Country Operations Business Plan July 2017 Papua New Guinea 2018 2020 This document is being disclosed to the public in accordance with ADB s Public Communications Policy 2011.
CURRENCY EQUIVALENTS (as of 30 May 2017) Currency unit kina (K) K1.00 = $0.31 $1.00 = K3.18 ABBREVIATIONS ADB ADF COBP COL CPS GDP OCR PNG Asian Development Bank Asian Development Fund country operations business plan concessional OCR lending country partnership strategy gross domestic product ordinary capital resources Papua New Guinea NOTE (i) In this report, "$" refers to US dollars. Vice-President S. Groff, Operations 2 Director General X. Yao, Pacific Department () Country Director D. Hill, Papua New Guinea Resident Mission, Team leader Team members Y. Basnett, Country Economist, H. Haider, Infrastructure Specialist, A. Maxwell, Principal Energy Specialist, I. Mikkelsen-Lopez, Health Specialist, S. Blaik, Principal Urban Development Specialist, In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.
CONTENTS Page I. CONSISTENCY OF BUSINESS PLAN WITH COUNTRY PARTNERSHIP STRATEGY 1 II. INDICATIVE RESOURCE PARAMETERS 1 III. SUMMARY OF CHANGES TO LENDING AND NONLENDING PROGRAMS 2 APPENDIXES 1. Country Assistance Results Areas 3 2. List of Linked Documents 4 3. Indicative Assistance Pipeline 5 4. Assistance Program for Current Year 8 5. Indicative Knowledge Publications and Events 10
I. CONSISTENCY OF BUSINESS PLAN WITH COUNTRY PARTNERSHIP STRATEGY 1. Recent economic, social, and political developments. Economic growth is forecasted to moderate to an annual average of 3.0% over the period of this country operations business plan (COBP). In 2016, economic growth was estimated to be 2.5%. The economy is slowly recovering from the global commodities downturn and the negative effects of drought caused by El Niño in 2015-2016, which led to sharp falls in public revenue and foreign exchange inflows. The Government of Papua New Guinea (PNG) has undertaken fiscal adjustment as well as set out a prudent fiscal course to keep the deficit and the debt gross domestic product (GDP) ratio on a downward path over the medium term. The country will hold national elections from 24 June to 8 July 2017. A new medium-term fiscal strategy and medium-term development plan covering 2018 2021 is expected in 2017. 2. Country partnership strategy. The country operations business plan is consistent with the country partnership strategy (CPS), 2016 2020 1, government s development vision and the Asian Development Bank (ADB) Midterm Review of Strategy 2020. 2 The indicative pipeline contributes to (i) strengthening ADB s strategic operational focus on health, sustainable transportation, and climate financing; and (ii) mobilizing cofinancing. ADB-financed projects are also utilizing high-level technology and other innovations to improve service delivery. Updates for the country assistance results areas is in Appendix 1 and the list of linked documents is in Appendix 2. 3. Portfolio performance. Overall project implementation performance remains satisfactory despite serious fiscal issues faced by the government. In 2016, disbursements amounted to $125.73 million and contract awards $78.6 million. All ADB-financed projects were audited, which marks a substantial improvement from previous years. Maintaining this implementation momentum will require that bottlenecks identified during the country portfolio review mission counterpart financing problems and delays in procurement are addressed. The mission recommended review of the country cost-sharing arrangements and eligible expenditure financing parameters, and that ADB provide technical support to the government s national procurement reform initiative. The recommendation has been incorporated into the COBP and highlighted in para 6. II. INDICATIVE RESOURCE PARAMETERS 4. PNG, a group B developing member country, is eligible for concessional ordinary capital resource (OCR) lending (COL) and regular OCR lending. 3 The indicative resources available during 2018 2020 amount to $1,198.18 million, comprising $1,070.00 million in regular OCR and $128.18 million in COL. The final allocation will depend on available resources and the outcome of the country performance assessments. Cofinancing and funding from other sources, including the regional pool under concessional resources and regular OCR regional cooperation and integration set-aside, will be explored. 5. The indicative lending program for 2018 2020 amounts to $1,241.0 million, comprising $1,142.0 million in regular OCR and $99.0 million in COL. The indicative nonlending program amounts to $4.5 million, which includes transaction technical assistance (Appendix 3). The 2017 1 ADB. 2015. Country Partnership Strategy: Papua New Guinea, 2016 2020. Manila. 2 ADB. 2014. Midterm Review of Strategy 2020: Meeting the Challenges of a Transforming Asia and Pacific. Manila. 3 Terminology reflects the combination of Asian Development Fund (ADF) lending operations with the OCR balance sheet that took effect on 1 January 2017.
2 assistance program is in Appendix 4 and the indicative knowledge publications and events is in Appendix 5. III. SUMMARY OF CHANGES TO LENDING AND NONLENDING PROGRAMS 6. Adjusting the project cost share ratio. The current country cost sharing ceiling for the loan portfolio as defined in the CPS, 2016 2018 is up to 85%. PNG has undertaken expenditure cuts to adjust to the sharp decline in public revenue from the commodities downturn as well as the slowdown in agriculture exports due to El Niño. 4 The sharp fall in public revenue affected the government s ability to meet counterpart financing for ADB-financed projects. In the 2016 country portfolio review mission, the government asked ADB to adjust the cost share ratio. In consultation with the government, the ceiling for the loan portfolio is revised to up to 90% for the CPS period. Other financing parameters remain unchanged. 7. Health Service Development Program. This program combines the Safeguarding Social Development Outlay and the Rural Primary Health Service Development Program (phase 2) in the previous COBP. The Health Service Development Program takes a direct public sector management approach to address the critical constraints on financing and delivering health services in PNG. The program is aligned with the strategic sector focus of the CPS, and will contribute to the sector results framework. The approach proposed for the program leverages ADB s sector value-added as highlighted in the CPS: ADB will assist in achieving reform measures through program lending in the health sector (footnote 1). 8. Sustainable Highlands Highway Investment Program. The program will help alleviate poverty in the most populous as well as the poorest region of the country. The improvements to the highlands highway will aid expansion of basic services as well as foster improved connectivity to markets for the rural poor. The investment program helps move ADB s transport investment towards greater integration by connecting, for instance, airport upgrade in Mt. Hagen to port upgrade in Lae. 9. Leveraging greater private investment in ADB-focused sectors. ADB will seek to increase private investments, as cofinanciers or parallel investors, across all sectors with ADB projects. The government has asked ADB s help in increasing private investments in the nonextractive sectors. ADB already has a range of measures which can help increase private investments. These include public private partnership, transaction advisory support, improving the macro prudential framework, and expanding trade finance. Furthermore, in the design of projects ADB will proactively explore prospects for leveraging private investments. 10. Expanding the energy pipeline. ADB is in discussion with the Department of Treasury and stakeholders on increasing investments in the energy sector. The government has asked ADB to design a large multiyear project of US$1 billion taking a programmatic approach. ADB will engage in dialogue with the government and development partners to expand the energy pipeline. 11. Indicative 3-year pipeline. There are important risks to the indicative 3-year pipeline. Delay in royalty payments to the landowners of the PNG Liquefied natural gas project is seen to be a high risk with the potential to cause political instability. The government has undertaken prudent fiscal policies and the risk of macroeconomic instability is seen to be moderating. However, ongoing shortage of foreign exchange remains a concern. 4 As per the International Monetary Fund s 2016 Article IV estimates, total revenue and grants fell by 5.0% of GDP in 2015 and by 3.1% of GDP in 2016, which were largely offset by expenditure cuts.
Appendix 1 3 COUNTRY ASSISTANCE RESULTS AREAS ADB Key Country Development Outcomes that ADB Contributes to 1. Transport More efficient, safer movement of people and goods Key Areas of Assistance Transport sector policy, including organizational capacity, budgeting, and maintenance Road rehabilitation and maintenance Bridge rehabilitation Indicative Resource Allocation in 2018 2020 Amount: $688.0 million regular OCR, $58.0 million COL, and $225.0 million cofinancing Share of COBP envelope: 60% Changes from Last COBP ADB indicative resource allocation updated 2. Public Sector Management and Health More effective and efficient use of public finances for service delivery and infrastructure provision Civil aviation safety and security Prioritized spending within a sustainable fiscal envelope supported More effective, transparent, and timely budget execution and control supported Amount: $375.0 million regular OCR, $20.0 million COL Share of COBP envelope: 32% ADB indicative resource allocation updated 3. Energy Sustainable and more affordable power supply in urban areas. Health sector reform aimed at strengthening health provision and rollout of minimum standards for quality primary health care services in rural catchment areas. Construction of power generation to supply demand in provincial towns and main grids Improved access and use of power Trial of innovative rural electrification delivery models supplies for households in rural areas Support for increased private sector investment in energy sector 4. Water and Other Urban Infrastructure and Services Improved water supply and sanitation Urban water supply and sanitation infrastructure services WaSH services policies and reforms Amount: $49 million regular OCR and $11 million COL Share of COBP envelope: 5% Amount: $30 million regular OCR, $10 million COL, and $10 million cofinancing ADB indicative resource allocation updated ADB indicative resource allocation updated Capacity development of service providers and other key water sector agencies Share of COBP envelope: 3% ADB = Asian Development Bank, COBP = country operations business plan, COL = concessional OCR lending, OCR = ordinary capital resources; WaSH = Water and Sanitation. Source: ADB estimates.
4 Appendix 2 LIST OF LINKED DOCUMENTS http://www.adb.org/documents/cobp/?id=png-2018 1. Country Partnership Strategy: Papua New Guinea, 2016 2020
Appendix 3 5 INDICATIVE ASSISTANCE PIPELINE Table A3.1: Lending Products, 2018 2020 Strategic Agendas and Drivers of Change Division Year of TRTA/ PDA Cost ($ million) ADB Project/Program Name a Sector Poverty Targeting Total Regular OCR ADF COL Grants Total Gov t Cofinance 2018 Firm Health Services PSM & GI IEG, ESG, PAUS 2017 205.0 175.0 20.0 195.0 10.0 0.0 Development Program, HLT GCD, and (subprogram 1) (SDP) GEM, PAR PNRM District Towns Water and WUS GI IEG, GEM, PAUS 2017 54.0 30.0 10.0 40.0 4.0 10.0 Sanitation Project GCD, PAR Power Sector Development ENE GI IEG, ESG, PATE 2017 66.0 49.0 11.0 60.0 6.0 0.0 Program GEM, PSD Total 325.0 254.0 41.0 295.0 20.0 10.0 2019 Firm Sustainable Highlands Highway Investment Program (MFF, tranche 2) Health Services Development Program (subprogram 2) (SDP) TRA GI IEG, GEM, GCD, PAR, PSD PSM and HLT GI IEG, ESG, GCD, GEM, PAR PATE 2016 395.0 191.0 40.0 231.0 49.0 115.0 PAUS 2017 100.0 100.0 0.0 100.0 0.0 0.0 Total 495.0 291.0 40.0 331.0 49.0 115.0 2020 Firm Sustainable Highlands Highway Investment Program (MFF, tranche 3) Health Services Development Program (subprogram 3) (SDP) Land and Maritime Transport and Trade Corridor (MFF, tranche 1) Civil Aviation Development Investment Program, TRA GI IEG, GEM, GCD, PAR, PSD PSM and HLT GI IEG, ESG, GCD, GEM, PAR TRA GI IEG, ESG, RCI, PSD, PAR TRA GI IEG, GEM, GCD, PAR, PSD PATE 2016 262.5 147.0 0.0 147.0 55.5 60.0 PAUS 2017 100.0 100.0 0.0 100.0 0.0 0.0 PATE 2019 171.0 100.0 10.0 110.0 11.0 50.0 PATE 2019 283.0 250.0 8.0 258.0 25.0 0.0 Phase 2 (MFF, tranche 1) Total 816.5 597.0 18.0 615.0 91.5 110.0 ADB = Asian Development Bank; ADF = Asian Development Fund; COL = concessional OCR lending; ENE = energy; ESG = environmentally sustainable growth; GCD = governance and capacity development; GEM = gender equity and mainstreaming; GI = general intervention; Gov t = government; HLT = health; IEG =
6 Appendix 3 inclusive economic growth; MFF = multitranche financing facility; OCR = ordinary capital resources; PAR = partnerships; PATE = Transport, Energy and Natural Resources Division, Pacific Department; PAUS = Urban, Social Development and Public Management Division, Pacific Department; PBL = policy-based lending; PDA = project design advance; PLCO = Pacific Liaison and Coordination Office of the Pacific Department, Sydney, Australia; PSD = private sector development; PSM = public sector management; RBL = results-based lending; RCI = regional integration; SDP = sector development program; TRA = transport; TRTA = transaction technical assistance; WUS = water supply and other urban infrastructure and services. a Given the provisional nature of the indicative lending program, composition of lending instruments in the actual loan delivery may change. Source: Asian Development Bank estimates.
Appendix 3 7 Table A3.2: Nonlending Products and Services, 2018 2020 Assistance Type Sources of Funding ADB Others Amount ($'000) Source Amount ($'000) Assistance Name Sector Division Source 2018 Supporting Financial Management, Phase 4 PSM PAUS KSTA TASF 1,500 0 1,500 Total 1,500 0 1,500 2019 Land and Maritime Transport and Trade Corridor Program Total ($'000) TRA PATE TRTA TASF 1,500 0 1,500 Civil Aviation Development Investment Program, Phase 2 TRA PATE TRTA TASF 1,500 0 1,500 Total 3,000 0 3,000 2020 None ADB = Asian Development Bank; KSTA = knowledge and support technical assistance; PATE = Transport, Energy and Natural Resources Division, Pacific Department; PAUS = Urban, Social Development and Public Management Division, Pacific Department; PSM = public sector management; TASF = Technical Assistance Special Fund; TRA = transport; TRTA = transaction technical assistance. Source: Asian Development Bank estimates.
8 Appendix 4 Project/Program Name Sector Firm Sustainable Highlands Highway Investment Program (MFF, tranche 1) Alotau Port Climate Proofing Project (additional financing to BRCC) Water Supply Scheme for Tete Settlement Rural Primary Health Services Delivery Project (additional financing) Town Electrification Investment Program (MFF, tranche 2) Microfinance Expansion Project (additional financing) Poverty Targeting ASSISTANCE PROGRAM FOR CURRENT YEAR Table A4.1: Lending Products, 2017 Strategic Agendas and Drivers of Change TRA GI IEG, GEM, GCD, PAR, PSD TRA GI ESG, RCI, GEM, PAR WUS GI IEG, GEM, GCD, PAR HLT GI IEG, GCD, GEM, PAR, ENE GI IEG, ESG, GEM FIN GI IEG, PSD, GEM, PAR Division Year of TRTA/ PDA Total Regular OCR Cost ($ million) ADB ADF COL Grants Total Gov t Cofinance PATE 2016 357.5 272.0 30.0 302.0 44.0 11.5 PATE 2013 6.4 0.0 0.0 0.0 0.3 6.1 PAUS 1.0 0.0 0.0 0.0 0.0 1.0 PAUS 2009 17.6 0.0 0.0 0.0 0.0 17.6 PATE 2008 75.9 55.9 5.0 60.9 15.0 0.0 PLCO 0.2 0.0 0.0 0.0 0.0 0.2 Total 458.6 327.9 35.0 362.9 59.3 36.4 ADB = Asian Development Bank; ADF = Asian Development Fund; BRCC = Building Resilience to Climate Change; COL = concessional OCR lending; ENE = energy; ESG = environmentally sustainable growth; FIN = finance; GCD = governance and capacity development; GEM = gender equity and mainstreaming; GI = general intervention; Gov t = government; HLT = health; IEG = inclusive economic growth; MFF = multitranche financing facility; OCR = ordinary capital resources, PAR = partnerships; PATE = Transport, Energy and Natural Resources Division, Pacific Department; PAUS = Urban, Social Development and Public Management Division, Pacific Department; PDA = project design advance; PNRM = Papua New Guinea Resident Mission, Pacific Department; PSD = private sector development; PSM = public sector management; RCI = regional integration; SDP = sector development program; TRA = transport. WUS = water supply and other urban infrastructure and services. Source: Asian Development Bank estimates.
Appendix 4 9 Table A4.2: Nonlending Products and Services, 2017 Sources of Funding ADB Others Assistance Name Sector Division Assistance Type Source Amount ($'000) Source Amount ($'000) Total ($'000) Power Development Project ENE PATE TRTA TASF 800.0 S 0 800.0 Health Services Development Program PSM and PAUS TRTA TASF 800.0 S 0 800.0 HLT Support for Water and Sanitation Sector WUS PAUS TRTA TASF 700.0 S 0 700.0 Management in PNG Total 2,300.0 0 2,300.0 S not available, ADB = Asian Development Bank; ENE = energy; HLT = health; PSM = public sector management; PATE = Transport, Energy and Natural Resources Division, Pacific Department; PAUS = Urban, Social Development and Public Management Division, Pacific Department; PNG = Papua New Guinea; TASF = Technical Assistance Special Fund; TRTA = transaction technical assistance; WUS = water and other urban infrastructure and services. Source: Asian Development Bank estimates.
10 Appendix 5 INDICATIVE KNOWLEDGE PUBLICATIONS AND EVENTS Table A5.1: Knowledge Publications and Events for 2018 Title of Publication or Event Subject a Type b Knowledge Publications ADO 2018-Papua New Guinea Economics Publication or Document: Technical study Department or Sector Group or Thematic Group c Technical Assistance d Asian Development Bank and Papua New Guinea: Fact ADB administration and Publication or Document: Sheet 2017 governance Technical study Pacific Economic Monitor (December 2018) Economics Publication or Document: Technical study ADO Update 2018 Economics Publication or Document: Technical study Pacific Economic Monitor (July 2018) Economics Publication or Document: Technical study Knowledge Events DER, Country Portfolio Review Mission ADB administration and Knowledge partnership governance and network facilitation Supporting Public Financial Management Economics Capacity development event for DMCs Water Supply and Sanitation Institutional Strengthening Urban Capacity development Development Water event for DMCs Deloitte Budget Breakfast Economics Event organization ADB-PNG Year-in-Review ADB administration and governance Knowledge partnership and network facilitation Total number of publications = 5 Total number of events = 5 ADB = Asian Development Bank; ADO = Asian Development Outlook; DER = Department of External Relations; DMCs = Developing Member Countries; = Pacific Department; PNG = Papua New Guinea. Note: Publications may include databases, multimedia, and other forms of documentation. Events may include event organization and training or capacity development. a Agriculture and natural resources; capacity development; climate change; economics; education; energy; environment; finance; gender; governance and public sector management; health; information and communication technology; industry and trade; poverty; private sector; regional cooperation and integration; social development and protection; transport; urban development; water. b Publication or document; database; multimedia; event organization; training or capacity development. c ADBI; BOD; BPMS; CRPN; CTL; CWRD; DER; EARD; ERCD; ERO; IED; JRO; NARO; OAG; OAI; OAS; OCO; OGC; OIST; OOMP; OPPP; OPR; ORM; OSFMD; OSPF; ; PSOD; SARD; SDCC; SEC; SERD; SPD; TD; VPAC; VPFR; VPKM; VPO1; VPO2; VPPC; Climate Change and Disaster Risk Management;
Appendix 5 11 Education; Energy; Environment; Finance; Gender Equity; Governance; Health; Operations; Public-Private Partnership; Regional Cooperation and Integration; Rural Development and Food Security (Agriculture); Social Development; Transport; Urban; Water. d TA numbers under which this publication or event is delivered. Source: Asian Development Bank estimates.
12 Appendix 5 Table A5.2: Additional Knowledge Publications and Events Delivered in 2017 Title of Publication or Event Subject a Type b Knowledge Publications (6) Asian Development Bank and Papua New Guinea: Fact Sheet 2016 ADB administration and governance Publication or document: Technical Study Pacific Economic Monitor (July 2017) Economics Publication or document: Technical Study ADO 2017-Papua New Guinea Economics Publication or document: Technical Study Pacific Economic Monitor (July 2017) (Tetum) Economics Publication or document: Technical Study Pacific Economic Monitor (December 2017) Economics Publication or document: Technical Study ADO Update 2017 Economics Publication or document: Technical Study Knowledge Events (5) Department or Sector Group or Thematic Group c DER, Water Supply and Sanitation Institutional Strengthening Urban Capacity development Development Water event for DMCs Deloitte Budget Breakfast Economics Event organization ADB-PNG Year-in-Review Country Portfolio Review Mission Supporting Public Financial Management ADB administration and governance ADB administration and governance ADB administration and governance Knowledge partnership and network facilitation Knowledge partnership and network facilitation Capacity development event for DMCs Technical Assistance d RETA 8565 RETA 8565 RETA 8565 Total number of publications = 6 Total number of events = 5 ADB = Asian Development Bank; ERCD = Economic Research and Regional Cooperation Department; = Pacific Department; PNG = Papua New Guinea; PNRM = Papua New Guinea Resident Mission; TA = technical assistance. Note: Publications may include databases, multimedia, and other forms of documentation. Event may include event organization and training or capacity development. The table includes additional knowledge publications and events delivered outside the list of indicative knowledge publications and events included in the 2016 country operations business plan. a Agriculture and natural resources; capacity development; climate change; economics; education; energy; environment; finance; gender; governance and public sector management; health; information and communication technology; industry and trade; poverty; private sector; regional cooperation and integration; social development and protection; transport; urban development; water. b Publication or document; database; multimedia; event organization; training or capacity development.
Appendix 5 13 c ADBI; BOD; BPMS; CRPN; CTL; CWRD; DER; EARD; ERCD; ERO; IED; JRO; NARO; OAG; OAI; OAS; OCO; OGC; OIST; OOMP; OPPP; OPR; ORM; OSFMD; OSPF; ; PSOD; SARD; SDCC; SEC; SERD; SPD; TD; VPAC; VPFR; VPKM; VPO1; VPO2; VPPC; Climate Change and Disaster Risk Management; Education; Energy; Environment; Finance; Gender Equity; Governance; Health; Operations; Public-Private Partnership; Regional Cooperation and Integration; Rural Development and Food Security (Agriculture); Social Development; Transport; Urban; Water. d TA numbers under which this publication or event is delivered. Source: Asian Development Bank.
14 Appendix 5 Table A5.3: Innovation, Advanced Technology, and Pilot Initiatives to be Implemented in 2018 Item Nature Project Number Sector or Theme Division Instrument landing system TCH Loan TRA PATE 2588/2589/2590 Project 1 Communication Navigational System/Air Traffic Management TCH Loan 3069/3070 TRA PATE Project 2 Precision approach path indicator TCH Loan 3069/3070 TRA PATE Project 2 Navaids TCH Loan 2978: TRA PATE Hydrographic surveys TCH Loan 2978: TRA PATE Archipelagic Hydrodynamic Study TCH Loan 2978: TRA PATE Automatic Identification System tracking device TCH Loan 2978: TRA PATE Tide gauges TCH Loan 2978: TRA PATE Total number of innovation, advanced technology, and pilot initiatives = 8 PATE = Transport, Energy and Natural Resources Division, Pacific Department; TCH = advanced technology; TRA = transport. Source: Asian Development Bank estimates.