Institutional Framework for Implementing Myanmar’s NEP - PowerPoint Presentation

1. Institutional Framework for Implementing Myanmar’s NEP Interim Options and RecommendationsAlex Sundakov, March 2014

2. Source: MOEP (2011-2012), ESE, YESB data and Castalia estimationsAssumes 6.5 people in a household1ESEYESBRequired189,000New household connections per yearNeed 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…2Countries that have achieved rapid electrification have relied on Programmatic, Sector-wide approachCoordinated least-cost technical and investment planningSustainable financing policyStable flow of fundsResults focused

4. Donors pledged US$225 million for first slice of program (2009-2013)Cost per new connection substantially lowerRwanda is one of the few countries that had to scale up electrification as rapidly as Myanmar, and this is how it was achieved…3Sector-wide Program FeaturesResultsTbc—here I will use exhibits or numbersOther countries that have adopted this approach include Kenya, Ethiopia, Nepal, Uganda…Target: Increase electrification from 6% in 2009 to 16% by 2014Anchored by an integrated technical, financial and implementation planNational Electrification Program Management Department establishedConnections (Target and Actual)2008 Actual200920102011August2014 TargetNew connections< 5,00032,995 43,733 40,419 On trackHouseholds connected to electricity110,896143,891 187,624 228,043350,000On track to achieve electrification targets:

5. The flow of funds is currently fragmented, increasing costs of national electrification…4Existing Flow of FundsMini-grid operatorsUnion BudgetMOEPDRD/MOIYESBPrivate IPPsESESHS CustomersCustomersDonors

6. Electrification using a programmatic sector-wide approach, will require institutional reform…5National gridNational grid expansionTariff from electricity salesDonor funding/ financingUnion budgetIsolated mini grid expansionHousehold-level expansion (SHS)Funds flow to entities responsible for:Coordination and allocation of funding on sector-wide basis, based on planThere are sufficient funds and predictable financing flowing through the entire electrification programThere is coordination and management of funding such that it is reaching projects which have been prioritized in a least cost mannerProjects are being built efficiently and are achieving social objectivesInstitutions would ensure…

7. Resulting in a more streamlined flow of funds…6Programmatic Sector-wide ApproachESEYESBMini-grid operatorsSHS operatorsDonorsUnion BudgetCustomersRoll-out coordinator:SubsidiesFinance

8. What specifically will the reform need to address? 7National gridTariff from electricity salesDonor funding/ financingUnion budgetIsolated mini-gridIndividual Household-level (SHS)Funds flow to entities responsible for:Coordination and allocation of funding on sector-wide basis, based on planProgram-level management and coordination1Barriers 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 solutions234

9. First step is to integrate the program…Program level management and coordination 1Barriers:Limited mechanism to coordinate funding and financing flows from different streams into programNo institutional structure to link tariffs and costs of providing electricity servicesNo institutional home to administer least-cost sector wide roll out planCoordination committees do not work: not able to make decisions about priorities and funding allocationProject-by-project approval process for external loans may undermine overall plan

10. This can be achieved by…9Program level management and coordination 1Recommendation: 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

11. Two options for the NEP program manager…10Program level management and coordination 1Option 2: MOEP to act as NEP program managerOption 1: Create and empower an Executive Secretariat under REPWC to act as NEP program managerProsConsAllows 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 proceduresRisk that off-grid electrification projects will be “second class citizens” within MOEP

12. Second step is to ensure efficiency and capability of utilities…11Efficient operation of utilities and their ability to scale-up2Barriers:ESE/YESB are not able to operate as efficient utilities, because:Limited operational flexibility and ability to plan—utilities run as government departmentsLimited performance incentivesNo ability to access finance on own balance sheetNo instrument for setting cost-reflective tariffs and making rational decisions about the incidence of subsidy

13. Recommendations:Corporatize ESE and YESBSet up independent utility regulator for economic regulation (tariffs and standards)Split up ESE into more utilitiesFinance new connections on utility balance sheetThis can be done by…12Efficient operation of utilities and their ability to scale-up2…essential but will take time to implement…Short-term Recommendation:Develop a five-year budget for ESE & YESB, but should not delay reform

14. A further step could be to…13Efficient operation of utilities and their ability to scale-up2Further Recommendations:Involve private sector strategically to improve efficiencyLevel of private participation depends on the incidence of the subsidy…ConcessionManagement contractSystem loss reduction contract

15. Third step is to create an institutional basis for mini-grid projects…14Need for coordinated implementation of mini-grids3Barriers:No ministry “ownership” for mini-grids. Hence, no instrument for channelling Union budget to mini-gridsNo standard format/processes to develop mini-gridsNo instrument for linking mini-grid proposals to roll-out plan

16. This can be done by…15Need for coordinated implementation of mini-grids3Recommendation: 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

17. A more centralized approach to mini-grid development…16Need for coordinated implementation of mini-grids3FunctionWho What/ How?Funding and Financing SupportUnion Govt through a dedicated agencyUnion 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 developersProject PrioritizationUnion Govt, with support from Regional Govt and/or VECsActively decides where to build, based on some clearly defined criteria. Could use the support of Regional Government Detailed Project DesignUnion Govt  Procurement of Materials, ConstructionUnion Govt Union government agency will procure private contractorsRegulationRegulatorTariffs set before bidding of projectsOption 1: Centralized approach

18. A more decentralized approach to mini-grid development…17Need for coordinated implementation of mini-grids3Option 2: Decentralized approachFunctionWho What and How?Funding and Financing SupportUnion Govt through a dedicated agencyUnion 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 developersProject PrioritizationUnion Govt, with support from Regional Govt and/or VECsActively decides where to build, based on some clearly defined criteria. Could use the support of Regional Government Detailed Project DesignUnion Govt  Procurement of Materials, ConstructionUnion Govt Union government agency will procure private contractorsRegulationRegulatorSimplified process for mini-grids

19. Fourth step is to make the household-level program sustainable…18Sustainability and efficiency of individual household solutions4Barriers:Risks to sustainability of SHS program Need to ensure incentives for maintenance

20. 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 incentivesEncourage scaling up where SHS is economicalProvide training support/ incentives for techniciansClosely monitor program’s progress This can be done by…19Sustainability and efficiency of individual household solutions4Bangladesh: IDCOL ModelLao PDR: OGS-PESCO-VEM ModelSustainable SHS Models:

21. Two options for the SHS implementing entity are…20Sustainability and efficiency of individual household solutions4Option 1: Combined Govt Agency for mini-grids and SHS programProsConsBetter 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-shopMini-grid development might overshadow SHS program, which would be smaller in sizeMore targeted approach for SHS possible, since program design might not have much overlap with the mini-grid programEasier to monitor progress with single focused entityCompetition and/or lack of coordination between the two entities could lead to duplication and waste of resources Higher transaction costsOption 2: DRD continues to develop SHS program on stand-alone basis

22. To summarize…21National gridTariff from electricity salesDonor funding/ financingUnion budgetIsolated mini-gridIndividual Household-level (SHS)Funds flow to entities involved in:Coordination and allocation of funding on sector-wide basis, based on planCreate program manager: Could be entity within MOEP or Executive Secretariat under REPWC/NEMC1 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 formed234

23. Need to create a coherent framework, that addresses the entire institutional challenge Institutional structure needs to be tightly integrated with budgeting and finance flowsThe electrification program must be anchored by the technical least-cost expansion plan that includes grid and off-gridThe program needs a credible manager, with ability to allocate/channel resourcesInstitutional reforms will be essential to the success of the electrification programConclusions22

24. Alex Sundakov36-38 Young StreetSydney, NSW 2000AustraliaAlex.Sundakov@castalia-advisors.comwww.castalia-advisors.comContact Us