2014 Annual Portfolio Performance Report...core sectors of Strategy 2020 accounted for 82.3% of the portfolio value, a slight decrease from 82.7% in 2013. In 2014, contract awards

April 2015

2014 Annual Portfolio Performance Report

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

ABBREVIATIONS

ADB – Asian Development Bank ADF – Asian Development Fund APPR – annual portfolio performance report BER – bid evaluation report CWRD – Central and West Asia Department DEfR – Development Effectiveness Review DVA – direct value-added EARD – East Asia Department IRR – internal rate of return MFF – multitranche financing facility MIS – management information summary MTR – midterm review OCR – ordinary capital resources PAM – project administration manual PARD – Pacific Department PASS – Procurement Accreditation Skills Scheme PRC – People’s Republic of China PSOD – Private Sector Operations Department Q – quarter SARD – South Asia Department SERD – Southeast Asia Department TFP – Trade Finance Program

NOTE

In this report, “$” refers to US dollars. Totals may not add up due to rounding.

Vice-President Bruce L. Davis, Vice-President (Administration and Corporate Management) Director General S. O’Sullivan, Operations Services and Financial Management Department (OSFMD) Head M. Parkash, Advisor and Head, Operations Management Unit, OSFMD Team leader C. Hu, Principal Portfolio Management Specialist, OSFMD Team members M. Abrera, Senior Financial Control Officer, Controller’s Department (CTL)

B. Alimov, Principal Portfolio Management Specialist, Central and West Asia Department

M. Barcenas, Portfolio Management Officer, OSFMD H. Carlsson, Advisor and Head, Portfolio, Results and Quality Control Unit, South Asia

Department P. Comia, Associate Portfolio Management Officer, OSFMD O. Dyloco-Canto, Senior Portfolio Management Officer, OSFMD I. Flores, Senior Portfolio Management Assistant, OSFMD M. Lahoz, Senior Finance Officer, Private Sector Operations Department (PSOD) M. Monreal, Associate Portfolio Management Analyst, OSFMD S. Muramoto, Unit Head, Project Administration, Pacific Department R. Narasimham, Principal Project Management Specialist, OSFMD D. Ordonez, Risk Management Officer, Office of Risk Management (ORM) J. Petersen, Senior Portfolio Management Specialist, Southeast Asia Department C. L. Roberts, Director, Private Sector Operations Department, PSOD G. Rublee, Principal Risk Management Specialist, ORM M. Tan, Portfolio Management Officer, OSFMD S. Tirmizi, Young Professional, OSFMD M. Villareal, Principal Portfolio Management Specialist, East Asia Department W. Yang, Financial Control Specialist, CTL D. Zhang, Senior Portfolio Management Specialist, OSFMD

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page

Executive Summary i I. INTRODUCTION 1 II. 2014 SOVEREIGN PORTFOLIO 1

A. Portfolio Composition and Trends 1 B. Portfolio Key Findings 2 C. Conclusions and Agreed Actions 19

III. 2014 NONSOVEREIGN PORTFOLIO 24 A. Portfolio Composition and Trends 24 B. Portfolio Key Findings 29 C. Conclusions and Agreed Actions 29

APPENDIXES 1. 2014 Sovereign Portfolio: Key Indicators 30 2. Status of the 2013 Annual Portfolio Performance Report Recommended 32 Actions 3. Sovereign Operations Glossary 36 4. Nonsovereign Operations Glossary 41

EXECUTIVE SUMMARY

The annual portfolio performance report is a Management report that details the state of the sovereign and nonsovereign portfolios of the Asian Development Bank (ADB). It presents a snapshot of ADB’s operating performance in 2014, analyzes portfolio composition and trends, and identifies key issues. It concludes with agreed actions to improve portfolio performance. 2014 Sovereign Portfolio The active sovereign portfolio of loans, grants, technical assistance, and equity, increased by $4.1 billion or 6.4% over 2013 to $68.2 billion at the end of 2014. The loan and grant portfolio of 667 active projects increased by 6.6% to $66.4 billion. ADB’s ordinary capital resources (OCR) financed 68.8% of the loan and equity portfolio value ($46.9 billion). The Asian Development Fund (ADF) financed 26.7% and other special funds and cofinancing financed 4.4%. The average project size increased by 5% to $99.6 million from $94.6 million in 2013. The core sectors of Strategy 2020 accounted for 82.3% of the portfolio value, a slight decrease from 82.7% in 2013. In 2014, contract awards for project loans and grants totaled $8.2 billion, 27.2% more than in 2013. Disbursements for projects reached a new high of $7.3 billion in 2014, an increase of 11.0% from $6.6 billion in 2013. OCR-funded projects performed better than ADF-funded projects. The cumulative portfolio disbursement (S-curve) showed a slight improvement over the 2013 and 2012 (actual S-curves). Disbursements in 2014 in projects aged 0–1 years showed improvement of 16.7 percentage points over 2013 signifying earlier startups and better project readiness, while projects in ages 2-5 years showed improvement of four to eight percentage points. The uncontracted percentage was 44.1%, which was less than the 46.5% in 2013 and below the 5-year average of 44.4%.

A 10-point procurement reform action plan was approved in August 2014. An initial result

from the plan is that the average time for all procurement transactions of $10 million and more during September–December 2014 was 34 days or half of the average 67 days for transactions approved during January–August 2014 and less than the 40-day Development Effectiveness Review target for 2016.

The average age of projects from approval increased from 3.0 years to 3.2 years in 2014. When measured by value, 63% of the portfolio was in ages 0–3 years of implementation, compared with 66% in 2013. The figure by number was 59%, down from 62% in 2013.

The entry of effective loans and grants within the same year of approval into the portfolio

was higher at 23.7% in 2014 than the 18.4% in 2013 and the 9.9% in 2012. In 2014, $778.6 million of loans and grants were terminated and cancelled. Except for 2012, this is the lowest in the last 5 years. The 2014 net resource transfer for project loans was $3.4 billion, 60.7% more than in 2013 ($2.1 billion) and the highest figure since 2003.

The 2014 technical assistance portfolio increased by $38.6 million compared with 2013.

By number, 18.8% were project preparatory technical assistance (PPTA) and 81.2% was for non-PPTA. The average age of a technical assistance project from approval was 2.2 years, and 59.2% of the active technical assistance projects had been extended for an average of 1.7 years

ii

Contract awards, disbursements, and project performance ratings in the sovereign operations portfolio all improved in 2014. The contract award ratio, disbursement ratio, uncontracted percentage, and undisbursed percentage were also better than in 2013. This was largely because of the renewed emphasis on portfolio management at the corporate and department levels including the midterm review of Strategy 2020 reforms and procurement reforms. However, the backlog of contract awards and disbursements remains significant, and further action is needed in 2015 and beyond to increase them. Based on the 2014 results, the following actions to improve the portfolio’s performance have been agreed:

(i) Setting 2015 contract award and disbursement targets. (ii) Continuing to implement procurement reforms, build executing agency capacity,

and mainstream e-procurement and post review sampling in ADB operations. (iii) Increasing project readiness and adopting realistic project implementation

schedules by comparing with standard timelines and managing this using eOperations.

(iv) Spring-cleaning the technical assistance portfolio, capping the number of non-PPTA projects, and introducing more technical assistance portfolio metrics for monitoring.

(v) Making efforts to increase the average size of projects from the $100 million baseline in 2014.

(vi) Revising project performance rating criteria. Nonsovereign Portfolio

The committed nonsovereign portfolio resumed its growth after a decline in 2013. The total committed portfolio increased by 13.6% to $7.6 billion at the end of 2014 ($6.7 billion at the end of 2013) mainly due to 18.5% increase in the loan portfolio and 6.4% increase in the equity portfolio. Droppages and cancellations decreased to $0.6 billion ($1.1 billion in 2013). The total outstanding portfolio increased by 10.0% to $5.3 billion at the end of 2014 (from $4.8 billion at the end of 2013), with loans constituting the largest share at $3.6 billion (from $3.2 billion in 2013).

[This information contains sensitive financial information subject to disclosure

restrictions per paragraph 97, exception (viii) of ADB’s Public Communications Policy

(2011).]

1

I. INTRODUCTION

1. The annual portfolio performance report is a Management report that details the state of the sovereign and nonsovereign portfolios of the Asian Development Bank (ADB). It presents a snapshot of ADB’s operating performance in 2014, analyzes portfolio composition and trends, and identifies key issues. It concludes with agreed actions to improve portfolio performance. 2. The APPR is an integral building block within the ADB performance management information system and complements ADB’s annual Development Effectiveness Review2

(DEfR) by providing a more focused and in-depth analysis of the sovereign and nonsovereign portfolio. By providing an analytical framework for country portfolio assessments, the APPR is a key input in annual country portfolio reviews, regional department portfolio management, and long-term country partnership strategies. 3. The APPR provides information on and the status of the sovereign and nonsovereign portfolios at the start and end of 2014 (Figures 1 and 41). It shows the composition of and illustrates trends in the two portfolios by approvals, commitments, disbursements, sector, country, and modality. The report assesses the quality and performance of each portfolio and identifies key findings.

II. 2014 SOVEREIGN PORTFOLIO A. Portfolio Composition and Trends

4. Overall portfolio. The active sovereign portfolio of loans, grants, technical assistance, and equity increased by $4.1 billion, or 6.4% over 2013 and totaled $68.2 billion at the end of 2014 (Figure 2). The loan and grant portfolio comprised 667 active projects and increased by 6.6% to $66.4 billion. Ordinary capital resources (OCR) financed 68.8% of the loan and equity portfolio value ($46.9 billion). The Asian Development Fund (ADF) financed 26.7% ($18.2 billion) and other special funds and cofinancing financed 4.4% ($3.0 billion). The average project size increased by 5% to $99.6 million from $94.6 million in 2013. 5. Regional distribution. Composition by regional department has remained stable. The South Asia Department (SARD) accounted for 31.8% ($21.7 billion) of the portfolio at the end of 2014, followed by the Central and West Asia Department (CWRD) with 25.0% ($17.0 billion), the Southeast Asia Department (SERD) with 23.2% ($15.8 billion), the East Asia Department (EARD) with 16.7% ($11.4 billion), and the Pacific Department (PARD) with 2.8% ($1.9 billion) (Figure 3). All regional departments contributed to the overall portfolio growth in 2014. SARD’s portfolio grew by $1.6 billion (8.1%), CWRD’s by $1.1 billion (7.1%), SERD’s by $0.7 billion (4.9%), EARD’s by $0.5 billion (5.0%), and PARD’s by $0.06 billion (3.1%). Distribution has been largely unchanged since 2009. SARD had the biggest share (5-year average of 33.4%) and PARD had the smallest share (5-year average of 2.6%). 6. The CWRD portfolio comprised 130 active projects, and 107 technical assistance projects. Five countries accounted for 82.6%— Pakistan ($5.5 billion), Uzbekistan ($2.9 billion), Afghanistan ($2.7 billion), Azerbaijan ($1.5 billion), and Kazakhstan ($1.5 billion). EARD had 102 active projects and 169 technical assistance projects, with the People’s Republic of China

2 ADB. 2015. Development Effectiveness Review 2014 Report. Manila.

2

(PRC) accounting for 93.5% ($10.6 billion), Mongolia for 6.3% ($0.7 billion), and regional projects for 0.2% ($0.02 billion). PARD had 62 active projects and 82 technical assistance projects. Papua New Guinea was the largest component of its portfolio ($1.0 billion, 51.4%) followed by Timor-Leste ($0.2 billion, 10.5%), Fiji ($0.1 billion, 7.4%), regional projects ($0.1 billion, 6.8%), and Solomon Islands ($0.1 billion, 5.8%). SARD had 212 active projects and 187 technical assistance projects. India accounted for 53.7% ($11.6 billion), followed by Bangladesh (23.9%, $5.2 billion), Sri Lanka (11.2%, $2.4 billion), Nepal (8.9%, $1.9 billion), and Bhutan (1.8%, $0.4 billion). SERD had 160 active projects, 1 equity investment, and 249 technical assistance projects. Viet Nam continued to be its largest borrower ($9.1 billion) and accounted for 57.5% of its portfolio. It was followed by the Philippines ($2.6 billion, 16.6%), Indonesia ($1.8 billion, 11.1%), Cambodia ($1.1 billion, 6.8%), and the Lao People’s Democratic Republic ($0.6 billion, 4.1%). 7. Country concentration. Country concentration increased slightly in 2014, with the portfolio share held by the five largest countries growing from 60.7% in 2013 to 61.7% in 2014 (Figure 4). The share held by the three largest borrowers increased to 46.0% from 45.6% in 2013, and the combined value of their portfolios grew by $2.1 billion. The countries with the largest year-on-year increases in value were Pakistan ($1.1 billion), Viet Nam ($0.9 billion), India ($0.8 billion), the Philippines ($0.6 billion), Sri Lanka ($0.4 billion), and the PRC ($0.4 billion). The biggest declines were in Indonesia ($1.1 billion) and Kazakhstan ($0.4 billion) (Figure 5).

8. Sector concentration. The core sectors of Strategy 20203 accounted for 82.3% of the portfolio value, a slight decrease from 82.7% in 2013. This included 38.8% in transport, 23.4% in energy, 12.0% in water and other urban infrastructure and services, 4.9% in education, and 3.3% in finance (Figure 6). 9. Modality. As of 31 December 2014, 169 multitranche financing facility (MFF) projects worth $23.0 billion and 498 non-MFF projects valued at $43.4 billion were active. MFF projects accounted for 34.7% of total loans and grants by value and 25.3% by number. Non-MFF projects accounted for 65.3% by value and 74.7% by number (Figure 7). During 2014, 26 MFF tranches totaling $3.4 billion were approved, and approvals for 79 non-MFF projects amounted to $8.3 billion. Policy-based loans and grants increased by $0.2 billion to $2.9 billion in 2014, accounting for 4.3% of total loans and grants (4.3% in 2013). B. Portfolio Key Findings

10. The 2014 sovereign portfolio performance improved from 2013 in the following ways:

(i) Contract awards increased by 27.2% to $8.2 billion. (ii) The contract award ratio increased by 4.1 percentage points to 23.9%. (iii) Disbursements for projects increased by 11% to $7.3 billion.4 (iv) The project disbursement ratio improved by 0.5 percentage points to 18.2%. (v) The proportion of projects reporting implementation risks (i.e., potential and

actual problem projects) decreased to 19.8% from 21.0% in 2013.

3 ADB. 2008. Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank, 2008–2020.

Manila. 4 Including policy-based lending sovereign disbursements totaled $9.1 billion in 2014, compared with $7.8 billion in

2013. Policy-based loans and grants are not included in the disbursement analysis in this report.

3

Figure 1: Sovereign Portfolio at a Glance (as of 31 December 2014)

Active portfolio as of 1 January 2014

ADB’s active portfolio had a value of $64.1 billion, comprising (i) $56.5 billion in loans (no. = 593), (ii) $5.9 billion in grants (no. = 309), (iii) $1.6 billion in technical assistance (no. = 1,037),

and (iv) $0.2 billion in equity (no. = 1). A total of 659 active projects were funded by loans and grants.

Approvals

Approvals in 2014 totaled $11.9 billion, comprising (i) $11.1 billion in loans, (ii) $0.6 billion in grants, and (iii) $0.2 billion in technical assistance.

Closures

Closures totaled $7.0 billion, comprising $6.8 billion in loans and grants and $0.2 billion in technical assistance.

Cancellations

Cancellations totaled $0.8 billion, of which 94% was loan and grant cancellations.

Entry ratio

The net entry ratio was 34.2%, higher than 27.8% in 2013, reflecting decreased closures ($1.3 billion).

Active portfolio as of 31 December 2014

The active portfolio grew by 6.4% to $68.2 billion in 2014, comprising (i) $60.3 billion in loans (no. = 624), (ii) $6.1 billion in grants (no. = 306), (iii) $1.6 billion in technical assistance (no. = 1,032),

and (iv) $0.2 billion in equity (no. = 1). A total of 667 active projects were funded by loans and grants.

ADB = Asian Development Bank, no. = number, TA = technical assistance. Source: ADB data.

4

Figure 2: ADB Overall Portfolio

Source: Asian Development Bank data.

Figure 3: Portfolio by Region, 2014

CWRD = Central and West Asia Department, EARD = East Asia Department, Non-Ops = non-operations, PARD = Pacific Department, SARD = South Asia Department, SERD = Southeast Asia Department. Source: Asian Development Bank data.

Figure 4: Five Largest Portfolios by Country, 2014


Figure 5: Portfolios with Largest Changes, 2014

( ) = negative. Source: Asian Development Bank data.

Figure 6: Portfolio by Sector

EDU = education, ENE = energy, FIN = finance, TRA = transport, WUS = water and other urban infrastructure and services. Source: Asian Development Bank data.

Figure 7: MFF and Non-MFF

MFF = multitranche financing facility. Source: Asian Development Bank data.

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Figure 8: Contract Awards, Projects


Figure 9: Disbursements, Projects


11. The sovereign portfolio performance indicators for each country are presented in Appendix 1 and the major findings of the sovereign loan and grant portfolio performance in 2014 are discussed below.

1. Contract Award and Disbursement Performance Overview

12. In 2014, contract awards for project loans and grants (hereafter, projects) totaled $8.2 billion, 27.2% more than in 2013 (Figure 8). Disbursements for projects totaled $7.3 billion in 2014, an increase of 11.0% from $6.6 billion in 2013 (Figure 9). This was the highest level since 1995 and the result of an ADB disbursement drive in 2014 that set targets for each operational department. 13. Consistent with the absolute results, the contract awards ratio had a four percentage points increase to 23.9% from 19.8% in 2013 (Figure 10), while the disbursement ratio5 also improved from 17.7% in 2013 to 18.2% in 2014 (Figure 11). For the three major borrowers—the PRC, India, and Viet Nam, which together account for 47.5% of the active project portfolio, the contract award ratio for these countries went from 19.8% in 2013 to 26.2% in 2014, and the disbursement ratio improved from 17.6% in 2013 to 18.7% in 2014 (Figures 10 and 11). 14. India’s contract award ratio increased from 26.4% in 2013 to 34.7% in 2014, the PRC’s from 17.0% in 2013 to 21.2% in 2014, and Viet Nam’s from 15.2% to 23.1%. The disbursement ratio improved from 18.3% in 2013 to 21.0% in 2014 in the PRC, from 15.9% in 2013 to 16.3% in India, and from 18.7% in 2013 to 19.2% in Viet Nam. 15. The MFF contract award ratio improved from 19.6% in 2013 to 30.5% in 2014. Uzbekistan had the largest increase of 49.1 percentage points (21.2% in 2013 to 70.3% in 2014). This was due to large contracts awarded under the second tranches of transport and finance sectors. Finance sector had the largest increase in contract awards ratio from 23.1% in 2013 to 56.2% in 2014. The disbursement ratio for MFF projects was up slightly from 17.4% in 2013 to 17.7% in 2014, but was below that for non-MFF projects (18.5%) and ADB’s overall ratio of 18.2%. This was mainly the product of the relatively low performance by ADF-financed MFF tranches (14.3%). 5 Starting in 2014, the definition of disbursement ratio has been revised in line with the ADB’s results framework to total

disbursement during the year (including disbursements from newly approved operations during the year) over the undisbursed balance at the beginning of the year (based on approvals as of the previous year). This definition is used throughout the report.

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16. The contract award ratio for the transport sector, which accounts for 41.4% of the active project portfolio, increased from 21.4% in 2013 to 29.2% in 2014, while the sector’s disbursement ratio increased from 16.4% to 19.7%. The contract award ratio was down in the energy sector, which accounts for 23.4% of the active project portfolio. It declined by 3.7 percentage points to 17.4%. The ratios for Afghanistan, Nepal, the Philippines, and Uzbekistan were below 7%. The energy sector disbursement ratio fell from 18.7% to 12.6%. Afghanistan, Bangladesh, Nepal, Pakistan, the Philippines, and Uzbekistan are the major countries which had below-average disbursement ratio in this sector. The main reason for the drop in performance was the security situation in Afghanistan and implementation issues in Indonesia, Pakistan, the Philippines and Uzbekistan. 17. OCR-funded projects performed better than ADF-funded projects on these two ratios. The contract award ratio for OCR-funded projects was 24.9%, compared with 20.9% for ADF-funded projects. The OCR-funded disbursement rate was 18.9%, and that of ADF-funded projects was 16.5%. The contract award ratio for OCR increased by 5.8 percentage points from 19.1% in 2013, but the ratio for the ADF-funded projects was down by 0.8 percentage points from 21.7%. The disbursement ratio for OCR-funded projects improved by 1.0 percentage point from 17.9%. The ADF-funded ratio declined by 0.6 of a percentage point from 17.0% in 2013 to 16.5% in 2014, mainly due to the energy sector (9.4%).

Figure 10: Contract Award Ratio, Projects

PRC = People’s Republic of China, IND = India, VIE = Viet Nam Source: Asian Development Bank data.

Figure 11: Disbursement Ratio, Projects

PRC = People’s Republic of China, IND = India, VIE = Viet Nam Source: Asian Development Bank data.

18. The cumulative portfolio disbursement S-curve6 for 2014 shows a slight improvement (Figure 12) over the 2013 and 2012 actual S-curves, especially disbursements in earlier project years. This signifies quicker start-ups and better project readiness. However, by the end of the sixth year of implementation after approval, ADB project disbursement was 75.5%, compared with 85.2% of 2006–2014.

6 The project disbursement S-curve shows the project disbursement profile over its life and is a useful graphical

presentation of project performance.

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19. A comparison of the actual 2014 S-curve with the average of the 5-year S-curve in a sample of project administration manuals for 64 projects approved in 2012–2013 shows a 25% difference by age 2 and 37% before age 5. Disbursements in projects age 0–1 in 2014 were 16.7 percentage points higher than in 2013 (indicating the improved start-up and project readiness performance) while projects in ages 2–5 showed improvement of four to eight percentage points. This implies that the momentum established by an early start-up and project readiness needs to be sustained throughout implementation to achieve the completion schedule set at project approval.

Figure 12: Disbursement S-curve

PAM = project administration manual. Source: Asian Development Bank data.

2. Analysis of Uncontracted Balance and Contract Award

20. Given the higher contract award performance in 2014, the uncontracted balance as a percentage of total value to be awarded (hereafter, uncontracted percentage) was 44.1%, which is lower than the 46.5% in 2013 and the 5-year average of 44.4% (Figure 13). However, the uncontracted balance as of 31 December was up 0.3% to $26.1 billion, increasing from $26.0 billion as of 31 December 2013. 21. The PRC, India, and Viet Nam accounted for 44.3% of the total uncontracted balance. The uncontracted balance improved significantly in the cases of Viet Nam (7 percentage points) and India (6 percentage points). The largest decreases were in India ($335.8 million), Uzbekistan ($375.5 million), Kazakhstan ($216.8 million), and Viet Nam ($180.1 million). The Philippines (65.7%), Pakistan (53.2%), Nepal (52.1%), and the PRC (48.2%) had higher uncontracted percentage than the ADB average of 44.1% (Figure 15). Countries with the largest increases in uncontracted balances were Pakistan ($287.2 million), Sri Lanka ($253.6 million), and the PRC ($198.3 million). 22. Among the largest sectors, agriculture, education, and water and other urban infrastructure and services had higher uncontracted percentages than the ADB average (Figure

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15). The uncontracted balance for the energy sector increased for the fifth year in a row, to $6.2 billion in 2014 up from $6.0 billion in 2013, $5.3 billion in 2012, $4.8 billion in 2011, and $4.3 billion in 2010 (Figure 16).

Figure 13: Contract Award Ratio and Uncontracted Percentage, Projects, 2010–

2014


Figure 14: Contract Award Ratio and Uncontracted Percentage

by Department, Projects, 2014

ADB = Asian Development Bank, CWRD = Central and West Asia Department, EARD = East Asia Department, PARD = Pacific Department, SARD = South Asia Department, SERD = Southeast Asia Department. Source: ADB data.

Figure 15: Uncontracted Balance and Percentage by Country, Projects, 2013–2014

BAN = Bangladesh, PRC = People’s Republic of China, IND = India, PAK = Pakistan, VIE = Viet Nam Source: Asian Development Bank data.

Figure 16: Uncontracted Balance and Percentage by Sector, Projects, 2013–2014

ANR = agriculture, natural resources and rural development, EDU = education, ENE = energy, FIN = finance, TRA = transport, WUS = water and other urban infrastructure and services. Source: Asian Development Bank data.

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8.0

10.0

ANR EDU ENE FIN TRA WUS

$ b

illio

n

2013 Uncontracted Balance 2014 Uncontracted Balance 2013 Uncontracted % 2014 Uncontracted %

44%

44%

9

23. The contract awards aging analysis shows that in 2014 most contract awards came from age 1 projects (36% of total contract awards in 2014 totaling $2.9 billion). The contract awards in 0-1 age group increased by $1.6 billion or 100% compared to 2013 reflecting improved project readiness and procurement readiness at start-up. Age 2 projects declined by $0.4 billion or 21.0% compared to 2013, reflecting issues with older stock. Age 3 to 5 also showed 25% increase in contract awards for 2014 reflecting more attention to this age group. However, contract award for projects aged 6 and above stock declined by about 26% (Figure 17) suggesting need for more attention to closing older projects.

Figure 17: Annual Contract Awards by Age, Projects, 2010–2014


Figure 18: Uncontracted Percentage by Age, Projects, 2010–2014


3. Analysis of Contracting Time for Contracts

24. In 2014, the average end-to-end contracting period from receipt of the bidding documents to signing of contracts for contracts $10 million and above was 362 days, 5.5% shorter than in 2013 (Figure 19). ADB took 151 days on average, and the executing agencies took 211 days. The one-stage-one-envelope procurement method took less time than the one-stage-two-envelope method. The 2 stage plant/ turnkey/ design and build required the most time (Figure 20).

Figure 19: 2014 Average Processing Time for Procurement Contracts ≥$10 Million

ADB = Asian Development Bank, EA = executing agency. Source: ADB data.

81

1,567 2,016

1,326

577 416 443 282

2,947

1,592 1,483 1,039

506 327

-

2,000

4,000

0 1 2 3 4 5 =>6

$ m

illio

n

2010 2011 2012 2013 2014

99%79%

42% 33%

20% 14%4%

47%

97%

72%59%

26% 20%13% 7%

44%

0%

20%

40%

60%

80%

100%

0 1 2 3 4 5 =>6 ADB2010 2011 2012 2013 2014

151 174

211 209

92

106

85

90

95

100

105

110

0

100

200

300

400

500

2014 2013

Nu

mb

er

of

co

ntr

acts

Ave

rag

e

Pro

ce

ssin

g T

ime

in

Da

ys

Average Processing Time EA Average Processing Time ADB Number of Contracts

362

383

10

Figure 20: 2014 Average Processing Time for Procurement Contracts ≥$10 Million

1S1E = one stage, one envelope; 1S2E = one stage, two envelopes; 2S = two stage; ADB = Asian Development Bank; 2S2E = two stage, two envelopes; EA = executing agency. Note: Average processing time refers to the average number of days from the date of the first receipt of draft bidding document by ADB to the contract signing. It covers all contracts signed in 2014. Source: ADB data.

25. ADB initiated and began implementing important procurement reforms in 2014. A 10-point procurement reform action plan was approved in August 2014 as part of the midterm review of Strategy 2020 7 to reduce procurement time, increase administrative efficiency, and improve project delivery while maintaining sound fiduciary oversight (Box 1). ADB has adopted a risk-differentiated approach to procurement, and the initial results are encouraging. Times have shortened for all procurement approvals, including those requiring action by regional departments (contracts of $10–$20 million), regional departments and the Operations Services and Financial Management Department (OSFMD) ($20–$40 million), and the Procurement Committee ($40 million and above). The average time taken for transactions of $10 million and more during September–December 2014 was 34 days, halving the time compared to those approved during January–August 2014. This was below the 40-day DEfR target for 2016 (Table 1). While these initial results are encouraging, regional departments need to expedite and closely monitor the timeliness of bid evaluation report (BER) responses.

Table 1: 2014 Procurement Time (≥$10 million)

No. of Submission

Receipt of BER to ADB’s approvala

2013 212 57 days

2014 (January to August) 160 67 days

2014 (September to December) 59 34 days

No. of Submission

Receipt of BER to ADB’s approval

$10–$20 million (RD) 26 41 $20–$40 million (RD+OSFMD) 19 29 $40 million and above (PC) 14 28 Average time

34

ADB = Asian Development Bank, BER = bid evaluation report, no. = number, PC = Procurement Committee, RD = regional department. Note: 2014 average is 58 days a

Refers to the average number of days from the date of the first receipt of BER to ADB’s approval of BER. It includes the time spent for any clarification and revision needed to finalize evaluation of BER.

7 ADB. 2014. Midterm Review of Strategy 2020 Action Plan. Manila

128 146 164 190358

128 159 109

144286

296

298 370

157221

182

9

36

13

1

31 28

1

0

5

10

15

20

25

30

35

0

200

400

600

800

1S1E 1S2E 1S1E 1S2E 2S 1S1E 1S2E 2S2E

Nu

mb

er

of C

on

tra

cts

Ave

rag

e P

roce

ssin

g

Tim

e in

Da

ys

EA ADB Number of ContractsPlant/ Turnkey/ Design and Build Works

Goods

11

Box 1: Procurement Reform — 10-Point Action Plan Procurement is integral to the operations of the Asian Development Bank (ADB). Investment projects represent about 90% of lending, and sound implementation requires that ADB’s procurement processes be timely, efficient, and effective. To address the wide range of procurement-related challenges faced by ADB, a 10-point procurement reform action plan and associated reforms were approved by the President as part of the midterm review of Strategy 2020. The key objective of the reforms was to improve ADB’s procurement performance by reducing procurement time, increasing administrative efficiency and improving project delivery while maintaining sound fiduciary oversight. The reforms implement a new risk-based approach to procurement governance under the existing ADB guidelines. Risk is now considered and directs procurement actions at each step in the project cycle from country partnership strategy to project concept, project preparation, and contract implementation. The 10 Actions are:

The reform actions are being implemented and initial results are encouraging. For example, the time for ADB approval from receipt of bid evaluation report was 34 days, compared with 57 days in 2013 and the 2016 Development Effectiveness Review target of 40 days. The full impact of these reforms are expected to be felt in four main ways during 2015: (i) increased procurement efficiency, (ii) more flexibility in ADB procurement, (iii) more balanced fiduciary oversight, and (iv) greater knowledge and use of country systems. Source: ADB Operations Services and Financial Management Department

1. More robust procurement risk

assessments of country and

sector/agency systems

2. International competitive bidding

thresholds increased and national

competitive bidding applied where

country systems are used

3. New risk-based prior review limits and

introduction of post-review (sampling)

4. New Procurement Committee level

and decision authorities

5. Project procurement classification at

concept clearance and Operations

Services and Financial Management

Department support for complex

projects

6. The Procurement Review System is

being fully developed and launched

7. Master bid documents are agreed

during project preparation

8. New streamlined Procurement

Committee process implemented

9. New procurement approval form

10. Consulting services quality

enhancements and delegation

How Does the Procurement Reform Work?

12

4. Analysis of Undisbursed Balances and Disbursement 26. The total undisbursed balance of active project loans and grants8 as of 31 December 2014 was $41.1 billion, a 2.5% increase over $40.1 billion at the end of 2013. ADB’s undisbursed balance as the percentage of total active projects (hereafter, undisbursed percentage) was 64.7%, an improvement from 66.4% in 2013. In 2014, CWRD (67.4%) and SARD (67.0%) had undisbursed percentages that were higher than the ADB average but lower than in 2013—(70.0% for CWRD and 67.9% for SARD) (Figure 21). Except for EARD, which had an increase of 1.7 percentage points to 61.3% in 2014, all departments lowered their undisbursed percentages in 2014. The percentages for three of the 10 largest countries in the portfolio increased in 2014 from 2013: Afghanistan (73.9% to 75.0%), Bangladesh (64.5% to 67.2%), and the PRC (59.2% to 60.9%). In 2014, Afghanistan (75.0%), Nepal (74.9%), and Pakistan (70.5%) had the largest undisbursed percentage, while India ($7.3 billion), the PRC ($6.4 billion), and Viet Nam ($5.1 billion) continued to have the largest undisbursed balance due to their portfolio size (Figure 22). Pakistan had the largest increase ($371.8 million) in undisbursed balance during 2014 from $3.2 billion in 2013 to $3.6 billion in 2014. This was mainly due to approvals in 2014 of $976.0 million.

Figure 21: Disbursement Ratio and Undisbursed Percentage by Department, Projects, 2014


Figure 22: Undisbursed Balance and Percentage by Country, Projects, 2013–2014

BAN = Bangladesh, PRC = People’s Republic of China, IND = India, PAK = Pakistan, VIE = Viet Nam Source: Asian Development Bank data.

8 Undisbursed balance is amount available for disbursement at the end of the year for active project loans and grants.

16% 21% 18% 17% 20% 18%

67%61% 61%

67% 61% 65%

0%

20%

40%

60%

80%

100%


Disbursement Ratio Undisbursed %

7.0 6.2

5.4

3.2

3.1

7.3 6.4

5.1

3.6

3.3

70%

59%

66%72%

64%67% 61%58%

71%67%

0%

20%

40%

60%

80%

100%

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

IND PRC VIE PAK BAN

$ b

illio

n

2013 Undisbursed Balance 2014 Undisbursed Balance 2013 Undisbursed % 2014 Undisbursed %

64.7%

13

27. By sector, transport and energy continued to have the largest undisbursed balance in 2014. At $26.7 billion, it accounted for 65.2% of the overall undisbursed balance. Industry and trade showed the largest increase in undisbursed percentage among the sectors, rising from 58.1% in 2013 to 74.6% in 2014. Water and other urban infrastructure and services had the largest increase in amount, up $552.2 million to $5.6 billion. The highest undisbursed percentage continued to be that of multisector projects, although it dropped from 98.3% in 2013 to 89.4% in 2014. This was due to a special assistance loan to the Philippines. The transport sector had the lowest undisbursed percentage in the last five years (62.4%), while energy was 67.1%, slightly higher than 2013 (Figure 23).

Figure 23: Undisbursed Balance and Percentage by Sector, Projects, 2013–2014

ANR = agriculture, natural resources and rural development, EDU = education, ENE = energy, FIN = finance, TRA = transport, WUS = water and other urban infrastructure and services. Source: Asian Development Bank data.

28. The disbursement aging analysis of 2014 shows that the age 3 projects have the largest disbursement of $1,472 million closely followed by $1,408 million of age 1 projects. Age 1 projects had the largest increase against 2013 of more than 330%, and was the highest in the last five years (Figure 24), reflecting advanced project readiness. However, disbursements in the age 2 projects declined by $646.8 million (43.7%) compared to 2013. A closer look into age 2 projects by sector indicates that 2014 disbursement in the energy sector was lowest in the last five years, and likewise for transport sector in the last four years. This would require close monitoring of those projects to ensure any implementation issues are resolved early on. Disbursements in age 4 projects also declined by $98.2 million (7.5%), while age 5 and above had more disbursements in 2014 compared to 2013. Analysis of the undisbursed percentage by age reflects a lower percentage in ages where annual disbursement was high (Figure 25).

4.0 1.3 10.1

1.1

16.3

5.1 4.0 1.8 10.3

0.8

16.4 5.6

70%

57%

67%

50%

65% 71%67%

59%

67%

46%

62%

72%

0%

20%

40%

60%

80%

100%

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

ANR EDU ENE FIN TRA WUS

$ b

illio

n

2013 Undisbursed Balance 2014 Undisbursed Balance 2013 Undisbursed % 2014 Undisbursed %

14

Figure 24: Annual Disbursement by Age from Approval, Projects, 2010–2014


Figure 25: Undisbursed Percentage by Age from Approval, Projects, 2010–2014


5. Portfolio Structure

29. ADB’s overall portfolio grew $4.1 billion, or 6.4%, in 2014 to $68.2 billion. The average project age from approval increased from 3.0 years to 3.2 years (Figure 26). This was due to the portfolio beginning to stabilize after years of increased lending. The portfolio distribution by age from approval indicates that 63% of the portfolio by value (66% in 2013) and 59% by number (62% in 2013) was in ages 0–3 of implementation (Figures 27 and 28).

Figure 26: Project Portfolio by Age, 2010–2014


124 323

1,480 1,268 1,303

755

1,336

113

1,408

833

1,472

1,205 927

1,355

-

500

1,000

1,500

2,000

0 1 2 3 4 5 =>6

$ m

illio

n

2010 2011 2012 2013 2014

99% 96%

74%

63%

43%34%

25%

66%

99%87% 87%

61%

49%

33%

22%

65%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0 1 2 3 4 5 =>6 ADB

2010 2011 2012 2013 2014

2.97 2.96 2.96 3.04 3.15

0.0

2.0

4.0

2010 2011 2012 2013 2014

Ye

ars

Age from Approval

15

Figure 27: Project Portfolio by Value, Age from Approval, 2014


Figure 28: Project Portfolio by Number, Age from Approval, 2014


30. The entry of effective loans and grants within the same year of approval into the portfolio was 23.7% in 2014, compared with 18.4% in 2013 and 9.9% in 2012 (Figure 29). This can be correlated to higher approvals during Q1–Q3 in 2014—52% compared with 28% in 2013 (Figure 30). The bunching of approvals in Q4 eased in 2014. The percentage rise in approvals during Q1–Q3 also contributed to higher contract awards and disbursements in the first year after project approval.

Figure 29: Effectiveness within the Same Year of Approval


Figure 30: Approval of Projects by Amount


6. Termination and Cancellation

31. In 2014, $778.6 million of loans and grants were terminated and cancelled (Figure 31). This was the second lowest amount in the last five years. Two grants totaling $10.0 million for a power system expansion and efficiency improvement investment program in Bangladesh and a program to strengthen public management in Nepal were terminated before signing. Eighty-six loans and 37 grants amounting to $768.6 million were partially cancelled. The largest cancellations were in India ($278.6 million) and accounted for 35.8% of the 2014 total. Reduction in scope, cost underruns, and savings were among the main reasons for cancellation.

9.4

11.8

8.810.1

8.0

5.7

3.4 2.93.6

15%18%14%16%13%9% 5% 5% 6% 0%

20%

40%

60%

80%

100%

120%

0.0

5.0

10.0

15.0

Cu

mu

lative

Pe

rce

nta

ge

$ b

illio

n

Net AmountPercent by Age from ApprovalCumulative %

136 140 139

118121

94

57

4250

15%16%15%13%13%10%6% 5% 6%0%

20%

40%

60%

80%

100%

120%

0

50

100

150

0 1 2 3 4 5 6 7 ≥8

Cu

mu

lative

Pe

rce

nta

ge

Nu

mb

er

Number Percent by Age Cumulative %

9.9

11.1

9.2

11.7

9.4

2.13.2

0.92.2 2.2

21%

29%

10%

18%

24%

0%

5%

10%

15%

20%

25%

30%

35%

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

2010 2011 2012 2013 2014

Pe

rce

nta

ge

Ap

pro

ved

Va

lue

(E

ffe

ctive

Ye

ar=

0)

$ b

illio

n

Approval YearTotal Value Effective year=0 Effective year=0 (%)

3% 5%

21%

72%

12% 13%

27%

48%

0%

10%

20%

30%

40%

50%

60%

70%

80%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Q1 Q2 Q3 Q4

$ m

illio

n

2013 Amount 2014 Amount 2013% 2014%

16

Figure 31: Total Termination and Cancellation, 2010–2014

Note: 2013 terminations includes retroactively dated termination of one sovereign guarantee for $200 million Source: Asian Development Bank data.

7. Net Resource Transfer

32. ADB’s net resource transfer is an area that is directly affected by disbursement performance and loan service payments received. The 2014 net resource transfer for project loans was $3.4 billion, which was 60.7% higher than 2013 ($2.1 billion) and the highest since 2003 (Figure 32). This was due to a 13.1% increase in disbursements and a 13.3% drop in payments from the 2013 levels. Viet Nam had the highest net resource transfer of $855.7 million, followed by $710.9 million for India and $643.8 million for the PRC (Figure 33). Indonesia had a negative net resource transfer of $529.1 million due to loan service payment of $628.1 million during the year.

Figure 32: Net Resource Transfer, Project Loans


Figure 33: Countries with Highest and Lowest Net Resource Transfer, Project Loans

PRC = the People’s Republic of China, IND = India, INO = Indonesia, KAZ = Kazakhstan, LAO = Lao People’s Democratic Republic, MAL = Malaysia, MYA = Myanmar, TAJ = Tajikistan, UZB = Uzbekistan, VIE = Viet Nam Source: Asian Development Bank data.

1,645 840 518

1,289 769

-

--

615

-

-

657

775

10

-

1,000

2,000

3,000

2010 2011 2012 2013 2014

$ m

illio

n

Cancellation (Effective) Cancellation (Not Effective) Termination (Not Signed)

5.0 5.8 5.6

6.0 6.8

2.7 3.0 3.2 3.9

3.3

2.2 2.8

2.4

2.1 3.4

-

2.0

4.0

6.0

8.0

2010 2011 2012 2013 2014

$ b

illio

n

Disbursement Loan Service Payment Net Resource Transfer

856711 644

352 291

(529) (40) (27) (22) (13)

-1000

-500

0

500

1000

VIE

IND

PR

C

UZ

B

KA

Z

INO

LA

O

MY

A

MA

L

TA

J

$ m

illio

n

17

8. Project Performance Ratings

33. Project performance ratings are a key indicator of portfolio performance. As of the end of 2014, more than 20% of EARD, PARD, and SERD projects had implementation risks (Figure 34). More than 20% of projects faced implementation risks in the agriculture, education, energy, finance, health, information and communication technology, and public sector management sectors (Figure 35). A slight improvement in the overall project performance ratings from 2013 reflected the higher achievement of contract awards and disbursement in 2014.9

Figure 34: Portfolio Ratings by Department

2013

2014


Figure 35: 2014 Portfolio Ratings by Sector

ADB = Asian Development Bank, ANR = agriculture, natural resources and rural development, EDU = education, ENE = energy, FIN = finance, HLT = health, IND = industry and trade, ICT = information and communication technology, MUL = multisector, PSM = public sector management, TRA = transport, WUS = water and other urban infrastructure and services. Source: ADB data.

9 In 2014, a one-time cleanup of contract award and disbursement projections in eOperations was undertaken to ensure

accuracy and consistency of projections inputted across departments to reflect cancellations and overachievement or underachievement at year-end. As a result, 2014 performance ratings may not be comparable with 2013.

81 8575 79 74 79

12 8 23 1612

147 6 2 5

14 7

0%

20%

40%

60%

80%

100%


8777

6483 79 80

915

28

13 16 154 8 9 3 5 5

0%

20%

40%

60%

80%

100%


76 80 75 73 7486

7588

63

85 86 80

16 13 19 23 1914

2513

26

11 11 158 8 6 5 7 11 3 3 5

0%

20%

40%

60%

80%

100%

ANR EDU ENE FIN HLT IND ICT MUL PSM TRA WUS ADB

On Track Potential Problem Actual Problem

18

9. Technical Assistance Portfolio

34. Since 2010, the technical assistance portfolio10 has grown 38.9% by value and 13.2% by number (Figure 36). The technical assistance portfolio grew by $38.6 million in 2014. By number, 18.8% were PPTA and 81.2% were non-PPTA projects. SERD held the largest technical assistance portfolio by value ($582.2 million) and number (249) in 2014 (Figure 37). 35. The average age of a technical assistance project from approval was 2.2 years in 2014, and 59.2% of the active technical assistance portfolio had been extended. The average extension was 1.7 years compared with 1.6 years in 2012 and 1.7 years in 2013. Non-PPTA accounted for 88% ($898.2 million) of undisbursed amounts and 88% ($512.9 million) of uncommitted technical assistance amounts (Figure 38). The growing number of technical assistance projects is becoming an administrative burden, and ADB needs to consider capping the number of non-PPTA operations. Efforts to rationalize the technical assistance portfolio and closely monitor technical assistance implementation should continue to be a priority.

Figure 36: Technical Assistance Portfolio Growth, 2010–2014

TA = technical assistance. Source: Asian Development Bank data.

Figure 37: Technical Assistance Portfolio Growth by Department, 2010–2014

CWRD = Central and West Asia Department, EARD = East Asia Department, KMSD = knowledge management services departments, No. = number, PARD = Pacific Department, PSOD = Private Sector Operations Department, SARD = South Asia Department, SERD = Southeast Asia Department, TA = technical assistance. Source: ADB data.

10

Includes PSOD technical assistance projects.

1,199 1,321 1,379 1,626 1,665

945 957 9911069 1070

0

200

400

600

800

1000

1200

2010 2011 2012 2013 2014 -

200

400

600

800

1,000

1,200

1,400

1,600

1,800

nu

mb

er

$ m

illio

n

Net TA Amount ($mn) No. of Active TAs

95

159 89

34

192

257

187

56

107

169

82

38

187

249

181

57

-

50

100

150

200

250

300

CWRD EARD PARD PSOD SARD SERD KMSD Others -

100

200

300

400

500

600

$ m

illio

n

2013 Net TA Amount 2014 Net TA Amount 2013 No. of Active TAs 2014 No. of Active TAs

Net TA Amount ($million)

19

Figure 38: Active Technical Assistance Portfolio Undisbursed and Uncommitted Value—Project Preparatory and Non-Project Preparatory, 2013–2014

Non-PPTA = Non-project preparatory technical assistance, PPTA = project preparatory technical assistance. Source: Asian Development Bank data.

C. Conclusions and Agreed Actions

1. Portfolio Performance 36. The performance of the sovereign portfolio in 2014 improved in terms of contract awards, disbursements, and project performance ratings. Contract awards and disbursements were significantly higher in absolute amounts than in 2013. The contract award ratio, disbursement ratio, uncontracted percentage, and undisbursed percentage also improved. 37. A large part of this can be attributed to ADB’s strong emphasis on portfolio management at the corporate and department levels. Contract award and disbursement targets were set at the beginning of the year. A corporate disbursement drive was launched with close monitoring. Controller’s Department (CTL), Treasury Department (TD) and OSFMD helped achieve the ambitious $10.3 billion total disbursement target (sovereign and nonsovereign) for 2014 (Box 2). 38. ADB surpassed its ambitious target of $8.0 billion in contract awards in 2014 by reducing the time for approving the contracts and coordinating with executing agencies and implementing agencies. Steps that helped reduce procurement time, enhance quality, and improve project delivery included the implementation of the 10-point procurement reform actions, increasing the number of Procurement Accreditation Skills Scheme (PASS) accredited staff (120 staff in 2014 compared with 25 staff in 2013), posting OSFMD staff to the front offices of regional departments and the five largest resident missions, and streamlining of procurement processes. Each regional department also implemented its own set of actions to enhance portfolio performance (Box 3). 39. However, challenges remain. A review of annual approvals, contract awards, and disbursements during 2006–2013 indicates that the ratio of contract awards to approvals was considerably higher in 2006–2009 (82.0%) than in 2010–2013 (66.2%), as was the earlier ratio of disbursements to approvals—67.9% compared with 59.4%. This shows that a backlog of contract awards remains, and that disbursements and the 2014 performance need to be sustained. Also, given that sovereign project approvals (OCR and ADF) in 2010–2014 have averaged $9.9 billion, but contract awards and disbursements averaged only $6.0 billion and $6.2 billion respectively over the 5 year period, and in 2014 were $7.9 billion and $7.2 billion respectively, ADB needs to continue efforts to raise contract award and disbursement levels in 2015 and beyond in order to tend towards our average net approval levels (approval after cancellation) (Figure 39).

898 898.2544 512.9

132 121

79 68

0

500

1000

1500

2013 2014 2013 2014

Undisbursed Uncommitted

$ m

illio

n

Non-PPTA PPTA

20

Box 2: ADB Disbursement Drive

Prior to 2014, the Asian Development Bank (ADB) disbursement target was set based on a bottom-up approach by using project projections inputted in the eOperations by each project team. These goals would often be conservative, and the ability to make changes in line with implementation in eOperations made the overall target a moving number and hard to monitor. The disbursement ratios for 2013 and 2012 were below 18% compared with the ADB Development Effectiveness Review target of 22% by 2016. With total ADB approvals averaging $12–$13 billion a year, and annual disbursements of about $8–$9 billion, the 2013 Annual Portfolio Performance Report noted the need to launch a corporate drive for both sovereign and nonsovereign operations to increase disbursements and have a fixed ADB target. Based on the available undisbursed balance at the beginning of the year and the need to work toward a project disbursement ratio of 22% by 2016, ADB’s portfolio operations review meeting proposed an ambitious target of $10.3 billion for 2014 ($9.0 billion for sovereign and $1.3 billion for nonsovereign), 18.3% higher than $8.7 billion in 2013. The target was then included in the 2014 planning directions split by operational department issued by the President.

Progress toward these targets was closely monitored through bimonthly management information summaries and quarterly operations review meetings at the Management level. The heads of department of each regional department and the Private Sector Operations Department worked out strategies to achieve their targets and monitored these at the department level through nominated focal points in their front offices. The project team leaders monitored active contracts against project disbursement schedules and worked closely with the projects’ executing agencies and implementing agencies to meet their targets. The Controller’s and Treasury departments helped by keeping the books open, accepting withdrawal applications, and making payments until late December. In the end, closer coordination between operational departments, Operations Services and Financial Management Department, Controller’s Department, and Treasury Department helped achieve $10.3 billion in disbursements in 2014. Source: ADB Operations Services and Financial Management Department

Figure 39: Annual ADB Approvals, Contract Awards, and Disbursements, 2006–2014

ADF = Asian Development Fund, OCR = ordinary capital resources. Note: Covers sovereign OCR and ADF projects only (excludes policy-based). Source: Asian Development Bank data.

40. The use of a harmonized disbursement ratio definition shows that ADB’s achievement has been one to two percentage points lower than World Bank since 2011 and an even wider gap compared to the African Development Bank (Table 2). This further highlights the need for ADB to continue its emphasis on improving its disbursement performance.

3.9

6.5 6.77.6

9.810.5

8.7

11.4

9.3

4.2 4.6 4.8

6.55.6

7.5 7.36.2

7.9

3.23.9

4.65.0 5.3

6.2 6.0 6.57.2

0

2

4

6

8

10

12

2006 2007 2008 2009 2010 2011 2012 2013 2014

$ b

illio

n

Annual Approvals Annual Contract Awards Annual Disbursements

21

Table 2: Disbursement Ratio – ADB, African Development Bank, and World Bank, 2009–2014

Year ADB WB AfDB

2009 21.1%

2010 20.5% 19% 2011 20.5% 21.5% 18%

2012 17.8% 20.0% 22%

2013 17.7% 19.8% 24% 2014 18.2% 20.0%

ADB = Asian Development Bank, AfDB = African Development Bank, WB = World Bank Sources: World Bank. 2014. World Bank Group and World Bank Corporate Scorecard October 2014.

Washington, DC: World Bank Group. African Development Bank Group. 2014. Annual Development Effectiveness Review 2014 Towards Africa’s Transformation. Tunisia: African Development Bank Group. Asian Development Bank data.

2. Looking Forward

41. Based on positive portfolio structure conditions, particularly the portfolio age and the 5-year average performance of contract awards and disbursements, performance is expected to improve further in 2015. Contract awards in 2015 are expected to increase to $8.9 billion and disbursements to $8.8 billion in 2015 (Figure 40). Given that this projection is based on the average of 5-year performance and that the performances in 2012 and 2013 were below the 5-year averages, regional departments need to continue their efforts to achieve higher levels of performance in 2015.

Figure 40: Project Loan and Grant Contracts and Disbursement—Funds Available versus Actual, 2010–2016

CA = contract award. Source: Asian Development Bank data.

61.0

34.0

41.0

8.2

7.3

55.7

35.1

46.4

8.9 8.8

51.9

37.1

47.6

9.2 9.6

0

10

20

30

40

50

60

70

Active Loan & GrantPortfolio Dec 31st

Funds Available forContracting

(beginning of year)

Funds Available forDisbursement

(beginning of year)

Actual Contracts(using the last 5

years average CARatio by age)

Actual Disbursement(Using 2010-2014

Average)

$ b

illio

n

2010 2011 2012 2013 2014 2015 2016

22

Box 3: Portfolio Actions by ADB’s Regional Departments

The strong performance of the Asian Development Bank (ADB) portfolio in 2014 was the result in part of actions taken by its regional departments.

The Central and West Asia Department took the following portfolio management actions • regular portfolio reviews with follow-up on agreed actions at the department and country level; • full delegation of projects to Pakistan Resident Mission; • a country safeguard review to identify systemic and project-level safeguard issues and take corrective actions to address

them; • the introduction of an innovative project complaint tracking system for timely resolution of project complaints; • fielding of procurement specialists under a regional technical assistance to help manage difficult procurement issues; • the cascading of the department disbursement target down to sector divisions and resident missions; • the training of executing agencies and implementing agencies in procurement and International Federation of Consulting

Engineers (FIDIC) contract management, disbursement, safeguards, and financial management; • the enhancement of financial management by cleaning up outstanding audit submissions and training auditors; and • close monitoring of the resolution of contract disputes.

The East Asia Department took measures to increase coordination and communication on procurement, contract management, safeguards, and implementation across its portfolio in the People’s Republic of China and Mongolia. These steps included

• hand-holding new counterpart executing agencies and implementing agencies with weak capacity; • training executing agencies and implementing agencies in ADB procurement and disbursement during inception and review

missions; • constant follow-up with executing agencies, implementing agencies, and ministries of finance; and fielding review missions to

facilitate quick resolution of outstanding implementation issues for problem projects; • placing consultants at project management offices to help with procurement in complex projects; and • delegating disbursement of headquarters-administered projects to resident missions and active monitoring of contracts

against disbursement schedules by project team leaders.

The Pacific Department made efforts to improve portfolio performance while maintaining a strong focus on safeguards and financial audit requirements. Measures included

• organizing country portfolio review meetings in Papua New Guinea, Timor-Leste, the Federated States of Micronesia, and Tonga;

• helping contractor mobilization through advance payments; • processing withdrawal applications only after executing agencies had implemented agreed resettlement plans; • conducting an active dialogue with Papua New Guinea’s Auditor General’s Office to mobilize private auditors through a

regional technical assistance for timely submission of audited project accounts and financial statements.

South Asia Department stepped up its efforts to improve quality and efficiency in procurement performance, while maintaining fiduciary oversight by

• scrutinizing implementation arrangements at project design and supervision for ongoing projects; • delegating full responsibility for consultant recruitment, procurement, and project administration to ADB’s Bangladesh

Resident Mission and India Resident Mission; • cascading authority for departmental contract awards and disbursement targets down to the division, project team, and staff

levels; • setting new targets for a 50% reduction in procurement time by South Asia Department and ADB clients; • enhancing the integrity of data in eOperations and introducing departmental management information summary to better

monitor and report portfolio performance; and • undertaking an innovative study on contractor and consultant performance to understand and address performance issues

more effectively.

Southeast Asia Department made positive strides toward improving performance across its portfolio. Its measures included • continuation of a multiyear structured portfolio spring-cleaning process of slow-moving projects in Viet Nam; • increasing the use of country procurement systems and adopting harmonized government/ADB/World Bank standard

operating procedures on project administration; • establishing resident mission-based country disbursement task forces, or flying squads, to chase year-end withdrawal

applications; • increasing executing agency training by using modular structured executing agency training calendars managed by resident

missions; and • undertaking a study to quantify the costs of project extensions.

These actions converge with the priorities of the action plan of the midterm review of Strategy 2020 and ADB’s 10-point procurement reform action plan. If replicated and implemented across the regional departments, they should enable even better portfolio performance in 2015.

Source: ADB Operations Services and Financial Management Department

23

42. This projection is corroborated by a regression analysis. The analysis was undertaken to see the effect on disbursements of (i) the undisbursed balance at beginning of the year and (ii) the contract awards in the preceding year. Both indicated positive and high correlation. Based on this, disbursements are predicted to be $8.3 billion in 2015. 43. A study on disbursement performance of project loans approved during 2001–2008 showed that disbursement performance is significantly affected by the contracting time measured by a proxy, which is the average processing time for either international competitive bidding or national competitive bidding for goods and works contracts. The study established that the more complex and/or inefficient a country’s procurement system was, the longer the contract processing time would be. This in turn slowed disbursements. The study reinforces the need to implement ADB 10-point procurement reform action plan.

3. Agreed Actions 44. ADB has made good progress on implementing the 2013 APPR recommendations (Appendix 2). The majority of the measures called for in the midterm review action plan to improve project readiness, procurement, and implementation are under way. 45. Based on 2014 performance, the following actions were recommended and agreed to further improve portfolio performance:

(i) setting 2015 contract award and disbursement targets. (ii) continuing to implement procurement reforms, build executing agency capacity,

and mainstream e-procurement and post review sampling in ADB operations. (iii) increasing project readiness and adopting realistic project implementation

schedules by comparing with standard timelines and managing this using eOperations.

(iv) spring-cleaning the technical assistance portfolio, capping the number of non-PPTA projects, and introducing more technical assistance portfolio metrics for monitoring.

(v) making efforts to increase the average size of projects from the $100 million baseline in 2014.

(vi) revising project performance rating criteria.

24

III. 2014 NONSOVEREIGN PORTFOLIO

A. Portfolio Composition and Trends

46. Overall portfolio. The total committed nonsovereign portfolio increased by 13.6% to $7.6 billion at the end of 2014 ($6.7 billion at the end of 2013) (Figure 41).11 Nonsovereign committed loans totaled $5.5 billion ($4.6 billion in 2013), committed guarantees totaled $1.10 billion ($1.11 billion in 2013), and committed equities (at carrying value) totaled $1.04 billion ($974.5 million in 2013).

47. The total outstanding portfolio increased by 10.0% to $5.3 billion at the end of 2014 ($4.8 billion at the end of 2013) with loans constituting the largest share at $3.6 billion ($3.2 billion at the end of 2013).12 The top two sectors—energy and finance—accounted for 84.3% of the outstanding portfolio (89.2% in 2013). The concentration in the top three countries (India, Pakistan, and the PRC) increased to 51.7% of the outstanding portfolio (India, Indonesia, and the PRC accounted for 49.1% in 2013).

1. Approvals, Commitments, and Disbursements

48. Nonsovereign approvals, commitments and disbursements all rose in 2014. Approvals increased by 19.7% to $1.9 billion, 16.3% above the initial 2014 planning figures for nonsovereign operations. Commitments increased by 154.3% to $1.9 billion ($733.3 million in 2013). Loan and equity disbursements increased by 33.0% to a record high of $1.2 billion (Figure 42).

49. Loan approvals totaled $1.7 billion in 2014, a 20.2% increase over 2013. Loan commitments increased by 175.8% to $1.5 billion. Loan disbursements increased by 34.8% to $1.1 billion. Guarantee approvals fell by 42.9% to $20.0 million ($35.0 million in 2013). 13 Guarantee commitments fell by 87.3% to $10.3 million ($81.5 million in 2013). Equity approvals increased by 30.3% to $185.0 million, of which $100.0 million was for investment funds and $85.0 million for direct equities. Equity commitments increased by 238.6% to $304.4 million. Equity disbursements increased by 20.3% to $140.2 million.14 PSOD’s 2014 disbursements totaled $1.23 billion, the highest for the last 10 years. 50. In 2014, approvals in group A countries increased significantly to $342.0 million ($75.0 million in 2013). Approvals in group B increased to $1.0 billion ($495.4 million in 2013), and decreased in group C to $478.0 million ($971.9 million in 2013).15 The PRC and India accounted for $1.1 billion or 56.1% of total approvals ($825.4 million or 51.5% in 2013).

11

The committed portfolio consists of outstanding balances plus undisbursed balances. Commitments are project investments approved by ADB’s Board of Directors for which the investment agreements are signed by the investee company and ADB.

12 The total outstanding portfolio is the disbursed loans and equity investments (on the balance sheet) plus executed guarantees (off the balance sheet).

13 Guarantee approvals exclude approvals in supply chain finance and trade finance.

14 Excludes a $50 million disbursement for the Association of Southeast Asian Nations (ASEAN) Infrastructure Fund, which was processed as a sovereign project.

15 Group A countries that receive nonsovereign project assistance from ADB are Afghanistan, Cambodia, Kyrgyz Republic, Lao People’s Democratic Republic, the Maldives, Myanmar, Nepal, Samoa, and Tajikistan. Group B countries are Armenia, Bangladesh, Georgia, India, Mongolia, Pakistan, Papua New Guinea, Sri Lanka, Uzbekistan, and Viet Nam. Group C countries are Azerbaijan, the PRC, Indonesia, Kazakhstan, Malaysia, the Philippines, and Thailand.

25

Figure 41: Nonsovereign Portfolio at a Glance (As of 31 December 2014)

Source: Asian Development Bank data

Total Nonsovereign Portfolio

• Total year-end committed portfolio increased by 13.6% to $7.6 billion

• Total loans committed increased to $5.5 billion, guarantees committed remained at $1.1 billion, and equity committed marginally increased to $1.0 billion

• Approvals increased by 19.7% to $1.9 billion • Commitments increased by 154.3% to $1.9 billion • Disbursements increased by 33.0% to $1.2 billion • Droppages and cancellations decreased to $597.8 million,

down from a high of $1.1 billion in 2013

Loan Portfolio

• Total committed loans increased by 18.5% to $5.5 billion • Outstanding loans increased by 12.6% to $3.6 billion • Undisbursed balances increased by 31.8% to $1.9 billion • Approvals increased by 20.2% to $1.7 billion • Commitments increased by 175.8% to $1.5 billion • Disbursements increased by 34.8% to $1.1 billion • Droppages and cancellations decreased by 81.3% to

$112.5 million • Prepayments increased by 60.3% to $312.3 million

Guarantee Portfolio

• Total committed guarantees remained at $1.1 billion • Outstanding guarantees increased by 8.9% to $995.4

million • Signed non-executed guarantees decreased by 44.8% to

$107.6 million (excluding Trade Finance Program) • Approvals (excluding supply chain finance) decreased by

42.9% to only $20.0 million • Commitments decreased by 87.3% to only $10.3 million • Droppages and cancellations decreased by 29.1% to

$341.4 million

Equity Portfolio

• Total committed equities increased by 6.4% to $1.0 billion • Outstanding equities (at carrying value) decreased

marginally to $717.9 milliona

• Undisbursed equities increased to $319.0 million • Approvals increased by 30.3% to $185.0 million, of which

$85.0 million was for direct equities. • Commitments increased by 238.6% to $304.4 million • Disbursements increased by 20.3% to $140.2 million

• Droppages and cancellations were $144.0 million ($38.0 million in 2013)

aincluding $6 million of debt securities

26

Table 3: Nonsovereign Portfolio Quality and Performance, 2013–2014



(2011).]

27

Figure 42: Portfolio Growth, 2010–2014


51. Approvals by sector have been volatile year to year. In past years, the energy sector dominated, but 2014 approvals in the finance sector ($708.0 million) exceeded approvals in the energy sector ($677.0 million) (finance $290.0 million and energy $679.0 million in 2013). Agriculture, natural resources, and rural development approvals increased significantly to $226.5 million from $93.6 million in 2013. Transport approvals declined slightly to $215.0 million ($275.0 million in 2013). 52. Trade Finance Program. The Trade Finance Program (TFP) supported about $3.8 billion in trade transactions in 2014 ($4.0 billion in 2013), of which $1.8 billion was in guarantees and loans provided by ADB and $2.0 billion was cofinancing. Of the total 1,937 TFP transactions in 2014 (2,120 in 2013), 1,463 supported intraregional trade (1,672 in 2013). Among the TFP's 18 countries of operation, the most active were Pakistan, Bangladesh, Sri Lanka, Viet Nam, and Uzbekistan. Over 98% of the TFP's 2014 transactions were in ADF countries. 53. Supply Chain Finance Program. Preparations for implementing the Supply Chain Finance Program were ongoing in 2014 and included corporate risk assessments, the setting up of internal processes to support the new business, acquisition of approvals and capacity for local currency transactions, and negotiations with more potential partner financial institutions. ADB received 7 government no-objection letters to support the ongoing groundwork. 54. Direct value-added cofinancing. In 2014, direct value-added (DVA) commercial cofinancing totaled $4.8 billion, a 71.9% increase from $2.8 billion in 2013.16 This was mainly the result of significant increases in parallel loans to $1.5 billion ($109 million in 2013) and B loans to $863.0 million ($220.0 million in 2013). In addition, DVA official cofinancing approvals for nonsovereign operations in 2014 increased by 44% to $194 million ($135 million in 2013). TFP cofinancing dropped by $240 million to $2.0 billion. Total approvals (ADB plus total DVA cofinancing) increased by 52.7% in 2014 to $6.9 billion. The mobilization rate increased to 2.61, which was higher than 1.83 achieved in 2013 and the 3-year 2011–2013 average of 2.38.17

16

The methodology for calculating DVA commercial cofinancing was enhanced on 12 December 2014 as part of the midterm review of Strategy 2020 action plan. The impact of the amendment in methodology is modest, increased by about 11.7% or $504.5 million.

17 The mobilization rate is the ratio of total direct value-added cofinancing approvals to total ADB approvals.

1,846 2,126

1,841 1,602

1,919

756

1,112 1,799

733

1,864

865

792 590

924 1,229

-

500

1,000

1,500

2,000

2,500

2010 2011 2012 2013 2014

$ m

illio

n

Approvals Commitments Disbursements

28

2. Droppage and Cancellation 55. Droppages and cancellations decreased to $597.8 million in 2014 from a high of $1.1 billion in 2013 (Figure 43). Droppages totaled $412.1 million ($955.0 million in 2013). 18 Cancellations totaled $185.7 million ($166.1 million in 2013). 19 Loan droppages averaged 14.7% of approvals during 2010–2014, and equity droppages averaged 14.6% of approvals. Guarantee droppages averaged 60.1% of approvals, which is relatively high. Loan cancellations averaged 2.9% of commitments, equity cancellations averaged 15.8% and guarantee cancellations averaged 41.8%. Disagreement on terms and/or the availability of alternative financing and the changes in market, country, and/or macroeconomic conditions caused most of the loan droppages (92.3%) and guarantee droppages (85.8%). For equities, the majority of droppages were due to sponsor issues (59.3%), such as change of project scope, lack of financing, or poor performance by the sponsor. A majority of loan cancellations were caused by the change in market, country, and/or macroeconomic conditions (44.1%). Sponsor issues such as change in project scope, lack of financing, sponsor poor performance caused most of the guarantees cancellations (98.2%) and equities cancellations (98.1%).

Figure 43: Droppages and Cancellations, 2010–2014


3. Nonsovereign Public versus Private Sector Projects

56. Nonsovereign public sector project approvals were nil in 2014 (nil in 2013 and $272 million in 2012). All $1.9 billion nonsovereign approvals in 2014 were in the nonsovereign private sector. During 2014, public sector commitments (signed investment agreements) were also nil ($100.4 million for one project in 2013). Public sector droppages were nil in 2014 ($250.0 million20 in 2013) and private sector droppage were $412.1 million ($705.0 million in 2013). The total outstanding portfolio of the nonsovereign public sector increased marginally from $496.8 million to $508.9 million at the end of 2014. It remained modest compared with the nonsovereign private sector portfolio of more than $5.0 billion.

18

Droppage refers to the dropping of approved but unsigned and uncommitted nonsovereign operations. The largest in 2014 were the dropping of a $275 million guarantee and a $35 million loan. They were caused by changes in market conditions and sponsor issues (e.g., sponsor opted for alternative financing).

19 Cancellation refers to the cancelling of signed and committed operations. The largest in 2014 were the cancellation of a $65 million guarantee and a $40 million equity. These cancellations were due to sponsor’s business plans (either change in the business plan or lack of a business plan).

20 ADB. 2010. Small Industries Development Bank of India. Manila. This project was processed by SARD.

322 97 200

955

412 28

43 20

166

186 350

140 220

1,121

598

0

200

400

600

800

1,000

1,200

2010 2011 2012 2013 2014

$ m

illio

n

Total Droppages Total Cancellations Total

29

4. Loan Prepayments

57. Loan prepayments on 5 loans in 2014 totaled $312.3 million ($194.8 million in 2013).21 Three prepayments ($294.8 million) were in accordance with the terms of the loan agreements, including one prepayment for $269.5 million.22 The other two prepayments ($17.5 million) were initiated by the borrowers (i.e., voluntary prepayments), of which one was partially prepaid ($5.3 million) because the borrower was able to obtain more favorable terms from other financial institutions. The voluntary prepayments generated prepayment fees of $0.2 million in 2014 ($12.5 million in 2013).

5. Credit Risk Rating 58. The weighted average risk rating of the outstanding loan and guarantee portfolio at the end of 2014 increased slightly to 6.4 (BB+), from 6.3 (BB+) at the end of 2013. B. Portfolio Key Findings


restrictions per paragraph 97, exception (viii) of ADB’s Public Communications Policy (2011).]

C. Conclusions and Agreed Actions [This information contains sensitive financial information subject to disclosure

restrictions per paragraph 97, exception (viii) of ADB’s Public Communications Policy (2011).]

21

A loan prepayment occurs when a borrower repays the loan principal balance in full or in part ahead of the agreed principal repayment schedule. Prepayment can be initiated by the borrower or can be in line with the terms of the loan agreement.

22 ADB exercised the loan call provision as per the loan agreement.

Appendix 1 30

2014 SOVEREIGN PORTFOLIO: KEY INDICATORS

Active Portfolio Contract Uncontracted Disbursement Undisbursed PPR Rating ($ million)

1 Awards Ratio

(%) 2

(%) 2 Ratio (%)

2 (%)

2 On Track (%) Implementation

Risk (%) 2014 (2013) 2014 (2013) 2014 (2013) 2014 (2013) 2014 (2013) 2014 (2013) 2014 2013

OPERATIONS 67,827 (63,732) 24 (20)

44 (47)

18 (18)

65 (66)

80 (79) 20 (21)

CWRD 17,023 (15,888) 23 (21)

43 (47)

16 (17)

67 (70)

87 (81) 13 (19)

Afghanistan 2,685 (2,734) 12 (19)

43 (42)

7 (12)

75 (74)

95 (70) 5 (30)

Armenia 536 (454) 18 (11)

36 (39)

21 (9)

71 (87)

83 (80) 17 (20)

Azerbaijan 1,477 (1,338) 35 (27)

34 (37)

20 (16)

69 (68)

100 (83) 0 (17)

Georgia 916 (765) 29 (10)

45 (56)

15 (10)

71 (76)

100 (100) 0 (0)

Kazakhstan 1,458 (1,848) 32 (27)

32 (38)

33 (21)

42 (52)

100 (100) 0 (0)

Kyrgyz Republic

607 (521) 13 (10)

55 (47)

13 (16)

67 (59)

78 (70) 22 (30)

Pakistan 5,534 (4,440) 14 (15)

53 (53)

14 (19)

71 (72)

70 (76) 30 (24)

Regional 54 (50)

100 (100) 0 (0)

Tajikistan 726 (759) 22 (25)

38 (41)

17 (24)

67 (74)

100 (89) 0 (11)

Turkmenistan 117 (117)

0 0

37 (45)

24 (39)

100 (100) 0 (0)

Uzbekistan 2,912 (2,862) 38 (28)

39 (53)

19 (16)

67 (74)

80 (79) 20 (21)

EARD 11,365 (10,823) 20 (17)

49 (47)

21 (18)

61 (60)

77 (85) 23 (15)

People's Republic of China

10,624 (10,219) 21 (17)

48 (46)

21 (18)

61 (59)

79 (88) 21 (12)

Mongolia 718 (574) 5 (7)

62 (53)

17 (18)

67 (66)

71 (78) 29 (22)

Regional 22 (30)

PARD 1,943 (1,884) 24 (17)

40 (46)

18 (28)

61 (67)

64 (75) 36 (25)

Cook Islands 18 (27) 0 (80)

100 (1)

56 (45)

100 (2)

0 (100) 0 (0)

Fiji 144 (72) 3 (71)

67 (3)

79 (54)

72 (20)

100 (100) 0 (0)

Kiribati 36 (39) 47 (37)

26 (46)

21 (14)

64 (80)

50 (50) 50 (50)

Nauru 6 (5) 0

100

100

100

0

Palau 29 (45) 14 (0)

87 (100)

1

98 (99)

50 (100) 50 (0)

Papua New Guinea

999 (1,019) 29 (9)

37 (51)

17 (29)

60 (71)

65 (75) 35 (25)

Regional 132 (132) 92 (25)

5 (49)

40 (17)

49 (69)

0 (50) 100 (50)

Marshall Islands

2 (9) 0 (22)

100 (15)

9 (167)

0 (2)

0 (100) 100 (0)

Federated States of Micronesia

32 (33) 27 (27) 26 (33) 21 (34) 39 (50) 33 (67) 67 (33)

Samoa 105 (102) 17 (17)

26 (28)

21 (33)

35 (40)

50 (60) 50 (40)

Solomon Islands

113 (93) 4 (42)

38 (23)

34 (27)

46 (44)

100 (100) 0 (0)

Timor-Leste 205 (187) 54 (41)

20 (41)

21 (22)

65 (78)

71 (50) 29 (50)

Tonga 71 (68) 12 (10)

56 (58)

8 (40)

68 (69)

83 (67) 17 (33)

Tuvalu 1 (4)

Vanuatu 51 (51) 0 (20)

80 (80)

5 (1)

94 (99)

50 (100) 50 (0)

Appendix 1 31

Active Portfolio Contract Uncontracted Disbursement Undisbursed PPR Rating ($ million)

1 Awards Ratio

(%) 2

(%) 2 Ratio (%)

2 (%)

2 On Track (%) Implementation

Risk (%) 2014 (2013) 2014 (2013) 2014 (2013) 2014 (2013) 2014 (2013) 2014 (2013) 2014 2013

SARD 21,660 (20,042) 28 (26)

40 (42)

17 (17)

67 (68)

83 (79) 17 (21)

Bangladesh 5,176 (5,260) 22 (25)

48 (46)

16 (18)

67 (64)

90 (89) 10 (11)

Bhutan 379 (310) 3 (59)

52 (11)

49 (39)

61 (35)

100 (91) 0 (9)

India 11,621 (10,769) 35 (26)

34 (40)

16 (16)

67 (70)

81 (71) 19 (29)

Maldives 61 (15) 2 (6)

98 (95)

18 (6)

98 (98)

100 (100) 0 (0)

Nepal 1,934 (1,619) 21 (20)

52 (54)

12 (13)

75 (75)

72 (79) 28 (21)

Regional 62 (60) 36 (27)

26 (42)

28 (9)

62 (87)

100 (67) 0 (33)

Sri Lanka 2,428 (2,010) 28 (29)

41 (42)

25 (19)

60 (66)

87 (81) 13 (19)

SERD 15,836 (15,095) 22 (14)

48 (52)

20 (19)

61 (66)

79 (74) 21 (26)

Cambodia 1,083 (881) 25 (18)

45 (49)

24 (18)

60 (64)

74 (73) 26 (27)

Indonesia 1,755 (2,816) 19 (16)

62 (40)

12 (28)

75 (46)

67 (79) 33 (21)

Lao People’s Democratic Republic

645 (628) 16 (23)

48 (50)

15 (14)

61 (64)

89 (82) 11 (18)

Malaysia 0.4 (0.3)

Myanmar 192 (101) 3 (0)

97 (100)

1

100 (100)

75

25

Philippines 2,628 (2,026) 23 (7)

66 (82)

27 (15)

66 (83)

71 (54) 29 (46)

Regional 336 (326) 8 (3)

89 (97)

4 (0)

96 (100)

80 (89) 20 (11)

Thailand 85 (88) 0 (71)

4 (2)

46 (5)

46 (78)

100 (100) 0 (0)

Viet Nam 9,112 (8,229) 23 (15)

41 (48)

19 (19)

58 (66)

84 (71) 16 (29)

NON- OPERATIONS

373 (383) 7 (0)

93 (100)

10 (0)

88 (97)

0 (100) 100 (0)

TOTAL 68,200 (64,115) 24 (20)

44 (47)

18 (18)

65 (66)

80 (79) 20 (21)

CWRD = Central and West Asia Department, EARD = East Asia Department, PARD = Pacific Department, PPR = project performance rating, SARD = South Asia Department, SERD = Southeast Asia Department. 1 Covers loans, grants, technical assistance, equity investments, and guarantees.

2 Covers project loans and grants only.

Notes: 1. 2013 figures will not tally with figures used in the 2013 APPR due to adjustments after year end, inclusion of grants, and change in definition. 2. Totals may not sum due to rounding. Source: Asian Development Bank data.

32 Appendix 2

Status of the 2013 Annual Portfolio Performance Report Recommended Actions

I. Sovereign Section:

Actions Responsible Department/s

Status

(i) Consider relevance, efficiency, effectiveness, and sustainability in project design.

Regional departments,

OSFMD

Renewed emphasis on these aspects by each of the regional departments. Project readiness checklists have been revised and are being monitored closely by the portfolio units in front offices. The share of ADB sovereign infrastructure projects that were procurement-ready increased to 32% in 2014 from 26% in 2013 and only 10% in 2012. The portion of sovereign infrastructure projects that were design-ready was 60% in 2014, slightly lower than in 2013 (65%) and higher than in 2012 (52%). Regional departments made efforts to improve portfolio performance. PARD for example, organized country portfolio review meetings in Papua New Guinea, Timor-Leste, the Federated States of Micronesia and Tonga. SERD continued spring cleaning process of Viet Nam’s slow moving projects.

(ii) Emphasize total project readiness, with greater attention to implementation.

Appendix 2 33

(iii) Provide greater upstream procurement support during project preparation to improve procurement planning and executing agency readiness; implement ADB’s new risk-based approach that seeks to reduce the time taken for procurement and drive better procurement outcomes; review the project performance rating system; and focus procurement supervision on contracts that are complex and critical to successful project implementation.

OSFMD, regional

departments

The 10-point procurement action plan was approved by the President and is under implementation. Seven country partnership strategy (CPS) procurement risk assessments are ongoing (Bangladesh, Cambodia, Indonesia, Nepal, Pakistan, Sri Lanka, and Viet Nam). The results will be integrated into their CPSs and help update procurement thresholds. International competitive bidding (ICB) thresholds have been updated. Prior review limits have been revised, and post-award contract review sampling has been introduced. The PC threshold has been raised to $40 million. Procurement classification for projects has been started at the project concept paper stage. OSFMD support for 10 complex projects is being provided. A new streamlined PC process has been introduced. An online procurement review system has been launched, and electronic procurement approval form has been introduced. SARD increased scrutiny of implementation arrangements at project design and supervision for ongoing projects and introduced new internal targets of 50% reduced procurement time by SARD and ADB clients. SARD strengthened its project quality-at-entry review and quality assurance process, emphasizing total project readiness and increased supervision intensity to resolve portfolio constraints. These efforts complemented tripartite portfolio review meetings held 3 times per year in SARD DMCs and yearly results-based country portfolio reviews led by resident missions. These measures led to performance improvements, especially a major increase in contract awards and contract awards ratio.

(iv) Optimize resident mission proximity to clients through better coordination with headquarters.

5 senior OSFMD staff members have been posted to the 5 largest resident missions, which cover 62% of ADB’s portfolio (Bangladesh, the People’s Republic of China, India, Pakistan and Viet Nam). An online procurement review system has been launched.

34 Appendix 2

(v) Strengthen capacity of executing and implementing agencies for effective project implementation.

OSFMD High-quality training programs to increase ADB, executing agency, and implementing agency staff capacity for effective project implementation were organized. A total of 66 training sessions were held, covering 2,257 staff members of ADB, 683 from executing agencies, and 1,321 individuals from suppliers, contractors, and others. Of the 66 training sessions, 36 were designed for executing agency and implementing agency staff and included project management. OSFMD organized the Good Project Implementation Forum, which brought together project teams of successful ADB projects, including staff representatives of executing agencies and implementing agencies and ADB headquarters and resident missions. The forum showcased successful projects implemented by ADB across the region. Project teams shared their insights and lessons learned as part of their deliberations. 100 executing agency staff members from 33 developing member countries participated in this event. EARD held trainings for their executing agencies/ implementing agencies in ADB procurement and disbursement during inception and review missions, and placed consultants at project management offices to help with procurement under the loan for complex projects. CWRD organized trainings for executing agencies/ implementing agencies in procurement and International Federation of Consulting Engineers (FIDIC) contract management, disbursement, safeguards and financial management.

(vi) Streamline business processes to reduce delays in project implementation and promote cost-efficient procurement.

OSFMD, regional

departments

ADB implemented the 10-point procurement action plan to streamline the procurement business process and developed and adopted the online procurement review system to track the procurement process end-to-end. Electronic procurement approval forms were introduced to ensure quality, consistency and monitor procurement milestones. Regional departments also streamlined business processes internally at the department level. SARD has fully delegated consultant recruitment, procurement and project administration to Bangladesh resident mission and India resident mission, and cascaded departmental contract awards and disbursement targets down to the division, project team and staff level. CWRD initiated the harmonization of government and ADB procedures in all ten CWRD countries, which led to reassessment of the country-specific project readiness filters during the annual country portfolio reviews.

Appendix 2 35

II. Nonsovereign Section:



(2011).]

36 Appendix 3

SOVEREIGN OPERATIONS GLOSSARY

Active portfolio All loans, grants, technical assistance, equity, and guarantees

approved and not financially closed (i.e., disbursement ended) as

of the end of the financial year. The active portfolio includes

funding from ordinary capital resources (OCR), the Asian

Development Fund (ADF), other special funds, and cofinanced

grants and technical assistance administered by the Asian

Development Bank (ADB).

Advance contracting Initiation of the process for procuring goods and related services

and works before the effective date of the financing agreement

Cancellation The principal amount of a loan, grant, or technical assistance in

part (partial cancellation) or in full (full cancellation) after effectivity

is reduced and removed from the portfolio.

Closing date or closure The last date for the borrower to withdraw from the account

Contract award ratio The ratio of total contracts awarded during the year over the total

value for contract awards available at the beginning of the year

plus newly approved projects (loans and grants) during the year

Disbursement ratio The ratio of total disbursements during the year (including

disbursement from newly approved operations during the year)

over the undisbursed balance at the beginning of the year (based

on approvals as of the previous year).

Effective date The date on which ADB dispatches to the borrower or recipient

notice of accepting supporting evidence of the satisfaction of

project (loan or grant) effectiveness conditions set out in the

project (loan or grant) agreement

Entry ratio The ratio of new approvals, less cancellations and closures, to total

new approvals during the year

First contract award The signing date of the first contract awarded for procurement

under a project

Implementation risks Projects rated as potential problem or actual problem

Multitranche financing

facility (MFF)

ADB financing modality made available to a client to support its

medium- to long-term investment program or investment plan.

(Operations Manual, D14)34

Periodic financing request Formal request made by the client to ADB to finance a tranche

under an MFF

34

ADB.2015.Multitranche Financing Facility. Operations Manual. OM D14/ BP. Manila

Appendix 3 37

Product (or instrument) The generic means of providing financing—debt (mostly loans),

equity, guarantees, grants, or technical assistance.

Project Defined by its unique design and monitoring framework regardless

of the number of its financing instruments or sources. It refers to a

project or program with a common outcome (one design and

monitoring framework) regardless of which financing instrument or

source ADB has agreed to provide.

Project Administration

Manual

Document describing how the borrower or grantee (executing and

implementing agencies) will implement the project and deliver the

results on time, with quality, within budget, and in accordance with

government and Asian Development Bank's policies and

procedures. It is mandatory (except for policy-based and technical

assistance projects), and serves as the main document describing

implementation details.

Project rating Projects are rated using five performance indicators: technical,

contract awards, disbursement, financial management, and

safeguards. A three-level traffic light rating system applies: green

is on track, amber is potential problem, and red is actual problem

(at risk).

Processing time for

procurement contracts

(≥10 million)

Refers to the average number of days from the date of the first

receipt of draft bidding document by ADB to the contract signing.

Covers all contracts signed during the year.

Procurement time (from

receipt of bid evaluation

report to ADB's approval)

Refers to the average number of days from the date of the first receipt of bid evaluation report to ADB's approval of the BER. It includes the time spent for any clarification and revision needed to finalize evaluation of BER.

Retroactive financing ADB's approval to reimburse eligible project expenditures incurred

before the effective date of the financing agreement

S-curve The project disbursement S-curve shows the project disbursement

profile over its life and is a useful graphical presentation of project

performance.

Single-stage, one-

envelope bidding

procedure

Bidders submit bids in one envelope containing both the price

proposal and the technical proposal. The envelopes are opened in

public at the date and time advised in the bidding document. The

bids are evaluated and, following ADB approval, the contract is

awarded to the bidder whose bid has been determined to be the

lowest evaluated substantially responsive bid.

38 Appendix 3

Single-stage, two-

envelope bidding

procedure

Bidders submit two sealed envelopes simultaneously, one

containing the technical proposal and the other the price proposal.

These are enclosed together in an outer single envelope.

Initially, only the technical proposals are opened at the date and

time advised in the bidding document; the price proposals remain

sealed and are held in custody by the purchaser. The technical

proposals are evaluated by the purchaser. No amendments or

changes to the technical proposals are permitted.

Following ADB approval of the technical evaluation and at a date

and time advised by the purchaser, the price proposals are opened

in public. The price proposals are evaluated and following ADB

approval of the price evaluation, the contract is awarded to the

bidder whose bid has been determined to be the lowest

substantially responsive bid.

Special funds Asian Development Fund, Technical Assistance Special Fund,

Japan Special Fund, Asian Tsunami Fund, Pakistan Earthquake

Fund, Regional Cooperation and Integration Fund, Climate Change

Fund, Asia Pacific Disaster Response Fund, and Asian

Development Bank Institute Special Fund.

Terminated Refers to amount of products approved but terminated prior to

signing of agreement

Tranche (MFF) Loan, grant, guarantee, or ADB-administered cofinancing for a

project or a component under an MFF

Appendix 3 39

Two-stage, two-envelope

bidding procedure

In the first stage, bidders submit two sealed envelopes

simultaneously, one containing the technical proposal and the

other the price proposal. These are enclosed together in an outer

single envelope.

Only the technical proposals are opened at the date and time

advised in the bidding document; the price proposals remain

sealed and are held in custody by the purchaser. The technical

proposals are evaluated. If the purchaser requires amendments or

changes to the technical proposals, such amendments and

changes are discussed with the bidders. The bidders are allowed

to revise or adjust their technical proposals to meet the

requirements of the purchaser.

Following ADB approval of the evaluation of the technical

proposals, bidders are invited at the second stage to submit

modified bid proposals consisting of revised technical proposals

and supplementary price proposals based on the technical

standard agreed.

The original price proposals and the modified bid proposals are

opened at a date and time advised by the purchaser. In setting the

date, the purchaser will allow sufficient time for the bidders to

incorporate the changes in the revised technical proposals that are

needed to meet the agreed technical standard and to prepare the

supplementary price proposals that reflect these changes.

The price proposals, supplementary price proposals, and revised

technical proposals are evaluated; and, following ADB approval,

the contract is awarded to the bidder whose bid is determined to

be the lowest substantially responsive bid.

40 Appendix 3

Two-stage bidding

procedure

Bidders first submit their technical proposals, in accordance with

the specifications, but without prices.

The technical proposals are opened at the date and time advised

in the bidding document. The technical proposals are evaluated

and discussed with the bidders.

Any deficiencies, extraneous provisions, and unsatisfactory

technical features are pointed out to the bidders, whose comments

are carefully evaluated. The bidders are allowed to revise or adjust

their technical proposals to meet the requirements of the

purchaser.

After ADB has approved the evaluation of the technical proposals,

the second stage is to invite bidders to submit price proposals and

revised technical proposals in compliance with the acceptable

technical standard. The revised technical proposals and price

proposals are opened in public at a date and time advised by the

purchaser.

In setting the date, the purchaser should allow sufficient time for

bidders to incorporate the changes involved in the technical

proposals and prepare price proposals.

The price proposals and revised technical proposals are evaluated.

Following ADB approval, the contract is awarded to the bidder

whose bid has been determined to be the lowest substantially

responsive bid.

Uncontracted balance Amount available for contract awards at the end of the year for

active project loans and grants.

Undisbursed balance Amount available for disbursement at the end of the year for active

project loans and grants.

Appendix 4 41

NONSOVEREIGN OPERATIONS GLOSSARY

Book value (of an equity) Historical cost adjusted for gains and losses recognized through

the income statement. For cost method equities and equity method equities, this is carrying value. For fair value method equities (listed equities), this is historical cost.

Cancelled investment Undisbursed, committed balance of an equity investment, loan, or guarantee cancelled by the mutual consent of the Asian Development Bank (ADB) and an investee company. Also called a “cancellation”.

Carrying value (of an equity)

Value at which an equity is carried on the balance sheet. The carrying value depends on the accounting method used (cost method, equity method, or fair value method).

Collective loss allowance An allowance for existing probable losses resulting from risks that cannot be identified with specific investments. Also called “unallocated allowance”.

Committed investment An investment approved by ADB’s Board of Directors for which the investment agreement has been signed by the investee company and ADB. Also called a “commitment”.

Committed portfolio Outstanding balances plus undisbursed balances

Default status A loan in default is a loan on which payments (principal, interest, or fees) are overdue by more than 1 day.

Direct value-added commercial cofinancing

Cofinancing with contractual or collaborative arrangements between ADB and financing partners. Direct value-added commercial cofinancing includes b-loans, parallel loans, parallel equities, Trade Finance Program cofinancing, guarantee cofinancing, and risk transfer

Disbursed investment Investment with an outstanding loan or equity balance

Dropped investment An investment approved by ADB’s Board of Directors but failed to become a signed agreement; also called a “droppage”.

Equity income Income from equity investments, including dividends and realized capital gains and/or losses

Fair value (of an equity) Current market value (i.e., realizable sales value) of an equity. For a listed and liquid equity, this is the current market price on a public exchange. For an unlisted equity and listed but illiquid equity, this is an estimate of realizable sales value based on valuation methods.

42 Appendix 4

Historical cost (of an equity)

The amount ADB originally paid to acquire an equity

Impairment status A loan in impairment status is a loan with a probable loss against which a specific loan loss allowance has been established.

Internal rate of return A measure of an investment’s financial performance over the entire holding period. The internal rate of return takes into account both the amount and timing of disbursements and cash receipts. In the case of an outstanding equity investment, an estimated valuation of the investment is included as an element in calculating the internal rate of return.

Loan loss provision The charge against income that is the net result of increases and decreases in loan loss allowances on specific investments, plus the increase or decrease in collective loan loss allowance

Loss allowance The accumulation of charges to income made to accommodate significant and relatively permanent declines in the value of specific investments (specific loss allowances) and to cover portfolio risks that cannot be identified with specific investments (collective loss allowance)

Nonaccrual status Transactions in arrears for more than 180 days where ADB recognizes interest income on a cash basis and no longer on an accrual basis

Nonaccruing loan A loan on which interest and/or principal is overdue more than 180 days and on which collection is not anticipated in the near future

Outstanding guarantee A committed guarantee for which the underlying instrument has been issued and that is earning fees for the risks being guaranteed. Also called an “executed guarantee”.

Prepaid loan A loan paid in full ahead of the original amortization schedule

Principal in arrears Loan principal repayments that are overdue

Private equity Equity investment in a company whose shares are not traded on a public exchange

Publicly traded equity Equity investment in a company whose shares are traded on a public exchange

Rate of return (portfolio) Portfolio income, representing total income before imputed cost of funds or capital divided by the average outstanding portfolio for the year (calculated either before or after specific loan loss provisions and charges, impairment losses, and charges and expenses).

Appendix 4 58

Restructuring (of a loan) Significant change in loan agreement terms as a result of a financial restructuring. Changes may involve change in the amortization period or change in interest rate, waiving of overdue interest and charges, partial write-off of principal, or conversion into equity.

Total committed portfolio Committed (disbursed and undisbursed) loans, debt securities, and equity investments net of repayments, prepayments, sales, and cancellations

Undisbursed portfolio Committed but not yet disbursed loan and equity investments

Documents

2014 Annual Portfolio Performance Report...core sectors of Strategy 2020 accounted for 82.3% of the portfolio value, a slight decrease from 82.7% in 2013. In 2014, contract awards