ADB’s Project Administration Instructions stated that the use of conditions for withdrawal should be limited to the extent possible. In this program, four disparate conditions were included as conditions for disbursement without discussion or justification in the RRP.
This is to identify a plausible causal relationship between investments and actions taken by the program and a change in the performance indicators. This was not the case in the performance indicators under output 1. Even under the most optimistic scenario, it is difficult to envisage that the financing of the 2016 national budget could have impacted the contribution of medium- and small-medium-sized enterprises sector to GDP, labor productivity in agriculture, and the volume of nonresource exports by enterprises in the same year.
It could have avoided most of the issues that subsequently caused delays and completion of 3 out of 4 depots outside of the loan effectivity period.
Similarly, more effort should be taken to establish sustainable asset management systems, supported by credible sources of funding.
ADB’s Safeguard Policy Statement, 2009 does not require PFIs to have an ESMS if the project is categorized as FI (equivalent of safeguards category C). However, based on the experience under tranche 1, it would be beneficial if a simple ESMS is in place and an environmental staff is on board to review and support the safeguards compliance of subprojects even if the investment program itself is classified as F1. Because of the absence of an ESMS and environmental staff, numerous requests for information were made to ADB’s Central and West Asia Department that used significant resources to respond to the requests.
The investment program fared well in its gender targets. It successfully incorporated sex-disaggregated data collection in the executing agency’s monitoring system for the program and ensured women’s participation in the training activities in excess of targets. It also surpassed its target of at least 26% loan applications received from women, with women comprising 31% of the borrowers under tranche 1, 34% under tranche 2, and 37% under tranche 3. But more could have been done at the level of the PFIs to improve the implementation of the gender action plan (GAP). Drawing on this program’s experience, GAP implementation in future financial intermediation loans may be improved by: (i) seeking agreement with the PFIs on the GAP and gender targets right at project processing to develop their ownership of these; (ii) ensuring the integration of genders indicators into the PFI data collection systems; (iii) maintaining open communication lines with the PFIs to facilitate the provision of gender implementation support as necessary; and (iv) providing gender capacity building activities to the PFIs.
The investment program intended to raise local currency funds for Damu (and indirectly for the PFIs) in one of two ways: (i) through cross-currency swaps with international bank counterparties, which was achieved in tranche 1 but could not be achieved in tranches 2 or 3; or (ii) the issuance of a local currency bond, which was never achieved. Therefore, ADB had to lend US dollars to Damu for tranches 2 and 3, an arrangement that Damu did not find satisfactory. In its facility completion report, Damu gave notice that, in the future, it will not consider attracting [foreign] currency loans, though hedging instruments are provided, since the practice proved their high risks and lack of flexibility…..
The participating financial institutions (PFIs) in this investment program were intensely focused on the cost of the funds provided to them (6.49% in tranche 1, 7% in tranche 2, and 8.5% in tranche 3) and were not properly incentivized to increase the number of SME borrowers. Had Damu charged a lower margin for PFIs that achieved the specified lending targets, the number of SME borrowers might have been higher. Whereas the loans to the PFIs were supposed to be disbursed promptly to SMEs, some PFIs—Tsesnabank in particular—instead utilized the funds for their own treasury operations for as long as possible. ADB tried to convince Damu, but without success, to impose penalties on Tsesnabank to deter it from engaging in the abusive practice. (Preparation: FILs, SME FILs, SME FILs Kazakhstan)
The Damu Entrepreneurship Development Fund (Damu), the executing agency of the multitranche financing facility, and ADB had different views on the factors that led to the excessive size of the tranche 3 loan. In its facility completion report, Damu in effect offered the view that the third tranche was too large to be absorbed by the participating financial institutions (PFIs) in a short time and that ADB should have done a more thorough analysis of the demand for funds. The ADB project team’s recollection is that it had questioned the PFIs’ absorptive capacity during tranche 3 processing, but Damu and the PFIs had expressed full confidence about their ability to disburse the full loan amount quickly. On hindsight, ADB should have scrutinized PFIs’ projections more carefully in light of the weakened economy and the significant devaluation of the tenge in 2014−2016.
This project incurred a 39.91% increase in the contract period for the project management consultant to allow for stronger oversight function by the consulting firm, particularly with respect to contract administration and safeguards monitoring. Unanticipated increases such as this one can be avoided in future projects by clarifying the expected role of the project management consultant and the tasks and deliverables of each expert, with the TOR for each consultant hammered out prior to project processing.
About 33.8% of the $340 million loan approved by the Asian Development Bank (ADB) for this project had to be cancelled because of the surplus that accrued mainly from the overestimation of the costs of construction materials and consulting services. This was despite the increase in the total civil work contract amounts that resulted from various changes in scope and design to address the geological conditions and needs of the population that had not been considered at design stage. Cancellation of a significant portion of the approved loan amount highlights the need for robust due diligence to be undertaken at appraisal. Through detailed engineering studies and thorough market analysis, robust due diligence enables a more reliable estimate of the project base cost and subsequent contingencies, which in turn will minimize the risk of loan cancellation and attendant administrative and financial costs.
Kazakhstan’s lengthy government procedures for loan signing and loan effectiveness, program experience has shown, tend to significantly delay project start-up. These procedures ─ which on the average cause projects to be effective 7.6 months after ADB approval ─ include (i) the issuance of a Presidential Decree before loan signing; (ii) the ratification of the signed loan agreement by the Parliament; and a legal, scientific, and linguistic review of the loan agreement. Due diligence and public consultations specially to ensure compliance to safeguards and enable stakeholder participation in all the phases of the project cycle are the other major ADB requirements that entail a substantial amount of time (and resources). Future program/project preparation should take these factors into consideration to ensure that implementation schedules are realistic.
Various costs were overestimated at appraisal. The most glaring cases were those of civil works, consulting services, and contingencies in tranche 1; and the total cost of construction supervision and project management consulting services. In both cases, the actual costs were about a third less than the appraisal estimates. It would work best if future projects base their cost estimates during appraisal on well-prepared designs that are clear about the what’s and when’s as well as the input requirements of the project. Looking at prevailing market prices and past similar experiences would enhance the reliability of the initial cost estimates.
Day-to-day management of the investment program enabled COR to gain valuable experience in managing externally-funded programs/projects.
ADB guidelines on safeguards, anticorruption, disbursements, procurement of works, recruitment of consultants, and management of consultant contracts were also a ready source of policy and implementation knowledge. But most importantly according to the COR, regular communication proved effective in obtaining direct guidance and quick implementation and problem-solving support from ADB. As with this investment program, regular communication between ADB and the EA/IA could make a lot of difference in improving the implementation capacities of the EA/IA where there is no discrete, stand-alone institutional development component to support this.
Prior to the investment program, ADB, IDB, and JICA had about a decade of individual involvement in the transport sector of Kazakhstan. This facilitated the development of cofinancing arrangements among them. But what proved most essential was government leadership in initiating a corridor-wide investment plan that would provide the framework and trigger donor commitments to the initiative. Including those from the European Bank for Reconstruction and Development and the World Bank, the financial resources, and knowledge and expertise pooled together by the government and donor agencies had a multiplier effect in enhancing the delivery of results.