Solomon Islands: State-Owned Enterprise Reform

Sovereign Project | 40264-012

Summary

The TA will build on the analytical work prepared under ADB's regional Private Sector Development Initiative (PSDI), which produced a 2011 comparative study tracking the performance drivers of the SOEs in the Fiji Islands, Marshall Islands, Samoa, Solomon Islands, and Tonga. It will also complement the work currently underway and supported by PSDI to improve the governance frameworks of the SOEs, in particular through director training. The TA will support the work of the SOE Monitoring Unit of MOFT in piloting new CSO guidelines in two SOEs, and subsequently rolling out the guidelines to the remaining SOEs in the portfolio. This will require close collaboration with the SOEs to agree CSO costing methodologies, and with MOFT to agree contracting, financing, and monitoring mechanisms.

Latest Project Documents

Title Document Date
State-Owned Enterprise Reform Oct 2013

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Project Name State-Owned Enterprise Reform
Project Number 40264-012
Country Solomon Islands
Project Status Closed
Project Type / Modality of Assistance Technical Assistance
Source of Funding / Amount
TA 7797-SOL: State-Owned Enterprise Reform
Technical Assistance Special Fund US$ 225,000.00
Strategic Agendas Inclusive economic growth
Drivers of Change Governance and capacity development
Private sector development
Sector / Subsector Public sector management - Economic affairs management
Gender Equity and Mainstreaming Some gender elements
Description

The TA will build on the analytical work prepared under ADB's regional Private Sector Development Initiative (PSDI), which produced a 2011 comparative study tracking the performance drivers of the SOEs in the Fiji Islands, Marshall Islands, Samoa, Solomon Islands, and Tonga. It will also complement the work currently underway and supported by PSDI to improve the governance frameworks of the SOEs, in particular through director training. The TA will support the work of the SOE Monitoring Unit of MOFT in piloting new CSO guidelines in two SOEs, and subsequently rolling out the guidelines to the remaining SOEs in the portfolio. This will require close collaboration with the SOEs to agree CSO costing methodologies, and with MOFT to agree contracting, financing, and monitoring mechanisms.

Capacity building will be a key focus of the TA. The aim will be for the consultants to support the work of the Ministry of Finance's SOE Monitoring Unit as they roll out the CSO guidelines across the SOE portfolio. In addition, specific training activities are included in the TA to help counterparts master the necessary technical skills, particularly with respect to the use of costing methodologies and contracting approaches.

Project Rationale and Linkage to Country/Regional Strategy

The Solomon Islands SOEs absorb large amounts of scarce capital on which they provide very low returns, divert government resources away from vital social investments in health and education, and drive up the costs of doing business where they are the sole service providers. The Solomon Islands SOE portfolio is one of the poorest performers in the Pacific in terms of return on equity (ROE), with an average return of -13.9% for FY2002 FY2008 and accumulated losses of SI$184 million ($24 million) during the same period.

Poor SOE performance is rooted in a lack of commercial orientation of the SOEs, unfunded community service obligations (CSOs), and a weak accountability framework. Profit objectives are often diluted by the notion that SOEs must deliver CSOs without due compensation. This distorts the performance incentives of the SOE and confuses the decision-making process of its board of directors. The appointment of Members of Parliament on the SOE boards of directors further complicates the operating environment and independence of the SOEs, because these directors often have strong incentives to support CSO delivery without adequate compensation. To operate efficiently, SOEs should have unambiguous profit objectives and a transparent mechanism to identify, contract, and finance any CSOs. Without this, SOEs cannot set and meet performance targets and the government cannot make informed policy decisions related to CSO assignments, quality and efficiency of CSO delivery, and SOE performance.

The current SOE Act was enacted in 2007. Subsequently, SOE Regulations were promulgated in 2010, establishing a robust framework for the commercial management of the SOEs. Implementation performance has been poor, however, due to a lack of capacity within the SOEs and the Ministry of Finance and Treasury (MOFT), combined with low political commitment to enforce the provisions of the law. It now appears that the current government and Minister of Finance and Treasury are committed to pursuing a substantive SOE reform agenda. The Regional Assistance Mission to the Solomon Islands (RAMSI) has provided substantive TA for developing detailed guidelines for CSO framework implementation. The RAMSI-funded TA will pilot the CSO guidelines in two SOEs, namely Solomon Islands Postal Corporation (SIPC) and Solomon Islands Broadcasting Corporation (SIBC). This TA is due to close in June 2011. The Government has requested ADB support to continue this assistance to ensure full implementation in the pilot SOEs and roll-out the CSO guidelines to the other six SOEs. The work will be led by the SOE Monitoring Unit of MOFT, and supported by the proposed S-TA.

Impact Reduced drain on the fiscal position of the Government from underperforming public enterprises.
Project Outcome
Description of Outcome Improved financial performance of SOEs.
Progress Toward Outcome
Implementation Progress
Description of Project Outputs

CSO review completed by all SOEs

Formal CSO review process in place with the SOE Monitoring Unit

Effective training courses delivered and positively evaluated by participants.

Status of Implementation Progress (Outputs, Activities, and Issues)
Geographical Location
Summary of Environmental and Social Aspects
Environmental Aspects
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design Ministry of Finance and Treasury, State-Owned Enterprises, Development Partners
During Project Implementation Ministry of Finance and Treasury, State-Owned Enterprises, Development Partners
Business Opportunities
Consulting Services

There are three output categories of the proposed TA: (i) community service obligation (CSO) reports, (ii) CSO review process and (ii) training program on CSO identification, costing, contracting, financing and monitoring. The follwoing are the requirement for consulting services:

Output 1: Prepare CSO reports (international, 1.5 person-months; national, 3.0 person-months)

Output 2: Implement formal CSO review process (international, 2.0 person-months; national, 3.0 person months)

Output 3: Deliver CSO training program (international, 1.5 person-months, national 1.0 person months)

Responsible ADB Officer Hayden Everett
Responsible ADB Department Pacific Department
Responsible ADB Division Pacific Liaison and Coordination Office in Sydney, Australia
Executing Agencies
Ministry of FinanceG.P.O. Box 26
Honiara
Solomon Islands
Timetable
Concept Clearance -
Fact Finding -
MRM -
Approval 30 Mar 2011
Last Review Mission -
Last PDS Update 19 Aug 2011

TA 7797-SOL

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
30 Mar 2011 30 Mar 2011 30 Mar 2011 31 Dec 2012 31 Jul 2013 -
Financing Plan/TA Utilization Cumulative Disbursements
ADB Cofinancing Counterpart Total Date Amount
Gov Beneficiaries Project Sponsor Others
225,000.00 0.00 25,000.00 0.00 0.00 0.00 250,000.00 30 Mar 2011 210,966.22
Title Document Type Document Date
State-Owned Enterprise Reform TA Completion Reports Oct 2013

Safeguard Documents

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Evaluation Documents

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