Section 4: Australia’s interactions with the Asian Development Bank

Part 1: Activities of the Asian Development Bank

ADB operations

Managing for development results

The ADB is dedicated to poverty reduction in Asia and the Pacific, a region that is home to two thirds of the world’s poor. The ADB's focus is on encouraging economic growth, social development and good governance, while promoting regional cooperation and integration in partnership with governments, the private sector, and non-government and international organisations.

To improve its effectiveness and efficiency, the ADB has agreed with shareholders to enhance its relevance, responsiveness, and results orientation. The ADB is implementing a reform agenda aimed at strengthening operational policies, strategies, and approaches; mainstreaming a results-based management approach (the Managing for Development Results agenda); refining organisational processes and structures; reinforcing knowledge management; and improving human resources management and staff incentives.

Initiatives identified under the ADB’s reform agenda as reported in the ADB’s 2006 Annual Report include: agreement to ADB’s medium-term strategy; a regional cooperation and integration strategy; a revised strategic private sector development framework; enhanced ADB support to middle-income countries and Ordinary Capital Resources borrowers; and the second governance and anti-corruption plan. Business processes have been refined and new financial instruments introduced.

Evaluation of ADB operations

Evaluation of completed projects/programs

The ADB undertakes ongoing assessment of policies, strategies, programs, and projects. These assessments examine design and implementation to evaluate the results that are being achieved, what improvements should be considered, and what is being learned.

Operations evaluation at the ADB has changed significantly over the past 30 years. Operations evaluation now shapes decision making throughout the project cycle and in the ADB as a whole. The current system of operation evaluation consists of two levels:

• self-evaluation — conducted by those responsible for designing and implementing a country strategy, program, project, or technical assistance activity; and
• independent evaluation — undertaken by the Operations Evaluation Department (OED).

A total of 716 completed public and private sector projects/programs had been independently evaluated up to 31 December 2006. The percentage of projects rated as being ‘successful’ has trended upward since the 1990s. Evaluations by sector show continuing high success rates for transport and communications and for energy projects/programs. While further analysis is required before a firm conclusion can be drawn, these results suggest that the financing of infrastructure projects is a major strength of the ADB.

Financial activities of the ADB

The ADB’s resources are comprised of its Ordinary Capital Resources (OCR), Special Funds, and Trust funds. While OCR and Special Funds are used to finance operations that are solely under ADB administration, Trust funds are externally funded and are administered by the ADB on behalf of donors.

Ordinary Capital Resources (OCR)

OCR are a pool of funds available for ADB's lending operations. Loans from OCR are offered at near-market terms to better-off ADB borrowing member countries. The ADB’s OCR operations are principally financed through paid-in capital provided by member governments and funds borrowed from private placements in capital markets. The ADB’s accumulated retained income (reserves) is also a source of finance for these operations.

ADB provides financial assistance through loans, technical assistance, guarantees, and equity investments to its developing member countries to help them meet their development needs.

Loan operations

New loan commitments by the ADB increased in 2006, to US$7.4 billion for 67 projects. South Asian countries received 27 per cent of new loan commitments while Central West Asian, South East Asian and East Asian countries received 26, 25 and 23 per cent respectively. The People’s Republic of China and Pakistan were the largest borrowers, receiving 23 and 22 per cent of 2006 loans respectively.

Of total new commitments in 2006, 83 per cent (US$6.1 billion) was committed from OCR, while the remaining 17 per cent (US$1.3 billion) was committed from the Asian Development Fund. Year on year, funding allocated from OCR increased by around 38 per cent and funding allocated from the Asian Development Fund declined by 7 per cent in 2006.

Loan disbursements in 2006 totalled US$5.8 billion representing an increase of 21 per cent from the $4.7 billion disbursements in 2005. Of total loan disbursements, OCR disbursements were US$4.4 billion (77 per cent) and ADF disbursements were US$1.3 billion (23 per cent). In 2006, net disbursement (that is, loan disbursements minus loan repayments) was US$2.2 billion compared to negative US$0.4 billion in 2005.

Technical assistance

Technical assistance is a vital element of the ADB’s development strategy. The ADB provides technical assistance on project preparatory activities, project implementation, institution strengthening policy studies and in dealing with regional/sub regional issues.

The ADB approved a total of 260 technical assistance projects for US$241.6 million, including 234 new projects and 26 supplementary projects. In monetary terms, this amount is 21.7 per cent more than the US$198.5 million for the 299 projects approved in 2005.

Grants

ADB approved 43 grant projects for US$538.4 million in 2006. Of this amount: US$274.9 million was funded from the ADF IX; US$28.5 million from the Asian Tsunami Fund and Pakistan Earthquake Fund; and US$235.0 million from external resources.

Multi-tranche Financing Facilities

Multi-tranche Financing Facilities (MFF) are similar to a standby letter of credit or purpose-specific credit line. The MFF is applicable to large stand-alone projects with discrete components. Eight multi-tranche financing facilities totalling US$3.8 billion were approved in 2006, compared with two for US$1.5 billion in 2005.

Cofinancing and guarantee operations

In line with the approval of the financing partnership strategy and the review of credit enhancement operations in 2006, the ADB is now focusing on direct value-added cofinancing.

Direct value-added cofinancing involves active coordination and formal agreements among financing partners that bring about defined client benefits, including contractual commitments by the ADB to facilitate mobilisation, administration, and participation in cofinancing.

In 2006, total direct value-added cofinancing amounted to US$1.5 billion for 103 projects, of which US$1.4 billion was for 29 loan projects and US$92.7 million was for 74 technical assistance projects. Non-direct value-added co-financing amounted to about US$4.5 billion in the form of parallel grants and loans for 20 ADB-financed projects and programs.

The ADB provides guarantees as credit enhancements for eligible projects to cover risks that the private sector cannot easily absorb or manage on its own. The ADB offers two guarantee products — political risk and partial credit — designed to mitigate risk exposure of commercial lenders and capital market investors. A political risk guarantee is designed to facilitate cofinancing by providing lenders/capital market investors of ADB-assisted projects with coverage against specifically defined political risks. A partial credit guarantee provides comprehensive cover of commercial and political risks for a specific portion of the debt service provided by co-financiers.

In 2006, total ADB outstanding guarantee exposure increased by about 4 per cent to approximately US$1.2 billion, partial credit guarantees increased by about 7 per cent to approximately US$1.1 billion, and political risk guarantees declined by about 17 per cent to approximately US$149.6 million.

Asian Development Fund

The Asian Development Fund (ADF) is funded by ADB donor member countries and offers loans at very low interest rates and grants that help reduce poverty in ADB's poorest borrowing countries.

The eighth replenishment of the ADF (ADF IX), authorised by the ADB’s Board of Governors in August 2004, became effective on 29 April 2005. Donors endorsed a total replenishment of US$7.0 billion, representing a 25 per cent increase over the ADF VIII replenishment. Australia was the third-largest donor to the ADF IX replenishment, after Japan and the United States. The ninth replenishment of the ADF (ADF X) is expected to be finalised in May 2008 and will cover the period from 2009-2012.

Up to 21 per cent of the ADF IX replenishment will be provided in the form of grants, rather than as concessional loans. Donors agreed to channel 3 per cent of the grant envelope into the Bank’s Technical Assistance Special Fund, which will be particularly valuable for countries without substantial lending programs.

Administrative budget

The ADB’s administrative expenses for 2006 amounted to US$299.4 million, a saving of US$13.5 million against the original budget of US$312.9 million. Overall savings were primarily attributed to lower than expected staff-related costs. Lower staff years resulted from the implementation of the enhanced separation program, and lower than anticipated relocation costs, business travel, and administrative expenses.

The 2007 budget of US$332.9 million, approved by the Board of Directors in December 2006, provided adequate funding for high priority work programs and initiatives, including aligning priorities with the medium-term strategy.

Human resource management and development

At the end of 2006, the ADB had a total staff of 2,405 from 54 of its 66 member countries. The total comprised five management, 856 professional staff members and 1,544 local staff members.

In 2006, the ADB made some progress in implementing the Human Resources Strategy, approved by the Board of Directors in 2004. However, sustained efforts to change the management culture to strengthen the focus on project implementation (not simply approval) and the maximisation of development effectiveness will be needed over several years.

Part 2: Australia and the Asian Development Bank

Australian shareholding and contributions

Australia values the role the ADB plays in the region and sees the Bank as an important development partner. With 5.8 per cent of total subscribed capital, Australia is the fourth largest regional shareholder in the ADB, and the fifth largest shareholder overall.

As at 31 December 2006, Australia held 204,740 shares in the ADB, valued by the ADB at US$3.08 billion (A$3.89 billion as at 31 December 2006) and representing 5.79 per cent of the total capital stock of the ADB. Of this, US$215.70 million (A$272.59 million as at 31 December 2006) is paid-in capital, and the remaining portion (US$2.86 billion — A$3.62 billion as at 31 December 2006) is subject to call.

In 2006-07, Australia provided cash payments of A$91.5 million to the ADF, the concessional loan facility of the ADB.

Australian cofinancing

In 2006-07, Australia and the ADB cooperated on a number of cofinanced activities contributing:

• A$11 million over five years to promote innovative activities in development, governance, inclusive economic growth and regional integration in South Asia; and
• A$1.35 million to a HIV/AIDS Prevention and Control in Rural Development Enclaves program in PNG.

Engagement by Australian firms

Australia’s membership of the ADB enables Australian suppliers to bid for work generated under ADB-financed activities. ADB-financed activities provide sizeable commercial opportunities for Australian firms and can be stepping stones to further work in the Asia-Pacific region. Competitiveness in terms of price, quality and timely delivery is the key determinant of a successful bid.

Procurement contracts for goods and related services, civil works, and consulting services under loan and technical assistance projects totalled A$6.5 billion from 1 January to 31 December 2006. Most contracts were awarded on the basis of international competition, which is open to firms and individuals from any ADB member country, regional or non-regional. The ADB’s Procurement Guidelines outline alternative methods of procurement to international competitive bidding to be used in exceptional circumstances where other methods are deemed more appropriate. These can be found at www.adb.org/Documents/Guidelines/Procurement.

The Australian Trade Commission (Austrade), through its network of domestic and international offices, assists Australian companies in pursuing ADB project work and consulting opportunities. Austrade Manila is the liaison post for the ADB head office, based in Manila, and works closely with key Bank representatives in coordinating and arranging the annual Australian business mission to the ADB and assisting the Bank with its Business Opportunities Seminars held in September 2007 in Australia. Austrade maintains a close working relationship with ADB project officers and assists Australian companies to pursue ADB projects by representing their interests with implementing agencies.

In 2006, the ADB’s procurement from Australian firms (including goods, related services, civil works, and consulting services under loans and technical assistance operations) was valued by the ADB at US$119.52 million (A$151.04 million as at 31 December 2006).

Australian representation at the ADB

Governors and Executive Directors

The Board of Governors is the ADB’s highest policy-making body, consisting of one Governor for each member country. In 2006-07, the then Treasurer, the Hon Peter Costello MP, was Australia’s Governor, while the then Parliamentary Secretary for Foreign Affairs, the Hon Greg Hunt MP, was Australia’s Alternate Governor. Mr Hunt succeeded the Hon Teresa Gambaro MP in January 2007. The Australian Governor’s votes on ADB resolutions during 2006-07 are noted in Table 4.1.

Table 4.1: Australian Governor’s votes on ADB resolutions during 2006-07

Resolution Title	Adoption Date	Australian Governor’s Vote
Earmarking of Ordinary Capital Resources Surplus for Reconstruction of Yogyakarta and central Java Provinces	3 July 2006	Supported
Membership of Georgia and Increase in Authorized Capital Stock	25 August 2006	Supported
Election of President	22 September 2006	Supported
Decisions Relating to Section 5 of the By-Laws	11 November 2006	Supported
Amendment to Section 7(B)(a) of the By-Laws	11 November 2006	Supported
Eighth Replenishment of the Asian Development Fund and Third Regularized Replenishment of the Technical Assistance Fund: Access of Armenia to ADF Resources	20 April 2007	Supported
Financial Statements and Independent Auditors’ Reports	7 May 2007	Supported
Allocation of Net Income	7 May 2007	Supported
Place and Date of Forty-First Annual Meeting (2008)	7 May 2007	Supported
Procedures for the Election of Directors	13 June 2007	Supported

The 2007 ADB Annual Meeting of the Board of Governors was held in May, in Kyoto, Japan. Australia’s then Parliamentary Secretary to the Treasurer, the Hon Chris Pearce MP, led the Australian delegation, which included senior officials from Treasury, the Australian Agency for International Development (AusAID), and the Department of Foreign Affairs and Trade.

The Board of Governors has delegated authority for conducting the day-to-day oversight of ADB operations to the Board of Directors. Directors exercise their authority through: the supervision of the ADB’s financial statements; approval of the ADB’s administrative budget and other key planning documents; and the review and approval of country strategies, policy documents and all major loan, equity and technical assistance operations.

Eight of the Board’s 12 Directors represent regional countries while the remainder represent non-regional countries. Each Director represents a constituency of member countries, except for Japan, the United States, and the People’s Republic of China, which hold their own seats.

Australia belongs to a constituency that also includes Azerbaijan; Cambodia; Georgia; Hong Kong, China; Kiribati; Federated States of Micronesia; Nauru; Palau; the Solomon Islands; and Tuvalu. Australia is the largest shareholder in this constituency, holding around 4.9 per cent of the ADB’s voting power at 31 December 2006, with the total constituency voting power at 9.22 per cent.

Mr Phil Bowen, formerly the Deputy Secretary and General Manager, Budget Group, Department of Finance and Administration, was elected Director of our constituency on 1 April 2007. Mr Bowen succeeded Mr Steve Sedgwick in this position. Mr Dereck Rooken-Smith of Australia commenced as the constituency’s Alternate Executive Director on 1 August 2007, taking over Mr Richard Moore’s position. Up to 31 March 2007 Mr Sedgwick served as Dean of the ADB’s Board of Directors and as Chairman of the Board Compliance Review Committee, while Mr Moore was a member of the ADB’s Development Effectiveness Committee until 30 June 2007. From 1 July 2007, Mr Phil Bowen was elected to the Budget Review Committee and Mr Dereck Rooken-Smith to the Board Compliance Review Committee, with both terms ending 30 June 2009.

By agreement between the member countries of our constituency, the Directors are supported by two advisors, one of whom rotates between the constituency’s Pacific Island members, and the other between Cambodia; Georgia; Hong Kong, China; and Azerbaijan.

Briefing for Australia’s Director on matters coming before the ADB Board is prepared by relevant Australian Government departments, principally Treasury and AusAID. Throughout the year, the views of non-government organisations (NGOs) are sought on matters of particular interest to those bodies.

Bilateral meetings

During 2006-2007, Australian Government Ministers and/or officials met with the following ADB management and staff:

• President, Mr Haruhiko Kuroda;
• Managing Director General, Mr Rajat Nag;
• Vice Presidents Mr Lawrence Greenwood, Mr Liqun Jin, Ms Ursula Schafer Preuss, and Dr Bindu Lohani;
• Department Director General, Mr Philip Erquiaga (Pacific);
• Mr Kazu Sakai, Director General, Strategy and Policy Department;
• Ms Naomi Chakwin, Regional Director, Pacific Liaison and Coordination Office;
• Mr Steve Sedgwick, former ADB Executive Director (to 31 March 2007) representing Australia;
• Mr Phil Bowen, Executive Director (representing Australia); and
• Mr Richard Moore, Alternate Executive Director (representing Australia).

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