Catalog

	Table of Contents
p. 4 of 32 BACK | NEXT I. Introduction II. Assessment of Past Performance A. Country and Sector Coverage B. Impact of Private Sector Operations C. Financial Performance D. Risk Exposure E. Portfolio Administration F. Lessons Learned III. Rationale and Role IV. Operational Strategy V. Operational Improvements VI. Resource Requirements VII. Conclusions and Recommendations

Private Sector Operations: Strategic Directions and Review : II. Assessment of Past Performance

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B. Impact of Private Sector Operations

1. Development Impacts¹⁰

10. When measuring the performance of ADB’s private sector portfolio, the tendency is to focus on financial performance. While the financial results are reported quarterly, less attention has been given to assessing the development impact of PSO, partly because this is difficult to measure and often involves subjective judgment. However, recognizing the importance of assessing the development impacts of PSO, in 1999 PSG reviewed 24 selected projects. This review found that all these PSO projects contributed to development.¹¹

11. ADB’s experience shows that development impacts of PSO can be most readily captured by the project economic rate of return, but can also be observed and at least qualitatively assessed in terms of project impacts, such as: (i) job creation, (ii) skills training and management development, (iii) growth in upstream and downstream businesses, (iv) transfer of technology and sound business practices, (v) social development through provision of social services, (vi) environmental protection, (vii) expanded financing options, and (viii) sound corporate governance.

12. ADB should be particularly proud of its impact, through PSO, on corporate governance throughout the region. ADB has placed much greater emphasis on sound corporate governance among its private sector clients. This is a key feature of recent ADB investments. ADB has insisted on high standards of corporate governance in project design and is guided by similar principles in the appraisal, negotiation, and implementation of private sector projects. Requiring clients to adopt best practice in corporate governance is a powerful tool to help mitigate risk in PSO.

2. Financial Leverage

13. ADB’s catalytic role in PSO enables it to leverage its own funding and facilitate resource commitments from other lenders and investors. During 1995-2000, ADB used just over $1 billion of its own funding commitments to support private sector projects with aggregate costs of over $9 billion. This represents a leverage ratio of eight times. Discussions with project sponsors, financiers, and others indicate that ADB’s investments in private sector projects has been, and will continue to be, a significant factor in their decisions to invest in or lend to particular projects. This has certainly been the case with investment funds, where ADB's small equity investment has been able to attract substantial commitments from institutional co-investors. In the case of individual infrastructure projects, ADB's direct lending has usually served as a source of comfort for commercial lenders because ADB shares the same risks as the cofinanciers. In addition, ADB’s Complementary Financing Scheme (CFS) has also offered significant risk mitigation for commercial lenders, particularly during the 1995-2000 period when the CFS lending for PSO amounted to $575 million, three times the total CFS lending for PSO up to 1994.

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