Assurances given by Kerala Government for the ADB loan in 2002

(Extract from ADB document--  REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE BOARD OF DIRECTORS ON A PROPOSED PROGRAM CLUSTER OF LOANS TO INDIA FOR THE MODERNIZING GOVERNMENT AND FISCAL REFORM IN KERALA PROGRAM-- on assurances given by State and Central governments)

The central and Kerala governments have given the following specific assurances, in addition to the standard assurances, that will be incorporated in the legal documents:

A. Policy Letter and Policy Matrix

104. The Kerala government will carry out the policies and actions in accordance with the schedule of policy reforms contained in the Policy Matrix as agreed upon between the Kerala government, ADB and the Government of the Netherlands, and ensure that these shall continue to be in effect for at least the duration of the Program

105. The Kerala government will ensure that the MGP secretary will be responsible for (i) the coordination and management of the Program; (ii) report to the State chief secretary; and (iii) continue in the position on a fulltime basis for a reasonable duration to ensure continuity in the implementation of the Program.

B. Counterpart Funds

106. The central Government will transfer the counterpart funds generated under the Loan, under the normal arrangements for transferring external assistance to the Kerala government and shall treat such counterpart funds as an additionality to its transfers allocated annually to the state.

107. The Kerala government will make available on a timely basis, the counterpart funds

required for the Program. The Kerala government will use the counterpart funds to finance the cost of structural adjustment under the Program. In this regard, the Kerala government will provide budget appropriation/allocation to release necessary funds as required for the Program, including inter alia for the implementation of: (i) the Kerala government’s policies on asset renewal, service delivery and social audit; (ii) personnel and payroll computerization; (iii) LSG action plan; (iv) capacity building and training in financial management for LSGs and community organizations; and for (v) support of MGP’s administrative and program management expenses, the service delivery policy unit, functional review unit and the costs associated with the coordination of the implementation of the detailed implementation plans of the SIPs.

C. Policy Dialogue

108. The Kerala government will keep ADB and the Government of the Netherlands informed of, and the Kerala government, ADB and the Government of the Netherlands will from time to time exchange views on, the progress made in carrying out the policies and actions set out in the Policy Letter and the Policy Matrix in the formulation and implementation of new policies affecting the Program.

109. The Kerala government will keep ADB informed of policy discussions with other international and bilateral aid agencies and will allow ADB to comment on the same in so far as these affect the Program.

110. The Kerala Government will continue policy dialogue and regularly exchange views and information with ADB and the Government of the Netherlands, on problems and constraints encountered during implementation of the Program and on changes to overcome or mitigate such problems and constraints.

D. Detailed Implementation Plan under the SIPs

111. The Kerala government will approve and notify the detailed implementation plan30 (i) by not later than 31 December 2002, for the first 12 months of the Program; and (ii) by not later than 31 December 2003, for the next 12 months of the Program. The Kerala government will also ensure that the Program is implemented in accordance with the detailed implementation plans.

112. The Kerala government will take all steps and actions, including provision of staff resources and funds to ensure satisfactory completion in a timely manner of all outputs in the detailed implementation plans, as referred to in preceding paragraph.

E. Community and Stakeholders Consultation and Participation

113. The Kerala government will ensure that the relevant components of the Program are implemented in consultation with and participation of the community, stakeholders and community representatives such as the non-government and community-based organizations.

114. Without limiting the generality of the preceding paragraph, the Kerala government will ensure that appropriate institutional mechanisms are in place for communication and feedback on the relevant policy actions from the community and stakeholders.

F. Technical Assistance

115. The Kerala government will ensure that in carrying out the policy measures and activities included under the Program and the Policy Matrix, due consideration will be given to the findings and recommendations of any related technical assistance. The Kerala government will consult with and keep ADB and the Government of the Netherlands informed on the findings and recommendations of the technical assistance as may be provided by other bilateral agencies in relation to the Program.

116. The Kerala government will allow ADB and the Government of the Netherlands to provide their comments on the findings and recommendations of the TA referred to in the preceding paragraph, for consideration in the policy measures and other activities, as mutually acceptable to the Kerala and Netherlands governments and ADB.

G. Mutual Consultations

117. (i) The Kerala and Netherlands governments and ADB will exchange and draw on, in a timely manner, the necessary information and resources, in the formulation and finalization of tranche outputs and implementation thereof, as included in the Policy Matrix and SIPs.

(ii) In formulating the tranche outputs as indicated in clause (i) of this paragraph, and the reform measures under the Program, including in the Loan Agreement, the Kerala government will ensure that the findings, recommendations, and mitigation measures of the IPSA, including follow-up action therein, are carried out during Program implementation, all in accordance with clause (i) of this paragraph.

H. Power Sector Reforms

118. The Kerala government will seek KSEB to file the application for revision of tariffs before the SERC within not more than two months of establishment of the SERC.

I. Fiscal

119. The Kerala government will prepare a midyear report on its budget performance and required mid-year correction by not later than 31 January 2003.

120. The Kerala government will take all steps necessary to ensure timely compliance with the Tripartite Agreement, and the Letter of Shared Fiscal Goals and Objectives, with the central Government.

121. The Kerala government will take a decision on the Second State Finance Commission Recommendations and issue necessary orders by not later than 31 March 2003.

122. The Kerala government will continue to adhere to the 1999 agreement among all states not to grant indirect tax concessions under the sales tax or its successor VAT.

J. Long-Pending Infrastructure Projects

123. The Kerala government will prepare and approve guidelines for termination of infrastructure projects over five years old, based on its policy on the long pending infrastructure projects, by not later than 31 January 2003.

K. Core Government Functions

124. The Kerala government will maintain a minimum annual net attrition rate of 1%.

125. The Kerala government will ensure that there is strict adherence to service guidelines on minimum tenure in a post.

126. The Kerala government will approve and notify the service delivery policy in relation to services provided by Kerala government and LSGs, by not later than 31 March 2003.

127. The Kerala government will approve and notify the social audit policy including the program for first annual implementation of the policy, by not later than 31 December 2002.

L. Poverty Reduction and Minimum Needs Program

128. The Kerala government will make available the poverty census and poverty database as validated by the community, to the LSGs, departments and agencies responsible for providing free or subsidized services to the poor, by not later than 31 December 2003.

M. District Rural Development Agencies

129. The Kerala government will take a decision on the merger of district rural development agencies with the district panchayats, by not later than 30 June 2003.

N. SLPEs

130. With regard to the second tranche conditions under the SLPE reforms under subprogram 1, the Kerala government will ensure that all stakeholders including the employees and workers that may be affected by the SLPE reforms are fully consulted in a fair and transparent manner including in accordance with applicable laws and regulations of the central and Kerala governments and their views are duly considered in finalization of:

(i) the policies on VRS and the SSN schemes, for regular/permanent employees;

(ii) detailed proposals for reforms/restructuring for SLPEs as identified by the Kerala government.

131. The Kerala government will prepare detailed proposals for SLPEs identified by the Kerala government in government order of 26 July 2002 in two stages that shall include: (i) proposal on sale/closure of non-operational SLPEs by not later than 31 March 2003 and (ii) proposal on reform/restructuring of the remaining SLPEs by not later than 30 June 2003.

O. Cofinancing

132. The central Government will transfer the amount cofunded by the Government of the Netherlands to the Kerala government on a timely basis for implementation of the Program.

Kerala government will ensure application of the same towards implementation of the Program in accordance with the ADB Loan and Program Agreements.

P. Condition for Disbursement

133. The central Government will pay the front-end fee of 1.0% on the Loan amount.

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