|Project Rationale and Linkage to Country/Regional Strategy
The sovereign wealth fund aims to reduce fiscal volatility by safeguarding sudden increases in revenues. Parliament approved the Organic Law on Sovereign Wealth Fund Management on 21 February 2012; the law offers significant advantages for directing the management of volatile resource revenues over current policies. The law provides for the creation of a number of new funding mechanisms and agencies that will receive revenues accruing to the government as a result of its equity stake in the liquified natural gas project. Under the law, all future mining, oil, and gas revenues will be deposited into an offshore stabilization fund, which will be overseen by an independent board and subject to enhanced governance, transparency, and asset management rules. Withdrawals from the stabilization fund will be fully integrated into the national budget process and restricted to the average of the past 15 years of mineral revenues.
Working in close coordination with the interdepartmental sovereign wealth fund implementation secretariat, and the development partners sovereign wealth fund coordination group, the TA will support arrangements for financing the maintenance and construction of infrastructure from the sovereign wealth fund. The TA will support the design and early implementation of these arrangements, either based on a proposed independent authority model that will fund investment in infrastructure, or an alternative arrangement once agreed by the government.
The PNG sovereign wealth fund secretaries committee has approved an implementation plan to operationalize the sovereign wealth fund in 2013. The Department of Treasury has asked ADB to help address a number of key implementation issues related to integrating the proposed structure into their existing systems. Key issues to be addressed include the (i) policy and legislative framework, (ii) institutional framework, (iii) definition of public infrastructure assets, (iv) management structure, (v) criteria for project selection, and (vi) project and financial operating issues. The role of existing agencies and the relationship of any new arrangement with the existing agencies needs to be considered.
Currently, the Department of Finance does not have a unit dedicated to monitoring the approximately 80 statutory authorities in PNG. In 2008, the government commissioned a report into the governance of statutory authorities, which recommended the establishment of a dedicated statutory authorities unit. More recently, statutory authorities have expressed concern about the lack of engagement between central agencies and the statutory authorities, and they requested that a first point of contact be identified. The Department of Finance has therefore approved the establishment of a new statutory authorities monitoring branch.
The current accountability framework for statutory authorities is deficient in a number of areas, including (i) noncompliance with reporting provisions, financial measures, structures and policies; (ii) lack of demonstrable service delivery improvements and outcomes; (iii) the operation of competitive programs and strategies that undermine government's public programs and national priorities; (iv) dilution of policy control and direction in the management and protection of finances, key assets and natural resources; and (v) control failures by central agencies resulting in statutory authorities collecting and retaining increasing streams of public revenues and committing to unsustainable increases in year-on year expenditures.
The Department of Finance has, therefore, requested ADB support to assist in the initial establishment and operation of the new statutory authorities monitoring branch. The branch will monitor compliance of statutory authorities with the governance framework and, more generally, will monitor the performance of statutory authorities against their performance plans.