Institutional Framework for Implementing Myanmar’s NEP Interim Options and Recommendations

Institutional Framework for Implementing Myanmar’s NEP Interim Options and Recommendations

Alex Sundakov, March 2014

2012 For universal electrification by 2030

59,000

440,000

130000

Source: MOEP (2011-2012), ESE, YESB data and Castalia estimationsAssumes 6.5 people in a household 2

ESE

YESB

Required189,000

New

hou

seho

ld c

onne

ction

s per

yea

r

Need to connect over 2x as many households per year to reach universal electrification by 2030…

Myanmar’s electrification challenge is immense…

The electrification rate is estimated at 29%...

3

Key Features :

It is impossible to meet this challenge without a programmatic, sector-wide approach…

Countries that have achieved rapid electrification have relied on Programmatic, Sector-wide approach

Stakeholders

Government

Development Partners

Utility

Regulatory Authority

Local Government

Sector Ministries

Private Stakeholders

Consumers

Coordinated least-cost technical and investment planning

Sustainable financing policy

Stable flow of funds

Results focused

Donors pledged US$225 million for first slice of program (2009-2013)

Cost per new connection substantially lower

Rwanda is one of the few countries that had to scale up electrification as rapidly as Myanmar, and this is how it was achieved…

4

Sector-wide Program Features Results

Tbc—here I will use exhibits or numbers

Other countries that have adopted this approach include Kenya, Ethiopia, Nepal, Uganda…

Target: Increase electrification from 6% in 2009 to 16% by 2014

Anchored by an integrated technical, financial and implementation plan

National Electrification Program Management Department established

Connections (Target and Actual)

2008 Actual

2009 2010 2011August

2014 Target

New connections

< 5,000 32,995 43,733 40,419 On track

Households connected to electricity

110,896 143,891 187,624 228,043 350,000

On track to achieve electrification targets:

The flow of funds is currently fragmented, increasing costs of national electrification…

5

Existing Flow of Funds

Mini-grid operators

Union Budget

MOEP

DRD/MOI

YESB

Private IPPs

ESE

SHS Customers

Customers

Donors

Electrification using a programmatic sector-wide approach, will require institutional reform…

6

National grid

National grid expansion

Tariff from electricity sales

Donor funding/ financingUnion budget

Isolated mini grid expansion

Household-level expansion (SHS)

Funds flow to entities responsible for:

Coordination and allocation of funding on sector-wide basis, based on plan

There are sufficient funds and predictable financing flowing through the entire electrification program

There is coordination and management of funding such that it is reaching projects which have been prioritized in a least cost manner

Projects are being built efficiently and are achieving social objectives

Institutions would ensure…

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Resulting in a more streamlined flow of funds…

Programmatic Sector-wide Approach

ESE

YESB

Mini-grid operators

SHS operators

Donors

Union Budget

Customers

Roll-out coordinator:• Subsidies• Finance

What specifically will the reform need to address?

8

National grid



Isolated mini-grid

Individual Household-level (SHS)

Funds flow to entities responsible for:


Program-level management and coordination

1

Barriers related to…

Efficient operation of utilities and their ability to scale-up

Need for coordinated implementation of mini-grids

Sustainability and efficiency of individual household-level solutions

2

3

4

First step is to integrate the program…

Program level management and coordination 1

Barriers: Limited mechanism to coordinate funding and financing flows from

different streams into program No institutional structure to link tariffs and costs of providing

electricity services No institutional home to administer least-cost sector wide roll out plan Coordination committees do not work: not able to make decisions

about priorities and funding allocation Project-by-project approval process for external loans may undermine

overall plan

This can be achieved by…

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Recommendation: Create/Assign an entity to manage and coordinate the NEP. This entity would also take ownership of the geospatial, least cost plan and maintain and update it on an ongoing basis

Two options for the NEP program manager…

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Option 2: MOEP to act as NEP program manager

Option 1: Create and empower an Executive Secretariat under REPWC to act as NEP program manager

Pros ConsAllows ministries with different focus to concentrate on their areas of responsibility (e.g. on-grid vs rural electrification)

Problematic for a secretariat to hold a budget and allocate funding to Union Ministries.

Allocation and coordination of funds within a single ministry, in line with Myanmar practice and procedures

Risk that off-grid electrification projects will be “second class citizens” within MOEP

Second step is to ensure efficiency and capability of utilities…

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Efficient operation of utilities and their ability to scale-up2

Barriers: ESE/YESB are not able to operate as efficient utilities, because:

– Limited operational flexibility and ability to plan—utilities run as government departments

– Limited performance incentives– No ability to access finance on own balance sheet

No instrument for setting cost-reflective tariffs and making rational decisions about the incidence of subsidy

Recommendations: Corporatize ESE and YESB Set up independent utility

regulator for economic regulation (tariffs and standards)

Split up ESE into more utilities Finance new connections on

utility balance sheet

This can be done by…

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…essential but will take time to implement…

Short-term Recommendation:Develop a five-year budget for ESE & YESB, but should not delay reform

A further step could be to…

14


Further Recommendations: Involve private sector strategically to improve efficiency

Level of private participation depends on the incidence of the subsidy…

ConcessionManagement contract

System loss reduction contract

Third step is to create an institutional basis for mini-grid projects…

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Need for coordinated implementation of mini-grids3

Barriers: No ministry “ownership” for mini-grids. Hence, no

instrument for channelling Union budget to mini-grids No standard format/processes to develop mini-grids No instrument for linking mini-grid proposals to roll-out

plan

• Whether an entity within MOEP or DRD becomes the “implementing and coordinating ” entity for mini-grids depends on who the NEP program manager is…

1. Option: Where will the institutional home be?

• Different approaches have worked around the world.

• A more or less centralized approach can be used...

2. Option: What will be the role(s) of the entity?


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Recommendation: The Union Govt will have a role with respect to mini –grids, even if implementation is decentralized. There is need for an institutional “home” for this role

A more centralized approach to mini-grid development…

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Need for coordinated implementation of mini-grids3Function Who What/ How?Funding and Financing Support

Union Govt through a dedicated agency

Union Govt. Agency purchases service from private contractors. It would finance construction as part of the national program, and would contract with private parties so that tariff revenue provides reasonable cost recovery to private developers

Project Prioritization Union Govt, with support from Regional Govt and/or VECs

Actively decides where to build, based on some clearly defined criteria. Could use the support of Regional Government

Detailed Project Design Union Govt

Procurement of Materials, Construction

Union Govt Union government agency will procure private contractors

Regulation Regulator Tariffs set before bidding of projects

Option 1: Centralized approach

A more decentralized approach to mini-grid development…

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Option 2: Decentralized approach

Function Who What and How?Funding and Financing Support

Union Govt through a dedicated agency

Union Govt. Agency purchases service from private contractors. It would finance construction as part of the national program, and would contract with private parties so that tariff revenue provides reasonable cost recovery to private developers

Project Prioritization Union Govt, with support from Regional Govt and/or VECs

Actively decides where to build, based on some clearly defined criteria. Could use the support of Regional Government

Detailed Project Design Union Govt

Procurement of Materials, Construction

Union Govt Union government agency will procure private contractors

Regulation Regulator Simplified process for mini-grids

Fourth step is to make the household-level program sustainable…

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Sustainability and efficiency of individual household solutions4

Barriers: Risks to sustainability of SHS program Need to ensure incentives for maintenance

Recommendations:The program implementing agency should: Provide financial incentives that promote cost-recovering business

models to flourish Provide clear guidelines for entities that will benefit from incentives Encourage scaling up where SHS is economical Provide training support/ incentives for technicians Closely monitor program’s progress


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Bangladesh: IDCOL Model

Lao PDR: OGS-PESCO-VEM Model

Sustainable SHS Models:

Two options for the SHS implementing entity are…

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Option 1: Combined Govt Agency for mini-grids and SHS program

Pros Cons Better understanding and

coordination of technical plans in the entire space outside ESE and YESB (mini-grid + SHS)

Can combine delivery models more easily if under same entity (e.g. role of VECs)

Simpler for private entities if it is a one-stop-shop

Mini-grid development might overshadow SHS program, which would be smaller in size

More targeted approach for SHS possible, since program design might not have much overlap with the mini-grid program

Easier to monitor progress with single focused entity

Competition and/or lack of coordination between the two entities could lead to duplication and waste of resources

Higher transaction costs

Option 2: DRD continues to develop SHS program on stand-alone basis

To summarize…

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National grid



Isolated mini-grid

Individual Household-level (SHS)

Funds flow to entities involved in:


Create program manager: Could be entity within MOEP or Executive Secretariat under

REPWC/NEMC

1

Strengthen ESE/YESB, through traditional utility reform program, in phases. Include private sector

Create entity to guide mini-grid development. Level of centralized decision-making depends. Where entity sits, depends on level-1 decision

Alter current program design to include ……financial incentives.

Options: DRD continues, or combined entity for off-grid formed

2

3

4

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Need to create a coherent framework, that addresses the entire institutional challenge

Institutional structure needs to be tightly integrated with budgeting and finance flows

The electrification program must be anchored by the technical least-cost expansion plan that includes grid and off-grid

The program needs a credible manager, with ability to allocate/channel resources

Institutional reforms will be essential to the success of the electrification program

Conclusions

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Institutional Framework for Implementing Myanmar’s NEP Interim Options and Recommendations