Budgeting

Government’s effective and responsive implementation of the program and use of funds highlighted the importance of being able to adjust allocations as demanded by the crisis. The government successfully utilized its ADB countercyclical loan to support its relief and stimulus program under its two pandemic emergency decrees and funds (FY2020 and FY2021). In particular; the Cabinet responded rapidly to the successive waves of COVID-19; allocating and reallocating budgets to work plans and projects where they were most needed at any one time.

Overestimated project costs lead to unutilized loan amounts and wastage of commitment fees. At appraisal, the investment program was estimated to cost $920.0 million, comprising ADB loans of $730.0 million (79.4%) and government contributions of $190.0 million (20.6%). At completion, the program cost totaled $669.3 million, of which ADB provided $253.8 million (37.9%).

A detailed market assessment is necessary to come up with reliable cost estimates. The actual costs deviated significantly from the original estimates, aggregating to only $29.35 million or 49% of the $60 million total estimated cost. This was mainly because of the nearly 30% drop in the actual cost of equipment realized through the international competitive bidding process, the reduction in the number of distribution transformers installed, and the reduction in the scope of underground cable installation actually undertaken.

Significant implementation delays under both tranches underscore three important points: (i) weather conditions stop works during winter months and even interrupt work during other months, (ii) proper planning is essential so that issues such as inadequate access infrastructure can be taken care of sufficiently in advance, and (iii) extensive geological surveys and testing are crucial in the Himalayan region prior to the detailed project report stage.

High-level participation among stakeholders in the design, implementation, and establishment of community mechanisms contribute substantially to project success. Buy-in of stakeholders and active participation in the processes from design to implementation are critical, specifically when the project involves new approaches and pilot programs

While the timely and effective utilization of project savings can improve outcomes, it would be best to ensure reliable cost estimates at appraisal to avoid complications and mitigate implementation risks. Cost savings during implementation prompted two requests from POWERGRID, the borrower and executing agency of this project, to use available loan funds through minor scope changes. This enhanced project results and final outcome, particularly as ADB and POWERGRID were able to swiftly meet the requirements and provide timely support for the implementation of the scope changes.

Overconservative cost estimation during the implementation of the multitranche financing facility (MFF) tranche projects may reduce the funding availability for other investments and result in low utilization of the approved MFF amount. Tranche 2’s actual total cost was $64.97 million, 60% of the budgeted amount, and ADB’s loan disbursement was only 61% of the committed amount.

Flexible reallocation of loan proceeds to critical civil works can enhance project relevance and effectiveness. A minor change in scope was approved for the reallocation of loan proceeds from project administration savings and secondary consulting services to the civil works contract. The new allocation enabled additional works on the coastal boulevard impacted by the storm but kept the loan size within its original limit.

Considering the construction costs and number of subprojects as tentative when there are significant technical unknowns that cannot be determined during the design stage will help mitigate the risks and facilitate the implementation of sector loan projects. Under this project’s preparatory technical assistance (TA), cost estimates were prepared under conditions of significant technical information gaps for all potential bridge sites.