Project Administration Memorandum

The project administration memorandum is an active document, progressively updated and revised as necessary, particularly following any changes in project or program costs, scope, or implementation arrangements. This document, however, may not reflect the latest project or program changes.

Project Number: 38405 Loan Number: 2229 August 2006

Islamic Republic of Pakistan: Mega City Development Project

CURRENCY EQUIVALENTS(as of 07 August 2006)

Currency UnitPRs 1.00$1.00

Pakistan rupees (PRs)$0.016PRs 60.30

ABBREVIATIONS

ADB

Asian Development BankCCB

citizens community boardCDGK

-

City District Government of KarachiDCO

district coordination officerDOF

Department of FinanceEA

executing agencyEDO

executive district officerFl

financial institutionFY

fiscal yearGOS

-

Government of SindhHRM

human resource managementIA

implementing agencyICB

international competitive biddingIFI

international finance institutionJBIC

Japan Bank for International CooperationJICA

Japan International Cooperation AgencyKWSB

Karachi Water and Sewerage BoardLGD

Local Government DepartmentLSU

local support unitMIS

management information systemMPGO

Master Plan Group of OfficesNCB

national competitive biddingNGO

nongovernment organizationPAM

project administration memorandumPCR

-

project completion reportPCSS

procurement contract summary sheetP&DD

Planning and Development DepartmentPPID

private participation in infrastructure developmentPPP

public-private partnershipPPR

project performance reportPSC

project steering committeePSU

project support unitPWG

project working groupQBS

-

quality-based selectionQCBS

quality-cost based selectionRFP

request for proposalRRP

report and recommendation to the PresidentSFV

specialized financing vehicleSLGO

Sindh Local Governance OrdinanceSOE

statement of expendituresSPCR

sub-project completion report

SU

subproject unitTA

technical assistanceTMA

town municipal administrationTOR

terms of referenceUFW

unaccounted for water

GLOSSARY

katchi abadi - an unauthorized settlement on public and privately-owned land,without land rights or physical and social infrastructure servicesand facilities

nazim

Head of city district or a town

NOTES

(i)

The fiscal year (FY) of the Government ends on 30 June. FY before a calendar yeardenotes the year in which the fiscal year ends, e.g., FY 2005 ends on 30 June 2005:,

(ii)

In this report, "$" refers to US dollars.

PROJECT ADMINISTRATION MEMORANDUM

Page No:

CURRENCY EQUIVALENTSCONTENTSPURPOSE OF THE PROJECT ADMINISTRATION MEMORANDUMREFERENCE MATERIALSLOAN PROCESSING HISTORYMAP

I. PROJECT DESCRIPTION

A.

Project Area and Location 1B.

Objectives and Scope

, .1C.

Project Components 1

II. COST ESTIMATES AND FINANCING PLAN 3A.

Detailed Cost Estimates 3B.

Financing Plan 3C.

Allocation and Withdrawal of Loan Proceeds 4

III. IMPLEMENTATION ARRANGEMENTSA.

Executing Agency 5B.

Implementing Agencies 6.C.

Project Management 6

IV.

V.

VI.

VII.

IMPLEMENTATION SCHEDULE

CONSULTANT RECRUITMENT

PROCUREMENT

DISBURSEMENT PROCEDURES 9.A.

Imprest Account, 9B.

Statement of Expenditures 9C.

Direct Payment 9D.

Loan Service Payment 9E.

Required Action 95F.

Issuance of Procurement Contract Summary Sheet 10

VIII. PROJECT MONITORING AND EVALUATION 10

IX. REPORTING REQUIREMENTS 11

X. PROJECT REVIEW, ACCOUNTS AND AUDITING REQUIREMENTS 11

XI. MAJOR LOAN COVENANTS 12

XII. KEY PERSONS INVOLVED IN THE PROJECT

14

XIII. ANTICORRUPTION

16

APPENDIXES

1. Detailed Scope of the Capacity Building Facility

2. Detailed Scope of the Project Preparation Facility

3. Terms of References of Subprojects Under the ProjectPreparation Facility

4. Summary Poverty Reduction and Social Strategy

5. Mega City Infrastructure Assessments

6. Terms of Reference for the Specialized Financing Vehicle

7. Detailed Scope of Activities Under Part D: Support for TA LoanManagement

8. Detailed Costs Estimates

9. Detailed Financing Plan

10. Organizational Chart of the City District Government of Karachi

11. Subproject Proposal Form

12. Project Organization Chart

13. Implementation Schedule

14. Steps and Guide for the Engagement of Consultants

15. Procurement Plan

16. Guide and Checklists for Procurement

17. Procedure for Establishing and Operating the Imprest Account

18. Statement of Expenditures (SOE) Procedure

19. Design and Monitoring Framework

20. Project Performance Report

21.

Pro Forma of the Project Progress Report

22. Project Completion Report

23. Summary of Auditing Requirements; Sample Terms of Referencefor the Audit of Project Financial Statements; Sample Form ofAuditor's Opinion

24. Loan Covenants

25. Anticorruption Policy

I

(i)

PURPOSE OF PROJECT ADMINISTRATION MEMORANDUM

This Project Administration Memorandum (PAM) contains project data and information thatallows the Borrower, Executing Agency (EA), Implementing Agencies (lAs), ProjectManagement Unit (PMU), other- stakeholders, and the Asian Development Bank (ADB) tomonitor project implementation and evaluate project impact.

This PAM

• provides concise and accurate detail, including maps and diagrams, on major aspects ofproject implementation;

• specifies roles and responsibilities of the EA, lAs, consultants, and ADB for the variousactions required for satisfactory project implementation;

assists project administration staff of. the EA; lAs, and ADB to anticipate problems andinitiate timely remedial actions or recommendations;

contains a design and monitoring framework, including subsequent revisions thatconfirm the goal, purpose, outputs, activities, inputs, targets, indicators, keyassumptions, and risks;

, .

• provides a framework and checklist for monitoring progress to allow remedial actionsand midstream modifications to' meet project objectives;

promotes systematic monitoring and evaluation of project objectives, and assessment ofimpacts on project beneficiaries through . surveys, studies, and periodic and midtermreviews;

• provides the format and instructions for the EA and IAs to periodically update the projectperformance report in its current revised format; and

references ADB's Anticorruption Policy, indicating how ADB may be contacted aboutallegations of corruption and fraud.

This PAM is provided to the Government for overall monitoring of external assistance programs,and to facilitate government intervention in project implementation issues, should the needarise. It should be read along with the Report and Recommendation of the President (RRP), theProject Agreement, and Loan Agreements between the Islamic Republic of Pakistan and ADB.In case of discrepancies between the PAM, RRP, Project Agreement, and the Loan'Agreements, the Loan Agreements will always prevail.

This PAM is an active document, progressively updated and revised by the EA, as and whennecessary, particularly during midterm review and following any changes in project costs,scope, or implementation arrangements. Such a change should be added to the PAM as anaddendum, rather than replacing the earlier portion. This will help in reconciling historicalrecords and prepare the future project completion report.

0

REFERENCE MATERIALS

A.

Project-Related• Report and Recommendation of the President to the Board of Directors for TA Loan

2229-PAK(SF)• Loan Agreement between the Islamic Republic of Pakistan and ADB• Project Agreement between the Province of Sindh and . City District Government of

Karachi and ADB

B.

General• Anticorruption Policy (2 July 1998)• Anticorruption Policy: Description and Answers to. Frequently Asked Questions

(2000)• Anticorruption Policy Brochure (printed in April 2005)• Integrity Guidelines and, Procedures (30 September 2005)• Handbook on Management of Project Implementation (revised 1988)

C.

Consultants• Guidelines on the Use of Consultants by the Asian Development Bank and Its

Borrowers (revised April 2006)• Handbook for Users of Consulting Services (revised April 2005)

Procurement• Guidelines for Procurement under Asian Development Bank Loans (revised April

2006)• Guide on Bid Evaluation (August 2005) .• Standard Bidding Documents-User's Guide on Procurement of Goods (November

2004)

'• Handbook on Problems in Procurement for Projects Financed by' the Asian

Development Bank (Revised November 1987, reprinted October 1995)• Standard Bidding Documents-User's Guide on Procurement of Works (September

2005)• Standard. Bidding Documents-User's Guide on Procurement of Works, Small

Contracts (September 2005)

' '• Standard Prequalification Document-User's Guide on Prequalification of Bidders'

(Revised September 2005)

Disbursement• Loan Disbursement Handbook (January 2001)

F.

Environment and Social Dimensions• Handbook on Resettlement (1998)• Summary,of the Handbook on Resettlement (1998).• Gender Checklists (2000/2003)

LOAN PROCESSING HISTORY

(a) Approval of PPTA 11 April 2005

(b) Loan Fact-Finding Mission 30 August-10 September 2005

(c) Management Review Meeting 10 October 2005

(d) Appraisal Mission Appraisal was waived, approved byDG, SARD on 25 October 2005

(e) Staff Review Committee Meeting SRC was waived, approved byDG, SARD on 25 October 2005

(f) Loan Negotiations 11-12 November 2005

(g) Board Circulation 12 January 2006

(h) Board Consideration and Approval 2 February 2006

(i) Loan Agreement Signing 14 June 2006

(i) Loan Effectiveness Not Yet Effective

(k) Loan Closing Date ' 31 July 2010

This date will be the closing date for withdrawals from the loan account. Goods must have been delivered and servicesrendered on or before this date to be eligible for payment by the Bank. No payments from the loan can be made after theloan closing date. However, when there is no formal request for extension of the loan closing date, the loan account may stillbe kept open for a period of three months beyond the loan closing date in order to complete disbursement of outstandingcontracts under the loan. This would also allow the EA time to collect and submit documentation and invoices pertaining toexpenditures incurred before the loan closing date.

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SINDH

PROJECT DESCRIPTION

A.

Project Area and Location

1.

The City of Karachi in the Sindh Province: (i) city district government, (ii) town municipaladministrations (TMAs), and (iii) utilities.

B.

Objectives and Scope

2. The objective of the Project is to improve in a sustainable manner, the City DistrictGovernment of Karachi's (CDGK) institutional and structural capacity. In particular, (i) improvingKarachi's city planning, management and financing, (ii) improving and expanding urbaninfrastructure and services; and (iii) establishing sustainable and efficient financing of city urbaninfrastructure and services. To these ends, the TA loan will provide resources for (i) building thecapacities of CDGK, the TMAs and utilities in city planning, management, and financing as wellas in adopting and implementing commercial principles in the provision of infrastructure andservices; (ii) assistance in preparing bankable,projects for expanding and improving mega cityinfrastructure and services that may subsequently be funded by ADB or other developmentpartners in their lending assistance to Karachi; and (iii) establishment and operationalization of aspecial financing vehicle (SFV) for the mega city infrastructure and services. It is expected thatthe TA loan will also enhance the governments' sense of ownership of the investment projects,capacity building, and institutional reforms.

C.

Project Components

3.

The Project consists of the following Components:

1.

Component A: Capacity Building Facility

4. The objective of Component A is to provide resources to undertake a comprehensivecapacity building program for CDGK, Town Municipal Administrations (TMAs) and other cityagencies through advisory services, training and establishing necessary information andcommunication technology systems. Priority subprojects may include, but not limited to, thefollowing:

(i)

Organizational development of CDGK and completion of its transition under theSindh Local Government Ordinance 2001 (SLGO);

Improving financial and revenue management; enhancement of accountingfunctions and establishing efficient and relevant management informationsystems;

Implementing customer oriented reforms in CDGK and TMAs and reforms toimprove the commercialization of Karachi Water and Sewerage Board (KWSB);

(iv) Revitalization of Citizen Community Boards (CCB) within the CDGK geographicalarea; and

(v) Improving CDGK city planning services and functions, including support forpreparing a master plan for the city of Karachi.

5.

The detailed scope of the subprograms under the capacity building facility is provided inAppendix 1

.J

2

2.

Component B: Project Preparation Facility

6. Part B (Project Preparation Facility) will provide detailed design work to accelerateproject implementation (Appendix 2). It will provide resources for preparing feasibility studies forbankable projects (Appendix 3). The feasibility studies will establish the technical, financial,institutional; economic, social and environmental feasibility of projects proposed for funding. Thestudies will be carried out in accordance with ADB guidelines and methodologies to assess thefinancial feasibility, economic benefits, costs, distributional effects, social and poverty-reductionimpacts and benefits. A Summary Poverty Reduction and Social Strategy is in Appendix 4. Thestudies will examine resettlement costs, environmental impacts, and effects on gender equityand indigenous peoples. Based on the mega city infrastructure assessments, a number ofprojects that were identified as high priority are proposed for feasibility assessments under theTA loan. A detailed infrastructure assessment is in Appendix 5. During the TA loanimplementation, these may be further reviewed and replaced with new projects identified on thebasis of agreed criteria, which, in turn, will become the project prescreening tool to be employedby the specialized financing vehicle (SFV).

3.

Component C: Specialized Financing Vehicle (SFV)

7. Component C will support the establishment and operationalization of an innovativespecialized financing vehicle (SFV) to address the needs for long-term and sustainablefinancing of mega city infrastructure and services, through start-up funding for the first threeyears of its operation on 'a declining basis over such period. The feasibility and design of theSFV will be undertaken by a parallel TA' financed on a grant basis from ADB's TA fundingprogram (Appendix 6).

4.

Component D: Support for TA Loan Management

8. Component D will include consultancy support to the project support unit (PSU)established in the Sindh Department of Finance (DOF), in managing and implementing theProject and coordinating Component C. The detailed scope of Component D is given inAppendix 7:

9. Component D will also provide support and assistance to the project working group(PWG) and local support unit (LSU) in CDGK to:

(i)

ensure effective coordination between the various activities and studies arisingfrom Component A and Component B;

(ii) determine the prioritization of the project feasibility and other studies;

(iii) finalize detailed terms of reference (TORS) for the studies and Subprojects,preparation of requests for proposals and evaluation of technical proposals forconsultants' engagement;

(iv) evaluate the outputs of consultants under Subprojects;

(v) assist in preparing monthly, quarterly and yearly progress reports; and

TA No. 4753-PAK: Technical Assistance to the Islamic Republic of Pakistan for Preparing the Mega CitySustainable Development Project, approved on 21 December 2005, for $1.0 million.

3

(vi) facilitate, coordinate and monitor the development and implementation of reformactions and institutional support plans with respect to the capacity buildingprograms.

II.

COST ESTIMATES AND FINANCING PLAN

A.

Detailed Cost Estimates

10. The total cost of the Project is estimated at $13.33 million equivalent, comprising foreignexchange costs of $6.460 million and local currency costs of $6.870 million equivalent (Table 1).Taxes and duties are included in these costs and relate to the equipment purchases under eachsubproject. While not a concern under this project, future recurrent costs related to operationsand maintenance will be an issue for follow-on loans, and these will be incorporated into theterms of reference (TORs)' for each subproject. The detailed costs estimates are in Appendix 8.

Table 1.: Costs Estimates($ million)

ComponentForeign

Exchange,Local

CurrencyTotalCost

Share(%)

I. Base CostsA. Capacity Building 3.238 2.906 6.144 46.1B. Project Preparation Facility 1.986 2.222 4.208 31.6C. Specialized Financing Vehicle 0.150 0.683 0.833 6.2D. Support for TA Loan 0.376 0.350 0.726 5.5ManagementTaxes and Duties 0.140 0.140 1.0

Subtotal I 5.750 6.301 12.051 90.4II. Contingencies

A. Physical Contingency' 0.326 0.198 0.524 3.9B. Price Contingencyb 0.227 0.371 0.598 4.5

Subtotal II 0.553 0.569 1.122 8.4III. Interest during implementation ` 0.157 0 0.157 1.2

Total Costs 6.460 6.870 13.330 100.05% physical contingency

b Based upon 2006-2009 forecasts of a 3.5% international inflation rate annually and a domestic inflation rate of 8.9%.° Computed using an interest rate of 1% during years 1-4.Source: Asian Development Bank estimates.

B.

Financing Plan

11. ADB has approved a loan in the amount of $10.0 million equivalent from its SpecialFunds resources to cover 75% of the total project cost. The loan will have-a term of 32 yearsincluding a grace period of 8 years, an interest rate of 1.0% per annum during the grace periodand 1.5% per annum thereafter, on the amount of the Loan withdrawn from the Loan Accountand outstanding from time to time. The ADB loan will cover 100% of the foreign exchange costand 51% of the local currency cost, excluding taxes. The financing plan is summarized in Table3, and the detailed financing plan is in Appendix 9. .

Table 3: Financing Plan($ million)

Source

.Foreign

Exchange'Local

CurrencyTotal

ShareCost

(%)

Asian Development Bank 6.46 3.54 10.00 75

Government of Sindh 0.00 3.33 3.33 25'

Total 6.46 6.87. 13.33 100Source: Asian Development Bank estimates.

12. The Borrower will be the Islamic Republic of Pakistan, which will re-lend to theGovernment of Sindh (GOS) on the same financial terms and conditions as those of the ADBloan. Counterpart funds of $3.33 million (25%) will be financed by the GOS and will cover localcurrency costs. Counterpart funds are expected to cover items such as (i) remuneration ofcounterpart staff, (ii) local travel, (iii) equipment and materials, (iv) surveys and data gathering,(v) taxes and duties, and (vi) other miscellaneous costs. Availability' of sufficient counterpartfunds and resources to cover these costs was confirmed. \

.

C.

Allocation and Withdrawal of Loan Proceeds

13. Table 4 provides the Categories of goods, services and other items to be financed out ofthe proceeds of the Loan and the allocation of amounts of the Loan to each such Category andSubcategory. Except as ADB may otherwise agree, the items of the Categories' andSubcategories listed in the Table shall be financed out of the proceeds of the Loan on the basisof the percentages set forth in the Table.

Table 4: Allocation and Withdrawal of Loan Proceeds

Category ADB FinancingAmount Allocated Percentage and

Basis for WithdrawalSDRNumber Item Category

Subcategory From the Loan Account

1 Capacity Building Facility . 3,235,000

IA _ Consultants 1,945,000 100 percent of total expenditure*

1 B Training 210,000 100 percent of total expenditure*

ICManagement InformationSystems Phase I 1,080,000 100 percent of total expenditure

22A2B3

3A3B

44A4B56

Project Preparation FacilityConsultantsKatchi Abadis Pilots Phase 1Specialized

FinancingVehicleAdministrative CostsTrainingTA Loan ManagementSupportConsultantsVehicle and EquipmentInterest ChargeUnallocated

Total

2,165,000

317,000

396,000

110,000787,000

.7,010,000

1,990,000175,000

177,000140,000

361,00035,000

*100 percent of total expenditure100 percent of total expenditure

40 percent of total expenditure100 percent of total expenditure

.'100 percent of total expenditure100 percent of total. expenditure100 percent of amounts due

Exclusive of taxes and duties

1

5

14. Reallocation. To meet the Project's expenditures during project implementation, loanproceeds are often reallocated among categories. Normally, the loan proceeds are reallocatedafter Project progress has been reviewed with the Borrower during a review mission. Proposalsto reallocate Loan proceeds can originate from the Borrower, executing agency (EA), or ADB. Ifthe amount of a loan category appears to be insufficient to finance all agreed expenditures inthat category, ADB may, by agreement with the Borrower, reallocate to that category theamount required to meet the estimated shortfall, from another category with excess allocationwhich are no longer needed to meet the agreed expenditures in that category. If suchreallocation cannot fully meet the estimated shortfall, ADB may reduce the withdrawalpercentage applicable to such expenditures in order that further withdrawals under suchcategory may continue until all expenditures shall have been made.

15. Condition of Withdrawals from Loan Account. No withdrawals shall be made fromthe Loan Account in respect of Component C until the Borrower and ADB reach agreement onthe form and operation of the SFV following completion of and subject to the recommendation ofthe design study of the SFV to be carried out under the parallel ADB TA No. 4753-PAK.

16. Authorized Signatory(ies). The ADB Loan Disbursement Handbook describes theprocedures before disbursement commences. The person(s) nominated to sign the withdrawalapplications on behalf of the EA should be authorized under the Loan Agreement provisions. Anauthorization letter, together with the relevant specimen signature(s), is to be sent to ADBbefore submission of the first withdrawal application. If there is a change in the authorizedperson(s) later, a new authorization letter should be sent to ADB, accompanied by the specimensignature(s) to ensure uninterrupted processing of loan disbursements.

17. Minimum Amount per Withdrawal Application. To promote efficiency in processingloan disbursements, a minimum value per withdrawal application is set at $100,000 equivalent.As far as possible, the EA is requested to consolidate claims and submit a withdrawalapplication as soon as this amount is reached.

18. Loan Service Payment. Arrangements are to be made for paying principal, as well asinterest, and other charges on due dates specified in the Loan Agreement.

19. Advice of Withdrawals. Advice of withdrawals and other loan disbursement informationare available at the Controller's Department's website address, htt p://Ifis.adb.orq .

III.

IMPLEMENTATION ARRANGEMENTS

A.

Executing Agency (EA)

20. The Department of Finance (DOF) of the Government of Sindh (GOS) will be theExecuting Agency (EA). The EA shall (i) coordinate the implementation of the Project; and (ii)allocate and make available, in a timely manner, sufficient counterpart funding and othernecessary resources and facilities to enable itself and CDGK to properly and diligentlydischarge their responsibilities under the Project.

21. Project Steering Committee (PSC): The EA will form the project steering committee(PSC) to provide policy support, oversee Project implementation and progress, facilitatecooperation and coordination among all relevant agencies, and ensure timely achievement ofreform actions with respect to SFV and capacity building of CDGK and TMA levels. The PSCwill be chaired by the Minister of Finance, GOS; comprising the Minister, Planning andDevelopment, GOS; Minister, Local Government, GOS; Nazim (Karachi city mayor), CDGK;

r

Additional Chief Secretary (Development), Planning and Development; GOS; Secretary,Finance, GOS; Secretary, Local Government, GOS; District Coordination Officer, 'CDGK;Project Director, PSU; and two representatives from civil society/academia. The project director,PSU will also act as the secretary of the PSC. The committee will.meet every quarter, or uponrequest by any of its members.

22.

The Government may also form a committee to oversee the implementation of Part C.The committee shall be chaired by Adviser to Prime Minister, Finance / Minister of Finance.

B.

Implementing Agencies (IA)

23. The City District Government of Karachi (CDGK) will be the implementing agency (IA) forComponent A (Capacity Building Facility) and Component' B (Project Preparation Facility). 'Aproject working group (PWG), chaired by the district coordination officer and comprisingexecutive district officers and managing directors of CDGK departments and utilities, will beformed to provide oversight for operational matters related to Components A and B andcoordinating with Component C. The organizational chart of CDGK is in Appendix 10. The EA,through the PSU, will oversee and be responsible for implementing Component C.

C.

Project Management Organization

24. Project Support Unit (PSU): The EA shall establish the project support unit (PSU)within its Finance Department, which will be responsible for the day-to-day operationalmanagement of Project implementation and provide support to the PSC. The PSU will also beresponsible for the implementation of Component C. The PSU will be headed by a ProjectDirector who is a senior ranking officer grade BS.19/20 from Finance Department, GOS, andstaffed with suitably qualified personnel.

25. Project Working Group (PWG): CDGK shall form the project working group (PWG),which will be responsible for overseeing the implementation and management of Components Aand B and coordinating with Component C. The PWG shall be chaired by the DistrictCoordination Officer (DCO) of CDGK and consisting of executive district officers and managingdirectors of CDGK departments and utilities. The PWG will meet bimonthly and be responsiblefor approving the prioritization of subprojects, final TORs, and consultant selection underComponents A and B prior to their submission to the PSU for onward transmittal to ADB. ThePWG will be responsible also for the review, approval, and timely implementation of reformaction plans prepared under the subprograms of the capacity building facility. PWG willcoordinate with TMAs through an ad hoc district-town coordination committee chaired by thedistrict coordination officer and consisting of chief officers of TMAs.

26. District-Town Coordination Committee: Coordination' with TMAs will be maintainedthrough this committee to be chaired by the DCO of CDGK and consisting of chief officers of theTMAs. Such committee will meet at least quarterly to ensure that the feedback of TMAs into theSubproject prioritization, selection and preparation is obtained.

27. Local Support Unit (LSU): CDGK shall establish the local support unit (LSU), within theDepartment of Finance and Planning, which will plan, coordinate and monitor the activities andindividual programs of Components A and B. The consultants for Component D will be based inthe LSU but will closely coordinate with the PSU and individual Subproject Units (SUs). TheLSU, in consultation with relevant sector departments and utilities, will undertake thepreparation of proposals for prioritization of Subprojects, finalization of TORs and engagementof consultants, for submission' to the PWG/PSU and ADB. The standard subproject proposalform'to be used by the LSU when' presenting the respective subproject proposal to the PSU is in

Appendix 11. The LSU will also be responsible for the conduct and effectiveness oforganization-wide capacity building programs under the Project. .CDGK shall ensure that theLSU shall be adequately staffed with suitably qualified people and shall be led by a projectdirector who will be a senior officer of GOS, not less than grade BS.19 with suitable qualificationand experience as determined by GOS.

28. Subproject Unit (SU): Upon the prioritization of a Subproject for feasibility, an SU willbe established in the respective departments or utility units. Each SU will appoint a competentcoordinator, acceptable to ADB, for the duration of the Subproject who will be experienced andcapable to competently oversee the social resettlement, environmental and sector aspects ofthe relevant Subproject. The Project organization chart is in Appendix 12.

IV.

IMPLEMENTATION SCHEDULE

29. The Project will be implemented for four years. The project implementation schedule isshown in Appendix 13. It is expected that most capacity building subprojects will start at theinitial stages of the implementation, with the mega city planning and organizational developmentsubprojects to be implemented at the earliest. With the assistance of TA loan managementconsultants, the schedule of subprojects will be further reviewed and finalized at the outset ofthe implementation to ensure that (i) capacity building is provided only when duties andresponsibilities are clear (following organizational development activities), (ii) subprojects whichneed to be justified in terms of the master plan are only taken forward once this work iscompleted, and (iii) logical sequencing and linkage between the feasibility studies and relevantcapacity building activities are established in order to ensure integrated and coherentdevelopment.

30.

The loan closing date is 31 July 2006, which is the last date for the borrower to withdrawfrom the loan account. The borrower and ADB may agree to extend the closing date at any time.

V.

CONSULTANT RECRUITMENT

31. The EA will engage the consultants for.Component D (TA loan management support), inconsultation with CDGK. The LSU, in close consultation with SUs and under the authority (forapproval) of the PWG, will be responsible for processing consultant recruitment to undertakefeasibility studies, capacity building, or other technical assistance work under Components Aand B. The PSU will be responsible for consultant recruitment activities related to Component C.Consultants recruited can be either international or domestic firms, individuals, or traininginstitutions, and these will provide the required services in accordance with the TOR for eachsubproject. Such subprojects include (i) advisory services and technical assistance to CDGKand other city agencies on specific sector issues; (ii) capacity building programs; (iii) cityplanning studies; (iv) preparation of subproject feasibility studies; (v) preparation of subprojectdetailed designs, bidding documents, and evaluation (for a few priority projects only, as normallydetailed design costs would be included under the main loan); (vi) development of a public-private modality for the financing, construction, operating and maintaining of infrastructurefacilities; (vii) preparation and vetting of documents relating to such projects involving private-public participation; (viii) preparation of environmental, poverty, and social assessments,resettlement plans, and indigenous people's development plans (as required), and (ix) suchother consulting services in relation to the Project as agreed between ADB and Government.

32.

The consultants will be recruited in accordance with the Guidelines on the Use ofConsultants by Asian Development Bank and Its Borrowers (April 2006), as amended from time

C)

,)

to time, and other arrangements satisfactory to ADB for the engagement of domesticconsultants. ADB will review and approve the processing of consultant recruitment. Supervisionof consultants' work and monitoring of subprojects will be carried out by the LSU in cooperationwith SUs in the respective sector departments and utility agencies. Logistical support will beprovided to the consultants, and outputs will be reviewed by the LSU in close coordination withSUs. Each consultant contract is viewed as an independent event, and it is subject to evaluationby the LSU, review and approval by the PWG/PSU, and agreement by ADB. In cases where itemerges that the SU and/or PWG/PSU find consultants' performance to be unsatisfactory, thePWG/PSU reserves the right, subject to ADB's agreement, to terminate the contract and recruitnew consultants for further subproject work. Documents on consulting services are available onwww.adb.orq.

33. Tentative estimates for the entire TA loan are for approximately 145 and 430 person-months of international and domestic consulting services, respectively, with regard to thecombined capacity building, planning and feasibility, and engineering studies. These estimatesare flexible and may be reviewed during implementation.

34. Consultant firms will be engaged using ADB's quality and cost-based selection (QCBS)methodology or quality-based selection (QBS) methodology, depending upon which is mostsuitable for the particular subproject. Steps and guide for the engagement of consulting firmsare in Appendix 14.,In some cases where it can be reasonably justified, individual consultantsare more appropriate and cost-effective than firms. Individual consultants. may be recruiteddirectly (independent individual) or through an organization, such as a consulting firm, anacademic institution, a government, or an international agency by a borrower or ADB. Individualconsultants are recruited on the basis of their qualifications for the assignment,. and inaccordance with government . procedures acceptable to ADB. QBS may be required in caseswhere the technical expertise is the overriding requirement. The outline TORs for all major .consultancy requirements are in Appendixes 1-3, 6-7. These TORs will be further reviewed, andadditional refinements are expected prior to issuing requests for proposal documents, which willinclude the detailed TORs.

35. To expedite implementation, the GOS and CDGK have requested advance action inengaging consultants for Component D (support for TA Loan management) and somesubprojects of high priority. Engagement is expected to advance up to the stage of evaluatingthe technical proposals. The Government has been informed that approval of advance actiondoes not commit ADB to finance the Project.

VI.

PROCUREMENT

36. All goods and services under the TA loan will be procured in accordance with ADB'sProcurement Guidelines (April 2006), as amended from time to time. The EA and IA willdetermine the required goods and services and submit their requests for ADB approval. Supplycontracts for equipment valued at more than $500,000 will follow international competitivebidding (ICB), while contracts of $500,000 or less will follow national competitive bidding (NCB).As most procurement is expected to be for routine office and administrative equipment with anestimated value of less than $100,000, and because this is most efficiently acquired off theshelf, Shopping procurement method is recommended based on comparing price quotationsobtained from several suppliers (in the case of goods) or from several contractors (in the case ofcivil works), with a minimum of three, to assure competitive prices, and is an appropriatemethod for procuring readily available off-the-shelf goods or standard specification commoditiesof small value, or simple civil works of small value. Documents on procurement are available onwww.adb.orq.

s

9

37. The borrower shall furnish to ADB a Procurement Plan (Appendix 15), acceptable toADB setting forth: (i) the particular contracts for the goods, works, and/or services required tocarry out the project during the initial period of at least 18 months; (ii) the proposed methods forprocurement, and (iii) the related ADB review procedures. The borrower shall update theProcurement Plan annually or as needed throughout the duration of the project. Guides andChecklists for Procurement are in Appendix 16.

VII. DISBURSEMENT PROCEDURES

A.

Imprest Account

38. Immediately upon loan effectiveness, the GOS will open and maintain a project imprestaccount for PSU at National Bank of Pakistan to ensure the timely release of loan proceeds andexpedite project implementation. The imprest account shall be established, managed, replenished,and liquidated in accordance with the ADB's Loan Disbursement Handbook, January 2001, asamended from time to time, and detailed arrangements agreed upon by the, Borrower and ADB.The: initial amount to be deposited into the imprest account will not exceed the equivalent of sixmonths of estimated expenditures or 10 percent of the total loan amount, whichever is lesser.Detailed procedures for establishing and operating the imprest funds are set out in Appendixl7.

B.

Statement of Expenditures (SOE) Procedure

39. The SOE procedure may be used for reimbursement of eligible expenditures for theProject and to liquidate advances provided into the imprest account. Any individual payment tobe reimbursed or liquidated under the SOE procedure will not exceed $50,000. Details of theSOE procedure and formats to be used are in Appendix 18. Under the SOE procedure, allsupporting documents should be maintained and produced for examination by ADB'srepresentative whenever needed. SOE records are also periodically audited, as part of theproject audit, by an independent auditor or auditor acceptable to ADB and the audit report is tobe given to ADB by the date indicated in the loan agreement after the end of each fiscal year.

C.

-Direct Payment

40.

The loan proceeds may also be disbursed -directly by ADB to the consultants under thedirect payment procedure.

D.

Loan Service Payment

41.

Arrangements are to be made for paying principal, as well as interest, and other chargeson due dates specified in the Loan Agreement.

E.

Required Action

42.

To avoid delays in disbursement after the loan becomes effective, the following shouldbe done immediately:

• submit to ADB the withdrawal authorization letter, through the Pakistan ResidentMission, fogether with the relevant specimen signature(s);

• submit to ADB, through the Pakistan Resident Mission, the withdrawal applicationfor the initial deposit to the Imprest Account;

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0

43. All succeeding withdrawal applications should be submitted to ADB, through thePakistan Resident Mission, for processing by the ADB Controller's Department.

F.

Issuance of Procurement Contract Summary Sheet (PCSS)

44. Before a disbursement is made for any contract issued by the EA, ADB will issue aProcurement Contract Summary Sheet (PCSS) for identifying a particular contract approved.Copies of all signed contracts and supporting documents should be sent to ADB as soon asthey are available. This is the basis for ADB to monitor performance against the projectedannual activities made at the start of each year. A PCSS number will be assigned by ADB foreach contract received and these data will be relayed to the EA. The PCSS serves as anacknowledgment by ADB that the award of a contract has been checked and has been found tocomply with ADB's procurement guidelines. It also serves as a basis for disbursement. ThePCSS is numbered sequentially, not exceeding four digits, i.e., 0001, 0002, 0003, etc. ThePCSS consists of the following basic information:

n ADB Contract No. or the PCSS No.n Date of ADB approval of the award of contractn Date of contract approval by the EAn Date of contract physical completionn Mode of procurementn Name and address of contractor or suppliern Country of origin of the goods/servicesn Amount of bid at bid opening▪ Amount of bid as evaluatedn Amount of contract approved by ADB

Name of other bidders and amount of bidTerms of payment and currency of contract

▪ ,Component to which the expenditures will be charged▪ Amount and percentage of ADB financing of the contract

55. Without the PCSS, ADB's Controller's Department will not process request fordisbursement submitted under a Withdrawal Application (W/A).

56. When an amendment or a variation of a contract is made, a copy of the variation. ordershould be submitted to ADB, through the Pakistan Resident ',Mission, for updating of the PCSS.To avoid delay in the processing of W/As, the EA should ensure that the PCSS number isalready indicated in the W/A Summary Sheet.

VIII. PROJECT MONITORING AND EVALUATION

57. GOS and CDGK will develop project performance evaluation monitoring system for the. Project and each Subproject, including (i) setting performance targets; (ii) monitoringperformance against the performance targets; (iii) benefits monitoring; (v) performance .evaluation; and (v.) reporting schedule, acceptable to ADB.

58. Each subproject unit will monitor and evaluate project performance in accordance withthe TORs and the design and monitoring framework in Appendix 19, and it will report progressthrough LSU to PWG. Primary monitoring . targets will be agreed between the PSU and PWG foreach subproject in consultation with ADB, and these targets will be used by the subproject unitsand reported to the. PWG, PSU, and ADB in accordance with the established reportingschedule.

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IX.

REPORTING REQUIREMENTS

49. The PSU will monitor project and subproject executions to provide a basis for reportingto GOS and ADB. Monthly progress reports on project implementation will be submitted by LSUthrough PWG to the PSU. The reports will contain sufficient information to include (i) progressmade against established targets, (ii) problems and issues encountered and remedial actionstaken or proposed to resolve outstanding issues, and (iii) proposed Project activities to beundertaken, together with the expected actions and targets during subsequent implementationprocess, including details regarding contract awards and disbursement projections. Monthlyprogress reports will be consolidated by PSU into quarterly progress reports for submission toADB. Such quarterly progress report shall contain an executive summary of the monthly reportsreceived from LSU during the relevant period, with the format and content allowing ADB staff toreadily capture key information to monitor Project implementation for updating the projectperformance report (PPR), shown in Appendix 20.

50. TA loan management consultants at the outset will prepare a format that reflects theunique features of the TA loan implementation and relevant sets of data and information. A proforma project progress report is in Appendix 21. Consultants are also expected to provide, asnecessary, more detailed reports for the PWG, PSU, and ADB review missions. In addition, thedraft final report of each subproject will be submitted by PSU to ADB for review and comments,if any. Comments will be sent by ADB within a month time from the submission of the reports toADB. ADB may also require other reports (e.g., inception and interim reports), to be forwarded,if it deems necessary.

51. The LSU, together with each SU, will prepare a subproject completion report (SPCR) foreach subproject within 3 months of submitting the draft final report for the relevant subprojectand will forward such SPCR through the PWG/PSU for ADB's review. This report should containdetailed information concerning the implementation and outcome of the relevant subproject andevaluate how effectively the subproject has addressed the requirements of the respectiveTORs.

52. A TA loan project completion report (PCR) will be prepared and submitted to ADB by thePSU within 3 months of the-completed disbursement. The EA's PCR is for self-evaluation, and itwill also help with the preparation of the ADB's PCR. A format for preparing the PCR is inAppendix 22.

53. Evaluation of Consultants Reports. The PSU and ADB will review and providecomments to the consultants on the interim and draft final reports of feasibility and otheradvisory studies. With respect to capacity building subprojects as well as the SFV, ADB will beactively engaged throughout the progress of the projects. ADB will be especially active in regardto those that have policy and sector reform implications.

X.

PROJECT REVIEW, ACCOUNTS AND AUDITING REQUIREMENTS

54. ADB may review implementation of the Project, performance of GOS and CDGK and theactivities under each subproject hi-annually or as needed in order to ensure a timelyimplementation of the Components. In addition a midterm project review of the Project shall becarried out on or about two years after the Effective Date to review the overall progress of theimplementation and achievements of the Project to date.

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55. The LSU and PSU will maintain separate records and accounts adequate to identifyfinancing resources received and expenditures made on the TA loan, including expenditures forequipment and services financed out of the loan proceeds and local funds. These TA loanaccounts and related financial statements, as well as the statement of expenditure procedure,will be audited annually in accordance with sound auditing standards by auditors acceptable toADB. The Government will submit annual audited reports and related financial statements toADB within 6 months after the end of each fiscal year. A summary of auditing requirements,sample TORs for the audit of project financial statements, and sample audit letters are inAppendix 23.

XI. MAJOR LOAN COVENANTS

56. The loan covenants are summarized in the Covenants Section of the PPR (Appendix24). In addition to the standard assurances, the Government has given the following specificassurances, which are incorporated in the legal documents.

(i) The Government will ensure that the TA loan and all its subprojects will beprepared in accordance with (i) the Government's applicable environmental lawsand. regulations, and (b) ADB's Environment Policy (2002).

(ii) The Government will ensure that for subprojects and follow-on loans entailingland acquisition and resettlement, resettlement plans in accordance with (a) theGovernment's applicable laws and policies, and (b) ADB's involuntaryResettlement Policy (1995) are prepared. 2 Adequate measures to avoid orminimize land acquisition and resettlement will be incorporated into subprojectdesigns. The Government will ensure that necessary mitigation measures will beprepared in accordance with (a) the Government's applicable laws andregulations related to indigenous peoples, and (b) ADB's Policy on IndigenousPeoples (1998), 3 and are incorporated into subproject designs.

(iii) The Government will ensure that subproject feasibility studies will incorporategender strategy to promote full participation of women in subproject preparationand implementation and promote equality of treatment between women and men.

(iv) The Government will provide adequate resources and facilities to implement theTA loan and all its subprojects effectively through the EA and IA.

(v) Each SU will appoint a competent subproject coordinator, acceptable to ADB, forthe duration of the subproject, who will have capacities to oversee social,resettlement, environmental, and sector aspects of the relevant subproject.

(vi) The Government will ensure that all draft final reports of feasibility and advisorystudies under the TA loan will be submitted to ADB for review.

(vii) The Government will ensure that detailed TOR will be incorporated in eachconsultant's engagement. and such TOR will have been first approved by ADB.

(viii) Regarding the SFV, the Government will ensure that once it is established andoperational, the SFV will be an independent, highly competent, andprofessionally run financial institution that will be operated on commercial

s ADB. 1995. Involuntary Resettlement. Manila.ADB. 1998. The Bank 's Policy on Indigenous Peoples.,Manila.

13

principles consistent with national and international best practice, and theexperience and lessons provided by Pakistan's financial sector reform of the pastdecade.

(ix) The Government will ensure that immediately following incorporation of the SFV,the SFV board of directors (or equivalent body) will approve a business plan,standard operating procedures, conflict of interest, rules and code of conduct forstaff and directors acceptable to ADB.

(x) The Government will ensure that (a) time-bound reform action plans will bedeveloped under the subprograms of capacity building assistance, by January2007, and (b) GOS and CDGK will take timely actions to implement the agreedreform action plans.

.

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XII.

KEY PERSONS INVOLVED IN THE PROJECT

1.

1.

ASIAN DEVELOPMENT BANK

The ADB's Social Sectors Division (CWSS) of the Central and West Asia Department(CWRD) is responsible for the implementation of the Mega City Development Project in ADB.

2.

The ADB Pakistan Resident Mission (PRM) will support CWSS in coordinatingimplementation activities.

A. ADB Headquarters

Director, CWSS

Principal Project SpecialistE-mail

Matthew Westfall

Xiaoyan Yexiaoyanye(a.ad b. orq

Tel./Fax Nos. Tel. (63-2) 6? 4911; Fax (63-2) 636-2484

_/ Sr. Financial Control Specialist: Francis EmmanuelE-mailTel./Fax Nos.

fernmanuel@adb.orgTel. (63-2) 632-4774; Fax (63-2) 636-2444

Assistant Project AnalystE-mail

Mila O. Pampolinampampolina@adb.orq

Tel./Fax Nos. Tel. (63-2) 632-6785; Fax (63-2) 636-2484

a

Address

Facsimile

Telephone

ADB's Website

Asian Development BankNo. 6, ADB Avenue, Mandaluyong City1550 Metro Manila, PhilippinesorP.O. Box 789, 0980 Manila, Philippines

(632) 636 2444 (ADB's main fax)(632) 636 2484 (CWSS direct fax)

(632) 632 4444 (ADB operator)

http://www.adb.orq

B. PAKISTAN RESIDENT MISSION

Project Officer

Associate Disbursement Analyst:E-mail

Safdar Parvezemail: sparvez@adb.org

Badar T. Khanbtkhan@adb.orq

Address

Facsimile

Overseas Pakistanis Foundation BldgSharah-e-Jamhuriyat, G-5/2, Islamabad

+92 51 282 3324, 227 4718

Telephone +92 51 282 5011-16, 208 7300

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II.

GOVERNMENT

A.

EXECUTING AGENCY (EA)

3. The EA will coordinate overall implementation of the Project, provide projectimplementation of Component C, and engage consultants for Component D.

DEPARTMENT OF FINANCE (DOF), Government of Sindh (GOS)

Secretary of Finance :

Mr. Malik Israr HussainBarrack No. 19, Sindh Secretariat 4-A,Finance Department, Government of SindhKarachi

Project Support Unit (PSU

Project Director

Mr. Muhammad ZakirDeputy Project Director: Hafeezullah AbbasiDeputy Project Director: Mohammad Hanif Channa

Karachi Mega City Development ProjectNo. C-70, Block - 2, CliftonKarachi

hafeezullah abbasi@yahoo.comhanif.channa@qmail.comhanif channa03@yahoo.com

Telephone/Fax No.

Tel. (92-21) 9206639 / Fax (92-21) 9203521

Mobile #

+92-301-2432528 (Mohammad Hanif Channa)

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B.

IMPLEMENTING AGENCIES (IA)

4. The CDGK will implement Component A and Component B. The EA, through the PSU,will implement Component C.

CITY DISTRICT GOVERNMENT OF KARACHI (CDGK)

City Nazim Karachi :

Mr. Syed Mustafa Kamal

Address

1st Floor, City Nazim Secretariat,Civic Center, Karachi

E-mail

citynazim@karachicity.gov.pk

Telephone/Fax Nos. :

(92-21) 9232400 > 5

Address

E-mail

16

Local Support Unit (LSU)

Project Director

Roshan All Shaikh

Address

6t" Floor, City Nazim Secretariat,Civic Center, Karachi

E-mail

roshanmir355@hotmail.comroshanmirus@vahoo.com

Telephone/Fax Nos.

Tel: (92-21) 9232473; Fax: (92-21) 9232472

E. EXCHANGE OF COMMUNICATIONSAll official letters/correspondence/fax messages, etc., must be signed by the Project Director, addressed to Director,CWSS, and copied to Country Director, Pakistan Resident Mission.

XIII. ANTIC9RRUIPT!PN

57. Relevant provisions of ADB's Anticorruption Policies and Strategies (2 July 1998 and 11November 2004) are explained in and included in the loan regulations and thebidding documents for the Project. Consistent with its commitment to good governance,accountability and transparency, ADB reserves the right to investigate, directly or through itsagents, any alleged corrupt, fraudulent, collusive, or coercive practices relating to the Project. Inparticular, all contracts financed by ADB in connection with the Project shall include provisionsspecifying the right of ADB to audit and examine the records and accounts of the GOS, CDGKand all contractors, suppliers, consultants, and other service providers as they relate to theProject.

58. The ADB Office of the General Auditor is the point of contact to report allegations offraud and corruption among ADB-financed projects or its staff. Within that office, the IntegrityDivision (formerly Anticorruption Unit) is responsible for dealing with all matters related to

C) allegations of fraud and corruption. Please refer to the Anticorruption Policies and Strategies.Anyone coming across evidence of corruption associated with the Project may contact thefollowing:

Integrity DivisionOffice of the General AuditorAsian Development Bank6 ADB Avenue, Mandaluyong City0401 Metro Manila, Philippines

Telephone (63-2) 632-5004Facsimile (63-6) 632-2152E-mail anticorruption@adb.orq