|Project Rationale and Linkage to Country/Regional Strategy
There are three main justifications for the supplementary financing of the Project. First, the Original Loan was able to finance only a total length of 305 km roads consisting of 130.75 km of road upgrading and 174.25 km of road rehabilitation. It constitutes only about 46% of the total length of the roads targeted in the original project scope (670 kilometers including 220 km for road upgrading and 450 km for road rehabilitation). The reduced project scope, if not remedied, will certainly compromise the achievement of the intended purposes and objectives as initially conceived in the Project. With the additional proposed subprojects (corresponding to road sections) financed by the Supplementary Loan, the total length of roads financed by ADB will reach 575 km (including 211.75 km for upgrading and 363.25 km for rehabilitation), enabling to achieve 86% of the originally targeted road length. The high cost of upgrading and rehabilitating works in PNG, the implementation capacity of the HRMG, and the capacity of PNG construction sector, are major constraints preventing the original target from being fully achieved.
Secondly, the deteriorating transport infrastructure is a particular concern for PNG. The proposed financing of subprojects is in line with the Government Medium Term Development Strategy (2005-2010), according to which the improvement of transport infrastructure is a top priority expenditure area to achieve its overarching development strategy of export-driven economic growth, rural development and poverty reduction. The Highlands region is indeed strategically important for the country, as it is richly endowed with natural and tourism resources and eco-conditions for farming and is home to almost half of the population. The development of the infrastructure network in this region will have significant impact on PNG's overall economic and social performance. The country's most significant road-Highlands Highway runs through this region, bringing copper, coffee and tea which are the country's major export items to Lae port and distributing imports ranging from heavy machinery to food products to the region. The Government has set aside K225 million for the next four years to upgrade and rehabilitate the Highlands Highway. The Government is also planning to invest in Lae port and has officially requested ADB's assistance in expanding Lae port capacity. It would be timely for ADB to support the additional financing to upgrade and rehabilitate roads that connect major farming areas, resource and population centers, and tourist sites in the Highlands region to the Highlands Highway. The additional financing will also complement the Government and ADB's efforts, particularly with respect to the development of Lae Port.
Thirdly, it has taken two years for the Project to set up a functional project implementation unit, HRMG. With on-the-job and formal trainings provided by international consultants, and learning by doing, HRMG has strengthened its capacity and has eventually become a fully fledged project implementation office consisting of a designing arm and construction supervision team. It is capable of implementing more subprojects, including engineering design, preparation of bidding documents, tendering and contract award, and construction supervision, without incurring substantial start-up cost. HRMG is currently implementing the Project efficiently. It is expected that it will be able to implement additional proposed subproject in the same fashion. This will result in start-up cost savings of minimum of $2 million.
In summary, the supplementary financing is necessary to maintain the original project scope, increase the road connectivity and impact on poverty. It is the most expedient and cost-effective way at this stage to support the Government's drive to improve road infrastructure. The Supplementary Loan will focus on road upgrading and rehabilitation, project implementation, and performance monitori
The supplementary financing is consistent with ADB s Country Strategy for PNG, as documented in the Country Strategy and Program Update 2005-2006 and in discussions on the Country Strategy and Program (CSP) 2006-2010, currently under preparation. Programming discussions have agreed the transport sector to be one of four priority sectors/themes for the upcoming CSP 2006-2010, with ADB support to focus on the roads and maritime sub-sectors.