Governance matters: Slow implementation may cost $2.3b in ADB loans

Manila-based lender has threatened to suspend tranches for the loans if Islamabad does not get its act together.

ISLAMABAD:

The Asian Development Bank may suspend about $2.3 billion in remaining tranches of committed loans if Pakistan does not improve its implementation of key development projects meant to improve the power supply and the national highway network.

The Manila-based agency seems irked by the fact that many of the projects it is funding are facing delays and has asked Islamabad to bring those projects back on track or else it will stop releasing any more funds for them, said sources in the finance ministry.

Senior ADB officials in Islamabad have complained of the “non-serious” attitude of the implementing agencies, particularly National Highway Authority, said the sources. The mismanagement in the NHA and the National Transmission and Dispatch Company remains a concern despite a warning delivered by Prime Minister Yousaf Raza Gilani last month to those agencies, calling upon them to improve the situation.

Sources said that the ADB’s Pakistan country director Werner Liepach conveyed the concerns to finance ministry in a meeting convened to review the performance of the ADB-funded portfolio, and chaired by Economic Affairs Secretary Wajid Rana. In particular, the ADD seems reticent to provide the remaining $1.1 billion of the $1.6 billion it has committed to the NHA. The ADB is currently financing 17 projects, worth about $3 billion.

If the ADB carries out its threat, it would make life very difficult for the finance ministry, which has already faced troubles balancing its books after the suspension of budgetary support loans. Strains in relations with Washington, coupled with Islamabad’s failure to live up to its commitment to the International Monetary Fund, has led most foreign aid to dry up.

ADB spokesperson Ismail Khan refused to confirm or deny the threat.

Issues at the NTDC

The ADB has been particularly concerned about the implementation of a $1.3 billion project for the improvement of the power grid. About $330 million have been disbursed so far, with the remaining balance now hinging on the performance of the state-owned company in implementation.

The NTDC – the state-owned firm that operates and maintains the national power grid – has reportedly been delaying procurement, design finalisation and awarding contracts. During the review meeting, it was alleged that NTDC officials leaked bids evaluation information to competitor bidders in return for “favours”.

An official of the Economic Affairs Division – the entity that deals with the lenders – said on condition of anonymity that the ADB has warned that it would neither extend the completion date for these projects nor release the rest of the tranches if the matter was not resolved immediately.

He said this could also delay negotiations for fresh loans and the country will end up paying commitment charges on the undisbursed amount as the loans have already been approved. More importantly, he added, the projects initiated to reduce line losses and expand the electricity network to rural areas would eventually have to be stopped.

NHA issues

About $300 million of the NHA’s $500 million project have yet to be disbursed, which are now in doubt. The ADB is also reportedly reconsidering its decision to extend a $1.1 billion credit line to the NHA.

Many of the problems at the NHA are similar to those at the NTDC. Other problems include delays in land acquisition and slow progress in the actual project work, allegedly in connivance of NHA officials and contractors who want the cost of the projects to be revised upwards.

As many as 36 contracts worth $300 million are awaiting approvals by the NHA has not even convened a board meeting to discuss them. Sources said the ADB’s deputy country manager has sought meetings with the NHA chairman to discuss the matter but has so far not succeeded. NHA Chairman Mohammad Ali Gardazi, however, defended his organisation, saying his officials were not conspiring with contractors to delay the projects for ulterior motives. He said most of the projects are delayed because of stringent Land Acquisition Resettlement Policy of the ADB. He said his doors were open for the ADB officials.

Published in The Express Tribune, January 24^th, 2012.