India: Jammu and Kashmir Urban Sector Development Investment Program-Project 2

Transcription

1 Project Administration Manual Project Number: Loan Number: 2925 September 2013 India: Jammu and Kashmir Urban Sector Development Investment Program-Project 2

2 CONTENTS I. PROJECT DESCRIPTION 5 II. IMPLEMENTATION PLANS 6 A. Project Readiness Activities 6 B. Overall Project Implementation Plan 7 III. PROJECT MANAGEMENT ARRANGEMENTS 8 A. Project Implementation Organizations Roles and Responsibilities 8 B. Key Persons Involved in Implementation 10 C. Project Organization Structure for Investment Program including Project 2 11 IV. COSTS AND FINANCING 12 A. Investment and Financing Plans 12 B. Detailed Cost Estimates by Expenditures 13 C. Detailed Cost Estimates by Financier 14 D. Detailed Cost Estimates by Years 15 E. Detailed Cost Estimates by Components 16 F. Contract and Disbursement S-curve 18 G. Fund Flow Diagram 19 V. FINANCIAL MANAGEMENT 20 A. Financial Management Assessment of Economic Reconstruction Agency and PIUs 20 B. Disbursement 22 C. Accounting 23 D. Auditing 23 VI. PROCUREMENT AND CONSULTING SERVICES 24 A. Advance Contracting and Retroactive Financing 24 B. Procurement of Goods, Works and Consulting Services 25 C. Consultant's Terms of Reference 25 D. Procurement Plan 26 VII. SAFEGUARDS 26 VIII. GENDER AND SOCIAL DIMENSIONS 30 IX. PERFORMANCE MONITORING, EVALUATION, REPORTING AND COMMUNICATION 34 A. Project Design and Monitoring Framework Project 2 34 B. Monitoring 37 C. Evaluation 38 D. Reporting 38 E. Stakeholder Communication Strategy 39 X. ANTICORRUPTION POLICY 39 XI. ACCOUNTABILITY MECHANISM 39 XII. RECORD OF PAM CHANGES 40 List of Appendixes 1. Detailed Project Description Outline Terms of Reference for Consultants Consultation and Participation Plan 4. Stakeholder Communications Strategy

3 Project Administration Manual Purpose and Process The project administration manual (PAM) describes the essential administrative and management requirements to implement the project on time, within budget, and in accordance with Government and Asian Development Bank (ADB) policies and procedures. The PAM should include references to all available templates and instructions either through linkages to relevant URLs or directly incorporated in the PAM. The executing agency and implementing agency is wholly responsible for the implementation of ADB financed projects, as agreed jointly between the borrower and ADB, and in accordance with Government and ADB s policies and procedures. ADB staff is responsible to support implementation including compliance by executing and implementing agencies of their obligations and responsibilities for project implementation in accordance with ADB s policies and procedures. At Loan Negotiations the borrower and ADB agreed to the PAM to ensure consistency with the Loan agreement. Such agreement was reflected in the minutes of the Loan Negotiations. In the event of any discrepancy or contradiction between the PAM and the Loan Agreement, the provisions of the Loan Agreement shall prevail. After ADB approval of the project's report, changes in implementation arrangements are subject to agreement and approval pursuant to relevant Government and ADB administrative procedures (including the Project Administration Instructions) and upon such approval they will be subsequently incorporated in the PAM.

4 Abbreviations ADB = Asian Development Bank ADF = Asian Development Fund AFS = audited financial statements CQS = consultant qualification selection DMF = design and monitoring framework EARF = environmental assessment and review framework EIA = environmental impact assessment EMP = environmental management plan ESMS = environmental and social management system GACAP = governance and anticorruption action plan GDP = gross domestic product ICB = international competitive bidding IEE = initial environmental examination IPP = indigenous people plan IPPF = indigenous people planning framework LAR = land acquisition and resettlement LIBOR = London interbank offered rate NCB = national competitive bidding NGOs = nongovernment organizations PAI = project administration instructions PAM = project administration manual PIU = project implementation unit QBS = quality based selection QCBS = quality- and cost based selection RRP = report and recommendation of the President to the Board SBD = standard bidding documents SOE = statement of expenditure SPS = Safeguard Policy Statement SPRSS = summary poverty reduction and social strategy TOR = terms of reference

5 I. PROJECT DESCRIPTION A. Summary of Project Rationale, Location and Beneficiaries 1. According to 2011 Census of India, out of estimated 2.4 million people living in the cities of Srinagar and Jammu, only 34.7% is estimated to have access to safe or treated drinking water. 1 Srinagar and Jammu lack piped systems for sewage collection and require more treatment capacity Census shows that 52% households have latrines, 24% connect directly to the drains, and 17% still defecate in open. Annual average water logging or flooding experienced in the city centers of both cities is as frequent as 2 hours for 30 days in Srinagar and 2.2 hours for 10 days in Jammu. Though 74% of the solid waste is currently collected in Srinagar and 100% in Jammu most houses in the congested parts of Jammu and Srinagar still discharge their wastes into open surface drains endangering public health and water quality in local streams, rivers, and lakes. The Government of Jammu and Kashmir (GOJK) is currently implementing the Jammu and Kashmir Urban Sector Development Investment Program (the Investment Program) in order to address these deficiencies. The Investment Program aims to foster economic growth in the state of Jammu and Kashmir through expansion of basic urban infrastructures in Jammu, Srinagar and other regional towns of the state. Project 2 under the Investment Program (the Project) will mainly cover investments in water supply, drainage, urban transport and solid waste management, which are essential to meet the overall objectives of the Investment Program. 2. Comprehensive institutional audits of the state-level service providers and environmental regulator Public Health and Engineering Department (PHED) and Urban Environmental Engineering Department (UEED), State Pollution Control Board (SPCB) and Jammu and Srinagar municipal corporations (JMC and SMC) were carried out in 2010 by consultants engaged by the executing agency under Project 1. Project 2 will build on these assessments by conducting detailed organizational development plans for these entities, and will provide identified training and capacity building support to them. It will support GOJK in complementing and completing the institutional and financial reforms agreed under the Investment Program, such as accrual-based accounting, preparing draft rules/acts for urban land use planning and development control for Srinagar and Jammu, etc. B. Impact and Outcome 3. The expected impact of Project 2 will be improved living environment in Srinagar and Jammu. The indicators will be increased population coverage of infrastructure services for municipal water supply, access to proper sanitation, functional drainage system and better road facilities. The expected outcome will be improved urban services in Jammu and Srinagar. The indicators will be number of people benefited from water supply subprojects and reduced hours of water logging due to drainage improvement. Travel hours saved from flyover construction will be also an indicator for outcome. C. Outputs 4. The Project will have the following outputs: (i) improved water supply infrastructure, (ii) improved urban transport infrastructure, (iii) improved drainage infrastructure, (iv) institutional capacity of ERA and ULBs strengthened, and (v) project management system operational. The indicators are defined for each subproject including awareness generation campaigns for selected subprojects. 1 Census figures show that 64% of the total population use tap water for drinking.

6 6 5. The project components are: Part A: Urban Infrastructure and Services: (i) Water supply: rehabilitation and strengthening of water supply system in Jammu and procurement of mobile water tankers and maintenance equipment for Srinagar; (ii) Drainage: rehabilitation of existing and construction of new storm water drains in Jammu, and construction of new storm water drains in Srinagar; (iii) Solid waste management: procurement of solid waste handling and transportation equipment for Srinagar; and (iv) Urban transport: construction of flyover in both Jammu and Srinagar and, construction of an off-street car parking facility in Srinagar. Part B: Capacity Building, Institutional Development, Governance and Project Management: (i) Support in implementing institutional and financial reforms agreed under the Investment Program, through consulting services, training and procurement of equipment, including: Detailed assessment of institutional strengthening needs and mechanism for cost recovery for PHED, Jammu municipal corporation, Srinagar municipal corporation, and preparation of organizational development plan for PHED; Capacity building and training based on the development plan; and Preparation of a business plan of SPCB and strengthening of its environmental monitoring capacity. (ii) Project Management.and implementation support through continuation of the DSCs and PMCs. 6. Further details of the outputs are provided in Appendix 1. II. A. Project Readiness Activities IMPLEMENTATION PLANS Responsible Milestones Agency Apr Sep Oct Nov Dec Jan Feb May Jul Aug Surveys and detailed design ERA of all subprojects completed x Tendering of 50% of the ERA subprojects completed x Contract award of 30% of ERA subprojects completed x ADB Loan Appraisal Mission ADB x Loan Negotiations ADB and ERA x ADB Management approval ADB x Loan signing ADB and ERA x Government legal opinion India, State, ERA x x Loan effectiveness ADB x ADB = Asian Development Bank, ERA = Economic Reconstruction Agency.

7 7 B. Overall Project Implementation Plan Name of the project component Srinagar Flyover Srinagar Drainage Srinagar Parking Equipment PHED Equipment SMC Jammu Flyover Jammu Drainage (Digyana) Jammu Drainage (Channi Himmat) Activity Bidding and award Implementation Bidding and award Implementation Bidding and award Implementation Bidding and award Implementation Bidding and award Implementation Bidding and award Implementation Bidding and award Implementation Bidding and award Implementation Jammu Treatment Bidding and award Plant Implementation Bidding and award Jammu Tube Well Implementation Bidding and award Jammu Water Pipeline Implementation Jammu Electrical/ Bidding and award Mechanical Equipment Implementation Jammu Over head Bidding and award Reserviors Implementation Jammu Domestic Bidding and award water meters Implementation PHED = Public Health and Engineering Department, SMC = Srinagar Municipal Corporation Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

8 8 III. PROJECT MANAGEMENT ARRANGEMENTS A. Project Implementation Organizations Roles and Responsibilities 2 Project implementation organizations/constituents Economic Reconstruction Agency (ERA), Government of Jammu and Kashmir Governing Body, comprising: (i) Chief Minister, as chair (ii) Planning Minister (iii) Chief secretary (iv) Administrative Secretaries of Finance, Planning, Public Works (Road and Bridge), Housing & Urban Development (v) 3 Members of Legislative Assembly (vi) Chief Executive Officer, ERA Member - Secretary City Level Project Steering Committees, in respective subproject cities, comprising (i) Commissioner, Municipal Corporation (ii) Vice Chairman, respective Development Authority (iii) Chief Engineer, PHED (iv) Chief Engineer, UEED (v) Chief Engineer, PWD Director in charge, ERA (vi) Project Manager (vii) Collector, ERA Tender Approval Committee, comprising: (i) Chief Executive Officer, ERA (ii) Directors (all) (iii) Team Leaders, PMC and DSC (iv) Project Manager of related PIU- member secretary Project Management Unit, comprising: (i) Chief Executive Officer, ERA (ii) Director (Central) (iii) Director (Safeguard/ Institutional Reform) (iv) Director (Finance) (v) Accounts Officer (vi) Technical Officer to Director Central (Water supply and sanitation) Management Roles and Responsibilities Executing and Implementing agency (i) Provide strategic guidance and oversee the implementation of the investment program (ii) Review and provide policy direction on: (a) Implementation of the urban reform agenda (b) Compliance with loan covenants under the ADB loans; (iii) Facilitate in resolving critical project implementation issues and in inter-departmental co-ordination (iv) Ensure auditing of the loan proceeds (v) Review and approve the balance sheet, audit report and other annual reports of the program, if necessary. (vi) Ensure timely release of funds to the Investment Program (vii) Approve: (a) Subproject concept, scope and cost (b) Periodic financing request scope and cost (viii) Consider and take decision on (a) Annual budget and (b) Annual action plan (i) Endorse subproject scope of the respective city (ii) Provide a forum for effective involvement of town stakeholders in project implementation and civic awareness activities (iii) Discuss and finalize the proposal for institutional changes with assistance of the PMU (iv) Provide guidance and support to the PIU for ensuring smooth and timely implementation (v) Help the PIU in seeking support of the stakeholders (vi) Assist in site clearance activities and obtaining statutory clearances (i) Grant technical sanctions on detailed project reports (ii) Recommend the Governing body for administrative and financial approval on detailed project reports, if required (iii) Approve (a) Bid documents (b) Evaluation reports prepared by tender evaluation and consultant selection committees (c) Contract award proposals (d) Contract variation proposals (i) Liaise and correspond with ADB on all issues related to Investment Program (ii) Establish the PIUs and recruit staff (iii) Identify, prepare and submit subproject appraisal reports to the governing body for consent (iv) Prepare periodic financing request after compilation of constituent subprojects and other components and submit to governing body for approval. 2 Refer Part C for Organizational Structure

9 9 Project implementation organizations/constituents (vii) Technical Officer to Director (Transport) (viii) Institutional Reform Officer (ix) Communications/ Public Relations Officer (x) 2 Resettlement Officers (one each for each region) (xi) 2 Environment Officers (one each for each region) Project implementation unit (Srinagar), comprising: (i) Project Manager (from road sector background ) (ii) 5 Assistant Project Managers (3 from road sector background, 1 from procurement background and 1 from urban drainage background) (iii) Assistant Electro Mechanical Engineer (iv) Accountants (v) Additional engineers per contract upon Management Roles and Responsibilities (v) Approve (a) Detailed engineering design, and (b) Training and capacity building program (vi) Procure works, goods and consultancy services for implementation of the project which includes: (a) Invitation of bids (b) Prepare procurement documents for approval (c) Receive bids/ proposals and provide all necessary assistance to tender evaluation and consultant selection committee, to carry out evaluation (d) Award of contracts (e) Initiate with the assistance of PIUs all contract variation proposals (vii) Manage the contractors and project consultants as an employer (viii) Plan, implement and monitor: (a) Communication strategy (b) Gender mainstreaming initiatives (c) Community participation activities (d) Safeguard compliance activities. (ix) Prepare and submit periodic progress reports to ADB (x) Establish, maintain and update the investment program performance monitoring system (xi) Maintain Project accounts and prepare consolidated monthly reports (xii) Obtain statutory clearances (xiii) Coordinate for obtaining right of way clearances with related State and National agencies (xiv) Implement institutional reform component under the Investment program (xv) Coordinate with the PIUs for implementation of physical investment activities (xvi) Establish a sub-account with a commercial bank (xvii) Monitor physical and no-physical investment activities under the investment program; (xviii) Implementation of safeguards plans, guide the PIU as and when necessary, and prepare reports (xix) Prepare and submit: (a) Reports to the Governing Body (b) Internal audit report; (c) Reports to ADB; (d) Disbursement application to ADB. (xx) Submit reports of external auditor to Governing body (xxi) Disseminate information to the public and media; (xxii) Make payments to: (a) Project consultants (b) Civil works contractors (i) Facilitate collection of data for detailed engineering designs (ii) Obtain right of way clearances (iii) Help the Engineer or its representatives i.e. DSC in contract management issues (iv) Submit the bills to PMU for payments (v) Assist the town committee in their review and preparing necessary documents (vi) Consolidate progress report on each contract (vii) Maintain subproject and contract -level accounting

10 10 Project implementation organizations/constituents Management Roles and Responsibilities commencement of works Project implementation unit (Jammu), comprising: (i) Project Manager (from water supply and sanitation sector background ) (ii) 6 Assistant Project Managers (1 from road sector background, 1 from procurement background and 4 from water supply and sanitation background) (iii) Assistant Electro Mechanical Engineer (iv) Accountants (v) Additional engineers per contract upon commencement of works Tender Evaluation Committee comprising: (i) Consultant Selection (i) Project Manager, of respective PIUs Chair (ii) Open expressions of interest and consultant s (ii) Accounts Officer, PIU proposals (iii) Procurement Expert, DSC (iii) Evaluate expressions of interest and proposals (iv) Procurement Expert, PMC (iv) Prepare evaluation reports; (v) Technical Officer/ Procurement Officer, PMU (v) Submit recommendation to the Tender Approval committee (vi) Procurement of works and goods (vii) Open tender (viii) Evaluate bids (ix) Prepare evaluation reports (x) Submit recommendation to the Tender Approval committee ADB = Asian Development Bank, DSC = design and supervision consultant, ERA = Economic Reconstruction Agency, NGO = non-government organization, PIU = project implementation unit, PMC = project management consultant, PMU = project management unit, PWD = Public Works Department B. Key Persons Involved in Implementation Executing Agency State of Jammu and Kashmir Economic Reconstruction Agency ADB South Asia Department, SAUW Principal Secretary to Government Planning and Development Department Civil Secretariat Jammu/Srinagar State of Jammu and Kashmir Tel: , Mr. Tahseen Mustafa, CEO ceojkera@gmail.com Tel: Mr. Alok Mengi, Director (Central) directorcentral.jkera@rediffmail.com Web: Mr. Fei Yue, Director, SAUW Mr. Atsushi Kaneko, Senior Urban Development Specialist Asian Development Bank 6 ADB Avenue, Mandaluyong City 1550 Metro Manila, Philippines Tel: /6572 akaneko@adb.org Website:

11 11 C. Project Organization Structure for Investment Program including Project 2 Government of India Project Management Consultants Advice and Assistance Government of J&K Chief Executive Officer J&K ERA ERA Governing Body Director Central Director Finance Director Safeguard Tender Approval Committee DSC Jammu Advice and Assistance PIU Jammu PIU Kashmir Advice and Assistance DSC Srinagar City Level Steering Committee City Level Steering Committee Tender Evaluation Committee Jammu Tender Evaluation Committee Srinagar

12 12 IV. COSTS AND FINANCING A. Investment and Financing Plans 7. Project 2 of the Investment Program is estimated at $181.1 million (Table 1). Table 1: Investment Plan Project 2 (US$, millions) Items Total ADB % GOI % A Investment Costs Civil Work % % Equipment % % Training and workshops % 0.0 0% Resettlement/Environment % % Consultants % % Subtotal (A) % % B Recurrent Costs Incremental recurrent cost % % Subtotal (B) % % C Contingencies Physical % % Price % % Subtotal (C) % % D Financial Charges % % Grand Total (A+B+C+D) % % ADB = Asian Development Bank, GOI = Government of India, Source: Asian Development Bank estimates. a In 2011 prices b Physical contingency computed at 7.5% for civil works and 5% for equipment and materials; price contingency computed at 6% for domestic goods and 1% for imported goods. c Include interest and commitment charges. d Tax and duties computed at 16% for imported goods; at 10% for domestic goods; and at 0% for services. There is no tax on services in the state. Tax and duties are the responsibility of the government. The ADB s share of the total project costs does not include tax and duties. 8. To meet the total project investment costs of $181.1 million, the Government is requesting financing 61% of the total project costs, or up to $110 million from ADB. The proposed ADB loan will finance a part of civil work and equipment and material costs as well as the consulting services and incremental administrative costs under Project 2. The proposed ADB loan will be provided from the ordinary capital resources, with an interest rate to be determined in accordance with ADB s London interbank offered rate (LIBOR)-based lending facility, with a 25 year term including a grace period of 5 years, and commitment charges of 0.15% and such other terms as agreed under FFA and legal agreements. 9. The financing plan is in Table 2. Table 2: Financing Plan Source Amount ($ million) Share of Total (%) Asian Development Bank Government Total Source: ADB estimates. 10. The proceeds of the loan shall be used to finance eligible Project 2 expenditures. All goods and services to be financed out of the loan proceed shall be procured in accordance with

13 13 the Loan and Project Agreements and shall be used exclusively in the carrying out of Project 2. ADB may refuse to finance a contract where goods or services have not been procured under procedures in accordance with those agreed between the Government and ADB, or where the terms and conditions of the contract are not satisfactory to ADB. Loan allocation and withdrawal percentages to be applied with withdrawing from the loan proceeds are in Table 3. Table 3: Allocation and Withdrawal of Loan Proceeds (US$) Disbursement Category Loan Amount Allocated Disbursement Percentage Civil Work 76,200,000 70% of total expenditures Equipment 2,600, % of total expenditures excluding taxes Consultancy support 11,900,000 80% of total expenditures Training and workshop 1,000, % of total expenditures excluding taxes Incremental administration support 5,100,000 80% of total expenditures Unallocated 13,200,000 Total 110,000,000 Source: ADB estimates. B. Detailed Cost Estimates by Expenditures Table 4: Cost Estimates by Expenditures (US$, millions) Items Gross Net Tax A. Investment Costs Civil Works Equipment Training and workshops Consultants a. Project Management b. Capacity Development Resettlement/Environmental Management Subtotal (A) B. Recurrent Costs PMU and PIU Office Maintenance Subtotal (B) Total Base Cost C. Contingencies Physical Price Subtotal (C) D. Financing Charges Interest During Implementation Commitment Charges Subtotal (D) Total Project Cost (A+B+C+D) Source: ADB estimates.

14 14 C. Detailed Cost Estimates by Financier Table 5: Cost Estimates by Financier (US$, millions) ADB Government Total Items Amount % TTL Amount % TTL Tax % TTL Amount % TTL A. Investment Costs Civil Works % % % % Equipment % 0.0 0% % % Training and workshops % 0.0 0% 0.0 0% % Consultants % % 0.0 0% % a. Project Management % % 0.0 0% % b. Capacity Development % % 0.0 0% % Resettlement/ Environmental Management 0.0 0% % 0.0 0% % Subtotal (A) % % % % B. Recurrent Costs PMU and PIU % % 0.0 0% % Office Maintenance % % 0.0 0% % Subtotal (B) % % 0.0 0% % Total Base Cost % % % % C. Contingencies Physical % % 0.0 0% % Price % % 0.0 0% % Subtotal (C) % % 0.0 0% % D. Financing Charges Interest (Implementation) 0.0 0% % 0.0 0% % Commitment Charges 0.0 0% % 0.0 0% % Subtotal (D) 0.0 0% % 0.0 0% % Total Project Cost (A+B+C+D) % % % % Source: ADB estimates.

15 15 D. Detailed Cost Estimates by Years Table 6: Cost Estimates by Years (US$, millions) Items Total Cost Year 1 Year 2 Year 3 Year 4 Year 5 A. Investment Costs Civil Works Equipment Training and workshops Consultants a. Project Management b. Capacity Development Resettlement/ Environmental Management Subtotal (A) B. Recurrent Costs PMU and PIU Office Maintenance Subtotal (B) Total Base Cost C. Contingencies Physical Price Subtotal (C) D. Financing Charges Interest (Implementation) Commitment Charges Subtotal (D) Total Project Costs Source: ADB estimates.

16 16 E. Detailed Cost Estimates by Components Table 7 : Cost Estimate by Components (US$, millions) Water Supply Sewerage & Drainage Solid Waste Urban Transport Capacity Building Total Items Amount % of total Amount % of total Amount % of total Amount % of total Amount % of total A. Investment Costs Civil Works % % 0.0 0% % 0.0 0% Equipment % 0.0 0% % 0.0 0% % 3.1 Training and workshops 0.0 0% 0.0 0% 0.0 0% 0.0 0% % 1.0 Consultants 0.0 0% 0.0 0% 0.0 0% 0.0 0% % 14.8 a. Project Management 0.0 0% 0.0 0% 0.0 0% 0.0 0% % 9.2 b. Capacity Development 0.0 0% 0.0 0% 0.0 0% 0.0 0% % 5.6 Resettlement/Environmental Management 0.1 0% 0.8 4% 0.0 0% % 0.0 0% 22.3 Subtotal (A) % % 1.2 1% % % B. Recurrent Costs PMU and PIU 0.0 0% 0.0 0% 0.0 0% 0.0 0% % 4.8 Office Maintenance 0.0 0% 0.0 0% 0.0 0% 0.0 0% % 1.6 Subtotal (B) 0.0 0% 0.0 0% 0.0 0% 0.0 0% % 6.4 Total Base Cost % % 1.2 1% % % C. Contingencies Physical % % 0.1 1% % 0.1 1% 7.4 Price % % 0.0 0% % % 11.1 Subtotal (C) % % 0.1 0% % 1.6 9% 18.5 D. Financing Charges Interest (Implementation) % % 0.0 1% % % 6.2 Commitment Charges % % 0.0 1% % % 0.5 Subtotal (D) % % 0.1 1% % % 6.8 Total Project Cost (A+B+C+D) % % 1.4 1% % % Source: ADB estimates.

17 17 F. Detailed Cost Estimates by Subprojects Table 8: Cost Estimate by Subprojects (US$ million) Items Civil Works Equipment Consultants Sub-total Resettlement/ Environment Total A. Physical Investment by Subprojects 1 Srinagar Flyover Srinagar Car Parking Srinagar Drainage Srinagar Water Supply (5pks) Srinagar SWM (5pks) Jammu Flyover Jammu Drainage (Digyana) Jammu Drainage (Himmat) Pk1 (CW) Jammu Drainage (Himmat) Pk2 (STP) Jammu Water Supply Pk1 (wells) Jammu Water Supply Pk2 (OHT/Pipes) Jammu Water Supply Pk3 (pumps) Jammu Water Supply Pk4 (meters) Sub-total (A) B. Capacity Building 10.1 PMC DSC DSC PHED Capacity Building SPCB Capacity Building Social/Gender Sub-total (B) Sub-total (A+B) C. Recurrent Costs and Training 7.4 D. Contingencies 18.5 E. Taxes 11.7 F. Financing Charges 6.8 Total (A+B+C+D+E+F) 181.1

18 18 G. Contract and Disbursement S-curve 11. The graphs below show contract awards and disbursements in terms of disbursed contract values as well as percentages over the life of Project 2, based on the likely cumulative contract awards and disbursements. Figure 1 A: S-curve based on Values (US$, million) 120,000, ,000,000 80,000,000 60,000,000 40,000,000 20,000, Cumulative Contract Disbursements Cumulative Contract Awards Figure 1 B: S-curve based on Percentages (US$, million) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Cumulative Contract Disbursements Cumulative Contract Awards

19 19 H. Fund Flow Diagram Controller of Aid Accounts and Audit USD Advance/ replenishment Submit liquidation cum Department of Expenditure Plan Finance Division I (PF I) ADB Release rupee Submit liquidation or replenishment State Finance Department Allow withdrawal against funds Provide state Planning and Development Department, GoJ&K Government share ADB share Economic Reconstruction Agency (Executing and Implementing Agency) Deposit rupee funds Main Operating Commercial Bank Account Pay 100% to suppliers Suppliers and contractors deliver goods and

20 20 V. FINANCIAL MANAGEMENT A. Financial Management Assessment of Economic Reconstruction Agency and PIUs 12. The assessment on financial management of the ERA was initially completed and included in the Supplementary Appendix to the Report and Recommendations of the President to the Board of Directors: Proposed Multitranche Financing Facility to India for Jammu and Kashmir Urban Sector Development Investment Program (Manila. 2007). The financial management assessment has been updated for the ERA, the executing and implementing agency as well as its PMU and PIUs. A firm of Chartered Accountants to be approved will be the auditor for the ERA. Area of Assessment Executing and Implementing Agency Major Experiences of executing agency/implementing agency in Managing ADB Financed Projects Fund Flow Arrangements Organization and Staffing of the Implementing Agency Accounting Policy and Procedure and Information System Findings The executing agency and implementing agency is the Jammu and Kashmir ERA. ERA is staffed by drawing personnel from the state finance department, line agencies and contract employees as required. ERA has managed two ADB financed projects, Multi-sector Project for Infrastructure Rehabilitation in Jammu and Kashmir (MPIRJK) and Project 1 of the Investment Program. ERA has established the PMU to manage MPIRJK and the Investment Program. ERA has established four PIUs for MPIRJK. MPIRJK is expected to complete in FY2012. The average annual loan utilization is more than $20 million for MPIRJK, with a total loan amount of $250million. ERA has established two PIUs in Srinagar and Jammu respectively, for JKUSDIP. The average annual loan utilization is approximately $4 million for JKUSDIP Project 1, with a total loan amount of $42.2million. Loan proceeds under Project 2 will follow the existing fund flow arrangement for Loan 2331 of the Investment Program. ADB disburses the loan proceeds to the Government of India account in the Reserve Bank of India (RBI). The Government of India shall provide 90% of loan proceeds as grant and 10% of loan proceeds on back to back basis to GOJK. GOJK provides counterpart funds through budgetary support. The PMU manages loan proceeds through direct payment procedures, and reimbursement procedures. The PIU receives funds from PMU for operating expenditures only. Expenditures are consolidated monthly by ERA and reimbursement claims are then referred to ADB through Controller of Aid, Accounts and Audit (CAAA), Department of Economic Affairs (DEA), Ministry of Finance, New Delhi. There are 200 staff at ERA designated for MPIRJK and the Investment Program, among them, 21 are finance officers/analysts to support both programs. Key finance personnel include: - Director (Finance) by deputation: head of the Finance Section, heading all ADB projects - Three Accounts Officers at ERA and the two PIUs by deputation - Two Assistant Accounts Officers at each of the two PIUs by deputation. Staff has gained experience from implementing of MPIRJK and Project 1 of the Investment Program. There is no current vacant position to be filled. ERA accounts are maintained on ERP (Enterprise Resources Planning) platform of TALLY 9.8 accounting software based in Indian accounting standards which compare well with international standards. ERA s information system is computerized with the accounting system being maintained in TALLY accounting software. ERA has created separate charts of accounts under the title of water and sewerage fund, enterprise fund, and general fund. The PIUs have followed double-entry cash based accounting and have

21 21 Area of Assessment Segregation of Duties in the Implementing Agency Budgeting System in the Implementing Agency Payments in the Implementing Agency Cash and Bank of the Implementing Agency Safeguard over Assets by the Implementing Agency Other Offices of the Implementing Agency Internal Audit of the Implementing Agency External Audit in the Implementing Agency Reporting and Monitoring in the Implementing Agency Findings kept manual books for operating expenditures. There are established procedures for recording the transactions, record keeping and reports, and cost accounting (including cost control and analysis) at ERA and PIUs. Authorization to execute a transaction, recording of the transaction; and custody of assets involved in transaction are performed by different persons. The functions of ordering, receiving, accounting for, and paying for goods and services are segregated. ERA prepares the budget once in a year according to financial year following an assessment of funds requirement for various activities in terms of physical and financial targets for the financial year. Director (Finance) prepares the Budget which is approved by the Chief Executing Officer (CEO). Actual expenditure is compared with budget on regular basis. ERA also prepares monthly financial reports comparing actual against budget figures and explanations are required for significant variations from the budget. Monthly progress reports provide information about stage of project execution. All bills and invoices are stamped PAID. Two authorized signatories are required for issuance of all check payments above Rs10,000 at ERA. Single authorized signatory is required for payments equal to or less than Rs10,000 at ERA. Single authorized signatory from the accounts officer at the PIU is required for issuance of all check payments by the PIU. ERA and PIUs maintain adequate, up-to-date cashbooks, recording receipts and payments. Bank and cash are reconciled on monthly basis. The fixed assets register exists, following the laws and rules. ERA assets are covered under insurance depending upon the nature and cost of assets. Except for vehicles, ERA do not insure for other assets. ERA has established controls and procedures for flow of funds, financial information, and accountability for its PMUs and PIUs. Internal audit of ERA has not been completed. There is no audit committee. The annual audit is conducted by a firm of Chartered Accountants approved by ADB. There are no major audit recommendations that need to be implemented. Financial Statements of ERA are prepared in accordance with Indian accounting standards (IAS), as issued by the Institute of Chartered Accountants of India and under generally accepted accounting principles. Financial statements are prepared funding source wise and project wise. Financial reports are prepared in the excel spreadsheet on the basis of the accounting report generated through automated accounting system TALLY. 13. Conclusion and Recommendations. While there is no major issue identified for financial management during the project implementation, the areas for strengthening the current financial management practice are: (i) establishing audit committee for internal audit functions; (ii) outsourcing internal audit to an independent chartered accountant; and (iii) monthly reconciliation of PMU and PIU accounts..

22 22 B. Disbursement 14. The loan proceeds will be disbursed in accordance with ADB s Loan Disbursement Handbook (2012, as amended from time to time) 3, and detailed arrangements agreed upon between the government and ADB. Pursuant to ADB's Safeguard Policy Statement 4, 2009 (SPS), ADB funds may not be applied to the activities described on the ADB Prohibited Investment Activities List set forth at Appendix 5 of the SPS. All financial institutions will ensure that their investments are in compliance with applicable national laws and regulations and will apply the prohibited investment activities list to the project financed by ADB. 15. Types of Disbursement Procedures. There are four major types of disbursement procedures: (i) Direct payment procedure where ADB, at the borrower's request, pays a designated beneficiary directly; (ii) Commitment procedure where ADB, at the borrower's request, provides an irrevocable undertaking to reimburse a commercial bank for payments made or to be made to a supplier against a letter of credit financed from the loan account; (iii) Reimbursement procedure where ADB pays from the loan account to the borrower's account, for eligible expenditures which have been incurred and paid for by the project out of its budget allocation or its own resources; and (iv) Imprest fund procedure where ADB makes an advance disbursement from the loan account for deposit to an imprest account to be used exclusively for ADB's share of eligible expenditures. 16. The four procedures are normally used for the following kinds of payment. Disbursement Procedures Suggested Types of Payment Direct payment Mainly large civil works, progress payments, consultants fees, procurement of goods. Commitment Importation costs. Reimbursement Local currency costs, petty purchases, and small civil works. Imprest fund Contractors bills and suppliers invoices in local currency, numerous items of operating expenses, other relatively small eligible expenditures. Source: ADB Loan Disbursement Handbook 17. ERA will be responsible for (i) preparing annual contract award and disbursement projections; (ii) requesting budgetary allocations for counterpart funds; (iii) collecting supporting documents; and (iv) preparing and sending withdrawal applications to ADB through the office of the Controller of Aid Accounts and Audit (CAAA). 18. Imprest Fund Procedure. Immediately upon loan effectiveness, the government will open one (1) imprest account in the name of the CAAA with the Reserve Bank of India. The maximum ceiling of the imprest account will not, at any time, exceed 10% of the respective loan amount. The imprest account will be denominated in US dollars (loan currency). The initial advance or replenishment by ADB into the imprest account will be converted into equivalent rupees by the CAAA following its policy. The executing agency may open a sub-account in a commercial bank acceptable to ADB. If requested by the executing agency, the proceeds will be transferred from the imprest account in rupees in accordance with relevant procedures of the government to the sub-account. The government will assure ADB that the funds from the imprest account shall be transferred to the sub-account within 30 calendar days of the receipt of the advance or replenishment. The imprest account and sub-account are to be used exclusively for ADB s share of eligible expenditures. The CAAA and the executing agency who establishes 3 Available at: 4 Available at:

23 23 the respective imprest account and the sub-account in its name are accountable and responsible for proper use of advances to the imprest account and sub-account. 19. The sub-account should be maintained in a bank account without restrictions in withdrawing funds at any time. Any interest earned on the credit balance in the sub-account can be utilized to meet project expenditure. It is clarified that any temporary surplus balance in the sub-account should be retained in the savings account only, and may not be further re-deployed as fixed deposits. The request for initial and additional advance to the imprest account should be accompanied by an Estimate of Expenditures Sheet 5 setting out the estimated expenditures for the forthcoming 6 months. ADB s Loan Disbursement Handbook described which supporting documents should be submitted to ADB and which should be retained by the government for liquidation and replenishment of the imprest account and sub-account. 20. Statement of Expenditures. SOE procedures 6 will be adopted for reimbursement and liquidation and replenishment of the imprest accounts, for eligible expenditures not exceeding $100,000 per individual payment. Original supporting documentation for expenditure claimed under the SOE procedure should be retained by the government and/or executing agency, as appropriate and made available for review by ADB s disbursement and review mission or upon ADB s request for submission of supporting documents on a sampling basis, and for independent audit. ADB has designed specific formats to facilitate accurate preparation of withdrawal applications 7. These formats will be provided to the executing agency for implementation. 21. Before the submission of the first withdrawal application, the Borrower should submit to ADB sufficient evidence of the authority of the person(s) who will sign the withdrawal applications on their behalf, together with the authenticated specimen signatures of each authorized person. 22. The minimum value per withdrawal application is US$100,000, unless otherwise approved by ADB. The executing agency will consolidate claims to meet this limit for reimbursement and imprest account claims. Withdrawal applications and supporting documents will demonstrate, among other things, the goods and/or services were produced in or from ADB members, and are eligible for ADB financing. Withdrawal applications and other loan disbursement information are available at ADB Controller's Department's website Disbursement Practice. To expedite disbursement, ADB s Loan Disbursement Handbook has dedicated sections in Chapter 4 and Chapter 5 on (i) actions to be taken by the Borrower, (ii) basic requirements for disbursement, and (iii) withdrawal application. C. Accounting 24. ERA will maintain separate project financial statements and records by funding source for all expenditures incurred under Project 2. Such project financial statements shall be separately recorded from the project financial statements of Projects 1 and 2 of the Investment Program. Project financial statements will follow generally accepted accounting principles followed in India and the accounting standards followed by the government and State of Jammu and Kashmir. D. Auditing 25. ERA will cause the annual project financial statements to be audited in accordance with the standards prescribed by the Comptroller and Auditor General of India or the Institute of 5 Follow the format provided in Appendix 10B of the Loan Disbursement Handbook. 6 Follow the format provide in Appendix 9B and 9C of the Loan Disbursement Handbook. 7 Follow the format provide in Appendices 7A, 7B, 9B, 9C and 10A of the Loan Disbursement Handbook.

24 24 Chartered Accountants of India, and those applicable to the project, by an independent auditor, whose qualifications, experience and terms of reference are acceptable to ADB. The audited financial statements, together with the auditors' report and management letter, will be submitted in the English language to ADB within 9 months of the end of the fiscal year by ERA. 26. The annual audit report will include a separate audit opinion on the use of the imprest account, sub-account, and the SOE procedures, where applicable. The audit reports should include an assessment of the adequacy of the accounting and internal control systems, the ability to maintain proper and adequate records and documents in support of transactions, and the eligibility of incurred expenditure for ADB financing. ADB retains the right to: (i) review and examine any account; and (ii) verify the validity of the certification issued by the executing agency for each withdrawal application. 27. The government and ERA have been made aware of ADB s policy on delayed submission, and the requirements for satisfactory and acceptable quality of the audited accounts. ADB reserves the right to verify the project's financial accounts to confirm that the share of ADB s financing is used in accordance with ADB s policies and procedures. Further, any critical audit observations on the project should be reported to ADB, and action taken also monitored. For an independent entity whose annual financial statements are subject to audit under the DMC s statutory requirements, ADB requires audited financial statements (AFS) for each executing and/or implementation agency associated with the project. VI. PROCUREMENT AND CONSULTING SERVICES A. Advance Contracting and Retroactive Financing 28. All advance contracting and retroactive financing will be undertaken in conformity with ADB s Procurement Guidelines (2010, as amended from time to time) (ADB s Procurement Guidelines) 8 and ADB s Guidelines on the Use of Consultants (2010, as amended from time to time) (ADB s Guidelines on the Use of Consultants). 9 The issuance of invitations to bid under advance contracting and retroactive financing will be subject to ADB approval. The borrower, executing and implementing agencies have been advised that approval of advance contracting and retroactive financing does not commit ADB to finance the Project. 29. Advance contracting. Advance contracting of (i) civil works, (ii) equipment and materials, and (iii) recruitment of consultants was requested by the executing agency subject to these being eligible as per the agreed procedures and guidelines. Advance contracting would include: (i) prequalification of contractors, tendering, and bid evaluation for civil works packages; (ii) preparation of tender documents to procure works, materials and equipment; (iii) evaluation of bids; and (iv) recruitment of consultants. 30. Retroactive financing. Except as otherwise agreed with ADB, the expenditures incurred for civil works, equipment and materials, and consulting services that are eligible for advance contracting, and project management and implementation expenses will be eligible for retroactive financing of up to 20% of the proposed amount for the loan for eligible expenditures in each category incurred prior to effectiveness of the loan, but no earlier than 12 months before the signing of the loan agreement. The Government of India and GOJK have been advised that ADB s approval of advance contracting and retroactive financing does not constitute a commitment to finance the project under Project 2. 8 Available at: 9 Available at:

25 25 B. Procurement of Goods, Works and Consulting Services 31. All procurement of goods and works will be undertaken in accordance with ADB s Procurement Guidelines (2010, as amended from time to time). PMU will prepare standard biding documents for each type of national competitive bidding and submit to ADB for no objection, which will be used throughout Project 2 implementation period. The procurement plan for Project 2 indicating threshold and review procedures, mode of procurement, goods, works, and consulting service contract packages and national competitive bidding guidelines is in Section C. The procurement plan will be updated by the ERA for approval by ADB at least once a year (more frequently if necessary) and will cover the next 18 months of procurement activity. A delay in loan effectiveness, other start-up delays, and delays during implementation will require an unscheduled procurement plan update. ADB will review each updated procurement plan prior to its publication. When appropriate, this activity may be undertaken in the field by ADB missions working with the executing and implementing agencies. 32. Project Management Consultants (PMCs) 10 will be engaged, for a total input of 400 person-months (10 person-months international, 390 person-months national), under Project 2 in accordance with ADB s Guidelines on the Use of Consultants, 11 and following its Quality and Cost based Selection procedure, to assist the PMU and the PIUs established in Jammu and Srinagar to strengthen their project management and implementation capability. The PMC will assist the PMU and the PIUs in all project management activities including project formulation, management, monitoring and evaluation, social and environmental management aspects, appraisal of subprojects, review of engineering designs, procurement, implementation support, community awareness, quality monitoring, report preparation, establishment and updating of project performance monitoring system, etc. 33. Design and Supervision Consultants (DSCs) currently engaged under Project 1 may continue to provide services for Project 2. An additional person-months in total is required for these 2 consulting packages under Project Similarly, an estimated 247 person-months of consulting services will be required under Project 2 as Capacity Building and Institutional Support Consultants (CBISCs), through an international consulting firm (6 person-months international, 143 person-months national) and 2 national consulting firms (98 person-months in total), all engaged in accordance with ADB s Guidelines on the Use of Consultants 13 and following its Quality and Cost based Selection procedure to provide institutional capacity building support to the state-level service providers, environmental regulator and project municipalities. C. Consultant's Terms of Reference 35. Outline terms of reference of the consultants to be engaged under Project 2 is in Appendix Project Support Consultant (PSC) was engaged in 2009 for two years by the executing agency, ERA, to assist the PMU in project management activities under the Investment Program, including project formulation, management, monitoring and evaluation. The PSC s contract is now completed and ERA intends to engage new project management consultants for the remaining duration of the Investment Program rather than continuing the services of the PSC. 11 Checklists for actions required to contract consultants by method available in e-handbook on Project Implementation at: 12 Including key professional and technical support staff 13 Checklists for actions required to contract consultants by method available in e-handbook on Project Implementation at: