Recently, ADB approved a loan to help India meet its booming energy needs. The project is a milestone in our partnership with India, showcasing a new approach designed to enhance the impact of our assistance by giving countries more say in its implementation.
A $175 million loan to the Power Grid Corporation of India (POWERGRID) will finance high-voltage transmission systems to distribute electricity from new mega solar parks to the interstate grid. This project is path-breaking, as it will use the state-owned utility’s own systems, rather than ADB’s, to procure project-related goods and services and to safeguard communities and the natural environment from any negative impacts.
It is standard practice for multilateral development banks like ADB to require countries to use bank systems for procurement and safeguards during project implementation. The use of POWERGRID’S systems in lieu of our own is a first for ADB. It recognizes just how far agencies in India have come since the country first accepted assistance from ADB in 1986.
It also reflects our awareness that Asia is a vastly different region than when ADB was founded 50 years ago. The development landscape has changed dramatically and with it the needs of the developing world.
One size does not fit all when it comes to development. There are vast differences in the quality of legal frameworks and enforcement across developing Asia. Still, it’s fair to say that countries now have much stronger systems and capacities. Empowering local procurement and safeguards for this project reflects our efforts to keep pace with a rapidly evolving region.
This more client-oriented approach will deepen the impact of our assistance, for this project and in the future. It is an opportunity to enhance country ownership of development assistance, which in turn improves the sustainability of that support. Moreover, it will help to strengthen existing institutions and systems.
For this project, POWERGRID will proactively manage safeguard and procurement arrangements, based on its own policies and procedures. This will enable it to improve its capacity and proficiency in these areas, which through rigorous assessments have already been deemed to match international good practice.
Refinements, like this one, to our working relationship with developing member countries are in everyone’s best interest. Project delays will be minimized as agencies get better at handling procurement and safeguards, and as ADB and government systems converge. Stronger project readiness will mean faster and better results for beneficiaries.
Rigorous due diligence
In considering this step, a key issue for ADB was whether it would weaken safeguard protections for affected communities and the natural environment. The integrity of ADB projects depends on strong safeguards that maximize benefits and minimize any adverse impacts of projects on the environment, as well as on poor and vulnerable people.
We can say categorically that these protections will not be watered down. ADB’s safeguard policy allows application of country safeguard systems for ADB projects only when they share its objectives and principles, and where the borrower has capacity to implement its own system.
This requires that we do a detailed assessment of the borrower’s system to ensure it matches international good practice as embodied by ADB’s policy. There is also a thorough assessment of capacity including an evaluation of the experience we and our development partners have gained from initial projects. These assessments are disclosed for public consultation before a proposal is made to ADB’s Board to approve the use of country safeguard systems.
Our due diligence will remain as rigorous as ever. In any bank-financed operation, whether it uses country systems or not, ADB is and will remain responsible for project appraisal and for supervision during project implementation. Our accountability mechanism and fiduciary duties will be unchanged. For the POWERGRID loan, any gaps between its systems and ADB safeguard and procurement policies have been thoroughly assessed and closed through agreed action plans.
It’s important to note that using country systems will reduce the cost of doing business with ADB over time. Initially, enhanced monitoring of these systems by ADB might be necessary. But in the long run, this will lower transaction costs as there will no longer be duplication of efforts to meet the parallel requirements of both borrower and ADB. Country systems can also increase the effectiveness of development assistance by providing a natural focal point for donor efforts to harmonize their processes.
For more than half a century, multilateral development banks have combined financial heft and technical knowledge to help developing countries reduce poverty and spur growth. At times, the sharpest of their critics have accused them of taking an ‘imperialistic’ approach.
The use of country systems offers a chance to reduce dependencies on donor systems, while promoting efficient processes to deliver faster and more effective assistance to countries and beneficiary communities.
This is a win-win-win initiative, and we are proud that it is starting in India.