AUSAID – WORLD BANK SOUTH ASIA INFRASTRUCTURE FOR GROWTH INITIATIVE ANNUAL REPORT 2012 1 TABLE OF CONTENTS 1 - THE INFRASTRUCTURE GAP IN SOUTH ASIA 4 2 - MEETING THE OBJECTIVES OF THE TRUST FUND 6 2.1 FINANCIAL SUMMARY 6 2.1.1 FUNDS RECEIVED AND ALLOCATED 6 2.1.2 ALLOCATIONS BY COUNTRY 7 2.1.3 ALLOCATION BY SECTOR 8 2.1.4 ALLOCATION BY ACTIVITY 9 2.1.5 LENDING AND ANALYTICAL ACTIVITIES 9 2.1.6 SUPPORT FOR LOW CAPACITY ENVIRONMENTS 10 2.1.7 PUBLIC PRIVATE PARTNERSHIPS (PPPS) 11 2.1.8 DISBURSEMENT AND COMMITMENTS 12 2.2 LEVERAGE FINANCIAL AND NON-FINANCIAL 13 3 - IMPACT AND KEY RESULTS 14 3.1 SUPPORTING TRANSFORMATIONAL PROJECTS 14 3.2 SUPPORTING INNOVATION 16 3.3 INCREASED FLEXIBILITY 16 3.4 RAISING THE QUALITY OF THE WORK PROGRAM 17 3.5 ENABLING OR SCALING UP NEW AREAS OF ENGAGEMENT 17 3.6 INCREASING THE SCALE AND THE SCOPE 20 3.7 THE ADDITION OF VALUE 20 3.8 INCREASE IN CROSS SECTORAL AND CROSS COUNTRY WORK 22 3.9 SECTORAL IMPACTS 23 4 - STRATEGIC PROGRAM ADMINISTRATION AND MANAGEMENT 25 5 - STRENGTHENING THE PARTNERSHIP 26 2 LIST OF FIGURES FIGURE 1 - NUMBER OF PEOPLE LIVING ON LESS THAN $1.25 PER DAY 4 FIGURE 2 - ALLOCATIONS BY COUNTRY 7 FIGURE 3 - ALLOCATIONS BY SECTOR 8 FIGURE 4 - ALLOCATIONS BY LENDING AND ANALYTICAL ACTIVITIES 9 FIGURE 5 - SUPPORT FOR LOW CAPACITY ENVIRONMENTS 10 FIGURE 6 - ALLOCATION TO PPP ACTIVITIES 11 FIGURE 7 - FUNDS COMMITTED AND DISBURSED 12 LIST OF TABLES TABLE 1 - AMOUNT RECEIVED AND ALLOCATED 6 LIST OF HIGHLIGHTS HIGHLIGHT 1 RESTORING THE COMPETITIVE STRENGTH OF THE INDIAN RAILWAYS 15 HIGHLIGHT 2 CUSTOMIZED TECHNICAL ASSISTANCE NATIONAL TRANSPORT DEVELOPMENT POLICY COMMITTEE 16 HIGHLIGHT 3 PLAYING THE HONEST BROKER FOR CROSS BORDER ENERGY TRADE IN SOUTH ASIA 19 HIGHLIGHT 4 STRENGTHENING THE RURAL ROADS PROGRAM IN INDIA 21 HIGHLIGHT 5 CREATING A VIRTUOUS CYCLE OF LEARNING 22 PHOTO CREDITS HIGHLIGHT 1: SIMONE D. MCCOURTIE/WORLD BANK HIGHLIGHT 2: TOP LEFT: KIM EUN YEUL/WORLD BANK TOP RIGHT: SIMONE D. MCCOURTIE/WORLD BANK BOTTOM LEFT: ANDREW BIRAJ/WORLD BANK BOTTOM RIGHT: SIMONE D. MCCOURTIE/WORLD BANK HIGHLIGHT 3: GENNADIY RATUSHENKO/WORLD BANK HIGHLIGHT 4: WORLD BANK - FROM GOOGLE PLUS SOUTH ASIA REGION HIGHLIGHT 5: CURT CARNEMARK/WORLD BANK 3 1 - THE INFRASTRUCTURE GAP IN SOUTH ASIA The South Asia Infrastructure for Growth Initiative (IFGI), the second partnership between AusAID and the South Asia Region of the World Bank was structured in the backdrop of the severe infrastructure deficit faced by South Asia. The main objective of the Trust Fund (TF), which started its operations in 2008, is to foster an enabling environment for infrastructure delivery and to facilitate infrastructure service delivery. A corollary to this goal is to improve cooperation between the partners and thus aid effectiveness in South Asia. The importance of infrastructure for economic development and trade needs no further emphasis. South Asia while one of the fastest growing regions of the world, with a growth rate of around 6% in the last two decades remains home to about 1/4 of the world’s population and to 43% or 596 million of its poor. Infrastructure delivery thus remains crucial to the inclusive and sustainable growth necessary to raise standards of living and to lift the poor out of poverty. Growth and increasing urbanization in the region strains existing infrastructure while creating pressure for more. At the same time the lack of infrastructure and the low quality and unreliability of the available infrastructure acts as a further constraint on growth. Figure 1 - Number of People Living on Less than $1.25 per day 4 To take the example of the transport infrastructure gap in South Asia using “Total Road Network per 1000 people” as an indicator, the South Asia region (SAR) has 2.7 km of roads, which is closer to East Asia and Pacific (2.5 km), Sub-Saharan Africa (2.5 km), and Middle East and North Africa (2.8 km), but well below the world average (4.7 km), or that of Europe and Central Asia (8 km), and North America (24 km). The quality of roads is inconsistent among SAR countries. Bangladesh has only 10% of its roads paved; India and Nepal fare better with 47 and 54% respectively. Sri Lanka with 81% and Maldives 100% lead the region in paved roads. Transport infrastructure in South Asia suffers from poor conditions, lack of intraregional connectivity, unreliable and costly services. It also has unrealized potential for rail and inland water freight transport that has led to the excessive use of road transport, along with inadequate road and rail connectivity of its ports with hinterlands. This serves as a dampener on growth, as improvements in infrastructure have cross-sectoral impacts. In addition to improving network efficiency, transport is the key to providing basic services like schools, health facilities, electricity and water and sanitation, which are important for increasing people’s welfare. South Asia suffers not just from an infrastructure gap along with a service deficit. It also has a major institutional and policy deficit. Providing sustainable infrastructure is thus not just a question of increasing investments but of undertaking much needed sector reforms, putting the right incentives in place and enabling a larger role for the private sector. Investment climate surveys have shown that the limited and poor quality of infrastructure along with the high cost of bureaucratic red-tape and regulations and poor governance impedes investment in South Asia. More Indian firms rate these institutional and policy deficits as constraints to growth in the rankings on “ease of doing business” across countries in the world as per the World Bank’s Doing Business Surveys. Infrastructure in South Asia is largely funded and delivered by the public sector. The general inefficiency of public provision of infrastructure has led to poor cost recovery and thus little operations and maintenance of the infrastructure assets. The role of the private sector is usually restricted to subcontracting during the construction phase. However, over the last two decades, as demand for infrastructure has increased due to growth and urbanization, public finances are no longer enough to finance infrastructure. The private sector is now being encouraged to not only finance but also build and operate infrastructure assets. However, the enabling environment in the form of the institutional and regulatory framework, finance, and tariff structures for private participation is often not in place restricting private capital and enterprise. A recurring motif of conflict that affects or has affected six of the eight countries in the region has also hampered infrastructure development. Besides much needed resources being spent rebuilding infrastructure that has been damaged, it limits connectivity and integration both within countries (areas of conflict are invariably in lagging regions) and across borders. The politics of infrastructure reforms is also substantial. Political will is needed to undertake reforms like the removal of subsidies to farmers for the electricity used for irrigation or the privatization of water delivery and the levy of user charges to recover the cost of delivering services. These reforms are often unpopular and therefore difficult decisions for politicians to make. It is in this background that the tasks undertaken by the TF were delivered. 5 2 - MEETING THE OBJECTIVES OF THE TRUST FUND 2.1 FINANCIAL SUMMARY A key objective of any TF is to commit and disburse the funds received effectively within the operational life of the TF. The IFGI TF has committed almost the entirety of the funds received and is disbursing well. 2.1.1 Funds Received and Allocated A total of AUD 19.5m has been received as contributions from AusAID and no more funds are anticipated as the TF is closing in December of 2013. . This includes an amount of AUD 2.5m received in 2011 to fund activities in the Water and Sanitation sector. No contribution was received in 2009, against an anticipated tranche of AUD 10 million. Of the funds received $16,886,867 was available for allocation, after deduction of the administration fee of the central TF unit and program management costs. An amount of $ 16,688,647 or 98.8% of the funds have been allocated in five rounds to 70 activities so far. The remaining 1.2%, which constitutes balances from closed TFs is in the process of being reallocated. Table 1 Amount Received and Allocated below shows receipts and allocations to date. AUD USD 1 Total Contributions 19,500,000.00 18,064,150.00 2 Less Admin Fee of TF Unit (2%) 361,283.00 3 Amount Available to Department (1-2) 17,702,867.00 4 Less Program Management Costs 816,000.00 5 Amount Available for Allocation (3-4) 16,886,867.00 6 Amount Allocated -Rounds 1-5 16,688,647.90 Balance (5-6) 198,219.10 Table 1 - Amount Received and Allocated 6 2.1.2 Allocations by Country Infrastructure related activities have been funded in all the countries in the Region except Bhutan. Countries with activities funded are Afghanistan, Bangladesh, India, Maldives, Nepal, Pakistan and Sri Lanka. Refer to Figure 2 Allocations by Country below. The TF stipulates that at least 60% of the resources be allocated to India, Pakistan, Afghanistan, Bangladesh and Sri Lanka. These five countries received 72.69% of total allocations. In terms of the share of allocations, India received 34.01%, Bangladesh 15.24%, Pakistan 11.72%, Sri Lanka 7.95% and Afghanistan 3.76%. Nepal and Maldives the two countries that do not fall in this category received 7.84% and 2.81% of allocations. Another 16.67% of allocations were regional in nature as they cover more than one country. Afg 3.76% Reg Ban Mld 16.67% 15.24% 2.81% SL 7.95% Pak 11.72% Ind 34.01% Nep 7.84% Figure 2 - Allocations by Country 7 2.1.3 Allocation by Sector The sectors funded are energy, transport, urban development, water and sanitation, environment and rural development (includes irrigation) as reflected in Figure 3 Allocations by Sector below. Among the sectors energy received 20.08% of the funds. The next biggest allocations were water and sanitation at 19.67% and to transport at 19.39 %. This was followed by urban development at 9.91%, social/environment at 7.73%, next is rural development at 6.34% and telecom at 0.87%. Activities that are cross-sectoral or/and regional in nature have been classified under the broad label of infrastructure. These received 16.01% of the funds. Water Energy 19.67% 20.08% Urban Dev 9.91% Infra 16.01% Transport Rural Dev 19.39% 6.34% Social/Env Telecom 7.73% 0.87% Figure 3 - Allocations by Sector 8 2.1.4 Allocation by Activity The TF agreement stipulates that resources be divided between lending support, appraisal and supervision (50%), regional analytical work (25%) and country specific analytical and policy studies (30%). It also states that 25% of the grants be made to capacity building activities in low capacity environments of fragile states and sub-national governments. 2.1.5 Lending and Analytical Activities Lending preparation, appraisal and supervision received 65% of funds allocated. Analytical studies constitute 35% of allocations. See Figures 4 Allocations by Lending and Analytical Activities. Of this regional Analytical, Advisory Activities (AAA) was 11.7% while country specific analytical and policy work was 23.1 %. AAA includes Non Lending Technical Assistance (NLTA) or technical assistance that does not involve lending. A number of capacity building activities fall under this category. Project preparation activities under lending development also include analytical studies that went into the preparation of projects. Analytical Work; 34.85% Lending; 65.15% Figure 4 - Allocations by Lending and Analytical Activities 9 2.1.6 Support for Low Capacity Environments The severe capacity deficit in fragile states and sub-national governments in the region remains a significant constraint on development. Funds allocated to fragile states and sub-national governments accounted for 27.66% of allocations as against the minimum of 25% stipulated. See Figure 5 Support for Low Capacity Environments. All the work funded in Afghanistan supports capacity building in a fragile state. This includes building the capacity of the government’s Technical Support Department (TSD) for technical supervision of infrastructure built under the multi-donor National Solidarity Program and training of provincial management units. Another task funded in Afghanistan includes a study to link private providers who had provided water in Kabul under conflict, with the planned city water utility, so that private sector capacity is not crowded out. On the sub-national government front this includes reinforcing the capacity of local governments for Integrated Solid Waste Management (ISWM) and Water and Sanitation (W&S) reforms. It also included helping the cities of Dhaka and Chittagong in Bangladesh to improve their water delivery. A major part of this work was also aimed at boosting the capacity of emerging or secondary cities to deliver services. This tier below the large cities is growing fast and has significant capacity constraints. In megacities in the region the institutional environment for managing was strengthened megacities (Mumbai, Delhi and Dhaka) through organizing a coalition of stakeholders to take informed action and suggest infrastructure investments. It also funded pilots that built the capacity of urban local governments to manage climate friendly and innovative urban transport technologies. This activity also includes community monitoring and evaluation of transport delivery through Citizen’s Score Cards. Low Capacity Env. 27.66% Other 72.34% Figure 5 - Support for Low Capacity Environments (as share of total in %) 10 2.1.7 Public Private Partnerships (PPPs) The TF has allowed the Bank to scale up its work on PPPs. Activities supporting PPP have been funded in all the countries and sectors for which allocations were made. Funds provided for these PPP related tasks are 63.96% of total allocations. Of the 70 activities funded, 42 or 57.53% support PPPs in infrastructure in some form or the other. See Figure 6 Allocation for PPP Activities. More details on the tasks are available in the Impacts section. Annex 2 Activities Related to PPPs provides a list of the activities funded. Non- PPP Projects 36.04% Other; PPP 42.47% PPP Projects Activitie 63.96% s; 57.53% Figure 6 - Allocation to PPP Activities (as a %) 11 2.1.8 Disbursement and Commitments The TF is continuing to disburse well and there are no problem activities. Total disbursements and commitments for the five rounds as of January 17, 2013 was 87.1% of allocations. These amounts need to be disaggregated to get the true picture since allocations for Round 5 are most recent. Activities funded in Rounds 1- 3 have already been completed with 100% disbursement. Disbursement for Round 4 is 99.8% and there is one activity that will be completed by April 2013. A close watch is being maintained on disbursements in Round 5 to ensure that the TF disburses completely by the time it closes in December 2013. See Figure 7 Funds Disbursed and Committed below and Annex 1 Disbursements and Commitments for information for each activity and round. Round 5 (W&S) Round 5 Round 4 Grant Amount Round 3 Disbursement Round 2 and Commitments Round 1 0 1,000,000 2,000,000 3,000,000 4,000,000 Figure 7 - Funds Committed and Disbursed (In USD) 12 2.2 LEVERAGE FINANCIAL AND NON-FINANCIAL The $16.87m from AusAID has leveraged or/and added to another $16.9 billion of infrastructure related investments from the Bank, other development partners and clients. These include DfID, USAID ARTF, ESMAP, BNPP, TFESSD, PPIAF, Cities Alliance, South-South TF and DevCo. The last eight are multi- donor TFs. The TF has thus multiplied its impact through additional leverage. On the part of the Bank this has been made possible through co-financing and/or through project preparation for lending or TA to which the tasks contributed or through supervision or evaluation of existing projects or as value additions to the work program. See Annex 3 -Additional Funds Leveraged for the figures leveraged by activity funded. The non-financial aspects of leveraging are often undervalued and overlooked. They are as important as the financial aspects. The TF leverages all of the Bank’s long-standing relationships and policy dialogue with clients and other development partners. It piggybacks on the Bank’s entire system and processes and the expertise and time of its staff at little cost. It also takes advantage of the Bank’s ability to source and generate knowledge through analytical studies and workshops and through exchanges fostered through the tasks funded. 13 3 - IMPACT AND KEY RESULTS All the activities funded meet the objective of the TF to either support the enabling environment for infrastructure delivery and/or facilitate infrastructure delivery. The impact of the TF can be felt at the level of the client in the form of support for policy and institutional reforms, better designed projects, innovations in infrastructure delivery and greater flexibility in the support provided. At the level of the Bank the most important contribution has been to raise the quality of the Bank’s work program, by increasing its scale and scope. It has increased the flexibility and effectiveness of the Bank’s response to requests for assistance from clients. Once the Bank’s funds are programmed there is usually little availability of funds to deal with these urgent requests or to add value to tasks. The funds have allowed the Bank to scale up significantly its work in areas such as PPPs, urban water and sanitation and transport and cross border energy trade. It has improved preparation and implementation of over 25 of Bank’s infrastructure projects covering energy, transport and water and sanitation. At the level of AusAID it has enabled through its performance to build confidence in the partnership and laid the foundation for a long-term programmatic relationship between the two partners. 3.1 SUPPORTING TRANSFORMATIONAL PROJECTS The TF has supported some of the most significant projects undertaken by the Bank that are transformational in nature. These projects are transformational due to their large financial investments, complexity of design and implementation, geographical scope and their significant impacts often covering multiple sectors. These projects often carry significant reputational risks for the client government and the Bank and the costs of failure can be high. Some of the projects supported thus are the study of PPP options for the first high speed Dedicated Freight Corridor (DFC) of the Indian Railways. See Highlight 1 below for more details. Other such projects include the $ 1 billion support to the National Ganga River Basin Authority project for cleaning up the Ganga, the largest river in India and the fifth largest in the world. The work supported by the TF facilitates among others the setting up of the first energy efficient Sewage Treatment Plant on the river. Raising the quality of the supervision of the $20 billion, Prime Minister’s Rural Roads Program (PMGSY) in India is another such task. The Bank’s lending to what has been termed the one of the world’s largest road programs is $ 1.5billion. Another project in this category under preparation is the ambitious Central Asian and South Asian cross border trade in energy project or CASA-1000 which plans to bring gas from Uzbekistan and Tajikistan to Pakistan via Afghanistan. 14 HIGHLIGHT 1: RESTORING THE COMPETITIVE STRENGTH OF THE INDIAN RAILWAYS The Golden Quadrilateral of the Indian Railways (IR) links India’s four largest metropolises of Delhi, Mumbai, Chennai and Kolkata, and its two diagonals, which are Delhi - Chennai and Mumbai - Kolkata. At 10,122 km in length it covers 16% of the rail network but carries 60% of the freight. The routes on the eastern corridor Howrah- Delhi and the western corridor Mumbai-Delhi are saturated, with capacity utilization at 115% to 150%. The IR does not have any dedicated freight corridors (DFCs) and passenger and freight trains share the same tracks slowing down the movement of both. The railway is an institution in India employing over 1.4 million people (8th largest employer in the world) and any reform of this public monopoly has usually been opposed by its strong unions who in the past have bought the nation to a standstill. IR has the fourth largest network in the world and runs 10,000 trains a day. In 2012, IR transported over 25 million passengers a day and over 9 billion in the whole year. It also carries 2.8 million tons of freight daily, the fifth largest volume of freight in the world. IR for most of its history has not made a profit. However since 2007 there has been a turnaround made possible through higher freight volumes, increased axle load, reduction in the turn-round time of rolling stock and the unit cost of transportation and the rationalization of tariffs. This has been done without substantial investment in infrastructure, resulting in improvement in market share and improved operational margins. Since then freight traffic has grown by 8 to 11%. In 2011-12, $13 billion of its $21 billion in revenue was from freight alone. Freight traffic is projected to grow at over 7% per year. Surging demand for energy and construction materials fuelled by growth and growing international trade provided the impetus for policy reforms in the shape of DFCs to desegregate the passenger and freight networks. It will increase capacity by raising axle-load limits from 22.9 to 25 tons and speed up to 100 km per hour, reducing transit times and costs, boosting productivity and growth. The eastern DFC (EDFC) will contribute to regional integration through the proposed Trans-Asian Railway (TAR) an integrated freight railway connecting Europe and Asia. The Southern corridor of TAR will run through India and Bangladesh, to Singapore and China. The electrified DFC is also a green project. By shifting freight from road and conventional rail to the DFC it will lower energy consumption and reduce carbon emissions by 2.25 times over a 30 year period compared to business as usual. The western and the eastern corridors are to be the first DFCs. The Bank is financing 1,100 km of the 1,800 km Eastern DFC in three phases. In the first phase, which has just been contracted out, the Bank is providing $975 million. The IFGI TF funded the first PPP Options study for the DFC, which is under consideration by IR. The EDFC, will improve services for passengers in the densely populated lower Ganges basin, home to India’s poorest citizens, who rely on rail for affordable travel. It will remove constraints to growth in the industrial heartland of Punjab and Haryana at the northern end of the corridor. It will create one of the world's largest freight operations, with international technologies and approaches, which can be extended to other important freight routes. It will also enable the Indian Railways to recapture the market share lost to the very competitive Indian trucking sector, which has among the lowest road freight tariffs in the world and carries 65% of India’s freight. 15 3.2 SUPPORTING INNOVATION The Karnataka Urban Water and Sanitation Services Modernization Project (KUWSSMP) will scale up the pilot of 24x7 water delivery in three cities in Karnataka state in India that had been funded by the Bank. The pilots in the demonstration zone of the three cities of Hubli, Dharwad and Gulbarga demonstrated for the first time that continuous water supply is possible in Indian cities. No city in India has continuous water supply. The pilot is now being scaled up citywide in these three cities through the Bank project under preparation with a loan of $ 190 million. These will become the first cities to have continuous water supply. Some of the technical studies for the scaling up have been funded by the TF. Another innovation has been the issue of bonds by the state highways authority in the same state for the construction and maintenance of state highways. This is the first time that the Bank put in its own money into financing roads in the public sector through bond issuance .The TF funded the structuring of the contract and bid documents for this project. 3.3 INCREASED FLEXIBILITY The funds from the TF have enabled the Bank to be more flexible and prompt in its responses to client requests for just in time support. The Bank could thus respond quickly and provide flexible and customized technical assistance (TA) to the National Committee for Transport Development Policy (NTDPC) in India. The TA covered all aspects of the committee’s deliberations. See Highlight 2 below. HIGHLIGHT 2: CUSTOMIZED TA FOR THE NATIONAL TRANSPORT DEVELOPMENT POLICY COMMITTEE The Government of India (GOI) appointed a NTDPC to provide guidance for a long term transport policy untill2030. The committee was to develop an overall strategy for the sector, and provide the information needed to guide investments in transport infrastructure and logistics. It would address critical issues on capacity augmentation and the types and magnitudes of transport investments required to support rapid economic growth. In addressing these issues, it was to give attention to building institutional capacity. Five working groups for roads, rail, civil aviation, ports and shipping and urban transport were constituted. Two more were added for bulk energy transport and development of transport infrastructure in inaccessible areas, focusing particularly on the North-East of India. Intermodal integration and improvements in logistics was also on its agenda. The committee approached the Bank to provide customized TA especially international expertise to inform its deliberations. The flexible funds provided by the TF enabled the provision of customized TA on a need to know basis. It provided information on best practice and international experiences to all the working groups. A workshop with international experts was organized in February 2012. The deliberations had to be seen as internal and not influenced by outside agencies and so the Bank kept a low profile in providing this TA. The interim report of the Committee was issued in April 2012 and the main report is to be finalized shortly. The approach taken by the committee was important. Instead of a piece meal approach to transport planning that had been the norm so far, the committee advocated the development Pan Indian multi- modal transport network that is efficient, sustainable, economical, safe, reliable, environmentally friendly and regionally balanced. It also approached the formulation a transport policy, in the context of regional connectivity within South Asia and further east, through road, rail, waterways, and air. The need to develop modern, and convenient, cross-border transport linkages, in particular, by rail and road was stressed. Border areas had been kept underdeveloped in India due to mistaken notions of security. Transport linkages across borders must be developed in tandem with “backward linkages” to the heartland. If the latter fall behind the former, it would alienate the people inhabiting them. Such linkages would have a multiplier effect in promoting economic development, both within the country and the region. This engagement has already begun to bear results with the Bank being asked to provide TA and support for the development of inland waterways that can in future connect to Bangladesh. 16 3.4 RAISING THE QUALITY OF THE WORK PROGRAM The flexible funding provided through the TF has raised the quality of the Bank’s work in several ways. It has enhanced Bank’s policy dialogue, TA and projects and thus giving them greater impact. It has improved project preparation, implementation, supervision including monitoring and evaluation of over 25 Bank projects. It has significantly expanded the scope of the Bank’s work program enabling support to new areas of engagement and bought additional value to its development efforts. 3.5 ENABLING OR SCALING UP NEW AREAS OF ENGAGEMENT The funds have facilitated new areas of business either directly or indirectly. These include urban transport and urban water and sanitation services (UWSS), the development of secondary or emerging cities, urban competitiveness and solid waste management in cities. Though the Bank has more than 20 years of support to rural WSS in the region, UWSS has been a difficult sector to engage in; an agreement could be reached on institutional set-up, cost recovery, or on the role the private sector could play in improving the reliability and efficiency of the WSS service. The political economy of reforming the WSS sector, in urban areas, is highly complex and not fully understood by external partners. The funds provided the Bank with an opportunity to engage in an informed policy dialogue regarding the reform process for UWSS. A series of Urban Water Sector Policy Reform workshops were organized in India. Sector studies in Pakistan, Nepal, Sri Lanka and the Maldives formed the basis for discussions with clients and enabled the Bank to reengage in the water and sanitation sector in Pakistan after a hiatus. Similarly, the Urban Competitiveness Assessment was the first study by the Bank to examine the growth potential of Kathmandu Metro Region. The Bank has had an extensive engagement in rural roads and state and national highways. It has now been able to support an expansion of its program to urban transport, railways and the port sector. The first study of the cumulative environmental impact of 22 hydropower projects under preparation or implementation on the Alaknanda River a major tributary of the Ganga River provided a framework to engage with the state and the government of India on the larger issue of sustainable hydropower and water resources management. The GoI subsequently requested for TA to the newly formed National Ganga River Basin Authority. A Bank project for $1 billion is now providing support for reducing pollution in the river. It also enabled greater support to regional integration through cross border trade. In this category it enabled the Bank to provide legal and advisory work for the Nepal- India and the Bangladesh-India energy trade deals. See Highlight 2 below for more. The project to implement the first trade deal trade is supported by the Bank and the second by ADB. The work 17 looking at climate impacts including climate resilient infrastructure in the ecologically sensitive Sunderbans area in India became a cross border program with a request to support similar work on the Bangladesh side. It has also been possible to support more PPP related activities in India, Nepal, Pakistan and Bangladesh. These include TA for developing the PPP framework and a Viability Gap Fund in Pakistan. In India this has included a PPP Capacity Building program for the Ministry of Finance and the PPP options study for the first Dedicated Freight Corridor of the Indian railways. An assessment of the key issues related to PPPs in India and of PPPs in the Energy, Transport and Water sectors in under completion and is expected to lead to an increased engagement on this issue. In Nepal the PPP work funded the evaluation of contractors and their capacity building for renovation and construction of bridges that had been neglected during long years of conflict as part of the Nepal Bridges Project. In Bangladesh a similar study looked at the availability of contractors for providing multi-village piped water supply in rural areas and steps to be taken for strengthening their capacity. 18 HIGHLIGHT 3: PLAYING THE HONEST BROKER FOR CROSS BORDER ENERGY TRADE IN SOUTH ASIA The energy situation in South Asia is characterized by poor access, high dependence on imported oil and/or petroleum products, slow development of energy sources and supply infrastructure, weak distribution and almost no intra-regional energy trade. Cross-border energy cooperation can lower costs in each country, improve supply reliability, and help lower carbon emissions. Among the countries with rich hydro potential in the region is Nepal. However, long years of conflict with no investments have resulted in an energy crisis. Only 46% of the population has access to electricity and load shedding is common, with some areas receiving as little as 8 hours of electricity a day during the dry winter season. In response to the worsening electricity situation, the Government of Nepal declared a “national energy crisis” in December 2008 and approved an Electricity Crisis Management Action Plan currently under implementation, The Action Plan includes development of the Dhalkebar-Muzaffarpur transmission link, the first major cross-border transmission line between India and Nepal to be developed on a commercial basis. Upon completion, Nepal could end electricity rationing by 2015. The TF funded the legal advisory work for Nepal to structure the deal with India. The transmission system in Nepal is domiciled in Power Transmission Company Nepal Ltd (PTCN), a SPV promoted by Power Grid Corporation of India Limited, IL&FS Energy Development Company Limited an Indian company and the Nepal Electricity Authority. Cross Border Power Transmission Company Limited (CPTC), incorporated in India, is the transmission licensee responsible for establishing, commissioning, operating and maintaining the transmission system on the Indian side. This enabled the 1000 MW cross-border Nepal-India Electricity Transmission and Trade Project (NIETTP) that will provide Nepal with at least 100 MW of additional electricity imported from India to meet its power needs. It will also develop key segments of the backbone high voltage system in Nepal to help expand access to electricity across the country. Once Nepal develops its hydropower potential and meets its domestic needs, this transmission infrastructure could trade the surplus hydropower to India. The Bank is funding the project to the tune of $ 99 million. This support is part of a $202 million project, which is funded by the private sector and development partners and the governments of Nepal and India. The project will set a precedent in a region with limited energy trade and serve as a best practice for further intra-regional trade. 19 3.6 INCREASING THE SCALE AND THE SCOPE Through this partnership with AusAID it has been possible to expand the breadth and depth of Bank’s engagement in infrastructure in the region. The NLTA looking at climate sensitive infrastructure development in the ecologically sensitive Sunderbans area in India has enabled dialogue on the Bangladesh side of the Sunderbans and the engagement has been broadened to include the whole of the Sunderbans. The work supported for the preparation of the Bangladesh Rural Water Project will look for the first time to build active linkages between the community and local government. One of the lessons learnt from Bank’s involvement in the rural W&S sector is that for greater sustainability and ownership of the assets and for better service it is important to involve the local governments who should own the assets and make them more accountable to the community. 3.7 THE ADDITION OF VALUE The funds provided by the TF have added value to Bank’s work program by raising the quality of its preparation supervision and monitoring of projects. The impact evaluation of the National Emergency Rural Access Project (NERAP) in Afghanistan led to the better design of the second phase of the project. The evaluation of community infrastructure provided through the Poverty Alleviation Fund in Pakistan and the evaluation of service improvements from infrastructure funded by the Tamil Nadu Urban Development Fund-III. The socio-economic impact of WASH delivery in the conflict affected zones in the North and East of Sri Lanka and first technical audit of community water and sanitation programs in Sri Lanka was also undertaken. It also enabled the Bank to help strengthen the supervision capacity of clients. This includes enhanced supervision of the National Solidarity Program in Afghanistan. This included the development of Technical Manuals and the training of the nodal agency. The support provided for the National Rural Roads program in India (PMGSY) included more effective and multilevel supervision through third party and community monitoring. See Highlight 3 for more details. The Bank also looked to improve the supervision of its signature projects and its portfolio of irrigation projects. 20 HIGHLIGHT 4: STRENGTHENING THE RURAL ROADS PROGRAM IN INDIA The weaknesses of basic rural infrastructure in India limits poverty reduction and agricultural growth and opportunities for the 60% of population dependent on agriculture and related activities. Evidence from India, and the region, indicates that infrastructure in particular a good road network can generate multiple benefits for the rural economy in the commercial and social sphere. Surveys have demonstrated that improved roads facilitate economies of scale in transportation costs, reduce post harvest losses by reducing handling time and lowering the margin taken by middlemen. Less expensive and more efficient access to markets enables diversification into higher value farming enterprises. This can transform agricultural production. Evidence also suggests that roads bring improvements in human development outcomes through better access to schools and health facilities. Lack of access to good roads eludes 30% of the India’s 855,000 habitations (or 300 million people). These inaccessible habitations are concentrated in lagging states and hilly areas. The strategic provision of all-season road access in rural areas has emerged as one of the key priorities for the Government of India (GoI). GoI aims to provide all-weather road connections to all villages with a population of 1,000 and above (500 and above in hilly and tribal areas) by 2009, and all significant villages by 2015. The main vehicle for this is the Pradhan Mantri Gram Sadak Yojana (PMGSY), or the Prime Minister’s Rural Roads Program. The PMGSY originally sought to provide all-season road access for every community with a population greater than 1,000 by 2003, and all villages with population greater than 500 by 2007. Although only 52 percent of the target has been achieved due to lack of resources and limited capacity – the achievements have been significant. The 274,000 km of new and improved rural roads has connected 70,500 habitations to the economic mainstream. Implementation capacity has been enhanced over time, with about 52,400 km of roads completed in the last year, compared to 15,500 at the beginning of the program. As a result of these achievements PMGSY has been identified as one of India’s 60 post independence success stories according to a survey conducted by “India Today” magazine. Total expenditure so far has been $14.6 billion and it is estimated that another $40 billion will be required to complete the program by 2020. The Bank is supporting the program with a $1.5 billion project to improve the effectiveness of program delivery and the sustainable maintenance of assets created. The TF supported strengthening the nodal agency’s supervision capacity and introduced third party monitoring and community based monitoring. 21 3.8 INCREASE IN CROSS SECTORAL AND CROSS COUNTRY WORK More cross-sectoral and cross-country work has been made possible through the availability of a flexible pool of funds. Key among these is the multi-year programmatic support for building and strengthening in country capacity for implementing social safeguards including the management of land acquisition and resettlement and rehabilitation (MLARR) and benefit sharing in the region. This has had large multiplier effects with several regional and inter-regional South-South exchanges being fostered. See Highlight 5 below for more information on this program, which was commended by AusAID’s independent evaluation of the TF. The TF has also facilitated more cross sectoral work including the work on water security in the Maldives which looks at both water resource management and drinking water in this water scarce country. Here the water resources management staff and water and sanitation staff are working together on this issue. HIGHLIGHT 5: CREATING A VIRTUOUS CYCLE OF CAPACITY BUILDING A programmatic effort has been ongoing from 2009 to build capacity within the region for social safeguards. Delays in land acquisition and resettlement and rehabilitation (LA&RR) result in the cost escalation of infrastructure projects and sometimes to their being dropped under strong opposition from affected communities. There is no training offered to develop new talent at educational institutions in the region or to staff at infrastructure companies, on handling this issue. Given this situation the Bank and other development partners rely on external consultants to offer safeguard support. This is a more costly option and does not lead to building local capacity. Given this the TF supported a successful master’s level course in the management of LA&RR at BRAC Development Institute (BDI) in Bangladesh. The TF funded the development of this course, which has been offered by BDI since 2009 in a self-sustaining manner. The first course was inaugurated by the Australian High Commissioner to Bangladesh. Shorter training programs were provided for the staff of the main infrastructure companies. This was well received. The effort has now been scaled up to the rest of the region with centers of excellence being developed in India, Pakistan, Nepal and Bangladesh. The regional center at the Administrative Staff College of India will also be connected to the 125 institutions around the globe that are part of ASCI’s network. Several south-south exchanges have been organized between countries in the region and with the Africa and East Asia region. Several workshops for TOT and to update the curriculum have also been undertaken. With very little investment a virtuous and self-sustaining cycle of capacity building has been initiated and supported. 22 3.9 SECTORAL IMPACTS The TF is now in its final year of operations. Tasks in Rounds 1-3 have been completed and there is one task in Round 4 that is about to close. Tasks funded in the last Round 5 are under implementation and the TF is expected to disburse fully by the time it closes in December 2013. Some of the key results achieved by sector are provided here. Transport - Significant among outcomes in the sector is the support extended to introducing PPP in the giant monopoly, which is the Indian Railways through the support for India’s first DFC, and to improve the supervision of the national program for rural roads highlighted earlier. The study on Ports in India that also informed the deliberations of the National Committee on a Transport Development Policy has led to a request from the government to support the development of inland waterways on two segments of rivers that lead into Bangladesh. The Nepal Bridges Project is the first infrastructure project that is using the new Program for Results (P4R) approach. The Karnataka State Highways Project in India saw the Bank for the first time funding the issue of bonds by a state road transport agency. The support for the Sustainable Urban Transport Program led to the award of a Bus Rapid Transit system in the three cities of India and the establishment of Intelligent Transport Systems in two other cities. An online Peer-to-Peer Learning Network housed in the concerned ministry has been set up. The privatization of the airport in Maldives was also supported by the TF. Energy - Technical assistance from the TF helped structure two cross border energy trade deals between India and Nepal and India and Bangladesh. The first is being implemented through a Bank project highlighted earlier and the second through the ADB. The TF has supported reform and improvements in the performance of the state owned transmission and distribution companies. This has been important since the power sector is in the red and is a drag on the public exchequer. Three such organizational transformation efforts were supported. This includes the organizational reform of the Haryana Power Sector in the state of Haryana in India and the development of key performance indicators and benchmarking of the power sector in Bangladesh. The support to the transformation of the state’s distribution company in Maharashtra included process re-engineering, increased competition in the transmission sector and Human Resources reform. The study and the recommendations were accepted by the state government. An important financial review of the power sector in India which is part of a major review of the sector has just been completed and will lead to more informed dialogue with the client. WSS - The Urban Water Sector Policy Reform workshops enabled the development of an advisory note on Business Plan for the Ministry of Urban Development, which is to go out as an advisory to all the Indian states. The state of Maharashtra announced a new statewide water and sanitation scheme that provides incentives urban local governments to improve the institutional environment for WSS by improving accountability, financial sustainability and customer orientation. TA for Incentive Based Reform of Urban Water and Sanitation Services led to a new state wide program for urban WSS delivery. Sector studies in Pakistan, Sri Lanka and Nepal have enabled the opening of a dialogue in Pakistan, and request for a RWSS project in Nepal. Discussions are ongoing for a new WSS project in Sri Lanka. 23 Regional Integration and Infrastructure - The cross border energy work supported by the TF resulted in the first energy trade deal between India and Nepal. The work on the sustainable infrastructure in India led to a similar TA for the Bangladesh side of this ecologically sensitive area, which is currently underway. The first P4R Bridges project in Nepal is helping to rehabilitate the bridges that help connect this mountainous country. A study of the competitiveness of the Kathmandu metro region led to the government of Nepal asking for a Bank project to implement the findings. Key analytical studies undertaken include the flagship closing the Infrastructure Gap in South Asia, the Sri Lanka Infrastructure Assessment and the study of Spatial Disparities in Pakistan. 24 4 - STRATEGIC PROGRAM ADMINISTRATION AND MANAGEMENT Strategic program management has ensured that the TF funds is strongly embedded in the Bank’s work program and funds strategic priorities in the region. Oversight from the office of the Director, Sustainable Development is maintained to ensure that only tasks that have significant impacts are funded. A proactive approach is taken with regard to program management of the TF. A continuous communication is maintained by the program administration with Sector Managers, the Operations Manager and task teams to identify high value activities and to develop a potential pipeline of activities for funding. It the proposal stage it is ensured that each proposal is supported by the clients and Bank management. Activities have to be a part of the Bank’s active work program. Stand-alone or one off tasks or activities not supported by clients is not funded. This is to ensure that tasks once funded will be successfully completed and will be sustainable. This has resulted in problem activities being avoided. If an activity does not meet this minimum criteria the task team is informed early so that time is not spent on proposals that cannot be taken forward. This also ensures that the TF management and task teams do not spend time and resources on proposals that do not meet the objectives of the TF. Through an iterative process of discussions the proposals identified are strengthened to see that they meet the objectives of the TF and provide high value outcomes. Once proposals are approved for funding support is provided to see that the grant funds requests (GFRs) the Bank’s electronic system of setting up child TFs for each activity is completed and funds made available soon after allocations are made. A customized spreadsheet has been developed to track disbursements and commitments on a monthly basis. This close monitoring of the TF has enabled prompt action as and when problems arise. The close watch over fund flows assists in taking prompt action to move funds from slow moving to quick disbursing activities. This was of importance when a tranche was not received from AusAID in 2009 and enabled the funding of an additional round (Round 3) without affecting any of the activities or reducing the impact of the TF. 25 5 - STRENGTHENING THE PARTNERSHIP AusAID visibility continued to be ensured through placing the AusAID logo on all written outputs and on banners at workshops related to tasks funded by the TF. AusAID staff participated in the seminars organized in relation to the activities funded by the TF. This included the international workshop for the National Committee on Transport Development Policy in Delhi, and the Regional Conference on RWSS in Nepal. In the reporting year the relationship between the two partners was scaled up after the visit of the ADG AusAID Paul Nichols to the World Bank headquarters in Washington DC in July 2012. He had extensive interactions with staff and managers. He heard directly from staff and saw the impact of the partnership on the Bank’s work program. Subsequently the two partners exchanged a partnership note that gave structure to the relationship with an Annual Meeting, a joint work plan covering PPPs, education, decentralization in Pakistan, and water resources management. A Program Register also started being maintained by AusAID. 26