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Technical Assistance Report

Project Number: 38456November 2006

Islamic Republic of Pakistan: Preparing the Power

Distribution Enhancement Multitranche Financing

Facility(Financed by the Japan Special Fund)

The views expressed herein are those of the consultant and do not necessarily represent those of ADB’smembers, Board of Directors, Management, or staff, and may be preliminary in nature.



CURRENCY EQUIVALENTS

(as of 16 November 2006)

Currency Unit – Pakistan rupee/s (PRe/PRs)PRe1.00 = $0.0165

$1.00 = PRs60.73

ABBREVIATIONS

ADB – Asian Development BankCSPU – country strategy and program updateESA – environmental and social assessmentFESCO – Faisalabad Electric Supply CompanyGESCO – Gujranwala Electricity Supply CompanyHESCO – Hyderabad Electric Supply CompanyIESCO – Islamabad Electric Supply CompanyIA – implementing agencykV – kilovoltLESCO – Lahore Electric Supply CompanyMESCO – Multan Electric Supply CompanyMOWP – Ministry of Water and Power

NEPRA – National Electric Power Regulatory AuthorityPEPCO – Pakistan Electric Power CompanyPESCO – Peshawar Electric Supply CompanyPPTA – project preparatory technical assistanceQESCO – Quetta Electric Supply CompanyTA – technical assistanceWAPDA – Water and Power Development Authority

TECHNICAL ASSISTANCE CLASSIFICATIONTargeting Classification – General interventionSector – Energy

Subsector – Transmission and distributionTheme – Sustainable economic growthSubtheme – Fostering infrastructure development

NOTES (i) The fiscal year (FY) of the Government and its agencies ends on 30 June. FY

before a calendar year denotes the year in which the fiscal year ends, e.g.,FY2006 ends on 30 June 2006.

(ii) In this report, "$" refers to US dollars.



Vice President L. Jin, Group Operations 1Director General J. Miranda, Central and West Asia DepartmentDirector S. O’Sullivan, Infrastructure Division, Central and West Asia Department

(CWRD)

Team leader R. Stroem, Principal Energy Specialist, CWRDTeam members A. Aleem, Programs Officer, Pakistan Resident Mission

L. Blanchetti-Revelli, Social Development and Resettlement Specialist,CWRDS. Tu, Environmental Specialist, CWRD



I. INTRODUCTION

1. Project preparatory technical assistance (PPTA) for the Power Distribution EnhancementMultitranche Financing Facility is included in the 2006–2008 country strategy and programupdate1 (CSPU) of the Asian Development Bank (ADB). An ensuing loan project is included inthe lending program for 2007. The ADB Fact-Finding Mission visited Pakistan from 9 to 17

March 2006, and reached an understanding with the Government concerning the objective,scope, costs, financing, implementation arrangements, and the consultants’ outline terms ofreference for the PPTA.2 The PPTA design and monitoring framework is provided in Appendix 1.

2. Pakistan’s eight distribution companies3 were established through a restructuring andunbundling of the power wing of the Water and Power Development Authority (WAPDA).Distribution companies are responsible for channeling electricity from the transmissionsubstations at 132 kilovolts (kV) to the consumers. The end users are classified as bulk,industrial, commercial, or household consumers. The distribution network is composed of linesand grid stations of 132kV and lower voltage capacities, and each distribution company isresponsible for constructing, operating, and maintaining the power distribution facilities withineach dedicated geographic area. As of mid-2005, the distribution system of Pakistan consisted

of 28,196 kilometers (km) of 132kV lines, 7,552 km of 66kV lines, 212,929 km of 11kV lines,149,985 km of 0.4kV lines, 457 132kV substations, and 195 66kV substations. Overall, thedistribution system is overstressed, and needs to be upgraded, augmented, and expanded. Inaddition, the financial health and sustainability of the distribution companies need to beassessed, as technical and non-technical losses are depleting the companies.

II. ISSUES

3. Pakistan’s Medium-Term Development Framework 2005–2010 4 (MTDF) sets out achallenging infrastructure investment program, in order to achieve a consistent 8% annualgrowth in gross domestic product (GDP). The overarching goal of the Government is povertyreduction through economic development. An increase in the supply of infrastructure services

creates economic opportunities in both urban and rural areas. As the power sector is afundamental component of the infrastructure sector, the distribution system needs to bestrengthened and expanded to support the Government’s economic growth target and itspoverty reduction efforts.

4. Electricity demand in Pakistan is forecasted to grow by 8.3% a year during 2005–2015.To cope with this growth in demand, it is estimated that Pakistan will require an additional 2,000megawatts (MWs) annually, which will need to be evacuated through the transmission anddistribution systems. Substantial investments will be needed to strengthen the distributionsystem to (i) handle the power generated by additional power plants, and (ii) rehabilitate andaugment the current system to maintain the current electricity supply to meet the growingdemand. The eight distribution companies have individual development programs for 2005–

2012. The Government has approved several schemes included in these programs.

1ADB. 2005. Country Strategy and Program Update (2006-2008): Islamic Republic of Pakistan. Manila.

2The TA first appeared in ADB Business Opportunities on 12 April 2006.

3The eight distribution companies are as follows: Faisalabad Electric Supply Company (FESCO), Gujranwala

Electricity Supply Company (GESCO), Hyderabad Electric Supply Company (HESCO), Islamabad Electric SupplyCompany (IESCO), Lahore Electric Supply Company (LESCO), Multan Electric Supply Company (MESCO),Peshawar Electric Supply Company (PESCO), and Quetta Electric Supply Company (QESCO).

4Planning Commission of the Government of Pakistan. 2005. Medium-Term Development Framework (2005–2010). Islamabad.



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Investments are required to ensure that the high number of customers needing electricity areconnected without delay. Pending applications for electricity connection was 163,071 as of June2005, implying substantial investment would be required including consumer meters.

5. The official transmission and distribution losses in Pakistan were 22.7% in fiscal year(FY) 2004; distribution losses accounted for 15.3%. Substantial losses in the distribution system

are caused by (i) shortage of distribution lines and transformers, (ii) insufficiently longdistribution lines, (iii) inadequate voltage profile of distribution system, and (iv) a large number ofunmetered customers. Distribution losses need to be reduced to attain efficient power supply.To ensure (i) reliable and high-quality electricity supply to all customers, and (ii) an efficientdistribution system, the scope of work of the ensuing loan needs to include investments insubprojects for enhancement, rehabilitation, and expansion of the distribution systems of alldistribution companies.

6. From experience, delays in preparing environmental and social assessment (ESA)reports are particularly pronounced. The following issues need to be addressed: (i)strengthening distribution companies’ capacity and ability to address ESA issues, and (ii) theneed for implementation consultants that would assist the distribution companies in completing

ESAs on time. The distribution companies have been informed that no subproject can beevaluated or approved unless there is a satisfactory environmental impact assessment andsummary environmental impact assessment inclusive of resettlement plans as appropriate.

7. Financial restructuring and sustainability of the distribution companies are majorconcerns. The World Bank, which has traditionally been the lead agency in this regard, is drivingthe interaction with the distribution companies, the Pakistan Electric Power Company(PEPCO),5 WAPDA, and the Government to ensure progress in these areas. The balancesheets of WAPDA and the successor companies, inclusive of the distribution companies, wererestructured by reflecting the past conversions of debt into equity in their balance sheets. As aresult of this, and additional debt-to-equity swaps for some distribution companies, all of thedistribution companies now have positive net worth and equity-to-debt ratio of at least 20:80.

This important action should make it easier for distribution companies to approach commerciallenders, develop more sustainable financial recovery plans, and undertake investment projects.However, it will also depend on the new tariffs,6 as well as on the ability of the companies toaccurately meter, bill, and collect from each customer. The National Electric Power RegulatoryAuthority (NEPRA) and the Ministry of Water and Power (MOWP) are in the process of finalizingthe tariff for each distribution company. During the implementation of the PPTA, the tariffs willbe reviewed and assessed together with other financial and economic parameters.

8. The determination and notification of a specific tariff for each distribution company is stillpending. A full financial assessment of the distribution companies cannot be conducted at thistime, but the tariffs should be in place by the time the PPTA is being implemented. Accordingly,a financial assessment of the distribution companies will be done under the PPTA. A preliminary

assessment undertaken by the World Bank showed that based on the existing tariffs,Hyderabad Electric Supply Company (HESCO), Multan Electric Supply Company (MESCO),Peshawar Electric Supply Company (PESCO), and Quetta Electric Supply Company (QESCO)would be unable to meet operational expenditure and debt service requirements. They wouldnot have any internal resources to finance investments and, accordingly, would not be viable

5The Pakistan Electric Power Company (PEPCO) was established in 1998 to oversee and drive the restructuringand unbundling of the power sector and in particular the unbundling of WAPDA. The Chairman of PEPCO holds allthe shares on behalf of the President of Pakistan, in the unbundled entities.

6With the existing tariffs, several distribution companies are not financially viable.



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borrowers. It is expected that these financial issues will be addressed in the tariff determinationprocess.

9. Public sector intervention is the optimal financing modality at this time. Distributioncompanies are not yet at the point where at least the more advanced distribution companies canbe privatized. One distribution company, Faisalabad Electric Supply Company (FESCO), is part

of the Government’s privatization program, and the privatization advisor has brought thetransaction to a relatively advance state. However, without a specific tariff determination andnotification for FESCO, attracting private energy sector companies to bid for FESCO will bedifficult. To ensure the timely development of the distribution subsector countrywide, andaccommodate the individual development of each distribution company, a multitranche financingfacility modality will provide the required flexibility for the individual distribution companies andthe subsector as a whole. At the same time, it will also ensure incentives through access tocapital when required, after meeting predetermined milestones for successive tranches.

10. The PPTA would need to discuss rural electrification with MOWP to ensure a predictablefuture for the distribution companies in terms of rural-electrification developments. Ruralelectrification is generally not financially viable for distribution companies because it requires

construction of relatively long distribution lines from the grid system to low-density areas. Aneffective rural-electrification policy that includes subsidies would be required.

11. Although Pakistan has a well-established power sector regulator that has received ADBcapacity-building support in the past, the relationship between NEPRA and the distributioncompanies should be evaluated to address deficiencies. This issue would be addressed duringthe implementation of the PPTA.

III. THE TECHNICAL ASSISTANCE

A. Impact and Outcome

12. The purpose of the PPTA is to support the Government’s strategy for continued povertyreduction through sustained economic growth. The PPTA will assist in the preparation of apower distribution enhancement project to ensure a sufficient and stable power supply throughthe distribution system in Pakistan to the end consumers. The project will improve systemstability and security, reduce losses, and improve the reliability of supply through (i) theconstruction and upgrading of 132 kV, 66 kV, 32 kV, and 11 kV distribution lines; (ii)construction of 132 kV substations and 66 kV substations; (iii) extension of 132 kV and 66 kVsubstations; (iv) and upgrading and installation of the metering system and meters.

B. Methodology and Key Activities

13. Key activities to be undertaken under the PPTA cover four major areas: (i) technical

project design; (ii) economic and financial evaluations; (iii) compliance with the national andADB’s safeguard policies; and (iv) links between economic growth, poverty, and the powersector. The four major areas will include the following scope.

14. For finalization of the technical project design, a detailed review of load forecasts will beundertaken to ensure least-cost technical design and economic viability of the proposedsubprojects. Feasibility studies will be reviewed, and procurement plans will be prepared.



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15. In addition to a financial analysis of the project, the financial management capabilitiesand the financial performance of the implementing agencies will be assessed. These financialmanagement issues are important as the distribution companies have relatively recently beenunbundled from WAPDA, and accordingly, separate financial management systems need to bedeveloped for the distribution companies. Interaction with NEPRA would ensure full knowledgeconcerning the tariff application and determination matters related to the distribution operations

of each distribution company and the power sector overall. In addition to an economic analysisof the project, economic subsidies involved in the current tariff structure and the extent of cross-subsidization between major consumer groups and regions will be analyzed. Existing estimatesfor costs of unserved energy due to unreliability of the system will be updated, and severalscenarios for the load growth forecast of each distribution company will be developed.

16. To ensure compliance with ADB’s safeguard polices for the environment and involuntaryresettlement, field surveys will be undertaken along the planned alignment of the distributionlines, the sites of the new grid stations, and the access roads to identify any environmentalimpacts and to prepare an inventory of all land and project-affected households. Mitigationmeasures will be identified, implementation arrangements will be proposed, and cost estimateswill be calculated. An initial environmental examination and a summary initial environmental

examination will be prepared. A full resettlement plan will also be prepared since the temporaryand permanent loss of productive means for affected persons could be significant. Theresettlement plan will include design of public information, disclosure and grievance procedures,and costing of compensation. The project’s impacts are not expected to cause any specificcultural or social impact on any socioeconomic group, including indigenous people, or excludeany from benefiting from the proposed subprojects. Therefore, no specific indigenous peoplesplan is required. The summary initial social and poverty analysis is provided as Appendix 2.

17. To analyze the way in which the proposed distribution project is linked to povertyreduction, a detailed poverty analysis will be undertaken, making use of existing surveys andprovincial data combined with field consultations. The assessment will be carried out at threelevels: (i) direct, (ii) indirect, and (iii) macroeconomic effects. Particular attention will be paid to

sector shifts in production activities and unskilled labor intensity of employment opportunities.Indicators for benefit monitoring will also be prepared.

18. The rationale for the proposed 132/66/33/11 kV distribution lines and the new 132kV and66 kV substations is closely related to specific generation expansion projects. Thus, any delayin the construction of those plants, or a change in the location of the plants, would make theproposed investments in the distribution lines and substation unjustifiable. This is a potential riskfor project economic and financial viability.

C. Cost and Financing

19. The total cost of the PPTA is estimated at $1,100,000 equivalent. The Government has

requested ADB to finance $900,000 equivalent. The PPTA will be financed on a grant basis bythe Japan Special Fund, funded by the Government of Japan. The Government will finance theremaining $200,000 equivalent of local currency costs through in-kind contributions of theexecuting and implementing agencies. These will include office accommodation and facilities,local communication, counterpart staff, data, and other information needed for the PPTA.Detailed cost estimates are provided in Appendix 3. The Government has been advised thatADB’s approval of the PPTA does not commit ADB to finance any ensuing project.



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D. Implementation Arrangements

20. PEPCO, as the Executing Agency for the PPTA, has nominated each distributioncompany to be an implementing agency (IA). The distribution companies acquired varied levelsof experience with implementing externally funded projects when they were bundled underWAPDA. PEPCO will assist the PPTA consultants in liaising with government ministries,

agencies, provincial authorities, in obtaining data and documentation. PEPCO and IAs will liaisewith MOWP and provinces affected by the proposed power distribution project to ensurecoordination and understanding of the proposed project. It is also envisioned that the distributioncompanies will utilize additional assistance from the TA Loan for Infrastructure Development.7 An amount of $2.6 million has been allocated to the distribution companies under this facility.

21. The PPTA will require about 14 person-months of international and 62 person-months ofnational consulting services. The outline terms of reference for the consultants are provided inAppendix 4. The PPTA will be carried out over a 6-month period beginning in February 2007. Atthe initial stage of TA implementation, a workshop for provincial and district compensationcouncils will be held to determine the work to be undertaken by the consultants and ADB’srequirements related to resettlement. Tripartite workshops (including the IAs) will be held after

the submission of the inception, interim, and draft final reports. The consultants will preparestatus reports for their specific scopes of work, highlighting any issues that could become criticalfor the timely completion of the PPTA. The consultants will arrange for other workshops and on-the-job training for IAs/MOWP staff and for provincial and local governments, as necessary.Three domestic consultant teams will each be assigned to work with three distributioncompanies, under the guidance of the international consulting team. The internationalconsultants will have expertise in project and energy economics, financial analysis and financialmanagement, power systems, and especially in distribution system planning, environmentalimpact assessment, resettlement, and other social issues. A consulting firm or consortium offirms will be engaged by ADB in accordance with its Guidelines on the Use of Consultants (April2006). Recruitment of consultants will be under the quality and cost-based selection procedures,and simplified technical proposals will be requested. Equipment to be financed under the TA will

be procured in accordance with ADB’s Procurement Guidelines (April 2006).

IV. THE PRESIDENT'S DECISION

22. The President, acting under the authority delegated by the Board, has approved theprovision of technical assistance not exceeding the equivalent of $900,000 on a grant basis tothe Government of Pakistan for preparing the Power Distribution Enhancement MultitrancheFinancing Facility, and hereby reports this action to the Board.

7TA Loan No. 2178-PAK (ADB. 2005. Report and Recommendation of the President to the Board of Directors on a Proposed Technical Assistance Loan and Technical Assistance Grant to the Islamic Republic of Pakistan for Infrastructure Development. Manila, amounting to $25 million). Two components of the TA Loan are earmarked forthe distribution companies: (i) institutional capacity building of the distribution companies in the areas of planning,project identification, development, and implementation; and (ii) specific preparatory work of subprojects intendedfor tranche II of the proposed multitranche financing facility.



Appendix 1 6

DESIGN AND MONITORING FRAMEWORK

DesignSummary

PerformanceTargets/Indicators

Data Sources/ReportingMechanisms

Assumptionsand Risks

Impact Increased electricitysupply, both quantity and

quality, to all consumers

Amount of electricitysupplied through the

distribution network

Reduced technical andnon-technical loss ofelectricity in thedistribution system

Energy sector yearbook

Energy sector yearbook

Assumptions

• The Asian DevelopmentBank (ADB) approves theproject for financing.

• The Government and ADBsign loan documents.

• The project is implementedefficiently and effectively.

Outcome

The design of andfeasibility study for apower distributionenhancement project

agreed by theGovernment and ADB

Aide Memoire of the Fact-Finding Mission confirmedby the Government

Letter from the Governmentconfirming the Aide Memoire.

Assumptions

• Government priorities donot change.

• The Government does not

seek other sources offunding.

• Power sector reformscontinue.

Outputs

1. Technical assessmentcompleted

2. Financial and economicanalysis completed

3. Financial management

assessment completed

4. Social safeguardassessment reportscompleted

5. Project feasibility reportcompleted

Project feasibility report—inclusive of technical,financial, economic, socialsafeguard, andenvironmental matters—submitted to theGovernment and ADB

The Government confirmsreceipt of the projectfeasibility report.

ADB confirms receipt of theproject feasibility report.

Assumptions

• Established projectownership

• Appropriate stakeholderconsultations

Risk

• The Executing Agencydelays preparation ofproject proposal reports.

Activities with Milestones 1.1 Review and analyze historical technical data to establish distribution systemconstraints.1.2 Develop technical solutions to address system constraints.

2.1 Assess the financial management system.2.2. Assess the financial parameters of the sector.

3.1. Review future distribution investment plans and assess requirements of individualprojects.

4.1 Develop a project feasibility report for each Implementing Agency.

Inputs

• ADB: $900,000

• Government: $200,000

equivalent

• 4 ADB missions: 1inception mission, and 3review and/or tripartitemissions



Appendix 2 7

INITIAL POVERTY AND SOCIAL ANALYSIS

A. Linkages to the Country Poverty Analysis

Is the sector identified as a nationalpriority in country poverty analysis?

Yes

No

Is the sector identified as a nationalpriority in country poverty partnershipagreement?

Yes

No

Contribution of the sector or subsector to reduce poverty in Pakistan:

The Government is committed to reducing poverty in the country, through economic development. One wayto tackle poverty by enhancing economic growth is through infrastructure development. The power sector, inparticular, will need a considerable amount of investments to meet the growth requirements. Electrification constitutesa national goal because of its influence on achieving other development goals.

Although electrification and electricity consumption are not meant be considered as outcomes, they areconsidered to be fundamental inputs for poverty reduction and economic growth. Consumption patterns are skewed interms of nonpoor and poor consumers, as electricity consumption by the poor tends to be determined by affordabilityof appliances. Despite these patterns, the high connection ratios across most provinces suggest that capitalinvestments in the power sector are inclusive of the poor in two ways: (i) directly as consumers, and (ii) indirectlythrough the creation of off-farm employment opportunities in the private sector and economic growth.

The poor are disproportionately burdened by the unreliable supply of quality power. Compared to nonpoorhouseholds, they are (i) less able to resort to alternative sources of power, and (ii) less diversified in income sources.The loss of an income source has a greater impact on a poor household. On the other hand, access to a reliablepower supply can attract commercial and micro industrial activities, which in turn may enable the poor to diversifyincome sources through the increased availability of employment opportunities. Access to on-grid power supply is alsoexpected to improve households’ living standards and give them new opportunities to generate income. Positiveimpacts are also expected in health, especially for women, following the shift from fuel to on-grid sources of electricity.Finally, a more reliable and secure supply of energy can drastically improve the quality of sanitation, health care andother social services, particularly education.

The ability of provincial governments to fulfill economic development plans to support social development andoff-farm job creation depends on the availability of sufficient power to support expansion of commercial and industrialactivities.

B. Poverty Analysis Targeting Classification: General Intervention

What type of poverty analysis is needed?

Pakistan has a complex social structure. To better understand the project’s impact on poverty and its diverse socialdimensions, the PPTA will need to use national consultants to prepare a social impact assessment and a povertyimpact assessment. A Gender Action Plan (GAP) will also be prepared to assess the project’s anticipated impacts onwomen and to ensure the design of mitigation measure if negative impacts occur.

A socioeconomic survey will be carried out as a basis for such assessments. Analysis on resettlement and IndigenousPeople will be necessary to the social assessment, although, at present, the project is not expected to affect them. Apoverty impact assessment will be undertaken separately. From the results of these analyses, the consultants willprepare a resettlement plan, which is expected to be comprehensive, and incorporate mitigation measures and theircosts into the project’s cost estimates. The poverty impact assessment will include a poverty profile, an assessment ofthe direct and indirect impacts on the poor, and detailed information on the beneficiaries, particularly the poorest andthe most vulnerable groups.

Finally, the consultants will analyze willingness to pay, tariffs, and affordability to improve understanding of the generalimpacts (positive and negative) on the poor and other vulnerable groups.



8 Appendix 2

C. Participation Process

Is there a stakeholder analysis? Yes No

Is there a participation strategy? Yes No

D. Gender Development

Strategy to Maximize Impacts on Women. Given the particular social and economic disadvantaged condition ofwomen in the Pakistani society, gender will be carefully taken into account in undertaking participatory activities.Findings will be included in the project design.

Has an output been prepared? Yes No

E. Social Safeguards and Other Social Risks

Item Significant/Not Significant/

None

Strategy to Address IssuesPlan Required

Resettlement

Significant

Not significant

None

The distribution network will be designed in consultationwith local authorities (provinces, districts, and communes)

and people residing in affected areas to minimize impacts.To assess the project impacts, an inventory of all land andproject-affected households will be carried out during thefeasibility study. The resettlement study will include (i)number of affected households; (ii) area of impact;(iii) impact on livelihood, in particular businesses; (iv)types of crops affected; (v) housing; and (vi) affectedcommon properties and access to public services.

Full

Short

None

AffordabilitySignificant

Not significant

None

Affordability of electricity consumption is determined byaffordability of appliances, rather than by tariffs.Residential electrification coverage in the directly targetedprovinces is high. Connection costs for potential newconsumers in these areas are regarded as affordable.

Yes

No

LaborSignificant

Not significant

None

The project will result in both permanent and temporaryemployment for maintenance, operation of projectfacilities, and construction.

Yes

No

IndigenousPeoples

Significant

Not significant

Not known

The project is not expected to cause any specific culturalor social impact on indigenous people, or exclude anyfrom benefiting from the proposed investment project.

Yes

No

Other Risks

and/orVulnerabilities

Significant

Not significant

None

The most relevant vulnerability is related to genderconditions throughout the country. Particular care will betaken to adequately address gender-related issues.

Yes

No



Appendix 3 9

COST ESTIMATES AND FINANCING PLAN($'000)

TotalItem Cost

A. Asian Development Bank Financinga 1. Consultants

a. Remuneration and Per Diemi. International Consultants 350.0ii. National Consultants 250.0

b. International and Local Travel 70.0c. Reports and Communications 25.0

2. Equipment b 80.03. Training, Seminars, and Workshops 15.04. Surveys 5.05. Miscellaneous Administration and

Support Costs15.0

6. Representative for Contract Negotiations 5.07. Contingencies 85.0

Subtotal (A) 900.0

B. Government Financing1. Office Accommodation 25.02. Transport 15.03. Remuneration and Per Diem

of Counterpart Staff135.0

4. Others 25.0Subtotal (B) 200.0

Total 1,100.0a

Financed by the Japan Special Fund, funded by the Government of Japan.

b Equipment to be procured will include the following: desktop computer withstandard office software, printer, scanner, photocopier, and facsimile machine.

cIncludes office facilities and local communication.

Source: Asian Development Bank estimates.



10 Appendix 4

OUTLINE TERMS OF REFERENCE FOR CONSULTANTS

1. In relation to the purpose and key activities of the technical assistance (TA), theconsultants’ scope of work will cover four major areas: (i) technical project design; (ii) economicand financial evaluations; (iii) compliance with the safeguard policies of the Asian DevelopmentBank (ADB); and (iv) links between economic growth, poverty reduction, and the power sector.

A. Engineering Aspects (international, 4 person-months; national, 20 person-months)

2. The consultants will be responsible for the following tasks:

(i) Review the distribution systems (132kV and below) of the eight distributioncompanies, review their midterm investment plans and subproject proposal reports,and identify priority subprojects for ADB funding including customer connectionfacilities. The eight distribution companies are Faisalabad Electric Supply Company(FESCO), Gujranwala Electricity Supply Company (GESCO), Hyderabad ElectricSupply Company (HESCO), Islamabad Electric Supply Company (IESCO), LahoreElectric Supply Company (LESCO), Multan Electric Supply Company (MESCO),

Peshawar Electric Supply Company (PESCO), and Quetta Electric Supply Company(QESCO).

(ii) Based on the review of the distribution systems (132kV and 66kV), determinewhether the proposed subprojects provide cost-effective solutions for meeting therequired distribution system capability.

(iii) Review and examine, from a technical perspective, the appropriateness offorecasting the demand for electricity from the eight distribution companies.Forecast the demand for the next 10 years, factoring in the distribution systemcapacity and the planned expansion subprojects. Review the planning criteria of theeight distribution companies and, if necessary, propose modifications of the criteria.

(iv) Review and update project cost estimates, separating foreign exchange and localcurrency cost. Prepare a list of materials, equipment, and works necessary toimplement the subprojects. Prepare project implementation and procurementarrangements, including contract packaging in accordance with ADB’s Procurement Guidelines , and a project implementation schedule.

(v) Prepare the engineering designs and technical specifications of all subprojectsproposed for ADB funding, in accordance with relevant technical standards. Preparea bill of quantities for all materials specified in the engineering design, and calculatedetailed cost estimates for each contract package (break down into foreignexchange and local currency).

(vi) Prepare detailed project implementation schedules that show anticipated progressof works and expenditures for each contract package. The schedules should takeinto account seasonal climatic conditions.

(vii) Prepare engineering drawings that are required for preparation of biddingdocuments. Prepare bidding documents required for the subprojects followingADB’s Guidelines for Procurement (2006) and relevant ADB’s standard biddingdocuments.



Appendix 4 11

(viii) Assess the capacities of the eight distribution companies to implement a project. Inthe case of inadequate capacity, propose measures for capacity building. Prepareterms of reference for project-implementation consulting services including socialand environmental impact monitoring. Prepare request for proposal (RFP)documents in accordance with ADB’s Guidelines on the Use of Consultants (April2006).

B. Financial Analysis (international, 3 person-months; national, 9 person-months)

3. In accordance with Guidelines for the Financial Governance and Management of Investment Projects Financed by the Asian Development Bank (2001), the consultant will conducta financial analysis of the proposed Project and financial performance of the implementingagencies (IAs), i.e., the eight distribution companies. This will include preparation of relevantsections of the report and recommendation of the President (RRP) of ADB as outlined below. Theconsultant will:

(i) perform financial impacts analyses of the project and subprojects at the distributioncompany level to determine its financial rate of return in accordance with ADB’s

Guidelines for the Financial Governance and Management of Investment Projects Financed by the Asian Development Bank , identify all risks to project revenue andcosts, and conduct relevant sensitivity analysis;

(ii) prepare, together with the engineer, an entire project cost estimate, separatingforeign exchange and local currency, including physical and price contingencies,interest during construction, commitment fee, and other financing charges;

(iii) review the most current audited and/or unaudited financial statements of IAs toassess (a) historical financial performance, (b) retail tariff levels, (c) capital structure,and (d) sufficient generation of internal funds to ensure sustainability of ongoingoperations (i.e., self-finance a reasonable percentage of capital expenditures and

service existing debt);

(iv) review recent audited project accounts of IAs to determine proper accounting andcost control;

(v) prepare an appendix to the RRP briefly summarizing past historical and projectedfinancial performance, which will include 10-year pro forma financial statements(balance sheet, income statement, statement of cash flows) for IAs; and

(vi) assess IAs’ financial management capabilities, which will include a review of earlierADB and other lender studies of MOWP and IAs, and a review of the countrydiagnostic study of accounting and auditing prepared for Pakistan.

C. Economic Evaluation (international, 1 person-months; national, 9 person-months)

4. In accordance with ADB’s Guidelines for the Economic Analysis of Projects 1, the consultantwill undertake the following tasks, including preparation of relevant sections of the RRP:

1ADB. 1997. Guidelines for the Economic Analysis of Projects. Manila.



12 Appendix 4

(i) Conduct an economic and distributional evaluation of the Project by comparing with-and without-project cases for different load growth scenarios. This will includecalculation of the economic internal rate of return (EIRR), taking into accounteconomic costs and benefits in accordance with ADB’s Guidelines for the Economic Analysis of Projects and Guidelines for the Financial Governance and Management of Investment Projects Financed by the Asian Development Bank . Identify all risks

to project revenue and costs and conduct relevant sensitivity analysis.

(ii) Analyze the economic subsidies involved in the current tariff structure and the extentof cross-subsidization between major consumer groups and regions; and review theappropriateness of the existing lifeline tariff block.

(iii) Update existing estimates of costs of unserved energy due to unreliability of thesystem; and develop several scenarios for the load growth forecast.

(iv) Identify stakeholders and conduct a distributional analysis of net project benefits inaccordance with ADB’s Handbook for Integrating Poverty Impact Assessment in the Economic Analysis for Projects 2 ; calculate the poverty impact ratio (PIR) and the

cost effectiveness of the Project in reducing poverty; and undertake appropriate riskand sensitivity analysis with respect to the PIR.

D. Environmental Aspects (international, 2 person-months; national, 12 person-months)

5. In accordance with the relevant guidelines and policies for environmental assessment, theconsultants will undertake the following tasks, including preparation of relevant sections of the RRPas outlined below.

(i) Conduct an initial environmental examination (IEE) for the distribution lines andsubstations, in accordance with ADB’s Environment Policy (2002), taking intoaccount the likely impacts associated with their locations, designs, and construction

activities, as well as the long-term impacts during operation, including identificationof environmental issues from activities directly induced by the Project.

(ii) Recommend appropriate environmental mitigation measures for identified significantimpacts and monitoring plans to address these impacts; and assess theenvironmental benefits of the proposed activities and any capacity-strengtheningmeasures that may be needed for the implementation of environmentalmanagement and monitoring plans.

(iii) Prepare an IIE report and its summary based on the environmental assessmentrequirements of ADB’s Environmental Guidelines for Selected Infrastructure Development Projects 3 , and any applicable procedures or guidelines forenvironmental assessment as required by the Government.

(iv) Assess the environmental impacts of each subproject, undertake an IEE, andpresent the findings in an IEE report and its summary. When preparing the reports,refer to ADB’s Environmental Guidelines for Selected Infrastructure Projects , ADB’sEnvironmental Assessment Guidelines , and any applicable procedures or guidelinesfor environmental assessment required by the Government.

2ADB. 2001. Handbook for Integrating Poverty Impact Assessment in the Economic Analysis of Projects. Manila.

3ADB. 1993. Environmental Guidelines for Selected Infrastructure Development Projects. Manila.



Appendix 4 13

(v) If the IEE recommends undertaking a full environmental impact assessment (EIA),conduct the EIA and prepare the report and its summary, including anenvironmental management plan to implement mitigation measures.

E. Poverty Analysis (international, 2 person-months)

6. The consultant will analyze the development impact of the proposed Project and itspotential impact on poverty reduction in accordance with ADB’s Handbook on Poverty and Social Analysis 4 and Handbook for Integrating Poverty Impact Assessment in the Economic Analysis of Projects 5 . The consultant will:

(i) based on a review of existing studies, data, and development plans, prepare asocioeconomic and poverty profile of primary project beneficiaries in the targetprovinces; include gender and local ethnic minority’s profile and their poverty status,and an analysis of deprivation and causes of poverty and vulnerability in the area;

(ii) analyze access to electricity, affordability, consumption levels, and consumersatisfaction across socioeconomic groups in target provinces; assess the

determinants and elasticities of demand for power by socioeconomic groups; andconduct demand projections under different growth scenarios;

(iii) analyze sector growth impacts of the proposed Project on the country level and itsimpacts on the poor; and review bottlenecks for poverty reduction and potentialconstraints for small- and medium-scale enterprise development in relationship thepower sector; and

(iv) in accordance with ADB’s Handbook on Poverty and Social Analysis and Handbook for Integrating Poverty Impact in Economic Analysis of Projects , analyze the social,poverty, and development impact of subprojects. Prepare a poverty impactassessment and a summary poverty and social analysis according to the ADB

format. Identify the impact on indigenous peoples, and prepare an appropriateindigenous peoples plan, as necessary, in accordance with ADB’s Policy on Indigenous Peoples .

F. Resettlement, Indigenous Peoples, Gender and Other Social Aspects (international, 2person-months; national, 12 person-months).

7. In accordance with all relevant policies, handbooks, and guidelines of ADB and in particularwith ADB’s Policy on Involuntary Resettlement (1995), Policy on Indigenous People (1998), andHandbook on Resettlement , the consultants will prepare a full resettlement plan, and, if needed, anindigenous peoples development plan (IPDP) in full consultation with affected people and otherstakeholders. The consultants will also prepare relevant sections of the RRP, a gender action plan(GAP), and other relevant documents. Other responsibilities include the following:

(i) Assist the Executing Agency and IAs in designing the Project in order to minimizethe resettlement effects, inclusive of developing a land acquisition and resettlementframework (LARF).

4ADB. 2001. Handbook on Poverty and Social Analysis. Manila.

5ADB. 2001. Handbook for Integrating Poverty Impact Assessment in the Economic Analysis of Projects. Manila.



14 Appendix 4

(ii) Identify and prepare socioeconomic profiles of the project-affected communities inthe project areas in terms of household sizes, demographic trends, income sourcesand levels, occupations, socioeconomic conditions, social service infrastructure, andsocial organizations, in accordance with relevant ADB guidelines and publicationsand the requirements of Pakistan. Prepare a GAP and local ethnic minority profiles,

assess the need for an IPDP, and carry out any further surveys as necessary.

(iii) Undertake a full census and inventory of lost assets (in terms of loss of homes,agricultural and other lands; or loss of access to current income-generatingactivities, including impacts caused by permanent or temporary acquisition) ofaffected people and a baseline socioeconomic survey of the affected population.Determine the scope and magnitude of likely resettlement effects, and list likelylosses of households, agricultural lands, business and income opportunities, as wellas affected communal assets and public buildings.

(iv) Prepare an entitlements matrix listing all likely effects, both of permanent and oftemporary land acquisition, and a study to determine the replacement costs of all

categories of losses. Prepare an indicative budget for land acquisition andresettlement costs with specific sourcing and approval process.

(v) Prepare an implementation schedule consistent with all the resettlement planrequirements, ensuring that all compensations are carried out prior to the beginningof civil works.

(vi) Prepare a grievance mechanism and appeal procedures, and mechanisms fordisclosing the resettlement plan to affected persons in an easy-to-understand formand manner. Disclose on ADB’s website and detail in the resettlement plan. Sincethe Project is likely to involve significant6 resettlement, a resettlement plan shouldbe prepared with full participation of stakeholders, including the Executing Agency

and IAs, and meet ADB policy requirements.

(vii) Prepare an entitlement matrix listing all likely effects, permanent and temporary, anda study to determine the replacement costs of all categories of losses. Prepare anindicative, itemized budget for land acquisition and resettlement costs with specificcosting and approval process.

(viii) if the subprojects are likely to involve significant resettlement (footnote 1), prepare aresettlement plan with full participation of stakeholders, including the ExecutingAgency and IAs. Prepare (a) a short resettlement plan if the resettlement aspects ofthe investment subprojects are classified as not significant; (b) a summaryresettlement plan; and (c) an indigenous peoples development plan, if required.

G. Reporting and Workshop Requirements

8. The consultants will prepare inception, interim, draft final report, and final reports.Workshops among MOWP/IAs, ADB, and the consultants will be held after the submission of the

6Resettlement is “significant” where 200 or more people experience major impacts. Major impacts are defined as whenthe affected people are physically displaced from housing and/or more than 10% of their productive assets (incomegenerating) are lost.



Appendix 4 15

inception, interim, and draft final reports. Other stakeholders will be invited to attend as needed.The consultants will also prepare status reports for their specific scopes of work highlighting anyissues that could become critical for the timely completion of the TA and that require attention fromMOWP/IAs and/or ADB. The consultants will arrange for other workshops and on-the-job trainingfor IAs staff.

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