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Power forDevelopment Power forDevelopment A Review of the World Bank Group’sExperience with Private Participation in the Electricity Sector

A Review of the World Bank Group’sExperience with Private Participation in the Electricity Sector

THE WORLD BANK

THE WORLD BANK

W O R L D B A N K O P E R A T I O N S E V A L U A T I O N D E P A R T M E N T

I F C O P E R A T I O N S E V A L U A T I O N G R O U P

M I G A O P E R A T I O N S E V A L U A T I O N U N I T

ISBN 0-8213-5693-3

Power for D

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of the World B

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er for Developm

ent: A Review of the W

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Study Series2002 Annual Review of Development Effectiveness—Achieving Development Outcomes: The Millennium ChallengeAgricultural Extension: The Kenya ExperienceAgricultural Extension and Research: Achievements and Problems in National SystemsAssisting Russia’s Transition: An Unprecedented ChallengeBangladesh: Progress Through PartnershipBridging Troubled Waters: Assessing the World Bank Water Resources StrategyDebt Relief for the Poorest: An OED Review of the HIPC InitiativeDeveloping Towns and Cities: Lessons from Brazil and the PhilippinesThe Drive to Partnership: Aid Coordination and the World BankFinancial Sector Reform: A Review of World Bank AssistanceFinancing the Global Benefits of Forests: The Bank’s GEF Portfolio and the 1991 Forest Strategy and Its ImplementationFiscal Management in Adjustment LendingIDA’s Partnership for Poverty ReductionIndia: The Challenges of DevelopmentIndia: The Dairy RevolutionInformation Infrastructure: The World Bank Group’s ExperienceInvesting in Health: Development Effectiveness in the Health, Nutrition, and Population SectorLesotho: Development in a Challenging EnvironmentMainstreaming Gender in World Bank Lending: An UpdateThe Next Ascent: An Evaluation of the Aga Khan Rural Support Program, PakistanNongovernmental Organizations in World Bank–Supported Projects: A ReviewPaddy Irrigation and Water Management in Southeast AsiaPoland Country Assistance Review: Partnership in a Transition EconomyPoverty Reduction in the 1990s: An Evaluation of Strategy and PerformancePromoting Environmental Sustainability in DevelopmentReforming Agriculture: The World Bank Goes to MarketSocial Funds: Assessing EffectivenessUganda: Policy, Participation, PeopleThe World Bank’s Experience with Post-Conflict ReconstructionThe World Bank’s Forest Strategy: Striking the Right BalanceZambia Country Assistance Review: Turning an Economy Around

Evaluation Country Case SeriesBosnia and Herzegovina: Post-Conflict ReconstructionBrazil: Forests in the Balance: Challenges of Conservation with DevelopmentCameroon: Forest Sector Development in a Difficult Political EconomyChina: From Afforestation to Poverty Alleviation and Natural Forest ManagementCosta Rica: Forest Strategy and the Evolution of Land UseEl Salvador: Post-Conflict ReconstructionIndia: Alleviating Poverty through Forest DevelopmentIndonesia: The Challenges of World Bank Involvement in ForestsUganda: Post-Conflict Reconstruction

ProceedingsGlobal Public Policies and Programs: Implications for Financing and EvaluationLessons of Fiscal AdjustmentLesson from Urban TransportEvaluating the Gender Impact of World Bank AssistanceEvaluation and Development: The Institutional Dimension (Transaction Publishers)Evaluation and Poverty ReductionMonitoring & Evaluation Capacity Development in AfricaPublic Sector Performance—The Critical Role of Evaluation

Multilingual EditionsAllègement de la dette pour les plus pauvres : Examen OED de l’initiative PPTEAppréciation de l’efficacité du développement :L’évaluation à la Banque mondiale et à la Société financière internationaleDeterminar la eficacia de las actividades de desarrollo :La evaluación en el Banco Mundial y la Corporación Financiera InternacionalCôte d’Ivoire : Revue de l’aide de la Banque mondiale au paysFilipinas: Crisis y oportunidadesReconstruir a Economia de MoçambiqueСодействие России в переходе к рыночной экономике: беспрецедентная задача

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OED PUBLICATIONSTHE WORLD BANK GROUPThe World Bank Group consists of five institutions—the International Bank for Reconstruction and

Development (IBRD or the Bank), the International Finance Corporation (IFC), the International DevelopmentAssociation (IDA), the Multilateral Investment Guarantee Agency (MIGA), and the International Centre forSettlement of Investment Disputes (ICSID). Its mission is to fight poverty for lasting results and to help people help themselves and their environment by providing resources, sharing knowledge, building capacity,and forging partnerships in the public and private sectors.

THE WORLD BANK GROUP’S EVALUATION UNITSOperations Evaluation Department

Evaluating the World Bank (IBRD and IDA)

ENHANCING DEVELOPMENT EFFECTIVENESS THROUGH EXCELLENCE AND INDEPENDENCE IN EVALUATION

The Operations Evaluation Department (OED) is an independent unit within the World Bank; it reportsdirectly to the Bank’s Board of Executive Directors. OED assesses what works, and what does not; how aborrower plans to run and maintain a project; and the lasting contribution of the Bank to a country’s over-all development. The goals of evaluation are to learn from experience, to provide an objective basis forassessing the results of the Bank’s work, and to provide accountability in the achievement of its objectives.It also improves Bank work by identifying and disseminating the lessons learned from experience and byframing recommendations drawn from evaluation findings.

Operations Evaluation Group: Evaluating IFC

CONTRIBUTING TO SUSTAINABLE PRIVATE SECTOR DEVELOPMENT THROUGH EXCELLENCE IN EVALUATION

The Operations Evaluation Group (OEG) was set up in 1995 as an independent evaluation unit tointroduce systematic procedures, a broader evaluative framework, and improved instruments for corporate accountability and learning. It has a broad mandate to review IFC activities, strategies, andpolicies. Its reports provide independent review and analysis of mature projects, including those self-evaluated by operations staff. OEG assesses results and identifies lessons learned. To ensure independence, OEG reports to IFC’s Board through the World Bank’s Director General, OperationsEvaluation.

Operations Evaluation Unit of MIGA

The Operations Evaluation Unit (OEU) was created in July 2002 as the independent evaluation functionfor the Multilateral Investment Guarantee Agency (MIGA). OEU assesses the contributions of MIGA guar-antee projects and advisory and technical services to the development of host countries. The Unit alsoreviews MIGA’s strategies, policies, and procedures. OEU’s objectives are to ensure accountability forresults and to promote organizational learning, using lessons from past operations. OEU and its staff areindependent from MIGA operational departments and report directly to MIGA’s Board of Directors throughthe Director-General, Operations Evaluation.

Power forDevelopmentA Review of the World BankGroup’s Experience with Private Participation in the Electricity Sector

Fernando ManibogRafael Dominguez

Stephan Wegner

2003The World Bank

Washington, D.C.

International Finance CorporationWashington, D.C.

Multilateral Investment Guarantee AgencyWashington, D.C.




http://www.worldbank.org/oedhttp://www.ifc.org/oeg

© 2003 The International Bank for Reconstruction and Development / The World Bank1818 H Street, NWWashington, DC 20433Telephone 202-473-1000Internet www.worldbank.orgE-mail [email protected]

All rights reservedManufactured in the United States of AmericaFirst edition December 2003

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Library of Congress Cataloging-in-Publication Data

Manibog, Fernando Reyes.Power for development: a review of the World Bank Group’s experience with private participation in the electricity

sector / Fernando Manibog.p. cm. — (Operations evaluation studies)

Includes bibliographical references.ISBN 0-8213-5693-31. Electric utilities. 2. Electric utilities—Deregulation. 3. Privatization. 4. Economic development projects—

Evaluation. 5. World Bank Group. I. Title. II. World Bank operations evaluation study.

HD9685.A2M25 2003333.793’2—dc22 2003064618

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i i i

vii Acknowledgments ix Foreword, Prólogo, Avant-Proposxiii Summary, Résumen, Résumé Analytiquexxxv Abbreviations and Acronyms

1 1. Overview: Private Sector Development in the Electric Power Sector1 The Current Sector Environment 2 The Role of the World Bank Group in the 1990s 3 Evaluation Objective and Framework

7 2. PSDE Objectives and Instruments

11 3. Project Results 11 Bank Involvement: Reforming Power Sectors and Mainstreaming PSDE 19 IFC: Supporting Private Investments in Electric Power Generation 27 MIGA: Mitigating the Political Risk to Private Investors

31 4. Sector-Level PSDE Outcomes32 Promoting Private Sector Involvement 37 Macrofiscal Balancing: Reducing the Power Sector’s Burden on Public

Resources 39 Helping the Poor Directly 40 Protecting the Environment

43 5. Cross-Cutting Findings43 Toward Better-Designed Interventions54 Toward Improving WBG Processes

57 6. Recommendations

Annexes61 Annex A: Methodology and Instruments 67 Annex B: World Bank Group PSDE Portfolio-at-a-Glance

Contents

68 Annex C: Trends in PSDE Objectives in the Bank’s Portfolio 69 Annex D: Ratings of Freestanding Projects and Projects with PSDE

Components76 Annex E: Analysis of the Performance of Freestanding PSDE Projects and

Projects with PSDE Components78 Annex F: IFC Advisory Operations in Power: Standalone Advisory Operations80 Annex G: IFC Advisory Operations in Power: Donor-Assisted Technical

Assistance Trust Funds (TATF) Operations 82 Annex H: IFC’s Operations in Renewable Energy and Energy Efficiency in

the 1990s Attachment H.1: IFC’s Mainstream Renewable Energy and Efficient Energy Projects, FY90–99Attachment H.2: IFC-Managed GEF Projects in Power, FY90–99

86 Annex I: IFC Portfolio of Approvals in Power, FY90–01 88 Annex J: OEG’s Mini-XPSR Evaluation Framework for IFC’s Electric Power

Sector Investment Operations 90 Annex K: Performance Ratings of 29 IFC Mature Power Sector Investment

Operations in the 1990s 92 Annex L: Analysis of Development Outcome Indicators of the 29 Evaluated

IFC Electric Power Investment Operations 95 Annex M: MIGA Guarantees in Power, FY99–01 100 Annex N: World Bank Group Involvement in Renewable Energy and Energy

Efficiency Projects 102 Annex O: ASTAE-supported World Bank/GEF Alternative Energy Investment

Projects, FY92–03 103 Annex P: Technology and Policy Reform Measures in ASTAE-Supported

Renewable Energy and Energy Efficiency Projects 104 Annex Q: Environmental and Social Impacts of IFC Investment Operations in

the Power Sector 108 Annex R: World Bank Group Management Response and Management

Action Record 114 Annex S: Chairman’s Summary: Committee on Development Effectiveness

(CODE)

117 Endnotes

121 Bibliography

Tables9 Table 2.1 IBRD/IDA Lending, IFC Investments, and IBRD/IDA and MIGA

Guarantees in the Electric Power Sector, FY90–0112 Table 3.1 Regional Distribution of Bank, IFC, and MIGA Operations14 Table 3.2 The Bank’s PSDE Project-Level Results (based on achievement of

stated PSDE objectives)33 Table 4.1 Desired PSDE Outcomes Are Numerous and Complex38 Table 4.2 PSDE Outcomes from Bank Activities in LAC “Advanced Reform”

Countries54 Table 5.1 Performance Improvement of South American Electricity

Distribution Companies

P O W E R F O R D E V E L O P M E N T

i v

Figures8 Figure 2.1 Reform Options to Achieve Structural and Ownership Changes in

the Power Sector13 Figure 3.1 IBRD/IDA Lending for Generation Collapsed, Putting Transmission

and Distribution in the Lead by FY01 (approvals in US$ millions)13 Figure 3.2 The Bank’s PSDE Projects Have Focused on Low- and Lower-

Middle-Income Countries15 Figure 3.3 Countries in Each Region Taking Key Reform Steps in Power

(percentage)20 Figure 3.4a IFC’s Investment Operations in the Electric Power Sector Peaked

in the 1990s ...20 Figure 3.4b … But Funding Commitments Were Slower21 Figure 3.5 IFC Investment Commitments in the 1990s Went Mostly to Asia

and LAC23 Figure 3.6 IFC’s Electric Power Sector Operations Have Better Outcomes

than the Rest of its Portfolio25 Figure 3.7 Good Development Outcomes in Electric Power Are Associated

with Good Investment Outcomes33 Figure 4.1 Cumulative Additions of New Power Production Capacity since

1993 in Five Countries with Reforms in the Energy Sector in the 1990s

Boxes17 Box 3.1 Performance Management Contracts Were Mostly Unsuccessful34 Box 4.1 Côte d’Ivoire Shows Good Outcomes from PSDE35 Box 4.2 El Salvador: WBG Work in a Country Committed to Power Reforms47 Box 5.1 Mauritius: The Bank’s Advice Contributed to the Success of Private

Power Generation from Bagasse48 Box 5.2 Ukraine: Pushing for Unbundling in the Wrong Environment

C O N T E N T S

v

v i i

Acknowledgments

This study is a joint review by the World BankGroup’s three evaluation units. The report waswritten by Fernando Manibog of the OperationsEvaluation Department (OED) of the WorldBank; Rafael Dominguez of the Operations Eval-uation Group (OEG) of the International Fi-nance Corporation; and Stephan Wegner of theOperations Evaluation Unit (OEU) of the Multi-lateral Investment Guarantee Agency. Literaturereviews, background papers, contributory Pro-ject Performance Assessment Reports, and coun-try case studies were prepared for the OEDevaluation by Yves Albouy, Simone Lawaetz, SunilMathrani, Manuel Penalver, and Kevin Warr. SamirStewart and Ferdinand Vinuya contributed tothe development of the OED database on theWorld Bank’s project portfolio. Dennis Long,Vanessa Poon, and Victoria Viray-Mendoza con-tributed to the OEG evaluation of IFC opera-tions. Tomas Caspellan provided administrativeassistance, and William Hurlbut provided edi-torial support.

Special thanks are due to the members ofthe advisory committee, who provided uniqueperspectives and advice: V.V. Desai (formerlyChief Economist and Director of Power Opera-tions, Asian Development Bank); Navroz Dubash(World Resources Institute); Graham Thomas

(independent consultant on electricity marketsand restructuring); and Catherine Waddams(Centre for Competition and Regulation, Uni-versity of East Anglia).

The report benefited greatly from the insightsof the large number of past and present staff whowere or are responsible for the World BankGroup’s PSDE assistance evaluated for the study,including 154 Bank projects, 29 mature IFC in-vestment operations, and eight MIGA projects,in a total of 80 countries, and associated advisorywork. We thank all those who kindly agreed tobe interviewed and who responded to our sur-veys: these include the Bank’s Energy SectorBoard and Private Sector Development Board;the Bank’s Regional Energy Sector Managers;IFC’s Power Department Managers; the Bank’sEnergy Sector Leaders, Task Team Leaders, TaskManagers, and other Bank project staff, and IFC’sInvestment Officers, Environmental Specialists,and Power Engineers. We would like to especiallythank the peer reviewers who commented thor-oughly on successive versions of the report:Mark Segal, formerly Principal Economist inIFC’s Power Department; Denis Carpio of OEG;and Andres Liebenthal of OED.

We are also grateful for the support of the Nor-wegian Ministry of Foreign Affairs, which funded

background analytical work by Håkon Nordangand by ECON of Norway, as well as the dissem-ination phase of the study.

We are especially thankful to the numerousstakeholders from private power investors, donoragencies, nongovernmental organizations, gov-

ernment officials, and public power entities whoprovided a diversity of insights by way of inter-views and written correspondence throughoutthe process of preparing the portfolio review, thecountry case studies, the background papers,and the report.


v i i i

Director-General, Operations Evaluation, World Bank Group: Gregory K. Ingram

Acting Director, Operations Evaluation Department, World Bank: Nils Fostvedt

Director, Operations Evaluation Group, IFC: William Stevenson

Director, Operations Evaluation Unit, MIGA: Aysegul Akin-Karasapan

Manager, Sector and Thematic Evaluations: Alain Barbu

Head, Special Studies and Planning: Linda Morra-Imas

Senior Evaluation Officer: Ethel Tarazona

Task Managers: Fernando Manibog, Rafael Dominguez, and Stephan Wegner

PRÓLOGO

Este estudio evalúa el rendi-miento del Grupo del Banco Mundial(WBG, por sus siglas en inglés) du-rante la década de 1990 en el fomentodel desarrollo del sector privado en elsector de energía eléctrica (PSDE).Esta revisión conjunta por parte de lastres unidades de evaluación del WBGintenta informar acerca de la puesta enpráctica de la Estrategia de renova-ción del negocio de la energía en 2001del WBG. Está basada en una evalua-ción de la ayuda del PSDE del WBG en80 países, por medio del trabajo ana-lítico y de asesoría del Banco Mundialy sus 154 proyectos, 29 operacionesde inversión de la Corporación Finan-ciera Internacional (CFI) y 8 proyec-tos del Organismo Multilateral deGarantía de Inversiones (OMGI).

El mensaje principal del informees que el PSDE ha proporcionadosus beneficios esperados y buenosresultados en los casos en que lospaíses mostraron un compromisocon las reformas para avanzar y losprogramas del PSDE se pusieron enpráctica debidamente. Sin embargo,la calidad de los resultados dependíade los objetivos buscados y de lostipos de ayuda proporcionada. Lamayoría de los países permanecenen las primeras fases de reformar yprofundizar la participación del sec-tor privado en sus sectores de laenergía eléctrica. El Banco Mundial—que lucha por lograr objetivos de re-forma compleja y múltiple por mediode una variedad de instrumentos entodas las regiones—logró buenos re-sultados cuando existía el concepto

AVANT-PROPOS

Cette étude évalue les perfor-mances réalisées au cours des années1990 par le Groupe de la Banque mon-diale en matière de promotion du dé-veloppement du secteur privé dans ledomaine de l’énergie électrique(DSPE). Réalisée conjointement parles trois unités d’évaluation du Groupede la Banque mondiale, elle a pour butde donner des informations au sujetde la mise en application la Stratégiede renouvellement de l’énergie de 2001du Groupe de la Banque mondiale. Elleest basée sur une évaluation de l’aideofferte au secteur privé dans le do-maine de l’énergie électrique par leGroupe de la Banque mondiale dans 80pays, au moyen du travail analytique etconsultatif de la Banque mondiale etde ses 154 projets, 29 opérations d’in-vestissement parvenues à maturité dela Société financière internationale(SFI) et de 8 projets parvenus à matu-rité de l’Agence multilatérale de ga-rantie des investissements (MIGA).

Le principal enseignement durapport est que le DSPE a fourni lesrésultats attendus en matière de bé-néfices et de biens dans les pays dé-cidés à faire progresser les réformeset où les programmes DSPE avaientété mis en pratique correctement.Cependant, la qualité des résultats adépendu des objectifs poursuivis etdes types d’aide fournis. La plupartdes pays en sont encore aux pre-miers stades de réformes et d’aug-mentation de la participation dusecteur privé au domaine de l’éner-gie électrique. La Banque mon-diale—poursuivant des objectifs de

FOREWORD

This study evaluates the per-formance of the World Bank Group(WBG) during the 1990s in promotingprivate sector development in the elec-tric power sector (PSDE). This joint re-view by the WBG’s three evaluationunits aims to inform the implementationof the WBG’s 2001 Energy Business Re-newal Strategy. It is based on an eval-uation of the WBG’s PSDE assistancein 80 countries through the WorldBank’s analytical and advisory workand its 154 projects, 29 mature Inter-national Finance Corporation (IFC) in-vestment operations, and eight matureMultilateral Investment GuaranteeAgency (MIGA) projects.

The report’s main message is that,where countries showed a commit-ment to advancing reforms andwhere PSDE programs were prop-erly implemented, PSDE has deliv-ered its expected benefits and goodoutcomes. However, the quality ofoutcomes depended on the objec-tives pursued and on the types of as-sistance provided. Most countriesremain in the early stages of reform-ing and deepening private sector in-volvement in their power sectors.The World Bank, pursuing multipleand complex reform objectivesthrough a range of instruments acrossall regions, achieved good resultswhere country ownership and sus-tained political commitment existed.It underestimated the complexity andtime required for reforms to matureand achieve lasting and equitablecountry sector outcomes, however,and obtained poor or, at best, mixed

F O R E W O R D

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results where reforms wereweak or reversed. IFC andMIGA, which focused on thesingle reform objective of pri-vate sector participation andwhich responded to marketdemand for new generation,typically to address shortages,

achieved good project-level out-comes overall.

The study also points out thatthere is no single blueprint suitablefor all sector reform and PSDE. Thereis instead an evolving menu of op-tions for the combinations and se-quences of reform steps that aredriven by country-specific objectivesand conditions. Poverty reductionand environmental mainstreaming(“doing good,” in addition to “doingno harm”) furthermore have notbeen intrinsic components of sectorreform and PSDE strategies. Inde-pendent power producers have hada critical role to play in relieving sup-ply bottlenecks, in leveraging publicsector financing capacity, and indemonstrating early wins, but a lackof timely reforms in the distributionsubsector can jeopardize the gainsin the generation subsector.

The WBG’s PSDE assistance is awork in progress. Learning-by-doingcan work, but countries should setclear objectives and should take thelead in reform, supported by WBGadvice drawn from its experience ofsimilar situations in other countries.Joint World Bank–IFC–MIGA CountryAssistance Strategies (CASs) havebeen more effective at supportingPSDE than have World Bank-onlyCASs, but coordination through CASsalone is insufficient.

Demand continues to be strongfor the WBG’s advice and assistancein PSDE, especially given the globalenvironment of reduced private cap-

de propiedad en el país y uncompromiso político conti-nuo. Pero el Banco Mundialsubestimó la complejidad yel tiempo requerido para quelas reformas madurasen y lo-grasen resultados duraderosy equitativos en el país y sec-

tor; obtuvo resultados deficientes, ocomo mucho mixtos, donde las re-formas fueron débiles o inversas. LaCFI y el OMGI—concentrados en elúnico objetivo de reforma de la par-ticipación del sector privado y res-pondiendo a la demanda delmercado para la nueva generación, tí-picamente tratar la escasez—logra-ron en general buenos resultados anivel de los proyectos.

El estudio también señala que nohay un solo proyecto para reformadel sector y PSDE. Es un menú de op-ciones que evoluciona y cubre variascombinaciones y secuencias de pasospara la reforma, que vienen indicadospor objetivos y condiciones específi-cos de cada país. Además, la reduc-ción de la pobreza y la aceptacióngeneral del medio ambiente (“hacercosas bien” además de “no hacerdaño”) no han sido componentes in-trínsecos de la reforma del sector ylas estrategias de PSDE. Los produc-tores independientes de energía hantenido que jugar un papel crítico paraaliviar los embotellamientos de su-ministros, influenciar la capacidad fi-nanciera del sector público ydemostrar ganancias iniciales. Pero lafalta de reformas a tiempo en el sub-sector de distribución puede poneren peligro las ganancias en el sub-sector de generación.

La ayuda de PSDE del WBG es un“trabajo en marcha”. Aprender sobrela marcha puede funcionar, pero lospaíses deben fijar objetivos claros yestar al frente, apoyados por conse-

réforme multiples et com-plexes au moyen de diversinstruments à travers toutesles régions—a obtenu debons résultats dans les paysqui avaient manifesté leur ad-hésion et où il existait un en-gagement politique soutenu.

Mais la Banque mondiale avait sous-estimé la complexité et le temps né-cessaire pour permettre auxréformes de parvenir à maturité etpour obtenir des résultats par sec-teur de pays durables et équitables; elle a ainsi obtenu des résultatspeu satisfaisants, ou tout au moinsdiscutables dans les pays où les ré-formes étaient faibles ou lentes às’enraciner. La SFI et la MIGA—concentrant tous leurs efforts sur leseul objectif de réforme de la parti-cipation du secteur privé et répon-dant à la demande du marché pourde nouvelles productions afin sur-tout de faire face à la pénurie—ontobtenu dans l’ensemble de bons ré-sultats pour le projet.

Ce rapport fait également re-marquer qu’il n’existe aucun plandirecteur de réforme sectorielle etde développement du secteur privédans le domaine de l’énergie élec-trique. Il s’agit d’un menu d’optionsévolutif couvrant diverses combi-naisons et séquences d’étapes deréformes mues par des objectifs etconditions spécifiques au pays. Deplus, la lutte contre la pauvreté etl’intégration environnementale (nepas se contenter de « ne pas faire demal », mais également « faire du bien») ont été les composantes intrin-sèques de la réforme sectorielle etdes stratégies du DSPE. Les pro-ducteurs d’électricité indépendantsont eu un rôle crucial à jouer dansle dégagement des goulots d’étran-glement en matière d’approvision-


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ital flows, heightened macro-economic and political risks,and scant sponsor/investor in-terest. In particular, the WBGhas an urgent and crucial roleto play in slow-reformingcountries and in low-incomecountries whose high political

risk and regulatory deficiencies makethem less attractive to investors.

The study recommends that theWBG continue to pursue PSDE. Indoing so, it should: (i) provide op-erational guidance to staff on whenand how to continue promotingPSDE; (ii) give greater emphasis tothe mainstreaming of poverty re-duction and environmental objec-tives in the design of future PSDEstrategies; and (iii) encourage oper-ational innovations to ensure greaterconsistency between WBG practicesand instruments and its PSDE goals,including through more systematicmonitoring and evaluation of impacts.

jos sensatos del WBG saca-dos de lecciones de expe-riencia en otros países encircunstancias similares. LasEstrategias de Asistencia a unPaís (CAS), en conjunto delBanco Mundial, CFI y OMGI,han sido más eficaces en apo-

yar el PSDE que las CAS solamentedel Banco Mundial, pero la coordi-nación por medio de las CAS sola-mente es insuficiente.

En general, el consejo y ayuda delWBG en PSDE continúa siendo unademanda, dado el ambiente global ac-tual de flujo de capital privado redu-cido, riesgos macroeconómicos ypolíticos elevados y escaso interésde patrocinadores e inversores. Enparticular, el WBG tiene un papel ur-gente y crucial que jugar en los paí-ses con reformas lentas y de ingresobajo, cuyo alto riesgo político y defi-ciencias de regulación hacen que seanmenos atractivos a los inversores.

El estudio recomienda que elWBG continúe buscando PSDE. Alhacer esto, debería: (i) proporcionarorientación de operación al perso-nal sobre cuándo y cómo continuarfomentando el PSDE; (ii) dar mayorénfasis a la aceptación general de lareducción de la pobreza y los objeti-vos ambientales en el diseño de lasestrategias futuras del PSDE; y (iii)alentar las innovaciones operaciona-les para asegurar una mayor consis-tencia entre las prácticas einstrumentos del WBG y sus metas dePSDE, incluyendo el hacerlo me-diante más control sistemático y eva-luación de impactos.

nement, dans l’optimisationde la capacité de financementdu secteur public et dansl’obtention de gains pré-coces. Mais l’absence de ré-formes réalisées en tempsopportun dans le sous-sec-teur de la distribution peut

mettre en péril les gains obtenusdans le sous-secteur de la produc-tion.

L’aide accordée par le Groupe dela Banque mondiale au DSPE consti-tue un « travail en cours ». L’ap-prentissage par la pratique est uneoption envisageable, mais les paysdoivent se fixer des objectifs préciset se positionner en tête du mou-vement grâce aux conseils judicieuxdu Groupe de la Banque mondialerésultant de leçons tirées de l’expé-rience dans d’autres pays dans desconditions semblables. Les straté-gies CAS (Stratégies d’aide aux pays)menées conjointement par laBanque mondiale, la SFI et la MIGAont apporté un soutien bien plusefficace au DSPE que celles quiavaient été mises en œuvre par laBanque mondiale seule, mais la co-ordination par le truchement desseules CAS demeure insuffisante.

Dans l’ensemble, le conseil etl’aide du Groupe de la Banque mon-diale pour favoriser le DSPE conti-nue d’être recherché compte tenude l’environnement global actuel deréduction des mouvements de ca-pitaux privés, d’augmentation desrisques macro-économiques et po-litiques et de faible intérêt montrépar les commanditaires et investis-seurs. En particulier le Groupe de laBanque mondiale a un rôle urgent etcrucial à jouer dans les pays lents àopérer des réformes et dans les paysà faible revenu dont les risques po-litiques élevés et les déficiences en

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matière de réglementationles rendent moins attrayantspour les investisseurs.

L’étude recommande queGroupe de la Banque mon-diale continue de poursuivrele DSPE. Ce faisant, il doit : (i)fournir des directives opéra-

tionnelles au personnel sur quand etcomment continuer à promouvoir leDSPE, (ii) accentuer la rationalisationde la lutte contre la pauvreté et desobjectifs environnementaux dans lesfuturs plans stratégiques du DSPE et(iii) encourager les innovations opé-rationnelles afin d’assurer une plusgrande cohérence entre les pra-tiques et les instruments du Groupede la Banque mondiale et ses ob-jectifs en matière de DSPE, par unesurveillance et une évaluation des ef-fets plus systématiques.


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Gregory K. Ingram Director-General, Operations Evaluation

RÉSUMÉ ANALYTIQUE

Cette étude évalue les perfor-mances réalisées au cours des années1990 par le Groupe de la Banque mon-diale en matière de promotion du dé-veloppement du secteur privé dans ledomaine de l’énergie électrique(DSPE). Réalisée conjointement parles trois unités d’évaluation1 du Groupede la Banque mondiale, elle abordequatre questions d’évaluation : (i) com-ment la participation du secteur privéet le rôle du Groupe de la Banque mon-diale ont-ils évolué au cours des an-nées 1990 ? (ii) dans quelle mesurel’aide du Groupe de la Banque mon-diale a-t-il soutenu ses stratégiesDSPE ? (iii) quels ont été les résultatsdes interventions du Groupe de laBanque mondiale en matière deDSPE ?; (iv) quels sont les grands en-seignements qui doivent guider les fu-tures orientations commerciales duGroupe de la Banque mondiale pourpromouvoir le DSPE ?

L’expérience de Groupe de laBanque mondiale avec le DSPE de-puis le début des années 1990 donneà penser que le DSPE a fourni des ré-sultats là où il a été correctementmis en pratique et que le Groupe dela Banque mondiale doit continuer àsoutenir ces interventions. Cepen-dant, les conséquences de l’aide of-fert par la Banque, la SFI et la MIGAdépendent de l’engagement du pays,des objectifs poursuivis et des typesd’aide fournis. Il n’existe aucun plandirecteur pour le DSPE ; il s’agit plu-tôt d’un menu d’options évolutif,mues par des objectifs et des condi-tions spécifiques au pays. La plupart

SUMMARY

This study evaluates the per-formance of the World Bank Group(WBG) during the 1990s in promotingprivate sector development in the elec-tric power sector (PSDE). This joint re-view by the WBG’s three evaluationunits1 addresses four evaluation ques-tions: (i) how did private participationand the WBG’s role change in the1990s?; (ii) to what extent has theWBG’s assistance supported its PSDEstrategies?; (iii) what have been theresults of the WBG’s PSDE interven-tions?; and (iv) what are the broad les-sons that should guide the WBG’s futurebusiness directions in promoting PSDE?

The WBG’s experience with PSDEsince the early 1990s suggests that,where PSDE was properly imple-mented, it has delivered results, andthe WBG should continue to sup-port such interventions. The out-comes of the assistance provided bythe Bank, IFC, and MIGA depend oncountry commitment, objectives pur-sued, and the types of assistance pro-vided. There is no universal blueprintfor PSDE; rather, there is a continu-ally evolving menu of options whosevalidity depends on country-specificobjectives and conditions. Most coun-tries remain in the early stages of re-forming and deepening private sectorinvolvement in their power sectors.The Bank, pursuing multiple andcomplex reform objectives througha range of instruments across all re-gions, achieved good results in thosecases where country ownership andpolitical commitment existed. How-ever, it underestimated the com-

RÉSUMEN

Este estudio evalúa el rendi-miento del Grupo del Banco Mundial(WBG, por sus siglas en inglés) du-rante la década de 1990 en el fomentodel desarrollo del sector privado en elsector de energía eléctrica (PSDE).Esta revisión conjunta por parte de lastres unidades de evaluación1 del WBGpresenta cuatro preguntas de evalua-ción: (i) ¿Cómo han cambiado la parti-cipación privada y el papel del WBG enla década de 1990?; (ii) ¿Hasta quépunto la ayuda del WBG ha apoyadosus estrategias del PSDE?; (iii) ¿Cuá-les han sido los resultados de las in-tervenciones del PSDE del WBG?; (iv)¿Cuáles son las lecciones que debe-rían guiar las directrices de negocio fu-turas del WBG para fomentar el PSDE?

La experiencia del WBG con elPSDE desde principios de la décadade 1990 sugiere que el PSDE ha dadoresultados donde se puso en prácticadebidamente y el WBG debería con-tinuar apoyando tales intervencio-nes. Sin embargo, los resultados dela ayuda del Banco, CFI y OMGI de-penden del compromiso del país, delos objetivos perseguidos y de lostipos de asistencia proporcionada.No hay un solo proyecto para elPSDE; más bien es un menú de op-ciones en continuo cambio dirigidaspor los objetivos y condiciones es-pecíficas del país. La mayoría de lospaíses permanecen en las primerasfases de reformar y profundizar laparticipación del sector privado ensus sectores de la energía eléctrica. ElBanco, que lucha por lograr objetivosde reforma compleja y múltiple por

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plexity of the reforms neededand the time required forthose reforms to mature andachieve lasting and equitablecountry-sector outcomes, andwhere the reforms were weakor slow to take root it obtainedpoor or, at best, mixed results.

IFC and MIGA, focusing on the singlereform objective of private sectorparticipation and responding to mar-ket demand, overall achieved goodproject-level outcomes, but whilegood, individual private sector proj-ect outcomes contribute to sectorreform they cannot alone ensuregood sector-level outcomes. From adifferent perspective, good privatesector project outcomes are possi-ble at different stages of reform, butthey are not a sufficient gauge of theWBG’s achievement of its overallPSDE sectoral objectives. Good proj-ect-level outcomes are a necessarycondition for good sector-level out-comes, but this is achievable onlywith strong government commitmentto country-sector reform objectives.Achieving these reforms has beenand continues to be difficult in mostof the WBG’s client countries.

The WBG’s advice and assistancecontinue to be in demand, but itsrole in advocating PSDE has becomeless clear in the current global envi-ronment of sharply reduced privatecapital flows. While the evaluationevidence supports the WBG’s pro-motion of PSDE, some observershave identified an emergent crisis inpower sector reform in developingcountries as strategic investors havewithdrawn from the sector over thepast 18 months, and are concernedthat the Bank’s support for PSDEconsequently has become less effec-tive. About a dozen investors havewithdrawn from India, and the eco-

medio de una variedad de ins-trumentos en todas las regio-nes, logró buenos resultadoscuando existía el concepto depropiedad en el país y uncompromiso político conti-nuo. Pero el Banco subestimóla complejidad y el tiempo re-

querido para que las reformas ma-durasen y lograsen resultadosduraderos y equitativos en el país ysector; obtuvo resultados deficien-tes, o como mucho mixtos, donde lasreformas fueron débiles o tardarontiempo en arraigarse. La CFI y elOMGI, concentrados en el único ob-jetivo de reforma de la participacióndel sector privado y respondiendo ala demanda del mercado, lograronen general buenos resultados a nivelde los proyectos. Pero si bien los re-sultados buenos e individuales deproyectos del sector privado contri-buyen a la reforma del sector, nopueden por sí mismos asegurar re-sultados buenos a nivel del sector.Desde una perspectiva diferente, losresultados buenos de proyectos delsector privado son posibles en dife-rentes etapas de la reforma, pero noson una medida suficiente de los lo-gros del WBG en sus objetivos ge-nerales del sector del PSDE. Losbuenos resultados a nivel de pro-yecto son una condición necesariapara los buenos resultados a niveldel sector, pero esto solamente sepuede lograr con un fuerte compro-miso del gobierno hacia los objetivosde reforma del sector en el país. Lo-grar estas reformas, sin embargo, hasido y continúa siendo difícil en la ma-yoría de los países clientes de WBG.

El consejo y ayuda del WBG con-tinúan estando en demanda, pero supapel en defender PSDE se ha vueltomenos claro en el ambiente global ac-tual de un flujo de capital privado

des pays demeurent auxstades précoces d’établisse-ment de réformes et d’aug-mentation de la participationdu secteur privé dans le do-maine de l’énergie. LaBanque, poursuivant des ob-jectifs de réforme multiples

et complexes par un ensemble d’ins-truments à travers toutes les régions,a obtenu de bons résultats dans lespays qui avaient manifesté leur ad-hésion et où il existait un engage-ment politique soutenu. Mais laBanque avait sous-estimé la com-plexité et le temps nécessaire pourpermettre aux réformes de parvenirà maturité et pour obtenir des résul-tats par secteur de pays durables etéquitables ; elle a ainsi obtenu des ré-sultats peu satisfaisants, ou au mieuxdiscutables, dans les pays où les ré-formes se sont avérées faibles oulentes à s’enraciner. La SFI et laMIGA—concentrant tous leurs ef-forts sur le seul objectif de réformede la participation du secteur privé etrépondant à la demande du mar-ché—ont obtenu dans l’ensemble debons résultats pour le projet. Mais siles bons résultats du projet dans lesecteur privé individuel contribuentà une réforme sectorielle, ils ne peu-vent pas, à eux seuls, assurer de bonsrésultats au niveau sectoriel. D’unpoint de vue différent, de bons ré-sultats de projet dans le secteur privésont possibles à différents stades deréformes, mais ils ne constituent pasune mesure suffisante pour évaluerl’accomplissement du Groupe de laBanque mondiale en ce qui concerneses objectives sectoriels du DSPE engénéral. De bons résultats au niveaudu projet constituent une conditionnécessaire pour obtenir de bons ré-sultats au niveau du secteur, maisceci ne peut être obtenu que par


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nomic crisis in Latin Americahas forced the postponementof power supplier privatiza-tion in Peru, Ecuador, andBrazil. Observers elsewherehave reported the risk of re-nationalization in some coun-tries. Other observers,

however, see the sharp drop in in-vestor interest as temporary, notingthe emergence of local and regionalplayers and highlighting recent trans-actions, such as the Delhi distributionprivatization and private power dealsin Kazakhstan and Central Europeancountries. The WBG is most neededin low-income countries where highpolitical risk and regulatory defi-ciencies deter investors. Bank staffaccordingly require guidance onwhen and how to continue promot-ing PSDE in an environment ofheightened risk and uncertainty. Op-erational guidance is particularlyneeded in five areas: (i) how toreignite private interest in developingcountry power sectors; (ii) how tobalance public and private invest-ments; (iii) how to select the se-quence of reforms and PSDEinterventions that will work best in aparticular country-sector situation;(iv) how to incorporate the expansionof energy access for the poor and en-vironmental considerations that gobeyond safeguard compliance (thatis, that “do good” rather than simply“do no harm”) into the WBG’s PSDEand sector reform agenda; and (v)how to achieve much stronger Bank,IFC, and MIGA coordination, coher-ence, and synergy, including withinthe Country Assistance Strategy (CAS)framework.

bruscamente reducido. Sibien la evidencia de evalua-ción apoya la continua pro-moción del PSDE por partedel WBG, algunos observa-dores ven una crisis en la re-forma del sector de la energíaeléctrica en los países en de-

sarrollo, ya que inversores estratégi-cos se han retirado del sector enmanadas en los últimos 18 meses, yestán preocupados porque el apoyodel PSDE por parte del Banco se havuelto menos eficaz. Cerca de unadocena de inversores se ha retiradode la India, y la crisis económica ac-tual en Latinoamérica ha forzado elretraso de las privatizaciones de pro-veedores de energía en Perú, Ecuadory Brasil. Los observadores han infor-mado de riesgos de renacionaliza-ción en algunos países. Otros ven lacaída abrupta del interés del inversorcomo algo temporal, apuntando laemergencia de jugadores locales yregionales, y destacando las transac-ciones recientes tales como la priva-tización de distribución en Delhi y lastransacciones de energía privada enKazajstán y países de Europa central.Sin embargo, los países de ingresobajo son los que más necesitan alWBG, pues el alto riesgo político y lasdeficiencias de regulación disuadena los inversores. Por lo tanto, el per-sonal del WBG necesita orientaciónprofesional acerca de cuándo y cómoseguir fomentando el PSDE con esteaumento de riesgos e incertidum-bres. La orientación profesional deoperación se necesita particular-mente en cinco áreas: (i) cómo vol-ver a despertar el interés privado enlos sectores de energía de países endesarrollo; (ii) cómo equilibrar lasinversiones públicas y privadas; (iii)qué secuencia de reformas y qué in-tervenciones del PSDE funcionan

l’engagement sérieux du gou-vernement vis-à-vis de ré-formes à l’échelle nationaleet sectorielle. La mise en placede ces réformes, cependant,a été et continue d’être diffi-cile dans la plupart des paysclients du Groupe de la

Banque mondiale.Les conseils et l’aide du Groupe de

la Banque mondiale continuent d’êtrerecherchés, mais le rôle d’encoura-gement du DSPE assumé par laBanque est devenu moins clair dansla situation globale actuelle où l’onobserve de fortes réductions des fluxde capitaux privés. Tandis que lespreuves fournies par l’évaluation vonten faveur de la poursuite de la pro-motion du DSPE par le Groupe de laBanque mondiale, certains observa-teurs voient une crise dans la réformedu secteur d’énergie dans les pays envoie de développement, étant donnéque les investisseurs stratégiques sesont retirés du secteur en grandnombre au cours des 18 derniersmois et qu’ils pensent avec inquié-tude que le soutien de la Banque enfaveur du DSPE a perdu de son effi-cacité. Une douzaine d’investisseursenviron se sont retirés des Indes etla crise économique qui sévit actuel-lement en Amérique latine a obligél’ajournement de privatisations defournisseurs d’énergie au Pérou, enÉquateur et au Brésil. Les observa-teurs ont signalé des risques de re-nationalisation dans certains pays.D’autres observateurs pensent que ledéclin marqué de l’intérêt des in-vestisseurs est temporaire du fait del’apparition de participants locaux etrégionaux et de transactions récentes,telles que la privatisation de la dis-tribution à Delhi et les transactionsd’énergie privées au Kazakhstan etdans les pays d’Europe centrale.


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How have privateparticipation and theWBG’s role changed inthe 1990s? Since 1990, developing coun-try power sectors and theWBG’s support to them havebeen transformed. There has

been a move away from public mo-nopolies toward private ownershipand a liberalized market structure,with market and technological inno-vations widening the choices for in-dustry structure and ownership andreducing the likelihood of a return tovertically integrated monopolies. Themain drivers for this change were thesupply shortages and massive fi-nancing needs of the power sector;the persistently poor performance,despite decades of donor support, ofpublic power monopolies; the widerchoices for power market structures,spurred by technological and mar-ket innovations in the electricity sup-ply industry; and the growth inprivate capital for global power in-vestments.

The Bank’s “business-as-usual”lending to public power utilitiesproved untenable, and in 1993 it an-nounced an Electric Power LendingPolicy, supported by IFC and MIGA.The policy linked the WBG’s supportwith country commitment to re-forms, specifically in the three areasof commercialization, corporatiza-tion, and arm’s-length regulation.IFC’s first investment with inde-pendent power producers (IPPs) wasmade as early as 1989, but it was notuntil 1996 that the Bank’s “Statementof Good Practices in the ElectricPower Sector” (GP4.45) added privatesector involvement as a clear goal.By then, the Bank had adopted a defacto reform approach that, in addi-tion to commercialization, corpora-

mejor en situaciones particu-lares del sector del país; (iv)cómo incorporar en la agendade reforma del sector y delPSDE del WBG la expansióndel acceso a la energía para lospobres y las consideracionesambientales más allá de un

cumplimiento con las medidas pre-ventivas, es decir, “hacer el bien” ade-más de “no hacer daño”; (v) cómolograr una coordinación, coherenciay sinergia mucho más fuerte entreel Banco, la CFI y el OMGI, inclu-yendo dentro del marco de la Estra-tegia de Asistencia a un País (CAS).

¿Cómo han cambiado en la dé-cada de 1990 la participaciónprivada y el papel del WBG? Desde 1990 hasta el presente, lossectores de energía de los países endesarrollo y el apoyo del WBG a ellosse han transformado, alejándose delos monopolios públicos hacia la pro-piedad privada y una estructura demercado liberalizada. Sin embargo,en lugar de volver a los monopoliosintegrados verticalmente, las inno-vaciones tecnológicas y de mercadohan ampliado las posibilidades parala estructura y la propiedad de la in-dustria. Los principales impulsoresde este cambio fueron la escasez deabastecimiento y las necesidades fi-nancieras masivas del sector de laelectricidad, el rendimiento persis-tentemente deficiente de los mono-polios de electricidad públicos a pesarde las décadas de apoyo por parte dedonantes, la gama más amplia de po-sibilidades en las estructuras del mer-cado de electricidad estimuladas porinnovaciones tecnológicas y de mer-cado en la industria de proveedoresde electricidad y el crecimiento delcapital privado para las inversiones enelectricidad global.

Cependant, l’aide du Groupede la Banque mondiale estsurtout nécessaire dans lespays à faible revenu où lesrisques politiques sont élevéset où les déficiences régle-mentaires découragent les in-vestisseurs. Le personnel du

Groupe de la Banque mondiale adonc besoin de directives pour dé-terminer quand et comment pro-mouvoir le DSPE dans un climatd’augmentations du risque et d’in-certitudes. Il est particulièrement né-cessaire d’établir des directivesopérationnelles dans cinq domaines :(i) comment ressusciter l’intérêt desgroupes privés dans les secteursd’énergie des pays en voie de déve-loppement, (ii) comment équilibrerles investissements publics et privés,(iii) quelles sont les séquences deréforme et quelles sont les interven-tions de DSPE qui donnent lesmeilleurs résultats dans des situa-tions particulières à un secteur et àun pays, (iv) comment intégrer l’ex-pansion de l’accès à l’énergie dans lespays pauvres avec des considérationsenvironnementales qui vont au-delàdu simple respect des mesures deprotection, c.-à-d. ne pas se conten-ter de « ne pas faire de mal », maiségalement « faire du bien » dans leprogramme DSPE et de réformes sec-torielles du Groupe de la Banquemondiale, (v) comment obtenir une coordination, une cohérence etune synergie plus étroite entre laBanque, la SFI et la MIGA, dans lecadre des Stratégies d’aide aux pays(CAS).

Comment la participationprivée et le rôle du Groupe dela Banque mondiale ont-ilsévolué au cours des années1990 ?


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tization, and regulation, alsoincluded unbundling, privateinvestments in generation,private participation in trans-mission and distribution, andmarket competition. In theBank’s operational usage, thisfull package of seven reform

components had evolved into “steps”and a “scorecard.”

The 1993 policy enunciated whatto do, but because of the limited ex-perience worldwide in implement-ing such policies it was notaccompanied by a strategy on how todo it. This shortcoming was ac-knowledged, the Bank anticipatingthat the necessary experience wouldbe obtained through “learning-by-doing.” However, this technocraticview did not give adequate weightto the political economy of reformand proved too optimistic: while the1993 policy is basically sound, thelack of accompanying strategic andoperational guidance raises manyquestions about its implementation.Moreover, the Bank’s PSDE policypronouncements were belated andreactive: both the 1993 and 1996 pol-icy statements merely formalizedwhat had already become a reality inthe electric power sector—namely,massive global private capital flows.This trend was interrupted by the1997–98 Asian financial crises. TheBank’s 2001 Energy Business RenewalStrategy (EBRS) was a response topoor portfolio performance in the1990s, the decline in sector lending,and the pressure to encompasspoverty alleviation and environmen-tal sustainability in its sector assis-tance (as addressed in the 2000 “Fuelfor Thought” Strategy on Energy andthe Environment).

La concesión de préstamosdel Banco “como de costum-bre” a las empresas del servi-cio público demostró serinsostenible y en 1993 emitióuna Política de préstamos parala energía eléctrica, apoyadapor la CFI y el OMGI. La polí-

tica vinculaba el apoyo del WBG conel compromiso del país a las refor-mas, específicamente en tres áreas:comercialización, corporación y re-gulación manteniendo las distancias.La primera inversión de la CFI conproductores independientes de elec-tricidad (IPP) se hizo en 1989; sinembargo, no fue hasta 1996 que la“Declaración de buenas prácticas enel sector de la energía eléctrica” delBanco (GP4.45) añadió la implica-ción del sector privado como metaclara. Para entonces, el Banco habíaadoptado un enfoque de reforma defacto que, además de la comerciali-zación, corporación y regulación,también incluyó separación, inver-siones privadas en la generación deelectricidad, participación privada enla transmisión y distribución y com-petencia en el mercado. En el usooperacional del Banco, este paquetecompleto de siete componentes dereforma había evolucionado hacia“pasos” y una “tarjeta de puntuación”.

No obstante, mientras la políticade 1993 enunciaba lo que se debíahacer, no estaba acompañada de unaestrategia sobre cómo hacerlo, de-bido a la limitada experiencia a nivelmundial para poner en práctica talespolíticas. Si bien esta deficiencia se re-conoció en el momento, el Bancoanticipó que la experiencia necesariase obtendría “aprendiendo sobre lamarcha”. Sin embargo, la vista tec-nocrática no asignaba suficiente pesoa la economía política de la reformay resultó ser demasiado optimista:

De 1990 à aujourd’hui, les sec-teurs d’énergie des pays envoie de développement et lesoutien que leur a accordé leGroupe de la Banque mon-diale, ont subi des transfor-mations, s’éloignant du statutde monopoles publics pour

revenir vers la privatisation et unestructure de marché libéralisée. Ce-pendant, au lieu de permettre un re-tour à des monopoles intégrésverticalement, les innovations com-merciales et technologiques ontélargi les choix pour la structure et lapropriété industrielles. Les princi-paux facteurs à la base de ce chan-gement ont été la pénuried’approvisionnement et les besoinsfinanciers massifs du secteur del’énergie électrique, les performancescontinuellement insatisfaisantes desmonopoles d’énergie publics endépit de décennies de soutien offertpar les bailleurs de fonds, l’augmen-tation des choix dans les structuresdu marché de l’énergie causée par des innovations technologiqueset commerciales dans l’industrie del’approvisionnement en électricité,et la croissance de capitaux privéspour les investissements globaux enénergie.

Le processus de prêt « habituel »de la Banque aux services d’électricitépublics s’est avéré insoutenable et, en1993, la Banque a publié une chartede prêt en faveur de l’énergie élec-trique, soutenue par la SFI et la MIGA.Cette charte liait le soutien offert parle Groupe de la Banque mondiale àl’engagement pris par les pays assu-rant la mise en pratique de réformes,notamment dans trois domaines :commercialisation, corporatisationet réglementation. Le premier inves-tissement de la SFI avec des pro-ducteurs d’énergie indépendants


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To what extent has theWBG’s assistancesupported its PSDEstrategies?The WBG’s PSDE policies,lending, and analytical and ad-visory work supported themove toward private sector

participation. By the end of the 1990s,power market reforms had becomecentral to the Bank’s sector assis-tance and PSDE was a major com-ponent in the portfolios of the Bank,IFC, and MIGA. But the timing androles of the Bank, MIGA, and IFC dif-fered. Through a diverse set of lend-ing, technical assistance, guarantee,and advisory instruments, the Bankfocused heavily on reforms to trans-form the structure and ownership ofthe power sector in 68 countriesacross all six regions. Following the1993 policy, 75–93 percent of theBank’s annual lending volume forthe electric power sector supportedPSDE, either in the form of free-standing projects or as a componentof regular power projects. (This un-derstates the Bank’s PSDE involve-ment, which is also present inadjustment and nonpower lending.)IFC helped promote the WBG’s PSDEagenda by supporting private in-vestments in response to the urgentneed for additional generating ca-pacity, especially in Latin America andAsia. In particular, IFC was a pioneerin financing private generation proj-ects in the late 1980s and early 1990s,mostly in the context of foreign-spon-sored IPPs. By the end of the 1990s,greenfield power generation proj-ects comprised 82 percent of IFC’sfunding commitment in power. LikeIFC, MIGA supported generationprojects largely by providing politicalrisk insurance for private power in-vestments, making its first under-

mientras la Política de 1993es básicamente sólida, la faltade la inclusión de una orien-tación estratégica y operacio-nal plantea muchas preguntassobre su puesta en práctica.Es más, los pronunciamien-tos sobre la política del PSDE

del Banco llegaron tarde y fueron re-activos en lugar de estar a la van-guardia: ambas declaraciones de laspolíticas de 1993 y 1996 formaliza-ron lo que se había convertido enuna realidad en el sector de la ener-gía eléctrica, es decir, concretamenteflujos masivos y globales de capitalprivado. Esta tendencia se interrum-pió antes de la crisis financiera asiá-tica de 1997-98. La estrategia derenovación del negocio de la energía(EBRS) de 2001 del Banco fue unarespuesta al rendimiento deficientede las carteras en la década de 1990,el descenso en la concesión de prés-tamos al sector, y presiones para pro-vocar alivio a la pobreza y viabilidadambiental en la ayuda al sector (tra-tado en la Estrategia sobre energía yel medio ambiente “Combustible parapensar” del año 2000).

¿Hasta qué punto la ayuda delWBG ha apoyado sus estrate-gias del PSDE?Las políticas, préstamos y trabajo ana-lítico y asesor del PSDE del WBGapoyó el paso hacia la participacióndel sector privado. Para finales de ladécada de 1990, las reformas en elmercado de energía se habían con-vertido en el centro de la ayuda al sec-tor del Banco, y el PSDE era uncomponente principal en las carterasdel Banco, la CFI y el OMGI. Sin em-bargo, la sincronización y los papelesa jugar del Banco, OMGI y CFI dife-rían. Por medio de un conjunto di-verso de préstamos, asistencia

avait déjà lieu en 1989, tandisqu’il a fallu attendre 1996 pourque la déclaration de bonnespratiques dans le secteur del’énergie électrique formuléepar la Banque (GP4.45) ajoutela participation du secteurprivé en tant qu’objectif dé-

claré. À cette époque, la Banque avaitadopté une méthode de réformes defacto qui, en plus de la commercia-lisation, de la corporatisation et de laréglementation, comprenait égale-ment la séparation juridique (« un-bundling »), des investissementsprivés en production, la participa-tion privée en transmission et distri-bution et la concurrence ommerciale.Dans l’utilisation opérationnelle de laBanque, ce dossier constitué de septréformes avait évolué en « étapes » et« revue d’activité ».

Mais, tandis que la charte de 1993énonçait ce qu’il fallait faire, ellen’était accompagnée d’aucune stra-tégie indiquant la manière de le faireà cause de l’expérience limitée, àl’échelle mondiale, de la mise en pra-tique de chartes de ce genre. Bienque les insuffisances aient été re-connues à l’époque, la Banque pré-voyait d’acquérir l’expériencenécessaire par la pratique. Cepen-dant, ce point de vue technocratiquen’a pas conféré un poids adéquat àl’économie politique des réformeset s’est montré trop optimiste : tan-dis que la charte de 1993 est essen-tiellement bien fondée, le manquede stratégie et de directives opéra-tionnelles destinées à l’accompagnersoulève de nombreuses questions ausujet de sa mise en pratique. De plus,les déclarations contenues dans lacharte de DSPE de la Banque ont ététardives et réactives plutôt qu’offen-sives ou proactives : les déclarationscontenues dans la charte de 1993 et


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writing in the sector in 1994.MIGA guarantees for electricpower investments acceler-ated in the 1990s, also mainlyin Latin America and theCaribbean (LAC) and Asia. IFCand MIGA also responded tothe increasing market de-

mand for the financing of private sec-tor projects (mostly generation)— one of the seven PSDE reform com-ponents being pursued by the WBG.

The energy practice of the Bankevolved significantly during the 1990s,in line with the shift in the Bank’sportfolio away from power genera-tion and toward sector reform and ad-justment and toward transmissionand distribution. Lending and oper-ational budgets declined and the en-ergy practice focused moreintensively on private sector devel-opment (PSD); market reforms; en-ergy for the poor (for example, infiscal year 2002 [FY02] six out ofseven loans directly addressedpoverty reduction and PSD); energyand the environment (for example,power projects with explicit envi-ronmental objectives increased from10 percent of the total in 1990 to 50percent in 2001); and related analyt-ical and advisory (AAA) products, no-tably through the Energy SectorManagement Assistance Program(ESMAP). Toward the end of the1990s, an Energy Sector Board (ESB)was established to (i) lead strategyformulation and implementation andpromote cross-sectoral integration;(ii) catalyze the exchange of bestpractices, train staff, and mobilizelearning events; and (iii) ensure port-folio quality and strategic relevancethrough country-sector and Quality-at-Entry reviews.

In practice, the Bank’s approach tosector reform and its PSDE intensity

técnica, garantía e instru-mentos asesores, el Banco

se centró en gran manera enlas reformas para transformarla estructura y propiedad delos sectores de energía en los68 países y todas las 6 regio-nes. Tras la Política de 1993, de

75 a 93% del volumen de préstamosanuales del Banco para el sector deenergía eléctrica apoyaba al PSDE,bien como proyectos individuales ocomo componentes de los proyectosnormales de energía (esto subestimala participación del PSDE del Banco,que también está presente en ajustesy préstamos no relacionados con elsector de energía). La CFI ayudó a fo-mentar la agenda del PSDE del WBGapoyando las inversiones privadas enrespuesta a las necesidades urgentesde capacidad adicional para generar,especialmente en Latinoamérica yAsia. En particular, la CFI fue pioneraen financiar proyectos de generaciónprivados a finales de la década de1980 y principios de 1990, sobretodoen el contexto de los IPP con patro-cinio extranjero. A finales de la décadade 1990, los proyectos totalmentenuevos de generación de electrici-dad comprendían el 82% del com-promiso de la CFI para financiar laenergía. Al igual que CFI, OMGI apo-yaba en gran manera los proyectos degeneración proporcionando segurocontra riesgo político para inversio-nes privadas en energía, y la primeragarantía en el sector ocurrió en 1994.Las garantías de OMGI para las in-versiones en energía eléctrica se ace-leraron en la década de 1990,principalmente en los países latino-americanos y en Asia, CFI y OMGIrespondieron al aumento de de-manda en el mercado para la finan-ciación de proyectos del sectorprivado (sobretodo generación), que

de 1996 ont formalisé ce quiétait devenu une réalité dansle secteur de l’énergie élec-trique – à savoir des flux de ca-pitaux privés massifs, globaux.Cette tendance a été inter-rompue par les crises finan-cières qui frappèrent l’Asie de

1997 à 1998. La Stratégie de renou-vellement de l’énergie de la Banqueen 2001 constituait une réponse aux performances peu satisfaisantesdu portefeuille de valeurs au coursdes années 1990, au déclin dans le ec-teur de crédit et aux pressions pourinclure la lutte contre la pauvreté etl’environnement durable dans sonaide sectorielle (sujet de la Stratégiesur l’énergie et l’environnement de2000 « Pensons carburant »).

Dans quelle mesure l’aidefournie par le Groupe de laBanque mondiale a-t-ellesoutenu ses stratégies enmatière de DSPE ?Les chartes de DSPE du Groupe dela Banque mondiale, les prêts et le tra-vail analytique et consultatif ont sou-tenu l’évolution vers la participationdu secteur privé. Vers la fin des an-nées 1990, les réformes du marché del’énergie étaient devenues un facteurcentral en matière d’aide sectoriellede la Banque et le DSPE était unecomposante majeure des porte-feuilles de la Banque, de la SFI et dela MIGA. Mais le choix du moment etles rôles de la Banque, de la MIGA etde la SFI différaient. Par un ensembledivers de prêts, d’aide technique, degaranties et d’instruments consulta-tifs, la Banque s’est concentrée for-tement sur les réformes visant àtransformer la structure et la pos-session des secteurs d’énergie dans68 pays et 6 régions. À la suite de lacharte de 1993, un montant de 75 à


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went beyond that mandatedby the 1993 policy. The policypromoted commercializationand corporatization ahead ofprivatization as a means to in-troduce innovation and competition—a reform-se-quencing approach influ-

enced by reforms in Chile, England,and Wales, which were the only ex-periences available for analysis at thattime. Poor governance and state own-ership in the power sectors of mostBank client countries meant therewas no real basis from which toachieve commercial standards, how-ever. Subsequent to the 1993 policyand without explicitly enunciating itas a major strategic change, the Bankthus mostly advocated privatizationand private participation throughmanagement contracts as the meansto achieving commercialization. Thisshift led to a highly reform-intensivepower portfolio, which overall per-formed poorly during most of the1990s (see below, What were the proj-ect-level results?).

This poor performance con-tributed to the branding of electricpower as a “sunset sector” for theBank (albeit not for the WBG as awhole). Priorities in CASs were alsoshifting away from the power sectorbecause of the increased internaltransaction costs associated withpower projects, in part due to thevocal opposition of internationalnongovernmental organizations, andbecause of the continued poor fi-nancial performance of power utili-ties plagued by low tariffs andcollection levels, exacerbated by de-teriorating macroeconomic environ-ments, particularly in South and EastAsia. Thus, while the Bank’s total an-nual electric power lending (which in-cludes both PSD and non-PSD

era uno de los siete compo-nentes de reforma de PSDEque quería lograr el WBG.

La práctica sobre la energíaen el Banco evolucionó sig-nificativamente durante la dé-cada de 1990, en línea con elalejamiento de la generación

de energía en la cartera del Banco,hacia la reforma y ajuste del sector, asícomo la transmisión y distribución.Mientras la concesión de préstamosy los presupuestos operacionales dis-minuían, la práctica de la energía seenfocaba más intensamente en el fo-mento del sector privado (PSD); lasreformas del mercado; la energía paralos pobres (por ejemplo, en el ejer-cicio de 2002, 6 de cada 7 préstamostrataba directamente la reducción dela pobreza y PSD); la energía y elmedio ambiente (por ejemplo losproyectos de energía con objetivosexplícitos del ambiente aumentaronde 10% en 1990 a 50% en 2001); yproductos analíticos y asesores (AAA)relacionados, especialmente me-diante el Programa de asistencia parala gestión del sector de energía(ESMAP). Hacia el final de la décadade 1990, se estableció una Junta delsector de la energía (ESB) para: (i) di-rigir la formulación y puesta en prác-tica de estratégicas y fomentar laintegración entre los sectores; (ii)catalizar el intercambio de las mejo-res prácticas, entrenar al personal ymovilizar los acontecimientos deaprendizaje; y (iii) asegurar la cali-dad de la cartera y la importancia es-tratégica por medio de revisiones delsector país y “calidad al entrar”.

En práctica, el enfoque del Bancohacia la reforma del sector y la in-tensidad de su PSDE fueron más alláde lo mandado por la Política misma.La Política de 1993 fomentaba la co-mercialización y corporación antes

93 pour cent du volume deprêts de la Banque dans lesecteur d’énergie électriquea soutenu le DSPE, soit sousforme de projets indépen-dants, soit sous forme decomposantes de projetsd’énergie ordinaires (ceci ne

fait pas justice à la participation auDSPE de la Banque, qui est égale-ment présente dans les prêts d’aideà l’ajustement et les prêts non-éner-gétiques). La SFI a contribué à pro-mouvoir le programme DSPE duGroupe de la Banque mondiale ensoutenant les investissements privésen réponse aux besoins urgents decapacité de production supplémen-taire, notamment en Amérique latineet en Asie. En particulier, la SFI a étél’un des premiers organismes à fi-nancer les projets de production pri-vés vers la fin des années 1980 et audébut des années 1990, la plupart dutemps dans le contexte de projetsd’énergie indépendants (PEI) finan-cés par des entités étrangères. Vers lafin des années 1990, des projets deproduction d’énergie entièrementnouveaux comprenaient 82 pour centde l’engagement financier de la SFIen énergie. Comme la SFI, la MIGA

a largement soutenu les projets deproduction en fournissant une assu-rance contre les risques politiquespour les investissements d’énergieprivés, avec sa première souscriptiondans le secteur en 1994. Les garantiesoffertes par la MIGA pour les inves-tissements en énergie électrique sesont accélérées au cours des années1990, principalement aussi dans lespays d’Amérique latine, des Caraïbeset d’Asie. La SFI et la MIGA ont ré-pondu à l’augmentation de la de-mande du marché pour lefinancement de projets du secteurprivé (la plupart de production)—


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directed lending) reached apeak of US$3.2 billion in FY96,it dropped precipitously toUS$440 million in FY99. Powerlending accounted for 15 per-cent of total Bank commit-ments in FY96 but only 1.5percent in FY99.

By comparison, IFC’s annualpower investment approvals reacheda peak of US$872 million, or 16 per-cent of total approvals, in FY95, butdropped to US$335 million (6 per-cent) by FY99. Cumulative gross ap-provals totaled US$4.4 billion overthe 1990s compared to US$177 mil-lion before the 1990s. MIGA guaran-tees peaked in FY00, both in terms ofthe volume of coverage issued andthe number of projects supported. By2001, WBG financial commitmentsto the power sector were on the riseonce more.

What have been the results ofthe WBG’s PSDEinterventions?

What were the project-level results?For IFC, the development outcomes,including environmental effects, ofits mature investment operations inelectric power outperformed its all-sector portfolio. The investment qual-ity of IFC’s electric power sectorportfolio remained better than aver-age, despite the recent slight declinethat accompanied the downtrend inIFC’s overall portfolio. For MIGA,early indications are also positive onthe performance of the private powerinvestments that are supported byits guarantees. In contrast, a 1999self-evaluation singled out the powerlending portfolio as one of the Bank’sworst performers (although resultshave improved recently as a resultof portfolio restructuring). OED’s as-

de privatizar como medio deintroducir innovación y com-petencia. Fue un enfoque desecuencia de reformas in-fluenciado por las reformasen Chile, Inglaterra y Gales,que fueron las únicas expe-riencias disponibles para ser

analizadas en aquel momento.Sinembargo, el gobierno deficiente y lapropiedad del estado no proporcio-naron una base para alcanzar están-dares comerciales en los sectores dela energía de la mayoría de paísesclientes del Banco. Por lo tanto, pos-terior a la Política de 1993, y sin enun-ciarlo explícitamente como cambioestratégico importante, el Banco de-fendió en su mayor parte la privati-zación, así como la participaciónprivada por medio de contratos degerencia, como medio de lograr la co-mercialización. Este cambio llevó auna cartera de energía con una re-forma altamente intensiva, que enúltima instancia tuvo un rendimientodeficiente durante la mayor parte dela década de 1990 (véase el párrafo12).

Este rendimiento deficiente con-tribuyó a que se diera el nombre de“sector de la puesta del sol” a la ener-gía eléctrica para el Banco (si bien escierto que no para el WBG en su to-talidad) Las prioridades de las CAStambién se alejaron del sector de laenergía debido a: (i) aumento de loscostos internos de transacciones aso-ciados con los proyectos de energía,en parte debido a la oposición vocalde las organizaciones internacionalesno gubernamentales; y (ii) el rendi-miento financiero deficiente conti-nuo de las empresas de serviciopúblico plagadas de tarifas y nivelesde recolección bajos, exacerbado porambientes macroeconómicos en de-terioro, particularmente en el sur y

une des sept composantes deréforme du DSPE mises enœuvre par le Groupe de laBanque mondiale.

La pratique de l’énergiedans la Banque a évolué for-tement au cours des années1990, ce qui correspond au

mouvement d’abandon de la pro-duction d’énergie dans le portefeuillede la Banque, pour se tourner vers laréforme et l’ajustement sectoriel ainsique vers la transmission et la distri-bution. Tandis que les budgets deprêt et opérationnels déclinaient, lapratique de l’énergie s’est concen-trée plus intensément sur le déve-loppement du secteur privé, lesréformes du marché, l’énergie auprofit des pauvres (par exemple, du-rant l’exercice 2002, 6 prêts sur 7avaient pour but de réduire directe-ment la pauvreté et de développer lesecteur privé), l’énergie et l’envi-ronnement (par exemple, les projetsd’énergie visant des objectifs envi-ronnementaux explicites ont aug-menté de 10 pour cent en 1990 à 50pour cent en 2001), et les produitsanalytiques et consultatifs, notam-ment par le truchement du Pro-gramme d’assistance à la gestion dusecteur énergétique (ESMAP). Versla fin des années 1990, un Conseilau secteur énergétique (ESB) avaitété établi pour : (i) formuler une stra-tégie d’attaque et mettre en pratiqueet promouvoir l’intégration sur plu-sieurs secteurs, (ii) catalyser l’échangedes meilleurs pratiques, former lepersonnel et mobiliser les journéesd’apprentissage, et (iii) assurer laqualité du portefeuille et l’à-proposstratégique par des revues pays-sec-teur et des revues de la « qualité àl’entrée ».

En pratique, la méthode de laBanque en matière de réformes sec-


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sessment of the results of spe-cific PSDE components isequally sobering: 55 percenthad good outcomes, 22 per-cent were mixed, and the restdid not achieve their objec-tives. These overall disap-pointing project-level

outcomes mostly reflect the lowachievements of ambitious sector-level objectives (see next paragraph),except in those countries that havethe most advanced reforms. Resultsof the relatively few freestandingPSDE projects were better, but this isbecause they were implemented incountries already focused on reforms.

What have been the sector-level out-comes? Evidence of country sectorgains from reforms and PSDE hasbeen emerging in a few countries,where the ultimate outcomes havebeen systematically monitored. Sec-tor efficiency improved where PSDEand reforms have advanced, as insome Latin American and CentralAmerican countries and in EasternEuropean countries seeking acces-sion to the European Union. In thesecases, shortages have been reduced,energy access has increased, servicequality has improved, fiscal gains havegrown, and financial subsidies havedeclined. But where reforms failed,stalled, or were reversed, and wherePSDE did not materialize, power sec-tors remain weak and continue todeteriorate operationally and finan-cially (as in Africa and South Asia) orare facing continued political or fi-nancial risk (as in South and EastAsia). Most developing countries out-side the Latin America region remainat low to moderate levels in the “re-form scorecard,” formulated in a 1999study financed by ESMAP. A few coun-tries that opened the sector to IPPs

este de Asia. Por lo tanto,mientras la concesión de prés-tamos total para la energíaeléctrica anual del Banco (queincluyó préstamos directostanto PSD como no PSD) al-canzó los $3.200 millones dedólares en el ejercicio de

1996, ésta se redujo precipitadamentea $440 millones de dólares en el ejer-cicio de 1999. La concesión de prés-tamos para energía representó un15% de los compromisos totales delBanco para el ejercicio de 1996, y so-lamente 1,5% en el ejercicio de 1999.

En comparación, las aprobacio-nes de inversión anual en energía dela CFI alcanzaron una cima de $872millones de dólares, o un 16% de lasaprobaciones totales en el ejercicio de1995, pero bajaron a $335 millones dedólares, o 6% del total en el ejerciciode 1999. Las aprobaciones brutasacumulativas alcanzaron un total de$4.400 millones de dólares en la dé-cada de 1990 comparado con $177millones de dólares antes de esa dé-cada. Las garantías del OMGI llegarona su cima en el ejercicio de 2000,tanto en términos del volumen decobertura emitida como en el nú-mero de proyectos apoyados. Para2001, los compromisos financierosdel WBG al sector de la energía es-taban de nuevo en aumento.

¿Cuáles han sido los resulta-dos de las intervenciones delPSDE del WBG?

¿Cuáles fueron los resultados a nivel deproyecto? Para la CFI, los resultadosdel desarrollo de sus operacionesde inversión maduras en energía eléc-trica, incluyendo los efectos en elmedio ambiente, tuvieron el mejorrendimiento de la cartera de todo elsector. La calidad de inversión de la

torielles et son rôle dans leDSPE sont allés au-delà de cequi est mandaté par la charteelle-même. La charte de 1993avait promu la commerciali-sation et la corporatisationavant la privatisation commemoyen d’introduire l’innova-

tion et la concurrence—une ap-proche séquentielle de réformesinfluencée par les réformes mises enœuvre au Chili, en Angleterre et aupays de Galles, qui constituaient lesseules expériences disponibles pourl’analyse à cette époque. Mais la ges-tion peu satisfaisante des affaires etl’adhésion du pays n’ont pas fournide base pour atteindre des normescommerciales dans les secteurs éner-gétiques de la plupart des pays clientsde la Banque. Donc, à la suite de lacharte de 1993 et sans l’énoncer ex-plicitement comme un changementstratégique majeur, la Banque avaitencouragé la privatisation, ainsi quela participation privée par descontrats de gestion, comme moyensd’obtenir la commercialisation. Cechangement a conduit à un porte-feuille d’énergie fortement intensif enréformes, qui n’a finalement pas étésatisfaisant dans l’ensemble pour laplus majeure partie des années 1990(voir paragraphe. 12).

Ces performances peu satisfai-santes ont contribué à surnommerl’énergie électrique le « secteur du so-leil couchant » pour la Banque (maisnon pas pour le Groupe de la Banquemondiale dans son intégralité). Lespriorités des CAS se sont égalementéloignées du secteur énergétique àcause de : (i) l’augmentation du coûtdes transactions internes liées auxprojets d’énergie, en partie à cause del’opposition vocale des organismesnon gouvernementaux internatio-naux et (ii) la continuation des per-


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in response to capacity short-ages were slow or weak in re-forming the transmission anddistribution (T&D) subsector,resulting in an imbalance be-tween generation and T&D. Itshould not be inferred fromthese poor sector outcomes,

however, that better results wouldhave been achieved by perpetuatingthe pre-1990s public monopolymodel.

Overall, the successful imple-mentation of reforms and PSDE havebeen constrained by (i) a lack ofcountry commitment, (ii) macro-economic and political crises, (iii)lack of experience among PSDE prac-titioners, particularly with politicaleconomy factors, and (iv) insufficientoperational guidance to staff on theimplementation of the 1993 policy.Moreover, the Bank did not fully un-derstand the size of the technical andfinancial resources required to re-form the power sector—resourcesthat few developing countries pos-sess. Despite strong efforts by Bankstaff under severe resource con-straints (particularly since the late1990s), it proved difficult to applythe 1993 policy to seriously non-commercial power sectors. Many ofthe Bank’s country clients are stillundecided or are considering whichreform route to follow, many havestalled in their attempts at reform,and a few have reversed their priva-tization plans. With some notable ex-ceptions in Latin and Central Americaand Eastern Europe, the power sec-tors of developing countries continueto be in crisis, particularly in terms oftheir finances and their ability to meetdemand, at least cost, on an envi-ronmentally sustainable basis.

Improving energy access for thepoor through PSDE was overshad-

cartera del sector de la ener-gía eléctrica de la CFI perma-neció mejor que la media, apesar de su ligero descensoreciente junto con una bajadaen la cartera general de la CFI.Para el OMGI, las indicacionesiniciales son también positivas

en el rendimiento de las inversionesprivadas en energía respaldadas porsus garantías. En contraste, para elBanco, una autoevaluación en 1999señaló en particular la cartera de prés-tamos de energía como una de lasque tuvo peores resultados para elBanco, si bien dichos resultados hanmejorado recientemente como re-sultado de la reestructura de la car-tera. La evaluación del DEO sobrelos resultados de componentes es-pecíficos del PSDE es igualmentealeccionadora: 55% tuvo resultadosbuenos, 22% fueron mixtos y el restono logró sus objetivos. Estos resul-tados generales decepcionantes anivel de proyecto, reflejan principal-mente los bajos logros de los objeti-vos ambiciosos a nivel de sector(véase a continuación), excepto enlos países con las reformas más avan-zadas. Los resultados de los relativa-mente pocos proyectosindependientes del PSDE fueron me-jores, pero esto se debe a que fueronpuestos en práctica en países ya en-focados en las reformas.

¿Cuáles han sido los resultados a niveldel sector? La evidencia de gananciasen el sector país de las reformas y delPSDE ha estado emergiendo en unospocos países donde los resultados fi-nales se han controlado sistemática-mente. La eficiencia del sector mejoródonde el PSDE y las reformas hanavanzado, como en algunos paísesde Latinoamérica y América Centraly en países de Europa del este que

formances financières mé-diocres des services d’électri-cité affligés de tarifs et niveauxde recouvrement faibles, exa-cerbés par la détérioration desconditions macroécono-miques, en particulier en Asiedu sud et de l’est. Par consé-

quent, tandis que les prêts d’éner-gie électriques annuels totaux de laBanque (comprenant les prêts de dé-veloppement du secteur privé (PDS)et non PDS) ont atteint 3,2 milliards$US au cours de l’exercice 1996, ilsont chuté précipitamment à 440 mil-lions $US au cours de l’exercice 1999.Les prêts d’énergie comptaient pour15 pour cent des engagements totauxde la Banque pour l’exercice 1996, etpour seulement 1,5 pour cent pourl’exercice 1999.

En comparaison, les approbationsd’investissement en énergie an-nuelles de la SFI ont culminé à 872millions $US, soit 16 pour cent desapprobations totales pour l’exercice1995, pour retomber à 335 millions$US, soit 6 pour cent du total, aucours de l’exercice 1999. Les appro-bations brutes cumulatives se sontélevées à 4,4 milliards $US pendantles années 1990, contre 177 millions$US avant les années 1990. Les ga-ranties MIGA ont atteint un maximumau cours de l’exercice 2000, à la foisen termes de volume de couvertureofferts et en nombre de projets sup-portés. En 2001, les engagements fi-nanciers du Groupe de la Banquemondiale dans le secteur énergétiquese sont trouvés une fois de plus enaugmentation.

Quels ont été les résultats des interventions du Groupe de la Banque mondiale en matière deDSPE ?


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owed in the 1990s by the ur-gent and overriding need inmany countries to add gen-eration capacity. Existing cus-tomers, including low-incomeconsumers and industriesproviding employment to thepoor, clearly benefited from

the relatively quick elimination or re-duction of supply shortages. How-ever, lagging reforms in T&D overthe 1990s have constrained powerdelivery and made expansion of ac-cess, especially of the poor, all themore challenging. Investment andoperating costs of rural energy proj-ects furthermore are high, relativeto revenue potential, making returnsunattractive to private investors. Fewprivate rural energy and renewableenergy projects have been commer-cially viable or competitive with in-vestment opportunities in thegeneration subsector.

WBG financial instruments aimedat creating physical infrastructure re-quire projects to adhere to WBG en-vironmental guidelines duringimplementation and operation. Be-cause the WBG’s environmental re-quirements are in many countriesmore stringent than the local regu-lations, WBG projects tend to bemore environmentally friendly by de-sign. IFC power projects have a bet-ter environmental compliance recordthan projects in other sectors. How-ever, according to the 2002 Environ-ment Strategy and the OEDEnvironment Review, the environ-mental “do good” (in addition to the“do no harm”) agenda has yet to befully mainstreamed in WBG opera-tions.

CASs served as platforms for put-ting PSDE in country agendas butwere not designed to integrate sec-toral strategies across the WBG. In-

buscan acceso a la Unión Eu-ropea. Es estos casos, la es-casez se ha reducido, elacceso a la energía ha au-mentado, la calidad de servi-cio ha mejorado, las gananciasfiscales han crecido y los sub-sidios financieros han dismi-

nuido. Pero los casos en que lasreformas fallaron, se estancaron o seinvirtieron, y donde el PSDE no sematerializó, los sectores de la energíapermanecen débiles y continúan de-teriorándose desde el punto de vistaoperacional y financiero (como enÁfrica y Sur de Asia), o se están en-frentando a riesgos continuos políti-cos o financieros (como en el Sur yEste de Asia). La mayoría de los paí-ses en desarrollo fuera de la regiónde Latinoamérica permanecen en ni-veles bajo a moderado en la “tarjetade puntuación de la reforma”, for-mulada en un estudio de 1999 fi-nanciado por ESMAP. Unos pocospaíses que abrieron el sector a losIPP en respuesta a la escasez de ca-pacidad fueron lentos o débiles a lahora de reformar el subsector de latransmisión y distribución (T y D),dando como resultado un desequili-brio entre la generación y la T y D. Nose debe inferir de estos resultadosdeficientes del sector, sin embargo,que se habrían logrado mejores re-sultados perpetuando el modelo demonopolio público anterior a la dé-cada de 1990.

En general, la puesta en prácticacon éxito de las reformas y el PSDEse ha visto limitada por: (i) falta decompromiso del país; (ii) crisis ma-croeconómicas y políticas; (iii) faltade experiencia entre los profesiona-les de PSDE, particularmente confactores de la economía política; y(iv) insuficiente orientación profe-sional operacional al personal sobre

Quels ont été les résultats au ni-veau de projet ? Pour la SFI,les résultats du développe-ment, notamment les effetsenvironnementaux, de sesopérations d’investissementen énergie électrique parve-nus à maturité, ont surpassé

en performances tous les secteursde son portefeuille. La qualité desinvestissements du portefeuille dusecteur d’énergie électrique de la SFIest demeurée meilleure que lamoyenne en dépit du léger déclinsubi récemment, avec une tendanceà la baisse de son portefeuille glo-bal. Pour la MIGA, les premières in-dications au sujet des performancesdes investissements énergétiques pri-vés soutenus par ses garanties, sontégalement positives. Par contraste,pour la Banque, une auto-évalua-tion réalisée en 1999 a révélé que leportefeuille de prêts dans l’énergieétait l’un des pires performeurs de laBanque, bien que les résultats sesoient améliorés dernièrement suiteà une restructuration. L’évaluationfaite par le Département de l’éva-luation des opérations (OED) au sujetdes résultats des composantes spé-cifiques du DSPE est également peuencourageante : 55 pour cent ont eude bons résultats, 22 pour cent ont eudes résultats mitigés et le reste n’a pasatteint ses objectifs. Ces résultats auniveau de projet, décevants dans l’en-semble, reflètent pour la plupart la fai-blesse des réalisations par rapportaux objectifs ambitieux au niveau sec-toriel (voir ci-dessous), excepté dansles pays où les réformes sont les plusavancées. Les résultats des projetsde DSPE indépendants relativementpeu nombreux ont été meilleurs,mais ceci parce qu’ils ont été mis enœuvre dans des pays déjà centrés surdes réformes.


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formal discussions beyondthe CAS, among task man-agers in different WBG units,facilitated a coordinated ap-proach and timing of assis-tance. In a few cases whereinternal discussions were notconducted the WBG sent con-

flicting signals to client countries andsponsors. Nonaligned incentive struc-tures also led to occasional compe-tition among the different privatesector financing and guarantee in-struments of the Bank, IFC, andMIGA.

What are the lessons thatshould guide the WBG’s futurebusiness directions inpromoting PSDE?The main lessons learned from thisevaluation are:

• The PSD-led power sector reformprocess is complex, time-con-suming, resource-intensive, andrequires phasing and good se-quencing to create the conditionsfor sector transformation. PSD-oriented reforms are more prom-ising than reforms confined topublicly owned companies. Thereis no “one-size-fits-all” reformmodel and each approach shouldbe country-specific. Although com-monsensical, these lessons werenot well heeded by the WBG in thepast.

• PSDE is a work in progress. Learn-ing-by-doing can work, but theclient country should set clear ob-jectives and take the lead in re-form, supported by WBG advicedrawn from its experience in othercountries in which similar cir-cumstances were encountered.

• The evidence on PSDE timing andsequencing is ambiguous. There

la puesta en práctica de la Po-lítica de 1993. Es más, elBanco no comprendió total-mente el tamaño de los re-cursos técnicos y financierosrequeridos para reformar lossectores de la energía, recur-sos que pocos países en de-

sarrollo poseen. A pesar de los fuertesesfuerzos del personal del Banco bajolimitaciones de recursos serias (par-ticularmente desde los últimos añosde la década de 1990), demostró serdifícil aplicar la Política de 1993 a de-dicados sectores de la energía no co-merciales. Muchos de los paísesclientes del Banco todavía están in-decisos, o están considerando quéruta de reforma seguir, muchos sehan detenido en sus intentos de re-forma, mientras unos pocos han in-vertido sus planes de privatización.Con algunas excepciones notables, enLatinoamérica y América Central y al-gunos países del Este de Europa, lossectores de energía de los países endesarrollo continúan estando en cri-sis, particularmente en términos desus finanzas y habilidad de hacerfrente a la demanda, al mínimo pre-cio con una base sostenible desde elpunto de vista ecológico.

La mejora del acceso a la energíapara los pobres por medio de PSDEfue eclipsada en la década de 1990por la necesidad urgente y prepon-derante de añadir capacidad de ge-neración en muchos países. Losclientes actuales, incluyendo los con-sumidores de ingreso bajo y las in-dustrias que proporcionan empleoa los pobres, se beneficiaron clara-mente de la eliminación o reducciónrelativamente rápida de la escasez desuministro. Sin embargo, las refor-mas rezagadas en la T y D en la dé-cada de 1990 han limitado el repartode energía y han hecho que la ex-

Quels ont été les résultats au ni-veau sectoriel ? Les preuves degains au niveau du pays et dusecteur provenant des ré-formes et du DSPE sont ap-parues dans quelques pays oùles résultats finaux ont été sys-tématiquement surveillés.

L’efficacité sectorielle s’est amélio-rée dans les pays où le DSPE et les ré-formes ont avancé, comme danscertains pays d’Amérique latine,d’Amérique centrale et d’Europe del’est cherchant à accéder à l’Union eu-ropéenne. Dans ces cas, la pénurie aété diminuée, l’accès à l’énergie aaugmenté, la qualité des services s’estaméliorée, les gains fiscaux se sontaccrus et les subventions financièresont décliné. Mais dans les pays oùles réformes n’ont pas réussi, ou onttourné court ou ont été inversées etoù le DSPE ne s’est pas matérialisé,les secteurs d’énergie restent faibleset continuent à se détériorer opéra-tionnellement et financièrement(comme en Afrique et en Asie dusud), ou font face à un risque poli-tique ou financier permanent(comme en Asie du sud et de l’est).La plupart des pays en voie de déve-loppement en dehors des régionsd’Amérique latine restent à des ni-veaux bas ou modérés d’après la« carte de pointage des réformes »,selon une étude de 1999 financéepar l’ESMAP. Les quelques pays quiont ouvert le secteur aux PEI en ré-ponse à une pénurie de capacité ontété lents ou faibles à appliquer des ré-formes dans le sous-secteur de latransmission et de la distribution(T&D), ce qui a provoqué un désé-quilibre entre production et T&D. Ilne faut pas cependant conclure deces mauvais résultats sectoriels quede meilleurs résultats auraient étéobtenus en perpétuant le modèle de


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are countries in which“leapfrogging” to privatizationhas led to positive sectorchange, but there are othersin which this did not lead tosector improvements. Simi-larly, substantial efficiencygains were achieved in some

countries where good public gov-ernance and the right tariff struc-tures were first put in place, butthere are also many situationswhere decades of Bank supportfor the incremental reform of pub-lic monopolies had little or no suc-cess. Where intermediate publicsector reform steps are required,PSDE must be a clear long-termgoal.

• The evidence on the importanceof country commitment is unam-biguous. Country factors, such asrealistic priorities, a clear roadmap, local champions, and earlywins, drive successful reforms andgood PSDE performance. Build-ing a constituency for reformthrough civil society participationis also critical to reform sustain-ability.

• Poverty reduction and environ-mental mainstreaming (“doinggood” in addition to “doing noharm”) for the most part have notbeen intrinsic components of de-signing sector reform strategiesand promoting PSDE. This has un-dermined the potential local andinternational popular support forsuch measures.

• Lack of reform in the distributionsubsector can jeopardize the po-tential gains of reforms in the gen-eration subsector.

• IPPs have a role to play in effi-ciently and sustainably relievingsupply bottlenecks, leveragingpublic sector financing capacity,

pansión del acceso, especial-mente para los pobres, cons-tituya un mayor reto. Es más,la inversión y costos de ope-ración de los proyectos deenergía rural son altos en re-lación con el potencial de in-gresos, haciendo que el

rendimiento no sea atractivo para losinversores privados. Mientras tanto,pocos proyectos privados de ener-gía rural y energía renovable han sidoviables desde el punto de vista co-mercial o competitivos con las opor-tunidades de inversión en elsubsector de generación.

Los instrumentos financieros delWBG que se proponen crear una in-fraestructura física requieren que losproyectos acaten las pautas del medioambiente del WBG durante la puestaen práctica y operación. Puesto quelos requisitos del WBG para el medioambiente son más estrictos que lasnormativas locales en muchos paí-ses, los proyectos del WBG tiendena ser mejores para el ambiente por sudiseño. Los proyectos de energía dela CFI tienen un récord de cumplirmejor con las normas del ambienteque proyectos en otros sectores. Sinembargo, según la Estrategia delmedio ambiente de 2002 y la Revisióndel medio ambiente del DEO, lospuntos a tratar para el ambiente de“hacer el bien” (además de “no hacerdaño”) todavía se tiene que incor-porar en las operaciones del WBG.

Las CAS sirvieron de plataformaspara poner el PSDE en los puntos atratar de los países, pero no estabandiseñadas par integrar las estrategiasdel sector en todo el WBG. Las con-versaciones informales más allá dela CAS, entre gerentes de tareas en di-ferentes unidades del WBG, facilita-ron un enfoque coordinado y unasincronización de ayuda. En pocos

monopole public d’avant1990.

Dans l’ensemble, la réus-site de la mise en pratiquedes réformes et du DSPE aété gênée à cause : (i) dumanque d’engagement despays, (ii) des crises macroé-

conomiques et politiques, (iii) dumanque d’expérience des spécia-listes du DSPE, notamment en ma-tière de facteurs d’économiepolitique et (iv) des directives opé-rationnelles insuffisantes pour le per-sonnel sur la mise en pratique de lacharte de 1993. De plus, la Banquen’a pas pleinement compris l’im-portance des ressources financièreset techniques nécessaires pour ré-former les secteurs d’énergie, res-sources que peu de pays en voie dedéveloppement possèdent. En dé-pits d’efforts suivis par le personnelde la Banque sous le fortescontraintes de ressources (particu-lièrement depuis la fin des années1990), il s’est avéré difficile d’appli-quer sérieusement la charte de 1993à des secteurs d’énergie non com-merciaux. De nombreux pays clientsde la Banque ne sont toujours pas dé-cidés ou sont en train d’envisager laroute à suivre en matière de ré-formes ; beaucoup d’entre eux ont ar-rêté leurs essais de réforme, tandisque quelques autres sont revenussur leurs plans de privatisation. Aveccertaines exceptions notables, enAmérique latine et en Amérique cen-trale et dans certains pays d’Europede l’est, les secteurs d’énergie despays en voie de développementcontinuent d’être en crise, notam-ment pour ce qui est de leurs financeset de leur aptitude à satisfaire la de-mande, au moindre coût, tout en assurant la préservation de l’envi-ronnement.


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and demonstrating early wins.IPPs have yielded good de-velopment outcomes underthe right country, sectoral, andcontractual conditions. How-ever, IPPs that are not wellsited and that are not com-plemented by an efficient

T&D reform program can lead toan imbalance between generationand T&D capacity. In some casesthey have been seen to reducethe pressure on country leader-ship and policymakers to pursuefurther reforms.

• Joint Bank–IFC–MIGA CASs aremore effective at supporting PSDEthan Bank-only CASs, but coordi-nation through CASs alone is in-sufficient.

What are therecommendations for theWBG’s future businessdirections in promoting PSDE? Based on its evaluation findings, thestudy recommends the following:

a) On an urgent basis, the WBGshould provide operational guid-ance to WBG staff on when and howto continue promoting PSDE, giventhe current situation of heightenedmacroeconomic and political risksand scant investor interest. Suchguidance should be grounded in the Bank’s recently enacted PSDstrategy.

• The Bank’s Energy and MiningSector Board, in close consulta-tion with the Private Sector De-velopment Board, should provideWBG staff with updated and prac-tical operational guidance for pur-suing PSDE. This guidance shouldbe based on what works best, interms of reform packages and

casos donde no se llevaron acabo discusiones internas, elWBG envió señales contra-dictorias a los países clientesy patrocinadores. Las estruc-turas incentivas no alineadastambién llevaron a la compe-tencia ocasional entre los di-

ferentes instrumentos de financiacióny garantía en el sector privado delBanco, CFI y OMGI.

¿Cuáles son las lecciones quedeberían guiar la dirección denegocios futura del WBG en elfomento del PSDE?Las lecciones principales aprendi-das a partir de esta evaluación son:

• El proceso de reforma del sectorde la energía dirigido por el PSDes complejo, lleva tiempo, es in-tensivo en cuanto a recursos y re-quiere hacerse por etapas y ensecuencias a fin de crear las con-diciones para la transformacióndel sector. Las reformas orientadaspor PSD son más prometedorasque las reformas limitadas a lascompañías públicas. No hay unmodelo de reforma que sirva paratodos y cada enfoque debe ser es-pecífico para el país. Aunque es ló-gico, el WBG no hizo caso a estaslecciones en el pasado.

• PSDE es un “esfuerzo en marcha”.Aprender sobre la marcha puedefuncionar, pero el país debe fijarobjetivos claros y estar al frente,apoyado por consejos sensatosdel WBG sacados de lecciones deexperiencia en otros países en cir-cunstancias similares.

• La evidencia de la sincronizacióny secuencia de PSDE es ambigua.Hay países en los que el salto haciala privatización llevó a cambiospositivos en el sector, pero hay

L’amélioration de l’accès àl’énergie pour les payspauvres par le DSPE a étééclipsée au cours des années1990 par le besoin urgent etprimordial d’ajouter une ca-pacité de production dans denombreux pays. Les clients

existants, y compris les clients àfaibles revenus et les industries four-nissant un emploi aux pauvres, ontclairement bénéficié de l’éliminationou de la réduction relativement ra-pide de la pénurie d’approvisionne-ment. Cependant, le retard desréformes dans le domaine de T&Ddurant les années 1990 a gêné la four-niture de l’énergie et a rendu l’ex-pansion de l’accès à l’énergie,spécialement pour les pauvres, en-core plus difficile. De plus, les coûtsd’investissement et d’opération desprojets d’énergie ruraux sont élevésrelativement par rapport aux reve-nus potentiels, rendant ainsi les in-térêts peu attrayant pour lesinvestisseurs privés. Entre temps, peude projets d’énergie rurale privés etd’énergie renouvelable ont été com-mercialement viables ou concurren-tiels avec les opportunitésd’investissement dans le sous-sec-teur de la production.

Les instruments financiers duGroupe de la Banque mondiale visantà créer une infrastructure physiqueexigent que les projets adhèrent auxdirectives environnementales duGroupe de la Banque mondiale pen-dant la mise en œuvre et l’exploita-tion. Les exigences environnementalesdu Groupe de la Banque mondialeétant plus rigoureuses que les règle-ments locaux de nombreux pays, lesprojets du Groupe de la Banquemondiale tendent à être plus res-pectueux de l’environnement parleur conception. Les projets d’éner-


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their sequencing, in differentcountry-sector situations, fordifferent needs and differentinstitutional capacities. Best-practice examples can be de-veloped for a range offrequently observed countryattributes.

• The development of this guidanceshould be a joint effort betweenthe Bank, IFC, and MIGA, and theguidance should define a frame-work to fully analyze PSDE alter-natives to ensure environmentalsustainability and align with theWBG’s poverty reduction mission.

• WBG senior management shouldclarify the roles of the Bank, IFC,and MIGA in promoting PSDE,particularly in terms of increasedfinancial and advisory support.

b) In its future PSDE interventions,the WBG should give greater em-phasis to the mainstreaming of thepoverty reduction and environ-mental objectives (in addition to itstraditional macrofiscal and sectorefficiency objectives) that are at thecore of the WBG’s overall energystrategy.

• The WBG should put a greaterfocus on reforming and facilitatingprivate investments in the distri-bution subsector. This will requireaction to improve cash collection,reduce losses, address corruption,achieve better targeting of subsi-dies, expand the access of the ruralpoor, and privatize distributionwhere and when circumstancespermit.

• The WBG should maximize the in-volvement of the local private sector in small-scale and/or de-centralized projects. This will re-quire innovative approaches and

otros en los que esto no llevóa mejoras del sector. De ma-nera similar, se lograron ga-nancias sustanciales enalgunos países donde se im-plementaron primero unbuen gobierno público y es-tructuras correctas de tarifas,

pero también hay muchas situa-ciones en las que décadas deapoyo del Banco para la reformaen incrementos de monopoliospúblicos tuvieron poco o ningúnéxito. En los casos donde se re-quieren pasos intermediarios parala reforma del sector público, elPSDE debe ser una meta clara alargo plazo.

• La evidencia de la importancia delcompromiso de los países es am-bigua. Los factores del país, talescomo prioridades realistas, direc-trices claras, campeones locales yganancias iniciales, llevan a refor-mas con éxito y a un buen rendi-miento del PSDE. Crear un grupoque apoye las reformas mediantela participación de la sociedad civiles también crítico para la viabilidadde la reforma.

• La reducción de la pobreza y laincorporación del medio ambiente(“hacer las cosas bien” además de“no hacer daño”) no han sido ensu mayoría componentes intrín-secos del diseño de estrategiaspara la reforma del sector y de fo-mentar el PSDE, debilitando asísu apoyo de la opinión pública in-ternacional y local.

• La falta de reformas en el subsec-tor de distribución puede poneren peligro las ganancias poten-ciales de las reformas en el sub-sector de generación.

• Los IPP tienen un papel que jugarpara aliviar los embotellamientosde suministro de manera eficaz y

gie de la SFI respectent mieuxl’environnement que les pro-jets dans d’autres secteurs.Cependant, selon la Stratégiede l’environnement de 2002et la Revue de l’environne-ment d’OED, le programmeenvironnemental « faire du

bien » (et ne pas se contenter de « nepas faire de mal ») doit cependantêtre complètement intégré aux opé-rations du Groupe de la Banque mon-diale.

Les Stratégies d’aide aux pays(CAS) ont servi de plates-formes pourinscrire le DSPE au programme despays, mais elles n’étaient pas conçuespour intégrer des stratégies secto-rielles dans le Groupe de la Banquemondiale. Des discussions officieusesallant au-delà des CAS, entre res-ponsables des tâches dans les diffé-rentes unités du Groupe de laBanque mondiale, ont permis uneapproche coordonnée et une aideen temps opportun. Dans quelquescas où des discussions internes n’ontpas eu lieu, le Groupe de la Banquemondiale a envoyé des signauxcontradictoires aux pays et aux clientscommanditaires. Des structures d’in-citation non alignées ont égalementconduit à une concurrence occa-sionnelle entre les différents instru-ments de financement et de garantiedes secteurs privés de la Banque, dela SFI et de la MIGA.

Quelles sont les leçons quidoivent guider l’orientationdes futures affaires du Groupede la Banque mondiale pourpromouvoir le DSPE ?Les principales leçons qui découlentde cette évaluation sont :

• Le processus de réforme dusecteur d’énergie conduite par


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much better cross-sectoral in-tegration within the Bank andamong the Bank, IFC, andMIGA.

c) The WBG should encour-age operational innovationsto ensure greater consistency

between its practices and instru-ments and its evolving PSDE goals.

• The WBG needs to improve thecoordination of the various unitsactive in PSDE. To this end, itshould pursue better integrationof its PSDE objectives within theCAS framework, including in non-joint CASs, and with Poverty Re-duction Strategy Papers (PRSPs).

• The Bank, IFC, and MIGA man-agement should support flexibil-ity and the exercise of initiative inPSDE operations and AAA, to en-able better response to rapidlychanging country sector condi-tions and to opportunities thatare not always foreseeable in theCAS. Through its diverse lendingand advisory instruments the WBGshould promote more public–pri-vate partnerships and the investi-gation of promising innovations,such as the pro-poor design of re-forms and output-based aidschemes, for which robust moni-toring and evaluation systems areessential.

• The WBG should develop per-formance indicators and relatedinternal systems and should helpstrengthen borrower capacities(including through project fund-ing) to monitor and evaluate theachievements and impacts of itsPSDE interventions. These moni-toring and evaluation (M&E) ef-forts should be keyed to theEnergy Business Renewal Strategy

viable, influenciar la capaci-dad financiera del sector pú-blico y demostrar gananciasiniciales. Han producido bue-nos resultados de desarrollobajo las condiciones correctasdel país, sector y contractua-les. Sin embargo, los IPP que

no están bien ubicados ni com-plementados por un programa dereforma de la T y D eficaz puedenproducir un desequilibrio entrela capacidad de generación y de laT y D. En algunos casos redujeronla presión sobre el liderazgo delpaís y los encargados de formularla política a fin de lograr más re-formas.

• Las CAS conjuntas del Banco, CFIy OMGI son más eficaces para apo-yar el PSDE que las CAS solamentedel Banco, pero la coordinaciónmediante las CAS solamente es in-suficiente.

¿Cuáles son las recomenda-ciones para la dirección denegocios futura del WBG en elfomento del PSDE? Basándose en los hallazgos de la eva-luación, el estudio recomienda losiguiente:

a) De manera urgente, el WBG debeproporcionar orientación opera-cional al personal del WBG sobrecuándo y cómo continuar fomen-tando el PSDE bajo la situación ac-tual de aumento de riesgosmacroeconómicos y políticos y elescaso interés de los inversores. Talorientación debe estar basada enla estrategia de PSD del Banco re-cientemente aprobada.

• El Consejo Sectorial de Energía yMinería del Banco, consultandoestrechamente con la Junta de de-

PSD est complexe, il est ex-igeant en termes de temps etde ressources et demandeune mise en place progres-sive et un bon séquençagepour créer des conditions detransformation sectorielle. Lesréformes orientées vers le

développement de la fournitured’énergie sont plus prometteusesque les réformes limitées aux en-treprises publiques. Il n’existe pasde modèle de réforme « tailleunique » et chaque méthode doitêtre adaptée au pays. Ces leçons,bien qu’évidentes, n’ont pas étébien observées par le Groupe dela Banque mondiale par le passé.

• Le DSPE est un « travail en cours ».L’apprentissage par la pratiquepeut réussir, mais le pays doit for-muler des objectifs précis et sepositionner en tête du mouve-ment, aidé des conseils judicieuxdu Groupe de la Banque mondi-ale tirés des leçons de l’expéri-ence acquise dans d’autres paysdans des circonstances sem-blables.

• La preuve de la pertinence duchoix du moment et de la miseen séquence du DSPE est am-biguë. Dans certains pays la pro-gression par bonds vers laprivatisation a provoqué deschangements sectoriels positifs,mais dans d’autres pays, elle n’acausé aucune amélioration secto-rielle. De même, des gains d’effi-cacité substantiels ont été obtenusdans certains pays dans lesquelsune bonne gestion des affairespubliques et des structures de tarifjudicieuses ont été mises en placeen premier lieu, mais dans denombreuses situations, le soutienaccordé pendant des décenniespar la Banque à des réformes in-


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and other relevant strategyand policy objectives, espe-cially in the relatively neg-lected areas of helping thepoor and mainstreaming en-vironmental sustainability.

sarrollo del sector privado,debería proporcionar al per-sonal del WBG orientaciónoperacional actualizada ypráctica para continuar elPSDE basándose en lo quefuncione mejor, en términosde paquetes de reforma y su

secuencia, y dadas las situacionesde sectores país, necesidades ycapacidades institucionales. Losmejores ejemplos de práctica sepueden desarrollar para una gamade atributos de países observadoscon frecuencia.

• El desarrollo de esta orientacióndebe ser un esfuerzo conjuntoentre el Banco, CFI y OMGI, y de-bería definir un marco para anali-zar completamente las alternativasdel PSDE que asegurarían la via-bilidad del medio ambiente y es-tarían en línea con la misión dereducción de la pobreza del WBG.

• La administración superior delWBG debería clarificar los papelesa jugar del Banco, CFI y OMGIpara el fomento del PSDE, parti-cularmente en términos del au-mento de apoyo financiero yasesor.

b) En sus futuras intervenciones enel PSDE, el WBG debería poner unmayor énfasis en la generalizaciónde la reducción de la pobreza y losobjetivos ambientales (además desus objetivos tradicionales macro-fiscales y de eficacia del sector), queson estrategias básicas y generalesdel WBG para con la energía.

• El WBG debería aumentar su en-foque en reformar y facilitar lasinversiones privadas en el sub-sector de distribución, que re-querirá acciones para mejorar larecolección de dinero, reducción

crémentielles des monopolespublics, a été couronné depeu ou pas de succès. Lorsquedes étapes intermédiaires deréforme du secteur publicsont nécessaires, les réformesen rapport avec le DSPEdoivent constituer un objectif

de long terme clairement énoncé. • La preuve de l’importance de l’en-

gagement du pays n’est, quant àelle, pas ambiguë. Les facteurs depays, tels que des priorités réal-istes, une feuille de route claire,des champions locaux et des gainsprécoces, permettent des ré-formes réussies et un DSPE per-formant. L’établissement d’ungroupe d’intérêt pour des ré-formes par la participation de so-ciétés civiles est égalementessentielle à la durabilité des ré-formes.

• La lutte contre la pauvreté et l’in-tégration environnementale (nepas se contenter de « ne pas fairede mal », mais également « faire dubien ») n’ont généralement pasété des composantes intrinsèquesdes plans de stratégies de ré-formes sectorielles et de la pro-motion du DSPE, ce qui a faitbaisser leur aura aux yeux del’opinion publique locale et inter-nationale.

• Le manque de réformes dans lesous-secteur de la distributionpeut mettre en péril les gains po-tentiels de réformes dans le sous-secteur de la production.

• Les PEI ont un rôle à jouer pourdégager les goulots d’étrangle-ment en matière d’approvision-nement de manière efficace etsubstantielle, pour augmenter lacapacité de financement dusecteur public et pour obtenir desgains précoces. Ils ont fournis de


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de pérdidas, tratar el tema dela corrupción, lograr unamejor asignación de los sub-sidios, aumentar el acceso delos pobres en zonas rurales yprivatizar la distribucióndonde y cuando las circuns-tancias lo permitan.

• El WBG debería llevar al máximola participación del sector privadolocal en proyectos a pequeña es-cala y/o descentralizados, lo cualrequerirá enfoques innovadoresy una mejor integración a través delos sectores dentro del Banco, yentre el Banco, la CFI y el OMGI.

c) El WBG debería fomentar inno-vaciones operacionales para ase-gurar una mayor consistencia entresus prácticas e instrumentos y lasmetas del PSDE a medida que evo-lucionan.

• El WBG necesita mejorar la coor-dinación de las diferentes unida-des activas en el PSDE. En estesentido, debería luchar por unamejor integración de los objeti-vos del PSDE dentro del marcode la CAS, incluyendo las CAS noconjuntas y Documentos para laestrategia de la lucha contra la po-breza (PRSP).

• La administración del Banco, CFIy del OMGI debe apoyar la inicia-tiva y flexibilidad en las operacio-nes del PSDE y AAA, a fin deresponder mejor a las condicio-nes del país sector que están cam-biando rápidamente y a lasoportunidades que no son siem-pre previsibles en la CAS. Mediantesus instrumentos diversos de prés-tamos y asesores , el WBG debe-ría fomentar más asociacionespúblicas-privadas e innovacionesprometedoras, tales como diseño

bons résultats de développe-ment dans les pays, lessecteurs et les conditions con-tractuelles appropriés. Cepen-dant, les PEI qui ne sont pasbien placés et ne sont pas ap-puyés par un programme deréformes T&D efficace peu-

vent conduire à un déséquilibreentre la production et la capacitéT&D. Dans certains cas, ils ont ré-duit la pression sur les dirigeantset sur les décideurs du pays pourpoursuivre des réformes pluspoussées.

• Les stratégies CAS (Stratégiesd’aide aux pays) menées conjoin-tement par la Banque mondiale, laSFI et la MIGA ont apporté un sou-tien bien plus efficace au DSPEque celles qui avaient été misesen œuvre par la Banque mondialeseule, mais la coordination par letruchement des seules CAS de-meure insuffisante.

Quelles sont lesrecommandations en matièrede futures orientationscommerciales futures duGroupe de la Banque mondialepour promouvoir le DSPE ? Sur la base des constats de son éval-uation, l’étude recommande les dis-positions suivantes :

a) De manière urgente, le Groupede la Banque mondiale doit four-nir des directives opérationnellesau personnel du Groupe de laBanque mondiale au sujet dequand et comment continuer à pro-mouvoir le DSPE dans la situationactuelle d’augmentation de risquesmacroéconomiques et politiques,et du peu d’intérêt manifesté par lesinvestisseurs. Ces directives doiventêtre fondées sur la stratégie DSP


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de reformas y esquemas deayuda basados en resultadosy en favor de los pobres, paralo cual es esencial tener sis-temas sólidos de control yevaluación. • El WBG debería crear indi-cadores de rendimiento y sis-

temas internos relacionados, asícomo ayudar a fortalecer las ca-pacidades de los prestatarios (in-cluso mediante la financiación deproyectos) para seguir y evaluarlos logros e impactos de las inter-venciones de su PSDE. Estos es-fuerzos de seguimiento yevaluación deben estar adaptadosa la Estrategia de renovación delnegocio de la energía y a otrosobjetivos relevantes de estrategiay política, especialmente en lasáreas relativamente abandonadas,de ayudar a los pobres e incorpo-rar la viabilidad ambiental.

édictée récemment par laBanque.

•La Commission du secteurde l’énergie et des mines dela Banque, en étroite consul-tation avec la Commission dedéveloppement du secteur

privé, doit fournir au personneldu Groupe de la Banque mondi-ale des directives opérationnellesmises à jour et pratiques pour pro-mouvoir le DSPE, en se basant surce qui réussit le mieux, en termesd’ensembles de réformes et deleur mise en séquence, des situa-tions au niveau pays et au niveausecteur, des besoins et des capac-ités institutionnelles. Des exem-ples de meilleures pratiquespeuvent être développés pour ungroupe d’attributs de pays observésfréquemment.

• Le développement de ces direc-tives doit être un effort combinéentre la Banque, la SFI et la MIGA,et doit définir un cadre pouranalyser pleinement les alterna-tives au DSPE devant assurer lapérennité de l’environnement etcorrespondre à la mission de luttecontre la pauvreté du Groupe dela Banque mondiale.

• La direction du Groupe de laBanque mondiale doit clarifier lesrôles de la Banque, de la SFI etde la MIGA pour promouvoir leDSPE, particulièrement en termesd’augmentation de support fin-ancier et consultatif.

b) Dans ses futures interventions enmatière de DSPE, le Groupe de laBanque mondiale devra accorderune plus grande importance à l’intégration de la lutte contre lapauvreté et aux objectifs environ-nementaux (en plus de ses objectifs


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traditionnels d’efficacitémacro-fiscale et sectorielle),qui sont au cœur de la stra-tégie d’énergie d’ensemble duGroupe de la Banque mon-diale.

• Le Groupe de la Banquemondiale doit davantage concen-trer ses efforts sur la réforme et lafacilitation des investissementsprivés dans le sous-secteur de ladistribution, ce qui va exiger desactions visant à augmenter les re-cettes, à réduire les pertes, àdiminuer la corruption, à améliorerle choix des objectifs de subven-tions, à étendre l’accès à l’énergiedes pauvres vivant à la campagneet à privatiser la distribution oùet quand les conditions le per-mettent.

• Le Groupe de la Banque mondialedoit maximiser la participation dusecteur local privé à des projets depetite envergure et/ou décentral-isés exigeant des approches in-novatrices et une bien meilleureintégration intersectorielle au seinde la Banque et entre la Banque,la SFI et la MIGA.

c) Le Groupe de la Banque mon-diale doit encourager les innova-tions opérationnelles pour assurerune plus grande cohérence entre sespratiques et instruments, et ses ob-jectifs en matière de DSPE au fur età mesure de leur évolution.

• Le Groupe de la Banque mon-diale doit améliorer la coordina-tion entre les différentes unitésactives en matière de DSPE. Dansce but, il doit poursuivre unemeilleure intégration de ses ob-jectifs de DSPE dans le cadre desCAS, y compris dans les CAS non


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communes et dans les Docu-ments de stratégie de luttecontre la pauvreté (PRSP). • La direction de la Banque,de la SFI et de la MIGA doitsoutenir l’initiative et la sou-plesse des opérations DSPEet AAA, afin de mieux répon-

dre à des conditions de pays etde secteur en évolution rapide età des opportunités qui ne sontpas toujours prévisibles dans CAS.Par ses différents instruments deprêt et de consultation, le Groupede la Banque mondiale doit pro-mouvoir davantage de partenari-ats publics-privés et d’innovationsprometteuses, comme par exem-ple un modèle de conception deréformes et de schémas d’aidebasés sur les résultats en faveurdes pauvres, pour lequel une sur-veillance attentive et des systèmesd’évaluations sont essentiels.

• Le Groupe de la Banque mondialedoit développer des indicateursde performances et des systèmesinternes en rapport, et aider à ren-forcer les capacités d’emprunt (ycompris par des financements deprojets) pour surveiller et évaluerles accomplissements et les effetsde ses interventions en matièrede DSPE. Ces efforts de surveil-lance et d’évaluation (M&E)doivent s’accorder avec la Stratégiede renouvellement de l’énergie etles autres objectifs des stratégieset chartes pertinentes, notammentdans des domaines relativementnégligés d’aide aux pauvres et d’in-tégration de la préservation del’environnement.

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AAA Analytical and advisory assistanceADB Asian Development BankAFR Africa RegionARPP Annual Review of Portfolio PerformanceASTAE Asia Alternative Energy ProgramBOT Build, operate, transferCAE Country Assistance EvaluationCAS Country Assistance StrategyCCS Country case studiesCPW IFC Power DepartmentDEC Development Economics and Chief Economist Vice PresidencyEAP East Asia and Pacific RegionEBRD European Bank for Reconstruction and DevelopmentEBRS Energy Business Renewal StrategyECA Europe and Central Asia RegionEHS environmental health and safetyERR Economic rate of returnESB Energy Sector BoardESMAP Energy Sector Management Assistance ProgramESW Economic and sector workFFT Fuel for Thought (Bank Strategy Paper)FRR Financial rate of returnFY Fiscal yearGDP Gross domestic productGEF Global Environment FacilityGHG Greenhouse gasesES Evaluation SummaryIADB Inter-American Development BankIBRD International Bank for Reconstruction and DevelopmentICR Implementation Completion ReportIDA International Development AssociationIFC International Finance CorporationIPPs Independent power producersIRR Internal rate of returnLAC Latin America and Caribbean RegionMAL Maximum aggregate liabilityMIGA Multilateral Investment Guarantee AgencyMNA Middle East and North Africa RegionM&E Monitoring and evaluationOED Operations Evaluation Department, IBRD/IDAOEG Operations Evaluation Group, IFCOEU Operations Evaluation Unit, MIGAPAD Project Appraisal DocumentPPA Power Purchase AgreementPPAH Pollution Prevention and Abatement HandbookPPAR Project Performance Assessment Report, OEDPRSP Poverty Reduction Strategy PaperPSD Private sector development

ABBREVIATIONS AND ACRONYMS

PSDE Private sector development in the electric power sectorPSR Project Status Report, IBRDQAG Quality Assurance GroupSAL Structural Adjustment LoanSAR South Asia RegionSECAL Sectoral Adjustment LoanSSA Sub-Saharan AfricaTA Technical assistanceTATF Technical Assistance Trust FundT&D Transmission and distributionWBG World Bank GroupXPSR Expanded Project Supervision Report, OEG


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Overview: Private SectorDevelopment in the Electric Power Sector

The global electric power industry experienced deep changes in its eco-nomic, political, and technological features in the last decades of the20th century. Those changes fundamentally altered the ownership and

market structure of the sector and required the World Bank Group (WBG) toadjust its assistance in ways that supported a shift to private sector develop-ment in the electric power sector (PSDE).

The Current Sector EnvironmentSince the 1950s, the power sector had been dom-inated by publicly owned monopolies over the fullrange of sector activities from production to dis-tribution. This was in accordance with the pre-vailing notion that large-scale technologies andtheir high-fixed costs favored state financing, andthat monopoly stewardship by the state enhancedconsumer welfare. The sector also was consideredcritical to national security and a tool with whichgovernments might pursue social equity objectivesin their development efforts. These views pre-vented competition and discouraged foreign in-vestment. From the late 1980s, however, thepromise of greater efficiency through market-based competition and technological advancesencouraged the vertical unbundling of powergeneration and an increase in private investment.

Developing countries had the same problemsas industrial countries with noncompetitive pub-lic sector utilities, but with the additional disad-vantages of weak or nonexistent regulatoryinstitutions, political opposition to the economic

pricing of electricity, the unattractive prospect ofrevenues in local, often weak, currencies, poor tar-iff collection rates, and weak governance. Whenchange began to sweep through the industrialcountries, developing countries also started to re-form their power sectors, dismantling the gov-ernment monopoly control of generation. Most,however, were slow in liberalizing transmissionand distribution (T&D), resulting in limited pri-vate investments in this subsector.

Power sector reform requires the restructuringof institutional and market frameworks and theopening of the sector to private participation.The establishment of both components in thesame power system has been a relatively recentexperience in both industrial and developingcountries, with success and failures in both. Com-mitment to reform is difficult to secure and sus-tain, as it entails the politically unattractiverequirements of adjusting tariffs and attractingforeign corporate involvement. The power sectoris prone to corruption both internationally and lo-cally because the stakes are high and the oppor-

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tunities for rent-seeking are plentiful. With poli-tics, circumstances, and timing lying at the heartof power sector reform, the transformationprocess and its outcomes at each stage are frag-ile. Experience shows that progress and sustain-ability are highly susceptible to the local politicaleconomy and to macroeconomic shocks: Ar-gentina, a successful reformer until recently, hasfallen victim to both.

After growing rapidly in the early 1990s, privateinterest in the power sector waned following the1997 Asian financial crisis. A 2002 World Banksurvey revealed that private power investors areretreating from developing countries, and themedium-term prospects are discouraging: of 50firms surveyed, 52 percent are retreating and onlythree firms continue to be interested (Lamech andSaeed 2002 and 2003). Interest is lowest wherethere is greatest need—in the distribution busi-ness. As a matter of special concern, the 50 firmsare unanimous that public–private partnershipsare not important for them, and ranked suchpartnerships lowest as a factor governing invest-ment success. These survey findings are striking,given that during the 1990s the 15 or so major pri-vate power investors tended to concentrate theirinterest on only about 10 middle- to high-incomecountries. The global picture shows that while theWorld Bank is pursuing the creation of a PSDE-en-abling environment in 68 countries, private for-eign interest itself is dwindling. The growth indemand for power in developing countries mean-while is estimated to require hundreds of billionsof dollars in power infrastructure investmentsduring the rest of this decade. Reigniting privatesector interest in developing country power sec-tors will be difficult. This issue is of special im-portance to IFC and MIGA, which mobilizetransactions with mostly foreign private partners.

The effectiveness and sustainability of PSDE willdepend on identifying measures that enable thepower sector to better manage the political andmacroeconomic risks. The WBG’s advice and as-sistance continue to be in demand, but its role inadvocating PSDE has become less clear as a resultof the sharp decline in private investor interest inemerging markets. While some observers haveidentified this as a crisis in power sector reformin developing countries, others see the sharpdrop in investor interest as temporary, noting

that although the big names are absent or havewithdrawn, local and regional players haveemerged and new transactions continue to occur.Notable among these are the Delhi distributionprivatization and private power deals in Kaza-khstan and Central European countries. For theBank Group, whose clients predominantly arelow-income countries with high political and reg-ulatory risks, the decline in private investor interestcould be interpreted as being less of a concern,but it should be noted that these are precisely thecountries where the WBG’s PSDE engagement ismost needed. Given these heightened uncer-tainties and risks, WBG staff need guidance morethan ever on ways by which to reignite private in-terest and through which to continue to pro-mote PSDE.

The Role of the World Bank Group in the1990sIn the 1960s and 1970s, the World Bank, com-prising the International Bank for Reconstructionand Development (IBRD) and the InternationalDevelopment Association (IDA), was throughits support of state-owned utilities a major fin-ancier of the electric power sector in develop-ing countries. In the 1980s, global pressure toaddress the persistently poor performance ofthose utilities led the Bank to start focusing itselectric power lending and policy advice on thepromotion of private sector involvement. De-spite the decades of Bank support for publicpower utilities, their financial position continuedto be desperate, institutions and governance re-mained weak, low technical and operational ef-ficiencies endured, and national policies onpricing and investment planning resisted change.The power markets in industrial countries mean-while were being transformed by lower-costtechnologies, new regulatory developments, andthe growth of independent power producers,which demonstrated that utilities could turn tocheaper and more efficient private power forpart of their supply.

By the early 1990s, lending to public utilitieshad become untenable, and the WBG adopted apolicy to promote private sector development inthe electric power sector. This was formalized inthe 1993 Electric Power Lending Policy (WorldBank 1993b), which was endorsed by the Inter-

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national Finance Corporation (IFC) and whichwas also consistent with the mandates of the Mul-tilateral Investment Guarantee Agency (MIGA).The 1993 policy was predicated on “commitmentlending,” which meant that assistance would begiven only when a country’s institutional andstructural reform policies were satisfactory. Dur-ing the 1990s, lending predicated on governmentcommitment was tested in India, historically arecipient of large volumes of Bank power lending.In 1993, precipitated by India’s economic crisis ofthe early 1990s and the poor performance of theState Electricity Boards (SEBs), the Bank decidedto lend only to states that agreed to unbundle theirSEBs, establish an independent regulatory au-thority, and privatize all new generation and dis-tribution investments. From 1990 to 1996 theBank adopted a strategy of not lending, and thisled to progress by several states in reformingtheir power sector. Although there has been somerecent backsliding on reforms, both the Opera-tions Evaluation Department (OED) and the Qual-ity Assurance Group (QAG) of the World Bankconcluded at the time of OED’s 2001 CountryAssistance Evaluation (OED/World Bank 2001b)that the Bank’s approach is a best-practice modelthat should be emulated throughout the Bank’spower sector portfolio.

The Bank Group’s PSDE policies are supportedby activities in three strategic areas of emphasis:energy efficiency, rural and renewable energy,and environmental sustainability. In the 1993 “En-ergy Efficiency and Conservation in the Devel-oping World” (World Bank 1993a), the Bankemphasizes energy pricing to improve overall en-ergy efficiency and promote environmental pro-tection, private sector development (PSD), andcompetitive markets. In the 1996 “Rural Energyand Development: Improving Energy Suppliesfor Two Billion People” (World Bank 1996b) theBank seeks to develop new approaches for pro-viding energy to the rural poor. Where the privatesector is involved, it suggests several actions tomake private companies more inclined to serverural areas and to promote a regulatory regimethat favors competition among retailers and dis-tributors. The 2000 strategy paper “Fuel ForThought: Environmental Strategy for the EnergySector” (World Bank 2000a) addresses the linksbetween the private sector and environmentally

sustainable development by stating that energysector and pricing reforms will likely improveoverall efficiency through the adoption of cleanerenergy technologies.

The most recent Bank Group statement onPSDE is “The World Bank Group’s Energy Pro-gram: Poverty Alleviation, Sustainability, and Se-lectivity” (World Bank 2001d). This EnergyBusiness Renewal Strategy (EBRS) was preparedto address the shortcomings of the past energyprogram and to align the energy business practicewith the overall strategic framework of the WBG.

Energy practice in the Bank evolved signifi-cantly during the 1990s, in line with the shift ofthe Bank’s portfolio away from power genera-tion in favor of sector reform and adjustment andtransmission and distribution. Within a smallerlending portfolio and more constrained opera-tional budgets, the practice has had to focus moreintensively on complex market reforms, climatechange, energy access, and poverty reduction,and related analytical and advisory (AAA) products,notably through the Energy Sector ManagementAssistance Program (ESMAP). By the end of the1990s, an Energy Sector Board (ESB) was estab-lished to (i) lead strategy formulation and im-plementation, based on rapidly changing internaldevelopment priorities and external trends; (ii)catalyze the exchange of best practices, train staff,and mobilize learning events (notably EnergyWeek); and (iii) ensure portfolio quality and strate-gic relevance through country-sector and Quality-at-Entry reviews. The role of the Bank’s energypractice has become complex: country clientsand private stakeholders have multiplied; internaland external pressures for quality and accounta-bility have increased; and cross-sectoral integra-tion with nonenergy sectors (public sector reform,private sector development, and poverty reduc-tion and economic management networks) withina matrix-managed Bank have become a daily op-erational necessity.

Evaluation Objective and Framework

ObjectiveThe purpose of this study is to assess the resultsof the WBG’s PSD-related interventions during the1990s in the power sectors of some 80 develop-ing and transition countries and to answer four

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evaluation questions: (i) how have private par-ticipation and the WBG’s role changed in the1990s?; (ii) to what extent has the WBG’s assis-tance supported its PSDE strategies?; (iii) whathave been the results of the WBG’s PSDE inter-ventions?; and (iv) what are the lessons thatshould guide the WBG’s future business directionsin promoting PSDE? As WBG assistance in thepower sector is still needed, particularly at thistime when foreign investors are retreating fromthe sector, the study derives lessons from expe-rience to inform the ongoing implementation ofthe EBRS.

To date, PSDE practitioners have been learn-ing by doing, with the WBG having the advantageof institutional scope and memory. The continu-ally evolving practices in PSDE make difficult theestablishment of convincing theories about the op-timal sequencing of reforms, although the cata-logue of things to avoid continues to expand.Within the WBG, PSDE practice is a moving tar-get, making it particularly difficult to establishevaluative benchmarks to measure results, otherthan the stated objectives of the individual PSDEproject and the overall PSDE program (if any) atthe country level. Moreover, given the number ofstakeholders and practitioners (other than theWBG), as well as the unpredictability of reformoutcomes, it is challenging to assess the extent towhich WBG interventions were pivotal or decisivecatalysts of reform, and to recommend how thisrole could be enhanced in the future.

FrameworkOED evaluated the results of PSDE interventionsin relation to the Bank Group’s approach to PSDEas it evolved during the 1990s. This evaluation fo-cused on the performance benchmarks stem-ming from the objectives of the 1993 ElectricPower Lending Policy. It also reviewed the Bank’sexperience in terms of applying this experienceto the objectives of the 2001 EBRS. The objectivesof the 1993 policy, its 1996 best-practice state-ment (World Bank 1996a), and the Bank’s reformapproach emphasized the commercialization andcorporatization of utilities, with a view to eventualprivatization; an adequate legislative and regula-tory framework for private sector participation; theunbundling of integrated utilities into genera-

tion, transmission, and distribution; and a com-petitive market with private participation in green-field projects and the privatization of existingassets. The EBRS objectives include the promo-tion of PSD, macrofiscal balancing, protecting theenvironment, and helping the poor directly. Theevaluation framework also includes the CountryAssistance Strategy (CAS) objectives, because anevaluation based on individual projects alonewould not capture the sector-level outcomes ofpower reforms; many of the Bank Group coor-dination and strategic issues raised in the evalu-ation furthermore can only be addressed at thecountry level.

The EBRS objective of promoting PSD is ofparticular interest to this study. The specific EBRSperformance indicators comprise the creation oftransparent and nondiscriminatory regulatorymechanisms; the introduction and expansion ofcompetition; the divestiture of assets to strategicinvestors; catalyzing private investments by lib-eralizing entry to energy markets; strengtheningthe voice of consumers and communities; andstrengthening local financial institutions to pro-vide long-term financing for rural energy busi-ness.

OED derived evidence and evaluative findingsfrom (i) literature reviews; (ii) a review of theBank’s portfolio of 154 PSDE-related projects,based on Implementation Completion Reports,Project Status Reports, OED’s Evaluation Sum-maries and Performance Assessment Reports,and other project documentation; (iii) countrycase studies of Côte d’Ivoire, Pakistan, the Philip-pines, Poland, and Turkey, four of which weredone jointly with the Operations Evaluation Group(OEG) of IFC (IFC has no power operations inPoland); (iv) analysis of other country examplesoffering PSDE lessons of broad applicability; (v)a survey of task managers responsible for PSDEprojects;1 (vi) semistructured interviews of Banktask team leaders and energy sector managersand IFC investment officers and managers; (vii)a review of six regional energy strategies; and(viii) a review of the 1990s CASs for the five coun-try case studies and 10 other countries with majorPSDE programs, to assess their PSDE contentand to analyze the linkages between the statedPSDE priorities and the lending and economic and

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sector work/analytical advisory assistance(ESW/AAA) programs in each country. Commentswere also received from a group of external re-viewers and taken into account in the final draft-ing of the study.

OEG’s evaluation findings are based on a syn-thesis of project-level evaluations covering the29 mature IFC projects of the 57 approved proj-ects of the 1990s.2 The study draws from existingXPSR (Expanded Project Supervision Report)evaluation findings on 15 IFC operations andfrom OEG mini-evaluations of 14 other projectsthat were made using an abbreviated version ofthe XPSR evaluation framework. These mini-eval-uations were drawn from a review of project doc-uments, interviews with IFC project teams(investment officers, environmental specialists,economists, and technical specialists) and field vis-its to projects in case study countries. The IFC eval-uation also draws from OEG’s Annual Reviewfindings.

MIGA’s Operations Evaluation Unit (OEU) drewits findings from a review of MIGA’s electric powerportfolio. Additionally, OEU synthesized the resultsof evaluations of eight mature projects, selectedthrough random and stratified sampling of ac-tive and mature operations, representing 25 per-cent of all MIGA-supported projects in electricpower generation during FY94–01.

Scope and Limitations This study evaluates the WBG’s performanceagainst its existing policy and strategic commit-ments to support PSDE. As such, it does not in-clude a review of the broader underlying rationalefor promoting PSD. The study focuses on theWBG’s activities in the electric power sector; itdoes not cover WBG interventions in the electric

power sector that are not directed at promotingPSD. It does not include an evaluation of the re-newable energy subsector, as the number of ma-ture WBG operations in this subsector is too smallto serve as a basis for evaluative judgments andconclusions. While within the scope of the orig-inal Approach Paper, coal, oil, and gas are not ad-dressed in this study. These energy subsectors arecovered in the OED/OEG/OEU review of theWBG’s experience in Extractive Industries (EI)(the EI study was conceptualized subsequent tothe decision to undertake the PSDE study). Thestudy period is from FY90–99. Where appropriate,the study also provides observations on the WBG’sPSDE activities in FY00–01. Performance and out-come ratings are based on the respective evalu-ation criteria of the Bank, IFC, and MIGA. Thestudy does not duplicate the analysis of the Bank’sand IFC’s respective Annual Reviews of PortfolioPerformance and Evaluation Findings, but buildson their data and findings. Given the large size ofthe Bank’s analytical and advisory assistance (AAA)and the serious data inadequacies on AAA per-formance, the in-depth review of PSDE-relatedAAA operations was limited to country studiesusing generally accepted AAA criteria. Due to in-sufficient data, the study does not include anevaluation of IFC’s advisory operations nor theelectric power components of nonpower sectorprojects. Since few countries are at the advancedstages of power reforms, the study emphasizes theassessment of the PSDE promotion process; it as-sesses outcomes and impacts to the extent madepossible by available literature, project evalua-tions, and limited country studies. Details on themethodology and tools used in the study are pro-vided in Annex A.

O V E R V I E W

5

7

PSDE Objectives andInstruments

The power sector reforms that swept the industrial countries and somedeveloping countries in the 1990s can be presented graphically by fo-cusing on the degree to which they attempted to change the compet-

itive structure of different segments in the industry, and on the changes inownership from public to private (Turkson 2000) (Figure 2.1).

Although in practice some of the possible changeswere chosen from a menu of objectives, the lit-erature and Bank Group practice gradually evolvedtoward a combination of seven PSDE reformareas: (i) commercialization; (ii) corporatization;(iii) arm’s-length regulation; (iv) unbundling; (v)private participation in production (greenfieldand divestiture); (vi) private participation intransmission and distribution (greenfield and di-vestiture); and (vii) building competitive marketsin production, transmission, and distribution.

The relative mix of restructuring and privati-zation adopted by each country depended onthe country’s political choices, but also evolvedthroughout the 1990s. One approach was to main-tain the state-owned monopoly structure but toinvite independent power producers (IPPs) toconstruct new power plants and sell their elec-tricity to the public monopoly as a single buyer(Indonesia, Pakistan, and the Philippines), usuallyon the basis of a long-term Power Purchase Agree-ment (PPA). A second approach was to promoteprivate ownership of a vertically integrated gen-eration, transmission, and distribution system

(IFC advisory work in Cameroon, in conjunctionwith Bank lending). A third approach was to un-bundle the state monopoly and privatize the sep-arate entities, while establishing a regulatory bodyto oversee both the competitive and the un-competitive segments of the restructured powerindustry (Chile, Peru, Ukraine). Regardless of thepath, the underlying objective was to minimize oreliminate the sector’s fiscal drain, as well as im-prove supply efficiencies, access, quality of serv-ice, and the financial performance of utilities.

The Bank, IFC, and MIGA played different rolesin helping countries along the two axes andachieved different results. The division of spe-cialization between the three gradually evolved onPSDE (and PSD in general), and was only for-mally specified in the PSD strategy in 2002 (WorldBank 2002c). The Bank is now expected to con-centrate on the legal and regulatory framework,thus improving the enabling environment forPSDE, and, where needed, on helping improve theperformance of the remaining public compo-nents of the sector. IFC is expected to assist theprocess by helping to finance new private sector

22

investments and by helping government institu-tions with the privatization process itself.1 MIGA’srole is to assist foreign investors by providingcoverage against political risks. During the 1990s,the roles of the Bank and IFC occasionally over-lapped.

The WBG also used a variety of instruments tohelp countries pursue their PSDE objectives. Mostwere financial instruments (loans from the Bankand IFC, equity investments by IFC, guarantees bythe Bank and MIGA), but analytical work by theBank and advisory services provided by IFC alsowere important. Bank lending was not only for in-vestment, but also was for technical assistance andto fund components of adjustment loans.

World Bank lending to the power sector washigh through most of the 1990s, but droppedsharply after 1998, following the Asian financial cri-sis and the sudden halt in capital flows to emerg-ing markets. The pattern of IFC investments issimilar, while MIGA guarantees expanded rapidly

and seem to have maintained the same pace. TheBank’s electric power lending reached a peak ofUS$3.2 billion in FY96, dropping to US$440 mil-lion in FY99 before rebounding to US$994 millionin FY00 (see Table 2.1). Power accounted for 15percent of total Bank commitments in FY96, butonly 1.5 percent in FY99. By comparison, IFC’spower investment approvals also reached a peakof US$872 million in FY95 and had declined toabout 40 percent of that level by FY99, but the cu-mulative gross approvals of US$4.4 billion over the1990s reflects tremendous growth compared tothe low level of US$45 million in FY90. MIGAguarantees peaked in FY00, both in the volumeof coverage issued and the number of projectssupported. In FY00, power projects accounted fora record 40 percent of MIGA’s gross liability issued,whereas in the second half of the 1990s that fig-ure had oscillated around 15 percent. At the sametime, the average size of MIGA projects and theircomplexity also increased.

8


R e f o r m O p t i o n s t o A c h i e v e S t r u c t u r a l a n dO w n e r s h i p C h a n g e s i n t h e P o w e r S e c t o r

F i g u r e 2 . 1

Restructuring

Privatization/Ownership changes

Ministry Department

Parastatal

Corporation (arm's-length relation to government)

Commercialization

Contract management

Complete vertical unbundling

Unbundled generation and distribution

Unbundled generation, common transmission and distribution

Vertically integrated utility

Complete horizontal unbundling (provincial utilities which are vertically integrated)

Provincial distribution and generation, national transmission (common carrier)

Provincial distribution companies, national generation and transmission

National utility

IPPs–privatization of generation

Privatization of generation and distribution

Complete Public Ownership

Complete PrivateOwnership

FY90 FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01

IBRD/IDA lending*

Number of projects 16 10 25 19 10 16 20 17 15 6 9 9

Approvals (US$ millions) 2,968 1,707 3,554 2,739 1,613 2,242 3,247 1,889 2,067 440 994 824

Bank power project lending as %

of total commitments 14.34 7.52 16.37 11.56 7.74 9.95 15.21 9.87 7.23 1.52 6.51 4.78

PSDE-related (US$

millions), of which: 875 735 456 1,672 1,457 1,919 2,468 1,638 1,409 349 750 766

Freestanding 98 195 127.5 1.2 230 411 329.4 184 0 0 0 0

Components (only power sector) 777 540 328 1,671 1,227 1,508 2,139 1,454 1,409 349 750 766

PSDE-related as a % of

electric power lending 29.5 43.1 12.8 61.0 90.3 85.6 76 86.7 68.2 79.4 75.4 92.9

IBRD/IDA guarantees

Number of operations 0 0 0 0 1 3 2 0 1 2 0 1

Value (US$ millions) 0 0 0 0 57 404 125 0 10 330 0 61

IFC investments

Number of approved investments 2 2 1 7 8 9 6 8 8 6 11 8

Value of gross approvals (US$ millions) 45 107 97 512 676 872 623 518 584 335 632 687

IFC power approvals as % of

IFC total approvals 2.0 3.8 3.0 13.0 15.8 16.0 7.7 7.7 9.9 6.3 10.8 12.8

MIGA guarantees

Number of projects guaranteed 0 0 0 0 1 3 5 7 6 5 8 4

Maximum aggregate liability (US$ millions) 0 0 0 0 15 137 132 94 132 161 638 394*Includes only projects in the electric power sector group. Most of the projects include PSDE components; 16 are standalone PSDE projects

Sources: IBRD/IDA Lending—Business Warehouse; IBRD/IDA Guarantees—Project Finance and Guarantee Group; IFC Investments—International Finance Corporation;

MIGA Guarantees—Multilateral Investment Guarantee Agency.

Bank and IFC lending approvals, as well asBank and MIGA guarantees, have to be seen in thecontext of the huge (and unanticipated) increasein private capital flows to developing countries be-tween 1990 and 1997. Similarly, the drying up ofthose flows—and of new private investment—indeveloping countries following the 1997 Asian fi-nancial crisis affected WBG activities. For exam-ple, while IFC approvals remained relatively strong(except in 1999), its funding commitments sloweddown. Finally, the geographical differences in theBank Group’s PSDE assistance are also partly ex-plained by the concentration of private capitalflows in Latin America and Asia (both East andSouth).

The level of support for PSDE from other mul-tilateral development banks is small compared tothe WBG, based on a comparison of their overalllending programs, their electric power sectorportfolios, and their PSDE components (whereknown). Since 1994, the European Bank for Re-construction and Development (EBRD) supported10 projects in power and energy, of which two areequity investments, totaling US$230.8 million.The Asian Development Bank (ADB) approved 40loans in the energy sector between 1995 and1999, representing 11 percent of ADB loans, butthere are no data on how much of this lending isspecific to PSDE. More than 50 percent of the ac-tive projects of the Inter-American Development

P S D E O B J E C T I V E S A N D I N S T R U M E N T S

9

I B R D / I D A L e n d i n g , I F C I n v e s t m e n t s , a n dI B R D / I D A a n d M I G A G u a r a n t e e s i n t h e E l e c t r i c P o w e r S e c t o r , F Y 9 0 – 0 1

T a b l e 2 . 1

Bank (IADB) are in the energy sector, and 47 per-cent of the infrastructure portfolio of IADB’s Inter-American Investment Corporation is in the powersector, but PSDE-specific data again are unavail-

able. IADB’s grant-making Multilateral InvestmentFund supports the establishment of regulatorymechanisms to encourage private participation,some of which is geared toward PSDE.

1 0


1 1

Project Results

The WBG supported PSDE through interventions in 80 countries, throughdifferent combinations of WBG institutions and instruments. The Bankpursued power sector reforms (mainly through components in larger

projects); IFC and MIGA facilitated private power investments.

OED’s review of the Bank’s PSDE portfolio showsthat (i) project objectives are consistent with theseven PSDE reform areas that evolved in theBank’s energy practice during the 1990s, and (ii)the level of financial support varied widely, rang-ing from small technical assistance componentsto large energy Sector Adjustment Loans (SE-CALs). World Bank-defined regions include Africa(AFR), East Asia and Pacific (EAP), Europe and Cen-tral Asia (ECA), Latin America and Caribbean(LAC), Middle East and North Africa (MNA), andSouth Asia (SAR). Along these regional lines, inAFR, ECA, and MNA the Bank predominated andIFC and MIGA had little presence; in EAP, LAC, andSAR the Bank, IFC, and MIGA were all involved(Table 3.1). Close to 40 percent of IFC’s operationsare in LAC and SAR alone. IFC’s involvement inthe power sector in the 1990s focused mainly onfinancing independent power producers (IPPs) inaccordance with one of the seven PSDE reformareas.

As discussed below, project-level results (thatis, individual transactions) have been good over-all for IFC and MIGA, but in Bank projects it hasbeen mixed. Sector-level outcomes overall have

been mixed, as discussed in the next chapter.Since IFC and MIGA are transaction-oriented withregard to the WBG’s wider reform agenda, thischapter focuses on their performance based ona synthesis of their respective project-level out-comes and indicators. In pursuing the WBG’sPSDE agenda, both IFC and MIGA concentratedon supporting private participation in the gen-eration subsector, and to a lesser extent in theT&D subsector. Private participation in these twosubsectors is an integral part of the reform agendasupported by the WBG. The Bank, for its part,mostly pursued sector-wide reforms through di-verse and multisectoral lending and AAA instru-ments (see also Annex B).

Bank Involvement: Reforming PowerSectors and Mainstreaming PSDE

The Bank mainstreamed PSDE, as its traditional powerlending sharply declined. The shifts in the Bank’s re-form portfolio during the 1990s also show a pos-itive response to the 1993 Electric Power LendingPolicy and the Bank’s 1996 best-practice state-ment. The Bank increasingly supported PSD and

33

private participation in its power and nonpowerlending. While power lending volumes dropped,the number of projects with PSDE componentsgrew from 7 in 1990 to 18 annually after 1994, in-dicating the mainstreaming of PSDE objectives intonearly all power projects, as well as adjustment andnonelectric power projects (notably in public en-terprise reform) and partial risk guarantees. Withinthe power sector alone, the lending volume ofprojects that pursued reforms and PSDE ac-counted for from 75 to more than 90 percent ofelectric power project approvals during the periodfollowing the 1993 policy (Table 2.1). As the num-ber of country clients increased and PSD instru-ments became more diverse, the following PSDEtrends can be observed, based on OED’s portfo-lio review (see also Annex C):

• The Bank’s support for corporatization increasedin the early 1990s and has remained relativelystable. Commercialization peaked in the mid-1990s before falling back to 1990 levels.

• From its modest efforts in 1990, the Bank’sagenda has evolved to an emphasis on arm’s-length regulation (now the most frequent proj-ect objective) and private participation intransmission and distribution.

• The building of competitive markets has showna consistent increase since 1996.

• The Bank’s work on private participation inproduction and unbundling has experiencedwide swings, and appears to be tapering off.

Bank lending for transmission and distribution hasovertaken generation expansion. The Bank’s lendingfor the expansion of generation capacity droppedfrom a peak of US$2.6 billion in 1992 to almostnothing in 2002 (Figure 3.1). It has now beenovertaken by lending for transmission and distri-bution, where much still remains to be donegiven the pivotal role of improvements in the dis-tribution subsector to the success of overall re-forms, as will be discussed in Chapter 4. Of the154 Bank projects that supported PSDE, 63 proj-ects (40 percent) also supported transmissionand distribution. Most of the projects were ap-proved in the early to mid-1990s and were in theEAP, AFR, SAR, and ECA regions. There were fewdistribution projects in LAC and MNA. Almosthalf of the projects supporting T&D did not per-form well. Of the 38 closed projects, OED ratedthe outcome of 17 projects (45 percent) as un-satisfactory or marginally unsatisfactory, mainlydue to persistent high losses and inability to im-prove revenue collection, lack of adequate tariffadjustments, and/or weak institutional capacities.The sustainability of 42 percent of these closedprojects was rated as uncertain (18 percent) or un-

1 2


R e g i o n a l D i s t r i b u t i o n o f B a n k , I F C , a n dM I G A O p e r a t i o n s

T a b l e 3 . 1

Region Bank % share IFC % share MIGA % share

Africa (AFR) 30 20 3 5 2 5

East Asia and Pacific (EAP) 35 23 6 9 9 23

Europe and Central Asia (ECA) 39 25 7 11 2 5

Latin America/Caribbean (LAC) 25 16 22 34 20 51

Middle East/N. Africa (MNA) 5 3 2 3 0 0

South Asia (SAR) 20 13 16 25 6 15

World 8 13

Total Projects* 154 64 39

Total Countries 68 29 25

Total Countries in WBG: 80* The Bank column of 154 investment and adjustment operations includes 138 PSDE components in nonenergy sectors, for which the Implementation Completion Reports, Evaluation

Summaries, Performance Audit Reports, and Project Status Reports were all reviewed. The IFC column includes 57 investment operations (29 of which are mature and have been evalu-

ated) and seven Global Environment Facility (GEF) projects (none of which has been evaluated).

likely (24 percent)—seven out of the nine AFRprojects were rated as having unlikely or uncer-tain sustainability. Of the 25 active projects, threeare reported as unsatisfactory in terms of achiev-ing their development objectives due to lack ofgovernment commitment and implementationdelays, in addition to the foregoing reasons.

The Bank’s PSDE support has focused largely on low-income and lower-middle-income countries. Whilethe Bank remained a relatively small player in

global PSDE financing, its assistance has empha-sized underserved low-income and lower-mid-dle-income countries. The Bank supports PSDEin a large number of mostly low-income countries.OED’s portfolio review shows that most of theBank’s PSDE-related projects were approved forlow-income countries. There were fewer approvalsfor upper-middle-income countries (Figure 3.2).

Results of the Bank’s reform-intensive PSDE projectsare positive in only 55 percent of cases, and mixed in

P R O J E C T R E S U LT S

1 3

I B R D / I D A L e n d i n g f o r G e n e r a t i o n C o l l a p s e d ,P u t t i n g T r a n s m i s s i o n a n d D i s t r i b u t i o n i n t h eL e a d b y F Y 0 1 ( a p p r o v a l s i n U S $ m i l l i o n s )

F i g u r e 3 . 1

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001Year

In US$ million

Total electric power and other energyGenerationTransmission and distribution

T h e B a n k ’ s P S D E P r o j e c t s H a v e F o c u s e d o nL o w - a n d L o w e r - M i d d l e - I n c o m e C o u n t r i e s

F i g u r e 3 . 2

0

2

4

6

8

10

12

14

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999Fiscal year

Number of projects

Low incomeLower middle incomeUpper middle income

22 percent. Only 16 of the 154 projects in theBank’s PSDE portfolio are freestanding, and 13 ofthose have an outcome rating of satisfactory.1

Also, 138 projects (90 percent of the portfolio)have PSDE components for which there are no in-dependent ratings. (For reference, the ratings forall these projects are provided in Annex D.) In areview of the latest Project Status Reports (activeprojects) and the Evaluation Summaries or Im-plementation Completion Reports (closed proj-ects) across the PSDE portfolio, OED found thatabout 55 percent of projects had achieved theirstated PSDE objective(s) and 22 percent partlyachieved their objectives. Sixteen percent andeight percent of projects respectively returned“not achieved” or unclear results (Table 3.2). TheLAC and ECA regions returned the highest num-

ber of PSDE-related projects that achieved (orare achieving) their objectives, such as the pass-ing of reform legislation, strengthening of regu-latory capacities, adjustment of tariffs, andunbundling. For PSDE components alone, thisfinding is more positive than the 1999 portfolioreview, which showed, based on aggregate port-folio data, that the energy sector—includingpower and oil and gas—was one of the worstperforming in the Bank (this has improved re-cently through portfolio restructuring). In sum,based on inputs and outputs at the project level,the Bank appears to be only half-successful inpursuing the discrete objectives of its reformagenda.

Do freestanding PSDE projects perform betterthan projects with PSDE components? A review

1 4


T h e B a n k ’ s P S D E P r o j e c t - L e v e l R e s u l t s( b a s e d o n a c h i e v e m e n t o f s t a t e d P S D Eo b j e c t i v e s )

T a b l e 3 . 2

Subtotal “Achieved” Partly Not no. of as % of no.

Region Status Achieved achieved achieved Unclear Projects of projects

AFR Active 8 2 6 1

Closed 3 6 3 0

Subtotal 11 8 9 1 29 38

EAP Active 11 4 2 2

Closed 10 5 1 0

Subtotal 21 9 3 2 35 60

ECA Active 10 3 0 2

Closed 17 5 3 0

Subtotal 26 8 3 2 39 67

LAC Active 8 0 0 1

Closed 9 4 2 1

Subtotal 17 4 2 2 25 68

MNA Active 0 1 1 1

Closed 1 1 0 0

Subtotal 1 2 1 1 5 20

SAR Active 4 1 1 3

Closed 3 2 5 1

Subtotal 7 3 6 4 20 35

Total Results Active 41 11 10 10

Closed 43 23 14 2

Total 84 34 24 12 154 55Source: Based on PSRs as of March 2002 for active projects and OED Evaluation Summaries and Implementation Completion Reports (ICRs) for closed projects.

of the Bank’s PSDE portfolio suggests that satis-factory (or unsatisfactory) outcomes are not as-sociated with a project being freestanding or acomponent of a larger project (see Annex E).These outcomes are also not fully explained by typeof instrument or heavy Bank inputs of ESW/AAA.Good PSDE outcomes are driven mainly by coun-try factors, including the country commitment,broad-based ownership, strong local champions,a clear road map, and early wins. The relevanceand timing of the Bank’s interventions and itsability to effectively navigate the local politicaleconomy are important supporting factors. Inpromoting PSDE, the Bank should give more at-tention to building country ownership and thebuy-in of stakeholders; it also should sustain anyearly successes at reform with well-timed, relevantESW/AAA to help chart the reform steps and withappropriately tailored lending instruments. Thiswill require the Bank to improve its ability to workwith local champions for reform and to understandthe country’s political economy context.

Countries and regions vary widely on their reform sta-tus. When assessing PSDE outcomes, a key ques-tion to answer is where developing countriesstand on power reforms. An independent as-sessment of reform achievements in 115 countries,prepared in 1999 by the Bank’s Energy SectorManagement Assistance Program (ESMAP), ex-amined this question (ESMAP 1999).2 The as-sessment (hereafter “the Scorecard”) indicateseach country’s overall reform status and, whereapplicable, the impacts directly attributable tothe WBG (as in many LAC countries, the WBGoften became involved only after reforms hadbeen initiated by the country). Without implyingcausality, countries with WBG involvement tendto be associated with higher scores for reform inthe Scorecard, while countries without WBG in-volvement tend to have low reform scores. IFC,for example, considers engaging only when acountry has opened its power sector to private in-volvement, and does not come in to specificallylaunch reforms. This also explains why the WBG


1 5

C o u n t r i e s i n E a c h R e g i o n T a k i n g K e yR e f o r m S t e p s i n P o w e r ( p e r c e n t a g e )

F i g u r e 3 . 3

0

20

40

60

80

100

120

% of countries in each region

Note: Number of Countries Surveyed in Each region (LAC=19; EAP=11; SAR=5; ECA=37; AFR=71; MNA=11).Source: Robert Bacon, "A Scorecard for Energy Reform in Development Countries", Viewpoint No. 175. World Bank, April 1999.

Corporatization Law Regulator Independent power

producers

Restructuring General assets

divested

Distribution assets

divested

LAC

EAP

SAR

ECA

AFR

MNA

is most present in LAC, which has been most ac-tive in all the reform areas (Figure 3.3).

Based on stated PSDE objectives in projectdocuments and on the most recently availableregional energy strategies, the following sectiondiscusses the degree of reforms pursued in eachof the Bank’s regions. AFR, ECA, and MNA rep-resent the “basic” reform group of countries, andEAP, LAC, and SAR the “intermediate” and “ad-vanced” reform group. AFR, EAP, and ECA have theheaviest emphasis on commercialization. As seenfrom Figure 3.3, LAC and ECA emphasized cor-poratization. By a large degree, LAC’s reformshad the strongest legal and regulatory focus com-pared to the other regions. LAC, EAP, and SAR in-volved the most IPPs, with the other three regionsfar behind. LAC also led in power industry re-structuring and asset divestiture. SAR’s PSDE re-form agenda is the most evenly distributed acrossall the reform areas, with India alone accountingfor more than half of the PSDE-related actions,when tabulated at the project level. ECA had themost PSDE-related projects, followed by EAP. InAFR, many countries have only one project witha small PSDE component. While LAC and SARhave relatively low numbers (25 and 20 projects,respectively, out of the 154 reviewed) this may bemisleading, since these lending operations werereform-intensive, and these are the regions wherethe Bank, IFC, and MIGA were all present.

(i) Regions with mostly Bank involvement only(AFR, MNA, ECA)

In AFR, the Bank pursued mainly basic reforms(commercialization and corporatization, and someregulatory improvements) and promoted Per-

formance Management Contracts, most of whichdid not work well (see Box 3.1). PSDE achieve-ments are few, and the challenges remain con-siderable. Most AFR countries have low access toelectricity, lack financial resources for system ex-pansion, and have inefficient management, oftenresulting in substantial losses to governmentbudgets. OED’s portfolio review shows that thepositive outcomes were only achieved late in the1990s.3 For these few countries,4 macroeconomicinstability, serious delays, or partial and unbal-anced reforms have put the PSDE gains at risk. Inothers, the PSDE-related achievements have beencancelled out by negative project outcomes.5 Ad-justment operations have not been effective ve-hicles for PSDE reform. Finally, in some countriesthe results of Bank interventions remain to beseen, or are clearly unsatisfactory (Angola, Bu-rundi, the Democratic Republic of Congo, Guinea,Madagascar, Mali, and Zambia).

The clear exception in AFR is Côte d’Ivoire,where the Bank played a catalytic role in the gov-ernment’s bold decision, in the mid-1990s, to callin a private operator to take over management ofthe power sector and expand private sector par-ticipation in electric power generation. The Bankfacilitated the most important reform in the sec-tor, the creation of the privately owned utilityCIE (Compagnie Ivorienne d’Electricité). By mid-1990, when the release of the second tranche ofthe Energy Sector Adjustment Loan was due, theBank informed the government that no financialrestructuring of the power sector could succeedwithout a change in management and recom-mended that EECI (the public utility) be placedunder financial trusteeship to implement majorreforms. The clear signal from the Bank that therewould be no tranche release without convincingmeasures led to the government’s bold decisionto call in a private operator to take over manage-ment of the power sector. The Bank was kept in-formed, but not directly involved, in the detailsof the design of the new institutional and finan-cial arrangements, and did not review the mem-orandum of understanding before it was signed.The contract with CIE runs until 2005 and effec-tively narrows the range of PSDE objectives thatcould be pursued. Nonetheless, the Bank con-tinued an intensive and sustained policy dialogue

1 6


Region Overall PSDE Status

AFR PSDE achievements are few, recent, and at risk

MNA PSDE efforts are just being initiated

ECA PSDE progress has shown mixed results and sustainability is

uncertain

LAC Most advanced in PSDE; power sector transformations have

been most profound

EAP PSDE progress is threatened by financial and political risks

SAR Innovative and intensive PSDE reforms are at risk of backsliding

with the government, has supported a majorstudy of the institutional arrangements for thepower sector, and has advised heavily on key de-cisions for a new sector setup (see also Box 4.1).

In MNA, the WBG presence was limited interms of direct lending during the 1990s, andmost countries have initiated power sector re-forms only in the last two years. The region stillhas a long way to go, in particular with respect tocreating investment climates conducive to pri-vate sector investment. The Bank’s role in pro-moting these changes has been mainly to sponsoror supervise preparatory studies for reforms andprivate sector participation funded by otherdonors or trust funds. Further restructuring stud-ies are in various stages of completion or are be-ginning to be implemented (Morocco, Lebanon,Yemen, and Tunisia). Jordan, Algeria, and Lebanonhave adopted new electricity laws that provide forcorporatization and the establishment of a regu-latory body. Egypt has created a holding com-pany with corporate subsidiaries and hasestablished a regulatory agency. Egypt, Morocco,West Bank Gaza, and Tunisia have IPPs in opera-tion. Jordan, which has had a locally privatelyowned, integrated distribution company for manyyears has fully unbundled its generation, trans-mission, and distribution sectors and is preparingto privatize the remaining entities. In Morocco,about 50 percent of distribution is operatedthrough private concessions.

In ECA, PSDE progress overall has shown mixedresults, with about half of ECA countries meeting

their reform targets. The remainder have eitherfailed to implement reforms, are initiating themafter conflict (Southeast Europe), or are unde-cided as to what reforms to carry out (Belarus andsome Central Asian countries). The Central Eu-ropean and Baltic countries saw profound changesin the structure, regulation, and ownership oftheir power sectors during the 1990s, often in con-nection with the larger shift toward competitionin the expectation of interconnecting with Euro-pean electricity markets for wholesale trading.This contrasts with the situation of countries be-longing to the post-Soviet Commonwealth of In-dependent States, where weak institutionalcapacity has constrained the setting of effectiveand independent regulation (Von Hirschhausenand Optiz 2001). Some countries additionallyhave fallen behind as a result of war and civil un-rest and the attendant destruction of physical fa-cilities and deterioration of institutional capabilities(Albania, Armenia, Bosnia, Croatia, Georgia, andformer Yugoslav Republic of Macedonia). Recentplans for accession to the European Union haveprovided an impetus for sector reforms in Bulgaria,Cyprus, Estonia, Latvia, Lithuania, Malta, Poland,and Romania, and these countries are showingstronger regulatory performance, improved tar-iff setting, and openness to market competition.

The Bank has supported the most ambitiousPSDE reforms in Armenia, Hungary, Poland, andRomania. These countries have proceeded withunbundling, establishing a functioning arm’s-length regulatory system, introducing private sec-


1 7

In line with the 1993 Electric Power Lending Policy, many Sub-Saharan African countries used Performance Management Con-tracts with Bank support, but with disappointing results. Therehave been eight management contracts in the AFR region (Benin,the Democratic Republic of Congo, Ghana, Mali, Rwanda, SierraLeone, and Zimbabwe). The performance-related components inthese contracts were so small that service providers took littlerisk. The partial management contract for Ghana (billing and col-lection only) was the only one that produced positive results, butthese were not sustainable. The experience in Bolivia shows thatthe Bank’s initial support for performance contracts failed to im-

prove efficiency, as they did not systematically address thestructural problems of the enterprises. In the Lao People’s De-mocratic Republic, the performance contract between the Laot-ian Finance Ministry and Electricité du Laos failed to eliminatereceivables from government agencies. The major difficultywith management contracts lies in demarcating responsibilitiesbetween owner and manager, and the need for the full supportfor the arrangement of owners and workers. The main lessonsare the need for the operator’s financial stake in the operationof the utility, the autonomy of the operator, and the government’scommitment to the reforms.

P e r f o r m a n c e M a n a g e m e n t C o n t r a c t s W e r eM o s t l y U n s u c c e s s f u l

B o x 3 . 1

tor participation, and improving sector financialperformance. Poland, which received extensive an-alytical and advisory support from ESMAP, providesa good model for an effective approach to PSDE,first reforming energy prices and establishing anappropriate regulatory framework, then restruc-turing the industry and finally privatizing. Thefunctioning of a competitive market via a newlycreated spot market has been hampered in Polandby the dominance of long-term Power PurchaseAgreements, however. Contrary to Bank advice,these PPAs were entered into with the transmis-sion company to finance the modernization ofpower plants. Hungary, in contrast, pursued pri-vate investment as the driving force for modern-ization. With Bank assistance, the country hasprivatized all of its generation and transmissioncompanies.

(ii) Regions with Bank, IFC, and MIGAinvolvement (LAC, EAP, SAR)The LAC, EAP, and SAR regions show a more com-plex picture of PSDE progress and of WBG in-volvement throughout the 1990s. Majordifferences include greater progress toward pri-vate sector participation and investment in thepower sector; higher volumes of private capitalflows (prior to the 1997 financial crisis); andbroader involvement of Bank, IFC, and MIGAthrough a variety of instruments (lending, partialrisk guarantees, political risk guarantees, IFC in-vestments, and B loans).

Power sector transformation has been mostprofound in LAC. While problems remain in manyof the region’s countries, in large part because ofthe difficult external environment, the reformshave progressed beyond the point of no returnand sustainability is more likely.

In addition to the well-known successes of Ar-gentina (prior to the current political and eco-nomic crises),6 Brazil,7 and Chile, achievementsin most other LAC countries—notably Bolivia,Colombia, El Salvador, Guatemala, Panama, andPeru—are also well advanced. Achievements re-lated to Bank-financed projects include thestrengthening of PSDE-related legislation8 andregulatory regimes,9 unbundling,10 private sec-tor participation,11 and the building of competi-

tive markets.12 Private participation in power hasincreased significantly: in Colombia, it rose to 56percent in generation in 2001, compared to 25 per-cent in 1996; in Guatemala, 60 percent of in-stalled capacity and 90 percent of distribution isprivate. As sector reforms deepen, sector per-formance continues to improve in Bolivia, Panama,and Peru. Consistent increases in electricity tar-iffs and improvements in billing collection havestrengthened the financial performance of thesector. Significant progress has been made in de-veloping competitive power markets. Some coun-tries with small power markets, such as Bolivia,have opted for competition in generation, break-ing with the conventional wisdom that its marketis too small.

In EAP, PSDE progress is threatened by finan-cial crisis and political risks. EAP has had heavyWBG involvement, particularly by the Bank, whichcovered the entire range of PSDE objectives andreform steps for most EAP countries. The WBG’ssupport for PSDE in EAP was successful in layingthe foundations for power sector restructuring,unbundling power companies, and promotingprivate ownership, mainly through IPPs. By 1997,EAP had the largest private power investmentsglobally, valued at US$50 billion and concentratedin five countries (China, Indonesia, Malaysia, thePhilippines, and Thailand). The Asian financialcrisis had a huge impact on the sector, however:the demand for electricity fell below official pro-jections and IPPs were underutilized and dis-patched below optimum levels, leadinggovernments to ask the IPPs to share the burdenof depressed demand through the reduction ofcontractually agreed fees. Moving to a multi-buyermarket structure remains a major task given thatthe process is complex and takes time. At this junc-ture, market structure, particularly regarding therole of competition, remains a major issue in theregion, as the reform agenda is highly politicizedand has been slowed by continuing strong op-position from entrenched interest groups.

In SAR, innovative and intensive PSDE reformsare at risk of backsliding. All countries (exceptBhutan and the Maldives) have moved to en-courage all areas of sector reform and privateparticipation, but their achievements up to 1999

1 8


fell short of the objectives. The Bank’s involvementhas been most extensive in India and Pakistan,where it supported eight PSDE-related projects ineach country throughout the 1990s. The Bank sup-ported on-lending mechanisms for promotingprivate power in Bangladesh, Pakistan, and SriLanka. In Bangladesh, this has recently been usedto finance a private power plant. In Pakistan, theEnergy Fund was used to finance one very largetransaction, the 1,292MW Hub Power subproject,and other smaller ones.13 While Pakistan createdthe institutional capacity to approve IPPs, its pub-lic utility (WAPDA) did not develop the institutionalcapacity to manage its new commercial contracts.With Bank support, the government establishedthe criteria for private participation in genera-tion and readily approved IPP proposals that metthe criteria. This resulted in an unbalanced de-mand and supply situation. Because of poor T&Dinfrastructure and/or plant location, some IPPs arerunning below optimal levels. Some parts of thecountry continue to experience rolling black-outs and less than 50 percent of the populationhas access to electricity. This imbalance puts a se-vere financial strain on WAPDA’s resources. InSAR (as in EAP), the large role given to IPPs hasallowed for increased supply, but deep-seatedsectoral problems (such as weak institutional ca-pacity and lagging T&D reforms) continue to bea burden and could dilute the gains achieved bythe reforms.

IFC: Supporting Private Investments inElectric Power GenerationIFC’s power sector strategy in the 1990s was an-chored on four themes: (i) financing financially,economically, and environmentally viable inde-pendent power producers (IPPs) and newly pri-vatized and existing generation, transmission,and distribution companies; (ii) providing advisoryservices for the privatization of generation, trans-mission, and distribution companies; (iii) devel-oping and implementing financing structures thathelp increase the opportunities for privatizationand private investments; and (iv) on its own andin partnership with the Global Environment Fa-cility (GEF), pursuing renewable energy and en-

ergy efficiency initiatives. Over the 1990s, IFC’spower sector operations have become an im-portant component of the WBG’s PSDE financing.These operations have included:

• 57 electric power projects (of which 29 aremature and were evaluated for this study; theseprojects are the source of evaluative findingson IFC’s PSDE operations);

• 33 advisory operations (13 standalone and 20Technical Assistance Trust Funds, listed in An-nexes F and G); and

• seven IFC-managed GEF operations (listed inAnnex H, Attachment H.2).

IFC approvals soared during the 1990s. From incep-tion through FY89, IFC’s gross approvals in thepower sector amounted to US$176.9 million, ac-counting for 1.5 percent of IFC’s cumulativegross approvals. By FY99, driven by the upbeatmarket sentiment and the tremendous oppor-tunities for private financing in the power sector,that figure had grown to US$4.54 billion, or 7.5percent of IFC’s total approvals. Figure 3.4 showsthat IFC’s investment approvals in power jumpedin 1993 and stayed high relative to the FY90–92period, while average investment size remainedvirtually unchanged. In the 1990s, IFC approved57 projects with project costs worth US$14.4 bil-lion in 27 countries, compared to seven projectswith total project cost of US$903 million in fourcountries in the previous three decades (seeAnnex I for a list of IFC approvals in power fromFY90). As of FY99, a total of US$2.5 billion of thecumulative approvals was for the accounts of par-ticipant banks through the IFC B loan program.As of FY99, every dollar of direct IFC loan fi-nancing in power raised an average of US$1.60 fi-nancing from B loan participants, compared to thecorporate performance of US$1.04 for every dol-lar. While IFC pursued its strategy of increasingpower sector support, annual commitmentslagged behind approvals—especially after 1995,due to major projects being dropped and can-celled when reforms hit a snag or negotiations fellthrough. The situation was further exacerbated bythe Asian financial crisis, which dampened power


1 9

demand growth and the international financialcommunity’s appetite for investments in emerg-ing markets.

Most IFC power projects were in generation. Eighty-two percent of net investment commitments byfunding were in power generation, mirroring theshare of generation projects of total global foreigndirect investment in power in the 1990s. Invest-ments in electric power T&D have been relatively

small, largely due to the slower opening of thesesubsectors to private participation. Other invest-ment commitments were in power sector fundsand energy services companies. Early indicationsof trends beyond the 1990s suggest that IFC ef-forts in T&D have expanded. Of 18 approvedprojects, nine are in the T&D subsector. In termsof IFC funding, 40 percent of investment com-mitments were made in T&D, compared to 12 per-cent in the 1990s.

2 0


I F C ’ s I n v e s t m e n t O p e r a t i o n s i n t h e E l e c t r i cP o w e r S e c t o r P e a k e d i n t h e 1 9 9 0 s . . .

F i g u r e 3 . 4 a

… B u t F u n d i n g C o m m i t m e n t s W e r e S l o w e rF i g u r e 3 . 4 b

Net approval in $US millions No. of projects350

300

250

200

250

100

50

0

10

9

8

7

6

5

4

3

2

1FY90 FY91 FY92 FY93 FY95 FY96 FY97 FY98 FY99 FY00 FY01FY94

Generation Transmission and distribution Others

Average investment size ($US millions)

Electric power project approvals FY1990–01

350

300

250

200

250

100

50

0

10

9

8

7

6

5

4

3

2

1FY90 FY91 FY92 FY93 FY95 FY96 FY97 FY98 FY99 FY00 FY01FY94

Generation Transmission and distribution Others

Net approval in $US millions No. of projects

Average investment size ($US millions)

Electric power commitments FY 1990–01

IFC investments have been concentrated in Asia andLatin America. In the 1990s, East and South Asia (43percent of projects and 50 percent of funding) andLatin America (36 percent of projects and 29 per-cent of funding) accounted for the bulk of IFC’sinvestment commitments in power (Figure 3.5).In Asia, IFC committed US$524 million of directinvestments in 18 projects with a total cost ofUS$7.7 billion. Greenfield IPPs with pioneeringstructures (such as build–operate–transfer andbuild–own–operate) dominated power projectsin Asia. Investments in Asia are heavily weightedtoward India, Pakistan, and the Philippines insupport of their decisions to turn to the privatesector to help meet growing power demand. LatinAmerica investments were a mix of IPPs, post-privatization capital expenditure, expansion ofdistribution, and private equity funds for thepower sector. Argentina, one of the more ad-vanced developing country power reformers, washost to 14 percent of IFC funding commitmentsin Latin America, and second only to Chile (24 per-cent). Guatemalan projects were also a big re-cipient of IFC financing, accounting for 13 percentof the regional total.

Nearly two of every five investments went to low-in-come countries. During FY90– FY99, about 40 per-cent of investment commitments (in dollar terms)were made in countries classified as low-incomeat the time of investment approval. This representsa higher concentration of investments in low-in-come countries than IFC’s overall record of about25 percent. By contrast, only 20 percent of com-mitments were made in upper-middle-incomecountries.

After making substantial investment commit-ments in countries that were experiencing an en-ergy crisis, such as the Philippines and Pakistan,IFC resumed a more regular pace of investment.Commitments were made in countries new toprivate sector participation in power (Bangladesh,Czech Republic, Nepal, and Russia) and in newstructures (regional and global power equityfunds) and new subsectors (renewable energyand energy service companies).

IFC pursued transmission and distribution projects.As the generation subsector advanced in pio-neering power markets, IFC made a strategic de-cision in 1997/98 to step up its support for


2 1

I F C I n v e s t m e n t C o m m i t m e n t s i n t h e 1 9 9 0 sW e n t M o s t l y t o A s i a a n d L A C

F i g u r e 3 . 5

Asia50%

LAC29%

World2%

MENA2%

SSA6%

ECA11%

transmission and distribution. The results of theseefforts became visible in 1999. In FY00 and FY01,40 percent of investment commitments weremade in T&D, compared to 12 percent in the1990s. Projects in the generation subsectornonetheless still dominated IFC’s approvals andcommitments. The private sector proved less en-thusiastic toward transmission and distribution,continuing instead its focus on IPPs and taking ad-vantage of the availability of commercial financ-ing for this subsector. Opportunities also werelimited because T&D was slow to be opened upto private participation, largely because countriescontinued to give priority to the generation sub-sector.

IFC’s overall electric power sector portfolio performedbetter than average. While IFC’s overall electricpower portfolio performed profitably throughoutthe review period, there were signs of declinetoward the end of the decade. Until FY96, IFC’sloan and equity portfolio in the electric power sec-tor was spotless. There had been no write-offs orloss reserves and the loan collection rate was 100percent. This made it one of the better perform-ing sectoral loan portfolios. By 1997, IFC’s loanportfolio started to have its share of poor per-formers, with the provisioning of seven invest-ments, five of which were provisioned because ofthe deteriorating financial condition of the state-owned utility. The loan–loss reserve in power inFY97, however, was significantly less than the lossreserve for all of IFC’s disbursed portfolio. Loanyield after provisioning stayed generally in line withthe performance of IFC’s overall portfolio.

Equity investments similarly were more suc-cessful than IFC’s overall portfolio. The estimatedportfolio equity internal rate of return (IRR) hadstayed significantly above IFC’s all-sector equityIRR, but was less than the all-infrastructure sec-tor return. In FY97, dividend yield was slightlylower than for the overall IFC portfolio, largely dueto the relatively young age of the portfolio. ByFY99, the dividend yield in IFC’s power sector in-vestments was outperforming IFC’s overall port-folio, reflecting the cash contribution profile ofbuild–operate–transfer (BOT) projects.

The loan and equity risk ratings14 at the end ofFY99 reflected the negative impacts on IFC’s elec-

tric power portfolio of stalled sector reforms, in-creased country risk, and project implementa-tion issues. Loans were provisioned largelybecause of country and sector issues and not dueto poor project performance. Thanks to gooddeal structuring, the companies that undertookthese projects remained current with their loanobligations to IFC. Only one loan, a relativelysmall project that had serious technical and man-agement problems at implementation, was rateddoubtful. By FY01 overall loan and equity per-formance had slipped further, but it remainedbetter than IFC’s all-sector performance.

Development OutcomesThe development outcome of an IFC project is itsimpact on a country’s development, based on asynthesis of the following five performance indi-cators: (i) project business success, (ii) impact onprivate sector development, (iii) contribution toeconomic growth, (iv) impact on living standards,and (v) environmental/social effects. Annex Jshows the basis for rating each indicator. The dis-cussion in this section is based on the evaluationfindings on all 29 mature projects in the 1990s.Annex K shows the performance ratings for eachindicator for these projects; Annex L presents ananalysis of the five development outcome indi-cators. The development outcome of IFC opera-tions is based on project-level results, and allthese projects are aimed at the specific WBG re-form objective of supporting private sector par-ticipation in power.

IFC investment operations in electric power have bet-ter development and investment outcomes than the restof IFC’s portfolio. The quality of IFC’s work in the elec-tric power sector is also better. Twenty-five of the 29evaluated projects (86 percent) have good de-velopment outcomes. This compares with a 64percent success rate for IFC’s all-sector portfolio,based on a random sample of the 1991–95 net ap-provals population evaluated during the1996–2000 XPSR cycle. This is consistent with theFY01 Annual Review of IFC’s Evaluation Findings(OEG/IFC 2002), which found that operations ininfrastructure, including utilities, have better de-velopment results than overall IFC operations.Four of the 29 (14 percent) IFC investment op-

2 2


erations in power had less than satisfactory de-velopment outcomes. Two projects encounteredtechnical problems at implementation that re-sulted in delays and cost overruns that could notbe recovered from the tariff level agreed at entry.One project suffered from poor hydrology con-ditions, and as a result the offtaker had to paymore for power per kilowatt-hour. One projectwas poorly structured, giving the owners poor re-turns despite the relatively successful power plantoperations. Figure 3.6 shows the relative per-formance of the electric power sector in devel-opment outcome, investment outcome, and IFCeffectiveness.

Appropriately structured electric power projects cansucceed in different stages of sector reform. Two-thirds (19) of the evaluated projects are in coun-tries that have taken four or more of the sevensteps that the WBG considers important in liber-alizing the sector, as identified in the ESMAPScorecard (ESMAP 1999). Eighteen of these proj-

ects had good development outcomes. Six otherprojects are in countries that have taken three orfewer steps toward sector liberalization. Theseprojects had robust structures to compensate forthe riskier regulatory environment. Only one ofthese six projects had a low development out-come, and this was because of technical and man-agement problems rather than sector issues. Twoprojects are in countries that were not includedin the Scorecard; two others are multi-country op-erations and therefore could not be categorizedas belonging to any specific country.

Private sector participation responds to sector re-forms. The generation subsector is often the firstand easiest of the electric power sector to openfor private participation. All IFC projects in coun-tries in the early stages of reform are in genera-tion; projects in reform-advanced countries are ingeneration, transmission, and distribution. Threetransmission and distribution projects in twocountries have good development results largely


2 3

I F C ’ s E l e c t r i c P o w e r S e c t o r O p e r a t i o n sH a v e B e t t e r O u t c o m e s t h a n t h e R e s t o f i t sP o r t f o l i o

F i g u r e 3 . 6

Success rates of evaluated electric power projects vs. all evaluated IFC projects

Electric power (29) All IFC (249)

Development

outcome

Projec

t busi

ness

succes

s

Privat

e sect

or

devel

opmen

t

Growth

of

Econo

my

Living

stan

dards

Envir

onmen

tal

impa

cts

IFC's

investm

ent

outcome

IFCs e

ffectiv

eness

Screen

ing, a

pprai

sal,

struct

uring

Superv

ision a

nd

admini

strati

on

Role an

d con

tributi

on

100

90

80

70

60

50

40

30

20

10

0

because they reduced T&D losses, increased ac-cess, and improved operating efficiencies. Threegeneration projects that sell electricity directlyto private distribution companies and large in-dustrial users in two other countries have positivedevelopment outcomes mainly due to strong de-mand and the use of appropriate technology.Three other generation projects were imple-mented by integrated utilities, with mixed results.

IFC electric power projects have good devel-opment outcomes for three reasons: First, elec-tric power is a critical basic input for all industriesand therefore has wide-reaching impacts on theeconomy. When electric power is in short supply,industrial production commitments are not met,efficiencies drop, jobs are cut, export marketsare lost, and, in extreme cases, companies shutdown. The cost of inadequate or inefficient elec-tric power supply can be crippling for an economy.In the Philippines (where IFC supported threeIPPs in the 1990s), power shortages led to 400,000job cuts and annual losses to the economy ofabout US$1 billion, or 2 percent of gross domes-tic product (GDP), based on a 1992 World Bankestimate. The economic rate of return (ERR15) ofall financially successful IFC power projects thathave been evaluated is satisfactory or better.16

The contribution of IFC’s power projects to eco-nomic growth as measured by ERR is greater thanthe rest of IFC’s portfolio. The median ERR of allevaluated IFC electric power projects is 14.6 per-cent, compared to 12.0 percent for IFC’s nonfi-nancial sector portfolio, evaluated from 1996 to2000. Based on the evaluation findings of IFCprojects, prior to the addition of the capacitybuilt by the IFC-supported projects, end users paidmore during power shortages for electricity or itsalternatives and would have likely continued todo so. End users with the means to do so in-stalled their own electric power generators, andthose who did not turned to alternative energysources for their lighting and power needs. Inboth cases, the cost incurred was higher thanthat paid for electricity from the grid. In Turkey,industrial customers of an IFC-financed electricpower plant value the electricity they buy from theIFC project at about 40 percent more than whatthey pay.17 This is based on the cost for generat-ing their own electricity and the cost of business

interruption associated with unstable electricpower supply.

Second, 21 of the 29 evaluated projects areearly entrants, or have innovative structures, andtherefore have strong demonstration effects. Eigh-teen of these 21 projects (86 percent) have pos-itive development outcomes. These havedemonstrated to policymakers and potential in-vestors that private sector participation in electricpower can be mutually beneficial to the countryand to the financier. IFC-supported private sec-tor transactions have provided the public sectorwith a good learning experience in the dynamicsand constraints of private sector power invest-ments. BOT (build–operate–transfer) contractshave evolved over time and established trans-parent transactions and costs, revealing the fulllong-run commercial cost of electricity generationto policymakers and regulatory agencies. Theearly success of pioneering investments attractedmultiple proposals and bidders, and this has ledto lower costs as developers and equipment sup-pliers have reduced their prices consistent withtheir assessment of each project’s risk/rewardprofile. Given the subsequent entry of additionalIPPs, 13 out of the 18 IFC-financed pioneering IPPsamong the evaluated projects are not the solesource of electric power supply from the privatesector. Of these 18 IPPs, 12 have been operatingat or above contracted capacity. The others, al-though designed as base load plants, have beenoperated as reserve or peaking capacity.

Third, risks were allocated to those partiesbest equipped to handle them. This was done attwo levels: between the public and the private sec-tors, and among the private sector participants.The risks that the private sector could not con-trol or manage (such as offtake volume, tariff ad-justment, and long-term viability of state-ownedutilities) under the prevailing regulatory envi-ronment remained with the public sector. In gen-eration projects where the single offtaker isstate-owned, the private sector carried the risksassociated with project development, financialclosure, construction and completion, opera-tions and maintenance, and country/political un-certainty. Where feasible, project sponsorsallocated these risks contractually among theprivate sector participants. By and large, market,

2 4


offtaker credit, logistical infrastructure, and fuelsupply risks remained with the public sector. Ab-sent private participation, the public sector wouldhave been obliged to assume all the risks and thefinancial burden associated with the projects, or the projects otherwise would not have goneforward.

Investment outcomesThe outcome of IFC investments is based on a syn-thesis rating of two investment instruments: loan(repayment performance and prospects relativeto expectations) and equity (dividend perform-ance and exit value relative to cost). Loans in ar-rears, as well as loan and equity investments withloss reserves, are rated less than satisfactory. Whenloan and equity have different ratings, investmentoutcome is based on the weighted average returnon the combined investments. Twenty-one (72percent) of IFC’s investments in electric powerhave good outcomes compared to 55 percent forIFC’s all-sector portfolio. Of the 21 investmentswith a satisfactory or better outcome, 18 weredriven by the projects’ financial success. Three in-vestments did reasonably well despite poor proj-ect business success, due to good loan and equitystructuring.18

The heavy concentration of electric power sec-tor investments in a few countries adversely af-fected overall sector performance. Four of theless-than-satisfactory investments are in a singlecountry19 that is plagued by a foreign exchangeshortage, stalled sector reform, an almost insol-vent state-owned utility, a slowing economy, andallegations of corruption. In addition, this coun-try’s sovereign risk rating dropped, and it is nowconsidered a high risk. Three of the four projectsremain reasonably, but not strongly, financiallysound. One project has a less-than-satisfactoryreturn to investors relative to their weighted av-erage cost of capital. All four continue to havegood development outcomes, albeit marginally.While all these projects were originally structuredas base load plants, three have been operated atlow dispatch levels, similar to peak load plants.OEG estimates that the economic value of an as-sured peak load capacity is at least equal to ca-pacity charges under the power purchasecontracts.

Good development outcomes in electric powerare associated with good investment outcomes(Figure 3.7), consistent with the findings of theOEG Annual Review of Evaluation Findings forFY00 and FY01 (OEG/IFC 2001 and 2002).


2 5

G o o d D e v e l o p m e n t O u t c o m e s i n E l e c t r i cP o w e r A r e A s s o c i a t e d w i t h G o o dI n v e s t m e n t O u t c o m e s

F i g u r e 3 . 7

De

velo

pm

en

t O

utc

om

e

HIG

H

Investment Outcome

HIGH

45%1

19%

2

10%3

26%

4

High development

outcome

High return

Low development

outcome

High return

Low development

outcome

Low return

High development

outcome

Low return

LOW

LO

W

De

velo

pm

en

t O

utc

om

e

HIG

H

Investment Outcome

HIGH

45%1

19%

2

10%3

26%

4

High development

outcome

High return

Low development

outcome

High return

Low development

outcome

Low return

High development

outcome

Low return

LOW

LO

W

De

velo

pm

en

t O

utc

om

e

HIG

H

Investment Outcome

HIGH

65%1

21%

2

7%3

7%

4

High development

outcome

High return

Low development

outcome

High return

Low development

outcome

Low return

High development

outcome

Low return

LOW

LO

W

De

velo

pm

en

t O

utc

om

e

HIG

H

Investment Outcome

HIGH

65%1

21%

2

7%3

7%

4

High development

outcome

High return

Low development

outcome

High return

Low development

outcome

Low return

High development

outcome

Low return

LOW

LO

W

Electric Power Sector All Sectors

The proportion of win-win outcomes—thatis, good development and investment outcomes—(box 1 in Figure 3.7) is significantly higher in elec-tric power, where 65 percent of evaluated projectsfall in this category compared to 45 percent inIFC’s all-sector portfolio, based on a representa-tive sample of FY91–95 approvals. In addition,the proportion of lose-lose outcomes (box 4) issignificantly lower in the evaluated electric powerprojects. This better win-win versus lose-lose pro-file of electric power projects results from a com-bination of generally good execution and riskcontainment through contractual structuring. Asa result, the odds are better in electric powerthat the private sector will generate good devel-opment and financial outcomes even in a difficultregulatory environment. Like other infrastruc-ture projects, electric power projects have far-reaching development impacts, are highly capitalintensive, and entail huge cost and financing re-quirements. Good financial structuring and con-tractual risk allocation enable electric powerprojects to attract the required large amount oflong-term financing from many sources that isneeded to complete the financing plan such thatthe project may proceed successfully and even-tually pay its debts—as well as compensate itsowners appropriately for their risks.

Society at large has a better chance of realiz-ing positive gains from electric power projects thando the project financiers: 86 percent (the sum ofboxes 1 and 2 in Figure 3.7) of electric powerprojects have good development outcomes com-pared to 72 percent (sum of boxes 1 and 3) thathave good investment outcomes. In other words,there is a 14 percentage point better success ratein development outcomes than investment out-comes in electric power. This pattern is the samein IFC’s all-sector portfolio, but to a lesser ex-tent: 64 percent good development outcomescompared to 55 percent good investment out-comes.

Even with the necessary risk mitigation throughcontractual structuring, electric power projects arenot immune to commercial and business risks.The fact that 28 percent of electric power projects(boxes 2 and 4 in Figure 3.7) gave IFC poor in-vestment returns indicates that there is no suchthing as guaranteed returns in electric power. It

is also important to note that the chances ofachieving a high investment outcome with a lowdevelopment outcome (box 3) are not signifi-cantly different in the electric power sector thanin all other sectors.

IFC Effectiveness

The quality of IFC’s work in the electric power sectoris better than IFC’s all-sector average. Operational ef-fectiveness is based on a synthesis of three indi-cators: (i) screening, appraisal, and structuring; (ii)supervision and administration; and (iii) role andcontribution. IFC’s operational effectiveness in theelectric power sector has been satisfactory or bet-ter in 79 percent of its investment operations,compared to its all-sector performance of 62 per-cent. A comparison of the effectiveness of IFC In-vestment Departments, based on a representativerandom sample for all-sector FY91–95 approvals,shows that industry departments performed bet-ter than their regional counterparts. Like all in-dustry departments, the centralization ofknowledge and resources in the IFC Power De-partment (CPW) facilitated smoother knowledgesharing across electric power subsectors and ge-ographical regions. This specialization provedcrucial for learning from experience in structur-ing BOT-related contractual arrangements, whichwhile broadly similar are significantly different indetailed terms and conditions.

IFC has done well at appraisal in ensuring thatthe contractual arrangements are structured suchthat they support the allocation of risks among theparties best equipped to handle them, and alsoprotect the lenders. This was instrumental and anessential condition for getting these capital-in-tensive projects financed and enabling the real-ization of their far-reaching positive developmentimpacts. However, appraisal of some of the earlier generation projects placed near total re-liance for credit viability on the strength of the con-tractual arrangements, such as the Power PurchaseAgreement, Energy Conservation Agreement, andFuel Supply Agreement. As a result, this did notsufficiently address the project’s long-term dis-patch competitiveness, the state utility’s timelyprovision of needed transmission capacity, theutility’s long-term financial sustainability, the elec-

2 6


tricity supply/demand balance, nor tariff reforms.A number of early projects were not subject to therigorous market tests20 that are undertaken todayat appraisal. Overall, the contracts were fair andreasonable at appraisal, especially at a time of se-vere power shortages, unproven contractual in-tegrity, and unclear regulatory environments.However, these contracts run for 15 years ormore, and many unforeseen market and politicaldevelopments could occur over such an extendedperiod. Subsequent generation projects werepriced lower and passed more risks to the proj-ect companies as developers and equipment sup-pliers competed against each other forconcessions. These new facilities made the pio-neering projects appear relatively expensive, es-pecially when dispatched at less-than-plannedlevels due to lower-than-expected demand. Newgovernment administrations often targeted high-profile, foreign-owned projects, such as largeBOTs, when looking for corruption due to previ-ous administrations. For these reasons, manypublic sector offtakers insisted on renegotiatingIPP agreements once the financing had been dis-bursed. In the operation phase, and case by case,some project sponsors and their utility/govern-ment ministry counterpart have come up with mu-tually acceptable solutions, such as lowering thetariff but extending the term of the BOT, to adaptthe agreements to evolved realities. Most often,however, the relative bargaining power is reflectedin the fact that owners have suffered the conse-quences of the renegotiations by way of lower-than-expected returns.

IFC did well in the supervision and adminis-tration of its electric power portfolio, as well as inperforming its role and delivering its contribution.Overall, IFC had closely supervised its electricpower portfolio. There were some supervisionlapses, such as client responsiveness and poor in-ternal coordination, but these were limited tothree of the 29 investment operations, and thesehave already been addressed with the creation ofa supervision oversight function in IFC’s PowerDepartment. With respect to IFC role and con-tribution, IFC provided comfort to other finan-ciers in a relatively new sector that many would have not considered without IFC’s par-ticipation. IFC had a less than satisfactory role and

contribution in four of the 29 investment opera-tions. This is largely because it had overestimatedits positive influence/contribution in three of theprojects and had not played its role well in ex-ploring other financing alternatives to one non-IPP project.

MIGA: Mitigating the Political Risk toPrivate InvestorsThrough FY01, MIGA issued 72 guarantees forinvestments in 39 electric power projects in 25countries. The total coverage—US$1.742 billion,representing a total estimated project cost ofUS$10.2 billion—has accounted for 19 percent ofMIGA’s cumulative liability and 21 percent of theestimated total foreign direct investment facili-tated. MIGA’s AAA consisted of electric powersector-related investment analyses and informa-tion dissemination activities under IPANet, Priva-tizationLink, and PrivatizationLink Russia.

After having issued its first guarantee for an elec-tric power project in FY94, MIGA witnessed arapid increase of guarantee activities in that sec-tor during the second half of the 1990s. Initially,MIGA guarantees almost exclusively supportedprojects in electric power generation, a subsectorthat still accounts for the majority of guarantees(32 out of 39 projects and 77 percent in terms ofcontingent liability).21 However, the number oftransmission and distribution projects has grownin recent years (see Annex M): during FY01, threeout of four guarantee projects were in the trans-mission subsector.

MIGA’s outstanding portfolio in the electricpower sector as of June 30, 2001, was US$1,408million (or 27 percent of total outstanding liabil-ities). Of the 72 guarantees signed, 13 (18 percent)have been cancelled by the investors, a substan-tially lower ratio of cancellation than for other sec-tors. This is because most of MIGA’s electric powerprojects are relatively more recent than othercomponents of the portfolio. One contract endedbecause MIGA received and paid a claim duringFY00.22

MIGA guarantees have been heavily concen-trated in the LAC region and, to a lesser extent,in EAP (see Table 3.1). LAC accounted for a max-imum aggregate liability of US$1,239 million (71percent of the total), EAP for US$210 million (12


2 7

percent), and SAR for US$95 million (5 percent).MIGA’s activities in ECA and Africa were small,where it had a share of 5 and 6 percent of the elec-tric power portfolio, respectively.

The regional focus has shifted over time. Whilethere was strong demand for coverage in Asiaduring the 1990s, no guarantees have been is-sued there since FY99; since then, projects inLAC have dominated MIGA’s portfolio. The low de-mand for guarantees in Asia is partly because thefinancial crisis led countries and investors to re-assess the need for new power capacity. The re-gional volatility in guarantee issuance highlightsthe dependence of MIGA on the availability of pri-vate investment opportunities.

On a country level, MIGA has maintained abalanced portfolio. While MIGA supported in-vestments in the 10 developing countries that at-tracted the most foreign direct investment—China(five projects), Brazil (four), and Argentina(three)—it has also succeeded in supporting in-vestments in low-income countries. Of its 39 proj-ects, 19 were located in 12 IDA-eligible countries.23

MIGA’s Operations Evaluation Unit (OEU) hasevaluated eight relatively mature projects under-written in FY95–97, all of them greenfield gener-ation projects. This sample was drawn from theearliest electric power projects in MIGA’s portfo-lio, which were considered mature enough toyield meaningful development impacts.24 Theevaluated sample represents 25 percent of allMIGA-supported generation projects (FY94–01),but only 8.7 percent of the total installed capac-ity. This is due to the small size of the evaluatedprojects (the average capacity of the eight proj-ects is 84MW, compared to an average of all MIGA-supported generation projects of 233MW). Thefindings are thus biased toward smaller-scale proj-ects. Four evaluated projects are in LAC (oneeach in Guatemala and Honduras and two in Ja-maica) and four in SAR (one in Nepal and threein Pakistan). Two projects use renewable energies.Six of the eight projects were visited and evalu-ated by external consultants and the remainingtwo by MIGA staff.

Development OutcomeThe eight evaluated projects have helped allevi-ate power shortages and have contributed both

to improving living standards among the localpopulation and to stimulating downstream eco-nomic activities. Methodological limitations makeit difficult to fully assess these trickle-down effects,but anecdotal evidence of reduced blackouts andsignificantly increased national generation ca-pacities (especially in Honduras, Jamaica, andNepal) point to the generally positive impacts ofthese projects.

These projects also stood out for their demon-stration effects, supporting early entrants in sev-eral countries that recently opened their electricpower markets to private investment and pro-moting innovative project designs and financestructures. In most instances these projects werefollowed by additional private investments in theelectric power sector.

There is evidence that these MIGA projectsefficiently transferred technology and know-how.State-of-the-art technology was installed and con-siderable effort was devoted to training and turn-ing over plant management to local employees.OEU observed that the role of expatriate managersdeclined in importance the longer a project wasin operation. Modern technology also contributedto the higher reliability of electricity provided.However, because all projects had exclusive PowerPurchase Agreements (PPAs) with state powertransmission and distribution companies, spillovereffects—which might have made the power sec-tor as a whole more efficient—were often limitedand depended on the reform-mindedness of thehost country or the state-owned utility.

The financial contributions of the eight proj-ects to government revenues were relatively in-significant, as most projects enjoyed some formof tax holiday during their first years of operation.Long-term PPAs with payment commitments andtariffs indexed to fuel costs or foreign exchangerate movements have a potential for constrainingscarce financial resources in the host country.

MIGA has been involved in countries, such asPakistan and Indonesia (where MIGA paid a US$15million claim), where licenses for IPPs appear tohave been awarded in excess of the actual needsof the country. One project in Pakistan has expe-rienced substantially reduced dispatch rates. In In-donesia, MIGA underwrote a project during 1996and issued a guarantee in February 1997 (before

2 8


the Asian financial crisis) based on the prevailingassumptions on Indonesia’s future energy needs.The claim was directly linked to the reassessmentof these needs in light of the sharp economicdownturn in Indonesia during 1997–98.

The development impact of the project in In-donesia is problematic: the project was clearly afailure in that it did not go forward and the capacityand reliability of power supply consequently didnot improve. (As of 2002, there is a severe lack ofpeaking capacity in East Java.) On the other hand,the cancellation of the project by the govern-ment avoided the further buildup of unneeded ca-pacity and payment commitments resulting fromthe PPA.

EffectivenessOne measure of MIGA’s effectiveness is its abilityto catalyze investment. Investments of US$4.08were facilitated for every dollar of insurance cov-erage issued in the power sector (on a gross basis,before reinsurance). This compares to a MIGA av-erage from a cross-sectoral sample of 52 projectsof US$5.45 per dollar insured. The relative lowermobilization of investment in the power sectorseems to stem from the pioneer status of most ofthe sampled projects and the desire by investorsfor more extensive coverage.

OEU has found evidence that most of the eightevaluated projects depended on political risk in-surance, since all the investments representedfirst or early entrants in their respective hostcountries. Investors are more likely to requirepolitical risk insurance if they are entering a newmarket or country or are pioneering a new busi-ness model (such as IPPs). Furthermore, invest-

ments in power plants involve large sunk costs andrequire close interaction with local authorities fortheir inputs and outputs, and this raises the riskprofile of an investment project. Hence it can beinferred that most of these investments were de-pendent on obtaining MIGA insurance and that thiscoverage was effective in reducing perceived riskson the part of the project sponsors.

In a few instances, MIGA collaborated with IFCin support of electric power projects. Jamaicastands out in particular, as it involved close col-laboration between IBRD, IFC, and MIGA in pro-moting the PSDE reform agenda, each institutionusing its specialized services. This eventually ledto the commercialization of Jamaica’s public util-ity and an increase in generating capacity.

ProfitabilityMIGA has paid one claim in the power sector andhas also conducted mediation activities in thissector to resolve disputes and thereby to avoidother potential claims. In the Indonesian claim,the financial loss to MIGA was limited, and was fur-ther mitigated by prudent use of reinsurance(covering 70 percent of MIGA’s exposure). In themedium term, MIGA expects to fully recoup theclaim loss. MIGA also incurred costs because ofthe high incidence of disputes between power sec-tor investors and local authorities, but the successof mediation activities appears to have justified theuse of additional resources.

In conclusion, while the evaluation of onlyeight projects does not permit robust inferencesabout MIGA-supported power projects, the earlyindications of MIGA performance in the sector arepositive.


2 9

3 1

Sector-Level PSDEOutcomes

Chapter 3 discussed the project-level results of the WBG’s PSDE port-folio. Given the long periods required to reform power sector struc-tures and ownership, however, project achievements are by themselves

insufficient drivers of sectoral outcomes. This chapter discusses these sector-level outcomes, focusing on the Bank’s performance in fulfilling its mandateto promote PSDE through reforms, with support from IFC and MIGA trans-actions. During the 1990s, the Bank was present in 68 countries across six re-gions, pursuing (through diverse instruments, sectors, and advisory work)long-haul reforms and their expected sectorwide benefits. IFC and MIGAwere involved in specific private transactions in generation expansion, IFC in29 countries and MIGA in 25 countries, mainly in LAC and SAR.

Given the lack of systematic, sector-level data col-lection in an increasing number of borrowingcountries (as the sector becomes more frag-mented), the OED assessment of sector outcomesrelied on a combination of (i) the latest Project Sta-tus Reports; (ii) OED’s Evaluation Summariesand Project Performance Assessment Reports;(iii) a task manager survey; (iv) a literature review,including recent research reports posted in theRapid Response Unit website; (v) the 1999 ESMAPpaper on the reform scorecard; and (vi) the ECAstudy on private participation in the power sec-tor (Krishnaswamy and Stuggins 2003). The mainfindings are presented below. Regional distinctionsare first made, followed by a discussion of specificsector outcome indicators.

Evidence presented in this chapter shows thatsector-level outcomes have been more disap-pointing than WBG project-level outcomes, exceptin those countries that have the most advancedreforms. The Bank, pursuing multiple and com-plex reform objectives through a range of in-struments across all regions, achieved good resultswhere strong political commitment and localchampions existed, where the road map to reformwas clear, and where there were early wins. Oth-erwise, where reforms have been weak or slow totake root, the Bank obtained poor or, at best,mixed outcomes. IFC and MIGA, focusing on thesingle reform objective of supporting private sec-tor participation and responding to market de-mand, obtained good outcomes. The WBG

44

underestimated the complexity and time requiredfor reforms to mature and achieve lasting andequitable country and sector outcomes. But whilegood individual private sector project outcomescontribute to sector reform, they cannot by them-selves ensure good sector-level outcomes. Froma different perspective, good private sector proj-ect outcomes are possible at different stages of re-form and are not a sufficient gauge of the WBG’sachievement of its overall PSDE objectives.

At the end of the 1990s, overall progress forpower sector reforms in developing countries(as encapsulated in the seven reform areas) hadclearly fallen short of the expectations that hadbeen set by the WBG’s 1993 Electric Power Lend-ing Policy, its 1996 Good Practice statement, andPSDE promotion as it evolved in practice duringthe 1990s. This resulted from the poor invest-ment climate for attracting private investment inmany low- to middle-income countries, reluc-tance on the part of some governments to tacklethe politically difficult decisions involved in elim-inating subsidies and other rents accruing to pow-erful interest groups, and a drying up of interestin emerging markets investment. Today, only a fewcountries (mainly in LAC and some in ECA) haveachieved advanced reform status. Many of theBank’s country clients are either undecided or areconsidering which reform route to follow; manyof those that have moved forward are stalled intheir attempts, and some have reversed privati-zation plans.

With a view to informing the implementationof the Energy Business Renewal Strategy (EBRS),this chapter is organized in line with the main ob-jectives of the strategy: (i) promoting PSD; (ii)macrofiscal balancing; (iii) helping the poor di-rectly; and (iv) protecting the environment. Spe-cial emphasis is given to the PSD promotionobjective, which is most relevant to this studyand is discussed immediately below.

Promoting Private Sector Involvement

PSDE is important and worth pursuing: In committedcountries with advanced power reforms, outcomeshave been good. OED’s portfolio and literature re-views provide evidence of good sector outcomesin many LAC and some ECA countries with long-

standing commitment to reforms in the struc-ture and ownership of their power sectors. Whilemuch of this evidence is recent (thus indicatingthe long-haul nature of the reform process and theBank’s role as facilitator rather than primary cat-alyst for reform, since many of these countriesstarted their reforms in the late 1980s and early1990s), the strong positive direction of sector im-provements points to the importance of pursu-ing PSDE. OED’s review also shows (most clearlyin AFR) that where reforms have not progressed,operational documents continue to report thefinancial bankruptcy of state-owned utilities, poorand deteriorating service, and the inability tobuild or rehabilitate power infrastructure in pacewith burgeoning demand.

Figure 4.1, and the regional discussions below,show that one of PSDE’s early gains is increasedgeneration capacity (for comparison, the chartshows the United Kingdom and New Zealand, al-though in the latter there are concerns about theadequacy of supply). This was especially impor-tant in the 1990s, when in the midst of the globalfinancial crisis many developing countries were ex-periencing severe supply shortages. The WBGprovided PSDE support to Argentina and Pak-istan. In Argentina, the availability of thermal gen-eration plants has increased substantially since thereform process started (Rudnick and Zolezzi2001). It is important to note, however, that theaddition of generation capacity is a meaningful in-dicator only when seen in the context of overallelectricity supply and demand balancing, andmeasures to achieve investment efficiency.

In addition to supply expansion, gains in coun-tries that have achieved advanced reform includemacrofiscal stability, greater access to electricitysupply, and better service quality. Table 4.1 pres-ents the PSDE outcomes reviewed, and theirspecific indicators. As a result of the WBG’s focuson macrofiscal objectives in its PSDE involve-ment during the 1990s most of the available dataare on positive and large macrofiscal outcomes,and are discussed separately following the PSDsection.

Perhaps the best illustration, outside LAC coun-tries, of successful PSDE outcomes is Côte d’Ivoire,where substantial improvements have beenrecorded in several indicators (Box 4.1).

3 2


S E C T O R - L E V E L P S D E O U T C O M E S

3 3

C u m u l a t i v e A d d i t i o n s o f N e w P o w e rP r o d u c t i o n C a p a c i t y s i n c e 1 9 9 3 i n F i v eC o u n t r i e s w i t h R e f o r m s i n t h e E n e r g yS e c t o r i n t h e 1 9 9 0 s

F i g u r e 4 . 1

0

5

10

15

20

25

30

35

40

45

50

1993 1994 1995 1996 1997 1998 1999 2000

Chile Argentina New Zealand United Kngdom Pakistan

New capacity/total capacity (percent)

Main Categories of PSDE Outcomes Specific Indicators

Macrofiscal Impacts Earnings from divestiture of public power assets

Additional private investments

Income taxes

Dividends to government

Reduced subsidies

Access to Service Extension of electricity grids to rural and poor urban communities

Quality of Service Unscheduled and scheduled service interruptions

Voltage fluctuations

Choice and responsiveness in service options

Price Impacts and Affordability of Service Wholesale electricity prices

Retail electricity prices

Labor and Employment Impacts Layoffs and safety nets

Number of employees in the power sector

D e s i r e d P S D E O u t c o m e s A r e N u m e r o u s a n dC o m p l e x

T a b l e 4 . 1

Another good, but less well known, illustrationof successful PSDE outcomes is El Salvador, wheresignificant improvements have been shown inseveral performance indicators (Box 4.2).

PSDE remains a work in progress: Outcomes can alsobe mixed or efforts can fail. Except for a few LACcountries (notably Chile and Argentina), PSDEreforms beyond commercialization and corpora-tization started only in the mid-1990s: most coun-tries are still at the early stages of reform (onlyabout 15 to 20 percent of the 80 countries wherethe WBG supported PSDE have reached or are approaching intermediate to advanced reformstatus).

There are few positive sector outcomes to re-port in AFR, EAP, SAR, and some ECA countries,as continued economic crises, political turmoil,and government resistance to reforms have pre-vented sustainable power reforms from takinghold. Examples from AFR are numerous. Given theimportance of some of the countries involved, unsuccessful efforts have tended to dominatethe reform dialogue, with highly publicized con-troversies drowning out cases of early wins. TheBank itself is learning PSDE by doing (see Chap-

ter 5), but outcomes are poor when the country’scommitment is weak or absent, as illustrated bythe following examples.

In EAP, the Bank’s regional strategy highlightsthe impact of the Asian financial crisis in lower-ing demand growth and the implications of thelow utilization of IPPs that were contracted basedon high dispatch assumptions agreed at entry bythe government and the private sector. The dif-ficulty in meeting financial obligations under thetake-or-pay Power Purchase Agreements (underIPPs) on Asian utilities resulted from an unfortu-nately timed combination of insufficient sector re-forms and the advent of macroeconomic crises,as well as what turned out to be an oversized IPPprogram relative to T&D capacity. The strategypaper indicates that the financial viability of manyutilities has been seriously damaged and theircreditworthiness still needs to be restored. It is anopen question whether, without the IPPs, gov-ernments would have built the same amount ofadditional power capacity and thus ended up car-rying the financial burden of capacity underuti-lization. This was illustrated in Indonesia, whereBank warnings against uncompetitive, costly, andnontransparent IPPs went unheeded. IFC ex-

3 4


Following the bankruptcy of the state-owned power utility, in 1990Côte d’Ivoire granted a 15-year operating concession for theentire power sector to the privately owned Compagnie Ivorienned’Electricité (CIE). Service quality improved markedly after CIEtook over operations. Outages were reduced from an annualaverage of about 26 hours per consumer in the mid-1980s toabout 14 hours in the late 1990s. Metering, billing, and revenuecollection performance improved dramatically. Ninety percentof all private consumers now settle their bills on time, and ir-recoverable arrears are less than 1 percent. Nontechnical lossesat the low-voltage level in 1999 were only 3 percent of billings.Total energy losses in 2000 were less than 15 percent, much lowerthan in many other electric utilities. In addition, there was a rapidexpansion in access to electricity: the number of low-voltageconsumers nearly doubled between 1990 and 2000 to 763,000, withonly a modest 7 percent rise in the number of staff.1

The increase in productivity has been substantial: the num-

ber of consumers per employee rose from 121 in 1990 to 209today. CIE staff have gained through better remuneration, im-proved working conditions, and substantial skills upgrading. Thedevelopment of institutional capabilities in CIE has been im-pressive, and far beyond what had been achieved in many yearsof donor-funded technical assistance and training support toother African public utilities. Virtually all senior management arein Ivorian hands. Equally important, CIE’s record in cleaning updistribution opened the door to private investment in both powergeneration and gas production. Both the Bank and IFC partici-pated in the financing of the first two IPPs, Ciprel and Azito. TheAzito 297MW gas-fired power plant was the first power projectin Sub-Saharan Africa to attract a syndicate of private commer-cial banks as lenders. In addition, an IDA partial risk guaranteefor US$30 million was used for the first time to increase theamount and maturity of private financing for the project. Privatecompanies now produce two-thirds of Côte d’Ivoire’s power.

C ô t e d ’ I v o i r e S h o w s G o o d O u t c o m e s f r o mP S D E

B o x 4 . 1

pressed the same concern and stayed out of suchprojects. In any event, IPP overcapacity did notoccur due to the post-crisis cancellation of manycontracts, and the country is once again facingpower shortages. Existing IPPs are dispatched atsuboptimal levels due to unfinished transmissionlines rather than to depressed demand. Whilethe government succeeded in renegotiating PPA

tariffs downward, this furthermore was offset byan increase in the capacity factor used for price-indexation and by the extension of the PPA termsfrom 30 to 40 years. After the crisis, the Bank de-cided to maintain a low profile in Indonesia. In thePhilippines, Bank efforts were less than satisfac-tory. The Bank’s engagement through reform-in-tensive projects and sector work in the 1990s was


3 5

In El Salvador, the technical assistance project was delayed fortwo years while the optimal structure of the power sector wasdefined. There were divergent views in the Bank regarding theextent of privatization and reform to be carried out. In the end,the project succeeded in: (i) developing a legal and regulatoryframework for the sector, including restructuring CEL (ComisiónEjecutiva Hidroeléctrica del Río Lempa, the state-owned elec-tricity utility), organizing the Transactions Unit (Unidad deTransacciones), and initiating the design of a wholesale marketfor electricity; (ii) drafting and enacting a new electricity lawand creating the sector regulator; (iii) estimating the marginalcosts; (iv) preparing a Sector Environmental Action Plan and im-plementing an Environmental Impact Assessment (EIA); (v) de-veloping a least-cost expansion plan for the system; and (vi)providing training to CEL and government staff in new operationaland technical work. Sector reforms have led to an increase inservice coverage, a reduction in system losses, and a decreasein state subsidies. Progress continued even after World Bank as-sistance ended. The four government-owned distribution com-panies were privatized in January 1998, and the generationcompanies were to be privatized in 1999. (With regard to priva-tization, it is worth noting that the sale at 40 percent over bookvalue of 75 percent of the distribution companies’ shares, total-ing US$575 million, had a substantial financial impact, equiva-lent to 5.5 percent of the 1996 national GDP of US$10.5 billion).

In addition, IFC approved a US$120 million investment to ex-pand and rehabilitate the distribution networks. IFC also approvedUS$15 million in financing for a regional power developmentcompany, focusing on renewable and cogeneration projects.

The following lessons can be learned from PSDE in El Salvador.

(i) Where applicable, the strategy for power sector reform in agiven country should be designed with due consideration to

the potential size of the regional market, which may be severaltimes larger than the national market. Cases in point are El Sal-vador (already under implementation) and Belize (still in thedesign stage) in the Central American market, and Bolivia in theMercosur market. In these cases, it was the relatively small sizeof the national power sector that shaped an initial preferencefor restricted market liberalization. Further analysis, however,showed that a more sustainable and liberal strategy should betailored to cater to and benefit from the larger regional poten-tial market with, as required, suitable transitional stages.

(ii) Sector policy and regulatory reform should be well under-way before privatization in the sector, so that bidders feel thatthey are entering a secure environment and will have a soundbasis for calculating their bids. Much of El Salvador’s successin privatization is due to the progress that was made beforehandin preparing comprehensive sectoral legislation and rules.

(iii) The government’s reform and privatization team should bestaffed with qualified top-level staff, with a proven commitmentto the reform and a track record of getting things done with ex-tremely tight deadlines.

(iv) It is often best to break up large companies, to make themless risky and more attractive to a range of buyers and to en-courage competition.

(v) Close attention must be paid to constituency-building, lest pub-lic resistance impede the process or threaten its results.

(vi) High-level political support is critical for the success of thereform and privatization process. When the message from thetop is clearly in favor of privatization, the process moves aheadrapidly.

E l S a l v a d o r : W B G W o r k i n a C o u n t r y C o m m i t t e d t o P o w e r R e f o r m s

B o x 4 . 2

followed by a strategic decision to relinquish thelead role in policy advice to the Asian Develop-ment Bank, due to poor portfolio performanceand the inability of the government to pass en-abling legislation for power sector reforms. A re-view of this approach seems warranted, giventhe complex challenges of establishing the powersector’s regulatory framework, as well as its mar-ket and ownership structure, following the re-cent passage of the Electricity Industry Reform Act.

In Pakistan, PSDE outcomes are highly mixed.Private power investors responded enthusiasticallyto the government’s policy, but in the absence ofreal reforms and the persistence of severe T&Dbottlenecks, a supply and demand imbalance re-sulted, severely straining the finances of WAPDA,the state-owned single buyer. Today, more thanhalf of the population still has no access to elec-tricity, and rolling blackouts are common in someareas. Recent restructuring, tariff adjustments,and improved operational efficiency has enhancedWAPDA’s financial condition, but its reliance onmore expensive (relative to hydro) thermal gen-eration from its own plants and IPPs as a result ofa drought, depreciation of the rupee, and thecosts associated with the underutilization of IPPshave caused WAPDA to fall out of compliancewith financial covenants. In India, despite thepromise of early efforts, weakening governmentcommitment has seen sector reform stall in Orissa,and the financial condition of the sector remainsprecarious. In Andhra Pradesh government com-mitment is stronger and the state is ready to pri-vatize distribution. Political opposition to largetariff adjustments nonetheless must be over-come to improve the poor financial situation ofthe sector.

In Ukraine, the Bank’s PSDE efforts were un-successful. In 1994, the Bank supported a projectto develop a competitive electricity market and toestablish operating conditions that would en-courage electric power companies to seek fullcost recovery and ensure the sustainability of op-erations. Despite a joint effort by international de-velopment agencies the necessary regulatoryreforms were not achieved, largely due to non-payment and government interference in issuessuch as tariff setting. The Bank loan was sus-

pended in July 1997, and in 1999 it ultimatelywas withdrawn by the Ukrainian government dueto the impact of the Russian financial crisis. In Rus-sia, the Bank (primarily through three StructuralAdjustment Loans [SALs]) has had an active pol-icy dialogue on reforming the electric power sec-tor. The dialogue has focused on establishing anelectricity regulator and a market-based dispatchsystem; on the unbundling of generation, trans-mission, and distribution activities; and on pri-vatization of generation and distribution.According to OED’s Country Assistance Evaluation(CAE), while considerable progress has beenmade in achieving the SAL objectives (more ra-tional pricing since 1997; improved cash collec-tions since 2000; a new resolve since mid-2001 todemonopolize the power industry), the outcomeof the power sector restructuring program re-mains an open question, and will depend on howit is implemented at the provincial level. The CAErecommends that the Bank be ready to expandits ongoing technical assistance to restructurethe electric power monopoly, and also that it con-sider guarantees, equity investments, and lendingfor generation and transmission, but only after re-structuring is well under way.

PSDE promotion needs to be anchored to broader re-forms. PSD is not the sole objective of power sec-tor reform, rather, it is a tool to achieve sectorefficiency, such that power is provided at least-costand in an environmentally and socially sustainableway. In addition to PSD, other measures are re-quired to facilitate reforms. For example, fuelmarket liberalization is essential to maximize ef-ficiency gains; in the context of IPPs, where long-term contracts are introduced, pass-throughmechanisms need to be put in place betweenthe wholesale and retail tariffs (for power andfuel purchased) to protect the financial viabilityof the power utility and lessen the drain on fiscalresources. In this regard, positive cash flows areimportant in enabling private sector participa-tion: hence adequate budgetary provisions needto be made to ensure that the public sector is ableto pay its utility bills. Commercialization effortsotherwise will fail, since the public sector fre-quently represents a high proportion of power

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sales. Reserve capacity planning also is an im-portant issue: investment inefficiency directly in-creases capital and operating costs and can haveserious macrofiscal impacts. Major over- or un-derinvestment (the Philippines and Indonesia,respectively) and inappropriate plant siting (Pak-istan) can have major consequences for the cap-ital cost of associated investments, and ultimatelycan impinge on access to and on the quality, re-liability, and affordability of service. Addressingthese issues goes beyond PSDE operations andshould be tackled early in the reform process. Fi-nally, more attention needs to be given to thedevelopment of domestic capital markets. Mostdeveloping country power utilities do not earnforeign exchange, and their dependence on for-eign direct investment and foreign currency loanshas led to high, and unaffordable, electricity prices.While it is not easy to mobilize domestic capital,the WBG should address it as part of the overalleffort to improve the investment climate, as manyprivatization efforts have failed for lack of accessto the resources necessary for efficiency im-provements and new investments.

Macrofiscal Balancing: Reducing thePower Sector’s Burden on PublicResources

Where PSDE has progressed, the promised fiscal gainshave been achieved and are very large. OED’s port-folio review found that macrofiscal balancing wasa key objective in the Bank’s PSDE program dur-ing the 1990s, as a response to the global finan-cial crises that further aggravated the inability ofmost developing countries to mobilize resourcesto meet their power supply shortages (see also Al-bouy 1999a). Successful PSDE was found even-tually to bring many fiscal gains, although thehigh technical and financial costs of restructuringat the start of the reform process may prevent gov-ernments from realizing immediate budget re-lief. In LAC alone, divestiture of public powerassets brought in US$35 billion by 1997, at a timewhen funds were needed to stabilize countryeconomies and shore up social budgets, notablyin Chile in the 1980s, Argentina and Bolivia underthe Brady Plan, then Brazil, Colombia, and Peru

in the mid-1990s. The substantial fiscal rewards ofPSDE in LAC have been reaped through addi-tional private investments in the sector,2 incometaxes,3 dividends to government, and reducedsubsidies, as presented in Table 4.2.4 In Bolivia, theprivatization of state-owned enterprises, increasedforeign investment, and an independent regula-tory regime have led to improvements in cover-age, quality, and productivity. Nontechnical losseshave been reduced significantly. In Chile, distri-bution losses were reduced by half in seven years;in Argentina, the same benefit was realized injust three years.

Access and sales have increased. Where macro-economic conditions permitted, sales and elec-tricity consumption per capita have increased(after absorbing any initial price shocks): in Chile,consumption per capita grew at 7 percent, and inBolivia it grew at 2 percent, in contrast to unre-formed sectors that are on the verge of bank-ruptcy. In Panama, electrification coverage hasgrown significantly and consumer prices havedropped. New connections and the percentage ofhouseholds with electricity access also havegrown: in Chile, access grew from 64 percent to95 percent in 1990–94; in Bolivia, after droppingto 56 percent before the reform, it bounced backto 70 percent in 1997.

Subsidies have decreased. Private power operatorshave saved governments heavy operating subsi-dies; in Peru, the WBG’s involvement has helpedbreak down the culture of electricity subsidization.Where private operators have taken over retail sup-ply, they have drastically reduced payment de-lays, theft, and unpaid bills (from 30 percent to12 percent in Buenos Aires, and about the samein Côte d’Ivoire, where assets were not sold, butjust leased). A lot of the gains have stemmedfrom asset management: over a five-year period,plant availability typically increased 10 percentto 40 percent, the number of customers per em-ployee increased 50 percent, and outage indica-tors decreased by more than half. Reforms havealso improved the efficiency of capacity expansion,although IPP capacity costs and output pricesshow wide variations—the lowest ones tending to


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P S D E O u t c o m e s f r o m B a n k A c t i v i t i e s i nL A C “ A d v a n c e d R e f o r m ” C o u n t r i e s

T a b l e 4 . 2

Countries/Reform Pursued

Argentina

Privatization of Edesur and Edenor

Brazil

Privatization in the electric power

sector

Bolivia

Privatization of SOEs

Increased foreign investments

Chile

Privatization of Chilectra

Colombia

Private participation

El Salvador

Unbundling

Privatization of distribution

companies

Panama

Privatization of power sector

companies

Restructuring of the power sector

Peru

Privatization of Electrolima

Current Status

Macrofiscal: By 1998, energy sales increased by 79 percent and 82 percent, and losses were down by 68 percent and

63 percent, respectively.

Efficiency Impacts: By 1998, the number of employees was reduced by 60 percent and 63 percent. Customers per

employee increased by 180 percent and 215 percent.

Quality of Service: The length of interruptions per consumer fell from 26.4 hours per year in 1993 to 24 hours per year

in 1998.

Efficiency Impacts: The labor force of the distribution utilities has been reduced from 83,784 in 1993 to 59,348 in 1997.

Macrofiscal: Private investments reached US$204 million by mid-1998, allowing demand growth of more than 7

percent per year to be met. The Bolivian economy gained new foreign capital. Private investors paid approximately

US$1,600 million to gain control of all capitalized public companies. The Bolivian Treasury saw fiscal revenues from the

power sector (sales and profit taxes) increase by 247 percent in three years, from US$17 million in 1994 to

approximately US$42 million in 1997. In addition, the service of ENDE's debt of approximately US$61 million,

guaranteed by the government, was transferred to the private companies.

Affordability of Service: Electricity consumers have not seen rate increases (except for inflation and fuel price

adjustments) and now have the ability to take any grievances directly to the power companies, through newly created

consumer offices.

Macrofiscal: Energy sales increased 26 percent and losses fell 70 percent by 1998.

Efficiency Impacts: The number of employees was reduced by 9 percent. Customers per employee increased by 37

percent by 1998.

Macrofiscal: Private sector investments in the power sector have increased significantly in the last five years. Private

participation in power generation increased from 25 percent in 1996 to 56 percent in 2001. Private sector participation

in transmission is 10 percent, in distribution 60 percent, and in commercialization 60 percent.

Macrofiscal: The sale at 40 percent over the book value of 75 percent of the distribution companies’ shares, totaling

US$575 million, had a substantial financial impact (equivalent to 5.5 percent of the 1996 national GDP of US$10.5

billion).

Access to Service: Service coverage improved from 71 percent in 1998 to 74 percent in 2001.

Macrofiscal: In FY00, the privatized power sector companies contributed US$70.8 million to the treasury, comprising

US$34.5 in income tax (US$9.2 million from the distribution companies and US$25.3 million from the generators) and

US$36.3 million in dividends to the shares retained by government (US$6.2 million from distributors and US$30.1

million from generators).

Access to Service: Installed generation capacity increased 40 percent and the number of customers increased 6 percent

between 1998 and 1999; energy sold per employee increased 22 percent between 1999 and 2000.

Macrofiscal: The sector has shifted from draining the public treasury (a loss of US$300 million in 1990) to being a

source of operating profits (US$300 million in 1998). Transmission and distribution losses decreased from 21.8 percent

in 1993 to 12.4 percent in 1998.

Access to Service: Service coverage expanded from 53 percent in 1993 to nearly 70 percent in 1998.

Efficiency Impacts: The customer/employee ratio increased from 316 to 520 between 1993 and 1998.

be those that were obtained after competitivebidding.

Asset values have grown. Efficiency gains from re-forms and PSDE were used first to turn aroundutility finances and then to fund their growth:the rate of return on assets jumped 7 to 12 per-cent from values that were low or negative, as inArgentina. The financial market and privatizationmutually reinforce each other as reforms mature:in Chile, market capitalization has increased andpower companies saw the real value of theirshares grow a thousandfold from 1984 to 1994, asthey acquired control of a sizeable fraction of thepower sectors in neighboring countries.

Real prices have decreased for industrial and com-mercial consumers. Efficiency gains ultimately arepassed on to power purchasers: where compet-itive pools were set up, most notably in Chile andArgentina, bulk prices dropped 20 to 50 percent.5

Tariffs have decreased for industry and commerce,but for other customers they often have risen, be-cause tariffs were and often still are below the costof supply. The U.K. experience with residential util-ity market liberalization indicates that while thereorganization of gas and electric power industriesreduces costs, these cost savings may not beshared equitably with all consumers (Newberryand Pollitt 1997). However, while all consumershave benefited to some extent from lower prices,the greatest benefits have gone to shareholdersand to richer consumers (Waddams and Hancock1998). Detailed evidence that reforms have led toefficiency gains has not been systematically com-piled and analyzed, but remains limited to a fewcountries, including Argentina, Chile, Côted’Ivoire, and Peru.

Helping the Poor Directly

Little is known about the impact of reform on the poorbecause data have not been gathered systematically.To achieve the EBRS objective of directly helpingthe poor, PSDE reformers need to address issuesof increasing the access to electricity supply of thepoor and of ensuring that access and consump-tion charges are affordable. Based on a review of154 projects, OED found that Bank project doc-

uments provide very little data to evaluate the im-pact of power sector reforms on the poor. Thedata that are available tend to be anecdotal andnot based on sound monitoring and evaluation(M&E) systems, or empirical evidence. This pres-ents a major challenge to policymakers, who needdata to support any pro-poor policies that theymay wish to adopt (to improve the welfare of thepoor, or at least do them no harm) while carry-ing out power reforms (Waddams 2000). The1990s presented many opportunities that weremissed to ensure that rural energy, energy effi-ciency, and social and environmental benefits areaddressed as reforms are put in place. Such op-portunities, given the long timeframes for re-form, are in most developing countries one-timeopportunities (see also Dubash 2002).

The little evidence available indicates that the poor areoften the last to benefit from increased access. Inmost countries, the rural poor tend to be over-looked because private operators are reluctant toserve low-income clients given that these marketsare not financially viable on a freestanding basis(Chisari, Estache, and Waddams 2001). In urbanareas, residential customers are more exposedthan commercial users when connection costsincrease due to reforms, and the social impact isespecially acute when residential use has been pre-viously subsidized. Where reforms involved ad-justing tariffs to cover costs, poor householdstend to be adversely affected, at least in the shortrun. In Poland, energy subsidies have tended tohelp the rich more than the poor (Freund and Wal-lich 1995). In Hungary, energy price reforms didnot appear to have a regressive impact, suggest-ing that subsidies prior to reforms were not ef-fectively targeted at the poor (Newberry 1995).According to a pioneering field study in Guatemala(Foster and Araujo 2001), the social tariff thatwas introduced following privatization of thepower distribution companies largely fails to reachpoor households, and access to modern utilityservices remains highly inequitable. The richest20 percent are twice as likely as the poorest 20 per-cent to have electricity connections, and whileelectricity coverage is close to universal in urbanareas, it reaches little more than half of ruralhouseholds.


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Globally, about one-third of the world’s pop-ulation (about 2 billion people) are believed to lackelectric power, but this may be an underestima-tion as few cross-country surveys document ac-cess (Brook 2000). Based on research findings thatgrowth is good for the poor (Dollar and Kraay2001), the argument has emerged that address-ing the generation supply constraint leads to GDPgrowth, which in turn benefits the poor. While thismay be demonstrable in a macroeconomic con-text of trade liberalization and transition into a mar-ket economy, the argument is less tenable in thesectoral context of scant (and recently, possiblynegative) private capital flows into developingcountry electric power sectors. Evidence fromthe Organisation for Economic Co-operation andDevelopment (OECD) and others indicates thata small number of large, international privatepower companies invested in a small number ofdeveloping countries during the 1990s. Whateverindirect poverty reduction impacts PSDE mayhave had were restricted to only about 10 coun-tries, including those in which the access to energyof the poor remains very low, such as Indonesia,Pakistan, and the Philippines. While the WBG’sPSDE assistance increasingly has been aimed atsmall and medium-size low-income countries,many of these countries have failed to attract sub-stantial private power investments in T&D, and thepoor will not benefit from the expected growthin access until T&D projects are carried out.

The macrofiscal objectives of power reforms areimportant, but the access to energy of the poorand environmental mainstreaming (“doing good”in addition to “doing no harm”) have been neg-lected. The WBG’s PSDE efforts during the 1990sunderstandably responded to crises in client coun-tries and therefore were focused on macrofiscalbalancing and on the improvement of utility fi-nances. This has resulted in a relative neglect ofthe issues of ensuring that the poor can get helpto afford commercial power tariffs once subsi-dies on generation plants are removed and ofensuring that regulatory reforms are not so “hardwired” that it is difficult to simultaneously im-plement social and environmental objectives. De-spite publishing best practice papers on energyefficiency and rural energy in 1993 and 1996, re-spectively, the Bank has made little effort to pur-

sue these areas in its 1990s PSDE portfolio or inits energy portfolio as a whole. According to staffinterviews and the task manager survey, this is atleast in part due to a lack of country departmentinterest and support. The relatively few projectsthat did materialize were mainly at the behest ofthe championing task managers, often buoyed bythe availability of Global Environment Facility(GEF) funds. While there is nothing wrong withindividual initiative, this reflects the lack of insti-tutional drive and lack of a coherent strategy forrural energy and energy efficiency that persistedfor most of the 1990s.

The domestic private sector is not being tapped ade-quately. From the 154 projects reviewed, there islittle evidence of a concerted Bank effort to reformregulatory frameworks such that local private cap-ital and management capabilities can be tappedfor investment in decentralized energy systems.Only a handful of completion and supervisionreports on participatory mechanisms and stake-holder consultations mention the inclusion oflocal investors in the design of major reforms. De-spite the growing institutional focus on rural en-ergy financing mechanisms, including the localprivate sector, both formal and informal ESW onrural energy and energy efficiency issues has beeninsufficient. A positive development, however,has been the absorption of rural energy workwithin the Private Sector, Markets, Finance, andRural Infrastructure thematic group, where is-sues of local private capital and innovative financeschemes (including the promising approach of“output-based aid”) can be addressed integrallywith the larger challenge of developing rural mar-kets. The Bank-wide Energy and Poverty The-matic Group has also been revived by the Bank’sEnergy Sector Board.

Protecting the EnvironmentAdherence to the World Bank/IFC/MIGA Envi-ronmental and Social Safeguards policies and theguidelines contained in the 1998 Pollution Pre-vention and Abatement Handbook (PPAH) is a re-quirement for all WBG projects. The WBG alsofollows an environmental strategy for the energysector as contained in the Fuel for Thought (FFT)strategy paper. The Bank’s performance with re-

4 0


spect to its environmental safeguard policies is dis-cussed in the OED Review on the World Bank’sPerformance on the Environment (2001). Sincethe Board approved FFT in 2000, changes havebeen made in the institutional context that affectits implementation. These include completion of“Making Sustainable Commitments: An Environ-ment Strategy for the World Bank” (World Bank2002a) and the Energy Business Renewal Strategy(EBRS), the emergence of the Poverty ReductionStrategy Paper (PRSP), and the Bonn Agreementon the Kyoto Protocol. The ensuing debates havefocused on trade-offs between the short-termand long-term needs for poverty reduction andeconomic growth, relevant to local and globalenvironment issues.

Environmental mainstreaming in the Bank is still weak,but making progress. In its 2001 Environment Re-view, OED found that environmental main-streaming has not yet taken full effect in Bankpolicies, programs, and operations, but someprogress is being made. Some 35 percent of Coun-try Assistance Strategies produced in FY01 and halfof the final PRSPs produced so far include dis-cussion of energy and environment issues. De-mand for full-scale energy and environmentreviews is lower than originally expected under theFuel for Thought strategy, with clients preferringmore focused analytical and advisory work. Ana-lytical work is creating results either directly orthrough lending operations. Analysis of active en-ergy lending operations shows a growing pro-portion with at least one environment objective,amounting to 69 percent in FY01 compared with9 percent in FY90 and 10 percent in FY97.

Bank outputs against established short-termFFT indicators have been greater than expected,according to FFT’s annual report, in the areas offacilitating more efficient use of traditional fuelsand their substitution by modern ones, protect-ing human health from urban air pollution, andtackling climate change. The Bank is active in allregions, building the capacity of regulatorsthrough analytical work, technical assistance, andprojects. Although work in the environmentallysustainable development of energy resources ismaking reasonable short-term progress, thelonger-term lending pipeline is still weak.

Renewable energy has high potential for WBG in-volvement. In the renewable energy field, the Bankand IFC are conducting pioneering work with aclear allocation of responsibilities; the Bank con-centrating on policy and institutional strength-ening, and IFC providing financing (see AnnexesN, O, and P). The active portfolio of World BankGroup–GEF projects consists of 41 projects witha total value of US$3.3 billion, of which US$802million is Bank and US$396 million is GEF fi-nancing. It is too early to evaluate these recent ini-tiatives, the first few of which are being completedthis year.

Greenhouse gas (GHG) emissions from IFC-financedpower plants are insignificant. OEG found that thetotal GHG emission of the 22 fossil fuel-firedpower plants approved in the 1990s and in IFC’sportfolio as of December 31, 2001, is relatively in-significant (see Annex Q). Gas/naphtha-firedpower plants, which represent 31 percent of IFC’sinstalled capacity, have the least impact. Greaterfuel efficiency has a direct impact on GHG re-duction. IFC’s portfolio reflects a fuel choicemade according to the availability and cost of fueland the fuel balance in each country. Recent de-velopments in nonhydro renewable energy indi-cate that commercially viable energy projects areencouraging and could be a growth area for IFC’spower operations. Over the 1990s IFC’s renewableenergy projects were largely in hydro, where IFCfinanced a total capacity of 1,000MW. Approxi-mately half of the total generating capacity in-sured by MIGA is in projects with renewable orclean energy sources (3,767MW out of a total of7,446MW).

OEG found that nearly four of every five IFCpower projects meet or exceed WBG environ-mental, health, and social (EHS) guidelines. Thisis better than IFC’s all-sector performance. IFCmonitors environmental performance until theIFC loan is repaid and the equity relationship iscompleted. OEU found that all eight evaluatedMIGA power projects were in compliance with, orexceeded, MIGA EHS policies and guidelines.MIGA has the right to unilaterally terminate aguarantee if a project is found to be in noncom-pliance with these policies and guidelines. MIGAmaintains a relationship with the project sponsor


4 1

as long as the insurance policy is in force. The driv-ers for this good outcome include quality spon-sors with strong commitments to the environmentand the community; appropriate and feasibletechnology choices; established plant-level Envi-ronmental Management Systems (EMS); and rea-sonable and enforced national environmentalstandards.

IFC’s and MIGA’s power projects in the 1990sprovided viable solutions to power shortages,and additional generation capacity improved sys-tem reliability. This led to net environmental andsocial benefits through the dispatch of environ-mentally cleaner power plants, the minimization

of industrial plant shutdowns, and through pro-viding the capacity to expand access to powersupply. The more capacity it has, the greater is asystem’s capability to manage the dispatch of itspower plants in a least-cost and environmentallyresponsible manner. Better environmental man-agement is possible, depending on the tech-nologies, plant alternatives, and contractualconstraints involved. Environmental outcomesare inferior when supply is constrained and sys-tem dispatch requires that older and more pol-luting capacity is called into long periods ofproduction.

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4 3

Cross-Cutting Findings

Analysis of project-level results and sector outcomes points to a numberof cross-cutting findings and lessons that should inform the imple-mentation of the WBG’s 2001 Energy Business Renewal Strategy (EBRS).

The findings fall under two categories: those for designing better PSDE in-terventions, and those for improving WBG processes.

Toward Better-Designed Interventions

More practical operational guidance to staff onWBG support for PSDE is requiredThe Bank needs to support its advice on reformswith financial help to meet the high costs ofpower sector transformation, a new market forBank lending. Ironically, the volume of powerlending has declined since the late-1990s. Whenthe 1993 Electric Power Lending Policy was in-troduced, the Bank did not realize that powersector reform requires enormous technical andfinancial resources that few developing countriespossess. For example, US$50 and US$100 millionwas spent on technical assistance alone for re-forming the power sectors in Orissa and Ukraine,respectively. The costs of restructuring the fi-nances of bankrupt utilities and of undertaking theinvestments essential to the reforms amount tohundreds of millions of dollars—funds that manyclient countries do not have.

The Bank’s own budgeting process seriouslyunderestimated the effort required to prepare, ap-praise, and supervise operations that support

power sector reform and PSDE. There has beenan enormous and rapid growth in the complex-ity of PSDE project design and implementation as-pects because of the need to satisfy multiple andsometimes conflicting objectives and con-stituencies. These budget constraints (and thestaff depletion that has taken place since the mid-1990s) partly explain the Bank’s inability to pro-vide more financial support for power reforms inmany of its client countries. Sector reform is along-haul process lasting for well over a decade,and ways must be devised to ensure continuity ofpersonnel and institutional memory.

Promoting PSDE involves high risks. The de-sign of WBG PSDE interventions must be im-proved by providing operational guidance to staffon how to promote PSDE under the current sit-uation of scant investor interest, and on which re-forms and sequencing should be followed, givenspecific regional, country, and sector situations.This guidance was absent from the generic 1993policy paper. The large number of PSDE-related“Viewpoints,” working papers, and so on issuedby the Bank have been valuable and appreciatedby staff, but they have not been an adequate sub-

55

stitute for formal guidance, since such publicationstypically represent the views of the authors andcannot be construed as being endorsed by Bankmanagement. One important first step is to syn-thesize the multiple policy and strategy papers thatare applicable to PSDE and identify the specificroles that the Bank, IFC, and MIGA are expectedto play. The WBG has developed and implementeda series of strategies and policies affecting thePSD aspects of its energy business. Including the2002 PSD Strategy and the 2001 Energy BusinessRenewal Strategy, there have been eight policy andstrategy statements within the past nine yearsthat are relevant to the WBG’s PSDE programs (seealso World Bank 1993a, 1996b, 1996a, 1997, 2000a).

With due attention to the trade-off betweenprocess controls and agility, within tolerable cor-porate risk levels, the Bank’s Energy Sector Board,IFC, and MIGA should provide WBG staff with bet-ter and more country-specific guidance on best,good, and bad practices in PSDE. Drawn fromexperience, this guidance should assist staff on (i)how to read the country and investor communitycontext, (ii) what criteria to follow in decidingwhen and how WBG involvement is likely to addvalue, and (iii) what the warning signs are for po-tential difficulties and how these can be anticipatedand built into the design of the WBG’s adviceand operations.

Operational guidance is particularly lacking inthe following areas: (i) how to reignite private in-terest in developing country power sectors; (ii)how to do business with regard to balancing pub-lic and private investments, particularly in non-competitive markets where case-by-case decisionsare required to assess whether public or privateservice provision is preferable, depending onhow much of the risk for commercial performancecan be shifted to the private sector; (iii) what se-quence of reforms and PSDE interventions workbest in particular country-sector situations, andwhat is within, and beyond, the WBG’s control;(iv) how to incorporate the expansion of energyaccess to the poor and environmental consider-ations beyond safeguard compliance (that is, “dogood” in addition to “do no harm”) into theWBG’s PSDE and sector reform agenda; and (v)how to achieve much stronger Bank, IFC, and

MIGA coordination and coherence within, and be-yond, the Country Assistance Strategy (CAS)framework.

The development of this guidance should bea joint and coordinated effort, and it should de-fine a framework to fully analyze power reform andPSDE alternatives that is responsive to countryconditions, needs, and institutional capacities.The guidance should at the same time ensureenvironmental sustainability and align with theBank’s poverty reduction mission. This synthesisshould be updated regularly to reflect new trendsand priorities, particularly in a rapidly changingarea like PSDE. For example, the WBG could domore in facilitating public–private partnerships andoutput-based aid through its diverse lending andadvisory instruments. This could be enhancedthrough cross training of Bank, IFC, and MIGA staffinvolved in PSDE.

PSDE monitoring and evaluation needs to bestrengthened considerably

Monitoring and evaluation of sector performance isweak. The assessment of PSDE outcomes—par-ticularly its poverty reduction and environmentalmainstreaming aspects—has to be seen in light ofthe poor data availability, as performance moni-toring for the energy sector has been weak (Albouy1999b). Bank reports tend to focus on inputs andoutputs and provide little data on outcomes or im-pacts. Only the United Nations and the Interna-tional Energy Agency (of the OECD) systematicallyupdate energy data, but these data say very littleabout sector performance indicators such as ac-cess, reliability, and price. Moreover, very fewcountries have reached advanced reform status,and only a small number of the Bank Group’sPSDE interventions have come to full fruition,such that outcomes attributable to PSDE can bemeasured. The EBRS itself has yet to mainstreamPSDE indicators and launch the system for mon-itoring performance based on the EBRS objectives.

The weak database is being further fragmented. As re-forms redefine the role of government and mul-tiply the number of actors through privatizationand unbundling, performance data have become

4 4


more fragmented and much data have becomeconfidential. Most new regulators are too over-whelmed to collect even the minimum data re-quired to start functioning. In 1999, QAG founddistorted performance ratings and significantM&E gaps during project supervision for 40 per-cent of the Bank’s projects, as project teams con-tinue to focus on inputs and neglect outcomes.Project Status Reports fail to signal outcomes, andresults are buried in reports that never enter theBank’s formal reporting structure. As early as 1994,OED found that only 20 percent of energy projectsin a study sample had effective M&E at approval.

The Bank has a clear priority to support the de-velopment of strong country client and internal ca-pacities to monitor and evaluate sector reforms andPSDE interventions, including their impacts onpoverty reduction and environmental sustain-ability. Country client M&E systems have not beenwell established, however, making it difficult to un-derstand the country factors behind good PSDEperformance with respect to the EBRS bench-marks. Learning-by-doing as reforms and PSDE areimplemented, the Bank runs the risk of perpet-uating poorly designed interventions if the lessonslearned are not quickly shared. Internally, theBank’s Energy Sector Board should provide clearguidance to staff on which part of the EBRS strat-egy should be pursued by which unit and in whatsubsector. The EBRS is a Bank Group–wide strat-egy covering the whole array of WBG instruments(including public sector lending) and the entireenergy sector. Each of the four strategic prioritiesof the EBRS has five or six action plans, not all ofwhich are applicable to PSDE. The WBG shouldidentify specific action plans that are relevant toPSDE, develop success indicators, and track per-formance. A PSDE scorecard agreed by the Bank,IFC, and MIGA should be considered to enhanceoverall coordination, promote harmonization ofinternal incentives, and foster the ability to speakin one voice to client countries, including whengiving analytical and advisory assistance.

Country factors drive successful reforms andgood PSDE performanceIn designing PSDE interventions, it is important tobuild the country’s ownership and leadership role.

The ESMAP Reform Scorecard Study suggeststhat “reform is not a uniform process, but ratherthat it proceeds rapidly when conditions are fa-vorable, and does not even start when conditionsare unfavorable.” OED’s literature and portfolioreviews indicate that different approaches toPSDE reform apply to different countries, andapproaches that work well in one country do notalways work as well in another. This reinforces thewell-established evaluation finding about the im-portance of adapting to country conditions. Forexample, in LAC the Bank mainly facilitated andresponded to country priorities and did not de-termine the reform agenda or try to take the lead.In AFR, the poor overall PSDE portfolio per-formance apparently led to a retrenchment inthe regional PSDE strategy toward a closer focuson individual country conditions and readiness forreform. In SAR (India in particular) the focus hasbeen on reforming states, and the support for re-form programs is being reoriented toward thedistribution subsector. ECA provides the strongestexample of country drivers: PSDE success only be-came possible when country commitment mate-rialized after years of no results and unsatisfactoryBank operations.

Government commitment is of paramount importance.As found in studies by OED and others, importantfactors in the successful implementation of PSDEprograms include focusing on a realistic set of pri-orities; establishing a clear sequence of steps;working with local champions for reform; andthe realization of early successes in the reformprocess. Energy operations, however, are vul-nerable to country risks, given the inherent “re-form intensity” of these projects in countries withmacroeconomic problems, weak institutions, orpoor borrowing records with the Bank.1 Politicalcommitment to PSDE objectives is fragile, andcan be eroded by elections, the lack of immedi-ate results, macroeconomic crises, or a waningsense of urgency after crises have been weathered(often with the receipt of aid money from theWBG and others). The political economy—notonly aid money—explains the outcome of ad-justment operations.

C R O S S - C U T T I N G F I N D I N G S

4 5

The lack of constituency-building for reforms canthreaten the sustainability of PSDE reforms. The lit-erature review indicates that there is support forreforms if they are transparent and carried outcompetitively. In LAC, however, despite the reformachievements inadequate civil society participa-tion has sometimes been a problem. In Chile andPeru, the power exchange markets have beencriticized by observers for not representing a truemarket scheme: they claim the pools inhibit theentry of new players and limit competition (Rud-nick and Zolezzi 2001). Government ownershipof key generation plants furthermore can stronglyinfluence dispatching and price, as in Peru.2 Somecountries may yet backslide as a result of publicdisillusionment with reform, changes in admin-istration, and opposition by powerful stakehold-ers. A poll in Peru showed that 72 percent of Limaresidents would like to see their public utility inelectric power renationalized.3 This decliningpopular support for privatization has made thatprogram a target for the government’s oppo-nents, as shown by the riots in Arequipa in June2001. Planned privatizations of distribution com-panies in Bolivia were cancelled early, partly be-cause of political opposition by unions and localpolitical leaders. Finally, further regulatory chal-lenges will arise as markets integrate and cross-border trading develops. The continuing mergerof companies at the regional level, the growingconvergence of gas and electricity markets, andthe withdrawal of major players have reducedthe number of actors in the market, and may wellbe the biggest concern for the momentum ofPSDE in WBG client areas.

ESW/AAA has facilitated PSDE in countriescommitted to reformsThe Bank’s analytical and advisory assistance, in-cluding its subset of economic and sector work(ESW/AAA), has since the 1970s been a mainstayin underpinning the Bank’s country dialogue andoperations. The Bank’s ESW/AAA for PSDE showsa tremendous amount and diversity of productsand audiences (products include analytical pa-pers by the Energy Sector Board; ESMAP studies;formal ESW and operational advice by the Re-gions and the networks for energy and private sec-tor development networks; research by the Bank’s

Development Economics and Chief EconomistVice-Presidency (DEC); Public–Private Infra-structure Advisory Facility (PPIAF) country frame-work papers; World Bank Institute (WBI) trainingcourses; OED evaluation studies; and technical as-sistance such as conferences, staff training, andcountry workshops provided by these groups).The IFC has also provided 33 advisory operationsduring the study period. In the mid-1990s theproduction of Bank ESW/AAA underwent struc-tural changes with the emergence of quick turn-around studies that provide more timely responseto client requests for analysis and advice. ESW/AAAfor PSDE reflected these Bank-wide structuralchanges with products that were more diversifiedin scope and scale, ranging from traditional, Bank-driven core diagnostics work to informal, “just-in-time” policy notes, capacity building, and expertsmeetings that are country-driven.

The Bank’s ESW/AAA has facilitated the reformprocess in PSDE, but its contribution at the coun-try level varies widely. Findings based on selectedcountry case studies suggest that substantialESW/AAA does not necessarily lead to better sec-tor outcomes. Rather, it is a combination of “just-in-time” advice, leveraged by commitment fromgovernment and support from a broad spectrumof civil society that has facilitated PSDE reforms,as noted above. OED’s Performance AssessmentReport (PAR) indicates that limited, but strate-gic, advice given to Mauritius under GEF financ-ing has substantially contributed to the emergenceof private investments in bagasse cogeneration(see Box 5.1), despite cancellation of the associ-ated Bank loan. In Poland, OED’s PAR indicatesthat the Bank’s early ESW/AAA laid the ground-work for sector reforms and a competitive mar-ket and that subsequent loans and sectoral policyadvice provided support for preparing and pass-ing legislation to establish the Energy RegulatoryAuthority (ERA) and to restructure the energyenterprises.

In the Philippines, by way of contrast, a sig-nificant amount of ESW/AAA in PSDE has been pro-duced, yet the advice offered largely has goneunheeded. While Bank support for the privatiza-tion of the national power company facilitated,after a drawn-out process, the passage of a powerreform bill, lack of buy-in from a broad-based

4 6


constituency put on hold reforms in PSDE (thissituation since has progressed, with the govern-ment approval of the National Power Corporationprivatization plan in October 2002). In Indonesia,Bank staff were actively involved in drafting thepower restructuring policy that was adopted bythe post-Suharto government and that later pavedthe way for ADB’s program loan and formed thebasis for the new electric power policy. The reformprocess, however, lost momentum with the de-parture of the Minister of Energy who had cham-pioned the restructuring policy, and with thepolitical instability that characterized the Wahidpresidency. The Bank’s influence in Indonesia’spower sector reforms soon diminished. A recentOED review concluded that the Bank should nothave closely associated itself with the restructur-ing policy, and that the policy paper would havebenefited from more deliberation and from broad-based consultation from various stakeholders(OED/World Bank 2003).

A system of M&E is needed to better measurethe impact of ESW/AAA for PSDE. Such a systemwould enable better coordination and selectivityin ESW/AAA to meet EBRS objectives, and thuspromote greater effectiveness in PSDE outcomesand impacts. Lessons learned through M&E fur-thermore could help build the Bank’s PSDEknowledge base, thus better informing futureESW/AAA design and the reform sequencing andchoice of instruments appropriate to specificcountry conditions. There currently is no Bank-wide codification of ESW/AAA that would allow forsystematic monitoring within and across sectorsand networks. This difficulty is heightened since

ESW/AAA products for PSDE are becoming morediverse and decentralized and thus more in-tractable, not only in volume and cost but also inquality. There furthermore is no Bank-wide eval-uative framework for measuring impact: whileOED, OPCS, and QAG have recently assessedESW there has been no agreement yet on Bank-wide criteria for evaluating impact.

IFC’s advisory operations likewise have playedan important role in promoting PSDE, especiallyin the distribution and transmission subsectors.In the 1990s IFC’s advisory operations in powerwere conducted largely through standalone ad-visory engagements (13 operations) and donor-funded technical assistance (20 operations). Thefocus of the 13 standalone operations has beenmainly on structuring and executing a privatiza-tion strategy. LAC was the dominant region, host-ing seven out of 13 advisory operations. Fromthe 13 standalone advisory operations, seven pri-vatization advisory assignments were successfullycompleted, resulting in the mobilization of aboutUS$2 billion in private sector investments that inturn led to expansion and efficiency improve-ments of privatized facilities. Through its bilateraland multilateral donor-funded technical assis-tance (TATF) operations, IFC has since 1988 suc-cessfully expanded the reach of its advisoryoperations in power. Assistance provided underthis program includes feasibility and project iden-tification studies, studies of enabling environ-ment for PSD, training and capacity-building forprivate businesses and government agencies, pri-vatization advice, post-privatization support, andreforms of government regulations and policies


4 7

The Mauritius Sugar Energy Development Project supportedprivate power generation based on bagasse as a substitute forimported fuels, with funding from the Global Environment Facility(GEF). There was a strong general consensus among both pri-vate and public evaluation respondents that, although the Bank’scontribution solely in financing terms was small and its in-volvement by completion minimal, its advisory and “honest bro-

ker” role was critical in facilitating the launch and implemen-tation of the country’s Bagasse Energy Development Program.The Bank’s nonfinancial AAA during supervision missions relatedto PSDE, as well as the ESW on the theory and best practicesfor energy pricing based on the avoided-cost principle, wereoften cited by stakeholders as specific examples of the Bank’shigh value-added.

M a u r i t i u s : T h e B a n k ’ s A d v i c e C o n t r i b u t e dt o t h e S u c c e s s o f P r i v a t e P o w e r G e n e r a t i o n f r o m B a g a s s e

B o x 5 . 1

affecting the private sector. Four out of 20 TATFoperations are in transition economies in ECA(Russia, Romania, Hungary, and Tajikistan) thatstarted opening their power sectors to privateparticipation.

PSDE policy and operations are country-specific works in progressThere is no one-size-fits-all model for power re-forms and PSDE. Country specificity is importantbecause the Bank itself was, and still is, learningby doing (or “experimenting,” based on the taskmanager’s survey). Based on OED’s literatureand portfolio reviews, the Bank does not seem tohave followed a consistent PSDE reform strategyfrom the outset of the 1990s. The Bank was re-active to the unanticipated large private capitalflows that preceded its 1993 Electric Power Lend-ing Policy: while some regions were already sup-porting PSDE before the enunciation of the policy,others were slower to respond to the policy’s re-

form and “commitment lending” agenda. For IFC,the new international environment provided sub-stantial investment opportunities in LAC, SAR,and EAP, where it was among the pioneers. Despiteits lack of prior experience, the Bank supportedall seven reform areas in a large number of coun-tries (68) by the mid-1990s, frequently using theexperience of the United Kingdom (which was it-self a work in progress) as a model for its advice.Learning by doing worked in a few cases, as in ElSalvador, but in many others, such as Ukraine, itdid not work. There additionally is always thethreat of backsliding following initial success, asin the Bank’s support for distribution sector re-forms in Orissa, India.

Ukraine is an example of how PSDE can failwhen it is imposed from the outside as a one-timesolution rather than a work in progress (Box 5.2).IPPs have an important role to play in PSDE. An ex-ample of the importance of country-sector con-ditions is the WBG’s experience with independent

4 8


The Electricity Market Development Loan to Ukraine, approvedin 1997, was designed to support improvements in the power sec-tor, including development of a competitive power pool basedon the British model of unbundling. The project’s reform objec-tives—improved collection levels, access to working capital,metering facilities, and financial management—were to in-crease the quality and reduce the cost of electricity supply bydeveloping a competitive electric power market and operatingconditions that would encourage electric power companies toseek full cost recovery.

Delays in ratification slowed project implementation, and inthe meantime political interference prevented any improvementin payment collections—collection levels in fact declined. Thisprevented full cost recovery for the generating companies,which were also burdened with the requirement of maintainingminimum fuel stocks throughout the year. Subsidies to powerplants and nonpayments by distributors exacerbated the problem.

The loan was suspended in July 1997 due both to the unsat-

isfactory financial performance of the entire power sector andto a new government prohibition on the increase in electricitytariffs for household consumers. Only US$76.4 million was dis-bursed, which paid for fuel stocks. The loan was cancelled atgovernment request in 1999 due to the impact of the Russian fi-nancial crisis on the Ukrainian economy.

Based on the ICR, a key lesson from the project is that thereis little merit in pursuing comprehensive power sector reformpolicies (legislation, regulation, unbundling, competition, pri-vatization, regulation) in a country suffering a major economiccrisis. The project shows that in an economy that was barter-based, with salaries and pensions in arrears and where thegovernment condoned the culture of nonpayment, there was noway to make consumers pay for electricity in cash. In such anenvironment, the introduction of an advanced model of a com-petitive power market was bound to be a losing proposition. Pro-ject objectives should have been more modest and targeted toimproving well-delineated technical, institutional, and financialproblems.

U k r a i n e : P u s h i n g f o r U n b u n d l i n g i n t h eW r o n g E n v i r o n m e n t

B o x 5 . 2

power producers (IPPs) in countries where re-forms have not taken root. Appropriately struc-tured IPPs have provided timely and cost-effectivesolutions to chronic supply shortages. They haverelieved the public sector of many of the projectrisks, subsidies, and financial obligations that itwould have assumed had it built and operated newcapacity as it had done in the past. They have mo-bilized financing and enabled capacity to be addedto meet demand beyond what governments couldhave done on their own. They also have servedas an interim step in developing fully competitivepower exchange markets. However, in a few coun-tries (such as Pakistan and the Philippines), thesuccess of IPPs in resolving power crises had theeffect of relieving pressure on leadership and pol-icymakers for needed reforms and for the provi-sion of capacity downstream of generation,particularly in T&D. In Pakistan, the failure to ad-dress downstream reform and capacity provision,coupled with weak system planning, resulted inunderutilization of the IPP capacity even as de-mand remained unmet.

While early-entrant IPPs are lower-cost, com-pared to the full cost of power generation in thepublic sector, they are largely higher-cost rela-tive to subsequent IPPs. This pattern is typical inmost new product markets. Early-entrant IPPs as-sume higher risks, and in most cases where theyhave acted the government could not attract vi-able alternative proposals. The pricing of theseIPPs reflects the high-risk associated with pio-neering investments in sectors new to privatecapital where the business climate and regula-tory environments are at best uncertain. In prac-tice, average output prices subsequently havefallen as developers and equipment suppliershave competed for business following the initialsuccess of the early entrants. Countries that en-gaged in transparent and competitive biddingprocesses, on the whole, got lower prices and bet-ter terms.

The private sector has underestimated therisks associated with IPPs, however. Contractsrun for 15 years or so, and many unforeseen eco-nomic, political, and market developments canoccur over such an extended period. By 1998, eco-nomic crisis had undermined the sustainability oflong-term Power Purchase Agreements (PPAs) in

East Asia (Thailand and Indonesia), in South Asia(India and Pakistan), and a few LAC countries.First, IPPs were underutilized when actual de-mand growth fell below government projections.Official demand and supply projections that at-tracted private sector participation and served asthe government’s basis for determining the re-quired IPP capacity proved unrealistic when coun-try crisis struck, in particular where there were noaccompanying T&D reforms and when the gov-ernment refused to shut down old, inefficient, sub-sidized plants. Second, in markets where dispatchis under the unilateral control of a state agency,dispatch rules appear to have been biased in favorof state-owned, subsidized generation plants, withlittle regard to plant efficiency. Third, in coun-tries where T&D reforms have not yet taken root,IPPs were underutilized due to bottlenecks inT&D. At entry, IPP financiers had assumed thathost governments would address the T&D bot-tleneck by pursuing the necessary reforms. Fourth,IPPs in some countries also became highly politi-cized and were easy targets of accusations of cor-ruption and high costs (relative to subsidizedand/or older state sector units)—especially wherethe IPP had been implemented under a previouspolitical regime. In addition, consumers resistedthe elimination of subsidies on electricity and in-correctly attributed the resulting tariff increase toIPPs.

In the context of severe power shortages atentry, IPPs were seen as a “win-win” solution forthe government, consumers, and private finan-ciers. This was evident in IFC evaluation findings,particularly in power-crisis relief situations and/orwhere conditions allowed their productive ca-pacity to be realized. In a depressed demand sit-uation, however, the contractual terms of theearly IPPs were perceived in hindsight to unfairlyfavor investors and lenders over offtakers. Whileaccusations of corruption have not been proven,many IPP contracts have been renegotiated underpressure, and IPPs have accepted terms that wouldnot have been viable at entry. A loss-sharing so-lution of lowering tariffs in exchange for an ex-tension of the PPA term has been the mostcommon approach, and has been successfullyused in Pakistan, Thailand, and Guatemala. TheIPP shareholders in these situations have real-


4 9

ized returns below what they expected or wouldhave found acceptable at entry. In a few cases, suchas in Indonesia and India, PPAs have been can-celled or remain in dispute.

The WBG supported IPPs in the 1990s—in-deed, IFC was a pioneer in financing IPPs, whichcurrently constitute the majority of its powerportfolio. At the beginning of the IPP era, in thelate-1980s, the Bank had reservations about thecompatibility of private sector profit objectives andthe public sector’s objective of providing reliablelow-cost power supply. The Bank subsequentlyembraced the trend and in a few cases, such asPakistan and Côte d’Ivoire, provided financialsupport to IPPs through on-lending instrumentsand guarantees. Because of the lack of develop-ing country models and experience, the WBGlearned how to implement IPPs by actually doingthem, and derived lessons over the years. A fewof the first WBG-supported IPPs were amongthose that have encountered allegations of lessthan arm’s-length contractual arrangements. TheWBG had become more selective in its supportfor IPPs, turning down proposals (in India, In-donesia, and in the Philippines) that it considereduncompetitive, too risky, not transparentlyawarded, or disadvantageous to the country.

Recent problems with IPPs in several coun-tries have led many developers to conclude thatthe rates of return in power generation in devel-oping countries have become too low relative tothe risks that have emerged and to the more ad-vantageous risk–reward profiles available in in-dustrial countries. This has coincided with ageneral withdrawal of international financiersfrom developing countries since 1998, partly in re-action to unpredictable, but recurring countrycrises. Unsustainable long-term PPAs with state-owned offtakers are appearing to be riskier thantransparently and competitively chosen merchantplants in fully functioning power markets. This re-alization has caused a reversal of the positive sen-timents of international financiers and sponsorstoward private power generation in developingcountries. To counter this trend, the WBG needsto work with developers, lenders, policymakers,and ratepayer stakeholders to determine the nec-essary country and sector reforms to make IPPs

in developing countries attractive and sustain-able. This should minimize the risk of goingthrough hostile renegotiations. The WBG shouldemphasize the need for: (i) accompanying re-forms in T&D and dispatch rules; (ii) more real-istic demand and supply projections that includereserve capacity and that are prepared by bothgovernment planners and the private sector; (iii)a balancing of investments across generation,transmission, and distribution to meet demandgrowth, extend service to the poor, and mini-mize the risk of imbalance system capacity; (iv) areasonable action plan and time-based programto build an enabling environment for competitiveand fully functioning power exchange marketsthat are efficient and able to remunerate capitalappropriately within a risk-sharing frameworkthat can attract appropriate financing; and (v) areform framework that recognizes that marketforces alone cannot ensure timely capacity build-up—in other words, a combination of regulationand private sector promotion initiatives is essen-tial for long-term demand/supply equilibrium.

Reform steps are means, not ends Evidence from the literature and portfolio re-views indicates that a purely public sector own-ership and monopoly structure should not be apermanent goal, but it is important to sequencereform steps such that they serve as tools and donot become ends in themselves. The Bank’s ap-proach to sector reform, as it evolved in the 1990s,went beyond what was mandated by the 1993Electric Power Lending Policy. The policy pro-moted commercialization and corporatization be-fore privatization, as a means to introducecompetition and innovation. It was based mainlyon the reforms in Chile, England, and Wales,which were the only experiences available at thattime. Most power sectors of Bank client countries,however, showed little prospect for reaching com-mercial standards because of the inefficienciesfrom state ownership and poor governance. Sub-sequent to the 1993 policy, and without enunci-ating it as a major strategic change, the Bank thusmostly advocated privatization (as well as privateparticipation through management contracts) asa means to achieving commercialization.

5 0


The evidence on the timing and sequencing ofreforms and PSDE is ambiguous. There are coun-try lessons where leapfrogging to privatizationas a means to achieve commercialization has ledto positive sector change (Kazakhstan and Cen-tral European countries). Even where this ap-proach was not wholly successful, service qualityand coverage are still typically better than theywould have been otherwise, as evidenced by com-paring adjacent utilities in the same country thatwere not privatized (Georgia, and Orissa in India).There are also clear examples of negative conse-quences (Ukraine), however, and the alternativereform approach has also shown both successfuland unsuccessful results. Substantial efficiencygains were achieved in some countries wheregood public governance and the right tariff struc-tures were first put in place (some ECA coun-tries), but there are also many situations whendecades of Bank support for the reform of pub-lic monopolies had little or no success (manyAFR and some SAR countries). Two examples areprovided below on issues that arise when reformsteps—regulatory improvements and un-bundling—become ends in themselves. The WBGshould not dogmatically prescribe a checklist ofminimum preconditions for PSD and privatization,but neither is it feasible to simply let markets andinvestor appetite decide alone. In cases where in-termediate steps to reform the public sector arerequired, PSDE must be a clear long-term goal.The WBG’s clients are too diverse to follow a sin-gle blueprint for reform sequencing, thus un-derlining the importance of country specificity.

Regulatory improvements are essential meanstoward achieving PSDE reforms. Bank lendingoperations have provided assistance for the es-tablishment of regulatory bodies, but this hasproved to be a slow and lengthy capacity-buildingexercise, with establishment of a regulatory bodybecoming an end in itself. Based on the portfo-lio review, there are few successful examples ofthis, most of them recently in Latin America. Inmost countries there have been long delays in set-ting up adequate regulatory mechanisms, evenwhere there was entry of private operators orIPPs (the absence of effective retail-level regula-tion was one factor that in several countries pre-

cipitated PPA renegotiations with IPPs). Further-more, there are many instances of ineffective reg-ulators due to poor legislation, lack of autonomy,weak technical skills, and politicization of deci-sions.

Lack of regulatory skills, which affects boththe regulatory agencies and the regulated entities,is particularly acute in small countries and in allof Sub-Saharan Africa (except South Africa), basedon OED’s literature and portfolio reviews. OutsideLatin America, where electricity and gas oftenhave the same regulator, as in Colombia, Chile, andMexico, local empire building and the existenceof too many regulators (such as separate electricpower, gas, telecommunications, and water reg-ulators) often have exacerbated the dispersion ofscarce regulatory expertise.4 While there has beenconsiderable debate within the Bank about the ap-propriateness of multisectoral regulation, inter-viewees suggest that the Bank may havecontributed to this situation through lack of cross-sectoral coordination among project staff. Evenwith “umbrella” (multisectoral) regulators, effec-tive and credible regulation will be difficult inmany of the Bank’s borrowers for many years tocome. This will have important implications forthe near-term viability of PSDE and WBG activitiesin these environments. One concrete step tostrengthen a multisectoral approach to regula-tion within the Bank would be to organize thenetwork side of power supply with the networkside of other infrastructure services to capturepooled knowledge about regulation, industrystructure, market structure and trading arrange-ments, and privatization experiences, with a viewto adapting this knowledge to individual countrysituations.

Ideally, regulators should be financed from alevy on consumers that is paid directly to the reg-ulator and should have separate employer statusfrom the public service, but experience shows awidespread reluctance to give regulators suchautonomy. Most regulators are financially de-pendent on the government budget, and thislimits their autonomy as well as their financial re-sources to hire expert staff or consultants. Few reg-ulatory bodies can pay good salaries5 and attractthe right talent. Most are underfunded and reliant


5 1

on donor support for initial startup costs, stafftraining, and consultants. Ministers and tech-nocrats are rarely willing to cede authority,6 so pro-nouncements of support to independentregulation can be less than genuine commitment.Many regulated power sector entities are still pub-licly owned, so the regulator lacks clout to enforcedecisions. Tariffs furthermore remain a politicallysensitive matter virtually everywhere, making it un-realistic that decisions on tariffs can be made ona technocratic basis. Ultimately, for most of theBank’s borrowers rate hikes need to be endorsedat the ministerial or cabinet level.7 Politically mo-tivated decisions in some countries have reducedthe effectiveness of even technically capable reg-ulatory agencies.8 This is very hard to change,but doing so is crucial to the long-term viabilityof independent regulation.

The Bank’s experience with unbundling rein-forces the lesson of keeping reforms as the meansto an end. Sector unbundling of generation, trans-mission, and distribution has been considered alinchpin of the reform process, as it is the gate-way to establishing competitive markets in gen-eration and distribution. Despite widespreadadoption of the many variants of this concept ina wide range of industrial and developing coun-tries, it remains a work in progress. Internationalexperience to date indicates that a variety of ap-proaches are being tried, with highly mixed results.To achieve the potential benefits of unbundlingrequires a willingness and ability to move to thenext step in promoting private, competitive mar-kets in generation and distribution, and this in turnrequires an understanding of property rights, anadequate legal framework and dispute resolutionmechanisms, smoothly functioning capital mar-kets, freedom of entry and exit for investments,and highly developed political and economic in-stitutions.9 Lessons of experience (as discussed inthe draft ECA study discussed below) include theneed to assess the readiness of the sector to moveon to the next step, and to assess market size asa potential limitation to unbundling.

In the late-1990s and until recently, key donors(including the WBG) were perceived to professthat unbundling, privatization, and the establish-ment of a competitive power pool was the bestway to achieve power sector reforms, almost re-

gardless of the size of a country and its utilities,level of development, and the extent of disarrayin the sector. A recent internal review in the ECAregion of experience with power sector reformand private sector participation in the 1990s drawssome important conclusions that also appear tobe valid elsewhere, particularly in AFR. Both theseregions are characterized by weak commercialperformance by their utilities, macroeconomicinstability, low and/or declining incomes, poorgovernance, and unattractive private investor en-vironments. In ECA, Bank operations have em-phasized the need to unbundle the sector, toprivatize distribution and generation, and to in-troduce competition and consumer choice. Theseoperations have the objectives of bringing in for-eign private resources for sector rehabilitationand possible expansion, improving managerialcompetence, and upgrading sector efficiency.

The ECA review reveals that the application ofa standard, sophisticated model in all situationsdid not produce the desired results. It concludesthat the push for unbundling and privatization waspremature in ECA and that the attempt to leapfrom a totally noncommercial state-owned en-tity, run like a government department, to privatecommercial utilities did not work. In the Cauca-sus and Central Asia regions, experience to datewith unbundling and privatization has either re-sulted in a lack of investor interest, low offerprices for assets, disinvestments by the private sec-tor, political opposition, and stalled reforms. Inmany countries investor fatigue has set in. The re-sponse to invitations for privatization has becomeso small as to negate the concept of competi-tion, and there are examples of investors with-drawing from investments already made. Sectorunbundling in countries of the former SovietUnion (including Armenia, Georgia, Kazakhstan,and Ukraine) actually exacerbated payment prob-lems because the distribution utilities retainedwhatever cash they collected and starved the up-stream suppliers. The negative impacts of push-ing prematurely can be far-reaching, as in Ukraine(see Box 5.2). In many of the poorest, but not nec-essarily small countries (Kyrgyzstan), unbundlingof distribution along geographical lines is ren-dered more difficult by the existence of unviableisolated grids serving small urban centers or large

5 2


numbers of rural consumers with very low aver-age electricity usage.

In retrospect, based on the ECA experience itwas unrealistic to believe that restructuring andprivatization could somehow overcome legal, po-litical, attitudinal, and payment obstacles and beimmune to destabilizing macroeconomic factors.The key lesson is that to improve commercialperformance, good corporate and sectoral gov-ernance are essential, regardless of sector struc-tures and ownership. Whether privatization isthe best immediate option to achieve these goalsdepends on country circumstances.

Unbundling regardless of market size and coun-try factors is questionable. The literature suggeststhat in most of the Bank’s smallest borrowers, par-ticularly in Africa, unbundling is unlikely to facil-itate the entry of private investors, particularlyforeign ones. Such firms generally have minimumsize requirements for them to consider enteringnew markets. In addition, there are economies ofscale in management and in commercial prac-tices, such as billing and collection. No African util-ity has yet been both unbundled and the resulting“segments” privatized, although a few have beenunbundled (Uganda and Kenya) and a handful pri-vatized. Viable distribution systems needeconomies of scale and excessive fragmentationdoes not work (Armenia, Georgia, Moldova).Reconcentration into larger entities has becomenecessary in several ECA countries.

Notwithstanding the foregoing findings fromECA, there is also evidence from other regions thatsector performance in countries that actually un-bundled and privatized did improve, at times toa point of sound commercial performance. Privateparticipation has led to better pricing, lowerlosses, higher collections, and greater access, andprivate participation also had a role in the caseswhere state-owned monopolies have been turnedaround from high losses and low collection rates.Unbundling in small countries can occasionallysucceed, as the Bank’s experience in El Salvadorhas shown. That said, unbundling has not alwaysbeen recommended by the WBG. EdM (Mali), acombined power and water utility with about80,000 consumers, has recently been successfullyprivatized in its existing form. SONEL ofCameroon, though a much larger utility with

more than 400,000 customers, was recently pri-vatized as an integrated company on IFC advice,reflecting investor and government preferenceand the wish to avoid “orphaning” some or all ofthe distribution system in the event of unbundling.

Reforms in transmission and distribution are asimportant as reforms in generationImprovements in the distribution subsector—better cash collections, loss reduction, good gov-ernance, better targeting of subsidies, anddistribution privatization—deserve more intensivereform efforts and investment support by gov-ernments and the WBG alike. The factors re-sponsible for increasing private participation in thepower sector of developing countries (powershortages, technological change, and search formarkets by equipment makers) have emphasizedgeneration over transmission and distribution.Swept by the market wave, the WBG’s attentionto PSDE also concentrated originally in the gen-eration subsector. However, it has become clearthat private investments in generation are vul-nerable to financial problems in the distributionend of the industry and local vested interests de-fending the status quo.

The importance of distribution reforms hasbeen highlighted in the section on IPPs (see Reform steps are means, not ends). Liberalizingthe generation subsector, without implementinga corresponding reform package to improve dis-tribution, can impair the effectiveness of the over-all reform program. It is now widely recognizedthat achieving positive sector outcomes will de-pend on devising workable solutions to the com-plex business of retailing electricity. As the EBRDputs it, “If cash collection is a problem, distribu-tion should be privatized before generation”(EBRD 2001). Promoting PSDE in noncommercialdistribution entities has been difficult. To attractinvestors and sustain private sector involvementin distribution, experience shows that: (i) thegovernment should clearly state its reform policyand back it up by passing the enabling legislation;(ii) the government should demonstrate its com-mitment to improved governance, notablythrough support for law and order, antitheft andbill collection measures, and restraints from in-terference in regulatory processes; (iii) the reg-


5 3

ulatory agency should have clear functional in-dependence, regulatory rules that provide a de-gree of certainty on tariff adjustments, andprocesses that are perceived as fair and trans-parent; and (iv) power suppliers should have in-dependent boards and financial management.

South Asia offers a powerful illustration of theimportance of addressing the commercial weak-nesses in power distribution as early as possible.The sustainability of private investment in gen-eration depends crucially on collecting the cashfrom the final consumer. Realization of the over-whelming importance of well-run distributionsystems was slow to emerge but is now wide-spread, following the virtual bankruptcy of WAPDAin Pakistan10 and the SEB in Maharashtra (India),11

triggered by their difficulty in meeting paymentsto IPPs. In Bangladesh, the main utility, BPDB, alsosuffers from high energy losses of about 20 per-cent,12 has weak revenue collections, and lostUS$55 million each year on average during the sec-ond half of the 1990s. Payments to IPPs have beenkept up only by accumulating arrears to state-owned gas suppliers and by nonpayment of debtservice to the government.

There are no simple recipes for the reform ofpower distribution because of the large scale ofthe sector and the labor intensity, political oppo-sition, vested interests, and corruption that char-acterize it. New ways are being developed toincrease private participation in distribution, suchas the allocation of risks that are beyond the in-

vestors’ control for the transition period, the de-sign of the transaction strategy, management ofpolicy risk, and the phasing-in of privatization. Theresults of these initiatives need to be monitored,but success stories so far are few, and most of themare in Latin America (see Table 5.1). No compa-rable progress has occurred in any of the otherregions. The exception, noted earlier, is Côted’Ivoire, where (CIE) achieved major improve-ments in coverage, service, and collections.

Toward Improving WBG ProcessesThe sins of commission—as well as omission—discussed in the preceding sections highlight theneed for the senior management of the BankGroup to encourage operational innovations thatwould help the WBG achieve greater consistencybetween its PSDE goals and its business directions.In addition to designing better interventions, theWBG needs to adapt its processes to the rapidlychanging environment in the electric power sec-tor. This study has identified areas where morecould be done regarding the degree of coordi-nation among the Bank Group institutions and,in some respects, the degree of coordinationwithin those institutions. For example, duringthe 1990s IFC’s electric power investment accel-erated, by way of financing projects in power sec-tors open to private capital in different stages ofthe country’s power reforms. IFC’s power in-vestments in the 1990s showed above averageperformance ratings. For the Bank, however, sec-

5 4


P e r f o r m a n c e I m p r o v e m e n t o f S o u t hA m e r i c a n E l e c t r i c i t y D i s t r i b u t i o nC o m p a n i e s

T a b l e 5 . 1

Country (distribution company) Peru (Luz del Sur) Argentina (Edesur) Argentina (Edenor) Chile (Chilectra)

Year privatized 1994 1992 1992 1987

Energy sales (GWh/year) +19% +79% +82% +26%

Energy losses (%) –50% –68% –63% –70%

Number of employees –43% –60% –63% –9%

Customers per employee +135% +180% +215% +37%

Net receivables (days) –27% –38% n.a. –68%

Provisions for bad debts (% sales) –65% –35% n.a. –88%Note: Performance improvement measured from date of privatization until 1998 in terms of performance relative to the year of privatization.

Source: Bacon and Besant-Jones (2001).

tor reform achievements were low (except in LACand some ECA countries), and the quality of re-form efforts was unsatisfactory. In a few caseswhere there was no internal discussion amongtask managers the WBG sent conflicting signals toclient countries and sponsors, and the nonalign-ment of incentive structures led to competitionamong WBG instruments (discussed below).These contrasting Bank and IFC assessments re-flect underlying differences between the Bankand IFC that need to be better coordinated withinthe context of the Country Assistance Strategy(CAS) process, and through cross-training to pro-mote a better understanding between the Bankand IFC. At the same time, proactivity and flexi-bility are also required to respond to the rapidlyevolving country-sector conditions and oppor-tunities for PSDE that are not always foreseeablein the CAS.

Country Assistance Strategies treat PSDE onlybriefly, if at all The WBG needs to improve the integration of itsPSDE objectives within the CAS framework, basedon a review of CAS Retrospectives and back-ground papers for the energy sector strategypaper. Each CAS should discuss whether Bank fi-nancial or analytical support to PSDE is needed,and how the contributions of the Bank, IFC, andMIGA can be best combined—even in cases wherethe principle of selectivity may lead the WBG toconclude that no intervention is desirable. MostCASs treat PSD in general, and PSDE in particu-lar, very briefly. The 2000 CAS Retrospective notesthat only 60 percent of CASs have a separate sec-tion on the role of the private sector, and therest only make passing references to privatiza-tion and competition. Only about one-fourth ofCASs contain a detailed discussion of private sec-tor issues.

CASs prepared jointly by the Bank and IFC aregenerally more thorough in their treatment ofPSDE than Bank-only CASs. For example, the 2002CAS Retrospective finds that 100 percent ofBank–IFC joint CASs had a PSD rating of satis-factory or better, while only 61 percent of thenonjoint CASs were rated satisfactory. In otherwords, all of the CASs that rated less than fully sat-

isfactory for their treatment of PSD issues werenonjoint CASs.

The CAS framework is the most logical contextwithin which to address Bank Group-wide issuesrelated to reform sequencing, IPPs, and the over-all regulatory framework. In the joint 1999 Philip-pine CAS, for example, PSDE issues were discussedin detail in two separate sections. IFC’s roles andstrategies for PSD in the Philippines, with a focuson the electric power sector, were also high-lighted. The same is true for the joint 2001 IndiaCAS, which emphasized the need for support ofthe PSDE agenda; IFC’s PSDE priorities in Indiawere likewise discussed. In contrast, the Bank-onlyCAS for Russia (1999), while it had a section onPSD, did not address PSDE issues, despite the crit-ical importance of the energy sector in Russia’s fis-cal balances.

Bank Group instruments sometimes competewith each otherCompetition among alternative financing mech-anisms offered by the Bank (loans, credit linessuch as Private Sector Energy Development Funds,credits, partial risk guarantees) and IFC (equity in-vestments, loans) have emerged in a few countries(Bangladesh and Sri Lanka). This is the logical con-sequence of private sponsors searching for themost appropriate project financing package. TheWBG’s PSD intervention should be along thelines of the PSD Strategy of April 2002, whichstates: “The broad division of labor in the WBGwith regard to PSD is as follows: IBRD/IDA focuson investment climate and related institutionbuilding, improvements of governance, legal andregulatory systems, financial sector policies, andpublic financing. IFC pursues demonstration proj-ects that promote the credibility of governmentpolicies, provides additional service in local mar-kets and provides political risk protection to co-financiers. … MIGA provides focused politicalrisk guarantees, institution building, and invest-ment promotion assistance …” (World Bank2002c). Financing for PSDE projects should adhereto the principle of market first, IFC/MIGA instru-ments second, and World Bank (through guar-antee and on-lending instruments) third. Withrespect to PSDE advisory, the joint World Bank/IFCPrivate Sector Advisory Department, established


5 5

in 2000, should facilitate a smooth coordinationwith the World Bank, focusing at the sector level(while being informed by IFC), and IFC at thetransaction level.

Competition could also arise within the Bank,between lending and partial risk guarantee in-struments and between the advisory and techni-cal assistance of the Bank and IFC. While suchconflicts would partly be the result of bureau-cratic tussles between regional and central de-partments, the right venue for instrumentselection and deciding WBG interventions isclearly the CAS. The WBG could also develop amechanism for such conflicts that could go be-yond the CAS.

Possible conflicts of interest should be avoidedWarning signals have emerged of the potential forconflicts of interest to arise, not only betweenthe Bank and the IFC but also within each mem-ber of the WBG. Not many cases of actual conflicthave been found, but it is important to flag thispotential, which arises mostly because of the in-stitutions’ involvement in both the legal and reg-ulatory environment and the financing of specificprivate sector projects whose financial returnsare affected by that environment.

Within the Bank, projects and analytical workin several countries have focused on improvingthe legal and regulatory framework while alsoproviding financing for private sector power proj-ects through credit lines and/or partial risk guar-antees (Pakistan and Côte d’Ivoire). Whilesovereign guarantee means that the Bank has nofinancial interest (or risk) in the specific subpro-jects it has financed, it does have a reputationalrisk related to their performance. For example,critics may argue that the Bank’s advice and sup-port on the legal and regulatory framework is bi-ased supporting favor of subprojects indirectlyfinanced by the Bank. When a partial risk guar-antee is involved, the Bank’s financial involve-ment (and risk) is even more directly linked to the

subproject’s performance—even given the gov-ernment’s counter-guarantee.

A specific example of the appearance of con-flict of interest is the advice regarding IPPs: whilethe Bank is fully justified in arguing for a coun-trywide approach to new capacity generationthrough IPPs, considering the macroeconomicimpact of these projects, the advice regarding alimit on the approval of new IPPs could be con-strued by the sponsors as an attempt by the Bankto limit the market to protect the profitability ofthe IPPs it has already financed.

Another example is the WBG’s inability to actas an honest broker in disputes involving claimsaffecting some IPPs with Bank and IFC financingand others without; or more generally, in all dis-putes between governments and IPPs, includingthose in which the private projects have Bank(sub)loans or partial risk guarantees. One possi-ble way to address this dilemma would be to re-quire a more strict specialization of the Bank andthe IFC in their strategic involvement in PSDE(with the Bank limited to assisting in matters re-garding the legal and regulatory framework, butnot on specific subprojects), but such an ap-proach would not be consistent with the ration-ale for Bank partial risk guarantees.

Between the Bank and IFC, the potential forconflict of interest emerges from a parallel set ofcircumstances, the Bank’s support for legal andregulatory framework reforms affecting the fi-nancial and overall performance of IFC-supportedprivate sector projects. With a clear division oflabor and clear strategic specialization, togetherwith the continued enforcement of the “firewall”between the respective units in the Bank andIFC, the potential for conflict of interest can beminimized, although it will continue to require vig-ilance and risk management. Within IFC thereadditionally is the potential for conflict of inter-est between the advisory and investment func-tions. IFC mitigates this by locating theseoperations in different departments.

5 6


5 7

Recommendations

The Approach Paper for this study indicates that its objective is to informthe implementation of the Bank Group’s Energy Business RenewalStrategy (EBRS). Where properly implemented, PSDE has delivered re-

sults, and the WBG should continue to support such interventions. The WBGcan play a facilitating role in rekindling private sector interest in the electricpower sector by filling the financing gaps with advice and by lending support,but it needs to do so selectively; that is, only in countries that are genuinelycommitted to a long-term reform agenda. Based on the evaluation evidenceand findings, the study recommends the following:

a) On an urgent basis, the WBG should provide oper-ational guidance to WBG staff on when and how topromote PSDE in the current environment of height-ened macroeconomic and political risks and scantinvestor interest. Such guidance should be groundedon the Bank’s recently enacted PSD strategy.

• The Bank’s Energy and Mining Sector Board,in close consultation with the Private Sector De-velopment Board, should provide WBG staffwith updated and practical operational guid-ance for pursuing PSDE, based on what worksbest, in terms of reform packages and their se-quencing, given particular country-sector sit-uations, needs, and institutional capacities.Best practices can be developed for a range ofmost frequently observed country attributes.

• The development of this guidance should beundertaken jointly and coordinated across the

Bank, IFC, and MIGA, and it should define aframework to fully analyze the PSDE alterna-tives that ensure environmental sustainabilityand align with the WBG’s poverty reductionmission.

• WBG senior management should clarify theroles of the Bank, IFC, and MIGA in promot-ing PSDE, particularly in terms of committinggreater financial and advisory support.

b) In its future PSDE interventions, the WBG should givegreater emphasis to the mainstreaming of the povertyreduction and environmental objectives (in addition toits traditional macrofiscal and sector efficiency objectives) that are at the core of the WBG’s overallenergy strategy.

• The WBG should focus on reforming and fa-cilitating private investments in the distribution

66

subsector. This will require actions to improvecash collections, reduce losses, address cor-ruption, achieve better targeting of subsidies,and, where circumstances permit, to privatizedistribution.

• The WBG should maximize the involvement ofthe local private sector in small-scale and/or de-centralized projects. This will require innova-tive approaches and much better cross-sectoralintegration within the Bank and between theBank, IFC, and MIGA.

c) The WBG should encourage operational innova-tions to ensure greater consistency between its prac-tices and instruments and its PSDE goals as theyevolve.

• The WBG needs to improve the coordinationof the various units active in PSDE. To thisend, it should pursue better integration of itsPSDE objectives within the CAS framework(including in nonjoint CASs) and Poverty Re-duction Strategy Papers (PRSPs).

• The Bank, IFC, and MIGA management shouldsupport flexibility and the exercise of initia-tive in PSDE operations and AAA, to enable bet-ter response to rapidly changing country-sectorconditions and opportunities that are not al-ways foreseeable in the CAS. Through its di-verse lending and advisory instruments, theWBG should promote more public–privatepartnerships and promising innovations, suchas the pro-poor design of reforms and output-based aid schemes, for which robust moni-toring and evaluation systems are essential.

• The WBG should develop performance indi-cators and related internal systems and shouldhelp in strengthening borrower capacities, in-cluding project funding, to monitor and eval-uate the achievements and impacts of its PSDEinterventions. These M&E efforts should bekeyed to the EBRS and other relevant strategyand policy objectives, especially in the rela-tively neglected areas of helping the poor andmainstreaming environmental sustainability.

5 8


ANNEXES

6 1

Scope and LimitationsThe study evaluates the performance of WBG ac-tivities in PSDE against policy commitments ithas made since (i) the 1993 Policy Paper (“TheWorld Bank’s Role in the Electric Power Sector:Policies for Effective Institutional, Regulatory andFinancial Reform”); (ii) the Policy Paper’s 1996 BestPractice statement; and (iii) the May 2001 EnergyBusiness Renewal Strategy (EBRS). The studydoes not review the broader, underlying ration-ale for promoting PSD. The original scope of thestudy, as envisioned in the Approach Paper, alsoincluded coal, oil, and gas, which will now becovered by a separate Extractive Industries Reviewconceived after the decision to undertake thisstudy.

The study focuses on the activities of IBRD/IDA(or “the Bank”), IFC, and MIGA in the electricpower sector, including renewables. Since very fewcountries have gone through the full set of re-forms, this study evaluates mainly the PSDE pro-motion process. It assesses outcomes and impactswithin the limits of the available literature, in-cluding existing evaluations and five country stud-ies (Côte d’Ivoire, Pakistan, the Philippines,Poland, and Turkey). This is a joint study of the Op-eration Evaluation Department (OED) of theBank, the Operations Evaluation Group (OEG) ofthe IFC, and the Operations Evaluation Unit (OEU)of MIGA. Project performance and outcome rat-ings in this study are based on the respectiveevaluation criteria of the Bank, IFC, and MIGA. Thestudy period focuses on FY90–99, but the studyalso provides observations on the PSDE activi-ties of the WBG in FY00–01.

For the Bank, input and available output indi-cators were collected during Phase 1 for the en-tire Bank PSDE portfolio, which includesPSDE-related projects in the electric power, eco-

nomic policy, public sector management, privatesector development, and finance sectors. Furtherdata on project outputs and information on out-comes were collected during Phase 2 through areview of Project Status Reports (for active proj-ects) and Implementation Completion Reports,Evaluation Summaries, and Project PerformanceAssessment Reports (for closed projects), as wellas a Task Manager (TM) Survey. The purpose ofthe TM survey was to obtain data on sector-leveloutcomes, because of lack of data from the afore-mentioned project documentation, which gen-erally focus on project-specific results. This mayhave its limitations, as some bias may have beenintroduced by having TMs assess the contributionto overall sector reforms made by projects forwhich they were responsible. A blank copy of theTM Survey form is attached. Some results of thesurvey were useful for providing technical andother specific information, as the response ratewas relatively low. The PSDE-related AAA wasstudied in depth for the country case studies,based on generally accepted AAA criteria. Com-ments were also received from a group of exter-nal reviewers and taken into account in the finaldrafting of the study.1

For IFC, this study covers, to the extent datapermit, power sector operations approved fromFY90 to FY99, comprising 57 investment opera-tions. This study does not include nonpower proj-ects with power components, except for powersector-focused financial markets projects.

Methodology

Phase 1The overall methodology for this study is sum-marized in the design matrix in the table below.Phase 1 is based on a desk review. The literature

ANNEX A: METHODOLOGY AND INSTRUMENTS

A N N E X A : M E T H O D O L O G Y A N D I N S T R U M E N T S

review assessed recent evaluations as well asglobal PSDE issues and trends based mainly on in-ternal reports and summaries of global experience.The portfolio review analyzed the energy, publicsector reform, adjustment, and other sectorallending data, leading to the identification of 154Bank projects that support PSDE exclusively (16)or have PSDE components (138).

To achieve depth and representativeness ofthe overall PSDE portfolio, the OED review con-centrated on 15 countries that together accountfor 55 percent of the projects in the Bank’s port-folio (Argentina, Bolivia, China, Côte d’Ivoire,Ghana, India, Indonesia, Pakistan, Panama, thePhilippines, Poland, Russia, Thailand, Turkey, andUkraine). A Project Evaluation Brief (PEB) wasprepared for each of the PSDE-related projects inthese countries. The PEBs include PSDE-specificproject data, such as PSDE reform areas addressed,agreed actions, and instruments proposed toachieve the PSDE objectives; project ratings weretaken from OED’s Evaluation Summary for closedprojects and from the latest Project Status Re-port (PSR) for active projects. The PEBs were up-dated during Phase 2 to include results from theTask Manager survey, described in Phase 2 below.

The IFC portfolio review covered 100 percentof the investments and advisory operations ap-proved and committed in the 1990s. OEG re-viewed the objectives, design, and structure of 57power projects; examined the portfolio per-formance of the investment operations approvedand committed in the 1990s relative to the entireIFC portfolio; and looked into existing self-eval-uations of power projects. It drew from the PowerSector Strategy and Business Plan Papers, Pro-ject Supervision Reports, Board Reports, Back-ground Papers for the EBRS, Annual Review ofPortfolio Performance, and corporate portfoliodata maintained by IFC’s Portfolio ManagementUnit.

OEU’s review of MIGA political risk guaran-tees also covered 100 percent of the portfolio.OEU reviewed data on 72 guarantees for 39 elec-tric power projects in 25 countries.

Phase 2Phase 2 consisted of a metasynthesis of evaluationfindings, based on desk studies and selected fieldvisits to study countries and on evaluation find-ings at the project level. It focused on evaluatingthe results and lessons learned from the WBG’sPSDE interventions, including their performancewith respect to EBRS objectives; namely, pro-moting PSD, macrofiscal balancing, helping thepoor directly, and protecting the environment. Thespecific indicators for these objectives are as fol-lows:

• Promote good governance and PSD bycreating transparent, nondiscriminatory regu-latory mechanisms; introducing and expand-ing competition and cross-border trade;divesting assets to socially responsible and cor-ruption-free strategic investors; catalyzing pri-vate investments; and strengthening the voiceof consumers and communities.

• Improve macrofiscal balances by replac-ing public with private investments; rational-izing taxes, managing risks associated withcontingent public liabilities; financ-ing public restructuring costs; eliminating operating subsidies to public enterprises; andboosting budget revenues through commer-cialization and privatization.

• Help the poor directly by facilitating accessto modern, cleaner fuels and electricity; re-ducing costs and improving quality for low-income households; ensuring that subsidiestarget and reach the poor; and promoting en-ergy-efficient and less-polluting end-use tech-nologies.

• Protect the environment by strengtheningenvironmental management capacity; remov-ing market barriers to renewables and energyefficiency; and facilitating carbon trading andjoint investments to reduce greenhouse gases.

OED conducted a task manager survey to ob-tain data on the outcomes of PSDE components(see paragraph 3 on its limitations). Most of the


6 2

1. How have private

participation and the

WBG's role in the

energy sector changed

during the 1990s?

2. To what extent has

the WBG’s energy

assistance supported

its strategic direction

to promote PSDE?

3. What have been the

results of the WBG’s

interventions?

4. What are the

lessons for

accelerating progress

in achieving the WBG’s

PSDE objectives?

• IFC investment and advisory

operations

• Bank, IFC, and MIGA strategies

• Bank projects (freestanding

PSDE projects and projects

with PSDE components in

energy and non-energy sectors)

• PSDE objectives and actions in

Bank lending portfolio

• Bank ESW/AAA for PSDE

• Bank ratings at closing of 16

freestanding projects,

performance data from PSRs,

ICRs, and PPARs for 138

projects with PSDE

components

• Desk review of PSDE content

of CASs

• Objective, design, and

structure of IFC projects and

advisory operations

• Financial flows

• Economic results

• Social and poverty reduction

effects

• Environmental indicators

• Portfolio performance

indicators

• Development and investment

outcome of mature IFC projects

• EBRS performance indicators

• Factors of internal and external

effectiveness

• Success drivers and obstacles

• WBG Policy Statements

• Bank’s Regional Sector Strategy Papers

• SARs

• PADs

• Legal documents (loan and project

agreements)

• IFC strategy papers and business plans

• OED ratings database

• QAG quality-at-entry assessments

• PSRs

• ICRs

• Evaluation summaries

• PPARs

• Existing self-evaluation reports

• IFC project documents

• IFC project teams

• Survey of Bank task managers (focusing on

PSDE components)

• Bank supervision back-to-office reports,

mid-term reviews, and action letters

• Field missions

• IFC project appraisal and supervision

documents


• Bank and IFC portfolio reviews

• Survey

• Bank staff and client interviews

• Advisory panel

• Field workshops


• Existing self-evaluation

• Bank Project Evaluation

Briefs

• CAS-PSDE program matrices

• Synthesis of existing self-

evaluations

• Literature review

• tCAS-PSDE program

matrices

• Short summary evaluations

of Bank PSDE programs for

the 15 core countries

• IFC and MIGA portfolio

review

• Literature review

• Project Evaluation Briefs

update

• Country Case Studies

• Mini-evaluation of IFC and

MIGA projects

• Literature review update

• Summary evaluations of

Bank PSDE programs

• Synthesis of IFC and MIGA

evaluation findings


6 3

S u m m a r y o f P o r t f o l i o R e v i e w M e t h o d o l o g yT a b l e A . 1

PHASE

1

PHASES

1&2

Instruments to Record Data and Evaluation Findings

Key Evaluation Data Needed to Answer Documentation and (involving both statistical Question the Question Sources of Evidence and content analysis)

Bank’s PSDE interventions are components oflarger projects, and information on componentshas not been reported adequately. The surveywas followed up using in-depth interviews with se-lected Bank sector managers and staff. In prepa-ration for Phase 2, a CAS-PSDE Program Matrix wasprepared for each of the 15 focus countries. Thesematrices trace the 1990s evolution of the PSDEfocus (if any) in the Country Assistance Strategy,the level of policy support, and the AAA and lend-ing program. The CAS framework is relevant be-cause an evaluation based on individual projectswould not capture the evolution of power sectorreforms since the early 1990s. Moreover, many ofthe Bank Group-level coordination and strategicissues raised in the evaluation can only be ad-dressed at the CAS level. Each matrix has a draftcountry-level PSDE performance evaluation sum-mary to assess, on a preliminary basis, the over-all relevance, outcome, and effectiveness of thePSDE program in each country, thus providing theevaluators with a set of working hypotheses forPhase 2. Many of these hypotheses were guidedby the literature review. Both the matrices and theevaluation summaries provide an interim aggre-gation of Phase 1 data, which will be corrobo-rated or revised from the Phase 2 findings.

In the derivation of evaluative findings, themain unit of account is the country-level PSDE pro-gram of lending and ESW/AAA (economic andsector work/analytical advisory assistance) duringthe 1990s and up to the present. The Bank’s proj-ect-level results are also presented in differentaggregations but are mostly used as building

blocks to assess country progress against PSDE ob-jectives.

OEG presented existing evaluation findingsfor all mature IFC projects (15) and evaluated allmature and active projects (14) that have not un-dergone self-evaluation. OEG conducted a mini-evaluation of each of these projects using anabbreviated version of the Expanded Project Su-pervision Report (XPSR) evaluation framework.These mini-evaluations were drawn from inter-views with IFC investment teams and from fieldvisits to projects in case study countries. Each in-vestment operation is rated based on three dis-tinct outcomes:

• Development outcome – the project’s impacton a country’s development

• Investment outcome – the operation’s grosscontribution to IFC’s income

• Effectiveness – IFC’s contribution to the op-eration’s outcome.

OEG synthesized the findings from all existingand pending evaluations with a view to derivingglobal IFC sector-level conclusions. The IFC eval-uation draws from OEG’s Annual Review Findingsto the extent appropriate. It is not simply an elec-tric power sector slice of the Annual Review, butbuilds on the findings of the Annual Review as rel-evant to the electric power sector.

In addition to reviewing ex ante data from allguarantees in the electric power sector, OEU pro-vided synthesized findings of the impacts of eval-uated operations in that sector.


6 4

OED/ OEG Study on

Private Sector Developmentin the Electric Power Sector (PSDE)

Sector Managers and Task Team Leaders Survey

We would be especially grateful if you would fill in the “Comments” boxes. Thank you very muchfor your time and effort!

Please enter your name:

Please enter the country for which you are evaluating the PSDE program:

Q1. To what extent is PSDE a priority in the current CAS?

Q2. What ESW/AAA did the Bank support to promote PSDE?

Q2a. What role did the ESW/AAA play in achieving the PSDE objectives of your lendingprogram?

Q3. How did your PSDE program of lending and ESW/AAA support the four priorityareas of the May 2001 Energy Business Renewal Strategy? (circle all that apply)

a) Promoted good governance and PSDb) Helped the poor directlyc) Improved macro/fiscal balancesd) Protected the environment

Q4. Please rate the overall outcome, institutional development impact, sustainability,Bank performance and borrower performance of your PSDE program:

Outcome

O Highly Satisfactory O Satisfactory O Moderately Satisfactory O Moderately Unsatisfactory O Unsatisfactory Comments:

Institutional Development Impact

O HighO Substantial O Modest O Negligible Comments:


6 5

Sustainability

O Highly Likely O LikelyO UnlikelyO Highly Unlikely O Not Evaluable Comments:

Bank performance

O Highly Satisfactory O SatisfactoryO UnsatisfactoryO Highly Unsatisfactory Comments:

Borrower performance

O Highly Satisfactory O SatisfactoryO UnsatisfactoryO Highly Unsatisfactory Comments:

Q5. How well did the Bank coordinate with IFC and MIGA in implementing the PSDEprogram?

Q6. How well did the Bank coordinate with its partners (including the private sector,regional banks, and bilateral donors)?

Q7. What lessons learned from your PSDE program should be reflected in theOED/OEG study on the World Bank Group’s performance in promoting PSDE? (For ex-ample, this could include lessons on what the Bank did right and what it could havedone differently)

THANK YOU FOR ANSWERING THIS SURVEY!


6 6

6 7

ANNEX B: WORLD BANK GROUP PSDE PORTFOLIO-AT-A-GLANCE

Total number of projects 154 64 43 261

Freestanding vs. componentsPSDE components 138 138Freestanding PSDE projects 16 64 39 123

By statusActive 58Closed 96

By regionEAP 35 6 9 50ECA 39 7 2 48AFR 30 3 2 35LAC 25 22 20 70SAR 20 16 6 43MNA 5 2 0 7

By sector groupElectric Power and Other Energy 108 64 39 215Economic Policy 23 23Private Sector Development 9 9Public Sector Management 8 8Oil and Gas 3 3Finance 2 2Environment 1 1

By instrument typeSpecific Investment Loans (SILs) 81 81Structural Adjustment Loans (SALs) 27 27Sector Investment and Maintenance Loans (SIMs) 11 11Technical Assistance Loans (TALs) 15 15Sectoral Adjustment Loans (SECALs) 8 8SIL/ Partial Credit Guarantee 5 5Partial Credit Guarantee 1 1Partial Risk Guarantee 3 3SIL/ Partial Risk Guarantee 1 1Adaptable Program Loan (APL) 1 1Rehabilitation Loan (RIL) 1 1

By ratings (closed projects)Highly Satisfactory 5 5 Satisfactory 44 44Marginally Satisfactory 17 17 Marginally Unsatisfactory 4 4 Unsatisfactory 25 25Highly Unsatisfactory 1 1

By ratings (active projects)Highly Satisfactory 3 5 Satisfactory 38 45 Unsatisfactory 12 14 Highly Unsatisfactory 0 0 Not Rated 5 5

Bank IFC MIGA Total

A N N E X B : W O R L D B A N K G R O U P P S D E P O R T F O L I O - AT- A - G L A N C E

6 8

ANNEX C: TRENDS IN PSDE OBJECTIVES IN THE BANK’S PORTFOLIO

0

2

4

6

8

10

12

14

16

18

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999Year

Number of PSDE Actions

Commercialization

Corporatization

Arms Length Regulation

Unbundling

Private Sector Participation inProductionPrivate Sector Participation inTransport and Retail SupplyCompetition


6 9

ANNEX D: RATINGS OF FREESTANDING PROJECTS AND PROJECTS WITH PSDE

COMPONENTS

Project Name Region Country FY o

f App

rova

l

Year

of C

losi

ng

Ratin

gs: A

ctiv

e pr

ojec

ts L

ates

t PSR

dat

e

Dev

elop

men

t Obj

ectiv

e

Impl

emen

tatio

n Pr

ogre

ss

Envi

ronm

enta

l Pla

n

Fina

ncia

l Mgt

M &

E

Ratin

gs: C

lose

d pr

ojec

ts E

S/ IC

R/ o

r PA

R

Out

com

e

Sust

aina

bilit

y

Inst

itutio

nal D

evel

opm

ent

Ban

k Pe

rfor

man

ce

Bor

row

er P

erfo

rman

ce

ENERGY SECTOR Africa SENEGAL 1998 12/3/2001 S S NR NA SADJUSTMENT OPERATIONPOWER SECTOR Latin America and Caribbean BOLIVIA 1996 1999 ES MS L M U UREFORM TECHNICAL ASSISTANCEENERGY SECTOR TA Latin America and Caribbean COLOMBIA 1995 2001 ICR S HL H S SPOWER MARKET Latin America and Caribbean COLOMBIA 1996 2002 ICR S HL H S SDEVELOPMENTPOWER SECTOR TA Latin America and Caribbean EL SALVADOR 1992 1998 ES S L S S SENERGY SECTOR ADJUSTMENT PROGRAM Latin America and Caribbean HONDURAS 1992 1996 EVM MS NE M S ?ELECTRICITY Latin America and Caribbean PERU 1995 1999 ES S L S S SPRIVATIZATION ADJUSTMENTENERGY SECTOR Middle East and N. Africa JORDAN 1994 1998 ES S L S S SADJUSTMENT LOANJORF LASFAR POWER Middle East and N. Africa MOROCCO 1997PROJECTPRIVATE POWER South Asia INDIA 1990 1996 ICR S L S SHSUTIL (TEC)PRIVATE POWER UTIL I South Asia INDIA 1991 1997 PAR MS L S S SPRIVATE POWER South Asia INDIA 1993 1997 PAR U U M U UDEVT TAHUB POWER South Asia PAKISTAN 1994GUARANTEEPRVT SEC EGY DEV I South Asia PAKISTAN 1994 1998 ES U U N U UPVT SEC EGY DEV II South Asia PAKISTAN 1995 2000 ES U U N U UUCH POWER South Asia PAKISTAN 1996PROJECT PARTIAL RISK GUARANTEE

A N N E X D : R AT I N G S O F F R E E S TA N D I N G P R O J E C T S A N D P R O J E C T S W I T H P S D E C O M P O N E N T S

1 6 F r e e s t a n d i n g P S D E P r o j e c t sT a b l e D . 1


7 0


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Power Sector AFR Angola 1992 2000 ES U NE N U URehabilitationPower Rehabilitation AFR Benin 1991 2000 ES U NE N U Uand ExtensionEnergy Sector AFR Burundi 1991 1999 ES U U N U URehabilitationEnergy and Water AFR Cape Verde 1999 2/25/2002 S S NA NA SSector ReformSNEL TA AFR Congo, Democ 1992 1995 ICR U U M U UPrivate Sector Energy AFR Côte d’Ivoire 1995 2/21/2002 HS S S U SEnergy Sector AFR Côte d’Ivoire 1990 1991 PAR MS NE M MS MSAdjustment LoanAzito Power AFR Côte d’Ivoire 1999 6/29/2001-

Project droppedEnergy II AFR Ethiopia 1998 12/28/2001 S S HS S SFifth Power Project AFR Ghana 1990 1997 PAR MU U M U UNat'l Electrification AFR Ghana 1993 2000 ES S U M U SThermal Power AFR Ghana 1995 2001 12/28/2001 S S S U SEconomic Reform AFR Ghana 1998 1999 ES S L N S SSupport OperationSecond Economic AFR Ghana 1999 2001 12/27/2001 S S NA NA NAReform Support OperationPower II AFR Guinea 1993 1999 PAR U U N U UEnergy Sector AFR Kenya 1997 12/28/2001 S S S U SReform and Power DevelopmentEnergy Sector AFR Madagascar 1996 12/27/2001 S S NA HU SDevelopmentPower V AFR Malawi 1992 2001 ICR U U M S UPower II AFR Mali 1989 1998 ES MS U M S URegional Hydropower AFR Mali 1997 12/21/2001 U U U S UDevelopmentRegional Hydropower AFR Mauritania 1997 12/21/2001 U U U S UDevelopmentPower System AFR Nigeria 1990 1996 ES U U M U UMaintenance and RehabilitationEnergy Sector AFR Rwanda 1993 12/28/2001 S S S S SRehabilitationRegional Hydropower AFR Senegal 1997 12/21/2001 U U U S UDevelopmentPower Sector AFR Sierra Leone 1992 12/28/2001 S S NA S SRehabilitationPower VI AFR Tanzania 1993 6/26/2001 S S S U S

1 3 8 P r o j e c t s w i t h P S D E C o m p o n e n t sT a b l e D . 2

7 1


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Togo/Benin AFR Togo/Benin 1992 1999 ICR U L M S SEngineering and TAPower Rehabilitation AFR Zambia 1998 12/3/2001 S S S U SPower III AFR Zimbabwe 1994 1999 ICR S L S S HSPhnom Penh EAP Cambodia 1996 2000 ICR S L SU HS SPower RehTianhuangping Hydro EAP China 1993 2002 12/27/2001 S HS NR S HSYangzhou Thermal EAP China 1994 2002 12/21/2001 S S S S SPowerZhejiang Power Devt EAP China 1995 2003 12/27/2001 HS HS S HS HSSichuan Transmission EAP China 1995 2002 12/27/2001 S S S U SErtan Hydro II EAP China 1996 2001 ICR S L SU S SWaigaoqiao Thermal EAP China 1997 2007 12/25/2001 S S S S NRPowerInner Mongolia EAP China 1997 2005 12/17/2001 S S S NR NR(Tuoketuo) Thermal PowerHunan Power EAP China 1998 2005 12/21/2001 S S S S NADevelop.Technical Assistance EAP Indonesia 1991 1997 PAR S L S S Sfor Public and Private Provision of InfrastructureSumatra and EAP Indonesia 1994 2001 ICR U U M S SKaliman PRural Elect II EAP Indonesia 1995 2000 ES S U M S SPow. Trans and Dist II EAP Indonesia 1996 2002 12/27/2001 S S NR HU SSolar Homes Systems EAP Indonesia 1997 2001 ES U NE S HS SRenw. Ener Small EAP Indonesia 1997 2001 7/23/1998 U U NR S SPw PProvincial Grid EAP Lao, P.D.R. 1993 2000 ES S NE S S SIntegrationSouthern Provinces EAP Lao, P.D.R. 1998 10/17/2001 U S S U SRural ElectrificationLeyte Cebu EAP Philippines 1990 1996 ES U NE M U BlankGeothermalEnergy Sector Project EAP Philippines 1990 1996 PAR MU NE U URural Elect EAP Philippines 1992 1998 PAR U NE M U UPower Sector EAP Philippines 1993 1997 ES U NE M U UTransmission and RehabilitationLeyte-Luzon Geother. EAP Philippines 1994 2000 ES U U M U UDistribution System EAP Thailand 1993 2000 ES S L M S Sand Energy Efficiency

( c o n t i n u e d )T a b l e D . 2



7 2


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Second Power EAP Thailand 1993 1995 ES S L S S HSSystem DevelopmentLam Takhong EAP Thailand 1995 2001 ICR S L H S HSPump StorageMetropolitan EAP Thailand 1995 1999 ES S L M S SDistribution Reinforcement Distribution EAP Thailand 1997 1999 ES S L M S SSystem ReinforcementDistribution EAP Thailand 1997 12/27/2001 S S NA S SAutomation and Reliability ImprovementEconomic EAP Thailand 1998 12/13/2002 S S NA S SManagement AssistanceEgat Investment EAP Thailand 1999 No PSRs in SAPProgram SupportEconomic and EAP Thailand 1999 2000 ES S L S S SFinancial Adjustment LoanSecond Economic EAP Thailand 1999 2000 ES MS L M S Sand Financial AdjustmentPower Sector EAP Vietnam 1995 2000 ES S L S S SRehabilitation and ExpansionPower Development EAP Vietnam 1996 2000 ES S L S HS STransmission, EAP Vietnam 1998 12/27/2001 U S S U SDistribution, and Disaster ReconstructionPower Transmission ECA Albania 1996 10/29/2001 U S S U Blankand DistributionPower Maintenance ECA Armenia 1995 1999 ES S HL M S SSAC I ECA Armenia 1996 1998 ES S L M S SSAC II ECA Armenia 1997 1999 ES MS Uncertain M S SSAC III ECA Armenia 1998 2001 ES MS L M S SEnterprise and ECA Bosnia-Banking Privatization Herzegovina 1999 12/18/2001 S S NA NA SAdjustment LoanEnergy ECA Bulgaria 1993 2000 ES S L H S SDistrict Heating Rehabilitation ECA Estonia 1994 2000 ES S L H S S


7 3


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Structural Adj TA ECA Georgia 1995 1999 ES S L S S SCredit IStructural Adj Credit I ECA Georgia 1996 1998 ES S L M S SPower Rehabilitation ECA Georgia 1997 2001 ES MS NE S S UStructural Adj TA ECA Georgia 1998 2000 ES S L S S SCredit IIStructural Adj Credit II ECA Georgia 1998 1999 ES MS L M S SEnergy Sector ECA Georgia 1999 2002 ICR S L M HS SAdjustment CreditStructural Adj Credit III ECA Georgia 2000 11/21/2001 S S NA NA NAEnterprise Reform ECA Hungary 1992 1994 ES S L SLoanEnergy and ECA Hungary 1994 2001EnvironmentEnterprise and ECA Hungary 1997 1999 ES HS L S HS HSFinancial Sctr Adj Public Sector ECA Kazakhstan 1998 2000 ICR S L S S SResource Mgmt Adj LoanPower and District ECA Kyrgyz Republic 1996 12/21/2001 S S S S BlankHeating RehabilitationPower Rehabilitation ECA Lithuania 1994 1/16/2002 HS S S S NRStructural ECA Lithuania 1997 1999 ES S L S HS SAdjustment LoanPower System ECA Macedonia 1998 12/21/2001 S S S S SImprovementEnergy ECA Moldova 1996 2001 ICR S L M S SSecond Structural ECA Moldova 1998 2001 ES MS NE M S UAdjustment Credit/Loan (SAL II)Energy Resource ECA Poland 1990 1998 ES MU L M S SDevelopmentHeat Supply Restruct ECA Poland 1991 2000 ES HS HL H S HSStructural Adjustment ECA Poland 1991 1992 PAR S L M NR NRLoanPower Transmission ECA Poland 1996 2002 12/18/2001 S S Blank S BlankPower Sector ECA Romania 1996 12/21/2001 U S S U SRehabilitation and ModernizationElectr. Sector ECA Russia 1997 2002 12/26/2001 S S NA NR SReform SupportSAL I ECA Russia 1997 1998 ES U L M U USAL II ECA Russia 1998 1999 ES U L M U USAL III ECA Russia 1999 2001 ES U L M S UTEK Restruct. ECA Turkey 1991 2000 ES MS L S S U




7 4


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Privatization ECA Turkey 1994 1999 ES U U Blank S UImplementation and Social Safety NetNat'l. Trnsm. Grid ECA Turkey 1998 2004 12/20/2001 S S S U BlankRehabilitation Loan ECA Ukraine 1995 1996 PAR MS NE M S NRElectricity Market ECA Ukraine 1997 2000 ES U U N U UDevelopmentYacyreta II LAC Argentina 1993 2000 ICR U U M U UProvincial Reform Loan LAC Argentina 1995 1998 ES HS L H HS HSRenewable Energy LAC Argentina 1999 2/1/2001 S S NR S Sin the Rural MarketSpecial Structural LAC Argentina 1999 7/14/2000 S S NR NR SAdjustment LoanSecond Power LAC Belize 1995 1999 ES S L S S SDevelopmentStructural LAC Bolivia 1992 1996 PAR MS L S U SAdjustment ProgramReg. Reform LAC Bolivia 1995 1999 ES S L S S Sand Cap. TACapitalization LAC Bolivia 1995 1999 ES HS L S HS HSProgram Adj. CreRegulatory Reform LAC Bolivia 1998 2003 11/27/2001 S S NR S Sand Priv. TAReg. Reform Sector LAC Bolivia 1999 2001 10/15/2001 U U NR NR NRAdj. CreditRio Grande Do LAC Brazil 1997 1998 ES MS U M S USul State ReformRio De Janeiro LAC Brazil 1998 1999 ES S L S HS SState Reform PrivEnergy Sector LAC El Salvador 1996 12/21/2001 S S S S SModernizationPriv Participation LAC Guatemala 1997 2002 11/19/2001 S S NR S Sin Infrastructure TA Energy Sector LAC Jamaica 1993 2000 ES U U M S UDeregulation and PrivatizationInfrastucture LAC Mexico 1996 2000 ES S L S S SPrivatization TAUtilities LAC 1998 2002 10/11/2001 S S S S SRestructuring TAPrivatization TA LAC Peru 1993 1998 ES S L S S HSPower Transmission LAC Uruguay 1996 11/30/2001 S S NA U Sand DistributionPower Sector MNA Iran 1993 2001 ES S L S HS SEfficiency Improvement


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Power Sector MNA Lebanon 1997 2002 ICR HU HU N U HURestructuring and Transmission ExpansionSana'a Emergency MNA Yemen 1999 1/25/2002 U S S U SPowerEnergy Sector South Asia Bangladesh 1989 1990 PAR S U N S UAdjustment CreditPrivate Sector South Asia Bangladesh 1998 3/4/2002 S S S S SInfrastructure DevelopmentMaharashtra Power II South Asia India 1992 1998 ES U NE M S URenewable Resources South Asia India 1993 1995 ES HS L M HS HSDev/ Alternate EnergyOrissa Power Sector South Asia India 1996 2003 12/28/2001 U U S U SHaryana Power APL-I South Asia India 1998 2001 ES MU NE S S UAP Power South Asia India 1999 2004 2/14/2002 S S S U SRestructuring ProjectPublic Sector South Asia Pakistan 1994 1996 ES MS U N S SAdjustment Loan/CreditPower Sect. Dev. Pro. South Asia Pakistan 1994 2001 ICR S L M S SGhazi Barotha Hydrop South Asia Pakistan 1996 2002 11/29/2001 S U S U SStructural Adjustment South Asia Pakistan 1999 1999 ES MS L N S SLoanPrivate Sector South Asia Sri Lanka 1996 1/15/2002 U U S S SInfrastructure DevelopmentEnergy Services South Asia Sri Lanka 1997 10/4/2001 S S NR S SDelivery



7 6

Evidence suggests that satisfactory outcomes inboth freestanding and PSDE component projectsare primarily due to country factors and to timelyand relevant Bank assistance. In Jordan, the En-ergy Adjustment Loan (ESAL), a freestanding proj-ect and the only PSDE project in the country, wasrated as satisfactory by OED and the Region be-cause it achieved the following: (i) corporatizationand commercialization of sector institutions; (ii)the restructuring of the institutional frameworkof the sector; and (iii) rationalized energy pricesand financially stronger power sector institutions.The follow-through on energy price adjustments,however, has been patchy and the sector’s insti-tutional strengthening is incomplete, accordingto OED’s 2001 PPAR. Close collaboration betweenthe government and the Bank at various stages ofproject preparation and implementation, openand constructive dialogue between the Bank andthe government, and timely use of ESW/AAA bythe Bank to advise the government in policy-re-lated issues were critical to the satisfactory out-come of the project.

In Pakistan, the freestanding Private Sector En-ergy Development Project (PSDEP I) and its fol-low-on project, PSDEP II, were both ratedunsatisfactory by OED and the Region. Althoughthe projects achieved their physical targets and es-tablished incentives to encourage private sectorparticipation, the related economic, financial, in-stitutional, and technical aspects were achievedonly partially and unsustainably. The lack of com-mitment and poor performance of the govern-ment were demonstrated in three ways. First, thegovernment agencies created to implement PSDEwere subject to significant political interferenceand suffered high staff turnover. Second, exces-sive obligations to IPPs in the face of reduced de-mand and unreformed tariff structure resulted inan oversupply in generation that eventually un-

dermined the financial viability of WAPDA andthe macroeconomic stability of the country. Third,highly politicized dealing with IPPs contributed tothe overall decline in foreign investor confidencein the country. The Bank’s focus on specific trans-actions relating to IPPs rather to the reform itselfcontributed to the unsatisfactory outcome of theprojects.

Thailand’s Lam Takhong Pumped Storage proj-ect, which had a PSDE component, was ratedhighly satisfactory by OED because the projectfully achieved its objectives. The Bank assisted theElectricity Generating Authority of Thailand(EGAT) in optimizing its investment program.EGAT adopted sound policies and strategies forenvironmental and social management and de-fined a framework and guidelines for the envi-ronmental assessment of power developmentplans. It implemented the recommendations ofa study on economic regulation, tariffs, and de-velopment of bulk supply. The Bank acted as fa-cilitator, and played an informal role in advisingthe government on the reform of the power sec-tor. The government’s proactive role in the reformprocess was instrumental to the overall successof the project: through its National Energy Policy,the government conducted several importantstudies associated with restructuring the PowerSector Industry, drafted the Energy Act, finalizedthe regulatory regime for the energy sector, for-mulated the power pool model, and secured cab-inet approval for its proposals.

In contrast, Lebanon’s Power Restructuringand Transmission Project, also a project with aPSDE component, was rated highly unsatisfac-tory by OED because the institutional reformshad not been implemented and the physical com-ponents of the project (transmission system andoverhead transmission lines) were not completed,and contracts for the two substations not awarded.

ANNEX E: ANALYSIS OF THE PERFORMANCE OF FREESTANDING PSDE

PROJECTS AND PROJECTS WITH PSDE COMPONENTS


Electricité du Liban (EdL) remains financially andinstitutionally weak, and progress at involvingthe private sector has been negligible. The gov-

ernment’s inaction on agreed covenants and ac-tions on institutional reforms contributed to theoverall unsatisfactory performance of the project.

A N N E X E : P E R F O R M A N C E O F F R E E S TA N D I N G P S D E P R O J E C T S

7 7

7 8

I . O p e r a t i o n s u n d e r t a k e n b y t h e P r i v a t e S e c t o rA d v i s o r y S e r v i c e s P r i v a t i z a t i o n P o l i c y a n dT r a n s a c t i o n ( P S A P T , f o r m e r l y I F C ’ s C o r p o r a t eF i n a n c i a l S e r v i c e s o r C F S )

ANNEX F: IFC ADVISORY OPERATIONS IN POWER: STANDALONE ADVISORY

OPERATIONS

Fiscal Year Country Project Name Description

FY94 Peru Electrolima Privatization of Edegel, the Lima power generation company and

Chancay, a small power company

FY94 Trinidad and T & TEC Sale of Trinidad and Tobago’s electricity generation company

Tobago

FY94 Colombia Central Hidroeléctrica de Privatization of a hydroelectric power plant

Betania

FY94 Venezuela FIV- Privatization of Two general advisory mandates for devising a strategy for the

electricity sector (I & II) Fondo de Inversiones de Venezuela (FIV) on restructuring and

privatizing state-owned electricity companies

FY96 Pakistan F.A.E.B. Privatization of the Faisalabad Area Electricity Board (FAEB), one

of the eight power distribution companies in Pakistan

FY96 Gabon SEEG Privatization of Société d’Energie et d’Eau du Gabon (SEEG), the

national water and electricity utility

FY98 Panama IRHE Advisory for the marketing and sale of shares in the electric

generation and distribution companies that will result from the

restructuring of the power sector in accordance with recent

legislation

FY98 India Goa Power Review of the State of Goa’s power sector and assistance in the

selection of an appropriate privatization model

FY98 Brazil COELCE (Ceara) Privatization of Coelce, the Ceará State electric distribution utility,

and establishment of a multisector state regulatory agency

FY98 Brazil COELCE IPP Structuring an IPP, advising Coelce on the drafting of main

contractual documents, assisting in the bid process, negotiations,

and closing of the transaction

FY98 Cameroon SONEL Privatization of SONEL (Société Nationale d’Electricité), the

electric utility company responsible for generation, transmission,

and distribution


A N N E X F : I F C A D V I S O R Y O P E R AT I O N S I N P O W E R : S TA N D A L O N E A D V I S O R Y O P E R AT I O N S

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I I . O p e r a t i o n s u n d e r t a k e n b y P S A P T a f t e r F Y 9 9


FY01 Georgia Georgia Power Privatization of Georgia Power including distribution outside

Tbilisi and generation of five HPPs with combined installed

capacity of 346MW

FY01 Armenia Power Distribution Privatization of Armenia’s electricity distribution sector

I I I . O p e r a t i o n s u n d e r t a k e n b y I F C i n v e s t m e n td e p a r t m e n t s


FY98 Romania RENEL Assessment of two projects to be developed as independent

power producers (IPPs) and assistance in implementing the

privatization transaction phase

FY99 Russia UES Advise United Energy System, the nationwide holding company

for government assets in electricity generation, transmission, and

distribution, on its reorganization and the development of a sector

restructuring plan

Total = 15 Advisory Assignments

8 0

FY Country Advisory Operations Advisory Assignments Total (US$)

FY92 Chile Empresa Pangue Hydropower environmental audit $220,000

FY96 Chile Environmental capability assessment $100,000

FY92 Costa Rica Aguas Zarcas Feasibility study update $30,000

hydroelectric project

FY93 Central BAS power generation Sector study $73,200

America project

Region

FY93 Guatemala Rio Bobos hydroelectric Project preparation $30,000

FY93 Nepal Himal hydro project Environmental and geological technical assessments $150,000

FY94 India St. lignite power plant Modernization options $77,000

FY95 Selected Renewable energy and Project preparation $85,050

Countries energy efficiency fund

FY96 Gabon SEEG Privatization and restructuring of water and electricity $263,000

services (Phase 1)

FY97 Gabon Privatization and restructuring of water and electricity $126,800

services (Phases 2 and 3)

FY96 Hungary Pumped storage Feasibility study $120,000

power plant

FY96 Pakistan F.A.E.B. privatization Review of legal and economic factors (Part 1) $500,000

FY96 Pakistan Review of legal and economic factors (Part 2) $170,000

FY96 Russia Tomskenergo Energy Development of an independent private power project $400,000

in Siberia

FY97 Russia Development of an independent private power project $22,400

in Siberia

FY97 Brazil COELCE (Ceara) Development of a multisectoral regulatory entity $500,000

FY97 Russia UES Power sector restructuring $350,000

FY98 Russia Facilitating the corporate power sector restructuring $500,000

FY98 Russia Facilitating corporate restructuring of UES $645,000

FY98 Brazil COELCE IPP Private power generation in Ceara $120,000

FY98 Romania RENEL Independent power producer $250,000

FY98 Romania Power privatization accounting work $225,000

FY98 Romania Two independent power producers advisory effort $250,000

FY98 Uganda UGN-8610 Assessment of hydroelectric generation alternatives (Part 1) $100,000

FY99 Uganda Assessment of hydroelectric generation alternatives (Part 2) $110,000

FY99 Global Power conference Workshop on Orimulsion, an alternative fuel of power $20,000

generation

FY99 Philippines Philippine Cooperative Establishing PCFC to help finance extensive capital $125,300

requirements

Finance Corp (PCFC) of electric cooperatives throughout the country

ANNEX G: IFC ADVISORY OPERATIONS IN POWER: DONOR-ASSISTED

TECHNICAL ASSISTANCE TRUST FUNDS (TATF) OPERATIONS


(continued on next page)

A N N E X G : I F C A D V I S O R Y O P E R AT I O N S I N P O W E R

8 1

FY Country Advisory Operations Advisory Assignments Total (US$)

FY99 Romania GCP-CPW-Romania Development of combined heat and power projects $350,000

FY99 Tajikistan GCP-CPW-Tajikistan Conducting an action assignment to structure, establish, and $135,000

finance an (Phase I) independent and autonomous energy supply

company in the region of Gorno-Badakhshan

Total FY90-99 20 TA operations 29 TA assignments $6,047,750

FY00 China Establishment of the first Develop acomprehensive business plan required for a $111,000

private energy services privately run energy services company (ESCO)

company (ESCO)

FY00 China Private participation in Assess the legal and regulatory framework for $280,000

infrastructure sector infrastructure, including the power sector

FY00 Nicaragua Assessment of Review potential hydropower sites in the private sector $203,500

hydroelectric

generation alternative

FY00 Poland Private financing of Review private financing for and promotion of renewable $50,000

renewable energy energy and energy efficiency projects

projects

FY00 Romania Carbon-funded municipal Phase II to establish two municipal cogeneration plants $240,000

cogeneration projects for

the cities of Cluj-Napoca

and Targoviste

FY00 Philippines Private financing of Review private financing for and promotion of renewable $50,000

& Romania renewable energy energy and energy efficiency projects

FY00 Russia UES (started in FY97) Privatization workshop in Moscow (1 assignment) $26,000

FY00 Tajikistan GCP-CPW-Tajikistan Structure, establish, and finance an independent and $150,000

Phase II: assignment A autonomous energy supply company (Part 1)

(started in FY99)

FY00 Tajikistan GCP-CPW-Tajikistan Structure, establish, and finance an independent and $150,000

Phase II: assignment B autonomous energy supply company (Part 2)

(started in FY99)

FY00 Uganda UGN-8610 Financial support for Uganda-based NGO representatives $25,000

Bujagali Hydropower and interested parties to attend an international

Projects (started in FY98) consultation to discuss project impacts and issues

FY01 Hungary TA to support energy Promote and support commercial financing of EE $100,000

efficiency financing equipment and EE projects

FY01 Senegal Study on the demand for Develop a system expansion plan for the electricity $250,000

a supply of power and the sector, and assess the role of international and

associated investments local IPPs

requirement

FY01 Uganda URED Develop a private-sector-led pilot rural electrification project $70,000

FY01 Uganda Develop greenfield rural electrification projects $200,553

Total FY00-01 9 TA operations 14 TA assignments $1,906,053

TOTAL FY90-01 29 TA OPERATIONS 43 TA ASSIGNMENTS $7,953,803

(Annex G continued)

8 2

What are Renewable Energy and EnergyEfficiency Operations?IFC has increasingly financed energy projectsthat use renewable energy resources and pro-mote efficient use of energy. This subset of proj-ects is generally referred to in IFC as RenewableEnergy and Energy Efficiency (RE and EE) proj-ects. IFC undertakes RE and EE operations di-rectly, in partnership with the GlobalEnvironment Facility (GEF) and through finan-cial intermediaries. This work is supported byIFC’s Environmental Markets Group (CESEM,formerly Environmental Projects Unit) in theEnvironment and Social Development Depart-ment, the Power Department, and to some ex-tent the regional and specialist investmentdepartments. Renewable Energy projects in-clude technologies such as run-of-the-river andconventional hydro, geothermal, biomass, wind,and solar (photovoltaic and solar thermal). In-vestment operations in Energy Efficiency targetenergy service companies (ESCO), efficiency im-provements for distribution and generation com-panies, industrial projects with EE components,and investment funds focused on energy effi-ciency projects.

What are IFC’s mainstream RE and EEoperations?The investment operations approved in the1990s and reviewed in this study include 13RE/EE projects, with a total cost of US$2 billion.IFC made a total net investment commitment ofUS$225 million for 10 of these projects, repre-senting 20 percent of IFC’s total investmentcommitments in the power sector in the 1990s.Attachment A lists these 13 mainstream IFC REand EE operations.

Nine of the 13 RE/EE investment operations arein RE. Of these nine, eight are hydropower plantsand five are in LAC. Excluding one 450MW plant,the average size of these hydro plants is 67MW. IFCalso has one investment operation in a geother-mal IPP that has a generating capacity of 24MW.IFC additionally has invested in projects with REcomponents, such as a sugar mill in LAC thatgenerates power using bagasse. While it is outsidethe scope of this study, it is important to note thatIFC is showing a lot of interest in this project, witha view to replicating it in other investment oper-ations.

There are four IFC investment operations in EE:two in energy services companies and two in fo-cused investment funds. Apart from these four,IFC’s 1990s investment operations include proj-ects that have energy efficiency improvementcomponents. Projects in this category includetwo electricity distribution projects in LAC andseveral industrial projects for which energy is a sig-nificant operating cost, for example, cement,steel, sheet and float glass, and automotive tires.Many expansion/ rehabilitation projects in theseindustries have energy efficiency componentsthat are necessary if they are to become com-petitive with newer and more energy efficientplants; they are, however, outside the scope of thisstudy.

Three projects approved in the 1990s werecommitted in 2000; that is, outside the review pe-riod. IFC’s investment commitments for thesethree projects (two investment funds and oneESCO project) amounted to US$38 million. Thetwo investment funds are: (i) US$15 million for amultiproject financing facility to support RE proj-ects focusing primarily on Central America, amongthe beneficiaries of which are two hydropower

ANNEX H: IFC’S OPERATIONS IN RENEWABLE ENERGY AND ENERGY

EFFICIENCY IN THE 1990s


plants of 16MW and 18MW and a wind farm(20MW) in Costa Rica; and (ii) US$15 million fora US$65–100 million RE/EE global private equityinvestment fund that will invest in companiesusing renewable energy technologies and energyefficiency techniques in developing countries.The ESCO project is a multiproject facility fornew ESCOs to serve Central and Eastern Europeand Asia. The first two investments made underthis facility are in Hungary and Poland.

What are IFC’s energy operations withGEF?

What is GEF? GEF is a financial mechanism es-tablished in 1991 by a resolution of the WorldBank Executive Directors as a program that pro-vides grants and concessional funds to devel-oping countries for projects and activitiesdesigned to protect the global environment.GEF resources address four focal areas consid-ered to be critical threats to the global environ-ment: biological diversity loss, climate change,depletion of the ozone layer, and degradation ofinternational waters. Activities concerning landdegradation (primarily desertification and de-forestation) as they relate to the focal areas arealso eligible for GEF funding. There are 166 par-ticipant countries.

What is the World Bank Group’s Role? The WBGplays two important roles in the GEF: (i) with itslong experience in funds management, the WBGwas selected trustee of the GEF Trust Fund, and(ii) as a GEF Implementing Agency, the WBGplays the primary role in ensuring the develop-ment, management of GEF investment projects,and mobilizing of resources from the privatesector. About two-thirds of all project-relatedGEF resources are allocated to the WBG’s GEFportfolio.

What is IFC’s role? IFC’s Environmental Mar-kets Group (CESEM) is responsible for IFC’s op-erations with GEF. CESEM draws on concessionalfunding from sources such as the GEF, in addi-tion to IFC’s own investment resources, towardtwo main objectives: (i) identifying and devel-

oping innovative private sector projects with en-vironmental benefits, and mainstreaming thoseinvestments within the private sector and IFC;and (ii) integrating active consideration of en-vironmental opportunities into each stage ofIFC’s project processing cycle, thereby improv-ing the sustainability resource use (ecoefficiency)in IFC’s investments.

What are IFC’s GEF projects? Over the 1990s, IFC hascommitted about US$100 million of GEF fundsto seven energy projects in RE and EE. Theseprojects deal with the promotion of efficientlighting, application of photovoltaic technology,and establishment of global funds to supportsmaller-scale initiatives in RE/EE. The projectshave been estimated to have a total cost of be-tween US$500 million and US$1.1 billion. Mosthave global coverage. For one project (the Re-newable Energy and Energy Efficiency Fund, orREEF), IFC approved a direct investment ofUS$35 million to supplement GEF funding ofUS$30 million. Another IFC/GEF jointly fundedproject (the Solar Development Group) was ap-proved by IFC in FY99 and by GEF in 2001. IFCcommitted US$6 million to this project and GEFcommitted US$10 million. (A list of IFC-man-aged GEF projects approved by GEF in the 1990sis provided in Attachment B.) The salient featuresof these IFC-supported GEF projects are:

1. Energy Efficiency: Promotion of efficient light-ing – Demand management projects to pro-mote awareness, technology, production, anddistribution improvements and the use of ef-ficient lighting products such as compact flu-orescent bulbs.

2. Renewable Energy: Photovoltaic (PV) tech-nology – Projects that support photovoltaic-based off-grid power generation and that aimto demonstrate viable financial structures andbusiness models as a basis for the long-termsustainability and replicability of off-grid PVpower generation.

3. Renewable Energy and Energy Efficiency: In-vestment funds – Investments in global fundsfocused on renewable energy and energy effi-ciency projects.

A N N E X H : I F C ’ S O P E R AT I O N S I N R E N E WA B L E E N E R G Y A N D E N E R G Y E F F I C I E N C Y I N T H E 1 9 9 0 s

8 3

Total IFC Equity/ IFC Project IFC Gross IFC Net IFC Quasi Net

Approval Commit- Project Cost Approval Approval Loans Equity Commitment FY ment FY Country Name (US$ m) (US$ m) (US$ m) (US$ m) (US$ m) (US$ m)

FY90 FY91 Turkey Kepez Electric 67.6 25.0 25.0 25.0 - 20.3

FY91 FY92 Chile Aconcagua 96.0 39.1 22.1 14.0 8.1 14.5

FY93 FY93 Belize Becol 59.4 26.0 15.0 15.0 - 15.0

FY93 FY94 Chile Pangue 515.0 174.9 74.9 70.0 4.9 64.7

FY94 FY94 Costa Rica Hidrozarcas 15.0 10.5 4.4 4.4 - 4.0

FY94 FY96 Nepal Khimti Khola/Himal 125.7 36.0 31.0 31.0 - 32.3

FY96 FY98 Nepal Bhoti Koshi 101.2 78.0 27.0 24.0 3.0 24.0

FY97 FY98 Brazil Guilman-Amorim 148.0 121.0 30.0 30.0 - 30.0

FY97 FY98 Guatemala Orzunil 69.0 32.8 17.8 15.5 2.3 14.4

FY97 FY98 India Asian Electronics 86.0 21.6 21.6 16.0 5.6 5.6

Ltd

FY97 FY00 World REEF 410.0 115.0 35.0 20.0 15.0 15.0

FY98 FY00 World Honeywell 240.0 60.0 60.0 35.0 25.0 8.0

ESCO-MPF

FY99 FY00 Central Energia Global 15.0 15.0 15.0 10.0 5.0 15.0

America International

Total RE/EE projects = 13 $1,948 $755 $379 $310 $69 $225a

a. Includes only net commitments made during the study period (FY90-99). If projects approved in the 1990s but committed outside that period were included, total net commitments would

be US$263 million.


8 4

A t t a c h m e n t H . 1 . I F C ’ s M a i n s t r e a m R e n e w a b l e E n e r g ya n d E f f i c i e n t E n e r g y P r o j e c t s , F Y 9 0 – 9 9

A N N E X H : I F C ’ S O P E R AT I O N S I N R E N E WA B L E E N E R G Y A N D E N E R G Y E F F I C I E N C Y I N T H E 1 9 9 0 s

8 5

Fiscal GEF Funding Year Country Project Name (US$ m) Description

FY94 Argentina Argentina Street Lighting 0.7 To promote innovative commercial financing and delivery

mechanisms for energy-efficient street lighting projects at

the municipal level; preparing model transactions for

financing on commercial terms by local financial institutions

FY95 Poland Poland Efficient Lighting 5.0 Climate mitigation project designed to reduce electricity

Project (PELP) consumption

FY96 World SME I Program and SME II 10.4 To on-lend GEF grant funds to intermediaries toward GEF-

Replenishment eligible small and medium-scale enterprise projects, either

with debt or equity investments at long-term low interest

rates

FY97 Hungary Hungary Energy Efficiency 5.0 To build energy efficiency financing capability of Hungarian

Cofinancing Program (HEECP) financial intermediaries

FY98 World Photovoltaic Market 30.0 Strategic intervention to strengthen private sector

Transformation Initiative (PVMTI) investment in power generation from photovoltaic sources

FY98 World Renewable Energy Efficiency 30.0 The fund will make debt and equity investments in

Fund (REEF) private sector projects in RE/EE sectors

FY99 World Efficient Lighting Initiative (ELI) 15.0 Programmatic elements such as consumer education,

financing mechanisms, quality standards and product

labeling, market aggregation, transaction support, and

regulatory reform assistance

Total GEF projects = 7 US$96.1

FY00 Philippi nes CEPALCO-PV 4.03 A 1MW distributed-generation PV power plant to be built

and integrated into the 80MW distribution network of

CEPALCO, a private utility operation in Mindanao,

Philippines. The PV system will be operated with an existing

7MW hydroelectric plant with dynamic load control, thereby

enabling the joint PV/hydro resource to reduce both

distribution-level and system-level demand, effectively

providing firm generation capacity. This plant will provide

the first full-scale demonstration of the environmental and

economic benefits of the conjunctive use of hydro and PV-

based power, and the first significant use of the grid-

connected PV in a developing country.

FY01 Global Solar Development Group 6.0 Investment in private companies involved in rural,

commercially sustainable PV activities, including the

distribution, sale, lease-hire, or financing of PV solar home

systems and other productive use of PV systems for

electricity generation, and to provide financing to local

financial intermediaries that will service such companies.

Total GEF projects, FY90-FY01= 9 US$106.13

A t t a c h m e n t H . 2 . I F C - M a n a g e d G E F P r o j e c t s i n P o w e r ,F Y 9 0 – 9 9

8 6



1990 1991 India CESC I 92.2 20.1 20.1 20.1 - 24.81990 1991 Turkey Kepez Electric 67.6 25.0 25.0 25.0 - 20.31991 1991 India BSES 653.3 68.0 50.0 50.0 - 50.01991 1992 Chile Aconcagua 96.0 39.1 22.1 14.0 8.1 14.51992 1993 India CESC II 584.7 97.0 30.0 30.0 - 30.01993 1993 Philippines Mindanao Power 126.4 39.0 20.0 15.5 4.5 16.71993 1993 Philippines Pagbilao 888.0 110.0 70.0 60.0 10.0 70.01993 1993 Guatemala Puerto Quetzal 92.7 71.9 20.7 20.7 - 20.01993 1993 Latin America Scudder (SLAP I) 200.0 25.0 25.0 - 25.0 10.11993 1993 Belize Becol 59.4 26.0 15.0 15.0 - 15.01993 1994 Argentina Yacylec 135.0 65.0 20.0 20.0 - 20.01993 1994 Chile Pangue 515.0 174.9 74.9 70.0 4.9 64.71994 dropped India Neyveli Power 450.0 198.0 48.0 30.0 18.0 -1994 1994 Argentina Edenor 413.9 176.5 48.5 48.5 - 45.01994 1994 Costa Rica Hidrozarcas 15.0 10.5 4.4 4.4 - 4.01994 1995 Guatemala Fabrigas 17.1 7.0 7.0 7.0 - 7.01994 1995 World Global Power 1,000.0 50.0 50.0 - 50.0 19.31994 1995 Oman United (Manah) Power 288.1 77.5 32.5 27.0 5.5 20.51994 1996 Nepal Khimti Khola/Himal 125.7 36.0 31.0 31.0 - 32.31994 1996 India GVK Power 293.2 120.8 50.8 42.5 8.3 37.51995 dropped India IB Valley Power 720.6 150.0 70.0 50.0 20.0 -1995 1995 Pakistan AES Lal Pir Ltd 343.7 49.5 49.5 40.0 9.5 49.51995 1995 Pakistan Kohinoor 138.6 67.9 31.3 25.0 6.3 31.31995 1995 Côte d’Ivoire Ciprel Power 70.0 17.8 17.8 16.9 .9 19.11995 1995 Dominican Smith-Enron 205.8 133.8 33.8 33.8 - 32.3

Republic1995 1995 Honduras Elcosa/Elpacsa 71.4 53.7 17.1 14.5 2.6 16.61995 1996 Turkey TDD-KOC/ Entek 136.3 82.0 27.0 27.0 - 27.01995 1996 Philippines Sual Thermal Power 1,400.0 247.5 47.5 30.0 17.5 47.51995 1997 Jamaica JAM/Old Harbour Diesel 148.0 70.0 22.0 22.0 - 23.91996 dropped Argentina Edesur 327.6 228.0 40.0 40.0 - -1996 1996 Pakistan AES Pak Gen 349.0 79.5 29.5 20.0 9.5 29.51996 1996 Pakistan Gul Ahmed Energy 138.0 69.1 34.1 30.0 4.1 31.11996 1996 Pakistan Uch Power 630.0 131.0 56.0 56.0 - 40.01996 1997 Sri Lanka Asia Power (APPL) 64.0 37.0 17.0 14.5 2.5 11.01996 1998 Nepal Bhote Khoshi 101.2 78.0 27.0 24.0 3.0 24.01997 dropped Mexico Altamira 75.3 56.8 18.8 18.8 - -1997 1997 Czech Republic Kladno/ECKG RMF 401.0 135.0 70.0 70.0 - 58.31997 1998 India AEL Asian Electronics 86.0 21.6 21.6 16.0 5.6 5.61997 1998 Guatemala Orzunil 69.0 32.8 17.8 15.5 2.3 14.41997 1998 Latin America Scudder Fund (SLAP II) 250.0 - - - - -

ANNEX I: IFC PORTFOLIO OF APPROVALS IN POWER, FY90–01



1997 1998 Brazil Guilman-Amorim 148.0 121.0 30.0 30.0 - 30.01997 1998 Senegal GTI Dakar 71.1 35.9 24.0 22.1 1.9 14.31997 2000 World REEF—Renewable Energy 410.0 115.0 35.0 20.0 15.0 15.01998 2000 World Honeywell ESCO MPF 240.0 60.0 60.0 35.0 25.0 8.01998 1998 Mexico Merida III 250.0 120.0 30.0 30.0 - 30.01998 1998 Russia Mosenegro 180.0 32.0 32.0 32.0 - 20.01998 closed Cambodia CPP 86.0 66.5 21.3 21.3 - -1998 dropped Russia Severstal Power 102.0 92.0 25.0 25.0 - -1998 dropped Vietnam Ba Ria 112.6 77.2 28.2 24.2 4.0 -1998 1999 Côte d’Ivoire Azito 172.6 80.1 45.1 45.1 - 40.51998 1999 Bangladesh Khulna 104.5 56.5 27.1 23.8 3.3 22.51999 2000 Bolivia Electropaz 40.0 25.0 25.0 25.0 - 25.01999 2000 Central America Energia Global International 15.0 15.0 15.0 10.0 5.0 15.01999 2000 Venezuela EDC I 100.0 75.0 40.0 40.0 - 40.01999 2001 World Solar Development Group 50.0 6.0 6.0 - 6.0 5.51999 dropped Philippines Cepalco 44.5 22.0 22.0 16.0 6.0 -1999 pending Egypt Sidi Krir 449.0 192.0 70.0 70.0 -

Total Investment Operations, FY90–99: 57 $14,414 $4,370 $1,849 $1,564 $284 $1,140a

2000 FY00 Kenya Kipevu II 89.2 41.1 21.1 20.0 1.1 17.62000 FY00 Mexico Rio Bravo 234.5 115.0 50.0 50.0 - 50.02000 FY00 Mexico Saltillo SA 160.0 80.0 35.0 35.0 - 35.02000 FY00 Georgia Telasi 146.9 30.0 30.0 30.0 - 30.02000 dropped Bangladesh Haripur 183.0 59.9 45.8 45.8 - -2000 FY01 Venezuela EDC II 30.0 30.0 30.0 30.0 - 30.02000 pending Panama AES Panama 335.9 215.0 45.0 45.0 -2000 pending India Astha Power 25.8 9.0 9.0 7.1 1.92000 pending India Orissa NESCO 56.0 28.0 28.0 28.0 -2000 pending India Orissa WESCO 43.0 11.0 11.0 11.0 -2000 pending Bangladesh USPCL 18.5 7.0 7.0 4.0 3.02001 FY01 Moldova UF Moldova 136.0 25.0 25.0 25.0 - 25.02001 FY01 China Peak Pacific 100.0 25.0 25.0 25.0 - 25.02001 FY01 Egypt Port Said 347.2 200.5 48.0 48.0 - 45.02001 FY01 Egypt Suez Gulf 339.2 200.5 48.0 48.0 - 45.02001 FY02 El Salvador CAESS/EEO 120.0 120.0 45.0 45.0 - 45.02001 pending Brazil Cataguazes 120.0 85.0 45.0 45.0 -2001 pending India GI Wind Farms 29.9 10.8 10.8 9.8 1.0

Total investment operations, FY00–01 = 18 $2,515 $1,293 $559 $552 $7 $348Total investment operations, FY90–01 = 75 $16,929 $5,662 $2,407 $2,116 $291 $1,596

A N N E X I : I F C P O R T F O L I O O F A P P R O VA L S I N P O W E R , F Y 9 0 – 0 1

8 7



(Annex I continued)

a. Net commitment total includes projects approved and committed in FY90–99. If commitments made beyond FY99 were to be included for projects that were approved between the

study period of FY90–99, total net commitments would be $1,226 million (as of July 2002 data in MPD).

8 8

In the mini-evaluation framework,1 each invest-ment operation is rated based on three distinctoutcomes:

• Development outcome – the project’s impacton a country’s development

• IFC’s investment outcome – the operation’sgross contribution to IFC’s income

• IFC’s effectiveness – IFC’s contribution to theoperation’s outcome

Each operation is rated on a two-point ratingscale: (i) satisfactory or better, and (ii) less thansatisfactory.

Development outcome The development outcome rating is a bottom-line,synthesis assessment of the operation’s results,based on the five development indicators de-scribed below. It is drawn from an analysis of proj-ect impacts considered in scenarios of “with” and“without” the project. For example, if withoutthe project the country would have continued tohave power shortages, then the restoration of astable power supply and its impact on industry andon people’s lives can be attributed to the project.

1. Project business success. This rating considersthe narrow objectives supported by IFC’s fi-nancing. The best measure of a project’s busi-ness success is its financial rate of return (FRR).Lacking sufficient data to prepare an updatedprojection and calculate an FRR, we based thisrating on assessments of historical performanceand likely future trends, giving particular em-phasis to the inputs to the FRR calculation, as

available (project cost, capacity utilization, tar-iffs, O&M expenses, taxes, and so on), rela-tive to the expectations at appraisal.

• An operation rates satisfactory when historicalnet cash flow is strong and likely to continue,and when actual inputs to an FRR calculationapproximate the satisfactory expectations atappraisal.

2. Growth of the economy. This rating considersthe project’s net economic benefits to all mem-bers of society, and is best measured by aneconomic rate of return (ERR). Lacking suffi-cient data to calculate an ERR, we based thisrating on assessments of the inputs to an ERR:the social benefits and costs including con-sumer surplus, taxes paid, benefits to suppli-ers, and effects on input and output markets.

• An operation rates satisfactory when actual in-puts to an ERR approximate the inputs to thenet positive economic benefits IFC expectedat appraisal.

3. Living standards. This rating is based on aproject’s benefits and costs to those who areneither owners nor financiers, such as cus-tomers, employees, suppliers, local residents,and government. It includes contributions towidely held social objectives such as employ-ment generated, employee living standards,nonwage benefits, training, community serv-ices, health and safety, expropriation proce-dures and resettlement, gender equity, andchild labor.

ANNEX J: OEG’S MINI-XPSR EVALUATION FRAMEWORK FOR IFC’S ELECTRIC

POWER SECTOR INVESTMENT OPERATIONS


• An operation rates satisfactory when there arepositive net benefits to those who are neitherowners nor financiers of the project.

4. Environmental effects. This rating is based onthe project’s success or otherwise in meetingWBG environmental requirements. These re-quirements include compliance with WBGpolicies and guidelines and with controls andmitigation determined as part of a project-spe-cific environmental assessment.

• An operation rates satisfactory if the project is—and was over its lifetime—in material compli-ance with either IFC’s current or at-approvalrequirements.

5. Private sector development. This rating con-siders the upstream and downstream linkagesto private firms, new technology, managementskills and training, the degree of local entre-preneurship and competition, demonstrationeffects, enhanced private ownership, capitalmarkets development; and business practicesas a positive corporate role model. Includedalso are regulatory improvements such aschanges in government policy and the legal, tax,and accounting frameworks.

• An operation rates satisfactory when the proj-ect provides distinctly positive net contribu-tions.

IFC investment outcomeThis is a synthesis of the ratings of the two in-vestment instruments: loan and equity. When theindividual ratings are different, the investment

outcome rates satisfactory based on the weightedaverage return on the combined investment. Inoperations featuring only one investment instru-ment, the instrument’s rating is also the invest-ment outcome rating.

• Loan. An operation rates satisfactory or betterwhen no loss reserves exist; when it is not inarrears; when any loan rescheduling still pro-vides the full margin originally expected; andwhen any loan prepayment provides greaterthan 65 percent of the originally expected loanincome.

• Equity. An operation rates satisfactory or bet-ter when the investment’s realized return,book, or market value exceeds cost and givesa return greater than the interest for a fixed rateloan.

IFC’s effectiveness

• IFC’s effectiveness (synthesis) rates satisfac-tory if IFC’s performance on at least two of thethree Effectiveness indicators below is satis-factory.

• Screening, appraisal, and structuring rates sat-isfactory if it met IFC’s good practice stan-dards (for example, IFC’s Credit Notes).

• Supervision and administration rates satis-factory if IFC identified and adequately re-sponded in a timely manner to emerging issuesand any material change in the project’s orcompany’s performance.

• IFC’s role and contribution rates satisfactoryif IFC’s role and contribution were in line withits operating principles.

A N N E X J : O E G ’ S M I N I - X P S R E VA L U AT I O N F R A M E W O R K

8 9

Project 1 S S S S S S S S S S S

Project 2 S S S S S L S S S S S


Project 4 S L S S S S S S S S L


Project 6 S S S S L S S S L S S

Project 7 S S S NOP NOP S S S S S S










Project 17 S S S S L L S L L L L

Project 18 S S S S S S S L L L S

Project 19 S S S S S S S L L L S

Project 20 S S S S S S L S S S S

Project 21 S L S S S S L S S S S




Project 25 S S S S L L L L L S L

Project 26 L L S S S S S S L S S

S S

S S

S S

S S

S S

S S

S S

S S

S S

S S

S S

S S

S S

S S

S S

S S

S L

S L

S L

L S

L S

L S

L S

L S

L L

S S

9 0

ANNEX K: PERFORMANCE RATINGS OF 29 IFC MATURE POWER SECTOR

INVESTMENT OPERATIONS IN THE 1990S


S

S

S

S

S

S

S

S

S

S

S

S

S

S

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S

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Project 27 L L L L L L S L L S L

Project 28 L L S S S L L S S S S

Project 29 L L S L L L L L L S S

Satisfactory or better (S) 25 23 28 26 23 23 21 23 21 26 25

Less than satisfactory (L) 4 6 1 2 5 6 8 6 8 3 4

No opinion possible (NOP) 0 0 0 0 0 0 0 0 0 0 0

Total projects 29 29 29 29 29 29 29 29 29 29 29

Satisfactory or better (S) 86% 79% 97% 93% 82% 79% 72% 79% 72% 90% 86%

Less than satisfactory (L) 14% 21% 3% 7% 18% 21% 28% 21% 28% 10% 14%

L

L

L

25

4

0

29

86%

14%

S L

L S

L L

21 23

8 6

0 0

29 29

72% 79%

28% 21%

A N N E X K : P E R F O R M A N C E R AT I N G S O F 2 9 P O W E R S E C T O R I N V E S T M E N T O P E R AT I O N S

9 1

DEV

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(Annex K continued)

9 2

The development outcome of IFC investmentoperations is a synthesis of the following five per-formance indicators:

Project business success Project business success is an indication of the ex-tent to which projects have been a financial suc-cess to their lenders and owners. IFC electricpower projects generally have better businesssuccess performance than IFC’s all-sector port-folio. Of the 29 evaluated IFC electric power proj-ects, 23 (79 percent) are financially successful,compared to the all-sector success rate of 45 per-cent.1 Overall, IPPs did not perform any better thanother projects in the electric power sector. Ofthe six poor business performers, four (67 per-cent) are IPPs (18 of the 29 evaluated projects [62percent] are IPPs). Good deal structuring andrisk allocation enable IPPs to shield themselvesfrom regulatory and other risks that they are notbest equipped to handle, but they are not immuneto business and commercial risks. The four IPPsthat failed financially suffered from low dispatch,technical difficulties, and poor hydrology condi-tions. Capacity fees were not paid in full to oneIPP that did not perform all of its obligationsunder the PPA; the three others performed theirPPA obligations and received capacity fee pay-ments but did not get a return commensurate totheir weighted average cost of capital. They weredispatched significantly below optimum levelsdue to low demand or inadequate grid capacity.Two IPPs outside the four that performed poorlyhad marginally satisfactory business success,largely because they were dispatched virtually aspeaking plants despite being originally designedas base load plants.

Project business success, along with environ-mental effects, is the lowest rated development

outcome indicator in the electric power sector. Asis true for other sectors generally, this suggests thatelectric power projects that do not give their fin-anciers satisfactory returns could still have posi-tive development impacts. This also reflects thefact that investors are last in line in reaping thebenefits of these projects.

Private sector development Private sector development addresses the extentto which the project has encouraged the growthof the country’s private sector beyond the proj-ect company.

Twenty-eight of the 29 projects (97 percent)have made significant positive contributions to pri-vate sector development, compared with the all-sector rating of 75 percent. IFC electric powerprojects bring important physical infrastructuredevelopment that can support the growth of theprivate sector, and notably have provided a fast andcost-effective solution to electric power short-ages. The evidence is especially strong in coun-tries such as Côte d’Ivoire, Guatemala, and thePhilippines, where companies were losing marketsand in extreme cases shutting down because ofinadequate electric power supply.

IFC electric power projects also have broaddemonstration effects. The early success of pio-neering electric power projects attracted inter-national developers and equipment suppliers todeveloping countries. These projects have alsocontributed to enhancing the enabling environ-ment for private participation in electric power.They have given the public sector first-hand ex-perience of the dynamics and constraints of pri-vate sector entities in electric power, and havehelped reveal the unsubsidized cost of electricpower generation to policymakers and regula-tors. This experience has helped governments

ANNEX L: ANALYSIS OF DEVELOPMENT OUTCOME INDICATORS OF THE 29

EVALUATED IFC ELECTRIC POWER INVESTMENT OPERATIONS


establish a framework to attract more competitiveprivate sector proposals in power as well as inother infrastructure subsectors.

Growth of the economyThis performance indicator measures the qualityof a project’s contribution to a country’s eco-nomic growth, as reflected in the economic rateof return (ERR).

Twenty-six of the 28 (93 percent)2 IFC electricpower projects that were rated for their contri-bution to growth of the economy had a satisfac-tory or better performance, comparing favorablywith the all-sector rating of 62 percent. This reflectsan economic rate of return of at least 10 percentfor these projects. End-users paid more for elec-tricity or its alternatives during power shortagesand they would have continued to do so withoutthe capacity built by the IFC-supported projects.Previously, those end-users who could afford to,installed their own power generators; those whocould not turned to other energy sources fortheir lighting and power needs. In both cases thecost to the user was greater than would havebeen charged for electricity from the grid. In-dustrial consumers in one market valued elec-tricity from an IFC project at 40 percent above theactual tariff.3 This premium reflects the value tothese consumers of a reliable and stable sourceof electric power supply.

The economic value of electric power pro-duced by IPPs operating at optimum plant loadfactor is generally considered to be higher thanthe price at which IPPs sell to offtakers. In the ab-sence of market-specific consumer surplus esti-mates, the economic price of electricity has beenconservatively estimated in XPSRs to equal the av-erage end-user tariffs. Projects evaluated throughXPSRs showed that this estimate was sufficient toyield an ERR of at least 10 percent based on ac-tual output and after allowing for transmissioncosts, including losses. The economic value ofelectric power generated by projects operating aspeaking plants has been based on the average ofthe highest tariffs during peak hours. Absentthese peaking plants, industrial and commercialconsumers would have either lost production orwould have had to install their own generation fa-

cility to ensure an uninterrupted supply of elec-tricity during peak hours.

The two projects that rated less than satisfac-tory for their contribution to the growth of theeconomy failed financially. Four other projectsthat have shown poor financial performance incontrast rated satisfactory for their contributionsto economic growth, suggesting that the economycan benefit from electric power projects even insituations where the financiers are not successful.

Impact on living standardsThis indicator measures a project’s net contribu-tion to members of society other than its ownersor financiers, such as customers, suppliers, em-ployees, and governments or taxpayers.

Twenty-three of the 28 projects (82 percent)with living standards ratings did well, mirroringIFC’s all-sector performance. IFC electric powerprojects affect living standards at two levels: im-mediate, or local community level; and wide-spread, or the entire customer base:

(a) The local community. Job creation is perhapsthe most important impact on living standards inthe local communities where IFC electric powerprojects are located. The impact is most visible inrural areas, where IFC projects can easily becomethe biggest employer. In most IFC-financed proj-ects, priority in hiring is given to suitably qualifiedlocal people. At the suggestion of some IFC proj-ect companies, some villagers have formed co-operatives that serve as subcontractors fornoncritical support functions, such as groundmaintenance, security, janitorial services, and cafe-teria operations. Salaries and benefits are typi-cally better than alternative local employmentopportunities. One IFC-financed 700MW powerplant in a remote rural location has about 450 di-rect and another 400 indirect employees. In ad-dition to direct and indirect employment at theplant, additional employment is generated at localindustrial power consumers.

Other demonstrated impacts on local com-munities include the following examples:

• One project required the development of aroad and bridge infrastructure that is accessi-

A N N E X L : A N A LY S I S O F D E V E L O P M E N T O U T C O M E I N D I C AT O R S

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ble to villagers. This has given local farmers ac-cess to new markets and has enabled childrento attend schools outside their village.

• Many project companies in rural areas pro-vide free healthcare services, giving villagers ac-cess to clinics constructed within the powerplant.

• Some companies support community devel-opment programs by sponsoring village schoolactivities, sports events, livelihood projects,reading programs, and skills development. AnIFC-financed IPP in Asia built a communitycenter, equipped it with sewing machines,trained the village women, and helped themmarket their output.

• Some IPPs have provided power line connec-tions in neighboring villages, enabling the localdistribution company to extend service tothese villages.

(b) Widespread impact. The most important im-pact observed in IFC-financed generation projectsis the provision of a reliable, stable, and reason-ably priced electric power supply to industrial/commercial and residential customers. For in-dustrial/commercial customers, this translatesinto the resumption of normal operations or eventhe expansion of operations, leading to additionalemployment opportunities, especially at theshopfloor level where many low-wage earnerswork. Residential customers at all income levelsbenefit from a stable electric power supply. With-

out these IPPs and unable to afford their ownpower generators, the poor would have no electricity.

IFC-financed projects have helped increaseaccess to electric power. In LAC, IFC financed adistribution company’s post-privatization expan-sion that enabled the company to extend accessto the urban poor, who previously had obtainedelectric power through illegal and unsafe con-nections that typically were costly and also waste-ful. Another IFC-financed IPP project inSub-Saharan Africa has given the privately man-aged utility company the generation capacity toenable expansion of the national grid to some 1.8million people in 1,100 rural districts, out of a totalof 8,000 districts connected to the grid.

Environmental, social, health, and safety(ESHS) effectsThis indicator measures a project’s impacts on itsphysical environment and on other social, cultural,worker health and safety, and resettlement is-sues, as addressed in IFC’s safeguard policies.

IFC requires all of its projects to comply withIFC’s internationally accepted environmental andsocial guidelines. Out of 29 evaluated projects, 23(79 percent) are rated as satisfactory or better,compared with 66 percent of the total evaluatedportfolio of IFC investments. (See Annex Q for adetailed discussion of the environmental impactsof IFC projects.)


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ANNEX M: MIGA GUARANTEES IN POWER, FY99–01

A N N E X M : M I G A G U A R A N T E E S I N P O W E R , F Y 9 9 – 0 1


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9 7


9 8


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During the 1990s, renewable energy and energyefficiency (or “alternative energy”) grew signifi-cantly as innovative components of WBG energyactivities. Bank and IFC initiatives reflect each in-stitution’s mandate: the Bank worked mainly withthe public sector to achieve policy reforms,strengthen institutions, define legislative frame-works, and establish regulatory processes to pro-vide the enabling environment for privateparticipation, while IFC provided loans and equityfinancing directly to the private sector. As shownbelow, their financial assistance and AAA show asimilar general division of labor, with the Bank fo-

cused on upstream policy and preinvestment ac-tivities, and IFC concentrated on investment anddivestiture.

There is no institutionally agreed definitionfor the hydropower component of renewable en-ergy. The Bank includes only mini- and micro-hydro (less than 1MW) as renewable, treatinglarge hydro as conventional generation, whileIFC includes all hydro in its accounting for its re-newables portfolio (the average size of IFC-fi-nanced hydropower plants is 67MW, excludingone 450MW plant in LAC). This issue needs to beresolved given the attendant social (resettlement)

ANNEX N: WORLD BANK GROUP INVOLVEMENT IN RENEWABLE ENERGY

AND ENERGY EFFICIENCY PROJECTS

T h e B a n k a n d I F C D i v i s i o n o f L a b o r I s A l s oE v i d e n t i n R e n e w a b l e E n e r g y A c t i v i t i e s

PCF: Prototype Carbon Fund; SDC: Solar Development Corporation; REEF: Renewable Energy and Energy EfficiencyFund; PVMTI: Photovoltaic Market Transformation Initiative; AFFREI: Africa Rural and Renewable Energy Initiative;ASTAE: Asia Alternative Energy Program; ESMAP: Energy Sector Management Assistance Program; RPTES: RegionalProgram on the Traditional Energy Sector

Source: Spencer (2000).

ESMAP

ASTAE

AFRREI

RPTES

PCF*

SDG **

REEF **

PVMTI **

Degree ofMarketOrientation

Policy PreparationPre-investment Investment Supervision Divestiture

Investment Cycle

IFC/Bank

Bank

*Bank managed **IFC-managed


and environmental issues of large hydro that arenot normally associated with village-scale, de-centralized renewable energy systems. It fur-thermore will not be possible to evaluate thesignificant and innovative PSD components ofthis alternative energy portfolio unless a com-mon definition is agreed within the WBG.

There also are no data on the full extent of theBank’s support for alternative energy. However,it is known that through the Asia Alternative En-ergy Program (ASTAE), Energy Sector Manage-ment Assistance Program (ESMAP), Africa Ruraland Renewable Energy Initiative (AFFREI), and Re-gional Program for the Traditional Energy Sector(RPTES) the Bank finances (including GEF grants)and provides technical assistance to governmentsto develop and implement renewable energy sys-tems, promote energy efficiency, build long-termcapacity, and expand energy access. ASTAE datais the most robust: its portfolio of alternative en-ergy projects for FY93–03 has grown to 37 re-newable energy and energy efficiency projects in11 Asian countries, with a total alternative energyproject cost of US$3.8 billion and total Bank/GEFcommitments of up to US$1.5 billion. ASTAE’salternative energy program integrates significanttechnology and policy reform measures.

IFC works further downstream through theSolar Development Group (SDG), Renewable En-ergy and Energy Efficiency Fund (REEF), and thePhotovoltaic Market Transformation Initiative

(PVMTI).1 It directly invests in financially viable re-newables and energy efficiency projects, providesfinancing for the development of private sector ac-tivities in the distribution and retail of off-gridapplications, and extends concessional financingfor the development of photovoltaic markets. Inthe 1990s, IFC made a total investment commit-ment of US$225 million in 13 projects and man-aged seven GEF-funded projects. Theseinvestments represent 20 percent of IFC’s total in-vestment commitments in the power sector byFY99. Eight of these investments are in hy-dropower plants and five are in LAC. IFC has twoinvestment commitments in the nonhydro re-newables subsector: a 24MW geothermal plant anda 45MW bagasse cogeneration plant as part of aninvestment operation in a sugar mill.

As in other sectors, IFC invests in financial in-termediaries for on-investing to smaller alterna-tive energy projects. IFC has committed US$15million for a multiproject financing facility to sup-port alternative energy projects, focusing prima-rily on Central America. Among the beneficiariesare two hydropower plants (16MW and 18MW)and a wind farm (20MW) in Costa Rica. In addi-tion, IFC made an investment commitment ofUS$15 million for a US$65 to US$100 million al-ternative energy global private equity investmentfund with a parallel debt facility and a GEF cofi-nancing arrangement.

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ANNEX O: ASTAE-SUPPORTED WORLD BANK/GEF ALTERNATIVE ENERGY INVESTMENT

PROJECTS, FY92–03

Technical Assistance and Policies Technologies

Country Project Training & Capacity Building a

Renewable Energy Master Plan

Small Power Purchase Agreement

Tariff & Duty Adjustment

Photo-voltaic

Hydro b Wind Power

Biomass Power

Geothermalc

China Renewable Energy Resources

• • • • •Indonesia Second Rural

Electrification• • • • • •

Solar Home Systems

• • •Lao PDR Southern

ProvincesRural Elect.

• • • •

Vietnam Power Development

• •Vietnam Rural Energy I • • • • •India Re newable

ResourcesDevelopment

• • • •

India Renewable EnergyII/Energy Efficiency

• • • •

Sri Lanka Energy Services Delivery

• • • • • •

Indonesia

Includes:

a. Institutional strengthening activities.

b. small-, mini-, and micro-hydro.

c. small-, mini-, and micro-geothermal.


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ANNEX P: TECHNOLOGY AND POLICY REFORM MEASURES IN ASTAE-SUPPORTED

RENEWABLE ENERGY AND ENERGY EFFICIENCY PROJECTS*

Technical Assistance and Policies Technologies

Country Project Training & Capacity Building

DSM Plans a

Load Research b

Codes & Standards c

ESCO Dev.

Load Mgmt.

Motors Light-ing

Appli -ances

HVAC d Cogen. e

China Energy Conservation • • • • •

Lao PDR

Provincial Grid Integration • • •Orissa Power Sector • • • • • •Haryana Power APL • • • • • • • •Andhra Pradesh

Power APL f• • • • • • •

India

Renewable Energy II/Energy Efficiency

• • • • • • •

Sri Lanka

Energy Services Delivery • • • • • • •

Thailand DistributionSystem & Energy Efficiency

• • • • • • • •

Metropolitan Distribution • • •

Vietnam Transmission & Distribution • • • • • •

Thailand

* ASTAE: Asia Alternative Energy Unit

Includes:

a. monitoring and evaluation; b. institutional strengthening activities; c. energy efficiency building codes and equipment standards; d. vapor absorption technology; e. industrial and biomass

cogeneration; and f. TA and technology for the entire APL program.

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(Note: A separate background paper has beenprepared for the Bank entitled “EnvironmentalMainstreaming and Private Sector Developmentin the Electric Power Sector: A Review of theWorld Bank’s Policies and Performance.”)

I. Environmental Performance of IFCProjectsThe environmental performance of IFC’s invest-ment operations in the power sector has been bet-ter than IFC’s all-sector portfolio.

Of the 29 evaluated projects, 23 (79 percent)have met or exceeded IFC’s environmental re-quirements, compared to 68 percent for all eval-uated IFC projects from the 1991 to 1996approvals population. Based on the site visitsconducted as part of the field assessments, thedrivers for this successful outcome appear to bethe following:

• environmental requirements are specificallybuilt into the plant design criteria

• environmental performance criteria are an ex-plicit aspect considered in Project Completiontests

• power plants are technology-driven: if designedand built properly, it is highly likely that a plantwill be operated within IFC/WB guidelines

• at the national level, IPPs are sufficiently largethat they are audited by national environmentalagencies

• global power project sponsors generally op-erate in an environmentally responsible man-ner when they undertake projects overseas,due to reputational risk

As in any other sector, power has its share ofprojects with less than satisfactory environmen-tal performers. An analysis of the six projects that

are rated less than satisfactory points to two majorreasons:

• inadequate attention to social issues• inadequate environmental controls incorpo-

rated into the design to fully meet IFC/WBemissions standards

IFC has in the last four to five years expandedits social soundness reviews to better address so-cial issues, partly as a result of a hydro project inLAC that did not adequately address social and re-settlement issues. Actions taken have included theaddition of specialist staff and the developmentand promulgation of guidance documents in keysocial development areas such as resettlementand public consultation.

Two projects failed to meet current IFC/WBemissions standards. In both cases, the fault laywith design. Environmental performance criteriaare critical in the design and approval of powersector plants, but environmental performance is-sues may be less well managed for cogenerationand captive power plants that come under IFC’sother sectors, such as food and agriculture, gen-eral manufacturing, or chemicals, and that areoutside the scope of this report.

There is huge untapped potential for pro-gressing beyond “doing no harm” to “doing good”on environmental issues:

(i) The system dispatch priority should consider the en-vironmental impact.

Increasing the capacity of a system increases itsflexibility and enhances the ability of managers toachieve least-cost and environmentally responsi-ble dispatch of the system’s power plants. Evenwithin contractual constraints, better environ-

ANNEX Q: ENVIRONMENTAL AND SOCIAL IMPACTS OF IFC INVESTMENT

OPERATIONS IN THE POWER SECTOR


mental management is possible through the useof the right technology and the appropriate useof plant alternatives. When supply is constrainedand system dispatch requires older and morepolluting capacity to be called into longer periodsof production, the environmental outcomes in-evitably are inferior.

(ii) Projects can be more environmentally responsibleby going beyond the fence line.

Industry practice delineates a fence line, real orimaginary, around a project. Activities outside thefence line are not considered to be part of the proj-ect impact. This is an area where IFC can addvalue. The following two examples are taken fromactual projects in a case study country:

• Most IPPs sell power directly to the grid via asubstation at the plant. The government orthe transmission company owns the high-volt-age transmission lines and is therefore re-sponsible for any associated impacts fromthose lines. In one observed project, the high-voltage transmission lines leave the plant, joinwith those from an adjacent government-owned plant, and then continue directly overa neighboring slum in a major city. The im-pact of electromagnetic fields is open to debate,but these lines presented a direct safety haz-ard to the slum residents. High-voltage linesnormally should pass through a safety corridor.

• There are several ways for fossil fuel-basedplants to receive their fuel, including viapipeline, railways, and trucks. In one country,a World Bank-financed plant received fuel viaa pipeline, an IFC-financed plant received fuelvia rail, and three plants (one World Bank andtwo IFC) received their fuel via trucks. Oneplant receives approximately 80 fuel trucksper day, each of which traveled more than 200kilometers from the fuel depot to the plant.This level of truck traffic presents a safety issueto the small villages and communities throughwhich the trucks pass as well as the issue of car-bon dioxide emissions. There furthermore waslittle control over truck maintenance: truckswere being maintained and washed at smallservice points, with waste oil and oily waste-

water being discharged onto the ground andinto drainage ditches. As the trucks are undera supply contract they are considered to be out-side the fence line, yet their only business is tosupply fuel to the power plants. The operatingpractices of these private trucking fleets arecausing significant negative environmental im-pacts. Establishing improved truck mainte-nance facilities has the potential to create anadditional private sector business opportunitywhile helping to protect the environment andreduce costs, through improved waste oil re-covery and recycling. While a pipeline is the op-timal option over the long term, rail appearsto be the least-cost option and one that reducesenvironmental impacts to an acceptable level.At the least, better management of the truck-ing system could provide flexibility and lead toan improved environmental outcome.

II. The GHG Impacts of IFC Projects andTheir Implications

IFC has existing policies on GHG emissions

IFC’s policies and position with respect to green-house gas (GHG) emissions are captured in the1998 Pollution Prevention Handbook (PPAH),which is available online at the World BankGroup’s Web page: http://www.worldbank.org/.

The three GHGs of importance are carbondioxide (CO2), methane (CH4), and nitrous oxide(N2O). GHGs are perceived to have a direct im-pact on climate change, and 80 percent of GHGsare generated from human activities—in partic-ular from the burning of fossil fuels. IFC’s 1998guidance reflects the then-current developmentsof the UN Framework Convention on ClimateChange (UNFCCC), but the failure to ratify theKyoto Protocol is changing the debate. IFC’sguidelines on energy efficiency are also capturedin the 1998 Pollution Prevention Handbook(PPAH).

What is expected from host countries of IFC invest-ments in the power sector?

It is important to recognize that the Kyoto Pro-tocol differentiates between “transition

A N N E X Q : E N V I R O N M E N TA L A N D S O C I A L I M PA C T S

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economies,” “developing countries,” and “least-developed countries.” While IFC is active in allthree country categories, the power sector port-folio is concentrated in the developing coun-tries group. The Kyoto Protocol is primarilyaimed at achieving reductions in Part I (indus-trial countries) and transition economies, andrecognizes that continued growth of energy useis critical to the economic growth of developingnations. Under the Clean Development Mecha-nism (CDM), it is recognized that the cost ofpollution control is significantly less in devel-oping nations than in Part I nations. For these rea-sons, IFC’s client countries do not haveestablished emission reduction targets. CDMdoes however provide a financial incentive toachieve emissions reductions.

The GHG emissions of IFC-financed power projects arerelatively immaterial

Using proprietary software developed for IFC,called IMAGE, IFC has calculated its net contri-bution to GHGs resulting from use of fossil fuels.These results are conservative—that is, they as-sume that all plants operate at the designed 70 per-cent capacity factor—but they do not take intoaccount indirect emissions (such as methaneemissions from coal mines) or line losses, as suchlosses are beyond the fence lines of IFC projects.The following table summarizes the total GHG

emission of IFC-financed fossil fuel-based powerplants.

The total GHG emission of the 21 fossil fuel-fired power plants approved in the 1990s and inIFC’s portfolio as of December 31, 2001, was cal-culated as equivalent to 0.2 percent of the 1998global emissions from fuel combustion (22,700million tons CO2) and 0.4 percent of the 1998 de-veloping countries’ emissions from fuel com-bustion (8,600 million tons CO2).

IFC’s power sector projects achieve the leastimpact (tons of CO2/year/installed MW) withgas/naphtha-fired generators. Coal-fired steamboilers are the least efficient in terms of GHGproduction.

How can IFC most effectively contribute to GHG re-duction while meeting the energy needs of the coun-tries in which its projects are located?

Moving to renewable energy and switching tocleaner fuels (gas) provide the largest gains inGHG reduction. However, power plants are lo-cated and designed based on fuel or resourceavailability, cost, fuel diversification, and envi-ronmental considerations. In most cases, thismeans that coal was the best option through the1990s.

Greater fuel efficiency has a direct impact onGHG reduction. There has been a significant im-provement in overall energy efficiency: for a coal-fired power plant, an increase in efficiency from


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CO2 Emissions

Total Installed tons-

Capacity tons-C/ CO2/

Technology Fuel Type (MW) tons-C/year year/GW tons-CO2/year year/GW

Diesel generation HFO 668 927,000 1.39 3,573,000 5.35

Thermal generation Gas/naphtha 1,861 1,686,000 0.91 6,183,000 3.32

Thermal and steam Coal 2,650 4,443,000 1.68 16,290,000 6.15

generation

Thermal and steam LFO and HFO 844 1,109,000 1.31 3,766,000 4.46

generation

G H G P r o d u c t i o n b y T y p e o f T h e r m a l G e n e r a t i n g U n i ta n d F u e l T y p e , f o r t h e P o r t f o l i o o f P r o j e c t s C o n s i d -e r e d i n t h i s R e v i e w

40 to 41 percent reduces the emission of CO2 by2.5 percent. (New coal-fired power plants canachieve efficiencies of 42–45 percent.)

To reduce GHG production, IFC should lookat both fuel selection and power plant design (ef-ficiency). Depending upon the age of the plant,it may be cost-effective to replace older, less effi-cient plants with modern, more efficient plants,with GHG reduction being a side benefit. In ad-dition, IFC recently established a Dutch-fundedCDM facility to help promote pollution trading.

III. Recommendations: Win-winopportunities for going beyond “doing noharm” to “doing good”

On reforming the sector. Reform plans for a coun-try’s power sector should consider a program toreplace older, less efficient plants with modern,more efficient plants. Older plants tend to bestate-owned, and this therefore is a possible pol-icy approach to privatization that could simulta-neously reduce overall costs and improveenvironmental quality.

On environmental aspects. Where logistically and fi-nancially feasible:

• move to cleaner fuels (fuel selection) and re-newable energy options;

• promote more efficient plants;• promote system optimization; and • go beyond the fence line.

On social aspects. Possible solutions to social con-cerns include:

• Advise sponsors on site selection by helpingthem understand the social and environmen-tal issues associated with the specific sitesunder consideration. It should be noted, how-ever, that IFC may be brought into a deal afterthe siting decision has been made.

• Focus on community participation early in theprocess.

• Promote social responsibility to ensure thebeneficiaries include both the local communityand the regional and national populations.

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I. IntroductionManagement commends OED/OEG/OEU for thisthorough review of private sector developmentin the electric power sector (PSDE) and for tak-ing into account staff comments and concerns.The review analyzes a decade of World BankGroup (WBG) experience, and it offers somevalid criticisms and three challenging recom-mendations.

Significant change in the PSDE environment. The pe-riod covered by the review saw significant changein private sector involvement in the power sector:considerable foreign investment increases duringthe earlier part of the decade were followed by arapid decline from 1997 onward. Against thisbackground, the findings of the OED/OEG/OEUreview are timely and will help the WBG to for-mulate its strategy.

II. OED/OEG/OEU FindingsManagement concurs with the conclusion ofOED/OEG/OEU that the WBG should continue tosupport private sector development in the elec-tric power sector. Management also shares the re-view’s assessment of the challenge to promotingprivate sector development in the electric powersector: the required reforms are both complex andresource-intensive, especially in the distributionsector, and approaches need to be tailored tothe circumstances of individual countries. Thereview rightly notes that successful PSDE reformsand good performance require government com-mitment based on constituencies for reform es-tablished through civil society participation.Management welcomes the assessment that theBank, pursuing multiple and complex reform ob-jectives through a range of instruments acrossall Regions, achieved good results when country

ownership and political commitment existed. IFCand MIGA—responding to market demand and fo-cusing on the single reform objective of privatesector participation—achieved good project-leveloutcomes overall.

III. Management’s ViewsTo improve the impact of World Bank GroupPSDE assistance, the OED/OEG/OEU review rec-ommends developing operational guidance, main-streaming environmental and poverty reductionobjectives, and encouraging operational innova-tions. Management has recognized the issues thatprompt these recommendations and, as is indi-cated in the following paragraphs, has alreadybegun to formulate responses along the lines thereview suggests. (The responses to the specific rec-ommendations are set out in the accompanyingManagement Action Record matrix, appended tothis annex.)

Need for operational guidance. The OED/OEG/OEUreview recommends that operational guidancebe provided to staff on when and how to promotePSDE in an environment of heightened macro-economic and political risks and scant investor interest. Management agrees with this recom-mendation, and the Energy Sector Anchor ispreparing a Guidance Note to complement themany other learning mechanisms already in place.This note, which will be delivered in early FY04,will address the respective roles of the Bank, IFC,and MIGA. The note will be grounded on theWorld Bank Group’s policy adopted in 1993 byplacing PSDE in the context of achieving com-mercialization and promoting competition undertransparent regulation. It will also focus on the ur-gent issues associated with arresting the declinein PSDE and improving governance, including

ANNEX R: WORLD BANK GROUP MANAGEMENT RESPONSE AND

MANAGEMENT ACTION RECORD


management of the transition to a sustainableenvironment for PSDE.

Guidance differentiated by country conditions. Thenote will reflect experience with PSDE that high-lights the importance of strengthening gover-nance structures (including regulation, protectionof investor rights, and implementation of inter-nationally recognized accounting and auditingprinciples) before privatization. It will advise thateach country’s program for reforming its powersector according to this policy should be tailoredto the particular economic, technical, political, andsocial conditions of the country at the start of thereform process. The note will therefore avoid a“cookbook” solution for power sector reformthat ignores these conditions. It will provide thefollowing two examples of country typology:

• Large countries. For relatively large and ad-vanced countries, the focus would be on un-bundling of the sector (through legal orownership separation), the level and structureof tariffs, regulated third party access to thetransmission and distribution wires servicesby public and private service providers, priva-tization of viable or potentially viable genera-tion and distribution entities to foster theefficiency gains expected from competition,and freedom at least for the large industrial andcommercial consumers to choose their supplierfrom within the country or from abroad. Thisform of competition is the simplest to developand monitor. The Bank should be cautiousabout recommending the creation of marketstructures that mandate total reliance on pricebidding into a competitive power pool be-cause this structure will only succeed in thepresence of certain preconditions that arerarely in place, and the effort involved may di-vert attention from other reforms that are likelyto produce bigger efficiency gains in the shortto medium term, such as loss reduction in dis-tribution.

• Small countries and countries with limited in-stitutional capacity. For small countries andthose with limited institutional capacity, thefocus would be first on commercialization ofthe sector and choosing a market structure

appropriate for the country’s circumstances.Private sector participation can be introducedgradually using management contracts or con-cession arrangements. Divestiture of assetscan then be considered once the governancestructure is fully implemented and the en-abling environment for commercialization is inplace. For small countries, one or more fully orpartially vertically integrated enterprises maybe the best option if imports cannot create asufficiently competitive market. For example,a partially integrated enterprise might com-bine existing distribution, transmission, andgenerating assets with a requirement that allnew supply sources be competitively acquired.This approach could also be combined withmandatory accounting unbundling so there isa potential to move to a more unbundled sec-tor in the future. Horizontal unbundling intonumerous generation and distribution enti-ties is often impractical for these small markets.

Staff training. Staff training will continue to em-phasize lessons learned and the analytic toolsneeded to guide staff in specific country assess-ments. In addition, the Bank, IFC, and MIGA willcontinue to provide staff with information aboutthe evolving power sector agenda through otherchannels, such as Energy and Mining Sector BoardDiscussion Papers, Viewpoints, Energy SectorManagement Assistance Program publications,brown bag lunches, lectures, the annual EnergyWeek, and the Energy Help Desk.

Mainstreaming the environment and poverty reduction.Management agrees with the recommendationthat the WBG should mainstream environmentaland poverty reduction objectives into the energyportfolio, and has been taking steps in that di-rection following the approach set out in the En-ergy Business Renewal Strategy.1 Environmentaland poverty issues are being addressed in abroader context than power interventions, notablyin other energy projects2 as well as through co-ordination of energy sector agendas with educa-tion, health, and other social sector developmentprojects. Such interventions can be an effectiveway to deliver benefits to the poor, particularlywhen affordability and access are priority issues.

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Management recognizes the need for ex anteanalysis of the impact on the poor of the privateprovision of electricity services, particularly on af-fordability. Management also recognizes the needto stimulate innovative technologies for supply-ing electricity to poor areas in ways that eco-nomically meet the Bank’s environmentalsafeguards. Impetus for continuing attention toenvironmental and poverty reduction objectiveswas provided by the World Summit on SustainableDevelopment in Johannesburg in September20023 as well as by the agenda of the February 2003Energy Week and related Energy Workshops. Be-yond these events, which served to raise theprominence of environmental and poverty re-duction objectives, the WBG will continue tocarry out country-specific analytic work. The re-sults of this work will provide the basis for in-vestments and reforms in support of furthermainstreaming of environmental and poverty re-duction objectives.

Private investment in distribution. As part of its rec-ommendation to mainstream environmental andpoverty reduction objectives, the OED/OEG/OEUreview draws attention to the importance of re-forming and facilitating private investments inthe distribution subsector. Management concurswith this emphasis. The WBG has recognized thekey role of private sector participation in the dis-tribution subsector since the early 1990s, and hasprovided guidance to staff on this topic since themid-1990s. This has proved to be the most chal-lenging area for PSDE because of the high polit-ical and regulatory risks perceived by investors indeveloping country power sectors. Against thischallenging background, the recent shift in the IFCportfolio in favor of distribution investments is animportant change, especially if it can be sustained.Hence the WBG will help countries to exploit thefull range of ways to involve the private sector indistribution, from long-term concessions and fullownership with major investment commitmentsto limited or effectively no financial risk expo-sure such as through the contracting out of retailservices, service contracts, and management con-tracts where this can improve subsector per-formance in situations where asset divestiture isnot feasible. The particular form of private in-

volvement should be selected pragmatically, de-pending largely on country and sector conditionsand the stage of reform. Two recent publicationsby the Energy Sector Anchor provide guidance tostaff in this respect. One is on the application ofthe World Bank’s Partial Risk guarantee to distri-bution privatization. The other is on how best tomitigate risks through better specification of reg-ulatory contracting mechanisms.

Innovations to ensure that PSDE goals are appropri-ately reflected in operations. The OED/OEG/OEU re-view recommends that operational innovations beencouraged to help achieve greater consistencybetween World Bank Group practices (and in-struments) and its PSDE goals. Management iscommitted to working toward this objective wherethe Country Assistance Strategy (CAS) sets outpursuit of PSDE goals as a priority. IFC and MIGAhave become increasingly involved in preparingCASs, focusing on countries where transactionsare developing or ongoing, as the reform agendahas an important impact on their project risk as-sessments. IFC’s and MIGA’s inputs also helpshape priorities for improvements in the policyand institutional environment for private invest-ments, and as the role of energy in poverty re-duction evolves they are expected to becomeincreasingly involved in this agenda as well. How-ever, to date, private investors have been reluc-tant to participate in low-income countries, asthe perceived risks in these markets outweighthe expected returns. To increase PSDE in thesemarkets, the Bank is working with IFC to ensurethat these risks are appropriately allocated. Theywill also seek to widen the pool of investors to in-clude strong domestic private partners in clientcountries so as to counter the decline in the num-ber of European and American investors that hasbeen caused by developments in their home mar-kets. Output-based aid (OBA) appears to be apromising technique to increase poor people’s ac-cess to electricity and to reduce costs by facilitatingprivate investment in these markets. It is impor-tant, however, that OBA not be undertaken inisolation: in some cases it could be a componentof a sectorwide approach that encompassesachievement of transmission and generation ca-


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pability and reliability commensurate with con-sumers’ ability to pay.

Measuring impact. As part of its recommendationto encourage innovation in the pursuit of PSDEobjectives, the OED/OEG/OEU review highlightsthe importance of developing performance indi-cators and related internal systems. Managementagrees that these are important objectives. Mon-itoring and evaluation (M&E) of PSDE shouldcover intermediate indicators of outputs and out-comes, and the WBG should help client govern-ments and executing agencies to develop theirlimited financial resources and capacity for M&Eprograms. To make headway toward improvedM&E, a comprehensive work program is under-way, details of which are set out in the attachedManagement Action Record matrix.

IV. ConclusionsAs noted, Management broadly supports the rec-ommendations and conclusions of theOED/OEG/OEU review. Implementation of manyof the recommendations is already underway,drawing on five key lessons from recent experi-ence:

• Continue to support PSDE. Experience hasshown that the private sector has brought ef-ficiency gains, performance improvements,and cost reductions when the incentives for in-vestors, producers, consumers, and regulatorswere adequately addressed. Pursuit of greater

engagement of the private sector in distribu-tion, in particular, is important.

• Need for government support of broad-

based reforms. Reforms are key to increas-ing economic efficiency and will be supportedby economic and sector work, policy advice,and adjustment operations. Monitoring andevaluation will be done in parallel to establishthe empirical evidence to guide the WorldBank Group’s evolving agenda. An ambitiousPSDE agenda should only be supported whenthere is clear and strong political commitment,including up-front actions to strengthen sec-tor governance.

• Innovation. The WBG will continue to sup-port innovative approaches, especially in ad-dressing the Millennium Development Goalsand the Johannesburg objectives that build onthem.

• Competition as an incentive mechanism

for efficiency gains. To establish incentivesfor the desired efficiency gains, the WBG willcontinue wherever feasible to support the es-tablishment of an enabling environment for acompetitive generation market.

• Governance. It is important to strengthengovernance structures (including regulation,protection of investor rights, and implemen-tation of internationally recognized accountingand auditing principles) before privatization.Privatization can help develop better gover-nance arrangements by formalizing a separa-tion of powers and arm’s length regulation.


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Major OED Recommendation

1. On an urgent basis, the WBG should provide operational guidanceto WBG staff on when and how to continue promoting PSDE underthe current situation of heightened macroeconomic and politicalrisks and scant investor interest. Such guidance should begrounded on the Bank’s recently enacted PSD strategy.

• The Bank’s Energy and Mining Sector Board, in close consultation withthe Private Sector Development Board, should provide WBG staff withupdated, practical operational guidance for pursuing PSDE based onwhat works best in terms of reform packages and their sequencing,given particular country-sector situations, needs, and institutionalcapacities. Best-practice examples can be developed for a range offrequently observed country attributes.

• The development of this guidance should be a joint effort of the Bank,IFC, and MIGA. The guidance should define a framework that enablesthe full analysis of PSDE alternatives, that ensures environmentalsustainability, and that aligns with the WBG’s poverty reduction mission.

• WBG senior management should clarify the roles of the Bank, IFC, andMIGA in promoting PSDE, particularly in terms of increased financialand advisory support.

2. In its future PSDE interventions, the WBG should give greateremphasis to the mainstreaming of the poverty reduction andenvironmental objectives (in addition to its traditional macro-fiscal and sector efficiency objectives) that are at the core of theWBG’s overall energy strategy.

• The WBG should focus more on reforming and facilitating privateinvestments in the distribution subsector. This will require actions toimprove cash collections, reduce losses, address corruption, achievebetter targeting of subsidies, expand access by the rural poor, andprivatize distribution where and when circumstances permit.

• The WBG should maximize the involvement of the local private sectorin small-scale and/or decentralized projects. This will requireinnovative approaches and much better cross-sectoral integrationwithin the Bank, and among the Bank, IFC, and MIGA.

Management Response

Management agrees, in general, with this recommendation. The EnergySector Anchor has started the preparation of a Guidance Note tocomplement the numerous other learning mechanisms already in place. TheGuidance Note, planned for delivery in early FY04, will address therespective roles of the Bank, IFC, and MIGA. The note will focus on theurgent issues associated with arresting the decline in PSDE and protectingpublic goods through improved governance. However, as no “cookbook”solution exists for power sector reform, the WBG feels the appropriateapproach to training energy staff will continue to be one that focuses onlessons learned and the analytic tools needed to guide staff in specificcountry assessments.

Management agrees with the recommendation that poverty reduction andenvironmental objectives be mainstreamed into the energy portfolio. Areview of the current pipeline of energy projects reveals a considerableproportion of energy projects with environmental and poverty components.Environmental and poverty reduction objectives are being highlighted atlearning forums such as the February 2003 Energy Week and EnergyWorkshops. This will be followed by selected country-specific ESWaddressing environmental and poverty concerns, as a precursor to theinclusion in the portfolio of projects with corresponding objectives.Regarding the facilitation of private sector investments in distribution, theWBG has already taken on this agenda through policy dialogue, support ofprivate interventions, and facilitation of new instruments. For countries inwhich PSDE is planned, poverty alleviation and environmental protection willremain as key elements of the reform program. This will include targetedincome support for the poor in cases where it is economically efficient, andlifeline energy tariffs when it is not. The Energy Anchor will prepare a paperin FY04 that addresses these issues of environmental sustainability andpoverty reduction.

The prospects for increasing local private sector involvement in small-scaleand/or decentralized projects are modest as the limited financial resourcesavailable tend to be allocated to other high-risk/high-return investments. However, the WBG plans to encourage participation from a broader group ofprivate investors, including those from low- and middle-income countries.

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Major OED Recommendation

3. The WBG should encourage operational innovation to ensuregreater consistency between its practices and instruments andits evolving PSDE goals.

• The WBG needs to improve the coordination of the various units activein PSDE. To this end, it should pursue better integration of its PSDEobjectives within the CAS framework (including in non-joint CASs) andPoverty Reduction Strategy Papers (PRSPs).

• The Bank, IFC, and MIGA management should support flexibility andthe exercise of initiative in PSDE operations and AAA, to enable betterresponse to rapidly changing country-sector conditions and toopportunities that are not always foreseeable in the CAS. Through itsdiverse lending and advisory instruments, the WBG should promotemore public–private partnerships and promising innovations, such asthe pro-poor design of reforms and output-based aid schemes, forwhich robust monitoring and evaluation systems are essential.

• The WBG should develop performance indicators and related internalsystems and should help strengthen borrower capacities (includingthrough project funding) to monitor and evaluate the achievements andimpacts of its PSDE interventions. These M&E efforts should be keyedto the Energy Business Renewal Strategy and other relevant strategyand policy objectives, especially in the relatively neglected areas ofhelping the poor and mainstreaming environmental sustainability.

Management Response

Management agrees that, within the framework provided by the CAS, itshould continue to increase the consistency of PSDE goals with the Bank’soperational practices and instruments. Consistency is pursued, notably, whenthe Bank and IFC prepare joint CASs (half of CASs and CAS progress reportsin FY01 and FY02 were prepared jointly, and this effort is being sustained inFY03, when 15 CASs and CAS progress reports are expected to be jointBank/IFC products, including those for China, Colombia, Jordan, Thailand,and Vietnam). IFC and MIGA will continue to be involved in CASs, focusingespecially on those countries where transactions are developing or ongoing,because the reform agenda has an important impact on their project risks.Where the CAS indicates that support for PSDE goals is a priority, the Bankwill work with IFC to attempt to ring-fence risks and ensure that they areappropriately allocated.

Work is under way in the PSI VPU and the energy sector family/Sector Boardto establish appropriate methodologies and acquire data for monitoring andevaluation. The Energy Business Renewal Strategy set forth proposedindicators to measure performance in the sector as a whole. A note onenergy indicators will be prepared in FY04 for the Results MeasurementSystem in IDA14. In parallel, work is being launched at the PSIVP level todevelop performance measures and accompanying databases for several keyinfrastructure sectors, including energy, which can serve a variety ofinstitutional purposes (for example, to standardize and set benchmarks foruse in Bank ESW). The work is likely to focus initially on sectors andindicators that have higher priority for the tracking of global outcomes, suchas those sectors and targets that are identified in the MillenniumDevelopment Goals. Critical lessons on data sources and needs (for theBank, donors, and clients) will be gleaned from this exercise, as well aslessons on borrower capacity, the sustainability of data collection, andpartnering with specialized agencies in the various sectors. Finally, PSIVPhas recently completed an assessment of project-level M&E, focusing onoverall quality, distilling sector-specific lessons of best practice on outcomesand indicators and clarifying the links betweenproject–sector–country–global outcomes and indicators to measure progresstoward those outcomes. These efforts represent a solid beginning to addressdeficiencies in the ability of the Bank, its clients, and the internationalcommunity to measure performance across all infrastructure sectors.

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On May 7, 2003, the Committee discussed PrivateSector Development in the Electric Power Sector:A Joint OED/OEG/OEU Review of the World BankGroup’s Assistance in the 1990s (R2003-0038,IFC/R2003-0043, MIGA/R2003-0011) and the DraftManagement Response (CODE2003-0022). TheCommittee thanked the evaluation units of theBank Group and Management for their commentsand was pleased at the high degree of coherencebetween the recommendations in the review andthe evolution of Management’s orientation to thepower sector.

Background This joint OED/OEG/OEU review evaluates theperformance of the World Bank Group duringthe 1990s in promoting private sector develop-ment in the electric power sector (PSDE). The re-view’s main message is that PSDE has deliveredexpected benefits and good outcomes wherecountries were committed, reforms have ad-vanced, and PSDE programs were properly im-plemented. However, the quality of outcomesdepended on the objectives pursued and on thetypes of assistance provided. Most countries re-main in the early stages of reforming and deep-ening private sector involvement in their powersectors. Bank-supported activities achieved goodresults where country ownership and sustainedpolitical commitment existed. But the Bank un-derestimated the complexity and time requiredfor reforms to mature and achieve lasting andequitable country-sector outcomes; it obtainedpoor or, at best, mixed results where reformshave been weak or slow to take root. IFC andMIGA, focusing on the single reform objective ofprivate sector participation and responding tomarket demand, achieved good project-level out-comes overall, although these could not in and of

themselves ensure good sector-level outcomes.The review further points out that private inter-est in the power sector has been declining rapidlyin recent years, particularly since the 1997 Asianfinancial crisis. Thus, the global picture indicatesthat while the Bank pursues the creation of aPSDE-enabling environment in 68 countries, pri-vate foreign interest itself is dwindling. The review,therefore, suggests that the Bank work toward themiddle of the “continuum” from fully public tofully private service provision, and that it ensurethat resources for investment in power generationand, particularly, transmission, are available.

Specifically, the review recommends that theWBG continue to pursue PSDE. In doing so, itshould (i) provide operational guidance to staffon when and how to continue promoting PSDE;(ii) give greater emphasis to the mainstreamingof poverty reduction and environmental objectivesin the design of future PSDE strategies; and (iii)encourage operational innovations (for example,in public–private partnerships), coupled withmore systematic monitoring and evaluation ofimpacts.

Management welcomed the review and notedits timeliness given that 10 years had passed sincethe Bank adopted its policy on PSDE, and that itwas in the process of preparing a forward-look-ing action plan on the Bank’s engagement in theinfrastructure sector. Management broadly agreedwith the findings of the review and agreed that theBank needed to operate away from the extremesof only public or private financing of infrastruc-ture and needed to find innovative solutions.Management summarized its response to the re-view’s recommendations in which it noted, inparticular, the development of a PSDE guidancenote to staff addressing the respective roles of theBank, IFC, and MIGA in PSDE; progress on main-

ANNEX S: CHAIRMAN’S SUMMARY: COMMITTEE ON DEVELOPMENT

EFFECTIVENESS (CODE)


streaming poverty reduction and environmentalobjectives in PSDE through an increasing pipelineof energy projects with environmental compo-nents, multisectoral approaches, and improved co-ordination; greater attention to poverty reductionand environmental objectives through forumssuch as the WSSD Summit in Johannesburg andthe 2003 Energy Week; and ongoing work to im-prove monitoring and evaluation through a com-prehensive program to develop concreteindicators.

Main conclusions and next steps. The Committee broadly endorsed the findings ofthe review and focused on the lessons learned forthe future. The main conclusions of the discus-sion included support for a continued role bythe Bank Group in promoting PSDE; concernabout declining private sector investment; and em-phasis on the need for the Bank Group to addressthe issue by working across the continuum awayfrom the extremes of purely public or private sec-tor engagement. Members underlined the im-portance of providing clear guidance to staff, theimportance of integrating environment andpoverty reduction into the Bank Group’s ap-proach, and the importance of developing a sus-tainable approach to assuring the affordability ofelectric power to the poor. It was agreed that fur-ther discussion would take place at the upcom-ing Board discussion of the infrastructure actionplan and that Management would hold a Techni-cal Briefing to consult with the Board on thePSDE guidance note to staff. The final version ofthe review, along with the finalized managementresponse and a summary of the CODE meeting,will be made available to the public in accordancewith procedure.

Among the specific issues raised by the Com-mittee were:

Approach and instruments. The Committee com-mented on the differences between the Bank’ssector-level outcomes versus the project-leveloutcomes of IFC and MIGA. Some members sug-gested that the Bank’s approach to PSDE is notsufficiently tailored to individual country needsand that there is a need for many more flexible in-struments to quickly respond to on-the-ground

needs. In this regard, they suggested that a muchmore thorough evaluation is needed of the Bank’spolicy advice, given that the review had found thatnearly half of the Bank’s interventions had failedto produce the desired sector-level outcomes.Management agreed on the need to maintain aflexible approach and noted that it was focusingon appropriate reform strategies to account forindividual country situations and on providing amenu of options for this purpose.

Public–private roles. The Committee expressedconcern about the withdrawal of private capitalfrom the sector and stressed the need for betteranalysis of the reasons and much greater detail onhow the Bank Group proposes to respond. Theimportance of innovation, as mentioned in the re-view, was highlighted in this regard. Some mem-bers suggested that the Bank Group had beenoverly reliant on the private sector and that it isnecessary to find a balance between supportingprivate and public sector financing of infrastruc-ture projects. Others suggested that the per-formance of public utilities had been extremelypoor and there were significant efficiency gains tobe made from private sector involvement. Somemembers stressed that while the review and theManagement Response assumed that it is feasibleto reengage the private sector in developing coun-try markets, Management needed to have an al-ternative for client countries since it is not likelythat the private sector will meet the global needfor investment in generation and distribution.One member felt that an important area of inquiryis whether power sector reforms and IPPs sup-ported by the Bank Group have contributed tolowering the cost of electricity generation andimproving the access of the poor to electricity. Heemphasized the critical importance of policy ad-vice and building capacity in developing countriesto negotiate appropriate and fair contractualarrangements between the government and theprivate sector. The Committee agreed that theBank needs to remain flexible, and that it needsto assess how the public and private sectors couldbring their relative strengths to bear in each coun-try situation. Management responded that thedeclining interest of the private sector is a causefor concern. Reasons included significant diffi-

A N N E X S : C H A I R M A N ’ S S U M M A R Y: C O M M I T T E E O N D E V E L O P M E N T E F F E C T I V E N E S S ( C O D E )

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culties in global economic markets in the 1990s,overoptimism on the potential role and interestof the private sector, and a slower-than-expectedpace of reform in client countries. Managementagreed with the need for flexibility and emphasizedthat the Bank’s approach would be tailored to theparticular economic, technical, political, and so-cial conditions of each country. For example, inthe case of relatively large and advanced countries,the focus will be on unbundling the sector, pri-vatization of viable entities, and initiation of com-petitive transactions, whereas for smaller countrieswith limited institutional capacity the focus will firstbe on commercialization of the sector and onchoosing a market structure appropriate for thecountry’s circumstances.

Integrating poverty reduction and the environment.The Committee emphasized the importance of theBank Group mainstreaming poverty reductionand the environment in its PSDE work and askedManagement how they proposed to address thisissue. Some members highlighted the inherentlypro-poor focus of power sector reform, noting thataccess to power supply is critical for providing thepoor with a better quality of life and for sup-porting social sector interventions in the healthand education sectors. One member, while stress-ing that the poverty reduction goal is fundamen-tal, suggested that other goals, such as meetingenvironmental objectives, could lead to too manyproject delays. Another member noted that thereview and Management Response urged the re-turn of the private sector to PSDE and wonderedwhat the Bank Group proposed to do in caseswhere there was a trade-off between attracting pri-vate investment and the raising of environmen-tal safeguards standards.

Subsidies. The Committee stressed the impor-tance of developing a sustainable approach totargeted subsidies for the poor, to take accountof fiscal pressures and the need to make power

affordable to the poor. Members stressed the im-portance of the innovative use of subsidies, guar-antees, and the domestic private sector to respondto individual country situations. OED empha-sized that while subsidies do work, they have tobe transparent and targeted appropriately to en-sure that they are in fact getting to the poor. Man-agement agreed and stressed that the Bank’scurrent focus is to target subsidies appropriately.It emphasized that it is focusing on affordabilityfor the poor as well as efficiency in going for-ward.

Monitoring and evaluation. The Committee agreedwith the review’s findings with regard to the needfor more systematic monitoring and evaluation ofimpacts. Members stressed the importance of in-termediate quantifiable indicators that wouldallow for mid-course correction, while empha-sizing the need for the Bank to be flexible and re-sponsive to changing needs in the sector.Management agreed and pointed to ongoing workin this area that would address the difficulty ofmeasuring the impact of PSDE and the limited fi-nancial resources and capacity of client govern-ments and executing agencies for monitoring andevaluation.

Division of labor. The Committee discussed coor-dination within the Bank Group and stressed theimportance of a clear division of labor between thePSD and Infrastructure VPUs to facilitate greatercoherence in the Bank Group’s strategy in PSDE.They hoped the separation of the two VPUs wouldachieve this and encouraged strong coordinationbetween them. They stressed the importance ofthe new CAS framework and the results agendato further address this problem. Managementagreed.

Finn Jonck, Chairman


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Summary 1. The three evaluation units comprise the follow-

ing: (i) the Operations Evaluation Department (OED),

which prepared the evaluation of the World Bank (In-

ternational Bank for Reconstruction and Develop-

ment/International Development Association) PSDE

portfolio and its project- and sector-level outcomes; (ii)

the Operations Evaluation Group (OEG), which eval-

uated the power investment portfolio of the Interna-

tional Finance Corporation (IFC) and prepared the

sections on independent power producers (IPPs); and

(iii) the Operations Evaluation Unit (OEU), which as-

sessed the power guarantees portfolio of the Multilat-

eral Investment Guarantee Agency (MIGA).

1. Compuesto de lo siguiente: (i) el Departamento

de Evaluación de las Operaciones (OED), que preparó

la evaluación de la cartera del PSDE del Banco Mundial

(BIRF/IDA) y sus resultados a nivel del proyecto y del

sector; (ii) el Grupo de Evaluación de Operaciones

(OEG), que evaluó la cartera de inversión en energía

de la Corporación Financiera Internacional (CFI), y

preparó las secciones sobre los productores indepen-

dientes de electricidad (IPP); y (iii) la Unidad de Eva-

luación de Operaciones (OEU), que evaluó la cartera

de garantías en energía del Organismo Multilateral de

Garantía de Inversiones (OMGI).

1. Comprend ce qui suit : (i) le Département d’éva-

luation des opérations, qui a préparé l’évaluation du

portefeuille DSPE de la Banque mondiale (BIRD/IDA)

et les résultats au niveau projet et secteur, (ii) le

Groupe d’évaluation des opérations qui a évalué le por-

tefeuille des investissements en énergie de la Société

financière internationale et qui a préparé les sections

sur les producteurs d’énergie indépendants (PEI), et

(iii) l’Unité d’évaluation des opérations (OED), qui a

évalué le portefeuille de garanties d’énergie de l’Agence

multilatérale de garantie des investissements (MIGA).

Chapter 11. Some results of the task manager survey were

used mainly as sources of technical and other specific

information, as the response rate was relatively low.

2. Projects that have been approved five years be-

fore evaluation and have at least 18 months of oper-

ating results. The evaluations for this study cover

active projects approved up to 1996.

Chapter 21. IFC’s purpose, as specified in Article 1 of its Ar-

ticles of Agreements, is “to further economic devel-

opment by encouraging the growth of productive

private enterprise in member countries.” This has

been further emphasized in IFC’s current mission

statement of promoting private sector investments in

developing countries. By definition, all IFC opera-

tions in any sector aim to catalyze private investments

through direct and indirect financing and through

project-induced impacts designed to create an envi-

ronment conducive to private sector investment.

Chapter 31. Three projects have unsatisfactory ratings: the

India Private Power Development Technical Assis-

tance Project and the first and second Pakistan Private

Sector Energy Development Projects.

2. The study assigned sector reform scores to 115

countries based on whether they have taken the seven

steps necessary to liberalize the energy sector. Coun-

tries that have taken all seven steps received a score

of 6 (the highest score), while those that have not

taken a single step received a score of 0. The seven

steps are: 1. Corporatization of state-owned utility; 2.

Passage of energy law; 3. Commencement of work by

the regulatory body; 4. Initiation of construction of pri-

vate sector investments in IPP; 5. Restructuring of

state-owned utility; 6. Privatization of generation; and

7. Privatization of distribution.

3. In Ghana, the 1998 first Economic Reform Sup-

port Operation (ERSO I) improved the sector’s fi-

nancial viability, increased tariffs substantially, and

enhanced the regulatory framework for private par-

ticipation. The public utilities in Mali and Mauritania

are being or were privatized and regulatory authori-

ties put in place. Côte d’Ivoire also implemented

major energy sector restructuring.

4. Notably in Côte d’Ivoire; in Kenya, where the sec-

tor unbundling and related tariff and regulatory re-

forms are delayed; and in Madagascar, Sierra Leone,

and Tanzania, where the partial reforms achieved are

of doubtful sustainability given the continuing serious

weaknesses in financial management, which has

been consistently rated unsatisfactory across Bank

projects.

ENDNOTES

5. Achievements consisted mainly of training, stud-

ies, and official documents expressing intent to reform,

as in Angola (where the Electricity Law was passed but

the project was unsatisfactory because the regulatory

infrastructure was not set up), Benin (where the tar-

iff and Long-Run Marginal Cost study was completed

but the build–own–operate–transfer [BOOT] scheme

failed), Malawi, and a few others.

6. Argentina should be in the advanced group of

countries in terms of PSDE achievements, many of

which were made in the 1980s.

7. Brazil has promoted a deep restructuring of its

power sector. The Bank has assisted with the privati-

zation of two electricity distribution companies in

Rio Grande de Sul, representing approximately two-

thirds of the state’s territory. However, the federal

regulatory agency has been slow to delegate powers

to the newly created state regulatory authority. In Rio

de Janeiro, Bank support was provided for the priva-

tization of CERJ, the state utility. MIGA provided po-

litical risk insurance for the privatization of Light

Servicos de Electricidade, the electricity distributor in

Rio de Janeiro, in FY97 and later supported the ex-

pansion and rehabilitation of this project.

8. Bolivia, El Salvador.

9. Bolivia, Colombia, El Salvador, Guatemala,

Panama, Peru.

10. Bolivia, El Salvador, Guatemala, Peru.

11. Bolivia, Colombia, El Salvador, Guatemala, Peru.

12. Bolivia, Colombia, Peru.

13. The others include the Uch Power Project

(525MW), Rousch Power Limited (412MW), South-

ern Electric Power Company (117MW), and the Asia

Pipeline Limited, which provided fuel to Hub, with a

capacity of 3.5 million tons per annum.

14. Loan and equity risks are rated based on the fol-

lowing scale: 1–Very Good; 2–Good; 3–Average;

4–Watch; 5–Substandard; 6–Doubtful; and 7–Loss.

15. The economic rate of return (ERR) is the dis-

count rate at which the present value of the project’s

costs to society is equal to the present value of its ben-

efits to society.

16. While there is no single case of a less-than-sat-

isfactory economic rate of return (ERR) in which proj-

ects yield a satisfactory financial rate of return (FRR),

there are three cases in which the project returns to

financiers were less than satisfactory but the ERRs

were satisfactory.

17. Based on an IFC interview of major industrial

users. This interview was undertaken as part of an

XPSR field visit.

18. This includes a strong credit support arrange-

ment and innovative equity structure.

19. IFC has a fifth investment in this country but

this has not been included in the report since it is not

yet mature for evaluation. This project has suffered sig-

nificant delays, cost overrun, and technical difficulties

at start-up.

20. Because many of the projects were affected by

a series of unexpected regional and country financial

crises, there is no basis for inferring that a detailed mar-

ket analysis at the time of appraisal would likely have

forecast a demand growth lower than official World

Bank-endorsed projections and a retail tariff regime

remaining at subsidized levels despite a robust sector

reform program.

21. In the generation subsector, MIGA supported

the construction, rehabilitation, or expansion of gen-

erating capacity totaling approximately 7,450MW. Al-

though the majority of projects (21) are in thermal

generation, a significant share is in renewable energy

such as hydro (7) and geothermal power (4), which

account for a total capacity of 2,876MW. Some of the

thermal stations use clean-burning natural gas and

others promote energy efficiency. The size of power

stations ranges from 8MW to 1,300MW, with an aver-

age capacity of 233MW.

22. MIGA has also managed five disputes between

guarantee holders and host countries, which cen-

tered on the highly political issue of tariff rates. The

incidence of such disputes in the electricity sector,

most of which occurred in Asia, was higher than in any

other sector for MIGA.

23. This includes projects in China up to FY99 and

one dual-country project where only one country is

IDA eligible.

24. Transmission and distribution projects were

not part of the evaluation sample because they were

underwritten more recently and were not mature

enough for evaluation.

Chapter 41. One of the initial conditions of the contract with

CIE was that there would not be any forced staff de-

partures, despite some overstaffing.

2. In Bolivia, private investments had reached

US$204 million by mid-1998, allowing demand growth

of more than 7 percent per year to be met.

1 1 8


3. In Panama, all privatized power companies con-

tributed US$70.8 million to the treasury in 2000 by way

of income taxes and dividends.

4. Statistics presented in Table 4.2 are based pri-

marily on data from projects that the Bank has fi-

nanced.

5. This is also true in the United Kingdom. Other

countries, such as Australia, have experienced in-

creasing prices. Spot prices tend generally to be very

volatile, particularly in hydro-based systems such as

those of Chile and New Zealand.

Chapter 51. For example, in FY99, 32 percent of energy lend-

ing was in the 21 riskiest countries, compared to 23 per-

cent for other sectors; 65 percent was at risk in those

21 countries, compared to 13 percent elsewhere. In

other sectors, the figures were 34 percent for the risky

countries and not much lower elsewhere. This results

from the tougher financial covenants in those coun-

tries, and the automatic translation of the East Asian,

Russian, and Ukrainian crises into bad ratings.

2. This is reported on in project documents for Peru

and El Salvador.

3. This is reported on in project documents for

Peru.

4. In Côte d’Ivoire, ESMAP had recommended put-

ting electricity and gas under a single regulator. In

Ghana, the Public Utilities Regulatory Commission

(PURC) regulates electricity and water tariffs but not

hydrocarbons. A separate Energy Commission deals

with licensing and regulates technical matters for

electricity and hydrocarbons.

5. The Office of Utilities Regulation (OUR) in Ja-

maica is an exception. It is also unusual in covering a

broad spectrum of regulated industries, including

urban public transport.

6. The Ivorian regulator can only make tariff rec-

ommendations to government.

7. In Kyrgyzstan the law empowers the State Energy

Agency to set tariffs, but in practice these are referred

to the Cabinet. In Ghana, the Public Utilities Regula-

tory Commission (PURC) was set up by government

to depoliticize tariff increases, but in practice the

PURC refused to approve rises in the two years pre-

ceding presidential elections.

8. In Orissa (India) the Orissa Electricity Regulatory

Commission (OERC) followed a populist rather than

impartial policy on tariff hikes. In Maharashtra the

regulators jurisdiction over the Dhabol IPP became a

matter of litigation.

9. There is still a wide range of industrial countries

(including several U.S. states, Canadian provinces,

and Western European nations) in which such com-

petitive power supply arrangements are not in place

and where the more traditional utility monopolies

exist, operating at high levels of efficiency.

10. WAPDA was not able to meet its payment ob-

ligations to the 20 IPPs (representing more than

4,000MW of new capacity) and had to resort to rene-

gotiation of PPAs to reduce the purchase price for

power. Unaccounted-for electricity was estimated at

as much as 35 percent, while revenue collections and

average tariffs were low. IPP payments furthermore

were denominated in U.S. dollars, and the rupee de-

preciated by 45 percent.

11. MSEB was forced to back down production

from its much lower-cost generation plants to honor

its take-or-pay contract with the Dabhol Power Co.

(690MW, Phase I—the largest single foreign investment

project in India) and defaulted on its payments to

DPC. The Maharashtra state guarantee and Govern-

ment of India sovereign guarantees were then in-

voked and the matter went to international arbitration

and to the Indian Supreme Court regarding the ju-

risdiction of the state regulatory commission.

12. Total energy losses in the power sector are

much higher because its main client, the Dhaka Elec-

tric Supply Authority, which serves the Dhaka metro-

politan area, has system losses of more than 28 percent.

Annex A1. The external reviewers included Dr. Catherine

Waddams, Dr. V.V. Desai, Dr. Navroz Dubash, and Dr.

Graham Thomas.

Annex J1. This is an abbreviated version of OEG’s XPSR

Evaluation Framework.

Annex L1. Based on a stratified random sample of FY91–95

approvals evaluated in the FY96–00 XPSR program.

2. One project cannot be rated due to insufficient

information.

3. Based on an IFC interview of major industrial

users. This interview was undertaken as part of an

XPSR field visit.

E N D N O T E S

1 1 9

Annex N1. Respectively, the Solar Development Corporation

(SDC), the Renewable Energy and Energy Efficiency

Fund (REEF), and the Photovoltaic Market Transfor-

mation Initiative (PVMTI).

Annex R1. Executive Directors discussed this strategy in-

formally in May 2001, following presentation of The

World Bank Group’s Energy Program: Poverty Alle-

viation, Sustainability, and Selectivity: A Topical

Briefing to the Board of Directors ( May 22, 2001).

2. The current pipeline of energy projects shows

a considerable shift toward projects with environ-

mental components. (The Global Environmental Fa-

cility and the Prototype Carbon Fund are helping to

promote these changes.)

3. The World Summit on Sustainable Development

highlighted four energy issues: (i) increasing access

by the poor to modern fuels; (ii) improving the tar-

geting of subsidies; (iii) increasing the use of renew-

able energy resources; and (iv) increasing the efficiency

of energy use.

1 2 0


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Study Series2002 Annual Review of Development Effectiveness—Achieving Development Outcomes: The Millennium ChallengeAgricultural Extension: The Kenya ExperienceAgricultural Extension and Research: Achievements and Problems in National SystemsAssisting Russia’s Transition: An Unprecedented ChallengeBangladesh: Progress Through PartnershipBridging Troubled Waters: Assessing the World Bank Water Resources StrategyDebt Relief for the Poorest: An OED Review of the HIPC InitiativeDeveloping Towns and Cities: Lessons from Brazil and the PhilippinesThe Drive to Partnership: Aid Coordination and the World BankFinancial Sector Reform: A Review of World Bank AssistanceFinancing the Global Benefits of Forests: The Bank’s GEF Portfolio and the 1991 Forest Strategy and Its ImplementationFiscal Management in Adjustment LendingIDA’s Partnership for Poverty ReductionIndia: The Challenges of DevelopmentIndia: The Dairy RevolutionInformation Infrastructure: The World Bank Group’s ExperienceInvesting in Health: Development Effectiveness in the Health, Nutrition, and Population SectorLesotho: Development in a Challenging EnvironmentMainstreaming Gender in World Bank Lending: An UpdateThe Next Ascent: An Evaluation of the Aga Khan Rural Support Program, PakistanNongovernmental Organizations in World Bank–Supported Projects: A ReviewPaddy Irrigation and Water Management in Southeast AsiaPoland Country Assistance Review: Partnership in a Transition EconomyPoverty Reduction in the 1990s: An Evaluation of Strategy and PerformancePromoting Environmental Sustainability in DevelopmentReforming Agriculture: The World Bank Goes to MarketSocial Funds: Assessing EffectivenessUganda: Policy, Participation, PeopleThe World Bank’s Experience with Post-Conflict ReconstructionThe World Bank’s Forest Strategy: Striking the Right BalanceZambia Country Assistance Review: Turning an Economy Around

Evaluation Country Case SeriesBosnia and Herzegovina: Post-Conflict ReconstructionBrazil: Forests in the Balance: Challenges of Conservation with DevelopmentCameroon: Forest Sector Development in a Difficult Political EconomyChina: From Afforestation to Poverty Alleviation and Natural Forest ManagementCosta Rica: Forest Strategy and the Evolution of Land UseEl Salvador: Post-Conflict ReconstructionIndia: Alleviating Poverty through Forest DevelopmentIndonesia: The Challenges of World Bank Involvement in ForestsUganda: Post-Conflict Reconstruction

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The Operations Evaluation Department (OED) is an independent unit within the World Bank; it reportsdirectly to the Bank’s Board of Executive Directors. OED assesses what works, and what does not; how aborrower plans to run and maintain a project; and the lasting contribution of the Bank to a country’s over-all development. The goals of evaluation are to learn from experience, to provide an objective basis forassessing the results of the Bank’s work, and to provide accountability in the achievement of its objectives.It also improves Bank work by identifying and disseminating the lessons learned from experience and byframing recommendations drawn from evaluation findings.

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Power forDevelopment Power forDevelopment A Review of the World Bank Group’sExperience with Private Participation in the Electricity Sector

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