Papua New Guinea: Supporting Public Financial Management, Phase 2

Sovereign Project | 44379-012

Summary

The technical assistance (TA) will support the Asian Development Bank's (ADB's) ongoing engagement in public financial management in Papua New Guinea (PNG) by focusing on areas that are identified in the framework for fiscal enhancement and are aligned with the priorities of ADB's ongoing programs and projects in PNG. The TA will (i) support the design and implementation of systems for financing the construction and maintenance of infrastructure from the sovereign wealth fund, and (ii) strengthen the accountability of statutory authorities to the national government.

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Project Name Supporting Public Financial Management, Phase 2
Project Number 44379-012
Country Papua New Guinea
Project Status Approved
Project Type / Modality of Assistance Technical Assistance
Source of Funding / Amount
TA 8213-PNG: Supporting Public Financial Management, Phase 2
Technical Assistance Special Fund US$ 1.00 million
Strategic Agendas Inclusive economic growth
Drivers of Change Governance and capacity development
Partnerships
Sector / Subsector

Public sector management - Public administration - Public expenditure and fiscal management

Gender Equity and Mainstreaming
Description The technical assistance (TA) will support the Asian Development Bank's (ADB's) ongoing engagement in public financial management in Papua New Guinea (PNG) by focusing on areas that are identified in the framework for fiscal enhancement and are aligned with the priorities of ADB's ongoing programs and projects in PNG. The TA will (i) support the design and implementation of systems for financing the construction and maintenance of infrastructure from the sovereign wealth fund, and (ii) strengthen the accountability of statutory authorities to the national government.
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.

Impact Effective and efficient utilization of public finances for service delivery and infrastructure provision.
Project Outcome
Description of Outcome Strengthened PFM systems through improved transparency, accountability, and efficiency in national government management and use of public resources
Progress Toward Outcome The PFMTA Phase II continues to make progress towards the more effective and efficient utilization of public finances for service delivery and infrastructure provision. This has included through the strengthening of public financial management systems through improved transparency, accountability, and efficiency in managing and using public resources by the national government.
Implementation Progress
Description of Project Outputs

1. Support the design and implementation of system for financing the construction and maintenance of infrastructure from the sovereign wealth fund.

2. Strengthen the accountability of statutory authorities to the national government.

Status of Implementation Progress (Outputs, Activities, and Issues)

Outputs under section 1 of the TA have included (i) a comprehensive draft concept paper on various options for financing the construction and maintenance of infrastructure from the sovereign wealth fund, (ii) a final concept paper that incorporates commentary from peer reviewers, (iii) presentation of the concept paper and peer review recommendations to the sovereign wealth fund implementation secretariat and other relevant stakeholders. The infrastructure financing expert has also administered consultation workshops disseminating findings of the analysis.

Outputs under section 2 of the TA have included (i) development of a work plan for the new Statutory Authorities Monitoring branch within Department of Finance, (ii) development of financial instructions covering performance and financial reporting by statutory authorities, (iii) creation of a a database to support the branch in its monitoring role, and (iv) ongoing work towards the development of monitoring reports for a pilot group of statutory authorities.

Activities under both of these components of the TA have now been completed with a final report prepared and submitted.

Geographical Location
Summary of Environmental and Social Aspects
Environmental Aspects
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design In conceptualizing the assistance, preliminary consultations were conducted during the preparation of the country partnership strategy. A fact-finding mission took place from 3 to 7 September 2012 to discuss and agree the TA. The government concurred with the impact and outcome, the methodology and key activities, and the cost, financing, and implementation arrangements.
During Project Implementation
Business Opportunities
Consulting Services The TA will require international consultants (estimated 25 person-months) with skills and expertise in economics, finance, PFM, or governance, particularly in fund management governance arrangements, and statutory authority governance. All consultants will be engaged as individuals. ADB will engage consultants in accordance with its Guidelines on the Use of Consultants (2010, as amended from time to time).
Procurement The TA is estimated to cost $1,000,000, of which the full amount will be financed on a grant basis by ADB's Technical Assistance Special Fund (TASF-IV). The government will provide counterpart support in the form of office accommodation for consultants, provision of counterpart staff and support services, and other in-kind contributions. Disbursements under the TA will be made in accordance with ADB's Technical Assistance Disbursement Handbook (2010, as amended from time to time).
Responsible ADB Officer Aaron Batten
Responsible ADB Department Pacific Department
Responsible ADB Division Papua New Guinea Resident Mission
Executing Agencies
Department of TreasuryVulupindi Haus P.O. Box 542
Waigani, Papua New Guinea
Timetable
Concept Clearance 14 Aug 2012
Fact Finding 03 Sep 2012 to 07 Sep 2012
MRM -
Approval 12 Nov 2012
Last Review Mission -
Last PDS Update 23 Jan 2015

TA 8213-PNG

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
12 Nov 2012 11 Dec 2012 11 Dec 2012 31 Oct 2014 30 May 2015 -
Financing Plan/TA Utilization Cumulative Disbursements
ADB Cofinancing Counterpart Total Date Amount
Gov Beneficiaries Project Sponsor Others
1,000,000.00 0.00 0.00 0.00 0.00 0.00 1,000,000.00 12 Nov 2012 422,922.13
Title Document Type Document Date
Supporting Public Financial Management, Phase 2 Technical Assistance Reports Nov 2012

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