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

2. Source: MOEP (2011-2012), ESE, YESB data and Castalia estimations Assumes 6.5 people in a household 1 ESE YESB Required 189,000 New household connections per year 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… 2 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

4. 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… 3 Sector-wide Program FeaturesResults 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 200920102011 August 2014 Target New connections < 5,00032,99543,73340,419On track Households connected to electricity 110,896143,891187,624228,043350,000 On track to achieve electrification targets:

5. The flow of funds is currently fragmented, increasing costs of national electrification… 4 Existing Flow of Funds Mini-grid operators Union Budget MOEP DRD/MOI YESB Private IPPs ESE SHS Customers Customers Donors

6. Electrification using a programmatic sector-wide approach, will require institutional reform… 5 National grid National grid expansion Tariff from electricity sales Donor funding/ financing Union 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…

7. Resulting in a more streamlined flow of funds… 6 Programmatic Sector-wide Approach ESE YESB Mini-grid operators SHS operators Donors Union Budget Customers Roll-out coordinator: Subsidies Finance

8. What specifically will the reform need to address? 7 National grid Tariff from electricity sales Donor funding/ financing Union budget Isolated mini-grid Individual Household-level (SHS) Funds flow to entities responsible for: Coordination and allocation of funding on sector- wide basis, based on plan 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

9. 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

10. This can be achieved by… 9 Program level management and coordination 1 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… 10 Program level management and coordination 1 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 ProsCons Allows 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

12. Second step is to ensure efficiency and capability of utilities… 11 Efficient operation of utilities and their ability to scale-up 2 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. 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… 12 Efficient operation of utilities and their ability to scale-up 2 … 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… 13 Efficient operation of utilities and their ability to scale-up 2 Further Recommendations:  Involve private sector strategically to improve efficiency Level of private participation depends on the incidence of the subsidy… Concession Management contract System loss reduction contract

15. Third step is to create an institutional basis for mini-grid projects… 14 Need for coordinated implementation of mini-grids 3 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. 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? This can be done by… 15 Need for coordinated implementation of mini-grids 3 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… 16 Need for coordinated implementation of mini-grids 3 FunctionWhoWhat/ 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 GovtUnion government agency will procure private contractors RegulationRegulatorTariffs set before bidding of projects Option 1: Centralized approach

18. A more decentralized approach to mini-grid development… 17 Need for coordinated implementation of mini-grids 3 Option 2: Decentralized approach FunctionWhoWhat 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 GovtUnion government agency will procure private contractors RegulationRegulatorSimplified process for mini-grids

19. Fourth step is to make the household-level program sustainable… 18 Sustainability and efficiency of individual household solutions 4 Barriers:  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 incentives  Encourage scaling up where SHS is economical  Provide training support/ incentives for technicians  Closely monitor program’s progress This can be done by… 19 Sustainability and efficiency of individual household solutions 4 Bangladesh: IDCOL Model Lao PDR: OGS-PESCO-VEM Model Sustainable SHS Models:

21. Two options for the SHS implementing entity are… 20 Sustainability and efficiency of individual household solutions 4 Option 1: Combined Govt Agency for mini-grids and SHS program ProsCons  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

22. To summarize… 21 National grid Tariff from electricity sales Donor funding/ financing Union budget Isolated mini-grid Individual Household-level (SHS) Funds flow to entities involved in: Coordination and allocation of funding on sector- wide basis, based on plan 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

23.  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  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 22

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