Republic of Fiji: Urban Water Supply and Wastewater Management Investment Program

Transcription

1 Facility Administration Manual Project Number: Loan and Grant Numbers: November 2016 Republic of Fiji: Urban Water Supply and Wastewater Management Investment Program

2 Contents I. PROJECT DESCRIPTION 1 II. IMPLEMENTATION PLANS 3 A. Project Readiness Activities 3 B. Overall Project Implementation Plan 4 III. PROJECT MANAGEMENT ARRANGEMENTS 5 A. Project Implementation Organizations Roles and Responsibilities 5 B. Key Persons Involved in Implementation 6 C. Project Organization Structure 7 IV. COSTS AND FINANCING 7 A. Detailed Cost Estimates by Expenditure Category ($ million) 8 B. Detailed Cost Estimates by Year 10 C. Detailed Cost Estimates by Year 11 D. Detailed Cost Estimates by Output and Financier 12 E. Allocation and Withdrawal of Loan and Grant Proceeds 14 F. Contract and Disbursement S-curve 14 G. Fund Flow Diagram 16 V. FINANCIAL MANAGEMENT 17 A. Financial Management Assessment 17 B. Disbursement 21 C. Accounting 21 D. Auditing 22 VI. PROCUREMENT AND CONSULTING SERVICES 23 A. Advance Contracting and Retroactive Financing 23 B. Procurement of Goods, Works and Consulting Services 23 C. Procurement Plan 24 D. National Competitive Bidding WAF 28 E. Consultant's Terms of Reference 31 VII. SAFEGUARDS 31 VIII. GENDER AND SOCIAL DIMENSIONS 32 A. Gender Action Plan 33 IX. PERFORMANCE MONITORING, EVALUATION, REPORTING AND COMMUNICATION 36 A. Investment Program Design and Monitoring Framework 36 B. Monitoring 39 C. Evaluation 39 D. Reporting 39 E. Stakeholder Communication Strategy 39 X. ANTICORRUPTION POLICY 40 XI. ACCOUNTABILITY MECHANISM 40 XII. RECORD OF PAM CHANGES 40

3 APPENDIX 1. DETAILED TERMS OF REFERENCE 42

4 Facility Administration Manual Purpose and Process The Facility Administration Manual (FAM) describes the essential administrative and management requirements to implement the Water Supply and Wastewater Management Investment Program (investment program) on time, within budget, and in accordance with Government and Asian Development Bank (ADB) policies and procedures. The FAM should include references to all available templates and instructions either through linkages to relevant URLs or directly incorporated in the FAM. The Ministry of Economy (MOE) and Water Authority of Fiji (WAF) are wholly responsible for the implementation of ADB financed investment program, as agreed jointly between the Government and ADB, and in accordance with Government and ADB s policies and procedures. ADB staff is responsible to support implementation including compliance by MOE and WAF of their obligations and responsibilities for the investment program implementation in accordance with ADB s policies and procedures. At loan and grant negotiations the Government and ADB shall agree to the FAM and ensure consistency with the Loan, Grant and Project Agreements. Such agreement shall be reflected in the minutes of the loan and grant negotiations. In the event of any discrepancy or contradiction between the FAM and the Loan, Grant and Project Agreements, the provisions of the latter shall prevail. After ADB Board approval of the investment program's report and recommendation of the President (RRP), 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 FAM.

5 Abbreviations ADB = Asian Development Bank CFO = chief financial officer EIA = environmental impact assessment EMP = environment management plan ESU = environment and social unit FMA = financial management assessment GAP = gender action plan GSA = greater Suva area IPMU = investment program management unit LAR = land acquisition and resettlement MFF = multitranche financing facility MOE = Ministry of Economy NCB = national competitive bidding NRW = non-revenue water OAG = office of the auditor general RF = resettlement framework RP = resettlement plan WAF = Water Authority of Fiji WSD = Water and Sewerage Department WWT = wastewater treatment

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7 I. INVESTMENT PROGRAM DESCRIPTION 1. The proposed investment program will augment vital urban infrastructure and services to support sustainable growth and development in the greater Suva area (GSA) including (i) increase water supply capacity in the GSA by 26%; (ii) increase wastewater treatment (WWT) capacity in the GSA by 164%; and (iii) support the Water Authority of Fiji (WAF) 1 to improve operational efficiency and quality of service delivery by enhancing its programs for non-revenue water (NRW) reduction, water demand management and liquid trade waste 2 management. The program will also support the government to develop and implement water and sewerage policy and regulatory reforms. A technical assistance and project design advance (PDA) loan was provided to prepare the investment program. 2. Impact and Outcome. The impact of the proposed investment program will ensure future growth in the GSA is sustainable and will improve public health. The outcome will be improved access to sustainable water supply and sewerage services in the GSA. 3. The investment program has the following outputs: 4. Output 1: Supply and access to safe water in the GSA improved. The investment will expand water supply by 40,000 m 3 per day by constructing a new supply intake on the Rewa river with associated water treatment plant, pumping station, reservoir, and transmission main to connect to the existing system. Reliable and sustainable long term operations and maintenance practices will be enhanced through a Design-Build-Operate (DBO) contracting arrangement. A catchment management plan will be developed to safeguard the water source and ensure long term sustainability. NRW reduction will be achieved by improving leak detection and repairs; replacing meters; and establishing district metering areas and pressure management systems. WAF will supply 200 liters per capital per day to 315,947 persons by 2023, ensuring continuous supply to 98% of the GSA population. The climate component of Output 1 will include adaptation measures for building the new Rewa river scheme specifically moving the facility from 29 km to 49 km from the river mouth to avoid future climate change impacts embodied in projected rising sea levels and potential migration of the salt water wedge up the river. 5. Output 2: Wastewater treatment and management capacity in the GSA increased. The wastewater network will be rehabilitated and expanded by: (i) upgrading 31 existing wastewater pumping stations; (ii) upgrading about 18 km of wastewater trunk mains to increase carrying capacity; (iii) relining 13 km of wastewater trunk mains; and (iv) extending the wastewater network to service an additional 15% of households (approximately 4,500 existing lots in backlog areas) currently using on-site septic tanks. Additionally, the WWT capacity at Kinoya will be expanded by 164% to cover approximately 277,000 equivalent population to treat wastewater from current and future households. By improving the network and expanding the WWT capacity, WAF will ensure that 60% of households in GSA will have access to a reticulated sewage collection system by The remaining households with individual septic units will be catered by a fecal sludge management system. 6. Output 3: WAF management and sustainable service delivery capacity improved. Program management and capacity development support will be provided to: (i) support WAF in the implementation of water demand management, NRW reduction and the national liquid trade waste 1 WAF is a state owned enterprise established under the WAF Promulgation 2007 and made effective on 1 January Liquid trade waste is waste water from trade or industrial processes which is discharged into the sewer. It does not include domestic waste water.

8 2 management programs; 3 (ii) support the Department of Environment (DOE) developing the environmental regulatory framework for treated municipal sewerage discharge, sludge treatment and disposal practices and standards, and associated monitoring and enforcement; (iii) complete the corporatization of WAF; (iv) formulate water safety plans to protect the quantity and quality of water at all source intakes; 4 (v) improve financial management; (vi) promote gender equity; and (vii) study alternatives to reduce the long term energy consumption of the existing urban WWT system. 7. The multitranche financing facility (MFF) for financing the investment program will be structured with two tranches. The completion of engineering designs, safeguard compliance, and completion of procurement documents will trigger preparation of subsequent tranches. Project 1 will be partially financed by the first tranche of the MFF. Detailed designs are at an advanced stage of preparation and are expected to be finalized by June Project 1 is expected to commence in August Project 1 will comprise: (i) the key physical interventions under Output 1 (construction of the Rewa river water supply scheme which includes the water treatment plant, pumping station, reservoir, and transmission main to connect to the existing system, and NRW works); (ii) consulting services for the due diligence and detailed engineering design required for Outputs 1 and 2; (iii) capacity building and institutional support for the corporatization of WAF and the preparation of support to water demand management, NRW reduction, and the liquid trade waste programs, and help formulate the water resource plan under Output 3; and (iv) completion of engineering designs, safeguard compliance, and preparation of procurement documents for Project 2 (wastewater). 8. Project 2 is expected to commence in November Detailed designs are being prepared and are expected to be finalized by June Project 2 will comprise: (i) the physical interventions under Output 2 (increase of the capacity at Kinoya WWT plant and wastewater system upgrade, improvement works and sewerage system extension in the GSA); and (ii) consulting services to supervise the wastewater system civil works under Output MOE will be the investment program's executing agency and WAF the implementing agency. 3 Supported under the PDA Loan. 4 This will involve development of land use plans to ensure catchment protective measures are in place.

9 3 II. IMPLEMENTATION PLANS A. Project Readiness Activities Indicative Activities Advance Recruitment actions Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Apr May Jun Jul Aug Responsible Agent WAF, MOE, ADB Establishment of MFF implementation arrangements ADB Board approval Tranche 1 loan signing Government legal opinion provided Government budget inclusion Tranche 1 loan effectiveness ADB = Asian Development Bank, MOE = Ministry of Economy, WAF = Water Authority of Fiji. WAF, MOE ADB ADB, MOE MOE MOE MOE

10 4 B. Overall Investment Program Implementation Plan DBO = design-build-operate, IPMU = investment program management unit, NRW = non-revenue water, PDA = project design advance, RRP = report and recommendation of the president, WSS = water supply scheme, WTP = waste treatment plant, WW = wastewater, WWTP = wastewater treatment plant

11 5 III. INVESTMENT PROGRAM MANAGEMENT ARRANGEMENTS A. Investment Program Implementation Organizations Roles and Responsibilities Implementation Management Roles and Responsibilities organizations MOE Executing Agency Responsible for Investment Program oversight and administration Ensure compliance with Investment Program covenants Submit Investment Program document, including audit reports and financial statements of the program account, to ADB on time Submit withdrawal application to ADB Convene regular meetings IPSC The IPSC will comprise representatives from MOE (chair), WAF, MOIT, and MLGHE Oversee the Investment Program implementation progress and provide guidance and resolve issues Meet at least quarterly and convene special meetings as required WAF Implementing agency Assist MOE in recruitment of project management and design and supervision consultants in accordance with Guidelines on Use of Consultants by ADB and its Borrowers Establish the Investment Program Management Unit responsible for day to day implementation of the projects Prepare overall implementation plan and annual budgets Supervise project management and design and supervision consultants Oversee detailed design of subprojects Ensure timely bidding and award of civil works contracts in accordance with ADB and EIB Procurement Guidelines Ensure compliance with Investment Program covenants Safeguards implementation and monitoring Monitoring and evaluation of project performance in accordance with Investment Program s Design and Monitoring Framework Review withdrawal applications before submission to MOE ADB Monitor and support Investment Program implementation and compliance with the framework financing, loan and project agreement. Coordination and advisory support EIB Monitor and support Investment Program implementation and compliance with EIB loan and project agreement. Coordination and advisory support ADB = Asian Development Bank, EIB = European Investment Bank, IPSC = Investment Program Steering Committee; MLGHE = Ministry of Local Government, Housing and Environment, MOE = Ministry of Economy, MOIT = Ministry of Infrastructure and Transport, WAF = Water Authority of Fiji.

12 6 B. Key Persons Involved in Implementation Executing Agency Ministry of Economy Implementing Agency Water Authority of Fiji Asia Development Bank Pacific Subregional Office (SPSO) Project Officer European Investment Bank Project Officer Contact Information Ms. Makereta Alfereti-Konrote Permanent Secretary Ministry of Economy Level 9, Ro Lalabalavu House PO Box 2212 Government Buildings Suva, Fiji Phone: Mr. Opetaia Ravai Chief Executive Officer Water Authority of Fiji Level 6, Manohan Building Cnr of Ckings & Wainivula Road, Nasinu PO Box 1272, Suva Phone: Mr. Robert Jauncey Regional Director Phone: Fax: Mr. Jude Kohlhase Infrastructure Specialist Phone: Fax: Ms. Katrin Bock Business Analyst Pacific Regional Office Level 25, 88 Phillip Street Sydney NSW 2000, Australia Phone: Fax: k.bock@eib.org

13 7 C. Project Organization Structure ADB = Asian Development Bank; MOE = Ministry of Economy; MLGHE = Ministry of Local Government, Housing and Environment; WAF = Water Authority of Fiji; WSS = water supply scheme; WWTP = wastewater treatment plant. IV. COSTS AND FINANCING 10. The government has requested a MFF in an amount up to $184.2 million in the form of loans from ADB s ordinary capital resources (OCR) and grant cofinancing from Green Climate Fund (GCF) to help finance a part of the investment program. The MFF is expected to consist of two tranches, subject to the government's submission of related periodic financing requests, execution of the related loan and project agreements for each tranche, and fulfillment of terms and conditions and undertakings set forth in the framework financing agreement (FFA). Tranche 1 will comprise: (a) loan of $42,109,000 from OCR, with a 21 year term, including a grace period of 6 years, annuity method based on 10% discount factor, an annual interest rate determined in accordance with ADB s London interbank offered rate (LIBOR) based lending facility, a commitment charge of 0.15% per year, and such other terms and conditions set forth in the loan and project agreements. Based on this, the average loan maturity is years, and the maturity premium payable to ADB is 0.10% per annum; 5 and (b) grant cofinancing from Green Climate Fund equivalent to $31,040,000 million, to be administered by ADB. Interest during construction will be capitalized in the loan. Local transport and insurance will be eligible under the loan. The Government will finance operation and maintenance cost included in the Design- 5 The annuity repayment method based on 10% discount factor.

14 8 Build Operate contracts. The remainder of financing for Project 1 will comprise: (i) an EIB loan of $26.6 million; 6 and (ii) a government contribution of $80.7 million for project costs including taxes, duties and land acquisition. MFF proceeds will be included in the government s usual budgetary transfers to WAF. A. Detailed Cost Estimates by Expenditure Category ($ million) 1. Investment Program Item FJD (millions) $ (millions) A. Investment Costs 1. Rewa Water Intake & Water Treatment Plant Foreign Local Total Foreign Local Total Exchange Currency Exchange Currency Rewa Water Transmission Main NRW Reduction Kinoya WWTP Upgrade Part Kinoya WWTP Upgrade Part Wastewater Improvement Environment & Social Mitigation Consulting Services PDA Subtotal (A) B. Recurrent Costs 1. Operations & Maintenance C. Contingencies Total Base Costs (A+B) Physical a Price b Subtotal (C) D. Financing Charges During Implementation 1. Interest during Construction Commitment Charges Subtotal (D) Total Project Cost (A+B+C+D) NRW = non-revenue water; PDA = project design advance, WWTP = wastewater treatment plant. a Physical contingencies are computed at 10% of base cost. b Price Contingencies are computed by expenditure based on annual domestic and foreign inflation. 6 EIB's cofinancing will be on joint parallel basis not administered by ADB, however, it will finance the same component/contracts. The blanket waiver on country eligibility will apply.

15 9 2. Project 1 Item FJD (millions) $ (millions) A. Investment Costs 1. Rewa Water Intake & Water Treatment Plant Foreign Local Total Foreign Local Total Exchange Currency Exchange Currency Rewa Water Transmission Main NRW Reduction Environment & Social Mitigation Consulting Services PDA Subtotal (A) B. Recurrent Costs 1. Operations & Maintenance Total Base Costs (A+B) C. Contingencies 1. Physical a Price b Subtotal (C) D. Financing Charges During Implementation 1. Interest during Construction Commitment Charges Subtotal (D) Total Project Cost (A+B+C+D) NRW = non-revenue water; PDA = project design advance. a Physical contingencies are computed at 10% of base cost. b Price Contingencies are computed by expenditure based on annual domestic and foreign inflation.

16 10 Item B. Detailed Cost Estimates by Year 1. Investment Program Total Cost A. Investment Costs a 1. Rewa Water Intake & Water Treatment Plant Rewa Water Transmission Main NRW Reduction Kinoya WWTP Upgrade Part Kinoya WWTP Upgrade Part Wastewater Improvement Environment & Social Mitigation Consulting Services PDA Subtotal (A) B. Recurrent Costs 1.Operations & Maintenance Total Base Costs (A+B) Physical 2. Price C. Contingencies 4.5 b c Subtotal (B) 12.5 D. Financing Charges During Implementation 1. Interest during Construction Commitment Charges , Subtotal (D) Total Project Cost (A+B+C+D) % 2.2% 8.6% 20.5% 25.4% 18.1% 16.6 % NRM = non-revenue water, PDA = project design advance, WWTP = wastewater treatment plant. a In Mid 2016 prices. b Physical contingencies are computed at 10% of base cost. c Price Contingencies are computed by expenditure based on annual domestic and foreign inflation %

17 11 C. Detailed Cost Estimates by Year 2. Project 1 Total Item Cost A. Investment Costs a 1. Rewa Water Intake & Water Treatment Plant Rewa Water Transmission Main 3. NRW Reduction 4. Environment & Social Mitigation 5. Consulting Services 6. PDA B. Recurrent Costs Subtotal (A) Operations & Maintenance Total Base Costs (A+B) C. Contingencies 1. Physical b Price c Subtotal (B) D. Financing Charges During Implementation 1. Interest during Construction Commitment Charges Subtotal (D) Total Project Cost (A+B+C+D) % 12.2 % 6.1% 7,6% 1.3% 0.7% 2.2% 6.9% NRW = non-revenue water, PDA = project design advance. a In Mid 2016 prices. b Physical contingencies are computed at 10% of base cost. c Price Contingencies are computed by expenditure based on annual domestic and foreign inflation.

18 12 D. Detailed Cost Estimates by Output and Financier 1. Investment Program ADB = Asian Development Bank, EIB = European Investment Bank, GCF = Green Climate Fund, GOF = Government of Fiji, NRW = non-revenue water, OCR = ordinary capital resources, PDA = project design advance, WWTP = wastewater treatment plant.

19 13 2. Project 1 Detailed Cost estimates by financier, Project 1 US $ millions Item ADB % of Cost EIB % of Cost GCF % of Cost GoF % of Cost Total Cost OCR Loan Category Loan Category Grant Category Tax & Duty Non Tax Total Category A. Investment Costs 1. Rewa Water Intake & Water Treatment Plant % % % % Rewa Water Transmission Main % % % % Water Supply Improvement / NRW Reduction % 0.8 7% 0.0 0% % Environment & Social Mitigation 0.0 0% 0.0 0% 0.0 0% % Consulting Services % 0.0 0% 0.0 0% % PDA % 0.0 0% 0.0 0% % 9.4 Subtotal (A) % % % % Total Base Costs (A) % % % % B. Recurrent Costs 1. Operations & Maintenance 0.0 0% 0.0 0% 0.0 0% % 5.0 C. Contingencies Total Base Costs (A+B) % % % % Physical a % % % % Price b % % % % 17.3 Subtotal (C) % % % % 31.6 D. Interest During Implementation 1. Interest during Construction % % 0.0 0% % Commitment Charges % % 0.0 0% % 0.4 Subtotal (D) % % 0.0 0% % 6.3 Total Project Cost (A+B+C+D) % % % % a Physcial contingencies are computed at 10% of base cost b Price Contingencies are computed by expenditure based on annual domestic and foreign inflation ADB = Asian Development Bank, EIB = European Investment Bank, GCF = Green Climate Fund, GOF = Government of Fiji, NRW = non-revenue water, OCR = ordinary capital resources, PDA = project design advance, WWTP = wastewater treatment plant.

20 14 E. Allocation and Withdrawal of Loan and Grant Proceeds ALLOCATION AND WITHDRAWAL OF LOAN PROCEEDS CATEGORY ADB FINANCING Total Amount Allocated for ADB Financing Item ($) Category Subcategory Percentage and Basis for Withdrawal from the Loan Account Rewa water intake, 15,286,115 1 water treatment plant and transmission main 15% of total expenditure claimed Water Supply 1,806,913 2 Improvement/NRW 17% of total expenditure claimed reduction 3 Consulting Services 11,915, % of expenditure claimed 4 PDA 2,686,945 4A PDA Principal 2,650, % of total amount due 4B PDA Estimated Financing Charges 36, % of total amount due 5 Financing Charges 3,849, % of total amount due 6 Unallocated 6,564,796 Total 42,109,000 NRW = non-revenue water, PDA = project design advance ALLOCATION AND WITHDRAWAL OF GCF GRANT PROCEEDS CATEGORY Total Amount Allocated for GCF Financing ($) Item Category Rewa Water Intake. Water 24,987,000 1 Treatment Plant & Transmission main 2 Unallocated 6,053,000 Total 31,040,000 GCF FINANCING Percentage and Basis for Withdrawal from the Grant Account 24% of total expenditure claimed

21 15 F. Contract and Disbursement S-curve 1. Investment Program $ million Fiji: Urban Water Supply & Wastewater Management Investment Program Planned Cum. Disbursements Planned Cum Contract Awards 2. Project 1 Fiji: Urban Water Supply & Wastewater Management Investment Program $ million Planned Cum. Disbursements Planned Cum Contract Awards

22 16 G. Fund Flow Diagram

23 17 A. Financial Management Assessment V. FINANCIAL MANAGEMENT 11. A financial management assessment (FMA) for the proposed project was carried out in accordance with ADB s Financial Management Guidelines 7 and Financial Due Diligence Methodology Note, under a project preparatory technical assistance. The FMA considered the MOE as the proposed Investment Program executing agency and the WAF as the proposed Investment Program implementing agency. 12. The FMA consisted of: (i) completing the FMA Questionnaire; (ii) assessing the financial management Internal Control and Risk; and (iii) evaluating the implementing agency s financial management personnel, accounting policies and procedures, internal and external audit, and information systems for financial reporting. Interviews were conducted with WAF s finance division and senior management, officers of MOE s Debt and Cash Flow Management Unit, and staff of the Office of the Auditor General (OAG). 13. Fiji has an adequate legal framework for public financial management and budgeting, provided for under the Financial Management Act 2004 and Finance Instructions 2005 and Public financial management (PFM) arrangements were assessed using the Public Expenditure Financial Accountability (PEFA) Public financial management assessment framework in The Public Expenditure Financial Accountability report is available. 8 MOE prepared the PFM Reform Plan and is awaiting Cabinet approval. ADB s County Program Strategy, was approved by the Board in November 2014 and will focus support on strengthening public sector management capacity in core government functions, including budgeting, debt management, and other public financial management and state owned enterprise reforms. 14. WAF was established under the WAF Promulgation 2007 and from 1 January 2010, officially took over from the Water and Sewerage Department (WSD). WAF is governed by a Board of Directors appointed by government and the daily operations of WAF are delegated to the Chief Executive Officer (CEO). Reporting to the Chief Executive Officer are the Chief Operating Officer (COO) and the Chief Financial Officer (CFO). Three regional managers (central eastern, western and northern) report to the Chief Operating Officer and the finance team reports to the CFO. WAF has separate departments for human resources, internal audit, legal, strategic planning and customer services. The total workforce at WAF is 1,200 full time and 1,350 project staff, the latter who are recruited for the duration of projects being implemented. The finance division comprises of teams responsible for payments, projects, operations (reconciliations), revenue and payroll and consists of 39 staff. The IT, procurement and fleet management staff totaling 36, also report to the CFO. A major issue faced by WAF is the retention of qualified finance staff. The acting CFO is a professionally qualified accountant. 15. The financial statements of WAF s first year of operation (2010) were audited in 2013 and a disclaimer of opinion was issued by the OAG due to: (i) inadequate internal control over journal entry system; (ii) an appropriate reconciliation of inventory was not performed; and (iii) a 7 ADB Guidelines for the Financial Management and Analysis of Projects. Manila. 8 Under the PEFA framework, performance is assessed in relation to seven dimensions of public financial management: credibility of the budget; comprehensiveness and transparency; degree to which the budget is prepared with due regard to government policy; predictability and control in budget execution; accounting, recording and reporting; external scrutiny and audit operations; appropriateness of development partner practices in country; and intergovernmental fiscal relationships.

24 18 valuation of assets was not carried out when WAF took over from WSD. WAF s 2011 financial statements were audited in 2014 and a qualified audit opinion was issued which was due to the (i) recognition of water and sewerage income by WAF which was deposited in government s consolidated account and accounted by government as their revenue; (ii) inadequate internal control over journal entry system; (iii) an appropriate reconciliation of inventory was not performed; and (iv) a valuation of assets was not carried out when WAF took over from WSD. WAF s 2012 financial statements were audited in 2015 while the 2013 financial statements were audited in 2016 and qualified opinions were also issued which were due to: (i) recognition of water and sewerage income which was deposited in government s consolidated account and accounted by government as their revenue; (ii) an appropriate reconciliation of inventory was not performed; and (iii) a valuation of assets was not carried out when WAF took over from WSD. The audit of the 2014 financial statements are currently underway and once complete, the audit of the 2015 financial statements will then commence. WAF are working on resolving the issues raised by the auditors, 2 of which relate to the period when WAF took over from WSD. 16. WAF has been an implementing agency for four ADB projects - L2055-FIJ Suva-Nausori Water Supply and Sewerage Project which closed in June 2013; L2603-FIJ Suva Nausori Water Supply and Sewerage Project (Supplementary) which closed in June 2014; L2541-FIJ: Emergency Flood Recovery (Sector) Project which closed in July 2015; and G0283-FIJ: Fiji Flood Emergency Response which closed in October WAF staff prepared manual withdrawal applications, which were then forwarded for signature, to MOE where the authorized signatories are based. WAF staff also prepared the project financial statements for auditing and handled responses to the audit management letter. The WAF and MOE staff who handle this work are well-versed with ADB s disbursements, and financial reporting and auditing requirements and have attended in-country training, conducted by ADB in 2011, 2012 and WAF is currently the implementing agency for the ongoing L6004-FIJ: Project Design Advance Urban Water Supply and Wastewater Management Project, which is due to close in February WAF and MOE attended ADB s training on the new Client Portal for Disbursement System (CPD) which was rolled-out to Fiji in July For this ongoing and for future projects, WAF will create withdrawal applications in the CPD System which will then be submitted online to the authorized signatories in MOE, for their online review and approval. 18. Unqualified opinions have been issued by the OAG for all project financial statements under L2055-FIJ, L2603-FIJ and L2541-FIJ. Under the first 4 year s project financial statements for L2055-FIJ, the OAG noted issues relating to differences between WAF s and MOE s records, poor financial planning, records for a particular purchase not being available, incorrect charging of VAT and improper storage of files and in the 7 th year, and an incorrect USD-FJD exchange rate was used. For the G0283-FIJ project, the OAG confirmed that the financial statements were presented fairly in accordance with the Grant but issued a disclaimer of opinion due to 9 internal control weaknesses which included: (i) some tenders not being called for services; (ii) tenders being extended by the Chief Executive Officer without Board approval; (iii) completed works certified by staff other than engineers/supervisors; (iv) contractor vehicle registration numbers not stated on WAF contract documents; (v) idle time not inputted on daily machine tally sheets; (vi) purchase order issued after invoices were received; (vii) adequate supporting documents not always attached to payment vouchers; (viii) expenses posted in the general ledger according to expenditure allocations and not according to depots; and (ix) failure to produce some documents for audit. WAF strongly disagreed with the OAG s opinion and were disappointed that their responses were not taken into account by the OAG and several meetings were held on this. The WAF management was tasked by the Board to investigate the audit

25 19 findings and after a review, the Board was satisfied with the explanations given by Management. The Board also acknowledged that the relief work had to be done quickly and as there was competition for resources, some lapses in established procedures were inevitable. As a result, in October 2013, WAF incorporated new sections in its procedure manuals, outlining processes to follow, in times of natural disasters and emergencies. 19. With regards to the submission of audited project financial statements, there were significant delays with the L2055-FIJ project when it was under the responsibility of the WSD, including the loan being suspended in April 2008 because the 2005 and 2006 audited financial statements had not yet been received by ADB. These were finally received by ADB, 17 months and 5 months, after the due dates. There have been improvements in the submission dates for all projects since WAF was established, including 2 submissions being received before the due dates. 20. To assist WAF, the proposed investment program will finance a long-term national financial specialist and a short-term international financial specialist to assist the CFO in training the finance and internal audit staff, as well as to review the accounting, financial management and internal auditing policies and support the implementation of changes needed. The proposed investment program will also finance a qualified full-time project accountant, who will handle all financial work for the investment program. 21. A Financial Management Internal Control and Risk Management Assessment, based largely on International Standard on Auditing 400 Risk Assessment and Internal Control, was conducting on the existing structure, staffing, resources and procedures of the WAF. The results, including recommendations for risk mitigation measures, are summarized in Table 1. Table 1. Financial Management Internal Control and Risk Management Assessment Risk Type Risk Assessment Rating Risk Description Mitigation Measures A. Inherent Risk (the susceptibility of the project financial management system to factors arising from the environment in which it operates, such as country rules and regulations and entity working environment (assuming absence of any counter checks or internal controls)). Moderate An IMF report of 2004, noted poor public financial management. 1. Countryspecific Risks 2. Entity-specific Risks Moderate Substantial Lack of skilled staff, especially at managerial level. Backlog with the preparation and submission of annual financial statements. Public financial management has improved since. Specific support on ADB s procedures will be provided by the project. The project will finance a long-term qualified national financial specialist and a short-term international financial specialist to provide training and improve on the financial management procedures and policies. The audit of the 2014 financial statements is underway and after completion, the audit of the 2015 financial statements will commence. Qualified and adverse audit opinions issued by the OAG. Disclaimer of opinion issued for 2010 financial statements and qualified opinions issued for financial statements. WAF are working on resolving the issues raised.

26 20 3. Projectspecific Risks Moderate A relatively complex project with 2 financiers, including a Design- Build-Operate contract. Moderate The project will fully fund an IPMU, including a qualified project accountant. Overall Inherent Risk B. Control Risk (the risk that the project s accounting and internal control framework are inadequate to ensure project funds are used economically and efficiently and for the purpose intended, and that the use of funds is properly reported). 1. Implementing Entity Moderate The OAG questioned some of WAF s accounting policies. The project will finance a long-term national finance specialist to assist WAF develop its accounting and internal auditing functions. 2. Funds Flow Negligible Separate accounts. Separate accounts will be maintained for components financed by ADB, EIB and GoF to be audited by OAG. The project will fund a qualified fulltime project accountant in the IPMU who will be responsible for this work. 3. Staffing Moderate Difficulty in attracting and retaining qualified and experienced staff. Only the CFO is a professional accountant with experience in the preparation of financial statements. 4. Accounting Policies and Procedures Substantial Accounting treatment of transactions and accounting policies 5. Internal Audit Substantial WAF has an internal auditing division which started off as a fraud and investigation unit and is still operating this way. The OAG commented on weak internal controls and advised that this is where the internal audit division should concentrate their work on. 6. External Audit Substantial The Financial Management Act 2004 requires that the accounts of all government statutory authorities, be audited by the OAG. The OAG requires the project financial statements at least 2 months before ADB s due date. 7. Reporting and Monitoring 8. Information systems Substantial Substantial The entity financial statements are long overdue. WAF uses an off-the-shelf AccPacc accounting software although an upgrade is needed. WAF also uses The project will fund a full-time qualified project accountant to handle all project financial work, in accordance with ADB requirements. Regular training on ADB disbursement and financial reporting requirements will be provided. The project will finance a short-term international financial specialist and a long-term national financial specialist to provide on-the-job training to all WAF finance staff. The financial specialists financed under the project will conduct a detailed review of accounting policies and implement recommendations. An external audit firm has been contracted to carry out audit of systems and controls on an ad hoc basis, due to funding constraints. The financial specialists financed under the project will develop an internal audit program and will train staff to conduct a systems audit to enhance internal controls. The 2014 financial statements are currently being audited and WAF is addressing issues that were raised by the OAG in previous audit reports. The financial specialists financed under the project will review, recommend and implement improvements. Project financial reporting and monitoring will be done by the proposed full-time project accountant, outside WAF s reporting system, subject to audit by the OAG. Once the 2014 audit is completed in 2016, the 2015 audit will be completed in a shorter period of time. The financial specialists funded under the project will review, provide recommendations and implement

27 21 separate software for billing and account receivable management (recently migrated to Gentrac software) and payroll (Payglobal software). AccPacc, Gentrac and Payglobal software are not integrated and the payroll and billing information is captured into the accounting system by using period end journal entries. improvements to the accounting system and the billing system. Overall Control Substantial Risk ADB = Asian Development Bank, CFO = Chief Financial Officer, EIB = European Investment Bank, GoF = Government of Fiji, IMF = International Monetary Fund, IPMU = Investment Program Management Unit, OAG = Office of the Auditor General, WAF = Water Authority of Fiji. B. Disbursement 22. The loan and ADB administered co-financier grant proceeds will be disbursed in accordance with ADB s Loan Disbursement Handbook (2015, as amended from time to time), 9 and detailed arrangements agreed upon between the Government and ADB. Online training for project staff on disbursement policies and procedures is available at: Project staff are encouraged to avail of this training to help ensure efficient disbursement and fiduciary control. 23. Direct payment, reimbursement and commitment letter procedures will be used. An investment program management unit (IPMU), including a full-time qualified project accountant, will be established under WAF. The project accountant will be responsible for: (i) preparing disbursement projections; (ii) requesting budgetary allocations for counterpart funds; (iii) collecting supporting documents; and (iv) creating withdrawal applications in CPD and submitting them online to MOE, for approval by the authorized signatories. See Figure 2 for Fund Flow for the investment program. 24. Before the submission of the first withdrawal application, MOE will submit to ADB sufficient evidence of the authority of the persons who will sign the withdrawal applications on behalf of the borrower, together with the authenticated specimen signatures of each authorized person. The minimum value per withdrawal application is US$100,000 equivalent. Individual payments below this amount should be paid by the executing and implementing agency and subsequently claimed to ADB through reimbursement, unless otherwise accepted by ADB. 25. All disbursements under government financing will be carried out in accordance with regulations of the government and prevailing ADB guidelines. C. Accounting 26. The MOE and WAF will maintain, or cause to be maintained, separate books and records by funding source for all expenditures incurred on the investment program. The MOE and WAF will prepare consolidated project financial statements in accordance with the government's accounting laws and regulations which are consistent with international accounting principles and practices Available at: 10 WAF follows the International Financial Reporting Standards.

28 22 D. Auditing and Public Disclosure 27. The MOE and WAF will cause the detailed consolidated project financial statements to be audited in accordance with International Standards on Auditing and with the Government s audit regulations, by an independent auditor acceptable to ADB. The audited project financial statements together with the auditors opinion will be submitted in the English language to ADB within six months of the end of the fiscal year by the MOE and WAF. 28. The MOE and WAF will also cause the entity-level financial statements to be audited in accordance with International Standards on Auditing and with the Government s audit regulations, by an independent auditor acceptable to ADB. The audited entity-level financial statements, together with the auditors report and management letter, will be submitted in the English language to ADB within one month after their approval by the relevant authority. 29. The annual audit report for the project accounts will include an audit management letter and audit opinions which cover: (i) whether the project financial statements present a true and fair view or are presented fairly, in all material respects, in accordance with the applicable financial reporting framework; (ii) whether loan and grant proceeds were used only for the purposes of the project or not; and (iii) the level of compliance for each financial covenant contained in the legal agreements for the project. 30. Compliance with financial reporting and auditing requirements will be monitored by review missions and during normal program supervision, and followed up regularly with all concerned, including the external auditor. 31. The Government, MOE and WAF have been made aware of ADB s approach to delayed submission, and the requirements for satisfactory and acceptable quality of the audited project financial statements. 11 ADB reserves the right to require a change in the auditor (in a manner consistent with the constitution of the borrower), or for additional support to be provided to the auditor, if the audits required are not conducted in a manner satisfactory to ADB, or if the audits are substantially delayed. 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. 32. Public disclosure of the project financial statements, including the audit report on the project financial statements, will be guided by ADB s Public Communications Policy (2011). 12 After review, ADB will disclose the project financial statements for the project and the opinion of the auditors on the financial statements within 14 calendar days of the date of their acceptance by posting them on ADB s website. The Audit Management Letter will not be disclosed. 11 ADB approach and procedures regarding delayed submission of audited project financial statements: When audited project financial statements are not received by the due date, ADB will write to the executing agency advising that (i) the audit documents are overdue; and (ii) if they are not received within the next six months, requests for new contract awards and disbursement such as new replenishment of imprest accounts, processing of new reimbursement, and issuance of new commitment letters will not be processed. When audited project financial statements have not been received within 6 months after the due date, ADB will withhold processing of requests for new contract awards and disbursement such as new replenishment of imprest accounts, processing of new reimbursement, and issuance of new commitment letters. ADB will (i) inform the executing agency of ADB s actions; and (ii) advise that the loan may be suspended if the audit documents are not received within the next six months. 12 Available from

29 23 VI. PROCUREMENT AND CONSULTING SERVICES A. Advance Contracting and Retroactive Financing 33. All advance contracting and retroactive financing will be undertaken in conformity with ADB s Procurement Guidelines (2015, as amended from time to time) (ADB s Procurement Guidelines) 13 and ADB s Guidelines on the Use of Consultants (2013, as amended from time to time) (ADB s Guidelines on the Use of Consultants). 14 The issuance of invitations to bid under advance contracting and retroactive financing will be subject to ADB approval. The borrower, MOE and WAF have been advised that approval of advance contracting and retroactive financing does not commit ADB to finance the Project. 34. Advance contracting. The government has requested ADB s approval of advance contracting for (i) the recruitment of consultants (detailed engineering consultants); (ii) procurement of civil works; and (iii) procurement of water supply equipment. The borrower, executing and implementing agency have been advised that approval of advance contracting does not commit ADB to finance the investment program. 35. Retroactive financing. For tranche 1, ADB will finance a maximum amount of eligible expenditures up to the equivalent of 20% of the respective loan and grant for tranche 1 incurred before tranche 1 loan or grant effectiveness but not earlier than 12 months before the signing of the loan and grant agreements for tranche 1. Retroactive financing shall apply to consulting services, civil works, and goods (to include water supply equipment) under tranche 1 loan and grant. The executing and implementing agencies have been advised that approval of retroactive financing does not commit ADB to finance the project B. Procurement of Goods, Works and Consulting Services 36. The Investment Program will follow ADB s Procurement Guidelines (2015, as amended time to time) and tranche 1 loan includes: (i) four international competitive bids (ICBs) for water supply intake works in Rewa; (iii) one ICB procurement of water supply equipment; and (iii) recruitment of consulting services for the IPMU consultants Part B (Detailed Engineering Consultants, Construction Supervision Consultants, and Institutional effectiveness). An 18 month procurement plan indicating threshold and review procedures, goods, works, and consulting service contract packages and national competitive bidding guidelines is in Section C. Universal procurement will apply pursuant to an ADB Board blanket waiver of member country procurement eligibility restrictions where ordinary capital resources and a cofinancier s resources are used to jointly finance individual procurement package. 37. All consultants will be recruited according to ADB s Guidelines on the Use of Consultants (2010, as amended from time to time). The terms of reference for consulting services are detailed in Appendix 1. Consulting firms will be engaged using the quality and cost based selection (QCBS) method with a standard quality: cost ratio of 80:20: Detailed Engineering Design Consultants with 149 person-months, Construction Supervision Consultants with 780 person-months. 38. Bidders eligibility will be determined in accordance with ADB's Procurement Guidelines (2015, as amended from time to time). Accordingly, no bidder or potential bidder shall be 13 Available at: 14 Available at:

30 24 declared ineligible for ADB financed contracts for any reason other than those set out in ADB's Procurement Guidelines. C. Procurement Plan Basic Data Project Name: Fiji Urban Water Supply and Wastewater Management Investment Program Project Number: Approval Number: Country: Fiji Executing Agency: Ministry of Economy (MOE) Project Procurement Classification: A Implementing Agency: Water Authority of Fiji (WAF) Procurement Risk: Moderate Project Financing Amount: US$ 405,100,000 ADB Financing: US$153,200,000 Cofinancing (GCF) (ADB Administered): US$ 31,040,000 Cofinancing (EIB): US$ 70,800,000 Non-ADB Financing: US$ 145,100,000 Date of First Procurement Plan: 25 August 2016 Date of this Procurement Plan: 25 August Methods, Thresholds and 18-Month Procurement Plan a. Thresholds 19. Universal procurement will apply as per the blanket waiver of member country procurement eligibility restrictions approved by the ADB Board for operations where ordinary capital resources and a cofinancier s resources are used to jointly to finance individual procurement package. 20. Except as ADB may otherwise agree, the following process thresholds shall apply to procurement of goods and works. Procurement of Goods and Works Method Threshold Comments International Competitive Bidding (ICB) for Works More than $5,000,000 Lifted as per CPA International Competitive Bidding for Goods More than $400,000 To match EIB threshold National Competitive Bidding (NCB) for Works $100,000 up to $5,000,000 National Competitive Bidding for Goods $100,000 up to $400,000 To match EIB threshold Shopping for Works Below $100,000 Shopping for Of-the-shelf Goods Below $100, Section 3 of the procurement plan anticipates that recruitment of consulting services under the project will be through firms only. Nevertheless the executing agency might consider recruitment of individual consultants through Individual Consultant Selection in accordance with ADB Guidelines on The Use of Consultants (2013, as amended from time to time) if and when need arises during the project implementation phase. b. ADB Prior or Post Review 22. Except as ADB may otherwise agree, the following prior or post review requirements apply to the various procurement and consultant recruitment methods used for the investment program.

31 25 ADB = Asian Development Bank, ICB = International Competitive Bidding, NCB = National Competitive Bidding, RFP = Request for Proposal, SBD = Standard Bidding Document, ToR = Terms of Reference c. Goods and Works Contracts Estimated to Cost $1 Million or More 23. The following table lists goods and works contracts for which the procurement activity is either ongoing or expected to commence within the next 18 months. Package Number General Description Rewa River Water intake and plant Rewa River transmission main Civil works for Estimated Value US $ 60,400,000 US $ 50,870,000 Procuremen t Method Review [Prior / Post/Post (Sample)] Bidding Procedure Advertiseme nt Date (quarter/year) Comments ICB Prior 2S2E Q3/2017 PQ - DBO 10 years O&M (1) ICB Prior 1S2E Q3/2017 PQ Works SBD US $ NCB Post 1S2E Q1/2018 Small Works NRW 4,400,000 SBD Equipment for NRW US $ 4,400,000 ICB Prior 1S2E Q1/2018 Goods SBD Several contracts Kinoya WWTP Upgrade Part1 US $ 18,320,000 ICB Prior 1S2E Q1/2018 Several contracts envisaged (1) The O&M component of the DBO contract will be a separate price item and will be financed under the government contribution. d. Consulting Services Contracts Estimated to Cost $100,000 or More 24. The following table lists consulting services contracts for which the recruitment activity is either ongoing or expected to commence within the next 18 months. Package Number CS01B General Description IPMU Consultancy Institutional Support Estimated Value US $ 5,940,000 Recruitment Method Review (Prior / Post) Advertisement Date (quarter/year) Type of Proposal Comments QCBS 80:20 Prior Q3/2017 FTP International firm