Proposed Multitranche Financing Facility India: Tamil Nadu Urban Flagship Investment Program

Transcription

1 Facility Administration Manual Project Number: Loan Number: LXXXX September 2018 Proposed Multitranche Financing Facility India: Tamil Nadu Urban Flagship Investment Program

2 ABBREVIATIONS ADB Asian Development Bank CMSC contract management and supervision consultant CMWSSB Chennai Metropolitan Water Supply and Sewerage Board CAG Comptroller and Auditor General CAPP community awareness and participation plan CPS country partnership strategy CWPS clear water pumping station DMA district metering area DMF design and monitoring framework DPR detailed project report E&M electrical and mechanical EARF environmental assessment and review framework EMP environmental management plan EOI expression of interest FAM facility administration manual FFA framework financing agreement FMA financial management assessment FY fiscal year GePNIC Government e-procurement System of the National Informatics Centre GIS geographic information system GOTN Government of Tamil Nadu GRM grievance redressal mechanism ICB International Competitive Bidding IEE initial environmental examination LARRA Land Acquisition, Rehabilitation and Resettlement Act lpcd liter per capita per day MAWS Municipal Administration and Water Supply Department MFF multitranche financing facility NCB National Competitive Bidding NGO nongovernment organization NRW nonrevenue water O&M operation and maintenance OCR ordinary capital resources PAI project administration instructions PFR periodic financing request PIU program implementation unit PMU program management unit PPMS project performance management system QCBS quality- and cost-based selection RRP report and recommendations of the President SCADA supervisory control and data acquisition SLB service level benchmark SOE statement of expenditure SPS Safeguard Policy Statement STP sewage treatment plant TNUIFSL Tamil Nadu Urban Infrastructure and Financial Services Limited TNUFIP Tamil Nadu Urban Flagship Investment Program

3 TWAD Tamil Nadu Water Supply and Drainage Board UGR underground service reservoir URL user resource location WTP water treatment plant

4 CONTENTS I. PROJECT DESCRIPTION 1 A. Rationale 1 B. Road Map 2 C. Multitranche Financing Facility 2 D. Impact and Outcome 3 E. Outputs 3 II. IMPLEMENTATION PLANS 6 A. Project Readiness Activities 6 B. Overall Project Implementation Plan 7 III. PROGRAM MANAGEMENT ARRANGEMENTS 10 A. Key Persons Involved in Implementation 14 B. Project Organization Structure 16 IV. COSTS AND FINANCING 17 A. Cost Estimates Preparation and Revisions 18 B. Key Assumptions 18 C. Detailed Cost Estimates by Expenditure Category 19 D. Allocation and Withdrawal of Loan/Grant Proceeds 20 E. Detailed Cost Estimates by Financier 21 F. Detailed Cost Estimates by Outputs and/or Components 22 G. Detailed Cost Estimates by Year 23 H. Contract and Disbursement S-Curve 24 V. FINANCIAL MANAGEMENT 25 A. Financial Management Assessment 25 B. Disbursement 35 C. Accounting 36 D. Auditing and Public Disclosure 37 VI. PROCUREMENT AND CONSULTING SERVICES 38 A. Advance Contracting and Retroactive Financing 38 B. Procurement of Goods, Works, and Consulting Services 38 C. Procurement Plan 40 D. Consultant's Terms of Reference 43 VII. SAFEGUARDS 43 A. Environmental Safeguards 44 B. Social Safeguards 46 VIII. GENDER AND SOCIAL DIMENSIONS 50 IX. PERFORMANCE MONITORING, EVALUATION, REPORTING, AND COMMUNICATION 51 A. Project Design and Monitoring Framework 51 B. Monitoring 51 C. Evaluation 52 D. Reporting 52 E. Stakeholder Communication Strategy 52 X. ANTICORRUPTION POLICY 53 XI. ACCOUNTABILITY MECHANISM 54 XII. RECORD OF CHANGES TO THE PROJECT ADMINISTRATION MANUAL 54

5 List of Appendixes 1. Design and Monitoring Framework for the Investment Program 2. Design and Monitoring Framework for Tranche 1 3. Criteria for Subproject Selection for Future Tranches 4. Performance-based Governance Improvement Component 5. Procurement Plan 6. Outline Terms of Reference for the Contract Management and Supervision Consultant 7. Draft Outline Terms of Reference for Governance Improvement and Awareness Consultants 8. Draft Outline Terms of Reference for Project Development Consultant 9. Gender Action Plan 10. Gender Action Plan Monitoring Format 11. Community Awareness and Participation Plan

6 Facility Administration Manual Purpose and Process The Facility Administration Manual (FAM) describes the essential administrative and management requirements to implement the project on time, within budget, and in accordance with the policies and procedures of the government and Asian Development Bank (ADB). The Municipal Administration and Water Supply (MAWS) Department, Government of Tamil Nadu (GOTN), acting through Tamil Nadu Urban Infrastructure Financial Services Limited (TNUIFSL), are wholly responsible for the implementation of ADB-financed projects, as agreed jointly between the borrower and ADB, and in accordance with the policies and procedures of the government and ADB. ADB staff is responsible for supporting implementation including compliance by TNUIFSL of their obligations and responsibilities for project implementation in accordance with ADB s policies and procedures. At loan negotiations, the borrower and ADB agreed to the FAM and ensured consistency with the loan and project agreements. Such agreement is reflected in the minutes of the loan negotiations. In the event of any discrepancy or contradiction between the FAM and the loan agreement, the provisions of the loan agreement will prevail. After ADB Board approval of the project's report and recommendations of the President (RRP), changes in implementation arrangements are subject to agreement and approval pursuant to relevant government and ADB administrative procedures (including the Facility Administration Instructions) and upon such approval, they will be subsequently incorporated in the FAM.

7 I. PROJECT DESCRIPTION 1. The Tamil Nadu Urban Flagship Investment Program (the program) will develop priority water supply, sewerage, and drainage infrastructure in at least 10 cities located within strategic industrial corridors of Tamil Nadu. 1 It will support innovative pilot projects, including India's first solar-powered sewage treatment plant (STP) to offset greenhouse gas emissions and enhance operational efficiency; strengthen urban governance; and build capacity of state and local institutions to enhance urban services delivery, environmental sustainability, and climate resilience. 2 A. Rationale 2. Urban Challenges in Tamil Nadu. Tamil Nadu is the most urbanized of India s large states 48.5% of its population lives in urban areas, a share that is projected to increase to 67.0% in 2030 and makes the second-largest contribution to the country s gross domestic product. Although Tamil Nadu is a leader in many areas of manufacturing, managing its rapid urbanization is essential to sustain economic growth, alleviate poverty, and maintain urban livability. Key challenges include (i) acute infrastructure deficits as a result of rapid urbanization; (ii) growth of slum populations; (iii) pollution of waterways; (iv) weak institutional capacity to plan and implement projects; and (v) mixed performance in key areas of governance, including local revenue generation, financial management, and municipal administration. Water-related disasters such as recurring droughts (once in every 2.5 years) and catastrophic urban floods linked to climate change are aggravated by the high water losses associated with aging distribution networks, and inadequate drainage systems not adapted to heavier monsoon rains. Addressing these complex challenges requires significant investments and deeper institutional support. 3. Low service level indicators. In Tamil Nadu, urban service levels remain low. As of 2017: (i) 48% of households are served by piped water; (ii) 80% of cities receive less than 80 liters of water per capita per day versus the national standard of 135 liters per capita per day; (iii) nonrevenue water (NRW) is 30% 50%; (iv) 42% of households are covered by a sewerage network; (v) wastewater treatment capacity is 43% of sewage generation; and (vi) urban drainage coverage is 50%. 3 Low service levels are primarily the result of inadequate local finances to invest in capital expenditures and a shortage of trained staff. The program will directly support improvement in these areas. 4. National urban flagship programs. To help finance the large-scale investments in Tamil Nadu, the state will take advantage of funds from the three national flagship programs under the Ministry of Housing and Urban Affairs: (i) the Swachh Bharat (Clean India) Mission for Urban Areas, (ii) the Atal Mission for Rejuvenation and Urban Transformation, and (iii) the Smart Cities Mission. The programs are complementary, and each highlights the need to strengthen urban institutions and governance. Nevertheless, these funding sources are not sufficient for the large funding requirements of Tamil Nadu, and the state requested help from Asian Development Bank (ADB) to finance water supply, sewerage, and drainage infrastructure in at least 10 cities within 1 The project will include the following city corporations and municipalities (collectively referred to as cities): Ambur, Chennai, Coimbatore, Cuddalore, Rajapalayam, Thoothukudi, Tiruppur, Tiruchirappalli, Tirunelveli, and Vellore. The cities were selected based on population size, location in economic corridors, and eligibility for central government funds. Other cities eligible for support under the program are subject to compliance with selection criteria outlined in the Framework Financing Agreement (accessible from the list of linked documents in Appendix 2). 2 ADB Technical Assistance to India for State-Level Support for National Flagship Urban Programs. Manila. 3 Government of Tamil Nadu State Annual Action Plan, Chennai.

8 2 strategic industrial corridors, as well as programs to develop institutional capacity, public awareness, and urban governance. B. Road Map 5. Road map, strategic context, policy framework, and investment program. As per its Policy Note ( ), 4 the state aims to lead India in addressing the challenges of rapid urbanization and transform its cities into modern, clean, and livable places. The state will achieve these goals through a range of programs focusing on institutional strengthening, green technologies, pro-poor and gender friendly services, and responsive urban governance. Key strategic documents, namely its Twelfth Five-Year Plan ( ), Tamil Nadu Vision 2023, 5 the State Annual Action Plan for urban development (SAAP, 2017) and the State Action Plan on Climate Change (2014) outline clear investment plans to achieve the state s policy goals, including (i) universal access to basic services, (ii) development of world-class cities, (iii) a thrust on industrial corridors, and (iv) climate resilient urban development. 6 Vision 2023 estimates $42.7 billion in urban investment, including $7.5 billion for water supply and sanitation prioritizing continuous and full coverage of services. The SAAP identifies a shelf of 136 projects in 27 cities covering water supply, sewerage, and drainage infrastructure and promotes principles of cost recovery, operational efficiency, and citizen participation, amongst others. The road map and policy framework are adequate to guide the program and ensure its sustainability. 6. The total cost of the state s urban infrastructure investment program under the Road Map is $42.7 billion equivalent, with short-term needs in water supply and sanitation placed at $4.46 billion equivalent (see financing framework agreement [FFA] for details). C. Multitranche Financing Facility 7. Choice of ADB lending modality. An multitranche financing facility (MFF) is a suitable financing modality considering the large-scale investment requirements covering multiple cities and subprojects planned within a clear policy framework. The MFF will facilitate long-term policy dialogue and capacity development, particularly in critical areas of sustainable services delivery and climate change. The Tamil Nadu Urban Infrastructure Financial Services Limited (TNUIFSL) and the implementing agencies have a good track record of implementing donor funded projects. Subprojects under Tranche 1 and the subsequent tranches will be of a similar nature. No Category A safeguards projects will be included in the MFF. The program is aligned with ADB s country partnership strategy, for India, particularly the three pillars of growth linked to India s urban transformation, 7 and is included in the country operations business plan, It supports development of the Chennai Kanyakumari Industrial Corridor implemented by the state in partnership with ADB to link the state s manufacturing sector with value chains in East and Southeast Asia. 9 4 Government of Tamil Nadu Municipal Administration and Water Supply Department Policy Note. Chennai. 5 Government of Tamil Nadu Vision Tamil Nadu Chennai. 6 Tamil Nadu Vision 2023 lists the following five corridors: Chennai-Hosur, Chennai-Tiruchirappalli, Coimbatore- Madurai, Coimbatore-Salem and Madurai-Thoothukudi corridors. Two of these corridors, the Chennai Tiruchirappalli and Madurai Thoothukudi corridors coincide with the East Coast Economic Corridor supported by ADB. 7 ADB Country Partnership Strategy. India, Manila. Pillars of growth (i) boosting competitiveness of cities in economic corridors, (ii) inclusive infrastructure and services, and (iii) increasing climate change resilience. 8 ADB Country Operations Business Plan. India, Manila. 9 ADB Technical Assistance for Supporting Preparation of a Comprehensive Master Plan for Chennai- Kanyakumari Industrial Corridor. Manila (TA-9446).

9 3 8. Lessons learned. Key lessons learned from past urban sector experience and incorporated into the program design include: (i) developing high project readiness for timely implementation and on-time delivery of outcomes to beneficiaries, (ii) tendering larger sized contract packages to attract good bidders and reduce administrative burden to urban local bodies (ULBs) of managing multiple smaller sized packages, (iii) incorporating water and sewerage connections into the civil works contracts to ensure household connectivity and sufficient flows, (iv) incorporating requirements for ULB financial sustainability and operation and maintenance (O&M), (v) supporting innovative approaches to improve energy efficiency and strengthen climate resilience in project designs, (vi) aligning with broader economic strategy of the state, and (vii) incentivizing ULB performance in key areas of urban governance and project implementation. 9. Framework financing agreement. The FFA records the agreements between India and ADB and establishes the principles by which ADB would provide financing, and India would avail itself of such financing. The FFA outlines the requirements for submitting periodic financing requests (PFR) to ADB. Currently, the MFF comprises three tranches to be implemented over a period of 8 years ( ), indicatively as follows: Tranche 1 ( ), Tranche 2 ( ), and Tranche 3 ( ). 10. Tranches and projects under the multitranche financing facility. Each tranche will constitute a project loan. Tranche 1 is representative of subprojects to be financed under the MFF. 10 ADB will approve financing for subsequent tranches under the MFF subject to good performance of ongoing tranches as assessed by Department of Economic Affairs (DEA) and ADB and complying with the requirements set out in the FFA, including compliance with subproject selection criteria and implementation arrangements. D. Impact and Outcome 11. The investment program is aligned with the following impacts: (i) universal access to basic water and sanitation services achieved; (ii) world-class cities and industrial corridors across the state developed; and (iii) water security, reduced vulnerability to climate change in urban areas, and enhanced share of renewable energy achieved. 11 The investment program will have the following outcome: livability and climate resilience in at least 10 cities in priority industrial corridors enhanced. E. Outputs 12. The MFF investment program will have three outputs. 13. Output 1: Climate-resilient sewage collection and treatment, and drainage systems developed in at least eight cities. This includes (i) 187 million liters per day (MLD) of new and 155 MLD of rehabilitated sewage treatment capacity developed, with solar power systems installed for STP operations on a pilot basis; (ii) treated wastewater reused for industrial purposes in selected areas; (iii) 2,810 kilometers (km) of sewage collection pipelines constructed, with 426,600 households connected; (iv) 173 sewage pump stations with a combined capacity of 6,390 kilowatts (kw) constructed; (v) 20 all-female community water and sanitation committees formed; 10 Tranche 1 corresponds to tranche 1 of the MFF and Tranche 2 corresponds to tranche 2 of the MFF, etc. 11 The design and monitoring framework for the Investment Program is in Appendix 1.

10 Output 1 4 and (vi) climate-resilient drainage and flood management systems (250 km of tertiary and 50 km of primary and secondary drains) established in selected cities Output 2: Water supply systems in at least five cities improved with smart features. This includes (i) smart water supply distribution systems (1,520 km pipelines) established within 110 new district metered areas (DMAs) to reduce NRW and provide regular water supply, with 100% of households (total of 171,000) connected; (ii) 120 km of transmission mains built; (iii) 30 pump stations (1,530 kw capacity) constructed; and (iv) 40 water storage reservoirs (combined capacity of 70 million liters), covering Chennai, Coimbatore, Cuddalore, Tiruppur, and Thoothukudi constructed. 15. Output 3: Institutional capacity, public awareness, and urban governance strengthened. This includes (i) establishing within Commissionerate of Municipal Administration (CMA) (a) a new state-level urban data and governance improvement cell, and (b) a new project design and management center; and (ii) implementing (a) state-wide performance-based urban governance improvement program for Tamil Nadu s 135 cities to improve revenue, financial management, administration, service delivery, gender mainstreaming, wastewater reuse, and fecal sludge management; and (b) public awareness campaigns on water conservation, sanitation, and hygiene in project cities. The program will intensify the capacity building of key urban institutions and provide incentives for urban governance improvement. Project design consultants will be recruited by the PMU to prepare new projects in subsequent tranches that meet ADB requirements. 16. The scope of Tranche 1 and indicative scopes for Tranches 2 and 3 are included in Table 1. Table 1: Scope of Tranches 1, 2 and 3 of the Multitranche Financing Facility Item Descriptions Unit Sewage treatment capacity rehabilitated Sewage treatment capacity newly added sewage collection pipelines constructed Number of house service connections Sewage pumping capacity added Renewable energy generated from dedicated solar power Treated sewage for industrial reuse provided Primary and secondary storm Tranche 1 Tranche 2 Tranche 3 Total under MFF MLD MLD km 1, ,810 nos kw GHG 3, ,400 MLD km The eight cities are Ambur, Chennai, Coimbatore, Rajapalayam, Tiruchirappalli, Tirunelveli, Tirupur, and Vellore. Drainage systems are proposed in Chennai, Cuddalore, and Thoothukudi.

11 Output 2 Output 3 5 Item Descriptions Unit water drains constructed Tertiary storm water drains constructed Community water and sanitation committees formed Water distribution pipelines constructed Water supply customer connections provided Pumps replaced /added Tranche 1 Tranche 2 Tranche 3 Total under MFF km nos km nos 30,800 63,558 76,206 1,70,564 kw DMAs established nos New reservoirs constructed ml Awareness campaign for 1000 School children, teachers and adminstrators for no water conservation and hygeine conducted Project Management and Design Center established in CMA nos and staff trained Design Manuals and standards Developed Set New data base with gender disaggregated data established in urban no data and governance improvement cell Training on gender and social inclusion in urban governance nos provided to CMA and ULB staff CMA = Commissionerate of Municipal Administration, DMA = district metering area, GAP = gender action plan, GHG = greenhouse gas, km = kilometer, kw = kilowatt, MFF = multitranche financing facility, ml = milliliter, MLD = million liters per day, nos = numbers, ULB = urban local body.

12 6 II. IMPLEMENTATION PLANS A. Project Readiness Activities Table 2: Tranche 1 Readiness Activities Indicative Activities Responsible Agency Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 ADB loan fact-finding mission Oct GOTN, ADB, DEA Advance contracting actions for consultant recruitment Establishment of project implementation arrangements Issuance of RFPs for CMSC recruitment Oct Nov TNUIFSL, ADB TNUIFSL Feb May TNUIFSL Consultant mobilization Aug TNUIFSL, PIU Approval of works bidding documents Nov Feb May GOTN, TNUIFSL, PIU, ADB IFB advertisement for all works packages Dec Feb May TNUIFSL, PIU ADB Management Review Meeting May ADB EOI advertisement of the Capacity Building Consultants Loan negotiations ADB Board approval Sep ADB June Jul TNUIFSL, CMA, ADB GOI, GOTN, TNUIFSL, PIU, ADB Loan signing Oct GOI, GOTN, ADB Loan effectiveness Jan GOI, GOTN ADB = Asian Development Bank, CMSC = construction management and supervision consultant, EOI = expression of interest, GOI = Government of India, GOTN = Government of Tamil Nadu, IFB = invitation for bidding, PIU = program implementation unit, PMU = program management unit, RFP = request for proposal, TNUIFSL= Tamil Nadu Urban Infrastructure Financial Services Limited. Source: Asian Development Bank estimates.

13 7 B. Overall Project Implementation Plan 13 Table 3: Tranche 1 Overall Project Implementation Plan Activities A. DMF 1. Climate-resilient sewage collection and treatment, and drainage systems developed in six cities 1.1 Approve DPR of the sewerage packages for Tirunelveli & Vellore 1.2 Award the sewerage packages for Tirunelveli & Vellore 1.3 Approve DPRs of all remaining sewerage packages 1.4 Award all remaining sewerage packages 1.5 Complete and commission all civil works 2. Water supply systems in one city improved with smart features 2.1 Approve DPRs of water supply packages X X X X X X 13 Gantt chart available in e-handbook on project implementation at

14 8 Activities Award water supply X packages 2.3 Complete and commission all civil X works related to water supply packages 3. Institutional capacity, public awareness, and urban governance strengthened 3.1 Initiate support to CMA in preparation and implementation of reforms and capacity development plan 3.2 Start and complete implementation of capacity building & reforms plan 3.3 Start and complete implementation of GAP and CAPP 3.4 Prepare action plan for implementation of project development facility 3.5 Develop bankable projects 3.6 Initiate & complete community awareness activities B. Program Management Activities X X X X X X

15 9 Activities Mobilize construction contract management & X supervision consultants Mobilise capacity X development consultants Establish program management unit with full X staff CAPP = community awareness and participation plan, CMA = Commissioner of Municipal Administration, DMF = design and monitoring framework, DPR = detailed project report, GAP = gender action plan. Source: Asian Development Bank.

16 10 III. PROGRAM MANAGEMENT ARRANGEMENTS 17. The Municipal and Water Supply Department (MAWS) acting through TNUIFSL will be the executing agency. A program steering committee, headed by Principal Secretary, MAWS Department, Government of Tamil Nadu (GOTN), will provide overall guidance and strategic directions to the program. A program management unit (PMU), headed by the Managing Director, TNUIFSL acting as Program Director will be established within TNUIFSL for overall management, planning, implementing, monitoring, reporting, and coordinating the program. The CMA will act as the Deputy Program Director in the PMU. The project ULBs, represented by respective Municipal Commissioners, will be the implementing agencies for works in cities/towns and will establish program implementing units (PIUs) headed by a municipal engineer as full-time Project Manager. PIUs will comprise of dedicated staff responsible for overseeing implementation of projects on a day-to-day basis. The PIUs will be supported by a contract management and supervision consultant (CMSC) recruited by TNUIFSL. ULBs under the program with less project implementation experience may utilize implementation support from the Tamil Nadu Water Supply and Drainage Board (TWAD) to strengthen implementation capacity. 14 In such cases, TWAD will establish a PIU and the ULB will appoint counterpart staff to coordinate implementation activities. For sewerage and water supply works in Chennai, The Chennai Metropolitan Water Supply and Sewerage Board (CMWSSB), represented by its Managing Director, will be the implementing agency and establish a PIU headed by a superintending engineer as full-time Project Manager. For the institutional capacity, public awareness, and urban governance component, CMA acting through its Commissioner, will establish a PIU and appoint a governance improvement and awareness consultant (GIAC) responsible for supporting these activities. 18. The PMU staff will be mostly drawn from TNUIFSL, CMA, and municipal services, and, if required, will also be seconded from the other government departments such as TWAD, on deputation. The PIU staff will be drawn from the engineering units of the participating ULBs and augmented from the same government departments mentioned above as required. The CMSC will assist the PIUs implement, manage, and monitor works of the program. TNUIFSL will recruit a project design consultant (PDC) to prepare projects in consultation with ULBs for subsequent tranches. With the help of PMU, PIUs will design infrastructure, manage procurement processes, supervise construction, assure technical quality of designs and construction, and provide support on capacity building, governance improvement, and awareness building. The implementing agencies will procure contractors and manage construction and commissioning activities. 15 For social and environmental safeguards, the PMU and PIUs will appoint staff to oversee safeguards monitoring and compliance. 19. The roles and responsibilities are summarized in Table 4. Table 4: Management Roles and Responsibilities Program Implementation Arrangements Executing Agency: MAWS acting through TNUIFSL Management Roles and Responsibilities Negotiate, sign, and execute the program; Allocate and release government counterpart funds on time; Facilitate obtaining administrative sanction from the government for overall program and for all the subprojects with PIU staffing; Facilitate obtaining timely government-level approvals for smooth implementation of the program; 14 These include Rajapalayam (Tranche 1), Coimbatore (Tranche 1), Ambur (Tranche 2), and Cuddalore (Tranche 3). 15 In the case of TWAD supported projects, TWAD will do procurement while ULBs will make payments.

17 11 Program Implementation Arrangements Program Steering Committee a (headed by Principal Secretary, MAWS) Members: Managing Director, TNUIFSL (Convener) Commissioner of Municipal Administration Managing Director, CMWSSB Managing Director, TWAD Managing Director, TUFIDCO Program Management Unit Program Director: Managing Director, TNUIFSL Deputy Program Director: CMA PMU Staff (10): Technical Expert Accounts Officer Financial Officer/s Safeguards Officers Procurement Officer/s Administrative Officer Management Roles and Responsibilities Monitor program implementation progress and ensure timely actions for completion of the project; Responsible for annual independent audits of program accounts; and Plan, implement, and monitor public relations activities; gender mainstreaming initiatives and community participation activities, with the support of PIUs. Provide strategic guidance; Provide policy decisions to support smooth program implementation; Facilitate inter-departmental coordination and cooperation; Support TNUIFSL with government/ministerial level approvals; and Review and monitor the physical and financial progress of the subprojects. Program and Financial Management Overall responsibility of the investment program and financial management and administering program procedures and guidelines; Oversee MFF design of all projects in individual tranches; Prepare periodic financing requests for tranches; Review the DPRs submitted by ULBs / implementing agencies and obtain approval from ADB and government; Undertake project appraisals based on technical, financial, economic and safeguards compliance as agreed by GOTN/ TNUIFSL and ADB; Undertake financial structuring and obtain approval for the subprojects from the Sanctioning Committee; Sanction and disburse loan and grant funds to sub-projects based on progress and timely provision of counterpart funds from state finance department; Manage overall contract award and disbursement performance Manage overall fund flow; Provide overall technical and implementation guidance to the PIUs as required; Facilitate approval of various implementation related requests from the PIUs; Develop annual work plans, work schedules and budgets; Sign key documents including withdrawal applications and audit reports; Timely submit withdrawal applications; Establish financial accounting and control systems and ensuring accurate and timely report submissions and funds flow from ADB. Monitor safeguards compliance of PIUs; Act as focal point for communication with the ADB; Ensure compliance with loan covenants, ADB s guidelines, procedures and policies;

18 12 Program Implementation Arrangements Management Roles and Responsibilities Facilitate ADB program review missions; and Represent the program at Tripartite Review Meetings. Accounting and Reporting Report the program s progress to GOTN and ADB (quarterly); and Submit audited project accounts to GOTN and ADB (annually). Safeguards compliance Review and monitor safeguards compliance by PIUs and support corrective actions as necessary; Submit semi-annual safeguard monitoring reports to ADB; and Guide PIUs as and when necessary on safeguards compliance, and arrange capacity building for PIUs. Recruitment of Consultants Recruit consultants in accordance with ADB consultant recruitment guidelines and make payments to them; and Obtain ADB s concurrence for consultants recruitment. Project Implementing Units Project ULBs CMWSSB CMA TWAD Board A. PIU Staff (5): b Project Manager Technical Expert Accounts/Financial Officer Safeguards-gender Officer Contract Management Officer Procurement of Works/Goods Contracts Support ULB PIUs with preparation of bid documents as required, and with procurement process; Obtain ADB concurrence for bid documents, bid evaluation reports and contract awards; and Ensure compliance with ADB procurement policies and procedures. Project Management Responsible in managing subprojects; and Responsible for day-to-day implementation, monitoring and reporting. Procurement of works/goods contracts Prepare bidding documents for goods and works and submit through PMU to ADB for approval; Issue invitation for bids, evaluate bids and submit reports to ADB through PMU for approval and award contracts after approval from ADB; and Check all clearances including administrative, regulatory and statutory approvals. Supervision and Monitoring of the Construction Works Oversee, coordinate and monitor works (civil, electrical and mechanical) and supply of equipment and materials ensuring sound works supervision and high-quality control and any other technical matters and issue certificates for acceptance; Measure and record acceptable works, check contractor s/ suppliers invoices and recommend payments to the contractors; Manage contracts, prepare variation orders; and submit variation requests to approving authority with due intimation to PMU;

19 13 Program Implementation Arrangements Management Roles and Responsibilities Coordinate preparation of final measurement and 'as built' drawings; and Monitor implementation. Safeguards Compliance Ensure compliance with safeguard frameworks and plans; Facilitate consultation with stakeholders and disclose program information in consultation with PMU; Address grievances through the GRM; Coordinate land acquisition actions, if required; Ensure implementation of GAP; and Submit quarterly safeguard monitoring reports to PMU. Accounting and Reporting Open and administer project account; Prepare monthly, quarterly, mid-term and final progress reports; and Payments, accounting and reporting to the PMU. Manage Disbursements Retain supporting documents for safekeeping and audit; and Complete all reporting requirements, including the annual audit report and financial statements. Advance Project Preparation Prepare DPRs and bidding documents for future tranches. Supervise Contract Management and Supervision Consultants Review and approve all site investigation subcontracts; Monitor, review, evaluate and approve all outputs of the consultants including the DPRs and the tender documents; Finalize project components and works packages; and Review and recommend all consultants invoices. Act as Deputy Program Director; Implement urban governance and reforms component of the program; Establish and manage Urban Data and Governance Improvement Cell; and Recruit the Urban Governance and Awareness Consultant. CMWSS Board Establish a dedicated PIU for water and sewerage works in Chennai; Provide technical support to the PIUs for speedy resolution implementation related issues such as variations, deviations, time and cost control etc.; Review the performance of CMSC and implementation progress of subprojects; and Provide technical support for review and finalization of DPRs, bid documents, bidding and award of contracts. TWAD Board Provide technical support to ULBs; Deploy qualified full-time design, construction supervision and safeguards monitoring staff to ensure timely completion of subprojects;

20 14 Program Implementation Management Roles and Responsibilities Arrangements Provide additional technical support from the local TWAD Head Office to the PIUs for speedy resolution of implementation related issues such as variations, deviations, time and cost control, among others; Provide backup technical support for review and finalization of DPRs, bid documents, bidding and award of contracts; and Review and monitor the subprojects implementation when requested by ULBs. Asian Development Bank Monitor overall program and subproject performance; Communicate with TNUIFSL on program implementation; Attend tripartite review meetings; Review and approve procurement activities as per agreed Procurement Plan; Process withdrawal applications for disbursement; Disclose program information to the public as per ADB policy; Approve and monitor safeguards documents and implementation compliance including GAP and CAPP implementation; Monitor annual audits of program accounts, by private auditing firm or Auditor General of India, as selected by TNUIFSL; Field review missions; Facilitate knowledge sharing; Provide training in program management to PIU staff; and Support TNUIFSL, CMA and CMWSSB through various capacity building activities. ADB = Asian Development Bank, CAPP = community awareness and participation plan, CMSC = contract management and supervision consultant, CMA = Commissioner of Municipal Administration, CMWSSB = Chennai Metropolitan Water Supply and Sewerage Board, DPR = detailed project report, EARF = environmental assessment and review framework, EOI = expression of interest, GAP = gender action plan, GOTN = Government of Tamil Nadu, GRM = grievance redress mechanism, ICB = international competitive bidding, IEE = initial environmental examination, NCB = national competitive bidding, MAWS = Municipal Administration and Water Supply, MFF = multitranche financing facility, PDF = project design facility, PIU = program implementation unit, PMU = program management unit, RFP = request for proposal, TNUIFSL = Tamil Nadu Urban Infrastructure Financing Services Limited, TUFIDCO = Tamil Nadu Urban Finance and Infrastructure Development Corporation Limited, TWAD = Tamil Nadu Water Supply and Drainage Board, ULB = urban local body. a Government of Tamil Nadu constituted a state level inter-departmental coordination committee to discuss and resolve inter-departmental issues. This committee constitutes heads or state level heads of various GOTN and Government of India departments. The program shall also be included under the ambit of this committee. b Where TWAD sets up PIUs the following arrangement applies for safeguards and gender activities: (i) TWAD will appoint an environmental safeguards officer, (ii) CMA will appoint social safeguards and gender monitoring experts, and (iii) ULB will provide a safeguards-gender officer to coordinate monitoring activities. Source: Asian Development Bank. A. Key Persons Involved in Implementation Executing Agency MAWS acting through TNUIFSL Mr. Harmander Singh, IAS Principal Secretary to Government Municipal Administration and Water Supply Department Phone : (O) mawssec(at)tn.gov.in Secretariat, Chennai Ms. Kakarla Usha, IAS

21 15 Managing Director, TNUIFSL and Program Director Phone: / 3104 / md tnuifsl.com 19, TP Scheme Rd, Raja Annamalai Puram, Chennai, Tamil Nadu Asian Development Bank Urban Development and Water Division South Asia Department Mission Leader Mr. Sekhar Bonu Director Tel: sbonu@adb.org 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines Mr. Ron H. Slangen Senior Urban Development Specialist Tel: rslangen@adb.org No. 23, Independence Avenue, Colombo Sri Lanka

22 16 B. Project Organization Structure Figure 1: Organization Structure ASIAN DEVELOPMENT BANK GOVERNMENT OF TAMIL NADU E x e c u t i n g A g e n c y Municipal Administration and Water Supply Department through Tamil Nadu Urban Infrastructure and Financial Services Limited (TNUIFSL) Program Steering Committee Commissioner of Municipal Administration (Implementing Agency) PROGRAM MANAGEMENT UNIT I m p l e m e n t i n g A g e n c i e s ULBs and CMWSSB PIU in CMA PROGRAM IMPLEMENTATION UNITS in ULBs/TWAD Board/CMWSSB Governance Improvement and Awareness Consultant Contract Management and Supervision Consultants (as required) monitoring role CMA = Commissionerate of Municipal Administration, CMWSSB = Chennai Metropolitan Water Supply and Sewerage Board, PIU = program implementation unit, TWAD = Tamil Nadu Water Supply and Drainage Board, ULBs = urban local bodies.

23 17 IV. COSTS AND FINANCING 20. The program is estimated to cost $1,268.4 million. The Government of India requested an MFF of up to $500 million from ADB's ordinary capital resources (OCR) to help finance a part of the investment program. The Asian Clean Energy Fund (ACEF) 16 under the Clean Energy Financing Partnership Facility will provide grant cofinancing equivalent to $2 million to be administered by ADB. The program will support the medium-term investment requirements envisaged in the GOTN s Tamil Nadu Vision 2023 and State Annual Action Plan The Tamil Nadu State Government, CMWSSB, and project ULBs will contribute $766.4 million to the investment costs of the MFF to finance: (i) taxes and duties; (ii) road restoration; (iii) land acquisition and resettlement costs; (iv) incremental administration cost: (v) contingencies: (vi) financing charges during implementation; and (vii) part of the civil works and equipment; and will provide the loan proceeds and counterpart funds to the implementing agency as a mix of loan and/or grant. The program will comprise three tranches (each financed by a respective tranche of the MFF), and will be subject to the government s submission of related periodic financing requests, execution of the related legal agreements for each tranche, and fulfillment of terms and conditions set forth in the framework financing agreement. 17 Cofinancing on a collaborative basis will be explored. 18 The investment program is in Table 5. Table 5: Investment Program ($ million) Item Amount a Tranche 1 Tranche 2 Tranche 3 Total A. Base Cost b 1. Climate-resilient sewage collection and treatment, and drainage systems developed in at least eight cities 2. Water supply systems in at least five cities improved with smart features 3. Institutional capacity, public awareness, and urban governance strengthened Subtotal (A) ,084.7 B. Contingencies c C. Financing Charges d Total (A+B+C) ,268.4 a In early-2018 prices; exchange rate of $1 = 64.3 is used. b Includes taxes and duties of $102.4 million to be financed from government resources by cash contribution. c Physical contingencies are computed at 5.0% for civil works and equipment. Price contingencies are computed at 1.5%-1.6% on foreign exchange costs and 4.5%-4.6% on local currency costs; includes provision for potential exchange rate fluctuation under the assumption of a purchasing power parity exchange rate. d Includes interest and commitment charges. Interest during construction for the ADB loan has been computed at the 5-year United States dollar fixed-swap rate plus a spread of 0.5% and a maturity premium of 0.2%. Commitment charges for an ADB loan are 0.15% per year to be charged on the undisbursed loan amount. 21. Tranche 1 of $477.5 million will be financed by a loan of $169 million from ADB s OCR and a grant of $2 million from ADB administered ACEF. The loan will have a 25-year term, 16 Established by the Government of Japan. ADB secured approval for the Asian Clean Energy Fund grant amount outside the MFF but will disburse funding concurrently with Tranche Framework financing agreement (accessible from the list of linked documents in Appendix 2 to the Report and Recommendation of the President to the Board of Directors). 18 During MFF preparation, ADB initiated constructive discussions with the Japan International Cooperation Agency, German Development Cooperation through KfW, and the World Bank, which currently implement urban projects in similar areas in Tamil Nadu. ADB will continue to explore parallel collaborative cofinancing in future tranches of $194 million from the Japan International Cooperation Agency, $100 million from KfW, and $197 million from the World Bank.

24 18 including a grace period of 5 years, 10% annuity repayment method, an annual interest rate determined in accordance with the ADB s LIBOR-based lending facility, a commitment charge of 0.15% every year, a maturity premium of 0.2% 19 and such other terms and conditions set forth in the draft loan and project agreements. 20 The financing plan is in Table 6. Table 6: Financing Plan ($ million) Tranche (estimated year of PFR submission) 1 (2018) 2 (2019) 3 (2022) Total Share of Total (%) Source Asian Development Bank Ordinary capital resources (regular loan) Asian Clean Energy Fund a Government of Tamil Nadu, CMWSSB, ULBs Total , PFR = periodic financing request, CMWSSB = Chennai Metropolitan Water Supply and Sewerage Board, ULB = urban local body. a Established by Government of Japan and administered by the Asian Development Bank (approval on 21 May 2018). Source: Asian Development Bank estimates. 22. The estimated qualifying cost of climate change mitigation is $ million of which ADB will finance 43.8%, and estimated qualifying cost of climate change adaptation measures is $71.82 million, of which ADB will finance 44.3%. Key climate change measures include the use of renewable solar energy for STP operations, greenhouse gas capture through new sewerage systems, water conservation through NRW management in water scarce areas, and raised elevation of critical infrastructure considering high flood levels. A. Cost Estimates Preparation and Revisions 23. The cost estimates were prepared based on the detailed project report, where available, and other relevant details of subprojects. The cost estimate model was prepared using Microsoft Excel and, is available from the project preparation team and the PMU. The cost estimates will be further revised during the implementation by the PMU. B. Key Assumptions 24. The following key assumptions underpin the cost estimates and financing plan: (i) Exchange rate: 64.3 = $1.00 (as of March 2018) (ii) Price contingencies based on expected cumulative inflation over the implementation period are as follows: Table 7: Escalation Rates for Price Contingency Calculation Item Average Foreign rate of price inflation 1.4% 2.9% 4.4% 5.9% 7.5% 9.1% 10.7% 12.3% 13.9% 15.5% 8.4% Domestic rate of price inflation 4.0% 8.6% 13.1% 17.6% 22.1% 26.6% 31.1% 35.6% 40.1% 44.6% 24.3% Source: Asian Development Bank estimates. (iii) In-kind contributions cannot be easily measured and have not been quantified. 19 The maturity-based premium of 0.2% is based on the loan term and the government s repayment period. 20 Based on these loan terms, the maturity premium payable to ADB is 0.2% per annum.

25 19 C. Detailed Cost Estimates by Expenditure Category Item Table 8: Cost Estimates by Expenditure Category under Tranche 1 ($ million) Foreign Local Total Exchange Currency Cost Total Net Cost Tax % of Total Base Cost A. Investment Costs 1. Civil works and equipment % a. Water supply and sewerage % b. Solar development % 2. Provisional Items, road restoration, etc % 3. Resettlement % 4. Performance based governance improvement incentive % 5. Consulting services % a. Contract management, supervision % d. Project design % c. Governance improvement and awareness % Subtotal (A) % B. Recurrent Costs 1. Incremental administrative costs (CMA) % 2. Incremental administrative costs (PMU) % Subtotal (B) % Total Base Cost (A+B) % C. Contingencies 1. Physical contingencies % 2. Price contingencies % Subtotal (C) % D. Financing Charges During Implementation 1. Interest during construction % 2. Commitment charges % Subtotal (D) % Total Project Cost (A+B+C+D) % CMA = Commissionerate of Municipal Administration, PMU = program management unit. Notes: 1. Numbers may not sum precisely because of rounding. 2. The costs of the actual audits of the program are minor and will be borne by the government. 3. Minor environmental monitoring and implementation of resettlement plan and gender action plan cost are absorbed in B1. ADB will not finance land acquisition cost. Source: Asian Development Bank estimates.

26 20 D. Allocation and Withdrawal of Loan and Grant Proceeds No. 1 2 Table 9: Allocation and Withdrawal of Loan Proceeds under Tranche 1 Item Works and equipment (water and sewerage) Performance based governance improvement incentive Amount Allocated for ADB Financing ($) Category 145,979,000 10,000,000 3 Consulting services 13,021,000 Total 169,000,000 Exclusive of taxes and duties imposed within the territory of the Borrower. Source: Asian Development Bank estimates. Basis for Withdrawal from the Loan Account 43.8% of total expenditure claimed 100.0% of total expenditure claimed* 84.7% of total expenditure claimed No. 1 Table 10: Allocation and Withdrawal of Grant Proceeds under Tranche 1 Item Works and equipment (solar development) Amount Allocated for ADB Financing ($) Category 2,000,000 Total 2,000,000 Source: Asian Development Bank estimates. Basis for Withdrawal from the Loan Account 89.3% of total expenditure claimed

27 21 E. Detailed Cost Estimates by Financier Item Table 11: Tranche 1 Cost Estimates by Financier ($ million) ADB ACEF GOTN, CMWSSB, ULBs Non- $ % $ % Tax Total % Tax A. Investment Costs 1. Civil works and equipment % % % a. Water supply and sewerage % - 0.0% % b. Solar development - 0.0% % % Provisional Items, road restoration, etc % - 0.0% % Resettlement - 0.0% - 0.0% % Performance based governance improvement incentive % - 0.0% % Consulting services % - 0.0% % 15.4 a. Contract management, supervision % - 0.0% % 7.3 d. Project design % - 0.0% % 3.9 c. Governance improvement and awareness % - 0.0% % 4.2 Subtotal (A) % % % B. Recurrent Costs 1. Incremental administrative costs (CMA) - 0.0% - 0.0% % Incremental administrative costs (PMU) - 0.0% - 0.0% % 1.1 Subtotal (B) - 0.0% - 0.0% % 3.3 Total Base Cost (A+B) % % % C. Contingencies 1. Physical contingencies - 0.0% - 0.0% % Price contingencies - 0.0% - 0.0% % 27.5 Subtotal (C) - 0.0% - 0.0% % 44.1 D. Financing Charges During Implementation 1. Interest during construction - 0.0% - 0.0% % Commitment charges - 0.0% - 0.0% % 0.7 Subtotal (D) - 0.0% - 0.0% % 14.2 Total Project Cost % % % ADB = Asian Development Bank, ACEF = Asian Clean Energy Fund, CMA = Commissionerate of Municipal Administration, CMWSSB = CMWSSB = Chennai Metropolitan Water Supply and Sewerage Board, GOTN = Government of Tamil Nadu, PMU = program management unit, ULBs = urban local bodies. Notes: 1. Numbers may not sum precisely because of rounding. 2. The costs of the actual audits of the program are minor and will be borne by the government. 3. Minor environmental monitoring and implementation of resettlement plan and gender action plan cost are absorbed in B1. ADB will not finance land acquisition cost. Source: Asian Development Bank estimates. Total Costs