial Control Analyst, PRM In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

BASIC DATA i

MAP iv

I. PROJECT DESCRIPTION 1

II. DESIGN AND IMPLEMENTATION 1

A. Project Design and Formulation 1 B. Project Outputs 2 C. Project Costs and Financing 3 D. Disbursements 3 E. Project Schedule 3 F. Implementation Arrangements 4 G. Consultant Recruitment and Procurement 5 H. Gender Equity 6 I. Safeguards 6 J. Monitoring and Reporting 8

III. EVALUATION OF PERFORMANCE 9

A. Relevance 9 B. Effectiveness 9 C. Efficiency 10 D. Sustainability 10 E. Development Impact 11 F. Performance of the Borrower and Executing/Implementing Agencies 12 G. Performance of the Asian Development Bank 12 H. Overall Assessment 13

IV. ISSUES, LESSONS, AND RECOMMENDATIONS 14

A. Issues and Lessons 14 B. Recommendations 14

APPENDIXES

1. Design and Monitoring Framework 16

2. Project Cost at Appraisal and Actual 17

3. Project Cost by Financier 18

4. Disbursement of ADB Loan and Grant Proceeds 20

5. Contract Awards of ADB Loan and Grant Proceeds 21

6. Chronology of Main Events 22

7. Status of Compliance with Loan Covenants 23

8. Re-Assessment of Economic and Financial Analysis 30

9. List of Subprojects 36

10. Status of AEFS and APFS 41

BASIC DATA A. Loan Identification

1. Country Islamic Republic of Pakistan 2. Loan number and financing source 2972-PAK / ordinary capital resources

(OCR) 3. Project title Power Distribution Enhancement

Investment Program—Tranche 3 4. Borrower Islamic Republic of Pakistan 5. Executing agency Pakistan Electric Power Company

(PEPCO) 6. Amount of loan $245,000,000 7. Financing modality Multitranche financing facility

B. Loan Data

1. Appraisal – Date started – Date completed

8 November 2012 14 December 2012

2. Loan negotiations – Date started – Date completed

26 November 2012 28 November 2012

3. Date of Board approval 14 December 2012 4. Date of loan agreement 9 September 2013 5. Date of loan effectiveness – In loan agreement – Actual – Number of extensions

8 December 2013 10 December 2013 1

6. Project completion date – Appraisal – Actual

30 June 2016 30 June 2018

7. Loan closing date – In loan agreement – Actual – Number of extensions

31 December 2016 30 June 2018 2

8. Financial closing date – Actual

22 April 2019

9. Terms of loan – Interest rate – Maturity (number of years) – Grace period (number of years)

LIBOR plus 0.60% less 0.20% credit 20 3

10. Terms of relending (Economic Affairs Division (EAD) to PEPCO) – Interest rate

15%

– Maturity (number of years) 20 – Grace period (number of years) – Second-step borrower

2 Distribution companies

ii

11. Disbursements

a. Dates

Initial Disbursement 1 June 2014

Final Disbursement 1 April 2019

Time Interval 58 months

Effective Date

10 December 2013

Actual Closing Date 22 April 2019

Time Interval 64.4 months

b. Amount ($)

Category

Original Allocation

(1)

Increased during

Implementa-tion (2)

Canceled during

Implementation (3)

Last Revised

Allocation (4=1+2–3)

Amount Disbursed

(5)

Undisbursed Balance (6 = 4–5)

01A 22,990,000 0 0 22,990,000 20,962,304 2,027,696 01B 1,120,000 0 0 1,120,000 0 1,120,000 02A 8,45,000 0 1,053,937 7,396,063 6,914,556 481,507 02B 440,000 0 0 440,000 0 440,000 03A 23,200,000 0 1,357,265 21,842,735 10,184,849 11,657,886 03B 160,000 0 3,323,927 (3,163,927) 9,170,060 (12,333,987) 03C 1,140,000 0 0 1,140,000 0 1,140,000 04A 14,070,000 0 (314,814) 14,384,814 11,605,058 2,779,756 04B 9,330,000 0 0 9,330,000 8,616,123 713,877 04C 1,150,000 0 0 1,150,000 0 1,150,000 05A 9,880,000 0 0 9,880,000 9,231,309 648,691 05B 11,010,000 0 1,414,903 9,595,097 8,414,271 1,180,826 05C 1,020,000 0 0 1,020,000 0 1,020,000 06A 27,460,000 0 0 27,460,000 28,197,844 (737,844) 06B 2,030,000 0 0 2,030,000 1,296,250 733,750 06C 1,440,000 0 0 1,440,000 0 1,440,000 07A 12,030,000 0 0 12,030,000 9,931,778 2,098,222 07B 8,510,000 0 976,440 7,533,560 8,414,773 (881,213) 07C 1,010,000 0 0 1,010,000 0 1,010,000 08A 78,150,000 0 5,983,386 72,166,614 74,262,003 (2,095,389) 08B 3,800,000 0 0 3,800,000 0 3,800,000 09 6,610,000 0 0 6,610,000 5,610,000 1,000,000 Total 245,000,000 0 13,795,045 231,204,955 212,811,178 18,393,777

C. Project Data

1. Project cost ($ million)

Cost Appraisal Estimate Actual Foreign exchange cost 245.05 212.81 Local currency cost 26.42 23.19 Total 271.47 236.00

2. Financing plan ($ million)

Cost Appraisal Estimate Actual Implementation cost Borrower financed 26.42 23.07 ADB financed 238.39 207.20 Other external financing 0.00 0.00 Total implementation cost 264.81 230.27 Interest during construction costs Borrower financed 0.00 0.12

iii

ADB financed 6.66 5.61 Other external financing 0.00 0.00 Total interest during construction cost 6.66 5.73

3. Cost breakdown by project component ($ million)

Component Appraisal Estimate Actual A. Base Cost

1. Turnkey contracts 196.24 173.02 2. Equipment and materials 31.04 35.91 3. Civil works and erection 2.94 16.22 4. Engineering 0.31 0.02 5. Environmental mitigation and resettlement 10.16 0.00 6. Taxes and dutiesa 0.89 4.54

Subtotal (A) 241.58 229.71 B. Recurrent costsb 12.12 0.56 C. Contingencies 11.11 0.00 D. Financing charges during implementation 6.66 5.73 Total 271.47 236.00

a Includes local taxes and import duties financed from distribution companies’ internal resources b Includes project administration, audit and inspection, inland transportation and handling, insurance, and letters of

credit/banking charges.

4. Project schedule

Item Appraisal Estimate Actual

Turnkey contracts Date of award November 2013 March 2014 Completion of work June 2016 June 2018 Equipment and supplies First procurement November 2013 March 2014 Last procurement January 2014 June 2018 Completion of equipment installation June 2016 June 2018

5. Project performance report ratings

Implementation Period

Ratings

Single Project Ratinga From 10 December 2013 to 31 December 2013 On track. From 1 January 2014 to 31 December 2014 On track. From 1 January 2015 to 31 December 2015 On track. From 1 January 2016 to 31 December 2016 On track. From 1 January 2017 to 31 December 2017 On track. From 1 January 2018 to 30 June 2018 On track.

a In 2011, e-Operations were introduced. Under the new rating system, performance is rated according to technical, procurement, disbursement, financial management, and safeguards indicators. A single rating applied to the project.

D. Data on Asian Development Bank Missions

Name of Mission Dates No. of

Persons No. of

Person-Days Specialization of Membersb

Loan inception 4–14 March 2014 2 10 a, b Midterm project review 22 May – 3 June 2015 6 12 a, c, b, d Special loan administration 29–30 November 2016 2 2 c, b Loan review 1 22 May – 3 June 2016 2 7 a, b Loan review 2 17–19 October 2016 2 3 a, b Loan review 3a 1–9 February 2018 2 8 c, b

a A separate mission for project completion review was not needed because the essential data and information were collected during the last mission in February 2018. The completion status of each subproject was updated based on quarterly progress reports from distribution companies and through email correspondence.

b a = energy specialist; b = project analyst; c = senior project officer; d = social specialist.

Multan

Gujranwala

Faisalabad

Hyderabad

ISLAMABADPeshawar

Karachi

Lahore

Quetta

Boundaries are not necessarily authoritative.

National Capital

Provincial Capital

City/Town

River

PAKISTAN

POWER DISTRIBUTION ENHANCEMENT INVESTMENT PROGRAM (TRANCHE 3)

(as completed)

1000 20050

Kilometers (km)

N

73 00'Eo

73 00'Eo

35 00'No35 00'No

26 00'No

64 00'Eo

64 00'Eo

26 00'No

192866 19PAK ABV

This map was produced by the cartography unit of the Asian Development Bank. The boundaries, colors, denominations, and any other information shown on this map do not imply, on the part of the Asian Development Bank, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries, colors, denominations, or information.

MVA Additions in DISCOs under T3

(3,496 MVA)8%

(38,713 MVA)92%

PESCOIESCO

FESCO

GEPCO

LESCO

MEPCOQESCO

HESCO

ADB under T3

Faisalabad Electric

Supply Company

Gujranwala Electric

Power Company

Hyderabad Electric

Supply Company

Islamabad Electric

Supply Company

Lahore Electric

Supply Company

Multan Electric

Power Company

Peshawar Electric

Supply Company

Quetta Electric

Supply Company

FESCO

GEPCO

HESCO

IESCO

LESCO

MEPCO

PESCO

QESCO

4,907

4,434

2,411

4,787

9,849

7,472

5,773

2,576

262

234

312

660

860

340

658

169

5.3%

5.3%

12.9%

13.8%

8.7%

4.6%

11.4%

6.6%

Total 42,209 3,496 8.3%

DISCO

Total Capacity

(MVA)

Addition under T3

(MVA)Percentage

ADB

DISCO

MVA

T3

Asian Development Bank

Power Distribution Company

megavolt-ampere

Tranche 3

=

=

=

=

I. PROJECT DESCRIPTION 1. Power is a commodity essential to Pakistan’s economic and social development. Supplying reliable electricity to customers throughout the country raises living standards and stimulates commercial and industrial growth. In May 2005, the Government of Pakistan began implementing a series of integrated activities in line with the power sector development strategy set out in its Medium-Term Development Framework.1 That framework envisaged additional power generation, transmission, and distribution capacities to ensure sufficient electricity supply to meet the projected 8% annual economic growth over the planning period. Subsequently, in coordination with the Ministry of Water and Power, the power distribution companies (DISCOs) prepared the Power Distribution Sector Road Map.2 The road map recommended short (priority), medium-, and long-term system improvement projects and detailed the investment needs. The total investment requirement for the DISCOs from 2008 to 2017 was estimated at $5.2 billion. The investments consisted of improvements to the secondary transmission grid, power distribution, and energy loss reduction. The government sought financing from the Asian Development Bank (ADB), World Bank, and other multilateral and bilateral funding agencies. 2. In 2008, as part of ADB’s assistance to Pakistan’s electricity sector, ADB approved up to $810 million in loans over a 10-year period through a multitranche financing facility (MFF) to finance the distribution systems in addressing capacity shortfalls that at that time resulted in regular system outages and supply interruptions.3 The project was the third of four tranches of the MFF and comprised physical investments in subprojects covering (i) secondary transmission grid augmentation, extension, conversion, and new substations; and (ii) secondary transmission grid lines: conversion, replacement, and extension. The project was to add 1,881 megavolt-amperes (MVA) of transformer capacity and improve the transmission system by adding 791 kilometers (km) of new transmission lines and upgrading 399 km of the existing 66 kilovolt (kV) and 132 kV transmission lines.

II. DESIGN AND IMPLEMENTATION A. Project Design and Formulation 3. The project was highly relevant at both appraisal and completion. It aimed to (i) allow for system expansion to meet load and generation growth; (ii) improve efficiency, reliability, and system security; and (iii) reduce distribution losses. At appraisal, the project was consistent with ADB’s country strategy and Pakistan’s development priorities in the energy sector. Investment to increase energy security and efficiency was one of four main strategic areas under the Pakistan country partnership strategy, 2009–2013.4 Among other steps, the energy sector road map under the strategy identified the removal of distribution system constraints to strengthen capacity of the energy supply chain. The government’s energy sector strategy, described in the Medium-Term Development Framework, focused on ensuring the sector’s long-term viability by optimizing the energy mix. Improving transmission and distribution (T&D) remains one of six assistance areas identified in the Pakistan country partnership strategy 2015–2019, focusing on sector reforms as

1 Government of Pakistan, Planning Commission. 2005. Medium Term Development Framework, 2005–2010.

Islamabad. 2 Ministry of Water and Power, Government of Pakistan. 2008. Power Distribution Sector Roadmap, 2008–2017.

Islamabad. 3 ADB. 2008. Report and Recommendation of the President to the Board of Directors, Multitranche Financing Facility,

Islamic Republic of Pakistan, Power Distribution Enhancement Investment Program. Manila. 4 ADB. 2009. Pakistan Country Partnership Strategy, 2009–2013. Manila.

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well as investments in T&D infrastructure to reduce technical losses and theft.5 The government’s Vision 2025 incorporates a “four-e” agenda, referring to economy, energy, education, and elimination of extremism.6 Its vision is to create, by 2025, a globally competitive and prosperous country providing high quality of life for all its citizens. Pakistan’s National Power Policy 2013 aims at reducing T&D losses and increasing revenue collection.7 4. Upon receipt of the government’s periodic financing request in December 2012 for the project under the Power Distribution Enhancement Investment Program, the ADB team worked with eight DISCOs to identify subprojects. The selected subprojects were integral components of the distribution sector development road map and expansion program, based on (i) the National Transmission and Despatch Company (NTDC) load forecast using least-cost planning principles, and (ii) the loading position of power transformers.8 The project scope mainly related to the secondary transmission system, including (i) new or upgraded substations, (ii) new transmission lines, and (iii) additions or augmentations to transformers within existing substations. The project at appraisal comprised 106 subprojects. The project scope was related to the secondary transmission system (132 kV voltage level). The project design at appraisal catered to the distribution network expansion and enhancement of the DISCOs’ intake capacity from the transmission dispatcher (NTDC). 5. ADB’s assistance through this project was focused on—but not limited to—improving distribution systems in eight DISCOs to enable power to be delivered effectively, reliably, and safely to satisfy the demands of existing and new customers while observing necessary environmental and social safeguard requirements. Compliance with regulatory requirements was also a key consideration. Consistent with the government’s strategies and development objectives, the project was aimed to contribute toward improving heavily loaded and overloaded distribution systems having high losses and poor reliability. B. Project Outputs 6. The project was designed to complete 106 subprojects including rehabilitation, conversion, augmentation, and extension of secondary transmission grid network. ADB approved 11 more subprojects in August 2015 to invest savings from tranche 3, thereby raising the total to 117 subprojects. In September 2017, ADB approved including 11 more subprojects into the scope, raising the total to 128. The outputs were substantially achieved with 93 subprojects completed by the loan and MFF closing date of 30 June 2018. The remaining 35 subprojects are being funded by the government with 23 subprojects completed in May 2019 and the remaining 13 subprojects will be completed in September 2019. 7. The project (i) added 12 new 132 kV grid stations; (ii) augmented (a) twenty-five (25) 40 MVA transformers, and (b) eleven (11) 26 MVA transformers; (iii) extended thirteen (13) 26 MVA transformers; (iv) converted 19 existing 66 kV grid stations to 132 kV; (v) added 1,213 km of 132 kV transmission line, including upgrading from 66 kV to 132 kV; and (vi) included miscellaneous rehabilitation and procurement of goods through 11 subprojects. 8. The project installed 3,496 MVA of distribution capacity overall by 2018. Transmission and distribution losses were reduced from 20.50% in 2012 to 17.95% in FY2017 against targeted

5 ADB. 2015. Pakistan Country Partnership Strategy, 2015–2019. Manila. 6 Government of Pakistan, Planning Commission. 2013. Pakistan Vision 2025. Islamabad. 7 Government of Pakistan, Ministry of Water and Power. 2013. National Power Policy, 2013. Islamabad. 8 The distribution networks (excluding the Karachi area) are managed by eight independent DISCOs. Karachi is a

separate integrated utility (Karachi Electricity Supply Corporation) and was not part of the investment program.

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19.50% for 2017. Energy saved in FY2017 was 236.38 gigawatt-hours (GWh) versus the first year’s target of 274.00 GWh. Energy savings are expected to grow with increased generation and reduced losses in coming years (Appendix 1). C. Project Costs and Financing 9. Appendix 2 breaks down project costs covered by the loan. Total cost of the project was $272 million, of which the share from ADB’s ordinary capital resources was $245 million while $27 million was from DISCOs. ADB’s share was 100% of total expenditure claimed (exclusive of taxes and duties imposed within territory of the borrower). Of the $245-million loan, $13.80 million was savings: $13.80 million was cancelled after completion as the government requested, and $18.39 million was cancelled at closing (para 12). 10. The financing plan at appraisal was based on a 90:10 ratio for ADB versus government financing. This remained unchanged at project completion. The DISCOs’ share of $27 million at appraisal was based on the category allocation of each DISCO. Engineering and administrative costs, duties, and taxes to be funded by the DISCOs were included in the project cost estimate. At completion, expenses actually incurred by DISCOs were $23.19 million (Appendix 3). D. Disbursements 11. The project was approved on 14 December 2012 and became effective on 10 December 2013. The loan closing date originally was 31 December 2016 and was delayed to 30 June 2018 with two extensions. The loan was extended to the availability period of the MFF (30 June 2018), enabling implementing agencies to complete their pending turnkey and other projects. 12. Disbursements totaled $212.8 million, which is 13% less than the $245.0 million principal loan amount at appraisal. Disbursements were smaller due to (i) lower than expected equipment costs, and (ii) few outstanding payments under turnkey contracts because operational and final acceptance of some projects was still pending. 13. The loan proceeds were disbursed in accordance with ADB’s Loan Disbursement Handbook (2017, as amended from time to time).9 Disbursement projections were revised in September 2015 and August 2016 as part of the loan extensions. Appendixes 4 and 5 detail annual and cumulative disbursement and contract awards of the loan proceeds. E. Project Schedule 14. The loan was approved on 14 December 2012, it was signed on 09 September 2013 and became effective on 10 December 2013. The original loan closing date was 31 December 2016. Closing was extended twice with final closing on 30 June 2018. 15. The first extension of the loan was approved on 12 August 2015 for the period 31 December 2016 to 31 January 2018. The approval was based on utilizing proposed savings of $26.88 million through inclusion of additional subprojects with increase from 106 to 117. The additional subprojects identified included (i) procurement and installation of additional power transformers in HESCO and PESCO; (ii) conversion from 66 kV to 132 kV of Dera Murad Jamali, Usta Muhammad, Jhal Magsi, and Dera Allahyar grid stations along with associated transmission

9 ADB. 2017. Loan Disbursement Handbook. Manila.

4

lines in QESCO area; and (iii) procurement of additional power transformers through repeat order under direct contracting within an existing contract. 16. The second extension, granted on 20 September 2017, was from 31 January 2018 to 30 June 2018 (up to the MFF closing date). This final extension was provided for utilizing $12.41 million in savings for the additional subprojects with the increase from 117 to 128. The additional subprojects identified include (i) procurement of grid station equipment for HESCO and PESCO; (ii) procurement of eight power transformers rated 20/26 MVA for HESCO; (iii) procurement of maintenance equipment for LESCO; and (iv) laying of 132 kV underground power cable between the 220 kV Shalimar GIS and the 132 kV Shalimar-II grid station. 17. The project’s financial closing was scheduled for 31 October 2018 but was extended to 31 January 2019. This extension was granted to maximize the outstanding disbursements. It included settlement of outstanding extension of time claims and final contract variations by respective implementing agencies for contracts already completed before the loan closing date. ADB was also requested to consider disbursements for goods for which the factory acceptance test had been witnessed and accepted by implementing agencies’ representatives before the loan closing date of 30 June 2018. F. Implementation Arrangements 18. The borrower was the Islamic Republic of Pakistan and the proceeds of the loan were re-lent to Pakistan Electric Power Company (PEPCO) & DISCOs through a subsidiary loan arrangement. PEPCO was executing agency and DISCOs were implementing agencies. As agreed in the Project Agreement the Implementation Arrangements were the responsibility of each DISCO in accordance with the details set forth in the Facility Administration Memorandum.10 As per the memorandum, a project management unit (PMU) was to be established in each DISCO which was responsible for (i) project implementation, (ii) project monitoring, and (iii) capacity building of PMU Staff through facility management consultants (FMC). 19. Of 128 subprojects in total, 60 were implemented using turnkey contracts and the remaining 68 by procurement of goods contracts. All procurements were conducted following ADB guidelines.11 Advance contracting was expected under the categories Turnkey and Equipment for packages to be advertised during Q4 of 2012, but this did not happen. FESCO, IESCO, LESCO, PESCO, and QESCO were facing difficulties in implementing the turnkey contracts relating to the likes of right-of-way, land acquisition, and safeguard issues, for which ADB extended loan closing (para. 14). 20. Physical work on the awarded turnkey contracts was mostly completed before the loan closing date. DISCOs’ own resources are being utilized for completion of remaining works. In September 2018, ADB approved a minor change memo for changes in project implementation arrangements. ADB was requested to consider disbursements for goods contracts where the factory acceptance test had been witnessed and accepted by an implementing agency’s representatives before the loan closing date of 30 June 2018. The proposed changes in disbursement arrangements enabled (i) all implementing agencies to maximize utilization of the loan proceeds in an effective manner, and (ii) disbursement of the remaining payments in accordance with the amended contracts.

10 ADB. 2010. Facility Administration Memorandum: Islamic Republic of Pakistan: Power Distribution Enhancement

Investment Program (Multitranche Financing Facility). Manila. 11 ADB. 2006. Procurement Guidelines. Manila.

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G. Consultant Recruitment and Procurement 21. An FMC for the MFF was financed and recruited under the MFF support facility Loan 2439.12 The FMC’s objectives were to support DISCOs in implementing the facility. Recruitment was conducted by PEPCO, the contract was awarded in June 2012, and the FMC remained engaged until program closure while providing consulting services for all four tranches of the Power Distribution Enhancement Investment Program. The FMC was responsible to support DISCOs in (i) general power distribution business management, including project implementation and contract management; (ii) project financial management and reporting; (iii) contracting, procurement, and inventory management; (iv) project performance monitoring system design and application; and (v) relevant on-the-job training for DISCO personnel. 22. 22. The consulting services contract included a total of 1,141 person-months comprising 146 person-months of international experts, 419 person-months of national experts, and 576 person-months of technical and/or support national staff. At completion, 142 person-months of international experts, 392 person-months of national experts, and 712 person-months of national support staff were utilized. Person-months of national technical and/or support staff were increased due to a reduction in person-months of international and national experts as per DISCOs’ requirements under six contract variations during project implementation and were fully utilized. In total, 1,246 person-months of inputs were required. The actual consumption of person-months indicates low estimates at appraisal of consulting services inputs, especially of national technical and/or support staff requirements. Despite delay in awarding the contract, the consultant provided adequate services to complete the program’s subprojects as planned. The contract period was 73 months. 23. At the appraisal stage, 106 subprojects were identified for financing through tranche 3. The project aimed to add 1,881 MVA of transformer capacity. A total of 36 subprojects improved the transmission system by adding 791 km of new secondary transmission lines and upgrading 399 km of existing 66 kV secondary transmission lines to 132 kV. This extended the network, cut system losses, and improved reliability. After granting two extensions and approval for utilizing savings, the subprojects total rose to 128 (paras. 15 and 16). After revision of the scope, 72 subprojects were directed to augmenting 26 and 40 MVA transformers, 13 to extension by adding 26 MVA transformers, 6 to rehabilitation, and 5 to procuring transmission line equipment. A total of 68 subprojects were identified as turnkey projects, including 14 for adding new grid station, 23 for conversion of 66 kV to 132 kV grid stations, and 31 for transmission line additions. 24. Based on original contract award projections and/or procurement plans, 23 procurement packages were identified (Appendix 5; paras. 15 and 16). Of these, 4 packages each were for FESCO and MEPCO; 1 for GEPCO; 3 each for HESCO, IESCO, LESCO, and PESCO; and 2 for QESCO. All procurements were in accordance with ADB’s Procurement Guidelines (footnote 11) and using international competitive bidding, national competitive bidding, and ADB’s shopping method as deemed necessary. The first turnkey project contract was awarded on 19 March 2014 (Appendix 6). All turnkey projects were awarded as planned except one package for HESCO (#HESCO-03) that was converted from construction of 132 kV transmission line to procurement of goods in seven lots and works to be carried out by HESCO’s own resources. Minor delays were observed in contract award during the whole procurement cycle of these projects, mainly due to lack of capacity within DISCOs for preparing bid evaluation reports and several rounds of

12 ADB. Power Distribution Enhancement Investment Program – Project 1. (Loan 2438-PAK of $242 million and 2439-

PAK of $10 million)

6

clarifications between executing and/or implementing agency, bidder, and ADB. The FMC and ADB provided capacity building and other support as and when required. 25. Two packages in IESCO for turnkey projects (i.e., IESCO-01-Lot-1 and Lot 2) faced significant implementation delays. Lot 1 was signed on 12 October 2015 and included constructing three new grid stations. Two of these are completed and are in testing and commissioning phase. The delay in this lot was due to land acquisition for one grid station at Bhara Kahu. This lot is expected to be completed by August 2019. Lot 2 was signed on 19 March 2014 and is still not completed due to right-of-way issues. The implementing agency and contractor have been litigating and rerouting the line wherever possible to complete the project. The procurement packages for goods, civil works, and shopping were all awarded and implemented well on time. In order to utilize the savings approved (para. 6), ADB provided the loan extension until 30 June 2018 to reach project completion (para. 20) and approved a minor change memo to the project implementation arrangements. This memo approved variations in 36 contracts in an estimated amount of $24 million. With this memo, ADB also extended the winding up period from 31 October 2018 to 31 January 2019. Subprojects’ completion status is provided in Appendix 9. Apart from turnkey contracts, 6 out of 8 DISCOs utilized the loan amount for procurement of 132 kV grid station equipment categorized as goods. Six DISCOs, including GEPCO, HESCO, IESCO, LESCO, MEPCO, and PESCO, carried out this procurement in 11 packages out of which 4 were individual packages and 7 had 35 lots in total. H. Gender Equity 26. The project was categorized “no gender elements” in accordance with ADB guidelines for gender mainstreaming. Thus, there were no gender mainstreaming activities.13 The project improved household (and women’s) living standards through increased access and better quality of energy services. Further, all subproject activities contributed directly and indirectly to improving women’s livelihoods in the subproject areas, including by access to better health and education facilities and better employment opportunities for household members. I. Safeguards 27. Involuntary resettlement. The project was categorized as B for involuntary resettlement. Six DISCOs (FESCO, GEPCO, HESCO, IESCO, MEPCO, and QESCO) had subprojects with involuntary resettlement impacts. Resettlement plans based on the approved land acquisition and resettlement framework for the investment program were prepared for 35 subprojects having involuntary resettlement impacts. A total of 9 acres of land was purchased for two grid stations on a willing-seller and willing-buyer basis. Sites for other grid stations already were owned by the respective DISCOs. The works impacted 1,867 wood and timber trees and 4,288 fruit trees. Five structures were partially impacted. Most impacts were from construction of transmission lines. A total of 4,796 landowners were affected. None of the affected households had to relocate or were severely affected. Total cost of compensation paid was roughly Rs172.7 million ($1.15 million). 28. Draft resettlement plans were updated following approval of the final transmission line routes designed by the turnkey contractors, submitted to ADB for review, then disclosed. Compensation payments were made in three stages: foundations, tower erection, and stringing.14 Land acquisition and resettlement plan implementation was monitored internally by each DISCO through its environmental and social impact cell. External monitoring was done by the FMC. Both

13 ADB. 2012. Guidelines for Gender Mainstreaming Categories of ADB Projects 2012. Manila. 14 Stringing is the process of installing the conducting and grounding wires on transmission line towers.

7

internal and external resettlement monitoring reports were submitted to ADB biannually for review and disclosed on the ADB website. During project implementation, compensation delays were noted in the monitoring due to delayed assessment and processing of vouchers and checks, unavailability of some displaced persons, and disputes over tower location and ownership claims. These were flagged and corrected during project implementation. Except for these delays, ADB’s Safeguard Policy Statement (2009) and national requirements have generally been satisfied. Workshops and coaching sessions were also undertaken to improve monitoring, and grievance redress. At the time of loan closing, compensation payments had been completed in all subprojects. 29. Indigenous peoples. The project was categorized C for indigenous peoples at appraisal. No indigenous peoples were identified as per ADB’s Safeguard Policy Statement (2009) during the project implementation. 30. Environment. The project encompassed 128 subprojects, 74 of which were turnkey projects. At appraisal, 106 subprojects with 68 turnkey subprojects were included in this project. ADB approved 11 more subprojects, including 6 turnkey subprojects (para. 15). The initial environmental examination reports for the initial turnkey subprojects, which were categorized as ADB’s environmental category B, were prepared by the FMC in accordance with the Safeguard Policy Statement and were approved and disclosed by ADB in 2012. Under Pakistan’s environmental legislation, however, these subprojects qualified for environmental impact assessments. Hence, the assessment reports of the subprojects of all DISCOs were also prepared by the FMC to fulfill the national requirements and to obtain environmental approval or a no objection certificate from the relevant environmental protection agencies. All DISCOs applied for no objection certificates from their environmental protection agencies in 2013. The respective certificates were accordingly granted. The initial environmental examinations for the 6 new turnkey subprojects were prepared by the relevant DISCOs and reviewed by the FMC. The initial environmental examination reports were approved by ADB and environmental impact assessments were prepared for the relevant environmental protection agencies. 31. Environment and social units with qualified environmental staff had been established in all DISCOs under Project 1 of this program (footnote 12). FMC also engaged qualified environmental staff. The environment and social units and FMC environmental staff monitored implementation of the subproject-specific environmental management plans that were part of the respective initial environmental examinations. Environmental management plan monthly monitoring reports were submitted by the respective contractors to the relevant DISCOs. ADB also fielded regular review missions to category B subprojects. Biannual environmental monitoring reports were regularly submitted and disclosed on the ADB website. 32. Due to the relatively simple nature of the subprojects’ construction activities, there were no significant environmental impacts and no major issues were encountered. Those noncompliances that emerged during implementation were addressed satisfactorily through joint efforts of the DISCOs, FMC, and ADB. 33. A significant achievement was the preparation of standard operating procedures for the environmental and social management of subprojects. The procedures were prepared with ADB’s assistance and input from all the DISCOs based on their experiences and lessons learnt in implementing projects 1 and 2. The standard operating procedures were approved by the boards of directors of all DISCOs to ensure integration of environmental and social aspects of project management into the institutional hierarchy. Moreover, environment social units that had been established only for donor-funded projects have now been regularized as an institutional

8

component of all DISCOs. Hence, environmental and social management of projects has been mainstreamed in the DISCOs’ institutional hierarchy and project management cycle. J. Monitoring and Reporting 34. All covenants were relevant and remained applicable during project implementation. Appendix 7 shows the status of compliance with loan covenants at project completion. All loan covenants were adequately complied with, except for partial compliance with financial covenants relating to: (i) unmet targets of the debt service coverage ratio and self-financing ratio—indicating less than adequate financial health and sustainability of the DISCOs; and (ii) a few pending submissions of audit reports mentioned below. 35. Projects performance monitoring and reporting were carried out through the FMC (para. 21). In collaboration with DISCOs, the FMC was supposed to send a quarterly progress report for each MFF project. Compliance with this requirement was met during the implementation period. Individual monitoring consultants were also hired to ensure that the environmental and social safeguard measures were implemented in accordance with the approved plans. Each DISCO ensured that the appointed consultant conducted internal monitoring and evaluated implementation of the land acquisition and resettlement plans, indigenous people’s development plans, and environmental management plans. 36. The Auditor General of Pakistan issues independent audit opinions on all foreign-aided projects in Pakistan, including those funded by ADB. The project agreement required each DISCO to maintain a project account separate from those of its overall operations. Accordingly, a total of 48 sets (8 DISCOs for FY2014–FY2019) of audited project financial statements (APFS) were to be submitted during implementation. The requirement to submit these statements was deferred in in FY2014 for all DISCOs due to there being essentially no expenditure (Appendix 10). ADB approved this deferment in a memo dated 26 March 2015. Thirty-two sets of audited statements were submitted but the due date, all with unqualified opinions, up to the time of project completion report preparation for the period of 4 years covering FY2015–2018. At the time of PCR preparation, audit evidence was obtained for 89% of loan proceeds ($190 million). The project team is following up with the DISCOs to ensure submission of APFSs for FY2019 by 31 December 2019 for the remaining disbursements which relate to payments made for categories (i) turnkey; and (ii) ancillary equipment and materials. 37. Each DISCO was also required to submit audited entity financial statements (AEFS) annually. All AEFS were submitted for each fiscal year during the period FY2014–FY2018 with a few exceptions, including (i) GEPCO for FY2016; and (ii) LESCO for FY2015, FY2016, and FY2017. AEFS for FY2018 have been submitted by just six DISCOs until June 2019. The remaining two DISCOs (LESCO and QESCO) have yet to submit their AEFS, as their auditing is still in process, but these shall be submitted to ADB in due course. Out of 34 reports submitted to date, 14 were issued with a qualified audit opinion, mainly due to regulatory challenges with the Water and Power Development Authority’s post-restructuring, such as transfer of property ownership and disputes in recording of payables and receivables with other industry players such as Central Power Purchasing Authority. The average time of submitting AEFS is with a 1.5 months delay after the due date, except that two reports were submitted with more than 13 months delay. The non-submission of a few AEFS and delayed submission in some instances leads to the conclusion that compliance with the AEFS covenant is only partially complied. 38. The financial management capability of DISCOs during the implementation period was commensurate with the needs of the project but less than adequate regarding compliance with

9

certain financial covenants. The DISCOs were required to comply with the financial covenants regarding debt-service coverage ratio (at least 1.2) and self-financing ratio (at least 20%) starting from FY2014 as per project agreement. ADB reiterated to the DISCOs the importance of compliance with loan financial covenants during review and consultation missions, stressing the importance of independent audit opinion on these ratios. Historically, DISCOs have generally complied with both or at least one ratio, mainly self-financing ratio. A summary is given in Appendix 10, Table A10.3, based on either auditor opinion or ADB’s own calculation, except where AEFSs were not submitted.

III. EVALUATION OF PERFORMANCE A. Relevance 39. The project was highly relevant at appraisal and remains so at completion. The intended outcome of the project was strategically well aligned with the development priorities of the federal government, which emphasized system expansion to meet load growth, improving reliability, and reducing distribution losses. The project was well coordinated between the stakeholders and did not duplicate the work of other development partners. The intended outcome was aligned with ADB’s country and sector strategy of investments for bringing efficiency and security to the country’s power network by removing distribution system constraints (paras. 3 and 4). The project design and monitoring framework (DMF) was not revised during implementation, demonstrating the adequacy of the project design and formulation process at appraisal. Savings were utilized, enhancing the performance indicator (addition of MVA capacity), following the same project design and formulation. B. Effectiveness 40. The project is rated as effective. The project outcome was “Power distribution systems rehabilitated, augmented and expanded.” Two of the three performance indicators (Appendix 1) set to achieve the project outcome were achieved. The project installed 3,496 MVA against targeted 2,396 MVA and the distribution system losses were reduced to 17.95% against the DMF indicator of 20.50%. The third indicator was substantially achieved as 236.38 GWh of energy was saved in FY2017 against the DMF indicator of 274.00 GWh.15 These indicators had a very strong impact on improving the power distribution system rehabilitated through this project. The subprojects carried out to achieve this outcome were effectively implemented to further strengthen the power sector. Achieving these outcomes had removed all the system constraints by 2018. The project constructed all planned outputs, which are now in service or soon will be. 41. The project’s planned output was commissioning of subprojects with three performance indicators. At time of loan closure two of the three indicators i.e. addition of secondary transmission line and construction of new grid stations were achieved however only 93 subprojects were completed against 128 subprojects (106 subprojects were envisaged at appraisal). Completion of most subprojects nevertheless did lead to achieving the stated outcome. If the DISCOs had a more effective project management structure and prevented delays in completing turnkey projects, a higher effectiveness rating would have been warranted. In assessing the effectiveness of the project, the soundness of the process used to select and prioritize individual subprojects was also considered (para. 4). No changes in circumstances during project implementation affected the appropriateness and effectiveness of the selected subprojects.

15 National Electric Power Regulatory Authority. 2018. State of Industry Report 2017. Islamabad.

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42. Out of 128 subprojects, 9 acres of land were purchased for construction of only two grid stations. This land acquisition was on a willing-seller and willing-buyer basis. The remaining 12 grid stations were constructed at existing sites or on land already owned by DISCOs and therefore had no social safeguard impacts. Most of the impacts noted occurred in constructing transmission lines. A total of 4,796 landowners were thereby affected but no affected household had to relocate or was severely affected. All affected people have been fully compensated in accordance with ADB’s social protection policies and there are no outstanding issues. C. Efficiency 43. This analysis results in a 17.65% economic internal rate of return (EIRR) as compared to the EIRR of 19.90% at appraisal. It is pertinent to mention that at appraisal EIRR was not calculated based on a system approach. A sensitivity analysis also shows strong economic viability, and the EIRR is above the 9% updated economic opportunity cost of capital. (See Appendix 8 for a detailed analysis). The project is therefore rated efficient. 44. The project achieved its planned output with total withdrawals of $212.80 million, being 94.64% of the revised loan amount and 86.85% of the original loan amount. The process efficiency was affected by delays. Two loan extensions added an additional 18 months in the loan period (para. 11) and resulted in delayed disbursements (para. 12). Also, loan signing was delayed 9 months after board approval due to issues of project readiness. Despite these delays, the EIRR that is the project’s indicator of efficiency remains above the threshold. 45. As most of the project’s subprojects were completed between 2016 and 2018, not enough time has elapsed to collect loading data and the history of installed transformers under this project for the purpose of recalculating the EIRR. Based on historical data from respective DISCOs, a newly installed transformer generally becomes fully loaded to its capacity within 3–5 years after commissioning. The distribution grid remains heavily loaded, and there is no evidence to indicate that the transformers installed by the project will not be loaded at a similar rate. The project ’s benefit mainly arises, therefore, from the expanded capacity of grid stations due to new or replaced transformers to supply an increased amount of electricity to the downstream DISCO networks, addition of new customers, and reduction in transmission and distribution losses as also envisaged in the DMF. D. Sustainability 46. The completed subprojects are now integral components of Pakistan’s subtransmission and distribution grid. Referring to the financial sustainability reported by all DISCOs (para. 34), they remain going concern entities as confirmed by the auditors. Management does not intend to liquidate or cease operations, and there is no alternative to the electricity distribution network. Furthermore, as state-owned enterprises, DISCOs have sovereign backing and the ongoing tariff reforms aim to rectify the financial situation of the power sector as a whole (paras. 49 and 50). All this leads to the conclusion that the project should be rated likely sustainable. 47. All DISCOs have institutional sustainability with adequate levels of qualified human resources and governance structure supported by organizational arrangements. Dedicated departments are in place with qualified staff for development, planning, finance, operations, and maintenance. Nevertheless, the DISCOs’ maintenance support arrangements could be improved by, for example, having experts readily available to advise station managers of appropriate responses to equipment failures requiring nonroutine maintenance interventions. Effective and

11

timely technical support for DISCOs will further enhance their operations and sustainability of the project. 48. In assessing the project’s sustainability, its financial internal rate of return (FIRR) was also calculated (see Appendix 8 for detail). The benefits of the project arise from increased 132/11 kV transformer delivery capacity, reduced T&D losses, and expanded distribution network resulting in improved grid connectivity with reduced electricity outages. This analysis estimates an FIRR of 22.34% against 9.90% at appraisal. The estimated weighted average cost of capital was 0.3% at appraisal. At completion, it was worked out as 6.72% based on actual financing mix, current inflation rate, and other parameters (Appendix 8). DISCOs’ contribution to actual project costs was reduced to 15% (versus 20% at appraisal) and the relending rate to DISCOs remained unchanged. While the difference between the FIRR and the weighted average cost of capital is smaller at appraisal, the estimated FIRR at completion that is much higher than that worked out at appraisal, indicating the project’s financial viability and sustainability. 49. Even though the project’s FIRR is higher than its cost of capital, the financial sustainability of most DISCOs remains weak, considering their huge levels of receivables and current financial losses. Increased electricity sales due to reduced forced outages and load shedding have rendered rates of return higher than the cost of capital. Financial sustainability of DISCOs is dependent on timely tariff determination by NEPRA and notification by the government. The operations of DISCOs are funded through a distribution margin allowed by NEPRA, with the power purchase price being a pass-through item. The determined tariff for FY2017–18 notified on 1 Jan 2019 includes a prior year adjustment component of Rs2.76/kWh (18% of the determined tariff of Rs15.53/kWh). Prior year adjustment represents the unrecovered revenue requirement of DISCOs in previous years accumulated due to delayed notification of tariff. 50. Recovery of the entire backlog of unrecovered revenue through notification of determined tariff for FY2017–18 will not only improve the profitability of DISCOs but also help in generating required cash flows. Subsequent to notification of tariff, NEPRA issued a periodic adjustment in tariff on 14 June 2019 for July–December 2018 on account of recovery of variations in the power purchase price, including impact of T&D losses totaling Rs189.638 billion. Recovery of this amount will further improve the financial sustainability of DISCOs. E. Development Impact 51. The project has installed 3,496 MVA of net 132 kV transformer capacity at DISCO networks across the country. This transformer capacity is needed to deliver power fed into the transmission network in bulk to the DISCO networks for onward distribution to electricity consumers. Grid stations continue to be heavily loaded, indicating that the current rate of augmenting the distribution system is only just sufficient to accommodate imminent growth in electricity demand. Without the project, there would have been insufficient transformer capacity to meet consumer demand. The project improved the situation in the project areas. 52. The impact indicators of the project’s DMF include (i) electricity sales increased by 6,000 GWh annually starting in 2018 (baseline: 71,368 GWh in 2012), (ii) village electrifications increased from 76% in 2011 to 79% in 2019, and (iii) electricity outages reduced by 10% by 2018 (baseline: 546,638 outages in 2012).

53. Electricity delivered by DISCOs was 65,032 GWh in FY2012 and this grew to 86,628 GWh in FY2017. The impact indicator (i) in para. 52, refers to increase from 2018 and the report is available only until 2017. This equates to an overall growth rate of 4,300 GWh per year over the

12

5-year period. This measure can be volatile from year to year but the project’s contribution to this increase can be regarded as positive. Based on the impact indicator, the sales started to increase by 6,000 GWh annually starting 2018. Consider the trend in the previous 5 years, we expect the sales to be increased as targeted in coming years.

54. In FY2011, Pakistan had a 76% village electrification rate. This had been increased to 82% by FY2017. Electricity outages for 132 kV feeders (94% of project scope) were reduced by 81% from 41,517 in FY2012 to 7,789 in FY2017. Overall outages in the PEPCO system, however, were reduced by just 3% to 534,976 in FY2017.

55. The project’s success in achieving the impact targets in the DMF is considered highly satisfactory. The project achieved its impact to provide reliable and quality power supply and expanded service coverage. The reliability and quality of power supply can be measured by the rise in energy sales over 5 years along with reduced power outages during that time. The coverage area was also expanded by increasing electrification of the villages to 82% against the targeted 79%. Overall, the impact of the project is rated highly satisfactory. F. Performance of the Borrower and Executing/Implementing Agencies 56. The executing and implementing agency’s performance are rated satisfactory. PEPCO was executing agency for the project and implementing agencies were eight DISCOs. PEPCO ’s overall responsibilities included, but were not limited to, performance evaluation and monitoring of the project. PEPCO carried out that monitoring and performance evaluation with help from the FMC, and it fully complied with all responsibilities within stipulated timelines. 57. Implementing agencies’ responsibilities were mainly to look after the implementation arrangements through constituting effective PMUs (para. 18). A major shortcoming of PMUs was considered to be a lack of ownership in evaluating the tenders during implementation. The PMU of each implementing agency sent its bids to be evaluated by NTDC upon payment. It was reiterated during loan review missions that evaluation should be conducted at DISCO level to avoid procurement delays. Overall, the PMUs nevertheless were regarded as working in conjunction with loan covenants as agreed. Reporting during project implementation also was considered satisfactory (paras. 27–38). The implementing agencies rerouted transmission lines to resolve right-of-way issues, and they resolved land acquisition issues by making payments to the affected persons. 58. The performance of the borrower (the Economic Affairs Division) is rated satisfactory. The borrower met the target of loan effectiveness requirements with delay of only a few days, and ADB also granted interim extensions. The borrower provided support to executing and implementing agencies for successfully implementing all project activities, thereby contributing to achieving the project’s outcome. With the help of executing and implementing agencies, the borrower ensured adequacy and timeliness of counterpart funding, preparation of the financial management arrangements, and project sustainability. All requests from executing and implementing agencies regarding loan proceeds utilization were managed effectively and in a timely manner to meet the timelines as agreed in the loan agreement. G. Performance of the Asian Development Bank 59. ADB’s performance is rated satisfactory. ADB fielded six review missions during project implementation. The review missions initially focused on documenting implementation delays and providing support to implementing agencies for smooth implementation. The missions also

13

supported implementing agencies in identifying savings from existing projects and creating new subprojects. 60. Project records show that ADB’s review and approval of procurement documentation were completed in a timely manner. As ADB’s review missions identified problems with the management of executing and implementing agencies’ procurement early in the project, this likely warranted even earlier intervention from ADB, especially because effective management was vital for all four MFF tranches to be completed within the 10-year facility time limit. ADB could have had more active engagement with PEPCO and DISCOs to prepare consultancy terms of reference focused on meeting the identified capacity development needs. This would have required approval from the top managements of PEPCO and DISCOs, but frequent changes in management and key staff at these companies appear to have created challenges for ADB to secure strong commitment from PEPCO and DISCOs for such activities. 61. Considering the financial stability of DISCOs, ADB extended support throughout the project. Two key support items to be considered were (i) extension of loan closing date two times up to the closing of MFF, and (ii) clearance of maximum pending payments based on successful completion of factory acceptance test (para. 20). H. Overall Assessment 62. The project is rated successful. This rating recognizes that the project’s design was relevant to the growing demand for distribution grid capacity in Pakistan throughout the project’s lifecycle. The project was effective in completing the outputs and achieving the targeted outcome; economic efficiency was verified from sufficient economic returns; and the project, executing and implementing agencies all were assessed as sustainable. All subprojects were completed at cost lower than estimated at appraisal. This was mainly due to DISCOs’ tendency to overestimate budget at planning stage, declining market prices for oil and metals after the 2008 global financial crisis, and devaluation of the local currency. The standard of design and construction was good. Without the project, capacity of the subtransmission system would be much reduced and power outages required at periods of peak demand would be much greater than is currently the case. 63. The project has not been rated higher primarily because some impact and project outcomes set out in the DMF were not achieved even though the project, as designed at appraisal, was successfully delivered by DISCOs, albeit with some delay. Non-utilization of the support facility to improve DISCOs’ capacity to operate as true commercial entities is also an impediment to a higher rating.

Overall Ratings Criteria Rating Relevance Highly relevant Effectiveness Effective Efficiency Efficient Sustainability Likely sustainable Overall Assessment Successful Development impact Satisfactory Borrower and executing agency Satisfactory Performance of Asian Development Bank Satisfactory Source: Asian Development Bank.

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IV. ISSUES, LESSONS, AND RECOMMENDATIONS A. Issues and Lessons 64. In designing and formulating new projects, care should be taken to ensure that the impacts and outcomes specified in the DMF are well aligned with the designed project outputs. If the alignment between project design and project DMF is weak, the chances of a project being evaluated successful are reduced even if the project is delivered as planned. 65. In situations where the executing agency is unfamiliar with the project delivery approach planned at appraisal, such as the use of turnkey contracts, it would be helpful to provide implementation support through a consultant. The FMC was appointed almost 1.5 years after project approval and lasted for 1 year only due to poor performance. A new firm was hired 1.5 year after termination of the previous FMC. The absence of consultants delayed finalization of engineering design for turnkey subprojects and completion of related safeguards documentation in previous tranches. Had experienced support been available sooner, the time required to put turnkey projects in place may have been reduced. 66. There is also a need for dedicated project managers to assume responsibility for and ownership of each ADB-financed project. Currently, a DISCO’s PMU is organized along functional lines and responsibility for project completion is unclear. In this situation, project management tends to be reactive rather than proactive and makes the project prone to delays. This is particularly important where activities such as planning, design, procurement, and construction are delegated to various departments and undertaken by persons not reporting directly to the PMU. It is also suggested to conduct comprehensive capacity assessment of the executing and implementing agencies and a market analysis before proposing bid packaging; propose a risk mitigation action plan, including capacity building measures; and make use of advance contracting aligned with the land acquisition plan. There was also a lack of ownership in tenders ’ evaluation and delays in timely delivery of the AEFS. These issues can be addressed in the future through improving the capacity of the executing and implementing agencies. 67. The MFF structure allowed for transfer of cancelled loan amounts to subsequent tranches. This attests to the suitability of this financing modality for the type of investments required by a distribution asset operator. There are multiple projects to be financed with ever changing demand. The availability of the facility allows for subprojects that become ready or more urgent to be picked up by earlier tranches. In some cases, delays caused by technical challenges can be remedied by transferring the subproject to subsequent tranches. B. Recommendations 68. Future monitoring. All assets installed by the project are in service and generally heavily loaded. These assets are installed under the capacity of a project management unit in coordination with several line departments. Once these assets are installed, they are handed over to a grid system operations team, which takes care of the assets and ensures their proper functionality and effective use. Specific monitoring of the performance of such assets is thus not considered necessary. 69. Covenants. Most covenants have been complied with, except those related to determination of tariff as it falls under domain of the federal government and the regulator NEPRA. Delay in tariff determination by NEPRA and its notification by the federal government contributed to partial compliance with financial sustainability ratios. To curtail energy sector’s burden on the

15

annual state budget is one core issue being addressed under the government’s recent agreement with the International Monetary Fund, under the extended fund facility approved in July 2019. Under an ongoing technical assistance study, ADB is leading efforts to develop a new energy policy in 2019 and a rolling five-year electricity plan for Pakistan.16 70. Monitoring framework. In the formulation and appraisal of future projects in the electricity distribution sector, a much higher priority should be given to ensuring that the DMF is closely aligned with the project design. 71. Implementation structure. In designing the implementation arrangement at project appraisal, ADB should ensure that the executing and implementing agencies appoint for each significant loan-financed project a dedicated project manager who would also be responsible for (i) the completion of ADB-financed projects (specially turnkey projects); (ii) liaison and coordination between project stakeholders during implementation to ensure that the project keeps to both budget and schedule; and (iii) identification and mitigation of project risks. 72. Implementation support to executing and implementing agencies. Even further constructive support to executing and implementing agencies would include familiarization with ADB’s procurement, environmental, and social protection requirements and monitoring procedures. Consultants having relevant experience on ADB’s processes and procedures should be recruited during the appraisal stage to provide immediate support to executing and implementing agencies. Such consulting services are recommended also for capacity development. This will help DISCOs to make better informed choices about multi-contract or turnkey approaches. Improved system planning capacity within DISCOs would help mitigate the risks of short-term equipment overloading. The frequent changes in top management noted during project implementation should be discouraged. Continued engagement at the top level will be vital for effective implementation of ADB-financed projects in the future. 73. Further action or follow-up. DISCOs’ financial sustainability is critical to providing adequate operations and maintenance for operational assets, including assets installed under the project. In this regard, ADB is continuing to finance development through a second distribution MFF targeting loss reduction and revenue increase by implementing advanced metering infrastructure and other technological interventions.17 Programmatic, policy-based support to the energy sector is planned in the country operation business plan, 2019–2021. It will focus on sector reforms to address financial sustainability. 74. Timing of the project performance evaluation report. This report is not considered necessary. Ongoing assessment of the DISCOs’ performance associated with the implementation of current and subsequent projects, and the appraisal of planned new loans should suffice.

16 ADB. Update on Energy Sector Plan. ($1.05 million). 17 ADB. 2015. Report and Recommendation of the President to the Board of Directors: Proposed Multitranche Financing

Facility to the Islamic Republic of Pakistan for the Second Power Distribution Enhancement Investment Program. Manila.

16 Appendix 1

DESIGN AND MONITORING FRAMEWORK Design Summary Performance Indicators and Targets Project Achievements Impact Improved power distribution infrastructure and management

Electricity sales increased by 6,000 GWh annually starting 2018 (baseline: 71,368 GWh in 2012). Village electrification increased from 76% in 2011 to 79% in 2019. Electricity outages reduced by 10% by 2018 (baseline: 546,638 outages in 2012).

Electricity sales increased by 15,260 GWh. Total electricity sales in PEPCO area were 86,628 GWh in FY2017.a Village electrification rate increased to 82% in FY2017.b Electricity outages for 132 kV feeders (94% of project scope) reduced by 81%, from 41,517 in FY2012 to 7,789 in FY2017, but overall outages in PEPCO system reduced by just 3% to 534,976 in FY2017.c

Outcome Power distribution systems rehabilitated, augmented, and expanded

Additional 2,396 MVA of distribution capacity installed by 2018. Transmission and distribution system losses reduced from 20.5% in 2012 to 19.5% in 2017. 274 GWh of energy saved per year starting from 2017.

3,496 MVA transformer capacity installed by 2018. Energy losses (transmission and distribution losses) reduced to 17.95% in FY2017.d 236.38 GWh of energy saved in FY2017, but in later years GWh of energy saved will be increasing due to added generation and reduced losses.e

Outputs Subprojects commissioned

Construction of 128 subprojects including rehabilitation, conversion, augmentation, and extension of secondary transmission grid network completed by 2016. 1,190 km of new secondary transmission lines added to the system by 2018. 17 new grid stations added to the system by 2018.

93 subprojects completed by 30 June 2018, 23 more completed by May 2019, and remaining 13 to be completed by September 2019. Project added 1,213 km of new 132 kV lines. 12 new grid station added and 19 existing 66 kV grid stations upgraded to 132 kV system by 2018.

FY = fiscal year, GWh = gigawatt-hour, kV = kilovolt, MVA = megavolt-ampere, PEPCO = Pakistan Electric Power Company. a National Electric Power Regulatory Authority. 2018. State of Industry Report 2017 (Chapter 10, Electricity Sector

Overview). Islamabad (Table 23). b State of Industry Report 2017 (Chapter 13, Electricity Distribution, Table 68). c State of Industry Report 2017 (Chapter 13, Electricity Distribution, Table 65). d State of Industry Report 2017 (Chapter 13, Electricity Distribution, Table 57). e State of Industry Report 2017 (Chapter 13, Electricity Distribution, Table 57). Source: Asian Development Bank.

Appendix 2 17

PROJECT COST AT APPRAISAL AND ACTUAL ($ million)

Appraisal Estimate Actual

Item Foreign

Exchange Local

Currency Total Cost Foreign

Exchange Local

Currency Total Cost A. Investment Costs 1. Turnkey contracts 196.24 0.00 196.24 171.29 1.73 173.02 2. Equipment and materials 31.04 0.00 31.04 35.91 0.00 35.91 3. Civil works and erection 0.00 2.94 2.94 0.00 16.22 16.22 4. Engineering 0.00 0.31 0.31 0.00 0.02 0.02 5. Environmental mitigation and resettlement 0.00 10.16 10.16 0.00 0.00 0.00 6. Administration, audit and inspection 0.00 7.30 7.30 0.00 0.56 0.56 7. Inland transportation/insurance and L/C opening charges 0.00 4.82 4.82 0.00 0.00 0.00 8. Taxes and duties 0.00 0.89 0.89 0.00 4.54 4.54 Subtotal (A) 227.28 26.42 253.70 207.20 23.07 230.27 B. Contingencies

1. Physical contingencies 6.04 0.00 6.04 0.00 0.00 0.00 2. Commitment charges 5.07 0.00 5.07 0.00 0.00 0.00

Subtotal (B) 11.11 0.00 11.11 0.00 0.00 0.00 C. Financing Charges During Implementation

1. Interest during implementation 5.55 0.00 5.55 5.61 0.12 5.73 2. Commitment charges 1.11 0.00 1.11 0.00 0.00 0.00

Subtotal (C) 6.66 0.00 6.66 5.61 0.12 5.73 Total (A+B+C) 245.05 26.42 271.47 212.81 23.19 236.00

Sources: Asian Development Bank estimates and audited project financial statements of implementing agencies.

18 Appendix 3

PROJECT COST BY FINANCIER

Table A3.1: Project Cost at Appraisal by Financier ($ million, except percentages as indicated)

ADB

GOP

Total Cost

Amount % of Cost Category Amount

% of Cost Category Amount

Item A A/C B B/C C A. Investment Costs

1. Turnkey project 196.24 100.00 0.00 0.00 196.24 2. Equipment and material 31.04 100.00 0.00 0.00 31.04 3. Civil works and erection 0.00 0.00 2.94 100.00 2.94 4. Engineering 0.00 0.00 0.31 100.00 0.31

5. Environmental mitigation and resettlement 0.00 0.00 10.16 100.00 10.16 6. Administration, audit, and inspection 0.00 0.00 7.30 100.00 7.30 7. Inland transportation, letter of credit, and insurance 0.00 0.00 4.82 100.00 4.82 8. Duties and taxes 0.00 0.00 0.89 100.00 0.89 Subtotal (A) 227.28 89.59 26.42 10.41 253.70 B. Contingencies

1. Physical 6.04 100.00 0.00 0.00 6.04 2. Price 5.07 100.00 0.00 0.00 5.07

Subtotal (B) 11.11 100.00 0.00 0.00 11.11 C. Financial Charges during Construction

1. Interest during construction {Component C.1} 5.55 100.00 0.00 0.00 5.55 2. Commitment charges 1.11 100.00 0.00 0.00 1.11 Subtotal (C) 6.66 100.00 0.00 0.00 6.66 Total Project Cost (A+B+C) 245.05 90.27 26.42 9.73 271.47 % Total Project Cost

90.27%a

9.73%b 100.00%

Note: 1. Numbers may not sum precisely because of rounding. a ADB’s share in project cost. b Government of Pakistan’s share in project cost. Sources: Asian Development Bank estimates.

Appendix 3 19

Table A3.2: Project Cost at Completion by Financier ($ million, except percentages as indicated)

ADB

GOP

Total Cost

Amount % of Cost Category Amount

% of Cost Category Amount

Item A A/C B B/C C A. Investment Costs

1. Turnkey project 171.29 99.00 1.73 1.00 173.02 2. Equipment and material 35.91 100.00 0.00 0.00 35.91 3. Civil works and erection 0.00 0.00 16.22 100.00 16.22 4. Engineering 0.00 92.02 0.02 100.00 0.02

5. Environmental mitigation and resettlement 0.00 0.00 0.00 0.00 0.00 6. Administration, audit, and inspection 0.00 0.00 0.56 100.00 0.56 7. Inland transportation, letter of credit, and insurance 0.00 0.00 0.00 0.00 0.00 8. Duties and taxes 0.00 0.00 4.54 100.00 4.54

Subtotal (A) 207.20 89.98 23.07 10.02 230.27 B. Contingencies

1. Physical 0.00 0.00 0.00 0.00 0.00 2. Price 0.00 0.00 0.00 0.00 0.00

Subtotal (B) 0.00 0.00 0.00 0.00 0.00 C. Financial Charges during Construction

1. Interest during construction {Component C.1} 5.61 97.99 0.12 2.01 5.73 2. Commitment charges 0.00 0.00 0.00 0.00 0.00 Subtotal (C) 5.61 97.99 0.12 2.01 5.73 Total Project Cost (A+B+C) 212.81 90.18 23.19 9.82 236.00 % Total Project Cost

90.18%a

9.82%b 100.00%

Note: 1. Numbers may not sum precisely because of rounding. a ADB’s share in project cost. b Government of Pakistan’s share in project cost. Sources: Asian Development Bank estimates and audited project financial statements of implementing agencies.

20 Appendix 4

DISBURSEMENT OF ADB LOAN AND GRANT PROCEEDS

Table 4.1: Annual and Cumulative Disbursement of ADB Loan Proceedsa ($ million, except percentages as indicated)

Annual Disbursement Cumulative Disbursement

Year Amount % of Total Amount % of Total 2014 11.12 5.2 11.12 5.2 2015 49.47 23.2 60.59 28.5 2016 61.78 29.2 122.37 57.5 2017 45.60 21.4 167.97 78.9 2018 37.73 17.7 205.7 96.7 2019 7.10 3.3 212.8 100.0 Total 212.80 100.0

ADB = Asian Development Bank. Source: Asian Development Bank.

Figure 4.1: Projection and Cumulative Disbursement of ADB Loan Proceeds ($ million)

Notes: 1. Loan proceeds of $13.795 million were cancelled in October 2018. 2. Projections were revised in August 2015 and September 2017 as part of the loan extensions. 3. Projections were changed during cleanup of ADB’s e-Operations database in March 2014 and February

2016. Source: Asian Development Bank.

Appendix 5 21

CONTRACT AWARDS OF ADB LOAN AND GRANT PROCEEDS

Table 5.1: Annual and Cumulative Contract Awards of ADB Loan Proceeds ($ million, except percentages as indicated)

Annual Contract Awards Cumulative Contract Awards

Yeara Amount ($ million) % of Total

Amount ($ million) % of Total

2014 112.67 54.4 112.67 54.4 2015 43.33 20.9 156.00 75.3 2016 27.65 13.3 183.65 88.6 2017 17.47 8.4 201.12 97.1 2018 6.07 2.9 207.19 100.0 2019 0.00 0.0 207.19 100.0 Total 207.19 100.0

ADB = Asian Development Bank. a Classified by contract signing dates. Source: Asian Development Bank.

Figure 5.1: Projection and Cumulative Contract Awards of ADB Loan Proceeds ($ million)

Notes:

1. Loan proceeds of $13.795 million were cancelled in October 2018. 2. Projections were revised in August 2015 and September 2017 as part of the loan extensions. 3. Projections were changed during cleanup of ADB’s e-Operations database in March 2014 and February

2016. Source: Asian Development Bank.

22 Appendix 6

CHRONOLOGY OF MAIN EVENTS Date Event 24 October 2012 Periodic financing request from the borrower 7 December 2012 Periodic financing request report circulation to ADB management 14 December 2012 Approval of periodic financing request report by ADB management 9 September 2013 Signing of loan and project agreements 10 December 2013 Loan effectiveness 4–14 March 2014 Loan inception mission 19 March 2014 First contract awarded 25 May – 3 June 2015 Midterm loan review mission 22 October 2018 First partial cancellation of loan amount 12 August 2015 ADB approval for first loan extension by 13 months until 31 January 2018 and

inclusion of 10 subprojects against loan savings 20 September 2017 ADB approval for second loan extension by 5 months until 30 June 2018 and

inclusion of 12 subprojects against loan savings 30 June 2018 Loan closure 31 January 2019 End of winding up period 1 April 2019 Last financial transaction 22 April 2019 Second partial cancellation of loan amount and loan accounts closure Source: Asian Development Bank.

Appendix 7 23

STATUS OF COMPLIANCE WITH LOAN COVENANTS

Covenant

Reference in Loan

Agreement

Status of Compliance Section 3.01. (a) The Borrower shall relend the proceeds of the Loan to each DISCO under a Relending Agreement upon terms and conditions satisfactory to ADB. (b) The Borrower shall cause each DISCO to apply the proceeds of the Loan to the financing of expenditures on the Project in accordance with the provisions of this Loan Agreement and the Project Agreement.

LA, Article III Complied.

Section 3.02. The proceeds of the Loan shall be allocated and withdrawn in accordance with the provisions of Schedule 3 to this Loan Agreement, as such Schedule may be amended from time to time by agreement between the Borrower and ADB.

LA, Article III Complied.

Section 3.03. Except as ADB may otherwise agree, the Borrower shall procure, or cause to be procured, the items of expenditure to be financed out of the proceeds of the Loan in accordance with the provisions of Schedule 4 to this Loan Agreement. ADB may refuse to finance a contract where any such item has not been procured under procedures substantially in accordance with those agreed between the Borrower and ADB or where the terms and conditions of the contract are not satisfactory to ADB.

LA, Article III Complied.

Section 3.04. Except as ADB may otherwise agree, the Borrower shall cause all items of expenditure financed out of the proceeds of the Loan to be used exclusively in the carrying out of the Project.

LA, Article III Complied.

Section 3.05. The Loan Closing Date for the purposes of Section 9.02 of the Loan Regulations shall be 31 December 2016 or such other date as may from time to time be agreed between the Borrower and ADB.

LA, Article III Complied.

Section 4.01. (a) The Borrower shall cause each DISCO to carry out the Project with due diligence and efficiency and in conformity with sound applicable technical, financial, business, and development practices. (b) In the carrying out of the Project and operation of the Project facilities, the Borrower shall perform, or cause to be performed, all obligations set forth in Schedule 5 to this Loan Agreement and the Project Agreement.

LA, Article IV Complied.

Section 4.02. The Borrower shall make available, or cause to be made available, promptly as needed, the funds, facilities, services, land and other resources, as required, in addition to the proceeds of the Loan, for the carrying out of the Project.

LA, Article IV Complied.

Section 4.03. The Borrower shall ensure that the activities of its departments and agencies with respect to the carrying out of the Project and operation of the Project facilities are conducted and coordinated in accordance with sound administrative policies and procedures.

LA, Article IV Complied.

Section 4.04. The Borrower shall enable ADB's

representatives to inspect the Project, the Goods and Works, and any relevant records and documents.

LA, Article IV Complied.

Section 4.05. ADB shall disclose the annual audited financial statements for the Project and the opinion of the auditors on the financial statements within 30 days of the date of their receipt by posting them on ADB’s website.

LA, Article IV Complied.

Section 4.06. The Borrower shall take all actions which shall be necessary on its part to enable each DISCO to perform

LA, Article IV Complied.

24 Appendix 7

Covenant

Reference in Loan

Agreement

Status of Compliance its obligations under the Project Agreement, including the establishment and maintenance of tariffs as stipulated in paragraph 14 of Schedule 5 to this Loan Agreement, and shall not take or permit any action which would interfere with the performance of such obligations. Section 4.07. (a) The Borrower shall exercise its rights under the Relending Agreement in such a manner as to protect the interests of the Borrower and ADB and to accomplish the purposes of the Loan. (b) No rights or obligations under the Relending Agreement shall be assigned, amended, abrogated or waived without the prior concurrence of ADB.

LA, Article IV Complied.

Implementation Arrangements: The Borrower shall, and cause the DISCO to, ensure that the Project is implemented in accordance with the detailed arrangements set forth in the FAM. Any subsequent change to the FAM shall become effective only after approval of such change by the Borrower and ADB. In the event of any discrepancy between the FAM and this Loan Agreement or the Project Agreement, the provisions of this Loan Agreement or the Project Agreement shall prevail.

LA, Schedule 5, Para. 1

Complied. All DISCOs implemented the Project in accordance with the detailed arrangements set forth in the FAM. No changes were noted during the project implementation.

Environment: The Borrower shall, and shall cause the DISCO to, ensure that the preparation, design, construction, implementation, operation and decommissioning of each Subproject comply with (a) all applicable laws and regulations of the Borrower relating to environment, health, and safety; (b) the Environmental Safeguards; (c) the EARF; and (d) all measures and requirements set forth in the respective IEE and EMP, and any corrective or preventative actions set forth in a Safeguards Monitoring Report.

LA, Schedule 5, Para. 2

Complied. Provisions were made in the bidding documents related to environment, health, and safety. The EARF, and all environmental measures are set forth in the respective IEEs and EMPs, and mitigation measures are incorporated into the detailed design of the subprojects. Implementation of the EMP is monitored and evaluated internally. Biannual environmental reports were received on a regular basis and uploaded to the ADB website after review and endorsement.

Land Acquisition and Involuntary Resettlement: The Borrower shall, and shall cause DISCO to, ensure that all land and all rights-of-way required for each Subproject are made available to the Works contractor in accordance with the schedule agreed under the related Works contract and all land acquisition and resettlement activities are implemented in compliance with (a) all applicable laws and regulations of the Borrower relating to land acquisition and involuntary resettlement; (b) the Involuntary Resettlement Safeguards; (c) the LARF; and (d) all measures and requirements set forth in the respective LARP, and any corrective or preventative actions set forth in a Safeguards Monitoring Report. For the avoidance of doubt, the Borrower shall, and shall cause the DISCO to, ensure that no land is acquired for the purpose of any Subproject under the emergency acquisition provisions of the Borrower’s Land Acquisition Act 1894, as amended from time to time.

LA, Schedule 5, Para. 3

Complied. Sufficient funds were earmarked for implementation of LARP activities. During implementation, DISCOs ensured that notice for commencement of work was issued after payment to the affected persons. The implementation of the LARP was monitored and evaluated internally and externally by all DISCOs. LARPS were being updated as required and accordingly submitted to ADB for review and approval.

Without limiting the application of the Involuntary Resettlement Safeguards, the LARF or the LARP, the Borrower shall, and shall cause the DISCO to, ensure that no physical or economic displacement takes place in connection with any Subproject until:

LA, Schedule 5, Para. 4

Complied.

Appendix 7 25

Covenant

Reference in Loan

Agreement

Status of Compliance Indigenous Peoples: No impact on indigenous people is expected for the Project. However, if there is any such impact, the Borrower shall, and shall cause the DISCO to ensure, that it adheres to the applicable laws and regulations of the Borrower and the SPS.

LA, Schedule 5, Para. 5

Complied.

Human and Financial Resources to Implement Safeguards Requirements: The Borrower shall, and shall cause the DISCO to, make available necessary budgetary and human resources to fully implement the EMP and the LARP.

LA, Schedule 5, Para. 6

Complied. All DISCOs have provided adequate human and financial resources for full implementation of the EMP and LARP.

Safeguards – Related Provisions in Bidding Documents and Works Contracts: The Borrower shall, and shall cause the DISCO to, ensure that all bidding documents and contracts for Works contain provisions that require contractors to: (a) comply with the measures and requirements relevant to the contractor set forth in the IEE, the EMP and the LARP, and any corrective or preventative actions set out in a Safeguards Monitoring Report; (b) make available a budget for all such environmental and social measures; and (c) provide the Borrower with a written notice of any unanticipated environmental, resettlement or indigenous peoples risks or impacts that arise during construction, implementation or operation of a Subproject that were not considered in the IEE, the EMP or the LARP.

LA, Schedule 5, Para. 7

Complied. Safeguard provisions were part of the bidding and contract documents. During implementation of the project, all DISCOs assured (a) compliance with measures and requirements set forth in the IEEs, EMPs, and LARPs; (b) availability of the budget support; and (c) that all infrastructure will be brought to at least its pre-project condition upon completion of the subproject.

Conditions for Award of Contract: The Borrower shall not award any Works contracts for a Subproject which involves environmental impacts until the DISCO has incorporated the relevant provisions from the EMP into the Works contract.

LA, Schedule 5, Para. 7

Complied.

Safeguards Monitoring and Reporting: The Borrower shall, and shall cause the DISCO to, do the following: (a) submit quarterly Safeguards Monitoring Reports to ADB and disclose relevant information from such reports to affected persons promptly upon submission; (b) if any unanticipated environmental and/or social risks and impacts arise during construction, implementation or operation of a Subproject that were not considered in the IEE, the EMP or the LARP, promptly inform ADB of the occurrence of such risks or impacts, with detailed description of the event and proposed corrective action plan; and (c) report any actual or potential breach of compliance with the measures and requirements set forth in the EMP or the LARP promptly after becoming aware of the breach.

LA, Schedule 5, Para. 8

Complied. All DISCOs have made environmental management plans (EMPs) as part of contractual documents and assured they will (a) submit quarterly environmental and social monitoring reports, (b) promptly update ADB of any unanticipated risks during implementation and suggest corrective measures, and (c) report any actual or potential breach of compliance.

Subject to paragraph 9 of this Schedule, the Borrower shall not award any Works contract involving involuntary resettlement impacts for a Subproject until the DISCO has prepared and submitted to ADB the final LARP for such Subproject based on the Subproject’s detailed design and obtained ADB’s clearance of such LARP.

LA, Schedule 5, Para. 8

Complied.

26 Appendix 7

Covenant

Reference in Loan

Agreement

Status of Compliance The Borrower may award a contract for Works involving involuntary resettlement impacts for a Subproject prior to a final LARP for the Subproject having been submitted and cleared by ADB if the contract: (a) is of a ‘design and build’ type under which the design must be completed for the Subproject before the LARP is finalized; and (b) expressly provides that the build or construction phase (and commencement thereof) is conditional upon a final LARP for the Subproject based on the Subproject’s detailed design having been submitted to and cleared by ADB.

LA, Schedule 5, Para. 9

Complied.

Prohibited List of Investments: The Borrower shall, and shall cause the DISCO to, ensure that no proceeds of the Loan are used to finance any activity included in the list of prohibited investment activities provided in Appendix 5 of the SPS.

LA, Schedule 5, Para. 9

Complied. The loan amount was fully utilized for implementation of sub projects agreed for this project.

Labor Standards: The Borrower shall, and shall cause the DISCO to, ensure that the core labor standards and the Borrower’s applicable laws and regulations, including workplace occupational safety norms, are complied with during Project implementation. The DISCO shall include specific provisions in the bidding documents and contracts financed by ADB under the Project requiring that the contractors, other provider of goods and services and their subcontractors: (a) comply with the Borrower’s applicable labor law and regulations; (b) do not use child labor, within the meaning provided in Appendix 5 of the SPS; (c) provide equal opportunity and eliminate discrimination in relation to recruitment, compensation, working conditions and terms of employment for workers (including prohibiting any form of discrimination against women during hiring and providing equal pay for men and women for work of equal value; and to the extent possible, employing women and local people, including disadvantaged people, living in the Project Area, provided that the requirements for efficiency are adequately met); (d) do not use forced labor, within the meaning provided in Appendix 5 of the SPS; (e) allow freedom of association and effectively recognize the right to collective bargaining; and (f) disseminate, or engage appropriate service providers to disseminate, information on the risks of sexually transmitted diseases, including HIV/AIDS, to the employees of contractors engaged under the Project and to members of the local communities surrounding the Project Area, particularly females.

LA, Schedule 5, Para. 10

Complied. Provisions reflected in the bidding documents as well as contract documents. DISCOs confirmed (a) compliance with Borrower’s labor laws and regulations, (b) no child labor in any form, (c) provisions of equal opportunities without any discrimination, (d) no forced labor, (e) adherence to freedom of association and right to collective bargaining, and (f) protection of workers from potential exposure to sexually transmitted diseases.

The Borrower shall, and shall cause the DISCO to, monitor compliance with the labor standards and provide ADB with regular reports.

LA, Schedule 5, Para. 11

Complied.

ADB’s Review of Procurement Decisions: In the case a contract of Goods or Works, which is subject to ADB’s prior review, the Borrower shall seek ADB’s prior

LA, Schedule 5, Para. 12

Complied.

Appendix 7 27

Covenant

Reference in Loan

Agreement

Status of Compliance approval of any modification or waiver of the terms and conditions of the contract, including: a) granting an extension of the stipulated time for completion of a contract for a period of 1 month or more, or which is likely to require an extension of the Loan Closing Date; and b) increases in aggregate of the original price by more than 5% (for the avoidance of doubt, such increase shall take into account any previous change under such contract). Counterpart Support: The Borrower shall cause the DISCO to ensure the availability and timely release of counterpart funding for the timely implementation of the Subprojects.

LA, Schedule 5, Para. 12

Complied.

In the case of a contract for Goods or Works, which is subject to ADB’s post review, ADB shall review the required contract modification or waiver and respond to the Borrower as soon as practicable, but not later than 1 month after the receipt of the required document.

LA, Schedule 5, Para. 13

Complied.

The Borrower shall cause the DISCO to ensure that an accountant is appointed to each of their respective project management units within 6 months of the Effective Date.

LA, Schedule 5, Para. 13

Complied.

The Borrower shall provide to ADB copies of all time extensions, modifications or waivers to the contracts (including charge orders) within 1 month following amendment of the contract.

LA, Schedule 5, Para. 14

Complied.

Tariffs and DISCO’s Financial Performance: The Borrower shall ensure that the tariffs formulated for the DISCO are adequate to maintain the debt-service coverage ratio of at least 1.2 times, and a self-financing ratio of at least 20%, for fiscal year 2013 (i.e. from 1 July 2013 to 30 June 2014) onward. For the purpose of this paragraph, debt service coverage ratio means the division of free cash flow over annual debt service, as defined in ADB’s Financial Management and Analysis of Projects Guidelines (2006). Self-financing ratio means the division of cash from internal sources over average annual capital expenditures, expressed as a percentage, as defined in ADB’s Financial Management and Analysis of Projects Guidelines (2006).

LA, Schedule 5, Para. 14

Partially complied. Delay in tariff determination by NEPRA and its notification by the federal government contributed to partial compliance with financial sustainability ratios. Historically, DISCOs have generally complied with both or at least one ratio, mainly self-financing ratio (Appendix 10).

Governance and Anticorruption: The Borrower and the DISCO shall (a) comply with ADB’s Anticorruption Policy (1998, as amended to date) and acknowledge that ADB reserves the right to investigate directly, or through its agents, any alleged corrupt, fraudulent, collusive or coercive practice relating to the Project; and (b) cooperate with any such investigation and extend all necessary assistance for satisfactory completion of such investigation.

LA, Schedule 5, Para. 15

Complied. Provisions reflected in the bidding documents and contract documents.

The Borrower shall, and shall cause the DISCO to, ensure that the anticorruption provisions acceptable to ADB are included in all bidding documents and contracts, including provisions specifying the right of ADB to audit and examine the records and accounts of the executing and implementing agencies and all contractors, suppliers, consultants, and other service providers as they relate to the Project.

LA, Schedule 5, Para. 16

Complied. Provisions reflected in the bidding documents and contract documents.

28 Appendix 7

Covenant

Reference in Project

Agreement

Status of Compliance Section 2.08: (a) Each DISCO through PEPCO shall furnish to ADB all such reports and information as ADB shall reasonably request concerning (i) the Loan and the expenditure of the proceeds thereof; (ii) the items of expenditure financed out of such proceeds; (iii) the Project; (iv) the administration, operations and financial condition of the DISCO; and (v) any other matters relating to the purposes of the Loan. (b) Without limiting the generality of the foregoing, each DISCO through PEPCO shall furnish to ADB periodic reports on the execution of the Project and on the operation and management of the Project facilities. Such reports shall be submitted in such form and in such detail and within such a period as ADB shall reasonably request, and shall indicate, among other things, progress made and problems encountered during the period under review, steps taken or proposed to be taken to remedy these problems, and proposed program of activities and expected progress during the following period. (c) Promptly after physical completion of the Project, but in any event not later than 3 months thereafter or such later date as ADB may agree for this purpose, each DISCO shall prepare and furnish through PEPCO to ADB a report, in such form and in such detail as ADB shall reasonably request, on the execution and initial operation of the Project, including its cost, the performance by the DISCO of its obligations under this Project Agreement and the accomplishment of the purposes of the Loan.

PA, Para. 2 Complied. The requisite information was provided during the course of project implementation as and when required.

Section 2.09: (a) Each DISCO shall (i) maintain separate accounts and records for the Project; (ii) prepare annual financial statements for the Project in accordance with accounting principles acceptable to ADB; (iii) have such financial statements for the Project audited annually by independent auditors whose qualifications, experience and terms of reference are acceptable to ADB, in accordance with international standards for auditing or the national equivalent acceptable to ADB; (iv) as part of each such audit, have the auditors prepare a report (which includes the auditors’ opinion on the use of the Loan proceeds and compliance with the financial covenants of the Loan Agreement) and a management letter (which sets out the deficiencies in the internal control of the Project that were identified in the course of the audit, if any); and (v) furnish through PEPCO to ADB, no later than 6 months after the close of the fiscal year to which they relate, copies of such audited financial statements, audit report and management letter, all in the English language, and such other information concerning these documents and the audit thereof as ADB shall from time to time reasonably request. (b) ADB shall disclose the annual audited financial statements for the Project and the opinion of the auditors on the financial statements within 30 days of the date of their receipt by posting them on ADB’s website. (c) In addition to annual audited financial statements referred to in subsection (a) hereinabove, each DISCO shall (i) provide its annual financial statements prepared in

PA, Para. 2 Partially complied. Reference paras. 36 and 37 of this report.

Appendix 7 29

Covenant

Reference in Project

Agreement

Status of Compliance accordance with national accrual-based financing reporting standards acceptable to ADB; (ii) have its financial statements audited annually by independent auditors whose qualifications, experience and terms of reference are acceptable to ADB, in accordance with international standards for auditing or the national equivalent acceptable to ADB; and (iii) furnish through PEPCO to ADB, no later than 1 month after approval by the relevant authority, copies of such audited financial statements in the English language and such other information concerning these documents and the audit thereof as ADB shall from time to time reasonably request. (d) Each DISCO shall enable ADB, upon ADB's request, to discuss the financial statements for the Project and the DISCO and its financial affairs where they relate to the Project with the auditors appointed by the DISCO pursuant to subsections (a)(iii) and (c) hereinabove, and shall authorize and require any representative of such auditors to participate in any such discussions requested by ADB. This is provided that such discussions shall be conducted only in the presence of an authorized officer of the DISCO, unless the DISCO shall otherwise agree. Section 2.06: Each DISCO shall maintain, or cause to be maintained, records and accounts adequate to identify the items of expenditure financed out of the proceeds of the Loan, to disclose the use thereof in the Project, to record the progress of the Project (including the cost thereof) and to reflect, in accordance with consistently maintained sound accounting principles, its operations and financial condition.

PA, Para. 2 Complied.

ADB = Asian Development Bank, DISCO = distribution company, EARF = environmental assessment review framework, EMP = environmental management plan, FAM = facility administration memorandum, IEE = initial environmental examination, LA = loan agreement, LARF = land acquisition and resettlement framework, LARP = land acquisition and resettlement plan, PA = project agreement, PEPCO = Pakistan Electric Power Company, SPS = Safeguard Policy Statement.

30 Appendix 8

RE-ASSESSMENT OF ECONOMIC AND FINANCIAL ANALYSIS

A. Introduction

1. This appendix contains the economic and financial reevaluation of the Power Distribution Enhancement Investment Program—Tranche 31 in accordance with Asian Development Bank (ADB) guidelines for the economic analysis2 and financial analysis3 of projects. A total of 3,496 megavolt amperes (MVA) of transformer capacity and 1,213 kilometers (km) of power lines rated at 132 kV were added and commissioned as part of the project, thereby improving supply security for customers; moving towards compliance with regulatory security standards for governing, planning, and operating of the distribution system; and making reliability improvements at the lower voltages.

2. The methodology and assumptions adopted for reassessing the evaluation of the project generally follow those carried out at appraisal. The analysis quantifies the benefits and costs of the investment in economic terms and measures the net worth of the project to the country. B. Methods and Assumptions 3. The analysis—including to determine the revised economic internal rate of return (EIRR), financial internal rate of return (FIRR), and weighted average cost of capital (WACC)—is based on the streams of costs and benefits resulting from augmentation, extension, conversion, and rehabilitation of grids and secondary transmission grid lines, as well as from energy loss reduction. The streams of costs and benefits are set up as annual cash flows over the project life of 30 years and are then discounted back to their net present values. 4. Project costs and benefits were estimated by comparing with- and without-project scenarios. The without-project case assumes that distribution companies (DISCOs) are unable to supply electricity to customers in the designated areas due to losses, system constraints, and poor distribution and transmission network. It is assumed that without the project (i) system losses would not be reduced, (ii) DISCOs would not be able to provide electricity to new consumers, and (iii) transformer capacities would not be improved as a result of expanding and augmenting distribution facilities. C. Economic and Financial Benefits 5. Economic analysis uses economic prices that are referred to as shadow prices, and it focuses on the economic values of the project costs and benefits. The actual EIRR comes out to be 17.65% as against the projected EIRR of 19.9%, thus indicating the efficiency of the project. Deviation of the financial values from the economic values of project costs and benefits arises from two major sources: (i) price distortions that are often created by government interventions, such as taxes, subsidies, and price control, or by imperfect competition (monopoly); and (ii) non-marketed outputs. 6. Costs: The financial costs are converted to economic values by deducting taxes and duties, financing charges, and all price contingencies. Most subprojects were completed on a

1 ADB, 2008, Report and Recommendation of the President to the Board of Directors, Multitranche Financing Facility,

Islamic Republic of Pakistan, Power Distribution Enhancement Investment Program, Manila. 2 ADB. 2017. Guidelines for the Economic Analysis of Projects. Manila. 3 ADB. 2005. Financial Management and Analysis of Projects. Manila.

Appendix 8 31

turnkey basis, and costs of the labor component comprising skilled and local labor (semi- and unskilled and nontradable) are included in the project cost as fairly reflecting the economic opportunity cost. Labor in operations and maintenance costs was assumed to be skilled and nontradable, with wages fairly reflecting economic opportunity costs. The economic value of land used by the project was assumed to be zero, because this land was unlikely to be used for other purposes over the project’s life. Operation and maintenance costs were assumed to be 1.5% of the capital cost over the project period. The economic cost of the project is arrived at by following the system approach, and the cost of generating power is added. Because excess generation capacity exists, only the cost of generating power is added rather than to add the investment, operations, and maintenance cost of additional generation component. The average (variable) cost of fuel is considered in calculating the cost of generating power, because the capacity charges are fixed in nature and must be paid irrespective of generating power.

7. Benefits: All the benefits resulting from the project are incremental benefits, as it provides additional transformer capacity resulting in provision of electricity to new consumers. Further as a result of savings from reduced losses, the running of expensive plants required to meet the electricity requirements can be avoided. The project has (i) removed the constraints in the electricity distribution system, (ii) improved power quality, (iii) reduced losses, and (iv) increased the supply of electricity by expanding the distribution system and network.

8. Economic prices reflect the economic value of goods and services and provide important guidance in choosing public sector projects. Conceptually, economic prices can be defined as gain (or loss) in social welfare associated with consuming an additional unit of a commodity. Social welfare can be measured by the consumption of commodities or services available to society whether or not these are sold in a market. Thus, economic benefits of the project output comprise their contribution to increasing the consumption available to society. Economic costs of the project inputs reflect consumption sacrificed elsewhere by diverting resources to the project from another use. The value of the total net change in consumption available to society represents the project’s net economic impact. 9. Benefit Valuation: Economic analysis is conducted from the perspective of the entire economy and assesses the project’s impact on the welfare of all the country’s citizens. The power sector tariff is determined by an independent regulator, National Electric Power Regulatory Authority (NEPRA), and it is notified by the government while keeping in view the country’s socioeconomic aspects. Incremental outputs are valued at the average of the current NEPRA-determined tariff and the cost of an alternative energy source. That value is used as an approximation for willingness to pay. This approximation is applied to value benefits throughout the operating years and, to avoid overestimating benefits, without expected tariff increases. 10. Weighted average cost of capital: In estimating the WACC, it originally was assumed under the government’s periodic financing request that ADB would finance 80% of subproject costs. Actual spending shows that ADB contributed 90% of the total cost incurred. In calculating the revised WACC, the same parameters were used as at appraisal. The government relent the funds in rupee loans to Pakistan Electric Power Company (PEPCO) and DISCOs at 15%, in accordance with the Tranche 3 on lending agreement and the government notification. Foreign exchange risk was not, therefore, borne by PEPCO and DISCOs. The balance was financed through self-generated funds (equity). Consistent with the rate of return allowed for independent power producers, 15% was assumed as the nominal cost of the equity contribution. The revised WACC worked out to 6.72% based on the actual financing mix, current inflation rate, and other parameters. DISCOs are not subject to corporate tax inasmuch as their latest financial statements show accumulated losses due to nonrecovery of their full costs.

32 Appendix 8

11. Standard conversion factor: Individual project items can be valued at their individual economic prices For ease of calculation, however, economic values of project outputs and inputs can be derived from the financial values using conversion factors. The financial cost is converted to economic values by deducting taxes and duties, financing charges, and price contingencies. D. Economic Analysis 12. The economic analysis is simplified by evaluating the impact of reducing transmission and distribution (T&D) losses (132 kV and 11 kV) of DISCOs during the period FY2014 to FY2018. It is also assumed that one-third of the benefits accrued as a result of reducing T&D losses of DISCOs can be attributed to this project. The energy received by DISCOs at 132 kV in 2014, the first year after major project expenditures, was 82,926 GWh, whereas the energy received by DISCOs at 132 KV in 2018 was 106,139 GWh. The energy transferred from 132 KV to 11 KV was 81,016 GWh in 2014 and 104,094 GWh in 2018. This indicates the net T&D loss was reduced from 2.3% to 1.93% and the annual average reduction was 0.09%. It is assumed that the project will not only continue this 0.09% reduction rate throughout the remaining period but that it also will help in controlling the increase in T&D losses due to projected growth in sales to the extent of 9.8% per annum. In line with ADB economic analysis guidelines, a period of 20–30 years is used for evaluation purposes. 13. Because there have been significant supply constraints in the system, most of the increased supply due to the reduction in losses is assumed to be incremental and valued at the average of the current NEPRA-determined tariff and the cost of an alternative energy source.

14. The average of the current NEPRA-determined tariff for DISCOs and the cost of an alternate energy source is used as a proxy for willingness to pay. The NEPRA-determined tariff is held constant despite that the tariff may rise significantly in the future due to changes in operating costs, inflation, rates of return, and the power purchase price, the impact of which will be passed on to consumers through NEPRA tariff determination under the NEPRA tariff methodology.4 It is assumed that sales will grow by 9.8% per annum inasmuch as the project will help in improving the available units for sale and the generation capacity is being enhanced by the government. A National Transmission and Despatch Company analysis forecasts demand to peak at 145,304 megawatts by 2030, thus indicating a growth rate of around 9.3%.5

15. The economic analysis at appraisal worked out to an EIRR of 19.9% while assuming oil prices in the willingness-to-pay scenario of $40/barrel. At the time of appraisal, the tariff methodology did not allow for passing the impact of changing oil prices to consumers on a monthly basis. Under the current methodology, however, any changes in fuel prices are passed on to the consumers on a monthly basis and NEPRA is authorized to notify such changes. Based on this, the consumer’s willingness to pay is set at the NEPRA-determined tariff.

16. The project will help customers receive reliable and quality power supply. It reduced line losses, expanded network capacity, and extended access to electricity. Incremental benefits are associated with increased electricity consumption by both new and existing customers.

17. Analysis of the increase in new customer connections reveals that during the period FY2014 to FY2018 5,383,825 new consumers were added, reflecting a compound annual growth

4 NEPRA. 2015. Guidelines for Determination of Consumer End (Tariff Methodology and Process). Islamabad. 5 NTDC Electricity Demand Forecast based on regression analysis (2008-2030)

Appendix 8 33

rate of 15%. During the period FY2009 to FY2012, 2,563,591 new connections had been provided, reflecting a compound annual growth rate of around 13%.6

18. Actual project progress shows that 3,496 MVA was added to the power distribution system and resulted in additional electricity generation. While calculating the economic benefits as a result of adding new power, a load factor of 60% and power factor of 85% are assumed.

19. Other nonquantifiable benefits: In issuing its Performance Standards (Distribution Rules) in 2005, NEPRA allowed DISCOs a period of 4 years for improving their networks and ensuring compliance with these rules. The project has contributed significantly to improving the distribution system and enabling DISCOs to comply with these rules.

20. Reduction in distribution losses due to energy loss reduction program: The project also included implementation of energy loss reduction schemes. These schemes’ impacts in reducing distribution losses are not included into the benefit cash flows for economic evaluation.

21. EIRR: The analysis based on the cost and benefit assumptions as given above results in an EIRR of 17.65%. That compares to the 19.9% calculated at appraisal (Table A1).

6 Source: National Electric Power Regulatory Authority. 2010–2017. State of Industry Report(s). Islamabad.

34 Appendix 8

Table A8.1: Summary of Economic Internal Rate of Return Calculations for Distribution Enhancement Improvement Project—Tranche 3

Year Cost (Rs million) Benefits (Rs million) Net Benefits (Rs million) 2014 21 (21) 2015 2,921 (2,921) 2016 7,368 (7,368) 2017 5,904 (5,904) 2018 5,862 (5,862) 2019 2,556 (2,565) 2020 3,985 10,051 6,065 2021 4,004 10,102 6,098 2022 4,024 10,158 6,134 2023 4,046 10,220 6,173 2024 4,070 10,287 6,216 2025 4,097 10,362 6,264 2026 4,127 10,443 6,316 2027 4,159 10,553 6,374 2028 4,194 10,631 6,437 2029 4,233 10,740 6,506 2030 4,276 10,858 6,582 2031 4,233 10,989 6,665 2032 4,276 11,132 6,757 2033 4,431 11,289 6,857 2034 4,494 11,462 6,968 2035 4,562 11,652 7,089 2036 4,637 11,860 7,223 2037 4,719 12,089 7,369 2038 4,810 12,340 7,530 2039 4,909 12,616 7,706 2040 5,018 12,919 7,900 2041 5,138 13,251 8,113 2042 5,270 13,617 8,346 2043 5,414 14,018 8,603 Economic net present value: Rs9,552 million Economic internal rate of return: 17.65%

22. Sensitivity analysis (Table A8.2) also shows continuing strong economic viability even when benefits are reduced by 10%, and/or costs are increased by 10%. Some downward movement in benefits or increase in cost would not significantly impact the economic viability of the project. ADB’s minimum required EIRR is 9% (footnote 2). Even if the cost is increased by 10% and benefits are reduced by 10%, the EIRR still remains above the economic opportunity cost.

Table A8.2: Sensitivity Analysis

Case EIRR (%) ENPV

Rs (Million) Base Case 17.65 9,552 Benefits Reduced by 10% 15.55 5,619 Cost increased by 10% 15.33 4,766 Benefits reduced by 10% and cost increased by 10% 13.24 1,857

EIRR = economic internal rate of return, ENPV = economic net present value.

Appendix 8 35

E. Financial Analysis 23. The purpose of the financial evaluation is to assess the ability of the project to generate adequate incremental cash flows to recover the financial cost (capital and recurrent cost) without external support. Financial analysis of the project is based on the incremental financial cash flows and cost. It shows an actual FIRR at completion comes of 22.34% versus 9.9% at appraisal, thus indicating the financial sustainability of the project (Table A8.3). Table A8.3: Summary of Financial Internal Rate of Return Calculations for Distribution

Enhancement Improvement Project—Tranche 3 Year Cost (Rs Million) Benefits (Rs Million) Net Benefits (Rs Million) 2014 21 (21) 2015 2,921 (2,921) 2016 7,496 (7,496) 2017 5,973 (5,973) 2018 6,162 (6,162) 2019 2,556 (2,556) 2020 377 8,935 8,559 2021 377 8,980 8,604 2022 377 9,030 8,654 2023 377 9,085 8,709 2024 377 9,145 8,769 2025 377 9,212 8,835 2026 377 9,284 8.908 2027 377 9,364 8,988 2028 377 9,452 9,075 2029 377 9,548 9,171 2030 377 9,653 9,277 2031 377 9,769 9,393 2032 377 9,897 9,520 2033 377 10,036 9,660 2034 377 10,190 9,814 2035 377 10,359 9,982 2036 377 10,544 10,167 2037 377 10,747 10,371 2038 377 10,971 10,594 2039 377 11,216 10,839 2040 377 11,485 11,109 2041 377 11,781 11,405 2042 377 12,106 11,729 2043 377 12,463 12,086 Financial internal rate of return 22.34% Financial net present value Rs 19,703 million

F. Conclusion 24. Reassessing economic feasibility based on the project’s benefits from reducing losses, adding 3,496 MVA of capacity, and connecting new consumers reaches an EIRR of 17.65% versus the 19.9% estimated at appraisal. This indicates the project’s economic viability and efficiency and establishes the need for subprojects to improve system reliability, efficiency, and supply quality. An FIRR higher than at appraisal also indicates the project’s long-run financial sustainability. Sensitivity analysis further strengthens the view on economic viability, as reasonably smaller benefits and/or higher costs would not significantly impact the viability.

36 Appendix 9

LIST OF SUBPROJECTS

Project No. Project Description

Scope of Work

Installed Capacity

(MVA)

Addition in System

(km) Commiss-

ioning Date A. FESCO A.1 Subprojects 1. 132/11 kV G/S Faisalabad New

substation 40x2 0

26/10/2018

2. 132/11 kV G/S Shahbaz Khel Mianwali

New substation

13x2 0 24/12/2017

3. 66/11 kV G/S 18 Hazari Conversion 26x2 0 15/06/2017 4. 66/11 kV G/S GM Raja Conversion 39x1 0 10/10/2017 5. 66/11 kV G/S Rakh Dagran Conversion 39x1 0 08/04/2016 6. 66/11 kV G/S Kala Bagh Conversion 13x2 0 19/09/2017 7. 132 kV Grid TT Singh to HB Shah Double circuit

transmission line

0 60 14/06/2017

8. 132 kV Piplan Bhakkar in and out (F/F Rakh Dagran)

Double circuit transmission line

0 3 08/04/2016

9. 132 kV HB Shah - 18 Hazari (F/F 18 Hazari)

Double circuit transmission line

0 30 14/06/2017

10. 132 kV Hydropower - 220 kV Kala Bagh

Double circuit transmission line

0 5 10/07/2016

11. 132 kV D/C 18 Hazari- GM Raja Single and double circuit (towers)

0 45 10/03/2017

Subtotal (A) 262 143 B. GEPCO B.1 Subprojects 12. 66/11 kV G/S Malikwal Conversions 26x2 0 02/09/2018 13. 66/11 kV G/S Head Marala Conversions 26x2 0 21/07/2017 14. 66/11 kV G/S Siranwali Conversions 26x2 0 19/08/2017 15. 66/11 kV G/S Daska Conversions 26x3 0 11/03/2017 Subtotal (B) 234 0 C. HESCO C.1 Subprojects 16. New Matli New

substation 26x1 0 06/09/2017

17. 66/11 kV G/S TG Ali Conversion 26x1 0 06/10/2017 18. 66/11 kV G/S Digri Conversion 26x1 0 06/10/2017 19. 66/11 kV G/S T. Jan Muhammad Conversion 26x1 0 06/10/2017 20. TM Khan 132 kV new Matli (Feed

for New Matli) Double circuit transmission line

0 2 06/10/2017

21. 132 kV new TG Ali-New Matli (Feed for New Matli)

Single and double circuit (towers)

0 30 06/10/2017

22. TG Ali 132 kV Digri (Feed for TJM) Single and double circuit (towers)

0 31 06/10/2017

23. 132 kV Digri 132kV T Jan Muhammad (Feed for TJM)

Single and double circuit (towers)

0 20 06/10/2017

24. 132 kV TJM - 132 kV Noukot Single and double circuit (towers)

30 19/11/2018

Appendix 9 37

25. 220/132 kV Hala Road - Hala - Sakrand

Single and double circuit (towers)

0 65 97% work completed.

Completion by August 2019.

26. 220/132 kV Hala Road Extension bay 0 0 95% work completed.

Completion by August 2019.

27. 132 kV G/S Hala Extension bay 0 0 12/04/2019 28. 132kV G/S Noukot Extension bay 0 0 19/11/2018 C.2 Subprojects from Savings 29. Procurement Of 132 kV Grid Station

Equipment Goods 0 0 18/09/2018

30. 132 kV G/S Thatta Augmentation 26x1 0 23/01/2019 31. 132 kV G/S Sehwan Augmentation 26x1 0 28/02/2019 32. 132 kV G/S Gulshan-e-Shebaz Augmentation 26x1 0 15/10/2018 33. 132 kV G/S Matiari Augmentation 26x1 0 16/05/2018 34. 132 kV G/S Daur Augmentation 26x1 0 24/12/2018 35. 132 kV G/S Umerkot Augmentation 26x1 0 28/02/2019 36. 132 kV G/S Saeedabad Augmentation 26x1 0 02/01/2019 37. 132 kV G/S Badin Extension 26x1 0 15/02/2018 Subtotal (C) 312 178 D. IESCO D.1 Subprojects 38. 132/11 kV G/S Chakri Road New

substation 26x2 0 Expected

completion by 30/09/2019.

39. 132/11 kV G/S Bhara Kahu New substation

26x2 0 Expected completion by

30/09/2019. 40. 132/11 kV G/S Sangjani New

substation 26x2 0 Expected

completion by 30/09/2019.

41. Replacement of Sangjani Zero point Line with new Double Circuit

Double circuit transmission line

0 28 27/03/2017

42. Feed for Bara Kahu GS Double circuit transmission line

0 0.5 Expected completion by

30/09/2019. 43. Feed from chakri Road GS for

Adyala Double circuit transmission line

0 10 Expected completion by

30/09/2019. 44. Feed for 132 kV Sangjani-2 GS Double circuit

transmission line

0 2 29/01/2019

45. KTM- Chakri Road T/Line (old) I-16-Chakri Road T/Line (New)

Double circuit transmission line

0 10 Expected completion by

30/09/2019. 46. Replacement of Burhan N/Wah Cct1

& 2 Double circuit transmission line – (goods)

0 13 20/02/2017

47. Replacement of existing New Rewat - Sowan

Double circuit transmission line – (goods)

0 12 25/05/2016

48. In and Out Construction at Chakri 132 kV substation

Double circuit transmission line – (goods)

0 22 28/11/2015

49. 132/11 kV G/S Rajjar Extension bay 26x1 0 16/11/2016 50. 132/11 kV G/S Fateh Jang Extension bay 26x1 0 04/12/2016 51. 132/11 kV G/S F-11 Extension bay 26x1 0 29/09/2016 52. 132/11 kV G/S Sowan Extension bay 26x1 0 24/09/2016

38 Appendix 9

53. 132/11 kV G/S Kamalabad (T2 and T3)

Augmentation 40x2 0 21/08/2016 & 16/12/2016

54. 132/11 kV G/S KTM (T3) Augmentation 40x1 0 03/09/2016 55. 132/11 kV G/S New Wah (T2) Augmentation 40x1 0 26/12/2016 56. 132/11 kV G/S Jehlum (T1) Augmentation 40x1 0 26/11/2016 57. 132/11 kV G/S Cantt Repco (T1) Augmentation 40x1 0 24/11/2016 58. 132/11 kV G/S Zero point (T2) Augmentation 40x1 0 31/12/2016 59. 132/11 kV G/S I-10 (T2) Augmentation 40x1 0 01/12/2016 60. 132/11 kV G/S I-8 (T2) Augmentation 40x1 0 11/12/2016 61. 132/11 kV G/S Chaklala Augmentation 40x1 0 25/08/2016 Subtotal (D) 660 97.5 E. LESCO E.1 Subprojects 62. 132/11 kV G/S Fruit Market New

substation 40x2 0 10/09/2018

63. 132/11 kV G/S DHA Phase 8, Sector-T (New name) Barki-DHA Phase 6 (Old name)

New substation

26x2 0 Expected commissioning by June 2019.

64. 132/11 kV G/S Sadhoki (Audit and Accounts Society)

New substation

26x2 0 Grid station work is

completed on 29/01/2018,

necessary tests carried out, but final

commissioning is pending due to ROW issues

with line. 65. 132/11 kV G/S DHA 7 (Dera

Chahel) New substation

26x2 0 10/11/2018

66. 132/11 kV G/S DHA Phase 8, Sector-T (New name) Barki-DHA Phase 6 (Old name)

Double circuit transmission line

0 0.2 Expected commissioning

by June 2019 67. 132 kV Barki DHA Phase 7 (Number

2) Double circuit transmission line

0 5 10/11/2018

68. 132 kV Fruit Market to Kahna WAPDA town

Double circuit transmission line

0 0.1 10/09/2018

69. 132 kV Sadhoki - Kahna Double circuit transmission line

0 5 Transmission Line pending due to ROW

issue. 70. 132/11 kV G/S Sharaqpur Road

SKP (T2) Extension bay 26x1 0 22/04/2016

71. 132/11 kV G/S Kasur New (T-3) Extension bay 26x1 0 25/04/2016 72. 132/11 kV G/S Depalpur (T-4) Extension bay 26x1 0 05/05/2016 73. 132/11 kV G/S Warburton (T-3) Extension bay 26x1 0 05/12/2016 74. 132/11 kV G/S Fort (T1 and T2) Augmentation 40x2 0 19/04/2016 75. 132/11 kV G/S Khuddian (T1,2 and

3) Augmentation 40x3 0 27/03/2016,

13/07/2017, 21/08/2017

76. 132/11 kV G/S Shahdara New (T2 and T3)

Augmentation 40x2 0 17/03/15 & 12/4/16

77. 132/11 kV G/S SKP (T1, 2 and 3) Augmentation 40x3 0 23/3/16, 03/11/15,

21/03/2017 78. 132/11 kV G/S Farooqabad (T1, 2

and 3) Augmentation 40x3 0 28/10/2015,

19/07/2017, 01/04/2018

Appendix 9 39

E.2 Subprojects from Savings 79. Construction of New 132 kV Double

Circuit Underground Cable (220 kV Shalamar GIS – 132 kV Shalamar –II Grid Station)

Transmission lines

0 0.5 Completion expected by

Jul 2019

80. Procurement of maintenance bucket mounted cranes and cranes with winch machines

Goods 0 0 Tender scrapped.

Rebidding was conducted and evaluation was delayed due to

which subproject was

cancelled Subtotal (E) 860 10.8 F. MEPCO F.1 Subprojects 81. 132/11 kV G/S Mubarakpur New

substation 13x2 0 13/01/2017

82. 132/11 kV G/S Chuna Wala New substation

13x1 0 14/07/2017

83. 66/11 kV Chak 83/12 -L Conversion 26x2 0 30/06/2016 84. 66/11 kV Dharan Wala Conversion 13x2 0 11/11/2016 85. 66/11 kV Faqir Wali Conversion 39x1 0 23/01/2017 86. 66/11 kV Fort Abbas Conversion 39x1 0 28/02/2017 87. 66/11 kV Shah Sadar Conversion 39x1 0 28/07/2017 88. 220kV B/pur-Ahmadpur East, Feed

to Mubarikpur Double circuit transmission line

0 2 06/01/2016

89. In/out from 132 kV Khanewal - Kassowal Line

Single and double circuit (towers)

0 23 30/06/2016

90. 132 kV Chishtian - Dharanwala Single and double circuit (towers)

0 30 10/09/2016

91. 132 kV Haroonabad - Faqirwali Single and double circuit (towers)

0 25 16/01/2017

92. 132 kV Faqir Wali - Fort Abbas Single and double circuit (towers)

0 32 xxx

93. 132 kV D.G Khan-II - Shah Sadar din

Single and double circuit (towers)

0 33.2 30/06/2017

94. 132 kV Hasilpur - Chunnawala Single circuit transmission line

0 26 09/10/2017

95. 132/11 kV Lodhran Augmentation 40x1 0 30/08/2016 96. 132/11 kV Bahawalpur Augmentation 40x1 0 03/04/2017 97. 132/11 kV Burewala Old Augmentation 26x1 0 19/10/2016 F.2 Subprojects from Savings 98. 66/11 kV Yazman grid station Conversion 26x1 0 11/05/2018 99. 132kV Yazman grid station Single circuit

transmission line

0 16 31/01/2018

Subtotal (F) 340 187.2 G. PESCO G.1 Subprojects 100. 132 kV Taru Jaba New

substation 26x2 0 25/01/2016

40 Appendix 9

101. 132 kV PESCO Colony Sakhi Chashma (AIS)

New substation

26x2 0 23/10/2018

102. 66/11 kV Kulachi Conversion 26x1 0 02/07/2018 103. 66/11 kV Daraban Conversion 26x1 0 13/12/2018 104. 132/11 kV G/S Feed for Kulachi Double circuit

transmission line

0 15 02/07/2018

105. 132/11 kV G/S Feed for Daraban Single and double circuit (towers)

0 25 13/12/2018

106. 132/11 kV G/S Dalazak Extension bay 26x1 0 21/01/2016 107. 132/11 kV G/S Karak Extension bay 26x1 0 06/03/2016 108. 132/11 kV G/S Tank Extension bay 26x1 0 24/09/2016 109. 132/11 kV G/S Hussai Extension bay 26x1 0 05/06/2016 110. 132/11 kV G/S Timergara Extension bay 26x1 0 08/11/2016 111. 132/11 kV G/S Rehman Baba Augmentation 40x1 0 03/05/2016 112. 132/11 kV G/S Swabi Augmentation 40x1 0 30/03/2016 113. 132/11 kV G/S Bannu Augmentation 40x1 0 16/09/2015 114. 132/11 kV G/S D.I. Khan Augmentation 40x1 0 28/08/2015 115. 132/11 kV G/S Kotla Town Kohat Augmentation 40x1 0 11/06/2015 116. 132/11 kV G/S Jalala Augmentation 40x1 0 12/11/2015 117. 132/11 kV G/S Jehangira Augmentation 26x1 0 24/04/2015 132/11 kV G/S Batal Augmentation 26x1 0 05/05/2015 118. G.2 Subprojects from Savings 119. 132/11kV Daggar Augmentation 40x1 0 02/05/2017 120. 132/11kV Mardan-II Augmentation 40x1 0 121. 132/11kV Ddargai Augmentation 40x1 0 28/04/2017 122. Procurement Of 132 kV Grid Station

Equipment Goods 0 0

29/06/2018

Subtotal (G) 658 40 H. QESCO H.1 STG Projects 123. Khuzdar - Quetta Industrial Double circuit

transmission line

0 209 28/06/2017

124. Loralai - Quetta Double circuit transmission line

0 267 10/06/2018

H.2 Subprojects from Savings 125. Dera Murad Jamali Conversion

along with T/L 26x2 17 30/05/2018

126. 66/11 kV G/S Usta Muhammad Conversion along with T/L

39x1 31 03/08/2018

127. 66/11 kV G/S Jhal Magsi Conversion along with T/L

39x1 90 19/09/2018

128. 66/11 kV G/S Rojhan Jamali Conversion along with T/L

39x1 32 6/06/2018

Subtotal (H) 169 556 FESCO = Faisalabad Electric Supply Company, GEPCO = Gujranwala Electric Power Company, HESCO = Hyderabad Electric Supply Company, IESCO = Islamabad Electric Supply Company, kV = kilovolt, LESCO = Lahore Electric Supply Company, MEPCO = Multan Electric Power Company, PESCO = Peshawar Electric Supply Company, QUESCO = Quetta Electric Supply Company, ROW = right-of-way.

Appendix 10 41

STATUS OF AEFS AND APFS

Table A10.1: Status of APFS

DISCO Required Submitted Deferreda Pending for FY2019b

FESCO 6 4 1 1 GEPCO 6 4 1 1 HESCO 6 4 1 1 IESCO 6 4 1 1 LESCO 6 4 1 1 MEPCO 6 4 1 1 PESCO 6 4 1 1 QESCO 6 4 1 1 Total 48 32 8 8

DISCO = distribution company a Deferred because of nil expenditure for all DISCOs in FY2014 b Due on 31 December 2019

Table A10.2: Status of AEFS

DISCO Required Submitted Not Submitteda Pending for

FY2019b

FESCO 6 5 1 GEPCO 6 4 1 1 HESCO 6 5 1 IESCO 6 5 1 LESCO 6 1 4 1 MEPCO 6 5 1 PESCO 6 5 1 QESCO 6 4 1 1 Total 48 34 6 8

DISCO = distribution company a Audit is in progress b Due on 31 December 2019

Table A10.3: Financial Ratios Compliance by DISCOs

DISCO FY2017a FY2018b

DSCRc SFRd Compliance DSCRc SFRd Compliance

FESCO NA NA NA 4.40 141% Complied GEPCO NA NA NA 1.63 103% Complied HESCO NA NA NA (0.16) 48% Partially complied IESCO 0.14 99% Partially complied (0.06) 106% Partially complied LESCO NR NR NR NR NR NR MEPCO 0.41 34% Partially complied 1.23 62% Complied PESCO NA NA NA (0.02) 70% Partially complied QESCO (2.95) -325% Not complied NA NA NA

DISCO = distribution company DSCR = debt service coverage ratio NA = not available since auditors did not express separate opinion on financial covenants NR = not received SFR = self-financing ratio a Based on auditor’s opinion on financial ratios as per ISAE3000 b Based on Asian Development Bank estimates c Debt service coverage ratio: calculated as free cash flow divided by annual debt service d Self-financing ratio: calculated as cash from internal sources divided by average annual capital expenditures