Completion Report Program Number: 36172 Grant Numbers: 0118/0206 August 2014 Nepal: Governance Support Program (Subprogram I) This document is being disclosed to the public in accordance with ADB’s Public Communications Policy 2011. CURRENCY EQUIVALENTS (As of 31 May 2014) Currency Unit – Nepalese rupee/s (NRe/NRs) At Appraisal At Completion 30 September 2008 31 May 2014 NRe1.00 = $0.013522 $0.01054 $1.00 = NRe73.9519 NRe94.8035 ABBREVIATIONS ADB – Asian Development Bank ASIP – annual strategic implementation plan CAC – citizen awareness center CCU – cluster coordination unit CIDA – Canadian International Development Agency CSO – civil society organization DDC – district development committee FCGO – Financial Comptroller General Office GESI – gender equality and social inclusion GSP 1 – Subprogram I of governance support program IEC – information, education, and communication JFA – joint financing arrangement LBFAR – local body financial administration regulation LBFC – Local Bodies Fiscal Commission LGAF – local governance and accountability facility LGCDP – local governance and community development program LPC – local peace committee MCPM – minimum conditions and performance measures MOF – Ministry of Finance MLD – Ministry of Local Development MOFALD – Ministry of Federal Affairs and Local Development NAC – national advisory committee NGO – nongovernment organization NPC – National Planning Commission NRM Nepal Resident Mission OAG – Office of the Auditor General of Nepal OSR – own-source revenue PEFA- – public expenditure and financial assessment and FRRAP fiduciary risk reduction action plan PCU – program coordination unit PFM – public financial management SARD South Asia Regional Department SWAP sector-wide approach TA technical assistance VDC – village development committee WCF – ward citizen forum NOTES (i) The fiscal year (FY) of the Government and its agencies ends on 15 July. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2014 ends on 15 July 2014 (ii) In this report, "$" refers to US dollars. Vice-President W. Jhang, Operations 1 Director General H. Kim, SARD Director K. Yokoyama, NRM, SARD Team leader R. Shrestha, Senior Public Management Officer, NRM, SARD Team members S. Paudel, Associate Project Analyst, NRM, SARD S. Subba, Senior Social Development Officer (Gender), NRM, SARD In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area. CONTENTS Page BASIC DATA i I. PROGRAM DESCRIPTION 1 II. EVALUATION OF DESIGN AND IMPLEMENTATION 1 A. Relevance of Design and Formulation 1 B. Program Outcomess and Outputs 2 C. Program Costs 7 D. Disbursements 7 E. Program Schedule 7 F. Implementation Arrangements 8 G. Conditions and Covenants 8 H. Related Technical Assistance 8 I. Consultant Recruitment and Procurement 9 J. Performance of Borrower and the Executing Agency 9 K. Performance of the Asian Development Bank 9 III. EVALUATION OF PERFORMANCE 9 A. Relevance 9 B. Effectiveness in Achieving Outcome 10 C. Efficiency in Achieving Outcome and Outputs 11 D. Preliminary Assessment of Sustainability 12 E. Institutional Development 12 F. Impact 13 IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 13 A. Overall Assessment 13 B. Lessons 14 C. Recommendations 14 APPENDIXES 1. Design and Monitoring Framework 16 2. Status of Tranche 1, Tranche 2 and Tranche 3 Policy Conditions 22 3. PEFA Risks and Mitigation Measures 26 4. Status of Program Assurances 29 5. Governance Risk Assessment and Mitigating Measures 33 6. Poject Specific Covenants (From Legal Agreements) 36 7. Program Implementation Schedule 38 8. Gender Equality and Social Inclusion Results against Action Plan 40 9. Guidelines, Manuals, Studies and Reviews in LGCDP (2008 – 2013) 45 SUPPLEMENTARY APPENDIXES 46 A. Program Outputs 47 B. Schedule of Field Activities – PCR Mission 63 C. List of Respondents 65 BASIC DATA A. Grant Identification 1. Country Nepal 2. Grant Number 0118-NEP, 0206-NEP 3. Program Title Governance Support Program (Subprogram I) 4. Borrower Government of Nepal 5. Executing Agency Ministry of Federal Affairs and Local Development 6. Amount of ADB Grant $106.3 million 7. Amount of CIDA Grant $8.80 million 8. Program Completion Report Number PCR:NEP 1460 B. Grant Data 1. Appraisal – Date Started 31 July 2008 – Date Completed 5 August 2008 2. Grant Negotiations – Date Started 15 September 2009 – Date Completed 17 September 2009 3. Date of Board Approval ADB Grant 22 October 2008 CIDA Grant 12 April 2010 4. Date of Grant Agreement ADB Grant 15 December 2008 CIDA Grant 27 August 2010 5. Date of Grant Effectiveness – In Grant Agreement 15 March 2009 – Actual (ADB Grant) 19 December 2008 – Actual (CIDA Grant) 12 November 2010 – Number of Extensions None 6. Closing Date – In Grant Agreement 30 June 2013 – Actual (ADB and CIDA Grant) 8 April 2013 – Number of Extensions None 7. Terms of Grant – Interest Rate – Maturity (number of years) – Grace Period (number of years) 8. Terms of Relending (if any) – Interest Rate – Maturity (number of years) – Grace Period (number of years) – Second-Step Borrower ii 9. Disbursements a. Dates Initial Disbursement Final Disbursement Time Interval 14 January 2009 4 August 2011 31 Effective Date Original Closing Date Time Interval 19 December 2008 30 June 2012 43 b. Amount ($ million) Undisbursed Tranche Date Disbursed Amount Disbursed Balance First 14 January 2009 20 86.3 Second 19 November 2009 45 41.3 Third 4 August 011 41.3 0.00 Total 106.3 0.00 10. Local Costs (Financed) - Amount ($ million) 114.81 - Percent of Local Costs 100 - Percent of Total Cost 100 C. Program Data 1. Program Cost ($ million) Cost Appraisal Estimate Actual Foreign Exchange Cost NA NA Local Currency Cost Borrower Financed 260.80 260.80 ADB Financed 106.30 106.30 CIDA Financed 8.80 8.51 Total 375.90 375.61 2. Financing Plan ($million) Source Appraisal Estimate Actual Implementation Costs Borrower Financed 260.80 260.80 ADB Financed 106.30 106.30 CIDA Financed 8.80 8.51 Total ADB = Asian Development Bank, CIDA = Canadian International Development Agency. iii 3. Cost Breakdown by Program Component ($ million) Component Appraisal Estimate Actual Not Applicable Total 4. Program Schedule Item Appraisal Estimate Actual Date of contract with consultants Completion of engineering designs Civil works contract Date of award Completion of work Equipment and supplies Dates First procurement Not Applicable Last procurement Completion of equipment installation Start of operations Completion of tests and commissioning Beginning of start-up Other milestones 5. Program Performance Report Ratings Ratings Development Implementation Implementation Period Objectives Progress Not Applicable D. Data on Asian Development Bank Missions No. of No. of Specialization of Name of Mission Date Persons Person-Days Members Program completion 1 May to 1 June 2013 4 24 Country director, senior public management officer, associate project analyst I. PROGRAM DESCRIPTION 1. The Asian Development Bank (ADB) approved a grant of $106.3 million for subprogram I of a governance support program (GSP I) on 22 October 2008.1 Project preparatory TA helped design GSP I.2 ADB provided GSP I to support the implementation of Nepal’s Local Governance and Community Development Program (LGCDP) within the framework of a joint financing arrangement (JFA).3 ADB joined five other development partners in the JFA, namely the Canadian International Development Agency (CIDA), the Ministry of Foreign Affairs of Denmark, Department for International Development of the United Kingdom, the Ministry of Foreign Affairs of Norway, and the Swiss Agency for Development and Cooperation. GSP I constituted nearly 15% of the LGCDP budget ($729.81 million), making ADB the largest development partner contributor to the LGCDP. CIDA channelled its contribution of $8.8 million (Can $9 million) to the LGCDP through a cofinancing arrangement with ADB in the GSP I.4 GSP I was closed on 8 April 2013 after the release of all three tranches, but the LGCDP itself was extended by 1 year 5 and closed on 15 July 2013. 2. GSP I was executed by Nepal’s Ministry of Federal Affairs and Local Development (MoFALD), which had been the Ministry of Local Development (MLD) until 2013. The GSP I supported the LGCDP to achieve three main outcomes (i) to have citizens and communities actively engage with local governance bodies to enhance accountability of these bodies in public service delivery (demand side governance)6; (ii) to improve management of resources and delivery of services in an inclusive and equitable manner by capable local bodies (supply side governance); and (iii) to strengthen policy and national institutional frameworks, including legal frameworks, for decentralization, devolution, and community development (policy environment). GSP I mirrored the design of the LGCDP. The performance of GSP I is therefore based on the performance of the LGCDP in delivering these outcomes through the specific outputs that GSP I identified in its design and monitoring framework. II. EVALUATION OF DESIGN AND IMPLEMENTATION A. Relevance of Design and Formulation 3. Following a comprehensive peace agreement in Nepal in November 2006 after a decade-long armed civil conflict, an election was held in April 2008 for a constituent assembly to draft a new constitution.7 At that time, structural causes