PNG to Improve Border Links with Indonesia to Aid Poor Provinces

News Release | 2 December 2009

MANILA, PHILIPPINES - Papua New Guinea (PNG) is to improve its border facilities with neighboring Indonesian province, Papua, in a bid to tap trade and investment opportunities that can benefit some of its poorest provinces.

To help achieve that goal, the Asian Development Bank (ADB) will provide a $25 million loan and a technical assistance grant of $900,000 for the Pilot Border Trade and Investment Development Project. It will remove infrastructure bottlenecks between West Sepik province in PNG and Papua province, and help develop institutions conducive to private sector investment - a first step by the government and ADB to strengthen economic cooperation between PNG and Asia.

"The project is the first by ADB to assist one of the least-developed provinces in PNG to benefit from Asia's dynamic growth. It has the potential to create an economic corridor and business growth center for the country, benefiting not just West Sepik but neighboring provinces as well," said S. Hafeez Rahman, Director General of ADB's Pacific Department.

West Sepik province is one of the country's poorest, but has potential for development by strengthening economic ties with its neighbor, which offers products and services at prices well below those offered in PNG. The project will refurbish or build new border facilities, provide business skills training, and implement a social development program which includes education and health support and HIV/AIDS prevention for border communities. The technical assistance will help government policy makers draw up an investment law and develop a telecommunications strategy for the province.

"Expanding cross-border trade with Indonesia will provide people in West Sepik province with a wider choice of products at lower cost, improve market access for PNG exports, increase business opportunities, stimulate investment, create jobs, boost productivity and encourage sustainable growth and poverty reduction," said Cai Li, Infrastructure Specialist in ADB's Pacific Region Department.

The project complements the efforts of Australian Agency for International Development (AusAID) in West Sepik province in strengthening the administrative capacity for basic service delivery, maintenance of critical national roads, and fighting HIV/AIDS. It could help catalyze investment from Asia for infrastructure development in the province. It also includes an innovative modified conditional cash transfer system - the first of its kind for an ADB project in the Pacific - which will provide cash payment to the female head, or female adult, of poor households to help improve health and education status of the border communities.

ADB's loan, from its concessional Asian Development Fund, will make up 83% of the total project cost of $30 million. The loan has a 32-year term, including a grace period of eight years with interest charged at 1% per annum during the grace period, and 1.5% for the rest of the term. The government is providing the balance of the cost.

The technical assistance is from ADB's grant funds and will be provided to the government on a grant basis. It will finance 85% of the total cost of $1.06 million, with the government providing the balance in kind.

The Border Development Authority is the executing agency for the loan project, which is due for completion around December 2017. The Department of Commerce and Industry is the main executing agency for the technical assistance, responsible for developing the investment law and telecommunications strategy for West Sepik province.