National Electrification Program Investment Prospectus (2015–2019) Draft Final Results

Alex Sundakov, September 2014

2

PRESENTATION OUTLINE

• Roll out program for 5 years

• Financing need

• Donor support rationale

• Potential Tariff Paths

• Funding Gap and Government Support Needed

Earth Institute estimates that the total number of connections required for universal electrification by 2030 is apprx 7.2 million

Majority of connections on the grid by 2030

About 11,000 households permanently off-grid and around 250,000 possible pre-electrification

Roll-out plan for universal electrification by 2030

3

Total Planned Connections (2030)

Source: Earth Institute

4

National least-cost roll-out

This means that the cheapest connections, wherever they happen to be in the country, are made first.

Biggest “bang for the buck”Resulting Connections in Each State 2015-2019

Central corridor prioritized in the first 5 years for grid connection. Mini-grids and household elsewhere

Connected earlier

Connected laterSource: Earth Institute

Projected connections targets over entire roll-out

5

After 2019, over 517,000 connections have to be made each year to reach full electrification by 2030

Projected National Electrification Rate

30%

47%

76%

100%

6

Why consider pre-electrification connections?

Although it will add some costs to the roll-out program, some pre-electrification in the early part of NEP may be efficient because:

There will be time to amortize the costs of investments in temporary solutions (for e.g. diesel mini-grid)

Some renewable generation sources serving off-grid solutions can remain viable on the grid

NEP Program Years

Temporary electrification solution while waiting for the grid (e.g. mini-grids, micro-grids, SHS) may be efficient and provide social inclusion to household slated for grid connection at the end of the roll-out

We estimate that approximately 250,000 households will use pre-electrification

solutions in the first 10 years of the program

No.

of H

ouse

hold

s El

ectr

ified

How many connections are feasible in the first 5 years?

7

Technically and physically feasible to

implement about 1.7 million additional connections from FY2015-19

Pace of ramp-up limited by: Institutional weaknesses Available skilled labor Procurement practices

New Conns Required

2012Actual 2015 2016 2017 2018 2019

ESE 6,993,539 59,000 75,000 150,000 225,000 337,500 517,170

YESB 207,752 130,000 130,000 77,752 0 0 0

Total 205,000 227,752 225,000 337,000 517,170

Approximately 125,000 total mini-grid and off-grid household solution connections can be made. Includes both

permanent and estimated pre-electrification connections

With national least-cost roll-out, US$650 million of loans will be needed from FY 2015-19. This

amount will cover the expansion program’s gross capital expenditures. Additionally the implementation of the Institutional Roadmap will require Technical Assistance of

$24 million

What is the financing need to achieve 1.7 million connections?

8Numbers are in constant US$, does not include inflation

In US$ Million Type of investment 2015 2016 2017 2018 2019

Grid Investment $72.5 $80.6 $79.8 $139.9 $232.2

Mini-grid Investment $0.6 $0.6 $0.6 $0.6 $0.6

Pre-electrification Investment $2 $3 $4.5 $6.5 $8.5

Off-grid Investment $2.2 $2.2 $2.2 $3.2 $3.2

Annual Investment $77.3 $86.4 $87.1 $150.2 $244.5

Technical Assistance $10.3 $6.8 $2.2 $3.1 $1.4

9

Low interest, long tenor donor-backed loans will: Enable Myanmar to achieve the targeted 1.7 million connections in next 5 years. This will:

­ Contribute to Myanmar’s economic development by giving those households access to electricity

­ Underwrite the ramp-up in both technical and institutional capability required to achieve full electrification by 2030

Ensure that the burden on consumers and on Government is consistent with ability to pay. Long tenor loans ensure that future electricity users—who will be better off than the current users—pick up a fair share of the burden

Over time, as the economy becomes integrated with the global financial system and as local banking system matures, commercial finance will become available on tenors and other terms that can replace concessional finance without a material shock to tariffs.

Strong development rationale to meet financing need from donor sources

Size of funding gap depends on decisions about tariffs

10

$-

$0.500

$1.000

$1.500

$2.000

$2.500

$0.037 $0.038 $0.040 $0.041 $0.042 $0.043 $0.045 $0.046 $0.047 $0.049

Fund

ing G

ap $

bill

ion

Average Residential Tariff $/kwh

Myanmar current tariff

Vietnam

Existing system cash neutral tariff

Funding gap is $2.2 billion over a 40-yr period at the current tariff

Reduced to $1.1 billion with an existing system cash neutral tariff

Reduced to $0.25 billion with maintaining a residential tariff equivalent to Vietnam

Myanmar current tariff

Existing system cash neutral tariff

Vietnam tariff

Average Residential Tariff $/kWh

Fund

ing

Gap

US$

Bill

ion

Funding gap = (Revenue + Loan Amount Received) – (Capex + Opex + Loan Repayment)

Note: Assumes all loans are concessional, at 1.25% with 25 year repayment and 5 year grace period

What tariffs are needed to make the existing system cash neutral?

11

Steady tariff increases in real terms would be needed to accommodate rising generation costs….

Comparison of Various Tariff Paths for National Least Cost Connections Scenario

Effect of tariff choice on PV of funding gap

12

If tariffs are increased such that the existing system is made cash neutral, the PV of the funding gap about US$1.1 billion. If tariffs kept constant in real terms, the PV is US$2.2 billion

Funding gap period 2015-2070, 10% discount rate for PV calculation, figure is for National Least -cost

Cash Outflows Cash Inflows Cash Inflows Tariffs maintained

in real termsTariffs increased to make existing system cash neutral

Government will need to subsidize operating losses (revenues-opex) and pay debt service (principle repayment & interest) every year to close the funding gap over time.

Government support is needed to close the funding gap

13

Current total budget support to MOEP is US$567 million per year

Access to financing reduces need for support

Support needed starts low and quickly ramps up

14

Assuming that financing can be secured, initial pace of ramp-up in roll-out is determined by institutional and technical constraints

To achieve the target of nearly 100% electrification by 2030, annual new connections must be ramped up to more than 550,000 per year five years from now: a more than two-fold increase

Donor commitment to meet the financing need of the 5-year program is essential to achieve the ramp up

The Government must make difficult decisions about future tariffs. The funding gap will depend on the tariff path

The roll-out program is financially viable. Institutional weakness is the biggest risk to the roll-out

Conclusions

WellingtonLevel 2, 88 The Terrace

PO Box 10-225Wellington

New Zealand

Sydney36 -38 Young StreetSydney, NSW 2000

Australia

Washington1747 Pennsylvania Ave NW Suite

1200Washington DC

20006, USA

New York200 Park Avenue

Suite 1744New York, NY

10166, USA

BogotáCarrera 7 No. 99-53

Torre 1, Oficina 1424Bogotá

Colombia

Paris7 Rue Claude Chahu

75116 ParisFrance

Alex Sundakov

36-38 Young StreetSydney, NSW 2000

Australia

Alex.Sundakov@castalia-advisors.comwww.castalia-advisors.com

Contact Us