Download Additional Power Supply in M 2007 USD

Estimating the Economic Multiplier Effects of IFC Investments
in the Power Sector.
Evgenia Shumilkina
Development Impact Department, IFC
Presentation at Let’s Work – Pillar 2 Workshop
London
September 17th, 2015
Background
 IFC infrastructure operational power team requested to develop a practical tool to provide
ex-ante quantitative estimates of the economic impact of IFC investments in the power
sector.
 Minimum data requirements and programming requirements due to large number of
projects across different countries.
 Approaches reviewed:
- Econometric modelling
- Computable General Equilibrium (CGE)
- Input-Output (or Social Accounting Matrix, SAM) multiplier analysis
 Estimates to be included into the Development Impact section of the Board papers.
 At the implementation stage.
 On-going work on the IFC comprehensive model based on system dynamics.
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Background (Cont’d)
 Social Accounting Matrix (SAM) multiplier analysis - extension of IO analysis - allows for an
estimation of multiplier effects for a large set of countries with minimum data requirements.
 The approach has a number of limitations and based on numerous assumptions.
 Collaboration with academia and Let’s Work Partnership.
 Prof. Michael Lahr (Rutgers University, International IO Association) prepared a background
note “Estimating Economic Impacts of New Electricity Power Generation and Transmission
Facilities in Developing Nations”. The note proposes the use of the input-output methodology
for an ex-ante assessment of the effects of the power projects including effects from an
increase in the supply of electricity in the situation of limited data availability.
 EcoMod developed Excel templates for 20 countries.
 The report and templates for the pilot countries were peer-reviewed by WB Energy Unit and
verified as technically sound by DEC expert.
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Economic Effects of Investments in the Power Sector
 The tool helps to estimate GDP and employment impacts resulting from IFC investments in
power generation resulting from:
i) Local expenditures in Engineering, Procurement and Construction (EPC).
Capturing direct, indirect, induced effects through backward production linkages.
ii) Local expenditures in Operations and Maintenance (O&M).
Capturing direct, indirect, induced effects through backward production linkages.
iii) Increase in power supply. Capturing induced effects through forward production
linkages that account for the increased supply of inputs to upstream industries.
Forward linkages are particularly important for the energy sector as it provides key input
into the majority of other sectors in the economy.
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Excel-based Tool
 IFC/ECOMOD have developed an Excel-based tool to assist Industry Economists with the task
of estimating multipliers.
 Excel models are available for 20 countries and rely on inputs shown below. Once the inputs
are entered, the models automatically compute multipliers for GDP, output, and employment
for a specific country.
 20 countries with the majority of IFC historical projects and projects in the pipeline.
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Country Coverage
South Asia
Africa
LAC
Bangladesh
India
Nepal
Cameroon
Cote D’Ivoire
Ghana
Kenya
Mozambique
Nigeria
Senegal
South Africa
Uganda
Brazil
Mexico
EAP
Indonesia
Philippines
E/MENA
Egypt
Georgia
Pakistan
Turkey
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Excel Model Cover Sheet: Inputs
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Using Excel Tool: Step 1
STEP 1. Collect necessary project-level data (the majority of the data is available from the
project’s documentation).
For the amount of additional power supply:
- Tariff level
- GWh produced
- Transmission and distribution losses
For EPC and O&M estimations:
- Detailed EPC (construction) costs
- Detailed O&M costs
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Using Excel Tool: Step 2
STEP 2. For EPC and O&M, determine Foreign v Local costs.
EPC and O&M Expenditures are
based on project documents
Line items need to be bucketed
into local and foreign components,
based on each project’s particular
attributes
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Using Excel Tool: Step 3
STEP 3. Allocate the EPC and O&M costs (in 2007 USD) by sectors of the economy.
Sector
EPC
O&M
Expenditures Expenditures
In M 2007 USD In M 2007 USD
c_Agriculture
0.0
0.0
c_Mining&Fuel
0.0
0.0
c_Manufacturing
0.0
0.0
c_Electricity
0.0
0.0
c_Water
0.0
0.0
c_Construction
0.0
0.0
c_Trade
0.0
0.0
c_Transport&Com
0.0
0.0
c_Finance&Insurance
0.0
0.0
c_OthServices
0.0
0.0
c_PubServices
0.0
0.0
Total
0.0
0.0
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Using Excel Tool: Step 4
STEP 4. Determine the amount of additional power in monetary terms (in 2007 USD).
Additional Power Supply in M 2007 USD = (Additional Power Supply in GWH * Tariff Level) - T&D
losses
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What we See from the Historical Projects
 Results of testing 19 historical IFC projects indicate that:
1. Estimates for GDP and employment from EPC and O&M expenditures are much
lower (as expected) than the estimates for an increase in power supply.
2. Estimates for GDP and employment from an increase in power supply are to
some extent proportional to an increase in a country’s total capacity due to an
investment.
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Comparison of the Results for Masinloc
(Philippines)

To have a point of reference, the results for Masinloc project were compared to the results of the
in-depth evaluation of this project conducted by Steward Redqueen in 2015.

The table below shows the impact of the additional 129 MW from the IFI investment in Masinloc on
GDP and employment estimated with the help of two methodologies.
Change
EcoMod Template
Steward Redqueen
Evaluation
GDP
0.12% per year
2013: 0.08%
2014: 0.12%
2015: 0.13%
2016: 0.09%*
Employment
62,000
2013: 28,364
2014: 41,279
2015: 44.464
2016: 28.672
* The SR evaluation provides estimates only for 2013 - 2016. The results for other years of plant’s
operation are expected to be in the similar range.
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% change in Total Capacity vs. % change in GDP and
Employment
9%
8%
7%
% change in
country’s total
capacity vs. %
change in GDP*
6%
5%
4%
3%
2%
1%
0%
0%
2%
4%
6%
8%
10%
12%
14%
16%
14%
16%
9%
8%
% change in
country’s total
capacity vs. %
change
in
employment*
7%
6%
5%
4%
3%
2%
1%
0%
0%
2%
4%
6%
8%
10%
12%
*Results for 17 countries. The graphs are based on the estimates for increase in power supply and does not include estimates for EPC and O&M expenditures.
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Pilot Countries:
Summary of Effects on GDP and Employment
(Preliminary results – not for quotation)
341 MW Power Plant (Gas)
181 MW Power Plant (Hydro)
3/.
459 MW Power Plant (Gas)
1/. Multiplier effects are expressed in per annum terms.
2/. For EPC and O&M expenditures, only local expenditures are taken into account (ie. local provision of goods /services)15
3/. The power supply increase in Georgia is small due to the fact that the project exports 75% of its power to Turkey
Assumptions of the Model
 In addition to the typical limitations and assumptions of the IO models (fixed prices, constant returns to scale, fixed
commodity input structure, fixed industry technology, static model, etc.) it is important to take into considerations
limitations related to the estimations of the impact from an increase in the power supply.
 The results of the SAM multiplier analysis capture the output effects rather than price effects. Such analysis might
more applicable in the situation of regulated prices and when lack of available electricity represents a bottleneck to
the ability of firms to enhance their productive capacities.
 We also need to be careful with the supply effects mentioned above as they are based on the following
assumptions:
1. Electricity shortage is a bottleneck and the new supply would be fully used.
2. The distribution of electricity use continues as it was prior to the installation of new facilities.
3. There are enough available factors of productions (labor, capital, natural resources) and intermediate inputs
do not impose a constraint.
 Regarding 1st assumption, the lack of adequate electricity supply represents a serious bottleneck, given that the %
of firms identifying electricity as a major constraint is 76% in Nigeria, 52% in Bangladesh, and 31 % in Georgia.
 2nd assumption might hold in the short run, but with the time, as the companies adjust their production to higher
availability of electricity supply and the new technologies develop, this assumption will be less likely to hold.
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Assumptions of the Model (Cont’d)
 Regarding 3rd assumption, the significant increase in the production in almost every activity in the country
would require more factors of production and intermediate inputs and would inevitably create significant
price movements and some other bottlenecks in the economy. In order to properly capture these complex
effects CGE model might be more appropriate.
 The data from the Enterprise Surveys provides some indication of how much more the economies are
capable of producing with the existing resources if there was a reliable supply of electricity. According to
the surveys, the losses of annual sales due to electrical outages are 3.7 % for Bangladesh, 2.4 % for Georgia,
and 8.5 % for Nigeria.
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Data sources
 SAM/IO source: GTAP 7 (base year 2007)
 The employment data is from the ILOSTAT1 database of the International Labor
Organization (ILO) or from the ILO database LABORSTA (not being updated anymore).
 The data on GDP deflators is from the World Bank Development Indicators database.
 The data on the engineering, procurement, and construction (EPC) costs and on the
operations & maintenance (O&M) costs is from projects’ documentation.
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