This program’s results framework and targets were closely aligned with PLN’s key performance indicators (KPIs), which were based on PLN’s RUPTL, 2015–2024 and Indonesia’s National Medium-Term Development Plan (RPJMN), 2015–2019. PLN has established KPIs in its corporate plan and has regularly reflected these in its annual reports. The close alignment between the PLN’s KPIs and the program’s results framework and targets encouraged the PLN to achieve the DLI targets. Power utility companies in other countries would benefit from similar arrangements that are beneficial for the attainment of both the program and corporate performance targets.
completion, six of the seven safeguard PAPs were achieved. The implementation of the safeguard PAPs has improved the capacity of PLN, especially at the unit level, to manage environmental and social impacts. By excluding 190 circuit-kilometer (ckm) of medium-voltage lines in the indigenous peoples’ area and 428.19 ckm of medium-voltage lines and 284.98 ckm low-voltage lines in the key biodiversity areas, the PAPs minimized the risks to ADB safeguards compliance. But the exclusion also eliminated indigenous peoples’ access to program benefits. In the upcoming review of ADB’s Safeguard Policy Statement, the provisions for this modality could consider how significant risks associated with government-funded programs could be better addressed.
The RBL modality tested in Indonesia through this program came out successful and easier to implement with lower transaction costs. It was flexible enough and allowed the PLN to select investments based on its changing requirements even during program implementation. Therefore, it is well suited to large power systems where demand and the technology available can change within a short time. By focusing on aggregate outputs and result areas as opposed to monitoring each contract, the program was able to support PLN in an effective programmatic manner.
Monitoring the progress against targets of PLN’s broader Sumatra program, which the RBL supported, was not considered part of the RBL administration responsibility. Therefore, the threats posed by the lack of financing for the broader program and the subsequent removal of some of its major components were not sufficiently tracked down and addressed under the RBL. It is important for future RBL programs to include in their monitoring all associated interventions that could have an impact on their implementation to enable necessary actions to be taken promptly to address deficiencies and/or avoid negative unintended consequences.
Some of the DLI targets and baselines set during program preparation were found to be conservative or inconsistent. Adjustments were made during implementation to make them more realistic. The target on energy sales was significantly affected by external factors beyond PLN’s control, including lower economic growth than anticipated under the PLN’s Power Supply Business Plan (RUPTL), energy subsidy removal, and the changing costumer consumption behavior. The experience has highlighted the importance of (i) setting DLIs that are within program control and not vulnerable to external factors, (ii) setting ambitious but achievable targets based on historic trends and EA/IA capacity, and (iii) having enough flexibility to adjust to changes in the external environment.
Through the Indonesia Resident Mission, ADB ensured that lessons learned from program implementation were used in the design of PLN subsequent RBL programs. Building on the program’s success in improving warehouse and waste management in Sumatra, ADB and the PLN transitioned this PAP into a DLI in the RBL programs for Sulawesi and Nusa Tenggara and Kalimantan, Maluku, and Papua. Adjusting DLI targets and verification protocols as needed is also a lesson learned that found useful application in subsequent programs.
By using disbursement-linked indicators (DLIs), non-DLI targets, and program action plans (PAPs) under the results-based lending (RBL) modality, the program successfully instituted mechanisms that strengthened the capacity and encouraged performance improvements from Indonesia’s State Electricity Company, PLN (Perusahaan Listrik Negara), in both technical and administrative areas. Improvements spanned: (i) the procurement monitoring system, where inconsistencies in reporting were identified and addressed through regular procurement monitoring; (ii) the planning and implementation capacity of PLN, which (a) made the preparation of subsequent RBL programs easier, (b) enhanced coordination among PLN divisions, and (c) enhanced PLN’s ability to continue to access debt capital markets and the bank debt market (PLN has supportive relationships with banks and investors so has access to multiple channels of commercial financing); (iii) PLN’s processes for the recording, collection, calculation, and reporting of data used to measure and track the DLIs and non-DLIs, particularly the management reporting information system and its primary sources of data; and (iv) warehouse and waste management. Because of the stronger evaluation culture developed by the RBL, the program also helped PLN recognize the need to update its internal regulations on the disposal of Non-Operating Fixed Assets (ATTB), particularly transformers, to speed up safe disposal.
Sumatra, targeted to become Indonesia’s next industrial center after Java, still experienced blackouts in 2014. In addition, 9 million of its 54 million people were still without access to electricity. The broader program for Sumatra for 2015-2019 of the state electricity company, the Perusahaan Listrik Negara (PLN), addressed these challenges by developing Sumatra’s transmission backbone system and interconnecting the Sumatra and Java–Bali grids. The Electricity Grid Strengthening—Sumatra Program, the first ever energy sector program financed by the Asian Development Bank (ADB) through the results-based lending (RBL) modality, supported the broader PLN Sumatra program. The RBL program was approved in December 2015 for a loan to the PLN of $600 million ($575 million from ADB’s ordinary capital resources and $25 million from the ADB-administered ASEAN Infrastructure Fund). It was also the first in a series of investment programs that adopted a programmatic approach to improve the reliability and stability of Indonesia’s electricity grid.
The program built on ADB’s extensive experience in the country’s energy sector since 1971, which provided the basis for initiating larger, flexible, and programmatic energy sector financing with a focus on results. The RBL modality was adopted as it was deemed most appropriate to support electricity grid strengthening that involves many relatively small-scale and discrete activities and expenditures with numerous individual contracts. The program’s envisaged impact was quality of life of Indonesian society enhanced by the sustainable use of electricity as a key driver of increased economic activity. Its expected outcome was adequacy and reliability of power supply achieved for Sumatra, and its intended outputs were (i) existing transmission system strengthened and expanded; (ii) existing distribution system strengthened and expanded; and (iii) performance management and implementation improved. The planned outputs were designated as the three result areas that linked up at the outcome level. Each result area had corresponding disbursement-linked indicators (DLIs) and/or non-DLIs, and program action plans (PAPs).
At completion, the program substantially achieved its intended outcome and outputs. Five of the six DLIs were achieved and exceeded the targets. Overachieved DLIs included the annual growth rate in customers, reduction in the number of medium voltage feeder permanent interruptions, cumulative length of 150 kilovolt (kV) transmission lines reconductored, additional transformers installed, and additional length of medium-voltage distribution lines constructed. The target on residential sales growth was only partially achieved because of the lower economic growth than assumed under the PLN’s Power Supply Business Plan (RUPTL), the removal of energy subsidy, and the changing customer consumption behavior. One of the three non-DLIs was overachieved (timely completion of distribution system contracts); one was partially achieved (PLN competency certified staff); and one was not achieved (reduction in customer complaints). Furthermore, through the PAP, which consisted of 26 actions agreed upon by the PLN and ADB, the program had a transformative effect on PLN’s institutional capacity, particularly on warehouse and waste management. It also enabled the upgrade or updating of PLN’s standard on oil retention facilities, financial management, and procurement monitoring system and other databases.
The expansion and strengthening of power transmission and distribution networks achieved under the program contributed to adequate and reliable electricity supply to a wider consumer base in Sumatra. By program’s end, electrification rate rose from 88.21% in 2015 to 99.26% in 2019. This has enhanced the quality of life and boosted the economic development of the region. The program had the PLN both as borrower (guaranteed by the government) and executing agency. PLN implemented the program through its regional division at PLN headquarters and regional main units responsible for the Sumatra electricity grid.
Various trainings were given to the executing and implementing agencies in water supply and wastewater treatment operations. Aside from training, emphasis on developing the institutions, such as review of the overall organization structures and terms of reference of management and staff, would be helpful in further strengthening the EA and IAs. The creation of the Tianjin Water Affairs Bureau can be regarded as a first step in overseeing the continued development of water-related IAs to focus efforts in building capacity in operational areas needed for the city’s development. Furthermore, it is also acknowledged that the commercialization of operations, through TCEPC involvement, is also another step in institutional strengthening.
Sewerage construction needs to be fully addressed in the early stage of the project, particularly as it affects the implementation of wastewater treatment operations. Further to this, when the two are implemented by different funding institutions, the need for inter-donor coordination is essential to ensure that project operations and targeted completion are not compromised.
During appraisal, one of the benefits identified from the project was to provide employment opportunities to women through the All-China Women’s Federation. At the project’s completion, it was mentioned that women were employed as laborers during construction, and some were given permanent jobs in the IAs. Moreover, there were training opportunities given for skills enhancement. Given the focus on the growing role of women in development, gender equality is inevitably mentioned in ADB projects. Emphasis on gender depends on the context and locale conditions.
The eventual full participation of Tianjin Capital Environmental Protection Company (TCEPC) in component A was a good demonstration of private sector participation, particularly in bringing about the required expertise in running a wastewater treatment plant. Aside from the Beicang wastewater treatment plant, TCEPC is also responsible for the operations of three other large-scale wastewater treatment plants in Tianjin. Prospects of private sector participation in component B should have been explored with other private groups or entities, particularly in enhancing ecological works around the Yuqiao Reservoir, which is currently financed by municipal funds. This could be a showcase to invite interest from private enterprises, particularly in the growing concern for the environment.
The Yuqiao Reservoir subcomponent involved environment improvements to 68 villages. For such community-based subcomponents, community participation and self-management are effective gateways into sustainable implementation and operation. For similar projects, a community participation and self-management booklet should be prepared by villagers under the guidance of the social specialist at the project preparatory or implementation stage.
Historically, resettlement implemented for the Yuqiao Reservoir occurred in three phases: 1960–1967, 1973, and 1979–1982. It was complex. Delays in the implementation of the resettlement subcomponent of this project could have been mitigated if lessons from the past have been taken into account. This included having closer consultation and ensuring that resettlement impact is better communicated with local officials, village committees and affected peoples, proposing reasonable resettlement or fishpond removal scope and compensation policies. The villagers would then be able to better understand the objectives and importance of projects, and would be more receptive to the resultant land acquisition and resettlement activities.
The project became effective on 7 January 2004, nearly 1 year after the group company was registered with the HMG’s Commercial and Industrial Bureau on 24 January 2003.
If tariff income falls short of requirements (assuming normative operational efficiencies), government support is required. However, as ADB may not be in a position to influence water tariff levels and structures, ADB should review the merits of including tariff setting-related covenants in the loan and project agreements, or seeking assurances on this matter.
Such an integrated approach includes protection of upstream water sources, watersheds, rivers and other water bodies, and includes but is not limited to (i) alleviating risk of pollutant contamination from point and non-point sources of pollution; (ii) treating wastewater before discharge into such water bodies; (iii) monitoring and analyzing water quality; (iv) developing alternative sources of water supply; (v) setting up an institutional framework and strengthening the institutions; and (vi) establishing a regulatory framework that provides the right incentives for implementation of such measures. The success achieved by the project and the progress made so far in improving the Songhua River’s water quality (eventually, the project facilities and the Songhua could jointly supply urban Harbin with good-quality water) attests to the benefits of such a comprehensive approach.
A “bottom-up” approach to urban land use could help avoid a potential overload of infrastructure and service networks due to overcrowding, pollution, increased poverty, and environmental degradation. Building on the success of the village area improvement initiative, in particular (but also community participation initiatives in earlier ADB-supported urban projects), support for community planning could complement and support higher level urban and regional plans. This would facilitate the involvement of underserved communities in determining their priorities. Such community planning may be acknowledged within the development planning and management system.
Careful attention must be paid to the following aspects of urban institutional reform: (i) its acceptance by all key stakeholders through a participatory process; (ii) a thorough understanding of local politics; (iii) realistic phasing, sequencing, and timing of its institutional and policy reform; and (iv) an appropriate balance between allocated resources and expectations of the stakeholders involved. A more open-ended policy dialogue may yet prove more helpful than the application of loan covenants. If substantial policy change is involved, it would also be prudent to consider this as either (i) separate and parallel policy work in support of the investment components; or (ii) a two-phase process, with policy development preceding the investments.
The village area improvement experience highlights the importance of proactive communities during the design, implementation, and maintenance of projects. The use of similar principles may be replicated or expanded for a larger set of beneficiaries. An important lesson from the village area improvement program is its use of a demand-driven approach to development instead of the top-down, supply-driven activities of the past. The main advantages of the village area improvement approach are community inputs and an applied gender-balance concept. These include (i) the participation of many parties, (ii) consultations, (iii) action at the grassroots level, and (iv) the solidarity of the village committee members.
A multisector approach in the urban sector is readily implementable in the Lao PDR, because, for the most part, subsectors are within the mandate of the ministry responsible for urban development and its provincial branches. The approach can be enhanced further with the inclusion of urban transport in urban projects. This would not be difficult, given the mandate of MPWT/DPWT. But a multisector approach may be truly tested only when more stakeholders are added to urban projects or programs, bringing in expertise from outside MPWT/DPWT. Moving forward, stronger links may have to be established between (i) infrastructure and services provision and job creation and economic development; and (ii) investments in wastewater treatment and other initiatives responsive to urban issues (e.g., vehicle emissions) that involve outside agencies. Limited experience in dealing with “outside agencies” suggests that an expanded multisector approach will be difficult to implement without clarifying roles and responsibilities across agencies, horizontally and vertically.