Learning Curves

OED
September 2007

EnergyEfficiency,Security,and ConservationinIndia

Energyisvitaltoeconomicgrowthandpovertyreduction.Inthelast30years,productivity andwealthhaverisenrapidlyinAsiaandthePacificsohasdependenceonenergy. Indiaseconomygrewbyabout6%perannuminthe1990sandbyabout8%inrecentyears. TheenergypolicyofIndiahasbeenshapedbyfasteconomicgrowth,butalsobyincreasing householdincomes,limiteddomesticreservesoffossilfuels,andenvironmentalimpacts. ADBandIndiapartneredintheenergysector20yearsago.Whathavebeentheresults? HowcanADBnowpromoteenergyefficiency,energysecurity,andenergyconservation?

Background Since1986,theAsianDevelopmentBank(ADB)has provided24publicsectorloansworth$4.6billiontothe energysectorofIndia,or29%ofADBstotalpublic lendingtothatcountry.ThePrivateSectorOperations Departmenthassupportedthiswith$337millionof loans.ADBsassistancehasdisplayedaconstantfocus ontransmissionanddistribution.Lately,inlinewithits newenergypolicy,ADBhasexitedgenerationand hydrocarbons,playedalargerroleintransmission,and encouragedsectorrestructuring. In2007,theOperationsEvaluationDepartment completedaSectorAssistanceProgramEvaluationof theEnergySectorinIndia, 1 focusingon19962006. WiththeSectorAssistanceProgramEvaluationofthe TransportSector,thestudyaimedtoinformthe CountryAssistanceProgramEvaluationforIndia plannedforcompletionaheadofthenewcountry partnershipstrategyforIndia.ItalsobuiltonaSpecial EvaluationStudyonEnergyPolicy2000Review: EnergyEfficiencyforaBetterFutureconductedin 2006tofacilitateworktowardanewenergypolicy. Thestudyexaminedgeneration,transmission,and distribution;legislationandregulation;andfuel requirements.ItfollowedbroadlytheGuidelinesfor thePreparationofCountryAssistanceProgram EvaluationReportsandframedanalysesastopdown andbottomupassessments.Thefirstintegratedsector positioningandqualityofsectorentry,contributionto developmentresults,andADBsperformance.The
Operations Evaluation Department Asian Development Bank

secondlookedattherelevance,effectiveness,efficiency, sustainability,andimpactofoperations. SummaryofFindings Basedonthefiveevaluationcriteria,thebottomup assessmentjudgedthesectorassistanceprogram successfuloverall.Theprojectswerewellprepared andconsonantwiththeabsorptivecapacityofthe executingagencies,leadingtotimelycompletion. Ownershipwashighatbothcentralandstatelevelsand facilitatedinstitutionalchangesacrossthesector. Demonstrationeffectswereobservedinstatesother thanAssam,Gujarat,andMadhyaPradesh,where ADBconcentratedstatelevelassistance. From1996to2006,ADBrespondedtothekey, evolvingcircumstancesoftheenergysectorwith substantialsectorpositioningandqualityofsector entry.Italignedthesectorassistanceprogramwiththe GovernmentsdevelopmentplansandADBsenergy policyandcountrystrategies.Itsfocusonsector restructuringandeffortstowardthat,incoordination withtheWorldBank,helpedtheGovernmentto deliverthereformslinkedtotheElectricityAct,2003. ADBsassistancetothestateelectricityboardsofAssam, Gujarat,andMadhyaPradeshwashighlyeffective. ADBcontributedsignificantadditionality.It catalyzedprivatesectorparticipation,especiallyin recentyears;developedenvironmentalevaluation capacity;encouragedefficientprocessingofcontract variationsoriginatingfromsavings;assistedbid approvalsandawards;andprovidedsoundadviceon

6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines Tel +63 2 632 4444; Fax +63 2 636 2444; evaluation@adb.org; www.adb.org/evaluation/

technicalmatters.Thetechnicalassistanceitprovided tobuildcapacitywasappropriatetothedesign, operation,anddevelopmentofprojects. Combiningthebottomupandtopdown assessments,thestudyratedADBssectorassistance successfuloverall. OverallRatingofADBsSectorAssistanceProgram

Item TopDownAssessment,Countrywide PositioningofCountryStrategies ContributiontoDevelopmentResults ADBPerformance CountrywideRating BottomUpAssessment,Sector AssistanceProgram OverallRating Rating Substantial Modest(borderingon substantial) Substantial Successful Successful Successful

Thestudyidentifiedthemainlessonsofexperience tobe:(i)ADBsapproachtolendingatthestatelevel hasworkedwellandcouldbeusedasamodelfor futureassistance,(ii)sustainedtechnicalassistanceis neededtosupportreformprograms,and(iii) corporatizationcanprovidebenefitssimilartothose normallyattributedtoprivatization. TradeoffsBetweenPotentiallyConflictingGoals

levels,whereelectricalpowercontinuestobeaffected byweaknessesinoperationalandtechnicalefficiencies, andcontinuingfinanciallosses.Aselectricityprovides theprimaryrevenueforsystemexpansion, restructuringthestateelectricitysectorshouldbethe highestpriorityforassistance.Inparallel,general electricitysystemexpansion,includingtransmission andgeneration,shouldbeundertakentobalance supplyanddemandasviabilitywillbeassuredwith reliablerevenuesfromrestructuredstatesectors. Concurrently,environmentalconcernsmustbe integratedthrough(i)statesystemupgradesthat reducelossesfromtheoverloadedsystems, (ii)rehabilitationofexistingoldergenerationplants, (iii)greateremphasisonenergyefficiency,and(iv)a strategicenvironmentalfocusonthedevelopmentof thesystem.Supportingtheseefforts,thereshouldbe continuedemphasisonimprovingtheoperational efficiencyofelectricalpowerthroughbettergovernance andthedevelopmentofindependentregulation. Recommendations SubjecttotheGovernmentsagreement,ADBshould continueandexpanditscurrentfocusonsector restructuringandsystemexpansionatthestatelevel tobalancesupplyanddemand. ADBshouldintegrateinto,andincreaseenergy efficiencyandrenewableenergyinitiativesin, lendingprogramsatbothcentralandstatelevels. ADBshouldtailorproductsandservicestomeetthe evolvingneedsofclients. ADBshouldincreasethenumberandvolumeof nonsovereigntransactionstoexpandgenerationand transmission. Feedback

MarketStability &Robustness Security Geopolitical Instability Electricity Sector

Competition Efficiency Monopoly Regulation

Environment Nature Conservation Climate Change Air Pollution

Thestudyidentifiedmajorchallengesinthefuture tobe:(i)thecontinuingshortageofenergysupplies bothforfuelandgenerationwhichthreatensthe Governmentsdevelopmentgoals;(ii)theneedto improvetheviabilityoftheenergysectorthrough bettergovernanceandhigheroperationalefficiency; and(iii)thenecessitytominimizeenvironmental impactsfromincreasedgeneration. Thestrongestimpedimentstomeetingthese potentiallyconflictinggoalsarelocatedatthestate
Learning Curves available @ www.adb.org/evaluation/

AtthetimeofpreparationoftheseLearningCurves, ADBManagementsResponseandtheChairs SummaryoftheDevelopmentEffectiveness CommitteeDiscussionswerenotyetavailablefor disclosuretothepublic.Thestudywascompletedin August2007. 1 ADB.2007.SectorAssistanceProgramEvaluationofthe

EnergySectorinIndia.Manila.Available: http://adbweb/Documents/Reports/SAPE/IND/SAPIND 200717.pdf

Team Leader: Robert Schenck; Tel +63 2 632 4110; rschenck@adb.org