David Hayes discovers how the Asian Development Bank has helped develop hydro power schemes in the Asia-Pacific region through its project loan funding activities and technical assistance programme
SINCE THE MID-1960s the Manila-based Asian Development Bank (ADB) has been one of the most active multilateral lending agencies helping develop social and economic infrastructure throughout the Asia-Pacific region. Best known for its project loan funding activities, ADB also operates an important technical assistance programme. This involves providing consultancy services to borrowing member countries to ensure projects are carried out successfully and to encourage the development of targeted sectors such as the electricity and water supply industries.
Established in 1966, the ADB was set up to help finance infrastructure building throughout the region. Currently it lends to 22 developing member countries, many of which have borrowed technical assistance and project loans from the ADB for various electricity generation, water supply and other development schemes.
Between 1968 and 2000, the ADB lent a total of US$88.1B to finance projects in developing member countries. Loans for hydro power schemes accounted for 21.4% of the total.
Energy lending has fallen since the onset of the Asian economic crisis in 1997, as many countries found the economic downturn resulted in a sharp drop in energy consumption. This has caused many power generation projects to be delayed.
Since 1997, the ADB has increased lending to financial institutions in borrowing member countries as part of efforts to help governments to cope with the financial crisis and kick-start economic growth once again.
In 2000 the ADB approved project loans totalling US$5.7B of which energy projects, including hydro power, accounted for 20% of the total. Although many countries in the Asia-Pacific region still need to make large investments to develop a modern electricity industry, the ADB’s focus in helping develop the region’s power sector has begun to change in recent years. While expanding electric power generation capacity was the major focus of power sector development in the 1970s and 1980s, loan financing power plant construction recently has become less important for governments in some of the ADB’s borrowing member countries.
‘Our main focus in electricity development now is clean fuels and power transmission,’ explained Aminul Huq, senior project engineer in ADB’s energy division. ‘Our first renewables loan project was in India and involved solar power, biogas and wind power. Our new wind power project in China is our second renewables project. There is no other renewable project coming up in the near future but we are talking to Kazakhstan to do a mini hydro scheme there.’
Renewable and clean energy is increasingly attracting government interest throughout Asia to prevent and reduce environmental pollution. The change in focus to support the use of renewable and clean fuels follows a recent review of the ADB’s energy sector activities and the drawing up of the Bank’s new energy sector policy in 2000. ADB support for renewable energy is just beginning because the higher cost of clean fuel including dam construction costs raises policy issues for many borrowing member countries.
ADB is involved in dam construction schemes through its energy, water supply and agricultural irrigation programme activities. Most dam construction schemes are believed to be hydro power projects for which loan financing is provided under the energy development lending programme. Dams are occasionally built as part of water supply or irrigation projects. Of course, many dams are built as multipurpose dams providing water storage for various purposes in addition to using water for power generation.
Since its foundation, the ADB has been involved in loan financing hydro power schemes in at least seven countries across Asia. Because of the high cost of building large dams, some projects are co-financed with other multilateral development agencies such as the World Bank or bilateral funding agencies.
Pakistan, for example, has used ADB loans to finance construction of Tarbela dam in the 1980s and more recently the Ghazi Barotha hydro power scheme with a loan awarded in 1995. China has used ADB loans to fund construction of the Mianhuatan hydroelectric scheme in Fujian Province and the Lingjintan dam in Huanan Province with loans obtained in the mid 1990s.
In the 1980s, the Philippines used ADB finance to build part of the Agus hydroelectric scheme in Mindanao, which generates most of the electricity used on the southern island. Samao also has used ADB loans during the past two decades to build the Afulilo hydro power scheme.
More recently, Laos obtained an ADB loan in 1996 to build the Nam Leuk hydroelectric dam. The same year Nepal was awarded a loan to construct the Kali Gandaki A dam.
Meanwhile, the decision to review and formulate a new energy policy in 2000 to guide the ADB’s project loan and technical assistance support for electricity, natural gas and development of other energy resources, follows important changes in the organisation and development of the electricity industry in many parts of Asia during the past two decades.
The ADB formulated its first energy sector policy in 1981, which encouraged commercialisation of the power industry. Since then, many of the Bank’s developing member countries have corporatised part or all of their electricity industries. Corporations with improved managerial capability now have considerable autonomy to manage the power sector in various countries in the region.
The next major change in ADB energy policy affecting the electricity industry occurred in 1995 when the ADB, along with other institutions such as the World Bank and bilateral lending agencies, decided to encourage private sector participation to mobilise additional power sector investment. As a result, most Asian countries have changed their legal framework to allow the construction of local and foreign joint venture independent power plant (IPP) projects.
Countries including South Korea, Indonesia, the Philippines, Malaysia, Singapore, Taiwan and Thailand have decided to create competitive electricity markets. However, in almost all cases, 10MW hydroelectric dams and larger will remain in state ownership with only the Philippines apparently willing to allow some, though not all, of its hydro power schemes to be privately owned.
In the fourth quarter of 2001, the ADB approved loans totalling US$664M aimed at expanding power supplies in India, Bangladesh, Northeast China, the Maldives and Samoa. The loans include a US$6M hydro project award to Samoa to expand and upgrade the Afulilo hydro scheme built and expanded using ADB, World Bank, European Union, European Investment Bank and Australian Agency for International Development funds in the 1980s and 1990s.
Samoa, an independent country in the Pacific Ocean, records peak load electricity demand of about 16MW, of which 13.5MW of peak demand occurs on Upolu island, one of two main islands. With electricity demand growing due to rural electrification, electricity production needs to expand to keep pace with annual load growth.
Electric Power Corporation, Samoa’s state-run monopoly power supplier, has an installed generating capacity of 24.3MW on Upolu island, of which 11.5MW, is hydro power capacity. Apart from the 4MW Afulilo long term storage hydro scheme fitted with two 2MW units, four run-of-river hydro stations totalling 7.5MW provide the rest of the hydroelectric output.
The ADB loan will be used to expand the Afulilo hydropower scheme. Plans call for the Afulilo reservoir volume to increase 50% to 15M m3. A third 2MW generating set will be installed raising the dam’s total installed capacity to 6MW. In addition, a 7.1km long gravity diversion canal will be built and power transmission and transformer capacity increased.
In line with ADB policy on procurement, all equipment and services financed by the ADB for the Afulilo expansion project will be purchased through international competitive bidding. The bid package will be structured to make it suitable for a turnkey contract to include all civil, electrical and mechanical works.
In addition, consultancy services will be required during the project implementation for procurement, preparation of construction drawings, management and general supervision of works, and training for Electric Power Corporation staff.
Consultancy services will also be procured by international tendering of the consultancy contracts. Consultants working for the ADB are required first to register their companies with the ADB and provide details of their expertise so that they can be considered for short listing whenever an appropriate technical assistance scheme is planned.
Apart from funding construction of new hydro stations, ADB is able to provide finance to rehabilitate existing hydro power plants. Tajikistan, for example, is using a US$34M ADB loan to cover foreign exchange costs of rehabilitating and upgrading two major hydro plants and to reinforce war damaged power transmission and distribution facilities.
Hydro power accounts for 90% of electricity generated in Tajikistan and consequently plays an important role in the economy. Tajikistan has an estimated 527TWh hydro power generation potential of which only about 19TWh, equivalent to 4%, is used.
The state-owned power company, Barki Tajik, will rehabilitate Nurek hydro power plant and associated transmission facilities to improve the reliability of power supplies from Tajikistan’s most important power plant. Nurek, with 3000MW of installed capacity, is the largest hydroelectric dam in Central Asia and represents 69% of Barki Tajik’s total installed capacity.
The project also includes rehabilitating Tajikistan’s Central hydro power dam, one of three dams in the Vaksh cascade which provides a combined total of 285MW installed capacity.
Cambodia, meanwhile, is benefiting from an US$18.6M ADB loan to increase provincial power supplies. Apart from installing equipment to expand and upgrade power supplies to eight major provincial towns and cities, the project also involves setting up a new electricity authority responsible for supplying power to the provincial market in the future. The project includes consultancy services to help identify future indigenous hydro resources that can be developed to support Cambodia’s renewable energy programme.
Cambodia is a predominately rural society, emerging from a long period of conflict that has had a catastrophic impact on the country. A major constraint to development of the nation’s hydro power potential is the lack of adequate hydrological data, following the break down of normal society during the genocidal rule of the Khmer Rouge. At present, very few river flow gauges in the country function, and previous records have almost been almost entirely lost. Consultants appointed to prepare the Cambodian provincial power supply project loan application advised that a modest network of gauges strategically placed on rivers throughout the country is essential to provide the necessary database for the study of hydro potential. A network of gauges will be installed as part of the ongoing provincial power programme.
Currently, Cambodia has a total installed power generation capacity of less than 100MW, one of the smallest in Asia. Almost all power plants are fuelled by diesel. Hydro power could prove very important to the gradual development of Cambodia’s electricity industry, which is inadequate to meet domestic demand and has resulted in some power supplies being imported from Thailand and Vietnam.
The government’s energy sector development policy includes the development of mini hydro schemes up to 5MW, small hydropower schemes up to 50MW and medium hydroelectric schemes between 50MW to 200MW. The ADB is likely to play a major role in supporting the development of Cambodia’s electricity sector in future.
Although best known for its project loan funding activities, the ADB also operates an important technical assistance programme. This includes providing consultancy services to borrowing member countries to ensure that projects are carried out successfully, and to encourage development of targeted sectors such as power generation and transmission.
India is using ADB technical assistance to identify potential hydroelectric projects for development. In October 2001, the ADB agreed to fund a technical assistance project to assist Kerala State Electricity Board (KSEB) in the southern state of Kerala prepare a power sector master plan. Hydro power is already a major source of electricity in Kerala. KSEB has a total installed generating capacity of 2864MW of which 2120MW, equivalent to 74%, is provided by hydroelectric schemes.
Due to growing power demand and faced with a shortage of local power supplies KESB has been forced to increase its reliance on thermal power, including buying in electricity from private power plants. In addition, electricity is purchased from neighbouring states in southern India.
With the high cost of thermal power raising the overall cost of electricity in Kerala, KESB will use the ADB technical assistance project to draw up a power sector development programme aimed at improving both the electricity sector’s financial and technical performance.
International consultants are helping KESB management to plan development of hydro power, transmission and distribution facilities as well as a longer term corporate restructuring to develop a modern power industry in Kerala. The final master plan is expected to identify potential projects for ADB financing between 2003 to 2007, which may include construction of new hydro power capacity.
Assistance to Kazakhstan
The ADB is providing technical assistance support to Kazakhstan to formulate a strategy for sustainable energy sector development. The technical assistance programme was approved in mid-2001 after the Kazakh government requested the ADB to finance construction of hydroelectric and wind power schemes in remote areas where grid power supplies are not available.
Kazakhstan, with large oil and natural gas resources, has a total installed generating capacity of 18,500MW. About 80% of this capacity is provided by coal-fired plants. Hydro accounts for just 7% of installed capacity.
Although Kazakhstan has significant renewable energy resources, these were largely neglected under the former Soviet Union, which favoured large, centrally owned and managed projects. About 5100 remote villages lack electricity supplies and extending grid supplies to them is not considered economical. Building small hydro power units and wind farms to serve the isolated communities is regarded as a more feasible solution.
Kazakhstan’s hydro potential is large and is estimated at 170TWh per year. However, only about 14% of this potential has been developed so far. Potential hydropower projects below 30MW could create a generating capacity of about 2350MW. Of this, the potential of small hydro units less than 10MW is significant. Estimates suggest that at least 453 small hydro power schemes could be built with a combined installed capacity of 1380MW.
Consultants appointed for the ADB technical assistance programme are helping the Kazakh government prepare a strategy for energy sector restructuring and development. The strategy will include recommendations for the provision of adequate power supplies to communities in remote regions not connected to grid supplies.
In addition the study will formulate an action plan for further policy and institutional reform in the energy sector. Consultants are expected to recommend that hydro power be developed to provide an environmentally sustainable expansion in electricity supplies to replace Kazakhstan’s heavy dependence on coal-fired generation and reduce air pollution in major cities.
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