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LESSONS:

Mega City Development Project

sector: Finance, Transport, Water and Other Urban Infrastructure and Services | country: Pakistan

Lessons from previous projects. Lessons from two older ADB urban sector loan projects to Karachi in 1986 and 1991, respectively, which were rated unsuccessful and partly successful, include the need for (i) greater attention to sustainability, (ii) enhanced project design based on sound assessments, (iii) careful consideration for institutional shortcomings of executing and implementing agencies, and (iv) greater efforts to address the financial insolvency problems of the Karachi local government bodies. A specific lesson derived from the previous Karachi Urban Development Project is that urban upgrading is complex and must be able to deal with the broad range of problems faced by katchi abadis dwellers, including regularization and security of tenure. All these lessons suggest that urban development assistance demands a holistic approach. To be of lasting value, major capital investments need to be supported by capacity building, policy, regulatory and institutional reforms, as well as new and innovative financing vehicles that facilitate provision of high-quality infrastructure services on a sustainable basis. However, although the technical assistance (TA) loan for Megacity Development Project incorporated these lessons in its design, it failed for various structural reasons, with the lack of consensus between various levels of authorities being the most serious challenge.

Avoidance of challenging issues. At both government levels (the government of Sindh and City District Government of Karachi or CDGK), there was a systematic avoidance of exposure to and tackling of various governance and institutional issues, as well as reforms required to examine and correct these challenges. Analysis of the few project subcomponents completed illustrates that the government of Sindh and CDGK only implemented easy studies that did not and could not tackle major disputes or issues that might require serious reforms in Karachi. ADB, the government of Sindh and CDGK should have been far more insistent at the outset of the project on the critical reform and governance issues than was the case on this project.

Problematic shifting of priorities. Continuing problems with government approvals, and constant changes in focus, scope, and direction caused major delays. ADB noted a range of concerns over the continuing delays on the processing of the Project in its previous incarnation, the Karachi Mega City Development Program, after developing the loan proposal to the point of loan negotiations in May 2008. Following meetings in July 2008, the program was reconfigured at the request of the government of Sindh, this time an integrated, holistic urban transport program for Karachi, with new implementation arrangements. Unfortunately, the agreed deadlines were not respected while no progress was evident on steps to achieve institutional reforms. The requested revisions to the proposed Project, for a truncated investment in bus rapid transit, a shift in geographic focus to secondary cities, and a two- tranches structure did not lend itself to the envisaged sector reforms, nor was it suitable for ADB’s multitranche financing facility (MFF). By November 2008, the proposed Sindh Urban Mass Transit Investment Program was also cancelled. The TA loan was originally designed to provide the prerequisite planning, systems integration, and capacity development to address the sorts of issues that arise in urban planning. However, it did not succeed.

Counterpart funding and incentive issues in TA loans. Despite the challenges in project implementation, the project support unit (PSU) and local support unit (LSU) had utilized close to $4 million in counterpart funding, while ADB disbursed only 15% of the TA loan. As a result, the actual split between ADB and the government was 15:85, when the agreement was 70:30. Thus, a key lesson is that there should have been far greater oversight on the utilization of counterpart funds, as the ADB-financed expenditures and activities and overall progress of the TA loan lagged far behind. The resource utilization also shows a fundamental flaw in the design of TA loans, in which a significant share of resources is allocated for international consulting inputs. The various challenges in this TA loan, including protracted internal government approvals, delayed consultant selection. In future, ADB should very carefully examine the incentives of the executing and implementing agencies in utilizing resources. Core activities, such as recruitment of experts, are typically delayed while routine activities, such as maintenance of offices and vehicles, are approved on time, without a continuous assessment of project progress.

Weak government commitment. Given the political environment and the likelihood that a significant lack of consensus might be a daily reality on this project, the design should never have been so complex, with four different subcomponents, leading to a much larger MFF expectation. Perhaps a lesson here is that to achieve early and committed buy-in to required reforms and institutional shake-up, smaller and simpler components could be tested through a small scale or project preparatory TAs, which may lead to visible and larger MFF commitments.

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