Nam Ngum-Luang Prabang Power Transmission Project (Loans 928 & 1308-LAO[SF])

7/31/2019 Nam Ngum-Luang Prabang Power Transmission Project (Loans 928 & 1308-LAO[SF])

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ASIAN DEVELOPMENT BANK PPA: LAO 22065

PROJECT PERFORMANCE AUDIT REPORT

ON THE

NAM NGUM-LUANG PRABANG POWER TRANSMISSION PROJECT

(Loans 928-LAO[SF]/1308-LAO[SF])

IN THE

LAO PEOPLES DEMOCRATIC REPUBLIC


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CURRENCY EQUIVALENTS

Currency Unit kip (KN)

At Appraisal At Reappraisal At Project Completion At Operations Evaluation(July 1989) (March 1994) (August 1998) (November 2001)

KN1.00 = $0.0025 $0.0014 $0.0003 $0.0001$1.00 = KN400 KN720 KN3,562 KN9,485

ABBREVIATIONS

ADB Asian Development BankADF Asian Development FundEA Executing AgencyEdL Electricit du LaosEIRR economic internal rate of returnFIRR financial internal rate of return

IDA

International Development AssociationLao PDR Lao Peoples Democratic RepublicOEM Operations Evaluation MissionPCR project completion reportPPAR project performance audit reportSDC Swiss Development CorporationTA technical assistanceTOR terms of reference

WEIGHTS AND MEASURES

GWh (gigawatt-hour) 1,000 megawatt-hourskV (kilovolt) 1,000 voltskVA (kilovolt-ampere) 1,000 volt-ampereskm kilometer

kWh (kilowatt-hour)

unit of electrical energyMVA megavolt-ampereMW (megawatt) 1,000,000 wattsMWh (megawatt-hour) 1,000 kilowatt-hoursV volt


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CONTENTS

Page

BASIC DATA iii

EXECUTIVE SUMMARY iv

MAP vi

I. BACKGROUND 1

A. Rationale 1B. Formulation 1C. Purpose and Outputs 2D. Cost, Financing, and Executing Arrangements 2E. Completion and Self-Evaluation 3F. Operations Evaluation 3

II. PLANNING AND IMPLEMENTATION PERFORMANCE 4

A. Formulation and Design 4B. Achievement of Outputs 4C. Cost and Scheduling 5D. Procurement and Construction 6E. Organization and Management 6

III. ACHIEVEMENT OF PROJECT PURPOSE 7

A. Operational Performance 7B. Performance of the Operating Entity 8C. Financial and Economic Reevaluation 9D. Sustainability 10

IV. ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS 11

A. Socioeconomic Impact 11

B. Environmental Impact 12C. Impact on Institutions and Policy 13

V. OVERALL ASSESSMENT 14

A. Relevance 14B Efficacy 15


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VI. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS 16

A. Key Issues for the Future 16B. Lessons Identified 17C. Follow-Up Actions 17

APPENDIXES

1. Goals, Targets, Inputs, and Results 182. Project Costs 21

3. Appraisal, Reappraisal, and Actual Implementation Schedules 234. Summary of Contract Awards 245. Technical Report Summary 256. Electricit du Laos Performance Indicators 307. Financial and Economic Reevaluation 32


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BASIC DATANam Ngum-Luang Prabang Power Transmission Project

Project Preparation/Institution BuildingTA No. TA Name Type Person-

MonthsAmount

($)Approval

Date1

1080-LAO Xieng Khouang and SayaburiPower Transmission Study

PPTA 5 85,000 3 Jan 1989

1081-LAO Nam Ngum Hydropower StationOperational Improvement Study

ADTA 10 192,000 3 Jan 1989

1082-LAO2

Institutional Improvement to EdLLuang Prabang

ADTA 10 198,000 3 Jan 1989

Key Project Data ($ million) As per ADB Loan DocumentsAppraisal Reappraisal Actual

Total Project Cost 12.7 20.5 20.3Foreign Exchange Cost 11.0 17.0 17.6Local Currency Cost 1.7 3.5 2.7ADB Loan Amount/Utilization 11.0 15.0 15.6

3

Cofinancing 2.0 2.0

Key Dates Loan 928-LAO(SF) Loan 1308-LAO(SF)Expected Actual Expected Actual

Fact-Finding 1626 May 1988Appraisal

426 Jul4 Aug 1988 28 Feb5 Mar 1994

Loan Negotiations Oct 1988 2022 Oct 1988 6 Jun15 Jul 1994Board Approval Nov 1988 6 Dec 1988 30 Aug 1994Loan Agreement 21 Feb 1989 29 Sep 1994Loan Effectiveness 22 May 1989 5 Jul 1989 28 Dec 1994 13 Jan 1995First Disbursement 23 Nov 1989 23 May 1995Project Completion 31 Jul 1992 Dec 1994 30 Jun 1997 Jul 1998Loan Closing 31 Jan 1993 24 May 1995 31 Dec 1997 15 Aug 1998Months (effectivenessto completion)

38 65 30 42

Internal Rates of Return Appraisal Reappraisal PCR PPAREconomic Internal Rate of Return (%) 12.4 9.2 1.8 14.3Financial Internal Rate of Return (%) -1.1

53.5 -8.0 3.6

Borrower Lao Peoples Democratic RepublicExecuting Agency Electricit du Laos

Mission Data No. of Missions No. of Person-DaysFact-Finding 1 7

Appraisal 1 40Reappraisal (Supplementary Loan) 1 6Project Review

610 34

Project Completion 1 30Operations Evaluation

71 18


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EXECUTIVE SUMMARY

The Nam Ngum-Luang Prabang Power Transmission Project aimed to extend thetransmission of electricity from Nam Ngum Hydropower Station to Luang Prabang Province andto expand and improve the distribution of electricity in Luang Prabang and Vang Vieng. Theproject rationale to meet the suppressed demand for electricity, promote economicdevelopment, reduce dependence on fuel imports to achieve foreign exchange savings, andstrengthen the operating performance of Nam Ngum Hydropower Station and Electricit duLaos (EdL), proved highly relevant.

The outputs under Loan 928-LAO(SF) included (i) construction of a 115-kilovolt (kV)

single circuit power transmission line, 208 kilometers (km) long, from Nam Ngum HydropowerStation through Vang Vieng to Luang Prabang; (ii) construction of substation facilities at VangVieng and Luang Prabang; and (iii) provision of equipment and tools for improving the reliabilityof the Luang Prabang city power distribution system. The additional outputs underSupplementary Loan 1308-LAO(SF) included (i) upgrading the 6.6 kV distribution network atLuang Prabang to 22 kV, and (ii) energizing the overhead lightning shield wire to 25 kV toelectrify about 35 villages along the transmission line route. Technical assistance (TA) attachedto the Project aimed to (i) determine the viability of extending the supply of electricity to the

neighboring provinces of Xieng Khouang and Sayaburi; (ii) determine, through a watermanagement study of Nam Ngum Hydropower Station, how to maximize the operatingperformance and revenues from electricity exports to Thailand; and (iii) improve the institutionalorganization, management, and financial systems of EdL in anticipation of merging LuangPrabangs electricity operations with EdL. The decision to electrify villages along thetransmission route, which expanded the original scope, enabled the Project to achieve a fullerdevelopment impact. Formulation and design of the Project were based on least-costconsiderations.

Appraisal was completed in August 1988, and the Asian Development Bank (ADB) Loan928-LAO(SF) for $11.0 million, in support of a total project cost of $12.7 million, was approvedon 6 December 1988. During implementation and following detailed design, the need becameapparent for supplementary financing to meet changes in technical specifications and scopebecause of difficult topographic and geological conditions. At the same time, it was realized thatit was politically unwise and socially imprudent for the Projects transmission line to cross landowned by villagers without supplying them with electricity. A decision was made, therefore, toelectrify villages along the transmission route using a method that avoided the need for

additional investment in conventional distribution equipment. The method involved energizingthe lightning shield wire of the transmission line. The need for supplementary financingnecessitated a reappraisal in March 1994. The total project cost was reestimated at$20.5 million. To help meet the $7.8 million cost overrun, Loan 1308-LAO(SF) was approved on30 August 1994 for $4.0 million. The actual project cost was $20.3 million.

The project configuration was appropriate for achieving its purpose However changes


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internal rate of return of 14.3%, which take into account system losses and the need for periodicmaintenance, confirm the viability, efficiency, and sustainability of project operation.

In addition, the Project shares with other infrastructure projects in its area of influence apositive impact on economic growth, employment opportunities, income, and householdsavings. At Luang Prabang and Vang Vieng, electricity attracted commercial enterprises for ahost of activities that were not previously in existence, including the production of drinking water,metal ware, plastic ware and textile, and craft manufacture. In Vang Vieng, employmentopportunities were expanded and average incomes are nearly six times (after adjustment forinflation) their level before 1996 when electricity was introduced. The 10,700 new connections inLuang Prabang exceeded forecasts, as did the 57 villages with an estimated 5,200 households

electrified from the shield wire. Without the Project, power generation sources at Luang Prabangand Vang Vieng would have been insufficient to serve the growth in tourism, and the incomebenefits from employment and business opportunities would not have been as large. Withoutenergizing the lightning shield wire, village households would have been denied access toelectricity as well as the opportunity to halve their average monthly expenditure on lighting andimprove their quality of life.

Implementation provided valuable experience for the future design and scheduling of

transmission projects to adjoining provinces across similar mountainous areas. Two of theattached TAs led to recommendations that were taken up. TA 1080-LAO prepared atransmission project for expanding electricity supply to two additional northern provinces, XiengKhouang and Sayaburi. TA 1081-LAO led to better managing water spillage at Nam NgumHydropower Station and introducing export peak and nonpeak tariff pricing, which resulted inhigher export revenues. The integration of Luang Prabangs operations with EdL was based onthe recommendations made under TA financed by the World Bank for integrating the electricityoperations of the southern provinces with EdL. Results obviated the need for TA 1082-LAO,which at the request of EdL, was cancelled.

Based on the positive outcomes relating to the satisfactory construction, operation, andcomprehensive achievement of its purpose as reflected in ADBs evaluation criteria, the Projectis rated successful (bordering on highly successful). The two completed TAs are rated highlysuccessful.

The key lessons learned from the Project are (i) cost estimates that are dependent ondetailed engineering design after loan approval should be prepared with a wider contingency

margin to avoid the possible need for supplementary financing and delays; (ii) transmissionprojects that involve the carriage of electricity across populated rural areas should also plan toprovide for the distribution of electricity to such areas so as to minimize objections and enhancethe socioeconomic impact; (iii) more rigorous checks are needed at commissioning to avoid thepossibility of faulty equipment leading to the impairment of technical operating performance; and(iv) the introduction of monthly adjustments is a suitable mechanism for increasing electricitytariffs to acceptable and viable levels without causing undue consumer resistance Based on


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I. BACKGROUND

A. Rationale

1. In 1988, the Lao Peoples Democratic Republic (Lao PDR) economy was largelysubsistence oriented, lacking in infrastructure, and without sufficient people with training tofacilitate development. The Project was part of the Governments broad strategy fordevelopment, which gave priority to the development of electricity infrastructure so as toincrease foreign exchange earnings and develop private sector activity. The decision toprioritize the transmission of electricity from Nam Ngum to Luang Prabang was based on theneed to avert isolation of the northern provinces where the demand for electricity was severely

suppressed, and the need for complementary infrastructure support to other developmentefforts.1,2 Technical assistance (TA) attached to the Project aimed at (i) enhancing generationand management capacity at Nam Ngum Hydropower Station, (ii) evaluating technical optionsfor further expanding the availability of electricity in the north, and (iii) strengthening theinstitutional capacity of Electricit du Laos (EdL), into which the electricity operations in LuangPrabang were to be integrated.

2. During implementation of the Project, it was realized that it was politically unwise and

socially imprudent for the Projects transmission line to cross land owned by villagers withoutsupplying them with electricity.3 The subsequent decision to electrify 35 villages along thetransmission route expanded the original project scope and enabled the Project to achieve afuller development impact.

B. Formulation

3. The original basis for the Project was a feasibility study prepared by Swedishconsultants for the Mekong Secretariat to the United Nations Development Programme. A copy

of the feasibility study report was forwarded to the Asian Development Bank (ADB) in January1988 for consideration of project funding.4 ADB considered the Project to have merit. Fact-finding was completed in May 1988, and appraisal ended in August 1988. The feasibility costestimates were adjusted at appraisal to take account of increased costs and provision for asmaller size substation transformer. Provision was also made for the transmission route to bemodified, if found necessary during implementation. The ADB loan of $11.0 million equivalentwas approved on 6 December 1988.5 The Borrower was the Lao PDR, with proceeds of the loanto be relent to EdL. TA in support of the Project was approved on 3 January 1989.6

1The Project was consistent with the Lao PDR Governments Second Five-Year Plan (19861990), and closelyfitted the strategy of the Asian Development Bank (ADB) to (i) achieve a better integration of the economy tostimulate production and trade, (ii) increase foreign exchange earnings (or reduce foreign exchange outflows), and(iii) provide institution building and human resources development.

2One of these other development efforts included ADBs loan support for the reconstruction of 230 kilometers of


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4. The need for supplementary financing of cost overruns necessitated reappraisal inFebruary/March 1994. ADBs supplementary loan of $4.0 million equivalent was approved on

30 August 1994,

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together with approval for retroactive financing.

C. Purpose and Outputs

5. The project purpose was to extend the transmission of electricity generated from NamNgum Hydropower Station in Vientiane Province to Luang Prabang Province, and therebypromote economic development and save foreign exchange spent on imported fuel used forlighting and diesel power. The attached TA aimed to (i) determine the viability of extending thesupply of electricity to the neighboring provinces of Xieng Khouang and Sayaburi; (ii) determine,

through a water management study of Nam Ngum Hydropower Station, how to maximize theoperating performance and revenues from electricity sales to Thailand; and (iii) improve theinstitutional organization, management, and financial systems of EdL in anticipation of mergingLuang Prabangs electricity operations with those of EdL.

6. The project outputs under Loan 928-LAO(SF) included (see Map) (i) construction of a115-kilovolt (kV) single circuit power transmission line 208 kilometers (km) long from Nam NgumHydropower Station, through Thalat and Vang Vieng to Luang Prabang; (ii) construction of

substation facilities at Vang Vieng and Luang Prabang; and (iii) provision of equipment and toolsfor the Luang Prabang city power distribution system. The additional project outputs underSupplementary Loan 1308-LAO(SF) included (i) upgrading the 6.6 kV distribution network atLuang Prabang to 22 kV, and (ii) energizing the overhead shield wire to 25 kV with distributionat 230/400 volts to electrify about 35 villages along the transmission line route.8 Further detailsof the outputs and expected impacts are provided in Appendix 1.

D. Cost, Financing, and Executing Arrangements

7. The estimated total project cost at appraisal was $12.7 million equivalent, with a foreignexchange cost of $11.0 million. ADBs loan of $11.0 million was to be used to finance the entireforeign exchange cost, including $0.8 million for consulting services.9 The local currency cost of$1.7 million equivalent was to be funded by the Government/EdL. At reappraisal, the totalproject cost was reestimated at $20.5 million, with a foreign exchange cost of $17.0 million(Appendix 2). ADBs supplementary loan was to be used to finance $4.0 million equivalent ofthe $7.8 million increase in the project cost. The remaining additional cost was to be funded bythe Swiss Development Corporation (SDC) for $2.0 million, and the Government/EdL for

$1.8 million equivalent. Funding from SDC for consulting services to the Project was approvedunder TA 1301-LAO in two tranches.10

8. The two ADB loans were drawn from the Asian Development Fund (ADF) to the LaoPDR under ADBs standard ADF terms, and relent from the Borrower as subsidiary loans to EdLwith provision for interest equal to ADBs ordinary capital resources and a repayment period of


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Government, EdL, and ADB staff concerned for review, and their comments were considered infinalizing the PPAR.

II. PLANNING AND IMPLEMENTATION PERFORMANCE

A. Formulation and Design

13. Formulation of the Project was influenced by (i) the need for additional power in thenorthern provinces; (ii) ADBs assistance strategy for promoting and sustaining economicgrowth, saving foreign exchange, and improving operational and institutional capacity (footnote1); and (iii) the feasibility study results, including least-cost considerations. The feasibility study

(para. 3) drew on the design specifications and cost estimates specific to another project. ADBsreview at appraisal accepted almost entirely the design formulation, and adjusted the costestimates upward by about one third. Final specification requirements and costings were madesubject to detailed design during implementation. The changes necessary after detailed designwere more than anticipated at appraisal, and resulted in delays and the need for supplementaryfinancing.13 Notwithstanding weaknesses in the feasibility study estimates, the overall approachto planning and design was satisfactory.14

14. The bid openings in March 1991 revealed funding deficits for the transmission lines of$1.9 million, or 44% of the appraisal estimate, and for the distribution component of $0.9 million,or 82%. Additional cost overruns resulted from variation orders after detailed design, as well asdelayed completion of civil works. The physical contingency provision in the appraisal estimatewas only 5%. Given the nature of the terrain over which the transmission line was to beconstructed and, therefore, potential for variation in technical specifications following detaileddesign, a much higher physical contingency would have been appropriate.15

B. Achievement of Outputs

15. The actual outputs achieved or exceeded what was envisaged at appraisal andreappraisal (Table 1). The transmission conductor size was increased for strengtheningpurposes, and to cope with the additional loading and future transmission needs to adjoiningnorthern provinces. Upgrading of the 6.6 kV distribution system at Luang Prabang to 22 kVallowed more consumers to be connected. The number of villages electrified under the shieldwire scheme was also much higher than targeted and enhanced the overall development impactof the Project.


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Table 1: Achievement of Outputs

Item Envisaged ActualAt Appraisal

Transmission Line 208 km of 99 mm2

115 kV ACSR 212 km of 115 mm2

115 kV ACSR

Substation Facilities 115/22 kV Luang Prabang115/22 kV Vang Vieng

115/22 kV Luang Prabang115/22 kV Vang Vieng

Distribution Equipmenta

Value of $1.1 million Value of $2.0 millionb

Other Four utility vehiclesProject office facilities

Four utility vehiclesProject office facilities

Added at Reappraisal

Energizing of Shield Wire (SW) 25 kV 25 kV22/25 kV step-up transformers 22/25kV step-up transformers

Electrification of Villages (no.) 35 57Distribution Upgrading 6.6 kV to 22kV at Luang Prabang 6.6 kV to 22 kV at Luang Prabang

ACSR = aluminum conductor steel reinforced, km = kilometer, kV = kilovolt, mm2

= square millimeter.a

Switchgear accessories, line connectors, insulators, lightning arrestors, transformer accessories, jointingdrilling and cutting equipment, testing, and protection equipment.

bIncluding the provision of two 320-kilowatt diesel generators.

C. Cost and Scheduling

16. The actual project cost, including interest during construction, was $20.3 million,1% below the reappraised estimate of $20.5 million. Financing was provided by ADB($15.6 million),16 SDC ($2.0 million), and the Government/EdL ($2.7 million). Table 2summarizes the estimated and actual project costs. The difference between the appraisal andreappraisal estimates largely resulted from the variation orders on the specification ofequipment and scope of the Project after detailed design.17 The ADB loans financed 77% of the

total project cost and 89% of the foreign exchange cost. SDC financed the balance of theforeign exchange cost as a grant. An undisbursed balance of $0.18 million equivalent from theADB loans was cancelled. Further details of estimated and actual costs are shown in Appendix2.

Table 2: Summary of Estimated and Actual Project Costs($ million)

Item Appraisal Reappraisal Actual

Foreign exchange cost 11.0 17.0 17.6Local currency cost 1.7 3.5 2.7Total 12.7 20.5 20.3

17 Th P j t j d d l t i J l 1998 13 th l t th i d t


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29 months later than scheduled at appraisal. There were four extensions to the closing date forthe ADB loans, from 31 January 1993 to 15 August 1998. Implementation was slowed by thedelay in fielding consultants, difficulties with completing the transmission line survey,unanticipated difficulties caused by the difficult terrain that meant some tower structures had tobe strengthened and required a longer time for erection, limited transport access into andacross the transmission route, security problems and the need for military protection, andweather constraints that prevented rapid construction during the rainy season. A comparison ofthe actual implementation schedule with the appraisal/reappraisal schedule is shown inAppendix 3.

D. Procurement and Construction

18. Procurement was to be undertaken in accordance with ADBs Guidelines forProcurement. Two turnkey contracts were to be awarded under international competitive biddingprocedures on the basis of supply, delivery, installation, and commissioning for the transmissionline, and for terminal and substation facilities. The distribution equipment was to be contractedon the basis of supply and delivery only. For Loan 1308-LAO(SF), the proposed contractarrangements at appraisal were reconfirmed and extended to cover the expansion in projectscope. The turnkey contracts were awarded under international competitive bidding. Details ofcontract awards are provided in Appendix 4.

19. EdL reported that the international and domestic contractors and suppliers for theProject performed satisfactorily.18 All equipment inspected at the sites visited by the OEM wasfunctioning satisfactorily with no significant defects, except for the metering equipment atsubstations (para. 28 and Appendix 5).

E. Organization and Management

20. Organization and management were consistent with agreed arrangements at appraisaland generally satisfactory, except for the need to extend the implementation period.Implementation was satisfactory with respect to the awarding of procurement and constructioncontracts, and management by EdL. The recruitment of consultants was initiated in February1989, but their appointment was not made until January 1990.19 The consultants assisted EdLthroughout project implementation, providing detailed design, bidding documents, bidevaluations, and construction supervision. Engineering and progress reports were submittedpromptly, and supervisory responsibilities over contractor activities and advisory assistance toEdL were discharged effectively. Because of the change in project scope following reappraisaland implementation delays, it was necessary to extend the consultants period of assignmentunder several amendments until project completion. EdL considered the performance of theconsultants and their contribution to institutional strengthening through improving technicalefficiencies and employee implementation training appropriate and helpful.20

21 ADB provided adequate monitoring during implementation with 10 review missions and


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review missions with the Ministry of Foreign Affairs, EdL, and consultants to solve problems andminimize delays.

22. ADBs loan and project agreements included covenants relevant to strengthening EdLsaccountability and operating performance. These included requirements for (i) ensuring that theProject was managed by a project group, headed by a full-time project manager reporting to themanager of EdL; (ii) equalizing the tariff structures for Luang Prabang and Vientiane by31 March 1989; (iii) assuming total control of Luang Prabangs operations by 31 December1991; (iv) implementing reforms of accounting and financial systems recommended by theInternational Development Association (IDA) consultants (para. 52); (v) maintaining a debtservice ratio of not less than 1.1, and a self-financing ratio of not less than 22%; (vi) carrying out

an action plan to reduce EdL system losses; and (vii) submitting quarterly progress reports onexecution of the Project. At project completion, all covenants had been complied with, exceptthose relating to financial performance and reducing system losses (para. 48). Specialmeasures relating to the adjustment of tariffs adopted since project completion helped restorecompliance with ADBs financial covenants (para. 33).

III. ACHIEVEMENT OF PROJECT PURPOSE

A. Operational Performance

23. Operational performance is measured in terms of the Projects achievements relative toexpectations at appraisal and reappraisal to (i) help meet the projected demand for powerbetween FY1992 and FY2000, (ii) improve distribution voltage levels and system reliability inLuang Prabang, (iii) expand distribution at Luang Prabang, and (iv) expand distribution underthe shield wire. The adequacy of maintenance is also reviewed. Technical issues relating to theperformance of project components are discussed in Appendix 5 and indicators of EdLstechnical and financial performance are summarized in Appendix 6.

24. At appraisal, demand in the Luang Prabang City had been suppressed at around4.5 gigawatt-hours (GWh) for 5 years.21 With commissioning of the Project, electricityconsumption was expected to grow at about 17% per year for 5 years to 11 GWh, andthereafter grow at a reduced rate of 8% per year. After energizing the substation at LuangPrabang in December 1994, actual sales grew at 30.8% per annum for 5 years to 17.8 GWh.Electricity supplied to Vang Vieng also exceeded the districts projected usage of about8.5 GWh, and in FY2000 had reached 15.3 GWh.

25. Rehabilitation and upgrading of Luang Prabangs city network helped offset overloadingin low voltage distribution. Rehabilitation under the original project scope saw distribution lossesfall from 35.5% in FY1987 to 20.5% in FY1994. Distribution losses continued to fall afterFY1994, and in FY2001 were around 12%.

26 Upgrading of the 6 6 kV network in Luang Prabang to 22 kV voltage enhanced EdLs


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7 villages in Vang Vieng, and 8 villages along the transmission route between Luang Prabangand Vang Vieng. All up, an estimated 5,200 households were connected to electricity.

28. Maintenance was not addressed at appraisal. General maintenance, including checks atsubstations and transmission towers, is, however, undertaken. The transmission towers are wellmaintained, but regular clearance of potential hazard trees located near the transmission line isnot done on a routine basis and is the cause of excessive outages. The OEM discussed theneed for quarterly inspections of the line and EdL is developing such as part of its preventivemaintenance program. The structures at substations and distribution equipment are in goodorder, but failings in metering equipment have remained largely unchecked and have impairedEdLs capacity to optimally manage its network. Discussions with EdL engineers confirmed their

knowledge of transformer maintenance and gas circuit-breaker handling requirements, butoperational constraints were precluding the substations at Luang Prabang and Vang Vieng fromshutting down the transformers for periodic oil changes, checks of windings, and systemtuning.22

A. Performance of the Operating Entity

29. At appraisal, the financial operating performance of EdL over the period FY1983FY1986 was very strong. Financial remittances to Government in the form of taxes anddividends had been a substantial proportion (71% in FY1984 and 61% in FY1985) of EdLsoperating revenue. High export revenues to Thailand, low debt service, and low capitalexpenditures had been a feature of EdLs strong financial performance. In FY1987, droughtconditions caused a 35% overall reduction in power generation, which in turn reduced exportrevenues. Despite total revenue falling by 43%, and profit before tax falling from 44.5% of equityto 17.8%, the financial performance indicators remained sound. With normal rainfall, they wereexpected to return to their long-term trend. The appraisal projections, up to FY1993, took intoaccount the timing of integration of the Luang Prabang and southern provinces electricity

operations with EdL. Actual power generation levels had been restored in FY1990 to predroughtlevels, and at reappraisal in 1994 when financial statements up to FY1992 were available, itcould be seen that the overall financial performance of EdL had recovered in line with appraisalprojections.

30. The main indicators of EdLs financial performance are summarized in Table 3 (fordetails see Appendix 6). EdLs financial statements prepared at appraisal for FY1988FY1993and the original project scope, projected in dollar terms (i) a total investment of $189.8 million,(ii) an increase in operating revenue by 12.8% a year, (iii) the average return on equity fallingfrom 20.5% to 14.3%,23 and (iv) a debt service ratio ranging from 1.8 to 4.3. Actual investmentexpenditure was $104.1 million, or 55% of that planned. Actual real operating revenueincreased at 9.0% per annum,24 and the return on equity fell to 7.3% in FY1993. EdLs debtservice ratio varied between 1.6 and 2.9, well above the covenanted level of at least 1.1.Although some weakening in the financial performance had occurred, the overall financialstrength of EdL was still satisfactory despite the delays in implementation and commissioning


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suffer from a high incidence of outages caused by their susceptibility to lightning strikes. Voltageis also variable due to the higher than expected ground resistance and varying ground moisture.Improvements to the reliability of the shield wire circuits are ongoing and continue to beaddressed by EdL. The shield wire system is considered sustainable at the limits of thesupplying transformers.

38. Maintenance requirements are being met, except for periodic maintenance on substationtransformers, which is not being carried out because of the need to avoid power supplyinterruptions. The spare and smaller transformer in Vang Vieng is not in standby condition,which means that, in the absence of periodic maintenance, the probability of transformer failureis increasing. If transformer failure should occur at Luang Prabang, restoration of power could

take several weeks.30

Increased attention to the clearance of hazard trees along thetransmission line will reduce the incidence of outages and enhance operational efficiency (para.66).

39. EdLs investment capacity to meet expansion, upgrading, and maintenancerequirements looks reasonably assured. The high proportion of power sold for export in foreignexchange is planned to continue. The measures in 1999 to increase local tariffs restored thefinancial viability of EdLs operations, and extension of the adjustment mechanism for a further3 years (para. 33) is likely to ensure that real tariffs are preserved. Aid agency support forfurther improving EdLs operational and administrative efficiencies contributes to sustainedoperations.

IV. ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS

A. Socioeconomic Impact

40. The Project helped support the Governments policies for economic and social

development. Although socioeconomic benefits from the Project were not explicitly addressed atappraisal,31 substantial benefits were implied for those households and businesses expected toswitch to electricity.

41. Economic development of Vang Vieng and Luang Prabang was rapid after the Project.Not all development, however, can be attributed to the increased availability of electricity.Paralleling the Projects implementation, the road between Vang Vieng and Luang Prabang wasreconstructed and sealed, allowing year-round access and regular transport services.32 At thesame time, improved security and communications made conditions more conducive forcommercial development. In December 1995, Luang Prabang was declared a world heritagesite, which provided an unanticipated spur to tourism. Vang Vieng has also benefited as atourist destination.

42. In Vang Vieng district, the impact of introducing electricity was monitored.33 Between1996 and 2001 22 villages were electrified through the 22 kV distribution system and 7 villages


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under the shield wire system. Before electrification, gross output was growing at an average of4% per annum. Production was not developed and industries and services were observed to beinferior without electricity. After electrification, gross output grew at an average of 7% per year,and production activities changed dramatically. New commercial enterprises in Vang Vienginclude 2 irrigation centers, 3 enterprises for the production of drinking water, 10 ice-makingplants, 14 furniture factories, and 111 rice mills. Electricity has also been increasingly used forraising livestock, poultry feed, and handicraft manufacturing. The number of registered touristrooms increased from 15 to 448. Attracted to the increased economic activity, the officialpopulation of Vang Vieng district increased from 40,934 persons to 43,130 persons, andaverage nominal incomes per year increased from about KN0.2 million per person to aboutKN2.5 million per person or between 1996 and 2001. In real terms, the increase was 5.7 times.

43. Comparable records for the growth and development of Luang Prabang are notavailable.34 Development appears, nevertheless, to have followed a similar pattern, thoughdeeper and more significant. Tourist facilities are bigger and more developed. Industrial andcommercial development has brought about electricity requirements for board laminations,metal furnaces, engineering, and hotels. Motor vehicle service stations and manufacturers oftextiles, metal ware, and plastic ware are in far greater evidence, as are businesses for the saleof building materials and household wares that require heavy electrical machinery. Before theProject, these activities were nonexistent or very limited.

44. The OEM visited two villages electrified under the Project to observe and discuss theensuing socioeconomic benefits. Lighting was the most significant benefit because it enabledmore activities in the evening, and permitted the use of appliances such as a refrigerator forkeeping medicines, and television. Trip systems prevented the use of electricity for commercialpurposes, namely, ice making, small machinery pumps, and auto services, but while the needfor electricity capable of serving such higher loads was recognized, consumers viewed theavailability of electricity for household appliances as having greater importance and providing a

substantial cost saving. Households were reported to be paying on average KN7,000 per monthfor electricity, compared with the alternative cost of using kerosene for lighting of approximatelyKN15,000 per month.

45. The Project was gender neutral with no stated objective to assist women during or afterimplementation. The benefits from electricity accrue largely in the form of opportunity laborsavings, enhanced social interaction, and broadened work and other activity options.

B. Environmental Impact

46. ADBs loan covenants required EdL to adhere to ADBs Environmental Guidelines forSelected Industrial and Power Development Projects. The Project had no significant adverseimpact on the environment. Because the feasibility study did not include a physical survey of theproposed transmission route, potential problems of the transmission lines and tower structureswere assessed from geographic maps and aerial photographs No special problems were


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13

falling trees from high ridge levels. The substations are fenced off, and noise from transformersis not audible outside the substation fence boundaries. Personnel safety measures againstaccidental high-voltage electrocution were incorporated into the substation and transmission linedesigns.

C. Impact on Institutions and Policy

47. Support for institutional strengthening was addressed through loan covenants (para. 22),and the attached TAs (footnote 6). The financial covenants aimed at enhancing the financialviability of EdL to make it self-sustaining. The financial targets for debt service ratio and self-financing ratio provided signals for adjusting tariffs where noncompliance with these ratios was

imminent. Actual tariff adjustments were sufficient (para. 32), despite extreme inflationarypressures following the Asian financial crisis, and growing system losses associated withexpanding EdLs distribution network.

48. EdL, with the support of the Government, was required under a loan covenant toproduce an action plan for reducing its system losses. The implications of this covenant andhow EdLs success at reducing system losses should be measured were not made clear. Nospecific targets were set. At appraisal, the proportion of generation for export ensured thatoverall system losses were low. However, the integration of the southern provinces and LuangPrabangs distribution operations into EdL during project implementation meant that overallsystem losses would increase.35 Technical improvements made under the Project to LuangPrabangs distribution system reflect efforts by EdL to ensure that system losses were less thanthey would otherwise have been. Under the Project, Luang Prabang distribution losses fell from35% at appraisal to 21% in FY1994, and currently are around 12%. EdL made similar efforts toreduce distribution losses in the southern provinces. Distribution losses in Vang Vieng werearound 6% in FY2001, well below those in nonproject areas.

49. Consultant guidance for dealing with quality control, processing design approvals,contractor problems, and testing equipment provided EdL with valuable experience forimproving its implementation efficiency.

50. The prime task of the attached TA 1080-LAO was to study the feasibility of extending thesupply of electricity from Nam Ngum Hydropower Station to Xieng Khouang and Sayaburiprovinces, taking into account the alternative options for supply. The TA report was finalized inOctober 1991 and concluded that the most effective means of supply for both provinces was a115 kV transmission line, originating as a tap from the Nam Ngum-Luang Prabang transmissionline. The reports recommendations were accepted as the basis for subsequent project(s), butwith Nam Leuk Hydropower Station substituted for Nam Ngum (footnote 29) for the extension oftransmission to Xieng Khouang.36 Taking into account the relevance, timeliness, quality ofanalysis, and impact on design for expanded transmission to Xieng Khouang and Sayaburiprovinces, TA 1080-LAO is rated highly successful.


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14

study of the water flows and demand factors affecting the optimal operation of Nam NgumHydropower Station. The TA report, which was completed in 1990, concluded that (i) the annualspill could be limited to 4% of total water discharged, (ii) that a three-peak daily operation with

differing tariffs was feasible and would increase the value of electricity exports to Thailand byabout 15%, and (iii) that operating the turbines above their rated capacity with water inflowaugmentation from either Nam Song or Nam Leuk was a preferred alternative to adding a40 MW generator unit. The study recommendations led to better management of the station,and acceptance of a two-tier export tariff. Taking into account the overall effectiveness of thestudy, TA 1081-LAO is judged highly successful as well.

52. TA 1082-LAO aimed at facilitating the integration of Luang Prabang operations with EdL.

The general aim was to consolidate the operating results of Luang Prabang and synchronizeorganization, procedures, and accounting systems. To this end, the tasks of the TA consultantswere to propose changes consistent with the recommendations made and implemented underthe TA financed by IDA for integrating the electricity operations of the southern provinces withEdL. The success of IDAs TA, which was conducted mainly in 1989, was considered asufficient basis for EdL to integrate Luang Prabangs operations, and at the request of EdL,ADBs TA 1082-LAO was cancelled.

53. IDAs terms of reference (TOR) were comprehensive with a general aim to strengthenthe financial and accounting systems, and training for such but did not include provision for thecomputerization of the financial, accounting, and management information systems. The OEMreviewed and compared the TOR for TA 1082-LAO with the IDA TOR and held discussions withEdL to determine the extent to which the aims of TA 1082-LAO had been successfully achievedunder IDAs TOR. Because there followed, after TA implementation, considerable additionaldonor assistance with the same general aims, it was not possible for the OEM to reliably assessachievements in this direction attributable to IDAs TA. What can be concluded is that historicalproblems identified at appraisal regarding weaknesses in accounting practices, the need for

more timely preparation of accounts and lack of qualified staff remain, and the need forstrengthening EdLs accounting systems continue. The nature of capacity building and trainingappears too short term, and not an adequate replacement for graduates trained for a longerperiod in accounting and information technology. The timely provision of system hardware andsoftware is also necessary for the effective strengthening of accounting and managementinformation systems.

V. OVERALL ASSESSMENT

A. Relevance

54. The Projects rationale to extend the availability of electricity generated from existinghydropower resources at Nam Ngum to Luang Prabang in the north of the country wasconsistent with the Governments Second Five-Year Plan (19861990) for development ofpower infrastructure in the Lao PDR as well as with ADBs country assistance strategy to


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16

E. Institutional Development and Other Impacts

58. Project support for institutional strengthening was achieved and the attached TAs led to

recommendations that were taken up. The Project shares with other infrastructure projects avery positive impact on economic growth. There is visible evidence of the socioeconomicbenefits accruing to rural villages electrified under the Project. At Luang Prabang and VangVieng, electricity has attracted commercial enterprises for a host of activities that were notpreviously in existence. In Vang Vieng, where statistics have been compiled, employmentopportunities were expanded and average real incomes increased substantially. The10,700 new connections in Luang Prabang exceeded project forecasts, as did the 57 villagesconnected from the shield wire. Average village household expenditures on lighting were

halved. Overall, institutional, economic, and other impacts of the Project are judged substantial.

F. Overall Project Rating

59. The Project was appropriate for achieving its purpose, and proved a pioneering success.Difficult terrain, insurgency threats to construction, and the need for supplementary financingimpaired implementation, but did not prevent the overall achievement of project purpose. Basedon the positive outcomes, the Project is rated successful, bordering on highly successful.37 Thisupgrading of the PCR assessment of partly successful is attributable to the strengthened

financial performance of EdL and operating performance of the Project since its completion in1998, and because of the broader focus of evaluation, which gives more emphasis to theachievement of project purpose and of socioeconomic and development impacts.

G. Assessment of ADB and Borrower Performance

60. ADBs overall performance is assessed satisfactory. The technical feasibility of theProject was reviewed, and project design was consistent with least-cost development

considerations. Procurement and contracting were carried out in accordance with competitivebidding procedures and with appropriate supervision. Monitoring through review missions wasadequate. Detracting from ADBs performance was (i) an error of judgment made at appraisalpertaining to project costs and insufficient allowance for physical contingency to meet projectscope variations following detailed design, which were significant factors in the need forsupplementary financing; and (ii) lapses in ADBs administration of the Project associated withchanges in personnel, which meant outstanding matters were not always attended to in a timelyfashion, and caused unnecessary administrative delay.

61. The Borrowers performance is assessed fully satisfactory. The Borrower adequatelymanaged project implementation, including recruitment of military personnel for the protection ofsurvey and construction teams. The Borrower was responsive to ADBs monitoring, and showeda strong commitment to working to schedule and ensuring sustainability.

VI. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS


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17

B. Lessons Identified

63. The key lessons learned from the Project are (i) transmission projects that involve the

carriage of electricity across populated rural areas should also plan to provide for the distributionof electricity to such areas so as to minimize objections and enhance the socioeconomic impact(para. 2); (ii) feasibility estimates that are dependent on detailed engineering after loan approvalshould include a wider contingency margin to avoid the possible need for supplementaryfinancing and delays (para. 14); (iii) more rigorous checks are needed at commissioning toavoid the possibility of faulty equipment leading to the impairment of technical operatingperformance (paras. 19 and 28); and (iv) the introduction of monthly adjustments is a suitablemechanism for increasing tariffs to acceptable and viable levels without causing undue

consumer resistance which can arise with one-off major adjustments (paras. 33, 39, and 47). Abasic premise at formulationthat project design called for conventional engineering systemsand methods of constructionproved faulty, and impaired the efficacy of implementation withregard to scheduling and the availability of funding (paras. 13 and 14). Non-uniform designconsiderations, including provision for variable tower heights, tower spans, and tower supportstructures, are lessons of experience now being applied to transmission projects for adjoiningprovinces with similar mountainous topography.

C. Follow-Up Actions

64. ADB should take into account the lessons learned and, where project appraisal is basedon a feasibility study specific to other projects, should closely review the potential for designvariation and adopt higher contingency provisions.

65. The Government, before including a shield wire system in the scope of future projects,should undertake a comparative cost analysis of the shield wire system versus the conventionalsystem, taking into account restrictions on consumer usage in the former and the need to

replace it to allow increased loadings.

66. By September 2002, EdL should address substation metering problems; leaks intransformers; the need for an oil containment system; and the urgent need for a back-up 115 kVtransformer at Luang Prabang (so as to avoid the potential economic cost of a break down tothe existing single transformer). It should also reduce outages caused by falling trees across thetransmission line.


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GOALS, TARGETS, INPUTS, AND RESULTSa

Goals Targets Expected Outcomes andImpacts

Actual Outcomes andImpacts

Sector/Area Reduce dependence on fuel

imports to achieve foreignexchange savings

Southern provinces of Savannakhet,Champassak, Saravane, and northernprovinces of Luang Prabang, Sayaburi,and Xieng Khouang

Progressive expansion ofelectricity generation andtransmission fromhydropower resources

Expanded electricitydistribution to meethousehold and industryneeds

Fuel savings on keroseneand diesel oil from householdand industrial consumersconnecting to the nationalnetwork

Export surplus power to earnadditional foreign exchange

Construction of 45-megawatt (MW)hydropower station at Xeset plustransmission line to Thailand

Not enumerated

Increased generation of60 MW from Nam Leuk inyear 2000 enhanced capacityto export

Increase the supply ofelectricity for the developmentof industry and improvementof living standards

Rehabilitation of units 3 and 4 at NamNgum Hydropower Station

Rehabilitation of Seleban HydropowerStation

Expanded industrial andcommercial development

Increasedand more diversified incomeopportunities

Increased commercial andindustrial developments

Promote development of foodand agro-based industries

Rehabilitation and upgrading ofdistribution networks in Savannakhet,Champassak, and Saravane provinces

Not enumerated Increased incomeopportunities

For Project Under Appraisal Extend the availability of

electricity generated fromhydropower sources to LuangPrabang

Construct 115-kilovolt (kV) single circuittransmission line from Nam NgumHydropower Station to Luang Prabang

Install 115 kV terminal facility at NamNgum and Thalat

Install 115/22 kV substation facilities atLuang Prabang and Vang Vieng

Increase electricityconsumption in LuangPrabang City to 11gigawatt-hours (GWh) by1997 at an average

increase of 17% perannum; load growth after1997 of 8%

Increase electricityconsumption in VangVieng to 8.5 GWh perannum

Actual increase Luang Prabang

by 1997 11.5 GWhby 2000 17.8 GWh

Vang Vieng

by 1994 1.1 GWhby 2000 15.3 GWh

Actual growth Luang Prabang

30.8% per year Vang Vieng

21.8% per year

a Although some similarity in format exists, this comparison is not intended to represent a project framework. A project framework was not prepared for this Project atappraisal or reappraisal.


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Goals Targets Expected Outcomes and

ImpactsActual Outcomes and

Impacts

Technical assistance (TA) for(i) TA 1080-LAO: Xieng

Khouang and Sayaburi PowerTransmission Study; (ii) TA1081-LAO: Nam NgumHydropower StationOperational ImprovementStudy; and (iii) TA 1082-LAO:Institutional Improvement toEdL Luang Prabang

Provide about 25 person-months of TA Attached TA financing $375,000 15 person-months of TA Attached TA financing

$168,000 TA 1082-LAO cancelledc

c Due to a duplication of consulting services provided under International Development Association Credit 1826 for the integration of the electricity operations of the southernprovinces with EdL. Results were considered a sufficient basis for EdL to integrate Luang Prabang operations.


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ComponentTransmission 4.10 0.20 4.30 8.20 0.30 8.50 8.30 0.25 8.55Substation facilities 3.30 0.10 3.40 4.00 0.20 4.20 4.06 0.16 4.22

Distribution 1.10 0.00 1.10 1.40 0.60 2.00 1.77 0.49 2.26

Shield wire electrification 0.00 0.00 0.00 1.00 0.50 1.50 1.26 0.44 1.70Consulting services 0.80 0.10 0.90 2.00 0.30 2.30 1.99 0.15 2.14LCDC 0.26 1.25 1.51 0.40 1.60 2.00 0.20 1.25 1.45Contingencies 1.44 0.07 1.51 0.00 0.00 0.00 0.00 0.00 0.00

Total 11.00 1.72 12.72 17.00 3.50 20.50 17.58 2.74 20.32

Funding SourceADB 11.00 0.00 11.00 15.00 0.00 15.00 15.59 0.00 15.59SDC 0.00 0.00 0.00 2.00 0.00 2.00 1.99 0.00 1.99

Government/EdL 0.00 1.70 1.70 0.00 3.50 3.50 0.00 2.74 2.74Total 11.00 1.70 12.70 17.00 3.50 20.50 17.58 2.74 20.32

ADB TA Granta,b

TA 1080-LAO ($'000) 85.00 85.00TA 1081-LAO ($'000) 192.00 183.00

TA 1082-LAO ($'000)a 198.00 cancelledc

ADB = Asian Development Bank, EdL = Electricit du Laos, LCDC = loan charges during construction, SDC = Swiss Development Corporation,TA = technical assistance.a Loan-attached TA support. Amounts exclude value of local support for consultant offices; managerial, technical, and secretarial services; and local

transport. These are variously estimated between 5% and 8% of ADB's grant.b

In addition, the following standalone TA grants were approved and implemented: TA 1301-LAO: Nam Ngum-Luang Prabang Power Transmission,

for $960,000, approved on 30 March 1990, and $1,034 million (supplementary), approved on 14 October 1992. The grants reflect funding commitments

to the Project from SDC to meet the cost of consulting services.c This TA was cancelled due to a duplication of consulting services provided under International Development Association Credit 1826, which were

considered a sufficient basis for EdL to integrate Luang Prabang operations.

Sources: ADB and EdL documents and Operations Evaluation Mission estimates.

Appendix2

21

Cost

($ million)

Local TotalExchange Currency Cost Exchange Currency Cost Exchange Currency

Foreign Local Total ForeignItem Foreign Local Total

PROJECT COSTS

Table A2.1: Actual versus Appraisal Costs

Appraisal Reappraisal Actual


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Q1 Q4 Q1 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q4 Q1 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q3 Q4 Q1 Q2 Q4

A. Feasibility Study Review

B. Loan Processing

C. Detailed Engineering

D. Procurement, Installation, and

Construction (Transmissionand Distribution)

E. Shield Wire Procurement,

Construction, and Connection

F. Testing and Commissioning

EdL = Electricit du Laos.

At appraisal/reappraisal.

Actual.

Sources: EdL and consultant reports.

Appendix3

23

APPRAISAL, REAPPRAISAL, AND ACTUAL IMPLEMENTATION SCHEDULES

Item 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

Q2 Q3 Q3 Q2Q2 Q3Q1 Q1Q3

Expected testing and

commissioning at appraisalExpected testing and

commissioning at reappraisal

Transmission and

substations complete

Distribution

upgrading

complete

Loan 1308-LAO(SF)Loan 928-LAO(SF)

24 Appendix 4


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pp

SUMMARY OF CONTRACT AWARDS

Description Currency Contract Amount

(000)

Under Loan 928-LAO(SF)Turnkey Contract for Transmission Line FF 9,309.9

$ 6,081.4

Turnkey Contract for Termination andSubstation Facilities $ 3,891.5

Diesel Generators and Spare Parts $ 194.7

Under Loan 1308-LAO(SF)Turnkey Contract for Transmission Line FF 406.5

$ 487.1

Turnkey Contract for Termination andSubstation Facilities $ 385.2

Substation Transformers and Line Materials $ 1,833.5

Electrical Equipment $ 85.3

Prestressed Concrete Poles $ 482.1KN 254,971.1

Tools and Vehicles $ 371.8

FF = French francs, KN = kip.

Source: Asian Development Bank disbursement records.

Appendix 5 25


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TECHNICAL REPORT SUMMARY

A. Background

1. The project design at appraisal included (i) a 115 kilovolt (kV) single circuit transmissionline of 208 kilometers (km) from Thalat through Vang Vieng to Luang Prabang; (ii) terminalfacilities at Thalat and Luang Prabang; (iii) 115/22 kV substations at Luang Prabang and VangVieng, with additional 6.6 kV facilities at Luang Prabang to interconnect with the existingdistribution system; and (iv) distribution equipment and tools to improve the Luang Prabangdistribution system. The substations were to be equipped with a 15-megavolt-ampere (MVA)transformer at Luang Prabang and 7.5 MVA at Vang Vieng for the 11522 kV system.

Engineering consulting services for detailed design and implementation assistance as well asproject vehicles and office equipment were also included.

2. At reappraisal, and after detailed design, the Project was expanded to include a total212 km of transmission line, an insulated shield wire energized at 25 kV to provide single phase230/400 volts (V) to consumers1 along the transmission line right of way. Also included were22 kV and 25 kV single-phase transformation equipment at Luang Prabang and Vang Viengsubstations, and cable and equipment needed to upgrade Luang Prabangs 6.6 kV distributionsystem to 22 kV. The transformer capacities for the 11522 kV system were rerated to

12.5 MVA at Luang Prabang and 5.0 MVA at Vang Vieng. A spare transformer of 5.0 MVA wasadded and sited at Vang Vieng. It was envisaged that the spare could be utilized at LuangPrabang, provided that suitable transport was available. The conductor size for the transmissionline was increased from 99 square millimeter (mm2) to 115 mm2 in order to provide greaterpower transfer capability and lower energy losses. Two diesel generators were also included toreduce the electric supply shortage at Luang Prabang during construction of the Project.

B. Transmission and Substation Component

3. As constructed, the 115 kV transmission line is sustainable, assuming normalmaintenance is maintained, to a point in time at which the peak power delivered reachesapproximately 27 MVA.2 At a peak of about 27 MVA, voltage regulation of the line will cause thereceiving voltage at Luang Prabang to fall below the recommended 90% of nominal voltage.

4. Observed maintenance of the transmission structures indicated that, with the exceptionof clearing potential danger trees (trees located near the line which would strike theconductors should they fall), the line is being well maintained. The concrete foundations of the

steel lattice towers exhibit little sign of deterioration. The bolt connections appear to be of propertightening, no damaged insulators were observed, and security measures have been made torestrict unauthorized climbing of the towers.3

5. Many of the towers are located where they are subject to severe water and soil runoffduring heavy rains Electricit du Laos (EdL) personnel are aware of the need to periodically

Appendix 526


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inspect these foundations for ground stability. Run-off diversion structures have been placed atvulnerable tower locations.

6. The Operations Evaluation Mission (OEM) discussed the need for quarterly inspection ofthe line and periodic checking of connections with EdL personnel. EdL is developing this as partof its preventive maintenance programs.

7. Capacitors are needed on the 22 kV feeders at Luang Prabang and Vang Viengsubstations. The addition of capacitors to the 22 kV distribution circuits in the Luang Prabangand Vang Vieng service areas will increase the generation that can be transmitted.

8. The substation structures are of galvanized steel with overhead string bus arrangementsfor aluminum conductor steel reinforced (ACSR). The structures at the substations are wellmaintained and sustainable for at least the typical 2530 years service with normalmaintenance. This maintenance consists mainly of periodic touch-up and bolt connectionchecks. There is sufficient room for distribution circuit expansion as well as sufficient room foradditional transformers. The control buildings at both substations were of very good constructionand well maintained.

9. The 22 kV distribution equipment at the distribution substations4 consist of 22 kV circuit

breakers rated 3,000 amperes and associated disconnect switches and metering. The circuitbreakers are designed for utilizing sulfur hexafluoride (SF6) gas. The equipment is sustainablefor long-term usage with periodic maintenance and regular attention for ensuring that the SF6pressure is maintained. The distribution equipment appears to be properly maintained, anddiscussions with EdL personnel confirmed their knowledge of SF6 handling procedures.

10. The main power transformers at the distribution substations are rated 115 kV22 kV,10,500 kilovolt-amperes (kVA), and are load-tap changing (LTC) equipped. The present

transformer at Vang Vieng is a replacement of the project-supplied unit that failed. Vang Vienghas a spare 5,000 kVA transformer while Luang Prabang has no spare. Both transformers areadequate for present loadings. However, their prime function is sustainable only if periodicoutages are taken to meet maintenance requirements. Even with this provision, the use of asingle transformer compromises the sustainability of the substations, as a failure of the maintransformer will cause the stations to be out of service during replacement. The singletransformer at Luang Prabang is of more concern as the delivery of a replacement unit wouldentail a long delivery time. The spare transformer at Vang Vieng is not maintained in anenergized mode, that is, it is not in a hot standby condition. Its readiness for use in the case of

a main transformer breakdown is, therefore, questionable.

C. Substation Metering

11. The metering of Vang Vieng to Luang Prabang power and energy flows is unreliable.Readings maintained by EdL personnel based upon the two substations kWh and kW

Appendix 5 27


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12. The problem with the 115 kV metering may be simply that power levels are lowcompared to the ratio of the installed current transformer. Another reason may be that the

current transformer tap does not match that of the connected meter. This problem was evidentat commissioning of the substations.

13. The metering of the 22 kV distribution circuits at Luang Prabang appears reliable. Thebasis for early reported criticism appears to be the reduction in system losses that coincidedwith the commissioning of the substation. Current improvements are due to the conversion ofthe system to 22 kV from 6.6 kV, improved connection and configuration of the distributionsystem, and increase in conductor size. The OEMs reported data of the Luang Prabang systemare reliable and consistent with operational performance.

14. Proper maintenance of transformers requires periodic tap changer oil changes and de-energized tests of the transformer windings. These cannot be performed at Luang Prabangwithout reducing the service area supply to that from the small hydropower station located atNam Dong and the project-supplied diesel generation. During oil changes, electricity supply atLuang Prabang would be reduced to about 1.5 MVA.5 At Vang Vieng, the spare transformercould be utilized during maintenance outages.

15. To ensure continued electricity supply, a spare of comparable rating with the presentmain transformer should be provided at Luang Prabang and installed in a hot standbyconfiguration. The existing spare at Vang Vieng should be kept energized with periodic oilanalysis performed to ensure that it is available in standby readiness.

D. Distribution Component

16. The distribution system in the Luang Prabang service area was enhanced by the Project.

As a result of converting the existing 6.6 kV system to 22 kV, the Luang Prabang 22 kV andassociated 230/400 V connection system is sustainable for the next 35 years, so long ascustomer and load density is maintained and distribution system maintenance is provided.

17. A caveat to the above conclusion is that a small (56%) phase unbalance was observedin the three-phases of the 22 kV circuits. It could not be determined if this was universally truefor the system on a continuous basis. Proper balancing of the single-phase loads among thethree phases must be maintained to avoid conductor overloads and increased losses.

18. Observations of the Luang Prabang distribution indicate that it is well maintained andtransformer loading is within accepted limits for proper operation. However, the service areas inthe market area of the city are of smaller conductor size, and the connection practices are notas good as those of the outer areas. If the load in the inner city areas continues to grow atrecent levels, conductor augmentation will soon be required.6

Appendix 528


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observed to be operating with an apparent power factor of about 82% during the time of theOEMs visit.

20. In the service areas of both substations, it was noted that the metering of most non-industrial consumers is in need of upgrade and standardization. A multitude of manufacturersmeters of widely varying age were noted. This is especially evident in the market district ofLuang Prabang. The evident age and lack of tamper protection for the majority of the revenuemetering observed can be assumed with a high degree of certainty to be contributing toavoidable losses of both a technical (underregistration) and a nontechnical nature. Aprogram of meter replacement is recommended to ensure that metering is not a source ofsignificant technical and revenue losses. All nonmetering should be eliminated.

E. Shield Wire Distribution Component

21. The shield wire was insulated and energized from both substations at 25 kV as a singlewire, ground return, single-phase circuit. At various towers along the route, service drops wereconstructed to serve 25 kV230 V transformers.

22. As a single-wire earth return configuration, the shield wire system is limited to single-phase service, and the total amount of service is limited by fusing each consumer meter. This

limits the total load on the three shield wire circuits7 to the capacity of the supplying 22 kV25 kV transformers.

23. The shield wire circuits suffer from high rates of outage due to their susceptibility tolightning and the voltage regulation is poor due to higher than expected ground resistance. Inaddition, the ground resistance varies greatly depending upon wet/dry conditions and theprevalence of rock. Regardless of these drawbacks, the system is sustainable at the capacitylimits of the supplying transformers. EdL has made considerable improvements in the reliabilityof the shield wire systems in recent years and customer satisfaction is considerable. However,extensions of the system should not be considered without a clear showing that a 22 kV or34.5 kV three-phase system replacement, enabling larger motors such as irrigation pumps andelectricity to be consumed for commercial and airconditioning purposes, is not superior in termsof economic return.8

Table A5.1: Transmission and Distribution Line Length with Project


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g j

Transmission line (km) Distribution (km)Year Vang Vieng Luang PrabangThalat-

SalaphokhoneSalaphokhone-Luang Prabang Shield Wire 22 kV 0.4 kV Shield Wire 22 kV 0.4 kV

1994 8.0 27.5 39.4

1995 212.0 47.9 10.3 29.1 39.41996 212.0 53.0 11.4 32.9 39.91997 133.4 78.6 59.4 19.4 58.6 82.51998 133.4 78.6 15.2 64.3 57.8 62.8 87.91999 133.4 78.6 16.9 65.1 61.0 87.1 102.52000 133.4 78.6 46.4 65.6 61.9 35.9 96.1 137.9

km = kilometer, kV = kilovolt.Source: Electricit du Laos.

Table A5.2: Transmission and Distribution from Load Centers (MWh)

Thalat Vang Vieng Luang PrabangYear Sent Received Distributed Received Distributed Generated by

DieselNam Dong

1994 1,251 969 11 4,657 1,992 3,8531995 11,028 5,643 5,619 6,156 21 2,3631996 15,558 8,267 4,791 8,395 26 5,5911997 19,630 10,264 1,105 8,940 11,175 28 4,053

1998 20,509 12,773 2,265 11,005 13,877 4 4,6971999 25,966 11,538 2,379 3,683 16,182 0 4,4552000 31,892 15,825 1,567 15,952 19,226 0 5,658

MWh = megawatt-hour.Source: Electricit du Laos.

Table A5.3: System Losses, 19942001 (%)

Year EdL Luang Prabang Vang Vieng1994 11.7 20.5 11.31995 12.8 23.1 2.01996 12.2 19.3 0.41997 13.4 14.0 0.61998 15.7 11.4 8.3

a

1999 13.3 10.6 10.12000 13.7 10.8 3.12001 13.4 12.0 6.1

EdL = Electricit du Laos.a

Increase due to shield wire and distribution connections.Sources: Electricit du Laos and Operations Evaluation Mission estimates.


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Fiscal Year Ending

Gross Energy Generation (GWh)a

596 584 733 861 869 793 968 1,256 1,162 1,335 1,320 1,090 1,342.3 1,741Energy Losses (%) 7.5 13.9 12.7 11.8 9.8 10.2 11.1 11.7 12.8 12.2 13.4 15.7 13.3 13.7

Total Energy Sales (GWh) 513 503 640 760 783 713 861 1,109 1,013 1,172 1,144 919 1,164 1,503 Export Sales (GWh) 387 364 491 595 563 460 596 829 676 792 710 405 598 863 Local Sales (GWh) 126 139 149 165 220 253 245 280 337 380 434 514 566 640

Total Energy Sales (KN million) 8 6 11 15 15 17 21 27 29 37 49 77 237 316 Export Sales (KN million) 5 5 8 13 12 12 15 20 21 22 35 52 172 208 Local Sales (KN million) 3 1 2 2 3 5 6 7 8 15 13 25 64 108

Capital Investment (KN million) 3,951 22,068 15,300 21,022 13,481 11,791 7,615 11,790 43,813 46,223 77,615 103,387 296,126 174,832Total Connections ('000) 36.9 40.6 44.8 49.4 58.7 70.0 83.3 98.3 117.8 138.7 153.1 191.8 225.9 249.6Export Sales/Total Sales (%)

By GWh 75.5 72.3 76.7 78.3 71.8 64.5 69.2 74.8 66.7 67.6 62.1 44.1 51.4 57.4 By KN 59.9 82.2 77.2 83.5 81.6 70.5 71.7 75.8 72.3 60.5 72.4 68.1 72.9 65.9

GWh = gigawatt-hour, KN = kip.a

Also includes imported generation and purchases from independent power producers.

Sources: Electricit du Laos and Operations Evaluation Mission estimates.

1998 1999 20001994 1995 1996 1997

Appendix6

31

1988 1989 1990 1991

Table A6.2: Operating Performance Indicators

1987 1992 1993

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FINANCIAL AND ECONOMIC REEVALUATION

A. Background

1. Before the Project, the Government sought to harness its electric hydro resources fromNam Ngum reservoir to supply Vientiane City. Transmission from Nam Ngum HydropowerStation was over a line length of some 100 kilometers (km). Agreement was reached with theGovernment of Thailand to transfer all excess generation to Thailand by extending thetransmission line from Vientiane across the Mekong River to substations at Phone Tong andThanaleng, a distance of approximately 15 km. In 1971, the generation capacity at Nam NgumHydropower Station was expanded from 30 megawatts (MW) to its current rated capacity of150 MW. All excess generation was exported to Thailand on a nonfirm basis and withrecognition that future export sales to Thailand would reduce as domestic demand for electricpower increased in the Lao Peoples Democratic Republic (Lao PDR).

B. Methodology at Appraisal

2. The approach at appraisal was to separately consider the consumption of electricity atLuang Prabang and Vang Vieng, variously supplied from Nam Dong Hydropower Station anddiesel power generators, and to consider the likely development that would take place with

additional generation introduced by the Project. In Luang Prabang, it was projected that about4,500 households without electricity would switch to electricity over 3 years and that a proposedworkshop with an excess of about 1.5 MW installed electricity equipment would immediatelyconnect. With commissioning of the Project, electricity consumption was expected to grow froma level of 4.5 gigawatt-hours (GWh) at 17% per year for 5 years to 11 GWh and thereafter at areduced rate of 8% per year. In Vang Vieng, an immediate load requirement of 1.5 GWh and7.0 GWh for a cement factory was foreseen. Load demand was projected to grow at 8% peryear. On these projections, the Projects maximum load requirement would utilize less than 2%of the total generation from Nam Ngum Hydropower Station.1

3. The economic internal rate of return (EIRR) calculation evaluated the benefits of theProject by applying the expected incremental increases in load demand for each of LuangPrabang and Vang Vieng to computational formulas for measuring the sum of resource costsavings, net tariff, and consumer surplus. The financial internal rate of return (FIRR) wasestimated similarly to the EIRR approach, but excluded resource cost savings and consumersurplus benefits. The EIRR so obtained at appraisal was 12.4%. The reappraisal estimate wascalculated on the same basis at 9.2% after taking into account the additional project costs and

expected increase in load sales from the shield wire. The FIRR evaluation provided twoestimates: (i) which viewed sales to the Project as forgone sales to Thailand; this approachresulted in an FIRR = -1.1%; and (ii) which valued sales to the Project excluding the value offorgone sales to Thailand. This approach resulted in an FIRR = 8.0%.

C. Approach and Methodology of the Project Performance Audit Report

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distribution, that is, the cost of generation and transmission to the substation before distribution.2After transmission for export from the terminal station, there is no further development gain tothe Lao PDR. After transmission for domestic distribution to the substations at Vang Vieng and

Luang Prabang, the net economic gain to society is the net sum of private and social benefitsarising from the sale of electricity to the countrys consumers. The net financial gain is similarlycalculated, but evaluated at market prices and excluding social benefits.

D. Specific Assumptions

5. The EIRR and FIRR estimates revalue investment costs at 2001 prices using the WorldBanks manufacturers unit value index to revalue foreign expenditures, and the Lao PDRsgross domestic price deflator to revalue local currency expenditures. Table A7.1 summarizesspecific parameter values used in the computations. Other specific assumptions used tocalculate the FIRR/EIRR reestimates are as follows.

(i) The economic life of the project assets is assumed at 20 years. Projections arefrom 2002 to 2012.

(ii) All costs and benefits are valued in constant 2001 prices.

(iii) Electricity sales are calculated as total consumer sales for Luang Prabang andVang Vieng. These include consumer sales under the shield wire scheme forboth centers. Without project sales at Luang Prabang are based on firmgenerating capacity at Nam Dong Hydropower Station of 1.0 MW, plus powergeneration available from a 0.3 MW diesel generator. Without project sales atVang Vieng are based on the level of self-generation for the Vang Vieng cementfactory at appraisal.

(iv) Economic and financial tariffs for consumers are a weighted composite of thetariffs for consumer categories. The economic tariff at the substations for LuangPrabang and Vang Vieng is a weighted average of the financial tariff at whichelectricity is sold for export less 20%. The economic tariff for consumers is aweighted composite of the financial local tariff less 5%. The percentagededuction represents the incidence of taxes on tariff revenues.3

(v) In the without project case (Table A7.1), the economic tariff is a weightedcomposite price of alternative energy used for lighting and diesel power

generation.

(vi) Economic and financial costs for generation and transmission for export areassumed equal to the economic and financial costs for generation plustransmission to the Project.

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Table A7.1: Parameter Values Used in EIRR/FIRR Computations(financial nominal values)

Power Sales (GWh) Economic (KN/kWh) Financial (KN/kWh)Year

Sw Sw/o PE PAE CEa

PE CEa

CEb

Actual1994 10.4 5.8 77.5 264.6 34.1 91.2 37.9 29.61995 14.5 0.0 75.6 306.8 39.3 88.8 43.7 31.71996 18.7 0.0 74.7 324.8 33.1 86.9 36.8 28.21997 22.9 0.0 84.9 720.6 39.5 97.7 43.8 41.4

1998 24.3 0.0 91.0 427.9 49.2 103.5 54.7 51.31999 27.7 0.0 211.7 980.2 109.1 234.1 121.3 96.32000 35.1 0.0 192.3 1,499.4 114.8 226.0 127.6 94.32001 44.8 0.0 264.1 1,325.7 114.5 300.3 127.3 96.6

Projected2002 48.8 0.0 351.3 1,280.4 122.9 399.3 136.6 103.72003 53.2 0.0 351.3 1,280.4 122.9 399.3 136.6 103.72004 58.0 0.0 351.3 1,280.4 122.9 399.3 136.6 103.72005 63.2 0.0 351.3 1,280.4 122.9 399.3 136.6 103.7

Projected2006 68.9 0.0 351.3 1,280.4 122.9 399.3 136.6 103.7

to to 0.0 351.3 1,280.4 122.9 399.3 136.6 103.72012 115.8 0.0 351.3 1,280.4 122.9 399.3 136.6 103.7

EIRR = economic internal rate of return, FIRR = financial internal rate of return, CE = operating cost of electricity,GWh = gigawatt-hour, KN = kip, kWh = kilowatt-hour, PAE = price of alternative energy (kerosene and diesel), PE =price of electricity, Sw = power sales with the Project, Sw/o = power sales without the Project.a At distribution.b

At generation.

(vii) Financial capital costs reflect actual costs incurred and revalued in constant 2001prices. Economic capital costs are obtained after applying an adjustment factor of0.9.

(viii) The FIRR assumes a residual value based on a 20-year economic life of the

project assets. The residual value is calculated at 10% per annum depreciationon the nominal capital cost.

E. Sensitivity Analysis

6. Table A7.2 shows the base case results for the EIRR and FIRR reestimates and

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Table A7.2: EIRR/FIRR Sensitivity

Item EIRR FIRR

A. Base Case Incremental (%) 14.3 3.6

B. With the Following Changes (%)A decrease in the connections from 8% peryear to 6% per year after 2001

13.4 2.9

A 10% decrease in the real value of local

tariffs after 2001

14.3 2.7

A 10% increase in the real operating cost ofelectricity after 2001

14.1 3.4

EIRR = economic internal rate of return, FIRR = financial internal rate of return.


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Nam Ngum-Luang Prabang Power Transmission Project (Loans 928 & 1308-LAO[SF])

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