Completion Report

Project Numbers: 32298-013 and 32298-073 MFF Number: M0011 Loan Number: 2732 September 2018

India: Madhya Pradesh Power Sector Investment

Program (Tranche 6 and Multitranche Financing

Facility)

This document is being disclosed to the public in accordance with ADB’s Public Communications

Policy 2011.

CURRENCY EQUIVALENTS

Currency Unit – Indian rupee/s (₹)

At Appraisal At Project Completion (12 December 2006) (26 June 2015)

₹1.00 = $0.0223 $0.0157 $1.00 = ₹44.83 ₹63.55

ABBREVIATIONS ADB DISCOM-C DISCOM-E DISCOM-W DMF EARF EIRR EMP ERP FFA FIRR HVDS ICB IEE MFF MPERC MPPMCL PFR PFC REC SCADA TRADECO TRANSCO VCB WACC

– – – – – – – – – – – – – – – – – – – – – – – – –

Asian Development Bank Madhya Pradesh Madhya Kshetra Vidyut Vitaran Company Limited Madhya Pradesh Poorv Kshetra Vidyut Vitaran Company Limited Madhya Pradesh Paschim Kshetra Vidyut Vitaran Company Limited design and monitoring framework environmental assessment and review framework economic internal rate of return environmental management plan enterprise resource planning Framework Financing Agreement financial internal rate of return high voltage distribution system international competitive bidding initial environmental examination multitranche finance facility Madhya Pradesh Electricity Regulatory Commission Madhya Pradesh Power Management Company Limited periodic financing request Power Finance Corporation Rural Electrification Corporation supervisory control and data acquisition Madhya Pradesh Power Trading Company Limited Madhya Pradesh Power Transmission Company Limited vacuum circuit breaker weighted average cost of capital

WEIGHTS AND MEASURES

cct-km GWh

– –

circuit kilometer gigawatt-hour

hp km

– –

horse power kilometer

kV – kilovolt kVA kVAR

– –

kilovolt-ampere kilovolt-ampere reactive

kW – kilowatt kWh – kilowatt-hour MW – megawatt

NOTES

(i) The fiscal year (FY) of India and its agencies ends on 31 March. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2018 ends on 31 March 2018.

(ii) In this report, "$" refers to United States dollars.

Vice-President Wencai Zhang, Operations 1 Director General Hun Kim, South Asia Department (SARD) Director Kenichi Yokoyama, Country Director, India Resident Mission, SARD Team leader Jyotirmoy Banerjee, Senior Project Officer (Energy), SARD Team member Neha Munjal, Senior Project Assistant, SARD

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page

BASIC DATA i

I. PROGRAM DESCRIPTION 1

II. DESIGN AND IMPLEMENTATION 3

A. Facility Design and Formulation 3

B. Facility Outputs 4

C. Facility Costs and Financing 6

D. Disbursements 7

E. Facility and Project Schedules 8

F. Implementation Arrangements 8

G. Consultant Recruitment and Procurement 8 H. Safeguards 9

I. Monitoring and Reporting 10

III. EVALUATION OF PERFORMANCE 11

A. Relevance 11

B. Effectiveness 12

C. Efficiency 13

D. Sustainability 14

E. Development Impact 15 F. Performance of the Borrower and the Executing Agency 16

G. Performance of the Asian Development Bank 17

H. Overall Assessment 17

IV. ISSUES, LESSONS, AND RECOMMENDATIONS 18

A. Issues and Lessons 18

B. Recommendations 18

APPENDIXES

1. Design and Monitoring Framework-Facility 19

2. Design and Monitoring Framework-Project 6 29 3. Facility Cost and Financing 34

4. Project 6 Cost and Financing 36 5. Summary of Contracts in Project 6 39

6. Disbursement of ADB MFF Proceeds 42 7. Disbursement of Project 6 Proceeds 43

8. Chronology of Main Facility Events 44 9. Chronology of Main Project 6 Events 47

10. Organizational Chart for Facility and Project 6 48 11. Status of Compliance with Loan Covenants 49

12. Economic Reevaluation of Project 6 58 13. Economic Reevaluation of the MFF 64

14. Financial Reevaluation of Project 6 68 15. Financial Reevaluation of the MFF 74

16. Corporate Results Framework Indicators of the MFF 77 17. Contribution to ADB Results Framework, Project 6 78 18. MFF M0011 and Project 6: Overall Ratings 79

BASIC DATA

I. MULTITRANCHE FINANCING FACILITY

A. Facility Identification

1. Country India

2. Facility number 0011-IND

3. Facility title Madhya Pradesh Power Sector Investment Program

4. Borrower India

5. Executing agency Madhya Pradesh Power Trading Company Limited (TRADECO) Note: Name change to Madhya Pradesh Power Management Co. Ltd. (MPPMCL) in October 2012 Madhya Pradesh Power Transmission Company Limited (TRANSCO) Madhya Pradesh Poorv Kshetra Vidyut Vitaran Company Limited (DISCOM-E)

Madhya Pradesh Madhya Kshetra Vidyut Vitaran Company Limited (DISCOM-C) Madhya Pradesh Paschim Kshetra Vidyut Vitaran Company Limited (DISCOM-W)

6. Amount of facility $620 million

TRADECO/MPPMCL: $10 million

TRANSCO: $250 million

DISCOM-C: $129 million

DISCOM-E: $128 million

DISCOM-W: $103 million

7. Facility completion report number 1729

B. Facility Data

1. Appraisal

– Date started – Date completed – Date signed

12 December 2006 14 December 2006 20 February 2007

2.

Date of Board approval

29 March 2007

3.

Number of MFF framework financing agreement amendments

nil

4.

Date of MFF framework financing agreement amendment

nil

ii

5.

MFF availability period – In framework financing agreement – Actual – Number of extensions

20 Feb 2007–31 Dec 2014 20 Feb 2007–26 June 2015 nil

6. Actual date of final disbursement

28 May 2015

7. Actual date of last project execution

29 June 2011

8. Number of changes in scope

nil

9. Nature of scope of changes

none

10. Actual completion date 26 June 2015

11. Implementation arrangements The executing agencies for the investment facility were: – TRANSCO for projects 1 and 3 – DISCOM-C for projects 2 and 3–6 – DISCOM-E and DISCOM-W for

projects 3–6 – MPPMCL was the executing

agency for the non-physical components.

The executing agencies were responsible for overall facility implementation. A coordination committee chaired by the Chairman and Managing Director of TRANSCO guided the executing agencies.

12. Multitranche Finance Facility Investment Plan ($ million)

PFR = periodic financing requests.

Cost PFR Appraisal Estimates Actual

Project 1 132.50 114.05

Project 2

65.70

64.30

Project 3 197.80 176.10

Project 4 159.70 81.77

Project 5 270.20 163.76

Project 6 125.50 81.23

Total 951.40 681.21

iii

13. Multitranche Finance Facility Financing Plan ($ million)

Source Appraisal Estimates Actual

A. ADB Loan Project 1 Project 2 Project 3 Project 4 Project 5 Project 6 Subtotal

106.00 45.00

144.00 90.00

166.00 69.00

620.00

97.27 40.75

141.91 74.16

134.02 55.36

543.47

B. Government, TRANSCO, DISCOMs,TRADECO or MPPMCLa Project 1 Project 2 Project 3 Project 4 Project 5 Project 6 Subtotal

26.50 20.70 53.80 69.60

104.20 56.50

331.40

16.78 23.55 34.19

7.61 29.74 25.87

137.74

Total (A+B)

951.40

681.21

ADB = Asian Development Bank, DISCOM = distribution company, PFC = Power Finance Corporation, REC = Rural Electrification Corporation, SBI = State Bank of India.

a DISCOMs funded local currency from lines of credit with PFC, REC, SBI.

C. Multitranche Finance Facility Loan Summary ($ Million)

Category

Original Allocation

(1)

Increased during

Implementation (2)

Canceled during

Implementation (3)

Last Revised

Allocation (4=1+2–3)

Amount Disbursed

(5)

Undisbursed Balance (6 = 4–5)

Project 1 Project 2 Project 3 Project 4 Project 5 Project 6

106.00 45.00

144.00 90.00

166.00 69.00

00.00 00.00 00.00 00.00 00.00 00.00

00.00 04.25 00.00 15.84 14.00 00.00

106.00 40.75

144.00 74.16

152.00 69.00

97.27 40.75

141.91 74.16

134.02 55.36

08.73 00.00 02.09 00.00 17.98 13.64

Total 620.00 00.00 34.09 585.91 543.47 42.44

Note: Details for each project are in Appendix 3.

II. PROJECT 6 – LOAN 2732 A. Loan Identification

1. Country India

2. Loan number 2732-IND

3. Project title Madhya Pradesh Power Sector Investment Program (Project 6)

iv

4. Borrower India

5. Executing agency – Madhya Pradesh Poorv Kshetra Vidyut Vitaran Company Limited (DISCOM-E)

– Madhya Pradesh Madhya Kshetra Vidyut Vitaran Company Limited (DISCOM-C)

– Madhya Pradesh Paschim Kshetra Vidyut Vitaran Company Limited (DISCOM-W)

– Madhya Pradesh Power Management Company Limited (MPPMCL), formerly TRADECO

6. Amount of loan $69.00 Million

Part A, DISCOM-C: $59.00 million

Part B, DISCOM-E: $4.00 million

Part C, DISCOM-W: $4.15 million

Part D, MPPMCL: $1.85 million

7. Project completion report number 1729

B. Loan Data

1. Financing facility appraisal

– Date started – Date completed

12 December 2006 14 December 2006

2.

Date of Board approval

29 March 2007

3.

Loan 2732 negotiations – Date started – Date completed

10 December 2010 10 December 2010

4. 5.

Date of loan approval by ADB Date of loan agreement

21 December 2010 10 May 2011

6.

Date of loan effectiveness – In loan agreement – Actual

8 August 2011 (90 days) 29 June 2011

7. Closing date – In loan agreement – Actual – Number of extensions

30 June 2014 26 June 2015 1

8. Terms of loan

London interbank offered rate-based (LIBOR)

v

– Interest rate – Maturity (number of years) – Grace period (number of years)

Sum of LIBOR plus 0.60%, less a credit of 0.30% 20 years 5 years

9. Terms of relending (if any) – Interest Rate – Maturity (number of years) – Grace period (number of years) – Second-step borrower

Relending between the Government of India and the Government of Madhya Pradesh is on the same terms and conditions as those applicable to the Government of India. 20 years 5 years Government of Madhya Pradesh on-lending to executing agencies.

10. Disbursement (Loan and Grant Financial Information Services)

a. Dates

b. Amount ($million)

Category

Original Allocation

(1)

Increased during

Implementation (2)

Canceled during

Implementation (3)

Last Revised

Allocation (4=1+2–3)

Amount Disbursed

(5)

Undisbursed Balance (6 = 4–5)

Equipment 69.00 00.00 00.00 69.00 55.36 13.64 Unallocated 00.00 00.00 00.00 00.00 00.00 00.00 Total 69.00 00.00 00.00 69.00 55.36 13.64

Note: Loan 2732-Loan Summary (details for each DISCOM and MPPMCL in Appendix 4).

C. Project Data

1. Project Cost ($ million)

Initial Disbursement Final Disbursement Time Interval

9 Sep 2011 28 May 2015 44.61 months

Effective Date Loan Closing Date Time Interval

29 June 2011 26 June 2015 47.93 months

Cost Appraisal Estimate Actual

Foreign Currency Cost 69.00 55.36 Local Currency Cost 56.50 25.87 Total 125.50 81.23

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2. Financing Plan ($ million) Loan 2732 – Total

Cost Appraisal Estimate Actual ADB Financed 69.00 55.36 DISCOMs a 56.50 25.87 Total 125.50 81.23

ADB = Asian Development Bank, DISCOM = distribution company, REC = Rural Electrification Corporation, PFC = Power Finance Corporation, SBI = State Bank of India. Note: Loan 2732–Total (Details for each DISCOM are in Appendix 4). a DISCOMs funded local currency from lines of credit with PFC, REC, SBI.

3. Cost breakdown by project component ($ million)

Appraisal Estimate Actual Component Foreign Local Total Foreign Local Total Total base line costs 69.00 45.91 114.91 55.36 25.87 81.23 Unallocated 00.00 8.60 8.60 0.00 0.00 0.00 IDC and Commitment chargesa 00.00 1.50 1.50 0.00 0.00 0.00 Total 69.00 56.50 125.50 55.36 25.87 81.23 Note: Loan 2732-Total (Details for each DISCOM are in Appendix 4). a Paid by the borrower, DISCOMs, not disbursed from the ADB loan.

4. Project schedule

Appraisal Estimate Actual

Item Start End Start End Installation of new HVDS

Aug 2009 Mar 2012 June 2011 Aug 2014

Augmentation of existing HVDS Aug 2009 Oct 2011 June 2011 Sept 2014

Installing meters and IT/SCADA systems Jan 2010 Apr 2013 June 2010 Sept 2014

Bifurcation of village/agricultural distribution

Aug 2009 June 2012 Mar 2010 Dec 2014

Renovation of existing substations Aug 2009 Dec 2012 June 2011 Sept 2014

Supply of DTRs, VCBs and capacitor banks Jan 2010

Dec 2012

Mar 2010

Dec 2013 Construction of new substations

Jan 2010

Dec 2012

Aug 2010

Oct 2014

Conversion of low voltage to high voltage line Jan 2010 Dec 2012 Aug 2010 Mar 2014

DTRs = distribution transformers, HVDS = high voltage distribution system, IT =information system, SCADA = system control and data acquisition, VCB = vacuum circuit breaker.

5. Project performance report ratings

Implementation Period

Ratings

Outcome Implementation Progress From 1 July 2011 to 31 December 2011 Satisfactory Satisfactory

From 1 January 2012 to 31 December 2012 Satisfactory Satisfactory

From 1 January 2013 to 31 December 2013 Satisfactory Satisfactory

From 1 January 2014 to 31 December 2014 Satisfactory Satisfactory

From 1 January 2015 to 26 June 2015 Satisfactory Satisfactory

vii

D. Data on Asian Development Bank Missions for Project 6

Name of Mission Date No. of

Persons No. of

Person-Days Specialization of Membersa

Financing Facility Fact-finding

16–24 Oct 2006

5

45

a/i,c,f,k,l

Appraisal 12–14 Dec 2006 5 15 a/i,b,c,d,l Loan 2732 Consultation Mission

17–21 Aug 2009

2

4

a/i,f Inception 31 Jan–04 Feb 2011 3 4 a/i,e,f Loan Review 18–25 Jun 2012 2 7 f/i,j Loan Review 23–30 Jun 2013 3 7 f/i,j,g Loan Review 10-19 Feb 2014 2 8 f/i,j State Level Review Mission 10 Apr 2015 3 1 b/i,d,f PCR/FCR Mission 17–25 Jan 2018 3 20 f/i,j,n

FCR = facility completion report, PCR = project completion report. a a = senior finance specialist (energy), b = senior project implementation specialist, c = energy specialist, d = project

implementation specialist, e = assistant project analyst, f = project officer (energy), g = resettlement and social development officer, h = environment officer, i = team leader (energy), j = senior project assistant, k = social development specialist, I = senior control officer, m =energy specialist, private sector participation, n= PCR consultant.

I. PROGRAM DESCRIPTION

A. Overview of the Facility and the Project 1. The Madhya Pradesh Power Sector Investment Program was approved as a multitranche financing facility (MFF) in February 2007.1 It aimed to install high tension transmission and distribution system lines to replace inefficient low-tension lines, rehabilitate existing distribution transformer stations, construct new transformer stations, and separate rural and village feeder lines to enable better service to remote rural areas in Madhya Pradesh, a large state in central India. The MFF included a proposed $25 million grant from the Department for International Development of the United Kingdom focused on capacity building. However, this was later shifted to support a technical assistance cluster and parallel facility focused on gender inclusivity.2 The MFF was delivered through 6 projects. Projects 1 and 3 were for the expansion and refurbishment of the power transmission system. Project 2 was for urgent distribution system improvements in the eastern part of the state. Projects 4 and 5 included financing for each of the distribution companies (DISCOMs) to expand and improve their distribution systems in rural areas while Project 6 included the remaining distribution system expansion by DISCOM-E, computerization and system control and data acquisition (SCADA), and enterprise resource planning (ERP) functions for each DISCOM. Project 6 also financed the installation of business integration, power purchase functions, and operational management systems for the Madhya Pradesh Power Management Company Limited (MPPMCL). 3 The scope of the facility is summarized in the Framework Financing Agreement in Appendix 1. The specific outputs of project 6 are in the design and monitoring framework (DMF) in Appendix 2. 2. The facility were to contribute to the sustained economic growth and social development of the State of Madhya Pradesh, with a focus on rural areas, and meet the state’s energy demand growth. The facility outcome, as envisaged at appraisal, was generally achieved; the DISCOMs have increased their revenues by more than 100% and are progressively achieving full financial sustainability. Transmission expansion has been achieved. DISCOMs have cut their losses in half and are providing 24/7 power supply to all urban areas and 10 hours/day for irrigation. There is growing private sector participation in the power sector through solar farms connected to the distribution systems and leasing of many sections of the transmission and distribution lines to large private sector consumers. Project outcomes were generally achieved, with some variation in specific physical infrastructure based on ground conditions during construction and with allowance for other ongoing improvements to the distributions system funded by various programs. B. Background of the Facility 3. Preparation of the facility started in 2006 when the provision of dependable and affordable electrical power to all residents of India was an ongoing focus of the government.4 The main challenges to modernizing the energy sector were meeting the country’s energy demands given its strong economic growth and increasing population; the government’s policy of support to the

1 ADB. 2007. Report and Recommendation of the President to the Board of Directors: Proposed Multitranche

Financing Facility for the Madhya Pradesh Power Sector Investment Program. Manila. 2 C-TA 0003-IND-TA Cluster Project: Gender Inclusive Capacity Development for Electricity Distribution Loss

Reduction in Rural Madhya Pradesh in support of The MFF and TA for Madhya Pradesh Energy Efficiency Improvement Program. RRP, ADB, June 2011.

3 ERP is a business process management software that helps an organization to manage the business and automate many back-office functions. It is used to forecast demand for O&M materials, establish maintenance procedures and schedules, track inventory and automatically order replacement parts, and project financial and budgetary measures.

4 Government of India, Planning Commission. 2006. Integrated Energy Policy. Delhi.

2

low income section of the population and the agricultural and rural economy,5 and the poor condition of electrical distributions systems which had led to the poor efficiency of the transmission and distribution systems, especially in rural areas. 4. The government introduced the Integrated Energy Policy to focus on specific measures for sustainable development including energy security, access and availability. Towards this end, the required investments included optimizing the power supply mix through greater use of hydropower and renewable energy including private sector solar farms; and improving transmission and distribution systems suffering from lack of transformer stations, poor condition of the distribution lines and equipment in existing transformer stations, and lack of working system and consumer meters. The government also continued the implementation of related power sector reforms instituted in the Electricity Act, 2003 to reduce technical and administrative losses.6 5. The national government’s financial modernization initiatives that began in the 1990s gave impetus to the power sector reforms in Madhya Pradesh. This began with the unbundling of the functions of the Madhya Pradesh State Electricity Board into separate independent entities in 1999. The new power sector companies formed were the Madhya Pradesh Power Generating Company Limited, the Madhya Pradesh Power Transmission Company Limited (TRANSCO), and three DISCOMs responsible for the central, eastern, and western areas of the State.7 The state’s commitment to the reforms and unbundling of the state electricity board was supported by a $350 million loan from the Asian Development Bank (ADB).8 The first ADB assisted project aimed to establish independent regulation, improve sector governance through institutional and organizational action, establish new power sector companies, reduce system losses through improved administrative and financial management, and increase the power system delivery capacity. In 2005, through ADB support, TRANSCO and the DISCOMs began independent operations. 6. A further development under the first ADB financed project was the support extended for the modernization of Madhya Pradesh Power Trading Company (TRADECO). TRADECO procured electricity from generators in bulk to be resold to the DISCOMs at the most economic possible costs—meeting the peak demands of each DISCOM with a uniform tariff across the state. TRADECO was restructured in 2012 to become MPPMCL to better manage the purchase of electric power from numerous private sector generators including solar farms, and the leasing of transmission and distribution lines to hundreds of private users, adopting most economic principles. Thus, MPPMCL focuses on providing innovative, efficient and tailored electricity products and services. C. Rationale for the Facility

7. As part of ADB’s support for the unbundling of the electricity board, the state prepared a comprehensive technical review and analysis of the transmission and distribution systems to

5 Ministry of Power, Government of India. 2005. National Electricity Policy. Delhi. The government’s “Power for All”

objective to provide universal power supply to all. 6 These reforms include the provision of lifeline tariffs for poor areas and remote rural dwellings, compulsory metering,

rationalization of tariffs, improved accounting and audits of the power distribution companies financial records, and ensuring the operational independence of distribution companies.

7 Madhya Pradesh Kshetra Vidyut Vitaran Company Limited (DISCOM-C), the Madhya Pradesh Poorv Kshetra Vidyut Vitaran Company Limited (DISCOM-E), and Madhya Pradesh Paschim Kshetra Vidyut Vitaran Company Limited (DISCOM W).

8 ADB. 2001. Report and Recommendation of the President to the Board of Directors: Proposed Loan to India for the Madhya Pradesh Power Sector Development Program. Manila. The loan comprised a $150 million facility component and a $200 million project component.

3

determine the investments needed to modernize and upgrade these and provide better service, reduce losses, and increase revenues to make the newly formed DISCOMs financially independent over time. Based on this analysis, a consensus in Government of Madhya Pradesh policy body prompted the preparation of a road map, which indicated that the cost estimates to alleviate existing system constraints and meet demand growth would be $3 billion in from 2007–2012. The funds would come mostly from domestic financing institutions, internal funds, and the state, with support from the private sector and ADB. The state, through the Indian Ministry of Finance, approached ADB for the financing of $620 million to cover the cost of equipment and a portion of the installation local currency costs. Since the proposed investment was a logical next step in the devolution of the Madhya Pradesh power sector, ADB determined that there was a strong rationale for supporting the DISCOMs to improve their physical facilities and streamline the management of their operations as well as operationalize the state’s energy policy.9 Due diligence for preparation of the facility was carried out and indicated that major investments would require 8 years to implement, with a logical sequence of works by each of TRANSCO and the DISCOMs. ADB developed the facility as an MFF to facilitate individual loans to the transmission and distribution companies. To accommodate the sequential requirements, five projects would be prepared over 5 years. This would take into account ongoing and proposed investments from other sources, confirmation of project readiness, progress on institutional reforms, and the physical implementation capacity of each DISCOM. Eventually, the MFF was delivered through six projects developed as individual loans, through periodic financing requests (PFRs).10

II. DESIGN AND IMPLEMENTATION

A. Facility Design and Formulation

8. The facility was designed in line with India’s Five-Year Plan,11 and ADB’s country strategy and program (CSP), 2003–2006, which outlined six key priorities in the energy sector including (i) reforming the power sector; (ii) promoting higher efficiency and low carbon sources; (iii) expanding and optimizing transmission and distribution systems; (iv) strengthening responsible institutions to implement the reforms required by the Electricity Act, 2003; (v) promoting private sector participation; and (vi) encouraging energy conservation and ensuring environmental and social sustainability.12 The facility supported ADB’s overarching poverty alleviation objective through economic growth, which in turn depended on a reliable power supply. The MFF approach was utilized to facilitate the implementation of successive interventions based on the priorities set by TRANSCO and the DISCOMs. The MFF approach also facilitated sequential implementation of the MFF’s slice of the sector road map. The government considered it appropriate that a more flexible modality would fit the sector’s requirement given the growing complexity and size of the project loans. The energy sector had strong road maps in place, was strongly supported by India’s national and state government policies and there were urgent demands for improved power delivery, as much of the infrastructure suffered from years of neglect and had massive transmission and distribution losses. The large state power entities had extensive experience in planning, design, and implementation of large regional projects. Given these, it was logical for the sector to adopt an MFF modality. The Madhya Pradesh power MFF was one of the first programs in the Indian energy sector to use this modality and, while there were some initial growing pains with the new format, there were no major issues (paras. 46-50). The DISCOMs followed a

9 ADB. 2004. India Country Strategy and Program Update, 2005–2007. Manila. 10 Following a request from the DISCOMs, a sixth project was approved by ADB in 2010 to complete unfinished works

and to utilize remaining undisbursed loan funds. 11 First five-year plan 1951-56, repeated every 5 years. 12 ADB. 2003. India Country Strategy and Program, 2003-2006. Manila; and ADB. 2004. India Country Strategy and

Program Update, 2005–2007. Manila.

4

judiciously conceived district approach that focused on remote poorly served rural areas of districts and where intervention would provide the most benefits.13 The international competitive bidding (ICB) contracts under the six projects required that technical optimization and actual on-the-ground conditions be applied (i.e., adjustments on designs, specifications, and scope of works to achieve intended output). 9. The MFF was being implemented concurrently with several other initiatives to improve the state’s electrical distribution systems. These included four national government programs: the Rajeev Gandhi Scheme for Electrification of Villages, the Jyoti Gram Yojna program for electrification of villages; the Restructured Accelerated Power Development Reform Program, and the ADB-supported Feeder Separation Program;14 as well as programs being implemented by each DISCOM, partly self-funded and partly financed by the Rural Electricity Corporation (REC) and the Power Finance Corporation (PFC). To make the best use of the ADB loan funds, each successive project was specifically designed to fill gaps not covered by the various ongoing schemes. The DISCOMs indicated that the multitranche approach helped them address the sequential and changing priorities in each district, which would not have been possible under a conventional project loan. In projects 1 and 3, implemented by TRANSCO, detailed field surveys of existing and new transmission facilities resulted in the relocation of two new 132/33 kV substations. Generally, however, the distributions systems planned by the DISCOMs conformed to the scope identified in the PFRs and related loan agreements. 10. Project 6 was the final project under the facility and followed the same principles as the facility and the earlier projects.15 The works under project 6 focused on strengthening the operational and financial management of the three DISCOMs and the MPPMCL to help ensure that the physical improvements achieved under the facility were sustainable and efficiently operationalized. Project 6 also included the extension of the rural electrification system in DISCOM-C, which had not been completed under earlier projects or by other programs. The MFF modality was appropriate and relevant. B. Facility Outputs

1. Transmission Expansion, Projects 1 and 3 11. The output targets, at appraisal and per PFRs 1 and 3, were substantially achieved. At appraisal, it was estimated that one each of the 132, 220, and 400 kilovolt (kV) substations and related equipment would be needed along with 1,545 circuit-kilometers (cct-km) of 132 kV line. The actual outputs included construction of 132, 220, and 400 kV substations with transformers and related equipment and 1,451 circuit kilometers (cct-km) of the 132 kV transmission line. The outputs estimated at appraisal and achievements are detailed in the FFA of the facility (Appendix 1) and the DMF for project 6 (Appendix 2).

2. Distribution System Enhancement

12. Eastern Zone; Projects 2, 4, 5, and 6. While the facility substantially achieved and exceeded most of its output targets, one had minor changes to adjust requirements based on actual ground conditions based on economic considerations. The actual outputs included (i) 1,890

13 Districts constitute Division and Divisions constitute the State of Madhya Pradesh. 14 ADB. 2011: Report and Recommendation of the President to the Board of Directors for the Proposed Multitranche

Financing Program for the Madhya Pradesh Energy Efficiency Improvement Investment Program. Manila (Loans 2764 and 2830).

15 ADB. 2011. Loan 2732-IND: Periodic Financing Request #6.

5

km of 33 kV high tension line; (ii) 15,972 km of 11 kV line; (ii) 565, 33/11 kV transformers stations with 74,236 new transformers of varying capacity, 1,280 new vacuum circuit breakers (VCBs), and 433 new kilovolt-ampere reactive (KVAR) capacitors; and (iii) 10,598 new remote meters installed for larger commercial and industrial consumers, and 53,669 three phase and 231,492 single phase new meters.16 Project 6 also strengthened DISCOMs’ ERP system to facilitate automation of human resources and operations and maintenance (O&M) materials and schedules. 13. Central Zone; Projects 4, 5, and 6. Most of the targets, at appraisal, were not substantially achieved. Non ADB financing has been made available for the scope of works for the conversion of low tension to high tension lines, distribution transformers, consumer metering, distribution system strengthening and transformer metering which could not have been anticipated at appraisal. Hence, either the facility did not undertake or just filled in gaps in the scope of works to ensure there is no overlapping of initiatives with ongoing projects (Appendix 1). Overall, project 6 has generally met targets and contributed to the achievements of the facility output and contributed to the achievements of the facility output for DISCOM-C (para. 15). 14. Western Zone: Projects, 4, 5, and 6. Most of the works for DISCOM-W were completed as estimated in the PFRs (Appendix 1). A few even exceeded the targets (i.e., installation of distribution transformers and construction of new distribution systems substations including capacity banks). An output target that was not achieved was the support to government’s electrification for villages. The government decided to undertake this initiative under its own facility rather than using the MFF. The scope under project 6 which included the establishment of the ERP system was also achieved for DISCOM-W. 15. Project 6 Outputs. As expected during appraisal, Project 6 was able to establish the ERP and computerization and automation of the distribution system for DISCOM E and DISCOM W (paras. 12–14; Appendix 2). For DISCOM-C, most of the scope of works, estimated at appraisal, were also completed with a few exceeding targets such as the installation of distribution substations and installation of new 11 kV lines.17 GIS was completed for the 123 unsurveyed villages and towns and 480,000 consumer data were updated. For the MPPMCL, the actual output as proposed at appraisal was completed, including an automated integrated business solutions system with related services and staff training to help manage power consumption projections, purchases, and sales to the DISCOMs, as well as human resources management.

3. Institutional Strengthening 16. As required under the facility (summarized in the FFA, Schedule 1), the DISCOMs were established as separate entities by the end of 2007, with independent boards, management committees, and internal audit functions. The appointment of senior personnel (managers, accountants, and financial management) was completed before the end of 2008. DISCOM head office, district, and service center staff participated in capacity building training, initially focused on project planning, design, and implementation of an externally financed initiative. The training included ADB ICB procedures, quality control, environmental and social safeguards, accounting, and audits. However, the DISCOMs were newly established and there was insufficient time through the project preparatory technical assistance (TA) to fully incorporate ADB requirements to the DISCOM staff, especially for safeguards, which were different from those required under

16 Targets for remote metering were partially achieved as DISCOM-E installed most of the domestic consumer meters

under a separate facility whereby meters for all three DISCOMs were procured in bulk in order to obtain better prices. 17 Other targets, such as 30,000 LT capacitors and 154 1200KVAR capacitor banks, were changed with better

alternative options such as installing 11kV capacitor banks, increasing the number 11 KV capacitor banks to 433 and requiring fewer AMR meters.

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domestically funded projects. National and state-funded power distribution projects did not mandate the use of external consultants. In-house central engineering division prepared designs and supervised construction by the DISCOMs. As the sequential projects proceeded, the DISCOM staff were further trained in operational and management procedures, including routine maintenance, computerized billing and collection, use of remote metering, public awareness focusing on the dangers of the high voltage distribution systems (HVDS) in relation to theft, monitoring of power consumption patterns and vigilance regarding increased consumption with focus on agricultural consumers, and financial management and information technology. As a result, district and subdistrict service center personnel are well versed in routine maintenance, billing and collection (including the collection of arrears, which remains a challenge), monitoring of power usage patterns used to adjust the flat rate for agricultural consumers, and monthly reporting. The details are summarized in the FFA of the facility in Appendix 1. 17. The output components generally followed those estimated in the PFRs but were adjusted for actual ground conditions and incorporation of distribution system improvements being carried out by the various concurrent projects. The estimated works were based on preliminary design as only general knowledge of the shortfalls in the existing distribution system were known at the time of appraisal. The DISCOMs carried out the appraisals without the assistance of consultants or detailed field surveys due to the non-availability of advanced technology such as system mapping or detailed records including energy audits of the hundreds of transformer stations and related equipment.18 Since the distribution systems consisted of thousands of kilometers of distribution line, tens of thousands of transformers, and related equipment, it was not economically or timewise feasible to do a detailed assessment of their condition and, as a result, an elaborate system design was not technically feasible. Rather, ADB agreed that the design–build approach was best for this type of work and approved the DISCOMs’ request to implement the works on a design–build basis. Under the design-build approach, the ICB included equipment supply and installation, with the contractor responsible for testing and quantity survey in the field with the works adjusted based on the actual conditions found on the ground. Through subsequent projects, the DISCOMs continued to strengthen their planning, design, implementation, and operational capabilities, including ADB’s requirements for safeguards monitoring and reporting.19

18. The facility helped improve the voltage profiles across Madhya Pradesh, reduced distribution system losses by 40% by converting thousands of kilometers of 0.4 kV lines to more efficient 11 kV lines, and reduced power outages and related complaints in half through the replacement of aging transformers and capacitors. The DISCOMs addressed non-technical losses through (i) the installation of tens of thousands of system and consumer meters, including remote metering of larger consumers; (ii) improved day to day operations, billing, and collection through the computerized SCADA and ERP systems; and (iii) greatly improved operational and financial management with a focus on human resource development and much greater transparency and reporting, including implementation of annual audits. C. Facility Costs and Financing

19. The preparation of the MFF was based on the road map that showed that the indicative cost required to expand and rehabilitate the total transmission and distribution systems was $3 billion, which was prepared with input from the Madhya Pradesh power sector executing agencies.

18 During appraisal of the MFF, the ADB team concurred with the DISCOMs’ determination that they were fully capable

of planning, designing and implementing the works, and that technical consultants would not be required. 19 The details of the estimated works for transmission and distribution are in the PFRs and outputs by each executing

agency, which are in the FFA, are in Appendix 1. Outputs for project 6 are in the DMF (Appendix 2) and the list of contracts under project 6 are in Appendix 5.

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The FFA addresses the $620 million MFF from ADB which would support a time slice of the road map with a total cost estimate of about $1 billion. The ADB-supported investment, as per the PFRs, totals $948.4 million with ADB financing $620 million or 65% of the total investment. The appraisals of projects 1 and 2, which were also completed by ADB as part of the MFF preparation, were the basis for the PFRs and unit cost estimates for foreign and local currency subsequently prepared by TRANSCO and the DISCOMs. 20. The total appraised facility cost of $948.4 million included local currency cost of $328.4 million and ADB financing $620 million over six projects.20 The actual facility cost was $681.50 million, with local currency cost of $137.86 million and ADB loan disbursement of $543.47 million. The facility cost breakdown is in Appendix 3 and the project 6 costs are in Appendix 4. The foreign currency of ADB loans were only utilized for the ICB contracts, which included equipment supply and installation on a turnkey basis.21 The summary of the contracts procured by each executing agency for projects 1–5 are in the already completed project completion reports and for project 6 in Appendix 5. TRANSCO and the DISCOMs attribute the unutilized loan funds on the ICB contracts to the fact that unit prices utilized for the ADB-prepared projects 1 and 2 led to higher cost estimates as they did not incorporate (i) more competitive bid prices with ADB financing; (ii) procurement of equipment and materials in India, which led to 20% lower prices; (iii) devaluation of rupee from the time the PFR was prepared and bids were submitted; (iv) Ministry of Finance exemption of the excise duty on ICB contracts under the ADB loan; (v) competitive prices realized from the optimization resulting from field conditions;22 (vi) implementation of remaining parts of terminated contracts from DISCOMs’ own resources;23 (vii) the borrower paying the financing costs; and (viii) works completed by ongoing projects funded from other sources. TRANSCO and the DISCOMs attributed the lower local currency costs to inclusion of installation costs with ICB contracts, which were ADB-financed; lack of import duty and lower tariffs on nationally procured equipment; and works completed by other ongoing projects. The DISCOMs accessed loans from PFC, REC, or from the state to cover their local currency costs. D. Disbursements

21. ADB disbursements from ordinary capital resources totaled $543.47 million (87.7%) out of the original loan amount of $620 million.24 An imprest account was extended to the TRANSCO portion but later discontinued as other methods of payment, e.g., direct payment and reimbursement, were found suitable for all the projects. Cancellations of $4.25 million (project 2), $15.85 million (project 4), and $14.00 million (project 5) were made, and the last cancellation of $17.98 million was made on 22 July 2015, before loan closure. These cancellations reflected the lower than expected loan utilization due to the reasons mentioned in para. 20. While the MFF does not include expected disbursements, the individual loan projects had disbursements projected during the initial loan start-up mission and updated annually during the tripartite reviews, which were chaired by representatives of the Government of India. The loan projects generally followed the projected disbursements, although with about a 1-year delay compared to expectations at loan appraisal reflecting the time required for the procurement of the ICB contractors. This delay resulted from the fact that the PFRs were prepared based on general information about the conditions of the existing distribution systems, rather than on elaborate system designs. The designs were not firmed up until after ADB had approved the related loan

20 PFRs one through six, and loan agreements for project loans 2323, 2324, 2346, 2347, 2520, and 2732. 21 The interest during construction and commitment charges were paid by the borrower. 22 The contractors’ scope of works was determined based on detailed surveys of existing conditions. 23 The DISCOMs own forces completed the terminated contracts and charged the related costs to their operating funds,

thereby reducing loan utilization. 24 Due to the nature of the facility investments, disbursements were not projected at facility formulation.

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agreement. The projected and actual disbursement of the facility is in Appendix 6 and the projected and actual disbursement of loan 6 proceeds are in Appendix 7. E. Facility and Project Schedules 22. The Facility availability period in framework financing agreement is from 20 February 2007 to 31 December 2014. With respect to project 6, the related ADB loan agreement states that loan closing date shall be 30 June 2014, or such other date as may from time to time be agreed. The Project 6 closing date was extended once at the request of the DISCOMs and endorsed by the government and ADB, from 30 June 2014 to 31 December 2014. This 6-month extension was typical for the project. The design-build basis of ICB procurement packages was one of the reasons for the longer than estimated implementation period. This required the contractors to finalize the preliminary designs through technical optimization to confirm the length of new and upgraded lines and revise the equipment requirements. Only after that, could the various equipment and materials be ordered. The delivery time was, therefore, up to 18 months later than estimated when the facility/project schedules were developed. Delays also resulted from the termination of a number of ICB contracts due to the poor performance of the contractors, mostly due to grabbing multiple contracts beyond their capacity, which necessitated the DISCOMs to complete the remaining works. However, the lack of completion by some contractors did not have any negative impact on the eventual quality of the completed works (outputs) and, in fact, saved on costs as the DISCOMs own forces completed the works. The chronological listing of the facility and project events are in Appendixes 8 and 9. F. Implementation Arrangements

23. The implementation arrangements were as envisaged at the development of the facility and during the appraisal of projects 1 and 2. Neither were they changed during the implementation of the remaining four projects under the facility. The executing agencies, TRANSCO, the DISCOMs, and the MPPMCL, under the direction of their respective managing directors, had overall responsibility for implementation. A dedicated project management unit (PMU) in each executing agency, led by a senior chief engineer and staffed by experienced technical, project construction management, and administrative staff, provided overall day to day project coordination. To ensure ADB procurement guidelines were consistently and efficiently complied with, the design and procurement of all packages and oversight of the safeguard requirements were guided and facilitated from the existing procurement units within the respective executing agencies under the direction of the chief engineer of TRANSCO. Executive engineers for each distribution circle were placed in charge of project works.25 Due diligence with respect to financial matters was exercised by the chief financial officers of TRANSCO, the DISCOMs, and the MPPMCL. Project progress was documented through the quarterly progress reports submitted to ADB. The project organization of TRANSCO, the DISCOMs, and the MPPMCL were generally similar with some variations on unit head titles. The generic organizational chart for the facility and projects is in Appendix 10. G. Consultant Recruitment and Procurement

1. Consultants

25 These includes installation of mechanical and electrical equipment, power pole erection, testing of equipment,

and commissioning of distribution works.

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24. During the preparation of the MFF and appraisal of the first two projects, it was confirmed that TRANSCO and the DISCOMs had the required technical design, procurement, construction management, financial, institutional, and administrative capacity to implement the facility through the individual projects. A project implementation consultant was not required due in part to the design of the ICB packages, which did not involve detailed designs but rather required the contractors to complete detailed surveys and equipment testing and adjust the designs based on the actual conditions of the existing systems. The DISCOMs had experienced in-house engineers reviewing the ICB contractors’ scope changes and providing construction oversight. TRANSCO and the DISCOMs recruited independent safeguard consultants for the preparation of social and environmental management plans and related monitoring and reporting. However, for the initial two projects, the monitoring and reporting of safeguards aspects were weak and did not meet ADB requirements. This was corrected in 2010 when a safeguards’ review mission from ADB provided clear guidance and instructions for incorporation of these in the works contracts, detailed monitoring, and regular reporting. The DISCOMs also recruited the services of third-party inspectors to conduct technical monitoring and testing of project equipment and materials. The third-party inspectors checked specifications at the factory level and conducted testing of completed equipment prior to shipment. The equipment specifications were checked again upon delivery to the project sites and the operational efficiencies of the equipment were tested after installation and before the new systems were connected to the grid. The DISCOMs funded these consultants. 2. Procurement 25. TRANSCO and the DISCOMs took advance action to prepare the ICB bids and the first ICB contracts were awarded in June 2011 with the last contracts in project 6 awarded by September 2014. The turnkey contracts were designed to have the contractor complete specified circuit kilometers or quantities of works, whereby the contractors would supply all equipment and materials and installation, adjusted as required to match actual ground conditions. Payment was based on successful progressive completion of the designated works. ADB supported project implementation through expeditious procurement approvals, enabled by regular review missions and day to day support from the India Resident Mission to ensure ADB’s requirements were met. Procurement of all contracts for turnkey equipment and installation contracts was through ICB procedures in accordance with ADB’s Procurement Guidelines (2006 as amended from time to time). H. Safeguards 26. At the time of preparation of the MFF, an environmental assessment and review framework was prepared. The initial projects 1 and 2—prepared in conjunction with the report and recommendation of the President—as well as the subsequent four projects, were all classified as category B for the environment in accordance with ADB’s Environment Policy (2002). An initial environmental examination (IEE) report, including environmental management and monitoring plans, was prepared and disclosed in Appendix 13 of the report and recommendation of the President for the MFF. IEEs were prepared as part of the PFRs for the subsequent four loan projects and safeguard consultants provided monitoring and prepared the reports to ADB. The construction works included the upgrade and rehabilitation of existing transmission and distribution systems, which were for the main part located along existing road alignments, rights-of-way, and transformer distribution stations. New substations were generally constructed on unoccupied government land, which had been kept available for this purpose. In terms of the transmission works under projects 1 and 3, two new substations were constructed

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on privately held unoccupied and barren plots, which were not agricultural lands and were procured following local government procedures as per the extant law. The ICB contracts incorporated environmental mitigation to minimize minor construction impacts of temporary road closings and construction of new lines and replacement lines over agricultural lands by completing these during the dry seasons, between crop cycles. Safety measures were incorporated for workers and for the general public by the installation of danger signage on power poles with high voltage (11 and 33 kV) lines. The requirements of the environmental assessment and review framework and related IEEs were met. 27. In the first 2 years of implementation of projects 1 and 2 (2007–2009), there was a delay in the reporting of the environmental aspects of the facility as TRANSCO and the DISCOMs were not fully cognizant of ADB’s requirements. These were noted in a review mission in October 2010, which included a major review of safeguard issues. Subsequently, the DISCOMs recruited environmental consultants to provide updating, overview, and monitoring of the environmental management and monitoring plans. Preparation of quarterly and annual reports on the implementation of environmental management plans and related monitoring reports were submitted to ADB and issues addressed. However, the major turnkey contracts on a design-build basis under these early projects did not do any field works until later in 2008 as it took 12–18 months for the process to be completed (para. 22). Hence, few safeguards aspects were monitored during this period. There was a minor encroachment on a forest area under projects 1 and 3 with TRANSCO and approvals were obtained. There was little impact as it mostly involved the clearing of the existing ROWs, which had overgrown since construction in 1980. No complaints were received from the public regarding the environmental, social, or resettlement aspects of the facility for any of the six projects and there were no reported safety issues.26 The related semi-annual and annual reports were posted on ADB’s website. 28. At appraisal, the facility was classified as category B for involuntary resettlement in accordance with ADB’s Involuntary Resettlement Policy (1995), and category B for indigenous people’s impacts in accordance with ADB’s Policy on Indigenous Peoples (1998). These classifications did not change through the implementation of the works at any of the DISCOMs as each project was required to fit within category B as a condition for inclusion, including for project 6. Most works were completed within existing rights-of-way on land owned or controlled by the DISCOMs. In a few cases, land acquisition was required for new distribution transformer stations, but these sites were in rural areas and were selected where barren land, which was non-agricultural was available. These sites were purchased following India’s prevailing Land Acquisition Act. There were no impacts on indigenous peoples. There were no grievances received nor were there any outstanding issues during the preparation of this report. I. Monitoring and Reporting

29. All loan covenants except for two were met and no covenants were modified, suspended, or waived during implementation. However, the loan covenants for the debt-service coverage ratio of 1.2 and self-financing ratio of 20% (LA, Schedule 5, paras. 7 and 8), though not yet fully achieved, are expected to be met with the implementation of advanced feeder separation schemes by 2020–2021. The DISCOMs are continuing systemic improvements of the physical distribution system, management reforms, human resources training, strengthening of billing and collection including collection of arrears, and better cash flow management, which will aid in

26 The first 18 months after initial project implementation were required for ICB procurement, manufacturing and delivery

of the equipment, before any work on the ground was started.

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meeting these two covenants. In addition, the Madhya Pradesh Electricity Regulatory Commission (MPERC) has been approving modest annual tariff increases and is holding public hearings in consideration of further power tariff increases, which will contribute progressively to meeting the above two covenants in the longer term. The general implementation framework of the FFA has been complied with. The status of compliance with the project 6 loan covenants is in Appendix 11. 30. The monitoring and reporting requirements in relation to the implementation of the projects under the facility followed those specified in the implementation framework of the FFA (Schedule 3, Section E). The project performance monitoring system was put in place by TRANSCO and the DISCOMs, and quarterly and annual progress reports were prepared and submitted to ADB. This included annual loan commitment and disbursements projections for the six loan agreements. The safeguard reports were submitted from 2012 (para. 27). Annual audits of the projects’ accounts were completed and submitted to ADB in a timely manner. ADB conducted midterm reviews of each project and participated in the annual tripartite review missions chaired by India’s Department of Economic Affairs.

III. EVALUATION OF PERFORMANCE

A. Relevance

31. The MFF and project 6 are both rated relevant. The reform of the Madhya Pradesh power sector was continued under the facility in line with India’s policy and legislative framework and ADB’s country strategies (paras. 8–10). The MFF and project 6, were planned in close cooperation with other ongoing and planned interventions by national and state power sector improvement projects (paras. 9-10). Due diligence for the facility was carried out by the government’s applicable authorities and relevant units that monitored project performance. The flexibility of the MFF modality facilitated adjustments in focus and scope to ensure there was no overlap or duplication with other projects while enabling the DISCOMs to take advantage of economies of scale as realized through the bulk electrical meter procurement. The works under the facility were updated and adjusted on a project by project basis to fill in gaps not otherwise covered, as reflected in the PFRs (para. 8). The indicators developed for the MFF were based on ADB’s extensive experience in the energy sector and the parameters and criteria in the monitoring framework for each project were appropriate. 32. The facility was designed to overcome the DISCOMs’ capacity constraints by breaking the scope of work into six manageable projects and to provide flexibility in execution as per the ground realities. With respect to project 6, the DMF was developed after the gaps from the first five projects had been identified, including extension of the improvements to the distribution system in a remote rural district in DISCOM-C as well enterprise resource planning (ERP), GIS and related computer hardware, and software to automate the operation and maintenance (O&M) of the newly improved distribution systems. It also included an ERP for the MPPMCL to facilitate its role as a power management administrator for the DISCOMs. The DMF for project 6 (Appendix 2) details the specific components and works that were achieved with some adjustment of works based on ground realities (para. 15). Project 6, being the project that completes the facility, has components that helped improve the operation and management of the new works under the facility. Changes, as per ground realities, were necessary to enhance the relevance of the facility. Both the MFF and project 6 were rated relevant at appraisal.

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33. The project design was appropriate for achieving the intended outcomes and innovative and transformative effects were given due consideration. The works implemented under the facility incorporated technical optimization to improve the design based on actual ground conditions and was implemented within the original facility time period and budget. The resultant improved electricity service contributed to the growth of economic activity in the facility areas. The facility, therefore, remained relevant at completion and will continue to improve planning for the transmission and distribution systems, the operation and maintenance of physical facilities, and the financial procedures of the responsible agencies. The cost savings related to the detailed GPS surveys as well as the testing and tapping at the nearest connection point blended with optimum high voltage to low voltage line length, which led to the higher availability of sustainable electricity to the satisfaction of consumers, is a successful example of technical optimization in rural electrification works. The actual works were completed as detailed in the FFA (Appendix 1) and the project 6 DMF (Appendix 2). B. Effectiveness

34. Both the facility and project 6 are rated effective as both physical and institutional outcomes and outputs were mostly achieved. The ground realities were taken into account during execution and the initiatives being implemented concurrently by other national and state government programs (paras. 9–10).27 Environmental and social safeguards were adhered to (paras. 26–28).28 35. Facility. The facility has six outcome statements with 13 indicators that cover transmission expansion, distribution enhancement, financial sustainability of operations, strengthening of sector institution’s capacity, energy efficiency, and private sector participation. The shortage of electrical power supply has been alleviated partly through the transmission system augmentation under the first project of the MFF and partly through the improved efficiencies achieved in the distribution systems, which have freed up power to be transferred to other areas within the state. All indicators related to an enhanced transmission expansion were exceeded as (i) capacity increased to 8,809 MW in 2011 (compared to 8,170 MW target), (ii) system availability increased to 99.2% (97.5% target), and (iii) the technical loss was reduced to 3.51% better than 4.9% target. The reliability of the distribution system has been greatly improved, with fewer faults and much shorter time to restore power. The distribution losses were reduced to 16% (compared to 19% target).29 The MFF, at appraisal, underestimated the institutional barriers associated with administrative challenges for loss reductions. The estimated power savings and reduced losses attributable to the facility are 750 gigawatt hours (GWh/year). The facility faced no institutional, technical, major environmental, or social risks. 36. The targets ensuring the financial sustainability of the power companies could not be achieved; however, financial losses were reduced to ₹210 million for 2017 financial year from ₹2.7 billion in 2005, and dependence on state support was reduced to 20% from 30% as

27 System and consumer meters were purchased in bulk to take advantage of volume reductions in price. Also, low-

tension capacitors were replaced by much fewer larger high-tension capacitors, reflecting improvements in design and manufacturing in India during the facility’s implementation.

28 The DISCOMs were slow to adopt the safeguards during the first 2 years of implementation. However, once ADB provided specific instructions, capacity building, and regular support through the India Resident Mission review missions, the safeguard monitoring and reporting were submitted to ADB as required.

29 The 19% total losses estimated at appraisal was an optimistic target since it was based on losses achieved by the best performing distribution utilities in India and was not in line with the Madhya Pradesh Electricity Regulatory Commission’s (MPERC) own projection in 2012. In 2009 to 2016, distribution losses registered from 41.58% to 25.13% for DISCOM-C, 37.23% to 22.50% for DISCOM-E and 35.5% to 22.58% for DISCOM-W.

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considered during FFA. While the FFA did not provide specific targets for overall distribution system operational improvements, the completion of the facility and especially project 6 have improved system reliability (i.e., 60% reduction in power interruptions and tripping at transformer stations, as recorded at all feeder lines), and customer complaints have been reduced by half.30 Similarly, the duration of such interruptions in 11 kV feeders has been reduced by 25% and by 51% in 33 kV feeders. The rural power supply increased from 4 to 10 hours per day, while the urban supply increased from 12 to 24 hours per day. 37. The establishment of energy conservation funds that support small-scale projects promoting energy efficiency has been carried forward to another MFF project approved in 2011.31 The current MFF concentrated on investment in loss reduction with HVDS technology and further energy efficiency measures were considered appropriate in a separate project. Continuous interventions resulted to improvement in transmission capacity, reduction in system losses and improved human resources delivery capacity. These are being proactively pursued augmenting institutional capacity of all the executing agencies of Madhya Pradesh aiding sustainability of operations. 38. The facility faced no institutional, technical, major environmental, or social risks. It provided much-needed improvements and expansion of the power distribution systems throughout Madhya Pradesh and had strong government and public support. Most of the works were completed within existing rights of way and, where small land parcels had to be acquired, landowners were consulted and compensated, and there were no safeguard issues. 39. Project 6. Contributing to improved power security and voltage levels, reduced distribution system losses, and reduced non-technical and commercial losses were the installation of remote metering, metering of all urban connections, and the computerized management and automation of distribution system under Project 6. The capacity of the state government to conduct further reforms of the power sector along with an improvement of the capital structure of DISCOMs is acknowledged. The willingness of the government to recognize the independence of the MPERC is encouraging. Operational efficiency and the capacity of sector institutions in terms of financial management are discussed in sections C and D. The targets and actual outputs for project 6 were as proposed at appraisal (DMF, Appendix 2, and para. 15). The strengthening of billing and collection of arrears contributed to enhanced cash flow management and contributed to the sustainable operation of DISCOMs. C. Efficiency

40. Project 6. Project 6 is rated efficient in achieving its intended outcome and output. The EIRR for project 6 is estimated at 22.5%, which is lower than the appraisal estimate of 30.4% principally because (i) the HVDS component was scaled back and (ii) this reevaluation ascribed costs to component 3 (asset mapping and energy auditing) and component 4 (ERP implementation), which helped facilitate O&M of the DISCOMs and MPPMCL. The revised economic internal rate of return (EIRR) exceeds the hurdle rate of 12%. Sensitivity analysis of the two main parameters that could affect the project (an increase in the O&M cost and a reduction in the value of avoided energy losses) indicates that the impact of these combined risks would

30 Based on Quarterly Progress Report of EA for India: Madhya Pradesh Power Sector Investment Program (Tranche

5). 31 ADB. 2011. Madhya Pradesh Energy Efficiency Improvement Investment Program, projects 1 (L2764) and 2 (L2830).

Manila.

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only reduce the EIRR to 16.0%, which further underscores the robust nature of the project’s economic performance. Appendix 12 provides details of the methodology and assumptions underlying the project EIRR reevaluation. 41. Facility. The facility is rated efficient in achieving outcome and output. The aggregate of the six projects’ EIRR for the overall MFF is estimated at 21.7% (on a weighted average basis), compared to 20.3% at appraisal. Appendix 13 provides details of the methodology and assumptions underlying the EIRR reevaluation of the facility. The facility was implemented within the original time period and budget. D. Sustainability

42. Project 6. The financial internal rates of return (FIRR) for project 6 are estimated to be 20.3% (DISCOM-C), 2.6% (DISCOM-E) and 2.6% (DISCOM-W), higher than the project’s estimated weighted average cost of capital (WACC) of 2.0% (Appendix 14). The FIRR reevaluation for DISCOM-C is lower than the FIRR calculated at appraisal (37.4%), because the appraisal evaluation considered incremental revenue from increased electricity sales (from non-technical loss reduction) as sustainable, whereas in practice, any revenue in excess of the annual revenue requirement (ARR) is offset against revenue in future years.32 However, a real rate of return of 20.3% in a regulated sector is considered a good achievement and reflects the high returns that can be achieved through a reduction of network losses. The reduction in network losses arising from project 2, 4, 5 and 6 has also reduced DISCOM-C’s losses (footnote 29) and contributed to continuous improvement in debt service coverage ratio.33 The new assets created under the facility and project 6 are being well maintained and operated, with adequate budget provisions for repair and replacement of parts and equipment. Hence, project 6 is considered likely sustainable. 43. Facility. The facility is considered likely sustainable. The aggregate financial internal rate of return (FIRR) of the overall MFF is estimated at 15.9% (on a weighted average basis), compared to an overall (average) FIRR of 10.5% as appraised (Appendix 15). The overall FIRR for the MFF exceeds the reevaluated WACC (2.0%), indicating an expectation of a solid financial return on the investment. Additionally, the DISCOMs financial performance and position has improved as a consequence of the facility, with electricity sales up by 200% (in terms of units sold) and almost 250% (in revenue terms) since appraisal. Additionally, accounting losses fell by over ₹10,000 million between FY2014 and FY2016 and the composite assets of the entities have increased around 200% since appraisal. 44. However, the three DISCOMs continue to record accounting losses, and the covenanted debt service coverage ratio of 1.2 and the self-financing ratio of 20% have not yet been achieved but are improving progressively (footnote 33). This is mainly due to the underachievement of the loss trajectories set by the MPERC (resulting in under-recovery of power purchase costs and consequently lower operating cash flow). Despite under-achievement against the MPERC’s loss targets and current loss levels, loss reduction has still been remarkable, with an achievement of an estimated 5,000 MW of peak losses and 13,000 GWh of energy losses avoided (representing around 20% of the total revenue across the three DISCOMs in FY2016). Given these levels of losses, the balance sheets of the three DISCOMs are characterized by negative equity and levels of long-term debt (to the state government) that are not yet sustainable. To mitigate financial risks, 32 Because the assets created for DISCOM-E and DISCOM-W under project 6 are non-operational and cover IT

investments only, FIRRs were not calculated at appraisal. 33 DISCOM W registered a -0.25 debt service coverage ratio in 2016-2017 from -2.38 in 2015-2016. During similar

periods, DISCOM C’s debt service ratio went down from -2.26 to -0.56.

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DISCOMs continue to pursue systematic improvement through various financial and technical intermediations, supplementing separation of household and agricultural feeders, enhancing energy based livelihoods for Women Micro entrepreneurs, and strengthening capacity in the distribution sector with active participation of stakeholders and strengthening of billing and collection (including the collection of arrears) as better cash flow management, which will aid in meeting the loan covenants. Furthermore, MPERC, in association with the executing agencies, is rationalizing the tariff by taking into cognizance of distribution losses, billing and collection efficiency leading to modest annual tariff increases and is keeping public appraised about the due diligence procedure followed. Further, the delay in meeting the covenants did not impact project execution or the ongoing operation of the project-supplied facilities. 45. The institutional capacity of TRANSCO, the MPPMCL, and the DISCOMs have continuously improved under the MFF through almost 10 years of support from the successive projects and is now well ingrained and routinely practiced. Management indicators are all positive as summarized in Appendix 1, FFA. Further, Government of Madhya Pradesh’s continuous financial intervention through recently introduced Ujwal DISCOM Assurance Yojana (Uday) scheme supplemented by technical intervention like metering at distribution transformer level, remote billing would significantly add to sustainability of the Facility. E. Development Impact

46. The overall impact of the facility and project 6 in terms of socio-economic indicators was satisfactory. The facility supported sustained economic growth and social development in the targeted rural areas. The energy deficits occurring before the facility were eliminated by 2013 with a surplus of 1,310 GWh being reported for 2014. The gross state domestic product for Madhya Pradesh grew at an average rate of 8.5% per annum between 2008 and 2012, compared to the DMF target of 6%. The enhanced distribution capacity and reliability facilitated (i) higher productivity of agricultural outputs; (ii) decreased energy costs due to better efficiencies and lower maintenance costs of electric appliances, irrigation pumps, and equipment, which in turn improved the economic opportunities of farmers, industrial and commercial users, and domestic consumers; and (iii) a reduction in the deficit between electricity supply and demand (a surplus was achieved in 2015, 3 years later than the DMF target of 2012). 47. The Facility contributed to increased agricultural production with some farmers increasing annual crop rotations from one to three times per year with improved electricity supply. The improved power supply enabled the availability of irrigation during the dry season. As a result, agricultural production and incomes have increased substantially. The implementation of the facility provided opportunities for job creation, income growth, and upgrading of local infrastructure, and thus contributed to poverty reduction and sustainable development in both agricultural and village, and urban areas of the facility. GSDP increased to 7.3% in 2017-18 from 3.8% in 2013-14.34 48. The immediate and longer-term impacts of the facility are positive and have resulted in and continue to result in positive economic growth as confirmed by the increase in the average income in the state (more than five-fold since 2003). The improved standard of living has led to a better quality of life and better opportunities for tens of millions of beneficiaries. The improved electricity services, achieved through the facility and other interventions, contributed to the increase in the state per capita income to ₹72,778 in FY2016 from ₹12,303 in FY2003.

34 Ministry of Statistics and Programme Implementation (MOSPI).

16

49. ADB has established a long-term partnership with MP with a sector development program (para 5, footnote 8) that was launched in 2001, and followed by the MFF. Closely integrating with other ongoing and national and state supported programs in the sector, the MFF has resulted in a number of key improvements that have modernized the electrical power sector in MP, in terms of physical infrastructure for power transmission and distribution, as well as associated policy and institutional framework. Another MFF facilitating separation of agricultural and household feeders (Loans 2764 and 2830, footnote 31) and a project loan for complementing capacity of transmission and distribution system (Loan 3066)35 have also been provided to consolidate the reforms and support further investments to strengthen transmission and distribution systems including the new agenda of separating agriculture and rural feeder lines for higher efficiency and further responding to the increasing power demand. Moving forward, the State is discussing further partnerships with ADB including possible support for a private sector loan. This demonstrates MP EAs’ institutional maturity to proceed to capital market borrowing to meet their development needs. 50. The facility and project 6 benefitted from several new state of the art systems that contributed to ADB’s corporate results framework (Appendixes 16 and 17). These included more efficient designs of new power distribution lines through the application of GPS technology and tapping of new lines and connections to the nearest point, and the computerization of all operations, which streamlined the storage and delivery of spare parts and reduced power outage and repair time. Computerization also enabled the full use of enterprise resources planning software, which greatly enhanced the MPPMCL’s ability to forecast and balance power demands and maintain the same tariffs for the 3 DISCOMs, though delivery costs vary. The industrial, commercial, agricultural, and domestic consumers’ electrical equipment is operating more efficiently due to the proper voltage and reduced surges resulting in savings in power cost and equipment maintenance and replacement. A major benefit for the rural economy is that all electrical equipment and irrigation pumps will now have a substantially longer operational life.36 The improved power supply has contributed to increased economic activity. The implementation of the facility has strengthened the institutional capacity of the DISCOMs and the managerial and operational competence of their managers and staff. The economic viability of the works provided under the facility has been confirmed through a better than projected EIRR, and the financial sustainability has also been confirmed with an FIRR well above the WACC, though lower than estimated at appraisal. The projected direct benefits of both the facility and project 6 have been realized fully, as detailed in the FFA (Appendix 1), and these will be maintained in the longer-term life of the facilities improved under the MFF. F. Performance of the Borrower and the Executing Agency

51. The performance of the borrower and the executing agencies was satisfactory for both the facility and project 6. However, while the technical aspects of the initial projects were carried out properly, the DISCOMs took some time to get acclimatized to ADB procedures.37 This resulted in the overestimation of local currency costs and insufficient monitoring and reporting of safeguards for the first two projects. However, there were no serious issues as during the first 18 months after the approval of the MFF and of the first two projects, there was little actual field works. This was corrected through interaction with ADB in 2010 before major site works were begun, when an ADB review mission identified that there was a need to strengthen the implementation, monitoring,

35 ADB. 2013. Madhya Pradesh Power Transmission and Distribution System Improvement Project. Manila. 36 DISCOMs report that the operating life of irrigation pump motors has increased from 1 crop season before the project

to 4–5 seasons after the project. 37 National and state government procedures for rural electrical distribution projects did not mandate the use of project

consultants.

17

and reporting of safeguards. This coincided with the MFF administration being assigned to the India Resident Mission. Following this, the DISCOMs submitted safeguards reports to ADB as required. All ICB contracts in project 6, were procured, constructed, and commissioned successfully, within the extended loan completion date and within budget. The outputs achieved were generally as estimated at appraisal and/or preparation of the PFRs and the related loan agreements. 52. Overall, TRANSCO, the DISCOMs, and the MPPMCL demonstrated the ability to technically formulate, appraise, and arrange their own counterpart financing and carry out engineering, procurement, and construction of a variety of technically complex electrical transmission and distribution projects. Recruitment of consultants could have reduced the overestimation of the foreign currency costs due to the adoption of the unit rates in the appraisal reports for projects 1 and 2 completed by ADB as part of the MFF preparation, as well as the overestimation of the local currency cost due unfamiliarity with ICB turnkey contracts, which included most installation and erection costs.38 G. Performance of the Asian Development Bank

53. ADB’s overall performance was satisfactory. ADB monitored facility progress closely through periodic review missions (Appendixes 8–9) and assessment of quarterly progress reports. ADB also provided useful and proactive advice on a day to day basis on procurement, project management, and capacity building of safeguards, especially regarding the environmental monitoring procedures. ADB also provided workshops on the monitoring and reporting of safeguards. In retrospect, the MFF preparation mission should have recognized early on that the DISCOMs were unfamiliar with ADB’s various requirements and procedures. A loan covenant for consultancies should have been included to help the DISCOMs learn these requirements.39 ADB provided timely approvals that enabled revised project milestones to be achieved and contributed to smooth project execution. Furthermore, ADB, the executing agencies, and government officials conducted tripartite meetings with senior DISCOM managers and project staff, which assisted project execution through corrective actions. H. Overall Assessment

54. Overall, the facility and project 6 were both rated successful. Both were assessed as relevant, efficient, effective, and their benefits are likely sustainable (Appendix 18). They were fully in line with the government’s development strategy and ADB’s sector policy. The transmission and distribution works under the facility were completed with minor changes. The implementation of modern financial management at TRANSCO, DISCOMs, and MPPMCL helped achieve increased revenues. These, among others, have contributed to the achievement of outcomes. The EIRR for both the facility and project are greater than the 12% hurdle rate. Similarly, the FIRR was higher than the WACC.40

38 The unit prices and related import duties and tariffs estimated by ADB were based on importation of most of the

equipment. Subsequent to the appraisal it was determined that the equipment manufactured in India would meet specifications, thereby reducing both the unit cost and the tariff and duties.

39 The PFRs for the first two projects were prepared by ADB under the project preparatory TA for the MFF, which were unable to sufficiently train the DISCOM staff.

40 The overall ratings for the MFF and project 6 are in Appendix 18.

18

IV. ISSUES, LESSONS, AND RECOMMENDATIONS

A. Issues and Lessons 55. The facility demonstrated the benefit of the MFF approach whereby state level investment and reform roadmap was established and successive projects were implemented while helping train and build up implementation experience among the implementing agencies. This is a good achievement as it was the first time the DISCOMs accessed ADB assistance and delivered the outputs. The long-term partnership between the State and ADB has helped modernized the electrical sector in the whole state and demonstrates the benefits of such focused long-term relationships in completing the mid to long term implementation of sector road maps requiring more than a decade to implement with investments of billions of dollars. 56. The implementation schedule developed in the report and recommendation of the President (footnote 1) should have been 12–18 months longer to allow for the time required for ICB procurement of design–build turnkey contracts. B. Recommendations 57. The project implementation schedule set during the appraisal of the MFF and projects should be realistic by taking into account project preparedness, as has subsequently been adopted by ADB. This was the first MFF to the state of Madhya Pradesh and the executing and implementing agencies have applied the lessons learned in subsequent projects to reduce implementation times. 58. In cases where project consultants are not required, ADB needs to provide close support to implementing agencies for the preparation and appraisal of the first projects under an MFF, which would require full involvement of the resident mission. Senior managers in the end-user organizations need to be fully acquainted with ADB requirements for the smooth execution of the projects. 59. Future monitoring. The facility has been implemented and resulting facilities are operating as planned. The two loan covenants for debt service and self-financing are expected to be met with the implementation of advanced feeder separation schemes by 2020–2021. 60. Further action or follow-up. Closely monitor DISCOMs continuing modernization and operational strengthening under an ongoing MFF and loans. 61. Timing of the facility performance evaluation report. All the facilities under the MFF are operating normally. ADB could undertake a project performance evaluation review in 2022. 62. Through the efforts of the project stakeholders, including the contractors, executing agencies, and ADB, the facility was completed within the MFF duration even with the termination of 18 contracts out of a total of 246 contracts. The cost optimization, including tapping at the nearest connection point, optimum low-voltage line to high-voltage line ratio is an example of a successful technical optimization in rural electrification given the vast geographical coverage of Madhya Pradesh state.

Appendix 1 19

DESIGN AND MONITORING FRAMEWORK - FACILITY

Design Summary Performance Targets/Indicators (From RRP of MFF)

Results (From PFRs and PCRs of

Projects 1-6) Impact

Gross State Product (GSP) grows by at least 6% annually in the period 2007-2012. Energy deficit is reduced from 13% in 2007 to 0% in 2012.

Exceeded. Average GSDP growth between 2007-08 to 2011-12 was 8.5%; state per capita income increased to ₹37,300 by 2012, and to ₹72,778 in FY2015. (State Year Book) Exceeded. The state distribution system had a peak demand shortage of 1,005 MW in FY2006-07. Peak demands were met in FY2013-14 and there was a state-wide energy surplus of 1310 GWh in FY2014-15.

Contributed to sustaining economic growth and social development in Madhya Pradesh. Contributed to meeting the energy demand growth in Madhya Pradesh.

Outcome Sustainable and commercially operated power sector companies. Transmission expansion: improvement in operational efficiency, voltage profile and power delivery capacity of Madhya Pradesh. Distribution enhancement: Reduction in system losses and improved supply quality and reliability.

Reduced dependence of the sector on direct state support from 30% of total investment funding to 0% by 2012. Eliminate financial losses in the sector by 2011 (from ₹2.7 billion in 2005) Increase transmission capacity from 5,563 MW in 2005-06 to 8,170 MW in 2008-09. Enhance system availability from 95% in 2005-06 to 97.5% in 2008-09. Reduce technical losses in transmission system from 5.2% in 2005-06 to 4.9% in 2008-09. Reduce distribution system losses from 40-45% in 2005-06 to 19% in 2012. Improve system reliability. Substantial reduction in fault restoration time.

Partially achieved. Reduced significantly to about 20%. However, assistance from domestic funding agencies is being availed by executing agencies for funding the growing needs of power sector. Substantially achieved. Financial losses for year 2017 is only ₹210 million. Achieved. Transmission system capacity increased to 8809 MW by 2011 and peak demand of 8546 MW was met during 2012. Achieved. System availability increased to 99.23% by September 2012. Achieved. Technical losses reduced to 3.51% by mid- 2012. Achieved. Average of 16% met. Refer para 35 for details. Achieved. Improved system reliability as average number of interruptions measured in number of tripping (interruption of power) per year per feeder

20 Appendix 1

Design Summary Performance Targets/Indicators (From RRP of MFF)

Results (From PFRs and PCRs of

Projects 1-6) Capacity of sector institutions strengthened.

Reduce customer complaints about quality of electricity supply. MP Energy Department able to conduct further reforms. Improved capacity of MPERC. Improved human resources in all sector companies. Improved financial management and accounting in all sector companies.

reduced as follows: (a) DISCOM-C: Reduced from 12 in FY2009 to 8 tripping in FY2016 per year per feeder; (b) DISCOM-E: Reduced from 11 (in FY2009) to 6.5 tripping (FY2016) per year per feeder; and (C) DISCOM-W: Reduced from 10.15 (FY2009) to 6.76 (FY2016) tripping per year per feeder. Substantial reduction in fault restoration time achieved as average duration of interruptions reduced as follows: for 11 kV feeders, by 25% and for 33 kV feeders, by 50%. Achieved. Reduced, as complaints about quality of supply reduced by 50%. Power system reliability improved; 10 hours of supply for rural/agricultural areas, 24-hour supply for urban/village areas, with fewer interruptions, improved voltage and fewer power surges. Achieved. All of the power sector companies in MP are benefitting from ongoing reforms supported by the Facility and project, including the State Regulatory Commission. The annual tariff increased for years 2014 (3%), 2015 (5%) and 2016 (10%). Achieved. The Facility and project helped develop professionalism in all aspects of the power sector companies. Achieved. Financial management has improved greatly in the DISCOMS through the improved power supply and quality using the computerized control systems for billing and collection, connection of new connections, budget setting and control and human resources.

Appendix 1 21

Design Summary Performance Targets/Indicators (From RRP of MFF)

Results (From PFRs and PCRs of

Projects 1-6) Improved energy efficiency. Increased private sector participation.

Energy conservation funds that supports small scale projects promoting energy efficiency fully operational. Private investment in power sector substantially increased.

Achieved. Recognizing the need for energy efficiency schemes, state government is implementing $400 million feeder separation scheme (Loan 2764-IND and Loan 2830-IND) with ADB assistance in line with national and state government policies and encouraging private sector investment in alternate energy development. Achieved. Private sector providers support annual operation and maintenance of the DISCOMs as required.

Design Summary Performance Targets/Indicators

(From RRP of MFF and PFRs of Projects 1 and 3)

Results (PCRs of Projects 1 and 3)

TRANSCO Transmission expansion. Construction of transmission lines for power evacuation and strengthening of transmission systems.

By 2011 400 kV substations: -315 MVA 400/220 kV

220 kV substations: -8x160 MVA 220/132 kV -3x100 MVA 220/132 kV 220 kV lines: -1,506 cct-km 132 kV substations: -10x40 MVA, 132/33 kV 33x40 MVA 132/33 kV additional transformer 132 kV transmission lines: -1,545 cct-km 132/33 kV substation: 1, 10x40 MVA 132/33 kV transformers: 1, 10x20 MVA

By 2010 400 kV substations: 315 MVA 400/220 kV 400 kV lines: 2 cct-km of 400 kV lines installed

220 kV substations: 8x160 MVA 220/132 kV installed 220 kV lines: 1,435 cct-km 132 kV substations: 10x160 MVA 220/132 kV additional transformers installed in existing substations. 3x100 MVA 220/33 kV additional transformer at existing substation installed 132 kV transmission lines: 1,451.5 cct-km installed 132/33 kV substation: 1, 10x40 MVA substation installed 132/33 kV transformers: 1, 10x20 MVA installed

22 Appendix 1

Design Summary Performance Targets/Indicators (From RRP of MFF and PFRs of

Projects 1 and 3)

Results (PCRs of Projects 1 and 3)

1, 3x40 MVA 6, 20x40 MVA 14, 40x63 MVA

1, 3x40 MVA installed 6, 20x40 installed 14, 40x63 MVA installed

Design Summary Performance Targets/Indicators

(From PFRs of Projects 2 and 4-6) Results

(PCRs of Projects 2 and 4-6) Distribution enhancement in east distribution zone (DISCOM-E): installation of remote metering and high voltage distribution systems; renovation of substation protection system and customer service lines; implementation of SCADA.

By 2012 High voltage distribution systems: 16,500 km conversion of LT lines to HT lines. Substation protection systems for 333, 33/11 kV substations; 11/0.4 kV distribution transformers: 24,000 numbers of 25 KVA 30,000 numbers of 16 KVA Remote metering: 2,000 industrial consumers Consumer metering: 250,000 three phase 500,000 single phase

By 2015 (completion of projects 2 and 4-6) Note: As built scope and quantities adjusted based on ground realities in the field.

10,062 km of LT line converted to HT lines. 3,453 km of new HT lines. 1,500 km of HT village feeder line. 195 km of LT rural line feeder separation. 1,797 LT line converted to cable circuits. 1,890 km of 33 kV line to connect new substations. 957 km of HT line polyvinyl encased cable in villages. 565 33/kV substations installed. 23,717 numbers of 25 KVA transformers installed. 50,519 numbers of 16 KVA transformers installed. 320 33 kV 1200 VCBs. 960 11 kV 1200 VCB. 433 11 kV 1500 KVARs.

10,598 remote meters installed for large commercial and industrial consumers. 53,669 three phase meters installed. 231,492 single phase meters installed. Note: Most meters were installed under other projects to take advantage of bulk prices and government subsidies. Meters under this Facility were for new

Appendix 1 23

Design Summary Performance Targets/Indicators (From PFRs of Projects 2 and 4-6)

Results (PCRs of Projects 2 and 4-6)

Provision of resource planning and management capability. Computerization and automation of distribution system operations.

SCADA: For Jabalpur City National government Facility for electrification of villages: “Jyoti Gram Yogna”: 3,800 km 11 kV line with 800 distribution transformers. ERP system installed Computers for distribution system operations, monitoring and data collection.

connections made since the main metering Facility was completed. In addition to the consumer metering, 154,448 system meters were installed, at substations and on rural transformers to monitor agricultural consumption. Installed. 2,041 km of HT line with 800 transformers installed. Note: Lower due to new lines installed in HT system, as above. ERP system installed. 968 computers installed in HQ and in offices in distribution system. 300 printers installed in HQ and system offices. UPS backup installed in HQ and substations. Support servers, network equipment, data center infrastructure and related software installed in HQ and substations

Distribution enhancement in central distribution zone (DISCOM-C): Installation of high-voltage distribution system and remote metering for industrial consumers, and consumer metering; renovation of substation protection systems and distribution system strengthening and distribution transformer metering.

By 2013 High voltage distribution systems: 13,100 km conversion of LT lines to HT lines

By 2015 (completion of projects 4-6) High voltage distribution systems: 1,280 km conversion of LT lines to HT lines 3,645 km of new HT line installed Note: The DISCOM estimated high, as actual condition of distribution system not known at the time of appraisal. Also, conversion was being done under other projects being implemented in parallel with ADB’s MFF. Instead DISCOM focused on installation of protection systems in existing

24 Appendix 1

Design Summary Performance Targets/Indicators (From PFRs of Projects 2 and 4-6)

Results (PCRs of Projects 2 and 4-6)

System GIS and consumer data and profiles collected.

11/0.4 kV distribution transformers: 22,000 nos. of 25 KVA 32,000 nos. of 16 KVA Remote metering: 3,800 industrial customers Consumer metering: 131,000 three phase 187,000 single phase Substation protection system: 40, 33/11 kV substations Distribution system strengthening: 500 km 33 kV line 2,300 km 11 kV line 21 new 33/11 kV substation Distribution transformer metering: 23,200 nos. of meters GIS for the un-surveyed districts of the distribution system. Updating of consumer data on 480,000 connections

transformers and substations as below. 11/0.4 kV distribution transformers: 8,460 nos. of 25 KVA installed 1,474 nos. of 16 KVA installed 3,639 nos. of 11/0.4 kV installed (See note above)

Remote metering: 6,796 meter installed for commercial and industrial customers. Note: As indicated, the DISCOM adjusted scope of work to coincide with other ongoing projects, to prevent overlap. Consumer metering: Note: Completed under other project parallel with ADB’s Facility, to take advantage of bulk purchase and pricing and government support facilities. Substation protection system: 433, 33/11 kV substations protected with; 549, 33 kV VCBs installed 1,106, 11 kV VCBs installed 588, 1200 KVAR capacitor banks installed Distribution system strengthening: Note: Not included under this Facility. Done through projects by other funding agencies. Note: Not included under this Facility. Done through projects by other funding agencies. GIS completed for 123 villages and towns. Achieved.

Appendix 1 25

Design Summary Performance Targets/Indicators (From PFRs of Projects 2 and 4-6)

Results (PCRs of Projects 2 and 4-6)

Distribution enhancement in west distribution zone (DISCOM-W): Installation of high voltage distribution system, substation protection systems, SCADA, Fyoti Gram Yojna distributions system strengthening, distribution transformer metering and capacitor banks.

By 2013 High voltage distribution systems: 3,900 km conversion of LT to HT lines 11/0.4 kV distribution transformers: 580 nos. of 25 KVA 19,400 nos. of 16 KVA Substation protection system: 400, 33/11 kV substations SCADA: Installation of SCADA system National government Facility for electrification of villages “Jyoti Gram Yojan”: 5,100 km of 11 kV line 2,000 25 KVA distributions transformers Distribution system strengthening: 580 km of 33 kV line 2,500 km of 11 kV line 21 new 33/11 kV substations Distribution transformer metering: 23,000 meters

By 2015 (completion of projects 4-6) High voltage distribution systems: 1,108 km conversion of LT to HT lines 11/0.4 kV distribution transformers: 1,232 nos. of 25 KVA installed 20,223 nos. of 16 KVA installed Substation protection system: 354, 33/11 kV substations renovated 47, 33/11 kV transformers augmented from 3.1 to 5 MVA 10, 33/11 kV transformers augmented from 5 to 8 MVA 10, new 33 kV line bays installed at 132/33 kV substations 10, new 33 kV line bays installed at 33/11 kV substations 48, 33 kV VCBs installed 50, 11 kV VCBs installed SCADA: Installation of SCADA system for 92, 33/11 kV substations Done under government Facility, not under ADB MFF. Distribution system strengthening and expansion: Completed under TRANSCO projects 1 and 3. 6,465 km of new 11 kV line 27 new 33/11 kV substations with 20 bays (included under the three DISCOM outputs). Distribution transformer metering: 12,026 system transformer meters installed.

26 Appendix 1

Design Summary Performance Targets/Indicators (From PFRs of Projects 2 and 4-6)

Results (PCRs of Projects 2 and 4-6)

Provision of resource planning and management capability. Computerization and automation of distribution system operations.

Capacitor banks: 10 nos.1,200 KVAR 115 nos. 600 KVAR Enterprise resource planning Planning system Computerized and data control system

Capacitor banks: 136 nos.1,200 KVARs installed 150 nos. 600 KVARs installed System installed. 1500 computers installed in HQ and 500 substations 1000 printers installed in HQ and 500 substations. UPS backup installed in HQ and 500 substations. Support servers, network equipment, data center infrastructure and related software installed in HQ and 500 substations

Madhya Pradesh Power Management Company Limited Modernized Business Management

Installation of automated integrated business solution and related services.

Automated business solution system and related services installed including: 300 desk top computers, 54 lap top computers, 35 drivers, 36 servers, Installation of IBS software and staff training.

Non-physical investments: Development of MIS for power trade function. Establishment of Energy Conservation Fund.

Fully functioning power trading system by 2009. ECF established by 2010 in line with Energy Conservation Act of 2001.

In place by 2012 when the original TRADECO was modernized and strengthened as MPPMCL. Trading function and efficiency improved though the ERP and computer management systems installed under Project 6. Recognizing the need for energy efficiency schemes, state government is implementing $400 million feeder separation scheme (Loan 2764-IND and Loan 2830-IND) with ADB assistance in line with national and state government policies. Government also encouraging private sector investment in alternate energy development.

Appendix 1 27

Design Summary Performance Targets/Indicators (From PFRs of Projects 2 and 4-6)

Results (PCRs of Projects 2 and 4-6)

Facilitation of private sector participation in distribution through piloting strategic partnership modalities and expanding franchising scheme. Financial sustainability of the power sector.

Pilot scheme is implemented in Gwalior city, in the areas of Dewas, Ratlam and Ujjain ditricts. Cash management responsibilities transferred to DISCOMs by April 2010. Independent directors at the board level are recruited; board level committees, including audit and risk management committees, established; internal audit guidelines developed, and internal controllers recruited by December 2007. EAs have appointed directors for operations, commercial functions and finance by December 2008. DISCOMs multi-year tariff effective by April 2007. Loss reduction targets agreed with MPERC are achieved.

In place, as per the need and based on the direction of Government. Achieved. Established in DISCOMs by December 2007. By December 2008. For DISCOM HQs: Appointed managers/technical unit heads for operations, information technology, commercial and financial functions headed by professionals For DISCOM project implementation: appointed PMU heads, chief, additional chief and superintendent engineers, for electrical equipment, civil works, construction and O&M. DISCOMs trained their head office, district and service center staff in project planning, design and implementation, consumer relationship, public awareness and vigilance/monitoring of power demand, usage, metering, computerized billing and collection and collection of arrears. Annual tariff increase approved since 2003 when average tariff (domestic, commercial, industrial, agricultural) was Rs3.47/kwh. Average tariff as of March 2017 was Rs6.25/kwh. Loss targets for DISCOMs as determined by the MPERC in its tariff determination for the year

28 Appendix 1

Design Summary Performance Targets/Indicators (From PFRs of Projects 2 and 4-6)

Results (PCRs of Projects 2 and 4-6)

Billing and collection efficiency is achieved by December 2006 at 96% by DISCOM-E, 94% by DISCOM-W and 90% by DISCOM-C. Annual financial statement and energy business processes and performance audits are conducted by independent private auditors.

starting 1 April 2009 have been met as follows: DISCOM-C reduced to 25.13% in FY 2016 from 41.58% in FY 2009; DISCOM-E reduced to 22.50% in FY2016 from 37.23% in FY2009; DISCOM-W reduced to 22.58% in FY2016 from 35.5% in FY2009. Billing and collection improved as follows: DISCOM-E to 96% in 2014/15. DISCOM-W to 94% in 2014/15. DISCOM-C to 92% in 2014/15. Achieved.

ADB = Asian Development Bank, C = Central, cct-km = circuit kilometer, DTRs = distribution transformers, DISCOMs = distribution companies, E = Eastern, W = Western, FY = financial year, GWh = gigawatt hours, hr = hours ,HT =high tension (11kV), HVDS =high voltage distribution system, IDC = interest during construction, IT = information technology, km = kilometer, kWh = kilowatt hour, kV = kilovolt, kVA = kilovolt ampere, kVAR = kilovolt ampere reactive, LA = loan agreement, LT =low tension (440 volt), MPERC = Madhya Pradesh Electricity Regulatory Commission, MU = million kWh, MW = megawatt, MVA = mega volt ampere, PFC = Power Finance Corporation, PFR = periodic financing request, REC = Rural Electrification Corporation, SCADA = system control and data acquisition, SBI = State Bank of India, VCBs = vacuum capacitor banks, W = western. Source: ADB. 2007. Report and Recommendation of the President to the Board of Directors: Proposed

Appendix 2 29

DESIGN AND MONITORING FRAMEWORK - PROJECT 6

Design Summary

Performance Targets/Indicators

Results

Impact Gross State Product (GSP) grows by at least 7% annually in the period 2011-2014.

Achieved. Average GSDP growth between 2012-13 to 2015-16 was greater than 10%; state per capita income increased to ₹72,778 in FY2016 from ₹37,303 in FY2012. The state distribution system had a peak demand shortage of 1,005 MW in FY2006-07. Peak demands were met in FY2013-14 and there was a state wide energy surplus of 1310 GWh in FY2014-15.

Improved quality and reliability of power supply to meet demand for sustainable economic and social development in Madhya Pradesh.

Outcome Increased quality of supply and operational performance. Reduction of electric distribution system losses, improved reliability of power, increased system capacity, improved customer connectivity. DISCOMs’ financial positions improved.

Loss targets for DISCOMs as determined by the Madhya Pradesh Electricity Regulatory Commission (MPERC) in its tariff determination for the year starting 1 April 2009 are met. DISCOM C: 2010: 35.15%, 2014:25% Note: Project 6 did not include further distribution works for DISCOMs E and W.

Achieved. Loss targets for DISCOMs as determined by the Madhya Pradesh Electricity Regulatory Commission in its tariff determination for the year starting 1 April 2009 have been met. Losses (i) for DISCOM-C reduced to 25.13% in FY 2016 from 41.58% in FY 2009; (ii) for DISCOM-E reduced to 22.50% in FY2016 from 37.23% in FY2009; and (iii) for DISCOM-W reduced to 22.58% in FY2016 from 35.5% in FY2009.

Reduced average number of interruptions and average duration of interruption.

Achieved. Average number of interruptions measured in number of tripping (interruption of power) per year per feeder are as follows: (a) DISCOM-C: Reduced from 12 in FY2009 to 8 tripping in FY2016 per year per feeder; (b) DISCOM-E: Reduced from 11 (in FY2009) to 6.5 tripping (FY2016) per year per feeder; and (C) DISCOM-W: Reduced from 10.15 (FY2009) to 6.76 (FY2016) trippings per year per feeder. Average duration of interruptions reduced as follows: for 11 kV feeders, by 25% and for 33 kV feeders, by 50%.

Reduced customer complaints about quality of supply. Debt service coverage ratio minimum of 1.5 maintained from 2015.

Achieved. Power system reliability improved; 10 hours of supply for rural/agricultural areas, 24 hour supply for urban/village areas, with fewer interruptions, improved voltage and fewer power surges, customer complaints about quality of supply reduced by 50%. Partially achieved. Debt service ratio for DISCOM C has been improving—registering at -0.56 for financial year (FY) 2017 from -2.26 for FY 2016. Expected to further improve by 2022, after completion of distribution improvement schemes and financial intermediation schemes.

30 Appendix 2

Design Summary

Performance Targets/Indicators

Results

Outputs DISCOM-C:

By 2012 At Appraisal

By 2015 Actual achieved/installed

Installation of high voltage distribution system. Renovation and upgrading of the distribution system. System metering System data

• Construction of 1000 km of 33 kV lines

• Construction of 90 new 33/11 kV substations

• Conversion of 538 km LV lines to 11kV lines

• 665 km of 33 kV lines installed.

• 109 33/11 kV substations installed.

• 569 km of new 11 kV lines installed instead of conversion.

• Construction of 138 km new 11kV lines

• 2649 11/0.4 kV 25/63/100 kVA distribution transformers

• 941 11/0.4 kV, 63 & 100 kVA distribution transformers installed. Remainder included under earlier projects of the MFF. capacitors

• 30,000 LT capacitors

• 154 1200 KVAR capacitor banks

• LT capacitors replaced with alternative better options of 11 kV capacitor banks, increasing the number of 11 kV (1,500 KVAR) capacitor banks from 154 to 433, in addition to 33 1500 KVAR capacitor banks.

• 30,000 meters with AMR facility

• Energy Auditing of 30,000 transformer feeders.

• 3,845 meters with AMR facility installed at 680 33/11 kV substations. Fewer required as LT capacitors replaced with 11 kV capacitor banks.

• 153,064 LT meters installed for new

distribution system connections. This included meters that were not included under earlier projects of the MFF. DISCOM received substantial price reduction by purchasing larger bulk.

• GIS for the un-surveyed

districts of the distribution system.

• Updating of consumer data on 480,000 connections.

• GIS completed for 123 villages and towns.

• Achieved.

DISCOM-E:

At Appraisal

Actual achieved/installed

Provision of ERP capability.

• ERP system serving 20 districts and 700 offices operated by 15,000 personnel.

• ERP system installed.

Appendix 2 31

Design Summary

Performance Targets/Indicators

Results

Computerization and automation of distribution system. .

• 1000 computers

installed in HQ and in offices in distribution system

• 350 printers installed in HQ and in offices in system.

• UPS backup installed in HQ substations.

• Support servers, network equipment, data center infrastructure and related software installed in HQ and substations

• 968 computers installed in HQ and in

offices in distribution system

• 300 printers installed in HQ and system offices.

• UPS backup installed in HQ and

substations. • Support servers, network equipment, data

center infrastructure and related software installed in HQ and substations

DISCOM-W: Provision of ERP capability. Computerization and automation of distribution system.

At Appraisal Actual achieved/installed

• ERP system • ERP system installed.

• 1500 computers

installed in HQ and 500 substations in distribution system

• 1000 printers installed in HQ and 500 substations.

• UPS backup installed in HQ and 500 substations.

• Support servers, network equipment, data center infrastructure and related software installed in HQ and 500 substations.

• 1500 computers installed in HQ and 500

substations in distribution system

• 1000 printers installed in HQ and 500 substations.

• UPS backup installed in HQ and 500 substations.

• Support servers, network equipment, data

center infrastructure and related software installed in HQ and 500 substations

32 Appendix 2

Design Summary

Performance Targets/Indicators

Results

MPPMCL Modernized Business Management

At Appraisal Actual Achieved Installation of automated integrated business solution and related services.

Automated business solution system and related services installed including 300 desk top computers, 54 lap top computers, 35 drivers and 36 servers and installation of IBS software and staff training.

Activities with Milestones at Appraisal (PFR) 1

Part A: DISCOM-C 1. Issuance of bidding documents by November 2010. 2. Contract awards by February 2011. 3. Construction start by March 2011. 4. All subprojects commissioned by December 2013. Part B: DISCOM-E 1. Issuance of bidding documents by November 2010. 2. Contract awards by February 2011. 3. Construction start by March 2011. 4. All subprojects commissioned by March 2012. Part C: DISCOM-W 1. Issuance of bidding documents by November 2010. 2. Contract awards by February 2011. 3. Construction start by March 2011. 4. All subprojects commissioned by March 2012. Part D: MPPMCL 1. Issuance of bidding documents by November 2010. 2. Contract awards by February 2011. 3. Construction start by March 2009 4. All subprojects commissioned by March 2012.

Actual Achievements

Part A: DISCOM-C 1. Issuance of bidding documents by January 2011. 2. Contract award by June 2011. 3. Construction start by August 2011 4. All subprojects commissioned by December 2015. Part B: DISCOM-E 1. Issuance of bidding documents by April 2011. 2. Contract award by November 2011. 3. Construction start by December 2011. 4. All subprojects commissioned by December 2015. Part C: DISCOM-W 1. Issuance of bidding documents by April 2011. 2. Contract awards by September 2011. 3. Construction startup by October 2011. 4. All subprojects commissioned by December 2015.

Part D: MPPMCL 1. Issuance of bidding documents by February 2013. 2. Contract awards by July 2013. 3. Construction start by August 2013 4. All subprojects commissioned by December 2015.

Appendix 2 33

ADB = Asian Development Bank, C = central, DTRs = distribution transformers, DISCOMs = distribution companies; E = eastern, ERP = enterprise resource planning, FY = financial year, GWh = gigawatt hours, hr = hours ,HT =high tension (11kV),HVDS =high voltage distribution system, IDC = interest during construction, IT = information technology, kWh = kilowatt hour, kV = kilovolt, kVA = kilovolt ampere, kVAR = kilovolt ampere reactive, LA = loan agreement, LT =low tension (440 volt), MPPMCL = Madhya Pradesh Power Management Company Limited, MU = million kWh, MW = megawatt, MVA = mega volt ampere, PFC = Power Finance Corporation, PFR = periodic financing request, REC = Rural Electrification Corporation, SCADA = system control and data acquisition, SBI = State Bank of India, s/s = transformer substations (subdistrict service centers), UPS = uninterrupted power supply, W = western. Source: ADB. 2007. Report and Recommendation of the President to the Board of Directors: Proposed

Inputs at Appraisal Foreign Currency (LA) ADB: $69.0 million (original loan amount including IDC and commitment charges). $14.64 million were later cancelled, leaving $55.36 million. DISCOM-C: $59.00 million DISCOM-E: $4.00 million DISCOM-W: $4.15 million MPPMCL: $1.85 million Local Currency (PFR) DISCOM-C: $48.30 million DISCOM-E: $3.27 million DISCOM-W: $3.40 million MPPMCL: $3.27 million PFC/REC/SBI loans and State input.

Actual Foreign Currency (LFIS) ADB: $55.36 million (excluding IDC and commitment charges) DISCOM-C: $43.49 million DISCOM-E: $3.88 million DISCOM-W: $4.71 million MPPMCL: $3.28 million Local Currency (DISCOMs) DISCOM-C: $16.30million DISCOM-E: $1.55 million DISCOM-W: $2.74 million MPPMCL: $5.28 million Loans: DISCOM C: $16.30 million from PFC. DISCOM W, $2.74 million from PFC. DISCOM E and MPPMCL from own resources.

34 Appendix 3

FACILITY COST AND FINANCING

Table A3.1: Facility Costs at Appraisal and Project Preparation ($ million)

Item

At Project Preparation (from PFRs)

Project 1 Project 2 Project 3 Project 4 Project 5 Project 6 Total

Power transmission a 100.20 0.00 155.00 0.00 0.00 0.00 255.30

Distribution systemsa 0.00 53.70 0.00 126.80 212.60 115.40 508.50

Consulting Services b 7.30 0.00 7.90 0.00 0.00 0.00 15.20

Contingency 15.60 8.10 23.00 17.00 29.60 8.60 101.80

Financial Charges c 9.40 3.90 11.90 15.90 26.60 1.50 69.10

Total 132.50 65.70 197.80 159.70 270.20 125.50 951.40 a. Including the costs for social and environmental mitigation, civil works, and project quality control. b. Project consultants determined not to be required at loan negotiations for each project. Social and environmental

consultants funded by own funds. c. Including interest during construction and commitment charges, paid by Borrower. Included in Project costs.

Source: Asian Development Bank PCRs; Project Implementation Units.

Table A3.2: Actual Costs by Projects ($ million)

Item

Actual by Projects

Project 1 Project 2 Project 3 Project 4 Project 5 Project 6 Total

Transmission system

114.05 00.00 176.10 00.00 00.00 00.00 290.15

Distribution system 0.00 64.30 0.00 81.77 163.76 81.23 390.18

Consulting Servicesa 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Financial Chargesb 5.43 2.50 7.41 3.57 6.18 2.44 16.79

Total 114.05 64.30 176.10 81.77 163.76 81.23 681.21

Source: Asian Development Bank, PCRs; Project Implementation Units. a Project consultants not required. DISCOMs did recruit environmental and social consultants but paid from own internal resources. b Amounts shown from ADB ILFS but paid by Borrower, so not included in project costs.

Appendix 3 35

Table A3.3: Facility Financing ($ million)

Source

At appraisala At Projects Preparationb Actualc

Total Cost % of Cost Total Cost % of Cost Total Cost % of Cost

ADB 620.00 21.00% 620.00 65.00% 543.47 80.00%

Government 1,345.00 45.00% 0.00 0.00% 0.00 0.00%

Internal funds 610.00 20.30% 331.40 35.00% 137.74 20.00%

GOMP 300.00 10.00% 0.00 0.00% 0.00 0.00%

Private Investors

100.00 3.00%

0.00 0.00% 0.00 0.00%

DFID 25.00 0.70% 0.00 0.00% 0.00 0.00%

Total 3,000.00 100.00% 951.40 100.00% 681.21 100.00%

ADB = Asian Development Bank Source: Asian Development Bank; Project Implementation Units. a From RRP which shows total requirements in Madhya Pradesh. b From PFRs reflecting the time slice of the total requirements that ADB supported. c Actual as per PCRs.

36 Appendix 4

PROJECT 6 COST AND FINANCING Table 4.1: Project 6 Costs

($ million) Item At Appraisal Actual

Base costa

Equipment 96.30 55.36

Labor costs and incidentals 15.80 21.56

Taxes and duties 3.20 4.31

Subtotal 115.30 81.23

Contingencies 8.70 0.00

Financing Chargesb 1.50 0.00

Total 125.50 81.23 a. including civil works and social and environmental mitigation. b. including interest during construction and commitment charges, paid by Borrower, not charged to

project. Source: Asian Development Bank. October 2010. Periodic Financing Request Report, India: Madhya Pradesh Power Sector Investment Program – Proposed Project 6. Manila; Project Implementation Unit.

Table 4.2: Project 6 Financing ($ million)

Source

At Appraisala Actualb

Total Cost % of Cost Total Cost % of Cost

ADB 69.00 55.0% 55.36 68.0%

DISCOMs 56.50 45.0% 25.87 32.0%

Total 125.50 100.0% 81.23 100.0% ADB = Asian Development Bank. DISCOMs = power distribution companies a Source: Asian Development Bank. October 2010. Periodic Financing Request Report, India: Madhya Pradesh Power Sector Investment Program– Proposed Project 6. Manila; Project Implementation Unit. b Source: ADB LFIS and project data from DISCOMs. Borrower paid all financing charges on behalf of the EAs.

Appendix 4 37

Cost Breakdown for DISCOMS (Project 6/Loan 2732)

Table 4.3: Loan Amount and Disbursements for DISCOMS and MPPMCL ($ million)

Part A: DISCOM-C

Part B: DISCOM-E

Part C: DISCOM-W

Part D: MPPMCL

a There were no works contracts, all contracts were turnkey for equipment supply and installation. b Borrower paid all financial charges on behalf of the EAs.

Category Category a Original (PFR) Last Revised Amount Undisbursed

No. Allocation Allocation Disbursed b Balance

1. Equipment 59.00 53.17 43.49 9.68

2. Unallocated 0.00 0.00 0.00 0.00

Total 59.00 53.17 43.49 9.68

Category Category a Original Last Revised Amount Undisbursed

No. Allocation Allocation Disbursed b Balance

1.

Equipment 4.00 5.13 3.88 1.25

2. Unallocated 0.00 0.00 0.00 0.00

Total 4.00 5.13 3.88 1.25

Category Category a Original Last Revised Amount Undisbursed No. Allocation Allocation Disbursed b Balance

1.

Equipment 4.15 4.96 4.71 0.25

2. Unallocated 0.00 0.00 0.00 0.00

Total 4.15 4.96 4.71 0.25

Category Categorya Original Last Revised Amount Undisbursed

No. Allocation Allocation Disbursedb Balance

1.

Equipment 1.85 5.74 3.28 2.46

2. Unallocated 0.00 0.00 0.00 0.00

Total 1.85 5.74 3.28 2.46

38 Appendix 4

Table 4.4: Project Cost for DISCOMs and MPPMCL ($ million) for Project 6 (Loan 2732) Part A: DISCOM-C

a Includes cost of completing the terminated contracts.

Part B: DISCOM-E

Part C: DISCOM-W

Part D-MPPMCL

a The Borrower paid all financing charges on behalf of the EAs. Sources: Appraisal Estimate: Periodic Financing Request, #6 Government of India (Madhya Pradesh Power Sector Investment Program). Foreign currency costs from Loan Agreement and LFIS. Actual local currency as reported by the DISCOMs. There was one loan reallocation.

Cost Appraisal Estimate Actual

Foreign Currency Cost 59.00 43.49

Local Currency Cost 48.30 16.30a

Total 107.30 59.79

Cost Appraisal Estimate Actuala

Foreign Currency Cost 4.00 3.88

Local Currency Cost 3.27 1.55

Total 7.27 5.43

Cost Appraisal Estimate Actuala

Foreign Currency Cost 4.15 4.71

Local Currency Cost 3.40 2.74

Total 7.55 7.45

Cost Appraisal Estimate Actuala

Foreign Currency Cost 1.85 3.28

Local Currency Cost 3.27 5.28

Total 7.27 8.56

Appendix 5 39

SUMMARY OF CONTRACTS IN PROJECT 6

PCSS No. Category No. Item Description

(Supply and Install Turnkey Contracts)

Contract Amount (ADB Financing)

($)

Actual Disbursed

($)

Part A DISCOM-C

0001 01A New 33/11 kV S/S and 11 kV lines in Hoshangabad & Betul

1,031,241 1,031,241

0002 01A

New 33/11 kV S/S and 11 kV lines in Bhopal, Sehore, Vidisha & Rajgarh

2,284,443 2,284,433

0003 01A New 33/11 kV S/S and 11 kV lines in Gwalior and Morena

4,471,160 4,143,379

0004 01A

New 33/11 kV S/S and 11 kV lines in Guna, Bhind, Shivpuri, Sheopur and Kalan

5,815,000 5,295,824

0007 01A QA works in Bhopal circle

4,823,400 4,113,881

0008 01A QA works in Sehore, Vidisha and Rajgarthl circle

4,759,010 4,759,010

0009 01A QA works in Hoshanhgabad and Betul circle

4,605,148 760,654

0010 01A QA works in Gwalior and Morena circle

5,344,988 5,344,988

0011 01A

QA works in Guna, Bhind, Shivpuri, Sheopar ad Kalan circle

6,380,310 4,815,843

0012 01A New 11 kV 1500 KVAR capacitor banks In Bhopal district

4,632,617 4,632,617

0013

01A

New 11 kV 1500 KVAR capacitor banks In Bhopal district

2,601,211 2,601,211

40 Appendix 5

PCSS No. Category No. Item Description

(Supply and Install Turnkey Contracts)

Contract Amount (ADB Financing)

($)

Actual Disbursed

($)

0015 01A Supply and install IT equipment DISCOM-C HQ

3,066,360

1,907,058

0016 01A Supply and install DCU and modems in DISCOM-C HQ

1,129,451

523,848

0020 01A New 33/11 kV S/S and 11 kV lines in Hoshangabad &Betul

252,744 252,774

0021 01A Supply and install QA and asset mapping in Vidisha dstrict

289,202

289,202

0022 01A Supply and install QA and asset mapping in Rajgarh district

730,039 730,039

Subtotal 52,216,324 43,486,002

Part B DISCOM-E

0006 01B New ERP for HQ 2,171,014 1,171,574

0017 01B Supply and install new IT equipment in HQ

1,148,977 1,118,605

0023 01B Supply and install IT data center in HQ

1,862,400 1,590,813

Subtotal 5,182,391 3,880,992

Part C DISCOM-W

0005 01C ERP for DISCOM HQ 2,171,014 1,635,403

0014 01C Supply and install new IT equipment for HQ

1,244,940 1,244,940

0018 01C Supply and install IT data center in HQ

1,825,198 1,825,198

Subtotal 5,241,152 4,705,541

Appendix 5 41

PCSS No. Category No. Item Description

(Supply and Install Turnkey Contracts)

Contract Amount (ADB Financing)

($)

Actual Disbursed

($)

Part D MPPMCL

0019 01D New automated business solution and related services

3,282,327 3,282,327

Subtotal

Total ICB

Procurement

3,282, 327

65,922,194

3,282,327

55,354,862

DCU = data concentration unit, DISCOM-C = central distribution company, DISCOM-E = eastern distribution company,

DISCOM-W = western distribution company, ERP = enterprise resource planning, DISCOM HQ = headquarters, IT =

information technology, KVAR = kilo volt ampere reactive, kV = kilovolt, MPPMCL = Madhya Pradesh Power

Management Company Limited, QA = quality assurance, S/S = electrical substation.

Note: DISCOM-C terminated contracts 1 and 9, after partial completion due to lack of performance by the contractors.

Subsequently, part of the remaining works for these contracts were rebid as contracts 20, 21 and 22. But due to time

constraints, most of the unfinished work was completed by the DISCOM’s own resources.

42 Appendix 6

DISBURSEMENT OF ADB MFF PROCEEDS

Table A6: Annual and Cumulative Disbursement of ADB Loan Proceeds ($ million)

Year

Annual Disbursement Cumulative Disbursement

Amount ($ million) Totala

Amount % of Total Amount L2323 L2324 L2346 L2347 L2520 L2732 ($million)

2007 6.80 0.00 7.36 0.00 0.00 0.00 14.16 14.16 2.61

2008 25.23 8.41 43.34 3.80 0.00 0.00 80.78 94.94 17.47

2009 32.40 8.50 58.57 15.36 2.38 0.00 117.21 212.15 39.04

2010 21.36 8.22 17.11 18.60 23.88 0.00 89.17 301.32 55.44

2011 7.08 7.99 3.52 15.10 34.46 2.54 70.59 372.01 68.45

2012 4.40 5.89 5.32 14.40 29.25 9.97 69.23 441.24 81.19

2013 0.00 1.74 6.69 6.00 19.53 17.47 51.43 492.67 90.65

2014 0.00 0.00 0.00 0.90 12.31 17.25 30.46 523.13 96.26

2015 0.00 0.00 0.00 0.00 12.21 8.13 20.34 543.47 100.00

Total 97.27 40.75 141.91 74.16 134.02 55.36 543.47 543.47 100.00

ADB = Asian Development Bank. Source: Asian Development Bank, PCRs for Loans 1-6. a Totals slightly different due to rounding to 2 decimals.

Figure A6.1: Annual and Cumulated Disbursement of ADB Loan Proceeds ($ million)

Source: Asian Development Bank.

Appendix 7 43

DISBURSEMENT OF PROJECT 6 PROCEEDS

Table 7: Annual and Cumulative Disbursement of ADB Loan Proceeds ($ million)

Year Annual Disbursement Cumulative Disbursement

Amount % of Total Amount % of Total

2011 2.54 4.5% 2.54 4.5%

2012 9.97 18.0% 12.51 22.6%

2013 17.47 31.5% 29.98 54.0%

2014 17.25 31.0% 47.23 85.0%

2015 8.13 15.0% 55.36 100.0%

Total 55.36 100.0% 55.36 100.0%

ADB = Asian Development Bank. Source: Asian Development Bank.

Figure 7.1: Annual Disbursement of ADB Loan Proceeds ($ million)

Figure 7.2: Cumulative Disbursement of ADB Loan Proceeds ($ million)

44 Appendix 8

CHRONOLOGY OF MAIN FACILITY EVENTS

Date Main Event

2006

16-24 October

Fact finding Mission for MFF and Projects 1 and 2

11 December

ADB Management Review Meeting

12-15 December Appraisal Mission for Projects 1 and 2

2007

19 January Staff review meeting for Projects 1 and 2

19-20 February Loan negotiations for Projects 1 and 2

29 March Board approval

12 April LAs signed for 2323 and 2324/projects 1 and 2

14 May Loans 2323 and 2324 effectiveness

20-25 May Inception Mission, projects 1 and 2 & fact finding for project 3

16-17 August Loan negotiations for project 3

21 August President’s approval of loan 2346/project 3

2008

07-17 January Loan review missions of Projects 1-3 and fact finding for project 4

07 March President’s approval and signing of Loan 2347/project 4

11 June Loan 2347/project 4 effectiveness

01-03 September Review mission of projects 1-3 and inception mission of project 4

2009

15-17 April Review mission for projects 1-4 and fact-finding for project 5

27 May LA for loan 2520/project 5 signed

15-20 June Review mission for projects 1-3

17-21 August Consultation mission for project 6

05-15 October Inception mission for project 5

24-27 November Special project administration mission for projects 1-5

2010

06-16 April Special loan administration mission for projects 1-5

31 Aug – 9 September Review mission for projects 2 and 4

Appendix 8 45

Date Main Event

23-30 September Review mission for project 5

26-28 September Review mission for projects 2 and 4

27-30 October Review mission for projects 1-5

29 Nov-01 December Review mission for projects 1-5

2011

31 Jan-04 February Review mission for project 5 and Inception mission for project 6

10 May LA for loan 2732/project 6 signed

23 Aug – 3 September Review mission for projects 2 and 4

11-14 October Review mission for projects 1 and 3

2012

14-17 February Review mission for projects 1 and 3

11-20 March Review mission for projects 1-6

18-25 June Review mission for projects 2, 4 and 6

10-14 December PCR mission for project 1

2013

31 Jan-09 February Review mission for project 5

23-30 June Review mission for project 6

2014

10-19 February Mid Term Review mission for projects 5 and 6

18-24 April PCR mission for project 3

2015

31 March-03 April PCR mission for project 2

10 Apr State Level Review Mission for projects 5 and 6

2016

07-19 March PCR mission for project 4

2017

3-13 January PCR mission for project 5

46 Appendix 8

Date Main Event

2018

17-25 January PCR mission for project 6

17-25 January FCR mission for MFF Facility

Appendix 9 47

CHRONOLOGY OF MAIN PROJECT 6 EVENTS

Date Main Event

A. Financing Facility

2006

16–24 Oct Fact-Finding for Financing Facility

11 Dec Management Review Meeting

12–14 Dec Appraisal Mission

2007

19 Jan Staff Review Committee

16–17 Aug Loan Negotiations

21 Aug President’s Consideration and Approval

B. Loan 2732

2011

31 Jan-04 Feb Inception mission

10 May Loan Agreement Signed

2012

18-25 Jun Review mission

2013

23-30 Jun Review mission

2014

10–19 Feb Review mission

2015

10 Apr State Level Review mission

2018

17-25 Jan PCR Mission for Loan 2732 and FCR for Facility

Source: Asian Development Bank ADB = Asian Development Bank, FCR = Facility completion report, PCR =Project completion report

48 Appendix 10

ORGANIZATIONAL CHART FOR FACILITY AND PROJECT 6

ACE = additional chief engineer, ADB = Asian Development Bank, AO = accounts officer, CE = chief engineer, CFO = chief financial officer, CGM =Chief General Manager, DIR = director, DISCOM = distribution company, Dy. = deputy, ED = executive director, EE =executive engineer, JR = junior, MD = managing director of DISCOMs, S.E. = superintendent engineer, SR = senior, Stn = station Source: Distribution Company-East, Note: This organization chart is generic for the 3 DISCOMs, each established a dedicated office for the ADB financed project. While the responsibilities were similar for each cell/activity, the specific titles of the assigned personnel varied among the DISCOMs.

MD

Leadership, Coordination & Guidance

ED/CGM (Works)

CE (ADB) Turnkey

contracts and Procurement

CFO All works related to Finance

CE/SE Construction work of lines/ substations

CE/SE Construction work of lines/ substations

CE/SE Construction work of lines/ substations

ACE (Civil) S.E. (Works)

EE/Equip.

Joint DIR.

Dy. DIR.

A.O.

S.E. Office S.E. Field

S.E. Office S.E. Field

S.E. Office S.E. Field

Appendix 11 49

STATUS OF COMPLIANCE WITH LOAN COVENANTS

Covenant

Reference in Loan

Agreement

Responsible Agencies

Status of Compliance

Project Implementation: 1. The Borrower shall cause the State, the DISCOMs and MP Tradeco to carry out the Project with due diligence and in conformity with sound applicable technical, financial, business, and development practices. 2. In carrying out the Project and operation of the Project facilities the Borrower shall perform, or cause to be performed, all obligations set forth in Schedule 5 of this Loan Agreement. 3. The Borrower shall cause the State to make available to the DISCOMs and MP Tradeco, promptly as needed, and on terms and conditions mutually acceptable to ADB and the Borrower, the funds, facilities, services, land and other resources, as required, in addition to the proceeds of the Loan, for carrying out the Project. 4. The Borrower shall ensure that the activities of its departments and agencies with respect to carrying out the Project and operation of the Project facilities are conducted and coordinated in accordance with sound administrative policies and procedures. 5. The Borrower shall take all actions which shall be necessary on its part to enable the State, the DISCOMs and MP Tradeco to perform their obligations under the Project Agreement and shall not take or permit any action which would interfere with the performance of such obligations. 6. In so far as it relates to the Project, the Borrower shall exercise its rights under the financing arrangements with the State pursuant to Section 3.01 (a) of this Loan Agreement in such manner as to protect the interests of the Borrower and ADB and to accomplish the purposes of the Loan. 7. In so far as it relates to the Project, no rights or obligations under such financing arrangements shall be assigned, amended,

LA, Article IV, Section 4.01, (a) LA, Article IV, Section 4.01 (b) LA, Article IV, Section 4.02 LA, Article IV, Section 4.03 LA, Article IV, Section 4.04 LA, Article IV, Section 4.05 (a) LA, Article IV, Section 4.05 (b)

Borrower, State, DISCOMs and MP Tradeco. Note: Tradeco, reconstituted as Madhya Pradesh Power Management Company Limited (MPPMCL) in 2012

Complied with. Implementation of the Project followed all applicable laws and requirements of India and international practice. Complied with. As per the detailed covenants below. Complied with. The Borrower provided counterpart funds as required and in a timely manner. Complied with. Implementation of the Project followed normal procedures for similar projects in India. Complied with. The borrower did no interfere with any aspect of the LA or PA. Complied with. DEA transferred loan funds promptly after ADB disbursed same. Complied with. ADB was notified of all

50 Appendix 11

Covenant

Reference in Loan

Agreement

Responsible Agencies

Status of Compliance

abrogated or waived without the prior notice of ADB.

changes/cancellations of loans.

Implementation Arrangements: 1. The Borrower the State, the DISCOMs and MP Tradeco shall ensure that the Project is implemented in accordance with the detailed arrangements set forth in the PAM. Any subsequent change to the PAM shall become effective only after approval of such change by the Borrower and ADB. In the event of any discrepancy between the PAM and this Loan Agreement, the provisions of this Loan Agreement shall prevail

LA, Schedule 5, Para 1.

Borrower, State, DISCOMs and MP Tradeco. Note: Tradeco, reconstituted as Madhya Pradesh Power Management Company Limited (MPPMCL) in 2012.

Complied with. The six individual loans under the MFF were approved and implemented as required by the FFA, the LAs and the PAs. The PMUs and PIUs were established and staffed as required. There were no changes to the PAM, the LAs or the PAs.

Counterpart Funds; Onlending Agreements: 2. (a) The Borrower and the State, acting through the DISCOMs and MP Tradeco, shall ensure the availability and timely release of counterpart funds for the timely implementation of each subproject. The State, acting through the DISCOMs and MP Tradeco, shall provide, as necessary, counterpart staff, land facilities, and counterpart funds for related subprojects in accordance with the agreed financing plan. It shall do so in a timely manner through approved annual budget allocations, including the cost of making land available for the subprojects, and environment monitoring including cost of mitigating unforeseen environmental impacts, and general management expenses. (b) The State shall ensure that the Loan proceeds are promptly made available to each DISCOM and MP Tradeco on terms and conditions referred to in Section 3.01(b) of this Loan Agreement. The State shall ensure that the On-lending Agreements, in form and substance mutually satisfactory to ADB and the State, are submitted to ADB within one month from the Effective Date.

LA, Schedule 5, para 2 (a) LA, Schedule 5, para 2 (b)

State/ DISCOMs and MPPMCL. State/ DISCOMs and MPPMCL

Complied with. The DEA and the state provided sufficient support, land, loan proceeds and counterpart funds in a timely manner to carry out the project. Environmental impacts were funded by the DISCOMs and MPPMCL, through the EMPs in the various works contracts. Monitoring consultants were recruited by the DISCOMs and MP Tradeco. Complied with. The loan proceeds were made available for the project as per Section 3.01 (b) of the LA. The on-lending agreement was received by ADB.

Appendix 11 51

Covenant

Reference in Loan

Agreement

Responsible Agencies

Status of Compliance

Cash Management Responsibilities: 3. The State shall ensure that the cash management responsibilities are taken over by DISCOMs no later than 2 April 2011, so that DISCOMs can commence commercially independent operations, with any deficits met by commercial borrowings or other satisfactory means.

LA, Schedule 5, para 3

State/ DISCOMS and MPPMCL

Complied with. The DISCOMs were responsible for cash management and independent operations were in place by April 2011. Deficits are met by ongoing support from various national government facilities.

Pension: 4. The State shall ensure that no later than 30 June 2011, all executing agencies for the Investment Facility identified in the FFA, shall, under intimation to ADB, prepare an action plan to fund their respective pension liabilities, and submit these for approval of the Madhya Pradesh Electricity Regulatory Commission (MPERC), that sets out specific and time-bound reforms and actions towards achieving the same. The State and the executing agencies shall implement the pension plans in accordance with its provisions as approved by MPERC.

LA, Schedule 5, para 4

State/ DISCOMs and MPPMCL and MPERC.

Complied with. The DISCOMs and MPPMCL have implemented the pension schemes for employees as required by the State and MPERC.

Audits: 5. Without limiting the generality of Section 2.09 of the Project Agreement, the DISCOMs and MP Tradeco shall engage independent private audit firms, whose qualifications, experience and terms of reference are acceptable to ADB, to conduct annual financial audits and procurement audits, and submit reports to ADB promptly after their preparation but in any event not later than 9 months after the close of the fiscal year to which they relate. 6. The DISCOMs and MP Tradeco shall ensure that in addition to the financial statement audits, (i) energy audits, and (ii) business process and performance audits in all operational areas are conducted annually by independent auditors whose qualifications, experience and terms of reference are acceptable to ADB.

LA, Schedule 5, para 5 LA, Schedule 5, Para 6

State/ DISCOMs and MPPMCL State/ DISCOMS and MPPMCL

Complied with. Annual audit reports, acceptable to India’s Auditor General and ADB were submitted Annually. Complied with. The DISCOMs conducted energy audits, business efficiency audits and operational reviews which were operationalized though the computerized control and power purchase and trading systems installed under this project.

52 Appendix 11

Covenant

Reference in Loan

Agreement

Responsible Agencies

Status of Compliance

Debt Service Coverage Ratio: 7. DISCOM-C shall maintain a debt service coverage ratio of 1.2 from financial year 2010-2011 and onwards.

LA, Schedule 5, para 7

Borrower/ State

Not Complied. Expected to be complied by 2021 on completion of ongoing schemes of Madhya Pradesh Energy Efficiency Improvement Investment Facility (Loan 2764 and Loan 2830). However, the delay in meeting these covenants did not impact project execution or the ongoing operation of project supplied facilities. Details at para 29, 42 and 44.

Self-financing Ratio: 8. DISCOM-C shall maintain a historic self- financing ratio of 20% from financial year 2010-11 and onwards, based on a three year moving average capital expenditure

LA, Schedule 5, Para 8

Borrower/ State

Not Complied. Expected to be complied by 2021 on completion of ongoing schemes of Madhya Pradesh Energy Efficiency Improvement Investment Facility (Loan 2764 and Loan 2830). However, the delay in meeting these covenants did not impact project execution or the ongoing operation of project supplied facilities. Details at para 29 and 44.

Corporate Social Responsibility: 9. DISCOM-C shall conduct an extensive public awareness campaign through installing appropriate signs and issuing fliers to the public to ensure that people are aware that HVDS networks may result in serious injury or death in case of attempts to illegally connect to overhead circuits.

LA, Schedule 5, para 9

State/ DISCOM-C

Complied with. A public information campaign was carried out and the district and subdistrict offices continue to advise consumers of the dangers of tampering with high voltage. Signage is put on power poles, and transformer stations.

Billing and Collection Efficiency; Loss Reduction: 10. DISCOM-C shall improve collection efficiency to 95% or above by 31 December 2010 and maintain this level of collection efficiency thereafter.

LA, Schedule 5, para 10

DISCOM-C

Partially complied with. While collection efficiency has substantially improved through metering, remote metering and computerized records, there remains a

Appendix 11 53

Covenant

Reference in Loan

Agreement

Responsible Agencies

Status of Compliance

11. DISCOM-C shall ensure that losses do not exceed the targets as determined by Madhya Pradesh Energy Regulatory Commission in its tariff determination for the relevant financial year.

LA, Schedule 5, para 11

DISCOM-C

number of delinquent accounts, mostly in rural areas where there are numerous transient households and agricultural connections. The DISCOMs are continuing to improve the collections. Complied with. Losses have been reduced by 20-25 %, from 40 plus to around 20%.

Selection Criteria and Approval Process for Subprojects: 12. The Borrower and the State, acting through the DISCOMs and MP Tradeco, shall ensure that all subprojects are selected and approved in accordance with the criteria and approval process stipulated in Schedule 4 to the FFA.

LA, Schedule 5, para 12.

Borrower/State/DISCOMs /MPPMCL

Complied with. All works under the project were selected in accordance with the criteria in Schedule IV of the LA.

Turnkey Contracts: 13. The DISCOMs and MP Tradeco shall (i) ensure utilization of turnkey contracts, where appropriate, (ii) negotiate longer terms of guarantees on equipment; and (iii) include long-term maintenance provisions in the turnkey contracts.

LA, Schedule 5, para 13

Borrower/State/DISCOMs /MPPMCL

Complied with. The works contracts for the distribution system improvements were all through turnkey approach with 12-month guarantee period.

Execution of Civil Works Contracts: 14. DISCOM-C shall ensure that, subsequent to award of a civil works contract under any subproject, no section or part thereof under the civil works contract shall be handed over to the contractor unless the applicable provisions of the RF, the RP, the EARF and the EMP have been complied with.

LA, Schedule 5, para 14

State/ DISCOMs/ MPPMCL

Complied with. The contracts all included provisions for EARF/EMP mitigation and RF and RP where applicable.

Environment: 15. The Borrower, the State and DISCOM-C shall ensure that: (i) the Project is undertaken, and the Project facilities are designed, constructed, implemented, operated, and maintained, in accordance with the Borrower’s applicable

LA, Schedule 5, para 15

Borrower/ State/ DISCOMs/ MPPMCL

Complied with. The project complied with the EARF and Borrower’s applicable laws and regulations. There was a lack of understanding of the

54 Appendix 11

Covenant

Reference in Loan

Agreement

Responsible Agencies

Status of Compliance

laws and regulations, the SPS and the applicable provisions of the EARF; (ii) the IEE and EMP are implemented in accordance with their terms; (iii) in the event that any unanticipated adverse environmental impact occurs or a mitigation measure under an IEE or EMP does not have the desired effect, this is reported to ADB, and remedial actions are taken to mitigate the relevant impacts in consultation with the affected persons and ADB; (iv) any changes to the location, land alignment, or environmental impacts on account of detailed designs of the Project facilities are mutually agreed between the Borrower and ADB, and are consistent with the eligibility criteria set forth in Schedule 4 to the FFA; (v) the IEEs and EMPs are updated, as necessary, during the course of Project implementation, and submitted to ADB for clearance; (vi) the Works contractors are contractually obliged to implement the IEEs and the EMPs, and report on their implementation on a regular basis, along with any deviation; and (vii) reports on the implementation of the IEEs and the EMPs are submitted to ADB on a semi-annual basis.

environmental requirements for the initial two projects and EMPs, monitoring and reporting in safeguard issues was not properly carried out in the initial 2 years of the project (2008 and 2009) This was noted and corrected in a 2010 environmental review mission. Subsequently, EMP mitigation was incorporated in all succeeding works contracts. The DISCOMs recruited environmental consultants to monitor and adjust EMPs based on ground conditions if necessary. Since the various contracts for projects 1 and 2 were procured and equipment manufactured in 2008 through mid-2009, there had not been much actual construction and no serious environmental impacts occurred. There were no complaints received by the DISCOMs or ADB. Semi-annual and annual reports were prepared, submitted to ADB and posted on line from 2010-2016, the completion of project 6.

Social Issues and safeguards: 16. The Borrower, the State and DISCOM-C shall ensure that all land and rights of-way required for the Project are made available to the works contractor(s) in accordance with the schedule agreed under the contract for the relevant works, subject to compliance of all land acquisition and resettlement activities with: (i) the SPS, (ii) the applicable provisions of the RF, (iii) the RP and any update thereof, and (iv) all applicable laws and regulations of the Borrower and the State.

LA, Schedule 5, para 16

Borrower/ State/ DISCOM-C

Complied with. Land acquisition was minimal as most of the works were completed in existing rights of way and transformer station compounds. The rights of way and sites for new transformer stations were limited to a few hectares in rural areas. These were acquired according to requirements of

Appendix 11 55

Covenant

Reference in Loan

Agreement

Responsible Agencies

Status of Compliance

17. The Borrower, the State and DISCOM-C shall ensure that people affected by the Project are compensated in a timely manner in accordance with the RF and the RP, and that payments will be made in a timely manner, prior to dispossession from land and other assets. The Borrower shall submit progress and completion reports on land acquisition and resettlement on a semi-annual basis. 18. The Borrower, the State and DISCOM-C shall ensure that prior to land acquisition and any resettlement for the Project, the RF, the RP and any update thereof, are disclosed to persons affected by the Project and confirm that they be uploaded onto the ADB website. 19. The Borrower, the State and DISCOM-C shall ensure that essential public infrastructure that may be affected by land acquisition and resettlement is replaced, as appropriate, in an expeditious manner. 20. The Borrower, the State and DISCOM-C shall ensure that construction contracts contain binding requirements for construction contractors to fully reinstate pathways and other local infrastructures to at least their pre-project condition upon construction completion. The Borrower shall adequately record the condition of roads and other infrastructure prior to transport of material and construction commencement. 21. The Borrower, the State and DISCOM-C shall ensure that works contracts under the Project follow all applicable labor laws of the Borrower and the State and that these further include provisions to the effect that contractors (i) carry out HIV/AIDS awareness Facilitys for labor and disseminate information at worksites on risks of sexually transmitted diseases and HIV/AIDS as part of health and

LA, Schedule 5, para 17 LA, Schedule 5, para 18 LA, Schedule 5, para 19 LA. Schedule 5, para 20. LA. Schedule 5, para 21

Borrower/ State/ DISCOM-C Borrower/ State/ DISCOM-C Borrower/ State/ DISCOM-C Borrower/ State/ DISCOM-C Borrower/ State/ DISCOM-C

the Borrower and the State acceptable to ADB. Complied with. Land owners were compensated in accordance with the laws of the Borrower and the State. Some payments were initially delayed but were later made. Reports were submitted on a semiannual basis. Complied with. Only loans 2323 and 2346 (projects 1 and 3) involved land acquisition. There were no displaced persons. Land owners were notified, and compensation paid. The other 4 loans/projects did not involve land acquisition. This was uploaded to the ADB website. Complied with. There was no public infrastructure affected as the land acquisition was agricultural land. Complied with. Most work was in rural areas along road allowance and at existing transformer stations. Since the work was all above ground, there was no damage to existing roads or facilities. Complied with. The works contracts used standard ADB ICB bid documents for turnkey contracts and included provision for applicable labor laws of the Borrower and the State. The contractors were

56 Appendix 11

Covenant

Reference in Loan

Agreement

Responsible Agencies

Status of Compliance

safety measures for those employed during construction; and (ii) follow and implement all statutory provisions on labor (including not employing or using children as labor, equal pay for equal work), health, safety, welfare, sanitation, and working conditions. Such contracts shall also include clauses for termination in case of any breach of the stated provisions by the contractors. 22. The Borrower shall ensure that the Project does not impact indigenous peoples within the meaning of the SPS. In the unforeseen event that the Project does impact indigenous peoples, the Borrower shall take all steps required to ensure that the Project complies with applicable laws and regulations of the Borrower the SPS and the Borrower the SPS and the applicable provisions of the IPDF.

LA, Schedule 5. Para 22

Borrower/State/DISCOMs/MPPMCL

monitored and there were no reported complaints. Complied with. There were no indigenous peoples affected by the project.

Procurement: 23. The State, the DISCOMs and MP Tradeco shall ensure that in all bidding documents and contracts the anticorruption provisions mutually acceptable to ADB and the State, DISCOMs and MP Tradeco are included, including provisions specifying the right of ADB to audit and examine the records and accounts of the executing and implementing agencies and all contractors, suppliers, consultants, and other service providers as they relate to the Project.

LA, Schedule 5, para 23

State/ DISCOMs/ MPPMCL

Complied with. The bid contracts followed ADB’s standard ICB documents and contained the anti - corruption charges. ADB’s rolling audits and the annual audit reports did not find any misuse of funds or related issues.

24. The State shall cause the DISCOMs and MP Tradeco to (i) maintain separate accounts for the Project; (ii) have such accounts and related financial statements of each DISCOM and MP Tradeco (balance sheet, statement of income and expenses, and related statements) audited annually, in accordance with appropriate auditing standards consistently applied, by independent auditors whose qualifications, experience and terms of reference are acceptable to ADB; and (iii) furnish to ADB, promptly after their preparation but in any event not later than 9 months after the close of the fiscal year to which they relate, certified copies of such audited accounts and financial statements and the report of the auditors relating thereto (including the auditors' opinion on the use of

Project Agreement, Section 2.09

State/ DISCOMs/ MPPMCL

All annual audited project financial statements (APFS) from effective date to closing were received generally on time and complied with. Auditor issued unqualified audit opinions for all the reports.

Appendix 11 57

Covenant

Reference in Loan

Agreement

Responsible Agencies

Status of Compliance

the Loan proceeds and compliance with the financial covenants of the Loan Agreement as well as on the use of the procedures for imprest account and statement of expenditures), all in the English language. The State, the DISCOMs and MP Tradeco shall furnish to ADB such further information concerning such accounts and financial statements and the audit thereof as ADB shall from time to time reasonably request.

ADB = Asian Development Bank, DISCOM = power distribution company, EA = executing agency, EARF = environmental assessment and review framework, EMP = environmental management plan, FFA = financing facility agreement, HVDS =high voltage distribution system, IEE = initial environmental examination, , LA = loan agreement, MPERC = Madhya Pradesh Electricity Regulatory Commission, MPPMCL = Madhya Pradesh Power Management Company Limited, MP Tradeco =Madhya Pradesh Electricity Trading Company, reconstituted in 2012 as MPPMCL, PA = project agreement, PAM = project administration memorandum, PMU = project management unit, RF = resettlement framework, RP = resettlement plan, State = Government of Madhya Pradesh.

58 Appendix 12

ECONOMIC REEVALUATION OF PROJECT 6

A. General 1. The reevaluation of the economic performance of Project 6 is based on estimated cost and benefit streams expressed in constant 2015 dollars. 1 It considers the network and IT investments undertaken by DISCOM-C, primarily to reduce technical and commercial losses. The IT investments undertaken by DISCOM-E, DISCOM-W and the Madhya Pradesh Power Management Company Limited (MPPMCL) under his project do not have any directly observable economic benefits (except improved O&M), however their costs have been included in this reevaluation. Figures from the appraisal evaluation, which were expressed in 2011 values, have been adjusted to 2015 values for the purposes of comparison. The project boundary was defined to be the distribution network of DISCOM-C and the existing customers and prospective customers in Madhya Pradesh (MP) served through the company’s distribution networks. Analysis was conducted at the component level, following the approach taken at appraisal, and then aggregated to calculate an overall economic internal rate of return (EIRR) for the project. B. Economic Benefits 2. Demand. Actual demand over the period FY2011 to FY2018 was incorporated in the analysis. For conservatism, demand growth beyond FY2018 was ignored for the purposes of this reevaluation on the basis that ongoing investments in other parts of the network are likely to be required to meet demand growth. 3. As noted at appraisal, the principal economic benefits of the investment are incremental consumption and displaced thermal electricity generation. These benefits arise from a reduction in technical and non-technical losses attributable to component 1 (expansion of the high voltage distribution system (HVDS) scheme and other distribution system strengthening and upgrading) and component 2 (installation of capacitor banks in the distribution system, construction of new 33/11 kilovolt (kV) substations and 11kV feeders and the distribution line augmentation and upgrading subproject). Component 1 was scaled back from the investment planned at appraisal (parts of the HVDS scheme were completed under other projects of the MFF) and the extent of loss reduction was scaled proportionately in the reevaluation. Under component 2, it was expected at appraisal that most of the reactive compensation would be provided mainly at the low voltage (0.4kV) level through the installation of 30,000 low voltage capacitor banks. However, during detailed planning and design this was reconsidered in light of the extensive adoption of the HVDS scheme and ultimately all reactive compensation was provided by way of medium voltage (11kV) capacitor banks. For the purposes of this analysis and in lieu of better information, it was assumed that the loss reduction benefit arising from component 2 was as estimated at appraisal (which itself was based on sample load flow studies undertaken by DISCOM-C). 4. In addition to loss reduction, it is likely that component 2 (in particular) resulted in improvements in supply reliability in parts of network (by way of a reduction in short-term outages caused by overloading and faults on aged equipment). However, statistics provided by DISCOM-C showed an overall worsening of network reliability over the period 2011-2015 and they were unable to provide any statistics for the period after 2015. Therefore, any possible economic benefits attributable to reliability improvements have been ignored for this reevaluation.

1 2015 was the year of project completion and the basis on which cost were re-stated for the financial reevaluation.

Adopting a 2015 base for this economic reevaluation facilitated the direct comparison of financial and economic costs at Table A12.2.

Appendix 12 59

5. Component 3 (asset mapping and energy auditing) was ascribed a loss reduction benefit in the analysis undertaken at appraisal (based on estimates provided by DISCOM-C) but insufficient details were provided as to the basis of estimation of benefits and so they have been excluded from this reevaluation. 6. The reduction of technical losses in the distribution network may cause benefits in two ways: (i) in an energy deficit power system, saved energy causes the energy deficit to be lower than otherwise, allowing for incremental consumption of electricity by consumers (valued at their willingness to pay); or (ii) in an energy surplus system, energy saved in reduced distribution losses would reduce output from the marginal generator (a resource cost saving). Overall, MP was running an energy deficit until about FY2015 but now load shedding has now been eliminated. Current projections indicate that surpluses will continue for the foreseeable future. Over-forecasting of demand growth during the 12th plan period (2012-2017) by CEA and consequential over-investment in base-load thermal generation also supports an expectation of energy and capacity surpluses for the medium term for MP and neighboring states.2 On this basis and for the purposes of this reevaluation it was assumed that peak loss reduction would have resulted in incremental output up to and including FY2014, and thereafter it would have resulted in non-incremental output. 7. Overall the DISCOM-C has been successful in its efforts to reduce losses: aggregate energy losses reduced to 25.1% in FY2016 from 41.6% in FY2009. However, the project was one of a number of interventions made by DISCOM-C over the period to reduce technical and non-technical losses (and it is noted that many of the subprojects in this investment targeted reliability and quality of supply rather than loss reduction). To estimate the actual loss reduction that can be reasonably attributed to the project, as noted above subproject analysis conducted during appraisal (which was based on load flow analysis conducted by DISCOM-C) was updated to reflect actual capital costs and physical outcomes of the project. A study conducted under the multitranche financing facility regarding the impact on losses of the introduction of HVDS was also reviewed and its findings incorporated.3 On this basis, aggregate loss reduction achieved by the project (by 2018) was estimated at 476 gigawatt-hours (GWh) per annum (including low voltage, 11kV and 33kV losses), representing approximately 0.75% (out of the total loss reduction of 19%). This is a very conservative estimate and includes only 50% of estimated non-technical loss reduction accruing from the project. On the basis of discussions with DISCOM-C, it was estimated that 30% of the loss reduction arising from component 1 is technical losses and 70% is non-technical losses. For component 2 the estimated loss reduction split is 80% technical loss and 20% non-technical. 8. The extent to which project components were progressively commissioned is unclear from information provided by DISCOM-C. It was therefore assumed that 50% of the new assets were in service by 2015 and that all assets were in service by 2016. A benefit proportional to the value of assets commissioned was assigned from 2015. The loss reduction attributed to the project may increase after FY2018 when increasing customer demand results in delivery of more power through the DISCOM-C’s distribution networks, however for conservatism it was assumed to remain constant throughout the evaluation period. As noted above, because MP and neighboring states no longer suffer from energy and capacity supply constraints, peak loss reduction was

2 Without a detailed analysis, it is an oversimplification to say that any surplus energy from MP would be used in other

energy and capacity “deficit” states. 3 ADB. 2011. Report and Recommendation of the President to the Board of Directors: Proposed Multitranche Financing

Facility and Technical Assistance Grant to India for the Madhya Pradesh Energy Efficiency Improvement Investment Program.

60 Appendix 12

assumed to result in non-incremental output (resource cost saving) throughout the analysis period. 9. Non-incremental output arising from loss savings was valued on the basis of the economic cost of electricity supply in MP. On the basis of a review of the current and expected generation mix in MP, it was assumed that the marginal cost of electricity from existing coal-fired thermal plants represents the short-run marginal cost of energy in MP. The fuel component (only) of this short-run cost was used to value non-incremental benefits. Marginal costs of existing coal plants were estimated based on actual historical operating parameters contained in recent tariff petitions submitted by MP’s state-owned generating company. Coal fuel was initially valued at its border price equivalent value (BPEV), based on the World Bank’s coal price forecast and adjusted for the generally lower quality of coal used for power generation in India. On this basis, non-incremental output was valued at the estimated average variable (fuel) cost of generation of ₹2.7 per kilowatt-hour (kWh). 10. The total emissions reduction estimated against the baseline over the 25-year evaluation period was estimated at 5.9 million tCO2. These emissions reductions were valued assuming a (2015 real) price of $36.30 per tCO2. 11. Table A12.1 summarizes economic benefit quantification and valuations. For conservatism, these are based on the approach discussed above, rather than targets and/or results contained in the Design and Monitoring Framework (which are too difficult to objectively value in many cases). As noted above, to reflect an expectation that ongoing investments in other parts of the network are likely to be required to meet demand growth, no increase in benefits is assumed beyond 2015.

Table A12.1: Project Benefit Calculations

Item Unit 2015 2016 2017 2018 2019 2020

Quantification

Loss reduction (estimated by DISCOM-C through load flow analysis and initial field indications)

Incremental output (a) GWh 0.0 0.0 0.0 0.0 0.0 0.0

Non-incremental output (b) GWh 125.1 346.0 457.2 476.0 476.0 476.0

Technical loss reduction GWh 78.0 222.9 298.7 311.0 311.0 311.0

Commercial loss reduction a GWh 47.2 123.2 158.5 165.0 165.0 165.0

Total output GWh 125.1 346.0 457.2 476.0 476.0 476.0

Avoided Emissions (c) MtCO2 0.1 0.2 0.3 0.3 0.3 0.3

Valuation

Incremental output (weighted average end-use tariff adopted as a conservative proxy)

Weighted average willingness to pay (d) ₹/kWh 4.3 4.8 4.9 4.2 4.4 4.4

Non-incremental output

Avoided grid generation (e) ₹/kWh 2.7 2.7 2.7 2.7 2.7 2.7

Avoided emissions (f) ₹/tCO2 2,468 2,468 2,468 2,468 2,468 2,468

Summary

Total Value of Incremental Output (a)*(d) ₹ m 0.0 0.0 0.0 0.0 0.0 0.0

Total Value of Non-Incremental Output (b)*(e) ₹ m 276.7 775.2 1,030.0 1,072.5 1,072.5 1,072.5

Appendix 12 61

Total Value of Avoided Emissions (c)*(f) ₹ m 189.0 529.4 703.4 732.4 732.4 732.4

a) Based on advice from DISCOM-C, it was estimated that 75% of commercial loss reduction is converted to sales, which is assumed to have zero economic benefit. Only the 25% of commercial loss reduction that has net economic benefit (as a consequence of the economic cost of this illegal consumption exceeding its economic benefit) is shown in the table. Source: Asian Development Bank estimates.

C. Economic Costs 12. Project investments. The domestic price numeraire was used for this reevaluation based on actual expenditure. Traded inputs were valued at their border price equivalent values and then adjusted to the domestic price numeraire by multiplying by the shadow exchange rate factor (SERF) calculated at appraisal (1.04). Non-traded inputs were valued at domestic prices. It was assumed that there are no significant distortions in the wage rates for skilled labor. In the case of unskilled labor, underemployment exists in the economy, and the shadow wage rate (SWR) of 0.75 used during appraisal was adopted for this reevaluation. Taxes, financing charges and price contingencies were excluded. Net environmental costs of construction and related activities were assessed as negligible. The annual economic costs used in the economic reevaluation are summarized in Table A12.2.

Table A12.2: Financial and Economic Costs of the Project (2015 ₹ million)

Financial Yeara

Project Financial Costs

Project Economic Costs

2011 234.3 236.7 2012 917.9 927.2 2013 1,645.7 1,662.4

2014 1,624.1 1,640.6 2015 766.5 774.3 Total 5,188.5 5,241.2

aThe financial year is from 1April to 31March. Source: Asian Development Bank estimates, based on annual financial disbursements

13. Operation and maintenance costs. The HVDS subproject and the installation of capacitor banks are likely to result in a reduction of operations and maintenance (O&M) cost compared to the without-project scenario (primarily a reduction in distribution transformer failures). Objectively, however, it is difficult to assess the extent to which these costs would reduce. Therefore, the approach adopted at appraisal was followed for this reevaluation – the MP regulatory allowance for O&M costs was adopted (typically 2.5% of capital costs, a figure based on the recommendation and experience of the India’s central regulatory authority). The specific conversion factor for O&M costs was estimated to be approximately 1.0 and therefore no shadow pricing of O&M costs was undertaken. O&M costs were assumed to apply to the completed and commissioned portion of each component, from the year after commissioning. D. Economic Reevaluation 14. Based on the estimates of economic benefits and costs as described above, the aggregate economic internal rate of return (EIRR) was recalculated to be 22.5%. This value is slightly lower than the appraisal evaluation of 30.4%, principally because: (a) the HVDS component was scaled back; and (b) because costs but no benefits were ascribed to component 3 (asset mapping and energy auditing) and component 4 (ERP implementation) in this reevaluation. The estimated

62 Appendix 12

EIRR is higher than the assumed EIRR hurdle rate of 12%. Detailed calculations are shown in Table A12.3.

Table A12.3: Reevaluated Economic Internal Rate of Return (2015 ₹ million)

Benefits Costs Net Benefits

Year

Incremental Output

Non-Incremental

Output

Avoided Emissions

Capital O&M

2011 0 0 0 237 0 (237)

2012 0 0 0 927 0 (927)

2013 0 0 0 1,662 0 (1,662)

2014 0 0 0 1,641 0 (1,641)

2015 0 277 189 774 65 (373)

2016 0 775 529 0 76 1,229

2017 0 1,030 703 0 76 1,658

2018 0 1,072 732 0 76 1,729

2019 0 1,072 732 0 76 1,729

2020 0 1,072 732 0 76 1,729

2021 0 1,072 732 0 76 1,729

2022 0 1,072 732 0 76 1,729

2023 0 1,072 732 0 76 1,729

2024 0 1,072 732 0 76 1,729

2025 0 1,072 732 0 76 1,729

2026 0 1,072 732 0 76 1,729

2027 0 1,072 732 0 76 1,729

2028 0 1,072 732 0 76 1,729

2029 0 1,072 732 0 76 1,729

2030 0 1,072 732 0 76 1,729

2031 0 1,072 732 0 76 1,729

2032 0 1,072 732 0 76 1,729

2033 0 1,072 732 0 76 1,729

2034 0 1,072 732 0 76 1,729

2035 0 1,072 732 0 76 1,729

EIRR 22.5%

ENPV 3,654 ( ) = negative, EIRR = economic internal rate of return, ENPV = economic net present value, O&M = operations and maintenance. a. Incremental variable cost of generation to supply incremental output. Source: Asian Development Bank estimates.

15. Sensitivity analysis. In this reevaluation, there are two parameters that may adversely affect the economic viability of the project: increase in the operations and maintenance costs, or reductions in the value of saved energy losses. The EIRR was tested and switching values were calculated for each of these risks.4 Results of the sensitivity analysis, which are summarized in Table A12.4, reflect the robust economic returns from the project even under a combined

4 A switching value measures the percentage change in the variable required to reduce the EIRR to the assumed

hurdle rate.

Appendix 12 63

downside scenario. It is clear from this reevaluation that the decision to construct the project facilities was correct from an economic perspective.

Table A12.4: Results of Sensitivity Analysis

Sensitivity Parameter Variation EIRR Switching Value

Base case 22.5% 1 Value of saved losses - 20% 18.5% -66% 2 O&M costs + 20% 22.3% >1000% 3 Combined 16.0%

64 Appendix 13

ECONOMIC REEVALUATION OF THE MFF

A. General 1. At the time that the multitranche finance facility (MFF) was appraised, no analysis of the expected economic performance of the facility was undertaken and no overall economic internal rate of return (EIRR) was estimated. This reevaluation provides an aggregated assessment of the economic performance of each of the six projects of the MFF and provides a weighted average EIRR based on the reevaluated EIRRs of each project included in project completion reports (PCRs) for the MFF. Insufficient information was available to undertake a post-investment time-slice analysis of the overall sector investment Facility identified in the sector road map during MFF appraisal, however the weighted average EIRR for the MFF is considered to provide a reasonable proxy for the performance of the sector overall. The project boundary for this reevaluation is defined to be Madhya Pradesh’s (MP’s) transmission and distribution networks and the existing customers and prospective customers served through these networks. B. Economic Benefits 2. As noted at appraisal, the investment Facility was driven by the need to transmit an additional 6,000 megawatts (MW) of peak power through the state’s transmission and distribution systems. The investment Facility was predicated on building sufficient capacity to evacuate power from existing and planned power stations and substations and delivering power reliability and efficiency to consumers. It also targeted significant reductions in technical and commercial losses, with a target of reducing the requirement for additional capacity by more than 1,000 MW and returning to a capacity and energy surplus by 2011. 3. These expected benefits have largely been achieved. Between FY2008 and FY2016, peak demand increased by approximately 5,000 MW and distribution losses decreased from approximately 44% to 26% over the same period. With losses at the FY2008 level of 44%, peak demand would have increased by approximately 10,000 MW over the period. That is, loss reduction over the period meant that, in principle, the need to provide an additional 5,000 MW of generation and network capacity was avoided.

Table A13.1: Electricity Sales, Peak Demand and Losses

Item FY 2008 2009 2010 2011 2012 L2016

Electricity sales (GWh) 23,091 23,027 25,109 27,533 30,649 51,649

Aggregate energy losses (% of purchases) 44 39 36 34 32 26

Indicative peak demand

With loss reduction (MW) 7,544 7,567 7,710 9,017 8,979 12,466

Without loss reduction (MW) 7,544 8,205 8,975 10,964 11,271 17,435

Avoided peak losses (MW) - 637 1,264 1,947 2,292 4,969

4. The principal economic benefits of the MFF investment identified at appraisal were incremental consumption and displacement of thermal electricity generation and of traditional fuel sources such as kerosene (for lighting) and diesel (used in small generators). These benefits

Appendix 13 65

arise from a reduction in technical and commercial losses, removal of network constraints, and improved reliability of supply. Benefits were quantified through load flow analyses and from pilot studies undertaken in other states. Table A13.2 shows a breakdown of the subprojects covered by the MFF and the nature of the economic benefits that have accrued.

Table A13.2: MFF Subprojects and Economic Benefits

Subproject Type Benefit Valuation Parameter

Transmission capacity augmentation Incremental demand served through removal of transmission capacity constraints

Willingness to pay:

Reduction in transmission losses:

a. Off-peak Resource cost saving

b. Peak, when there is a supply shortfall Willingness to pay

c. Peak, when there is sufficient supply Resource cost saving

High voltage distribution system Reduction in technical distribution losses through use of higher voltage:

a. Off-peak Resource cost saving

b. Peak, when there is a supply shortfall Willingness to pay

c. Peak, when there is sufficient supply Resource cost saving

Reduction in non-technical distribution losses through reduction in LV circuit-kms

Resource cost saving

Reduction in transformer failure rate Transformer repair cost

avoided (supply price)

Substation Protection Reduction in outages due to isolation of faulted circuits

Willingness to pay

Remote Metering Reduction in meter reading costs for HV and high value LV consumers

Meter reading vehicle cost saving (supply price)

Personnel cost saving (supply price)

Consumer Metering Reduction in (uneconomic) consumption by unmetered consumers allowing increased consumption by other consumers

Willingness to pay

SCADA Reduction in outage duration due to rapid isolation of faulted components and restoration of supply

Resource cost saving

Reduction in losses through better optimisation of open points

a. Off-peak Resource cost saving

b. Peak, when there is a supply shortfall Willingness to pay

c. Peak, when there is sufficient supply Resource cost saving

66 Appendix 13

Feeder separation (Jyoti Gram Yajna)

Increase in consumption by domestic consumers

Willingness to pay

Reduction in theft of electricity by agricultural consumers

Resource cost saving

MV line reinforcement and augmentation

Reduction in technical loss through shorter MV and LV line lengths

a. Off-peak Resource cost saving

b. Peak, when there is a supply shortfall Willingness to pay

c. Peak, when there is sufficient supply Resource cost saving

Incremental demand served through removal of capacity constraints

Willingness to pay

HV = high voltage, LV = low voltage, MV = medium voltage, SCADA = supervisory control and data acquisition

C. Economic Performance 5. Table A13.3 shows the EIRRs for each project as estimated during appraisal and as reevaluated during preparation of PCRs for each project (the details of which are not repeated here). Weighted average EIRRs for the MFF are shown at the bottom of the table (economic costs of each project were adjusted to a common 2015 base for weighting purposes). As appraised, the EIRR for the overall MFF was approximately 20% compared to the reevaluated EIRR for the MFF of 22%.

Table A13.3: MFF Economic Internal Rate of Return by Project

Project Economic Capital Cost EIRR

As Appraised

Actual

As Appraised

PCR Reevaluation

(2015 base) (2015 base) (%) (%)

1 5,537.0 5,355.5

14.9 20.6

2 2,812.0 2,963.1

14.7 18.5

3 7,674.0 6,832.1

14.9 19.3

4 4,812.8 5,193.1

15.9 21.5

5 11,658.0 9,958.3

27.2 25.3

6 4,643.0 3,791.0

30.4 22.0

Weighted averages: 20.3 21.7

EIRR = economic internal rate of return

6. A planned total investment in the transmission and distribution subsectors of approximately ₹138 billion (approximately $3 billion at the exchange rate at the time) was indicated during MFF appraisal (for the period 2007-2012), reflecting an expectation of financing from non-ADB sources of approximately $2.4 billion. The balance sheets of the three DISCOMs grew by approximately ₹144 billion from the end of FY2007 to the end of FY2016, and that of Transco grew by approximately ₹35 billion over the same period. This indicates that the planned investment Facility was achieved, albeit over 8-9 years rather than 5 years. Despite this indication that actual investment met planned investment, the Design and Monitoring Framework (DMF) for the MFF shows that performance against targets was mixed. From a macroeconomic perspective, the design impact and was easily achieved - Gross State Product (GSP) growth averaged 8.5% over the period, compared to a target of at least 6%. The target to eliminate energy deficits by

Appendix 13 67

2012 (from 13% in 2007) was not achieved, although the state did move to year-round capacity and energy surpluses from FY2015 (and this relates to investment in the generation subsector rather than the transmission and distribution subsectors). DMF targets for the transmission subsector were easily achieved (loss reduction, system capacity and system availability). However, the distribution subsector still shows signs of underinvestment; DMF loss targets (reflecting those set by MPERC) have not been achieved, and this under-recovery of generation costs materially impacts on the financial performance of the DISCOMs. Reliability and quality of supply have improved objectively (fewer outages, fewer customer complaints and 24 hours provided year-round to domestic consumers), but there is still further room for improvement. In this context, it is possible that the capital investment requirement for the distribution subsector was understated by the government at the time of appraisal, either as a consequence of an overly optimistic view of the capacity and condition of the (then) existing network or an under-estimation of demand for electricity (or both).

68 Appendix 14

FINANCIAL REEVALUATION OF PROJECT 6

A. Background 1. This financial reevaluation considers the network and IT investments undertaken by DISCOM-C and the IT investments undertaken by DISCOM-E and DISCOM-W under Project 6, based on actual capital cost and estimated benefit streams.1 The unit of account selected was Indian rupees (₹). Financial benefits flowing to the DISCOMs consist primarily of an increase in regulated revenue accruing from newly constructed distribution facilities: an annual revenue requirement (ARR) for each DISCOM is determined by the jurisdictional regulator, Madhya Pradesh Electricity Regulatory Commission (MPERC), based on MPERC’s view of reasonable and efficient capital costs, power purchase costs, operations and maintenance (O&M) costs, overhead costs, depreciation, interest on loans and on working capital, and return on equity. To assess financial viability, the weighted average cost of capital (WACC) of the investment was calculated and compared with the total investment’s financial internal rate of return (FIRR). B. Evaluation of Project Benefits 2. Regulated revenue from new assets. As noted above, most of the incremental revenue earned by the DISCOMs for the new distribution facilities is calculated in accordance with regulations set by MPERC. MPERC allows DISCOMs to recover electricity purchase costs, interest costs, depreciation charges, O&M costs, working capital charges and corporate taxes in end-use tariffs.2 A return on invested equity of 16% (post-tax) is also included in the annual revenue allowance. Any assets that are brought in to service are added to the distributor's regulatory asset base, and this results in increases in revenue allowances for return on equity, depreciation and interest costs. The principle underpinning these revenue regulations is that distributors should earn at least their cost of capital on its investments (subject to some side constraints). That is, in principle the FIRR on efficient capital investments should equal (at least) the WACC (without taking into account any other benefits that might arise). 3. For the purposes of this reevaluation, it was assumed that project assets were transferred from capital work in progress to fixed assets in 2014 and 2015 (that is, it was assumed that regulated revenue was only earned from FY2015 onwards). Total incremental regulated revenue (that is, revenue deriving purely from assets being brought into service) earned in 2015 was estimated at approximately ₹850 million (in 2015 terms). 4. Incremental revenue from reduced distribution losses. Distribution loss trajectories for DISCOs are set by MPERC at the start of each regulatory period. DISCOMs can recover electricity purchase costs in accordance with MPERC’s loss trajectories. If DISCOMs achieve loss levels lower than the trajectories set by MPERC, they retain the saving in electricity purchase costs. Conversely, if DISCOMs cannot meet MPERC’s distribution loss trajectories, some electricity

1 The Madhya Pradesh Power Management Company Limited (MPPMCL) has implemented an Enterprise Resource

Planning (ERP) solution as part of Project 6. This entity recovers its costs by way of a margin on power trades to the three DISCOMs and operates on a no-profit / no-loss basis. In this context and given its small size relative to the overall Project 6 investment (approximately 3% of the capital cost of Project 6), the implementation of ERP at MPPMCL has not been included in this financial analysis.

2 The annual revenue requirement (ARR) is the total electricity revenue that the jurisdictional regulator has agreed to

allow the electricity distributor to recover during the subsequent year. The tariff that is subsequently calculated is just the mean by which the ARR is recovered from customers. The DISCOMs are not incentivized to under-forecast sales quantity (and thereby increase tariff) because over-recovery of revenue (compared to the ARR) is recovered in subsequent years (by way of a reduction in ARR).

Appendix 14 69

purchase costs cannot be recovered from customers and instead have to be absorbed by the DISCOMs.3 MP DISCOMs have struggled meet MPERC’s loss trajectories and this has been the main cause of DISCOMs’ financial losses. Components 1 and 2 of the investment reduced total energy losses by an estimated 617 gigawatt-hours (GWh) per annum.4 This loss reduction results in incremental net revenue to DISCOM-C. With the state moving to energy and capacity surpluses from FY2015, loss reduction accrues as a reduction in unfunded electricity purchases (that is, electricity purchases that DISCOM-C cannot recover from customers by way of regulated revenue), and this was valued at the DISCOMs’ average variable electricity purchase cost in FY2015 of approximately ₹2.9 per kWh (assumed constant in real terms beyond FY2015). Tariff regulations allow DISCOM-C to retain two-thirds of the value of this loss reduction [footnote 31], resulting in net incremental revenue of approximately ₹1,176 million per year by FY 2018 in addition to the regulated incremental revenue arising from the DISCOM’s increased regulatory asset bases (discussed in the preceding paragraph). C. Evaluation of Project Costs 5. Project costs. Project capital costs include equipment, civil engineering and erection costs, project management costs, expenditure on safeguards, purchase of land, and taxes and duty. No physical or price contingencies were charged to the project, nor any financial charges during construction. Total annual expenditure against the project was estimated from actual annual loan disbursements and from reported total expenditure from counterpart funds. The project was completed in 2015 and all monetary values were converted to 2015 equivalent values in accordance with ADB guidelines, as summarized in Table A14.1.5

Table A14.1: Conversion of Project Costs to 2015 Price Levels

Year Foreign Cost

Local Cost Foreign Price Index

Local Price Index

Foreign Cost

Local Cost

Total Cost

($ million) (₹ million) (2015 base) (2015 base) (2015 ₹ million)

2011 2.5 55.3 98.1 81.5 166.5 67.9 234.3 2012 10.0 248.7 100.1 89.5 640.0 277.9 917.9 2013 17.5 477.8 97.5 96.6 1,151.4 494.4 1,645.8 2014 17.3 491.8 96.7 102.8 1,145.9 478.4 1,624.2 2015 8.1 244.1 100.0 100.0 522.4 244.1 766.5 Total 55.4 1,517.8 3,626.1 1,562.7 5,188.8

Note: Foreign price index is based on dollars compared with a basket of currencies (http://www.fxstreet.com/rates-charts/usdollar-index/). The local price index is based on the consumer price index published by the Reserve Bank of India.

6. Operation and maintenance costs. The HVDS subproject and the installation of capacitor banks are likely to result in a reduction of O&M costs compared to the without-project scenario (primarily a reduction in distribution transformer failures). As noted in the previous section however, actual incremental O&M costs attributable to the project cannot be calculated with any accuracy. MPERC’s regulatory allowance for O&M costs is 2.5% of gross fixed assets,

3 Under current regulations, under/over-recoveries of generation costs due to under/over-achievement of the loss

trajectories set by MPERC are shared between DISCOMs and their customers in the ratio 2:1. That is (and for example), for every rupee of under-recovered generation purchase costs, DISCOMs are allowed by MPERC to include 33 paisa in tariffs with the balance of 66 paisa representing a loss for DISCOMs.

4 The economic analysis included only a fraction of commercial loss reduction as an economic benefit whereas this financial analysis includes loss reduction in its entirety.

5 Asian Development Bank, Independent Evaluation Department. 2013. ADB Guidelines for Preparing Performance Evaluation Reports for Public Sector Operations. Manila.

70 Appendix 14

escalated annually at a rate set periodically by MPERC (this means that the DISCOMs are allowed to recover annual O&M costs equal to 2.5% of the capitalized asset value of the project). This O&M cost was used in the revenue allowance calculation and also as an expense line in the project cash flows.

D. Evaluation Basis, Period and Residual Value 7. Incremental cash flows earned by DISCOMs from project assets were estimated based on the methodology and assumptions described above. As noted above, sustainable incremental revenue is earned as a consequence of:

a. the addition of project assets to the DISCOMs’ regulated asset base - depreciation and interest charges on project debt are added to the ARR (the project was considered entirely debt-funded from a regulatory perspective and no incremental return on equity is earned); and

b. loss reduction – in simple terms and for purposes of modeling, DISCOM-C retains 2/3 of the value of loss reduction by way of an increase in ARR (the balance is given to DISCOM-C’s customer by way of a tariff adjustment).

8. The evaluation period was 30 years from 2011. Assets were assumed to have an average economic life of 35 years, and terminal values were ascribed based on remaining regulatory book value at the end of the evaluation period.6 Project assets were depreciated on a straight-line basis in accordance with depreciation rates set by MPERC. Financial internal rates of return (FIRRs) were calculated separately for each of DISCOM-C (20.3%), DISCOM-E (2.6%) and DISCOM-W (2.6%) and the calculations are shown in Tables A14.2, A14.3 and A14.4 respectively.7 The FIRR for DISCOM-C is lower than that calculated at appraisal (37.4%), mainly because the appraisal evaluation considered incremental revenue from increased electricity sales (from non-technical loss reduction) as sustainable, whereas in practice any revenue in excess of the ARR is offset against revenue in future years. Also, at the time of the appraisal evaluation the tariff regulation allowed for DISCOMs to capture all of the value of loss reduction, however subsequent amendments to the tariff regulation meant that the benefit of loss reduction has to be shared with customers [footnote 31]. Conversely, the appraisal evaluation did not include the asset-based incremental revenue arising from the investment. However, 20.3% is considered a very high real rate of return in a regulated environment, reflecting the significant loss reduction achieved under the project. FIRRs for DISCOM-E and DISCOM-W were not calculated at appraisal.

Table A14.2: Financial Reevaluation of Project 6 (DISCOM-C)

(2015 ₹ million)

Revenue Costs

Net Cash Flow Year Asset Return Reduced Losses Capital Supply O&M

2011 0 0 234 0 0 (234)2012 0 0 918 0 0 (918)

6 Cash flow beyond the evaluation period would reflect the remaining asset regulatory book value, so this is considered

a good approximation for asset residual value. 7 As a consequence of years of tax losses, DISCOMS are not expected to pay significant levels of tax for the

foreseeable future. Therefore, and since corporate taxes are a pass-through cost anyway, project pre-tax rather than post-tax cash flows was calculated.

Appendix 14 71

2013 0 0 1,646 0 0 (1,646)2014 0 0 1,624 0 0 (1,624)2015 352 321 767 0 38 (131)2016 480 847 0 0 88 1,238 2017 448 1,108 0 0 88 1,467 2018 415 1,153 0 0 88 1,480 2019 385 1,153 0 0 88 1,450 2020 357 1,153 0 0 88 1,422 2021 331 1,153 0 0 88 1,396 2022 307 1,153 0 0 88 1,372 2023 284 1,153 0 0 88 1,349 2024 263 1,153 0 0 88 1,328 2025 243 1,153 0 0 88 1,308 2026 225 1,153 0 0 88 1,290 2027 207 1,153 0 0 88 1,272 2028 191 1,153 0 0 88 1,256 2029 176 1,153 0 0 88 1,242 2030 163 1,153 0 0 88 1,228 2031 150 1,153 0 0 88 1,215 2032 101 1,153 0 0 88 1,166 2033 56 1,153 0 0 88 1,121 2034 52 1,153 0 0 88 1,117 2035 49 1,153 0 0 88 1,114

Terminal value: 187 FIRR 20.3%

FPNV 15,200 ( ) = negative, FIRR = financial internal rate of return, O&M – operations and maintenance.

Table A14.3: Financial Reevaluation of Project 6 (DISCOM-E)

(2015 ₹ million)

Revenue Costs Net

Cash Flow Year Asset Return Reduced Losses Capital Supply O&M

2011 0 0 16 0 0 (16)2012 0 0 64 0 0 (64)2013 0 0 115 0 0 (115)2014 0 0 114 0 0 (114)2015 48 0 54 0 3 (9)2016 45 0 0 0 4 41 2017 42 0 0 0 4 38 2018 39 0 0 0 4 35 2019 36 0 0 0 4 32 2020 33 0 0 0 4 29 2021 31 0 0 0 4 27 2022 28 0 0 0 4 25 2023 26 0 0 0 4 22 2024 24 0 0 0 4 20 2025 22 0 0 0 4 18

72 Appendix 14

2026 20 0 0 0 4 17 2027 19 0 0 0 4 15 2028 17 0 0 0 4 14 2029 16 0 0 0 4 12 2030 15 0 0 0 4 11 2031 13 0 0 0 4 10 2032 6 0 0 0 4 2 2033 5 0 0 0 4 1 2034 5 0 0 0 4 1 2035 4 0 0 0 4 1

Terminal value: 33 FIRR 2.6%

FPNV 17 ( ) = negative, FIRR = financial internal rate of return, O&M – operations and maintenance.

Table A14.4: Financial Reevaluation of Project 6 (DISCOM-W)

(2015 ₹ million)

Revenue Costs Net

Cash Flow Year Asset Return Reduced Losses Capital Supply O&M

2011 0 0 20 0 0 (20) 2012 0 0 78 0 0 (78) 2013 0 0 140 0 0 (140) 2014 0 0 138 0 0 (138) 2015 59 0 65 0 4 (10) 2016 54 0 0 0 4 50 2017 51 0 0 0 4 46 2018 47 0 0 0 4 42 2019 43 0 0 0 4 39 2020 40 0 0 0 4 36 2021 37 0 0 0 4 33 2022 34 0 0 0 4 30 2023 32 0 0 0 4 27 2024 29 0 0 0 4 25 2025 27 0 0 0 4 22 2026 25 0 0 0 4 20 2027 23 0 0 0 4 18 2028 21 0 0 0 4 16 2029 19 0 0 0 4 15 2030 18 0 0 0 4 13 2031 16 0 0 0 4 12 2032 7 0 0 0 4 2 2033 6 0 0 0 4 2 2034 6 0 0 0 4 1 2035 5 0 0 0 4 1

Terminal value: 41 FIRR 2.6%

FPNV 21

Appendix 14 73

( ) = negative, FIRR = financial internal rate of return, O&M – operations and maintenance.

9. Benchmark financial internal rate of return. The assumed hurdle rate for this reevaluation is the overall real pre-tax weighted average cost of capital (WACC) for Project 6. The main sources of finance were the ADB loan (approximately 68% of total project costs), which was on-lent to DISCOM-C on a back-to-back basis as a local currency loan with a 100-basis point on-lending margin, and local currency loans from the Power Finance Corporation Limited (from existing lines of credit) and from other domestic sources carrying an average interest rate of 11.5% (approximately 32% of total project costs). There was no equity financing. As shown in Table A14.5, project WACC was re-estimated at 2.0%. 8 The project’s reevaluated FIRRs comfortably exceeds this hurdle rate. The aggregate WACC calculated at appraisal was 6.3%. The lower WACC is primarily a consequence of the fact that at equity contribution of 46% was assumed at appraisal, whereas actual equity contribution was nil.9 On this basis, even though the reevaluated FIRR (for DISCOM-C) is slightly lower than that estimated at appraisal, the project’s actual financial performance is acceptable, and from a financial perspective, the investment was justified because the reevaluated FIRRs still comfortable exceeds the reevaluated hurdle rate.

Table A14.5: Re-estimation of Project Weighted Average Cost of Capital

Source Amount

(₹ million)

Weight

(%)

Pre-Tax Nominal

Cost (%)

Inflation Rate

(%)

Pre-Tax Real Cost (%)

Weighted Pre-Tax

Real Cost (%)

ADB loan 3,247.9 68.2 3.5 5.0 0.0 0.0

Domestic loans 1,517.8 31.8 11.5 5.0 6.2 2.0

Total 4,765.6 100.0 2.0

ADB = Asian Development Bank

8 In accordance with ADB’s methodology for WACC calculation, the minimum real cost of each finance source was set

to be zero. However, actual real WACC is negative as a consequence the nominal cost of on-lent ADB funds being less than the rate of inflation.

9 Price regulation (such as that used in India's electricity sector) is designed to return efficiently incurred cost to electricity distributors, and to allow them earn an FIRR no less than WACC. Lower equity contribution typically results in lower WACC and therefore lower FIRR (although in the case at hand, the significant loss reduction achieved by the DISCOM-C generates substantial net incremental cash flow, more than offsetting the reduction in regulated revenue arising from the lower equity contribution).

74 Appendix 15

FINANCIAL REEVALUATION OF THE MFF

A. General 1. At the time that the multitranche finance facility (MFF) was appraised, no analysis of the expected financial performance of the facility was undertaken and no overall financial internal rate of return (FIRR) was estimated (although financial projections were prepared for each of the four main executing agencies). This reevaluation provides an aggregated assessment of the financial (cash flow based) performance of each of the six projects of the MFF and provides a weighted average FIRR based on the reevaluated FIRRs of each project included in project completion reports (PCRs) for the MFF. 2. Financial benefits flowing to the Madhya Pradesh (MP) electricity transmission and distribution sector companies consist primarily of an increase in regulated revenue accruing from newly constructed network facilities: an annual revenue allowance for the Transco and for DISCOMs is determined by the jurisdictional regulator, Madhya Pradesh Electricity Regulatory Commission (MPERC), based on MPERC’s view of reasonable and efficient capital costs, power purchase costs, operations and maintenance (O&M) costs, overhead costs, depreciation, interest on loans and on working capital, and return on equity. In this context, the capital structure of investments impacts on the cash returns that the companies receive. In many price regulated regimes the financing structure directly affects the FIRR because, in general, the intention is to allow the regulated entity to earn its weighted average cost of capital (WACC) and no more. Under the MP regulatory regime (which is common across India), Transco and the DISCOMs are allowed to earn a prescribed return on capital (that is, a return on capital is included in the companies’ annual revenue allowance). In general, higher equity means higher FIRR (subject to other constraints). 3. This form of regulation has been a significant factor in transforming financial outcomes for the companies, and in particular the DISCOMs. Other than support to the poorest consumers, the tariff setting process has been largely depoliticized, and instead the DISCOMs are financially incentivized to identify and implement efficient network investments. Reducing network losses, historically a near insurmountable challenge for state electricity boards across India, is now incentivized through attractive financial rewards that accrue in addition to the incremental revenue that is earned by simply constructing capital assets. These benefits are also shared with consumers, providing an additional incentive mechanism to address the often pervasive view that electricity theft is a victimless crime. B. Evaluation of Project Benefits

4. Regulated revenue from new assets. As noted above, most of the incremental revenue earned by DISCOMs for the new distribution facilities is calculated in accordance with regulations set by MPERC. MPERC allows DISCOMs to recover electricity purchase costs, interest costs, depreciation charges, O&M costs, working capital charges and corporate taxes in end-use tariffs.1 A return on invested equity of 16% (post-tax) is also included in the annual revenue allowance. Any assets that are brought in to service are added to companies’ regulatory asset base, and this results in increases in revenue allowances for return on equity, depreciation and interest costs.

1 The annual revenue requirement (ARR) is the total electricity revenue that the jurisdictional regulator has agreed to

allow the electricity distributor to recover during the subsequent year. The tariff that is subsequently calculated is just the mean by which the ARR is recovered from customers. The DISCOMs are not incentivized to under-forecast sales quantity (and thereby increase tariff) because over-recovery of revenue (compared to the ARR) is recovered in subsequent years (by way of a reduction in ARR).

Appendix 15 75

5. Incremental revenue from reduced distribution losses. Transmission and distribution loss trajectories are set by MPERC at the start of each regulatory period. DISCOMs can recover electricity purchase costs in accordance with MPERC’s loss trajectories and TRANCSO can recover its ARR across its available network capacity including approved transmission losses. If DISCOMs achieve loss levels lower than the trajectories set by MPERC, they retain the saving in electricity purchase cost, and if they cannot meet MPERC’s distribution loss trajectories, some electricity purchase costs cannot be recovered from customers and instead have to be absorbed by the DISCOMs. 2 A similar mechanism applies to Transco. However, unlike Transco the DISCOMs have struggled meet MPERC’s loss trajectories and this has been the main cause of their financial losses. The Design and Monitoring Framework (DMF) shows that losses have reduced significantly during MFF implementation (some but not all of which is attributable to MFF investments), with average (unweighted) losses at 24.4% for FY2016 compared to 38.1% for FY2009. At aggregate FY2016 sales levels (61,650 gigawatt-hours [GWh]) and using estimated variable electricity purchase rates (₹ 3.0 per kilowatt-hour [kWh]), this represents incremental revenue to the DISCOMs of around ₹ 24 billion (approximately 10% of aggregate FY2016 revenue for the three DISCOMs), underscoring the importance and financial value of addressing losses. C. Financial Performance 7. Table A15.1 shows the FIRR and WACC for each project as estimated during appraisal and as reevaluated during preparation of PCRs for each project (the details of which are not repeated here). The FIRR and WACC for the MFF are shown at the bottom of the table (financial costs of each project were adjusted to a common 2015 base for weighting purposes). As appraised, the FIRR for the overall MFF was approximately 10.5% compared to the reevaluated EIRR for the MFF of 15.9%. The reevaluated WACC was slightly lower than as appraised, mostly because actual equity contribution was low or zero in most projects (versus an assumption during appraisal that equity would constitute 10-20% of capital). The overall FIRR for the MFF comfortably exceeds the WACC, indicating an expectation of a solid financial return on the investment.

Table A15.1: MFF Financial Internal Rate of Return by Project

Project Financial Capital Cost a FIRR WACC

As Appraised

Actual

As Appraised

PCR Reevaluation

As Appraised

PCR Reevaluation

(2015 base) (2015

base) (%) (%)

(%) (%)

1 13,119.0b 5,202.0 4.8 5.3 3.4 3.4

2 2,918.0 3,438.0 8.3 14.8 2.3 1.1

3 7,876.0 7,011.9 4.7 15.8 2.7 3.4

4 5,309.0 5,410.0 10.9 6.7 2.6 0.8

5 10,320.0 10,236.0 14.0 25.3 4.0 1.0

6 4,606.0 5,188.0 37.4 22.0 6.3 2.0

Weighted averages: 10.5 15.9 3.5 2.0 FIRR = Financial Internal Rate of Return, WACC = weighted average cost of capital

2 Under current regulations, under/over-recoveries of generation costs due to under/over-achievement of the loss

trajectories set by MPERC are shared between DISCOMs and their customers in the ratio 2:1. That is (and for example), for every rupee of under-recovered generation purchase cost, DISCOMs are allowed by MPERC to include 33 paisa in tariffs with the balance of 66 paisa representing a loss for DISCOMs.

76 Appendix 15

a/ As adopted for FIRR estimations. b/ This value appears to have been adopted in error in the analysis at the time. If does not match cost estimates at the time, not does it match the value used for project economic analysis.

Appendix 16 77

CORPORATE RESULTS FRAMEWORK INDICATORS OF THE MFF

No. Level 2 Result

Framework Indicators Target

Revised Target

Aggregate Output

Method and/or Comments

Transmission and distribution system improvements

1. Transmission system expansion and upgrade to reduce losses in high voltage lines (400 and 132 kV)

2900 km NA 2,888 km

2. 3. 4.

Distribution systems upgraded or built (km) to reduce losses and extend services to remote rural areas. Automating/streamlining power purchase and sale to DISCOMs by MPPMCL through computerization and installation of state of the art ERP system. Install systems operations in each DISCOM and in MPPMCL to improve control, management and efficiency

33,500 km ERP ERPs and computerization of operations

NA 30,427 km of rural distribution systems. ERP ERPs and computerization of operations

The use of GPS in new power line alignments and tapping from nearest feasible point, resulted in optimized line length (saved 3,000 km of new line) and related cost savings and improvement in efficiency. The intended project coverage and outcomes were met. This system has improved power demand forecasting, enabled MPPMCL to deal with hundreds of private sector power producers (solar farms) and also to generate substantial income from leasing of distribution lines to private operators. The ERPs and related IBS, DCU and computerization of all operations, greatly reduced the response time to repair power outages and customer complaints. Transparency in DISCOM operations both physical and financial was enhanced by the public websites set up to display hour to hour operations. Even remote customers can check their power consumption, billing and make payment from their cell phones.

km = kilometer, PCR = project completion review. Source: Asian Development Bank project completion review missions.

78 Appendix 17

CONTRIBUTION TO ADB RESULTS FRAMEWORK, PROJECT 6

Level 2 Results

Framework Indicator

Original Target

Revised Target

Aggregate Output

Methods/Comments

Distribution lines installed or upgraded (kilometers) New substations Install systems operations in each DISCOM and in MPPMCL to improve control, management and efficiency.

1,538 km

90

4 ERPs

NA 1,096 km

109

4 ERPs

The use of GPS in new power line alignments and tapping from nearest feasible point, resulted in optimized line length and related cost savings and improvement in efficiency. The intended project coverage and outcomes were still fully met. The ERPs and related IBS, DCU and computerization of all operations, greatly reduced the response time to repair power outages and customer complaints. Transparency in DISCOM operations both physical and financial was enhanced by the public websites set up to display hour to hour operations. Even remote customers can check their power consumption, billing and make payment from their cell phones.

ADB = Asian Development Bank, DTR = distribution transformer, km = kilometer, kVA = kilovolt ampere, kV = kilovolt

Appendix 18 79

MFF M0011 AND PROJECT 6: OVERALL RATINGS

Criteria

Rating

Project 1 Project 2 Project 3 Project 4 Project 5 Project 6 MFF

Relevance Highly Relevant Relevant Relevant Relevant Relevant Relevant Relevant

Effectiveness Effective Effective Effective Less than Effective

Effective Effective Effective

Efficiency Efficient Efficient Efficient Efficient Efficient Efficient Efficient

Sustainability Likely sustainable

Likely sustainable

Likely sustainable

Likely sustainable

Likely sustainable

Likely sustainable

Likely sustainable

Overall Assessment Successful Successful Successful Successful Successful Successful Successful

Development impact Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory

Borrower and executing agency

Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory

Performance of ADB Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory