Japanese ODA Loans

Ex-ante Evaluation (for Japanese ODA Loan)
1. Name of the ProjectCountry: The Kingdom of Bhutan
Project: Rural Electrification Project (Phase 2)
Loan Agreement: June 23, 2011
Loan amount: 2,187 million yen
Borrower: The Royal Government of Bhutan
2. Background and Necessity(1) Current State and Issues of the Electric Power Sector in BhutanWith its abundant water resources, Bhutan produces electric power at a level of 6,897GWhper year (2009). The vast portion of this electric power is exported to India, and is the main
source of foreign exchange. On the other hand, annual domestic power consumption in
Bhutan is only 1,372GWh (2009). However, in rural villages scattered throughout themountainous areas where 70% of the total population live and 98% of poor people live, thehousehold electrification rate is as low as around 54% (2008), and lack of access to electricity
is a bottleneck to economic activities and improvement in the standard of living. According to
the results of JICA’s development study, the Rural Electrification Master Plan (2005), thehighest need among residents in rural areas is for an increase in the household electrification
rate, because electricity can support the use of agricultural machinery to boost agricultural
productivity and domestic cottage industries after dark.
(2) Development Policies for the Electric Power Sector of Bhutan and the Priority of theProject
Advocating the development philosophy called “Gross National Happiness (GNH),” theGovernment of Bhutan has been pursuing, without placing too much emphasis on economic
growth expressed in GNP, the establishment of a fair and happy society. In a long-term vision“A Vision for Peace, Prosperity and Happiness” which was established in 1999 for therealization of the above-mentioned philosophy, rural electrification is identified as animportant objective along with road construction from the viewpoint of reducing the disparity
between urban and rural areas, reducing poverty, and promoting industries. In line with thelong-term vision, the new government inaugurated at the time of democratization of thecountry in 2008 made a public commitment to achieve “electrification for all” and planned toelectrify about 44,000 households during the 10th Five-Year Plan (July 2008-June 2013). This
project will support electrification of around 3,700 households in areas other than thosealready supported by existing aids, including Japanese ODA loan.
(3) Japan and JICA’s Policy and Operations in the Electric Power Sector
The Rolling Plan for Bhutan (2009) targets rural electrification as one of the country’s
development issues, and JICA conducted a series of efforts to contribute to poverty reduction
through rural electrification projects: the above development study, the prior phase of thisJapanese ODA loan project, the Rural Electrification Project (2007, 3,576 million yen), and atechnical cooperation project, the Rural Electrification Promotion Project (2008-2011). Theseprojects were mainly focused on rural electrification through the establishment of power
distribution networks. Therefore, this project is consistent with the assistance policy.
(4) Other Donors’ Activity
Based on the Master Plan, the Asia Development Bank (ADB) and the Australian
government have been supporting rural electrification projects on an ongoing basis. The ADB
has started supporting follow-up projects since December 2010.
(5) Necessity of the ProjectIn the light of the above, reducing the disparity between urban and rural electrification rates
in households is absolutely imperative to achieve equitable and sustainable development.
Further, it is predicted that household electrification can eventually contribute to reduction in
deforestation and GHG emissions by reducing the use of fossil fuels such as kerosene andwood fuel. Since the project is expected to bring environmental conservation and mitigationof climate change, the Bhutan government identified the improvement in electrification rate inhouseholds as the utmost priority issue of development. Therefore, the necessity andrelevance of JICA’s assistance in this project to help unelectrified households to gain access toelectricity is considered to be high by using JICA’s past experience.
3. Project Description(1) Project Objective(s)This project aims to to provide access to electricity for un-electrified households and otherfacilities by constructing distribution lines and related facilities in the rural areas of Bhutan,
thereby improving living standard of local residents including the poor, promoting economic
and social development, and mitigation of climate change in the concerned areas.
(2) Project Site/Target Area
Eleven Dzongkhags (districts) (Chukha, Dagana, Haa, Paro, Pemagatshel, Punakha, Samtse,Sarpang, Trongsa, Tsirang, and Wangduephodrang) (No overlapped villages which were
supported by other projects including the prior phase of Japanese ODA loan assistance)(3) Project Component(s)1) Construction of power distribution networks (New installment of medium/low voltage
distribution lines and equipment, installment of transformers, construction works, etc.)
2) Consulting services (supervision of construction works, operation/maintenance, etc.)(4) Estimated Project Cost (Loan Amount)
2,574 million yen (Loan Amount: 2,187 million yen)(5) Schedule
June 2011 - June 2014 (37 months) Project completion is defined as completion ofconstruction work (June 2013).
(6) Project Implementation Structure1) Borrower: The Royal Government of Bhutan

2) Project Executing Agency: Department of Energy, Ministry of Economic Affairs (DOE)
Actual procurement and construction will be implemented by Bhutan Power Corporation(BPC).
3) Operation and Maintenance System: BPC(7) Environmental and Social Consideration/Poverty Reduction/Social Development
1) Environmental and Social Considerationi) Category: Bii) Reason for Categorization
This project is not considered to have any significant negative impact on the environment,given the characteristics of the sector, the characteristics of the project and thecharacteristics of the project area, under the “Japan Bank for International Cooperation
Guidelines for Confirmation of Environmental and Social Consideration” (established inApril 2002). For this reason, this project is classified as Category B.
iii) Environmental Permit
Under the legal system of Bhutan, Initial Environmental Examination (IEE) report(Environmental Impact Assessment (EIA) for some area) is required. The executing
agency and BPC will prepare the IEE (or EIA) report and National Environmental
Committee will approve it by September 2011 for all target areas of this project.
iv) Anti-Pollution Measures
The contractor will take appropriate measures to mitigate noise, dust, and the like asnecessary.
v) Natural Environment
Some distribution lines will cross Protected Area and Biological Corridor. However, therange of deforestation is thought to be minimized by the use of covered conductor.
Therefore, the project is not likely to have significant negative impact on the naturalenvironment.
vi) Social Environment
Due consideration will be given so that installation of distribution lines will not affect theland use even when distribution lines run through private land. The project does not
involve land acquisition or resident relocation, and utility poles are installed with the landowner’s permission.
vii) Other/Monitoring
The executing agency will monitor the sediment discharge, deforestation, and impact on
livelihood during the implementation of the project.
2) Promotion of Poverty Reduction
The rural villages are heavily inhabited by the poor (40%) in comparison with the national
average (23%) poverty ratio. Among these rural villages, the target areas of this project are
the most remote areas among rural villages in particular. Therefore, a contribution topoverty reduction can be expected with the implementation of this project, as it improves
living conditions at target households.

3) Promotion of Social Development (Gender Perspective, Measures for Infectious
Diseases Including HIV/AIDS, Participatory Development, Considerations for the Persons
with Disabilities, etc.)
In remote areas, BPC is planning to provide some residents of the target villages withtechnical training so that they will be able to perform maintenance on internal wiring in thefuture.
(8) Collaboration with Other Donors
This project will divide up the target area with other donors. ADB will provide assistance tosix districts, the Australian government to one, and JICA to eleven.
(9) Other Important Issues
Electrification in rural areas can reduce the use of fossil fuels including kerosene and reduce
GHG emissions, thereby helping to mitigate climate change. The project plans to apply theClean Development Mechanism (CDM).
4. Targeted Outcomes(1) Performance Indicators (Operation and Effect Indicators)
Indicator
Rural Household Electrification Ratio (%)(contributiontoruralhousehold
electrification ratio by the Project) (%)(number of households electrified by theBaseline(Available Value in2009)

Target (2015)[Expected value 2 years
after project completion]

54 (2008)
-100
(4.2)
(3,728)

Project)
96.0
Bill Collection Rate (%)
96.0
Electricity Consumption (LV Consumer in126
the targeted Dzongkhags) (excluding loss)
189(GWh/yr)
Removals by sinks in Greenhouse Gas
Wait for results of ongoing JICA’s survey for assisting
CDM project registration conducted by the JICA
(t CO2 equivalent)
Global Environment Department

SAIDI (under ESD control in the targetedDzongkhags) (hours / customer/ year)

10.82

9.90

(2) Internal Rate of Return
Based on the conditions indicated below, the Economic Internal Rate of Return (EIRR) for theproject is 8.1%.
【EIRR】(a) Cost: Project cost (excluding tax and duties), operation and maintenance cost(b) Benefit: Willingness to pay by potential users, cost reduction for use of kerosene/battery/
firewood, revenues for power suppliers(c) Project Life: 30 years
5. External Factors and Risk Control
Increase in the project cost caused by a substantial rise in material prices and exchange
fluctuations
6. Lessons Learned from Past Projects
In the post evaluations of past projects involving rural electrification, lessons were learned
that in a project involving the building and expansion of a power distribution network, reviewof the plan at any time and flexible handling are necessary. A project monitoring unit
dedicated to this project is to be established in BPC and the management are planning toregularly check the progress of the project and discuss how to deal with problems if any.
7. Plans for Future Evaluation(1) Indicators for Future Evaluation(a) Rural Household Electrification Ratio (%)(b) Contribution to rural household electrification ratio by the Project (%)(c) Number of households electrified by the Project(d) Bill Collection Rate (%)(e) Electricity Consumption (LV Consumer in the targeted Dzongkhags) (excluding loss)(GWh/yr)(f) Removals by sinks in Greenhouse Gas (t CO2 equivalent)(g) SAIDI (under ESD control in the targeted Dzongkhags) (hours / customer/ year)(h) EIRR (%)(2) Timing of Next Evaluation
Two years after project completion