Project assistance completion report : private sector power (391-0494)

Originally intended as a 10-year, $170 million effort, the project was terminated after 6 years and the expenditure of only $37.3 million. In particular, only $7 million was expended for power projects vs. a target of $125 million. Nonetheless, the project met its major objective of creating a sustainable private sector in Pakistan's electric power industry; an enabling environment and a formal structured process have been established where there was previously no private electric power in Pakistan. Specific accomplishments are noted below. The key achievement of the institutional development component was the establishment of two key organizations at the Water and Power Development Authority (WAPDA): the Private Power Cell (PPC), and the Private Power Generation Cell (PPGC -- later renamed the Power Privatization Organization WPPO) after the privatization of WAPDA in 1991. Project consultants also helped the PPC and WPPO develop two model negotiating agreements for WAPDA's Private Energy Division (PED): the Implementation Agreement and the Power Purchase Agreement. The Implementation Agreement covered the concessions and assistance to project sponsors granted by the GOP as part of the initiative to establish private power and defined/allocated the risks and schedule to be assumed by the project sponsors. The Power Purchase Agreement, which obtains between WAPDA and the project sponsor, defined the conditions of sale and purchase of power. In the area of technology transfer, GOP organizations gradually took the lead from project consultants in reviewing and negotiating proposals from the private sector. The project also provided guidance in conducting environmental assessments; financed a successful conference to promote the Thar coal reserve, seminars and conferences to promote cogeneration from sugar mill operations, and a trade mission from California on cogeneration which led to several projects; refurbished an atmospheric monitoring station, resulting in the first meteorological report of its kind issued in Pakistan; and developed criteria for an Environmental and Social Soundness Assessment for proposed projects. The GOP now has a strategic plan for privatizing the power industry, and plans and legislation for a National Electric Power Regulatory Authority have been submitted to the cabinet for approval. Lessons learned are as follows. (1) Despite the project's successes, the reduction in funding and time as a result of the Pressler Amendment and changing U.S. foreign aid and foreign policy priorities proved a significant constraint. (2) In a project of this size and complexity, USAID, while cooperating with other donors, must maintain the lead in implementation. More could have been accomplished if project design had not been so closely tied to the World Bank's Hub project. (3) Strengthening the position of the technical Project Manager by putting him in charge of the financial, procurement, engineering, and technical aspects of his project would enhance project implementation. (4) The USAID financial management and reporting system is not geared to project management needs. A project financial monitoring system is required. (5) If USAID cannot maintain a staff of tenured professionals in technical fields, recruiting professionals under term contract is an appropriate way to attain project objectives. Recruited staff should share in the policy and management decision processes at the top mission levels. (6) The creation of three organizations with overlapping roles (PPC, WPPO, and PED), led to conflict and confusion. (7) The involvement of international advisors in Pakistan's development plans gave confidence to the GOP and foreign investors through increased credibility and transparency. (8) Being a U.S. government agency and a bureaucracy itself, USAID is not structured to promote privatization. Managing venture capital successfully requires courage to cross barriers and violate norms, whereas USAID's management and control functions require the rigid following of procedures, even at the cost of inefficiency.