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

  2. Myanmar’s electrification challenge is immense… The electrification rate is estimated at 29%... Need to connect over2xas many households per year to reach universal electrification by 2030… New household connections per year 189,000 • Source: MOEP (2011-2012), ESE, YESB data and Castalia estimations • Assumes 6.5 people in a household

  3. 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 Key Features : • Coordinated least-cost technical and investment planning • Sustainable financing policy • Stable flow of funds • Results focused

  4. Rwanda is one of the few countries that had to scale up electrification as rapidly as Myanmar, and this is how it was achieved… Sector-wide Program Features Results • On track to achieve electrification targets: Tbc—here I will use exhibits or numbers • 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 • Donors pledged US$225 million for first slice of program (2009-2013) • Cost per new connection substantially lower Other countries that have adopted this approach include Kenya, Ethiopia, Nepal, Uganda…

  5. The flow of funds is currently fragmented, increasing costs of national electrification… Existing Flow of Funds Union Budget Donors ESE MOEP Customers YESB Mini-grid operators Private IPPs SHS Customers DRD/MOI

  6. Electrification using a programmatic sector-wide approach, will require institutional reform… Institutions would ensure… Tariff from electricity sales Union budget Donor funding/ financing There are sufficient funds and predictable financing flowing through the entire electrification program Coordination and allocation of funding on sector-wide basis, based on plan There is coordination and management of funding such that it is reaching projects which have been prioritized in a least cost manner Funds flow to entities responsible for: National grid National grid expansion Projects are being built efficiently and are achieving social objectives Isolated mini grid expansion Household-level expansion (SHS)

  7. Resulting in a more streamlined flow of funds… Programmatic Sector-wide Approach Donors ESE YESB Customers Roll-out coordinator: • Subsidies • Finance Mini-grid operators SHSoperators Union Budget

  8. What specifically will the reform need to address? Barriers related to… Tariff from electricity sales Union budget Donor funding/ financing 1 Program-level management and coordination Coordination and allocation of funding on sector-wide basis, based on plan Funds flow to entities responsible for: 2 Efficient operation of utilities and their ability to scale-up National grid 3 Need for coordinated implementation of mini-grids Isolated mini-grid 4 Sustainability and efficiency of individual household-level solutions Individual Household-level (SHS)

  9. First step is to integrate the program… 1 Program level management and coordination • 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

  10. This can be achieved by… 1 Program level management and coordination • 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

  11. Two options for the NEP program manager… 1 Program level management and coordination • Option 1: Create and empower an Executive Secretariat under REPWCto act as NEP program manager • Option 2: MOEP to act as NEP program manager

  12. Second step is to ensure efficiency and capability of utilities… 2 Efficient operation of utilities and their ability to scale-up • 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

  13. This can be done by… 2 Efficient operation of utilities and their ability to scale-up • 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 …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… 2 Efficient operation of utilities and their ability to scale-up • Further Recommendations: • Involve private sector strategically to improve efficiency Level of private participation depends on the incidence of the subsidy… Management contract Concession System loss reduction contract

  15. Third step is to create an institutional basis for mini-grid projects… 3 Need for coordinated implementation of mini-grids • 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

  16. This can be done by… 3 Need for coordinated implementation of mini-grids • 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

  17. A more centralized approach to mini-grid development… 3 Need for coordinated implementation of mini-grids • Option 1: Centralized approach

  18. A more decentralized approach to mini-grid development… 3 Need for coordinated implementation of mini-grids • Option 2: Decentralized approach

  19. Fourth step is to make the household-level program sustainable… 4 Sustainability and efficiency of individual household solutions • Barriers: • Risks to sustainability of SHSprogram • Need to ensure incentives for maintenance

  20. This can be done by… 4 Sustainability and efficiency of individual household solutions • 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 • Bangladesh: IDCOL Model • Sustainable SHS Models: • Lao PDR: OGS-PESCO-VEMModel

  21. Two options for the SHS implementing entity are… 4 Sustainability and efficiency of individual household solutions • Option 1: Combined Govt Agency for mini-grids and SHS program • Option 2: DRD continues to develop SHS program on stand-alone basis

  22. To summarize… Tariff from electricity sales Union budget Donor funding/ financing 1 Create program manager: Could be entity within MOEP or Executive Secretariat under REPWC/NEMC Coordination and allocation of funding on sector-wide basis, based on plan Funds flow to entities involved in: 2 Strengthen ESE/YESB, through traditional utility reform program, in phases. Include private sector National grid 3 Create entity to guide mini-grid development. Level of centralized decision-making depends. Where entity sits, depends on level-1 decision Isolated mini-grid 4 Alter current program design to include ……financial incentives. Options: DRD continues, or combined entity for off-grid formed Individual Household-level (SHS)

  23. Conclusions • 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

  24. Alex Sundakov 36-38 Young Street Sydney, NSW 2000 Australia Alex.Sundakov@castalia-advisors.com www.castalia-advisors.com Contact Us