Evaluation

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Evaluation of ADB's Assistance to the Philippine Power Sector Completed: 2005

This evaluation, requested by the Southeast Asia Department, focuses on ADB's assistance to the Philippine power sector over the last 34 years.

Since 1971, ADB has provided 23 public sector loans valued at $2.12 billion, 3 private sector loans and equity investments totaling $90.6 million, and 21 technical assistance (TA) grants for $9.42 million. ADB has been the lead development partner in the sector, providing instrumental support for the ongoing sector restructuring and reforms.

ADB has tried to meet the changing demands of the sector during different periods. The goals of the assistance program have evolved over time. Between 1971 and the late 1980s, ADB mainly focused on

• development of indigenous energy and energy infrastructure to reduce reliance on imported fuel, and
• provision of reliable and affordable electricity.

After the power crisis in the late 1980s and the early 1990s, ADB has mostly aimed to achieve, in addition to the two goals above, a third goal-establishment of a financially viable power sector.

  Findings

ADB projects have mostly achieved their expected outputs with satisfactory to good quality, though often with serious delays, scope reduction, or, in some cases, cost overrun.

The first objective, i.e., development of indigenous energy and energy infrastructure to reduce reliance on imported fuel, was mostly achieved particularly with a series of hydropower projects in Mindanao in the 1970s. However, the program as a whole has been far from achieving the second and third objectives, i.e., providing reliable and affordable electricity and a financially viable power sector.

The power sector assistance program during 1971 and the late 1980s is rated successful, and the program from the late 1980s to the present is assessed as partly successful. Overall, the program is assessed partly successful.

Despite some progress, the power sector faces major challenges, including (i) risks posed by power sector reforms; (ii) high tariffs, and the need for additional increases; (iii) corruption; (iv) sector debt financing, and implications for national fiscal balance; (v) the possibility of another power crisis; and (vi) the role of retailing in the restructured sector.

  Lessons

• Power sector problems cannot be resolved if deeply-rooted political influence continues;
• Demand forecasts need to be more realistic;
• ADB needs to strengthen the quality of its financial review of the sector's performance;
• ADB should have actively promoted the use of internationally accepted and transparent procedures for evaluating independent power producers' bids;
• Delays in project implementation must be reduced;
• Project costs should be controlled by improving governance and reducing corruption;
• Currency mismatches should be avoided; and
• Greater ownership by executing agencies is needed for policy related advisory TAs to be successful.

  Recommendations for ADB

• Continue its financial and technical assistance to the sector.
• Support sector reforms through policy-based lending and TAs based on a thorough and fair review of the sector's true financial performance.
• Improve the design and quality of entry of public sector lending in the power sector.
• Support private sector participation with improved governance and transparency.
• Continue the focus on Mindanao and Visayas.