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Bankwide Project Implementation PerformanceA. Project Quality and ImplementationThe Bank has continued its efforts to improve project quality and portfolio performance, and enhance the effectiveness of assistance to its DMCs. These efforts include initiatives to strengthen the quality of project supervision and implementation, management and mitigation of environmental impacts, beneficiary participation, operation and management of projects, and institutional capacities and capabilities. Toward this end, initiatives and activities undertaken during the period include the following:
The number of public sector loans under administration decreased from 478 (435 projects) as of 31 December 1998 to 470 loans (424 projects) as of 30 June 1999 (Appendix 1). During the period, 21 loans were approved (excluding two in the private sector) and 27 loans were closed (excluding two retroclosed and private sector loans ). The number of unsatisfactory loans rated under the PPR system was 31 (30 projects) in terms of implementation progress (about 7 percent of the portfolio) and 5 (5 projects) in terms of achieving development objectives (about 1 percent of the portfolio) compared with 8 percent and 2 percent, respectively, at the end of 1998. A new rating scale was introduced, and compliance with covenants related to submission of audited accounts and financial statements and environmental and social issues were included as criteria for rating projects. As a result, there was a movement of projects from the categories of satisfactory and unsatisfactory to partly satisfactory. Portfolio restructuring was initiated in 1998 to improve project quality and portfolio performance, and to meet the changing circumstances facing DMCs as a result of the financial crisis. The exercise continued during the reporting period on a selective basis, and identification of surplus loan proceeds will be completed by the end of 1999. A comprehensive action plan has been formulated to introduce more in-depth portfolio management, and implementation of this will be initiated in early 2000. The Bank continued its efforts to improve project implementation in selected DMCs through TAs and regular portfolio reviews. In addition, more attention was given to improving project quality at entry through preparatory activities to ensure beneficiary participation and stakeholder involvement. Formulation of projects was guided by (i) lessons learned from similar, earlier, or ongoing projects; and (ii) through capacity-building activities under TAs and components of loans. Of the 21 public sector loans approved, 17 provided for the appointment of project managers and the establishment of project offices prior to Board consideration. The remaining four involved a program loan, an emergency loan where the project manager will be funded by the cofinancing agency, and two loans where the appointment of a project manager is a condition for loan effectiveness of one and for disbursements for the other. Project administration memoranda were prepared for five projects during appraisal and for four others during inception missions. The balance will be prepared during inception missions still to be undertaken. It would be more effective if all project administration memoranda could be prepared at appraisal, particularly for projects with advance procurement or advance recruitment of consultants. RMs continued to play an important role in project implementation. They assisted EAs with the Bank's Guidelines for Procurement and Guidelines on the Use of Consultants, use of standard bidding documents, disbursements, audit requirements, and other operational matters. The role of RMs was critical in assisting EAs to implement projects more efficiently; in explaining the Bank's anticorruption policy and its implications on implementation of projects; and in ensuring that the action plan to improve the level of compliance concerning the submission of audited accounts and financial statements satisfactory to the Bank is effective. Some RMs led country portfolio review missions (CPRMs) and held regular meetings with senior government officials to discuss and resolve issues that were affecting project implementation. In addition, RMs continuously addressed progress in implementing action plans agreed upon between the Bank and governments during the CPRMs. RMs, staffed by adequate numbers of appropriately qualified personnel, can play an increasingly significant and important role in project implementation and portfolio management. 1. Capacity Building for Project ImplementationThe Bank continued to place more emphasis on the effectiveness of assistance to its DMCs, through the management and supervision of its projects and by a systematic approach to issues concerning governance and capacity building. Of the 21 public sector loans and 78 TAs approved during the period, 16 loans had capacity-building components, 15 loans had training components, and 62 TAs included components to strengthen institutional capabilities. In addition, 328 seminars and workshops were undertaken¾158 under loans and 170 under TAs¾to train government and EA officials. RMs also reinforced this systematic approach to capacity building by targeting increased ownership at senior level planners and assisting governments in identifying and resolving persistent generic issues. Details of these initiatives are given in Appendix 2. One regional and one country project implementation and administration (CPIA) seminars were conducted during the period to strengthen the management capability of EAs. A country project implementation profile (CPIP) was completed for Nepal, and a TA to address the main constraints identified is being processed. A CPIP is also nearing completion for the Philippines, which documents the institutions, regulations, procedures, and processes involved in implementing projects, and recommends a program to mitigate problems affecting project implementation, particularly those involving procurement. In addition, TAs are being implemented in Bhutan, PRC, Lao People's Democratic Republic (Lao PDR), Mongolia, and Viet Nam to develop the project implementation capabilities of DMCs through the adoption of more transparent procedures for procurement and recruitment of consultants. To achieve these objectives, the TAs are designed to assist the governments in strengthening procurement legislation, developing transparent local procurement procedures, and establishing regulatory frameworks for the construction and contracting industries and for the engagement of consultants. A TA to establish the Tender Support Bureau (now called the Procurement Support Bureau [PSB]) in Sri Lanka is under implementation. The establishment of the PSB will ensure a more professional approach to the issues related to public sector procurement and lead to a more transparent and accelerated procurement process. Completion of training for PSB staff and the revised procurement guidelines are expected by the end of 1999. TAs are under way for rural development, education, transport development, and environmental management, respectively, in Bangladesh, Cambodia, and PRC, to strengthen the EA's sectoral capacities. TAs are also being implemented for sectoral capacity building in India-urban development; Indonesia-health, urban development, and housing; Pakistan-transport and industry; and Philippines-urban policy development. A TA in Viet Nam is assisting EAs to prepare and implement development projects. TAs are ongoing in seven DMCs (one regional TA [RETA] for Kazakhstan, Kyrgyz Republic, and Uzbekistan; one for Cambodia, Lao PDR, and Viet Nam; and a small-scale TA for Mongolia) to improve capacity in project financial management, accounting, disbursement, and compliance with the submission of audited project accounts and financial statements. Under these TAs, project accounting manuals were prepared and staff training in the use of the manuals provided. A TA is also being implemented in Viet Nam to build project implementation capacity through the introduction of a more efficient project financial management system together with related staff training. Another TA for capacity building for resettlement is also ongoing for Viet Nam's Ministry of Rural Development and Agriculture. 2. Improving Accountability for Portfolio ManagementMore authority, responsibility, and accountability continued to be delegated to RMs in recognition of their increasingly important role in portfolio management. Delegation of loans and TAs is generally made at the beginning of the year for administrative reasons. An additional 15 loans and 5 TAs were delegated during the period, compared with 8 loans and 2 TAs during the first half of 1998, and efforts are continuing to identify further loans and TAs to be delegated in the future. The comparative figures for loan and TAs under administration and delegated to RMs are given in Table 1, and Figure 1. Although further loans and TAs were delegated to RMs, the number of loans and TAs under administration remained almost at the same level due to loan and TA closures. The inherent strength of RMs is the more frequent interaction between RM staff, officials of the EAs, consultants, beneficiaries, and other stakeholders that provide early opportunities to identify and resolve potential problems and prevent the occurrence of avoidable problems. Regular meetings held in RMs with government agencies focused on progress made in implementing action plans agreed upon during CPRMs and in resolving outstanding issues. These meetings are mechanisms for close monitoring and staff accountability. In addition, the Bank's initiative to persuade governments to delegate more authority to project managers and introduce the consultants' role as The Engineer, as defined by the International Federation of Consulting Engineers, is also a means of improving accountability. The RMs' special efforts to maintain close interaction with the offices of Auditor Generals helped in reaching basic agreements on the need to improve the framework and scope of regular auditing and its timeliness, and have provided the fora for discussions on good governance and anticorruption. Examples of country-specific actions taken to improve portfolio management are in Appendix 3. 
3. Beneficiary and Stakeholder ParticipationThe Bank continued its efforts to increase the participation of beneficiaries, stakeholders, people's organizations, and nongovernment organizations (NGOs) during loan and TA processing and implementation. Training activities focused on the importance of stakeholders' involvement in project preparation and implementation, their understanding of the objectives of projects, and their role in attaining these objectives. During the period, all 21 loans and 45 of the 78 TAs approved for the public sector incorporated participatory processes, and 176 seminars (122 under loans and 54 under TAs) stressed the importance of stakeholder involvement in project preparation and implementation. A RETA was approved in 1996 as a pilot fund to promote capacity building and participatory activities before fact-finding for project preparatory TAs. It provided the means to consult various stakeholders regarding their development concerns, to build early consensus, and to test different approaches. As a mechanism for orienting Bank practices toward participation, the fund proved to be a good choice. It enabled Bank staff to support participation upstream in the Bank's operational cycle and to pursue unanticipated opportunities to introduce participatory practices in operational activities already under way. Fifteen Bank operational activities received support from this fund, which covered 11 subsectors in 11 DMCs. The average size of such support was $17,000. Although relatively small in amounts, these activities will have a long-term impact on project quality. The evaluation output of the RETA was prepared for publication during the period. As a result of the positive outcome, Phase II of the RETA for $0.4 million, is expected to be approved by the end of 1999, and will continue to facilitate participatory activities in Bank-supported operations. Since poverty reduction is the overarching goal of the Bank, the RETA will be used in ways that contribute most effectively to achieving this aim. 4. Improving Feedback MechanismsAs a result of introducing the PPR system Bankwide, both physical and development oriented, the overall project performance rating became more realistic. More projects shifted from the "satisfactory" and "unsatisfactory" categories to the "partly satisfactory" category in terms of implementation progress. Ratings with respect to the attainment of development objectives improved, with a smaller percentage being placed in the "unsatisfactory" category. Several steps have been taken to improve the quality of information available from PPRs. A Help Desk was established in March 1999 and became operational until July to assist staff in preparing PPRs and project frameworks, and in identifying quantified performance indicators. A series of half-day seminars were organized for project staff on preparing PPRs. In particular, the Help Desk's main tasks were to (i) assist staff in properly completing PPRs for existing projects by helping them to reconstruct project frameworks and identify performance indicators for past projects, (ii) provide assistance and advice to staff for new projects, and (iii) carry out random reviews of PPRs and project frameworks for new projects. The Help Desk is expected to be operational again during September and October 1999. Presently, projects are rated basically on an arithmetic average of ratings of elements comprising the system, and only the overall project ratings are recorded in the PPR. Enhancement of the PPR system is under way to enable more details of individual elements to be recorded, extracted, and analyzed so that each element can be rated for a country or sector. This enhancement, which is expected to be introduced in the third quarter 1999, will include such data as the time taken to sign a loan, time taken for loan effectiveness, delay incurred in implementation, cost overrun, changes in scope, shortfall in counterpart funding and/or cofinancing, compliance with implementation covenants, compliance with submission of audited project accounts and financial statements, and compliance with environmental and social covenants. Of the 21 public sector loans approved during the period, 19 incorporated lessons learned from earlier and ongoing projects. The remaining two are the first ones in their respective sectors. Project frameworks were prepared for 18 loans. The remaining 3 loans are for rehabilitation projects, which did not need project frameworks. Of the 18 project completion reports (PCRs) circulated during the period, 15 documented benefit monitoring and evaluation and the rest were private sector loans and equity. B. Project Administration and Management1. Loans Under AdministrationThe 23 loans approved in the first half of 1999 amounted to $2,433.0 million, of which $2,370.4 million was for 21 public sector loans and $62.6 million was for 2 loans in the private sector (Appendix 4). The comparative figures for loan approvals in the previous years are given in Table 2, and in Figures 2 and 3. The cumulative number of loans and amounts by sector and by borrower are in Appendix 5.   2. Loan ClassificationAll of the 470 ongoing public sector loans were classified under the new PPR rating system, and 2 were classified as inactive. The number of loans classified as highly satisfactory was 36 (8 percent) in terms of implementation progress and 22 (5 percent) in terms of achievement of development objectives; the comparable figures as of 31 December 1998 were 5 percent and 3 percent, respectively. The number of loans in the satisfactory category in terms of implementation progress was 341 (73 percent), and 411 (87 percent) in terms of achievement of development objectives compared with 78 percent and 89 percent, respectively, as of 31 December 1998. The number of loans in the partly satisfactory category increased from 42 (9 percent) as of 31 December 1998 to 60 (13 percent) as of 30 June 1999 in terms of implementation progress, and from 28 (6 percent) to 30 (7 percent) in terms of development objectives. The number of unsatisfactory loans was 31 (7 percent) in terms of implementation progress, and 5 (1 percent) in terms of achievement of development objectives as of 30 June 1999, compared with 40 (8 percent) and 8 (2 percent), respectively, as of 31 December 1998 (Table 3, Figures 4 and 5). Details of ratings and their analysis are in Appendix 6. Of the 31 loans classified as unsatisfactory in terms of implementation progress, the highest number (7) were to Pakistan, followed by 6 to Indonesia and 4 to the Philippines. The other countries concerned were Bangladesh, Cambodia, PRC, India, Malaysia, the Marshall Islands, the Federated States of Micronesia, Mongolia, Papua New Guinea, Vanuatu, and Viet Nam. The five unsatisfactory loans in terms of achievement of development objectives, were to Bangladesh, India, Indonesia, Papua New Guinea, and Philippines. Compared with the ratings as of 31 December 1998, the portfolio performance of Pakistan, Mongolia, and Philippines deteriorated in implementation progress. In terms of achievement of development objectives, the performance of Indonesia deteriorated. A list of unsatisfactory loans with their status is in Appendix 7.    3. Loan EffectivenessDuring the first half of 1999, 38 loans became effective, 23 of them within the 90-day period stipulated in the loan agreements (Table 4, Figure 6, and Appendix 8). The average time taken for loan effectiveness improved significantly, from 112 days as of 31 December 1998 to 73 days as of 30 June 1999. This is largely because 6 program loans were declared effective immediately after their approval. Excluding program loans, the average time taken for loan effectiveness was 86 days compared with 114 days as of 31 December 1998. Loan effectiveness is being increasingly linked to the completion of preparatory activities, such as establishing and staffing project implementation units, inviting proposals for recruitment of consultants, and preparing bidding documents. Of the 38 loans that became effective, 7 were approved during the second half of 1997, three in the first half of 1998, 18 during the second half of 1998, and the remaining 10 in the first half of 1999.   The number of signed loans awaiting effectiveness increased by 4 to 22 as of 30 June 1999. Of the 22, 13 did not become effective within the 90-day period provided in the loan agreements: 1 approved in 1996, 2 in 1997, and 10 during the second half of 1998. A further 10 loans remained unsigned: 1 of them approved for India in 1996, 3 during the second half of 1998, and the remaining 6 in the first half of 1999. This compares well with 31 at the end of 1998 (Table 5, Figure 7, and Appendixes 9 and 10).   4. Loan ClosuresDuring the first half of 1999, 27 loans were closed with cumulative disbursements of $1,900.8 million and cumulative cancellations of $538.8 million, or 22 percent of the loan amounts, compared with 33 loans closed during the first half of 1998 with disbursements of $1,558.9 million and cancellations of $234.3 million, or 13 percent of the loan amounts (Table 6, Figure 8, and Appendix 11). The loans closed in the first half of 1999 consisted of 14 from ordinary capital resources (OCR) with total disbursements of $1,373.8 million, and 13 from the Asian Development Fund (ADF), with total disbursements of $527.1 million. The number of loans closed during the period was higher than the new loan approvals. More effort to close loans on schedule will enable the portfolio to be managed more intensively in the zero- to low-growth staff environment.   5. Loan CancellationsLoan cancellations during the first half of 1999, including those from loans not yet closed, amounted to $208.0 million from 32 loans: $166.6 million from 16 OCR loans and $41.4 million from 16 ADF loans. The cancellations comprised undisbursed loan balances at loan closing ($65.9 million), cost underruns ($71.8 million), and other causes ($70.3 million). Details are given in Table 7, Figure 9, and Appendix 12. Loan cancellations during the period decreased compared with the second half of 1998, mainly due to the unusually large cancellations arising from portfolio restructuring in Indonesia, Pakistan, Philippines, Thailand, and to specific project reviews in Papua New Guinea in 1998. In comparison, loan cancellations during the first half of 1998 amounted to $416.8 million from 50 loans ($273.7 million from 24 OCR loans and $143.1 million from 26 ADF loans).   6. Contract Awards and CommitmentsContract awards and commitments for the first half of 1999 amounted to $2,337.5 million, or 81 percent of the semiannual projection of $2,883.3 million and 42 percent of the annual projection of $5,564.0 million. OCR contract awards and commitments for the first half reached $2,407.8 million or 80 percent of the semiannual target, and 43 percent of the annual projection of $4,454.7 million, while the corresponding figures for ADF was $408.1 million or 86 percent of the semiannual projection of $475.6 and 37 percent of the annual projection of $1,109.2 million. Of the $2,337.5 million achievement, $1,277.0 million (55 percent) was for project loans and $1,060.5 million (45 percent) was for program loans. Only Korea, Lao PDR, Mongolia, Papua New Guinea, Philippines, Thailand, and Tonga achieved 50 percent or less of their contract awards and commitments projections for the first half of 1999 (Table 8, Figure 10, and Appendixes 13 and 14). The decline in contract awards and commitments for project loans since 1997 is due to the large increase in the approval of, and commitments from, program loans processed after the financial crisis in the region.   7. DisbursementsDisbursements for the first half of 1999 showed a downward trend, reaching $2,291.1 million, or 82 percent of the semiannual projection of $2,790.6 million and 41 percent of the annual projection of $5,558.9 million. OCR disbursements during the first half of 1999 amounted to $1,830.5 million, or 82 percent of the semiannual projection of $2,243.8 million and 43 percent of the annual projection of $4,287.3 million, while ADF disbursements of $460.6 million reached 84 percent of the semiannual projection of $546.9 million and 36 percent of the annual projection of $1,271.6 million. Of the $2,291.1 million disbursed, $1,250.1 million (55 percent) was for project loans and $1,041.0 million (45 percent) was for program loans. Shortfalls in disbursements were noted in Mongolia, Papua New Guinea, Thailand, and Uzbekistan, where 50 percent or less of their projections were achieved (Table 9, Figure 11, and Appendixes 13 and 15).   8. Release of Program Loan TranchesA total of 35 program loans were ongoing as of 30 June 1999, including 4 loans approved during the first half of 1999. Disbursements from nine loans amounted to $1,041.0 million against the projected disbursement of $1,369.7 million. The shortfall was due to less than expected tranche releases from loans to Indonesia. Of the nine program loans that had tranches released, seven (three to Indonesia, and one each to Nauru, Pakistan, Tajikistan, and Vanuatu) were first tranche releases, and two (one each to the Federated States of Micronesia and Indonesia) were second tranche releases. Of the seven loans that had their first tranches released, three (one each to Nauru, Tajikistan and Vanuatu) were approved during the second half of 1998, while the other four (three to Indonesia and one to Pakistan) were approved during the first half of 1999. Of the two loans that had second tranches released, one was approved during the first half of 1997 (to the Federated States of Micronesia) and the other during the first half of 1998 (to Indonesia). There were no tranche releases for the remaining 26 program loans (including 6 with less than satisfactory performance) because of (i) delays in implementing policy reforms (4-Kyrgyz Republic, Papua New Guinea [2], and Viet Nam); (ii) delays in meeting various conditionalities (5-India, Indonesia, Lao PDR, Marshall Islands, and Thailand); (iii) political and legislative difficulties (6-Cambodia, India, Mongolia, Philippines [2], and Thailand); (iv) resistance to reforms (1-Kyrgyz Republic); and (v) releases were not due (9-Bangladesh, Bhutan, Korea, Mongolia, Nepal, Pakistan, Philippines, Samoa, and Solomon Islands). One loan to Mongolia was fully disbursed. Of the nine loans that had tranches released during the first half of 1999, seven had first tranche releases on schedule while the second tranche releases for two loans encountered delays in passing legislation and in meeting conditionalities. The six program loans that were rated less than satisfactory contributed to the delayed release of tranches. Of the six, one each to Bangladesh, India, Lao PDR, Mongolia, and Viet Nam had partly satisfactory ratings while the one to the Philippines had an unsatisfactory rating. Three loans (one each rated partly satisfactory to India and Mongolia, and one rated unsatisfactory to the Philippines) experienced delays in passing legislation, while another three (one each to Bangladesh, Lao PDR, and Viet Nam) were rated partly satisfactory due to delays in either meeting conditionalities or slow implementation. The Capital Market Development Program loan to the Philippines was the only unsatisfactory program loan. The second tranche release has been delayed by more than two years because of significant delays in reconstituting and appointing the relevant senate and congress committees following the general elections, and passing necessary legislation (the Securities Act 1999 and the revised Investment Company Act, both containing reform measures). Details of the status of tranche releases, including reasons for delays, are given in Appendix 16, and the status of implementation of program loans and their ratings are given in Appendix 17. 9. Projects with Cost OverrunsNew cost overruns were identified in two projects, one each in Bangladesh and the Lao PDR. A total of four projects now have cost overruns, but arrangements to finance the cost overruns of two loans in Pakistan (previously identified ) were resolved during the period. The cost overruns were mainly due to increases in the scope of works, additional unforeseen works, increases in costs due to the security situation, and inadequate counterpart funds leading to delays and corresponding inflation. Details are in Appendix 18. 10. Projects with Changes in ScopeChanges in scope were made in 25 projects (25 loans) to enhance their benefits: 4 in Papua New Guinea; 2 each in Bangladesh, PRC, Indonesia, Nepal, and Philippines; and 1 each in Cambodia, Cook Islands, India, Korea, Marshall Islands, Mongolia, Solomon Islands, Thailand, Tonga, Uzbekistan, and Viet Nam (Table 10, Figure 12, and Appendixes 19 and 21). The changes were necessary to improve the quality and achieve the objectives of the respective projects, and resulted in improved performance of the portfolios of the DMCs concerned. Of the 26 changes (25 loans), 6 were major (1 each in Cambodia, India, Korea, Papua New Guinea; and 2 in Philippines) and the remaining 20 were minor (4 in Papua New Guinea; 2 each in Bangladesh, PRC, Indonesia, and Nepal; and 1 each in Cook Islands, Marshall Islands, Mongolia, Solomon Islands, Thailand, Tonga, Uzbekistan, and Viet Nam). One of the major changes was approved by the Board and five by Management, while the minor changes were approved by the respective Project directors. The generally increasing trend of changes in scope from 1996 reflects more efforts to improve overall portfolio management. 11. Projects with Changes in Implementation ArrangementsImplementation arrangements were changed for 23 loans (22 projects)-4 in Philippines; 3 each in the PRC and Thailand; 2 each in Indonesia, Kazakhstan, and Papua New Guinea; and one each in Bangladesh, Korea, Marshall Islands, Mongolia, Pakistan, Sri Lanka, and Viet Nam-in accordance with the needs of the projects and to ensure that the stated objectives and benefits will be achieved. Of the 23 changes, 7 were major and the remaining 16 were minor. The major changes were approved by the Board (one) and Management (six), while the minor changes were approved by the Project director concerned (Table 10, Figure 12, and Appendixes 20 and 21).   12. Submission of Audited Accounts and Financial StatementsAs of 30 June 1999, full compliance with submission of financial reports was met for 59 percent of those due while 21 percent was met but with delays. This is a decrease in the full compliance level of 61 percent at the end of 1998, but with the increase in compliance with delays from 15 to 21 percent during the same period, the combined complied and delayed compliance rose from 76 to 80 percent. This is indicative of the efforts being made to clear the backlog. Partial compliance stood at 12 percent and noncompliance at 8 percent. It is noteworthy that noncompliance has fallen steadily from 23 percent at the end of 1995 to 8 percent as of 30 June 1999 (Table 11, Figure 13, and Appendix 21). The Private Sector Group (PSG) has received 88 percent of the financial statements due in the period. Despite follow-up, poor compliance continued in Indonesia, Kyrgyz Republic, Lao PDR, Malaysia, Pakistan, Philippines, and some of the Pacific developing member countries (PDMCs). Compliance by Bangladesh, PRC, and Indonesia improved from 83 to 88, 75 to 79 and 35 to 44 percent, respectively, between 31 December 1998 and 30 June 1999. To help improve compliance levels, assistance continues to be given to selected DMCs through the training of project accountants and related staff under TAs. Other forms of assistance include the strengthening of audit offices in selected DMCs, strengthening of project accounts offices, use of private auditors, and financing of translation costs of audit reports. RMs are also closely following up the issues with the Borrowers, EAs, and Auditor Generals of the respective DMCs, and the RMs in Indonesia and Pakistan have initiated their own action plans with the governments to achieve compliance. In view of the importance of audited project accounts and financial statements in achieving good governance and in furthering anticorruption initiatives, monitoring of the Bank's overall action plan continued. Borrowers and EAs were reminded of the provisions of the action plan, which will become effective on 1 January 2000, that include (i) linking disbursements and contract awards under ongoing loans to substantial improvement in the level of compliance; (ii) linking new lending to substantial improvements in compliance; (iii) issuing of formal warnings for loans with submission of audited project accounts and financial statements delayed by more than six months beyond their due submittal dates; and (iv) recommending to Management to suspend loans with submission of audited project accounts and financial statements delayed by more than 12 months beyond their due date. Despite the initiatives taken by the Bank, compliance was still not satisfactory. Greater attention and efforts are required from operational departments, RMs, and the governments to comply with this loan covenant. As of 30 June 1999, submissions and acceptance by the Bank of audited project accounts and financial statements for 85 loans were delayed from zero to 6 months, between 6 and 12 months for 26 loans, and by more than 12 months in the case of 9 loans. Details of delays are in Appendix 22.   13. Project Administration ReviewsWith assistance from projects departments and COSO, programs departments continued to carry out regular CPRMs. The main objective of CPRMs is to discuss with senior government officials the measures needed to overcome country-specific generic problems that adversely affect efficient implementation of projects and to agree on a time-bound action plan to remedy the constraints. A total of 17 CPRMs were envisaged for 1999, one less than in 1998. Of this number, four were conducted¾one each in Bangladesh, Papua New Guinea, Philippines, and Uzbekistan (with particular focus on procurement issues). The remaining 13 CPRMs are scheduled for the second half of the year. Countries involved are Bhutan, Cambodia, PRC, India, Indonesia, Lao PDR, Maldives, Mongolia, Nepal, Pakistan, Sri Lanka, Thailand, and Viet Nam. In addition to the CPRMs, various other missions were undertaken to review individual projects as part of normal administration. A total of 326 project administration reviews were undertaken during the period. Staff-days spent in the field per project increased to 13.4 from 11.3 during the first half of 1998, but down from 15.0 for the whole of 1998 (Table 12, Figure 14, and Appendix 23).   14. Project Completion ReportsAlthough phasing of the annual program of 73 PCRs was more realistic than in previous years, the target of 42 PCRs for the first half of 1999 as proposed by the departments and offices concerned was not met: only 18 PCRs were circulated during the period. The departments, offices, Management, and the Audit Committee were advised that a more realistic target would be 55-60 PCRs. Although only 18 PCRs were circulated during the period, it is expected that this more realistic annual target can still be met. During the period, two PCRs were added to the program and two were deferred to 1999 mainly because of delays in completing the projects. All PCRs, including the deferred ones, will meet the Bank's requirement of circulation within two years of project completion. At the end of 1998, PSG scheduled the completion of five PCRs for six projects in the first half of 1999; of those, three PCRs for four projects were circulated. PSG has a program for circulating 9 PCRs for 10 projects in 1999 to meet its cumulative PCR target of 25 percent of private sector projects under administration. Details of the status of PCRs is given in Table 13, Figure 15, and Appendix 24.   15. Technical Assistance Completion ReportsThe 1999 TA completion report program of 156 as proposed by the departments and offices concerned is on the high side. Based on achievements during the past four years, departments, offices, Management, and the Audit Committee were advised that a more realistic target would be 115-120 technical assistance completion reports (TCRs). As of 30 June 1999, 48 TCRs were circulated against the departments' and offices' projection of 106. It is expected that the more realistic target will be achieved by the end of the year (Table 14, Figure 16, and Appendix 25).   16. Private Sector Operations (Without Government Guarantee)PSG continues to devote substantial efforts to strengthening risk management processes and practices. Key efforts include (i) completion of a consultancy study to improve risk management standards in the portfolio of mutual funds; (ii) a consultancy study to determine past performance and key lessons learned from projects through a review of PCRs and project/program performance audit reports; (iii) a significant expansion of the PCR program for 1999 and 2000 to include nine PCRs in 1999 and six in 2000; (iv) the creation of a Risk Management Unit comprising the Credit Review Team and the Workout Team (the Credit Review Team independently reviews portfolio companies, while the Workout Team closely manages impaired and nonperforming accounts); (v) increased focus on portfolio valuation to assess possible divestment and recovery options, and more vigorous pursuance of exit strategies. Efforts also include (i) introduction of weekly reporting on Workout Team accounts, and project administration developments and issues; (ii) incorporation of Y2K and governance boxes in the Private Sector Investment Management Notes for close monitoring of the status of private sector investee companies (efforts to improve and strengthen corporate governance and attain Y2K compliance are vital factors for sustained investment recovery); (iii) supervising implementation of the revised project classification system to enhance the quality and effectiveness of monitoring and management of individual investments and projects, and the overall portfolio; (iv) closer coordination with India, Indonesia, and Pakistan RMs in accordance with the delegation of investment administration to RMs; and (v) continuation of studies on the impact of specific political and economic events on the portfolio. The consultant's recommendations to help improve risk management standards in the mutual funds portfolio include (i) outlining of a reporting structure to delineate responsibilities and authorities for decision-making and monitoring; and (ii) developing a set of criteria for monitoring, controlling, and assessing each collective investment vehicle relative to these criteria, prior to inception. These recommendations, along with the key lessons identified from the consultant's assessment of the development impact of private sector projects, will be implemented to enhance efficiency in the operation of the sector. During the period, a total of $70.0 million was approved for three investments (including one equity of $7.4 million), which is 51 percent below the $142.0 million for 10 investments during the same period last year. The three investments involved two projects with an aggregate total cost of $352.0 million. Accordingly, for every $1 of the Bank's investment, an additional $4 from other investors and lenders will be mobilized. The number of investments awaiting signing of agreements or effectiveness prior to implementation decreased to 14 as of 30 June 1999, compared with 20 as of 30 June 1998 and 13 at the end of 1998. The number of investments fully effective and with disbursements without restriction decreased from 22 as of 31 December 1998 to 17 as of 30 June 1999 (Figure 19). During the six-month period, the Bank's shares were fully disposed of or redeemed in two investments. One of the problem investments, which was written down as of 31 December 1998, was completely written off as of 30 June 1999. Total arrears (principal, interest, and other charges) amounting to $25.6 million for 13 loans as of 31 December 1998 increased to $40.8 million for 16 loans as of 30 June 1999. The amount of loss provisions increased from $159.9 million as of 31 December 1998 to $167.6 million as of 30 June 1999. The surge during the period is due to the increase in provisions for six loans and two equity investments, and the inclusion of a 50 percent provision for a regional fund. The increase in provisions was generally necessitated by continuing default situations, debt restructuring or rescheduling status, deferred deals with potential investors, deteriorating market environment, and underperforming investments. The number of loans in arrears increased from 13 as of 31 December 1998 to 16 as of 30 June 1999 as a result of the inclusion of a loan to Pakistan and of three loans under a Philippine investee company. The three loans to the Philippines were further provisioned as of 30 June 1999. These circumstances explain the increase in infection ratio over the six-month period. Two investments were sold and redeemed. From the sale of the Bank's share in Korea Technology Finance Corporation, a net capital gain of $0.824 million was realized while a net loss of $0.507 million was incurred from the redemption of the Bank's shares in PT Mediasarana Multi-Finance in Indonesia. The loss is an effect of the 33.23 percent discounted lump sum settlement of the Bank's loan, and the buyback of the Bank's equity investment at a 30 percent discount to the par value. As of 30 June 1999, the total realized capital gains since the Bank commenced private sector operations in 1983 totaled $50.0 million on equity investments. The total dividends received amounted to $2.2 million, or a current yield of 1.9 percent on the total average equity portfolio of $241.8 million (including AFIC) during the first half of 1999 (compared to $0.7 million or 0.3 percent of the total average portfolio of $215.5 million for the same period in 1998). The revision in risk rating, operational status, disbursement status, and recovery status classification of projects has been implemented since 31 December 1998 to enhance the quality and effectiveness of monitoring and management of individual investments and projects, and the overall portfolio. In line with the risk rating system, which was adopted to measure the risk of repayment and/or recovery of the Bank's investments, 65 of the 99 projects under administration as of 30 June 1999 were classified between categories 1 (strong) to 3 (satisfactory), while 34 were rated under categories 4 (marginal) to 7 (loss). As of 31 December 1998, of the 100 projects under administration, 67 were in categories 1 to 3 while 33 were in categories 4 to 7. The changes in the six-month period are attributed to the sale of a nonproblem investment as well as the collection difficulties and project completion delays in two investments, which warranted their downgrading to categories 4 to 7. Details of private sector operations are in Tables 15 and 16, Figure 17, and Appendixes 26, 27 and 28.    17. Technical Assistance ImplementationThe number of TAs under implementation by operational departments and offices and RMs decreased from 532 at the end of 1998 to 502 as of 30 June 1999. In addition, there were 166 TAs under implementation by nonoperational departments and offices, bringing the number of ongoing TAs Bankwide to 668. The number at the end of the first half of 1998 was 700, and 690 at the end of 1998 (Figures 18, 19). The latest figure of 668 thus continues the recent downtrend resulting from Bankwide efforts to reduce the number to more manageable proportions, and to free up surplus TA funds. To streamline the portfolio of operational and nonoperational TAs, 129 completed TAs were closed financially during the period; this resulted in surplus TA funds of $7.0 million. There are, however, still 357 TAs that have been physically completed but not closed financially, and a further 668 that are still being implemented. Further concerted efforts by all operational and nonoperational departments and offices are required to complete the TA portfolio restructuring and to realize further surplus funds. A total of 251 TA administration missions were fielded in the first half of 1999 covering 197 projects. Staff-days spent in reviewing TAs in the field increased from 7.3 during the first half of 1998 to 8.9 during the period (Table 18, Figure 20, and Appendixes 29 and 30).    
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