41116-023: MFF - Jammu and Kashmir Urban Sector ...

Completion Report

Project Number: 41116-023

Loan Number: 2331

June 2021

India: Jammu and Kashmir Urban Sector Development Investment Program (Project 1)

This document is being disclosed to the public in accordance with ADB’s Access to Information Policy.

CURRENCY EQUIVALENTS

Currency Unit – Indian rupee/s (₹)

At Appraisal At Project Completion

16 February 2007 2 November 2017 ₹1.00 = $0.0236 $0.0154 $1.00 = ₹42.375 ₹64.935

ABBREVIATIONS

ADB – Asian Development Bank AEFS APFS CAGR

– – –

audited entity financial statements audited project financial statements compound annual growth rate

DMF – design and monitoring framework DSC – design and supervision consultant EIRR – economic internal rate of return

ERA – Economic Reconstruction Agency HUDD – Housing and Urban Development Department km – kilometer lpcd – liters per capita per day MFF – multitranche financing facility mld – million liters per day O&M – operation and maintenance PFR – periodic financing request PHED – Public Health Engineering Department PIU – project implementation unit PMC – program management consultant PMU – project management unit STP – sewage treatment plant SWM – solid waste management TA – technical assistance UEED – Urban Environmental Engineering Department ULB – urban local body

NOTES

(i) The fiscal year (FY) of the Government of India ends on 31 March. “FY” before a calendar year denotes the year in which the fiscal year ends, e.g., FY2021 ends on 31 March 2021.

(ii) In this report, “$” refers to US dollars.

Vice-President Shixin Chen, Operations 1

Director General Kenichi Yokoyama, South Asia Department (SARD)

Director Norio Saito, Urban Development and Water Division (SAUW), SARD

Team leader Momoko Tada, Urban Development Specialist, SAUW, SARD

Team members Saswati Belliappa, Safeguards Specialist, SAUW, SARD Bhawna Kulshreshtha, Executive Assistant, India Resident Mission

(INRM), SARD Pradeep Kumar Pandey, Associate Operations Analyst, INRM, SARD Girish Mahajan, Senior Environment Officer, INRM, SARD Rodellyn Manalac, Operations Assistant, SAUW, SARD Suhail Mircha, Safeguard Officer, INRM, SARD

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS Page

BASIC DATA i

I. PROJECT DESCRIPTION 1

II. DESIGN AND IMPLEMENTATION 2

A. Project Design and Formulation 2

B. Project Outputs 3

C. Project Costs and Financing 5

D. Disbursements 5

E. Project Schedule 6

F. Implementation Arrangements 6

G. Technical Assistance 6

H. Consultant Recruitment and Procurement 7

I. Gender Equity 8

J. Safeguards 8

K. Monitoring and Reporting 8

III. EVALUATION OF PERFORMANCE 9

A. Relevance 9

B. Effectiveness 10

C. Efficiency 11

D. Sustainability 11

E. Development Impact 12

F. Performance of the Borrower and the Executing Agency 12

G. Performance of the Asian Development Bank 13

H. Overall Assessment 13

IV. ISSUES, LESSONS, AND RECOMMENDATIONS 14

A. Issues and Lessons 14

B. Recommendations 15

APPENDIXES

1-1. Design and Monitoring Framework for Project 1 16

1-2. Details and Status of Outputs Originally Planned in the Periodic Financing Request 23

2. Project Cost at Appraisal and Actual 26

3. Project Cost at Appraisal and at Completion By Financier 27

4. Disbursement of ADB Loan Proceeds 29

5. Contract Awards of ADB Loan Proceeds 30

6. Chronology of Main Events 31

7. Summary of Contract Details 32

8. Status of Compliance with Loan Covenants 33

9. Safeguards Assessments 53

10. Economic and Financial Analysis 55

BASIC DATA A. Loan Identification 1. Country 2. Loan number and financing source 3. Project title 4. Borrower 5. Executing agency

6. Amount of loan 7. Financing modality

India 2331, ADB ordinary capital resources Jammu and Kashmir Urban Sector Development Investment Program (Project 1) India Economic Reconstruction Agency $42.2 million Multitranche financing facility

B. Loan Data 1. Appraisal – Date started – Date completed

2. Loan negotiations – Date started – Date completed

3. Date of Board approval

4. Date of loan agreement

5. Date of loan effectiveness – In loan agreement – Actual – Number of extensions

6. Project completion date – Loan agreement – Actual

7. Loan closing date – In loan agreement

– Actual – Number of extensions

8. Financial closing date – Actual 9. Terms of loan –Interest rate – Maturity (number of years) – Grace period (number of years)

12 February 2007 16 February 2007

16 April 2007 17 April 2007

31 May 2007

28 December 2007

27 March 2008 25 March 2008 0

30 April 2012 31 May 2017 31 Oct 2012 30 May 2017 4

2 November 2017a London interbank offered rate (LIBOR)-based (floating) + 0.60% 25 Years 5 Years

a Unfinished works were completed with state government funding in March 2019. March 2019 is the starting point for an 18-month period by the end of which this project completion report must be circulated.

ii

10. Disbursements

a. Dates

Initial Disbursement

29 July 2009

Final Disbursement

2 November 2017

Time Interval

99 months

Effective Date

25 March 2008

Original Closing Date

31 October 2012

Time Interval

55 months

b. ADB Loan Amount ($ million)

Category

Original Allocation

(1) a

Increased during

Implemen- tation (2) b

Cancelled during

Implemen- tation (3)

Last

Revised Allocation (4=1+2–3)

Amount Disbursed

(5)

Net Undisbursed

Balance (6=4–5) c

I Base Cost

Component A: Urban Infrastructure and Environmental Improvements

Water supply 4.80 0 0 4.80 2.39 2.41

Sewerage, drainage, and sanitation

19.30 0 0 19.30 13.72 5.58

Solid waste management

2.10 0 0 2.10 7.27 (5.17)

Transportation and urban roads

3.40 0 (3.40) 0 0 0

Resettlement and land acquisition

0 0 0 0 0 0

Subtotal (A) 29.60 0 (3.40) 26.20 23.37 2.83

Component B: Capacity Building, Institutional Development, Governance, and Investment Program Support

Training and workshops 0.50 0 0 0.50 - 0.50

Consultancy support 7.00 0 0 7.00 7.78 (0.78)

Incremental administration, including computers and peripherals

2.40 0 0 2.40 5.93 (3.53)

Subtotal (B) 9.90 0 0 9.90 13.71 (3.81)

II Contingencies 2.70 0 (1.60) 1.10 0 1.10

III Taxes and duties 0 0 0 0 0 0

IV Financing charges during implementation

0 0 0 0 0 0

Total 42.20 0 (5.00) 37.20 37.08 0.12 a From periodic financing request 1 and loan agreement. b Some subprojects were increased and others reduced during detailed planning and design. The total is net of the reductions and additions.

c The undisbursed balance of $116,244.59 was cancelled at project completion.

iii

C. Project Data 1. Project cost ($ million)

Cost Appraisal Estimate a Actual

Foreign exchange cost b … 2.48

Local currency cost … 57.85

Total 64.90 60.33

…= data not available. a No breakdown of foreign exchange cost and local currency cost was prepared at appraisal. b Includes interest and commitment charges.

2. Financing plan ($ million)

Cost Appraisal Estimate Actual

Implementation cost

Borrower financed 18.30 21.21

ADB financed 42.20 37.08

Total implementation cost 60.50 58.30

Interest during implementation cost

Borrower financed ADB financed

4.40 0

2.03 0

Total 64.90 60.33 ADB = Asian Development Bank. Note: Numbers may not sum precisely because of rounding.

3. Cost breakdown by project component ($ million)

Component Appraisal Estimate Actual

I. Base Costs

A. Urban Infrastructure Improvements

Water supply augmentation 5.90 2.91

Rehabilitation of solid waste facilities 2.60 15.39

Rehabilitation of sewerage system 23.60 23.19

Rehabilitation of roads and bridge 4.10 0.00

Resettlement and land acquisition 1.00 0.46

B. Capacity Building and Institutional Development

Consultancy support 7.40 8.23

Incremental administration, including vehicles, computers, equipment, and laboratory

2.90 7.44

Training and workshops 1.00 0.00

II. Contingencies 5.80 0.00

III. Taxes and Duties 6.20 0.59

IV. Financing Charges During Implementation 4.40 2.03

Total 64.90 60.33

iv

4. Project 1 Schedule

Item Appraisal Estimate Actual

Date of contract with consultants

Project management consultants Q2 2007 Q2 2009

Design and supervision consultants Q2 2007 Q3 2009, Q1 2011, and Q1 2014

Completion of engineering designs March 2008 Q2 2008

Civil works contract

Date of contract award March 2008 Q2 2008 and Q1 2014

Completion of work April 2012 Q4 2016

Equipment and supplies

First procurement Q2 2007 Q2 2008

Last procurement Q3 2011 Q2 2014

Completion of equipment installation April 2012 Q4 2016

Start of operations

Completion of tests and commissioning July 2012 Q1 2017

Beginning of start-up July 2012 Q2 2017a

Q = quarter. a Works under sewerage subproject were not completed before financial closure, but the unfinished works were

eventually completed in March 2019 with state government funding. 5. Project Performance Report Ratings

Implementation Period

Ratings

Development Objectives Implementation Progress

From 18 June 2008 to 31 December 2008 Satisfactory

Satisfactory

Satisfactory

Satisfactory

Satisfactory

From 1 Jan 2009 to 31 July 2009

From 1 Aug 2009 to 31 December 2009

Highly Satisfactory

Satisfactory

From 1 Jan 2010 to 31 December 2010 Satisfactory

Single Project Rating*

From 1 January to 31 December 2011 On track






From 1 January to 31 December 2017 On track *After 2010, only one rating is available.

D. Data on Asian Development Bank Missions

Name of Mission Date No. of

Persons No. of

Person-Days Specialization of

Members

Project appraisal 12–16 Feb 2007 7 154 d, r, g, a, d, s, t

Contact 17 Jul–18 Jul 2008 3 6 a, e, f

Loan review 1 26 Aug–4 Sep 2009 2 20 a, b

v

Name of Mission Date No. of

Persons No. of

Person-Days Specialization of

Members

Special loan administration 4–12 Jan 2010 3 30 d, a, l

Loan review 2 28 Mar–2 Apr 2010 3 18 a, b, i

Contact 14–17 Jul 2010 2 8 a, e

Contact 24 Apr–7 May 2011 6 84 d, c, a, g, j, k

Loan review 3 23–28 Jan 2012 2 12 d, f

Loan review 4 / fact-finding 26 Mar–16 Apr 2012 7 154 d, r, g, a, d, s, t

Midterm review 1 22–26 Apr 2013 2 10 d, l

Special project administration

1–10 Jun 2013 3 30 d, a, l

Loan review 5 11–14 Jun 2013 2 8 e, u

Special loan administration 22–26 Oct 2013 2 10 a, l

Special loan administration 19–22 Nov, Apr 2013 2 8 l, g

Midterm review 2 10–17 Feb 2014 3 24 a, l, f

Loan review 6 21–25 Jul 2014 2 10 a, l

Loan review 7 17–24 Nov 2014 4 32 a, d, l, s

Special loan administration 15–17 Apr 2015 2 6 a, l

Loan review 8 7–9 Sep 2015 2 6 a, l

Midterm review 3

Loan review 9

Loan review 10

Loan review 11

16–21 Nov 2015

4–11 Apr 2016

21–22 Nov 2016

27 Feb–1 Mar 2017

7

5

3

3

42

40

6

9

d, b, a, l, t, j, f

d, l, s, t, s

d, a, c

d, a, s

Loan review 12 18–22 Jun 2018 2 10 d, v

Loan review 13 26–30 Nov 2018 4 20 d, s, w, x

a = project implementation officer, India Resident Mission, b = financial/administrative analyst, c = resettlement specialist, d = urban development specialist, South Asia Urban Development Division, e = urban economist, South Asia Urban Development Division, f = project analyst, India Resident Mission, g = safeguard specialist, j = environmental specialist, l = associate project analyst, r = project counsel, s = consultant project specialist, t = gender consultant, u = transport specialist, v = country director, India Resident Mission, w = principal portfolio management specialist, x = urban specialist, India Resident Mission. Source: Asian Development Bank.

I. PROJECT DESCRIPTION 1. The Jammu and Kashmir Urban Sector Development Investment Program was designed to expand and upgrade urban services in the major urban areas of the state to Indian national and state standards. The focus was on providing water and sanitation services to the poor and other low-income segments of the population. The program aimed to improve public health, the urban environment, and quality of life for more than 2.4 million people living in the state’s two main cities and other selected towns. It also aimed to modernize and streamline the planning, operation and maintenance (O&M), and administrative functions of the responsible city departments.1 Urban improvements were envisaged concurrently to promote commercial development, facilitate public–private partnership, and generally help to improve the economy of the state, in part by facilitating tourism. 2. The Asian Development Bank (ADB) approved the program as a multitranche financing facility (MFF) on 31 May 2007 at an estimated cost of $485 million. 2 The ADB loan was $300 million, and the state government contributed $185 million. The first loan under the MFF (Loan 2331-IND, project 1) was approved on 31 May 2007 for a project cost estimated at $64.9 million, the ADB loan being $42.2 million and the state government contribution $22.7 million. Project 1 aimed to achieve the expected impact and outcomes through the following outputs:3

(i) Part A: Urban infrastructure improved through investments in water supply, wastewater management, solid waste management (SWM), and urban transport and roads.

(ii) Part B: Capacity development and institutions developed 4 through (a) consultant services for project 1, (b) investment program administration assistance to the executing agency, (c) capacity building in the State Pollution Control Board, (d) developing an accrual-based accounting system in urban local bodies (ULBs), (e) preparing economic opportunity development plans for other towns and commercial centers in the state, (f) establishing e-governance systems in ULBs, and (g) training and institutional development to support the urban reform agenda.

3. The expected impact of project 1 (footnote 3) was sustainable economic growth through the provision of urban infrastructure and services and improved urban management. The anticipated outcomes were (i) improved living environments and employment opportunities for the 2.4 million people in Srinagar and Jammu (the target towns), and (ii) improved capacity in participating institutions to manage sector reform and service delivery.

1 Responsibility for basic urban services was shared as follows: capital works financed by external funding sources,

including ADB, were planned, designed, and implemented by the state Economic Reconstruction Agency (ERA) on behalf of ULBs. O&M responsibility was as follows: (i) water supply systems under the state’s Public Health Engineering Department (PHED), (ii) sewerage systems under the state Housing and Urban Development Department (HUDD); and (iii) solid waste facilities and transportation under ULBs. Billing and fee collection are operated by the respective entities, but revenues are passed to the state.

2 ADB. 2007. Report and Recommendation of the President to the Board of Directors for the Proposed Multitranche Financing Facility to India for the Jammu and Kashmir Urban Sector Development Investment Project. Manila.

3 A separate design and monitoring framework (DMF) for project 1 was not included when the MFF was approved. In 2011, a DMF for project 1 was formulated as part of the retrofitting of projects in eOps for all ongoing ADB projects. The indicators and targets were subsequently adopted by the government, and the DMF was monitored in progress review missions. The DMF did not, however, include all outputs listed in the report and recommendation of the President and the periodic financing report (PFR). A separate table in Appendix 1-1 contains the details and status of all originally planned outputs. Performance indicators and targets for impacts were also not established. In this PCR, the same MFF impact indicators and targets are applied to evaluate the impact of project 1.

4 Included subcomponents were continued through succeeding tranches and loans for the duration of the MFF.

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4. Project 1 was expected to benefit 0.38 million people with improved water supply, 0.23 million people with improved municipal sewerage systems, and 1.10 million people with improved SWM facilities. It was further expected to advance sector reform, mainstream capacity building as part of the state’s urban development budget, and demonstrate the ability of agencies to perform effective O&M of assets using modern management techniques while reducing costs.

II. DESIGN AND IMPLEMENTATION A. Project Design and Formulation 5. Project 1 was designed in accordance with government and ADB sector strategies at appraisal in 2006–2007. The project was consistent with India’s Tenth and Eleventh Five-Year Plans (2002–2012), emphasizing improvement and augmentation of economic and social infrastructure and provision of improved municipal services in urban areas.5 It also was consistent with state government approaches and strategies in its Eleventh Five-Year Plan for achieving service standards in line with the national average with respect to critical indicators of quality of life by narrowing poverty and regional disparities, providing basic services, and developing infrastructure.6 Project 1 also aligned with the ADB country strategy and program for India, 2003–2006, which highlighted the need to address interregional disparities; the ADB Urban Sector Strategy, 1999; 7 and ADB Strategy 2020 and its focus on poverty reduction, environment protection, and institutional strengthening.8 Although the project predated ADB Strategy 2030,9 it aligns with the strategy’s operational priority 4 on livable cities and the provision of safe and effective water and sanitation services. 6. The program’s design reflected ADB’s learning from supporting urban projects in India and from an earlier urban sector loan to the state, which, as the first project in the sector in the state, was able to address only a small part of the large medium-term requirements.10 The program aimed to address the remaining priority development needs. Project 1, costing $64.9 million from a total program cost of $485.0 million, addressed the most urgent and basic infrastructure gaps and laid foundation for succeeding investments by building capacity in responsible agencies. ADB experience within India’s urban sector had shown project sustainability to depend on three main imperatives:11 (i) selecting subprojects through extensive consultation with a wide range of stakeholders and following a demand-driven approach, (ii) institutional development to ensure that adequate O&M funds are mobilized from internal resources and gradual transfers from the state to responsible institutions, and (iii) capacity building in service-delivery institutions to adopt corporatized or commercially oriented operations that include user fees and tariffs. These imperatives guided selection of subprojects for water

5 Government of India, Planning Commission. 2002. Tenth Five-Year Plan, 2002–2007. New Delhi; Government of

India, Planning Commission. 2007. Eleventh Five-Year Plan, 2007–2012. New Delhi. 6 State government, Planning and Development Department. 2007. Eleventh Five-Year Plan (2007–2012). New Delhi.

Project 1 was also consistent with the sector road map developed by the state government in conjunction with the Jawaharlal Nehru National Urban Renewal Mission, through which the Government of India fast-tracks reform-driven development planning to modernize 63 major towns of India.

7 ADB. 2003. Country Strategy and Program: India 2003–2006. Manila, ADB. 1999. Urban Sector Strategy. Manila. 8 ADB. 2008. Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank 2008–2020. Manila. 9 ADB. 2018. Strategy 2030: Achieving a Prosperous, Inclusive, Resilient, and Sustainable Asia and the Pacific.

Manila. 10 ADB. 2004. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to India for

the Multisector Project for Infrastructure Rehabilitation in Jammu and Kashmir. Manila (Loan 2151-IND, for $250 million, approved on 22 December 2004). Loan 2151 addressed such urgent investment needs as rehabilitating water supply systems, and project 1 expanded these investments.

11 Summarized in ADB. 2006. Special Evaluation Study on Urban Sector Strategy and Operations. Manila.

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supply, sewerage, SWM, and transport based on public consultations and subsector masterplans. Also in line with these imperatives, priority investments under the first tranche of the program were linked with incremental reform and substantive support to build capacity and ensure sustainable financial operations. 7. The MFF modality was an appropriate and effective approach to facilitate a long-term relationship between the Economic Reconstruction Agency (ERA) and ADB.12 The modality suited the complex works in urban areas, requiring flexibility in scope and longer implementation periods to coordinate multiple stakeholders. Further, it allowed adjustments in ADB support given the severe winters and frequent monsoon flooding conditions in the project areas. During loan processing, the design and monitoring framework (DMF) for the facility was prepared and outcomes and outputs were defined (footnote 3). Achievements are detailed in Appendix 1-1. 8. Two minor changes in scope during implementation addressed realities on the ground. One scope change reduced a raw water pipeline in a water supply subproject from 10.0 kilometers (km) to 5.6 km, and the other shifted an urban transportation subproject to project 2 to better address congestion with larger scope. The need for these scope changes came to light only after detailed surveys and designs were conducted after approval of periodic financing request (PFR) 1 in 2007.13 Consequent loan savings were partly reallocated to expand the much-needed solid waste landfill site.14 Eventually, $5.0 million was cancelled from the ADB loan in 2014.15 While project 1’s design at appraisal was appropriate to achieve expected outcomes and outputs, it could have considered incorporating comprehensive end-to-end solutions, such as 24×7 water supply with well-defined O&M arrangements in construction contracts and integrated SWM with source segregation, collection, transportation, reuse, recycling, and disposal. Also, the assessment of state capacity at appraisal was rather optimistic, encouraging ambitious reform targets and delaying the start of some subprojects in part B, for capacity building and institutional development. 16 With these exceptions, the design remained relevant at completion as development needs for basic urban services remained unchanged in the targeted towns. B. Project Outputs 9. Project 1 outputs are summarized below. The targeted outputs are based on the DMF established in e-Operations (eOps) in 2011. The complete list of planned outputs of project 1 are in Appendix 1-2.

1. Part A: Urban Infrastructure Improvements 10. Water supply. The targeted output for this subproject was to lay 5.6 km of raw water pipeline. This was substantially achieved with a 4.8 km pipeline (86%). The original design was to lay a 10.0 km raw water pipeline from Sindh Canal to the Nishat water treatment plant, but detailed hydrological investigation discovered raw water of better quality from a nearer natural source. This alternative source would require only 5.6 km of new pipeline, including replacement

12 ADB recognized the benefits of longer-term relationships through its earlier long-term support to urban sectors in

Karnataka and Rajasthan. 13 During MFF preparation in 2007, only outline plans and designs were required to formulate the MFF and generate

cost estimates toward securing the proposed ADB financing. This program is the 12th MFF approved in ADB. 14 Savings were also used to cover incrementally higher administration costs, as project completion suffered a 5-year

delay, and to prepare subsequent projects under the MFF. 15 ADB. Loan 2331-IND: Jammu and Kashmir Urban Sector Development Infrastructure Development Investment

Program, Project 1-Partial Cancellation from the Loan Accounts. New Delhi (13 August 2014). 16 The state government’s capacity constraint was gradually mitigated by capacity building activities throughout the

program’s duration.

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of existing pipes, and cost less to pump. The Public Health Engineering Department (PHED), state government, and ERA decided there was little benefit from the original Sindh Canal option, and ADB therefore approved a minor change in scope in 2010.17 With further refinement of the alignment, a 4.8 km pipeline was laid. The revised subproject provided an additional 533,000 people with water supply increased from 80 liters per capita per day (lpcd) to the national standard of 135 lpcd and extended service by 6 hours to 8 hours daily. The intended service improvement was in fact overachieved despite the reduced physical output (pipeline length).18 11. Sewerage. Targeted outputs for this subproject were to lay a 180 km sewerage network and construct a sewage treatment plant (STP) with capacity of 30 million liters per day (mld).19 Project 1 achieved these targets by laying a 190 km sewerage network, developing one STP with 30 mld capacity, and including 33,500 house connections to ensure expeditious realization of benefits. 20 By project completion in May 2017, ADB funding had completed 20,000 house connections, leaving 13,500 connections unfinished because implementation had been delayed by a misprocured contract and termination of other nonperforming contracts (paras. 22–23). The loan was not extended as extensive consultation and coordination with each household were necessary which required more time. The remaining connections were completed in March 2019 with funds provided by the state and by project 3 under the program,21 thus benefitting the original planned population of 230,000 with a centralized sewerage system. 12. Solid waste management. The targeted output for this subproject was to construct and improve sanitary landfill capacity by 250 metric tons per day.22 This was achieved by improving and expanding landfill capacity to 380 metric tons per day. Apart from meeting this output target, project 1 also expanded two other landfill sites with daily capacity increases of 243 and 335 metric tons. 23 This subproject also introduced weighing scales at entry and exit points, waste segregation equipment, cell liners, leachate collection and treatment, and additional collection bins and equipment. Biodegradable waste is collected and treated by composting at the landfill site. Facilities for drainage collection and treatment of runoff and leachate were also constructed, greatly reducing pollution loads in surrounding streams. The landfill site’s operations were improved to ensure daily cover of waste and fencing to avoid wind-blown trash, thereby reducing pest and disease vectors and odors. In addition, the two-lane access road to the landfill from the main highway benefited thousands of residents in surrounding areas. During the disastrous floods in 2014, the landfill site accommodated proper disposal of a large quantity of debris and municipal waste and thus facilitated the city’s early recovery and prevented disease outbreaks. 13. Urban transport. At appraisal, it was planned to include this subproject to expand an arterial road to six lanes and construct a flyover. During preparation of a mobility plan and detailed engineering design, however, it was found that the original scope would not effectively decongest

17 Approved by a memo for minor change in scope dated 22 June 2010. 18 Another positive outcome was reduced raw water extraction from Dal Lake. The lake has socioeconomic significance

for tourism, fisheries, and drinking water resources, but water quality has deteriorated with rapid urbanization and increased inflow of wastewater.

19 The plan in the 2007 PFR for project 1 was for a 200 km sewer network and a sewerage treatment plant with 30 mld capacity. In 2011, when the DMF was established, the target length of network was shortened to 180 km.

20 Past ADB-financed projects have experienced extensive delays in completing house connections because households had to pay for them.

21 ADB. 2014. Periodic Financing Request Report for Jammu and Kashmir Urban Sector Development Investment Program: Tranche 3. Manila (Loan 3132-IND)

22 The output in the 2007 PFR for project 1 included lined sanitary landfill cells with internal approach roads, a new two-lane access road to the main highway, and a weighbridge. In 2011, when the project 1 DMF was established, the target output was set at constructing and improving sanitary landfill capacity by 250 tons per day.

23 Loan savings from other subprojects, including shifting transport to subsequent projects, were reallocated to the SWM subproject to expand the scope than planned at appraisal.

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arterial roads as intended. The updated cost was estimated at $20 million, substantially higher than the original cost of $4 million. This subproject was therefore cancelled from project 1 and shifted to project 2 through a minor change in scope.24

2. Part B. Capacity Building and Institutional Development 14. Although the DMF for project 1 set no targets, the planned outputs for part B in the PFR were mostly met and consequently contributed to the MFF targets.25 Targeted outputs achieved were (i) initiation of geographic information system mapping, 26 (ii) publication of municipal corporation balance sheets for fiscal year (FY) 2010 and 2011, and (iii) demonstration of staff capacities in management and service-delivery functions.27 Partly achieved outputs were the introduction of a computerized system for water billing and collection, updating of municipal database and introduction of a management information system. The system’s development was initiated under project 1, but completion was expected under succeeding projects. The same applied for updating a database on municipal corporation services, finances, staff, and assets, as well as the introduction of a municipal management information system for the Housing and Urban Development Department (HUDD). O&M costs of water supply were partly recovered and the remainder dependent on state budget allocation. Implementation made evident that reform targets were rather ambitious considering the state’s limited capacity and the local context, including frequent unrest, and required a longer implementation period than planned. It was decided to defer some reform to subsequent projects.28 C. Project Costs and Financing 15. The estimated project cost at appraisal was $64.9 million, with the ADB loan financing $42.2 million and the government contributing $22.7 million. Reallocation was made after minor changes in scope (para. 8), and $5.0 million was cancelled from the ADB loan. With this, project cost at completion was reduced to $60.3 million, with the ADB loan financing $37.1 million and the government contributing $23.2 million. The main reasons for the reduced ADB loan amount were rupee depreciation from the time of appraisal and lower actual disbursement, with no contingency disbursement required. Project costs at appraisal and completion are in Appendix 2 and summarized by financier in Appendix 3. D. Disbursements 16. In the early stages of implementation, disbursement was slow due to delayed procurement. After the first works contracts were awarded in 2010, annual disbursements were consistently more than $6 million from 2011 to 2013, reaching 77% of the revised loan amount, or 68% of the original loan amount, by the first revised loan closing date of 31 October 2014. After the severe flooding in September 2014, however, annual disbursement dropped to $5.4 million in 2014 and further to $3.2 million in 2015. In addition, poor performance by sewerage contractors

24 Memo for minor change in scope dated 26 August 2013. 25 The outputs expected in the PFR included administrative assistance through consultancy and the investment

program, capacity building in the state Pollution Control Board, and the development of an accrual-based accounting system. These outputs were not included when the DMF was established in 2011 in eOps. A separate table in Appendix 1-2 contains the details and status of all outputs originally planned in the PFR.

26 Subsequent projects used geographic information systems to develop property tax registers and billing and bill-collection systems.

27 Contractors provided institutional strengthening for better O&M of new and improved facilities through hands-on training. Specialists under the project management consultant (PMC) trained the State Pollution Control Board to apply state requirements more effectively for testing, monitoring, and reporting on effluent disposal.

28 Periodic Financing Request Reports for project 2 and 3.

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(para. 23) brought annual disbursement to a low $0.9 million in 2016 and $1.6 million in 2017. By project completion, $37.08 million was disbursed, or 87.9% of the original loan amount of $42.2 million and 99.5% of the revised loan amount of $37.1 million. At financial closure in November 2017, the remaining $116,245 in unallocated loan funds were cancelled. All withdrawal applications were submitted to ADB through the Controller of Aid Accounts and Audit of the Ministry of Finance, Government of India. The project used the mechanism for disbursement through statements of expenditure and documented claims. 29 All disbursement-related qualifications raised by the auditors were duly addressed. Appendix 4 presents projected and actual loan disbursements. E. Project Schedule 17. The project was originally planned to be completed by April 2012 but was completed in May 2017. Major reasons were procurement delays caused by limited contractor interest and state capacity, which delayed disbursement; public unrest from time to time; and historic 100-year flooding in 2014. In subsequent years, project implementation was continually affected by local unrest which was external to the project and beyond ERA’s control. There were also issues with (i) initially weak staff capacity of project implementation units (PIUs), (ii) ERA and state staff being overloaded with multiple large projects, and (iii) an overlap period of project 1 with then-ongoing ADB Loan 2151 (footnote 11) and national programs, and concurrent appraisals of projects 2 and 3 of the MFF. By the time project 1 was fully implemented, it was already past the midpoint of the original implementation period for the whole program. This was exacerbated by weak contractor performance, termination of their contracts, and time required for rebidding. By loan closure in November 2017, 13 of the 14 contracts were completed. The contract for sewerage works was completed using funds from the state and project 3 in March 2019 (para. 11). The original loan closing date of 31 October 2012 was extended four times, and the loan account eventually closed on 30 May 2017.30 All extensions were required to (i) optimize loan utilization, (ii) enable the completion of ongoing works to maximize project outcomes, and (iii) complete retendered and slow-moving sewerage contracts. A chronology of main events is in Appendix 6.

F. Implementation Arrangements 18. Project implementation arrangements were as specified in the report and recommendation of the President, facility administration manual, and PFR 1. They were appropriate to achieve the envisaged outputs, albeit much later than estimated at appraisal. The executing agency was ERA, guided by state-level inter-ministerial and city committees and a works finalization committee chaired by the division commissioner. ERA established a dedicated project management unit (PMU) for project 1 and PIUs in the target cities. The PMU and PIUs were assisted by a project management consultant (PMC) and design and supervision consultants (DSCs). The DSCs supported preparation of detailed designs and bidding documents, the bidding process, and supervising construction. Safeguard consultants were mobilized for environmental and social aspects, including an external monitor for resettlement. G. Technical Assistance 19. The preceding ADB-funded project, Loan 2151, was accompanied by a $0.5 million project preparatory technical assistance (TA) grant to prepare a comprehensive investment

29 The project benefitted from a simplified process for statement of expenditure that did not require the submission of

supporting documents for individual payments up to $100,000. 30 Approved on (i) 23 May 2012, (ii) 14 April 2014, (iii) 27 April 2015, and (iv) 20 February 2017.

7

plan.31 With TA support, the state designed and prepared the program as an MFF including project 1. Sector plans and policies to promote cost recovery through tariff reform were also prepared under preparatory TA, which became part of institutional strengthening under the program. To further support ERA implementation of projects, ADB approved a $0.4 million grant for advisory TA in December 2006.32 The advisory TA supported ERA—especially at early stages of the MFF until TA closure in March 2009—to (i) improve its functionality, (ii) build its project management and implementation capacity, (iii) expedite contract award and execution by providing guidance to ERA on procurement-related issues, and (iv) assist in setting and achieving yearly targets for contract award and disbursement. H. Consultant Recruitment and Procurement 20. Consultants were recruited in accordance with ADB Guidelines on the Use of Consultants (2006, as amended from time to time). ERA followed the quality- and cost-based selection procedure to select the PMC and two DSCs (one for each target city). No local engineering firms could qualify for the large consulting contracts. As ERA had a functioning PMU for Loan 2151, consultant recruitment for project 1 should have proceeded immediately upon ADB approval of project 1 in December 2007, but ERA did not proceed until after the loan became effective in March 2008 for lack of staff and overload from multiple large projects. As a result, it took 15 months to recruit the PMC and one of the DSCs, delaying project 1 start-up. 21. Overall consultant performance is rated less than satisfactory. The original PMC and one of the DSCs were weak and had difficulty fielding and maintaining experienced staff in the planned positions. Absence was frequent, and several senior engineers were replaced. This resulted in delayed output delivery. Upon contract completion for the original PMC and one of the DSCs, new consultants were hired and performed substantially better. However, implementation delays continued caused by various factors such as site constraints, design changes, and consequent delay in finalizing and issuing technical and as-built drawings. The performance of the second DSC was generally satisfactory, and its services were retained in succeeding loan extensions. As a result of necessary changes, there were four consulting contracts in total. 22. Procurement was generally carried out as planned although there were delays due to limited contractor interest and state capacity. Except for misprocurement in one sewerage-laying package,33 procurement of all civil works contracts followed ADB Procurement Guidelines (2006, as amended from time to time). All works contracts were estimated to cost $10 million or less and therefore procured through national competitive bidding, using single-stage, two-envelope bidding procedures. The 30 mld STP contract was turnkey and with successful O&M for 12 months.34 The other nine contracts were bills of quantity based on item rates. Preparation of standard bidding documents, bids evaluation, and contracts award were per ADB guidelines. Review of all stages as under the Procurement Guidelines was conducted by ADB prior to contract award. Other than the transport subproject being shifted to a subsequent project, the original contract award projections were realistic and reflected in actual awards (Appendix 5).

31 ADB. 2004. Technical Assistance for Preparation of the Jammu and Kashmir Urban Infrastructure Development

Project. Manila (TA 4515-IND, approved on 21 December 2004). 32 ADB. 2006. Technical Assistance to India for Strengthening Urban Project Management in Jammu and Kashmir.

Manila (TA 4888-IND, approved on 2 December 2006). 33 Confidentiality during bid evaluation was not adequately managed by ERA. Upon ADB’s decision to cancel its

financing of the package, the state government executed the works with its own funds. 34 Concurrently, the contractor trained Urban Environmental Engineering Department staff under HUDD in O&M of the

new STP.

8

23. The performance of the water supply contractor and four solid waste contractors was satisfactory. Except for the STP contractor, however, performance of the other four contractors for laying sewers was unsatisfactory. The PMU and PIUs, assisted by the PMC and DSC, held regular meetings with contractors to resolve hindrances and execution issues and clarify relevant contractual issues. Despite this support, the four contracts proceeded slowly, as many instances of unacceptable workmanship had to be corrected. As a result, three sewerage-laying contracts had to be terminated by ERA, with ADB approval, in 2014 and 2016, leaving works unfinished. ERA subsequently hired new contractors with state funds and partly under a subsequent project to complete the original scope of the sewage collection network. The contracts and amounts of ADB loan disbursements are detailed in Appendix 7. I. Gender Equity 24. Although project 1 was categorized no gender elements, improved water supply by 1–2 hours per day to a minimum of 8 hours daily has reduced the time women must spend collecting water. Further, the waste management system and replacement of open drains by sanitary piped sewers has improved neighborhood conditions, benefitting women as household’s primary caregivers. The project also involved women in awareness campaigns conducted by local nongovernment organizations and consultants. It indirectly built awareness in local governments of public health benefits gained by including women in planning and implementing projects. J. Safeguards

25. Project 1 was classified category B sensitive for the environment, and category A for involuntary resettlement and indigenous peoples, as per ADB safeguard policies. 35 An environmental assessment review framework, a resettlement framework, and an indigenous peoples development framework were prepared during loan processing. A summary initial environmental examination report was prepared for the four subprojects, two in each target town. A full resettlement plan was prepared for the urban transport subproject and a short resettlement plan for the SWM subproject. As mentioned in para. 8, the urban transport subproject was transferred to project 2. Environmental impacts associated with the works were limited to the worksites, temporary and reversible in nature, and addressed through the environmental management plans. The project acquired 0.47 hectares of land belonging to two households and common property for constructing the approach road to the sanitary landfill. Negotiations with landowners failed, and the land was acquired under provisions of the State Land Acquisition Act, 1990. The landowners asked the High Court to revise rates, and their petition is pending. ERA had deposited compensation in an escrow account and confirmed it would be disbursed to the landowners in line with the decision. 36 During implementation, no indigenous people were affected. Safeguard compliance management—including institutional arrangements, information disclosure, consultations, grievance redressal, project staff capacity building, and regular submission of semiannual safeguard monitoring reports—was rated generally satisfactory.37 K. Monitoring and Reporting 26. Of 66 loan covenants, 56 were complied with, 9 were partially complied with, and 1 was

35 ADB. 2002. Environmental Policy of the Asian Development Bank. Manila; ADB. 1995. Involuntary Resettlement.

Manila; and ADB. 1998. The Bank’s Policy on Indigenous Peoples. Manila. 36 The land compensation budgeted in the approved short resettlement plan for the subproject is ₹8.51 million, and

ERA has deposited ₹21.08 million in the escrow account. 37 Adequate safeguard monitoring and management was ensured by executing agency safeguards experts supported

by PMC and DSC safeguard experts.

9

inapplicable. The covenants related to financial empowerment of the target towns were only partially complied with under project 1. Although initiated under project 1 with some delay, they were more fully achieved under succeeding projects. The covenant on the levy of sustainable user tariffs was partially complied with. Infrastructure development or urban development taxes are being levied, albeit at low levels. SWM charges are yet to be levied, and door-to-door collection is outsourced to private agencies. Safeguard covenants were complied with, but compensation directed by the court is still being challenged by three landowners at the SWM site (para. 25). The covenants related to contractor procurement were partially complied with due to poor contractor performance, one misprocurement, and implementation delay in a sewerage subproject. Covenants on financial statements were partially complied with (para. 27). 27. Financial management arrangements of the borrower and executing agency were robust and counterpart funding timely. Separate project financial accounts were maintained and audited by statutory auditors. Except for FY2008 and FY2018, audited project financial statements (APFS) were received, albeit with delays of 0.6 to 3.8 months from due dates, within the grace period of 6 months.38 For FY2008, no APFS or audited entity financial statements (AEFS) were submitted. The APFS for FY2018 were rejected as they included a combined audit report for all three projects despite separate reports and opinions being required. This constituted noncompliance. Appendix 8 details the status of compliance with loan covenants.

III. EVALUATION OF PERFORMANCE A. Relevance 28. The project is relevant to government development objectives and ADB country and sector strategies, both at appraisal and completion (para. 5).39 Though the project predated ADB Strategy 2030, it aligns with the strategy, especially its operational priority 4 to build livable cities and provide safe and effective water and sanitation services (footnote 10). At completion, the project remains aligned with the ADB policy focus for India on inclusive growth, infrastructure, and environmental sustainability. The project aligns with the government’s successive 5-year plans, the National Institution for Transforming India (NITI) Aayog’s 3-year action agenda, FY2018–FY 2020,40 and the state’s Eleventh and Twelfth Five-Year Plans, FY2007–FY2018, which prioritized potable water supply in urban areas, wastewater management, and urban poverty alleviation.41 It aligns with state priorities on poverty reduction through improved access to potable water and sanitation, good governance, and private enterprise participation.

29. The MFF modality was appropriate considering the complexity of the design, the flexibility of moving outputs to other tranches without affecting the facility outcome, and the advantage of longer engagement with the executing and implementing agencies (para. 7). Weaknesses were noted in the DMF for project 1, such as incomplete outputs and inconsistent targets based on the PFR (footnote 3). Also, inclusion of improved employment opportunities in the outcome statement would have been more appropriate under impact. Nevertheless, output

38 Reports were late by 0.8 months for FY2010, 0.7 months for FY2011, 3.8 months for FY2012, and 0.6 months for

FY2015. 39 Government of India, NITI Aayog. 2012. Twelfth Five-Year Plan, 2012–2017. Delhi. ADB. 2013. India: Country

Partnership Strategy (2013–2017). Manila. 40 NITI Aayog is a policy think tank of the Government of India that provides directional and policy inputs, designs

strategic and long-term policies and programs, and provides technical advice to the central and state governments. 41 Government of India, NITI Aayog. 2017. India Three-Year Action Agenda, 2017–2018 to 2019–2020. Delhi; State

government, Planning Department. 2012. Eleventh and Twelfth Five-Year Plans, 2007–2018. Delhi.

10

indicators and the subprojects developed were appropriate to achieve intended outcomes.42 Project implementation also adhered to the planned outputs based on the PFR even if they were not captured in the DMF (Appendix 1-2). 30. Changes in scope were timely and appropriate to better address emerging realities, and thus enhanced project relevance. In particular, the water supply subproject was adjusted to accommodate a source offering better-quality raw water that yielded enhanced outcomes. The urban transport subproject was shifted to project 2 to better address congestion.43 Loan savings resulting from these changes in scope were reallocated to the SWM subproject to further expand the landfill site. Further, the funds were used to finance the substantial rise in incremental administration cost as unanticipated external factors, particularly elevated local unrest and the historic 100-year flooding in 2014, required loan extension up to 5 years. The state also demonstrated strong ownership and commitment by completing the remaining works of the sewerage subproject with its own funding. B. Effectiveness

31. The project is rated effective in achieving the outcome and output targets. In line with ADB’s evaluation guidelines, project effectiveness is assessed against the three outcome and four output targets indicated in the DMF for project 1 as established in 2011. A separate table in Appendix 1-2 shows details and the status of all originally planned outputs based on the PFR to supplement the assessment.44 Of the three outcome targets for urban infrastructure (part A of the DMF), two were achieved and one was achieved with delay. Though the physical scope of the water supply subproject was reduced, its outcome target was overachieved because it increased the beneficiaries to 533,000 people against a target of 380,000 people. This was a major contribution to the MFF target of 2.4 million beneficiaries. Water supply quantity also increased from 80 lpcd to 135 lpcd, meeting the Government of India’s national target. 45 Further, it lengthened water supply service by 1–2 hours per day to 8 hours. The outcome target for SWM was also achieved. The Achan landfill site was expanded to benefit an additional 1.1 million people. The outcome of the sewerage subproject was achieved with delay, serving the target of 230,000 (para. 11). The new STP with 30 mld capacity will serve beneficiaries until 2036. These outcome achievements were directly attributable to the subprojects’ achieved outputs. Safeguards were implemented effectively, and no adverse effect from the project was observed (para. 25 and Appendix 9). 32. Output and outcome targets were not specified for capacity building and institutional development (part B) in project 1’s DMF, but output targets based on the PFR were mostly achieved (para. 14, footnote 26, Appendix 1-2) and have contributed to applicable MFF outcome targets (Appendix 1-1). These include (i) strengthened capacity in the government entities through a structured institutional development plan prepared under the MFF; and (ii) sector reforms, including economic opportunity development plans and introduction of e-procurement for e-submission. In addition, action was taken to outsource some municipal functions regarding SWM and water billing, including an assessment for sewerage that freed up human resources for improved urban governance and management of municipal service delivery. Related training programs, including those under the state budget, effectively reoriented government agency staff toward a professional approach to municipal services and better urban governance.

42 The DMF could have included outcomes and outputs for capacity building. 43 Project 1 remained relevant after the scope change as savings were used for a much-needed waste landfill site. 44 Of 26 outputs in the PFR, excluding the transport subproject, 21 were achieved (81%) and 5 were partly achieved. 45 Government of India. 2010. A Handbook on Service Level Benchmarking. New Delhi.

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C. Efficiency 33. Project 1 is rated efficient. The overall economic internal rate of return (EIRR), while not assessed at appraisal, was recalculated at completion at 12.27%. Subproject EIRRs at completion were also recalculated against their appraisal estimates. The EIRR at completion for the water supply subproject was recalculated as 31.44%, lower than the appraisal estimate of 38.04%.46 For the SWM subproject, the EIRR at completion was recalculated as 18.30%, higher than the appraisal estimate of 17.15%. Thus, for these two subprojects, the recalculated EIRRs were above ADB’s 12% threshold for economic viability. For the sewerage subproject, the EIRR at completion was recalculated as 7.53%, much lower than the appraisal estimate of 32.65% and below the threshold because the interventions were reduced by poor contractor performance and termination of three contract packages. 47 The originally planned scope of works, including household connections, was nevertheless completed under state government funding. The EIRR of the urban transport subproject was not reassessed at completion, as it was shifted to project 2.48 The economic net present value of all completed subprojects except sewerage was positive when applying the 12% discount rate. Costs were $5.1 million less than the original ADB loan amount after scope changes and reallocation of funds (para. 30). Time extension of 5 years was necessitated due to issues on contractor and staff capacity, but also significantly because of local unrest and the major floods which were beyond project’s control. Institutional efficiencies and grievance redress mechanisms developed by ERA reduced transaction costs in terms of process and time and improved transparency and governance accountability while significantly augmenting the administrative capacity of ERA. Details are in Appendix 10. D. Sustainability 34. Project 1 is rated likely sustainable. The Constitution of India mandates that the state allocate to ULBs the funds required to maintain their functions and sustain service delivery.49 PHED is responsible for technical O&M of water supply systems, HUDD for sewerage systems, and municipal corporations for solid waste facilities. Their responsibilities include billing and fee collection for these services, but the revenue is remitted to the state government, which is responsible for financial management of these assets and services. For municipal corporations, finances are structured through fiscal transfers from the state as compensation grants and transfers from central and state finance commissions.50 The project was not designed to recover capital costs, so state government operating ratios were calculated to assess sustainability.51 They averaged 0.96, meaning that operating revenues are enough to meet O&M expenses.52 Similar reviews at PHED, HUDD, and municipal corporations indicate they are able to meet O&M

46 The EIRR for the water supply subproject at appraisal included incremental water supply at expected tariffs based

on a survey of willingness to pay. At project completion, the EIRR was based on incremental water supply at willingness-to-pay tariff determined during project preparatory TA and adjusted for inflation, as field missions to update the survey on willingness to pay were rendered impossible by local unrest and travel restrictions due to the coronavirus disease (COVID-19) pandemic. The subproject realized most projected benefits despite reduced costs.

47 The contract for the sewage treatment plant was the only one completed with ADB loan funds. 48 The estimate at appraisal was 16.70%. 49 Article 243 X and schedule XII. 50 The Central Finance Commission transfers accounts for 30%–40% of ULB finances, of which up to 90% may be

used for the O&M of municipal assets. 51 The operating ratio is operating receipts against operating expenditures. The cost-recovery calculation does not

include asset depreciation. 52 The state finance commission allocates a percentage of net tax proceeds to local governments to support financially

weaker local bodies (categories II–IV). The Central Finance Commission offers in addition the provision of 5% toward a performance incentive and is in the process of expanding the pool and criteria.

12

costs of water supply, sewerage, and SWM assets through the state budgetary allocations.53 The analysis assumed consistency in state government’s timely release of requisite O&M funds to PHED, HUDD, and municipal corporation, as providing these urban services is a fundamental responsibility of the state government. Details of the financial reevaluation are in Appendix 10. 35. Institutional capacity was strengthened as part of ongoing reform and under the facility. A result was improved operational functions, such as door-to-door collection of municipal solid waste by the municipal corporation and O&M of water treatment plants by PHED and of STPs by HUDD.54 Water billing and collection with the sewerage surcharge were improved. While PHED and HUDD have sufficient human resources and technical capacity for O&M of water supply and sewerage assets, municipal corporations in targeted towns need to continue augmenting human resources and institutional capacity to achieve better asset management and governance. E. Development Impact 36. The development impact of project 1 is rated satisfactory. Based on the DMF impact indicators, real income per capita in the state rose by 162.46% from 2007 to 2017, for a compound annual growth rate (CAGR) of 10.13%. Also, income outside the primary sector in districts encompassing project cities grew by 225.06% (CAGR 13.85%), with investment in industry and trade increasing by 100.45% (CAGR 7.20%). Tourist inflow grew by 22.60% (CAGR 2.06%). Data obtained from aide memoires, consultations during missions and EA PCR suggest that overall, people feel that their quality of life has improved due to the construction of facilities under the project, resulting in better service delivery. Project 1 is the MMF’s first phase, comprising only 18% of the whole investment. These impact indicators are too high-level to establish the contributions of project 1. Nonetheless, project 1 interventions contributed to other development impacts such as increased access to economic opportunities with improved quality of life and public health. The project contributed substantially to the MFF’s outcome targets of improved water supply (benefitted 0.53 million of the MFF target’s 2.2 million people); sewerage system improvement (benefitted 0.13 million of the MFF target of 1.0 million people);55 and improved SWM (benefitted 1.1 million of the targeted 2.0 million people).56 There are also long-term impacts of sanitation and SWM toward reducing high morbidity and mortality among the poor, as well as environment quality.57 Project environmental impacts are as assessed in para. 25 and Appendix 9. F. Performance of the Borrower and the Executing Agency 37. The performance of the borrower and executing agency is rated satisfactory. The borrower, represented by the Indian Department of Economic Affairs, provided timely guidance

53 For water supply, O&M costs are not fully recovered without dependence on state support for operating expenses.

Meanwhile, the tariff increased by 10% annually from 2011 to 2019. The state government is developing a computerized billing and collection system, the software application for which is not yet complete.

54 The construction contract for the STP included 1 year of O&M in addition to a 6-month trial run. After a year, O&M of the STP was handed over to the Urban Environmental Engineering Department.

55 As an environmental impact, the sewerage system reduced pollution loads into storm drains, which improved water quality in local streams.

56 Infrastructure improvements for water supply and SWM benefitted many of the same beneficiaries, as did sewage collection and sewage treatment.

57 Contributions to the ADB Strategy 2030 are (i) OP 4.1: People benefiting from improved services in urban areas (1.76 million people); (ii) OP4.1.1: Service providers with improved performance (HUDD, PHED, and the two municipal corporations); (iii) OP 4.1.2: Urban infrastructure assets established or improved (4.8 km of raw water pipeline, 190 km of sewerage network, 1 sewage treatment facility, 3 landfill sites); and (iv) OP 4.3: Zones with improved urban environment, climate resilience and disaster risk management of cities improved (three landfill sites with reduced pollution loads on nearby streams and accommodating a large quantity of debris from the 2014 flood).

13

and decisions to the state government and undertook regular tripartite review meetings with ADB, the state government, and ERA. This helped identify bottlenecks, resolve issues, and monitor progress. The state government provided ERA strong support, including timely counterpart funding, not least to complete sewerage works after loan closure. Early in the project, however, the cities had difficulty assigning experienced staff, as most were still dedicated to Loan 2151. 38. After initial delay, the PMU improved its project management and implementation. It established implementation procedures in the project cycle, as well as effective monitoring and implementing mechanisms through PIUs. These arrangements facilitated interagency coordination, monitoring, and progress reporting from the field, as well as information flow to ERA and ADB. The major flood in 2014 hampered project implementation, but ERA and PMU efficiently worked to restore and repair the ongoing works. The PMU handled safeguard compliance and monitoring requirements well and submitted timely environmental reports to ADB. Other than the pending compensation payment to landowners at the landfill site, now in court, no major issues arose through complaint mechanisms, and minor concerns related to construction were handled in a timely manner. APFS and AEFS for FY2008 were not submitted. APFS for FY2018 were rejected for their having a combined audit report for all three projects. This was noncompliant with loan covenants and indicates that ERA financial management was less than satisfactory. All loan covenants were complied with except for institutional empowerment, and resettlement for the landfill site, which is in court. G. Performance of the Asian Development Bank 39. ADB’s performance is rated satisfactory. ADB missions for regular review, midterm review, and special project administration were undertaken to assess progress, provide advice for resolving outstanding issues, and facilitate minor changes in scope and reallocation of loan proceeds. ADB monitoring, capacity building, and guidance through 22 missions and 10 tripartite reviews throughout the project cycle helped define processes, address issues through time-bound actions and targets, and expedite project implementation. ADB provided training to support adherence to procurement guidelines, proper disbursement, and safeguards. On the other hand, the project implementation schedule at MFF appraisal proved to be overly ambitious and should have more realistically considered the time required to implement ADB-financed projects.58 ADB financial management was less than satisfactory since it could have closely monitored and followed up with ERA on compliance with APFS and AEFS requirements. H. Overall Assessment 40. Project 1 is rated successful. It was relevant to government development objectives and ADB policies at appraisal and continued to be relevant upon completion. Changes in scope were timely and appropriate. The project is assessed effective as two outcome targets were achieved and one was achieved with delay. The project is rated efficient, as the EIRRs for project 1 and for the water supply and SWM subprojects were estimated to be above ADB’s discount rate of 12%. The project is rated likely sustainable, as O&M costs for project assets are met through statutory transfers from state and central finance commissions, municipal taxes, and user charges.

Table 1: Overall Ratings

Criteria Rating

Relevance Relevant

58 This will be evaluated in the facility completion report of the program.

14

Criteria Rating

Effectiveness Effective

Efficiency Efficient

Sustainability Likely sustainable

Overall assessment Successful

Development impacts Satisfactory

Borrower and executing agency Satisfactory

Performance of ADB Satisfactory

Source: ADB estimates.

IV. ISSUES, LESSONS, AND RECOMMENDATIONS A. Issues and Lessons 41. The following important lessons emerged from the project:

(i) Greater readiness at the time of MFF approval, including advance action for detailed designs and coordination for utility shifting prior to contract award, would help deliver projects in a timely, responsive, and efficient manner. Proper identification of land requirements helps avoid or minimize resettlement impacts.59

(ii) MFFs impose a heavy burden on executing and implementing agencies in the initial years as they prepare for subsequent tranches while also being responsible for implementing the first project. This requires sufficient implementation support, particularly for preparing subsequent tranches.

(iii) To ensure timely realization of benefits from wastewater management systems, property connections should be provided in conjunction with the laying of the sewerage network.60

(iv) To improve ownership for the new facilities, it would be beneficial to ensure more input from the state agencies during planning, design, and implementation.

(v) Continued payment of O&M fees for water treatment plants and STPs by municipal corporations to PHED and the Urban Environmental Engineering Department is necessary for optimal maintenance and sustainability.

(vi) Water supply and sewerage works contracts should include a reasonable O&M period until local organizations are properly trained and have sufficient budget to take over. House connection should adhere to an annual implementation and financing plan and be considered part of contract performance.

(vii) Consultant performance needs to be closely monitored for optimal utilization of consulting services and timely delivery of outputs.

(viii) ERA has been headed by senior officers of the state government, to the benefit of decision making and interdepartmental coordination. A senior official with strong government support is essential.

(ix) A realistic schedule for consultant recruitment, detailed design development, and contract periods should be incorporated into the project schedule at appraisal.

(x) Close assessment of state agency capacity is needed at appraisal to inform realistic reform targets.

(xi) Subproject’s scope should be oriented toward outcomes and provide

59 The process may be expedited by considering alternative measures to obtain land, such as land pooling or early identification of alternative sites for negotiated settlement.

60 For the low-income group, the government may consider additional subsidies for the cost of connection.

15

comprehensive end-to-end solutions for the entire target area, such as 24×7 water supply with 5–10 years of O&M, subject to capacity of the asset operator.

(xii) ADB should follow up more closely on compliance with submission requirements for APFS and AEFS.

(xiii) Categorization for involuntary resettlement and indigenous people should be revised in case the impacts are reduced during project implementation.

B. Recommendations 42. Specific recommendations for project implementation are as follow: First, the PMU should be strengthened with a combined technical and legal team and/or specialist to handle any contract arbitration. Second, ADB should communicate frequently with executing agencies and monitor them closely when they prepare audited financial reports to ensure compliance with ADB requirements. Including a financial management specialist—to monitor and support the project team and the executing and implementing agencies, including with missions as necessary—is key to improving financial management performance and ensuring that reports are properly prepared.

43. General recommendations for MFF and project preparation are as follow: First, greater readiness at MFF approval—including advance action for detailed planning, designs, and coordination for utility shifting prior to contract award—would help deliver projects in a timely, responsive, and efficient manner.61 Second, more support from ADB is needed during the early years of MFF implementation for executing and implementing agencies less experienced with ADB projects. Such agencies may need TA for preparation of succeeding tranches. Third, the project scope and implementation period should be realistic in light of executing agency capacity to work on projects involving multiple stakeholders. Fourth, hybrid payment structures that permit payments based on deliverables for designs, reports, and other documents would improve accountability and consultant performance, as would payments for supervision based on inputs. Fifth, robust procurement and contract management should be established by extending e-procurement beyond e-submission, establishing a database for contract performance, and e-registration of contractors, as well as an e-project accounting system for billing and progress payments under works contracts. 44. Items for further follow-up include the following: First, ERA is expected to provide details of O&M fee payments from ULBs to PHED and the Urban Environmental Engineering Department by completion of the facility completion report for the MFF. Second, he municipal corporations of the target towns need to continue augmenting human resources and institutional capacity to achieve better asset management and governance. Third, ERA is expected to ensure disbursement of compensation from the escrow account to landowners of the sanitary landfill site as per the court decision. Fourth, ERA was expected to provide answers by completion of the facility completion report for the MFF to questions and requests from ADB concerning the points raised in an ADB letter dated 21 November 2019. 45. Compliance with covenants relating to levy of SWM charges by ULBs should be ensured.

61 ADB now requires a high degree of readiness in many projects prior to loan approval, including completion of contract

awards for 20% or more of the first project loan.

16 Appendix 1-1

DESIGN AND MONITORING FRAMEWORK FOR PROJECT 1 Design

Summary of MFF

Performance Indicators/Targets of MFF

Performance Indicators/Targets of Project 1a

Project Achievements of Project 1 b,c

Impacts

Sustainable economic growth through the provision of urban infrastructure and services and the promotion of urban management in the state, and selected towns with tourism potential in the state d

• Increase in per capita real income in Jammu and Srinagar

• Increase in per capita real income in Jammu and Srinagar

• Per capita real income in the State increased by 162.46% from 2007 to 2017, for a CAGR of 10.13%.e

• Growth in non-primary sector income in districts encompassing project cities.

• Growth in non-primary sector income in districts encompassing project cities.

• Non-primary sector income in districts encompassing project cities grew by 225.06% from 2007 to 2016, for a CAGR of 13.85%.f

• Increase in investment in industry and trade

• Increase in investment in industry and trade

• Investments in industries and trades increased by 100.45% from 2007 to 2017, for a CAGR of 7.20%.g

• Increase in tourist inflow • Increase in tourist inflow • Tourist inflow increased by 22.6% from 2007 to 2017, for a CAGR of 2.06%.h

• People’s perception of their quality of life improved

• People’s perception of their quality of life improved

• Exact analysis is possible only after completion of all tranches as all tranches were overlapping within the entire project.

Outcomes By the end of Investment Program: By end of Project 1: By end of Project 1:i

Improved the living environment and employment opportunities for the 2.4 million people in Srinagar and Jammu, and other participating towns

Increased population coverage of infrastructure services:

Increased population coverage of infrastructure services:

Water supply

• 2.2 million people with access to municipal water supply system

Water supply

• 0.38 million people benefitted by improved access to water supply

Water supply

• Achieved. A total of 0.53 million people benefitted from improved access to water supply

Appendix 1-1 17

Design Summary of

MFF Performance Indicators/Targets of


Project 1a Project Achievements

of Project 1 b,c

with tourism potential. d

Sewerage, drainage, and sanitation

• 1.0 million people with access to proper sanitation either through sewerage or on-site facilities with access to regular septic tank / pit desludging. Reduction in the volume of wastewater discharged to storm drains

Sewerage

• 0.23 million people benefitted by improved access to municipal sewerage system

Sewerage

• Achieved with delay. A total of 0.13 million people benefitted from improved municipal sewerage system. The remaining connections were completed in March 2019 with the state fund and by project 3.

• 2.0 million persons served by proper functioning drainage system


• 2.0 million persons receiving solid waste collection services. An environmentally-sound waste disposal facility is established and operational in each cities. Reduction in the volume of solid waste deposited in the streets or drainage channels.


• 1.1 million people benefited from solid waste management facilities


• Achieved. A total of 1.1 million people benefitted from improved solid waste facilities, at which separation, collection, and treatment are operational, and reduced pollution loads on the surrounding streams

Transport

• 2.4 million persons having access to better road facilities – reducing congestion, improving traffic pedestrian movement and riding quality

18 Appendix 1-1

Design Summary of




of Project 1 b,c

Improved capacities of participating institutions in managing sector reforms and service delivery

• Sector Reforms in place

• Mainstreaming of capacity building as part of State urban development budget

• Demonstrated capacities of agencies in effective O&M performance of assets including through cost reduction and management measures.

• Increased public private partnership in service delivery.

Note: The DMF did not include indicators/targets for Part B. Detailed output targets and actual achievements are found in Appendix 2-1; thus related outcome achievements are also reported.

Economic opportunity development plans, e-procurement were established. Capacity building of relevant agencies has been ongoing using State budget. Agencies’ capacity for better O&M was developed through hands-on training by the contractors and consultants.

Outputs

Part A: Urban Infrastructure Improvement

By End of Investment Program: By 2012:

Implemented investment program for water supply

Water supply

• Average supply increased from 80 to 135 lpcd

Water supply 5.6 km raw water pipeline laid.j

Water supply Substantially achieved. 4.8 km raw water pipeline laid Other outputs under Project 1:c Water supply raised from 80 lpcd to 135 lpcd

• Increase in minimum supply hours from 2 to 8 hours

Period of service increased from 2 hours to 8 hours a day

• At least 80% of assessed properties connected to water supply system

Appendix 1-1 19

Design Summary of




of Project 1 b,c

• Unaccounted-for-water reduced to a reasonable level

• Water meters installed

Implemented investment program for underground sewerage system and supply of sanitation maintenance equipment

Sewerage

Sewerage 180 kilometers sewer network coverage

Sewerage Achieved. 190 kilometers sewer network laid.

Construction of 1 sewage treatment facility with 30 MLD in Jammu

Achieved. 1 sewerage treatment facility with 30 MLD constructed Other outputs under Project 1:c

• At least 15% of assessed properties connected to sewer system

60% households connected (all 33,500 house connections completed)k

• Improvements in waste treatment capacity from 17 MLD to 260 MLD

Waste treatment capacity improved from 17 MLD to 47 MLD

• Appropriate O&M systems are in place.

Implemented investment program for municipal solid waste processing and treatment with development of sanitary landfill sites


By 2012: Solid waste management

• Construction/improvement of sanitary landfill in Srinagar (250 metric tons per day).

Solid waste management Achieved. Three landfill 380, 243, and 335 metric tons per day were developed. Other outputs under Project 1:

• At least 95% of waste generated is collected and transported for treatment and disposal.

100% of solid waste generated is collected and transported for treatment and disposal in the target town.

20 Appendix 1-1

Design Summary of




of Project 1 b,c

• Increased efficiency of collection and transport

Additional collection bins and equipment, two-lane access road to connect the landfill site and main highway developed.

• Hazardous bio-medical waste separated from municipal waste stream

Implemented investment program for road and junction capacity augmentation and road safety improvements.

Roads and transportation

• Improved travel time on key corridors

• Reduction in road accidents

• Improvement in traffic management capacities of police personnel

[Road and transportation subproject was moved from Project 1 to subsequent projects]

Implemented investment program for other municipal/urban infrastructure

By end of Investment Program - 2015: Other Municipal/Urban Infrastructure d

• Civil works for heritage sites constructed and rehabilitated

• Lake improvement measures implemented

• Sites with tourism potential Developed

• Public–Private Partnership formed for improvement of tourism infrastructure.

Appendix 1-1 21

Design Summary of




of Project 1 b,c

Part B: Capacity building and Institutional development

By end of Investment Program: Note: The DMF did not include indicators/targets for Part B. Detailed output targets and actual achievements may also be found in Appendix 1-2.

Semi-autonomous entities responsible for water supply, sewerage, and drainage operations for Srinagar and Jammu cities established

• Formulation of water supply and sewerage and drainage board

• Updated database on municipal corporation services and, finances, staff, and assets

• Billing and collection improved Computerized water billing and collection system for the PHED is partly developed, while software application is under way.

Improved financial performance inclusive of tariff revisions for municipal corporation services

• Recovery of O&M cost of water supply: (i) 30% within 3 years from the effective date of the first Loan; (ii) 60% within 3 years from the effective date of the 2nd Loan and (iii) 100% within 3 years from the effective date of the 3rd Loan

Water tariff was increased in 2011 and collection improvements are underway including computerized billing system to achieve 30% recovery of O&M cost.

Improved accounting and Improved financial management systems, procedures, and practices (including double-entry system)

• Levy of property tax by Municipal Corporations at rates within a range laid down by State

• Geographic information system (GIS) created for Srinagar and Jammu

• Municipal management information system (MIS) established at Housing & Urban Development

GIS mapping covering individual properties and details of water supply assets and connections is completed in the target towns

22 Appendix 1-1

Design Summary of




of Project 1 b,c

Department.

• Balance Sheet from FY2010–2011 for municipal corporations

Balance Sheet from FY2010–2011 for municipal corporations published

Knowledge Management and Capacity Building

• Staff trained and demonstrated abilities to perform management and service delivery functions

Staff trained and demonstrate ability to perform management and service delivery functions

CAGR = compound annual growth rate, DMF = design and monitoring framework, ERA = Economic Reconstruction Agency, FY = fiscal year, HUDD = Housing and Urban Development Department, km = kilometer, lpcd = liters per capita per day, O&M = operation and maintenance, MFF = multitranche finance facility, mld = million liters per day, PHED = Public Health Engineering Department, STP = sewage treatment plant, UEED = Urban Environmental Engineering Department.

Note: The fiscal year (FY) of the Government of India ends on 31 March. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2020 ends on 31 March 2020.

a A separate DMF for project 1 was not established at appraisal. In 2011, outcomes for project 1 were established as per a DMF clean-up exercise for all ADB projects. However, performance indicators and targets for impacts were not established. In this PCR, the same MFF impact indicators and targets are applied to evaluate the impact of project 1.

b Achievements of outcomes and outputs are based on aide memoires of the review missions. c Some output targets from the MFF DMF and the PFR were not included in the DMF of project 1. Details are found in Appendix 1-2. Achievements have been

reported to also show contribution to MFF outputs. d Indicators and targets of MFF related to other towns with tourism potentials were removed due to security reasons at the midterm review mission on 22–26 April

2013. e As data on real income per capita is unavailable for individual urban local bodies, and district data are available for only one of the towns, analysis uses state data

on real income per capita based on net state domestic product at FY1981 constant prices, which is available to FY2018. Source: Directorate of Economics & Statistics, the State Government, Digest of Statistics, 2017–18 (http://ecostatjk.nic.in/publications/publications.htm).

f Net state domestic product by sector for secondary and tertiary sectors at FY1981 constant prices is used for the state and available only to FY2016. District data are unavailable. Secondary and tertiary sectors are outside the primary sector. Source: Directorate of Economics & Statistics, the State Government, Digest of Statistics, 2017–18. The figures reported in the Digest of Statistics, 2017–18 are adjusted after being compared with the Economic Survey, 2017 (http://ecostatjk.nic.in/publications/publications.htm).

g Investment in large, medium-sized, and small industries increased, in current prices, from ₹60,947.1 million in 2009 to ₹122,169.7 million in 2017. Source: Directorate of Economics & Statistics, the State Government, Economic Survey, FY2009 and FY2017, http://ecostatjk.nic.in/publications/publications.htm.

h Domestic and international tourist inflow, and pilgrims to Shri Vaishno Devi and the Shri Amarnath holy cave, were analyzed for the period 2007–2017. Source: Directorate of Economics & Statistics, the State Government, Digest of Statistics, 2017–18 (http://ecostatjk.nic.in/publications/publications.htm).

i Data source of outcomes and outputs achievements are based on eOps data established in 2011 because DMF for Project 1 was not established at appraisal based on PFR.

j The output target was 5.6 kilometers when the DMF for project 1 was established in 2011 in eOps. Change in scope was approved in June 2010. k 20,000 house connections were completed under project 1 by May 2017, and the balance of 13,500 house connections were completed under project 3 and

government funding by March 2019.


http://ecostatjk.nic.in/publications/publications.htm



Appendix 1-2 23

DETAILS AND STATUS OF OUTPUTS ORIGINALLY PLANNED IN THE PERIODIC FINANCING REQUEST

Outputs in the Periodic Financing Request Statusa

Water supply subproject: Sindh canal raw water pipeline in Srinagar (i) Laying about 2.5 kilometers (km) of pipeline from the

Rangil water treatment plant to the Alustang water treatment plant takeoff

(ii) Laying about 7.5 km of pipeline from the Alustang water treatment plant takeoff to Harwan Reservoir

(iii) Sectionalizing valves and gates, scour arrangements, air valves, siphons, and other appurtenances

(i) and (ii) constructed after scope change to a 5.6 km pipeline from Dachigam Nallah —Partly achieved (iii) installed with the anticipated scope —Achieved

Sewerage subproject: Sewerage and drainage in Jammu (i) Construction of about 200 km of trunk main, secondary

sewers, laterals, and house connections including manholes and chambers

(ii) Construction of sewage treatment plant, including the integration of the existing sewage treatment facilities, to handle 30 million liters of sewage per day

(iii) Standby power generation for main sewage pumping station and treatment plant

(iv) Administration office with sanitation and rest facilities for workers

(v) Site works including access roads, screening plantation, and landscaping.

(i) 190 km constructed —Achieved (95%)

(ii) 1 sewerage treatment plant constructed with capacity of 30 million liters per day

—Achieved

(iii) Constructed —Achieved

(iv) Constructed —Achieved

(v) Constructed —Achieved

Solid waste management subproject: Solid waste management disposal at Srinagar (i) New two lane access road to main highway (ii) Improvements to perimeter fencing and landscaping

inside of 100m ‘no development’ buffer zone, as indicated on the Srinagar Master Plan

(iii) Administration office with sanitation and rest facilities for workers

(iv) Weighbridge (computerized) of 50 tons capacity at the entry/exit

(v) Lined sanitary landfill cell development including internal approach roads

(vi) Mechanical and hand equipment for waste segregation and composting

(vii) Spray equipment for pest repellent and disinfecting (viii) Equipment workshop and garage building (ix) Waste transport washing facilities (x) Leachate collection and treatment facilities (xi) Improvement of administrative set-up for handling solid

waste including training of staff (xii) If required the subproject of Srinagar will also provide

additional waste collection containers/bins, augment

(i) Constructed —Achieved

(ii) Constructed —Achieved

(iii) Constructed —Achieved

(iv) Constructed —Achieved

(v) Constructed —Achieved

(vi) Procured —Achieved

(vii) Procured —Achieved

(viii) Constructed —Achieved

(ix) Constructed —Achieved

(x) Constructed —Achieved

24 Appendix 1-2


collection and handling transport and improved sanitary waste disposal

(xi) Implemented —Achieved

(xii) Additional collection bins and equipment provided, composting facilities for biodegradable waste installed, and facilities for drainage collection and treatment of runoff and leachate from the landfill site constructed

—Achieved

Urban transport subproject: BC Road widening and overpass in Jammu (i) Widening of BC Road to 6 lane divided configuration

with improvement of vertical profile (ii) 2-lane flyover from Children’s Hospital Junction to

Rehari Junction (iii) Provision of pedestrian cum vehicular underpass at

Rehari Junction (iv) Provision/improvement of footpaths on both sides of

the road (v) Provision of new bus-stops (6–8 buses) at Rehari

Junction (vi) Relocating existing auto/bus stand to off the

carriageway (vii) Relocating power/telephone service poles from

carriageway (viii) Improvement of junctions with widening and

channelization

This subproject was dropped from project 1

Capacity building (i) Consultancy and investment program administration

assistance to the executing agency to 2012 (ii) Capacity-building program of the State Pollution

Control Board

(iii) Development of accrual-based accounting system in the Jammu and Srinagar Municipal Corporation

(iv) Preparation of economic opportunity development plans for other towns and commercial centers in the state

(v) Establishment of e-governance system in the municipal corporations

(i) Implemented to project completion —Achieved

(ii) Training implemented by specialists under the project management consultant to better apply state requirements for testing, monitoring, and reporting on effluent disposal

—Achieved

(iii) Accrual-based accounting systems established in both municipal corporations, with implementation supported under subsequent projects

—Partly achieved

(iv) Draft prepared as a part of sector reform

—Achieved

(v) E-governance applications for municipal corporations developed through National Informatics Centre,

Appendix 1-2 25


(vi) Training and institutional development to support the urban reform agenda

with implementation supported under subsequent projects

—Partly achieved

(vi) Implemented through consultancy support

—Achieved a Status here is assessed against outputs in the periodic funding request, and not against the design and monitoring

framework established in 2011. Source: ADB estimates.

26 Appendix 2

PROJECT COST AT APPRAISAL AND ACTUAL

($ million) Appraisal Estimate a

Actual

Item Total Cost

Foreign Exchange

Local Currency Total Cost

A. Base Cost 1. Component A: Urban infrastructure and environmental improvements

a. Water supply 5.90 0.00 2.91 2.91

b. Sewerage 23.60 0.00 23.19 23.19

c. Solid waste management 2.60 0.00 15.39 15.39

d. Transportation and urban roads b 4.10 0.00 0.00 0.00

e. Resettlement and land acquisition 1.00 0.00 0.46 0.46 Subtotal (A) 37.20 0.00 41.96 41.96

2. Component B: Capacity building, institutional development, governance, and investment program support

a. Training and workshops 1.00 0.00 0.00 0.00

b. Consultancy support 7.40 0.45 7.86 8.31

c. Incremental administration including computers and

peripherals 2.90 0.00 7.44 7.44

Subtotal (B)

11.30 0.45 15.30 15.75 B.

Contingencies c

5.80 0.00 0.00 0.00 C.

Taxes and Duties d 6.20 0.00 0.59 0.59

D. Financing Charges during Implementation 4.40 2.03 0.00 2.03

Total 64.90 2.48 57.85 60.33 a Based on mid-2006 unit prices. Breakdown into foreign exchange and local currency was not prepared for appraisal. b Deleted at the request of the state government in a letter dated 2013 July 22 and the Government of India in a letter dated 2013 August 8. c Contingencies were not required because of rupee depreciation. d The Finance Act, 1994 (Act No. 32 of 1994) regulating indirect taxes like service tax on works and consultancy (additive taxes) was not applicable in the state

because of its special status as per Article 370 of the Constitution of India. Indirect taxes and duties on goods as per the separate state laws were paid by the state government as part of its contribution to the project cost and shown separately.

Source: PFR 1, Loan 2331- Project No. 41116. May 2007. The actual loan utilization is from ADB Loan Financial Information System.

Appendix 3 27

PROJECT COST AT APPRAISAL AND AT COMPLETION BY FINANCIER ($ million)

Item Appraisal Estimatea At Completion

ADB Financing

% of Cost

Category

State Financing

% of Cost

Category Total

Share (%)

ADB Financing

% of Cost

Category

State Financing

% of Cost

Category Total Share (%)

A.

Base Cost

1. Component A: Urban infrastructure and environmental improvements

a. Water supply

4.80 82.0% 1.10 18.6% 5.90 9.1% 2.39 82.0% 0.52 18.0% 2.91 4.83%

b. Sewerage 19.30 82.0% 4.30 18.2% 23.60 36.4% 13.72 59.2% 9.47 40.8% 23.19 38.43%

c. Solid waste

management 2.10 82.0% 0.50 19.2% 2.60 4.0% 7.27 47.2% 8.13 52.8% 15.39 25.52%

d. Transportation

and urban roadsb

3.40 82.0% 0.70 17.1% 4.10 6.3% 0.00 0.0% 0.00 0.0% 0.00 0.00%

e. Resettlement

and land acquisition

0.00 0.0% 1.00 100.0% 1.00 1.5% 0.00 0.0% 0.46 100.0% 0.46 0.77%

Subtotal (A) 29.60 80.0% 7.60 20.0% 37.20 57.3% 23.37 55.7% 18.58 44.3% 41.96 69.55%

2.

Component B: Capacity building, institutional development, governance, and investment program support

a. Training & workshops

0.50 50.0% 0.50 50.0% 1.00 1.5% 0.00 100.0% 0.00 0.0% 0.00 0.00%

b. Consultancy support

7.00 95.0% 0.40 5.4% 7.40 11.4% 7.78 94.5% 0.53 6.4% 8.23 13.64%

c. Incremental administration including computers and peripherals

2.40 80.0% 0.50 17.2% 2.90 4.5% 5.93 79.7% 1.51 20.3% 7.44 12.34%

Subtotal (B) 9.90 87.0% 1.40 13.0% 11.30 17.4% 13.71 87.0% 2.04 13.0% 15.75 26.11%

B.

Contingenciesc 2.70 45.0% 3.10 55.0% 5.80 8.9% 0.00 0.0% 0.00 0.0% 0.00 0.00%

C.

Taxes and dutiesd

0.00 0.0% 6.20 100.0% 6.20 9.6% 0.00 0.0% 0.59 0.0% 0.59 0.98%

D. Financing charges during implementation

0.00 0.0% 4.40 100.0% 4.40 6.8% 0.00 0.0% 2.03 100.0% 2.03 3.37%

28 Appendix 3

Total 42.20 65.0% 22.70 35.0% 64.90 100.0% 37.08 61.5% 23.25 38.5% 60.33 100.00%

ADB = Asian Development Bank, ERA = Economic Reconstruction Agency. Note: Numbers may not sum precisely because of rounding.

a Based on mid-2006 unit prices. b Deleted at the request of the state government in a letter dated 2013 July 22 and the Government of India in a letter dated 2013 August 8. c Contingencies were not required because of rupee depreciation. d Finance Act, 1994 (Act No. 32 of 1994) regulating indirect taxes like service tax on works and consultancy (additive taxes) was not applicable in the state because

of its special status and as per Article 370 of the Constitution of India. Indirect taxes and duties on goods as per the separate state laws were paid by the state government as part of its contribution to the project cost and shown separately.

Source: PFR 1, Loan 2331. May 2007. ADB portion is from ADB Loan Financial Information System for actual loan utilization. The state government portion is from ERA.

Appendix 4 29

DISBURSEMENT OF ADB LOAN PROCEEDS Table A4.1: Annual and Cumulative Disbursement of ADB Loan Proceedsa

($ million)

Projection Actual

Annual

Disbursement

Cumulative

Disbursement

Annual

Disbursement Cumulative

Disbursement

Year Amount

($ million)

% of Total

Amount

($ million)

% of Total

Amount

($ million) % of Total

Amount

($ million) % of Total

2010 7.0 16.6

% 7.0 16.6% 7.0 18.9% 7.0 18.9%

2011 6.5 15.4

% 13.5 32.0% 6.5 17.6% 13.5 36.5%

2012 6.3 15.0

% 19.8 47.0% 6.3 17.0% 19.8 53.5%

2013 6.1 14.5

% 25.9 61.5% 6.1 16.4% 25.9 70.0%

2014 14.3 33.8

% 40.2 95.3% 5.4 14.7% 31.4 84.6%

2015 2.0 4.7% 42.2 100.0% 3.2 8.6% 34.6 93.2%

2016 0.0 0.0% 42.2 100.0% 0.9 2.4% 35.5 95.6%

2017 0.0 0.0% 42.2 100.0% 1.6 4.4% 37.1 100.0%

Total 42.2 100.0% 42.2 100.0% 37.1 100.0% 37.1 100.0%

ADB = Asian Development Bank. a Includes disbursements to advance accounts. Source: Asian Development Bank.

Figure A4.1: Projected and Actual Cumulative Disbursement of ADB Loan Proceeds ($ million)

Source: Asian Development Bank.

0.0

10.0

20.0

30.0

40.0

50.0

2010 2011 2012 2013 2014 2015 2016 2017

Cumulative Disbursement Projection Cumulative Actual Disbursement

30 Appendix 5

CONTRACT AWARDS OF ADB LOAN PROCEEDS

Table A5.1: Annual and Cumulative Contract Awards of ADB Loan Proceeds

($ million)

Projections Actual

Annual

Contract Awards

Cumulative

Contract Awards

Annual

Contract Awards

Cumulative

Contract Awards

Year Amount % of Total

Amount % of Total

Amount % of Total

Amount % of Total

2010 32.0 75.8% 32.0 75.8% 29.4 79.4% 29.4 79.4%

2011 1.6 3.9% 33.6 79.7% 2.8 7.7% 32.3 87.0%

2012 2.6 6.1% 36.2 85.7% 2.7 7.2% 35.0 94.3%

2013 0.0 0.0% 36.2 85.7% 0.0 0.0% 35.0 94.3%

2014 6.0 14.3% 42.2 100.0% 1.3 3.6% 36.3 97.9%

2015 0.0 0.0% 42.2 100.0% 0.0 0.0% 36.3 97.9%

2016 0.0 0.0% 42.2 100.0% 0.8 2.2% 37.1 100.0%

2017 0.0 0.0% 42.2 100.0% 0.0 0.0% 37.1 100.0%

Total 42.2 100.0% 42.2 100.0% 37.1 100.0% 37.1 100.0%

ADB = Asian Development Bank.


Figure A5.1: Projected and Cumulative Contract Awards of ADB Loan Proceeds ($ million)

ADB = Asian Development Bank


0.0

10.0

20.0

30.0

40.0

50.0

2010 2011 2012 2013 2014 2015 2016 2017

Cumulative Contract Award Projection Cumulative Actual Contract Award

Appendix 6 31

CHRONOLOGY OF MAIN EVENTS Date Major Events

2007 12–16 Feb Project 1 appraisal by ADB

16–17 Apr Loan negotiation 4 Jun ADB Board approval of the project 28 Dec Loan agreement signed

2008 25 Mar Loan became effective 21 May First works contract signed for construction of approach road to Achan landfill site

26 May–31 Aug Political turmoil in the state 18 Jun Work commenced for the first subproject, the road to Achan landfill site 17–18 Jul ADB contact mission

28 Nov Contract signed for construction of cell 1 at Achan landfill site

2009 26 Aug–4 Sep ADB loan review mission

26 Sep Contract signed for sewerage network package WW/01 and WW/02 6 Oct Contract signed for sewerage network package WW/03

1 Dec Work commenced on the first subproject, sewerage network packages WW/1–3

2010 4–12 Jan 28 Mar–2 Apr

ADB special loan administration mission ADB loan review mission

29 Apr Contract signed for sewage treatment plant package WW/04 30 Apr–21 Sep Political turmoil 14–17 Jul ADB contact mission 21 Oct Contract signed for water transmission main package WS/01

2011 24 Apr–7 May ADB contact mission 2012 23–28 Jan ADB loan review mission

26 Mar–16 Apr ADB fact finding mission 3 Aug Contract signed for construction of cell 2 at landfill site

2013 22–26 Apr ADB midterm review mission 1–10 Jun ADB special project administrative mission 11–14 Jun ADB loan review mission 19–22 Oct ADB special loan administrative mission 19–22 Nov ADB special loan administrative mission

2014 10–17 Feb ADB midterm review mission 8 May Contract signed for sewerage package WW/05 21–25 Jul ADB loan review mission 31 Jul First subproject, laying water supply main package WS/01, completed 7–26 Sep Heavy flood occurred 17–24 Nov ADB loan review mission 31 Dec Contract terminated for sewerage package WW/01 and WW/02

2015 15–17 Apr ADB special loan administrative mission 4 Sep Contract signed for construction of cell 3 at landfill site 7–9 Sep ADB loan review mission 16–21 Nov ADB midterm review mission

2016 31 Mar Contract terminated for sewerage package WW/03 4–11 Apr ADB loan review mission 8 Jul–16 Nov Political turmoil 21–22 Nov ADB loan review mission

2017 27 Feb–1 Mar ADB loan review mission 31 Mar First subproject completed

30 May Actual date of loan closing 30 Sep Contract closing for PMC and DSCs except for transport subproject 2 Nov Actual date of financial closing 26 Mar DSC remobilized for completion of the balance of works

2018 18–22 Jun ADB loan review mission 26–30 Nov ADB loan review mission

ADB = Asian Development Bank, DSC = design supervision consultant, PMC = project management consultant.

Source: Asian Development Bank.

32 Appendix 7

SUMMARY OF CONTRACT DETAILS

PCSS No.

Category No. Supply and Install Turnkey Contracts

Contract Amount with

ADB Financing ($)

Actual Disbursed

($)

0009 01A Raw water transmission main from Harwan Reservoir to Nishat water treatment plant

2,388,333 2,388,333

0005 01B Sewage network collector in Bakshi Nagar and Ranbir

2,945,625 2,945,625

0006 01B Sewage network in Bhawani Nagar, Sherikan, and Paloura

4,767,907 4,767,907

0008 01B 30 mld sewerage treatment plant on turnkey basis

4,880,114 4,880,114

0013 01B Sewage network in Shakti Nagar, Shiv Nagar, and Janipur

1,124,651 1,124,651

0001 01D Approach road to Achan landfill site 429,313 429,313

0002 01D Cell 1 at Achan landfill 3,251,227 3,251,227

0012 01D Cell 2 at Achan landfill 2,910,967 2,910,967

0014 01D Cell 3 at Achan landfill 675,361 675,361

0003 02B DSC consultant (first firm) 3,093,675 3,093,675

0004 02B PMC (first firm) for project 1 1,402,216 1,402,216

0004

0010

02B

02B

DSC (second firm) for project 1 DSC Incremental administration support to the ERA

447,667

2,836,996

5,929,703

447,667

2,836,996

5,929,703

Total 37,083,756 37,083,756

ADB = Asian Development Bank, DSC = design supervision consultant, ERA = Economic Reconstruction Agency, mld = million liters per day, PCM = project management consultant, PCSS = procurement contract summary sheet.


Appendix 8 33

STATUS OF COMPLIANCE WITH LOAN COVENANTS

Covenants in Loan Agreement

Covenant

Reference in Loan Agreement,

Project 1 Status of Compliance

(a) efficiency and in conformity with sound administrative, financial, engineering, environmental and urban development practices. (b) In the carrying out of the Project and operation of the Project facilities, the Borrower shall perform, or cause to be performed by the State and the ERA, all obligations set forth in Schedule 5 to this Loan Agreement and the Project Agreement.

Section 4.01 of Article IV

(a) Partially complied. For FY2008, APFS and AEFS were not submitted. The APFS in 2018 was a combined report for all the three projects under JKUSDIP.

(b) Complied with delay in some items (see below).

The Borrower shall make available to the State, promptly as needed and on terms and conditions acceptable to ADB, the funds, facilities, services, and other resources which are required, in addition to the proceeds of the Loan, for the carrying out of the Project.


Complied. The Borrower made these available to the State as in this covenant.

The Borrower shall cause the State to ensure that the activities of its departments and agencies with respect to the carrying out of the Project and operation of the Project facilities are conducted and coordinated in accordance with sound administrative policies and procedures.


Complied. The Borrower caused the State that the carrying out of the Project and operation of the Project facilities were conducted and coordinated in accordance with sound administrative policies and procedures.

The Borrower shall take all action which shall be necessary on its part to enable the State to perform its obligations under the Project Agreement, and shall not take or permit any action which would interfere with the performance of such obligations.


Complied. The Borrower took actions in line with this covenant.

(a) The Borrower shall exercise its rights under the Financing arrangements in such a manner as to protect the interests of the Borrower and ADB and to accomplish the purposes of the Loan. (b) No rights or obligations under the Financing arrangements shall be assigned, amended, abrogated or waived without the prior concurrence of ADB.


(a) Complied. The Borrower exercised its rights to protect the interests of the Borrower and ADB and to accomplish the purposes of the Loan.

(b) Complied. Amendments were made only with prior concurrence of ADB.

34 Appendix 8

Covenant Reference in Loan Agreement,


Provisions on Procurement and Consulting Services A. General 1.All goods and works and consulting services to be financed out of the proceeds of the loan shall be subject to and governed by the procurement guidelines and consulting guidelines, respectively. 2.All terms used and not otherwise defined in this loan agreement have the meanings provided in the procurement guidelines and/or the consulting guidelines, as applicable. B. Procurement of Goods and Works 3.Except as ADB may otherwise agree, good and works shall only be procured on the basis of the methods of procurement as follows; international competitive bidding, national competitive bidding, shopping, or force account. The methods of procurement are subject to, among other things, the detailed arrangements and threshold values set forth in the procurement plan. The Borrower may only modify the methods of procurement or threshold values with the prior agreement with ADB, and any modifications must be set out in the procurement plan. 4.Domestic preference. The Borrower may allow the state to grant a margin of preference in the evaluation of bids under international competitive bidding in accordance with paras. 2.55 (a) and 2.56 of the procurement guidelines for domestic works. 5.National competitive bidding. The State’s standard documents and procurement procedures, as used for national competitive bidding for civil works/goods under the ongoing Project, Loan no. 2151-IND, as further reviewed by the ADB appraisal with the EA, and with certain modifications found consistent with ADB requirements shall apply as reflected in the procurement plan. Further modifications if any, together with justification, shall be furnished by ERA for ADB’s prior approval. Necessary provisions and detailed procedures

Schedule 4 Para. 1 of Schedule 4 Para. 2 of Schedule 4 Para. 3 of Schedule 4 Para. 4 of Schedule 4 Para. 5 of Schedule 4

Complied. All goods and works and consulting services financed out of the proceeds of the loan were subject to and governed by the procurement guidelines and consulting guidelines, respectively. Complied. All terms used in this loan agreement kept the meanings provided in the procurement guidelines and/or the consulting guidelines. Complied. There were no modifications to the procurement plan. Not applicable. There were no ICB contracts under Project 1. Complied. There were no modifications in national competitive bidding procedures.

Appendix 8 35



for the investment program will be incorporated in the facility administration memorandum. C. Conditions for award of contract: commencement of civil works. 6.(a) The Borrower shall cause the EA not to award any civil works contracts financed under the loan to be awarded until conditions referred to under paras. 13 (c),15 (a) and 16 of Schedule 5 of this loan agreement are complied with as applicable. 6.(b) The Borrower shall cause the EA not to commence civil works under any civil works contract financed under the loan until activities referred to under paras. 13(d),15(e) and 16 of this loan agreement are complied with as applicable. D. Selection of Consulting Services 7. Quality and cost-based selection. Except as ADB may otherwise agree, and except as set forth in the paragraph below, the Borrower shall cause the state to apply quality and cost-based selection for selecting and engaging consulting services. 8. The Borrower shall cause the state to apply the following methods for selecting and engaging the specified consulting services, in accordance with, among other things, the procedures set forth in procurement plan; quality-based selection and least cost selection. E. Industrial or Intellectual Property Rights 9 (a) The Borrower shall cause the state to ensure that all goods and works procured (including without limitation all computer software and systems, whether separately procured or incorporated within other goods and services procured) do not violate or infringe any industrial property or intellectual property right or claim of any third party. 9 (b) The Borrower shall cause the state to ensure that all contracts for the procurement of goods and works contain appropriate representations, warranties and, if appropriate,

Para. 6 (a) of Schedule 4 Para. 6 (b) of Schedule 4 Para. 7 of Schedule 4 Para. 8 of Schedule 4 Para. 9 (a) of Schedule 4 Para. 9 (b) of Schedule 4

Complied. No civil works contracts were awarded until these conditions were complied. Complied. No civil works commenced until activities referred here were complied. Complied. The state applied quality and cost-based selection for selecting and engaging consulting services. Complied. ERA followed the quality and cost-based selection procedures. Complied. The state ensured that all goods and works procured do not violate or infringe any industrial property or intellectual property right or claim of any third party. Complied. The state ensured that all contracts for the procurement of goods and works contained appropriate representations,

36 Appendix 8



indemnities from the contractor or supplier with respect to the matters referred to in subparagraph (a) of this paragraph. 10. The Borrower shall cause the state to ensure that all ADB financed contracts with consultants contain appropriate representations, warranties and, if appropriate, indemnities from the consultants to ensure that the consulting services provided do not violate or infringe any industrial property or intellectual property right or claim of any third party. F. ADB’s Review and Procurement Decisions. 11. All contracts procured under international competitive bidding procedures, national competitive bidding and shopping procedures, and contracts for consulting services shall be subject to prior review by ADB, unless otherwise agreed between the Borrower, State, and ADB and set forth in the procurement plan. Execution and Implementation EA (a) The State through the ERA shall be the Executing Agency and shall be responsible for overall implementation of the Project including detailed appraisal of Subprojects under the Project.

Para. 10 of Schedule 4 Para. 11 of Schedule 4 Para. 1(a) of Schedule 5

warranties, etc. specified in this covenant. Complied. The state ensured that all ADB financed contracts with consultants contained appropriate representations, warranties, etc. specified in this covenant. Complied. All contracts specified in this covenant received prior review by ADB. Complied. ERA was the Executing Agency.

(b) Towards compliance with the requirements of this Loan Agreement, the Borrower shall ensure that (i) the State; and (ii) through the State, ERA and other agencies at State level, all undertake activities and respective responsibilities as included under this Loan Agreement and related documents in a timely manner to achieve the objectives of the Project and the Facility.

Para. 1(b) of Schedule 5

Complied, as detailed in Schedule 4 of the Loan Agreement.

Committee The Executive Committee established by the State, shall be responsible to guide ERA on matters related to Project activities. For day to day administration the CEO shall be guided by the Executive Committee.

Para. 2 of Schedule 5

Complied. Executive Committee formed and provided regular guidance to ERA.

City Level Steering Committees shall be established by the State within not later than


Complied with delay. City Level steering committees established on

Appendix 8 37


Project 1 Status of Compliance six months of the Effective Date of the loan that shall be responsible to facilitate interaction between the ERA and participating agencies, to select Subprojects and review their scope and design, to monitor implementation and institutional reforms under the Facility, disseminate information as well as coordinate between various agencies regarding approvals and clearances.

29 October 2009.

PMUs Each of the PMUs established under ERA for the ongoing Project (Loan 2151) in Jammu and Srinagar cities, shall be headed by a full time Project Director reporting to the CEO; and supported by PMU staff comprising specialists in water supply, sewerage, solid waste management, urban transportation, financial/economic analyst, procurement, social development, environment, and project advisory.


Complied. The PMU already in place for Loan 2151 (the ongoing earlier project) was expanded to have a dedicated PMU for Loan 2331. Similarly, the PIUs were expanded to have dedicated PIUs for Loan 2331.

Each PMU shall be responsible for the identification, formulation, appraisal, design, and implementation of all Subprojects including conformance with State and Borrower’s statutory laws and regulations as also ADB policies on safeguards and social matters. A senior level officer shall be appointed by the State within not later than one month of Effective Date in each PMU, directly reporting to the CEO who shall be responsible for overseeing implementation and ensuring compliance with safeguards and other social issues requirements under this Schedule.


Complied with delay. Each PMU was responsible for the identification, formulation, appraisal, design, and implementation of all Subprojects. A senior level officer was appointed by the State after one month of effective date.

A senior level officer, directly reporting to the CEO and supported by institutional, financial, and municipal management specialists and consultants shall also be appointed by the State within not later than one month of Effective Date to oversee activities under Component B.


Complied with delay. Director Safeguard and Director of the PMU managed and monitored the implementation of the institutional reforms component.

Counterpart Funds The State shall make available the Loan proceeds through ERA to the PMUs under appropriate arrangements acceptable to ADB, and ensure (a) sufficient counterpart funds from its budget for each fiscal year, in a timely manner, for the efficient implementation of the Project; and


Complied. Sufficient budgetary allocation was provided by the state government for the PMU with ERA and for the 2 PIUs in a timely

38 Appendix 8



(b) adequate funds towards operations and maintenance of Project facilities, through budgetary allocations or other means, to be provided to the PMUs, during and after Subprojects’ completion.

manner. Complied. PHED and Urban Environmental Engineering Department (UEED), the line departments responsible for O&M of the water supply and solid waste operations and sewerage system were provided with funds to operate and maintain the new facilities.

Subprojects Selection Criteria and implementation The State shall ensure that all Subprojects meet and are implemented, to the satisfaction of ADB, in accordance with the provisions set forth in Schedule 4 to the FFA. The State shall ensure that all engineering structures under the Project are designed in accordance with the Borrower’s standard for earthquake resistance buildings.

Para. 8 of Schedule 5 Para. 9 of Schedule 5

Complied. Subprojects were selected and approved following eligibility criteria and selection procedures. Complied. All the structures were designed in compliance with relevant Indian standards for earthquake resistance.

Governance – Institutional and Financial Reforms The State and ERA shall undertake anticorruption and good governance measures as identified in Table 1 under paragraph 5 to Schedule 3 to the FFA, during the implementation of the Facility.


Complied. A complains mechanism was established on the project web site and a system for addressing grievances was set up.

The State shall follow the principles outlined under the Borrower’s Jawaharlal Nehru National Urban Renewal Mission program in undertaking urban sector reforms in the State. The State shall more particularly undertake following activities, (a) within twelve months of the Effective Date,

(i) establish a suitable institutional mechanism to review within one year of its establishment, the water and sewerage costs and cost recovery options including the option of allocating a proportion of property tax collection towards water supply and sewerage operations with a view to develop financial sustainability. (ii) commence a GIS based program of surveying all properties and water supply

Para. 11 (a) of Schedule 5

Complied with delay. ERA confirmed that the state government established high level committee chaired by Chief Secretary to oversee the implementation of reform components and provide policy directions for improved cost recovery. Property tax structure has been prepared and is under consideration of State legislature. Complied with delay. GIS mapping covering individual properties and

Appendix 8 39



connections, and complete the same within 3 years of its commencement; (iii) enhance the O&M budget allocation under the State budget to address the requirements of O&M for assets created under the Project;

(iv) issue orders requiring all property owners

to connect to the sewerage system;

details of water supply assets and connections was completed in Feb 2011 and handed over to line departments. Complied. State has allocated increased funds for O&M to PHED and UEED under the State budget. The Project Consultants assessed the additional O&M requirements for assets created under Project-1 and the line departments agreed to increase and collect tariffs and forward a portion to the state entities. The state government provides any additional budgetary support that may be required for O&M, in addition to the cities own revenues. The state has also doubled the domestic and commercial water charges in 2011. (iv) Complied. Chief Minister, the state government issued order in May 2012. UEED, the owner agency, and the Municipal Corporation has implemented it.

(b) within two years of the Effective Date

(i) establish semi-autonomous entities or

boards or other suitable institutional mechanism responsible for water supply, sewerage and drainage operations for Srinagar and Jammu cities respectively; these entities shall (1) operate on commercial principles and have their own independent budget; and (2) perform their tasks in accordance with a business plan approved initially by the State’s Urban Environmental and Engineering Department, and Public Health Engineering Department and the corporations, and later when the corporations have gained capacity, such budgets would be developed by the urban local bodies of the State along with the service levels to be maintained by the entities and water supply and sewerage charges that the entities shall be authorized to collect and retain;


Partially complied. Full compliance will likely not be achieved until the MFF, including Projects 2 and 3, have been completed. The state is following a systematic and gradual process for implementation of this component. As a part of that strategy institutional audit of line agencies has been conducted and process for reaching broad consensus with the stakeholders on the propose changes has been initiated. ERA and PHED officials held a meeting with secretary to the state government on 5th February 2015 for finalization of the module to be adopted for these entities. The detailed notification assessment to current water supply operation, business plan, and reform strategy was prepared and being implemented with support from consultants, as of loan closure.

40 Appendix 8



(ii) empower the municipal corporations of Jammu and Srinagar cities to collect property tax at rates within a range as laid down by the State in consultation with the corporations;

Partially complied. Property Tax structure has been prepared and is under consideration of the State legislature, as of loan closure.

(c) within 2 years from the Effective Date, complete a review of the urban planning and land use control functions in the State and put in place policies that clearly demarcate urban land use planning and development control responsibilities with clear institutional responsibilities for giving development control approvals and for enforcement of penalties in case of violations;

Para. 11(c) of Schedule 5

Complied with delay. The building by-laws have been formulated and notified on 5 September 2011. Draft Master Plans with a horizon year of 2021 for the target towns was prepared by Development Authority, respectively, and is under consideration of State legislature. The Master Plans will be implemented by the Municipal Corporations

(d) within 3 years from the Effective Date,

(i) notify the jurisdiction of the Jammu and

Srinagar municipal corporations to cover the entire 2021 “Master Planning Area” of the respective cities as they are developed and added to the serviced area; and

(ii) establish modern accrual-based

accounting systems in the municipal corporations of Jammu and Srinagar; and

Para. 11(d) of Schedule 5

Complied with delay. The state government confirms that ULBs are following the process.

Complied. Both Municipal Corporations established accrual-based accounting systems in 2011. National Informatics Centre developed the software applications required and trained the city staff in its use.

(e) Through a combination of increased efficiency of billing and collection, increased user charges, reducing water losses, and allocating a proportion of property tax collections to water supply and sewerage operations, the water supply service providers in Srinagar and Jammu shall recover 30% of the O&M costs for water supply within 3 years from the Effective Date.

Para. 11(e) of Schedule 5

Partially complied. The state has also doubled water charges for the domestic and commercial consumers in 2011 and has implemented a number of initiatives to reduce (i) the physical losses through rehabilitation of the old pipe networks; and (ii) energy consumption through replacement of electro-mechanical equipment. The state is also developing a computerized billing and collection system and exploring other options for further enhancing the revenue base.

Appendix 8 41


Project 1 Status of Compliance The State shall also finalize the master plans for water supply, sewerage and drainage, and solid waste management, before January 2009


Complied with delay. Master plans approved in 2010.

Safeguards and other Social Issues

Environment The State and ERA shall ensure that:

(a) the Project is carried out and all Project facilities are designed, constructed, operated, maintained, and monitored in compliance with the environmental laws and regulations of the Borrower, the State, ADB’s Environment Policy (2002), and EARF;

Para. 13(a) of Schedule 5

Complied. The subprojects were designed and constructed in compliance with Borrower, State, and ADB requirements as per the EARF. Scope of works of contractors included line items for EMP mitigation.

(b) subprojects encroaching any National Park or its buffer zone shall not be included in the Project; however, Subprojects encroaching upon wild life sanctuaries or any other environmentally sensitive areas may be allowed subject to ERA obtaining all statutory clearances;


Not applicable. None of the approved subprojects encroached on national parks or their buffer zone.

(c) each PMU shall prepare an IEE or EIA report as required, including an EMP with budget identifying the cost of its implementation, with adequate public consultation for each Subproject, in accordance with the EARF and submit it to ADB for review and approval before award of any contract. The EIA or IEE for “B sensitive” Subprojects shall be subject to the 120-day requirement of public disclosure under ADB’s Environment Policy (2002). Each PMU shall ensure that: (i) all mitigation measures identified in the

IEEs, the SIEEs, the EIAs and the Summary Environmental Impact Assessments and the EMPs, prepared for the Subprojects, as applicable, are incorporated in Subproject designs, and are carried out during their construction, O&M, and are disclosed to stakeholders; and

(ii) if there are any changes in specific locations or alignments of any infrastructure or Project facilities after completion of the process of IEE or EIA or any new information is made


Complied. Was part of designs, Bills of quantity and works contracts, scope of works of contractors included EMP mitigation. Complied as above. Complied. Additional environmental assessment was carried out after scope changes in water supply subproject.

42 Appendix 8



available during detailed design and/or implementation that has an impact on the environmental assessment process carried out thus far, then additional environmental assessment shall be carried out by ERA in accordance with ADB’s Environmental Policy (2002) and the EARF, and the ERA shall take prior approval of ADB before further physical implementation of the Subproject;

(d) all environmental clearances required by all laws, acts, and regulations at national, State and local levels are obtained in a timely manner and prior to commencement of civil works for the relevant Subproject (e)The ERA shall ensure that the ERA shall submit to ADB semi-annual progress reports on the implementation of the EMPs, and measures under the IEE/EIA, and the environmental monitoring carried out as a regular part of Project implementation for review and disclosure in accordance with ADB’s Public Communications Policy (2005); and;

Para. 13(d) of Schedule 5 Para. 13(e) of Schedule 5

Complied. Completed during design activities. All approvals in place before construction. Complied. ADB has received and posted semi-annual environmental reports.

(f) appropriate budgetary allocation (including vehicles, material and equipment, operating expenses, environmental experts, and other staff) is provided to PMUs to fulfill their responsibilities for implementation of mitigation measures and monitoring requirements as outlined in the IEEs, the EIAs, the EMPs and the EARF, as applicable. ERA shall design and conduct appropriate training programs for environment specialists and Project staff on topics related to their areas of responsibility.

Para. 13(f) of Schedule 5

Complied. The adequate budget was made available during the project implementation. This included 2 inhouse mobile laboratories which regularly visited construction sites to monitor local environmental condition, construction safety and quality control of construction. ERA designed and conducted appropriate training programs for environment specialists and Project staff on topics related to their areas of responsibility.

Land Acquisition, Resettlement and Indigenous People

The State shall undertake the Project in accordance with the Borrower’s and State laws and regulations, ADB’s Policy on Resettlement and Rehabilitation, ADB’s Policy on Involuntary Resettlement (1995) and the RF.


Complied. The State undertook the Project in accordance with the Borrower’s and State’s laws and regulations, including its policy on Resettlement and Rehabilitation, ADB’s Policy on Involuntary Resettlement (1995) and the RF

Appendix 8 43


Project 1 Status of Compliance The State and ERA shall ensure that to the extent possible, Subprojects will not require land acquisition or involuntary resettlement; however, if land acquisition and/or involuntary resettlement are required for any Subproject, the State shall ensure following: (a) the related PMU shall prepare a RP for the Subproject, acceptable to ADB, in accordance with applicable laws and regulations referred under paragraph 14 of this Schedule and the RF, and submit it to ADB for review and approval before award of any civil works contract; the PMU shall ensure proper consultation during preparation of the RP with the affected persons, and also disclose the RP to the affected persons including information on land acquisition and compensation process;


Complied. RP acceptable to ADB was prepared in line with this covenant.

(b) all land, rights of way and other land-related rights required for the Subproject are acquired or otherwise made available to the PMUs


Complied. The PMUs acquired necessary rights of way and land-related rights in line with this covenant.

(c) all affected persons are compensated in accordance with the agreed land acquisition and RP before commencement of civil works of the related Subproject including any section-wise handover thereof, strictly in accordance with the stipulation in the related civil works contract. If during detailed design and implementation, any modification and or additional land acquisition or involuntary resettlement impacts are identified, the ERA through the PMU shall prepare or modify the RP in accordance with applicable laws and regulations referred under paragraph 14 of this Schedule and the RF and shall take prior approval of ADB before further implementation of RP;


Partially complied. The negotiations with landowners for approach road to sanitary landfill site did not reach agreement. Hence, the landowners approached the High Court. ERA has deposited compensation in escrow account.

(d) efficient grievance redresses mechanisms are in place in accordance with the related RP to assist affected persons to resolve queries and complaints in a timely manner;

Para. 15(d) of Schedule 5

Complied. Grievance redressal cell was established, and the minor issues raised due to construction inconveniences, were addressed by PMU, PIUs and the contractors.

(e) all necessary funds are available in a timely manner so that the RPs are implemented and full reimbursement for acquired assets are made to the affected

Para. 15(e) of Schedule 5

Complied. The adequate funds were made available in the timely manner.

44 Appendix 8


Project 1 Status of Compliance persons well in advance so as to provide them sufficient time to make alternative arrangements before commencement of civil works; (f) In cases of land acquisition through direct negotiations with affected persons, a High Powered Committee is established at the State level, within one month of the Effective Date in accordance with the RF; and shall operate on following principles: (i) The Committee shall make independent valuation of land based on existing market replacement value. (ii) Negotiations, if any shall be based on the spirit of “free will”, devoid of any element of coercion. (iii) Participation/representation of the non-government organizations and representatives of civil society shall be mandatory in all negotiations.

(iv) Minutes of all negotiations shall be maintained by ERA covering key points of discussion and outcomes. (v) The Committee shall also establish the transitional allowance in accordance with the RP and assistance to be provided to affected persons based on the prevailing rates to restore the pre-Project levels of livelihoods.

Para. 15(f) of Schedule 5

Complied. ERA confirmed that the State has established High Powered Committee for land acquisition through direct negotiations. Complied. Items (i) to (v) all complied as per Para. 15(c) of Schedule-5 above.

In case of adverse impacts identified during planning, design and implementation of any Subproject on indigenous people, an IPDP or integration of specific actions in favor of the indigenous people in the RP is prepared in accordance with ADB’s Policy on Indigenous People (1998) and the IPDF and that the same is further (i) approved by ADB before award of civil works contract, and (ii) implemented before commencement of civil works contract. Any update to the Indigenous Peoples Plan due to detailed designs or during implementation shall follow requirements similar to the RPs as described under paragraph 15(c) of this Schedule.

Para.16 of Schedule 5

Not applicable. There were no adverse impacts on any indigenous peoples.

Appendix 8 45



One senior officer shall be appointed by each PMU who shall be responsible for ensuring compliance with environmental and social safeguards policies. One resettlement officer at each PMU shall also be appointed to supervise implementation of the RPs and IPDPs (if any)


Complied. An officer of the rank of the chief engineer deputed as Director (Safeguards) at ERA. Safeguard specialists of ERA and, DSCs are providing support to Director (Safeguard) to ensure safeguard compliance. Also, two resettlement expert and two environmental experts, one each in the target towns PIUs were appointed by ERA.

An independent agency/institution (that may include established and registered NGO(s)) shall also be engaged by the ERA to undertake external monitoring of the implementation of RP (including on negotiated settlements if any) and IPDP (if any). This independent agency/institution (that may include established and registered NGO(s)) shall submit reports semi-annually to ADB through the ERA for review and disclosure in accordance with ADB’s Public Communications Policy (2005)


Complied. One independent agency was hired for conducting external monitoring of resettlement activities.

HIV/AIDS, Human Trafficking and Labour The State through the ERA shall ensure that civil works contracts under the Project follow all applicable labour laws of the Borrower and the State and that these further include provisions to the effect that contractors: (i) carry out HIV/AIDs awareness programs for labour; (ii) do not employ or use children as labour; (iii) disseminate information at worksites on risks of sexually transmitted diseases and HIV/AIDS as part of health and safety measures for those employed during construction; and (iv) follow and implement all statutory provisions on labour (including equal pay for equal work), health, safety, welfare, sanitation, and working conditions. Such contracts shall also include clauses for termination by the State/ERA in case of any breach of the stated provisions by the contractors.


Complied. The contract documents under the Project included the stated provisions.

Performance Monitoring and Progress Report (a) Within 3 months of the Effective Date, the State through the ERA shall establish the PPMS in a form and substance acceptable to ADB. The PPMS shall track the Investment Program and Project implementation activities,

Para. 20(a) of S chedule 5

Partially complied. DMF for Project 1 was established in 2011 in eOps but only for Part A. ERA quarterly progress reports were submitted with some delay. Findings from ERA

46 Appendix 8



corresponding target dates, expected outcomes, and assigned responsibilities under a monitoring mechanism that can be used to track progress on specific activities. The PPMS shall aim to detect any deficiency and discrepancy between the plan and the execution of the Investment Program and Project in using the resources efficiently in order to ensure that timely corrections can be made to adjust the design of the Investment Program and Project.

quarterly progress reports and ADB loan review mission were posted on ADB’s eOps site.

(b) The State through the ERA shall undertake periodic Investment Program and Subproject/Component performance reviews to evaluate the scope, implementation arrangements, progress and achievements of objectives of the Project and the Investment Program.


Complied. ERA undertook periodic subproject performance reviews together with ADB review missions.

Without limiting the generality of Section 2.08 of the Project Agreement, the State through the ERA: (a) shall prepare and provide ADB with quarterly progress reports on implementation of the Project and the Investment Program, that shall include report on progress made during the period of review, changes if any on implementation schedule, problems or difficulties encountered and remedial actions taken, work to be undertaken and Subprojects/Components to be proposed for financing in the coming quarter. The reports shall also include a summary financial account for each PMU, expenditures to date, and report on benefit monitoring undertaken pursuant to previous paragraph of this Schedule; and


Complied. ERA submitted quarterly progress reports as specified in this covenant.

(b) shall, after physical completion of the Facility, but in any event not later than three (3) months thereafter or such later date as ADB may agree for this purpose, prepare and furnish to ADB a report, in such form and in such detail as ADB shall reasonably request.


Complied with delay. Submitted to ADB in September 2017.

Review (a) Based on a review of quarterly progress reports submitted in accordance with the preceding paragraph, ADB and the State through ERA, as required, will meet to discuss progress of the Investment Program and the


Complied. Regularly discussed among ADB and ERA through monthly progress reports, quarterly progress reports and ADB loan review missions and the TPRMs.

Appendix 8 47



Project, any changes to implementation arrangements or remedial measures required to be undertaken towards achieving overall objectives of the Project and the overall Investment Program.

(b) In addition to regular reviews including a midterm review for the Project in January 2010, a detailed mid-term review of the Investment Program shall be undertaken, in June 2011 by ADB, the Borrower and the State. The mid-term review shall include a detailed evaluation of the respective Project and Investment Program scope, implementation arrangement, any outstanding issues, environment, resettlement and other safeguard issues, achievement of scheduled targets, and other issues, as appropriate.


Complied. Mid-term reviews undertaken in April 2013, February 2014, and November 2015.

Covenants in Project Agreement

Covenant

Reference in Project

Agreement, Project 1 Status of Compliance

(a) The State and ERA shall carry out the Project with due diligence and efficiency, and in conformity with sound administrative, financial, engineering, environmental and urban development practices. (b) In the carrying out of the Project and operation of the Project facilities, the State and ERA shall perform all obligations set forth in the Loan Agreement to the extent that they are applicable to the State and ERA, respectively.

Section 2.01. (a) Partially complied. For FY2008, APFS and AEFS were not submitted. The APFS in 2018 was a combined report for all the three projects under JKUSDIP.

(b) Complied. The state and ERA performed the obligations as stated in this Appendix.

The State shall make available, promptly as needed, including to ERA, the funds, facilities, services, equipment, land and other resources which are required, in addition to the proceeds of the Loan, for the carrying out of the Project.

Section 2.02. Complied. The state made available of these items for carrying out of Project 1.

48 Appendix 8

Covenant



(a) In the carrying out of the Project, the State and ERA respectively, shall employ competent and qualified consultants and contractors, acceptable to ADB, to an extent and upon terms and conditions satisfactory to ADB. (b) Except as ADB may otherwise agree, all Goods, Works and consulting services to be financed out of the proceeds of the Loan shall be procured in accordance with the provisions of Schedule 4 to the Loan Agreement. ADB may refuse to finance a contract where Goods, Works or consulting services have not been procured under procedures substantially in accordance with those agreed between the Borrower and ADB or where the terms and conditions of the contract are not satisfactory to ADB.

Section 2.03. (a) Partially complied. The performance of contractors for sewerage subproject was poor, leading to termination of the packages and rebidding.

(b) Partially complied. In one of the

sewer laying packages, there was a misprocurement that led to cancellation of ADB financing to the said package.

The State and ERA respectively, shall carry out the Project in accordance with plans, design standards, specifications, work schedules and construction methods acceptable to ADB. The State and ERA, respectively shall furnish, or cause to be furnished, to ADB, promptly after their preparation, such plans, design standards, specifications and work schedules, and any material modifications subsequently made therein, in such detail as ADB shall reasonably request.

Section 2.04. Partially complied. There was delay in works schedule of the sewerage subproject. The spillover work was completed by the subsequent project and the state fund.

(a) The State and ERA as appropriate, shall each take out and maintain with responsible insurers, or make other arrangements satisfactory to ADB for, insurance of Project facilities, to such extent and against such risks and in such amounts as shall be consistent with sound practice. (b) Without limiting the generality of the foregoing, the State and ERA as appropriate, each undertake, to insure, or cause to be insured, the Goods to be imported for the Project and to be financed out of the proceeds of the Loan against hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be payable in a currency freely usable to replace or repair such Goods.

Section 2.05. (a) Complied. ERA took and maintained insurance of Project facilities as a part of its contract with the contractors.

(b) Complied. The State and ERA

undertook to insure the imported Goods for the Project and financed out of the loan proceeds against hazards incident as specified here.

Appendix 8 49

Covenant



The State and ERA shall each maintain, or cause to be maintained, records and accounts adequate to identify the Goods, Works and consulting services and other items of expenditure financed out of the proceeds of the Loan, to disclose the use thereof in the Project, to record the progress of the Project (including the cost thereof) and to reflect, in accordance with consistently maintained sound accounting principles, its operations and financial condition.

Section 2.06. Complied. ERA maintained records and accounts to identify the goods, works and consulting services financed by the ADB loan.

(a) ADB, the State and ERA shall cooperate fully to ensure that the purposes of the Loan will be accomplished. (b) The State and ERA shall each promptly inform ADB of any condition which interferes with, or threatens to interfere with, the progress of the Project, the performance of its obligations under this Project Agreement or the Financing arrangements, or the accomplishment of the purposes of the Loan. (c) ADB, the State and ERA shall from time to time, at the request of either party, exchange views through their representatives with regard to any matters relating to the Project, the State, ERA, and the Loan.

Section 2.07. (a) Complied. ADB, the state and ERA cooperated fully to ensure the purposes of the Loan was accomplished. (b) Complied. The state and ERA each informed ADB of any issues specified in this covenant. (c) Complied. ADB, the state and ERA exchanged views concerning matters relating to the Project, the state, ERA, and the Loan.

(a) The State and ERA shall each furnish to ADB all such reports and information as ADB shall reasonably request concerning (i) the Loan and the expenditure of the proceeds thereof; (ii) the Goods, Works and consulting services and other items of expenditure financed out of such proceeds; (iii) the Project; (iv) the administration, operations and financial condition of the State and ERA with respect to the Project and the Loan; and (v) any other matters relating to the purposes of the Loan. (b) Without limiting the generality of the foregoing, the State through ERA shall furnish to ADB quarterly reports on the execution of the Project and on the operation and management of the Project facilities. Such reports shall be submitted in such form and in such detail and within such a period as ADB shall reasonably request, and shall indicate,

Section 2.08. (a) Complied. The State and ERA furnished to ADB all reports and information as ADB reasonably requested concerning the matters specified in this covenant. (b) Partially complied. There were some delays in submission of reports. For FY2008, APFS and AEFS were not submitted. APFS in 2018 was a combination of all three projects under JKUSDIP.

50 Appendix 8

Covenant



among other things, progress made and problems encountered during the quarter under review, steps taken or proposed to be taken to remedy these problems, and proposed program of activities and expected progress during the following quarter. (c) Promptly after physical completion of the Project, but in any event not later than three (3) months thereafter or such later date as ADB may agree for this purpose, the State through ERA shall prepare and furnish to ADB a report, in such form and in such detail as ADB shall reasonably request, on the execution and initial operation of the Project, including its cost, the performance by the State and ERA, of its obligations under this Project Agreement and the accomplishment of the purposes of the Loan.

(c) Complied with delay. ERA

furnished the report and submitted it to ADB after six months from the physical completion of the Project.

(a) The State as applicable, and ERA, shall each (i) maintain separate accounts for the Project and for its overall operations; (ii) have such accounts and related financial statements (balance sheet, statement of income and expenses, and related statements) audited annually, in accordance with appropriate auditing standards consistently applied, by independent auditors whose qualifications, experience and terms of reference are acceptable to ADB; and (iii) furnish to ADB, promptly after their preparation but in any event not later than nine (9) months after the close of the fiscal year to which they relate, certified copies of such audited accounts and financial statements and the report of the auditors relating thereto (including the auditors' opinion on the use of the Loan proceeds and compliance with the covenants of the Loan Agreement as well as on the use of the procedures for imprest account, SGIA, and statement of expenditures), all in the English language. The State and ERA shall furnish to ADB such further information concerning such accounts and financial statements and the audit thereof as ADB shall from time to time reasonably request.

Section 2.09. (a) Partially complied. Separate accounts for the Project maintained with annual audit and submitted to ADB. Except for two (2) financial reports of FY2008 and FY2018, all annual APFS from project effective date to closing (FY2008–2018) were received with delays ranging from 0.6 to 3.8 months. For FY2008, APFS and AEFS were not submitted. In FY2018, the audited report was not separate from subprojects 2 and 3, which is a non-compliance. Audit opinions were mostly unqualified (clean), except for report for FY2018 issued with qualified opinions. Specific audit opinions were issued to confirm that the loan proceeds were utilized for the purpose as per the ADB loan/project agreements. While audit management letter was required, the letter attached with the financial report of FY2018 was a ‘management representation letter’ issued by the management. A letter from the auditor stating there is no separate management letter has not been issued.

Appendix 8 51

Covenant



(b) The State and ERA shall each enable ADB, upon ADB's request, to discuss the Project related financial statements and its financial affairs from time to time with the auditors appointed by State and ERA pursuant to Section 2.09(a) hereinabove, and shall authorize and require any representative of such auditors to participate in any such discussions requested by ADB, provided that any such discussion shall be conducted only in the presence of an authorized officer of the State or ERA, unless the State or ERA shall otherwise agree.

(b) Complied. The state and ERA from time to time discussed the Project related financial statements and its financial affairs from time to time with the auditors appointed by State and ERA.

The State and ERA shall enable ADB's representatives to inspect the Project, the Goods and Works financed out of the proceeds of the Loan, all other plants, sites, properties and equipment of the State and ERA, and any relevant records and documents.

Section 2.10. Complied. The state and ERA enabled ADB to inspect the Project, the Goods and Works financed out of the proceeds of the Loan as specified in this covenant.

(a) The State and ERA shall, promptly as required, take all action within its powers to maintain ERA’s existence, to carry on its operations, and to acquire, maintain and renew all rights, properties, powers, privileges and franchises which are necessary in the carrying out of the Project or in the conduct of its business. (b) In relation to the Project, the State and ERA shall at all times conduct its business in accordance with sound administrative, financial, environmental and urban development practices, and for ERA - under the supervision of competent and experienced management and personnel. (c) In relation to the Project, the State and ERA shall at all times operate and maintain its plants, equipment and other property, and from time to time, promptly as needed, make all necessary repairs and renewals thereof, all in accordance with sound administrative, financial, engineering, environmental, urban development, and maintenance and operational practices.

Section 2.11. (a) Complied. The state and ERA maintained ERA’s existence as specified in this covenant.

(b) Complied. The state and ERA conducted its business as specified in this covenant.

(c) Complied. The state and ERA operated and maintained its plans, equipment and other property as specified in this covenant.

Except as ADB may otherwise agree, the State and ERA shall not sell, lease or otherwise dispose of any of its assets the disposal of which may prejudice its ability to perform satisfactorily any of its obligations under this Project Agreement.

Section 2.12. Complied. There was no such instance that the state and ERA sold, leased, or otherwise disposed of its assets as in this covenant.

52 Appendix 8

Covenant



Except as ADB may otherwise agree, the State and ERA shall apply the proceeds of the Loan to the financing of expenditures on the Project in accordance with the provisions of the Loan Agreement and this Project Agreement, and shall ensure that all Goods, Works and consulting services financed out of such proceeds are used exclusively in the carrying out of the Project.

Section 2.13. Complied. The state and ERA used the proceeds of the Loan in accordance with the Loan Agreement and the Project Agreement.

Except as ADB may otherwise agree, the State and ERA shall duly perform all respective obligations under the financing arrangements between the State and ERA as applicable, and shall not take, or concur in, any action which would have the effect of assigning, amending, abrogating or waiving any rights or obligations of the parties under such Arrangements.

Section 2.14. Complied. The state and ERA performed their obligations under the financing agreements.

The State and ERA shall promptly notify ADB of any proposal to amend, suspend or repeal any provision of ERA’s basic documents, and will give ADB an adequate opportunity to comment on such proposal before taking any action thereon.

Section 2.15. Complied. The state and ERA promptly notified ADB of any proposal to amend, suspend or repeal any provision of ERA’s basic documents, etc. as specified in this covenant.

ADB = Asian Development Bank, AEFS = audited entity financial statements, APFS = audited project financial statements, BOQ = bills of quantity, CEO = chief executive officer, DMF = design and monitoring framework, DSC = design and construction supervision consultant, EA = executing agency, EARF = environmental assessment review framework, EIA = environment impact assessment, EMP = environment management plan, ERA = Economic Reconstruction Agency, FAM = facility administration manual, FFA = framework financing agreement, FY = fiscal year, GIS = geographic information system, IEE = initial environmental examination, IPDP = indigenous peoples development framework, JKUSDIP = Jawaharlal Nehru National Urban Renewal Mission, NCB = national competitive bidding, NGO = nongovernment organization, O&M = operation and maintenance, PHED = Public Health Engineering Department, PMU = project management unit, PPMS = project performance management system, RP = resettlement plan, TPRM = tripartite portfolio review meeting, UEED = Urban Environmental Engineering Department.

Appendix 9 53

SAFEGUARDS ASSESSMENTS

1. Safeguards categorization. Project 1 was classified category B sensitive for the environment, and category A for involuntary resettlement and indigenous peoples, as per Asian Development Bank (ADB) safeguard policies.1 2. Safeguard implementation arrangements. An officer of the rank of the chief engineer deputed as the director of safeguards in the Economic Reconstruction Agency (ERA) was supported by four environmental and resettlement experts responsible for implementing safeguard requirements. The two officers from the state revenue department were posted as land-acquisition officers. In addition, safeguard experts from the program management consultant and two design and supervision consultants provided support toward effectively implementing safeguards requirements and monitoring implementation. The civil works contractors had designated environment officers at their worksites. An external resettlement monitor was also mobilized by the ERA. Regular training programs were conducted for ERA and contractor staff for safeguard implementation and monitoring. Overall institutional arrangements for managing safeguards are assessed adequate.

3. Social safeguards. Project 1 was classified category A for involuntary resettlement, indigenous peoples, and resettlement management, following ADB social safeguard requirements for the project. During loan processing, ADB approved the resettlement framework, the indigenous peoples development framework, and two resettlement plans: a full resettlement plan for the urban transport subproject and a short resettlement plan for solid waste management subproject. The full resettlement plan of the urban transport subproject on BC Road was not implemented because the subproject was dropped from the project. The project acquired 0.47 hectares of land belonging to two households and common property for the construction of an approach road to the sanitary landfill site, while any impact on encroachers at the sanitary landfill site was avoided.

4. No impacts on indigenous peoples were identified at the time of project appraisal, but an indigenous peoples development framework was prepared to guide the selection and preparation of an additional subproject where the impacts on indigenous peoples were identified. During the implementation, no indigenous peoples were impacted as neither of the two landowners belonged to a scheduled tribe. Hence, no additional indigenous peoples safeguards documents such as an indigenous peoples plan was prepared. However, the project was not recategorized B for involuntary resettlement and C for indigenous peoples. 5. All subprojects under project 1 except the construction of solid waste landfill sites were categorized environmental category B as defined in the ADB Environment Policy (2002). The subprojects for constructing solid waste landfill sites at Achan were categorized environmental category B sensitive. Environmental assessment for all subprojects was undertaken, reports were prepared, and approvals were obtained from ADB. No cutting of forest trees or any other scheduled trees occurred in the subprojects undertaken in project 1. The objectives of the environment management plans were adequately achieved, and no outstanding issues were reported. The project has the potential to improve environmental and health conditions with well-maintained facilities. 6. Information disclosure and grievance redress. Information disclosure and consultation activities for the implementation of safeguards were effectively carried out. Such

1 ADB. 2002. Environmental Policy of the Asian Development Bank. Manila; ADB. 1995. Involuntary Resettlement.

Manila; and ADB. 1998. The Bank’s Policy on Indigenous Peoples. Manila.

54 Appendix 9

activities included (i) the distribution and dissemination of safeguard summaries and related information in Urdu to affected households, (ii) regular consultative meetings with affected households and other stakeholders during project implementation, (iii) monitoring, and (iv) the disclosure of safeguards documents. A grievance redress mechanism was set up in accordance with the agreed frameworks to address any project-related grievances from affected people. 7. Monitoring and reporting. Internal safeguards monitoring reports adequately captured the status of safeguard implementation and were submitted periodically. External monitoring of social safeguard requirements was undertaken during project implementation. Project authorities confirmed that there is one outstanding issue, on land acquisition, which is currently pending in court, with compensation deposited in an escrow account to be paid as per the court decision. 8. Conclusion and lessons learned. Resettlement impacts were reduced during implementation in line with a key ADB principle to avoid and minimize resettlement impacts. Extensive consultations with stakeholders conducted during implementation enabled successful project implementation. Suggestions and guidance provided by ADB missions from time to time were implemented by project authorities, which supported the proper implementation and documentation of safeguard policy requirements. The practice of issuing environmental certification improved the environmental performance of contracts and was carried over into subsequent tranches. Other projects should consider the novel practice of establishing in-house monitoring and testing infrastructure through well-equipped mobile monitoring stations and trained staff.

Appendix 10 55

ECONOMIC AND FINANCIAL ANALYSIS A. Re-evaluation scope, methodology, and data input 1. Economic internal rates of return (EIRRs) for water supply, wastewater, and solid waste management (SWM) subprojects implemented by urban local bodies (ULBs) of target towns were assessed upon completion of project 11 and compared with appraisal estimates for (i) water supply,2 (ii) SWM,3 and (iii) sewerage.4 Economic evaluation for the whole of project 1 was undertaken to determine its accumulated economic significance. Economic reevaluation includes sensitivity analysis at a 20% reduction of future benefits. 2. Financial analysis assessed the ability of the ULBs and line agencies to meet operation and maintenance (O&M) costs out of revenue streams for (i) the water system operated by the State’s Public Health Engineering Department (PHED), (ii) the municipal corporation’s SWM facility, and (iii) the sewerage facility operated by the state’s Urban Environmental Engineering Department (UEDD) under the Housing and Urban Development Department (HUDD). Financial viability evaluation of project 1 to determine the financial internal rate of return (FIRR) was not carried out during loan appraisal.5 Targets were set under a proposed revenue enhancement action plan including the implementation of water and sewerage tariffs and property taxes to help meet O&M costs and recover capital costs. However, these revenue measures have yet to be fully implemented, leaving O&M dependent on government grants. 3. As project 1 could not achieve capital cost recovery, operating ratios were calculated for state government finances, and a review of the finances of the PHED, municipal corporation, and HUDD were undertaken to determine their capacity to meet O&M expenditure. Assets for water supply, SWM, and sewerage created by the end of project 1 are not considered self-sufficient despite the collection of user charges. 4. Economic and financial analyses were based on ADB Guidelines for the Economic Analysis of Projects (2017), Guidelines for the Economic Analysis of Water Supply Projects (1998), and TGN Financial Analysis and Evaluation (2019). Detailed assumptions for the analyses are presented separately. Data from the state government, PHED, and municipal corporation, were used in the analyses, as were reports of PPTA-4515-IND and the project completion report prepared by the Economic Reconstruction Agency (ERA). Census 2011 data published by the Government of India were used for population projections. Project costs were derived from the

1 Project 1 is an initial intervention of the state government toward large-scale and comprehensive improvement of

urban basic infrastructure under the program and comprised only start-up activities. The targeted benefits were therefore not achieved under project 1. Interventions under subsequent projects will need to estimate actual benefits. The rehabilitation of roads and bridges, or improvement of Banihal Cart (BC) Road, was proposed for implementation under project 1 but then shifted to subsequent projects.

2 The water supply intervention included the completion of a 4.8 km water main to the Nishat water treatment plant, which has a capacity of 72 million liters per day, to rehabilitate water supply in the town.

3 The SWM intervention included the construction of three landfill sites with capacity of 380, 243, and 335 tons per day, which facilitated the collection and scientific disposal of 355 tons of biodegradable solid waste per day, on average, against a target of 380 tons.

4 Sewerage intervention included laying a 190-kilometer sewer network, against a target of 180 kilometers, and a sewage treatment plant with a capacity of 30 million liters per day, hitting the target. About 60% of households were connected, or 20,000 household connections completed out of originally planned 33,500. Three of the four packages for sewer laying—one of which originally funded by ADB but cancelled for misprocurement and transferred to government funding—in project 1 were terminated, and the balance of works were completed by subsequent projects and with state funding.

5 Source: PPTA-4515-IND; Volume 5 Economic and Finance Analysis, July 2006.

56 Appendix 10

summary for each package of actual disbursement by ADB and the state government. 5. The financial value of subproject cost in rupees includes disbursements made by ADB and the local costs incurred by the state government to 30 November 2017.6 At the completion of project 1, financial costs were ₹143.11 million for water supply, ₹1,268.41 million for sewerage, and ₹716.56 million for SWM. Minor changes in scope were adopted during implementation to address realities on the ground7 and a disastrous flood in 2014.8 The need for these scope changes came to light only after detailed surveys were conducted and designs drawn up after the approval of project 1.9 Resulting savings were reallocated to expand a solid waste landfill site. Delayed project completion by 5 years, with loan closing extended four times by limited contractor interest, public unrest, and flooding in 2014.

B. Economic Evaluation Methodology 6. For the purpose of economic analysis, actual financial cost is first re-evaluated at base year 2007 prices to make it comparable with the appraisal analysis and then converted into economic costs by applying prescribed conversion rates and adjusting for contingencies, taxes, and duties but excluding financing costs, which were interest during construction and commitment charges.

1. At Appraisal 7. Selection criteria for subprojects require an EIRR exceeding the economic opportunity cost of capital of 12% for investments under project 1. The economic net present value of selected subprojects was positive when assessed during loan appraisal in 2007 applying discount rates of 12%. Sensitivity analysis indicated that the EIRR was most sensitive to capital cost overrun and delays in realizing benefits, though it remained above 12% in all sensitivity analyses. Project life was assumed to be 25 years. A shadow wage rate factor of 0.75 and a shadow exchange rate factor of 1.1 are applied to convert financial values to economic values. 8. At appraisal, the subprojects that were considered for the economic evaluation and the resultant base case EIRR were 38.04% for water supply, 17.15% for SWM, and 32.65% for sewerage.10

6 Project 1 closed on 30 May 2017, and financial closure happened on 2 November 2017. 7 The scope changes were as follows: (i) A water supply pipeline was shortened from 5.6 kilometers (km) to 4.8 km

following the discovery of a water source that was nearer and better. This subproject benefitted 533,000 more people than estimated at appraisal with 135 liters per capita per day (lpcd) supplied for 8 hours per day, improving on 80 lpcd for 1–2 hours per day at appraisal. (ii) Urban transport shifted to project 2. This subproject is not included in economic re-evaluation. In addition, poor contractor performance induced sewerage network reduction from 200 km in the periodic financing request (PFR) to 190 km, with only 20,000 household connections completed instead of a planned 33,500 connections—though remaining works were completed under state funding and subsequent projects. This subproject benefitted 130,000 people instead of a planned 230,000. Loan savings from these changes were reallocated to expand solid waste landfill capacity from 250 tons per day as originally planned to three sites with capacity of 380, 243, and 335 tons per day. Project completion was delayed by 5 years by issues such as limited contractor interest, public unrest, and flooding in 2014. By financial closure in November 2017, 13 of 14 contracts were awarded and implemented. The remaining sewerage contract was completed under state funding.

8 The September 2014 flood was caused by torrential rainfall and triggered landslides, damaged bridges and roads, and submerged a large part of the cites.

9 During the preparation of the multitranche financing facility, only preliminary planning and designs were completed to generate cost estimates.

10 For the rehabilitation of roads and bridges, or improving Banihal Cart (BC) Road, the base EIRR was 16.70%.

Appendix 10 57

2. At Completion 9. The approach used during appraisal was applied to recalculating the EIRR and comparing it with an economic opportunity cost of capital of 12%. The EIRR for the whole of project 1 was also calculated considering all project costs and assumed benefits. For calculating population growth, the compound annual growth rate from 2001 to 2011 was used for projecting population until 2032. 10. Sector economic viability is evaluated over 25 years from the base year to maintain the same time frame as was considered at appraisal. Cost benefit analyses were undertaken from completion of each subproject using the actual intervention cost. A shadow wage rate factor of 0.8 was used to value the economic price of local labor, a standard conversion factor of 1.0 was applied for local nontraded goods, and the shadow exchange rate factor of 1.03 for traded goods and services was used to convert financial cost to economic cost.11 Population growth in each town is projected in line with historical trends. Assumed parameters are drawn from the reports of PPTA-4515-IND, the project completion report prepared by ERA, and information as shared.12 11. Water supply. EIRR evaluation considered (i) the economic cost of interventions and O&M at ₹153.51 million, (ii) non-incremental benefits from resource cost savings with a shift to an alternative water source at ₹2.77 million, (iii) non-incremental benefits from water collection time at ₹122.56 million, (iv) non-incremental health benefits in terms of savings in lower medical costs with reduction in water-borne disease at ₹1,692.38 million, and (v) incremental benefit from additional water consumption at ₹2.77 million. 13 These assumptions were the bases for assessing water supply interventions. 12. Solid waste management. EIRR evaluation considered the economic cost of interventions and O&M at ₹1,305.30 million and additional income with sick days avoided because of reduction of disease under better SWM at ₹2,976.58 million.14 These assumptions were the bases for assessing SWM interventions. 13. Sewerage. The EIRR evaluation considered the economic cost of interventions and O&M at ₹1,374.30 million, income loss avoided with managed wastewater at ₹44.77 million, and income from fewer sick days and lower medical costs with reduced water-borne disease at ₹2,632.83 million.15 These assumptions were the bases for assessing sewerage interventions for economic viability.

11 Note: The calculation method is based on ADB. 2004. Shadow Exchange Rate for Project Economic Analysis. ERD

Technical Note Series No. 11. Manila. The average from 2016 to 2019 was 1.03. Source: Handbook of Statistics on Indian Economy, 2018–19 (RBI); the shadow wage rate factor is 0.8 = casual agricultural labor cost (rupees per day) or L = ₹179 / national minimum wage of unskilled labour (₹ per day), or M = ₹225.00; Sources: https://nrega.nic.in/netnrega/writereaddata/Circulars/2058Notification_wage_rate_2017-2018.pdf and https://www.labourlawreporter.com/minimum-wages-jammu-kashmir/.

12 Limitation on field missions caused by security concerns and coronavirus disease (COVID-19), neither public surveys nor a detailed survey of willingness to pay could be conducted. The calculation is therefore based on project preparatory technical assistance (TA) reports with inflation adjustments and on information shared by ERA.

13 Resource cost savings valued at ₹0.42 per cubit meter, sick days reduced from 14.00 to 9.33 valued as income of ₹179 per capita, and medical costs valued at ₹2,506 per household.

14 Sick days reduced by 14 days, valued as ₹170 in income per capita. 15 Medical costs were valued at ₹4,726 per household and number of sick days reduced to 15. Avoidance of septic

tank construction cost was ignored, as it was assumed that sewer connections were from existing septic tanks. Assumed savings from avoidance of flooding and attendant loss of livelihood was deferred until the completion of the network and house connections in subsequent projects.

58 Appendix 10

14. Urban transport. Economic evaluation was not considered as proposed interventions under project 1 were shifted to subsequent projects.

3. Analysis and Re-evaluation 15. EIRRs for the whole of project 1 and of the water supply and SWM subprojects are higher at completion than the benchmark value of 12%, justifying project investments. This was not true of the sewerage subproject, the EIRR result for which was below the threshold for economic viability at appraisal, as interventions under project 1 remained incomplete except for the sewerage treatment plant (STP), as some contract packages had to be terminated and replaced under state government funding and subsequent projects in the program. Several indirect and direct benefits could not be quantified and hence have not been captured in the analysis, though qualitative assessments demonstrate their contribution to improving the urban environment and the quality of life in areas covered by project 1. The summary of EIRRs for executed project subprojects at completion is in Table A10.1.

Table A10.1: Summary of Economic Internal Rate of Return at Completion

Component EIRR at Appraisal

ENPV at Completion (₹ million)

EIRR at Completion

(Base)

EIRR at Completion (20%

Reduction of Future Benefits)

Water supplya 38.04% 207.29 31.44% 27.81%

Sewerageb 32.65% (177.48) 7.53% 5.07% Solid waste managementc 17.15% 55.60 18.30% 14.16%

Whole of project 1 Not assessed 23.84 12.27% 9.70%

EIRR = economic internal rate of return, ENPV = economic net present value.

a Reduced benefit assumed following a change in scope and overestimation of benefits from reduced water

unaccounted for, which reduced the EIRR at completion. b With the laying of sewer networks and provision of house connections to be completed in subsequent projects, the

EIRR would expect to improve as assumed savings from avoided flooding and attendant loss of livelihood would accrue after their completion. c Increased subproject costs and benefits were calculated at completion.

Sources: PPTA-4515-IND; Volume 5 Economic and Finance Analysis, July 2006; and Asian Development Bank estimates at project completion.

16. As detailed in Table 10.1, the EIRR of water supply at completion is lower than the appraisal estimate as the major intervention under project 1 was for laying a transmission pipeline for raw water, and the expected benefits were realized in subsequent projects. The EIRR of SWM at completion was near the appraisal estimate as it improved waste collection and correct disposal, benefiting residents. The EIRR of the sewerage subproject at completion was below the appraisal estimate as only the STP could be completed under project 1 and other interventions were shifted to subsequent projects. The EIRR of the sewerage subproject is expected to improve when households complete sewer connections and sewage flow to the STP is adequate for optimal treatment capacity. 17. To consider implementation delays, additional sensitivity analysis considered at completion appraisal estimates and factored in the 5-year delay. The details of the EIRR are

Appendix 10 59

shown in Table A10.2.

Table A10.2: Economic Internal Rate of Return of Appraisal Estimates with 5-year Implementation Delay

Component

At Appraisal Revised EIRR at

Appraisal with 5-Year Delay (recalculated at

completion)

EIRR at Completion Base EIRR

Sensitivity EIRR with delay of

1 year

Water supply 38.04% 38.02% 37.87% 31.44%

Sewerage 32.65% 32.63% 32.44% 7.53%

SWM 17.15% 17.08% 16.50% 18.30%

EIRR = economic internal rate of return, SWM = solid waste management. Source: PPTA-4515-IND; Volume 5 Economic and Finance Analysis, July 2006; and Asian Development Bank estimates at project completion.

C. Financial Evaluation

1. At Appraisal 18. Financial viability evaluation of the project while determining the FIRR was not considered for project 1. Instead, balance sheet-based financial analysis and a revenue enhancement action plan were considered to ensure a 4% FIRR over the life of project 1 under cost recovery scenarios at 50% and 60%.16 Tariffs were proposed as part of the action plan. 19. The analysis at appraisal concluded O&M cost recovery for the sewerage subproject required a monthly charge of ₹110 for domestic consumers and ₹330 for other consumers. In addition, a drainage tax equal to 8% of annual rental value included as part of property tax would be the proposed sewerage tariff. For the water supply subproject, analysis at appraisal proposed a fixed monthly charge of ₹210 for domestic consumers and ₹840 for others. In addition, a water tax of 5% of annual rental value included as part of property tax would be the proposed water supply tariff. For the SWM intervention, analysis at appraisal proposed including a tax for the purpose in property tax.

2. At Completion 20. As operating institutions failed to recover O&M costs by implementing the financial plan as envisaged during appraisal, the standard approach of FIRR analysis adopted at appraisal was not considered appropriate at the close of project 1. Instead, financial sustainability analyses of the operating institutions were carried out to evaluate their capacity to meet O&M costs and manage project 1 assets. The PHED continues to manage the water supply systems. The SWM facility is under the jurisdiction of municipal corporations. The Urban Environmental Engineering Department (UEED), a unit of the HUDD, manages the sewerage system. The state government has yet to implement a property tax in the ULBs.17 Municipal corporation internal tariff collections are inadequate to meet O&M costs. The municipal corporation depends on funds devolved from the state government. The state government has yet to implement any tariff regime to collect and

16 Source: PPTA-4515-IND; Volume 5 Economic and Finance Analysis, July 2006. 17 The municipal corporation collects taxes on advertisement, trade, and shops, as well as other nontax revenue. The

municipal corporation has yet to implement property tax in the area.

60 Appendix 10

cover costs of O&M for sewerage facilities. The state government, through the State Water Resources Regulatory Authority, notified water charges for metered and nonmetered connections. Tariffs are applicable to both domestic and other users. As per the latest tariff order, tariffs for metered domestic connections range from ₹14.0 to ₹18.5 per kiloliter.18 For metered nondomestic connections, it ranges from ₹18.0 to ₹30.0 per kiloliter. Flat tariffs proposed for domestic connections range from ₹1,050.0 to ₹2,340.0 per half year. However, tariffs would be implemented only gradually. An analysis of collections and O&M expenditure of the PHED shows the present extent of tariff collection to be inadequate to meet O&M expenditure. The PHED depends on budgetary allocations from the state government to meet O&M costs. Nevertheless, ULB and state government finances are strengthened by the levy of a goods and service tax and grants to compensate for the Octroi tax on goods, since abolished, and other taxes subsumed under the Goods and Service Tax Act, 2017, as well as by transfers from state and central finance commissions. 21. The performance of state government finances, the PHED, and the HUDD were considered to assess financial capacity to manage urban infrastructure, as shown in Tables A10.3 to A10.6.

Table A10.3: Financial Performance of the State Government

(₹ million)

Particulars FY2014 FY2015 FY2016 FY2017 FY2018

Operating Receipts: Total (1) = A + B + C + D + E

271,280 289,380 357,800 419,780 485,120

A. State tax revenue 62,730 63,340 73,260 78,190 95,360

B. Nontax revenue 28,700 19,780 39,130 40,720 43,630

C. Share of central taxes 41,420 44,770 78,130 94,890 119,120

D. Resources from Union Government

138,430 161,490 167,280 205,980 227,010

E. Additional resource mobilization

0 0 0 0 0

Capital Receipts: Total (2) = F + G + H + I

56,530 67,430 99,700 82,190 60,250

F. Net provident fund 19,900 22,320 28,860 18,460 15,560

G. Borrowing and other liabilitiesa

29,500 28,340 56,540 57,490 69,000

H. Nondebt-creating receipts

7,130 16,770 14,260 6,050 (24,350)

I. Recovery of loans and advances

0 0 40 190 40

Total Receipts (3) = (1) + (2)

327,810 356,810 457,500 501,970 545,370

Operating Expenditure (4) = J + K + L

270,580 293,290 364,200 398,120 409,160

J. On revenue account 237,120 250,820 311,280 332,450 337,530

K. Interest payments 30,010 35,330 37,190 45,670 46,630

18 State Water Resources Regulatory Authority Order No. 46 of 2018 dated 28 June 2018.

Appendix 10 61


L. Centrally sponsored schemes

3,450 7,140 15,730 20,000 25,000

Capital Expenditure (5) = M + N + Ob

57,230 63,520 93,300 103,850 136,210

M. On capital account 41,920 43,520 62,490 69,220 76,620

N. Debt repayment 10,950 11,240 18,250 20,230 32,430

O. Centrally sponsored schemes

4,360 8,760 12,560 14,400 27,160

327,810 356,810 457,500 501,970 545,370

Revenue (Deficit) / Surplus = (1) - (4)

700 (3,910) (6,400) 21,660 75,960

Operating ratio [operating expense or (4) / operating receipts or (1)]

0.9974 1.0135 1.0179 0.9484 0.8434

Average 0.9641

Note: The fiscal year (FY) ends on 31 March. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2020 ends on 31 March 2020. a Includes power bonds under the Ujwal DISCOM Assurance Yojna, a Government of India scheme to financially turn around power distribution companies, in particular to improve the operational and financial efficiency of those operated by the state. b The Government of India and state governments discontinued their presentation of annual financial statements and budget documents showing "plan" and "non-plan" items and instead adopted presentation of "revenue" and "capital" expenditure, effective FY2016. Source: The state government’s annual financial statements (http://jakfinance.nic.in/budget) and ADB estimates.

22. The analysis of the state government finances in Table A10.3 shows that, except in 2 of the past 5 years, it maintained a favorable revenue surplus and an operating ratio below 1.0. Since FY2017, the ratio has been below 1.0, meaning revenues are enough to meet the O&M expenses of all infrastructure of the state, including those being created using ADB funds. 23. The financial performance of the PHED was considered to assess its expenditure capacity and thus its capacity to support the O&M of water supply assets out of state government budget allocations (Table A10.4).

Table A10.4: Financial Performance of the Public Health Engineering Department (₹ million)


Revenue & Receipts

1. Operating receipts (0215) 356.80 361.59 … 473.37 525.40

Expenditure

2. Operating expenditure (2215) 8,086.93 8,535.76 9,818.26 10,496.77 11,558.39

3. Capital expenditure (4215) 0.00 0.00 0.00 0.00 0.00

… = not available. Note: The fiscal year (FY) ends on 31 March. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2020 ends on 31 March 2020.

Source: The government’s annual financial statements (http://jakfinance.nic.in/budget) and Asian Development Bank estimates.

62 Appendix 10

24. The financial performance of the HUDD and the state government was considered to assess their expenditure capacity and the capacity of the department to support the O&M of sewerage assets out of state government budget allocations (Table A10.5).

Table A10.5: Financial Performance of the Housing and Urban Development Department (₹ million)


Revenue & Receipts

1. Operating receipts (0216 housing) 25.72 21.90 na 33.45 34.59

2. Operating receipts (0217 urban development)

2.75 2.25 na 2.92 3.16

28.47 24.15 na 36.36 37.75

Expenditure

3. Operating expenditure (2216 housing)

561.86 503.69 na 866.35 1,008.34

4. Operating expenditure (2217 urban development)

3,666.74 5,921.08 6,106.63 6,902.26 7,029.15

5. Capital expenditure (4216 housing) 0.00 0.00 0.00 0.00 0.00

6. Capital expenditure (4217 urban development)

0.00 0.00 0.00 0.00 0.00

4,228.59 6,424.77 6,106.63 7,768.60 8,037.48

na = not available. Note: The fiscal year (FY) ends on 31 March. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2020 ends on 31 March 2020.

Source: State government annual financial statements (http://jakfinance.nic.in/budget) and Asian Development Bank estimates.

25. As shown in Table 10.6, municipal corporation operating expenditure exceeded internal revenues every year. The municipal corporation depends on devolved funds and assigned compensations from the state government to meet O&M expenditure. With the implementation of the Fourteenth Central Finance Commission recommendations, the center is transferring 42% of the divisible pool as untied and unconditional grants, while the share of funds for ULBs from the state government has also increased. GOI increased mandatory and guaranteed compensation (financial devolution) to State Governments during the last two years due to introduction of country-wide fiscal reforms as the newly legislated Goods and Service Tax subsumed and consolidated local body taxes like entry tax, octroi, and advertisement taxes.

Table 10.6: Financial Performance of the Municipal Corporation (₹ million)

Particulars FY2014 FY2015 FY2016 FY2017

Operating income from internal resources

116.79 122.96 125.96 118.34

Operating expenditure 1,079.45 1,163.15 1,494.57 1,185.60

Note: The fiscal year (FY) ends on 31 March. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2020 ends on 31 March 2020.

Source: Municipal corporation budget statements and Asian Development Bank estimates. The Srinagar Municipal Corporation finalized its annual financial statements to FY2017.

Appendix 10 63

3. Analysis and Re-evaluation Findings

26. The water supply, sewerage, urban transport, and SWM interventions proposed under project 1 and subsequent projects under the MFF were prepared to provide basic services to residents of targeted towns and to protect the environment by reducing groundwater depletion, the discharge of untreated wastewater to water bodies, irregular disposal of solid waste, and road traffic accidents and travel time within the city. With recent changes in state government policies, such as the implementation of pro-poor water tariffs, and with the introduction of the goods and services tax to unify indirect taxes at the national level, the central and state governments duly fulfill their obligations mandated by Article 243X and Schedule XII of the Constitution of India through consistent and timely support for the O&M of municipal assets, including project assets, and by ensuring that citizens have continued access to basic urban services. Fiscal reform and policies pursued by both the state government and ULBs—and innovative taxes and charges at the ULB level, such as introduction of property taxes, value capture financing, and destination-based charges on the display of commercial and others hoardings and billboards—could be leveraged to strengthen municipal service delivery and governance.

41116-023: MFF - Jammu and Kashmir Urban Sector ...

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