mega city development project · completion report project number: 38405 loan number: 2229-pak ....

Completion Report

Project Number: 38405 Loan Number: 2229-PAK December 2010

Pakistan: Mega City Development Project

CURRENCY EQUIVALENTS

Currency Unit – Pakistan rupee/s (PRe/PRs)

At Appraisal At Project Completion 12 January 2006 12 June 2010

PRe1.00 = $0.0167 $0.0117 $1.00 = PRs59.88 PRs85.45

ABBREVIATIONS

ADB – Asian Development Bank CCB – citizen community board CDGK – City District Government of Karachi CSP – country strategy and program CSPU – country strategy and program update DCO – district coordination officer DOF – Department of Finance EDO – executive district officer HRM – human resource management IFI – international finance institution JBIC – Japan Bank for International Cooperation KWSB – Karachi Water and Sewerage Board LGD – local government department LSU – local support unit MFF – multitranche financing facility MIS – management information system MPGO – Master Plan Group of Offices NGO – Non-government organization P&D – Planning and Development Department PPID – private participation in infrastructure development PPP – public–private partnership PSC – project steering committee PSU – project support unit PWG – project working group RFP – request for proposals SDC – Swiss Development Corporation SDR – special drawing rights SFV – specialized financing vehicle SLGO – Sindh Local Governance Ordinance TA – technical assistance TMA – town municipal administration TOR – terms of reference UFW – unaccounted for water WHO – World Health Organization

NOTES

(i) The fiscal year (FY) of the government ends on 30 June. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2009 ends on 30 June 2010.

(ii) In this report, “$” refers to US dollars. Vice-President X. Zhao, Operations 1 Director General J. Miranda, Central and West Asia Department (CWRD) Country Director R. Stroem, Pakistan Resident Mission, CWRD Sector Director R. Subramaniam, Central and West Asia Urban Services Division,

CWRD Team leader D. Kucan, Senior Urban Development Specialist, CWRD Team member M.R. Romasanta, Project Officer, CWRD

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

1

1

CONTENTS

Page

BASIC DATA i

I. PROJECT DESCRIPTION 1

II. EVALUATION OF DESIGN AND IMPLEMENTATION 1 A. Relevance of Design and Formulation 2 B. Project Outputs 2 C. Project Costs 3 D. Disbursements 6 E. Project Schedule 6 F. Implementation Arrangements 6 G. Conditions and Covenants 6 H. Consultant Recruitment and Procurement 7 I. Performance of Consultants, Contractors, and Suppliers 7 J. Performance of the Borrower and the Executing Agency 7 K. Performance of the Asian Development Bank 8

III. EVALUATION OF PERFORMANCE 9 A. Relevance 9 B. Effectiveness in Achieving Outcome 9 C. Efficiency in Achieving Outcome and Outputs 9 D. Preliminary Assessment of Sustainability 9 E. Impact 10

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 0 A. Overall Assessment 0 B. Lessons 10 C. Recommendations 12

APPENDIXES

1. Project Framework 13 2. Detailed Cost Estimates 18 3. Status of Compliance with Loan Covenants 19

i

BASIC DATA

A. Loan Identification 1. Country 2. Loan Number 3. Project Title 4. Borrower 5. Executing Agency 6. Amount of Loan 7. Project Completion Report Number

Pakistan 2229-PAK Mega City Development Project Islamic Republic of Pakistan The Finance Department SDR7,010,000 PCR:PAK 1230

B. Loan Data 1. Appraisal – Date Started – Date Completed 2. Loan Negotiations – Date Started – Date Completed 3. Date of Board Approval 4. Date of Loan Agreement 5. Date of Loan Effectiveness – In Loan Agreement – Actual – Number of Extensions 6. Closing Date – In Loan Agreement – Actual – Number of Extensions 7. Terms of Loan – Interest Rate – Maturity (number of years) – Grace Period (number of years)

Not required 12 December 2005 13 December 2005 02 February 2006 14 June 2006 14 September 2006 14 September 2006 0 30 April 2009 13 August 2009 0 0% 32 8

8. Disbursements a. Dates

Initial Disbursement 2 April 2007

Final Disbursement 13 August 2009

Time Interval 28.5 months

Effective Date 14 September 2006

Original Closing Date 6 November 2008

Time Interval 25.7 months

ii

b. Amount (SDR)

Category Number

Category or Subloan

Original

Allocation

Last

Revised Allocation

Amount Canceled

Net

Amount Available

Amount

Disbursed

Undis-bursed Balance

01A Capacity Bldg –Consultants

1,945,000

40,000 17,385 22,615 0

01B Capacity Bldg – Training

210,000 0 0 0

01C Capacity Bldg – MIS Phase 1

1,080,000 0 0 0

02A Proj Prep Fclty - Consultants

1,990,000 400,000 65,713 334,287 0

02B Proj Prep Fclty – Katchi Abadis Pilot Phase 1

175,000 0 0 0

03A Specialized Fncng Vehicle – Admin

Costs

177,000 0 0 0

03B Specialized Fncng Vehicle – Training

140,000 0 0 0

04A TA Loan Mgmt Support - Consultants

361,000 60,000 23,265 36,735 0

04B TA Loan Mgmt Support – Vehicle & Eqpt

35,000 35,000 6,345 28,655 0

05 Interest Charge 110,000 110,000

97,921

12,079 0

06 Unallocated 787,000 787,000

787,000

0

0

Total 7,010,000 1,432,000 997,628 a 434,372 0

a In addition to the final cancellation of SDR997,628, a partial cancellation of SDR5.678 million was approved by the director of the Urban Services Division, Central and West Asia Department on 6 November 2008.

9. Local Costs (Financed) - Amount ($) 107,985 - Percent of Local Costs 3.05 - Percent of Total Cost 1.07

iii

C. Project Data

1. Project Cost ($ million)

Cost Appraisal Estimate Actual

Foreign Exchange Cost 6.460 0.545 Local Currency Cost 3.540 0.108 Total 10.000 0.653

2. Financing Plan ($ million)

Cost Appraisal Estimate Actual

Implementation Costs Borrower Financed 3.330 0.007 ADB Financed 10.000 0.653 Other External Financing 0.000 0.000

Total 13.330 0.660

IDC Costs Borrower Financed 0.047 0.000 ADB Financed 0.110 0.019 Other External Financing 0.000 0.000

Total 0.157 0.019

ADB = Asian Development Bank, IDC = interest during construction.

3. Cost Breakdown by Project Component ($ million)

Component Appraisal Estimate Actual

Capacity Building Facility 6.144 0.035 Project Preparation Facility 4.208 0.500 Specialized Financing Vehicle 0.833 0.000 Support for Technical Assistance Loan Management 0.726 0.099 Taxes and Duties 0.140 0.007 Physical Contingency 0.524 0.000 Price Contingency 0.598 0.000 Interest during Implementation 0.157 0.019

Total 13.330 0.660

4. Project Schedule

Appraisal Estimate Actual

Date of Contract with Consultants Naveed Chana June 2006 October 2007 Jamie Simpson June 2006 January 2008 Babar Mumtaz June 2006 January 2008 Royston Brockman June 2006 January 2008 Ahsan Ullah June 2006 January 2008 Mohammed Yaqub Chughtai June 2006 January 2008 Techno-Consult International June 2006 March 2008 Tahir Traders-Landscape Consultants June 2006 March 2008 Fincon Consultants June 2006 March 2008 Equipment and Supplies Dates First Procurement June 2006 November 2007 Last Procurement February 2007 May 2008

iv

5. Project Performance Report Ratings

Ratings Implementation Period

Development Objectives Implementation Progress

From 30 June 2006 to 30 August 2009 Satisfactory

Satisfactory

D. Data on Asian Development Bank Missions

Name of Mission

Date

No. of Persons

No. of Person-Days

Specialization of Membersa

Country Contact/Consultation

2–5 May 2005

2

8

d

Fact-Finding

30 August–20 September 2005

1 22 d

Loan Inception 21–28 August 2006 2 16 e, f Loan Review 23–29 January 2007 1 7 e Country Contact/Consultation 18 December 2007 1 1 g Loan Review 23–25 April 2008 3 9 h, I, f Project Completion Reviewb 1–30 September

2010 1 22 d

a d = senior urban development specialist, e = principal project specialist, f = assistant project analyst, g = director,

h = principal urban development specialist, i = young professional. b A desk project completion review mission was conducted by an urban development specialist in ADB headquarters.

I. PROJECT DESCRIPTION

1. In its medium-term development framework prepared during 2005/2006, the Government of Pakistan made a commitment to enhance the competitiveness of and quality of life in its large cities. The government constituted a high-level committee led by the Planning Commission for coordinated development of its megacities, starting with Karachi as a central anchor and driver of growth in its long-term economic development strategy. In this context, the government requested Asian Development Bank (ADB) assistance to address the megacity challenges facing Pakistan.1 The immense size of Karachi, the magnitude of its investment requirements, and the scale of the needs for urban policy and institutional reforms suggested that a traditional approach of one-off projects will not work. A clear need was felt for a series of sequenced and integrated interventions whose cumulative effect will act as a catalyst to speed up the development process in Karachi. The expected impact of the technical assistance (TA) loan was larger and sustained contribution of Karachi to national development and competitiveness, and improved quality of life for its residents, including the poor. The anticipated outcomes were (i) improved city planning, management, and financing; (ii) improved and expanded urban infrastructure and services; and (iii) sustainable and efficient financing of megacity urban infrastructure and services. 2. Previous external assistance to Karachi city has been piecemeal and has not been based on an integrated approach to improve urban infrastructure and services on a sustainable basis. The purpose of the TA loan was to address the megacity development needs through a long-term and holistic approach by (i) building capacities within the city district government of Karachi (CDGK) and the various tehsil municipal authorities (TMAs) for effective city planning and management, (ii) adopting and implementing commercial principles in the provision of infrastructure and services, (iii) supporting the preparation of bankable projects for megacity development that might subsequently be funded by ADB through its loans to Karachi city, and (iv) promoting reforms for sustainable financing. The TA loan was intended to represent the first intervention of long-term assistance from ADB, and it was to establish the required foundation for effectively utilizing and sustaining future infrastructure investments in the megacity. The TA loan specifically aimed to establish a dedicated project preparation facility, and a specialized financing vehicle (SFV) to catalyze infrastructure investments. 3. The TA loan was viewed as a key as well as a general intervention as part of the long-term partnership between ADB and Pakistan for sustainable urban development of Karachi in the specific sub-sectors (water supply and sanitation, waste management, integrated, multimodal transportation).

II. EVALUATION OF DESIGN AND IMPLEMENTATION

4. The project’s goal and impact were not achieved, whereas the thematic objectives have remained relevant, although mainstreaming them was not feasible within the confined duration of the TA loan.

1 ADB. 2006. Report and Recommendation of the President to the Board of Directors on a Proposed Technical

Assistance Loan, Islamic Republic of Pakistan: Mega City Development Project. Manila.

2

A. Relevance of Design and Formulation

5. The TA loan modality, aimed at strengthening the capacity of the CDGK and TMAs for effective urban planning and project execution, was the right choice, given the range of problems faced by Karachi:

(i) as a megacity in transition with seriously inadequate city management; (ii) lack of planned and systematic approaches to nurturing urban and overall

economic development; (iii) a limited revenue base and weak financial management; and (iv) serious infrastructure deficits accumulated by a rapidly expanding population,

with large needs for upgrading and/or expansion in water, sewerage and drainage, solid waste management, urban transport, and housing for those in informal settlements (katchi abadis).2

B. Project Outputs

6. The TA loan was designed in four parts: part A: capacity building facility for the CDGK, TMAs, and utilities in planning, managing, and financing urban infrastructure and services; part B: project preparation facility; part C: establishment and development of an SFV; and part D: support for TA loan management.

(i) Part A: Capacity building facility. The objective was to make a pool of resources available to the CDGK and other city agencies to undertake a comprehensive capacity-building program. A priority activity under part A was intended to be organizational development of the CDGK and completion of its transition related to the fiscal and administrative devolution pursued in Pakistan since 1999. While the goals of this part of the TA loan were laudable, only 1.1% of the envisaged budget was spent. Out of eight subprograms and related consulting activities 3 , supported by the additional three HR management / rationalization strategies / training programs, only three minor tasks were carried out for exactly 18 days in total, with the rest of the resources moved to the preparation of a multitranche financing facility (MFF) to be supported by ADB, which eventually did not materialize.

(ii) Part B: Project preparation facility. This subcomponent was to provide

resources for preparing feasibility studies for bankable projects. It was supposed to address the poor standards of project identification, planning, and preparation, as well as to syndicate investments effectively. The resources intended for selecting and developing bankable projects were to be used flexibly in response to evolving priorities. The feasibility studies were geared to establish the technical, financial, institutional, economic, social, and environmental feasibility of projects proposed for funding. Advisory services were also made available to develop and advance public–private partnership (PPP) modalities for financing, constructing, operating, and maintaining infrastructure facilities. Out of the 12 studies and an additional study on upgrading katchi abadis initially envisaged,

2 Forty percent of Karachi’s population lives in over 1,000 of these settlements. 3 A total of 64 international person-months of international and a total of 235 person-months of domestic consultants

were envisaged to support capacity building, Part A activities, under this TA Loan.

3

only three studies were carried out4 and the rest either immediately dropped or moved to the MFF.

(iii) Part C: Specialized financing vehicle. This subcomponent was to support the

establishment and operationalization of an innovative financing vehicle to address the needs for long-term and sustainable financing of megacity infrastructure and services. The SFV was intended to be a dedicated urban infrastructure financing entity that provides (depending on its design and development stage) concessional and commercial funds to the CDGK, its utilities, TMAs, and possibly the private sector investing in urban infrastructure and services in Karachi (and perhaps in Sindh). While envisaged that the role, products and services, operating principles, and financial strategy of the SFV would evolve, the SFV was supposed to act in the short term as an efficient conduit for channeling funds to megacity infrastructure and services. However, as the SFV was not established by April 2008, it was decided that the SFV concept should be moved to the MFF preparation stage. The executing agency advised ADB in April 2008 that it would like to establish a PPP cell instead under part C and an investment financing cell at the CDGK, and replace the SFV administrative costs and SFV financing (totaling $453,000). Neither of the two initiatives materialized, and no financial resources were finally allocated, for the same reasons as the other components.

(iv) Part D: Support for TA loan management. This subcomponent was designed

to include consultancy support to the project support unit (PSU) intended to be established in the Sindh Department of Finance (DOF) and the project working group (PWG) and local support unit (LSU) in the CDGK. A core team of experts comprising three international advisers in urban governance, capacity building, finance, and infrastructure planning and engineering were to be hired. These advisers were to be supported by long-term local consultants. The core team was envisaged to assist the PSU, PWG, and LSU in managing and implementing the overall project. However, only 10.2% of the envisaged budget was spent on a single consultant working for not more than 3 months in an activity that was supposed to closely support the government of Sindh in mitigating one of the biggest identified project risks—delayed implementation. The effort failed.

C. Project Costs

7. The total cost of the project was estimated at $13.33 million equivalent, of which the TA loan from ADB was $10.0 million or SDR7,010,000, comprising foreign exchange costs of $6.46 million (48% of the total cost) and local currency costs of $6.87 million equivalent (52% of the total cost). Taxes and duties were included in these costs and related to the equipment purchases under each subproject. Table 1 shows originally envisaged Project costs.

4 The Malir Bund Road Study, Developing IT Platform for Tracking and Maintenance Study, and Forestation and

Aesthetic Plantation Study were the only three studies finalized under this activity.

4

Table 1: Originally Envisaged Project Costs ($ million)

Item Foreign

ExchangeLocal

Currency Total Cost

Share (%)

A. Base cost by component 1. Capacity building activity 3.238 2.906 6.144 46.1 2. Project preparation facility 1.986 2.222 31.6 3. Specialized financing vehicle 0.150 0.683 6.2 4. Support for TA loan management 0.376 0.350 5.5 5. Taxes and duties 0 0.140 0.140 1.0 Subtotal (A) 5.750 6.301 12.051 90.4 B. Contingencies 1. Physical contingency 0.326 0.198 0.524 3.9 2. Price contingency 0.227 0.371 0.598 4.5 Subtotal (B) 0.553 0.569 1.122 8.4 C. Interest during implementation 0.157 0 0.157 1.2 Total Costs (A+B+C) 6.460 6.870 13.330 100.0

TA = technical assistance. Source: Report and Recommendation of the President to the Board of Directors on a Proposed Technical Assistance Loan to the Islamic Republic of Pakistan for the Megacity Development Project. 8. As can be seen from Table 2, the project suffered from significant underutilization that first caused a partial cancellation of loan proceeds, followed by an almost complete project cancellation. The main cause for the severe underutilization was the lack of consensus between the various stakeholders at the provincial and CDGK levels on the scope of the proposed MFF. The CDGK sought comprehensive and large support for various urban services, whereas the provincial government suggested a more targeted approach of supporting only urban transport. The very slow and ineffective mobilization of consultants, coupled with other project approvals facing significant delays caused by lack of political and coordination consensus between the key stakeholders affected project implementation, despite repeated warnings and several red flags rose in the very early stages.

Table 2: Reallocation of Loan Proceeds as of 16 January 2009 (SDR)

Cat Ref/Cat

Category Name Original

Allocation (SDR)

Contracts

(SDR)

Uncontracted Loan

Balance (SDR)

Partial

Cancellation (SDR)

Revised

Allocation (SDR)

Revised

Allocation ($)

Rate 1.490371

01A

Mgmt = management, SDR = Special Drawing Rights, SFV = special financing vehicle, TA = technical assistance

01B 01C

02A 02B

03A 03B 04A

04B

05 06 99

Capacity building facility – Consultants Capacity building – Training Capacity building-Mgmt information system Phase I Project preparation facility-Consultants Project preparation facility-Katchi Abadis Phase I SFV – Administrative cost SFV – Training TA Loan management support - Consultants TA Loan management support – Vehicles and equipment

Subtotal

Interest charge Unallocated Imprest account

Total

1,945,000 210,000 1,080,000

1,999,000 175,000

177,000 140,000 361,000

35,000

6,113,000

110,000 787,000

7,010,000

28,953

0 0

327,311

0

0 0

50,526

24,435

431,225

431,225

1,916,047 210,000 1,080,000

1,662,689 175,000

177,000 140,000 310,474

10,565

5,681,775

5,681,775

1,905,000

210,000 1,080,000

1,590,000

175,000

177,000 140,000 301,000

0

5,578,000

5,578,000

40,000

0 0

400,000

0

0 0

60,000

35,000

535,000

110,000 787,000

1,432,000

59,615

596,148

89,422

52,163

797,348

163,941 1,172,922

2,134,211

Source: ADB Loan Financial Information System (LFIS)

5

6

D. Disbursements

9. In accordance with the original design of the project, and immediately after loan effectiveness, the government of Sindh opened and maintained a project imprest account for the PSU at the National Bank of Pakistan, to ensure timely release of loan proceeds and expedite project implementation. However, although the imprest account was sufficiently funded with an initial deposit of $0.98 million, it did not facilitate speedy disbursements. E. Project Schedule

10. The TA Loan was approved on 2 February 2006. The loan became effective on 14 September 2006 (when the exchange rate was SDR1 = $1.478699) and was originally scheduled for closing on 14 April 2009. On 5 November, 2008, the Ministry of Economic Affairs and Statistics of the Government of Pakistan—the borrower—sent a letter to ADB, notifying that a large portion of the loan be cancelled without waiting until its closure on 30 April 2009. The partial TA loan cancellation amounting to SDR5.6 million (or $8.3 million equivalent) was made effective on 5 November 2008, in accordance with ADB’s Project Administration Instructions, PAI 4.04, paragraph 8.5 F. Implementation Arrangements

11. The initial implementation arrangements were structured as originally agreed: the PSU was established in DOF of the government of Sindh, 6 in addition to the project steering committee, chaired by the finance minister of the government of Sindh. The CDGK was the implementing agency for part A of the project (capacity building facility) and part B (project preparation facility). A PWG, chaired by the district coordination officer, was formed to provide oversight for all operational matters and coordinate with part C. Finally, a local support unit was established in the CDGK (the Department of Finance and Planning) to plan, implement organizational development, and coordinate individual activities and programs of parts A and B. However, since ADB’s approval in February 2006, very little progress was achieved, mainly because of the lack of consensus and sluggish approval procedures. As of 22 October 2008, cumulative contracts awarded amounted merely to $0.63 million (6%); and cumulative disbursements to $1.017 million (9%), including $0.98 million for setting up the imprest account. As of September 2008, only three contracts (part B) and several small contracts (part D) had been approved. In January 2008, therefore, DOF of the government of Sindh and ADB agreed that the TA loan would be closed before 30 April 2009. This agreement was confirmed by the government of Sindh during subsequent discussions. G. Conditions and Covenants

12. This project suffered primarily from lack of consensus and coordination between the government of Sindh and CDGK on mutual responsibilities and authorities to develop and execute an effective and sustainable development plan in meeting Karachi’s significant demand for urban infrastructure services. Any political will to address the development challenges was very quickly diluted through emerging divisions among the stakeholders, resulting in a poor translation from the project design to execution.

5 ADB. 2004. Suspension and Cancellation of Loans. Project Administration Instructions. PAI 4.04. Manila 6 With the duty to oversee the project and be responsible for implementing part C (SFV).

7

13. Technically, most covenants -- formally seen -- have been almost entirely complied with, with a great majority also duly accomplished. However, this project cannot be seen as successful in any of its elements, as a well-intended approach and a whole series of complementary interventions, both capacity building and in preparing bankable projects, met harsh political and institutional realities on the ground. For example, covenant 1–the borrower and the government of Sindh and the CDGK will ensure that all subprojects meet, to the satisfaction of ADB, with a whole number of general criteria (subproject selection criteria)—failed to mention that above all there should be a lasting general consensus between the key stakeholders on the long-term and holistic development of Karachi. The status of compliance with the loan covenants can be found in Appendix 3. H. Consultant Recruitment and Procurement

14. The lack of consensus was severely aggravated by considerable delays in the procurement of consulting services. According to the TA loan agreement, DOF should have taken advance actions to recruit consultants for the TA loan management whereas the LSU was to recruit other consultants. Very early in the process, an ADB mission (21–28 August 2006) suggested that a recruitment plan be prepared for the consulting services under the TA loan; this was agreed with the LSU and PSU. Furthermore, the mission requested that special attention be paid by PSU and LSU staff to the required ADB approvals at each critical stage of recruitment under quality and cost-based selection, quality-based selection, or individual consultants. However, the recruitments were never effectively executed. I. Performance of Consultants, Contractors, and Suppliers

15. Tentative estimates of the consulting services requirements for the whole TA loan were about 145 person-months of international consultants and 430 person-months of national consultants. These were meant to be specialists in urban planning, water supply, sewerage, solid waste management, urban transport and roads, low-income community upgrading, private sector participation in urban infrastructure provision, economics, finance, social development, resettlement, and the environment—all to help the CDGK carry out comprehensive feasibility analyses.7 However, the final procured consulting input was about 19 person-months of national consultants and 18 days of international consultants—an appalling outcome of poor project implementation. As noted in paragraph 6 (ii) and footnote 3, only three final study reports were produced, none leading to any concrete outcomes. J. Performance of the Borrower and the Executing Agency

16. In summary, the performance of the borrower was unsatisfactory, and so was that of the EA, which was unable to intermediate any consensus to move ahead on the project. The TA loan and the ensuing MFF were premised on the finalization of the proposed Karachi Strategic Master Plan 2020. The Japan International Cooperation Agency had provided support to the CDGK, and up to $100,000 of the TA loan was set aside to help finalize the plan. However, the federal government, the government of Sindh, and the CDGK could not come to a consensus on the approach and scope for the plan. As there were conceptual and high-level differences, there was no traction in agreeing on any of the components of the TA loan or in screening and identifying any subprojects for design. The DOF was considered to have adequate capacity as the EA, as well as the mandate and a cadre of professional staff to provide strategic and policy

7 In addition, where necessary engineering designs, preparation of bid documents and procurement of goods and

services in a manner satisfactory to ADB.

8

guidance and champion the project. However, the EA had to consult with the CDGK on the recruitment of most of the consultants, either directly or through the PSU or LSU at the two different institutional levels. All of this led to duplication of efforts, in the absence of a clear agreement on a vision or of any prioritization. These problems in the implementation arrangements were noted and agreed upon in January 2008 during an ADB mission as well as the portfolio “spring cleaning” exercise that the federal government and ADB had launched. ADB suggested during spring cleaning that the project be refocused and made more targeted, which could not be achieved. 17. It is worth mentioning that the detailed government audits of the counterpart funds for the Karachi TA loan noted misuse of funds and various unauthorized expenditures. The Auditor General also raised a number of questions to the CDGK. The PSU and LSU staff was being paid large salaries, provided with vehicles and gasoline allowances, gym memberships, travel for international training with per diems, funds for entertainment and representation, high-level office rent, etc, all on the government’s account. The audit further suggested an amount in excess of $400,000 in salary payments above allowed rates, overhaul of vehicle engines on brand-new cars, and missing reports that were claimed to have been funded with no copies being produced when requested by EA. K. Performance of the Asian Development Bank

18. ADB’s performance was also unsatisfactory. The project design and implementation structure, while quite comprehensive, were too ambitious and not in line with the ground realities. The project concept started with a clearly agreed multi-sectoral intervention, designed through extensive consultation with the government of Sindh and CDGK. It initially aimed to cover four critical subsectors: (i) water supply and sanitation, (ii) solid waste management, (iii) slum upgrading, and (iv) urban transport (bus rapid transit or BRT). It was recognized right after approval that water sector reform may prove to be too volatile, so the water component was dropped, despite previous agreements for its inclusion. Subsequently, the government of Sindh requested that the slum upgrading component be dropped too, as it felt it could not meet ADB’s safeguard requirements with respect to compensation and relocation in katchi abadis. The government also asked for the solid waste management component to be dropped as it opted for an unsolicited built-operate-transfer tender. Overall, the design was far too complex and the project lacked sufficient oversight and monitoring. 19. Following the changes noted above, the project was left only with the singular bus rapid transit component, which the government of Sindh then decided to upgrade to a light-rail mass transit system on a scale comparable to what was being planned in Lahore and New Delhi. The shifting priorities posed significant challenges to the project. 20. Part A: Capacity building facility. The implementation of this component was under strain from the outset. Out of eight envisaged capacity building facility activities, only three were executed under the TA loan and five were moved to the MFF; and from two major training activities, only a minor one was kept intact (project management course). An important and fairly sensitive consulting component, relating to the Karachi Master Plan, was delivered in only 18 days of person-day of international consulting inputs, whereas a national consultant worked four months of national inputs. Far greater attention was required in this area. 21. Part B: Project preparation facility. While initially meant to prepare feasibility studies for bankable projects in four sub-sectors, this component produced only three studies (footnote 3). This is perhaps the weakest area of project design, as it was heavily ambitious and not

9

based on adequate stakeholder consultations. However, the intent of this component was that through implementing subprojects under TA loan, CDGK will increase its capacity for project preparation and sector development. 22. Part C: Specialized financing vehicle. A parallel TA was supposed to design the features, legal structure, a strategic road map, and product types and terms for SFV. Given the changes in the project design, the TA was never processed. 23. Part D: Support for technical assistance loan management. Only a single consultant was engaged for three person-months. The very slow progress of this component could have been picked up by ADB as a clear early warning and for any possible course correction.

III. EVALUATION OF PERFORMANCE

A. Relevance

24. The project design was partly relevant at the time of appraisal. While there was a clear need for the Intervention envisaged, the design was too complex. The government of Sindh and ADB recognized the need for a long term and holistic approach to Karachi’s large scale needs for infrastructure and reforms. However, the lack of consensus, shifting subsector focus of the government and the implementation delays held back the project and caused its failure. As such, the project design and its expectations failed to capture the ground realities. Furthermore, there was no attempt to insist on a corporatized approach to Karachi’s development that might have insured some independence and autonomy in executing the project. Hence, its design at the time of preparation of this Project Completion Report is also judged as partly relevant. B. Effectiveness in Achieving Outcome

25. The project was ineffective. It did not achieve any of the planned outcomes. While the challenges and constraints facing the project were identified early during the inception stages, neither the government nor ADB were able to execute alternatives to revive the project. C. Efficiency in Achieving Outcome and Outputs

26. The project was inefficient, although with only a small portion of the resources utilized, it is difficult to fully assess the efficiency. Yet, even the limited resources invested were not properly sequenced. Greater attention should have been placed on coordination. There was very little efficiency in attempting to achieve either outcome or outputs. While three studies were undertaken, the project really never moved forward nor it mobilized any of subcomponents. D. Preliminary Assessment of Sustainability

27. The project is rated unsustainable, as there is no evidence of any of the subcomponents demonstrating likelihood of sustainability. The project preparation facility had the greatest potential to become a self-standing entity with a follow-on MFF arrangement. However, given the lack of political consensus, no attention was paid to selection of subprojects or specific investment priorities that were deemed constant.

10

E. Impact

28. No significant poverty, institutional, economic, environmental, social, or similar impacts were generated during project implementation.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

29. The project is rated unsuccessful. The project purpose and goals were based on clear and demonstrated needs. With hindsight, the design was only partly relevant at the time of approval, and remaining so during the implementation. The DOF was the executing agency as only the province was legally empowered to borrow from the federal government. Placing the executing responsibilities at the provincial level and the implementation responsibility at the city level was to enable close coordination between the province and the city administrations, given the importance of Karachi. Further, the involvement of the provincial administration was considered vital given the significant investment and risk-sharing requirements. Yet, the involvement of all the relevant stakeholders at appropriate levels did not result in any consensus in early or later stages of the project. In summary, clear agreement by all parties concerned must be a stringent prerequisite for any ambitious and complex projects in Pakistan. 30. ADB inception and review missions were fielded in a timely manner but appear to have taken a softer approach to delays and bottlenecks in implementation. For example, the need for design and implementation changes should have been picked up earlier. Given that performance monitoring ratings indicated satisfactory performance on both development objectives and implementation progress during the implementation period from 30 June 2006 to 30 August 2009, it has to be concluded that monitoring failed to recognize the significant implementation problems. 31. Changing priorities of the government of Sindh and CDGK and lack of adequate capacity are among the key reasons for project failure. Approved in January 2006, the project achieved less than 10% disbursement ratio by the end of 2007 when 44% of the project time elapsed. An appraisal mission fielded in October 2007 for the MFF intervention identified that: (i) by the beginning of 2007 all training needs should have been assessed, modules prepared, and training begun for ongoing activities – these were not done; (ii) by June 2007 a commercialization strategy for KSWB should have been agreed and implemented – it was not done; and (iii) by beginning of 2007 at least 2 subproject feasibility studies and design of urban infrastructure projects should have been completed – it was not done. B. Lessons

32. Lessons from previous projects. Lessons from two older ADB urban sector loan projects to Karachi in 1986 and 1991, respectively, which were rated unsuccessful and partly successful, include the need for (i) greater attention to sustainability, (ii) enhanced project design based on sound assessments, (iii) careful consideration for institutional shortcomings of executing and implementing agencies, and (iv) greater efforts to address the financial insolvency problems of the Karachi local government bodies. A specific lesson derived from the previous Karachi Urban Development Project is that urban upgrading is complex and must be able to deal with the broad range of problems faced by katchi abadis dwellers, including regularization and security of tenure. All these lessons suggest that urban development assistance demands a holistic approach. To be of lasting value, major capital investments need

11

to be supported by capacity building, policy, regulatory and institutional reforms, as well as new and innovative financing vehicles that facilitate provision of high-quality infrastructure services on a sustainable basis. However, although the TA loan for Megacity Development Project incorporated these lessons in its design, it failed for various structural reasons, with the lack of consensus between various levels of authorities being the most serious challenge. 33. Avoidance of challenging issues. At both government levels (the government of Sindh and CDGK), there was a systematic avoidance of exposure to and tackling of various governance and institutional issues, as well as reforms required to examine and correct these challenges. Analysis of the few project subcomponents completed illustrates that the government of Sindh and CDGK only implemented “easy” studies that did not and could not tackle major disputes or issues that might require serious reforms in Karachi. ADB, the government of Sindh and CDGK should have been far more insistent at the outset of the project on the critical reform and governance issues than was the case on this project. 34. Problematic shifting of priorities. Continuing problems with government approvals, and constant changes in focus, scope, and direction caused major delays. ADB noted a range of concerns over the continuing delays on the processing of the Project in its previous incarnation, the Karachi Mega City Development Program, after developing the loan proposal to the point of loan negotiations in May 2008. Following meetings in July 2008, the program was reconfigured at the request of the government of Sindh, this time an integrated, holistic urban transport program for Karachi, with new implementation arrangements. Unfortunately, the agreed deadlines were not respected while no progress was evident on steps to achieve institutional reforms. The requested revisions to the proposed Project, for a truncated investment in bus rapid transit, a shift in geographic focus to secondary cities, and a two-tranches structure did not lend itself to the envisaged sector reforms, nor was it suitable for ADB’s MFF. By November 2008, the proposed Sindh Urban Mass Transit Investment Program was also cancelled. The TA loan was originally designed to provide the prerequisite planning, systems integration, and capacity development to address the sorts of issues that arise in urban planning. However, it did not succeed. 35. Counterpart funding and incentive issues in TA loans. Despite the challenges in project implementation, the PSU and LSU had utilized close to $4 million in counterpart funding, while ADB disbursed only 15% of the TA loan. As a result, the actual split between ADB and the government was 15:85, when the agreement was 70:30. Thus, a key lesson is that there should have been far greater oversight on the utilization of counterpart funds, as the ADB-financed expenditures and activities and overall progress of the TA loan lagged far behind. The resource utilization also shows a fundamental flaw in the design of TA loans, in which a significant share of resources is allocated for international consulting inputs. The various challenges in this TA loan, including protracted internal government approvals, delayed consultant selection. In future, ADB should very carefully examine the incentives of the executing and implementing agencies in utilizing resources. Core activities, such as recruitment of experts, are typically delayed while routine activities, such as maintenance of offices and vehicles, are approved on time, without a continuous assessment of project progress. 36. Weak government commitment. Given the political environment and the likelihood that a significant lack of consensus might be a daily reality on this project, the design should never have been so complex, with four different subcomponents, leading to a much larger MFF expectation. Perhaps a lesson here is that to achieve early and committed buy-in to required reforms and institutional shake-up, smaller and simpler components could be tested through a small scale or project preparatory TAs, which may lead to visible and larger MFF commitments.

12

C. Recommendations

37. A number of project-related and general recommendations are in order, based on the lessons learned from this TA loan and other related interventions. 1. Project Related 38. Follow-up actions: Given the low utilization of the project, there is no need for any significant follow-up. However, urban infrastructure deficit is serious and large in Karachi. The lack of success in one intervention should not lead to a disruption of development partnership in this area. A round-table workshop can be organized with all the relevant stakeholders to discuss frankly the problems faced in the project and lessons learned, and to agree on ways of working together to addressing the urban development challenges in Karachi. The dialogue should also focus on the cost of doing nothing to address the urban infrastructure deficit. 2. General 39. Structure TA loans well: Almost every single TA loan has faced serious implementation challenges in Pakistan. This calls for a structured dialogue with the Government of Pakistan on how best to support the range of needs identified for this project. A proper blending of development partner resources is required between relatively softer components such as capacity development and relatively harder requirements such as project preparation and SFV type of activities supported under this TA loan. 40. Improve project readiness: This project has clearly shown that lack of readiness can seriously derail implementation. ADB and the government should ensure that advance actions are taken ahead of project approval to jump start procurement of services, so that the required resources are available right upon project approval. Notwithstanding the inclusion of several sub-sectors and components, such advance actions would have helped establish a momentum in project implementation and assisted in creating awareness and building capacity.

Appendix 1 13

PROJECT FRAMEWORK

Design Summary

Performance Indicators/Targets

Data Sources / Reporting Mechanisms

Assumptions and Risks

Impact Improved quality of life for urban residents, including the poor and enhanced competitiveness and sustained contribution of Karachi to national development.

City environment and public health improved (percentage increase in city population with access to urban services) Poverty incidence reduced (percentage increase in population of katchi abadis with access to urban services) City productivity increased (percentage increase in the contribution of city to the national gross domestic product)

Federal, provincial and city government statistics Reports of bilateral and multilateral organizations and NGOs

Assumption The Government is

committed to sustainable mega city development in Karachi

Risk Delay in project

implementation

Outcome Enhanced capacities of CDGK and TMAs in city planning, service delivery, and financial management, along with sustainable and efficient financing of the mega city infrastructure and service development Increased investments for improving and expanding mega city infrastructure and services

By 2009: subprograms of capacity building facility for mega city planning, organizational development, revenue enhancement and financial management, customer orientation, commercialization, human resource development and reactivation of CCBs to be implemented. By 2006: The establishment of the specialized mega city financing vehicle (SFV) is to be underway By 2009: Infrastructure subprojects prepared under the TA loan are selected for funding by ADB and other donors. Enhanced project preparation capacity in CDGK

Monitoring against benchmarks on performance of city district government and other city agencies Project progress reports ADB review missions Project completion report ADB Review missions Project progress reports Project completion report Monitoring against baseline data on infrastructure and services under the subprojects and follow-on

Assumption GOS, CDGK, and TMAs

remain committed to reforms for improved governance, efficiency, and appropriate pricing of services, as well as to developing technical, managerial, and financial capacities


implementation and the reform agenda

Assumption Continued commitment

of federal, provincial and city governments to an SFV

Risk Delay in reforms to

establish SFV Assumption Investment projects

developed under the TA loan were financed by

14 Appendix 1

Design Performance Indicators/Targets


Assumptions and Risks Summary

loans ADB review missions Project progress and completion reports

ADB Risk Delays in preparation of

projects

Outputs Part A 1. Detailed design and

implementation of capacity building programs completed

Mega city planning

Organizational development

Revenue enhancement and financial management

Office of Master Plan Group strengthened with staff skilled in strategic and master planning by 2007 City master plan prepared by June 2007 Mega city urban infrastructure services investment plan prepared by June 2007 By June 2007: agreed time-bound organizational development action plan; operations manual for departmental responsibilities and staff job descriptions; management processes, training needs assessment, and cost assessed training program. By June 2007: agreed time-bound revenue enhancement plan for fiscal transfers and own-source revenues, including plan for removal of property exemptions from the

ADB review missions Project progress reports Project completion report Activity reports and plans and programs of CDGK and TMAs

Assumptions High quality institutional

analyses, needs assessment and feasible reforms proposals

Qualified consultants are

mobilized in a timely manner

Close consultation and

cooperation with CDGK and other stakeholders are undertaken during the development of capacity building programs

GOS and CDGK’s

commitment to implementing capacity building reforms are adequate

Risks Delayed recruitment of

qualified consultants Delayed response by

CDGK to TA outputs and delayed action in reforms

Inadequate allocation of counterpart support

Appendix 1 15




Customer orientation

of CDGK: Improved understanding of client needs, markets and businesses; greater understanding of commercially operated infrastructure, PPPs, and project financing

Reforms for

commercialization of KWSB

tax net By 2008: Implementation of revenue plan, computerization of property tax records, establishment of integrated accounting systems and MIS By 2007: Interviews with officials held Needs assessment Training modules prepared Training is on-going Regular customer feedback and response mechanisms developed By June 2007: Agreed KWSB commercialization strategy, including organizational changes, accountabilities, workforce size, incentives, compensation, human resource practices, financial management, cost control, asset management, and tariff reforms. By 2007: Implementation of commercialization strategy is ongoing in phases By 2009: resources allocated in city budgets for 10 CCBs spent

ADB review missions Project progress reports, indicating number of employees having received training, perception of trainees on the training, and perception of businesses and investors on the quality of services provided by CDGK ADB review missions Project progress reports Regulatory changes

Assumption CDGK and KWSB

leadership remains committed to reforms

Risks Delay in reforms

16 Appendix 1

Performance Indicators/Targets


Assumptions and Risks

Design Summary Activation of CCBs

through (i) study on best practices; (ii) CCB civic education campaign, training and capacity building; and (iii) 10 CCB pilot projects

Project progress reports ADB review missions Project completion report Programs and activities of CDGK and TMAs

Assumption Good NGO and

community experts engaged on a timely basis

Community cooperation exists

Outputs Part B A suite of bankable project feasibility studies for high-priority services and infrastructure investments ready for financing by ADB and others, including the private sector

By 2006: TORs for selected priority subprojects finalized and approved, and consultants engaged By 2007: At least two subprojects feasibility and design of urban infrastructure projects completed By 2009: resources for project preparation facility utilized

Project progress reports ADB review missions Project completion report

Assumption Qualified consultants

were recruited on a timely basis

Adequate counterpart support was provided by CDGK


identification and consultant selection

Outputs Part C SFV established

By September 2006: Feasibility assessment and an agreed design of the specialized financing vehicle completed By December 2006: Policy and legal reforms required to establish financing vehicle undertaken by GOS and other parties

Project progress reports ADB review missions Workshop proceedings

Assumptions Qualified consultants

were engaged on a timely basis

Close consultation and dialogues were maintained between consultants, Pakistan stakeholders and ADB

A good viable design that best meets Karachi’s needs was developed

Timely reform actions were undertaken by GOS and other relevant parties

Risk Delay in implementation

Activities with Milestones 1. PSU and LSU are established and their directors and key staff appointed by 31 Jan 2006. PWG and PSC are formed with chair and members by 31 Jan 2006. 2. TA loan management support consultants recruited by May 2006. 3. The overall scope of capacity building and project preparation facility reviewed and finalized, then approved by PWG/PSU by August 2006. 4. TORs for selected priority subprojects for capacity building and project feasibility studies finalized and approved, and consultants for priority subprojects

Inputs ADB: $10 million of

Special Fund resources GOS/CDGK: $3.333

million equivalent Approximately 145

person-months of international experts; 430 person-months of

Appendix 1 17




and subprograms engaged by Nov 2006. 5. Time-bound mega city reform agenda finalized and agreed by CDGK and PSU by Jan 2007. 6. At least two priority subprograms of capacity building facility in implementation by 2007. 7. At least two subprojects (infrastructure and service feasibilities) among those already identified or to be identified during TA loan implementation completed by 2007, more subprojects by 2008 and remaining subprojects by 2009. 8. Feasibility and design of a specialized financing vehicle (SFV) completed by 2006. 9. Establishment of SFV is underway by Dec 2006.

domestic experts Inputs by component

(excluding contingencies) Part A: Capacity Building

Facility $6.144 million Part B: Project

Preparation Facility: $4.208 million

Part C: Specialized Financing Vehicle: $0.8333 million

Part D: Support for TA Loan management: $0.726 million

ADB = Asian Development Bank, CCB = citizen community board, CDGK = city district government of Karachi, GOS = Government of Sindh, KWSB = Karachi Water and Sewerage Board, LSU = local support unit, NGO = Non-government organization, PPP = public-private partnership, PSC = project steering committee, PSU = project support unit, PWG = project working group, SFV = specialized financing vehicle, TA = technical assistance, TMA = tehsil municipal administration, TOR = terms of reference

18 Appendix 2

Table 1: Detailed Cost Estimates

($ million)

Foreign Local Total Share Item Exchange Currency Cost (%) A. Base Cost 1. Capacity Building Facility 3.238 2.906 6.144 46.1 2. Project Preparation Facility 1.986 2.222 4.208 31.6 3. Specialized Financing Vehicle 0.150 0.683 0.833 6.2 4. Support for TA Loan Management 0.376 0.350 0.726 5.5 Taxes and Duties 0.000 0.140 0.140 1.0 Subtotal (A) 5.750 6.301 12.051 90.4 B. Contingencies 1. Physical Contingency a 0.326 0.198 0.524 3.9 2. Price contingency b 0.227 0.371 0.598 4.5 Subtotal (B) 0.553 0.596 1.122 8.4 C. Interest during Implementation c 0.157 0.00 0.157 1.2 Total Costs 6.460 6.870 13.330 100.0

a 5% physical contingency b Based upon 2006 – 2009 forecast of a 3.5% international inflation rate annually and a domestic inflation rate of 8.9% c Computed using an interest rate of 1% during years 1 - 4 Source: Asian Development Bank estimates.

Table 2: Financing Plan ($ million)

Foreign Local Total Share Source Exchange Currency Cost (%) Asian Development Bank 6.46 3.54 10.00 75 Government of Sindh 0.000 3.33 3.33 25 TOTAL 6.46 6.87 13.33 100

Appendix 3 19

STATUS OF COMPLIANCE WITH LOAN COVENANTS

Covenant

Timing

Reference in Loan

Agreement

Status of Compliance 1. The Borrower and each of Sindh and CDGK shall ensure that all Subprojects meet, to the satisfaction of ADB, the following general criteria: (i) Each subproject must be identified and prepared to at least Project concept stage, by a CDGK department or an affiliated utility entity; (ii) Each subproject must be consistent and prepared in accordance with the CDGK's relevant sector strategy, master plans or medium term development plans; (iii) Each subproject must be consistent with ADB's Country Strategy Program or Country Strategy and Program Update; (iv) Each Subproject must be organizationally and technically feasible; (v) Each Subproject must be prima facie economically and financially viable, and sustainable; (vi) Each Subproject must be prepared to be, in accordance with the Borrower's environmental requirements and ADB's Environmental Policy (2202); (vii) Each Subproject must be in accordance with, ADB's social operational policies and procedures, including ADB's Policy on Involuntary Resettlement (1995); and ADB's Policy on Indigenous Peoples (1998). In the event land acquisition and involuntary resettlement is unavoidable for any subproject, a resettlement plan shall be prepared in accordance with the applicable laws and regulations of the Borrower and ADB's Policy on Involuntary Resettlement (1995). If any Subproject involves indigenous Peoples, then a specific action, or indigenous peoples development plan in accordance with the applicable laws and regulations of the Borrower and ADB's policies and procedures on indigenous peoples, including ADB's Policy on Indigenous Peoples (1998) shall be prepared; (viii) Each Subproject must be prepared, in accordance with ADB's Public Communications Policy (2005); and (ix) Each Subproject can be completed within the Project implementation period.

Complied

LA: Schedule 6, para. 14 - Subproject Selection Criteria

EA has submitted to ADB the list of identified subprojects, together with the implementation plan.

2. All Follow-on Projects that may be selected for consideration by ADB for further funding shall have had their respective feasibility studies reviewed by the LSU, PWG, PSU and ADB.

Ongoing

LA: Schedule 6, para 15 - Follow-on Projects

3. The Borrower shall cause that Sindh shall ensure that:

Not applicable LA: Schedule 6, para. 16 - Special

This component was cancelled from the Project

20 Appendix 3

Covenant

Timing

Reference in Loan

Agreement

Status of Compliance

(i) Immediately following incorporation of the SFV, the SFV board of directors (or equivalent body) approves a business plan, standard operating procedrues, conflict of interest rules and code of conduct for staff and directors, acceptable to ADB; (ii) SFV shall operate as an independent, highly competent and professionally run financial institution that will operate on commercial principles consistent with national and international best practice taking in account the lessos learnt and guidelines provided by, the financial sector reforms of the last ten years in Pakistan; (iii) SFV shall employ experienced, competent and professional management; and (iv) Independent performance and financial audits of SFV are conducted on an annual basis by an independent auditing firm associated with international audit firms.

Financing Vehicle (SFV)

Environmental 4. The Borrower shall cause Sindh and CDGK to ensure that adequate environmental measures are incorporated into all subproject designs, and that these measures are incorporated during subproject implementation, in accordance with - (i) the Borrowers applicable environmental laws and regulations, and (ii) ADB's Environment Policy (2002) and environmental operational procedures, .

Complied

LA, Schedule 6, para. 22

IEEs have been prepared for water sector subprojects, water treatment plants and water distribution mains; roads; transportation subprojects.

Social 5. The Borrower shall cause Sindh and CDGK to ensure that for subprojects and Follow-on Projects entailing land acquisition and resettlement, resettlement plans are prepared in accordance with - (i) the Borrower's applicable laws and policies, and (ii) ADB's Involuntary Resettlement Policy (1995) and involuntary resettlement operational procedures. Adequate measures to avoid or minimize land acquisition and resettlement shall be incorporated into Follow-on Project and subproject designs.

Complied

LA, Schedule 6, para 23

ISA, LARF and LARPs prepared for Multitranche Financing Facility (MFF) Program.

Indigenous People 6. The Borrower shall cause Sindh and CDGK to ensure that measures are incorporated into Follow-on Project and subproject designs in accordance with - (i) the Borrower's applicable laws on indigenous peoples, and (ii) ADB's Policy on Indigenous Peoples (1998) and operational procedures.

Complied


Complied for MFF Program.

Appendix 3 21

Covenant

Timing

Reference in Loan

Agreement


Gender Policy 7. The Borrower shall cause Sindh and CDGK to ensure that gender strategy will be part of Subproject feasibility studies. The strategy developed will include measures to promote full participation of women in Subproject planning and implementation and promote equality of treatment between men and women.

Complied

LA, Schedule 6, para. 21

Complied for MFF Program.

Financial 8. The Borrower shall cause Sindh to ensure that it (i) maintains, or cause to be maintained, separate accounts for the Project; (ii) have such accounts and related financial statements audited annually, in accordance wtih appropriate auditing standards consistently applied, by independent auditors whose qualifications, experience and terms of reference are acceptable to ADB; (iii) furnish to ADB, as soon as available but in any event not later than six (6) months after the end of each related fiscal year, certified copies of such audited accounts and financial statements and the report of the auditors relating thereto (including the auditor's opinion on the use of the Loan proceeds and compliance with the financial covenants of this Loan Agreement as well as on the use of the procedures for statement of expenditures), all in the English language; and (iv) furnish to ADB such other information concerning such accounts and financial statements and the audit thereof as ADB shall from time to time reasonably request. The imprest account and SOE will be audited as part of the regular annual audit. The auditor's opinion of the examination of the imprest account and SOE will be separate in the auditor's report. Sindh and CDGK have been made aware of ADB's policy on delayed submission and also of the importance of satisfactory and acceptable quality of audited reports.

Complied

LA, Schedule 6, para. 20: Accounts and Audit, para 20 (a)

Imprest account established by the EA with initial deposit of $981,600 transferred on 02 April 2007. Audit Report for the year 2006-07 was received by PRM on 9 January 2008. During Review Mission in April 2008, EA confirmed that it has complied with audit findings. Audit Report for the year 2007-08 was received by PRM on 21 January 2009. ADB comments sent to EA through letter dated 10 March 2009.

Accounts and Audit 9. The Borrower shall enable ADB, upon ADB's request, to discuss the Borrower's financial statements for the Project and its financial affairs related to the Project from time to time with the Borrower's auditors, and shall authroize and require any representative of such auditors to participate in any such discussions requested by ADB, provided that any such discussion shall be conducted only in the presence of an authorized officer of the Borrower, unless the Borrower shall otherwise agree.

Complied

LA, Schedule 6, para. 20: Accounts and Audit, para 20 (b)

10. Sindh shall establish the project support unit (PSU) within its Finance Department, which will be responsible for the day-to-day operational management of Project implementation and provide support to the PSC. The PSU will also be responsible for the implementation of Component C. Sindh shall

Complied

LA, Schedule 6, paras 7 to 13

Complied. Established, as per notification received from the Services General Administration and Coordination Department, Government of Sindh, dated 31 May 2006. The PSU is composed of a Project Director and 2

22 Appendix 3

Covenant

Timing

Reference in Loan

Agreement


ensure that the PSU is adequately staffed with suitably qualified people. The Director of the PSU (Project Director) will be a senior ranking officer grade BS.19/20, from Finance Department, Sindh. - CDGK shall form the project working group (PWG), which will be responsible for overseeing the implementation and management of Component A and Component B. In particular, the PWG shall approve the prioritization of Subprojects and finalization of the TORs for consultants and selection of consultants, with respect to Components A and B activities. The PWG shall be chaired by District Coordination Officer and consist of executive district officers and managing directors of CDGK's departments and utilities. The PWG shall meet at least twice a month. - Coordination with TMAs will be maintained through a district-town coordination committee to be chaired by District Coordination Officer of CDGK and consisting of chief officers of the TMAs. Such committee will meet at least quarterly to ensure that the feedback of TMAs into the Subproject selection and preparation is obtained. - CDGK shall establish the local support unit (LSU), within its Department of Finance and Planning, which will plan, coordinate and monitor the activities and individual programs of Components A and B. The consultants for Component D will be based in the LSU but will closely coordinate with the PSU and individual Subproject Units. The LSU, in consultation with relevant sector departments and utilities will undertake the preparation of proposals for prioritization of Subprojects, finalization of TORs and engagement of consultants, for submission to the PWG. The LSU will also be responsible for the conduct and effectiveness of organization-wide capacity building programs under the Project. CDGK shall ensure that the LSU shall be adequately staffed with suitably qualified people and shall be led by a director who will be a senior officer of Sindh not less than grade BS.19 with suitable qualification and experience as determined by Sindh. - Upon the prioritization of a Subproject for feasibility, A Subproject Unit (SU) will be established in the respective departments or utility units. Each SU will appoint a competent coordinator, acceptable to ADB, for the duration of the Subproject will will be experienced and capable to competently oversee the

Deputy Project Directors (1 for Finance and 1 for TA Loan Management). The PSU Project Director was replaced thrice. Also, the 2 Deputy Project Directors were reassigned to other offices. But a replacement was assigned only for the DPD (for TA Loan Management); the vacancy for the other DPD (Finance) was no longer filled up. Complied. Established, as per notification received from the Services, General Administration and Coordination Department, Government of Sindh, dated 31 August 2006. The PWG comprises 26 members. Complied. Established, as per notification from the District Coordination Officer, CDGK, dated 16 March 2006. The LSU is composed of a Project Coordinator, a Deputy Project Coordinator (Investment) and a Program Officer (Capacity Building). In July 2008, the Project Coordinator was removed from his position due to a previous involvement in an anti- corruption issue for another ADB project. Complied. Complied.

Appendix 3 23

Covenant

Timing

Reference in Loan

Agreement


social resettlement, environmental and sector aspects of the relevant Subproject. - The Borrower shall cause Sindh and CDGK to ensure that all TORs for consultants are first approved by ADB prior to their inclusion in a consultants' engagement. - The Borrower shall cause Sindh and CDGK to ensure that time-bound reform plans with respect to the Project are prepared and finalized by CDGK and the PSU, and as agreed with ADB, by no later than January 2007 or such other date as ADB may agree. 11. The Borrower shall cause Sindh and CDGK to ensure that all TORs for consultants are first approved by ADB prior to their inclusion in a consultants' engagement.

Complied LA, Schedule 6, para 12

12. If any substantial amendment of the contract is proposed after its execution, the proposed changes shall be submitted to ADB for prior approval.

Complied LA, Schedule 5, para 7(c)

13. The PSC will meet at least every quarter and, in addition, at the request of any member. Project Director shall provide secretariat services to the PSC.

Complied LA, Schedule 6, para 6.

Complied. Established on 16 June 2006, as per notification from the Finance Department, Government of Sindh, dated 28 June 2006. The PSC is chaired by the Minister of Finance.

Project Performance Monitoring and Evaluation Systems 13. Sindh and CDGK shall develop project performance evaluation monitoring system for the Project and each Subproject including (i) setting performance targets; (ii) monitoring performance against the performance targets; (iii) benefits monitoring; (iv) performance evaluation; and (v) reporting schedule, acceptable to ADB.

Not complied


14. Without prejudice to any other provision of the Loan Agreement, the Borrower shall cause Sindh to ensure that: (i) the LSU shall, through the PWG, submit to the PSU, monthly progress reports on all Project related activities. (ii) the PSU shall consolidate the monthly reports from the LSU and provide ADB with a quarterly progress report. (iii) A copy of the draft final report of each Subproject shall be submitted to ADB for review and comments, if any. Comments will be sent by ADB within a month time from the submission of the reports to ADB. (iv) All the reports (inception, interim and draft final reports) of each Subproject shall be reviewed on a timely basis (preferably within two weeks of submission). (v) The LSU together with each Subproject unit will prepare a subproject completion report (SPCR) for each Subproject within three months of the

Complied


Complied. Progress Report for two quarters (July-September 2007) and October to December 2007) received. Progress Report for the quarters 01 January to 31 March 2008 and 01 April to 30 June 2008 received. EA confirmed that Inception Reports and other Deliverables for the 3 subprojects: (i) Malir Bund Road Study, (ii) Developing IT Platform for Tracking and Maintenance Study, and (iii) Forestation and Aesthetic Plantation Study) have been submitted by the consultants and under review by Government offices concerned. In January 2009, ADB received complaints from the consultants for (i) Developing IT Platform Study and (ii) Forestation and Aesthetic Plantation Study that the EA did not pay their claims for payment.

24 Appendix 3

Covenant

Timing

Reference in Loan

Agreement


submission of the draft final report with respect to such Subproject and shall forward such SPCR to ADB (through the PWG and PSU) for its review.

An international individual consultant engaged to prepare the TOR of the Effluent Water Re-use Study was not paid by the EA.

15. a) ADB may review implementation of the Project, performance of Sindh and CDGK and the activities under each Subproject bi-annually or as needed. In addition, a midterm review of the Project shall be carried out on or about two years after the Effective Date to review the overall progress of the implementation and achievements of the project to date. The LSU will provide ADB the Project completion report within three months of the final disbursement of the Loan. (b) Subject to ADB's internal rules and processes and without prejudice to any other term of this Loan Agreement, ADB and the Borrower shall review the implementation aspects of the Project on a bi-annual basis in order to ensure a timely implementation of the Components.

Complied LA, Schedule 6, para 19

ADB = Asian Development Bank, CDGK = City District Government of Karachi, EA= executing agency, IEE = initial environment examination, ISA = initial social assessment, LA = loan agreement, LARF = land acquisition and resettlement framework, LARP = land acquisition and resettlement plan, LSU = local support unit, MFF = multitranche financing facility, PSC = project steering committee, PSU = project support unit, PWG = project working group Source:

mega city development project · completion report project number: 38405 loan number: 2229-pak ....

Documents