1
Document of
The World Bank
FOR OFFICIAL USE ONLY
Report No: 70588 v1
RESTRUCTURING PAPER
ON A
PROPOSED PROJECT RESTRUCTURING
OF THE
BHUTAN PRIVATE SECTOR DEVELOPMENT PROJECT
June 20, 2007
TO THE
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KINGDOM OF BHUTAN
JUNE 21, 2012
3
ABBREVIATIONS AND ACRONYMS
ATM Automated Teller Machines
AWP Annual Work Plans
BoB Bank of Bhutan
BT Bhutan
DITT Department of Information Technology & Telecom
DPA Department of Public Accounts
EA Environmental Assessment
EFTCS Electronic Fund Transfer Clearing System
EIA
EMP
Environmental Impact Asessment
Environment Management Plan
FA Financing Agreement
FIP
FRSD
Financial Inclusion Policy
Financial Regulation and Supervision Department
FY Fiscal Year
HV High Voltage
IA Implementing Agency
IDA International Development Association
IPO Initial Public Offering
IT Information Technology
IT/ITES IT/Information Technology Enabled Services
M&E Monitoring and Evaluation
MOF Ministry of Finance
4
MOIC
MOLHR
Ministry of Information and Communications
Ministry of Labour and Human Resources
PAD Project Appraisal Document
PDO
PSC
Project Development Objective
Program Steering Committee
PSD Private Sector Development
RGOB Royal Government of Bhutan
RMA Royal Monetary Authority of Bhutan
RSEBL
RUB
Royal Securities Exchange of Bhutan Limited
Royal University of Bhutan
TA Technical Assistance
WB World Bank
Vice President : Isabel M. Guerrero
Country Director : Robert Saum
Sector Director : Sujata Lamba
Sector Manager : Ivan Rossignol
Task Team Leader : Cecile Thioro Niang
BHUTAN
Restructuring Status: Draft
Restructuring Type: CD Approval
Last modified on date : 6/15/2012
5
1. Basic Information
Project ID & Name P073458: BT – Bhutan Private Sector Development (PSD) Project
Country Bhutan
Task Team Leader Cecile Thioro Niang
Sector Manager/Director Ivan Rossignol
Sector Director Sujata Lamba
Country Director Robert Saum
Original Board Approval Date 06/20/2007
Current Closing Date 06/30/2012
Proposed Closing Date [if applicable] 06/30/2013
EA Category B- Project based
Revised EA Category na
EA Completion Date 25 February, 2010
Revised EA Completion Date na
2. Revised Financing Plan (US$)
Source Original Revised
RECIPIENT 0.00 0.0
IDA GRANT 8.00 8.0
Total 8.00 8.0
6
3. Borrower
Organization Department Location
Ministry of Finance Department of Public Accounts
(DPA)
Bhutan
4. Implementing Agency
Organization Department Location
Ministry of Information and
Communications
Department of Information
Technology & Telecom (DITT)
Bhutan
5. Disbursement Estimates (US$m) (both credit and grant)
Actual amount disbursed as of 09/30/2010, IDAH 307-BHU: 32%[Grant]
Fiscal Year Annual Cumulative
2008 0.50 0.50
2009 1.00 1.50
2010 1.50 3.00
2011 2.50 5.50
2012 2.50 8.00
Total 8.00
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6. Policy Exceptions and Safeguard Policies
Does the restructured project require any exceptions to Bank policies? No
Does the scale-up of restructured projects trigger any new safeguard policies? If yes, please select
from the checklist below.
No
7a. Project Development Objectives/Outcomes
Original/Current Project Development Objectives/Outcomes
The objective of the project is to increase productive employment in Bhutan through promotion of enterprise
development in the IT/ITES sector, enhanced IT skills, and improved access to finance.
7b. Revised Project Development Objectives/Outcomes [if applicable]
na
8
BHUTAN PRIVATE SECTOR DEVELOPMENT (PSD) PROJECT
RESTRUCTURING PAPER
1. The closing date for Bhutan, Bhutan Private SECTOR DEVELOPMENT, [Grant No H307-
BHU], P073458 will be extended from June 30, 2012 until June 30, 2013, as per the
Kingdom of Bhutan’s request.
2. Implementation Progress and Achievement of Project Development Objective. The
Bhutan PSD Project achieved its project development objective (PDO) in March 2012.
Project implementation has been satisfactory since effectiveness, except for a one time
downgrade to moderately satisfactory due to a disbursement lag in June 2011, now resolved.
The project has been given considerable due importance by the implementation agencies1
within their portfolio. Annex 1 presents more detail on implementation status, based on the
Project’s Tenth Implementation Support Mission conducted from May 28 to June 8, 2012.
Except for the undergrounding works of high voltage power lines over the IT Park under
Component 1 and a financial literacy campaign under Component 3 of the Project, all
activities are expected to be concluded by June 30, 2012.
3. Relevance and Achievement of Project Development Objective (PDO). The project has
achieved, and in some cases, exceeded its implementation targets, which confirms a
satisfactory progress towards achieving the development objectives. Progress against the
June 2012 outcome indicator was reached in March 2012 and is now exceeding its final
target: the number of Bhutanese graduates hired under the Project is now 778. Most Bhutanese
employed with support from the Project are between 19 and 24 years old, with equal representation
between young men and women from across Bhutan’s 20 districts. The cost to RGOB per job created
under the Project has been estimated by the Royal Government in the range of US$900, which is
highly satisfactory as per regional and global standards. Annex 1 depicts the status of all
indicators of the Monitoring and Evaluation Framework against targets.
4. The proposed extension is necessary to complete the undergrounding of a high voltage
transmission line in the IT Park, implemented by the Bhutan Power Corporation (BPC).
Background. This activity has been under implementation since August 2011, as part of the enabling
works provided by RGOB to build infrastructure for the IT Park (Component 1). During the Project’s 2010
restructuring, a fund reallocation of USD 450,000 from Component 3 to Component 1 was approved to
support the undergrounding of a 1-km high voltage power transmission line above the IT Park, as part of
government support to enabling infrastructure works of the Park. The power line had been identified as
a hazard. In addition, rerouting was necessary as the overhead line passed at the edge of the IT building,
1 Project implementation is led by the Ministry of Information and Communications. Other implementation agencies
include the Royal University of Bhutan, Ministry of Labour and Human Resources, Royal Monetary Authority and
Bank of Bhutan.
9
when Bhutanese regulations do not allow any residential or commercial buildings in an 18-meter wide
right of way below the lines. Options considered to reroute the transmission line included the
undergrounding and the overhead line re-alignment and re-routing of the line. The undergrounding was
favored as it remained on government land. Works started following the clearance by the World Bank of
the amendment to the Project’s Environmental and Social Impact Assessment to include the impact of
the transmission line.
Reasons for Delay. BPC committed to complete the undergrounding by end May 2012 but, due to
technical issues and coordination challenges, works have been delayed. These have included:
Technical issues. The undergrounding of the 66kV high voltage power line is the first
undergrounding undertaken by BPC. As implementation progressed, BPC was challenged
by technical complexities including meeting additional safety and safeguard measures as
per international norms.
Coordination issues. An unforeseen landslide occurred in early 2012 along a portion of
the cable trenching works being undertaken by BPC between towers CT188-CT190 in
Babesa, due to a site excavation work being undertaken by a private individual for
construction of his building beside the cable trenching right of way. Thimphu Thromde
had issued clearance for the cable trenching work as well as the private building
construction. A meeting was held on Jan 18, 2012, to resolve this issue. It was agreed that
a retaining wall would be constructed along the affected area. BPC highlighted the
impacts of the incident on the overall work progress and implementation timelines. In
addition, the implementation of this activity faced challenges arising from parallel road
expansion works including a series of retaining walls that needed to be constructed along
certain segments of the cable trenching right of way (road expansion along with retaining
walls were financed with RGOB funding).
While a number of deliverables have been completed, completion of the remaining works is not
expected before end November 2012. Annex 3 presents the revised implementation schedule for the
works.
10
Annex 1: Project Status
The Bhutan PSD Project achieved its project development objective (PDO) in March 2012. It is currently
rated as Satisfactory in terms of both progress toward the Project Development Objective and
Implementation Progress. The Project’s Tenth Implementation Support Mission conducted from May 28
to June 8, 2012 concluded the following:
Project Performance. The project has been under implementation for almost five years and is scheduled
to close on June 30, 2012. Project implementation has been satisfactory since effectiveness, except for a
one time downgrade to moderately satisfactory due to a disbursement lag in June 2011, now resolved.
The project has been given considerable due importance by the implementation agencies2 within their
portfolio.
Relevance and Achievement of Project Development Objective (PDO). The project has achieved, and in
some cases, exceeded its implementation targets, which confirms a satisfactory progress towards
achieving the development objectives. Progress against the June 2012 outcome indicator was reached in
March 2012 and is now exceeding its final target: the number of Bhutanese graduates hired under the
Project is now 778. Most Bhutanese employed with support from the Project are between 19 and 24
years old, with equal representation between young men and women from across Bhutan’s 20 districts.
The cost to RGOB per job created under the Project has been estimated by the Royal Government in the
range of US$900, which is highly satisfactory as per regional and global standards. Annex 2 depicts the
status of all indicators of the Monitoring and Evaluation Framework against targets.
Relevance of Project Design. The institutional and implementation arrangements; social and
environment safeguards arrangements, M&E and reporting; funds flow and; disbursement methods are
all relevant and do not require any changes.
Grant Covenants. The project is in compliance with all grant covenants included in the Financing
Agreement.
Progress of implementation and Achievement of Outputs Indicators. Except for the undergrounding
works of high voltage power lines over the IT Park under Component 1 and a financial literacy campaign
under Component 3 of the Project, all activities are expected to be concluded by June 30, 2012.
2 Project implementation is led by the Ministry of Information and Communications. Other implementation agencies
include the Royal University of Bhutan, Ministry of Labour and Human Resources, Royal Monetary Authority and
Bank of Bhutan.
11
Component 1. Development of IT/ITES Sector ($5.30m). The disbursement rate for this component at
the implementation agency’s level was 92%, as of June 7, 2012. The IT Park was inaugurated on
November 1, 2011. While Progress on Component 1 activities has been satisfactory, the overall progress
of Component 1 has been rated by the task team as moderately satisfactory, since no tenancy
agreements have been signed to date in the IT Park. Progress on the implementation of the Bhutan
Innovation and Technology Center (BITC) is satisfactory with the signing up of 9 incubatees (and 7
already set up) and progress on the Data center. The Data centre is ready to commence operations with
their initial clientele including the DRC business of BoB. Progress on IT Park construction is satisfactory
but some internal finishes, roof level mechanical equipment and external works including the
landscaping remain to be completed. Commercial tenancy negotiations with a major international
tenant have taken place. However, formal tenancy contract signing is subject to the company securing a
BPO contract in the TechPark, in the context of worldwide pressure on BPO activities due to the global
economic slowdownThis includes a Government contribution for the IT Park of US$2 million paid in Oct.
2011 to Thimphu TechPark Ltd (TTPL)3, the Park Developer for the 10,000 sq ft of leased space, allocated
for the BITC. As of June 1, 2012, RGOB has also paid a further US$950,000 to TTPL towards the initial set
up cost, management of the BITC ($100,000) and the seed fund for the BITC incubator ($100,000).
Progress against output indicators under Component 1 is as follows:
Cumulative leads generated for new investments in the IT Park - progress as of 31 May 2012: 201, equivalent to the 200 June 2012 target (see Annex II).
Number of companies incubated in the IT Park is 7, above the contractual target of 5. This was achieved by May 2012 with the launch of BITC operations on May 7, 2012. MOUs have been signed with 9 potential incubatee companies. (see Annex II).
Percentage of lettable commercial space leased out again will remain at zero, while two international companies (Wipro, NIIT) and a local company (Green Dragon Media) are in discussion with TTPL on space commitments and tenancy agreements.
Component 2. Development of an IT Skills Program (US$2.00m). The progress of Component 2 is
satisfactory. The Component’s disbursement at the implementation agency’s level stood at 78% as of
June 7, 2012. As of early June 2012, the Component had trained 1030 secondary education (Class XII)
graduates and college graduates and employment of 778 candidates - 389 male and 389 female – in
global ITES companies4 and in various sectors of the Bhutanese economy. The Ministry of Labour and
Human Resources (MOLHR) has launched several skills development programs: i) a graduate training
program (GTP) aimed at incentivizing local training firms selected competitively to train tertiary
graduates, and ii) an employment training program (ETP) aimed at supporting in-house training and
employment of class XII students. In both programs, firms are responsible for mobilizing candidates and
3 TTPL is a joint venture between Assetz Property Group, a global economic zone developer located in Singapore,
and Druk Holding and Investments, the national holding company managing 16 of the 20 state-owned enterprises in
Bhutan. 4 These include Infosys, Genpact and Wipro.
12
required to employ at least 50% of the trained individuals, while being provided a larger matching grant
for higher employment rates. The private sector-led skills development programs have been highly
successful, both in terms of percentage of trainees employed (74%) and cost per job created. In the case
of linkages with global IT/ITES companies, Project funds were leveraged to raise additional investments
by leading private sector companies covering tuition and accommodation of the trainees. Additional
activities under Component 2 implemented by the Royal University of Bhutan include the introduction
of new curriculum developed with feedback from the industry. These include (i) an analytical skills, (ii)
language enhancement course and (iii) entrepreneurship development course. The Project also
supported the launch of a Virtual Learning Environment across RUB colleges.
Progress against output indicators under Component 2 is as follows:
Per cent of students clearing ITES industry competency assessment that is widely
recognized (Progress as of May 31, 2012: 55% against a target of 35% by June 2012)
Per cent of students trained successfully employed by private sector (Status: 78% against
a target of 50% by June 2012).
Employment sector wise: ETP Employment sector wise: GTP
191
7 20
3
36
3 8 16 5 0
50
100
150
200 46 39
25
10 14
5 8
41
0
10
20
30
40
50
13
ETP: Student representation by Districts GTP: Student representation by Districts
Component 3. Strengthening the Financial Sector through IT Use (US$.7m). The overall disbursement
rate of this component was 95% at the implementation agency’s level as of June 7, 2012. Progress on
this component has been satisfactory, though one activity – the last part of the financial literacy
campaign - is at high risk of non completion by the end of June 2012. The Component was restructured
in December 2010, to reflect evolving priorities within the Royal Government and include financial
inclusion in the Project’s scope. The IT system upgrade in the Bank of Bhutan (BoB) has been highly
satisfactory and the sub-component has been fully disbursed since 2011. BoB’s procedures are
modernized and positioned BoB to benefit from the inter-bank Electronic Fund Transfer and Clearing
System (EFTCS). Other activities implemented by RMA under this component include: financial inclusion,
financial literacy and the IT upgradation of the Royal Securities Exchange of Bhutan Limited (RSEBL).
RSEBL’s new IT System was launched on April 23, 2012. The final draft of the Financial Inclusion Policy
(FIP) is ready and under screening by GNHC and the Cabinet for endorsement and implementation.
Several regulations were also drafted in order to create an enabling regulatory and supervisory
framework for MFIs and branchless banking. Finally, several programs were launched under the
Financial Literacy Program (FLP), including mass media communications. However, one activity under
implementation - the broadcast of TV soap operas and reality shows - may face a delay, and may not be
completed by end-June 2012, mainly due to implementation issues. The activity has been procured but
11
20
24
2
3
4
20
34
21
36
19
27
32
30
22
21
53
13
18
30
13
0 20 40 60
Bumthang
Chhukha
Dagana
Gasa
Gelephu
Haa
Lhuntse
Mongar
Paro
Pema Gatshel
Punakha
Samdrup Jongkhar
Samtse
Sarpang
Zhemgang
Tashi Yangtse
Trashigang
Thimphu
Trongsa
Tsirang
Wangdiphodrang
6
8
12
0
1
13
18
20
18
10
10
23
30
9
7
24
28
13
22
10
0 10 20 30 40
Bumthang
Chhukha
Dagana
Gasa
Haa
Lhuntse
Mongar
Paro
Pema Gatshel
Punakha
Samdrup Jongkhar
Samtse
Sarpang
Zhemgang
Tashi Yangtse
Trashigang
Thimphu
Trongsa
Tsirang
Wangdue phodrang
14
the drafting of the script for the media programs took longer than expected. Progress against output
indicators is as follows:
1. Percentage of district coverage for financial literacy campaign (Progress: 100%, meeting
the June 2012 target)
2. Percentage automation of stock exchange trading, settlement, and delivery with straight
through processing (Progress: 100%, against a June 2012 target of 100%) 3. Number of financial transactions by using ATMs at BOB per year (Progress: 1.1m as of
December 2011, against a June 2012 target of 900,000)
Compliance with Environmental and Social Safeguards. This is a category B project due to the triggering
of the Environmental Assessment OP/BP/GP 4.01. The Environmental Assessment (EA) and
Environmental Management Plan (EMP) were completed and disclosed to the public by the Royal
Government of Bhutan (RGOB) on February 25, 2010. The Project’s safeguards category remains B under
the proposed closing date extension. Construction of the 1 kilometer underground electric power
transmission line under Component 1 (see Section C) is not expected to cause any significant
environmental and/or social impacts. Before work on the under-grounding of the HV transmission lines
commenced, a baseline environmental impact assessment (EIA) along with public consultations was
carried out, and an Environmental Management Plan (EMP) was prepared. The EIA/EMP was cleared by
the National Environment Commission in June 2011 and by the World Bank in November 2011.
Implementation of the EMP for the underground transmission lines would be monitored during
construction. Any adverse impacts identified during construction would be mitigated in accordance with
Bank’s environment and social safeguard policies.
Disbursement and Financial Management. Financial management performance of the Project has been
Satisfactory. Against the original grant allocation of SDR 5.3 million (equivalent of USD 8million), IDA
disbursements as of 4-Jun-2012 stand at SDR 4.948 million (equivalent to USD 7.75 million), reflecting
approximately 93.38% disbursement. Excluding the DA advance, the disbursement percentage is
currently approximately 91%5. The audit report of the Royal Audit Authority (RAA) included an
observation with regard to the open advances of Nu. 65.725. Substantial part of these advances related
to undergrounding works for the HV transmission lines over the IT Park, most of which were adjusted in
early June 2012.
Procurement. The Project’s procurement rating has been satisfactory. There is no procurement pending
under the existing activities.
5 Percentage calculated on the basis of expenditure recoded in the books of the accounts of the project. Will reflect
in the client connection once the IUFR for the quarter ending June 2012 is recorded by the Loan Department.
15
Annex 2: Arrangements for Results Monitoring
[Achieved]/Target Values Data Collection and
Reporting
Project Outcome Indicators Baseline YR1 YR2 YR3 YR4 YR5 Frequency
and Reports
Data Collection
Instruments
Responsibility for Data
Collection
Cumulative job creation in the
IT/ITES sector in the IT Park or
related activities
0 0 0 175 [269]/350 [778]/700 Annual MIS reports of PIA PIA
Output Indicators
Component 1 - Development of the IT/ITES Sector
1. Cumulative leads generated
for new investments in the IT
Park
0 25 50 100 [140]/150 [201]/200 Annual MIS reports of PIA PIA
2. Number of companies
incubated in the IT Park
0 0 0 0 [0]/5 [7]/5 Annual MIS reports of PIA PIA
3. Percentage of lettable space
leased out
0 0 0 25% [0%]/50% [0]/50% Annual MIS reports of PIA PIA
Component 2 - Development of IT Skills Program
1. Per cent of students clearing
ITES industry competency
assessment that is widely
recognized
0 10% 20% 25% [61%]/35
%
[55.5%]/3
5%
Annual NAC results RUB
2. Per cent of students trained
are successfully employed by
the private sector.
0 <5% 10% 25% [78%]/40
%
[74.8%]/5
0%
Annual Trace study RUB
Component 2 - Strengthening Financial Sector through IT Use
16
1. Number of financial
transactions at BOB by using
ATMs per year
40,000 42,000 44,000 467,430/4
6,000
[871,247]/
600,000
[1,100,00
0]/900,00
0
Annual
statements
provided by
RMA
Report sent to RMA
by commercial banks
RMA
2. % of district coverage for
financial literacy campaign
0% - - -
[30%]/50
%
[100%]/10
0%
Annual
statements
provided by
RMA
Report sent to RMA
by commercial banks
RMA
3. % automation of stock
exchange trading, settlement,
and delivery with straight
through processing.
25% - - - [25%]/75
%
[100%]/10
0%
Annual
statements
provided by
RMA
RMA internal report
on the payment system
RMA
17
Annex 3: Construction Schedule of Undergrounding of HV Power Transmission Line
Construction milestones Initial
Start
Dates
Initial
Completion
Dates
Revised
Completion
Dates
Deposit Work
Advance (Nu)
Expenditure
Till Date (Nu)
Completed
Y/N
Cable trenching civil and associated
works (1.015km) 1-Aug-11 31-Mar-12 30-Sep-12
27,115,735.39 16,408,257.56
N (ongoing)
Laying of HV lines along the cable
trench and associated works
(1.015km)
1-Apr-12 15-May-12 15-Nov-12 N
Construction of retaining wall along a
segment of the cable trenching route
(approx 30 m)
7-Feb-12 31-Mar-12 30-Sep-12 N
Testing and commissioning 16-May-
12 31-May-12 30-Nov-12 N