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Financial Management and Analysis of Projects :
7. Knowledge Management
Model TOR for PPTA Financial Consultants:
Revenue-Earning Project
Terms of Reference for Consulting Services for Project Preparatory Technical
Assistance to
Design and Prepare for Implementation of a Revenue-Earning Project:
Financial Management and Analysis
Guidance: Advice on
amending this model—to reflect country-and project-specific
circumstances—should be sought from a Financial Management
Specialist. Previous efforts should not be duplicated. For instance:
(i) identify whether ADB or any other agencies have previously conducted
a Financial Management Assessment of the EA: (ii) review similar
projects that have been prepared previously and identify generic
materials, such as country-level issues; (iii) review funds-flow
arrangements for other similar projects and identify mechanisms
that have worked successfully and those that have been suboptimal,
reflect these lessons in the design.
This model TOR is not meant to be used as a standard TOR for all
PPTAs. Rather, it may be used as a base which can be amended, depending
upon the individual project at hand and terms may be added or removed
as considered necessary.
The financial consultant will conduct a financial analysis of the proposed
Project and a financial management (FM) assessment of the Executing
Agency (EA) [name], and Implementing Agency (IA)[name]. This will
include providing assistance to prepare relevant sections of the
Report and Recommendation to the President (RRP) of ADB.
The
financial consultant's activities will be guided by, and outputs
prepared in accordance with, the Financial Management and Analysis
of Projects (the Guidelines), ADB's Operations Manual
(particularly OM G2, J7 and C4), ADB's Project Administration
Instructions (particularly PAI 5.09) and ADB's Loan Disbursement
Handbook.1
The
financial consultant will work closely with counterparts in a manner
that assures that counterparts take responsibility for, and assume
ownership of, the project financial analysis. The financial consultant
will also liaise closely with the preparer(s) of the project economic
analysis to ensure that the financial analysis is fully consistent,
where relevant, with the economic analysis (including the poverty
impact assessment2).
Undertake
Preparatory Activities
(i) Identify country- and project-specific information
on previous and ongoing activities [7.8.1.1-7.8.1.2
Checklist].Determine
whether any other agency has appraised the EA and/or IA [4.1.6
World Bank certification] or has previously supported
(or intends to support) institutional strengthening. If so, determine
the objectives, scope, and results of these activities.
(ii) Review
and, where necessary complete, the Financial Management Assessment
Questionnaire [FMAQ]. Discuss and agree
project steps and process with counterparts. Prepare a preliminary
Financial Management Internal Control and Risk Assessment (FMICRA)
[FMICRA]. Provide the FMAQ and the
FMICRA to ADB for review and comments.
Prepare
Project Financial Analysis
(iii) Assist
counterparts to prepare a preliminary Project Cost Estimates Table
for the proposed investment (and any defined sub-projects) taking
into account all relevant financial costs and benefits [3.4.3-3.4.4
Cost estimates and 7.8.1.5 Contingencies].
(iv)
Assist counterparts to prepare a preliminary Project Financing Plan,
including proposed ADB lending, any prospective cofinancing, and
appropriate counterpart funds for local currency expenditures [3.4.6
Financing plans and 7.8.1.5 Checklist].
(v)
Assist counterparts to prepare preliminary cash flow projections
for the project, including all relevant financial costs and benefits,
[3.4.7 Project cash flows] and subject
these to a financial benefit-cost analysis [3.5.1-3.5.3
Cost-benefit analysis and 7.8.1.6-7.8.1.8 Checklist].
(vi)
Assist counterparts to identify project revenue and cost risks and:
(a) conduct relevant sensitivity analyses; and (b) identify practical
risk-mitigation strategies and approaches [3.5.4
Sensitivity analysis and 7.11 Sensitivity and risk analysis steps].
Prepare a draft appendix of the Project Financial Analysis for inclusion
in the RRP. [3.7.3 RRP and 7.8.1.8 Checklist].
Provide the draft RRP appendix and the preliminary tables and analyses
(Project Cost Estimates Table, Financing Plan, cash flow projections,
and sensitivity analyses) to ADB for review and comments.
(vii)
Update the RRP appendix and the tables and analyses to reflect ADB
comments and suggestions, and the agency financial analysis [see
(xix) below].
Review
Cost Recovery and Tariff Strategy
Guidance: This section of the TOR may not necessarily be assigned
to the PPTA financial consultant.
(viii)
Assist counterparts to design or review cost recovery and/or tariff
structures, considering the issue of affordability [4.3.3
Linkages with cost recovery and tariffs].
Design
Fund-Flow Mechanism and Disbursement Arrangements
(ix) Assist
counterparts to design the project fund-flow mechanism. Where applicable,
review lending/onlending arrangements to ensure compliance with
ADB policy [OM D2: Lending and Relending Policies].
The preliminary design should take account of the financial management
responsibilities of each involved entity (EAs and IAs including
entities in provinces/ districts) [ADB Loan Disbursement
Handbook]. As applicable, review or suggest disbursement
procedures, including Imprest Account and SOE arrangements. Provide
the proposed project fund-flow mechanism design and disbursement
arrangements to ADB for review and comments.
Assess
Agency Financial Management
(x)
Assess the financial management capabilities—including
internal control mechanisms—of
the EA and IA, making use of the information provided through (i)-(ii),
among other things [OM G2, 4.2.1-4.2.8 Assessments,
7.8.1.3-7.8.1.5 Checklist and ADB Controller's Department Checklist
and Handbook for the Assessment of Borrower's/Executing Agency's
Internal Control and Accounting System]. Particular emphasis
should be placed on the capacity of EAs and IAs to manage and monitor
project disbursements, taking account of previous country disbursement
experience [see (ix)] [ADB Loan Disbursement Handbook].
Update the FMICRA. Prepare the draft FM Assessment Report. Provide
the updated FMICRA and the draft FM Assessment Report to ADB for
review and comments [FM assessment report].
(xi)
Update FM Assessment Report to reflect ADB comments and suggestions.
Where necessary, based on this assessment, make detailed recommendations
for institutional strengthening of financial management as part
of a time-bound action plan [4.2.6.3.9-4.2.6.3.18
EA appraisal, 7.8.1.3.10 and 7.8.1.4.5 Checklist]. Prepare
RRP appendix reflecting assessment findings and recommendations,
and provide to ADB [3.7.3 RRP].
Confirm
Fund-Flow Mechanism Design and Disbursement Arrangements
(xii)
Confirm fund-flow mechanism design and disbursement arrangements.
Alternatively, where measures are recommended to strengthen EA and
IA financial management capabilities, but are unlikely to take effect
until after disbursements commence, propose alternative fund-flow
mechanisms and disbursement arrangements [ADB
Loan Disbursement Handbook].
Propose
Accounting and Auditing Arrangements
(xiii)
Assess the acceptability of proposed accounting policies, including
financial reporting standards and general accounting practices,
of the EA and IA. Identify material differences, discuss these with
the entity's auditor (if possible), and, propose modifications where
necessary [4.2.8.4 Accounting policies, 4.2.5
Diagnostic studies of accounting and auditing, and 5.2.3 ADB accounting
policy requirements].
(xiv)
Work with counterparts to propose reporting formats and timetables
[5.3 Financial reporting, 7.16-7.17 Model financial
statements, model project accounts].
(xv)
Assess suitability of auditing standards and auditors and propose
auditor arrangements, including auditor terms of engagement [5.4
Auditing standards, 5.4.4-5.4.8 Auditor engagement, 7.18 Model auditor
TOR, 7.19 Audit report questionnaire].
(xvi)
Identify potential accounting, reporting, and auditing issues and
propose workable options. Update the FM Assessment Report, to reflect
proposed accounting and auditing arrangements, and provide to ADB
for review and comments, together with supporting materials (e.g.,
proposed accounting policy modifications, proposed reporting formats
and timetables, and proposed auditor terms of reference).
Prepare
Agency Financial Analysis
(xvii)
Assist counterparts to review audited and/or unaudited financial
statements of EA and IA to assess historical: (a) financial performance,
(b) retail tariff levels, (c) equity and financing arrangements,
and (d) whether sufficient internal funds have been generated to
sustainably support ongoing operations (i.e., to service existing
debt and to finance a reasonable proportion of capital expenditures)
[3.7.3.2 Past financial performance, 4.3.1-4.3.2
Objectives, and 4.3.3 Cost recovery and tariffs].
(xviii)
Assist counterparts to prepare projected financial tables for the
EA and IA [4.3.4 Preparing financial tables, 5.3.9.1
Designing financial reports, 7.16-7.17 Model financial statements],
including X-year pro forma financial statements [4.3.5.2
Fiscal period coverage].
(xix)
Where appropriate, recommend financial indicators and covenants
for the EA and IA. [4.4.1-4.4.8.3 Measuring performance,
3.6.1-3.6.4 Covenants, 7.12-7.14 Model covenants, 7.15 Indicators].
Assess pro forma compliance with these measures and conduct sensitivity
analyses [3.5.4 Sensitivity and risk analysis].
Update FM Assessment Report to reflect findings. Prepare RRP appendix
summarizing agency financial analysis and provide to ADB with supporting
materials [3.7.3 RRP].
General
and Consultative Activities
(xx)
Together with ADB staff and other involved consultants, explain
the compilation of forecasts and analyses to counterparts, with
the objective of reaching agreement on: (a) the Project Cost Table,
(b) the Financing Plan, (c) financial projections, (d) financial
performance indicators, and where relevant (d) any proposed tariffs
and charges.
(xxi)
Together with ADB staff, counterparts, and other involved consultants,
explain the compilation of forecasts and analyses to co-financiers,
with the objective of reaching agreement on: (a) the Project Cost
Table, (b) the Financing Plan, (c) financial projections, (d) financial
performance indicators, and where relevant (d) any proposed tariffs
and charges.
(xxii)
Where requested by ADB, provide project-related financial information
to assist the preparation of Aides Memoire, Memorandums of Understanding,
and other project-related documents.
(xxiii)
Provide any other services that are reasonably requested by the
ADB Project Officer.
Reporting
(xxiv)
Provide the following documents and reports to ADB, with copies
to the EA and other concerned consultants and counterparts:
| Document
/ Report |
Ref |
Timing |
| |
|
|
|
| |
Financial
Governance and Management Questionnaire |
(ii) |
|
| |
RRP:
Preliminary project tables and analysis |
(vi) |
|
| |
RRP:
Updated project tables and analysis |
(vii) |
|
| |
Proposed
project fund-flow mechanism design |
(ix) |
|
| |
Draft
FM assessment report |
(x) |
|
| |
RRP:
FM Assessment findings and recommendations |
(xi) |
|
| |
Proposal
for alternative fund-flow mechanism (where necessary) |
(xii) |
|
| |
RRP:
Proposed reporting and auditing arrangements (and supporting
materials |
(xvi) |
|
| |
RRP:
Agency financial analysis (and supporting materials) |
(xix) |
|
| |
|
|
|
| Progress
Report |
|
|
| Draft
Final Report |
|
|
| Final
Report |
|
|
_____________________________
1 Unless noted otherwise, the bracketed references are
to the Guidelines.
2 ADB. 2001. Handbook for Integrating Poverty Impact
Assessment in the Economic Analysis of Projects. ADB: Manila.
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7.19.6. Conclusion and Further Action (if any) | Next
I. Model TOR for PPTA Financial Consultants: Revenue-Earning Project |
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