- Eligible and Ineligible Expenditures
- Disbursement Percentage and Financing Percentage
- Disallowances and Nonpayments
- Capitalization of Interest, Commitment Charges, and Other Fees and Charges
- Changes during Project Implementation
- Loan Account Closing
- Audited Project Financial Statements
- Follow-Up Action for Audit Findings of a Serious Nature
- Delay in Submission of Audited Project Financial Statements
- Retention Period of Supporting Documents
- Disbursement under Suspension of Loan
Eligible and Ineligible Expenditures
4.7 ADB will only finance eligible expenditures (Appendix 4C). Expenditures eligible for financing are generally detailed in the loan agreement (e.g., attachment to Schedule 3, allocation and withdrawal of loan proceeds, also referred to as the "allocation table") and the PAM.
Disbursement Percentage and Financing Percentage
4.8 The disbursement percentage is the ratio or proportion of ADB financing which is applied to expenditure claimed under a particular expenditure category, as specified in the allocation table or other part of the loan agreement.
4.9 The disbursement percentage in the allocation table is derived from ADB's financing percentage as presented in the detailed cost estimate by financier provided in the PAM.
Disallowances and Nonpayments
4.10 Where ADB disallows or adjusts the amount of withdrawal the borrower requested, ADB sends an advice in writing by fax, email, or other means such as the Loan Financial Information System website (Chapter 14) to the borrower and/or EA citing the loan and WA number, amount applied for, amount paid, and reason for nonpayment or partial payment.
4.11 For nonpayment or adjusted settlement of claims under the commitment procedure (Chapter 8), ADB sends an advice to the negotiating or advising bank by authenticated SWIFT or tested telex citing the commitment letter number, letter of credit (LC) number, and reason for nonpayment or adjusted settlement. A copy of this advice is furnished to the EA for information.
Capitalization of Interest, Commitment Charges, and Other Fees and Charges
4.12 If the loan agreement provides for financing of interest, commitment charge, and/or other charges that may be charged by ADB during construction or implementation, ADB withdraws from the loan account and pays itself the amounts due. If the loan agreement does not provide for financing these items, all charges are settled in cash as a part of loan service payment.
Changes during Project Implementation
4.13 Changes in cost, financing plan, reduction in counterpart funding, disbursement arrangements, and changes in expenditures originally approved for ADB financing, particularly with regard to costs covered under Appendix 4C of this handbook, should be approved by the relevant director general or authorized director, after the matter is consulted and agreed with the Loan Administration Division of the Controller's Department (CTLA) and other relevant offices and departments. The approved change should be reflected in the PAM and/or in an appropriate document.
4.14 Changes in disbursement arrangements include, but are not limited to, the following:
• the use of the statement of expenditure procedure (Section 9.17),
• an upward change in the ceiling of the statement of expenditure procedure (Section 9.18-9.20),
• the use of the imprest fund procedure (Section 10.4),
• an upward change in the approved ceiling of the impress account (Section 10.13),
• the use of sub-accounts (Section 10.28), and
• extension of the winding-up period (Section 4.17-4.18).
Loan Account Closing
4.15 Project completion date and loan closing date. Projects are expected to be physically completed by the project completion date, which is normally 6 months before the loan closing date.
4.16 Final disbursement. Preparation of WA(s) for final disbursement(s) of project loan and tranche disbursement of a policy-based loan should be closely coordinated between ADB and the borrower and/or EA, particularly if the remaining unutilized balance is expected to be fully utilized.
4.17 Winding-up period. The borrower may make withdrawals from the loan account for expenditures incurred on or before the loan closing date. Expenditures incurred after the loan closing date will not be financed under the loan. ADB may allow up to 4 months after the loan closing date (i) for the borrower's WAs to be submitted to ADB for expenditures incurred on or before the loan closing date, and (ii) for the borrower to fully liquidate expenditures incurred on or before the loan closing date. After the winding-up period, WAs, including requests for liquidation, will not be accepted. Extension of the winding-up period, on an exceptional basis, may be approved by ADB (Section 4.14).
4.18 Within 2 months after the winding-up period for submission of documents, the borrower should fully refund any outstanding imprest account balances to ADB. If the borrower fails to fully refund such balances, ADB may, among other corrective actions, decide not to allow the use of the imprest fund procedure under the borrower's new projects until such time as the refund is received.
4.19 Payment of final audit fees. If external auditor's fees are financed by ADB, it is best practice to pay the audit fee before the loan closing date after completing the final audit (Section 4.15). When audit fees under a project need to be paid after the closing date, special arrangements may be required for payment of the final audit fee from the loan account. External auditor's fees for the final fiscal year may be disbursed from the loan account, under condition that (i) the borrower signs a contract for the final audit prior to the loan closing date, and (ii) the contract is a lump-sum or fixed-price contract that requires completion of audit within 6 months after the loan closing date. If the audit work cannot be completed during the winding-up period, and the final audit fee will be paid through the escrow account, full supporting documents should be attached to the WA (see Appendix 4D for more details).
4.20 Refunds. All refunds must be paid to ADB's accounts at its depository banks with payment details indicating (i) references such as loan number, (ii) description or nature of the refund, and (iii) currency and amount of refund. The borrower and/or EA should send advice to ADB's Treasury Services Division (TDTS) and CTLA once a refund is made.
4.21 If funds withdrawn from the loan account are determined to be in excess or ineligible for ADB financing, the borrower must arrange a refund as instructed by ADB. The refund is normally credited to the borrower's loan account on the date of receipt in ADB's depository account. A money transfer fee or bank charge deducted from the refund amount, if any, may be absorbed by the loan account with due attention to considerations of economy and efficiency.
4.22 For closed loans, ADB may apply the amount refunded to debt service (e.g., interest or principal) if the amount of refund is small.
4.23 ADB applies the current value of the refund. In some cases it may convert the currency refunded into one of the currencies outstanding on the loan account.
In the event there is exchange difference between the amount charged to the loan account when the original payment was made and the equivalent amount at the time of refund, the exchange difference may be absorbed by the borrower's loan account, if no restriction is imposed (see Sections 10.24-10.25 for the refund of advance to the imprest account).
4.24 Retention money and bank guarantee. Payments of retention money under civil works and supply contracts are usually made at the end of warranty or operational acceptance or after the issuance of a performance certificate by the employer and/or buyer. Where payment of retention money is due more than 4 months past the loan closing date, and no extension of the closing date is intended, ADB may disburse the retention money to the contractor or supplier against an unconditional bank guarantee of equivalent amount provided by the contractor or supplier to the EA, or based on other financial arrangements acceptable to ADB. The unconditional bank guarantee is issued in compliance with the borrowing government's financial rules and regulations by a reputable bank in a manner acceptable to ADB.
Audited Project Financial Statements
4.25 ADB loan proceeds (and external funds from financing partners, if any) shall be used only for the purposes for which the loan was approved with due attention to considerations of economy and efficiency (Section 3.1). To meet these requirements, borrowers are to submit annual audited project financial statements (AFS) during project implementation.
4.26 Borrowers are required to submit AFS within 6 months after the close of the fiscal year or the loan closing date, whichever comes earlier, to sector division or resident mission for their review and necessary action. In accordance with ADB's Public Communications Policy, AFS for sovereign projects need to be posted on the ADB website.
Follow-Up Action for Audit Findings of a Serious Nature
4.27 In case of audit findings of a serious nature — such as misappropriation or diversion of funds, nonsubmission of supporting documents, or use of funds for nonproject-related activities—suitable action shall be immediately initiated or taken by the borrower or the EA, under intimation to the auditor and ADB.
Delay in Submission of Audited Project Financial Statements
4.28 In the event the AFS are not received by the due date, ADB takes follow-up actions in accordance with ADB regulations, instructions, and other rules.
Retention Period of Supporting Documents
4.29 The borrower is required to retain all records (e.g., contracts, purchase orders, invoices, bills, receipts, sub loan agreements) evidencing eligible expenditures and to enable ADB's representative to examine such records. Such records should be retained for at least 1 year following receipt by ADB of the final AFS or 2 years after the loan closing date, whichever is later. Borrowers are responsible for ensuring that document retention also complies with their government's laws and regulations.
Disbursement under Suspension of Loan
4.30 If the loan is fully or partially suspended, disbursement is also suspended to the extent the loan is suspended.
4.31 The suspension of withdrawal does not affect disbursements committed through outstanding letters of credit under ADB's commitment procedure, as the commitments are irrevocable and ADB is obliged to disburse even after the loan has been suspended.
4.32 During the suspension, no additional funds will be advanced to the imprest account (Section 10.33).
-  Formerly, this was also called the "percentage for ADB financing" or "percentage and basis for withdrawal from loan account."
-  It also applies to external funding sources administered by ADB.
-  See Project Administration Instruction (PAI) No. 5.02.
-  Note for best practice: To be ready to close the loan account by the loan closing date, during the 6 months between the project completion date and the loan closing date, the EA should ensure that (i) project expenditures incurred are paid; (ii) project financial statements are compiled and audited; (iii) audit fees, if any, are paid (Section 4.19); (iv) advance(s) to the imprest account are fully liquidated; and (v) any refund, if needed, is returned to ADB.
-  The winding-up period is allowed unless otherwise stipulated in the loan agreement or other applicable agreement, regulations, etc., e.g., this is not applicable to grants under the Asia Pacific Disaster Recovery Fund, as particular requirements for closing the grant account are stipulated in the grant agreement. The winding-up period is also allowed for projects financed by external funding sources administered by ADB, unless otherwise specified in the coinancing, trust fund, or other appropriate agreement.
-  Completion of audit should be receipt and acceptance of audit report by the borrower or EA.
-  Such other arrangements should be approved by the Assistant Controller of CTLA.
-  Audited project financial statements (AFS) in this handbook also refer to the EA's audited financial statements, where applicable. For comprehensive guidance, refer to PAI No. 5.07, Financial Reporting and Auditing of Loan and/or Grant Financed Projects.
-  The due date can be extended to 9 months in exceptional cases (PAI No 5.07).
-  ADB. 2011. Public Communications Policy. Manila.
-  Such as Ordinary Operations Loan Regulations, Special Operations Loan Regulations
-  Following general business practices, ADB may accept digital form of the records, if appropriate controls are in place to avoid alteration to the original.