evaluation highlights 2000 - asian development bank hindustan cables limited ... ppar project...

Abbreviations ADTA advisory technical assistance ANRR agriculture and natural resources research AOTA advisory and operational technical assistance BR Bangladesh Railway CAPE country assistance program evaluation CGIAR Consultative Group on International Agricultural Research CIS communal irrigation system CMS community model school DMC developing member country DOR Department of Roads EA executing agency EIA environmental impact assessment EIRR economic internal rate of return EWH East-West Highway FP family planning GLD guided land development HCL Hindustan Cables Limited IARC international agricultural research center IES impact evaluation study IRP involuntary resettlement policy IUIDP integrated urban infrastructure development project KIP kampung improvement program LGU local government unit LOC line of credit M&E monitoring and evaluation MCPW Ministry of Construction and Public Works MFSC Ministry of Forests and Soil Conservation MNE Ministry of Nature and Environment MPA Maldives Ports Authority NARS national agricultural research system NATHM Nepal Academy of Tourism and Hotel Management NGO nongovernment organization O&M operations and maintenance OEM Operations Evaluation Mission OEO Operations Evaluation Office ONGC Oil and Natural Gas Corporation PCD provincial communication department PCR project completion report PD participatory development PFI participating financial institution PIJF polyethylene insulated jelly filled PME public manufacturing enterprises PPAR project performance audit report PPTA project preparatory technical assistance PRC People’s Republic of China PSE public sector enterprise PSO public service obligation PTA parents-teachers association RETA regional technical assistance RP resettlement plan RRPL Railway Recovery Program Loan SITEN Shanghai SITICO Enterprise Company Limited SITICO Shanghai International Trust and Investment Corporation SMC school management committee STELCO State Electric Company TA technical assistance TCR technical assistance completion report TOR terms of reference TSC tourist service center WSS water supply and sanitation

Evaluation Highlights of 2000 1

Foreword

his publication highlights the find-ings and conclusions of evalua-tion reports completed by theOperations Evaluation Depart-ment (OED) in 2000. Its purpose

is to disseminate information within the AsianDevelopment Bank (ADB) and to the publicat large on matters of general and continu-ing interest on the performance of ADBprojects, programs, and technical assistance(TA), and on ADB’s operational procedures.

In 2000, OED completed 32 major evalu-ation reports. This included 22 project andprogram audit reports (covering 21 projectand sector loans and 5 program loans), 3 TAperformance audit reports (covering 11 TAactivities), 1 reevaluation study, 2 impact eval-uation studies, and 4 special evaluation stud-ies. The type of conclusions drawn from thereports is illustrated by the following. Great-er stakeholder participation in both designand implementation is needed to enhancethe impact and sustainability of targeted pov-erty reduction activities. There is a consider-able risk that program loans will not achievetheir objectives where program design is notbased on sound sector analysis, where thereare too many rigid conditionalities, andwhere the implementation schedule is notadjusted to local conditions and capabilities.The operationalization and institutionaliza-tion of results should be included as a spe-cific TA objective, with greater coordinationbetween agencies and stakeholders. While

ADB’s involuntary resettlement policy has adistinct positive impact on project prepara-tion, this needs to be reinforced throughcompatible national resettlement policiesand enhanced monitoring of implementa-tion.

New guidelines for evaluation of projectswere introduced during 2000. The guidelinesuse five criteria to help provide an overall as-sessment. These criteria are: relevance; effi-cacy; efficiency; sustainability; andinstitutional and other development impacts.The overall assessment is now made in rela-tion to a four category scale: highly success-ful, successful, partly successful, andunsuccessful. These criteria and categoriesare now used uniformly in all project andprogram evaluations.

Evaluation highlights of 2000 providesaccess to the findings and conclusions of thereports in an easily digestible form. It pro-vides a basis for addressing ADB’s account-ability to its developing member countriesand main contributors, and illustrates the les-sons that can be learned from evaluationactivities.

VLADIMIR BOHUN

Director GeneralOperations Evaluation Department

2 Evaluation Highlights of 2000

Prog

ram

/Pro

ject

Perfo

rman

ce E

valu

atio

n Re

ports


he Primary Education SectorProject was only the second fi-nanced by the Asian Develop-ment Bank (ADB) in support ofprimary education. It supported

the Government’s commitment to achievethe twin goals of universal primary educa-tion and the eradication of illiteracy by theyear 2000. At the time of appraisal (1989),more than 70 percent of the country’s 106million people were illiterate, with significantdifferences between males and females, andbetween urban and rural populations. Thegross enrolment ratio at the primary level(ages 6-10) was about 64 percent and thecohort survival rate up to Class 4 was onlyabout 34 percent.

The Project was approved in 1990. Itsoverall objective was to bring about equita-ble access to, and improve the quality andefficiency of, primary education. Equitableaccess was to be achieved through the pro-vision of 272,400 pupil places in 1,050 newschools and 67,000 places in 2,240 nonfor-mal primary education centers, more than90 percent of which were to be located inremote rural areas. Quality was to be im-proved through implementing the revisedcurriculum, training teachers and adminis-trators, providing textbooks, and rehabilitat-ing dilapidated buildings. The Project coveredChittagong Division (later divided into Chit-tagong and Sylhet divisions).

Project formulation and design wereconsistent with, and relevant to, the Govern-

ment’s goals and priorities as well as withADB’s lending strategy. The Project aimed toachieve a number of objectives, specificallyaccess and equity, quality, efficiency, and de-velopment of institutional capacity in prima-ry education. However, aware of limitationsof time, and of financial and other resourc-es, the Government chose access and equityas its primary objective for the subsector atthe time, effectively deferring the attainmentof quality-related objectives. Thus, the Projectessentially became an education-accessproject with ADB partners taking on most ofthe “software components,” i.e., United Na-tions Children’s Fund and United NationsDevelopment Programme for staff develop-ment and local training, Swedish Internation-al Development Cooperation Agency andDirectorate General for Development Coop-eration for nonformal primary education,United Nations Population Fund for familyplanning, and Norwegian Agency for Devel-opment Cooperation for textbook produc-tion.

The total project cost was estimated at$81.6 million equivalent at appraisal of whichthe “hardware” components accounted forabout 70 percent. ADB provided a loan of$68.31 million from its Special Funds resourc-es. The actual cost of the Project at comple-tion was $62.44 million equivalent (76percent of the original estimate). Of thisamount, the Government financed $8.31 mil-lion equivalent (13 percent), and ADB con-tributed $54.14 million (87 percent). The

Primary EducationSector Project

BANGLADESH

The Project was

approved in 1990.

Its overall objective

was to bring about

equitable access

to, and improve

the quality and

efficiency of,

primary education.


Project was completed in January 1997 witha delay of about 12 months. A project com-pletion report, prepared in June 1998, con-cluded that the Project achieved most of theobjectives set at appraisal and rated theProject as generally successful. The assess-ment, while being generally objective, wouldhave been more balanced if it had pointedout the various deficiencies in quality andefficiency which were already evident at thetime of the Project Completion Review Mis-sion.

Primary education enrolment in theproject area rose from 3.96 million childrenin 1991 to 5.08 million children in 1998, anaverage increase of 3.7 percent per annumcompared with the national average of 4.3percent per annum during the same period.Correspondingly, the gross enrolment ratioin the project area rose from 64 to 95.2 per-cent during this period, a significant achieve-ment indeed. The net enrolment ratio wasmuch lower at 80.8 percent, which impliedthat some 1.02 million children in the projectarea who were supposed to be in schoolwere still out of school. Participation of girlsin primary education has already come closeto parity with boys but little has changed withrespect to other disadvantaged groups, par-ticularly ethnic minorities and children inslum areas.

The Government’s strategic choice toprovide access and, to some extent, equityin primary education, took its toll on the qual-ity of education and internal efficiency. Inorder to accommodate the influx of pupilsas a result of the Government campaign foruniversal primary education, all schools inthe country had to go on a two-shift opera-tion, significantly reducing contact hours byabout 45 percent for Classes 1-2 and 50 per-cent for Classes 3-5. Class sizes were also al-lowed to increase to as many as 60-90 pupilsper class. The pupil/teacher ratio rose to59.3:1 nationally, and even as high as 107:1and 91:1 in schools in Chittagong and Sylhet,respectively. The attendance rate remainedlow at 60-65 percent. However, the dropoutrate was reduced from 59.3 percent in 1991to 35 percent in 1998, while the completionrate increased from about 40 to 73 percentduring this period. The increased qualifica-tion levels of teachers did not seem to have asignificant impact on quality under theseconditions. On average, the proportion ofpupils who achieved basic learning compe-tencies was only about 51.4 percent nation-ally, but this was lower in Chittagong andSylhet at 40.6 and 36.3 percent, respectively.The time to complete the primary educationcycle was also reduced from 8.9 years in 1991(due to repetition) to 6.6 years in 1998. Onthe whole, with an 81 percent net enrolmentrate, a 73 percent completion rate, and 51percent of pupils achieving basic learningcompetencies, only about 30 percent of chil-dren leave primary school with the basiclearning competencies.

During the last five years, the share ofbudgetary allocations for government prima-

Primary education

enrolment in the

project area rose

from 3.96 million

children in 1991 to

5.08 million chil-

dren in 1998, an

average increase of

3.7 percent per

annum compared

with the national

average of 4.3

percent per annum

during the same

period.


ry schools has declined significantly and,consequently their share of enrolment num-bers. Most of the growth has been absorbedby nongovernment schools where the Gov-ernment provides only minimal support. Ona per capita basis, the Government spentTk953 per pupil in government schools andonly Tk159 per pupil in nongovernmentschools in 1998. This enabled the Govern-ment to realize significant savings. However,the quality of education is deteriorating. Whatis needed is a quantum leap in investmentsin classrooms and teachers, much more thanwhat is programmed in the Perspective De-velopment Plan. If quality is to be improved,class sizes and the pupil/teacher ratio needto be reduced, and contact hours increased.To achieve this, the Government has to con-tend not only with the incremental growth inenrolment, but also with the backlog, whichis an even more daunting challenge. This isalso a challenge to the Government’s part-ner development agencies, including ADB.

Despite these problems, the Project con-tinues to be relevant and consistent with theGovernment’s priorities as well as with ADB’slending strategy, particularly the overarchingobjective of poverty reduction for Bang-ladesh. The Project has also achieved its pri-mary objective of improving access toprimary education and partly addressed theissue of equity. It has delivered the projectinputs at less cost than estimated and showsvery high utilization of the capital assets putin place, although the overall system efficien-cy is low. Sustainability of the gains achievedremains uncertain because of the magni-tudes of resources still required, particularlyin meeting demands for quality improvement.Other development impacts, especially ongender issues and on community participa-tion, are noteworthy. Given all these consid-erations, the Project is rated as successful.

The Project contin-

ues to be relevant

and consistent with

the Government’s

priorities as well as

with ADB’s lending

strategy, particularly

the overarching

objective of poverty

reduction for

Bangladesh.


uring the early 1990s, the Gov-ernment of Bangladeshimplemented a series of re-forms to improve economicperformance. The objectives

were to (i) create competitive industries, and(ii) enhance private sector development.Complementing the reforms for trade andexchange rate liberalization, the Governmentbegan reforms to reduce its presence inmanufacturing activities. From 1988 to 1990,the Asian Development Bank provided a pol-icy-based loan to introduce policy reforms

for the steel and engineering, textiles, andleather industries. The Second Industrial Pro-gram (the Program) was expected to contin-ue the process of improving the overall policyenvironment to promote industrial growthand efficiency. The new Government’s 1991industrial policy was accompanied by an am-bitious agenda of policy reforms; the Programwas essentially designed to support imple-mentation of this policy as it related to publicmanufacturing enterprises (PMEs). The Pro-gram was also to implement divestment andprivatization measures for selected PMEs.

BANGLADESH

Second Industrial Program

The Government

began reforms to

reduce its presence

in manufacturing

activities.


On 17 December 1991, the Board ap-proved the Program loan for SDR90.456 mil-lion (about $125 million). Three technicalassistance (TA) grants were provided to as-sist the Government with program implemen-tation. The TAs supported (i) development ofa legal framework for institutional reform ofPMEs, (ii) development of modalities andmechanisms for privatization, and (iii) assess-ment of human resources of PMEs and la-bor productivity of the manufacturing sector.

The Program focused on seven majorareas of reforms: (i) minimizing the Govern-ment’s role in the industry sector in generaland in manufacturing in particular, (ii) en-hancing managerial autonomy and account-ability of PMEs, (iii) enhancing financialautonomy and accountability of PMEs, (iv)implementing privatization of PMEs, (v) ra-tionalizing employment, (vi) developing pol-icy actions for the environment, and (vii)supporting institutional reforms to providebetter oversight of PMEs.

The first tranche of SDR45.228 millionwas disbursed in two installments in Febru-ary and April 1992. Because of the consider-able delays in meeting the policy covenants,the second tranche of the loan was canceledon 24 April 1994. The loan was closed in April1994. The program completion report pre-pared in December 1997 rated the Programas unsuccessful.

The program performance audit reportpresents an analysis of the Program’s designand implementation arrangements, an as-sessment of the Program’s effectiveness ininitiating and implementing policy reforms,and overall impact on the industrial econo-my. Although the Government announcedthe new industrial policy in 1991 and initiat-ed wide ranging policy reforms, overall im-plementation has been weak and uneven.Several policy covenants remain unfulfilled.

An important impact expected from theProgram was the reduction of the role of theGovernment and particularly PMEs within theoverall economy. The PMEs’ share in invest-ment, output, value added, and employmenthas been reduced substantially.

A major aspect of PME reform was toprovide a proper legal framework to enable

the PMEs and sector corporations to func-tion as autonomous companies. By June1992, all of the PMEs were to be incorporat-ed under the Companies Act. This legalchange was seen as the starting point for re-structuring, as it freed the existing PMEs fromheavily regulated procurement processes,and labor and pricing procedures. It wasexpected that such autonomy would help tomake PMEs commercially viable. The Gov-ernment did not agree with a crucial policycovenant of giving PMEs the autonomy toallow market wages for their employees. Asa result, although most PMEs now exist ascompanies, overall autonomy of their boardsremains weak. The financial performance ofPMEs continues to remain an area of con-cern as PMEs continue to report large loss-es. The overall financial liabilities of PMEs also


remain high. The Program was not success-ful in reducing the negative fiscal burden ofPMEs.

While the Program specified variousmeasures for privatization of PMEs, overallimplementation has been very slow and re-mains largely incomplete. Only three unitswere privatized during program implemen-tation, compared with the target of substan-tial divestment of 14 units and privatizationof 20 textile mills.

The audit report identifies three majorissues as determinants of program perfor-mance: (i) program formulation and designweaknesses, (ii) ownership and politicalcommitment, and (iii) accountability andgovernance structure. The Program wascomplex because it aimed to reform a sec-tor that had chronic performance problems.The Program had several design deficiencies,and did not incorporate in-depth analysis ofinstitutional structures and government pro-cesses to identify barriers to reforms.

Policy reforms usually require strongpolitical commitment and ownership. TheProgram was formulated, processed, andimplemented by different governments.While high-ranking officials did exhibit someownership at times, this ownership was nei-ther widespread nor retained throughout theprogram. Even for the TAs there was only lim-ited ownership, by the Government and thePMEs. The TAs helped to identify importanttasks, but only during implementation. By thetime most of the TA reports were finalized,the Program had already missed major per-formance milestones and hence the overallimpact of the TAs was limited.

Poor motivation, combined with inade-quate skills and little accountability, usuallylead to implementation problems. Success-ful reforms require a strong governancestructure with clear and effective account-ability. Thus, it is important to address gover-nance and accountability simultaneouslywith civil service reforms when widespreadpolicy reforms are being introduced at thesector level.

Because the policy reforms identifiedunder the Program remain largely unfulfilled,the Program is rated as unsuccessful. Pro-

gram implementation provides four impor-tant lessons:(i) Program loans with difficult policy re-

forms need to build an explicit compo-nent aimed at strengthening stakeholderpartnership and thus create a demandfor the reforms.

(ii) Introducing policy reforms in a develop-ing economy is a complex process andthe new lending instrument—programcluster loans—with targeted resourcetransfer linked to performance seemsmore appropriate.

(iii) A robust system of monitoring within theGovernment is very important and needsto be built in explicitly. Resources maybe provided for this.

(iv) Privatization and restructuring of PMEsrequire a high level of political commit-ment, and hence an in-depth politicalanalysis of the feasibility of the reformprograms is an important prerequisite.Because there is residual sympathy forthe public sector in Bangladesh, thisneeds to be targeted at multiple levels ifany major change is to be broughtabout. Only when civil society becomesmuch more demanding for reforms andmodernization in Bangladesh, reformswill take roots.TAs aimed to support implementation

and capacity building must have realistictimetables. Most of the diagnostic analysispertaining to identifying implementation con-straints need to be completed prior to majormilestones.

Although the Program has contributedin opening up the economy indirectly, theGovernment has been unable to remove thestructural constraints preventing PMEs fromfunctioning as commercial units. It needs todevelop a credible and time-bound actionplan to deal with these constraints and ac-celerate the process of privatization. Im-proved access to financial resources iscrucial for promoting the private sectorgrowth and diversity needed to remove wide-spread poverty in Bangladesh. Since PMEscontinue to account for a large share of non-performing assets, the Government mustaddress this issue.

Although the

Program has con-

tributed in opening

up the economy

indirectly, the

Government has

been unable to

remove the struc-

tural constraints

preventing PMEs

from functioning

as commercial

units.


ver the last decade, respon-sibility for Bhutan’s road net-work has been graduallytransferred from the IndianBorder Roads Organization

(IBRO) to the Department of Roads (DOR) ofthe Ministry of Communications. At projectformulation, there was an urgent need to re-duce the substantial backlog of periodicmaintenance, which had built up since DOR

took over maintenance of a number of na-tional roads from IBRO in 1989, including theEast-West Highway.

The East-West Highway MaintenanceProject was formulated through a feasibilitystudy financed by the Asian DevelopmentBank (ADB), which identified periodic main-tenance interventions for selected sectionsof the project road. The condition of the roadsurface varied from section to section, rang-

BHUTAN

East-West HighwayMaintenance Project


ing from good to disintegrating. Althoughmany road sections were in need of completerehabilitation and reconstruction, they werenot included in the project scope, because thecost of repairing them would have exceededthe envisaged loan amount. The project scopecomprised (i) periodic maintenance works on396 kilometers (km) of the 546 km road, (ii)strengthening and maintenance works on fivebridges on the East-West Highway,(iii) consulting services to assist DOR with pre-construction activities and construction su-pervision, (iv) institutional strengthening ofDOR through the development of a road main-tenance management system (RMMS), and (v)strengthening DOR’s institutional skills in plan-ning road maintenance works and adminis-tering contracts. The Project also helped toestablish a capacity for mechanized periodicmaintenance in Bhutan.

Given the physical and institutionalneeds of the roads sector, the Project as con-ceived at appraisal and evaluated after sev-en years was, and still is, highly relevant. TheProject’s inclusion in the ADB country assis-tance plan was merited not only for econom-ic reasons but also because the project roadis the only east-west transport artery withinBhutan. Although motorized traffic on theroad has been low and traffic growth mod-erate, the road is important because of itsstrategic role within the overall road networkof the country. Overall, the Project’s rationaleof combining physical improvements withcapacity building remains highly relevant.

Project implementation was scheduledover 48 months from July 1993 to June 1997.Actual implementation took only 46 monthsfrom March 1994 to December 1997. Precon-struction activities suffered a seven-monthdelay due to the delayed recruitment of thesupervision consultants who were to assistwith these activities. Further delays arose dueto the initial poor response to the invitationto tender for the works and the subsequentcontract negotiations with the selected con-tractors. The Project finished on time largelybecause of a reduction in project scope dur-ing implementation.

Total project cost was $6.52 millionequivalent, compared with $6.51 million

equivalent estimated at appraisal. However,this comparison is somewhat misleading:with a reduction in the scale of civil works byabout 35 percent, there was a substantial in-crease in the cost of civil works per kilome-ter. The final cost of the road works was $5.54million, an increase of about 24 percent overthe appraisal estimate. The average cost perkilometer was $21,400 compared with theappraisal estimate of $11,300, an increase of89 percent.

The rise in the cost per kilometer was dueto a rapid deterioration of the road surfacebetween the time of the feasibility study andproject implementation. When constructionfinally commenced, many of the road sec-tions had deteriorated to a state where theperiodic maintenance interventions pro-posed by the feasibility study were no longerappropriate, so the location and nature ofcivil works were revised considerably.

An accurate assessment of project effi-ciency (i.e., actual and expected project ben-efits in relation to project inputs) isproblematic because of the lack of baselinedata, the delays in project implementationthat caused a shift in project scope, and thegeneral difficulty of formulating a more veri-fiable counterfactual scenario. Nonetheless,given the strategic significance of the roadand the fact that further deterioration wouldhave rendered the road unusable, isolatingvast areas of the country, any intervention toimprove the current situation would haveyielded very high economic returns.

Institutional development is a learningprocess and the Project laid the foundationfor future efforts. However, it did not directlyand noticeably enhance institutional devel-opment. The road maintenance manage-ment system chosen for the Project isunsuitable to conditions in Bhutan. DOR’sskills in contract management were strength-ened, but the number of staff available forcontract management and the supervisionof civil works is insufficient. The Project sup-ported the Government policy of transform-ing DOR into a supervisory body anddelegating traditional DOR functions to theprivate sector. Through policy dialogue, theProject attempted to increase cost recovery

The Project’s inclu-

sion in the ADB

country assistance

plan was merited

not only for eco-

nomic reasons but

also because the

project road is the

only east-west

transport artery

within Bhutan.


and budget allocations for road mainte-nance. While cost recovery remained elusive,some progress was made in increasing bud-get allocations.

The reconstruction and drainage im-provements made under the Project willlengthen the life of the pavement. Otherproject interventions were designed to pro-tect the pavement for a limited period that isnow about to expire. Some of the road sec-tions covered by the Project are already show-ing signs of deterioration, needing anotherround of periodic maintenance. The sustain-ability of the Project’s institutional efforts hing-es on the willingness and ability of DOR andADB to continue the learning process thatwas started under the Project. It is reassuringthat ADB is processing another project tosupport the roads sector.

The Project as a whole did not fully meetits objectives, but overall project perfor-mance is rated successful. The physical tar-gets set at appraisal were only partly achieved.However, the shift made during implementa-tion to heavier maintenance interventions

was generally consistent with the Project’spurpose of reducing the backlog of repairs.The Project only partly met the objectives ofpromoting the institutional development ofDOR and building capacity in the roads sec-tor at large. Maintenance management im-proved marginally and construction super-vision and contract management remain ar-eas of concern.

The Operations Evaluation Mission hasidentified the following key issues:(i) Many weaknesses in the design of the

Project and its implementation were skirt-ed or overlooked by the project comple-tion report (PCR). This raises the generalissue of self-evaluation and the PCR’svalue as a learning tool.

(ii) Since road conditions in Bhutan changequickly and unpredictably, the recom-mendations of the feasibility study wereno longer fully relevant when the Projectbegan. The type of interventions repre-sented straightforward maintenancework, for which a full-fledged feasibilitystudy may not have been necessary. De-

The shift made

during implemen-

tation to heavier

maintenance inter-

ventions was gen-

erally consistent

with the Project’s

purpose of reduc-

ing the backlog of

repairs.


tailed engineering just before the com-mencement of works may have sufficed.

(iii) Reconstruction was excluded from theoriginal design, although its urgency wasknown at appraisal, raising the questionof how the accumulating repair needson this strategic road were to have beenaddressed. This is a programming con-cern, which could have been dealt withby appropriately sequencing ADB’s as-sistance and breaking it up into severalinterventions.

(iv) Efforts are under way to transform DORinto a regulatory agency and delegate itscurrent operational functions to the pri-vate sector. ADB supports this policy. Giv-en the shortage of trained engineers inBhutan, the private sector would be like-ly to recruit the few skilled staff of DOR. Itis unclear who in DOR should regulatethe industry if many of its staff migratedto the private sector.The key lessons from ADB’s project ex-

perience include the following:(i) Given the situation in Bhutan, project

designs need to provide flexibility duringimplementation. A design that includedonly three types of periodic maintenanceinterventions has proven to be too rigidand impractical. In hindsight, a sector-type approach would have avoided manyof the ad hoc adjustments and the con-fusion that arose from them. By dividingthe work into subprojects to be imple-mented on a rolling basis, the Projectwould have been less susceptible to therisks inherent in a rigid design.

(ii) The fact that urgently needed reconstruc-tion was excluded from the original de-sign shows that the design was drivenmore by the given loan amount than by

needs. The strategic significance of theproject road and the substantial back-log of repair work should have been as-certained during the country assistanceplan process. A longer-term programrather than a one-off project should haveensued from this consideration.

(iii) ADB’s general policy of financing su-pervisory services from loan fundswas not followed, to the detriment ofthe Project. ADB should stress the im-portance of professional constructionsupervision and should insist on loanfinancing as this would help instill asense of ownership and responsibilityin the executing agency.

(iv) The RMMS followed a rigid approach toinstitutional development, without adap-tation to local conditions, and the sys-tem installed under the TA was not asuccess. While Bhutan needs an infor-mation system for the management ofroad maintenance, ADB in consultationwith DOR should have exercised greaterdiligence in identifying the main designfeatures of the system in the light of theirsuitability for the special conditions ofBhutan.

(v) There are obvious intrinsic merits in themaintenance of assets, but the mainte-nance interventions under the Projectwere given an extra economic justifica-tion. Given the unnecessary and largelyunverifiable nature of the assumptionsmade, ADB should abandon the practiceof such tautological economic analysis.The economic evaluation for road main-tenance projects should focus on thetimeliness and cost-effectiveness of theproposed interventions.

Given the situation

in Bhutan, project

designs need to

provide flexibility

during implemen-

tation. A design

that included only

three types of

periodic mainte-

nance interven-

tions has proven

to be too rigid and

impractical.


he Special Rehabilitation Assis-tance Project was the first projectassistance provided by an inter-national donor after the signingof the international peace agree-

ment on Cambodia (the Paris Accord) inOctober 1991. After two decades of war andcivil strife, the country was in urgent need offinancial support to meet basic humanitari-an needs and remove critical physical andsocial infrastructure bottlenecks. The re-sponse of the Asian Development Bank(ADB) was quick and decisive. The Projectwas prepared as an emergency loan in ac-cordance with ADB’s policy on rehabilitationassistance after disasters.

The Project was to assist the Governmentof Cambodia repair and restore essential eco-nomic and social infrastructure to forestallfurther deterioration of basic public services,and reestablish a sustainable degree of eco-nomic and social stability in the country as abasis for future reconstruction efforts. TheProject covered the rehabilitation of criticalphysical and social infrastructure in four sec-tors: transport, power, agriculture, and edu-cation. Each project component compriseda set of subcomponents and subprojects. Asector-type approach was adopted to per-mit flexible adjustment of project scope andreallocation of loan proceeds between sec-tors.

CAMBODIA

Special RehabilitationAssistance Project

The Project covered

the rehabilitation

of critical physical

and social infra-

structure


The project cost was estimated at $77.8million at appraisal, financed by a loan ofSDR47.9 million (equivalent to $67.7 million)from ADB’s Special Funds resources. Twotechnical assistance (TA) grants ($7.4 million)were attached to the loan to finance projectimplementation consultants, including cofi-nancing from the Swedish International De-velopment Cooperation Agency ($3.2million). The remaining $2.7 million was fi-nanced by the Government. The actualproject cost was $80.8 million, including asupplementary TA ($2.6 million) approved in1995. The Project was implemented from1993 to 1997, delayed by one year.

The Project was in accordance withADB’s operational strategy at appraisal, whichfocused on meeting the country’s urgentneeds for immediate rehabilitation of key in-frastructure components. The Project is alsoconsistent with ADB’s current operationalstrategy, which focuses on pro-poor eco-nomic growth and provision of an enablingenvironment (including physical infrastruc-ture) for private sector participation in devel-opment. Except for the agriculturecomponent, the selection of the Project’scomponents was appropriate. Strengths ofthe project design included the sector-loanapproach that provided flexibility in projectimplementation, a cost-effective approachthat maximized the Project’s outputs withinthe given budget, and the mobilization of oth-er donor assistance to finance the consult-ants, which enabled expeditious projectdelivery. However, the Project included a fer-tilizer subcomponent that was less relevant.The target of the irrigation rehabilitation wasunrealistic as the irrigation schemes in Cam-bodia, due to their originally poor technicaldesign, could not be quickly fixed under theemergency loan.

Most of the project outputs envisaged atappraisal were largely achieved with minorexceptions. The field inspections of the Op-erations Evaluation Mission (OEM) foundgood quality for most project facilities, includ-ing roads, port facilities, power generatingunits and distribution system, school build-ings, and four irrigation systems. While mostproject outputs fulfilled the Project’s objec-

tive of removing the bottlenecks in the keyinfrastructure components, the provision offertilizer did not achieve the Project’s objec-tive and the achievement in the irrigation re-habilitation subcomponent was substantiallybelow what was expected at appraisal.

The Project was prepared in 10 monthswithout a project preparatory technical as-sistance (PPTA) and implemented with mod-erate (one year) delays in spite of the difficultcountry conditions, including security prob-lems. The government agencies performedwell in project implementation. Due to thenature of rehabilitation that treated the exist-ing structures as sunk costs, most investmentunder the Project resulted in high economicreturns, as confirmed by the OEM’s calcula-tion of the economic internal rate of return(EIRR) for typical subprojects. Inefficiencywas found in some minor items, which ac-counted for less than 10 percent of the totalproject cost.

The Project’s sustainability is unsatisfac-tory. In particular, most roads (the single larg-est investment under the Project) have notbeen properly maintained due to the lowdesign standards, the lack of operations andmaintenance (O&M) policy and procedures,inadequate O&M funds, and weaknesses inthe agencies responsible for road mainte-nance. The four irrigation schemes rehabili-tated under the Project also suffered frominsufficient O&M funds and institutional de-ficiencies.

The Project had a positive impact on thegovernment agencies in terms of establishedmanagement systems and enhanced staffcapacity. The private sector also developedits capacity through engaging in subprojectimplementation. The Project’s impact onbeneficiaries, however, was minimal as theProject did not include a component to or-ganize beneficiary groups. The Project did nothave negative environmental impacts and thepower component had a noticeable positiveimpact on the environment by replacing alarge number of inefficient small generators.

Overall, the Project is rated successful.The performance of both ADB and the Gov-ernment is rated satisfactory. ADB deliveredthe Project in just 10 months, enabling the

The Project had a

positive impact on

the government

agencies in terms

of established

management sys-

tems and en-

hanced staff

capacity. The pri-

vate sector also

developed its ca-

pacity through

engaging in sub-

project implemen-

tation.


international community to provide the ur-gently needed assistance to Cambodia only13 months after the signing of the Paris Ac-cord. ADB contributed to smooth projectimplementation through intensive supervi-sion by review missions. The Governmentwas generally in compliance with the loancovenants, except for two covenants relat-ing to timely provision of counterpart fundsand maintenance of project facilities. TheMinistry of Planning and the ImplementingAgencies performed well in project imple-mentation.

The Project’s socioeconomic impact wassignificant. It provided urgently needed roadaccess for local residents, travelers, as wellas the commercial and industry sectors. TheSihanoukville Port, after rehabilitation, playeda key role in facilitating the inward and out-ward flow of goods for the country and con-tributed to economic recovery. The powercomponent increased generating capacity inthe capital city and reduced system losses.The reliable power supply benefited house-holds and facilitated private sector develop-ment. The education component relievedthe key constraint of overcrowded class-rooms and contributed to the restoration ofnormal operations in 67 schools. While theProject’s impact on the agriculture sectorwas small as the irrigation subcomponentrehabilitated only 2.5 percent of the coun-try’s irrigated area, its socioeconomic impacton the four subproject sites was demonstrat-ed by increased rice production and employ-ment. Overall, ADB’s timely delivery of theProject was highly appreciated by the Gov-ernment and other international donors.

Key issues were identified. First, the ur-gent need for expeditious delivery of emer-gency assistance brings about risks in projectquality caused by the limited time and infor-mation available for project processing. TheProject’s experiences showed that it wasworthwhile to take the risks as the Project’sbenefits and development impacts far ex-ceeded its investment costs and problems.Furthermore, the risks in project design couldbe mitigated by timely adjustment of projectdesign during implementation. Weakness ingovernment implementation capacity could

be overcome by intensive use of experiencedconsultants.

Second, the sustainability of most projectroads is poor, with causes including (i) gov-ernment inability to control overloadedtrucks, (ii) a lack of an appropriate O&Mmechanism, (iii) insufficient O&M budget,and (iv) distorted incentives that led to gov-ernment officials focusing on investmentprojects instead of O&M. These sectoral is-sues require long-term efforts from the Gov-ernment and international donors. TheGovernment needs to review its O&M policyand mechanism. The design of futureprojects needs to develop O&M proceduresand strengthen O&M agencies, includingprovision of O&M equipment. Given the real-ity that the Government is unable to providesufficient O&M funds for all investmentprojects in the near future, the establishmentof an O&M endowment fund may deserveconsideration. Each investment project couldset aside 20-25 percent of its funds, depositthem into the fund, and use the interest earn-ings from the fund exclusively for O&M.

Lessons relating to the design and im-plementation of emergency loans include thefollowing. First, emergency loans should notinclude components with complicated is-sues that require long-term studies and prep-aration. Second, emergency loans shouldadopt a “process approach” to permit flexi-ble adjustment of project design during im-plementation. Third, special treatmentshould be given to emergency loans whennecessary, including intensive use of consult-ants, ADB financing of most or even all projectcosts, and ADB financing of O&M funds for afixed period. Last, follow-up projects couldbe prepared in parallel with emergency loansto address policy and institutional issues andsustain the benefits of the emergency loans.

The Project’s socio-

economic impact

was significant. It

provided urgently

needed road ac-

cess for local resi-

dents, travelers, as

well as the com-

mercial and indus-

try sectors.


n December 1988, in line with its in-terim operational strategy on thePeople’s Republic of China (PRC), theAsian Development Bank (ADB) ap-proved a $100 million line of credit

(LOC) to the PRC. It was relent to ShanghaiInternational Trust and Investment Corpora-tion (SITICO), the Executing Agency, for on-lending to industrial enterprises in ShanghaiMunicipal Zone for technology upgradingand rehabilitation of obsolete and inefficientplant and machinery. A line of equity (LOE)of $3 million was also approved for Shang-hai SITICO Enterprise Company Limited(SITEN), a subsidiary of SITICO, to make in-vestments in majority privately owned enter-prises in industry or service sectors tosupport the Government’s efforts in encour-aging foreign direct investment and technol-ogy transfer. A technical assistance (TA) grantof $450,000 was provided under the JapanSpecial Fund to help build institutional ca-pacity. The objectives of the Project were to(i) help finance technology upgrading of vi-able enterprises, (ii) strengthen the role ofthe SITICO group as a major source of equityfinancing through SITEN, and (iii) guide andcontribute to further development of SITICOand SITEN.

The loan, to be drawn in various curren-cies equivalent to $100 million based on ADB’sforeign exchange risk pooling system, wasfunded from ordinary capital resources andattracted a variable interest rate. The loan had

a term of 15 years including a grace period ofthree years. SITICO was expected to add aminimum spread of 1 percent and pass oninterest rate and exchange rate risks to thesubborrowers. The loan utilization periodwas four years, and the maximum size of thesubloans was $10 million. The subprojectsponsors were required to contribute 15percent of the total subproject cost for exist-ing projects and 20 percent for new projects.Expenditure incurred by subborrowers upto 90 days prior to receipt of subloan docu-ments by ADB was eligible for financing un-der the LOC.

The project completion report (PCR), al-though fairly candid and objective, did notspecify an overall performance rating for theProject, but stated that loan utilization andsubproject performance were generally sat-isfactory. With the benefit of hindsight, it in-dicated that the covenants should have beendesigned to cater to the specific needs ofnonbank financial institutions in the PRC. Inparticular, the PCR illustrated that covenantsshould have insisted on institutional indepen-dence of SITICO, clearly defined reserves fordoubtful debts, and specified more realisticfinancial ratios for SITICO given its rapid ex-pansion. The Operations Evaluation Missiongenerally agrees with the PCR, but believesthat it could have better analyzed the infor-mation available at the time to draw moremeaningful lessons for future projects. Thisevaluation focuses on (i) effectiveness of

Shanghai Investment andTrust Corporation Project

PEOPLE’S REPUBLIC OF CHINA


project design, (ii) achievement of objectives,(iii) capacity building, (iv) monitoring andsupervision, (v) performance of SITICO,(vi) performance of subprojects, and (vii)development impacts and sustainability.

The project design incorporated flexibil-ity on retroactive financing and subloan sizelimits that were responsive to potential de-mand. However, the design had some weak-nesses as well. It followed the traditional LOCapproach without adaptation suited to aneconomy in transition. Also, it was inappro-priate to pass on the foreign exchange riskof a long-term loan to subborrowers with-out access to any risk mitigation mechanism.Market conditions at the time made utiliza-tion of the LOE under ADB’s guidelines im-practical. Finally, the Project concentratedonly on the credit needs of the enterprisesand did not ensure that they would operatein an appropriate enabling environment tosustain their transition to a market economy.

All 23 subprojects financed under theLOC were sponsored by state-owned enter-prises in various industry sectors. To a large

extent, the subprojects were successful inupgrading their equipment and surviving thetransition to a market economy. The timingof the financing for the Project was oppor-tune, as the LOC became effective whensome other sources of foreign currency loanshad virtually dried up. In the absence of theloan, these state-owned enterprises wouldhave faced difficulty in maintaining efficientproduction given the obsolete state of theirmachinery and technology. During imple-mentation, however, several subloans had tobe restructured due to severe financial prob-lems caused by exchange rate adjustments.

The TA provided consultancy services fora total of 12 months to SITICO and SITEN forproject appraisal, monitoring, and supervi-sion, as well as financial planning and liabili-ties management. It also provided overseastraining for 13 middle managers in projectappraisal and supervision, which appears tohave been successful. Some of the staffmembers who received the overseas train-ing are now in key management positions.The first computer hardware and software

The project design

incorporated flex-

ibility on retroac-

tive financing and

subloan size limits

that were respon-

sive to potential

demand.


system for financial management was alsoset up as a result of the TA.

SITICO’s operations witnessed signifi-cant growth in the 1990s in its various linesof business. Since 1997, SITICO has been pro-active in its asset management, focusing onquality by tightening risk management, reclas-sifying assets, adjusting its credit structure,and improving its portfolio quality and returnon capital. It streamlined its operations, di-versified investments, strengthened institu-tional capacity, and improved operationalstrategies and practices in several areas, in-cluding project appraisal and managementinformation systems. Given normal circum-stances, it is likely that SITICO will be able tosurvive competition and invest prudently inthe PRC’s changing environment.

The overall Project is rated successful.However, the overall assessment is at the low-er end of what constitutes successful due tothe weaknesses in design that affected theefficacy of the Project. With ADB’s interimoperational strategy, its objectives were ap-propriate at the time it was formulated. Amajority of the subprojects that benefitedfrom the financing are operating normally.Some subprojects faced difficulties and SIT-ICO has helped them survive. SITICO, as aninstitution, has fared relatively well and hasgained prominence in certain areas such asinvestment banking, aided by project inputs.In addition, the TA was helpful in building in-stitutional capacity of SITICO through themanagement information system and finan-

cial management upgrades and human re-source development through training. TheLOE was premature and was not utilized.

ADB projects of a similar nature in transi-tion economies should move away from thetraditional LOC design, carefully consider theconstraints and needs of enterprises in a tran-sition economy including their ability to copewith reforms, and provide for associated riskfactors. They should also ensure, throughpolicy dialogue, project design, or donor co-ordination that not only are enterprises’ creditneeds met but also that they have an en-abling environment to sustain their transitionto operating in a market economy.

Several enterprises operating in theShanghai Municipal Zone lack operationalautonomy and commercial viability. The Gov-ernment needs to undertake restructuringof these, encourage more autonomy in man-agement, and ensure that they have appro-priate links within and outside the PRC torespond to technological changes and mar-ket conditions. Current procedures followedby international trust and investment com-panies promote unhealthy and distorted de-lays in portfolio cleanup. The Government,in addition to reviewing its Bankruptcy Law,should require international trust and invest-ment companies to reclassify their assetsaccording to standard international account-ing practices and allow them the freedom toallocate sufficient provisions before profit todepict an accurate picture of their financialposition.

SITICO has taken significant steps to re-organize its structure so as to achieve itsmarket potential and is further automatingits business processes using the latest tech-nology to become competitive in its businessniche. To continue its focus on prudent andefficient operations, it should (i) strive to usestaff with specialization in handling problemaccounts and managing nonperformingloans, (ii) increase the level of loan-loss pro-visions, and (iii) effectively carry out loan andinvestment monitoring through the use of arisk-rating system capable of providing earlywarning signals and of segregating problemassets at an early stage.

Given normal

circumstances, it is

likely that SITICO

will be able to sur-

vive competition

and invest pru-

dently in the PRC’s

changing environ-

ment.


oth expressway projects are lo-cated in the northeast prov-inces of Jilin and Liaoning of thePeople’s Republic of China. TheJilin Expressway Project from

Changchun to Siping was part of the priorityNational Trunk Highway System programunder the Eighth Five-Year Plan (1991-1995),which targeted highways where traffic con-gestion on the existing trunk roads was hin-dering regional economic activity. The

Shenyang-Benxi Highway Project, located inLiaoning Province, was the first expresswayfinanced by the Asian Development Bank inthe People’s Republic of China. Classifiedoutside of the first priority National TrunkHighway System, it aimed at providing infra-structure support for the continued econom-ic and social development of Dalian-Shenyang and Shenyang-Benxi corridors andthe adjacent hinterland. Both projects arereviewed in the same project performance

Shenyang-Benxi Highwayand Jilin ExpresswayProjects

PEOPLE’S REPUBLIC OF CHINA


audit report in light of their joint contributiontoward the development of the country’snortheast transport corridor and of the com-mon issues facing them. These issues relateto cost-recovery objectives through toll rev-enues, corporatization and asset securitiza-tion, and sustainability of operation andmaintenance (O&M) as linked with the issueof the corporate management setup of theexpressways.

The main objectives of the Jilin Express-way Project were to (i) reduce traffic on ex-isting roads, (ii) improve access of thehinterland economy to Dalian Port, and (iii)reduce congestion on the overburdened rail-way by diverting traffic to the expressway.The Project comprised (i) construction of a133.3-kilometer four-lane, limited-access tollexpressway connecting the cities of Sipingand Changchun; (ii) procurement of equip-ment and facilities for construction supervi-sion, road maintenance, road safety, andcommunications; and (iii) consulting servic-es for construction supervision and training.In addition, 32 person-months of technicalassistance (TA) and 20 months of overseastraining were provided to assist the Govern-ment formulate policy reforms and to assessthe institutional support needs of the roadsubsector.

The Shenyang-Benxi Highway Projectwas designed to improve the efficiency andcapacity of the road transport network in thearea and the adjacent hinterland. The Projectcomprised (i) construction of a 75-kilome-ter, four-lane, controlled-access toll express-way from the provincial capital of Shenyangto Benxi and onward to Nanfen; (ii) procure-ment of equipment for road monitoring, roadsafety, and communication; and (iii) consult-ing services for construction supervision andtraining. Two TA grants comprising a total of42 person-months were provided to (i) rec-ommend improvements in the finance andoperations of the expressways managementbureau and assist in the development of moreefficient vehicle inspection systems andweight regulation programs, and (ii) formu-late a provincial highway network plan cov-ering key aspects of highway and roadtransportation in Jilin Province.

The rationale for both projects wassound, taking into account the priority givento development of the northeast transportcorridor to provide quick, efficient access toand from the northeast hinterland to majormaritime ports at Dalian and Dandong. Bothprojects benefited from competent execut-ing agencies, complemented by effective su-pervision of civil works implementation, andfrom capacity-building management relatedto timely execution of civil works projects.

The Jilin Expressway Project fullyachieved its target in terms of cost-effectivecompletion within budget (at $423.5 millionequivalent) and 15 months ahead of sched-ule, all the while generating the anticipatedbenefits. Economic and social welfare gainsassociated with faster travel times, reducedvehicle operating costs, and enhanced eco-nomic progress all contributed to generat-ing a fairly robust economic return as perthe reestimated economic internal rate ofreturn of 12.5 percent. The correspondingfinancial performance at 10.4 percent is anacceptable measure of the degree of finan-cial cost recovery attained through toll-basedrevenues.

Shenyang-Benxi Highway, with an eco-nomic internal rate of return of 4.9 percent,has not achieved an equivalent level of effi-ciency owing to higher capital costs ($166million, 21.3 percent over budget) and low-er-than-anticipated economic benefits aris-ing essentially from a more modest trafficvolume and lower rates of traffic diversionfrom either rail or competing alternative high-way modes in the transport corridor. In fi-nancial terms, this expressway, with amarginally negative financial internal rate ofreturn of –0.5 percent, has fallen consider-ably short of its objectives over the initial pe-riod of operations, given the lower-than-anticipated traffic base due partly to noncom-pletion of the projected expressway exten-sion from Nanfen to the port of Dandong.

The physical and the financial sustain-ability of both projects are high. A sufficientflow of funds generated by toll revenues fromboth expressways, combined with the pro-vincial communication departments (PCDs)commitments from other conventional user

The main objec-

tives of the Jilin

Expressway Project

were to reduce

traffic on existing

roads, improve

access of the hin-

terland economy

to Dalian Port, and

reduce congestion

on the overbur-

dened railway by

diverting traffic to

the expressway.


charges, can easily cover O&M and periodic/rehabilitation costs for the two projects, inaddition to meeting debt service require-ments. Both facilities constitute key elementsof the northeast region’s primary infrastruc-ture and, in recognition of their strategic eco-nomic importance, have clearly benefitedfrom sustained O&M efforts. There is full in-stitutional support and commitment to en-suring near-optimum physical performanceof both expressways, the partial exceptionbeing the recurrence of transverse and lon-gitudinal cracks along the surface pavementarising from thermal shrinkage.

The institutional strengthening of the re-spective provinces’ PCDs, responsible forexpressway management enhanced man-agement capabilities through on-the-jobtraining in project management, contractadministration, traffic engineering, and tolloperation management. The TA outputs as-sociated with the Jilin Expressway Projectwere instrumental in providing Jilin’s PCDwith the skills and information that led to thesuccessful launching of the corporatizationinitiative. On the other hand, corporatizationwas not an option pursued by the LiaoningPCD for the Shenyang-Benxi HighwayProject. Other positive impacts include unin-tended socioeconomic impacts (such astourism development) and the facilitation ofhigh-speed containerized traffic (not men-tioned in the appraisal reports).

On considerations of relevance, effica-cy, efficiency, and sustainability, the Jilin Ex-pressway Project is rated highly successfuland the Shenyang-Benxi Highway Projectsuccessful.

There is virtually full compliance withloan covenants in both projects, except forthe insufficient project benefit monitoringand evaluation of data collection. Althoughboth Liaoning and Jilin PCDs have set up sev-eral separate information systems, there ex-ist as yet no complete systems of projectbenefit monitoring and evaluation of datacollection and monitoring in either Jilin orLiaoning PCDs.

Key issues for the future include corpo-ratization and asset securitization, which are

linked with the attainment of the full-cost-recovery objectives of the expressway man-agement bureaus. Notably absent in currentexpressway management planning is theexplicit tracking and earmarking of toll rateprices and associated revenues toward fullcost recovery of highway development costs.Another related issue, germane to the Liaon-ing Expressway Management Bureau, is therelative unattractiveness of corporatizationas a vehicle for mobilization of capital fund-ing for future expressway projects.

The lessons learned include the lack of aproper economic appraisal methodologyapplied to the Shenyang-Benxi HighwayProject, an omission that was, however, cor-rected in the preparation of the follow-upChangchun-Siping Project, as well as bench-marking of indicators for project economicand social impact evaluation.

Pavement cracks and ice slab formationinside tunnels, which have occurred in thetwo project expressways, should call atten-tion to the need for improved and adaptedroad pavement design when an expresswayproject is located in northern low-tempera-ture areas. Likewise, the Operations Evalua-tion Mission has observed that there is noproper pavement management system cur-rently used for the two expressways. As afollow-up action, a properly designed pave-ment management system, including datacollection equipment, should be introducedby the Executing Agencies for the express-ways’ management and maintenance.

Pavement cracks

and ice slab forma-

tion inside tunnels,

which have oc-

curred in the two

project express-

ways, should call

attention to the

need for improved

and adapted road

pavement design

when an express-

way project is lo-

cated in northern

low-temperature

areas.


he operational strategy for Indiaof the Asian Development Bank(ADB) in much of the 1990s wasto assist the Government achieveincreased economic efficiency

through support for structural reforms, pro-motion of competition, and private sectorparticipation. The Hydrocarbon Sector Pro-gram (HSP) loan was consistent with thisstrategy. It was also part of international do-nor efforts to support India to diffuse its bal-ance-of-payment crisis caused by thedrying-up of short-term credits and the surge

of oil import costs due to the sharp oil priceincreases caused by the Gulf crisis.

On 17 December 1991, the Board ap-proved the program loan for $250 million tobe disbursed in two tranches. In addition,cofinancing of $250 million from the Over-seas Economic Cooperation Fund of Japanwas solicited and obtained, and two techni-cal assistance (TA) grants were provided tosupport the design and implementation ofthe Program. The first TA, for $200,000, ex-amined the performance of the public sec-tor in oil refining, distribution, and marketing

Hydrocarbon SectorProgram Loan

INDIA


activities, and the second TA, for $400,000,aimed to identify ways of promoting privatesector investment in downstream activities.

The main objective of the Program wasto promote accelerated exploration and de-velopment of domestic hydrocarbon re-sources through increased participation ofthe private sector and enhanced operation-al efficiency of public sector enterprises(PSEs). Specifically, the Program aimed tocontain the share of oil imports in total oilconsumption at the 1991 level (45 percent).The Government considered the objective oflong-term oil import substitution as impor-tant from the viewpoint of reducing pressureon the foreign currency reserve as well asthe country’s strategic self-reliance. Thescope of HSP was to cover major areas in-cluding sectoral policy and institutional re-forms, attracting private sector investments,improving public sector operational and fi-nancial efficiency, and promoting energyconservation and efficiency.

The first tranche of $125 million was dis-bursed in two installments in December 1991and February 1992. The Government pro-ceeded to implement most of the reformmeasures prescribed by the Program. Theprocess, however, stalled with what was con-sidered a key covenant, namely the divest-ment of 20 percent of the Government’sequity in the country’s leading oil company,the Oil and Natural Gas Corporation (ONGC).The scheduled loan closing date was 30 June1995, but it was extended three times to al-low more time for compliance. Finally, theGovernment indicated that it was unable tomeet the requirement and requested thecancellation of the second tranche ($125million). The loan was actually closed on 18September 1997.

The Operations Evaluation Mission(OEM), which visited the country during theperiod 6-22 September 2000, confirmed thatamong the 26 loan covenants, three were stillpending or not complied with, two were par-tially complied with, and all the others hadbeen implemented. The covenants imple-mented included, among others, corporati-zation of ONGC, creation of a DirectorateGeneral of Hydrocarbons to provide a level

playing field for private sector, introductionof a New Exploration Licensing Policy, phaseddismantling of the administered price mech-anism, and establishment of the commoncarrier company Petronet. As a result, thegeneral regulatory and business environmenthas undoubtedly grown much more marketoriented.

However, the Program suffered from anumber of failed assumptions, which werepartially responsible for the fact that a keycovenant was not achieved. First, the time-bound target of divesting 20 percent Govern-ment equity in ONGC failed to take intoaccount the scale and complexities of thedivestment and necessary regulatory andmarket conditions for the divestiture. Second,the Program’s heavy emphasis on divestment,as a means to raise additional capital andenhance management efficiency, was veryuncertain as sales of government shares atheavy discounts would have caused substan-tial financial losses for the Government with-out really achieving much since the majorityof the stake would have remained with theGovernment even if the sales succeeded. Oth-er alternatives such as forming joint ventures,devising attractive policies to encourage for-eign direct investment, and allowing moremanagement autonomy for the PSEs couldhave been more effective. Third, the Pro-

The Government

considered the

objective of long-

term oil import

substitution as

important from

the viewpoint of

reducing pressure

on the foreign

currency reserve as

well as the

country’s strategic

self-reliance.


gram’s time frame was too tight and no ex-plicit consideration was given to proper se-quencing of the reform measures prescribed.

In addition, other factors such as theGovernment’s slow movement to market re-forms and reluctance to open up the marketalso played a role in the cancellation of thesecond tranche. In this regard, the Govern-ment must accelerate the reform processand pursue private and foreign direct invest-ment with greater vigor and speed if it wantsthe Indian economy to succeed in a regionwhere competition is fierce for limited invest-ment resources.

In the area of exploration and develop-ment, the anticipated competition from theprivate sector is yet to be realized with thePSEs, notably ONGC and Oil India Limited,still dominating activity. Major foreign oil com-panies have been reluctant to make large in-vestments in this inherently risky businessdue to the administered prices and the diffi-culties in obtaining marketing rights. Somebelieve that the multinational oil companiesmay hold the key for acceleration of success-ful exploration due to their better resourcesand technology in certain key areas, such asdeep water exploration. The proportion ofcrude oil production from private or jointventures under production-sharing con-tracts remains insignificant, e.g., 4 million outof 37 million metric tons in FY1999/2000. To-tal private sector investment in exploration isalso far from the program target of $5.2 bil-lion. The production of domestic crude oilremained largely stagnant over the programperiod. Consumption/demand, on the otherhand, was continually on an upward trendwith the oil self-sufficiency rate reduced to37 percent in FY1998/99, much lower thanthe targeted 45 percent. Recent high crude

oil prices have once again brought urgencyto the sector’s reforms as oil imports contin-ue to drain the country’s foreign currencyreserve and the deficit on the oil pool ac-counts (a cross-subsidy mechanism) deficithas reached a very high level.

The situation in the refining sector issomewhat better. Since the beginning of theProgram, a total of 12 refineries have beenapproved, five for operation by the privatesector, six by joint ventures, and one by thepublic sector. However, all the prospectiveforeign companies including Exxon, Shell,KPC, etc. withdrew from the initial agree-ment due to concerns over marketing rights,administered prices, and anticipated refin-ing overcapacity in the country. Only two do-mestic private companies, ReliancePetroleum, Ltd. and Mangalore Refinery andPetrochemicals, Ltd. are already in produc-tion.

The operational efficiency of the PSEs inthe sector significantly improved during theprogram period. Exploration and productionper capita productivity increased by 23 per-cent, and that for refining by 45 percent dur-ing the period between FY1991/92 andFY1997/98. However, between FY1993/94 andFY1998/99, the Indian economy’s energy in-tensity, measured by hydrocarbon (oil andgas) consumption per unit of gross domes-tic product, increased marginally by 1.8 per-cent, signaling that the economy might nothave become more energy efficient, even af-ter allowing for some natural fluctuation ofdata. Waste in energy consumption, particu-larly that associated with illegal or overuse ofsubsidized fuels such as kerosene, diesel, andliquefied petroleum gas, is still evident.

In view of the foregoing, the OEM ratedthe Program as partly successful.

Major foreign oil

companies have

been reluctant to

make large invest-

ments in this inher-

ently risky business

due to the admin-

istered prices and

the difficulties in

obtaining market-

ing rights.


n 1988, when the Asian DevelopmentBank (ADB) approved its first telecom-munications project in India, telecom-munications services in the countrywere characterized by low levels of

access and poor quality. Most of India’s tele-communications plants and equipmentwere old, of poor quality, and technological-ly obsolete. Telecommunications was a pub-lic sector monopoly and the Government of

India was the sole provider of telecommuni-cations services. A small number of state-owned enterprises had responsibility forsupplying virtually all telecommunicationsequipment.

The main objective of the Telecommuni-cations Project (Loan 886-IND), approved on4 April 1988, was to improve the quality ofdomestic telecommunications services andexpand international telecommunications

Telecommunications andSecond TelecommunicationsProject

INDIA


facilities to help meet growing demand. Im-proved telecommunications were expectedto help eliminate infrastructure bottlenecksand promote growth in the commercial andindustrial sectors. ADB provided $135 millionfrom its ordinary capital resources to financethe entire foreign exchange cost of theProject. The actual project cost at comple-tion amounted to $152.8 million, with a for-eign exchange cost of $88.2 million (58percent of the actual total cost) and a localcurrency cost of $64.6 million. The actual costof the Project was about 38 percent less thanthe appraisal estimate because of lowerequipment prices.

The Telecommunications Project wasexpected to have been implemented over afour-year, eight-month period, beginning inJanuary 1988 and ending in August 1992.However, project delays began in the fourthquarter of 1989 when the Government sus-pended implementation to conduct a reviewof the telecommunications sector by a tele-communications commission. The suspen-sion lasted about two years. Delays of anadditional two years were experienced be-cause the Government failed to issue importlicenses for some of the project components.When Project implementation resumed, fur-ther delays occurred because of the need torevise tender documents, tender evaluation,and contract awards. This was aggravatedby inexperience and unfamiliarity with ADBprocedures. As a result of these delays, im-plementation took nine and a half years.

Even while the first telecommunicationsproject was experiencing delays, ADB ap-proved Loan 954-IND for the Second Tele-communications Project on 9 February 1989for $118 million from its ordinary capital re-sources to finance the entire foreign ex-change cost of the Project. The actual projectcost at completion amounted to $101.6 mil-lion, with a foreign exchange cost of $68 mil-lion (67 percent of the actual total cost) anda local currency cost of $33.6 million. Theactual cost of the Project was about 60 per-cent less than the appraisal estimate becauseof lower equipment prices and the cancella-tion of a project component. The local costcomponent was lower because of a change

in Government policy on taxes and duties.The second Project was to help expand andimprove the quality of telecommunicationsservices, and improve the efficiency of tele-communications equipment manufacturing.Improved telecommunications was expect-ed to help promote growth in the commer-cial and industrial sectors.

The Government’s decision to conducta review of the telecommunications sectoralso affected the second Project. The Projectwas expected to take about three and a halfyears to complete from July 1988, when ad-vance procurement was authorized by ADB,to project completion in December 1991.However, overall implementation also tooknine and a half years. The main reasons forthe delays were the need to retender con-tracts, a shortage of funds to pay customsduties on some equipment, the slow perfor-mance of some suppliers, and a delay in is-suing import licenses.

No project preparatory technical assis-tance (PPTA) was provided to prepare a pre-liminary design for either project and toassess its technical, financial, and economicfeasibility. Moreover, ADB did not do sufficienteconomic analysis in the telecommunica-tions sector to underpin the rationale for theprojects. PPTAs should have been undertak-en to clarify the need for the projects andidentify key policy issues.

Notwithstanding the long delay, the com-ponents of the first Project were implement-ed satisfactorily. The three satellite earthstations and the associated equipment gen-erated substantial economic and financialbenefits and high internal rates of return.However, some of the components are un-derutilized because of inappropriate technol-ogy or inadequate marketing. The secondProject was implemented partly satisfactori-ly. The conversion to polyethylene insulatedjelly filled (PIJF) cable production was suc-cessful. However, the concast copper rodfacility is still not in operation, and the ther-mo-shrink jointing kits, and telephone andother cord production facilities are idle andwill probably never operate. The inability tocompete with the private sector in PIJF cableproduction and the low international prices

Improved telecom-

munications was

expected to help

promote growth in

the commercial

and industrial sec-

tors.


for PIJF cable made the PIJF cable compo-nent economically unviable.

The executing agencies for the firstProject are in a good financial position toensure project sustainability. However, Hin-dustan Cables Limited (HCL) is in a precari-ous financial position and the second Projectis not sustainable without Government bud-getary support. HCL’s inability to effectivelycompete with the private sector in price isthe main reason for its small share of the PIJFmarket.

The experience with the two Projectshighlights one major issue. The telecommu-nications industry is a rapidly changing onewith new technologies becoming availablefrequently. To keep up with these advances,telecommunications companies need flexi-bility in their investment decisions and themarketing of their services. Public sector en-terprises are not suited to operating in thetelecommunications sector.

The project performance audit foundthat both Projects were unsuccessful. The ra-tionale of the first Project was weak andproject preparation was poor. The Govern-ment’s initial decision to cancel a major por-tion of the loan as a result of a telecom-munications sector review should have beensupported by ADB, rather than convincing itto reverse its decision. The major objective ofthe Project (supporting economic growth)was achieved to a limited extent, althoughseveral components of the Project are eitherunderutilized or not in use. The Project wasnot accompanied by any policy reforms toplace the telecommunications sector on asounder economic footing and there was noevidence that the Project benefited the poor.

The rationale of the second Project wasalso weak and project preparation poor. TheProject added telephone cable manufactur-ing capacity in an area where the private sec-tor adequately met the market demand. HCLis inefficient and cannot compete with theprivate sector. Thus, the Project is not sus-tainable without government support. TheProject did not succeed in achieving its ob-jective of improving the efficiency of telecom-munications equipment manufacturing.

The evaluation demonstrated the needfor a sound project rationale. It should bebased on a well-defined and focused coun-try operational strategy, supported by PPTA.A PPTA should be mandatory if there is littleor no experience in the sector. Project prep-aration should include an assessment of thesector’s policy environment and the scopefor private sector involvement in the sector.Support for interventionist government poli-cies is not appropriate. Project preparationshould also assess the institutional capabili-ties of the executing agency and ensure thatsufficient consulting services are providedduring project implementation.

Project administration also needs toclosely monitor the policy environment inwhich a project is being implemented, in ad-dition to its usual activities regarding procure-ment and other implementation activities.Any major changes should be assessed inlight of the project’s rationale and objectives,and the economic and financial feasibility ofthe project should be reassessed to ensurecontinued relevance. If the rationale is nolonger relevant or the project is no longerviable, steps should be taken to terminate theproject.

The experience

with the two

Projects highlights

one major issue.

The telecommuni-

cations industry is

a rapidly changing

one with new

technologies be-

coming available

frequently.


ollowing the massive earthquakeof December 1992 that destroyedlives and infrastructure on FloresIsland in eastern Indonesia, theGovernment of Indonesia asked

the Asian Development Bank (ADB) for emer-gency funds for reconstruction. ADB ap-proved an emergency loan of $26 million on1 July 1993 from its Special Funds resources.In the coordinated efforts mounted by sev-eral external agencies to help with the recon-struction, ADB focused on roads, bridges, andwater resources facilities because it was al-ready supporting similar activities in the area.The Project aimed to rehabilitate national and

provincial roads, bridges, surface andgroundwater irrigation schemes, and floodcontrol works.

As part of the preparation of the projectperformance audit report, the OperationsEvaluation Mission (OEM) visited Flores, metwith key government officials, interviewedbeneficiaries, and made physical inspectionsof selected infrastructure. The objectives ofthe report were to evaluate (i) the processesand procedures in designing and implement-ing an emergency project; (ii) the quality ofwork done by ADB, the Government, and theconsultants; (iii) the extent to which benefitsare being sustained three years after loan clo-sure; and (iv) lessons for future projects.

During project preparation, ADB perfor-mance was swift, innovative, and in line withthe existing guidelines. Feasibility studieswere not prepared, and the usual reviewmeetings were substituted by a loan and tech-nical assistance coordination committeemeeting to accommodate the emergency.The project design included several specialelements such as more than the standardamount of local cost financing, advance pro-curement, retroactive financing, and directhiring. The Executing Agency was the Minis-try of Public Works and the implementingagencies were the Directorate General ofHighways and the Directorate General ofWater Resources Development. Althoughthere was a need to process the Projectquickly, ADB emphasized the value of pro-

Flores EmergencyReconstruction Project

INDONESIA

During project

preparation, ADB

performance was

swift, innovative,

and in line with the

existing guidelines.


viding earthquake-resistant reconstruction tothe extent possible. To ensure appropriatemitigating measures were designed againstfuture earthquake risks, international consult-ants were engaged.

In implementing the Project, there wereseveral coordination problems. Although di-rect hiring was approved by ADB, the Gov-ernment’s consultant approval proceduresand disbursement channels were not modi-fied to suit the emergency. As a result, theinternational consultants’ appointments andthe establishment of quality control proce-dures were delayed. However, physical workswere initiated rapidly resulting in an initialperiod of work that was not supervised byinternational consultants. In addition, sub-sequent organizational changes made by theGovernment reduced the role of consultantsto advisers rather than supervisors. This cre-ated a problem of balancing urgent recon-struction and long-term sustainability. Amore proactive role by ADB during imple-mentation may have helped to improveproject quality. The OEM also observed thatthe infrastructure provided by the Project hasdeteriorated because of lack of maintenanceand inadequate drainage systems.

The OEM confirms that the Project wasrelevant and the project design was concep-tually clear and reasonably flexible to meetthe emergency. It incorporated many fea-tures to accommodate the urgency of thereconstruction effort and provided adequateinputs to achieve the project objectives. Thereconstruction of the national and provin-cial roads, as well as segments of the roadsthat were added for socioeconomic reasons,have improved the quality of life for the ben-eficiaries. The farmers are able to harvest twoor three crops per year depending upon theirlocation. The road links built under theProject provide the sole means of access tosome poor coastal villages. The OEM, there-fore, assigns a successful rating to the Project.

Some key issues need to be resolved.Inadequate financial resources amid the fi-nancial crisis have resulted in poor routinemaintenance of roads and structures. ADBand the Government should work togetherto find a viable solution to the long-term prob-

lem of the operation and maintenance ofroads and bridges in Indonesia. ADB shouldalso consider how to respond to bureaucraticdelays by the borrower and problems causedby poor communications with remote areasduring the processing of an emergency loan.It may have to stipulate that for borrowers totake advantage of the flexibility attached toADB loans processed under emergency con-ditions, the government should make ade-quate arrangements to quickly processcontracts, channel funds, and provide ade-quate quality control.

The lessons learned from the Project in-dicate that the ADB Operations Manual guide-lines for processing emergency loans areadequate and appropriate. However, theGovernment of Indonesia should streamlineits approval procedures to expedite the en-gagement of consultants and contractors torespond to emergencies. ADB help in build-ing the capacity of borrowers to respond ef-fectively to disasters, especially indisaster-prone areas, will be very valuable.Given the flexibility allowed in emergencyloans, ADB staff need to play a proactive roleduring project implementation to ensuretimely implementation and quality of work.

The Government needs to take urgentaction on providing lateral stops on bridgesin the earthquake-prone area to prevent ex-tensive damage due from any future earth-quakes. The provincial government shouldalso ensure that routine maintenance is car-ried out not only because of the large eco-nomic investment, but also for safety andenvironmental protection.

The lessons learned

from the Project

indicate that the

ADB Operations

Manual guidelines

for processing

emergency loans

are adequate and

appropriate.


he shortage of marine scientistsand technicians has hindered thefull utilization of Indonesia’sample marine resources. Underthe Fourth Five-Year Development

Plan special attention was to be given to ter-tiary level programs in science and technol-ogy, particularly in the outer islands. TheMarine Sciences Education Project was for-mulated to diversify the economy away fromoil products, improve nutrition, and trainprofessional-level human resources in ma-rine sciences to optimize the utilization ofmarine resources under sustainable condi-tions.

Strategies to achieve these objectiveswere to establish a new marine sciences ed-ucation program, improve academic andother support services, develop researchcapacity, and upgrade existing facilities andconstruct new facilities at six universities.Beneficiaries were to be undergraduate stu-dents, university personnel, public and pri-vate employers of marine science graduates,coastal communities, and the population asa whole. Components included consultantservices, fellowships, civil works, equipment,educational media and software, and fundsfor operation and research.

Two loans were provided for a total of$73.3 million on 14 July 1988—$43.2 millionfrom ordinary capital resources and $30.1million equivalent from Special Funds re-sources. The Project was completed on 30November 1995 after a delay of 14 months.The project completion report (PCR), circu-lated in September 1997, rated the Project assuccessful.

The geographic spread of project univer-sities suited the Government’s thrust to de-velop the outer islands. Significantly morefellowships and consultant inputs were pro-vided than specified, and research fundswere provided in excess of the target. Civilworks, furniture, and equipment were pro-vided essentially as designed, but with somebuildings being poorly constructed and evendangerous. Vessels and vehicles may haveall been procured, but some have been lost

Marine SciencesEducation Project

INDONESIA


to the Project. Operation and maintenanceobligations of the Government were not ful-ly met, partly due to the effects of the Asianfinancial crisis.

The Project did not meet expectationsin the development of employable humanresources. On average, only about half of thegraduates have been able to find jobs in ma-rine sciences or related fields; the other halfare either unemployed or work in unrelatedfields. Research output has been variable,and benefit monitoring and evaluation(BME) deficient. The Operations EvaluationMission (OEM) had no success at some uni-versities, nor at the Directorate General ofHigher Education, in obtaining basic data.

Fellows’ feedback indicated overall sat-isfaction at having obtained an overseasqualification. While they were critical of theirinability to participate in equipment order-ing and facilities design, they rated highly thelevel of encouragement from their superi-ors, the appropriateness of project teachingmaterials, and improvements in conserva-tion stemming from the Project. They ratedpoorly the maintenance of equipment andfacilities, and cooperation with the privatesector.

At some universities, the OEM found ahigh incidence of absence of students, fac-ulty, and administrators, and serious un-derutilization and deterioration of civil works,equipment, books, and vessels. The worstcase was the destruction of one of the sixfield stations due to civil unrest. Very littleresearch was ongoing, and libraries wereoften devoid of users. The OEM did not seemuch evidence of a fertile academic atmo-sphere promoting significant research andexcellence in teaching. Returned fellowsoccupied generally the same positions anddid basically the same work as before theiradvanced studies. The few productive linkswith other institutions are ad hoc. There isno integrative element among project uni-versities. Employment generated by theProject has been marginal, and the hoped-for modernization of marine industries is notoccurring. The Project’s effects on genderand development have been minimal. Whilethe PCR made recommendations to ensure

project benefits, the OEM could find little ev-idence that they had been heeded.

A key issue stemming from the Project’sdesign is the efficacy of advanced degreetraining as preparation for teaching and re-search management. This issue had beenresearched and discussed in the literaturelong beforehand but was not addressed inproject formulation. Another issue is central-ization versus localization. The universitieswere not consulted sufficiently during cen-tralized procurement. And the local projectimplementation units had an anomalousposition, reporting to the Central Project Im-plementation Unit in Jakarta but ostensiblybeing under their university administrations.The appraisal report gives almost no atten-tion to management issues, which proved tobe critical.

A positive lesson learned from the Projectis the crucial role of selecting, supervising,and preparing fellows for training. This as-pect was well implemented.

Failure to comply with several loan cove-nants, viz., those on midterm review, BME,and private sector involvement, hurt theProject. While its relevance was high and itsefficacy satisfactory, in terms of efficiency andsustainability of project benefits and the ex-tent to which its major purposes and goalshave been achieved, the OEM has reserva-tions and thus rates the Project as partly suc-cessful.

The Project did not

meet expectations

in the develop-

ment of employ-

able human

resources. On aver-

age, only about

half of the gradu-

ates have been

able to find jobs in

marine sciences or

related fields; the

other half are ei-

ther unemployed

or work in unre-

lated fields.


his project performance audit re-port covers the first three integrat-ed urban infrastructure develop-ment projects (IUIDPs) in Indone-sia: Loans 983/984(SF)-INO (Sec-

ondary Cities Urban Development [Sector]Project), Loan 1077-INO (BOTABEK Urban De-velopment Project), and Loan 1078-INO (Ban-dar Lampung Urban Development Project).The common objectives of the projects wereto improve urban living conditions and en-hance urban management capabilities intheir respective local governments. The Sec-ondary Cities Project was appraised in June1989 and two Asian Development Bank (ADB)loans ($70 million from ordinary capital re-sources and $50 million from the Asian De-velopment Fund) were approved on 9November 1989. The Bandar Lampung andBOTABEK projects were appraised in Juneand August 1990, respectively; the two ADBloans from ordinary capital resources for $33million and $80 million, respectively, wereapproved on 31 January 1991.

The Secondary Cities Project contribut-ed to rehabilitating and constructing urban

infrastructure in 51 secondary cities in nineprovinces of Sumatra and West Java; theBOTABEK Project covered eight towns inthree kabupatens of Bogor, Tangerang, andBekasi; and the third project focused on thecity of Bandar Lampung. The three projectsincluded eight similar physical components,namely water supply, drainage, sanitation,solid waste, kampung1 improvement pro-gram (KIP), market infrastructure improve-ment program, urban roads, and guided landdevelopment (GLD). The water supply com-ponent accounted for more than 30 percentof each project’s cost, followed by urbanroads, drainage, and sanitation. The Execut-ing Agencies for the projects included theDirectorate General of Human Settlements(DGHS) of the Ministry of Public Works, Di-rectorate General of Highways, and Director-ate General of Water Resources Development.

The Operations Evaluation Mission (theMission) undertook a thematic evaluation, inaddition to a typical audit of individual com-ponents under each project, focusing on

Three Integrated UrbanInfrastructure DevelopmentProjects: Secondary CitiesUrban Development(Sector) Project, BotabekUrban Development Project,Bandar Lampung UrbanDevelopment Project

INDONESIA

The common

objectives of the

projects were to

improve urban

living conditions

and enhance urban

management capa-

bilities in their re-

spective local

governments.

1 A kampung is a densely populated settlement on the margins of anurban area.


common issues, to draw lessons for ADBoperations in the urban infrastructure devel-opment sector. The Mission also reviewedexperiences of other aid agencies in Indone-sia.

A. COMPARISON OF IUIDPS WITHSTANDALONE PROJECTS

IUIDPs typically comprise components cov-ering many sectors such as water supply,sanitation, roads, and housing, while stan-dalone projects upgrade municipal servicesin one or two sectors. ADB finances bothtypes of project. The Mission identified, fromthe experiences in the three evaluatedprojects, the following advantages of IUIDPsvis-à-vis standalone projects.

Flexibility in Responding to ChangingNeeds.Needs for improving various items of infra-structure and services change as urbaniza-tion proceeds. Some needs may be identifiedor may evolve only after project implementa-tion begins. IUIDPs allow objective-orientedmodifications of project design and compo-nents in such a way that the objective is best

IUIDPs typically

comprise compo-

nents covering

many sectors such

as water supply,

sanitation, roads,

and housing, while

standalone

projects upgrade

municipal services

in one or two

sectors.

attained using the synergy available amongsectors. The Bandar Lampung Project wasmost successful in demonstrating this advan-tage.

Ability to Incorporate Social and Environ-mental Concerns.IUIDPs allow social and environmental con-cerns to be more effectively incorporatedinto urban infrastructure improvements. Asense of community ownership and partici-pation, successfully established through theKIP component in all three projects, efficient-ly supported the delivery of social services.

Opportunities for Improving UrbanManagement.IUIDPs provide opportunities and means toimprove urban management, which inher-ently involves many functions, sectors, andagencies. Although the three projects werecentrally planned as initial IUIDPs, the en-hancement of development planning andmanagement capabilities of local govern-ments was an explicit objective of eachproject. For subsequent ADB projects, theproject management setup has been inte-grated in the respective local governments.


The Mission established that IUIDPs weremost appropriate for project cities in the pop-ulation range of 100,000-500,000. The efficien-cy of service delivery could be furtherimproved by demand-side management, es-pecially for environment-related compo-nents.

B. IMPACT OF THE ECONOMIC CRISIS ONPROJECT SUSTAINABILITY

The three projects were completed in 1996and their facilities were fully operating whenthe economic crisis occurred. All the projectcompletion reports (PCRs), which were pre-pared after the onset of the crisis in 1998, wereconcerned about the impact of the crisis onthe projects. The Mission assessed the impactof the crisis on the performance of individualcomponents under each project and identi-fied the factors that affected the operationand maintenance (O&M) and the sustainabil-ity of project facilities. The Mission concurredwith the PCRs that the impact of the crisiswas felt most in the water supply and sanita-tion components. As the tariffs could not beraised, O&M was affected. But the impact ofslower economic growth on the otherproject components varied. For example, as

a sense of community ownership and par-ticipation was good in Bandar Lampung,O&M for all the other components was prac-tically unaffected by the economic slow-down; in the BOTABEK project, a similareffect was visible in the KIP and market infra-structure improvement program compo-nents. The Mission also estimated the impactof the crisis on the efficiency of performanceof BOTABEK project components, measuredin terms of the economic internal rate of re-turn (EIRR). The estimates revealed that, dueto a strong sense of community ownershipand participation, the project facilities con-tinued to be highly efficient, in spite of theeconomic slowdown after the crisis.

C. MEASURING EFFICIENCY OF URBAN

SERVICE DELIVERY

To maximize the developmental impact ofIUIDPs, which involve many sectors, propermonitoring and evaluation of service deliv-ery is essential. The three projects aimed toimprove urban living conditions and en-hance urban management capabilities. Inthe Secondary Cities and BOTABEK projects,local governments considered the projectsas investments for improving the physical in-

The Mission estab-

lished that IUIDPs

were most appro-

priate for project

cities in the popu-

lation range of

100,000-500,000.

The efficiency of

service delivery

could be further

improved by de-

mand-side man-

agement,

especially for envi-

ronment-related

components.


frastructure rather than vehicles for support-ing the long-term delivery of services. Con-sequently, in the project benefit monitoringand evaluation activities, the governmentagencies relied on data on physical achieve-ments for the components. The Mission ob-served that the delivery of services was mixedin the BOTABEK Project. In the SecondaryCities Project, the improvements were diffi-cult to measure in the cities visited, as projectcontributions were small when comparedto the need for these services. In contrast,the Bandar Lampung Project demonstratedthat performance monitoring could be effec-tively carried out only by substantial commu-nity participation. In addition, suchparticipation in monitoring contributed toimproving O&M activities by stimulating asense of ownership among beneficiary com-munities.

D. PERFORMANCE RATING OF THE PROJECTS

Secondary Cities Urban Development(Sector) ProjectThe Project was ADB’s first IUIDP in Indone-sia. It was complex, involving many imple-menting agencies and 27 project implement-ing units. During project implementation,DGHS extensively modified the project com-ponents to the extent that the project com-ponents were only partly relevant to theoriginal objectives. Decisions on project mod-ifications were made mostly at the provinciallevel, while fund allocation was centrally con-trolled. In terms of achieving the project pur-pose of improving living conditions, theproject was efficacious. Allocation under theProject (approximately $2 million-$3 millionequivalent) in many cities was relatively lowcompared to each city’s overall developmentbudget. Consequently, local government in-volvement was limited, and community con-sultation minimal. The local water enterprisesgenerally supplied only clean water but notpotable water. Public toilets ceased to func-tion after a few years of use due to lack ofwater from their associated hand pumps,lack of organized maintenance, and low de-mand for public toilets as households built

individual toilets and septic tanks. The Mis-sion did not estimate EIRRs, as reliable infor-mation was unavailable. Based on estimatesin the PCR, efficiency is rated efficient. Sus-tainability is rated less likely for all compo-nents due to lack of ownership at the localgovernment level. The Project’s contributionto institutional development is rated negligi-ble. The Project did not include an advisorytechnical assistance for capacity building.Overall, the Project is rated partly successful.

BOTABEK Urban Development ProjectAll components, except the GLD component,were relevant. Efficacy is rated efficacious asthe project purpose was generally achieved.However, the unaccounted-for-water levelswere not reduced in all project cities. The ef-fects of GLD in Bekasi and Tangerang wereso small as to make it impossible to distin-guish them from development spilling overfrom neighboring areas. Most roads im-proved by the Project were well used or infact overused in some sections, resulting inearly degradation of surface conditions asmaintenance was less than adequate. TheMission observed varying conditions of drain-age. In Bogor, roadside drains that were pro-vided as part of the road improvements were

The Bandar Lam-

pung Project dem-

onstrated that

performance moni-

toring could be

effectively carried

out only by sub-

stantial community

participation.


physically in good condition, but the mainte-nance of secondary drains was problematicdue to limited local participation. In Bekasiand Tangerang, maintenance of urban drain-age works was tied to road maintenance,and it was better in Bekasi. The KIP was high-ly successful with community participation.The reestimated EIRRs confirmed that theproject components were highly efficient.Sustainability is rated likely for all compo-nents. The KIP in Tangerang now includestraining for entrepreneurs. The Project’s con-tribution to institutional development is rat-ed little. The transfer of responsibility fromthe project monitoring unit to the local gov-ernment for ownership of O&M was insuffi-cient. Overall, the Project is rated successful.

Bandar Lampung Urban DevelopmentProjectThe Project was highly successful in attain-ing the objectives of improving living condi-tions and enhancing urban management.The project components were highly rele-vant. Efficacy is rated highly efficacious. Al-though the Project was centrally planned andcontrolled, the city government played amajor role in implementing some compo-nents under a clearly defined division of re-sponsibilities, and in training and communityinformation programs, supported by con-sultants. The Mission accepted the high EIRRsreported in the PCR for all the project com-ponents. Efficiency is rated highly efficient.Tariff collection for water supply covered al-most 100 percent of consumers after 1996.Flood control works were very well done,aesthetically as well as technically, and en-hanced a sense of security and social cohe-siveness of local communities. Solid wastewas collected daily, covering an increasingpopulation, with collection fees charged tohouseholds and commercial entities, and dis-posed of in a sanitary landfill. Desludging andsludge treatment were fully operational us-ing the trucks and facilities provided by theProject, although demand for the service wasnot as high as expected. Project sustainabili-

ty is rated most likely. The O&M of all projectfacilities was highly satisfactory. Urban roads,notably those supported by ADB, were gen-erally well maintained. Kampungs that wereimproved under the Project were generallywell maintained. The Project made a moder-ate contribution to institutional develop-ment. The Mission observed, during themeetings at the mayor’s office and the fieldvisits, a strong sense of ownership amongthe local government and communities.Overall, the Project is rated highly successful.

E. LESSONS IDENTIFIED

Of the many lessons identified from the eval-uation exercise, the important one was thatpotable water need not be distributedthrough a piped water supply. In the projectareas, the local water enterprises produceonly clean water, not potable water. Peopleprefer to buy drinking water from vendorswho tap the shallow-well groundwater withhand pumps. Most tropical areas of devel-oping member countries are endowed withsufficient annual rainfall for shallow ground-water to be the most accessible and sustain-able source. The fundamental problem is thepollution of this groundwater, due to inade-quate sanitation practices. This problem can-not be overcome by extending piped watersupply alone, which requires greater invest-ment. Potable water, which is in smaller quan-tities, is better delivered when distributed inbottles, through public-private sector partic-ipation.

F. FOLLOW-UP ACTIONS

The Mission provided early feedback fromthe evaluation to ADB’s Projects Departmentand the Executing Agencies through severalworkshops. ADB and the Government iden-tified actions pending since the PCRs; theyalso appropriately incorporated, under on-going projects, the additional project-specif-ic follow-up actions suggested by the Mission.


n 1991, only about 33 percent of theurban population and 15 percent ofthe rural population in the LaoPeople’s Democratic Republic (LaoPDR) had access to treated water sup-

plies. Reliable supplies of water were avail-able in only 7 out of 17 provincial capitals.Water supply in Vientiane and Savannakhetwas acceptable but, in other towns, it waspoor and did not meet the recommendedWorld Health Organization standards. Watersupply systems were generally old, in poor

LAO PEOPLE’S DEMOCRATIC REPUBLIC

Southern Provincial TownsWater Supply Project

condition, and unable to provide for existingand future demand because investment wasinsufficient and there was a lack of planningand skilled personnel to manage them. Nosignificant investment in urban water supplyhad been made since 1981.

The main objective of the Southern Pro-vincial Towns Water Supply Project (Loan1122-LAO[SF]) was to rehabilitate and up-grade the water supply systems in Pakse, At-tapeu, and Saravane and to construct a newwater supply system for Sekong, with a view


cost) and a local currency cost of $2.4 mil-lion. The lower actual cost of the Project wasprimarily because gravity-operated infiltra-tion galleries were used for the water treat-ment plants. The Project was expected tohave been implemented over four years,from 1992 to 1995, with loan closing in 1996.However, some project delays were incurredand loan closing was postponed to 1997,about a year later.

The Project was generally consistentwith ADB’s country operational strategy.Moreover, it had a poverty-reducing dimen-sion, even though this was not an explicit in-tention of the strategy. In terms of currentADB strategic priorities, the Project is relevant.The Project was also implemented satisfac-torily in the main part, with only a small delay.However, there were several shortcomings.In two of the project towns, Attapeu andSekong, the proposed conventional watertreatment plant was replaced with a gravity-operated infiltration gallery without an ade-quate investigation of the hydrology at thewater intake location. As a result, the infiltra-tion galleries are either ineffective or not inuse. In Pakse, the water treatment plant isunderutilized because too few consumersare connected to the distribution system. TheProject was also inadequately designed froman institutional perspective. The finance andaccounting systems of Nam Papa Lao (LaoWater Supply Authority) were not upgradedto international standards and the account-ing skills of the staff were not strengthened.The amount of consulting services providedunder the Project was insufficient and con-tributed to the poor performance of theProject in Attapeu and Sekong.

The main objective of the Project of pro-viding potable water supply to four provin-cial towns was only partly achieved. Onlyabout half of the 82,000 intended beneficia-ries benefited from the Project. In two of thefour project towns (Attapeu and Sekong), theProject did not bring potable water to resi-dents and there has been no improvementin water supply. In Pakse, more consumerscould be served by the Project if additionalhouseholds were connected. Only in Sarav-ane did the Project successfully meet its ob-

to assisting the Government in meeting itswater supply targets and thus improve thehealth of the population and support eco-nomic growth. Upon completion, the Projectwas to benefit 82,000 people in the fourtowns. ADB provided SDR7.05 million ($9.6million equivalent) from the Asian Develop-ment Fund to finance the entire foreign ex-change cost of the Project and $0.7 million ofthe local currency cost. The Government ofthe Lao PDR provided budgetary funds forthe balance of the local currency cost. Theactual project cost at completion amountedto $11.0 million, with a foreign exchange costof $8.6 million (78 percent of the actual total

The main objective

of the Project of

providing potable

water supply to

four provincial

towns was only

partly achieved.


jectives. However, the Project did have a sub-stantial impact on the populations of Pakseand Saravane. The overall economic internalrate of return (EIRR) was estimated at 20 per-cent in real terms. The high EIRR is attribut-able to the large size of Pakse relative to theother three towns and the substantial eco-nomic benefits from the Project in Pakse.

The financial position of the water utili-ties in the four project towns is precarious.Revenue is insufficient to cover operatingexpenses, depreciation, and interest pay-ments; the water utilities reported losses in1998 and 1999 on the income statement. Thelack of financial viability is already affectingthe operation of the water supply systemsthrough neglect of necessary maintenance.The water tariff in the four project towns islow and recovers only minimal costs. Con-sequently, water is provided virtually free, andas a result, the financial net present value ofthe Project is negative.

The sustainability of the Project at Pakseand Saravane is doubtful. The lack of resourc-es to finance maintenance has alreadycaused operational difficulties in Pakse andwill likely shorten the life of the Project. Sus-tainability is also affected by shortcomings inthe technical abilities of water utility staff thatneed upgrading to ensure proper operationand maintenance of the plants. Even thoughthe EIRR is high, based on a shorter than ex-pected economic life of the Project, theProject was rated as partly successful.

The evaluation identified several lessons.Although designs of water supply systems arerelatively standard, they need to take into

account local conditions, particularly in de-veloping countries where geological andenvironmental conditions vary greatly. Silt-ation of rivers is a well-known phenomenonin Asia and water supply designs need to in-corporate data on water characteristics,such as turbidity, during project preparationor implementation when major designchanges are being considered. The designshould also include a thorough needs analy-sis of engineering design and supervision forproject implementation.

In addition, the successful operation ofa water utility depends on skilled and experi-enced staff. Therefore, project design needsto make adequate provision for staff trainingbased on a thorough needs analysis. In cer-tain developing countries, such as those intransition from central planning to a marketorientation, relatively more institutionalstrengthening may be needed. In such cas-es, a relatively greater amount of technicalassistance may be necessary in the initialprojects in the sector to create a critical massof skilled staff to ensure both the proper op-eration and maintenance, and the financialoperations, of the project facilities. Institution-al strengthening also needs to address thefinancial information issues of a water utility.

A key issue facing the Government is thenonperformance of project facilities in At-tapeu and Sekong. The engineering firm thatdesigned and constructed these facilities islikely to have a legal responsibility for rectify-ing the problems or providing some com-pensation.


he Project aimed to increase portcapacity at Malé for foreign ship-ping, and was included under theGovernment’s Eighth Five-YearPlan (1991-1995) for sustaining

economic growth. The project scope includ-ed (i) construction of an alongside berth toservice vessels up to 6,000 deadweight tons;(ii) ancillary works covering pavement, pierreclamation, utility extension, seawall reha-bilitation, and construction of a marine work-shop; (iii) provision of cargo-handlingequipment, port service craft, workshoptools, and navigation aids; and (iv) consult-ing services for detailed design, preparationof tender documents, implementation ad-ministration, institutional strengthening of the

Second Malé Port ProjectMALDIVES

Maldives Ports Authority (MPA), constructionsupervision, and a planning study. In con-junction with the Asian Development Bank’s(ADB) loan, additional consulting serviceswere included under technical assistance(TA) to strengthen project management ca-pabilities of the Ministry of Construction andPublic Works (MCPW).

ADB’s Appraisal Mission was completedin December 1992, and ADB’s loan ofSDR6.395 million ($8.8 million equivalent) andTA for the Project were approved on 1 April1993.1 The Borrower was the Republic of

1 Loan 1226-MLD(SF): Second Malé Port Project, for SDR6.395million; and TA 1865-MLD: Institutional Strengthening of the Min-istry of Public Works and Labor, for $200,000, approved on 1 April1993.


Maldives. The Ministry of Foreign Affairs wasthe appointed Executing Agency, and MCPW,with responsibility and experience in publicworks construction covering harbors, sea-walls, and roadworks, was designated theImplementing Agency. MPA was the operat-ing authority with responsibility and controlover Malé Port operations.

The Project was implemented with anexpansion in the project scope to extendconstruction of the alongside berth from 70meters to 101 meters, and to purchase a 45-ton stacker and additional 25-ton forklift. Theoverall Project was completed in May 1997,nearly 12 months later than envisaged atappraisal. The final project cost of $10.2 mil-lion was slightly less than the appraisal esti-mate of $10.4 million. ADB’s loandisbursements were $0.95 million less thanthe amount approved. The attached TA fi-nancing amounted to $183,992 or 92 percentof the total amount approved. Overall financ-ing by ADB represented 77 percent of the to-tal project cost.

The Project’s evaluation results providestrong support for the Project’s overall suc-cess. The project rationale to increase portcapacity and help sustain economic growthproved relevant with cargo throughput dou-ble the appraisal forecasts. The efficacy ofproject outputs and operational targets mea-sured against appraisal expectations wasachieved except for delays in completion.The economic internal rate of return for theProject of 26.8 percent attests to the opera-tional efficiency achievements and econom-ic viability of the Project. The financial internalrate of return for the Project is a high 23.3percent and compares favorably with theweighted average real cost of capital of about11 percent. The overall financial performanceof MPA also proved stronger than projected,and development impacts for institutionalstrengthening of MPA and MCPW were large-ly achieved. The socioeconomic benefitswere largely in the form of avoided conges-tion costs that would deter investment in theMaldives and lessen the growth of employ-ment opportunities. Improved working con-ditions for port labor and opportunities for

higher paid employment in accounting, com-puter, and management services were alsobeneficial outcomes.

The less than satisfactory efficacy as-pects of the Project include implementationdelays in appointing consultants and award-ing civil contracts, and the continuing weak-nesses in MPA’s capacity to (i) meet reportingcovenants, (ii) provide timely annual reports,(iii) operate effective information and ac-counting systems, and (iv) take responsibili-ty for planning future port operations. ADB’scovenanted time-bound action plan for MPAto carry out a review of privatizing operationswas also ineffective. These weaknesses de-tract from the overall effectiveness andachievements of the Project—which is ratedsuccessful.

The single key issue to arise from thisoperations evaluation concerns the need toovercome political constraints against thedeeper privatization of MPA’s operations.

The key lesson from the Project is theshortage of qualified and experienced staffin MPA to operate the computer-based ac-counting and information systems, and takeresponsibility for planning and identifyingexpansion requirements as intended underMPA’s Charter. Staff requirements for institu-tional strengthening of MPA should havebeen more comprehensively addressed un-der the Project.

Apart from loan administration, no fol-low-up action is recommended for ADB. Fol-low-up actions aimed at addressingobserved weakness in organization and plan-ning for port development requirements arerecommended. The Government should, assoon as possible, (i) clarify and strengthenthe organization responsible for planningand identifying expansion requirements atMalé Port, (ii) develop a master transport planthat identifies port expansion requirementsconsistent with meeting least-cost develop-ment considerations for Malé Port and theouter islands, (iii) initiate an immediate feasi-bility study to extend the wharf area at MaléPort to two berths, and (iv) initiate a study forprivatizing the management and cargo-han-dling operations of MPA by way of a lease.

The project ratio-

nale to increase

port capacity and

help sustain

economic growth

proved relevant

with cargo

throughput double

the appraisal

forecasts.


he Second Power System Devel-opment Project, which aimed toaugment power generating ca-pacity and improve electricity dis-tribution in Malé, was included

under the Government’s Eighth Five-YearPlan (1991-1995) for sustaining economicgrowth, and was intended to fulfill an urgentneed to meet the suppressed and anticipat-ed demand for electricity in Malé until 1997.This was to be achieved through the supplyand installation of two diesel generators witha combined capacity of 8,700 kilovolt-am-peres; expansion and improvement of thedistribution system; improvement of the StateElectric Company’s (STELCO’s) diagnosticcapacity to measure and reduce system loss-es; and strengthening of STELCO’s account-ing, management, and planning systemstogether with staff training and a tariff study.The project scope also included consultingservices for project implementation and tech-nical assistance for institutional strengthen-ing.

The Appraisal Mission of the Asian De-velopment Bank (ADB) was completed dur-ing September 1991, and ADB’s loan ofSDR6.755 million ($9.2 million equivalent) andtechnical assistance for the Project were ap-proved on 19 November 1991.1 The overallProject was completed in September 1996,23 months later than envisaged at appraisalbecause of implementation delays and con-tractual disputes. The overall delay was off-

set in part by the sequencing approach toimplementation, which meant that one of theproject generators was operational by Au-gust 1993, only two months beyond the ap-praisal schedule. The final project cost of$10.5 million was slightly above the appraisalestimate of $10.3 million. ADB’s loan disburse-ments were $0.51 million less than approved.

The project rationale to augment elec-tricity generation and improve distribution tomeet demand requirements and help sus-tain economic growth proved relevant withelectricity consumption increasing between1991 and 1997 by 13.5 percent per annum.Without the Project, STELCO’s generatingcapacity would have been insufficient andthis would have led to extensive overload-ing, a rise in system losses, and increasedoperating costs. The operating viability ofSTELCO would also have been significantlyweaker, resulting in an inferior quality of elec-tricity supply. Even so, while the overall projectdesign was appropriate for achieving themain project purpose, there were some de-ficiencies in detailed design relating to tech-nical aspects and institutional strengthening.

The project outputs and operational tar-gets as measured against appraisal expecta-tions were largely achieved. The Project

Second Power SystemDevelopment Project

MALDIVES

1 Loan 1121-MLD(SF): Second Power System Development Project,for SDR6.755 million; and TA 1605-MLD: Institutional Improve-ments in the Maldives Electricity Board, for $450,000, approved on19 November 1991. STELCO was formerly the Maldives ElectricityBoard.


increased total generating capacity in Maléby 7,940 kilowatts. This enabled STELCO tomeet forecast peak demands and greatly re-duce generation from obsolete and less effi-cient plant. STELCO’s financial performancealso exceeded appraisal projections: it im-proved from a loss-incurring enterprise atappraisal to a profitable one—a performanceall the more meritorious because it wasachieved with a significant expansion of re-sponsibilities involving electrification devel-opment and administration for 13 outerislands that were not anticipated at apprais-al. The overseas training program for 26 par-ticipants was effective, and the tariff studyprovided information that was used to ad-just Malé tariffs and to price electricity on theouter islands on a basis that more closelyreflected their economic development andthe operating costs.

The socioeconomic benefits from theProject included improved voltage reliability

and an end to the need for electricity restric-tions and blackouts, and an extra 6,000 kilo-volt-amperes for distribution extension. As aconsequence, some 3,000 new resident con-nections of a total 12,750 were made possi-ble. Other socioeconomic benefits includedbetter working conditions, expanded liveli-hood opportunities in the new connectionareas, some higher-paid employment oppor-tunities, and better lighting for residents. Noadverse environmental impacts are evident.Potential damaging emission fumes andnoise pollution that were identified at ap-praisal were mitigated through extendingexhaust stack heights on the generators, andinstalling sound insulation at the powerhouseto reduce noise levels below a tolerance lev-el of 60 decibels at the outside boundary.

The Project’s financial internal rate of re-turn and economic internal rate of returnreestimates of 27 percent and 20 percent,respectively, which take into account the im-


pact of completion delays, system losses, andsustainability of projected benefits, attest tothe overall efficiency and sustainability of theProject. However, against this must be set thefact that the envisaged targets for containingsystem losses and for strengthening STEL-CO’s computer-based accounting and op-erational management systems did notmaterialize or were not sustainable.

The Project is rated successful.The lessons identified in the Project are

(i) that, in project designs for improving dis-tribution efficiency, analysis software shouldbe provided together with training in its ap-plication; (ii) that, in project design, more rig-orous technical audit procedures should beincluded so as to ensure that intended projectitems (distribution analysis software and ca-pacitors in this instance) are fully operation-al; (iii) that stronger contractual termscovering supervisory responsibilities andwork performance on subcontract arrange-ments should be used so as to reduce thepotential for contractual disputes and imple-mentation delays; and (iv) that, in the inter-ests of maintaining technical operatingefficiency, the tasks of identifying and rede-signing the system network to minimize dis-tribution losses should be treated as afull-time operating function within the insti-tutional structure.

Follow-up actions aimed at addressinglessons identified in the Project are recom-mended. ADB should (i) ensure in all futurepower project designs that provide distribu-tion monitoring equipment that there is alsoa sufficiency of training provided, and (ii) pro-vide for more rigorous technical audit pro-cedures for checking power projectequipment is fully operational before com-missioning. The Government should, as soonas possible, for all future infrastructureprojects (i) take steps to ensure stronger con-tractual terms are introduced to cover sub-contracting responsibilities so as to reducethe potential for contractual disputes andproject implementation delays, and (ii) actimmediately to ensure all capacitors underthe Project are connected and operational.STELCO should (i) in its next corporate planinclude provision for staff training and famil-iarization with its computer-based account-ing and operational management systems;and (ii) as soon as possible take steps to uti-lize the software systems provided under theProject to monitor distribution losses and in-troduce the task of monitoring as part of afull-time operating function for identifyingand upgrading the system network (so as tominimize distribution losses).

Follow-up actions

aimed at address-

ing lessons identi-

fied in the Project

are recommended.


ntil 1990, the Mongolianeconomy was based on thecentral planning system andwas covered under preferen-tial trading and financing ar-

rangements of the former Council for MutualEconomic Assistance. Prior to the collapse ofthese arrangements in January 1991, theMongolian economy was receiving 30 percentof gross domestic product as aid. With thesudden withdrawal of this aid, the Govern-ment of Mongolia initiated a program to move

to a market-based system. The Industrial Sec-tor Program Loan (the Program) was the firstattempt to restructure the industrial sector inMongolia and was an integral part of the me-dium-term adjustment program under theenhanced structural adjustment facility of theInternational Monetary Fund.

The principal objective of the Programwas to bring about efficiency and internation-al competitiveness in the industrial sectorthrough policy and institutional reforms. Itaimed to increase reliance on market forces

Industrial Sector ProgramMONGOLIA


and create a policy environment to promoteprivate investment. The Program includedseven major components: (i) abolishing priceand supply controls, (ii) liberalizing the inter-national trade and foreign exchange regimes,(iii) institutionalizing enterprise governancethrough privatization, (iv) encouraging com-mercial operations in the financial sector, (v)developing an institutional and legal frame-work, (vi) restructuring sector institutions,and (vii) supporting the social safety net.

The Program was approved on 17 Au-gust 1993 for SDR21.667 million ($30 millionequivalent) from Asian Development Bank’s(ADB’s) Special Funds resources. The fundswere disbursed in two tranches: the firsttranche of $15.3 million equivalent upon loaneffectiveness in August 1993 and the secondtranche of $16.9 million equivalent upon ap-proval of the program progress report in Au-gust 1995. Two technical assistance (TA)grants totaling $1,045,000 accompanied theProgram. The first TA was designed to assistthe Government in implementing the policymeasures to manage, monitor, and assess theimpacts of the Program. The second TAhelped develop the legal framework.

The program completion report was fin-ished in November 1998 and the Program was

rated generally successful on the basis ofpositive key indicators that suggested signsof sustainable recovery. The program com-pletion report highlighted three constraints:policy reversal relating to an export ban oncashmere, unfamiliarity with ADB proce-dures, and frequent changes at official levelthat disrupted program administration. Itemphasized the need to recognize linkagesbetween the industrial and financial sectors,and highlighted the weaknesses in institu-tions, especially in terms of promoting for-eign investment. The program performanceaudit report presents important design andimplementation issues as well as lessons forfuture operations.

Out of 31 policy actions, the Governmentfully complied with all except three. One con-dition relating to the financial sector was in-tegrated with subsequent programs.However, the broad picture on manufactur-ing sector performance in Mongolia is notvery encouraging. What seems particularlydisappointing is that the reform program hasnot resulted in sufficient restructuring of ex-isting units nor promoted new areas ofgrowth and productivity enhancement in theindustrial sector. The overall share of indus-trial activities in the economy declined signif-icantly from 35 percent in 1990 to 24 percentin 1999.

The Program was ADB’s first attempt atsector restructuring in a transition economythat adopted the “big bang” approach. ADB’sinterim operational strategy was designed tofacilitate transition of Mongolia’s economy tomarket principles. The economy had beenrelatively small, largely isolated with its land-locked geography, and heavily dependent onthe former Union of Soviet Socialist Repub-lics. In retrospect, it is evident that the transi-tion process was not a simple matter ofreforming policies, redefining the role of theGovernment, or liberalizing foreign ex-change, investment, and price regimes, buteffectively dealing with the challenges posedby the sudden withdrawal of significant vol-umes of aid and serious disruptions in trad-ing links and vital infrastructure supplies.Instead of imposition of the orthodox viewthat establishing market conditions would

The Program was

ADB’s first attempt

at sector restruc-

turing in a transi-

tion economy that

adopted the “big

bang” approach.


automatically generate economic growth, theMongolian economy needed a strategy for asmooth transition with investments in infra-structure, energy, and basic needs, and a grad-ual approach to reforms. Though a TApreceded the Program, its recommendationswere not based on rigorous sector analysisto see whether any industrial activity couldhave survived the complete and sudden open-ing of the economy.

About 70 percent of domestic investmentat present is financed from external aid andthis is not sustainable in the long term. Great-er flows of private capital, improved efficien-cy of financial sector entities, and betterinformation flows are crucial to attract invest-ments to generate positive impact of the re-forms undertaken so far.

The program period coincided with rap-id political reforms in Mongolia and so thedesign of reforms was influenced by politicalfactors as much as economic challenges. Thismeant that agreements on the actual instru-ments of reform were a result of political bar-gaining between different interest groupsrather than the technical efficacy of the in-

struments. The Government was stronglycommitted to moving Mongolia to a marketeconomy; however, this was not translatedinto an appropriate strategy or strong imple-mentation apparatus. Unfamiliarity with mar-ket instruments within the Government andthe lack of an overall framework for restruc-turing the economy led to a weakening ofsupport and commitment when the reformsimposed costs. The Program made no sys-tematic assessment of institutional capacitiesor of existing skills, nor any human resourceplanning for the required tasks at the designstage. The program risks identified did notinclude human or institutional capacity as aserious risk.

Privatization in the Program was seen asa simple exercise of transferring ownership;first with voucher schemes and later withsecondary trading in shares. Empirical evi-dence indicates that private ownership doesnot automatically lead to efficiency gains orimproved corporate governance. A numberof post-privatization issues (such as diffusedownership, problems of weak capital mar-kets, large residual government ownership,

The Government

was strongly com-

mitted to moving

Mongolia to a mar-

ket economy, how-

ever, this was not

translated into an

appropriate strat-

egy or strong

implementation

apparatus.


and continuation of soft budget constraintsdue to a weak banking sector) did not getthe required attention and this limited theoverall positive impacts of changes in incen-tive structure.

The Program is rated partly successfulbecause the basic objective of bringing aboutefficiency and international competitivenessin the industrial sector has not yet beenachieved. Though the Program met almostall policy covenants, initial design flaws influ-enced the ultimate impact. Four importantlessons emerge:

Program design for a sector like industrythat has important forward and backwardlinkages needs to identify overall barriers toefficiency and growth. Future program loansneed to be based on the premise that thoughpolicy reforms are necessary, they are notsufficient on their own to make the industrialsector efficient or competitive. Long-termapproach and strategy are needed for sec-toral reforms to generate sustainable posi-tive impacts.

In the Mongolian context, ownershipchanges have not resulted in growth and ef-ficiency improvements in the privatized units.Due to weak legal and regulatory structuresand inadequate financial infrastructure, pri-vate ownership alone will not result in moreaccountable corporate governance.

In-country monitoring was largely by aTA consultant, mainly in terms of tasks andtime frame. To ensure success, effective mon-itoring should include continuous impact as-sessment of reforms by Government.

ADB needs to revisit the adequacy of pro-gram loans as an instrument to deal with sec-tor restructuring in a transition economy.Program loans, with predetermined sched-

ules for policy covenants, are not flexibleenough to deal with the inherent uncertain-ty that such restructuring efforts involve. It isnecessary to develop a number of differentlending instruments (flexible program loans)that can deal with such challenges.

The Mongolian industrial sector has alarge unfinished agenda. Many units remainstate owned and in others, the State has alarge shareholding. These units will need asystematic approach to privatization and re-structuring both to secure positive results forthe Government and a large number of exist-ing shareholders, and to provide a stimulusfor developing the financial sector. This shouldbe an important area of future assistance andshould be included in the medium-term pipe-line of possible ADB investments.

The Government needs to build humanand institutional capacity in the area of poli-cy options, analysis, and monitoring. Exter-nal aid cannot replace continuous internalassessment and analysis.

ADB should begin to focus on buildingcapacity for procurement and disbursementas soon as a new member joins because ittakes time to develop familiarity.

The Mongolian experience confirms thatsuccess and speed of transition crucially de-pend on three sets of factors: initial condi-tions, external factors, and reform strategies.In future program loans, ADB needs to avoidusing standard blueprints of reform. The tran-sition economies are particularly vulnerableto large-scale negative impacts if programdesign does not adequately reflect local con-ditions and constraints. ADB needs to keepthe Mongolian experience in mind in all up-coming program loans for transition econo-mies.

The Mongolian

experience con-

firms that success

and speed of tran-

sition crucially de-

pend on three sets

of factors: initial

conditions, exter-

nal factors, and

reform strategies.


he Forestry Sector Program Loanwas in response to the Govern-ment of Nepal’s request for assis-tance following its Master Plan forthe Forestry Sector. The Program

was to be the first phase of the Government’ssystematic efforts to restore the forest cover.The rationale for the Program was appropri-ate given the continuing forest degradationand destruction caused by encroachmentfrom poor people, an inappropriate legalframework for exploiting forestry resourc-es, weak enforcement of regulations, and thelack of a well-defined, long-term forestry de-velopment plan. Formulation of the Programwas carried out without the benefit of a pro-gram preparatory technical assistance. Sec-tor analysis was inadequate with overoptimistic or unrealistic targets both in re-gard to the policy reform measures and theinvestment component.

The Program’s objectives were to (i) en-courage forestry sector policy reforms, and(ii) support the necessary institutional re-structuring. The Program comprised twomain components: (i) policy and institution-al reforms aimed at restructuring the Minis-try of Forests and Soil Conservation (MFSC)and increasing the role of the community andprivate sector in forest management; and (ii)investment aimed at reforesting degradedforests, improving management of naturalforests, restoring major watersheds, protect-ing the habitat, establishing biogas plants,and supporting medicinal and aromatic plant

cultivation. Two technical assistance (TA)grants accompanied the Program to enablethe Government to carry out (i) monitoringand evaluation (M&E), and (ii) equitable andefficient energy pricing policies. The AsianDevelopment Bank (ADB) provided a loan of$40 million equivalent and TA grants of$698,000. The loan was to be released in twoequal tranches once the specific conditionsfor each tranche were met.

The overall implementation of policy re-form measures was partly effective. Failureto comply with some policy conditions, par-ticularly the passage of the Forestry Act andits enabling bylaws, led to the cancellation ofthe second tranche. A few of the importantpolicy conditions have remained unfulfilledto date (such as the establishment of a refor-

NEPAL

Forestry Sector Program

The Program was

to be the first

phase of the

Government’s

systematic efforts

to restore the for-

est cover.


estation fund and the promotion of privateforestry) because they are no longer relevantor circumstances have changed. Many of thesecond tranche conditions were fulfilled af-ter the program period.

The most effective element was the pol-icy reform on community forestry where thetargets for the formation of user groups andthe area of natural forests handed over touser groups were exceeded. But implemen-tation of leasehold forestry was not effectivedue to practical difficulties involved and theGovernment’s preference for communityforestry. Institutional reform measures aimedat strengthening the various departmentswithin MFSC were implemented with vary-ing degrees of success.

The performance of the investmentcomponent, affected by the delay in the pas-sage of the Forestry Act, was generally poor.While targets for setting aside land for habi-tat protection, for the establishment of bio-gas plants, and for support to farmersgrowing medicinal and aromatic plants weremet, only partial achievement was realizedin the more critical subcomponents of refor-estation (less than 40 percent), natural for-est management (about 20 percent), andforest plantation and other area-based soilconservation treatments (48 percent).

Program implementation was hamperedby the lack of capacity in the field to organizethe human resources, equipment, and ma-terial necessary to carry out the investmentcomponent of the Program. Administrativeand coordination weaknesses in MFSC werecompounded by the lack of an acceptableM&E system in addition to the frequentchanges of staff. The close monitoring of ADBthrough various review missions apparentlydid not impact significantly on the effectiveimplementation of the Program.

Non-compliance with loan covenants onmajor policy reforms relate to the failure topass the Forestry Act, select leaseholders foraward of leasehold forestry, create a refor-estation fund, and specify forest products tobe prohibited for export. This led to the can-cellation of the second loan tranche. Com-pliance with administrative covenants wasgenerally better. Compliance with covenants

relating to the use of funds under the invest-ment component was not fully fulfilled, par-ticularly that on the use of counterpart fundsto establish large-scale plantations and nat-ural forest management.

The two TAs were not effective. An effec-tive M&E system was not put in place. Sup-port for the M&E division was not apparentwithin MFSC and the division was not in aposition to exert any influence on the com-pliance of some of the major reform mea-sures. The lack of a full-time program directorfurther constrained monitoring of the Pro-gram. The Government did not followthrough with the recommendations on eq-uitable and efficient energy pricing policies.

As for program results, reforestation offorests was only partly achieved, mainly withencouraging response to community forest-ry. The original target of forestland to behanded over for community forestry wasexceeded by more than 100 percent. Thepriority given to community forestry and theGovernment’s readiness to hand over forestmanagement to local community usergroups marked a very significant change inpolicy implementation.

Reforestation through leasehold forest-ry was only partly effective as leaseholderswere mainly confined to poor farmers’groups (with a very insignificant area allo-cated for industrial leasehold forestry). Theissue is whether such an approach could besustainable as no fees were levied, or wheth-er it would be adequate as such leases weregiven in small parcels.

Institutional development performanceunder the Program was partly effective. Sat-isfactory strengthening was achieved withthe organizational structure of the Depart-ment of Forests to reflect changing prioritiesbrought about by the emphasis on commu-nity forestry. In contrast, the M&E capabilityof MFSC was not significantly improved. Thesuccess in the formation of the forest usergroups is the most significant change in in-stitutional development brought about by theProgram.

Income improvement resulted from theharvesting of forest products (fuelwood,herbal plants, etc.) and employment oppor-

The most effective

element was the

policy reform on

community for-

estry where the

targets for the

formation of user

groups and the

area of natural

forests handed

over to user

groups were ex-

ceeded.


tunities from reforestation and conservationactivities. The Program did not have a specif-ic component targeted at gender develop-ment. However, the primary products ofseveral of the investment projects were fueland fodder, and the Program substantiallyreduced the burden of gathering these prod-ucts, a major task allocated to female mem-bers of the household. The Program includedtraining courses for women in agricultureand forest management. It contributed pos-itively to the environment, particularlythrough its subcomponents on communityforestry and soil conservation.

A key issue is the role of the private sec-tor in forest management. Leasehold forest-ry, the apparently least effective of themeasures, was intended to provide the op-portunity for private sector involvement inforest management. But private sector invest-ment was not encouraged by the various stiffconditions required for its participation. An-other issue is the need to address the basiccause of forest degradation, i.e., poverty andvested interest, before reforestation and oth-er forest activities are pursued. A third issueconcerns the absorptive capacity of the Gov-ernment requiring rationalization of variousoffers of external assistance to effectively usethe existing staff capacity. This is linked to thefourth issue of streamlining the mechanismfor coordination of aid agencies.

The performance of the Forestry SectorProgram Loan is rated partly successful. Thedesign of the Program could have focusedmore directly on addressing the needs of thepoor. The program components taken as awhole were partly effective in terms of thepolicies to be pursued and the investmenttargets undertaken. Many of the policy re-forms have since been fulfilled. A positive re-sult of the Program was the policy thrustfavoring community forestry through forestuser groups. Overall impact on institutionaldevelopment is partly effective.

Lessons learned include the need forcomponents of a forest management pro-gram to address poverty and the vested in-terests (including illegal loggers andencroachers); program design and target

setting should be based on a credible forestmanagement plan; an M&E system shouldbe established early during program imple-mentation; and government ownership of TAshould be obtained.

For follow-up actions, the Governmentshould streamline the Forestry Sector Coor-dinating Committee and ensure that theCommittee meets every quarter. The Govern-ment should have the M&E system in placeby the end of 2001.


he Tourism Infrastructure Devel-opment Project aims to increaseforeign exchange earnings. Tour-ism is perceived as one of the fewareas where Nepal enjoys a com-

parative advantage and has scope for furtherdevelopment to meet this goal. The Projectwas designed to increase the average lengthof stay and spending by tourists in Nepal. Thespecific project outputs underlying this pur-pose are (i) an expansion in the number ofattractive tourist sites by improving five exist-ing sites principally around Pokhara, but also

in Gorkha; (ii) improved accessibility ofPokhara by air through upgrading Pokharaairport; (iii) upgraded capability of the NepalAcademy of Tourism and Hotel Management(NATHM) to provide trained human resourc-es; (iv) improved tourism promotion; and(v) enhanced public sector institutional ca-pabilities. Two advisory technical assistanceprojects were provided to support theProject. The Project’s initiatives are expectedto encourage tourists to visit additional plac-es, principally in Pokhara, and hence to staylonger while at the same time catalyzing pri-

Tourism InfrastructureDevelopment Project

NEPAL

The Project was

designed to in-

crease the average

length of stay and

spending by tour-

ists in Nepal.


vate sector investment in facilities such asaccommodation, travel agencies, guide ser-vices, cafés, restaurants, and souvenir shopsto cater to the tourists and capture the in-creased tourist spending. The Project’s de-tailed design also gave importance toimproving environmental protection, build-ing public-private sector linkages, and involv-ing communities in the developmentprocess. In parallel with the Project, the Gov-ernment was to improve the policy frame-work for tourism development, and so hadestablished an action plan for this prior tothe start of project implementation.

Project implementation started in 1992and was substantially complete by the endof 1997, one year later than expected. Signif-icant events during implementation were thewithdrawal of the United Nations Develop-ment Programme (UNDP) and its cofinanc-ing of $3.2 million because of disagreementwith the Government over autonomy forNATHM; delays in setting up the project man-agement unit and awarding contracts; andfailure of a civil works contractor for onesubcomponent. At the time of completion,the majority of the non-UNDP-financed in-puts had been provided as planned. Themain exceptions are one of the tourist sitesand one of the two centers to be used forimproving tourism promotion, both of whichare incomplete and nonoperable. The qual-ity of the completed works is sufficient forthe type of service expected. The cost of theimplemented Project is $8.93 million, whichis only 61 percent of the expected amountbecause of cost savings and the withdrawalof UNDP support. There are loan savingsequivalent to $2.81 million.

The Project’s objective and concepts arehighly relevant to the development objectivesof both the Government and the Asian De-velopment Bank (ADB). Nevertheless, thedesign of the Project did not give adequateattention to several important aspects, whichlimits the relevance of the outputs to thebroader purpose and goal. Important designweaknesses are the deletion of preappraisalproposals to market the tourist sites, inade-quate arrangements to involve the privatesector during the detailed planning stages of

the tourist sites, failure to recognize con-straints within the institutional arrangementsof the private sector that limit its ability to rep-resent all members and link with the publicsector, and a poorly conceived tourist pro-motion component. Apart from their inade-quate coverage of aspects related to the lastthree weaknesses, the feasibility and projectidentification studies, which preceded ap-praisal, were comprehensive and adequate.Deletion of tourist site marketing was an add-ed weakness introduced during appraisal.

Substantial increases in tourist visits haveoccurred at only one of the sites improvedunder the Project. Another site showed mod-est increases; two of the other tourist siteswere improved and may attract more tour-ists and commercial activity in the future, buthave not done so yet; and the fifth site is un-likely to have any impact on tourism. Privatesector commercial activity has increased atonly one site, but not all the increase is incre-mental. More effective involvement of theprivate sector in project planning and imple-mentation may have improved efficacy andefficiency of this component.

By 1999, the number of passengers us-ing Pokhara airport had almost doubled toabout a quarter of a million compared withthe early 1990s. In 1992, a new law allowedadditional airlines to operate domestically,which stimulated a rapid increase in the

By 1999, the num-

ber of passengers

using Pokhara air-

port had almost

doubled to about a

quarter of a million

compared with the

early 1990s.


number of flights and passenger throughput.Without the Project’s airport improvements,the continuation of this increase in numberswould not have been possible, and the air-port component was effective in improvingtourist access to Pokhara. However, the avail-able statistics do not show how much of theincreased airport throughput represents in-cremental tourism at the national level, asopposed to just a redistribution of touristswithin the country.

At a broader level, accommodation andtour service businesses in Pokhara have sig-nificantly increased in number over the pastfew years. It is possible that this has been aresponse to the greater number of arrivalsthrough the airport, as well as other projectactivity. However, utilization is low and, forexample, hotels have occupancy rates of onlyabout 25 percent, implying significant eco-nomic inefficiency.

The Project’s investments in NATHM haveenabled it to maintain its intake of studentsin short-term courses and add a new three-year degree course. Graduates appear to bereadily employed and this component hascontributed in the manner expected. Twotourist service centers (TSCs) were built un-der the tourism promotion component andaimed to provide information to encouragetourists who had already arrived in Nepal tovisit other sites and stay longer, as well as pro-vide general support to the industry. ThePokhara TSC was not completed and doesnot yet operate, although the Governmentplans to finish the facility. The KathmanduTSC is some distance from the main touristareas of Kathmandu, and few tourists use it.It supports tourism in other ways, but thesefunctions could have been provided at low-er cost by alternative arrangements. WithUNDP’s withdrawal, the Project had limitedability to effect planned institutional change.Nevertheless, important change did occurunder a replacement UNDP program andwith support from a second ADB project inthe tourism sector. The public sector is nowmore appropriately structured to supporttourism but still requires the transfer of somefunctions to the newly created, autonomous,and independently funded Nepal Tourism

Board. Change on the public sector side hasrevealed weaknesses within the private sec-tor structure with representative organiza-tions being politicized and not representingtheir members equally.

The average length of stay by tourists inNepal and their spending over the past15 years have been relatively constant, andthe available statistics do not show any sig-nificant impact attributable to the Project. Thenumber of tourists visiting Nepal has in-creased over this time, and more particularlysince before the start of the Project, and it ispossible that the Project contributed to suchan increase, even though this was not a stat-ed project aim. However, partly due to inef-fective project monitoring, data are notavailable to establish directly what part, if any,of the national increase in tourist numbers isattributable to the Project.

Apart from tourism, the Project is alsoproviding significant social benefits to localpeople in the form of improved urban amen-ities, such as drainage, sewerage, and pedes-trian access in parts of Pokhara and Gorkha;road access in Sarangkot; electricity and ker-osene supply and public water faucets forvillagers in the ecotourism developmentarea; and better airport services for local trav-elers using Pokhara airport. The number ofbeneficiaries is significant in each case. Oth-er impacts have been less significant. Theenvironmental impact has been mainly pos-itive with the ecotourism concept suitable forsupporting increased tourism in rural andforested areas. Institutional and policychanges under the Project have been rela-tively minor. The two technical assistanceprojects contributed to the formulation ofprojects to improve regional airports and thecontrol of pollution in Phewa Lake and arerated as successful.

Sustainability is uncertain for three of thetourist sites because of limited resources andcapability of local government units to main-tain and operate the urban facilities, and be-cause of the inexperience and limitedresources of the Department of Archeologyfor operating the palaces at Gorkha.

Overall, the Project is rated partly suc-cessful. The Project is relevant to develop-

The public sector is

now more appro-

priately structured

to support tourism

but still requires

the transfer of

some functions to

the newly created,

autonomous, and

independently

funded Nepal Tour-

ism Board.


ment objectives, but while the airport upgrad-ing and NATHM components worked well,the other three components had significantshortcomings in efficacy and/or efficiency.Questions over the sustainability of severalcomponents also limit the success of theProject. The Project’s socioeconomic im-pacts are moderate. The largest weakness ofthe Project was its poor linkage with the pri-vate sector, despite a stated aim to improvethis. This weakness meant that the improve-ment, of e.g., tourist sites, was made largelywithout private sector participation, and thelatter’s efforts have led to overinvestment insome areas. Both the Government and ADB’soperational department consider the Projectsuccessful, however, particularly in view ofthe achievements of the Pokhara airport up-grading component.

The major issues concerning tourismare the lack of resources and capabilities ofthe municipal governments in maintainingthe urban infrastructure created under theProject and similar facilities; and the lack ofwork in restoring the environmental qualityof Phewa Lake despite the many studies thathave already been completed, includingsome under the Project. Key lessons includethe following: (i) community involvement indesign and implementation can enhancesubsequent operations, but such involve-ment may cost more and cause implemen-tation delays; (ii) a clear view of the type ofservice to be provided is needed when de-signing facilities such as the TSCs; (iii) theprivate sector will not automatically respondto the opening up of new tourist sites andsuch sites should be actively marketed; (iv)the private sector can play an important rolein the design of tourist sites to ensure thatthey are practical from a tour operator’s per-spective; (v) ecotourism can work, but com-munity lodges need to be subject to fullfeasibility and marketing studies before con-struction; (vi) where there are many inexpe-rienced implementing agencies, the early andcomplete formation of a project manage-ment unit is needed to avoid delays and oth-er problems; and (vii) monitoring requiresspecific attention from project supervisors

at an early stage of implementation.A number of recommendations have

been made to enhance the Project. Theseinclude increasing promotion of the touristsites, early opening of the palaces at Gorkhaunder viable operating arrangements, anddesigning short treks to improve utilizationof the lodges in the ecotourism area. Alsorequired are reestablishing the parking lotand turning circle at the top of the Sarangkotaccess road, providing additional equipmentto NATHM and upgrading some of its cours-es, providing for sullage disposal in Pokhara,and improving the cleanliness of Pokhara air-port.


he Agriculture Program loan wasapproved by the Asian Develop-ment Bank (ADB) in 1990 to sup-port the Pakistan Government’seffort to address problems and

constraints in the agriculture sector througheconomic restructuring and structural ad-justment. The major objectives of the Pro-gram were to increase agriculturalproduction and productivity on a sustainablebasis and to raise domestic resources forproductive investment in the agriculture sec-tor. The Program supported a structural ad-justment and development program,

market-oriented policies, and private sectorparticipation in agricultural activities with thepublic sector providing institutional support.The Program consisted of a series of policyand institutional reforms to improve produc-tion, productivity, marketing, and distributionefficiency, as well as to ensure equitable dis-tribution of returns and effective manage-ment of the agriculture sector. The scopeincluded (i) progressive adjustment of pric-es of key agricultural inputs and outputs toreflect real resource cost, (ii) gradual trans-fer of certain public sector operations to theprivate sector, and (iii) orientation of public

PAKISTAN

Agriculture Program


sector investment toward rehabilitation andimprovement of existing facilities.

ADB provided a loan of $200 millionequivalent from its Special Funds resourcesto support the Government program of agri-culture sector reforms. The first tranche of$100 million was released in December 1990and the second tranche on 17 March 1994.The loan account was closed on 30 June 1994after a one-year extension. The proceeds ofthe loan were utilized to cover the foreignexchange cost of eligible imported items forthe agriculture sector that were procuredfrom ADB’s member countries, and match-ing equivalent funds in local currency wereprovided by the Government to carry out theprogram of sector reforms. The Ministry ofFinance and Economic Planning was theExecuting Agency and the Ministry of Food,Agriculture, and Livestock the ImplementingAgency. The State Bank of Pakistan was givenresponsibility for the administration and utili-zation of loan proceeds. The task of monitor-ing and coordination was delegated to theEconomic Affairs and Statistics Division.

The Program constituted the first com-prehensive strategy of the Government toaddress the most pressing problems en-countered by the agriculture sector in the late1980s. It provided the Government with fi-nancial resources to address severe budget-ary constraints and supported theimplementation of a series of policy reformsand strategic adjustments to revitalize theagricultural economy. The reform measuresare highly relevant to removing market dis-tortions and leading to market liberalization.

Most of the reforms agreed in the Gov-ernment’s development policy letter wereundertaken. However, the reforms carriedout were not comprehensive or adequate,and were not effectively implemented. Poli-cy reforms on deregulation of the fertilizersubsector were not completely carried out,although the subsidy on fertilizer import wasremoved. Private sector participation in fer-tilizer import and export, marketing, and dis-tribution is gradually increasing, but progresshas been hampered by active public sectorinvolvement in fertilizer marketing and distri-

The major objec-

tives of the Pro-

gram were to

increase agricul-

tural production

and productivity

on a sustainable

basis and to raise

domestic resources

for productive

investment in the

agriculture sector.


bution. The wheat procurement price wasincreased but is still significantly below theinternational market price. The consumerwheat price subsidy was not eliminated. Fruitand vegetable exports were not promotedeffectively due to lack of support infrastruc-ture. Reforms to increase the production ofedible oils and use of certified, improvedseeds were not effectively carried out. Re-forms in irrigation efficiency were adopted,but progress has been slow, especially inachieving full cost recovery through irriga-tion service fees. Improving agricultural out-put in irrigated areas is dependent ondelivery to most farmers of a package of farmpractices focused on improved onfarm wa-ter management but this has yet to be real-ized. Cost recovery of irrigation has increasedbut is still inadequate; the provincial govern-ments are continuing their efforts to achievefull cost recovery.

The Agriculture Wealth Tax Act was en-acted in 1994 with an associated increase inthe agriculture land produce index thatwould enhance agriculture sector tax collec-tion. This has created awareness in rural ar-eas on paying taxes on farm revenues.However, the Program paid little attention tothe institutional capacity to collect tax, andthe amount of tax revenue collected is signif-icantly below that envisaged.

Public expenditure in the agriculture sec-tor declined substantially during the loan pe-riod. Agricultural institutions remain weakwith low levels of budget support, and thescope of these institutions to provide basicservices such as research, extension, andregulatory functions have been impaired.

The Program objectives were too broad,covering a number of issues. Each of theseissues is complex and the proposed chang-es have ramification for the entire economy.There was an absence of detailed policy stud-ies showing the likely impacts of the pro-posed changes. For example, the removal ofthe fertilizer subsidy without a full increasein the crop procurement price to marketprice resulted in higher fertilizer costs in-curred by the farmers. The savings in fertiliz-er subsidy have been nullified by theincreased expenditure in subsidy to ureamanufacturers and public sector fertilizeragencies.

The policy and development agenda ofthe Program lacked priorities and perfor-mance indicators, and the implementationarrangements did not provide for good co-ordination and cooperation among stake-holders and the concerned institutions,including Government line agencies. This se-verely limits opportunities to monitorprogress, identify needed adjustments in thesector program, and conduct an effectivepolicy dialogue between the Governmentand ADB. The implementation of policy re-form has not been effective.

The agriculture sector has been per-forming below expectation for the last twodecades and it now appears to be stagnat-ing. The sector grew at an average annualrate of about 3 percent from 1950 to 1997.In recent years (FY1997-FY1999), the aver-age rate of annual agricultural output hasbeen less than 1 percent. Despite achieve-ments such as the removal of fertilizer subsi-dies and an increase in private sectorparticipation in the import and export of ag-ricultural commodities, many market distor-tions remain, including low procurementprices for wheat and oilseeds, high consum-er price subsidies for wheat and other com-modities, and a significant involvement of

Agricultural institu-

tions remain weak

with low levels of

budget support,

and the scope of

these institutions

to provide basic

services such as

research, exten-

sion, and

regulatory

functions have

been impaired.


public sector agencies in fertilizer marketingand distribution.

The absence of clear targets in the Pro-gram has left both ADB and the Governmentwith a false sense of achievement in institut-ing reform. The impacts of the reforms havenot been examined in detail. The emphasishas been on compliance with loan cove-nants. Overall, the impact of the policy re-forms is not significant. The Program has yetto achieve the ultimate objective of promot-ing a free market for agricultural inputs andoutputs. Thus, Program efficacy has been lessthan satisfactory.

The Government lacked the commit-ment to adopt strategies and consistent pol-icies in implementing the Program. It wasreluctant to effectively implement politicallysensitive reforms, such as the collection ofagricultural wealth tax and removal of con-sumer price subsidies on wheat and othercommodities. Little support was provided forrural infrastructure facilities, extension andresearch, and development. Program sus-tainability is less likely if the present situationof weak commitment and inadequate fund-ing continues.

The Program was overly ambitious inpushing for a wide range of reforms withoutconsidering the institutional capability andthe preconditions for effective reform mea-sures. The Program contained too many re-form measures and each of them was treatedtoo broadly to be effective in bringing aboutmeaningful changes. The sequencing of thereforms was poorly thought through. Therewas an absence of clear targets to beachieved within a time-bound policy frame-work. However, the Program demonstratedthe value of, and benefits arising from, closecooperation between the Government andADB in designing and implementing impor-tant sector programs. Although many reformmeasures were inadequately carried out,

there is now a basis for further strengthen-ing the reforms with strong Governmentcommitment. In view of the many constraintsin implementation, weaknesses in programdesign and the mixed results, the Program israted partly successful.

Future policy reforms to be pursued byADB should be specific, prioritized, and fo-cused on a few specific and relevant issuespertaining to ADB’s strategic objectives in thecountry. The central thrust of any future pro-gram should be on a greater reliance onmarket forces and reforms that aim to cor-rect distortions, such as the removal of sub-sidies and increase in agriculture operationalefficiency. An important lesson is that imple-menting a program in a highly traditional so-ciety (with politically well-connectedlandholders and vested interest groups) andin a country with poor governance, requiresa step-by-step approach and a long-termcommitment. It would be better to disbursethe loan over a longer period of 5-10 years,with the disbursement conditional on intro-ducing and implementing reforms thatwould lead to market liberalization. If suchan approach had been followed, a constitu-ency of support could have evolved, reflect-ing civil participation in the process. It wouldalso have encouraged ongoing policy dia-logue, and facilitated adjusting the policymatrix to gain better sequencing of the re-form measures.

Reform measures that have significantpolitical and social implications need to becarefully assessed and analyzed to determinethe Government’s commitment, institution-al capability, good governance, and strongpolitical will to implement such measures. Itis futile to include such reform measures inthe Program if the Government is weak anddoes not have the capability to implementthe proposed measures.

The central thrust

of any future pro-

gram should be on

a greater reliance

on market forces

and reforms that

aim to correct dis-

tortions, such as

the removal of

subsidies and in-

crease in agricul-

ture operational

efficiency.


he Project was the first in primaryeducation supported by the AsianDevelopment Bank (ADB). At thetime of appraisal, the literacy rateamong women in Pakistan was

14 percent (5 percent in rural areas), one ofthe lowest in the world. Girls’ participationrate1 was only 33 percent (compared withabout 70 percent for boys), and only half ofthe girls who started school finished class 5.The Government’s National Education Poli-cy (1979) targeted the attainment of univer-

sal primary education for girls by 1992. Theobjectives of the Project were to increaseaccess to schooling for girls in rural areas,improve the quality of instruction, increasethe retention rate of female students, andupgrade the management and supervisionof the primary education system.

The project design was based on fourconcepts: (i) five-room community model

PAKISTAN

Primary Education (Girls)Sector Project

1 Participation rate is defined as the percentage of 5-9 year old girlsenrolled in primary school.


schools (CMSs), one teacher per grade rath-er than single-room multigrade, single-teach-er schools; (ii) a CMS acting as aminiresource center to the cluster of smallschools around it; (iii) a learning coordina-tor at the district level to provide assistanceto CMS and cluster school teachers to im-prove subject content and instructionalmethodology; and (iv) involvement of par-ents and the local community through theestablishment of school management com-mittees (SMCs) and parents-teachers asso-ciations (PTAs). The Project was the firstphase of an envisaged series of projects insupport of the Government’s policy of pro-moting universal primary education, and es-tablished 832 CMSs in 20 percent of all unioncouncils2 in the country.

The actual cost of the Project at comple-tion was $52.85 million equivalent (66 per-cent of the original estimate). Of this amount,the Government of Pakistan financed $6.34million equivalent (12 percent) of the localcurrency cost, and ADB contributed $42.61million (80.6 percent). The Norwegian Gov-ernment provided a grant amounting to $3.9

million equivalent (7.4 percent) for the inno-vative activities component. Total loan can-cellations amounted to $21.59 million (34percent of the loan amount). The loan wasapproved in October 1989 and the Projectwas completed in September 1996. A delayof 17 months in completing the Project wascaused by difficulties in the organization ofsubproject (provincial) appraisal teams, theappointment of staff to the federal coordi-nating unit and the project implementationunits, and the inadequate monitoring andinformation system.

While providing a number of well-pro-vided model schools, disparities were gen-erated in terms of facilities, learning materials,and human resources among schools andcommunities in the villages. The formulationand design of the Project would have beenmore relevant if they had been directed to-ward the improvement of smaller (2-3 room)schools or the many shelterless schools thatcomprised 40 percent of all schools at the

2 A union council is a village with an average population of about20,000.

While providing a

number of well-

provided model

schools, disparities

were generated in

terms of facilities,

learning materials,

and human

resources among

schools and

communities in

the villages.


time of appraisal. While accomplishing its tar-get of increased access (35,000 new studentplaces), the Project did not raise the qualityof education significantly. In spite of enrol-ments increasing four-fold in project schoolsin the last 10 years, the schools are operatingbelow capacity. This underutilization is duemainly to the high dropout rate (more than50 percent) over the five-year schooling peri-od, and the large number of school-aged girlswho stay out of school (62 percent of girls 5-9 years do not go to school). Parents must beconvinced that education is of sufficient qual-ity because of the cost of education and theopportunity cost of children’s work. Out-come indicators measuring quality remainpoor: 20 percent of students repeat a gradelevel, the student-teacher ratio has worsenedfrom 40:1 to 60:1, and class sizes have grownto as many as 55-80 students per teacher. Theelimination of multigrade teaching, one of theobjectives of the Project, has not been at-tained.

Considering the 20 percent underutiliza-tion of facilities financed under the Projectand the higher construction cost per studentplace in comparison with other similarprojects, the achievement of project purposein relation to the use of inputs under theProject for the hardware component is con-sidered inefficient. The use of project inputsfor the software component was minimal.This highlights the need for a longer gesta-tion period and continuing inputs over thelong term. Internal and external efficienciesare low. The need for a comprehensive data-base and information system was not ad-dressed. There is no monitoring system foreducational improvement for the CMSs asidefrom the minimal supervision of the districteducational office.

The Project benefited mainly lower in-come families, the large majority of whomgain their livelihood in farming—families thatsurvive on around PRs30 ($0.50) per personper day. The major contribution of the Projectlies in its sociocultural impact, i.e., its contri-bution to the behavioral change of the most-ly illiterate rural people so that girls’ education

is more readily accepted now. However, par-ents’ involvement, community participation,and links between school and local commu-nity are still weak. The establishment of SMCsand PTAs is a significant improvement instrengthening the school-community rela-tionship that will ensure quality and sustainedimprovement in the long term.

The quality of instruction has not im-proved much as evidenced by the poor edu-cation indicators in the project schools.Project design was too optimistic in its ex-pectations of change in social attitudes anddid not pay enough heed to the need for amuch longer capacity-building and develop-ment period. It did not achieve its purposewith regard to: (i) establishing CMSs as theresource center of the cluster schools; (ii)establishing learning coordinators as cata-lysts for quality improvement; and (iii) elimi-nation of multigrade teaching. The inclusionof a kindergarten class in the project designwould have made a major impact on increas-ing enrolment. There are sustainability prob-lems due to the perennial lack of budgetaryallocations for operation and maintenance.

Sectorwide issues that are systemic innature have constrained the performance ofthe Project. Systemic problems include thelack of teachers (caused mainly by the banon government hiring), inadequate budget-ary allocations for operation and mainte-nance, weak management, and the absenceof an effective monitoring and informationsystem. Nonetheless, the Project has laid afoundation for efforts to build on. The phys-ical facilities, teachers, and administrators arein place. PTAs and SMCs have made a good,albeit a tentative start. Taking into accountthe less than satisfactory state of project out-comes since the Project was completed, theProject is rated partly successful. However,with the groundwork laid by the Project andthe lessons identified from its design, imple-mentation, and outcomes, it is expected thata follow-up project, already in operation, willbe better positioned to produce the desiredresults.

Sectorwide issues

that are systemic

in nature have

constrained the

performance of

the Project.

Systemic problems

include the lack of

teachers (caused

mainly by the ban

on government

hiring), inadequate

budgetary alloca-

tions for operation

and maintenance,

weak manage-

ment, and the

absence of an ef-

fective monitoring

and information

system.


he Project is located in SorsogonProvince, one of the least devel-oped regions in the Philippineswith an incidence of poverty of78.6 percent at appraisal in 1988.

The objective of the Project was to reducerural poverty by increasing income, generat-ing employment, and improving living stan-dards of subsistence farmers and fishingcommunities in Sorsogon Province. TheProject comprised five components: (i) road

improvement and rehabilitation; (ii) commu-nal irrigation systems (CISs) and flood con-trol; (iii) health services throughschistosomiasis control and domestic wa-ter supply; (iv) support services for agricul-ture and fisheries, including abacarehabilitation, plant nurseries, and artificialreefs; and (v) project management and train-ing. The Project also attached an advisorytechnical assistance (ADTA) for CommunityMobilization and Development.

Sorsogon Integrated AreaDevelopment Project

PHILIPPINES


The project cost was estimated at $30.1million at appraisal, financed by a loan of$24.1 million from the Asian DevelopmentFund, and the remaining by the Government.The actual project cost at project comple-tion was $29.9 million. However, as someroad works were still ongoing, the Govern-ment provided its own funds to continue, andcompleted the remaining construction by1998. Consequently, the final project costs atthe time of the project performance auditreport (PPAR) were $32.3 million.

By focusing on poverty reduction in aneglected region, the Project was highly rele-vant to the strategic objectives of the Gov-ernment and the Asian Development Bank(ADB). Road development improved ruralinfrastructure and stimulated the local econ-omy. The trickle down impact of economic

growth induced by the Project was effectivewhen the majority of the population waspoor; the Project reduced rural poverty byabout 15 percent in the project area. The in-tegrated interventions through schistosomi-asis control, domestic water supply, andmitigation of floods improved health condi-tions of the poor. However, the subcompo-nents of abaca and plant nurseries were lessrelevant as their outputs (free seedlings) con-tributed little to the Project’s objective.

The Project accomplished most of themajor targets set for the major components,such as roads, flood control, CISs, and healthservices. Some minor subcomponents, suchas plant nurseries and abaca, did not fulfilltheir targets (but the shortfall of these tar-gets did not seriously affect the Project’s ob-jective because these subcomponents wereless relevant).

Project implementation suffered seriousdelays in the first three years but acceleratedlater when project staff gained experience.As a result, the Project was completed with adelay of 34 months. The project economicinternal rate of return (EIRR) of 17.6 percentestimated at appraisal was reduced to 11.5percent at the time of the project comple-tion report (PCR), and further reduced to 5.2percent at PPAR. The EIRR at appraisal andPCR overestimated the benefits from the ag-riculture component, and the substantialshortfall in its actual achievements led to thesharply reduced EIRR.1

The Project’s sustainability varies by com-ponent. Roads, flood control, and health ser-vices, which accounted for over 70 percentof the Project’s cost, are likely to be sustain-able as they have been maintained well bygovernment agencies that have a sufficientamount of regular budget, competent staff,and adequate equipment. The sustainabilityof the CISs is at risk but can be strengthenedif urgent steps are taken immediately. Thesustainability of the plant nurseries and theabaca laboratory is poor.

The Project had a significant institutionalimpact on local governments, which were

1 However, the EIRR calculation does not capture the substantialamount of indirect and unquantifiable economic benefits generated bythe road development component, which stimulated the local economy.

The trickle down

impact of eco-

nomic growth in-

duced by the

Project was effec-

tive when the ma-

jority of the

population was

poor.


strengthened by absorbing most of theproject staff that received substantial train-ing and gained extensive experience underthe Project. It is envisaged that these staff willplay a valuable role in future design and im-plementation of development projects inSorsogon Province. The Project’s institution-al impact on beneficiaries is limited by theshort implementation period of the ADTA andthe lack of continued institutional supportafter project completion.

Overall, the Project’s development im-pacts in Sorsogon Province are readily visi-ble. It improved rural infrastructure,stimulated business, and promoted econom-ic growth. As 11 out of 16 municipalities up-graded their classification levels of economicdevelopment, the Province no longer has anyClass VI municipalities (the poorest). TheProject achieved its objective and reducedrural poverty by about 15 percent in theproject area. Based on the above assess-ments, the Project is rated successful. Theperformance of both ADB and the Govern-ment is satisfactory.

Key issues were identified. First, theProject suffered serious delays in its initialyears, with a major cause being the lack ofreadiness of the project offices at the start ofproject implementation. Due to the lack offinancing before loan effectiveness, theseoffices, although established, were unableto recruit staff, conduct staff training, and pre-pare workplans. In the future, project approv-al should focus on their readiness forimplementation. Otherwise, sufficient timeshould be provided for the start-up phase ofproject implementation.

Second, the slow release of project fundswas the primary reason for most delays un-der the Project, caused by (i) the large num-ber of signatures required for processing

disbursement vouchers, and (ii) insufficientstaff capacity in the agencies involved in ap-proval and release of funds. Future projectsshould minimize the number of governmentagencies involved in the funds flow process;full-time staff should be assigned to speedup paper processing in the agencies that areneeded in this process.

Third, while the Project reduced poverty,about 50-60 percent of people in the projectarea remained poor. These were mainly land-less and jobless laborers who were in tooweak a position to make use of the physicalinfrastructure invested under the Project. Theimpact of the community development un-der the ADTA was minimal due to its shortimplementation period and the lack of con-tinued institutional support. To maximize thepoverty reduction impact, future projectsshould include social preparation for thepoor before the physical investment. Institu-tional support for the poor should be con-tinued after project completion, which couldbe financed by ADTAs.

Lastly, the sustainability of the CISs ispoor, primarily due to farmers’ lack of will-ingness to pay for operation and mainte-nance, with an underlying factor being theweak leaders of the irrigators’ associationsand their lack of ownership of the CISs. De-mand analysis for future irrigation projectsshould be based on farmers’ willingness topay, which should be secured by writtenagreements with enforcement measures.

In addition to the above issues, theProject provided lessons relating to the de-sign of poverty reduction projects. The ap-proach to reduce poverty through improvinginfrastructure and promoting economicgrowth is effective when the majority of thepopulation is poor. However, as many land-less and jobless poor are less capable to takeadvantage of the new infrastructure, directinterventions are needed to remove the keyconstraints that they face. The impact of irri-gation projects on poverty reduction will belimited if the majority of the poor have noaccess to land, and the projects will benefitmainly the relatively better-off groups, suchas landlords, small landowners, and tenantswith regular incomes.

Overall, the

Project’s develop-

ment impacts in

Sorsogon Province

are readily visible.

It improved rural

infrastructure,

stimulated

business, and

promoted

economic growth.


he Kirindi Oya Irrigation and Set-tlement Project was intended todevelop underutilized land in thedry zone of Sri Lanka. Its mainobjectives were to increase food

and fiber crop production and create gain-ful livelihood for people barely covering theirsubsistence needs. The Project included theconstruction of the country’s largest earth-fill dam with a gated spillway and canals toirrigate 8,400 hectares (ha) of newly devel-oped command area. Additional water

would allow cropping intensity to increasefrom about 135 to 200 percent on an existingarea of about 4,600 ha irrigated from tradi-tional reservoirs (tanks). With reliable irriga-tion, yields were expected to increaseconsiderably.

The 1977 feasibility study assembled theconsiderable preparatory work undertakenby the Government, supported by limitedtechnical assistance from the Asian Develop-ment Bank (ADB). From the options consid-ered by the Government over time, the one

SRI LANKA

Kirindi Oya Irrigationand Settlement Project

The Project was

intended to de-

velop underutilized

land in the dry

zone of Sri Lanka.


proposed under the feasibility study was driv-en by political expediency. It was the bestprepared option and the Governmentwished to demonstrate its concern for peo-ple’s welfare in an economically depressedarea that had recently experienced civil dis-turbance. The feasibility study terms of refer-ence restricted analysis to the Government’sspecific request.

In December 1977, the original loan wasapproved by ADB, with a supplementary loanapproved in December 1982 and an addi-tional loan, referred to as Phase II, in Octo-ber 1986. The scope of the Project, whichclosely followed the design requested by theGovernment and defined in the feasibilitystudy, remained essentially unchanged overthree appraisals. There was the defermentof some of the irrigation implementation toa second phase and the addition of smallcomponents for rural credit, social forestry,livestock, and marketing. Inclusion of cottonand other subsidiary field crops was intend-ed to support the national policy of promot-ing crop diversification and limit irrigationwater demand on the large areas of perme-able soils to be developed under the Project.However, other projects experienced prob-lems in establishing cotton and so plans forthe crop were dropped under the supple-mentary loan. Reformulation during imple-mentation in 1991 reduced the developmentof new irrigation by about 3,000 ha due tolimited irrigation water availability and irriga-tion management problems. At completionin 1994, the area of new irrigation totaled5,400 ha, about 64 percent of the appraisedtarget.

The implementation period was morethan double the 7.7 years originally envisaged,due to (i) delays in the commencement ofmajor civil works, (ii) the effort required toobtain the additional funding needed to com-plete the project, and (iii) insufficient contrac-tor capacity due to the demands of the largecivil works program under the AcceleratedMahaweli Development Program. Political dis-turbances also disrupted work progress oc-casionally. Institutional constraints wereincreasingly noted and compensated for byprovision of additional consultants.

After a difficult period in the late 1980sand early 1990s, the irrigation scheme is per-forming better. Yields have averaged almost4 tons/ha despite a number of dry years suchas 1999. Cropping intensity has varied be-tween 114 percent and 200 percent over thepast 10 years, with an average of 171 per-cent since 1992 compared with the designtarget of 189 percent. Farmers have focusedon rice production with less development of


other field crops than envisaged, though ba-nana areas are expanding. Annual crops aregrown on a reasonable scale in drier years,though often without irrigation.

A total of 4,924 families were settled un-der the Project. These included 1,450 fami-lies displaced by the dam and irrigationdevelopment with the balance selected fromother areas of southern Sri Lanka. Appropri-ate settlement infrastructure, including safedrinking water, was provided. For many farm-ers resident in the new irrigation area, familyincome remains low with a survey conduct-ed for the Government’s project completionreport indicating an average income of $135per capita in 1994, just below the $140/capitapoverty line (in 1991 prices). However, in ab-solute terms their income has improvedsomewhat, particularly in the new irrigationareas. Malnutrition continues to be a severeproblem in the project area, particularly formothers and children.

The environmental record is mixed withsome significant disbenefits, notably a reduc-tion in salinity of the ecologically valuablecoastal lagoons. However, the human envi-ronment within the command area is nowaesthetically attractive compared to adjoin-ing slash and burn agricultural areas, whilemalaria incidence is reported to have fallensignificantly.

Project economic performance has beenpoor due to (i) implementation delays; (ii)high project cost; (iii) below target develop-ment of new land; and (iv) reduced crop-ping intensity, particularly on the new areasdue to limited water availability. Both the live-stock and forestry components, added inPhase II, performed poorly compared to tar-get. The EIRR is estimated at 2.6 percent.

While irrigation infrastructure is mainlybeing maintained by the Irrigation Depart-ment, water user groups will need to takemore responsibility for scheme operation andmaintenance. However, the main threat tosustainability comes from irrigation, agricul-ture, and human settlement development inthe catchment above the dam.

With the notable exception of the settle-ment component, the Project overall has per-formed below expectation, although itremains relevant to Sri Lanka’s developmentobjectives. However, its relevance is reducedsomewhat by the high cost and relativelysmall number of beneficiaries. Cost-effective-ness and implementation efficiency were low.The Project suffered from institutional prob-lems and had little impact on institutionaldevelopment. Although the ImplementingAgency’s accounting systems improved,project monitoring remains inadequate. Over-all, the Project is rated partly successful.

Aspects requiring particular attention inthe future include (i) the threat to project sus-tainability due to upper catchment degrada-tion and increasing use of water for irrigationupstream of the dam, which are reducingreservoir recharge and irrigation water avail-ability; (ii) irrigation management, with im-provements in this regard likely to havepositive impacts on income, nutrition, and theenvironment (requiring significant sociocul-tural change on the part of the irrigation ad-ministration as well as the farmers); and (iii)settlement, with a need to allocate land titlesto resident farmers and address nutritionalproblems in the project area and wider re-gion.

With the notable

exception of the

settlement compo-

nent, the Project

overall has

performed below

expectation,

although it

remains relevant to

Sri Lanka’s devel-

opment objectives.

However, its rel-

evance is reduced

somewhat by the

high cost and

relatively small

number of benefi-

ciaries.


he Project was to contribute to theGovernment’s efforts to improvethe main national road network,and thus facilitate economic de-velopment. To achieve this, the

Project aimed to (i) improve 390 kilometers(km) of roads and bridges to a level wherethey would be economically maintainableand provide reliable transport at reducedcost, and (ii) increase the efficiency and qual-ity of road maintenance. The latter involveddeveloping the local road maintenance con-tracting industry, providing equipment, andinstitutionalizing maintenance training. Theinputs comprised civil works, constructionsupervision consultants, maintenance equip-ment, training consultants, training aids, andoverseas fellowships. Consultants were pro-vided to prepare a possible follow-on project.The appraised cost of the Project was$45.65 million, and on 24 November 1987,the Asian Development Bank (ADB) ap-proved a loan of SDR28.34 million, then equiv-alent to $36.5 million. The Executing Agencywas the Road Development Authority (RDA).

The Project was greatly affected by prob-lems associated with the tendering andaward of contracts for the roadworks, andby changes in Government policy for roadmaintenance. The former problems com-prised delays resulting from the Govern-ment’s wish to award one contract to anonprequalified Government-owned corpo-ration, administrative delays, and lack of in-

SRI LANKA

Second RoadImprovement Project


terest and high bid prices by contractors be-cause of prior civil unrest in the project area.These problems resulted in cancellation ofthe first round of bidding, a substantial in-crease in unit construction costs and a con-sequent reduction in the roadworks to 147km, and a 3-year delay in the start of con-struction. Government policy for road main-tenance was changed in favor of having allroad maintenance done by its own road con-struction corporation, thereby excludingsmall contractors and rendering most of themaintenance improvement components re-dundant.

Further delays occurred during roadconstruction because of (i) the contractor’smanagement, and (ii) local residents’ objec-tions to quarry operations; these were sub-sequently resolved. The 147 km of roadworkswere completed and the quality of the con-struction was found to be satisfactory. Themaintenance training program was aban-doned soon after establishment, and themaintenance equipment was placed in thegeneral pool of equipment used by the Gov-

ernment-owned construction corporation.Some consultant inputs were reallocatedfrom maintenance training to improvingRDA’s contract management, and not all ofthe overseas training was utilized. Despitedelays due to civil unrest and some initial er-rors in details of the design, a follow-onproject was prepared by consultants asplanned. The Project was deemed completein early 1996 with a delay of over 4.5 years.The total project cost was $56.15 million; theloan, equivalent to $40.59 million, was fullydisbursed. The unit costs for the roadworkswere 156 percent higher than expected dueto price escalation during the delay period;some increase in quantities of materials; in-creased taxes; and most significantly, premi-ums applied by the contractor, presumablyto cover the risk of renewed civil disturbanc-es in the area.

The Project was successful in improvingthe riding quality of 147 km of roads; this ledto reductions in vehicle operating costs ofaround 25 percent and travel times of about20 percent. Compared with before the

The Project was

successful in im-

proving the riding

quality of 147 km

of roads; this led

to reductions in

vehicle operating

costs of around

25 percent and

travel times of

about 20 percent.


Project, transport companies are able to keepto schedules better and make better use oftheir existing fleets in providing additional tripsalong both the project roads and other roads.Transport is more reliable. The impact of theseimprovements on the general economy of thearea could not be determined due to the lackof data. However, traffic volume on the projectroads has increased more rapidly than ex-pected at appraisal. At the time of operationsevaluation, the improved roads had been inservice for 3-5 years and the improvementsin travel time, reliability, and cost were stillapparent. Nevertheless, little expenditure hasbeen made on maintaining the road surface,and cracks and other defects are beginningto appear. The roads are in a precarious posi-tion; if maintenance efforts are not increased,it is probable that rapid deterioration and lossof benefits will soon occur.

The success with the road improvementswas not repeated for the maintenance com-ponents because of the change in Govern-ment policy and abandonment of themaintenance training. The equipment wasused, but overall comprised a small propor-tion of the total equipment of the Government-owned corporation. Neither the equipmentnor the limited training addressed key weak-nesses in this corporation. Maintenance wasnot improved by the Project.

Overall, the Project was rated as partlysuccessful. The roadworks can yield substan-tial benefits as indicated by the reestimatedeconomic internal rate of return (EIRR) of 17.1percent if maintenance improves and 7 per-cent if it does not. At appraisal, an EIRR of22.5 percent was expected, but this was for alarger project scope. The overall rating alsotakes into consideration the failure of themaintenance component, and the substan-tial reduction in scope and delays experi-enced during implementation. There were nomajor environmental or social issues involv-ing the Project.

Inadequate maintenance remains an is-sue for roads in Sri Lanka as indicated by the

uncertainty about the sustainability of theproject roads. The key constraints are insuf-ficient budget allocation and a lack of objec-tive decision making in allocating the roadmaintenance budget at the national level,capacity constraints within the Government-owned corporation, and insufficient conti-nuity of work to enable the development ofprivate contractors. To improve mainte-nance, the Government will need to adoptappropriate policy and arrangements in eachof these areas, particularly, greater objectivi-ty in decision making. ADB could supportsuch initiatives and help establish systems fordata collection and analysis.

Key lessons from the Project include theneed to (i) be more realistic when formulat-ing and costing projects, (ii) base capacity-building efforts on actual needs determinedfrom diagnostic studies, (iii) have appropri-ate Government policies to support projectinitiatives, and (iv) establish monitoring sys-tems early. For road projects in Sri Lanka, theProject highlights the need to (i) take earlyaction when opening quarries, (ii) improvesafety provisions during construction, and (iii)consider hard shouldering of roadways andconstructing culverts and other structures tothe full width of the carriageway. In view ofthe uncertainty over maintenance funding,road projects may have to be designed onthe assumption that maintenance will beconstrained. Some of these lessons, such asabout quarries, hard shouldering, and widthof culverts, have been incorporated into sub-sequent projects. Subsequent projects haveincorporated arrangements to support thelocal contracting industry. ADB has also pro-vided technical assistance to address sever-al of the institutional weaknesses, particularlythose relating to tendering, and to study in-stitutional needs within the road sector.

In addition to addressing maintenanceissues, the Government should study the costand feasibility of hard shouldering the projectroads, and determine why the pavement iscracking.

Inadequate main-

tenance remains

an issue for roads

in Sri Lanka as

indicated by the

uncertainty about

the sustainability

of the project

roads.


Reev

alua

tion

Stud

y


he Project was the second of fourAsian Development Bank (ADB)projects in the health and popu-lation sector in Bangladesh. As afollow-up to the first project,

which aimed to improve the supply of es-sential drugs and enhance the effectivenessof the Government’s malaria program, theProject focused mainly on four selected dis-tricts—Comilla, Dinajpur, Jessore, and My-mensingh—for the improvement of healthcare and family planning (FP) services, mainlyin the rural areas. The Project was in supportof the policies of the Government under a

two-pronged approach to the provision ofmore effective health services to a wider pop-ulation: (i) shifting from urban-centered cur-ative care services to preventive healthservices focusing on the rural areas; and (ii)reducing the population growth rate. Theoverall objectives were to (i) improve the in-frastructure basically in primary health careand FP services in the four districts; (ii)strengthen the national-level systems for pro-curement, storage, and distribution of med-ical supplies and contraceptives, and formaintenance and repair of medical equip-ment; and (iii) strengthen project manage-

BANGLADESH

Health and Family PlanningServices Project

The Project focused

mainly on four

selected districts—

Comilla, Dinajpur,

Jessore, and

Mymensingh—for

the improvement

of health care and

family planning

services, mainly in

the rural areas.


ment and the management of medical sup-plies.

The actual total cost of the Project was$33.348 million equivalent compared with the$34.726 million equivalent estimated at ap-praisal. ADB financed $15.796 in foreign ex-change and $11.994 million equivalent in localcurrency. The Government contributed$5.558 million equivalent of the local curren-cy cost. The United Nations Development Pro-gramme was to cofinance consultingservices for the management of medical sup-plies in the amount of $0.21 million. Howev-er, that did not materialize. Loan savingsamounted to $6.97 million (25 percent of thetotal loan amount). The loan was approvedin December 1983 and the Project was com-pleted in December 1991, after an extensionof 3.25 years. The main causes of delay inproject implementation were lack of coun-terpart funds; and delay in the selection ofdomestic consultants, selection of sites and

land acquisition, and awarding of contracts.The greatest impact of the Project was in

generally benefiting women, particularlythose in the reproductive ages, as well as chil-dren. A survey of beneficiaries showed thataround 80 percent of users of the health cen-ters and district hospitals assisted under theProject were women. Both women and com-munity beneficiaries were appreciative of theservices provided by the project institutions.While health services benefit both genders,the emphasis on family health care, includ-ing mother and child and reproductive healthcare, helped ensure a positive impact onwomen’s health and fertility. The Project con-tributed to better child spacing, which trans-lated to better women’s health, whichenabled them to engage in other personaland career development and economic ac-tivities. Likewise, good antenatal, natal, andpostnatal care contributed to better out-comes in pregnancy and childbirth. Availabil-

The greatest im-

pact of the Project

was in generally

benefiting women,

particularly those

in the reproductive

ages, as well as

children.


ity of more opportunities for counseling andhealth educational exposures improved theirhealth awareness. Better health, small fami-lies, and improved nutrition further en-hanced their income-generation potential.Further, the staff and clientele of the otherproject facilities are mainly women.

With the establishment and the strength-ening of additional health care facilities inareas where earlier facilities had been non-existent or inadequate, access to health careincreased. Improved accessibility and avail-ability of services were found to have a posi-tive impact on the health status of the people.The strengthening of the referral district hos-pitals has given the people access to com-prehensive secondary and tertiary healthcare. Improved accessibility and availabilityof services coupled with increased utilizationhave had a positive impact on the health sta-tus of the people. Similarly, the improvementof FP services has increased the contracep-tive acceptance rate in the four districts, con-tributing to the lowering of fertility andreduction in population growth. Increasedimmunization coverage has reduced the in-cidence of childhood diseases.

Medical facilities, equipment, supply ofessential drugs, warehouses, repair andmaintenance workshops, and consultingservices inputs have improved the quality andaccessibility of health and FP services to thepoor and underserved. However, inadequatefinancial allocations for health, lack of bene-fit monitoring, and the inability to resolveproblems on time have detrimental effectson the sustainability of the project inputs. Therisks to sustainability are largely due to lowbudgetary support resulting in irregular andinadequate supplies of medicine, contracep-tives, and equipment; shortage of qualifiedhealth personnel, particularly female healthworkers; and insufficient financial resourc-es for operation and maintenance. The sus-tainability of benefits is also largelydependent on the commitment of the lineministry and the Government through itshealth policies and programs, and the insti-tutional capacity of the concerned agenciesto run the facilities. The Project has contrib-

uted to meeting these conditions. However,unless alternative systems for increased sus-tainability are eventually installed with thenecessary built-in mechanisms to protect thepoor and socially disadvantaged, and unlessscarce government resources can be chan-neled to the more needy rural areas, the ac-cessibility of quality public health careservices and FP services will be a continuingconcern.

While objectives set at the time of ap-praisal have largely been met, the lower thananticipated project impact and low sustain-ability of some of the project benefits reflectdesign deficiencies such as the absence of atraining component for medical personnel,lack of adequate information and database,and limited consultation with local govern-ment officials and intended beneficiaries.Sectorwide issues that are systemic in naturehave constrained the project performance.Systemic problems such as lack of staff, in-adequate budgetary allocations for operationand maintenance, weak management, andthe absence of an effective monitoring andinformation system persist. Nonetheless, theProject has increased access to better healthservices among the rural communities, es-pecially for women and children. The reeval-uation confirms the conclusion of the projectperformance audit report that the Project waspartly successful.

The Project has highlighted a number ofways to keep the poor in the forefront of aid-funded projects in Bangladesh. An operation-al framework for accelerating progress on astrategy, which involves a more multisectoraland multidimensional grassroots approachwith close interrelationship between popu-lation planning, basic health care and nutri-tion, primary education, environment andsocioeconomic development, will providethe foundation for a truly workable povertyreduction program. ADB should intensifypolicy dialogue and improve the targeting ofservices for the poor, considering that projectdesign should be in consonance with theoverall policy framework and institutionalstructure of the Government in the fightagainst poverty.

The Project has

highlighted a num-

ber of ways to

keep the poor in

the forefront of

aid-funded projects

in Bangladesh.

76 Evaluation Highlights of 2000Tech

nica

l Ass

istan

ce P

erfo

rman

ceAu

dit R

epor

ts


n the early 1990s, the Government ofBangladesh embarked on a macro-economic stabilization program sup-ported by the Asian DevelopmentBank (ADB) that focused on restruc-

turing selected state-owned enterprises in-cluding Bangladesh Railway (BR), identifiedas one of the largest loss-incurring state-owned enterprises, and representing a ma-jor source of financial inefficiency. TheRailway Recovery Program Loan (RRPL),1

which was an integral part of the Govern-

ment’s medium-term macroeconomic ad-justment program, was designed to addressinstitutional shortcomings and other sectorconstraints. In support of the aforesaid pro-gram, ADB has carried out a series of adviso-ry technical assistance (TA) and projectpreparatory TA interventions focusing on in-stitutional development and organizationalor financial reform of BR.

Railway TechnicalAssistance in Bangladesh

BANGLADESH

1 Loan 1310-BAN: Railway Recovery Program, for $80 million,approved on 8 September 1994.


The overall objective of the TAs was toassist in restoring and sustaining BR’s finan-cial viability as well as restructuring BR tomake it more responsive to the demands ofthe transport market. The actions intendedto achieve the above objective can begrouped into five broad areas namely: (i) sig-nificant deficit reduction, (ii) termination ofopen-ended subsidies, (iii) labor rationaliza-tion, (iv) commercialization, and (v) organi-zational and operational restructuring. Theprimary outputs and scope forming part ofthe TAs reviewed by the Operations Evalua-tion Mission2 include advisory assistance toBR for implementation of the labor reduc-tion program and public service obligation(PSO)—a government subsidy scheme foroperation of non-profitable railway lines byBR—preparation and monitoring of theRRPL, and organizational reform and restruc-turing of the railway along commercially ori-ented lines, leading to the eventualcorporatization of BR. Cumulative ADB TAamounted to $3 million.

In all evaluated TAs, the terms of refer-ence (TOR) were generally clear, comprehen-sive, and indicated a detailed work plan toachieve the requisite outputs. The TOR didnot however provide sufficient inputs to ad-dress the areas of transfer of technology,training, and to define the requirements toachieve overall sustainability of outputs. Also,the lack of effective consultations with se-nior government and BR decision makers inTA formulation, design and, most important-ly, the implementation arrangements of theorganizational reform (OR)Phase II TA hasresulted in delays and lack of progress. Themost significant concern observed for the ORTAs was the relatively weak political “buy-in”to pursue the reforms at the level of organi-zational restructuring, in marked contrastwith the level of commitment that was in ev-idence throughout the previous TAs and loanactivities, and the fact that efforts at imple-menting change have been limited to withinBR only.

The Recovery Program TA developed ascheme for limited subsidies applied to non-remunerative passenger services and a BRstaff retrenchment program that were uti-

lized as key elements during implementationof the RRPL. The Public Service Obligation(PSO) compensation scheme was intro-duced in 1993, and staff downsizing of about17,000 was realized during the period of theRailway Recovery Program (RRP). The RRPLMonitoring TA developed a computer-basedsystem of performance indicators to trackBR’s financial and operational statistics forthe benefit of both BR management and ADB.While the reports achieved their short-termobjective, BR has yet to take ownership ofthe financial indicators to monitor the ongo-ing rail reform program.

The TAs have resulted in achievement ofsome of the objectives sought by the RRPL,including positive changes to BR organiza-tional restructuring, introduction of newwork units, downsizing/retrenching of staffand operationalization of PSO agreementswith government. In addition, the TAs havefocused government (to a limited degree)and BR management attention on the needfor improved financial performance andgreater operational efficiency, although theTA inputs to attain these objectives have fall-en short of what was required.

However, the main issues and problemsthat were evident at the outset of ADB’s ini-tial reform-motivated TAs remain essentiallyas they were following implementation. BRcontinues to lose its market share of com-mercially lucrative freight traffic as privatetruck operators take advantage of the ex-panding road network, coupled with theskewed subsidy policies currently in forcethat benefit road users relative to rail users.In addition, the truck operators will have had

2 The TAs under evaluation are the reform TAs, i.e., (i) TA 1295-BAN: Railway Sector Analysis (Sector Analysis TA), for $100,000,approved on 27 April 1990; (ii) TA 1336-BAN: Railway Institu-tional Development (Institutional Development TA), for $100,000,approved on 11 July 1990; (iii) TA 1819-BAN: OrganizationalReform of Bangladesh Railway (OR Phase I TA), for $1.5 millionapproved on 22 December 1992; and (iv) TA 2544-BAN: Organi-zational Reform of Bangladesh Railway, Phase II (OR Phase II TA),for $1 million, approved on 21 March 1996. In view of their inclusionas part of Asian Development Bank’s (ADB) railway strategy forBangladesh, also reviewed were the RRP TAs, i.e., (v) TA 1717-BAN: Preparation of the Railway Recovery Program Loan (Recov-ery Program TA), for $100,000, approved on 18 June 1992; and(vi) TA 2230-BAN: Monitoring of Policy Reforms under the RailwayRecovery Program Loan (Monitoring TA), for $ 100,000, approvedon 9 December 1994.

The main issues

and problems that

were evident at

the outset of

ADB’s initial

reform-motivated

TAs remain essen-

tially as they were

following imple-

mentation. BR

continues to lose

its market share of

commercially lucra-

tive freight traffic

as private truck

operators take

advantage of the

expanding road

network, coupled

with the skewed

subsidy policies

currently in force

that benefit road

users relative to

rail users.


the opportunity to establish their marketniche in the Jamuna Bridge corridor foraround three years before a rail link is com-pleted.

The OR TAs have yet to achieve effectivecommercialization of BR, and there is stillconsiderable work remaining to realize therailway reform’s basic objective of organiza-tional restructuring. Among the failures of theTA was that specific targets for organization-al reform were not achieved and that legisla-tion to enable BR to operate on anautonomous commercial basis was notpassed. Other shortcomings were also not-ed in respect of the implementation of mea-sures designed to enhance the freight andpassenger marketing operations that are keyto the pursuit of effective commercializationof the railway. In the meantime, it is evidentthat achievements of the previous TAs arenot being sustained by BR. In its presentstate, the railway sector in Bangladesh hasbecome dependent on further TAs and/orloans to proceed with the work initiated sev-eral decades ago. The limited training, trans-fer of technology, and institutionalization ofsystems and procedures that have been pro-vided within the TAs to date to enhance ca-pacity-building efforts are insufficient towarrant the expectation that the benefitsfrom the TAs will be sustained.

The Sector Analysis and Institutional De-velopment small-scale technical assistancegrants were the first two in the rail subsectorthat were aimed at addressing specific ele-ments to assist BR in starting the process ofrailway reform and in tackling measures nec-essary to curtail its financial losses. As such,the outputs were generally of good qualityand relevant to the situation that prevailed atthe time. These TAs are rated as successful.The Recovery Program TA provided goodquality assistance in the preparation of theRRPL aimed at restoring the financial viabili-ty of BR and developing a more commercialfocus. Again, the TA is rated successful. TheRRP Monitoring TA provided regular progressreports on issues relating to the RRPL, anddeveloped for this purpose appropriate per-formance indicators dealing with the month-ly financial performance of BR. In terms of

outputs from the Monitoring TA, the reportsachieved their purpose and were adequateand timely. The disappointing aspect of theTA was the fact that BR ceased to make useof the monitoring mechanism once the TAwas completed. This is despite the fact thatthe use of performance indicators was con-tinually referenced in all ADB policy dialoguewith the railway subsector in Bangladesh. Interms of its intended main objectives to as-sist ADB in monitoring the RRPL to a success-ful conclusion, the TA is rated successful.

The OR Phase I TA was successful in pro-viding a comprehensive diagnosis of themany issues and actions required to addressBR’s continuing financial losses, decliningmarket share, and poor operational perfor-mance. The railway subsector’s needs wereidentified in a timely and appropriate man-ner. Many of the outputs were of excellentquality, and some of the TA recommenda-tions were acted upon by BR shortly after theconclusion of the TA. One of the most impor-tant outputs, the authority matrix, providedthe basic framework for essential respectiveresponsibilities in the reform process be-tween the Government, the newly formedBRA, and BR management. This element,along with other key recommendations, wasincluded in the follow-up TA, OR Phase II, thatwas aimed at the implementation of select-ed reform measures with targets. The ORPhase I TA is therefore rated as successful.

Among the failures

of the TA was that

specific targets for

organizational re-

form were not

achieved and that

legislation to en-

able BR to operate

on an autonomous

commercial basis

was not passed.


The implementation of reform measures(via the OR Phase II TA) was initiated aftersome extensive dialogue between ADB, theGovernment, and BR management. Once theOR Phase II TA began, its intended implemen-tation arrangements were found not to befeasible, and Government commitment tothe operational re-structuring and commer-cialization agenda was found to be wanting.The basic shortcoming of the TA was its no-table lack of training and limited transfer oftechnology (particularly in the marketingarea), together with the lack of sustainabilityof TA systems and procedures that were de-signed to address management, operations,and monitoring aspects of BR’s performance.Under the expanded scope of work, the con-sultants managed to provide a balanced as-sessment of corporatization options for BRand appropriate recommendations for a five-year program to introduce a new corporateentity. The stakeholder analysis may haveproduced a less than accurate assessmentof local views of BR’s corporatization. In termsof its original intent, its TOR as amended andmodified, and the partial achievements thatwere realized, the TA is assessed as partlysuccessful.

One of the main objectives of the OR TAswas to effectively separate regulation fromoperation of the railway, in order to give BRmanagement more autonomy and account-ability for day-to-day railway business. In prac-tice, as a result of the formation of BangladeshRailway Authority (BRA), BR is having to op-erate with, in effect, an additional manage-ment level since the Railway Secretary andDirector General functions have been sepa-rated from their previous dual function vest-ed within one individual. In addition, with theMinister of Communications in the positionof Chairman of BRA, and BRA dominated bygovernment representatives, the day-to-daybusiness of BR continues to be effectivelycontrolled by the Government. The BR Direc-tor General has been given some freedom toraise tariffs and to decide on staff transfersand promotions, but the application of thefull authority matrix (from OR Phase II TA)has yet to be realized.

A key lesson of this evaluation is that pri-or to and during implementation, demon-strated and sustained client ownership isnecessary. This should be evidenced by thepassage of enabling legislation, combinedwith unwavering support from the recipientagency’s top management on a collegial ba-sis, particularly during the transition from agovernment-controlled railway bureaucracyto a commercially run entity. To do this, topmanagement of BR needs to fully appreciatethe TA benefits and become champions ofchange at a senior managerial level taken asa whole to enhance the likelihood of sustain-ability of benefits. Vested interests at politicaland agency levels must both be recognized,and measures sought to address and over-come them, in order to effect the requiredpolicy and organizational reforms. Anotherlesson is that regular and periodic steeringand management committee meetings arean important means to address advisory andimplementation problems. It is important thatsenior management attend and participatefully in these meetings to support changesand new systems introduced under the TAs.Finally, in order to effect organizational re-forms within government agencies, a cham-pion of change vested within senior politicaland Executive Agency management levels isessential at the outset, together with a strong,dedicated management team that is con-ferred with the mandate and necessary po-litical authority to develop and implement thechanges.

Further TAs aimed at organizational re-forms should be of sufficient duration (24months at a minimum) and allocate specificresources to include a human resource de-velopment program within the ExecutiveAgency, via a combination of structured andad hoc training and provision of user manu-als and reference materials to be supplied bythe TA consultant. TAs aimed at organization-al reforms should require that operational-ization and institutionalization of all newmeasures and other instruments of changebe made a specific objective, in order toachieve overall sustainability.

Further TAs aimed

at organizational

reforms should be

of sufficient dura-

tion (24 months at

a minimum) and

allocate specific

resources to in-

clude a human

resource develop-

ment program

within the Execu-

tive Agency, via a

combination of

structured and ad

hoc training and

provision of user

manuals and refer-

ence materials to

be supplied by the

TA consultant.


he two advisory technical assis-tance (TA) projects were provid-ed in support of the Govern-ment’s efforts to strengthen itsenvironmental management ca-

pability when Mongolia started the shift froma centrally planned economy to a market-based economy in the early 1990s. TA 1647-MON: Strengthening Environmental Assess-ment Procedures, was implemented from Oc-tober 1992 to December 1993. Supplemen-tal assistance was provided by the United

Nations (UN) through the fielding of a UNvolunteer during the period September 1993to August 1994. A follow-up project, TA 2208-MON: Strengthening the Environmental Man-agement Capability of the Ministry of Natureand Environment, was attached to Loan1334-MON(SF): Power Rehabilitation Project,which was approved in November 1994. TheTA was implemented from July 1995 to June1997. The TAs were approved in the totalamount of $944,000. The Executing Agencywas the Ministry of Nature and Environment

Selected TechnicalAssistance in theEnvironment Sector

MONGOLIA


(MNE). TA completion reports, circulated inSeptember 1994 for TA 1647-MON, and inNovember 1998 for TA 2208-MON, rated theoverall performance of the TAs as generallysuccessful.

The objectives of TA 1647-MON were tointroduce procedures and systems for sys-tematic environmental assessment ofprojects in Mongolia, and provide on-the-jobtraining for local staff in disciplines related toenvironmental impact assessment (EIA). TheProject focused on staff training, transfer ofinternational methodologies, and the reviewand development of MNE procedures, regu-lations, standards, and legislation relating toEIA. Training in various computer programsand simple models was conducted and da-tabase programs were established for com-puterized database development. TheProject was among the first of its kind inMongolia to be funded by international aidagencies.

The project design started at the sim-plest, basic level of environmental assess-ment because of Mongolia’s limitedexperience in project development and man-agement, and in international standards andpractices. The concept and approach areconsidered appropriate and relevant, andreflected the need of sector priorities tostrengthen the capacity of MNE during thecritical stage of a basic shift in its manage-ment system. The TA came at an opportunetime as the new umbrella nature protectionlaw was being prepared to amend six majorlaws formulated for the requirements of thecommand economy.

TA 1647-MON achieved its objectives. Itcontributed to the development of the EIAprocess in the country. It has been creditedwith making an EIA a requirement for all newindustrial undertakings. In addition, evenongoing concerns are required to have anEIA. The formulation and design of the TA

The Project was

among the first of

its kind in

Mongolia to be

funded by interna-

tional aid agencies.


are consistent with the goals and strategiesof the Government and of Asian DevelopmentBank (ADB). The EIA system is now firmly inplace and operational, albeit lacking in effec-tive enforcement. The Operations EvaluationMission (OEM) rates the project as success-ful.

The objective of TA 2208-MON was tostrengthen the environmental managementcapability of MNE. It addressed Mongolia’sneed to establish the institutional policyframework for environmental planning andmanagement. The activities included review-ing the comprehensive environmental lawand EIA procedures, developing nationalenvironmental standards, strengtheningmonitoring capabilities, preparing a pollution-discharge permit system, strengthening thecapability of local governments, reporting ontraining, and examining disaster manage-ment, which included a public awarenessand information program, and an early warn-ing system. The design of TA 2208-MON wasoverambitious and, while the TA was relevantto the environmental needs of Mongolia, thescope of the project was far beyond the im-plications of the Power Rehabilitation Project.There seemed to be little justification for thisTA to be attached to the loan project, giventhe divergence in scope. The Project followedthrough on the achievement of TA 1647-MON,and its main contribution was in followingthrough on the establishment of EIA proce-dures and legislation, and in the training ofstaff for its operationalization.

While the TA was designed and pro-cessed by the ADB’s Office of the Environ-ment (OENV), it was administered andsupervised by the Energy Division (East)whose staff did not have the technical ex-pertise nor background to properly reviewthe reports and provide guidance to the con-sultants. The supervision of the TA was sub-sumed under the loan administration of thePower Rehabilitation Project. It would have

been more appropriate if OENV had beenmade responsible for the TA’s implementa-tion, a view shared by government and MNEofficials, as well as ADB’s Programs Depart-ment. Alternatively, the project could havebeen more effective had it been implement-ed as a standalone TA. Attaching a TA shouldnot be done for the sake of convenience ofTA processing, or to provide a cover to ad-dress environmental concerns (as in thiscase).

TA 2208-MON suffered from several con-straints: (i) the ambitious design of theproject, which covered a broad range of en-vironmental areas; (ii) lack of financial allo-cation; (iii) frequent changes in personneldue to rapid turnover of governments; and(iv) inadequate teamwork among the con-sultants and staff of MNE. Among the areastargeted, three are considered unsatisfacto-ry, i.e., public awareness development, theearly warning system, and the pollution-dis-charge permit system. However, some of therecommendations were considered rele-vant. The OEM rates the project as partly suc-cessful.

Overall, both TAs had a positive impacton the institutional capacity building of MNEand on the other line ministries, particularlymining and infrastructure development, aswell as on national environmental policy for-mulation, and on private industrial and man-ufacturing firms. However, long-terminstitutional and human capacity building inMNE and at the local level was not achievedas expected. Improvements in environmen-tal conservation and protection are still need-ed in many areas. While there is no lack oflegislation and regulations, the weakest linkin the system is law enforcement. Con-straints in funds and staff result in unmitigat-ed mining and air pollution, agricultural landerosion, water waste, and illegal hunting ofwildlife.

The objective of

TA 2208-MON was

to strengthen the

environmental

management

capability of MNE.

It addressed

Mongolia’s need to

establish the insti-

tutional policy

framework for

environmental

planning and man-

agement.


oad safety is a major issue af-fecting the road sector. Roadaccidents remain a serious im-pediment to sustainable hu-man development in many of

the developing member countries (DMCs) ofthe Asian Development Bank (ADB).1 Theeconomic losses from road accidents andfatalities amount to a high 2-4 percent of grossdomestic product in many DMCs. For exam-ple, fatality rates were at a high 80,000 peryear in 1998 in India. This technical assistanceperformance audit report is the first opera-tions evaluation report on selected technicalassistance (TA) interventions on road safety.As of October 2000, ADB had provided a totalof $5.16 million for 10 TAs. The evaluation in-cludes three of seven completed TAs: TA5620-REG: Regional Initiatives in Road Safe-ty,2 which was the only TA with a regionalscope; TA 2177-PRC: Preparation of a RoadSafety Program;3 and TA 2001-IND: Road Safe-

ty.4 The latter two were attached to ADB loansin the People’s Republic of China (PRC) andIndia, respectively.

TA 5620-REG was intended to review roadsafety problems in DMCs, provide guidelinesfor policymakers in the region, and assistADB in identifying initiatives that could be im-plemented throughout the region. The TAalso included two regional workshops, thefirst in Bangkok, Thailand and the second inBeijing, PRC. In addition, the TA aimed to re-view the previous implementation experienceand identify lessons for new projects. Theentire TA amount of $600,000 was financedby ADB on a grant basis. TA 2177-PRC wasattached to Loan 1324-PRC5 (HeilongjiangExpressway). It aimed to help HeilongjiangProvince formulate a comprehensive high-way safety program that would serve as amodel for similar programs in other provinc-es. TA 2001-IND, which was attached to Loan1274-IND6 (National Highways), aimed to as-

Selected TechnicalAssistance in Road Safety

REGIONAL

1 Source: Economic and Social Commission for Asia and the Pacific,Road Safety in Asia and the Pacific, 1998.

2 TA 5620-REG: Regional Initiatives in Road Safety, for $600,000,approved on 4 January 1995, and a supplementary TA for $60,000,approved on 12 September 1997.

3 TA 2177-PRC: Preparation of a Road Safety Program, for$6 00,000, approved on 29 September 1994.

4 TA 2001-IND: Road Safety, for $210,000, approved on 29 No-vember 1993.

5 Loan 1324-PRC: Heilongjiang Expressway, for $142 million, ap-proved on 29 September 1994.

6 Loan 1274-IND: National Highways, for $245 million, approved on29 November 1993.

The economic

losses from road

accidents and fa-

talities amount to

a high 2-4 percent

of gross domestic

product in many

DMCs.


sist personnel in the Ministry of Surface Trans-port (MOST) in training and capacity-build-ing activities in the fields of accident analysis,traffic engineering, and design of low-costcountermeasures for road accidents.

The three ADB TAs on road safety werehighly relevant and timely. The OperationsEvaluation Mission found that the terms ofreference in all the TAs were fully consistentwith the needs of the executing agencies. Theexecuting agencies actively interacted withthe TA consultants during implementation.The TA reports were generally of a high qual-ity. The benefits of the TAs were significantand generally visible.

TA 5620-REG significantly contributed toincreasing awareness among DMC officialsof road safety. Over 110 officials from morethan 20 DMCs7 participated in the workshopin Bangkok and over 450 attended the con-ference in Beijing,8 and benefited very much.All participants and DMC officials consideredthe ADB Guidelines on Road Safety preparedunder this TA highly useful and applied themin their work. TA 2177-PRC substantially im-proved capacities of the Heilongjiang PublicSecurity Bureau in reducing accident ratesalong an ADB road project route(Heilongjiang Expressway) and in improvingroad safety in the whole of Heilongjiang Prov-ince. Likewise, TA 2001-IND provided usefultraining to officials from the Karnataka po-lice and MOST, and developed pilot programson accident analysis and black spot identifi-cation.

TA 5620-REG fully achieved its intendedobjectives and is rated highly successful. Like-wise, TA 2177-PRC is rated highly successful.The Heilongjiang Public Security Bureau isadvised to implement the recommendationsof TA 2177-PRC in Heilongjiang Province, withadditional support from an ongoing ADB TA(TA 3341-PRC: Capacity Building in TrafficSafety, Planning and Management); the Gov-ernment is advised to widely disseminate theexperience to other provinces.

TA 2001-IND is rated successful. As Loan1274-IND is ongoing, the rating is contingenton the National Highways Authority of Indiaand MOST successfully implementing the TArecommendations and particularly adopting

the safety requirements in the highway safe-ty manual prepared under the TA. ADBshould consider providing additional sup-port in this regard.

The main message from this evaluationis that road safety has not been accordedthe priority it deserves in the DMCs, includ-ing that under earlier ADB-funded projects.The DMCs should work to reduce accidentsby identifying black spots, and more impor-tantly, institute measures such as safety au-dits and safety education, which would helpprevent these accidents in the first place.

The Operations Evaluation Mission con-ducted extensive consultations with ADBprojects staff, DMC officials, and representa-tives of other funding agencies (World Bank,Japan International Cooperation Agency, andJapan Bank for International Cooperation)and identified several recommendations forimproving road safety in ongoing and futureADB projects. The most important ones thatcan be implemented as soon as possible arelisted below.

ADB should actively encourage regionaland local activities on road safety in all DMCs,involving the private sector and nongovern-ment organizations.

Specifically, ADB’s Guidelines on RoadSafety should be widely adopted in all ongo-ing and future ADB road projects. Particular-ly, ongoing and future ADB TA and loanprojects in the road sector should require aroad safety expert to conduct a safety auditof designs and construction works.

ADB should formulate standalone advi-sory and operational TAs and regional TAsand assist DMCs in improving capacities andimplementing programs on (a) safety audits,(b) safety education campaigns, (c) accidentanalysis, and (d) engineering improvementsat black spots.

7 The DMCs included Bangladesh, PRC, Fiji, India, Indonesia,Republic of Korea, Malaysia, Nepal, Pakistan, Papua New Guinea,Philippines, Singapore, Sri Lanka, Thailand, and Viet Nam.

8 The Second Conference on Asian Road Safety (CARS2), jointlyorganized by the PRC Road Traffic Safety Association and theOrganisation for Economic Co-operation and Development, on 28-31October 1996, in Beijing, included a workshop titled “Asian RoadSafety–Institutional Framework,” and was attended by over 450 par-ticipants, mainly from DMCs.

ADB should

actively encourage

regional and local

activities on road

safety in all DMCs,

involving the

private sector and

nongovernment

organizations.


Impa

ct E

valu

atio

n St

udie

s


ince 1976, the Asian Develop-ment Bank (ADB) has providedthe Government of Nepal with$173 million for five roadprojects and road components

in nine other projects, mainly on agricultureand urban development. Three advisory andoperational technical assistance (AOTA)grants for $1.6 million, aimed at institutionalstrengthening within the road sector, andproject preparatory technical assistanceamounting to $1.4 million, have also beenprovided. Overall, ADB’s involvement in theroad sector has been significant, addressinga large proportion of the road upgrading andperiodic maintenance needs of the nation-ally important East-West Highway (EWH) aswell as two access routes into the hills. Inaddition, rural roads have been improved.About one quarter of the road developmentexpenditure in Nepal since the 1980s hasbeen financed under ADB projects.

The strategic network is the key part ofNepal’s road system and comprises the EWHrunning the length of the country in thesouthern Terai, and feeder roads running offthe EWH to connect to district centers andborder crossings. Rural roads, typically earthand gravel tracks, link small rural populationcenters to the strategic network. The remain-der of the road system comprises urbanroads. The Department of Roads is respon-sible for the strategic network; responsibilityfor rural and urban roads has been devolved

to local government units. Nepal has fewerthan 50,000 operating trucks, buses, andsmall vehicles, other than motorcycles, andtraffic volumes are generally small. Bus andtruck movements dominate traffic outsideKathmandu Valley. There is a general excessof trucks and buses relative to needs, andmost operate on a rotation basis with sub-stantial nonoperating periods while waitingfor their turn. It is also noteworthy that mosthill and mountain areas do not produce largevolumes of surplus outputs, and the majori-ty of freight movements in these areas arefor transporting food and consumer goodsinto the hills, and many trucks leave the hillsempty.

Most of ADB’s road projects have beenmulticomponent, addressing different roaddevelopment needs in several places at thesame time. The majority of the components

NEPAL

Asian Development BankAssistance to the RoadsSector

Nepal has fewer

than 50,000 oper-

ating trucks,

buses, and small

vehicles, other

than motorcycles,

and traffic volumes

are generally small.


are of three main types, namely (i) hill roads,comprising the upgrading of existing roadsand some new road development in hill ar-eas, particularly involving the strategic net-work roads in the eastern hills around Ilamand Far Western Region districts ofDadeldhura and Doti; (ii) EWH upgrading,comprising the upgrading with some recon-struction of the eastern portion of the EWHfrom Narayangarh to Belbari, plus the Hetau-da-Birganj road; and (iii) periodic mainte-nance, comprising the resurfacing and someupgrading of other parts of the EWH, Kath-mandu Valley roads, and feeder roads in theTerai.

This impact evaluation study aims to re-view and assess the main types of ADB assis-tance to the road sector and provideguidance for the future. It comes at a timewhen a major objective for road developmentin Nepal, namely the upgrading of the con-structed part of the strategic network, hasbeen completed and development efforts arebeing refocused elsewhere. One project notincluded in the study was the Rural Infra-

structure Development Project, which in-volves communities and uses labor-intensivemeans in road construction in rural areas.This Project was ongoing at the time of eval-uation and not ready for review, but it is likelyto have particular relevance to future devel-opment efforts.

About half of ADB’s loan assistance hasbeen for hill roads, and most of this assis-tance has been to upgrade to sealed, all-weather roads what were primarily earthtracks of the strategic network centered onIlam in the eastern hills and on Dadeldhurain Far Western Region hills. The work wasfunded under three road projects and oneagriculture project. Delays and cost increas-es affected implementation. Overall, less roadwas upgraded and completed later than ex-pected, but the quality of the completedworks was satisfactory.

As a result of the hill road project com-ponents, transport costs were reduced andnational integration has been improved. Busfares and freight rates are lower for sealedroads than for earth and gravel roads, and

About half of

ADB’s loan assis-

tance has been for

hill roads, and

most of this assis-

tance has been to

upgrade to sealed,

all-weather roads

what were prima-

rily earth tracks


traffic on the sealed roads has grown fasterthan the normal rate for Nepal. The move-ment of people by bus and taxi has grownparticularly strongly. The road upgrading alsostimulated a noticeable increase in the move-ment of food and consumer goods into theproject areas by encouraging the growth ofmarket centers at strategic points along theroads. In the east, an expansion in cash crop-ping and dairy production also has paralleledroad development, but there is insufficientevidence to quantify the link between roadupgrading and the agricultural change. In FarWestern Region, the roads had no effect onagriculture. Employment opportunities haveincreased in both the east and Far WesternRegion. The greater availability of consumergoods, greater mobility through faster andmore frequent bus services, and enhancedemployment have improved living conditions.Some positive impacts on disadvantagedgroups, particularly women and those oflower caste, have also been noted. The im-provement in employment and living condi-tions was greater in the east than Far Western

Region due to the changes in agriculture.Economic internal rates of return (EIRRs)

were recomputed for the hill roads on thebasis of conventional road user cost andmaintenance savings. Such benefits are in-sufficient by themselves to justify road up-grading, producing EIRRs of 5 percent or less.Primarily, this is because of the low trafficvolumes. The results point to the need forlower cost mechanisms for upgrading and/or the need to ensure that other benefits inthe form of increased agricultural output orsocial improvement occur. One of the roadsin Far Western Region was new. Even thoughthe surface was only gravel, maintenancepoor, and traffic volumes lower than on thesealed roads, the recalculated EIRR was 16percent. The better result highlights the val-ue of providing the initial access that allowsmotorized transport to replace relatively highcost porter and pack animal transport.

ADB’s assistance to the EWH upgradingwas completed to a generally adequate stan-dard, although significant delays were expe-rienced during implementation. As a result

The greater avail-

ability of consumer

goods, greater

mobility through

faster and more

frequent bus ser-

vices, and en-

hanced

employment have

improved living

conditions.


of the upgrading, traffic speeds have in-creased leading to reduced and more reli-able journey times (see below for adiscussion on road safety). As bus and freightcharges reflect road conditions, transportefficiency—the main objective of these com-ponents—is considered to have been im-proved and part of the benefit has beenpassed on to the general population. Overthe past 15 years, traffic has grown fasterthan predicted by the various appraisal pro-jections, but similar to normal rates of trafficgrowth in Nepal. The EIRR for the EWH up-grading components, based on convention-al user cost and maintenance savings, wasreestimated to be 17 percent.

All the periodic maintenance works werecompleted to a satisfactory standard. WorldBank analyses indicate that conventional roaduser cost savings alone produce high EIRRswhen traffic exceeds 300 vehicles per day.Since most of the roads were important trans-port links carrying greater traffic volumesthan this, the ADB-supported periodic main-tenance works are deemed to have success-fully improved transport efficiencies, whichwas their main objective.

No major negative impacts are associat-ed with the road assistance. Road safety isan issue, however, particularly on the Kath-mandu Valley roads and the EWH where sig-nificant populations exist close to the roads,but lack of data prevents an assessment ofthe safety impact of the ADB-supported roads.The ADB-funded road works included mea-sures to improve safety, but vehicle speedswhich can influence accident rates have in-creased as a result of upgrading. Environmen-tal problems such as deforestation and thesilting of streams have not been major, as thevast majority of the works were done on ex-isting road alignments. On the positive side,the hill roads have facilitated forest rangersin their work of monitoring forests and sup-porting community forestry efforts.

Local contractors were extensively in-volved in the road works, in some cases afterthe failure of an initially selected internation-al contractor. They performed well, and theprojects have contributed to the growth ofthis local industry. Nevertheless, local con-

tractors still suffer from “lumpiness” of work,i.e., work is not received in a smooth flow.Local consultants also performed satisfacto-rily.

ADB’s institutional strengthening effortsthrough technical assistance (TA) have beenrelatively minor, but this is partly because oflow absorptive capacity within the sector andthe large effort supported by other externalagencies. Two of the ADB AOTAs were useful,but the third was small in relation to needsand the output was not sustained. AlthoughADB contributed in an ad hoc manner to roadsector planning, it missed opportunities toaddress road sector planning on a morecomprehensive basis.

Overall, ADB’s assistance has been suc-cessful, although within this overall assess-ment there is variability—the EWH upgradingand periodic maintenance componentswere highly successful while the hill roadsand institutional strengthening assistancehave been partly successful. ADB’s projectassistance scores well for relevance to bothnational goals and ADB objectives. The ob-jectives of improved national integration andimproved transport efficiency were wellachieved, but the hill roads did not have thefull impact on agriculture expected of them.The efficiency of ADB assistance also wasmixed due to the implementation delays, re-ductions in scope, and the low EIRRs for thehill roads. The sustainability of what was cre-ated under loan assistance is likely, however.No major negative impacts are associatedwith the roads and the unintended socialimpacts of the hill roads have been small butpositive.

The experience with upgrading the EWHand periodic maintenance shows that keep-ing roads with high traffic volumes, such asthe EWH and the key roads in KathmanduValley and the Terai, in good condition is eco-nomically justifiable on the basis of road usercost savings alone. It is also highly probablethat the transport benefits are passed on tothe general population, which can have animpact throughout the economy. The appro-priate management approach for theseroads, therefore, is to keep road user costslow by maintaining the roads in good condi-

Overall, ADB’s

assistance has

been successful,

although within

this overall assess-

ment there is

variability—the

EWH upgrading

and periodic main-

tenance compo-

nents were highly

successful while

the hill roads and

institutional

strengthening

assistance have

been partly

successful.


tion with progressive upgrading in accor-dance with growth in traffic volumes.

Nepal’s requirement for continued ADBsupport for maintaining the EWH and otherkey roads is likely to diminish since theseroads have largely been upgraded, and fu-ture maintenance is to be provided by theRoad Fund and Roads Board proposed bythe Government with World Bank support.Interim assistance may be required until theRoad Fund and Roads Board are operation-al; however, in general, the focus of futuresupport to the road sector in Nepal is likely tobe for hill and rural roads, and for specificlarge projects such as improvements on theKathmandu ring road or the Kathmandu-India border link. ADB is participating in thisrefocus through projects such as the RuralInfrastructure Development Project.

In the hill areas, traffic volumes are inad-equate to generate sufficient quantifiableeconomic benefits from road user cost sav-ings to justify the expenditures needed toupgrade gravel or earth roads to sealed all-weather status, even in combination withsavings in road maintenance expenditure.Other benefits, such as those from increasedagricultural output, social improvements, orenhanced national integration, must be as-sured, or lower-cost approaches devised, tojustify expenditure on road sealing in theseareas. The experience in the eastern hillsshows that agricultural development mayresult from road development without muchadditional assistance. However, the results inFar Western Region Province indicate thatagricultural development may not necessar-ily follow road development, and specific in-terventions to ensure that the expecteddevelopment occurs may be required. Theexperience from ADB assistance in this sec-tor also shows that hill road upgrading cangenerate significant nonquantifiable benefits,and that the formulation and evaluation ofsuch roads requires a broader focus thanone which revolves around the estimationof EIRRs.

The low traffic volumes and consequentsmall road user cost savings from road im-provements in the hill areas indicate that theappropriate management approach for such

roads would be to focus on asset preserva-tion and the least cost way of ensuring a min-imum level of serviceability. High standards,which implies substantial expenditure, arenot rewarded commensurately by large usercost savings such as occur in the EWH (withits greater volume of traffic).

Domestic road construction contractorsperformed adequately. Except for a limitednumber of tasks, such as the laying of as-phalt concrete surfaces, the use of domesticcontractors on future road works would beappropriate. Domestic contractors wouldbenefit from actions, such as the letting ofmaintenance contracts to expand the vol-ume of work and smooth out the “lumpi-ness.” Domestic consultants also performedadequately. However, as occurs in manycountries, domestic consultants are subjectto various social and political pressures, andcombinations of international and domesticconsultants would appear to be the mostappropriate option for contract supervision.

Government attention is drawn to thepossibility of errors in traffic counts for thenorthern roads in Far Western Region, andthe need to investigate the causes of prema-ture deterioration in the hill road south ofIlam and along the northbound lane of theHetauda-Birganj road. Improved road safetyis also an area that warrants added attentionin the future, and may require TA from exter-nal agencies such as ADB.

The proposed Fourth Road Improve-ment Project has a component for furthersealing of hill roads in Far Western Region.The findings of this impact evaluation studyin relation to hill road upgrading suggest thatsuch a component is unlikely to be econom-ically viable by itself. At the time of finalizationof this study, ADB’s infrastructure departmentwas investigating ways of integrating the hillroad component with other rural develop-ment projects. This investigation should con-tinue and result in a broader integrateddesign for the proposed hill road.

Nepal’s require-

ment for contin-

ued ADB support

for maintaining the

EWH and other key

roads is likely to

diminish since

these roads have

largely been up-

graded, and future

maintenance is to

be provided by the

Road Fund and

Roads Board

proposed by the

Government with

World Bank

support.


he Asian Development Bank(ADB) began its first rural creditassistance in 1970. In the earlyyears, rural credit operations fo-cused on achieving real sector

objectives, mainly increases in production,employment, and farm incomes. Reductionin poverty as a primary objective in rural cred-it projects became important in the late 1980swith the advent of microcredit projects.

The objective of the impact evaluationstudy (IES) is to assess the impact of ADB’sassistance to rural credit and derive lessonsfrom it. The IES is based on the assessmentof 39 rural credit projects and 21 technicalassistance (TA) grants in seven developingmember countries (DMCs). Purposive sur-veys in the DMCs were conducted to obtaindata on the ultimate beneficiaries. Impactwas assessed at the household, participat-ing financial institution (PFI), and executingagency levels. The impact on cross-cuttingconcerns of ADB was also assessed.

The rural credit projects under studycomprise both standalone projects and com-ponents of other projects. They include ninemicrocredit projects. The rationale and ob-jectives as stipulated in these projects were

generally relevant. Early rural credit projectstended to adopt a supply-led approach, onthe assumption that credit demand wouldarise once availability was there. The projectdesigns encouraged the achievement ofphysical targets. Later microcredit projectsreflect a perception that standalone pro-grams focusing exclusively on poverty reduc-tion have a better chance of success. Therural credit projects used a wide variety offinancial institutions to reach their clientele.In its selection of credit institutions for projectimplementation prior to 1991, ADB was guid-ed by the potential of existing institutions andthe needs of the clientele served by theprojects, even at the expense of ignoring fi-nancial discipline (leading to poor subloanrecovery).

The rural credit projects have contribut-ed to nominal income improvement but im-provement in real income is somewhat lesscertain depending on the rate of inflation inthe DMCs. Income improvement is oftenmanifested in the acquisition of assets or con-sumer items. The contribution of the earlyprojects to income redistribution is indeter-minate with benefits tending to gravitate to-ward larger farmers while providing

ADB’S Rural CreditAssistance in Bangladesh,People’s Republic of China,Indonesia, Nepal,Philippines, Sri Lanka, andThailand

Reduction in pov-

erty as a primary

objective in rural

credit projects be-

came important in

the late 1980s with

the advent of

microcredit

projects.

REGIONAL


employment for small farmers. Later micro-credit projects have a more direct impact onincome redistribution through more focusedtargeting of the poor. The impact on povertyreduction is indirect and hard to discern forthe early projects and positive but limited forthe later microcredit projects. The earlyprojects contributed to improved production,productivity, and technology. Anecdotal evi-dence points to cases of employment gener-ation by the projects in the People’s Republicof China, Sri Lanka, and Thailand. In the othercountries under discussion, the projects tendto have low impacts in employment genera-tion because of implementation difficultiesarising from changes in industrial and finan-cial policies.

The impact of the rural credit projects onthe credit delivery system has been positivein terms of the expansion and quality improve-ment of the loan portfolios of financial insti-tutions as well as improved depositmobilization of these institutions. Less impactis felt on the development of the rural finan-cial system while the procurement policies

and the design of some of these projects hadan adverse impact on the financial institu-tions and executing agencies (EAs). In thecase of Thailand, the projects exposed theEA to losses from fluctuations in foreign ex-change.

The rural credit projects have contribut-ed to capacity building of financial institu-tions and EAs through TAs, though not all TAswere successful. A positive impact is seenfrom the projects on gender development.The projects are generally neutral in so far astheir impact on the environment is con-cerned. The exception is the unintended im-pact from the early projects in Bangladeshwhere the financing of shallow tubewells hasled to excessive tapping of undergroundwater and the emergence of harmful chem-icals in the drinking water. Covenants in therural credit projects had a positive impact onthe DMCs in leading them to adopt neededpolicy reforms and achieving greater efficien-cy and efficacy in credit management.

Sustainability of the benefits of rural creditprojects is marred by the closure of a num-

Later microcredit

projects have a

more direct impact

on income redistri-

bution through

more focused tar-

geting of the poor.


though there are cases of adverse impacts.The positive impacts relate to improvementin production, productivity, and technologyand, ultimately, income at the farm level, andenhanced and better quality loan portfoliosof the financial institutions. Less impact is feltwith regard to reduction in income redistri-bution and poverty reduction, and develop-ment of a sound rural financial system. Theadverse impacts centered on causing finan-cial losses to the EA in Thailand as a result offoreign exchange fluctuations, the difficultiesto the EAs as a result of the conditions of therural credit loans that push these EAs beyondtheir mandate, and the excessive tapping ofunderground water. Notwithstanding theseadverse impacts, which are in the minority,ADB’s assistance to rural credit has beenpositive.

Major lessons learned from the opera-tion of ADB’s assistance in rural credit are

ber of subprojects but in many cases suchclosure was due to changing policies andmarket conditions. Sustainability of the finan-cial institutions is less certain. Except for theBank for Agriculture and Agricultural Coop-eratives in Thailand, these institutions are sus-tained by external capital from governmentsources.

The issues for consideration include en-suring an appropriate modality for targetingthe poor that is effective (but may also becostly and time consuming), encouraging theemergence of a sound rural financial systemthat will cater primarily to the poor, ensuringthat project designs work within the marketand capacities of the PFIs, having proper es-timation of credit demand, and providing forrisk mitigation of foreign exchange losses byPFIs.

Overall, ADB’s rural credit assistance hasgenerally positive impacts on the DMCs

Overall, ADB’s rural

credit assistance

has generally posi-

tive impacts on the

DMCs though

there are cases of

adverse impacts.


that (i) a more focused and participatoryapproach is needed for proper targeting ofthe poor, (ii) rural credit projects need tocontribute to developing a sound rural finan-cial system that will cater primarily to the poor,(iii) rural credit projects should be designedtaking the capacity and mandate of the fi-nancial institution or EAs into considerationto avoid high administrative costs and imple-mentation difficulties, (iv) TAs have been anappropriate and useful mechanism for ca-pacity building, and (v) a mechanism for for-eign exchange risk mitigation is needed.

The IES recommends that ADB shouldpursue (i) policy dialogue to adopt some ofthe new elements of its new microfinancestrategy and to prioritize further capacity-building assistance and microcredit-type ofoperations; and (ii) traditional credit projectson a selective basis to bring about improve-ments in production, productivity, and tech-nology that are leveraged to effect policychanges so as to create an enabling environ-ment for the emergence of a sound rural fi-nancial system.


Spec

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s


articipation is a process throughwhich stakeholders influenceand share control of develop-ment initiatives and of decisionsand resources that affect them.

The process enhances stakeholder owner-ship and commitment, and helps give a voiceto the poor and disadvantaged. One aim ofthis special evaluation study was to assessthe extent of adoption of participatory de-velopment (PD) processes in enhancing theeffectiveness and benefit sustainability ofAsian Development Bank (ADB) projects insectors where such processes are most use-ful. Another aim was to attempt an assess-ment of the efficacy of such processes, and,to the extent feasible, derive from that sug-gestions on appropriate PD methodologiesand institutional changes of stakeholder en-tities that could contribute to participation inpreparing and implementing ADB-support-ed projects.

Three countries were selected—namelyBangladesh, Philippines, and Sri Lanka—where ADB-supported project preparatorytechnical assistance (PPTA) and loanprojects in the agriculture, natural resourc-es, and social infrastructure sectors had pos-

itive elements of PD processes. The study gaveparticular emphasis to an examination of thetype, intensity, and extent of PD processesduring project identification and preparationbecause they were viewed as critical successfactors. To that effect, the study framework(i) classified stakeholders according to howthey contributed to the development process(because projects are increasingly designedto reflect demand-driven processes), and (ii)reflected major criteria proposed in the 2000Report on the Redesign of ADB’s OperationalBusiness Processes.

The study reviewed participation by var-ious stakeholders such as primary stakehold-ers, nongovernment organizations (NGOs),local government units (LGUs), national gov-ernment agencies, and ADB, at various stag-es of the project cycle. Recommendationsare suggested along these same lines. Aspectsrelating to policy formulation and dialogueor sector studies have not been consideredin much detail except to the extent that theyinfluence PD processes in ensuing PPTAs andloan projects.

Major findings concern aspects ofproject identification and preparation. Theserelate to instances where commitment and

Participatory DevelopmentProcesses in Selected AsianDevelopment Bank Projectsin Agriculture, NaturalResources, and SocialInfrastructure Sectors

REGIONAL

The study reviewed

participation by

various stakehold-

ers such as primary

stakeholders, non-

government orga-

nizations, local

government units,

national govern-

ment agencies,

and ADB, at vari-

ous stages of the

project cycle.


ownership by stakeholders were less intense.This is mainly because of pressure associat-ed with project processing deadlines and thelimited opportunities of such key stakehold-ers to participate. Consultations during defi-nition of the PPTA content have beengenerally limited as few stakeholder work-shops have been conducted that enable con-sensus agreements on the project structure.Moreover, PPTA papers have often specifieda rigid task definition for consultants thathave further reduced opportunities of effec-tively relating with other stakeholders duringproject design. Participation of ADB missionleaders in the initial design steps under PP-TAs is considered inadequate although mis-sion leaders are responsible for subsequentdesign steps leading to loan approval.

Identification of stakeholders is made atthe project formulation stage by nationalgovernment agencies, generally leaving outother local stakeholders. While stakeholders’views are key design factors that determinemechanisms for delivering projects, PPTAterms of reference (TOR) do not always giveimportance to the analysis of stakeholder ca-pacity to participate effectively. The processof stakeholder selection is rarely transparentand stakeholder roles at later project stages

are seldom revalidated. This is most appar-ent at the levels of lower government andprimary stakeholders. The generally limitedresources available in PPTAs, notably timeand capacity, for PD processes are consid-ered major constraints.

NGOs have been used mostly to mobi-lize primary stakeholders during project im-plementation but they have had littleinvolvement during project preparationwhen they should more actively participatein the design process because of their oftenbetter knowledge of communities. Govern-ment agencies generally have a low regardfor NGOs as partners in development. TheNGOs themselves have generally not devel-oped effective mechanisms for either con-sultation or sharing experiences amongthemselves. These drawbacks to collabora-tive learning among government agenciesand NGOs have not helped much the adop-tion of effective PD strategies in projects thatcould contribute to reducing poverty.

LGUs are also important key stakehold-ers. However, during project implementation,changes in LGU staff and elected officialsadversely affected continuity of projectknowledge. Other factors were insufficienttraining opportunities for LGU staff and theirlow levels of motivation that result from lackof resources needed to function effectively.

Implementing agencies identified duringthe design process were seldom involved inimplementing PD approaches due to theirlimited exposure and capability to carry outsuch approaches. Country planning andbudget authorities also seldom participateearly in project preparation. This has some-times resulted in changes to the project de-sign that local stakeholders had previouslyagreed on. Such occurrences would not havetaken place had higher local authorities par-ticipated in initial stakeholder workshops.

The capacity of executing agencies (EAs)to formulate, prepare, and implementprojects should be a major design consider-ation but such capacity is seldom compre-hensively assessed. For example, EAs mayhave mandates and priorities that are notentirely in line with project objectives thatdrive them to influence projects accordingly.

While stakeholders’

views are key

design factors that

determine mecha-

nisms for deliver-

ing projects, PPTA

terms of reference

do not always give

importance to the

analysis of stake-

holder capacity

to participate

effectively.


Lack of EA commitment to PPTA posed diffi-culties in promoting PD processes in severalprojects and resulted in inadequate coun-terpart support.

ADB plays the lead role in project identi-fication and preparation. Because of currentlimited resources during these stages, PPTAconsultants work largely unsupervised inspite of their crucial role in project design.Later, during project implementation, ADBmissions interact with EAs but much less sowith other local stakeholders. Moreover, phys-ical accomplishments, covenant compliance,and loan disbursement are the major mea-sures of implementation progress; little at-tention is generally paid to progress of PDprocesses and to reporting on them.

Key recommendations focus mostly onintroduction of PD processes at project iden-tification and preparation phases. For PD ap-proaches to work, sufficient resources—time, expertise, funds, and mostly capaci-ty building of stakeholder entities—must beprovided. This is particularly true early in theproject cycle. Specific remedies include thefollowing:(i) PPTA fact-finding missions need more

time and support if they are to facilitatePD processes, notably for workshops in-tended for identification of potentialstakeholders. Stakeholder workshopoutputs are: (a) local commitment andsense of PPTA ownership; (b) identifica-tion of PPTA milestones reflecting PD pro-cesses; (c) assessments of stakeholderinstitutional capacity; (d) definition ofPPTA consulting support including thatfor capacity building; and (e) prepara-tion of a flexible project concept paperand TOR for the PPTA;

(ii) EAs need to participate in the selectionof PPTA consultants who have experi-ence and aptitude to facilitate PD pro-cesses. Adequate mechanisms to thateffect need to be developed; and

(iii) during the PPTA there is a need to (a)maintain close participation of ADB mis-sion leaders in initial stakeholder work-shops, definition of PPTA strategy, anddocumentation of PD processes; (b) use,and further develop, consultative mech-

anisms to ensure real stakeholder par-ticipation starting at the project level upto the national level, notably throughworkshops. Of key importance are ca-pacity assessment of stakeholder entities,building their awareness and orientationtoward PD using LGUs and NGOs, mobi-lization of primary stakeholders plusstakeholder learning-by-doing leading toinstitutionalization of PD processes; and(c) facilitate the process of projectframework development, with full stake-holder participation, to be used as a keymechanism for project monitoring, plan-ning, and management. During PPTAs, itis necessary to precisely identify the na-ture and importance of the most plausi-ble risks, opportunities, and assumptionsregarding each stakeholder.Between PPTA completion and loan ef-

fectiveness, local stakeholders are currentlybarely involved. To maintain momentum ofPD activities, ADB support would include:(i) provision of mechanisms for continuedinformation sharing on progress of loan pro-cessing; (ii) commencement of capacity-building training for LGUs and othergovernment agencies; and (iii) meetings ofconsultative groups to maintain local stake-holder interest in the project and shortlistingof NGOs. Appraisal should include a work-shop with stakeholders to reach consensuson the final project design.

Key recommenda-

tions focus mostly

on introduction of

PD processes at

project identifica-

tion and prepara-

tion phases.


The tasks and outcomes that are expect-ed from stakeholders during project imple-mentation should not be defined within rigidtimeframes. Otherwise, PD processes andthe resulting buildup in local ownership andcommitment can be seriously undermined.NGOs often have comparative advantage overgovernment agencies in terms of mobilizingprimary stakeholder participation. Thus,reaching a common understanding on NGOroles and responsibilities and on criteria forselecting NGOs should be promoted. NGOapex organizations should participate in thedesign of selection procedures. Finally, a pan-el for NGO selection and evaluation shouldbe formed and sustained throughout theproject life as the mechanism for periodicNGO evaluation and documentation of sucha process. NGOs should fully participate inconsultations on project implementationpolicies and strategies, and on continuingactivities after project completion. Substan-tial support for related institutional capacitybuilding is indispensable.

Linkage of LGUs with line agenciesshould be firmly established to improveproject service delivery. Significantly complexconsultation mechanisms would be re-quired for projects involving several govern-ment agencies. Lessons from experiencesuggest keeping the number of government

agencies to a minimum. The weak mecha-nisms for collaboration between govern-ment agencies justify a more focusedapproach within projects that would resultin smaller loans.

There are currently significant con-straints within ADB that impede PD process-es. Heavy workloads and limited numbers ofprofessional staff commonly prevent theirmeaningful participation with the majority ofthe stakeholders. Learning processes inter-nal to ADB need improvement for staff to gainexposure to PD methodologies and practic-es—particularly as they relate to poverty re-duction. The Social Development Divisionshould take the lead in this regard by estab-lishing internal forums and learning groupsas well as an inventory and description ofPD-based projects on the ADB Intranet.Guidelines for the preparation and conductof PD-based projects need to be prepared,relating PD approaches in concrete ways topoverty reduction. Guidelines are also need-ed for institutional and organizational assess-ments and capacity building of institutions.

Participation, by engendering a sense ofpeople’s ownership of efforts that are un-dertaken to address poverty, is a crucial ele-ment of sustained development success. Inthat regard, ADB needs to further promotegovernance because governance facilitatesadoption and application of participatorypro-poor policies. It should also be recog-nized that, in many societies, the level of so-cial cohesion within communities may beweak. Strong proactive policies are requiredfor groups of often seriously poor people thatsuffer from systematic social discrimination.Such policies should aim to reverse amongdiscriminated poor people the feeling of so-cial and psychological inferiority, seek oppor-tunities for their empowerment, and creategenuinely participatory institutions that canassist them.

Strengthening the social capital of thepoor should be an important objective ofADB. This would imply increasing opportu-nities for the poor to truly participate in theworkings of society. Provision of security oftenure over resources and legal recognitionof user groups would be important in this

Learning processes

internal to ADB

need improvement

for staff to gain

exposure to PD

methodologies and

practices—particu-

larly as they relate

to poverty

reduction.


regard. A primary concern should be theprovision of mechanisms for ensuring thatpoor communities can effectively participatein enhancing social capital. For that to havea chance to happen, local stakeholderparticipation in projects needs to extend togiving them the power of effective decision-making.

To immediately strengthen PD process-es in ADB projects, a number of actions needto be initiated, and some even completed, inthe short term. They include the following:(i) mission leaders should participate in the

PPTA stakeholder workshops beforedrafting the project framework and fi-nal project design. This will also furtherincrease mission leaders’ commitmentto proposed projects;

(ii) resources for primary stakeholders toparticipate need to be incorporated intothe budget of PPTAs with a view to startempowering them to fully participatethroughout the process of project de-sign. Mechanisms will be required tocompensate them or even to simplymake it possible for them to participate,notably in early project stages such asthe PPTA fact-finding mission;

(iii) extensive experience in the proposedPD approaches and in their implemen-tation modalities should be key criteriain selecting consultants for PPTAs. TORof PPTA consultants need to provideclear directives to apply participatory ap-proaches;

(iv) disillusionment about a project amongstakeholders can be overcome throughimproved information processes thatmay be coursed through LGUs, NGOs,and other organized stakeholdergroups. However, there should be aclear understanding that having an ini-tial PD process does not guarantee thatADB will finance a project;

(v) during implementation of PD-basedprojects assisting the poor and the dis-advantaged, technical and disburse-

ment concerns should be weighedagainst proper involvement of primarystakeholders in decision making;

(vi) it is a matter of urgency for ADB to pro-duce operational guidelines on PD andon institutional analysis because institu-tions are the indispensable mechanismsfor delivering development assistanceand PD is an effective people-centeredapproach to effect such assistance;

(vii) operational guidelines for NGOs shouldbe updated to reflect some of the majorsuggestions supporting PD that are con-tained in 1999’s special evaluation studyon NGOs.1 The study included specificsuggestions for improving NGO selec-tion, recruitment modes, managementand monitoring, and for making them fulldevelopment partners of other develop-ment stakeholders; and

(viii)the Social Development Division shouldtake the lead in improving learning pro-cesses for PD at ADB. Staff need to gainmore exposure to PD practices and toways of incorporating them into the de-sign and implementation of projects.

1 SST: REG 99027: Special Evaluation Study of the Role of Nongov-ernment Organizations and Community-Based Organizations in AsianDevelopment Bank Projects, December 1999.

A primary concern

should be the

provision of

mechanisms for

ensuring that poor

communities can

effectively partici-

pate in enhancing

social capital.


he Asian Development Bank(ADB) adopted an involuntaryresettlement policy (IRP) in Feb-ruary 1994 and formally en-dorsed it in November 1995. The

IRP requires that people who lose assets orlivelihood because of a project, irrespectiveof tenure status, receive assistance from theproject for relocation and resettlement andbe paid market or replacement value for as-sets acquired by the project. A major IRPobjective is to ensure that those affected re-ceive rehabilitation assistance to achieve at

least the same level of well-being with theproject as without it. The IRP requires that allprojects, including cofinanced and privatesector projects with identified resettlementeffects, have a satisfactory resettlement plan(RP), with time-bound actions and appro-priate budget.

This study evaluates the relevance, ade-quacy, and effectiveness of the IRP and itsimplementation. The objectives are to en-hance ADB’s future portfolio developmentand management, and to provide feedbackto enhance IRP implementation in future

Policy Impact of InvoluntaryResettlement

REGIONAL


projects. Eight sample projects in four coun-tries—(Bangladesh, People’s Republic ofChina [PRC], Indonesia, and Philippines)were selected for field investigation basedon sector and regional criteria. The sampleincludes projects approved before and afterimplementation of the IRP. All have substan-tially completed the resettlement compo-nent. The eight sample projects, approvedbetween 1994 and 1996, represent a goodmix of countries and sectors with large re-settlement portfolios. In addition, eightprojects, approved between 1997 and 1999,were randomly selected for a desk study toassess the current pattern and practices inmanaging ADB’s resettlement portfolio. Thestudy used a multimethod approach includ-ing a review of relevant project documents,field surveys, interviews of executing agency(EA) officials and those affected, and com-munity meetings for investigation and datacollection. Guidelines were established forconducting the surveys.

The IRP contained detailed policy ele-ments which address adequately the majorconcerns of ADB, i.e., avoid involuntary re-settlement if possible, minimize involuntaryresettlement where population displace-ment is unavoidable, and ensure that the dis-placed people receive adequate assistanceto restore their living conditions to at leastthe preproject level. The policy elements areadequate to minimize or eliminate impov-erishment risks. The IRP framework is foundto be comprehensive and relevant in the con-text of providing fair treatment to people af-fected by a project.

Since the adoption of the IRP in 1994,ADB has financed 80 projects involving re-settlement in 12 developing member coun-tries (DMCs). On average, close to 120,000people are affected annually by ADB-fundedprojects; of these about 40,000 require relo-cation and resettlement. In terms of numberof people relocated, the PRC has the highestpercentage (60 percent) of the total num-ber affected, followed by Viet Nam (14 per-cent), Bangladesh (12 percent), Indonesia(7 percent), and Cambodia (2 percent). ThePhilippines and Sri Lanka both have 1 per-cent of the total number of affected people.

Sectorwise, transport projects recorded thehighest number of people relocated (78 per-cent of the total number of affected people).The energy and water supply and irrigationprojects together recorded 18 percent(9 percent each) of the people relocated.

In general, projects approved during theearly years of IRP implementation were notas detailed in reporting resettlement activi-ties. The desk study indicates that projectsapproved between 1997 and 1999 dealt withland acquisition and resettlement issuesmore comprehensively during project prep-aration. As a result, RPs were relatively moredetailed in terms of entitlements of displacedpersons, specific time-bound resettlementactions, mitigating measures, and provisionsfor monitoring the status of resettled people.Analysis of the field data on resettlement im-pacts from eight sample projects in fourcountries indicates that the IRP has madeprogress in achieving its development objec-tives, contributing in many instances to en-hanced payments of compensation for lostassets, providing improved housing and in-frastructure, and restoring livelihoods formany resettled families. The projects in thePRC showed better performance in terms ofrestoring incomes of those resettled. Most ofthe affected people maintained their pre-project income level in the postresettlementperiod and many reported they were betteroff compared with their preproject situation.In other countries, about one third of the af-fected households reported their status aspoorer than before. Several implementationproblems affected land acquisition and re-settlement activities in Indonesia and the Phil-ippines; these ranged from unsatisfactoryimplementation to significant cases of non-compliance with the IRP.

Field investigations indicate concernsabout the practical aspects of implementingthe IRP framework, and the capacity of EAsto implement and adhere to the IRP guide-lines. The IRP demands fundamental struc-tural changes in national land acquisitionlaws and payments of compensation for de-velopment-induced displacement. Experi-ence from sample project analyses indicatesthat the IRP is mostly project-driven and DMCs

Since the adoption

of the IRP in 1994,

ADB has financed

80 projects involv-

ing resettlement in

12 developing

member countries.

On average, close

to 120,000 people

are affected annu-

ally by ADB-funded

projects; of these

about 40,000 re-

quire relocation

and resettlement.


compliance is largely to gain loan approval.Improvements in compensation and otherbenefits are ad hoc and project-specific. Theproject case studies show that IRP effective-ness depends on local conditions and needs.To be effective, a national resettlement poli-cy must be formulated in line with the policyelements of IRP with appropriate modifica-tions to suit local conditions and needs. Anational resettlement policy must also em-phasize the results of program implementa-tion and supervision, rather than just meetIRP requirements at the loan approval stage.

Ineffective implementation and limitedimpact of the IRP in terms of the overall re-settlement process of the DMCs is a majorconcern. Major problems are (i) lack of ap-propriate and compatible national resettle-ment policy in most DMCs, (ii) inadequatesocial investigations at the project prepara-tory level, (iii) improperly identified impover-ishment risks resulting in inadequate

restoration of income and livelihood and se-rious implications for the sustainability of re-settlement programs, (iv) weak EAinstitutional capabilities and lack of or inad-equate funding for resettlement activities, (v)weak supervision and monitoring of reset-tlement implementation, (vi) lack of consis-tency in capacity-building and in the role ofnongovernment organizations (NGOs) inproject implementation and sustainability,and (vii) inadequate aid coordination amongdonor agencies.

ADB currently is aware of many of thepolicy and implementation issues. Severalinitiatives have been taken recently to resolvethese issues, particularly the technical assis-tance to review national resettlement poli-cies and experience with involuntaryresettlement projects in some DMCs. Recent-ly, the Social Development Division under-took another review of the IRP issues fromthe perspective of ADB’s new poverty focus

Experience from

sample project

analyses indicates

that the IRP is

mostly project-

driven and DMCs

compliance is

largely to gain loan

approval.


strategy and increased demands for publicdisclosure. In the future, ADB will need tocoordinate all efforts to develop and adoptpolicies to improve resettlement perfor-mance during implementation.

The study concluded that the IRP is ade-quate and relevant but refinements shouldbe made to clarify specific policy elements,such as compensations, people directly af-fected by projects, and those of the vulnera-ble groups.

The study provided lessons for futureproject preparation and management. Sixfactors are crucial for an integrated approachto resettlement planning and implementa-tion:(i) Appropriate Policy Framework. An ap-

propriate country policy and legal frame-work provides clear guidelines, specifiesinclusive definitions of affected people,assures market or replacement value forall kinds of assets acquired, and estab-lishes mechanisms for grievance resolu-tion;

(ii) Comprehensive Planning. Early atten-tion is needed to resolve land acquisi-tion and resettlement issues; establish adatabase for comprehensive develop-ment planning and a resettlement sitewith civic amenities, including options forresettlement; develop a gender-basedincome restoration plan, training for al-ternative income programs, and otherprograms as appropriate (e.g., vulnera-ble groups); and provide for mitigatingunanticipated project consequences;

(iii) Disclosure and Consultation with Stake-holders. This includes disclosing infor-mation and consulting with stake-holders, and forming task-oriented spe-cial committees (consisting of projectstaff, local government officials, experts,affected people, etc.) to collect special-ized information, consult with local com-munities to assess the extent of impact,and determine compensation rates;

(iv) Strong Implementing Agency. The agen-cy should be strong; be present in thefield; involve local government officials,

displaced people, the host community,NGOs, and community-based organiza-tions (CBOs) in RP implementation; andbe willing to learn from experience,adapt, and improve implementationstrategies;

(v) Resettlement Costs and Funding. Costsmust be properly budgeted and basedon market or replacement value; fund-ing should be available on schedule andpaid to displaced people prior to reloca-tion; and

(vi) Supervision and Monitoring. A system ofsupervision and internal monitoringmust be established, and monitoring datathen be used as feedback to improve per-formance. NGOs, CBOs, and affectedpeople should be involved in the moni-toring process.An important lesson learned is to make

concerted efforts with the DMCs to establisheffective implementation practices. The fo-cus must be on income restoration duringthe postresettlement period. Specific recom-mendations include the need to (i) stream-line IRP implementation; (ii) adopt anappropriate and improved national resettle-ment policy in individual DMCs; (iii) provideadequate funding for resettlement activitiesto prevent impoverishment of the affectedpeople; (iv) strengthen supervision and mon-itor project resettlement activities by bothADB and EAs; (v) strengthen and improveinitial social assessment through compre-hensive surveys of those affected, and im-prove disclosure and public consultation;(vi) strengthen ADB capacity for project re-settlement activities by providing additionalstaff and consulting resources; (vii) strength-en the institutional capacity of the DMCs byproviding technical assistance; and (viii) im-prove cooperation among multilateral andbilateral agencies within each DMC. ADBshould take a proactive approach to coop-erate with other agencies and NGOs to makethe best use of critical resources to improvethe DMCs’ capacity. A common approachand policy requirements should be adoptedby all funding agencies concerned.

An important

lesson learned is to

make concerted

efforts with the

DMCs to establish

effective imple-

mentation prac-

tices. The focus

must be on income

restoration during

the postresettle-

ment period.


he Asian Development Bank(ADB) adopted an official policyon agriculture and natural re-sources research (ANRR) in1995. This policy focuses on six

main agenda items including (i) sustainableand remunerative farming systems for poorfarmers, (ii) enhancing the incomes and liv-ing standards of rural women, (iii) sustain-able management of agricultural and naturalresources, (iv) enhancing the productivity ofagriculture, (v) enhancing the capacity ofnational research systems, and (vi) publicpolicy and socioeconomic research. Thepolicy objectives are to be achieved throughfunding for ANRR channeled through theConsultative Group on International Agricul-tural Research (CGIAR) to various interna-tional agricultural research centers (IARCs)and to national agricultural research systems(NARSs) as well as a limited number of spe-cial technical assistance (TA) projects to re-gional research centers outside the CGIARsystem. ADB’s agricultural research objec-tives are to increase food production andfood security, and contribute toward pover-ty reduction. Lending and TA operations areto focus on high-yield technology for less fa-vorable environments and for crops otherthan wheat and rice, with particular atten-tion paid to rain-fed farming, neglected crops,and integration of crop, livestock, and for-estry activities.

This special evaluation study evaluatesthe appropriateness, effectiveness, and im-pacts of ADB’s policy and support to ANRRin the Asian and Pacific region. The studyaims to (i) review and assess ADB’s role andcontribution to support ANRR, (ii) evaluatethe implementation performance of ADB-funded research activities and projects, and(iii) determine the adequacy of ADB-fi-nanced ANRR activities in meeting ADB’spolicy requirements. A sample of ADB-sup-ported projects from four IARCs were se-lected for formal impact assessment studies.These projects represented a good mix ofresearch activities covering a range of envi-ronments, executing agencies, commodi-ties, NARSs, and networking arrangements.A number of NARSs and CGIAR and non-CGIAR centers were visited to enable thestudy team to undertake a more general as-sessment of the impacts of ADB’s ANRR pol-icy on the welfare of the agriculturalproducers in the Asian and Pacific region.

ADB provides support to ANRR as partof its strategic framework for poverty reduc-tion. Most developing member countries(DMCs) do not yet have the capacity or re-sources to undertake needed research with-out strong international support andpartnerships. The products of most researchefforts are international public goods withhigh spillover effects across countries. Thisleads to underinvestment by the private sec-

REGIONAL

Policy Implementation andImpact of Agriculture andNatural Resources Research

ADB’s agricultural

research objectives

are to increase

food production

and food security,

and contribute

toward poverty

reduction.


tor, which is unable to capture most bene-fits, and by individual countries, which arealso unable to capture these spillover effectsfor its farmers and consumers. To absorbfunds needed to reduce the underinvest-ment, strong public institutions are neededto deliver public goods and services andstrong stakeholder participation is neededto guide the resource allocation process.Grants for ANRR have played an importantrole in meeting ADB’s strategic objectives,including economic development and pov-erty reduction. Since 1975, ADB has provid-ed $67.6 million funding in ANRR TA projects.The original motivation for this support wasbased on the demand to expand the initial“green revolution” research breakthroughsthrough support to the IARCs, NARSs, andregional institutions.

ADB’s funding for ANRR has been appro-priate to the evolving needs of Asian agricul-ture. Initial investments were for basicinfrastructure development such asgenebanks, training centers, scientific labo-ratories, and laboratory equipment, or forfounding grants to help construct and equipresearch centers. These investments are stillin place and have played a significant role inthe success of these centers in helping in-crease the productivity of Asian agriculture,train several generations of Asian scientists,and conserve germplasm and biodiversity.

Since 1996, funding of research projectshas followed closely ADB’s policy for ANRR.The primary mechanism to achieve maxi-mum impact from limited funds is to sup-port Asian networks as a means ofstrengthening NARSs while disseminatingIARC products to the clients. Many projectactivities focused on research for less-fa-vored environments. The research agendasof CGIAR and other regional IARCs conformclosely to the key research issues of strate-gic concern of ADB. ADB provides regionaltechnical assistance (RETA) funding once ayear covering research projects at severalCGIAR centers. Since ADB’s policy on ANRRwas adopted in 1995, CGIAR centers havereceived $21.9 million in RETA funds, whilenon-CGIAR centers have received $3.65 mil-lion.

The main recipients of ADB support forANRR under the CGIAR system are the Inter-national Rice Research Institute (IRRI), theInternational Crops Research Institute for theSemi-Arid Tropics (ICRISAT), the Internation-al Water Management Institute, and the In-ternational Center for Living AquaticResources Management (ICLARM). The ADBpolicy paper also notes that support to theCGIAR system would not exclude other spe-cialized research areas or institutions outsidethe CGIAR system. Individual TA and loanprojects continue to fund other research pro-posals or programs of interest to ADB and


generally follow normal ADB processing pro-cedures. The main recipient outside theCGIAR system is the Asian Vegetable Re-search and Development Center (AVRDC).

The current policy for ADB funding ofANRR based on the policy agenda items re-mains relevant and consistent with ADB’snew poverty reduction strategy. Benefits ofresearch reach the poor through four mainavenues: (i) raising farm income and employ-ment; (ii) lowering food prices in the mar-ket; (iii) providing pathways out of povertyby raising incomes thus providing more ed-ucation for children, better health and otherhousehold services, and creating rural andurban employment; and (iv) promotingbroad-based economic growth. An environ-mental consequence of the green revolutiontechnologies is the saving of land not re-quired to produce today’s food output at pre-green revolution yield levels. However, not allthe agenda items fit into the current policy ofsupporting ANRR through the IARCs. Abroader range of research institutions needsto be considered for ADB support, includingNARSs, nongovernment organizations, uni-versities, and specialized research instituteswith more expertise in local issues.

The impact assessment indicated thatADB investments in a selected group ofprojects provided high rates of return, aver-aging 83 percent for IRRI projects, 45 per-cent for ICRISAT projects, and 91 percent forAVRDC projects. Research on genetic im-provement of fish by ICLARM also showedhigh rates of return. These returns provide

economic benefits to both producers andconsumers and justify continuing ADB in-volvement in ANRR.

A review of project documents indicat-ed that very few formal assessments on thesuccess or failure of TA grants were made inthe past. Since the 1995 policy on ANRR, ANRRproject assessment has been more formal-ized. Project completion reports and logframe updates are now standard require-ments. Administration of the RETA processhas improved and the supervision of individ-ual TA projects is systematic and consistent.The current 19 TA projects under the first fourRETAs are in various stages of implementa-tion with elapsed periods ranging from 14 toabout 99 percent. The progress of imple-mentation of all the TA projects, except one,has been generally satisfactory. The perfor-mance of the studies is being monitored andevaluated by the concerned ADB staff atthree-month intervals. Progress reports havebeen timely and show generally good per-formance.

ADB funding for ANRR has improved andstabilized since the policy on ANRR was im-plemented. However, the amount is small rel-ative to other important donors in this areaand rationalization of funding by centers,geographic coverage, and agenda items isneeded to make better use of ADB’s limitedresources for ANRR.

ANRR has played an important role inpromoting agricultural and rural develop-ment in Asia over the past 30 years. Changesthat ANRR set in place have contributed sig-nificantly to agricultural productivity increas-es and a reduction of poverty. ADBinvestments have paid large dividends, withmuch of these gains occurring in less-favoredenvironments characterized by a high inci-dence of poverty. Furthermore, in such envi-ronments, investments in ANRR consistentlygive the highest return. These investmentshave the greatest impact on farmers’ generalwelfare and poverty reduction.

As ADB is a key development institutionin Asia, it has significant potential to expandits role in supporting ANRR in Asia. Addition-al funding for IARCs would allow ADB to par-ticipate in a broader portfolio of research

The impact

assessment indi-

cated that ADB

investments in a

selected group of

projects provided

high rates of

return, averaging

83 percent for IRRI

projects, 45 per-

cent for ICRISAT

projects, and 91

percent for AVRDC

projects.


projects to better promote its ANRR policyagenda. This could include (i) practices andpolicies for more sustainable natural re-source management; (ii) socioeconomicresearch to better understand linkagesamong ANRR, poverty reduction, income dis-tribution, and impacts of ANRR on the eco-nomic and nutritional status of women andchildren; and (iii) rural investment policiesto complement technological progress inagriculture. Projects in ANRR need to be bet-ter designed to encourage collaborative ef-fort among IARCs, NARSs, and other DMCresearch agencies with the capacity to con-tribute to multidisciplinary field level researchin the above area.

Specific recommendations include thefollowing: (i) the ANRR policy agenda shouldfocus on ADB’s main thrust of developmentobjectives and closely focus on pro-poorgrowth, poverty reduction, and environmen-tal protection. To have a sharper focus, thisagenda needs refinement and should con-centrate on developing sustainable farmingsystems for poor farmers, ensuring sustain-able management of natural resources, en-hancing agricultural productivity, andstrengthening institutional and technical ca-pacity of NARSs; (ii) ADB should adopt a two-pronged ANRR strategy i.e., TA funding forIARCs focusing on cutting-edge researchwhich would bring about new break-throughs and a quantum jump in agricultur-al productivity, as well as a focus onnetworking with NARSs for effective dissem-ination of research results. Parallel to it, loanfunding should be provided to NARSs, localuniversities, and interested nongovernmentorganizations for in situ adaptive research onsustainable farming systems, managementof natural resources, variety trials, environ-mental protection, and socioeconomics, etc.;(iii) ADB should continue the current restric-tive funding modality but adopt a cluster TAproject-processing approach providing TAfunding of about $20 million in real termsonce every three years to the IARCs andNARS; (iv) ANRR activities should focus onareas of high poverty incidence and areaswith a less-favored agro-ecological environ-ment in DMCs; (v) ADB should strengthen its

capacity to supervise, monitor, and evaluateANRR TA project activities by providing ade-quate resources for processing and admin-istration functions; and (vi) ADB’s agricultureand programs departments should under-take active policy dialogue with DMCs at ADB’sannual country programming mission andother policy dialogue missions to ensure thatDMC governments give significant emphasisto ANRR and provide adequate staff and fi-nancial resources for ANRR activities.


he Asian Development Bank(ADB) provides a large amountof technical assistance resourc-es to help developing membercountries (DMCs) carry out a va-

riety of tasks. Since inception, ADB has pro-vided 4,223 technical assistance projectsamounting to $1.8 billion. In the initial years,ADB was largely a project financier and thustechnical assistance was primarily a modali-ty to support the project-financing functionof ADB. With the broadening of ADB’s devel-opment mandate, technical assistance op-erations acquired a new dimension. In thepast few years, ADB has provided, on aver-age, $160 million per annum to support nearly250 technical assistance projects. More thanhalf of all technical assistance projects areadvisory technical assistance (ADTA).

Like most international agencies, ADBhas been concerned with the effectivenessof its ADTA operations. This special evalua-tion (the study) is demand driven and wasrequested by the Audit Committee of the ADBBoard and the programs departments. Twoimportant objectives of the study are to (i)assess the sustainability of policy reform ef-forts of ADB through selected ADTAs, and (ii)identify factors that enhance overall effective-ness and sustainability in future operations.

The study focuses on the policy reformsin power and water sectors by selectingbroadly compatible ADTAs. It concentrateson several ADTAs in a few countries rather

than attempting to cover a large number ofDMCs: five countries have been selected—two each from Region East and Region Westin consultation with the projects and pro-grams departments, and Bhutan as a smallrepresentative country. Thirty ADTAs in Bang-ladesh, Bhutan, Indonesia, Philippines, andSri Lanka were selected that had one or moreelements of policy reform in their design andthat had sustainability built in the design, ex-plicitly or implicitly.

Judging sustainability of policy reformsthrough technical assistance operations is anintrinsically difficult task because policy re-forms and institutional development arecomplex processes. Though technical assis-tance projects are key instruments for im-proving policies and building capacities, it isdifficult to disentangle the impacts of individ-ual ADTAs from all other development efforts.The analysis is qualitative, which is inevitablegiven the central theme of the study. The studydesign is based on a cluster evaluation ap-proach because it is constructive, using ag-gregate information to identify commonthemes and to learn not just “what hap-pened,” but “why these things happened.”

It is important to recognize at the outsetthat most sector reforms are second genera-tion reforms, characterized by incremental,long-haul adjustments rather than the dra-matic measures taken to deal with macro-economic restructuring. Given that suchprocesses are long term, the study covers

Sustainability of PolicyReforms through SelectedAdvisory TechnicalAssistance

REGIONAL

Judging sustain-

ability of policy

reforms through

technical assistance

operations is an

intrinsically difficult

task because policy

reforms and

institutional devel-

opment are

complex processes.


ADB’s efforts in these sectors over a ten-yearperiod rather than making an evaluation ofindividual ADTAs.

The study concludes that barring a few,but isolated, success stories, the contribu-tion of ADTAs to a sustainable policy reformprocess remains below its potential. Thestudy used a detailed evaluation of differentphases of processes to find out why this hap-pened. A large number of indicators wereused to avoid subjectivity or evaluation biasfor each stage of process evaluation. Majorgeneric problems and findings are summa-rized below:(i) The overall environment for reforms is

only mildly supportive in four DMCs andin Sri Lanka, there is strong resistance ifthe reforms lead to a greater role for theprivate sector.

(ii) Executing agency capacity for power (interms of human resources) is weak inBhutan. In Bangladesh, Indonesia, andPhilippines, substantial training would berequired to move to a competitive mar-ket structure. Compared to the powersector, capacity is a constraint in thewater sector in Bangladesh, Indonesia,and Philippines.

(iii) The approach to reforms in the contextof the design of most ADTAs was foundto be issue based rather than derivedfrom a clear programmatic or goal-ori-ented approach to sector development.

(iv) Ownership of ADTAs was found to be lim-ited or intermittent in most cases.

(v) The overall approach to training and ca-pacity building was found to be ad hoc—most training and capacity-buildingactivities were not based on an a priorineeds analysis in terms of what was re-quired for the sector reforms.

(vi) Cross-sector learning between powerand water, either within ADB or in DMCs,is limited.Based on the results of the detailed pro-

cess evaluation, the study identified five ma-jor building blocks of sustainable policyreforms. Evaluating individual sector reformprocesses against these building blocks, itwas found that in Bhutan, the paucity of ef-fective human capacity and institutional de-

velopment seems to be a major constraint tothe sustainability of future policy reform,whereas overall sector governance remainsa key concern to sustainability in Bangladeshand Indonesia. In Sri Lanka, much morework is needed to build constituencies forreform and for improved market structure.In the Philippines, the process of reform willremain stalled until further progress is madeto improve the market structure and put inplace an appropriate legal framework.

Looking forward, four key issues needto be addressed for sustainable policy re-forms:


(iv) Greater accountability for results in AD-TAs needs to be addressed at multiplelevels: (a) training and sensitizing staff tonew approaches to institutional devel-opment, (b) building multidisciplinaryteams for reforms, (c) securing betterperformance of consultants, and (d)strengthening the quality control mech-anisms for ADTAs that plan to assistDMCs with computer-based systems.The study makes a number of recom-

mendations. First, long-term sustainabilityrequires a programmatic approach to thesector reform process that is integrated withthe economic and sector work and overallcountry programming. ADB needs to changeits focus from the individual ADTAs to a pro-gram of reform at the sector level. Second,adequate resources to address capacitybuilding and institutional development inDMCs are required. Third, ADTAs with anagenda for policy reforms need to procureknowledge and change management servic-es. This requires a different orientation withmuch greater flexibility for operational staffthan what was needed for technical assis-tance as a project financier. All these call foran internal review of ADB’s policies, proce-dures, and overall resource allocations to itsADTA program. This is essential because de-mands of the new development mandate todesign and implement reform processes aspartnerships between DMCs and ADB are farbeyond the resources that are available atpresent. ADB could begin the process ofbuilding such a partnership with an internalreview of its own polices, procedures, andstaff resource allocation to enhance the ef-fectiveness of ADTAs.

Two follow-up actions are identified.First, ADB should set up an internal workinggroup to review its policies, procedures, andstaff resource allocation to ADTAs that aim toaddress policy reforms. Second, ADTA plan-ning needs to place emphasis on processes.The Operations Evaluation Office will preparea simple tool kit to operationalize the recom-mendations of this report to contribute tothis process.

(i) Policy reforms need to be treated as adynamic process in the context of a giv-en sector—a path from the present tothe future, not a one-off policy changeor a set of fixed institutional changes.

(ii) Generating ownership of the reform pro-cess and ADTAs is key. Increasingly, moreand more analytical tools are availableto assess ownership on the ground.

(iii) Effectiveness of ADTAs in future will de-pend largely on the ability of ADB to allo-cate the required resources. The presentstaff allocation as well as skills mix isgrossly inadequate to generate a com-mensurate return from an annual invest-ment of $100 million in ADTAs.

evaluation highlights 2000 - asian development bank hindustan cables limited ... ppar project...

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