Nauru: Sustainable and Climate-Resilient Connectivity Project

Transcription

1 Sustainable and Climate-Resilient Connectivity Project (RRP NAU ) Project Administration Manual Project Number: Grant Numbers: GXXXX; GXXXX; GXXXX December 2017 Nauru: Sustainable and Climate-Resilient Connectivity Project

2 ABBREVIATIONS ADB Asian Development Bank CPU Central Procurement Unit DFAT Department of Foreign Affairs and Trade (Australia) DSC design and supervision consultant EHSG environmental, health and safety guidelines FMA financial management assessment IFRS International Financial Reporting Standards IPA interim procurement agent MOF Ministry of Finance MOT Ministry of Transport PAN Port Authority of Nauru PCR project completion report PDA project design advance PPMS project performance monitoring system PPR project performance report PPTA project preparatory technical assistance REA rapid environmental assessments SBD standard bidding documents SPS Safeguard Policy Statement 2009 SSS single source selection TOR terms of reference

3 CONTENTS I. PROJECT DESCRIPTION 1 II. IMPLEMENTATION PLANS 2 A. Project Readiness Activities 2 B. Overall Project Implementation Plan 2 III. PROJECT MANAGEMENT ARRANGEMENTS 4 A. Project Implementation Organizations: Roles and Responsibilities 4 B. Key Persons Involved in Implementation 5 C. Project Organization Structure 5 D. Government Assurances 6 IV. COSTS AND FINANCING 6 A. Cost Estimates Preparation and Revisions 7 B. Key Assumptions 7 C. Detailed Cost Estimates by Expenditure Category 8 D. Allocation and Withdrawal of Grants Proceeds 8 E. Detailed Cost Estimates by Financier 10 F. Detailed Cost Estimates by Outputs and/or Components 11 G. Detailed Cost Estimates by Year 11 H. Contract and Disbursement S-Curve 12 I. Fund Flow Diagram 12 V. FINANCIAL MANAGEMENT 13 A. Financial Management Assessment 13 B. Disbursement 17 C. Accounting 17 D. Auditing and Public Disclosure 18 VI. PROCUREMENT AND CONSULTING SERVICES 19 A. Advance Contracting and Retroactive Financing 19 B. Procurement of Goods, Works, and Consulting Services 19 C. Procurement Plan 20 D. Consultant's Terms of Reference 21 VII. SAFEGUARDS 23 VIII. GENDER AND SOCIAL DIMENSIONS 24 IX. PERFORMANCE MONITORING, EVALUATION, REPORTING, AND COMMUNICATION 26 A. Project Design and Monitoring Framework 26 B. Monitoring 29 C. Evaluation 29 D. Reporting 29 E. Stakeholder Communication Strategy 30 X. ANTICORRUPTION POLICY 30 XI. ACCOUNTABILITY MECHANISM 30 XII. RECORD OF CHANGES TO THE PROJECT ADMINISTRATION MANUAL 31

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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 Finance (MOF) of the Government of Nauru (the government) as the executing agency and the Port Authority of Nauru (PAN) as the implementing agency are wholly responsible for the implementation of the project, as agreed jointly between the government 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 the executing and implementing agencies with their obligations and responsibilities for project implementation in accordance with ADB s policies and procedures. During grants negotiations, the government and ADB shall agree to the PAM and ensure consistency with the grants agreements. Such agreements shall be reflected in the minutes of the grants negotiations. In the event of any discrepancy or contradiction between the PAM and the Grants Agreements, the provisions of the Grants Agreements shall prevail. After ADB Board approval of the project's Report and Recommendation 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 1. The Sustainable and Climate-Resilient Connectivity Project will improve port operations in Nauru. The project will build a climate-resilient port in Nauru including a wharf, a berth pocket, and a breakwater at the port of Aiwo. It will also reconstruct port buildings, the container storage, and port security facilities. The project will support institutional reforms to strengthen the Port Authority of Nauru (PAN) for sound and efficient port governance and management. It will also establish a revolving fund to ensure sustainable port operations and maintenance (O&M). The project is aligned with the improved sustainability, resilience and quality of life of all of the Nauruan people, economy, and society. It will improve reliability, climate resilience and efficiency of Aiwo Port. The project has three outputs. 2. Climate proofed port infrastructure constructed. The project will construct new port infrastructure, including a wharf, a berth pocket, and a breakwater. It will also reconstruct port buildings, the container storage, and port security facilities. In parallel to the project, the government is liaising with JICA for the provision of port operations equipment under a bilateral agreement. 3. Sustainable operations and maintenance achieved. The government will establish a revolving fund exclusively for maintenance of the new assets constructed under the project. 1 The fund will include three years of maintenance costs. It will be financed by the port revenue and government budget allocation. Overtime, the government contribution will decline as the port gradually achieves cost recovery by June 2023 supported by reforms. 4. Efficient port operations established. Under the ongoing transaction technical assistance (TRTA), the government and PAN will carry out port reforms including institutional strengthening, capacity development, tariffs restructuring, and engagement of the private sector in port operations The proposed reforms for PAN will be implemented in three stages. Under Stage 1, ADB with the concurrence of the government will engage consultants to provide a total of 88 person months of initial inputs to: (i) prepare draft enabling legislation for restructuring PAN and revising the tariff structure; (ii) establish acceptable processes and procedures for PAN; (iii) provide necessary training for PAN staff; (iv) manage PAN operations through restructured processes and procedures using existing infrastructure resources within PAN; and (v) provide counterpart support for implementing the ensuing project. The Stage 1 of the reform implementation will be carried out for 2 years until December The Stage 2 will be carried out for further 2 years until engagement of the private sector operator in December 2021 and will focus on (i) managing of port operations with the new assets, and (ii) engaging private sector in the port operations. The TRTA will provide further support to PAN under Stage 3 for additional one-year period after engagement of the private sector operator until December The support in Stage 3 will focus on monitoring effectiveness and efficiency of the private sector operator, and ensure sustainability of the port operations including maintenance of the new assets. The required additional TRTA support for implementation of the reforms under Stage 2 and 3 will be reviewed in mid-2019, and required financing will be sought through the government or development partner funding sources. The Stage 1 of the reforms will be financed through A$3.3 million additional financing grant to the TRTA provided by the Government of Australia. The TRTA is proposed to be closed by 30 June ADF Grant Agreement (accessible from the list of linked documents in Appendix 2). 2 ADB Technical Assistance to Nauru for the Nauru Port Development Project. Manila.

8 II. IMPLEMENTATION PLANS A. Project Readiness Activities Table 1: Project Readiness Months Indicative Activities Oct Nov Dec Jan Feb Mar Advance contracting actions ADB Responsible Individual/ Unit/Agency/ Government Establish PMU Completed in Jun 2016 (PDA) ADB Board approval ADB Grants signing ADB/MOF Government legal opinion provided MOF Government budget inclusion MOF Grants effectiveness ADB/MOF ADB = Asian Development Bank, MOF = Ministry of Finance, PDA = project design advance, PMU = project management unit. Source: Asian Development Bank.

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10 2 B. Overall Project Implementation Plan 6. A gantt chart recording progress toward output delivery on quarterly basis that is updated annually and submitted to ADB with contract and disbursement projections for the following year. 3 The civil works are expected to be completed by 30 June 2020 i.e. within 2.5 years of ADB Board approval. The overall project implementation schedule is in Table 2. Table 2: Project Implementation Schedule Indicative Activities A. DMF Output 1 Climate proofed port infrastructure constructed 1. Contract award and signing 2. Contractor mobilization and construction 3. Supervision consultant selection and contract signing 4. Consultant mobilization and construction supervision Output 2 Sustainable operations and maintenance achieved 1. Revolving fund to cover O&M established Output 3 1. Reform legislation and tariff regulations 2. New business processes, O&M plan 3. Tools and software for restructured PAN 4. Training for PAN staff 5. Port operations by PAN 5. Private sector port operator Management Activities Procurement plan key activities to procure contract packages Consultant selection procedures Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 3 The Gantt chart is available in e-handbook on project implementation at

11 3 Indicative Activities Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Environment management plan key activities Gender action plan key activities Communication strategy key activities ADB s periodic review Mid-Term Review Project completion report DMF=design and monitoring framework, O&M=operation and maintenance, PAN=Port Authority of Nauru, Q=quarter. Source: Asian Development Bank.

12 4 III. PROJECT MANAGEMENT ARRANGEMENTS A. Project Implementation Organizations: Roles and Responsibilities Project Implementation Organizations Oversight Body Project Steering Committee (PSC) Implementing Agency Port Authority of Nauru (PAN) Project-Specific Management Body Project management unit (PMU) ADB Pacific Liaison and Coordination Office in Sydney, Australia (PLCO) Table 3: Roles and Responsibilities Management Roles and Responsibilities Oversee project implementation Monitor project progress Resolve any obstacles or impediments to implementation Guide the executing agency Coordinate with ADB for all project management activities including project review missions Provide staff and other resources to the project management unit (PMU) With the support of the PMU, manage and monitor project implementation activities, ensuring compliance with the government and ADB s requirements Initiate steering committee meetings as necessary and at least quarterly Review monthly progress reports that the PMU prepares and endorse to the executive agency and the PSC Supervise PMU in providing government counterpart assistance to supervision consultants (SC) With the support of PMU, coordinate with and support the PSC Facilitate the coordination with government agencies needed to implement the project Oversee reporting and monitoring of project performance, including preparation of monthly and quarterly project progress reports. Oversee and approve for recommendation to higher authorities, contract administration matters in close coordination with PMU Coordinate with PMU to prepare and submit to MOF and ADB the semiannual safeguards monitoring reports Assist PAN in project management Monitor and evaluate project activities and outputs and report the findings to PAN by monthly progress reports Review and verify documents submitted by supervision consultants and the contractor Review invoices and prepare payment certificates recommending payments to the contractor Coordinate with the supervision consultants and other consultants; Provide day-to-day support for project management and contract administration activities Lead project implementation activities and aim for timely execution of works Facilitate communication with the local stakeholders Consult with the public and disclose project information with ADB Establish and maintain the project accounts Coordinate with the Office of the Auditor General for audit of the project accounts Operate and maintain PMU office. Facilitate implementation and review the progress on regular basis ADB=Asian Development Bank, MOF=Ministry of Finance, PAN=Port Authority of Nauru; PMU=project management unit, PSC=project steering committee. Source: Asian Development Bank.

13 5 B. Key Persons Involved in Implementation Executing Agency ADB Pacific Department Mission Leader Ministry of Finance Martin Hunt, Secretary of Finance Telephone: Government House Yaren, Republic of Nauru Xiaoqin Fan, Regional Director Pacific Liaison and Coordination Office, Sydney Telephone: xfan@adb.org Pivithuru Indrawansa Senior Project Officer (Infrastructure) Pacific Liaison and Coordination Office Telephone: pindrawansa@adb.org C. Project Organization Structure 7. The Government of Nauru (the government) will be the grant recipient. The executing agency will be the Ministry of Finance (MOF), and the implementing agency will be the PAN. A project management unit (PMU) has already been established under the PAN as part of the ongoing project design advance (PDA), and it will continue as the PMU for the project. The PMU will coordinate project implementation with support from ADB for certain delegated functions, including procurement of goods, works, and services under funding provided through the grants. The overall project structure is shown in Figure 1. Figure 1 : Project Organization Structure

14 6 D. Elaborations as to Covenants 8. By way of elaboration to the covenants in Schedule 4 of the ADB Grant Agreement: a. By 1 July 2018, the government will have established a reserve (maintenance) fund, using funds accumulated for the purposes of maintenance of future assets through port tariffs and budgets. The government will contribute at least $1.5 million each year starting from 1 July 2018 to the fund. It will be established to a minimum of $4.5 million balance by 30 June 2020 to ensure that it can cover two years of maintenance costs of the new assets after completion of project scheduled June The use of such funds will be subject to concurrence by ADB until a private sector port operator is engaged. Up until the new assets will be in place, the government will be responsible for maintenance of the existing assets through financing from port tariffs or Government budgetary contributions to the maintenance fund. (Schedule 4, paragraph 14) b. The estimated amount of aggregates and rock armour required for the project include coarse aggregate 20mm approximately 62,000 tons and armour approximately 7,000 tons. The government will ensure 50% of coarse aggregate (of 31,000 tons) and 50% of armour quantities (3,500 tons) will be available at the nominated stockpile for the project use by 30 June The government will not execute a construction contract with the preferred bidder until the agreed amount of advance coarse aggregate and armour materials have been stockpiled and confirmed. The remaining 50% coarse aggregates, 50% rock armour and the full amount of sand will be produced and supplied to the nominated stockpile by the government in accordance with the contractor s program which will be available within one month of construction contract execution. (Schedule 4, paragraph 15) c. The installation of the fuel line will be carried out by the civil works contractor under the project and supervised by the supervision consultant. The project will finance the cost of materials and the labour for laying the fuel line through the Government counterpart project contingency financing. The designs, specification and the bill of quantities by Vital should be available by 1 December 2017 enabling inclusion in the civil works bidding documents. Vital will participate and verify the commissioning of the new fuel line and accept the fuel line has been laid as per the specification provided by Vital. (Schedule 4, paragraph 21) d. The Government confirms availability of Government financing for the in-kind contributions for counterpart staff salaries, audit fee estimated at US$1.41 million and aggregate supply at US$1.59 million. e. The Government will pay a subsidy to a private sector concessioner monthly if cost recovery from tariffs will not be attained. The terms of any concessioner subsidy and lease will be determined by the Government as part of the port reforms. (Schedule 4, paragraph 23) f. The government will provide for necessary headworks to guarantee point of supply for electricity and water supply in accordance with the design drawings per the contractor s work program. IV. COSTS AND FINANCING 9. The project is estimated to cost $79.59 million. This includes cost of the proposed civil works contract, supervision consultant contract, in-kind contributions by the government and physical and price contingencies. The in-kind contribution for the project includes cost of supply of aggregate and sand, salaries for counterpart staff, audit costs, taxes, and import duties. The

15 7 government has requested a grant not exceeding $21.30 million from ADB s Special Funds Resources (Asian Development Fund) to help finance the project. ADB will finance expenditures related to civil works and the supervision consultant services. The Government of Australia and the Green Climate Fund will provide grant cofinancing of A$18.00 million (equivalent to $14.08 million and $26.91 million respectively, to be fully administered by ADB. The cofinancing grants will finance expenditure related to civil works. The government has assured provision of any shortfall in the finances of the project. This is currently estimated at $17.30 million and will cover $7.70 million of the expenditure related to civil works, $6.60 million for additional physical contingencies, and $3.00 million of in-kind contributions. The disbursement arrangements for the ADB and ADB administered cofinancing grants will be on cost sharing basis and front loaded against government financing for the civil works. The details of the cost estimates and the financing plan are shown in the tables in Table 4-10 under Sections C through F. A. Cost Estimates Preparation and Revisions 10. The cost estimates were prepared under ADB project design advance and based on the detailed engineering designs. The cost estimates have been reviewed by the government. B. Key Assumptions 11. The following key assumptions underpin the cost estimates and financing plan: (i) (ii) (iii) An exchange rate: Australian Dollar A$1.28 = $1.00 as of 16 August 2017 was employed. A 15% price contingency has been allowed for the Government of Australia financing, which is based on the Australian dollar. This is to cover potential exchange rate fluctuation under the assumption of a purchasing power parity exchange rate. The in-kind contributions provided by the government included (i) supply of aggregates and sand from the crusher maintained by Nauru Rehabilitation Corporation (NRC); and (ii) provision of the counterpart staff, audit costs, and tax and duty exemptions. The in-kind contribution for the supply of aggregates and sand ($1.59 million) has been based on the estimated quantity of aggregates required for construction works (66,000 tons of aggregates for concrete works) and the rates provided by the NRC. The in-kind contribution for counterpart staff, audit costs, and tax and duty exemptions has been valued at $1.41 million based on information provided by the government. $6.6 million has been allocated for physical contingency under the government contribution in addition to physical contingency included in the civil works contract to cover unforeseeable physical conditions including removal of any unexploded ordnance.

16 8 C. Detailed Cost Estimates by Expenditure Category Table 4: Detailed Cost Estimates by Expenditure Category Item Foreign Exchange Local Currency ($ million) a Total Cost % of Total Base Cost A. Investment Costs 1 Civil works b % 2 Supervision consultants % Subtotal (A) % B. Recurrent Costs 1 Salaries % 2 Audit fees % 3 Taxes and Duties % 4 Aggregate Supply % Subtotal (B) % Total Base Cost (A+B) % C. Resource Buffer c % Total Project Cost (A+B+C) % a Figures may not tally due to rounding. b Includes physical and price contingencies computed at 10% for civil works. c Includes provision of 15% for foreign exchange costs and 2% for ADB administration fee applicable to the grant from the Government of Australia. ADB administration fee for GCF will be covered separately under the GCF s cofinancing arrangement; includes provision for potential exchange rate fluctuation under the assumption of a purchasing power parity exchange rate. Source: Asian Development Bank estimates. D. Allocation and Withdrawal of Grants Proceeds Number Table 5: Withdrawal of Asian Development Fund Grant Proceeds Item Total Amount Allocated for ADB Financing Category ($) Basis for Withdrawal from the Loan Account 1 Civil works 19,800, % of total expenditure claimed * 2 Supervision consultants 1,500, % of total expenditure claimed * Total 21,300,000 * Exclusive of taxes and duties imposed within the territory of the recipient

17 9 Number Table 6: Withdrawal of Government of Australia Grant Proceeds Item Total Amount Allocated for ADB Financing Category ($) 1 Civil Works 11,683,000 Basis for Withdrawal from the Loan Account 20.01% of total expenditure claimed* 2 ADB s administration fees and other charges** 2,394, % of total amount due Total 14,077,000 * Exclusive of taxes and duties imposed within the territory of the recipient. ** ADB s administration fees and other charges may be deducted pursuant to the cofinancing agreement. Number Table 7: Withdrawal of Green Climate Fund Grant Proceeds Item Total Amount Allocated for ADB Financing ($) Category 1 Civil works 26,910,000 Total 26,910,000 * Exclusive of taxes and duties imposed within the territory of the recipient. Basis for Withdrawal from the Loan Account 46.08% of total expenditure claimed*

18 10 E. Detailed Cost Estimates by Financier A. Investment Costs a Amount ADF Grant Table 8: Cost Estimates by Financier % of Cost Category Government of Australia Grant Amount % of Cost Category Amount GCF Grant % of Cost Category Government of Nauru Amount % of Cost Category Total Cost A A/T (%) C C/T D D/T E E/T T 1 Civil works b % % % % Supervision consultants % % % % 1.50 Subtotal (A) % % % % B. Recurrent Costs c 1 Salaries % % % % Audit Fees % % % % Taxes and Duties % % % % Aggregate Supply % % % % 1.59 Subtotal (B) % % % % 3.00 C. Resource Buffer d % % % % 8.99 Total (A+B+C) % % % % ADB = Asian Development Bank, GCF = Green Climate Fund. a Figures may not tally due to rounding and are at mid-2017 prices. The Government of Nauru will exempt the taxes and duties as its in-kind contribution to the project. b Includes physical and price contingencies computed at 10% for civil works. The disbursement of ADB financing and ADB-administered cofinancing will be on a cost-sharing basis and front-loaded against the government counterpart financing. c To be provided in-kind by the government. d Includes provision of 15% for foreign exchange costs and 2% for ADB administration fee applicable to the grant from the Government of Australia; ADB administration fee for GCF will be covered separately under the GCF cofinancing arrangement; includes provision for potential exchange rate fluctuation under the assumption of a purchasing power parity exchange rate. Source: Asian Development Bank estimates.

19 11 F. Detailed Cost Estimates by Outputs and/or Components Table 9: Cost Estimates by Output Output 1 % of Cost Item Total Cost Amount Category A. Investment Costs a 1. Civil works b % 2. Supervision consultants % Subtotal (A) % B. Recurrent Costs 1. Salaries % 2. Audit fees % 3. Taxes and Duties % 4. Aggregate Supply % Subtotal (B) % Total Base Cost (A+B) % C. Resource Buffer c % Total Project Cost (A+B+C) % a Figures may not tally due to rounding and are at mid-2017 prices; The Government of Nauru will exempt the taxes and duties as its contribution to the project. b Includes physical and price contingencies computed at 10% for civil works. c Includes provision of 15% for foreign exchange costs and 2% for ADB administration fee applicable to the grant from the Government of Australia; ADB administration fee for GCF will be covered separately under the GCF cofinancing arrangement; includes provision for potential exchange rate fluctuation under the assumption of a purchasing power parity exchange rate. Source: Asian Development Bank estimates. G. Detailed Cost Estimates by Year Table 10: Cost Estimates by Year Item Total Cost A. Investment Costs a 1. Civil works b Supervision Consultants Subtotal (A) B. Recurrent Costs 1. Salaries Audit fees Taxes and Duties Aggregate Supply Subtotal (B) Total Base Cost (A+B) C. Resource Buffer c Total Project Cost (A+B+C) a Figures may not tally due to rounding and are at mid-2017 prices; The Government of Nauru will exempt the taxes and duties as its contribution to the project. b Includes physical and price contingencies computed at 10% for civil works. c Includes provision of 15% for foreign exchange costs and 2% for ADB administration fee applicable to the grant from the Government of Australia; ADB administration fee for GCF will be covered separately under the GCF cofinancing arrangement; includes provision for potential exchange rate fluctuation under the assumption of a purchasing power parity exchange rate. Source: Asian Development Bank estimates.

20 12 H. Contract and Disbursement S-Curve $ millions Contract Awards Disbursement s I. Fund Flow Diagram

21 13 A. Financial Management Assessment V. FINANCIAL MANAGEMENT 12. The financial management assessment (FMA) was conducted in January 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 MOF and the PAN, including funds-flow arrangements, staffing, accounting and financial reporting systems, financial information systems, and internal and external auditing arrangements. The key financial management risks identified by the assessment were: (i) the PAN staff s inadequate knowledge of ADB procedures; (ii) a lack of capacity and adequate, qualified staff in financial management in the PAN; and (iii) the absence of, and need to establish, financial management systems in the MOF and PAN based on internationally accepted accounting principles. The assessment found the overall pre-mitigation financial management risk to be low at the MOF and high at the PAN. The risk assessment and risk management plan is in Table 11. Table 11: Risk Assessment and Management Plan Inherent Risk Country Specific- 1. Since the submission of government financial statements for FY1995/1996, GON has not been able to submit any other financial accounts to Audit. In 2014, the FY2013/14 annual accounts were submitted and it is now with Audit. Treasury is now working on completing the FY2014/15 and 15/16 accounts for submission and this is a major improvement from the last PEFA assessment. (From 2016 PEFA Self-Assessment). 2. Financial reports include approved budget estimates, cash flow budget, commitments, transfers and running balances. The weekly reports are timely, comprehensive, accurate and useful for key decision makers at line agencies. Risk and Impact Likelihood Mitigation Measures or Risk Management Plan High Likely The Nauru Public Accounts Committee will conduct further review to verify the audit findings and recommendations. Audit office is currently auditing the account and the coverage and standards utilized in this audit will be provided once the report is being submitted to Parliament. Grants have been provided by the Government of Australia to improve the FMIS. There has been a gradual rollout of the various modules (AP, AR, Bank Rec, Asset Management, Payroll and HR) of the FMIS. The executing agency is a central level institution. It has experience in ADB-funded project and has adequate and experienced staff in financial management of ADB-funded projects. MOF accounting policies and procedures is based on GAAP and standards, but not on internationally accepted accounting standards. FMIS and procurement manuals are available to all staff. MOF uses an automated FMIS system; however,

22 14 Inherent Risk Entity Specific- The entity financial management needs to reflect port-specific financial accounting. PAN does not have any FMIS in place. PAN currently relies on the FMIS of MOF as well as a software purchased by the Finance Manager for its financial reporting. No proper and adequate financial recording and reporting is in place, needed for effective decision making (e.g. no details on revenue sources, capital expenditures are lumped with recurrent expenditures/budgets). Risk and Impact High Likelihood Mitigation Measures or Risk Management Plan current and capital budgets are not reported separately. The ongoing port reforms will install FIMS during the first year of the project. A consultant will be hired to prepare an accounting manual, and disseminate this to relevant staff including handholding in the initial implementation. Strict policy to be in place to ensure proper recording, reporting and analysis of financial transactions for management review. Overall Inherent Risk Substantial Project Risk Fund flow High Likely PAN s accounting systems is rudimentary; a new FMIS is proposed to be installed under port reforms and will be in place by June 2018; The FMIS will be based on GAAP and standards. Staffing The current finance manager is not a qualified accountant; there are no additional finance and accounting staff to undertake proper financial accounting in PAN Accounting policies and procedures Due to weak control over fixed assets, there is risk of loss of project assets, leading to risks for project completion and operation PAN does not maintain original supporting documents, and does not have a document retention policy. High High Likely Likely Internal Audit No internal audit exists within PAN High Likely Qualified expatriate finance manager to be hired prior to grant effectiveness, including national accounting staff to undertake the internal audit and other accounting functions A fixed asset register for project assets will be introduced under ongoing port reforms. A periodic physical verification plan will be developed and implemented with provision for periodic counts including reconciliations. PAN staff will be trained in fixed asset management (including reporting and monitoring) Internal audit function to be developed under ongoing port reforms and will be implemented by an accounting staff proposed to be hired as auditor. External Audit High Likely The government is continuing to pursue external audit for all SOEs; The project accounts will be audited

23 15 Inherent Risk Risk and Impact Likelihood Mitigation Measures or Risk Management Plan by an independent external auditor on annual basis. The audit will be done in accordance with the Nauru government s accounting and auditing system and will comply with the requirements of ADB. APFS and entity-level AFS will be prepared by the PAN. Reporting and Monitoring Financial reporting weakness risks of not accurately providing information on port transactions Internal control weakness standard procedures are not in place Information Systems No adequate information systems is regularly prepared and reported High Likely The ongoing port reforms will establish appropriate processes and procedures to address these weaknesses. High Likely The ongoing port reforms will prepare and implement an information plan by June Overall Project Risk High Likely Overall (Combined) Risk Substantial AFS=audited financial statements, APFS=Audited project financial system, FMIS=financial management information system, GAAP=generally accepted accounting principles, PAN=Port Authority of Nauru, PEFA=public expenditure and financial accountability, SOE=state-owned enterprise. 13. The MOF will act as an intermediary through which funds and approvals will pass between ADB and the PAN. The MOF is familiar with ADB s disbursement processes, but the PAN is not. The PAN does not have experience in preparing withdrawal applications for disbursements and endorsing claims for payment under an ADB project. A PMU has already been established in the PAN through the PDA, and it will continue to assist the PAN in managing the project implementation, including the preparation of withdrawal applications. 14. The PAN s financial management systems and practices were established only recently and are rudimentary in nature. A supervision consultant firm will assist the PMU establish the necessary technical and financial systems during implementation. The current PMU, operating under the PDA, will prepare bid documents and assist PAN evaluate the bids. Contracts will be signed by the government. 15. The PAN does not have any formally adopted accounting standards and does not follow International Financial Reporting Standards. It has no qualified accountant in place to exercise the necessary financial management functions. The lack of standards, together with the lack of defined financial management policies and procedures, is a matter of great concern and in urgent need of rectification. The MOF and the PAN have agreed to implement a financial management action plan to address the deficiencies (Table 12).

24 16 Table 12: Project Financial Management Action Plan No Weakness Mitigating Actions Responsibi lity Time-frame 1 Poor bookkeeping Bookkeeping and financial MOF and January and inadequate reporting will be handled by PAN 2018 number of qualified a qualified accountant and accounting staff supported by 2 additional PMU accounting staff; Resources Government in-kind contribution for counterpart staff. 2 Incomplete auditing of the project and PAN accounts. PAN/MOF will outsource auditing of the project and PAN accounts by a qualified auditing firm acceptable to ADB. MOF and PAN June 2019 Government in-kind contribution for submission of audited financial statements. 3 Weak knowledge on ADB disbursement procedures MOF and PAN staff will receive ADB s training in preparing satisfactory withdrawal applications. ADB January 2018 ADB 4 Weak accounting procedures 5 Lack of capacity of PAN in the project implementation 5 No internal audit function within PAN PAN will institute acceptable accounting procedures and will procure an accounting software appropriate for PAN. Under port reforms, experts will be engaged to support PAN operations and will provide support to PMU for implementation of the project. The supervision consultants recruited under the project will support PMU in construction supervision. Under port reforms, internal audit system will be established. Until such time PMU will adopt MOF internal control measures to ensure project funds are used for the intended purpose (see funds flow chart). MOF and PAN PAN and PMU. MOF and PAN in conjunction with the auditor general June 2018 PMU is already established under PDA. Engagement of experts for PAN by January Engagement of supervision consultants by June June 2018 PAN reforms under ongoing TA will provide support for procuring accounting software and capacity building of PAN staff by a finance /accounting expert PAN reforms under ongoing TA PAN reforms under ongoing TA

25 17 B. Disbursement 1. Disbursement Arrangements for ADB and ADB-Administered Cofinancing Funds 16. The grants proceeds, including ADB-administered cofinancing funds, will be disbursed in accordance with ADB s Loan Disbursement Handbook (2017, as amended from time to time) and detailed arrangements agreed upon between the government and ADB). 4 Online training for project staff on disbursement policies and procedures is available. 5 Project staff are encouraged to avail of this training to help ensure efficient disbursement and fiduciary control. Payments for works, goods, and consulting services will be disbursed by ADB through direct payment procedures upon certification by the PAN and the MOF. The PMU, through the MOF and the PAN, 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 that are to be submitted by the PAN and the MOF to ADB. 17. Before the submission of the first withdrawal application, PMU 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 withdrawal application is stipulated in the Loan Disbursement Handbook (2017, as amended from time to time). Individual payments below such amount should be paid by the MOF and subsequently claimed to ADB through reimbursement, unless otherwise accepted by ADB. PMU should ensure sufficient category and contract balances before requesting disbursements. "Use of ADB s Client Portal for Disbursements (CPD) 6 system is encouraged for submission of withdrawal applications to ADB." 2. Disbursement Arrangements for Counterpart Funds 18. Counterpart funds should be included and allocated in the PAN s approved annual budget. The PMU will estimate the disbursements of counterpart funds for direct payment for the civil works contract and in-kind contribution for supply of aggregates and sand and counterpart staff, submission of project and PAN audited financial statements, and the land lease. MOF and PAN will ensure timely availability of counterpart funds during project implementation. All disbursements under government financing will be carried out in accordance with government financial regulations. The government will exempt import duties and taxes connected to the performance of the project. The import duties and taxes for which consultants and contractors will be exempted will include: (i) import duties on materials used for the project; (ii) import duties on plant, equipment, tools, machinery, and related spare parts to be used for the project; (iii) goods taxes levied on imported materials (goods) used for the project; and (iv) goods taxes levied on plant, equipment, tools, machinery, and related spare parts to be used for the project. The exemption does not apply to fuel and consumable goods purchased within the country and only applies to goods imported into Nauru by the consultants and contractors. C. Accounting 19. The MOF, through the PAN, will maintain or cause to be maintained separate books and 4 The handbook is available electronically from the ADB website ( loan disbursement handbook 5 Disbursement elearning. 6 The CPD facilitates online submission of withdrawal applications to ADB, resulting in faster disbursement. The forms to be completed by the recipient are available online at

26 18 records by funding source for all expenditures incurred on the project following the International Public-Sector Accounting Standards for cash-based accounting or national equivalent. The MOF, through the PAN, will prepare consolidated project financial statements in accordance with the government's accounting laws and regulations which are consistent with international accounting principles and practices. D. Auditing and Public Disclosure 20. The MOF will ensure the detailed project financial statements are audited by an independent auditor acceptable to ADB in accordance with International Standards on Auditing or equivalent national standards adopted by the government. The MOF will submit the audited project financial statements together with the auditor s opinion in English to ADB within six months from the end of the fiscal year. 21. The audited entity financial statements, together with the auditor s report and management letter, will be submitted in English to ADB within one month after their approval by the relevant authority. 22. The audit report for the project financial statements will include a management letter and auditor s opinions, which will cover: (i) whether or not the project financial statements present an accurate and fair view and are presented fairly, in all material respects and in accordance with the applicable financial reporting standards; (ii) whether the proceeds of the grant were used only for the purpose(s) of the project; and (iii) whether the recipient or implementing agency was in compliance with the financial covenants contained in the legal agreements (where applicable). 23. 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. 24. The government, the MOF, and the PAN have been made aware of ADB s approach to delayed submission and of the requirements for satisfactory and acceptable quality 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 recipient) or that additional support 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. 25. Public disclosure of the audited project financial statements, including the auditor s opinion 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.

27 19 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 26. 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 recipient, and the PAN have been advised that approval of advance contracting and retroactive financing does not commit ADB to finance the project. 27. Advance contracting. Upon approval by the ADB, a civil works contract will be procured, and a supervision consultant contract will be recruited following advance contracting procedures. The steps to be concluded in advance contracting will be: (i) invitation for bids, the issue of bidding documents, clarification of bidders queries, the issue of addenda, and bid evaluation for civil works packages; and (ii) a request for expressions of interest, short-listing, the issue of a request for proposals, and bid evaluation for recruitment of consultants. The bidding documents and detailed engineering designs have already been prepared for procurement of a civil works contract soon after approval of the project. The PDA consultants will assist the PMU in procuring civil works contract packages, including the evaluation of all bids under advance contracting. The government will delegate recruitment of supervision consultants to ADB. ADB will advertise in ADB s Consultant Management System requesting expression of interest from eligible consulting firms for supervision consulting services of the project. 28. Retroactive financing. Withdrawals from the grants accounts may be made for reimbursement of eligible expenditures incurred before grants effectiveness up to the equivalent of 20% of the grant amounts. These expenditures must not be incurred more than 12 months before the signing of the ADB and other cofinancing grants agreements. B. Procurement of Goods, Works, and Consulting Services 29. All procurement of goods and works will be undertaken in accordance with ADB s Procurement Guidelines (2015, as amended from time to time). 30. International competitive bidding procedures will be used for civil works and supply contracts estimated to cost $1 million or more. 31. An 18-month procurement plan indicating threshold and review procedures, goods, works, and consulting service contract 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).

28 All consultants will be recruited per ADB s Guidelines on the Use of Consultants (2013, as amended from time to time). 10 The outline terms of reference for the consulting services are in Section D. 33. The consulting services will be engaged for supervision of the civil works. An estimated 81 person-months (international) of consulting services are required to facilitate construction supervision and project management. Consulting firms will be engaged using the quality- and cost-based selection (QCBS) method with a standard quality cost ratio of 90:10. C. Procurement Plan 1. Methods, Thresholds, Review, and 18-Month Procurement Plan a. Procurement and Consulting Methods and Thresholds 34. Except as the ADB may otherwise agree, the following process thresholds shall apply to procurement of goods and works. Procurement of Goods and Works Method Threshold Comments International Competitive Bidding for $ 3,000,000 and Above Works 11 Consulting Services Method Comments QCBS 90:10 (Supervision Consultant firm) b. Goods and Works Contracts Estimated to Cost $3 Million or More 35. The following table lists goods and works contracts for which the procurement activity is either ongoing or expected to commence within the next 18 months. Package number General Description Estimated Value Procureme nt Method Review (Prior/ Post) Bidding Procedure Advertise ment Date (Qtr/year) Comments 01 Civil Works $66,090,000 ICB Prior 1S1E Q Prequalification of Bidders: No Domestic Preference Applicable: No c. Consulting Services Contracts Estimated to Cost $100,000 or More 36. The following table lists consulting services contracts for which the recruitment activity is either ongoing or expected to commence within the next 18 months. 10 Checklists for actions required to contract consultants by method available in e-handbook on Project Implementation at: 11 In 2013, ADB s Board of Directors approved a blanket waiver of the member country procurement eligibility restrictions applicable to operations financed by the Asian Development Fund and to operations financed from ADBadministered cofinancing resources in all cases. The blanket waiver and universal procurement apply, regardless of whether ADB fully or partially administers the cofinancing resources.