Report and Recommendation of the President to the Board of Directors

Project Number: 48484-002 October 2016

Proposed Grants and Administration of Grant Tuvalu: Outer Island Maritime Infrastructure Project Distribution of this document is restricted until it has been approved by the Board of Directors. Following such approval, ADB will disclose the document to the public in accordance to ADB’s Public Communications Policy 2011.

CURRENCY EQUIVALENTS (as of 24 September 2016)

Currency unit – Australian dollar (A$)

A$1.00 = $0.7624

$1.00 = A$1.3116

ABBREVIATIONS ADB – Asian Development Bank ADF – Asian Development Fund CPU – Central Procurement Unit EMP – environmental management plan GAP – gender action plan GEF – Global Environment Facility IEE – initial environmental examination km – kilometer MCT – Ministry of Communication and Transport O&M – operation and maintenance PAM – project administration manual PDA – project design advance PFM – public financial management PMU – project management unit SSS – single-source selection

NOTES

In this report, “$” refers to US dollars, unless otherwise stated.

Vice-President S. Groff, Operations 2 Director General X. Yao, Pacific Department (PARD) Director O. Norojono, Transport, Energy, and Natural Resources Division,

PARD Team leader S. Muramoto, Unit Head, Project Administration, PARD Team members M. Abao, Project Analyst, PARD F. Asistin, Senior Operations and Institutional Coordination Officer,

PARD N. Carandang, Safeguards Specialist, PARD A.P. Chiang, Transport Specialist, PARD M. Creus, Senior Operations Assistant, PARD C.L. Damandl, Senior Counsel, Office of the General Counsel G. King, Senior Project Officer (Financial Management), Pacific

Subregional Office in Suva, Fiji (SPSO), PARD K.Y. Nam, Principal Economist, Economic Research and Regional

Cooperation Department S.B. Olsson, Country Coordination Officer, SPSO, PARD R. Rabanal, Senior Economics Officer, PARD C.J. Rhor, Senior Procurement Specialist, Operations Services and

Financial Management Department J. Williams, Senior Environment Specialist, PARD Peer reviewer W. Tawisook, Principal Transport Specialist, Central and West Asia

Department In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page

PROJECT AT A GLANCE

MAP

I. THE PROPOSAL 1

II. THE PROJECT 1

A. Rationale 1

B. Impact and Outcome 3

C. Outputs 4

D. Investment and Financing Plans 4

E. Implementation Arrangements 5

III. DUE DILIGENCE 6

A. Technical 6

B. Economic and Financial 6

C. Governance 7

D. Poverty and Social 8

E. Safeguards 8

F. Risks and Mitigating Measures 9

IV. ASSURANCES 10

V. RECOMMENDATION 10

APPENDIXES

1. Design and Monitoring Framework 11

2. List of Linked Documents 14

Project Classification Information Status: Complete

PROJECT AT A GLANCE

Source: Asian Development BankThis document must only be generated in eOps. 26062015151932102072 Generated Date: 30-Sep-2016 15:11:13 PM

1. Basic Data Project Number: 48484-002Project Name Outer Island Maritime Infrastructure

ProjectDepartment/Division

PARD/PATE

Country Tuvalu Executing Agency Ministry of Communication and TransportBorrower Ministry of Finance and Economic

Development

2. Sector Subsector(s) ADB Financing ($ million)Transport Water transport (non-urban) 11.30

Total 11.30

3. Strategic Agenda Subcomponents Climate Change Information Inclusive economic growth (IEG)

Pillar 2: Access to economic opportunities, including jobs, made more inclusive

Environmentally sustainable growth (ESG)

Global and regional transboundary environmental concerns

Adaptation ($ million) 0.77Climate Change impact on the Project

High

4. Drivers of Change Components Gender Equity and MainstreamingGovernance and capacitydevelopment (GCD)

Institutional development

Knowledge solutions (KNS)

Pilot-testing innovation and learning

Partnerships (PAR) Civil society organizationsOfficial cofinancing

Effective gender mainstreaming (EGM)

5. Poverty and SDG Targeting Location ImpactProject directly targets poverty and SDGs

No Rural HighUrban Low

6. Risk Categorization: Complex.

7. Safeguard Categorization Environment: B Involuntary Resettlement: C Indigenous Peoples: C.

8. Financing

Modality and Sources Amount ($ million)

ADB 11.30 Sovereign Grant projects: Asian Development Fund 11.30

Cofinancing 0.50 GEF-Least Developed Countries Fund - Grant 0.50

Counterpart 1.50 Government

1.50

Total 13.30

9. Effective Development CooperationUse of country procurement systems NoUse of country public financial management systems Yes

I. THE PROPOSAL

1. I submit for your approval the following report and recommendation on proposed grants to Tuvalu for the Outer Island Maritime Infrastructure Project.1 The report also describes the proposed administration of a grant to be provided by the Global Environment Facility (GEF) for the Outer Island Maritime Infrastructure Project and, if the Board approves the proposed grants, I, acting under the authority delegated to me by the Board, approve the administration of the GEF grant. 2. The project will help Tuvalu overcome connectivity constraints between the capital and outer islands, and promote economic and social development that is more inclusive and sustainable. It will improve maritime facilities in the three outer islands of Nukulaelae, Nanumaga, and Niutao as well as strengthen the government’s capacity in operation and maintenance (O&M) and develop a transport sector master plan.2

II. THE PROJECT

A. Rationale

3. Regional context. Tuvalu is one of the smallest and most remote member countries of the Asian Development Bank (ADB). Its challenges in the transport sector and economic development come from its dispersed geography: (i) the country comprises nine atoll islands, stretching over 680 kilometers (km) in the southwest Pacific; (ii) it has a small and dispersed population of 10,100 as of June 2016,3 with over 6,000 people in Funafuti, the capital, and the rest spread in the outer islands; and (iii) the population of the outer islands is decreasing as a result of limited economic opportunities. Tuvalu is over 1,100 km away from Fiji and more than 3,000 km away from Australia and New Zealand. Internationally, flights to and from Funafuti depart from and arrive at Suva, Fiji, twice a week, and a commercial cargo ship arrives in Funafuti once every 3 weeks. 4. Government shipping service. Domestic transportation depends entirely on the two government-owned ships operated by the Ministry of Communication and Transport (MCT), which continuously travel between Funafuti, the outer islands, and Fiji to provide lifeline support to people in the outer islands by transporting necessary goods such as food and fuel, as well as transportation to people who need social services such as medical care and education. This shipping service is critical for outer islands people, as the country has no other private shipping or civil aviation services. 5. Maritime transport challenges. The government’s shipping service faces the following challenges: (i) the two ships operating continuously can only reach each island once every 2–3 weeks;4 (ii) no outer island has a docking facility for the government ships, and passengers and cargo are transferred by small workboats between the ship and the shore; (iii) transferring between the ship and the workboats is particularly dangerous when the sea is rough; 1 The design and monitoring framework is in Appendix 1.

2 The Asian Development Bank (ADB) provided project preparatory technical assistance for the Outer Island

Maritime Infrastructure Project (TA 8923-TUV), and a project design advance (PDA) grant for the detailed engineering design and assistance to the government for the procurement of civil works for the project and project management (PDA 6003-TUV). Tuvalu is categorized a fragile and conflict-affected state.

3 Secretariat of the Pacific Community-Statistics for Development Division (PRISM Project). Population Statistics.

http://prism.spc.int/regional-data-and-tools/population-statistics (accessed 27 September 2016). 4 These ships are 46–58 meters in length, with 583–1,043 in gross tonnage, and carry 200–300 passengers and

cargo.

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(iv) workboats need to pass through channels, some of which are dangerous when the sea is rough or too shallow to use during low tide; and (v) except for Vaitupu, Nanumea, and Nukufetau, the outer islands also lack docking facilities even for the workboats. In the past, serious accidents have occurred during passenger transfers and passing through the channels, resulting in loss of lives and economic values. Transfer operations cannot be carried out when the sea is rough or after dark, which reduces the efficiency of ship operations. 6. On top of these challenges, Tuvalu faces constant and increasing threats of natural hazards such as tropical cyclones. For example, Tropical Cyclone Pam in March 2015 caused severe flooding and erosion, and damaged maritime infrastructure in most of the outer islands. In Nukulaelae, a ramp was damaged and the channel was silted. In Nanumaga, a ramp was washed away. In Nanumaga and Niutao, the channels were blocked with boulders and sand. The government, with the help of the United Nations Development Programme, prepared the Tuvalu Tropical Cyclone Pam Recovery: Vulnerability Reduction Plan. Following this plan, various climate-proofing activities are ongoing in the country. At the government’s request, ADB Management set aside $3.0 million from the Asian Development Fund (ADF) Disaster Response Facility for Tuvalu, and this project proposes to undertake further rehabilitation works. 7. The government’s priority. The Government of Tuvalu places very high priority on improving access for the outer islands. The National Strategy for Sustainable Development, 2016–20205 sets out the government’s vision to make maritime transportation more efficient and safer to (i) enhance economic development, especially local fisheries; (ii) improve livelihoods and safety conditions in the outer islands; and (iii) reduce migration from the outer islands to Funafuti, which is facing urban problems of overcrowding, pollution, and spread of disease. The government has requested ADB to finance the proposed project given ADB’s recent experience in maritime transport in the Pacific, including Papua New Guinea, Solomon Islands, and Vanuatu. The government is also seeking assistance from development partners to develop outer islands maritime facilities. 8. Harbor development approach. While the most efficient and safest transfer operation can be achieved by building harbor facilities that can directly accommodate government ships, which is the ultimate aspiration of all Tuvaluans, the construction of such harbors in all outer islands is estimated to cost several hundred million dollars. It is, therefore, necessary to develop harbors in stages based on a long-term transport master plan. This will also help the government to seek financing from development partners in a phased and prioritized manner. The government prioritizes Nukulaelae as the first island for construction of small-scale maritime facilities, and Nanumaga and Niutao for minor rehabilitation of their boat ramps. The improvement of transfer operations is also expected to help Nukulaelae’s efforts to increase the climate resilience of community infrastructure by making the transportation of construction materials more efficient. This is timely for Nukulaelae because it has been raising all community and private houses since late 2015 to prevent flood damage. 9. The total cost for physical improvements under the project is estimated at $10.2 million. With a total population of about 1,400 on these three islands, the project carries a high per capita cost. This reflects, in part, the significant remoteness premium involved in any investment

5 Government of Tuvalu. 2016. Te Kakeega III: National Strategy for Sustainable Development, 2016–2020.

Funafuti. As of May 2016, the Tuvalu Infrastructure Strategy and Investment Plan 2016 Update is being prepared based on Te Kakeega III to replace the previous Infrastructure Strategic Investment Plan, 2011–2015.

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in Tuvalu because almost all construction materials and equipment have to be transported from outside the country. Nevertheless, without such investments, these communities run the risk of being increasingly cut off from the outside world. 10. Lessons from past projects. Some of ADB’s maritime transport projects in the Pacific faced issues such as delays in start-up activities, including detailed design and procurement, cost overruns, and difficulties in establishing satisfactory O&M arrangements. To prevent such issues under the project, the government has (i) established a task force at the project concept design stage and a project management unit (PMU) at the start of the feasibility study, (ii) established a deferred maintenance fund in 2015 to secure resources for O&M, (iii) used a project design advance (PDA) to bring the detailed design forward and establish accurate cost estimates, (iv) prepared a procurement strategy to attract competent civil works contractors for bidding, and (v) incorporated an institutional strengthening program as a core project component. 11. ADB assistance. Since 2008, ADB’s country operations in Tuvalu have focused on public financial management (PFM) with policy-based grants and technical assistance. With ADB’s decision to increase the ADF minimum allocation to $6 million per country from 2017, ADB’s operation in Tuvalu will expand to include vital infrastructure improvements. PFM aims at enhancing the efficiency and effectiveness of public spending and domestic resource mobilization, including procurement reforms. The infrastructure improvement program finances capital spending. Through PFM, ADB is also assisting the authorities to develop and strengthen infrastructure maintenance financing. To date, ADB has financed only one physical investment project in Tuvalu for the education sector, which was completed in 2011. This project is ADB’s second investment project for Tuvalu. It is well aligned with the Pacific Approach, particularly in strengthening connectivity within the country, strengthening climate change resilience, and improving people’s access to social services.6 12. External assistance. The government’s request to ADB for supporting outer islands maritime transport reflects the fact that most other development partners have focused on investments in Funafuti. No other development partners are involved in maritime transport. The World Bank has committed over $46 million in grants to Tuvalu since the country joined in 2010, including about $21 million to upgrade the international airport and $7 million to increase the use of renewable energy in Funafuti. Japan provided about $7.9 million to improve the Funafuti wharf, completed in 2009, and provided a total of $23.1 million for the two ships delivered in 2002 and 2015. New Zealand provides Tuvalu about $10 million per year, with a focus on renewable energy and improving climate resilience, water supply, and the borrow pit reclamation in Funafuti. From 2008 to 2014, New Zealand provided assistance in outer islands maritime transport. Australia provides about $7 million per year, with a focus on education. Most partners, including ADB, have worked together to provide policy-based financing to assist the government’s reform efforts and strengthen PFM. In June 2016, the United Nations Development Programme received approval from the Green Climate Fund to provide $36 million to strengthen coastal protection in three islands—Funafuti, Nanumea, and Nanumaga. B. Impact and Outcome

13. The impact will be safe and efficient domestic maritime transportation that helps increase climate resilience of community infrastructure. The outcome will be improved maritime

6 ADB. 2016. Pacific Approach, 2016–2020. Manila.

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transfer operations in Nukulaelae, Nanumaga, and Niutao, anchored on a transport master plan, with a view to promoting fisheries and tourism. C. Outputs

14. The outputs will be (i) a small-scale harbor constructed in Nukulaelae and the boat ramps of Nanumaga and Niutao rehabilitated; (ii) the capacity to operate and maintain harbors improved, involving the outer islands communities, MCT, and other relevant national government agencies; and (iii) a transport sector master plan for future harbor development in the outer islands created, with a view to promote fisheries and tourism. D. Investment and Financing Plans 15. The project is estimated to cost $13.3 million (Table 1). Detailed cost estimates by expenditure category and detailed cost estimates by financier are in the project administration manual (PAM).7

Table 1: Project Investment Plan ($ million)

Item Amounta

A. Base Costb

1. Small-scale maritime infrastructure 10.2 2. Institutional strengthening 0.5 3. Master planning 0.8 Subtotal (A) 11.5 B. Contingencies

c 1.8

Total (A+B) 13.3 a Includes taxes and duties estimated at $1.4 million to be exempted by the government.

b In mid-2016 prices.

c Physical contingencies computed at 4% for civil works. Price contingencies computed at 13% on foreign

exchange costs and 5% on local currency costs; includes provision for potential exchange rate fluctuation under the assumption of a purchasing power parity exchange rate.

Source: Asian Development Bank estimates.

16. The government has requested grants not exceeding $11.3 million from ADB’s Special Funds resources, comprising $8.3 million from the ADF and $3.0 million from the Disaster Response Facility, to help finance the project. The GEF will provide grant cofinancing of $0.5 million from its Least Developed Country Fund, to be administered by ADB.8 Tuvalu will finance about $1.5 million of the remaining project costs consisting of land acquisition, counterpart government staff, custom clearance costs, and taxes and duties (exemption). The financing plan is in Table 2.

7 Project Administration Manual (accessible from the list of linked documents in Appendix 2).

8 The GEF fund is expected to finance a transit shed and a crane truck to improve the transfer operation and

indirectly help expedite increasing climate resilience of the community infrastructure, which has been ongoing since 2015.

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Table 2: Financing Plan

Source Amount

($ million) Share of Total

(%) Asian Development Bank

Special Funds resources (grant) 8.3 62.2

Special Funds resources (grant from Disaster Response Facility)

3.0 22.5

Global Environment Facility (grant)a 0.5 3.7

Government 1.5 11.5 Total 13.3 100.0 a Administered by the Asian Development Bank. Funds, net of agency fee, will be front-loaded in the following order:

(i) Global Environment Facility (grant), (ii) Special Funds resources (grant) from Disaster Response Facility, and (iii) Special Funds resources (grant).

Source: Asian Development Bank estimates.

E. Implementation Arrangements

17. The government established a project task force in February 2015 to oversee preparation and implementation of the project, with the permanent secretaries of five relevant ministries as members. The MCT will continue to be the executing agency for the project, which appointed its director of Marine and Port Services as project director in July 2015 on a part-time basis and as the focal person for project management. The project director is assisted by the PMU, which has been operating since March 2016, with three individual national consultants. These three consultants financed by the PDA will be reengaged by single-source selection (SSS) of individual consultants under the project, as the MCT has confirmed their satisfactory performance. The project director and PMU will supervise and provide counterpart support to a consulting firm and a contractor who will be engaged under the project. 18. A project support and master planning consultant (including construction supervision and institutional strengthening) will be selected through SSS of the consulting firm that was engaged under the project preparatory technical assistance and PDA in two separate contracts. The firm was selected through quality- and cost-based selection for both contracts; it has been performing satisfactorily and has had no integrity issue.9 The use of SSS is justified because (i) it is a continuation of assignments from detailed design and procurement assistance under the PDA to construction supervision and institutional strengthening under the project, as these assignments are usually packaged together in ADB’s projects where a PDA is not used; (ii) the experience acquired by the PDA consultant amid the highly limited connectivity to the outer islands communities will create a seamless and efficient transition from detailed design to construction based on the consultant’s established trust and confidence with the outer islands communities; and (iii) the use of SSS will continue the consultant’s professional liability with the designed facilities, avoiding misinterpretation of the design based on the surveys and analyses. All consultant recruitment under the project will follow ADB’s Guidelines on the Use of Consultants (2013, as amended from time to time). All procurement of works and goods will follow ADB’s Procurement Guidelines (2015, as amended from time to time).10 19. The project will be implemented over about 4.5 years and is expected to be completed in December 2020. To expedite implementation, the government has requested advance

9 The consulting firm has not been involved in preparing the terms of reference of assignments under the project,

and will not be given additional major assignments through an SSS or a contract variation under the project without going through a competitive process.

10 Since the project is financed with ADB-administered cofinancing resources, universal procurement will apply. ADB. 2013. Blanket Waiver of Member Country Procurement Eligibility Restrictions in Cases of Cofinancing for Operations Financed from Asian Development Fund Resources. Manila.

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contracting for consultant recruitment while civil works procurement will be assisted under the PDA. ADB has informed the government that approval of advance contracting does not commit ADB to finance the project. The implementation arrangements are summarized in Table 3 and described in detail in the PAM (footnote 7).

Table 3: Implementation Arrangements

Aspects Arrangements

Implementation period April 2017–December 2020

Estimated closing date 30 June 2021

Management

(i) Oversight body Task Force Chair: Ministry of Home Affairs and Rural Development Members: Ministry of Finance and Economic Development; Ministry of Public Utilities; Ministry of Communication and Transport; and Department of Environment

(ii) Executing agency Ministry of Communication and Transport (iii) Key implementing agencies Ministry of Communication and Transport (iii) Implementation unit Project management unit

Procurement International competitive bidding

1 contract $7.74 million

Consulting services Single-source selection Project support and master planning

a

$2.00 million

Individual consultant (single-source selection)

3 national consultants (90 person-months)

$0.36 million

Advance contracting Project support and master planning consultant

Disbursement The grant proceeds will be disbursed in accordance with ADB’s Loan Disbursement Handbook (2015, as amended from time to time) and detailed arrangements agreed between the government and ADB.

ADB = Asian Development Bank. a 60 person-months (13 international and 1 national) of consulting services are estimated for the consulting service.

Source: Asian Development Bank.

III. DUE DILIGENCE

A. Technical

20. The construction of the small-scale harbor in Nukulaelae—including channel dredging, construction of trestle, breakwaters, a boat ramp, and a transit shed—and the boat ramp rehabilitation works in Nanumaga and Niutao have been assessed as technically viable. All facilities are being designed according to Australian and New Zealand technical standards to have a design life of 50 years. Climate change impacts such as a possible sea level rise, an increase in wave height, or an increase in the intensity and frequency of tropical cyclones have been analyzed under the climate risk vulnerability assessment and are being reflected in the detailed design. The facilities are also being designed to minimize their impact on erosion and siltation. While structures made of concrete and steel do not require significant maintenance, the new channel dredged in Nukulaelae is anticipated to require maintenance dredging after every major cyclone. Institutional strengthening of the government to enhance its O&M capacity is included under the project to ensure the sustainability of the project facilities. B. Economic and Financial

21. The project will meet the basic needs of the people of Tuvalu, improve access to social services such as medical care and education, and thereby improve the livelihood of outer islands people’s life. The improved maritime infrastructure is also expected to help promote fisheries in the outer islands, which would improve their health conditions, increase

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opportunities for economic activities, and reduce the poverty and inequality of the outer islands compared with Funafuti. In assessing economic viability, standard cost–benefit analysis is inapplicable in the case of this project. This is because the small population in the target outer islands yields disproportionately low quantifiable benefits relative to investment costs. Instead, a basic needs or basic public goods and services provision perspective is more applicable, which takes into account that the without-project scenario would negatively impact livelihoods if the population is unable to import basic goods. Hence, a cost-effectiveness analysis is used to evaluate the project from an economic perspective. A cost-effectiveness analysis was undertaken for two locations in Nukulaelae: one on the north of the island and the other on the south. The assessment results suggest that the southern option is the most cost-effective. This option has the lowest capital and recurrent costs, and has the shortest travel time between the ship and the shore. The southern option is also expected to be less affected by the current between the lagoon and the ocean. 22. The government’s capacity to sustain the project outputs and shipping services was assessed as adequate, while this is not a revenue-generating project. Passenger and cargo revenues do not cover O&M of the shipping service, including the project facilities, but the MCT has been satisfactorily maintaining the ships—avoiding any major troubles during operation to date. The major incremental O&M associated with the project will be the maintenance dredging of a new channel after every major tropical cyclone, which has been happening about every 10 years. Notwithstanding this, budget for major maintenance will be allocated on a yearly basis to ensure sufficient funds are available when a cyclone occurs. For this incremental major maintenance dredging, which is estimated to cost A$100,000 per dredging, and other O&M requirements, the MCT is expected to have sufficient revenues and budgetary allocations as shown in the financial analysis. It is also developing institutional arrangements to improve technical and resource capacities for O&M under the project. In addition, the government has been improving its asset management system with the help of development partners as part of PFM reforms. In 2015, the government started the deferred maintenance fund while an asset management plan that will define how to use the fund has yet to be developed. The government and development partners are discussing the establishment of a disaster restoration fund. These funds are expected to provide incremental funding to ease the government’s fiscal burden. Since the government shipping services provide lifeline support to the outer islands, the government will continue prioritizing budget allocation to sustain the shipping services. Coupled with the institutional strengthening activities planned under the project, satisfactory O&M arrangements will be established covering financial, technical, and institutional aspects. C. Governance

23. Financial management. A project financial management assessment was prepared for the MCT and the Ministry of Finance and Economic Development, which indicated the overall financial management risk as high. The assessment identified the following key risks: (i) inadequate accounting and claiming of project funds, (ii) incomplete auditing, (iii) delayed release of the government counterpart fund, and (iv) no internal audit function. Mitigating action plans were discussed and agreed with the government. The government has provided A$15,000 as working capital for PMU operations, the use of which will be reimbursed by the project funds for eligible expenditures. The PMU will scrutinize all invoices from the contractor and the consulting firm, and prepare withdrawal applications that MCT management and the Ministry of Finance and Economic Development will review before endorsing to ADB. The PMU will prepare a single set of financial statements covering all financial resources, using

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accounting software. 11 ADB staff will provide capacity building for ADB’s disbursement procedure and financial management for the government staff involved in the financial management from time to time. The auditor general, who was notified of the start of the PDA, has confirmed that it will audit the project financial statements in addition to those under the PDA according to ADB’s financial reporting and auditing requirements. 24. Procurement capacity. A project procurement risk assessment was completed for the MCT, the Central Procurement Unit (CPU), and other relevant offices. Overall, the procurement risk is assessed as moderate. This improved on the previous assessment of high risk, conducted before 2015, following the introduction of the Tuvalu Public Procurement Act (2013) and the Public Procurement Rules and Regulations, and the establishment of the CPU in 2015. Technical assistance from ADB supported this legislation and institutional strengthening.12 As the experience of implementation of new legislation and the CPU is limited, further strengthening is required. As one of the on-the-job training opportunities, procurement under the project will follow the newly established procurement processes with the help of an international procurement specialist under the PDA. ADB staff will oversee procurement activities under the project to ensure good governance. 25. ADB’s Anticorruption Policy (1998, as amended to date) was explained to and discussed with the government. The specific policy requirements and supplementary measures are described in the PAM (footnote 7). ADB staff will provide strengthened oversight works and capacity building assistance during project implementation to mitigate the risk of fraud and corruption. D. Poverty and Social

26. The improvement in maritime infrastructure will enhance access to essential services and economic opportunities among the outer islands communities. Safe and efficient movement of people and goods are expected to increase economic activities, particularly among small business owners, and reduce migration from the outer islands to Funafuti. Poor and vulnerable groups such as women, people with disabilities, and elderly requiring medical attention are expected to benefit the most as they are particularly vulnerable to the safety risk of lack of harbor facilities in the outer islands. The project is proposed for effective gender mainstreaming, and a gender action plan (GAP) has been prepared. The GAP includes specific features to accommodate women’s needs such as ensuring user-friendly design of the facilities and setting targets for women’s participation in potential employment during construction and awareness, training, and workshop activities. The MCT and PMU will implement and monitor implementation of the GAP. Intermittent international and national social development and gender specialists will be engaged to assist in implementing the GAP. Awareness activities on HIV/AIDS and other communicable diseases will be prepared and implemented during construction. E. Safeguards

27. Social safeguards. The project is category C for involuntary resettlement and indigenous peoples in accordance with ADB’s Safeguard Policy Statement (2009). Consultations have been undertaken. The activities at the project sites will not involve any involuntary resettlement impacts. The construction of a small-scale harbor at Nukulaelae and 11

The PMU has started to use MYOB accounting software. Mind Your Own Business (MYOB) is an Australian multinational corporation that provides tax, accounting, and other services to small and medium-sized businesses.

12 ADB. 2012. Technical Assistance to Tuvalu for Institutional Strengthening of the Ministry of Finance and Economic Development. Manila (TA 8100-TUV).

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improved boat ramps at Nanumaga and Niutao will be mostly on government or community lands. The government will establish lease agreements with the landowners, in accordance with the accepted and long-standing process for accessing nongovernment land, where private land will be required. The government will comply with the negotiated settlement requirements under ADB’s Safeguard Policy Statement, will not expropriate any land if it fails to agree with the landowner, and will comply with the negotiated settlement requirements under ADB’s Safeguard Policy Statement. The project is not expected to have adverse impacts on, or target any, distinct or vulnerable ethnic or tribal group. The project will be implemented in a culturally appropriate and participatory manner. An involuntary resettlement due diligence report has been prepared for the project recording all these findings. The Land Department and the Ministry of Home Affairs and Rural Development have sufficient capacity to enter into the lease agreement for the project site following the established procedures. In compliance with ADB’s Public Communications Policy 2011, the report will be disclosed on ADB’s website. 28. Environment safeguards. The project is category B for environment. The impacts are site-specific, limited to the footprint of the small-scale harbor (including channel) and associated land-side facilities (Nukulaelae) and improvement works at existing sites (Nanumaga and Niutao), and can be mitigated and managed to acceptable levels provided the measures identified in the initial environmental examination (IEE) and environmental management plan (EMP) are implemented, and subsequently monitored and reported. A number of alternative locations for the new channel at Nukulaelae have been considered, and the proposed option provides the most suitable from an environmental (coastal processes, i.e., littoral drift, sand transportation, wave climate, and marine ecological) perspective. The Department of Environment within the Ministry of Foreign Affairs, Trade, Tourism, Environment, and Labor has adequate capacity to manage environmental issues with the consultant’s support. The IEE and EMP will be updated during the PDA when further studies and detailed design provide additional information (including baselines); existing information gaps will be filled at this time. In compliance with ADB’s Public Communications Policy, the IEE and updated IEE will be disclosed on ADB’s website. 29. The project will provide resources and support to ensure that safeguards are implemented effectively. A project support and master planning consultant will include an environmental specialist to support the PMU and the Department of Environment to ensure that environmental safeguards are properly implemented and to monitor the contractor’s compliance with the approved construction EMP during construction. The contractor will recruit an experienced environmental specialist, with expertise in marine ecosystems, to prepare the construction EMP (including site-specific plan and construction methodology for temporary working areas and/or platforms) and to monitor its implementation. F. Risks and Mitigating Measures

30. The project risk is assessed to be high. It is the second ADB investment project for Tuvalu; the first project completed in 2011 was rated partly satisfactory at completion. The root cause of the risks is Tuvalu’s small population size and the limited number of government staff who have experience in implementing large projects; most government staff are also heavily loaded with routine assignments. Against these risks, the project team has developed sufficient preventive mitigating measures with the government, as summarized in Table 4 and described in detail in the risk assessment and risk management plan.13 The integrated benefits and impacts are expected to outweigh the costs.

13

Risk Assessment and Risk Management Plan (accessible from the list of linked documents in Appendix 2).

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Table 4: Summary of Risks and Mitigating Measures

Risks Mitigating Measures

Project implementation capacity. Government staff are restricted in number and have limited experience in implementing large investment projects.

MCT is assisted by PMU and a consulting firm for project management.

Climate risk. Preliminary climate risk screening shows that the climate change risk is high for the project.

A climate risk vulnerability assessment has been prepared and climate risks will be incorporated in project implementation.

Procurement. Procurement capacity of the government is insufficient to manage ADB procurement procedures and fraud and corruption risks.

The project design advance consultant will provide on-the-job training to MCT and the Central Procurement Unit staff in handling the procurement under the project. ADB will oversee the activities.

Financial management. Financial management capacity is insufficient within the government.

MCT will be supported by the PMU and the project support and master planning consultant for financial management. ADB’s regional TA for Building Implementation Capacities in the Pacific will provide timely assistance as needed.

a A financial management

action plan has been prepared. Operation and maintenance. The new channel requires dredging after major cyclones.

During institutional strengthening, reasonable O&M arrangements with the outer island communities, MCT, and other relevant government agencies and an asset management plan will be established.

Fraud and corruption risks ADB will strengthen the oversight works, including weekly teleconferences, three review missions a year, and on-the-job training financed by the regional TA for Building Implementation Capacities in the Pacific.

a

ADB = Asian Development Bank, O&M = operation and maintenance, MCT = Ministry of Communication and Transport, PMU = project management unit, TA = technical assistance. a ADB. 2016. Technical Assistance for Building Project Implementation Capacities in the Pacific. Manila (TA 9086-

REG). Source: Asian Development Bank.

IV. ASSURANCES

31. The government has assured ADB that implementation of the project shall conform to all applicable ADB policies, including those concerning anticorruption measures, safeguards, gender, procurement, consulting services, and disbursement as described in detail in the PAM and grant documents. The government has agreed with ADB on certain covenants for the project, which are set forth in the grant agreement.

V. RECOMMENDATION

32. I am satisfied that the proposed grants would comply with the Articles of Agreement of the Asian Development Bank (ADB) and recommend that the Board approve the grants not exceeding $8,300,000 from ADB’s Special Funds resources and $3,000,000 from ADB’s Special Funds resources for the Disaster Response Facility to Tuvalu for the Outer Island Maritime Infrastructure Project, on terms and conditions that are substantially in accordance with those set forth in the draft grant agreements presented to the Board.

Takehiko Nakao President

25 October 2016

Appendix 1 11

DESIGN AND MONITORING FRAMEWORK Impact the Project is Aligned With

Safe and efficient domestic maritime transportation that helps increase climate resilience of community infrastructure

a

Results Chain Performance Indicators

with Targets and Baselines Data Sources and

Reporting Mechanisms Risks Outcome By 2021 Maritime transfer operations in Nukulaelae, Nanumaga, and Niutao improved, anchored on a transport master plan, with a view to promoting fisheries and tourism

a. Transfer efficiency, defined as transferred volume of passengers and cargo divided by the dwell time in Nukulaelae, improved by 20% (2013–2015 baseline: 1.59 cubic meters

per hour

on average)

b. Total number of passengers who have traveled to and from Nukulaelae remains the same or increases (2015 baseline: 445 passengers)

a–b. Annual report of the Ministry of Communication and Transport, Marine and Port Department

Outputs By 2020 1. A small-scale harbor constructed in Nukulaelae and the boat ramps of Nanumaga and Niutao rehabilitated

1a. One small-scale harbor in Nukulaelae constructed, including dredged channel and boat basin, trestle, boat ramp, and boat parking area (2016 baseline: 0)

1b. A transit shed and a crane truck provided in Nukulaelae (2016 baseline: 0)

1c. Boat ramps in Nanumaga and Niutao improved (2016 baseline: 0)

1d. Women-friendly design incorporated in facilities, e.g., handrail on the jetty or a trading stall in the transit shed

1a–d. Quarterly project progress report

All bids on the work contract substantially higher than the cost estimate

The government’s procurement capacity is limited

The government’s financial management capacity is limited

12 Appendix 1

Results Chain Performance Indicators

with Targets and Baselines Data Sources and

Reporting Mechanisms Risks 2. The capacity to operate and maintain harbors improved, involving the outer islands communities, MCT, and other relevant national government agencies

2a. O&M plan for the maritime infrastructure prepared and training implemented for the outer islands communities, MCT, and other relevant national government agencies (2016 baseline: 0)

2b. At least one O&M training will be conducted for island communities, including the Kaupule (local government council) officer-in-charge and at least 20% participation of women representatives

High turnover of government staff who received training

3. A transport sector master plan for future harbor development in the outer islands created, with a view to promote fisheries and tourism

3a. A master plan for the transport sector with a view to promote fishery and tourism developed

3b. Feasibility study for developing a small-scale harbor in Nanumaga, Niutao, and Nui prepared

3c. Prefeasibility study prepared for developing harbor that can accommodate the government ships in outer islands

3d. All community and public consultations will be participated in by at least 20% female representatives

3a–d. Quarterly project progress report

Failure to reach consensus among stakeholders for the direction or priority of development

Key Activities with Milestones

1. A small-scale harbor constructed in Nukulaelae and the boat ramps of Nanumaga and Niutao rehabilitated

1.1 Procurement of works in Nukulaelae, Nanumaga, and Niutao (January–May 2017, under project design advance)

1.2 Construction of small-scale harbor in Nukulaelae and rehabilitation of the boat ramps in Nanumaga and Niutao (June 2017–December 2020)

2. The capacity to operate and maintain harbors improved, involving the outer islands communities, MCT, and other relevant national government agencies

2.1 Consultant recruitment (October 2016–February 2017)

2.2 Consulting services for institutional strengthening (June 2017–December 2020)

Appendix 1 13

3. A transport sector master plan for future harbor development in the outer islands created, with a view to promote fisheries and tourism

3.1 Consultant recruitment (October 2016–February 2017)

3.2 Consultant services for preparing a transport sector master plan (June 2017–December 2020)

Inputs

Asian Development Bank (grant): $11.3 million (including $3.0 million from the Disaster Response Facility)

Global Environment Facility (grant): $0.5 million

Government of Tuvalu: $1.5 million

MCT = Ministry of Communication and Transport, O&M = operation and maintenance. a Defined by project.

Source: Asian Development Bank.

14 Appendix 2

LIST OF LINKED DOCUMENTS http://www.adb.org/Documents/RRPs/?id=48484-002-2

1. Grant Agreement: Special Operations

2. Grant Agreement: Global Environment Facility

3. Sector Assessment (Summary): Transport (Water Transport [Nonurban])

4. Project Administration Manual

5. Contribution to the ADB Results Framework

6. Development Coordination

7. Economic and Financial Analysis

8. Country Economic Indicators

9. Summary Poverty Reduction and Social Strategy

10. Gender Action Plan

11. Initial Environmental Examination

12. Risk Assessment and Risk Management Plan

Supplementary Documents

13. Climate Risk and Vulnerability Assessment

14. Procurement Risk Assessment

15. Financial Management Assessment

16. Communication and Participation Plan

17. Economic and Financial Analysis—Supplementary Appendixes

18. Sector Results Framework: Transport (Water Transport [Nonurban])