Description

This Project, approved in December 1994, aimed to foster investments in industrial energy efficiency and environmental improvement, and was in line with ADB's operational strategy of promoting efficient and environmentally sustainable industrialization.

The lack of

• capital, especially for smaller enterprises;
• adequate information on appropriate equipment and technology; and
• emphasis on energy efficiency investment financing by domestic financial institutions were the main reasons for the market failure.

The Industrial Development Bank of India, a leading financial institution in term lending to the industrial sector, was the Borrower and Executing Agency of the Project. Project loan proceeds financed priority projects of public sector enterprises for energy efficiency and environmental improvements in the aluminum, cement, chemical, copper, pulp and paper, sugar, and textile subsectors in the industrial sector.

The evaluation considered three groups of project components:

• modification of production processes;
• technological restructuring of production facilities; and
• licensing or acquisition of energy efficiency-related or other technologies.

Summary of findings

• Overall, the Project was rated as partly successful.

• The Project was rated as partly relevant. Several design weaknesses suggest that the project design was not very relevant to the achievement of project outputs and objectives.

• The Project was rated less efficacious. The Project failed to address the sources of market failure identified at appraisal. Although most physical outputs of the Project were substantially achieved, the project outcomes, policy changes, and institutional development were not fully achieved. The subborrowers demand for the ADB loan was not as high as expected, and the revolving fund to provide additional financing for energy efficiency projects was not established.

• The Project was rated as less efficient. ADB financing was not instrumental towards the achievement of project objectives.

• Sustainability of the Project was rated as likely. The operation and maintenance of most project facilities was satisfactory. The failure of a few subprojects and weak financial performance of some do not endanger the sustainability of the Project as a whole.

• The institutional development and other impacts of the Project were assessed as negligible.

Lessons identified

• The relaxation subproject criteria and simplification of disbursement procedures undermined the attainment of project objectives and goals to some extent. Demand for ADB financing should be more thoroughly and rigorously analyzed at project formulation.

• Simplification of disbursement procedures made the verification of project costs and expenditures difficult afterwards. Measures must be put in place to ensure that ADB funds are used for the intended purposes.

• The delegation of loan administration responsibilities to the India Resident Mission did not improve ADB's project supervision noticeably. The evaluation mission believed that visit to all subproject sites at project implementation is an essential part of project administration. Domestic consultants could have been engaged to do such visits. The difficulty in disbursing the loan indicates that the loan proceeds were not competitive in the Indian financial sector. If domestic currency lending were available for commercially-oriented public sector entities, the demand for ADB loans might have been much larger. ADB has not been innovative enough to develop a broader range of financial instruments to meet the needs of clients better.

• The logical framework can be a useful tool in sorting out weaknesses and inconsistencies in project formulation.

Contents

• Table of Contents
• Basic Data
• 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