Energy sector project
   Report No: ; Type: Report/Evaluation Memorandum ; Country: Philippines; Region: East Asia And Pacific; Sector: Electric Power & Other
                           Energy Adjustment; Major Sector: Electric Power & Other Energy; Project ID: P004534


         The Implementation Completion Report (ICR) on the Philippines Energy Sector Project (Loans 3163,
3164 & 3165-PH, approved in FY90), prepared by the East Asia and Pacific Regional Office, including the
Borrower's contribution, was reviewed by the Operations Evaluation Department (OED). The project provided
for three loans for a total amount of US$390 million (US$200 million to the National Power Corporation–NPC;
US$150 million to the Philippine National Oil Company–PNOC; and US$40 million to the Government). The
loans were approved on February 1, 1990, and closed between June 1995 and April 1996, from one year to
sixteen months behind schedule. A total of US$19.4 million was canceled from the loans. The project was also
supported by parallel cofinancing of US$150 million equivalent from the Japanese Exim Bank.

         The project’s objectives were to support the Government’s sectoral strategy which consisted of: (i)
development of a sector-wide capability to plan for energy resource development and to coordinate policy
implementation; (ii) adoption of least-cost development strategies for the various energy subsectors; (iii)
strengthening of regulatory activities, with the intention of rationalizing energy prices, improving product
standards and the quality of service; (iv) encouragement of private sector participation in the energy sector
through joint ventures and other schemes; (v) improvement of environmental standards and monitoring in areas
of high energy use or resource development; and (vi) enhancement of the technical capabilities of sector
institutions. The project consisted of related studies and training as well as a time-slice of the energy sector's
investment program (totaling US$3.5 billion for the period 1989-93 including, inter alia, field development of
610 MW-equivalent of geothermal steam resources, construction of 1,650 MW of power generation capacity,
substantial expansion in transmission and distribution systems, and refinery upgrading). Whereas some of the
individual projects to be funded by the Bank had been preidentified (geothermal field development and refinery
debottlenecking to be implemented by the PNOC), the bulk of Bank funds (US$200 million out of US$390
million) was to be allocated to the power sector on the basis of future annual investment reviews to be carried
out jointly between the Bank and NPC.

         The Bank-financed components of the sector investment program (which included 80 MW of new
geothermal power capacity, the rehabilitation of a 400 MW oil-fired power plant and the laying of about 1,300
km of transmission lines) were satisfactorily completed, albeit about a year behind schedule (due to procurement
delays). More generally, the power sector investments undertaken between 1989 and 1993 contributed to
alleviating the electricity supply shortages experienced by the Philippines in the late 1980s. A large share of
these investments was carried out by the private sector as a result of the Government's new policy to allow fast-
track build-own-transfer power projects. The discovery of geothermal reserves in Leyte as a result of the Bank-
financed exploration drilling also paved the way for their development by independent geothermal power
producers. The ex-post ERR on NPC's share of the energy sector investment program was estimated at 13.5
percent (versus 17.4 percent in the SAR for the program as a whole).

         On balance, OED rates the project as satisfactory. Its institutional development impact is rated as
substantial in view of the fact that most institutional components were satisfactorily completed and important
institutional changes were made. Sustainability is rated as likely in light of the Government's success in
resolving the power supply crisis through private sector investment and its continuing commitment to overall
sector reform. These ratings are consistent with those included in the ICR.

        Bank performance is rated as satisfactory overall, but the quality-at-entry of the project appears to have
been less than satisfactory: financial risks appear to have been underestimated. Also, project design, and in
particular the packaging of three substantial loans to eight implementing agencies with independent contents and
conditionalities into a single project with a single SAR, may have been overly complex.

        This project has shown that power investment planning and cost-minimization strategies recommended
by the Bank can be flexible enough to accommodate new approaches needed to resolve energy supply problems
on an emergency basis (such as the Philippine Government's initiative to allow fast-track private power
projects). This requires that the Bank be willing to allocate sufficient staff resources during project supervision
to enable it to keep an active role in the elaboration of new policies as they evolve.

       The ICR is satisfactory overall, although its treatment of certain topics (including Bank performance
during supervision and ex-post economic justification of major Bank-financed components) could have taken a
broader sectoral perspective.

       The project may be audited in future, together with other projects in the energy sector.