Papua New Guinea Sustainable Development Program – how is it performing?

Written by Margaret Callan

In June, PNGSDP Limited published on its website an independent review [pdf] of the company’s operations, management and impact. The Review was undertaken by Professor Stephen Howes, Director of the Development Policy Centre [disclaimer: where I work], and Dr Eric Kwa, Associate Professor School of Law UPNG.

Publication of this Review is a welcome development – it was recommended by the reviewers as an important step in addressing criticism that the company’s operations are not sufficiently transparent and accountable. This concern was raised by John Burton in his Development Policy Centre blog of 12 February 2011, ‘Reporting and sustainability at Ok Tedi’. John noted that the absence of reporting on evaluations meant that it was not possible to judge the effectiveness of PNGSDP’s development investments. Hopefully the publication of this Review will be the first step in a more robust approach to program evaluation at PNGSDP.

What is PNGSDP?

The Review’s Context section provides a helpful guide to the establishment and responsibilities of PNGSDP and the role of the Ok Tedi mine in Western Province’s history, politics and economy.

The Review notes that PNGSDP is a unique organisation – it is registered in Singapore as a not-for-profit company, operates in Papua New Guinea, and its Memorandum of Association sets its objects as promoting the sustainable development and welfare of people in PNG through supporting social, environmental and sustainable development programs and projects. PNGSDP owns 63 percent of Ok Tedi Mining Limited, divested to it by BHP in 2001 when BHP exited the now highly profitable Ok Tedi copper, gold and silver mine in the remote Western Province of Papua New Guinea. In pursuance of its objects, PNGSDP has three areas of responsibility – running a development program, managing a long-term fund, and being the majority shareholder in Ok Tedi Mining.

PNGSDP has very substantial assets. As a result of the recent period of high global commodity prices, it now manages well over USD1 billion in funds (in 2010 alone, it received USD338 million in dividends from Ok Tedi). PNGSDP’s annual development expenditure is also significant, about US$100 million. As the Review points out, if SGP were seen as a donor, it would be PNG’s second largest after Australia (AUD500 million in 2011-12).

PNGSDP is run by a board of seven members, three nominated by BHP, one by PNG Treasury, one by Bank of Papua New Guinea, one by PNG Chambers of Commerce and Industry, and one selected by the Board. It provides an annual report on its activities and achievements to the State of Papua New Guinea, BHP and Ok Tedi Mining Limited.

Comments in this blog will focus on PNGSDP’s development program responsibilities.

How effective are PNGSGP´s development programs? 

The Review describes PNGSDP’s development investments by category: (1) large, transformational projects, (2) Western Province projects, and (3) other national projects. It describes the investments made in each of these categories. The reviewers note that many PNGSDP investments have the potential to play a catalytic role and generate high returns in PNG, and they give SDP credit for filling a gap in mega-project development that neither governments nor aid donors is addressing. However, they also point out that many of SDP’s investments in commercial ventures have not been profitable. While they soften this by saying some failure is inevitable in PNG’s high risk environment, a valid point, they also recommend that PNGSDP hire a commercial manager to oversee its subsidiaries and strengthen risk management. Both of these recommendations suggest the reviewers were disappointed with the company’s management of commercial ventures.

But I think discussion on the success of major investments should have gone further. Given the prospect of very large future investments by PNGSDP in mega-projects, it would have been appropriate to reflect in some detail on the reasons for the failures to date and to comment on what rate of ‘failure’ the company should tolerate given its responsibility to manage development programs for the benefit of the people of PNG. The Review could also have explored how PNGSDP chooses its investments, what its overall development strategy is, and how it coordinates its programs with those of national and provincial governments and aid donors.

This Review strikes a welcome note of realism in relation to sustainability. It notes that PNGSDP has had to overcome an initial reluctance to pay for the maintenance of infrastructure that it constructed and is now funding some recurrent expenditure for roads and electricity distribution. The Review recommends that SDP adopt an approach of budgeting for realistic post-construction financing needs.

Beyond describing a range of PNGSDP investments, noting anecdotal and other evidence of the value of some activities (the construction of telecom towers for mobile services, rural electrification, sustainable rubber and logging operations, health, education and community projects), and suggesting others have potential for high returns, the review offers no judgement about the Program’s impact. Why?  Because of a lack of evaluation information.

This is a very disappointing finding especially given PNGSDP’s status as a standalone, independent development agency with very large resources and a mandate to promote sustainable development and welfare in PNG. The authors recommend that PNGSDP undertake periodic independent and public evaluations of community projects and important sectoral programs, and appoint a monitoring and evaluation officer to drive a stronger performance agenda in the company.

Credit where credit is due

One would have expected that PNGSDP board members were concerned that publishing the independent Review would risk reinforcing views that the company is not sufficiently accountable and transparent and that its performance has been disappointing. So all the more credit is due to them for going ahead and publishing the Review. We look forward to PNGSDP also publishing a response to the Review’s recommendations for improving the efficiency, effectiveness and impact of the program’s development investments.

Margaret Callan is a Visiting Fellow with the Development Policy Centre at the Crawford School, ANU, researching the contribution of the private sector to development in Papua New Guinea.

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Margaret Callan

Margaret Callan was a Visiting Fellow at the Development Policy Centre. Prior to this, Margaret worked for AusAID in various senior management positions. Her research focuses on the role of the private sector in development.

3 Comments

  • Top work Margaret.

    Howes et al. said “OTML has been promising to use the internationally-recognized Global Reporting Initiative (GRI) standards for some time, but has failed to do so consistently. This year, OTML has once again committed to providing GRI reporting, starting in 2012” (p. 39 and Recommendation 17). Hooray.

    I was watching telly when I was at Wau recently, and on “ResourcePNG”, broadcast on 28 June 2012, the MD of OTML, Nigel Parker, gave this fumbling undertaking during his, we assume, scripted address at a PNGSDP event. His company was committed to “… reporting using the IFC Global Reporting Format … G3, a first for PNG”.

    No such thing is mentioned in the OTML “Annual Review” – there is no Annual Report, because OTML has no public shareholders – but the last one to come out was for the 2009 reporting year (published online 5 Nov 2010, http://www.oktedi.com/news-and-reports/publications/annual-review). Yes, they are like the cow’s tail, a bit behind.

    What was being broadcast on ResourcePNG was, I believe, the PNGSDP AGM together with the launch of its 2011 Annual Report (published online 22 Jun 2012, http://www.pngsdp.com/index.php/annual-reports). However, there is no announcement about this here.

    As a matter of interest “sustainability” is mentioned three times in the AR:

    “The road to economic sustainability in Western Province requires commercial savvy and community mindedness. RaitPower is a great example of how these can be achieved.” p. 22

    X “… has been a leader in the Australian Trade Unions and a number of other organisations: The Technical Teachers’ Union of Victoria, the ACTU Executive, the Australian Conservation Foundation, Plan International Australia, Global Sustainability Institute at RMIT University, and The Victorian Association of Forest Industries.” p. 117

    “PNGSDP has established five companies to undertake investments and provide services which improve the quality of life of communities, especially in rural areas … Project proposals are appraised with the same criteria for economic, environmental, social and institutional sustainability as any other project. Each project must be presented individually to the PNGSDP Board by PNGSDP management for endorsement.” p. 122

    On the first, no-one would disagree.

    On the second, sad as it is, and perhaps entirely irrelevant to X’s performance, the Global Sustainability Institute at RMIT University closed its doors on 31 Dec 2010.

    On the third, you beaut … except that we don’t know what the criteria are.

    Let me come back to Mr Parker’s exciting news. The “Global Reporting Format”? No, friend, it’s Global Reporting Initiative and if your underlings have this sort of trouble with the wording of the 79 indicators (and 11 more in the Mining and Metals Sector Supplement that you should also report on), I’ll be back next year in this forum to tell you off. Also, eyes away from the other boys’ homework. There’s one in your class who skips the Indigenous People’s questions, because he says they’re aren’t any in PNG (Indigenous Peoples, that is).

    The “IFC Global Reporting Format”? No, friend, the GRI clog-dancing folk are in Amsterdam while the IFC gnomes are in Washington. Different people.

    “G3”? It’s okay, you can start with that one, though it’s actually G3.1 now and G4 in a year or two And, again, don’t forget the Mining and Metals Sector Supplement.

    “A first for PNG”? Well, now we are splitting hairs. The other big miners in PNG have been doing it for some years. Lihir Gold Ltd, who, when they existed, had a head office in Port Moresby, started in 2005 (web site redacted by new owners, but looking in fine health on the Internet Archive, http://web.archive.org/).

    All in good time, then.

    John Burton

  • In 2010, PNGSDP made a significant investment in rebuilding its Procurement and Contract Management processes to provide a straightforward, but detailed, practical procedures to be followed when conducting procurement using PNGSDPL funds. They were designed to be simple to use and understand, by breaking the overall procurement process down into a series of individual procedural steps and breaking each stage down into step-by-step instructions.

    The procurement and contract management procedures were intended to:
    •provide working procedures which implement the requirements of the PNGSDPL Procurement Procedures;
    •promote efficiency, economy and the attainment of value for money in the use of PNGSDPL funds;
    •provide uniform procedures for application by all parts of PNGSDPL; and
    •provide standard procedures, against which procurement activities can be monitored and audited.

    The procurement and contract management procedures were to apply to all procurement carried out by PNGSDPL, using its funds.

    Given that much public procurement in PNG is problematic, it would have been most appropriate for the Review to comment on the PNGSDP procurement and contract management processes and procedures, specifically their use in properly underpinning PNGSDP’s significant development activities through PNG.

    Perhaps the PNGSDP approach to procurement and contract management provides a guide to other PNG public and private institutions as to an ‘appropriate’ approach and ‘fit-for-purpose’ procurement and contract management processes and procedures.

    E. John Blunt is an Institutional and Public Procurement Expert. He has previously worked for PNGSDP. He is currently on assignment with the Southern African Development Community Secretariat in Botswana.

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