Papua New Guinea: Port Moresby Power Grid Development Project

Transcription

1 Port Moresby Power Grid Development Project (RRP PNG 43197) Project Administration Manual Project Number: April 2013 Papua New Guinea: Port Moresby Power Grid Development Project

2 Contents ABBREVIATIONS 5 I. PROJECT DESCRIPTION 1 II. IMPLEMENTATION PLANS 3 A. Project Readiness Activities 3 B. Overall Project Implementation Plan 4 III. PROJECT MANAGEMENT ARRANGEMENTS 5 A. Project Implementation Organizations Roles and Responsibilities 5 B. Key Persons Involved in Implementation 6 C. Project Organization Structure 6 IV. COSTS AND FINANCING 7 A. Detailed Cost Estimates by Expenditure Category 8 B. Allocation and Withdrawal of Loan Proceeds 9 C. Detailed Cost Estimates by Financier 10 D. Detailed Cost Estimates by Outputs/Components 11 E. Detailed Cost Estimates by Year 12 F. Contract and Disbursement S-curve 13 G. Fund Flow Diagram 13 V. FINANCIAL MANAGEMENT 14 A. Financial Management Assessment 14 B. Disbursement 15 C. Accounting 16 D. Auditing 16 VI. PROCUREMENT AND CONSULTING SERVICES 17 A. Advance Contracting and Retroactive Financing 17 B. Procurement of Goods, Works and Consulting Services 17 C. Procurement Plan 18 D. Consultant's Terms of Reference 23 VII. SAFEGUARDS 28 VIII. SOCIAL SAFEGUARDS DUE DILIGENCE EXISTING FACILITIES 29 IX. DUE DILIGENCE/SOCIAL COMPLIANCE AUDIT OF EXISTING FACILITIES 29 A. Rouna 1 Hydropower Plant 30 B. Sirinumu Toe-of-dam Hydropower 32 C. Existing Transmission Line from Rouna 33 D. Consultations, Disclosure and Grievance Redress 34 E. Action Plan: Community Development Package 34 X. GENDER AND SOCIAL DIMENSIONS 35 XI. PERFORMANCE MONITORING, EVALUATION, REPORTING AND COMMUNICATION 38 A. Project Design and Monitoring Framework 38 B. Monitoring 40 C. Evaluation 41 D. Reporting 41

3 E. Stakeholder Communication Strategy 41 XII. ANTICORRUPTION POLICY 47 XIII. ACCOUNTABILITY MECHANISM 48 XIV. RECORD OF PAM CHANGES 48

4 Project Administration Manual Purpose and Process The project administration manual (PAM) describes the essential administrative and management requirements to implement the project on time, within budget, and in accordance with Government and Asian Development Bank (ADB) policies and procedures. The PAM should include references to all available templates and instructions either through linkages to relevant URLs or directly incorporated in the PAM. The Independent Public Business Corporation (IPBC) and PNG Power Ltd. (PPL) are wholly responsible for the implementation of ADB financed projects, as agreed jointly between the borrower and ADB, and in accordance with Government and ADB s policies and procedures. ADB staff is responsible to support implementation including compliance by IPBC and PPL of their obligations and responsibilities for project implementation in accordance with ADB s policies and procedures. At Loan Negotiations, the borrower and ADB shall agree to the PAM and ensure consistency with the Loan agreement. Such agreement shall be reflected in the minutes of the Loan Negotiations. In the event of any discrepancy or contradiction between the PAM and the Loan Agreement, the provisions of the Loan Agreement shall prevail. After ADB Board approval of the project's report and recommendation of the President (RRP) changes in implementation arrangements are subject to agreement and approval pursuant to relevant Government and ADB administrative procedures (including the Project Administration Instructions) and upon such approval they will be subsequently incorporated in the PAM.

5 Abbreviations ADB = Asian Development Bank ADF C&PP CEMP DD/SCAR = = = = Asian Development Fund consultation and participation plan contractor environmental management plan due diligence /social compliance audit report DMF = design and monitoring framework EA = executing agency EMP = environmental management plan EPC FMA GAP GRM = = = = engineering construction procurement financial management assessment gender action plan grievance redress mechanism ICB ICS = = international competitive bidding individual consultant selection IEE IES = = initial environmental examination international environmental specialist IPBC = Independent Public Business Corporation LIBOR NEC NES NLC OCR = = = = = London interbank offered rate National Executive Council national environmental specialist National Land Commission ordinary capital resources PAM = project administration manual PMU = Project Management Unit PNG = Papua New Guinea PPL PPTA QCBS RDC RP SIDCO SPS TL = = = = = = = = PNG Power Ltd. project preparatory technical assistance quality- and cost-based selection Rouna Development Company resettlement plan Sirinumu Development Company safeguard policy statement transmission line

6 I. PROJECT DESCRIPTION 1. Project Rationale. The proposed project will reduce fossil fuel consumption, increase access and improve network reliability on the Port Moresby power grid. The project will assist PNG Power Ltd. (PPL) to expand renewable energy generation, connect currently unserved customers and significantly improve the quality of electricity supply. The Project will (i) upgrade and rehabilitate two hydropower plants (Rouna 1 and Sirinumu toe-of-dam), (ii) extend the grid to approximately 3,000 additional households, including strengthening the distribution network (11 kilovolts [kv] mesh grid), and (iv) construct a new substation (Kilakila) and upgrade the existing substations. 2. Impact and Outcome. The impact of the Project will be increased economic activity for PPL residential and business customers. The outcome of the Project will be improved power supply for Port Moresby. 3. Outputs. The outputs of the project are as follows: (i) Hydropower upgrade and rehabilitation, consisting of (a) upgrade of Rouna 1 hydropower plant (6 Megawatts [MW]), and (b) rehabilitation and upgrade of Sirinumu toe-of-dam hydropower plant (1.6 MW). After upgrade and rehabilitation, the two hydropower plants will provide 13% of the renewable energy for the Port Moresby grid. (ii) Upgraded distribution grid, including (a) extension of the grid to an estimated additional 3,000 households, (b) upgrade of the existing distribution grid (11 kv) to an open loop mesh design and, (c) implementation of a loss reduction program. It is estimated the project will connect an estimated 16% of households currently not connected and increase the access rate in Port Moresby by 5%. (iii) Upgraded substation capacity, consisting of construction of (a) one new Kilakila substation, (b) 6.1 km transmission line (66 kv), and (c) retrofits to existing substations. It is estimated that the project (distribution and substation upgrades) will reduce average outage duration to customers by 42% (by 80% within the central business district), contributing significantly to improved power supply. (iv) Efficient Project Management Services, consisting of establishment of a Project Management Unit (PMU) which will provide efficient technical design, management and supervision services. 4. Subproject Descriptions. The subprojects are described below: Subproject 1: Kilakila Substation and Transmission Line. Subproject 1 will include one new substation (Kilakila substation) and 6.1 km of new transmission line (66 kv). The study included an alternative Kaugere location, however Kilakila was confirmed as the recommended option. Subproject 2: Substation Capacitor or Statcom. The analysis assessed both options and concluded that detailed system stability and protection study is required. Both options were assessed and found to be financially and economically attractive. Subproject 3: 11 kv Open Mesh. The objective was to enable uninterrupted load transfers between substations and between feeders to enhance reliability and restoration on faults. The initial investigation focused on use of load break switch

7 2 installation but was found not feasible. The scope was upgraded following review with PPL management to include automated switchgear and distribution capacitors to enhance customer restoration time. The amended project was found to be feasible. Subproject 4a: Loss Reduction Programme. A number of options were reviewed which were subsequently included in subproject 3. This subproject was scaled back to a support program for a loss reduction pilot study and provision of essential equipment to enable the subproject. Further benefits will arise for the pilot project program as loss reduction opportunities are identified. It was considered essential this program proceed given PPL s overall system losses exceed 22%. Subproject 4b: Energy Access. The subproject will connect approximately 3000 households currently unable to afford the connection costs. The Government would contribute US$2.5 million equivalent to this project. Subproject 5: Rouna 1 Rehabilitation. Various options were analysed. The least cost was decided to be complete replacement of Rouna 1 with a new station located beside the existing and the remaining plant decommissioned. Subproject 6: Sirinumu Toe-of-Dam Rehabilitation. Options of (i) total replacement or (ii) rehabilitation only along with possible provision for installation of a future second generator reviewed were investigated. Option (ii) was selected as the least cost option.

8 3 II. IMPLEMENTATION PLANS A. Project Readiness Activities Advance actions contracting Retroactive financing actions Establish project implementation arrangements 2013 Jan Feb Mar Apr May Jun Responsibility PPL PPL PPL ADB Board approval ADB Loan signing Government legal opinion provided Loan effectiveness PNG Treasury/ADB State Solicitors PNG Treasury/ADB

9 4 IMPLEMENTATION SCHEDULE B. Overall Project Implementation Plan Advance procurement initiated by PPL to ADB requirements ID SP Task Name Port Moresby Power Grid Development Project 1 Loan Effective (early by / latest by) * * 2 PPL: DS Consultant procurement (Advance) f f f fff * 3 Design and Supervsion Consultant (DCS) p f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f p SP-1 Kilakila Substation and Transmission Line (6.1km) 4 Design, EPC Bids and Contract Award p f f f f f f f p 5 Contract Effectiveness pf f 6 66kV Transmission Line Kilakila f f f f f f f f f f 7 66/11kV Substation Kilakila f f f f f f f f f f f f f f f f f f 8 Tests, Commissioning 66kV Works p 9 Project Completion pf p SP-2 66kV Capacitor/Statcom 10 PPL/ICS: Transmission protection & stability study f f f f 11 PPL: EPC Bids, Contract Award (Advance procurement) f f f f f f * 12 Plant Delivery (Statcom) f f f f f f f f f f 13 Installation, Commissioning f f f f f f ' Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 SP-3 11kV Feeder Open Loop Mesh, Capacitors & SP-1 Distribution 14 PPL: design, bid docs, bidding (with ICS suppport) f f f f f f 15 DCS: Evaluation Plant & Materials, Contracts Awarded p f f p* 16 Plant and Materials Delivery p f f f f f f f p 17 Installation Works bid docs, Bids and Contract Award f f f f f f * 18 Contract effectiveness f f 19 11kV Lines: Refurb, New Work, Switchgear, Capacitors p f f f f f f f f f f f f f f p 20 Progressive Commissioning f f f f f f f f f f f f f f SP-4 Loss Reduction Program 21 PPL: Pilot Study Design, Equipment procurement f f f f f f 22 DCS: Program reviews and outcomes assessment f f f 23 PPL: Field Assessment (Start existing PPL equipment) f f f f f f f f f 24 PPL: Plant/materials procurement (added to SP3) f f f f f f f 25 PPL: Corrective Action, Pilot Feeder f f f f f f 26 PPL: Plan/design/review POM network corrective action f f f f f SP-5 Rouna Hydro Power Station Replacement (6MW new) 27 PPL: Preliminary Works (incl tendering for services) f f f f f f f f f 28 DCS: Design, ICB Docs Preparation and Approval f f f f f f 29 Tendering Process and Contract Award f f f f f f * 30 Contractor design f f f f f f f f f f f f 31 Equipment Procurement f f f f f f f f f f f f p 32 Civil Works f f f f f f f f f f f f f f f f f f f f f f f f p 33 Water Control Plants Works p f f f f f f f p 34 Power Plant and Substation Works p f f f f f f f f f f f f f p 35 Commissioning p p SP-6 Sirinumu Hydropower Station Rehabilitation (1.6MW) 36 PPL: Preliminary Works p f f f f f p 37 DCS: ICB Docs Preparation and Approval f f f f 38 Tendering Process and Contract Award f f f f* 39 Equipment Manufacture, Supply and Delivery f f f f f f f f f f f f 40 Intake Gate, Draft tube gate Refurbish pp 41 Guard Valve remove and install new. pf p 42 Turb/Gen Removal, Install new Turbine, Generator & MIV f f f f f 43 Switchgear and C&P equipment installation f f 44 Cone valve removal and install new f 45 Commissioning f

10 5 III. PROJECT MANAGEMENT ARRANGEMENTS A. Project Implementation Organizations Roles and Responsibilities Project implementation organizations Executing Agency Independent Public Business Corporation (IPBC) Project Steering Committee (PSC) Implementing Agency PNG Power Ltd. ADB Management Roles and Responsibilities Oversee implementation of the project. Support institutional strengthening and capacity building programs under the project. The PSC will be chaired by Department of National Planning and Monitoring and will have the following members; (i) Treasury, (ii) Department of Environment Conservation, and (iii) PNG Power Ltd. Oversee implementation of the project. Monitor progress of the project. Rectify issues hindering progress of the project. Guide the executing agency and the implementing agency. Meet at least once each quarter. Implement the infrastructure components of the project. Hire design and supervision consultants Coordination of steering committee meetings. Establish a Project Management Unit which will be responsible for day to day implementation of the projects, including: (i) preparation of an overall implementation plan and annual budgets; (ii) overall interagency coordination; (iii) recruitment of the Project Management Consultants and award procurement and consulting contracts, (iv) management of the bidding process, (v) management of capacity development activities, (vi) project safeguards document preparation and safeguard plans implementation; (vii) (viii) project financial management; consolidation, review, and submission of regular progress and financial reports to Treasury, including the annual audit report and financial statements; (ix) monitoring and evaluation of project outputs and results; (x) preparation of withdrawal applications for Treasury Conduct regular loan review missions Review draft tender documents in accordance with Procurement Plan Overall coordination and advisory support

11 6 Implementing Agency B. Key Persons Involved in Implementation Officer's Name: Position: Telephone: address: Office Address: Francis Uratun Project Manager PO Box 1105 Boroko. N.C.D Papua New Guinea Asian Development Bank Transport, Energy and Natural Resources, Pacific Department Staff Name Robert Guild Position Director Telephone No address Mission Leader Staff Name Anthony Maxwell Position Senior Energy Specialist Telephone No address C. Project Organization Structure 5. The government of PNG will be the Borrower, Independent Public Business Corporation (IPBC) will be the executing agency (EA) and PNG Power Ltd. (PPL) will be the implementing agency. A Project Management Unit (PMU) will be established within PPL to coordinate implementation of the activities under the project. The PMU will be responsible for implementation of the project. The PMU will be responsible for engaging all consulting services and contracts under the project. The project organization chart is as follows: Project Steering Committee (PSC) Executing Agency (IPBC) Implementing Agency (PPL) Design and Supervision Consultants (DSC) Project Management Unit (PMU) PMU Project Manager Safeguard Unit (Social and Environment) Hydropower Design and Supervision Transmission and Distribution Design and Supervision Financial Management

12 7 IV. COSTS AND FINANCING 6. The government of PNG has requested a loan of $51.7 million from ADB s ordinary capital resources (OCR). The OCR loan will have a 20-year term, including a grace period of 5 years, custom tailored repayment method, an annual interest rate determined in accordance with ADB s London interbank offered rate (LIBOR)-based lending facility, a commitment charge of 0.15% per year, and such other terms and conditions set forth in the draft guarantee and loan agreements. The repayment dates will be 1 June and 1 December. Based on this, the average loan maturity is 13.8 years, and the maturity premium payable to ADB is 0.10% per annum. The government of PNG has provided ADB with (i) the reasons for its decision to borrow under ADB s LIBOR-based lending facility based on these terms and conditions, and (ii) an undertaking that these choices were its own independent decision and not made in reliance on any communication or advice from ADB. 7. The government of PNG has also requested a loan in various currencies equivalent to SDR9,787,000 from ADB s Special Funds (ADF) resources to help finance the project. The loan will have a 25-year term, including a grace period of 5 years, an interest rate of 2.0% per annum, and such other terms and conditions set forth in the draft loan agreements. The government of PNG will on-lend the proceeds of the OCR Loan and the ADF loan to PPL under subsidiary loan agreements acceptable to ADB. The terms for on-lending the proceeds of the OCR loan and ADF loan will include the same interest rates and repayments periods as that of OCR loan and ADF loan respectively. The financing charges during construction on the OCR and ADF loan will be capitalized. 8. The government of PNG will finance the remainder of the total project cost in an amount of $16.3 million, including local taxes and duties. The financing plan is in Table 2. Source Table 2: Financing Plan Amount ($ million) Share of Total (%) Asian Development Bank (ADF) % Asian Development Bank (OCR) % Government % Total %

13 8 A. Detailed Cost Estimates by Expenditure Category Kina (millions) $ (millions) Foreign Local Total Foreign Local Total % of Total Item Exchange Currency Exchange Currency Base Cost A. Investment Costs 1. Civil Works % a. Hydropower Upgrade and Rehabilitation % b. Upgraded Distribution Grid % c. Upgraded Substation Capacity % 2. Equipment % a. Hydropower Upgrade and Rehabilitation % b. Upgraded Distribution Grid % c. Upgraded Substation Capacity % 3. Land Acquisition % 4. Consulting Services % 5. Taxes and Duties % Total Base Costs (A) % B. Contingencies a 1. Physical % b 2. Price % Subtotal (B) % C. Financing Charges during Implementation 1. Interest during Implementation % 2. Commitment Fees % Subtotal (C) % Total Project Cost % a Physical contingencies are computed at 10% of base cost. b Price Contingencies are computed by expenditure based on annual domestic and international cost escalation factors.

14 9 B. Allocation and Withdrawal of Loan Proceeds ALLOCATION AND WITHDRAWAL OF LOAN PROCEEDS - OCR (Port Moresby Grid Development Project) CATEGORY ADB FINANCING Total Amount Allocated for ADB Financing Percentage and Basis for ($) Withdrawal from the Loan Item Category Subcategory Account 1 Civil Works 10,200,000 1A Hydropower Upgrade and Rehabilitation 5,600,000 67% of total expenditure claimed 1B Upgraded Substation Capacity 4,600,000 84% of total expenditure claimed 2 Equipment 26,900,000 2A Hydropower Upgrade and Rehabilitation 17,300,000 61% of total expenditure claimed 2B Upgraded Distribution Grid 1,900,000 25% of total expenditure claimed 2C Upgraded Substation Capacity 7,700,000 82% of total expenditure claimed 3 Consulting Services 5,200, % of total expenditure claimed 4 Financing Charges 3,400, % of total amount due 5 Unallocated 6,000,000 Total 51,700,000 ALLOCATION AND WITHDRAWAL OF LOAN PROCEEDS - ADF (Port Moresby Grid Development Project) CATEGORY ADB FINANCING Total Amount Allocated for ADB Financing Percentage and Basis for ($) Withdrawal from the Loan Item Category Subcategory Account 1 Civil Works 3,400,000 1A Hydropower Upgrade and Rehabilitation 1,100,000 13% of total expenditure claimed 1B Upgraded Distribution Grid 2,300,000 66% of total expenditure claimed 2 Equipment 9,300,000 2A Hydropower Upgrade and Rehabilitation 5,400,000 19% of total expenditure claimed 2B Upgraded Distribution Grid 3,900,000 52% of total expenditure claimed 3 Financing Charges 500, % of total amount due 4 Unallocated 1,800,000 Total 15,000,000

15 10 C. Detailed Cost Estimates by Financier a ($ million) A. Investment Costs ADB (OCR) % of Cost Category ADB (ADF) % of Cost Category Base Cost Government Taxes & Duties Total % of Cost Category 1. Civil Works % % % 17.4 a. Hydropower Upgrade and Rehabilitation % % % 8.4 b. Upgraded Distribution Grid 0.0 0% % % 3.5 c. Upgraded Substation Capacity % 0.0 0% % Equipment b % % % 45.3 a. Hydropower Upgrade and Rehabilitation % % % 28.4 b. Upgraded Distribution Grid % % % 7.5 c. Upgraded Substation Capacity % 0.0 0% % Land Acquisition 0.0 0% 0.0 0% % Consulting Services % 0.0 0% % 6.1 a. Government In-kind contribution 0.0 0% 0.0 0% % 0.9 b. Consultants % 0.0 0% % 5.2 Total Base Costs (A) % % % 69.2 B. Contingencies c 1. Physical % % % Price % % % 3.4 Subtotal (B) % % % 9.9 C. Financing Charges during Implementation 1. Interest during implementation % % % Commitment Charges % 0.0 0% % 0.1 Subtotal (C) % % % 3.9 Total Project Cost % % % 83.0 a Amounts and percentages may not sum precisely due to rounding errors. b Item includes engineering, procure and construct contracts. c Physical contingencies are computed at 10% of base cost, price contingencies are computed by expenditure based on annual domestic and international cost escalation factors. Total Cost

16 11 D. Detailed Cost Estimates by Outputs/Components a Distribution Upgrade ($ million) Sub-station Capacity Upgrade Hydropower Upgrade Item A. Investment Costs Total Cost Amount % of Cost Category Amount % of Cost Category Amount % of Cost Category 1 Civil Works % % % 2 Equipment % % % 3 Land Acquisition % 0.0 0% 0.0 0% 4 Consultants % % % 5 Tax and Duties % % % Total Base Cost (A) % % % B. Contingencies C. 1 Physical b % % % 2 Price c % % % Subtotal (B) % % % Financing Charges During Implementation Interest During 1 Implementation % % % 2 Commitment Charges % % % Subtotal (C) % % % Total Project Cost (A+B+C) % % % a Amounts and percentages may not sum precisely due to rounding errors. b Physical contingencies are computed at 10% of base cost. c Price contingencies are computed by expenditure based on annual domestic and foreign inflation.

17 12 Item A. Investment Costs b E. Detailed Cost Estimates by Year a $ millions Total Cost Civil Works Equipment Land Acquisition Consulting Services Taxes and Duties Total Base Costs (A) B. Contingencies c 1. Physical d 2. Price Subtotal (B) C. Financing Charges during Implementation e 1. Interest during Implementation f 2. Commitment Fees Subtotal (C) Total Project Cost % 46% 29% 4% a b c d e f Amounts and percentages may not sum precisely due to rounding errors. In mid 2012 prices. Physical contingencies are computed at 10% of base cost. Price contingencies are computed by expenditure based on annual domestic and foreign inflation. Interest during construction has been computed at the 10-year forward London Interbank Offered Rate of 1.91% plus ADB spread of 0.4% plus maturity based premium of 0.5% totaling 2.51%. Commitment charge is based at 0.15% of the undisbursed balance.

18 Amount ($ mn) 13 F. Contract and Disbursement S-curve 100 PNG: Port Moresby Power Grid Development Project Year Planned Cum. Disbursements Planned Cum Contract Awards G. Fund Flow Diagram Asian Development Bank Withdrawal Application OCR/ADF Loan Government of Papua New Guinea (Borrower) Withdrawal Application On-lending Agreement PNG Power Ltd (Implementing Agency) Invoice Contract Contractors, Consultants

19 14 V. FINANCIAL MANAGEMENT A. Financial Management Assessment 9. A financial management assessment (FMA) has been carried out under the project preparatory technical assistance. The FMA was carried out according to ADB s Financial Management and Analysis of Projects (The Guidelines) (2005). The FMA consisted of (i) completing the FMA Questionnaire with PPL; (ii) assessing financial management internal control and risk; and (iii) evaluating implementing agency s financial management personnel, accounting policies and procedures, internal and external audit, and information systems for financial reporting and monitoring. 10. Management. PPL is governed by a four member Board of Directors appointed by the government. The Chief Executive Officer reports to the Board and is assisted by a Deputy Chief Executive Officer. There are General Managers for functional departments such as technical, operations, human resources, finance, commercial and corporate services. The General Manager Finance or the Chief Finance Officer is an expatriate position who is reported to by several Managers responsible separately for payments and accounts payables, receipts and accounts receivables, debt control, management accounting and reporting. The accounting system is computerized on Oracle11 Database software, which operates on-line and in real time. PPL uses the inventory, purchases, cash and fixed assets modules/applications of Oracle although three separate software packages are interfaced with the Oracle database. Customer and billing data is maintained on Gentrack software; data from Easipay customers is captured via Suprema software; Chris 21 software is used for payroll. There are plans to migrate from the Gentrac system on to the Customer Services application on Oracle Database thus reducing the need for maintaining different software and reducing the cost of licenses for Gentrac. 11. Financial Reporting. Financial results are reported on a monthly basis to the PPL Board and the Executive Management Board. The monthly reporting is detailed and includes profit and loss, balance sheet and cashflow for the month and year-to-date, a commentary and other reports such as debtors analysis, overtime, annual leave and manpower report and the production report. These reports are produced off-system on MS Excel spreadsheets using the Trial Balance from the Oracle Database. 12. Budgeting and Management Accounting. The annual budget is prepared off-system on Microsoft Excel and then uploaded on to the Oracle Database. Oracle then compares actual results with the budget and calculates variances on a monthly basis. Management accounts are prepared on a monthly basis using output from the database but input separately into MS Excel sheets. The budget is re-forecasted mid-year in June and again uploaded on to the Database. 13. Internal Auditing. PPL has a separate Internal Audit unit consisting of 12 staff. The Senior Manager position, which is head of the unit, is vacant at present. The internal audit division in centralized within the PPL national office but conducts audits of the larger regional centers at least once every year. A work plan for each member is prepared annually together with systems documentation (for the system such as revenue or payments being audited), audit plan and transaction audit. The transaction audit is carried out on sampling basis and a higher sample is audited for high risk areas such as revenue. 14. External Auditing. The external auditor is the Auditor General of Papua New Guinea who assigns audit work to a private auditor on a rotational basis. The present auditor is KPMG whilst the previous auditor was Pricewaterhousecoopers, both based in Papua New Guinea.

20 Conclusions. PPL financial management is generally satisfactory. Their financial statements are regularly audited by a professional firm with international affiliation. Annual budgets are prepared and compared against actual performance and any significant variances highlighted and reported on a monthly basis. The accounting system is computerized on an Oracle-based integrated system. PPL financial statements for 2006, 2008 and 2009 have been re-stated in subsequent years. The 2008 re-statement relates to fuel account where fuel expenses for the year ended 31 December 2008 were under-stated by K13 million. In 2010, electricity rebates to consumers amounting to K7.7 million were not accounted resulting in an understatement of expenditure. Furthermore, cost of projects commissioned but still reported under works-in-progress at a cost of K10.9 million and the related depreciation charge of K8 million were not transferred to fixed assets. 16. The Management Letter issued by the auditor has raised several issues related to the non-reconciliation of general ledger balances with sub ledger balances. This is being looked into by PPL with the assistance of a Consultant with Oracle expertise. Although PPL operates Oracle-based integrated software, there are several other software packages that are used in conjunction, mainly as a result of the other software being in use prior to the transition to Oracle. PPL is considering integrating these functions into the Oracle database as far as possible. There are also issues raised in the auditor s Management Letter regarding non-reconciliation of account balances in these systems prior to transfer to Oracle general ledger. The Oracle database should be used to the full extent in financial reporting not only up to the Trial Balance stage but the final financial statements themselves. At present the financial statements are produced in MS Excel which is time consuming and error prone. The same holds true for bank reconciliations and preparation of the budget. 17. Recommendations. The FMA shows that existing accounting policies and procedures are adequate to accommodate the management requirements of the proposed project and that there are no significant weaknesses in PPL s accounting policies, information systems, or accounting/reporting procedures. However, a number of areas were identified. Finance staff at PPL do not have experience with managing multilateral development bank financing systems and training will be required, particularly during initial project phases. Improved internal liaison between PPL divisions is required to prevent prior year adjustments of financial statements. The Oracle-based system should be used to its full potential by limiting off-system work to a minimum. This applies to areas of financial reporting, bank reconciliations, budget preparation in particular. The internal audit division must note the reconciliation and other internal controls highlighted in the auditor s Management Letter and ensure that staff audit programs capture work related to these areas. B. Disbursement 18. The Loan proceeds will be disbursed in accordance with ADB s Loan Disbursement Handbook (2012, as amended from time to time), 1 and detailed arrangements agreed between the Government and ADB. Pursuant to ADB's Safeguard Policy Statement (2009) (SPS), 2 ADB funds may not be applied to the activities described on the ADB Prohibited Investment Activities List set forth at Appendix 5 of the SPS. PPL will ensure that the project is in compliance with applicable national laws and regulations and will apply the prohibited investment activities list (Appendix 5) to subprojects financed by ADB. 1 Available at: 2 Available at:

21 Only reimbursement and direct payment procedures will be used under the project. Imprest Accounts and Statement of Expenditures will not be used. The Project Management Unit (PMU) will be responsible for preparing disbursement projections. PPL will maintain project accounts. The PMU will coordinate internally within PPL to arrange allocation of counterpart funds for individual projects. The PMU will be responsible for collecting supporting documents, preparing withdrawal applications and submitting to Treasury. Treasury will be responsible for screening withdrawal applications and submitting to ADB. 20. Before the submission of the first withdrawal application, Government of Papua New Guinea should submit to ADB sufficient evidence of the authority of the person(s) who will sign the withdrawal applications on behalf of the borrower, together with the authenticated specimen signatures of each authorized person. The minimum value per withdrawal application is US$100,000, unless otherwise approved by ADB. Government of Papua New Guinea is to consolidate claims to meet this limit for reimbursement. Withdrawal applications and supporting documents will demonstrate, among other things that the goods, and/or services were produced in or from ADB members, and are eligible for ADB financing and procured in accordance with ADB Procurement Guidelines (Civil Works, Goods) and Guidelines on Use of Consultants by ADB and Its Borrowers (Consulting Services). C. Accounting 21. PPL will maintain separate project accounts and records by funding source for all expenditures incurred on the project. Project accounts will follow international accounting principles and practices. PPL will adhere to sound financial management requirements during the implementation of the proposed project. The PMU will maintain separate project records and accounts adequate to identify the: (i) goods and services financed from loan proceeds; (ii) financing resources received; and (iii) expenditures incurred on the components of each project. D. Auditing 22. PPL will cause the detailed consolidated project accounts to be audited in accordance with International Standards on Auditing by an auditor acceptable to ADB. The audited accounts will be submitted in the English language to ADB within 6 months of the end of the fiscal year by the Borrower. In accordance with ADB Public Disclosure Policy, the project audited accounts will be publically disclosed on the ADB website. The annual audit report will include a separate audit opinion on the use of the funds. The Government and PPL have been made aware of ADB s policy on delayed submission, and the requirements for satisfactory and acceptable quality of the audited accounts. ADB reserves the right to verify the project's financial accounts to confirm that the share of ADB s financing is used in accordance with ADB s policies and procedures. ADB requires audited financial statements for PPL to be submitted.

22 17 VI. PROCUREMENT AND CONSULTING SERVICES A. Advance Contracting and Retroactive Financing 23. All advance contracting and retroactive financing will be undertaken in conformity with ADB s Procurement Guidelines (February 2010, as amended from time to time) 3 and ADB s Guidelines on the Use of Consultants (2010, as amended from time to time). 4 The issuance of invitations to bid under advance contracting and retroactive financing will be subject to ADB approval. The borrower, IPBC and PPL have been advised that approval of advance contracting and retroactive financing does not commit ADB to finance the Project. 24. Advance contracting. PPL will undertake the following advance contracting activities; (i) recruitment of implementation consultants to support the activities of the PMU, (ii) tendering, and bid evaluation for civil works packages, and (ii) preparation of tender documents to procure materials and equipment and bid evaluation. 25. Retroactive financing. To expedite implementation, the government of PNG has requested and ADB approve advance procurement action and retroactive financing for eligible expenditure up to a maximum of 18% of the ADF loan and 18% of the OCR loan, incurred before loan effectiveness, but not more than 12 months before the signing of the loan agreement. The following contract packages have been identified for retroactive financing: General Description Contract Value (estimate) Procurement Method 11 kv Open Mesh - Goods $6,640,000 ICB Access Road Construction (Sirinumu) $500,000 ICB Works Rouna 1 Geotechnical Survey $40,000 Shopping Spatial Survey for penstock route $35,000 Shopping Distribution software $90,000 Shopping Distribution software training $35,000 CQS Design and Supervision Consultants $4,080,000 QCBS Port Moresby 11kV Mesh detailed design $100,000 CQS Transient, harmonic, stability and protection studies $250,000 CQS Total $11,770,000 B. Procurement of Goods, Works and Consulting Services 26. All procurement of goods and works will be undertaken in accordance with ADB s Procurement Guidelines. International competitive bidding (ICB) procedures, national competitive bidding (NCB) and shopping procedures will be used within the thresholds listed below. Before the start of any procurement ADB and the Government will review the public procurement laws of the central and state governments to ensure consistency with ADB s Procurement Guidelines. The procurement plan will be updated on an annual basis and disclosed on the ADB website. An 18-month procurement plan indicating threshold and review procedures, goods, works, and consulting service contract packages and national competitive bidding guidelines is in Section C. All consultants will be recruited according to ADB s Guidelines on the Use of Consultants (2010, as amended from time to time). All shortlists and contract awards for consultancy services and contract awards for goods and works contracts will be publically disclosed. The terms of reference for all consulting services are detailed in 3 Available at: 4 Available at:

23 18 Section D. 27. An estimated 91 person-months of international consulting services are required to (i) facilitate project management and implementation, and (ii) strengthen the institutional and operational capacity of PPL. Consulting firms will be engaged using the quality- and cost-based selection (QCBS) method with a quality: cost ratio of 90:10 (considered justified due to technical complexity of the substation, transmission, distribution and hydropower plant design). Consultants may also be recruited through individual consultant selection (ICS) (considered justified due to difficulties in finding consulting companies with the broad technical spread of required specialists on-staff, and limited pool of consultants with required technical and country expertise). All consulting packages will be advertised using Consulting Services Recruitment Notice of CMS. C. Procurement Plan 1. Process Thresholds, Review and 18-Month Procurement Plan 28. Project Procurement Thresholds. Except as the Asian Development Bank (ADB) may otherwise agree, the following process thresholds shall apply to procurement of goods and works. Procurement of Goods and Works Method Threshold International Competitive Bidding (ICB) for Works >$3,000,000 International Competitive Bidding for Goods >$500,000 National Competitive Bidding (NCB) for Works $3,000,000 National Competitive Bidding for Goods $500,000 Shopping for Works <$100,000 Shopping for Goods <$100, ADB Prior or Post Review. Except as ADB may otherwise agree, the following prior or post review requirements apply to the various procurement and consultant recruitment methods used for the project. Procurement Method Prior or Post Comments Procurement of Goods and Works ICB Works ICB Goods NCB Works NCB Goods Shopping for Works Shopping for Goods Prior Prior Prior Prior Post Post Recruitment of Consulting Firms Quality- and Cost-Based Selection (QCBS) Prior (90:10) Recruitment of Individual Consultants Individual Consultants 30. Goods and Works Contracts Estimated to Cost More Than $1 Million. The following table lists goods and works contracts for which procurement activity is either ongoing or expected to commence within the next 18 months. Prior

24 19 General Description Contract Value (estimate) Procurement Method Prequal. of Bidders (y/n) Advertisement Date (qtr/yr) 1. Kilakila Substation & Transmission Line - $8,590,000 ICB n Q Design, Supply and Install 2. Statcom Design, Supply and Install $2,700,000 ICB n Q kv Open Mesh Goods $8,310,000 ICB n Q Distribution Installation Works $4,130,000 ICB n Q Rouna 1 Hydropower Plant Upgrade - Design, Supply and Install 6. Sirinumu Hydropower Rehabilitation - Design, Supply and Install ICB = international competitive bidding, kv = kilovolt. Items 3 and 4 include a $2.5 million grant component from counterpart financing for household connections. $25,230,000 ICB n Q $7,870,000 ICB n Q Consulting Services Contracts Estimated to Cost More than $100,000. The following table lists consulting services contracts for which procurement activity is either ongoing or expected to commence within the next 18 months. General Description 1. Design and Supervision Consultants Contract Value Recruitment Method Advertisement Date (qtr/year) International or National Assignment $4,080,000 QCBS Q International and National 2. Port Moresby 11kV $100,000 ICS Q International Mesh detailed design 3. Transient, harmonic, stability and protection studies $250,000 ICS Q International ICS = individual consultant selection, QCBS = quality- and cost-based selection. Comments 32. Goods and Works Contracts Estimated to Cost Less than $1 Million and Consulting Services Contracts Less than $100,000. The following table groups smaller-value goods, works and consulting services contracts for which procurement activity is either ongoing or expected to commence within the next 18 months. General Description Value of Contracts (cumulative) Number of Contracts Procurement/ Recruitment Method Comments 1. Access Road Construction (Sirinumu) $500,000 1 NCB Works 2. Loss Reduction Program $500,000 5 ICB Goods Monitoring equipment 3. Rouna 1 Geotechnical Survey $40,000 1 Shopping 4. Spatial Survey for penstock route $35,000 1 Shopping 5. Distribution software (2 licences) $120,000 1 Shopping 6. IT equipment $20,000 3 Shopping ICB = international competitive bidding, NCB = national competitive bidding.

25 20 4. Indicative List of Packages Required Under the Project 33. The following table provides an indicative list of all procurement (goods, works and consulting services) over the life of the project. General Description Value of Contracts (cumulative) Number of Contracts Procurement /Recruitment Method Comments Works W01: Rouna 1 Hydropower Plant $25,230,000 1 ICB Design, Supply and Install W02: Sirinumu 1.6 MW hydropower Plant Rehabilitation $7,870,000 1 ICB Design, Supply and Install W03: Kilakila Substation & Transmission Line $8,590,000 2 ICB Design, Supply and Install W04: Distribution Installation $4,130,000 1 ICB W05: Statcom $2,700,000 1 ICB Design, Supply and Install W06: Access Road Construction (Sirinumu) $500,000 1 NCB W07: Rouna 1 Geotechnical Survey $40,000 1 Shopping W08: Spatial Survey for penstock route $35,000 1 Shopping Goods G01: 11kV Open Mesh $8,310, ICB G02: Loss Reduction Program $500,000 5 ICB G03: SinCAL Distribution software (2 $120,000 1 Shopping licences) G04: IT equipment $20,000 3 Shopping Consultants C01: Implementation Consultant $4,080,000 1 QCBS C02: Port Moresby 11kV Mesh detailed $100,000 1 CQS design C03: Transient, harmonic, stability and $250,000 1 CQS protection studies C04: SinCAL training $35,000 1 CQS CQS = consultants qualifications selection, ICB = international competitive bidding, NCB = national competitive bidding, PPL = PNG Power Ltd., QCBS = quality- and cost-based selection. 1. National Competitive Bidding 34. General. National competitive bidding (NCB) shall conform to the provisions set in the Public Financial Management Act as issued in 1995 and amended in 2003, and the specific procedures prescribed in the Financial Instructions issued in 2005, with the clarifications and modifications described in the following paragraphs required for compliance with the provisions of ADB Procurement Guidelines. 35. Participation in Bidding (i) State-owned enterprises in Papua New Guinea shall be eligible to bid only if they can establish that they are legally and financially autonomous, operate under commercial law, and are not a dependent agency of the Government/Executing Agency/Implementing Agency. (ii) Foreign bidders shall be eligible to participate in bidding under the same conditions as national bidders. (iii) Bidding shall not be restricted to preregistered firms and such registration shall not be stated in the bidding documents as a condition for the submission of bids. Where registration is required prior to award of contract, bidders: (i) shall be

26 21 allowed a reasonable time to complete the registration process; and (ii) shall not be denied registration for reasons unrelated to their capability and resources to successfully perform the contract, which shall be verified through postqualification. 36. Classification of Contractors; Qualification; Post-qualification. (i) (ii) Post qualification shall be used unless prequalification is explicitly provided for in the loan agreement/procurement plan. Bidding shall not be restricted to any particular class of contractors, and nonclassified contractors shall also be eligible to bid. Qualification criteria (in case prequalification was not carried out) shall be stated in the bidding documents, and before contract award, the bidder having submitted the lowest evaluated responsive bid shall be subject to post-qualification. 37. Conflict of Interest. Bidders may be considered to be in conflict of interest with one or more parties in this bidding process if, including but not limited to: (i) (ii) (iii) (iv) (v) (vi) (vii) they have controlling shareholders in common, or they receive or have received any direct or indirect subsidy from any of them; or they have the same legal representative for purposes of this bid; or they have a relationship with each other, directly or through common third parties, that puts them in a position to have access to information about or influence on the bid or another bidder, or influence the decisions of the employer regarding this bidding process; or a bidder participates in more than one bid in this bidding process. Participation by a bidder in more than one bid will result in the disqualification of all bids in which the party is involved. However, this does not limit the inclusion of the same subcontractor in more than one bid; or a bidder or any of its affiliates participated as a consultant in the preparation of the design or technical specifications of the contract is the subject of the bid; or a bidder or any of its affiliates has been hired (or is proposed to be hired) by the Employer or Borrower as engineer for the contract. 38. Preferences. No preference shall be given for domestic bidders and for domestically manufactured goods. 39. Advertising, time for bid preparation. (i) (ii) Invitations to bid shall be advertised in at least one newspaper of national circulation or freely accessible and well-known website, allowing a minimum of 4 weeks for the preparation and submission of bids, such 4 weeks period to begin with the availability of the bid documents or the advertisement, whichever is later. Bidding of NCB contracts estimated $1,000,000 or more for civil works, shall be advertised on ADB s website via the posting of the Procurement Plan. 40. Standard Bidding Documents. Until national standard bidding documents approved by ADB are available, bidding documents acceptable to ADB should be used.

27 Bid Security. If required by the bidding documents, bid security shall be in the form of a bank guarantee from a reputable bank. A bidder s bid security shall apply only to a specific bid. 42. Bid Opening and Bid Evaluation. (i) (ii) (iii) (iv) (v) (vi) Bidders may deliver bids, at their option, either in person or by courier service or by mail. Bidders shall not be allowed to amend their tenders after the closing date and time for submission of bids. Bids shall be opened in public, immediately after the deadline for submission of bids. No bid shall be rejected during bid opening. The name of the bidder, the total amount of each bid, and any discounts shall be read aloud and recorded in the minutes of the public bid opening. Evaluation of bids shall be made in strict adherence to the Qualifications and Evaluation Criteria stipulated in the bidding documents No bidder shall be rejected merely on the basis of a comparison with the employer s estimate and budget ceiling without ADB s prior concurrence. The Contract shall be awarded to the technically responsive bidder that offers the lowest evaluated price, and meets the qualifying criteria. In determining the lowest evaluated price, the following are to be considered: (a) bid price, as offered, (b) arithmetical corrections on the bid price, if any, and (c) monetary value of the evaluation criteria that are stated in the bidding document. 43. Rejection of Bids. Bids shall not be rejected and new bids solicited without ADB s prior concurrence. 44. Extension of the Validity of Bids. In exceptional circumstances and with prior ADB approval, the procuring entity may, before the expiration of bid validity, request all bidders in writing to extend the validity of their bids. In such a case, bidders shall not be requested nor permitted to amend the price or any other condition of their bid. Bidders shall have the right to refuse to grant such an extension without forfeiting their bid security, but bidders granting such an extension shall be required to provide a corresponding extension of their bid security. 45. Disclosure on Contract Awards. At the same time that notification on award of contract is given, the Borrower/Executing Agency/Implementing Agency shall publish the following information on contract award on a free and open access website or other means of publication acceptable to ADB: (i) name of each bidder who submitted a bid; (ii) bid prices as read out at bid opening; (iii) name and evaluated price of each bid that was evaluated; (iv) names of bidders whose bids were rejected and the reasons for the rejection; and (v) name of the winning bidder, price it offered as well as the duration and summary scope of the contract awarded. The Executing/Implementing Agency shall respond in writing to unsuccessful bidders who seek explanations on the grounds on which their bids are not selected. 46. No Negotiations. There shall be no negotiations, even with the lowest evaluated bidder, without ADB s prior concurrence. A bidder shall not be required, as a condition of award, to undertake obligations not specified in the bidding documents, or otherwise, to modify the bid as originally submitted. 47. Inspection and Auditing. Each contract financed from the proceeds of a Loan/Grant shall provide that the contractor/supplier shall permit ADB, at its request, to inspect their