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p. 4 of 21 BACK | NEXT Introduction: Looking ahead Past policies and operations Energy policies of 1981 and 1995 Review of energy sector operations in 1995–1999 Energy sector policies of other multilateral development banks Changing context of the policy review Future assistance in the changing context Conclusions

Energy 2000: Review of the Energy Policy of the Asian Development Bank : Past policies and operations

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Review of energy sector operations in 1995–1999

8. During 1995–1999, ADB approved 40 loans totaling $4.83 billion in the energy sector. This represented a share of 11.0 percent in the total number of loans made by ADB during that period. In terms of combined loan amount, the share of the energy sector was 15.5 percent. Both percentages were significantly lower than those for the period 1967–1994 (Table). The total number of technical assistance (TA) projects approved during 1995–1999 in the energy sector was 141 (or 9.8 percent of TA operations covering all sectors) with a total value of $74.1 million (or 9.4 percent of the total for ADB), both below the corresponding 1967–1994 shares. The decrease in the share of the energy sector in recent years was mainly caused by (i) major expansion in ADB assistance to the financial and social sectors, particularly in the crisis-affected DMCs; (ii) a slowdown in energy investments due to uncertainties arising from the crisis; and (iii) an increasing involvement of the private sector. However, in absolute terms, ADB assistance to the energy sector remained at the historical level of about eight loans per year, and the annual lending amount increased to almost $1 billion.

9. ADB’s lending and TA operations in the energy sector during 1995–1999 were clearly driven by the policy thrusts of the 1995 Energy Policy. This is evidenced in Appendix 1, which classifies all loans and TAs processed by the two energy divisions under the nine recommendations for the power subsector, eight recommendations for the hydrocarbon subsector, and five recommendations for rural energy contained in the 1995 Energy Policy.

5 10. In terms of the beneficiaries of the 40 energy sector loans, there were six rural electrification projects in Bangladesh, Bhutan, Lao People’s Democratic Republic (Lao PDR), Nepal, and Thailand. Two program loans and a TA loan supported power subsector restructuring in Indonesia and the Philippines, and included consulting services to draw upon the best international practices. A renewable energy loan to India promoted wind and biomass-based power, and sought to strengthen the agency set up to promote sustainable development and finance self-sustaining investment in renewable energy and energy efficiency. Four loans provided to the People’s Republic of China (PRC) supported increased utilization of natural gas in urban areas and environmental mitigation in heavily polluted areas by improving energy efficiency. Six loans financed thermal and hydropower projects in the PRC, Lao PDR, Nepal, and Pakistan promoting, inter alia, regional energy trade, cross-border environmental mitigation, clean coal use, and public-private partnership. There were 14 loans for power transmission and distribution projects mostly associated with transmitting power from generating stations financed by the private sector, thus strengthening public-private partnerships; some facilitated system integration and improvement of supply-side efficiency. In the gas subsector, a loan for a liquefied petroleum gas pipeline project in India sought to promote the concept of open-access pipelines for transporting hydrocarbons. Another loan to Indonesia for natural gas transmission stimulated additional private sector investments in gas production served by this line⁵, and provided the infrastructure required for the export of gas from Indonesia to Singapore via Batam Island and the distribution of natural gas in the export production zone in Batam Island. A loan to Sri Lanka financed oil refinery rehabilitation to improve supply-side efficiency. Finally, three loans to the Kyrgyz Republic and Mongolia promoted energy conservation and district heating rehabilitation and efficiency improvements.

11. While the two energy divisions focused on creating conditions conducive to private investment in the DMC energy sector, the Private Sector Group provided direct assistance to four energy sector projects developed by the private sector in the PRC, India, Nepal, and Pakistan with ADB assistance totaling $164 million and complementary loans totaling $315 million.

12. All of these loans are ongoing. Of the energy sector loans approved prior to 1995, 98 projects have been post-evaluated. Out of these, 78 percent were rated as “generally successful,” 19 percent as “partly successful,” and 3 percent as “unsuccessful.” This compares favorably with the ADB-wide average of about 89 percent of the projects being rated in the two higher categories. The experience in financing these projects has provided lessons on (i) critically assessing energy demand to avoid overcapacity or underutilization of capacity, (ii) incorporating appropriate cost recovery and energy efficiency mechanisms on both supply and demand sides, (iii) considering environmental factors in energy development, and (iv) improving the institutional capacity of energy entities in DMCs with a view to redefining the role of government, and enlarging the scope for private sector participation. Analysis of the project performance rating of the ongoing loans (approved since 1995) suggests that implementation progress has not always been satisfactory mainly because of (i) lack of counterpart funds that DMCs could provide during the financial crisis, (ii) changes in project scope because of changed priorities, (iii) land acquisition and right-of-way problems, and (iv) delays in obtaining wider public acceptance on policy issues and similar delays in legislation linked to program loans.

13. Of the 141 TAs, 10 were regional TAs, 87 were advisory and operational TAs, and 44 were project preparatory TAs. The TAs addressed a wide range of concerns discussed in the 1995 Energy Policy. Many of them addressed multiple concerns, but, for convenience, only the most prominent one has been used for classification in Appendix 1. Overall, there is clear evidence that ADB’s lending and TA operations have been driven by the thrusts of the 1995 Energy Policy.

14. The energy sector operations continue to be an important component of ADB’s overall assistance and an area of comparative strength. The strength is derived mainly from ADB’s technical expertise, as well as its regional location and close work with DMCs during project and policy formulation, implementation, and evaluation. Building on this strength, ADB has been able to arrange major cofinancing for energy sector projects: $0.8 for every $1 lending from its own sources⁶. Regional cooperation is another area of comparative strength as demonstrated by the projects in the Greater Mekong subregion. So also is ADB’s ability to assist both the public and the private sectors from under one roof, and combine policy advice and private sector investment.

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