With the Rudd–O’Neill asylum deal likely to involve a ”realignment” of the Australian aid program toward new infrastructure spending in PNG, the mother of all potholes – one that severed four lanes of Port Moresby’s Poreporena Freeway in March 2012 – is a reminder of the challenges facing infrastructure development in PNG. Although the collapse of Port Moresby’s main road was due to a blocked culvert that was washed away, the underlying cause was a lack of maintenance, poor planning and institutional arrangements, and bad weather – problems that afflict most public infrastructure across PNG. Addressing these underlying problems could bring significant benefits to PNG through better infrastructure and lower costs associated with repairs, rehabilitation, reconstruction, and loss of service. Indeed, the cost of the repairs to the Poreporena was around K5 million (approx. $A2.3 million) and most in Port Moresby will attest to the lost time and income spent in congested traffic resulting from the road collapse.
There is scope to improve infrastructure development in PNG through the government’s Infrastructure Development Authority (IDA), which is in the process of being established by the Department of National Planning (with help from development partners). The IDA proposal came about through the advocacy of former Prime Minister Sir Mekere Morauta. Sir Mekere proposed an independent infrastructure authority that would utilise resource revenues, particularly dividends from the PNG-LNG project, to finance the rehabilitation and maintenance of PNG’s debilitated infrastructure. He argued that his proposal would not only result in greater levels of infrastructure funding, but would combine within the new infrastructure authority the functions of a large number of disparate government agencies that suffer from unclear and uncoordinated responsibilities.
The authority would undertake infrastructure planning, funding and implementation for major infrastructure assets. The operation and associated policy responsibilities for that infrastructure would remain with the government agencies that are currently responsible for those assets. Sir Mekere emphasized the need for the authority to have the freedom to “operate outside of the public sector box” if the poor infrastructure development outcomes over the last ten years are to be avoided.
National Planning Minister, Charles Abel, recently reiterated the government’s commitment to the establishment of the IDA. He said that the IDA would deal with projects valued above K50 million and, it seems, relieve the Central Tenders and Supply Board (CSTB) of its procurement and tender functions for these projects. However, there are many questions that remain unanswered. These relate to the functions that the IDA will perform; its funding mandate; level of independence from government; and transparency, financial reporting obligations and oversight provisions.
Earlier this year we submitted a review of the IDA concept to the Asian Development Bank as part of its support for infrastructure development in PNG. We argued for the IDA to be established as an “apex” infrastructure agency, which would have a broad range of responsibilities and a significant level of independence from the machinery of government. In our view, the IDA should be required to:
- Undertake and maintain a register of infrastructure assets of national importance that are public goods. The register should state the condition of infrastructure assets; cost of rehabilitation to a predefined standard of service delivery; an appropriate maintenance schedule, including cost of ongoing maintenance; and likely timing of asset end-of-life and replacement cost.
- Produce and regularly update a publicly available Infrastructure Investment Master Plan based on the asset register in consultation with government, international donors, infrastructure experts, private sector, and members of the public. Through the Master Plan, the IDA would direct spending to where the returns are the highest, such as by allocating appropriate funding to asset maintenance, thereby preventing the continuation of the build-neglect-rebuild paradigm.
- Undertake independent project procurement and tendering. This process could replace the functions of the CSTB and the National Executive Council (NEC), which have a track record of major delays in the approval process, little or no transparency in decision making, and decisions made with seemingly little regard to recommendations provided by technical committees.
- Undertake project construction or rehabilitation as well as oversight for large or nationally significant projects. However, the implementation of routine maintenance for these assets should remain with the current asset owners but be funded by the IDA in accordance with the Infrastructure Investment Master Plan.
Our preference for the “apex” IDA model reflects our view that the alternative, which would most likely involve restricting its function to infrastructure financing and/or review, would do nothing to fix an already broken or at least largely ineffectual system. Fundamental changes are needed to fix infrastructure in PNG. The establishment of an organisation with a narrow set of responsibilities will not suffice.
Inevitably, there are risks that the IDA will under perform due to lack of capacity and coordination, and duplication of roles. The IDA in this context could become another layer in an already inefficient and bureaucratic process for infrastructure development. The key to managing these risks is strong governance arrangements, transparency and financial reporting requirements, regular audit and peer review, and high-level political support. We should also be realistic about the prospects for immediate change. It will take years for the IDA to develop the capacity to effectively carry out a wide range of responsibilities. Transitional arrangements are therefore of great importance.
In terms of governance arrangements, Sir Mekere proposed that IDA management should report to a board of directors consisting of government and independent nominees, but with a government majority. Indeed, we believe that not only should the government have the majority of positions on the board, but that the Chair of the Board should be the prime minister or some other readily identifiable and influential government minister. The idea behind this is to ensure political support and greater accountability by aligning the performance of IDA with the actions of those in the highest level of government. We view this as necessary to avoid a repeat of the experience with the National Road Authority, which was established with donor support, but was never given the necessary resources by government to perform its mandate.
Some people may be concerned that under this proposal, the prime minister and other government representatives would have substantial control over infrastructure development, including planning, procurement and tendering decisions. Yet in the current system, these decisions are made by a multitude of public servants across sector based government departments, SOEs, and CSTB – all behind closed doors and with little accountability or transparency. International experience (in India and South America) has shown that high level political representation on the Board of infrastructure agencies can be a powerful mechanism for achieving real improvements in infrastructure services.
There are some similarities between our proposal for IDA’s governance structure and the recent announcements by Prime Minister O’Neill on the restructure of the PNG government’s petroleum and mining assets and SOEs. These assets and enterprises will be transferred into three new “Kumul” entities that would be overseen by current and former prime ministers. It is hard to evaluate these reforms without further details; not very much information has been released by the PNG Government. And whether government should be investing its time in running commercial businesses is unclear. What is clear is that, as in our proposal for the IDA, leaders need to play a central role in ensuring that government entities are accountable to Papua New Guineans. The success of infrastructure development in PNG will depend on the strength and good-intention of the political leadership. It may be some consolation that if infrastructure development in the long-run does not improve, then at least the politicians can be voted out of office.
Anthony Swan and Matthew Dornan are Research Fellows at the Development Policy Centre.
Stakeholders have acknowledged that a number of recent infrastructure projects have not delivered the outcomes required by Government, potentially as a result of lack of oversight by an IDA type organisation which suggests that current infrastructure projects should be overseen by an IDA type organisation in 2013 which suggests that the IDA needs to be established in early 2014.
A number of strategic infrastructure projects have been identified for specific oversight by the IDA.
Stakeholders have also acknowledged that funding of current strategic infrastructure projects comes from a number of sources including the Government of PNG including the Tax Credit Program, funds from Esso Highlands and Oil Search and a combination of Grants and Loans from a number of international development partners including Australia, Asian Development Bank, China, JICA and World Bank. Funding from the SWF will only be one source of funding of future strategic infrastructure projects, albeit an important source. Potential funding of strategic infrastructure projects from the SWF is scheduled to commence in 2015.
To establish an IDA by early 2014 the following key actions need to be undertaken:
– NEC to direct the formal drafting of a Bill for the IDA (Certificate of Necessity has been requested from the State Solicitor);
– First Legislative Counsel, with advice and support to formally draft a Bill for the IDA and to issue a Certificate of Compliance;
– Parliament to pass an IDA Act; and
– Establish the IDA.
As the establishment of the IDA approaches, the following steps are planned for early 2014:
– Identification of the IDA Board (including Chair), design of initial Board briefings and training and planning for the initial Board Meeting;
– Continuation of Stakeholder Meetings;
– Development of an IDA Corporate Plan; and
– Development of IDA operating procedures, specifically re. Planning, Procurement, Implementation and Governance Procedures.
The design, establishment and operation of an effective and efficient Infrastructure Development Authority can have a very significant impact on the economic and social development of PNG.
This is a ‘strategic’ PNG government initiative.
The IDA and Support for the 2015 Planning and Budget Process
The IDA Project Office is participating in planning for the 2015 with the Transport Sector under the leadership of the Department of Transport (DoT). Initial advice has been well received by the Sector.
Initial advice has focused on strengthening the planning for and justification of projects through the adoption of a Business Case developed by DoT. An institutions planning and budget process will be strengthened by the development of key sectoral and institution infrastructure strategies and plans, similar to the National Transport Strategy (NTS) and Medium Term Transport Plan (MTTP). The IDA Project Office notes that whilst the Transport Sector is well served by such key documents that inform and align the government’s stated priorities, other sectors appear to lack such documents.
At present, the Government does not have an independent ‘technical’ authority to provide guidance on its infrastructure needs and priorities and to assess individual infrastructure project proposals. The proposed IDA may be able to provide such support and reinforce the infrastructure focus of those bodies involved in planning and budget decisions.
The IDA Project Office notes that there is some concern with the number of projects received by the Government and the quality of assessment in formulating submissions (2014 Budget Volume 1, p73 refers). As a way to improve this process, it is further noted that the Department of National Planning and Monitoring (DNPM) proposes to introduce a two stage project approval process: (i) The first stage will involve ‘Initial Concept Approval’ where the first year is to ascertain a strategic business case for the project proposal. This will include initial justifications, indicative costing and may request the funding required to develop a detailed business case; and (ii) The second stage will involve ‘Final Government Approval’ where a detailed business case including full justification, specifications costs based on tender quality prices is assessed by Minister’s and considered in the budget process for final government approval. Dow, including its IDA Project Office seeks to be involved in discussions regarding the implementation of this important proposal.
The IDA Project office also notes that approved infrastructure projects are to be undertaken in consultation with DoW (2014 Budget Volume 1, p75 refers) and that agencies may only seek private sector implementation or supervision involvement where DoW agrees it has capacity constraints and is unable to assist. DoW, including its IDA Project Office seeks to be involved in discussions regarding the implementation of this important proposal.
The current Budget definition of ‘infrastructure’ appears to be narrow and does not adequately reflect either the quantum or value of all ‘infrastructure’ projects funded in the 2014 Budget. It noted that the value of the Capital Expenditure Component of the National Budget is K 7.471 billion. Perhaps the IDA definition of infrastructure is more appropriate.
The Government’s procurement process needs to be revised and strengthened as very significant delays have been and are being experienced by DoW and other institutions which is delaying timely implementation of its infrastructure projects. Such delays are not acceptable.
It is noted that the Central Supply and Tender Board (CSTB) is required to provide a set of clear guidelines for Departments and agencies seeking approval for centrally coordinated tender processes and appropriate formal undertakings to specify the maximum length of time it will need for its deliberations at each stage of the tender process (2014 Budget Volume 1, p77 refers). DoW, including its IDA Project Office seeks to be involved in any workshop regarding the development of such guidelines.
The current review of the Government of PNG public procurement system, to which DoW has contributed, may provide for some longer-term reform and strengthening of this process. DoW, including its IDA Project Office seeks to be involved in this important review.
The IDA Project Office has achieved much since it was formed in early 2013. These achievements include: (i) transfer of the PPP Transaction Office from Department of Transport to DoW; (ii) development of a Budget & Work Plan (and securing funds under 2014 Budget); (iii) establishing an IDA Policy Forum which meets regularly; (iv) developing a Web Site (www.idapng.org); (v) visiting similar institutions and reviewing legislation; (vi) developing an IDA Policy Paper; (vii) developing Drafting Instruction for the IDA Bill; (viii) developing a Draft IDA Bill; and (ix) developing Explanatory Notes to Draft IDA Bill amongst others.
The IDA Project Office and DoW have consulted widely with both government and private enterprise stakeholders on the IDA and related issues.
A number of discussions have been held with key IDA stakeholders about specific issues including discussions to facilitate understanding of the impact on specific stakeholders, specific information and documents have been provided to allow the issuance of the requested Certificate of Necessity and specific sectors have been briefed with regards their requirement to commence long-term infrastructure planning.
The IDA Project Office has participated in planning for the development of the 2015 Budget and briefings in which IDA was a specific issue, including the recent PNG-Australia Transport Senior Officers Meeting held in November 2013, the Transport Sector Coordination Monitoring and Information Committee and various CMIC Sectorial Committees.
With regards the 2014 Budget, the IDA Project Office has identified over 50 ‘strategic’ and/or ‘high risk’ infrastructure projects that may need to be overseen by the proposed IDA. These projects are to be delivered by 19 different government institutions including the Departments of Planning, Finance, Treasury, Justice, Police, Communications & Information, Education, Health and Works as well as by the Office of Higher Education, Port Moresby General Hospital, NCDC, PNG Ports, IPBC, National Airports Corporation, PNG Power, National Museum & Art Gallery and the Office of the Coastal Fisheries Development Agency.
The infrastructure projects include the construction of sporting venues and residential areas for the South Pacific Games 2015, construction of Multi-Departmental Office Accommodation and public servants house, Parliament House Maintenance, design and maintenance of Court Houses, construction of school infrastructure and the rehabilitation of higher education institutions, the Special Economic Zone – Sepik Plains, the Pacific Marine Industrial Zone, the redevelopment of hospital infrastructure, electricity projects for PNG Towns’, water and sewerage upgrades, new roads and bridges and road and bridge maintenance, the International Conference Centre and the construction of wharves and jetties.
The cost of these infrastructure projects is over K4.1 billion with funding coming from a number of sources including the Government of PNG including the Tax Credit Program, funds from Esso Highlands and Oil Search and a combination of Grants and Loans from a number of international development partners including Australia, Asian Development Bank, China, JICA and World Bank.
It is noted that many of the infrastructure projects identified in the 2014 Budget are components of multi-year projects and as such, if the total project funds for each project had been identified, the IDA List for 2014 would have considerably increased in both the quantum and value of infrastructure projects.
Details of these 50 ‘strategic’ and/or ‘high risk’ infrastructure projects that may need to be overseen by the proposed IDA in 2014 are on the IDA Project Office Web Site (www.idapng.org).
The soul of this Project, the Infrastructure Development Authority (IDA), is the Alotau Accord whereby all Government Leaders who make up the present coalition agreed to and accepted 78 Key Statements underlying their Vision for improvement in government services delivery. The primary force behind the Alotau Accord was the desire to lift Papua New Guinea (PNG) from the all too prevailing state of inaction, stagnation and total deterioration of infrastructure and the lack of an effective delivery mechanism for government services.
Under the Alotau Accord, the Department of Works and Implementation (DoW) was tasked with establishing an IDA to “take charge of overseeing major transport and public infrastructure projects for the next five years. The Authority will mobilise and negotiate financial resources and technical expertise.”
Operationalisation of the Development Fund under the Sovereign Wealth Fund (SWF) also requires the establishment of an IDA in accordance with the Alotau Accord.
Establishment of the IDA is a Key Performance Target for DoW.
At present, the Government does not have an independent ‘technical’ authority to provide guidance on its infrastructure needs and priorities and to provide assessment of individual infrastructure project proposals.
The DoW has formed a small IDA Project Office that has led the design of the IDA and of a Bill to establish it. The eestablishment of an IDA Project Office under a full-time, senior and experienced Government officer provides a single-point of focus for the coordination of all IDA issues and brings together all institutions and individuals currently involved in various aspects of establishing the IDA and other relevant issues and projects. Initial IDA staffing needs have been identified and all staff will be engaged through market mechanisms.
DoW received funding for the establishment of the IDA under the 2013 Budget. Under the 2014 Budget, an allocation of K5 million has been included under Treasury. As DoW remains responsible for the establishment of the IDA, these funds are to be transferred to DoW.
A number of former senior PNG government executives have been engaged to facilitate interaction with Central Agencies and various stakeholders and to advise on key policy positions. Detail of these engaged executives is on the IDA Web Site (www.idapng.org).
Two key Discussion Papers on the IDA concept have been developed by International Development Partners.
DoW has held a series of meetings with key IDA stakeholders at both Minister and Secretary level and has facilitated a regular forum with key government and other stakeholders where IDA and related issues have been discussed. Stakeholders include the IDA Project Project Office, Chief Secretary and NEC, Department of Treasury, Department of National Planning and Monitoring, Department of Education, Department of Health, Department of Public Enterprises, Department of Transport, Department of Works, Department of Commerce and Industry, Central Supply and Tender Board, Independent Public Business Corporation, SWF Implementation Secretariat, State Solicitor, Legislative Council, National Roads Authority, National Airports Corporation, Civil Aviation Authority, PNG Ports Corporation Limited, PNG Business Council, Manufacturers Council of PNG, PNG Sustainability Development Program and Representatives of key Donors in PNG including: Asian Development Bank, Australian Agency for International Development, Delegation of the European Union, Japan International Cooperation Agency and World Bank have participated in the stakeholder forums.
DoW has participated in and updated participants in a number of fora including an IDA Stakeholder Workshop chaired by Department of Prime Minister and Cabinet with Treasury and the Asian Development Bank, the National Working Group on Business, CIMC Sectoral Committees’, a recent IPA Seminar, the TSCMIC and the Institution of Engineers.
Key government officers have been briefed on the IDA concept.
A number of institutions similar to an IDA have been reviewed and strengths and weaknesses identified.
A potential strategic infrastructure project governance mechanism, the ‘Gateway Review Process’ has been identified and examined to assure strategic infrastructure project delivery.
A number of key process capacity limitations have been identified that may impact the design, establishment and operation of the IDA specifically relating to the Governments strategic infrastructure project planning, procurement and contracting and delivery processes.
A number of government and private sector institutions have expressed public support for the IDA concept and its establishment.
The IDA is an attempt to take ownership of NEC Decisions on improving the social and economic well-being of the people seen from the angle of infrastructure project procurement and implementation in an efficient manner, on time, within budget and of the quality or standard required and all done professionally by experts in the particular fields and done in a manner where there is no compromise on transparency, accountability and sound business practice.
IDA will take ownership of NEC decisions to implement strategic infrastructure projects specifically:
• to oversee the procurement and implementation of strategic infrastructure project which has a capital investment value of K50 million or more or such other projects as nominated by the National Executive Council as a special project requiring to be overseen or coordinated by the IDA; and
• to secure the efficient, effective, economic and timely planning, co-ordination, selection, funding, implementation and delivery of strategic infrastructure that is required for the economic and social well-being of the community, and
• to ensure that decisions about strategic infrastructure projects are informed by expert professional analysis and advice.
Infrastructure for the purposes of the IDA includes all structures including, for example telecommunications, transport, water, power, education, health, etc.
A project includes the design, construction, development, financing and delivery of new infrastructure and the rehabilitation, modernization or expansion of existing infrastructure.
What is the objective in establishing the IDA? Is it to circumvent the Central Supply and Tenders Board/State Soliciters Office which remain a major obstacle to timely contract award? Key questions are what functions and type of infrastructure should the IDA cover. Should it include planning as well as implementation? What type of infrastructure should it be involved in? In the transport sector a lot of work has been done to develop institutions to own and operate maritime, aviation and road infrastructure. Who will maintain the asset to be developed? The establishment of the IDA would increase the separation between development and operation and maintenance of the infrastructure. The organisation that is responsible for operation and maintenance should be involved in the design and implementation because they best understand how to build in sustainability.
To me the IDA is another simplistic approach to a complex issue. There is no getting away from the fact that developing sector based institutions with responsibility for designing, operating and maintaining infrastructure is the way to go. On the surface the IDA idea seems to be a response to the weak procurement capacity in PNG. The preferred approach is what is happening in the road sector where the NRA is responsible for maintenance. The NRA approach gives all stakeholders, especially users, some input in planning and implementation and provides the start of transparent funding models for infrastructure maintenance.
Max,
Thanks for your comment. These are exactly the sort of questions that the PNG Govt has been grappling with in its design of the IDA. We’ve outlined our position in the blog, and are proposing a more ambitious role for the IDA than what is likely to eventuate. Neither of us, and I’m speaking for Tony who is currently in PNG, is under the illusion that the IDA will be a panacea for the infrastructure woes of PNG. But we do think substantial reform is needed to avoid a repeat of the past.
The original intention of the NRA, to operate outside of the government bureacracy and funding cycle, was sound (and is similar in many respects to the IDA that we envisage). But unfortunately implementation to date has not matched this intention. The NRA is forced to operate much like a government department and has not received the funding that was promised (and, indeed, gazetted). It goes to show that design and legislation is only half the battle – it is in the implementation stage where things so often go wrong.