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.
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