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Annual Report 2002 : Operational Priorities and Performance
EnergyThe energy sector continued to occupy a prominent position in ADB’s lending and technical assistance operations in its DMCs. The nature of ADB's assistance for this sector has changed substantially over the years, with increasing emphasis on sector reform, restructuring, poverty reduction, climate change, and governance. A seminar on electricity sector reforms in Asia at ADB’s 35th Annual Meeting in 2002 identified challenges facing DMCs in ensuring access to stable and affordable electricity supplies. The participants—senior DMC government officials and private sector representatives—agreed that deregulation and privatization are essential elements of a power sector development strategy for the region. The private sector participants proposed that DMC governments divest themselves of their shareholdings in the industry and focus instead on regulatory functions. The impact of energy and transport infrastructure on poverty reduction is being assessed by ADB, in collaboration with World Bank, Japan Bank for International Cooperation, and the Department for International Development of the United Kingdom. The study is aimed at establishing benchmarks, identifying lessons, and formulating the infrastructure elements of national and regional poverty reduction strategies. ADB continued in 2002 to ensure that its assistance to the energy sector is consistent with its objective of protecting the environment. A project ADB is administering—Promotion of Renewable Energy, Energy Efficiency, and Greenhouse Gas Abatement (PREGA)—is stimulating interest on ways to control greenhouse gas emissions other than carbon dioxide, such as methane and nitrous oxide, emissions from sanitary landfills, solid waste dump sites, wastewater treatment plants, rice paddy cultivation, coal mines, and livestock. The PREGA will generate a pipeline of renewable energy, energy efficiency, and greenhouse gas abatement investment projects for possible financing through commercial, multilateral, and bilateral sources, including specialized treaty-linked mechanisms such as the Global Environment Facility and clean development mechanism. The PREGA will also identify policy and institutional barriers to disseminating renewable energy, energy efficiency, and greenhouse gas abatement investment projects of technologies, and study and develop financing models. Supporting Private Sector Power Projects in Viet Nam Viet Nam is rich in natural resources, including natural gas, yet its energy production is among the lowest in Asia. To meet expected growth in power demand and reduce dependence on seasonal hydro-power generation, Viet Nam must develop its natural gas reserves for power generation. Gas reserves at the offshore Nam Con Son Basin will be tapped to fuel a least-cost power development plan. Five gas-fired combined-cycle power plants are planned for the Phu My Power Generation Complex, about 75 kilometers from Ho Chi Minh City in southern Viet Nam. ADB is providing financial support for two of these plants (Phu My 2.2 and Phu My 3) on a build-operate-transfer (BOT) basis. The projects are expected to improve governance in the energy sector by promoting best practices and effective management of public-private partnerships. The projects will establish performance benchmarks and promote the sector’s financial sustainability. Private sector participation in the projects will also positively influence other sectors. The Phu My projects represent an environment-friendly solution to the power supply problem in Viet Nam and will make competitively priced power available within a short period. They will feed the national power grid, as well as the industrial and residential areas of southern Viet Nam. Areas covered by the projects will increasingly attract investments that can spur economic growth and help reduce poverty. The projects will also contribute to government efforts to electrify 85% of Vietnamese households by 2005. The Phu My 2.2 Power Project, a 715-megawatt plant, is ADB’s first private sector power project in Viet Nam. It is also Viet Nam’s first privately sponsored BOT power project awarded through internationally competitive bidding. The Project also marked the first use of ADB’s guarantor-of-record political risk guarantee (PRG). The Project has been cited as the project finance deal of the year 2002 by several international publications. The Project will be developed and operated by Mekong Energy Company Limited, a joint venture among Electricité de France International, Sumitomo Corporation of Japan, and Tokyo Electric Power Company, Incorporated. For the Phu My 2.2 Project, ADB provided a $50 million loan without government guarantee and a $25 million PRG. Through the PRG, ADB is catalyzing for Viet Nam up to $25 million of long-term debt from commercial banks. As guarantor-of-record, ADB does not retain any portion of the risks covered. The Phu My 3 Power Project—with a capacity of 716.8 megawatts—is being undertaken by the Phu My 3 BOT Power Company Ltd., jointly owned by BP Holdings BV, SembCorp Utilities Pte Ltd., and the consortium of Kyuden International Corporation and Nissho Iwai Corporation. ADB is providing a $40 million loan and a $35 million PRG (see box on page 65 in the Operations chapter). Reforming the Energy Sector ADB assistance to the energy sector in 2002 focused on sector reform and restructuring, private sector initiatives, energy conservation, renewable energy development, environmental protection, and energy efficiency. Loans were approved for Indonesia and the Philippines to create the information and communication technology-based market facilities required for bulk electricity trading, following the enactment of laws for restructuring the power sector in these two countries. In Sri Lanka, a Power Sector Development Program aims to establish an independent regulatory and tariff-setting mechanism, and to encourage private sector participation by developing an enabling and transparent business environment. Private sector initiatives were also encouraged in energy sector loans. With ADB’s assistance, a strategic investor was selected for the newly established natural gas transportation company in Indonesia, which will facilitate the export of natural gas to Singapore. Environment and poverty concerns are being addressed in a loan approved for Indonesia in 2002, which will enable the establishment of 12 renewable energy-based power plants in remote areas of the country. Consistent with ADB’s objective of promoting regional cooperation, the 2002 lending program included a regional project aimed at strengthening and improving power transmission facilities in the Central Asian republics. Advisory technical assistance focused on developing an energy sector strategy, sector reform and restructuring, regulatory framework, energy conservation, renewable energy development, environmental protection, and energy efficiency in East and Central Asia and South Asia. Assistance to Bangladesh in 2002 included a project to substitute liquid fuel for the transport sector in Dhaka with domestic natural gas. ADB approved a technical assistance for a similar project in Indonesia. ADB has a key role in formulating a project aimed at exporting natural gas from Turkmenistan to Afghanistan and Pakistan and, possibly, India. In 2002, ADB approved 13 loans, totaling $1.0 billion and 21 technical assistance, totaling $11.5 million for the energy sector.
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