Nepal | June 16, 2019

‘Any increase in annual lending must go hand in hand with higher utilisation’

Himalayan News Service
Interview with Kenichi Yokoyama, Country Director of ADB Nepal Resident Mission. Photo: Balkrishna Thapa Chhetri/THT

Interview with Kenichi Yokoyama, Country Director of ADB Nepal Resident Mission. Photo: Balkrishna Thapa Chhetri/THT

The Asian Development Bank has long been assisting the country in the development of infrastructure projects, human resources and also in areas of inclusive and sustainable development. The Manila-based multilateral development partner has been marking 50 years of its establishment this year and it has already announced to increase annual lending level to $500 million to Nepal. Probably, by next year the longest running ADB-assisted Melamchi Drinking Water Supply Project will also be completed, which is expected to end drinking water related woes of the denizens of Kathmandu Valley. Pushpa Raj Acharya of The Himalayan Times caught up with Kenichi Yokoyama, Country Director of ADB Nepal Resident Mission, to talk on what ADB has been doing to accelerate the performance of other ADB assisted projects in Nepal as the Melamchi Project is finally going to be completed next year. Excerpts:

Asian Development Bank has been assisting Nepal since long in various projects. How would you like to summarise 50 years of partnership with Nepal?

It has been a privilege for ADB to partner with Nepal in its dramatic journey over the half century. Despite a number of political and other challenges including the 2015 earthquake, Nepal has had steady progress in combating poverty and social disparities, and achieved a majority of the millennium development goals. I think ADB has been able to provide essential building blocks in this endeavour, such as key hydroelectric projects like 140-megawatt Kali Gandaki-A and 60MW Khimti, strategic and district core roads, major airports including Kathmandu, urban infrastructure such as Melamchi Drinking Water Supply Project, that is finally completing in 2017, education and skills development and rural upliftment through  irrigation and agriculture value chains in many districts. I am honoured when many people tell us that ADB is one of the most trusted development partners in Nepal.

ADB has said it is ready to increase annual lending level to $500 million from existing $300 million. Do you think the country will be able to absorb that amount of aid because contracts for over 50 per cent of the net available funding worth $1.7 billion has still not been awarded?

We started 2016 with outstanding funds of $1.73 billion, of which 55 per cent and 72 per cent was still to be awarded and disbursed, respectively. The undisbursed amount ($1.26 billion) is equivalent to almost six per cent of Nepal’s gross domestic product (GDP). So, any increase in annual lending must go hand in hand with higher utilisation. Thanks to the effort of all, implementation of ADB projects is improving. For 2016, we expect to award contracts worth $360 million and disburse funds worth $220 million. For 2017, we also foresee awarding contracts worth $450 million and disbursements of $300 million, assuming normal implementation environment. So I think we are on track towards increasing lending and absorption levels together.

What are the major factors causing slow progress of projects in Nepal?

There are several key factors. First, the country is short of investment-ready projects, requiring more time to prepare them by doing surveys and studies. Second is budgetary process. Although timely budget approval is now mandated by the constitution, which is great, the budget release procedure is quite complex and time consuming. Third is procurement. Challenges include excessive segregation of contracts and weak technical evaluation due to which cost of completing projects is comparatively higher. There is also insufficient control of irregular practices. For this, recent progress in applying e-procurement can help. Fourth is contract management. This requires much stronger discipline to enforce time, cost and quality specifications, controlling irregular compromise between the contracting parties. Lastly, available personnel to manage projects are thin, which needs to be augmented by outsourcing, but managing outsourced consultants also requires strong capacities to do so. These should be consistently tackled both at systemic and project levels.

There is a mechanism called tripartite portfolio review meeting (TPRM) where the line agencies, National Planning Commission/Ministry of Finance and ADB officials review the performance of projects every quarter and also seek necessary solutions to expedite projects. Despite these efforts how are we not able to achieve targets within stipulated timeframe?

I think TPRM is an effective mechanism to improve project performance. For each project, it identifies problems and causes, and discusses which agency will take what actions to accelerate implementation. This mechanism is working relatively well, contributing to our improved performance in 2016. But compliance level of taking agreed action on time needs to be improved. Resolving problems also at times takes much longer, particularly when they involve external parties.

The longest run (nearly 17 years) ADB assisted project, Melamchi Drinking Water Supply Project, is expected to be completed by 2017 but Kathmandu Upatyaka Khanepani Ltd (KUKL) has yet to do the needful to distribute drinking water effectively in the Valley. What has ADB been doing to strengthen capacity of KUKL?

I am glad to say that there is now less than six kilometres of the Melamchi tunnel to be excavated, with monthly progress of 0.8 to one km. This means we can expect the water from Melamchi to reach Kathmandu by October, 2017. So now is the time to start helping KUKL undergo visible changes to become customer-oriented efficient water utility. With the new general manager (GM) on board, KUKL now needs to deploy competent managers for a few technical divisions like finance, administration and customer relations, along with a large number of technical staff to supplement existing workforce. Reforms like automated water distribution operation, computer billing and mobile payment systems are also envisaged, with intensive staff training. More importantly, there is a critical need to have a strong and enabling board that can closely support the GM to take quick and effective decisions, while providing visionary and strategic advice to realise the project’s dream of delivering clean water in Kathmandu. We have a lot of experience in assisting drastic transformation of major water utilities becoming a customer oriented water provider with high public reputation, and I am sure KUKL can also be like that.

 The progress in reconstruction of earthquake ravaged schools, government buildings and roads under the Earthquake Emergency Assistance Project (EEAP) has been slow. What is the government and ADB doing to expedite it?

The $200 million EEAP was approved on June 24, 2015 to help reconstruct schools, strategic and district core roads and government buildings in district towns. So far, contract award and disbursement remains only at 13 per cent and one per cent, respectively. We must admit that progress has been slow, about nine months behind schedule. But implementation has picked up recently. Now that survey and design standards have been finalised, reflecting build-back-better principle, they are ongoing in full-fledged manner. We are hopeful that most contracts will be awarded before next Dashain, and reconstruction completed in two years or September 2019.

ADB recently approved loan worth $186.8 million for the upgradation of Narayangadh- Butwal road and one feeder road from Bhairahawa to Taulihawa, which will be one of the largest projects (in terms of project cost). Do you think the project will be implemented on time as ADB has envisioned to complete it by early 2022?

In our case road projects are progressing satisfactorily. This time, size of this project is quite big (it has three packages) and we hope a genuine contractor will come to handle this. The Indian and Chinese contractors have shown interest in this project. The bidding document includes a condition that the main contractor cannot deploy sub-contractors at different layers. The international contractor with good technical and managerial capacity needs to engage renowned local contractors for sub-contracting arrangements. In this project, there will be international engineers to supervise on behalf of the Department of Roads. And we hope the project will be completed within desired timeframe.

ADB has made a forecast that the economy will grow by 4.8 per cent in this fiscal 2016-17. Do you think this projection will be achieved because the government’s capital spending in first four months has been very low at just 4.76 per cent?

Key factors affecting fiscal 2016-17 economic growth projection include agriculture output that is influenced by monsoon, pace of post-earthquake reconstruction, budget execution and remittance inflows influencing service sector. Overall, we remain optimistic about our growth projection. The monsoon in 2016 was favourable. Very low capital expenditure is indeed disappointing, when we recall the budget was passed quite early. But the first four months corresponds to monsoon and festival periods, and many government projects are undergoing procurement. So we think capital expenditure will pick up along with reconstruction works. On the other hand, decreasing trend of remittance growth can be a concern that may put downward pressure on the economy. This needs to be closely watched.

ADB has stopped providing grant citing the country’s improved capacity to pay back foreign loans. But there is one window of climate financing facility under which Nepal can receive grant to cope with the challenges of climate change?

We have a policy like the World Bank and depending on the country’s debt situation we provide concessional loan if the debt sustainability risk is low. Nepal’s debt sustainability risk is low because of the increased remittance inflow over the years, capital expenditure is not growing and the budgetary situation is quite strong. There is Green Climate Fund, under which the ADB has recently approved $20 million grant for Nepal to expand the solar-grid energy here and we will soon announce about this.

The government recently amended the Securities Registration and Issue Regulation, which allows international financial institutions to issue local currency bonds. ADB has also proposed to issue local currency bond to the government. What are the preparations being made by ADB?

We welcome the new regulation. On this, we have broadly discussed that local currency bond would be of a sizeable amount of about Rs 50 billion, and has aimed at investments in hydroelectricity sector. But creating the space for private investment of this magnitude, which corresponds to 1,500MW of new generation capacity, will require drastic changes in the energy sector policy, regulatory and institutional setup. Private investors need to be confident that there will be sufficient investment returns. This calls for establishing credible regulatory agency, reforming Nepal Electricity Authority to sustainably reduce system loss and enhance revenue, and providing clarity on domestic power consumption and power trading arrangements, as well as risk sharing. ADB has offered assistance, together with the World Bank and other development partners, to establish such sector frameworks and systems. Close discussion is ongoing on this front.

Is there anything you would like to add in the end?

In expediting project implementation and capital expenditure, I would like to emphasise need for stable and strong leadership. The best performing ADB projects, now like Melamchi and SASEC road projects, all have highly competent project directors, supported by professional consultants and contractors. So, we wish to see a strong norm established that project leadership is selected on the basis of competency, as compared with personal or political connections. All in all, ADB is glad to enhance and deepen our partnership with Nepal, to further advance the journey towards the country’s accelerated and inclusive economic growth. This involves substantially enhancing capital expenditure, building strong human capital, and transforming economic structure toward high value competitive industries. I am hopeful our partnership will be able to contribute to making visible progress to this direction in the near future.

 


A version of this article appears in print on December 05, 2016 of The Himalayan Times.


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