Positive Spirit: Yokoyama ends five-year Nepal tenure on a high note

Rupak D Sharma,

The Kathmandu Post, 31 March 2017

Kenichi Yokoyama, the outgoing country director of the Nepal Resident Mission of the Asian Development Bank, was always a ball of energy. Those who worked with him were surprised to see him working for long hours, even during weekends and in coffee shops, and keeping abreast with domestic affairs by thoroughly going through local news reports.

No wonder, he ended his tenure in Nepal on a high note, meeting 89.5 percent of the fund disbursement target and 89 percent of the contract award target in 2016. These results were the best since the Manila-based multilateral lending institution started working in Nepal over 50 years ago.

Yokoyama, a soft-spoken Japanese citizen with a penchant for Newari food, joined the ADB’s Nepal Resident Mission as its country director in March 2012. Generally, the ADB appoints country directors for a period of three years. But he stayed in Nepal for five years, which made him the longest serving country director for Nepal Resident Mission.

Over his stay in Nepal, the water resource engineer and agricultural economist witnessed some of the dramatic and even terrifying events of historical importance.

This included dissolution of the first constituent assembly, which was followed by the second constituent assembly election. He then saw the devastation of the country by massive earthquakes of April and May, 2015 that took away lives of over 9,000 people and shaved off over Rs36 billion from the country’s gross domestic product of that year.

These disasters did unite the people, and to some extent bickering political parties, which led to the promulgation of a new constitution in September 2015. The new charter was expected to usher in an era of peace and political stability. But that did not happen. Instead, it ruffled feathers of those in the Tarai who were not happy with some of the constitutional provisions. Soon protests spread like wildfire in some of the country’s southern belt. This prompted India to impose a trade blockade for over four-and-a-half months. The trade embargo chocked supply of everything from daily essentials, raw materials to petroleum products and sent the economy into a painful tailspin.

“I saw a lot of dramatic events during my stay here,” says the 56-year-old, who left Nepal on Tuesday evening and will now be based in India.

He was, of course, referring to epochal political developments, destructive natural disasters and the crippling supply disruption. But he was also alluding to unfavourable developments that posed threats to ADB-funded projects here. Yokoyama faced the first big challenge as the country director in 2013 when the Chinese contractor of the Melamchi Drinking Water Project made a fuss and delayed tunnel construction works.

This was one of the ADB’s flagship projects in Nepal and any delay would have further pushed back the completion deadline of the project, which still has not been completed since the construction began in 2001.

Eventually, the ADB had to terminate the contract with the Chinese company. Since then a new contractor has been hired and the ADB is eagerly waiting for completion of the first phase of the Melamchi Project in October when 170 million litres of water will be channelled to the Kathmandu Valley from the Melamchi River in Sidhupalchowk.

As Yokoyama was heaving a sigh of relief after seeing some progress in the Melamchi Project, he faced another shocking event when Energy Minister Radha Kumari Gyawali scrapped the consultant selection process for 140-megawatt Tanahu Hydropower Project initiated by the ADB.

The minister’s decision raised the prospects of Nepal missing an opportunity to build a reservoir hydroelectric project that could provide relief to electricity consumers during winter when energy production falls due to low level of water in river basins.

That was the time when Yokoyama showed skills of an able manager. To save the project, he attended calls of almost every journalist and provided them all the information they sought, (while the energy minister kept herself detached from the media). Journalists loved this hands-on attitude, which gave him a fairly good press.

As pressure started building from all the corners, the Cabinet intervened in the process and overturned the decision made by Energy Minister Gyawali, clearing the decks for the ADB to give continuity to the consultant selection process. This was probably the biggest victory for Yokoyama during his tenure here.

What would have happened if the government had not intervened in the Tanahu case?

Yokoyama: The ADB probably would not have been active in the energy sector.

So, does the resolution of the problem mean the ADB will invest more in the energy sector?

Yokoyama: Yes. We are providing around $50 million to Nepal Electricity Authority (NEA) this year to support the project of laying underground power cables in the Kathmandu Valley. This will support NEA’s plan to expand distribution network in the Valley. This support is being extended, as NEA is planning to increase electricity consumption in the Valley from around 400 MW to 2,000 MW.

What other energy projects is the ADB eyeing in Nepal?

Yokoyama: We will help prepare the detailed design of [300MW] Dudhkoshi [Storage] Hydroelectric Project. We are also looking at the possibility of helping build east-west transmission line, and 410MW Nalsing Gad Storage Hydroelectric Project under the public-private partnership model.

These are pretty big projects. Over the years, the ADB has started investing in smaller number of bigger projects so as to create an impact in the development works of the country.

One of the these projects is the Second Phase of Melamchi Drinking Water Project, which aims to bring in additional 340 million litres of water to the Valley per day from Yangri and Larke rivers. Other projects include: final phase of Tribhuvan International Airport expansion project, expansion of Mugling-Pokhara road segment, and regional urban integrated infrastructure improvement project, which aims to develop crucial urban infrastructure in Biratnagar, Birgunj, Nepalgunj and Bhairahawa. These projects, according to Yokoyama, are “ready for approval”.

“This means we can commit $500 million every year for Nepal, but we are intending to start will $400 million from next year and see how the implementation takes place,” says Yokoyama, who likes walking around ancient alleys of Kathmandu, Patan and Bakhtapur, and staying in old Buddhist temples. The ADB currently provides $300-$350 million per year to Nepal.

But since the ADB channels all its funds through the state coffers, it will definitely need the government’s support to make proper and timely use of the available budget.

To begin with, the government should end the practice of extending project completion deadline without any justification, says Yokoyama, who joined the ADB in April 1999. “The Office of the Auditor General should look into these issues and sound alarm bells, because contractors must be made aware that they were hired to complete projects on time. If this is not controlled, the government will never be able to increase capital spending.”

Source: http://kathmandupost.ekantipur.com/news/2017-03-30/yokoyama-ends-five-year-nepal-

               tenure-on-a-high-note.html

ADB, AIIB can work together in infrastructure sector

Republica, 30 March 2017

 ADB, AIIB can work together in infrastructure sector - Republica, 30 March 2017

Kenichi Yokohama, chief of the Asian Development Bank (ADB) Nepal Representative Mission (NRM), has completed his tenure in Nepal. He is moving to New Delhi, India for his next assignment. Before flying to New Delhi to take over his next assignment, Yokohama talked with Kuvera Chalise of Republica on his experiences in Nepal, ADB-funded projects and the long-awaited Melamchi Water Supply Project. Excerpts:

How will the existence of Asian Infrastructure Investment Bank (AIIB) change the ADB strategy in Nepal?

We are not necessarily competing with each other. If you look at Nepal's development needs, AIIB's focus is on infrastructure and ADB is focused on infrastructure as well as human capital building, agriculture and governance. But given the huge development needs of Nepal, we have been advised by our top management that we work together. ADB is currently providing funding above 1 percent of the GDP, whereas Nepal needs investment of some 10 percent of GDP in infrastructure sector. In that sense, there is lots of need. Essentially, we don't see competition. We can work together to help Nepal build more infrastructure. Likewise, as AIIB is new, there could be scope to further strengthen their system like project design preparation and implementation support, among others.

But the absorptive capacity of the government has not been increased. In that sense, how can both the development partners invest in infrastructure sector?

We have been lending around US$ 300 million annually. The government agencies hardly spend half of it. Last year we saw record spending that was around 70-75 percent. And this year we are targeting 100 percent. If we increase lending, we have to come together to building or supplementing the government's absorptive capacity also. In case of bigger infrastructure project, international engineers contractually manage and supervise the contractors, and the government's role is to manage these engineers. When we work together, there must be a component to build absorptive capacity of the government supplemented by international engineers.

But the last experience with TIA and Gautam Buddha Airport was not very pleasant. What happened?

In Nepali environment, dealing with locals is extremely complex. When the foreign contractor comes in Nepal, they do not have much knowledge about the local issues. In case of TIA, the contractor, after coming to Nepal, found that the quarry sites they were expecting to use was closed down, which really made them difficult to continue work, and they quitted. In case of Bhairahawa Airport, the foreign contractor appointed sub-contractors illegally without verifying their capability and experience.

Those are typical examples. Foreign contractors are really encouraged to understand the issues with the locals. For this, bidding process needs to be changed. Nowadays, we have started making sure that they have very strong local contractor as a partner. It will make things easier for the foreign contractors.

Most of the Nepali contractors claim that some of them are better than foreign contractors, and they are better in understanding the law, local sentiments and issues. But they do not get chance. How can the Nepali contractors improve their standard when they do not get chance?

As per the contractual requirement, contractors need to have $100 billion-size contract experience.

The skill of Nepali contractors, in that sense, is still under developed. That's a constraint. But as the country's infrastructure need is bigger, we are hopeful that we are looking at joint ventures where foreign contractors can mix their experience and local expertise. In that way, local contractors can also gain experience. On the other hand, we can divide the bigger packages into smaller ones and include domestic contractors. In short, we can say that the local issues, and capacity of the local contractors that is below the international standard, and foreign contractors, who do not have the knowledge of the ground level, have hampered development activities.

Do you think the upcoming election for local bodies can help expedite the development works?

Let's hope so. When you elected representatives in local bodies, it will increase accountability and public service delivery. Elected governance can also help end political interference like Bhaagbanda or the spoils system. Once elected local representatives are in place, there will be more trust and accountability mechanism that will help expedite development activities. The local government will also help the government engineers to push development works forward. It will definitely create enabling environment. But at the same time, there should be a system of risk control and capacity building.

Latest reports say that the long-awaited Melamchi project will not be completed by October-end as has been planned. What will be the move of ADB if the project is delayed?

At this time, we are convinced that it will be completed by October-end. On the other hand, the uncertainty comes from geology, particularly the lower part of the tunnel that is geologically fragile.

But in my understanding, the parties involved are regularly meeting and updating the progress. They will try to meet the deadline and adopt the corrective measure. Anyway if the delay is caused by external factors like geology, then contractor cannot be blamed. In this case, there is a provision of extension. But the party is committed to complete the project on time.

Melamchi has made Kathmandu a dusty city. What is ADB doing in this direction?

We are also concerned. It is also a matter of environmental compliance. There is a high standard for dust management system and it is clearly written in the contract. The contractor must adhere to environment compliance. Although the contractor is also stressed to expedite the work, they cannot say that they cannot follow the contractual agreement. We have been suggesting them to make sure priority sections, from where majority population passes, are handled seriously and swiftly. We also suggested them to put the name of the contractors and sub-contractors on signboard at the project site so that people can call them regularly and remind them of their duty. We are having number of meetings and sometimes think of going to the extent of suspending the contract. But we also need water as soon as possible.

ADB is helping the government to set up a Public-Private-Partnership (PPP) Center. As the BOOT Act, brought some 10 years ago, has not been very encouraging, do you still believe that PPP model can be useful in Nepal's case?

The existing BOOT Act has been structured, assuming that private investment will come in the infrastructure sector. It is working in hydropower sector. Affordability is key for PPP to work in infrastructure model. As the existing BOOT Act has a very limited role of government in terms of financing, that is a constraint. The new PPP Act has envisaged stronger government support in the financial part.

But the issue of revenue sharing in PPP has always been a controversy. How does the new PPP Act manage that?

Eventually, the PPP Policy will have the revenue sharing structure. But, initially, there must be some kind of technical assistance. The PPP Center has also demarcated its role with Investment Board (IBN). IBN looks after bigger projects, whereas PPP Center is looking at some pilot projects like toll roads or urban land pooling. The new PPP Act or Policy will look at financial structuring under the PPP Centre. In that case, we need transaction advisor, who will try to bring best solutions, and also look at regulatory aspects to see if the deal is fair for both the government and the private sector. A PPP Center cannot do such complex works, it needs technical support. ADB can provide such support by building its capacity.

How can ADB help to build capacity of private sector?

If it's a small and medium PPP, domestic private sector also needs capacity building. Apart from that, there is also a need for sector-specific capacity building. When potential projects are selected and bidding process starts, we will make sure that the bidding process is fair and the private sector of that specific sector that comes in needs capacity building. In case of big international bidders, for example TIA, an experienced foreign investor will come and we will support joint venture that will help in capacity building. There are some projects like convention centre and also Nalsinghgadh storage hydropower project where we see private sector coming and working with the government.

Developments partners are often blamed for interfering in projects. What is your experience over these years?

Our advice helps projects to move ahead. Our counterpart agencies take it as facilitation and legitimate recommendations are taken positively. But if a mission leader comes and tells to do things from his view without listening to others, then people will take it as interference.

How has been your experience in Nepal?

Nepal has enormous challenges as well as opportunities. The number one challenge is physical environment which affects everything, hindering efficiency and other work like reaching to people and building human capital that is not only key to development but also to graduate to middle-income country by 2030. Quality of education, skill sector reform, and social and economic infrastructure are the other challenges for Nepal. Similarly, agriculture productivity needs to be increased. Increased governance capacity and political stability is also important to make these things happen.

http://www.myrepublica.com/news/17325/

What’s holding back Nepal’s economic growth?

2016 ,Kathmandu, June 22

Rupak D Sharma
The Himalayan Times

The problem lies in the government’s inability to prepare concrete and well-thought-out project plans. – Kenichi Yokoyama, Country Director (Nepal) of Asian Development Bank

A three-member delegation headed by Finance Secretary Lok Darshan Regmi left for Beijing today to take part in the board and annual meetings of the China-led Asian Infrastructure Investment Bank (AIIB).

Nepali officials attend meetings of this type largely for the sake of formality. Yet, their participation cannot be discounted as unnecessary because real benefits can be reaped if officials hold meaningful talks with prominent personalities on the sidelines of such events.

The Nepali delegation that has left for China is also planning to meet with top AIIB officials when formal meetings are not taking place.

This means Nepal can use the sideline meetings as platforms to seek concessional loans from the AIIB — which has authorised capital stock of $100 billion — to finance construction of physical infrastructure crucial for economic development.

Identification issues

But unfortunately this is not likely to happen this time because ‘we have not been able to identify projects’, a senior official of the Ministry of Finance (MoF) told The Himalayan Times on condition of anonymity.

This is where the problem lies.

Every government that comes to power always talks about unleashing Nepal’s potential to achieve high economic growth rate and share prosperity. They also chatter about building critical physical infrastructure to unlock private investment, and making poverty and chronic power-cuts a history.

Yet, Nepal has neither been able to remove key binding constraints to investment nor rekindle growth.

“The problem lies in the government’s inability to prepare concrete and well-thought-out project plans. Because of this, Nepal lacks ready-to-implement projects. This is the reason why the government has not been able to make proper use of funds pledged by development partners,” Country Director (Nepal) of the Asian Development Bank (ADB) Kenichi Yokoyama told THT. “This calls for the need to create a project bank, which can keep good stock of detailed reports of projects considered critical for Nepal’s economic development.”

Long lists

On the surface, it appears the country has numerous ready-to-build projects at hand. Many hold this perception because most of the ministers and government officials produce a list of projects when asked to name one.

But such lists are prepared on the basis of hearsay or after holding discussions at superficial level. What is even more surprising is that the projects mentioned in these lists are later incorporated in the fiscal policy.

This is where the problems begin.

Since most of the projects are included in the budget without conducting proper homework, the first thing the government does is conduct a feasibility study.

If things move smoothly, these studies can be completed in a year. But feasibility study alone is not enough to begin construction of a project. A detailed project report (DPR) also needs to be prepared, which generally takes another one year.

This is the reason why most of the new projects announced through the budget are never implemented in the same year because it takes at least two years to conduct feasibility study and prepare DPR. But in many cases, this process of conducting feasibility study or preparing DPR comes to a halt mid-way because of change in government or other problems.

Capex crisis

All these reasons ultimately hit capital spending of government.

Capital expenditure — or investment in land, building, furniture and fittings, vehicles, plants, machinery and civil works, which helps in capital formation process — has always remained low in the country, because the cycle of incorporating half-baked projects in the budget or terminating studies mid-way has been repeating for years.

And this fiscal is no exception.

Capital spending is likely to take a big hit this financial year because the government has only been able to use 30 per cent of the total allocated budget of Rs 208.9 billion so far.

Since only around 20 days are remaining for the current financial year to end, a huge chunk of capital budget is unlikely to be spent. No wonder, economic growth is likely to be squeezed to 0.8 per cent in the current fiscal.

“To keep capital spending at a higher level, the government must come up with concrete investment plan for at least 15 years. This plan must be backed by DPRs of crucial projects,” Yokoyama said, adding, “We are ready to assist the government in this process if there is need.”

No dearth of support

Like the ADB, many other development partners are willing to extend support to Nepal. But even if they extend funds, the government is unlikely to have the capacity to utilise the money because it does not have ready-to-implement projects.

This is one of the reasons why Nepal, so far, has not been able to make use of line of credit of $1 billion extended by India during Indian Premier Narendra Modi’s visit to Kathmandu in November 2014.

“We are now thinking of using credit of $550 million at the moment and demanding the remaining $450 million at a later date when we identify enough implementable projects,” another senior MoF official said.

This statement sounds weird because Nepal should be asking for more of concessional loans from development partners at the moment, as the World Bank has said the country needs to invest up to $18 billion in infrastructure projects, especially energy and transport, by 2020 to avoid possible binding constraint on economic growth.

Source: http://thehimalayantimes.com/business/whats-holding-back-nepals-economic-growth/ 

Tremendous opportunities

12-18 April 2013 #651

Nepali Times

Kenichi Yokoyama, Country Director of the Nepal Resident Mission of the Asian Development Bank, says infrastructure bottlenecks affect investment climate in Nepal

Kenichi Yokoyama, Country Director of the Nepal Resident Mission of the Asian Development Bank (ADB) spoke to Nepali Times this week about infrastructure bottlenecks, political fluidity affecting the investment climate and Nepal’s macroeconomy.

Nepali Times: The Asian Development Bank has been working on a Five-year Plan for Nepal, what is the main thrust of the document?

Kenichi Yokoyama: ADB’s draft new country partnership strategy has three thrusts: accelerating economic growth, pursuing inclusive and employment-centric growth, and emphasizing institution building. Our assistance will be about $250 million per year and will focus on addressing bottlenecks in energy, transport, and urban infrastructure, building human capital, and transforming agriculture. These are based on the lessons of our past programs and extensive consultations held across the country. Key findings are that we should be selective and focused on critical growth constraints with larger investments, continue to address inclusiveness issue as root causes of conflicts, and build institutions that can self sustain the growth process in an accountable and transparent manner.

Multilateral agencies in Nepal seem to swing wildly between deep pessimism and unrealistic optimism about the country's future. Where do you fit in?

I think we all agree on huge potentials of the country, but should be mindful that challenges to tap them are also significant. No one questions the bright prospects for hydropower, tourism, high value agriculture and agro-processing, IT and other industries. They can draw huge incremental earnings. But there are also substantial hurdles to overcome in triggering high growth process. Developing industries calls for infrastructure bases particularly power, better enabling environment, and strategic and proactive promotion policies. To resolve power shortage, foreign investment need to be drawn with rigorous attraction of investors while enhancing credibility of the off taker, that is, the Nepal Electricity Authority (NEA). We cannot forget that lasting peace and stability are also critical in unlocking Nepal’s full development potential.

But we have seen countries with political instability doing pretty well economically. Why is it necessary to get politics right first in Nepal?

Countries growing strongly and resilient against political changes tend to have firm and diverse growth bases. For example, a system that can maintain high level of quality public investment in physical and human capital will provide resilience. So will stable policy and legal frameworks that can protect the interest of private industries and investors even in times of political change. FNCCI has been pursuing political consensus on the minimum economic agenda, which can serve such a purpose. Other development partners are also making serious efforts to help establish a strong institutional basis to accelerate physical and human capital development with accountability, but we are still half way through in this direction.

What are the challenges in promoting investor confidence in Nepal?

Recent business surveys indicate political instability, power and other infrastructure deficit, weak governance, difficult labor relations, low confidence on macroeconomic stability, etc. While some would require medium-term efforts, there are areas that can bear immediate results. We think the government can be more proactive in attracting foreign investment by welcoming them as invitees and providing attractive incentives commensurate with the level of the country risk. Labour-industry dialogue may be facilitated to recognise that mutual collaboration can bear win-win results. Also helpful would be strong anti-corruption drives and enforcement of law and order to protect public investments, industries, and their employees. Stable policy, legal and regulatory framework can also help provide predictability to investors.

Despite all these problems, though, we seem to be ok on the macro-economic front?

If we look at macroeconomic indicators, the country is doing fine, except for inflation. Nepal’s economy has been growing at an average rate of 4.5 per cent per annum since 2006, with stable fiscal, balance of payment, and debt conditions. But this stability is also a reflection of the critical role played by remittances and the low performance in investments, particularly public capital formation. Public capital spending has been persistently lower than allocation: in fiscal year 2011/12 it was only 3.3 per cent of GDP compared with the allocation that was 5.9 per cent of GDP. So, in a sense the present stability is maintained at the cost of lost growth opportunities. I think Nepal can growth much faster, by strengthening capital expenditure to 8-10 per cent of GDP and institutional capacities and disciplines, and by improving efficiency of recurrent expenditure where large scope exists.

How important are remittance inflows in sustaining Nepal's economy?

There is no question that remittance has played a vital role. It accounts for 23 per cent of GDP in official statistics, and could be much higher if informal inflow is included. It has contributed to reduced income poverty and higher human development indicators (education and health) at household level, and helped finance burgeoning imports and maintain balance of payment and overall macroeconomic stability. On the other hand, this has increased the country’s dependence on global economic conditions. There is a higher risk of disruption due to external shocks. High remittance is also a reflection of insufficient jobs in Nepal, stemming from a lack of viable investment opportunities that can create jobs to 450,000 youths entering into the labor market each year.

What can be done to maximise benefits from remittances, as the Philippines or Sri Lanka have done?

Countries like the Philippines are also facing the same dilemma since remittance is largely used for consumption. In Nepal, the challenge is higher, since the import content of consumption is high, that means consumption does not induce local production so strongly. I think there is not an easy panacea that can drastically change the tide but to establish viable investment opportunities in Nepal, to which remittance can be channeled. The good news is that nowadays we hear a lot of stories about returnees investing in high value products in rural areas and gaining good incomes. Such new dynamics can be nourished by rural business incubation with value chain development and other technical support. Improved access to rural finance will also help to channel remittances to productive usages.

You mentioned energy as the big obstacle to future growth, is the ADB planning bigger involvement in hydropower generation?

ADB has just approved a $150 million loan for 140MW Tanahu Hydropwer Project, together with Japan International Cooperation Agency (JICA) and other co-financiers providing $280 million. This power plant will provide stable power all year round. In the new assistance strategy ADB is putting highest priority to help fully resolve power crises. Nepal may also see the development of hydropower not only for domestic use but as a major source of export. In this regard we are exploring further and larger hydropower projects to fully satisfy the domestic requirements while targeting export potential. This is challenging albeit highly worthwhile, since larger-size project will definitely require participation by private investors. This calls for sound financial structuring of the project. Sufficient investor confidence also needs to be built, with reforms within NEA and establishing a regulatory environment conducive for rapid expansion of the power sector. Agreement with credible off-takers in the export markets is also needed. The governments of India and Nepal are discussing an umbrella power purchase agreement, which can substantially facilitate private sector investments.

How about other infrastructure?

Water and transport are high priorities, the former including water supply and sanitation in urban areas, irrigation in rural areas and integrated management systems. Above all, ADB is strongly committed to deliver clean water to Kathmandu by early 2016, by completing the Melamchi tunnel, water treatment plant (assisted by JICA) and associated distribution systems. In transport sector, our assistance will cover both air and road transport, to provide much needed connectivity at local and national levels and beyond. ADB is also extending assistance for airport improvements in Kathmandu, Bhairawa, and remote domestic airports. We believe these will provide essential bases to attract investments in domestic industries and tourism.

How can Nepal benefit from its strategic location between India and China?

We see tremendous opportunities. In today’s world and particularly Nepal, we need to think beyond national borders, since district areas along the borders are strongly connected with the neighboring economy. We often talk of high costs of imported raw materials and transport as disadvantages for Nepal. But we may turn this into advantage, and start producing goods to compete with expensive imports in Nepal and extending supply to border areas of India and China. The five bordering Indian states alone have population of over 400 million and have seen rapid growth in recent years. China has also waived tariffs on a large number of export items, including agriculture products. Thus, Nepal can greatly benefit from regional economic integration by substituting imports and exporting energy and other goods and services. In addition to directly supporting trade facilitation measures, we are also aligning our energy and transport infrastructure assistance to support regional integration where possible.

Low project performance has always been an issue in Nepal. Are things getting better?

When measured by implementation timeliness, impact and sustainability, Nepal’s performance has been low compared with ADB-wide average. ADB along with the World Bank, DFID, and JICA have long been jointly pursuing improvements through a forum called Nepal Portfolio Performance Review (NPPR). Over the years, the performance has been improving, although this year is a challenge due to lack of full budget and other constraints. NPPR is now focusing on five areas affecting performance: public financial management, public procurement, human resources, management for results, and aid effectiveness. These are areas where we can expect a lot of practical achievements even under political instability, and we are hopeful that the present Government leadership can take a big stride and make significant difference.

Source: http://nepalitimes.com/article/interview/Tremendous,304

Any increase in annual lending must go hand in hand with higher utilization

Published: December 05, 2016 4:51 am

Himalayan News Service

The Asian Development Bank has long been assisting the country in the development of infrastructure projects, human resources and also in areas of inclusive and sustainable development. The Manila-based multilateral development partner has been marking 50 years of its establishment this year and it has already announced to increase annual lending level to $500 million to Nepal. Probably, by next year the longest running ADB-assisted Melamchi Drinking Water Supply Project will also be completed, which is expected to end drinking water related woes of the denizens of Kathmandu Valley. Pushpa Raj Acharya of The Himalayan Times caught up with Kenichi Yokoyama, Country Director of ADB Nepal Resident Mission, to talk on what ADB has been doing to accelerate the performance of other ADB assisted projects in Nepal as the Melamchi Project is finally going to be completed next year. Excerpts:

Asian Development Bank has been assisting Nepal since long in various projects. How would you like to summarise 50 years of partnership with Nepal?

It has been a privilege for ADB to partner with Nepal in its dramatic journey over the half century. Despite a number of political and other challenges including the 2015 earthquake, Nepal has had steady progress in combating poverty and social disparities, and achieved a majority of the millennium development goals. I think ADB has been able to provide essential building blocks in this endeavour, such as key hydroelectric projects like 140-megawatt Kali Gandaki-A and 60MW Khimti, strategic and district core roads, major airports including Kathmandu, urban infrastructure such as Melamchi Drinking Water Supply Project, that is finally completing in 2017, education and skills development and rural upliftment through  irrigation and agriculture value chains in many districts. I am honoured when many people tell us that ADB is one of the most trusted development partners in Nepal.

ADB has said it is ready to increase annual lending level to $500 million from existing $300 million. Do you think the country will be able to absorb that amount of aid because contracts for over 50 per cent of the net available funding worth $1.7 billion has still not been awarded?

We started 2016 with outstanding funds of $1.73 billion, of which 55 per cent and 72 per cent was still to be awarded and disbursed, respectively. The undisbursed amount ($1.26 billion) is equivalent to almost six per cent of Nepal’s gross domestic product (GDP). So, any increase in annual lending must go hand in hand with higher utilisation. Thanks to the effort of all, implementation of ADB projects is improving. For 2016, we expect to award contracts worth $360 million and disburse funds worth $220 million. For 2017, we also foresee awarding contracts worth $450 million and disbursements of $300 million, assuming normal implementation environment. So I think we are on track towards increasing lending and absorption levels together.

What are the major factors causing slow progress of projects in Nepal?

There are several key factors. First, the country is short of investment-ready projects, requiring more time to prepare them by doing surveys and studies. Second is budgetary process. Although timely budget approval is now mandated by the constitution, which is great, the budget release procedure is quite complex and time consuming. Third is procurement. Challenges include excessive segregation of contracts and weak technical evaluation due to which cost of completing projects is comparatively higher. There is also insufficient control of irregular practices. For this, recent progress in applying e-procurement can help. Fourth is contract management. This requires much stronger discipline to enforce time, cost and quality specifications, controlling irregular compromise between the contracting parties. Lastly, available personnel to manage projects are thin, which needs to be augmented by outsourcing, but managing outsourced consultants also requires strong capacities to do so. These should be consistently tackled both at systemic and project levels.

There is a mechanism called tripartite portfolio review meeting (TPRM) where the line agencies, National Planning Commission/Ministry of Finance and ADB officials review the performance of projects every quarter and also seek necessary solutions to expedite projects. Despite these efforts how are we not able to achieve targets within stipulated timeframe?

I think TPRM is an effective mechanism to improve project performance. For each project, it identifies problems and causes, and discusses which agency will take what actions to accelerate implementation. This mechanism is working relatively well, contributing to our improved performance in 2016. But compliance level of taking agreed action on time needs to be improved. Resolving problems also at times takes much longer, particularly when they involve external parties.

The longest run (nearly 17 years) ADB assisted project, Melamchi Drinking Water Supply Project, is expected to be completed by 2017 but Kathmandu Upatyaka Khanepani Ltd (KUKL) has yet to do the needful to distribute drinking water effectively in the Valley. What has ADB been doing to strengthen capacity of KUKL?

I am glad to say that there is now less than six kilometres of the Melamchi tunnel to be excavated, with monthly progress of 0.8 to one km. This means we can expect the water from Melamchi to reach Kathmandu by October, 2017. So now is the time to start helping KUKL undergo visible changes to become customer-oriented efficient water utility. With the new general manager (GM) on board, KUKL now needs to deploy competent managers for a few technical divisions like finance, administration and customer relations, along with a large number of technical staff to supplement existing workforce. Reforms like automated water distribution operation, computer billing and mobile payment systems are also envisaged, with intensive staff training. More importantly, there is a critical need to have a strong and enabling board that can closely support the GM to take quick and effective decisions, while providing visionary and strategic advice to realise the project’s dream of delivering clean water in Kathmandu. We have a lot of experience in assisting drastic transformation of major water utilities becoming a customer oriented water provider with high public reputation, and I am sure KUKL can also be like that.

The progress in reconstruction of earthquake ravaged schools, government buildings and roads under the Earthquake Emergency Assistance Project (EEAP) has been slow. What is the government and ADB doing to expedite it?

The $200 million EEAP was approved on June 24, 2015 to help reconstruct schools, strategic and district core roads and government buildings in district towns. So far, contract award and disbursement remains only at 13 per cent and one per cent, respectively. We must admit that progress has been slow, about nine months behind schedule. But implementation has picked up recently. Now that survey and design standards have been finalised, reflecting build-back-better principle, they are ongoing in full-fledged manner. We are hopeful that most contracts will be awarded before next Dashain, and reconstruction completed in two years or September 2019.

ADB recently approved loan worth $186.8 million for the upgradation of Narayangadh- Butwal road and one feeder road from Bhairahawa to Taulihawa, which will be one of the largest projects (in terms of project cost). Do you think the project will be implemented on time as ADB has envisioned completing it by early 2022?

In our case road projects are progressing satisfactorily. This time, size of this project is quite big (it has three packages) and we hope a genuine contractor will come to handle this. The Indian and Chinese contractors have shown interest in this project. The bidding document includes a condition that the main contractor cannot deploy sub-contractors at different layers. The international contractor with good technical and managerial capacity needs to engage renowned local contractors for sub-contracting arrangements. In this project, there will be international engineers to supervise on behalf of the Department of Roads. And we hope the project will be completed within desired timeframe.

ADB has made a forecast that the economy will grow by 4.8 per cent in this fiscal 2016-17. Do you think this projection will be achieved because the government’s capital spending in first four months has been very low at just 4.76 per cent?

Key factors affecting fiscal 2016-17 economic growth projection include agriculture output that is influenced by monsoon, pace of post-earthquake reconstruction, budget execution and remittance inflows influencing service sector. Overall, we remain optimistic about our growth projection. The monsoon in 2016 was favourable. Very low capital expenditure is indeed disappointing, when we recall the budget was passed quite early. But the first four months corresponds to monsoon and festival periods, and many government projects are undergoing procurement. So we think capital expenditure will pick up along with reconstruction works. On the other hand, decreasing trend of remittance growth can be a concern that may put downward pressure on the economy. This needs to be closely watched.

ADB has stopped providing grant citing the country’s improved capacity to pay back foreign loans. But there is one window of climate financing facility under which Nepal can receive grant to cope with the challenges of climate change?

We have a policy like the World Bank and depending on the country’s debt situation we provide concessional loan if the debt sustainability risk is low. Nepal’s debt sustainability risk is low because of the increased remittance inflow over the years, capital expenditure is not growing and the budgetary situation is quite strong. There is Green Climate Fund, under which the ADB has recently approved $20 million grant for Nepal to expand the solar-grid energy here and we will soon announce about this.

The government recently amended the Securities Registration and Issue Regulation, which allows international financial institutions to issue local currency bonds. ADB has also proposed to issue local currency bond to the government. What are the preparations being made by ADB?

We welcome the new regulation. On this, we have broadly discussed that local currency bond would be of a sizeable amount of about Rs 50 billion, and has aimed at investments in hydroelectricity sector. But creating the space for private investment of this magnitude, which corresponds to 1,500MW of new generation capacity, will require drastic changes in the energy sector policy, regulatory and institutional setup. Private investors need to be confident that there will be sufficient investment returns. This calls for establishing credible regulatory agency, reforming Nepal Electricity Authority to sustainably reduce system loss and enhance revenue, and providing clarity on domestic power consumption and power trading arrangements, as well as risk sharing. ADB has offered assistance, together with the World Bank and other development partners, to establish such sector frameworks and systems. Close discussion is ongoing on this front.

Is there anything you would like to add in the end?

In expediting project implementation and capital expenditure, I would like to emphasise need for stable and strong leadership. The best performing ADB projects, now like Melamchi and SASEC road projects, all have highly competent project directors, supported by professional consultants and contractors. So, we wish to see a strong norm established that project leadership is selected on the basis of competency, as compared with personal or political connections. All in all, ADB is glad to enhance and deepen our partnership with Nepal, to further advance the journey towards the country’s accelerated and inclusive economic growth. This involves substantially enhancing capital expenditure, building strong human capital, and transforming economic structure toward high value competitive industries. I am hopeful our partnership will be able to contribute to making visible progress to this direction in the near future.

Source: http://thehimalayantimes.com/business/increase-annual-lending-must-go-hand-hand-higher-utilisation-asian-development-bank/

Indisciplined valuation causing confusion

July 6, 2014

Nepali Times

ADB Kenichi - The Nepal Country Representative of the Asian Development Bank, Kenichi Yokoyama, spoke to Nepali Times about how to minimize obstruction to infrastructure projects due to compensation demands.

Nepali Times: How have some major infrastructure development projects including Melamchi been affected by local obstruction over compensation or land acquisition?

Kenichi Yokoyama: Compensation to affected people is usually dealt with before project implementation starts, by providing sufficient compensation and livelihood support. In our project portfolio, less than 10 per cent of projects have problems on this issue at present. In the past Melamchi Water Supply Project faced particular challenges. As water has to be diverted from one basin to another in this large-scale project, local people felt that they were deprived. It took years to come to agreements with the affected communities. The project is now providing due compensation for acquired land, and various infrastructure and livelihood programs in the Melamchi valley. Among other projects, transmission line projects sometimes face problems, as the government’s regulations can provide only 10 per cent of the land price for the strips below the electric lines as usufruct, while people often demand acquiring the land.

So, would you say this is a major deterrent to foreign investment in Nepal?

Investor confidence seems to be gradually improving, but is still affected by political stability concerns under the ongoing transition. There are also a range of governance-related and labor union problems. Bottlenecks in infrastructure are severe, particularly power and transport. Human capital is also constrained, lacking skilled or educated laborers. Investor confidence can still be secured if the government wholeheartedly invites and welcomes private investors of important industries, and protects them by proactively helping them resolve any impediments, be it labour disputes, power supply, problems on governance, etc. Given that crippling power shortage is likely to be resolved in the next few years and political transition is also progressing, initiating such genuine investor promotion and protection could really heighten confidence. Consensus among political parties on key economic development agenda will also help.

What are some important steps the government or parliament should take to remove obstacles for urgent infrastructure projects?

I agree that land acquisition and compensation will be increasingly challenging, in view of the need to accelerate infrastructure development, rapidly rising land prices due to urbanisation, people’s sentiments with their lands, and limited experienced personnel to handle the process. The present Land Acquisition Act 1977 is also outdated, lacking pertinent provisions such as for informal settlers and indigenous peoples. Presently, ADB is facilitating the government to draft a national resettlement policy to provide an umbrella framework to set out key principles and procedures. Establishing scientific land valuation guidelines is also pursued as critical, as indisciplined valuation is causing confusion and tension locally. Meaningful and early consultation, information disclosure, sufficient compensation with clear disciplines, and capacity development of personnel involved are some of the key requirements.

Do you foresee similar problems with the Tanahu hydropower project that ADB is supporting jointly with JICA?

The Tanahu Hydropower Ltd has prepared the resettlement and indigenous peoples plan, which identified all the project affected people, and set out compensation and livelihood restoration plan in consultation with them. There are 758 affected households, among whom 86 need to be displaced by reservoir, hydropower station, and associated facilities. Under the plan, all households will be fully compensated for loss of agriculture and residential lands and structures following the ADB policies. On top of this, livelihood restoration support is also provided to restore income bases and building viable communities. The project has initiated implementation of the plan, and there has been no serious discontent by the affected communities. There are also project information centers and a grievance redress mechanism involving third party facilitators.

Source: http://www.nepalenergyforum.com/interview-with-adb-representative-kenichi-yokoyama/

      

Kenichi Yokoyama: The cost of Nepal's earthquake

04 May 2015 15:04 GMT

Al Jazeera

The Nepal country director for the Asian Development Bank talks about aid efforts and the economic cost of the quake.

Interview: Al Jazeera TV

Nepal, one of the world's poorest countries, is struggling to cope with the worst earthquake to hit the Himalayan nation in 80 years. The magnitude 7.9 earthquake struck some 80km northwest of the capital Kathmandu and has affected eight million people, just under one-third of the population with upwards of 5,000 people killed.

So what will it take to rebuild Nepal's shattered economy? What lessons can be learned? And who will step up to help one of the world's poorest nations?

Kenichi Yokoyama, the Nepal country director for the Asian Development Bank, joins Counting the Cost via Skype from Kathmandu to talk about aid efforts and the economic cost of Nepal's earthquake. He also discusses with Al Jazeera's Kamahl Santamaria whether estimates can be made as far as costs go about the extent of the damage.

Source:http://www.aljazeera.com/programmes/countingthecost/2015/05/kenichi-yokoyama-cost-nepal-earthquake-150504132419758.html