Project Administration Manual

Transcription

1 Project Administration Manual Project Number:50102 Loan and/or Grant Number(s): {LXXXX; GXXXX} July 2018 Kingdom of Cambodia: Second Urban Environmental Management in the Tonle Sap Basin Project

2 ABBREVIATIONS ADB Asian Development Bank ADF Asian Development Fund AFS audited financial statements AH affected household AP Affected Person CQS consultant qualification selection DMF design and monitoring framework EA Executing Agency EARF environmental assessment and review framework EMP environmental management plan GACAP governance and anticorruption action plan GDPW General Department of Public Works GDR General Department of Resettlement ICB international competitive bidding IEE initial environmental examination IPPF indigenous people planning framework IRC Inter-ministerial Resettlement Committee LAR land acquisition and resettlement MEF Ministry of Economy and Finance MOE Ministry of Environment MOI Ministry of Interior MLMUPC Ministry of Land Management, Urban Planning and Construction MPWT Ministry of Public Works and Transport NCB national competitive bidding NGOs nongovernment organizations O&M operation and maintenance PAM project administration manual PCA procurement capacity assessment PCC Provincial Coordinating Committee PDPWT provincial departments of public works and transport PIU project implementation unit PMIS project management and implementation support PMU project management unit PPMS Project Performance Management System PSC Project Steering Committee QBS quality based selection QCBS quality- and cost-based selection RP resettlement plans SBD standard bidding documents SOE statement of expenditure SPS Safeguard Policy Statement SWM solid waste management TOR terms of reference

3 CONTENTS I. PROJECT DESCRIPTION 1 A. Summary 1 B. Impact and Outcome 1 C. Outputs 1 II. IMPLEMENTATION PLANS 2 A. Project Readiness Activities 2 B. Overall Project Implementation Plan 3 III. PROJECT MANAGEMENT ARRANGEMENTS 4 A. Project Implementation Organizations: Roles and Responsibilities 4 B. Key Persons Involved in Implementation 5 C. Project Organization Structure 6 IV. COSTS AND FINANCING 6 A. Cost Estimates Preparation and Revisions 6 B. Key Assumptions 6 C. Detailed Cost Estimates by Expenditure Category 7 D. Allocation and Withdrawal of Loan and Grant Proceeds 8 E. Detailed Cost Estimates by Financier 9 F. Detailed Cost Estimates by Expenditure Category and Output 11 G. Detailed Cost Estimates by Year 12 H. Contract and Disbursement S-Curve 13 H. Fund Flow Diagram 17 V. FINANCIAL MANAGEMENT 18 A. Financial Management Assessment 18 B. Disbursement 20 C. Accounting 22 D. Auditing and Public Disclosure 22 VI. PROCUREMENT AND CONSULTING SERVICES 23 A. Advance Contracting and Retroactive Financing 23 B. Procurement of Goods, Works, and Consulting Services 23 C. Procurement Plan 24 D. Consultant's Terms of Reference 24 VII. SAFEGUARDS 24 A. Environmental Safeguards 26 B. Social and Resettlement Safeguards 28 VIII. GENDER AND SOCIAL DIMENSIONS 32 IX. PERFORMANCE MONITORING, EVALUATION, REPORTING, AND COMMUNICATION 35 A. Project Design and Monitoring Framework 35 B. Monitoring 35 C. Evaluation 36 D. Reporting 36 E. Stakeholder Communication Strategy 37 X. ANTICORRUPTION POLICY 31

4 XI. ACCOUNTABILITY MECHANISM 31 XII. RECORD OF CHANGES TO THE PROJECT ADMINISTRATION MANUAL 31 LIST OF TABLES Table 1. Schedule of Project Readiness Activities Table 2. Project Implementation Plan Table 3. Escalation Rates for Price Contingency Calculation Table 4. Detailed Cost Estimates by Expenditure Category Table 5. Allocation and Withdrawal of Loan Proceeds Table 6. Allocation and Withdrawal of Grant Proceeds Table 7. Detailed Cost Estimates by Financier Table 8. Cost Estimates by Expenditure Category and Output Table 9. Summary Project Cost and Financing Plan Table 10. Detailed Cost Estimate by Year Table 11. Contract awards and disbursements for loan Table 12. Contract awards and disbursement for grant Table 13. Contract awards and disbursement for loan and grant (aggregate) Table 14. Financial Management Action Plan Table 15. Institutional Roles and Responsibilities for Environmental Safeguards Table 16. Institutional Roles and Responsibilities for Social and Resettlement Safeguards

5 Project Administration Manual Purpose and Process The project administration manual (PAM) 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 PAM should include references to all available templates and instructions either through linkages to relevant URLs or directly incorporated in the PAM. The Ministry of Public Works and Transport (MPWT) and Department of Public Works and Transport (DPWT) 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 MPWT and DPWT of their obligations and responsibilities for project implementation in accordance with ADB s policies and procedures. At loan negotiations, the borrower and ADB shall agree to the PAM and ensure consistency with the loan agreement. Such agreement shall be reflected in the minutes of the loan negotiations. In the event of any discrepancy or contradiction between the PAM and the loan agreement, the provisions of the loan agreement shall 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 Project Administration Instructions) and upon such approval, they will be subsequently incorporated in the PAM.

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7 I. PROJECT DESCRIPTION A. Summary 1. The project will improve urban environmental services in Battambang, Serei Saopohoan and Stung Saen, three of Cambodia s provincial cities located around the Tonle Sap lake. The project will also improve institutional effectiveness to provide sustainable services and support an improved policy and planning environment for wastewater and solid waste management. B. Impact and Outcome 2. Impact: Sustainable, inclusive, equitable and resilient growth achieved. 3. Outcome: Urban services improved in participation cities C. Outputs 4. Output 1: Urban infrastructure improved. The project will finance (i) a new 4,800 cubic meters (m 3 )/day capacity WWTP, 87 kilometers (km) of new sewers and a 350,000 m 3 landfill in Battambang; (ii) a new 2,300 m 3 /day capacity WWTP, 39 km of new sewers, 17 km drainage network and a 48,000 m 3 landfill in Stueng Saen; and (iii) a new 2,500 m 3 /day capacity WWTP, 78 km of new sewers, 8.5 km drainage network and 130,000 m 3 landfill in Serei Saophoan. 1 It will also finance free house latrines for 760 poor households. The design of the WWTP, access roads, and drainage network will factor disaster and climate risk considerations. 5. Output 2: Institutional effectiveness improved. The project will strengthen institutional effectiveness through improving staff capacity in critical areas (including improved urban service delivery, O&M of urban facilities, public private partnerships and other institutional arrangements), supporting the establishment of urban service units, and dedicated consultant support for project management. 6. Output 3: Policy and planning environment improved. The project will develop urban development strategies and master plans for all three cities. It will develop a road map for financial sustainability for wastewater and solid waste (including a proposed road map and arrangement for tariffs, and mechanism for ensuring household connections). It will build community awareness on the benefits of proper sanitation and separate sewage systems and safe disposal of solid waste. 1 The service area for the sewerage network includes the core town areas in each city, covering 20% 30% of each city s population. The project will finance free household connections to the sewer system (i.e., the line from the sewer to the boundary of the property). It also allocates financing for on-site plumbing (i.e., plumbing needed within the boundary of the property), which it will provide as a subsidy to identified poor households. The government may choose to recover all or part of this cost from the remaining households. The service area for solid waste covers 50% 75% of each city s population.

8 2 II. IMPLEMENTATION PLANS A. Project Readiness Activities Table 1: Schedule of Project Readiness Activities Indicative Activities Project implementation arrangement established Advertisement of project management consulting service ADB Board approval Completion of DED and BDs for CW01 Loan signing Project included under the government budget Government legal opinion provided Loan effectiveness 2018 Responsible Individual/Unit/Agency Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan /Government MPWT, PIUs ADB, MPWT ADB ADB, MPWT, PPTA team ADB, MEF MEF, MPWT MOJ ADB, MEF ADB = Asian Development Bank, BD = bidding documents, DED = detailed engineering design, MEF = Ministry of Economy and Finance, MOJ = Ministry of Justice, MPWT = Ministry of Public Works and Transport, PIU = Provincial Project Implementation Units Sources: Asian Development Bank, Royal Government of Cambodia.

9 3 B. Overall Project Implementation Plan 7. The Project is expected to be implemented over a period of five years, beginning in January 2019 with completion by December The overall project implementation plan is shown in Table 2. The overall project implementation plan will be updated annually by MPWT and ADB based on actual physical progress. Table 2: Project Implementation Plan No. Activities Project Readiness/Preparation - Loan Effectiveness - Recruitment of project management consultants - Land Acquistion 2 Output 1: Improved Public Infrastructure Services 2a. Preparation of detail designs and tender documents - Detailed Stueng Saen wastewater/drainage and Battambang wastewater - Detailed designs for Serei Saophoan wastewater and drainage systems - Detailed designs for landfill sites in three cities - Preparation and approval of EIA, EMP, IEIA, RP for urban insfrastructure improvements in Stueng Saen, Serei Saophoan, and Battambang 2b. Stueng Saen wastewater/drainage and Battambang wastewater (one package), including onsite plumbing - Procurement - bidding process and contract award - Construction - Defects liability period, O&M support 2c. Serei Saophoan wastewater and drainage, including onsite plumbing Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 - Procurement - bidding process and contract award - Construction - Defects liability period, O&M support 2d. Construction of landfill sites in Stueng, Saen Serei Saphoan and Battambang (one package, 3 lots) - Procurement - bidding process and contract award - Construction - Defects liability period 3 Output 2: Improved Institutional Effectivensss 3a. Establishment and staffing of semi-autonomous units 3b. On the job training for PMU and PIU staff 3c. Recruitment of social development and gender specialist for PMU support 4 Output 3: Improved Policy and Planning Environment - Preparation of financial sustainability road map - Preparation of urban development master plans 5 Project Management and Implementation - Overall project management and implementation support - Development and roll out of PPMS and capacity building program - Monitoring implementation of resettlement and compensation of AHs Total

10 4 III. PROJECT MANAGEMENT ARRANGEMENTS A. Project Implementation Organizations: Roles and Responsibilities Project Implementation Organizations Project Steering Committee Ministry of Public Works and Transport (MPWT) Project Management Unit (PMU) Banteay Meanchey, Battambang and Kampong Thom Provincial Governments / DPWT Project Implementation Units (PIUs) Management Roles and Responsibilities - Comprises representatives of MEF, MLMUPC, MPWT, MOE, MOI and TSA - Hold periodic steering meeting to address project implementation issues - Provide strategic guidance and support to the PMUs, PIUs and GDR - Ensure compliance with loan covenants as agreed with ADB - Facilitate interagency and inter-ministerial coordination - Oversee project implementation and administration Executing Agency - Provide policy guidance during implementation - Serve as focal agency to ADB and development partners, government offices whose coordination, endorsement or approval and monitoring activities are required and/or mandated by existing policies or laws - Procurement of civil works and consulting services - Administration of loan disbursements - Assist Provincial PIUs as required Project Management and Administration - Responsible for project implementation and management - Liaison/coordination with ADB, GDR, MEF, provincial governments and PIUs - Establish and oversee project accounting and auditing - Ensure adequate counterpart funds allocation - Budgeting and financial planning/management, disbursement - Provide to ADB all disbursement-related documentation - Preparation of reports mandated under the loan agreements and the framework financing agreement to ADB - Establish, maintain and update the project performance monitoring system - Carry out periodic quality audits of the civil works contracts - Coordinate Project Steering Committee meetings - Prepare quarterly progress reports, and project completion report at the end of the project, with support of the project consultants. Procurement of Goods, Works, and Services: - Invite bids and evaluate/prepare bid evaluation reports for further approval - Conduct procurement and consulting service recruitment activities including advertisement, evaluation, negotiation and contract award Note: The PMU will be supported by the Project Management Consultants. Implementing Agencies - Approve and allocate counterpart budget for the PIUs - Assist interdepartmental coordination within the province - Communicate with the PMU for project implementation progress and activities - Provide support and coordination for land acquisition and resettlement activities Project Management and Administration: - Implement day-to-day project implementation in project towns - Liaise with PMU on project implementation - Open and maintain subproject account and contract level accounting - Manage detailed surveys, investigations, and engineering designs for all subcomponents

11 5 - Supervise contractors and ensure the quality of works - Prepare and submit quarterly reports to PMU and to ADB -Implement and monitor safeguards compliance (Resettlement Plan, Environmental Management Plans) Safeguards Compliance: - Implement and monitor safeguards compliance (Environmental Management Plans) prepare quarterly reports for submission to the PMU - Monitor compliance with Resettlement Plans, and coordinate with PMU and GDR on any land acquisition or resettlement issues directly or indirectly relating to the project. - Prepare monthly monitoring reports and submit to PMU Capacity Building: - Propose and participate in training and capacity building programs - Ensure and participate in public awareness campaigns - Implement gender action plan and stakeholder communication strategy General Department of Resettlement (GDR) ADB Resettlement Safeguards Compliance - Implement and monitor safeguards compliance (Resettlement Framework and Resettlement Plans), prepare quarterly reports for submission to the PMU - Coordinate and coordinate with PMU and PIUs of EA and other agencies on any land acquisition or resettlement issues directly or indirectly relating to the project. Asian Development Bank Responsible for administering the project including, procurement review and support, public financial management, safeguards and social monitoring and supervision. B. Key Persons Involved in Implementation Executing Agency (EA) Ministry of Public Works and Transport (MPWT) Asian Development Bank Officer's Name : H.E. Vong Pisith Position : Deputy Director General Office Address : MPWT, Phnom Penh address : vong_pisith@yahoo.com Telephone No. : Officer's Name : Mr. Vijay Padmanabhan Position : Director, Urban Development and Water Division Office Address : 6 ADB Avenue, Mandaluyong City 1550 Metro Manila, Philippines address : vpadmanabhan@adb.org Telephone No. : /5613 Officer's Name : Mr. Sameer Kamal Position : Urban Development Specialist Office Address : 6 ADB Avenue, Mandaluyong City 1550 Metro Manila, Philippines address : skamal@adb.org

12 6 Telephone No. : C. Project Organization Structure Ministry of Economy and Finance (Pass through Accounts) ADB National Level Ministry of Public Works and Transport Project Management Unit (Advance Accounts) Project Steering Committee (MPWT, Chair) Provincial/Municipal Level Provincial Department of Public Works and Transport Project Implementation Unit-Battambang Provincial Department of Public Works and Transport Project Implementation Unit- Serei Saophoan Provincial Department of Public Works and Transport Project Implementation Unit-Stung Saen IV. COSTS AND FINANCING 8. The project cost tables are presented below. A. Cost Estimates Preparation and Revisions 9. The cost estimate was prepared jointly by Asian Development Bank and implementing agencies using beginning-2018 prices. The cost estimate will be revised at the loan midterm review stage (planned in 2021). B. Key Assumptions 10. The following key assumptions underpin the cost estimates and financing plan: (i) Exchange rate: KR4035 = $1.00 (as of 2 January 2018). (ii) Price contingencies based on expected cumulative inflation over the implementation period are as follows:

13 7 Table 3: Escalation Rates for Price Contingency Calculation Item Average Foreign rate of price inflation 1.5% 1.5% 1.5% 1.6% 1.6% 1.54% Domestic rate of price inflation 3.2% 3.5% 3.5% 3.5% 3.5% 3.44% Source(s): SERD, ADB. C. Detailed Cost Estimates by Expenditure Category Table 4: Detailed Cost Estimates by Expenditure Category Item KR billion $ million % of Total Local Foreign Total Local Foreign Total Base A. Base Cost 1 Civil Works % 2 Good and Equipment % 3 Land Acquistion and Resettlement % 4 Consulting Services % 5 Incremental Administration Cost % Subtotal (A) % B. Contingencies 1 Physical contingencies % 2 Price contingencies % Subtotal (B) % C. FCDI % Total (A+B+C) % Base cost in February 2018 prices. Includes taxes and duties of $7.58 million. ADB will finance taxes and duties only for incremental administration cost. The government will finance taxes and duties through exemption and/or cash contribution, and cash contribution for all other costs. Physical contingency is 5.0%. Price contingency is based on foreign inflation rates of 1.5% from 2018 to 2020, 1.6% from 2021 and onwards; and local inflation rate of 3.5% from 2018 and onwards. ADB loan interest at 1.00% per year during grace period and 1.5% thereafter. Repayment period is 32 years, including grace period of 8 years. FCDI = Financial Charges During Implementation Source: ADB estimates

14 8 D. Allocation and Withdrawal of Loan and Grant Proceeds Table 5: Allocation and Withdrawal of Loan Proceeds No. Item Amount Allocated for ADB financing [$] Basis for Withdrawal from the Loan Account 1 Civil Works # 66,470, % of total expenditure claimed 2 Goods and Equipment 2,370, % of total expenditure claimed* 3 Consulting Services 5,660, % of total expenditure claimed* 4 Incremental Administration Cost 750, % of total expenditure claimed 5 Interest Charge 2,460, % percent of amounts due 6 Unallocated 10,020,000 Total 87,730,000 Source: ADB estimates *Exclusive of taxes and duties imposed within the territory of the Borrower # subject to upfront full utilization of the grant under the Grant Agreement No. Table 6: Allocation and Withdrawal of Grant Proceeds Item Amount Allocated for ADB financing [$] Basis for Withdrawal from the Grant Account 1 Civil Works 1,270, % of total expenditure claimed Total 1,270,000 Source: ADB estimates

15 9 E. Detailed Cost Estimates by Financier Table 7: Detailed Cost Estimates by Financier ($ million) Item ADB Loan ADB Grant Government Total A. Base Cost Amount % Amount % Amount % 1 Civil Works % % % Goods and Equipment % - 0.0% % Land Acquisition and Resettlement - 0.0% - 0.0% % Consulting Services % - 0.0% % Incremental Administration Cost % - 0.0% % 1.00 Subtotal (A) % % % B. Contingencies 1 Physical contingencies % - 0.0% - 0.0% Price contingencies % - 0.0% - 0.0% 5.85 Subtotal (B) % - 0.0% - 0.0% C. FCDI % - 0.0% - 0.0% 2.46 Total (A+B+C) % % % Base cost in February 2018 prices. Includes taxes and duties of $7.58 million. ADB will finance taxes and duties only for incremental administration cost. The government will finance taxes and duties through exemption and/or cash contribution, and cash contribution for all other costs. Physical contingency is 5.0%. Price contingency is based on foreign inflation rates of 1.5% from 2018 to 2020, 1.6% from 2021 and onwards; and local inflation rate of 3.5% from 2018 and onwards. ADB loan interest at 1.00% per year during grace period and 1.5% thereafter. Repayment period is 32 years, including grace period of 8 years. Source: ADB estimates

16 10 F. Detailed Cost Estimates by Expenditure Category and Output No. Table 9: Cost Estimates by Expenditure Category and Output Local Foreign Total Amount % of Cost Category Amount % of Cost Category Amount % of Cost Category A. Base Cost 1 Civil Works % 2 Goods and Equipment % 3 Land Acquisition and Resettlement % 4 Consulting Services % % 5 Incremental Administration Cost % Subtotal (A) % % % B. Contingencies 1 Physical contingencies % % % 2 Price contingencies % % % Subtotal (B) % % % C. Financial Charges During Implementation % % % Total (A+B+C) % % % Base cost in February 2018 prices. Includes taxes and duties of $7.58 million. ADB will finance taxes and duties only for incremental administration cost. The government will finance taxes and duties through exemption and/or cash contribution, and cash contribution for all other costs. Physical contingency is 5.0%. Price contingency is based on foreign inflation rates of 1.5% from 2018 to 2020, 1.6% from 2021 and onwards; and local inflation rate of 3.5% from 2018 and onwards. ADB loan interest at 1.00% per year during grace period and 1.5% thereafter. Repayment period is 32 years, including grace period of 8 years. Source: ADB estimates Item ($ million) Output 1: Improved Public Services Output 2: Improved Institutional Effectiveness Output 3: Improved Policy and Regulatory Environment

17 11 Table 9: Summary Project Cost and Financing Plan ($ million) Project Cost Financing Plan ($ million) ADB Loan ADB DRR Grant Government No. Item Amounts % of Taxes + Amount % Amount % LAR IAC Total Duties Subtotal % A. Base Cost 1 Improved Public Services % % % % 2 Improved Institutional Effectiveness % % 0% % 3 Improved Policy and Regulatory % % 0% % Subtotal (A) % % % % B. Contingencies % % 0% 0% C. Finance Charges During Implementation % % 0% 0% Total (A+B+C) % % % % Base cost in February 2018 prices. Includes taxes and duties of $7.58 million. ADB will finance taxes and duties only for incremental administration cost. The government will finance taxes and duties through exemption and/or cash contribution, and cash contribution for all other costs. Taxes and duties for works will be financed by cash contribution. Taxes and duties for goods and equipment, and consulting services, will be financed by exemption. Physical contingency is 5.0%. Price contingency is based on foreign inflation rates of 1.5% from 2018 to 2020, 1.6% from 2021 and onwards; and local inflation rate of 3.5% from 2018 and onwards. ADB loan interest at 1.00% per year during grace period and 1.5% thereafter. Repayment period is 32 years, including grace period of 8 years. IAC = Incremental Administration Cost; LAR = Land Acquisition and Resettlement Financing allocated to this item under the Grant Agreement will be utilized first at 100% of every claim until it has been disbursed in full. Thereafter, financing allocated to this item under this Loan Agreement will be utilized at 100% of every claim. Source: ADB estimates

18 12 G. Detailed Cost Estimates by Year Table 10: Detailed Cost Estimate by Year ($ million) Item Total A. Base Cost 1 Civil Works Goods and Equipment Land Acquistion and Resettlement Consulting Services Incremental Administration Subtotal (A) B. Contingencies 1 Physical contingencies Price contingencies Subtotal (B) C. Financial Charges During Implementation Total (A+B+C) Base cost in February 2018 prices. Includes taxes and duties of $7.58 million. ADB will finance taxes and duties only for incremental administration cost. The government will finance taxes and duties through exemption and/or cash contribution, and cash contribution for all other costs. Physical contingency is 5.0%. Price contingency is based on foreign inflation rates of 1.5% from 2018 to 2020, 1.6% from 2021 and onwards; and local inflation rate of 3.5% from 2018 and onwards. ADB loan interest at 1.00% per year during grace period and 1.5% thereafter. Repayment period is 32 years, including grace period of 8 years. Source: ADB estimates

19 13 H. Contract and Disbursement S-Curve 11. The tables and graphs below show contract awards and disbursement projections for the loan, grant and aggregate ADB financing over the life of the project. The contracts awards amounts ($84.76m loan and $86.03m aggregate) exclude financing charges of $2.47m. Disbursement are forecast until four months after the loan/grant closing date of 30 June Table 11: Contract awards and disbursements for loan Contract awards for loan ($ million) Q1 Q2 Q3 Q4 Total Total: Disbursements for loan ($ million) Q1 Q2 Q3 Q4 Total Total: 87.23

20 14 Table 12: Contract awards and disbursement for grant Contract awards for grant ($ million) Q1 Q2 Q3 Q4 Total Total: 1.27 Disbursements for grant ($ million) Q1 Q2 Q3 Q4 Total Total: 1.27

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22 16 Table 13: Contract awards and disbursement for loan and grant (aggregate) Contract awards for loan and grant ($ million) Q1 Q2 Q3 Q4 Total Total: Disbursements for loan and grant ($ million) Q1 Q2 Q3 Q4 Total Total: 88.50

23 17 I. Fund Flow Diagram 12. Based on the financial management assessment, the proposed fund flow arrangement is to set up two pass-through accounts (one for the loan and one for the grant) at MEF, and two advance accounts (one for the loan, and one for the grant) at MPWT. MPWT has experience with use of Advance Fund and Statement of Expenditure (SOE) Procedure under several ongoing projects. The accounts will be opened with the National Bank of Cambodia. Signatories are from MEF (Group A) and MPWT (Group B). To expedite bank transactions, Group A or B signatories are authorized to withdraw funds from the advance account. In the future, advance accounts may be set up at the provincial level (DPWTs) for the three PIUs, once necessary capacity has been established and subject to ADB s approval.

24 18 A. Financial Management Assessment V. FINANCIAL MANAGEMENT 13. The financial management assessment (FMA) was conducted in December 2017 in accordance with ADB s Guidelines for the Financial Management and Analysis of Projects and the Financial Due Diligence: A Methodology Note. The FMA considered the capacity of the Ministry of Public Works and Transport (MPWT) and the Provincial Department of Public Works and Transport (DPWT) in each participating province, including funds-flow arrangements, staffing, accounting and financial reporting systems, financial information systems, and internal and external auditing arrangements. 14. Overall assessment of project financial management risk is moderate. Based on the assessment, the key financial management risks identified were: (i) un-insured fixed assets (except for vehicle), weak asset monitoring and inventory arrangement; (ii) unrealistic projections for budget allocation of revenue and expenditure; and (iii) lack of knowledge/ training in ADB procurement and disbursement procedures at the provincial and town levels. 15. The risk will be mitigated by (i) providing training to Ministry of Public Works and Transport (MPWT) and its project management unit (PMU), the provincial government officials and provincial Department of Public Works and Transport (DPWT) on fixed asset management including linkage to asset preventive maintenance activities, and on ADB procurement and financial reporting prior to project start up; (ii) strengthening the capacity of the local governments on budget preparation and management, and expenditure prioritization; and (iii) engage a financial specialist under the project management consulting service, and a qualified auditor. MPWT/PMU and three provincial governments/dpwts have agreed to implement an action plan as key measures to address the deficiencies. 16. Based on the financial management assessment, the proposed fund flow arrangement is to set up two pass-through accounts (one for the loan and one for the grant) at MEF, and two advance accounts (one for the loan, and one for the grant) at MPWT. The fund flow will be only limited between Ministry of Economy and Finance (MEF) and MPWT, as opposed to the DPWTs, to significantly mitigate financial risks. 17. MPWT has experience with use of Advance Fund and Statement of Expenditure (SOE) Procedure under several ongoing projects. The accounts will be opened with the National Bank of Cambodia. Signatories are from MEF (Group A) and MPWT (Group B). To expedite bank transactions, Group A or B signatories are authorized to withdraw funds from the advance account. In the future, advance accounts may be set up at the provincial level (DPWTs) for the three PIUs, subject to ADB s approval. These advance accounts, to be set up when sufficient capacity has been established at the PIUs, will support the project s goal or transforming the PIUs into urban service units, while also supporting the government s decentralization and deconcentration program. 18. The RGC and MPWT and/or provincial DPWTs have agreed to implement an action plan as key measures to address the deficiencies. The financial management action plan is provided in the table below.

25 19 Table 14: Financial Management Action Plan Overall Risk Risk description Impact Likelihood Assessment Inherent Risk The Standard Operating Procedure for externally financed projects in Cambodia (May 2012) stipulates that assets must be subject to careful asset management, but in High Likely Substantial practice there is no regular monitoring/ inventory. There is a risk of loss of asset due to poor maintenance. Total Inherent Risk Substantial Control Risk Internal audit Lack of internal audit system in the provincial governments and DPWTs DPWT/PIU staff lack training on ADB disbursement and reporting procedure Information systems Improper record keeping or mistakes because of the excel-based financial management system in the provincial Low Likely Moderate Low Likely Moderate Low Likely Moderate Mitigation measures/ Responsibility - Update Fixed Asset Book every year during and after project implementation. - Train government staff in fixed asset management including linkage to asset preventive maintenance activities. - Strengthen external audit by MEF and MPWT/ PMU ensuring to engage the qualified auditor under the project. - - External audit will be in accordance with international auditing standards Sub-accounts will not be established at the start of the project but may be established in the future once PIUs have been assessed to have sufficient capacity. The PMU will use a project financial management system developed under previous ADB projects and will be responsible for all procurement. The PMC will build capacity at the PIUs. - MEF and MPWT/PMU ensure to engage the qualified audit company under the project Timeline - Within 3 months after the end of each fiscal year. - By Q Throughout the project - By Q By Q Throughout

26 20 governments, and DPWTs Total Control Risk Overall Risk Moderate Moderate - PMU and PIUs will undertake regular backups of all financial, accounting and project related data and appropriate security measures over backed-up data shall be in place. the project B. Disbursement 1. Disbursement Arrangements for ADB Funds 19. The loan and grant proceeds will be disbursed in accordance with ADB s Loan Disbursement Handbook (2017, as amended from time to time) 2, and detailed arrangements agreed upon between the government and ADB. Online training for project staff on disbursement policies and procedures is available. 3 Project staff are encouraged to avail of this training to help ensure efficient disbursement and fiduciary control. 20. Advance fund procedure. The Ministry of Economy and Finance, on behalf of the government, will establish separate pass-through accounts (for the loan and for the grant) at the National Bank of Cambodia to receive funds from ADB loan resource. Separate advance accounts (one for the ADB loan and the other for the ADB grant) will be established and maintained by MPWT/PMU. The currency of each advance account is the US dollar. The advance accounts are to be used exclusively for ADB s share of eligible expenditures. MPWT is accountable and responsible for proper use of advances to the advance accounts. 21. The total outstanding advance to the respective advance account should not exceed the estimate of ADB s share of expenditures to be paid through the respective advance account for the forthcoming 6 months. The MPWT may request for initial and additional advances to the advance account based on an Estimate of Expenditure Sheet 4 setting out the estimated expenditures to be financed through the respective account for the forthcoming 6 months. Supporting documents should be submitted to ADB or retained by the MPWT in accordance with ADB s Loan Disbursement Handbook (2017, as amended from time to time) when liquidating or replenishing the advance account. All withdrawal applications will be sent to ADB for processing. 22. Statement of expenditure procedure. 5 The SOE procedure may be used for reimbursement of eligible expenditures or liquidation of advances to the advance account. The ceiling of the SOE procedure is the equivalent of $100,000 per individual payment. Supporting documents and records for the expenditures claimed under the SOE should be maintained and 2 The handbook is available electronically from the ADB website ( loan-disbursementhandbook) 3 Disbursement elearning. 4 Estimate of Expenditure sheet is available in Appendix 8A of ADB s Loan Disbursement Handbook (2017, as amended from time to time), 5 SOE forms are available in Appendix 7B and 7D of ADB s Loan Disbursement Handbook (2017, as amended from time to time).

27 21 made readily available for review by ADB's disbursement and review missions, upon ADB's request for submission of supporting documents on a sampling basis, and for independent audit. Reimbursement and liquidation of individual payments in excess of the SOE ceiling should be supported by full documentation when submitting the withdrawal application to ADB. 23. Before the submission of the first withdrawal application (WA), the borrower should submit to ADB sufficient evidence of the authority of the person(s) who will sign the withdrawal applications on behalf of the government, together with the authenticated specimen signatures of each authorized person. The minimum value per WA is stipulated in the Loan Disbursement Handbook (2017, as amended from time to time). Individual payments below such amount should be paid (i) by the MPWT and subsequently claimed to ADB through reimbursement, or (ii) through the advance fund procedure, unless otherwise accepted by ADB. The borrower should ensure sufficient category and contract balances before requesting disbursements. Use of ADB s Client Portal for Disbursements (CPD) system 6 is encouraged for submission of withdrawal applications to ADB. 24. The MPWT/PMU will be responsible for: (i) preparing disbursement projections; (ii) requesting budgetary allocations for counterpart funds; (iii) collecting supporting documents; and (iv) preparing and sending withdrawal applications to the Ministry of Economy and Finance (MEF) for onward submission to ADB. The PMU will also be responsible for checking and signing off on all disbursement documents prior to submission to MEF. In case contractual staff salaries are required to be covered by ADB loan proceeds under administration costs, it must be claimed through reimbursements. 2. Disbursement Arrangements for Counterpart Fund 25. The MPWT/PMU will be responsible for the disbursement and liquidation procedures for government funds and will (i) prepare disbursement projections, and (ii) request budgetary allocations for counterpart funds. The government will finance all taxes and duties, including insurance, for all cost categories except for incremental administration cost. Project management staff salaries and supplements will also be covered by counterpart funds. Appendixes 3A and 3B of the ADB s Loan Disbursement Handbook (2017, as amended from time to time) provide further guidance on the proper presentation of local taxes and duties financing in the detailed cost estimate by financier and allocation table in the loan agreement. 26. The MPWT/PMU completes the Government Withdrawal Application Form and attaches a statement of actual expenditure. Supporting expenditure documentation must be maintained by the project team for subsequent review by MEF or audit. The Government Withdrawal Application Form must be signed by the authorized signatories of the MPWT submitted to the Department of Multilateral Cooperation of the General Department of International Cooperation and Debt Management at the MEF. The government withdrawal application must be recorded in the Project Counterpart Funds WA Register. 27. The Department of Multilateral Cooperation will review the completed forms and transfers the funds to the project s counterpart fund account and advises MPWT of the transfer. On receipt of advice from the National Bank of Cambodia that the funds have been deposited into the counterpart funds account, the receipt of the funds should be recorded in the General 6 The CPD facilitates online submission of WA to ADB, resulting in faster disbursement. The forms to be completed by the Borrower are available online at

28 22 Ledger and the Government WA Register must be up-dated C. Accounting 28. The MPWT/PMU will maintain, or cause to be maintained, separate books and records by funding source for all expenditures incurred on the project following cash-based accounting system following the Government s financial regulations. The MPWT/PMU will prepare project financial statements in accordance with the government's accounting laws and regulations which are consistent with international accounting principles and practice. D. Auditing and Public Disclosure 29. The MPWT/PMU will cause the detailed project financial statements to be audited in accordance with International Standards on Auditing and with the Government's audit regulations, by an independent auditor engaged by MEF and acceptable to ADB. The audited project financial statements together with the auditor s opinion will be presented in the English language to ADB within 6 months from the end of the fiscal year by the MPWT/PMU. 30. The audit report for the project financial statements will include a management letter and auditor s opinions, which cover (i) whether the project financial statements present an accurate and fair view or are presented fairly, in all material respects, in accordance with the applicable financial reporting standards; (ii) whether the proceeds of the loan were used only for the purpose(s) of the project; and (iii) whether the borrower or executing agency was in compliance with the financial covenants contained in the legal agreements (where applicable). 31. Compliance with financial reporting and auditing requirements will be monitored by review missions and during normal program supervision, and followed up regularly with all concerned, including the external auditor. 32. The government, MPWT/PMU and DPWT/PIUs have been made aware of ADB s approach to delayed submission, and the requirements for satisfactory and acceptable quality of the audited project financial statements. 7 ADB reserves the right to require a change in the auditor (in a manner consistent with the constitution of the borrower), or for additional support to be provided to the auditor, if the audits required are not conducted in a manner satisfactory to ADB, or if the audits are substantially delayed. ADB reserves the right to verify the project's financial accounts to confirm that the share of ADB s financing is used in accordance with ADB s policies and procedures. 7 ADB s approach and procedures regarding delayed submission of audited project financial statements: (i) When audited project financial statements are not received by the due date, ADB will write to the executing agency advising that (a) the audit documents are overdue; and (b) if they are not received within the next 6 months, requests for new contract awards and disbursement such as new replenishment of advance accounts, processing of new reimbursement, and issuance of new commitment letters will not be processed. (ii) When audited project financial statements are not received within 6 months after the due date, ADB will withhold processing of requests for new contract awards and disbursement such as new replenishment of advance accounts, processing of new reimbursement, and issuance of new commitment letters. ADB will (a) inform the executing agency of ADB s actions; and (b) advise that the loan may be suspended if the audit documents are not received within the next 6 months. (iii) When audited project financial statements are not received within 12 months after the due date, ADB may suspend the loan.

29 Public disclosure of the audited project financial statements, including the auditor s opinion on the project financial statements, will be guided by ADB s Public Communications Policy After the review, ADB will disclose the audited project financial statements and the opinion of the auditors on the project financial statements no later than 14 days of ADB s confirmation of their acceptability by posting them on ADB s website. The management letter, additional auditor s opinions, and audited entity financial statements will not be disclosed. 9 VI. PROCUREMENT AND CONSULTING SERVICES A. Advance Contracting and Retroactive Financing 34. All advance contracting and retroactive financing will be undertaken in conformity with ADB Procurement Guidelines (2015, as amended from time to time) and ADB s Guidelines on the Use of Consultants (2013, as amended from time to time). The issuance of invitations to bid under advance contracting and retroactive financing will be subject to ADB approval. The borrower, MPWT/PMU and three provincial government/dpwts have been advised that approval of advance contracting and retroactive financing does not commit ADB to finance the project. 35. Advance contracting. The advance contracting packages include selected civil works and consulting service. The steps to be concluded in advance for procurement of civil works will include: preparation of bidding documents, bidding, and bid evaluation. The steps to be conducted in advance for recruitment of consultants will include: soliciting and evaluating expressions of interest, shortlisting and (for firms) preparation of and evaluation of proposals. Design-build (DB) contact bidding document will be prepared before the Board Approval. Contracts for civil works and consultants will only be awarded after the loan becomes effective. B. Procurement of Goods, Works, and Consulting Services 36. All procurement of goods and works will be undertaken in accordance with ADB s Procurement Guidelines (2015, as amended from time to time). 37. International competitive bidding (ICB) will be used for works contracts estimated to cost $3 million and above. National competitive bidding (NCB) will be used for works contracts estimated to cost over $100,000 equivalent up to below $3 million. For NCB, the first draft English language of the procurement documents (bidding documents, and draft contract) should be submitted for ADB approval regardless of the estimated contract amount. Subsequent procurements are subject to post review. All ICB packages (bidding document, bid evaluation report, and draft contract) are subject to ADB prior review and approval. 38. An 18-month procurement plan indicating threshold and review procedures, goods, works, and consulting service packages and national competitive bidding guidelines is in Section C. 8 Public Communications Policy: 9 This type of information would generally fall under public communications policy exceptions to disclosure. ADB Public Communications Policy. Paragraph 97(iv) and/or 97(v).

30 Consultants will be recruited according to ADB s Guidelines on the Use of Consultants (2013, as amended from time to time). 10 The terms of reference for consulting services are detailed in Section D. Consulting firms will be engaged using the quality- and cost-based selection (QCBS) method with a standard quality cost ratio of 80: The Project Management Consultants for this project will be combined and bid out together with the Project Management Consultants for the Fourth GMS Corridor Towns Development Project (GMS CTDP-4) under a single consulting services package. Both projects have a similar scope of work, implementation schedule and are managed by the same PMU and Executing Agency. Combining the consultant services packages across both projects is expected to attract a stronger firm, improve economies of scale, and ensure a strong field presence of key international experts across both projects. The consulting firm will have separate budgets for each project and submit separate payments. The PMU will manage the firm s overall outputs as well as payments under the consulting services budget line of each project. C. Procurement Plan 41. The Procurement Plan is included as Appendix 1. D. Consultant's Terms of Reference 42. Detailed Terms of Reference for the Project Management Consultants, which will be the sole consulting firm recruited for the project, are included in Appendix 2. E. Procurement Capacity and Risk Assessment 43. A procurement capacity assessment (PCA) of the executing agency, MPWT, was carried out in 2017 under a separate ADB TA for Cambodia (TA 8982-CAM: Provincial Water Supply and Sanitation). Since both projects share the same EA, the assessment carried out for TA 8982-CAM will also be used for this project. A summary of findings from the procurement assessment is included in Appendix 3. The procurement risk is assessed as high. VII. SAFEGUARDS 44. All safeguard documents have been prepared in accordance with ADB s Safeguards Policy Statement (SPS, 2009). 11 In compliance with ADB s information disclosure and consultation requirements, the safeguard documents will be posted on ADB s website. 12 The safeguard categorization for environment, involuntary resettlement and indigenous peoples is B Checklists for actions required to contract consultants by method available in e-handbook on Project Implementation at: 11 Available at: 12 Public Communications Policy available at pcp-2011.pdf 13 Subprojects will not result in significant involuntary restrictions on land use or access to legally designated parks and protected areas. Any category A subprojects will not be financed by the Project; (ii) Subprojects will not include: (a) commercial development of cultural resources or knowledge of indigenous peoples (IP), (b) physical displacement from traditional or customary lands, (c) commercial development of natural resources, (d) establishing legal recognition of rights to lands and territories, or (e) acquisition of land traditionally owned, customarily used, occupied, or claimed by IP as defined by the ADB SPS (2009).