Description

This Project was approved by ADB for $10 million in November 1996. It was designed to achieve energy conservation through improved district heating reliability and loss reduction in critical heating systems, wide end-use energy conservation, and improved operation and maintenance (O&M) of the district heating system.

In support of the priorities of the Government's economic transformation and development efforts and ADB's operational strategy in the energy sector for Mongolia at the time, the Project formed part of a continued rehabilitation effort commenced by the previous Power Rehabilitation Project. The Project was evaluated mindful of four output categories:

• district heating rehabilitation
• heat metering
• electricity metering
• demonstration subproject.

Summary of findings

The Project was implemented largely as planned except for components under electricity metering and the demonstration subproject. It was completed 6 months behind schedule due to delays at project start-up and the postponed operation of the variable speed pumping system. Certain aspects of the project design were not fully compatible with the next stage of development. Consumers failed to see the benefits of the efficiency measures due to the absence of heat meters in individual households and a tariff structure based on metered consumption.

• The Project was assessed as 'relevant'. Despite design weaknesses, the Project was consistent with ADB's operational strategy in Mongolia at the time, although less relevant to ADB's current operational strategy and strategic objective of poverty reduction.

• The Project was assessed as 'less effective' primarily because the Project did not achieve the intended outcomes of encouraging end-use energy conservation through metering and the demonstration subproject. It had diminutive contribution to improvement of the district heating system's O&M through training and technical support. The improved heating system was also a product of interventions not attributable to the Project.

• While the reestimated financial internal rate of return of the Project is negative, the economic internal rate of return is reestimated at 14.9%. Taking into account the disuse of 509 heat meters installed, the Project is assessed as 'less efficient'.

• The overall sustainability of the Project is considered 'less likely' because of the consistent shortage of funds to implement planned maintenance and the weak financial health of the District Heating Company.

Overall, the Project was rated 'partly successful'.

Lessons identified

• Advance action for recruitment of the implementation consultant and procurement activities should not be applied mechanically during project preparation. Consultants' mobilization date should be realistically determined and adjusted in the event of delayed loan signing and effectiveness to avoid mismatch of consulting services with the actual project implementation schedule.

• Inadequate feasibility analysis of proposed project instruments and lack of stakeholders' consultation at the design stage constitute poor project design.

• Effective project design consistency checks and coordination between project officers in charge could have averted the incompatibility of choice of equipment with the next stage of development.

Contents

• Executive Summary
• Background
• Planning and Implementation Performance
• Achievement of Project Purpose
• Achievement of Other Development Impacts
• Overall Assessment
• Issues, Lessons, and Follow-up Actions
• Appendixes