Loan contract awards remain below targets, holding back project growth: ADB

Infographic: TBS

Infographic: TBS

Loan contract awards for development projects were below the targets both in 2021 and 2022, and more significant efforts are required by all agencies to expedite the procurement and implementation process, the Asian Development Bank (ADB) says.

On loan disbursement, achievement in 2021 was better but 2022 missed to meet the annual target, it points out in its background paper presented at a review meeting in Dhaka yesterday.

For 2023, ADB’s loan contract awards target has been set at $886.9 million, whereas the disbursement target is $1,339.4 million.

In 2022, the annual contract award was $706.1 million (83.4%) against $846.8 million target, and the disbursement $1,147.4 million (96.2%) against $1,192.7 million target. In 2021, the achievements were 84.9% and 107.6%, respectively.

However, given the improved Covid-19 situation, several options will be explored to capitalise the optimistic outlook, the ADB said at the Tripartite Portfolio Review Meeting.

The first such review meeting in 2023 for ADB-funded projects was co-chaired by Economic Relations Division Secretary Sharifa Khan; ADB’s Deputy Director General for South Asia Department Cindy Malvicini and ADB’s Country Director Edimon Ginting.

The meeting confirmed the contract awards and disbursement targets for 2023 and reviewed the status of time-bound actions agreed at the 15 September 2022 review meeting to expedite overall implementation process.

Infographic: TBS

Infographic: TBS

The sector-wise analysis of contract awards and disbursement targets and achievements as of 31 December 2022 shows energy was below 50% of annual contract award targets and agriculture, natural resources and rural development sectors scored 80% below the targets.

Energy had the lowest achievement in disbursement (79%), while all other sectors were overachieved or above 80% of their annual disbursement targets, it finds.

The ADB has rated five projects “at risk” in December quarter last year from low rates in contract awards and disbursements. The lender’s country office maintains an advance alert system to share the monthly performance status with the project teams for improvement.

Since infrastructure projects compose about two-thirds of the ADB’s portfolio in Bangladesh involving large procurement components, delays in purchases have adversely impacted the overall project performance, says the global lender.

“Several packages were delayed for contract awards or disbursement, thus seriously impacting the project performance,” it writes, stating that improving the procurement activities remains a major challenge to improve the ADB’s project implementation.

As of 10 March, the lenders’ Bangladesh portfolio stood at $11.89 billion for 50 projects in six sectors, with transport and energy comprising 52% of the total portfolio. There are 35 ongoing Technical Assistance projects with a value of $49.45 million.

Over the last five years, Bangladesh’s ADB portfolio has grown with a compound annual growth rate of 7.35% and annual lending is projected to grow rapidly in coming years. Expected commitments in 2023 and 2024 are $2.5 billion in each year, according to the ADB background paper prepared for yesterday’s meeting.

An analysis of procurement lead time of the ADB portfolio for the last three years (2020-2022) shows transport, and education and health sectors have decreasing trend in procurement time, whereas this has increased in agriculture, natural resources and rural development sectors.

Also, it is noted that procurement time in energy, water and other urban infrastructure sectors have improved.

In overall, procurement time in 2022 was 214 days for $1 million dollar packages, better than 260 days in 2021 due to the less impact caused by Covid-19.

The average end-to-end procurement time for eight contracts of more than $10 million has improved in 2022 to 341 days compared to 455 days in 2021, still well above the ADB’s South Asia Department average of 326 days.

The procurement time in Khulna Wasa, Roads and Highways Department, and Bangladesh Water Development Board are longer, mainly due to limited procurement capacity and delays in internal approval process, the lender states in its background paper.

To further reduce procurement lead time by 10% in 2023, a procurement officer is assigned for monitoring the process at executing and implementing agencies, and project team, it states.

It also proposes specific action plans, including use of a post review process and capacity building for implementing agencies and contractors, to reduce the procurement period further this year.

The lender has also kept an eye on the financial management of the projects it funds as it sorts out audit observations for review and resolutions.

“Improved awareness on financial due diligence of project staff and auditors are needed to avoid or minimize such observations,” which include violation of public procurement regulations, excess payment to contractors, payment beyond DPP/RDPP allocation, VAT and IT related issues, the lender has said, linking some observations to the inconsistencies between government process and ADB guidelines.

As of 10 March 2023, 2% of outstanding 832 observations have been settled. It expects good progress in the rest 9 months of the year.

ADB has attached more importance to safeguards requirements after the incident incurred in Greater Dhaka Sustainable Urban Transport Project on 15 August 2022. Contractors are required to plan and ensure Occupational Health and Safety (OHS) Management in project sites.

ADB has appointed an international OHS consultant for BRT project to improve OHS issues at construction sites and large infrastructure projects have been advised to appoint the officials as OHS focal.

ADB identifies various challenges that delay the procurement process and recruitment of consultants. Those include quality of design and specification; quality of bid documents, outdated cost estimate, lack of clarity in bill of quantities, and conditions of contract and/or terms of references. Capacity and procurement experience of executing and implementing agencies, approval lead time within the government system, and inadequate market assessment often lead to low bidders’ participation or higher bid prices, causing procurement failure and rebidding and ultimately resulting in project delays.

Reviewing 121-time bound actions agreed on the previous tripartite meeting held six months ago, the ADB finds 82% or 99 actions were fully complied as of 10 March. Energy, transport and agriculture sectors showed best compliance, followed by water and urban, finance, and education and health sectors, it finds, relating non-compliance to gas supply issue, delay in approval and procurement, non-availability of road cutting permission etc.

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