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LESSONS:

Shen-Da Power Transmission and Grid Rehabilitation Project

sector: Energy | country: China, People’s Republic of

1. Designing and implementing projects in sectors that are undergoing major restructuring involves several uncertainties. These include policy and institutional uncertainties that cannot be fully foreseen at appraisal. To cope with these, close coordination between ADB, the Government, and the EA during project implementation are needed at the sector level, as opposed to the project level.

2. A well-designed project, an experienced EA with a strong sense of project ownership, and a committed project implementation office staff is a formula for success.

3. Projects in a sector that is undergoing structural reforms require some flexibility in loan covenants to ensure that they remain practical and relevant. In the project, the EA saw its asset base and business scope reduced significantly, yet the original financial covenants remained in place. This led to an unrealistic assessment of compliance with the loan covenants.

4. A practical approach should be adopted when formulating covenants. Some difficulties were noticed in two covenants in the project. First, the time-bound tariff action plan is a sector, rather than a project, issue. Second, the required household level of efficiency improvement was beyond the mandate of a grid company, given ongoing structural reforms.

5. The project provides a good example of land acquisition and resettlement plan (LARP) implementation at geographically dispersed project sites. However, the amount of permanent land acquisition more than doubled from the appraisal estimate., with a proportionate increase in the cost. This suggests, that, because of the preliminary nature of the project design that was available at appraisal, there should have been a larger contingency built into the LARP budget.

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