Project Administration Manual - Republic of the Marshall Islands: Energy Security Project - Asian Development Bank
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Project Administration Manual Project Number: 49450-011 Grant Number: tbd December 2018 Republic of the Marshall Islands: Energy Security Project
ABBREVIATIONS ADB – Asian Development Bank API – American Petroleum Institution EA – executing agency EIRR – economic internal rate of return EMP – environment management plan FFP – facility financing proposal IEE – initial environment examination MEC – Marshalls Energy Company MTF – Majuro tank farm MOF – Ministry of Finance PAM – project administration manual PMU – project management unit PSC – project steering committee QCBS – quality-cost-based selection REG – regional RMI – Republic of the Marshall Islands
CONTENTS
I. PROJECT DESCRIPTION 1
II. IMPLEMENTATION PLANS 2
A. Project Readiness Activities 2
B. Overall Project Implementation Plan 3
III. PROJECT MANAGEMENT ARRANGEMENTS 4
A. Project Implementation Organizations: Roles and Responsibilities 4
B. Key Persons Involved in Implementation 5
C. Project Organization Structure 6
IV. COSTS AND FINANCING 7
A. Cost Estimates Preparation and Revisions 7
B. Key Assumptions 7
C. Detailed Cost Estimates by Expenditure Category 8
D. Allocation and Withdrawal of Grant Proceeds 9
E. Detailed Cost Estimates by Financier 10
F. Detailed Cost Estimates by Outputs and/or Components 11
G. Detailed Cost Estimates by Year 12
H. Contract and Disbursement S-Curve 13
I. Fund Flow Diagram 14
V. FINANCIAL MANAGEMENT 15
A. Financial Management Assessment 15
B. Disbursement 19
C. Accounting 19
D. Auditing and Public Disclosure 19
VI. PROCUREMENT AND CONSULTING SERVICES 20
A. Procurement of Goods, Works, and Consulting Services 20
B. Procurement Plan 21
C. Consulting Services Contracts Estimated to Cost $100,000 or More 23
D. Consultant's Terms of Reference 23
VII. SAFEGUARDS 24
VIII. GENDER AND SOCIAL DIMENSIONS 25
IX. PERFORMANCE MONITORING, EVALUATION, REPORTING, AND
COMMUNICATION 26
A. Project Design and Monitoring Framework 26
B. Monitoring 27
C. Evaluation 28
D. Reporting 28
E. Stakeholder Communication Strategy 28
X. ANTICORRUPTION POLICY 28
XI. ACCOUNTABILITY MECHANISM 28
XII. RECORD OF CHANGES TO THE PROJECT ADMINISTRATION MANUAL 29Project Administration Manual Purpose and Process
1. The project administration manual (PAM) describes the essential administrative and
management requirements to implement the project on time, within budget, and in accordance
with the policies and procedures of the government and Asian Development Bank (ADB). The
PAM should include references to all available templates and instructions either through linkages
to relevant URLs or directly incorporated in the PAM.
2. The Ministry of Finance (the executing agency) and Marshalls Energy Company (the
implementing agency) are wholly responsible for the implementation of ADB-financed projects,
as agreed jointly between the Recipient and ADB, and in accordance with the policies and
procedures of the government and ADB. ADB staff is responsible for supporting implementation
including compliance by executing and implementing agencies of their obligations and
responsibilities for project implementation in accordance with ADB’s policies and procedures.
3. At grant negotiations, the Recipient and ADB shall agree to the PAM and ensure consistency
with the granta agreement. Such agreement shall be reflected in the minutes of the grant
negotiations. In the event of any discrepancy or contradiction between the PAM and the grant
agreement, the provisions of the grant agreement shall prevail.
4. After ADB President’s approval of the project's Facility Financing Proposalb, changes in
implementation arrangements are subject to agreement and approval pursuant to relevant
government and ADB administrative procedures (including the Project Administration
Instructions) and upon such approval, they will be subsequently incorporated in the PAM.
a The name of the operational financing document may vary on a project-to-project basis; this reference shall be
deemed to encompass such variations, e.g., a Framework Financing Agreement, as applicable.
B This project is being processed under the Pacific Regional Renewable Energy Facility; approval authority for projects
under this facility has been delegated to ADB’s President. The Facility Financing Proposal is the approval document,
equivalent to a Report and Recommendation of the President to the Board.I. PROJECT DESCRIPTION 1. The proposed Energy Security Project will contribute to energy security in the Republic of the Marshall Islands (RMI) by enabling the Marshalls Energy Company (MEC) to receive, store, and deliver for domestic and international sale and consumption of diesel fuel for power generation and transportation. The proposed project will rehabilitate the fuel handling and storage facilities built in 1981 and operated by MEC on Majuro Atoll (the Majuro Tank Farm – MTF). The MTF comprise eight 750,000-gallon above-ground steel storage tanks, two smaller intermediate transfer tanks, and associated piping and pumping infrastructure. Power generation throughout RMI is dependent on fuel delivered by MEC through the MTF, as is domestic and international maritime transport operating in Marshall Islands waters. The MTF has become dilapidated due to the harsh operating environment and insufficient maintenance practices and budget constraints. The proposed project will return the MTF to compliance with applicable industry standards and will institute policies and practices (including personnel training) to provide for appropriate maintenance to ensure future sustainable operations. 2. The project is aligned with the following impacts: (i) improved energy security for theRMI, and (ii) reduced safety and environmental risks associated with handling and storage of refined petroleum products. The project will have the following outcome: Sustained safe and reliable operation of the fuel tank farm and continued supply of fuel to power generation facilities throughout the Marshall Islands. 3. The project will have the following outputs: (i) Output 1: Rehabilitation of the Majuro fuel tank farm facilities completed; and, (ii) Output 2: Fuel tank farm facilities operation and maintenance practices instituted. 4. Output 1: Rehabilitation of the Majuro fuel tank farm facilities completed. The proposed project will fund an Engineering, Procurement, and Construction (EPC) contract for the restoration of the entire fuel tank farm facilities to acceptable condition for sustained operation in compliance with applicable norms and standards for safety, reliability, and environmental protection. The project scope will include site preparation and rehabilitation of the facilities’ tanks, pipes and pipelines, valves, pumps, sea wall, concrete berms and site bunding, and oil-water separator. 5. Output 2: Fuel tank farm facilities operation and maintenance practices instituted. The project will develop adequate operation and maintenance procedures and practices, including identification of budgeting requirements, to ensure sustained operation of the rehabilitated facilities. MEC personnel will be trained to implement these procedures and practices throughout the project implementation period.
2
II. IMPLEMENTATION PLANS
A. Project Readiness Activities
Table 1: Implementation Schedule
Months
Responsible
Nov Dec Jan Feb Mar Apr Individual/Unit/Agency/
Indicative Activities 2018 2018 2019 2019 2019 2019 Government
Establish project
implementation arrangements x PSC
ADB Management approval x ADB
Grant signing x EA, ADB
Government legal opinion
provided x EA, ADB
Grant effectiveness x EA, ADB
ADB = Asian Development Bank, EA = executing agency, PSC = project steering committee.
Source: Asian Development Bank.3
B. Overall Project Implementation Plan
Table 2: Project Implementation Plan
2019 2020 2021 2022 2023
Indicative Activities Quarter Quarter Quarter Quarter Quarter
A. DMF
Output 1:
Rehabilitation of the Majuro fuel tank farm facilities completed
Activity 1.1: Award of EPC contract(s) for all goods and works packages (by June 2019).
Activity 1.2: All goods and works contracts completed (by December 2023)
Output 2:
Fuel tank farm facilities operation and maintenance practices instituted
Activity 2.1: Award of contract for preparation of operation and maintenance program and
training of MEC personnel (included in main EPC contract) (by June 2019)
Activity 2.2: MEC personnel fully trained and sufficiently resourced to implement operation and
maintenance program (by December 2022)
Key Management Activities
1. Tank-farm detailed design preparation
Activity 3.1: Project implementation supervision consultant hired (by April 2019)
1.1 Contractors review existing asset condition reports (Q3 2019).
1.2 Contractors perform detailed technical inspection of tank-farm assets to confirm condition
(Q3 2019).
1.3 Contractors prepare detailed designs for all goods and works packages (Q3-Q4 2019).
1.4 Implementation supervision consultants review and approve detailed designs (Q4 2019).
2. Repair and rehabilitation of tank-farm assets
2.1 Execution of all goods and work packages (Q1 2020-Q3 2023)
2.2 Inspection and acceptance by MEC and supervision consultant of completed goods and
works packages upon completion (Q1 2020 – Q3 2023)
3. Project management support and capacity building
3.1 Management of delivery of all goods and works packages (Q2 2019 – Q4 2023)
3.2 Continuous support to PMU for project administration and reporting (Q2 2019 – Q4 2023)
3.3 Preparation of operation and maintenance program for tank farm facility and training of MEC
personnel in its implementation (Q3 2019-Q4 2022)
ADB = Asian Development Bank, AMI = advanced metering infrastructure, DMF = design and monitoring framework, IFB = Invitation for Bids; qtr = quarter, MEC = Marshalls
Energy. Source : Asian Development Bank.4
III. PROJECT MANAGEMENT ARRANGEMENTS
A. Project Implementation Organizations: Roles and Responsibilities
Table 3: Project Implementation Organizations
Project Implementation Management Roles and Responsibilities
Organizations
Executing agency (Ministry of ➢ Overall delivery of the project and reporting to Government.
Finance)
➢ Ensure compliance with grant agreement covenants.
➢ Coordinate with MEC the preparation of withdrawal applications
and submission to ADB.
➢ Maintain separate project accounts; and have all project accounts
audited annually and sent to ADB.
➢ Ensure the compliance and presentation of all reporting
requirements under the project.
Project steering committee ➢ The PSC will consist of Combined Utility Board chairman,
(PSC) Ministry of Finance Division of International Development
Assistance Director, Ministry of Resources & Development
National Energy Planner, Minister of Public Works, and ADB
project officer and ADB Development Coordination Officer. The
PSC will provide overall guidance, receive and review reports from
MEC on project implementation.
Implementing agency ➢ Responsible for the overall implementation of the project.
(Marshalls Energy Company)
➢ Ensure compliance with the provisions of the grant and project
agreements and government policies and guidelines.
➢ Responsible for procurement and services for the project
(including civil work contracts).
➢ Request contract variation orders as appropriate.
➢ Establish and implement the project monitoring and evaluation
framework.
➢ Ensure compliance of submission of required project reports, such
as quarterly progress report, safeguards monitoring report and the
audited project financial statements and its own financial
statements to ADB.
Project Management Unit ➢ The PMU will consist of MEC personnel responsible for project
(PMU) implementation and management of consultants and contracts,
and will include an environmental safeguards specialist. The PMU
will be nominated by, and will report to, MEC’s Chief Executive
Officer.
ADB ➢ Monitor and review overall implementation in consultation with
MOF and MEC, including project implementation schedule;
actions required with reference to summary poverty reduction and
social strategy; gender action plan and environment management
plan (as applicable); project expenditures progress with
procurements and disbursement; compliance with grant
covenants and likelihood of attaining project outputs and outcome.5
➢ Assist the implementing agency or the project management unit
in the procurement of consulting services, goods and works (as
applicable).
ADB = Asian Development Bank, MEC = Marshalls Energy Company, MOF = Ministry of Finance, PSC = project
steering committee.
Source: Asian Development Bank.
B. Key Persons Involved in Implementation
Executing Agency
Ministry of Finance Ms. Maybelline-Andon Bing
Secretary of Finance
Government of the Republic of the Marshall Islands
mayabing@gmail.com
P.O. Box D. Majuro MH, 96960
Republic of the Marshall Islands
Implementing Agency
Marshalls Energy Company Mr. Jack Chong-Gum
Chief Executive Officer
Jack.chonggum@mecrmi.net
Asian Development Bank
Transport, Energy and Natural Mr. Olly Norojono
Resources Division (PATE) Director
+63 2 6326109
onorojono@adb.org
Mission Leader J. Michael Trainor
Energy Specialist
+63 2 6321407
mtrainor@adb.org6
C. Project Organization Structure
Government of RMI
Project Steering Executing Agency
Committee (Ministry of Finance)
Implementing Agency
(Marshalls Energy
Company)7
IV. COSTS AND FINANCING
6. The project will include two procurement packages: (i) for goods and works for the entire
rehabilitation of the Majuro Tank Farm facility, and (ii) implementation supervision consultant
services to support MEC and the Project Management Unit during project implementation. The
total project cost amounts to $16.8 million of which $12.70 million will be financed by an ADB
grant and the balance by RMI counterpart financing. Counterpart support will be provided by
MEC for casual labor during site preparation. Counterpart financing will include exemption of
taxes and duties, and proportional cash payment to the Goods and Works contractor.
A. Cost Estimates Preparation and Revisions
7. Cost estimates were prepared by consultants engaged for transactional technical
assistance under TA 9242-REG. Any necessary revisions to cost estimates during project
implementation will be carried out (i) upon opening of financial bids of qualifying offerors for the
Goods and Works package (package 1) by the PMU, subject to the endorsement of the PSC and
ADB, and (ii) on an ad-hoc basis as necessary in response to identification of cost overruns.
B. Key Assumptions
8. The following key assumptions underpin the cost estimates and financing plan:
(i) Exchange rate: N/A. The Marshall Islands uses the United States dollar; all
estimates are in USD.
(ii) Price contingencies based on expected cumulative inflation over the
implementation period are as follows:
Table 4: Escalation Rates for Price Contingency Calculation
Item 2017 2018 2019 2020 2021 Average
Foreign rate of price inflation 1.4% 1.5% 1.5% 1.5% 1.6% 1.5%
Domestic rate of price inflation 1.0% 1.0% 1.4% 1.9% 2.3% 1.5%
Sources: ADB. 2018. International Cost Escalation Factors 2017–2021. Manila; and ADB. 2018. Domestic Cost
Escalation Factors 2017–2021. Manila.8
C. Detailed Cost Estimates by Expenditure Category
Table 5: Detailed Cost Estimates by Expenditure Category
($ Million)
Foreign Local Total % of Total Base
Exchange Currency Cost Cost
A. Investment Costs
1. Rehabilitation of Fuel Tanks 0.00 13.30 13.30 79.2%
2. Consulting Services 0.00 0.70 0.70 4.2%
Subtotal (A) 0.00 14.00 14.00 83.3%
B. Contingencies
1. Physical Contingencies 0.00 2.32 2.32 16.6%
2. Price 0.00 0.48 0.48 3.4%
Subtotal (B) 0.00 2.80 2.80 20.0%
Total Project Cost (A+B) 0.00 16.80 16.80 100.0%
Notes: Numbers may not sum precisely because of rounding. Total costs include $3.11 million in taxes and duties which the government will provide
through exemptions.9
D. Allocation and Withdrawal of Grant Proceeds
ALLOCATION AND WITHDRAWAL OF GRANT PROCEEDS
Category ADB Financing
Total Amount
Allocated for ADB
Financing Percentage and Basis for
Item ($) Withdrawal from the Grant Account
Category
1 Works (EPC contract) 12,000,000 97.4% of total expenditure claimed
Consulting Services
2 700,000 100% of total expenditure claimed*
(project management)
Total 12,700,000
* Exclusive of taxes and duties imposed within the territory of the Recipient.10
E. Detailed Cost Estimates by Financier
Table 6: Detailed Cost Estimates by Financier
($ million)
ADB MEC Government (taxes Total Cost
and duties)
% of Cost % of Cost % of Cost
Amount Amount Amount Amount
Category Category Category
Item
A. Investment Costs
1. Rehabilitation of Fuel Tanks 12.0 90.2% 0.315 2.4% 0.985 7.4% 13.3
2. Consultants 0.7 100.0% 0.7
Subtotal (A) 12.7 90.7% 0.315 2.3% 0.985 7.0% 14.0
C. Contingencies 0.0 0.0% 0.7 25.0% 2.1 75.0% 2.8
1. Physical 0.0 0.0% 0.543 23.6% 1.757 76.4% 2.3
2. Price 0.0 0.0% 0.135 27.0% 0.365 73.0% 0.5
Total Project Cost (A+C) 12.7 76.0% 0.99 5.9% 3.11 18.5% 16.8
Note: Numbers may not sum precisely because of rounding.
Source: Asian Development Bank estimates.11
F. Detailed Cost Estimates by Outputs and/or Components
Table 7: Detailed Cost Estimates by Components
($ million)
Component
Item Total Cost Amount % of Cost Category
A. Investment Costs
1. Rehabilitation of Fuel Tanks 13.30 13.30 95.0%
2. Consultants 0.70 0.70 5.0%
A. Project management 0.70 0.70 5.0%
Subtotal (A) 14.00 14.00 100.0%
B. Contingencies
1. Physical 2.30 2.30 100.0%
2. Price 0.50 0.50 100.0%
Subtotal (B) 2.80 2.80 100.0%
Total Project Cost (A+B) 16.80 16.80 100.0%
Note: Numbers may not sum precisely because of rounding.
Source: ADB Estimates12
G. Detailed Cost Estimates by Year
Table 8: Detailed Cost Estimates by Year
($ million)a
Total
Item Cost 2019 2020 2021 2022 2023
A. Investment Costsb
1. EPC contract 13.300 0.000 4.655 2.660 2.660 3.325
2. Consultants 0.700 0.140 0.140 0.140 0.140 0.140
Subtotal (A) 14.000 0.140 4.795 2.800 2.800 3.465
B. Contingenciesc
1. Physical 2.319 0.024 0.796 0.464 0.463 0.572
2. Price 0.5 0.004 0.163 0.096 0.097 0.121
Subtotal (B) 2.8 0.0 1.0 0.6 0.6 0.7
Total Project Cost (A+B) 16.800 0.168 5.754 3.360 3.360 4.158
% Total Project Cost 100% 100% 1% 34.25% 20% 20% 24.75%
Source: Asian Development Bank Estimates.
a Includes taxes and duties of $3.11 million. Such amount does not represent an excessive share of the project cost. The government will finance taxes and
duties of $3.11 million through exemption.
b In mid-2018 prices as of 19 October 2018.
c Physical contingencies computed at 16.6% of base cost. Price contingencies computed at 3.4% of base cost.13
H. Contract and Disbursement S-Curve
9. The graph below shows quarterly contract awards and disbursement projections over the
life of the project. The S-curve represents projections for ADB financing and ADB-administered
cofinancing, which will be recorded in ADB’s systems and reported through e-Ops. Counterpart
funds and any other cofinancing are excluded. The projection for contract awards include
contingencies and unallocated amounts.
Table 9: Contract Award and Disbursement Projection
S-Curve
Chart Title
14.00
12.00
10.00
8.00
6.00
4.00
2.00
-
2019 2019 2020 2020 2020 2020 2021 2021 2021 2021 2022 2022 2022 2022 2023 2023 2023 2023
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Cumulative contract awards Cumulative disbursements14
I. Fund Flow Diagram
10. The diagram below shows how the funds will flow from ADB, and the recipient to
implement project activities, and how documents for requests for disbursement will flow to ADB.
Document Flow Fund Flow
Executing Agency: MEC submits WA to MOF for approval
Implementing Agency
Ministry of Finance Marshalls Energy Company
(MEC)
Withdrawal application
Invoice
ADB
Direct Payment Contractor/Consulting Firm15
V. FINANCIAL MANAGEMENT
A. Financial Management Assessment
11. A financial management assessment (FMA) was conducted in October 2018 in
accordance with ADB’s Guidelines for the Financial Management and Analysis of Projects and
the Financial Due Diligence: A Methodology Note. The FMA considered the capacity of the
Ministry of Finance and MEC, including funds-flow arrangements, staffing, accounting and
financial reporting systems, financial information systems, and internal and external auditing
arrangements. Based on the assessment, the key financial management risks identified are listed
in the table below. It is concluded that the overall pre-mitigation financial management risk of
executing agency and implementing agency is substantial.
12. Overall pre-mitigation financial management risk to the project is considered substantial,
reflecting the numerous and substantial MEC entity-level financial management risks. These
must be mitigated for the sake of MEC’s and the project’s long-term viability. The Ministry of
Finance and MEC have agreed to implement key measures to address the deficiencies, which is
being prepared through ADB technical assistance TA 9425-REG (footnote 5).
13. As a state-owned enterprise, MEC’s board is appointed by the government. Its current
composition shows apparent conflicts of interest that affect MEC’s and its board members’ ability
to act in the interest of the enterprise. MEC’s board currently includes two government ministers,
which inevitably results in political considerations influencing corporate governance decisions.
Compounding this problem, MEC’s board is a shared board known as the Combined Utilities
Board (CUB). Two other state-owned utilities, viz. the Kwajalein Atoll Joint Utilities Resources
(KAJUR), which provides power and water services on Ebeye, Kwajalein Atoll; and the Majuro
Water and Sewage Company (MWSC), are governed by the CUB. These two state-owned
utilities are substantial debtors to MEC; KAJUR alone as of September 2018 owed MEC over $5
million for diesel fuel delivered to it for power generation. Despite these arrearages, MEC
continues to deliver fuel to KAJUR, whose debt to MEC continues to grow.
14. Tariff and subsidy policy is not based on an assessment of MEC’s costs or revenue
requirement or, in the case of subsidies, need of beneficiaries (i.e. subsidies are not targeted).
To the contrary, the RMI government provides a subsidy of 1000 kWh per month free-of-charge
to a growing number of landowners across whose territory parts of MEC’s distribution network
passes, ostensibly as compensation for granting an easement to MEC. When the RMI
government approved its decision in 1992 to extend this compensation to landowners, the number
of qualifying landowners was assessed at approximately 180, with an associated cost per year of
$180,000. By 2017, landowners had effectively subdivided their parcels to allow other family
members to claim this compensation. The number of landowners claiming (and receiving) this
compensation has now increased to 940, with the cost of this subsidy ballooning to over $3 million.
While this subsidy is provided in the form of pre-payment vouchers and recorded as income for
MEC, it creates a challenge for MEC’s financial management in the form of an unquantified
contingent liability. MEC records the payment by government for this subsidy as sales of
electricity, but has no record of delivery of electricity against this payment.
15. Tariffs for electricity service are based on a tariff template that was adopted in 2005 and
provides for a fixed per-kWh charge plus a fuel surcharge that adjusts according to a Singapore
refined product price index (“Means of Platts Singapore”). While the pass-through fuel surcharge
is a reasonable feature of MEC’s tariff formulation, the fixed per-kWh charge does not appear to
reflect any robust analysis of MEC’s fixed costs or variable costs (other than fuel). Indeed, MEC16
has no basis for such an analysis: most of the core assets that it operates are not capitalized, and
thus are not depreciated. Nor does MEC adequately budget for responsible maintenance. In
other words, MEC’s true costs are not precisely known, nor reflected in its budgeting, estimates
of its revenue requirement, or end-user tariffs.
16. Notwithstanding the imprecision that characterizes MEC’s tariff policy, the current tariff
was last approved by the RMI government (Cabinet of Ministers) in January 2014, reflecting a
world oil price in 2013 of $105 per barrel. This has boosted MEC’s fortunes as the world oil price
has declined (MEC reported an operating profit for the utility business of $2.7 million and $0.8
million in FY2016 and FY2017, respectively), but this is illusory, and masks MEC’s true financial
performance and long-term viability.
17. MEC’s annual budgeting process does not appear to be based on criteria directly linked
to achievement of priority performance indicators and long-term viability of MEC as a commercial
enterprise. As a consequence, maintenance of core assets has been neglected. The failure for
MEC to capitalize its distribution network, power plant, and the MTF (all of which were granted to
it under a capital lease) has caused MEC to underestimate its revenue requirement and masked
the sector’s decapitalization.
18. The magnitude of MEC’s shortcomings in its physical and financial performance and risks
to its sustainability is reflected in ADB’s program of engagement with RMI in energy. ADB
consultants deployed under TA 9425-REG are currently preparing a comprehensive diagnostic of
all of MEC’s operations and influences affecting MEC, including financial management and
accounting, sector policy and governance, and the entirety of MEC’s business processes and
systems. The diagnostic and analysis will be available in Q1 2019; a comprehensive program of
reform and capacity-building measures will be produced in Q2 2019, which will form the basis for
continued engagement in energy in RMI. Implementation of the program of reform will be
incorporated into the design of future energy projects.
19. In the absence of a final program of reform for MEC, ADB has introduced four key
assurances in the project legal agreements to which the government has assented:
(i) within one year of grant effectiveness, the government has committed to transfer
ownership of the Majuro Tank Farm to MEC;
(ii) within fifteen months of grant effectiveness, the government has committed to a
reform of MEC’s corporate governance arrangements such that they conform to
OECD Guidelines for Corporate Governance of State-Owned Enterprises (2015);
(iii) to provide for a tariff policy and rate structure that establishes MEC’s authorized
revenue based on verifiable, prudent and reasonable costs, while providing MEC
an opportunity to recover its costs associated with providing electricity service and
incentivizing MEC to control and minimize its costs, and
(iv) to cause MEC to make available adequate budgetary resources for the
implementation of a suitable operations and maintenance program for the Majuro
Tank Farm (Output 2 of the project).
20. Key project-specific and entity-level financial risk management action plan mitigation
measures are summarized in Table 10.17
Table 10: Financial Risk Management Action Plan
Risk Type Risk Risk Description Mitigation Measures
Assessment
Rating
A. Inherent Risk (the susceptibility of the project financial management system to factors arising from the
environment in which it operates, such as country rules and regulations and entity working environment
(assuming absence of any counter checks or internal controls)).
1. Country- Moderate PEFA report 2013 notes several RMI has recruited full time expatriate
specific Risks PFM challenges such as the staff to strengthen the account
credibility of the national budget reconciliation process and general
and expenditure control, delays in accounting. They are actively
account payable settlements, fiscal considering a new FMIS.
risk from SOEs and local
government, lack of multi-year
fiscal perspective, inadequacy of
account reconciliation procedures,
inadequacy of periodic reporting
2. Entity-specific Substantial 1. As a state-owned enterprise, 1. ADB has included as an assurance
Risks MEC’s board is appointed by the in the grant agreement a commitment
government. Its current to bring MEC governance
composition shows apparent arrangements into compliance with
conflicts of interest that affect OECD’s Guidelines on Corporate
MEC’s and its board members’ Governance of State-Owned
ability to act in the interest of the Enterprises to address these and
enterprise. related shortcomings.
2. Tariff and subsidy policy is not 2. ADB is implementing technical
based on an assessment of MEC’s assistance (TA 9425) to perform a
costs or revenue requirement or, in comprehensive diagnostic and develop
the case of subsidies, need of a package of reform measures that will
beneficiaries (i.e. not targeted). address these and other critical factors
undermining MEC’s performance and
viability. The package of reform
measures will be presented by TA
consultants in Q2 2019.
3. MEC’s annual budgeting process
does not appear to be based on 3. ADB has included as an assurance
criteria directly linked to in the grant agreement a commitment
achievement of priority that MEC or the Government will make
performance indicators. available sufficient resources to
Maintenance of core assets has provide for the tank farm’s operation
been neglected as a consequence. and maintenance (a program and
training for operation and maintenance
will be prepared under Package 1 of
the project.) The reform measures
being developed under TA 9425 will
further strengthen MEC’s budgeting
and planning processes.
Overall Inherent Substantial
Risk
B. Project Risk (the risk that the project’s accounting and internal control framework are inadequate to ensure
project funds are used economically and efficiently and for the purpose intended, and that the use of funds is
properly reported).
1. Implementing Substantial MEC’s governance arrangements, TA 9425 for sector reform and capacity
Entity management practices and building is currently ongoing and will
business processes do not reflect be completed by 2Q 2019. The TA will
international best practices. produce a package of concrete reform
measures and implementation action
plan that will address deficiencies in
MEC’s business processes and
systems, governance and policy18
constraints, as well as tariffs and
overall financial management.
Successive ADB investment projects
in energy in RMI will support the
reform program’s implementation.
2. Funds Flow Low RMI well versed with ADB
disbursements procedures. The
project will employ direct payment
procedures.
3. Staffing Moderate Difficulty in attracting and retaining TA 9425 for sector reform and capacity
qualified and experienced staff; building is developing
staffing profile and functions and recommendations on human resource
duties among MEC management management as part of the reform
fragmented. measures.
MEC staff has limited experience in Project implementation consultants will
the implementation, reporting and be relied on to ensure adequacy of
monitoring of ADB financed project financial performance reporting
projects. and monitoring.
4. Accounting Substantial MEC’s core capital assets the The project legal agreements commit
Policies and power plant, tank farm and RMI to ensuring that tank farm assets
Procedures distribution system are currently not will be reflected on MEC’s books within
reflected in MEC’s books, therefore one year from grant effectiveness.
depreciation in understated and Non-fulfilment of this commitment by
profit and loss is overstated. RMI can serve as grounds for
suspension of disbursement of grant
proceeds.
Other accounting and financial The TA 9425 for sector reform and
issues exist, such as non- capacity building will assess these and
transparency in fuel pricing. other weaknesses and prescribe
measures to address them.
5. Internal Audit Moderate MEC has no internal audit function. Project implementation consultants will
Very difficult to recruit skilled be relied on to ensure adequacy of
internal auditors. Constraint on project financial performance reporting
verification of use of project and monitoring.
resources.
6. External Audit Low Financial statement production is The external auditors have given an
on time and monthly reporting to unqualified opinion on the financial
the Board on time. Financial statements.
statements are audited by Deloitte.
7. Reporting and Low Automated systems are
Monitoring functioning. The GL is on Abila
Micro Information Product (MIP) by
the Sage group and interfaces with
the billing software
8. Information Low Automated systems are
systems functioning. The GL is on Abila
Micro Information Product (MIP) by
the Sage group and interfaces with
the billing software
Overall Project Substantial
Risk
Source: Asian Development Bank.19
B. Disbursement
21. The grant proceeds will be disbursed in accordance with ADB’s Loan Disbursement
Handbook (2017, as amended from time to time), and detailed arrangements agreed upon
between the government and ADB. Online training for project staff on disbursement policies and
procedures is available.1 Project staff are encouraged to avail of this training to help ensure
efficient disbursement and fiduciary control.
22. Direct payment will be used for the EPC contract and consulting services. MEC will be
responsible for: (i) preparing disbursement projections; (ii) requesting budgetary allocations for
counterpart funds (if applicable); and (iii) collecting supporting documents. MEC will be
responsible for preparing and sending the withdrawal applications to ADB.
23. Before the submission of the first withdrawal application, the recipient should submit to
ADB sufficient evidence of authority of the person(s) who will sign the withdrawal applications on
behalf of the government, together with the authenticated specimen signatures of each authorized
person. The minimum value per withdrawal application is stipulated in the Loan Disbursement
Handbook (2017, as amended from time to time). Individual payments below this amount should
be paid by the executing agency and/or implementing agency and subsequently claimed to ADB
through reimbursement, unless otherwise accepted by ADB. The Recipient should ensure
sufficient category and contract balances before requesting disbursements. Use of ADB’s Client
Portal for Disbursements (CPD)2 system is encouraged for submission of withdrawal applications
to ADB.
C. Accounting
24. The executing agency will maintain, or cause to be maintained, separate books and
records by funding source for all expenditures incurred on the project following accrual-based
accounting following financial reporting standards acceptable to ADB. The executing agency will
prepare consolidated project financial statements in accordance with the government's
accounting laws and regulations which are consistent with international accounting principles and
practices.
D. Auditing and Public Disclosure
25. The Ministry of Finance (MOF) will cause the project financial statements to be audited in
accordance with the Government’s audit regulations by an independent auditor acceptable to
ADB. The audited project financial statements together with the auditor’s opinion will be presented
in the English language to ADB within 9 months from the end of the fiscal year by the MOF.
26. The Ministry of Finance will also cause the financial statements of MEC to be audited in
accordance with Government Auditing Standards issued by the Comptroller General of the United
States and adopted by RMI Government, by an independent auditor acceptable to ADB. The
audited financial statements of MEC, together with the auditor’s report and management letter,
will be submitted in the English language to ADB within 1 month after their approval by the
competent authority.
1 Disbursement eLearning. http://wpqr4.adb.org/disbursement_elearning
2 The CPD facilitates online submission of WA to ADB, resulting in faster disbursement. The forms to be completed by
the Recipient are available online at https://www.adb.org/documents/client-portal-disbursements-guide.20
27. The annual audit report for the project accounts will include a management letter and
auditor’s opinions, which cover: (i) whether the project financial statements present an accurate
and fair view or are presented fairly, in all material respects, in accordance with the applicable
financial reporting standards; (ii) whether the proceeds of the grant were used only for the
purpose(s) of the project; and (iii) whether the recipient or executing agency was in compliance
with the financial covenants contained in the legal agreements for the project.
28. Compliance with financial reporting and auditing requirements will be monitored by review
missions and during normal program supervision, and followed up regularly with all concerned,
including the external auditor.
29. The Ministry of Finance and Marshalls Energy Company have been made aware of ADB’s
approach to delayed submission, and the requirements for satisfactory and acceptable quality of
the audited project financial statements.3 ADB reserves the right to require a change in the auditor
(in a manner consistent with the constitution of the recipient), or for additional support to be
provided to the auditor, if the audits required are not conducted in a manner satisfactory to ADB,
or if the audits are substantially delayed. ADB reserves the right to verify the project's financial
accounts to confirm that the share of ADB’s financing is used in accordance with ADB’s policies
and procedures.
30. Public disclosure of the audited project financial statements, including the auditor’s opinion
on the project financial statements, will be guided by ADB’s Public Communications Policy 2011.4
After the review, ADB will disclose the audited project financial statements and the opinion of the
auditors on the project financial statements no later than 14 days of ADB’s confirmation of their
acceptability by posting them on ADB’s website. The management letter, additional auditor’s
opinions, and audited entity financial statements will not be disclosed.5
VI. PROCUREMENT AND CONSULTING SERVICES
A. Procurement of Goods, Works, and Consulting Services
31. All procurement of goods and works will be undertaken in accordance with ADB’s
Procurement Guidelines (2015, as amended from time to time).
32. An international competitive bidding procedure, single-stage two-envelope will be used for
goods and works contracts estimated to cost $12.3 million or more. A consulting firm will be
engaged using the quality and cost-based selection (QCBS) method with a standard quality–cost
3ADB’s approach and procedures regarding delayed submission of audited project financial statements:
(i) When audited project financial statements are not received by the due date, ADB will write to the executing agency
advising that (a) the audit documents are overdue; and (b) if they are not received within the next 6 months,
requests for new contract awards and disbursement such as new replenishment of imprest accounts, processing
of new reimbursement, and issuance of new commitment letters will not be processed.
(ii) When audited project financial statements are not received within 6 months after the due date, ADB will withhold
processing of requests for new contract awards and disbursement such as new replenishment of imprest accounts,
processing of new reimbursement, and issuance of new commitment letters. ADB will (a) inform the executing
agency of ADB’s actions; and (b) advise that the loan may be suspended if the audit documents are not received
within the next 6 months.
(iii) When audited project financial statements are not received within 12 months after the due date, ADB may suspend
the loan.
4 Public Communications Policy: http://www.adb.org/documents/pcp-2011?ref=site/disclosure/publications
5 This type of information would generally fall under public communications policy exceptions to disclosure. ADB.2011.
Public Communications Policy. Paragraph 97(iv) and/or 97(v).21
ratio of 90:10 to provide implementation supervision services to MEC and the PMU. MEC has
requested that ADB manage this selection.
33. An 18-month procurement plan indicating threshold and review procedures, goods,
works, and consulting service contract packages and national competitive bidding guidelines is in
Section C.
34. All consultants will be recruited according to ADB’s Guidelines on the Use of Consultants
(2013, as amended from time to time).6 The terms of reference for all consulting services are
detailed in Section D.
35. For the implementation of the proposed project, the Ministry of Finance will be the
executing agency. MEC will be the implementing agency. ADB and the Government have agreed
on the formation of a project steering committee (PSC). The PSC will be chaired by the Combined
Utilities Board chairman, Director of the Ministry of Finance Division of International Development
Assistance, National Energy Planner of the Ministry of Resources and Development, Minister of
Public Works, and ADB Project Officer and ADB Development Coordination Officer. MEC Chief
Executive Officer will be supported by consultants to be appointed under the project to manage
its implementation.
B. Procurement Plan
PROCUREMENT PLAN
Basic Data
Project Name: Republic of the Marshall Islands: Energy Security Project
Project Number: 49450-011 Approval Number:
Country: Marshall Islands Executing Agency: Marshall Islands
Ministry of Finance
Project Procurement Classification: B Implementing Agency: Marshalls Energy
Company (MEC)
Procurement Risk: Low
Project Financing Amount: $16.8 M Project Closing Date: June 2024
ADB Financing: $12.7 M
Co-financing (ADB Administered): None
Non-ADB Financing: $ 4.1 M
Date of First Procurement Plan: 26 October 2018 Date of this Procurement Plan: 26 October
2018
C. Process Thresholds, Review and 18 Month Procurement Plan
1. Procurement and Consulting Methods and Thresholds
36. Except as the Asian Development Bank (ADB) may otherwise agree, the following process
thresholds shall apply to procurement of goods and works.
6 Checklists for actions required to contract consultants by method available in e-Handbook on Project
Implementation at: http://www.adb.org/documents/handbooks/project-implementation/22
Procurement of Goods and Works
Method Threshold Comments
International Competitive Bidding (ICB) for Goods ≥ $ 1.0 M The whole of the works
and Works a
a Including limited international bidding if appropriate
Consulting Services
Method Comments
Quality and Cost Based Selection (QCBS) For consultants23
1. ADB prior or Post Review.
37. Except as ADB may otherwise agree, the following prior or post review requirements apply
to the various procurement and consultant recruitment methods used for the project.
Procurement Method Prior or Post
ICB Goods and Works Prior
QCBS Prior
2. Goods and Works Contracts Estimated to Cost $1 Million or More
38. The following table lists goods and works contracts for which the procurement activity is
either ongoing or expected to commence within the next 18 months.
Review
Advertisement
Package General Estimated Procurement [Prior / Bidding
Date Comments
Number Description Value Method Post/Post Procedure
(quarter/year)
(Sample)]
Package The whole of the $ 12.3a ICB Prior Single Q1 2019
1 of 2 Majuro Tank million stage, two
Farm envelope
rehabilitation,
including
seawall
strengthening
and introduction
of new O&M
practices.
a
Excludes taxes and duties
4. Consulting Services Contracts Estimated to Cost $100,000 or More
39. The following table lists consulting services contracts for which the recruitment activity is
either ongoing or expected to commence within the next 18 months.
Review Advertisement
Package General Estimate Recruitment Type of
(Prior/Post) Date Comments
Number Description d Value Method Proposal
(quarter/year)
2 of 2 Project $ 0.7 QCBS Prior Q1 2019 Full Specialist
implementation million Technical consultant for
supervision Proposal full project
duration
D. Consultant's Terms of Reference
40. The project will include a contract for consulting services to support MEC in supervising
the delivery and implementation of all project packages. (NB: Procurement support, including bid
document preparation, on-site pre-bid conference with prospective bidders, and evaluation of
received bids and preparation of a bid evaluation report, is provided under the transaction
Technical Assistance for the proposed project, TA 9242-REG.)
41. The procurement plan is prepared in accordance with the generic or country-specific24
templates prepared by the Procurement, Portfolio and Financial Management Department.
VII. SAFEGUARDS
42. This project, and all project activities to be financed by ADB and government, will be
subject to ADB’s Safeguard Policy Statement (2009) (SPS).[1] The project is classified as
Category B for environment and Category C on involuntary resettlement and indigenous persons.
An IEE was prepared during project preparation and the project management unit (PMU),
comprised of an environmental safeguards specialist and other project personnel within MEC will
be directly responsible for all safeguards related matters. The project will also assist in building
the capacity of MEC including providing regular trainings and coaching sessions to undertake
effective environment management planning and implementation and improve the quality of
safeguards monitoring.
43. Environment. The project is classified as category B for environment following ADB’s
Safeguard Policy Statement 2009 (SPS). The main potential impact identified under the project
include (i) potential for (i) leakage, minor (e.g. ruptured pipework) or (ii) catastrophic (e.g. outlet
or tank shell failure) failure leading to contamination of land within the bunded area and
surrounding marine environment. Adequate mitigation measures have been incorporated into the
environmental management plan and it is expected that project outputs will have only small,
temporary, and localized adverse impacts on the environment, which can be readily managed by
proposed mitigation measures in the IEE and EMP. Work on-site will be conducted under the
supervision of qualified contractors who will be required to adhere to occupational safety and
health standards recommended by the American Petroleum Institute.
44. MEC will have overall responsibility for the project’s compliance with environment
safeguard requirements. The established PMU team based in MEC with capacity building support
from ADB under the project will be responsible for implementing the IEE and EMP, and facilitate
and supervise the implementation of the EMP which will include (i) revising the construction
section of the EMP and ensuring its integration along with other safeguards provisions into the
bid and contract documents; (ii) providing induction to contractors on EMP requirements during
construction and reviewing and approving the contractor’s CEMPs; (iii) as required, supporting
contractors in implementing the CEMPs and monitoring requirements; (iv) undertaking
compliance monitoring of CEMP implementation; (v) preparing the necessary environmental
assessment of candidate subprojects to be prepared during project implementation; and (vi)
preparing monitoring reports and other reports as required.
45. Involuntary Resettlement. The project is classified as category C for involuntary
resettlement following ADB’s SPS. A due diligence report has been prepared confirming that there
are no anticipated land acquisition and resettlement impacts. MEC will be responsible for the day–
to–day management of the project including resettlement safeguards under the established PMU
with targeted safeguards capacity building assistance from the project.
46. Indigenous peoples. The project is classified as Category C for indigenous peoples. The
project is not expected to impact any distinct and vulnerable group of indigenous peoples as
defined under ADB’s SPS. The beneficiaries of the project are not discriminated upon due to their
language, skin color, or traditional practices. All project outputs will be delivered in a culturally
appropriate and participatory manner.
[1] Available at: http://www.adb.org/Documents/Policies/Safeguards/Safeguard-Policy-Statement-June2009.pdf25
47. Prohibited investment activities. Pursuant to ADB’s Safeguard Policy Statement
(2009), ADB funds may not be applied to the activities described on the ADB Prohibited
Investment Activities List set forth at Appendix 5 of the Safeguard Policy Statement (2009).
VIII. GENDER AND SOCIAL DIMENSIONS
48. The project has no gender elements. However, the project management unit (PMU) will
conduct training as required to increase gender awareness among the staff of MEC, and
contractors. Training will be provided to the PMU and project staff to be able to detect, intercept,
respond to, and prevent (or refer cases of) sexual harassment, gender-based violence, and other
problems that may emerge during project implementation.26
IX. PERFORMANCE MONITORING, EVALUATION, REPORTING, AND
COMMUNICATION
A. Project Design and Monitoring Framework
Table 9: Design and Monitoring Framework
Impacts the Project is Aligned with
Energy security for the Marshall Islands improved (National Energy Policy and Energy Action Plan).a
Safety and environmental risks associated with handling and storage of refined petroleum products
reduced (National Energy Policy and Energy Action Plan). a
Performance Indicators Data Sources and
Results Chain with Targets and Baselines Reporting Mechanisms Risks
Outcome By 2023:
Safe and reliable a. Tank farm facilities a. Inspection and
operation of the fuel restored to appropriate acceptance reports for all
tank farm sustained American Petroleum Institute goods and works
and supply of fuel to standards. (2018 baseline: contracts prepared by
power generation very poor condition, non- the implementation
facilities throughout compliant, and rapidly supervision consultants.
the Marshall Islands deteriorating).
continued.
b. Implementation
b. Tank farm capacity fully supervision consultant
restored to design capacity of and MEC project
6 million gallons (2018 completion reports
baseline: 50% capacity
available)
Outputs
1. Majuro tank farm By December 2023, 6 million PMU reports Asset degradation
rehabilitated gallons of fuel storage more extensive than
capacity and associated what was assessed
facilities rehabilitated (2018 during the feasibility
baseline: none). study, leading to cost
overrun and delays.
2. Majuro tank farm 2a. By 2021, tank farm 2a-b. PMU reports, MEC
O&M program facilities O&M procedures annual financial
instituted introduced (2018 baseline: statement (including
none). detailed budgeting for
O&M)
2b. MEC
2b. By December 2022, MEC
management, MEC
personnel fully trained and
board, and
sufficiently resourced to
government fail to
implement the O&M program
budget adequately
(2018 baseline: not
for maintenance.
applicable).27 Key Activities with Milestones 1. Tank-farm detailed design preparation 1.1 Contractor reviews existing asset condition reports (Q4 2019); 1.2 Contractor performs detailed technical inspection of tank-farm assets to confirm condition (Q4 2019) 1.3 Contractor prepares detailed designs (Q1 2020) 1.4 Implementation supervision consultants review and approve detailed designs (Q2 2020) 2. Repair and rehabilitation of tank-farm assets 2.1 Execution of goods and works (Q3 2020 – Q4 2023) 2.2 Inspection and acceptance by MEC and supervision consultant of completed goods and works milestones (Q3 2020 – Q4 2023) 3. Project management support and capacity building 3.1 Management of delivery of all goods and works packages (Q3 2019 – Q4 2023) 3.2 Continuous support to PMU for project administration and reporting (Q3 2019 – Q4 2023) 3.3 Preparation of operation and maintenance program for tank farm facility and training of MEC personnel in its implementation (Q4 2019 – Q4 2022) Project Management Activities Supervision consultant support to MEC during project implementation Inputs Asian Development Bank: $12.7 million (ADF grant) Government: $3.1million MEC: $1.0 million Assumptions for Partner Financing Not Applicable ADF = Asian Development Fund; EPC = engineering, procurement, and construction; MEC = Marshalls Energy Company, O&M = operation and maintenance; Q = quarter; PMU = Project Management Unit a Government of the Marshall Islands, Ministry of Resources and Development. 2016. National Energy Policy and Energy Action Plan, Majuro. Source: Asian Development Bank. B. Monitoring 49. Project performance monitoring. The executing agency will submit a quarterly progress report which contain information necessary to update ADB’s project performance reporting system. 50. Compliance monitoring. Compliance monitoring will be provided through regular quarterly progress reports and during regular ADB review missions. 51. Safeguards monitoring. With no involuntary resettlement and gender impacts envisaged, monitoring and reporting will focus on environment safeguards. Progress on the implementation of the EMP will be included in the periodic project progress reports with specific monitoring activities defined in the IEE and EMP to be carried out by the contractor, supervised by the PMU under MEC as the implementing agency. MEC through the executing agency will
28
submit semi-annual environmental monitoring reports on EMP implementation for ADB’s review
C. Evaluation
52. Within 6 months of physical completion of the project, the Ministry of Finance will submit
a project completion report to ADB.7
D. Reporting
53. The executing agency will provide ADB with (i) quarterly progress reports in a format
consistent with ADB's project performance reporting system; (ii) consolidated annual reports
including (a) progress achieved by output as measured through the indicator's performance
targets, (b) key implementation issues and solutions, (c) updated procurement plan, and (d)
updated implementation plan for the next 12 months; and (iii) a project completion report within 6
months of physical completion of the project. To ensure that projects will continue to be both
viable and sustainable, project accounts and the implementing agency audited financial statement
together with the associated auditor's report, should be adequately reviewed.
E. Stakeholder Communication Strategy
54. Prior to the inception mission, a communication strategy and communication plan will be
prepared by MEC. The communication strategy and communications plan will indicate the types
of information, the mode of communication, and the timing of communications to be conveyed to
stakeholders regarding the project and its implementation.
X. ANTICORRUPTION POLICY
55. ADB reserves the right to investigate, directly or through its agents, any violations of the
Anticorruption Policy relating to the project.8 All contracts financed by ADB shall include provisions
specifying the right of ADB to audit and examine the records and accounts of the executing
agency and all project contractors, suppliers, consultants, and other service providers. Individuals
and/or entities on ADB’s anticorruption debarment list are ineligible to participate in ADB-financed
activity and may not be awarded any contracts under the project.9
56. To support these efforts, relevant provisions are included in the grant
agreement/regulations and the bidding documents for the project.
XI. ACCOUNTABILITY MECHANISM
57. People who are, or may in the future be, adversely affected by the project may submit
complaints to ADB’s Accountability Mechanism. The Accountability Mechanism provides an
independent forum and process whereby people adversely affected by ADB-assisted projects can
voice, and seek a resolution of their problems, as well as report alleged violations of ADB’s
operational policies and procedures. Before submitting a complaint to the Accountability
7 Project completion report format is available at: http://www.adb.org/Consulting/consultants-toolkits/PCR-Public-
Sector-Landscape.rar
8 Anticorruption Policy: http://www.adb.org/Documents/Policies/Anticorruption-Integrity/Policies-Strategies.pdf
9 ADB's Integrity Office web site: http://www.adb.org/integrity/unit.aspYou can also read
