The Set drop-down list value in web page action only works with drop-down lists that are a <select> element with an <ul> or <ol> list of items as its child and containing <li> items as the options.
What you share in the screenshots is not like that, meaning that the drop-down in question is not a real drop-down. That is why PAD is not able to set its value.
What you need to do in a case like this is build a workaround by using Press button on web page to expand the drop down, then using Extract data from web page to extract the available items in the list, and then find the right value you're looking for in the results (by either using a loop, or Find or replace in data table) and then using Press button on web page again to send a click to the item you want to select.
You will need to modify the selector for the item you're trying to select. See here for reference on how to do it: https://learn.microsoft.com/en-us/power-automate/desktop-flows/build-custom-selectors as well as this video tutorial: https://www.youtube.com/watch?v=2PcyBa22Jj8&ab_channel=Thomas%22Shaky%22Petersen
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