Lao People’s Democratic Republic: Greater Mekong Subregion Northern Power Transmission Project
Design and procurement readiness are essential to the timely startup and implementation of projects.
Extended five times, the completion of this project was 5.5-year behind schedule. Delays occurred because of low project readiness and weak procurement capacity of the executing agency. As a result, against the procurement plan to award all transmission works contracts in quarter 4 of 2012, the ADB-financed contract for module 1 was awarded in quarter 2 of 2014 while the contracts for modules 2 and 3 financed by the government of Korea through the Korean Export and Import (KEXIM) Bank was awarded in quarter 2 of 2016. Contract awards could have been accelerated if the project was design or procurement ready at approval. In future, ADB and the government should identify and mobilize adequate resources to prepare detailed engineering designs and corresponding safeguards documents to launch procurement as early as possible.
In-country experience favors the timely completion of works.
The project had two turnkey contracts procured through international competitive bidding: (i) an ADB-financed $12.6 million contract, open to contractors from all ADB member countries, and (ii) the KEXIM-financed $34.82 million contract, open only to contractors from Korea. The ADB-financed contract, once awarded, was implemented smoothly. However, the KEXIM-financed contract encountered difficulties to the contractor’s limited experience in the Lao PDR, which caused delays in conducting surveys, fine-tuning technical designs, obtaining various approvals, and preparing the contractor environmental management plan.
It is important for project cost estimates to factor in international market conditions to mitigate the risk of cost overruns.
Cost overruns initially led to the removal of one transmission line, but a shorter line was added once it was confirmed it could be completed using the project’s available financing envelope. These overruns were caused mainly by higher than envisaged materials costs. For example, between 2009 and 2011 copper prices increased by about 54%, aluminum by about 44%, and steel by about 30%. The overruns could have been mitigated by a thorough assessment of the relevant international market conditions and the incorporation of results into the project cost estimates.
The option to make the components of projects with multiple financing sources technically independent should be explored to mitigate the risk of delayed project benefits.
The ADB grant-financed module 1 was completed more than two years ahead of the KEXIM loan-financed modules 2 and 3. However, because of the interdependence of the three transmission modules, module 1 cannot be operationalized without the completion of modules 1 and 2. The risk of procurement and implementation delays in the co-financed components should have been considered in the project design. When project components can be made technically independent, this option should be used to avoid delayed benefits.
Proper design and implementation of social safeguards requires an accurate assessment of potential impacts, adequate capacity in the executing and implementing agencies (EAs/IAs), effective grievance redress mechanisms, and pragmatic measures to address grievances and support vulnerable groups.
Social safeguard designs initially underestimated the resettlement impacts, omitted right-of-way compensation requirements, and proposed unsuitable mitigation measures such as voluntary land donations. As a result, the project was non-compliant with social safeguards requirements for 26 months. Safeguards implementation came into better shape, following the reconduct of detailed measurement survey of losses and execution of a resettlement corrective action plan in 2018. Although some issues remained pending as of project physical completion in 2019, these were eventually resolved with the resumption of discussions between ADB and the EA in 2020. The experience highlights the importance of an accurate assessment of potential impacts and EA/IA safeguards capacity and EA/IA training and capacity building to ensure proper safeguards design and implementation. Context-sensitive issues such as the suitability of voluntary land donations, should be carefully weighed and agreed with the EAs/IAs at the early stage of project implementation.
At project appraisal in 2009, 60% of households in the Phongsali province and 50% in the Xaignabouli province of the Lao People’s Democratic Republic (Lao PDR) were poor. Only 39% of the households in these two project provinces had access to electricity. Lack of access to grid electricity was a major constraint on government efforts to reduce poverty.
To help address the situation, the Asian Development Bank (ADB) approved a grant of $20 million for the Greater Mekong Subregion Northern Power Transmission Project in January 2010. The government of the Republic of Korea also approved a $37.88 million loan for the project as parallel cofinancing through the Export–Import Bank of Korea (KEXIM).
At the impact level, the project sought to contribute to achieving the government’s goal of rural electrification by 2020. Its expected outcome was increased access to electricity for households in the northern provinces of Lao PDR. The anticipated impact and outcome were to be achieved through four outputs: (i) physical infrastructure ─ new 115 kilovolt (kV) transmission lines constructed and operating; new substations constructed, and existing substations expanded and operating; 22 kV feeder lines and low voltage distribution networks in Phongsali, Xaignabouli, and Vientiane provinces built and ready for use; (ii) provision of connections to poor households through no-interest credit of KN700,000 per household; (iii) a draft strategy framework on energy efficiency and renewable energies and national strategy for hydropower utilization; and (iv) increased access to a two-way power trade between Electricité du Laos (EDL) and the Electricity Generating Authority of Thailand (EGAT).
Output 1 comprised three modules, with the ADB grant financing module 1 and the KEXIM loan financing modules 2 and 3. The ADB grant also financed the project consulting services and credit scheme for poor households.
At completion, except for the 85.6 kilometer (km)- reduction in 115 kV transmission line length, all output 1 targets were achieved. However, the delays were significant. Module 1 was delayed by about 3 years. Modules 2 and 3 were completed in 2019 after a 6-year delay. Output 2 targets were exceeded but delayed by about 5 years. By end-2019, 24,095 households, against the target of 18,800, were electrified, 8,832 of whom were poor.
Output 3 targets were achieved with a 5-year delay, with the draft strategy framework on energy efficiency and renewable energy prepared under the project incorporated into the final Prime Ministerial decree on energy efficiency and conservation policy frameworks. Under output 4, the interconnection between Paklay and Thali was completed in 2019 and energized in April 2020, enabling power trade between EDL and EGAT. Data from December 2020 to March 2021 shows that about 28,120 megawatt-hours of power had been transmitted through the line per month, which is about 78 megawatts without considering the load factor, exceeding the output target of 28 MW of traded through the interconnection.
Substantial attainment of the output targets enabled the project to likewise achieve or even exceed its outcome and impact targets. As of 2019, 93% of villages and 94% of households in the Lao PDR were energized against targets of 80% and 90%, respectively. The provincial targets were also exceeded; 68% of households in Phongsali and 98% in Xaignabouli have been electrified. By exceeding the target to provide no interest credit to poor households, majority of whom were ethnic minorities, the project has also been significantly impacting poverty reduction.
The project had the EDL as executing agency. A project management unit under the EDL coordinated the day-to-day project activities.