2015 Annual Portfolio Performance Report · CONTENTS Page EXECUTIVE SUMMARY i I. INTRODUCTION 1 II....

April 2016

2015 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

NOTES

(i) In this report, “$” refers to US dollars.

(ii) Totals may not sum precisely because of rounding.

ADB – Asian Development Bank ADF – Asian Development Fund APPR – annual portfolio performance report BER – bid evaluation report PRC – People’s Republic of China 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 OCR – ordinary capital resources ORM – Office of Risk Management OSFMD – Operations Services and Financial Management Department PARD – Pacific Department PASS – Procurement Accreditation Skills Scheme PPTA – project preparatory technical assistance PSOD – Private Sector Operations Department RBL – results-based lending SARD – South Asia Department SERD – Southeast Asia Department TA – technical assistance TFP – Trade Finance Program

Vice-President D. Stokes, Vice-President (Administration and Corporate Management)

Director General

R. Subramaniam, 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 D. Zhang, Senior Portfolio Management Specialist, OSFMD

Team members M. Abrera, Senior Financial Control Officer, Controller’s Department (CTL) M. Barcenas, Portfolio Management Officer, OSFMD R. Caluag, Senior Investment Officer, Private Sector Operations Department

(PSOD) 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 C. Horiuchi, Risk Management Specialist, Office of Risk Management (ORM) H.W. Hwang, Financial Control Specialist, CTL M. Lahoz, Senior Finance Officer, 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, ORM J. Pascual, Portfolio Management Officer (Systems Support), OSFMD J. Petersen, Senior Portfolio Management Specialist, Southeast Asia

Department C.L. Roberts, Director, PSOD G. Rublee, Principal Risk Management Specialist, ORM M. Tan, Portfolio Management Officer, OSFMD A.M. Tirona, Risk Management Analyst, ORM M. Villareal, Principal Portfolio Management Specialist, East Asia Department N. Zhang, Advisor and Head, Portfolio, Results, Safeguards and Gender

Unit, Central and West Asia Department 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. 2015 SOVEREIGN PORTFOLIO 1 A. Portfolio Composition and Trends 1 B. Portfolio Key Findings 2 C. Conclusions and Agreed Actions 23

III. 2015 NONSOVEREIGN PORTFOLIO 28 A. Portfolio Composition and Trends 28 B. Portfolio Key Findings 33 C. Conclusions and Agreed Actions 33

APPENDIXES

1. 2015 Sovereign Portfolio: Key Indicators 34 2. Status of the 2014 Annual Portfolio Performance Report Recommended Actions 36 3. Sovereign Operations Glossary 39 4. Nonsovereign Operations Glossary 43

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 operational performance in 2015, analyzes portfolio composition and trends, and identifies key issues. It concludes with agreed actions to improve portfolio performance. 2015 Sovereign Portfolio The active sovereign portfolio of loans, grants, technical assistance (TA), and equity increased by $7.1 billion or 10.4% over 2014 and totaled $74.9 billion at the end of 2015. The loan and grant portfolio of 685 active projects increased by 10.9% to $73.2 billion. ADB’s ordinary capital resources (OCR) financed 70.5% of the loan and equity portfolio value ($52.9 billion). The Asian Development Fund (ADF) financed 24.9% and other special funds and cofinancing financed 4.6%. The average project size increased by 7.8% to $106.9 million from $99.1 million in 2014. The core sectors of Strategy 2020 accounted for 82.4% of the portfolio value, a slight decrease from 82.7% in 2014. In 2015, contract awards for project loans and grants totaled $8.1 billion, 0.4% less than in 2014. Disbursements for projects totalled $7.0 billion in 2015, a decrease of 3.6% from $7.3 billion in 2014. OCR-funded projects performed better than ADF-funded projects. The cumulative portfolio disbursement (S-curve) for 2015 improved only over 2013 actual S-curve and is worse than 2012, 2014, and 2006–2015 average. Disbursements in projects for all age groups except age 0, were lower in 2015 compared to 2014. By the end of the sixth year of implementation after approval, ADB project disbursement was 67.2%, compared with 83.3% of 2006–2015, lower by 16.1 percentage points. This indicates actual project implementation period is longer than previous years and signifies slowdown during project implementation. The uncontracted percentage was 43.8%, which is lower than 44.1% in 2014, and the 5-year average of 44.3%.

Good progress was made to implement 10-Point Procurement Reform Action Plan. The average time taken by ADB for processing approval of bid evaluation reports of $10 million and above contracts in 2015 was reduced to 49 days compared with 58 days 2014.

The average age of projects from approval increased from 3.1 years to 3.3 years in

2015. When measured by value, 58% of the portfolio was in ages 0–3 years of implementation, compared with 63% in 2014. The percentage by number was 58, down from 59 in 2014. Some 17.6% of the total project portfolio ($11.9 billion) and 18.7% in number (175) are 6 years old and above.

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

was 21.5% in 2015 compared with 23.7% in 2014. In 2015, $759.7 million of loans and grants were terminated and cancelled. Except for 2012, this is the lowest in the last 5 years. The 2015 net resource transfer for project loans was $3.0 billion, 11.7% lower than in 2014 ($3.4 billion).

The 2015 TA portfolio decreased $66 million (4.0%) by value and 105 (9.8%) by number.

By number, 19.9% were project preparatory TA (PPTA) and 80.1% were non-PPTA. The average age of a TA project from approval was 2.3 years, and 58.4% of the active TA projects had been extended for an average of 1.8 years. In addition, at the end of December 2015, 85 TA projects were age 5 and above, with an undisbursed balance of $118.6 million.

ii

The performance of the sovereign portfolio in 2015 declined in terms of contract awards, disbursements, and project performance ratings. Contract awards and disbursements were lower in absolute amounts and in ratios than in 2014. The decline in contract awards and disbursement performance is attributed to the weak performance of the energy, water and other urban infrastructure and services, and agriculture, natural resources, and rural development sectors. Contract awards in the year 1 and 3 age groups declined by 24.3% ($1.1 billion), indicating continued problems in project readiness and start-up delays. Disbursements in the year 1 and 3 age groups fell by 40.2% ($1.2 billion), reflecting continued problems in project implementation. Compared with 2014, the number of 6-year-old and above projects increased by 17.4%, highlighting the need to monitor the performance of these projects closely. Based on the 2015 performance, the following actions have been agreed amongst the concerned departments to improve the portfolio’s performance:

(i) Provide appropriate resources, incentives, and staff skill mix for project design and implementation to regional and operations support departments.

(ii) Apply procurement readiness and design readiness criteria strictly before approval to all projects. Encourage use of project design advance (PDA) and provide more PPTA resources to ensure higher project readiness.

(iii) Resolve contracting and disbursement issues, provide capacity building support to executing agencies and implementing agencies, and strengthen contract management.

(iv) Review age six and above portfolio to reduce implementation problems. (v) Limit the number of TA projects, close old TA projects, limit extensions and

supplementary approvals. (vi) Make efforts to reduce the procurement time for contracts above $20 million.

Nonsovereign Portfolio

The total committed nonsovereign portfolio increased by 3.5% to $7.9 billion at the end of 2015 ($7.6 billion at the end of 2014), mainly because of a 9.8% increase in the loan portfolio and a 2.5% increase in the equity portfolio.

[This information contains sensitive financial information subject to disclosure

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

(2011).]

I. INTRODUCTION 1. The annual portfolio performance report (APPR) 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 2015, 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 Review (DEfR)1

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 the status of the sovereign and nonsovereign portfolios at the start and end of 2015 (Figures 1 and 47). 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. 2015 SOVEREIGN PORTFOLIO

A. Portfolio Composition and Trends

4. Overall portfolio. The active sovereign portfolio of loans, grants, technical assistance (TA), and equity increased by $7.1 billion or 10.4% over 2014 and totaled $74.9 billion at the end of 2015 (Figures 1 and 2). The loan and grant portfolio comprised 685 active projects and increased by 10.9% to $73.2 billion. Ordinary capital resources (OCR) financed 70.5% of the portfolio value ($52.9 billion). The Asian Development Fund (ADF) financed 24.9% ($18.7 billion) and other special funds and cofinancing financed 4.6% ($3.4 billion). The average project size increased by 7.8% to $106.9 million ($99.1 million in 2014). 5. Regional distribution. Composition by regional department has remained stable. The South Asia Department (SARD) accounted for 31.0% ($23.3 billion) of the portfolio at the end of 2015, followed by the Central and West Asia Department (CWRD) with 26.0% ($19.5 billion), the Southeast Asia Department (SERD) with 23.3% ($17.5 billion), the East Asia Department (EARD) with 16.5% ($12.4 billion), and the Pacific Department (PARD) with 2.7% ($2.0 billion) (Figure 3). All regional departments contributed to the overall portfolio growth in 2015. CWRD’s portfolio grew by $2.6 billion (15.2%), SERD’s by $1.7 billion (11.1%), SARD’s by $1.7 billion (8.0%), EARD’s by $1.0 billion (8.8%), and PARD’s by $0.09 billion (4.7%). Distribution has been largely unchanged since 2009. SARD had the biggest share (5-year average of 32.5%) and PARD had the smallest share (5-year average of 2.7%). 6. The CWRD portfolio comprised 138 active projects and 115 TA projects. Five countries accounted for 83.9%— Pakistan ($6.4 billion), Uzbekistan ($3.4 billion), Afghanistan ($3.0 billion), Kazakhstan ($2.1 billion), and Azerbaijan ($1.5 billion). EARD had 109 active projects and 153 TA projects, with the People’s Republic of China (PRC) accounting for 92.8% ($11.5

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

2

billion), Mongolia for 7.0% ($0.9 billion), and regional projects for 0.1% ($0.02 billion). PARD had 62 active projects and 68 TA projects. Papua New Guinea was the largest component of its portfolio ($1.0 billion, 50.1%) followed by Timor-Leste ($0.3 billion, 13.8%), Samoa ($0.1 billion, 5.7%), regional projects ($0.1 billion, 5.6%), and Fiji ($0.1 billion, 5.3%). SARD had 212 active projects2 and 166 TA projects. India accounted for 51.6% ($12.0 billion), followed by Bangladesh (26.3%, $6.1 billion), Sri Lanka (11.8%, $2.8 billion), Nepal (8.3%, $1.9 billion), and Bhutan (1.4%, $0.3 billion). SERD had 163 active projects, one equity investment, and 215 TA projects. Viet Nam continued to be its largest borrower ($9.0 billion) and accounted for 51.4% of its portfolio. It was followed by Indonesia ($3.1 billion, 17.7%), the Philippines ($2.7 billion, 15.4%), Cambodia ($1.2 billion, 6.7%), and the Lao People’s Democratic Republic ($0.7 billion, 4.0%). 7. Country concentration. Country concentration decreased slightly in 2015, with the portfolio share held by the five largest countries falling from 61.7% in 2014 to 60.1% in 2015 (Figure 4). The share held by the three largest borrowers reduced to 43.3% from 46.1% in 2014, and the combined value of their portfolios grew by $1.2 billion. The countries with the largest increases in value were Indonesia ($1.4 billion), Bangladesh ($1.0 billion), Pakistan ($1.0 billion), the PRC ($0.8 billion), and Kazakhstan ($0.6 billion). The biggest declines were regional ($0.1 billion) and in Viet Nam ($0.1 billion) (Figure 5).

8. Sector concentration. The core sectors of Strategy 20203 accounted for 82.4% of the portfolio value, a slight drop from 82.7% in 2014 (Figure 6). This included 35.9% in transport, 24.2% in energy, 12.5% in water and other urban infrastructure and services, 5.1% in education, and 4.9% in finance (Figure 6). 9. Modality. As of 31 December 2015, 176 multitranche financing facility (MFF) projects worth $24.0 billion and 509 non-MFF projects valued at $49.2 billion are active. MFF projects accounted for 32.8% of total loans and grants by value and 25.7% by number. Non-MFF projects accounted for 67.2% by value and 74.3% by number (Figure 7). During 2015, 25 MFF tranches4 totaling $3.6 billion were approved, and approvals for 96 non-MFF projects amounted to $10.5 billion. Policy-based loans and grants increased by $2.6 billion to $5.5 billion in 2015, accounting for 7.5% of total loans and grants (4.3% in 2014). Results-based lending (RBL) increased by 160.6% from $0.7 billion in 2014 to $1.8 billion in 2015. B. Portfolio Key Findings

10. The 2015 sovereign portfolio performance declined from 2014 in the following ways:

(i) Contract awards decreased by 0.4% to $8.1 billion. (ii) The contract award ratio decreased by 1.0 percentage point to 22.9%. (iii) Disbursements for projects decreased by 3.6% to $7.0 billion.5 (iv) The project disbursement ratio declined by 1.0 percentage point to 17.2%. (v) The proportion of projects reporting implementation risks (i.e., potential and

actual problem projects) increased to 24.2% from 19.8% in 2014.

2 Excludes nonsovereign public sector committed portfolio of $250 million. As of the end of December 2015, the total SARD nonsovereign cumulative disbursement was $156.1 million, and the undisbursed balance was $93.9 million. Its nonsovereign disbursement during 2015 totaled $85.9 million.

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

Manila. 4 Excludes four cofinanced additional financing for MFF tranches.

5 Including sovereign policy-based lending disbursements totaled $11.0 billion in 2015, compared with $9.1 billion in

2014. 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 2015)

Active portfolio as of 1 January 2015

ADB’s active portfolio had a value of $67.8 billion, comprising (i) $59.9 billion in loans (no. = 623), (ii) $6.1 billion in grants (no. = 306), (iii) $1.7 billion in TA (no. = 1,033), and (iv) $0.2 billion in equity (no. = 1). A total of 666 active projects were funded by loans and grants.

Approvals

Approvals in 2015 totaled $14.4 billion, comprising (i) $13.3 billion in loans, (ii) $0.9 billion in grants, and (iii) $0.2 billion in TA.

Closures

Closures totaled $6.5 billion, comprising $6.2 billion in loans and grants and $0.3 billion in TA.

Cancellations

Cancellations totaled $0.8 billion, of which 93% was loan and grant cancellations.

Entry ratio

The net entry ratio was 49.3%, higher than 34.2% in 2014, mainly due to a 20% ($2.4 billion) increase in approvals.

Active portfolio as of 31 December 2015

The active portfolio grew by 10.4% to $74.9 billion in 2015, comprising (i) $66.7 billion in loans (no. = 657), (ii) $6.6 billion in grants (no. = 313), (iii) $1.5 billion in TA (no. = 923), and (iv) $0.2 billion in equity (no. = 1). A total of 685 active projects were funded by loans and grants.

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

4

Figure 2: ADB Overall Portfolio

ADB = Asian Development Bank. Source: Asian Development Bank data.

Figure 3: Portfolio by Region

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

Source: Asian Development Bank data.

Figure 5: Portfolios with Largest Changes

( ) = 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: Multitranche Financing Facility and Non-Multitranche Financing Facility

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

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5

Figure 8: Contract Awards, Projects


Figure 9: Disbursements, Projects


11. The sovereign portfolio performance indicators for each country are in Appendix 1 and the major findings of the sovereign loan and grant portfolio performance in 2015 are discussed below.

1. Contract Award and Disbursement Performance Overview

12. In 2015, both contract awards and disbursements slowed down. Contract awards for project loans and grants (hereafter, projects) totaled $8.1 billion,6 0.4% ($0.03 billion) less than $8.2 billion in 2014 (Figure 8). Disbursements for projects totaled $7.0 billion in 2015,7 a decrease of 3.6% ($0.3 billion) from $7.3 billion in 2014 (Figure 9). 13. Consistent with the absolute results, the contract awards ratio and disbursement ratio declined by about one percentage point. The contract awards ratio declined to 22.9% from 23.9% in 2014 (Figure 10) and the disbursement ratio8 declined from 18.2% in 2014 to 17.2% in 2015 (Figure 11). 14. For the three major borrowers—the PRC, India, and Viet Nam, which together account for 46.1% of the active project portfolio—the contract award ratio declined from 26.2% in 2014 to 25.4% in 2015 and the disbursement ratio declined to 15.8% in 2015 from 18.7% in 2014. The PRC contract award ratio increased from 21.2% to 21.3%, India’s declined from 34.7% to 34.3%, and Viet Nam’s dropped from 23.1% to 20.0%. India’s disbursement ratio improved from 16.3% to 16.5%, the PRC’s declined from 21.0% to 18.0%, and Viet Nam’s dropped from 19.2% to 12.1% (Figures 10 and 11). 15. Among the top 10 project portfolios, the Philippines (37.5%), India (34.3%), and Sri Lanka (28.6%) had the highest contract award ratio while Uzbekistan (11.4%) and Nepal (13.7%) had the lowest. The decline in Uzbekistan of $430.8 million was mainly due to projects in the energy sector and an MFF tranche of a transport sector project. By amount, Pakistan

6 Including $160.8 million from RBL, a 60.6% increase from $100.1 million in 2014.

7 Including $239.6 million from RBL, a 149.0% increase from $96.2 million in 2014.

8 Starting in 2014, the definition of disbursement ratio has been revised in line with 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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increased by $293.6 million and Bangladesh rose by $137.5 million. The Philippines had the highest disbursement ratio (39.9%), followed by Uzbekistan (26.6%), while Afghanistan (7.8%), Pakistan (10.6%), Nepal (10.9%), and Viet Nam (12.1%) had the lowest. Viet Nam had the largest decline of $415.9 million. Afghanistan’s disbursement ratio was low as a result of low disbursements in the energy and transport sectors. 16. MFF projects performed better than non-MFF projects in both contract award and disbursement ratios. The MFF contract award ratio was 26.8% (30.5% in 2014), higher than 21.0% for non-MFF and ADB’s overall average of 22.9%. Uzbekistan had the largest decline of 59.6 percentage points (10.7% in 2015 against 70.3% in 2014). The finance sector had the largest drop of 31.3 percentage points (from 56.2% in 2014 to 24.9% in 2015) caused by two loans in Kazakhstan with no contract award and two loans in India that were not yet effective. The disbursement ratio for MFF projects was 17.8% (17.7% in 2014), higher than 16.8% for non-MFF projects, and ADB’s overall average (17.2%). 17. The contract award ratio for the transport sector, which accounts for 39.4% of the active project portfolio, increased to 31.4% in 2015 from 29.3% in 2014, while the disbursement ratio declined from 19.7% to 17.0%. The energy sector, which accounts for 24.9% of the active project portfolio, had a lower contract award ratio and disbursement ratio than in 2014. Its contract award ratio of 15.1% is the lowest since 2005 and the disbursement ratio of 11.4% is the lowest since 2006. Pakistan, Uzbekistan, Nepal, and Viet Nam had lower contract award ratios than the sector average. The water and other urban infrastructure and services sector contract award ratio declined to 20.2% and had its lowest disbursement ratio of 13.4% since 2007. Compared with the water and other urban infrastructure and services sector’s disbursement ratio, India, the PRC, Pakistan, and Viet Nam were below its average. 18. OCR-funded projects performed better than ADF-funded projects on these two ratios. The contract award ratio for OCR-funded projects was 22.9%, compared with 22.4% for ADF-funded projects. The OCR-funded disbursement ratio was 17.2%, against 17.1% for ADF-funded projects. OCR-funded projects had a lower performance than in 2014, while ADF-funded projects had a higher performance.

Figure 10: Contract Award Ratio, Projects

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

Figure 11: Disbursement Ratio, Projects

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

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19. The cumulative portfolio contract award S-curve9 for 2015 performed slightly better than 2014 in age 0 projects (0.8 percentage point) but was lower from age 1 to 6, implying issues in contracting and contract management (Figure 12). By the seventh year of implementation after approval, ADB contract awards were at 86.0%, lower than the 2006–2015 average of 96.8%. 20. A comparison of the actual 2015 S-curve with the average S-curve in a sample of 70 projects approved in 2015 shows a 32% difference by age 2 and 18% by age 5, reflecting the need for more realistic implementation schedules in the reports and recommendations of the President.

Figure 12: Contract Award S-curve


21. A comparison of the actual S-curves10 with the average S-curve in a sample of 70 projects approved in 2015 shows that the cumulative portfolio disbursement S-curve for 2015 improved only over the 2013 actual S-curve and is worse than the 2012, 2014, and 2006–2015 averages (Figure 13). Except for age 0, which was 2.2% higher, disbursements in projects for all age groups were lower in 2015 than in 2014. By the end of the sixth year of implementation after approval, ADB project disbursement was 67.2%, compared with 83.3% during 2006–2015, 16.1 percentage points lower. This indicates that the actual project implementation period is longer than in previous years and signifies a slowdown during project implementation.

9 The project contract award S-curve shows the project contract award profile over its life and is a useful graphical

presentation of project performance. 10

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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Figure 13: Disbursement S-curve


2. Analysis of Uncontracted Balance and Contract Award

22. The uncontracted balance as a percentage of the total value to be awarded (hereafter, uncontracted percentage) was 43.8%, which is lower than 44.1% in 2014, and the 5-year average of 44.3% (Figure 14). The uncontracted balance as of 31 December increased by $1.5 billion (5.9%) to $27.6 billion11 ($26.1 billion in 2014). SARD had the highest contract award ratio of 28.7% (Figure 15). 23. The PRC, India, and Viet Nam accounted for 42.6% ($11.8 billion) of the total uncontracted balance in 2015 compared with 44.3% in 2014. Pakistan (55.4%), the Philippines (54.7%), Nepal (53.4%), Uzbekistan (50.5%), and the PRC (46.3%) had a higher uncontracted percentage than the ADB average of 43.8% (Figure 16). Countries with the largest increases in uncontracted balance were Uzbekistan ($525.2 million) and Pakistan ($506.8 million). Some 83.8% of Pakistan’s uncontracted amount is from the energy and transport sectors, 52.6% of the Philippines’ is from education and multisector, 64.1% of Nepal’s is from energy and education, and 52.8% of Uzbekistan’s is from the energy sector. 24. Among the largest sectors, agriculture, education, water and other urban infrastructure and services, finance, and energy all had higher uncontracted percentages than the ADB average (Figure 17). The uncontracted balance for the energy sector increased to a record $7.7 billion, up from $6.2 billion in 2014, $6.0 billion in 2013, $5.3 billion in 2012, $4.8 billion in 2011, and $4.13 billion in 2010.

11

Including $1.5 billion from RBL.

0%

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100%

120%

0%

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0 1 2 3 4 5 6 7 8 9

Age from approval

2006–2015 average 2015 S-curve (actual)2014 S-curve (actual) 2013 S-curve (actual)2012 S-curve (actual) Sample of 2015 approved projects

2%3%

1%1%

5%

1%0%

5%

10%

0 1

34%

13%

9

Figure 14: Contract Award Ratio and Uncontracted Percentage, Projects,

2011–2015


Figure 15: Contract Award Ratio and Uncontracted Percentage by Department,

Projects, 2015

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

Figure 16: Uncontracted Balance and Percentage by Country, Projects, 2014–2015

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

Figure 17: Uncontracted Balance and Percentage by Sector, Projects, 2014–2015

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.

26% 25%20%

24% 23%

44% 43% 46% 44% 44%

0%

20%

40%

60%

80%

100%

2011 2012 2013 2014 2015

Contract Award Ratio Uncontracted %

18% 22% 23%29%

21% 23%

46% 47%39% 39%

47% 44%

0%

20%

40%

60%

80%

100%

CWRD EARD PARD SARD SERD ADB

Contract Award Ratio Uncontracted %

5.0 3.4 3.2 2.4 2.25.0 3.6 3.1 2.9 2.3

48%

34%41%

53%48%

46%

34%40%

55%

44%

0%

10%

20%

30%

40%

50%

60%

0.0

1.0

2.0

3.0

4.0

5.0

6.0

PRC IND VIE PAK BAN

$ b

illio

n

2014 Uncontracted Balance 2015 Uncontracted Balance 2014 Uncontracted % 2015 Uncontracted %

8.9 6.2 3.6 3.1 1.6 0.88.0 7.7 4.1 3.3 1.8 1.1

37%

44%

51% 54% 54%

43%

32%

49% 50% 51% 52%51%

0%

10%

20%

30%

40%

50%

60%

0.0

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9.0

10.0

TRA ENE WUS ANR EDU FIN

$ b

illio

n

2014 Uncontracted Balance 2015 Uncontracted Balance 2014 Uncontracted % 2015 Uncontracted %

44%

10

25. The contract awards aging analysis shows that in 2015 most contract awards came from the age 1 projects (25.6% or $2.1 billion). This is, however, $860 million lower than in 2014. The contract awards in age 1 and 3 declined by $1.1 billion. The contract awards in age 0 projects increased by 41.5% ($116.9 million) and age 2 projects increased by 23.0% ($367 million) compared with 2014 (Figure 18), indicating that projects aged 1 and 3 need closer attention (Figure 19).

Figure 18: Annual Contract Awards by Age, Projects, 2011–2015


Figure 19: Uncontracted Percentage by Age, Projects, 2011–2015


282

2,947

1,592

1,483

1,039

506

327 399

2,087 1,959

1,266994

902

540

0

500

1,000

1,500

2,000

2,500

3,000

3,500

0 1 2 3 4 5 =>6

$ m

illio

n

2011 2012 2013 2014 2015

97%

72%

59%

26%

20%13%

7%

44%

96%

74%

56%

44%

17%10% 7%

44%

0%

20%

40%

60%

80%

100%

0 1 2 3 4 5 =>6 ADB

2011 2012 2013 2014 2015

11

3. Analysis of Contracting Time for Contracts

26. In 2015, the average end-to-end contracting period from receipt of bidding documents to the signing of contracts for $10 million and above contracts was 406 days, 12.2% longer than in 2014 (Figure 20). ADB took 144 days on average and the executing agencies took 262 days. The one-stage-one-envelope procurement method took less time than the one-stage-two-envelope method. The two-stage plant or turnkey or design and build required the most time (Figure 21).

Figure 20: 2015 Average Processing Time for Procurement Contracts ≥$10 million


Figure 21: 2015 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; 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 2015. Source: Asian Development Bank data.

151 144

211 262

92

78

0

10

20

30

40

50

60

70

80

90

100

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50

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2014 2015

Num

ber o

f Contra

cts

Ave

rage P

rocessin

g

Tim

e in

Days

Average Processing Time ADB Average Processing Time Executing Agency

Number of Contracts Total Ave Processing Time

X 406X 362

100

145

51294

102 149

316

134307

215

337

138

332

238

9

1 1

6

18

42

10

5

10

15

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35

40

45

0

100

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

Goods Plant or Turnkey or Designand Build

Works

Nu

mb

er o

f Co

ntra

cts

Ave

rag

e P

roce

ssin

g

Tim

e in

Da

ys

ADB Executing Agency Number of Contracts

12

27. In 2015, ADB implemented the Procurement Reform 10-Point Action Plan (Box 1).12 Good progress was made, and the average time taken by ADB for approving the bid evaluation reports of $10 million and above contracts in 2015 was reduced by 9 days to 49 days compared with 2014. Procurement times were shortened for approvals requiring action by regional departments (contracts of $10 million–$20 million) and joint approvals by regional departments and the Operations Services and Financial Management Department (OSFMD) ($20 million–$40 million), but were 6 days longer for those by the Procurement Committee ($40 million) (Table 1). While these results are encouraging, further efforts should be made to streamline joint approvals and Procurement Committee decisions.

Table 1: 2015 Procurement Time (≥$10 million)

Year No. of Submissions

Receipt of BER to ADB approvala

2013 212 57 days

2014 219 58 days

2015 184 49 days

Item No. of Submissions

Receipt of BER to ADB approval

$10–$20 million (RD) 39 26 $20–$40 million (RD+OSFMD) 83 47 $40 million and above (PC) 62 67 Average time

49

ADB = Asian Development Bank, BER = bid evaluation report, no. = number, OSFMD = Operations Services and Financial Management Department, PC = Procurement Committee, RD = regional department. 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 on any clarification and revision needed to finalize evaluation of BER.


12

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

13

Box 1: Update of Procurement Reform – 10-Point Action Plan Implementation

In 2015, ADB adopted the Procurement Reform 10-Point Action Plan and related reforms in line with the midterm review action plan to address a wide range of procurement-related challenges. The reforms were to improve ADB’s procurement performance by reducing procurement time, increasing administrative efficiency, and improving project delivery while maintaining sound fiduciary oversight. The reforms implemented 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.

Good progress has been made on the 10-point actions: Action 1: New procurement risk assessment. Six country assessments completed (Cambodia, Fiji, Indonesia, Pakistan, Timor-Leste, and Viet Nam). Seven more are in process and likely to be completed in 2016.

Action 2: New international competitive bidding thresholds. Twenty-nine developing member countries have adopted the revised international competitive bidding thresholds.

Action 3: New prior review limits and post review sampling. Assessed procurement risks and introduced new prior review limits for contracts. The new prior review limits are effective for all new projects and may be applied to ongoing projects. Since 1 September 2014, 42 projects reviewed adopted the new prior review ceilings. In March 2015, the Board approved the Amendment to ADB’s Procurement Guidelines for mainstreaming e-procurement and post review sampling. Four projects in three countries (Cambodia, India, and Indonesia) have adopted post review (sampling).

Action 4: New procurement committee and regional department decision authorities. The revised decision making authorities are in effect and have delivered significant efficiency gains. In 2015, 184 approvals made for contracts over $10 million showed an improvement in transaction time.

Action 5: Project procurement classification. Thirty-three projects have been classified A (complex) or those requiring support from OSFMD in project processing.

Action 6: Launch of full procurement review system. Launched on 1 January 2015 for transactions valued at $10 million and above. Two hundred fifty-three transactions are using this information and communication technology-based review system.

Action 7: Agree master bidding document during project preparation. Thirty projects have adopted master bidding documents. In December 2015, four standard bidding documents for various procurement types (works, works—small contracts, goods, and plants) were issued to facilitate the preparation and encourage the adoption of master bidding documents.

Action 8: New streamlined procurement committee process. Six senior staff have been outposted to resident missions (Bangladesh Resident Mission, India Resident Mission, PRC Resident Mission, Pakistan Resident Mission, Uzbekistan Resident Mission and Viet Nam Resident Mission) and four OSFMD procurement staff have been deployed to work exclusively with the Central and West Asia Department, Pacific Department, South Asia Department and Southeast Asia Department front offices. The turnaround time from the receipt of a borrower’s recommendation to its approval for contracts $10 million and above has shortened to 49 days in 2015 (58 days in 2014).

Action 9: New procurement approval form. All submissions have used the procurement approval form. An electronic template for the procurement approval form has also been developed for regional departments to input the data directly into the procurement review system.

Action 10: End-to-end consulting services process review. A consulting service unit has been established. The quality- and cost-based selection now encourages 90:10 criteria (90% for technical and 10% for cost), and loan consulting services review up to $5 million has been delegated to regional departments. Source: Asian Development Bank Operations Services and Financial Management Department.

14

4. Analysis of Undisbursed Balances and Disbursement 28. The total undisbursed balance of active project loans and grants13 as of 31 December 2015 was $43.3 billion,14 a 5.4% increase over $41.1 billion at the end of 2014. ADB’s undisbursed balance as a percentage of total active projects (hereafter, undisbursed percentage) improved to 64.0% from 64.7% in 2014. In 2015, CWRD (66.2%) and SARD (65.6%) had undisbursed percentages that were higher than the ADB average but lower than in 2014 (67.4% for CWRD and 67.0% for SARD) (Figure 22). Of the top 10 countries with the largest project portfolio, Nepal (74.1%), Pakistan (75.3%), and Afghanistan (72.2%) had the largest undisbursed percentage, while India ($7.6 billion), the PRC ($6.7 billion), and Viet Nam ($5.2 billion) continued to have the largest undisbursed balance (Figure 23) as a result of their portfolio size. Pakistan had the largest increase ($921.1 million) in undisbursed balance, from $3.6 billion in 2014 to $4.5 billion in 2015, largely because age 1 projects had 97.3% undisbursed and age 2 projects had 90.9% undisbursed.

Figure 22: Disbursement Ratio and Undisbursed Percentage by Department, Projects, 2015

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: Asian Development Bank data.

Figure 23: Undisbursed Balance and Percentage by Country, Projects, 2014 and 2015

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

13

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

14 Including $1.4 billion from RBL.

17% 17% 19% 16% 17% 17%

66% 61% 58%66% 62% 64%

0%

20%

40%

60%

80%

100%


Disbursement Ratio Undisbursed %

7.3 6.4

5.1

3.6 3.3

7.6 6.7 5.2 4.5 3.6

67% 61%

58%

71% 67%

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2014 Undisbursed Balance 2015 Undisbursed Balance 2014 Undisbursed % 2015 Undisbursed %

15

29. By sector, transport and energy continued to have the largest undisbursed balance in 2015. At $28.1 billion, it accounted for 64.8% of the overall undisbursed balance. Energy showed the largest increase in undisbursed percentage among the sectors, rising from 67.1% in 2014 to 70.8% in 2015, increasing by $1.6 billion to $11.9 billion. Water and other urban infrastructure and services had the second largest increase of $711.4 million, its highest undisbursed balance ($6.3 billion) since 2007. Its undisbursed percentage of 70.6% was also higher than the ADB average (Figure 24), mainly because 93.4% of age 2 projects and 80.5% of age 3 projects remained undisbursed. The highest undisbursed percentage was in public sector management projects, increasing from 64.6% in 2014 to 74.6% in 2015. This was mainly due to an MFF tranche 2 project in Viet Nam approved in 2014 but not yet effective. The transport sector had its lowest undisbursed percentage (60.5%) since 2006.

Figure 24: Undisbursed Balance and Percentage by Sector, Projects, 2014 and 2015

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.

30. The disbursement aging analysis of 2015 shows that the age 2 projects have the largest disbursement of $1,424.3 million (20.2% share), closely followed by $1,336.2 million (19.0%) of age 4 projects. Age 1 projects had the largest decrease in disbursement against 2014 at 52% ($731.6 million) (Figure 25), reflecting possible implementation problems. Disbursements in the age 3 projects also declined by 29% ($427.3 million) compared with 2014. A closer look into age 3 projects by sector indicates that 2015 disbursement in the transport sector was lower by $303.4 million (36.9%) compared with 2014, water and other urban infrastructure and services by $121.0 million (61.5%), and education by $47.7 million (54.6%). These projects will require close monitoring to ensure any implementation issues are resolved early on. Disbursements in age 2 projects increased by 70.9%, while age 4 projects were the highest at $1.3 billion since 2006. Analysis of the undisbursed percentage by age reflects a lower percentage in ages where annual disbursement was high (Figure 26).

4.0 1.8

10.3

0.8

16.4

5.61

4.4

2.0

11.9 0.8 16.1 6.32

67%

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64%55%

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$ b

illio

n

2014 Undisbursed Balance 2015 Undisbursed Balance 2014 Undisbursed % 2015 Undisbursed %

16

Figure 25: Annual Disbursement by Age from Approvals, Projects 2011–2015


Figure 26: Undisbursed Percentage by Age from Approvals, Projects 2011–2015


5. Portfolio Structure

31. ADB’s overall portfolio grew $7.1 billion, or 10.4%, in 2015 to $74.9 billion. The average product age from approval increased from 3.1 to 3.3 years (Figure 27), reflecting stable lending. Some 17.6% of the total project portfolio ($11.9 billion) and 18.7% in number (175) was 6 years old and above (Figures 28 and 29). Compared with 2014, the number of six-year-old and above projects increased by 17.4%, highlighting the need to monitor the performance of these projects.

Figure 27: Project Portfolio by Age, 2011–2015


113

1,408

833

1,472

1,205

927

1,355

352

676

1,424

1,044

1,336

985

1,229

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2011 2012 2013 2014 2015

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97% 91%

78% 74%

48%40%

21%

64%

0%10%20%30%40%50%60%70%80%90%

100%

0 1 2 3 4 5 =>6 ADB

2011 2012 2013 2014 2015

2.96 2.96 3.04 3.15 3.30

0.0

2.0

4.0

2011 2012 2013 2014 2015

Ye

ars

Age from Approval

17

Figure 28: Project Portfolio by Value, Age from Approval, 2015


Figure 29: Project Portfolio by Number, Age from Approval, 2015


32. The entry of effective loans and grants within the same year of approval into the portfolio was 21.5% in 2015 compared with 23.7% in 2014 (Figure 30). This can be correlated to lower approvals during the first to third quarter (Q1–Q3) of 2015—42.5% compared with 52.2% in 2014 (Figure 31). The decline in approvals during Q1–Q3 may have impacted the achievement of potentially higher contract awards and disbursements.

Figure 30: Effectiveness within the Same Year of Approval


Figure 31: Approval of Projects by Amount

Q = quarter. Source: Asian Development Bank data.

6. Termination and Cancellation

33. In 2015, $759.7 million of loans and grants were terminated and cancelled (Figure 32). This was the second lowest amount since 2011. Partial termination was made on a road transport loan in Pakistan prior to loan signing, and substituted with a grant funded by the Department for International Development of the United Kingdom. Eighty-two loans and 42 grants amounting to $720.7 million were partially cancelled. The largest cancellations were in

10.3 9.2

11.1

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Net Amount ($ billion)Percent by Age from ApprovalCumulative %

135 135 136 138

109109

73

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62

14%14%15%15%12%12%8% 4% 7%0%

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11.19.2

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3.2

0.92.2 2.2 2.2

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23.7%21.5%

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2011 2012 2013 2014 2015

Pe

rce

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Ap

pro

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Va

lue

(Effe

ctive

Ye

ar=

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$ b

illio

n

Approval Year

Total Value in $ billion Effective year = 0Effective year = 0 (%)

12% 13%

27%

48%

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18

India ($311.1 million) and accounted for 43.2% of the 2015 total, followed by Pakistan ($175.4 million, 24.3%). Cancellations in India were mainly due to three MFF tranches in the energy sector ($210.2 million) where projects were expected to go beyond the MFF availability period of 10 years, while cancellation in Pakistan was mainly due to a revised financing plan of an MFF tranche ($82.4 million) in the transport sector.

Figure 32: Total Termination and Cancellation, 2011–2015

Note: 2015 termination (not signed) was a partial cancellation from loan 3197-PAK (National Trade Corridor Highway Investment Program -Tranche 3); substituted with Grant 435 (National Trade Corridor Highway Investment Program - Tranche 3: Partial Substitution of ADB OCR Loan by the Department for International Development of the United Kingdom) Source: Asian Development Bank data.

7. Net Resource Transfer

34. ADB’s net resource transfer is an area that is directly affected by disbursement performance and loan service payments received. The 2015 net resource transfer for project loans was $3.0 billion, which was 11.7% lower than in 2014 ($3.4 billion) (Figure 33). This was due to a 4.9% decrease in disbursements and a 2.2% increase in payments from the 2014 levels. India had the highest net resource transfer of $743.5 million, followed by $449.4 for Uzbekistan and $423.8 million for the PRC (Figure 34). Similar to 2014, Indonesia had the largest negative net resource transfer of $461.6 million because of a loan service payment of $561.1 million and lower disbursements during the year.

Figure 33: Net Resource Transfer, Project Loans


840 518

1,289 769 721

615

657

775

10 39

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Disbursement Loan Service Payment Net Resource Transfer

19

Figure 34: Countries with Highest and Lowest Net Resource Transfers, Project Loans

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

8. Project Performance Ratings

35. Project performance ratings are a key indicator of portfolio performance. As of the end of 2015, more than 20% of CWRD, EARD, PARD, and SERD projects had implementation risks (Figure 35). The agriculture, energy, health, industry and trade, multisector, public sector management, transport, and water and other urban infrastructure and services sectors had more than 20% of projects with implementation risks (Figure 36). A decline in the overall project performance ratings from 2014 reflected the lower achievement of contract awards and disbursement in 2015.

Figure 35: Portfolio Ratings by Department

2014

2015

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: Asian Development Bank data.

743

449 424 409 393

(462)

(35) (23) (18) (14)

-600

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IND UZB PRC VIE PHI INO LAO MAL MYA TAJ

$ m

illio

n

87%77%

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13%16% 15%

4% 8% 9% 3% 5% 5%

0%

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3%12% 7%

0%

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40%

60%

80%

100%


20

Figure 36: 2015 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: Asian Development Bank data.

9. Technical Assistance Portfolio

36. In 2015, the TA portfolio decreased 4.0% by value and 9.8% by number (Figure 37)15. Of the total TA projects, 19.9% were PPTA and 80.1% were non-PPTA projects. Of the $1.6 billion TA portfolio, SERD continued to hold the largest portfolio by value ($558.6 million) and number (215) in 2015 (Figure 38). 37. The average age of a TA project from approval was 2.3 years in 2015, and 58.4% of the active TA portfolio had been extended. The average extension was 1.8 years compared with 1.7 years in 2013 and 2014. The age distribution of the active TA portfolio showed 22.7% (by amount) in age 5 years and above (Figure 39). Non-PPTA accounted for 87.3% ($838.2 million) of undisbursed amounts and 86.5% ($466.0 million) of uncommitted TA amounts (Figure 40).

15

Includes PSOD TA projects.

76%84%

72%82%

75% 78%

100%

29%

68%79%

73% 76%

19%11%

20%

18%

15%

22%

0%

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15%19%

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5% 5% 8%0%

10%0% 0%

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80%

100%

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

On Track Potential Problem Actual Problem

21

Figure 37: Technical Assistance Portfolio Growth, 2010–2015

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

Figure 38: Technical Assistance Portfolio Growth by Department, 2014–2015

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: Asian Development Bank data.

Figure 39: Technical Assistance Portfolio by Age

TA = technical assistance. Source Asian Development Bank data.

1,321 1,379 1,626 1,665 1,599

957 9911,069 1,070

965

0

200

400

600

800

1000

1200

2011 2012 2013 2014 20150

200400600800

1,0001,2001,4001,6001,800

Nu

mb

er

$ m

illio

n

Net TA Amount ($ million) No. of Active TA projects

107

169

82

38

187

249

181

57

115

153

68 42

166

215

149

57

0

50

100

150

200

250

300

CWRD EARD PARD PSOD SARD SERD KMSD Others0

100

200

300

400

500

600

Nu

mb

er$

mill

ion

2014 Net TA Amount ($million) 2015 Net TA Amount ($million)2014 No. of Active TA projects 2015 No. of Active TA projects

195

477

208

85

221.1

612

404 362

0

100

200

300

400

500

600

700

0 year 1 to 2 years 3 to 4 years =>5 years

No. of TA Projects Net Amount

22

Figure 40: Active Technical Assistance Portfolio Undisbursed and Uncommitted Value - Project Preparatory and Non-Project Preparatory,

2014–2015

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

38. As of the end of December 2015, 85 TA projects are age 5 and above, with an undisbursed balance of $118.6 million (Figure 41). Of the 85 TA projects, all have extended their completion date by an average of 4.1 years. Twenty-five are overdue closure and 44 TA projects have supplementary approvals to increase the original TA amount. Three TA projects have implementation schedules of more than 10 years. These 85 TA projects have a total of $60.0 million (16.6%) still uncommitted. The highest uncommitted percentages were in age 5 (21.3%) and age 7 (20.3%) (Figure 43). Knowledge management services departments had an uncommitted balance of $20.3 million and SERD had $18.3 million (Figure 44). The analysis suggests that additional attention and efforts should be given to managing the older TA projects, including speeding up TA implementation, closing TA projects, and limiting extensions and multiple supplementary approvals. These actions will also help reduce the administrative burden.

Figure 41: Undisbursed Balance on Technical Assistance with Age ≥ 5 years, 2015

TASF = Technical Assistance Special Fund. Source: Asian Development Bank data.

Figure 42: Undisbursed Balance on Technical Assistance with Age ≥ 5 years

by Department, 2015

CWRD = Central and West Asia Department, EARD = East Asia Department, KMSD = knowledge management services departments, PARD = Pacific Department, PSOD = Private Sector Operations Department, SARD = South Asia Department, SERD = Southeast Asia Department, TASF = Technical Assistance Special Fund. Source: Asian Development Bank data.

898 838513 466

121 122

68 73

0

500

1,000

1,500

2014 2015 2014 2015

Undisbursed Uncommitted

$ m

illio

n

Non-PPTA PPTA

19.3

9.8

3.3 4.0

0.4 1.1

46.3

0.7

20.0

4.5 2.5

6.7

0

10

20

30

40

50

5 6 7 8 9 10

$ m

illio

n

Age from Approval date

TASF Other Funds

4.2 3.7 1.9

10.5 5.7

1.5

6.8 3.6

0.1 0.2

9.3

4.8

34.4

2.4

29.1

0.3 0

10

20

30

40

$ m

illio

n

TASF Other Funds

23

Figure 43: Uncommitted Balance and Percentage on Technical Assistance

with Age > 5 years by Age, 2015


Figure 44: Uncommitted Balance and Percentage on Technical Assistance

with Age > 5 years by Department, 2015

CWRD = Central and West Asia Department, EARD = East Asia Department, KMSD = knowledge management services departments, PARD = Pacific Department, PSOD = Private Sector Operations Department, SARD = South Asia Department, SERD = Southeast Asia Department. Source: Asian Development Bank data.

C. Conclusions and Agreed Actions

1. Portfolio Performance 39. The performance of the sovereign portfolio in 2015 declined in terms of contract awards, disbursements, and project performance ratings. Contract awards and disbursements were lower in absolute amounts and in ratios than in 2014. 40. The decline in contract awards and disbursement performance is attributed to weak performance of the energy, water and other urban infrastructure and services, and agriculture, natural resources, and rural development sectors. The contract award ratio of 15.1% for the energy sector is the lowest since 2005 and the disbursement ratio of 11.4% is the lowest since 2006. The water and other urban infrastructure and services sector disbursement ratio of 13.4% is the lowest since 2007. The energy sector has a record 49.5% ($7.7 billion) uncontracted and 70.8% ($11.9 billion) undisbursed; water and other urban infrastructure and services has 49.9% of its portfolio or $4.1 billion uncontracted and 70.6% or $6.3 billion undisbursed. In addition, there was a deterioration in the performance of the portfolios in DMCs which are large borrowers such as Pakistan and Uzbekistan. The uncontracted balance of Uzbekistan increased by $525.2 million to $1,560.0 million and that of Pakistan increased by $506.8 million to $2,932.8 million. Contract awards in the year 1 and 3 age groups declined by 24.3% ($1.1 billion), showing continued problems in project readiness and start-up delays. Disbursements in the year 1 and 3 age groups fell 40.2% ($1.2 billion), reflecting continued problems in project implementation. The number of 6-year-old and above projects increased by 17.4% on 2014, highlighting the need to monitor the performance of these projects closely.

33.6

5.3

12.5

3.7 1.6

3.3

21%

13%

20%

10%

16%

6%

0%

5%

10%

15%

20%

25%

0

10

20

30

40

5 6 7 8 9 10

$ m

illio

n

Age from Approval date

Uncomitted Uncommitted %

2.4 2.7

5.8 6.9

18.3

1.3

20.3

2.4

16%

24%

17%16%

14%

7%

21%

17%

0%

5%

10%

15%

20%

25%

30%

0

5

10

15

20

25

$ m

illio

n

Uncomitted Uncommitted %

24

41. Though the disbursement ratio declined by 1 percentage point, the 2015 disbursement ratio is the lowest since 2007. The 2015 disbursement ratio does not take into account 2015 approvals; otherwise, it would have been 3 percentage points lower. A review of annual approvals, contract awards, and disbursements during 2006−2015 indicates that the level of contract awards and disbursements lags approvals by $1 billion–$5 billion per year (Figure 45). The OCR–ADF merger is likely to see higher approvals in the next few years, which will put more pressure on contract award and disbursement ratios.

Figure 45: Annual ADB Approvals, Contract Awards, and Disbursements, 2007–2015

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

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

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

2009–2015

Year ADB World Bank AfDB

2009 20.9% 28%

2010 20.5% 19% 2011 20.4% 21.5% 18%

2012 17.8% 20.0% 22%

2013 17.7% 19.8% 24% 2014 18.2% 20.0% 19% 2015 17.2% 21.2% ADB = Asian Development Bank, AfDB = African Development Bank. Sources: World Bank. 2015. World Bank Group and World Bank Corporate Scorecard October 2015. Washington, DC: World Bank Group; African Development Bank Group. 2015. Annual Development Effectiveness Review 2015 Driving Development Through Innovation. Tunisia: African Development Bank Group; Asian Development Bank data.

3.9

6.5 6.77.6

9.810.5

8.7

11.4

9.3

10.3

4.2

4.6 4.8

6.5 5.6

7.57.3

6.2

7.98.1

3.23.9

4.65.0 5.3

6.2 6.06.5

7.2 7.0

0

2

4

6

8

10

12

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

$ b

illio

n

Annual Approvals Annual Contract Awards Annual Disbursements

25

43. All this highlights the need for continued action on project readiness, including design readiness, and on contract management, including working closely with the client on reviewing complex contractual issues such as poor quality of contractors, lack of adequate supervision, and problems with counterpart funding. On the ADB side, the skills mix, resources, and incentives provided for implementation need to be examined. Project selection criteria also need to be studied and project design must include realistic implementation schedules. 44. Though the TA portfolio fell by 4% in 2015, the overall number of TA projects is high (965 TA projects). The average age has increased to 2.3 years, and the 85 active TA projects are age 5 and above with a total undisbursed balance of $118.6 million. These have all been extended by an average of 4.1 years. This highlights the need to limit the number of new TA projects, close old TA projects, and closely monitor TA implementation.

2. Looking Forward

45. Based on the positive portfolio structure conditions, particularly the portfolio age and the 5-year average performance of contract awards and disbursements, performance is expected to improve in 2016. Contract awards are expected to increase to $9.4 billion and disbursements to $9.7 billion in 2016 (Figure 46). Regional departments should continue their efforts to achieve higher levels of performance in 2016.

Figure 46: Project Loan and Grant Contracts and Disbursements— Funds Available versus Actual, 2011–2016


63.6

34.2

41.0

8.2 7.3

67.7

35.6

46.4

8.1 7.0

66.6

39.5

48.9

9.4 9.7

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

Active Loan andGrant Portfolio 31

Dec

Funds Available forContracting

Funds Available forDisbursement

(beginning of year)

Contract Awards Disbursement

$ b

illio

n

2011 2012 2013 2014 2015 2016

26

Box 2: 2016 Portfolio Actions Proposed by ADB’s Regional Departments

The following are the committed actions of the regional departments for 2016:

Central and West Asia Department

(i) Pay greater attention to project design improvements before project approvals.

(ii) Proactive collaboration within the department and with other support offices and/or departments to sustain capacity assistance to executing and/or implementing agencies on better understanding of ADB procedures and requirements.

(iii) Improve headquarters project review missions to align with planned country portfolio review/tripartite portfolio review missions led by resident missions to facilitate greater sector-focus review during country-level discussions.

(iv) Strengthen joint venture arrangement with greater attention to sector-focused portfolio management.

(v) Ensure each EA deploys an international procurement specialist for the project management/implementation unit to improve quality and speed of bid evaluations. Also continue making efforts in simplifying and expediting the process of government’s approvals of procurement documents.

East Asia Department

(i) Monitor service standards on disbursements and ensure strong coordination between PRC resident mission and sector division.

(ii) Enforce the project readiness criteria and undertake pre-implementation arrangements, particularly on procurement and safeguards, especially approval of first bidding documents and revised resettlement plans, in parallel with loan signing and effectiveness.

(iii) Delegate procurement review of headquarters-administered projects to PRC resident mission procurement unit to support the low capacity of executing and/or implementing agencies at the county level.

(iv) Increase project delegation to PRC and Mongolia resident missions.

(v) Monitor procurement milestones and strengthen contract management.

(vi) Ensure timely recruitment of consultants, and implementation of land acquisition and resettlement.

(vii) Engage national procurement officers as mission members during project preparation, and enhance the procurement capacity of executing and/or implementing agencies.

Pacific Department

(i) Continue to implement the Pacific Project Implementation Action Plan.

(ii) Encourage the use of project design advance for Category A projects. Enhance project readiness at the project concept stage and a Project Readiness Checklist before seeking project approval.

(iii) Implement a regional CDTA to (i) provide capacity building programs for executing agency staff, (ii) deploy on-the-job problem solving teams to rapidly assist executing agencies, (iii) support portfolio management activities and business opportunity seminars, and (iv) introduce a new business process with “one consultant for one project” approach.

(iv) Establish a monitoring framework to track and report on progress in improving project performance.

South Asia Department

(i) Delegate 65% of project administration to resident missions. Implement the delegation plan for the India and Bangladesh resident missions.

(ii) Reduce active TA portfolio to 150 TA projects, and undisbursed TA amount by 20%.

(iii) Establish TA (project preparation) facility.

(iv) Reduce overall procurement lead time by 50%.

(v) Deliver larger projects with better procurement packaging.

(vi) Increase Procurement Accreditation Skills Scheme (PASS) accreditation to 50% of project administration unit staff in all units with project (infrastructure) investments.

(vii) 100% procurement readiness and project readiness compliance form fine-tuned with more stringent procurement and other readiness requirements.

Southeast Asia Department

(i) Accelerate outposting of staff.

(ii) Continue dialogue with developing member countries to strengthen official development assistance management and increase readiness to shift to country systems.

(iii) Transfer 40 projects from headquarters to resident missions as part of the midterm review of Strategy 2020 action plan.

(iv) Provide additional resources in resident missions targeted for additional project delegation to increase project administration, procurement, disbursement, safeguards, and financial management capacity.

(v) Strengthen resident mission and headquarters divisions’ teamwork as “One ADB” by linking processing and administration teams and facilitating greater dialogue and exchange of lessons and experiences through sector focal point network groups.

(vi) Make greater effort to comply with readiness filters, and strengthen advance actions.

ADB = Asian Development Bank, PRC = People’s Republic of China, TA = technical assistance. Source: ADB Operations Services and Financial Management Department.

27

3. Agreed Actions

46. The progress made in implementing the 2014 APPR recommendations is updated in Appendix 2. The majority of the 2014 recommendations related to the midterm review action plan to improve project readiness, procurement, and implementation. Good progress has been made to implement the Procurement Reform 10-Point Action Plan. However, the number of projects that were procurement- and design-ready has decreased in 2015, and efforts are needed to increase this. 47. 2015 performance has been discussed with regional departments and each regional department has proposed its own set of actions to enhance portfolio performance (Box 2). In addition, the following actions are recommended and agreed to improve portfolio performance further:

(i) Provide appropriate resources, incentives, and staff skill mix for project design and implementation to regional and operations support departments.

(ii) Apply procurement readiness and design readiness criteria strictly before approval to all projects. Encourage use of project design advance (PDA) and provide more PPTA resources to ensure higher project readiness.

(iii) Resolve contracting and disbursement issues, provide capacity building support to executing agencies and implementing agencies, and strengthen contract management.

(iv) Review age six and above portfolio to reduce implementation problems. (v) Limit the number of TA projects, close old TA projects, limit extensions and

supplementary approvals. (vi) Make efforts to reduce the procurement time for contracts above $20 million.

28

III. 2015 NONSOVEREIGN PORTFOLIO

A. Portfolio Composition and Trends

48. Overall portfolio. The total committed nonsovereign portfolio increased by 3.5% to $7.9 billion at the end of 2015 ($7.6 billion at the end of 2014) (Figure 47).16 Nonsovereign committed loans totaled $6.0 billion ($5.5 billion in 2014), committed guarantees totaled $0.8 billion ($1.1 billion in 2014), and committed equities (at carrying value) totaled $1.1 billion ($1.0 billion in 2014). Direct value-added (DVA) commercial cofinancing totaled $4.6 billion, a 5.1% decrease from $4.8 billion in 2014, driven by a decline in parallel loans and TFP cofinancing.

49. The total outstanding portfolio increased by 12.1% to $6.0 billion at the end of 2015 ($5.3 billion at the end of 2014), with loans constituting the largest share at $4.5 billion ($3.6 billion at the end of 2014).17 The top two sectors—energy and finance—accounted for 85.2% of the outstanding portfolio (84.3% in 2014). The concentration in the top three countries (The PRC, India, and Thailand) increased to 55.0% of the outstanding portfolio (The PRC, India and Pakistan accounted for 51.7% in 2014).

1. Approvals, Commitments, and Disbursements

50. In 2015, nonsovereign approvals and disbursements rose, but commitments declined. Approvals increased by 36.9% to $2.6 billion, 19.3% above the 2015 planning figures for nonsovereign operations of $2.2 billion. Commitments decreased by 6.9% to $1.7 billion ($1.9 billion in 2014). Loan and equity disbursements increased by 27.6% to a record high of $1.6 billion (Figure 48).

51. Loan approvals totaled $2.2 billion in 2015, a 25.5% increase over 2014. Loan commitments fell by 2.1% to $1.5 billion. Loan disbursements increased by 32.7% to $1.4 billion. Guarantee approvals increased significantly to $341.2 million ($20.0 million in 2014).18 Guarantee commitments increased by 476.4% to $59.4 million ($10.3 million in 2014). Equity approvals declined by 27.6% to $134.0 million, of which $45.0 million was for investment funds and $89.0 million for direct equities. Equity commitments fell by 47.4% to $160.0 million and equity disbursements declined by 12.2% to $123.0 million. 52. In 2015, total approvals in group A countries decreased to $315.0 million ($342.0 million in 2014). Approvals increased in group B to $1.1 billion ($1.0 billion in 2014) and in group C to $1.1 billion ($478.0 million in 2014).19 The PRC and India accounted for $1.2 billion or 44.2% of total approvals ($1.1 billion or 56.1% in 2014).

16

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

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

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

19 Countries that received nonsovereign project assistance from ADB: Group A are Afghanistan, Bhutan, Cambodia, the Kyrgyz Republic, the 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.

29

Figure 47: Nonsovereign Portfolio at a Glance (As of 31 December 2015)


Total Nonsovereign Portfolio

Total year-end committed portfolio increased by 3.5% to $7.9 billion

Total loans committed increased to $6.0 billion, guarantees committed fell to $807.5 million, and equity committed marginally increased to $1.1 billion

Approvals increased by 36.9% to $2.6 billion

Commitments decreased by 6.9% to $1.7 billion

Disbursements increased by 27.6% to $1.6 billion

Droppages and cancellations increased to $836.2 million from $597.8 million in 2014

Loan Portfolio

Total committed loans increased by 9.8% to $6.0 billion

Outstanding loans increased by 23.6% to $4.5 billion

Undisbursed balances decreased by 16.6% to $1.6 billion

Approvals increased by 25.5% to $2.2 billion

Commitments decreased by 2.1% to $1.5 billion

Disbursements increased by 32.7% to $1.4 billion

Droppages and cancellations increased by 624.9% to $815.7 million

Prepayments decreased by 63.3% to $114.6 million

Guarantee Portfolio

Total committed guarantees fell by 26.8% to $807.5 million

Outstanding guarantees fell by 21.1% to $785.7 million

Signed non-executed guarantees decreased by 79.7% to $21.8 million (excluding Trade Finance Program and revolving Partial Credit Guarantees)

Approvals (excluding supply chain finance) increased significantly to $341.2 million

Commitments increased by 476.4% to $59.4 million

Droppages and cancellations decreased by 95.8% to $14.3 million

Equity Portfolio

Total committed equities increased by 2.5% to $1.1 billion

Outstanding equities (at carrying value) decreased marginally to $717.5 million

Undisbursed equities increased to $345.5 million

Approvals decreased by 27.6% to $134.0 million, of which $89.0 million was for direct equities

Commitments decreased by 47.4% to $160.0 million

Disbursements decreased by 12.2% to $123.0 million

Droppages and cancellations were $6.2 million

30

Table 3: Nonsovereign Portfolio Quality and Performance, 2014–2015



(2011).]

31

Figure 48: Portfolio Growth, 2011–2015


53. Approvals by sector have been volatile year to year. In 2015, the energy and finance sectors dominated—the energy sector at $1.2 billion and the finance sector at $1.0 billion (energy $677.0 million and finance $708.0 million in 2014). Water and other urban infrastructure and services had $285.0 million in approvals; information and communication technology $150.0 million; transport had no approvals; and the agriculture, natural resources, and rural development sector had only $3.0 million in approvals. 54. Trade Finance Program. The TFP supported $2.5 billion in trade in 2015 ($3.8 billion in 2014), of which $1.1 billion was in guarantees and loans provided by ADB and $1.4 billion was cofinancing. The number of transactions the TFP supported in 2015 was stable at 1,908 (1,937 in 2014). Of the total 1,908 TFP transactions in 2015, 1,498 supported intraregional trade (1,463 in 2014). Among the 18 countries of operation, the most active were Bangladesh, Pakistan, Sri Lanka, Uzbekistan, and Viet Nam. Some 99.9% of the 2015 transactions were in ADF countries20 (99.2% in 2014). More than 80% of the TFP’s transactions in 2015 supported small and medium-sized enterprises. The US dollar value of support decreased substantially because of a decline in commodity prices, particularly the collapse in the price of oil. [This information contains sensitive financial information subject to disclosure restrictions per paragraph 97, exception (viii) of ADB’s Public Communications Policy (2011).] 55. Supply Chain Finance Program. After preparation in the previous years, PSOD executed the first batch of 77 transactions totaling $92.7 million, all in the PRC. To support cross-border supply chain management and the development of the small and medium-sized enterprises sector, PSOD is exploring with the Office of Risk Management (ORM) to broaden the range of ADB interventions at different points within the supply chain. 56. Direct value-added cofinancing. In 2015, DVA commercial cofinancing totaled $4.6 billion, a 5.1% decrease from $4.8 billion in 2014. This was mainly due to a decline in parallel loans to $1.1 billion ($1.5 billion in 2014) and TFP cofinancing to $1.4 billion ($2.0 billion in 2014). In addition, DVA official cofinancing approvals for nonsovereign operations in 2015 decreased by 87.1% to $25.0 million ($194.0 million in 2014). B loans increased to $1.1 billion ($863.0 million in 2014). Total approvals (ADB plus total DVA cofinancing) increased by 4.2% in

20

ADF countries refer to the Group A and Group B country group.

2,126 1,841

1,602

1,919

2,626

1,112 1,799

733

1,864 1,736

792 590

924 1,229

1,567

0

500

1,000

1,500

2,000

2,500

3,000

2011 2012 2013 2014 2015

$ m

illio

n

Approvals Commitments Disbursements

32

2015 to $7.2 billion ($6.9 billion in 2014). The mobilization rate decreased to 1.75, which was lower than 2.61 achieved in 2014 and the 3-year 2012–2014 average of 2.59.21

2. Droppages and Cancellations 57. Droppages and cancellations increased to $836.2 million in 2015 from $597.8 million in 2014 (Figure 49). Droppages totaled $429.1 million ($412.1 million in 2014).22 Cancellations totaled $407.1 million ($185.7 million in 2014). 23 From 2011 to 2015, loan droppages averaged 15.0% of approvals, equity droppages averaged 14.1% of approvals, and guarantee droppages averaged 65.7% of approvals, which is very high. Loan cancellations averaged 8.7% of commitments, equity cancellations averaged 17.2%, and guarantee cancellations averaged 36.0%. Changes in market, country, and/or macroeconomic conditions caused most of the loan droppages (74.6%). Most guarantee droppages were brought about by sponsor issues (56.4%) and changes in market, country, and/or macroeconomic conditions (42.0%). For equities, the majority of droppages were due to sponsor issues (99.1%), such as change of project scope, breach of contract, and disagreement on terms. The majority of cancellations on loans (62.8%), guarantees (98.7%), and equities (80.8%) were caused by sponsor issues such as breach of covenants and sponsors’ poor performance.

Figure 49: Droppages and Cancellations, 2011–2015


3. Nonsovereign Public versus Private Sector Projects

58. In 2015, two nonsovereign public sector transactions amounting to $650.0 million were approved (no transactions were approved in 2013 and 2014). New nonsovereign public sector commitments were nil (nil in 2014). Nonsovereign public sector droppages were at $34.3 million in 2015 (nil in 2014) and nonsovereign public sector cancellations were at $258.7 million. The total outstanding portfolio of the nonsovereign public sector increased from $508.9 million to $567.5 million at the end of 2015. It remained modest compared with the nonsovereign private sector portfolio of $5.4 billion.

21

The mobilization rate is the ratio of total DVA cofinancing approvals to total ADB approvals. 22

Droppage refers to the dropping of approved but unsigned and uncommitted nonsovereign operations. The largest in 2015 were the droppage (partial) of a $128.9 million loan in the PRC and an $80.0 million loan in India, both resulting from changes in external conditions related to regulatory issues.

23 Cancellation refers to the cancelling of signed and committed operations. The largest in 2015 were the cancellation of a $250.0 million loan in India because of a sponsor issue and partial cancellation of a $98.8 million loan in India as a result of changes in external conditions.

97 200

955

412 429 43

20

166

186 407

140 220

1,121

598

836

0

200

400

600

800

1,000

1,200

2011 2012 2013 2014 2015

$ m

illio

n

Total Droppages Total Cancellations Total

33

4. Loan Prepayments

59. Loan prepayments on five loans in 2015 totaled $114.6 million ($312.3 million in 2014).24 Three prepayments ($25.3 million) were in accordance with the terms of the loan agreements. The other two prepayments ($89.3 million) were initiated by the borrowers (i.e., voluntary prepayments), both of which were fully prepaid, as the borrowers were able to obtain more favorable terms from other financial institutions.25 [This information contains sensitive financial information subject to disclosure restrictions per paragraph 97, exception (viii) of ADB’s Public Communications Policy (2011).]

5. Credit Risk Rating 60. The weighted average risk rating of the outstanding loan and guarantee portfolio at the end of 2015 improved slightly to 6.2 (BB+), from 6.4 (BB+) at the end of 2014.26 B. Portfolio Key Findings

[This information contains sensitive financial information subject to disclosure 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).]

24

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.

25 ADB. 2010. Report and Recommendation of the President to the Board of Directors: Proposed Loan for the Zvartnots Airport Expansion Project (Phase 2) in Armenia. Manila; ADB. 2007. Report and Recommendation of the President to the Board of Directors: Proposed Loan to the Islamic Republic of Pakistan for the KESC Postprivatization Rehabilitation, Upgrade, and Expansion. Manila.

26 The Quarterly Risk Management reports also monitor the probability of the default weighted average risk rating (PD-WARR). At the end of 2015, the PD-WARR improved to 7.4 (BB–) from 7.6 (BB–) at the end of 2014.

Appendix 1 34

2015 SOVEREIGN PORTFOLIO: KEY INDICATORS

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

a Awards Ratio (%)

b (%)

b Ratio (%)

b (%)

b On Track (%) Implementation Risk (%)

2015 2014 2015 (2014) 2015 (2014) 2015 (2014) 2015 (2014) 2015 (2014) 2015 (2014) OPERATIONS 74,592 67,466 23 (24) 44 (44) 17 (18) 64 (65) 76 (80) 24 (20)

CWRD 19,488 16,910 18 (23) 46 (43) 17 (16) 66 (67) 78 (87) 22 (13)

Afghanistan 2,979 2,684 14 (12) 41 (43) 8 (7) 72 (75) 82 (95) 18 (5)

Armenia 689 531 14 (18) 47 (36) 19 (21) 70 (71) 75 (83) 25 (17)

Azerbaijan 1,477 1,477 36 (35) 27 (34) 19 (20) 56 (69) 63 (100) 38 0

Georgia 926 906 34 (29) 34 (45) 18 (15) 62 (71) 80 (100) 20 0

Kazakhstan 2,077 1,458 20 (32) 41 (32) 52 (33) 34 (42) 100 (100) 0 0

Kyrgyz Republic 551 597 22 (13) 47 (55) 12 (13) 63 (67) 90 (78) 10 (22)

Pakistan 6,450 5,460 19 (14) 55 (53) 11 (14) 75 (71) 77 (70) 23 (30)

Regional 42 56 0 (100) 100 0

Tajikistan 804 726 19 (22) 31 (38) 27 (17) 52 (67) 80 (100) 20 0

Turkmenistan 117 117 22 0 19 0 100 (100) 0 0

Uzbekistan 3,377 2,897 11 (38) 51 (39) 27 (19) 65 (67) 68 (80) 32 (20)

EARD 12,355 11,359 22 (20) 47 (49) 17 (21) 61 (61) 74 (77) 26 (23) PRC 11,470 10,628 21 (21) 46 (48) 18 (21) 60 (61) 72 (79) 28 (21) Mongolia 867 709 26 (5) 61 (62) 8 (17) 81 (67) 79 (71) 21 (29) Regional 18 22

PARD 2,035 1,943 23 (24) 39 (40) 19 (18) 58 (61) 73 (64) 27 (36)

Cook Islands 16 16 18 0 82 (100) 2 (56) 98 (100) 100 0 Fiji 107 145 0 (3) 100 (67) 1 (79) 100 (72) 0 (100) 100 0

Kiribati 36 35 2 (47) 34 (26) 27 (21) 50 (64) 100 (50) 0 (50) Marshall Islands 11 2 3 0 97 (100) (9) 97 67 0 33 (100) FSM 30 31 8 (27) 24 (26) 18 (21) 32 (39) 50 (33) 50 (67) Nauru 14 6 7 0 93 (100) 2 99 0 0 (100) 100 0 Palau 54 29 0 (14) 92 (87) 4 (1) 97 (98) 50 (50) 50 (50) Papua New Guinea 1,019 990 33 (29) 26 (37) 23 (17) 47 (60) 63 (65) 38 (35) Regional 114 143 65 (92) 2 (5) 74 (40) 12 (49) 100 0 0 (100) Samoa 115 106 19 (17) 41 (26) 14 (21) 52 (35) 100 (50) 0 (50) Solomon Islands 82 113 7 (4) 49 (38) 12 (34) 56 (46) 75 (100) 25 0

Appendix 1 35

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

a Awards Ratio (%)

b (%)

b Ratio (%)

b (%)

b On Track (%) Implementation Risk (%)

2015 2014 2015 (2014) 2015 (2014) 2015 (2014) 2015 (2014) 2015 (2014) 2015 (2014) Timor-Leste 281 205 36 (54) 33 (20) 30 (21) 61 (65) 86 (71) 14 (29) Tonga 65 71 23 (12) 53 (56) 16 (8) 71 (68) 80 (83) 20 (17) Tuvalu 4 1 100 100 100 0 Vanuatu 87 50 14 (0) 74 (80) 12 (5) 91 (94) 67 (50) 33 (50)

SARD 23,254 21,540 29 (28) 39 (40) 16 (17) 66 (67) 83 (83) 18 (17) Bangladesh 6,124 5,108 25 (22) 44 (48) 18 (16) 63 (67) 92 (90) 8 (10) Bhutan 322 377 13 (3) 57 (52) 6 (49) 69 (61) 88 (100) 13 0 India 12,007 11,622 34 (35) 34 (34) 17 (16) 67 (67) 77 (81) 23 (19) Maldives 67 61 25 (2) 73 (98) 4 (18) 94 (98) 100 (100) 0 0 Nepal 1,925 1,895 14 (21) 53 (52) 11 (12) 74 (75) 78 (72) 22 (28) Regional 55 70 15 (36) 31 (26) 39 (28) 38 (62) 100 (100) 0 0 Sri Lanka 2,754 2,406 29 (28) 39 (41) 21 (25) 58 (60) 84 (87) 16 (13) SERD 17,460 15,714 21 (22) 47 (48) 17 (20) 62 (61) 68 (79) 32 (21)

Cambodia 1,173 1,075 23 (25) 42 (45) 18 (24) 57 (60) 58 (74) 42 (26) Indonesia 3,091 1,722 6 (19) 71 (62) 12 (12) 79 (75) 50 (67) 50 (33) Lao PDR 695 636 15 (16) 46 (48) 13 (15) 60 (61) 94 (89) 6 (11) Malaysia 0.4 0.4 Myanmar 435 188 21 (3) 79 (97) 5 (1) 98 (100) 17 (75) 83 (25) Philippines 2,685 2,628 38 (23) 55 (66) 40 (27) 52 (66) 67 (71) 33 (29) Regional 330 340 20 (8) 76 (89) 8 (4) 88 (96) 70 (80) 30 (20) Thailand 84 85 0 0 9 (4) 65 (46) 16 (46) 100 (100) 0 0 Viet Nam 8,967 9,041 20 (23) 40 (41) 12 (19) 60 (58) 74 (84) 26 (16)

Non- Operations

334 381 11 (7) 83 (93) 4 (10) 84 (88) 0 0 100 (100)

Total 74,926 67,847 23 (24) 44 (44) 17 (18) 64 (65) 76 (80) 24 (20)

( ) = negative, PRC = People’s Republic of China, CWRD = Central and West Asia Department, EARD = East Asia Department, FSM = Federated States of Micronesia, Lao PDR = Lao People’s Democratic Republic, PARD = Pacific Department, PPR = project performance rating, SARD = South Asia Department, SERD = Southeast Asia Department. a Cover loans, grants, technical assistance, equity investments, and guarantees.

b Covers project loans and grants only.

Notes: 1. 2014 figures will not tally with figures used in the 2014 annual portfolio performance report because of adjustments after year-end, inclusion of grants, and change in

definition.

2. Totals may not sum precisely because of rounding. Source: Asian Development Bank data.

36 Appendix 2

STATUS OF THE 2014 ANNUAL PORTFOLIO PERFORMANCE REPORT RECOMMENDED ACTIONS

Table A2.1: Sovereign Section

Actions Responsible

Departments Status

1. Set 2015 Contract Awards and Disbursement Target

OSFMD and SPD

Planning Directions memo issued on 31 March 2015. 2015 contract award target was set at $9 billion and disbursement target was $8.6 billion (without policy-based lending).

2. Continuing to implement procurement reforms, build executing agency capacity, and mainstream e-procurement and post review sampling in ADB operations

Regional departments and OSFMD

Increased Procurement Committee threshold to $40 million, and introduced differentiated approach for procurement decisions below the Procurement Committee threshold. In 2015, a total of 184 approvals made for contracts over $10 million showed an improvement in transaction time.

Assessed procurement risks and introduced new prior review limits for contracts. The new prior review limits are effective for all new projects and may be applied to ongoing projects. A total of 42 projects adopted the new prior review ceilings.

Regional departments had flexibility to use new procurement modes and templates. In December 2015, standard bidding documents for four types of procurement methods—works, goods, works-small contracts, and plans (i.e., design, supply, and installation)—have all been issued. The use of the fixed price contract is also permitted and currently used by SARD.

Six country assessments completed (Cambodia, Fiji, Indonesia, Pakistan, Timor-Leste, and Viet Nam). Seven more are under process.

In March 2015, the Board approved the Amendment to ADB’s Procurement Guidelines for mainstreaming e-procurement and post review sampling. Four projects in three countries (Cambodia, India, and Indonesia) have adopted post review (sampling).

ADB hosted an e-procurement conference in October 2015. Action plans have been made for some countries (Bangladesh, Georgia, India, Indonesia, and Nepal) to focus on increasing use of executing agency electronic systems in ADB-financed projects.

OSFMD provided a total of 30 procurement training sessions in 2015 for 14 DMCs to build the capacity of

Appendix 2 37

Actions Responsible Departments

Status

executing agencies.

3. Increasing project readiness and adopting realistic project implementation schedules by comparing with standard time lines and managing this using eOperations

Regional departments and OSFMD

Infrastructure projects that were procurement-ready decreased to 24% in 2015 from 30% in 2014 and 27% in 2013. Infrastructure projects that were design-ready were reduced to 57% in 2015 from 63% in 2014 and 62% in 2013.

4. Spring cleaning the TA portfolio, capping the number of non-PPTA projects, and introducing more TA portfolio metrics for monitoring

Regional departments

The number of closed TA projects in 2015 was 300, which is 17% more than in 2014 (256 in 2014). The TA number cap was set at 750 in 2015.

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

Regional departments

Average size of the 121 loan and grant approvals (including policy-based), in 2015 was $117 million. Average size of active loans and grants (including policy-based) as of 31 December 2015 was $107 million. 50 of the total 121 approved projects (or 41% of total approvals) in 2015 are equal to or more than $100 million.

6. Revising PPR criteria

OSFMD PPR criteria were reviewed and currently simulated with keeping only two criteria, i.e., contract awards and disbursements. Based on these criteria, the simulated result is as follows:

On track = 67% Potential problem = 11% Actual problem = 22%

The finalization of the revised PPR criteria will be guided by Management’s final decision.

ADB = Asian Development Bank, DMC = developing member country, OSFMD = Operations Services and Financial Management Department, PPTA = project preparatory technical assistance, PPR = project performance rating, SARD = South Asia Department, SPD = Strategy and Policy Department, TA = technical assistance. Source: Asian Development Bank data.

38 Appendix 2

Table A2.2: Nonsovereign Section



(2011).]

Appendix 3 39

SOVEREIGN OPERATIONS GLOSSARY

Active portfolio All loans, grants, technical assistance (TA), 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 TAs administered by the Asian Development Bank (ADB)

Advance action 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 TA 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 including 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

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.

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

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.

40 Appendix 3

Project performance 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 [BER] to ADB’s approval)

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

S-curve The project S-curve shows the project contract award and 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.

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

Appendix 3 41

Tranche (MFF) Loan, grant, guarantee, or ADB-administered cofinancing for a project or a component under an MFF

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.

42 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 43

NONSOVEREIGN OPERATIONS GLOSSARY

Approvals An investment approved by the Board of Directors of the Asian

Development Bank (ADB). B-loan A loan made by ADB funded by a third party or parties without the

borrower or third parties having any recourse to ADB. It involves the prearranged transfer to commercial lenders of participation in an ADB complementary loan, but without credit recourse to ADB for debt service. ADB is the lender-of-record as the B-loan is made in the name of ADB.

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.

Cancellation Undisbursed, committed balance of an equity investment, loan, or guarantee cancelled by the mutual consent of ADB and an investee company.

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).

Closed-out loan

Loans that are fully repaid and/or prepaid.

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

Commitment An investment approved by ADB’s Board of Directors for which the investment agreement has been signed by the investee company and ADB.

Debt Security A traded instrument that can be bought or sold between two parties. A debt security represents borrowed funds that must be repaid by the borrower to the holder of the debt security. It includes government bonds, corporate bonds, municipal bonds, preferred stock, and collateralized securities.

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.

44 Appendix 4

Droppage An investment approved by ADB’s Board of Directors but failed to become a signed agreement.

Equity A security representing an ownership in a corporation. Equity income Income from equity investments, including dividends and realized

and unrealized 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.

Guarantee A formal pledge to pay a borrower’s debt (in part or in full) in the

case of default by the borrower

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.

Listed Equities Equity investment in a company whose shares are traded on a public exchange

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

Non-accruing 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.”

Appendix 4 45

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

Private equity Equity investment in a company whose shares are not 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).

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.

Risk rating A rating that indicates the risk that a borrower may default. An ADB rating of 1 (>A-) indicates the lowest risk and 14 (default) the highest risk.

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 Write-off An accounting procedure used when an asset is determined to be

uncollectible and is therefore considered to be a loss.

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