W O R L D B A N K O P E R A T I O N S E V A L U A T I O N D E P A R T M E N T THE WORLD BANK I F C O P E R A T I O N S E V A L U A T I O N G R O U P M I G A O P E R A T I O N S E V A L U A T I O N U N I T Power for Development A Review of the World Bank Group's Experience with Private Participation in the Electricity Sector OED PUBLICATIONS Study Series 2002 Annual Review of Development Effectiveness--Achieving Development Outcomes: The Millennium Challenge Agricultural Extension: The Kenya Experience Agricultural Extension and Research: Achievements and Problems in National Systems Assisting Russia's Transition: An Unprecedented Challenge Bangladesh: Progress Through Partnership Bridging Troubled Waters: Assessing the World Bank Water Resources Strategy Debt Relief for the Poorest: An OED Review of the HIPC Initiative Developing Towns and Cities: Lessons from Brazil and the Philippines The Drive to Partnership: Aid Coordination and the World Bank Financial Sector Reform: A Review of World Bank Assistance Financing the Global Benefits of Forests: The Bank's GEF Portfolio and the 1991 Forest Strategy and Its Implementation Fiscal Management in Adjustment Lending IDA's Partnership for Poverty Reduction India: The Challenges of Development India: The Dairy Revolution Information Infrastructure: The World Bank Group's Experience Investing in Health: Development Effectiveness in the Health, Nutrition, and Population Sector Lesotho: Development in a Challenging Environment Mainstreaming Gender in World Bank Lending: An Update The Next Ascent: An Evaluation of the Aga Khan Rural Support Program, Pakistan Nongovernmental Organizations in World Bank­Supported Projects: A Review Paddy Irrigation and Water Management in Southeast Asia Poland Country Assistance Review: Partnership in a Transition Economy Poverty Reduction in the 1990s: An Evaluation of Strategy and Performance Promoting Environmental Sustainability in Development Reforming Agriculture: The World Bank Goes to Market Social Funds: Assessing Effectiveness Uganda: Policy, Participation, People The World Bank's Experience with Post-Conflict Reconstruction The World Bank's Forest Strategy: Striking the Right Balance Zambia Country Assistance Review: Turning an Economy Around Evaluation Country Case Series Bosnia and Herzegovina: Post-Conflict Reconstruction Brazil: Forests in the Balance: Challenges of Conservation with Development Cameroon: Forest Sector Development in a Difficult Political Economy China: From Afforestation to Poverty Alleviation and Natural Forest Management Costa Rica: Forest Strategy and the Evolution of Land Use El Salvador: Post-Conflict Reconstruction India: Alleviating Poverty through Forest Development Indonesia: The Challenges of World Bank Involvement in Forests Uganda: Post-Conflict Reconstruction Proceedings Global Public Policies and Programs: Implications for Financing and Evaluation Lessons of Fiscal Adjustment Lesson from Urban Transport Evaluating the Gender Impact of World Bank Assistance Evaluation and Development: The Institutional Dimension (Transaction Publishers) Evaluation and Poverty Reduction Monitoring & Evaluation Capacity Development in Africa Public Sector Performance--The Critical Role of Evaluation Multilingual Editions Allègement de la dette pour les plus pauvres : Examen OED de l'initiative PPTE Appréciation de l'efficacité du développement : L'évaluation à la Banque mondiale et à la Société financière internationale Determinar la eficacia de las actividades de desarrollo : La evaluación en el Banco Mundial y la Corporación Financiera Internacional Côte d'Ivoire : Revue de l'aide de la Banque mondiale au pays Filipinas: Crisis y oportunidades Reconstruir a Economia de Moçambique : http://www.worldbank.org/oed W O R L D B A N K O P E R A T I O N S E V A L U A T I O N D E P A R T M E N T I F C O P E R A T I O N S E V A L U A T I O N G R O U P M I G A O P E R A T I O N S E V A L U A T I O N U N I T Power for Development A Review of the World Bank Group's Experience with Private Participation in the Electricity Sector Fernando Manibog Rafael Dominguez Stephan Wegner 2003 The World Bank Washington, D.C. International Finance Corporation Washington, D.C. http://www.worldbank.org/oed Multilateral Investment Guarantee Agency http://www.ifc.org/oeg Washington, D.C. © 2003 The International Bank for Reconstruction and Development / The World Bank 1818 H Street, NW Washington, DC 20433 Telephone 202-473-1000 Internet www.worldbank.org E-mail feedback@worldbank.org All rights reserved Manufactured in the United States of America First edition December 2003 The findings, interpretations, and conclusions expressed here are those of the author(s) and do not necessarily reflect the views of the Board of Executive Directors of the World Bank or the governments they represent. The World Bank cannot guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in the work do not imply on the part of the World Bank any judgment of the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The World Bank encourages dissemination of its work and will normally grant permission promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA, telephone 978-750-8400, fax 978-750-4470, www.copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, World Bank, 1818 H Street NW, Washington, DC 20433, USA, fax 202-522-2422, e-mail pubrights@worldbank.org. Cover photo: World Bank Photo Library. ISBN 0-8213-5693-3 e-ISBN 0-8213-5694-1 Library of Congress Cataloging-in-Publication Data Manibog, Fernando Reyes. Power for development: a review of the World Bank Group's experience with private participation in the electricity sector / Fernando Manibog. p. cm. -- (Operations evaluation studies) Includes bibliographical references. ISBN 0-8213-5693-3 1. Electric utilities. 2. Electric utilities--Deregulation. 3. Privatization. 4. Economic development projects-- Evaluation. 5. World Bank Group. I. Title. II. World Bank operations evaluation study. HD9685.A2M25 2003 333.793'2--dc22 2003064618 World Bank InfoShop Operations Evaluation Department E-mail: pic@worldbank.org Partnerships & Knowledge Programs (OEDPK) Telephone: 202-458-5454 E-mail: eline@worldbank.org Facsimile: 202-522-1500 Telephone: 202-458-4497 Facsimile: 202-522-3125 Printed on Recycled Paper Contents vii Acknowledgments ix Foreword, Prólogo, Avant-Propos xiii Summary, Résumen, Résumé Analytique xxxv Abbreviations and Acronyms 1 1. Overview: Private Sector Development in the Electric Power Sector 1 The Current Sector Environment 2 The Role of the World Bank Group in the 1990s 3 Evaluation Objective and Framework 7 2. PSDE Objectives and Instruments 11 3. Project Results 11 Bank Involvement: Reforming Power Sectors and Mainstreaming PSDE 19 IFC: Supporting Private Investments in Electric Power Generation 27 MIGA: Mitigating the Political Risk to Private Investors 31 4. Sector-Level PSDE Outcomes 32 Promoting Private Sector Involvement 37 Macrofiscal Balancing: Reducing the Power Sector's Burden on Public Resources 39 Helping the Poor Directly 40 Protecting the Environment 43 5. Cross-Cutting Findings 43 Toward Better-Designed Interventions 54 Toward Improving WBG Processes 57 6. Recommendations Annexes 61 Annex A: Methodology and Instruments 67 Annex B: World Bank Group PSDE Portfolio-at-a-Glance i i i P O W E R F O R D E V E L O P M E N T 68 Annex C: Trends in PSDE Objectives in the Bank's Portfolio 69 Annex D: Ratings of Freestanding Projects and Projects with PSDE Components 76 Annex E: Analysis of the Performance of Freestanding PSDE Projects and Projects with PSDE Components 78 Annex F: IFC Advisory Operations in Power: Standalone Advisory Operations 80 Annex G: IFC Advisory Operations in Power: Donor-Assisted Technical Assistance Trust Funds (TATF) Operations 82 Annex H: IFC's Operations in Renewable Energy and Energy Efficiency in the 1990s Attachment H.1: IFC's Mainstream Renewable Energy and Efficient Energy Projects, FY90­99 Attachment H.2: IFC-Managed GEF Projects in Power, FY90­99 86 Annex I: IFC Portfolio of Approvals in Power, FY90­01 88 Annex J: OEG's Mini-XPSR Evaluation Framework for IFC's Electric Power Sector Investment Operations 90 Annex K: Performance Ratings of 29 IFC Mature Power Sector Investment Operations in the 1990s 92 Annex L: Analysis of Development Outcome Indicators of the 29 Evaluated IFC Electric Power Investment Operations 95 Annex M: MIGA Guarantees in Power, FY99­01 100 Annex N: World Bank Group Involvement in Renewable Energy and Energy Efficiency Projects 102 Annex O: ASTAE-supported World Bank/GEF Alternative Energy Investment Projects, FY92­03 103 Annex P: Technology and Policy Reform Measures in ASTAE-Supported Renewable Energy and Energy Efficiency Projects 104 Annex Q: Environmental and Social Impacts of IFC Investment Operations in the Power Sector 108 Annex R: World Bank Group Management Response and Management Action Record 114 Annex S: Chairman's Summary: Committee on Development Effectiveness (CODE) 117 Endnotes 121 Bibliography Tables 9 Table 2.1 IBRD/IDA Lending, IFC Investments, and IBRD/IDA and MIGA Guarantees in the Electric Power Sector, FY90­01 12 Table 3.1 Regional Distribution of Bank, IFC, and MIGA Operations 14 Table 3.2 The Bank's PSDE Project-Level Results (based on achievement of stated PSDE objectives) 33 Table 4.1 Desired PSDE Outcomes Are Numerous and Complex 38 Table 4.2 PSDE Outcomes from Bank Activities in LAC "Advanced Reform" Countries 54 Table 5.1 Performance Improvement of South American Electricity Distribution Companies i v C O N T E N T S Figures 8 Figure 2.1 Reform Options to Achieve Structural and Ownership Changes in the Power Sector 13 Figure 3.1 IBRD/IDA Lending for Generation Collapsed, Putting Transmission and Distribution in the Lead by FY01 (approvals in US$ millions) 13 Figure 3.2 The Bank's PSDE Projects Have Focused on Low- and Lower- Middle-Income Countries 15 Figure 3.3 Countries in Each Region Taking Key Reform Steps in Power (percentage) 20 Figure 3.4a IFC's Investment Operations in the Electric Power Sector Peaked in the 1990s ... 20 Figure 3.4b ... But Funding Commitments Were Slower 21 Figure 3.5 IFC Investment Commitments in the 1990s Went Mostly to Asia and LAC 23 Figure 3.6 IFC's Electric Power Sector Operations Have Better Outcomes than the Rest of its Portfolio 25 Figure 3.7 Good Development Outcomes in Electric Power Are Associated with Good Investment Outcomes 33 Figure 4.1 Cumulative Additions of New Power Production Capacity since 1993 in Five Countries with Reforms in the Energy Sector in the 1990s Boxes 17 Box 3.1 Performance Management Contracts Were Mostly Unsuccessful 34 Box 4.1 Côte d'Ivoire Shows Good Outcomes from PSDE 35 Box 4.2 El Salvador: WBG Work in a Country Committed to Power Reforms 47 Box 5.1 Mauritius: The Bank's Advice Contributed to the Success of Private Power Generation from Bagasse 48 Box 5.2 Ukraine: Pushing for Unbundling in the Wrong Environment v Acknowledgments This study is a joint review by the World Bank (independent consultant on electricity markets Group's three evaluation units. The report was and restructuring); and Catherine Waddams written by Fernando Manibog of the Operations (Centre for Competition and Regulation, Uni- Evaluation Department (OED) of the World versity of East Anglia). Bank; Rafael Dominguez of the Operations Eval- The report benefited greatly from the insights uation Group (OEG) of the International Fi- of the large number of past and present staff who nance Corporation; and Stephan Wegner of the were or are responsible for the World Bank Operations Evaluation Unit (OEU) of the Multi- Group's PSDE assistance evaluated for the study, lateral Investment Guarantee Agency. Literature including 154 Bank projects, 29 mature IFC in- reviews, background papers, contributory Pro- vestment operations, and eight MIGA projects, ject Performance Assessment Reports, and coun- in a total of 80 countries, and associated advisory try case studies were prepared for the OED work. We thank all those who kindly agreed to evaluation by Yves Albouy, Simone Lawaetz, Sunil be interviewed and who responded to our sur- Mathrani, Manuel Penalver, and Kevin Warr. Samir veys: these include the Bank's Energy Sector Stewart and Ferdinand Vinuya contributed to Board and Private Sector Development Board; the development of the OED database on the the Bank's Regional Energy Sector Managers; World Bank's project portfolio. Dennis Long, IFC's Power Department Managers; the Bank's Vanessa Poon, and Victoria Viray-Mendoza con- Energy Sector Leaders, Task Team Leaders, Task tributed to the OEG evaluation of IFC opera- Managers, and other Bank project staff, and IFC's tions. Tomas Caspellan provided administrative Investment Officers, Environmental Specialists, assistance, and William Hurlbut provided edi- and Power Engineers. We would like to especially torial support. thank the peer reviewers who commented thor- Special thanks are due to the members of oughly on successive versions of the report: the advisory committee, who provided unique Mark Segal, formerly Principal Economist in perspectives and advice: V.V. Desai (formerly IFC's Power Department; Denis Carpio of OEG; Chief Economist and Director of Power Opera- and Andres Liebenthal of OED. tions, Asian Development Bank); Navroz Dubash We are also grateful for the support of the Nor- (World Resources Institute); Graham Thomas wegian Ministry of Foreign Affairs, which funded v i i P O W E R F O R D E V E L O P M E N T background analytical work by Håkon Nordang ernment officials, and public power entities who and by ECON of Norway, as well as the dissem- provided a diversity of insights by way of inter- ination phase of the study. views and written correspondence throughout We are especially thankful to the numerous the process of preparing the portfolio review, the stakeholders from private power investors, donor country case studies, the background papers, agencies, nongovernmental organizations, gov- and the report. Director-General, Operations Evaluation, World Bank Group: Gregory K. Ingram Acting Director, Operations Evaluation Department, World Bank: Nils Fostvedt Director, Operations Evaluation Group, IFC: William Stevenson Director, Operations Evaluation Unit, MIGA: Aysegul Akin-Karasapan Manager, Sector and Thematic Evaluations: Alain Barbu Head, Special Studies and Planning: Linda Morra-Imas Senior Evaluation Officer: Ethel Tarazona Task Managers: Fernando Manibog, Rafael Dominguez, and Stephan Wegner v i i i F O R E W O R D FOREWORD PRÓLOGO AVANT- PROPOS ~NOL A ENGLISH ESP FRANÇAIS This study evaluates the per- Este estudio evalúa el rendi- Cette étude évalue les perfor- formance of the World Bank Group miento del Grupo del Banco Mundial mances réalisées au cours des années (WBG) during the 1990s in promoting (WBG, por sus siglas en inglés) du- 1990 par le Groupe de la Banque mon- private sector development in the elec- rante la década de 1990 en el fomento diale en matière de promotion du dé- tric power sector (PSDE). This joint re- del desarrollo del sector privado en el veloppement du secteur privé dans le view by the WBG's three evaluation sector de energía eléctrica (PSDE). domaine de l'énergie électrique units aims to inform the implementation Esta revisión conjunta por parte de las (DSPE). Réalisée conjointement par of the WBG's 2001 Energy Business Re- tres unidades de evaluación del WBG les trois unités d'évaluation du Groupe newal Strategy. It is based on an eval- intenta informar acerca de la puesta en de la Banque mondiale, elle a pour but uation of the WBG's PSDE assistance práctica de la Estrategia de renova- de donner des informations au sujet in 80 countries through the World ción del negocio de la energía en 2001 de la mise en application la Stratégie Bank's analytical and advisory work del WBG. Está basada en una evalua- de renouvellement de l'énergie de 2001 and its 154 projects, 29 mature Inter- ción de la ayuda del PSDE del WBG en du Groupe de la Banque mondiale. Elle national Finance Corporation (IFC) in- 80 países, por medio del trabajo ana- est basée sur une évaluation de l'aide vestment operations, and eight mature lítico y de asesoría del Banco Mundial offerte au secteur privé dans le do- Multilateral Investment Guarantee y sus 154 proyectos, 29 operaciones maine de l'énergie électrique par le Agency (MIGA) projects. de inversión de la Corporación Finan- Groupe de la Banque mondiale dans 80 The report's main message is that, ciera Internacional (CFI) y 8 proyec- pays, au moyen du travail analytique et where countries showed a commit- tos del Organismo Multilateral de consultatif de la Banque mondiale et ment to advancing reforms and Garantía de Inversiones (OMGI). de ses 154 projets, 29 opérations d'in- where PSDE programs were prop- El mensaje principal del informe vestissement parvenues à maturité de erly implemented, PSDE has deliv- es que el PSDE ha proporcionado la Société financière internationale ered its expected benefits and good sus beneficios esperados y buenos (SFI) et de 8 projets parvenus à matu- outcomes. However, the quality of resultados en los casos en que los rité de l'Agence multilatérale de ga- outcomes depended on the objec- países mostraron un compromiso rantie des investissements (MIGA). tives pursued and on the types of as- con las reformas para avanzar y los Le principal enseignement du sistance provided. Most countries programas del PSDE se pusieron en rapport est que le DSPE a fourni les remain in the early stages of reform- práctica debidamente. Sin embargo, résultats attendus en matière de bé- ing and deepening private sector in- la calidad de los resultados dependía néfices et de biens dans les pays dé- volvement in their power sectors. de los objetivos buscados y de los cidés à faire progresser les réformes The World Bank, pursuing multiple tipos de ayuda proporcionada. La et où les programmes DSPE avaient and complex reform objectives mayoría de los países permanecen été mis en pratique correctement. through a range of instruments across en las primeras fases de reformar y Cependant, la qualité des résultats a all regions, achieved good results profundizar la participación del sec- dépendu des objectifs poursuivis et where country ownership and sus- tor privado en sus sectores de la des types d'aide fournis. La plupart tained political commitment existed. energía eléctrica. El Banco Mundial-- des pays en sont encore aux pre- It underestimated the complexity and que lucha por lograr objetivos de re- miers stades de réformes et d'aug- time required for reforms to mature forma compleja y múltiple por medio mentation de la participation du and achieve lasting and equitable de una variedad de instrumentos en secteur privé au domaine de l'éner- country sector outcomes, however, todas las regiones--logró buenos re- gie électrique. La Banque mon- and obtained poor or, at best, mixed sultados cuando existía el concepto diale--poursuivant des objectifs de i x P O W E R F O R D E V E L O P M E N T results where reforms were de propiedad en el país y un réforme multiples et com- weak or reversed. IFC and compromiso político conti- plexes au moyen de divers MIGA, which focused on the ~NOL nuo. Pero el Banco Mundial instruments à travers toutes single reform objective of pri- A subestimó la complejidad y les régions--a obtenu de vate sector participation and el tiempo requerido para que bons résultats dans les pays ENGLISH which responded to market ESP las reformas madurasen y lo- qui avaient manifesté leur ad- FRANÇAIS demand for new generation, grasen resultados duraderos hésion et où il existait un en- typically to address shortages, y equitativos en el país y sec- gagement politique soutenu. achieved good project-level out- tor; obtuvo resultados deficientes, o Mais la Banque mondiale avait sous- comes overall. como mucho mixtos, donde las re- estimé la complexité et le temps né- The study also points out that formas fueron débiles o inversas. La cessaire pour permettre aux there is no single blueprint suitable CFI y el OMGI--concentrados en el réformes de parvenir à maturité et for all sector reform and PSDE. There único objetivo de reforma de la par- pour obtenir des résultats par sec- is instead an evolving menu of op- ticipación del sector privado y res- teur de pays durables et équitables tions for the combinations and se- pondiendo a la demanda del ; elle a ainsi obtenu des résultats quences of reform steps that are mercado para la nueva generación, tí- peu satisfaisants, ou tout au moins driven by country-specific objectives picamente tratar la escasez--logra- discutables dans les pays où les ré- and conditions. Poverty reduction ron en general buenos resultados a formes étaient faibles ou lentes à and environmental mainstreaming nivel de los proyectos. s'enraciner. La SFI et la MIGA-- ("doing good," in addition to "doing El estudio también señala que no concentrant tous leurs efforts sur le no harm") furthermore have not hay un solo proyecto para reforma seul objectif de réforme de la parti- been intrinsic components of sector del sector y PSDE. Es un menú de op- cipation du secteur privé et répon- reform and PSDE strategies. Inde- ciones que evoluciona y cubre varias dant à la demande du marché pour pendent power producers have had combinaciones y secuencias de pasos de nouvelles productions afin sur- a critical role to play in relieving sup- para la reforma, que vienen indicados tout de faire face à la pénurie--ont ply bottlenecks, in leveraging public por objetivos y condiciones específi- obtenu dans l'ensemble de bons ré- sector financing capacity, and in cos de cada país. Además, la reduc- sultats pour le projet. demonstrating early wins, but a lack ción de la pobreza y la aceptación Ce rapport fait également re- of timely reforms in the distribution general del medio ambiente ("hacer marquer qu'il n'existe aucun plan subsector can jeopardize the gains cosas bien" además de "no hacer directeur de réforme sectorielle et in the generation subsector. daño") no han sido componentes in- de développement du secteur privé The WBG's PSDE assistance is a trínsecos de la reforma del sector y dans le domaine de l'énergie élec- work in progress. Learning-by-doing las estrategias de PSDE. Los produc- trique. Il s'agit d'un menu d'options can work, but countries should set tores independientes de energía han évolutif couvrant diverses combi- clear objectives and should take the tenido que jugar un papel crítico para naisons et séquences d'étapes de lead in reform, supported by WBG aliviar los embotellamientos de su- réformes mues par des objectifs et advice drawn from its experience of ministros, influenciar la capacidad fi- conditions spécifiques au pays. De similar situations in other countries. nanciera del sector público y plus, la lutte contre la pauvreté et Joint World Bank­IFC­MIGA Country demostrar ganancias iniciales. Pero la l'intégration environnementale (ne Assistance Strategies (CASs) have falta de reformas a tiempo en el sub- pas se contenter de « ne pas faire de been more effective at supporting sector de distribución puede poner mal », mais également « faire du bien PSDE than have World Bank-only en peligro las ganancias en el sub- ») ont été les composantes intrin- CASs, but coordination through CASs sector de generación. sèques de la réforme sectorielle et alone is insufficient. La ayuda de PSDE del WBG es un des stratégies du DSPE. Les pro- Demand continues to be strong "trabajo en marcha". Aprender sobre ducteurs d'électricité indépendants for the WBG's advice and assistance la marcha puede funcionar, pero los ont eu un rôle crucial à jouer dans in PSDE, especially given the global países deben fijar objetivos claros y le dégagement des goulots d'étran- environment of reduced private cap- estar al frente, apoyados por conse- glement en matière d'approvision- x F O R E W O R D ital flows, heightened macro- jos sensatos del WBG saca- nement, dans l'optimisation economic and political risks, dos de lecciones de expe- de la capacité de financement and scant sponsor/investor in- ~NOL riencia en otros países en du secteur public et dans terest. In particular, the WBG A circunstancias similares. Las l'obtention de gains pré- has an urgent and crucial role Estrategias de Asistencia a un coces. Mais l'absence de ré- ENGLISH to play in slow-reforming ESP País (CAS), en conjunto del formes réalisées en temps FRANÇAIS countries and in low-income Banco Mundial, CFI y OMGI, opportun dans le sous-sec- countries whose high political han sido más eficaces en apo- teur de la distribution peut risk and regulatory deficiencies make yar el PSDE que las CAS solamente mettre en péril les gains obtenus them less attractive to investors. del Banco Mundial, pero la coordi- dans le sous-secteur de la produc- The study recommends that the nación por medio de las CAS sola- tion. WBG continue to pursue PSDE. In mente es insuficiente. L'aide accordée par le Groupe de doing so, it should: (i) provide op- En general, el consejo y ayuda del la Banque mondiale au DSPE consti- erational guidance to staff on when WBG en PSDE continúa siendo una tue un « travail en cours ». L'ap- and how to continue promoting demanda, dado el ambiente global ac- prentissage par la pratique est une PSDE; (ii) give greater emphasis to tual de flujo de capital privado redu- option envisageable, mais les pays the mainstreaming of poverty re- cido, riesgos macroeconómicos y doivent se fixer des objectifs précis duction and environmental objec- políticos elevados y escaso interés et se positionner en tête du mou- tives in the design of future PSDE de patrocinadores e inversores. En vement grâce aux conseils judicieux strategies; and (iii) encourage oper- particular, el WBG tiene un papel ur- du Groupe de la Banque mondiale ational innovations to ensure greater gente y crucial que jugar en los paí- résultant de leçons tirées de l'expé- consistency between WBG practices ses con reformas lentas y de ingreso rience dans d'autres pays dans des and instruments and its PSDE goals, bajo, cuyo alto riesgo político y defi- conditions semblables. Les straté- including through more systematic ciencias de regulación hacen que sean gies CAS (Stratégies d'aide aux pays) monitoring and evaluation of impacts. menos atractivos a los inversores. menées conjointement par la El estudio recomienda que el Banque mondiale, la SFI et la MIGA WBG continúe buscando PSDE. Al ont apporté un soutien bien plus hacer esto, debería: (i) proporcionar efficace au DSPE que celles qui orientación de operación al perso- avaient été mises en oeuvre par la nal sobre cuándo y cómo continuar Banque mondiale seule, mais la co- fomentando el PSDE; (ii) dar mayor ordination par le truchement des énfasis a la aceptación general de la seules CAS demeure insuffisante. reducción de la pobreza y los objeti- Dans l'ensemble, le conseil et vos ambientales en el diseño de las l'aide du Groupe de la Banque mon- estrategias futuras del PSDE; y (iii) diale pour favoriser le DSPE conti- alentar las innovaciones operaciona- nue d'être recherché compte tenu les para asegurar una mayor consis- de l'environnement global actuel de tencia entre las prácticas e réduction des mouvements de ca- instrumentos del WBG y sus metas de pitaux privés, d'augmentation des PSDE, incluyendo el hacerlo me- risques macro-économiques et po- diante más control sistemático y eva- litiques et de faible intérêt montré luación de impactos. par les commanditaires et investis- seurs. En particulier le Groupe de la Banque mondiale a un rôle urgent et crucial à jouer dans les pays lents à opérer des réformes et dans les pays à faible revenu dont les risques po- litiques élevés et les déficiences en x i P O W E R F O R D E V E L O P M E N T matière de réglementation les rendent moins attrayants pour les investisseurs. L'étude recommande que Groupe de la Banque mon- diale continue de poursuivre FRANÇAIS le DSPE. Ce faisant, il doit : (i) fournir des directives opéra- tionnelles au personnel sur quand et comment continuer à promouvoir le DSPE, (ii) accentuer la rationalisation de la lutte contre la pauvreté et des objectifs environnementaux dans les futurs plans stratégiques du DSPE et (iii) encourager les innovations opé- rationnelles afin d'assurer une plus grande cohérence entre les pra- tiques et les instruments du Groupe de la Banque mondiale et ses ob- jectifs en matière de DSPE, par une surveillance et une évaluation des ef- fets plus systématiques. Gregory K. Ingram Director-General, Operations Evaluation x i i E X E C U T I V E S U M M A R Y SUMMARY RÉSUMEN RÉSUMÉ ANALYTIQUE ~NOL A ENGLISH ESP FRANÇAIS This study evaluates the per- Este estudio evalúa el rendi- Cette étude évalue les perfor- formance of the World Bank Group miento del Grupo del Banco Mundial mances réalisées au cours des années (WBG) during the 1990s in promoting (WBG, por sus siglas en inglés) du- 1990 par le Groupe de la Banque mon- private sector development in the elec- rante la década de 1990 en el fomento diale en matière de promotion du dé- tric power sector (PSDE). This joint re- del desarrollo del sector privado en el veloppement du secteur privé dans le view by the WBG's three evaluation sector de energía eléctrica (PSDE). domaine de l'énergie électrique units1 addresses four evaluation ques- Esta revisión conjunta por parte de las (DSPE). Réalisée conjointement par tions: (i) how did private participation tres unidades de evaluación1 del WBG les trois unités d'évaluation1 du Groupe and the WBG's role change in the presenta cuatro preguntas de evalua- de la Banque mondiale, elle aborde 1990s?; (ii) to what extent has the ción: (i) ¿Cómo han cambiado la parti- quatre questions d'évaluation : (i) com- WBG's assistance supported its PSDE cipación privada y el papel del WBG en ment la participation du secteur privé strategies?; (iii) what have been the la década de 1990?; (ii) ¿Hasta qué et le rôle du Groupe de la Banque mon- results of the WBG's PSDE interven- punto la ayuda del WBG ha apoyado diale ont-ils évolué au cours des an- tions?; and (iv) what are the broad les- sus estrategias del PSDE?; (iii) ¿Cuá- nées 1990 ? (ii) dans quelle mesure sons that should guide the WBG's future les han sido los resultados de las in- l'aide du Groupe de la Banque mon- business directions in promoting PSDE? tervenciones del PSDE del WBG?; (iv) diale a-t-il soutenu ses stratégies The WBG's experience with PSDE ¿Cuáles son las lecciones que debe- DSPE ? (iii) quels ont été les résultats since the early 1990s suggests that, rían guiar las directrices de negocio fu- des interventions du Groupe de la where PSDE was properly imple- turas del WBG para fomentar el PSDE? Banque mondiale en matière de mented, it has delivered results, and La experiencia del WBG con el DSPE ?; (iv) quels sont les grands en- the WBG should continue to sup- PSDE desde principios de la década seignements qui doivent guider les fu- port such interventions. The out- de 1990 sugiere que el PSDE ha dado tures orientations commerciales du comes of the assistance provided by resultados donde se puso en práctica Groupe de la Banque mondiale pour the Bank, IFC, and MIGA depend on debidamente y el WBG debería con- promouvoir le DSPE ? country commitment, objectives pur- tinuar apoyando tales intervencio- L'expérience de Groupe de la sued, and the types of assistance pro- nes. Sin embargo, los resultados de Banque mondiale avec le DSPE de- vided. There is no universal blueprint la ayuda del Banco, CFI y OMGI de- puis le début des années 1990 donne for PSDE; rather, there is a continu- penden del compromiso del país, de à penser que le DSPE a fourni des ré- ally evolving menu of options whose los objetivos perseguidos y de los sultats là où il a été correctement validity depends on country-specific tipos de asistencia proporcionada. mis en pratique et que le Groupe de objectives and conditions. Most coun- No hay un solo proyecto para el la Banque mondiale doit continuer à tries remain in the early stages of re- PSDE; más bien es un menú de op- soutenir ces interventions. Cepen- forming and deepening private sector ciones en continuo cambio dirigidas dant, les conséquences de l'aide of- involvement in their power sectors. por los objetivos y condiciones es- fert par la Banque, la SFI et la MIGA The Bank, pursuing multiple and pecíficas del país. La mayoría de los dépendent de l'engagement du pays, complex reform objectives through países permanecen en las primeras des objectifs poursuivis et des types a range of instruments across all re- fases de reformar y profundizar la d'aide fournis. Il n'existe aucun plan gions, achieved good results in those participación del sector privado en directeur pour le DSPE ; il s'agit plu- cases where country ownership and sus sectores de la energía eléctrica. El tôt d'un menu d'options évolutif, political commitment existed. How- Banco, que lucha por lograr objetivos mues par des objectifs et des condi- ever, it underestimated the com- de reforma compleja y múltiple por tions spécifiques au pays. La plupart x i i i P O W E R F O R D E V E L O P M E N T plexity of the reforms needed medio de una variedad de ins- des pays demeurent aux and the time required for trumentos en todas las regio- stades précoces d'établisse- those reforms to mature and ~NOL nes, logró buenos resultados ment de réformes et d'aug- achieve lasting and equitable A cuando existía el concepto de mentation de la participation country-sector outcomes, and propiedad en el país y un du secteur privé dans le do- ENGLISH where the reforms were weak ESP compromiso político conti- maine de l'énergie. La FRANÇAIS or slow to take root it obtained nuo. Pero el Banco subestimó Banque, poursuivant des ob- poor or, at best, mixed results. la complejidad y el tiempo re- jectifs de réforme multiples IFC and MIGA, focusing on the single querido para que las reformas ma- et complexes par un ensemble d'ins- reform objective of private sector durasen y lograsen resultados truments à travers toutes les régions, participation and responding to mar- duraderos y equitativos en el país y a obtenu de bons résultats dans les ket demand, overall achieved good sector; obtuvo resultados deficien- pays qui avaient manifesté leur ad- project-level outcomes, but while tes, o como mucho mixtos, donde las hésion et où il existait un engage- good, individual private sector proj- reformas fueron débiles o tardaron ment politique soutenu. Mais la ect outcomes contribute to sector tiempo en arraigarse. La CFI y el Banque avait sous-estimé la com- reform they cannot alone ensure OMGI, concentrados en el único ob- plexité et le temps nécessaire pour good sector-level outcomes. From a jetivo de reforma de la participación permettre aux réformes de parvenir different perspective, good private del sector privado y respondiendo a à maturité et pour obtenir des résul- sector project outcomes are possi- la demanda del mercado, lograron tats par secteur de pays durables et ble at different stages of reform, but en general buenos resultados a nivel équitables ; elle a ainsi obtenu des ré- they are not a sufficient gauge of the de los proyectos. Pero si bien los re- sultats peu satisfaisants, ou au mieux WBG's achievement of its overall sultados buenos e individuales de discutables, dans les pays où les ré- PSDE sectoral objectives. Good proj- proyectos del sector privado contri- formes se sont avérées faibles ou ect-level outcomes are a necessary buyen a la reforma del sector, no lentes à s'enraciner. La SFI et la condition for good sector-level out- pueden por sí mismos asegurar re- MIGA--concentrant tous leurs ef- comes, but this is achievable only sultados buenos a nivel del sector. forts sur le seul objectif de réforme with strong government commitment Desde una perspectiva diferente, los de la participation du secteur privé et to country-sector reform objectives. resultados buenos de proyectos del répondant à la demande du mar- Achieving these reforms has been sector privado son posibles en dife- ché--ont obtenu dans l'ensemble de and continues to be difficult in most rentes etapas de la reforma, pero no bons résultats pour le projet. Mais si of the WBG's client countries. son una medida suficiente de los lo- les bons résultats du projet dans le The WBG's advice and assistance gros del WBG en sus objetivos ge- secteur privé individuel contribuent continue to be in demand, but its nerales del sector del PSDE. Los à une réforme sectorielle, ils ne peu- role in advocating PSDE has become buenos resultados a nivel de pro- vent pas, à eux seuls, assurer de bons less clear in the current global envi- yecto son una condición necesaria résultats au niveau sectoriel. D'un ronment of sharply reduced private para los buenos resultados a nivel point de vue différent, de bons ré- capital flows. While the evaluation del sector, pero esto solamente se sultats de projet dans le secteur privé evidence supports the WBG's pro- puede lograr con un fuerte compro- sont possibles à différents stades de motion of PSDE, some observers miso del gobierno hacia los objetivos réformes, mais ils ne constituent pas have identified an emergent crisis in de reforma del sector en el país. Lo- une mesure suffisante pour évaluer power sector reform in developing grar estas reformas, sin embargo, ha l'accomplissement du Groupe de la countries as strategic investors have sido y continúa siendo difícil en la ma- Banque mondiale en ce qui concerne withdrawn from the sector over the yoría de los países clientes de WBG. ses objectives sectoriels du DSPE en past 18 months, and are concerned El consejo y ayuda del WBG con- général. De bons résultats au niveau that the Bank's support for PSDE tinúan estando en demanda, pero su du projet constituent une condition consequently has become less effec- papel en defender PSDE se ha vuelto nécessaire pour obtenir de bons ré- tive. About a dozen investors have menos claro en el ambiente global ac- sultats au niveau du secteur, mais withdrawn from India, and the eco- tual de un flujo de capital privado ceci ne peut être obtenu que par x i v E X E C U T I V E S U M M A R Y nomic crisis in Latin America bruscamente reducido. Si l'engagement sérieux du gou- has forced the postponement bien la evidencia de evalua- vernement vis-à-vis de ré- of power supplier privatiza- ~NOL ción apoya la continua pro- formes à l'échelle nationale tion in Peru, Ecuador, and A moción del PSDE por parte et sectorielle. La mise en place Brazil. Observers elsewhere del WBG, algunos observa- de ces réformes, cependant, ENGLISH have reported the risk of re- ESP dores ven una crisis en la re- a été et continue d'être diffi- FRANÇAIS nationalization in some coun- forma del sector de la energía cile dans la plupart des pays tries. Other observers, eléctrica en los países en de- clients du Groupe de la however, see the sharp drop in in- sarrollo, ya que inversores estratégi- Banque mondiale. vestor interest as temporary, noting cos se han retirado del sector en Les conseils et l'aide du Groupe de the emergence of local and regional manadas en los últimos 18 meses, y la Banque mondiale continuent d'être players and highlighting recent trans- están preocupados porque el apoyo recherchés, mais le rôle d'encoura- actions, such as the Delhi distribution del PSDE por parte del Banco se ha gement du DSPE assumé par la privatization and private power deals vuelto menos eficaz. Cerca de una Banque est devenu moins clair dans in Kazakhstan and Central European docena de inversores se ha retirado la situation globale actuelle où l'on countries. The WBG is most needed de la India, y la crisis económica ac- observe de fortes réductions des flux in low-income countries where high tual en Latinoamérica ha forzado el de capitaux privés. Tandis que les political risk and regulatory defi- retraso de las privatizaciones de pro- preuves fournies par l'évaluation vont ciencies deter investors. Bank staff veedores de energía en Perú, Ecuador en faveur de la poursuite de la pro- accordingly require guidance on y Brasil. Los observadores han infor- motion du DSPE par le Groupe de la when and how to continue promot- mado de riesgos de renacionaliza- Banque mondiale, certains observa- ing PSDE in an environment of ción en algunos países. Otros ven la teurs voient une crise dans la réforme heightened risk and uncertainty. Op- caída abrupta del interés del inversor du secteur d'énergie dans les pays en erational guidance is particularly como algo temporal, apuntando la voie de développement, étant donné needed in five areas: (i) how to emergencia de jugadores locales y que les investisseurs stratégiques se reignite private interest in developing regionales, y destacando las transac- sont retirés du secteur en grand country power sectors; (ii) how to ciones recientes tales como la priva- nombre au cours des 18 derniers balance public and private invest- tización de distribución en Delhi y las mois et qu'ils pensent avec inquié- ments; (iii) how to select the se- transacciones de energía privada en tude que le soutien de la Banque en quence of reforms and PSDE Kazajstán y países de Europa central. faveur du DSPE a perdu de son effi- interventions that will work best in a Sin embargo, los países de ingreso cacité. Une douzaine d'investisseurs particular country-sector situation; bajo son los que más necesitan al environ se sont retirés des Indes et (iv) how to incorporate the expansion WBG, pues el alto riesgo político y las la crise économique qui sévit actuel- of energy access for the poor and en- deficiencias de regulación disuaden lement en Amérique latine a obligé vironmental considerations that go a los inversores. Por lo tanto, el per- l'ajournement de privatisations de beyond safeguard compliance (that sonal del WBG necesita orientación fournisseurs d'énergie au Pérou, en is, that "do good" rather than simply profesional acerca de cuándo y cómo Équateur et au Brésil. Les observa- "do no harm") into the WBG's PSDE seguir fomentando el PSDE con este teurs ont signalé des risques de re- and sector reform agenda; and (v) aumento de riesgos e incertidum- nationalisation dans certains pays. how to achieve much stronger Bank, bres. La orientación profesional de D'autres observateurs pensent que le IFC, and MIGA coordination, coher- operación se necesita particular- déclin marqué de l'intérêt des in- ence, and synergy, including within mente en cinco áreas: (i) cómo vol- vestisseurs est temporaire du fait de the Country Assistance Strategy (CAS) ver a despertar el interés privado en l'apparition de participants locaux et framework. los sectores de energía de países en régionaux et de transactions récentes, desarrollo; (ii) cómo equilibrar las telles que la privatisation de la dis- inversiones públicas y privadas; (iii) tribution à Delhi et les transactions qué secuencia de reformas y qué in- d'énergie privées au Kazakhstan et tervenciones del PSDE funcionan dans les pays d'Europe centrale. x v P O W E R F O R D E V E L O P M E N T How have private mejor en situaciones particu- Cependant, l'aide du Groupe participation and the lares del sector del país; (iv) de la Banque mondiale est WBG's role changed in ~NOL cómo incorporar en la agenda surtout nécessaire dans les the 1990s? A de reforma del sector y del pays à faible revenu où les Since 1990, developing coun- PSDE del WBG la expansión risques politiques sont élevés ENGLISH try power sectors and the ESP del acceso a la energía para los et où les déficiences régle- FRANÇAIS WBG's support to them have pobres y las consideraciones mentaires découragent les in- been transformed. There has ambientales más allá de un vestisseurs. Le personnel du been a move away from public mo- cumplimiento con las medidas pre- Groupe de la Banque mondiale a nopolies toward private ownership ventivas, es decir, "hacer el bien" ade- donc besoin de directives pour dé- and a liberalized market structure, más de "no hacer daño"; (v) cómo terminer quand et comment pro- with market and technological inno- lograr una coordinación, coherencia mouvoir le DSPE dans un climat vations widening the choices for in- y sinergia mucho más fuerte entre d'augmentations du risque et d'in- dustry structure and ownership and el Banco, la CFI y el OMGI, inclu- certitudes. Il est particulièrement né- reducing the likelihood of a return to yendo dentro del marco de la Estra- cessaire d'établir des directives vertically integrated monopolies. The tegia de Asistencia a un País (CAS). opérationnelles dans cinq domaines : main drivers for this change were the (i) comment ressusciter l'intérêt des supply shortages and massive fi- ¿Cómo han cambiado en la dé- groupes privés dans les secteurs nancing needs of the power sector; cada de 1990 la participación d'énergie des pays en voie de déve- the persistently poor performance, privada y el papel del WBG? loppement, (ii) comment équilibrer despite decades of donor support, of Desde 1990 hasta el presente, los les investissements publics et privés, public power monopolies; the wider sectores de energía de los países en (iii) quelles sont les séquences de choices for power market structures, desarrollo y el apoyo del WBG a ellos réforme et quelles sont les interven- spurred by technological and mar- se han transformado, alejándose de tions de DSPE qui donnent les ket innovations in the electricity sup- los monopolios públicos hacia la pro- meilleurs résultats dans des situa- ply industry; and the growth in piedad privada y una estructura de tions particulières à un secteur et à private capital for global power in- mercado liberalizada. Sin embargo, un pays, (iv) comment intégrer l'ex- vestments. en lugar de volver a los monopolios pansion de l'accès à l'énergie dans les The Bank's "business-as-usual" integrados verticalmente, las inno- pays pauvres avec des considérations lending to public power utilities vaciones tecnológicas y de mercado environnementales qui vont au-delà proved untenable, and in 1993 it an- han ampliado las posibilidades para du simple respect des mesures de nounced an Electric Power Lending la estructura y la propiedad de la in- protection, c.-à-d. ne pas se conten- Policy, supported by IFC and MIGA. dustria. Los principales impulsores ter de « ne pas faire de mal », mais The policy linked the WBG's support de este cambio fueron la escasez de également « faire du bien » dans le with country commitment to re- abastecimiento y las necesidades fi- programme DSPE et de réformes sec- forms, specifically in the three areas nancieras masivas del sector de la torielles du Groupe de la Banque of commercialization, corporatiza- electricidad, el rendimiento persis- mondiale, (v) comment obtenir tion, and arm's-length regulation. tentemente deficiente de los mono- une coordination, une cohérence et IFC's first investment with inde- polios de electricidad públicos a pesar une synergie plus étroite entre la pendent power producers (IPPs) was de las décadas de apoyo por parte de Banque, la SFI et la MIGA, dans le made as early as 1989, but it was not donantes, la gama más amplia de po- cadre des Stratégies d'aide aux pays until 1996 that the Bank's "Statement sibilidades en las estructuras del mer- (CAS). of Good Practices in the Electric cado de electricidad estimuladas por Power Sector" (GP4.45) added private innovaciones tecnológicas y de mer- Comment la participation sector involvement as a clear goal. cado en la industria de proveedores privée et le rôle du Groupe de By then, the Bank had adopted a de de electricidad y el crecimiento del la Banque mondiale ont-ils facto reform approach that, in addi- capital privado para las inversiones en évolué au cours des années tion to commercialization, corpora- electricidad global. 1990 ? x v i E X E C U T I V E S U M M A R Y tization, and regulation, also La concesión de préstamos De 1990 à aujourd'hui, les sec- included unbundling, private del Banco "como de costum- teurs d'énergie des pays en investments in generation, ~NOL bre" a las empresas del servi- voie de développement et le private participation in trans- A cio público demostró ser soutien que leur a accordé le mission and distribution, and insostenible y en 1993 emitió Groupe de la Banque mon- ENGLISH market competition. In the ESP una Política de préstamos para diale, ont subi des transfor- FRANÇAIS Bank's operational usage, this la energía eléctrica, apoyada mations, s'éloignant du statut full package of seven reform por la CFI y el OMGI. La polí- de monopoles publics pour components had evolved into "steps" tica vinculaba el apoyo del WBG con revenir vers la privatisation et une and a "scorecard." el compromiso del país a las refor- structure de marché libéralisée. Ce- The 1993 policy enunciated what mas, específicamente en tres áreas: pendant, au lieu de permettre un re- to do, but because of the limited ex- comercialización, corporación y re- tour à des monopoles intégrés perience worldwide in implement- gulación manteniendo las distancias. verticalement, les innovations com- ing such policies it was not La primera inversión de la CFI con merciales et technologiques ont accompanied by a strategy on how to productores independientes de elec- élargi les choix pour la structure et la do it. This shortcoming was ac- tricidad (IPP) se hizo en 1989; sin propriété industrielles. Les princi- knowledged, the Bank anticipating embargo, no fue hasta 1996 que la paux facteurs à la base de ce chan- that the necessary experience would "Declaración de buenas prácticas en gement ont été la pénurie be obtained through "learning-by- el sector de la energía eléctrica" del d'approvisionnement et les besoins doing." However, this technocratic Banco (GP4.45) añadió la implica- financiers massifs du secteur de view did not give adequate weight ción del sector privado como meta l'énergie électrique, les performances to the political economy of reform clara. Para entonces, el Banco había continuellement insatisfaisantes des and proved too optimistic: while the adoptado un enfoque de reforma de monopoles d'énergie publics en 1993 policy is basically sound, the facto que, además de la comerciali- dépit de décennies de soutien offert lack of accompanying strategic and zación, corporación y regulación, par les bailleurs de fonds, l'augmen- operational guidance raises many también incluyó separación, inver- tation des choix dans les structures questions about its implementation. siones privadas en la generación de du marché de l'énergie causée Moreover, the Bank's PSDE policy electricidad, participación privada en par des innovations technologiques pronouncements were belated and la transmisión y distribución y com- et commerciales dans l'industrie de reactive: both the 1993 and 1996 pol- petencia en el mercado. En el uso l'approvisionnement en électricité, icy statements merely formalized operacional del Banco, este paquete et la croissance de capitaux privés what had already become a reality in completo de siete componentes de pour les investissements globaux en the electric power sector--namely, reforma había evolucionado hacia énergie. massive global private capital flows. "pasos" y una "tarjeta de puntuación". Le processus de prêt « habituel » This trend was interrupted by the No obstante, mientras la política de la Banque aux services d'électricité 1997­98 Asian financial crises. The de 1993 enunciaba lo que se debía publics s'est avéré insoutenable et, en Bank's 2001 Energy Business Renewal hacer, no estaba acompañada de una 1993, la Banque a publié une charte Strategy (EBRS) was a response to estrategia sobre cómo hacerlo, de- de prêt en faveur de l'énergie élec- poor portfolio performance in the bido a la limitada experiencia a nivel trique, soutenue par la SFI et la MIGA. 1990s, the decline in sector lending, mundial para poner en práctica tales Cette charte liait le soutien offert par and the pressure to encompass políticas. Si bien esta deficiencia se re- le Groupe de la Banque mondiale à poverty alleviation and environmen- conoció en el momento, el Banco l'engagement pris par les pays assu- tal sustainability in its sector assis- anticipó que la experiencia necesaria rant la mise en pratique de réformes, tance (as addressed in the 2000 "Fuel se obtendría "aprendiendo sobre la notamment dans trois domaines : for Thought" Strategy on Energy and marcha". Sin embargo, la vista tec- commercialisation, corporatisation the Environment). nocrática no asignaba suficiente peso et réglementation. Le premier inves- a la economía política de la reforma tissement de la SFI avec des pro- y resultó ser demasiado optimista: ducteurs d'énergie indépendants x v i i P O W E R F O R D E V E L O P M E N T To what extent has the mientras la Política de 1993 avait déjà lieu en 1989, tandis WBG's assistance es básicamente sólida, la falta qu'il a fallu attendre 1996 pour supported its PSDE ~NOL de la inclusión de una orien- que la déclaration de bonnes strategies? A tación estratégica y operacio- pratiques dans le secteur de The WBG's PSDE policies, nal plantea muchas preguntas l'énergie électrique formulée ENGLISH lending, and analytical and ad- ESP sobre su puesta en práctica. par la Banque (GP4.45) ajoute FRANÇAIS visory work supported the Es más, los pronunciamien- la participation du secteur move toward private sector tos sobre la política del PSDE privé en tant qu'objectif dé- participation. By the end of the 1990s, del Banco llegaron tarde y fueron re- claré. À cette époque, la Banque avait power market reforms had become activos en lugar de estar a la van- adopté une méthode de réformes de central to the Bank's sector assis- guardia: ambas declaraciones de las facto qui, en plus de la commercia- tance and PSDE was a major com- políticas de 1993 y 1996 formaliza- lisation, de la corporatisation et de la ponent in the portfolios of the Bank, ron lo que se había convertido en réglementation, comprenait égale- IFC, and MIGA. But the timing and una realidad en el sector de la ener- ment la séparation juridique (« un- roles of the Bank, MIGA, and IFC dif- gía eléctrica, es decir, concretamente bundling »), des investissements fered. Through a diverse set of lend- flujos masivos y globales de capital privés en production, la participa- ing, technical assistance, guarantee, privado. Esta tendencia se interrum- tion privée en transmission et distri- and advisory instruments, the Bank pió antes de la crisis financiera asiá- bution et la concurrence ommerciale. focused heavily on reforms to trans- tica de 1997-98. La estrategia de Dans l'utilisation opérationnelle de la form the structure and ownership of renovación del negocio de la energía Banque, ce dossier constitué de sept the power sector in 68 countries (EBRS) de 2001 del Banco fue una réformes avait évolué en « étapes » et across all six regions. Following the respuesta al rendimiento deficiente « revue d'activité ». 1993 policy, 75­93 percent of the de las carteras en la década de 1990, Mais, tandis que la charte de 1993 Bank's annual lending volume for el descenso en la concesión de prés- énonçait ce qu'il fallait faire, elle the electric power sector supported tamos al sector, y presiones para pro- n'était accompagnée d'aucune stra- PSDE, either in the form of free- vocar alivio a la pobreza y viabilidad tégie indiquant la manière de le faire standing projects or as a component ambiental en la ayuda al sector (tra- à cause de l'expérience limitée, à of regular power projects. (This un- tado en la Estrategia sobre energía y l'échelle mondiale, de la mise en pra- derstates the Bank's PSDE involve- el medio ambiente "Combustible para tique de chartes de ce genre. Bien ment, which is also present in pensar" del año 2000). que les insuffisances aient été re- adjustment and nonpower lending.) connues à l'époque, la Banque pré- IFC helped promote the WBG's PSDE ¿Hasta qué punto la ayuda del voyait d'acquérir l'expérience agenda by supporting private in- WBG ha apoyado sus estrate- nécessaire par la pratique. Cepen- vestments in response to the urgent gias del PSDE? dant, ce point de vue technocratique need for additional generating ca- Las políticas, préstamos y trabajo ana- n'a pas conféré un poids adéquat à pacity, especially in Latin America and lítico y asesor del PSDE del WBG l'économie politique des réformes Asia. In particular, IFC was a pioneer apoyó el paso hacia la participación et s'est montré trop optimiste : tan- in financing private generation proj- del sector privado. Para finales de la dis que la charte de 1993 est essen- ects in the late 1980s and early 1990s, década de 1990, las reformas en el tiellement bien fondée, le manque mostly in the context of foreign-spon- mercado de energía se habían con- de stratégie et de directives opéra- sored IPPs. By the end of the 1990s, vertido en el centro de la ayuda al sec- tionnelles destinées à l'accompagner greenfield power generation proj- tor del Banco, y el PSDE era un soulève de nombreuses questions au ects comprised 82 percent of IFC's componente principal en las carteras sujet de sa mise en pratique. De plus, funding commitment in power. Like del Banco, la CFI y el OMGI. Sin em- les déclarations contenues dans la IFC, MIGA supported generation bargo, la sincronización y los papeles charte de DSPE de la Banque ont été projects largely by providing political a jugar del Banco, OMGI y CFI dife- tardives et réactives plutôt qu'offen- risk insurance for private power in- rían. Por medio de un conjunto di- sives ou proactives : les déclarations vestments, making its first under- verso de préstamos, asistencia contenues dans la charte de 1993 et x v i i i E X E C U T I V E S U M M A R Y writing in the sector in 1994. técnica, garantía e instru- de 1996 ont formalisé ce qui MIGA guarantees for electric mentos asesores, el Banco était devenu une réalité dans power investments acceler- ~NOL se centró en gran manera en le secteur de l'énergie élec- ated in the 1990s, also mainly A las reformas para transformar trique ­ à savoir des flux de ca- in Latin America and the la estructura y propiedad de pitaux privés massifs, globaux. ENGLISH Caribbean (LAC) and Asia. IFC ESP los sectores de energía en los Cette tendance a été inter- FRANÇAIS and MIGA also responded to 68 países y todas las 6 regio- rompue par les crises finan- the increasing market de- nes. Tras la Política de 1993, de cières qui frappèrent l'Asie de mand for the financing of private sec- 75 a 93% del volumen de préstamos 1997 à 1998. La Stratégie de renou- tor projects (mostly generation)-- anuales del Banco para el sector de vellement de l'énergie de la Banque one of the seven PSDE reform com- energía eléctrica apoyaba al PSDE, en 2001 constituait une réponse ponents being pursued by the WBG. bien como proyectos individuales o aux performances peu satisfaisantes The energy practice of the Bank como componentes de los proyectos du portefeuille de valeurs au cours evolved significantly during the 1990s, normales de energía (esto subestima des années 1990, au déclin dans le ec- in line with the shift in the Bank's la participación del PSDE del Banco, teur de crédit et aux pressions pour portfolio away from power genera- que también está presente en ajustes inclure la lutte contre la pauvreté et tion and toward sector reform and ad- y préstamos no relacionados con el l'environnement durable dans son justment and toward transmission sector de energía). La CFI ayudó a fo- aide sectorielle (sujet de la Stratégie and distribution. Lending and oper- mentar la agenda del PSDE del WBG sur l'énergie et l'environnement de ational budgets declined and the en- apoyando las inversiones privadas en 2000 « Pensons carburant »). ergy practice focused more respuesta a las necesidades urgentes intensively on private sector devel- de capacidad adicional para generar, Dans quelle mesure l'aide opment (PSD); market reforms; en- especialmente en Latinoamérica y fournie par le Groupe de la ergy for the poor (for example, in Asia. En particular, la CFI fue pionera Banque mondiale a-t-elle fiscal year 2002 [FY02] six out of en financiar proyectos de generación soutenu ses stratégies en seven loans directly addressed privados a finales de la década de matière de DSPE ? poverty reduction and PSD); energy 1980 y principios de 1990, sobretodo Les chartes de DSPE du Groupe de and the environment (for example, en el contexto de los IPP con patro- la Banque mondiale, les prêts et le tra- power projects with explicit envi- cinio extranjero. A finales de la década vail analytique et consultatif ont sou- ronmental objectives increased from de 1990, los proyectos totalmente tenu l'évolution vers la participation 10 percent of the total in 1990 to 50 nuevos de generación de electrici- du secteur privé. Vers la fin des an- percent in 2001); and related analyt- dad comprendían el 82% del com- nées 1990, les réformes du marché de ical and advisory (AAA) products, no- promiso de la CFI para financiar la l'énergie étaient devenues un facteur tably through the Energy Sector energía. Al igual que CFI, OMGI apo- central en matière d'aide sectorielle Management Assistance Program yaba en gran manera los proyectos de de la Banque et le DSPE était une (ESMAP). Toward the end of the generación proporcionando seguro composante majeure des porte- 1990s, an Energy Sector Board (ESB) contra riesgo político para inversio- feuilles de la Banque, de la SFI et de was established to (i) lead strategy nes privadas en energía, y la primera la MIGA. Mais le choix du moment et formulation and implementation and garantía en el sector ocurrió en 1994. les rôles de la Banque, de la MIGA et promote cross-sectoral integration; Las garantías de OMGI para las in- de la SFI différaient. Par un ensemble (ii) catalyze the exchange of best versiones en energía eléctrica se ace- divers de prêts, d'aide technique, de practices, train staff, and mobilize leraron en la década de 1990, garanties et d'instruments consulta- learning events; and (iii) ensure port- principalmente en los países latino- tifs, la Banque s'est concentrée for- folio quality and strategic relevance americanos y en Asia, CFI y OMGI tement sur les réformes visant à through country-sector and Quality- respondieron al aumento de de- transformer la structure et la pos- at-Entry reviews. manda en el mercado para la finan- session des secteurs d'énergie dans In practice, the Bank's approach to ciación de proyectos del sector 68 pays et 6 régions. À la suite de la sector reform and its PSDE intensity privado (sobretodo generación), que charte de 1993, un montant de 75 à x i x P O W E R F O R D E V E L O P M E N T went beyond that mandated era uno de los siete compo- 93 pour cent du volume de by the 1993 policy. The policy nentes de reforma de PSDE prêts de la Banque dans le promoted commercialization ~NOL que quería lograr el WBG. secteur d'énergie électrique and corporatization ahead of A La práctica sobre la energía a soutenu le DSPE, soit sous privatization as a means to in- en el Banco evolucionó sig- forme de projets indépen- ENGLISH troduce innovation and ESP nificativamente durante la dé- dants, soit sous forme de FRANÇAIS competition--a reform-se- cada de 1990, en línea con el composantes de projets quencing approach influ- alejamiento de la generación d'énergie ordinaires (ceci ne enced by reforms in Chile, England, de energía en la cartera del Banco, fait pas justice à la participation au and Wales, which were the only ex- hacia la reforma y ajuste del sector, así DSPE de la Banque, qui est égale- periences available for analysis at that como la transmisión y distribución. ment présente dans les prêts d'aide time. Poor governance and state own- Mientras la concesión de préstamos à l'ajustement et les prêts non-éner- ership in the power sectors of most y los presupuestos operacionales dis- gétiques). La SFI a contribué à pro- Bank client countries meant there minuían, la práctica de la energía se mouvoir le programme DSPE du was no real basis from which to enfocaba más intensamente en el fo- Groupe de la Banque mondiale en achieve commercial standards, how- mento del sector privado (PSD); las soutenant les investissements privés ever. Subsequent to the 1993 policy reformas del mercado; la energía para en réponse aux besoins urgents de and without explicitly enunciating it los pobres (por ejemplo, en el ejer- capacité de production supplémen- as a major strategic change, the Bank cicio de 2002, 6 de cada 7 préstamos taire, notamment en Amérique latine thus mostly advocated privatization trataba directamente la reducción de et en Asie. En particulier, la SFI a été and private participation through la pobreza y PSD); la energía y el l'un des premiers organismes à fi- management contracts as the means medio ambiente (por ejemplo los nancer les projets de production pri- to achieving commercialization. This proyectos de energía con objetivos vés vers la fin des années 1980 et au shift led to a highly reform-intensive explícitos del ambiente aumentaron début des années 1990, la plupart du power portfolio, which overall per- de 10% en 1990 a 50% en 2001); y temps dans le contexte de projets formed poorly during most of the productos analíticos y asesores (AAA) d'énergie indépendants (PEI) finan- 1990s (see below, What were the proj- relacionados, especialmente me- cés par des entités étrangères. Vers la ect-level results?). diante el Programa de asistencia para fin des années 1990, des projets de This poor performance con- la gestión del sector de energía production d'énergie entièrement tributed to the branding of electric (ESMAP). Hacia el final de la década nouveaux comprenaient 82 pour cent power as a "sunset sector" for the de 1990, se estableció una Junta del de l'engagement financier de la SFI Bank (albeit not for the WBG as a sector de la energía (ESB) para: (i) di- en énergie. Comme la SFI, la MIGA whole). Priorities in CASs were also rigir la formulación y puesta en prác- a largement soutenu les projets de shifting away from the power sector tica de estratégicas y fomentar la production en fournissant une assu- because of the increased internal integración entre los sectores; (ii) rance contre les risques politiques transaction costs associated with catalizar el intercambio de las mejo- pour les investissements d'énergie power projects, in part due to the res prácticas, entrenar al personal y privés, avec sa première souscription vocal opposition of international movilizar los acontecimientos de dans le secteur en 1994. Les garanties nongovernmental organizations, and aprendizaje; y (iii) asegurar la cali- offertes par la MIGA pour les inves- because of the continued poor fi- dad de la cartera y la importancia es- tissements en énergie électrique se nancial performance of power utili- tratégica por medio de revisiones del sont accélérées au cours des années ties plagued by low tariffs and sector país y "calidad al entrar". 1990, principalement aussi dans les collection levels, exacerbated by de- En práctica, el enfoque del Banco pays d'Amérique latine, des Caraïbes teriorating macroeconomic environ- hacia la reforma del sector y la in- et d'Asie. La SFI et la MIGA ont ré- ments, particularly in South and East tensidad de su PSDE fueron más allá pondu à l'augmentation de la de- Asia. Thus, while the Bank's total an- de lo mandado por la Política misma. mande du marché pour le nual electric power lending (which in- La Política de 1993 fomentaba la co- financement de projets du secteur cludes both PSD and non-PSD mercialización y corporación antes privé (la plupart de production)-- x x E X E C U T I V E S U M M A R Y directed lending) reached a de privatizar como medio de une des sept composantes de peak of US$3.2 billion in FY96, introducir innovación y com- réforme du DSPE mises en it dropped precipitously to ~NOL petencia. Fue un enfoque de oeuvre par le Groupe de la US$440 million in FY99. Power A secuencia de reformas in- Banque mondiale. lending accounted for 15 per- fluenciado por las reformas La pratique de l'énergie ENGLISH cent of total Bank commit- ESP en Chile, Inglaterra y Gales, dans la Banque a évolué for- FRANÇAIS ments in FY96 but only 1.5 que fueron las únicas expe- tement au cours des années percent in FY99. riencias disponibles para ser 1990, ce qui correspond au By comparison, IFC's annual analizadas en aquel momento.Sin mouvement d'abandon de la pro- power investment approvals reached embargo, el gobierno deficiente y la duction d'énergie dans le portefeuille a peak of US$872 million, or 16 per- propiedad del estado no proporcio- de la Banque, pour se tourner vers la cent of total approvals, in FY95, but naron una base para alcanzar están- réforme et l'ajustement sectoriel ainsi dropped to US$335 million (6 per- dares comerciales en los sectores de que vers la transmission et la distri- cent) by FY99. Cumulative gross ap- la energía de la mayoría de países bution. Tandis que les budgets de provals totaled US$4.4 billion over clientes del Banco. Por lo tanto, pos- prêt et opérationnels déclinaient, la the 1990s compared to US$177 mil- terior a la Política de 1993, y sin enun- pratique de l'énergie s'est concen- lion before the 1990s. MIGA guaran- ciarlo explícitamente como cambio trée plus intensément sur le déve- tees peaked in FY00, both in terms of estratégico importante, el Banco de- loppement du secteur privé, les the volume of coverage issued and fendió en su mayor parte la privati- réformes du marché, l'énergie au the number of projects supported. By zación, así como la participación profit des pauvres (par exemple, du- 2001, WBG financial commitments privada por medio de contratos de rant l'exercice 2002, 6 prêts sur 7 to the power sector were on the rise gerencia, como medio de lograr la co- avaient pour but de réduire directe- once more. mercialización. Este cambio llevó a ment la pauvreté et de développer le una cartera de energía con una re- secteur privé), l'énergie et l'envi- What have been the results of forma altamente intensiva, que en ronnement (par exemple, les projets the WBG's PSDE última instancia tuvo un rendimiento d'énergie visant des objectifs envi- interventions? deficiente durante la mayor parte de ronnementaux explicites ont aug- la década de 1990 (véase el párrafo menté de 10 pour cent en 1990 à 50 What were the project-level results? 12). pour cent en 2001), et les produits For IFC, the development outcomes, Este rendimiento deficiente con- analytiques et consultatifs, notam- including environmental effects, of tribuyó a que se diera el nombre de ment par le truchement du Pro- its mature investment operations in "sector de la puesta del sol" a la ener- gramme d'assistance à la gestion du electric power outperformed its all- gía eléctrica para el Banco (si bien es secteur énergétique (ESMAP). Vers sector portfolio. The investment qual- cierto que no para el WBG en su to- la fin des années 1990, un Conseil ity of IFC's electric power sector talidad) Las prioridades de las CAS au secteur énergétique (ESB) avait portfolio remained better than aver- también se alejaron del sector de la été établi pour : (i) formuler une stra- age, despite the recent slight decline energía debido a: (i) aumento de los tégie d'attaque et mettre en pratique that accompanied the downtrend in costos internos de transacciones aso- et promouvoir l'intégration sur plu- IFC's overall portfolio. For MIGA, ciados con los proyectos de energía, sieurs secteurs, (ii) catalyser l'échange early indications are also positive on en parte debido a la oposición vocal des meilleurs pratiques, former le the performance of the private power de las organizaciones internacionales personnel et mobiliser les journées investments that are supported by no gubernamentales; y (ii) el rendi- d'apprentissage, et (iii) assurer la its guarantees. In contrast, a 1999 miento financiero deficiente conti- qualité du portefeuille et l'à-propos self-evaluation singled out the power nuo de las empresas de servicio stratégique par des revues pays-sec- lending portfolio as one of the Bank's público plagadas de tarifas y niveles teur et des revues de la « qualité à worst performers (although results de recolección bajos, exacerbado por l'entrée ». have improved recently as a result ambientes macroeconómicos en de- En pratique, la méthode de la of portfolio restructuring). OED's as- terioro, particularmente en el sur y Banque en matière de réformes sec- x x i P O W E R F O R D E V E L O P M E N T sessment of the results of spe- este de Asia. Por lo tanto, torielles et son rôle dans le cific PSDE components is mientras la concesión de prés- DSPE sont allés au-delà de ce equally sobering: 55 percent ~NOL tamos total para la energía qui est mandaté par la charte had good outcomes, 22 per- A eléctrica anual del Banco (que elle-même. La charte de 1993 cent were mixed, and the rest incluyó préstamos directos avait promu la commerciali- ENGLISH did not achieve their objec- ESP tanto PSD como no PSD) al- sation et la corporatisation FRANÇAIS tives. These overall disap- canzó los $3.200 millones de avant la privatisation comme pointing project-level dólares en el ejercicio de moyen d'introduire l'innova- outcomes mostly reflect the low 1996, ésta se redujo precipitadamente tion et la concurrence--une ap- achievements of ambitious sector- a $440 millones de dólares en el ejer- proche séquentielle de réformes level objectives (see next paragraph), cicio de 1999. La concesión de prés- influencée par les réformes mises en except in those countries that have tamos para energía representó un oeuvre au Chili, en Angleterre et au the most advanced reforms. Results 15% de los compromisos totales del pays de Galles, qui constituaient les of the relatively few freestanding Banco para el ejercicio de 1996, y so- seules expériences disponibles pour PSDE projects were better, but this is lamente 1,5% en el ejercicio de 1999. l'analyse à cette époque. Mais la ges- because they were implemented in En comparación, las aprobacio- tion peu satisfaisante des affaires et countries already focused on reforms. nes de inversión anual en energía de l'adhésion du pays n'ont pas fourni la CFI alcanzaron una cima de $872 de base pour atteindre des normes What have been the sector-level out- millones de dólares, o un 16% de las commerciales dans les secteurs éner- comes? Evidence of country sector aprobaciones totales en el ejercicio de gétiques de la plupart des pays clients gains from reforms and PSDE has 1995, pero bajaron a $335 millones de de la Banque. Donc, à la suite de la been emerging in a few countries, dólares, o 6% del total en el ejercicio charte de 1993 et sans l'énoncer ex- where the ultimate outcomes have de 1999. Las aprobaciones brutas plicitement comme un changement been systematically monitored. Sec- acumulativas alcanzaron un total de stratégique majeur, la Banque avait tor efficiency improved where PSDE $4.400 millones de dólares en la dé- encouragé la privatisation, ainsi que and reforms have advanced, as in cada de 1990 comparado con $177 la participation privée par des some Latin American and Central millones de dólares antes de esa dé- contrats de gestion, comme moyens American countries and in Eastern cada. Las garantías del OMGI llegaron d'obtenir la commercialisation. Ce European countries seeking acces- a su cima en el ejercicio de 2000, changement a conduit à un porte- sion to the European Union. In these tanto en términos del volumen de feuille d'énergie fortement intensif en cases, shortages have been reduced, cobertura emitida como en el nú- réformes, qui n'a finalement pas été energy access has increased, service mero de proyectos apoyados. Para satisfaisant dans l'ensemble pour la quality has improved, fiscal gains have 2001, los compromisos financieros plus majeure partie des années 1990 grown, and financial subsidies have del WBG al sector de la energía es- (voir paragraphe. 12). declined. But where reforms failed, taban de nuevo en aumento. Ces performances peu satisfai- stalled, or were reversed, and where santes ont contribué à surnommer PSDE did not materialize, power sec- ¿Cuáles han sido los resulta- l'énergie électrique le « secteur du so- tors remain weak and continue to dos de las intervenciones del leil couchant » pour la Banque (mais deteriorate operationally and finan- PSDE del WBG? non pas pour le Groupe de la Banque cially (as in Africa and South Asia) or mondiale dans son intégralité). Les are facing continued political or fi- ¿Cuáles fueron los resultados a nivel de priorités des CAS se sont également nancial risk (as in South and East proyecto? Para la CFI, los resultados éloignées du secteur énergétique à Asia). Most developing countries out- del desarrollo de sus operaciones cause de : (i) l'augmentation du coût side the Latin America region remain de inversión maduras en energía eléc- des transactions internes liées aux at low to moderate levels in the "re- trica, incluyendo los efectos en el projets d'énergie, en partie à cause de form scorecard," formulated in a 1999 medio ambiente, tuvieron el mejor l'opposition vocale des organismes study financed by ESMAP. A few coun- rendimiento de la cartera de todo el non gouvernementaux internatio- tries that opened the sector to IPPs sector. La calidad de inversión de la naux et (ii) la continuation des per- x x i i E X E C U T I V E S U M M A R Y in response to capacity short- cartera del sector de la ener- formances financières mé- ages were slow or weak in re- gía eléctrica de la CFI perma- diocres des services d'électri- forming the transmission and ~NOL neció mejor que la media, a cité affligés de tarifs et niveaux distribution (T&D) subsector, A pesar de su ligero descenso de recouvrement faibles, exa- resulting in an imbalance be- reciente junto con una bajada cerbés par la détérioration des ENGLISH tween generation and T&D. It ESP en la cartera general de la CFI. conditions macroécono- FRANÇAIS should not be inferred from Para el OMGI, las indicaciones miques, en particulier en Asie these poor sector outcomes, iniciales son también positivas du sud et de l'est. Par consé- however, that better results would en el rendimiento de las inversiones quent, tandis que les prêts d'éner- have been achieved by perpetuating privadas en energía respaldadas por gie électriques annuels totaux de la the pre-1990s public monopoly sus garantías. En contraste, para el Banque (comprenant les prêts de dé- model. Banco, una autoevaluación en 1999 veloppement du secteur privé (PDS) Overall, the successful imple- señaló en particular la cartera de prés- et non PDS) ont atteint 3,2 milliards mentation of reforms and PSDE have tamos de energía como una de las $US au cours de l'exercice 1996, ils been constrained by (i) a lack of que tuvo peores resultados para el ont chuté précipitamment à 440 mil- country commitment, (ii) macro- Banco, si bien dichos resultados han lions $US au cours de l'exercice 1999. economic and political crises, (iii) mejorado recientemente como re- Les prêts d'énergie comptaient pour lack of experience among PSDE prac- sultado de la reestructura de la car- 15 pour cent des engagements totaux titioners, particularly with political tera. La evaluación del DEO sobre de la Banque pour l'exercice 1996, et economy factors, and (iv) insufficient los resultados de componentes es- pour seulement 1,5 pour cent pour operational guidance to staff on the pecíficos del PSDE es igualmente l'exercice 1999. implementation of the 1993 policy. aleccionadora: 55% tuvo resultados En comparaison, les approbations Moreover, the Bank did not fully un- buenos, 22% fueron mixtos y el resto d'investissement en énergie an- derstand the size of the technical and no logró sus objetivos. Estos resul- nuelles de la SFI ont culminé à 872 financial resources required to re- tados generales decepcionantes a millions $US, soit 16 pour cent des form the power sector--resources nivel de proyecto, reflejan principal- approbations totales pour l'exercice that few developing countries pos- mente los bajos logros de los objeti- 1995, pour retomber à 335 millions sess. Despite strong efforts by Bank vos ambiciosos a nivel de sector $US, soit 6 pour cent du total, au staff under severe resource con- (véase a continuación), excepto en cours de l'exercice 1999. Les appro- straints (particularly since the late los países con las reformas más avan- bations brutes cumulatives se sont 1990s), it proved difficult to apply zadas. Los resultados de los relativa- élevées à 4,4 milliards $US pendant the 1993 policy to seriously non- mente pocos proyectos les années 1990, contre 177 millions commercial power sectors. Many of independientes del PSDE fueron me- $US avant les années 1990. Les ga- the Bank's country clients are still jores, pero esto se debe a que fueron ranties MIGA ont atteint un maximum undecided or are considering which puestos en práctica en países ya en- au cours de l'exercice 2000, à la fois reform route to follow, many have focados en las reformas. en termes de volume de couverture stalled in their attempts at reform, offerts et en nombre de projets sup- and a few have reversed their priva- ¿Cuáles han sido los resultados a nivel portés. En 2001, les engagements fi- tization plans. With some notable ex- del sector? La evidencia de ganancias nanciers du Groupe de la Banque ceptions in Latin and Central America en el sector país de las reformas y del mondiale dans le secteur énergétique and Eastern Europe, the power sec- PSDE ha estado emergiendo en unos se sont trouvés une fois de plus en tors of developing countries continue pocos países donde los resultados fi- augmentation. to be in crisis, particularly in terms of nales se han controlado sistemática- their finances and their ability to meet mente. La eficiencia del sector mejoró Quels ont été les résultats demand, at least cost, on an envi- donde el PSDE y las reformas han des interventions du ronmentally sustainable basis. avanzado, como en algunos países Groupe de la Banque Improving energy access for the de Latinoamérica y América Central mondiale en matière de poor through PSDE was overshad- y en países de Europa del este que DSPE ? x x i i i P O W E R F O R D E V E L O P M E N T owed in the 1990s by the ur- buscan acceso a la Unión Eu- Quels ont été les résultats au ni- gent and overriding need in ropea. Es estos casos, la es- veau de projet ? Pour la SFI, many countries to add gen- ~NOL casez se ha reducido, el les résultats du développe- eration capacity. Existing cus- A acceso a la energía ha au- ment, notamment les effets tomers, including low-income mentado, la calidad de servi- environnementaux, de ses ENGLISH consumers and industries ESP cio ha mejorado, las ganancias opérations d'investissement FRANÇAIS providing employment to the fiscales han crecido y los sub- en énergie électrique parve- poor, clearly benefited from sidios financieros han dismi- nus à maturité, ont surpassé the relatively quick elimination or re- nuido. Pero los casos en que las en performances tous les secteurs duction of supply shortages. How- reformas fallaron, se estancaron o se de son portefeuille. La qualité des ever, lagging reforms in T&D over invirtieron, y donde el PSDE no se investissements du portefeuille du the 1990s have constrained power materializó, los sectores de la energía secteur d'énergie électrique de la SFI delivery and made expansion of ac- permanecen débiles y continúan de- est demeurée meilleure que la cess, especially of the poor, all the teriorándose desde el punto de vista moyenne en dépit du léger déclin more challenging. Investment and operacional y financiero (como en subi récemment, avec une tendance operating costs of rural energy proj- África y Sur de Asia), o se están en- à la baisse de son portefeuille glo- ects furthermore are high, relative frentando a riesgos continuos políti- bal. Pour la MIGA, les premières in- to revenue potential, making returns cos o financieros (como en el Sur y dications au sujet des performances unattractive to private investors. Few Este de Asia). La mayoría de los paí- des investissements énergétiques pri- private rural energy and renewable ses en desarrollo fuera de la región vés soutenus par ses garanties, sont energy projects have been commer- de Latinoamérica permanecen en ni- également positives. Par contraste, cially viable or competitive with in- veles bajo a moderado en la "tarjeta pour la Banque, une auto-évalua- vestment opportunities in the de puntuación de la reforma", for- tion réalisée en 1999 a révélé que le generation subsector. mulada en un estudio de 1999 fi- portefeuille de prêts dans l'énergie WBG financial instruments aimed nanciado por ESMAP. Unos pocos était l'un des pires performeurs de la at creating physical infrastructure re- países que abrieron el sector a los Banque, bien que les résultats se quire projects to adhere to WBG en- IPP en respuesta a la escasez de ca- soient améliorés dernièrement suite vironmental guidelines during pacidad fueron lentos o débiles a la à une restructuration. L'évaluation implementation and operation. Be- hora de reformar el subsector de la faite par le Département de l'éva- cause the WBG's environmental re- transmisión y distribución (T y D), luation des opérations (OED) au sujet quirements are in many countries dando como resultado un desequili- des résultats des composantes spé- more stringent than the local regu- brio entre la generación y la T y D. No cifiques du DSPE est également peu lations, WBG projects tend to be se debe inferir de estos resultados encourageante : 55 pour cent ont eu more environmentally friendly by de- deficientes del sector, sin embargo, de bons résultats, 22 pour cent ont eu sign. IFC power projects have a bet- que se habrían logrado mejores re- des résultats mitigés et le reste n'a pas ter environmental compliance record sultados perpetuando el modelo de atteint ses objectifs. Ces résultats au than projects in other sectors. How- monopolio público anterior a la dé- niveau de projet, décevants dans l'en- ever, according to the 2002 Environ- cada de 1990. semble, reflètent pour la plupart la fai- ment Strategy and the OED En general, la puesta en práctica blesse des réalisations par rapport Environment Review, the environ- con éxito de las reformas y el PSDE aux objectifs ambitieux au niveau sec- mental "do good" (in addition to the se ha visto limitada por: (i) falta de toriel (voir ci-dessous), excepté dans "do no harm") agenda has yet to be compromiso del país; (ii) crisis ma- les pays où les réformes sont les plus fully mainstreamed in WBG opera- croeconómicas y políticas; (iii) falta avancées. Les résultats des projets tions. de experiencia entre los profesiona- de DSPE indépendants relativement CASs served as platforms for put- les de PSDE, particularmente con peu nombreux ont été meilleurs, ting PSDE in country agendas but factores de la economía política; y mais ceci parce qu'ils ont été mis en were not designed to integrate sec- (iv) insuficiente orientación profe- oeuvre dans des pays déjà centrés sur toral strategies across the WBG. In- sional operacional al personal sobre des réformes. x x i v E X E C U T I V E S U M M A R Y formal discussions beyond la puesta en práctica de la Po- Quels ont été les résultats au ni- the CAS, among task man- lítica de 1993. Es más, el veau sectoriel ? Les preuves de agers in different WBG units, ~NOL Banco no comprendió total- gains au niveau du pays et du facilitated a coordinated ap- A mente el tamaño de los re- secteur provenant des ré- proach and timing of assis- cursos técnicos y financieros formes et du DSPE sont ap- ENGLISH tance. In a few cases where ESP requeridos para reformar los parues dans quelques pays où FRANÇAIS internal discussions were not sectores de la energía, recur- les résultats finaux ont été sys- conducted the WBG sent con- sos que pocos países en de- tématiquement surveillés. flicting signals to client countries and sarrollo poseen. A pesar de los fuertes L'efficacité sectorielle s'est amélio- sponsors. Nonaligned incentive struc- esfuerzos del personal del Banco bajo rée dans les pays où le DSPE et les ré- tures also led to occasional compe- limitaciones de recursos serias (par- formes ont avancé, comme dans tition among the different private ticularmente desde los últimos años certains pays d'Amérique latine, sector financing and guarantee in- de la década de 1990), demostró ser d'Amérique centrale et d'Europe de struments of the Bank, IFC, and difícil aplicar la Política de 1993 a de- l'est cherchant à accéder à l'Union eu- MIGA. dicados sectores de la energía no co- ropéenne. Dans ces cas, la pénurie a merciales. Muchos de los países été diminuée, l'accès à l'énergie a What are the lessons that clientes del Banco todavía están in- augmenté, la qualité des services s'est should guide the WBG's future decisos, o están considerando qué améliorée, les gains fiscaux se sont business directions in ruta de reforma seguir, muchos se accrus et les subventions financières promoting PSDE? han detenido en sus intentos de re- ont décliné. Mais dans les pays où The main lessons learned from this forma, mientras unos pocos han in- les réformes n'ont pas réussi, ou ont evaluation are: vertido sus planes de privatización. tourné court ou ont été inversées et Con algunas excepciones notables, en où le DSPE ne s'est pas matérialisé, · The PSD-led power sector reform Latinoamérica y América Central y al- les secteurs d'énergie restent faibles process is complex, time-con- gunos países del Este de Europa, los et continuent à se détériorer opéra- suming, resource-intensive, and sectores de energía de los países en tionnellement et financièrement requires phasing and good se- desarrollo continúan estando en cri- (comme en Afrique et en Asie du quencing to create the conditions sis, particularmente en términos de sud), ou font face à un risque poli- for sector transformation. PSD- sus finanzas y habilidad de hacer tique ou financier permanent oriented reforms are more prom- frente a la demanda, al mínimo pre- (comme en Asie du sud et de l'est). ising than reforms confined to cio con una base sostenible desde el La plupart des pays en voie de déve- publicly owned companies. There punto de vista ecológico. loppement en dehors des régions is no "one-size-fits-all" reform La mejora del acceso a la energía d'Amérique latine restent à des ni- model and each approach should para los pobres por medio de PSDE veaux bas ou modérés d'après la be country-specific. Although com- fue eclipsada en la década de 1990 « carte de pointage des réformes », monsensical, these lessons were por la necesidad urgente y prepon- selon une étude de 1999 financée not well heeded by the WBG in the derante de añadir capacidad de ge- par l'ESMAP. Les quelques pays qui past. neración en muchos países. Los ont ouvert le secteur aux PEI en ré- · PSDE is a work in progress. Learn- clientes actuales, incluyendo los con- ponse à une pénurie de capacité ont ing-by-doing can work, but the sumidores de ingreso bajo y las in- été lents ou faibles à appliquer des ré- client country should set clear ob- dustrias que proporcionan empleo formes dans le sous-secteur de la jectives and take the lead in re- a los pobres, se beneficiaron clara- transmission et de la distribution form, supported by WBG advice mente de la eliminación o reducción (T&D), ce qui a provoqué un désé- drawn from its experience in other relativamente rápida de la escasez de quilibre entre production et T&D. Il countries in which similar cir- suministro. Sin embargo, las refor- ne faut pas cependant conclure de cumstances were encountered. mas rezagadas en la T y D en la dé- ces mauvais résultats sectoriels que · The evidence on PSDE timing and cada de 1990 han limitado el reparto de meilleurs résultats auraient été sequencing is ambiguous. There de energía y han hecho que la ex- obtenus en perpétuant le modèle de x x v P O W E R F O R D E V E L O P M E N T are countries in which pansión del acceso, especial- monopole public d'avant "leapfrogging" to privatization mente para los pobres, cons- 1990. has led to positive sector ~NOL tituya un mayor reto. Es más, Dans l'ensemble, la réus- change, but there are others A la inversión y costos de ope- site de la mise en pratique in which this did not lead to ración de los proyectos de des réformes et du DSPE a ENGLISH sector improvements. Simi- ESP energía rural son altos en re- été gênée à cause : (i) du FRANÇAIS larly, substantial efficiency lación con el potencial de in- manque d'engagement des gains were achieved in some gresos, haciendo que el pays, (ii) des crises macroé- countries where good public gov- rendimiento no sea atractivo para los conomiques et politiques, (iii) du ernance and the right tariff struc- inversores privados. Mientras tanto, manque d'expérience des spécia- tures were first put in place, but pocos proyectos privados de ener- listes du DSPE, notamment en ma- there are also many situations gía rural y energía renovable han sido tière de facteurs d'économie where decades of Bank support viables desde el punto de vista co- politique et (iv) des directives opé- for the incremental reform of pub- mercial o competitivos con las opor- rationnelles insuffisantes pour le per- lic monopolies had little or no suc- tunidades de inversión en el sonnel sur la mise en pratique de la cess. Where intermediate public subsector de generación. charte de 1993. De plus, la Banque sector reform steps are required, Los instrumentos financieros del n'a pas pleinement compris l'im- PSDE must be a clear long-term WBG que se proponen crear una in- portance des ressources financières goal. fraestructura física requieren que los et techniques nécessaires pour ré- · The evidence on the importance proyectos acaten las pautas del medio former les secteurs d'énergie, res- of country commitment is unam- ambiente del WBG durante la puesta sources que peu de pays en voie de biguous. Country factors, such as en práctica y operación. Puesto que développement possèdent. En dé- realistic priorities, a clear road los requisitos del WBG para el medio pits d'efforts suivis par le personnel map, local champions, and early ambiente son más estrictos que las de la Banque sous le fortes wins, drive successful reforms and normativas locales en muchos paí- contraintes de ressources (particu- good PSDE performance. Build- ses, los proyectos del WBG tienden lièrement depuis la fin des années ing a constituency for reform a ser mejores para el ambiente por su 1990), il s'est avéré difficile d'appli- through civil society participation diseño. Los proyectos de energía de quer sérieusement la charte de 1993 is also critical to reform sustain- la CFI tienen un récord de cumplir à des secteurs d'énergie non com- ability. mejor con las normas del ambiente merciaux. De nombreux pays clients · Poverty reduction and environ- que proyectos en otros sectores. Sin de la Banque ne sont toujours pas dé- mental mainstreaming ("doing embargo, según la Estrategia del cidés ou sont en train d'envisager la good" in addition to "doing no medio ambiente de 2002 y la Revisión route à suivre en matière de ré- harm") for the most part have not del medio ambiente del DEO, los formes ; beaucoup d'entre eux ont ar- been intrinsic components of de- puntos a tratar para el ambiente de rêté leurs essais de réforme, tandis signing sector reform strategies "hacer el bien" (además de "no hacer que quelques autres sont revenus and promoting PSDE. This has un- daño") todavía se tiene que incor- sur leurs plans de privatisation. Avec dermined the potential local and porar en las operaciones del WBG. certaines exceptions notables, en international popular support for Las CAS sirvieron de plataformas Amérique latine et en Amérique cen- such measures. para poner el PSDE en los puntos a trale et dans certains pays d'Europe · Lack of reform in the distribution tratar de los países, pero no estaban de l'est, les secteurs d'énergie des subsector can jeopardize the po- diseñadas par integrar las estrategias pays en voie de développement tential gains of reforms in the gen- del sector en todo el WBG. Las con- continuent d'être en crise, notam- eration subsector. versaciones informales más allá de ment pour ce qui est de leurs finances · IPPs have a role to play in effi- la CAS, entre gerentes de tareas en di- et de leur aptitude à satisfaire la de- ciently and sustainably relieving ferentes unidades del WBG, facilita- mande, au moindre coût, tout en supply bottlenecks, leveraging ron un enfoque coordinado y una assurant la préservation de l'envi- public sector financing capacity, sincronización de ayuda. En pocos ronnement. x x v i E X E C U T I V E S U M M A R Y and demonstrating early wins. casos donde no se llevaron a L'amélioration de l'accès à IPPs have yielded good de- cabo discusiones internas, el l'énergie pour les pays velopment outcomes under ~NOL WBG envió señales contra- pauvres par le DSPE a été the right country, sectoral, and A dictorias a los países clientes éclipsée au cours des années contractual conditions. How- y patrocinadores. Las estruc- 1990 par le besoin urgent et ENGLISH ever, IPPs that are not well ESP turas incentivas no alineadas primordial d'ajouter une ca- FRANÇAIS sited and that are not com- también llevaron a la compe- pacité de production dans de plemented by an efficient tencia ocasional entre los di- nombreux pays. Les clients T&D reform program can lead to ferentes instrumentos de financiación existants, y compris les clients à an imbalance between generation y garantía en el sector privado del faibles revenus et les industries four- and T&D capacity. In some cases Banco, CFI y OMGI. nissant un emploi aux pauvres, ont they have been seen to reduce clairement bénéficié de l'élimination the pressure on country leader- ¿Cuáles son las lecciones que ou de la réduction relativement ra- ship and policymakers to pursue deberían guiar la dirección de pide de la pénurie d'approvisionne- further reforms. negocios futura del WBG en el ment. Cependant, le retard des · Joint Bank­IFC­MIGA CASs are fomento del PSDE? réformes dans le domaine de T&D more effective at supporting PSDE Las lecciones principales aprendi- durant les années 1990 a gêné la four- than Bank-only CASs, but coordi- das a partir de esta evaluación son: niture de l'énergie et a rendu l'ex- nation through CASs alone is in- pansion de l'accès à l'énergie, sufficient. · El proceso de reforma del sector spécialement pour les pauvres, en- de la energía dirigido por el PSD core plus difficile. De plus, les coûts What are the es complejo, lleva tiempo, es in- d'investissement et d'opération des recommendations for the tensivo en cuanto a recursos y re- projets d'énergie ruraux sont élevés WBG's future business quiere hacerse por etapas y en relativement par rapport aux reve- directions in promoting PSDE? secuencias a fin de crear las con- nus potentiels, rendant ainsi les in- Based on its evaluation findings, the diciones para la transformación térêts peu attrayant pour les study recommends the following: del sector. Las reformas orientadas investisseurs privés. Entre temps, peu por PSD son más prometedoras de projets d'énergie rurale privés et a) On an urgent basis, the WBG que las reformas limitadas a las d'énergie renouvelable ont été com- should provide operational guid- compañías públicas. No hay un mercialement viables ou concurren- ance to WBG staff on when and how modelo de reforma que sirva para tiels avec les opportunités to continue promoting PSDE, given todos y cada enfoque debe ser es- d'investissement dans le sous-sec- the current situation of heightened pecífico para el país. Aunque es ló- teur de la production. macroeconomic and political risks gico, el WBG no hizo caso a estas Les instruments financiers du and scant investor interest. Such lecciones en el pasado. Groupe de la Banque mondiale visant guidance should be grounded in · PSDE es un "esfuerzo en marcha". à créer une infrastructure physique the Bank's recently enacted PSD Aprender sobre la marcha puede exigent que les projets adhèrent aux strategy. funcionar, pero el país debe fijar directives environnementales du objetivos claros y estar al frente, Groupe de la Banque mondiale pen- · The Bank's Energy and Mining apoyado por consejos sensatos dant la mise en oeuvre et l'exploita- Sector Board, in close consulta- del WBG sacados de lecciones de tion. Les exigences environnementales tion with the Private Sector De- experiencia en otros países en cir- du Groupe de la Banque mondiale velopment Board, should provide cunstancias similares. étant plus rigoureuses que les règle- WBG staff with updated and prac- · La evidencia de la sincronización ments locaux de nombreux pays, les tical operational guidance for pur- y secuencia de PSDE es ambigua. projets du Groupe de la Banque suing PSDE. This guidance should Hay países en los que el salto hacia mondiale tendent à être plus res- be based on what works best, in la privatización llevó a cambios pectueux de l'environnement par terms of reform packages and positivos en el sector, pero hay leur conception. Les projets d'éner- x x v i i P O W E R F O R D E V E L O P M E N T their sequencing, in different otros en los que esto no llevó gie de la SFI respectent mieux country-sector situations, for a mejoras del sector. De ma- l'environnement que les pro- different needs and different ~NOL nera similar, se lograron ga- jets dans d'autres secteurs. institutional capacities. Best- A nancias sustanciales en Cependant, selon la Stratégie practice examples can be de- algunos países donde se im- de l'environnement de 2002 ENGLISH veloped for a range of ESP plementaron primero un et la Revue de l'environne- FRANÇAIS frequently observed country buen gobierno público y es- ment d'OED, le programme attributes. tructuras correctas de tarifas, environnemental « faire du · The development of this guidance pero también hay muchas situa- bien » (et ne pas se contenter de « ne should be a joint effort between ciones en las que décadas de pas faire de mal ») doit cependant the Bank, IFC, and MIGA, and the apoyo del Banco para la reforma être complètement intégré aux opé- guidance should define a frame- en incrementos de monopolios rations du Groupe de la Banque mon- work to fully analyze PSDE alter- públicos tuvieron poco o ningún diale. natives to ensure environmental éxito. En los casos donde se re- Les Stratégies d'aide aux pays sustainability and align with the quieren pasos intermediarios para (CAS) ont servi de plates-formes pour WBG's poverty reduction mission. la reforma del sector público, el inscrire le DSPE au programme des · WBG senior management should PSDE debe ser una meta clara a pays, mais elles n'étaient pas conçues clarify the roles of the Bank, IFC, largo plazo. pour intégrer des stratégies secto- and MIGA in promoting PSDE, · La evidencia de la importancia del rielles dans le Groupe de la Banque particularly in terms of increased compromiso de los países es am- mondiale. Des discussions officieuses financial and advisory support. bigua. Los factores del país, tales allant au-delà des CAS, entre res- como prioridades realistas, direc- ponsables des tâches dans les diffé- b) In its future PSDE interventions, trices claras, campeones locales y rentes unités du Groupe de la the WBG should give greater em- ganancias iniciales, llevan a refor- Banque mondiale, ont permis une phasis to the mainstreaming of the mas con éxito y a un buen rendi- approche coordonnée et une aide poverty reduction and environ- miento del PSDE. Crear un grupo en temps opportun. Dans quelques mental objectives (in addition to its que apoye las reformas mediante cas où des discussions internes n'ont traditional macrofiscal and sector la participación de la sociedad civil pas eu lieu, le Groupe de la Banque efficiency objectives) that are at the es también crítico para la viabilidad mondiale a envoyé des signaux core of the WBG's overall energy de la reforma. contradictoires aux pays et aux clients strategy. · La reducción de la pobreza y la commanditaires. Des structures d'in- incorporación del medio ambiente citation non alignées ont également · The WBG should put a greater ("hacer las cosas bien" además de conduit à une concurrence occa- focus on reforming and facilitating "no hacer daño") no han sido en sionnelle entre les différents instru- private investments in the distri- su mayoría componentes intrín- ments de financement et de garantie bution subsector. This will require secos del diseño de estrategias des secteurs privés de la Banque, de action to improve cash collection, para la reforma del sector y de fo- la SFI et de la MIGA. reduce losses, address corruption, mentar el PSDE, debilitando así achieve better targeting of subsi- su apoyo de la opinión pública in- Quelles sont les leçons qui dies, expand the access of the rural ternacional y local. doivent guider l'orientation poor, and privatize distribution · La falta de reformas en el subsec- des futures affaires du Groupe where and when circumstances tor de distribución puede poner de la Banque mondiale pour permit. en peligro las ganancias poten- promouvoir le DSPE ? · The WBG should maximize the in- ciales de las reformas en el sub- Les principales leçons qui découlent volvement of the local private sector de generación. de cette évaluation sont : sector in small-scale and/or de- · Los IPP tienen un papel que jugar centralized projects. This will re- para aliviar los embotellamientos · Le processus de réforme du quire innovative approaches and de suministro de manera eficaz y secteur d'énergie conduite par x x v i i i E X E C U T I V E S U M M A R Y much better cross-sectoral in- viable, influenciar la capaci- PSD est complexe, il est ex- tegration within the Bank and dad financiera del sector pú- igeant en termes de temps et among the Bank, IFC, and ~NOL blico y demostrar ganancias de ressources et demande MIGA. A iniciales. Han producido bue- une mise en place progres- nos resultados de desarrollo sive et un bon séquençage ENGLISH c) The WBG should encour- ESP bajo las condiciones correctas pour créer des conditions de FRANÇAIS age operational innovations del país, sector y contractua- transformation sectorielle. Les to ensure greater consistency les. Sin embargo, los IPP que réformes orientées vers le between its practices and instru- no están bien ubicados ni com- développement de la fourniture ments and its evolving PSDE goals. plementados por un programa de d'énergie sont plus prometteuses reforma de la T y D eficaz pueden que les réformes limitées aux en- · The WBG needs to improve the producir un desequilibrio entre treprises publiques. Il n'existe pas coordination of the various units la capacidad de generación y de la de modèle de réforme « taille active in PSDE. To this end, it T y D. En algunos casos redujeron unique » et chaque méthode doit should pursue better integration la presión sobre el liderazgo del être adaptée au pays. Ces leçons, of its PSDE objectives within the país y los encargados de formular bien qu'évidentes, n'ont pas été CAS framework, including in non- la política a fin de lograr más re- bien observées par le Groupe de joint CASs, and with Poverty Re- formas. la Banque mondiale par le passé. duction Strategy Papers (PRSPs). · Las CAS conjuntas del Banco, CFI · Le DSPE est un « travail en cours ». · The Bank, IFC, and MIGA man- y OMGI son más eficaces para apo- L'apprentissage par la pratique agement should support flexibil- yar el PSDE que las CAS solamente peut réussir, mais le pays doit for- ity and the exercise of initiative in del Banco, pero la coordinación muler des objectifs précis et se PSDE operations and AAA, to en- mediante las CAS solamente es in- positionner en tête du mouve- able better response to rapidly suficiente. ment, aidé des conseils judicieux changing country sector condi- du Groupe de la Banque mondi- tions and to opportunities that ¿Cuáles son las recomenda- ale tirés des leçons de l'expéri- are not always foreseeable in the ciones para la dirección de ence acquise dans d'autres pays CAS. Through its diverse lending negocios futura del WBG en el dans des circonstances sem- and advisory instruments the WBG fomento del PSDE? blables. should promote more public­pri- Basándose en los hallazgos de la eva- · La preuve de la pertinence du vate partnerships and the investi- luación, el estudio recomienda lo choix du moment et de la mise gation of promising innovations, siguiente: en séquence du DSPE est am- such as the pro-poor design of re- biguë. Dans certains pays la pro- forms and output-based aid a) De manera urgente, el WBG debe gression par bonds vers la schemes, for which robust moni- proporcionar orientación opera- privatisation a provoqué des toring and evaluation systems are cional al personal del WBG sobre changements sectoriels positifs, essential. cuándo y cómo continuar fomen- mais dans d'autres pays, elle n'a · The WBG should develop per- tando el PSDE bajo la situación ac- causé aucune amélioration secto- formance indicators and related tual de aumento de riesgos rielle. De même, des gains d'effi- internal systems and should help macroeconómicos y políticos y el cacité substantiels ont été obtenus strengthen borrower capacities escaso interés de los inversores. Tal dans certains pays dans lesquels (including through project fund- orientación debe estar basada en une bonne gestion des affaires ing) to monitor and evaluate the la estrategia de PSD del Banco re- publiques et des structures de tarif achievements and impacts of its cientemente aprobada. judicieuses ont été mises en place PSDE interventions. These moni- en premier lieu, mais dans de toring and evaluation (M&E) ef- · El Consejo Sectorial de Energía y nombreuses situations, le soutien forts should be keyed to the Minería del Banco, consultando accordé pendant des décennies Energy Business Renewal Strategy estrechamente con la Junta de de- par la Banque à des réformes in- x x i x P O W E R F O R D E V E L O P M E N T and other relevant strategy sarrollo del sector privado, crémentielles des monopoles and policy objectives, espe- debería proporcionar al per- publics, a été couronné de cially in the relatively neg- ~NOL sonal del WBG orientación peu ou pas de succès. Lorsque lected areas of helping the A operacional actualizada y des étapes intermédiaires de poor and mainstreaming en- práctica para continuar el réforme du secteur public ENGLISH vironmental sustainability. ESP PSDE basándose en lo que sont nécessaires, les réformes FRANÇAIS funcione mejor, en términos en rapport avec le DSPE de paquetes de reforma y su doivent constituer un objectif secuencia, y dadas las situaciones de long terme clairement énoncé. de sectores país, necesidades y · La preuve de l'importance de l'en- capacidades institucionales. Los gagement du pays n'est, quant à mejores ejemplos de práctica se elle, pas ambiguë. Les facteurs de pueden desarrollar para una gama pays, tels que des priorités réal- de atributos de países observados istes, une feuille de route claire, con frecuencia. des champions locaux et des gains · El desarrollo de esta orientación précoces, permettent des ré- debe ser un esfuerzo conjunto formes réussies et un DSPE per- entre el Banco, CFI y OMGI, y de- formant. L'établissement d'un bería definir un marco para anali- groupe d'intérêt pour des ré- zar completamente las alternativas formes par la participation de so- del PSDE que asegurarían la via- ciétés civiles est également bilidad del medio ambiente y es- essentielle à la durabilité des ré- tarían en línea con la misión de formes. reducción de la pobreza del WBG. · La lutte contre la pauvreté et l'in- · La administración superior del tégration environnementale (ne WBG debería clarificar los papeles pas se contenter de « ne pas faire a jugar del Banco, CFI y OMGI de mal », mais également « faire du para el fomento del PSDE, parti- bien ») n'ont généralement pas cularmente en términos del au- été des composantes intrinsèques mento de apoyo financiero y des plans de stratégies de ré- asesor. formes sectorielles et de la pro- motion du DSPE, ce qui a fait b) En sus futuras intervenciones en baisser leur aura aux yeux de el PSDE, el WBG debería poner un l'opinion publique locale et inter- mayor énfasis en la generalización nationale. de la reducción de la pobreza y los · Le manque de réformes dans le objetivos ambientales (además de sous-secteur de la distribution sus objetivos tradicionales macro- peut mettre en péril les gains po- fiscales y de eficacia del sector), que tentiels de réformes dans le sous- son estrategias básicas y generales secteur de la production. del WBG para con la energía. · Les PEI ont un rôle à jouer pour dégager les goulots d'étrangle- · El WBG debería aumentar su en- ment en matière d'approvision- foque en reformar y facilitar las nement de manière efficace et inversiones privadas en el sub- substantielle, pour augmenter la sector de distribución, que re- capacité de financement du querirá acciones para mejorar la secteur public et pour obtenir des recolección de dinero, reducción gains précoces. Ils ont fournis de x x x E X E C U T I V E S U M M A R Y de pérdidas, tratar el tema de bons résultats de développe- la corrupción, lograr una ment dans les pays, les ~NOL mejor asignación de los sub- secteurs et les conditions con- A sidios, aumentar el acceso de tractuelles appropriés. Cepen- los pobres en zonas rurales y dant, les PEI qui ne sont pas ESP privatizar la distribución bien placés et ne sont pas ap- FRANÇAIS donde y cuando las circuns- puyés par un programme de tancias lo permitan. réformes T&D efficace peu- · El WBG debería llevar al máximo vent conduire à un déséquilibre la participación del sector privado entre la production et la capacité local en proyectos a pequeña es- T&D. Dans certains cas, ils ont ré- cala y/o descentralizados, lo cual duit la pression sur les dirigeants requerirá enfoques innovadores et sur les décideurs du pays pour y una mejor integración a través de poursuivre des réformes plus los sectores dentro del Banco, y poussées. entre el Banco, la CFI y el OMGI. · Les stratégies CAS (Stratégies d'aide aux pays) menées conjoin- c) El WBG debería fomentar inno- tement par la Banque mondiale, la vaciones operacionales para ase- SFI et la MIGA ont apporté un sou- gurar una mayor consistencia entre tien bien plus efficace au DSPE sus prácticas e instrumentos y las que celles qui avaient été mises metas del PSDE a medida que evo- en oeuvre par la Banque mondiale lucionan. seule, mais la coordination par le truchement des seules CAS de- · El WBG necesita mejorar la coor- meure insuffisante. dinación de las diferentes unida- des activas en el PSDE. En este Quelles sont les sentido, debería luchar por una recommandations en matière mejor integración de los objeti- de futures orientations vos del PSDE dentro del marco commerciales futures du de la CAS, incluyendo las CAS no Groupe de la Banque mondiale conjuntas y Documentos para la pour promouvoir le DSPE ? estrategia de la lucha contra la po- Sur la base des constats de son éval- breza (PRSP). uation, l'étude recommande les dis- · La administración del Banco, CFI positions suivantes : y del OMGI debe apoyar la inicia- tiva y flexibilidad en las operacio- a) De manière urgente, le Groupe nes del PSDE y AAA, a fin de de la Banque mondiale doit four- responder mejor a las condicio- nir des directives opérationnelles nes del país sector que están cam- au personnel du Groupe de la biando rápidamente y a las Banque mondiale au sujet de oportunidades que no son siem- quand et comment continuer à pro- pre previsibles en la CAS. Mediante mouvoir le DSPE dans la situation sus instrumentos diversos de prés- actuelle d'augmentation de risques tamos y asesores , el WBG debe- macroéconomiques et politiques, ría fomentar más asociaciones et du peu d'intérêt manifesté par les públicas-privadas e innovaciones investisseurs. Ces directives doivent prometedoras, tales como diseño être fondées sur la stratégie DSP x x x i P O W E R F O R D E V E L O P M E N T de reformas y esquemas de édictée récemment par la ayuda basados en resultados Banque. ~NOL y en favor de los pobres, para A lo cual es esencial tener sis- ·La Commission du secteur temas sólidos de control y de l'énergie et des mines de ESP evaluación. la Banque, en étroite consul- FRANÇAIS · El WBG debería crear indi- tation avec la Commission de cadores de rendimiento y sis- développement du secteur temas internos relacionados, así privé, doit fournir au personnel como ayudar a fortalecer las ca- du Groupe de la Banque mondi- pacidades de los prestatarios (in- ale des directives opérationnelles cluso mediante la financiación de mises à jour et pratiques pour pro- proyectos) para seguir y evaluar mouvoir le DSPE, en se basant sur los logros e impactos de las inter- ce qui réussit le mieux, en termes venciones de su PSDE. Estos es- d'ensembles de réformes et de fuerzos de seguimiento y leur mise en séquence, des situa- evaluación deben estar adaptados tions au niveau pays et au niveau a la Estrategia de renovación del secteur, des besoins et des capac- negocio de la energía y a otros ités institutionnelles. Des exem- objetivos relevantes de estrategia ples de meilleures pratiques y política, especialmente en las peuvent être développés pour un áreas relativamente abandonadas, groupe d'attributs de pays observés de ayudar a los pobres e incorpo- fréquemment. rar la viabilidad ambiental. · Le développement de ces direc- tives doit être un effort combiné entre la Banque, la SFI et la MIGA, et doit définir un cadre pour analyser pleinement les alterna- tives au DSPE devant assurer la pérennité de l'environnement et correspondre à la mission de lutte contre la pauvreté du Groupe de la Banque mondiale. · La direction du Groupe de la Banque mondiale doit clarifier les rôles de la Banque, de la SFI et de la MIGA pour promouvoir le DSPE, particulièrement en termes d'augmentation de support fin- ancier et consultatif. b) Dans ses futures interventions en matière de DSPE, le Groupe de la Banque mondiale devra accorder une plus grande importance à l'intégration de la lutte contre la pauvreté et aux objectifs environ- nementaux (en plus de ses objectifs x x x i i E X E C U T I V E S U M M A R Y traditionnels d'efficacité communes et dans les Docu- macro-fiscale et sectorielle), ments de stratégie de lutte qui sont au coeur de la stra- contre la pauvreté (PRSP). tégie d'énergie d'ensemble du · La direction de la Banque, Groupe de la Banque mon- de la SFI et de la MIGA doit diale. soutenir l'initiative et la sou- FRANÇAIS FRANÇAIS plesse des opérations DSPE · Le Groupe de la Banque et AAA, afin de mieux répon- mondiale doit davantage concen- dre à des conditions de pays et trer ses efforts sur la réforme et la de secteur en évolution rapide et facilitation des investissements à des opportunités qui ne sont privés dans le sous-secteur de la pas toujours prévisibles dans CAS. distribution, ce qui va exiger des Par ses différents instruments de actions visant à augmenter les re- prêt et de consultation, le Groupe cettes, à réduire les pertes, à de la Banque mondiale doit pro- diminuer la corruption, à améliorer mouvoir davantage de partenari- le choix des objectifs de subven- ats publics-privés et d'innovations tions, à étendre l'accès à l'énergie prometteuses, comme par exem- des pauvres vivant à la campagne ple un modèle de conception de et à privatiser la distribution où réformes et de schémas d'aide et quand les conditions le per- basés sur les résultats en faveur mettent. des pauvres, pour lequel une sur- · Le Groupe de la Banque mondiale veillance attentive et des systèmes doit maximiser la participation du d'évaluations sont essentiels. secteur local privé à des projets de · Le Groupe de la Banque mondiale petite envergure et/ou décentral- doit développer des indicateurs isés exigeant des approches in- de performances et des systèmes novatrices et une bien meilleure internes en rapport, et aider à ren- intégration intersectorielle au sein forcer les capacités d'emprunt (y de la Banque et entre la Banque, compris par des financements de la SFI et la MIGA. projets) pour surveiller et évaluer les accomplissements et les effets c) Le Groupe de la Banque mon- de ses interventions en matière diale doit encourager les innova- de DSPE. Ces efforts de surveil- tions opérationnelles pour assurer lance et d'évaluation (M&E) une plus grande cohérence entre ses doivent s'accorder avec la Stratégie pratiques et instruments, et ses ob- de renouvellement de l'énergie et jectifs en matière de DSPE au fur et les autres objectifs des stratégies à mesure de leur évolution. et chartes pertinentes, notamment dans des domaines relativement · Le Groupe de la Banque mon- négligés d'aide aux pauvres et d'in- diale doit améliorer la coordina- tégration de la préservation de tion entre les différentes unités l'environnement. actives en matière de DSPE. Dans ce but, il doit poursuivre une meilleure intégration de ses ob- jectifs de DSPE dans le cadre des CAS, y compris dans les CAS non x x x i i i ABBREVIATIONS AND ACRONYMS AAA Analytical and advisory assistance ADB Asian Development Bank AFR Africa Region ARPP Annual Review of Portfolio Performance ASTAE Asia Alternative Energy Program BOT Build, operate, transfer CAE Country Assistance Evaluation CAS Country Assistance Strategy CCS Country case studies CPW IFC Power Department DEC Development Economics and Chief Economist Vice Presidency EAP East Asia and Pacific Region EBRD European Bank for Reconstruction and Development EBRS Energy Business Renewal Strategy ECA Europe and Central Asia Region EHS environmental health and safety ERR Economic rate of return ESB Energy Sector Board ESMAP Energy Sector Management Assistance Program ESW Economic and sector work FFT Fuel for Thought (Bank Strategy Paper) FRR Financial rate of return FY Fiscal year GDP Gross domestic product GEF Global Environment Facility GHG Greenhouse gases ES Evaluation Summary IADB Inter-American Development Bank IBRD International Bank for Reconstruction and Development ICR Implementation Completion Report IDA International Development Association IFC International Finance Corporation IPPs Independent power producers IRR Internal rate of return LAC Latin America and Caribbean Region MAL Maximum aggregate liability MIGA Multilateral Investment Guarantee Agency MNA Middle East and North Africa Region M&E Monitoring and evaluation OED Operations Evaluation Department, IBRD/IDA OEG Operations Evaluation Group, IFC OEU Operations Evaluation Unit, MIGA PAD Project Appraisal Document PPA Power Purchase Agreement PPAH Pollution Prevention and Abatement Handbook PPAR Project Performance Assessment Report, OED PRSP Poverty Reduction Strategy Paper PSD Private sector development x x x v P O W E R F O R D E V E L O P M E N T PSDE Private sector development in the electric power sector PSR Project Status Report, IBRD QAG Quality Assurance Group SAL Structural Adjustment Loan SAR South Asia Region SECAL Sectoral Adjustment Loan SSA Sub-Saharan Africa TA Technical assistance TATF Technical Assistance Trust Fund T&D Transmission and distribution WBG World Bank Group XPSR Expanded Project Supervision Report, OEG x x x v i 1 Overview: Private Sector Development in the Electric Power Sector T he global electric power industry experienced deep changes in its eco- nomic, political, and technological features in the last decades of the 20th century. Those changes fundamentally altered the ownership and market structure of the sector and required the World Bank Group (WBG) to adjust its assistance in ways that supported a shift to private sector develop- ment in the electric power sector (PSDE). The Current Sector Environment pricing of electricity, the unattractive prospect of Since the 1950s, the power sector had been dom- revenues in local, often weak, currencies, poor tar- inated by publicly owned monopolies over the full iff collection rates, and weak governance. When range of sector activities from production to dis- change began to sweep through the industrial tribution. This was in accordance with the pre- countries, developing countries also started to re- vailing notion that large-scale technologies and form their power sectors, dismantling the gov- their high-fixed costs favored state financing, and ernment monopoly control of generation. Most, that monopoly stewardship by the state enhanced however, were slow in liberalizing transmission consumer welfare. The sector also was considered and distribution (T&D), resulting in limited pri- critical to national security and a tool with which vate investments in this subsector. governments might pursue social equity objectives Power sector reform requires the restructuring in their development efforts. These views pre- of institutional and market frameworks and the vented competition and discouraged foreign in- opening of the sector to private participation. vestment. From the late 1980s, however, the The establishment of both components in the promise of greater efficiency through market- same power system has been a relatively recent based competition and technological advances experience in both industrial and developing encouraged the vertical unbundling of power countries, with success and failures in both. Com- generation and an increase in private investment. mitment to reform is difficult to secure and sus- Developing countries had the same problems tain, as it entails the politically unattractive as industrial countries with noncompetitive pub- requirements of adjusting tariffs and attracting lic sector utilities, but with the additional disad- foreign corporate involvement. The power sector vantages of weak or nonexistent regulatory is prone to corruption both internationally and lo- institutions, political opposition to the economic cally because the stakes are high and the oppor- 1 P O W E R F O R D E V E L O P M E N T tunities for rent-seeking are plentiful. With poli- that although the big names are absent or have tics, circumstances, and timing lying at the heart withdrawn, local and regional players have of power sector reform, the transformation emerged and new transactions continue to occur. process and its outcomes at each stage are frag- Notable among these are the Delhi distribution ile. Experience shows that progress and sustain- privatization and private power deals in Kaza- ability are highly susceptible to the local political khstan and Central European countries. For the economy and to macroeconomic shocks: Ar- Bank Group, whose clients predominantly are gentina, a successful reformer until recently, has low-income countries with high political and reg- fallen victim to both. ulatory risks, the decline in private investor interest After growing rapidly in the early 1990s, private could be interpreted as being less of a concern, interest in the power sector waned following the but it should be noted that these are precisely the 1997 Asian financial crisis. A 2002 World Bank countries where the WBG's PSDE engagement is survey revealed that private power investors are most needed. Given these heightened uncer- retreating from developing countries, and the tainties and risks, WBG staff need guidance more medium-term prospects are discouraging: of 50 than ever on ways by which to reignite private in- firms surveyed, 52 percent are retreating and only terest and through which to continue to pro- three firms continue to be interested (Lamech and mote PSDE. Saeed 2002 and 2003). Interest is lowest where there is greatest need--in the distribution busi- The Role of the World Bank Group in the ness. As a matter of special concern, the 50 firms 1990s are unanimous that public­private partnerships In the 1960s and 1970s, the World Bank, com- are not important for them, and ranked such prising the International Bank for Reconstruction partnerships lowest as a factor governing invest- and Development (IBRD) and the International ment success. These survey findings are striking, Development Association (IDA), was through given that during the 1990s the 15 or so major pri- its support of state-owned utilities a major fin- vate power investors tended to concentrate their ancier of the electric power sector in develop- interest on only about 10 middle- to high-income ing countries. In the 1980s, global pressure to countries. The global picture shows that while the address the persistently poor performance of World Bank is pursuing the creation of a PSDE-en- those utilities led the Bank to start focusing its abling environment in 68 countries, private for- electric power lending and policy advice on the eign interest itself is dwindling. The growth in promotion of private sector involvement. De- demand for power in developing countries mean- spite the decades of Bank support for public while is estimated to require hundreds of billions power utilities, their financial position continued of dollars in power infrastructure investments to be desperate, institutions and governance re- during the rest of this decade. Reigniting private mained weak, low technical and operational ef- sector interest in developing country power sec- ficiencies endured, and national policies on tors will be difficult. This issue is of special im- pricing and investment planning resisted change. portance to IFC and MIGA, which mobilize The power markets in industrial countries mean- transactions with mostly foreign private partners. while were being transformed by lower-cost The effectiveness and sustainability of PSDE will technologies, new regulatory developments, and depend on identifying measures that enable the the growth of independent power producers, power sector to better manage the political and which demonstrated that utilities could turn to macroeconomic risks. The WBG's advice and as- cheaper and more efficient private power for sistance continue to be in demand, but its role in part of their supply. advocating PSDE has become less clear as a result By the early 1990s, lending to public utilities of the sharp decline in private investor interest in had become untenable, and the WBG adopted a emerging markets. While some observers have policy to promote private sector development in identified this as a crisis in power sector reform the electric power sector. This was formalized in in developing countries, others see the sharp the 1993 Electric Power Lending Policy (World drop in investor interest as temporary, noting Bank 1993b), which was endorsed by the Inter- 2 O V E R V I E W national Finance Corporation (IFC) and which sustainable development by stating that energy was also consistent with the mandates of the Mul- sector and pricing reforms will likely improve tilateral Investment Guarantee Agency (MIGA). overall efficiency through the adoption of cleaner The 1993 policy was predicated on "commitment energy technologies. lending," which meant that assistance would be The most recent Bank Group statement on given only when a country's institutional and PSDE is "The World Bank Group's Energy Pro- structural reform policies were satisfactory. Dur- gram: Poverty Alleviation, Sustainability, and Se- ing the 1990s, lending predicated on government lectivity" (World Bank 2001d). This Energy commitment was tested in India, historically a Business Renewal Strategy (EBRS) was prepared recipient of large volumes of Bank power lending. to address the shortcomings of the past energy In 1993, precipitated by India's economic crisis of program and to align the energy business practice the early 1990s and the poor performance of the with the overall strategic framework of the WBG. State Electricity Boards (SEBs), the Bank decided Energy practice in the Bank evolved signifi- to lend only to states that agreed to unbundle their cantly during the 1990s, in line with the shift of SEBs, establish an independent regulatory au- the Bank's portfolio away from power genera- thority, and privatize all new generation and dis- tion in favor of sector reform and adjustment and tribution investments. From 1990 to 1996 the transmission and distribution. Within a smaller Bank adopted a strategy of not lending, and this lending portfolio and more constrained opera- led to progress by several states in reforming tional budgets, the practice has had to focus more their power sector. Although there has been some intensively on complex market reforms, climate recent backsliding on reforms, both the Opera- change, energy access, and poverty reduction, tions Evaluation Department (OED) and the Qual- and related analytical and advisory (AAA) products, ity Assurance Group (QAG) of the World Bank notably through the Energy Sector Management concluded at the time of OED's 2001 Country Assistance Program (ESMAP). By the end of the Assistance Evaluation (OED/World Bank 2001b) 1990s, an Energy Sector Board (ESB) was estab- that the Bank's approach is a best-practice model lished to (i) lead strategy formulation and im- that should be emulated throughout the Bank's plementation, based on rapidly changing internal power sector portfolio. development priorities and external trends; (ii) The Bank Group's PSDE policies are supported catalyze the exchange of best practices, train staff, by activities in three strategic areas of emphasis: and mobilize learning events (notably Energy energy efficiency, rural and renewable energy, Week); and (iii) ensure portfolio quality and strate- and environmental sustainability. In the 1993 "En- gic relevance through country-sector and Quality- ergy Efficiency and Conservation in the Devel- at-Entry reviews. The role of the Bank's energy oping World" (World Bank 1993a), the Bank practice has become complex: country clients emphasizes energy pricing to improve overall en- and private stakeholders have multiplied; internal ergy efficiency and promote environmental pro- and external pressures for quality and accounta- tection, private sector development (PSD), and bility have increased; and cross-sectoral integra- competitive markets. In the 1996 "Rural Energy tion with nonenergy sectors (public sector reform, and Development: Improving Energy Supplies private sector development, and poverty reduc- for Two Billion People" (World Bank 1996b) the tion and economic management networks) within Bank seeks to develop new approaches for pro- a matrix-managed Bank have become a daily op- viding energy to the rural poor. Where the private erational necessity. sector is involved, it suggests several actions to make private companies more inclined to serve Evaluation Objective and Framework rural areas and to promote a regulatory regime that favors competition among retailers and dis- Objective tributors. The 2000 strategy paper "Fuel For The purpose of this study is to assess the results Thought: Environmental Strategy for the Energy of the WBG's PSD-related interventions during the Sector" (World Bank 2000a) addresses the links 1990s in the power sectors of some 80 develop- between the private sector and environmentally ing and transition countries and to answer four 3 P O W E R F O R D E V E L O P M E N T evaluation questions: (i) how have private par- tion, transmission, and distribution; and a com- ticipation and the WBG's role changed in the petitive market with private participation in green- 1990s?; (ii) to what extent has the WBG's assis- field projects and the privatization of existing tance supported its PSDE strategies?; (iii) what assets. The EBRS objectives include the promo- have been the results of the WBG's PSDE inter- tion of PSD, macrofiscal balancing, protecting the ventions?; and (iv) what are the lessons that environment, and helping the poor directly. The should guide the WBG's future business directions evaluation framework also includes the Country in promoting PSDE? As WBG assistance in the Assistance Strategy (CAS) objectives, because an power sector is still needed, particularly at this evaluation based on individual projects alone time when foreign investors are retreating from would not capture the sector-level outcomes of the sector, the study derives lessons from expe- power reforms; many of the Bank Group coor- rience to inform the ongoing implementation of dination and strategic issues raised in the evalu- the EBRS. ation furthermore can only be addressed at the To date, PSDE practitioners have been learn- country level. ing by doing, with the WBG having the advantage The EBRS objective of promoting PSD is of of institutional scope and memory. The continu- particular interest to this study. The specific EBRS ally evolving practices in PSDE make difficult the performance indicators comprise the creation of establishment of convincing theories about the op- transparent and nondiscriminatory regulatory timal sequencing of reforms, although the cata- mechanisms; the introduction and expansion of logue of things to avoid continues to expand. competition; the divestiture of assets to strategic Within the WBG, PSDE practice is a moving tar- investors; catalyzing private investments by lib- get, making it particularly difficult to establish eralizing entry to energy markets; strengthening evaluative benchmarks to measure results, other the voice of consumers and communities; and than the stated objectives of the individual PSDE strengthening local financial institutions to pro- project and the overall PSDE program (if any) at vide long-term financing for rural energy busi- the country level. Moreover, given the number of ness. stakeholders and practitioners (other than the OED derived evidence and evaluative findings WBG), as well as the unpredictability of reform from (i) literature reviews; (ii) a review of the outcomes, it is challenging to assess the extent to Bank's portfolio of 154 PSDE-related projects, which WBG interventions were pivotal or decisive based on Implementation Completion Reports, catalysts of reform, and to recommend how this Project Status Reports, OED's Evaluation Sum- role could be enhanced in the future. maries and Performance Assessment Reports, and other project documentation; (iii) country Framework case studies of Côte d'Ivoire, Pakistan, the Philip- OED evaluated the results of PSDE interventions pines, Poland, and Turkey, four of which were in relation to the Bank Group's approach to PSDE done jointly with the Operations Evaluation Group as it evolved during the 1990s. This evaluation fo- (OEG) of IFC (IFC has no power operations in cused on the performance benchmarks stem- Poland); (iv) analysis of other country examples ming from the objectives of the 1993 Electric offering PSDE lessons of broad applicability; (v) Power Lending Policy. It also reviewed the Bank's a survey of task managers responsible for PSDE experience in terms of applying this experience projects;1 (vi) semistructured interviews of Bank to the objectives of the 2001 EBRS. The objectives task team leaders and energy sector managers of the 1993 policy, its 1996 best-practice state- and IFC investment officers and managers; (vii) ment (World Bank 1996a), and the Bank's reform a review of six regional energy strategies; and approach emphasized the commercialization and (viii) a review of the 1990s CASs for the five coun- corporatization of utilities, with a view to eventual try case studies and 10 other countries with major privatization; an adequate legislative and regula- PSDE programs, to assess their PSDE content tory framework for private sector participation; the and to analyze the linkages between the stated unbundling of integrated utilities into genera- PSDE priorities and the lending and economic and 4 O V E R V I E W sector work/analytical advisory assistance power sector that are not directed at promoting (ESW/AAA) programs in each country. Comments PSD. It does not include an evaluation of the re- were also received from a group of external re- newable energy subsector, as the number of ma- viewers and taken into account in the final draft- ture WBG operations in this subsector is too small ing of the study. to serve as a basis for evaluative judgments and OEG's evaluation findings are based on a syn- conclusions. While within the scope of the orig- thesis of project-level evaluations covering the inal Approach Paper, coal, oil, and gas are not ad- 29 mature IFC projects of the 57 approved proj- dressed in this study. These energy subsectors are ects of the 1990s.2 The study draws from existing covered in the OED/OEG/OEU review of the XPSR (Expanded Project Supervision Report) WBG's experience in Extractive Industries (EI) evaluation findings on 15 IFC operations and (the EI study was conceptualized subsequent to from OEG mini-evaluations of 14 other projects the decision to undertake the PSDE study). The that were made using an abbreviated version of study period is from FY90­99. Where appropriate, the XPSR evaluation framework. These mini-eval- the study also provides observations on the WBG's uations were drawn from a review of project doc- PSDE activities in FY00­01. Performance and out- uments, interviews with IFC project teams come ratings are based on the respective evalu- (investment officers, environmental specialists, ation criteria of the Bank, IFC, and MIGA. The economists, and technical specialists) and field vis- study does not duplicate the analysis of the Bank's its to projects in case study countries. The IFC eval- and IFC's respective Annual Reviews of Portfolio uation also draws from OEG's Annual Review Performance and Evaluation Findings, but builds findings. on their data and findings. Given the large size of MIGA's Operations Evaluation Unit (OEU) drew the Bank's analytical and advisory assistance (AAA) its findings from a review of MIGA's electric power and the serious data inadequacies on AAA per- portfolio. Additionally, OEU synthesized the results formance, the in-depth review of PSDE-related of evaluations of eight mature projects, selected AAA operations was limited to country studies through random and stratified sampling of ac- using generally accepted AAA criteria. Due to in- tive and mature operations, representing 25 per- sufficient data, the study does not include an cent of all MIGA-supported projects in electric evaluation of IFC's advisory operations nor the power generation during FY94­01. electric power components of nonpower sector projects. Since few countries are at the advanced Scope and Limitations stages of power reforms, the study emphasizes the This study evaluates the WBG's performance assessment of the PSDE promotion process; it as- against its existing policy and strategic commit- sesses outcomes and impacts to the extent made ments to support PSDE. As such, it does not in- possible by available literature, project evalua- clude a review of the broader underlying rationale tions, and limited country studies. Details on the for promoting PSD. The study focuses on the methodology and tools used in the study are pro- WBG's activities in the electric power sector; it vided in Annex A. does not cover WBG interventions in the electric 5 2 PSDE Objectives and Instruments T he power sector reforms that swept the industrial countries and some developing countries in the 1990s can be presented graphically by fo- cusing on the degree to which they attempted to change the compet- itive structure of different segments in the industry, and on the changes in ownership from public to private (Turkson 2000) (Figure 2.1). Although in practice some of the possible changes (IFC advisory work in Cameroon, in conjunction were chosen from a menu of objectives, the lit- with Bank lending). A third approach was to un- erature and Bank Group practice gradually evolved bundle the state monopoly and privatize the sep- toward a combination of seven PSDE reform arate entities, while establishing a regulatory body areas: (i) commercialization; (ii) corporatization; to oversee both the competitive and the un- (iii) arm's-length regulation; (iv) unbundling; (v) competitive segments of the restructured power private participation in production (greenfield industry (Chile, Peru, Ukraine). Regardless of the and divestiture); (vi) private participation in path, the underlying objective was to minimize or transmission and distribution (greenfield and di- eliminate the sector's fiscal drain, as well as im- vestiture); and (vii) building competitive markets prove supply efficiencies, access, quality of serv- in production, transmission, and distribution. ice, and the financial performance of utilities. The relative mix of restructuring and privati- The Bank, IFC, and MIGA played different roles zation adopted by each country depended on in helping countries along the two axes and the country's political choices, but also evolved achieved different results. The division of spe- throughout the 1990s. One approach was to main- cialization between the three gradually evolved on tain the state-owned monopoly structure but to PSDE (and PSD in general), and was only for- invite independent power producers (IPPs) to mally specified in the PSD strategy in 2002 (World construct new power plants and sell their elec- Bank 2002c). The Bank is now expected to con- tricity to the public monopoly as a single buyer centrate on the legal and regulatory framework, (Indonesia, Pakistan, and the Philippines), usually thus improving the enabling environment for on the basis of a long-term Power Purchase Agree- PSDE, and, where needed, on helping improve the ment (PPA). A second approach was to promote performance of the remaining public compo- private ownership of a vertically integrated gen- nents of the sector. IFC is expected to assist the eration, transmission, and distribution system process by helping to finance new private sector 7 P O W E R F O R D E V E L O P M E N T R e f o r m O p t i o n s t o A c h i e v e S t r u c t u r a l a n d F i g u r e 2 . 1 O w n e r s h i p C h a n g e s i n t h e P o w e r S e c t o r Complete vertical Complete horizontal unbundling R unbundling (provincial utilities which are vertically integrated) e s Unbundled t Provincial distribution and generation and r generation, national distribution u transmission (common carrier) c t Unbundled Provincial distribution generation, common u companies, national transmission and r generation and transmission distribution i n g National utility Vertically integrated utility Privatization/Ownership changes Ministry Department Corporation (arm's- Contract Privatization of length relation to management generation and government) distribution Complete Parastatal Commercialization IPPs­privatization of Public generation Complete Ownership Private Ownership investments and by helping government institu- and seem to have maintained the same pace. The tions with the privatization process itself.1 MIGA's Bank's electric power lending reached a peak of role is to assist foreign investors by providing US$3.2 billion in FY96, dropping to US$440 mil- coverage against political risks. During the 1990s, lion in FY99 before rebounding to US$994 million the roles of the Bank and IFC occasionally over- in FY00 (see Table 2.1). Power accounted for 15 lapped. percent of total Bank commitments in FY96, but The WBG also used a variety of instruments to only 1.5 percent in FY99. By comparison, IFC's help countries pursue their PSDE objectives. Most power investment approvals also reached a peak were financial instruments (loans from the Bank of US$872 million in FY95 and had declined to and IFC, equity investments by IFC, guarantees by about 40 percent of that level by FY99, but the cu- the Bank and MIGA), but analytical work by the mulative gross approvals of US$4.4 billion over the Bank and advisory services provided by IFC also 1990s reflects tremendous growth compared to were important. Bank lending was not only for in- the low level of US$45 million in FY90. MIGA vestment, but also was for technical assistance and guarantees peaked in FY00, both in the volume to fund components of adjustment loans. of coverage issued and the number of projects World Bank lending to the power sector was supported. In FY00, power projects accounted for high through most of the 1990s, but dropped a record 40 percent of MIGA's gross liability issued, sharply after 1998, following the Asian financial cri- whereas in the second half of the 1990s that fig- sis and the sudden halt in capital flows to emerg- ure had oscillated around 15 percent. At the same ing markets. The pattern of IFC investments is time, the average size of MIGA projects and their similar, while MIGA guarantees expanded rapidly complexity also increased. 8 P S D E O B J E C T I V E S A N D I N S T R U M E N T S I B R D / I D A L e n d i n g , I F C I n v e s t m e n t s , a n d T a b l e 2 . 1 I B R D / I D A a n d M I G A G u a r a n t e e s i n t h e E l e c t r i c P o w e r S e c t o r , F Y 9 0 ­ 0 1 FY90 FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 IBRD/IDA lending* Number of projects 16 10 25 19 10 16 20 17 15 6 9 9 Approvals (US$ millions) 2,968 1,707 3,554 2,739 1,613 2,242 3,247 1,889 2,067 440 994 824 Bank power project lending as % of total commitments 14.34 7.52 16.37 11.56 7.74 9.95 15.21 9.87 7.23 1.52 6.51 4.78 PSDE-related (US$ millions), of which: 875 735 456 1,672 1,457 1,919 2,468 1,638 1,409 349 750 766 Freestanding 98 195 127.5 1.2 230 411 329.4 184 0 0 0 0 Components (only power sector) 777 540 328 1,671 1,227 1,508 2,139 1,454 1,409 349 750 766 PSDE-related as a % of electric power lending 29.5 43.1 12.8 61.0 90.3 85.6 76 86.7 68.2 79.4 75.4 92.9 IBRD/IDA guarantees Number of operations 0 0 0 0 1 3 2 0 1 2 0 1 Value (US$ millions) 0 0 0 0 57 404 125 0 10 330 0 61 IFC investments Number of approved investments 2 2 1 7 8 9 6 8 8 6 11 8 Value of gross approvals (US$ millions) 45 107 97 512 676 872 623 518 584 335 632 687 IFC power approvals as % of IFC total approvals 2.0 3.8 3.0 13.0 15.8 16.0 7.7 7.7 9.9 6.3 10.8 12.8 MIGA guarantees Number of projects guaranteed 0 0 0 0 1 3 5 7 6 5 8 4 Maximum aggregate liability (US$ millions) 0 0 0 0 15 137 132 94 132 161 638 394 *Includes only projects in the electric power sector group. Most of the projects include PSDE components; 16 are standalone PSDE projects Sources: IBRD/IDA Lending--Business Warehouse; IBRD/IDA Guarantees--Project Finance and Guarantee Group; IFC Investments--International Finance Corporation; MIGA Guarantees--Multilateral Investment Guarantee Agency. Bank and IFC lending approvals, as well as The level of support for PSDE from other mul- Bank and MIGA guarantees, have to be seen in the tilateral development banks is small compared to context of the huge (and unanticipated) increase the WBG, based on a comparison of their overall in private capital flows to developing countries be- lending programs, their electric power sector tween 1990 and 1997. Similarly, the drying up of portfolios, and their PSDE components (where those flows--and of new private investment--in known). Since 1994, the European Bank for Re- developing countries following the 1997 Asian fi- construction and Development (EBRD) supported nancial crisis affected WBG activities. For exam- 10 projects in power and energy, of which two are ple, while IFC approvals remained relatively strong equity investments, totaling US$230.8 million. (except in 1999), its funding commitments slowed The Asian Development Bank (ADB) approved 40 down. Finally, the geographical differences in the loans in the energy sector between 1995 and Bank Group's PSDE assistance are also partly ex- 1999, representing 11 percent of ADB loans, but plained by the concentration of private capital there are no data on how much of this lending is flows in Latin America and Asia (both East and specific to PSDE. More than 50 percent of the ac- South). tive projects of the Inter-American Development 9 P O W E R F O R D E V E L O P M E N T Bank (IADB) are in the energy sector, and 47 per- able. IADB's grant-making Multilateral Investment cent of the infrastructure portfolio of IADB's Inter- Fund supports the establishment of regulatory American Investment Corporation is in the power mechanisms to encourage private participation, sector, but PSDE-specific data again are unavail- some of which is geared toward PSDE. 1 0 3 Project Results T he WBG supported PSDE through interventions in 80 countries, through different combinations of WBG institutions and instruments. The Bank pursued power sector reforms (mainly through components in larger projects); IFC and MIGA facilitated private power investments. OED's review of the Bank's PSDE portfolio shows been mixed, as discussed in the next chapter. that (i) project objectives are consistent with the Since IFC and MIGA are transaction-oriented with seven PSDE reform areas that evolved in the regard to the WBG's wider reform agenda, this Bank's energy practice during the 1990s, and (ii) chapter focuses on their performance based on the level of financial support varied widely, rang- a synthesis of their respective project-level out- ing from small technical assistance components comes and indicators. In pursuing the WBG's to large energy Sector Adjustment Loans (SE- PSDE agenda, both IFC and MIGA concentrated CALs). World Bank-defined regions include Africa on supporting private participation in the gen- (AFR), East Asia and Pacific (EAP), Europe and Cen- eration subsector, and to a lesser extent in the tral Asia (ECA), Latin America and Caribbean T&D subsector. Private participation in these two (LAC), Middle East and North Africa (MNA), and subsectors is an integral part of the reform agenda South Asia (SAR). Along these regional lines, in supported by the WBG. The Bank, for its part, AFR, ECA, and MNA the Bank predominated and mostly pursued sector-wide reforms through di- IFC and MIGA had little presence; in EAP, LAC, and verse and multisectoral lending and AAA instru- SAR the Bank, IFC, and MIGA were all involved ments (see also Annex B). (Table 3.1). Close to 40 percent of IFC's operations are in LAC and SAR alone. IFC's involvement in Bank Involvement: Reforming Power the power sector in the 1990s focused mainly on Sectors and Mainstreaming PSDE financing independent power producers (IPPs) in accordance with one of the seven PSDE reform The Bank mainstreamed PSDE, as its traditional power areas. lending sharply declined. The shifts in the Bank's re- As discussed below, project-level results (that form portfolio during the 1990s also show a pos- is, individual transactions) have been good over- itive response to the 1993 Electric Power Lending all for IFC and MIGA, but in Bank projects it has Policy and the Bank's 1996 best-practice state- been mixed. Sector-level outcomes overall have ment. The Bank increasingly supported PSD and 1 1 P O W E R F O R D E V E L O P M E N T R e g i o n a l D i s t r i b u t i o n o f B a n k , I F C , a n d T a b l e 3 . 1 M I G A O p e r a t i o n s Region Bank % share IFC % share MIGA % share Africa (AFR) 30 20 3 5 2 5 East Asia and Pacific (EAP) 35 23 6 9 9 23 Europe and Central Asia (ECA) 39 25 7 11 2 5 Latin America/Caribbean (LAC) 25 16 22 34 20 51 Middle East/N. Africa (MNA) 5 3 2 3 0 0 South Asia (SAR) 20 13 16 25 6 15 World 8 13 Total Projects* 154 64 39 Total Countries 68 29 25 Total Countries in WBG: 80 * The Bank column of 154 investment and adjustment operations includes 138 PSDE components in nonenergy sectors, for which the Implementation Completion Reports, Evaluation Summaries, Performance Audit Reports, and Project Status Reports were all reviewed. The IFC column includes 57 investment operations (29 of which are mature and have been evalu- ated) and seven Global Environment Facility (GEF) projects (none of which has been evaluated). private participation in its power and nonpower · The Bank's work on private participation in lending. While power lending volumes dropped, production and unbundling has experienced the number of projects with PSDE components wide swings, and appears to be tapering off. grew from 7 in 1990 to 18 annually after 1994, in- dicating the mainstreaming of PSDE objectives into Bank lending for transmission and distribution has nearly all power projects, as well as adjustment and overtaken generation expansion. The Bank's lending nonelectric power projects (notably in public en- for the expansion of generation capacity dropped terprise reform) and partial risk guarantees. Within from a peak of US$2.6 billion in 1992 to almost the power sector alone, the lending volume of nothing in 2002 (Figure 3.1). It has now been projects that pursued reforms and PSDE ac- overtaken by lending for transmission and distri- counted for from 75 to more than 90 percent of bution, where much still remains to be done electric power project approvals during the period given the pivotal role of improvements in the dis- following the 1993 policy (Table 2.1). As the num- tribution subsector to the success of overall re- ber of country clients increased and PSD instru- forms, as will be discussed in Chapter 4. Of the ments became more diverse, the following PSDE 154 Bank projects that supported PSDE, 63 proj- trends can be observed, based on OED's portfo- ects (40 percent) also supported transmission lio review (see also Annex C): and distribution. Most of the projects were ap- proved in the early to mid-1990s and were in the · The Bank's support for corporatization increased EAP, AFR, SAR, and ECA regions. There were few in the early 1990s and has remained relatively distribution projects in LAC and MNA. Almost stable. Commercialization peaked in the mid- half of the projects supporting T&D did not per- 1990s before falling back to 1990 levels. form well. Of the 38 closed projects, OED rated · From its modest efforts in 1990, the Bank's the outcome of 17 projects (45 percent) as un- agenda has evolved to an emphasis on arm's- satisfactory or marginally unsatisfactory, mainly length regulation (now the most frequent proj- due to persistent high losses and inability to im- ect objective) and private participation in prove revenue collection, lack of adequate tariff transmission and distribution. adjustments, and/or weak institutional capacities. · The building of competitive markets has shown The sustainability of 42 percent of these closed a consistent increase since 1996. projects was rated as uncertain (18 percent) or un- 1 2 P R O J E C T R E S U LT S I B R D / I D A L e n d i n g f o r G e n e r a t i o n C o l l a p s e d , F i g u r e 3 . 1 P u t t i n g T r a n s m i s s i o n a n d D i s t r i b u t i o n i n t h e L e a d b y F Y 0 1 ( a p p r o v a l s i n U S $ m i l l i o n s ) In US$ million 4,000 Total electric power and other 3,500 energy Generation 3,000 Transmission and distribution 2,500 2,000 1,500 1,000 500 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Year likely (24 percent)--seven out of the nine AFR global PSDE financing, its assistance has empha- projects were rated as having unlikely or uncer- sized underserved low-income and lower-mid- tain sustainability. Of the 25 active projects, three dle-income countries. The Bank supports PSDE are reported as unsatisfactory in terms of achiev- in a large number of mostly low-income countries. ing their development objectives due to lack of OED's portfolio review shows that most of the government commitment and implementation Bank's PSDE-related projects were approved for delays, in addition to the foregoing reasons. low-income countries. There were fewer approvals for upper-middle-income countries (Figure 3.2). The Bank's PSDE support has focused largely on low- income and lower-middle-income countries. While Results of the Bank's reform-intensive PSDE projects the Bank remained a relatively small player in are positive in only 55 percent of cases, and mixed in T h e B a n k ' s P S D E P r o j e c t s H a v e F o c u s e d o n F i g u r e 3 . 2 L o w - a n d L o w e r - M i d d l e - I n c o m e C o u n t r i e s Number of projects 14 Low income 12 Lower middle income 10 Upper middle income 8 6 4 2 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Fiscal year 1 3 P O W E R F O R D E V E L O P M E N T 22 percent. Only 16 of the 154 projects in the ber of PSDE-related projects that achieved (or Bank's PSDE portfolio are freestanding, and 13 of are achieving) their objectives, such as the pass- those have an outcome rating of satisfactory.1 ing of reform legislation, strengthening of regu- Also, 138 projects (90 percent of the portfolio) latory capacities, adjustment of tariffs, and have PSDE components for which there are no in- unbundling. For PSDE components alone, this dependent ratings. (For reference, the ratings for finding is more positive than the 1999 portfolio all these projects are provided in Annex D.) In a review, which showed, based on aggregate port- review of the latest Project Status Reports (active folio data, that the energy sector--including projects) and the Evaluation Summaries or Im- power and oil and gas--was one of the worst plementation Completion Reports (closed proj- performing in the Bank (this has improved re- ects) across the PSDE portfolio, OED found that cently through portfolio restructuring). In sum, about 55 percent of projects had achieved their based on inputs and outputs at the project level, stated PSDE objective(s) and 22 percent partly the Bank appears to be only half-successful in achieved their objectives. Sixteen percent and pursuing the discrete objectives of its reform eight percent of projects respectively returned agenda. "not achieved" or unclear results (Table 3.2). The Do freestanding PSDE projects perform better LAC and ECA regions returned the highest num- than projects with PSDE components? A review T h e B a n k ' s P S D E P r o j e c t - L e v e l R e s u l t s T a b l e 3 . 2 ( b a s e d o n a c h i e v e m e n t o f s t a t e d P S D E o b j e c t i v e s ) Subtotal "Achieved" Partly Not no. of as % of no. Region Status Achieved achieved achieved Unclear Projects of projects AFR Active 8 2 6 1 Closed 3 6 3 0 Subtotal 11 8 9 1 29 38 EAP Active 11 4 2 2 Closed 10 5 1 0 Subtotal 21 9 3 2 35 60 ECA Active 10 3 0 2 Closed 17 5 3 0 Subtotal 26 8 3 2 39 67 LAC Active 8 0 0 1 Closed 9 4 2 1 Subtotal 17 4 2 2 25 68 MNA Active 0 1 1 1 Closed 1 1 0 0 Subtotal 1 2 1 1 5 20 SAR Active 4 1 1 3 Closed 3 2 5 1 Subtotal 7 3 6 4 20 35 Total Results Active 41 11 10 10 Closed 43 23 14 2 Total 84 34 24 12 154 55 Source: Based on PSRs as of March 2002 for active projects and OED Evaluation Summaries and Implementation Completion Reports (ICRs) for closed projects. 1 4 P R O J E C T R E S U LT S C o u n t r i e s i n E a c h R e g i o n T a k i n g K e y F i g u r e 3 . 3 R e f o r m S t e p s i n P o w e r ( p e r c e n t a g e ) % of countries in each region 120 LAC EAP 100 SAR 80 ECA AFR 60 MNA 40 20 0 Corporatization Law Regulator Independent Restructuring General Distribution power assets assets producers divested divested Note: Number of Countries Surveyed in Each region (LAC=19; EAP=11; SAR=5; ECA=37; AFR=71; MNA=11). Source: Robert Bacon, "A Scorecard for Energy Reform in Development Countries", Viewpoint No. 175. World Bank, April 1999. of the Bank's PSDE portfolio suggests that satis- Countries and regions vary widely on their reform sta- factory (or unsatisfactory) outcomes are not as- tus. When assessing PSDE outcomes, a key ques- sociated with a project being freestanding or a tion to answer is where developing countries component of a larger project (see Annex E). stand on power reforms. An independent as- These outcomes are also not fully explained by type sessment of reform achievements in 115 countries, of instrument or heavy Bank inputs of ESW/AAA. prepared in 1999 by the Bank's Energy Sector Good PSDE outcomes are driven mainly by coun- Management Assistance Program (ESMAP), ex- try factors, including the country commitment, amined this question (ESMAP 1999).2 The as- broad-based ownership, strong local champions, sessment (hereafter "the Scorecard") indicates a clear road map, and early wins. The relevance each country's overall reform status and, where and timing of the Bank's interventions and its applicable, the impacts directly attributable to ability to effectively navigate the local political the WBG (as in many LAC countries, the WBG economy are important supporting factors. In often became involved only after reforms had promoting PSDE, the Bank should give more at- been initiated by the country). Without implying tention to building country ownership and the causality, countries with WBG involvement tend buy-in of stakeholders; it also should sustain any to be associated with higher scores for reform in early successes at reform with well-timed, relevant the Scorecard, while countries without WBG in- ESW/AAA to help chart the reform steps and with volvement tend to have low reform scores. IFC, appropriately tailored lending instruments. This for example, considers engaging only when a will require the Bank to improve its ability to work country has opened its power sector to private in- with local champions for reform and to understand volvement, and does not come in to specifically the country's political economy context. launch reforms. This also explains why the WBG 1 5 P O W E R F O R D E V E L O P M E N T is most present in LAC, which has been most ac- formance Management Contracts, most of which tive in all the reform areas (Figure 3.3). did not work well (see Box 3.1). PSDE achieve- Based on stated PSDE objectives in project ments are few, and the challenges remain con- documents and on the most recently available siderable. Most AFR countries have low access to regional energy strategies, the following section electricity, lack financial resources for system ex- discusses the degree of reforms pursued in each pansion, and have inefficient management, often of the Bank's regions. AFR, ECA, and MNA rep- resulting in substantial losses to government resent the "basic" reform group of countries, and budgets. OED's portfolio review shows that the EAP, LAC, and SAR the "intermediate" and "ad- positive outcomes were only achieved late in the vanced" reform group. AFR, EAP, and ECA have the 1990s.3 For these few countries,4 macroeconomic heaviest emphasis on commercialization. As seen instability, serious delays, or partial and unbal- from Figure 3.3, LAC and ECA emphasized cor- anced reforms have put the PSDE gains at risk. In poratization. By a large degree, LAC's reforms others, the PSDE-related achievements have been had the strongest legal and regulatory focus com- cancelled out by negative project outcomes.5 Ad- pared to the other regions. LAC, EAP, and SAR in- justment operations have not been effective ve- volved the most IPPs, with the other three regions hicles for PSDE reform. Finally, in some countries far behind. LAC also led in power industry re- the results of Bank interventions remain to be structuring and asset divestiture. SAR's PSDE re- seen, or are clearly unsatisfactory (Angola, Bu- form agenda is the most evenly distributed across rundi, the Democratic Republic of Congo, Guinea, all the reform areas, with India alone accounting Madagascar, Mali, and Zambia). for more than half of the PSDE-related actions, The clear exception in AFR is Côte d'Ivoire, when tabulated at the project level. ECA had the where the Bank played a catalytic role in the gov- most PSDE-related projects, followed by EAP. In ernment's bold decision, in the mid-1990s, to call AFR, many countries have only one project with in a private operator to take over management of a small PSDE component. While LAC and SAR the power sector and expand private sector par- have relatively low numbers (25 and 20 projects, ticipation in electric power generation. The Bank respectively, out of the 154 reviewed) this may be facilitated the most important reform in the sec- misleading, since these lending operations were tor, the creation of the privately owned utility reform-intensive, and these are the regions where CIE (Compagnie Ivorienne d'Electricité). By mid- the Bank, IFC, and MIGA were all present. 1990, when the release of the second tranche of the Energy Sector Adjustment Loan was due, the (i) Regions with mostly Bank involvement only Bank informed the government that no financial (AFR, MNA, ECA) restructuring of the power sector could succeed without a change in management and recom- mended that EECI (the public utility) be placed Region Overall PSDE Status under financial trusteeship to implement major AFR PSDE achievements are few, recent, and at risk reforms. The clear signal from the Bank that there MNA PSDE efforts are just being initiated would be no tranche release without convincing ECA PSDE progress has shown mixed results and sustainability is measures led to the government's bold decision uncertain to call in a private operator to take over manage- LAC Most advanced in PSDE; power sector transformations have ment of the power sector. The Bank was kept in- been most profound formed, but not directly involved, in the details EAP PSDE progress is threatened by financial and political risks of the design of the new institutional and finan- SAR Innovative and intensive PSDE reforms are at risk of backsliding cial arrangements, and did not review the mem- orandum of understanding before it was signed. The contract with CIE runs until 2005 and effec- In AFR, the Bank pursued mainly basic reforms tively narrows the range of PSDE objectives that (commercialization and corporatization, and some could be pursued. Nonetheless, the Bank con- regulatory improvements) and promoted Per- tinued an intensive and sustained policy dialogue 1 6 P R O J E C T R E S U LT S P e r f o r m a n c e M a n a g e m e n t C o n t r a c t s W e r e B o x 3 . 1 M o s t l y U n s u c c e s s f u l In line with the 1993 Electric Power Lending Policy, many Sub- prove efficiency, as they did not systematically address the Saharan African countries used Performance Management Con- structural problems of the enterprises. In the Lao People's De- tracts with Bank support, but with disappointing results. There mocratic Republic, the performance contract between the Laot- have been eight management contracts in the AFR region (Benin, ian Finance Ministry and Electricité du Laos failed to eliminate the Democratic Republic of Congo, Ghana, Mali, Rwanda, Sierra receivables from government agencies. The major difficulty Leone, and Zimbabwe). The performance-related components in with management contracts lies in demarcating responsibilities these contracts were so small that service providers took little between owner and manager, and the need for the full support risk. The partial management contract for Ghana (billing and col- for the arrangement of owners and workers. The main lessons lection only) was the only one that produced positive results, but are the need for the operator's financial stake in the operation these were not sustainable. The experience in Bolivia shows that of the utility, the autonomy of the operator, and the government's the Bank's initial support for performance contracts failed to im- commitment to the reforms. with the government, has supported a major their reform targets. The remainder have either study of the institutional arrangements for the failed to implement reforms, are initiating them power sector, and has advised heavily on key de- after conflict (Southeast Europe), or are unde- cisions for a new sector setup (see also Box 4.1). cided as to what reforms to carry out (Belarus and In MNA, the WBG presence was limited in some Central Asian countries). The Central Eu- terms of direct lending during the 1990s, and ropean and Baltic countries saw profound changes most countries have initiated power sector re- in the structure, regulation, and ownership of forms only in the last two years. The region still their power sectors during the 1990s, often in con- has a long way to go, in particular with respect to nection with the larger shift toward competition creating investment climates conducive to pri- in the expectation of interconnecting with Euro- vate sector investment. The Bank's role in pro- pean electricity markets for wholesale trading. moting these changes has been mainly to sponsor This contrasts with the situation of countries be- or supervise preparatory studies for reforms and longing to the post-Soviet Commonwealth of In- private sector participation funded by other dependent States, where weak institutional donors or trust funds. Further restructuring stud- capacity has constrained the setting of effective ies are in various stages of completion or are be- and independent regulation (Von Hirschhausen ginning to be implemented (Morocco, Lebanon, and Optiz 2001). Some countries additionally Yemen, and Tunisia). Jordan, Algeria, and Lebanon have fallen behind as a result of war and civil un- have adopted new electricity laws that provide for rest and the attendant destruction of physical fa- corporatization and the establishment of a regu- cilities and deterioration of institutional capabilities latory body. Egypt has created a holding com- (Albania, Armenia, Bosnia, Croatia, Georgia, and pany with corporate subsidiaries and has former Yugoslav Republic of Macedonia). Recent established a regulatory agency. Egypt, Morocco, plans for accession to the European Union have West Bank Gaza, and Tunisia have IPPs in opera- provided an impetus for sector reforms in Bulgaria, tion. Jordan, which has had a locally privately Cyprus, Estonia, Latvia, Lithuania, Malta, Poland, owned, integrated distribution company for many and Romania, and these countries are showing years has fully unbundled its generation, trans- stronger regulatory performance, improved tar- mission, and distribution sectors and is preparing iff setting, and openness to market competition. to privatize the remaining entities. In Morocco, The Bank has supported the most ambitious about 50 percent of distribution is operated PSDE reforms in Armenia, Hungary, Poland, and through private concessions. Romania. These countries have proceeded with In ECA, PSDE progress overall has shown mixed unbundling, establishing a functioning arm's- results, with about half of ECA countries meeting length regulatory system, introducing private sec- 1 7 P O W E R F O R D E V E L O P M E N T tor participation, and improving sector financial tive markets.12 Private participation in power has performance. Poland, which received extensive an- increased significantly: in Colombia, it rose to 56 alytical and advisory support from ESMAP, provides percent in generation in 2001, compared to 25 per- a good model for an effective approach to PSDE, cent in 1996; in Guatemala, 60 percent of in- first reforming energy prices and establishing an stalled capacity and 90 percent of distribution is appropriate regulatory framework, then restruc- private. As sector reforms deepen, sector per- turing the industry and finally privatizing. The formance continues to improve in Bolivia, Panama, functioning of a competitive market via a newly and Peru. Consistent increases in electricity tar- created spot market has been hampered in Poland iffs and improvements in billing collection have by the dominance of long-term Power Purchase strengthened the financial performance of the Agreements, however. Contrary to Bank advice, sector. Significant progress has been made in de- these PPAs were entered into with the transmis- veloping competitive power markets. Some coun- sion company to finance the modernization of tries with small power markets, such as Bolivia, power plants. Hungary, in contrast, pursued pri- have opted for competition in generation, break- vate investment as the driving force for modern- ing with the conventional wisdom that its market ization. With Bank assistance, the country has is too small. privatized all of its generation and transmission In EAP, PSDE progress is threatened by finan- companies. cial crisis and political risks. EAP has had heavy WBG involvement, particularly by the Bank, which (ii) Regions with Bank, IFC, and MIGA covered the entire range of PSDE objectives and involvement (LAC, EAP, SAR) reform steps for most EAP countries. The WBG's The LAC, EAP, and SAR regions show a more com- support for PSDE in EAP was successful in laying plex picture of PSDE progress and of WBG in- the foundations for power sector restructuring, volvement throughout the 1990s. Major unbundling power companies, and promoting differences include greater progress toward pri- private ownership, mainly through IPPs. By 1997, vate sector participation and investment in the EAP had the largest private power investments power sector; higher volumes of private capital globally, valued at US$50 billion and concentrated flows (prior to the 1997 financial crisis); and in five countries (China, Indonesia, Malaysia, the broader involvement of Bank, IFC, and MIGA Philippines, and Thailand). The Asian financial through a variety of instruments (lending, partial crisis had a huge impact on the sector, however: risk guarantees, political risk guarantees, IFC in- the demand for electricity fell below official pro- vestments, and B loans). jections and IPPs were underutilized and dis- Power sector transformation has been most patched below optimum levels, leading profound in LAC. While problems remain in many governments to ask the IPPs to share the burden of the region's countries, in large part because of of depressed demand through the reduction of the difficult external environment, the reforms contractually agreed fees. Moving to a multi-buyer have progressed beyond the point of no return market structure remains a major task given that and sustainability is more likely. the process is complex and takes time. At this junc- In addition to the well-known successes of Ar- ture, market structure, particularly regarding the gentina (prior to the current political and eco- role of competition, remains a major issue in the nomic crises),6 Brazil,7 and Chile, achievements region, as the reform agenda is highly politicized in most other LAC countries--notably Bolivia, and has been slowed by continuing strong op- Colombia, El Salvador, Guatemala, Panama, and position from entrenched interest groups. Peru--are also well advanced. Achievements re- In SAR, innovative and intensive PSDE reforms lated to Bank-financed projects include the are at risk of backsliding. All countries (except strengthening of PSDE-related legislation8 and Bhutan and the Maldives) have moved to en- regulatory regimes,9 unbundling,10 private sec- courage all areas of sector reform and private tor participation,11 and the building of competi- participation, but their achievements up to 1999 1 8 P R O J E C T R E S U LT S fell short of the objectives. The Bank's involvement ergy efficiency initiatives. Over the 1990s, IFC's has been most extensive in India and Pakistan, power sector operations have become an im- where it supported eight PSDE-related projects in portant component of the WBG's PSDE financing. each country throughout the 1990s. The Bank sup- These operations have included: ported on-lending mechanisms for promoting private power in Bangladesh, Pakistan, and Sri · 57 electric power projects (of which 29 are Lanka. In Bangladesh, this has recently been used mature and were evaluated for this study; these to finance a private power plant. In Pakistan, the projects are the source of evaluative findings Energy Fund was used to finance one very large on IFC's PSDE operations); transaction, the 1,292MW Hub Power subproject, · 33 advisory operations (13 standalone and 20 and other smaller ones.13 While Pakistan created Technical Assistance Trust Funds, listed in An- the institutional capacity to approve IPPs, its pub- nexes F and G); and lic utility (WAPDA) did not develop the institutional · seven IFC-managed GEF operations (listed in capacity to manage its new commercial contracts. Annex H, Attachment H.2). With Bank support, the government established the criteria for private participation in genera- IFC approvals soared during the 1990s. From incep- tion and readily approved IPP proposals that met tion through FY89, IFC's gross approvals in the the criteria. This resulted in an unbalanced de- power sector amounted to US$176.9 million, ac- mand and supply situation. Because of poor T&D counting for 1.5 percent of IFC's cumulative infrastructure and/or plant location, some IPPs are gross approvals. By FY99, driven by the upbeat running below optimal levels. Some parts of the market sentiment and the tremendous oppor- country continue to experience rolling black- tunities for private financing in the power sector, outs and less than 50 percent of the population that figure had grown to US$4.54 billion, or 7.5 has access to electricity. This imbalance puts a se- percent of IFC's total approvals. Figure 3.4 shows vere financial strain on WAPDA's resources. In that IFC's investment approvals in power jumped SAR (as in EAP), the large role given to IPPs has in 1993 and stayed high relative to the FY90­92 allowed for increased supply, but deep-seated period, while average investment size remained sectoral problems (such as weak institutional ca- virtually unchanged. In the 1990s, IFC approved pacity and lagging T&D reforms) continue to be 57 projects with project costs worth US$14.4 bil- a burden and could dilute the gains achieved by lion in 27 countries, compared to seven projects the reforms. with total project cost of US$903 million in four countries in the previous three decades (see IFC: Supporting Private Investments in Annex I for a list of IFC approvals in power from Electric Power Generation FY90). As of FY99, a total of US$2.5 billion of the IFC's power sector strategy in the 1990s was an- cumulative approvals was for the accounts of par- chored on four themes: (i) financing financially, ticipant banks through the IFC B loan program. economically, and environmentally viable inde- As of FY99, every dollar of direct IFC loan fi- pendent power producers (IPPs) and newly pri- nancing in power raised an average of US$1.60 fi- vatized and existing generation, transmission, nancing from B loan participants, compared to the and distribution companies; (ii) providing advisory corporate performance of US$1.04 for every dol- services for the privatization of generation, trans- lar. While IFC pursued its strategy of increasing mission, and distribution companies; (iii) devel- power sector support, annual commitments oping and implementing financing structures that lagged behind approvals--especially after 1995, help increase the opportunities for privatization due to major projects being dropped and can- and private investments; and (iv) on its own and celled when reforms hit a snag or negotiations fell in partnership with the Global Environment Fa- through. The situation was further exacerbated by cility (GEF), pursuing renewable energy and en- the Asian financial crisis, which dampened power 1 9 P O W E R F O R D E V E L O P M E N T I F C ' s I n v e s t m e n t O p e r a t i o n s i n t h e E l e c t r i c F i g u r e 3 . 4 a P o w e r S e c t o r P e a k e d i n t h e 1 9 9 0 s . . . Electric power project approvals FY1990­01 Net approval in $US millions No. of projects 350 10 Average investment size ($US millions) 300 9 8 250 7 200 6 250 5 4 100 3 50 2 0 1 FY90 FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 Generation Transmission and distribution Others F i g u r e 3 . 4 b ... B u t F u n d i n g C o m m i t m e n t s W e r e S l o w e r Electric power commitments FY 1990­01 Net approval in $US millions No. of projects 350 10 Average investment size ($US millions) 300 9 8 250 7 200 6 250 5 4 100 3 50 2 0 1 FY90 FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 Generation Transmission and distribution Others demand growth and the international financial small, largely due to the slower opening of these community's appetite for investments in emerg- subsectors to private participation. Other invest- ing markets. ment commitments were in power sector funds and energy services companies. Early indications Most IFC power projects were in generation. Eighty- of trends beyond the 1990s suggest that IFC ef- two percent of net investment commitments by forts in T&D have expanded. Of 18 approved funding were in power generation, mirroring the projects, nine are in the T&D subsector. In terms share of generation projects of total global foreign of IFC funding, 40 percent of investment com- direct investment in power in the 1990s. Invest- mitments were made in T&D, compared to 12 per- ments in electric power T&D have been relatively cent in the 1990s. 2 0 P R O J E C T R E S U LT S IFC investments have been concentrated in Asia and Nearly two of every five investments went to low-in- Latin America. In the 1990s, East and South Asia (43 come countries. During FY90­ FY99, about 40 per- percent of projects and 50 percent of funding) and cent of investment commitments (in dollar terms) Latin America (36 percent of projects and 29 per- were made in countries classified as low-income cent of funding) accounted for the bulk of IFC's at the time of investment approval. This represents investment commitments in power (Figure 3.5). a higher concentration of investments in low-in- In Asia, IFC committed US$524 million of direct come countries than IFC's overall record of about investments in 18 projects with a total cost of 25 percent. By contrast, only 20 percent of com- US$7.7 billion. Greenfield IPPs with pioneering mitments were made in upper-middle-income structures (such as build­operate­transfer and countries. build­own­operate) dominated power projects After making substantial investment commit- in Asia. Investments in Asia are heavily weighted ments in countries that were experiencing an en- toward India, Pakistan, and the Philippines in ergy crisis, such as the Philippines and Pakistan, support of their decisions to turn to the private IFC resumed a more regular pace of investment. sector to help meet growing power demand. Latin Commitments were made in countries new to America investments were a mix of IPPs, post- private sector participation in power (Bangladesh, privatization capital expenditure, expansion of Czech Republic, Nepal, and Russia) and in new distribution, and private equity funds for the structures (regional and global power equity power sector. Argentina, one of the more ad- funds) and new subsectors (renewable energy vanced developing country power reformers, was and energy service companies). host to 14 percent of IFC funding commitments in Latin America, and second only to Chile (24 per- IFC pursued transmission and distribution projects. cent). Guatemalan projects were also a big re- As the generation subsector advanced in pio- cipient of IFC financing, accounting for 13 percent neering power markets, IFC made a strategic de- of the regional total. cision in 1997/98 to step up its support for I F C I n v e s t m e n t C o m m i t m e n t s i n t h e 1 9 9 0 s F i g u r e 3 . 5 W e n t M o s t l y t o A s i a a n d L A C MENA 2% World 2% SSA 6% ECA 11% Asia 50% LAC 29% 2 1 P O W E R F O R D E V E L O P M E N T transmission and distribution. The results of these tric power portfolio of stalled sector reforms, in- efforts became visible in 1999. In FY00 and FY01, creased country risk, and project implementa- 40 percent of investment commitments were tion issues. Loans were provisioned largely made in T&D, compared to 12 percent in the because of country and sector issues and not due 1990s. Projects in the generation subsector to poor project performance. Thanks to good nonetheless still dominated IFC's approvals and deal structuring, the companies that undertook commitments. The private sector proved less en- these projects remained current with their loan thusiastic toward transmission and distribution, obligations to IFC. Only one loan, a relatively continuing instead its focus on IPPs and taking ad- small project that had serious technical and man- vantage of the availability of commercial financ- agement problems at implementation, was rated ing for this subsector. Opportunities also were doubtful. By FY01 overall loan and equity per- limited because T&D was slow to be opened up formance had slipped further, but it remained to private participation, largely because countries better than IFC's all-sector performance. continued to give priority to the generation sub- sector. Development Outcomes The development outcome of an IFC project is its IFC's overall electric power sector portfolio performed impact on a country's development, based on a better than average. While IFC's overall electric synthesis of the following five performance indi- power portfolio performed profitably throughout cators: (i) project business success, (ii) impact on the review period, there were signs of decline private sector development, (iii) contribution to toward the end of the decade. Until FY96, IFC's economic growth, (iv) impact on living standards, loan and equity portfolio in the electric power sec- and (v) environmental/social effects. Annex J tor was spotless. There had been no write-offs or shows the basis for rating each indicator. The dis- loss reserves and the loan collection rate was 100 cussion in this section is based on the evaluation percent. This made it one of the better perform- findings on all 29 mature projects in the 1990s. ing sectoral loan portfolios. By 1997, IFC's loan Annex K shows the performance ratings for each portfolio started to have its share of poor per- indicator for these projects; Annex L presents an formers, with the provisioning of seven invest- analysis of the five development outcome indi- ments, five of which were provisioned because of cators. The development outcome of IFC opera- the deteriorating financial condition of the state- tions is based on project-level results, and all owned utility. The loan­loss reserve in power in these projects are aimed at the specific WBG re- FY97, however, was significantly less than the loss form objective of supporting private sector par- reserve for all of IFC's disbursed portfolio. Loan ticipation in power. yield after provisioning stayed generally in line with the performance of IFC's overall portfolio. IFC investment operations in electric power have bet- Equity investments similarly were more suc- ter development and investment outcomes than the rest cessful than IFC's overall portfolio. The estimated of IFC's portfolio. The quality of IFC's work in the elec- portfolio equity internal rate of return (IRR) had tric power sector is also better. Twenty-five of the 29 stayed significantly above IFC's all-sector equity evaluated projects (86 percent) have good de- IRR, but was less than the all-infrastructure sec- velopment outcomes. This compares with a 64 tor return. In FY97, dividend yield was slightly percent success rate for IFC's all-sector portfolio, lower than for the overall IFC portfolio, largely due based on a random sample of the 1991­95 net ap- to the relatively young age of the portfolio. By provals population evaluated during the FY99, the dividend yield in IFC's power sector in- 1996­2000 XPSR cycle. This is consistent with the vestments was outperforming IFC's overall port- FY01 Annual Review of IFC's Evaluation Findings folio, reflecting the cash contribution profile of (OEG/IFC 2002), which found that operations in build­operate­transfer (BOT) projects. infrastructure, including utilities, have better de- The loan and equity risk ratings14 at the end of velopment results than overall IFC operations. FY99 reflected the negative impacts on IFC's elec- Four of the 29 (14 percent) IFC investment op- 2 2 P R O J E C T R E S U LT S erations in power had less than satisfactory de- ects had good development outcomes. Six other velopment outcomes. Two projects encountered projects are in countries that have taken three or technical problems at implementation that re- fewer steps toward sector liberalization. These sulted in delays and cost overruns that could not projects had robust structures to compensate for be recovered from the tariff level agreed at entry. the riskier regulatory environment. Only one of One project suffered from poor hydrology con- these six projects had a low development out- ditions, and as a result the offtaker had to pay come, and this was because of technical and man- more for power per kilowatt-hour. One project agement problems rather than sector issues. Two was poorly structured, giving the owners poor re- projects are in countries that were not included turns despite the relatively successful power plant in the Scorecard; two others are multi-country op- operations. Figure 3.6 shows the relative per- erations and therefore could not be categorized formance of the electric power sector in devel- as belonging to any specific country. opment outcome, investment outcome, and IFC effectiveness. Private sector participation responds to sector re- forms. The generation subsector is often the first Appropriately structured electric power projects can and easiest of the electric power sector to open succeed in different stages of sector reform. Two- for private participation. All IFC projects in coun- thirds (19) of the evaluated projects are in coun- tries in the early stages of reform are in genera- tries that have taken four or more of the seven tion; projects in reform-advanced countries are in steps that the WBG considers important in liber- generation, transmission, and distribution. Three alizing the sector, as identified in the ESMAP transmission and distribution projects in two Scorecard (ESMAP 1999). Eighteen of these proj- countries have good development results largely I F C ' s E l e c t r i c P o w e r S e c t o r O p e r a t i o n s F i g u r e 3 . 6 H a v e B e t t e r O u t c o m e s t h a n t h e R e s t o f i t s P o r t f o l i o Success rates of evaluated electric power projects vs. all evaluated IFC projects 100 90 80 70 60 50 40 30 20 10 0 of and sector business success Growth standards impacts appraisal, outcome Private Economy investment structuring contribution Development Environmental Project development Living outcomeeffectiveness Supervision IFC's administrationand IFCs Screening, Role Electric power (29) All IFC (249) 2 3 P O W E R F O R D E V E L O P M E N T because they reduced T&D losses, increased ac- interruption associated with unstable electric cess, and improved operating efficiencies. Three power supply. generation projects that sell electricity directly Second, 21 of the 29 evaluated projects are to private distribution companies and large in- early entrants, or have innovative structures, and dustrial users in two other countries have positive therefore have strong demonstration effects. Eigh- development outcomes mainly due to strong de- teen of these 21 projects (86 percent) have pos- mand and the use of appropriate technology. itive development outcomes. These have Three other generation projects were imple- demonstrated to policymakers and potential in- mented by integrated utilities, with mixed results. vestors that private sector participation in electric IFC electric power projects have good devel- power can be mutually beneficial to the country opment outcomes for three reasons: First, elec- and to the financier. IFC-supported private sec- tric power is a critical basic input for all industries tor transactions have provided the public sector and therefore has wide-reaching impacts on the with a good learning experience in the dynamics economy. When electric power is in short supply, and constraints of private sector power invest- industrial production commitments are not met, ments. BOT (build­operate­transfer) contracts efficiencies drop, jobs are cut, export markets have evolved over time and established trans- are lost, and, in extreme cases, companies shut parent transactions and costs, revealing the full down. The cost of inadequate or inefficient elec- long-run commercial cost of electricity generation tric power supply can be crippling for an economy. to policymakers and regulatory agencies. The In the Philippines (where IFC supported three early success of pioneering investments attracted IPPs in the 1990s), power shortages led to 400,000 multiple proposals and bidders, and this has led job cuts and annual losses to the economy of to lower costs as developers and equipment sup- about US$1 billion, or 2 percent of gross domes- pliers have reduced their prices consistent with tic product (GDP), based on a 1992 World Bank their assessment of each project's risk/reward estimate. The economic rate of return (ERR15) of profile. Given the subsequent entry of additional all financially successful IFC power projects that IPPs, 13 out of the 18 IFC-financed pioneering IPPs have been evaluated is satisfactory or better.16 among the evaluated projects are not the sole The contribution of IFC's power projects to eco- source of electric power supply from the private nomic growth as measured by ERR is greater than sector. Of these 18 IPPs, 12 have been operating the rest of IFC's portfolio. The median ERR of all at or above contracted capacity. The others, al- evaluated IFC electric power projects is 14.6 per- though designed as base load plants, have been cent, compared to 12.0 percent for IFC's nonfi- operated as reserve or peaking capacity. nancial sector portfolio, evaluated from 1996 to Third, risks were allocated to those parties 2000. Based on the evaluation findings of IFC best equipped to handle them. This was done at projects, prior to the addition of the capacity two levels: between the public and the private sec- built by the IFC-supported projects, end users paid tors, and among the private sector participants. more during power shortages for electricity or its The risks that the private sector could not con- alternatives and would have likely continued to trol or manage (such as offtake volume, tariff ad- do so. End users with the means to do so in- justment, and long-term viability of state-owned stalled their own electric power generators, and utilities) under the prevailing regulatory envi- those who did not turned to alternative energy ronment remained with the public sector. In gen- sources for their lighting and power needs. In eration projects where the single offtaker is both cases, the cost incurred was higher than state-owned, the private sector carried the risks that paid for electricity from the grid. In Turkey, associated with project development, financial industrial customers of an IFC-financed electric closure, construction and completion, opera- power plant value the electricity they buy from the tions and maintenance, and country/political un- IFC project at about 40 percent more than what certainty. Where feasible, project sponsors they pay.17 This is based on the cost for generat- allocated these risks contractually among the ing their own electricity and the cost of business private sector participants. By and large, market, 2 4 P R O J E C T R E S U LT S offtaker credit, logistical infrastructure, and fuel The heavy concentration of electric power sec- supply risks remained with the public sector. Ab- tor investments in a few countries adversely af- sent private participation, the public sector would fected overall sector performance. Four of the have been obliged to assume all the risks and the less-than-satisfactory investments are in a single financial burden associated with the projects, country19 that is plagued by a foreign exchange or the projects otherwise would not have gone shortage, stalled sector reform, an almost insol- forward. vent state-owned utility, a slowing economy, and allegations of corruption. In addition, this coun- Investment outcomes try's sovereign risk rating dropped, and it is now The outcome of IFC investments is based on a syn- considered a high risk. Three of the four projects thesis rating of two investment instruments: loan remain reasonably, but not strongly, financially (repayment performance and prospects relative sound. One project has a less-than-satisfactory to expectations) and equity (dividend perform- return to investors relative to their weighted av- ance and exit value relative to cost). Loans in ar- erage cost of capital. All four continue to have rears, as well as loan and equity investments with good development outcomes, albeit marginally. loss reserves, are rated less than satisfactory. When While all these projects were originally structured loan and equity have different ratings, investment as base load plants, three have been operated at outcome is based on the weighted average return low dispatch levels, similar to peak load plants. on the combined investments. Twenty-one (72 OEG estimates that the economic value of an as- percent) of IFC's investments in electric power sured peak load capacity is at least equal to ca- have good outcomes compared to 55 percent for pacity charges under the power purchase IFC's all-sector portfolio. Of the 21 investments contracts. with a satisfactory or better outcome, 18 were Good development outcomes in electric power driven by the projects' financial success. Three in- are associated with good investment outcomes vestments did reasonably well despite poor proj- (Figure 3.7), consistent with the findings of the ect business success, due to good loan and equity OEG Annual Review of Evaluation Findings for structuring.18 FY00 and FY01 (OEG/IFC 2001 and 2002). G o o d D e v e l o p m e n t O u t c o m e s i n E l e c t r i c F i g u r e 3 . 7 P o w e r A r e A s s o c i a t e d w i t h G o o d I n v e s t m e n t O u t c o m e s 2 1 2 1 e IGH e IGH H 21% 65% H 19% 45% High development High development High development outcome High development outcome outcome High return outcome High return Outcom Low return Outcom Low return 4 3 4 3 7% 7% 26% 10% lopmente lopmente Low development Low development Low development Low development outcome outcome outcome outcome Low return High return Low return High return Dev LOW Dev LOW LOW HIGH LOW HIGH Investment Outcome Investment Outcome Electric Power Sector All Sectors 2 5 P O W E R F O R D E V E L O P M E N T The proportion of win-win outcomes--that is also important to note that the chances of is, good development and investment outcomes-- achieving a high investment outcome with a low (box 1 in Figure 3.7) is significantly higher in elec- development outcome (box 3) are not signifi- tric power, where 65 percent of evaluated projects cantly different in the electric power sector than fall in this category compared to 45 percent in in all other sectors. IFC's all-sector portfolio, based on a representa- tive sample of FY91­95 approvals. In addition, IFC Effectiveness the proportion of lose-lose outcomes (box 4) is significantly lower in the evaluated electric power The quality of IFC's work in the electric power sector projects. This better win-win versus lose-lose pro- is better than IFC's all-sector average. Operational ef- file of electric power projects results from a com- fectiveness is based on a synthesis of three indi- bination of generally good execution and risk cators: (i) screening, appraisal, and structuring; (ii) containment through contractual structuring. As supervision and administration; and (iii) role and a result, the odds are better in electric power contribution. IFC's operational effectiveness in the that the private sector will generate good devel- electric power sector has been satisfactory or bet- opment and financial outcomes even in a difficult ter in 79 percent of its investment operations, regulatory environment. Like other infrastruc- compared to its all-sector performance of 62 per- ture projects, electric power projects have far- cent. A comparison of the effectiveness of IFC In- reaching development impacts, are highly capital vestment Departments, based on a representative intensive, and entail huge cost and financing re- random sample for all-sector FY91­95 approvals, quirements. Good financial structuring and con- shows that industry departments performed bet- tractual risk allocation enable electric power ter than their regional counterparts. Like all in- projects to attract the required large amount of dustry departments, the centralization of long-term financing from many sources that is knowledge and resources in the IFC Power De- needed to complete the financing plan such that partment (CPW) facilitated smoother knowledge the project may proceed successfully and even- sharing across electric power subsectors and ge- tually pay its debts--as well as compensate its ographical regions. This specialization proved owners appropriately for their risks. crucial for learning from experience in structur- Society at large has a better chance of realiz- ing BOT-related contractual arrangements, which ing positive gains from electric power projects than while broadly similar are significantly different in do the project financiers: 86 percent (the sum of detailed terms and conditions. boxes 1 and 2 in Figure 3.7) of electric power IFC has done well at appraisal in ensuring that projects have good development outcomes com- the contractual arrangements are structured such pared to 72 percent (sum of boxes 1 and 3) that that they support the allocation of risks among the have good investment outcomes. In other words, parties best equipped to handle them, and also there is a 14 percentage point better success rate protect the lenders. This was instrumental and an in development outcomes than investment out- essential condition for getting these capital-in- comes in electric power. This pattern is the same tensive projects financed and enabling the real- in IFC's all-sector portfolio, but to a lesser ex- ization of their far-reaching positive development tent: 64 percent good development outcomes impacts. However, appraisal of some of the compared to 55 percent good investment out- earlier generation projects placed near total re- comes. liance for credit viability on the strength of the con- Even with the necessary risk mitigation through tractual arrangements, such as the Power Purchase contractual structuring, electric power projects are Agreement, Energy Conservation Agreement, and not immune to commercial and business risks. Fuel Supply Agreement. As a result, this did not The fact that 28 percent of electric power projects sufficiently address the project's long-term dis- (boxes 2 and 4 in Figure 3.7) gave IFC poor in- patch competitiveness, the state utility's timely vestment returns indicates that there is no such provision of needed transmission capacity, the thing as guaranteed returns in electric power. It utility's long-term financial sustainability, the elec- 2 6 P R O J E C T R E S U LT S tricity supply/demand balance, nor tariff reforms. contribution in four of the 29 investment opera- A number of early projects were not subject to the tions. This is largely because it had overestimated rigorous market tests20 that are undertaken today its positive influence/contribution in three of the at appraisal. Overall, the contracts were fair and projects and had not played its role well in ex- reasonable at appraisal, especially at a time of se- ploring other financing alternatives to one non- vere power shortages, unproven contractual in- IPP project. tegrity, and unclear regulatory environments. However, these contracts run for 15 years or MIGA: Mitigating the Political Risk to more, and many unforeseen market and political Private Investors developments could occur over such an extended Through FY01, MIGA issued 72 guarantees for period. Subsequent generation projects were investments in 39 electric power projects in 25 priced lower and passed more risks to the proj- countries. The total coverage--US$1.742 billion, ect companies as developers and equipment sup- representing a total estimated project cost of pliers competed against each other for US$10.2 billion--has accounted for 19 percent of concessions. These new facilities made the pio- MIGA's cumulative liability and 21 percent of the neering projects appear relatively expensive, es- estimated total foreign direct investment facili- pecially when dispatched at less-than-planned tated. MIGA's AAA consisted of electric power levels due to lower-than-expected demand. New sector-related investment analyses and informa- government administrations often targeted high- tion dissemination activities under IPANet, Priva- profile, foreign-owned projects, such as large tizationLink, and PrivatizationLink Russia. BOTs, when looking for corruption due to previ- After having issued its first guarantee for an elec- ous administrations. For these reasons, many tric power project in FY94, MIGA witnessed a public sector offtakers insisted on renegotiating rapid increase of guarantee activities in that sec- IPP agreements once the financing had been dis- tor during the second half of the 1990s. Initially, bursed. In the operation phase, and case by case, MIGA guarantees almost exclusively supported some project sponsors and their utility/govern- projects in electric power generation, a subsector ment ministry counterpart have come up with mu- that still accounts for the majority of guarantees tually acceptable solutions, such as lowering the (32 out of 39 projects and 77 percent in terms of tariff but extending the term of the BOT, to adapt contingent liability).21 However, the number of the agreements to evolved realities. Most often, transmission and distribution projects has grown however, the relative bargaining power is reflected in recent years (see Annex M): during FY01, three in the fact that owners have suffered the conse- out of four guarantee projects were in the trans- quences of the renegotiations by way of lower- mission subsector. than-expected returns. MIGA's outstanding portfolio in the electric IFC did well in the supervision and adminis- power sector as of June 30, 2001, was US$1,408 tration of its electric power portfolio, as well as in million (or 27 percent of total outstanding liabil- performing its role and delivering its contribution. ities). Of the 72 guarantees signed, 13 (18 percent) Overall, IFC had closely supervised its electric have been cancelled by the investors, a substan- power portfolio. There were some supervision tially lower ratio of cancellation than for other sec- lapses, such as client responsiveness and poor in- tors. This is because most of MIGA's electric power ternal coordination, but these were limited to projects are relatively more recent than other three of the 29 investment operations, and these components of the portfolio. One contract ended have already been addressed with the creation of because MIGA received and paid a claim during a supervision oversight function in IFC's Power FY00.22 Department. With respect to IFC role and con- MIGA guarantees have been heavily concen- tribution, IFC provided comfort to other finan- trated in the LAC region and, to a lesser extent, ciers in a relatively new sector that many in EAP (see Table 3.1). LAC accounted for a max- would have not considered without IFC's par- imum aggregate liability of US$1,239 million (71 ticipation. IFC had a less than satisfactory role and percent of the total), EAP for US$210 million (12 2 7 P O W E R F O R D E V E L O P M E N T percent), and SAR for US$95 million (5 percent). to improving living standards among the local MIGA's activities in ECA and Africa were small, population and to stimulating downstream eco- where it had a share of 5 and 6 percent of the elec- nomic activities. Methodological limitations make tric power portfolio, respectively. it difficult to fully assess these trickle-down effects, The regional focus has shifted over time. While but anecdotal evidence of reduced blackouts and there was strong demand for coverage in Asia significantly increased national generation ca- during the 1990s, no guarantees have been is- pacities (especially in Honduras, Jamaica, and sued there since FY99; since then, projects in Nepal) point to the generally positive impacts of LAC have dominated MIGA's portfolio. The low de- these projects. mand for guarantees in Asia is partly because the These projects also stood out for their demon- financial crisis led countries and investors to re- stration effects, supporting early entrants in sev- assess the need for new power capacity. The re- eral countries that recently opened their electric gional volatility in guarantee issuance highlights power markets to private investment and pro- the dependence of MIGA on the availability of pri- moting innovative project designs and finance vate investment opportunities. structures. In most instances these projects were On a country level, MIGA has maintained a followed by additional private investments in the balanced portfolio. While MIGA supported in- electric power sector. vestments in the 10 developing countries that at- There is evidence that these MIGA projects tracted the most foreign direct investment--China efficiently transferred technology and know-how. (five projects), Brazil (four), and Argentina State-of-the-art technology was installed and con- (three)--it has also succeeded in supporting in- siderable effort was devoted to training and turn- vestments in low-income countries. Of its 39 proj- ing over plant management to local employees. ects, 19 were located in 12 IDA-eligible countries.23 OEU observed that the role of expatriate managers MIGA's Operations Evaluation Unit (OEU) has declined in importance the longer a project was evaluated eight relatively mature projects under- in operation. Modern technology also contributed written in FY95­97, all of them greenfield gener- to the higher reliability of electricity provided. ation projects. This sample was drawn from the However, because all projects had exclusive Power earliest electric power projects in MIGA's portfo- Purchase Agreements (PPAs) with state power lio, which were considered mature enough to transmission and distribution companies, spillover yield meaningful development impacts.24 The effects--which might have made the power sec- evaluated sample represents 25 percent of all tor as a whole more efficient--were often limited MIGA-supported generation projects (FY94­01), and depended on the reform-mindedness of the but only 8.7 percent of the total installed capac- host country or the state-owned utility. ity. This is due to the small size of the evaluated The financial contributions of the eight proj- projects (the average capacity of the eight proj- ects to government revenues were relatively in- ects is 84MW, compared to an average of all MIGA- significant, as most projects enjoyed some form supported generation projects of 233MW). The of tax holiday during their first years of operation. findings are thus biased toward smaller-scale proj- Long-term PPAs with payment commitments and ects. Four evaluated projects are in LAC (one tariffs indexed to fuel costs or foreign exchange each in Guatemala and Honduras and two in Ja- rate movements have a potential for constraining maica) and four in SAR (one in Nepal and three scarce financial resources in the host country. in Pakistan). Two projects use renewable energies. MIGA has been involved in countries, such as Six of the eight projects were visited and evalu- Pakistan and Indonesia (where MIGA paid a US$15 ated by external consultants and the remaining million claim), where licenses for IPPs appear to two by MIGA staff. have been awarded in excess of the actual needs of the country. One project in Pakistan has expe- Development Outcome rienced substantially reduced dispatch rates. In In- The eight evaluated projects have helped allevi- donesia, MIGA underwrote a project during 1996 ate power shortages and have contributed both and issued a guarantee in February 1997 (before 2 8 P R O J E C T R E S U LT S the Asian financial crisis) based on the prevailing ments in power plants involve large sunk costs and assumptions on Indonesia's future energy needs. require close interaction with local authorities for The claim was directly linked to the reassessment their inputs and outputs, and this raises the risk of these needs in light of the sharp economic profile of an investment project. Hence it can be downturn in Indonesia during 1997­98. inferred that most of these investments were de- The development impact of the project in In- pendent on obtaining MIGA insurance and that this donesia is problematic: the project was clearly a coverage was effective in reducing perceived risks failure in that it did not go forward and the capacity on the part of the project sponsors. and reliability of power supply consequently did In a few instances, MIGA collaborated with IFC not improve. (As of 2002, there is a severe lack of in support of electric power projects. Jamaica peaking capacity in East Java.) On the other hand, stands out in particular, as it involved close col- the cancellation of the project by the govern- laboration between IBRD, IFC, and MIGA in pro- ment avoided the further buildup of unneeded ca- moting the PSDE reform agenda, each institution pacity and payment commitments resulting from using its specialized services. This eventually led the PPA. to the commercialization of Jamaica's public util- ity and an increase in generating capacity. Effectiveness One measure of MIGA's effectiveness is its ability Profitability to catalyze investment. Investments of US$4.08 MIGA has paid one claim in the power sector and were facilitated for every dollar of insurance cov- has also conducted mediation activities in this erage issued in the power sector (on a gross basis, sector to resolve disputes and thereby to avoid before reinsurance). This compares to a MIGA av- other potential claims. In the Indonesian claim, erage from a cross-sectoral sample of 52 projects the financial loss to MIGA was limited, and was fur- of US$5.45 per dollar insured. The relative lower ther mitigated by prudent use of reinsurance mobilization of investment in the power sector (covering 70 percent of MIGA's exposure). In the seems to stem from the pioneer status of most of medium term, MIGA expects to fully recoup the the sampled projects and the desire by investors claim loss. MIGA also incurred costs because of for more extensive coverage. the high incidence of disputes between power sec- OEU has found evidence that most of the eight tor investors and local authorities, but the success evaluated projects depended on political risk in- of mediation activities appears to have justified the surance, since all the investments represented use of additional resources. first or early entrants in their respective host In conclusion, while the evaluation of only countries. Investors are more likely to require eight projects does not permit robust inferences political risk insurance if they are entering a new about MIGA-supported power projects, the early market or country or are pioneering a new busi- indications of MIGA performance in the sector are ness model (such as IPPs). Furthermore, invest- positive. 2 9 4 Sector-Level PSDE Outcomes C hapter 3 discussed the project-level results of the WBG's PSDE port- folio. Given the long periods required to reform power sector struc- tures and ownership, however, project achievements are by themselves insufficient drivers of sectoral outcomes. This chapter discusses these sector- level outcomes, focusing on the Bank's performance in fulfilling its mandate to promote PSDE through reforms, with support from IFC and MIGA trans- actions. During the 1990s, the Bank was present in 68 countries across six re- gions, pursuing (through diverse instruments, sectors, and advisory work) long-haul reforms and their expected sectorwide benefits. IFC and MIGA were involved in specific private transactions in generation expansion, IFC in 29 countries and MIGA in 25 countries, mainly in LAC and SAR. Given the lack of systematic, sector-level data col- Evidence presented in this chapter shows that lection in an increasing number of borrowing sector-level outcomes have been more disap- countries (as the sector becomes more frag- pointing than WBG project-level outcomes, except mented), the OED assessment of sector outcomes in those countries that have the most advanced relied on a combination of (i) the latest Project Sta- reforms. The Bank, pursuing multiple and com- tus Reports; (ii) OED's Evaluation Summaries plex reform objectives through a range of in- and Project Performance Assessment Reports; struments across all regions, achieved good results (iii) a task manager survey; (iv) a literature review, where strong political commitment and local including recent research reports posted in the champions existed, where the road map to reform Rapid Response Unit website; (v) the 1999 ESMAP was clear, and where there were early wins. Oth- paper on the reform scorecard; and (vi) the ECA erwise, where reforms have been weak or slow to study on private participation in the power sec- take root, the Bank obtained poor or, at best, tor (Krishnaswamy and Stuggins 2003). The main mixed outcomes. IFC and MIGA, focusing on the findings are presented below. Regional distinctions single reform objective of supporting private sec- are first made, followed by a discussion of specific tor participation and responding to market de- sector outcome indicators. mand, obtained good outcomes. The WBG 3 1 P O W E R F O R D E V E L O P M E N T underestimated the complexity and time required standing commitment to reforms in the struc- for reforms to mature and achieve lasting and ture and ownership of their power sectors. While equitable country and sector outcomes. But while much of this evidence is recent (thus indicating good individual private sector project outcomes the long-haul nature of the reform process and the contribute to sector reform, they cannot by them- Bank's role as facilitator rather than primary cat- selves ensure good sector-level outcomes. From alyst for reform, since many of these countries a different perspective, good private sector proj- started their reforms in the late 1980s and early ect outcomes are possible at different stages of re- 1990s), the strong positive direction of sector im- form and are not a sufficient gauge of the WBG's provements points to the importance of pursu- achievement of its overall PSDE objectives. ing PSDE. OED's review also shows (most clearly At the end of the 1990s, overall progress for in AFR) that where reforms have not progressed, power sector reforms in developing countries operational documents continue to report the (as encapsulated in the seven reform areas) had financial bankruptcy of state-owned utilities, poor clearly fallen short of the expectations that had and deteriorating service, and the inability to been set by the WBG's 1993 Electric Power Lend- build or rehabilitate power infrastructure in pace ing Policy, its 1996 Good Practice statement, and with burgeoning demand. PSDE promotion as it evolved in practice during Figure 4.1, and the regional discussions below, the 1990s. This resulted from the poor invest- show that one of PSDE's early gains is increased ment climate for attracting private investment in generation capacity (for comparison, the chart many low- to middle-income countries, reluc- shows the United Kingdom and New Zealand, al- tance on the part of some governments to tackle though in the latter there are concerns about the the politically difficult decisions involved in elim- adequacy of supply). This was especially impor- inating subsidies and other rents accruing to pow- tant in the 1990s, when in the midst of the global erful interest groups, and a drying up of interest financial crisis many developing countries were ex- in emerging markets investment. Today, only a few periencing severe supply shortages. The WBG countries (mainly in LAC and some in ECA) have provided PSDE support to Argentina and Pak- achieved advanced reform status. Many of the istan. In Argentina, the availability of thermal gen- Bank's country clients are either undecided or are eration plants has increased substantially since the considering which reform route to follow; many reform process started (Rudnick and Zolezzi of those that have moved forward are stalled in 2001). It is important to note, however, that the their attempts, and some have reversed privati- addition of generation capacity is a meaningful in- zation plans. dicator only when seen in the context of overall With a view to informing the implementation electricity supply and demand balancing, and of the Energy Business Renewal Strategy (EBRS), measures to achieve investment efficiency. this chapter is organized in line with the main ob- In addition to supply expansion, gains in coun- jectives of the strategy: (i) promoting PSD; (ii) tries that have achieved advanced reform include macrofiscal balancing; (iii) helping the poor di- macrofiscal stability, greater access to electricity rectly; and (iv) protecting the environment. Spe- supply, and better service quality. Table 4.1 pres- cial emphasis is given to the PSD promotion ents the PSDE outcomes reviewed, and their objective, which is most relevant to this study specific indicators. As a result of the WBG's focus and is discussed immediately below. on macrofiscal objectives in its PSDE involve- ment during the 1990s most of the available data Promoting Private Sector Involvement are on positive and large macrofiscal outcomes, and are discussed separately following the PSD PSDE is important and worth pursuing: In committed section. countries with advanced power reforms, outcomes Perhaps the best illustration, outside LAC coun- have been good. OED's portfolio and literature re- tries, of successful PSDE outcomes is Côte d'Ivoire, views provide evidence of good sector outcomes where substantial improvements have been in many LAC and some ECA countries with long- recorded in several indicators (Box 4.1). 3 2 S E C T O R - L E V E L P S D E O U T C O M E S C u m u l a t i v e A d d i t i o n s o f N e w P o w e r P r o d u c t i o n C a p a c i t y s i n c e 1 9 9 3 i n F i v e F i g u r e 4 . 1 C o u n t r i e s w i t h R e f o r m s i n t h e E n e r g y S e c t o r i n t h e 1 9 9 0 s New capacity/total capacity (percent) 50 45 Chile Argentina New Zealand United Kngdom Pakistan 40 35 30 25 20 15 10 5 0 1993 1994 1995 1996 1997 1998 1999 2000 D e s i r e d P S D E O u t c o m e s A r e N u m e r o u s a n d T a b l e 4 . 1 C o m p l e x Main Categories of PSDE Outcomes Specific Indicators Macrofiscal Impacts Earnings from divestiture of public power assets Additional private investments Income taxes Dividends to government Reduced subsidies Access to Service Extension of electricity grids to rural and poor urban communities Quality of Service Unscheduled and scheduled service interruptions Voltage fluctuations Choice and responsiveness in service options Price Impacts and Affordability of Service Wholesale electricity prices Retail electricity prices Labor and Employment Impacts Layoffs and safety nets Number of employees in the power sector 3 3 P O W E R F O R D E V E L O P M E N T C ô t e d ' I v o i r e S h o w s G o o d O u t c o m e s f r o m B o x 4 . 1 P S D E Following the bankruptcy of the state-owned power utility, in 1990 ber of consumers per employee rose from 121 in 1990 to 209 Côte d'Ivoire granted a 15-year operating concession for the today. CIE staff have gained through better remuneration, im- entire power sector to the privately owned Compagnie Ivorienne proved working conditions, and substantial skills upgrading. The d'Electricité (CIE). Service quality improved markedly after CIE development of institutional capabilities in CIE has been im- took over operations. Outages were reduced from an annual pressive, and far beyond what had been achieved in many years average of about 26 hours per consumer in the mid-1980s to of donor-funded technical assistance and training support to about 14 hours in the late 1990s. Metering, billing, and revenue other African public utilities. Virtually all senior management are collection performance improved dramatically. Ninety percent in Ivorian hands. Equally important, CIE's record in cleaning up of all private consumers now settle their bills on time, and ir- distribution opened the door to private investment in both power recoverable arrears are less than 1 percent. Nontechnical losses generation and gas production. Both the Bank and IFC partici- at the low-voltage level in 1999 were only 3 percent of billings. pated in the financing of the first two IPPs, Ciprel and Azito. The Total energy losses in 2000 were less than 15 percent, much lower Azito 297MW gas-fired power plant was the first power project than in many other electric utilities. In addition, there was a rapid in Sub-Saharan Africa to attract a syndicate of private commer- expansion in access to electricity: the number of low-voltage cial banks as lenders. In addition, an IDA partial risk guarantee consumers nearly doubled between 1990 and 2000 to 763,000, with for US$30 million was used for the first time to increase the only a modest 7 percent rise in the number of staff.1 amount and maturity of private financing for the project. Private The increase in productivity has been substantial: the num- companies now produce two-thirds of Côte d'Ivoire's power. Another good, but less well known, illustration ter 5), but outcomes are poor when the country's of successful PSDE outcomes is El Salvador, where commitment is weak or absent, as illustrated by significant improvements have been shown in the following examples. several performance indicators (Box 4.2). In EAP, the Bank's regional strategy highlights the impact of the Asian financial crisis in lower- PSDE remains a work in progress: Outcomes can also ing demand growth and the implications of the be mixed or efforts can fail. Except for a few LAC low utilization of IPPs that were contracted based countries (notably Chile and Argentina), PSDE on high dispatch assumptions agreed at entry by reforms beyond commercialization and corpora- the government and the private sector. The dif- tization started only in the mid-1990s: most coun- ficulty in meeting financial obligations under the tries are still at the early stages of reform (only take-or-pay Power Purchase Agreements (under about 15 to 20 percent of the 80 countries where IPPs) on Asian utilities resulted from an unfortu- the WBG supported PSDE have reached or are nately timed combination of insufficient sector re- approaching intermediate to advanced reform forms and the advent of macroeconomic crises, status). as well as what turned out to be an oversized IPP There are few positive sector outcomes to re- program relative to T&D capacity. The strategy port in AFR, EAP, SAR, and some ECA countries, paper indicates that the financial viability of many as continued economic crises, political turmoil, utilities has been seriously damaged and their and government resistance to reforms have pre- creditworthiness still needs to be restored. It is an vented sustainable power reforms from taking open question whether, without the IPPs, gov- hold. Examples from AFR are numerous. Given the ernments would have built the same amount of importance of some of the countries involved, additional power capacity and thus ended up car- unsuccessful efforts have tended to dominate rying the financial burden of capacity underuti- the reform dialogue, with highly publicized con- lization. This was illustrated in Indonesia, where troversies drowning out cases of early wins. The Bank warnings against uncompetitive, costly, and Bank itself is learning PSDE by doing (see Chap- nontransparent IPPs went unheeded. IFC ex- 3 4 S E C T O R - L E V E L P S D E O U T C O M E S pressed the same concern and stayed out of such tariffs downward, this furthermore was offset by projects. In any event, IPP overcapacity did not an increase in the capacity factor used for price- occur due to the post-crisis cancellation of many indexation and by the extension of the PPA terms contracts, and the country is once again facing from 30 to 40 years. After the crisis, the Bank de- power shortages. Existing IPPs are dispatched at cided to maintain a low profile in Indonesia. In the suboptimal levels due to unfinished transmission Philippines, Bank efforts were less than satisfac- lines rather than to depressed demand. While tory. The Bank's engagement through reform-in- the government succeeded in renegotiating PPA tensive projects and sector work in the 1990s was E l S a l v a d o r : W B G W o r k i n a C o u n t r y B o x 4 . 2 C o m m i t t e d t o P o w e r R e f o r m s In El Salvador, the technical assistance project was delayed for the potential size of the regional market, which may be several two years while the optimal structure of the power sector was times larger than the national market. Cases in point are El Sal- defined. There were divergent views in the Bank regarding the vador (already under implementation) and Belize (still in the extent of privatization and reform to be carried out. In the end, design stage) in the Central American market, and Bolivia in the the project succeeded in: (i) developing a legal and regulatory Mercosur market. In these cases, it was the relatively small size framework for the sector, including restructuring CEL (Comisión of the national power sector that shaped an initial preference Ejecutiva Hidroeléctrica del Río Lempa, the state-owned elec- for restricted market liberalization. Further analysis, however, tricity utility), organizing the Transactions Unit (Unidad de showed that a more sustainable and liberal strategy should be Transacciones), and initiating the design of a wholesale market tailored to cater to and benefit from the larger regional poten- for electricity; (ii) drafting and enacting a new electricity law tial market with, as required, suitable transitional stages. and creating the sector regulator; (iii) estimating the marginal costs; (iv) preparing a Sector Environmental Action Plan and im- (ii) Sector policy and regulatory reform should be well under- plementing an Environmental Impact Assessment (EIA); (v) de- way before privatization in the sector, so that bidders feel that veloping a least-cost expansion plan for the system; and (vi) they are entering a secure environment and will have a sound providing training to CEL and government staff in new operational basis for calculating their bids. Much of El Salvador's success and technical work. Sector reforms have led to an increase in in privatization is due to the progress that was made beforehand service coverage, a reduction in system losses, and a decrease in preparing comprehensive sectoral legislation and rules. in state subsidies. Progress continued even after World Bank as- sistance ended. The four government-owned distribution com- (iii) The government's reform and privatization team should be panies were privatized in January 1998, and the generation staffed with qualified top-level staff, with a proven commitment companies were to be privatized in 1999. (With regard to priva- to the reform and a track record of getting things done with ex- tization, it is worth noting that the sale at 40 percent over book tremely tight deadlines. value of 75 percent of the distribution companies' shares, total- ing US$575 million, had a substantial financial impact, equiva- (iv) It is often best to break up large companies, to make them lent to 5.5 percent of the 1996 national GDP of US$10.5 billion). less risky and more attractive to a range of buyers and to en- In addition, IFC approved a US$120 million investment to ex- courage competition. pand and rehabilitate the distribution networks. IFC also approved US$15 million in financing for a regional power development (v) Close attention must be paid to constituency-building, lest pub- company, focusing on renewable and cogeneration projects. lic resistance impede the process or threaten its results. The following lessons can be learned from PSDE in El Salvador. (vi) High-level political support is critical for the success of the reform and privatization process. When the message from the (i) Where applicable, the strategy for power sector reform in a top is clearly in favor of privatization, the process moves ahead given country should be designed with due consideration to rapidly. 3 5 P O W E R F O R D E V E L O P M E N T followed by a strategic decision to relinquish the pended in July 1997, and in 1999 it ultimately lead role in policy advice to the Asian Develop- was withdrawn by the Ukrainian government due ment Bank, due to poor portfolio performance to the impact of the Russian financial crisis. In Rus- and the inability of the government to pass en- sia, the Bank (primarily through three Structural abling legislation for power sector reforms. A re- Adjustment Loans [SALs]) has had an active pol- view of this approach seems warranted, given icy dialogue on reforming the electric power sec- the complex challenges of establishing the power tor. The dialogue has focused on establishing an sector's regulatory framework, as well as its mar- electricity regulator and a market-based dispatch ket and ownership structure, following the re- system; on the unbundling of generation, trans- cent passage of the Electricity Industry Reform Act. mission, and distribution activities; and on pri- In Pakistan, PSDE outcomes are highly mixed. vatization of generation and distribution. Private power investors responded enthusiastically According to OED's Country Assistance Evaluation to the government's policy, but in the absence of (CAE), while considerable progress has been real reforms and the persistence of severe T&D made in achieving the SAL objectives (more ra- bottlenecks, a supply and demand imbalance re- tional pricing since 1997; improved cash collec- sulted, severely straining the finances of WAPDA, tions since 2000; a new resolve since mid-2001 to the state-owned single buyer. Today, more than demonopolize the power industry), the outcome half of the population still has no access to elec- of the power sector restructuring program re- tricity, and rolling blackouts are common in some mains an open question, and will depend on how areas. Recent restructuring, tariff adjustments, it is implemented at the provincial level. The CAE and improved operational efficiency has enhanced recommends that the Bank be ready to expand WAPDA's financial condition, but its reliance on its ongoing technical assistance to restructure more expensive (relative to hydro) thermal gen- the electric power monopoly, and also that it con- eration from its own plants and IPPs as a result of sider guarantees, equity investments, and lending a drought, depreciation of the rupee, and the for generation and transmission, but only after re- costs associated with the underutilization of IPPs structuring is well under way. have caused WAPDA to fall out of compliance with financial covenants. In India, despite the PSDE promotion needs to be anchored to broader re- promise of early efforts, weakening government forms. PSD is not the sole objective of power sec- commitment has seen sector reform stall in Orissa, tor reform, rather, it is a tool to achieve sector and the financial condition of the sector remains efficiency, such that power is provided at least-cost precarious. In Andhra Pradesh government com- and in an environmentally and socially sustainable mitment is stronger and the state is ready to pri- way. In addition to PSD, other measures are re- vatize distribution. Political opposition to large quired to facilitate reforms. For example, fuel tariff adjustments nonetheless must be over- market liberalization is essential to maximize ef- come to improve the poor financial situation of ficiency gains; in the context of IPPs, where long- the sector. term contracts are introduced, pass-through In Ukraine, the Bank's PSDE efforts were un- mechanisms need to be put in place between successful. In 1994, the Bank supported a project the wholesale and retail tariffs (for power and to develop a competitive electricity market and to fuel purchased) to protect the financial viability establish operating conditions that would en- of the power utility and lessen the drain on fiscal courage electric power companies to seek full resources. In this regard, positive cash flows are cost recovery and ensure the sustainability of op- important in enabling private sector participa- erations. Despite a joint effort by international de- tion: hence adequate budgetary provisions need velopment agencies the necessary regulatory to be made to ensure that the public sector is able reforms were not achieved, largely due to non- to pay its utility bills. Commercialization efforts payment and government interference in issues otherwise will fail, since the public sector fre- such as tariff setting. The Bank loan was sus- quently represents a high proportion of power 3 6 S E C T O R - L E V E L P S D E O U T C O M E S sales. Reserve capacity planning also is an im- in the mid-1990s. The substantial fiscal rewards of portant issue: investment inefficiency directly in- PSDE in LAC have been reaped through addi- creases capital and operating costs and can have tional private investments in the sector,2 income serious macrofiscal impacts. Major over- or un- taxes,3 dividends to government, and reduced derinvestment (the Philippines and Indonesia, subsidies, as presented in Table 4.2.4 In Bolivia, the respectively) and inappropriate plant siting (Pak- privatization of state-owned enterprises, increased istan) can have major consequences for the cap- foreign investment, and an independent regula- ital cost of associated investments, and ultimately tory regime have led to improvements in cover- can impinge on access to and on the quality, re- age, quality, and productivity. Nontechnical losses liability, and affordability of service. Addressing have been reduced significantly. In Chile, distri- these issues goes beyond PSDE operations and bution losses were reduced by half in seven years; should be tackled early in the reform process. Fi- in Argentina, the same benefit was realized in nally, more attention needs to be given to the just three years. development of domestic capital markets. Most developing country power utilities do not earn Access and sales have increased. Where macro- foreign exchange, and their dependence on for- economic conditions permitted, sales and elec- eign direct investment and foreign currency loans tricity consumption per capita have increased has led to high, and unaffordable, electricity prices. (after absorbing any initial price shocks): in Chile, While it is not easy to mobilize domestic capital, consumption per capita grew at 7 percent, and in the WBG should address it as part of the overall Bolivia it grew at 2 percent, in contrast to unre- effort to improve the investment climate, as many formed sectors that are on the verge of bank- privatization efforts have failed for lack of access ruptcy. In Panama, electrification coverage has to the resources necessary for efficiency im- grown significantly and consumer prices have provements and new investments. dropped. New connections and the percentage of households with electricity access also have Macrofiscal Balancing: Reducing the grown: in Chile, access grew from 64 percent to Power Sector's Burden on Public 95 percent in 1990­94; in Bolivia, after dropping Resources to 56 percent before the reform, it bounced back to 70 percent in 1997. Where PSDE has progressed, the promised fiscal gains have been achieved and are very large. OED's port- Subsidies have decreased. Private power operators folio review found that macrofiscal balancing was have saved governments heavy operating subsi- a key objective in the Bank's PSDE program dur- dies; in Peru, the WBG's involvement has helped ing the 1990s, as a response to the global finan- break down the culture of electricity subsidization. cial crises that further aggravated the inability of Where private operators have taken over retail sup- most developing countries to mobilize resources ply, they have drastically reduced payment de- to meet their power supply shortages (see also Al- lays, theft, and unpaid bills (from 30 percent to bouy 1999a). Successful PSDE was found even- 12 percent in Buenos Aires, and about the same tually to bring many fiscal gains, although the in Côte d'Ivoire, where assets were not sold, but high technical and financial costs of restructuring just leased). A lot of the gains have stemmed at the start of the reform process may prevent gov- from asset management: over a five-year period, ernments from realizing immediate budget re- plant availability typically increased 10 percent lief. In LAC alone, divestiture of public power to 40 percent, the number of customers per em- assets brought in US$35 billion by 1997, at a time ployee increased 50 percent, and outage indica- when funds were needed to stabilize country tors decreased by more than half. Reforms have economies and shore up social budgets, notably also improved the efficiency of capacity expansion, in Chile in the 1980s, Argentina and Bolivia under although IPP capacity costs and output prices the Brady Plan, then Brazil, Colombia, and Peru show wide variations--the lowest ones tending to 3 7 P O W E R F O R D E V E L O P M E N T P S D E O u t c o m e s f r o m B a n k A c t i v i t i e s i n T a b l e 4 . 2 L A C " A d v a n c e d R e f o r m " C o u n t r i e s Countries/Reform Pursued Current Status Argentina Macrofiscal: By 1998, energy sales increased by 79 percent and 82 percent, and losses were down by 68 percent and Privatization of Edesur and Edenor 63 percent, respectively. Efficiency Impacts: By 1998, the number of employees was reduced by 60 percent and 63 percent. Customers per employee increased by 180 percent and 215 percent. Brazil Quality of Service: The length of interruptions per consumer fell from 26.4 hours per year in 1993 to 24 hours per year Privatization in the electric power in 1998. sector Efficiency Impacts: The labor force of the distribution utilities has been reduced from 83,784 in 1993 to 59,348 in 1997. Bolivia Macrofiscal: Private investments reached US$204 million by mid-1998, allowing demand growth of more than 7 Privatization of SOEs percent per year to be met. The Bolivian economy gained new foreign capital. Private investors paid approximately Increased foreign investments US$1,600 million to gain control of all capitalized public companies. The Bolivian Treasury saw fiscal revenues from the power sector (sales and profit taxes) increase by 247 percent in three years, from US$17 million in 1994 to approximately US$42 million in 1997. In addition, the service of ENDE's debt of approximately US$61 million, guaranteed by the government, was transferred to the private companies. Affordability of Service: Electricity consumers have not seen rate increases (except for inflation and fuel price adjustments) and now have the ability to take any grievances directly to the power companies, through newly created consumer offices. Chile Macrofiscal: Energy sales increased 26 percent and losses fell 70 percent by 1998. Privatization of Chilectra Efficiency Impacts: The number of employees was reduced by 9 percent. Customers per employee increased by 37 percent by 1998. Colombia Macrofiscal: Private sector investments in the power sector have increased significantly in the last five years. Private Private participation participation in power generation increased from 25 percent in 1996 to 56 percent in 2001. Private sector participation in transmission is 10 percent, in distribution 60 percent, and in commercialization 60 percent. El Salvador Macrofiscal: The sale at 40 percent over the book value of 75 percent of the distribution companies' shares, totaling Unbundling US$575 million, had a substantial financial impact (equivalent to 5.5 percent of the 1996 national GDP of US$10.5 Privatization of distribution billion). companies Access to Service: Service coverage improved from 71 percent in 1998 to 74 percent in 2001. Panama Macrofiscal: In FY00, the privatized power sector companies contributed US$70.8 million to the treasury, comprising Privatization of power sector US$34.5 in income tax (US$9.2 million from the distribution companies and US$25.3 million from the generators) and companies US$36.3 million in dividends to the shares retained by government (US$6.2 million from distributors and US$30.1 Restructuring of the power sector million from generators). Access to Service: Installed generation capacity increased 40 percent and the number of customers increased 6 percent between 1998 and 1999; energy sold per employee increased 22 percent between 1999 and 2000. Peru Macrofiscal: The sector has shifted from draining the public treasury (a loss of US$300 million in 1990) to being a Privatization of Electrolima source of operating profits (US$300 million in 1998). Transmission and distribution losses decreased from 21.8 percent in 1993 to 12.4 percent in 1998. Access to Service: Service coverage expanded from 53 percent in 1993 to nearly 70 percent in 1998. Efficiency Impacts: The customer/employee ratio increased from 316 to 520 between 1993 and 1998. 3 8 S E C T O R - L E V E L P S D E O U T C O M E S be those that were obtained after competitive uments provide very little data to evaluate the im- bidding. pact of power sector reforms on the poor. The data that are available tend to be anecdotal and Asset values have grown. Efficiency gains from re- not based on sound monitoring and evaluation forms and PSDE were used first to turn around (M&E) systems, or empirical evidence. This pres- utility finances and then to fund their growth: ents a major challenge to policymakers, who need the rate of return on assets jumped 7 to 12 per- data to support any pro-poor policies that they cent from values that were low or negative, as in may wish to adopt (to improve the welfare of the Argentina. The financial market and privatization poor, or at least do them no harm) while carry- mutually reinforce each other as reforms mature: ing out power reforms (Waddams 2000). The in Chile, market capitalization has increased and 1990s presented many opportunities that were power companies saw the real value of their missed to ensure that rural energy, energy effi- shares grow a thousandfold from 1984 to 1994, as ciency, and social and environmental benefits are they acquired control of a sizeable fraction of the addressed as reforms are put in place. Such op- power sectors in neighboring countries. portunities, given the long timeframes for re- form, are in most developing countries one-time Real prices have decreased for industrial and com- opportunities (see also Dubash 2002). mercial consumers. Efficiency gains ultimately are passed on to power purchasers: where compet- The little evidence available indicates that the poor are itive pools were set up, most notably in Chile and often the last to benefit from increased access. In Argentina, bulk prices dropped 20 to 50 percent.5 most countries, the rural poor tend to be over- Tariffs have decreased for industry and commerce, looked because private operators are reluctant to but for other customers they often have risen, be- serve low-income clients given that these markets cause tariffs were and often still are below the cost are not financially viable on a freestanding basis of supply. The U.K. experience with residential util- (Chisari, Estache, and Waddams 2001). In urban ity market liberalization indicates that while the areas, residential customers are more exposed reorganization of gas and electric power industries than commercial users when connection costs reduces costs, these cost savings may not be increase due to reforms, and the social impact is shared equitably with all consumers (Newberry especially acute when residential use has been pre- and Pollitt 1997). However, while all consumers viously subsidized. Where reforms involved ad- have benefited to some extent from lower prices, justing tariffs to cover costs, poor households the greatest benefits have gone to shareholders tend to be adversely affected, at least in the short and to richer consumers (Waddams and Hancock run. In Poland, energy subsidies have tended to 1998). Detailed evidence that reforms have led to help the rich more than the poor (Freund and Wal- efficiency gains has not been systematically com- lich 1995). In Hungary, energy price reforms did piled and analyzed, but remains limited to a few not appear to have a regressive impact, suggest- countries, including Argentina, Chile, Côte ing that subsidies prior to reforms were not ef- d'Ivoire, and Peru. fectively targeted at the poor (Newberry 1995). According to a pioneering field study in Guatemala Helping the Poor Directly (Foster and Araujo 2001), the social tariff that was introduced following privatization of the Little is known about the impact of reform on the poor power distribution companies largely fails to reach because data have not been gathered systematically. poor households, and access to modern utility To achieve the EBRS objective of directly helping services remains highly inequitable. The richest the poor, PSDE reformers need to address issues 20 percent are twice as likely as the poorest 20 per- of increasing the access to electricity supply of the cent to have electricity connections, and while poor and of ensuring that access and consump- electricity coverage is close to universal in urban tion charges are affordable. Based on a review of areas, it reaches little more than half of rural 154 projects, OED found that Bank project doc- households. 3 9 P O W E R F O R D E V E L O P M E N T Globally, about one-third of the world's pop- sue these areas in its 1990s PSDE portfolio or in ulation (about 2 billion people) are believed to lack its energy portfolio as a whole. According to staff electric power, but this may be an underestima- interviews and the task manager survey, this is at tion as few cross-country surveys document ac- least in part due to a lack of country department cess (Brook 2000). Based on research findings that interest and support. The relatively few projects growth is good for the poor (Dollar and Kraay that did materialize were mainly at the behest of 2001), the argument has emerged that address- the championing task managers, often buoyed by ing the generation supply constraint leads to GDP the availability of Global Environment Facility growth, which in turn benefits the poor. While this (GEF) funds. While there is nothing wrong with may be demonstrable in a macroeconomic con- individual initiative, this reflects the lack of insti- text of trade liberalization and transition into a mar- tutional drive and lack of a coherent strategy for ket economy, the argument is less tenable in the rural energy and energy efficiency that persisted sectoral context of scant (and recently, possibly for most of the 1990s. negative) private capital flows into developing country electric power sectors. Evidence from The domestic private sector is not being tapped ade- the Organisation for Economic Co-operation and quately. From the 154 projects reviewed, there is Development (OECD) and others indicates that little evidence of a concerted Bank effort to reform a small number of large, international private regulatory frameworks such that local private cap- power companies invested in a small number of ital and management capabilities can be tapped developing countries during the 1990s. Whatever for investment in decentralized energy systems. indirect poverty reduction impacts PSDE may Only a handful of completion and supervision have had were restricted to only about 10 coun- reports on participatory mechanisms and stake- tries, including those in which the access to energy holder consultations mention the inclusion of of the poor remains very low, such as Indonesia, local investors in the design of major reforms. De- Pakistan, and the Philippines. While the WBG's spite the growing institutional focus on rural en- PSDE assistance increasingly has been aimed at ergy financing mechanisms, including the local small and medium-size low-income countries, private sector, both formal and informal ESW on many of these countries have failed to attract sub- rural energy and energy efficiency issues has been stantial private power investments in T&D, and the insufficient. A positive development, however, poor will not benefit from the expected growth has been the absorption of rural energy work in access until T&D projects are carried out. within the Private Sector, Markets, Finance, and The macrofiscal objectives of power reforms are Rural Infrastructure thematic group, where is- important, but the access to energy of the poor sues of local private capital and innovative finance and environmental mainstreaming ("doing good" schemes (including the promising approach of in addition to "doing no harm") have been neg- "output-based aid") can be addressed integrally lected. The WBG's PSDE efforts during the 1990s with the larger challenge of developing rural mar- understandably responded to crises in client coun- kets. The Bank-wide Energy and Poverty The- tries and therefore were focused on macrofiscal matic Group has also been revived by the Bank's balancing and on the improvement of utility fi- Energy Sector Board. nances. This has resulted in a relative neglect of the issues of ensuring that the poor can get help Protecting the Environment to afford commercial power tariffs once subsi- Adherence to the World Bank/IFC/MIGA Envi- dies on generation plants are removed and of ronmental and Social Safeguards policies and the ensuring that regulatory reforms are not so "hard guidelines contained in the 1998 Pollution Pre- wired" that it is difficult to simultaneously im- vention and Abatement Handbook (PPAH) is a re- plement social and environmental objectives. De- quirement for all WBG projects. The WBG also spite publishing best practice papers on energy follows an environmental strategy for the energy efficiency and rural energy in 1993 and 1996, re- sector as contained in the Fuel for Thought (FFT) spectively, the Bank has made little effort to pur- strategy paper. The Bank's performance with re- 4 0 S E C T O R - L E V E L P S D E O U T C O M E S spect to its environmental safeguard policies is dis- Renewable energy has high potential for WBG in- cussed in the OED Review on the World Bank's volvement. In the renewable energy field, the Bank Performance on the Environment (2001). Since and IFC are conducting pioneering work with a the Board approved FFT in 2000, changes have clear allocation of responsibilities; the Bank con- been made in the institutional context that affect centrating on policy and institutional strength- its implementation. These include completion of ening, and IFC providing financing (see Annexes "Making Sustainable Commitments: An Environ- N, O, and P). The active portfolio of World Bank ment Strategy for the World Bank" (World Bank Group­GEF projects consists of 41 projects with 2002a) and the Energy Business Renewal Strategy a total value of US$3.3 billion, of which US$802 (EBRS), the emergence of the Poverty Reduction million is Bank and US$396 million is GEF fi- Strategy Paper (PRSP), and the Bonn Agreement nancing. It is too early to evaluate these recent ini- on the Kyoto Protocol. The ensuing debates have tiatives, the first few of which are being completed focused on trade-offs between the short-term this year. and long-term needs for poverty reduction and economic growth, relevant to local and global Greenhouse gas (GHG) emissions from IFC-financed environment issues. power plants are insignificant. OEG found that the total GHG emission of the 22 fossil fuel-fired Environmental mainstreaming in the Bank is still weak, power plants approved in the 1990s and in IFC's but making progress. In its 2001 Environment Re- portfolio as of December 31, 2001, is relatively in- view, OED found that environmental main- significant (see Annex Q). Gas/naphtha-fired streaming has not yet taken full effect in Bank power plants, which represent 31 percent of IFC's policies, programs, and operations, but some installed capacity, have the least impact. Greater progress is being made. Some 35 percent of Coun- fuel efficiency has a direct impact on GHG re- try Assistance Strategies produced in FY01 and half duction. IFC's portfolio reflects a fuel choice of the final PRSPs produced so far include dis- made according to the availability and cost of fuel cussion of energy and environment issues. De- and the fuel balance in each country. Recent de- mand for full-scale energy and environment velopments in nonhydro renewable energy indi- reviews is lower than originally expected under the cate that commercially viable energy projects are Fuel for Thought strategy, with clients preferring encouraging and could be a growth area for IFC's more focused analytical and advisory work. Ana- power operations. Over the 1990s IFC's renewable lytical work is creating results either directly or energy projects were largely in hydro, where IFC through lending operations. Analysis of active en- financed a total capacity of 1,000MW. Approxi- ergy lending operations shows a growing pro- mately half of the total generating capacity in- portion with at least one environment objective, sured by MIGA is in projects with renewable or amounting to 69 percent in FY01 compared with clean energy sources (3,767MW out of a total of 9 percent in FY90 and 10 percent in FY97. 7,446MW). Bank outputs against established short-term OEG found that nearly four of every five IFC FFT indicators have been greater than expected, power projects meet or exceed WBG environ- according to FFT's annual report, in the areas of mental, health, and social (EHS) guidelines. This facilitating more efficient use of traditional fuels is better than IFC's all-sector performance. IFC and their substitution by modern ones, protect- monitors environmental performance until the ing human health from urban air pollution, and IFC loan is repaid and the equity relationship is tackling climate change. The Bank is active in all completed. OEU found that all eight evaluated regions, building the capacity of regulators MIGA power projects were in compliance with, or through analytical work, technical assistance, and exceeded, MIGA EHS policies and guidelines. projects. Although work in the environmentally MIGA has the right to unilaterally terminate a sustainable development of energy resources is guarantee if a project is found to be in noncom- making reasonable short-term progress, the pliance with these policies and guidelines. MIGA longer-term lending pipeline is still weak. maintains a relationship with the project sponsor 4 1 P O W E R F O R D E V E L O P M E N T as long as the insurance policy is in force. The driv- of industrial plant shutdowns, and through pro- ers for this good outcome include quality spon- viding the capacity to expand access to power sors with strong commitments to the environment supply. The more capacity it has, the greater is a and the community; appropriate and feasible system's capability to manage the dispatch of its technology choices; established plant-level Envi- power plants in a least-cost and environmentally ronmental Management Systems (EMS); and rea- responsible manner. Better environmental man- sonable and enforced national environmental agement is possible, depending on the tech- standards. nologies, plant alternatives, and contractual IFC's and MIGA's power projects in the 1990s constraints involved. Environmental outcomes provided viable solutions to power shortages, are inferior when supply is constrained and sys- and additional generation capacity improved sys- tem dispatch requires that older and more pol- tem reliability. This led to net environmental and luting capacity is called into long periods of social benefits through the dispatch of environ- production. mentally cleaner power plants, the minimization 4 2 5 Cross-Cutting Findings A nalysis of project-level results and sector outcomes points to a number of cross-cutting findings and lessons that should inform the imple- mentation of the WBG's 2001 Energy Business Renewal Strategy (EBRS). The findings fall under two categories: those for designing better PSDE in- terventions, and those for improving WBG processes. power sector reform and PSDE. There has been Toward Better-Designed Interventions an enormous and rapid growth in the complex- ity of PSDE project design and implementation as- More practical operational guidance to staff on pects because of the need to satisfy multiple and WBG support for PSDE is required sometimes conflicting objectives and con- The Bank needs to support its advice on reforms stituencies. These budget constraints (and the with financial help to meet the high costs of staff depletion that has taken place since the mid- power sector transformation, a new market for 1990s) partly explain the Bank's inability to pro- Bank lending. Ironically, the volume of power vide more financial support for power reforms in lending has declined since the late-1990s. When many of its client countries. Sector reform is a the 1993 Electric Power Lending Policy was in- long-haul process lasting for well over a decade, troduced, the Bank did not realize that power and ways must be devised to ensure continuity of sector reform requires enormous technical and personnel and institutional memory. financial resources that few developing countries Promoting PSDE involves high risks. The de- possess. For example, US$50 and US$100 million sign of WBG PSDE interventions must be im- was spent on technical assistance alone for re- proved by providing operational guidance to staff forming the power sectors in Orissa and Ukraine, on how to promote PSDE under the current sit- respectively. The costs of restructuring the fi- uation of scant investor interest, and on which re- nances of bankrupt utilities and of undertaking the forms and sequencing should be followed, given investments essential to the reforms amount to specific regional, country, and sector situations. hundreds of millions of dollars--funds that many This guidance was absent from the generic 1993 client countries do not have. policy paper. The large number of PSDE-related The Bank's own budgeting process seriously "Viewpoints," working papers, and so on issued underestimated the effort required to prepare, ap- by the Bank have been valuable and appreciated praise, and supervise operations that support by staff, but they have not been an adequate sub- 4 3 P O W E R F O R D E V E L O P M E N T stitute for formal guidance, since such publications MIGA coordination and coherence within, and be- typically represent the views of the authors and yond, the Country Assistance Strategy (CAS) cannot be construed as being endorsed by Bank framework. management. One important first step is to syn- The development of this guidance should be thesize the multiple policy and strategy papers that a joint and coordinated effort, and it should de- are applicable to PSDE and identify the specific fine a framework to fully analyze power reform and roles that the Bank, IFC, and MIGA are expected PSDE alternatives that is responsive to country to play. The WBG has developed and implemented conditions, needs, and institutional capacities. a series of strategies and policies affecting the The guidance should at the same time ensure PSD aspects of its energy business. Including the environmental sustainability and align with the 2002 PSD Strategy and the 2001 Energy Business Bank's poverty reduction mission. This synthesis Renewal Strategy, there have been eight policy and should be updated regularly to reflect new trends strategy statements within the past nine years and priorities, particularly in a rapidly changing that are relevant to the WBG's PSDE programs (see area like PSDE. For example, the WBG could do also World Bank 1993a, 1996b, 1996a, 1997, 2000a). more in facilitating public­private partnerships and With due attention to the trade-off between output-based aid through its diverse lending and process controls and agility, within tolerable cor- advisory instruments. This could be enhanced porate risk levels, the Bank's Energy Sector Board, through cross training of Bank, IFC, and MIGA staff IFC, and MIGA should provide WBG staff with bet- involved in PSDE. ter and more country-specific guidance on best, good, and bad practices in PSDE. Drawn from PSDE monitoring and evaluation needs to be experience, this guidance should assist staff on (i) strengthened considerably how to read the country and investor community context, (ii) what criteria to follow in deciding Monitoring and evaluation of sector performance is when and how WBG involvement is likely to add weak. The assessment of PSDE outcomes--par- value, and (iii) what the warning signs are for po- ticularly its poverty reduction and environmental tential difficulties and how these can be anticipated mainstreaming aspects--has to be seen in light of and built into the design of the WBG's advice the poor data availability, as performance moni- and operations. toring for the energy sector has been weak (Albouy Operational guidance is particularly lacking in 1999b). Bank reports tend to focus on inputs and the following areas: (i) how to reignite private in- outputs and provide little data on outcomes or im- terest in developing country power sectors; (ii) pacts. Only the United Nations and the Interna- how to do business with regard to balancing pub- tional Energy Agency (of the OECD) systematically lic and private investments, particularly in non- update energy data, but these data say very little competitive markets where case-by-case decisions about sector performance indicators such as ac- are required to assess whether public or private cess, reliability, and price. Moreover, very few service provision is preferable, depending on countries have reached advanced reform status, how much of the risk for commercial performance and only a small number of the Bank Group's can be shifted to the private sector; (iii) what se- PSDE interventions have come to full fruition, quence of reforms and PSDE interventions work such that outcomes attributable to PSDE can be best in particular country-sector situations, and measured. The EBRS itself has yet to mainstream what is within, and beyond, the WBG's control; PSDE indicators and launch the system for mon- (iv) how to incorporate the expansion of energy itoring performance based on the EBRS objectives. access to the poor and environmental consider- ations beyond safeguard compliance (that is, "do The weak database is being further fragmented. As re- good" in addition to "do no harm") into the forms redefine the role of government and mul- WBG's PSDE and sector reform agenda; and (v) tiply the number of actors through privatization how to achieve much stronger Bank, IFC, and and unbundling, performance data have become 4 4 C R O S S - C U T T I N G F I N D I N G S more fragmented and much data have become The ESMAP Reform Scorecard Study suggests confidential. Most new regulators are too over- that "reform is not a uniform process, but rather whelmed to collect even the minimum data re- that it proceeds rapidly when conditions are fa- quired to start functioning. In 1999, QAG found vorable, and does not even start when conditions distorted performance ratings and significant are unfavorable." OED's literature and portfolio M&E gaps during project supervision for 40 per- reviews indicate that different approaches to cent of the Bank's projects, as project teams con- PSDE reform apply to different countries, and tinue to focus on inputs and neglect outcomes. approaches that work well in one country do not Project Status Reports fail to signal outcomes, and always work as well in another. This reinforces the results are buried in reports that never enter the well-established evaluation finding about the im- Bank's formal reporting structure. As early as 1994, portance of adapting to country conditions. For OED found that only 20 percent of energy projects example, in LAC the Bank mainly facilitated and in a study sample had effective M&E at approval. responded to country priorities and did not de- The Bank has a clear priority to support the de- termine the reform agenda or try to take the lead. velopment of strong country client and internal ca- In AFR, the poor overall PSDE portfolio per- pacities to monitor and evaluate sector reforms and formance apparently led to a retrenchment in PSDE interventions, including their impacts on the regional PSDE strategy toward a closer focus poverty reduction and environmental sustain- on individual country conditions and readiness for ability. Country client M&E systems have not been reform. In SAR (India in particular) the focus has well established, however, making it difficult to un- been on reforming states, and the support for re- derstand the country factors behind good PSDE form programs is being reoriented toward the performance with respect to the EBRS bench- distribution subsector. ECA provides the strongest marks. Learning-by-doing as reforms and PSDE are example of country drivers: PSDE success only be- implemented, the Bank runs the risk of perpet- came possible when country commitment mate- uating poorly designed interventions if the lessons rialized after years of no results and unsatisfactory learned are not quickly shared. Internally, the Bank operations. Bank's Energy Sector Board should provide clear guidance to staff on which part of the EBRS strat- Government commitment is of paramount importance. egy should be pursued by which unit and in what As found in studies by OED and others, important subsector. The EBRS is a Bank Group­wide strat- factors in the successful implementation of PSDE egy covering the whole array of WBG instruments programs include focusing on a realistic set of pri- (including public sector lending) and the entire orities; establishing a clear sequence of steps; energy sector. Each of the four strategic priorities working with local champions for reform; and of the EBRS has five or six action plans, not all of the realization of early successes in the reform which are applicable to PSDE. The WBG should process. Energy operations, however, are vul- identify specific action plans that are relevant to nerable to country risks, given the inherent "re- PSDE, develop success indicators, and track per- form intensity" of these projects in countries with formance. A PSDE scorecard agreed by the Bank, macroeconomic problems, weak institutions, or IFC, and MIGA should be considered to enhance poor borrowing records with the Bank.1 Political overall coordination, promote harmonization of commitment to PSDE objectives is fragile, and internal incentives, and foster the ability to speak can be eroded by elections, the lack of immedi- in one voice to client countries, including when ate results, macroeconomic crises, or a waning giving analytical and advisory assistance. sense of urgency after crises have been weathered (often with the receipt of aid money from the Country factors drive successful reforms and WBG and others). The political economy--not good PSDE performance only aid money--explains the outcome of ad- In designing PSDE interventions, it is important to justment operations. build the country's ownership and leadership role. 4 5 P O W E R F O R D E V E L O P M E N T The lack of constituency-building for reforms can Development Economics and Chief Economist threaten the sustainability of PSDE reforms. The lit- Vice-Presidency (DEC); Public­Private Infra- erature review indicates that there is support for structure Advisory Facility (PPIAF) country frame- reforms if they are transparent and carried out work papers; World Bank Institute (WBI) training competitively. In LAC, however, despite the reform courses; OED evaluation studies; and technical as- achievements inadequate civil society participa- sistance such as conferences, staff training, and tion has sometimes been a problem. In Chile and country workshops provided by these groups). Peru, the power exchange markets have been The IFC has also provided 33 advisory operations criticized by observers for not representing a true during the study period. In the mid-1990s the market scheme: they claim the pools inhibit the production of Bank ESW/AAA underwent struc- entry of new players and limit competition (Rud- tural changes with the emergence of quick turn- nick and Zolezzi 2001). Government ownership around studies that provide more timely response of key generation plants furthermore can strongly to client requests for analysis and advice. ESW/AAA influence dispatching and price, as in Peru.2 Some for PSDE reflected these Bank-wide structural countries may yet backslide as a result of public changes with products that were more diversified disillusionment with reform, changes in admin- in scope and scale, ranging from traditional, Bank- istration, and opposition by powerful stakehold- driven core diagnostics work to informal, "just-in- ers. A poll in Peru showed that 72 percent of Lima time" policy notes, capacity building, and experts residents would like to see their public utility in meetings that are country-driven. electric power renationalized.3 This declining The Bank's ESW/AAA has facilitated the reform popular support for privatization has made that process in PSDE, but its contribution at the coun- program a target for the government's oppo- try level varies widely. Findings based on selected nents, as shown by the riots in Arequipa in June country case studies suggest that substantial 2001. Planned privatizations of distribution com- ESW/AAA does not necessarily lead to better sec- panies in Bolivia were cancelled early, partly be- tor outcomes. Rather, it is a combination of "just- cause of political opposition by unions and local in-time" advice, leveraged by commitment from political leaders. Finally, further regulatory chal- government and support from a broad spectrum lenges will arise as markets integrate and cross- of civil society that has facilitated PSDE reforms, border trading develops. The continuing merger as noted above. OED's Performance Assessment of companies at the regional level, the growing Report (PAR) indicates that limited, but strate- convergence of gas and electricity markets, and gic, advice given to Mauritius under GEF financ- the withdrawal of major players have reduced ing has substantially contributed to the emergence the number of actors in the market, and may well of private investments in bagasse cogeneration be the biggest concern for the momentum of (see Box 5.1), despite cancellation of the associ- PSDE in WBG client areas. ated Bank loan. In Poland, OED's PAR indicates that the Bank's early ESW/AAA laid the ground- ESW/AAA has facilitated PSDE in countries work for sector reforms and a competitive mar- committed to reforms ket and that subsequent loans and sectoral policy The Bank's analytical and advisory assistance, in- advice provided support for preparing and pass- cluding its subset of economic and sector work ing legislation to establish the Energy Regulatory (ESW/AAA), has since the 1970s been a mainstay Authority (ERA) and to restructure the energy in underpinning the Bank's country dialogue and enterprises. operations. The Bank's ESW/AAA for PSDE shows In the Philippines, by way of contrast, a sig- a tremendous amount and diversity of products nificant amount of ESW/AAA in PSDE has been pro- and audiences (products include analytical pa- duced, yet the advice offered largely has gone pers by the Energy Sector Board; ESMAP studies; unheeded. While Bank support for the privatiza- formal ESW and operational advice by the Re- tion of the national power company facilitated, gions and the networks for energy and private sec- after a drawn-out process, the passage of a power tor development networks; research by the Bank's reform bill, lack of buy-in from a broad-based 4 6 C R O S S - C U T T I N G F I N D I N G S M a u r i t i u s : T h e B a n k ' s A d v i c e C o n t r i b u t e d B o x 5 . 1 t o t h e S u c c e s s o f P r i v a t e P o w e r G e n e r a t i o n f r o m B a g a s s e The Mauritius Sugar Energy Development Project supported ker" role was critical in facilitating the launch and implemen- private power generation based on bagasse as a substitute for tation of the country's Bagasse Energy Development Program. imported fuels, with funding from the Global Environment Facility The Bank's nonfinancial AAA during supervision missions related (GEF). There was a strong general consensus among both pri- to PSDE, as well as the ESW on the theory and best practices vate and public evaluation respondents that, although the Bank's for energy pricing based on the avoided-cost principle, were contribution solely in financing terms was small and its in- often cited by stakeholders as specific examples of the Bank's volvement by completion minimal, its advisory and "honest bro- high value-added. constituency put on hold reforms in PSDE (this ESW/AAA products for PSDE are becoming more situation since has progressed, with the govern- diverse and decentralized and thus more in- ment approval of the National Power Corporation tractable, not only in volume and cost but also in privatization plan in October 2002). In Indonesia, quality. There furthermore is no Bank-wide eval- Bank staff were actively involved in drafting the uative framework for measuring impact: while power restructuring policy that was adopted by OED, OPCS, and QAG have recently assessed the post-Suharto government and that later paved ESW there has been no agreement yet on Bank- the way for ADB's program loan and formed the wide criteria for evaluating impact. basis for the new electric power policy. The reform IFC's advisory operations likewise have played process, however, lost momentum with the de- an important role in promoting PSDE, especially parture of the Minister of Energy who had cham- in the distribution and transmission subsectors. pioned the restructuring policy, and with the In the 1990s IFC's advisory operations in power political instability that characterized the Wahid were conducted largely through standalone ad- presidency. The Bank's influence in Indonesia's visory engagements (13 operations) and donor- power sector reforms soon diminished. A recent funded technical assistance (20 operations). The OED review concluded that the Bank should not focus of the 13 standalone operations has been have closely associated itself with the restructur- mainly on structuring and executing a privatiza- ing policy, and that the policy paper would have tion strategy. LAC was the dominant region, host- benefited from more deliberation and from broad- ing seven out of 13 advisory operations. From based consultation from various stakeholders the 13 standalone advisory operations, seven pri- (OED/World Bank 2003). vatization advisory assignments were successfully A system of M&E is needed to better measure completed, resulting in the mobilization of about the impact of ESW/AAA for PSDE. Such a system US$2 billion in private sector investments that in would enable better coordination and selectivity turn led to expansion and efficiency improve- in ESW/AAA to meet EBRS objectives, and thus ments of privatized facilities. Through its bilateral promote greater effectiveness in PSDE outcomes and multilateral donor-funded technical assis- and impacts. Lessons learned through M&E fur- tance (TATF) operations, IFC has since 1988 suc- thermore could help build the Bank's PSDE cessfully expanded the reach of its advisory knowledge base, thus better informing future operations in power. Assistance provided under ESW/AAA design and the reform sequencing and this program includes feasibility and project iden- choice of instruments appropriate to specific tification studies, studies of enabling environ- country conditions. There currently is no Bank- ment for PSD, training and capacity-building for wide codification of ESW/AAA that would allow for private businesses and government agencies, pri- systematic monitoring within and across sectors vatization advice, post-privatization support, and and networks. This difficulty is heightened since reforms of government regulations and policies 4 7 P O W E R F O R D E V E L O P M E N T affecting the private sector. Four out of 20 TATF form and "commitment lending" agenda. For IFC, operations are in transition economies in ECA the new international environment provided sub- (Russia, Romania, Hungary, and Tajikistan) that stantial investment opportunities in LAC, SAR, started opening their power sectors to private and EAP, where it was among the pioneers. Despite participation. its lack of prior experience, the Bank supported all seven reform areas in a large number of coun- PSDE policy and operations are country- tries (68) by the mid-1990s, frequently using the specific works in progress experience of the United Kingdom (which was it- There is no one-size-fits-all model for power re- self a work in progress) as a model for its advice. forms and PSDE. Country specificity is important Learning by doing worked in a few cases, as in El because the Bank itself was, and still is, learning Salvador, but in many others, such as Ukraine, it by doing (or "experimenting," based on the task did not work. There additionally is always the manager's survey). Based on OED's literature threat of backsliding following initial success, as and portfolio reviews, the Bank does not seem to in the Bank's support for distribution sector re- have followed a consistent PSDE reform strategy forms in Orissa, India. from the outset of the 1990s. The Bank was re- Ukraine is an example of how PSDE can fail active to the unanticipated large private capital when it is imposed from the outside as a one-time flows that preceded its 1993 Electric Power Lend- solution rather than a work in progress (Box 5.2). ing Policy: while some regions were already sup- IPPs have an important role to play in PSDE. An ex- porting PSDE before the enunciation of the policy, ample of the importance of country-sector con- others were slower to respond to the policy's re- ditions is the WBG's experience with independent U k r a i n e : P u s h i n g f o r U n b u n d l i n g i n t h e B o x 5 . 2 W r o n g E n v i r o n m e n t The Electricity Market Development Loan to Ukraine, approved isfactory financial performance of the entire power sector and in 1997, was designed to support improvements in the power sec- to a new government prohibition on the increase in electricity tor, including development of a competitive power pool based tariffs for household consumers. Only US$76.4 million was dis- on the British model of unbundling. The project's reform objec- bursed, which paid for fuel stocks. The loan was cancelled at tives--improved collection levels, access to working capital, government request in 1999 due to the impact of the Russian fi- metering facilities, and financial management--were to in- nancial crisis on the Ukrainian economy. crease the quality and reduce the cost of electricity supply by Based on the ICR, a key lesson from the project is that there developing a competitive electric power market and operating is little merit in pursuing comprehensive power sector reform conditions that would encourage electric power companies to policies (legislation, regulation, unbundling, competition, pri- seek full cost recovery. vatization, regulation) in a country suffering a major economic Delays in ratification slowed project implementation, and in crisis. The project shows that in an economy that was barter- the meantime political interference prevented any improvement based, with salaries and pensions in arrears and where the in payment collections--collection levels in fact declined. This government condoned the culture of nonpayment, there was no prevented full cost recovery for the generating companies, way to make consumers pay for electricity in cash. In such an which were also burdened with the requirement of maintaining environment, the introduction of an advanced model of a com- minimum fuel stocks throughout the year. Subsidies to power petitive power market was bound to be a losing proposition. Pro- plants and nonpayments by distributors exacerbated the ject objectives should have been more modest and targeted to problem. improving well-delineated technical, institutional, and financial The loan was suspended in July 1997 due both to the unsat- problems. 4 8 C R O S S - C U T T I N G F I N D I N G S power producers (IPPs) in countries where re- East Asia (Thailand and Indonesia), in South Asia forms have not taken root. Appropriately struc- (India and Pakistan), and a few LAC countries. tured IPPs have provided timely and cost-effective First, IPPs were underutilized when actual de- solutions to chronic supply shortages. They have mand growth fell below government projections. relieved the public sector of many of the project Official demand and supply projections that at- risks, subsidies, and financial obligations that it tracted private sector participation and served as would have assumed had it built and operated new the government's basis for determining the re- capacity as it had done in the past. They have mo- quired IPP capacity proved unrealistic when coun- bilized financing and enabled capacity to be added try crisis struck, in particular where there were no to meet demand beyond what governments could accompanying T&D reforms and when the gov- have done on their own. They also have served ernment refused to shut down old, inefficient, sub- as an interim step in developing fully competitive sidized plants. Second, in markets where dispatch power exchange markets. However, in a few coun- is under the unilateral control of a state agency, tries (such as Pakistan and the Philippines), the dispatch rules appear to have been biased in favor success of IPPs in resolving power crises had the of state-owned, subsidized generation plants, with effect of relieving pressure on leadership and pol- little regard to plant efficiency. Third, in coun- icymakers for needed reforms and for the provi- tries where T&D reforms have not yet taken root, sion of capacity downstream of generation, IPPs were underutilized due to bottlenecks in particularly in T&D. In Pakistan, the failure to ad- T&D. At entry, IPP financiers had assumed that dress downstream reform and capacity provision, host governments would address the T&D bot- coupled with weak system planning, resulted in tleneck by pursuing the necessary reforms. Fourth, underutilization of the IPP capacity even as de- IPPs in some countries also became highly politi- mand remained unmet. cized and were easy targets of accusations of cor- While early-entrant IPPs are lower-cost, com- ruption and high costs (relative to subsidized pared to the full cost of power generation in the and/or older state sector units)--especially where public sector, they are largely higher-cost rela- the IPP had been implemented under a previous tive to subsequent IPPs. This pattern is typical in political regime. In addition, consumers resisted most new product markets. Early-entrant IPPs as- the elimination of subsidies on electricity and in- sume higher risks, and in most cases where they correctly attributed the resulting tariff increase to have acted the government could not attract vi- IPPs. able alternative proposals. The pricing of these In the context of severe power shortages at IPPs reflects the high-risk associated with pio- entry, IPPs were seen as a "win-win" solution for neering investments in sectors new to private the government, consumers, and private finan- capital where the business climate and regula- ciers. This was evident in IFC evaluation findings, tory environments are at best uncertain. In prac- particularly in power-crisis relief situations and/or tice, average output prices subsequently have where conditions allowed their productive ca- fallen as developers and equipment suppliers pacity to be realized. In a depressed demand sit- have competed for business following the initial uation, however, the contractual terms of the success of the early entrants. Countries that en- early IPPs were perceived in hindsight to unfairly gaged in transparent and competitive bidding favor investors and lenders over offtakers. While processes, on the whole, got lower prices and bet- accusations of corruption have not been proven, ter terms. many IPP contracts have been renegotiated under The private sector has underestimated the pressure, and IPPs have accepted terms that would risks associated with IPPs, however. Contracts not have been viable at entry. A loss-sharing so- run for 15 years or so, and many unforeseen eco- lution of lowering tariffs in exchange for an ex- nomic, political, and market developments can tension of the PPA term has been the most occur over such an extended period. By 1998, eco- common approach, and has been successfully nomic crisis had undermined the sustainability of used in Pakistan, Thailand, and Guatemala. The long-term Power Purchase Agreements (PPAs) in IPP shareholders in these situations have real- 4 9 P O W E R F O R D E V E L O P M E N T ized returns below what they expected or would in developing countries attractive and sustain- have found acceptable at entry. In a few cases, such able. This should minimize the risk of going as in Indonesia and India, PPAs have been can- through hostile renegotiations. The WBG should celled or remain in dispute. emphasize the need for: (i) accompanying re- The WBG supported IPPs in the 1990s--in- forms in T&D and dispatch rules; (ii) more real- deed, IFC was a pioneer in financing IPPs, which istic demand and supply projections that include currently constitute the majority of its power reserve capacity and that are prepared by both portfolio. At the beginning of the IPP era, in the government planners and the private sector; (iii) late-1980s, the Bank had reservations about the a balancing of investments across generation, compatibility of private sector profit objectives and transmission, and distribution to meet demand the public sector's objective of providing reliable growth, extend service to the poor, and mini- low-cost power supply. The Bank subsequently mize the risk of imbalance system capacity; (iv) a embraced the trend and in a few cases, such as reasonable action plan and time-based program Pakistan and Côte d'Ivoire, provided financial to build an enabling environment for competitive support to IPPs through on-lending instruments and fully functioning power exchange markets and guarantees. Because of the lack of develop- that are efficient and able to remunerate capital ing country models and experience, the WBG appropriately within a risk-sharing framework learned how to implement IPPs by actually doing that can attract appropriate financing; and (v) a them, and derived lessons over the years. A few reform framework that recognizes that market of the first WBG-supported IPPs were among forces alone cannot ensure timely capacity build- those that have encountered allegations of less up--in other words, a combination of regulation than arm's-length contractual arrangements. The and private sector promotion initiatives is essen- WBG had become more selective in its support tial for long-term demand/supply equilibrium. for IPPs, turning down proposals (in India, In- donesia, and in the Philippines) that it considered Reform steps are means, not ends uncompetitive, too risky, not transparently Evidence from the literature and portfolio re- awarded, or disadvantageous to the country. views indicates that a purely public sector own- Recent problems with IPPs in several coun- ership and monopoly structure should not be a tries have led many developers to conclude that permanent goal, but it is important to sequence the rates of return in power generation in devel- reform steps such that they serve as tools and do oping countries have become too low relative to not become ends in themselves. The Bank's ap- the risks that have emerged and to the more ad- proach to sector reform, as it evolved in the 1990s, vantageous risk­reward profiles available in in- went beyond what was mandated by the 1993 dustrial countries. This has coincided with a Electric Power Lending Policy. The policy pro- general withdrawal of international financiers moted commercialization and corporatization be- from developing countries since 1998, partly in re- fore privatization, as a means to introduce action to unpredictable, but recurring country competition and innovation. It was based mainly crises. Unsustainable long-term PPAs with state- on the reforms in Chile, England, and Wales, owned offtakers are appearing to be riskier than which were the only experiences available at that transparently and competitively chosen merchant time. Most power sectors of Bank client countries, plants in fully functioning power markets. This re- however, showed little prospect for reaching com- alization has caused a reversal of the positive sen- mercial standards because of the inefficiencies timents of international financiers and sponsors from state ownership and poor governance. Sub- toward private power generation in developing sequent to the 1993 policy, and without enunci- countries. To counter this trend, the WBG needs ating it as a major strategic change, the Bank thus to work with developers, lenders, policymakers, mostly advocated privatization (as well as private and ratepayer stakeholders to determine the nec- participation through management contracts) as essary country and sector reforms to make IPPs a means to achieving commercialization. 5 0 C R O S S - C U T T I N G F I N D I N G S The evidence on the timing and sequencing of cipitated PPA renegotiations with IPPs). Further- reforms and PSDE is ambiguous. There are coun- more, there are many instances of ineffective reg- try lessons where leapfrogging to privatization ulators due to poor legislation, lack of autonomy, as a means to achieve commercialization has led weak technical skills, and politicization of deci- to positive sector change (Kazakhstan and Cen- sions. tral European countries). Even where this ap- Lack of regulatory skills, which affects both proach was not wholly successful, service quality the regulatory agencies and the regulated entities, and coverage are still typically better than they is particularly acute in small countries and in all would have been otherwise, as evidenced by com- of Sub-Saharan Africa (except South Africa), based paring adjacent utilities in the same country that on OED's literature and portfolio reviews. Outside were not privatized (Georgia, and Orissa in India). Latin America, where electricity and gas often There are also clear examples of negative conse- have the same regulator, as in Colombia, Chile, and quences (Ukraine), however, and the alternative Mexico, local empire building and the existence reform approach has also shown both successful of too many regulators (such as separate electric and unsuccessful results. Substantial efficiency power, gas, telecommunications, and water reg- gains were achieved in some countries where ulators) often have exacerbated the dispersion of good public governance and the right tariff struc- scarce regulatory expertise.4 While there has been tures were first put in place (some ECA coun- considerable debate within the Bank about the ap- tries), but there are also many situations when propriateness of multisectoral regulation, inter- decades of Bank support for the reform of pub- viewees suggest that the Bank may have lic monopolies had little or no success (many contributed to this situation through lack of cross- AFR and some SAR countries). Two examples are sectoral coordination among project staff. Even provided below on issues that arise when reform with "umbrella" (multisectoral) regulators, effec- steps--regulatory improvements and un- tive and credible regulation will be difficult in bundling--become ends in themselves. The WBG many of the Bank's borrowers for many years to should not dogmatically prescribe a checklist of come. This will have important implications for minimum preconditions for PSD and privatization, the near-term viability of PSDE and WBG activities but neither is it feasible to simply let markets and in these environments. One concrete step to investor appetite decide alone. In cases where in- strengthen a multisectoral approach to regula- termediate steps to reform the public sector are tion within the Bank would be to organize the required, PSDE must be a clear long-term goal. network side of power supply with the network The WBG's clients are too diverse to follow a sin- side of other infrastructure services to capture gle blueprint for reform sequencing, thus un- pooled knowledge about regulation, industry derlining the importance of country specificity. structure, market structure and trading arrange- Regulatory improvements are essential means ments, and privatization experiences, with a view toward achieving PSDE reforms. Bank lending to adapting this knowledge to individual country operations have provided assistance for the es- situations. tablishment of regulatory bodies, but this has Ideally, regulators should be financed from a proved to be a slow and lengthy capacity-building levy on consumers that is paid directly to the reg- exercise, with establishment of a regulatory body ulator and should have separate employer status becoming an end in itself. Based on the portfo- from the public service, but experience shows a lio review, there are few successful examples of widespread reluctance to give regulators such this, most of them recently in Latin America. In autonomy. Most regulators are financially de- most countries there have been long delays in set- pendent on the government budget, and this ting up adequate regulatory mechanisms, even limits their autonomy as well as their financial re- where there was entry of private operators or sources to hire expert staff or consultants. Few reg- IPPs (the absence of effective retail-level regula- ulatory bodies can pay good salaries5 and attract tion was one factor that in several countries pre- the right talent. Most are underfunded and reliant 5 1 P O W E R F O R D E V E L O P M E N T on donor support for initial startup costs, staff gardless of the size of a country and its utilities, training, and consultants. Ministers and tech- level of development, and the extent of disarray nocrats are rarely willing to cede authority,6 so pro- in the sector. A recent internal review in the ECA nouncements of support to independent region of experience with power sector reform regulation can be less than genuine commitment. and private sector participation in the 1990s draws Many regulated power sector entities are still pub- some important conclusions that also appear to licly owned, so the regulator lacks clout to enforce be valid elsewhere, particularly in AFR. Both these decisions. Tariffs furthermore remain a politically regions are characterized by weak commercial sensitive matter virtually everywhere, making it un- performance by their utilities, macroeconomic realistic that decisions on tariffs can be made on instability, low and/or declining incomes, poor a technocratic basis. Ultimately, for most of the governance, and unattractive private investor en- Bank's borrowers rate hikes need to be endorsed vironments. In ECA, Bank operations have em- at the ministerial or cabinet level.7 Politically mo- phasized the need to unbundle the sector, to tivated decisions in some countries have reduced privatize distribution and generation, and to in- the effectiveness of even technically capable reg- troduce competition and consumer choice. These ulatory agencies.8 This is very hard to change, operations have the objectives of bringing in for- but doing so is crucial to the long-term viability eign private resources for sector rehabilitation of independent regulation. and possible expansion, improving managerial The Bank's experience with unbundling rein- competence, and upgrading sector efficiency. forces the lesson of keeping reforms as the means The ECA review reveals that the application of to an end. Sector unbundling of generation, trans- a standard, sophisticated model in all situations mission, and distribution has been considered a did not produce the desired results. It concludes linchpin of the reform process, as it is the gate- that the push for unbundling and privatization was way to establishing competitive markets in gen- premature in ECA and that the attempt to leap eration and distribution. Despite widespread from a totally noncommercial state-owned en- adoption of the many variants of this concept in tity, run like a government department, to private a wide range of industrial and developing coun- commercial utilities did not work. In the Cauca- tries, it remains a work in progress. International sus and Central Asia regions, experience to date experience to date indicates that a variety of ap- with unbundling and privatization has either re- proaches are being tried, with highly mixed results. sulted in a lack of investor interest, low offer To achieve the potential benefits of unbundling prices for assets, disinvestments by the private sec- requires a willingness and ability to move to the tor, political opposition, and stalled reforms. In next step in promoting private, competitive mar- many countries investor fatigue has set in. The re- kets in generation and distribution, and this in turn sponse to invitations for privatization has become requires an understanding of property rights, an so small as to negate the concept of competi- adequate legal framework and dispute resolution tion, and there are examples of investors with- mechanisms, smoothly functioning capital mar- drawing from investments already made. Sector kets, freedom of entry and exit for investments, unbundling in countries of the former Soviet and highly developed political and economic in- Union (including Armenia, Georgia, Kazakhstan, stitutions.9 Lessons of experience (as discussed in and Ukraine) actually exacerbated payment prob- the draft ECA study discussed below) include the lems because the distribution utilities retained need to assess the readiness of the sector to move whatever cash they collected and starved the up- on to the next step, and to assess market size as stream suppliers. The negative impacts of push- a potential limitation to unbundling. ing prematurely can be far-reaching, as in Ukraine In the late-1990s and until recently, key donors (see Box 5.2). In many of the poorest, but not nec- (including the WBG) were perceived to profess essarily small countries (Kyrgyzstan), unbundling that unbundling, privatization, and the establish- of distribution along geographical lines is ren- ment of a competitive power pool was the best dered more difficult by the existence of unviable way to achieve power sector reforms, almost re- isolated grids serving small urban centers or large 5 2 C R O S S - C U T T I N G F I N D I N G S numbers of rural consumers with very low aver- more than 400,000 customers, was recently pri- age electricity usage. vatized as an integrated company on IFC advice, In retrospect, based on the ECA experience it reflecting investor and government preference was unrealistic to believe that restructuring and and the wish to avoid "orphaning" some or all of privatization could somehow overcome legal, po- the distribution system in the event of unbundling. litical, attitudinal, and payment obstacles and be immune to destabilizing macroeconomic factors. Reforms in transmission and distribution are as The key lesson is that to improve commercial important as reforms in generation performance, good corporate and sectoral gov- Improvements in the distribution subsector-- ernance are essential, regardless of sector struc- better cash collections, loss reduction, good gov- tures and ownership. Whether privatization is ernance, better targeting of subsidies, and the best immediate option to achieve these goals distribution privatization--deserve more intensive depends on country circumstances. reform efforts and investment support by gov- Unbundling regardless of market size and coun- ernments and the WBG alike. The factors re- try factors is questionable. The literature suggests sponsible for increasing private participation in the that in most of the Bank's smallest borrowers, par- power sector of developing countries (power ticularly in Africa, unbundling is unlikely to facil- shortages, technological change, and search for itate the entry of private investors, particularly markets by equipment makers) have emphasized foreign ones. Such firms generally have minimum generation over transmission and distribution. size requirements for them to consider entering Swept by the market wave, the WBG's attention new markets. In addition, there are economies of to PSDE also concentrated originally in the gen- scale in management and in commercial prac- eration subsector. However, it has become clear tices, such as billing and collection. No African util- that private investments in generation are vul- ity has yet been both unbundled and the resulting nerable to financial problems in the distribution "segments" privatized, although a few have been end of the industry and local vested interests de- unbundled (Uganda and Kenya) and a handful pri- fending the status quo. vatized. Viable distribution systems need The importance of distribution reforms has economies of scale and excessive fragmentation been highlighted in the section on IPPs (see does not work (Armenia, Georgia, Moldova). Reform steps are means, not ends). Liberalizing Reconcentration into larger entities has become the generation subsector, without implementing necessary in several ECA countries. a corresponding reform package to improve dis- Notwithstanding the foregoing findings from tribution, can impair the effectiveness of the over- ECA, there is also evidence from other regions that all reform program. It is now widely recognized sector performance in countries that actually un- that achieving positive sector outcomes will de- bundled and privatized did improve, at times to pend on devising workable solutions to the com- a point of sound commercial performance. Private plex business of retailing electricity. As the EBRD participation has led to better pricing, lower puts it, "If cash collection is a problem, distribu- losses, higher collections, and greater access, and tion should be privatized before generation" private participation also had a role in the cases (EBRD 2001). Promoting PSDE in noncommercial where state-owned monopolies have been turned distribution entities has been difficult. To attract around from high losses and low collection rates. investors and sustain private sector involvement Unbundling in small countries can occasionally in distribution, experience shows that: (i) the succeed, as the Bank's experience in El Salvador government should clearly state its reform policy has shown. That said, unbundling has not always and back it up by passing the enabling legislation; been recommended by the WBG. EdM (Mali), a (ii) the government should demonstrate its com- combined power and water utility with about mitment to improved governance, notably 80,000 consumers, has recently been successfully through support for law and order, antitheft and privatized in its existing form. SONEL of bill collection measures, and restraints from in- Cameroon, though a much larger utility with terference in regulatory processes; (iii) the reg- 5 3 P O W E R F O R D E V E L O P M E N T ulatory agency should have clear functional in- vestors' control for the transition period, the de- dependence, regulatory rules that provide a de- sign of the transaction strategy, management of gree of certainty on tariff adjustments, and policy risk, and the phasing-in of privatization. The processes that are perceived as fair and trans- results of these initiatives need to be monitored, parent; and (iv) power suppliers should have in- but success stories so far are few, and most of them dependent boards and financial management. are in Latin America (see Table 5.1). No compa- South Asia offers a powerful illustration of the rable progress has occurred in any of the other importance of addressing the commercial weak- regions. The exception, noted earlier, is Côte nesses in power distribution as early as possible. d'Ivoire, where (CIE) achieved major improve- The sustainability of private investment in gen- ments in coverage, service, and collections. eration depends crucially on collecting the cash from the final consumer. Realization of the over- Toward Improving WBG Processes whelming importance of well-run distribution The sins of commission--as well as omission-- systems was slow to emerge but is now wide- discussed in the preceding sections highlight the spread, following the virtual bankruptcy of WAPDA need for the senior management of the Bank in Pakistan10 and the SEB in Maharashtra (India),11 Group to encourage operational innovations that triggered by their difficulty in meeting payments would help the WBG achieve greater consistency to IPPs. In Bangladesh, the main utility, BPDB, also between its PSDE goals and its business directions. suffers from high energy losses of about 20 per- In addition to designing better interventions, the cent,12 has weak revenue collections, and lost WBG needs to adapt its processes to the rapidly US$55 million each year on average during the sec- changing environment in the electric power sec- ond half of the 1990s. Payments to IPPs have been tor. This study has identified areas where more kept up only by accumulating arrears to state- could be done regarding the degree of coordi- owned gas suppliers and by nonpayment of debt nation among the Bank Group institutions and, service to the government. in some respects, the degree of coordination There are no simple recipes for the reform of within those institutions. For example, during power distribution because of the large scale of the 1990s IFC's electric power investment accel- the sector and the labor intensity, political oppo- erated, by way of financing projects in power sec- sition, vested interests, and corruption that char- tors open to private capital in different stages of acterize it. New ways are being developed to the country's power reforms. IFC's power in- increase private participation in distribution, such vestments in the 1990s showed above average as the allocation of risks that are beyond the in- performance ratings. For the Bank, however, sec- P e r f o r m a n c e I m p r o v e m e n t o f S o u t h T a b l e 5 . 1 A m e r i c a n E l e c t r i c i t y D i s t r i b u t i o n C o m p a n i e s Country (distribution company) Peru (Luz del Sur) Argentina (Edesur) Argentina (Edenor) Chile (Chilectra) Year privatized 1994 1992 1992 1987 Energy sales (GWh/year) +19% +79% +82% +26% Energy losses (%) ­50% ­68% ­63% ­70% Number of employees ­43% ­60% ­63% ­9% Customers per employee +135% +180% +215% +37% Net receivables (days) ­27% ­38% n.a. ­68% Provisions for bad debts (% sales) ­65% ­35% n.a. ­88% Note: Performance improvement measured from date of privatization until 1998 in terms of performance relative to the year of privatization. Source: Bacon and Besant-Jones (2001). 5 4 C R O S S - C U T T I N G F I N D I N G S tor reform achievements were low (except in LAC isfactory for their treatment of PSD issues were and some ECA countries), and the quality of re- nonjoint CASs. form efforts was unsatisfactory. In a few cases The CAS framework is the most logical context where there was no internal discussion among within which to address Bank Group-wide issues task managers the WBG sent conflicting signals to related to reform sequencing, IPPs, and the over- client countries and sponsors, and the nonalign- all regulatory framework. In the joint 1999 Philip- ment of incentive structures led to competition pine CAS, for example, PSDE issues were discussed among WBG instruments (discussed below). in detail in two separate sections. IFC's roles and These contrasting Bank and IFC assessments re- strategies for PSD in the Philippines, with a focus flect underlying differences between the Bank on the electric power sector, were also high- and IFC that need to be better coordinated within lighted. The same is true for the joint 2001 India the context of the Country Assistance Strategy CAS, which emphasized the need for support of (CAS) process, and through cross-training to pro- the PSDE agenda; IFC's PSDE priorities in India mote a better understanding between the Bank were likewise discussed. In contrast, the Bank-only and IFC. At the same time, proactivity and flexi- CAS for Russia (1999), while it had a section on bility are also required to respond to the rapidly PSD, did not address PSDE issues, despite the crit- evolving country-sector conditions and oppor- ical importance of the energy sector in Russia's fis- tunities for PSDE that are not always foreseeable cal balances. in the CAS. Bank Group instruments sometimes compete Country Assistance Strategies treat PSDE only with each other briefly, if at all Competition among alternative financing mech- The WBG needs to improve the integration of its anisms offered by the Bank (loans, credit lines PSDE objectives within the CAS framework, based such as Private Sector Energy Development Funds, on a review of CAS Retrospectives and back- credits, partial risk guarantees) and IFC (equity in- ground papers for the energy sector strategy vestments, loans) have emerged in a few countries paper. Each CAS should discuss whether Bank fi- (Bangladesh and Sri Lanka). This is the logical con- nancial or analytical support to PSDE is needed, sequence of private sponsors searching for the and how the contributions of the Bank, IFC, and most appropriate project financing package. The MIGA can be best combined--even in cases where WBG's PSD intervention should be along the the principle of selectivity may lead the WBG to lines of the PSD Strategy of April 2002, which conclude that no intervention is desirable. Most states: "The broad division of labor in the WBG CASs treat PSD in general, and PSDE in particu- with regard to PSD is as follows: IBRD/IDA focus lar, very briefly. The 2000 CAS Retrospective notes on investment climate and related institution that only 60 percent of CASs have a separate sec- building, improvements of governance, legal and tion on the role of the private sector, and the regulatory systems, financial sector policies, and rest only make passing references to privatiza- public financing. IFC pursues demonstration proj- tion and competition. Only about one-fourth of ects that promote the credibility of government CASs contain a detailed discussion of private sec- policies, provides additional service in local mar- tor issues. kets and provides political risk protection to co- CASs prepared jointly by the Bank and IFC are financiers. ... MIGA provides focused political generally more thorough in their treatment of risk guarantees, institution building, and invest- PSDE than Bank-only CASs. For example, the 2002 ment promotion assistance ..." (World Bank CAS Retrospective finds that 100 percent of 2002c). Financing for PSDE projects should adhere Bank­IFC joint CASs had a PSD rating of satis- to the principle of market first, IFC/MIGA instru- factory or better, while only 61 percent of the ments second, and World Bank (through guar- nonjoint CASs were rated satisfactory. In other antee and on-lending instruments) third. With words, all of the CASs that rated less than fully sat- respect to PSDE advisory, the joint World Bank/IFC Private Sector Advisory Department, established 5 5 P O W E R F O R D E V E L O P M E N T in 2000, should facilitate a smooth coordination subproject's performance--even given the gov- with the World Bank, focusing at the sector level ernment's counter-guarantee. (while being informed by IFC), and IFC at the A specific example of the appearance of con- transaction level. flict of interest is the advice regarding IPPs: while Competition could also arise within the Bank, the Bank is fully justified in arguing for a coun- between lending and partial risk guarantee in- trywide approach to new capacity generation struments and between the advisory and techni- through IPPs, considering the macroeconomic cal assistance of the Bank and IFC. While such impact of these projects, the advice regarding a conflicts would partly be the result of bureau- limit on the approval of new IPPs could be con- cratic tussles between regional and central de- strued by the sponsors as an attempt by the Bank partments, the right venue for instrument to limit the market to protect the profitability of selection and deciding WBG interventions is the IPPs it has already financed. clearly the CAS. The WBG could also develop a Another example is the WBG's inability to act mechanism for such conflicts that could go be- as an honest broker in disputes involving claims yond the CAS. affecting some IPPs with Bank and IFC financing and others without; or more generally, in all dis- Possible conflicts of interest should be avoided putes between governments and IPPs, including Warning signals have emerged of the potential for those in which the private projects have Bank conflicts of interest to arise, not only between (sub)loans or partial risk guarantees. One possi- the Bank and the IFC but also within each mem- ble way to address this dilemma would be to re- ber of the WBG. Not many cases of actual conflict quire a more strict specialization of the Bank and have been found, but it is important to flag this the IFC in their strategic involvement in PSDE potential, which arises mostly because of the in- (with the Bank limited to assisting in matters re- stitutions' involvement in both the legal and reg- garding the legal and regulatory framework, but ulatory environment and the financing of specific not on specific subprojects), but such an ap- private sector projects whose financial returns proach would not be consistent with the ration- are affected by that environment. ale for Bank partial risk guarantees. Within the Bank, projects and analytical work Between the Bank and IFC, the potential for in several countries have focused on improving conflict of interest emerges from a parallel set of the legal and regulatory framework while also circumstances, the Bank's support for legal and providing financing for private sector power proj- regulatory framework reforms affecting the fi- ects through credit lines and/or partial risk guar- nancial and overall performance of IFC-supported antees (Pakistan and Côte d'Ivoire). While private sector projects. With a clear division of sovereign guarantee means that the Bank has no labor and clear strategic specialization, together financial interest (or risk) in the specific subpro- with the continued enforcement of the "firewall" jects it has financed, it does have a reputational between the respective units in the Bank and risk related to their performance. For example, IFC, the potential for conflict of interest can be critics may argue that the Bank's advice and sup- minimized, although it will continue to require vig- port on the legal and regulatory framework is bi- ilance and risk management. Within IFC there ased supporting favor of subprojects indirectly additionally is the potential for conflict of inter- financed by the Bank. When a partial risk guar- est between the advisory and investment func- antee is involved, the Bank's financial involve- tions. IFC mitigates this by locating these ment (and risk) is even more directly linked to the operations in different departments. 5 6 6 Recommendations T he Approach Paper for this study indicates that its objective is to inform the implementation of the Bank Group's Energy Business Renewal Strategy (EBRS). Where properly implemented, PSDE has delivered re- sults, and the WBG should continue to support such interventions. The WBG can play a facilitating role in rekindling private sector interest in the electric power sector by filling the financing gaps with advice and by lending support, but it needs to do so selectively; that is, only in countries that are genuinely committed to a long-term reform agenda. Based on the evaluation evidence and findings, the study recommends the following: a) On an urgent basis, the WBG should provide oper- Bank, IFC, and MIGA, and it should define a ational guidance to WBG staff on when and how to framework to fully analyze the PSDE alterna- promote PSDE in the current environment of height- tives that ensure environmental sustainability ened macroeconomic and political risks and scant and align with the WBG's poverty reduction investor interest. Such guidance should be grounded mission. on the Bank's recently enacted PSD strategy. · WBG senior management should clarify the roles of the Bank, IFC, and MIGA in promot- · The Bank's Energy and Mining Sector Board, ing PSDE, particularly in terms of committing in close consultation with the Private Sector De- greater financial and advisory support. velopment Board, should provide WBG staff with updated and practical operational guid- b) In its future PSDE interventions, the WBG should give ance for pursuing PSDE, based on what works greater emphasis to the mainstreaming of the poverty best, in terms of reform packages and their se- reduction and environmental objectives (in addition to quencing, given particular country-sector sit- its traditional macrofiscal and sector efficiency uations, needs, and institutional capacities. objectives) that are at the core of the WBG's overall Best practices can be developed for a range of energy strategy. most frequently observed country attributes. · The development of this guidance should be · The WBG should focus on reforming and fa- undertaken jointly and coordinated across the cilitating private investments in the distribution 5 7 P O W E R F O R D E V E L O P M E N T subsector. This will require actions to improve · The Bank, IFC, and MIGA management should cash collections, reduce losses, address cor- support flexibility and the exercise of initia- ruption, achieve better targeting of subsidies, tive in PSDE operations and AAA, to enable bet- and, where circumstances permit, to privatize ter response to rapidly changing country-sector distribution. conditions and opportunities that are not al- · The WBG should maximize the involvement of ways foreseeable in the CAS. Through its di- the local private sector in small-scale and/or de- verse lending and advisory instruments, the centralized projects. This will require innova- WBG should promote more public­private tive approaches and much better cross-sectoral partnerships and promising innovations, such integration within the Bank and between the as the pro-poor design of reforms and output- Bank, IFC, and MIGA. based aid schemes, for which robust moni- toring and evaluation systems are essential. c) The WBG should encourage operational innova- · The WBG should develop performance indi- tions to ensure greater consistency between its prac- cators and related internal systems and should tices and instruments and its PSDE goals as they help in strengthening borrower capacities, in- evolve. cluding project funding, to monitor and eval- uate the achievements and impacts of its PSDE · The WBG needs to improve the coordination interventions. These M&E efforts should be of the various units active in PSDE. To this keyed to the EBRS and other relevant strategy end, it should pursue better integration of its and policy objectives, especially in the rela- PSDE objectives within the CAS framework tively neglected areas of helping the poor and (including in nonjoint CASs) and Poverty Re- mainstreaming environmental sustainability. duction Strategy Papers (PRSPs). 5 8 ANNEXES A N N E X A : M E T H O D O L O G Y A N D I N S T R U M E N T S ANNEX A: METHODOLOGY AND INSTRUMENTS Scope and Limitations nomic policy, public sector management, private The study evaluates the performance of WBG ac- sector development, and finance sectors. Further tivities in PSDE against policy commitments it data on project outputs and information on out- has made since (i) the 1993 Policy Paper ("The comes were collected during Phase 2 through a World Bank's Role in the Electric Power Sector: review of Project Status Reports (for active proj- Policies for Effective Institutional, Regulatory and ects) and Implementation Completion Reports, Financial Reform"); (ii) the Policy Paper's 1996 Best Evaluation Summaries, and Project Performance Practice statement; and (iii) the May 2001 Energy Assessment Reports (for closed projects), as well Business Renewal Strategy (EBRS). The study as a Task Manager (TM) Survey. The purpose of does not review the broader, underlying ration- the TM survey was to obtain data on sector-level ale for promoting PSD. The original scope of the outcomes, because of lack of data from the afore- study, as envisioned in the Approach Paper, also mentioned project documentation, which gen- included coal, oil, and gas, which will now be erally focus on project-specific results. This may covered by a separate Extractive Industries Review have its limitations, as some bias may have been conceived after the decision to undertake this introduced by having TMs assess the contribution study. to overall sector reforms made by projects for The study focuses on the activities of IBRD/IDA which they were responsible. A blank copy of the (or "the Bank"), IFC, and MIGA in the electric TM Survey form is attached. Some results of the power sector, including renewables. Since very few survey were useful for providing technical and countries have gone through the full set of re- other specific information, as the response rate forms, this study evaluates mainly the PSDE pro- was relatively low. The PSDE-related AAA was motion process. It assesses outcomes and impacts studied in depth for the country case studies, within the limits of the available literature, in- based on generally accepted AAA criteria. Com- cluding existing evaluations and five country stud- ments were also received from a group of exter- ies (Côte d'Ivoire, Pakistan, the Philippines, nal reviewers and taken into account in the final Poland, and Turkey). This is a joint study of the Op- drafting of the study.1 eration Evaluation Department (OED) of the For IFC, this study covers, to the extent data Bank, the Operations Evaluation Group (OEG) of permit, power sector operations approved from the IFC, and the Operations Evaluation Unit (OEU) FY90 to FY99, comprising 57 investment opera- of MIGA. Project performance and outcome rat- tions. This study does not include nonpower proj- ings in this study are based on the respective ects with power components, except for power evaluation criteria of the Bank, IFC, and MIGA. The sector-focused financial markets projects. study period focuses on FY90­99, but the study also provides observations on the PSDE activi- Methodology ties of the WBG in FY00­01. For the Bank, input and available output indi- Phase 1 cators were collected during Phase 1 for the en- The overall methodology for this study is sum- tire Bank PSDE portfolio, which includes marized in the design matrix in the table below. PSDE-related projects in the electric power, eco- Phase 1 is based on a desk review. The literature 6 1 P O W E R F O R D E V E L O P M E N T review assessed recent evaluations as well as Phase 2 global PSDE issues and trends based mainly on in- Phase 2 consisted of a metasynthesis of evaluation ternal reports and summaries of global experience. findings, based on desk studies and selected field The portfolio review analyzed the energy, public visits to study countries and on evaluation find- sector reform, adjustment, and other sectoral ings at the project level. It focused on evaluating lending data, leading to the identification of 154 the results and lessons learned from the WBG's Bank projects that support PSDE exclusively (16) PSDE interventions, including their performance or have PSDE components (138). with respect to EBRS objectives; namely, pro- To achieve depth and representativeness of moting PSD, macrofiscal balancing, helping the the overall PSDE portfolio, the OED review con- poor directly, and protecting the environment. The centrated on 15 countries that together account specific indicators for these objectives are as fol- for 55 percent of the projects in the Bank's port- lows: folio (Argentina, Bolivia, China, Côte d'Ivoire, Ghana, India, Indonesia, Pakistan, Panama, the · Promote good governance and PSD by Philippines, Poland, Russia, Thailand, Turkey, and creating transparent, nondiscriminatory regu- Ukraine). A Project Evaluation Brief (PEB) was latory mechanisms; introducing and expand- prepared for each of the PSDE-related projects in ing competition and cross-border trade; these countries. The PEBs include PSDE-specific divesting assets to socially responsible and cor- project data, such as PSDE reform areas addressed, ruption-free strategic investors; catalyzing pri- agreed actions, and instruments proposed to vate investments; and strengthening the voice achieve the PSDE objectives; project ratings were of consumers and communities. taken from OED's Evaluation Summary for closed · Improve macrofiscal balances by replac- projects and from the latest Project Status Re- ing public with private investments; rational- port (PSR) for active projects. The PEBs were up- izing taxes, managing risks associated with dated during Phase 2 to include results from the contingent public liabilities; financ- Task Manager survey, described in Phase 2 below. ing public restructuring costs; eliminating The IFC portfolio review covered 100 percent operating subsidies to public enterprises; and of the investments and advisory operations ap- boosting budget revenues through commer- proved and committed in the 1990s. OEG re- cialization and privatization. viewed the objectives, design, and structure of 57 · Help the poor directly by facilitating access power projects; examined the portfolio per- to modern, cleaner fuels and electricity; re- formance of the investment operations approved ducing costs and improving quality for low- and committed in the 1990s relative to the entire income households; ensuring that subsidies IFC portfolio; and looked into existing self-eval- target and reach the poor; and promoting en- uations of power projects. It drew from the Power ergy-efficient and less-polluting end-use tech- Sector Strategy and Business Plan Papers, Pro- nologies. ject Supervision Reports, Board Reports, Back- · Protect the environment by strengthening ground Papers for the EBRS, Annual Review of environmental management capacity; remov- Portfolio Performance, and corporate portfolio ing market barriers to renewables and energy data maintained by IFC's Portfolio Management efficiency; and facilitating carbon trading and Unit. joint investments to reduce greenhouse gases. OEU's review of MIGA political risk guaran- tees also covered 100 percent of the portfolio. OED conducted a task manager survey to ob- OEU reviewed data on 72 guarantees for 39 elec- tain data on the outcomes of PSDE components tric power projects in 25 countries. (see paragraph 3 on its limitations). Most of the 6 2 A N N E X A : M E T H O D O L O G Y A N D I N S T R U M E N T S T a b l e A . 1 S u m m a r y o f P o r t f o l i o R e v i e w M e t h o d o l o g y Instruments to Record Data and Evaluation Findings Key Evaluation Data Needed to Answer Documentation and (involving both statistical Question the Question Sources of Evidence and content analysis) 1. How have private · IFC investment and advisory · WBG Policy Statements · Bank Project Evaluation participation and the operations · Bank's Regional Sector Strategy Papers Briefs WBG's role in the · Bank, IFC, and MIGA strategies · SARs · CAS-PSDE program matrices energy sector changed · Bank projects (freestanding · PADs · Synthesis of existing self- during the 1990s? PSDE projects and projects · Legal documents (loan and project evaluations P with PSDE components in agreements) · Literature review H energy and non-energy sectors) · IFC strategy papers and business plans A · PSDE objectives and actions in S Bank lending portfolio E · Bank ESW/AAA for PSDE 2. To what extent has · Bank ratings at closing of 16 · OED ratings database · tCAS-PSDE program 1 the WBG's energy freestanding projects, · QAG quality-at-entry assessments matrices assistance supported performance data from PSRs, · PSRs · Short summary evaluations its strategic direction ICRs, and PPARs for 138 · ICRs of Bank PSDE programs for to promote PSDE? projects with PSDE · Evaluation summaries the 15 core countries components · PPARs · IFC and MIGA portfolio · Desk review of PSDE content · Existing self-evaluation reports review of CASs · IFC project documents · Literature review · Objective, design, and · IFC project teams structure of IFC projects and advisory operations 3. What have been the · Financial flows · Survey of Bank task managers (focusing on · Project Evaluation Briefs results of the WBG's · Economic results PSDE components) update interventions? · Social and poverty reduction · Bank supervision back-to-office reports, · Country Case Studies P effects mid-term reviews, and action letters · Mini-evaluation of IFC and H · Environmental indicators · Field missions MIGA projects A · Portfolio performance · IFC project appraisal and supervision · Literature review update S indicators documents · Development and investment · IFC project teams E outcome of mature IFC projects · Bank and IFC portfolio reviews S 1 4. What are the · EBRS performance indicators · Survey · Summary evaluations of & lessons for · Factors of internal and external · Bank staff and client interviews Bank PSDE programs 2 accelerating progress effectiveness · Advisory panel · Synthesis of IFC and MIGA in achieving the WBG's · Success drivers and obstacles · Field workshops evaluation findings PSDE objectives? · IFC project teams · Existing self-evaluation 6 3 P O W E R F O R D E V E L O P M E N T Bank's PSDE interventions are components of blocks to assess country progress against PSDE ob- larger projects, and information on components jectives. has not been reported adequately. The survey OEG presented existing evaluation findings was followed up using in-depth interviews with se- for all mature IFC projects (15) and evaluated all lected Bank sector managers and staff. In prepa- mature and active projects (14) that have not un- ration for Phase 2, a CAS-PSDE Program Matrix was dergone self-evaluation. OEG conducted a mini- prepared for each of the 15 focus countries. These evaluation of each of these projects using an matrices trace the 1990s evolution of the PSDE abbreviated version of the Expanded Project Su- focus (if any) in the Country Assistance Strategy, pervision Report (XPSR) evaluation framework. the level of policy support, and the AAA and lend- These mini-evaluations were drawn from inter- ing program. The CAS framework is relevant be- views with IFC investment teams and from field cause an evaluation based on individual projects visits to projects in case study countries. Each in- would not capture the evolution of power sector vestment operation is rated based on three dis- reforms since the early 1990s. Moreover, many of tinct outcomes: the Bank Group-level coordination and strategic issues raised in the evaluation can only be ad- · Development outcome ­ the project's impact dressed at the CAS level. Each matrix has a draft on a country's development country-level PSDE performance evaluation sum- · Investment outcome ­ the operation's gross mary to assess, on a preliminary basis, the over- contribution to IFC's income all relevance, outcome, and effectiveness of the · Effectiveness ­ IFC's contribution to the op- PSDE program in each country, thus providing the eration's outcome. evaluators with a set of working hypotheses for Phase 2. Many of these hypotheses were guided OEG synthesized the findings from all existing by the literature review. Both the matrices and the and pending evaluations with a view to deriving evaluation summaries provide an interim aggre- global IFC sector-level conclusions. The IFC eval- gation of Phase 1 data, which will be corrobo- uation draws from OEG's Annual Review Findings rated or revised from the Phase 2 findings. to the extent appropriate. It is not simply an elec- In the derivation of evaluative findings, the tric power sector slice of the Annual Review, but main unit of account is the country-level PSDE pro- builds on the findings of the Annual Review as rel- gram of lending and ESW/AAA (economic and evant to the electric power sector. sector work/analytical advisory assistance) during In addition to reviewing ex ante data from all the 1990s and up to the present. The Bank's proj- guarantees in the electric power sector, OEU pro- ect-level results are also presented in different vided synthesized findings of the impacts of eval- aggregations but are mostly used as building uated operations in that sector. 6 4 A N N E X A : M E T H O D O L O G Y A N D I N S T R U M E N T S OED/ OEG Study on Private Sector Development in the Electric Power Sector (PSDE) Sector Managers and Task Team Leaders Survey We would be especially grateful if you would fill in the "Comments" boxes. Thank you very much for your time and effort! Please enter your name: Please enter the country for which you are evaluating the PSDE program: Q1. To what extent is PSDE a priority in the current CAS? Q2. What ESW/AAA did the Bank support to promote PSDE? Q2a. What role did the ESW/AAA play in achieving the PSDE objectives of your lending program? Q3. How did your PSDE program of lending and ESW/AAA support the four priority areas of the May 2001 Energy Business Renewal Strategy? (circle all that apply) a) Promoted good governance and PSD b) Helped the poor directly c) Improved macro/fiscal balances d) Protected the environment Q4. Please rate the overall outcome, institutional development impact, sustainability, Bank performance and borrower performance of your PSDE program: Outcome O Highly Satisfactory O Satisfactory O Moderately Satisfactory O Moderately Unsatisfactory O Unsatisfactory Comments: Institutional Development Impact O High O Substantial O Modest O Negligible Comments: 6 5 P O W E R F O R D E V E L O P M E N T Sustainability O Highly Likely O Likely O Unlikely O Highly Unlikely O Not Evaluable Comments: Bank performance O Highly Satisfactory O Satisfactory O Unsatisfactory O Highly Unsatisfactory Comments: Borrower performance O Highly Satisfactory O Satisfactory O Unsatisfactory O Highly Unsatisfactory Comments: Q5. How well did the Bank coordinate with IFC and MIGA in implementing the PSDE program? Q6. How well did the Bank coordinate with its partners (including the private sector, regional banks, and bilateral donors)? Q7. What lessons learned from your PSDE program should be reflected in the OED/OEG study on the World Bank Group's performance in promoting PSDE? (For ex- ample, this could include lessons on what the Bank did right and what it could have done differently) THANK YOU FOR ANSWERING THIS SURVEY! 6 6 A N N E X B : W O R L D B A N K G R O U P P S D E P O R T F O L I O - AT- A - G L A N C E ANNEX B: WORLD BANK GROUP PSDE PORTFOLIO-AT-A-GLANCE Bank IFC MIGA Total Total number of projects 154 64 43 261 Freestanding vs. components PSDE components 138 138 Freestanding PSDE projects 16 64 39 123 By status Active 58 Closed 96 By region EAP 35 6 9 50 ECA 39 7 2 48 AFR 30 3 2 35 LAC 25 22 20 70 SAR 20 16 6 43 MNA 5 2 0 7 By sector group Electric Power and Other Energy 108 64 39 215 Economic Policy 23 23 Private Sector Development 9 9 Public Sector Management 8 8 Oil and Gas 3 3 Finance 2 2 Environment 1 1 By instrument type Specific Investment Loans (SILs) 81 81 Structural Adjustment Loans (SALs) 27 27 Sector Investment and Maintenance Loans (SIMs) 11 11 Technical Assistance Loans (TALs) 15 15 Sectoral Adjustment Loans (SECALs) 8 8 SIL/ Partial Credit Guarantee 5 5 Partial Credit Guarantee 1 1 Partial Risk Guarantee 3 3 SIL/ Partial Risk Guarantee 1 1 Adaptable Program Loan (APL) 1 1 Rehabilitation Loan (RIL) 1 1 By ratings (closed projects) Highly Satisfactory 5 5 Satisfactory 44 44 Marginally Satisfactory 17 17 Marginally Unsatisfactory 4 4 Unsatisfactory 25 25 Highly Unsatisfactory 1 1 By ratings (active projects) Highly Satisfactory 3 5 Satisfactory 38 45 Unsatisfactory 12 14 Highly Unsatisfactory 0 0 Not Rated 5 5 6 7 P O W E R F O R D E V E L O P M E N T ANNEX C: TRENDS IN PSDE OBJECTIVES IN THE BANK'S PORTFOLIO Number of PSDE Actions 18 Commercialization 16 Corporatization Arms Length Regulation 14 Unbundling 12 Private Sector Participation in Production Private Sector Participation in 10 Transport and Retail Supply Competition 8 6 4 2 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Year 6 8 A N N E X D : R AT I N G S O F F R E E S TA N D I N G P R O J E C T S A N D P R O J E C T S W I T H P S D E C O M P O N E N T S ANNEX D: RATINGS OF FREESTANDING PROJECTS AND PROJECTS WITH PSDE COMPONENTS T a b l e D . 1 1 6 F r e e s t a n d i n g P S D E P r o j e c t s date RAP or PSR ICR/ Latest ES/ projects Progress projects Plan Objective Development Mgt Performance Active Closed Closing Approval of E Performance of & Project Name Region Country FY earY Ratings: Development Implementation Environmental Financial M Ratings: Outcome Sustainability Institutional Bank Borrower ENERGY SECTOR Africa SENEGAL 1998 12/3/2001 S S NR NA S ADJUSTMENT OPERATION POWER SECTOR Latin America and Caribbean BOLIVIA 1996 1999 ES MS L M U U REFORM TECHNICAL ASSISTANCE ENERGY SECTOR TA Latin America and Caribbean COLOMBIA 1995 2001 ICR S HL H S S POWER MARKET Latin America and Caribbean COLOMBIA 1996 2002 ICR S HL H S S DEVELOPMENT POWER SECTOR TA Latin America and Caribbean EL SALVADOR 1992 1998 ES S L S S S ENERGY SECTOR ADJUSTMENT PROGRAM Latin America and Caribbean HONDURAS 1992 1996 EVM MS NE M S ? ELECTRICITY Latin America and Caribbean PERU 1995 1999 ES S L S S S PRIVATIZATION ADJUSTMENT ENERGY SECTOR Middle East and N. Africa JORDAN 1994 1998 ES S L S S S ADJUSTMENT LOAN JORF LASFAR POWER Middle East and N. Africa MOROCCO 1997 PROJECT PRIVATE POWER South Asia INDIA 1990 1996 ICR S L S S HS UTIL (TEC) PRIVATE POWER UTIL I South Asia INDIA 1991 1997 PAR MS L S S S PRIVATE POWER South Asia INDIA 1993 1997 PAR U U M U U DEVT TA HUB POWER South Asia PAKISTAN 1994 GUARANTEE PRVT SEC EGY DEV I South Asia PAKISTAN 1994 1998 ES U U N U U PVT SEC EGY DEV II South Asia PAKISTAN 1995 2000 ES U U N U U UCH POWER South Asia PAKISTAN 1996 PROJECT PARTIAL RISK GUARANTEE 6 9 P O W E R F O R D E V E L O P M E N T T a b l e D . 2 1 3 8 P r o j e c t s w i t h P S D E C o m p o n e n t s date RAP or PSR ICR/ Latest ES/ projects Progress projects Plan Objective Development Mgt Performance Active Closed Closing Approval of E Performance of & Project Name Region Country FY earY Ratings: Development Implementation Environmental Financial M Ratings: Outcome Sustainability Institutional Bank Borrower Power Sector AFR Angola 1992 2000 ES U NE N U U Rehabilitation Power Rehabilitation AFR Benin 1991 2000 ES U NE N U U and Extension Energy Sector AFR Burundi 1991 1999 ES U U N U U Rehabilitation Energy and Water AFR Cape Verde 1999 2/25/2002 S S NA NA S Sector Reform SNEL TA AFR Congo, Democ 1992 1995 ICR U U M U U Private Sector Energy AFR Côte d'Ivoire 1995 2/21/2002 HS S S U S Energy Sector AFR Côte d'Ivoire 1990 1991 PAR MS NE M MS MS Adjustment Loan Azito Power AFR Côte d'Ivoire 1999 6/29/2001- Project dropped Energy II AFR Ethiopia 1998 12/28/2001 S S HS S S Fifth Power Project AFR Ghana 1990 1997 PAR MU U M U U Nat'l Electrification AFR Ghana 1993 2000 ES S U M U S Thermal Power AFR Ghana 1995 2001 12/28/2001 S S S U S Economic Reform AFR Ghana 1998 1999 ES S L N S S Support Operation Second Economic AFR Ghana 1999 2001 12/27/2001 S S NA NA NA Reform Support Operation Power II AFR Guinea 1993 1999 PAR U U N U U Energy Sector AFR Kenya 1997 12/28/2001 S S S U S Reform and Power Development Energy Sector AFR Madagascar 1996 12/27/2001 S S NA HU S Development Power V AFR Malawi 1992 2001 ICR U U M S U Power II AFR Mali 1989 1998 ES MS U M S U Regional Hydropower AFR Mali 1997 12/21/2001 U U U S U Development Regional Hydropower AFR Mauritania 1997 12/21/2001 U U U S U Development Power System AFR Nigeria 1990 1996 ES U U M U U Maintenance and Rehabilitation Energy Sector AFR Rwanda 1993 12/28/2001 S S S S S Rehabilitation Regional Hydropower AFR Senegal 1997 12/21/2001 U U U S U Development Power Sector AFR Sierra Leone 1992 12/28/2001 S S NA S S Rehabilitation Power VI AFR Tanzania 1993 6/26/2001 S S S U S 7 0 A N N E X D : R AT I N G S O F F R E E S TA N D I N G P R O J E C T S A N D P R O J E C T S W I T H P S D E C O M P O N E N T S T a b l e D . 2 ( c o n t i n u e d ) date RAP or PSR ICR/ Latest ES/ projects Progress projects Plan Objective Development Mgt Performance Active Closed Closing Approval of E Performance of & Project Name Region Country FY earY Ratings: Development Implementation Environmental Financial M Ratings: Outcome Sustainability Institutional Bank Borrower Togo/Benin AFR Togo/Benin 1992 1999 ICR U L M S S Engineering and TA Power Rehabilitation AFR Zambia 1998 12/3/2001 S S S U S Power III AFR Zimbabwe 1994 1999 ICR S L S S HS Phnom Penh EAP Cambodia 1996 2000 ICR S L SU HS S Power Reh Tianhuangping Hydro EAP China 1993 2002 12/27/2001 S HS NR S HS Yangzhou Thermal EAP China 1994 2002 12/21/2001 S S S S S Power Zhejiang Power Devt EAP China 1995 2003 12/27/2001 HS HS S HS HS Sichuan Transmission EAP China 1995 2002 12/27/2001 S S S U S Ertan Hydro II EAP China 1996 2001 ICR S L SU S S Waigaoqiao Thermal EAP China 1997 2007 12/25/2001 S S S S NR Power Inner Mongolia EAP China 1997 2005 12/17/2001 S S S NR NR (Tuoketuo) Thermal Power Hunan Power EAP China 1998 2005 12/21/2001 S S S S NA Develop. Technical Assistance EAP Indonesia 1991 1997 PAR S L S S S for Public and Private Provision of Infrastructure Sumatra and EAP Indonesia 1994 2001 ICR U U M S S Kaliman P Rural Elect II EAP Indonesia 1995 2000 ES S U M S S Pow. Trans and Dist II EAP Indonesia 1996 2002 12/27/2001 S S NR HU S Solar Homes Systems EAP Indonesia 1997 2001 ES U NE S HS S Renw. Ener Small EAP Indonesia 1997 2001 7/23/1998 U U NR S S Pw P Provincial Grid EAP Lao, P.D.R. 1993 2000 ES S NE S S S Integration Southern Provinces EAP Lao, P.D.R. 1998 10/17/2001 U S S U S Rural Electrification Leyte Cebu EAP Philippines 1990 1996 ES U NE M U Blank Geothermal Energy Sector Project EAP Philippines 1990 1996 PAR MU NE U U Rural Elect EAP Philippines 1992 1998 PAR U NE M U U Power Sector EAP Philippines 1993 1997 ES U NE M U U Transmission and Rehabilitation Leyte-Luzon Geother. EAP Philippines 1994 2000 ES U U M U U Distribution System EAP Thailand 1993 2000 ES S L M S S and Energy Efficiency 7 1 P O W E R F O R D E V E L O P M E N T T a b l e D . 2 ( c o n t i n u e d ) date RAP or PSR ICR/ Latest ES/ projects Progress projects Plan Objective Development Mgt Performance Active Closed Closing Approval of E Performance of & Project Name Region Country FY earY Ratings: Development Implementation Environmental Financial M Ratings: Outcome Sustainability Institutional Bank Borrower Second Power EAP Thailand 1993 1995 ES S L S S HS System Development Lam Takhong EAP Thailand 1995 2001 ICR S L H S HS Pump Storage Metropolitan EAP Thailand 1995 1999 ES S L M S S Distribution Reinforcement Distribution EAP Thailand 1997 1999 ES S L M S S System Reinforcement Distribution EAP Thailand 1997 12/27/2001 S S NA S S Automation and Reliability Improvement Economic EAP Thailand 1998 12/13/2002 S S NA S S Management Assistance Egat Investment EAP Thailand 1999 No PSRs in SAP Program Support Economic and EAP Thailand 1999 2000 ES S L S S S Financial Adjustment Loan Second Economic EAP Thailand 1999 2000 ES MS L M S S and Financial Adjustment Power Sector EAP Vietnam 1995 2000 ES S L S S S Rehabilitation and Expansion Power Development EAP Vietnam 1996 2000 ES S L S HS S Transmission, EAP Vietnam 1998 12/27/2001 U S S U S Distribution, and Disaster Reconstruction Power Transmission ECA Albania 1996 10/29/2001 U S S U Blank and Distribution Power Maintenance ECA Armenia 1995 1999 ES S HL M S S SAC I ECA Armenia 1996 1998 ES S L M S S SAC II ECA Armenia 1997 1999 ES MS Uncertain M S S SAC III ECA Armenia 1998 2001 ES MS L M S S Enterprise and ECA Bosnia- Banking Privatization Herzegovina 1999 12/18/2001 S S NA NA S Adjustment Loan Energy ECA Bulgaria 1993 2000 ES S L H S S District Heating Rehabilitation ECA Estonia 1994 2000 ES S L H S S 7 2 A N N E X D : R AT I N G S O F F R E E S TA N D I N G P R O J E C T S A N D P R O J E C T S W I T H P S D E C O M P O N E N T S T a b l e D . 2 ( c o n t i n u e d ) date RAP or PSR ICR/ Latest ES/ projects Progress projects Plan Objective Development Mgt Performance Active Closed Closing Approval of E Performance of & Project Name Region Country FY earY Ratings: Development Implementation Environmental Financial M Ratings: Outcome Sustainability Institutional Bank Borrower Structural Adj TA ECA Georgia 1995 1999 ES S L S S S Credit I Structural Adj Credit I ECA Georgia 1996 1998 ES S L M S S Power Rehabilitation ECA Georgia 1997 2001 ES MS NE S S U Structural Adj TA ECA Georgia 1998 2000 ES S L S S S Credit II Structural Adj Credit II ECA Georgia 1998 1999 ES MS L M S S Energy Sector ECA Georgia 1999 2002 ICR S L M HS S Adjustment Credit Structural Adj Credit III ECA Georgia 2000 11/21/2001 S S NA NA NA Enterprise Reform ECA Hungary 1992 1994 ES S L S Loan Energy and ECA Hungary 1994 2001 Environment Enterprise and ECA Hungary 1997 1999 ES HS L S HS HS Financial Sctr Adj Public Sector ECA Kazakhstan 1998 2000 ICR S L S S S Resource Mgmt Adj Loan Power and District ECA Kyrgyz Republic 1996 12/21/2001 S S S S Blank Heating Rehabilitation Power Rehabilitation ECA Lithuania 1994 1/16/2002 HS S S S NR Structural ECA Lithuania 1997 1999 ES S L S HS S Adjustment Loan Power System ECA Macedonia 1998 12/21/2001 S S S S S Improvement Energy ECA Moldova 1996 2001 ICR S L M S S Second Structural ECA Moldova 1998 2001 ES MS NE M S U Adjustment Credit/Loan (SAL II) Energy Resource ECA Poland 1990 1998 ES MU L M S S Development Heat Supply Restruct ECA Poland 1991 2000 ES HS HL H S HS Structural Adjustment ECA Poland 1991 1992 PAR S L M NR NR Loan Power Transmission ECA Poland 1996 2002 12/18/2001 S S Blank S Blank Power Sector ECA Romania 1996 12/21/2001 U S S U S Rehabilitation and Modernization Electr. Sector ECA Russia 1997 2002 12/26/2001 S S NA NR S Reform Support SAL I ECA Russia 1997 1998 ES U L M U U SAL II ECA Russia 1998 1999 ES U L M U U SAL III ECA Russia 1999 2001 ES U L M S U TEK Restruct. ECA Turkey 1991 2000 ES MS L S S U 7 3 P O W E R F O R D E V E L O P M E N T T a b l e D . 2 ( c o n t i n u e d ) date RAP or PSR ICR/ Latest ES/ projects Progress projects Plan Objective Development Mgt Performance Active Closed Closing Approval of E Performance of & Project Name Region Country FY earY Ratings: Development Implementation Environmental Financial M Ratings: Outcome Sustainability Institutional Bank Borrower Privatization ECA Turkey 1994 1999 ES U U Blank S U Implementation and Social Safety Net Nat'l. Trnsm. Grid ECA Turkey 1998 2004 12/20/2001 S S S U Blank Rehabilitation Loan ECA Ukraine 1995 1996 PAR MS NE M S NR Electricity Market ECA Ukraine 1997 2000 ES U U N U U Development Yacyreta II LAC Argentina 1993 2000 ICR U U M U U Provincial Reform Loan LAC Argentina 1995 1998 ES HS L H HS HS Renewable Energy LAC Argentina 1999 2/1/2001 S S NR S S in the Rural Market Special Structural LAC Argentina 1999 7/14/2000 S S NR NR S Adjustment Loan Second Power LAC Belize 1995 1999 ES S L S S S Development Structural LAC Bolivia 1992 1996 PAR MS L S U S Adjustment Program Reg. Reform LAC Bolivia 1995 1999 ES S L S S S and Cap. TA Capitalization LAC Bolivia 1995 1999 ES HS L S HS HS Program Adj. Cre Regulatory Reform LAC Bolivia 1998 2003 11/27/2001 S S NR S S and Priv. TA Reg. Reform Sector LAC Bolivia 1999 2001 10/15/2001 U U NR NR NR Adj. Credit Rio Grande Do LAC Brazil 1997 1998 ES MS U M S U Sul State Reform Rio De Janeiro LAC Brazil 1998 1999 ES S L S HS S State Reform Priv Energy Sector LAC El Salvador 1996 12/21/2001 S S S S S Modernization Priv Participation LAC Guatemala 1997 2002 11/19/2001 S S NR S S in Infrastructure TA Energy Sector LAC Jamaica 1993 2000 ES U U M S U Deregulation and Privatization Infrastucture LAC Mexico 1996 2000 ES S L S S S Privatization TA Utilities LAC 1998 2002 10/11/2001 S S S S S Restructuring TA Privatization TA LAC Peru 1993 1998 ES S L S S HS Power Transmission LAC Uruguay 1996 11/30/2001 S S NA U S and Distribution Power Sector MNA Iran 1993 2001 ES S L S HS S Efficiency Improvement 7 4 A N N E X D : R AT I N G S O F F R E E S TA N D I N G P R O J E C T S A N D P R O J E C T S W I T H P S D E C O M P O N E N T S T a b l e D . 2 ( c o n t i n u e d ) date RAP or PSR ICR/ Latest ES/ projects Progress projects Plan Objective Development Mgt Performance Active Closed Closing Approval of E Performance of & Project Name Region Country FY earY Ratings: Development Implementation Environmental Financial M Ratings: Outcome Sustainability Institutional Bank Borrower Power Sector MNA Lebanon 1997 2002 ICR HU HU N U HU Restructuring and Transmission Expansion Sana'a Emergency MNA Yemen 1999 1/25/2002 U S S U S Power Energy Sector South Asia Bangladesh 1989 1990 PAR S U N S U Adjustment Credit Private Sector South Asia Bangladesh 1998 3/4/2002 S S S S S Infrastructure Development Maharashtra Power II South Asia India 1992 1998 ES U NE M S U Renewable Resources South Asia India 1993 1995 ES HS L M HS HS Dev/ Alternate Energy Orissa Power Sector South Asia India 1996 2003 12/28/2001 U U S U S Haryana Power APL-I South Asia India 1998 2001 ES MU NE S S U AP Power South Asia India 1999 2004 2/14/2002 S S S U S Restructuring Project Public Sector South Asia Pakistan 1994 1996 ES MS U N S S Adjustment Loan/ Credit Power Sect. Dev. Pro. South Asia Pakistan 1994 2001 ICR S L M S S Ghazi Barotha Hydrop South Asia Pakistan 1996 2002 11/29/2001 S U S U S Structural Adjustment South Asia Pakistan 1999 1999 ES MS L N S S Loan Private Sector South Asia Sri Lanka 1996 1/15/2002 U U S S S Infrastructure Development Energy Services South Asia Sri Lanka 1997 10/4/2001 S S NR S S Delivery 7 5 P O W E R F O R D E V E L O P M E N T ANNEX E: ANALYSIS OF THE PERFORMANCE OF FREESTANDING PSDE PROJECTS AND PROJECTS WITH PSDE COMPONENTS Evidence suggests that satisfactory outcomes in dermined the financial viability of WAPDA and both freestanding and PSDE component projects the macroeconomic stability of the country. Third, are primarily due to country factors and to timely highly politicized dealing with IPPs contributed to and relevant Bank assistance. In Jordan, the En- the overall decline in foreign investor confidence ergy Adjustment Loan (ESAL), a freestanding proj- in the country. The Bank's focus on specific trans- ect and the only PSDE project in the country, was actions relating to IPPs rather to the reform itself rated as satisfactory by OED and the Region be- contributed to the unsatisfactory outcome of the cause it achieved the following: (i) corporatization projects. and commercialization of sector institutions; (ii) Thailand's Lam Takhong Pumped Storage proj- the restructuring of the institutional framework ect, which had a PSDE component, was rated of the sector; and (iii) rationalized energy prices highly satisfactory by OED because the project and financially stronger power sector institutions. fully achieved its objectives. The Bank assisted the The follow-through on energy price adjustments, Electricity Generating Authority of Thailand however, has been patchy and the sector's insti- (EGAT) in optimizing its investment program. tutional strengthening is incomplete, according EGAT adopted sound policies and strategies for to OED's 2001 PPAR. Close collaboration between environmental and social management and de- the government and the Bank at various stages of fined a framework and guidelines for the envi- project preparation and implementation, open ronmental assessment of power development and constructive dialogue between the Bank and plans. It implemented the recommendations of the government, and timely use of ESW/AAA by a study on economic regulation, tariffs, and de- the Bank to advise the government in policy-re- velopment of bulk supply. The Bank acted as fa- lated issues were critical to the satisfactory out- cilitator, and played an informal role in advising come of the project. the government on the reform of the power sec- In Pakistan, the freestanding Private Sector En- tor. The government's proactive role in the reform ergy Development Project (PSDEP I) and its fol- process was instrumental to the overall success low-on project, PSDEP II, were both rated of the project: through its National Energy Policy, unsatisfactory by OED and the Region. Although the government conducted several important the projects achieved their physical targets and es- studies associated with restructuring the Power tablished incentives to encourage private sector Sector Industry, drafted the Energy Act, finalized participation, the related economic, financial, in- the regulatory regime for the energy sector, for- stitutional, and technical aspects were achieved mulated the power pool model, and secured cab- only partially and unsustainably. The lack of com- inet approval for its proposals. mitment and poor performance of the govern- In contrast, Lebanon's Power Restructuring ment were demonstrated in three ways. First, the and Transmission Project, also a project with a government agencies created to implement PSDE PSDE component, was rated highly unsatisfac- were subject to significant political interference tory by OED because the institutional reforms and suffered high staff turnover. Second, exces- had not been implemented and the physical com- sive obligations to IPPs in the face of reduced de- ponents of the project (transmission system and mand and unreformed tariff structure resulted in overhead transmission lines) were not completed, an oversupply in generation that eventually un- and contracts for the two substations not awarded. 7 6 A N N E X E : P E R F O R M A N C E O F F R E E S TA N D I N G P S D E P R O J E C T S Electricité du Liban (EdL) remains financially and ernment's inaction on agreed covenants and ac- institutionally weak, and progress at involving tions on institutional reforms contributed to the the private sector has been negligible. The gov- overall unsatisfactory performance of the project. 7 7 P O W E R F O R D E V E L O P M E N T ANNEX F: IFC ADVISORY OPERATIONS IN POWER: STANDALONE ADVISORY OPERATIONS I . O p e r a t i o n s u n d e r t a k e n b y t h e P r i v a t e S e c t o r A d v i s o r y S e r v i c e s P r i v a t i z a t i o n P o l i c y a n d T r a n s a c t i o n ( P S A P T , f o r m e r l y I F C ' s C o r p o r a t e F i n a n c i a l S e r v i c e s o r C F S ) Fiscal Year Country Project Name Description FY94 Peru Electrolima Privatization of Edegel, the Lima power generation company and Chancay, a small power company FY94 Trinidad and T & TEC Sale of Trinidad and Tobago's electricity generation company Tobago FY94 Colombia Central Hidroeléctrica de Privatization of a hydroelectric power plant Betania FY94 Venezuela FIV- Privatization of Two general advisory mandates for devising a strategy for the electricity sector (I & II) Fondo de Inversiones de Venezuela (FIV) on restructuring and privatizing state-owned electricity companies FY96 Pakistan F.A.E.B. Privatization of the Faisalabad Area Electricity Board (FAEB), one of the eight power distribution companies in Pakistan FY96 Gabon SEEG Privatization of Société d'Energie et d'Eau du Gabon (SEEG), the national water and electricity utility FY98 Panama IRHE Advisory for the marketing and sale of shares in the electric generation and distribution companies that will result from the restructuring of the power sector in accordance with recent legislation FY98 India Goa Power Review of the State of Goa's power sector and assistance in the selection of an appropriate privatization model FY98 Brazil COELCE (Ceara) Privatization of Coelce, the Ceará State electric distribution utility, and establishment of a multisector state regulatory agency FY98 Brazil COELCE IPP Structuring an IPP, advising Coelce on the drafting of main contractual documents, assisting in the bid process, negotiations, and closing of the transaction FY98 Cameroon SONEL Privatization of SONEL (Société Nationale d'Electricité), the electric utility company responsible for generation, transmission, and distribution 7 8 A N N E X F : I F C A D V I S O R Y O P E R AT I O N S I N P O W E R : S TA N D A L O N E A D V I S O R Y O P E R AT I O N S I I . O p e r a t i o n s u n d e r t a k e n b y P S A P T a f t e r F Y 9 9 Fiscal Year Country Project Name Description FY01 Georgia Georgia Power Privatization of Georgia Power including distribution outside Tbilisi and generation of five HPPs with combined installed capacity of 346MW FY01 Armenia Power Distribution Privatization of Armenia's electricity distribution sector I I I . O p e r a t i o n s u n d e r t a k e n b y I F C i n v e s t m e n t d e p a r t m e n t s Fiscal Year Country Project Name Description FY98 Romania RENEL Assessment of two projects to be developed as independent power producers (IPPs) and assistance in implementing the privatization transaction phase FY99 Russia UES Advise United Energy System, the nationwide holding company for government assets in electricity generation, transmission, and distribution, on its reorganization and the development of a sector restructuring plan Total = 15 Advisory Assignments 7 9 P O W E R F O R D E V E L O P M E N T ANNEX G: IFC ADVISORY OPERATIONS IN POWER: DONOR-ASSISTED TECHNICAL ASSISTANCE TRUST FUNDS (TATF) OPERATIONS FY Country Advisory Operations Advisory Assignments Total (US$) FY92 Chile Empresa Pangue Hydropower environmental audit $220,000 FY96 Chile Environmental capability assessment $100,000 FY92 Costa Rica Aguas Zarcas Feasibility study update $30,000 hydroelectric project FY93 Central BAS power generation Sector study $73,200 America project Region FY93 Guatemala Rio Bobos hydroelectric Project preparation $30,000 FY93 Nepal Himal hydro project Environmental and geological technical assessments $150,000 FY94 India St. lignite power plant Modernization options $77,000 FY95 Selected Renewable energy and Project preparation $85,050 Countries energy efficiency fund FY96 Gabon SEEG Privatization and restructuring of water and electricity $263,000 services (Phase 1) FY97 Gabon Privatization and restructuring of water and electricity $126,800 services (Phases 2 and 3) FY96 Hungary Pumped storage Feasibility study $120,000 power plant FY96 Pakistan F.A.E.B. privatization Review of legal and economic factors (Part 1) $500,000 FY96 Pakistan Review of legal and economic factors (Part 2) $170,000 FY96 Russia Tomskenergo Energy Development of an independent private power project $400,000 in Siberia FY97 Russia Development of an independent private power project $22,400 in Siberia FY97 Brazil COELCE (Ceara) Development of a multisectoral regulatory entity $500,000 FY97 Russia UES Power sector restructuring $350,000 FY98 Russia Facilitating the corporate power sector restructuring $500,000 FY98 Russia Facilitating corporate restructuring of UES $645,000 FY98 Brazil COELCE IPP Private power generation in Ceara $120,000 FY98 Romania RENEL Independent power producer $250,000 FY98 Romania Power privatization accounting work $225,000 FY98 Romania Two independent power producers advisory effort $250,000 FY98 Uganda UGN-8610 Assessment of hydroelectric generation alternatives (Part 1) $100,000 FY99 Uganda Assessment of hydroelectric generation alternatives (Part 2) $110,000 FY99 Global Power conference Workshop on Orimulsion, an alternative fuel of power $20,000 generation FY99 Philippines Philippine Cooperative Establishing PCFC to help finance extensive capital $125,300 requirements Finance Corp (PCFC) of electric cooperatives throughout the country (continued on next page) 8 0 A N N E X G : I F C A D V I S O R Y O P E R AT I O N S I N P O W E R (Annex G continued) FY Country Advisory Operations Advisory Assignments Total (US$) FY99 Romania GCP-CPW-Romania Development of combined heat and power projects $350,000 FY99 Tajikistan GCP-CPW-Tajikistan Conducting an action assignment to structure, establish, and $135,000 finance an (Phase I) independent and autonomous energy supply company in the region of Gorno-Badakhshan Total FY90-99 20 TA operations 29 TA assignments $6,047,750 FY00 China Establishment of the first Develop acomprehensive business plan required for a $111,000 private energy services privately run energy services company (ESCO) company (ESCO) FY00 China Private participation in Assess the legal and regulatory framework for $280,000 infrastructure sector infrastructure, including the power sector FY00 Nicaragua Assessment of Review potential hydropower sites in the private sector $203,500 hydroelectric generation alternative FY00 Poland Private financing of Review private financing for and promotion of renewable $50,000 renewable energy energy and energy efficiency projects projects FY00 Romania Carbon-funded municipal Phase II to establish two municipal cogeneration plants $240,000 cogeneration projects for the cities of Cluj-Napoca and Targoviste FY00 Philippines Private financing of Review private financing for and promotion of renewable $50,000 & Romania renewable energy energy and energy efficiency projects FY00 Russia UES (started in FY97) Privatization workshop in Moscow (1 assignment) $26,000 FY00 Tajikistan GCP-CPW-Tajikistan Structure, establish, and finance an independent and $150,000 Phase II: assignment A autonomous energy supply company (Part 1) (started in FY99) FY00 Tajikistan GCP-CPW-Tajikistan Structure, establish, and finance an independent and $150,000 Phase II: assignment B autonomous energy supply company (Part 2) (started in FY99) FY00 Uganda UGN-8610 Financial support for Uganda-based NGO representatives $25,000 Bujagali Hydropower and interested parties to attend an international Projects (started in FY98) consultation to discuss project impacts and issues FY01 Hungary TA to support energy Promote and support commercial financing of EE $100,000 efficiency financing equipment and EE projects FY01 Senegal Study on the demand for Develop a system expansion plan for the electricity $250,000 a supply of power and the sector, and assess the role of international and associated investments local IPPs requirement FY01 Uganda URED Develop a private-sector-led pilot rural electrification project $70,000 FY01 Uganda Develop greenfield rural electrification projects $200,553 Total FY00-01 9 TA operations 14 TA assignments $1,906,053 TOTAL FY90-01 29 TA OPERATIONS 43 TA ASSIGNMENTS $7,953,803 8 1 P O W E R F O R D E V E L O P M E N T ANNEX H: IFC'S OPERATIONS IN RENEWABLE ENERGY AND ENERGY EFFICIENCY IN THE 1990s What are Renewable Energy and Energy Nine of the 13 RE/EE investment operations are Efficiency Operations? in RE. Of these nine, eight are hydropower plants IFC has increasingly financed energy projects and five are in LAC. Excluding one 450MW plant, that use renewable energy resources and pro- the average size of these hydro plants is 67MW. IFC mote efficient use of energy. This subset of proj- also has one investment operation in a geother- ects is generally referred to in IFC as Renewable mal IPP that has a generating capacity of 24MW. Energy and Energy Efficiency (RE and EE) proj- IFC additionally has invested in projects with RE ects. IFC undertakes RE and EE operations di- components, such as a sugar mill in LAC that rectly, in partnership with the Global generates power using bagasse. While it is outside Environment Facility (GEF) and through finan- the scope of this study, it is important to note that cial intermediaries. This work is supported by IFC is showing a lot of interest in this project, with IFC's Environmental Markets Group (CESEM, a view to replicating it in other investment oper- formerly Environmental Projects Unit) in the ations. Environment and Social Development Depart- There are four IFC investment operations in EE: ment, the Power Department, and to some ex- two in energy services companies and two in fo- tent the regional and specialist investment cused investment funds. Apart from these four, departments. Renewable Energy projects in- IFC's 1990s investment operations include proj- clude technologies such as run-of-the-river and ects that have energy efficiency improvement conventional hydro, geothermal, biomass, wind, components. Projects in this category include and solar (photovoltaic and solar thermal). In- two electricity distribution projects in LAC and vestment operations in Energy Efficiency target several industrial projects for which energy is a sig- energy service companies (ESCO), efficiency im- nificant operating cost, for example, cement, provements for distribution and generation com- steel, sheet and float glass, and automotive tires. panies, industrial projects with EE components, Many expansion/ rehabilitation projects in these and investment funds focused on energy effi- industries have energy efficiency components ciency projects. that are necessary if they are to become com- petitive with newer and more energy efficient What are IFC's mainstream RE and EE plants; they are, however, outside the scope of this operations? study. The investment operations approved in the Three projects approved in the 1990s were 1990s and reviewed in this study include 13 committed in 2000; that is, outside the review pe- RE/EE projects, with a total cost of US$2 billion. riod. IFC's investment commitments for these IFC made a total net investment commitment of three projects (two investment funds and one US$225 million for 10 of these projects, repre- ESCO project) amounted to US$38 million. The senting 20 percent of IFC's total investment two investment funds are: (i) US$15 million for a commitments in the power sector in the 1990s. multiproject financing facility to support RE proj- Attachment A lists these 13 mainstream IFC RE ects focusing primarily on Central America, among and EE operations. the beneficiaries of which are two hydropower 8 2 A N N E X H : I F C ' S O P E R AT I O N S I N R E N E WA B L E E N E R G Y A N D E N E R G Y E F F I C I E N C Y I N T H E 1 9 9 0 s plants of 16MW and 18MW and a wind farm oping innovative private sector projects with en- (20MW) in Costa Rica; and (ii) US$15 million for vironmental benefits, and mainstreaming those a US$65­100 million RE/EE global private equity investments within the private sector and IFC; investment fund that will invest in companies and (ii) integrating active consideration of en- using renewable energy technologies and energy vironmental opportunities into each stage of efficiency techniques in developing countries. IFC's project processing cycle, thereby improv- The ESCO project is a multiproject facility for ing the sustainability resource use (ecoefficiency) new ESCOs to serve Central and Eastern Europe in IFC's investments. and Asia. The first two investments made under this facility are in Hungary and Poland. What are IFC's GEF projects? Over the 1990s, IFC has committed about US$100 million of GEF funds What are IFC's energy operations with to seven energy projects in RE and EE. These GEF? projects deal with the promotion of efficient lighting, application of photovoltaic technology, What is GEF? GEF is a financial mechanism es- and establishment of global funds to support tablished in 1991 by a resolution of the World smaller-scale initiatives in RE/EE. The projects Bank Executive Directors as a program that pro- have been estimated to have a total cost of be- vides grants and concessional funds to devel- tween US$500 million and US$1.1 billion. Most oping countries for projects and activities have global coverage. For one project (the Re- designed to protect the global environment. newable Energy and Energy Efficiency Fund, or GEF resources address four focal areas consid- REEF), IFC approved a direct investment of ered to be critical threats to the global environ- US$35 million to supplement GEF funding of ment: biological diversity loss, climate change, US$30 million. Another IFC/GEF jointly funded depletion of the ozone layer, and degradation of project (the Solar Development Group) was ap- international waters. Activities concerning land proved by IFC in FY99 and by GEF in 2001. IFC degradation (primarily desertification and de- committed US$6 million to this project and GEF forestation) as they relate to the focal areas are committed US$10 million. (A list of IFC-man- also eligible for GEF funding. There are 166 par- aged GEF projects approved by GEF in the 1990s ticipant countries. is provided in Attachment B.) The salient features of these IFC-supported GEF projects are: What is the World Bank Group's Role? The WBG plays two important roles in the GEF: (i) with its 1. Energy Efficiency: Promotion of efficient light- long experience in funds management, the WBG ing ­ Demand management projects to pro- was selected trustee of the GEF Trust Fund, and mote awareness, technology, production, and (ii) as a GEF Implementing Agency, the WBG distribution improvements and the use of ef- plays the primary role in ensuring the develop- ficient lighting products such as compact flu- ment, management of GEF investment projects, orescent bulbs. and mobilizing of resources from the private 2. Renewable Energy: Photovoltaic (PV) tech- sector. About two-thirds of all project-related nology ­ Projects that support photovoltaic- GEF resources are allocated to the WBG's GEF based off-grid power generation and that aim portfolio. to demonstrate viable financial structures and business models as a basis for the long-term What is IFC's role? IFC's Environmental Mar- sustainability and replicability of off-grid PV kets Group (CESEM) is responsible for IFC's op- power generation. erations with GEF. CESEM draws on concessional 3. Renewable Energy and Energy Efficiency: In- funding from sources such as the GEF, in addi- vestment funds ­ Investments in global funds tion to IFC's own investment resources, toward focused on renewable energy and energy effi- two main objectives: (i) identifying and devel- ciency projects. 8 3 P O W E R F O R D E V E L O P M E N T A t t a c h m e n t H . 1 . I F C ' s M a i n s t r e a m R e n e w a b l e E n e r g y a n d E f f i c i e n t E n e r g y P r o j e c t s , F Y 9 0 ­ 9 9 Total IFC Equity/ IFC Project IFC Gross IFC Net IFC Quasi Net Approval Commit- Project Cost Approval Approval Loans Equity Commitment FY ment FY Country Name (US$ m) (US$ m) (US$ m) (US$ m) (US$ m) (US$ m) FY90 FY91 Turkey Kepez Electric 67.6 25.0 25.0 25.0 - 20.3 FY91 FY92 Chile Aconcagua 96.0 39.1 22.1 14.0 8.1 14.5 FY93 FY93 Belize Becol 59.4 26.0 15.0 15.0 - 15.0 FY93 FY94 Chile Pangue 515.0 174.9 74.9 70.0 4.9 64.7 FY94 FY94 Costa Rica Hidrozarcas 15.0 10.5 4.4 4.4 - 4.0 FY94 FY96 Nepal Khimti Khola/Himal 125.7 36.0 31.0 31.0 - 32.3 FY96 FY98 Nepal Bhoti Koshi 101.2 78.0 27.0 24.0 3.0 24.0 FY97 FY98 Brazil Guilman-Amorim 148.0 121.0 30.0 30.0 - 30.0 FY97 FY98 Guatemala Orzunil 69.0 32.8 17.8 15.5 2.3 14.4 FY97 FY98 India Asian Electronics 86.0 21.6 21.6 16.0 5.6 5.6 Ltd FY97 FY00 World REEF 410.0 115.0 35.0 20.0 15.0 15.0 FY98 FY00 World Honeywell 240.0 60.0 60.0 35.0 25.0 8.0 ESCO-MPF FY99 FY00 Central Energia Global 15.0 15.0 15.0 10.0 5.0 15.0 America International Total RE/EE projects = 13 $1,948 $755 $379 $310 $69 $225a a. Includes only net commitments made during the study period (FY90-99). If projects approved in the 1990s but committed outside that period were included, total net commitments would be US$263 million. 8 4 A N N E X H : I F C ' S O P E R AT I O N S I N R E N E WA B L E E N E R G Y A N D E N E R G Y E F F I C I E N C Y I N T H E 1 9 9 0 s A t t a c h m e n t H . 2 . I F C - M a n a g e d G E F P r o j e c t s i n P o w e r , F Y 9 0 ­ 9 9 Fiscal GEF Funding Year Country Project Name (US$ m) Description FY94 Argentina Argentina Street Lighting 0.7 To promote innovative commercial financing and delivery mechanisms for energy-efficient street lighting projects at the municipal level; preparing model transactions for financing on commercial terms by local financial institutions FY95 Poland Poland Efficient Lighting 5.0 Climate mitigation project designed to reduce electricity Project (PELP) consumption FY96 World SME I Program and SME II 10.4 To on-lend GEF grant funds to intermediaries toward GEF- Replenishment eligible small and medium-scale enterprise projects, either with debt or equity investments at long-term low interest rates FY97 Hungary Hungary Energy Efficiency 5.0 To build energy efficiency financing capability of Hungarian Cofinancing Program (HEECP) financial intermediaries FY98 World Photovoltaic Market 30.0 Strategic intervention to strengthen private sector Transformation Initiative (PVMTI) investment in power generation from photovoltaic sources FY98 World Renewable Energy Efficiency 30.0 The fund will make debt and equity investments in Fund (REEF) private sector projects in RE/EE sectors FY99 World Efficient Lighting Initiative (ELI) 15.0 Programmatic elements such as consumer education, financing mechanisms, quality standards and product labeling, market aggregation, transaction support, and regulatory reform assistance Total GEF projects = 7 US$96.1 FY00 Philippi nes CEPALCO-PV 4.03 A 1MW distributed-generation PV power plant to be built and integrated into the 80MW distribution network of CEPALCO, a private utility operation in Mindanao, Philippines. The PV system will be operated with an existing 7MW hydroelectric plant with dynamic load control, thereby enabling the joint PV/hydro resource to reduce both distribution-level and system-level demand, effectively providing firm generation capacity. This plant will provide the first full-scale demonstration of the environmental and economic benefits of the conjunctive use of hydro and PV- based power, and the first significant use of the grid- connected PV in a developing country. FY01 Global Solar Development Group 6.0 Investment in private companies involved in rural, commercially sustainable PV activities, including the distribution, sale, lease-hire, or financing of PV solar home systems and other productive use of PV systems for electricity generation, and to provide financing to local financial intermediaries that will service such companies. Total GEF projects, FY90-FY01= 9 US$106.13 8 5 P O W E R F O R D E V E L O P M E N T ANNEX I: IFC PORTFOLIO OF APPROVALS IN POWER, FY90­01 Total IFC Equity/ IFC Project IFC Gross IFC Net IFC Quasi Net Approval Commit- Project Cost Approval Approval Loans Equity Commitment FY ment FY Country Name (US$ m) (US$ m) (US$ m) (US$ m) (US$ m) (US$ m) 1990 1991 India CESC I 92.2 20.1 20.1 20.1 - 24.8 1990 1991 Turkey Kepez Electric 67.6 25.0 25.0 25.0 - 20.3 1991 1991 India BSES 653.3 68.0 50.0 50.0 - 50.0 1991 1992 Chile Aconcagua 96.0 39.1 22.1 14.0 8.1 14.5 1992 1993 India CESC II 584.7 97.0 30.0 30.0 - 30.0 1993 1993 Philippines Mindanao Power 126.4 39.0 20.0 15.5 4.5 16.7 1993 1993 Philippines Pagbilao 888.0 110.0 70.0 60.0 10.0 70.0 1993 1993 Guatemala Puerto Quetzal 92.7 71.9 20.7 20.7 - 20.0 1993 1993 Latin America Scudder (SLAP I) 200.0 25.0 25.0 - 25.0 10.1 1993 1993 Belize Becol 59.4 26.0 15.0 15.0 - 15.0 1993 1994 Argentina Yacylec 135.0 65.0 20.0 20.0 - 20.0 1993 1994 Chile Pangue 515.0 174.9 74.9 70.0 4.9 64.7 1994 dropped India Neyveli Power 450.0 198.0 48.0 30.0 18.0 - 1994 1994 Argentina Edenor 413.9 176.5 48.5 48.5 - 45.0 1994 1994 Costa Rica Hidrozarcas 15.0 10.5 4.4 4.4 - 4.0 1994 1995 Guatemala Fabrigas 17.1 7.0 7.0 7.0 - 7.0 1994 1995 World Global Power 1,000.0 50.0 50.0 - 50.0 19.3 1994 1995 Oman United (Manah) Power 288.1 77.5 32.5 27.0 5.5 20.5 1994 1996 Nepal Khimti Khola/Himal 125.7 36.0 31.0 31.0 - 32.3 1994 1996 India GVK Power 293.2 120.8 50.8 42.5 8.3 37.5 1995 dropped India IB Valley Power 720.6 150.0 70.0 50.0 20.0 - 1995 1995 Pakistan AES Lal Pir Ltd 343.7 49.5 49.5 40.0 9.5 49.5 1995 1995 Pakistan Kohinoor 138.6 67.9 31.3 25.0 6.3 31.3 1995 1995 Côte d'Ivoire Ciprel Power 70.0 17.8 17.8 16.9 .9 19.1 1995 1995 Dominican Smith-Enron 205.8 133.8 33.8 33.8 - 32.3 Republic 1995 1995 Honduras Elcosa/Elpacsa 71.4 53.7 17.1 14.5 2.6 16.6 1995 1996 Turkey TDD-KOC/ Entek 136.3 82.0 27.0 27.0 - 27.0 1995 1996 Philippines Sual Thermal Power 1,400.0 247.5 47.5 30.0 17.5 47.5 1995 1997 Jamaica JAM/Old Harbour Diesel 148.0 70.0 22.0 22.0 - 23.9 1996 dropped Argentina Edesur 327.6 228.0 40.0 40.0 - - 1996 1996 Pakistan AES Pak Gen 349.0 79.5 29.5 20.0 9.5 29.5 1996 1996 Pakistan Gul Ahmed Energy 138.0 69.1 34.1 30.0 4.1 31.1 1996 1996 Pakistan Uch Power 630.0 131.0 56.0 56.0 - 40.0 1996 1997 Sri Lanka Asia Power (APPL) 64.0 37.0 17.0 14.5 2.5 11.0 1996 1998 Nepal Bhote Khoshi 101.2 78.0 27.0 24.0 3.0 24.0 1997 dropped Mexico Altamira 75.3 56.8 18.8 18.8 - - 1997 1997 Czech Republic Kladno/ECKG RMF 401.0 135.0 70.0 70.0 - 58.3 1997 1998 India AEL Asian Electronics 86.0 21.6 21.6 16.0 5.6 5.6 1997 1998 Guatemala Orzunil 69.0 32.8 17.8 15.5 2.3 14.4 1997 1998 Latin America Scudder Fund (SLAP II) 250.0 - - - - - (continued on next page) 8 6 A N N E X I : I F C P O R T F O L I O O F A P P R O VA L S I N P O W E R , F Y 9 0 ­ 0 1 (Annex I continued) Total IFC Equity/ IFC Project IFC Gross IFC Net IFC Quasi Net Approval Commit- Project Cost Approval Approval Loans Equity Commitment FY ment FY Country Name (US$ m) (US$ m) (US$ m) (US$ m) (US$ m) (US$ m) 1997 1998 Brazil Guilman-Amorim 148.0 121.0 30.0 30.0 - 30.0 1997 1998 Senegal GTI Dakar 71.1 35.9 24.0 22.1 1.9 14.3 1997 2000 World REEF--Renewable Energy 410.0 115.0 35.0 20.0 15.0 15.0 1998 2000 World Honeywell ESCO MPF 240.0 60.0 60.0 35.0 25.0 8.0 1998 1998 Mexico Merida III 250.0 120.0 30.0 30.0 - 30.0 1998 1998 Russia Mosenegro 180.0 32.0 32.0 32.0 - 20.0 1998 closed Cambodia CPP 86.0 66.5 21.3 21.3 - - 1998 dropped Russia Severstal Power 102.0 92.0 25.0 25.0 - - 1998 dropped Vietnam Ba Ria 112.6 77.2 28.2 24.2 4.0 - 1998 1999 Côte d'Ivoire Azito 172.6 80.1 45.1 45.1 - 40.5 1998 1999 Bangladesh Khulna 104.5 56.5 27.1 23.8 3.3 22.5 1999 2000 Bolivia Electropaz 40.0 25.0 25.0 25.0 - 25.0 1999 2000 Central America Energia Global International 15.0 15.0 15.0 10.0 5.0 15.0 1999 2000 Venezuela EDC I 100.0 75.0 40.0 40.0 - 40.0 1999 2001 World Solar Development Group 50.0 6.0 6.0 - 6.0 5.5 1999 dropped Philippines Cepalco 44.5 22.0 22.0 16.0 6.0 - 1999 pending Egypt Sidi Krir 449.0 192.0 70.0 70.0 - Total Investment Operations, FY90­99: 57 $14,414 $4,370 $1,849 $1,564 $284 $1,140a 2000 FY00 Kenya Kipevu II 89.2 41.1 21.1 20.0 1.1 17.6 2000 FY00 Mexico Rio Bravo 234.5 115.0 50.0 50.0 - 50.0 2000 FY00 Mexico Saltillo SA 160.0 80.0 35.0 35.0 - 35.0 2000 FY00 Georgia Telasi 146.9 30.0 30.0 30.0 - 30.0 2000 dropped Bangladesh Haripur 183.0 59.9 45.8 45.8 - - 2000 FY01 Venezuela EDC II 30.0 30.0 30.0 30.0 - 30.0 2000 pending Panama AES Panama 335.9 215.0 45.0 45.0 - 2000 pending India Astha Power 25.8 9.0 9.0 7.1 1.9 2000 pending India Orissa NESCO 56.0 28.0 28.0 28.0 - 2000 pending India Orissa WESCO 43.0 11.0 11.0 11.0 - 2000 pending Bangladesh USPCL 18.5 7.0 7.0 4.0 3.0 2001 FY01 Moldova UF Moldova 136.0 25.0 25.0 25.0 - 25.0 2001 FY01 China Peak Pacific 100.0 25.0 25.0 25.0 - 25.0 2001 FY01 Egypt Port Said 347.2 200.5 48.0 48.0 - 45.0 2001 FY01 Egypt Suez Gulf 339.2 200.5 48.0 48.0 - 45.0 2001 FY02 El Salvador CAESS/EEO 120.0 120.0 45.0 45.0 - 45.0 2001 pending Brazil Cataguazes 120.0 85.0 45.0 45.0 - 2001 pending India GI Wind Farms 29.9 10.8 10.8 9.8 1.0 Total investment operations, FY00­01 = 18 $2,515 $1,293 $559 $552 $7 $348 Total investment operations, FY90­01 = 75 $16,929 $5,662 $2,407 $2,116 $291 $1,596 a. Net commitment total includes projects approved and committed in FY90­99. If commitments made beyond FY99 were to be included for projects that were approved between the study period of FY90­99, total net commitments would be $1,226 million (as of July 2002 data in MPD). 8 7 P O W E R F O R D E V E L O P M E N T ANNEX J: OEG'S MINI-XPSR EVALUATION FRAMEWORK FOR IFC'S ELECTRIC POWER SECTOR INVESTMENT OPERATIONS In the mini-evaluation framework,1 each invest- available (project cost, capacity utilization, tar- ment operation is rated based on three distinct iffs, O&M expenses, taxes, and so on), rela- outcomes: tive to the expectations at appraisal. · Development outcome ­ the project's impact · An operation rates satisfactory when historical on a country's development net cash flow is strong and likely to continue, · IFC's investment outcome ­ the operation's and when actual inputs to an FRR calculation gross contribution to IFC's income approximate the satisfactory expectations at · IFC's effectiveness ­ IFC's contribution to the appraisal. operation's outcome 2. Growth of the economy. This rating considers Each operation is rated on a two-point rating the project's net economic benefits to all mem- scale: (i) satisfactory or better, and (ii) less than bers of society, and is best measured by an satisfactory. economic rate of return (ERR). Lacking suffi- cient data to calculate an ERR, we based this Development outcome rating on assessments of the inputs to an ERR: The development outcome rating is a bottom-line, the social benefits and costs including con- synthesis assessment of the operation's results, sumer surplus, taxes paid, benefits to suppli- based on the five development indicators de- ers, and effects on input and output markets. scribed below. It is drawn from an analysis of proj- ect impacts considered in scenarios of "with" and · An operation rates satisfactory when actual in- "without" the project. For example, if without puts to an ERR approximate the inputs to the the project the country would have continued to net positive economic benefits IFC expected have power shortages, then the restoration of a at appraisal. stable power supply and its impact on industry and on people's lives can be attributed to the project. 3. Living standards. This rating is based on a project's benefits and costs to those who are 1. Project business success. This rating considers neither owners nor financiers, such as cus- the narrow objectives supported by IFC's fi- tomers, employees, suppliers, local residents, nancing. The best measure of a project's busi- and government. It includes contributions to ness success is its financial rate of return (FRR). widely held social objectives such as employ- Lacking sufficient data to prepare an updated ment generated, employee living standards, projection and calculate an FRR, we based this nonwage benefits, training, community serv- rating on assessments of historical performance ices, health and safety, expropriation proce- and likely future trends, giving particular em- dures and resettlement, gender equity, and phasis to the inputs to the FRR calculation, as child labor. 8 8 A N N E X J : O E G ' S M I N I - X P S R E VA L U AT I O N F R A M E W O R K outcome rates satisfactory based on the weighted · An operation rates satisfactory when there are average return on the combined investment. In positive net benefits to those who are neither operations featuring only one investment instru- owners nor financiers of the project. ment, the instrument's rating is also the invest- ment outcome rating. 4. Environmental effects. This rating is based on the project's success or otherwise in meeting · Loan. An operation rates satisfactory or better WBG environmental requirements. These re- when no loss reserves exist; when it is not in quirements include compliance with WBG arrears; when any loan rescheduling still pro- policies and guidelines and with controls and vides the full margin originally expected; and mitigation determined as part of a project-spe- when any loan prepayment provides greater cific environmental assessment. than 65 percent of the originally expected loan income. · An operation rates satisfactory if the project is-- · Equity. An operation rates satisfactory or bet- and was over its lifetime--in material compli- ter when the investment's realized return, ance with either IFC's current or at-approval book, or market value exceeds cost and gives requirements. a return greater than the interest for a fixed rate loan. 5. Private sector development. This rating con- siders the upstream and downstream linkages to private firms, new technology, management IFC's effectiveness skills and training, the degree of local entre- preneurship and competition, demonstration · IFC's effectiveness (synthesis) rates satisfac- effects, enhanced private ownership, capital tory if IFC's performance on at least two of the markets development; and business practices three Effectiveness indicators below is satis- as a positive corporate role model. Included factory. also are regulatory improvements such as · Screening, appraisal, and structuring rates sat- changes in government policy and the legal, tax, isfactory if it met IFC's good practice stan- and accounting frameworks. dards (for example, IFC's Credit Notes). · Supervision and administration rates satis- · An operation rates satisfactory when the proj- factory if IFC identified and adequately re- ect provides distinctly positive net contribu- sponded in a timely manner to emerging issues tions. and any material change in the project's or company's performance. IFC investment outcome · IFC's role and contribution rates satisfactory This is a synthesis of the ratings of the two in- if IFC's role and contribution were in line with vestment instruments: loan and equity. When the its operating principles. individual ratings are different, the investment 8 9 P O W E R F O R D E V E L O P M E N T ANNEX K: PERFORMANCE RATINGS OF 29 IFC MATURE POWER SECTOR INVESTMENT OPERATIONS IN THE 1990S supervision and OUTCOME success OUTCOME administration development economy impacts and the appraisal, contribution business sector of standards INVESTMENT EFFECTIVENESS and Project DEVELOPMENT Project Private Growth Living Environmental IFC'S IFC'S Screening, Supervision Role Project 1 S S S S S S S S S S S Project 2 S S S S S L S S S S S Project 3 S S S S S S S S S S S Project 4 S L S S S S S S S S L Project 5 S S S S S S S S S S S Project 6 S S S S L S S S L S S Project 7 S S S NOP NOP S S S S S S Project 8 S S S S S S S S S S S Project 9 S S S S S S S S S S S Project 10 S S S S S S S S S S S Project 11 S S S S S S S S S S S Project 12 S S S S S S S S S S S Project 13 S S S S S S S S S S S Project 14 S S S S S S S S S S S Project 15 S S S S S S S S S S S Project 16 S S S S S S S S S S S Project 17 S S S S L L S L L L L Project 18 S S S S S S S L L L S Project 19 S S S S S S S L L L S Project 20 S S S S S S L S S S S Project 21 S L S S S S L S S S S Project 22 S S S S S S L S S S S Project 23 S S S S S S L S S S S Project 24 S S S S S S L S S S S Project 25 S S S S L L L L L S L Project 26 L L S S S S S S L S S (continued on next page) 9 0 A N N E X K : P E R F O R M A N C E R AT I N G S O F 2 9 P O W E R S E C T O R I N V E S T M E N T O P E R AT I O N S (Annex K continued) supervision and OUTCOME success OUTCOME administration development economy impacts and the appraisal, contribution business sector of standards INVESTMENT EFFECTIVENESS and Project DEVELOPMENT Project Private Growth Living Environmental IFC'S IFC'S Screening, Supervision Role Project 27 L L L L L L S L L S L Project 28 L L S S S L L S S S S Project 29 L L S L L L L L L S S Satisfactory or better (S) 25 23 28 26 23 23 21 21 23 21 26 25 Less than satisfactory (L) 4 6 1 2 5 6 8 6 8 3 4 No opinion possible (NOP) 0 0 0 0 0 0 0 0 0 0 0 Total projects 29 29 29 29 29 29 29 29 29 29 29 29 Satisfactory or better (S) 86% 79% 97% 93% 82% 79% 72% 72% 79% 72% 90% 86% Less than satisfactory (L) 14% 21% 3% 7% 18% 21% 28% 28% 21% 28% 10% 14% 9 1 P O W E R F O R D E V E L O P M E N T ANNEX L: ANALYSIS OF DEVELOPMENT OUTCOME INDICATORS OF THE 29 EVALUATED IFC ELECTRIC POWER INVESTMENT OPERATIONS The development outcome of IFC investment outcome indicator in the electric power sector. As operations is a synthesis of the following five per- is true for other sectors generally, this suggests that formance indicators: electric power projects that do not give their fin- anciers satisfactory returns could still have posi- Project business success tive development impacts. This also reflects the Project business success is an indication of the ex- fact that investors are last in line in reaping the tent to which projects have been a financial suc- benefits of these projects. cess to their lenders and owners. IFC electric power projects generally have better business Private sector development success performance than IFC's all-sector port- Private sector development addresses the extent folio. Of the 29 evaluated IFC electric power proj- to which the project has encouraged the growth ects, 23 (79 percent) are financially successful, of the country's private sector beyond the proj- compared to the all-sector success rate of 45 per- ect company. cent.1 Overall, IPPs did not perform any better than Twenty-eight of the 29 projects (97 percent) other projects in the electric power sector. Of have made significant positive contributions to pri- the six poor business performers, four (67 per- vate sector development, compared with the all- cent) are IPPs (18 of the 29 evaluated projects [62 sector rating of 75 percent. IFC electric power percent] are IPPs). Good deal structuring and projects bring important physical infrastructure risk allocation enable IPPs to shield themselves development that can support the growth of the from regulatory and other risks that they are not private sector, and notably have provided a fast and best equipped to handle, but they are not immune cost-effective solution to electric power short- to business and commercial risks. The four IPPs ages. The evidence is especially strong in coun- that failed financially suffered from low dispatch, tries such as Côte d'Ivoire, Guatemala, and the technical difficulties, and poor hydrology condi- Philippines, where companies were losing markets tions. Capacity fees were not paid in full to one and in extreme cases shutting down because of IPP that did not perform all of its obligations inadequate electric power supply. under the PPA; the three others performed their IFC electric power projects also have broad PPA obligations and received capacity fee pay- demonstration effects. The early success of pio- ments but did not get a return commensurate to neering electric power projects attracted inter- their weighted average cost of capital. They were national developers and equipment suppliers to dispatched significantly below optimum levels developing countries. These projects have also due to low demand or inadequate grid capacity. contributed to enhancing the enabling environ- Two IPPs outside the four that performed poorly ment for private participation in electric power. had marginally satisfactory business success, They have given the public sector first-hand ex- largely because they were dispatched virtually as perience of the dynamics and constraints of pri- peaking plants despite being originally designed vate sector entities in electric power, and have as base load plants. helped reveal the unsubsidized cost of electric Project business success, along with environ- power generation to policymakers and regula- mental effects, is the lowest rated development tors. This experience has helped governments 9 2 A N N E X L : A N A LY S I S O F D E V E L O P M E N T O U T C O M E I N D I C AT O R S establish a framework to attract more competitive cility to ensure an uninterrupted supply of elec- private sector proposals in power as well as in tricity during peak hours. other infrastructure subsectors. The two projects that rated less than satisfac- tory for their contribution to the growth of the Growth of the economy economy failed financially. Four other projects This performance indicator measures the quality that have shown poor financial performance in of a project's contribution to a country's eco- contrast rated satisfactory for their contributions nomic growth, as reflected in the economic rate to economic growth, suggesting that the economy of return (ERR). can benefit from electric power projects even in Twenty-six of the 28 (93 percent)2 IFC electric situations where the financiers are not successful. power projects that were rated for their contri- bution to growth of the economy had a satisfac- Impact on living standards tory or better performance, comparing favorably This indicator measures a project's net contribu- with the all-sector rating of 62 percent. This reflects tion to members of society other than its owners an economic rate of return of at least 10 percent or financiers, such as customers, suppliers, em- for these projects. End-users paid more for elec- ployees, and governments or taxpayers. tricity or its alternatives during power shortages Twenty-three of the 28 projects (82 percent) and they would have continued to do so without with living standards ratings did well, mirroring the capacity built by the IFC-supported projects. IFC's all-sector performance. IFC electric power Previously, those end-users who could afford to, projects affect living standards at two levels: im- installed their own power generators; those who mediate, or local community level; and wide- could not turned to other energy sources for spread, or the entire customer base: their lighting and power needs. In both cases the cost to the user was greater than would have (a) The local community. Job creation is perhaps been charged for electricity from the grid. In- the most important impact on living standards in dustrial consumers in one market valued elec- the local communities where IFC electric power tricity from an IFC project at 40 percent above the projects are located. The impact is most visible in actual tariff.3 This premium reflects the value to rural areas, where IFC projects can easily become these consumers of a reliable and stable source the biggest employer. In most IFC-financed proj- of electric power supply. ects, priority in hiring is given to suitably qualified The economic value of electric power pro- local people. At the suggestion of some IFC proj- duced by IPPs operating at optimum plant load ect companies, some villagers have formed co- factor is generally considered to be higher than operatives that serve as subcontractors for the price at which IPPs sell to offtakers. In the ab- noncritical support functions, such as ground sence of market-specific consumer surplus esti- maintenance, security, janitorial services, and cafe- mates, the economic price of electricity has been teria operations. Salaries and benefits are typi- conservatively estimated in XPSRs to equal the av- cally better than alternative local employment erage end-user tariffs. Projects evaluated through opportunities. One IFC-financed 700MW power XPSRs showed that this estimate was sufficient to plant in a remote rural location has about 450 di- yield an ERR of at least 10 percent based on ac- rect and another 400 indirect employees. In ad- tual output and after allowing for transmission dition to direct and indirect employment at the costs, including losses. The economic value of plant, additional employment is generated at local electric power generated by projects operating as industrial power consumers. peaking plants has been based on the average of Other demonstrated impacts on local com- the highest tariffs during peak hours. Absent munities include the following examples: these peaking plants, industrial and commercial consumers would have either lost production or · One project required the development of a would have had to install their own generation fa- road and bridge infrastructure that is accessi- 9 3 P O W E R F O R D E V E L O P M E N T ble to villagers. This has given local farmers ac- out these IPPs and unable to afford their own cess to new markets and has enabled children power generators, the poor would have no to attend schools outside their village. electricity. · Many project companies in rural areas pro- IFC-financed projects have helped increase vide free healthcare services, giving villagers ac- access to electric power. In LAC, IFC financed a cess to clinics constructed within the power distribution company's post-privatization expan- plant. sion that enabled the company to extend access · Some companies support community devel- to the urban poor, who previously had obtained opment programs by sponsoring village school electric power through illegal and unsafe con- activities, sports events, livelihood projects, nections that typically were costly and also waste- reading programs, and skills development. An ful. Another IFC-financed IPP project in IFC-financed IPP in Asia built a community Sub-Saharan Africa has given the privately man- center, equipped it with sewing machines, aged utility company the generation capacity to trained the village women, and helped them enable expansion of the national grid to some 1.8 market their output. million people in 1,100 rural districts, out of a total · Some IPPs have provided power line connec- of 8,000 districts connected to the grid. tions in neighboring villages, enabling the local distribution company to extend service to Environmental, social, health, and safety these villages. (ESHS) effects This indicator measures a project's impacts on its (b) Widespread impact. The most important im- physical environment and on other social, cultural, pact observed in IFC-financed generation projects worker health and safety, and resettlement is- is the provision of a reliable, stable, and reason- sues, as addressed in IFC's safeguard policies. ably priced electric power supply to industrial/ IFC requires all of its projects to comply with commercial and residential customers. For in- IFC's internationally accepted environmental and dustrial/commercial customers, this translates social guidelines. Out of 29 evaluated projects, 23 into the resumption of normal operations or even (79 percent) are rated as satisfactory or better, the expansion of operations, leading to additional compared with 66 percent of the total evaluated employment opportunities, especially at the portfolio of IFC investments. (See Annex Q for a shopfloor level where many low-wage earners detailed discussion of the environmental impacts work. Residential customers at all income levels of IFC projects.) benefit from a stable electric power supply. With- 9 4 A N N E X M : M I G A G U A R A N T E E S I N P O W E R , F Y 9 9 ­ 0 1 ANNEX M: MIGA GUARANTEES IN POWER, FY99­01 9 5 P O W E R F O R D E V E L O P M E N T 9 6 A N N E X M : M I G A G U A R A N T E E S I N P O W E R , F Y 9 9 ­ 0 1 9 7 P O W E R F O R D E V E L O P M E N T 9 8 A N N E X M : M I G A G U A R A N T E E S I N P O W E R , F Y 9 9 ­ 0 1 9 9 P O W E R F O R D E V E L O P M E N T ANNEX N: WORLD BANK GROUP INVOLVEMENT IN RENEWABLE ENERGY AND ENERGY EFFICIENCY PROJECTS During the 1990s, renewable energy and energy cused on upstream policy and preinvestment ac- efficiency (or "alternative energy") grew signifi- tivities, and IFC concentrated on investment and cantly as innovative components of WBG energy divestiture. activities. Bank and IFC initiatives reflect each in- There is no institutionally agreed definition stitution's mandate: the Bank worked mainly with for the hydropower component of renewable en- the public sector to achieve policy reforms, ergy. The Bank includes only mini- and micro- strengthen institutions, define legislative frame- hydro (less than 1MW) as renewable, treating works, and establish regulatory processes to pro- large hydro as conventional generation, while vide the enabling environment for private IFC includes all hydro in its accounting for its re- participation, while IFC provided loans and equity newables portfolio (the average size of IFC-fi- financing directly to the private sector. As shown nanced hydropower plants is 67MW, excluding below, their financial assistance and AAA show a one 450MW plant in LAC). This issue needs to be similar general division of labor, with the Bank fo- resolved given the attendant social (resettlement) T h e B a n k a n d I F C D i v i s i o n o f L a b o r I s A l s o E v i d e n t i n R e n e w a b l e E n e r g y A c t i v i t i e s Degree of Market Orientation Policy Pre-investment Preparation Investment Supervision Divestiture PCF* SDG ** REEF ** PVMTI ** IFC/Bank Bank AFRREI ASTAE ESMAP RPTES *Bank managed **IFC-managed Investment Cycle PCF: Prototype Carbon Fund; SDC: Solar Development Corporation; REEF: Renewable Energy and Energy Efficiency Fund; PVMTI: Photovoltaic Market Transformation Initiative; AFFREI: Africa Rural and Renewable Energy Initiative; ASTAE: Asia Alternative Energy Program; ESMAP: Energy Sector Management Assistance Program; RPTES: Regional Program on the Traditional Energy Sector Source: Spencer (2000). 1 0 0 A N N E X N : I N V O LV E M E N T I N R E N E WA B L E E N E R G Y A N D E N E R G Y E F F I C I E N C Y P R O J E C T S and environmental issues of large hydro that are (PVMTI).1 It directly invests in financially viable re- not normally associated with village-scale, de- newables and energy efficiency projects, provides centralized renewable energy systems. It fur- financing for the development of private sector ac- thermore will not be possible to evaluate the tivities in the distribution and retail of off-grid significant and innovative PSD components of applications, and extends concessional financing this alternative energy portfolio unless a com- for the development of photovoltaic markets. In mon definition is agreed within the WBG. the 1990s, IFC made a total investment commit- There also are no data on the full extent of the ment of US$225 million in 13 projects and man- Bank's support for alternative energy. However, aged seven GEF-funded projects. These it is known that through the Asia Alternative En- investments represent 20 percent of IFC's total in- ergy Program (ASTAE), Energy Sector Manage- vestment commitments in the power sector by ment Assistance Program (ESMAP), Africa Rural FY99. Eight of these investments are in hy- and Renewable Energy Initiative (AFFREI), and Re- dropower plants and five are in LAC. IFC has two gional Program for the Traditional Energy Sector investment commitments in the nonhydro re- (RPTES) the Bank finances (including GEF grants) newables subsector: a 24MW geothermal plant and and provides technical assistance to governments a 45MW bagasse cogeneration plant as part of an to develop and implement renewable energy sys- investment operation in a sugar mill. tems, promote energy efficiency, build long-term As in other sectors, IFC invests in financial in- capacity, and expand energy access. ASTAE data termediaries for on-investing to smaller alterna- is the most robust: its portfolio of alternative en- tive energy projects. IFC has committed US$15 ergy projects for FY93­03 has grown to 37 re- million for a multiproject financing facility to sup- newable energy and energy efficiency projects in port alternative energy projects, focusing prima- 11 Asian countries, with a total alternative energy rily on Central America. Among the beneficiaries project cost of US$3.8 billion and total Bank/GEF are two hydropower plants (16MW and 18MW) commitments of up to US$1.5 billion. ASTAE's and a wind farm (20MW) in Costa Rica. In addi- alternative energy program integrates significant tion, IFC made an investment commitment of technology and policy reform measures. US$15 million for a US$65 to US$100 million al- IFC works further downstream through the ternative energy global private equity investment Solar Development Group (SDG), Renewable En- fund with a parallel debt facility and a GEF cofi- ergy and Energy Efficiency Fund (REEF), and the nancing arrangement. Photovoltaic Market Transformation Initiative 1 0 1 P O W E R F O R D E V E L O P M E N T ANNEX O: ASTAE-SUPPORTED WORLD BANK/GEF ALTERNATIVE ENERGY INVESTMENT PROJECTS, FY92­03 Technical Assistance and Policies Technologies Country Project Training Renewable Small Tariff & Photo- Hydro b Wind Biomass c Geothermal & Energy Power Duty voltaic Power Power Capacity Master Purchase Adjustment Building a Plan Agreement China Renewable Energy · · · · · Resources Indonesia Second Rural · · · · · · Electrification Indonesia Solar Home · · · Systems Lao PDR Southern · · · · Provinces Rural Elect. Vietnam Power · · Development Vietnam Rural Energy I · · · · · India Re newable · · · · Resources Development India Renewable Energy · · · · II/Energy Efficiency Sri Lanka Energy Services · · · · · · Delivery Includes: a. Institutional strengthening activities. b. small-, mini-, and micro-hydro. c. small-, mini-, and micro-geothermal. 1 0 2 A N N E X P : T E C H N O L O G Y A N D P O L I C Y R E F O R M M E A S U R E S ANNEX P: TECHNOLOGY AND POLICY REFORM MEASURES IN ASTAE-SUPPORTED RENEWABLE ENERGY AND ENERGY EFFICIENCY PROJECTS* Technical Assistance and Policies Technologies Country Project Training & DSM Load Codes & ESCO Load Motors Light- Appli - HVAC d Cogen. e Capacity Plans a Research b Standards c Dev. Mgmt. ing ances Building China Energy · · · · · Conservation Lao Provincial Grid · · · PDR Integration India Orissa Power · · · · · · Sector Haryana Power · · · · · · · · APL Andhra Pradesh · · · · · · · Power APL f Renewable · · · · · · · Energy II/Energy Efficiency Sri Energy Services · · · · · · · Lanka Delivery Thailand Distribution · · · · · · · · System & Energy Efficiency Thailand Metropolitan · · · Distribution Vietnam Transmission & · · · · · · Distribution * ASTAE: Asia Alternative Energy Unit Includes: a. monitoring and evaluation; b. institutional strengthening activities; c. energy efficiency building codes and equipment standards; d. vapor absorption technology; e. industrial and biomass cogeneration; and f. TA and technology for the entire APL program. 1 0 3 P O W E R F O R D E V E L O P M E N T ANNEX Q: ENVIRONMENTAL AND SOCIAL IMPACTS OF IFC INVESTMENT OPERATIONS IN THE POWER SECTOR (Note: A separate background paper has been are rated less than satisfactory points to two major prepared for the Bank entitled "Environmental reasons: Mainstreaming and Private Sector Development in the Electric Power Sector: A Review of the · inadequate attention to social issues World Bank's Policies and Performance.") · inadequate environmental controls incorpo- rated into the design to fully meet IFC/WB I. Environmental Performance of IFC emissions standards Projects The environmental performance of IFC's invest- IFC has in the last four to five years expanded ment operations in the power sector has been bet- its social soundness reviews to better address so- ter than IFC's all-sector portfolio. cial issues, partly as a result of a hydro project in Of the 29 evaluated projects, 23 (79 percent) LAC that did not adequately address social and re- have met or exceeded IFC's environmental re- settlement issues. Actions taken have included the quirements, compared to 68 percent for all eval- addition of specialist staff and the development uated IFC projects from the 1991 to 1996 and promulgation of guidance documents in key approvals population. Based on the site visits social development areas such as resettlement conducted as part of the field assessments, the and public consultation. drivers for this successful outcome appear to be Two projects failed to meet current IFC/WB the following: emissions standards. In both cases, the fault lay with design. Environmental performance criteria · environmental requirements are specifically are critical in the design and approval of power built into the plant design criteria sector plants, but environmental performance is- · environmental performance criteria are an ex- sues may be less well managed for cogeneration plicit aspect considered in Project Completion and captive power plants that come under IFC's tests other sectors, such as food and agriculture, gen- · power plants are technology-driven: if designed eral manufacturing, or chemicals, and that are and built properly, it is highly likely that a plant outside the scope of this report. will be operated within IFC/WB guidelines There is huge untapped potential for pro- · at the national level, IPPs are sufficiently large gressing beyond "doing no harm" to "doing good" that they are audited by national environmental on environmental issues: agencies · global power project sponsors generally op- (i) The system dispatch priority should consider the en- erate in an environmentally responsible man- vironmental impact. ner when they undertake projects overseas, due to reputational risk Increasing the capacity of a system increases its flexibility and enhances the ability of managers to As in any other sector, power has its share of achieve least-cost and environmentally responsi- projects with less than satisfactory environmen- ble dispatch of the system's power plants. Even tal performers. An analysis of the six projects that within contractual constraints, better environ- 1 0 4 A N N E X Q : E N V I R O N M E N TA L A N D S O C I A L I M PA C T S mental management is possible through the use water being discharged onto the ground and of the right technology and the appropriate use into drainage ditches. As the trucks are under of plant alternatives. When supply is constrained a supply contract they are considered to be out- and system dispatch requires older and more side the fence line, yet their only business is to polluting capacity to be called into longer periods supply fuel to the power plants. The operating of production, the environmental outcomes in- practices of these private trucking fleets are evitably are inferior. causing significant negative environmental im- pacts. Establishing improved truck mainte- (ii) Projects can be more environmentally responsible nance facilities has the potential to create an by going beyond the fence line. additional private sector business opportunity while helping to protect the environment and Industry practice delineates a fence line, real or reduce costs, through improved waste oil re- imaginary, around a project. Activities outside the covery and recycling. While a pipeline is the op- fence line are not considered to be part of the proj- timal option over the long term, rail appears ect impact. This is an area where IFC can add to be the least-cost option and one that reduces value. The following two examples are taken from environmental impacts to an acceptable level. actual projects in a case study country: At the least, better management of the truck- ing system could provide flexibility and lead to · Most IPPs sell power directly to the grid via a an improved environmental outcome. substation at the plant. The government or the transmission company owns the high-volt- II. The GHG Impacts of IFC Projects and age transmission lines and is therefore re- Their Implications sponsible for any associated impacts from those lines. In one observed project, the high- IFC has existing policies on GHG emissions voltage transmission lines leave the plant, join with those from an adjacent government- IFC's policies and position with respect to green- owned plant, and then continue directly over house gas (GHG) emissions are captured in the a neighboring slum in a major city. The im- 1998 Pollution Prevention Handbook (PPAH), pact of electromagnetic fields is open to debate, which is available online at the World Bank but these lines presented a direct safety haz- Group's Web page: http://www.worldbank.org/. ard to the slum residents. High-voltage lines The three GHGs of importance are carbon normally should pass through a safety corridor. dioxide (CO2), methane (CH4), and nitrous oxide · There are several ways for fossil fuel-based (N2O). GHGs are perceived to have a direct im- plants to receive their fuel, including via pact on climate change, and 80 percent of GHGs pipeline, railways, and trucks. In one country, are generated from human activities--in partic- a World Bank-financed plant received fuel via ular from the burning of fossil fuels. IFC's 1998 a pipeline, an IFC-financed plant received fuel guidance reflects the then-current developments via rail, and three plants (one World Bank and of the UN Framework Convention on Climate two IFC) received their fuel via trucks. One Change (UNFCCC), but the failure to ratify the plant receives approximately 80 fuel trucks Kyoto Protocol is changing the debate. IFC's per day, each of which traveled more than 200 guidelines on energy efficiency are also captured kilometers from the fuel depot to the plant. in the 1998 Pollution Prevention Handbook This level of truck traffic presents a safety issue (PPAH). to the small villages and communities through which the trucks pass as well as the issue of car- What is expected from host countries of IFC invest- bon dioxide emissions. There furthermore was ments in the power sector? little control over truck maintenance: trucks were being maintained and washed at small It is important to recognize that the Kyoto Pro- service points, with waste oil and oily waste- tocol differentiates between "transition 1 0 5 P O W E R F O R D E V E L O P M E N T economies," "developing countries," and "least- emission of IFC-financed fossil fuel-based power developed countries." While IFC is active in all plants. three country categories, the power sector port- The total GHG emission of the 21 fossil fuel- folio is concentrated in the developing coun- fired power plants approved in the 1990s and in tries group. The Kyoto Protocol is primarily IFC's portfolio as of December 31, 2001, was cal- aimed at achieving reductions in Part I (indus- culated as equivalent to 0.2 percent of the 1998 trial countries) and transition economies, and global emissions from fuel combustion (22,700 recognizes that continued growth of energy use million tons CO2) and 0.4 percent of the 1998 de- is critical to the economic growth of developing veloping countries' emissions from fuel com- nations. Under the Clean Development Mecha- bustion (8,600 million tons CO2). nism (CDM), it is recognized that the cost of IFC's power sector projects achieve the least pollution control is significantly less in devel- impact (tons of CO2/year/installed MW) with oping nations than in Part I nations. For these rea- gas/naphtha-fired generators. Coal-fired steam sons, IFC's client countries do not have boilers are the least efficient in terms of GHG established emission reduction targets. CDM production. does however provide a financial incentive to achieve emissions reductions. How can IFC most effectively contribute to GHG re- duction while meeting the energy needs of the coun- The GHG emissions of IFC-financed power projects are tries in which its projects are located? relatively immaterial Moving to renewable energy and switching to Using proprietary software developed for IFC, cleaner fuels (gas) provide the largest gains in called IMAGE, IFC has calculated its net contri- GHG reduction. However, power plants are lo- bution to GHGs resulting from use of fossil fuels. cated and designed based on fuel or resource These results are conservative--that is, they as- availability, cost, fuel diversification, and envi- sume that all plants operate at the designed 70 per- ronmental considerations. In most cases, this cent capacity factor--but they do not take into means that coal was the best option through the account indirect emissions (such as methane 1990s. emissions from coal mines) or line losses, as such Greater fuel efficiency has a direct impact on losses are beyond the fence lines of IFC projects. GHG reduction. There has been a significant im- The following table summarizes the total GHG provement in overall energy efficiency: for a coal- fired power plant, an increase in efficiency from G H G P r o d u c t i o n b y T y p e o f T h e r m a l G e n e r a t i n g U n i t a n d F u e l T y p e , f o r t h e P o r t f o l i o o f P r o j e c t s C o n s i d - e r e d i n t h i s R e v i e w CO2 Emissions Total Installed tons- Capacity tons-C/ CO2/ Technology Fuel Type (MW) tons-C/year year/GW tons-CO2/year year/GW Diesel generation HFO 668 927,000 1.39 3,573,000 5.35 Thermal generation Gas/naphtha 1,861 1,686,000 0.91 6,183,000 3.32 Thermal and steam Coal 2,650 4,443,000 1.68 16,290,000 6.15 generation Thermal and steam LFO and HFO 844 1,109,000 1.31 3,766,000 4.46 generation 1 0 6 A N N E X Q : E N V I R O N M E N TA L A N D S O C I A L I M PA C T S 40 to 41 percent reduces the emission of CO2 by On environmental aspects. Where logistically and fi- 2.5 percent. (New coal-fired power plants can nancially feasible: achieve efficiencies of 42­45 percent.) To reduce GHG production, IFC should look · move to cleaner fuels (fuel selection) and re- at both fuel selection and power plant design (ef- newable energy options; ficiency). Depending upon the age of the plant, · promote more efficient plants; it may be cost-effective to replace older, less effi- · promote system optimization; and cient plants with modern, more efficient plants, · go beyond the fence line. with GHG reduction being a side benefit. In ad- dition, IFC recently established a Dutch-funded On social aspects. Possible solutions to social con- CDM facility to help promote pollution trading. cerns include: III. Recommendations: Win-win · Advise sponsors on site selection by helping opportunities for going beyond "doing no them understand the social and environmen- harm" to "doing good" tal issues associated with the specific sites under consideration. It should be noted, how- On reforming the sector. Reform plans for a coun- ever, that IFC may be brought into a deal after try's power sector should consider a program to the siting decision has been made. replace older, less efficient plants with modern, · Focus on community participation early in the more efficient plants. Older plants tend to be process. state-owned, and this therefore is a possible pol- · Promote social responsibility to ensure the icy approach to privatization that could simulta- beneficiaries include both the local community neously reduce overall costs and improve and the regional and national populations. environmental quality. 1 0 7 P O W E R F O R D E V E L O P M E N T ANNEX R: WORLD BANK GROUP MANAGEMENT RESPONSE AND MANAGEMENT ACTION RECORD I. Introduction ownership and political commitment existed. IFC Management commends OED/OEG/OEU for this and MIGA--responding to market demand and fo- thorough review of private sector development cusing on the single reform objective of private in the electric power sector (PSDE) and for tak- sector participation--achieved good project-level ing into account staff comments and concerns. outcomes overall. The review analyzes a decade of World Bank Group (WBG) experience, and it offers some III. Management's Views valid criticisms and three challenging recom- To improve the impact of World Bank Group mendations. PSDE assistance, the OED/OEG/OEU review rec- ommends developing operational guidance, main- Significant change in the PSDE environment. The pe- streaming environmental and poverty reduction riod covered by the review saw significant change objectives, and encouraging operational innova- in private sector involvement in the power sector: tions. Management has recognized the issues that considerable foreign investment increases during prompt these recommendations and, as is indi- the earlier part of the decade were followed by a cated in the following paragraphs, has already rapid decline from 1997 onward. Against this begun to formulate responses along the lines the background, the findings of the OED/OEG/OEU review suggests. (The responses to the specific rec- review are timely and will help the WBG to for- ommendations are set out in the accompanying mulate its strategy. Management Action Record matrix, appended to this annex.) II. OED/OEG/OEU Findings Management concurs with the conclusion of Need for operational guidance. The OED/OEG/OEU OED/OEG/OEU that the WBG should continue to review recommends that operational guidance support private sector development in the elec- be provided to staff on when and how to promote tric power sector. Management also shares the re- PSDE in an environment of heightened macro- view's assessment of the challenge to promoting economic and political risks and scant investor private sector development in the electric power interest. Management agrees with this recom- sector: the required reforms are both complex and mendation, and the Energy Sector Anchor is resource-intensive, especially in the distribution preparing a Guidance Note to complement the sector, and approaches need to be tailored to many other learning mechanisms already in place. the circumstances of individual countries. The This note, which will be delivered in early FY04, review rightly notes that successful PSDE reforms will address the respective roles of the Bank, IFC, and good performance require government com- and MIGA. The note will be grounded on the mitment based on constituencies for reform es- World Bank Group's policy adopted in 1993 by tablished through civil society participation. placing PSDE in the context of achieving com- Management welcomes the assessment that the mercialization and promoting competition under Bank, pursuing multiple and complex reform ob- transparent regulation. It will also focus on the ur- jectives through a range of instruments across gent issues associated with arresting the decline all Regions, achieved good results when country in PSDE and improving governance, including 1 0 8 A N N E X R : W O R L D B A N K G R O U P M A N A G E M E N T R E S P O N S E management of the transition to a sustainable appropriate for the country's circumstances. environment for PSDE. Private sector participation can be introduced gradually using management contracts or con- Guidance differentiated by country conditions. The cession arrangements. Divestiture of assets note will reflect experience with PSDE that high- can then be considered once the governance lights the importance of strengthening gover- structure is fully implemented and the en- nance structures (including regulation, protection abling environment for commercialization is in of investor rights, and implementation of inter- place. For small countries, one or more fully or nationally recognized accounting and auditing partially vertically integrated enterprises may principles) before privatization. It will advise that be the best option if imports cannot create a each country's program for reforming its power sufficiently competitive market. For example, sector according to this policy should be tailored a partially integrated enterprise might com- to the particular economic, technical, political, and bine existing distribution, transmission, and social conditions of the country at the start of the generating assets with a requirement that all reform process. The note will therefore avoid a new supply sources be competitively acquired. "cookbook" solution for power sector reform This approach could also be combined with that ignores these conditions. It will provide the mandatory accounting unbundling so there is following two examples of country typology: a potential to move to a more unbundled sec- tor in the future. Horizontal unbundling into · Large countries. For relatively large and ad- numerous generation and distribution enti- vanced countries, the focus would be on un- ties is often impractical for these small markets. bundling of the sector (through legal or ownership separation), the level and structure Staff training. Staff training will continue to em- of tariffs, regulated third party access to the phasize lessons learned and the analytic tools transmission and distribution wires services needed to guide staff in specific country assess- by public and private service providers, priva- ments. In addition, the Bank, IFC, and MIGA will tization of viable or potentially viable genera- continue to provide staff with information about tion and distribution entities to foster the the evolving power sector agenda through other efficiency gains expected from competition, channels, such as Energy and Mining Sector Board and freedom at least for the large industrial and Discussion Papers, Viewpoints, Energy Sector commercial consumers to choose their supplier Management Assistance Program publications, from within the country or from abroad. This brown bag lunches, lectures, the annual Energy form of competition is the simplest to develop Week, and the Energy Help Desk. and monitor. The Bank should be cautious about recommending the creation of market Mainstreaming the environment and poverty reduction. structures that mandate total reliance on price Management agrees with the recommendation bidding into a competitive power pool be- that the WBG should mainstream environmental cause this structure will only succeed in the and poverty reduction objectives into the energy presence of certain preconditions that are portfolio, and has been taking steps in that di- rarely in place, and the effort involved may di- rection following the approach set out in the En- vert attention from other reforms that are likely ergy Business Renewal Strategy.1 Environmental to produce bigger efficiency gains in the short and poverty issues are being addressed in a to medium term, such as loss reduction in dis- broader context than power interventions, notably tribution. in other energy projects2 as well as through co- · Small countries and countries with limited in- ordination of energy sector agendas with educa- stitutional capacity. For small countries and tion, health, and other social sector development those with limited institutional capacity, the projects. Such interventions can be an effective focus would be first on commercialization of way to deliver benefits to the poor, particularly the sector and choosing a market structure when affordability and access are priority issues. 1 0 9 P O W E R F O R D E V E L O P M E N T Management recognizes the need for ex ante volvement should be selected pragmatically, de- analysis of the impact on the poor of the private pending largely on country and sector conditions provision of electricity services, particularly on af- and the stage of reform. Two recent publications fordability. Management also recognizes the need by the Energy Sector Anchor provide guidance to to stimulate innovative technologies for supply- staff in this respect. One is on the application of ing electricity to poor areas in ways that eco- the World Bank's Partial Risk guarantee to distri- nomically meet the Bank's environmental bution privatization. The other is on how best to safeguards. Impetus for continuing attention to mitigate risks through better specification of reg- environmental and poverty reduction objectives ulatory contracting mechanisms. was provided by the World Summit on Sustainable Development in Johannesburg in September Innovations to ensure that PSDE goals are appropri- 20023 as well as by the agenda of the February 2003 ately reflected in operations. The OED/OEG/OEU re- Energy Week and related Energy Workshops. Be- view recommends that operational innovations be yond these events, which served to raise the encouraged to help achieve greater consistency prominence of environmental and poverty re- between World Bank Group practices (and in- duction objectives, the WBG will continue to struments) and its PSDE goals. Management is carry out country-specific analytic work. The re- committed to working toward this objective where sults of this work will provide the basis for in- the Country Assistance Strategy (CAS) sets out vestments and reforms in support of further pursuit of PSDE goals as a priority. IFC and MIGA mainstreaming of environmental and poverty re- have become increasingly involved in preparing duction objectives. CASs, focusing on countries where transactions are developing or ongoing, as the reform agenda Private investment in distribution. As part of its rec- has an important impact on their project risk as- ommendation to mainstream environmental and sessments. IFC's and MIGA's inputs also help poverty reduction objectives, the OED/OEG/OEU shape priorities for improvements in the policy review draws attention to the importance of re- and institutional environment for private invest- forming and facilitating private investments in ments, and as the role of energy in poverty re- the distribution subsector. Management concurs duction evolves they are expected to become with this emphasis. The WBG has recognized the increasingly involved in this agenda as well. How- key role of private sector participation in the dis- ever, to date, private investors have been reluc- tribution subsector since the early 1990s, and has tant to participate in low-income countries, as provided guidance to staff on this topic since the the perceived risks in these markets outweigh mid-1990s. This has proved to be the most chal- the expected returns. To increase PSDE in these lenging area for PSDE because of the high polit- markets, the Bank is working with IFC to ensure ical and regulatory risks perceived by investors in that these risks are appropriately allocated. They developing country power sectors. Against this will also seek to widen the pool of investors to in- challenging background, the recent shift in the IFC clude strong domestic private partners in client portfolio in favor of distribution investments is an countries so as to counter the decline in the num- important change, especially if it can be sustained. ber of European and American investors that has Hence the WBG will help countries to exploit the been caused by developments in their home mar- full range of ways to involve the private sector in kets. Output-based aid (OBA) appears to be a distribution, from long-term concessions and full promising technique to increase poor people's ac- ownership with major investment commitments cess to electricity and to reduce costs by facilitating to limited or effectively no financial risk expo- private investment in these markets. It is impor- sure such as through the contracting out of retail tant, however, that OBA not be undertaken in services, service contracts, and management con- isolation: in some cases it could be a component tracts where this can improve subsector per- of a sectorwide approach that encompasses formance in situations where asset divestiture is achievement of transmission and generation ca- not feasible. The particular form of private in- 1 1 0 A N N E X R : W O R L D B A N K G R O U P M A N A G E M E N T R E S P O N S E pability and reliability commensurate with con- engagement of the private sector in distribu- sumers' ability to pay. tion, in particular, is important. · Need for government support of broad- Measuring impact. As part of its recommendation based reforms. Reforms are key to increas- to encourage innovation in the pursuit of PSDE ing economic efficiency and will be supported objectives, the OED/OEG/OEU review highlights by economic and sector work, policy advice, the importance of developing performance indi- and adjustment operations. Monitoring and cators and related internal systems. Management evaluation will be done in parallel to establish agrees that these are important objectives. Mon- the empirical evidence to guide the World itoring and evaluation (M&E) of PSDE should Bank Group's evolving agenda. An ambitious cover intermediate indicators of outputs and out- PSDE agenda should only be supported when comes, and the WBG should help client govern- there is clear and strong political commitment, ments and executing agencies to develop their including up-front actions to strengthen sec- limited financial resources and capacity for M&E tor governance. programs. To make headway toward improved · Innovation. The WBG will continue to sup- M&E, a comprehensive work program is under- port innovative approaches, especially in ad- way, details of which are set out in the attached dressing the Millennium Development Goals Management Action Record matrix. and the Johannesburg objectives that build on them. IV. Conclusions · Competition as an incentive mechanism As noted, Management broadly supports the rec- for efficiency gains. To establish incentives ommendations and conclusions of the for the desired efficiency gains, the WBG will OED/OEG/OEU review. Implementation of many continue wherever feasible to support the es- of the recommendations is already underway, tablishment of an enabling environment for a drawing on five key lessons from recent experi- competitive generation market. ence: · Governance. It is important to strengthen governance structures (including regulation, · Continue to support PSDE. Experience has protection of investor rights, and implemen- shown that the private sector has brought ef- tation of internationally recognized accounting ficiency gains, performance improvements, and auditing principles) before privatization. and cost reductions when the incentives for in- Privatization can help develop better gover- vestors, producers, consumers, and regulators nance arrangements by formalizing a separa- were adequately addressed. Pursuit of greater tion of powers and arm's length regulation. 1 1 1 P O W E R F O R D E V E L O P M E N T M A N A G E M E N T A C T I O N R E C O R D Major OED Recommendation Management Response 1. On an urgent basis, the WBG should provide operational guidance Management agrees, in general, with this recommendation. The Energy to WBG staff on when and how to continue promoting PSDE under Sector Anchor has started the preparation of a Guidance Note to the current situation of heightened macroeconomic and political complement the numerous other learning mechanisms already in place. The risks and scant investor interest. Such guidance should be Guidance Note, planned for delivery in early FY04, will address the grounded on the Bank's recently enacted PSD strategy. respective roles of the Bank, IFC, and MIGA. The note will focus on the urgent issues associated with arresting the decline in PSDE and protecting · The Bank's Energy and Mining Sector Board, in close consultation with public goods through improved governance. However, as no "cookbook" the Private Sector Development Board, should provide WBG staff with solution exists for power sector reform, the WBG feels the appropriate updated, practical operational guidance for pursuing PSDE based on approach to training energy staff will continue to be one that focuses on what works best in terms of reform packages and their sequencing, lessons learned and the analytic tools needed to guide staff in specific given particular country-sector situations, needs, and institutional country assessments. capacities. Best-practice examples can be developed for a range of frequently observed country attributes. · The development of this guidance should be a joint effort of the Bank, IFC, and MIGA. The guidance should define a framework that enables the full analysis of PSDE alternatives, that ensures environmental sustainability, and that aligns with the WBG's poverty reduction mission. · WBG senior management should clarify the roles of the Bank, IFC, and MIGA in promoting PSDE, particularly in terms of increased financial and advisory support. 2. In its future PSDE interventions, the WBG should give greater Management agrees with the recommendation that poverty reduction and emphasis to the mainstreaming of the poverty reduction and environmental objectives be mainstreamed into the energy portfolio. A environmental objectives (in addition to its traditional macro- review of the current pipeline of energy projects reveals a considerable fiscal and sector efficiency objectives) that are at the core of the proportion of energy projects with environmental and poverty components. WBG's overall energy strategy. Environmental and poverty reduction objectives are being highlighted at learning forums such as the February 2003 Energy Week and Energy · The WBG should focus more on reforming and facilitating private Workshops. This will be followed by selected country-specific ESW investments in the distribution subsector. This will require actions to addressing environmental and poverty concerns, as a precursor to the improve cash collections, reduce losses, address corruption, achieve inclusion in the portfolio of projects with corresponding objectives. better targeting of subsidies, expand access by the rural poor, and Regarding the facilitation of private sector investments in distribution, the privatize distribution where and when circumstances permit. WBG has already taken on this agenda through policy dialogue, support of · The WBG should maximize the involvement of the local private sector private interventions, and facilitation of new instruments. For countries in in small-scale and/or decentralized projects. This will require which PSDE is planned, poverty alleviation and environmental protection will innovative approaches and much better cross-sectoral integration remain as key elements of the reform program. This will include targeted within the Bank, and among the Bank, IFC, and MIGA. income support for the poor in cases where it is economically efficient, and lifeline energy tariffs when it is not. The Energy Anchor will prepare a paper in FY04 that addresses these issues of environmental sustainability and poverty reduction. The prospects for increasing local private sector involvement in small-scale and/or decentralized projects are modest as the limited financial resources available tend to be allocated to other high-risk/high-return investments. However, the WBG plans to encourage participation from a broader group of private investors, including those from low- and middle-income countries. 1 1 2 A N N E X R : W O R L D B A N K G R O U P M A N A G E M E N T R E S P O N S E M A N A G E M E N T A C T I O N R E C O R D Major OED Recommendation Management Response 3. The WBG should encourage operational innovation to ensure Management agrees that, within the framework provided by the CAS, it greater consistency between its practices and instruments and should continue to increase the consistency of PSDE goals with the Bank's its evolving PSDE goals. operational practices and instruments. Consistency is pursued, notably, when the Bank and IFC prepare joint CASs (half of CASs and CAS progress reports · The WBG needs to improve the coordination of the various units active in FY01 and FY02 were prepared jointly, and this effort is being sustained in in PSDE. To this end, it should pursue better integration of its PSDE FY03, when 15 CASs and CAS progress reports are expected to be joint objectives within the CAS framework (including in non-joint CASs) and Bank/IFC products, including those for China, Colombia, Jordan, Thailand, Poverty Reduction Strategy Papers (PRSPs). and Vietnam). IFC and MIGA will continue to be involved in CASs, focusing · The Bank, IFC, and MIGA management should support flexibility and especially on those countries where transactions are developing or ongoing, the exercise of initiative in PSDE operations and AAA, to enable better because the reform agenda has an important impact on their project risks. response to rapidly changing country-sector conditions and to Where the CAS indicates that support for PSDE goals is a priority, the Bank opportunities that are not always foreseeable in the CAS. Through its will work with IFC to attempt to ring-fence risks and ensure that they are diverse lending and advisory instruments, the WBG should promote appropriately allocated. more public­private partnerships and promising innovations, such as the pro-poor design of reforms and output-based aid schemes, for Work is under way in the PSI VPU and the energy sector family/Sector Board which robust monitoring and evaluation systems are essential. to establish appropriate methodologies and acquire data for monitoring and · The WBG should develop performance indicators and related internal evaluation. The Energy Business Renewal Strategy set forth proposed systems and should help strengthen borrower capacities (including indicators to measure performance in the sector as a whole. A note on through project funding) to monitor and evaluate the achievements and energy indicators will be prepared in FY04 for the Results Measurement impacts of its PSDE interventions. These M&E efforts should be keyed System in IDA14. In parallel, work is being launched at the PSIVP level to to the Energy Business Renewal Strategy and other relevant strategy develop performance measures and accompanying databases for several key and policy objectives, especially in the relatively neglected areas of infrastructure sectors, including energy, which can serve a variety of helping the poor and mainstreaming environmental sustainability. institutional purposes (for example, to standardize and set benchmarks for use in Bank ESW). The work is likely to focus initially on sectors and indicators that have higher priority for the tracking of global outcomes, such as those sectors and targets that are identified in the Millennium Development Goals. Critical lessons on data sources and needs (for the Bank, donors, and clients) will be gleaned from this exercise, as well as lessons on borrower capacity, the sustainability of data collection, and partnering with specialized agencies in the various sectors. Finally, PSIVP has recently completed an assessment of project-level M&E, focusing on overall quality, distilling sector-specific lessons of best practice on outcomes and indicators and clarifying the links between project­sector­country­global outcomes and indicators to measure progress toward those outcomes. These efforts represent a solid beginning to address deficiencies in the ability of the Bank, its clients, and the international community to measure performance across all infrastructure sectors. 1 1 3 P O W E R F O R D E V E L O P M E N T ANNEX S: CHAIRMAN'S SUMMARY: COMMITTEE ON DEVELOPMENT EFFECTIVENESS (CODE) On May 7, 2003, the Committee discussed Private themselves ensure good sector-level outcomes. Sector Development in the Electric Power Sector: The review further points out that private inter- A Joint OED/OEG/OEU Review of the World Bank est in the power sector has been declining rapidly Group's Assistance in the 1990s (R2003-0038, in recent years, particularly since the 1997 Asian IFC/R2003-0043, MIGA/R2003-0011) and the Draft financial crisis. Thus, the global picture indicates Management Response (CODE2003-0022). The that while the Bank pursues the creation of a Committee thanked the evaluation units of the PSDE-enabling environment in 68 countries, pri- Bank Group and Management for their comments vate foreign interest itself is dwindling. The review, and was pleased at the high degree of coherence therefore, suggests that the Bank work toward the between the recommendations in the review and middle of the "continuum" from fully public to the evolution of Management's orientation to the fully private service provision, and that it ensure power sector. that resources for investment in power generation and, particularly, transmission, are available. Background Specifically, the review recommends that the This joint OED/OEG/OEU review evaluates the WBG continue to pursue PSDE. In doing so, it performance of the World Bank Group during should (i) provide operational guidance to staff the 1990s in promoting private sector develop- on when and how to continue promoting PSDE; ment in the electric power sector (PSDE). The re- (ii) give greater emphasis to the mainstreaming view's main message is that PSDE has delivered of poverty reduction and environmental objectives expected benefits and good outcomes where in the design of future PSDE strategies; and (iii) countries were committed, reforms have ad- encourage operational innovations (for example, vanced, and PSDE programs were properly im- in public­private partnerships), coupled with plemented. However, the quality of outcomes more systematic monitoring and evaluation of depended on the objectives pursued and on the impacts. types of assistance provided. Most countries re- Management welcomed the review and noted main in the early stages of reforming and deep- its timeliness given that 10 years had passed since ening private sector involvement in their power the Bank adopted its policy on PSDE, and that it sectors. Bank-supported activities achieved good was in the process of preparing a forward-look- results where country ownership and sustained ing action plan on the Bank's engagement in the political commitment existed. But the Bank un- infrastructure sector. Management broadly agreed derestimated the complexity and time required with the findings of the review and agreed that the for reforms to mature and achieve lasting and Bank needed to operate away from the extremes equitable country-sector outcomes; it obtained of only public or private financing of infrastruc- poor or, at best, mixed results where reforms ture and needed to find innovative solutions. have been weak or slow to take root. IFC and Management summarized its response to the re- MIGA, focusing on the single reform objective of view's recommendations in which it noted, in private sector participation and responding to particular, the development of a PSDE guidance market demand, achieved good project-level out- note to staff addressing the respective roles of the comes overall, although these could not in and of Bank, IFC, and MIGA in PSDE; progress on main- 1 1 4 A N N E X S : C H A I R M A N ' S S U M M A R Y: C O M M I T T E E O N D E V E L O P M E N T E F F E C T I V E N E S S ( C O D E ) streaming poverty reduction and environmental needs. In this regard, they suggested that a much objectives in PSDE through an increasing pipeline more thorough evaluation is needed of the Bank's of energy projects with environmental compo- policy advice, given that the review had found that nents, multisectoral approaches, and improved co- nearly half of the Bank's interventions had failed ordination; greater attention to poverty reduction to produce the desired sector-level outcomes. and environmental objectives through forums Management agreed on the need to maintain a such as the WSSD Summit in Johannesburg and flexible approach and noted that it was focusing the 2003 Energy Week; and ongoing work to im- on appropriate reform strategies to account for prove monitoring and evaluation through a com- individual country situations and on providing a prehensive program to develop concrete menu of options for this purpose. indicators. Public­private roles. The Committee expressed Main conclusions and next steps. concern about the withdrawal of private capital The Committee broadly endorsed the findings of from the sector and stressed the need for better the review and focused on the lessons learned for analysis of the reasons and much greater detail on the future. The main conclusions of the discus- how the Bank Group proposes to respond. The sion included support for a continued role by importance of innovation, as mentioned in the re- the Bank Group in promoting PSDE; concern view, was highlighted in this regard. Some mem- about declining private sector investment; and em- bers suggested that the Bank Group had been phasis on the need for the Bank Group to address overly reliant on the private sector and that it is the issue by working across the continuum away necessary to find a balance between supporting from the extremes of purely public or private sec- private and public sector financing of infrastruc- tor engagement. Members underlined the im- ture projects. Others suggested that the per- portance of providing clear guidance to staff, the formance of public utilities had been extremely importance of integrating environment and poor and there were significant efficiency gains to poverty reduction into the Bank Group's ap- be made from private sector involvement. Some proach, and the importance of developing a sus- members stressed that while the review and the tainable approach to assuring the affordability of Management Response assumed that it is feasible electric power to the poor. It was agreed that fur- to reengage the private sector in developing coun- ther discussion would take place at the upcom- try markets, Management needed to have an al- ing Board discussion of the infrastructure action ternative for client countries since it is not likely plan and that Management would hold a Techni- that the private sector will meet the global need cal Briefing to consult with the Board on the for investment in generation and distribution. PSDE guidance note to staff. The final version of One member felt that an important area of inquiry the review, along with the finalized management is whether power sector reforms and IPPs sup- response and a summary of the CODE meeting, ported by the Bank Group have contributed to will be made available to the public in accordance lowering the cost of electricity generation and with procedure. improving the access of the poor to electricity. He Among the specific issues raised by the Com- emphasized the critical importance of policy ad- mittee were: vice and building capacity in developing countries to negotiate appropriate and fair contractual Approach and instruments. The Committee com- arrangements between the government and the mented on the differences between the Bank's private sector. The Committee agreed that the sector-level outcomes versus the project-level Bank needs to remain flexible, and that it needs outcomes of IFC and MIGA. Some members sug- to assess how the public and private sectors could gested that the Bank's approach to PSDE is not bring their relative strengths to bear in each coun- sufficiently tailored to individual country needs try situation. Management responded that the and that there is a need for many more flexible in- declining interest of the private sector is a cause struments to quickly respond to on-the-ground for concern. Reasons included significant diffi- 1 1 5 P O W E R F O R D E V E L O P M E N T culties in global economic markets in the 1990s, affordable to the poor. Members stressed the im- overoptimism on the potential role and interest portance of the innovative use of subsidies, guar- of the private sector, and a slower-than-expected antees, and the domestic private sector to respond pace of reform in client countries. Management to individual country situations. OED empha- agreed with the need for flexibility and emphasized sized that while subsidies do work, they have to that the Bank's approach would be tailored to the be transparent and targeted appropriately to en- particular economic, technical, political, and so- sure that they are in fact getting to the poor. Man- cial conditions of each country. For example, in agement agreed and stressed that the Bank's the case of relatively large and advanced countries, current focus is to target subsidies appropriately. the focus will be on unbundling the sector, pri- It emphasized that it is focusing on affordability vatization of viable entities, and initiation of com- for the poor as well as efficiency in going for- petitive transactions, whereas for smaller countries ward. with limited institutional capacity the focus will first be on commercialization of the sector and on Monitoring and evaluation. The Committee agreed choosing a market structure appropriate for the with the review's findings with regard to the need country's circumstances. for more systematic monitoring and evaluation of impacts. Members stressed the importance of in- Integrating poverty reduction and the environment. termediate quantifiable indicators that would The Committee emphasized the importance of the allow for mid-course correction, while empha- Bank Group mainstreaming poverty reduction sizing the need for the Bank to be flexible and re- and the environment in its PSDE work and asked sponsive to changing needs in the sector. Management how they proposed to address this Management agreed and pointed to ongoing work issue. Some members highlighted the inherently in this area that would address the difficulty of pro-poor focus of power sector reform, noting that measuring the impact of PSDE and the limited fi- access to power supply is critical for providing the nancial resources and capacity of client govern- poor with a better quality of life and for sup- ments and executing agencies for monitoring and porting social sector interventions in the health evaluation. and education sectors. One member, while stress- ing that the poverty reduction goal is fundamen- Division of labor. The Committee discussed coor- tal, suggested that other goals, such as meeting dination within the Bank Group and stressed the environmental objectives, could lead to too many importance of a clear division of labor between the project delays. Another member noted that the PSD and Infrastructure VPUs to facilitate greater review and Management Response urged the re- coherence in the Bank Group's strategy in PSDE. turn of the private sector to PSDE and wondered They hoped the separation of the two VPUs would what the Bank Group proposed to do in cases achieve this and encouraged strong coordination where there was a trade-off between attracting pri- between them. They stressed the importance of vate investment and the raising of environmen- the new CAS framework and the results agenda tal safeguards standards. to further address this problem. Management agreed. Subsidies. The Committee stressed the impor- tance of developing a sustainable approach to targeted subsidies for the poor, to take account Finn Jonck, Chairman of fiscal pressures and the need to make power 1 1 6 ENDNOTES Summary Chapter 2 1. The three evaluation units comprise the follow- 1. IFC's purpose, as specified in Article 1 of its Ar- ing: (i) the Operations Evaluation Department (OED), ticles of Agreements, is "to further economic devel- which prepared the evaluation of the World Bank (In- opment by encouraging the growth of productive ternational Bank for Reconstruction and Develop- private enterprise in member countries." This has ment/International Development Association) PSDE been further emphasized in IFC's current mission portfolio and its project- and sector-level outcomes; (ii) statement of promoting private sector investments in the Operations Evaluation Group (OEG), which eval- developing countries. By definition, all IFC opera- uated the power investment portfolio of the Interna- tions in any sector aim to catalyze private investments tional Finance Corporation (IFC) and prepared the through direct and indirect financing and through sections on independent power producers (IPPs); and project-induced impacts designed to create an envi- (iii) the Operations Evaluation Unit (OEU), which as- ronment conducive to private sector investment. sessed the power guarantees portfolio of the Multilat- eral Investment Guarantee Agency (MIGA). Chapter 3 1. Compuesto de lo siguiente: (i) el Departamento 1. Three projects have unsatisfactory ratings: the de Evaluación de las Operaciones (OED), que preparó India Private Power Development Technical Assis- la evaluación de la cartera del PSDE del Banco Mundial tance Project and the first and second Pakistan Private (BIRF/IDA) y sus resultados a nivel del proyecto y del Sector Energy Development Projects. sector; (ii) el Grupo de Evaluación de Operaciones 2. The study assigned sector reform scores to 115 (OEG), que evaluó la cartera de inversión en energía countries based on whether they have taken the seven de la Corporación Financiera Internacional (CFI), y steps necessary to liberalize the energy sector. Coun- preparó las secciones sobre los productores indepen- tries that have taken all seven steps received a score dientes de electricidad (IPP); y (iii) la Unidad de Eva- of 6 (the highest score), while those that have not luación de Operaciones (OEU), que evaluó la cartera taken a single step received a score of 0. The seven de garantías en energía del Organismo Multilateral de steps are: 1. Corporatization of state-owned utility; 2. Garantía de Inversiones (OMGI). Passage of energy law; 3. Commencement of work by 1. Comprend ce qui suit : (i) le Département d'éva- the regulatory body; 4. Initiation of construction of pri- luation des opérations, qui a préparé l'évaluation du vate sector investments in IPP; 5. Restructuring of portefeuille DSPE de la Banque mondiale (BIRD/IDA) state-owned utility; 6. Privatization of generation; and et les résultats au niveau projet et secteur, (ii) le 7. Privatization of distribution. Groupe d'évaluation des opérations qui a évalué le por- 3. In Ghana, the 1998 first Economic Reform Sup- tefeuille des investissements en énergie de la Société port Operation (ERSO I) improved the sector's fi- financière internationale et qui a préparé les sections nancial viability, increased tariffs substantially, and sur les producteurs d'énergie indépendants (PEI), et enhanced the regulatory framework for private par- (iii) l'Unité d'évaluation des opérations (OED), qui a ticipation. The public utilities in Mali and Mauritania évalué le portefeuille de garanties d'énergie de l'Agence are being or were privatized and regulatory authori- multilatérale de garantie des investissements (MIGA). ties put in place. Côte d'Ivoire also implemented major energy sector restructuring. Chapter 1 4. Notably in Côte d'Ivoire; in Kenya, where the sec- 1. Some results of the task manager survey were tor unbundling and related tariff and regulatory re- used mainly as sources of technical and other specific forms are delayed; and in Madagascar, Sierra Leone, information, as the response rate was relatively low. and Tanzania, where the partial reforms achieved are 2. Projects that have been approved five years be- of doubtful sustainability given the continuing serious fore evaluation and have at least 18 months of oper- weaknesses in financial management, which has ating results. The evaluations for this study cover been consistently rated unsatisfactory across Bank active projects approved up to 1996. projects. 1 1 7 P O W E R F O R D E V E L O P M E N T 5. Achievements consisted mainly of training, stud- users. This interview was undertaken as part of an ies, and official documents expressing intent to reform, XPSR field visit. as in Angola (where the Electricity Law was passed but 18. This includes a strong credit support arrange- the project was unsatisfactory because the regulatory ment and innovative equity structure. infrastructure was not set up), Benin (where the tar- 19. IFC has a fifth investment in this country but iff and Long-Run Marginal Cost study was completed this has not been included in the report since it is not but the build­own­operate­transfer [BOOT] scheme yet mature for evaluation. This project has suffered sig- failed), Malawi, and a few others. nificant delays, cost overrun, and technical difficulties 6. Argentina should be in the advanced group of at start-up. countries in terms of PSDE achievements, many of 20. Because many of the projects were affected by which were made in the 1980s. a series of unexpected regional and country financial 7. Brazil has promoted a deep restructuring of its crises, there is no basis for inferring that a detailed mar- power sector. The Bank has assisted with the privati- ket analysis at the time of appraisal would likely have zation of two electricity distribution companies in forecast a demand growth lower than official World Rio Grande de Sul, representing approximately two- Bank-endorsed projections and a retail tariff regime thirds of the state's territory. However, the federal remaining at subsidized levels despite a robust sector regulatory agency has been slow to delegate powers reform program. to the newly created state regulatory authority. In Rio 21. In the generation subsector, MIGA supported de Janeiro, Bank support was provided for the priva- the construction, rehabilitation, or expansion of gen- tization of CERJ, the state utility. MIGA provided po- erating capacity totaling approximately 7,450MW. Al- litical risk insurance for the privatization of Light though the majority of projects (21) are in thermal Servicos de Electricidade, the electricity distributor in generation, a significant share is in renewable energy Rio de Janeiro, in FY97 and later supported the ex- such as hydro (7) and geothermal power (4), which pansion and rehabilitation of this project. account for a total capacity of 2,876MW. Some of the 8. Bolivia, El Salvador. thermal stations use clean-burning natural gas and 9. Bolivia, Colombia, El Salvador, Guatemala, others promote energy efficiency. The size of power Panama, Peru. stations ranges from 8MW to 1,300MW, with an aver- 10. Bolivia, El Salvador, Guatemala, Peru. age capacity of 233MW. 11. Bolivia, Colombia, El Salvador, Guatemala, Peru. 22. MIGA has also managed five disputes between 12. Bolivia, Colombia, Peru. guarantee holders and host countries, which cen- 13. The others include the Uch Power Project tered on the highly political issue of tariff rates. The (525MW), Rousch Power Limited (412MW), South- incidence of such disputes in the electricity sector, ern Electric Power Company (117MW), and the Asia most of which occurred in Asia, was higher than in any Pipeline Limited, which provided fuel to Hub, with a other sector for MIGA. capacity of 3.5 million tons per annum. 23. This includes projects in China up to FY99 and 14. Loan and equity risks are rated based on the fol- one dual-country project where only one country is lowing scale: 1­Very Good; 2­Good; 3­Average; IDA eligible. 4­Watch; 5­Substandard; 6­Doubtful; and 7­Loss. 24. Transmission and distribution projects were 15. The economic rate of return (ERR) is the dis- not part of the evaluation sample because they were count rate at which the present value of the project's underwritten more recently and were not mature costs to society is equal to the present value of its ben- enough for evaluation. efits to society. 16. While there is no single case of a less-than-sat- Chapter 4 isfactory economic rate of return (ERR) in which proj- 1. One of the initial conditions of the contract with ects yield a satisfactory financial rate of return (FRR), CIE was that there would not be any forced staff de- there are three cases in which the project returns to partures, despite some overstaffing. financiers were less than satisfactory but the ERRs 2. In Bolivia, private investments had reached were satisfactory. US$204 million by mid-1998, allowing demand growth 17. Based on an IFC interview of major industrial of more than 7 percent per year to be met. 1 1 8 E N D N O T E S 3. In Panama, all privatized power companies con- regulators jurisdiction over the Dhabol IPP became a tributed US$70.8 million to the treasury in 2000 by way matter of litigation. of income taxes and dividends. 9. There is still a wide range of industrial countries 4. Statistics presented in Table 4.2 are based pri- (including several U.S. states, Canadian provinces, marily on data from projects that the Bank has fi- and Western European nations) in which such com- nanced. petitive power supply arrangements are not in place 5. This is also true in the United Kingdom. Other and where the more traditional utility monopolies countries, such as Australia, have experienced in- exist, operating at high levels of efficiency. creasing prices. Spot prices tend generally to be very 10. WAPDA was not able to meet its payment ob- volatile, particularly in hydro-based systems such as ligations to the 20 IPPs (representing more than those of Chile and New Zealand. 4,000MW of new capacity) and had to resort to rene- gotiation of PPAs to reduce the purchase price for Chapter 5 power. Unaccounted-for electricity was estimated at 1. For example, in FY99, 32 percent of energy lend- as much as 35 percent, while revenue collections and ing was in the 21 riskiest countries, compared to 23 per- average tariffs were low. IPP payments furthermore cent for other sectors; 65 percent was at risk in those were denominated in U.S. dollars, and the rupee de- 21 countries, compared to 13 percent elsewhere. In preciated by 45 percent. other sectors, the figures were 34 percent for the risky 11. MSEB was forced to back down production countries and not much lower elsewhere. This results from its much lower-cost generation plants to honor from the tougher financial covenants in those coun- its take-or-pay contract with the Dabhol Power Co. tries, and the automatic translation of the East Asian, (690MW, Phase I--the largest single foreign investment Russian, and Ukrainian crises into bad ratings. project in India) and defaulted on its payments to 2. This is reported on in project documents for Peru DPC. The Maharashtra state guarantee and Govern- and El Salvador. ment of India sovereign guarantees were then in- 3. This is reported on in project documents for voked and the matter went to international arbitration Peru. and to the Indian Supreme Court regarding the ju- 4. In Côte d'Ivoire, ESMAP had recommended put- risdiction of the state regulatory commission. ting electricity and gas under a single regulator. In 12. Total energy losses in the power sector are Ghana, the Public Utilities Regulatory Commission much higher because its main client, the Dhaka Elec- (PURC) regulates electricity and water tariffs but not tric Supply Authority, which serves the Dhaka metro- hydrocarbons. A separate Energy Commission deals politan area, has system losses of more than 28 percent. with licensing and regulates technical matters for electricity and hydrocarbons. Annex A 5. The Office of Utilities Regulation (OUR) in Ja- 1. The external reviewers included Dr. Catherine maica is an exception. It is also unusual in covering a Waddams, Dr. V.V. Desai, Dr. Navroz Dubash, and Dr. broad spectrum of regulated industries, including Graham Thomas. urban public transport. 6. The Ivorian regulator can only make tariff rec- Annex J ommendations to government. 1. This is an abbreviated version of OEG's XPSR 7. In Kyrgyzstan the law empowers the State Energy Evaluation Framework. Agency to set tariffs, but in practice these are referred to the Cabinet. In Ghana, the Public Utilities Regula- Annex L tory Commission (PURC) was set up by government 1. Based on a stratified random sample of FY91­95 to depoliticize tariff increases, but in practice the approvals evaluated in the FY96­00 XPSR program. PURC refused to approve rises in the two years pre- 2. One project cannot be rated due to insufficient ceding presidential elections. information. 8. In Orissa (India) the Orissa Electricity Regulatory 3. Based on an IFC interview of major industrial Commission (OERC) followed a populist rather than users. This interview was undertaken as part of an impartial policy on tariff hikes. In Maharashtra the XPSR field visit. 1 1 9 P O W E R F O R D E V E L O P M E N T Annex N 2. The current pipeline of energy projects shows 1. 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Pre- pared for the WBG/IMF Development Com- mittee meeting on September 22, 1997. 1 3 2 THE WORLD BANK GROUP The World Bank Group consists of five institutions--the International Bank for Reconstruction and Development (IBRD or the Bank), the International Finance Corporation (IFC), the International Development Association (IDA), the Multilateral Investment Guarantee Agency (MIGA), and the International Centre for Settlement of Investment Disputes (ICSID). Its mission is to fight poverty for lasting results and to help people help themselves and their environment by providing resources, sharing knowledge, building capacity, and forging partnerships in the public and private sectors. THE WORLD BANK GROUP'S EVALUATION UNITS Operations Evaluation Department Evaluating the World Bank (IBRD and IDA) ENHANCING DEVELOPMENT EFFECTIVENESS THROUGH EXCELLENCE AND INDEPENDENCE IN EVALUATION The Operations Evaluation Department (OED) is an independent unit within the World Bank; it reports directly to the Bank's Board of Executive Directors. OED assesses what works, and what does not; how a borrower plans to run and maintain a project; and the lasting contribution of the Bank to a country's over- all development. The goals of evaluation are to learn from experience, to provide an objective basis for assessing the results of the Bank's work, and to provide accountability in the achievement of its objectives. It also improves Bank work by identifying and disseminating the lessons learned from experience and by framing recommendations drawn from evaluation findings. Operations Evaluation Group: Evaluating IFC CONTRIBUTING TO SUSTAINABLE PRIVATE SECTOR DEVELOPMENT THROUGH EXCELLENCE IN EVALUATION The Operations Evaluation Group (OEG) was set up in 1995 as an independent evaluation unit to introduce systematic procedures, a broader evaluative framework, and improved instruments for corporate accountability and learning. It has a broad mandate to review IFC activities, strategies, and policies. Its reports provide independent review and analysis of mature projects, including those self- evaluated by operations staff. OEG assesses results and identifies lessons learned. To ensure independence, OEG reports to IFC's Board through the World Bank's Director General, Operations Evaluation. Operations Evaluation Unit of MIGA The Operations Evaluation Unit (OEU) was created in July 2002 as the independent evaluation function for the Multilateral Investment Guarantee Agency (MIGA). OEU assesses the contributions of MIGA guar- antee projects and advisory and technical services to the development of host countries. The Unit also reviews MIGA's strategies, policies, and procedures. OEU's objectives are to ensure accountability for results and to promote organizational learning, using lessons from past operations. OEU and its staff are independent from MIGA operational departments and report directly to MIGA's Board of Directors through the Director-General, Operations Evaluation. THE WORLD BANK ISBN 0-8213-5693-3