Bangladesh: Railway Sector Investment Program - MFF and Tranche 3 | Lessons by Independent Evaluation, Asian Development Bank

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Lessons

Linking the progress of investments under a multitranche financing facility (MFF) to overreaching reform conditions can create process inefficiencies and drag down the performance of the MFF.

At appraisal, this program included 8 investment subprojects; however, at completion, it delivered only 4 subprojects, one of them partially. Delays in meeting the reform conditions attached to the approval and implementation of subsequent tranches made it impossible for the other 4 priority subprojects to be undertaken under the MFF. Specifically, as it took until November 2012 for the tranche 2 reform conditions to be met, the tranche could not be approved and implemented before this even if it was appraised in early 2010. Slow progress in meeting the tranche-linked reform actions also delayed tranche 3 implementation. Overall, this program’s reform actions continued for 10 years, until the end of the MFF availability period, or over 6 years later than its expected completion at appraisal. The design linking reform conditions with investments was, on hindsight, one of the major causes of process inefficiencies that delayed the implementation of the investment subprojects and drag down the performance of the MFF.

Project Cycle Stage:

Preparation

Poor time and cost estimations can lead to critical shortfalls and diminish program/project impacts.

Significant time overruns were encountered by this program, most especially with its first investment subproject, which took over 4 years for design and procurement and more than 4 years for construction and was completed only in December 2015, two years behind its target completion date at appraisal. The subproject’s cost was also 146% higher than estimated, causing tranches 2 and 4 to finance the large shortfall, leaving room for only two other small investment subprojects to be taken up by the said tranches. The resulting non-implementation of 4 other priority investment subprojects diminished the program’s impact. Had these subprojects been financed, they would have reduced travel distances and allowed container traffic to India on the western side thereby significantly increasing passenger and container traffic and revenues. (Preparation: ADB-assisted programs/projects, project schedule, budgeting, cost estimates)

Project Cycle Stage:

Preparation

Program/project success requires a well-thought-out design and monitoring framework (DMF).

This program’s DMF lacked a clear logic, coherent results chain, and suitable targets. Most output indicators were not appropriate for the output statements. While the output statements focused on Bangladesh Railway institutional development reforms, most output indicators related to physical improvements. The targeted outcomes were unrealistic: for instance, the dramatic shift in the railway sector’s share in container transport and increase in operating ratios were without a sound basis given that, against the average of about $400 million annual budget for the Bangladesh Railway, this multitranche financing facility (MFF) invested $400 million over ten years. Furthermore, there was a disconnect between the targeted outcomes of the MFF tranches and the facility, especially since no adjustments were made on the latter’s DMF to reflect the non-implementation of half of the planned investment subprojects. The success of the tranche projects consequently did not add up to the success of the MFF.

Project Cycle Stage:

Preparation

Implementation

Completion and Evaluation

Consistent follow-through and high-level discussions are needed to successfully implement reforms.

The borrower’s performance on reform implementation was below expectation. Most reform actions were taken late, some not at all, and a few covenants were not met. Making matters worse, review missions from the ADB were few and there was limited follow-through on the progress of the challenging railway sector reforms. Drawing on this experience, future ADB project teams should diligently follow up the implementation of reforms through consistent high-level dialogue and more frequent consultation missions. Engaging high-level government champions in carrying forward the reform agenda, widely proven as effective, can also help ensure implementation success.

Project Cycle Stage:

Implementation

Consistent program/project monitoring and reporting foster implementation success.

Available records on this program point to weak implementation with few review missions. There is no record of a midterm review. The possibility for course correction was missed. Major delays in the reform and investment subprojects indicate shortcomings in the project management system, which was not well-resourced during subproject preparation or implementation phases. Overall, the weaknesses in monitoring and reporting prevented early actions to be undertaken to improve implementation. They also made post-program evaluation more difficult, with the project completion review mission struggling to find aide-mémoire and other records of meetings and discussion.

Project Cycle Stage:

Implementation

Completion and Evaluation

Background

The transport sector was the largest recipient of the Bangladesh government’s investments over the past two decades. It accounted for about 20% of the total annual expenditures from 1999 to 2017. Three-fourths of the sector investment went to road transport, which expanded significantly at the expense of rail transport. As a result, the market share of railways decreased steadily from 30% in 1973 to 4% in 2005. A vicious cycle set in ─ limited investments led to declining quality and efficiency, which in turn led to poor traffic and high operating ratios. Exacerbated by the Bangladesh Railway's poor financial performance and ever-increasing dependence on government budget support, the ability of rail transport, which is environment-friendly and requires less land per unit of operation, to contribute to the country’s development was greatly eroded.

To help address the situation, the Asian Development Bank (ADB) approved a $430 million multitranche financing facility (MFF) for the Railway Sector Investment Program in October 2006. The program was to improve rail sector performance by (i) supporting policy, organizational, and legal reforms to restructure Bangladesh Railway into a market-oriented business organization with improved financial governance, human resource, and operational systems; and (ii) financing economically and financially viable investments in key rail corridors. Collaborative cofinancing was provided by the Japan International Cooperation Agency for $116.7 million and the Export–Import Bank of Korea for $22 million.

The program envisaged contributing to sustainable economic growth and poverty reduction, as impact; and improving rail sector performance through enhanced efficiency, as outcome. It was expected to implement a comprehensive set of interventions for the Bangladesh Railway to become a commercially focused service provider with improved governance and safety. Far-reaching sector reforms were to be combined with investments to decongest critical sections, enhance safety and increase traffic on existing lines, and replace ageing coaches to provide more comfort to passengers. The reform and investment components were integrated: approval of the investment subprojects depended on the implementation of specific reform actions.

Under the investment component, 8 subprojects were planned at appraisal; however, at completion, the program delivered only 4 subprojects, one of them partially. Key outputs included (i) signaling modernization and meter gauge double tracking of Tongi–Bhairab Bazar railway, (ii) yard improvements and extension of loops in 8 stations between Dhaka and Darsana and at Sirajganj Bazar, (iii) signaling upgrade in 11 stations between Dhaka and Darsana, and (iv) procurement of 50 broad gauge passenger carriages and 100 meter gauge passenger carriages. Output 1 was covered by three tranches ─ tranches 1, 2, and 4 ─ instead of just tranche 1, as originally planned. Outputs 2 and 3 were covered by tranches 2 and 4, with unfinished works under output 3 taken up by another ongoing railway project. Output 4 was successfully delivered under tranche 3. The output were delivered substantially in accordance with the periodic financing requests made for each MFF tranche.

Though progress was slow, Bangladesh Railway ultimately met most of the reform conditions covenanted in the MFF framework agreement and individual agreements for the five loans released in four tranches ─ tranche 1 with two loans, totaling $130 million, approved in February 2007; tranche 2 for $150 million, approved in December 2011; tranche 3 for $100 million, approved in December 2013; and tranche 4 for $50 million, approved in March 2016. Railway safety improved with the adoption of improved operational and maintenance standards, use of updated manuals for train operations, maintenance of track and permanent way, and signaling. Reform accomplishments under the program actions laid the groundwork for the ongoing rail sector reform in the country.

Substantial delivery of their intended outputs enabled each of the individual tranches to achieve their expected outcomes. However, due to the disconnect and inconsistencies between the targeted outcomes of the MFF and those of the tranche projects, the effectiveness of the individual tranches in achieving their planned outcomes did not end up with a similar result for the MFF. On hindsight, the project completion review deemed the MFF as not the best modality because separate investment projects could have been financed more effectively along with a parallel policy-based loan for reform.

Nevertheless, because of the program’s physical investments, the number of trains increased by 22% between 2011 and 2017 and the passengers by 37% annually between 2011 and 2018. Overall passenger traffic increased by 83.9% between 2005 and 2017. The most critical section of the Dhaka–Chattogram corridor was decongested, lowering travel time and increasing train frequency and the revenues of the Bangladesh Railway. Freight traffic started picking up with the deployment of new rolling stock in 2016−2017.

Leaving behind critical lessons from the first use of the MFF modality in Bangladesh, the program had the Bangladesh Railway as executing agency. The Bangladesh Railway established two units to take charge of day-to-day implementation ─ the reform implementation unit and the project implementation unit.

Project Information

Project Name:

Railway Sector Investment Program - MFF and Tranche 3

Report Date:

November, 2019

Main Sector:

Transport

Country:

Bangladesh

Project Number:

32234-013, 32234-053

Report Type: