The Independent Evaluation Department (IED) of the Asian Development Bank (ADB) has said that Pakistan has the highest cancellation rates, ie, 36 percent of the approved financing in completed tranches of Multi-tranche Facility Financing (MFF). The IED in its latest report "ADB's Multi-tranche Financing Facility, 2005-2018: Performance and Results Delivered," stated that in Pakistan, project management and bid evaluation capacity were weak, bid evaluation processes were excessively complex and prone to leakage of information, and payment delays were excessive. Overall, the issues were not unique to MFFs, although they had potentially higher financial impact given the size of MFF operations.
Tranche cancellations are an early warning indicator that planned objectives are not being achieved within the expected timeline, and that complacency induced by the long duration of MFF may mean slippages which lead to implementation exceeding the 10-year maximum availability period. If this happens, the project scope would not be completed in time and would be cancelled either financed separately by the government, refinanced under a different ADB loan, or left incomplete.
Pakistan is the second largest MFF user among the ADB member countries and has a portfolio of 11 MFFs amounting to $8.4 billion, 10.5 percent of the ADB's total MFF portfolio by number and 16 percent by volume.
During 2005-18, the ADB approved 105 MFFs for a total resource envelope of $52.3 billion for 16 countries, equivalent to about 31 percent of the ADB total sovereign operations and 36 percent of the ADB's sovereign financing in countries that have used MFFs.
On average, each MFF was about $500 million and typically had three or four tranches with an average size of about $140 million. India was the largest user of MFFs, with 40 approved MFFs totaling about $15.5 billion (30 percent of the total MFF envelope). It was followed by Pakistan (11 MFFs, $8.4 billion, 16 percent), Bangladesh (8 MFFs, $5.5 billion, 10 percent), and Vietnam (6 MFFs, $4.5 billion, 9 percent). These four countries combined accounted for about two-thirds of the total approved amount. By the end of 2018, out of 354 intended tranches, 271 had been approved, totaling $37.8 billion, for a conversion rate of about 72 percent of the total approved resource envelope.
Cancellations in the completed tranches, which were partially reallocated to other tranches within the same facility, were about 19 percent of funds, considerably higher than the 11 percent of funds cancelled in standalone projects approved and completed during 2005-2018.
Pakistan, Afghanistan, Vietnam and India had the highest cancellation rates for completed facilities. Cancellation rates for completed tranches were 35.5 percent for Pakistan, 31.6 percent for Afghanistan, 19.3 percent for Vietnam and 15.4 percent for India.
Tranche cancellations were higher in the agriculture (30.9 percent), energy (24.3 percent), and transport (20.8 percent) sectors. Tranche cancellations were often the result of a shift of components to later tranches, sometimes to allow the resolution of issues that could delay implementation. Since cancelled tranche funds flow back to the facility of origin, cancellation rates for completed facilities provide a more meaningful measure of achievement of project scope.
In larger economies (Bangladesh, PRC, India, Pakistan, and Vietnam), the contribution of MFFs (and of total ADB funding) relative to the size of external debt, gross capital formation and public sector capital expenditure was obviously very small.
In Pakistan, the first two tranches of the Power Transmission Enhancement Investment Program financed about 42 percent of the overall National Transmission and Dispatch Company's increased transmission capacity between 2005 and 2017.
It, therefore, supported the almost doubling of the power supplied annually through the grid from 55,278 GWh in 2005 to 104,703 GWh in 2016. It helped cut loss reduction from 7.6 percent in 2005 to 2.3 percent in 2016-2017. Without this increase in capacity, the country's transmission network would have been completely overloaded with constant forced outages and blackouts. The Second Power Transmission Enhancement Investment Program helped increase total transformer capacity by 31% to 132 kV and removed bottlenecks by upgrading and expanding networks in eight distribution companies, but it did not help reduce technical and commercial losses significantly.
The ADB support for the transmission sub-sector was assessed successful (based on ratings that it was relevant, effective, efficient and likely sustainable). The two MFF transmission programs supported increased transmission capacity and helped reduce technical losses, leading to higher sales to distribution companies. Without ADB's support, the country's transmission network would have been overloaded with constant power outages and blackouts.
The ADB's support for the distribution sub-sector was also assessed successful (based on ratings that it was relevant, effective, efficient and likely sustainable). The two distribution MFFs were aligned with the government's power distribution sector roadmap, helped increase total transformer capacity, and removed bottlenecks by upgrading and expanding networks in eight distribution companies. On the other hand, ADB's support for the renewable energy and energy efficiency sub-sectors was assessed less than successful (based on ratings that it was less than relevant, less than effective, less than efficient and less than likely sustainable).
The MFFs were designed to implement a wide range of projects with multiple implementing agencies, which made progress difficult. Consequently, the MFFs ran into implementation delays, had cancellations, and failed to deliver on expected outputs. The evaluation found that design flaws had reduced the effectiveness of energy efficiency and renewable energy MFF programs. The evaluation concluded that the MFF may not be the most appropriate modality in all circumstances: MFFs are suitable for financing existing long-term plans of one executing agency, rather than for working with various executing agencies at the same time, or designing new tranches during implementation. The review also underscored the need to carefully assess implementation risks during appraisal to avoid cancellations or excessive delays.
Annual Evaluation Review (2019) report found that nearly half of the MFFs evaluated were assessed less than successful or unsuccessful. The poor performance was caused by several factors, including (i) design issues in projects with high risks, eg, Housing for Integrated Rural Development Investment Program (Uzbekistan) and Sindh Cities Improvement Investment Program (Pakistan); (ii) the lack of consistency in political will for reform during the long duration of an MFF's implementation period, e.g. Sindh Cities Improvement Investment Program (Pakistan); and (iii) sustainability concerns arising from the uncertain operational, institutional, and financial sustainability of the borrower and/or executing agency, and the lack of a cost-recovery mechanism or adequate budget allocation to ensure funds for post-project operation and maintenance.
Copyright Business Recorder, 2019
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