Catalog

	Table of Contents
p. 8 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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F. Lessons Learned²⁸

35. A number of lessons have been learned from ADB’s experience with PSO in the infrastructure and financial sector (including capital markets and funds). Lessons have also been learned from ADB’s discontinued involvement in the manufacturing sector. Most lessons relate to project selection, formulation, and appraisal, particularly the financial capability, technical experience, and management strength of project sponsors, and the accuracy of market assessments. Specific lessons include the following:

1. Sponsors with significant sector experience, strong financial capability, and firm commitment to the host country are essential to project success.
2. Effective project management comes from teams with a long and sound track record in the business, committed to transparency, and supported by corporate governance structures.
3. Market prospects are a key determinant of success. Thus, project appraisal requires thorough and often specialized assessment of market conditions, and, where necessary, ADB must augment its in-house capability to be able to undertake or supervise such assessments.²⁹
4. It is important for ADB to remain engaged in investing in financial intermediaries and capital market institutions in order to develop a good understanding of the financial sector for effective policy work.
5. In the case of infrastructure projects, early participation by ADB is helpful in encouraging sound contract structures. Government support is needed to facilitate financial closure. Such support is ensured if the project is priority in the host country’s development strategy.
6. For exclusive infrastructure concessions, competitive bidding for the selection of concessionaires is one way to ensure competitive tariffs and sound assessment of demand.

36. In the area of project administration, (i) regular attendance and active participation by ADB’s nominee directors at board meetings of investee companies are critical to maximizing development impact, (ii) RM involvement significantly contributes to effective project monitoring, and (iii) ADB needs better internal systems to effectively monitor project compliance with environmental standards. PSG has identified these areas for improvement.

37. Other lessons highlight the importance of a conducive policy environment, especially a well-established regulatory framework to mitigate political and commercial risks. Project experience points to the importance of better coordination among all ADB departments and offices, including PSG, to fully understand government policies and their impact on sector growth and competitiveness. ADB’s experience in PSO is an important input to its own policy dialogue related to sector reform and restructuring for greater private sector involvement.

38. In the case of investment funds, the lessons learned³⁰ include the following: (i) Fund performance is predominantly dependent on the competence of the contracted fund managers. Selection of such managers is best done through a transparent and/or competitive process based on objective evaluation criteria. (ii) Disclosure procedures for related-party transactions ensure transparency and alignment of investment objectives to maximize shareholder value. (iii) Independent valuation of fund investments provides a more reliable basis for tracking financial condition and performance of a fund. (iv) Regular performance evaluation of fund managers facilitates detection of early warning signals. (v) Bonuses for fund managers is best based on long-term performance over the life of the fund, not on interim results, as this ensures continuing support for ADB’s long-term development objectives.

39. The foregoing lessons have been taken into account in the selection, appraisal, structuring, and administration of private sector projects involving ADB assistance.

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