Completion Report

Project Number: 37091-033 Loan Number: 2837 August 2017

India: Agribusiness Infrastructure Development

Investment Program (Tranche 2)

This document is being disclosed to the public in accordance with ADB’s Public Communications Policy 2011.

CURRENCY EQUIVALENTS

Currency Unit – Indian rupee/s (₹)

At Appraisal At Project Completion 9 August 2010 31 March 2016

₹1.00 = $0.0217 $0.0151 $1.00 = ₹46.15 ₹66.20

ABBREVIATIONS

ADB – Asian Development Bank DCMT – Department of Cooperation, Marketing and Textile GOM – Government of Maharashtra HVC – high-value crop IVC – integrated value chain MFF – multitranche financing facility MSAMB – Maharashtra State Agricultural Marketing Board PMU – project management unit PPP – public–private partnership PPTA – project preparatory technical assistance RFQ – request for qualification TA – technical assistance TAG – transaction advisory group

NOTES

(i) The fiscal year (FY) of the government and its agencies ends on 31 March. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2017 ends on 31 March 2017.

(ii) In this report, “$” refers to United States dollars.

Vice-President W. Zhang, Operations 1 Director General H. Kim, South Asia Department (SARD) Director M. Oka, Environment, Natural Resources and Agriculture Division, SARD Team leader R. Jones, Senior Natural Resources and Agriculture Economist, SARD

Team members P. Barrameda, Associate Operations Officer, SARD A. Tayyab, Principal Natural Resources Economist, Central and West Asia Department

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

Page

BASIC DATA i

I. PROJECT DESCRIPTION 1

II. EVALUATION OF DESIGN AND IMPLEMENTATION 1 A. Relevance of Design and Formulation 1 B. Project Outputs 3 C. Project Costs 4 D. Disbursements 4 E. Project Schedule 5 F. Implementation Arrangements 5 G. Conditions and Covenants 5 H. Consultant Recruitment and Procurement 6 I. Performance of Consultants, Contractors, and Suppliers 6 J. Performance of the Borrower and the Executing Agency 6 K. Performance of the Asian Development Bank 7

III. EVALUATION OF PERFORMANCE 7 A. Relevance 7 B. Effectiveness in Achieving Outcome 8 C. Efficiency in Achieving Outcome and Outputs 8 D. Preliminary Assessment of Sustainability 8 E. Impact 8

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 8 A. Overall Assessment 8 B. Lessons 8 C. Recommendations 9

APPENDIXES 1. Design and Monitoring Framework 11 2. Status of Compliance with Loan Covenants 14 3. Detailed Cost Estimates at Approval 19 4. Original Projections vs. Actual Contract Awards and Disbursements 20 5. Project 2 Implementation Schedule 21

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

India 2837 Agribusiness Infrastructure Development Investment Program (Tranche 2) India Department of Cooperation, Marketing and Textiles $24,300,000 1644

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)

12 April 2010 23 April 2010 28 November 2011 28 November 2011 19 December 2011 18 January 2012 17 April 2012 9 April 2012 None 31 December 2015 31 March 2016 None London interbank offered rate (LIBOR)-based Sum of LIBOR and 0.60% 25 5

ii

8. Disbursements a. Dates

Initial Disbursement

17 September 2012

Final Disbursement

31 March 2016

Time Interval

42 months

Effective Date

9 April 2012

Original Closing Date

31 December 2015

Time Interval

44 months

b. Amount ($ million)

Category or Subloan

Original

Allocation

Last Revised

Allocation

Amount

Canceled

Net Amount

Available

Amount

Disbursed

Undisbursed

Balance

Capital grant to concessionaire

21.79 8.69 13.10 8.69 0.00 8.69

Equipment 0.44 0.44 0.44 0.16 0.28 Consulting services

0.80 0.80 0.80 0.17 0.63

Office and vehicle hire

0.28 0.28 0.28 0.13 0.15

Project management

0.24 0.24 0.24 0.06 0.18

Unallocated 0.75 0.75 0.75 0.00 0.75

Total 24.30 11.20 11.20 0.52 10.68

The first cancellation of $13.1 million was approved on 16 January 2014. The final cancellation for $10.68 million was done on 31 March 2016 at loan closing.

C. Project Data

1. Project Cost ($ million)

Cost Appraisal Estimate Actual

Foreign Exchange Cost 30.30 0.88 Local Currency Cost 0.00 0.00 Total 30.30 0.88

2. Financing Plan ($ million)

Cost Appraisal Estimate Actual

Implementation Costs Borrower Financed 4.30 0.36 ADB Financed 24.30 0.52

Total 28.60 0.88 IDC Costs Borrower Financed 1.70 0.00 ADB Financed 0.00 0.00

Total 30.30 0.00

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

iii

3. Cost Breakdown by Project Component ($ million)

Component Appraisal Estimate Actual

Component 1: Support for Integrated Value Chains 21.86 0.00 Component 2: Institutional Development and Project Management

2.81 0.88

Contingencies 3.88 Finance Charges During Implementation 1.75

Total 30.31 0.88

4. Project Schedule

Item Appraisal Estimate Actual

Establishment of PMU Q2 2010 Q2 2010 Date of contract with TAG 1 consultants Q2 2012 Q1 2012 Date of contract with TAG 2 (PMU PPP consultants) Q2 2012 Q3 2012 Concession agreement (Nashik) Q4 2012 Not achieved Concession agreement (Aurangabad–Amravati) Q4 2012 Not achieved Completion of engineering designs Q2 2013 Not achieved Civil works for marketing infrastructure Q4 2013 Not achieved

PMU = project management unit, PPP = public–private partnership, Q = quarter, TAG = technical advisory group.

5. Project Performance Report Ratings

Implementation Period

Ratings

Development Objectives

Implementation Progress

From 9 April 2012 to 31 December 2012 On track On track From 1 January 2013 to 31 December 2013 On track On track From 1 January 2014 to 31 December 2014 On track On track From 1 January 2015 to 31 December 2015 Actual problem Actual problem From 1 January 2016 to 31 March 2016 Actual problem Actual problem

D. Data on Asian Development Bank Missions

Name of Mission

Date

No. of Persons

No. of Person-Days

Specialization of Members

Loan inception 25 April–7 May 2012 2 12 p&n, f Review mission 1 25 November 2012 3 3 p, n, f Special loan administration 1 23–24 January 2013 1 2 p&n Special loan administration 2 17–21 March 2013 2 10 p, n Special loan administration 3 5–8 July 2013 2 6 p, n Review mission 2 15–25 October 2013 4 16 d, p, n, f Review mission 3 5–12 February 2014 1 7 n Special loan administration 4 6–13 October 2014 3 21 n, pp, f Review mission 4 27–28 August 2015 1 2 pp Review mission 5 4–10 December 2015 1 6 pp p = portfolio management, n = natural resources and agriculture specialist, d = director, pp = public–private partnership specialist, f = project analyst.

I. PROJECT DESCRIPTION

1. Agriculture is an important sector of the Indian economy, contributing 16.0% of the national domestic product in 2009 and 17.5% in 2015. It is also an important sector for employment, with 53% of the workforce relying on agriculture for income and livelihood in 2010.1 The relevance of the sector to promoting inclusive economic growth through higher farm incomes and increased employment opportunities was recognized in the Eleventh Five-Year Plan, 2007–2012, which set a 4% annual sector growth rate target.2 However, agriculture had failed to achieve the growth rates set in the previous two plan periods, so the goals for reducing the rates of poverty in rural areas had not been achieved.

2. Lack of private sector investment was identified as a contributing factor to the poor performance of the agriculture sector. The Eleventh Five-Year Plan targeted (i) a modern, efficient marketing structure; (ii) backward links between markets and production areas to give producers higher prices; and (iii) coordination along the value chains. Promotion of private sector investment was proposed through public–private partnerships (PPPs) and the provision of public sector capital grants to private sector investors wanting to establish agribusiness infrastructure.

3. The multitranche financing facility (MFF) for the Agribusiness Infrastructure Development Investment Program was approved for a total of $212.2 million in 2010.3 The Asian Development Bank (ADB) approved project 1 for $67.6 million to establish two integrated value chains (IVCs) in Bihar state.4 Project 2 in Maharashtra was approved for $24.3 million on 19 December 2011 and became effective on 9 April 2012. 5 The project was expected to be completed by 31 December 2015.

4. The expected impact of the project was increased private sector investment in IVC infrastructure and producer returns in high-value crops (HVC) in Maharashtra. The expected outcome was expanded agriculture value chains and better integration of small-scale farmers into IVCs in Nashik and Aurangabad–Amravati regions. The expected outputs were (i) IVC infrastructures in Nashik and Aurangabad–Amravati region set up and functional; (ii) IVC stakeholders effectively participating in and managing IVCs; and (iii) project management support strengthened. IVCs were to be established through PPP contracts that leveraged private sector investment and management into agribusiness and market infrastructure on land provided on lease by the Government of Maharashtra (GOM).

II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

5. The project was in line with the investment priorities of the sector at that time, and support for private sector involvement in development through PPPs was both an ADB and government priority. Investment in the agriculture sector, specifically in agricultural value chains, was fully in line with the Government of India’s agricultural strategy as reflected in the Eleventh Five Year

1 ADB. 2016. Key Indicators for Asia and the Pacific 2016. Manila. 2 Government of India, Planning Commission. 2008. Eleventh Five Year Plan, 2007–12. New Delhi. 3 ADB. 2010. Report and Recommendation of the President to the Board of Directors: Proposed Multitranche

Financing Facility to India for the Agribusiness Infrastructure Development Investment Program. Manila. 4 Project 1 was canceled without loan disbursement on 12 August 2016. ADB. 2017. Loan Cancellation: Agribusiness

Infrastructure Development Investment Program – Tranche 1. Manila. 5 ADB. 2011. Periodic Financing Request for the Proposed Tranche 2 of the Agribusiness Infrastructure Development

Investment Program. Manila.

2

Plan. The project was consistent with ADB’s India country partnership strategy, 2009–2012, which placed a high priority on agriculture and natural resources and emphasized private sector participation in infrastructure development, including through PPPs. 6 At the state level, Maharashtra was well-established as a private sector investment destination, with amendments to the State Agricultural Produce Marketing Act, 1963, allowing for direct marketing contracts between agribusiness and farmers, as well as for new private market areas to be established by individual businesses. The project remained relevant to the government’s agricultural strategy as reflected in the Twelfth Five Year Plan, 2013–2017 at project completion. 7 The latest plan recognized that faster growth of agriculture contributed to inclusive growth, and set a target of 4% agricultural growth to ensure inclusiveness through improving market linkages and encouraging private sector investment. At completion, the project was well aligned with ADB’s operational plan for agriculture and natural resources, particularly priority 2: improved market connectivity and value chain linkages.8 However, the project was less aligned with the latest country partnership strategy, which focused on three core areas (energy, transport, and urban services).9 The choice of MFF was an appropriate modality to provide support to long-term sectoral investment programs such as the case for agribusiness investments in Bihar and Maharashtra states.

6. The project had a rigid design for the PPP modality for establishing two IVCs in Nashik and Aurangabad–Amravati regions. Private concessionaires, selected on a competitive basis, were to design, build, finance, operate, and maintain the IVCs on predetermined government land sites. The concessionaires were to retain all revenue streams from the investment. The PPP contracts were to require the public sector to provide land under a 20-year lease, with leasing costs based on the rent prescribed in accordance with prevailing GOM rates. Lease rent was to be reviewed every 5 years, and the lease agreement was to be terminated or renewed at the end of 20 years subject to the agreement of all parties involved. The successful private sector investor was to provide capital for the construction of the infrastructure, provision of equipment, and the ongoing management and maintenance of the sites. To attract private sector investors, the GOM offered a capital grant of a maximum of 40% of the total investment cost to the successful bidder. The concession was to be awarded based on the lowest capital grant required, with a maximum grant of 40% being available. Hence, the private sector was to provide a minimum of 60% of the capital cost, with the successful concessionaires retaining all rights over the revenue generated by each IVC.

7. The project was unable to award PPP contracts and undertake activities as planned because of design and implementation problems. Despite two rounds of bidding, there was little private sector interest and no bid was responsive to the bidding documents. Identified problems with the project design include: (i) processors and other private investors were reluctant to invest in pre-selected IVCs on government-owned land with the likelihood of loss of business upon termination of the concession period; (ii) land owned by the government and leased to private concessionaires was deemed a complex arrangement, and potential investors feared they would be subject to political interference; (iii) lease rentals for land offered by the government were too high, which negatively affected the financial feasibility for potential concessionaires; and (iv) many potential investors were reluctant to invest in the whole value chain and expressed a preference to focus on strengthening their existing businesses in specialized parts of their value chains.

6 ADB. 2009. Country Partnership Strategy: India, 2009–2012. Manila. 7 Government of India, Planning Commission. 2012. Twelfth Five Year Plan (2012–2017): Faster, More Inclusive and

Sustainable Growth. New Delhi. 8 ADB. 2015. Operational Plan for Agriculture and Natural Resources: Promoting Sustainable Food Security in Asia

and the Pacific in 2015–2020. Manila. 9 ADB. 2013. Country Partnership Strategy: India, 2013–2017. Manila.

3

8. The lack of response of the private sector, even following extensive rounds of consultations and clarifications (para. 24), and their stated concerns regarding the conditions of the contracts, indicate that the overall relevance of the project design and selection of the PPP modality did not match the demands of the market.

9. The design work for the MFF was undertaken through a project preparatory technical assistance (PPTA), which was implemented from 27 April 2009 to 31 October 2011 and disbursed a total amount of $0.92 million. 10 The executing agencies for the PPTA were the relevant agriculture development agencies of Bihar (Department of Agriculture) and Maharashtra (Department of Cooperation, Marketing and Textiles). The PPTA identified gaps in the value chain which formed the basis of the investment program design. Stakeholder consultations were used as the basis for preparing (i) the project components for the selected IVCs and (ii) the investments to be funded under the first and second tranches of the MFF. Given the identified problems associated with project design, the overall quality of the PPTA is considered less than satisfactory.

B. Project Outputs

10. The project has three outputs, entailing a mix of value chain infrastructure, stakeholder capacity development, and project management. Project output achievements and indicators are compared in the design and monitoring framework (Appendix 1).

1. Integrated Value Chain Infrastructures in Nashik and Aurangabad–Amravati Regions Set Up and Functional

11. The IVCs were to be established through the award of two PPP contracts. A project management unit (PMU) was to be established to plan, supervise, and monitor implementation with the support of a technical advisory group (TAG). The concessionaires were to construct infrastructure in 15 locations—nine in Nashik region and six in Aurangabad–Amravati region. This infrastructure was to include pre-cooling, storage, grading, cold storage, warehousing, ripening rooms, supporting information technology systems, and business services.

12. Following two rounds of failed bidding, no PPP contract was awarded and the output was not achieved (para. 24). The size of investment required under each IVC was beyond the financial and managerial capacity of small value chain investors, which specialized in their own trade within the value chain. Potential concessionaires indicated their preference to (i) bid for individual locations and not for the whole value chain, and (ii) use private land instead of government land on a lease basis for establishing business facilities. Another problem was the lack of attention to PPP procurement processes envisaged under the project, which required the PMU to invite bids from the private sector to design, construct, operate, and maintain the IVC infrastructure, and contract them on a PPP basis. Procurement under PPP arrangements is more complex than traditional procurement methods and requires special attention to market assessment, financing arrangements, and contracting procedures where use of government assets is envisaged. The investors were also not in favor of transferring the business to the government after the leasing period, which was also proposed to be increased to 25 years.

10 ADB. 2008. Technical Assistance to India for Preparing the Agribusiness Infrastructure Development Investment Program (Phase 2). Manila.

4

2. Integrated Value Chain Stakeholders Effectively Participate in and Manage Integrated Value Chains

13. The concessionaire was to provide capacity development along the IVCs to enhance technical and managerial expertise to operate efficient IVCs. The training was to be outsourced to specialized service providers. As no concessionaires were contracted, this output was not achieved.

3. Project Management Support Strengthened

14. This output was partly achieved. A PMU was established in December 2011 to provide implementation support and undertake regular monitoring and evaluation activities. It was supported by two consultants: (i) a TAG to ensure successful establishment and monitoring of IVC infrastructure financed under the PPP modality; and (ii) a project management support group to build project management and reporting systems and assist the PMU in the design of future IVCs. The TAG was recruited in February 2012 and the project management support group in September 2012. The capacity of the PMU was strengthened, with officials receiving extensive training in PPP bidding processes and the preparation of detailed project reports. The concessionaire contract monitoring and evaluation system was not established because of failure to award the PPP contracts.

15. The PMU monitored the overall performance of the project, while ADB monitored through e-Operations. The quarterly reports provided information necessary to update ADB’s e-Operations. However, in the absence of any IVC contracts, there was little performance to monitor and report.

C. Project Costs

16. The total cost of the project at appraisal was estimated at $30.3 million, comprised of an ADB loan of $24.3 million and government counterpart funds of $6.0 million. The actual project cost was $0.89 million (2.9% of estimates at appraisal). ADB financing amounted to $0.53 million (59.6% of actual project costs) and government financing was $0.36 million (40.4% of actual project costs).

17. The maximum capital grant to concessionaires, which is a bidding parameter, was limited to only 40% (or $8.7 million). However, the provision under the loan was for 100% (or $21.8 million). To rectify this, following discussions with ADB, the GOM requested a partial cancellation of $13.1 million, approved on 16 January 2014, which reduced the total loan amount to $11.2 million. A further $10.7 million was cancelled at loan closure on 31 March 2016 no withdrawals were made for the concessionaire equity.

D. Disbursements

18. Total disbursements under the loan were $0.53 million, or 2.2% of the original loan amount. Minimal disbursement was due to the lack of physical progress. The loan proceeds were disbursed using the reimbursement method (through statement of expenditures procedure), in accordance with ADB’s Loan Disbursement Handbook (2007, as amended from time to time).

5

E. Project Schedule

19. The overall implementation period for the project at appraisal was 4 years. PPP concessionaire contracts were to be implemented over 4 years, including a 3-year window for the establishment of PPP concessionaire contracts and the implementation of civil works contracts. The time required for completing the procurement process for the IVCs was substantially underestimated at appraisal, as ADB had no experience in or standard bidding documents to facilitate such procurement. It took 17 months (35% of the implementation period) to prepare, amend, and finalize the request for qualifications (RFQ). Following the issuance of the RFQ, it took 15 months to issue the request for proposals to the short-listed firms, mainly because prospective investors sought clarifications, particularly on documentation and eligibility requirements. Eleven corrigenda were issued, including five extensions of the deadline for submission of qualification requirements.

20. Prospective bidders did not respond in the first round of bidding despite efforts to attract private sector investors. The procurement documentation was streamlined, and the RFQ and request for proposals were combined for the second round of bidding announced in October 2015, 42 months after loan effectiveness. However, only two proposals were received by 28 December 2015 and both were determined to be non-responsive. In summary, except for the timely establishment of the PMU, the entire implementation period was consumed in the procurement process without completing the selection of the concessionaires for the IVCs.

F. Implementation Arrangements

21. Implementation arrangements for the project generally followed the design. The executing agency was Maharashtra Department of Cooperation, Marketing and Textiles (DCMT), and the implementing agency for the project was Maharashtra State Agricultural Marketing Board (MSAMB). The MSAMB, assisted by TAG consultants, was to select the concessionaires for the development of IVCs. The design, construction, and operation of the IVCs was the responsibility of the private sector partners under the guidance and supervision of the MSAMB. The implementation arrangements were appropriate for the project, and lack of achievement of the project outputs was a result of design weaknesses (paras. 6–7) rather than deficiencies in the implementation arrangements.

G. Conditions and Covenants

22. Out of 24 covenants, 19 were complied with in a timely manner and the remaining five were not due until actual progress was made on the PPP arrangements and other project physical activities. No covenants were modified or suspended during implementation. The following covenants were not due until the PPP concessionaires and civil works commenced: (i) ensure that the preparation, design, construction, implementation, commissioning, and de-commissioning of project facilities comply with environmental and safety requirements; (ii) ensure that land is available to the concessionaires for facilities to be constructed; (iii) safeguards monitoring and reporting; (iv) ensure that the works contracts comply with applicable labor laws; and (v) ensure that the gender action plan is implemented and incorporated in key documents and activities. All covenants could not be complied with because of lack of physical progress. The status of compliance with the loan covenants is in Appendix 2.

6

H. Consultant Recruitment and Procurement

23. The project financed two consulting services packages: (i) TAG 1 for supporting the bidding process for IVCs in Nashik and Aurangabad–Amravati, and (ii) TAG 2 for the preparation of the detailed project reports for additional four IVCs envisaged under the project. TAG 1 was engaged through the consultants’ qualifications selection method, mobilized in February 2012, and provided 10.7 person-months of inputs. TAG 2 was recruited through the quality- and cost-based selection method, mobilized in September 2012, and provided 30.5 person-months of inputs.

24. The procurement process for the two IVCs was not successful. In the first round of bidding, none of the short-listed firms submitted a proposal. The MSAMB restructured the bid to (i) unbundle the package to allow concessionaires to bid for individual locations rather than the entire IVC in response to their preference to strengthen existing businesses in specialized parts of the value chain; and (ii) allow the use of private land for establishing the IVCs, given the view that leasing of public land was expensive and carried an unacceptable business risk for potential investors. The MSAMB conducted road shows and stakeholder consultations to inform and generate interest from the private sector in establishing the IVCs. In the second round of bidding, the only two proposals submitted were determined not responsive to the bidding documents.

I. Performance of Consultants, Contractors, and Suppliers

25. The support provided by the TAG 1 consultants facilitating the bidding process for IVCs in Nashik and Aurangabad–Amravati is rated satisfactory. The consultant dedicated considerable time and effort to revise the PPP bid contract, made substantial efforts to stimulate interest from the private sector, and promoted the PPP approach among possible private sector investors in the state of Maharashtra. The performance of the TAG 2 consultants is rated less than satisfactory. The consultants did not proactively engage with prospective investors on improvements in the bidding process, despite having knowledge of the challenges experienced by the implementing agency in attracting suitable concessionaires for the two IVCs. The lack of effective guidance from the consultant meant the implementing agency was not able to provide informed recommendations to the GOM on suitable adjustments to procurement processes for selecting concessionaires for the IVCs in the following tranches.

J. Performance of the Borrower and the Executing Agency

26. The borrower, the Department of Economic Affairs of the Government of India, played a central role in the design of the overall facility, particularly in recommending the PPP approach for agribusiness development, and followed up with the GOM on several occasions to expedite implementation progress. The DCMT and MSAMB made a concerted effort to implement the project, despite difficulties in attracting private sector investments in the proposed IVCs. Following the closure of the loan, the DCMT and MSAMB have continued to demonstrate an interest in participating in further agribusiness projects if a more viable model could be developed to attract investments in the value chains in Maharashtra under the existing MFF or through a new facility. The experience of implementing the project has helped strengthen the capacity of the MSAMB. The performance of the borrower and the DCMT is considered satisfactory in view of the extensive efforts made to adjust the design and reach out to prospective stakeholders and structure the project modality, which could eventually be better aligned with the emerging needs of the stakeholders.

7

K. Performance of the Asian Development Bank

27. From loan effectiveness to actual loan closure, four project officers were responsible for administering the project. ADB fielded 10 missions, entailing 85 person-days, to support project implementation. From November 2014 to June 2015, the project was delegated to the India Resident Mission to enhance support to the DCMT and MSAMB.11 ADB provided the required project administration support and responded promptly on all matters that required facilitation, including selection of consultants, processing of withdrawal applications, and timely cancellation of loan proceeds.

28. The project design did not properly recognize the challenges associated with implementing a pioneering project with a PPP approach to agribusiness development. The choice of PPP modality was, in hindsight, inappropriate for the market and not sufficiently flexible to adapt during project implementation. The project design was overly complex and the implementation arrangements were not aligned to the emerging needs of private sector operators who preferred more flexible business models.

29. ADB was unable to advise the DCMT and MSAMB on appropriate bidding documents and processes to be used for selecting the concessionaire for the proposed IVCs. This contributed to extensive delays, with consultants being mobilized through TA to assist the MSAMB in streamlining the procurement process.12 ADB’s performance is considered less than satisfactory given the identified deficiencies in project design and contributions to implementation delays.

III. EVALUATION OF PERFORMANCE

A. Relevance

30. The project is rated less than relevant. Investment in the agriculture sector was in line with the Government of India’s Eleventh Five Year Plan and ADB’s India country partnership strategy, 2009–2012, and had a focus on stimulating investments in value chain infrastructure through PPPs. Maharashtra was also well established as a private sector investment destination, and a 2006 legal reform allowed for direct marketing contracts between agribusinesses and farmers, as well as for individual businesses to establish new private market areas. The design recognized the constraints of poor coordination and low management capacity to deal with large numbers of individual multi-location producers and multi-location wholesale and retail.

31. The design did not undertake any comprehensive assessment of potential private sector investors and their preference not to invest in supply chain operations and to be located near urban centers. The design also did not recognize the preference of private investors to establish IVCs on private rather than public land. The designers did not undertake sufficient market assessments to determine the parameters of the IVC bids. The details of the bid process had to be worked out during implementation, which was highly inefficient. As a result of the lack of relevant design, the project could not be implemented.

11 Loan administration was transferred back to South Asia Environment Natural Resources and Agriculture Division in July 2015 when the project officer was transferred from the resident mission to ADB headquarters.

12 ADB. 2010. Technical Assistance to India for Advanced Project Preparedness for Poverty Reduction – Institutional Development for a Value Chain Approach to Agribusiness in Bihar and Maharashtra (Subproject 12). Manila.

8

B. Effectiveness in Achieving Outcome

32. The project is rated ineffective as it did not achieve the outcome targets for (i) reduced post-harvest losses, (ii) the number of producers supplying high value crops to modern value-added infrastructure, (iii) the additional value added to the IVC, and (iv) farmer groups entering into long-term agreements with the IVC.

33. The project was categorized C for involuntary resettlement and indigenous peoples. A resettlement framework and an indigenous peoples’ framework was prepared to guide concessionaires in planning PPPs, but the project did not progress to a point where PPP concessionaires were engaged. Given there were no capital works, no involuntary resettlement or indigenous peoples’ plans were prepared, as required in the loan covenants (Appendix 2).

C. Efficiency in Achieving Outcome and Outputs

34. The project is rated inefficient on the basis that (i) no economic benefits were generated as the outputs and outcome were not achieved, and (ii) process efficiency was poor given the disbursement of only 2.2% of funds.

D. Preliminary Assessment of Sustainability

35. The project is rated unlikely sustainable since there are no outputs and outcome to sustain.

E. Impact

36. The project did not result in any poverty or economic impacts given the lack of achieved outputs or outcome. However, the government’s capacity to understand agribusiness through PPP was enhanced. The knowledge imparted by the project through road shows and consultations also raised awareness in the private sector on possible options available to invest in the value chains.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

37. The project was unable to undertake the tasks to accomplish the outputs and outcome. Hence, it was not implemented as designed, contract awards and disbursements were minimal, and few of the targets in the DMF were met. In accordance with the project performance rating criteria, the overall rating of the project is unsuccessful given the ratings of less than relevant, ineffective, inefficient, and unlikely sustainable.

B. Lessons

38. The project design was complex and implementation arrangements were not aligned to the emerging needs of private sector. The following lessons may be derived from the experience with the project:

(i) The formulation of designs involving PPP-oriented procurement and private sector involvement in public sector projects requires time, experience, and specialized resources. Innovative activities should be pilot tested before being incorporated in a project, with appropriate preparation and controls.

9

(ii) When designing IVCs, it is important to understand the size and capacity of the

established businesses and their infrastructure needs. It is also critical to ensure that stakeholders are involved in the process to prepare business models and to allow sufficient flexibility in the project design (such as location of businesses). A more flexible project design that allowed private sector to identify their infrastructure needs and submit sub-project proposals based on their business interests may have been a more successful approach than the concessionaire model.

(iii) The preparation of detailed project reports (DPR) by the executing agency for proposed value chains prior to contract award was unnecessary as DPRs prepared before bidding process did not involve the investor. In addition, due to the time it took to award the contract, the DPRs became obsolete and the selected investor needed to prepare a fresh DPR. Consequently, this requirement resulted in duplication of work and delays.

(iv) While capital grants or subsidies may be appropriate in some cases for establishing sustainable business operations, alternative options such as providing finance through an investment vehicle should also have been considered. The entire process needs to be carefully managed, as PPP-oriented procurements are generally more complex and require specialized resources and adequate attention to the needs of the prospective investors. For sustainable infrastructure investment, investors should have robust business plans with secured supply lines with processors and retailers who would source from them.

(v) Investment proposals should be formulated from procedures and mechanisms that are proven to be workable, either through experience in the borrowing county, ADB’s experience in other countries, or that of other development partners. Untried innovative initiatives should be included in a project design on a pilot basis and if proven successful can be scaled up in ensuing projects.

(vi) Agriculture value chains consist of several individual entities that act in a quasi-

independent but mutually interactive manner. This allows adaptation to changes in supply, market conditions, new technologies, and transport conditions. To contract out the entire IVC under a government-managed arrangement may not be suitable for a dynamic business environment, as private entrepreneurs require flexibility to source products and technologies in line with the emerging market demand. Restricting their investment to government land also discouraged interest and participation.

C. Recommendations

1. Project Related

39. Future monitoring. With no investments in IVCs, no formal monitoring is recommended. For any future ADB initiatives in the agriculture sector, it would be useful to monitor how the government has integrated lessons learned into designing future interventions for promoting competitive agriculture value chains.

10

40. Additional assistance. If another agribusiness project is formulated, the inclusion of Maharashtra state could be considered in view of the experience accumulated by the executing agency and the implementing agency in designing and implementing PPP initiatives supporting agribusiness development opportunities.

41. Timing of the project performance evaluation report. No project evaluation report is recommended.

2. General

42. With respect to project preparation:

(i) In view of the level of risk entailed, highly innovative and new activities in a project’s scope should be limited to a small component of a project where they can be tested and perfected. A stronger value chain linkage is essential, and the design should include capacity building among value chain stakeholders to improve their ability to analyze opportunities and to strengthen trust through transparent governance arrangements between entities.

(ii) PPTA and fact finding should include a full assessment of the capacity and willingness of all stakeholders, as well as a full investigation of the ongoing initiatives in the sector, to ensure synergy and complementarity.

(iii) Preparation of projects that entail an element of private sector involvement should include in-house coordination with ADB’s Private Sector Operations Department and Office of Public-Private Partnership and an investigation into the willingness to participate (whether private sector entrepreneurs or individual farmers). In this project, the design assumed that there would be sufficient private sector investors will to participate as concessionaires. The design should have allowed for more flexibility in the type of private sector investments than possible with the concessionaire approach.

43. With respect to project implementation, a clear assessment of the business enabling environment and the private sector’s willingness to participate in the project should be identified early during the implementation period. In case the results indicate a lack of support from the state or the stakeholders, course corrections should be immediately implemented and restructuring of the design should be considered. Design stage issues compound throughout the project life, leading to delayed and reduced benefits and reduced efficiency.

Appendix 1 11

DESIGN AND MONITORING FRAMEWORK

Design Summary Performance Targets and

Indicators with Baselines

Data Sources/ Reporting

Mechanisms

Assumptions and Risks

Achievements at Project

Completion

Impact

Increased private sector investment in IVC infrastructure and producer returns in HVC in Maharashtra

By 2020: Share of private sector investment in infrastructure to diversify into HVC increases by at least 10%

Government of Maharashtra marketing statistics

Assumptions Government continues to support IVC approach through PPP

Not achieved

Farm gate prices for IVC suppliers 20% higher than non-value chain producers

State high value crops production and marketing

records, statistics and accounts

The enabling environment

and proposed future reforms are retained

Not achieved

Outcome Expanded agricultural value chains and better integration of small scale farmers into IVCs in the Nashik and Aurangabad-Amravati regions

By 2015: Post-harvest losses reduced on average from 30% (2008) to 21% of product throughput

For all indicators: Report from Agricultural Marketing Information Network and other relevant government agencies and Nashik and Aurangabad- Amravati marketing data and statistics

Assumption Small farmers are willing to diversify into HVCs and integrate into VCs. Risk Farmers unable to supply required volume due to production risks such as extreme weather events and outbreak of crop diseases

Not achieved

At least 30,000 producers supplying more than 250,000 MT of HVCs to modern value adding infrastructure

Farmer groups/producer associations annual report and marketing records

Not achieved

An additional 20% of value added captured within the IVC

Not achieved

At least 30% of the farmer groups enter into long-

Not achieved

12 Appendix 1

Design Summary Performance Targets and

Indicators with Baselines

Data Sources/ Reporting

Mechanisms

Assumptions and Risks

Achievements at Project

Completion

term agreements with the IVC

Outputs Assumption 1. IVC infrastructures in Nashik and Aurangabad – Amravati regions set-up and functional

By 2015: 15 market sites (with 1 hubs and 14 spokes) upgraded or developed with modern IVC infrastructure, site and linking infrastructure (e.g. roads)

Private concessionaire’s accomplishment reports

Adequate interest in renting and leasing infrastructure to provide a rate of return to a private sector investor

Not achieved

Power supply outage frequency and duration within the IVC facilities reduced by 50% compared to consumers supplied from local distribution line experiencing 8 hours power shortage daily

Report from Electricity Regulatory Commission/ Maharashtra State Electricity Board and other relevant government agencies and project progress review and monitoring report

Not achieved

Water supply within the IVC facilities satisfies 95% of demand at all times

Report from Water Resources Regulation Authority and other relevant government agencies and project progress review and monitoring report

Not achieved

2. IVC stakeholders effectively participate in and manage IVCs

By 2015: 2 PPP contracts completed successfully by 2013 and properly monitored

Project progress review and monitoring report by Monitoring and Evaluation Specialist

Not achieved

50% of IVC stakeholders trained on VC technology and

Not achieved

Appendix 1 13

Design Summary Performance Targets and

Indicators with Baselines

Data Sources/ Reporting

Mechanisms

Assumptions and Risks

Achievements at Project

Completion

management systems (Baseline = 0, 20% female)

3. Project Management support strengthened

TAG for PMU formed within 6 months from project effectiveness

Project MIS and database

Achieved PMU established in June 2010 TAG consultants recruited in February 2012

PMU officials trained on the job in managing a transparent bidding process, awarding a PPP contract in agribusiness infrastructure by the end of 2012

Training modules/ proceedings and post-training report

Achieved Extensive training on PPP bidding processes and the preparation of detailed project reports

Concessionaire contract management and monitoring system institutionalized within the implementing agency by the end of 2013

MIS user feedback report

Not achieved

HVC = high value crops; IVC = integrated value chain; MT = million tons; PMU = project management unit; PPP = public-private partnership; TAG = technical advisory group; VC = value chain. Source: Asian Development Bank estimates.

14 Appendix 2

STATUS OF COMPLIANCE WITH LOAN COVENANTS

Covenant Reference in Loan Agreement

Status of Compliance

(a) The Borrower shall cause the Project to be carried out with due diligence and efficiency and in conformity with sound applicable technical, financial, business, and development practices.

(b) In the carrying out of the Project and operation of the Project facilities, the Borrower shall perform, or cause to be performed, all obligations set forth in Schedule 5 to this Loan Agreement and the Project Agreement.

(c) The Borrower shall make available to the State, promptly as needed, the funds, facilities, services, land and other resources, as required, in addition to the proceeds of the Loan, for the carrying out of the Project.

(d) The Borrower shall ensure that the activities of

the State departments and agencies with respect to the carrying out of the Project and operation of the Project facilities are conducted and coordinated in accordance with sound administrative policies and procedures.

(e) The Borrower shall enable ADB's

representatives to inspect the Project, the Goods and Works, and any relevant records and documents.

(f) The Borrower shall take all actions which shall

be necessary on its part to enable the State to perform its obligations under the Project Agreement, and shall not take or permit any action which would interfere with the performance of such obligations.

(g) In relation to the Project, the Borrower shall

exercise its rights under the Financing Arrangements in such a manner as to protect the interests of the Borrower and ADB and to accomplish the purposes of the Loan.

(h) In relation to the Project, no rights or obligations under the Financing Arrangements shall be assigned, amended, abrogated or waived without prior notice to ADB.

(i) The Borrower and the State shall ensure that the Project is implemented in accordance with the detailed arrangements set forth in the Project Administration Manual. Any subsequent change

Section 4.01(a) Section 4.01(b) Section 4.02 Section 4.03 Section 4.04 Section 4.05 Section 4.06(a) Section 4.06(b) Schedule 5, para. 1

Complied with Complied with Complied with Complied with Complied with Complied with Complied with Complied with Complied with

Appendix 2 15

Covenant Reference in Loan Agreement

Status of Compliance

to the PAM shall become effective only after approval of such change by the Borrower and ADB. In the event of any discrepancy between the PAM and this Loan Agreement, the provisions of this Loan Agreement shall prevail.

(j) Within 6 months from the Effective Date, the State shall establish and maintain the Project performance and monitoring system satisfactory to ADB.

(k) The Borrower and the State shall enable ADB's

representatives to review and examine the Project, the Goods and Works, and any relevant records and documents. The Borrower and the State shall ensure that all contracts financed by ADB in connection with the Project shall include provisions specifying the right of ADB to review and examine the records and accounts of the Borrower, the State, and all contractors, suppliers, consultants, and other service providers as they relate to the Project. The Borrower and the State shall allow and assist ADB's representatives to carry out random spot checks on the work in progress and utilization of funds for the Project.

(l) The State shall ensure that (a) a specific division

in the Project management unit is staffed for financial management; (b) transparent procedures are established for financial transactions; (c) the Project management unit follows government rules and procedures for all expense and revenue items including cash and for proper and accurate maintenance of financial records; and (d) a Project website is established to provide information on Project implementation including procurement.

(m) The Borrower and the State shall ensure that all

documents such as terms of references of the consultants and transaction advisors, detailed Project reports, request for qualification, request for proposal and Concession Agreements are in a form and substance acceptable to ADB, and shall submit drafts of such documents to ADB for approval prior to issuance or execution.

(n) The State shall include specific provisions

acceptable to ADB in the bidding documents (request for qualification, and request for proposal) and the Concession Agreements to ensure compliance by the concessionaire with

Schedule 5, para. 2 Schedule 5, para. 3 Schedule 5, para. 4 Schedule 5, para. 5 Schedule 5, para. 6

Complied with Complied with Complied with Complied with Complied with

16 Appendix 2

Covenant Reference in Loan Agreement

Status of Compliance

relevant ADB policies and procedures, including those on procurement, safeguards, social dimensions, and anticorruption.

(o) The Borrower shall ensure, or cause the State

to ensure, that the preparation, design, construction, implementation, operation and decommissioning of the Project and all Project facilities comply with (a) all applicable laws and regulations of the Borrower relating to environment, health, and safety; (b) the Environmental Safeguards; (c) the Environmental Assessment Review Framework; and (d) all measures and requirements set forth in the respective Initial Environmental Examination and Environmental Management Plan, and any corrective or preventative actions set forth in a Safeguards Monitoring Report.

(p) Borrower shall ensure, or cause the State to

ensure, that all land is made available to the concessionaire for facilities to be constructed, extended or upgraded under the Project, free from any encumbrance whatsoever, such that there are no involuntary resettlement or indigenous peoples impacts, all within the meaning of the Safeguard Policy Statement (SPS). The Borrower and the State shall ensure that any activity that entails land acquisition or involuntary resettlement or has indigenous peoples impacts shall not be undertaken and be excluded from the Project. However, should land acquisition or involuntary resettlement or indigenous peoples impacts become unavoidable, the State shall (a) take all steps required to ensure that the Project complies with the applicable laws and regulations of the Borrower, the State and with the SPS; (b) prepare and submit suitable resettlement plan and/or indigenous peoples plan in accordance with the Resettlement Framework and indigenous people planning framework, as applicable, to ADB for clearance and implement these in accordance with their terms; and (c) apply the requirements under paragraphs 10, 11 and 12 hereinafter of this Schedule 5 to the Loan Agreement to also cover such resettlement plan and indigenous peoples plan.

(q) The Borrower shall make available, or cause the State to make available, necessary budgetary and human resources to fully implement the Environmental Management Plan.

Schedule 5, para. 8 Schedule 5, para. 9 Schedule 5, para. 10

Not due until PPP concessionaires were engaged and works commenced Not due until PPP concessionaires were engaged and works commenced Complied with

Appendix 2 17

Covenant Reference in Loan Agreement

Status of Compliance

(r) Safeguards-Related Provisions in Bidding

Documents and Works Contracts. (s) Safeguards monitoring and reporting. (t) The Borrower shall ensure, or cause the State

to ensure, that no proceeds of the Loan are used to finance any activity included in the list of prohibited investment activities provided in Appendix 5 of the SPS.

(u) The Borrower shall ensure, or cause the State

to ensure, that the Works contracts under the Project follow all applicable labor laws of the Borrower and the State and that these further include provisions to the effect that contractors: (a) carry out HIV/AIDS awareness programs for labor and disseminate information at worksites on risks of sexually transmitted diseases and HIV/AIDS as part of health and safety measures for those employed during construction; and (b) follow and implement all statutory provisions on labor (including not employing or using children as labor, equal pay for equal work), health, safety, welfare, sanitation, and working conditions. Such contracts shall also include clauses for termination in case of any breach of the stated provisions by the contractors.

(v) The Borrower shall ensure, or cause the State

to ensure, that: (a) the GAP is implemented in accordance with its terms; (b) the bidding documents include relevant provisions for contractors to comply with the measures set forth in the GAP; (c) adequate resources are allocated for the implementation of the GAP; and (d) key gender outcome and output targets are monitored regularly and achieved.

(w) Within 9 months from the Effective Date, the

State shall establish a grievance redress mechanism, acceptable to ADB, and appoint an existing Project management financial staff member in the Project management unit to receive and resolve complaints or grievances or act upon reports from stakeholders on misuse of funds and other irregularities, including relating to interactions with the concessionaire.

Schedule 5, para. 11 Schedule 5, para. 12 Schedule 5, para. 13 Schedule 5, para. 14 Schedule 5, para. 15 Schedule 5, para. 16

Complied with Not due until there was physical progress to monitor and report on Complied with Not due until PPP concessionaires were engaged and works commenced Not due until PPP concessionaires were engaged and works commenced Complied with

18 Appendix 2

Covenant Reference in Loan Agreement

Status of Compliance

(x) The State shall ensure that information dissemination, disclosure, and real time consultations with women cultivators and farmers will be systematically undertaken in accordance with the Public Consultation and Participation Framework referred to in Schedule 5 to the FFA.

(y) Each Executing Agency, through their PMU, will establish and maintain separate records for works, goods, and services financed out of loan proceeds under each tranche. Each EA will also maintain separate project accounts according to generally acceptable accounting principles for all expenditures incurred under the MFF and the projects, whether out of loan proceeds or other sources. Each EA will record in a transparent manner all funds received from the respective state governments and ADB. Detailed consolidated annual project accounts as maintained by the individual Executing Agency through their PMU will be audited annually by independent auditors whose qualifications, experience, and terms of reference are acceptable to ADB. The annual audit report will include the audit of the SGIA, and the SOE procedure, and will include a separate audit opinion on the use of loan proceeds, the operation of the SGIA, and compliance with SOE procedures and loan covenants. Detailed consolidated annual project accounts as maintained by the EAs through their PMU will be audited by independent auditors whose qualifications, experience, and terms of reference are acceptable to ADB, and will be submitted to ADB within 6 months of the end of each fiscal year. Each EA must be aware of ADB‟s policy regarding the delayed submission of audits and the requirements for a satisfactory and acceptable audit of accounts.

Schedule 5, para. 17 Framework Financing Agreement, Section 3, para. 24

Complied with Complied with

Submission of the first audit report was 3.7 months late, but subsequent reports were submitted on time. All audit opinions issued were unqualified. Specific opinions on the use of funds, and compliance with financial covenants, were issued.

ADB = Asian Development Bank; EA = executing agency; FFA = framework financing agreement; GAP = gender action plan; MFF = multitranche financing facility; PAM = project administration manual; PMU = project management unit; PPP = public-private partnership; SGIA = second generation imprest account; SOE = statement of expenditures.

Appendix 3 19

DETAILED COST ESTIMATES AT APPROVAL ($’000)

Local Foreign Total Item Currency Currency Cost

A. Component One: Horticultural Integrated Value Chains

1. IVC Infrastructure 16.43 5.43 21.86 Subtotal (A) 16.43 5.43 21.86 B. Component Two: Horticultural Integrated Value

Chains

1. Institutional Development Formation and Operation of PMU

2.69 0.07 2.76

Subtotal (B) 2.69 0.07 2.76 C. Contingencies 1. Physical Contingencies 0.63 0.16 0.79 2. Price Contingencies 3.24 (0.16) 3.08 Subtotal (C) 3.87 0.00 3.87 D. Others 1. Interest During Implementation 1.70 0.00 1.70 2. Commitment Charges 0.05 0.00 0.05 Subtotal (D) 1.75 0.00 1.75 Total 24.74 5.50 30.24

( ) = negative, IVC = integrated value chain, PMU = project management unit. Source: Asian Development Bank estimates.

20 Appendix 4

ORIGINAL PROJECTIONS VS. ACTUAL CONTRACT AWARDS AND DISBURSEMENTS

Year

Contract Awards ($ million) Disbursements ($ million)

Q1 Q2 Q3 Q4 Total Q1 Q2 Q3 Q4 Total

2012 Projected 0.00 0.07 0.15 0.55 0.77 0.00 0.00 0.11 0.11 0.22

Actual 0.00 0.07 0.20 0.25 0.52 0.00 0.00 0.11 0.11 0.22

2013 Projected 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.08 0.08

Actual 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.08 0.08

2014 Projected 23.50 0.00 0.02 0.00 23.52 17.12 0.93 1.81 1.82 21.68

Actual 0.00 0.00 0.00 0.00 0.00 0.09 0.00 0.00 0.09 0.18

2015 Projected 0.00 0.00 0.00 0.00 0.00 2.24 0.03 0.02 0.03 2.32

Actual 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

2016 Projected 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Actual 0.00 0.00 0.00 0.00 0.00 0.04 0.00 0.00 0.00 0.04

Total Projected 24.30 Total Projected 24.30

Actual 0.52 Actual 0.52

Q = quarter. Source: Asian Development Bank.

Appendix 5 21

PROJECT 2 IMPLEMENTATION SCHEDULE

IVC = integrated value chain, PMU = project management unit, TAG = transaction advisory group

-- Original schedule

-- Actual schedule Source: Asian Development Bank estimates.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50

Engagement of Procurement Specialist

Terminal  Payment of 5%

Commencement of Operations

Finalization and Award of Construction

Contracts

Construction

Advance Payments (25%) - First Phase

Second Phase (25%)

Third Phase (25%)

Last Phase (20%)

Issue of Request for Qualifications

Actual

Issue of Request for Proposals

Actual

Award of Contract to Concessionaire

Co

nce

ssio

na

ire

Development of Detailed Engineering

Designs for 2 IVCs

Finalization of Tender Documents for

Procurement

Invitations to Tender 

Evaluation and Finalization of Contract

Documents

Actual

Loan Agreement Signing

Actual

Engagement of TAG 1 Consultants

Actual

Activity Months

PM

U +

Ph

ase

1

Establishment of PMU and Staffing

Actual

Loan Negotiation

Actual

Loan Approval