2014 Annual Portfolio Performance Report

Transcription

1 April Annual Portfolio Performance Report This is a redacted version of the document that excludes information that is subject to exceptions to disclosure set forth in ADB's Public Communications Policy 2011.

2 ABBREVIATIONS ADB Asian Development Bank ADF Asian Development Fund APPR annual portfolio performance report BER bid evaluation report CWRD Central and West Asia Department DEfR Development Effectiveness Review DVA direct value-added EARD East Asia Department IRR internal rate of return MFF multitranche financing facility MIS management information summary MTR midterm review OCR ordinary capital resources PAM project administration manual PARD Pacific Department PASS Procurement Accreditation Skills Scheme PRC People s Republic of China PSOD Private Sector Operations Department Q quarter SARD South Asia Department SERD Southeast Asia Department TFP Trade Finance Program NOTE In this report, $ refers to US dollars. Totals may not add up due to rounding. Vice-President Director General Head Team leader Team members Bruce L. Davis, Vice-President (Administration and Corporate Management) S. O Sullivan, Operations Services and Financial Management Department (OSFMD) M. Parkash, Advisor and Head, Operations Management Unit, OSFMD C. Hu, Principal Portfolio Management Specialist, OSFMD M. Abrera, Senior Financial Control Officer, Controller s Department (CTL) B. Alimov, Principal Portfolio Management Specialist, Central and West Asia Department M. Barcenas, Portfolio Management Officer, OSFMD H. Carlsson, Advisor and Head, Portfolio, Results and Quality Control Unit, South Asia Department P. Comia, Associate Portfolio Management Officer, OSFMD O. Dyloco-Canto, Senior Portfolio Management Officer, OSFMD I. Flores, Senior Portfolio Management Assistant, OSFMD M. Lahoz, Senior Finance Officer, Private Sector Operations Department (PSOD) M. Monreal, Associate Portfolio Management Analyst, OSFMD S. Muramoto, Unit Head, Project Administration, Pacific Department R. Narasimham, Principal Project Management Specialist, OSFMD D. Ordonez, Risk Management Officer, Office of Risk Management (ORM) J. Petersen, Senior Portfolio Management Specialist, Southeast Asia Department C. L. Roberts, Director, Private Sector Operations Department, PSOD G. Rublee, Principal Risk Management Specialist, ORM M. Tan, Portfolio Management Officer, OSFMD S. Tirmizi, Young Professional, OSFMD M. Villareal, Principal Portfolio Management Specialist, East Asia Department W. Yang, Financial Control Specialist, CTL D. Zhang, Senior Portfolio Management Specialist, OSFMD 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.

3 CONTENTS Page Executive Summary i I. INTRODUCTION 1 II SOVEREIGN PORTFOLIO 1 A. Portfolio Composition and Trends 1 B. Portfolio Key Findings 2 C. Conclusions and Agreed Actions 19 III NONSOVEREIGN PORTFOLIO 24 A. Portfolio Composition and Trends 24 B. Portfolio Key Findings 29 C. Conclusions and Agreed Actions 29 APPENDIXES Sovereign Portfolio: Key Indicators Status of the 2013 Annual Portfolio Performance Report Recommended 32 Actions 3. Sovereign Operations Glossary Nonsovereign Operations Glossary 41

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5 EXECUTIVE SUMMARY The annual portfolio performance report is a Management report that details the state of the sovereign and nonsovereign portfolios of the Asian Development Bank (ADB). It presents a snapshot of ADB s operating performance in 2014, analyzes portfolio composition and trends, and identifies key issues. It concludes with agreed actions to improve portfolio performance Sovereign Portfolio The active sovereign portfolio of loans, grants, technical assistance, and equity, increased by $4.1 billion or 6.4% over 2013 to $68.2 billion at the end of The loan and grant portfolio of 667 active projects increased by 6.6% to $66.4 billion. ADB s ordinary capital resources (OCR) financed 68.8% of the loan and equity portfolio value ($46.9 billion). The Asian Development Fund (ADF) financed 26.7% and other special funds and cofinancing financed 4.4%. The average project size increased by 5% to $99.6 million from $94.6 million in The core sectors of Strategy 2020 accounted for 82.3% of the portfolio value, a slight decrease from 82.7% in In 2014, contract awards for project loans and grants totaled $8.2 billion, 27.2% more than in Disbursements for projects reached a new high of $7.3 billion in 2014, an increase of 11.0% from $6.6 billion in OCR-funded projects performed better than ADF-funded projects. The cumulative portfolio disbursement (S-curve) showed a slight improvement over the 2013 and 2012 (actual S-curves). Disbursements in 2014 in projects aged 0 1 years showed improvement of 16.7 percentage points over 2013 signifying earlier startups and better project readiness, while projects in ages 2-5 years showed improvement of four to eight percentage points. The uncontracted percentage was 44.1%, which was less than the 46.5% in 2013 and below the 5-year average of 44.4%. A 10-point procurement reform action plan was approved in August An initial result from the plan is that the average time for all procurement transactions of $10 million and more during September December 2014 was 34 days or half of the average 67 days for transactions approved during January August 2014 and less than the 40-day Development Effectiveness Review target for The average age of projects from approval increased from 3.0 years to 3.2 years in When measured by value, 63% of the portfolio was in ages 0 3 years of implementation, compared with 66% in The figure by number was 59%, down from 62% in The entry of effective loans and grants within the same year of approval into the portfolio was higher at 23.7% in 2014 than the 18.4% in 2013 and the 9.9% in In 2014, $778.6 million of loans and grants were terminated and cancelled. Except for 2012, this is the lowest in the last 5 years. The 2014 net resource transfer for project loans was $3.4 billion, 60.7% more than in 2013 ($2.1 billion) and the highest figure since The 2014 technical assistance portfolio increased by $38.6 million compared with By number, 18.8% were project preparatory technical assistance (PPTA) and 81.2% was for non-ppta. The average age of a technical assistance project from approval was 2.2 years, and 59.2% of the active technical assistance projects had been extended for an average of 1.7 years

6 ii Contract awards, disbursements, and project performance ratings in the sovereign operations portfolio all improved in The contract award ratio, disbursement ratio, uncontracted percentage, and undisbursed percentage were also better than in This was largely because of the renewed emphasis on portfolio management at the corporate and department levels including the midterm review of Strategy 2020 reforms and procurement reforms. However, the backlog of contract awards and disbursements remains significant, and further action is needed in 2015 and beyond to increase them. Based on the 2014 results, the following actions to improve the portfolio s performance have been agreed: (i) (ii) (iii) (iv) (v) (vi) Setting 2015 contract award and disbursement targets. Continuing to implement procurement reforms, build executing agency capacity, and mainstream e-procurement and post review sampling in ADB operations. Increasing project readiness and adopting realistic project implementation schedules by comparing with standard timelines and managing this using eoperations. Spring-cleaning the technical assistance portfolio, capping the number of non- PPTA projects, and introducing more technical assistance portfolio metrics for monitoring. Making efforts to increase the average size of projects from the $100 million baseline in Revising project performance rating criteria. Nonsovereign Portfolio The committed nonsovereign portfolio resumed its growth after a decline in The total committed portfolio increased by 13.6% to $7.6 billion at the end of 2014 ($6.7 billion at the end of 2013) mainly due to 18.5% increase in the loan portfolio and 6.4% increase in the equity portfolio. Droppages and cancellations decreased to $0.6 billion ($1.1 billion in 2013). The total outstanding portfolio increased by 10.0% to $5.3 billion at the end of 2014 (from $4.8 billion at the end of 2013), with loans constituting the largest share at $3.6 billion (from $3.2 billion in 2013). [This information contains sensitive financial information subject to disclosure restrictions per paragraph 97, exception (viii) of ADB s Public Communications Policy (2011).]

7 1 I. INTRODUCTION 1. The annual portfolio performance report is a Management report that details the state of the sovereign and nonsovereign portfolios of the Asian Development Bank (ADB). It presents a snapshot of ADB s operating performance in 2014, analyzes portfolio composition and trends, and identifies key issues. It concludes with agreed actions to improve portfolio performance. 2. The APPR is an integral building block within the ADB performance management information system and complements ADB s annual Development Effectiveness Review 2 (DEfR) by providing a more focused and in-depth analysis of the sovereign and nonsovereign portfolio. By providing an analytical framework for country portfolio assessments, the APPR is a key input in annual country portfolio reviews, regional department portfolio management, and long-term country partnership strategies. 3. The APPR provides information on and the status of the sovereign and nonsovereign portfolios at the start and end of 2014 (Figures 1 and 41). It shows the composition of and illustrates trends in the two portfolios by approvals, commitments, disbursements, sector, country, and modality. The report assesses the quality and performance of each portfolio and identifies key findings. II SOVEREIGN PORTFOLIO A. Portfolio Composition and Trends 4. Overall portfolio. The active sovereign portfolio of loans, grants, technical assistance, and equity increased by $4.1 billion, or 6.4% over 2013 and totaled $68.2 billion at the end of 2014 (Figure 2). The loan and grant portfolio comprised 667 active projects and increased by 6.6% to $66.4 billion. Ordinary capital resources (OCR) financed 68.8% of the loan and equity portfolio value ($46.9 billion). The Asian Development Fund (ADF) financed 26.7% ($18.2 billion) and other special funds and cofinancing financed 4.4% ($3.0 billion). The average project size increased by 5% to $99.6 million from $94.6 million in Regional distribution. Composition by regional department has remained stable. The South Asia Department (SARD) accounted for 31.8% ($21.7 billion) of the portfolio at the end of 2014, followed by the Central and West Asia Department (CWRD) with 25.0% ($17.0 billion), the Southeast Asia Department (SERD) with 23.2% ($15.8 billion), the East Asia Department (EARD) with 16.7% ($11.4 billion), and the Pacific Department (PARD) with 2.8% ($1.9 billion) (Figure 3). All regional departments contributed to the overall portfolio growth in SARD s portfolio grew by $1.6 billion (8.1%), CWRD s by $1.1 billion (7.1%), SERD s by $0.7 billion (4.9%), EARD s by $0.5 billion (5.0%), and PARD s by $0.06 billion (3.1%). Distribution has been largely unchanged since SARD had the biggest share (5-year average of 33.4%) and PARD had the smallest share (5-year average of 2.6%). 6. The CWRD portfolio comprised 130 active projects, and 107 technical assistance projects. Five countries accounted for 82.6% Pakistan ($5.5 billion), Uzbekistan ($2.9 billion), Afghanistan ($2.7 billion), Azerbaijan ($1.5 billion), and Kazakhstan ($1.5 billion). EARD had 102 active projects and 169 technical assistance projects, with the People s Republic of China 2 ADB Development Effectiveness Review 2014 Report. Manila.

8 2 (PRC) accounting for 93.5% ($10.6 billion), Mongolia for 6.3% ($0.7 billion), and regional projects for 0.2% ($0.02 billion). PARD had 62 active projects and 82 technical assistance projects. Papua New Guinea was the largest component of its portfolio ($1.0 billion, 51.4%) followed by Timor-Leste ($0.2 billion, 10.5%), Fiji ($0.1 billion, 7.4%), regional projects ($0.1 billion, 6.8%), and Solomon Islands ($0.1 billion, 5.8%). SARD had 212 active projects and 187 technical assistance projects. India accounted for 53.7% ($11.6 billion), followed by Bangladesh (23.9%, $5.2 billion), Sri Lanka (11.2%, $2.4 billion), Nepal (8.9%, $1.9 billion), and Bhutan (1.8%, $0.4 billion). SERD had 160 active projects, 1 equity investment, and 249 technical assistance projects. Viet Nam continued to be its largest borrower ($9.1 billion) and accounted for 57.5% of its portfolio. It was followed by the Philippines ($2.6 billion, 16.6%), Indonesia ($1.8 billion, 11.1%), Cambodia ($1.1 billion, 6.8%), and the Lao People s Democratic Republic ($0.6 billion, 4.1%). 7. Country concentration. Country concentration increased slightly in 2014, with the portfolio share held by the five largest countries growing from 60.7% in 2013 to 61.7% in 2014 (Figure 4). The share held by the three largest borrowers increased to 46.0% from 45.6% in 2013, and the combined value of their portfolios grew by $2.1 billion. The countries with the largest year-on-year increases in value were Pakistan ($1.1 billion), Viet Nam ($0.9 billion), India ($0.8 billion), the Philippines ($0.6 billion), Sri Lanka ($0.4 billion), and the PRC ($0.4 billion). The biggest declines were in Indonesia ($1.1 billion) and Kazakhstan ($0.4 billion) (Figure 5). 8. Sector concentration. The core sectors of Strategy accounted for 82.3% of the portfolio value, a slight decrease from 82.7% in This included 38.8% in transport, 23.4% in energy, 12.0% in water and other urban infrastructure and services, 4.9% in education, and 3.3% in finance (Figure 6). 9. Modality. As of 31 December 2014, 169 multitranche financing facility (MFF) projects worth $23.0 billion and 498 non-mff projects valued at $43.4 billion were active. MFF projects accounted for 34.7% of total loans and grants by value and 25.3% by number. Non-MFF projects accounted for 65.3% by value and 74.7% by number (Figure 7). During 2014, 26 MFF tranches totaling $3.4 billion were approved, and approvals for 79 non-mff projects amounted to $8.3 billion. Policy-based loans and grants increased by $0.2 billion to $2.9 billion in 2014, accounting for 4.3% of total loans and grants (4.3% in 2013). B. Portfolio Key Findings 10. The 2014 sovereign portfolio performance improved from 2013 in the following ways: (i) Contract awards increased by 27.2% to $8.2 billion. (ii) The contract award ratio increased by 4.1 percentage points to 23.9%. (iii) Disbursements for projects increased by 11% to $7.3 billion. 4 (iv) The project disbursement ratio improved by 0.5 percentage points to 18.2%. (v) The proportion of projects reporting implementation risks (i.e., potential and actual problem projects) decreased to 19.8% from 21.0% in ADB Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank, Manila. 4 Including policy-based lending sovereign disbursements totaled $9.1 billion in 2014, compared with $7.8 billion in Policy-based loans and grants are not included in the disbursement analysis in this report.

9 3 Figure 1: Sovereign Portfolio at a Glance (as of 31 December 2014) Active portfolio as of 1 January 2014 ADB s active portfolio had a value of $64.1 billion, comprising (i) $56.5 billion in loans (no. = 593), (ii) $5.9 billion in grants (no. = 309), (iii) $1.6 billion in technical assistance (no. = 1,037), and (iv) $0.2 billion in equity (no. = 1). A total of 659 active projects were funded by loans and grants. Approvals Approvals in 2014 totaled $11.9 billion, comprising (i) $11.1 billion in loans, (ii) $0.6 billion in grants, and (iii) $0.2 billion in technical assistance. Closures Closures totaled $7.0 billion, comprising $6.8 billion in loans and grants and $0.2 billion in technical assistance. Cancellations Cancellations totaled $0.8 billion, of which 94% was loan and grant cancellations. Entry ratio The net entry ratio was 34.2%, higher than 27.8% in 2013, reflecting decreased closures ($1.3 billion). Active portfolio as of 31 December 2014 The active portfolio grew by 6.4% to $68.2 billion in 2014, comprising (i) $60.3 billion in loans (no. = 624), (ii) $6.1 billion in grants (no. = 306), (iii) $1.6 billion in technical assistance (no. = 1,032), and (iv) $0.2 billion in equity (no. = 1). A total of 667 active projects were funded by loans and grants. ADB = Asian Development Bank, no. = number, TA = technical assistance. Source: ADB data.

10 4 $ billion Figure 2: ADB Overall Portfolio % Others Figure 4: Five Largest Portfolios by Country, 2014 Pakistan People's Republic of China India Share of Active Portfolio Value on Cut-off Date 100% 80% 64.1 Figure 6: Portfolio by Sector % 8% 13% 8% Bangladesh Viet Nam 20% 18% 10% 12% 16% 17% 60% 41% 39% 40% 20% 6% 3% 19% 23% 0% 4% 5% EDU ENE FIN TRA WUS Others 80% 82% EDU = education, ENE = energy, FIN = finance, TRA = transport, WUS = water and other urban infrastructure and services. Figure 3: Portfolio by Region, 2014 SARD $21.7 billion 32% SERD $15.8 billion 23% PARD $1.9 billion 3% CWRD = Central and West Asia Department, EARD = East Asia Department, Non-Ops = non-operations, PARD = Pacific Department, SARD = South Asia Department, SERD = Southeast Asia Department. Figure 5: Portfolios with Largest Changes, 2014 Change in Portfolio Value ($ million) 1,500 1, (500) (1,000) (1,500) 1,095 Pakistan (1,061) Indonesia Viet Nam India ( ) = negative. Portfolio Value ($ billion) Figure 7: MFF and Non-MFF Non- Ops $0.4 billion 1% CWRD $17.0 billion 25% EARD $11.4 billion 17% Philippines Sri Lanka People's Republic of China MFF NON-MFF 2013 Value 2014 Value 2013 Number 2014 Number MFF = multitranche financing facility. 0 (390) Kazakhstan Number of Projects

11 5 $ billion Figure 8: Contract Awards, Projects $ billion Figure 9: Disbursements, Projects The sovereign portfolio performance indicators for each country are presented in Appendix 1 and the major findings of the sovereign loan and grant portfolio performance in 2014 are discussed below. 1. Contract Award and Disbursement Performance Overview 12. In 2014, contract awards for project loans and grants (hereafter, projects) totaled $8.2 billion, 27.2% more than in 2013 (Figure 8). Disbursements for projects totaled $7.3 billion in 2014, an increase of 11.0% from $6.6 billion in 2013 (Figure 9). This was the highest level since 1995 and the result of an ADB disbursement drive in 2014 that set targets for each operational department. 13. Consistent with the absolute results, the contract awards ratio had a four percentage points increase to 23.9% from 19.8% in 2013 (Figure 10), while the disbursement ratio 5 also improved from 17.7% in 2013 to 18.2% in 2014 (Figure 11). For the three major borrowers the PRC, India, and Viet Nam, which together account for 47.5% of the active project portfolio, the contract award ratio for these countries went from 19.8% in 2013 to 26.2% in 2014, and the disbursement ratio improved from 17.6% in 2013 to 18.7% in 2014 (Figures 10 and 11). 14. India s contract award ratio increased from 26.4% in 2013 to 34.7% in 2014, the PRC s from 17.0% in 2013 to 21.2% in 2014, and Viet Nam s from 15.2% to 23.1%. The disbursement ratio improved from 18.3% in 2013 to 21.0% in 2014 in the PRC, from 15.9% in 2013 to 16.3% in India, and from 18.7% in 2013 to 19.2% in Viet Nam. 15. The MFF contract award ratio improved from 19.6% in 2013 to 30.5% in Uzbekistan had the largest increase of 49.1 percentage points (21.2% in 2013 to 70.3% in 2014). This was due to large contracts awarded under the second tranches of transport and finance sectors. Finance sector had the largest increase in contract awards ratio from 23.1% in 2013 to 56.2% in The disbursement ratio for MFF projects was up slightly from 17.4% in 2013 to 17.7% in 2014, but was below that for non-mff projects (18.5%) and ADB s overall ratio of 18.2%. This was mainly the product of the relatively low performance by ADF-financed MFF tranches (14.3%). 5 Starting in 2014, the definition of disbursement ratio has been revised in line with the ADB s results framework to total disbursement during the year (including disbursements from newly approved operations during the year) over the undisbursed balance at the beginning of the year (based on approvals as of the previous year). This definition is used throughout the report.

12 6 16. The contract award ratio for the transport sector, which accounts for 41.4% of the active project portfolio, increased from 21.4% in 2013 to 29.2% in 2014, while the sector s disbursement ratio increased from 16.4% to 19.7%. The contract award ratio was down in the energy sector, which accounts for 23.4% of the active project portfolio. It declined by 3.7 percentage points to 17.4%. The ratios for Afghanistan, Nepal, the Philippines, and Uzbekistan were below 7%. The energy sector disbursement ratio fell from 18.7% to 12.6%. Afghanistan, Bangladesh, Nepal, Pakistan, the Philippines, and Uzbekistan are the major countries which had below-average disbursement ratio in this sector. The main reason for the drop in performance was the security situation in Afghanistan and implementation issues in Indonesia, Pakistan, the Philippines and Uzbekistan. 17. OCR-funded projects performed better than ADF-funded projects on these two ratios. The contract award ratio for OCR-funded projects was 24.9%, compared with 20.9% for ADF-funded projects. The OCR-funded disbursement rate was 18.9%, and that of ADF-funded projects was 16.5%. The contract award ratio for OCR increased by 5.8 percentage points from 19.1% in 2013, but the ratio for the ADF-funded projects was down by 0.8 percentage points from 21.7%. The disbursement ratio for OCR-funded projects improved by 1.0 percentage point from 17.9%. The ADF-funded ratio declined by 0.6 of a percentage point from 17.0% in 2013 to 16.5% in 2014, mainly due to the energy sector (9.4%). Figure 10: Contract Award Ratio, Projects 35% 30% 25% 20% 15% 10% 5% 0% 29% 23% 18% 31% 22% 27% 26% 25% 22% 20% 20% 26% 20% 24% 22% largest (IND, PRC, VIE) Others ADB PRC = People s Republic of China, IND = India, VIE = Viet Nam Figure 11: Disbursement Ratio, Projects 35% 30% 25% 20% 15% 10% 5% 0% 22% 20% 19% 23% 20% 17% 18.7% 18% 18% 18% 18% 18% 18% 18.2% 17.7% largest (IND, PRC, VIE) Others ADB PRC = People s Republic of China, IND = India, VIE = Viet Nam 18. The cumulative portfolio disbursement S-curve 6 for 2014 shows a slight improvement (Figure 12) over the 2013 and 2012 actual S-curves, especially disbursements in earlier project years. This signifies quicker start-ups and better project readiness. However, by the end of the sixth year of implementation after approval, ADB project disbursement was 75.5%, compared with 85.2% of The project disbursement S-curve shows the project disbursement profile over its life and is a useful graphical presentation of project performance.

13 7 19. A comparison of the actual 2014 S-curve with the average of the 5-year S-curve in a sample of project administration manuals for 64 projects approved in shows a 25% difference by age 2 and 37% before age 5. Disbursements in projects age 0 1 in 2014 were 16.7 percentage points higher than in 2013 (indicating the improved start-up and project readiness performance) while projects in ages 2 5 showed improvement of four to eight percentage points. This implies that the momentum established by an early start-up and project readiness needs to be sustained throughout implementation to achieve the completion schedule set at project approval. 120% Figure 12: Disbursement S-curve 120% 100% 100% 80% 60% 25% 37% 80% 60% 40% 40% 20% 20% 0% Age from Approval Average 2006 to S-curve (actual) 2013 S-curve (actual) 2012 S-curve (actual) Sample projects of 2012/2013 S-curve Approved based on Projects PAM PAM = project administration manual. 0% 2. Analysis of Uncontracted Balance and Contract Award 20. Given the higher contract award performance in 2014, the uncontracted balance as a percentage of total value to be awarded (hereafter, uncontracted percentage) was 44.1%, which is lower than the 46.5% in 2013 and the 5-year average of 44.4% (Figure 13). However, the uncontracted balance as of 31 December was up 0.3% to $26.1 billion, increasing from $26.0 billion as of 31 December The PRC, India, and Viet Nam accounted for 44.3% of the total uncontracted balance. The uncontracted balance improved significantly in the cases of Viet Nam (7 percentage points) and India (6 percentage points). The largest decreases were in India ($335.8 million), Uzbekistan ($375.5 million), Kazakhstan ($216.8 million), and Viet Nam ($180.1 million). The Philippines (65.7%), Pakistan (53.2%), Nepal (52.1%), and the PRC (48.2%) had higher uncontracted percentage than the ADB average of 44.1% (Figure 15). Countries with the largest increases in uncontracted balances were Pakistan ($287.2 million), Sri Lanka ($253.6 million), and the PRC ($198.3 million). 22. Among the largest sectors, agriculture, education, and water and other urban infrastructure and services had higher uncontracted percentages than the ADB average (Figure

14 8 15). The uncontracted balance for the energy sector increased for the fifth year in a row, to $6.2 billion in 2014 up from $6.0 billion in 2013, $5.3 billion in 2012, $4.8 billion in 2011, and $4.3 billion in 2010 (Figure 16). Figure 13: Contract Award Ratio and Uncontracted Percentage, Projects, % 80% 60% 40% 20% 44% 44% 43% 47% 44% 23% 26% 25% 20% 24% 0% Contract Award Ratio Uncontracted % 100% 80% 60% 40% 20% 0% Figure 14: Contract Award Ratio and Uncontracted Percentage by Department, Projects, % 49% 40% 23% 20% 24% 28% 40% 48% 44% 22% 24% CWRD EARD PARD SARD SERD ADB Contract Award Ratio Uncontracted % ADB = Asian Development Bank, CWRD = Central and West Asia Department, EARD = East Asia Department, PARD = Pacific Department, SARD = South Asia Department, SERD = Southeast Asia Department. Source: ADB data. $ billion Figure 15: Uncontracted Balance and Percentage by Country, Projects, % 60% % 48% 53% 48% 44% 46% 40% 46% 40% % 41% % % PRC 2013 Uncontracted Balance IND VIE 2014 Uncontracted Balance PAK 2013 Uncontracted % BAN 2014 Uncontracted % BAN = Bangladesh, PRC = People s Republic of China, IND = India, PAK = Pakistan, VIE = Viet Nam $ billion Figure 16: Uncontracted Balance and Percentage by Sector, Projects, % 56% 54% 54% 53% 44% 43% ANR EDU ENE FIN TRA WUS 2013 Uncontracted Balance 2014 Uncontracted Balance 2013 Uncontracted % 2014 Uncontracted % ANR = agriculture, natural resources and rural development, EDU = education, ENE = energy, FIN = finance, TRA = transport, WUS = water and other urban infrastructure and services. 52% 43% 41% 37% 52% 51% % 80% 100% 80% 60% 40% 20% 0%

15 9 23. The contract awards aging analysis shows that in 2014 most contract awards came from age 1 projects (36% of total contract awards in 2014 totaling $2.9 billion). The contract awards in 0-1 age group increased by $1.6 billion or 100% compared to 2013 reflecting improved project readiness and procurement readiness at start-up. Age 2 projects declined by $0.4 billion or 21.0% compared to 2013, reflecting issues with older stock. Age 3 to 5 also showed 25% increase in contract awards for 2014 reflecting more attention to this age group. However, contract award for projects aged 6 and above stock declined by about 26% (Figure 17) suggesting need for more attention to closing older projects. 4,000 Figure 17: Annual Contract Awards by Age, Projects, ,947 2,016 2,000 1,567 1,592 1,326 1,483 1, => $ million Figure 18: Uncontracted Percentage by Age, Projects, % 97% 100% 79% 80% 72% 59% 60% 47% 42% 33% 44% 40% 26% 20% 20% 14% 20% 13% 4% 7% 0% =>6 ADB Analysis of Contracting Time for Contracts 24. In 2014, the average end-to-end contracting period from receipt of the bidding documents to signing of contracts for contracts $10 million and above was 362 days, 5.5% shorter than in 2013 (Figure 19). ADB took 151 days on average, and the executing agencies took 211 days. The one-stage-one-envelope procurement method took less time than the one-stage-two-envelope method. The 2 stage plant/ turnkey/ design and build required the most time (Figure 20). Figure 19: 2014 Average Processing Time for Procurement Contracts $10 Million Average Processing Time in Days Average Processing Time EA Average Processing Time ADB Number of Contracts ADB = Asian Development Bank, EA = executing agency. Source: ADB data Number of contracts

16 10 Average Processing Time in Days Figure 20: 2014 Average Processing Time for Procurement Contracts $10 Million Plant/ Turnkey/ Design and Build Works Goods EA ADB Number of Contracts 1S1E = one stage, one envelope; 1S2E = one stage, two envelopes; 2S = two stage; ADB = Asian Development Bank; 2S2E = two stage, two envelopes; EA = executing agency. Note: Average processing time refers to the average number of days from the date of the first receipt of draft bidding document by ADB to the contract signing. It covers all contracts signed in Source: ADB data. 25. ADB initiated and began implementing important procurement reforms in A 10-point procurement reform action plan was approved in August 2014 as part of the midterm review of Strategy to reduce procurement time, increase administrative efficiency, and improve project delivery while maintaining sound fiduciary oversight (Box 1). ADB has adopted a riskdifferentiated approach to procurement, and the initial results are encouraging. Times have shortened for all procurement approvals, including those requiring action by regional departments (contracts of $10 $20 million), regional departments and the Operations Services and Financial Management Department (OSFMD) ($20 $40 million), and the Procurement Committee ($40 million and above). The average time taken for transactions of $10 million and more during September December 2014 was 34 days, halving the time compared to those approved during January August This was below the 40-day DEfR target for 2016 (Table 1). While these initial results are encouraging, regional departments need to expedite and closely monitor the timeliness of bid evaluation report (BER) responses. Table 1: 2014 Procurement Time ( $10 million) No. of Submission Receipt of BER to ADB s approval a days 2014 (January to August) days 2014 (September to December) days No. of Submission Receipt of BER to ADB s approval $10 $20 million (RD) $20 $40 million (RD+OSFMD) $40 million and above (PC) Average time 34 ADB = Asian Development Bank, BER = bid evaluation report, no. = number, PC = Procurement Committee, RD = regional department. Note: 2014 average is 58 days a Refers to the average number of days from the date of the first receipt of BER to ADB s approval of BER. It includes the time spent for any clarification and revision needed to finalize evaluation of BER S1E 1S2E 1S1E 1S2E 2S 1S1E 1S2E 2S2E Number of Contracts 7 ADB Midterm Review of Strategy 2020 Action Plan. Manila

17 11 Box 1: Procurement Reform 10-Point Action Plan Procurement is integral to the operations of the Asian Development Bank (ADB). Investment projects represent about 90% of lending, and sound implementation requires that ADB s procurement processes be timely, efficient, and effective. To address the wide range of procurement-related challenges faced by ADB, a 10-point procurement reform action plan and associated reforms were approved by the President as part of the midterm review of Strategy The key objective of the reforms was to improve ADB s procurement performance by reducing procurement time, increasing administrative efficiency and improving project delivery while maintaining sound fiduciary oversight. The reforms implement a new risk-based approach to procurement governance under the existing ADB guidelines. Risk is now considered and directs procurement actions at each step in the project cycle from country partnership strategy to project concept, project preparation, and contract implementation. The 10 Actions are: 1. More robust procurement risk assessments of country and sector/agency systems 2. International competitive bidding thresholds increased and national competitive bidding applied where country systems are used 3. New risk-based prior review limits and introduction of post-review (sampling) 4. New Procurement Committee level and decision authorities 5. Project procurement classification at concept clearance and Operations Services and Financial Management Department support for complex projects 6. The Procurement Review System is being fully developed and launched 7. Master bid documents are agreed during project preparation 8. New streamlined Procurement Committee process implemented 9. New procurement approval form 10. Consulting services quality enhancements and delegation How Does the Procurement Reform Work? The reform actions are being implemented and initial results are encouraging. For example, the time for ADB approval from receipt of bid evaluation report was 34 days, compared with 57 days in 2013 and the 2016 Development Effectiveness Review target of 40 days. The full impact of these reforms are expected to be felt in four main ways during 2015: (i) increased procurement efficiency, (ii) more flexibility in ADB procurement, (iii) more balanced fiduciary oversight, and (iv) greater knowledge and use of country systems. Source: ADB Operations Services and Financial Management Department

18 12 4. Analysis of Undisbursed Balances and Disbursement 26. The total undisbursed balance of active project loans and grants 8 as of 31 December 2014 was $41.1 billion, a 2.5% increase over $40.1 billion at the end of ADB s undisbursed balance as the percentage of total active projects (hereafter, undisbursed percentage) was 64.7%, an improvement from 66.4% in In 2014, CWRD (67.4%) and SARD (67.0%) had undisbursed percentages that were higher than the ADB average but lower than in 2013 (70.0% for CWRD and 67.9% for SARD) (Figure 21). Except for EARD, which had an increase of 1.7 percentage points to 61.3% in 2014, all departments lowered their undisbursed percentages in The percentages for three of the 10 largest countries in the portfolio increased in 2014 from 2013: Afghanistan (73.9% to 75.0%), Bangladesh (64.5% to 67.2%), and the PRC (59.2% to 60.9%). In 2014, Afghanistan (75.0%), Nepal (74.9%), and Pakistan (70.5%) had the largest undisbursed percentage, while India ($7.3 billion), the PRC ($6.4 billion), and Viet Nam ($5.1 billion) continued to have the largest undisbursed balance due to their portfolio size (Figure 22). Pakistan had the largest increase ($371.8 million) in undisbursed balance during 2014 from $3.2 billion in 2013 to $3.6 billion in This was mainly due to approvals in 2014 of $976.0 million. Figure 21: Disbursement Ratio and Undisbursed Percentage by Department, Projects, % 80% 60% 40% 20% 67% 61% 61% 16% 21% 18% 17% 20% 18% 0% CWRD EARD PARD SARD SERD ADB Disbursement Ratio Undisbursed % ADB = Asian Development Bank, CWRD = Central and West Asia Department, EARD = East Asia Department, PARD = Pacific Department, SARD = South Asia Department, SERD = Southeast Asia Department. Source: ADB data. $ billion Figure 22: Undisbursed Balance and Percentage by Country, Projects, % 67% 61% 59% Undisbursed Balance 2014 Undisbursed Balance 2013 Undisbursed % 2014 Undisbursed % BAN = Bangladesh, PRC = People s Republic of China, IND = India, PAK = Pakistan, VIE = Viet Nam % 58% 67% % 71% % 65% IND PRC VIE PAK BAN % 64% % 80% 64.7% 60% 40% 20% 0% 8 Undisbursed balance is amount available for disbursement at the end of the year for active project loans and grants.

19 By sector, transport and energy continued to have the largest undisbursed balance in At $26.7 billion, it accounted for 65.2% of the overall undisbursed balance. Industry and trade showed the largest increase in undisbursed percentage among the sectors, rising from 58.1% in 2013 to 74.6% in Water and other urban infrastructure and services had the largest increase in amount, up $552.2 million to $5.6 billion. The highest undisbursed percentage continued to be that of multisector projects, although it dropped from 98.3% in 2013 to 89.4% in This was due to a special assistance loan to the Philippines. The transport sector had the lowest undisbursed percentage in the last five years (62.4%), while energy was 67.1%, slightly higher than 2013 (Figure 23). $ billion Figure 23: Undisbursed Balance and Percentage by Sector, Projects, % 67% % 57% % 67% 10.3 ANR = agriculture, natural resources and rural development, EDU = education, ENE = energy, FIN = finance, TRA = transport, WUS = water and other urban infrastructure and services. 28. The disbursement aging analysis of 2014 shows that the age 3 projects have the largest disbursement of $1,472 million closely followed by $1,408 million of age 1 projects. Age 1 projects had the largest increase against 2013 of more than 330%, and was the highest in the last five years (Figure 24), reflecting advanced project readiness. However, disbursements in the age 2 projects declined by $646.8 million (43.7%) compared to A closer look into age 2 projects by sector indicates that 2014 disbursement in the energy sector was lowest in the last five years, and likewise for transport sector in the last four years. This would require close monitoring of those projects to ensure any implementation issues are resolved early on. Disbursements in age 4 projects also declined by $98.2 million (7.5%), while age 5 and above had more disbursements in 2014 compared to Analysis of the undisbursed percentage by age reflects a lower percentage in ages where annual disbursement was high (Figure 25) % 46% % 65% 71% 62% ANR EDU ENE FIN TRA WUS % 2013 Undisbursed Balance 2014 Undisbursed Balance 2013 Undisbursed % 2014 Undisbursed % 80% 60% 40% 20% 0%

20 14 $ million 2,000 1,500 1, Figure 24: Annual Disbursement by Age from Approval, Projects, , => % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Figure 25: Undisbursed Percentage by Age from Approval, Projects, % 96% 99% 87% 87% Portfolio Structure 74% 1, % 61% 1,472 1,268 1,303 1,205 49% 43% ADB s overall portfolio grew $4.1 billion, or 6.4%, in 2014 to $68.2 billion. The average project age from approval increased from 3.0 years to 3.2 years (Figure 26). This was due to the portfolio beginning to stabilize after years of increased lending. The portfolio distribution by age from approval indicates that 63% of the portfolio by value (66% in 2013) and 59% by number (62% in 2013) was in ages 0 3 of implementation (Figures 27 and 28). 34% 33% 25% 22% 1, =>6 ADB 1,355 66% 65% 4.0 Figure 26: Project Portfolio by Age, Years Age from Approval

21 15 $ billion Figure 27: Project Portfolio by Value, Age from Approval, % 18% 14%16% 13%9% 5% 5% 6% 0% Net Amount Percent by Age from Approval Cumulative % 120% 100% 80% 60% 40% 20% Cumulative Percentage Number Figure 28: Project Portfolio by Number, Age from Approval, % 100% 80% 60% 40% 20% Cumulative Percentage 15%16%15% 13%13%10%6% 5% 6% 0 0% Number Percent by Age Cumulative % 30. The entry of effective loans and grants within the same year of approval into the portfolio was 23.7% in 2014, compared with 18.4% in 2013 and 9.9% in 2012 (Figure 29). This can be correlated to higher approvals during Q1 Q3 in % compared with 28% in 2013 (Figure 30). The bunching of approvals in Q4 eased in The percentage rise in approvals during Q1 Q3 also contributed to higher contract awards and disbursements in the first year after project approval. Figure 29: Effectiveness within the Same Year of Approval $ billion % % % % % % 30% 25% 20% 15% 10% 5% Percentage Approved Value (Effective Year=0) 0.0 0% Approval Year Total Value Effective year=0 Effective year=0 (%) Figure 30: Approval of Projects by Amount $ million 9,000 80% 8,000 72% 70% 7,000 60% 6,000 48% 50% 5,000 40% 4,000 27% 30% 3,000 2,000 12% 13% 21% 20% 1,000 3% 5% 10% 0 0% Q1 Q2 Q3 Q Amount 2014 Amount 2013% 2014% 6. Termination and Cancellation 31. In 2014, $778.6 million of loans and grants were terminated and cancelled (Figure 31). This was the second lowest amount in the last five years. Two grants totaling $10.0 million for a power system expansion and efficiency improvement investment program in Bangladesh and a program to strengthen public management in Nepal were terminated before signing. Eighty-six loans and 37 grants amounting to $768.6 million were partially cancelled. The largest cancellations were in India ($278.6 million) and accounted for 35.8% of the 2014 total. Reduction in scope, cost underruns, and savings were among the main reasons for cancellation.

22 16 $ million 3,000 2,000 1,000 - Figure 31: Total Termination and Cancellation, , Note: 2013 terminations includes retroactively dated termination of one sovereign guarantee for $200 million 7. Net Resource Transfer ADB s net resource transfer is an area that is directly affected by disbursement performance and loan service payments received. The 2014 net resource transfer for project loans was $3.4 billion, which was 60.7% higher than 2013 ($2.1 billion) and the highest since 2003 (Figure 32). This was due to a 13.1% increase in disbursements and a 13.3% drop in payments from the 2013 levels. Viet Nam had the highest net resource transfer of $855.7 million, followed by $710.9 million for India and $643.8 million for the PRC (Figure 33). Indonesia had a negative net resource transfer of $529.1 million due to loan service payment of $628.1 million during the year , Cancellation (Effective) Cancellation (Not Effective) Termination (Not Signed) Figure 32: Net Resource Transfer, Project Loans $ billion Disbursement Loan Service Payment Net Resource Transfer Figure 33: Countries with Highest and Lowest Net Resource Transfer, Project Loans $ million 0 VIE IND PRC UZB -500 (529) (40) (27) (22) (13) PRC = the People s Republic of China, IND = India, INO = Indonesia, KAZ = Kazakhstan, LAO = Lao People s Democratic Republic, MAL = Malaysia, MYA = Myanmar, TAJ = Tajikistan, UZB = Uzbekistan, VIE = Viet Nam KAZ INO LAO MYA MAL TAJ

23 17 8. Project Performance Ratings 33. Project performance ratings are a key indicator of portfolio performance. As of the end of 2014, more than 20% of EARD, PARD, and SERD projects had implementation risks (Figure 34). More than 20% of projects faced implementation risks in the agriculture, education, energy, finance, health, information and communication technology, and public sector management sectors (Figure 35). A slight improvement in the overall project performance ratings from 2013 reflected the higher achievement of contract awards and disbursement in % 80% 60% 40% 20% Figure 34: Portfolio Ratings by Department % % 28 60% % % 0% CWRD EARD PARD SARD SERD ADB 0% CWRD EARD PARD SARD SERD ADB ADB = Asian Development Bank, CWRD = Central and West Asia Department, EARD = East Asia Department, PARD = Pacific Department, SARD = South Asia Department, SERD = Southeast Asia Department. Source: ADB data. 100% 80% 60% Figure 35: 2014 Portfolio Ratings by Sector % 20% % ANR EDU ENE FIN HLT IND ICT MUL PSM TRA WUS ADB On Track Potential Problem Actual Problem ADB = Asian Development Bank, ANR = agriculture, natural resources and rural development, EDU = education, ENE = energy, FIN = finance, HLT = health, IND = industry and trade, ICT = information and communication technology, MUL = multisector, PSM = public sector management, TRA = transport, WUS = water and other urban infrastructure and services. Source: ADB data. 9 In 2014, a one-time cleanup of contract award and disbursement projections in eoperations was undertaken to ensure accuracy and consistency of projections inputted across departments to reflect cancellations and overachievement or underachievement at year-end. As a result, 2014 performance ratings may not be comparable with 2013.

24 18 9. Technical Assistance Portfolio 34. Since 2010, the technical assistance portfolio 10 has grown 38.9% by value and 13.2% by number (Figure 36). The technical assistance portfolio grew by $38.6 million in By number, 18.8% were PPTA and 81.2% were non-ppta projects. SERD held the largest technical assistance portfolio by value ($582.2 million) and number (249) in 2014 (Figure 37). 35. The average age of a technical assistance project from approval was 2.2 years in 2014, and 59.2% of the active technical assistance portfolio had been extended. The average extension was 1.7 years compared with 1.6 years in 2012 and 1.7 years in Non-PPTA accounted for 88% ($898.2 million) of undisbursed amounts and 88% ($512.9 million) of uncommitted technical assistance amounts (Figure 38). The growing number of technical assistance projects is becoming an administrative burden, and ADB needs to consider capping the number of non- PPTA operations. Efforts to rationalize the technical assistance portfolio and closely monitor technical assistance implementation should continue to be a priority. $ million 1,800 1,600 1,400 1,200 1, Figure 36: Technical Assistance Portfolio Growth, TA = technical assistance ,199 1,321 1,379 1,626 1, Net Net TA TA Amount ($mn) ($million) No. of Active TAs number $ million Figure 37: Technical Assistance Portfolio Growth by Department, Net TA Amount 2014 Net TA Amount 2013 No. of Active TAs 2014 No. of Active TAs CWRD = Central and West Asia Department, EARD = East Asia Department, KMSD = knowledge management services departments, No. = number, PARD = Pacific Department, PSOD = Private Sector Operations Department, SARD = South Asia Department, SERD = Southeast Asia Department, TA = technical assistance. Source: ADB data CWRD EARD PARD PSOD SARD SERD KMSD Others Includes PSOD technical assistance projects.

25 19 Figure 38: Active Technical Assistance Portfolio Undisbursed and Uncommitted Value Project Preparatory and Non-Project Preparatory, $ million Undisbursed Uncommitted Non-PPTA PPTA Non-PPTA = Non-project preparatory technical assistance, PPTA = project preparatory technical assistance. C. Conclusions and Agreed Actions 1. Portfolio Performance The performance of the sovereign portfolio in 2014 improved in terms of contract awards, disbursements, and project performance ratings. Contract awards and disbursements were significantly higher in absolute amounts than in The contract award ratio, disbursement ratio, uncontracted percentage, and undisbursed percentage also improved. 37. A large part of this can be attributed to ADB s strong emphasis on portfolio management at the corporate and department levels. Contract award and disbursement targets were set at the beginning of the year. A corporate disbursement drive was launched with close monitoring. Controller s Department (CTL), Treasury Department (TD) and OSFMD helped achieve the ambitious $10.3 billion total disbursement target (sovereign and nonsovereign) for 2014 (Box 2). 38. ADB surpassed its ambitious target of $8.0 billion in contract awards in 2014 by reducing the time for approving the contracts and coordinating with executing agencies and implementing agencies. Steps that helped reduce procurement time, enhance quality, and improve project delivery included the implementation of the 10-point procurement reform actions, increasing the number of Procurement Accreditation Skills Scheme (PASS) accredited staff (120 staff in 2014 compared with 25 staff in 2013), posting OSFMD staff to the front offices of regional departments and the five largest resident missions, and streamlining of procurement processes. Each regional department also implemented its own set of actions to enhance portfolio performance (Box 3). 39. However, challenges remain. A review of annual approvals, contract awards, and disbursements during indicates that the ratio of contract awards to approvals was considerably higher in (82.0%) than in (66.2%), as was the earlier ratio of disbursements to approvals 67.9% compared with 59.4%. This shows that a backlog of contract awards remains, and that disbursements and the 2014 performance need to be sustained. Also, given that sovereign project approvals (OCR and ADF) in have averaged $9.9 billion, but contract awards and disbursements averaged only $6.0 billion and $6.2 billion respectively over the 5 year period, and in 2014 were $7.9 billion and $7.2 billion respectively, ADB needs to continue efforts to raise contract award and disbursement levels in 2015 and beyond in order to tend towards our average net approval levels (approval after cancellation) (Figure 39).

26 20 Box 2: ADB Disbursement Drive Prior to 2014, the Asian Development Bank (ADB) disbursement target was set based on a bottom-up approach by using project projections inputted in the eoperations by each project team. These goals would often be conservative, and the ability to make changes in line with implementation in eoperations made the overall target a moving number and hard to monitor. The disbursement ratios for 2013 and 2012 were below 18% compared with the ADB Development Effectiveness Review target of 22% by With total ADB approvals averaging $12 $13 billion a year, and annual disbursements of about $8 $9 billion, the 2013 Annual Portfolio Performance Report noted the need to launch a corporate drive for both sovereign and nonsovereign operations to increase disbursements and have a fixed ADB target. Based on the available undisbursed balance at the beginning of the year and the need to work toward a project disbursement ratio of 22% by 2016, ADB s portfolio operations review meeting proposed an ambitious target of $10.3 billion for 2014 ($9.0 billion for sovereign and $1.3 billion for nonsovereign), 18.3% higher than $8.7 billion in The target was then included in the 2014 planning directions split by operational department issued by the President. Progress toward these targets was closely monitored through bimonthly management information summaries and quarterly operations review meetings at the Management level. The heads of department of each regional department and the Private Sector Operations Department worked out strategies to achieve their targets and monitored these at the department level through nominated focal points in their front offices. The project team leaders monitored active contracts against project disbursement schedules and worked closely with the projects executing agencies and implementing agencies to meet their targets. The Controller s and Treasury departments helped by keeping the books open, accepting withdrawal applications, and making payments until late December. In the end, closer coordination between operational departments, Operations Services and Financial Management Department, Controller s Department, and Treasury Department helped achieve $10.3 billion in disbursements in Source: ADB Operations Services and Financial Management Department $ billion Figure 39: Annual ADB Approvals, Contract Awards, and Disbursements, ADF = Asian Development Fund, OCR = ordinary capital resources. Note: Covers sovereign OCR and ADF projects only (excludes policy-based). 40. The use of a harmonized disbursement ratio definition shows that ADB s achievement has been one to two percentage points lower than World Bank since 2011 and an even wider gap compared to the African Development Bank (Table 2). This further highlights the need for ADB to continue its emphasis on improving its disbursement performance Annual Approvals Annual Contract Awards Annual Disbursements

27 21 Table 2: Disbursement Ratio ADB, African Development Bank, and World Bank, Year ADB WB AfDB % % 19% % 21.5% 18% % 20.0% 22% % 19.8% 24% % 20.0% ADB = Asian Development Bank, AfDB = African Development Bank, WB = World Bank Sources: World Bank World Bank Group and World Bank Corporate Scorecard October Washington, DC: World Bank Group. African Development Bank Group Annual Development Effectiveness Review 2014 Towards Africa s Transformation. Tunisia: African Development Bank Group. Asian Development Bank data. 2. Looking Forward 41. Based on positive portfolio structure conditions, particularly the portfolio age and the 5- year average performance of contract awards and disbursements, performance is expected to improve further in Contract awards in 2015 are expected to increase to $8.9 billion and disbursements to $8.8 billion in 2015 (Figure 40). Given that this projection is based on the average of 5-year performance and that the performances in 2012 and 2013 were below the 5- year averages, regional departments need to continue their efforts to achieve higher levels of performance in Figure 40: Project Loan and Grant Contracts and Disbursement Funds Available versus Actual, $ billion Active Loan & Grant Portfolio Dec 31st Funds Available for Contracting (beginning of year) Funds Available for Disbursement (beginning of year) CA = contract award. 8.2 Actual Contracts (using the last 5 years average CA Ratio by age) Actual Disbursement (Using Average)

28 22 Box 3: Portfolio Actions by ADB s Regional Departments The strong performance of the Asian Development Bank (ADB) portfolio in 2014 was the result in part of actions taken by its regional departments. The Central and West Asia Department took the following portfolio management actions regular portfolio reviews with follow-up on agreed actions at the department and country level; full delegation of projects to Pakistan Resident Mission; a country safeguard review to identify systemic and project-level safeguard issues and take corrective actions to address them; the introduction of an innovative project complaint tracking system for timely resolution of project complaints; fielding of procurement specialists under a regional technical assistance to help manage difficult procurement issues; the cascading of the department disbursement target down to sector divisions and resident missions; the training of executing agencies and implementing agencies in procurement and International Federation of Consulting Engineers (FIDIC) contract management, disbursement, safeguards, and financial management; the enhancement of financial management by cleaning up outstanding audit submissions and training auditors; and close monitoring of the resolution of contract disputes. The East Asia Department took measures to increase coordination and communication on procurement, contract management, safeguards, and implementation across its portfolio in the People s Republic of China and Mongolia. These steps included hand-holding new counterpart executing agencies and implementing agencies with weak capacity; training executing agencies and implementing agencies in ADB procurement and disbursement during inception and review missions; constant follow-up with executing agencies, implementing agencies, and ministries of finance; and fielding review missions to facilitate quick resolution of outstanding implementation issues for problem projects; placing consultants at project management offices to help with procurement in complex projects; and delegating disbursement of headquarters-administered projects to resident missions and active monitoring of contracts against disbursement schedules by project team leaders. The Pacific Department made efforts to improve portfolio performance while maintaining a strong focus on safeguards and financial audit requirements. Measures included organizing country portfolio review meetings in Papua New Guinea, Timor-Leste, the Federated States of Micronesia, and Tonga; helping contractor mobilization through advance payments; processing withdrawal applications only after executing agencies had implemented agreed resettlement plans; conducting an active dialogue with Papua New Guinea s Auditor General s Office to mobilize private auditors through a regional technical assistance for timely submission of audited project accounts and financial statements. South Asia Department stepped up its efforts to improve quality and efficiency in procurement performance, while maintaining fiduciary oversight by scrutinizing implementation arrangements at project design and supervision for ongoing projects; delegating full responsibility for consultant recruitment, procurement, and project administration to ADB s Bangladesh Resident Mission and India Resident Mission; cascading authority for departmental contract awards and disbursement targets down to the division, project team, and staff levels; setting new targets for a 50% reduction in procurement time by South Asia Department and ADB clients; enhancing the integrity of data in eoperations and introducing departmental management information summary to better monitor and report portfolio performance; and undertaking an innovative study on contractor and consultant performance to understand and address performance issues more effectively. Southeast Asia Department made positive strides toward improving performance across its portfolio. Its measures included continuation of a multiyear structured portfolio spring-cleaning process of slow-moving projects in Viet Nam; increasing the use of country procurement systems and adopting harmonized government/adb/world Bank standard operating procedures on project administration; establishing resident mission-based country disbursement task forces, or flying squads, to chase year-end withdrawal applications; increasing executing agency training by using modular structured executing agency training calendars managed by resident missions; and undertaking a study to quantify the costs of project extensions. These actions converge with the priorities of the action plan of the midterm review of Strategy 2020 and ADB s 10-point procurement reform action plan. If replicated and implemented across the regional departments, they should enable even better portfolio performance in Source: ADB Operations Services and Financial Management Department

29 This projection is corroborated by a regression analysis. The analysis was undertaken to see the effect on disbursements of (i) the undisbursed balance at beginning of the year and (ii) the contract awards in the preceding year. Both indicated positive and high correlation. Based on this, disbursements are predicted to be $8.3 billion in A study on disbursement performance of project loans approved during showed that disbursement performance is significantly affected by the contracting time measured by a proxy, which is the average processing time for either international competitive bidding or national competitive bidding for goods and works contracts. The study established that the more complex and/or inefficient a country s procurement system was, the longer the contract processing time would be. This in turn slowed disbursements. The study reinforces the need to implement ADB 10-point procurement reform action plan. 3. Agreed Actions 44. ADB has made good progress on implementing the 2013 APPR recommendations (Appendix 2). The majority of the measures called for in the midterm review action plan to improve project readiness, procurement, and implementation are under way. 45. Based on 2014 performance, the following actions were recommended and agreed to further improve portfolio performance: (i) (ii) (iii) (iv) (v) (vi) setting 2015 contract award and disbursement targets. continuing to implement procurement reforms, build executing agency capacity, and mainstream e-procurement and post review sampling in ADB operations. increasing project readiness and adopting realistic project implementation schedules by comparing with standard timelines and managing this using eoperations. spring-cleaning the technical assistance portfolio, capping the number of non- PPTA projects, and introducing more technical assistance portfolio metrics for monitoring. making efforts to increase the average size of projects from the $100 million baseline in revising project performance rating criteria.

30 24 III NONSOVEREIGN PORTFOLIO A. Portfolio Composition and Trends 46. Overall portfolio. The total committed nonsovereign portfolio increased by 13.6% to $7.6 billion at the end of 2014 ($6.7 billion at the end of 2013) (Figure 41). 11 Nonsovereign committed loans totaled $5.5 billion ($4.6 billion in 2013), committed guarantees totaled $1.10 billion ($1.11 billion in 2013), and committed equities (at carrying value) totaled $1.04 billion ($974.5 million in 2013). 47. The total outstanding portfolio increased by 10.0% to $5.3 billion at the end of 2014 ($4.8 billion at the end of 2013) with loans constituting the largest share at $3.6 billion ($3.2 billion at the end of 2013). 12 The top two sectors energy and finance accounted for 84.3% of the outstanding portfolio (89.2% in 2013). The concentration in the top three countries (India, Pakistan, and the PRC) increased to 51.7% of the outstanding portfolio (India, Indonesia, and the PRC accounted for 49.1% in 2013). 1. Approvals, Commitments, and Disbursements 48. Nonsovereign approvals, commitments and disbursements all rose in Approvals increased by 19.7% to $1.9 billion, 16.3% above the initial 2014 planning figures for nonsovereign operations. Commitments increased by 154.3% to $1.9 billion ($733.3 million in 2013). Loan and equity disbursements increased by 33.0% to a record high of $1.2 billion (Figure 42). 49. Loan approvals totaled $1.7 billion in 2014, a 20.2% increase over Loan commitments increased by 175.8% to $1.5 billion. Loan disbursements increased by 34.8% to $1.1 billion. Guarantee approvals fell by 42.9% to $20.0 million ($35.0 million in 2013). 13 Guarantee commitments fell by 87.3% to $10.3 million ($81.5 million in 2013). Equity approvals increased by 30.3% to $185.0 million, of which $100.0 million was for investment funds and $85.0 million for direct equities. Equity commitments increased by 238.6% to $304.4 million. Equity disbursements increased by 20.3% to $140.2 million. 14 PSOD s 2014 disbursements totaled $1.23 billion, the highest for the last 10 years. 50. In 2014, approvals in group A countries increased significantly to $342.0 million ($75.0 million in 2013). Approvals in group B increased to $1.0 billion ($495.4 million in 2013), and decreased in group C to $478.0 million ($971.9 million in 2013). 15 The PRC and India accounted for $1.1 billion or 56.1% of total approvals ($825.4 million or 51.5% in 2013). 11 The committed portfolio consists of outstanding balances plus undisbursed balances. Commitments are project investments approved by ADB s Board of Directors for which the investment agreements are signed by the investee company and ADB. 12 The total outstanding portfolio is the disbursed loans and equity investments (on the balance sheet) plus executed guarantees (off the balance sheet). 13 Guarantee approvals exclude approvals in supply chain finance and trade finance. 14 Excludes a $50 million disbursement for the Association of Southeast Asian Nations (ASEAN) Infrastructure Fund, which was processed as a sovereign project. 15 Group A countries that receive nonsovereign project assistance from ADB are Afghanistan, Cambodia, Kyrgyz Republic, Lao People s Democratic Republic, the Maldives, Myanmar, Nepal, Samoa, and Tajikistan. Group B countries are Armenia, Bangladesh, Georgia, India, Mongolia, Pakistan, Papua New Guinea, Sri Lanka, Uzbekistan, and Viet Nam. Group C countries are Azerbaijan, the PRC, Indonesia, Kazakhstan, Malaysia, the Philippines, and Thailand.

31 25 Figure 41: Nonsovereign Portfolio at a Glance (As of 31 December 2014) Total Nonsovereign Portfolio Total year-end committed portfolio increased by 13.6% to $7.6 billion Total loans committed increased to $5.5 billion, guarantees committed remained at $1.1 billion, and equity committed marginally increased to $1.0 billion Approvals increased by 19.7% to $1.9 billion Commitments increased by 154.3% to $1.9 billion Disbursements increased by 33.0% to $1.2 billion Droppages and cancellations decreased to $597.8 million, down from a high of $1.1 billion in 2013 Loan Portfolio Total committed loans increased by 18.5% to $5.5 billion Outstanding loans increased by 12.6% to $3.6 billion Undisbursed balances increased by 31.8% to $1.9 billion Approvals increased by 20.2% to $1.7 billion Commitments increased by 175.8% to $1.5 billion Disbursements increased by 34.8% to $1.1 billion Droppages and cancellations decreased by 81.3% to $112.5 million Prepayments increased by 60.3% to $312.3 million Guarantee Portfolio Total committed guarantees remained at $1.1 billion Outstanding guarantees increased by 8.9% to $995.4 million Signed non-executed guarantees decreased by 44.8% to $107.6 million (excluding Trade Finance Program) Approvals (excluding supply chain finance) decreased by 42.9% to only $20.0 million Commitments decreased by 87.3% to only $10.3 million Droppages and cancellations decreased by 29.1% to $341.4 million Equity Portfolio Total committed equities increased by 6.4% to $1.0 billion Outstanding equities (at carrying value) decreased marginally to $717.9 million a Undisbursed equities increased to $319.0 million Approvals increased by 30.3% to $185.0 million, of which $85.0 million was for direct equities. Commitments increased by 238.6% to $304.4 million Disbursements increased by 20.3% to $140.2 million Droppages and cancellations were $144.0 million ($38.0 million in 2013) Source: Asian Development Bank data a including $6 million of debt securities