Program Completion Report: Pakistan: Private …...The program design recognized that the...

Completion Report

Program Number: 36155 Loan Number: 2270-PAK September 2011

Pakistan: Private Participation in Infrastructure Program

CURRENCY EQUIVALENTS

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

At Appraisal At Program Completion 31 May 2010 16 August 2011

PRe1.00 = $0.01187 $0.01154

$1.00 = PRs84.30 PRs86.655

ABBREVIATIONS

ADB – Asian Development Bank ADR – alternative dispute resolution DMF – design and monitoring framework IPDF – Infrastructure Project Development Facility LOS – letters of support MOF – Ministry of Finance MOR – Ministry of Railways NHA – National Highway Authority PCU – Program Coordination Unit PPI – private participation in infrastructure PPIB – Private Power and Infrastructure Board PPP – public–private partnership VFM – value for money VGF – viability gap fund

NOTES

(i) The fiscal year (FY) of the government ends on 30 June. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2011 ends on 30 June 2011.

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

Vice-President X. Zhao, Operations 1 Director General J. Miranda, Central and West Asia Department (CWRD) Director D. Kertzman, Public Sector, Financial Management, and Trade Division,

CWRD Team leader G. Settle, Senior Private Sector Development Specialist, CWRD Team members R. Benavidez, Operations Assistant, CWRD

A. Bhandara, Economist, CWRD C. Nazario, Associate Project Officer, CWRD

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

CONTENTS

Page

BASIC DATA i

I. PROGRAM DESCRIPTION 1

II. EVALUATION OF DESIGN AND IMPLEMENTATION 1

A. Relevance of Design and Formulation 1 B. Program Outputs 2 C. Program Costs 8 D. Disbursements 8 E. Program Schedule 9 F. Implementation Arrangements 9 G. Conditions and Covenants 10 H. Related Technical Assistance 10 I. Performance of the Borrower and the Executing Agency 10 J. Performance of the Asian Development Bank 11

III. EVALUATION OF PERFORMANCE 11

A. Relevance 11 B. Effectiveness in Achieving Outcome 11 C. Efficiency in Achieving Outcome and Outputs 11 D. Preliminary Assessment of Sustainability 12 E. Impact 12

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 12

A. Overall Assessment 12 B. Lessons 12 C. Recommendations 13

APPENDIXES 1. Design and Monitoring Framework for the Private Participation in Infrastructure Program 15 2. ADB Support for PPI in Pakistan 2000–2006 21 3. History of Progress on Conditions and Monitorable Indicators 22 4. Status of Loan Covenants 29 5. Technical Assistance Completion Report 32 6. Overall Assessment of the Program 34

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

Pakistan 2270-PAK Private Participation in Infrastructure Program Islamic Republic of Pakistan Ministry of Finance $400 million 1265

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)

3 July 2006 12 July 2006 30 September 2006 30 September 2006 31 October 2006 23 November 2006 21 February 2007 19 December 2006 0 30 June 2010 28 June 2010 0 LIBOR-based rate, and 0.60% fixed spread 15 years 3 years

8. Disbursements a. Dates

Initial Disbursement

22 December 2006

Final Disbursement

28 June 2010

Time Interval

42 months

Effective Date

19 December 2006

Original Closing Date

30 June 2010

Time Interval

42 months

ii

b. Amount ($ million)

Category

Original Allocation

Amount Canceled

Net Amount Available

Amount Disbursed

Undisbursed Balance

01 400 0 400 400 0

LIBOR = London interbank offered rate

C. Program Data

1. Program Cost ($ million)

Cost Appraisal Estimate Actual

Foreign Exchange Cost 400 400

2. Program Performance Report Ratings

Implementation Period

Ratings

Development Objectives

Implementation Progress

From 31 October 2006 to 30 November 2006

Satisfactory

Satisfactory

From 31 December 2006 to 29 February 2008 Satisfactory Highly Satisfactory From 31 August 2008 to 28 February 2010 Satisfactory Satisfactory From 31 March 2010 to 31 December 2010 Satisfactory Partly Satisfactory

D. Data on Asian Development Bank Missions

Name of Mission

Date

No. of Persons

No. of Person-

Days

Specialization of Members

a

Fact finding 23 November–5 December 2005

3 36 a, b, c

Appraisal Mission 3–12 July 2006 7 56 a, b, c, d, e, f, g

Loan Review Mission 1 7–9 August 2007 1 3 d

Inception Mission 13 January–8 February 2008 1 26 k

Loan Review Mission 2 6–12 March 2008 3 21 d, h, k

Loan Review Mission 3 18–21 November 2008 3 12 d, i, j

Loan Review Mission 4 24 March–1 April 2009 2 18 h, k

Program Completion Review 13–19 May 2011 2 14 h, c

a = senior financial sector/small and medium-sized enterprise development specialist, mission leader; b = counsel; c

= project economist, Pakistan Resident Mission; d = economist; e = senior portfolio management specialist; f = director, Governance, Finance, and Trade Division; g = assistant general counsel; h = senior private sector development specialist; i = senior public sector management specialist, Pakistan Resident Mission; j = project officer (transport), Pakistan Resident Mission; k = consultant, public–private partnership specialist; l = senior private sector specialist.

I. PROGRAM DESCRIPTION

1. On 31 October 2006, the Asian Development Bank (ADB) approved a program cluster for the Islamic Republic of Pakistan. This comprised two subprograms of the Private Participation in Infrastructure (PPI) program, and a $400 million policy reform loan for subprogram 1, with actions to be completed in two tranches. 1 The program loan became effective on 19 December 2006. The first tranche of $200 million was released upon loan effectiveness on 22 December 2006.2 The second tranche of $200 million was released on 28 June 2010. The second subprogram loan has not been processed.

2. An advisory technical assistance grant of $1 million was approved with the program.3 The technical assistance was designed to help the government implement key reforms, build capacity, and mitigate delays during implementation. In particular, the technical assistance supported a policy task force set up by the government to help implement the program.

3. The program aimed to reduce the government’s fiscal burden in the provision of high quality infrastructure services to individuals and enterprises. The program had two outcomes: establish a PPI framework of policy, laws and regulations, and improve the PPI legal and regulatory framework in specific sectors (energy, transportation, and water) and in the provinces. These outcomes were to be attained through improving federal, provincial and sector PPI policy, draft laws, new regulations and standards, capacity development, and dissemination of PPI policy and practice. See Appendix 1 for the design and monitoring framework (DMF).

II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

4. The formulation and design of the program was relevant from inception to completion. The design was consistent with the strategic plans of the government and ADB’s Country Strategy and Program Update (2006–2008) for Pakistan, 4 which emphasized infrastructure development and included a series of interventions in the infrastructure subsectors of (i) energy; (ii) transport, logistics, and communication; (iii) irrigation and water resource development; and (iv) urban development and renewal. Infrastructure development was a pillar of the government’s Medium-Term Development Framework (2005–2010).5 This framework aimed to (i) deliver more reliable and affordable power supplies to industrial, commercial, and household customers; meet the increasing demand for electricity; and enhance the operational efficiency of the power sector; (ii) establish an efficient and well-integrated transport and logistics system to facilitate the development of a competitive economy by increasing access to and the quality of transport services, while reducing their cost and ensuring their safety; and (iii) enhance access to drinking water and ensure drinking water security.

1 ADB. 2006. Report and Recommendation of the President to the Board of Directors: Proposed Program Cluster of

Loans and Technical Assistance Grant to Pakistan for the Private Participation in Infrastructure Program. Manila (Loan 2270-PAK and TA 4861-PAK).

2 The conditions of the first tranche release (Section 5.01 of the loan agreement) were achieved prior to loan

effectiveness. ADB. 2010. Progress Report on Tranche Release: Pakistan Private Participation in Infrastructure Program. Manila.

3 Footnote 2.

4 ADB. 2005. Country Strategy and Program Update (2006–2008): Pakistan. Manila.

5 Planning Commission. 2005. Medium-Term Development Framework 2005–2010. Islamabad.

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5. The rationale for the program was supported by ADB’s long-standing commitment to PPI in Pakistan. The program design recognized that the development of infrastructure through PPI requires long-term and comprehensive reforms, building on past infrastructure and utility sector reforms.6 One important lesson that shaped the program’s design came from previous attempts to prepare feasibility studies for individual projects before a reasonable level of stability and standardization was established in the legal and policy framework.7 The program was designed after careful consultation with development partners and the government on its specific outputs and area of coverage.

6. By using a cluster modality design, the program provided support for reforms over the longer term and allowed for an assessment of the first subprogram before embarking on the second. This sequencing was deemed important given the long-term nature of reforms, the success of which depends on political support and private sector responses to the reforms.8

7. At appraisal and during implementation, development partners broadly agreed that ADB was best suited to assist the government in addressing the deficiencies identified in the existing PPI framework. These deficiencies were (i) insufficient institutional arrangements between federal and provincial authorities on PPI, (ii) weak capacity to facilitate PPI, (iii) inadequate legal protection for investors, and (iv) lack of standard bidding procedures and documents for PPI.

8. While many aspects of program design and formulation were relevant, there were inconsistencies among the report and recommendation of the President (RRP), DMF, and policy matrix used to implement the program. For example, the RRP and policy text included 11 outputs (as conditions of second tranche release). The DMF identified only 7 of the 11 outputs, with the additional 4 outputs categorized in the DMF as ―performance targets‖. The DMF outcomes were also slightly different and inferior to the outcomes stated in the policy matrix. In addition, some of the DMF targets were not clearly quantified, making evaluation of some outcomes and outputs more difficult. In order to gauge success of implementation, this report covers the 11 outputs used during implementation, rather than limit the analysis to the 7 explicitly labeled as outputs in the DMF. The flaws and inconsistencies in the DMF diminished the quality of the program’s design. Had this not been the case, the program’s formulation and design would have been rated highly relevant.9

B. Program Outputs

9. To address the constraints outlined above, the program included 11 outputs toward achieving two outcomes.10 Of these outputs, 8 were achieved fully and 3 partially. An analysis of the outputs leading to these ratings is presented in paras. 10–40.

6 During 2000–2006, ADB support for PPI included over 10 programs and projects amounting to $235 million in loans

and $28 million in technical assistance. Appendix 2. ADB Support for PPI in Pakistan 2000–2006. 7 ADB. 2009. Technical Assistance Completion Report: Preparing the Public–Private Infrastructure Financing

Facility. Manila (TCR 4154-PAK). 8 Subprogram 1 was to be completed by 31 December 2009 and subprogram 2 by December 2014.

9 All 11 outputs have been included, with notation, in the DMF attached.

10 In addition to outputs, the program included two secondary measures of progress: monitorable indicators and ―performance targets‖. During review in June 2010, progress on the 21 monitorable indicators was rated: 11 were rated complied with and 10 progress ongoing (Appendix 3). At program completion in June 2011, the 21 monitorable indicators were rated again: 13 complied with and 8 compliance ongoing, a slight improvement (Appendix 3 History of Progress on Conditions and Monitorable Indicators). The benchmarks and targets in the DMF show 8 targets under outcomes: 1 was achieved, 1 partially achieved, 3 not achieved, and 2 are not sufficiently quantified to rate. The DMF identifies two targets under ―Impact‖; neither has been achieved. Outputs in the DMF list 18 targets: 14 are rated achieved and 4 not achieved (Appendix 1).

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1. Outcome 1: Establish a Policy, Legal, and Regulatory Framework for PPI

10. This outcome was designed to foster an enabling environment for PPI service provision by increasing clarity, reducing the potential for arbitrary action, and minimizing the time and expense of project development and transaction closure. This outcome was supported by 4 outputs, 3 were fully achieved, and 1 was partially achieved. This outcome was largely achieved. An analysis of the four outputs contributing to this outcome is presented in paras. 11–22.

11. Output 1: The PPI Policy Task Force facilitates policy development and adopts the PPI policy, as defined, and disseminates the policy to domestic and foreign investors.

12. This output was fully achieved and remains a critical part of the program’s design. It establishes a consistent set of federal principles for PPI that guide sector and provincial PPI policies. The output was effective in ensuring that the final policy contained key elements for success. For example, it outlined the types of infrastructure and utilities eligible for PPI, and established the appropriate approval authorities and protection for investors and the government with a framework of risk-sharing arrangements. The policy also established a framework for financial and fiscal incentives and guarantees for PPI projects. The policy was used to develop provincial and subsector PPI policies (paras. 23, 34, and 36).

13. However, this output was less efficient than expected due to a disruption in timing and sequencing of drafts and approvals. The key issue was a delay in drafting a policy that was high quality and based on international good practice. While an early version of the PPI policy was adopted by the government, critical elements were missing. Given the significance of this output, a reformulation of the policy was needed. ADB helped refocus technical assistance resources to draft a PPI policy that was more consistent with the intended outcome. To minimize delays and maintain continuity in design, sector policies were developed simultaneously with the federal policy. While this adjustment to a parallel approach was an efficient and appropriate response, the initial delay had repercussions for timing and resources dedicated to sector PPI policies. While enhancing the quality and stakeholder participation, the delay had a negative effect on the efficiency of implementation.

14. The sustainability of this policy is likely and was supported by regular consultation with the government and development partners throughout the process of redrafting. The policy was further refined by inputs from assessment of the previous policy by the Infrastructure Project Development Facility (IPDF).11 The policy’s contribution to program sustainability was enhanced by workshops and web-based promotions to engage government ministries and private partners (both foreign and domestic).

15. Output 2: The task force is to (i) assess the implementation and impact of the PPI policy, and (ii) develop, based on the lessons learned, detailed proposals in line with international best practices for (a) strengthening the policy, legal, and regulatory framework for PPI; and (b) broadening the policy's scope to cover other priority subsectors.

16. This output was fully achieved. The output was consistent with the designed intent to make adjustments from lessons learned during implementation. However, as noted in para. 13,

11

IPDF is an implementation agency under the Ministry of Finance (MOF) and a public–private partnership (PPP) project facilitator. Due to lack of government capability in PPP, IPDF functions at every level, including policy, funding agent, feasibility study agency, implementation body, and as a contracting agency. Some of these functions may constitute conflicts of interest (source: Pakistan Ministry of Finance PPI Task Force. 2009. Report on The Implementation and Impact of the PPI Policy. Islamabad).

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due to delays in formal adoption of the PPI policy, the assessment of its impact had to take place prior to its formal endorsement. Therefore, the output was achieved in a manner that was slightly different than expected. It was effective in focusing attention on key issues and galvanizing support within the government, with a candid assessment and detailed proposals for strengthening the framework for PPI. The output was, however, less efficient than planned due to late implementation—a consequence of delays in the final policy (para. 13). While delayed, the output enhanced sustainability with a detailed action plan that moved other reforms forward and championed the potential benefits of PPI within the government. The output is, therefore, likely sustainable.

17. Output 3: Comprehensive policy and regulatory framework for PPI established:

(i) establish an empowered committee responsible for approving viability financing for eligible PPI projects;

(ii) set forth the eligibility criteria for such funding; and (iii) provide for the procedures to be followed for submission, appraisal, and

approval of such funding.

18. This output was partially achieved, only partially contributing to the outcome at program completion. Full achievement was hindered by the government’s preference to avoid any PPI projects that required budgetary support. During implementation, the government’s appetite for subsidized funding was substantially curtailed as budget shortfalls reduced the fiscal space to fund such schemes. The demand for this type of output may return, once funding is available and the financially viable projects (mainly in energy and transport) have been given a chance to demonstrate the value for money (VFM) proposition of PPI.12

19. The output was less effective for the reasons stated in para. 18. The output was codified in the development of Viability Gap Fund (VGF) guidelines. The guidelines established institutional mechanisms and guidance for important aspects of the VGF and ensured private investment as the dominant mode of financing. The guidelines included clear eligibility criteria and procedures for appraisal and approval in line with international best practice. This output was also less efficient because time and resources were expended in achieving it even though financing was not available to fund the proposed facility. This output is less likely to be sustainable than expected at appraisal.

20. Output 4: Investor protection enhanced by submitting to Parliament the new arbitration law.

21. This output was fully achieved. A draft arbitration act was submitted to parliament in April 2009 and enacted into law on 30 April 2011.13 This output helps reduce risk and uncertainty in

12

The VFM methodology seeks to determine the cost to the government of in-house provision and operation versus building, operation, and maintenance by the private sector. The VFM framework requires identifying the cash flows and associated risks arising for each option and estimating the net present value of these costs. As part of the analysis, a public sector comparator is constructed to reflect the risk-adjusted cost of the government providing the output. These benefits need to be promoted more systematically to the public. (Source: ADB. 2009. Special Evaluation Study on ADB Assistance for Public–Private Partnerships in Infrastructure Development.

Manila.) 13

The Law on Arbitration was enacted in 1940 but it has substantial weaknesses. For example, the requirement that courts enforce arbitration awards tended to undermine the purpose of arbitration if the court challenged and/or delayed enforcement. In 2005, the President decreed the Ordinance on the Recognition and Enforcement of Arbitral Awards to ratify the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. While this was a noteworthy development that sent a positive signal to investors, the ordinance was an

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settlement of future disputes, which are inherent in long-lived projects that involve contracts between the private sector and government. This output was highly effective in providing a legal framework for alternative dispute resolution (ADR).14 This draft legislation (and subsequent law), while not a panacea, may be viewed as a key aspect of risk assessment by foreign investors and project sponsors.

22. This output was efficient in its implementation and in its contribution to the outcome. The output was achieved despite substantial debate within the judiciary and lack of strong ownership by key government agencies. This output is likely to be sustainable. The draft act was passed by parliament and signed into law. ADR centers have been created in the provinces. For example, in Sindh, an ADR center has been established that has the potential to facilitate faster resolutions of public–private partnership (PPP) disputes. An ADR center is also planned in Lahore, in addition to the one in Karachi. The ADR center in Karachi, according to their records, has created awareness among more than 2,000 people through different events and courses for resolving disputes through mediation, and has settled more than 1,500 cases as of May 2011. These cases deal with disputes within the private sector.15

2. Outcome 2: Economic and Development Benefits to be Derived from PPI Projects in Power, Transport and Water and other Communal Services Subsectors

23. This outcome sought to deepen reforms by developing frameworks that function at various levels of government and in various sectors and subsectors. With a PPI framework as a guide (Outcome 1), provincial and subsector policies were developed in accordance with the federal framework. This outcome was achieved in all but the water and other communal services subsectors, where work is ongoing with the provincial governments. This outcome was supported by 7 outputs, 5 were fully achieved and 2 were partially achieved. An analysis of the seven outputs contributing to this outcome is presented in paras. 24–40.

24. Output 5: Participation of private investors in the power subsector is enhanced by adopting and disseminating standard processing procedures and documents for PPI projects in hydro and coal-fired power generation.

25. This output was fully achieved. These procedures are a critical part of the PPI framework in the energy sector. This output was effective in helping to standardize procedures and reduce uncertainty with sophisticated private sponsors participating in energy projects. The output provides participants with standards to use in crafting proposals, including standards for prequalification, letters of intent, guarantees, expressions of interest, feasibility studies, and power purchasing agreements. 16 The standardization of documentation remains a critical component of the application process for PPI in the energy sector.17

26. The output was efficient. It was implemented by the Private Power and Infrastructure Board (PPIB) with fewer resources than anticipated. The output is most likely sustainable.

emergency law with limited tenure, as ordinances lapse after 120 days unless extended or superseded by a new law.

14 ADB. 2001. Report and Recommendation of the President to the Board of Directors: Proposed Loans and Technical Grant to the Islamic Republic of Pakistan for the Access to Justice Program. Manila.

15 The Economist Intelligence Unit. 2011 PPP Readiness Index Report.

16 National Energy Power Regulatory Agency website: http://www.nepra.org.pk/index.htm.

17 Processing "procedures" are effectively captured by combining Private Power and Infrastructure Board (PPIB)

standardized documents and the PPIB mandate to facilitate the application process in the formal governmental guidelines under the National Energy Power Regulatory Agency.

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Sustainability is suggested by a sense of ownership among key stakeholders, reflected in the constructive comments received by experts from 20 government entities and 10 private sponsors of projects under the PPIB. In an effort to enhance sustainability of the output, meetings were conducted for the general public and related stakeholders to garner their input. The documents were finalized in light of the comments received, and approved by the PPIB board of directors. The documents are available online.18

27. Output 6: PPIB is to issue letters of support (LOS) to the successful bidders for at least seven PPI projects in power generation.19

28. This output was fully achieved. The output helped demonstrate success in initiating PPI projects and went on to succeed in financial closure. The output was effective. PPIB issued LOS for 11 projects during implementation. Three projects existed before the program; at program completion, 14 projects had been issued LOS, with a combined capacity of 3,287 megawatts (MW). The output was efficient. The output targets were exceeded in a timely manner and within budgeted financial and human resources. The output is likely to be sustainable. The effectiveness and sustainability of this output were evidenced by the fact that 12 projects with a capacity of 2,539 MW achieved financial closure during implementation. Since program completion, three additional hydropower projects with a cumulative capacity of 350 MW have been issued LOS.20

29. Output 7: The policy, legal, regulatory, and institutional framework for PPI in the transport subsector is established. The government is to (i) adopt and announce the policy for PPI in the national highway subsector, and (ii) ensure that its national transport policy is consistent with the policy for PPI projects in the highway subsector.

30. This output was fully achieved. The output helped to establish a roads PPI policy in line with federal PPI policy and transportation policy. The output brought provincial PPI cells into the discussions. The output was effective in contributing to the outcome. The policy has informed the development of provincial PPP policies in two provinces. The National Highway Authority (NHA) and the provinces of Sindh and Punjab used this output to implement several provincial projects. The output was efficient. Close coordination between the NHA PPI cell, the ADB consultant, and provincial PPI cells allowed for efficient implementation. The output is likely to be sustainable. The output deepened awareness and ownership at the highest levels of the government, as evidenced by approval of the subsector policy by the NHA executive board and the National Highway Council, chaired by the Minister of Communications, the highest competent authority in the transportation sector. The policy is likely to remain in place and should enable an increase in the pipeline of PPI projects. These projects need to be prioritized and perhaps selected for prepackaging to avoid delays in implementation and financial closure, especially build-own-transfer projects

31. Output 8: The government is to commission an independent performance assessment of the concession agreements negotiated by the NHA, including their implementation, and submit the findings of the assessment to ADB.

18

www.ppib.gov.pk 19

The original output called for ―letters of approval‖. However, the nomenclature in PPIB is ―letters of support‖ (LOS). The LOS moniker has been adopted here with no change in meaning.

20 These include the 100 MW Kotli Hydropower Project; 100 MW Gulpur Hydropower Project; and 150 MW Patrind Hydropower Project.

http://www.ppib.gov.pk/

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32. This output was partially achieved. The assessment of concession agreements negotiated by NHA highlighted issues that caused some delays in the development of PPI projects in the roads sector. The output was less effective. While this output yielded an assessment that was benchmarked against standard agreements developed in line with international best practice, only one concession agreement was signed by the NHA (the Lakpass Tunnel Project). The output was less efficient in its contribution to the outcome in that resources were expended in anticipation of more than one project and the review took place too late in program implementation to have a major influence on the intended outcome. The output is less likely to be sustainable given the limited examples to learn from.

33. Output 9: The NHA is to (i) identify PPI projects with a total value of at least PRs100 billion and (ii) invite additional bids through an international competitive tender for PPI projects with a total value of at least PRs30 billion.

34. This output was partially achieved; only partially contributing to the intended outcome at program completion. The output was less effective. The output was achieved by identifying 14 PPI projects for over PRs108 billion at program completion. Since program completion, 21 additional projects have been identified with a total value of PRs309 billion. Yet, while identified, these projects have made little progress towards financial closure. While some observers point to aspects of PPI in the concessions for toll roads, the operating companies are too often sponsored by quasi-government agencies. 21 The potential PPI-related benefits of these concessions are further degraded in that the concessions for toll collecting and road maintenance are separate. This separation removes part of the VFM nexus between quality (maintenance) and willingness to pay (tolls). The outcome was less efficient than planned due to resources being expended with little result. Within the current structure the output is less likely to be sustainable. While the NHA PPP cell has an understanding and appreciation of PPI, the leadership in the NHA planning section has yet to show a commitment to PPI.22 For this output to have meaningful effect, more needs to be done to increase the number of PPI projects that reach financial closure.

35. Output 10: Opportunities for PPI in the port and railway subsectors are generated. The government is to develop and approve a policy on private participation in operating freight and passenger trains on Pakistan Railways’ infrastructure.

36. This output was fully achieved. The output was effective defining a clear policy that attracted involvement of the private sector in this industry. In March 2011, the Ministry of Railways (MOR) formally invited expressions of interest from investors to put capital into the operation of freight trains on a PPP basis under its ―Open Access Policy‖. In accord with the PPI policy, the IPDF presented a proposal for an energy producer to operate a rail line under a concession agreement. The proposal appears to be financially sustainable from both the public and private sector perspectives. The output was efficient in its implementation, as it was accomplished in a timely manner with fewer resources than planned. Efficiency was also improved by the fact that the policy discussions within the MOR ran in parallel to feasibility studies on railway PPI projects.

37. The output is likely to be sustainable. The MOR has been working with the IPDF on prefeasibility studies for PPI in the railway sector and preparing open tenders. The rail sector

21

It is not clear to what extent these sponsors are military interests and the extent to which they are actually operating the tolls or subcontracting to ―real‖ private operators.

22 The NHA PPP cell has 4 staff—1 general manager/director, 1 deputy director, and 2 assistant directors.

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has considerable scope for PPP, with continued support for feasibility studies and expertise in financial closure in PPP transactions.

38. Output 11: PPI policy and an institutional framework for private participation in communal services are developed.

39. This output was fully achieved. Standard tender procedures and documents, including model concession agreements were developed and adopted. These documents included clear risk-sharing arrangements and guarantees for federally supported PPI projects in communal services. The output helped to reduce the time and uncertainty for public and private participants by standardizing key aspects of the different types of PPI contracts acceptable in Pakistan. The output was effective in providing guidelines to both government and private participants for PPI project preparation, feasibility studies, and procurement. The effect of PPI policy presentations in workshops was enhanced by the distribution of practical templates for PPI agreements.23

40. This output was highly efficient in its implementation, in that it was accomplished early, which allowed for timely and low-cost adaptation for provinces and subsectors. The output is likely to be sustainable. National and provincial stakeholder workshops contributed to the sustainability of these practical agreements. While capacity remains an issue in the provinces, this output increases the likelihood of PPI in that it reduces the capacity required for adaptation of projects to PPI. According to the PPI Readiness Index report (footnote 15), some procurement is being undertaken in the water and sanitation sector in the districts and provinces. The Nawabshah Water Treatment Plant and the Jacobabad Water Supply project in Sindh are planned to be procured through the PPI model. In Sindh Province, efforts are being made to establish a low-income consumer unit in the North Sindh Urban Services Corporation providing water and sanitation services to six regional towns (footnote 15). However, the initiative is still at a preliminary stage.

C. Program Costs

41. The PPI loan was financed from ADB’s ordinary capital resources. It has a 15-year term, including a grace period of 3 years. The interest rate is to be determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility. A commitment charge of 0.75% per year is to be levied. The amount disbursed was $400 million.

42. The following factors were taken into account in determining the loan size: the importance of the infrastructure sector for sustaining economic growth and reducing poverty, the strength of the PPI program and the financial and political costs associated with implementing it, and the government’s overall development financing needs (footnote 1). The loan amount is consistent with the program’s scope and the government’s fiscal requirements.

D. Disbursements

43. The first tranche of $200 million was disbursed on 22 December 2006.24 The second tranche of $200 million was disbursed on 28 June 2010, a delay of two years from the expected release date of 30 June 2008. The major causes for delay and adjustments to mitigate them are presented in para. 44.

23

The documents are available from the IPDF website at www.ipdf.gov.pk. 24

The proceeds were disbursed to Pakistan in accordance with the provisions of ADB’s simplification of disbursement procedures and related requirements for program loans.

http://www.ipdf.gov.pk/

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E. Program Schedule

44. The program schedule was delayed. Review missions monitored progress on compliance with the 11 conditions for the second tranche release, as per the loan agreement. These 11 conditions were policy actions that were the same as the 11 expected outputs of the program. While some conditions were achieved quickly, some required more time and effort than planned. The delay was partly due to the deteriorating political and security environment, which reduced the capacity of the government to undertake reforms and ADB to field missions. This was compounded by initially poor program coordination by the Ministry of Finance (MOF) and implementing agencies (paras. 47 and 51).

45. ADB conducted four review missions during 2007–2009.25 These missions documented compliance and delays, and recommended action to support effective implementation. The second mission in March 2008 identified a slow start to implementation; compliance with the conditions of program tranche release were still at 18%—the same as during the first mission in August 2007. ADB adjusted the technical assistance to focus on achieving specific outputs, especially national PPI policy (para. 13). This had an immediate effect on implementation, but it was not until March 2009 that progress caught up to the schedule envisioned in the original design. A review of progress with conditions and monitorable indicators is in Appendix 3.

46. In November 2008, compliance with 11 conditions was rated as follows: 3 complied with, 5 partially complied with, and 3 in progress. At that time, the PPI policy (output 1) was in final draft form and was in use as a guide for other reforms, even though it had yet to be officially endorsed. By March 2009, substantial progress had been made with regard to leadership and interagency cooperation. The improvement showed in the number of policy conditions achieved, as well as in the documentation of progress on these conditions. In March 2009, compliance had improved to 5 complied with and 6 partially complied with. The conditions for second tranche release were all complied with by June 2010, and the loan was fully disbursed on 28 June 2010.

F. Implementation Arrangements

47. The MOF was the executing agency. The government established the Program Coordination Unit (PCU) in the MOF under the joint secretary (Prime Minister’s Special Program) to coordinate program implementation.26 The PCU was to work closely with the PPI Policy Task Force. The task force comprised high-level officials from the MOF, Planning Commission, and other state bodies relevant to PPI policy reforms, and is chaired by the finance adviser to the prime minister. The task force established working groups to advance specific areas of the policy reforms supported under the program. The IPDF supported the task force as a technical and administrative secretariat. The implementation arrangements were partially satisfactory. The expected interagency cooperation did not materialize. The PCU was set up in substandard offices and separated from the MOF and other economic departments. This hindered coordination and reflected the lack of status of the unit. The IPDF offices were also separated from the main government offices. Most of the work was implemented by line ministries, IPDF, PPIB, and the joint secretary, with support from ADB (paras. 51 and 52).

25

Using 54 person-days of ADB staff resources. 26

At the time of approval, the Prime Minister was also the Minister of Finance.

10

G. Conditions and Covenants

48. All 11 second tranche release conditions were fully complied with, although compliance was delayed as discussed (paras. 13, 44 and 45). Not all of the loan covenants were fully complied with; of the 17 loan covenants (Appendix 4) in the loan agreement, 15 were complied with. The two covenants not in compliance involved systematic reporting by the borrower and were not conditions of disbursal. Although the executing agency did not provide regular reports on implementation progress, the status of progress was reported and discussed during review missions and periodic email correspondence (paras. 44–46).

H. Related Technical Assistance

49. The technical assistance is rated partly successful. The technical assistance completion report is attached as Appendix 5.27 The program included a technical assistance grant of $1 million (the government contributing an additional $320,000) to assist the government in implementing the program. The technical assistance was designed to support the task force in carrying out their mandate and assist the implementing agencies as needed. This included support with drafting policy documents, VGF guidelines, assessments, and a mid-program action plan. The technical assistance was a valuable and critical part of program implementation. The design of the technical assistance was adjusted during implementation to account for a reduction in the number of deliverables required (para. 50).

50. Technical assistance funds were only 28.6% utilized because the original design underestimated the level of contribution from the implementing agencies, ADB staff, and other development partners. Implementation was adjusted to account for this by focusing staff and technical assistance resources on supporting the remaining areas of reform. The redesigned technical assistance was effective in supporting delivery of core outputs under the program. The technical assistance was less efficient than expected due to delays in scheduling and ambitiously broad scope at inception. The technical assistance is likely to be sustainable as it contributed significantly to local expertise and capacity to foster a more conducive environment for PPI.

I. Performance of the Borrower and the Executing Agency

51. The performance of the executing agency was partially satisfactory. The MOF coordination was weak, and the head of the PCU was repeatedly replaced. The PCU was to coordinate closely with the IPDF, PPIB,28 NHA, and the PPI Policy Task Force. The task force had the mandate to establish working groups to advance specific areas of the policy reforms supported under the program. The arrangement was complex and the majority of the work was completed by the IPDF, PPIB, MOR, joint secretary, and NHA PPP cell with support from ADB. There was little coordination with other entities including the PCU. The performance of the executing agency started to improve toward the end of implementation when there was political pressure to deliver.

27

ADB. 2011. Technical Assistance Completion Report: Pakistan Private Participation in Infrastructure Program. Manila (TA 4168–PAK).

28 The PPIB was created in 1994 as a "one-window facilitator" to promote private sector participation in the power

sector of Pakistan. PPIB facilitates investors in establishing private power projects and related infrastructure, executes implementation agreements with project sponsors, and issues sovereign guarantees on behalf of the Government of Pakistan.

11

J. Performance of the Asian Development Bank

52. ADB’s performance was satisfactory. ADB closely monitored program implementation to ensure that the envisaged outputs were achieved by fielding four loan review missions and engaging a PPI policy expert under the technical assistance. Progress on implementation was closely monitored and documented, and funds were disbursed after a delay (paras. 13 and 44–46). Review missions were concurrent with the missions of technical assistance consultants, who assisted with technical drafting and review of policies and guidelines and capacity building. These missions identified issues and took effective action to focus resources and MOF attention on critical policy actions. A change of team leader 29 was accomplished smoothly during implementation, with appropriate handover documentation and some overlap between the new and outgoing team leaders. Close coordination with other development partners ensured continuity and consistency in policy dialogue with stakeholders.

III. EVALUATION OF PERFORMANCE

A. Relevance

53. The program was relevant from inception to completion (paras. 4–8). The program builds on earlier ADB support for PPI, a key to addressing infrastructure deficits in Pakistan and an important component of Pakistan’s economic and development strategy. The program was designed to support a conducive legal and regulatory environment, a necessary condition for PPI. Although the DMF was inconsistent with the policy matrix used during implementation, the overall design was relevant and outcomes and conditions in the policy matrix were well defined (para. 8).

B. Effectiveness in Achieving Outcome

54. The program was effective in achieving the outcomes. The government continues to support an enabling framework for PPI, building on program reforms. With ADB support, Punjab and Sindh have initiated reforms related to PPI and have developed PPP policies and laws in line with the framework established under the program.30 The outputs effectively contributed to the outcomes: 1 was highly effective (para. 21), 7 were effective (paras. 12, 16, 25, 28, 30, 36, and 39), and 3 were less effective (paras. 19, 32, and 34).

C. Efficiency in Achieving Outcome and Outputs

55. The program was less efficient. Program partners (ADB, executing agency, and implementing agencies) could have managed time, information, and resources more efficiently. Poor intergovernmental coordination undermined implementation. Program implementation was significantly delayed and not all outputs were fully achieved. The outputs were rated on efficiency in contributing to outcomes as: 1 highly efficient (para. 40), 5 efficient (paras. 22, 26, 28, 30, and 36) and 5 less efficient (paras. 13, 16, 19, 32, and 34).

29

The team leader transferred from the department in January 2009. 30

ADB. 2009. Report and Recommendations of the President to the Board of Directors: Proposed Program Cluster and Loans to the Islamic Republic of Pakistan for Subprogram 2 of the Punjab Government Efficiency Improvement Program. Manila; and ADB. 2010. Report and Recommendations of the President to the Board of Directors: Proposed Program Cluster and Loans to the Islamic Republic of Pakistan for Subprogram 2 of Sindh Growth and Rural Revitalization Program. Manila.

12

D. Preliminary Assessment of Sustainability

56. The program outcomes are likely to be sustainable. The government has pursued the reforms and capacity building initiatives under the program and remains committed to further progress. Policy actions have resulted in a legal and regulatory framework that promotes PPI. PPI has become even more relevant in light of the global financial crisis, given the continuous erosion of fiscal space, which constrains public investments in infrastructure in Pakistan and elsewhere. The sustainability of the contribution of the outputs to the outcomes is rated: 1 most likely (para. 26), 7 likely (paras. 14, 16, 22, 28, 30, 37, and 40), and 3 less likely (paras. 19, 32, and 34).

57. For the program to be most likely sustainable, an increase in viable PPI transactions and disseminating the benefits of PPI to the public is needed (paras. 68–69).

E. Impact

58. The program had a positive impact on the institutional foundations of an enabling environment; clarifying the rules of engagement between government and private parties, providing alternative mechanisms to resolve disputes, and improving the clarity of regulatory frameworks for private participation in delivery of infrastructure services in the provinces and sectors. The program was designed to ultimately impact macroeconomic indicators. Quantitative measures of impact are premature this soon after project completion, and these targets proved to be optimistic given the global financial crisis and political economy in Pakistan during the program period.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

59. The program is rated successful based on assessments of overall relevance, effectiveness, efficiency, and sustainability (Appendix 6). Of the 2 outcomes, 1 was fully achieved and 1 was partially achieved. The program formulation and design was relevant from inception to completion, even though appropriate adjustments were made during implementation. The outputs were largely achieved and were effective in their contribution to program outcomes. However, program implementation was less efficient than planned.

B. Lessons

60. Delays in implementation of certain aspects of the program and the overestimation of the increase in PPI projects completed suggest three lessons: (i) outputs that are prerequisites for other outputs need to have a technical assistance dedicated to them upfront (para. 13); (ii) ADB program designs should include a more strategic approach to marketing the benefits of PPI frameworks to the public, the private sector, and government (para. 57); and (iii) establishment of PPI frameworks needs to be accompanied by the development of ―pathfinder projects‖ that may be prepackaged in line with good international practice, and protected from special interest interference (para.13).31 In addition, experience with the implementing agencies suggests that regular and persistent communication with ADB staff in Manila, with implementing agencies, and the resident mission are critical to keeping the program on track.

31

This lesson also includes one finding from a recent ADB evaluation study. ADB. 2009. Special Evaluation Study on ADB Assistance for Public–Private Partnerships in Infrastructure Development—Potential for More Success. Manila.

13

C. Recommendations

1. General

61. A country considering PPI to attract investment in traditional public sector projects should announce its intention in an unequivocal manner, through a clear policy document approved at the highest levels.

62. In preparing pilot projects, high priority public sector projects should be selected that are sufficiently attractive to the private sector. These should not be too complex, too small, or too risky to implement. Projects should be selected that need no or little government support, thus reducing the exposure of the project to public commitment and financial support.

2. Program Related

63. The program helped develop an institutional framework for PPI in order to reduce the fiscal burden of providing quality infrastructure services to individuals and enterprises. The program outcomes continue to be relevant to the economy, the infrastructure sector, the government’s national development plans, and ADB’s country strategy. In Pakistan, more investment is needed in transport and power infrastructure. The enabling framework is largely in place; however, overall capacity to implement is lacking. Reforms should be coupled with transactions to demonstrate their benefits and replicate these advantages throughout the country (para. 68).

64. Future monitoring. The loan was fully disbursed, and all conditions related to tranche release were complied with. ADB should continue monitoring progress made in the enabling framework as part of its support for PPI. The government should be encouraged to improve and regularize progress reports to address the two covenants that were not in compliance (para. 48).

65. Further action or follow-up. While a second program is not envisioned in the near term, ADB will continue to engage in policy dialogue with the government on the benefits of PPI and support reforms in a number of sectors where the government is requesting financial assistance. ADB should be open to providing a PPI advisory facility to help the government develop and award PPI projects.32 This will be particularly useful in sectors where vested interests are too entrenched to be overcome by the existing framework alone, and where the cost of feasibility studies and the time involved to obtain permits is high.33 As a precursor to feasibility studies, ADB may want to provide a technical assistance project to identify and disseminate findings of a VFM analysis on high priority projects in the roads and energy sector.

66. Timing of the program performance evaluation report. The program performance evaluation report should be completed within one year of approval of the completion report.

67. Additional assistance. Pakistan faces important institutional constraints related to the sanctity of private property rights and the rule of law.34 Some recommendations on how to move beyond the framework to viable projects are offered in paras. 68–70.

32

The feasibility studies may follow guidance from the Project Design Facility. ADB. 2011. Establishing the Project Design Facility. Manila.

33 A successful example of this approach is the Meghnaghat Power Project: ADB. 2000. Report and

Recommendation of the President to the Board of Directors: Proposed Loans and Partial Risk Guarantee to the People’s Republic of Bangladesh for the Meghnaghat Power Project. Manila.

34 According to the Economist Intelligence Unit 2011, PPP Readiness Index Report, 1 (footnote 15), there are

concerns about the enforcement of laws and the existence of cartels in some sectors. Pakistan ranked 143 out of 178 countries assessed in Transparency International’s 2010 Corruption Perception Index. Corruption, government

14

68. Strategic dissemination of the policy framework and demonstration by projects. Establishing the PPI policy was a major step in the development of PPI projects. The PPI policy affects attitudes and rules for all stakeholders, including government agencies, private sector companies, and the general public. Therefore, a much broader dissemination is needed to create better understanding of the benefits among stakeholders. It is also important for ongoing PPI support that VFM analysis is practical and that benefits from PPI, including control of cost and effective delivery of services, are highlighted. The subsequent benefits of PPI projects resulting from adequate project monitoring must be ensured at the projects’ planning stages. Finally, projects need to be completed and advertised. Successful PPP transactions can spur acceptance of reforms, particularly if they improve service to customers.

69. Prepackaged PPI pilot projects can set examples. They can also enable private sector participation in key subsectors of the economy. In prepackaged pilot projects, the public sector will complete feasibility studies and prearrange all permits, which it will then sell to the private sector. This will save time and money that the private sector would have invested in order to attain these critical components (footnote 33). This will be particularly useful in sectors where vested interests are too entrenched to be overcome by the existing framework alone, and where the cost of feasibility studies and time involved to obtain permits is too much (para. 65). This prepackaged approach would reduce friction and ultimately save time and resources in delivering services.

70. A prepackaged approach requires upfront government commitment and substantial assistance for (i) sector development planning that adequately considers the role of the private sector in infrastructure development; (ii) project preparation in terms of adequate feasibility studies, land acquisition, and social and environmental assessments; and (iii) transaction advisory (pre- and post-bid).

instability, and political instability were among the three most problematic factors for doing business (with access to financing) according to the World Economic Forum 2010 Global Competitiveness Report 2010–11.

Appendix 1 15

DESIGN AND MONITORING FRAMEWORK FOR THE PRIVATE PARTICIPATION IN INFRASTRUCTURE PROGRAM

Design Summary Performance Targets/

Indicators

Data Sources/ Reporting

Mechanisms Assumptions

and Risks

Impact

1. Support sustainable economic growth

High growth rate of GDP sustained (6–8% as indicated in the MTDF for 2005–2010) [Not achieved] GDP growth rate was 3.66%

Government economic statistics and reports IMF country reports (Specific sources of baseline indicators were not provided)

Assumption Continued government commitment to private sector-led growth Risk PPI subproject viability is worse than expected and the government injects additional resources to prevent bankruptcy

2. Reduce the fiscal burden on the government by promoting PPI investment and maintenance

Rising private sector investment (from 12.8% of GDP in 2005 to more than 17% in 2010) [Not rated] Declining share of government in overall infrastructure and utilities investment financing [Not achieved] Private sector share of GDP 10.2% 2010–2011

Outcome (general)

1. Establish a policy, legal, and regulatory framework for PPI (This outcome has been edited to reconcile with the policy matrix. The outcome presented in the original DMF was ―Increased PPI investment and maintenance‖.)

Substantial private investment in key subsectors ($6.0 billion in the power subsector, $2.0 billion in the transport subsector, and $0.5 billion in the water subsector during 2005–2010) [Not achieved]

Government economic statistics and reports

Assumption Prudent fiscal and monetary policies Risk Possible changes in the investment climate due to endogenous and exogenous shocks (political and

16 Appendix 1


Indicators



and Risks

2. Economic and development benefits to be derived from PPI projects in the power, transport, and water and other communal services subsectors (The policy matrix is slightly different: ―Deepen policy, legal, regulatory, and institutional reforms in priority subsectors, including power, transport, and water‖. This PCR uses the original DMF version as presented here.)

Improved power supply that contributes to commercial and individual economic activities [Not achieved] Reduced travel costs and time, thereby enhancing opportunities for income generating activities and access to social services [Not quantified] Better water supply and sanitation that will increase economic activities and quality of life [Not quantified]

Government economic and social statistics and reports Production statistics Socioeconomic statistics from international organizations, including the UNDP, WHO, and UNICEF

economic)

Outcome (subsector specific)

3. Power: to deliver more reliable and affordable electricity nationwide and enhance the operational efficiency of the subsector

Increase in power supply (at least 10 PPI projects contracted out to the private sector with at least 2,000 additional MW installed) [Achieved]

Government power subsector statistics and reports

Assumption Private investment will be undertaken for productive uses

4. Transport: to establish an efficient and well-integrated transport system with improved quality of services, reduced costs, and assured safety

Total land transport coverage increased (at least 10 PPI projects contracted out to the private sector with at least 250 km additional land coverage) [Partially achieved]

Government transport subsector statistics and reports

Risk Corruption and rent seeking activities

5. Water: to resolve the shortage of water and ensure reliable drinking water supplies and sanitation

Increase in clean water supply and coverage by sanitation facilities (at least 10 projects contacted out to the private sector) [Not achieved]

Government, UNDP (Human Development Report), and WHO statistics

Appendix 1 17


Indicators



and Risks

Outputs 1. PPI Policy Task Force facilitates policy development

Task force and its working groups meet regularly and include provincial authorities (continuous) [Not achieved] The task force, working groups, and provincial authorities did not meet regularly

Government’s progress reports and reports by ADB review missions Expert reports, including performance reviews and audits Policy issues papers and published policies

Risk Inadequate cooperation between federal, provincial, and local government, and among agencies at the same level of government

2. The task force to (i) assess the implementation and impact of the PPI policy, and (ii) develop, based on the lessons learned, detailed proposals in line with international best practices for (a) strengthening the policy, legal, and regulatory framework for PPI and (b) broadening the policy's scope to cover other priority subsectors (Output 2 was incorporated into the RRP and program implementation and was not part of the original DMF.)

Task force’s work program and action plan developed (September 2006) and enhanced (September 2008) [Achieved]

3. Comprehensive policy and regulatory framework for PPI established

Overall PPI policy adopted (September 2007) [Achieved]

Eligibility criteria for viability financing for PPI projects adopted, and empowered committee established (December 2007) [Achieved]

18 Appendix 1


Indicators



and Risks

Funds allocated for viability financing (June 2008) [Not Achieved] Policies and guidelines for VGF were completed; no funding

4. Investor protection enhanced

Legal basis established for foreign arbitration (March 2007) and domestic arbitration (March 2008) [Achieved]

PPI contracts, including concession agreements, include clauses for alternative dispute resolution and/or arbitration (continuous) [Achieved]

5. Greater participation by private investors in the power subsector 6: PPIB to issue LOS to the successful bidders for at least 7 PPI projects in power generation (Output 6 was incorporated into the RRP and program implementation and not part of the original DMF.)

Letters of support (LOS) for at least 10 PPI projects in power generation issued (June 2008) [Achieved]

LOS issued to successful bidders for the privatization of two gas supply companies (September 2008) [Not Achieved] Not a core condition, yet it was a target that indicates the level of capacity and political will.

Appendix 1 19


Indicators



and Risks

7. Policy, legal, regulatory, and institutional framework for PPI in the transport subsector established 8: Government to commission an independent performance assessment of the concession agreements negotiated by NHA, including their implementation, and submit the findings of the assessment to ADB 9: NHA to (i) identify PPI projects with a total value of at least PRs100 billion and (ii) invite additional bids through an international competitive tender for PPI projects with a total value of at least PRs30 billion (Outputs 8 and 9 were incorporated into the RRP and program implementation and were not part of the original DMF.)

PPI policy adopted and announced (January 2007) [Achieved]

PPI projects with a total value of PRs100 billion identified (December 2007) [Achieved]

LOS issued to successful bidders on total projects exceeding PRs30 billion in value (April 2008) [Achieved]

10. Opportunities for PPI in the port and railway subsectors generated

Cargo berths at Karachi Port leased out (June 2007) [Achieved]

Policy framework for private participation in train operations established (December 2007) [Achieved]

Pakistan Railways implements its long-term corporatization and commercialization plan (continuous) [Not Achieved]

20 Appendix 1


Indicators



and Risks

11. PPI policy and an institutional framework for private participation in communal services developed

National water policy adopted (December 2007) [Not Achieved]

Replicable tender documents developed and applied (March 2008) [Achieved]

The IPDF has built a strong pipeline of PPI projects for which private sector applications have been invited (December 2008) [Achieved]

ADB = Asian Development Bank, DMF = design and monitoring framework, GDP = gross domestic product, IMF = International Monetary Fund, IPDF = Infrastructure Project Development Facility, km = kilometers, LOS = letter of support, MTDF = Medium-Term Development Framework, MW = megawatts, NHA = National Highway Authority, PCR = project completion report, PPI = private participation in infrastructure, PPIB = Private Power and Infrastructure Board, PRs = Pakistan rupees, RRP = report and recommendation of the President; UNDP = United Nations Development Programme, UNICEF = United Nations Children’s Fund, VGF = viability gap fund, WHO = World Health Organization.

Appendix 2 21

ADB SUPPORT FOR PPI IN PAKISTAN 2000–2006a

Project Type Year

Approved Commitment

($ million) Private Public Infrastructure Financing PPTA 2003 0.40 Facilitating Private Public Partnerships in National

Highway Development SSTA 2004 0.15 Private Participation in Infrastructure Sector

Development Program PPTA 2005 1.00 Infrastructure Development Project TA loan 2005 25.00 Infrastructure Development Project TA grant 2005 0.15 National Highway Development Sector Investment

Program (Loan 1) Loan 2005 170.00 New Bong Escape Hydropower Project Loan 2005 37.30 Karachi Megacity Project SSTA 2005 0.15 Karachi Megacity Project PPTA 2005 1.00 Karachi Megacity Project TA loan 2006 10.00 TOTAL 245.15 PPI = private participation in infrastructure, PPTA = project preparatory technical assistance, SSTA = small-scale technical assistance, TA = technical assistance. a ADB. 2000. Report and Recommendation of the President to the Board of Directors on Proposed Loans to the

Islamic Republic of Pakistan for the Energy Sector Restructuring Program. Manila (Loans 1807/1808-PAK, approved on 14 December); ADB. 2000. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Islamic Republic of Pakistan for Capacity Enhancement in the Energy Sector. Manila (Loan 1809-PAK, approved on 14 December); ADB. 2000. Technical Assistance to the Islamic Republic of Pakistan for Support for the Privatization of Karachi Electric Supply Company. Manila; ADB. 2000. Technical Assistance to the Islamic Republic of Pakistan for the Capacity Building of the National Electric Power Regulatory Authority. Manila; ADB. 2004. Technical Assistance to the Islamic Republic of Pakistan for Facilitating PPP Initiatives in National Highway Development. Manila; ADB. 2005. Report and Recommendation of the President to the Board of Directors on a Proposed Technical Assistance Loan and Technical Assistance Grant to the Islamic Republic of Pakistan for Infrastructure Development. Manila; ADB. 2005. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Islamic Republic of Pakistan for the New Bong Escape Hydropower Project (Summary Procedure). Manila (Loan 21-98-PAK and EI 7222); ADB. 2005. Report and Recommendation of the President to the Board of Directors on a Proposed Multitranche Financing Facility and Proposed Loan to the Islamic Republic of Pakistan for the National Highway Development Sector Investment Program. Manila; ADB. 2005. Technical Assistance to the Islamic Republic of Pakistan for Preparing the Private Participation in Infrastructure Sector Development Program. Manila; ADB. 2006. Report and Recommendation of the President to the Board of Directors on a Proposed Technical Assistance Loan to the Islamic Republic of Pakistan for the Megacity Development Project. Manila.

22 Appendix 3

HISTORY OF PROGRESS ON CONDITIONS AND MONITORABLE INDICATORS

Summary as of June 2010

Of 21 monitorable indicators, 11 suggest progress.

Progress is ongoing for the other 10 monitorable indicators.

Summary as of June 2011

Of 21 monitorable conditions, 13 have been fully complied with.

Progress is ongoing for the other 8 monitorable conditions.

0%

20%

40%

60%

80%

100%

Aug-

07

Mar-

08

Nov-

08

Mar-

09

May-

10 Close

Jun-

11 PCR

% compliance with core conditions

% monitorable conditions indicating compliance

Chart of Program Output Progress

PCR = project completion report

Appendix 3 23

PROGRESS ON MONITORABLE INDICATORS

Indicators Indication of Progress June 2010 Status/Notes June 2011

S.1. The task force to prepare its work program for two additional years and revise the terms of reference for the working groups, where necessary

Complied with

The task force working groups are on (i) public–private participation (PPP) law, (ii) model contracts for PPP, (iii) a risk management framework, and (iv) viability gap funding (VGF).

The core conditionality (S.7) required an assessment of the implementation of the PPI policy that describes recent developments in PPP in Pakistan, as well as lessons learned and international best practice for PPP. Consequently, the action plan included under S.7 proposes a number of key actions within a 2-year work program over the next 6, 12, and 24 months. One of the key immediate recommendations of the task force is to accelerate PPP development by reviewing and speeding up its own work program, including revising the terms of reference of its working groups.

Complied with

Note: Coordination among federal and provincial governments has been less effective due in part to the 18

th

amendment, and more focus has been on federal agencies and line departments. Continued support is required for the line departments at federal and provincial level to prepare and implement projects on a PPI (private participation in infrastructure) basis.

S.2. The government to announce in a budget speech that it will provide viability financing for private participation in infrastructure (PPI) projects, not exceeding 20% of the total project costs, to support economically justified but financially unviable projects implemented by entities with 51% or more subscribed and paid up equity, owned and controlled by a private entity

Compliance ongoing

A PPP policy document adopted by the cabinet in November 2007 declares that the government will provide VGF.

The core condition S.4 specifies the parameters set forth in the VGF guidelines, which have been disseminated via Infrastructure Project Development Facility (IPDF) workshops and its website. VGF guidelines have been approved by the advisor on finance to the Prime Minister, as head of the Ministry of Finance (MOF)–PPP task force. Due to fiscal challenges, the most recent budgets and budget speeches have not included specific references to gap financing. Yet, work is being conducted in parallel on structuring PPP transactions that specify the need for viability financing. It is envisaged that adequate financing can be provided once the fiscal situation improves.

Compliance ongoing

Note: The absence of subsidies for non-viable projects is not a critical constraint at this time.

S.5. The task force to (i) review the government’s concession policies for PPI and assess whether there is a need for legislation on concessions; and (ii) if needed, to draft a concession law acceptable to the Asian Development Bank (ADB).

Compliance ongoing The government has prepared a draft PPP bill; the model concession agreements are likely to be used for the foreseeable future. The government has sought ADB's support for drafting a concession law.

Compliance ongoing The concession law has not been passed.

24 Appendix 3


S.6. The government to (i) adopt the social safeguard policy after stakeholder seminars at the provincial and federal level of government, and (ii) disseminate detailed guidelines clarifying its applicability to PPI projects in the power and road transport subsector

Complied with

Complied with

S.8. The task force to formulate a second round of policy reforms to be supported under subprogram 2 building on achievements made and lessons learned under subprogram 1

Complied with

The task force assessment (condition 3, S.7) provides the basis for reviewing PPP development, including policy reforms.

Complied with

Note: Some of the task force action plan is reflected in the PCR.

S.9. The government to submit to Parliament a law which ratifies and implements the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards

Complied with Complied with

S.11. The High Court to implement Section 89A of the Civil Procedure Code by adopting regulations setting forth the rules and procedures for alternative dispute resolution, so as to provide competing and out-of-court alternatives to the contracting parties under a PPI if they so wish

Compliance underway Progress has been slower than envisaged in the light of competing priorities warranted by circumstances in Pakistan. Work is under way.

Compliance underway

S.13. The government to approve at least another 7 projects in power generation for PPI in line with the 2002 national power policy by giving the Private Power and Infrastructure Board (PPIB) the mandate to process these projects


S.15. The government to issue letters of approval to the successful bidders for the privatization of Sui

Compliance underway To divest government shareholding, the Privatization Commission began soliciting expressions of interest for the SNGPL on 14

Compliance underway

Appendix 3 25


Southern Gas Company Limited (SSGC) and Sui Northern Gas Pipelines Limited (SNGPL).

December 2005 and for SSGC on 4 January 2006. Privatization, as such, has not been pursued, pending the outcomes of the corporatization approach, for a number of reasons. It should be noted that the privatization process suffered a setback in 2007 when the privatization of a major state-owned enterprise was rejected by the Supreme Court. Following this decision, the government has focused on floating shares in public entities. The SNGPL and the SSGC are public limited companies listed on the Karachi, Lahore, and Islamabad stock exchanges. Each has a board of 14 members drawn from the public and private sectors. As of June 2011, the government and government controlled institutions hold 54% of the SNGPL, with the remaining 46% held by the private sector. The government holds 60% of the SSGC. While the final privatization structure for both projects was approved by the cabinet committee on privatization in May 2006, full privatization of the SSGC and the SNGPL has not progressed.

S.16. The MOF in line with the directive of the Prime Minister (No. 2/67) as of 30 May 2006 to provide an initial PRs300 million to PPIB over the next 5 years to meet its operating expenses

Complied with

The MOF frontloaded its support for operational expenses and provided PRs100 million to the PPIB during FY 2006–2007 and PRs200 million during FY 2007–2008.

Complied with

S.17. The government to commission an independent strategic review of PPIB’s performance and disseminate the findings of the review through a high level stakeholder seminar

Complied with

The PPIB has entered into an agreement with ADB on the scope of the assessment. The review got underway with ADB technical assistance in May 2009.

Complied with

Review has been completed.

S.18. The government to (i) complete the

development of the integrated energy model,

(ii) determine the host agency in charge of maintaining the model, and

(iii) identify suitable opportunities for PPI investments with the help of the model

Compliance underway In 2007, the government requested ADB technical assistance for that purpose. As a response, a technical assistance grant was processed and approved. Consultants have been fielded and a kick-off workshop was held in October 2008. The Pakistan Integrated Energy Model (Pak-IEM) is under advisory TA 4982-PAK

a for $2 million. The

Planning Commission is the executing agency for this project. A model review workshop was held in April 2008, and the model design phase is beginning now. The data gathering effort and the progress in designing the Pak-IEM will be presented

Compliance underway The PPIB review report called for the same thing.

26 Appendix 3


at the workshop. Data sources, preparation, assumptions, and model development specifics will be discussed, along with the proposed approach for the Pak-IEM.

S.20. To facilitate the harmonization of PPI policies in the road subsector country-wide, the government to provide training to development and regulatory authorities from four provinces on procedures and institutional arrangements for the promotion of PPI in the road subsector

Complied with

A two-day training workshop on PPI in the road sector was jointly organized by the National Highway Authority (NHA) and Infrastructure Project Development Facility (IPDF) for representatives from provincial authorities on 25–26 June 2007 in Islamabad. Similar workshops are now planned in the provinces.

Complied with

The governments of Sindh and Punjab conducted workshops on their PPP policies and laws under the ADB funded Sindh Growth and Rural Revitalization project and the Punjab Government Efficiency Improvement Program (PGEIP) in 2009 and 2010.

S.22. The National Highway Authority (NHA) to further build its institutional capacity for interaction with private investors in line with its development plan for the PPI unit by (i) staffing the PPI unit with at least four additional qualified professional staff, and (ii) training staff in areas relevant for its mandate, as defined

Compliance underway

A PPI cell with two staff was established in the NHA in 2006 in compliance with F.18. Since then, several new staff were recruited and trained (under ADB TA 2178-PAK). However, these staff were subsequently promoted out of the PPP cell into other parts of the NHA. The cell currently has three staff, who are supported by a technical assistance consultant.

Complied with

The NHA has added to the unit. The PPI cell in the NHA now has 4 staff – 1 general manager/director, 1 deputy director, and 2 assistant directors.

S.24. NHA to issue letters of approval to the successful bidders for PPI projects with a total value of at least PRs20 billion

Compliance underway

The NHA has issued letters of approval for two projects, namely Lakpass Tunnel (PRs679 million) and Karachi Hyderabad Motorway M-9 (PRs6.3 billion). Full compliance requires an additional PRs6 billion worth of projects.

Complied

The Lakpass tunnel is complete and has been operational since 2007. Bids have been received for the Karachi–Hyderabad Motorway M-9. Five more projects are under implementation, valued at about PRs25 billion.

S.25. The Karachi Port Authority to select the successful bidder for leasing the cargo berths at Karachi Port

Compliance underway

The Karachi Port Authority has invited applications for leasing the general cargo berths. Once the successful bidder is selected, 90% of terminal operations will be handled by the private sector. Compliance is partial, pending selection of a successful bidder for the lease of the cargo berths at Karachi Port.

Compliance underway

S.26. The government to submit to Parliament legislation to provide for

Compliance underway

A draft railways act providing for the corporatization

Compliance underway Pakistan Railways is in the process of being converted into a

Appendix 3 27


the establishment of Pakistan Railways Corporation

of Pakistan Railways was developed in 2006–2007 and was initially scheduled to be discussed at the August 2007 session of the Council of Common Interest (comprising representatives of the federal and provincial governments and chaired by the Prime Minister). Instead, stakeholder consultations were continued at a lower level.

The policy document provides the overall basis for achieving such an important funding source, which will contribute to an effective and much expanded railway system. This will also support faster socioeconomic development in Pakistan, which, in turn, will further expand the demand for rail services. The Ministry of Railways (MOR) intends that the PPP policy will be further developed through ongoing studies (TA 2178–PAK) and through the experience and capacity being developed within the ministry. The MOR has suggested that its commitment to corporatization may focus on PPP/privatization. A consultants’ report on options for further commercialization of Pakistan Railways will be finalized soon but has not been completed.(Pakistan Ministry of Railways, 2009. PPI Policy for Railways, Islamabad) .

corporation; however, this will not be completed until 2012 or 2013. Given the resistance from its employees and other state actors, it may even be further delayed. As of June 2011, it is going into serious deficit and the State Bank of Pakistan is only funding the Railway’s essential operational needs, pay, and pensions.

S.28. The government to elaborate procedures for interaction with private investors and to build institutional capacity accordingly, including the establishment of a focal point for PPI in the railway subsector

Complied with The MOR has been working with the IPDF toward undertaking prefeasibility studies for PPI in the railway sector, specifically in mass transport, and preparing open tenders. Meanwhile, the ministry has started to build its own capacity for interaction with private investors by establishing a separate wing under the executive director of marketing, for non-core business areas, and a steering committee for PPI-related initiatives. Progress is indicated by the establishment of the PPP cell and project management unit in Lahore, which is responsible for a number of studies, including (i) corporatization of manufacturing units, (ii) electrification, (iii) a PPP pipeline study and detailing of PPP policy, and (iv) low revenue lines and PPP (in abeyance due to time constraints). Further progress is evidenced by the existence of terms of reference for the three studies under the PPP cell.

Complied with

S.29. The government to establish a working group with high-level representatives from provincial governments that will draft a concept paper on policy measures promoting PPI in the municipal services subsector

Complied with The four existing working groups under the PPI policy task force include representatives from provincial governments. The government is of the view that the policies required to promote PPI at the municipal level are not substantially different from those needed at the federal level. According to the draft PPP policy for Punjab, para. 6: "This PPP Policy is consistent with the federal-level Policy on Public-Private Partnerships: Private Participation in

Complied with

28 Appendix 3


Providing More and Better Public Services through Improved Infrastructure‖ (drafted by IPDF in Islamabad in January 2009). The PPP policy describes both what needs to be done for PPPs and how to do it in a consistent manner. First, the theoretical foundation of the PPP concept is provided, the objectives and principles of the PPP policy are outlined, and the sectors of its application are specified. This is followed by a description of the various components of the PPP framework providing an enabling environment for private investments in infrastructure. Finally, a recommended approach to the preparation and execution of PPP projects is presented.

S.31. IPDF to assist provincial authorities in capacity building and replicating standard tender procedures and documents for PPI projects in the water supply and sanitation and other urban services subsectors at the provincial, district, and subdistrict levels

Complied with

IPDF has organized numerous workshops on private participation in municipal services. The target audience was officials from all four provinces, key staff of regulatory authorities, and managers of public and private utilities. IPDF has also embarked into stakeholder consultations with local governments on the standard tender procedures and documents (see S.30).

Complied with

S.32. The government to (i) establish the Infrastructure Project Financing Facility for developing infrastructure financing as a specialized institution under private management, and (ii) build its capacity over time


a ADB. 2007. Technical Assistance to the Islamic Republic of Pakistan for the Integrated Energy Model. Manila (TA 4982-PAK for $2 million, 25 October).

Source: Asian Development Bank.

Appendix 4 29

STATUS OF LOAN COVENANTS Loan 2270-PAK: Private Participation in Infrastructure Program

Covenant Loan Agreement Status of Compliance

1. The Borrower shall cause the Program to be carried out with due diligence and efficiency and in conformity with sound administrative, financial, environmental and social practices.

Section 4.01 (a) Complied with.

2. The Borrower shall make available, promptly as needed, the funds, facilities, services and other resources which are required, in addition to the proceeds of the Loan, for the carrying out of the Program.

Section 4.02 Complied with.

3. The Borrower shall ensure that the activities of its departments and agencies with respect to the carrying out of the Program are conducted and coordinated in accordance with sound administrative policies and procedures.

Section 4.03 Complied with.

4. The Borrower shall maintain, or cause to be maintained, records and documents adequate to identify the Eligible Items financed out of the proceeds of the Loan and to indicate the progress of the Program.

Section 4.04 (a) Complied with.

5. The Borrower shall enable ADB’s representatives to inspect any relevant records and documents referred to in paragraph (a) of this Section.

Section 4.04 (b) Complied with.

6. As part of the reports and information referred to in section 7.04 of the Loan Regulations, the Borrower shall furnish, or cause to be furnished, to ADB all such reports and information as ADB shall reasonably request concerning the implementation of the Program, including the accomplishment of the targets and carrying out of the actions set out in the Policy Letter.

Section 4.05 (a) Not complied with.

7. Without limiting the generality of the foregoing or Section 7.04 of the Loan Regulations, the Borrower shall furnish, or cause to be furnished, to ADB semiannual reports on the carrying out of the Program and on the accomplishment of the targets and carrying out of the actions set out in the Policy Letter.

Section 4.05 (b) Not complied with.

8. Implementation Arrangements. The MOF shall be the Program Executing Agency.

Schedule 5, para. 1 Complied with.

9. The PCU, under the Joint Secretary, Prime Minister Special Program in MOF, shall coordinate the Program implementation.


30 Appendix 4


10. The PCU shall closely coordinate with IPDF, PPIB, NHA, and the Task Force. The Task Force comprises high level officials from MOF, the Planning Commission, and other state bodies relevant for PPI policy reforms, and is chaired by the Advisor of the Prime Minister on Finance or any other person with equivalent authority as agreed with ADB. The Task Force has the mandate to establish working groups to advance specific areas of the policy reforms supported under the program. The Task Force is supported by a permanent technical and administrative secretariat that directly reports to the head of the Task Force.


11. Implementation of the Policy Letter

The Borrower shall (i) ensure that the policies adopted and actions taken as described in the Policy Letter, including the Policy Matrix, prior to the date of this Loan Agreement continue in effect for the duration of the Program period and subsequently; and (ii) promptly adopt the other policies and take the other actions indicated in the Program as specified in the Policy Letter, including the Policy Matrix, and ensure that such policies and actions continue in effect for the duration of the Program period and subsequently.

Schedule 5, para. 4

Complied with.

12. Policy Dialogue. The Borrower shall keep ADB informed of, and the Borrower and ADB shall from time to time exchange views on, sector issues, policy reforms and additional reforms during the Program Period that may be considered necessary or desirable, including the progress made in carrying out the Program.


13. The Borrower shall engage in policy dialogue with ADB, in a timely manner, on problems and constraints encountered during Program implementation and on desirable changes to overcome or mitigate such problems and constraints.


14. The Borrower shall keep ADB informed of policy discussions with other multilateral or bilateral agencies that have implications for implementation of the Program, and shall provide ADB with an opportunity to comment on any resulting policy proposals. The Borrower shall take ADB's views into consideration before finalizing and implementing any such proposal.

Schedule 5, para.7 Complied with.

Appendix 4 31


15. Counterpart funds. The Borrower shall ensure that the Counterpart Funds shall be used, first, to support the adjustment cost for reforms to be initiated and implemented under the Program and, second, to finance expenditures for the general development purposes of the Borrower.


16. Monitoring and Program. The Borrower shall cause MOF to (i) establish, within three months after the Effective Date, and maintain a program performance evaluation system, which will include a data base on the status of policy measures and program indicators based on the Policy Matrix and the design and monitoring framework for the Program; (ii) monitor the implementation of the Program and its impacts; and (iii) submit to ADB quarterly reports on the implementation of the Program, including accomplishment of the measures set forth in the Policy Letter and the Policy Matrix. ADB will also monitor the implementation of the Program through regular reviews and progress reports throughout the implementation period. Based on these reviews, modifications and improvements will be considered. To facilitate such review, the Borrower shall assist ADB by providing relevant data and information in such detail as ADB may reasonably request.


17. Approximately six (6) weeks before the anticipated withdrawal of the Second Tranche, or such other time as the Borrower and ADB may agree, a review shall be carried out concerning the Borrower's progress in implementing the policy reforms under the Program set out in the Policy Letter and the Policy Matrix, including the fulfillment of the conditions

Schedule 5, para.10

Complied with.

32 Appendix 5

TECHNICAL ASSISTANCE COMPLETION REPORT

Division: Public Management, Financial Sector, and Trade Division (CWPF)

TA No. Country and Name TA 4861-PAK: Supporting the Private Participation in

Infrastructure Program

Amount Approved: $1,000,000

Revised Amount: $1,000,000

Executing Agency: Ministry of Finance

Source of Funding: Fund 04 (Japan Special Fund)

Amount Undisbursed: $713,981.38

Amount Utilized: $286,018.62

TA Approval Date: 31 Oct 2006

TA Signing Date: 29 Dec 2006

Fielding of First Consultant: 20 Dec 2007

TA Completion Date Original: 31 October 2009

Actual: 30 September 2010

Account Closing Date Original: 31 October 2009

Actual: 11 April 2011

Description

The Technical Assistance (TA) was an integral part of the Asian Development Bank (ADB) loan and TA grant Supporting the Private Participation in Infrastructure Program (program) to help the government implement reforms there under. In particular, the TA supported (i) the private participation in infrastructure (PPI) Policy Task Force in implementing its work program; and (ii) key PPI reforms through training, capacity building, and assessment work.

Expected Impact, Outcome and Outputs

The Program’s design and monitoring framework (DMF) was not well designed and was inconsistent with the policy matrix. The TA was implemented with the policy matrix serving as the guide to outputs and monitoring. The intended impact of the TA was the same as the program: to reduce the government’s fiscal burden in providing infrastructure services. The Program and TA outcomes were: (i) to establish a PPI framework of policy, laws and regulations; and (ii) to improve the PPI legal and regulatory framework in specific sectors (energy, transportation, and water) and also at the provincial level. These outcomes were to be attained by addressing key constraints to PPI with TA resources dedicated to several outputs including: improving federal, provincial and sector level PPI policy, draft laws, new regulations and standards, capacity development, and dissemination of PPI policy and practice.

The TA’s design was consistent with the strategic plans of the government of the Islamic Republic of Pakistan and ADB’s country strategy.

1 The formulation and design of the TA was relevant at inception but needed to be adjusted during

implementation to account for changes in the level of assistance needed. These changes suggest the design had overestimated the resources required. Thus, the design became less relevant.

Delivery of Inputs and Conduct of Activities

At program inception, TA implementation arrangements appeared to be appropriate and terms of reference (TOR) of consultants comprehensive. During implementation, adjustments in the TOR were required to accommodate delays and an increase in resources from implementing agencies and development partners, both of which were unanticipated, as described below.

The TA was estimated to require 38 person-months of consulting services: 13 person-months by international consultants (management expert, legal experts, and PPI experts) and 25 person-months by national consultants (management, legal, energy, and PPI experts). The actual number of consultants' inputs was 14.5 person-months (10 for international and 4.5 for national). The mobilization of consultants required only $286,018 of the expected $1,000,000.

The lower than expected input of consultant months (14.5 versus 38) and low utilization of TA funds (28.6%) was the result of changes in the TOR during implementation. The TOR outputs were reduced and the timeline for deliverables was shortened. The shortening of timelines was due in part to delays in implementation (as described below) and reduction in deliverables. The reduction in TA deliverables was due to three main factors: (1) some outputs targeted for TA support were undertaken by implementing agencies (primarily the Infrastructure Project Development Facility [IPDF], Private Power and Infrastructure Board [PPIB], and the public–private partnership [PPP] cell of the National Highway Authority [NHA]) with less TA support than planned; (2) after sharing the program outputs, some development partners directed resources towards those outputs, such as the arbitration law and general support for the IPDF;, and (3) ADB staff provided TA support via team leader(s), general counsel, and transportation and energy specialists in the Central and West Asia Department. All of the consultants had extensive expertise and a focused skill mix and were able to cover a broad range of TA activities, resulting in substantial TA savings. Another factor that contributed to savings was that ADB consultant compensation was tied directly to deliverables under output-based lump sum compensation.

All consultants were selected on an individual basis in accordance with ADB’s Guidelines on the Use of Consultants (2007, as amended from time to time).

1 ADB. 2005. Country Strategy and Program Update (2006–2008): Pakistan. Manila.

Appendix 5 33

The majority of the adjusted outputs were delivered effectively by one international Private Participation in Infrastructure Policy Expert (PPI Expert) In addition, two international and two national consultants were hired to undertake an independent and strategic performance assessment of the PPIB. ADB found the PPIB assessment report satisfactory. TA reports were delivered on time and were of good quality. The program benefited from the continuity and level of knowledge and experience of the international consultants.

The performance of consultants was satisfactory. The consultants helped the government to implement 5 of 11 Program

outputs. In addition to delivering an assessment report on the PPIB (a monitorable indicator), the consultants provided technical inputs towards the development of (i) federal PPI Policy, (ii) Railway PPI Policy, (iii) NHA PPI Policy, (iv) Viability Gap Fund (VGF) Guidelines, and (v) PPI assessment report.

One of the key contributions of the TA was support in preparing the federal PPI policy in line with international good practice. The federal policy outlined the types of infrastructure and utilities eligible for PPI, established the appropriate approval authorities, and protected investors and government with a framework of risk-sharing arrangements. The policy also established a framework for financial and fiscal incentives and guarantees for PPI projects. The policy was used to successfully guide provincial and subsector PPI policies.

There were delays in implementation due to disruptions in fielding the PPI Expert, primarily due to the security situation in Pakistan, and changes in key persons in the implementing agencies. Scheduling was also hampered by the availability of the PPI Expert on short notice to accommodate ADB missions. These issues were overcome by the persistence of ADB staff and retention of the PPI Expert throughout the implementation period, which maintained a level of continuity and built confidence in key government staff that remained in position. There was also a change in the ADB team leader, although this did not have a negative impact as the handover was well managed.

While the performance of the executing agency was partly satisfactory due to lack of coordination and frequent changes in staff, the implementing agencies performed satisfactorily. The implementing agencies included the Ministry of Railways,

NHA PPP cell, IPDF, and PPIB. The inputs from all the consultants were of high quality and appreciated by all the implementing agencies.

ADB’s performance was satisfactory. ADB closely monitored TA implementation, fielding TA review missions that ran concurrently with loan review missions. Staff assisted in technical drafting, review of policies and guidelines, and capacity building. ADB made proper adjustments during implementation, such as focusing TA resources on outputs on the critical path of implementation. The team leader was replaced during implementation (moved from the department) and the handover was well executed.

Evaluation of Outputs and Achievement of Outcome

The TA helped to achieve the outcomes envisioned, with quality inputs that led to full achievement of 4 of 11 program outputs that successfully contributed to the two outcomes. The TA was delivered in a timely manner. The government’s acceptance of TA recommendations indicates the government’s satisfaction with its outputs, as well as the TA’s effectiveness.

Overall Assessment and Rating

The TA was partly successful. While the TA was relevant at inception, the design became less relevant and had to be adjusted to reflect the reduction in the scope of work required during implementation (as described above). The redesigned TA was effective in supporting delivery of core outputs under the program. The TA was less efficient than expected due to delays in scheduling and ambitiously broad scope at inception. The TA is likely to be sustainable as it contributed significantly to local expertise and capacity to foster a more conducive environment for PPI.

Major Lessons

For TAs to reach full potential the field time of consultants should be maximized and overlap with ADB missions as much as possible. TA design should take into account the complexities of gaining approval of several government agencies even after much has been accomplished in vetting a policy, regulation or law. The amount of TA funds should be closely aligned with specific inputs, implementing agency capacity, and potential development partner contributions. In the case of clear deliverables, lump sum contracting (as used here) may save resources. Recommendations and Follow-Up Actions

No action is recommended.

Prepared by: William Graham Settle Designation: Senior Private Sector Development Specialist Cynthia Nazario Associate Project Officer

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.

34 Appendix 6

OVERALL ASSESSMENT OF THE PROGRAM Criterion Weight

(%) Definition under ADB

Guidelines Rating

Description Rating Value

Program Rating

Score

Relevance 20 Relevance is the consistency of a project’s impact and outcome with the government’s development strategy for the country, and ADB’s strategic objectives at the time of approval and evaluation, and the adequacy of the design.

Highly relevant Relevant Partly relevant Irrelevant

3 2 1 0

2 0.4

Effectiveness 30 Effectiveness describes the extent to which the outcome, as specified in the design and monitoring framework, either as agreed at approval or as subsequently modified, has been achieved.

Highly effective Effective Less effective Ineffective

3 2 1 0

2 0.6

Efficiency 30 Efficiency describes, ex post, how economically resources have been converted to results, using the economic internal rate of return, or cost effectiveness, of the investment or other indicators as a measure, and the resilience to risk of the net benefit flows over time.

Highly efficient Efficient Less efficient Inefficient

3 2 1 0

1 0.3

Sustainability 20 Sustainability considers the likelihood that human, institutional, financial, and other resources are sufficient to maintain the outcome over its economic life.

Most likely Likely Less likely Unlikely

3 2 1 0

2 0.4

Overall assessment

The overall assessment of the program is ―successful‖ Highly successful: Overall weighted average is greater than or equal to 2.7 Successful: Overall weighted average is greater than or equal to 1.6 and less than 2.7 Partly successful: Overall weighted average is greater than or equal to 0.8 and less than 1.6. Unsuccessful: Overall weighted average is less than 0.8.

Total 1.7

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