Energy Sector in India—Building on Success for More Results

Evaluation Document | 31 August 2007
This sector assistance program evaluation assesses ADB's assistance to the energy sector in India, identifies lessons and makes recommendations for improving current and future operations.

Since ADB's power sector operations in India began in 1986, there have been 24 public sector loans for 21 projects valued at $4.6 billion, $337 million in loans through ADB's private sector operations and 50 grants valued at $23.5 million. An additional $1.9 billion in public sector loans are currently under consideration for future approval. The power sector has accounted for 29% of ADB loans to India, second only to the transport sector.

This evaluation identifies lessons and areas where the Government, ADB, the private sector, and other stakeholders can work together more effectively to achieve the ultimate goals of providing electricity at an affordable cost and developing an efficient and financially viable power sector. The timing of this study was intended to influence the preparation of the Country Assistance Program Evaluation for India and, subsequently the new country partnership strategy and business plan.

Major issues

  • New investments in the energy sector will depend on the commercial viability of the distribution sector to guarantee the power purchase agreements or prudential requirements. This will necessitate a widespread increase in the quality of governance and maintaining the pace of reform.
  • Funding for the power sector, and particularly the distribution sector, will depend upon reforms. The generation and transmission sectors are likely to become self-funding, but, because the capability of India's financial sector to provide the necessary funds is still limited, external assistance will still be required.
  • The availability of secure, reliable, and well-managed sources of fuel supplies to the generation sector and other energy intensive industries is threatened by shortages and will need to be developed in tandem with the industry expansion.
  • Managing the environmental impacts of the electricity sector is increasing in importance, as the system is expanding and the primary fuel source is coal.

Lessons identified

  • ADB's approach to lending at state level has worked well and should be used as a model for future assistance.
  • Sustained technical assistance is needed to support the reform programs at state level.
  • Corporatization is providing benefits similar to those normally attributed to privatization.

Overall assessment

  • The overall assessment rating on the performance of ADB assistance to the energy sector in India is "successful," which reflects satisfactory performance.
  • Over time, ADB has responded to the changing needs of the sector. The sector assistance program was aligned with the development goals outlined in the Government's development plans. It was consistent with ADB's energy policy and country strategies.
  • While the overall power sector has made significant improvements in supply and sector governance, ADB's assistance at the state level, where it has participated, has been highly effective. The combined efforts of ADB and the World Bank and their common focus on sector restructuring have influenced the Government to undertake the major reforms implemented under the 2003 Electricity Act.
  • ADB has contributed significant additionality that supported the successful outcomes of projects. This included (i) attracting private sector participation in recent years; (ii) developing environmental evaluation capacity; (iii) efficient processing of variations due to savings assisted with bid approval and awards; and (iv) providing advice on technical issues. Furthermore, ADB provided timely and effective TA support which supported institutional strengthening appropriate to the design, the operations, and the development of the projects.
  • The bottom-up assessment looked at 19 completed public sector loans, of which 17 were rated "successful" and 2 "partly successful" based on the five core criteria of relevance, effectiveness, efficiency, sustainability, and impact. All the 4 private sector operations projects independently evaluated were rated "successful." The assessment examined 18 TA projects, 16 of which were rated "successful" while the remaining 2 were "partly successful".