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TRANSCRIPT
Working Draft
MANUAL FOR
DEVELOPMENTPROJECTS
(Revised) 2017
IDENTIFICATION, PREPARATION, APPRAISAL, APPROVAL, IMPLEMENTATION, MONITORING AND EVALUATION
_____________________________________
MINISTRY OF PLANNING, DEVELOPMENT AND REFORM
GOVERNMENT OF PAKISTAN
ISLAMABAD
1
CONTENTSProposed Contents Page No.
ForewordPreamblePrefaceAbbreviationsPreparation Committee
Chapter -1 Planning Architecture at Federal LevelIntroductionDevelopment BoardPlanning BoardPlanning CommissionMinistry of Planning, Development Reform (MoPDR)National Economic Council (NEC)The Executive Committee of the NEC (ECNEC)Central Development Working Party (CDWP)Department Development Working Party (DDWP)Development Working Party (DWP- Autonomous Organizations)
Chapter -2 Planning Architecture at Provincial LevelIntroductionPlanning & Development Boards / DepartmentsPunjab
Planning & Development BoardProvincial Development Working Party (PDWP)Provincial Development Sub-Committees (DDSCs)Planning at Divisional / District / Agency Level
SindhPlanning & Development BoardProvincial Development Working Party (PDWP)Departmental Development Working Party (DDWP)Planning at Divisional / District / Agency LevelDistrict Development Committees (DDC)
BalochistanPlanning & Development Department
Provincial Development Working Party (PDWP)Departmental Sub-committeesDivisional Development Working Party
Khyber PakhtunkhwaProvincial Development Working Party (PDWP)Departmental Development Working Party (DDWP)District Development Committees (DDC)
FATAPlanning & Development Department
Azad Jammu & KashmirGilgit-Baltistan
Chapter -3 Project Management FrameworksDefinition of ProjectProject Management FrameworkProject ManagementFormation of International AssociationsDevelopment of International Standards / GuideProject Management Body of Knowledge (PMBOK)
1-13
15-30
31-42
2
Association for Project Management (APM) Body of KnowledgeProject in Controlled Environments 2 (PRINCE 2)Project and Program Management for Enterprise Innovation (P2M)A Case for Globally Accepted Standard of Project ManagementOther Approaches to Project ManagementCritical Change Project Management (CCPM)Complex Project ManagementStructured System Analysis and Design Method (SSADM)Project Success Vs Project Management SuccessProject Management Maturity (PMM)
Chapter – 4 Project Identification Project IdentificationSteps in Project IdentificationStrategic PlanningProject Strategic LinkagesVisionPlan Priorities / Plan DocumentsFive Year PlanAnnual PlanNational Development Program OutlayMode of FinancingPublic Sector Development Programme (PSDP)Release of PSDP FundsPSDP Review MeetingsPublic-Private PartnershipSpecial Purpose Vehicle (SPV)Special Policy DirectivesPakistan Policy on Public Private PartnershipViability Gap Fund (VGF)Public Private Partnership structure at Provincial level
PunjabSindhKhyber Pakhtunkhwa
Chapter – 5 Project PreparationDocument Format for Preparation
Weaknesses in Project PreparationLinking Projects to ResourcesKey Components of the PC-I
Objective and PurposeLocation, Area and Population CoverageEnvironmental Impact Assessment
Project DescriptionProject ScopeChange in Scope of ProjectCost EstimatesRevised Cost EstimatesFinancial PlanFinancial PhasingPhysical Schedule of ActivitiesPeriod of ImplementationAppointment of Consultants for Project preparation, Detailed Designing and Tender DocumentsProject BenefitsInter-Agency Coordination
43-60
61-72
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Management StructureChapter –6 Project Appraisal
Role of Appraisal in Project Planning ProcessConcept of Project InvestmentDiscount Rate (DR)Aspects and Types of Project Appraisal
Aspects of Project AppraisalTypes of Project Appraisal
Appraisal Methods, Tools and TechniquesAppraisal MethodsAppraisal Tools and TechniquesRisk and Sensitivity Analysis
Sensitivity AnalysisSwitching ValuesShortcoming of Sensitivity Analysis
Chapter - 7 Project ApprovalApproval StagesApproving Forums and Sanctioning Powers
National Economic Council (NEC)Executive Committee of NEC (ECNEC)Economic Coordination Committee (ECC) of the CabinetCentral Development Working Party (CDWP)Developmental Development Working Party (DDWP)Provincial Development Working Party (PDWP)
Approval Types and ProceduresProcessing of SchemesProcedure for Meetings of Various BodiesTime Limits for Approval of ProjectsAnticipatory ApprovalAdministrative ApprovalIssuance of Administrative ApprovalConcept Clearance of Projects for Foreign Aid NegotiationsProvincial ProjectsFederal Ministries / Attached Departments Projects
Chapter – 8 Project Execution and ImplementationRole of Sponsoring, Executing and Implementing AgenciesAppointment and Role of the Project DirectorProject Management UnitContract Award and Contract Management
Chapter – 9 Project MonitoringRole in the Project CycleConceptual DefinitionTypes and Methods of Monitoring
Internal MonitoringExternal MonitoringMethods of MonitoringProject Monitoring & Evaluation System (PMES)
Chapter – 10 Project EvaluationPurpose of EvaluationTypes of EvaluationMethods of Evaluation
73-87
89-98
99-104
105-109
111-112
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Chapter – 11 Project Closure and Transfer of AssetsWhat is Project Closure When a Projects is Considered Completed / ClosedWhat does Project Closure InvolveOperational ClosureFinancial ClosureWho is Responsible for Project ClosureBasic Procedure and Checklist for Project Closure
AppendixAnnexures
113-115
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CHAPTER –1
PLANNING ARCHITECTURE AT FEDERAL LEVEL
Introduction:
1.1 The major task confronting developing countries includes poverty alleviation, primitive
agriculture, population pressure, capitalscarcity, social exclusion, gender inequality, low rate of
savings, inequitable income distribution, low level of literacy and high unemployment rate with a
consequent result of low level of economic development. Market forces alone cannot accomplish
this task. Resort has to bemade foradoption of planning techniques generally understood to be a
dynamic process, a method of analysis and thinking, which may or may not involve preparation
of comprehensive legally binding blueprint for socio-economic development. Plan is a package
of social and economic policies articulated with quantifiable targets and objectives to be
achieved during a laid-down period. Planning process takes care of ground realties and collective
needs of the citizens. It determines the future direction of an economy and provides powerful
instrument for reducing uncertainty. It facilitates the equitable distribution of economic
empowerment. Planned economy provides for proper coordination and thereby ensures optimal
utilization of scarce resources. It helps in coping with major economic challenges and enables
the economy to look ahead for laying foundation of long-term growth.
The present Planning Commission is an apex think tank for the government and has been
evolved through different phases. The chronology of the evolution of the planning machinery at
federal level is as under:
Development Board:
1.2 Despite grave economic and financial problems which beset the Government of Pakistan
soon after independence, a Development Board was established in Economic Affairs Division
(EAD)in early 1948 to deal with question of rapid economic development of the country and a
number of projects were undertaken on the recommendations of the Board. In 1950 a Six-Year
Development Plan was formulated and embodied in the Colombo Plan for Cooperative
Economic Development in South and South East Asia. This was essentially an outline plan and
delineated only a broad pattern of development.
Planning Board:
1.3 To prepare a more comprehensive national development plan, the Government of
Pakistan established a Planning Board on 18th July, 1953 vide Resolution No.2(24)-PC/53
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(Annex--), with Mr. Zahid Hussain as its first Chairman and two other members. The Board was
assisted by advisors and consultants. The purpose and terms of reference of the Planning Board
were as under:
(a). Purpose:
The economic and social objectives of government's policy were to develop resources of the
country as rapidly as possible so as to promote welfare of thepeople, provide adequate living
standards, social services, secure social justice and equality of opportunity through equitable
distribution of income.
(b). Terms of Reference:
i. To review the development that has taken place since independenceii. To assess the resources - material and human, which can be made available for
development during the next 5 years beginning from April, 1954iii. To prepare a national plan of development based on the fullest possible utilization of
these resources for implementation in a period of 5 years from 1st April, 1954 as a step towards the attainment of the economic and social objectives of Government's policy
iv. To make proposals regarding the administrative machinery best calculated to assure the successful implementation of the plan
v. To make any other recommendations which in the opinion of the Board will contribute towards the successful implementation of the plan
1.4 To boost and enhance economic and social development of the country, in particular to
assist the progress towards the objectives stated in Section 28 and 29 of the Constitution of 1956,
a permanent Planning Board Vide Resolution No.29(3)-PP/53 dated 20 th April, 1957(Annex--)
was established, with the following functions:
i. To prepare future five year plans of economic and social developmentii. To make additions and alterations in the existing five year plan consistent with the
changing economic conditions of the countryiii. To tender such technical advice, and offer such comments on financial matters
bearing on the development plans as may be requested by the Ministries of Government
iv. To stimulate, and where necessary, to initiate the preparation of schemes required to achieve national objectives in the economic and social fields
v. To examine development schemes, programmes and proposals with a view to their inclusion in the plans of development
vi. To maintain a continuous and constant review of the progress of development, the benefits realized, and the difficulties experienced
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vii. To maintain a continuous review of the economic conditions of the country so far as these have a bearing on the development plans
viii. To submit such periodic reports as the Government may desire from time to time ix. To encourage the improvement and expansion of research (in particular economic
research), statistics, surveys, and investigations and evaluation needed to support effective planning and development in the country
x. Generally to advise the Government on economic policies and problems in various fields so far as these have a bearing on the development plans
1.5 The Board accordingly prepared and submitted a five year plan for the period 1955-1960
(1st Five Year Plan) which was approved in principle by the National Economic Council (NEC).
The Board comprised a Chairman and at least two members one of whom was designated as
Deputy Chairman. The Prime Minister was declared Chairman of the Board. Mr. Said Hassan
was appointment as 1st Deputy Chairman of the Planning Board on April 17, 1957.
PLANNING COMMISSION
1.6 Subsequently, the President of Pakistan re-designated the National Planning Board as the
Planning Commission vide Notification No. Cord(I)- 8/84/58-I dated October 22,
1958.Followingobjectives and functions of the Planning Commission were notifiedvide Cabinet
Division's Resolution No. Cord(I)-8/29/59-III dated June 3, 1959.
Objectives:
1.7 The economic and social objectives of the Government are to promote the welfare of the
people and raise the standard of living of common man by developing the resources of the
country as rapidly as possible by making provision for the basic necessities of life, educational
and health facilities, and work under just and human conditions; by ensuring equitable
adjustment of rights relating to the ownership and use of land and between employers and
employees; and by preventing the concentration of wealth and means of production and
distribution in a few hands to the detriment of the people as a whole; and by securing social
justice and equal opportunity to all.
Functions:
1.8 Following are the functions of the Planning Commission:-
i) In consultation with the Central and Provincial Governments and other appropriate agencies:-
(a) To prepare a national plan at periodic intervals for the economic and social development of the country;
(b) To make assessments from time to time of the human and material resources of the country; and
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(c) To prepare the Annual Development Programme (ADP) within the framework of the national plan and on determination of priorities, to propose the allocation of resources
ii) To stimulate and where necessary initiate the preparation of development programmes and projects; to examine and advise on all such programmes and projects with a view to deciding whether these conform to national objectives and, in general, whether these contemplate the most efficient use of national resources
iii) To recommend such adjustments in the national plans as may be necessary in view of the changing economic situation
iv) To co-ordinate the examination of development programmes and projects in consultation with the appropriate authorities and to secure the approval of the Central Government to acceptable programmes and projects
v) To advise on the nature of the machinery for securing the efficient execution of the national plan
vi) To watch and evaluate the progress of implementation of the development programme
vii) To advise on important economic policies and problems of various fieldsviii) To undertake and promote economic research; and to undertake surveys and
investigations needed to support effective planning and developmentix) To examine such specific problems as may be referred to the Government
1.9 Later on the Government noticed that the economic administration suffered due to
insufficient status of the Planning Commission as its Chairman did not possess the status of head
of the planning body like in several other countries. The lack of effective coordination was also
observed between planning and implementation agencies/ economic ministries on economic
policy and research. The Government therefore decided to overcome it by enhancing the
Planning Commission status and by re-defining its functions. The President was made the
Chairman of the Commission vide Cabinet Division Resolution No.Cord(M)-109(9)/61 dated
August 5, 1961 (Annex--) and the Planning Commission was re-constituted with the following
composition:
1. The President of Pakistan as Chairman
2. A Deputy Chairman (with ex-officio status of a Minister with Cabinet rank)
3. Secretary incharge of the Planning in the Planning Division (Member)
4. The Secretary incharge of progressing in the Planning Division (Member)
5. A representative from the East Pakistan (Member)
6. A representative from the West Pakistan (Member)
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1.10 For effective coordination, planning and implementation, the Project Division in
President’s Secretariat was abolished and its functions were amalgamated with those of the
Planning Commission. The Commission as a whole was granted the status of the Division in the
President’s Secretariat. The non-technical sections of the Division viz Coordination,
Development Authorization, Administration etc., whose work was similar in nature to that
performed in other Ministries,were reorganized on the pattern of the Section Officers schemes in
the Central Secretariat. The following functions were assigned.
Planning
i) To prepare national plans at periodic intervals for the economic and social development of the country
ii) To make assessments from time to time of the human and material resources of the country
iii) To recommend such adjustments in the national plan as may be necessary in view of the changing economic situation
iv) To stimulate and where necessary initiate the preparation of development programmes and projects; to examine and advise on all such programmes and projects with a view to deciding whether they conform to national objectives and, in general, whether they provide for the most efficient use of available resources
v) To co-ordinate the examination of development programmes and projects in consultation with the appropriate authorities and to secure the approval of the Central Government to acceptable programmes and projects
vi) To prepare the annual development programme within the framework of the national plan and, on a determination of priorities, to propose the allocation of resources
vii) To analyze and make recommendations on important economic policies and programmes
viii) To advise the Central and Provincial Governments, whenever so required, on economic policies and problems
ix) To prepare data for the use of aid-giving countries, economic appraisement and evaluation
x) To undertake and promote economic research; and to initiate surveys and investigation needed to support effective planning and development
Progressing
xi) To progress the implementation of approved development projects, particularly aided projects
xii) To devise, obtain, collate and distribute to all concerned reports on the progress of the projects, and to prepare periodic digests of these reports for the information of the government
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xiii) To measure performance against promise, specially by comparing actual vs estimated costs of projects
xiv) To identify the causes of delays and difficulties, if any, in the implementation of projects and promote specific solutions
xv) To advise on the nature of the machinery for securing the efficient execution of the national plan
1.11 The Minister for Finance andEconomicAffairs was designated as the Ex-officio
Chairmanof the Planning Commission vide resolution No. 104/3/82-Min-I dated January 7,
1982.Deputy Chairman was given the Ex-officio status of Federal Minister or Minister of State
as may be specified at the time of appointment videResolution No.104/3/82-Min-I dated March,
24, 1983. (Annex---). The Planning Commission was reconstituted with the following
composition:
i. The Minister for Finance and Economic Affairs Chairman ex-officio ii. Deputy Chairman Member/ Deputy Chairmaniii. Secretary, Planning and Development Division Member-ex-officio iv. Secretary, Economic Affairs Division Member-ex-officiov. Secretary, Finance Division Member-ex-officiovi. Mr. Manzoor Ahmed Sheikh Membervii. Additional Secretary, P&D Division Member-ex-officioviii. Chief Economist, P&D Division Member
1.12 The Planning Commission was revamped vide Resolution No.4-6/2006-Min-1, dated
April 20, 2006 (Annex---), to ensure its effective role as apex planning and coordination body of
the country. The organizational structure was strengthened by inducting at least nine Members
i.e. Secretary Planning and Development Division as Secretary/ Member coordination;Chief
Economist; Director, Pakistan Institute of Development Economics (PIDE), Executive Director
(Implementation & Monitoring); and Members for Social Sector; Infrastructure; Energy; Food &
Agriculture; and Science & Technology as full time members. The Prime Minister of Pakistan
was declared the Chairman of the Planning Commission and Deputy Chairman as functional
head of the Planning Commission.
1.13 The Planning Commission was again revamped and restructured vide Resolution No.4-
6/2006-Min-I dated October 30, 2013, to enable it to effectively plan for economic and social
development of the country and to act as the apex Think Tank for the Government in the context
of adjusting to the new realities and challenges i.e. to achieve high and sustainable growth,
participatory and collaborative planning through increased role of private sector/ civil society/
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media. The Prime Minister is the Chairman of the Planning Commission and the Deputy
Chairman Planning Commission is the operational head. Three additional members i.e. Member
(Governance), Member (Media) and Member (Private Sector)) were inducted.
An Advisory Committee (Annex---) comprising members from private sector, academia, civil
society, public representatives, public sector and other segments of society was constituted to
advise Planning Commission in policy making. The organizational chart of the planning
Commission is as under:
The names of the Deputy Chairmen of the Planning Commission of Pakistan to date in chronological order are as under:
1. Mr. Zahid Hussain, 1953 to 19582. Mr. G. Ahmed, 1958 to 19593. Mr. Mumtaz Hassan Khan, 1959 to 19614. Mr. Said Hasan, 1962 to 19665. Mr. M. M. Ahmad, 1967 to 19696. Mr. M. H. Soofi, 1969 to 19707. Mr. Mahboob Ullah Rashid, 1970 to 19718. Mr. Qamar ul Islam, 1971 to 19739. Prof. Khurshid Ahmad, 30-08-1978 to 21-04-197910. Dr. Mahbub ul Haq, 07-03-1982 to 13-04-198311. Dr. V. A. Jafary, 22-09-1985 to 10-07-1986
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12. Mr. A G N Kazi, 10-07-1986 to 23-08-199313. Mr. Saeed Ahmed Qureshi, 24-08-1993 to 30-06-199414. Mr. Qazi M. Alimullah, 01-07-1994 to 05-11-199615. Dr. Hafiz Pasha, 12-11-1996 to 12-08-199816. Prof. Ahsan Iqbal, 13-08-1998 to 12-10-199917. Dr. Shahid Amjad, 27-07-2000 to 08-08-200318. Engr. Dr. M. Akram Sheikh, 15-03-2004 to 07-05-200819. Mr. M. Salman Faruqui, 09-05-2008 to 28-11-200820. Mr. Sardar Assef Ahmed Ali, 29-11-2008 to 13-01-201021. Dr. Ishfaq Ahmad, 15-01-2010 to 31-04-201022. Dr. Nadeem Ul Haque 01-05-2010 to 07-06-201323. Prof. Ahsan Iqbal, 08-06-2013 to 28-7-201724. Mr. Sartaj Aziz, 15-8-2017 to date
Ministry of Planning, Development and Reform (M/oPDR)
1.14 The Planning Commission is responsible to perform the functions as indicated in
Schedule-II of the Rules of Business 1973 under the heading of Planning, Development and
Reform Division. It provides all kind of support to the Planning Commission for disposal of its
assigned tasks. The functional wings of M/oPDR are as under:
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1.15 As per new mandate of the Planning Commission, it is responsible to perform the
functions as indicated in Schedule II of the Rules of Business 1973 under the heading of
Planning, Development and Reform Division which inter-alia include:-:
Original Functions:
• Preparation of National Plan, its review, evaluation and implementation;• Formulation of Annual Plan and PSDP;• Monitoring and evaluation of major development projects and programmes; • Stimulating of preparation of sound projects in regions and sectors lacking adequate
portfolio;• Continuously evaluating of economic situation and coordination economic policies;
and • Organize research and analytical studies for economic decision making
Additional Functions as per new mandate: (October 2013)
• Assisting in defining the national vision, and undertaking national strategic planning;• Assessing the material, capital and human resources of the country and formulating
proposals for augmenting such resources;• Assisting the Government in providing conducive macroeconomic and regulatory
framework; improved resource mobilization, institutional framework and efficient public investment;
• Promoting and developing the role of private sector as engine of growth by co-opting it as a partner in development process through institutionalized effective consultative process;
• Promoting and coordinating reform and innovation in government in partnership with relevant Ministries/ Divisions and Organizations;
• Promoting and developing social capital for development with stakeholders (MDGs, Poverty alleviation, social harmony), economic and infrastructure development;
• Promoting and developing economic and infrastructure development initiatives towards developing regional economic integration;
• Monitoring Pakistan’s economic competitiveness and developing strategies for its enhancement with relevant Ministries/ Divisions and Organizations;
• Promoting development discourse in the country towards participatory and collaborative planning and development;
• Study trends and evaluate impact of globalization and develop appropriate national responses in coordination with relevant Ministries/ Divisions and Organizations;
• Study and evaluate impact of new technologies on development and develop appropriate national response in coordination with relevant Ministries/ Divisions and Organizations;
• Facilitating capacity building of agencies involved in development; and
• Any other function assigned by the Prime Minister
The Planning Architecture
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1.16 As indicated above, Planning Commission/ Ministry of Planning, Development and
Reform isperforming the function as Think Tank on Economic Planning and policy formulation
guided by following approving fora before execution/implementation.
The National Economic Council (NEC)
1.17 Under Article 156 of the 1973 Constitution, the President of Pakistan shall constitute a
National Economic Council which shall consist of:
a) the Prime Minister, who shall be the Chairman of the Council;b) the Chief Ministers and one member from each Province to be nominated by the
Chief Minister; andc) four other members as the Prime Minister may nominate from time to time
1. 18 The National Economic Council shall review the overall condition of the country and
shall, for advising the Federal Government and the Provincial Governments, formulate plans in
respect of financial, commercial, social and economic policies; and in formulating such plans it
shall, amongst other factors, ensure balanced development and regional equity and shall also be
guided by the Principles of Policy set out in Chapter 2 of Part-II of the constitution. The
meetings of the Council shall be summoned by the Chairman or on a requisition made by one-
half of the members of the Council. The Council shall meet at least twice in a year and the
quorum for a meeting of the Council shall be one-half of its total membership. The Council shall
be responsible to the Majlis-e-Shoora (Parliament) and shall submit its Annual Report to each
House of Majlis-e-Shoora (Parliament).
The Executive Committee of the NEC (ECNEC)
1. 19 TheNEC has delegated its powers to ECNEC for smooth conduct of government
business.The main functions of the ECNEC are:
i) To sanction public sector development schemes exceeding financial competency of CDWP
ii) To allow moderate changes in the plan and sectoral re‐adjustments within the over‐all plan allocation
iii) To supervise the implementation of the economic policies laid down by the Cabinet and the National Economic Council
iv) Reports asked for by the Committee in pursuance of its earlier decisionsv) The ECNEC only considers those development schemes which are recommended
by CDWP.No development scheme is placed directly before ECNEC. The meetings of ECNEC can be held from time to time on need basis.
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vi) Any other matter referred to the Committee by the Prime Minister, the National Economic Council, the CCI or the Cabinet or raised by a member in the committee with the permission of the Chairman
Composition of ECNEC 1.20 The membership of ECNEC changes from time to time. The current membership of ECNEC (since March, 2017) is given below:-
i. The Prime Minister of Pakistan (Chairman)ii. Minister for Finance, Revenue and Economic Affairs (Member)
iii. Minister for Interior (Member)iv. Minister for Industries and Production (Member)v. Minister for Commerce & Textile (Member)
vi. Minister for Planning and Development, Balochistan (Member)vii. Minister for Finance, Government of Khyber Pakhtunkhwa (Member)
viii. Minister for Finance, Government of the Punjab (Member)ix. Minister for Planning and Development, Government of Sindh (Member)
By Special Invitation i. Minister for National Food Security and Research
ii. Minister for Law & Justiceiii. Minister of State for Information Technology and Telecommunications iv. Minister of State for Petroleum & Natural Resources v. Deputy Chairman, Planning Commission
vi. Secretary, Economic Affairs Division vii. Secretary, Finance Division
viii. Secretary, Planning Development and Reform Division ix. Secretary, Statistics Division x. Chairman Planning and Development Board, Punjab
xi. Chairman Planning and Development Board, Sindhxii. Additional Chief Secretary, Planning and Development Department, Government
of Khyber Pakhtunkhwa xiii. Additional Chief Secretary, Planning and Development Department, Government
of Balochistan
1.21 Other Officers of the Federal & Provincial Governments as well as of the Government of
AJ&K, Gilgit‐Baltistan & FATA shall be invited to the meetings of ECNEC on need basis. In
case of Prime Minister’s absence, due to someother commitment, Minister for Finance, Revenue
and Economics Affairs shall Chair the meeting. One‐half of the total membership of the ECENC
will be the quorum for its meetings as provided in Article 156(4) of the Constitution for the
meetings of the NEC. The secretariat assistance to the ECNEC is provided by the Cabinet
Division.
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Central Development Working Party (CDWP)
1. 22 CDWP is responsible for the scrutiny/approval of development projects. The NEC
authorized CDWP to approve development schemes upto Rs.Rs.3000 million. Beyond this cost
CDWP recommends to ECNEC for consideration/approval. These sanctioning powers were
notified vide M/o PDR No.20(1)PIA-I/PC/2013 dated June 3, 2013 (Annex---). The
composition of the CDWP is as under:
Chairman
Deputy Chairman Planning Commission (DCPC) / Secretary, PDR Division (ifDCPC is not in
place)
Members
Chairman P&D Boards/ACSs (Dev.) of Provinces, ACS (FATA & AJK) & Secretary (P&D),
Northern Areas, Finance Division, EAD, Chairman Pakistan Council of Science & Technology,
Climate Change Divisionand Relevant Federal Administrative Ministry/ sponsor of the
development projects.
Ministry of Planning, Development and Reform / Planning Commission
Secretary, Chief Economist, Members Planning Commission (Infrastructure, Governance, Social
Sector, Private Sector, Media, Implementation and Monitoring, Energy, Food Security, Science
&Technology), Additional Secretary, Joint Chief Economists (Operations. & Macro), Advisor
(DB), Chiefs (PIP, PIA, PP&H, EA) and concerned Technical Section (s).
By special invitationHousing and Works Division, Pakistan Engineering Council, Board of
Investment, NESPAK, Environment Protection Agency, Representative of Pakistan Council of
Architecture and Town Planning.
Department Development Working Party (DDWP)
1.23 The sanctioning power of DDWP to approve PC-I/PC-II of an individual project is up to
Rs.60 million and are only for local funded projects involving foreign exchange/funding less
than 25% of the total cost of the projectnotified vide Notification No.20(1)PIA/PC/2009 dated
June 16, 2009 (Annex---). In case where foreign funding/ Foreign Exchange Component (FEC )/
assistance is more than 25% of the total cost of project, the approval forum will be CDWP
irrespective of the cost of the project. The representative of the Finance Division and
Planning,Development & Reform Division would invariably be invited in every DDWP meeting.
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In case, anyone of these Divisions disagrees with the project, the case will be referred to CDWP
for consideration.
Composition:
Chairman: Secretary of the Federal Ministry concerned/PAO- (further delegation of powers is
not permitted).
Members: Representative one each from PDR Division and Finance Division, Joint Secretary,
Ministry/ Division concerned and Head of Department/ organization concerned
Development Working Party (DWP- Autonomous Organizations)
1.24 The autonomous organizations whether commercial or non-commercial having board by
whatever name called is competent to sanction their development schemes with 100% self-
financing with no government guarantee and involving less than 25% foreign exchange
assistance, subject to the following:
i. ADWP should be constituted by each organization and notified to consider and approve
their self-financed projects.
ii. The DWP should be headed by the Chairman/ head of the organization and, among other,
should include representatives of the M/oPDR, Finance Division, and concerned
Ministry/ Division each not below the rank of Joint Secretary
iii. The quorum of the DWP would be incomplete without the presence of either
representative of the Finance Division and the M/oPDR. In case either of these Divisions
does not agree to the project proposal or any accept thereof, the case would be referred to
the CDWP for consideration.
iv. The decision of DWP will be subject to the endorsement of the board of the organization.
The OM No.21(2-Gen)/PIA/PC/2004 dated 18th December, 2004 of the Planning Commission on
Procedure for approval of Self-Financed Development Sachems of Autonomous Organization
(Commercial/Non-Commercial) is at (Annex--).
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Chapter -2
PLANNING ARCHITECTURE AT PROVINCIAL LEVELIntroduction:
2.1 In the wake of post 18th Constitutional amendment, provincial planning has undergone a
transformation with the introduction of a medium-term perspective, increased inflow of
resources, and new planning imperatives such as public–private partnerships and results-based
management (RBM). The formulation of the Annual Development Plan and approval of
development projects are important exercises carried out by the P&D Boards/ P&D Departments
at provincial level in consultation with concerned provincial departments and agencies. This
exercise is based on the guidelines provided by the federal government in accordance with the
national priorities and resource availability. As a result of the ADP formulation exercise, the size
and the direction of the public sector programme in the provinces are determined. The Provincial
Planning Departments/ Agencies were initially created in 1953 to facilitate Planning Board at
provincial level.
The structure of planning machinery at provincial level is as under:
Planning & Development Boards/Departments:
2.2 Planning & Development Boards/ Departments are planning bodies at the provincial
level, P&D activities of all nation-building departments and agencies are coordinated by these
boards/ Departments. In Punjab and Sindh, planning & development activities are being
undertaken by the Planning and Development Boards while in Balochistan, Khyber
Pakhtunkhwa, Azad Jammu Kashmir, Gilgit Baltistan, and FATA, Planning & Development
Departments are responsible for planning & development in their respective areas. The Head of
Planning & Development Boards is called Chairman. Additional Chief Secretaries
(Development) head Planning machinery of Khyber Pakhtunkhwa, Balochistan and Special
Areas.
PUNJAB:
Planning & Development Board:
2.3 The Planning, Development Board in Punjab is headed by the Chairman and assisted by
Chief Economist, Secretary Planning & Development Department, Joint Chief Economists,
Members, Senior Chiefs and Chief of Sections for disposal of assigned tasks. The P&D Board is
divided into self-contained sections, each of which is headed by a senior chief/chief of section.
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The sections of P&D Board comprises of Economic,Technical and other Sections. The Economic
Sections deal with the matter relating to coordination with the Federal Government on economic
issues and development plans; macroeconomics and policy analysis; appraisal; and Monitoring
& Evaluation (M&E). The Technical Sections appraise projects from a technical viewpoint.
These sections include water and power, roads and bridges, urban development/development
authorities/regional planning, agriculture, livestock and dairy development, forests and
fisheries,industries and manpower, health, population welfare and nutrition,education and
training,information, culture, tourism and social welfare,housing and physical planning,and
urban/rural water supplies/sewerage. Other sections include external capital assistance(ECA),
environmentand the Projects Training Institute.
Functions of P&D Board:
The functions of the P&D Board are as under:
• Formulation of the provincial government vision, policies and strategies for economic
Planning &Development in consultation with all stakeholders in the light of National
Economic Council's (NEC's) guidelines to achieve Perspective Plan Targets (Long term
vision) and National Development Plans commonly known as Five Year Plans.
• ADP/MTDF:
– preparation in coordination with all departments of the provincial government – implementation and monitoring– evaluation of development projects and programmes
• Economic Issue(s):
– conducting research/surveys – review/analysis of socioeconomic data
• Annual Development Programmes (ADPs):
– Preparation of short-term and long-term provincial development plans – coordination with federal government
• Policy for the approval of development schemes as a catalyst for different
departments/sectors to improve the pace and quality of economic development
• resource allocation, re-appropriation of development funds and disbursement of
supplementary grants
• Secretariat for the Provincial Development Working Party (PDWP) and clearinghouse for
development projects to be placed before Central Development Working Party (CDWP)
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and Executive Committee of the National Economic Council (ECNEC) for
consideration / approval
Foreign assistance:
– determination of key areas for foreign assistance and preparation of the sector-wise portfolio for foreign assistance
– loan negotiations and securing of federal financial guarantees, wherever required forreview of foreign-aided projects
• Coordination of nominations for foreign training, seminars, conferences and workshops
for all officials serving with the provincial government
• Capacity building of government departments, agencies and functionaries for good
governance
• Focusing on accelerated development of rain-fed (Barani) and less developed areas
• Framing of guidelines for procurement of consultancy service
• Policy formulation with respect to private sector development and promotion and public–
private partnership (PPP) implementation, development and administration in respect to
foreign assisted/ funded and mega ADP projects
• Matters relating to attached departments, autonomous bodies and special institutions of
the P&D Department
• Information Technology:
– IT policy – electronic data management – control of and liaison with district IT departments – e-governance and e-service delivery web content management – pre-qualification of firms to provide IT consultancy, software development and IT
products to the government – coordination with both public sector departments and private sector agencies in the
field of IT – service matters of IT cadres at both provincial and district levels
• Budget, accounts and audit matters
• Purchase of stores and capital goods for the department
• Service matters except those entrusted to service and General Administration Department
2.4 While performing its functions, the Board closely coordinates with the Finance
Department regarding formulation and determination of the size of ADP. The Finance
Departments are also involved with the process of approval of individual development
schemes.This function is associated more directly with the process of ADP implementation.
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Provincial Development Working Parties (PDWP)
2.5 PDWP is the highest body at the provincial level to approve the provincial development
projects. The composition of the PDWP is as under:
1. Chairman, P&D Board Chairperson 2. Secretary P&D Department Secretary / Member 3. Secretary Finance Member4. Secretary, Environmental Protection Member5. Secretary concerned Department Member6. Chief Economist, P&D Board Member7. Director Punjab Economic Research Institute Member8. All P&D Members of P&D Board Member9. Director General M&E, P&D Board Member10. Any co-opted Member
The PDWP is competent to approve development projects costing up to Rs. 10,000 million
provided;
a) Projects are to be fully financed from Provincial resourcesb) Projects are not related to Water Sector c) Foreign financing is less than 25% of project cost
Departmental Development Sub-Committees (DDSCs):
2.6 DDSCS are responsible to approve the projects costing up to Rs 200 million at the
departmental level. The composition of the DDSC is as under:
i. Administrative Secretary concerned Chairman
ii. Representative from P&D Board not below the rank of Chief Member
iii. Representative from Finance Department not below the rank of AS Member
iv. Director (Works), Communication and Works Department Member (If building component is involved and technical advice is needed).
The DDSC is not competent to approve schemes based on foreign aid component and subsidy.
Such schemes are placed before PDWP for consideration / approval as per above guidelines.
Planning at Divisional/ District/Agency levels:
2.7 The functions of Divisional Development Working Party at divisional level include
finalization of lists of schemes, and approval of development schemes. Planning agencies at
district/divisional level are responsible to prepare and implement development programmes
through their own budget. The Divisional Development Working Parties (DDWPs) are
responsible to approve the projects costing up to Rs. 100 million. The District Development
23
Committee (DDC) are responsible to approve projects in area of their competence up to Rs. 50
million and the schemes of the town/tehsil municipal administrations (TMAs) exceeding Rs. 5.0
million. The Category I Officer is also authorized to approve the schemes of respective
offices/departments reflected in the ADP costing up to Rs. 2.5 million (without PC-I). The Union
Administration is also authorized to approve the schemes with costs below Rs 0.100 million
included in ADP of Union Administration. TMA Works Committee can approve the
development works costing up to Rs 5 million included in approved budget of TMA.
Divisional Development Working Party Composition
i. Divisional Commissioner Chairmanii. DCOs of the division Member
iii. SE (Irrigation & Power) Memberiv. SE (C&W) Memberv. Divisional Head of the sponsoring department Member
vi. Director (Dev/ Finance) Member/SecretaryDistrict Development Committees (DDC)
i. District Coordination Officer Chairmanii. EDO (Finance & Planning) Memberiii. EDO (Works & Services) Memberiv. EDO (Revenue) Memberv. EDO (Concerned) Membervi. District Officer (Planning) Member/Secretary
2.8 In addition, autonomous bodies like the Lahore Development Authority, Multan
Development Authority, Faisalabad Development Authority, Gujranwala Development
Authority, Bahawalpur Development Authority, Punjab Small Industries Corporation, Punjab
Mineral Development Corporation, Punjab Industrial Development Board and Tourism
Development Corporation have emerged over time to cater for the specific development needs of
their operation areas and relevant sectors. These development authorities have their own
procedures for preparation, approval and implementation of respective programmes. At all
levels, efforts have been accelerated to involve non-governmental organizations
(NGOs)/communities in development works. For social sectors, NGOs involvement in
development works through health and education foundations is being promoted. Lately, the
private sector has also been involved in project financing and implementation.
SINDH:
Planning & Development Board
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2.9 The Government of Sindh established the Planning and Development Department on July
1, 1970 to formulate development policies, plans and projects. The Department played vital role
in the process of socioeconomic development of the province. After the 18 th amendment, the
responding P&D Department in provinces are playing important role in achieving targets of
growth emanating from direct investment by both public and private sectors. This requires
careful identification and selection of projects for various departments and providing direction
for private sector investment through incentives and appropriate monetary, fiscal and trade
policies. To ensure quick and effective delivery of Public service, enhance the capacity of public
sector/human resource and to meet the emerging development needs, it was imperative to
transform and restructure the P&D Department into a Planning & Development Board. The
P&D Board comprises a Chairman, the Secretary, Planning & Development (Secretary of the
Board), Chief Economist, Members of Energy & Infrastructure, Development, Social Sectors,
Services, and Natural Resource of P&D Board, are the members. The P&D Board is divided into
self-contained sections, each of which is headed by a senior chief/chief of section. The sections
of P&D Board comprises of Economic technical and other sections. The major functions of the
P&D Board are as under:
• Planning, including policy and development.• Coordination of foreign aid and technical assistance from abroad through Economic
Affairs Division• Conducting economic research• Coordination of statistics in general, and all matters relating to Bureau of Statistics• Processing of all development schemes, programs and proposals submitted by other
Departments and making recommendations to the government thereon• Monitoring the progress and evaluation of development schemes and writing their critical
appraisal• Maintaining liaison with the National Planning Agencies• Initiating measures for giving suitable publicity to the Development Plans and educating
the public on the results achieved from time to time• Co-ordination of foreign training programs officers working with Sindh Government• Dealing with service matters of the Department except those entrusted to the Services and
General Administration Department.Provincial Development Working Party (PDWP):
2.10 The PDWP is the highest body at the provincial level to approve the provincial
development projects. The Government of Sindh vide notification SO(Admn-1)P&D.12(149)/2016
dated July 14, 2017(Annex---) re-constituted the Provincial Development Working Party as under:
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i. Chairman P&D Board Chairmanii. Secretary (Finance Department) Memberiii. Secretary, Planning & Development Memberiv. Special Secretary (P&D) Memberv. Administrative Secretary concerned Membervi. Chief Economist (P&D Board) Membervii. Member Energy & Infrastructure (P&D) Memberviii. Member Services (P&D) Memberix. Sr. Chief /Chief (Section concerned P&D) Member/Secretary
2.11 A Technical Committee under Secretary , Planning, Development& Special Initiatives
Department has also been constituted for scrutiny of development schemes before placing them on the
agenda of the Provincial Development Working Party. The PDWP is competent to approve
development projects costing up to Rs. 10,000 million provided;
i) Projects are to be fully financed from Provincial resourcesii) Projects are not related to Water Sector iii) Foreign financing is less than 25% of project cost
The PDWP is also authorized to approve the feasibility studies costing upto Rs.500 million.
Departmental Development Working Party (DDWP):
2.12 DDWP is responsible to approve the projects costing up to Rs 100 million at the
departmental level. The composition of the DDWP is as under:
i. Administrative Secretary concerned Chairmanii. Representative from P&D Department not below the rank of Chief/DS
Memberiii. Representative from Finance Department not below the rank of DS
Member
Planning at Divisional/ District/ Agency levels:
2. 13 Divisional Development Boards (DDBs)are responsible to approve development projects
at divisional level costing upto Rs.40 million. The composition is as under:
i. Divisional Commissioner Chairmanii. DC of the division Member
iii. SE (Irrigation & Power) Memberiv. SE (C&W) Memberv. Divisional Head of the sponsoring department Member
vi. Director (Dev/ Finance) Member/Secretary
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District Development Committees (DDC)
Itis responsible to approve the projects costing uptoRs. 20.00 million.
i. Deputy Commissioner Chairmanii. EDO (Finance & Planning) Memberiii. EDO (Works & Services) Memberiv. EDO (Concerned) Memberv. District Officer of concerned Dept Membervi. District Officer (Planning) Member/Secretary
BALOCHISTAN:
Planning & Development Department (P&D):
2.14 The P&D Department is a prime body at the provincial level responsible for formulation
of socio-economic development plans and policies. The P&D Department is headed by the
Additional Chief Secretary (Development) and assisted by eleven sections i.e. Programming,
Communication &Transport, Water &Power, Education &Local Government, Agriculture, Food
&Fisheries, Health &Social Welfare, Natural Resources, Development Packages, Development
Authorities, Forest, Livestock, Foreign Aid and Information Technology. These sections are
headed by the Chief and are responsible to look into development matters concerning different
sectors, sub-sectors and other development packages.
The main functions of P&D Department are as under:
• Planning including policy and development.• Co-operation of technical assistance from abroad.• Economic research (and matters relating to Board of Economic Inquiry).• Co-operation of statistics in General, and all matters relating to the Bureau of Statistics.• Processing of all development schemes, programs and proposals submitted by other
Departments and making recommendations to Government thereon.• To evaluate the progress of development schemes and write their critical appraisal.• Maintaining liaison with the National Planning Agencies.• Initiation of measures for giving suitable publicity to the Development Plan and
educating the Public on the results achieved from time to time.• Co-operation of training of local officers in foreign countries• Foreign aid including donor cooperation, concept clearance and keeping proper liaison
with all the donors and the federal ministries concerned.• Autonomous bodies i.e. Quetta Development Authority, Balochistan Development
Authority, Gwadar Development Authority, Balochistan Coastal Development Authority, and Balochistan Water and Sanitation Authority.
27
• Inter-departmental Co-operation in cases relating to Economic Policy and Development.
• Inter-Provincial Co-operation in the field of Economic Policy.• Monitoring and evaluation of all development projects and programmes in the
province.Approval Process of the Development Schemes:
2.15 PC-I or PC-II of development schemes are prepared on relevant Planning Commission’s
Forms and submitted to the relevant forum for approval. PC-I / PC-II should be jointly prepared
by the implementing Department/Agency and the sponsoring Department/Agency. For Umbrella
Type schemes, name, location and specific details of works of each component with cost should
be mentioned in PC-I.
Provincial Development Working Party (PDWP):
The composition of the PDWP is as under:
i) Additional Chief Secretary (Dev:) (P&D Dept) Chairman ii) Secretary, Finance Department Memberiii) Secretary of the Concerned Administrative Department Memberiv) Concerned joint Chief Economist (P&D Deptt) Member v) Chief of Section, P&D Deptt: Member/Secretary vi) Any Co-opted Member (s).
2.16 The PDWP is the highest body at the provincial level to approve the provincial
development projects.There is no restriction on the PDWP, if it feels necessary, to call for, or to
consider, any scheme below its powers, referred to it by the DSC/DDWP or any
Department/Agency.The PDWP will also consider approval of schemes below its powers which
do not fall solely within the jurisdiction of any particular Department but pertain to whole of
Baluchistan.Properly formulated schemes should be submitted to the PDWP through the
Planning and Development Department. Baluchistan specific scheme, reflected in Federal PSDP
and proposed to be executed by Provincial Department/ Agency, will be approved by the PDWP
first and later on submitted to Planning Commission for further processing.
The PDWP is competent to approve development projects costing up to Rs. 10,000 million
provided;
a) Projects are to be fully financed from Provincial resourcesb) Projects are not related to Water Sector c) Foreign financing isless than 25% of project cost
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2.17 The schemes sanctioned by the PDWP should bein line with the objectives of the
National, Provincial or Sectorial Plans and there is no deviation from the principles and policies
encompassing the plans and the schemes(s) shall fall within the territories of the Province of
Baluchistan.
Departmental Sub-Committees (DSC):
i) Secretary to the Govt. (Provincial) in the Concerned Department Chairperson ii) A representative of Finance Department Memberiii) A representative of Planning and Development Department Memberiv) Any Co-opted Member (s) Memberv) Concerned Head of Section/Wing Member/Secretary
Divisional Development Working Party (DDWP).
i) Divisional Commissioner. Chairperson ii) Deputy Commissioner in the Division. Memberiii) Divisional Head of the concerned Department. Memberiv) Director Development, P&DD Member/Secretary
2.18 When there is unanimity, no reference to the Provincial Development Working Party
(PDWP) shall be necessary but in case of difference of opinion, the scheme shall be referred to
the Provincial Development Working Party (PDWP).These powers shall be exercised only in
respect of Plans / Schemes involving Development expenditure. In case any member is not
present, the scheme shallnot be considered,unless his/her comments in writing are obtainedby the
DSC. Copies of PC-I/ PC-II of schemes approved by PDWP/DSC & DDWP shall be sent to the
Planning & Development Department and Finance Department simultaneously. It is assured that
the schemes sanctioned by the PDWP/DSC/DDWP are in line with the objectives of the
National, Provincial or Sectorial Plans and there is no deviation from the principles and policies
encompassing the plans, and the scheme(s) shall fall within the territories of the Province of
Baluchistan.
KHYBER PUKHTUNKHWA:
Approval Process of Development Schemes
2.19 The Planning & Development Department of KPK is the major policy decision-making in
the field of development in the Province. P&D Department is responsible to formulate sectoral
policies, priorities for projects according to the required resources, implement and monitor
overall development plans of the Province.
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The main functions of the P&D Department are as under:-
Strategic planning for provincial economy Formulation of Annual Development Plan Appraisal and review of Projects Monitoring and evaluation of development schemes, Socio-economic impact analysis Management of Provincial Statistics Foreign Development Assistance – Donors Coordination. Processing Foreign trainings & visits Lead Provincial representation in National Development Forums Lead Steering Committees and PRBs of mega projects Secretariat support to PDWP/CDWP/ECNEC/NEC, etc Coordination and implementation of Reforms Agenda
PROVINCIAL DEVELOPMENT WORKING PARTY: (PDWP)
2.20 The PDWP forum is competent to approve provincial developmental schemes. The forum is chaired by Additional Chief Secretary and comprise of following five members.
1. Additional Chief Secretary Chairman2. Secretary, Finance Department Member3. Secretary, Environment Department Member4. Secretary, Concerned Department Member5. Secretary, C&W Department Coopted Member6. Secretary, LG&RD Department Coopted Member
The PDWP is competent to approve development projects costing up to Rs. 10,000 million
provided;
a) Projects are to be fully financed from Provincial resourcesb) Projects are not related to Water Sector c) Foreign financing isless than 25% of project cost
DEPARTMENTAL DEVELOPMENT WORKING PARTY: (DDWP)
2.21 DDWP forum is chaired by the concerned Administrative Secretary and competent to approve the project costing upto Rs. 60.0 million. It comprised of two permanent members one each from Finance and Planning & Development Department.
The composition is as under:
1. Secretary concerned Deptt. Chairman
2. Secretary, P&D Department Member
3. Secretary, Finance Department Member4. Secretary, LG&RD Department Member
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5. Secretary, EnvironmentDepartment Member6. Secretary, C&W Department Member
DISTRICT DEVELOPMENT COMMITTEE (DDC):
2.22 DDC is a district level forum for approving developmental scheme at District level is chaired by Deputy Commissioner and comprises the following members.
The composition is as under:-
1. Deputy Commissioner Concerned District. Chairman2. Executive District Officer (F&P) Member3. District Planning Officer Member4. Executive District Officer C&W Member5. Executive District Officer Concerned Department Member
6. District Officer Sponsoring Department Member
The sanctioning power of DDC is Rs.40.00 million. All the non ADP schemes, regardless of cost would be presented to the PDWP forum for approval.
FATA:
Planning & Development Department
2.23 The Planning and Development Department is headed by Secretary P&D. The Planning
& development Department is responsible for planning, implementation, monitoring and
evaluation of all development activities related to FATA.
The main functions of P&D Department are:-
i. All matters relating to the formulation and approval of development projects including:• Policy formulation and coordination of activities relating to the Annual Development
Plan, and its review• Processing of all development schemes and proposals submitted by line departments
of the FATA Secretariat• Secretarial functions for the Departmental Sub-Committee (DSC)
ii. Preparation of Annual Development Plan for FATAiii. Recommendations for sector-wise/scheme-wise allocations/re-allocations.iv. Assessment of requirements, programming and negotiations for external economic and
technical assistance from donor agencies, through the concerned Federal Government Ministry/Division.
v. Review of the implementation of development projects and programs to identify bottlenecks and take remedial action.
vi. Identification of regional sectors and sub-sectors lacking adequate portfolio of projects and taking steps for the preparation of productive project proposals for those areas.
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vii. Technical and economic appraisal of projects.viii. Coordination with donor agencies for donor funded projects
ix. Collection and maintenance of statistical data necessary for the formulation of economic development policy for FATA.
x. Coordination with the Federal and Provincial Government’s Planning Division/Department/Forums.
xi. Preparation of briefs/presentations for various dignitaries/forums regarding development in FATA.
xii. Deal with Pak-Army related projects.xiii. Allocation of development funds amongst agencies/FRs on the basis of approved policy.xiv. MNAs/Senators development programs.xv. Public demands regarding development projects received from various sources.
Procedure for Development Projects of FATA
2.24 The Government of Pakistan, Ministry of Planning, Development and Reform vide
U.O.No.20(1-1)PIA/PC/2013 dated 21st September, 2015 has revised the procedure for approval
of development projects of FATA (Annex--)which is as under:
Project Approval Forum
Powers(In Rs million) Chairman Members
Agency/FR Development Sub-Committee (ADSC/FRDSC)
Upto Rs.20 million
PA/DCO -Deputy Secretary (P&D), FATA Sect.
-Deputy Secretary (Finance), FATA
-Head of the concerned line dept. at Agency/FR level
FATA Development Working (FDWP)
Above Rs. 20 million and upto Rs.200 million
Additional Chief Secretary (FATA)
-Representative of SAFRON, GoP
- Representative of PDR, GoP
-Secretary Finance/FA, FATA
-Secretary Planning & Development, FATA
-Secretary, Administration/ Coordination, FATA
-Head of line Department concerned, FATA
FATA Development Council
Above Rs. 200 million and upto Rs.400 million
Governor Khyber Pukhtunkhwa
-Additional Chief Secretary, FATA
-Representative of SAFRON, GoP
- Representative of PDR, GoP
-Secretary Finance, FATA
-Secretary Planning & Development, FATA
-Secretary, Administration/ Coordination, FATA
32
-Secretary/ Head of line Department concerned, FATA
All development funds are provided by the Federal Government.Details at(Annex----)
AZAD, JAMMU AND KASHMIR:
2.25 In the mid-fifties, economic and social development process,despite financial
constraints,was launched in AJK to provide sound base for development of the area. In early
sixties, a planning cell was established in Finance Department with some skelton staff to develop
the area. In 1972, the cell was upgraded as full fledge department.
The functions of the Planning and Development Department are as under;
• Planning and Development including policy and procedures. • Co-ordination work relating to the preparation of the Annual Development Programme
and its review.• Processing of all development schemes, programmes and proposals submitted by other
Departments including autonomous bodies, making recommendations to the Government thereupon and functions of the Development working Party.
• Maintaining Liaison with the national Planning Agencies.• Dealing with Autonomous and Semi-Autonomous Bodies with regard to development
planning, programmes and projects in AJ&K.• Co-ordination of economic assistance.• To monitor and evaluate the progress of development schemes and their critical appraisal.• Co-ordination of technical assistance from abroad including training facilities.
The approval forums of development projects in AJK areas under:
Project Approval Forum
Powers(In Rs million) Chairman Members
Azad Kashmir Development Working Party (AKDWP)
Upto Rs.100 million
Additional Chief Secretary (Development)
- Secretary (Finance), AJK.
-JS (AJK Council), GoP
-JS(KA&GB), GoP
-Chief Economic Appraisal, MoPDR,
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Azad Kashmir Cabinet Development Committee (AKCDC)
Above Rs. 100 million and upto Rs.400 million
Prime Minister AJK
-All Cabinet Members
- Secretary, AJK Council
-Chief Secretary, AJK
-ACS Development, AJK
-Secretary Finance, AJK
-Chief Economic Appraisal, MoPDR,
All development funds are provided by the Federal Government.
COMPOSITION/SANCTIONING POWER OF DEVELOPMENT FORUMS OFGILGIT-BALTISTANProjectApprovalForumSanctioningpowerChairman MemberGB-DDWP Projects up to
34
Rs. 60 Million.Secretary P&DDSecretary FinanceSecretary EnvironmentDG, CMIT Concerned SecretariesGB-DDWP Projects above Rs.60 million up to Rs. 200 Million. Chief Secretary Secretary P&D Secretary Finance Secretary Environment DG, CMIT Concerned Secretaries
35
GB-DWP Projects above 200 millionuptoRs. 750 Million. Chief Minister Minister FinanceMinister P&DSecretary P&D Secretary FinanceSecretary EnvironmentDG, CMITConcerned SecretariesNote: Projects costing above Rs. 750 million or in case of foreign exchange/foreign
36
assistance more than 25% of the total cost are forwarded for consideration/approval of CDWP/ECNEC.
GILGIT BALTISTAN:
2.26 The Planning and Development Department is a prime body of the Government of GB
responsible for planning, implementation, monitoring and evaluation of all development
activities related to GB. The P&D Department is headed by Secretary P&D. The main functions
of P&D Department as per Rule of Business 2009 are as under:
• Preparation of Annual Development Program in coordination with all department of the Government.
• Monitoring the utilization of Annual Development Program funds• Approval of development schemes• Coordination training in economic development for all officers serving with the Gilgit-
Baltistan Government.• Preparing five years and other provincial development plans• Service matter except those entrusted to S&GAD Department• Liaison with UNDP, UNICEF, PARC, AKF, GTZ and other International
agencies/donors• Coordination and supervision of development activities with line departments and
Federal Ministries• Data collection, tabulation, statistical matters• Periodical reports and review meetings on ADP• Attending seminars, conferences, meetings related to Public Sector Development
Programme.• Processing Proposals for foreign assistance/aid projects• Authorization and Re-appropriation of development funds• Focal department for all National/International trainings.• CPEC unit, Climate Change Cell, SUN unit, SDG unit etc.
37
• In addition to the above, the cabinet of GB has decided that the functions of P&DD as per Planning Commission, Government of Pakistan shall be considered as part of Rules of Business of Gilgit-Baltistan.
COMPOSITION/SANCTIONING POWER
Project Approval
Forum
Sanctioningpower Chairman Member
GB-DDWP Projects up toRs. 60 Million.
Secretary P&DD Secretary Finance, Secretary EnvironmentDG, CMIT Concerned Secretaries
GB-DDWP Projects above Rs.60 million up to
Rs. 200 Million.
Chief Secretary Secretary P&D, Secretary Finance Secretary Environment, DG CMIT
Concerned Secretaries
GB-DWP Projects above 200 million upto
Rs. 750 Million. Chief Minister
Minister Finance, Minister P&DSecretary P&D, Secretary Finance
Secretary EnvironmentDG, CMIT
Concerned Secretaries
Projects costing above Rs. 750 million or in case of foreign exchange/foreign assistance more
than 25% of the total cost are forwarded for consideration/ approval of Central Development
Working Party(CDWP)/Executive Committee of National Economic Council (ECNEC) as the
case may be. All funds for development are provided by the Federal Government.
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Chapter-3
PROJECT PLANNING AND MANAGEMENTDefinition of Project
3.1 Projects are unique in their output, having a definite starting and ending point, are
temporary in nature, carried out to manifest an organization’s strategic objectives. These
temporary and unique endeavors are playing a vital role in today’s modern organizations both
public and private alike. There is a growing interest on how these projects are managed within
the public sector in Pakistan.
Project Management Framework
3.2 The Project Life Cycle refers to a series of activities which are necessary to fulfill project
goals or objectives. Public sector projects in Pakistan vary in size and complexity, but, no matter
how large or small, all projects can be mapped to the following life cycle structure based on the
processes in the public sector in Pakistan which are briefly stated below.However,details have
beendiscussed in other chapters of this manual.
• Identification: stage where one project-idea out of several alternatives is chosen and defined.
• Preparation: defined idea is carefully developed to the appraisal stage.• Appraisal: every aspect of the project idea is subjected to systematic and comprehensive
evaluation, and a project plan is prepared.• Presentation: detailed plan is submitted for approval and financing to the appropriate
entities/relevant forum.• Implementation: with necessary approvals and financing in place, the project plan is
implemented. • Monitoring: at every stage the progress of the project is assessed against the planned
activities of the projects; and• Evaluation: upon completion the project is reassessed in terms of its efficiency and
performance.The above Life Cycle can be clearly understood from the figure below:
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3.3 The public sector projects are broken down into phases so that extra control can be
applied to effectively manage the processes. These phases are further divided into subsets for
easy management, control, and planning. The following diagram further depicts these phases and
their sub phases or components in each phase pictographically, however, details of which are
stated in the relevant chapters of this manual;
Project Management
3.4 Project management is the art of managing the project and its deliverables with a view to
produce finished products or service. There are many ways in which a project can be carried out
and managed.Project management includes: identifying requirements, establishing clear and
achievable objectives, balancing the competing demands from the different stakeholders and
ensuring that a commonality of purpose is achieved. It is clear that unless there is a structured
and scientific approach to the practice of management, organizations would find themselves
adrift in the ocean called organizational development and hence would be unable to meet the
myriad challenges that the modern era throws at them. Without a scientific approach to the task
40
of managing the projects and achieving objectives, it would be very difficult for the
organizations to successfully execute the projects within the constraints of time, scope and
quality and deliver the required result. In other words, there has to be a framework and a defined
way of doing things to ensure that there is a structure to the art of project management.
Formation of International Associations
3.5 By the end of the 1960s there was an increased understanding to recognize project
management as a separate discipline. This recognition led to the creation of the two major
professional bodies in the field of project management. The International Project Management
Association (IPMA) was founded in Europe in 1965. The vision behind the formation of IPMA
was to promote project management and to lead the research in the development of the
profession. In 1969, the Project management Institute (PMI) in United States was formed to
serve the interests of the project management industry. The premise of PMI is that the tools and
techniques of project management are common and they can be used across different industries.
Development of International Standards / Guide
3.6 The role of standards for project management profession has been an important issue for
many years. A variety of benefits have been identified which accrue from standardization.
General benefits which apply to both technological and professional standardization include
encouragement of technological innovation,guaranteeing marketplace, competition and
convenience. In 1981, PMI Board of Directors authorized the development of a Bodyof
Knowledge (BOK), containing standards and guidelines of practice that can be widely used
throughout the profession. This initiative resulted in the publication of: A Guide to the Project
Management Body of Knowledge commonly referred to as a PMBOK in1996. On the other hand
the IPMA developed the ICB: IPMA (IPMA Competency Baseline) in 1998.
The major standards that are related to project management are as follows:-
• Project Management Body of Knowledge (PMBOK) by PMI.• Association for Project Management (APM) BOK by UK APM.• Project in Controlled Environments (PRINCE2) by Office of Government Commerce • United Kingdom.• Project and Program Management for Enterprise Innovation (P2M) by Engineering • Advancement Association of Japan (ENAA).
41
Project Management Body of Knowledge (PMBOK)
3.7 The PMI has developed arguably the most significant Project Management standard,
PMBOK Guide. The PMBOK Guide is approved as an American National Standard by the
American National Standard Institute (ANSI) and is recognized by the Institute of Electrical and
Electronics Engineers (IEEE) as an IEEE standard. The PMI describes that much of the
knowledge of tools and techniques for managing projects are unique to project management.
However, understanding and applying the knowledge, skills, tools and techniques which are
recognized as best practices are not sufficient alone for effective project management. PMI
emphasizes that in addition to the knowledge of tools and techniques, there are various other
areas that are also vital in the application of project management. These are:
• Application Area Knowledge, standards and regulations• Understanding the project environment• General management knowledge and skills• Interpersonal skills
3.8 The PMBOK guide divides the project into the five phases and describes it as a project
management process groups. It also advocates that for the project to be successful the project
team must select the appropriate processes within the process group to meet the project
objectives. These process groups are defined as:
• Initiating Process Group• Planning Process Group• Executing Process Group• Monitoring and Controlling Process Group• Closing Process Group
3.9 The guide also provides a matrix that maps project management process onto five project
management process groups. The PMBOK has become a de facto international standard for
project management knowledge. However, it is also acknowledged that it has been developed
predominantly for a North American audience.
Association for Project Management (APM) Body of Knowledge
3.10 Project management provides the single point of integrative responsibility needed to
ensure that everything on the project is managed effectively to ensure a successful project
deliverable.
The APM BOK is divided into four major categories:
• Project management• Organizational Issues• Tools and Techniques
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• General Management
3.11 These four categories are then subdivided into 40 elements / process of project
management but what’s important is that all project management associated aspects are covered
in this BOK. This model from APM has worked well for two decades since it was launched in
1993 and is now widely used as the basis of competency assessment by many companies in
Europe.
Project in Controlled Environments 2 (PRINCE2)
3.12 PRINCE stands for Projects IN Controlled Environments and is a management approach
owned and promoted by the Office of Government Commerce (OGC, part of UK treasury).
PRINCE was initially published in 1989 and has derived its roots from an earlier method called
Project Resource Organization Management and Planning Technique PROMPT (a project
management method created by Simpact Systems Ltd. in 1975). In 1996 a consortium of some
150 European organizations contributed and published a version 2 of PRINCE. PRINCE2 was
originally aimed at the public sector; however, it is now being adopted faster in the private sector
and is growing in importance internationally.PRINCE2 is described as a structured method for
effective project management. The project management process in PRINCE2 is divided into four
stages. These stages are:
• Pre-project stage,• Initiation Stage,• Continuation Stage, and• Closing Stage
3.13 The model further divides these stages between seven main processes and three main
sections. In addition to these seven processes and three main sections, there are different themes
in PRINCE2. These themes are used as a tool by project managers for the execution of the
processes, these themes are:
• Business Case (Why)• Organisation (who)• Planning (where, how, when and how much)• Controls• Configuration management• Risk management (what if)• Quality• Change management
3.14 The PRINCE2 guide provides recommendations to use the PRINCE2 approach within a
closed organization. It further states that the PRINCE2 approach is a single unified (closed)
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methodology starting from developing the initial product breakdown structure through to
identifying the corresponding network scheduler. It is because of this unified approach the
monitoring is carried out in a closed and organized way. In addition, PRINCE2 also contains
suggestions for the adaptation of the project so that each project can be precisely customized.
Project and Program Management for Enterprise Innovation (P2M)
3.15 P2M proposes a framework based on a Mission Driven Approach and on insightful
thinking. This enables solving complex ambiguous problemsin uncertainty. Furthermore, the
P2M approach integrates multi/interdisciplinaryknowledge and methodologies. The approach of
P2M is to recognize three kinds ofprojects consisting of concept development (Scheme model),
implementation (Systemmodel), and operation (Service model) and to generate diversified,
creative andsynergistic business models. This could also be called as a domain of P2M.The
scheme model means a conception plan to develop a mission into multiplescenarios, with a
scheme report concerning the feasibility as a deliverable. The keyattributes of the scheme model
are the definition of feasibility, internal structure andexternal relationship, and flexible
adaptation to the owner request to change. The first step of Project Management Entry of P2M
describes how to make a first step as a Mission-achievement professional. The second step of
Project Management explains the basic definition and framework of project management. The
third step of programme management introduces program management that organically
combines multiple projects. The fourth step of segment management offers 11 domains of
project management. Project management domains are used in a standalone or combined manner
for individual tasks and challenges of project and program management.
A Case for Globally Accepted Standard of Project Management
3.16 The development of standards in project management began with recognition of shared
interests, resulting in fairly informal community gatherings. Through regular meetings and
recognition of shared experience, practitioners began to think of themselves as a community.
This led to attempts to define and delineate that profession in order to make it visible and
acceptable to those outside the community. Over the last decades different standards or BOKs
has been introduced in the profession of project management. These standards can be classified
into three categories of project related, organization related and people related standards. The
project related standard are focused on the knowledge and practices of management of projects
with the viewpoint of an individual project. The organization related projects are focused on the
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knowledge and practices of management of projects with the viewpoint of an enterprise. The
people related standards are focused on the development, assessment and certification of people.
3.17 These standards were helpful in developing the profession yet they were evolving from
within particular national boundaries and have the perception of being influenced by particular
national cultures and practices. Though in the early ages of the profession these national bodies
were dominant in building the profession but now the profession has global audiences and this
led to the call for a globally applicable standard of project management.
3.18 This call was answered in the formation of a working group on Global Performance
Based Standard for Project Management Personnel (GPBSPMP) in 2002.This standard can be
seen as an attempt to further the profession, by providing opportunities for countries without
existing standards to have a basis of criterion of their own and by creating a global basis for
professional reciprocity.
Other Approaches to Project Management
3.19 All of the above approaches to project management are based on the process based
methodologies. A part from these process based methodologies other paradigms for managing
projects has also surfaced. Some of these approaches are as follows:-
Critical Chain Project Management (CCPM)
3.20 Critical Chain project management which was developed and publicized by Dr. Eliyahu
M. Goldratt in his book ‘Critical Chain’ is a novel approach for managing projects. Goldratt is
well known in the operations management community as the inventor of the Theory of
Constraints (TOC). TOC is a tool for managing repetitive production system based on the
principle that every system has a constraint, and system performance can only be improved by
enhancing the performance of the constraining resource.
3.27 CCPM is an extension of the TOC designed specifically for project environment. In
CCPM the first step is to identify the critical chain activities by using the critical path method.
The next step is to recalculate the project schedule based on shortened task duration estimates for
the critical activities. The difference between the project duration based on new estimates and the
original is called the project buffer. The same procedure applies for calculating the activities
which are not critical and a buffer is created which is called feeding buffer. This buffer is placed
in the path where it feeds back into the critical chain path. According to CCPM a feeding buffer
represents the extent of protection of the critical chain against the uncertainty. The third type of
buffer used by CCPM is called a resource buffer, which is a virtual task inserted prior to critical
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chain tasks that require critical resources. Its purpose is to issue a signal to the critical resources
that a critical task to which they are assigned is due to start shortly.
3.28 The resource buffer does not actually consume any resources and it adds neither time nor
cost to the project. As progress is reported the CCPM schedule is recalculated, keeping the final
due date of the project constant by adjusting the buffer sizes. In other words in a CCPM the
flexibility in the start time of the resources and the ability to quickly switch between the
activities and activities chains keep the whole project on schedule.The opponents of CCPM
methods dismiss the hype that CCPM can lead to superior performance and argues that
experienced project managers have known the principles behind CCPM for decades and CCPM’s
uniqueness is in the terminology rather than in its substance.
Complex Project Management
3.21 A recent addition in the list of professional organization in the field of project
management is the college of complex project managers. The college of complex project
managers has developed their own standards to manage the complex projects and called it as the
Competency Standards for Complex Project Managers (CSCPM).The principle behind this is
that the complex system is formed out of many components whose behavior is emergent and the
behavior of the complex system cannot besimply inferred from the behavior of its components.
So, to manage this complex system a complex project manager is required who by understanding
complexity and accepting it, can gain insight and have a capability to steer a project towards its
intended outcomes. The Complex project managers need to focus on aspects of complex projects
that distinguish them from traditional projects. The opponents of this standard argue that the
definition of complex does not stand up to any scrutiny. They further argue that there has been
no analysis of the problems that the establishment of this initiative is intended to solve. In
addition to this the process by which the college and the standards have progressed has gone un-
checked; and that the standard is not established on evidence based practice.
Structured System Analysis and Design Method (SSADM)
3.22 The Structured Systems Analysis and Design Method (SSADM) is the standard
structured method used for computer project in UK government departments. SSADM has also
been adopted as a standard by public utilities, local government, health authorities, foreign
governments and several large private sector organizations. The basic principles of SSADM are
shared, to a varying degree, by many of the modern structured methods of system analysis and
design. The proponents of the SSADM argues that its being used in large number of projects
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principally in the area of government data processing systems and experience shows that the
method has improved the quality of system analysis and design. They also accentuate that a large
number of projects are now completed on time and there implementation was considered to be a
success.
Project Success Vs Project Management Success
3.23 One of the most common approaches to project success has been the fulfillment of golden
triangle of cost, time and scope. Although this may seem true in some cases and appropriate in
the short run when time to market is critical there are many examples where this approach is
simply not enough there could be different criteria for the success of the project. There is a
distinction between project success, measured against the overall objectives of the project, and
project management success (measured against the widespread and traditional measures of
performance against cost, time and quality). Furthermore, the different objectives projects are
designed to achieve can be arranged in a hierarchy, with not all equally important, and that the
different stakeholders in the project such as owner, user, sub-contractor, supplier or designer may
all have success criteria that differ from each other. This makes the measurement of success a
complex and inexact matter, since it is possible for a project to be a success for one party and a
disaster for another. It can also appear to be success one day and a failure the next day.
3.24 The construction of Sydney opera house is one example the project took three times
longer than the anticipated and cost almost five times higher than planned. But once it completed
it quickly became Australia’s most famous landmark. Therefore one can infer that in the context
of managing the project the Sydney opera house can be termed as a failure but as a project it is
highly successful.Both project success and project management success are interdependent and
important for any project. If a project achieves success without project management success,
there is the inevitable conclusion that even greater benefits could have been realized. On the
other hand, if project management success is achieved without project success, then the owner or
sponsor has failed to obtain the benefits that the project was designed to achieve.
3.25 As projects become the currency for improved business performance, making project
management a core capability of successful organizations in turn becomes paramount. But to
demonstrate the true competence, project management success cannot be an occasional event.
Performance that is good, on average is not sufficient. Repeatability and relentless improvement
must be the standard. Therefore to understand an organization’s project management
effectiveness is to determine its project management maturity (PMM). It’s significant in a sense
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that by having a grasp of where an organization lies on the spectrum, management can determine
its project management strength and weakness.
Project Management Maturity (PMM)
3.26 Organizations frequently opt to implement standard project management method as
givenby PMI, APM etc. These organizations expect that such an approach can lead to better
performance. The Project Management Institute (PMI) issued a standard, the Organizational
Project Management Maturity Model (OPM3) which suggests the adoption of standard project
management methods. The purpose of this standard is to provide a way for organizations to
understand the project management practices and to measure the maturity of PM process. The
concept of maturity was born in Total Quality Management (TQM) movement, where the
application of statistical process control techniques showed that improving the maturity level of
any technical process leads to two things: a reduction in the variability inherent in the process,
and an improvement in the performance of the process. Based on this concept Carnegie-Mellon
University has developed a model called the Capability Maturity Model to measure organization
process maturity. According to this model the organization process maturity advances through
five stages. These stages are:
Level 1: Ad hoc (Chaotic) --- the starting point for use of a new processLevel 2: Repeatable ---- the process is able to be used repeatedly, with rough repeatable outcomesLevel 3: Defined --- the process is defined/confirmed as a standard business processLevel 4: Managed ---the process is managed according to the metrics described in the defined stageLevel 5: Optimized: process management includes deliberate process optimization or improvement.
3.27 At level 1 an organization has no formal project management processes in place. Success
of any project at this level depends on individual effort, since systems and procedures are poorly
defined. The PM process isunclear and projects are marked by cost, quality and schedule
problems. Interfacingwith functional areas within the organization is usually laden with
communication problems. At level 2 (repeatable) PM systems and processes for planning,
scheduling, tracking and estimating are in place and perceived as important within an
organization. The tools are seen as a solution to some of the performance problems, yet they are
notused in a fully integrated form. Project success continues to be unpredictable, and cost&
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schedule fluctuations persist throughout the projects. There is no integration of databases,
although schedule information is generally abundant.
3.28 At the defined level (level 3) the organization has standardized approach to project
management within the organization. The project management systems, defined and
documented, are integrated into the organization systems and procedures. Project performance is
predictable, with a high degree of accuracy. Schedule and cost performance tend to improve and
utility considerations are considered appropriately. Strong emphasis is placed on scope
management, which is perceived as a fundamental part of managing projects. At level 4
(managed level) process management is measured and controlled. Management is linked with the
information flow on major projects and knows how touse and interpret the information. Systems
are able to generate integrated management-level information without reprocessing and
reformatting. Project performance tends to conform to plans, thus the project success rate is high.
There is consolidated project database, which can be accessed for estimating and benchmarking
purposes.
3.29 At the top level of PM maturity (the optimized level), project management processes
within an organization are continuously improved. A sophisticated system exists suchthat both
top-level management reporting requirements and tracking needs are met. Resource optimization
is a reality, not only at the project level but also on an organizational basis. Reliable information
can be rolled up across all projects and analyzed from an organization-wide standpoint.In
addition to the above discussion on project management maturity the PMI defined project
management maturity as the degree to which an organization practices organizational project
management. The two most renowned project management maturity models are OGC’s PMMM
(Office of Government of Commerce which has produced PRINCE2, Project Management
Maturity Model) and OPM3 developed byProject Management Institute (PMI). Integral in
measuring the organization project management maturity the organization advances through a
series of five stages of maturity.
3.30 The Project management institutes launched an organizational project management
maturity model (OPM3). The basic building blocks at the heart of OPM3 are following five
different kinds of entities:
1. Best practices associated with organizational project management2. Capabilities that are prerequisite to best practices3. Outcomes that attest the given capability of the organization
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4. Key Performance Indicators (KPIs) that provide the means of measuring the outcomes
5. Pathways that identify the capabilities aggregating the best practices.
3.31 In addition to these five building blocks the model is designed to be used by the
organizations for four types of purposes. These are:
1. To understand what practices and process have been found to be useful for organization to achieve its aims
2. To measure an organization ability to implement its high level strategic planning3. To drive business improvement4. To integrate organizational practices and processes in the domains of portfolio
management, program management and project management.
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Chapter – 4
PROJECT IDENTIFICATIONS, LINKAGES AND FINANCING
Project Identification
4.1 Project identification is the first step in the strategic planning process. A project is a
notion, speculative imagining of a proposal deemed fit for a prospective undertaking. It may be
defined as a proposal for investment to achieve certain objectives. J. Price Gittinger, in his book,
"Economic Analysis of Agricultural Projects" maintains that "all we can say in general about a
project is that it is an activity on which we will spend money in expectation of returns and which
logically seems to lend itself to planning, financing and implementation as a unit. It is a specific
activity with a specific starting point and a specific ending point intended to accomplish a
specific objective. It is something you draw a boundary around and say: 'This is the Project'.
Project is measurable both in its major costs and returns. Normally it will have some
geographical location or at least a rather clearly defined area of geographic concentration. It has
a relatively well-defined time sequence of investment and production activities. It will be a
partially or wholly independent administrative structure and set of accounts". Every project has
beginnings, middle period during which activities moved the project towards completion and an
ending. A standard project typically can be divided into four major phases: initiation, planning,
execution or implementation and closure. Taking together, these phases represent the path a
project takes from the beginning to its end and are generally referred to as the project life cycle.
In case of public sector projects another important phase is essentially required to be added is
project scrutiny and its approval from a competent forum.
4.2 Projects in various sectors are proposed and prepared by concerned
ministries/departments. In advanced countries, there are special organizations which are
employed on permanent basis in the field on surveys and necessary investigations required for
formulation of feasible projects. These outside agencies, engaged for the purpose, prepare
complete project documents including cost estimates and financial and economic analyses of
such projects enabling the Government in appropriate evaluation of their potential and fixation of
their priorities in a particular sector. In less developed/developing countries, there are no such
organizations; the following sources are used for project identification.
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Steps in Project Identification:
4.4 In general, Project Identification constitutes of the following steps1:
i. Propose measures to solve major problems identified in the development strategy and to meet diverse development needs, while setting clear project objectives and identifying target groups receiving benefits from the project;
ii. Establish the project concept (together with alternative plans) that will effectively serve to achieve the country’s development objectives;
iii. Assess the priority or urgency of the project in the context of the country’s economic and social development plan and sector investment program;
iv. Examine consistency with the master plan (M/P) and the regional development plan;v. Consider the adequacy of the Executing Agency and the possibility of private-sector
participation in the project; vi. Estimate approximate project cost (together with the cost of alternatives) based on
the conceptual design;vii. Make preliminary assessment of the feasibility of the project and its impacts on the
country, its specific region or sector.
4.5 Projects are usually identified by the following entities:
i. Government agencies preparing the national, regional or sectoral development plan;
ii. Bilateral or multilateral aid agencies conducting country economic/sector studies or
ex-post evaluation of completed projects; and
iii. Public or private-sector entities in the country or donor countries, local governments,
non-governmental organizations (NGOs), academics conducting a project.
Strategic Planning:
4.6 Strategic planning helps prioritize regional restoration efforts, allows for widespread
restoration support, and may focus available funding on projects that meet larger spatial and
temporal goals and objectives. Identification of projects in different sectors of the economy plays
a key role in overall development / progress of a country. It both has backward and forward
linkages with the issues faced in the past and potential future challenges of a country. The very
rationale of the projects to be undertaken should be clearly maintained and supported by well-
designed development programs, which must be in consistent / in line with the short, medium
1https://www.jica.go.jp/english/our_work/types_of_assistance/oda_loans/oda_op_info/guidance/ c8h0vm0000aoeoch-att/03_identification_and_preparation.pdf
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and long-term perspective plans of the country. Otherwise, proper utilization of limited
development resources / public money could not be materialized in its true letter and spirit.
Project Strategic Linkages
4.7 Vision statements, long term perspectives, five year plans, annual plans and the Public
Sector Development Programs (PSDP) are interdependent documentsandidentification of a
development project must have certain strategic linkages with the long term plans or the vision.
Pakistan 2010 was the first ever vision statement approved by the NEC in 1998. Later on Vision
2030 was launched in 2005. But after 18th Constitutional Amendment, there was a need to
develop new vision to address the devolution. Therefore, NEC approved the vision 2025 in the
year 2014 that has been developed through wider consultations with all the stakeholders ans is a
shared vision by all definitions.
Vision
4.8 Vision 2025 rests on seven pillars identified as the key drivers of growth which will
transform Pakistan into a vibrant and prosperous nation by 2025. The pillars are; (i) People
First: Developing Social and Human Capital and empowering women; (ii) Growth: Sustained,
indigenous and inclusive growth; (iii) Governance: Democratic governance: institutional reform
& modernization of the public sector; (iv) Security: Energy, water & food security; (v)
Entrepreneurship: Private Sector & entrepreneurship-led growth; (vi) Knowledge Economy:
Developing a competitive knowledge economy through value addition and; (vii) Connectivity:
Modernizing transportation infrastructure & regional connectivity.
The eleventh five year plan justified the Vision 2025 as follows:
“The Vision aims to serve as aspirational document visualizing the destination of
balanced human, social, and economic progress throughout Pakistan. It emphasizes
revival of growth, strengthening of the country’s development foundation and
enabling it to reach the status of an upper middle income country by 2025.”
Plan Priorities / Plan Documents
4.9 The development plans are prepared after thorough scrutiny and judicious selection of the
most important and remunerative projects by the Planning Commission/ Planning and
Development Division of the Government of Pakistan charged with the responsibility of giving
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the final shape to these plans. The order of priority assigned to each project depends on its
viability and impact on national economic growth, social development, generation of greater
resources/revenues and overall Government policy. All such potentially promising projects are
identified and included in the national development plan, subject to expected resource
availability. These selected projects find place in the plan priorities and picked from the whole
lot of projects. Such projects have their relevance within the perspective plan's spanning long
periods and aim at the steady evolution of the economy towards a state of self-sufficiency with
characteristic of a prosperous progressive nation. On these aspirations of a self-reliant free
nation, the projects are identified in plan documents.
Five Year Plan
4.10 A single year is too short a period to accomplish anything. A five year plan on the
contrary has the advantage of reasonable time frame for maneuvering and achievement of solid
results. A five year plan is a general statement of objectives and targets relating to the economy
as a whole and its various component sectors. It is not an authorizing document in the sense that
it does not authorize expenditure to the relevant operating agencies. It provides a broad
framework for formulation of the plan.Preparation and approval of five year plans started in
1957, which came to a halt with the abortive Fourth Five Year Plan 1970-75. It was resumed
with the Fifth Five Year Plan 1978-83 and continued until 1998. The draft Ninth Five Year Plan
1998-2003 was prepared but not placed before the NEC. Eleventh Five Year Plan 2013-18 is
under implementation at presentation. A list of five year plans is placed at (Annex--).
4.11 In keeping with the Rules of Business, all projects approved for implementation are
included in the Annual Development Plan subject to resource availability. The projects prepared
in each sector and presented by a provincial government for financing are adjudged individually
and collectively. The selection/acceptance depends, among other factors, on the general
constraints over the country's capacity and position of her exchequer, which may permit only
such projects as give quick returns, alleviate poverty, eradicate social evils, promote export,
curtail import and provide a springboard for faster development of science and technology.
Annual Plan
4.12 The principal instrument for adjusting the five year plan to current realities is the annual
plan, which has proved a dependable method for translating plan objectives into an operational
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programme. In other words, it is regarded as the implementation side of the five year plan.The
annual plan includes an evaluation of past performance, a presentation of the main targets, an
assessment of the resource position for the year, an outline of the investment programme in the
public and private sectors and a broad outline of the economic policies that may be necessary to
achieve the targets.
4.13 In Pakistan, during the period 1972-77, medium-term planning was abandoned in favour
of annual budgeting. Medium-term planning was revived again with the Fifth Five Year Plan in
1978, but the practice of annual plans was retained(Annex--)
Five Year Plan Periods in Pakistan
# Plan Period
1. Colombo Plan (Six Year Plan) 1951-572. 1st Five year Plan 1955-603. 2nd Five year Plan 1960-654. 3rd Five year Plan 1965-705. 4th Five year Plan 1970-756. 5th Five year Plan 1978-837. 6th Five year Plan 1983-888. 7th Five year Plan 1988-939. 8th Five year Plan 1993-9810. 9th Five year Plan (not launched) 1998-200311. Medium Term Development Framework (MTDF) 2005-1012. 10th Five year Plan (drafted twice but not
launched)
2010-15
13. 11th Five year Plan 2013-18
National Development Program Outlay
4.14 The general development plans, currently prepared in Pakistan, provide the overall
framework within which project planning is undertaken. Perspective and five years plans’
objectives and targets are ultimately translated to doable individual targets according to the
priorities of the national planning strategy. Plans frequently form the basis of identifying new
projects. Under a systematic planning procedure, planners determine general guidelines for the
fulfillment of overall development goals which are further transformed into specific sectoral
objectives, along with overall resource allocation between those.
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4.15 Annual Development Plan for a particular financial year is the basic document describing
such targets. The objectives and targets, according to traditional and standard planning process
are rendered in the form of implementable projects. A development plan is essentially a forward-
looking policy framework which envisages a concrete and prioritized but somewhat flexible
programme of action to be launched in a dynamic situation to attain specified economic and
social objectives. A realistic and practical plan visualizes a very close corresponding relationship
between the plan, its programmes and projects which, in turn, are harmonized and integrated
intra-sectoral and inter-sectoral in order to move them in step on the path leading to the
achievement of the plan objectives and targets. A plan or a programme/project is ultimately as
good as its implementation, since it is the actual achievement of the results in line with the
targets, and not merely the targets set or the resources allocated, that determine the degree of
success or failure of the plan/programme as well as its impact on the socio-economic life of the
people. Thus, it is clear that only the technically, financially and economically sound projects/
programmes, if properly executed in a coordinated manner with the active and popular support of
concerned departments, the target groups and the continued political commitment and support at
the highest level can provide a strong edifice for the successful implementation of the plan.
4.16 Projects are the cutting edge of development. By this is meant that, without projects, it is
unlikely that general development plans which accelerate economic growth and further a range
of social objectives will be fulfilled. Projects provide an important means by which investment
and other development expenditure foreseen in plans is incurred. Sound planning requires good
projects but effective project preparation and analysis must be set in the framework of a broader
development plan. As such they must fit in appropriately in the broad strategy. Projects are
defined in different ways. The definition given in the UN Manual on Programming Techniques
for Economic Development, produced under United Nations, ECAFE, 1960 defines a
development project as follows:-
"The smallest unit of investment activity to be considered in the course of programming.
It will, as a rule, be a technically coherent undertaking which has to be carried out by a
private or public agency and which can be carried out, technically speaking,
independently of other projects. Examples of projects are the building of a factory, the
construction of a bridge or a road, the reclamation of a piece of land".
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Thus from the stand point of economics, a project is the minimum investment which is
economically and technically feasible. A project is, thus, an activity on which we spend money
in expectation of returns and which logically seems to lend itself to planning, financing and
implementation as a unit. It is a specific activity with a specific starting point and a specific
ending point intended to accomplish a specific objective. Normally it will have some
geographic location, specific clientele, defined time sequence of investment and operation and
a bunch of benefits which can be quantified.
Modes of Financing
4.17 Identification, appraisal and approval of projects and programmescalls for their
financing so that the envisioned objects take the practical shape and existence. Financing of
development projects in infrastructure, social and other sectors requires huge public investment
every year. In Pakistan this investment is mainly provided through Public Sector Development
Programme (PSDP) at federal level and through Annual Development Plan (ADP) at provincial
level. However since recent years endeavors are under way to integrate private sector into the
development process through emerging instruments like public-private partnership (PPP) and
community participation.
Public Sector Development Programme (PSDP)
4.18 The Public Sector Development Programme (PSDP) is an annual financial outlay in the
form of a document that lists all the public sector projects and programmes with specific
allocations made for each one of those in that particular financial year. It is the operational side
of the Five Year and Annual Plans. In other words, it is that part of the country's annual budget
which deals with development expenditure. The PSDP document consists of all necessary
information pertaining to the projects and programmes including total cost, foreign assistance
component, forum and date of approval, expenditure incurred up to the end of preceding
financial year and allocation; in terms of both rupee and foreign assistance component, for the
current financial. These individual details are however listed for only federally funded projects
and programmes. Estimated levels of Annual Development Plans (ADPs) of provinces are
included in the summary of the PSDP and details thereof are compiled in individual ADPs of
the respective provinces.The PSDP procedure differs from the project approval procedure. Due
to the general constraint which exists on government funds, projects are competing for a
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limited amount of funds available for development. An essential part of the procedure,
therefore, is a shift from the examination of a project in isolation to the selection of a limited
number of projects out of a much larger portfolio.
4.19 The preparation of the PSDP is coordinated by the Public Investment Programming (PIP)
Section of the Ministry of Planning, Development and Reform (PD&R). Financial year of
Pakistan starts with effect from 1st July of a year and ends on 30th June of the next year. The
process of budget preparation including PSDP in the country starts well before the
commencement of a financial year. At around October / November each year Ministry of
Finance conveys approximate purse for oncoming financial year’s PSDP to the Ministry of
Planning, Development and Reform. Ministry of Planning, Development and Reform then issues
a call letter to the line ministries and executing agencies informing them of their respective
indicative budget ceilings (IBCs) commensurate with their requirements, capacity to utilize, and
prevailing national priorities. The call letter includes a time schedule, and standard proforma
along with guidelines on the preparation of the PSDP and selection of projects. Copy of the call
letter for the year 2017-18 may be seen at (Annex---).The concerned heads of technical sections
of PD&R are constantly on board during this process.
4.20 The development projects and their allocations proposed by Ministries /Divisions are
discussed by the high powered Priorities Committee jointly chaired by Secretaries of Finance,
Economic Affairs and Planning, Development & Reforms Divisions. The draft PSDP is then
considered by the Annual Plan Coordination Committee (APCC) chaired by the Deputy
Chairman, Planning Commission /Minister for PDR and comprises, among others, Finance
Ministers of Provinces, AJK, Gilgit-Baltistan and FATA. The Final PSDP is approved by the
National Economic Council, which is chaired by the Prime Minister and among others includes
Provincial Chief Ministers as members. The National Assembly finally approves these budgetary
allocations alongwith Finance Bill.
4.21 While structuring the PSDP, the following general strategies and principles are kept in
sight:
(a) Harmony with National Development Planning
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Foremost goal of allocating funds in PSDP is that it is consonant with overall development
objectives laid down in long term and medium term e.g. Vision 2025 and Eleventh Five year
Plan.
(b) Sectoral Balance
Allocations in PSDP are made according to the national requirements of investment in all sectors
including infrastructure, social and other sectors. Presently major portion of development
funding goes to infrastructure including energy, transport and communications, and water
sectors. Adequate financing to social subjects like health, education and food security is also
ensured.
(c) Provincial Equilibrium
While safeguarding the overall objectives, PSDP is prepared in such a manner that priorities and
requirements of the four provinces as well as special areas of AJ&K, GB and FATA are
guaranteed.
During formulation of PSDP, the following guidelines/ priorities are adopted in general while
allocating project-wise funds:
On-going projects with physical progress over 70% are adequately funded for early
completion, followed by physical progress between 50-70% for completion within two to
three years.
Foreign aid availability is accommodated by providing the required matching rupee
allocations for foreign aidedprojects
Development packages and projects of less developed areas (FATA, AJ&K, Gilgit-
Baltistan and Balochistan) are protected for financing.
Allocations to vertical Programmes of Health and Population Welfare as per decision of
Council of Common Interests dated 28-04-2011 are adequately funded
Inclusion of new schemes discouraged unless critical and fall in the development agenda
of the Government.
4.22 During the financial year, if any agency requires additional funds for some of its projects
for inescapable reasons, the agency approaches the Ministry of Planning, Development and
Reform (PIP Section) in either of two ways.
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a) If some savings are available within that ministry/agency's PSDP allocation, it requests the Ministry of Planning, Development and Reform for re-appropriation. After consideration of the case, in consultation with concerned technical section and in tandem with the implementation of other projects, the case is decided in affirmative or otherwise.
b) If saving is not available in the agency's allocation, it requests the Ministry of Planning, Development and Reform to allow a supplementary grant. The Ministry of Planning, Development and Reform decides each case on its merit and then recommends it to the Finance Division.
Release of PSDP Funds
4.23 Up to the financial year 2009-10 funds allocated in PSDP were released by Finance
Division through its FA organization on project based demand by the line ministries and
executing agencies. During that year a long round of consultations was held in order to further
streamline the process of release of funds. The Finance Division, the Planning and Development
Division (now PD&R), office of the Accountant General of Pakistan Revenue (AGPR),
executing ministries and agencies took part in the lengthy consultative process. As a result of the
consultative process it was decided that having first-hand knowledge of the projects’ status and
being custodian of the development financial allocations, the Planning and Development
Division (now PD&R) should manage authorization of releases to the extent of PSDP funds.
4.24 The Ministry of Planning, Development and Reform, then Ministry of Planning and
Development, was entrusted with the responsibility to authorize releases to PSDP funded
development projects with effect from 1st July 2010 i.e. since fiscal year 2010-11. Public
Investment Programming (PIP) section carries out this assignment placing a team of
officers/officials headed by a Deputy Chief through Section Chief under the overall supervision
of Joint Chief Economist (operations). Advisor (Dev. Budget) also provides advisory and input
in the process. Instructions / guidelines in the form of a New Release Mechanism were circulated
to all Ministries/Provinces for submitting their demand for releases vide this letter No. 4(1)
PIP/PC/2010-11 dated 4thAugust 2010 (Annex--).The basic purpose of the mechanism was that
provision of funds to development projects should be speedy, automatic and predictable. Under
this mechanism Ministry of Planning, Development and Reform has been performing the
function of authorization of release of PSDP funds as per release strategy issued by Finance
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Division at the start of each Fiscal Year. Presently the quarterly limits fixed by the Finance
Division are as follows
i) 1st& 2nd quarters 20% eachii) 3rd& 4th quarter 30% each
A copy of Finance Division’s release strategy is placed at (Annex---)
4.25 The Ministries and other executing agencies are nevertheless given the flexibility to
obtain releases for fast moving and near completion projects in excess to the projects’ individual
ceilings for a certain quarter, however, remaining within the overall respective ceiling. This
flexibility is basically meant to minimize the throw forward and to avoid time and cost overruns
as far as possible. The Ministry of PD&R keeps constant liaison with executing agencies, project
implementation agencies and monitoring network. Releases are therefore authorized keeping in
view the on ground pace of work and implementation status of the projects. Ministries have
given their positive feedback to this mechanism during the previous years.
Request by Ministry/Agency:-
Sponsoring Ministry/Agency will submit release request on prescribed proforma
(Annex---) complete in all respects duly signed by Secretary/PAO.
Since release is authorized only to approve projects, the ministries and executing agencies are required to furnish administrative approval of the projects with valid implementation period.
Approval at M/o PD&R:-
PIP Section examines and processes the release case. Views/Comments of concern Technical Section, if required are obtained. Based on their recommendation, the case is submitted to Secretary, PD&R for
approval. After approval of Secretary, PD&R release authorization is issued to the client
Ministry/Division/Executing Agency.
Steps after Release Authorization:-
In case of above Rs. 50.00 million release or as specified in Finance Division’s
release strategy, sponsoring Ministry/Agency forwards the case to Finance
Division for ways & means clearance.
After Finance Division clearance, Sanction is issued by the Ministry/Agency.
PIP Section punches the sanctioned amount in AGPR’s SAP System.
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4.26 The obligation of authorizing release of funds by Ministry of PD&R is only to the extent
of rupee component PSDP. Foreign assistance component is directly disbursed to the recipient
projects and programmes by the donors. The Economic Affairs Division compiles this data.
Ministry of PD&R constantly updates foreign assistance disbursement status in accordance with
data issued by the Economic Affairs Division.In order to maintain transparency and provide user
friendly information for researchers, academia and general public, release data is uploaded
weekly on the official website of Ministry of PD&R http://www.pc.gov.pk
PSDP Review Meetings
4.27 At the end of each quarter of ongoing financial year a review meeting of PSDP is held.
The meeting is chaired by the Minister / Deputy Chairman, Planning Commission. For each
ministry / executing agency project wise progress is analyzed. Necessary adjustment in
allocations according to the pace of work and utilization are allowed where necessary with a
view to steer optimal and efficient utilization of development funds.
Public-Private Partnership
4.28 Given resource constraints faced by the government for financing huge challenging
development portfolio it has become imperative that potential and capability of the private sector
is tapped into the core national socio-economic process. Indeed specific policies, framework,
laws and regulations are to be in place for confidence building of the private sector for venturing
into this arena offering vast opportunities albeit with certain risks and apprehensions. Successive
incumbent governments have been trying to make progress in this direction step by step.
4.29 Public Private Partnership (PPP) is defined in various ways in literature relating to
procurement. Generally PPP is described as "a long-term contract between a private party and a
government entity, for providing a public asset or service, in which the private party bears
significant risk and management responsibility, and remuneration is linked to performance".2.
There can be various PPP modalities for infrastructure projects. The major transaction modalities are given below but a particular PPP transaction can also be a hybrid model.
Build-and-Transfer (BT): A contractual arrangement whereby the Private Party undertakes the financing and construction of an infrastructure project and after its completion hands it over to the Government Agency. The Government Agency will reimburse
2http://ppp.worldbank.org/public-private-partnership/overview/what-are-public-private-partnerships
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the total project investment, on the basis of an agreed schedule. This arrangement may be employed in the construction of any infrastructure project, including critical facilities, which for security or strategic reasons must be operated directly by the Government Agency.
Build-Lease-and-Transfer (BLT): A contractual arrangement whereby the Private Party undertakes the financing and construction of an infrastructure project and upon its completion hands it over to the Government Agency on a lease arrangement for a fixed period, after the expiry of which ownership of the project is automatically transferred to the Government Agency.
Build-Operate-and-Transfer (BOT): A contractual arrangement whereby the Private Party undertakes the financing and construction of an infrastructure project, and the operation and maintenance thereof. The Private Party operates the facility over a fixed term during which it is allowed to collect from project users appropriate tariffs, tolls, fees, rentals, or charges not exceeding those proposed in the bid or negotiated and incorporated in the PPP agreement, to enable the Private Party to recover its investment and operating and maintenance expenses for the project. The Private Party transfers the facility to the Government Agency at the end of the fixed term that shall be specified in the PPP agreement. This shall include a supply-and-operate situation, which is a contractual arrangement whereby the supplier of equipment and machinery for an infrastructure project operates it, providing in the process technology transfer and training of the nominated individuals of the Government Agency.
Build-Own-and-Operate (BOO): A contractual arrangement whereby the Private Party is authorized to finance, construct, own, operate and maintain an infrastructure project, from which the Private Party is allowed to recover its investment and operating and maintenance expenses by collecting user levies from project users. The Private Party owns the project and may choose to assign its operation and maintenance to a project operator. The transfer of the project to the Government Agency is not envisaged in this arrangement. However, the Government Agency may terminate its obligations after the specified time period.
Build-Own-Operate-Transfer (BOOT): A contractual arrangement similar to the BOT agreement, except that the Private Party owns the infrastructure project during the fixed term before its transfer to the Government Agency.
Build-Transfer-and-Operate (BTO): A contractual arrangement whereby the Government Agency contracts out an infrastructure project to the Private Party to construct it on a turn-key basis, assuming cost overruns, delays and specified performance risks. Once the project is commissioned, the Private Party is given the right to operate the facility and collect user levies under the PPP agreement. The title of the project always vests in the Government Agency in this arrangement.
Contract-Add-and-Operate (CAO): A contractual arrangement whereby the Private Party expands an existing infrastructure facility, which it leases from the Government Agency. The Private Party operates the expanded project and collects user levies, to recover the investment over an agreed period. There may or may not be a transfer arrangement with regard to the added facility provided by the Private Party.
Develop-Operate-and-Transfer (DOT): A contractual arrangement whereby favorable conditions external to an infrastructure project, which is to be built by the Private Party, are integrated into the PPP agreement by giving it the right to develop adjoining property and thus enjoy some of the benefits the investment creates such as higher property or rent values.
Rehabilitate-Operate-and-Transfer (ROT): A contractual arrangement whereby an existing infrastructure facility is handed over to the Private Party to refurbish, operate and maintain it for a specified period, during which the Private Party collects user levies to recover its investment and operation and maintenance expenses. At the expiry of this period, the facility is returned to the Government Agency. The term is also used to describe the purchase of an existing facility from abroad, importing, refurbishing, erecting and operating it.
Rehabilitate-Own-and-Operate (ROO): A contractual arrangement whereby an existing infrastructure facility is handed over to the Private Party to refurbish, operate and maintain with no time limitation imposed on ownership. The Private Party is allowed to collect user levies to recover its investment and operation and maintenance expenses in perpetuity.
Concession Agreement: A contractual arrangement whereby the Government Agency entrusts the operation and management of an infrastructure project to the Private Party for an agreed period on payment of specified consideration. The Government Agency may charge the user levies and collect the same either itself or entrust the collection for consideration to any person who shall pay the same to the Government Agency.
Management Contract (MC): A contractual arrangement whereby the Government Agency entrusts the operation and management of an infrastructure project to the Private Party for an agreed period on payment of specified consideration. The Government Agency may charge the user levies and collect the same either itself or entrust the collection for consideration to any person who shall pay the same to the Government Agency.
Service Contract (SC): A contractual arrangement whereby the Private Party undertakes to provide services to the Government Agency for a specified period with respect to an infrastructure facility. The Government Agency will pay the Private Party an amount according to the agreed schedule.
Special Purpose Vehicle (SPV)
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4.30 A special purpose vehicle (SPV) may be created for executing a Public Private
Partnership (PPP) project. The creation of a Special Purpose/Project Vehicle (SPV) is a key
feature of most PPPs. The SPV is a legal entity that undertakes a project. All contractual
agreements between the various parties are negotiated between themselves and the SPV.
4.31 In 2007 Infrastructure Management Unit (IMU) of Planning Commission prepared a
diagnostic report on ‘Constraints to Private Sector Investment in Infrastructure’, as part of
Asian Development Bank’s Small Scale Technical Assistance (SSTA 4635 Pak) for Support of
Infrastructure Development. The report identified an array of political, economic, financial,
legal, jurisdictional and other generic constraints hampering PPP culture in the economy. The
report also suggested possible remedies to address these constraints. The report can be viewed
and downloaded from official website of Ministry of PD&R.
4.32 In order to facilitate private investment, the Ministry of Finance established the
Infrastructure Project Development Facility (IPDF) in May 2006 to facilitate the preparation
and closure of PPP transactions between public sponsors and private investors and to determine
the funding gap for public funding for making transactions viable while minimizing the cost for
the public through competitive bidding.IPDF was assigned task to provide expertise and hands-
on support to implementing agencies (line ministries, provincial governments, local bodies, and
state owned enterprises) in improving their PPP proposals, preparing them for tendering, and
supervising the bidding process without becoming a contract signatory to a transaction.
Special Policy Directives
4.33 Projects are also identified as a result of special policy directives of the Government.
Projects initiated under such directives should be taken up on priority, even by postponing/
superseding other projects, if availability of funds is the constraint. It is always to be borne in
mind that the over-riding limiting factor to the desired level of development in each sector, or to
meet the need of the hour under the situation or to follow freely the special government policy, is
the resource position.
4.34 A PPP policy Task Force (TF) composed of senior officials from ministries and
provinces, and advisors from the private sector, has been established. The TF has a secretariat
housed in the IPDF to coordinate its activities. Main activities are as follows:
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(i) facilitate the preparation and improvement of PPP proposals submitted by public
implementing agencies to ensure that the projects are viable;
(ii) ensure that only superior proposals with value for money will be supported;
(iii) oversee the preparation and implementation of PPP projects consistent with prudent
financial, environmental and social safeguards;
(iv) build on the job experience of implementing agencies and private partners; and
(v) provide the secretariat to the PPP Task Force, and coordinate with other agencies and
public and private stakeholders.
Pakistan Policy on Public Private Partnership
4.35 Approved by the Economic Coordination Committee (ECC) of the Cabinet on January
26, 2010 ‘Pakistan Policy on Public Private Partnerships’ was put in place in 2010. In order to
encourage the private sector to participate in the country’s infrastructure development, the PPP
policy aims to implementing a combination of policy reforms, institutional support, incentives
and financing modalities to bolster private sector participation in financing, developing and
managing future infrastructure development projects. Full text and document of Pakistan Policy
on Public Private Partnerships is placed at (Annex--)
The Public Private Partnership Authority Act, 2017
4.36 The Public Private Partnership Authority Act, 2017 has been enacted by National
Assembly in March 2011. The act extends to whole of Pakistan and applies to all kinds of
projects undertaken by an implementing agency under public private partnership. As soon as it
deems appropriate after the commencement of this Act the Federal Government shall establish
Public PrivatePartnership Authority for carrying out the purposes and objectives of this Act.
Notwithstanding anything contained in the Companies Ordinance. 1984 (XLVll of 1984) and any
other law for the time being in force, on the date of commencement of this Act, the Company
(IPDF) shall cease to exist and all assets, rights, powers, authorities and privileges and all
property etc. shall stand transferred to and vest in the Authority.
There shall be a Board of Directors of the Authority comprising the following members,
namely:-
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i) Minister of Planning, Development and Reform Chairpersonii) Secretary, Finance Division Vice
Chairpersoniii) Secretary, Planning, Development and Reform Division Memberiv) Secretary Board of investment Memberv) Two members from private sector to be nominated by Membersthe Federal Governmentvi) Chief Executive Officer Membervii) Secretary Concerned Division Co-opted Member
The Chief Executive Officer shall also act as Secretary of the Board. The members from the
private sector shall be appointed by the Federal government for a period of three years and shall
be entitled to such terms and conditions as the Federal Government may prescribe.
4.37 As per the PPP Authority Act 2017 a Fund has been established to be called the Public
Private Partnership Authority Fund which shall vest in the Authority and shall be utilized by the
Authority to meet the charges in connection with its functions under this Act. The Fund of the
Authority shall comprise of the following:
i) such sums as the Federal Government may, from time to lime, allocate to it in the annual budget;
ii) grants from the federal (government);iii) donations and grants from the international donor agencies;iv) income from the investments:v) fees; andvi) Any sources approved by the federal Government.
Viability Gap Fund (VGF)
4.38 A Viability Gap Fund will be established which shall be managed, controlled and
administered by the Authority in prescribed manner. The VGF is defined in the act as fund to be
established by the Board to provide project support to an implementing agency for those projects
for which a feasibility study has found to be economically or socially justified but are not
financially viable because of lack of affordability. Viability Gap Fund shall be established by an
amount specified by the Board within the Public Private Partnership Authority Fund.Besides
above given salient features, the ACT describes all administrative, financial and disciplinary
details in its six chapters, containing clauses and sub-clause, Full text of the Act is placed at
(Annex----)
Public Private Partnership structure at Provincial level
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4.39 According to Asian Development Bank (ADB) Country Partnership Strategy: Pakistan,
2015–2019 ‘Recent constitutional reforms have devolved to provincial governments the main
responsibility for most forms of infrastructure development. But this devolution still has to be
matched with financial and technical capacity development at each provincial Government.
Sindh and Punjab are the two largest provinces of Pakistan and account for roughly 77% of
Pakistani population, and 85% of the country’ GDP. Bankable PPPs can be implemented in these
provinces, which can not only have demonstration effects on the overall PPP market in Pakistan,
but also help start closing the infrastructure gap in the country. The infrastructure and social
service needs of Sindh and Punjab outpace the provincial fiscal space that is currently available
for new infrastructure investments. Prospects are limited for the near future development of
provincial government debt issuance, or for the mainstreaming of cost-reflective user charges, by
provincial governments, in current and new public sector infrastructures. The provincial
governments were not behind establishing PPP structures; rather some of them took lead in
enacting PPP laws.
Punjab
4.40 The Provincial Assembly of the Punjab passed Punjab Public Private Partnership Bill on
21 May 2014 and The Punjab Public Private Partnership Act 2014 was notified on 29 May 2014.
As per institutional arrangement under this act a PPP Steering Committee has been established
with Minister for Planning and Development as Chairperson and Minister for Finance as Vice
Chairperson respectively. Other Members include inter alia Chairman, Planning and
Development Board, two members from the Provincial Assembly and some departments’
secretaries.Government of the Punjab has established a Public Private Partnership Cell in
Planning and Development Department. The PPP cell is serving as a focal point for supporting
all PPP initiatives in the province. The mandate of the PPP Cell is to promote and facilitate PPP
development in Punjab and assist line departments and local governments in preparing and
executing high-quality PPP projects. To fulfill this mandate, the PPP Cell is performing the role
of a PPP catalyst and advocate, knowledge manager, policy and project advisor. PPP Cell is
providing support to line departments and City District Governments in identifying financially
viable concepts and also building the capacity of their staff to transform these concepts into
projects.
Sindh
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4.41 The Provincial Assembly of the Sindh passed Sindh Public Private Partnership Bill on 18
February 2010 and The Sindh Public Private Partnership Act 2010 was notified on 17 March
2010. The organizational framework a Policy Board has been established under the
chairpersonship of Chief Minister with Advisor/Minister P&D as Vice Chairperson. Other
Members include inter alia Chairman, Planning and Development Board, two members from the
Provincial Assembly and some departments’ secretaries and also members from private
sector.Government of Sindh has established a Public Private Partnership Unit in the Finance
Department. This unit has executed a number of important projects on PPP mode.
Khyber Pakhtunkhwa
4.42 Khyber Pakhtunkhwa Public Private Partnership Act, 2014, with an amendment in 2016,
is also in place. Under the Act a Public Private Partnership Committee has been established with
a mandate to promote, facilitate, coordinate and oversee private investment in infrastructure or
development Projects using the public-private partnership approach. Minister for Planning &
Development and Minister for Finance are Chairperson and Vice Chairperson of the Committee
respectively. Other Members include inter alia Member for Energy and Power, Chief Secretary,
Additional Chief Secretary (Dev.). Five members are also included in the Committee as
nominated by the Chairperson.As empowered by the Act a Public Private Partnership Unit has
been established under the chairmanship of the Secretary to Government Planning and
Development
Department, with permanent members not below the rank of Additional Secretary, nominated
from the Finance Department and Law, Parliamentary Affairs and Human Rights Department
and such other co-opted members as the Committee deems appropriate. Committee has the
freedom to add other members in the composition of PPP Unit.
Functions of the PPP Unit include:
a. Serve as the secretariat and technical arm of the Committee; andb. Provide technical, financial and legal expertise to the Committee and any PPP Node
established under this Act.
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Chapter – 5
PROJECT PREPARATION5.1 Development Policy of the Government of Pakistan is to efficiently utilize natural and
economic resources of the country for socio-economic welfare of the people. This objective may
be achieved only when development projects are planned and executed with vigilant
management. A project usually brings change resulting in benefits to a target group. Projects
involve a group of inter-related activities that are planned and then executed in a certain
sequence to create/provide a unique service or output within a specific time frame. The GOP’s
Project Management Life Cycle has five distinct phases. (i) Identification, (ii)preparation; (iii)
Appraisal (iv) Approval; (v) Implementation/Execution (vi) Monitoring; (vii)
Completion/Closure; and (viii) Ex-post Evaluation.
5.2 Project identification and its formulation is the most important segment in a project cycle
in which the sectoral priorities must be followed. Since such priorities in a sector have competing
claims on the limited resources available, it is imperative that various Ministries prepare their
sectoral strategy right. Flowing from the national planning document and priorities fixed by NEC
and other forum, such sectoral strategy must also take into account the country assistance and
partnership strategies of the donors. In advanced countries, there are special organizations which
are employed continuously in the field surveys and necessary investigations required for
formulation of feasible projects. In less developed/developing countries, unfortunately, there are
no such organizations. In Pakistan projects are normally identified by the line
Ministries/Divisions, public sector corporations, NGOs, pressure groups and public
representatives.
Document Format for Preparation
5.3 Development projects are prepared on the approved format i.e. PC-I PROFORMA. Until
1975, only one PC-I form remained in use for the projects of various sectors. Since then, 12
sectoral PC-I forms were in use. In 1995, the number of PC-I forms have been increased to 14. A
separate PC-I form for the small schemes, costing up to Rs. 1.000 million, also exists. The
Planning Commission has devised three PROFORMA in 2005, one each for Infrastructure
Sector, Production Sector and Social Sector. The sectoral/sub-sectoral forms have been
introduced with a view to have detailed information on each aspect of the project. The PC-I
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PROFORMA along with detailed instructions for filling them, are also available on Planning
Commission’s Website, www.pc.gov.pk.The PC-I should be supported with a feasibility study,
survey and investigation and market survey report. For undertaking any such feasibility, a proper
request on the PC-II Profroma is to be submitted for approval and allocation of funds.
5.4 It is mandatory that all infrastructure projects (or having infrastructure component)
costing Rs.50million or above should be based on feasibility studies (PC-II) including reference
design and bill of quantities, etc. Separate provision are used to be provided in the PSDP, under
P&D Division for financing of the cost of feasibility studies of development projects and
appointment of Project Directors at initial stage of project formulation. This facility can be
availed of by different Ministries/Divisions for undertaking feasibility studies. For mega
projects, where huge amount for feasibility studies is involved, a separate proposal on PC-II
PROFORMA is to be submitted for approval. In case of more complex concepts one of the
donors could be required for TA Grant. For other low cost projects, in-house feasibility is carried
out. Based on the data and positive findings of feasibility study, PC-I is prepared and submitted
for approval by the concerned forum.
5.5 At the project preparation stage, various indicators such as input, baseline data, outputs
and outcome, are determined over the life of project. In addition, viability of the project in terms
of financial and economic indicators is also determined, which focus on financial and economic
viability of the project. Another important aspect which needs to be considered is the
sustainability aspect after completion; how it would yield the required output/outcome.
Therefore, due attention has to be given to the sustainability aspect of the project at the
preparation stage.After preparation of PC-I/PC-II, the Principal Accounting Officer has to sign
the PC-I/ PC-II certifying that “the project proposal has been prepared on the basis of
instructions provided by the Planning Commission for the preparation of PC-I of the concerned
sector projects”. Thereafter, PC-I/PC-II is to be submitted to the relevant forum for
approval/authorization.
Weaknesses in Project Preparation
5.6 If a project is prepared with due care and based on surveys, investigations and feasibility
studies, the time taken in its examination (and also execution) will be greatly reduced. Following
are common weakness
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i) Inadequacy of data specially situation on ground ii) Unrealistic cost estimates iii) Over-estimation of benefits iv) Lack of coordination with the related agencies v) Incorrect assumption of availability of inputs vi) Lack of proper implementation schedulevii) Ambiguity about availability of funding/finance for the project viii) Improper financial phasing which does not commensurate with physical phasingix) Lack of proper Cost-Benefit, Risk, Sensitivity, Stakeholder, Environmental and
Sustainability AnalysesLinking Projects to Resources
5.7 While preparing projects, the sponsoring agencies do not keep in view the resource
availability in the Plan. At present, a large number of projects are being prepared and approved
irrespective of the Plan provisions or likely availability of resources. Due to this, the available
resources are being thinly spread over a larger number of projects, including low priority
projects. Because of this, priority projects, in particular aided projects, are not implemented
according to the prescribed time schedule. The inadequate provision of rupee funds arises out of
the budgetary constraints. The Planning Division conveys tentative sectoral allocations based on
resource availability to the Ministries/ Divisions well before the preparation of PSDP. However,
the Ministries/Divisions prepare their demands much in excess of the resource availability
indicated to them. This results in the distortion of priorities in resource allocation. The
Ministries/Divisions etc. should themselves determine their priorities, duly protecting aided
projects within the resource availability indicated to them. Moreover, in case a new priority of
the Government is received, the agency concernedshould re-order the priorities of the existing
projects to accommodate the new priority within the available resources. What happens is that
both the old and new priorities are sought to be accommodated in the limited available
resources.At the time of approval of the projects, the availability of the resources in the Plan and
PSDP should be looked into very carefully. The sponsoring agencies should structure their
priorities according to the available resources and not come up with an over-ambitious program,
which may not be possible to implement.
5.8 Some sponsoring agencies suggest that the detailed design and drawings etc., of the
project should not be a pre-requisite for the approval of the PC-I. The approval should be given
on the basis of the rough cost estimates, which may be adjusted within the permissible limit of a
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15% increase. In this connection, the decision of the NEC dated 4-7-1988 is as under: "Within six
months of project approval, detailed design and costing should be finalized and submitted to the
competent authority. Implementation of such project components, which require detailed
designing, should be started only when these have been finalized".The NEC further decided in
the same meeting that all PC-Is costing Rs. 50 million and above should be supported by a
feasibility study. However, this does not rule out a feasibility study in the case of PC-Is costing
less, where it may be needed. (Annex---)
Key Components of the PC-I
5.9 PC-I is the basic project document. Preparation of the project on the PC-I proforma is the
pivotal phase of the project cycle. The maxim 'well begun is half done' is most appropriate for
completing this phase. The Sponsoring Agency should be given or give itself adequate time to
prepare a project. The time taken in the examination of a project would be in inverse proportion
to the time taken in its preparation. Thanks to the effort, the project would in fact lend itself to
smoother and speedier implementation. A hurriedly prepared project, on the contrary, would run
a difficult course throughout the project period and be afflicted with time and cost overrun and
may ultimately prove to be counter-productive. A lot of information is required for preparation
of projects.With a view to avoiding cost over-runs and repeated revisions of project, it is
extremely important that information against various columns of the PC-I is carefully provided.
The key components of the PC-I are discussed in the following paragraphs.
Objective and purpose
5.10 Project has specific predetermined objectives to be archived within specific time and
cost/budget. While preparing a project, particular heed has to be paid to align the objectives of
the project with the goals and targets set out in the Five Year Plan. Besides, its relationship with
the other projects of the same sector/sub-sector should be shown over and above an indication of
its own contribution, in quantifiable terms, to an integrated program or the five year plan. In this
regard, the sponsors have to obtain information from other related agencies by personal contact
or correspondence. The desired information can also be obtained by consulting the various
published documents like the Five Year Plan, Annual Plan of the Planning Commission,
Economic Survey of the Finance Division and statistical data periodically published by the
Statistics Division. The objectives of the project should be framed in the manner to qualify the
“SMART” criteria. Location, Area and Population Coverage
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5.11 A proper location analysis is required to be undertaken to select a suitable location for the
project. It should include the following:
i) Place and administrative district where the project is located.
ii) Map of the project area with GIS coordinates.
iii) Reasons for selection of location. In this connection it may be noted that many projects have suffered tremendously in the past from cost over-runs and delay in implementation due to hasty selection of site. The project also suffers due to delay in acquisition of land. Therefore the availability of land needs to be assured. In selecting the location, area and population to be served by the project, the income and social characteristics of the population will have to be kept in view. Similarly, the economic characteristics of the area i.e. present facilities and availability of inputs and regional development needs will also have to be taken into consideration.
Environmental Impact Assessment (EIA)
5.12 PC-I form should clearly indicate that the environmental aspects of the project have been
duly taken into account. The EIA report duly approved by the concerned Environmental
Protection Agency (EPA) should invariably be attached with the PC-I. Simple statement that the
negative impact will be mitigated under the project is approved to be supported with certain
details.
Project Description
5.13 The description of the project should provide information pertaining to its physical
features and technical aspects. It should also include its justification and rationale, in addition to
a brief account of the work done in the past, the feasibility study undertaken and Government
instructions and policies on the subject. Project description is indeed a synopsis of the entire
project and has to be given in a manner that the appraising and sanctioning authority is enabled
to appreciate its broad aspects without having to go into the minute details. It is also to be stated
whether the output would be used for import substitution or export promotion or meeting the
increased domestic demand or a combination of these. The technology to be adopted and the
source of supply of machinery and equipment should also be mentioned.
Project Scope
5.14 The sponsoring agency should ensure that the project scope includes only the requirement
of the present project necessary to achieve the envisaged objective. While giving the scope of
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the project, the sponsors should indicate in quantitative terms the proposed facilities which
would become available from its implementation. Information is also required to be given in
respect of the following:
i. Demand for output, with its basis. ii. Existing position regarding (a) capacity (b) actual supply of output
iii. The gap that the project is going to fill between the supply and demand.
5.15 All proposals for procurement of machinery and equipment by the Government
departments/agencies should be accompanied by an inventory of the existing strength of
machinery of all the public sector departments/agencies. Similarly, whenever a provision of new
vehicle is made in the development project or in non-development side, the concerned
Ministry/Department/Agency should furnish as a supporting document, full inventory of the
existing vehicles both on development and recurring side, along with their date of purchase, to
justify the purchase of new vehicles.
Change in Scope of Projects
5.16 The physical and financial scope of a project, as determined and defined in the project
document (PC-I), is appraised and scrutinized by the concerned agencies before submitting it for
approval of the CDWP/ECNEC. Once approved by the competent authority the executing
agency is supposed to implement the project in accordance with the PC-I provisions. It has no
authority to change and modify the main approved parameters of the project on its own, beyond
permissible limit of 15%. However, if at some stage modifications/changes become imperative
then project authorities should revise the project and submit it for the approval of competent
authority, immediately (Annex-).
Cost Estimates
5.17 The cost estimates of a project have to be prepared with a lot of care so that these are not
revised again and again and implementation is not delayed due to non-availability of provision of
funds and revised sanction of the competent authority. Besides, the cost debit-able to the
development budget has to be distinguished from the cost debit-able to the revenue budget. The
concept and definition of development expenditure isexplained in the Planning Commission's
paper F.M. I (Annex---). The cost details have to be given according to the requirements of the
PC-I of each sector. However, the following guidelines will generally apply to all:
(a) The local and foreign exchange costs have to be shown separately.
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(b) The cost of imported items available in the local market should be reflected in the local component and not in the foreign exchange component.
(c) A break-down of the total cost has to be given item-wise, e.g;
i) Land and its development ii) Civil Works iii) Machinery and Equipment iv) Supplies v) Consultancy, if any vi) Project Staff vii) Interest during construction, etc. viii) Price and Physical Contingencies
(d) Unit cost has to be given separately in the appropriate column of the PC-I.
(e) In case of revised project, the reasons for increase in respect of each item as originally
estimated have to be furnished. Similarly increase due to revision in the scope of the project
is to be given separately in accordance with the additional sheet annexed with each sectoral
PC-I.
(f) In case a project has been revised for the first time either due to increase in the total cost by
more than 15% or due to revision in its scope, it would be treated as a new scheme for
obtaining sanction of the competent authority. Any further increase thereafter is not
allowed.Therefore it is essential that the revised cost estimates are prepared with due care
(Annex---). A copy of the Planning and Development Division's letter dated 12-12-1989 is
also enclosed for guidance (Annex---).
(g) In case the PC-I provides 15% or more escalation in loan agreement of Aided Projects, the
provision of 15% escalation over the approved cost of the project as contained in Planning &
development Division's letter dated 15-4-1989 (Annex---) shall not therefore be admissible
in such cases.
(h) When the need for revision of cost becomes evident due to higher bids received in response
to a tender, the revised scheme based on the accepted tender cost should be submitted to the
competent authority for fresh approval. As regards the question as to when a revised scheme,
the cost of which has exceeded more than 15% of the originally approved cost, should be
prepared and submitted to the competent authority for approval, it is to be noted that no
difficulty should be experienced if PC-III (Quarterly Progress Report) is duly prepared. If
columns 6 and 7 of the said form indicate that the percentages of financial expenditure have
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exceeded the percentages of physical work by more than 15% it is enough indication that the
cost of the project would go beyond the approved cost. As soon as the indication is visible,
the executing agency should start work on revising the scheme and submit for the approval of
competent authority (Annex---) without stopping the actual work. In the exceptional case
where the revised PC-I cannot be prepared in time, recourse could be had to obtaining the
anticipatory approval of the Chairman, ECNEC (Annex---). However, increase in the cost
due to delinking of the Pakistani Rupee from the Dollar will not need fresh approval of the
CDWP/ECNEC. The sponsoring agency shall however intimate the revised cost due to the
depreciation of Pakistani currency to the Cabinet Division, Planning and Development
Division and Finance Division (Annex---).
(i) In the case of non-aided projects where the cost of the project remains within 15% of the
original cost/scope, the case for extension of the execution period beyond that shown in the
approved PC-I need not be referred for approval to the Planning and Development Division.
However, the Planning and Finance Divisions may be informed when such extensions are
involved, giving reasons for the delay in the execution of the projects. In case of aided
projects, the extension, if necessary isobtained from the Economic Affairs Division and the
Planning and Development and Finance Divisions isinformed. The Economic Affairs
Division, for such extension, would consult the aid-giving agency/agencies and the Planning
and Development Division and Finance Division (Annex---).
(j) While preparing the cost estimates, the formula regarding the provision for future price
escalation given by the Planning Commission should be kept in view (Annex---). This
provides for 6.5% increase in the second year, 13% in the third and 20% in the fourth year.
(k) Cost estimates should also be based on present market survey or/and pre-tender quotation.
The schedule of rates used in estimating the project cost should be regularly updated by
taking into account the market rates, instead of allowing across-the-board premium on the
schedule of rates (Annex--).
Revised Cost Estimates:
5.18 The ECNEC in its meeting held on 29th November, 1978 decided that all the authorities
concerned should keep an effective check on the increase in the approved cost (Annex---). The
main effective role in this regard can be that of Audit. The Ministry of Finance should look into
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this problem more thoroughly and request Audit not to make any payment if the cost of the
project is found to be exceeding 15% over the approved cost.
Financial Plan
5.19 The sponsoring agency has to indicate the financial plan of the project in the appropriate
column of the PC-I. The position in this regard has to be indicated in specific terms so that there
remains no ambiguity or confusion in getting the necessary funds from the sources indicated. In
case, a foreign agency is committed to finance the project either partly or fully, the name of the
agency with the amount of foreign exchange and local currency committed, is to be mentioned in
the PC-I. Similarly, the source and amount of the rupee component, which may be as under,
should be indicated.
a) Government Sources
i) Grant ii) Loan iii) Equity
(b) Sponsoring Agency's Own Fund (c) Private Investment (d) Local Body Services, if any (e) Non-Government Borrowing (f) Other Sources (e.g., Recoveries)
Usually foreign aid negotiations should be undertaken after a project has been approved by the
competent authority or at least cleared by the Concept Clearance Committee headed by the
Deputy Chairman, Planning Commission.
Financial Phasing
5.20 The financial phasing of a project is to be given for each financial year related to the
physical work proposed to be undertaken, keeping in view the implementation of similar projects
in the past. It should be as realistic as possible. Funds utilization capacity of executing agency
should be kept in view while determining financial phasing of project.
Physical Scheduling of Activities
5.21 The scheduling of activities and availability of physical facilities are interlinked with the
completion period. The availability of physical facilities e.g., (i) access road, (ii) power supply,
(iii) water, gas, telephone and other utilities, (iv) education facilities, (v) housing etc., have to be
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ensured. The sponsoring agency has also to indicate separately what facilities would be available
from the project itself and to what extent these would be available from the public utilities. The
scope of work to be carried out should be gone into very thoroughly to facilitate physical and
financial phasing as well as supervision.
Period of Implementation
5.22 Time calculated for the completion of the project should be on a realistic basis. The
following factors will have to be taken into consideration to firm up the implementation period:
(a) Total allocation made in the Five Year Plan. (b) Expected allocations in the PSDP, keeping in view the past experience. (c) Time to be taken in preparing the detailed design(s), invitation of tenders and
award of contract(s). (d) Availability of land; time taken in its acquisition. (e) Time to be taken in the land development, keeping in view its topography and
construction of access road. (f) Availability of professional and technical manpower. (g) Availability of materials, supplies and equipment. (h) The implementation schedule should be based on Bar Charts/PERT/CPM and
should essentially form part of every project document. 5.23 Project Evaluation and Review Techniques (PERT), Critical Path Method (CPM) or Bar
Charts be prepared to help implementation of the project according to the plan. A model copy of
each of these techniques to be adopted by the sponsoring agencies concerned is enclosed
(Annex-). The National Economic Council in its meeting held on July 4, 1988 had decided that
the implementation schedule should be based on the Bar Chart/PERT/CPM. This decision of the
NEC (Annex---) needs to be strictly followed by the sponsoring agencies while preparing the
project on the PC-I. This is essential for the proper physical and financial phasing of the project.
Appointment of Consultants for Project Preparation, Detailed Designing and Tender
Documents
5.24 The fundamental policy of the Government in the matter of preparation of a development
project is to ensure that it is prepared with the utmost care and skill in accordance with the
requisite economic, financial and technical standards, and keeping in view the objectives and
targets laid down in the Five Year Plan. In case local expertise is not available, foreign
experts/consultants can be employed to prepare projects which are technically and economically
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viable. Efforts are going on to develop local consultancy but, in case of sophisticated projects
involving new technology, foreign consultants have to be appointed. Most of our large projects
are foreign-aided and engaging foreign consultants is made part of the aid. However,
Government has recently decided that 30 percent of the expenditure to be incurred on foreign
consultancy should be diverted to the development of local consultancy. This requirement was
first made mandatory but later it was decided that it may not be applied rigidly and would be
subject to the technical needs and availability of local consultants with requisite qualifications
and experience. In order to give preference to local consultants, relevant extract of Prime
Minister's Order dated 7th November, 1993 is as : "The Pakistani consultants and engineers be
given full opportunity and they should be the first to be hired for projects for consultancies in
Pakistan before hiring any foreigners. The decision of the Economic Coordination Committee of
Cabinet (ECC) for a minimum of 30% award of consultancy contract to local consultants may be
strictly enforced".
5.26 In the TOR of consultants, whether local or foreign, when appointed for the preparation
of a project, it is to be made incumbent, that in addition to the scope, technical viability of the
project etc., they have also to provide the implementation schedule supported by a Bar Chart,
CPM, PERT, etc.
Project Benefits
5.27 The economic aspects of a proposed project /sector / program contribute significantly to
the development of the economy through backward/forward linkages. The economic benefits of
the projects could be: enhanced production, employment, and increase in the value of output due
to quality improvement or otherwise. The benefits could be affected because of change in the
location of project, time of sale or change in the grade. Moreover, the benefits could accrue
owing to reduction in cost or gains from a mechanization of the process, from reducing the
distribution cost and or by avoiding the losses. In social sector projects, the benefits could accrue
by increasing the earning capacity of the institutions, say, by increasing the tuition fee in an
educational institution. In certain projects like those of transport, benefits could accrue because
of a saving in time, savings in operation cost, accident reduction and on account of new
development activity. The projects have also some intangible benefits like better income
distribution, national integration, national defense or just a better life for any segment of
population like the rural population, especially of the far-flung and backward areas.
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Inter-Agency Coordination / Stakeholder Consultation
5.28 With a view to avoid duplication of efforts and in order to ensure efficient
implementation of the proposed project, it is highly desirable that all the relevant data have been
obtained and the agencies concerned consulted. For example, in respect of a health scheme,
information about public and private sector institutions in the area, their staff and equipment and
the number of persons served by them have to be obtained and reflected in the project. With the
same end in view, data about the population of the area and the economic characteristics of the
persons who are being provided service, as well as data about morbidity and incidence of
epidemics during the last five years or so, have to be obtained.
5.29 Inter-agency coordination is also necessary for the availability of utilities, such as water
and power supply, education facilities and housing. For example, before an industrial scheme
sponsored by the Production Division is embarked upon, it is absolutely necessary that the
clearance of the concerned agency is obtained for the availability of water supply and other
utilities. As decided by the NEC in its meeting held on 4-7-1988, the Project document should
clearly indicate that coordination with the other agencies to facilitate project implementation had
been effected.
Management Structure
5.30 The project management structure needs to be elaborated in detail in the relevant column
of the PC-I. In case a separate PMU is required to be established, the staff requirement with full
justification, mode of appointment, salary package, detail TORs giving roles and responsibilities
of each position, and requirement of accommodation, rent, office equipment and vehicle may be
provided with cost estimates and full justification.
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Chapter – 6
PROJECT APPRAISAL
6.1 Project appraisal is one of the crucial stage/phase in project planning & management
cycle. Primary purpose of project appraisal is to facilitate the decision maker to arrive at a
better-informed decision on the proposed project/investment as decision cannot be taken without
an appraisal. Project is defined as an investment activity intended to achieve specific pre-
determined objectives within a given time and budget (cost). Projects are ad-hoc resource
consuming activities and are expected to generate enough resources in realization of their
objectives. A distinction is made between a public and private sector project. The public-sector
project is to ensure a level of service to the community which is timelier, cost effective, and
efficient in delivery with acceptable quality - have more basic objectives beyond profit motive.
On the contrary, the private sector aims to achieve a return on their investment in generating
sufficient future cash flows to cover initial capital cost and the operating/financial charges
thereto as well as ensuring enough profit - sole objective of private sector.
Role of Appraisal in Project Planning Process
6.2 Project analysis/appraisal forms part of the broader process of project planning, which
focuses on discrete, new activities, involving a substantial commitment of investment resources.
It consists of a set of procedures and techniques that can be applied, first, in the decision making
process whether to invest or not and, secondly, in the implementing and operationalizing of the
new activity on a sustainable basis. If a project is well formulated and thoroughly appraised, it
would be sustainable and subsequently the targets and goals could be achieved.
6.3 The feasibility study of a project determinesthe viability, based on the feasible and
available technical alternative and an implementation plan. An organizational and legal basis has
to be defined for undertaking the investment and managing the operations. Sufficient financial
resources have to be brought together on terms that can be met. However, the estimates of
project benefits and costs, analyzed and defined in more detail during appraisal, still provide a
crucial element. The project analysis should now extend beyond the basic economic
characteristics to include assessment of financial viability, leading to a detailed financing plan
and the distribution of benefits and costs between different project segments/stakeholders. The
comparisons of costs and benefits will also have to be repeated from the view point of different
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participants/stakeholders, for example, from the point of view of the project owners in particular,
as well as the investment as a whole. A proper analysis will cause the project to be redesigned so
that it is less likely to fail. Poorly prepared projects have 16 times as high a probability of failure
as compared to well-prepared projects (World Bank). The project appraisal ensures to:
develop and formulate potential projects precisely and concisely stop bad projects “white elephants” prevent good projects from being destroyed determine if components of projects are consistent and “optimally” designed assess the sources and magnitudes of the risks determine how to reduce risks and efficiently share risks
Concept of Project Investment
6.4 Money can either be spent (consumed) or saved for investment. If money is spent now, it
will not grow over time. So, investment involves sacrifice of today’s consumption to gain extra
consumption (C) in future. Hence, investment decision is about foregoing consumption today in
order to gain extra consumption in future. Therefore, to determine whether an investment project is
worthwhile we must be able to compare the value of (C) foregone today with the future value of (C)
at different movement in time. It can be concluded that (a) future consumption worth less than the
present consumption and (b) funds when invested yield a return. Development Projects are
investment activities and such investment is justified if sufficient returns (benefits) of the projects
are realized.
6.5 Discounting recognizes the time value of money. The process of discounting applies weight
to the resources (costs and benefits) in different years to convert them to a common basis. The
weight applied in different years is known as the discount factor and it depends upon a chosen rate
of discount which measure the fall in the value of net benefits over time.
Discount rate (DR)
6.6 DR is defined as the rate at which the value of the numeraire (saving/investment) falls over
time. The time value of money is specified as a discount rate (which is effectively the same as an
interest rate) of the cost of capital. It is used as common yardstick, measuring yard for discounting
the project financial or resource statement as money spent or received at different times cannot be
compared directly. The discount rate should be the real discount rate.
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6.7 The real rate of discount = (1+i)/(1+p) where i is the nominal rate and p is the annual
average rate of increase in price. A first approximation might be the public long term borrowing rate
minus the rate of inflation. In general, the real rate will rarely be less than 10% or greater than 20%.
However, 15% is generally thought of as the minimum target for most public-sector projects,
though in the case of certain long-gestation projects (forestry) a lower discount rate may be
appropriate. The World Bank uses a 12 % Discount rate in the Economic Evaluation of Projects.
This figure is not necessarily a precise reflection of the opportunity cost of capital in the borrower
countries; instead it can be viewed as a rationing device for World Bank funds.
6.8 Economic viability of the project is invariably judged at 12 percent discount
rate/opportunity cost of capital. However, in case of financial analysis, the actual rate of interest i.e.
the rate at which capital is obtained is used. For the governmentfunded projects, the discount rate
fixed by the “Budget Wing of the Finance Division” for development loans and advances on yearly
basis is used. The provisional rate of mark-up fixed by the Finance Division for the fiscal year
(2016-17) is 7.37 %. In case the project is funded by more than one source, the financial analysis is
carried out on the weighted average cost of capital (WACC) for each project. If the project is
financed through foreign grants, the financial analysis is undertaken at zero discount rate. However,
the economic analysis is undertaken at 12% discount rate. Discount Factor is just the opposite of the
compound factor (1+r)t where r is the DR and t is time in years. So the Discount Factor = 1/
(1+r)t .
6.9 Typically, investments require cooperation between a number of participants – owners,
operators, lenders, workers, or producers, government and even output users. An analysis
beginning from the same basic project description and statements can be carried out from the
point of view of each participant, recording their particulars costs and benefits. A pre-condition
for a successful and productive project is that all participants should share in the additional
resources the project produces, at a sufficient level to justify their participation.
6.10 A final decision on whether to proceed with a project will depend on a range of factors.
An essential component of the decision is a comparison of a particular project with alternative
investments. It is not sufficient that project benefits should exceed project costs; they must do so
by more than in other feasible investments. Project analysis techniques must incorporate this
comparative element so that the appropriate decision can be taken.
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Aspects and Types of Project Appraisal
Aspects of Project Appraisal
6.11 Appraisal is undertaken / required to select viable projects for implementation and to
determine:
Technical Feasibility
o Appropriately designed/engineeredo All technical alternatives to be consideredo Correct engineering data on which volume estimates are basedo Unit cost figures and machine capacitieso Review and updating of cost estimates
Economic Viability
o Justification of expected benefits, where both benefits and costs are valued from the point of view of the economy as a whole
o Contribution towards more efficient allocation of resourceso Based on Accounting or Shadow prices instead of Market prices
Financial Viability
o Profitability and liquidityo Projections of balance sheet, income statement (profit & loss account and cash
flow table)o Level and structure of prices: based on market prices
Commercial Viability
o Study of the market potential in terms of various options/alternativeso Marketing of the output and procurement of materials/serviceso Market analysis should cover price movements, expected market share,
distributional arrangements, provisions to finance the marketing and present/future Government policies
Institutional/Organizational & Management Capability
o To avoid delays in implementation and operationo To ensure availability of appropriate technical and managerial skills for
implementation and operation of the projecto Linkage with the organization cultural environment (Vision and Mission)
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Social & Political Acceptability,
o Requires value judgments indicating the relative importance of social objectives other than the efficient allocation of resources, e.g. growth and income distribution
o Concern about project impact on different groups in present society (intra-generational distribution)
o Concern about project impact on future generation (inter-generational distribution)
Environmental Sustainability
o Valuing and quantifying environmental impact of projects and policieso Many environmental services and assets are not priced or underpriced leading to
over-exploitation of these services and assetso Difficult to quantify environmental costs and benefits
Types of Project Appraisal
6.12 Three types of projects can be identified depending upon how new resources are
committed to them relate to existing economic activities. First, the largest type of project, around
which project analysis grew up, involves entirely a new economic activity. New investments
are designed to establish a new productive process independent of previous lines of production.
They often include a new organization, financially independent of existing organizations.
Second, there are expansion projects, which involve repeating or extending an existing economic
activity with the same output, technology and organization. Third, there are updating projects,
which involve replacing or changing some elements in an existing activity without a major
change of output. Updating projects involve some change in technology but within the context of
an existing, though possibly reformulated, organization. With changing economic circumstances,
the balance between these types of project may change.
6.13 Whatever type of project is being analyzed, the effect of using new resources has to be
distinguished from the effect of existing operations. The incremental resources costs have to be
identified, that is, the resources that will be committed in a project over and above what would
otherwise have been used. Similarly, the incremental and additional benefits over and above
what would otherwise have occurred have to be identified. Both incremental costs and
incremental benefits have to be valued. For a new investment, the entire outputcosts will be
incremental; for expansion and updating projects, the effects of the new resources have to be
separated from the effects of existing resources.
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6.14 Many investment projects are addition to existing facilities/activities and thus benefits and
costs relevant to the new project are those that are incremental to what would have occurred if the
new project had not been added. During the operating life of a project, it is very important to
measure all costs and benefits as the difference between what these variables would be if no project
were undertaken and what they will be implemented (with project). It is very common error to
assume that all costs and benefits are incremental to the new project when, in fact, they are not.
Hence, considerable care must be taken in defining a “base case” which realistically sets out the
profile of costs and benefits expected if no additional investment is undertaken.
Appraisal Methods, Tool & Techniques
6.15 Appraisal involves a careful checking of the basic data, assumptions and methodology
used in project preparation, an in-depth review of the work plan, cost estimates and proposed
financing, an assessment of the projects organizational and management aspects, and finally the
viability and sustainability of project. It is mandatory for the project sponsoring authorities to
undertake proper appraisal or at least give details of financial, economic and social benefits and
suitably incorporate it in the PC-I/project document. In the Planning, Development and Reform
Division, these projects are again examined before approval, from the technical, institutional/
organizational, social, environmental, managerial, financial, commercial and economic point of
view depending on nature of the project. On the basis of such an assessment, a judgment is
reached as to whether the project is technically sound, financially justified and viable/sustainable
from the point of view of the economy as a whole.
6.16 In the Planning, Development and Reform Division, there is a division of labor in the
appraisal of projects prepared by the concerned Federal Ministries/Divisions and Provincial
Government Departments and other sponsoring agencies and submitted for approval. The
technical section concerned in consultation with other technical sections i.e; Physical Planning &
Housing, Manpower, Governance and Environment undertake the technical appraisal, wherever
necessary. This covers engineering, commercial, organizational and managerial aspects, while
the Economic Appraisal Section carries out the pre-sanction appraisal of the development
projects from the financial and economic points of view incorporated as Part-C in the working
paper for CDWP. Economic appraisal of a project is concerned with the desirability of carrying
out the project from the standpoint of its contribution to the development of the national
economy. Financial analysis deals with only costs and returns to project participants (individual /
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organization’s point of view), whereas economic analysis deals with costs and returns, in case
the project is implemented, to the society as a whole. The rationale behind the project appraisal is
to provide the decision-makers with financial and economic yardsticks for the selection/rejection
of projects from amongst competing alternative proposals for investment.
Appraisal Methods
6.17 Methods and process to analyze and asses all the relevant costs and benefits of a project are
called project appraisal. Discounted/cash flow techniques and un-discounted techniques/methods
such as payback analysis, financial statements (profit and loss account) are used for undertaking the
financial and economic appraisal. Efforts are made to use all type of techniques require for
appraisal/analysis of all aspects of a complex project. The analysis of Public Private Partnership
(PPP) projects and evaluation of different financial arrangements are also considered. Risk and
sensitivity analysis are used to determine/ design key parameters, thus warning planners about the
most important things that can go wrong.
For any type of analysis, the basic task of project planner is to:
Identify Quantify, and Value
All the relevant cost and benefit for a year in which they occur and to enter these in the project
cash flow over the life of the project.
6.18 Project Benefits are defined relatives to their effect on the fundamental objectives.
Project financial benefits are different from economic benefits. For instance, the financial
benefits of a road projects are the toll and other such revenues collected from the user of the
road. The economic benefits of such a project are derived from the savings in vehicle operating
cost and travel time of passengers by using the improved road.
6.19 Project Costs are defined relative to their opportunity cost, which is the benefit foregone
by not using these resources in the best available investmentalternative that can be undertaken if
the resources are not used in the project. The forgone benefits are in turn defined relative to their
effect on the fundamental objectives. Economic cost v/s Financial Cost need not coincide.
Economic costs may be larger or smaller than financial costs. Simultaneously, the economic
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benefits may be larger or smaller than financial benefits. Economic costs and benefits are
measured by “Shadow prices” which may well differ from the market prices approximation for
financial costs and benefits.
6.20 In economic appraisal, only the valuation process of costs and benefits is different from
that of Financial Appraisal of a project. Here the concept of Opportunity Cost is used.
Economic Prices are generally different from the market prices. The adjustment factors required
to change financial prices into economic prices are called accounting ratios or conversion factors.
6.21 The central tool of the analysis is the proforma cash flow and net economic/financial
benefit statements, with projected annual inflows and outflows, over the life of the project.
There are two goals of the appraisal. First, the appraisal determines the financially sustainable of
a project. In the case of a private sector project, in order for the equity holders or any other
financial stakeholders to be willing to undertake a project, the net present value of project’s
predicted stream of annual net cash flows (NPV) should be positive and the Internal Rate of
Return (IRR) should be greater than the discount rate (cost of capital). Other measures of
financial performance such as the debt service coverage ratios are also important indicators of
financial sustainability. The proforma net economic benefit statement constructed from financial
appraisal serves as the basis for determining the project’s economic feasibility.
6.22 Table of Parameters is to be prepared at a convenient place on a spreadsheet. This table
should contain all the information about the project that is exogenous to the analysis. (all the
analysis should be done on the single Excel Spreadsheet. Using separate sheets though possible
but creates problems at latter stage.
6.23 How to handle inflation? The easiest way to handle inflation is to price costs and
benefits at today’s prices; if inflation is assumed to affect costs and benefits equally, then the
effects of inflation will cancel out. If however, it can be estimated that some prices will change
at different rates from others over the project life, inflation does matter and these differential
effects must be taken into account. It is recommended that all cash flows be adjusted by expected
inflation over the future period plus separate adjustment for any change in real prices of specific
revenues or expenditures items. Interest/discount rates need to be adjusted in a similar fashion
with the same inflation expectation to have consistency in appraisal of investment projects.
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6.24 Exchange Rate and Cash Flows: Neutral assumption is that exchange rate will devalue
in line with the differential in the rates of general price inflation in the domestic and foreign
currencies – known as maintenance of Purchasing Power Parity (PPP). Example of PPP
adjustment in Exchange Rate: If expected domestic inflation is 8 % and expected foreign
inflation is 2% then simply the expected rate of depreciation of domestic currency is 6%.
6.25 Timing & Scale in Project Appraisal: On the basis of the cash flows and resource
statement of the project, it is very easy to select the appropriate timing and scale of investment.
High Fixed cost investments such as roads, bridges, schools and hospitals with respect to their
size and scales are important projects as too large or too small can destroy a good project. Other
example of scale sensitive investment are all processes in greasing tanks, pipes, etc. for handling
or pumping fluids – oil and gas, chemical, and water supply.
Rule: Optimum Scale is when NPV = 0 for last addition to scale and NPV > 0 for the whole
project.
6.26 InvestmentTimings: What is right time to start a project and what is right time to end a
project? Just because a benefit exceeds project cost does not mean that the project should be
started immediately. Effect of postponing a project for different time period on NPV and IRR
may be different due to different project resource statement over different time. Such effects of
timing of investment need to be considered in appraisal of the project.
Appraisal Tools& Techniques
6.27 Techniques of appraisal can be divided under two heads; (a) undiscounted and (b)
discounted. Undiscounted techniques include (i) Payback period, (ii) Profit & Loss account and (iii)
Breakeven Analysis. Discounted techniques take into account the time value of money which
includes (a) Net Present Value (NPV), (b) Benefit Cost Ratio (BCR), (c) Internal Rate of Return
(IRR). Different investment appraisal criteria are given at Annex--.
Discounting Techniques:
6.28 The discounted cash flow techniques include NPV, BCR, IRR.
i) Net Present Value (NPV) is simply the difference between the present value (at an
appropriate discount rate) of benefits and present value of costs. A Project is accepted if
NPV is positive and rejected if NPV is negative.
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Mathematically:NPV = ∑t Bt / (1+r)t - ∑t Ct / (1+r)t OR ∑t [(Bt - Ct) / (1+r)t]
Where r is the discount rate, t is the number of years from the base year and Bt and Ct are
total benefits and total costs in year t.
ii) Internal Rate of Return (IRR) is that discount rate which just equates discounted
costs and benefits and the NPV is zero. If IRR exceeds from the opportunity cost of capital,
the project is accepted (otherwise rejected).
Mathematically:IRR = NPV = ∑t [Bt - Ct) / (1+r)t ] = 0
The IRR has two disadvantages (a) Uniqueness - if positive or negative values in a cash
flow alternate, the solution for the IRR need not be unique. (b) Mutually Exclusive Projects
– in case of mutually exclusive projects, the IRR may lead to the selection of wrong project
alternative.
iii) Benefits Cost Ratio (BCR) is the ratio of the present value (at an appropriate
discount rate) of benefits and costs. A project is accepted if BCR > 1
Mathematically:BCR = ∑t [t / (1+r)t] / ∑t [Ct / (1+r)t]
Un-Discounted Techniques
i) Payback Analysis: The pay back (payout) period is most commonly defined on the
length of time required to recover the cost of an investment from the net cash flow
produced by that investment for an interest equal to zero. The shorter the time for
recovery, the more profitable is the project. The limitation of this method is that the
earnings after payback period are not considered.
ii) Unit Cost Analysis: The unit cost is simply derived by dividing the present worth of
production cost by the present worth of output of the project.*
iii) Break Even Analysis (BEA) may be mathematical or graphical in nature and is useful
in relating fixed and variable costs to the revenue. The BEA should be used in a number
of ways. The most common model is to estimate the ratio of fixed cost and marginal
contribution where, marginal contribution is the net difference of revenue and variable
costs.
Mathematically: Break Even Point=Fixed Cost / (Revenue–Variable Cost) X 100
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*Note: (The output unit could be kg, liter, student, hospital bed, etc. This method is also called cost effectiveness analysis as knowing the unit cost we are able to compare cost of production in different project, process or methods. This method is very useful in projects where benefits are not quantifiable, such as social sector projects.)
Risk and Sensitivity Analysis
Risk Analysis
6.29 The futuristic nature of project activities involves uncertainty and risks of different types
and magnitude. Risk is the effect of uncertainty in objectives (ISO Guide 73 - 2009).According
to PMI’s PMBOK, project risk is “an uncertain event or condition that, if it occurs, has a positive
or negative effect on one or more project objectives such as scope, schedule, cost or quality. The
standard risk management procedure has six steps (i) identify risk, (ii) analysis, (iii) assessment,
(iv) mitigation strategy, (v) monitoring and (vi) documentation and reporting.
6.30 Sensitivity analysis is required to assess various risk factors followed by devising an
appropriate risk mitigation/management strategy. There are two kinds of risks. The “Known
risks” are those which identified and analyzed beforehand in such a way as to be able to reduce
the likelihood of their occurrence and plan a risk response to reduce their impact in the event that
they occur. “Unknown risks” are those that are not identified beforehand and thus cannot be
managed proactively. However, when risk has already materialized, it becomes an issue.
6.31 The causes of risk can come from a variety of sources, such as: a requirement, an
assumption, a constraint, or a condition. The success and failure of project is thus, necessarily
depending on how well and professionally all the risks factors involved have been identified,
quantified and assessed in terms of their criticality and probability of occurrence. Remedial
measures and required actions taken to avert, minimize or at least allocate all the probable,
possible and eventual risks involved. There can be a long list of potential risks which can affect
the project expected outcome. Nevertheless, such risks can be classified into two main
categories, (i) General risks and (ii) Project specific risks. Project risks comprise host of
problems arise from the way a project is planned, implemented and managed. Such problems
ranges from the very basic tasks like land acquisition site selection weather conditions and to the
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more technical problems associated with designs, plant, equipment, material problems associated
with suppliers,releases of funds, organizational problems associated with subcontractors,
manpower problems associated with unions, contractual problems associated with agreements
and environmental problems associated with pollution, etc. In contrast, general risks are though
not directly associated with project strategies, yet can have a significant impact on its outcome.
These normally arise from natural, political, regulatory, legal and economic events in the general
macro environment surrounding the project.
6.32 Traditionally, the process of financing, design, construction and operational
responsibilities are separate. However, in projects conceived on the principle of Public Private
Partnership (PPP), such processes converged in a single entity. Grimsey and Lewis have
identified six areas of risk associated with PPP projects, namely; public risk, asset risk, operating
risk, sponsor risk, financial risk and default risk. Public risk relates to the government’s duties to
ensure that the facilities are constructed in accordance with legislation and codes of practices to
ensure the wellbeing of workers and consumers. Step-in rights usually existing in most PPP
contracts to allow the government to intervene if this risk eventuates. Asset risk can arise if the
life of a facility proves to be shorter than anticipated, if the costs of maintenance exceed that
expected, the asset may be damaged or destroyed by a force majeure event, etc. These risks can
be mitigated by agreed maintenance and refurbishment scheduled, etc. Operating risk reflect the
chance that the purchased services are not delivered as agreed in terms of specification, costs or
timing. Sponsor risk arises when the private partner is unable to meet its contractual obligations
and the government is unable to enforce them or recover compensation. Normally, parent
company guarantees, performance bonds and sureties are used to mitigate operating and sponsor
risks. Financial risk can arise from price and cost increase, financiers withdrawing, interest rates
increasing or from poorly designed financial structures. Finally, default risk can arise when a
party is unable to perform its contractual obligations on time or to defined standards. In this case
the contract will provide for remedies such as obligations to rectify, abatements, step-in rights,
termination and the transfer of completed assets according to a predefined valuation mechanism.
Sensitivity Analysis
6.33 Sensitivity analysis assesses risk by identifying the variables that most influence a
project’s net benefits and quantifying the extent of their influence. It consists of testing the
effects of variations in selected cost and benefit variables on the project’s IRR or NPV. For
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example, if we have a project to renovate coffee plantations and we want to identify which of
two variables, coffee price or yield, is the most critical for project success, we would assess the
impact on the project’s NPV of varying coffee prices and yield by some arbitrary percentage, say
15 percent. Sensitivity analysis may help identify weak design options and pinpoint the need for
obtaining additional information on some variables. It may also help convey some idea of project
risk.
Switching Values:
6.34 The preferred approach to sensitivity analysis uses switching values. The switching value
of a variable is that value at which the project’s NPV becomes zero (or the IRR equals the
discount rate). Switching values are usually given in terms of the percentage change in the value
of variable needed to turn the project’s NPV equal to zero. Switching values may be useful in
identifying which variables most affect project outcomes. The switching values of the relatively
more important variables may be presented in order of declining sensitivity.
Variable Switching value
Yield per hectare -25%Construction costs -40%Irrigated area per pump -50%
6.35 In this example, the most critical variable is yield, a decrease of more than 25 percent in
the expected yield will make the NPV negative if other things remain as expected. If experience
suggests that yield can easily be that much less than expected (perhaps because of poor-quality
extension services), then this project is very risky, unless actions can be taken to prevent such a
shortfall. The project’s worth is also sensitive to construction costs, but a 40 percent increase in
these costs (in real terms) may be considered quite unlikely if, for example, the state of
engineering for the project is advanced. It is helpful to distinguish between factors that are
completely beyond control, such as rainfall and world market prices, and factors that can be fully
or partially controlled by project managers, such as implementation schedules and quality of
extension services.
Shortcomings of Sensitivity Analysis
6.36 Sensitivity analysis has three major limitations: it does not take into account the
probabilities of occurrence of the events; it does not take into account the correlations among the
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variables; and finally, the practice of varying the values of sensitive variables by standard
percentages does not necessarily bear any relation to the observed (or likely) variability of the
underlying variables. The usual technique of varying one variable at a time, keeping the others
constant at their expected values, is justified only if the variables concerned are uncorrelated;
otherwise the related variables must be varied jointly. If the variables are correlated, varying only
one variable at a time may lead us to conclude erroneously that a project is robust.
6.37 Finally, the practice of varying a key variable by some arbitrary percentage, say 10
percent, may cover most of the distribution for some variables, but only a minor fraction for
others. Take example of two commodity prices, the price of oranges and the price of urea. The
average price of orange during 1970-93 was Rs.520.00 per metric ton. Seventy-five percent of
the observed prices were between Rs.450.00 and Rs.550.00. A variation of + 10 percent would
have covered most of the observations in the period. But for urea, a commodity whose price
ranged from Rs.70 to Rs.770.00 per metric ton, a similar variation would have covered only 25
percent of the observations. Because of these three shortcomings, it is preferable to use
techniques other than sensitivity analysis for assessing risk.
Monte Carlo Simulation and Risk Analysis
6.38 Proper estimation of the expected NPV of a project normally requires the use of
simulation techniques. Simulation is the only simple and generally applicable procedure for
overcoming the limitations of sensitivity analysis, calculating the expected NPV, and analyzing
risk. Simulation usually required more information than sensitivity analysis, but the results in
terms of improved project design are worth the effort.
Limitations of Project Appraisal
6.39 Shortcomings in the project appraisal should be kept in view while using it as a policy
decision-making tool. Some of these limitations are:
i. Quality of analysis depends on quality of data and forecast made about costs and benefits. Over-estimation of benefits and underestimation of cost is quite common to get the project approved.
ii. Useful where benefits or major parts of thereof are measurable and can be quantified. In cases where non-quantifiable externalities (e.g. job creation, skill development, technology transfer etc.) and projects related to health, education, rural development etc., where benefits cannot be quantified, benefit-cost analysis may not be applied. In
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such cases only unit cost analysis is undertaken to evaluate cost effectiveness.
iii. Useful when there is a definite starting and finishing points. It could not be used for ongoing services/programs like Police, Hospital, etc.
iv. Due to uncertainty about the future it is impossible to quantify the risks. Sensitivity analysis in one way to examine strength of a project against future risks.
v. There are other ways for resource allocation, which are equally important, and effective; such as price policies, tariff policies, exchange rate policy, and interest rate policy which may also be considered to supplement decision making on project selection.
vi. Conflicts (political, social, economic, financial valuation) in project appraisal may affect results.
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Chapter-7
PROJECT APPROVALApproval stage
7.1 According to the project cycle, approval comes after appraisal. This is logical as approval
is normally based on the results of appraisal. There are various approving bodies, the details of
which follow in the succeeding paragraphs. Simply, "approval in principle" does not entitle the
sponsoring agency to execute a project. In fact "approval in principle" needs to be qualified by
mentioning clearly to what extent and for what purpose the approval in principle is required.
Where approval has been given to a project with certain conditions, it has to be ensured by the
executing agency that those conditions are duly fulfilled, especially those which have to be
fulfilled prior to the execution.
Approving Forums and Sanctioning Powers
7.2 The project approving bodies working at various levels are the following:
i) National Economic Council (NEC)
ii) Executive Committee of National Economic Council (ECNEC)
iii) Economic Coordination Committee of the Cabinet (ECC)
iv) Central Development Working Party (CDWP)
v) Departmental Development Working Party (DDWP)
vi) Provincial Development Working Party (PDWP)
The details of these approving bodies have already been given in Chapter-I.
National Economic Council (NEC)
7.3 The National Economic Council (NEC) is the supreme policy-making body in the
economic field. It is headed by the Chief Executive of the country, President/Prime Minister. Its
members include Federal Ministers in charge of economic ministries, the Deputy Chairman of
the Planning Commission and the Governors/Chief Ministers of the provinces. The NEC is in
overall control of planning machinery and approves all plans and policies relating to
development. NEC was established IN December, 1962 under article 145 of the Constitution of
Pakistan
Executive Committee of National Economic Council (ECNEC)
7.4 Presently, the Executive Committee of the National Economic Council (ECNEC) is
headed by the Prime Minister of Pakistan . However, vide ECC decision taken in its meeting
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held on 28thJanuary, 1997,
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the Adviser to the Prime Minister on Finance, Economic and Planning was designated as its
Chairman (Annex---). Its members include Federal Ministers of economic ministries,
Provincial Governors/Chief Ministers or their nominees and the Provincial Ministers
concerned. Secretariat support is provided by the Cabinet Division. The functions of the
ECNEC are:
a) To sanction development schemes in the public sectors costing over the sanctioning limit of the CDWP. At present it approves cost of more than Rs 3000 million.
b) To allow moderate changes in the plan and in the plan allocations. c) To supervise the implementation of economic policies laid down by the NEC or
the Government. Economic Coordination Committee (ECC) of the Cabinet
7.5 The Economic Coordination Committee of the Cabinet is headed by the Federal Minister
for Finance and Federal Ministers of economic ministries as its members. It attends to all urgent
day-to-day economic matters and coordinates the economic policies initiated by the various
Divisions of the Government. It keeps vigilance on the monetary and credit situation and makes
proposals for the regulation of credit in order to maximize production and exports and to prevent
inflation.
The approval of development projects financed from Public Sector Development Programme
(PSDP) does not come in the perview of ECC. However, it gives approval to the projects in
private sector and public sector energy projects financed by the private sector.
Central Development Working Party (CDWP)
7.6 The development projects exceeding a certain financial limit prepared by the Central
Ministries, Provincial Governments, Autonomous Organizations, etc., are scrutinized for the
purpose of approval by the Central Development Working party (CDWP) which is headed by the
Deputy Chairman, Planning Commission and which includes as its members the Secretaries of
the Federal Ministries concerned with the development and the heads of the Planning
Departments of the Provincial Governments. Federal Ministries which are permanent members
of the CDWP should not be represented below the rank of Additional Secretary. Similarly the
concerned Federal sponsoring/executing agencies should be represented at the level of Head of
the Department or Additional Secretary. The schemes approved by the Central Development
Working Party costing Rs. 3000 million and above are submitted to the Executive Committee of
the National Economic Council for final approval. The project with 25% or more FEC
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component also fall in the jurisdiction of the CDWP as such project are not allowed for approval
by DDWP or PDWP etc. including DWPs established for approval of self-financing schemes of
the autonomous bodies/corporations. Secretariat support is provided by the Ministry of PDR.
Departmental Development Working Party (DDWP)
7.7 It is a body for approving development projects/ programmes for Federal
Ministries/Divisions/Departments according to their approved financial limits. It is headed by the
respective Secretary/ Head of Department and includes representatives of Finance Division and
concerned Technical Section in the Planning and Development Division. At present its
sanctioning limits up to Rs. 60.00 million excluding projects with 25% or more FEC component.
Provincial Development Working Party (PDWP)
7.8 Each Province has a Provincial Development Working Party which is headed by the
Chairman, Development Board/ Additional Chief Secretary (Development) and includes
Secretaries of the Provincial Departments concerned with development, as its members. The
Provincial Development Working Party scrutinizes various projects for inclusion in the Annual
and Five Year Plans. It is competent to approve projects up to a certain financial limit. Projects
exceeding this limit are submitted to the Central Development Working Party for approval. At
present PDWPs enjoy sanctioning powers up to Rs. 10.00 billion provided external financing is
not more than 25 % of the project cost excluding water sector projects due to IRSA certification.
7.9 The Provincial Government's projects are presently considered in the meetings of the
Provincial Development Working Party (PDWP) chaired by the Additional Chief Secretary
(Dev.) in the provinces of Balochistan and KPK. The PDWP in the Punjab and Sindh province
are headed by the Chairman, Planning & Development Board. Corresponding to these bodies,
there exists in the Federal Government, Departmental Development Working Parties (DDWP) in
the Ministries/Divisions headed by their Secretaries with the Financial Advisors and others
concerned as members. The schemes initiated by the Provincial/Federal Corporations are also
processed through these bodies.
7.10 The projects meant for approval of CDWP/ECNEC are processed through the above
bodies and passed on to the Planning Development & Reform Division for action by the various
Technical Sections concerned and a Working Paper is prepared and placed before the Central
Development Working Party (CDWP). The schemes above Rs. 3000 million are considered by
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the ECNEC, which presently is headed by the Prime Minister of Pakistan. The ECNEC
comprises the representatives of the Provincial Governments and the Federal
Ministries/Divisions. The composition and charter of the ECNEC is given in (Annex---). The
Cabinet Division is the Secretariat of the ECNEC.
Approval Types and Procedure
7.11 The basic principle of review of projects, both at the Federal as well as Provincial levels,
should be that projects are examined jointly and simultaneously rather than in succession. A
copy of "Procedure for Preparation and Approval of Development Schemes" approved by the
National Economic Council in July, 1959 is at (Annex---) for guidance.
7.12 In accordance with para-8 of the above procedure, copies of PC-I/PC-II have to be sent
by the sponsoring agencies i.e. Provincial Governments and the Federal Ministries to the
Planning, Development and Reform Division and other members of the Central Development
Working Party for simultaneous examination. The composition and Charter of the CDWP is
given in (Annex---). At present 45 hard copies of PC-I duly signed by the Principal Accounting
Officer or Chairman, P&D Board or ACS (Dev) is required.A soft copy in shape of CD is also
required for uploading the project on Planning Commission’s website for general inputs.
7.13 The number of copies required by the Planning, Development and Reform Division
which acts as the Secretariat of the CDWP, has been specified from time to time according to the
requirements. In order to ensure that a copy of PC-I/PC-II has reached to all the members of
CDWP before it is considered in the CDWP meeting, the Planning, Development & Reform
Division arranges to send a copy of PC-I/PC-II to all the members of CDWP. A scheme
sponsored by the Federal Ministry/ Corporation should be supported with a statement that the
scheme has been seen and approved by the Secretary of the Ministry concerned. Similarly, a
scheme sent by the Provincial Government should carry a certificate that it has been seen and
approved by the respective Chairman/ACS (Dev.) (Annex---).
7.14 PC-I form of the project should invariably be signed with date by the officers (Name and
designation along with telephone number of the officer may also be spelled out) as specified at
the end of part "A" (Project Digest) of the proforma.
Processing of Schemes
7.15 As soon as PC-I/PC-II is received by a member of the CDWP/PDWP/DDWP, its
examination is conducted as per guidelines of ECNEC approved in its meeting held on April 24,
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2000, that three weeks are for preliminary approvals, two weeks for response by the sponsors.
One week for holding pre-CDWP meeting to sort out issues with the sponsoring agency (ies).
7.16 The Planning Development and ReformDivision has to ensure that the PC-I has been
prepared correctly and according to the prescribed procedure. In case, the PC-I is found sketchy
and deficient it is returned to the sponsors with the approval of Secretary (Planning)/Deputy
Chairman (Planning Commission)/ Members of Planning Commissionunder intimation to all the
members of the CDWP.The M/o Planning, Development and Reform should, when necessary,
make a consolidated enquiry from the sponsors with respect to deficiencies in the proforma and
seek clarification/ additional information. A Chart showing flow of PC-I/PC-II within the
Planning Development and ReformDivision and their processing through the CDWP/ECNEC is
given in (Annex---).
Procedure for Meetings of Various Bodies
7.17 The ECNEC meetings are normally chaired by the Finance Minister. However, at present
the Prime Minister of Pakistan is the chairman of ECNEC. The latest Charter and composition of
ECNEC is given in (Annex--). According to the decision taken by the Cabinet at its meeting held
on 1-11-1973 and 18-9-1994, the Central Development Working Party and ECNEC should meet
regularly every month and after every six weeks, respectively. The procedure for approving
schemes should be streamlined so that a project is approved within 2 months.
7.18 The meetings of the Central Development Working Party are normally held every month.
The Planning Development and ReformDivision isthe Secretariat of CDWP. The ECNEC
however, generally meets once in 6 weeks or in certain cases may meet early if so required. The
agencies represented on CDWP should circulate their comments to each other well before the
CDWP meeting so that the discussions are useful and schemes are cleared speedily.
7.19 The minutes of the CDWP meeting are recorded by the Planning Development &
ReformDivision and circulated to all CDWP members and other agencies concerned. The
agencies represented on the CDWP should, however, be expected to take action required by them
without waiting for the minutes. The minutes of CDWP should be treated as confidential. The
minutes/record of discussions of ECNEC should be treated as secret. However, decisions of
ECNEC in respect of public sector development projects would be unclassified unless specially
classified by the Cabinet Division "Procedure in regard to ECNEC" (Annex---).
7.20 Every effort should be made to clear a scheme in one meeting, where this is not possible,
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the scheme should be considered at successive meetings of the CDWP until it is disposed off.
The basic requirement is that the scheme should not be lost sight off and the progress in its
disposal is maintained. With a view to avoiding lengthy discussion on detailed comments of the
various agencies represented on CDWP, a Pre-CDWP meeting is to be held to resolve the
outstanding issues in respect of federal schemes under the respective member or Sr. Chief/ Chief
of the Planning Commission. (Annex---).
Time limit for Approval of Projects
7.21 In accordance with the directive given by the Cabinet in its meeting held on 1-11-1973, a
project is required to be approved within two months. However, in accordance with the
comprehensive procedure approved by the National Economic Council in July, 1959 (Annex---),
the time for approval given is in more specific terms, viz: the formal submission of schemes and
approval of the Economic Council (now ECNEC) should be completed within 3 months.
Anticipatory Approval
7.22 In accordance with para II (2) of the "Procedure in regard to ECNEC" (Annex---), the
ChairmanECNEChas powers to allow the execution of a scheme in anticipation before its formal
approval by ECNEC. The request for anticipatory approval has to be submitted to the Cabinet
Division through Planning Commission for on-going and new schemes in the proforma
prescribed for each of them (Annex---). The request for anticipatory approval should be signed
by the Secretary of the Division concerned in the case of federal schemes and by the Chairman
P&D Department or ACS (Dev.) in the case of provincial schemes, accordingly.
7.23 The ECNEC in its meeting held on 29-11-1978 further decided that the Chairman,
ECNEC may dispose of any case/scheme in his discretion pending the formal submission of the
Summary to the Committee, provided that in such cases the particular scheme would be
processed through the normal channels and submitted to the Executive Committee of the
National Economic Council (ECNEC) after completing all the formalities within six months with
further provision that the total period of anticipatory approval should not exceed 12 months in
any case. Furthermore, anticipatory approval and sanction for incurring expenditure shall in no
case be allowed beyond the end of each financial year, i.e 30th June(Para-3 ofAnnex---). On the
expiry of the date for which anticipatory approval has been granted, the case will have to be
processed afresh in the same manner as mentioned above, if further extension is required. It may
be noted that the grant of anticipatory approval falls in the category of "extraordinary
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jurisdiction" and this power cannot be re-delegated both for reasons of uniformity of treatment
and to maintain financial discipline and control. Therefore, all cases of anticipatory approval,
irrespective of the cost involved, have to be submitted only to the Chairman, ECNEC for
approval (Annex---).
Administrative Approval
7.24 Project approval communicated by the Planning Commission through authorization letter
is followed by administrative approval and sanction for incurring expenditure. Administrative
approval is issued by the Federal Ministry in respect of federally sponsored projects, while for
the Provincial projects the approval is issued by the Provincial Department concerned.
Administrative approval is a sort of general sanction of the scheme in which total cost foreign
exchange component and any other riders imposed by the approving body are incorporated. This
sanction is distinct from the sanction for incurring expenditure on the scheme which is to be
issued on yearly basis restricted to the budget provision (Annex---).
Issuance of Administrative Approval
7.25 The decisions of the CDWP and ECNEC in respect of approval of projects are circulated
by the Planning Development &ReformDivision through an authorization letter/O.M. The
Administrative Ministries concerned with the federal projects and the Provincial Governments
concerned with the provincial projects are advised to take urgent steps to issue necessary
administrative approval and expenditure sanction in respect of the schemes approved by the said
bodies. Copies of sanction letters issued by the Federal Ministries and the Provincial
Governments should be endorsed to the Planning Development &ReformDivision, Cabinet
Division and Finance Division and Finance Department in the case of provincial projects.While
issuing administrative approval, the Federal Ministries/Provincial Departments should
specifically incorporate the conditions of approval, if any, are imposed by the approving body so
that the Project Director/Executing Agency should be fully aware of its responsibilities in
complying with those conditions before, during and after the implementation of the project.
Concept Clearance of Projects for Foreign Aid Negotiations
7.26 The foreign aid is an important element of financing our development programme. This
assistance is pledged by various donors largely to meet the foreign exchange requirements of the
projects undertaken by Government of Pakistan either through Federal PSDP or through
provincial ADPs, depending on the agency for the implementation of the project. In view of
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paucity of domestic resources there should be effective utilization of foreign economic aid. It
was decided that at the preliminary stage, where only a broad outline regarding the nature and
scope of the project is known, clearance should be obtained from the Planning Development &
Reform Division even before the preliminary discussions with the aid giving agencies take place
(Annex---). This is necessary to establish at the very outset whether the project fits in the
priorities laid down in the Five Year Plan and the overall economic development policies of the
government. A committee for concept clearance of foreign aided projects was set up in the
Planning Development and ReformDivision. The Concept Clearance Committee is chaired by
Deputy Chairman, Planning Commission and provincial Governments have also been given
representation in this Committee. Its composition is at (Annex---). A prescribed proforma for
concept clearance has been devised (Annex---). Sponsoring agencies are required to submit 35
copies of the project proposal on this format to the PIP Section of Planning Development and
ReformDivision. After obtaining the recommendations of the concerned technical section the
project proposal is submitted to Concept Clearance Committee for its approval. The approval of
the Concept Clearance Committee is communicated to EAD and sponsoring agency for aid
negotiations with the donors. At present CDWP also acts as Concept Clearance Committee and
decided all the cases of foreign funding proposals side by side development projects
7.27 Concept clearance is required for those projects only which have not been cleared by the
CDWP/ECNEC. The project should, however, fit in with the priorities laid down in the Five
Year/Perspective Plans and the overall economic development policies/ priorities of the
Government. After the concurrence of Concept clearance by the competent forum, the donor
agency generally arranges pre appraisal/appraisal missions to discuss the project with the
EAD/other agencies concerned. After appraisal of the project, sufficient data is available with the
sponsoring agency to prepare the PC-I. The sponsoring agency are required to submit the PC-I to
Planning Development and ReformDivision within a maximum period of one month after
appraisal of the project by the donor agency for processing through the relevant approving
authority. It is necessary that the decision of the CDWP is available before formal loan
negotiation is held with the donor agency, so that loan negotiation conforms to the decision of
the CDWP. Likewise, the loan agreement, etc. should not be signed before approval of the
project by the competent forum or the anticipatory approval of the Chairman, ECNEC.
7.28 In September, 1994 it was decided that in future the proposals which constitute a part of
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the approved PC-I and for which the donors are changed should be considered conceptually
cleared and should not be brought afresh for consideration. It has been noticed that the proposals
for seeking foreign assistance are sent by sponsoring agencies for approval of Concept Clearance
Committee without proper examination, and sufficient details of proposals establishing their
need are not available. It has accordingly been decided (Annex---) in the meeting of
CDWP/CCC held on 29-3-1995 that in future:
“All concept clearance proposals costing Rs.10.00 million and above must accompany a
feasibility study prepared departmentally.”
(Now stand redundant due to value for money concept). No proposal for foreign assistance will
be considered for the purchase of vehicles, air conditioners and other consumer durables,
produced in the country.
7.29 After careful study of the whole procedure, the following guidelines are framed:
(i) It should be a normal practice to submit projects on PC-I or PC-II for the approval of CDWP. However, only those projects should be sponsored for concept clearance where strong indication is available from multilateral agencies/donors for making available necessary funding and formal request for donor financing cannot wait for preparation of PC-I/PC-II.
(ii) The proposals should be accompanied by adequate information regarding basic concept of the project and cost details/breakdown with departmental feasibility if the cost of the project is Rs. 500 million and above.
(iii) Donor assistance should not be sought for the purchase of vehicles, air conditioners and other consumer durable goods produced in the country. Similarly, projects should not be sponsored for outright import of road making or earth moving machinery and drilling rigs etc. by the government departments/agencies without a project design fully justifying the additional acquisition after taking into account inventory of the existing machinery of all public sector departments/agencies. Effort should always be made for pooling available resources rather than resorting to fresh imports under new projects.
(iv)Following the concept clearance of the project, if the project design is altered by donor agencies at any subsequent stage Planning Development and ReformDivision should invariably be consulted and clearance obtained by the executing agency before proceeding ahead with negotiation.
(v) It should be ensured that the executing matching local currency funds would be available in PSDP/ADP to absorb the aid being sought.
7.30 Instances have come to the notice that executing agencies negotiate and finalize foreign
aid (loans and grants) much beyond the scope and size allowed under concept clearance. It has,
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therefore, been decided vide the then Programming Section's O.M. No.7(4)PS/PC/96-FA dated
the 9th September, 1996 (Annex---)that in case the loan and/or grants negotiated and/or finalized
is over and above the size and scope of concept clearance the proposal be re-submitted for
approval of the competent authority. It has further been decided that no aid agreement be
finalized and signed till PC-I is approved or at least anticipatory approval of the competent
authority is obtained with respect to scope and size of the PC-I and possibility of its budgetary
financing is envisaged. Vide Planning and Development Division's O.M. No. 7(20)PS/PC/95-Fa
dated 4-1-1997, it has been decided that concept clearance of foreign aided projects by the
Concept Clearance Committee will be considered as final as was the practice from the year 1983
to 1990 (Annex---).
Provincial Projects
7.31 Provincial projects involving outlay of Rs. 10,000 million or less, approved by the
Provincial Development Working Party which will not be financed entirely from the revenue
surplus of the province, should be forwarded to the Planning Commission for seeking approval
of the Concept Clearance Committee. Provincial projects of more than Rs. 10,000 million will be
considered by the Concept Clearance Committee/ CDWP/ ECNEC as usual.
Federal Ministries/Attached Departments Projects
7.32 Projects of Federal Ministries and attached departments which are sanctioned by the
Departmental Development Working Party may also be forwarded to the Planning Commission
for seeking approval of the Concept Clearance Committee. Federal projects costing more than
Rs. 60 million will be submitted to the CDWP as usual.
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Chapter -8:
PROJECT EXECUTION AND IMPLEMENTATION
The Role of Sponsoring, Executing and Implementing Agencies
8.1 Sponsors secure funding for projects from the development budget and serve as project
advocates. The sponsor chooses an implementing agency and is the customer of the implementing
agency. There can be more than one partner sponsoring the project. In that case they act as co-
sponsors with a shared responsibility for securing funds for the project.
8.2 The implementing agency is the entity charged with the responsibility of successful
completion of project’s components including completion of all permits and studies; preparation
of plans, specifications, and estimates; the acquisition of land, rights-of-way etc.; procurement of
goods and services; construction; project management; engineering, including surveys and
inspection etc. There could be a different implementing agency for each component of a project.
To ensure clear lines of responsibility, only one agency can be the Implementing Agency for a
single component. The Implementing Agency is responsible for ensuring the adequacy of its
products through a quality control and quality assurance procedure.
Appointment and Role of the Project Director (PD)
8.3 The activation of the project is achieved through the appointment of a Project Director. As
per ECNEC decision dated 06 May 2011, appointment of an independent (full time) Project
Director is mandatory for the project costing Rs. one billion and above. Project Director can be
appointed on additional charge basis, if the cost of the project is below Rs. one billion. However,
if project authorities have sufficient justification to appoint independent Project Director in
projects costing less than Rs. 1,000 million, the case is placed before CDWP for prior approval
with full justification. The guidelines governing the appointments of independent Project Director
are given at (Annex---).
8.4 Project Director, who is the focal point in project implementation, is responsible for
project execution according to its objectives, work scope and implementation schedule. Suitable
and qualified Project Director should be appointed to manage the project whoshould not normally
be transferred during currency of the project. Project Director should be delegated full
administrative and financial powers to improve project management, supervision and help fix
technical and financial responsibility. No member of staff working under administrative control
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of the Project Director should be posted/transferred without his/her prior consent/concurrence. As
a team leader, he/she is under obligation to account for all actions, steps and decisions taken
during project execution. It is advisable to set up headquarters of the Project Director as close to
the site of work as possible preferably at site, to ensure his/ her availability for taking on-spot
decisions on emerging issues. Project Director should supervise project and try his/her best to
resolve day-to-day problems faced in implementation independently within the administrative and
financial powers delegated to him/her for project execution. If necessary, he/she may seek help
from concerned Federal Ministry and/or Provincial Government for resolving the problems.
8.5 In case of mega projects, consultants should be appointed for preparation and supervision
of work. Consultants should be associated from the stage of preparation of the project.
Donor/lending agencies generally insist on appointment of consultants in accordance with their
own procedures. To enhance of capacity of the local consultant, the government may appoint
local consultant along with foreign consultant if so required. In case it is not acceptable to a
particular donor/lending agency, we should insist that our local consultants should work jointly
with foreign consultants at equal status and reasonable salary structure comparable with their
counterparts, except for the top positions where foreign consultants may continue to operate.
Project Management Unit (PMU)
8.6 The requirements of public administration institutions are increasing and projects
becoming progressively challenging. Managing a project is a complex activity, in particular when
it involves many people working over long periods of time and many different stakeholders. This
increasing complexity requires management practices and tools that assure an efficient use of
resources. In this context, a Project Management Unit (PMU) can be of great value. In the public
sector environment, new projects are constantly being undertaken and public sector is striving for
ways to reduce costs, improve processes, and enhance productivity across them. At times,
managing these projects is a difficult endeavor for which the risk of failure is often too high. One
of the most appropriate methodologies to ensure the governance of projects across all levels is to
establish a Project Management Office (PMO) in line with management standards and best
practices. An effective PMO will then be provided with an infrastructure, resources, processes,
and tools necessary for effective project management by leveraging standards, allocating
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resources, and establishing communication channels. The benefits of Project Management Office
(PMO) include:
– Standardized project management methodology across the organization– Effective reporting on project progress – Effective project management with available resources – A central repository for project management – A central project coordination unit for the stakeholders
Contract Award and Contract Management
8.7 A contract is a legal form of communication agreed to between two parties for further
execution in a bidding form. This facility is used very commonly by the project director/manager
and owner to control the delivery of their projects. A contract has the added advantage of forcing
owners to define their requirements, organize and arrange their thinking, and make a commitment
to their project. It defines the work and the owner’s delegation of responsibilities to the various
parties to complete the work it inherently defines the nature and extent of risk to various parties. It
defines the transfer of financial incentives to complete the work.These are the five basic elements
of a contract
Offer Consideration Acceptance Legal purpose Legal capacity
The agreement is designed to formalize the contract. It brings together all the other contract documents by reference to them and is a legal instrument verifying the contract.
Contract Administration
8.8 Contract administration involves the following:
• Managing the contract and relationship between the buyer and seller.• Reviewing and documenting how a seller is performing or has performed to establish
required corrective actions• Provide a basis for future relationships with the seller,• Managing contract-related changes and, • When appropriate, managing the contractual relationship with the outside buyer.
Contract Closure
8.9 Contract closure involves the following activities:
• Completing and settling each contract, including the resolution of any open items,• Closing each contract applicable to the project or a project phase.
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Contracts during Different Phases of Projects
8.10 Contracts are used during all phases of projects. In the first phase, which is the feasibility
phase, contracts are formed between an owner and a consultant or an engineering firm, or an
architectural firm to perform a feasibility and site selection study. Inthe executionphase contract
isformed between an owner and a contractor firm.
Stages of Contract Management
8.11 Following are the four main stages of contract management in projects:
A. Pre-requisition of invitation to tenderA-1. Completion of feasibility studies
Technical feasibility Economic viability Environmental impact assessment(EIA)
A-2. Detailed engineering design
Design of project components Finalization of technical reports Specifications Computation of quantities Formulation of engineer’s estimate
A-3. Administrative approval
Preparation of pc-1 proforma Approval by the government
A-4. Arrangement of finances
Local & foreign exchange componentsA-5. Land acquisition
A-6. Prequalification of contractors
B. Formulation of tender documentso Specificationso Detailed Designo Tender Drawingso Estimation of Quantitieso Decision About Specific Provisionso Decision About format-ADB/IDAo Conditions of Contract - Part 1 & II.
C. Tendering/evaluation/awardC-1. Tendering
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– Tendering Process– Packaging– Local Competitive Bidding (LCB)/ International Competitive Bidding (ICB)
Tendering– Types of Tender– Procedure for Tendering
C-2. Evaluation
– Tender Opening– Preliminary Evaluation– Detailed Evaluation– Procedure for Preference
C-3. Award
The Tenderer whose tender has been accepted shall be notified of the award by the employer prior to expiration of the tender validity period in writing. This letter (hereinafter called the “Letter of Acceptance”) shall state the sum that the employer shall pay the contractor in consideration of the execution, completion, and maintenance of the works by the contractor as prescribed by the contract (called the “Contract Price”).
D. Contract administrationo Performance Bondo Financial Assistance/Mobilization Advanceo Appointment of the Engineer and Authorityo Priority of Contract Documentso Retention Moneyo Insurances and risk managemento Liquidated Damageso Bonuso Variation Orderso Claimso Dispute Resolutiono Price adjustment Clauseo Taking over Certificateo Defect Liability Certificateo Contract Coordinationo Foreign Employee clauseo Project timelines
8.12 Good contract management creates client and customer satisfaction as well as consolidates
long term win-win relationship among all parties involved. Contract law and its management is a
core activity of any project. Contracts not only bind the parties in legal obligations and
framework, they are also instrumental in risk minimization or elimination. For good contract
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management knowledge of the following is mandatory and for which the Ministry of Law, Justice
and Human Rights can provide paramount guidance and assistance to government entities.
Legal aspects of contracts Legal provision regarding creation of contracts. Legal provision regarding dis-chargement of contracts. Legal provision regarding specialized contracts. Practical aspects of contract management: Practical handling in creation of contracts. Practical approach in inculcation of terms of the contract Practical approach in handling of disputes in contracts
8.13 Procurement, contract award and contract management go hand in hand. Procurement in
Government is governed by the Public Procurement Regularity Authority (PPRA) and its rules.
According Public Procurement Rules, 2004 which apply to all procurements of goods, services
and works made by all procuring agencies of the Federal Government whether within or outside
Pakistan.For infrastructure and engineering works contracts samples, guidelines and standard
forms are provided by the Pakistan Engineering Council which are variations based on the
international FIDIC contracts.
8.14 In case of Federal funding Public Procurement Rules2004 and different regulations issued
by PPRA including “the Procurement of Consultancy Services Regulation 2010” are applicable
which are placed at (Annex---). PPRA Ordinance 2002 is placed at(Annex---) for reference.
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Chapter-9:
PROJECT MONITORING
Role in the Project Cycle
9.1 The first three stages of the project cycle (identification, preparation and
appraisal/approval), precede the actual project implementation stage. Once the implementation
stage is reached, the "monitoring activity" assumes great importance which is followed by the
final stage, i.e. project completion/post-completion evaluation. The importance of "monitoring
and evaluation" activities hardly needs any emphasis since both provide timely and useful
information not only to the project management/implementation agencies but also a feed-back to
the policy makers. The linkage between the stages is also important. Each stage leads to the next
and the last phase, in turn, produces new approaches/ideas, improving the planning and
implementation process of future projects. This makes the "Project Cycle" self-renewing.
Conceptual Definition
9.2 Conceptually, "monitoring" means to check and assess the implementation status of a
project/programme/plan during the implementation on a regular basis. The system of watching/
monitoring the progress of a programme/ project implementation, besides being an important
link in the project cycle, helps in the identification/analysis and removal of bottlenecks and
expediting action where projects have stalled or fallen behind schedule. Project monitoring is
invariably done with the active participation of the project management and is, therefore, quite
distinct from inspection which is generally undertaken at a higher level but not very regularly. In
fact, project monitoring is a tool to serve the interests of both the project management and the
planners, as they share a common concern for the timely completion of projects within the
approved cost, scope and time schedule. For an effective monitoring system, the project
document must have the following essential data/information:
A clear-cut statement of project objectives and benefits;
i) Detailed project cost estimates-component/activity-wise;
ii) Source of funding;
iii) Annual financial phasing conceived on the basis of implementation plan;
iv) Physical scope in quantitative terms with components detail; and
v) Phasing of physical scope as per its implementation schedule, duly based on PERT/CPM
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or Bar Charts.
TYPES AND METHODS OF MONITORING
9.3 Conceptually, monitoring is distinguishable into two categories viz Internal and
External. These terms are defined as under:
(i) Internal Monitoring
9.4 Internal monitoring serves the objectives of internal project management and is always
the responsibility of those sponsoring ministries/ divisions and executing agencies directly or
indirectly involved in project formulation, appraisal/approval and implementation, i.e. on daily
basis at the project level, monthly by the executing agency and quarterly by the sponsoring
agency. The internal monitoring unit is to work like an eye of the project management for
ensuring the successful and timely completion of the project. A close collaboration and
understanding between the project management and the monitoring unit is very important. The
essential thing is the quick taking of appropriate decisions on the part of the project management
to remove the bottle-necks and solve the problems.
(ii) External Monitoring
9.5 External Monitoring which serves the objectives of higher level authorities outside
project management is always undertaken by an outside central agency like Planning
Development and Reform Division. This is done to watch the progress of development projects
to gain inside knowledge for the benefit of the planning agency from the macro-planning point of
view and that of the sponsoring agency for strategic feed-back on the progress of
implementation, its impact on problems and removal of bottlenecks. Accordingly, as per the
Rules of Business, 1973 issued by the Cabinet Division (updated upto February 1985), progress
monitoring of all major development projects/ programmes, identification of bottle-necks and
initiation of timely action is included in the charter of duties of the Planning and Development
Division (Annex---). The external monitoring unit which works along with the internal
monitoring system provides a link between the higher level authorities and the project
management. The internal monitoring unit has to feed the external monitoring unit with
necessary information. The external monitoring unit makes efforts for the preparation of special
review reports and collection of information on the spot, through field visits, to counter-check
the validity of information being provided by the field staff.
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Methods of Monitoring:
9.6 The methods or techniques adopted for project monitoring should effectively measure the
progress of a project, in comparison to its approved cost, scope, time schedule and objectives and
be capable of producing the information, according to the requirements of all concerned. The
implementation schedule of the smaller projects may be prepared in the form of Bar Charts.
However, for the major projects, the project management must use modern network methods
(CPM/PERT) to plan in advance, time and resources required for completion of individual
activities. All these techniques can be applied effectively for progress monitoring of capital
expenditure strictly in accordance with the physical scheduling. The NEC at its meeting held on
July 4, 1988 also directed that the implementation schedule be based on Bar Charts/PERT/CPM,
which should essentially form part of every project document. It further directed that the
schedule rates used in estimating project cost should regularly be updated by taking into account
the market rates, instead of allowing across-the-board premium on the schedule of rates.
The monitoring methodology being followed by the Projects Wing since its creation in 1983 is
briefly described below:
(a) Project selection criteria:
9.7 The Projects for monitoring are selected on the basis of the following criteria:-
i) The size of projects in financial terms, i.e. projects costing Rs. 50.00 million and above; ii) Slow-moving foreign-aided projects; iii) On-going major projects where some progress has already been made, particularly those
facing inter-agency coordination/ implementation problems; iv) Projects not monitored for the last one year or more; and v) Special M&E assignments by the CDWP, ECNEC or any other authority.
In addition, where the importance of the development impact justifies it, projects can be
selected for review irrespective of the volume of investment.
(b) Collection of Monitoring Data:
9.8 As referred to earlier, a specially designed proforma for progress monitoring (PMES-I) is
directly addressed to the Project Directors under intimation to all concerned for reporting
implementation status particularly on the following:-
i) Project's approved PC-I cost, time schedule and objectives;ii) Item-wise physical and financial progress; iii) Any changes in the plan of work or envisaged activities, along with the cost estimates
andlikely period of completion of the project;
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iv) Expected cost and time over-runs; andv) Problems being encountered in the implementation of the projects with proposals for
remedial measures.Quarterly progress is obtained on PMES-II proforma from executing agency.(Annex--)
(c) Monitoring Teams:
9.9 Multi-disciplinary monitoring teams, comprising the representatives of the Planning and
Development Division (Projects Wing and concerned Technical Sections), Sponsoring/executing
agency and Provincial Government (for provincial projects only) are deputed for undertaking site
visits and also to focus specifically on the following:-
i) Divergence between the PC-I work plan and the actual physical implementation; ii) Whether the physical output is commensurate with the financial outlay of the
projects? iii) Status of foreign-aid utilization; iv) Availability of inputs other than finance; v) Unit rate analysis and assessment of project effects viz-a-viz output, employment,
environ-mental etc; and vi) Source of the recurring cost and maintenance liability on completion of project.
(d) Progress Monitoring Reports:
9.10 The review reports generally consist of four parts. The first part gives the background
of the project, approval, financial allocation, utilization/ expenditure by main items, and the
likely cost after of the project, physical progress and the bottle-necks, if any. The second part
deals with results covering economic, financial analysis etc; the third part embodies findings
and the fourth part relates to statistical appendices. After its approval, the same is circulated to
concerned sponsoring ministry/ division/executing agency, Project Director, concerned
economic/technical sections of the Planning and Development Division and Finance Division
(Development Wing) for comments and initiating actions on the measures/ recommendations
made in the report. The progress monitoring reports are in the nature of review of progress as
related to project implementation status/work plan particularly with reference time and cost
over-runs and removal of bottlenecks.
(e) Inter-agency Meetings:
9.11 Inter-agency meetings are also organized by the Projects Wing in case of a situation
which coordinated effort on the part of more than one organization/agency and to discuss draft
review reports of the monitoring teams.
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Project Monitoring and Evaluation System (PMES)
9.12 The Management Information System of an organization plays an important role in
decision making. No sizeable organization can work effectively without a well-managed
information system. To introduce professional project management in Public Sector and to
make the projects monitoring and evaluation more effective, a web based Project Monitoring
and Evaluation System (PMES) has been developed. It is facilitating the line
ministries/divisions for projects planning, progress tracking, monitoring and timely
identification of corrective actions.
PMES provides three major functionalities:
i. Tools & Systems for Project Managementii. Systems for monitoring and evaluating projects
iii. Analytical tools for overall PSDP/portfolio analysis9.13 PMES is the backbone of PSDP projects monitoring activity which comprises of a
data bank of the implementation information like cash/work plan, releases of funds, physical
and financial progress etc. of the development projects.
PMES serves three informational requirements:
a) For Project Directors/Project Implementing Authorities:
i. Firmness and clarity of scope as per PC-1 ( Profile)ii. Provides tools for project Planning and control (Cash/Work plan)
iii. Track progress and report issues (PC-III A, PC-III B)b) For Controlling Ministries
i. Approve financial/Physical requirements of Projects as per Ministries priorities (Cash/work plan)
ii. Have a quick access to progress and issues in their project c) For Planning Division:
iii. A Platform for professional monitoring (Project scope, plans, progress, issues etc)
iv. Overall progress of PSDP projectsv. Repository for projects
vi. Projects synopsis and PSDP projects performance analysis (Executive Dashboard)
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Chapter-10
PROJECT EVALUATIONPurpose of Evaluation:
10.1 The final phase in the project cycle is itsevaluation. The analyst looks systematically at
the elements of success and failure in the project experience to learn how to plan better for the
future. Thebasic objective of such a study is to ascertain the real worth of a project or programme
as far as possible. Broadly speaking, evaluation may be defined as "a process which attempts to
determine as systematically and objectively as possible the relevance, effectiveness and impact
of activities in the light of the objectives". It is, thus, a critical analysis of the factual
achievements/results of a project, programme or policy vis-a-vis the intended objectives,
underlying assumptions, strategy and resource commitment. In specific terms, it makes an
attempt to assess objectively the following:-
(a) the relevance and validity of the objectives and design of the project/programme in terms of broader issues of development policy, sector/sub-sector priorities and strategies as well as other problems of a wider nature;
(b) the efficiency and adequacy of the pace of progress of the project/programme where the focus is mainly on managerial performance and productivity;
(c) the effectiveness of the project/programme - a major part of an evaluation exercise-in realizing the intended objectives from a variety of angles; and
(d) the identification of reasons for the satisfactory or unsatisfactory accomplishment of the results of the project/programme and to deduce critical issues and lessons which may be of relevance to other on-going and future projects/programmes of a similar nature.
Types of Evaluation
10.2 Evaluation can be applied for different purposes as well as to a specific activity, project
or programme. It is not restricted to the completion stage only but involves periodic
investigations at many stages. The different types of project evaluations carried out are: (i) ex-
ante evaluation, (ii) on-going evaluation and (iii) terminal evaluation/ex-post evaluation. The ex-
ante evaluation/pre-approval appraisal has already been discussed with methods and techniques
in earlier chapters. The on-going evaluation is carried out by the organization of its own to re-
assess the projected feasibility of the PC-I content because of the time lag, while external
evaluation is done by an agency other than the body involved in the implementation of a project.
On-going and post-completion evaluation is discussed below:-
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(a) On-going/Mid-term Evaluation
10.3 The main purpose of an on-going/mid-project evaluation is to assist the project
management to make appropriate adjustments in the changed circumstances or to rectify any
shortcomings in the original design, so as to improve its efficiency and overall performance.
(b) Post-Completion Evaluation
10.4 The purpose of an ex-post or post-hoc evaluation is to discover the actual, as opposed to
the projected, results of implementing a project. The aim of evaluation is primarily to compare
the actual outcome of the project with the projections made at the appraisal stage. The
examination of different aspects of the project can provide important lessons derived from
experience for the new projects. The overall impact of the project will result in a number of
effects which can be classified as costs and benefits, direct and indirect or tangible and
intangible. Ex-post evaluation takes place after the completion of the project and is often more
in-depth as it focuses on the analysis of impact. Besides, it is time-consuming, costly and calls
for persons with special skills.
METHODS OF EVALUATION
Evaluation Indicators
10.5 Evaluation indicators are the yardsticks for the assessment of overall performance of a project/programme with reference to stipulated targets and objectives. The main indicators can be identified as under:-i) Physical achievements indicators
Overall physical progress and Overall cost utilization
Timely or untimely completion of a project or a programme (delay in years).
ii) Output or Impact Indicators
Production (whether crops, livestock, forest products, fish, etc.) e.g., percentage of children in a
target group receiving supplies feed, number of acres surveyed, loan applications
processed/approved, trained manpower, a laboratory set-up etc.
iii) Economic Indicators
Financial and economic benefits (e.g. financial rate of return, internal rate of return, benefit-cost
ratio, etc.).
iv) Social Indicators - Quality of Life Indicators
Income distribution with equity, level of food consumption, health and education facilities,
shelter, access to essential amenities/basic needs, life expectancy, etc.
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Chapter- 11
PROJECT CLOSURE AND TRANSFER OF ASSETSWhat is project closure?
11.1 The principal aim of project closure is to mark achievement of an important stage in the
project cycle and to inform all parties. The final stage of the project is its completion and formal
closure. Project closure triggers the winding up of technical, operational and/or administrative
actions by the project sponsoring public sector entity as determined in the last approved version
of the PC-I.
When a project is considered completed/closed?
11.2 The project is considered to be completed / closed when all the funds have been utilized
and objectives achieved, or abandoned for any reason. At this stage, the project has to be closed
formally, and reports prepared on its overall level of success on PC-IVproforma. PC-IVis
evaluated by the projects wing/concerned technical section and decision on project assets or
requirement of human rehouses is decided to run the activities after completion of the project.
What does project closure involve?
11.3 Project closure involves handing over the deliverables to the concerned authorities,
closing of supplier’s contracts, and closure of bank account, releasing security money, staff and
equipment and informing stakeholders of the closure of the project as per last approved PC-I.
Project closure can be best understood by dividing the closure into operational closure and
financial closure as described below:
Operational closure
11.4 Operational closure signifies the stage when the last input has been provided, all project
activities have ended, assignments of all project personnel have been completed, disposal/transfer
of equipment purchased by the project has been carried out. It also marks the point in time beyond
which no further financial obligations/commitments should be incurred. For regular operation and
maintenance of projects after completion stage, it should be handed over to the agency
responsible for maintenance and operation. Timely efforts are required to be made for the handing
over of the project and provision of maintenance cost to the authority concerned. This exercise
should be taken in hand before six months of the expected completion date. If any of the project
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staff has to be retained for the operation of the project, a case for the shifting of the post in
revenue budget may be initiated and got approved from the Finance Division well in time so that
continuity in project operation is not hindered and public assets created under the project are
properly maintained. After closure of the project, annual operation reports have to be submitted to
the Planning Commission every year for five years on PC-V proforma.
Financial closure
11.5 Financial closure follows the operational closure as soon as possible. Ideally, the
operational and financial closure should be done simultaneously in order to avoid large gaps
between the operational closure and financial closure. Financial closure marks the date after
which no further transaction on that project account will be permitted. The sponsoring agency
concludes that all financial transactions authorized by it are finalized and that there are no further
financial commitments (Hard/Soft Commitment) or forecasts, that there is no cash deficit or a
liability exists. The sponsors must also verify that total expenditures are within the allotted
budget. However, the closure of the project may not be delayed on account of security money. It
is recommended that pay order of security money be got prepared from banks and released after
completion of maintenance period/ defects liability period as per rules. The financial closure may
be achieved within six months of operational closure.
Who is responsible for project closure?
11.6 The project sponsoring agency is responsible for initiating, carrying out and monitoring
and executing the tasks necessary for completion and closure of the project. They have the final
responsibility for ensuring the project closure tasks are undertaken as and when required. It is
worth mentioning that liquidation of commitments is usually the most time demanding task and
for this reason it is advisable that the sponsoring agency prepares and regularly updates the
liquidation of commitments, including final payments. The same applies to the disposal or
transfer of project assets.
Basic procedures and check list for project closure
11.7 The project sponsoring agency initiates project closure by:
• Consulting the last approved version of the PC-1 and its amendment(s)/ revision(s) if any to determine the final closure date;
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• Prepares the project completion report PC-IV well in time;
• Ensures that the terminal report PC-IV is drafted and technically cleared by the relevant sponsoring agency before submission to Projects Wing of the Planning Commission;
• Submits the same PC-IV to the Projects Wing Planning Commission.
• Changes the project status in the Project Monitoring & Evaluation System (PMES) to “Activities Completed” as a means of marking a project as being in the process of operationally and financially closed;
• Provides recommendations for the disposal or transfer of assets purchased by the project;
• Coordinates the departure of the project personnel and communicates with the concerned unit six months before the project closure date, so that action to transferor or separate personnel is taken;
• The project sponsor ensures that the last project inputs are provided by directing completion of all subcontracts, ordering the last expendable or non-expendable equipment items;
• Provides the account closing instructions including impress accounts to the concerned quarters if relevant and applicable;
• Conducts disposal of project equipment if required either by transfer/ donation to other sections/departments, sale or write-off. Unless disposal directives are already specified in the PC-1, the main options for disposal of equipment’s in projects are for equipment either to be donated/transferred to the recipient department/ government, transferred to another or follow-up project or become part of the sponsoring agency’s inventory. Further options are that equipment items may be sold or, in specific circumstances, written-off with the approval of the competent authority. For all projects, vehicles shall be transferred to the government/ministry.
• It is the responsibility of the sponsoring agency to inform all concerned parties about operational closure. The sponsoring agency of the project is responsible for conducting post completion audit and prepares a budget revision in order to surrender the balance of the project allocation/release if any.
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