Innovation

1
Innovation Efficiency Initiative-Delivering
Results for Development

• Arjun Thapan
• Deputy Director GeneralMekong Regional
  Department and
• Chairperson, ADB Water CommitteeAsian
  Development Bank
• November 2005

2
Overview

• A new Business Model for ADB
• Framework of change proposals
• Financial instruments (Approved)
• Cost sharing and expenditure eligibility
  (Approved)
• Country Strategy and Program and
• Business Processes (For consideration in 2006)
• Consulting services (For consideration in 2006)
• Procurement (For consideration in 2006)
• Environmental and Social Safeguards (For
  consideration in 2006/2007)
• Implementation

3
Results

• Increased resource transfer in high priority
  investment areas Growth Sustainable
  Development Prosperity
• Service a wider client base private sector,
  local government, state firms
• Greater differentiation and focus between
  countries, sectors and clients
• Mobilize Asian savings for Asian investment
  projects - capital financial markets
• Expand business volume through public/private
  initiatives
• Cut cost of doing business
• Provide money with new ideas
• Increased Relevance and Responsiveness of ADB

4
Outcome

• The IEI will allow ADB to
• Be more responsive, efficient, and innovative
• Better respond to market needs
• Diversify portfolio of operations and clients
• Scale up its operations

5
Innovation Efficiency Initiative (IEI)

• Respond to Infrastructure Challenge
• Procurement Policies (Goods Services)
• Social and Environmental Safeguards
• Financing Eligibility
• Project Quality at Entry Processing Cycle
• Financial Products and Modalities

6
Action Area 1 Consultant Services

• Current process too slow and cumbersome
• Proposals
• Faster turnaround time for consultant selection
• Framework contracts - continuity and speed
• Greater reliance on local consultants
• Reliance on work done by authorities and their
  advisors

7
Action Area 2 Procurement

• Current process too slow and cumbersome
• Excessive centralization of decision-making in
  Manila
• Proposals
• Faster turnaround time for contract awards
• Post facto evaluation of contracts time and
  money
• More E-procurement
• Authority to ADB Resident Missions
• Train/coach ADB and client staff

8
Action Area 3 Safeguards

• Policies too input oriented (Environment,
  Resettlement, and Indigenous Peoples)
• Impractical sequencing or execution of some tasks
• Limited reliance on country systems
• Proposals
• 3 existing policies combined into one - clarity
• Greater time and resources for implementation
• Upstream involvement of compliance teams
• More national officers in Resident Missions
• More and better country assessments earlier

9
Action Area 4 Cost Sharing and Eligibility

• Practices out of sync with market and client
  needs
• Country grouping for cost sharing impractical
• Distinction between Foreign and Local costs
  unhelpful
• List of eligibility items too tight and out of
  sync with market
• Proposals
• New country ceiling based on ADB portfolio in
  country
• Abolish distinction between foreign and local
  costs at investment plan level
• Finance land, taxes, duties, bank charges, food,
  etc.
• Finance leased assets and secondhand goods
• Finance IDC accruing from financing provided by
  others
• Raise retroactive financing to 20 (12 months )

10
Action Area 5 Strategy at Entry

• Strategy formulation complex
• Sector diagnostics roadmaps do not integrate
  assessments
• Proposals
• Develop only a strategic framework big
  picture first
• Agree a flexible financial envelope
• Develop business plan and flexible business
  cycle
• Establish concept papers as part of processing
  cycle

11
Action Areas 6 Business Processes

• Too slow and cumbersome
• Proposals
• Concept papers - part of processing cycle
• Reduce reliance on preparatory technical
  assistance
• Signing/effectivity culture
• Approval process to be made faster/more
  efficient
• Implementation to be given more resources and
  time
• Resident Missions to have greater authority
  procurement, etc

12
Action Area 7 Financial Instruments

• Need to amplify and improve instruments/modalities
  
• Proposals
• Multitranche financing facility standby credit
  line
• Subsovereign lending municipalities and SOEs,
• Local currency lending private and public
  sector
• Refinancing facility to sustain good projects
• Syndications, co-insurance, and reinsurance

13
Multitranche Financing Facility

• ADB may provide larger amounts in slices
  (cluster project)
• Standby facility, non contingent
• No commitment fees
• Finance as you go
• Quick approvals of tranches
• Sector roadmap driven

14
Standard ADB Financing - Without IEI

Finance100
ADB
Client
SovereignGuarantee 100
Investment Program
Long term and sliced into phases (1000)

• Issues
• One loan - signed today
• Contingent
• Utilization phased slow
• Commitment fees - accrue
• Terms and conditions - fixed
• Approvals ex ante
• Delegation of authority - no

First yearUse 20
Commitment fees on 80
Subprojects
Subprojects
Subprojects
15
Multitranche Facility
Standby Credit line 500
Client
ADB
Frameworkagreement
Investment Program
Long term and sliced into phases (1000)
Features Standby facility, non contingent Warranti
es representations No commitment fees Finance
as you go Flexibility - subprojects Follows
project readiness Allows time for
co-financing Post facto checks Larger slices of
investment Quick approvals of tranches Sector
roadmap driven
2nd yearNeed 280Convert into a Loan
(guarantee)
3rd yearNeed 280Convert into a Loan (guarantee)
1st yearNeed 20Convert into a Loan (guarantee)
Subprojects
Subprojects
Subprojects
16
Sub-/Nonsovereign Public Sector Finance

• ADB may provide Medium and Long Term finance
  (through loans and guarantees) directly to
  Subsovereign Borrowers
• subsovereign governments
• nonsovereign public sector entities
• SOEs
• on a non recourse or limited recourse basis to
  the central government

17
without IEI Tools
Sovereign Borrower
18
Sub-Sovereign Nonsovereign Public Sector
Financing
Sub-Sovereign / Exim Borrower
19
Local Currency Finance

• ADB may provide Medium and Long Term finance
  (through loans and guarantees) directly to
  Subsovereign Borrowers
• denominated in local currency

20
Refinancing / Restructuring

• ADB may provide refinancing selectively to help
  restructure projects that
• Involve public or private sector assets, or
  assets under public-private partnerships
• Have high and demonstrable development impact
• Are accompanied by measures that ensure the
  projects long-term viability

21
Risk Syndication

• For Medium and Long Term finance to
  non/sub-sovereign borrowers
• Direct ADB funding through loans ADB will
  proactively syndicate and/or sell down of loans
  to banks and others
• ADB support for co-financing through guarantees
  ADB will proactively share commercial and or
  political risks through reinsurance and other
  risk sharing arrangements/syndications

22
Key Challenges Issues

• Client awareness
• Improved and more relevant partnerships
  internal and external
• Strategic integration, incentives, and execution
• Business entry points
• Respond to increasingly complex cofinancing
  environment and take advantage of opportunities
• Public-Private Partnerships
• Capital Market Development

23
Conclusions

• Proposals target changes to key parts of ADBs
  business model
• Pipeline Development and Client Base
• Products and Processing
• Approvals
• Implementation
• Outcome
• CLIENT Increased Investment ? Growth ?
  Development and Prosperity
• ADB Better Results, Responsiveness, and
  Relevance

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• THANK YOU !!!