Completion Report

Project Number: 38135 Loan Number: 2153-PAK December 2009

Pakistan: Multisector Rehabilitation and Improvement Project for Azad Jammu and Kashmir

CURRENCY EQUIVALENTS

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

At Appraisal At Project Completion 31 October 2004 2 February 2009 PRs1.00 = $0.0167 $0.0127 $1.00 = PRs60.0 PRs79.05

ABBREVIATIONS

ADB – Asian Development Bank AJK – Azad Jammu and Kashmir AJKEPA – AJK Environmental Protection Agency AJKG – government of AJK DHQ – district headquarters DOH – Department of Health EA – executing agency EIRR – economic internal rate of return EMP – environmental management plan IA – implementing agency IEE – initial environmental examination km – kilometer kV – kilovolt MSRIP – Multisector Rehabilitation and Improvement Project MW – megawatt P&D – Planning and Development Department PCU – project coordination unit PIU – project implementation unit PPMS – project performance management system PSC – project steering committee PWD – Public Works Department RCC – Reinforced cement concrete RFP – request for proposals RRP – report and recommendation of the President THQ – tehsil (subdistrict) headquarters UNICEF – United Nations Children's Fund

NOTES

(i) The fiscal year (FY) of the government of Pakistan and the government of Azad

Jammu and Kashmir ends on 30 June. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2008 ends on 30 June 2008.

(ii) In this report, "$" refers to US dollars.

(iii) The project was carried out in Azad Jammu and Kashmir, an area that Pakistan and

India have disputed since 1947. By financing the project, the Asian Development Bank did not intend to make any judgment as to the legal or other status of any disputed territories or to prejudice the final determination of the parties' claims.

Vice-President X. Zhao, Operations 1 Director General J. Miranda, Central and West Asia Region Department (CWRD) Director H. Wang, Transport and Communications Division, CWRD

Team leader R. Stroem, Country Director, Pakistan Resident Mission (PRM), CWRD A. Ahmad, Project Officer (Transport), PRM, CWRD Team members L. Ali, Assistant Project Analyst, PRM, CWRD K. Butt, Senior Project Assistant, PRM, CWRD

The Project was carried out in Azad Jammu and Kashmir, an area over which Pakistan and India have been in dispute since 1947. 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.

CONTENTS

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BASIC DATA ii

I. PROJECT DESCRIPTION 1 A. Objective of the Project 1 B. Project Components and Scope 1 C. Implementation Arrangements 3 D. Project Cost and Financing Plan 3 E. Loan Amount, Terms, and Utilization Period 3 F. Loan Fund Utilization 3 G. Results of Program 3

II. EVALUATION OF DESIGN AND IMPLEMENTATION 4 A. Relevance of Design and Formulation 4 B. Project Outputs 4 C. Project Costs 6 D. Disbursements 6 E. Project Schedule 7 F. Implementation Arrangements 9 G. Conditions and Covenants 9 H. Related Technical Assistance 10 I. Consultant Recruitment and Procurement 10 J. Performance of Consultants, Contractors, and Suppliers 11 K. Performance of the Borrower and the Executing Agency 13 L. Performance of the Asian Development Bank 13

III. EVALUATION OF PERFORMANCE 14 A. Relevance 14 B. Effectiveness in Achieving Outcome 14 C. Efficiency in Achieving Outputs and Outcome 15 D. Preliminary Assessment of Sustainability 15 E. Impact 16

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 16 A. Overall Assessment 16 B. Lessons 17 C. Recommendations 19

APPENDIXES 1. Appraised Versus Implemented Project Scope 21 2. Project Costs 23 3. Projected and Actual Contract Awards 24 4. Implementation Schedule 26 5. Chronology of Events 27 6. Status of Compliance with Loan Covenants 34 7. Project Beneficiaries 41

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BASIC DATA A. Loan Identification 1. Country 2. Loan Number 3. Project Title 4. Borrower 5. Executing Agency 6. Implementing Agencies 7. Amount of Loan 8. Project Completion Report Number

Pakistan 2153-PAK(SF) Multisector Rehabilitation and Improvement Project for Azad Jammu and Kashmir Islamic Republic of Pakistan Planning and Development Department of Azad Jammu and Kashmir Department of Health Education Department Public Works Department Local Government and Rural Development

Department Electricity Department SDR38,031,000 (equivalent to $57 million) PCR: PAK 1133

B. Loan Data 1. Fact-Finding – Date Started – Date Completed 2. Appraisal – Date Started – Date Completed 3. Loan Negotiations – Date Started – Date Completed 4. Date of Board Approval 5. Date of Loan Agreement 6. Date of Loan Effectiveness – In Loan Agreement – Actual – Number of Extensions 7. Closing Date – In Loan Agreement – Actual – Number of Extensions 8. Terms of Loan – Interest Rate – Maturity (number of years) – Grace Period (number of years)

25 May 2004 21 June 2004 Not required 12 November 2004 13 November 2004 21 December 2004 13 January 2005 13 April 2005 5 April 2005 None 30 June 2009 2 February 2009 (on borrower request) None 1% grace period and 1.5% thereafter 32 8

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9. Disbursements a. Dates Initial Disbursement

6 July 2005

Final Disbursement

5 August 2009

Time Interval

48 months

Effective Date

5 April 2005

Original Closing Date

30 June 2009

Time Interval

50 months, 26 days

b. Amount (SDR)

Category or Subloan

Original Allocation

Last Revised

Allocation

Amount Canceled

Net Amount Available

Amount Disbursed

Un- disbursed Balance

Health Services Civil Works

914,000 400,000 514,000 400,000 219,404 180,596

Health Services Equipment

4,623,000 805,241 3,817,759 805,241 586,810 218,431

Education Services Civil Works

1,368,000 900,000 468,000 900,000 272,766 627,234

Education Services Equipment

500,000 64,316 435,684 64,316 38,492 25,824

Water Supply Civil Works 653,000 30,000 623,000 30,000 3,312 26,688

Water Supply Equipment 3,885,000 1,121,743 2,763,257 1,121,743 909,877 211,866

Roads & Bridges Civil Works

8,664,000 5,000,000 3,664,000 5,000,000 1,906,222 3,093778

Roads & Bridges Equipment

77,000 280,277 (203,277) 280,277 275,436 4,842

11 KV Lines 3,871,000 2,000,000 1,871,000 2,000,000 1,451,210 548,790 0.4 KV Lines 1,860,000 826,234 1,033,766 826,234 696,555 129,679 Transformer (11/0.4 KV Lines)

1,958,000 1,815,529 142,471 1,815,529 1,794,909 20,620

Service Connections 2,610,000 2,610,000 0 44,075 (44,075)

Maintenance Tools & Equipment

710,000 300,000 410,000 300,000 219,678 80,322

Project Coordination Consultants

801,000 736,871 64,129 736,871 381,265 355,606

Consultants Component A (Health)

267,000 333,650 (66,650) 333,650 318,692 14,958

Consultants Component B (Education)

334,000 123,784 210,216 123,784 52,304 71,480

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Consultants Component C (Water Supply)

400,000 254,115 145,885 254,115 84,751 169,364

Category or Subloan

Original Allocation

Last Revised

Allocation

Amount Canceled

Net Amount Available

Amount Disbursed

Un- disbursed Balance

Consultants Component D (Roads & Bridges)

734,000 620,155 113,845 620,155 163,012 457,143

Consultants Component E (Power)

400,000 279,742 120,258 279,742 75,786 203,956

Incremental Admin. Cost Component A (Health)

680,000 50,000 630,000 50,000 34,252 15,748

Incremental Admin. Cost Component B (Education)

595,000 46,335 548,665 46,335 17,491 28,844

Incremental Admin. Cost Component C (Water Supply)

195,000 35,809 159,191 35,809 13,035 22,774

Incremental Admin. Cost Component D (Roads & Bridges)

598,000 250,000 348,000 250,000 184,916 65,084

Incremental Admin. Cost Component E (Power)

400,000 350,000 50,000 350,000 231,090 118,910

Interest Charge

934,000 934,000 – 934,000 92,512 841,488

Total 38,031,000 17,557,801 20,473,199 17,557,801 10,067,853 7,489,948

Admin. = administration. Two partial cancellations of SDR1,790,205 and SDR18,682,994 and a final cancellation of SDR7,489,948 were effected on 25 March 2008, 2 February 2009 and 5 August 2009. 10. Local Costs (Financed) - Amount ($) 7.05 - Percent of Local Costs 28.78 - Percent of Total Cost 12.37 C. Project Data 1. Project Cost ($ million) Cost Appraisal Estimate Actual

Foreign Exchange Cost 33.50 8.65 Local Currency Cost 42.50 14.78 Total 76.00 23.43

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2. Financing Plan ($ million)

Cost Appraisal Estimate Actual Implementation Costs Borrower Financed 19.00 7.71 ADB Financed 55.60 15.58

Other External Financing 0.00 0.00 Total 74.60 23.29 Interest During Construction Costs Borrower Financed 0.00 0.00 ADB Financed 1.40 0.14 Other External Financing 0.00 0.00 Total 76.00 23.43 ADB = Asian Development Bank.

3. Cost Breakdown by Project Component ($ million)

Component Appraisal Estimate Actual 1. Rehabilitation and Improvement of Health Services 11.30 2.41 2. Rehabilitation and Improvement of EducationServices 6.30 1.20

3. Improvement of Water Supply System 9.00 1.68 4. Improvement of Roads and Bridges 24.90 8.18 5. Improvement, Renovation, and Augmentation of

Power Distribution Network 18.40 9.12

6. Project Coordination Consultant 1.10 0.70 7. Contingencies a. Physical 3.50 0.00 b. Price 0.20 0.00 8. Interest During Implementation 1.40 0.14 Total Project Cost 76.00 23.43

4. Project Schedule

Item Appraisal Estimate Actual Consultant Selection Jan–Jun 05 May 05–Apr 06 Component A: Health

Bidding Documents/Supply Contract Apr–Sep 05 Jul 05–Oct 08 Procurement of Equipment Jul–Dec 05 & Apr–Dec 07 Jul 05–Feb 09 Civil Works Design Apr–Sep 05 Jan 07–Feb 08 Construction Jul 05–Sep 07 Mar 08–Feb 09

Component B: Education Schools Selection Apr–Dec 05 May 05–Jun 07 Community Mobilization Apr 05–Jun 06 Not implemented Civil Works Designs Apr 05–Dec 06 Jun 06–Dec 07 Construction Apr 05–Jun 08 Apr 07–Feb 09

Component C: Water Supply Land Acquisition Jan–Dec 05 Jan 07–Dec 07 Civil Works Designs Apr 05–Mar 06 Jan–May 08 Construction Jun 05–Sep 08 Jul 08–Feb 09 Procurement & Installation of Machinery Apr 06–Sep 08 Sep 05–Feb 09

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Item Appraisal Estimate Actual Component D: Roads and Bridges

Feasibility and Road Selection Apr 05–Jun 06 Apr 05–Apr 06 & Jul 07–Mar 08

Land Acquisition Apr 05–Jun 06 Dec 06–May 08 Detailed Design/Bidding Jun 05–Sep 06 May 06–May 08 Construction Oct 05–Sep 08 Apr 07–Feb 09

Component E: Power Subproject Selection Jan–Dec 05 Apr 05–Apr 06 Detailed Design/Bidding Documents Jan–Sep 05 Aug 07–Jan 08 Procurement Apr 05–Mar 06 Jan 06–Feb 09 Manufacture and Delivery Jun 05–Dec 06 Mar 07–Feb 09 Installation Oct 05–Mar 08 Sep 07–Feb 09 Testing and Commissioning Jul 06–Jun 08 Sep 07–Feb 09

5. Project Performance Report Ratings

Ratings Implementation Period

Development Objectives

Implementation Progress

30 Dec 2004–2 Feb 2009 S S S = satisfactory D. Data on Asian Development Bank Missions

Name of Mission

Date No. of

Persons No. of

Person-Days

Specialization of Membersa

Inception 6–11 May 2005 3 18 a, b, c Review 1 8–9 Jun 2005 2 4 b, d Review 2 17–18 Oct 2005 2 4 b Review 3 8–12 Apr 2006 2 10 b Review 4 8–10 Aug 2006 2 6 c, d Review 5 26–31 Mar 2007 1 6 b Midterm Review 26 Nov–8 Dec 2007 3 29 b, d, e Review 6 21–24 Sep 2008 4 16 d, e, f, g Review 7 24–28 Nov 2008 6 30 d, e, f, g, h, i Review 8 3–5 Mar 2009 2 6 d, e Project Completion Review 7–15 Sep 2009 2 18 d, e a = senior urban development specialist, b = project implementation officer, c = disbursement analyst, d = project analyst, e = project officer (transport), f = senior project management specialist, g = social safeguard officer, h = financial specialist, i = procurement officer.

I. PROJECT DESCRIPTION 1. The Government of Pakistan borrowed $57 million equivalent from the Asian Development Bank (ADB) to implement the Multisector Rehabilitation and Improvement Project (MSRIP) in Azad Jammu and Kashmir (AJK). The loan was described as "targeted interventions in health, education, nutrition and social protection, water supply, sanitation and waste management, transportation and communication, and energy," 1 and the themes were sustainable economic growth, human development, gender, and development. The MSRIP was environment category B, and an initial environmental examination was carried out focusing on the rehabilitation of roads, bridges, and social amenities. 2. The MSRIP was the first ADB-supported investment in AJK that mounted concerted efforts to rehabilitate and reconstruct essential physical and social infrastructure, which the government of AJK (AJKG) had not attended to for more than 5 decades mainly because of political instability, the lack of security in the region, and funding shortfalls. The MSRIP aimed to rapidly improve the well-being of 3.4 million people, mainly in low-income communities, by addressing their urgent social needs and filling investment gaps in health, education, water supply, roads and bridges, and power. The MSRIP also aimed to engage in institutional development and capacity building in public agencies to ensure sustainable economic growth and poverty reduction in AJK. A. Objectives of the Project 3. The objectives included improved living conditions and quality of life and economic growth. The MSRIP also aimed to improve the human capital base and ensure the quality of social services and improved access for poor communities to these services, toward achieving the Millennium Development Goals. The MSRIP envisioned accelerating economic growth by rehabilitating essential social and physical infrastructure, including roads and power networks. B. Project Components and Scope 4. The MSRIP had five components:

(i) Rehabilitation and improvement of health services (component A). This component aimed to (a) expand and rehabilitate the accident and emergency departments of eight district headquarters (DHQ) hospitals; (b) rehabilitate and reconstruct tehsil (subdistrict) headquarters (THQ) hospitals at Athmuqam, Burnala, Fatehpur, and Kahuta by providing a 30-bed ward, an operation theater, necessary health services, diagnostic facilities, a laboratory, an electrocardiogram machine, and staff accommodation; (c) provide essential equipment to pediatric and gynecology departments in DHQ and THQ hospitals; (d) provide waiting areas, public toilets, and clean drinking water at DHQ and THQ hospitals; (e) provide consultancy assistance for detailed design; construction supervision; procuring equipment; and training doctors, nurses, and paramedical staff; and (f) fund the recurrent expenditures of the project implementation unit (PIU), including the salaries of PIU staff and additional

1 ADB. November 2004. Report and Recommendation of the President to the Board of Directors on a Proposed

Loan to the Islamic Republic of Pakistan for the Multisector Rehabilitation and Improvement Project for Azad Jammu and Kashmir. Manila.

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doctors, nurses, and paramedical staff on a declining basis (100% during year 1, 75% in year 2, 50% in year 3, and 25% in year 4).

(ii) Rehabilitation and improvement of education services (component B). This

component aimed to immediately restore or improve education services by (a) rehabilitating or reconstructing the damaged buildings of 30 primary and 7 middle schools; (b) repairing and improving about 56 middle and 56 high schools; (c) providing water and sanitation facilities in schools where they were inadequate; (d) providing consultancy assistance for building capacity in education department and teaching staff through in-service training, follow-up learning materials, a comprehensive management information system, and improved management and planning capacity, as well as to supervise the design and construction of civil works; (e) strengthening school management committees through community mobilization and training; and (f) funding the recurrent expenditure of the PIU and salaries of the PIU staff on a declining basis.

(iii) Rehabilitation and Improvement of water supply systems (component C).

This component aimed to improve living conditions and the quality of life in urban communities where water was scarce or unsafe for human consumption. The scope included (a) rehabilitating and extending the existing water supply networks and treatment plants in seven DHQs and four THQs; (b) providing consultancy assistance for capacity building in the Public Health Engineering Department through technical and financial management training to organize and efficiently manage water supply in a sustained and cost-effective manner and to supervise the design and construction of civil and mechanical works; and (c) funding the recurrent expenditures of the PIU, salaries of the PIU staff, and salaries of additional staff of the implementing agency (IA) on a declining basis.

(iv) Rehabilitation of roads and bridges (component D). The component aimed to

improve the access of rural residents to livelihood resources and social services thorough socioeconomic development, reduced transportation costs, enhanced subregional connectivity, trade facilitation, regional peace and harmony, and reduced poverty. The scope of road component targeted (a) rehabilitating and improving 130 kilometers (km) of primary roads; (b) constructing or replacing 650 meters of major bridges on primary roads; (c) constructing about 1,050 meters of suspension bridges for jeeps on secondary or tertiary roads; (d) constructing about 1,050 meters of suspension footbridges in remote communities; (e) undertaking policy reforms and capacity building in the Public Works Department and improving the civil works procurement procedures; and (f) funding the recurrent expenditures of the PIU and salaries of the PIU staff on a declining basis.

(v) Rehabilitation and improvement of the power distribution network

(component E). This component aimed to reduce system losses and improve the reliability of the existing power distribution network by (a) rehabilitating and augmenting about 750 km of 11 kilovolt (kV) lines; (b) rehabilitating and augmenting of about 900 km of 0.4 kV lines; (c) replacing and adding 11 kV and 0.4 kV transformers; (d) rehabilitating and augmenting service connections; (e) procuring equipment and tools for operating and managing the power distribution network; (f) providing consultant services for implementing the subproject and capacity building in the AJK Electricity Department; and (g) funding recurrent

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expenditures of the PIU, salaries of the PIU staff, and additional staff of the IA on a declining basis.

C. Implementation Arrangements 5. As the executing agency (EA), the Planning and Development Department of AJK (P&D) established a project coordination unit (PCU) as its project secretariat. The staff of the PCU implemented the project with support from a team of consultants and professional assistance from IAs. The PIU of each IA was responsible for executing project activities, institutional strengthening, and monitoring and evaluation. The consultants helped the PIUs (i) prepare detailed designs; (ii) procure civil works, equipment, and materials; and (iii) supervise day-to-day the construction of works. 6. The IA for component A was the Health Department, B the Education Department, C and D the Public Works Department, and E the AJK Electricity Department. For the suspension bridges and footbridges under component D, the IA was the Local Government and Rural Development Department. Each IA established a PIU. D. Project Cost and Financing Plan 7. At appraisal, the estimated project cost was $76 million equivalent. The foreign exchange cost was $33.5 million and the local currency cost was $42.5 million. ADB offered $57 million (75%), while the AJKG contributed $19 million (25%). E. Loan Amount, Terms, and Utilization Period 8. ADB lent, in various currencies, the equivalent of SDR38,031,000 ($57 million equivalent) from ADB’s Special Funds resources. The loan has a term of 32 years, including an 8-year grace period. The interest rate was 1% per annum during the grace period and 1.5% per annum thereafter. The loan became effective on 5 April 2005 and closed early on 2 February 2009. F. Loan Fund Utilization 9. At appraisal, the value of the ADB loan was $57 million, but it became $26.5 million on 2 February 2009. At appraisal, ADB financing covered the entire foreign exchange cost of $33.5 million plus 55.3% of the local currency cost of $23.5 million. At closure, the used loan fund was 20.7% of the total project cost, verses 75.0% estimated at appraisal. The sizable difference was due mainly to variations in currency exchange rates but also to the scope of the MSRIP being reduced during implementation after an earthquake and unit cost increases. At loan closing, ADB contributed $8.65 million (11.4% of project cost) in foreign currency and $7.05 million (9.3% of project cost) in local currency. G. Results of Program 10. Appendix 1 presents the designed outputs at project appraisal and subsequent revision.

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II. EVALUATION OF DESIGN AND IMPLEMENTATION A. Relevance of Design and Formulation 11. The project design and outputs envisaged at appraisal were relevant and consistent with the government of Pakistan's social development policy framework and strategic objectives of sustainable economic growth in poor communities, targeting poverty reduction in poor areas like AJK. The financial assistance was closely aligned with Pakistan's social sector development policy, the AJKG's 10-year development program,2 and ADB's country partnership strategy and country strategy program update of 2004–2006.3 12. The MSRIP addressed (i) AJK's 46% of households below the poverty line; (ii) low-income rural and urban communities with poor access to physical infrastructure and social services; (iii) areas facing security issues with poverty levels estimated at 70%–90%; (iv) areas where physical and social infrastructure was badly deteriorated, completely destroyed, or past its useful life; (v) facilities ensuring improved accessibility for poor people to marketplaces, social amenities, and transportation; (vi) creating additional employment opportunities and accelerating economic growth; (vii) improving institutional capacity; and (viii) introducing measures for good governance. 13. Project rationale and design. The project took into account (i) the past performance of the selected sectors; (ii) major sector issues such as facilities’ low geographical coverage, limited connectivity, poor accessibility, lack of investment, poor quality of social services, limited useful life span, and the sustainability of essential facilities; (iii) problems confronted in sustaining adequate family income and livelihood support; (iv) the limited availability of opportunities; (v) the need for prioritized interventions to fill investment gaps; and (vi) the need to accelerate the pace of development in poor areas. 14. The financial assistance aimed to (i) improve the pace, scale, quality, and magnitude of development works to provide basic social facilities of acceptable standard; (ii) provide efficient and cost-effective social services and improve the connectivity of poor settlements; (iii) improve rural and urban infrastructure and extend access to it for poor people; (iv) accelerate economic growth through sustainable development; and (v) ultimately reduce poverty. 15. The loan further aimed to reduce constraints resulting from (i) deferred development; (ii) deficient financial resources; (iii) insufficient social services and rapidly growing demands for amenities; (iv) exponential traffic growth and increasing transportation demand; (v) insufficient investment in developing poor communities; (vi) inadequate maintenance; (vii) poor operation, maintenance, and management systems; (viii) quickly deteriorating assets; (ix) an outdated policy framework; and (x) limited institutional capacity. B. Project Outputs 16. The interventions targeted restoring social facilities, improving connectivity, and reducing poverty through (i) greater accessibility and mobility for poor communities, (ii) reduced transportation cost and travel time, (iii) greater access for the poor to amenities, (iv) improved availability of reliable civil infrastructure, (v) enhanced connectivity of rural populations with

2 Government of AJK: 10-Year Perspective Development Plan 2001-2011. Muzaffarabad. 3 ADB. 2002. Pakistan: Country Strategy and Program 2002-2004. Manila.

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major economic centers and social services, (vi) greater growth opportunities for people living in remote areas, (vii) better employment and income opportunities for the poor, (viii) improved institutional capacity in various line departments and new measures for good governance, and (ix) accelerated economic growth. The envisaged outputs correspond to the targeted interventions mentioned at paragraph 4 above. 17. Project benefits. The MSRIP targeted (i) improving the living conditions and quality of life of about 3.4 million people in AKJ; (ii) providing urban and rural communities with better access to health and education services; (iii) ensuring the benefits of power infrastructure rehabilitation to industry, fisheries, agriculture, livestock production, housing, education, health, water supply, and irrigation; (iv) improving the sustainable supply of good-quality water to address waterborne diseases and other health issues; (v) reducing the medical expenses of poor households; (vi) reducing the time women and children spend fetching water; (vii) improving hospital and health services so that they have a greater impact on the health of the population; (viii) improving pediatric and gynecological services to improve the health of children and their mothers; (ix) improving roads and bridges to reduce vehicle operating costs and ensure time savings; (x) ensuring the participation of the poor in economic activities; (xi) improving access to social services; and (xii) creating additional income and employment opportunities by stimulating economic growth. 18. Project results. As the EA, the P&D awarded a substantial number of civil works, goods, and services contract. The majority of civil work contracts were still in initial implementation at loan closing. One suspension footbridge, 37 school buildings, and all supply contracts were completed by the loan closing. No progress was achieved under the institutional capacity and reform subcomponents in any sector. The loan was closed early at the borrower’s request, and the AJKG has committed itself to completing the remaining works with 100% government financing. The civil works contracts have started to gain momentum, and completion of the entire project scope is expected by December 2011. 19. Important developments. On 8 October 2005, a devastating earthquake struck AJK, severely affecting four out of eight project districts. The MSRIP experienced serious start-up delays due to (i) considerable losses of infrastructure, human resources, and property, as well as the disruption of governance and administration; (ii) changed priorities of the AJKG to accommodate immediate needs; (iii) physical and psychological trauma caused to people, including project staff; and (iv) a change in the scale of rehabilitation and improvement works in earthquake-affected districts. The project scope was revised in April 2006. The P&D signed consulting service contracts with two firms in June 2006. 20. The MSRIP had gained little momentum when the affects of the earthquake—such as escalated prices for construction materials; shortages of labor and professional personnel; the initiation of large-scale rehabilitation activities by many donors, development partners, and nongovernmental organizations; and the requirement to include disaster risk factors into infrastructure design—were realized. This forced the MSRIP to revise the cost estimates given in the original Planning Commission performa-1 (PC-I)––the Government of Pakistan's approval of the Project, and further reduce the project scope. AJKG-proposed revisions were submitted to ADB on 21 November 2007, discussed during the midterm review mission, and finalized. Project outputs were readjusted to accommodate prevailing conditions and associated impacts. The revised scope of the MSRIP was approved in March 2008. A comparison of the original and revised project scope is in Appendix 1.

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21. After substantial start-up delays, limited progress was achieved during the next 2 years. The key factors affecting progress were (i) late establishment and mobilization of the PCU and PIUs; (ii) delayed procurement of civil works and consultancy contracts; (iii) slow implementation of project activities; (iv) unavailability or insufficiency of human resources for deployment; (v) inadequate project implementation and institutional capacity in the PCU and PIUs; (vi) insufficient exposure to and understanding of ADB process, procedures, and implementation requirements; (vii) continuing differences between the PCU and the consulting firms; (vii) misprocurement4 of contracts under the power and education components; (viii) failure to comply with ADB safeguard policies and guidelines; and (ix) the lack of understanding, interest, and commitment of the AJKG.

C. Project Costs 22. The project cost at appraisal was estimated at $57 million, with a foreign exchange cost of $33.50 million (44.1%) and a local currency cost of $42.5 million (55.9%). The actual project cost at loan closing was $23.43 million, with a foreign exchange cost of $8.65 million (36.9%) and a local currency cost of $14.78 million (63.1%). The costs of the project at appraisal and loan closing are compared in Table 1. Further details of project costs are in Appendix 2. Table 1: Summary of Project Cost at Appraisal and Actual Expenditures at Loan Closing

Foreign Local Total Foreign Local TotalBase CostHealth 6.8 2.1 8.9 0.8 0.8 1.6Education 1.0 3.5 4.5 0.2 0.8 1.0Water Supply 3.8 3.6 7.4 0.2 1.1 1.3Roads and Bridges 5.7 15.1 20.8 2.0 4.7 6.7Power 13.3 2.2 15.5 5.3 2.1 7.4Project Implementation Assistance 0.0 8.1 8.1 0.1 3.4 3.5Taxes and Duties 0.0 5.7 5.7 0.0 1.8 1.8

Subtotal 30.6 40.3 70.9 8.6 14.7 23.3ContingenciesPhysical 1.6 2.0 3.6 0.0 0.0 0.0Price 0.0 0.2 0.2 0.0 0.0 0.0

Subtotal 1.5 2.2 3.7 0.0 0.0 0.0Fee and Charges During Implementation 1.4 0.0 1.4 0.1 0.0 0.1

Total 33.5 42.5 76.0 8.7 14.7 23.4

Component Appraisal Estimates Actual Expenditure

Sources: Report and recommendation of the President, loan financial information system, and project coordination unit. D. Disbursements 23. Detailed estimates for loan disbursements were not prepared at appraisal. However, the implementation schedule provided a timeline for projected expenditures from April 2005 to June 2009. A comparison of projected disbursements with actual disbursements is in Appendix 2. The evident disbursement delays arose mainly from (i) delayed procurement; (ii) late deployment of the PCU, contractors, and consultants; (iii) unanticipated delays in construction; (iv) extra time consumed by processing withdrawal applications; and (v) other processing delays. The imprest account supported quicker disbursement. Disbursement progress improved sharply 4 Misprocurement refers to the procurement process not being carried out in accordance with the provisions of the

financing agreement and procurement guidelines.

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during the last year of implementation. The imprest account helped in the timely disbursement of incremental and other petty expenses. Appendix 3 compares projected and actual contract awards and disbursement. E. Project Schedule 24. At appraisal, project implementation was envisioned taking about 4 years, from April 2005 to December 2008. Loan closure was scheduled for 30 June 2009. The significant initial start-up delays arose from changes in the situation in AJK and subsequent revisions in project scope. Two project scope revisions with changes in almost all components of the MSRIP were made in April 2006 and February 2008. The P&D was partly unsuccessful in implementing the project's revised scope. A chronology of main events is in Appendix 5. The final scope of the MSRIP is summarized in Table 2.

Table 2: Achieved Outputs at Project Completion Component Description of Subcomponent Output Health Rehabilitation and construction of additional accident &

emergency departments, waiting areas, and public toilets Rehabilitation and construction of a 30-bed ward and out patient block, hostels for nurses, and doctors residences Provision of electronic medical equipment to DHQs Provision of ambulances

4 DHQs 2 THQs 4 DHQs 16 ambulances

Education Rehabilitation and construction of damaged primary schools Rehabilitation and construction of damaged middle schools Repair and improvement of high schools

3 schools 50 schools 58 schools

Water Supply Rehabilitation and extension of water supply networks

7 districts 3 tehsilsa

Transport Rehabilitation of roads Construction and replacement of bridges Construction of jeepable suspension bridges Construction of suspension footbridges

105.52 kilometers 788 meters 230 meters 54 meters

Power Rehabilitation and/or augmentation of 11 kilovolt (kV) lines Rehabilitation and/or augmentation of 0.4 kV lines Replacement and/or addition of 11 kV and 0.4 kV transformers Supply of conductors Supply of tools and hardware items Rehabilitation and/or augmentation of service connections

400 kilometers 565 kilometers 1,000 transformers 2,750 kilometers various 5 meters

a Subdistricts. Source: Project implementation units. 25. Health. In general, subproject selection criteria were adequately addressed and subprojects conformed to requirements at appraisal. At loan closing, most of the scope of the health component was incomplete. Four civil work contracts were not yet finished, and all benchmarks for training and capacity building identified in paragraph 4 (i) remained undone. The design and quality of civil works was satisfactory. All nine supply contracts were completed, and supplies were received before loan closing The late initiation of procurement delayed the mobilization of consultants, the PIU, and contractors such that the health component with its revised scope was incomplete at loan closing. There were a few issues regarding the quality of consultant staff and construction supervision. 26. Education. The selected subprojects were generally in line with the criteria stated in report and recommendation of the President (RRP) and envisaged at appraisal, though the

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number of subprojects was reduced. The education component was incomplete at loan closing. Under this component, the renovation contracts for 3 primary, 50 middle, and 58 secondary schools were awarded, but work at only 32 schools was completed at loan closing. The quality of civil works for a few schools was suspect, with three school buildings identified as unsafe and unsuitable for use. The IA was unable to implement the complete sector project and other tasks mentioned at paragraph 4 due to poor planning, inadequate resources, and insufficient time following the late start of the project. 27. Water Supply. The selection of subprojects under the water supply component was generally in line with project requirements. The full scope of this component was not realized. Certain items including the installation of water supply lines at Mirpur, Fatehpur, and Bhimber were ongoing at loan closing. The IA did not achieve other benchmarks such as capacity building, training, or establishing efficient water-supply management because of time constraints and early loan closing. 28. Roads and Bridges. The revised scope of the component complied with target improvement and the connectivity of physical infrastructure as envisaged at appraisal. The IA focused on rehabilitating 105.5 km of primary roads. Nine civil works contracts for road rehabilitation were awarded, but none were completed at loan closing. The repair or replacement of two damaged or worn-out road bridges and the construction of five new bridges at critical locations were underway, but none were completed. The policy reform agenda, capacity building for the Public Works Department, and improvement of civil works procurement procedures were not undertaken. 29. Under the transport component, contracts for two suspension footbridges in remote communities and three jeepable suspension bridges on secondary or tertiary roads were awarded, but only one was completed by loan closing. Some of the proposed bridge subprojects were not approved as they did not satisfy the selection criteria or lacked adequate approaches. The IA reported that the consultants delayed the design process and that the engineering design was inadequate. 30. Power. The power component was more successful than others in achieving progress and acquiring materials, supplies, and equipment. However, civil works such as the installation of electric poles and transformers and the commissioning of distribution lines were not completed. Sixteen contracts for supplying goods, equipment, and materials were awarded and completed. Two civil works contracts achieved only 65% progress. Capacity building was not addressed. 31. Analysis of project implementation. Project implementation was partly successful. Physical progress at loan closing was just 46%. The borrower requested early loan closure due to the inordinate delay in returning ADB's funds for misprocured contracts and other serious implementation issues. The major factors contributing to implementation delays included (i) the P&D’s lack of experience, interest, and understanding of implementation requirements; (ii) insufficient planning and inadequate implementation arrangements; (iii) poor preparation and late initiation of most critical project activities; (iv) late mobilization of consultants and the resulting delays in completing consultant-dependent activities; (v) delayed procurement of civil works contracts, mainly due to of poor preparation, excessive revisions of bidding documents, and long review processes; (vi) lack of interest among prequalified contractors in bidding; (vii) late mobilization, poor performance, and delayed implementation of civil works contracts, causing implementation delays and construction cost overruns; (viii) long processing procedures and slow decision making at critical stages in the AJKG; (ix) inadequate staffing and inefficient

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performance of the consultants; and (x) impractical unit rates for construction caused by large implementation delays and the lack of contracting resources. 32. Because of these constraints, the project schedule proved too optimistic. Considering the inexperienced EA and IAs, the envisaged completion period for major milestones in the project implementation plan proved to be inadequate. The basic assumption for the procurement schedule was impractical. The AJKG was unsuccessful in implementing the institution reform and capacity building subcomponent. The capacity of the PCU, PIUs, contractors, and consultants were found to be limited. Lack of AJKG commitment; the poor readiness of the IAs; and weak capacity in contractors, consultants, and the project team were predominant issues and major factors contributing to implementation delays, incomplete works, and the early closure of the loan. A comparison of the appraised and actual implementation schedule is in Appendix 4. F. Implementation Arrangements 33. The implementation arrangements employed for the project were as proposed at appraisal. A PIU was established for each of the five components under the PCU. The PIUs operated under the supervision of the PCU headed by the P&D, the EA responsible for all aspects of project implementation including subproject preparation, coordination among the different layers of the project team, screening the subproject selection process, securing necessary approvals, and project administration. In view of the limited experience of PCU and PIU staff, a team of consultants was proposed at appraisal to provide technical assistance and implementation support to the PCU and IAs. The consultants’ role was to actively implement the project, particularly the detailed design, procurement, supervision of works, contract administration, and capacity building. As very few of the selected experts were mobilized by the AJKG, and the consultants provided limited staff support, little progress was achieved. 34. The implementation arrangements envisaged at appraisal were adequately designed but not fully realized during implementation. The selected subprojects complied with the well-defined subproject selection criteria and the objectives of the MSRIP. However, difficulties in implementing the project arose mainly from (i) insufficient attention given to implementation details, inadequate project planning, and lack of coordination among the team members; (ii) limited guidance from top management and few meetings of the project steering committee during the 2 years; (iii) staffing problems, including discontinuity, inconsistency, and lack of proficiency; (iv) low dedication and commitment in the project team; (v) failure to implement institutional reform and capacity building; (vi) the failure of consultants to provide adequate staff; (vii) high turnover of managerial and technical staff; and (viii) inefficiency in resolving consulting, technical, land-acquisition, and resettlement issues. The chronology of important events relating to project implementation is in Appendix 5. G. Conditions and Covenants 35. The AJKG and the P&D partly complied with the standard loan covenants of (i) hiring the consultants and the contractors, (ii) ensuring the availability of land, (iii) the timely provision of counterpart funds, (iv) the submission of audit reports, and (v) the submission of the government's project completion report. The covenants related to the PCU and consultant staffing and reporting were only partly successful because of insufficient staffing. All other covenants (environmental, social, financial, economic, etc.) for efficient and effective project management yielded little progress, so compliance is assessed as partly successful. The MSRIP is rated partly successful overall. Initially, the P&D’s lack of understanding meant it did

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not pay proper attention to compliance with most of ADB's policies and guidelines, but compliance with most of the covenants improved later. Details on covenant compliance are in Appendix 6. H. Related Technical Assistance 36. No technical assistance was associated with the loan. I. Consultant Recruitment and Procurement 37. Consultant selection was in accordance with ADB's Guidelines on the Use of Consultants (2007, as amended from time to time) and used quality- and cost-based selection. It complied with the provisions of the loan agreement and the conditions stated in the report and recommendation of the President. The PCU included the relevant sections of ADB's Anticorruption Policy (1998, as amended to date) in all invitations, bidding documents, and contracts. The PCU employed staff only for positions considered essential. Table 3 provides details regarding consultant procurement for each consultancy contract.

Table 3: Consultant Procurement Process

Consultancy Service

Expressions of Interest Received Prequalified

Submission of Proposal

Responsive Proposals

Package Aa 7 firms 7 firms 6 firms 4 firms Package Bb 7 firms 7 firms 5 firms 3 firms

a Consultancy services for the project coordination unit and the health and education components. b Consultancy services for the water supply, roads and bridges, and power components. Source: Project files.

38. At appraisal, the estimated consulting inputs were 1,236 person-months. A comparison of consultancy resources actually used against the planned inputs is in Table 4.

Table 4: Comparison of Consultant Inputs, Planned Versus Actual

Consultancy Component

Employed Firm Planned Consulting Inputs

Actual Consulting Inputs

International National International National Package Aa Engineering Associates 0 549 0 302 Package Bb Engineering Consultants

International Limited 0 687 0 139 a Consultancy services for the project coordination unit and the health and education components. b Consultancy services for the water supply, roads and bridges, and power components. Source: Project coordination unit. 39. Goods, services, and civil works contracts were procured in accordance with ADB's Procurement Guidelines (2007, as amended from time to time). Civil work contracts initially followed national competitive bidding by prequalified bidders. Later, because of low participation by prequalified bidders and high bids, ADB approved the use of post-qualification procedures. Goods contracts were procured through national and international competitive bidding. The PCU included relevant sections of ADB's Anticorruption Policy in all invitations, bidding documents, and contracts.

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40. ADB declared misprocurement on the civil works contract for the boys’ high schools at Garala and Haripur and the girls’ high school at Jetti Dheri because of (i) the non-provision of contract agreements; (ii) bidding being restricted to the Pakistan Engineering Council's registered contractors; (iii) sought counter offers from bidders; (iv) quoted unit rates being amended during bid evaluation; (v) the non-provision of performance security; and (vi) incomplete bid evaluation processes, recommendations, and contract documents. The civil work contracts for the footbridge at Banni Maldara and one jeepable bridge at Broote Gala Gran were declared misprocurement by ADB on account of (i) inadequate and unclear bid evaluation; (ii) completion periods beyond loan closing; (iii) the validity of performance security being shorter than required; and (iv) incomplete bid evaluation processes, recommendations, and contract documents. ADB declared misprocurement under the power component on four contracts for procuring heavy transmission/low transmission (HT/LT) line structures due to (i) the non-submission of bid evaluation reports to ADB, (ii) P&D’s approving and signing of all four contract on its own without informing ADB, and (iii) the signing of contracts with the contractor who did not submit bid security. The executing agency, contrary to ADB’s advice, continued paying the contractor out of the imprest account against the misprocured contracts. J. Performance of Consultants, Contractors, and Suppliers 1. Consultants 41. The performance of both consultancy firms was partly satisfactory. Consultancy inputs produced limited benefits compared with those envisaged at appraisal. The P&D noted the following deficiencies in consultant performance: (i) inadequate quality and qualifications of substitutes, (ii) insufficiency of staff support at the subproject level, (iii) poor performance and project management and low standard of service; and (iv) delays in decision making and an approval process with minimal feedback. The PCU noted some serious implementation issues such as the shortage and inadequacy of consultants' staff support during project execution. The consultants faced difficulty in retaining experienced and qualified staff because contract conditions did not allow for wage increases to account for inflation. 2. Contractors 42. The AJKG found it difficult to attract contractors at prequalification. During prequalification, only 3–5 national civil works contractors showed interest in each contract package. The participation of prequalified contractors in bidding was also poor. Because of the limited number of prequalified bidders, the quoted bids were generally much higher than estimated. Initially, the prequalified contractors showed some interest in bidding, but later their interested ebbed because attractive opportunities cropped up elsewhere. The P&D adopted post-qualification procedures for awarding the balance of contracts. 43. Performance of contractors. The performance of the civil works contractors was partly satisfactory. Generally, the contractors lacked (i) proper planning and work execution skills, (ii) working capital, (iii) efficient human resources, (iv) consistent supplies of construction materials, and (iv) well-maintained equipment and machinery. Most of the contractors relied heavily on loan extensions, which history has shown to create inordinate construction delays. After realizing that a loan extension would not be forthcoming, contractors tried to make up for lost time, with some improvement in the rate of progress. Table 5 presents the major contracts.

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Table 5: Contracts with Time Extensions and Additional Cost

Name of Package Contractor Additional Time and Cost Upon

Contracts Completion Additional Time Additional Cost

Rehabilitation of Kotli–Tatta Pani Road Haji Saleem Khan 12 months PRe13.6 million

Rehabilitation of Reshian–Leepa Road Syed Wajhat Ai Gilani 16 months PRs29.6 million Rehabilitation of Sharda–Kel Road Xingiang & Company 12 months PRe25.7 million Rehabilitation of Hajira–Bypass Road Mukhtiar Abbasi 12 months PRe12.3 million Rehabilitation of Gurmandu–Pandu Road Mubashar Aziz Qadri 12 months PRe34.8 million Rehabilitation of Dandli Goi–Plandi Tarkandi Road

Sardar Azfar Ali Khan 12 months PRe9.4 million

Rehabilitation of Bhimber–Baghser Road United Builders Mirpur 6 months PRe9.3 million Rehabilitation of Samrote–Pothi Gali Road (Part I)

H. Ali Construction Company

12 months PRe17.4 million

Rehabilitation of Samrote–Pothi Gali Road (Part II)

Cosmic Construction Company

12 months PRe14.2 million

RCC Bridge on River Jhelum at Dhalkot Gammon Pakistan Limited

12 months PRe19.0 million

RCC Bridge at Tatta Pani Sardar Azfar Ali Khan 12 months PRe42.4 million RCC Bridge Bagh–Sudhangali Padhar Nallah

Shoukat Khan & Co 12 months PRe61.4 million

RCC Bridge on Kalri Nallah Masood Engineers 12 months PRe1.8 million Construction of Bridges on Jari–Plack Road Masood Engineers 12 months PRe6.9 million Construction of Bridge at Hajira Bypass Mukhtiar Abbasi 12 months PRe11.8 million Construction of 2 Bridges on Dandli–Goi Road

Sardar Azfar Ali Khan 12 months PRe1.4 million

Jeepable Bridge Kel Kanari over River Neelum

Mubashar Aziz Qadri 6 months PRe5.0 million

Jeepable Bridge Panthal over Nallah Panthal

Raja Shoukat Hayat 4 months PRe2.0 million

Jeepable Bridge Sukka Talab–Sangar Dhandar over Nallah Sangar

Mubashar Aziz Qadri 6 months PRe1.5 million

Foot Bridge Kappa Gali (Leepa) over Nallah Qazi Nag

Faisal Javeed Mughal 3 months

Rehabilitation of Bhimber DHQ Hospital and Burnala THQ Hospital

Gammon Pakistan Limited

12 months PRe5.8 million

Rehabilitation of Mirpur DHQ Hospital Saleem Khan & Company

12 months

Rehabilitation of Kothi DHQ Hospital & Fatehpur THQ Hospital

Azfarar Ali khan 12 months PRe2.5 million

Rehabilitation of Pallandri DHQ Hospital Abbaseen Builders 12 months Electrical Construction Works (Circle Mirpur)

Siemens Pakistan Engineering Islamabad

6 months

Electrical Construction Works (Circle Kotli) Progressive Technical Associates Islamabad

6 months

RCC = reinforced cement concrete, DHQ = district headquarters, THQ = tehsil (subdistrict) headquarters. Source: Project implementation units.

44. Traffic and people in the vicinity of civil works sites were affected by construction and associated environmental issues. Measures regarding road signage and traffic and environmental management were insufficient.

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45. Suppliers. The P&D procured office supplies, accessories, equipments, vehicles, and paramedical items through qualified suppliers. The performance of suppliers was satisfactory. Procured items were delivered on time and conformed with approved specifications. The performance of the contractors' material suppliers is rated partly satisfactory. Problems included (i) delayed payment by contractors, (ii) material shortages, (iii) high inflation and excessive increases in unit prices, (iv) unprecedented increases in the prices of diesel and labor, and (v) immediate demand and short periods for delivery. K. Performance of Borrower and Executing Agency 46. The borrower—the government of Pakistan—vested responsibility for implementation in the AJKG. The AJKG had considerable experience in constructing, rehabilitating, and maintaining physical and social infrastructure. In assessing the performance of the borrower and the P&D, it was considered that this project was the first large internationally funded ADB intervention in AJK in decades, placing demands on agencies and their staff beyond their previous experience. After initial uncertainties, appropriate procedures were understood and established, paving the way for functioning implementation bodies. The difficulties encountered related to detailed planning, prolonged decision making, and compliance with ADB procedural requirements and procurement issues. There were some sector-specific implementation issues that contributed to implementation delays. Experience suggests that more authority should have been delegated to the PIUs for making technical decisions without involving senior government officials. 47. In summary, the performance of the AJKG and the P&D was partly satisfactory. Important factors impeding their performance included (i) limited supervision and commitment; (ii) an unprofessional team member dominantly influenced the management of MSRIP; which negatively impacted the progress; (iii) limited guidance, review, or inputs provided by the steering committee; (iv) late realization of serious PCU and PIU project implementation efforts; (v) delayed activities, failure to make up for lost time, and broad failure to achieve project targets; (vi) inadequate and limited knowledge of ADB processes, procedures, and guidelines; (vii) inadequate consistency, continuity, and weak composition of the PCU, PIUs, and consultant teams; (viii) slow resolution of issues and late decision making by the steering committee and the PCU; (ix) considerable processing delays in the AJKG and the PCU (which improved later); and (x) prolonged land-acquisition issues in the PIUs through November 2008.

L. Performance of the Asian Development Bank

48. During the initial phase of MSRIP implementation, ADB provided insufficient assistance to the P&D, which was an inexperienced EA but improved in the last year of implementation. ADB tried to monitor implementation of the project's five components. ADB sent nine review missions and a project completion mission; shared critical analyses; made recommendations for improvement; and assisted and advised on planning, procurement, construction management, contract administration, resolving technical issues, and complying with loan covenants, social safeguards, environmental mitigation requirements, and resettlement polices. However, ADB's earlier interventions to improve P&D's understanding of ADB polices may have positive impacts on MSRIP implementation. 49. ADB staff reviewed progress on MSRIP components and recommended actions. During implementation, ADB tried to encourage the EA to implement the project in a timely manner and to address institutional weaknesses and implementation matters. The P&D experienced some delays from ADB’s processing of procurement and payments. There were too many changes in

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ADB project administration staff, which affected implementation. To facilitate implementation, ADB allowed procurement using post-qualification procedures and approved two minor changes in scope. These measures helped the P&D address more of the project's scope, accelerate activities, and improve results. The P&D assessed ADB's performance as partly satisfactory. Considering ADB's role and responsibilities, its performance was partly satisfactory.

III. EVALUATION OF PERFORMANCE

A. Relevance 50. The ADB intervention was highly relevant and in line with the government of Pakistan's strategy of developing urban and rural areas for accelerated economic growth and poverty reduction. The objectives were consistent with national social needs and development priorities. The selected sectors are recognized as the backbone of infrastructure development, especially in remote areas such as AJK. During the past few decades, the lack of security, low investment, and slow development of social and physical infrastructure had left the infrastructure of AJK deteriorated and damaged. This hampered the effective delivery of services and worsened poverty. Immediate investment was essential for filling the financing gaps, restoring social amenities, improving livelihoods in poor communities, and enhancing economic growth. 51. Even with works incomplete at loan closing and reduced project scope, ADB's intervention remained relevant and consistent with the sector's strategic objectives. The AJKG affirms that it will (i) complete the multisector social development program, (ii) improve existing physical infrastructure and social services both urban and rural, (iii) improve the pace of development in remote and neglected areas, and (iv) keep as its top priority reducing poverty in AJK. The government of Pakistan's Vision 2030 5 sees improving infrastructure and social services as a key strategy for accelerating trade and economic growth. ADB's country partnership strategy, 2009–2013 6 continues to emphasize the importance of infrastructure development and social services as major milestones for improving the pace of economic growth and reducing poverty. B. Effectiveness in Achieving Outcome 52. The MSRIP is rated less effective. The expected outcomes were only partly achieved. The benefits accruing from the project will be fewer than expected because of reduced project scope and delayed completion of works. The institutional-development and capacity-building subcomponents achieved no results and were ineffective. The consulting firms were unable to provide adequate planning, programming, or support for the reform agenda and were ineffective in implementing the consulting services component in a timely manner. Consulting services were inefficient and inferior. The effectiveness of interventions under the project remained limited. 53. The main weaknesses arose from the P&D's insufficient ownership of or commitment to the MSRIP. Institutional development and capacity building required stronger commitment, dedicated resources, continuing encouragement, and incentives for institutional and behavioral change. The project design assumed a strong implementation focus, sense of ownership of key ideas, knowledge sharing, and higher professionalism during implementation, very little of which materialized.

5 Government of Pakistan, Planning Commission. 2007. Pakistan in the 21st Century—Vision 2030. Islamabad. 6 ADB. 2009. Country Partnership Strategy 2009-2013. Manila.

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C. Efficiency in Achievement of Outputs and Outcome 54. The MSRIP is rated less efficient. Its key objectives were partly achieved, with overall achievement at loan closing at 42%. As the actual costs of project components were much higher than appraisal estimates, the project failed to achieve many projected results. Minimal progress was achieved toward the objectives of the institutional development subcomponent. The effectiveness, efficiency, and performance of the consultants were marginal. Project monitoring and reporting was unsuccessful. Coordination among the various layers of the project team was insufficient. 55. The subproject selection criteria ensured appropriate interventions that were likely to reduce rural poverty. Institutional capacity building aimed to improve governance and business processes. The selected subprojects (i) conformed to the AJKG's master plan for social sector development; (ii) linked rural populations with key economic centers; (iii) had no adverse effects on the environment; (iv) contributed to the AJKG's efforts to reduce poverty; (v) had minimal impacts on people's land and livelihood; (vi) had economic viability in terms of an economic internal rate of return (EIRR) above 12%; and (vii) it encouraged the AJKG to budget sufficient funds for rehabilitation, operation, and maintenance. 56. After loan closing, MSRIP activities were financed by the government of Pakistan. The facilities completed under the project would directly benefit 3.4 million inhabitants living in the project area and nearby. More broadly, the facilities would benefit the entire population of AJK, as well as that of surrounding areas through improved connectivity and enhanced access. Appendix 7 provides estimates of the number of students beneficiaries, new households benefiting from electricity distribution interventions, road project beneficiaries, and households benefiting from water supply (piped and not), and other project outputs. 57. A reevaluation of economic parameters comparing before-project and after-project conditions is not possible as the works are incomplete. However, it is expected that the EIRR values arising from the reevaluation will be higher than at appraisal. The expected improved EIRR will be a result of (i) selecting highly feasible subprojects, (ii) greater economic contribution at completion, and (iii) reasonable subproject completion cost. Actual traffic growth on the roads is expected to be higher than envisaged at appraisal. The EIRRs will be higher because of enhanced connectivity, reduced travel distance, and travel time savings resulting from the completion of roads, footbridges, and jeepable bridges. High inflation may drive vehicle prices up and push up operating costs. Cost inflation and excessive time for completion may limit the economic benefits. Project results and long-term achievements are rated less efficient. D. Preliminary Assessment of Sustainability 58. The sustainability of the MSRIP is unlikely. The demanding nature of continuing interventions and the prevailing poor socioeconomic situation in AJK lessens the likelihood that sufficient financial resources will be allocated to ensure sustainability. The institutional development and capacity building that the project sought to achieve in IAs was not fully realized during implementation. However, the AJKG recognized this as an important to future endeavors. Considerable time, consistency, and continuity, as well as strong commitment from the AJKG, will be required for targeted development in the future.

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59. The social infrastructure components are likely to be more sustainable than the physical infrastructure components. Since only limited physical infrastructure was completed under the project, there will be additional financing requirements for the rehabilitation backlog. Large capital investments and additional time will be needed to maintain the completed works. Achieving the targeted institutional development and governance initiatives is less likely in the current climate of political and financial instability. 60. The AJKG has now developed a clear understanding for effectively maintaining and managing the developed infrastructure and has committed itself to providing sufficient funds to ensure the sustainability of investments. The allocation of operation and maintenance funds is likely to increase in the coming years. Future infrastructure investments are expected to contribute to rural development and reducing poverty. The financial resources required to ensure sustainability depend heavily on the government of Pakistan's financial situation. The present financial and political situation suggests that sustainability may be difficult to achieve. E. Impact 61. The MSRIP mainly rehabilitated existing infrastructure and supplied related equipment and materials, which had negligible environmental impact. No major new construction took place in populated areas. All roads, bridges, power lines, schools, hospitals, and water lines that were improved through the project had established right of way on land already acquired. Therefore, the impacts of land acquisition for right of way, resettlement, and changes in land-use were minimal. Initially poor compliance with ADB social safeguard policies hindered progress, though this improved later. 62. The initial environmental impact assessment at appraisal covered all environmental parameters and found no significant impacts. However, some soil erosion during construction and temporary, minor silting of waterways were visible. Some trees were cleared for road widening, but this had a negligible impact on the environment. Poor dust control and traffic management had some localized impact on people, crops, and vegetation. Environmental mitigation was included in bidding and contract documents and addressed minor issues during project execution. No protected forests or wildlife sanctuaries were affected. 63. All interventions under the MSRIP supported improving social infrastructure and services. However, improving these facilities has had little to no socioeconomic or socio-cultural impact. Improving the roads and bridges ensured better access for the poor to markets, economic centers, social services, and amenities, enhancing economic activity. The new trading pattern in the region will follow the old, culturally accepted pattern. Enhanced trade, social, and cultural activities will deepen interaction among various cultures and engender harmony. The environmental, socioeconomic, and socio-cultural situation will see minimal change. The project is assessed as having insignificant environmental, socioeconomic, or socio-cultural impacts.

IV. OVERALL ASSESSMENT AND RECOMENDATIONS

A. Overall Assessment 64. The MSRIP is partly successful. The objectives were relevant and aligned with national economic growth needs, the government of Pakistan's infrastructure development strategy, and ADB's country partnership strategy. ADB made a sincere effort to embark on infrastructure rehabilitation and institutional development based on the urgency of the challenges. The project's baseline assumptions of strong government commitment, consistency, and continuity

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were realistic. However, only some of the project scope was implemented. Revision of project scope and inflated costs caused (i) long implementation delays, (ii) slow progression of construction works, and (iii) incomplete works at loan closing and higher cost of completion later. Most of the activities envisioned under the institutional-development and capacity-building initiatives were not undertaken. 65. Some objectives of the MSRIP proved to be too optimistic for the limited implementation timeframe. The project relied on consulting services, and the capacity of the AJKG was lower than expected. The project staff, contractors, and consultants performed below expectation. A lack of government commitment to project implementation, poor performance, and poorly performing consultants undermined the objectives of institutional development and capacity building and slowed the pace of progress. 66. The performance, technical ability, and operational support of the consultants were partly successful. The effectiveness, coordination, and synchronization of project team layers were poor. A lack of consultant guidance, insufficient supervision, and poor communication with the P&D were key problems during the project. A multilayered and complicated process, cumbersome and lengthy procedures, and complex practices in place at the AJKG caused long implementation delays. The performance monitoring team did not track project activities diligently or accurately. Had ADB intervened earlier, this could have been rectified. 67. The project design was appropriate. Its objectives, benchmarks, performance indicators, and targeted outputs were realistic. Project implementation details laid out in the loan documents provided the required guidelines, compliance, and processes. ADB generally provided timely approval of prequalification, procurement documents, short-lists, requests for proposals, bid evaluations, concurrences to award, and contract signings. Most of the implementation delays were procedural and decision-making holdups caused by inconsistency in project staff and lack of interest or commitment on the part of the project team. 68. The monitoring and evaluation framework envisaged support to implementing the project. Progress should have been assessed through a monitoring and evaluation framework, and regular reports should have been produced. The AJKG and ADB should have developed and agreed to a monitoring and evaluation framework. However, no monitoring and evaluation framework was developed, and the P&D did not produce any progress reports during the entire implementation period. Monitoring, evaluation, and reporting were unsuccessful. B. Lessons 69. The first intervention through an EA without prior working experience with ADB should have easy and simple targets. The project timeframe should have provided adequate time for developing adequate knowledge and understanding; establishing the required processes, procedures, and project implementation framework; and slowly attaining momentum in implementation. Inadequate time caused complexity and failure to complete the project. 70. The implementation of a multisector project by many IAs should have followed a sector approach with more autonomy and authority in line agencies. A project implemented through various independent agencies provides an appropriate mechanism for identifying subprojects and providing the flexibility required for implementing many geographically scattered subprojects in a timely manner. However, the IAs' departments should have greater ownership of the process and control of project activities.

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71. The implementation experience of the first ADB-funded project in AJK suggests that project management and administration requires capacity building up front regarding procurement processes; contract administration; disbursement processes; monitoring and evaluation mechanisms; periodic reporting needs; and ADB's procedures, guidelines, and compliance requirements. 72. The presence of well-qualified and experienced consultants familiar with ABD business processes is essential for guiding an inexperienced EA with limited capacity or work experience on ADB-financed projects. 73. Coordination by a representative from the funding agency proficient in project implementation is beneficial for developing skills, capacities, and experience for collectively eliminating common implementation bottlenecks in a timely manner. 74. For an inexperienced EA with no prior reform program, institutional-development and capacity-building benchmarks should have a stepwise, flexible approach, with adequate supervision and support from sector specialists. 75. Overly optimistic objectives in a limited implementation period should be avoided. A gradual, step-by-step approach consistent with local realities and government processing requirements should be adopted. 76. The choice of the EA should be carefully and realistically done with due regard for its capacity and experience in working with ADB. The EA's team should consist of dedicated professionals with a demonstrated track record. 77. Achieving the investment and reform program in a limited timeframe was difficult to achieve for an inexperienced EA. Different EAs or IAs should have been chosen to undertake the rehabilitation and institutional-development and capacity-building components separately, and they should have had appropriate technical support. 78. Measures ensuring government commitment to implementing institutional development should have been carefully reviewed and tightly tied to the release of funds. 79. Heavy reliance on the consultants' performance does not work well with a weak and inexperienced EA. Poorly performing consultants should have been replaced as early as possible. 80. ADB's monitoring, advising, and coordinating helped resolve issues concerning slippage, inordinate delays, unmet conditions, and poor performance in a timely fashion. In the case of unrecoverable delays, the EA should seek to reduce the project scope, close the loan early, or suspend the loan until all compliances are met. 81. Poor attention to pre-project activities and advance actions causes inordinate delays and, ultimately, to incompletion. ADB and the government should use advance actions such as land acquisition, detailed engineering design, procurement of civil works and consultancy contracts, and full establishment of the project management unit and PIUs. Readiness for implementation should be ensured during pre-loan activities. 82. Unrealistic work schedules, poor procurement planning, inadequate implementation details, and loose monitoring targets cause prolonged implementation, delays, and inaccuracy during processing. Optimistic implementation plans with no margin for unexpected delays and

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no consideration for seasonal impacts should be avoided. The lack of an adequate monitoring and reporting framework introduces the risk of noncompliance with loan conditions, suspension, or early closure of the loan. ADB should enforce regular monitoring of land acquisition, resettlement, and environmental impacts with specialists and dedicated resources. C. Recommendations

1. Project Related

83. Future monitoring. Future project monitoring should confirm that (i) ongoing works are completed on time and facilities perform as planned; (ii) allocated funds are adequate to ensure the sustainability of investments; and (iii) institutional development and capacity building continue to achieve the envisaged targets. ADB should field periodic follow-up missions and use future fact-finding missions to monitor developments. 84. Covenants. Covenants related to institutional development, capacity building, organizational reforms, and restructuring should call for a more gradual, step-by-step process that allows adequate time for government processing and adoption. Covenants related to independent monitoring of compliance with environmental and social safeguards should be strengthened. Covenants related to strategic planning, management, and public–private partnerships should be introduced. ADB should consider allowing specialized consultancy inputs related to project planning, involuntary resettlement, environmental mitigation, and project management over the implementation period. Covenants ensuring project team continuity and consistency and government support and commitment should be strengthened. The monitoring and reporting framework should be revisited. Adequate government assurances should be ensured in the project design.

85. Future actions or follow-up. Further follow-up actions are required to ensure that (i) the ongoing works are quickly completed and perform to high standards, (ii) the P&D adequately manages the improved facilities, and (iii) institutional development and capacity building have been implemented. ADB should field periodic follow-up review missions and develop closer interaction with the AJKG.

86. Additional assistance. The AJKG is planning to launch a development program for poor and undeveloped portions of AJK. Financial support in the form of project preparatory technical assistance will be required to enable preparatory work to begin. Small to medium-sized Asian Development Fund loans should fill the financing gaps in development and enable the AJKG to improve living conditions in poor communities and reduce poverty. At the successful completion of these initiatives, ADB may consider financing investments in infrastructure development. The AJKG requires assistance in formulating a comprehensive master plan for social sector development and in prioritizing investment programs in the immediate, short, medium, and long term. 87. Timing of the project performance evaluation report. Most of the civil works contracts are ongoing. The AJKG needs 18 months to complete the remaining works and achieve progress in institutional development. Further, maturity of socioeconomic benefits may require an additional 2–3 years after the project completion. A suitable year to undertake a project performance evaluation would be 2014.

20

2. General 88. The AJKG should adopt comprehensive measures to (i) ensure early completion of remaining work efficiently; (ii) provide adequate operation, maintenance, and management of developed facilities; (iii) adopt institutional-development and capacity-building initiatives; (iv) reorganize the institutional setup and supply proper staffing; (v) provide sufficient funds for ensuring sustainability; (vi) adopt best practices and monitoring-and-reporting mechanisms; and (vii) adopt community participation, public–private partnerships and corridor management, and concessions for off-budget financing initiatives. 89. Closer scrutiny should be given to the EA's capacity to implement ADB-assisted projects. The organizational structure of the EA should be carefully analyzed. The EA should hire dedicated cross-sectoral experts. ADB should ensure the composition and consistency of the project team during the entire implementation period. Consultants’ involvement should be limited to their areas of expertise. 90. ADB should field review missions frequently and encourage more interaction among members of the implementation team. ADB should ensure that the government extends adequate efforts for institutional development and capacity building and helps resolve implementation issues in a timely way. 91. ADB should require appropriate government assurances and participation in implementing organizational change. Sufficient recognition of likely barriers to success posed by the bureaucracy, the inadequacy of institutional capacity, insufficient staff resources, and lack of commitment should be considered when formulating project design. 92. Project design should not rely only on superior professional consultant inputs. Assessment of the consultant's capacity, efficiency, effectiveness, and expected quality of the outputs should be properly evaluated. 93. The AJKG should ensure that the social and physical infrastructure improved through the project provides better facilities; improved services; enhanced connectivity; and improved road drainage and surfaces. The local environment should be protected, and connectivity throughout the year should be ensured in the project area. The enhanced social services and physical infrastructure should continue providing benefits to poor communities. 94. The AJKG should ensure the provision of improved connectivity, road safety, signage, and road geometric improvements to reduce the risk of road accidents and their social costs and economic losses. Improved maintenance and management of roads and bridges should ensure greater mobility, convenience, safety, and efficiency. Improved travel conditions and serviceability should create direct and indirect social benefits both short term and long. 95. The AJKG should ensure adequate attention and thorough supervision of advance action and full readiness before starting projects because poor attention to readiness and advance actions causes inordinate delays and, ultimately, project incompletion.

Appendix 1 21

APPRAISED VERSUS IMPLEMENTED PROJECT SCOPE

Sector DDeessccrriippttiioonn AApppprraaiissaall RReevviisseedd Health Extension and/or rehabilitation of accident

and emergency departments in district headquarters (DHQ) hospitals (civil works and equipment)

8 DHQ hospitals

4 DHQ hospitals

Provision of equipment to pediatric and gynecology departments at DHQ hospitals

8 DHQ hospitals

4 DHQ hospitals

Rehabilitation of tehsil headquarters (THQ) hospitals in Athmuqam, Burnala, Fatehpur, and Kahuta

4 THQ hospitals 2 THQ hospitals

Rehabilitation and/or reconstruction of a 30-bed ward, an operating theater, and diagnostic facilities in THQ hospitals

4 THQ hospitals 2 THQ hospitals

Rehabilitation and/or reconstruction of other facilities, e.g., paramedic hostels and doctor residences, at THQ hospitals

4 THQ hospitals 2 THQ hospitals

Provision of equipment to pediatric and gynecology departments at THQ hospitals

4 THQ hospitals 2 THQ hospitals

Education Rehabilitation and construction of damaged

primary schools 30 schools 2 schools

Rehabilitation and construction of damaged middle schools

7 schools 1 school

Repair and improvement of middle schools 56 schools 50 schools Repair and improvement of high schools 56 schools 58 schools Provision of water and sanitation facilities

where inadequate Selected schools

Dropped altogether

Training of teachers 6,000 teachers None Water Supply

Rehabilitation and extension of water supply networks and treatment plants in all DHQs

7 DHQs 7 DHQs

Rehabilitation and extension of water supply networks and treatment plants in selected THQ

4 THQ 3 THQs

Roads and Bridges

Rehabilitation and improvement of primary road network to provide inter- and intra-district links

130 kilometers Reduced by 14 kilometers

Construction and replacement of major bridges on the primary roads

650 meters 135 meters added

22 Appendix 1

Sector DDeessccrriippttiioonn AApppprraaiissaall RReevviisseedd Local Government

Construction of jeep suspension bridges to connect secondary and tertiary roads.

1,050 meters 230 meters

Construction of suspension footbridges to improve connectivity in remote communities

1,050 meters 54 meters

Power Rehabilitation and augmentation of 11 kilovolt

(kV) lines 750 kilometers 400 kilometers

Rehabilitation and augmentation of 0.4 kV lines

900 kilometers 565 kilometers

Replacement and addition of 11 kV and 0.4 kV transformers

1,200 transformers

1,000 transformers

Supply of conductors 2,750 kilometers

2,750 kilometers

Rehabilitation and augmentation of service connections

101,000 meters 5 monitoring meters

Sources: Report and recommendation of the President and data provided by the executing and implementing agencies.

Appendix 2 23

PROJECT COSTS

ADB GOV'T Total ADB GOV'T TotalA.

1. Civil Works 1.30 1.00 2.30 0.34 0.36 0.702. Equipment 6.60 0.00 6.60 0.91 0.00 0.913. Consulting Services 0.40 0.00 0.40 0.49 0.00 0.494. Project Management/Incremental Expenditure 1.10 0.00 1.10 0.05 0.07 0.125. Taxes and Duties 0.00 0.90 0.90 0.00 0.19 0.19

Base Cost (Subtotal A) 9.40 1.90 11.30 1.79 0.62 2.41

B.1. Civil Works 1.90 1.90 3.80 0.43 0.48 0.912. Equipment 0.70 0.00 0.70 0.06 0.00 0.063. Consulting Services 0.50 0.00 0.50 0.08 0.00 0.084. Project Management/Incremental Expenditure. 0.90 0.00 0.90 0.03 0.03 0.065. Taxes and Duties 0.00 0.40 0.40 0.00 0.09 0.09

Base Cost (Subtotal B) 4.00 2.30 6.30 0.60 0.60 1.20

C.1. Civil Works 0.90 1.00 1.90 0.00 0.01 0.012. Equipment 5.50 0.00 5.50 1.36 0.00 1.363. Consulting Services 0.60 0.00 0.60 0.13 0.00 0.134. Project Management/Incremental Expenditure 0.30 0.00 0.30 0.02 0.02 0.045. Taxes and Duties 0.00 0.70 0.70 0.00 0.14 0.14

Base Cost (Subtotal C) 7.30 1.70 9.00 1.51 0.17 1.68

D.1. Civil Works 12.20 8.50 20.70 2.97 3.17 6.142. Equipment 0.10 0.00 0.10 0.41 0.00 0.413. Consulting Services 1.10 0.00 1.10 0.24 0.00 0.244. Project Management/Incremental Expenditure 0.90 0.00 0.90 0.29 0.42 0.715. Taxes and Duties 0.00 2.10 2.10 0.00 0.68 0.68

Base Cost (Subtotal D) 14.30 10.60 24.90 3.91 4.27 8.18

E. Improvement, Renovation, and Augmentation of Power Distribution Network1. Rehabilitation of 11 kV Lines 5.50 0.00 5.50 2.31 0.52 2.832. Rehabilitation of 0.4 kV Lines 2.60 0.00 2.60 1.13 0.25 1.383. Transformers (11/0.4 kV) 2.70 0.00 2.70 2.88 0.00 2.884. Service Connections 3.70 0.00 3.70 0.07 0.00 0.075. Maintenace Tools and Equipment 1.00 0.00 1.00 0.34 0.00 0.346. Consulting Services 0.60 0.00 0.60 0.10 0.00 0.107. Project management/incremental Expenditure. 0.70 0.00 0.70 0.35 0.52 0.878. Taxes and Duties 0.00 1.60 1.60 0.00 0.65 0.65

Base Cost (Subtotal E) 16.80 1.60 18.40 7.18 1.94 9.12

F. Project Coordination Consultant 1.10 0.00 1.10 0.59 0.11 0.70Total Baseline Costs 52.90 18.10 71.00 15.58 7.71 23.29

G. Contingencies1. Physical 2.60 0.80 3.40 0.00 0.00 0.002. Price 0.10 0.10 0.20 0.00 0.00 0.00

Subtotal Contingencies 2.70 0.90 3.60 0.00 0.00 0.00

H. Interest during Implementation 1.40 0.00 1.40 0.14 0.00 0.14Total Projects Costs 57.00 19.00 76.00 15.72 7.71 23.43

Source: Report and recommendation of the President and the executing and implementating agencies.

Rehabilitation and Improvement of Health Services

Rehabilitation and Improvement of Education Services

Improvement of Water Supply System

Rehabilitation of Roads and Bridges

S. No. Item

Appraisal Actual($ million)

24 Appendix 3

PROJECTED AND ACTUAL CONTRACTS AWARDS $ million

Year Quarter Contract Award Disbursement

Projected Actual Projected Actual 2005 I 0.0 0.0 0.0 0.0

II 0.6 0.0 1.5 0.0 III 6.8 0.0 2.0 1.4 IV 3.6 0.0 2.5 0.0 Sub-Total 11.0 0.0 6.0 1.4

2006 I 2.5 0.3 0.5 0.3 II 2.5 3.1 0.8 0.0 III 3.0 1.9 1.1 0.0 IV 2.0 0.0 2.0 0.9 Sub-Total 10.0 5.3 4.4 1.2

2007 I 1.6 1.1 0.5 0.0 II 4.4 1.9 1.5 0.5 III 1.7 1.2 0.7 0.4 IV 2.7 6.0 1.3 3.0 Sub-Total 10.3 10.2 4.0 3.9

2008 I 1.0 0.4 2.5 3.7 II 2.0 1.5 3.0 0.0 III 2.0 0.0 2.0 1.3 IV 1.0 0.0 2.5 0.7 Sub-Total 6.0 1.8 10.0 5.7

2009 I 0.0 0.0 2.0 0.0 II 0.0 4.9 0.0 1.1 III 0.0 0.0 0.0 2.3 Sub-Total 0.0 4.9 2.0 3.4 Grand Total 37.3 22.2 26.4 15.7

Source: Loan financial information system.

FIGURE A3: CONTRACT AWARDS AND DISBURSEMENT PERFORMANCE

-

3.25.1

7.9

14.517.1 17.4

22.2

- 1.4 1.72.6

3.2

6.5

10.2

12.315.7

-