Cost-Benefit Analysis for Public Funds use in Papua New Guinea

by: Jonny Andrews

 

In government and private sector decision-making there are always competing priorities for limited funds. Many of our local Governments and sometimes the National Government tend to fund projects without doing a Cost-Benefit Analysis. The purpose of doing a CBA is to allow competing policy priorities to be compared in a consistent way, and for their economic, social and environmental impacts to be assessed.

In all areas of policy, the function of the CBA is to assist policymakers to identify the best way to deliver the strategic objectives of governments.

Government funds for investment in infrastructure and public policy initiatives are limited. These funds come at a significant cost to Papua New Guinea, through taxes collected by state entities. If governments had not collected these taxes, the funds would have been available to private individuals and businesses to spend, save or invest.

One example is in the development of our cities. Cost–benefit analysis can help to achieve the strategic aims of a holistic metropolitan plan by weighing up the economic, social and environmental impacts of different transport infrastructure options and identifying the best approach for the long term.

 

What are the essential elements?

  1. Cost–benefit analysis needs to be future looking

A good cost–benefit analysis will guide decision-making in the best interests of current and future generations by taking a long-term view those factors in economic and population growth over time.

The CBA methodology also allows for the consideration of future benefits and risks that are largely unknown or difficult to quantify.cost-risk-benefit

Governments have to pursue policy priorities where there are unknowns – because they are seen to be in the public good or because they are necessarily based on future assumptions. The CBA discipline can help policymakers to wrestle with intangibles and communicate assumptions and judgements in a transparent way.

Uncertainty about the future is no reason to avoid a CBA. In fact it makes the case for undertaking rigorous and transparent CBA even stronger.

 

  1. Cost–benefit analysis needs to be objective

Objectivity is critically important when determining the expected costs and benefits of a policy or project. CBAs (both private and public) often fail because future costs are underestimated and future benefits overstated, due to a tendency for ‘optimism bias’.

Independent assessment is a good way to build objectivity into the CBA.

Objectivity also requires that the main findings are based on a realistic ‘central case’ that depicts the most likely outcomes for costs and benefits in the future. It is then fine to test alternative outcomes under best case and worst-case scenarios.

 

  1. Cost–benefit analysis needs to consider implementation risks

Cost–benefit analysis ensures implementation risks can be identified and assessed upfront so they can be factored into a project’s implementation program. CBAs can be applied to capital projects as well as major policy and change management initiatives.

 

  1. Cost–benefit analysis needs to be easily understood so it can be subject to a degree of contestability

A CBA needs to be straightforward and readily understood by a wide range of people. The idea is not for them to be ‘black boxes’ for technicians but tools that people can use to look at priorities and contest them.

Finally; Investment decisions by governments need to be based on robust assessment of their future costs and benefits to ensure they are making the best use of taxpayers’ funds and deriving the maximum benefits for society.

CBA is one of the key tools that can assist in the development of evidenced-based policy if it is conducted with transparency and objectivity. It provides a framework for weighing up different impacts

 

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PNG Sovereign Wealth Fund – O’Neill Legacy

by Julia Daniel

Throughout the course of Papua New Guinea’s Independence until today, Papua New Guinea has had its share of resource revenue. The Bougainville Copper Mine had generated millions if not billions of revenue for the National Government. The Misima Gold Mine, Porgera Gold Mine, Tolokuma Gold Mine, Lihir Gold Mine have all poured their resources in the Government. In additional to that, PNG was blessed with Copra, Coffee and Cocoa which it had exported.

However, the past leaders of Papua New Guinea had failed the country. They all have succumbed to the “Dutch disease” and have not prepared the country for a rainy day.

In February 2012, Peter O’Neill having learnt from all the observations as Finance Minister in the Somare Government, passed a Law for PNG to established its first ever “Sovereign Wealth Fund”

What is a “Sovereign Wealth Fund?”

According to Wikipedia “A sovereign wealth fund (SWF) is a state-owned investment fund investing in real and financial assets such as stocks, bonds, real estate, precious metals, or in alternative investments such as private equity fund or hedge funds. Sovereign wealth funds invest globally. Most SWFs are funded by revenues from commodity exports or from foreign-exchange reserves held by the central bank.

Some sovereign wealth funds may be held by a central bank, which accumulates the funds in the course of its management of a nation’s banking system; this type of fund is usually of major economic and fiscal importance. Other sovereign wealth funds are simply the state savings that are invested by various entities for the purposes of investment return, and thapng-swft may not have a significant role in fiscal management.”

The Papua New Guinea Sovereign Wealth Fund (PNG SWF) will consist of a number of Sovereign Funds. The Legal ownership of the sovereign wealth fund is the Independent State of Papua New Guinea.

The objectives of the fund are to support the long-term social and economic development objectives of the State provide a means of saving for the future generations and facilitate the macroeconomic stabilization of the Papua New Guinea budget and the economy.

The Sovereign Wealth funds currently have two parts;

  1. Stabilization Fund
  2. Savings Fund

National Research Institute (NRI) after conducting a research into this Law gave its support of the establishment of the PNG SWF and further recommends that the Sovereign Wealth Fund also include an “Infrastructure Development Fund” in addition to the 2 funds.

The Revenue Flows for the PNG SWF will begin in the first quarter of 2017 according the Treasury Minister Hon. Patrick Pruaitch who gave a budget speech in August 2016. “Mr. Speaker, I am pleased to confirm that revenue will start to flow to PNG’s Sovereign Wealth Fund in the first quarter of next year. In 2016, revenues flowing into the Stabilization Fund will be drawn down into the Budget to fund key priority policy areas.

This landmark legislation was passed in July. I thank all members for their bipartisan support of the PNG Sovereign Wealth Fund. Designed as a long-term investment vehicle, the Sovereign Wealth Fund will serve PNG for decades to come, reducing PNG’s vulnerability to external shocks, such as the current fall in commodity prices.

The Sovereign Wealth Fund has been designed to provide the highest standards of accountability and good governance. Funding has been allocated in 2016 for appointment of an experienced and well-qualified Board and a SWF Secretariat. In 2016, the Government will issue the Board with its investment mandate and Government expectations on management of funds.” – Patrick Pruaitch

Papua New Guinea will really start to reap the benefits of the PNG SWF once revenues start to flow into the funds.
The onus now is for the Government to setup a transparent and stable management of the fund without political interference.

 

  1. http://www.businessadvantagepng.com/papua-new-guinea-sovereign-wealth-fund-coming-in-a-nick-of-time/
  2. http://pacificpolicy.org/2014/09/pngs-sovereign-wealth-fund-still-too-many-loose-ends/
  3. http://www.swfinstitute.org/swfs/papua-new-guinea-swf/
  4. https://www.google.com.pg/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=0ahUKEwjxkLqV9vvOAhVBmZQKHeJADgwQFggfMAE&url=http%3A%2F%2Fwww.treasury.gov.pg%2Fhtml%2Fpublic_debt%2Ffiles%2F2013%2Fswf%2Fpng.swf_public.info_%252022%2520Feb%25202013.pdf&usg=AFQjCNF7Sgy9WSOJn-hL21xrClS02KITJg&bvm=bv.131783435,d.dGo

 

 

Economy on the Right Track

Mr Speaker so as a result of that when we came into government in 2012, we changed the strategy. And that was to get into a deliberate deficit budget. And the good treasurer then was the current opposition leader. When we introduced the budget, we that projected a deficit of 6 per cent, 6 per cent at that time in 2012. We came under when we had the final year outcomes, Mr Speaker we came under almost 5.9 percent. In 2013 we came under 5. 2014, 2015 we came under 4. We ended up with 3.9 percent.

This year this budget and these supplementary adjustments are trying to make sure that we continue that decline all the way down but in a structured manner Mr Speaker. So the outcome that we are projecting for 2016 is under 3 percent deficit for our economy. And next year in 2017, we hope to bring the budget deficit down to 2 percent and eventually we’ll get down to a balanced budget. ” – Prime Minister Peter O’Neill

large-image-budget.jpg

To Save or NOT to save?

Mr Speaker we are quite familiar with the strategies that we have put in place and let us say that when we took government in 2002, the idea and the strategy was to get back to surplus quickly and credit to the good honourable treasurer then. He ran a very t6686236-3x2-340x227.jpgight ship. And as a result we produced so many surplus budgets. We had surpluses for many many years Mr Speaker. But at the expense of what? We had a surplus budget at the expense of cutting services everywhere. We eventually shut down departments that were not function
ing. We had provinces that were not operating. We had districts that had never seen their government. Yes we were having surplus budgets. Internationally we were looking good. The budget figures were excellent. But the reality on the ground was absent
.” – Prime Minister Peter O’Neill

 

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2016 SUPPLEMENTARY BUDGET SPEECH by Hon. Peter O’Neill, PM

/////////////////////////////////////////////////////////

 

AUGUST 26 2016

 

These are processes that have been ongoing for 40 years since our independence. The government does not go and consult the opposition about budgets, unlike what the good opposition leader is trying to say. Budgets are key important policy documents for governments and as a result of that Mr Speaker it certainly does have a bit of secrecy about it because you don’t want to argue about the economic position of the country on gossip columns and the press on a daily basis. Mr Speaker it does not give confidence to anyone. What it states basically is that what you present to parliament must be taken seriously and that the business community and the investors and all the other stakeholders will have confidence. Mr Speaker coming to this parliament in 2002 under the Somare government, we inherited an economy that was in fact projected to be in surplus by the previous government. We inherited a government that was having a minus K800 million deficit. The strategy at that time was to try and return to a surplus budget as quickly as possible. So the good honourable treasurer, Mr Bart Philemon and Mr Speaker let me say that in the last 15 years there has only been four treasurers in our country. Fortunately three of us are still in this parliament and our good treasurer is the longest serving treasurer among all of us. Myself and the opposition leader are the shortest serving treasurers in between, so Mr Speaker we are quite familiar with the strategies that we have put in place and let us say that when we took government in 2002, the idea and the strategy was to get back to surplus quickly and credit to the good honourable treasurer then. He ran a very tight ship. And as a result we produced so many surplus budgets. We had surpluses for many many years Mr Speaker. But at the expense of what? We had a surplus budget at the expense of cutting services everywhere. We eventually shut down departments that were not functioning. We had provinces that were not operating. We had districts that had never seen their government. Yes we were having surplus budgets. Internationally we were looking good. The budget figures were excellent. But the reality on the ground was absent.  That is the fact Mr Speaker. Mr Speaker so as a result of that when we came into government in 2012, we changed the strategy. And that was to get into a deliberate deficit budget. And the good treasurer then was the current opposition leader. When we introduced the budget, we that projected a deficit of 6 per cent, 6 per cent at that time in 2012. We came under when we had the final year outcomes, Mr Speaker we came under almost 5.9 percent. In 2013 we came under 5. 2014, 2015 we came under 4. We ended up with 3.9 percent.

This year this budget and these supplementary adjustments are trying to make sure that we continue that decline all the way down but in a structured manner Mr Speaker. So the outcome that we are projecting for 2016 is under 3 percent deficit for our economy. And next year in 2017, we hope to bring the budget deficit down to 2 percent and eventually we’ll get down to a balanced budget.

Mr Speaker we are doing it in a structured manner and avoid cutting services.  Our key policies and our key promises to our people remain same. We have not cut free education, we have not cut free health care, we have not cut the support that we are going to give to the churches and all our partners. We are continuing to invest in capital works and infrastructure throughout the country. We’re still maintaining good support for the judiciary and in the law and order sector Mr Speaker. 

We are supporting the districts through the DSIP without any cut. Through the PSIP, all those key programs across the country Mr Speaker it is being maintained and are producing results today. Four years of steady results with a declining deficit budget that is coming down, we need to continue to stay focused. We need to stay on track Mr Speaker. I guarantee you that we will get down to a balanced budget. And this will give confidence to even our international partners who now understand. It is a strategy that the Opposition leader himself was party to. However, all of a sudden there is fear about debt about budget deficits Mr Speaker.

Mr Speaker, even United States of America, the most powerful nation in the world, Japan is 3rd most biggest economy in the world, Australia, Britain, and most of the countries around the world are in deficit budgets Mr Speaker even though they have advanced infrastructure, better roads, better hospitals, better schools, unlike us; they are running a deficit budget because they need to stimulate their economy. Mr Speaker, if we do not invest in infrastructure after the LNG construction has lapsed, we will see more people on the unemployment line than what the member for Goroka is saying today. The construction investments that we have made in the construction industry throughout the country are keeping people employed. It is keeping as a means of functioning Mr Speaker. Yes there are tough times there.  There are some businesses who are struggling. And that is admitted Mr Speaker, but Mr Speaker the global challenges are not new to us, we don’t have to have a political grand standing. It’s not a contest of who is the brightest and who is the smartest. Mr Speaker it is about making our country work and putting food on the table for our people.  And that is the priority of this government Mr Speaker.  

Mr Speaker, let me say that the growth projections that the treasurer is now saying just close to global growth projections that has been stated by IMF and the World Bank, Mr Speaker that is extra conservatives that the treasurer has made. I know that we will finish higher than that at the end of the year Mr Speaker. We will finish higher than that. Last year Mr Speaker it was projected to be around 6 percent or so, we finished at 9.9. These are independently verified figures of the economic growth for the country. So Mr Speaker, you can see that our economy is transforming since 2011-12. Our GDP for the entire country has doubled. We must continue to maintain prudent management of our economy and offcourse that is not an evil thing Mr Speaker. Many successful countries, many successful companies go into debt to grow their businesses, grow their economies and likewise we must follow. The strategy for Lae MP Bart Philemon used was that all the surpluses that we made in 2002 onwards were diverted into paying back all the debts, which looked very good. The debt levels were coming down but we were not investing in infrastructure. Lae city was in potholes, Port Moresby city was breaking down; even all our provinces were not functioning as expected. That is a fact. I know that now there’s a little bit of improvement in many of these services within the provinces. 

Yet we tend to forget 4 or 5 years ago where we were. The fact is because we are investing in the right sectors and things are starting to look promising. We need to continue to maintain that level of activity. 

Mr Speaker one other thing is that it is quite evident that when we set budgets, it is the educated  professionals and experts working within treasury and the country who set this forecast for us. They make assumptions about commodity prices. For example, when we were experiencing 110 dollars per barrel for the oil prices in the budget figures, they estimated 70 or 80 dollars per barrel. They reduced it down to an acceptable level so our country could counter for any shocks on the drops of prices. And offcourse if the prices remained high, we were able to raise more revenue. But Mr Speaker when you have an economy that collapses from 110 dollars price down to 27 per barrel that’s a huge drop in anybody’s language. And obviously the revenue coming into the country gets affected. That is why our revenue for this year is down by almost 2 billion dollars, which we used to get from mining and petroleum taxes almost that accounts to about K2 billion a year for PNG. This year we will be lucky if we get K200 million. That is a huge drop. I know there are many fortune tellers around but you know nobody tells that what the global prices will do over time, or when the war will be declared in the Middle East somewhere, nobody knows. You and I have no control over that. We are price takers so we have to live within reality Mr Speaker. And the fact of the matter is Mr Speaker supplementary budgets are a necessary tool for us to adjust our budget. I know there has been calls, many experts, and so called experts who sit behind computers around the country and give their expert advise and critic on supplementary budgets or readjustments to 3 or 4 months after we have introduced it. The truth is that you have to allow the activity in the economy to continue so you have a reasonable assumption. You can’t change your budget everyday or when the price of oil drops. You have a long-term average that is why after the mid-year economic physical outcomes were produced by law, it was published publically by treasury in June. We are able to assess our economy’s tracking. There is no other way to assess how anyone can predict where the economy is going unless you have the figures to tell you how the economy is performing. After that the outcome we have been able to see it. I know the good member for Goroka has got a copy of it he can pass on one to the good opposition leader but you know these are public information that is available out there. Every international donor agency, every multilateral partner have access to it. Mr Speaker, based on that, the treasurer is able to frame the supplementary budget. And that is what we are discussing today. It is painful because we are cutting some basic service, basic expenditure items that are going to cut costs, limits of activities for some of our national departments. But we tried our very best Mr Speaker to maintain no cuts in the districts, no cuts to the provinces, no cuts to education, free education policy, free health policy, no cuts to the infrastructure and I know that the good opposition leader talks about cuts to the worst. Mr Speaker after discussions with the department of works, the management there, they are saying that these are some of the projects that are budgeted for this year but will not start yet until next year. Mr Speaker, ADB and offcourse all the other donor partners are working closely. Some of these ADB funded projects will continue. It’s not as if we are saying that the economy is not ferrying well so we shut down shop and go on holiday. The economy is still functioning, it’s still standing. Mr Speaker we have got mines that are now starting to produce well. Offcourse mining projects like Lihir and Porgera and because of physical terms that were given to them, we didn’t collect much in our revenue for many years. Only now they are starting to pay taxes. Mr Speaker, we will start seeing some increase in the revenue that we will get from companies like Ok Tedi who will start paying dividends because it is now operating very profitable.  Finally, Mr Speaker there has been a lot of talk about inflation. Prices of goods are going up. Mr Speaker, again the international economy functions itself on US dollar as the primary currency. Over the last 2 years, the US dollar has been gaining strength against all currencies. We are not exempted from that. That means the real value of kina is continuously going down. And when it goes down, offcourse the import costs go up and as a result it is passed onto the consumers. That is why we are trying all our best to make sure that we buy Papua New Guinea made products only Mr Speaker. So that we can promote Papua New Guinea industries. We can promote agriculture in PNG. Mr Speaker these are areas that we want to focus on because our problem in the past is that we have not learnt from the mistakes made previously. That is that why we have not broadened our economy. We have been overly dependent on mining and petroleum Mr Speaker so as a result when the boom and bust cycle goes, we ride with that boom and bust cycle. Going up and down, up and down. So it is very important that we broaden the economic base. And I think the new reports that are coming out from National Statistical Office; the new GDP data that the Minister for Planning shows that these sectors are slowly starting to carry the economy. 

It means that we are not overly dependent on the mining and petroleum sector and I think that when we continue to invest in these industries, we will do our best despite limited resources.

You know Mr Speaker, most important is free education. The school fee savings is what the parents will have in their pockets. It is savings them. That is an increase to their household income Mr Speaker. When you have funds going to the districts and the PSIP and DSIP, they are spending money in the districts. we also have K10 million in the districts, K10 or K15 million in the provinces. Mr Speaker, what are DSIPs and PSIPs employing? 

They are employing local businesses or small to medium enterprises to carry out government work in the districts. Mr Speaker, so money has been translated into key sectors that are starting to produce results. We must continue to stay on the key policies we agreed to until the elections Mr Speaker. 

Let the people judge us on the outcomes and I commend the treasurer for presenting an excellent supplementary budget.

Stability Vital for Papua New Guinea

by The Patriot

July 28, 2016

In this commentary, I will discuss how social responsibility can either promote or sabotage the ongoing vision currently implemented by the government.

The content of this article is to remind our readers who are easily persuaded by individuals, groups and associations that spread animosity and hate on Facebook Groups and Pages under the context of promoting good governance to change the leadership of the country.

Every government mandated to serve its people in PNG has had to manage a smear campaign that was propagated by persons with a political agenda or affiliation.   The general public, continue to become victims of deception and lies shared on social media. It has become a norm when a government is sworn into parliament, there is always an opposition working to discredit its vision. No one seems to notice that a lot of information uploaded anti-Government Facebook Groups are 20 % truth and 80 % lies.

We were destined to achieve big things in the last 40 years, unfortunately economic prosperity continues to be crippled and plagued by individuals, associations and groups with self-interest and ego. Many successive governments have had to succumb to smear campaign tactics and eventually replaced.

A lot of good things past governments would have achieved for our country did not eventuate because of instability.

Finding Stability in the Midst of Change

In 2012, The Alotau Accord was signed in Milne Bay Province by over 90 MPs to form the current government coalition aimed at delivering on millennium development goals (MDGs) and incorporated into the PNG Vision 2050. Its aim is to grow all sectors of the economy.

We must learn to give credit where its due. The PNC led government contributed immensely to various health, education, sports, communications, agriculture, infrastructure development on schools & roads, and also financial investment portfolios in the country.

We can accept or disregard negative content shared on social media. It is important as to whether we allow PNC and its coalition partners to complete a full term in parliament, or join the hate campaign to discredit the hard work that ongoing or achieved.

Therefore, when we join closed groups on Facebook, we have a responsibility to contribute meaningfully and fairly as members without succumbing to biased opinion.

Individuals who misinform people are dangerous. We cannot allow ourselves to believe ill researched and biased content disseminated on social media by authors with no political experience and leadership quality.

We must be wary of any intending candidates who share content aimed to discredit MPs in parliament.

We must also note that our people are accustomed to expectations in life, which has been an integral part of our culture for many years. For example, we expect our in-laws to pay bride price. We expect compensation payments by those who offend or hurt us. We expect our elders to represent us during family and community events.

We expect this government to do everything for us.  We fail to realise the enormity and sacrifice our PM goes through every single day. He has to juggle between his office responsibilities, political parties, ministerial portfolios, the public service and international trade and bilateral relations.

It is his prerogative to do so on a daily basis because every meeting with an individual(s) on matters of national importance requires collaboration on achieving something.  Every government needs partners to deliver on its goals.

Many times, we do not realize how we are part of the equation in helping to support the government in our own little ways.

We would rather sit and watch government partners in Ausaid, JICA, UNDP, WHO, UNICEF including diplomatic corps do all the work on behalf of us.

Public servants work to ensure vital services are rendered in the rural parts of the country. Religious groups or representatives lead out in church programs to help educate our people on Christian values and principles. NGOs in country co-ordinate and manage workshops on literacy, financial inclusion, community development and gender based issues. Sports Administrative bodies promote sporting codes and manage development sporting programs in our schools and communities with aim to empower our young generation through community initiatives. Families are also partners, and instil values at home. Teachers are also considered partners that help educate future leaders, businessmen and women, public servants, civil servants, sports ambassadors, foreign diplomats, teachers, religious instructors and also responsible citizens in society.

It is our job to influence our peers and those around us to be thinkers and respect our government at all times. This government is working to ensure aging infrastructure is maintained. We then accused them on exuberant building and maintenance costs because we believed information disseminated on social media that targeted certain companies, including the PM. The government continues to strengthen its bilateral ties with international partners and neighbour countries. We then label them as thieves for stealing and wasting taxpayers’ money.

Our government continues to roll out free education and we complain about the shortage in job opportunities. We expect so much but and offer little or even worse, nothing at the end of the day as partners in helping the national government.

There is still a lot of work to be done in the rural areas, however we will sit and complain. This government can and will do so, if we allow them to continue without disruption.

In the last 15 years, we experienced over 8 % growth despite the down turn on global commodities that affected the trading of our kina against the US dollar in 2016.

We accused our government of reckless spending, yet fail to understand a simple business principle that if we are to grow, we must take financial risks to grow our investment portfolios.

Here’s an example; a customer purchases a brand new vehicle at the car dealer. Prior to the purchase, the customer is persuaded by a family member, or friend on the best brand to buy. The customer obviously would have done his or her own homework on what brand suits his or her needs. All brand new vehicles have warranty and pass assurance quality tests to be road worthy.

The lesson to be learnt from such a scenario is how an opinion is only an opinion, and not a fact.

People will use facts and figures to persuade our decision, however we cannot believe everything  posted on various Facebook groups.

Between January and June this year, unsubstantiated articles were shared about our economy facing bankruptcy, which never eventuated. Many of these ‘wardrobe’ scholars do not understand the complexity on how financial markets operate and how economic models are built to sustain loan repayments, as vital investments for our country.

Our decisions can either support individuals and organisations scheming on removing our current PM, or we can simply remove these so called experts on our forums. We must support this government and help it achieve the desired results it set out achieve during the formation in 2012.

We need stability, not instability.

 

Demystifying the Private Public Partnership Paradigm

by Government Observer

Infrastructure investment is critical to Papua New Guinea’s continued economic success. Our nation must modernize and maintain our roads, bridges, and water systems to help ensure that Papua New Guinea remains a place for businesses to operate productively and grow, which will, in turn, create economic opportunity for Papua New Guineans. Yet years of underinvestment in our public infrastructure have imposed massive costs on our economy. 40 years of underinvestment and neglect in our infrastructure has resulted in a stagnant economic growth.

The need to reverse years of underinvestment in infrastructure, despite tighter budgets at every level of government, calls for us to rethink how we pay for and manage infrastructure investment. Some state and local governments have entered into public-private partnership (PPPs) to provide and manage infrastructure that has traditionally been provided by the public sector. PPPs bring private sector capital and management expertise to the challenges modernizing and more efficiently managing such infrastructure assets.

What is Private Public Partnership (PPP)

The World Bank defines PPP as “a long-term contract between a private party and a government entity, for providing a public asset or service, in which the private party bears significant risk and management responsibility, and remuneration is linked to performance

And from Wikipedia “PPP involves a contract between a public sector authority and a private party, in which the private party provides a public service or project and assumes substantial financial, technical and operational risk in the project. In some types of PPP, the cost of using the service is borne exclusively by the users of the service and not by the taxpayer.[1] In other types (notably the private finance initiative), capital investment is made by the private sector on the basis of a contract with government to provide agreed services and the cost of providing the service is borne wholly or in part by the government. Government contributions to a PPP may also be in kind (notably the transfer of existing assets). In projects that are aimed at creating public goods like in the infrastructure sector, the government may provide a capital subsidy in the form of a one-time grant, so as to make the project economically viable. In some other cases, the government may support the project by providing revenue subsidies, including tax breaks or by guaranteed annual revenues for a fixed time period. In all cases, the partnerships include a transfer of significant risks to the private sector, generally in an integrated and holistic way, minimizing interfaces for the public entity. An optimal risk allocation is the main value generator for this model of delivering public service.”

Under a PPP, a government contracts with a private firm to design, finance, construct, operate, and maintain (or any subset of those roles) an infrastructure asset on behalf of the public sector. When the private sector takes on risks that it can manage more cost-effectively, a PPP may be able to save money for taxpayers and deliver higher quality or more reliable service over a shorter timeframe compared to traditional procurement. When sponsors contract with private partners that support strong labor standards, PPPs can also provide local economic opportunity and create good, middle-class jobs that benefit current and aspiring workers alike. Just as the
re is a range of roles that a private firm or firms can take on in a PPP, the nature of risk-sharing and compensation arrangements for bearing and managing risk can vary substantially from project to project and is governed by contract.

 

Models of Private Public Partnership (PPP)

  1. O&M: Operations and Maintenance

A public partner (federal, state, or local government agency or authority) contracts with a private partner to provide and/or maintain a specific service. Stadiums in Port MoresbyUnder the private operation and maintenance option, the public partner retains ownership and overall management of the public facility or system.

  1. OMM: Operations, Maintenance & Management

A public partner (federal, state, or local government agency or authority) contracts with a private partner to operate, maintain, and manage a facility or system proving a service. Under this contract option, the public partner retains ownership of the public facility or system, but the private party may invest its own capital in the facility or system. Any private investment is carefully calculated in relation to its contributions to operational efficiencies and savings over the term of the contract. Generally, the longer the contract term, the greater the opportunity for increased private investment because there is more time available in which to recoup any investment and earn a reasonable return. Many local governments use this contractual partnership to provide wastewater treatment services.

  1. DB: Design-Build

A DB is when the private partner provides both design and construction of a project to the public agency. This type of partnership can reduce time, save money, provide stronger guarantees and allocate additional project risk to the private sector. It also reduces conflict by having a single entity responsible to the public owner for the design and construction. The public sector partner owns the assets and has the responsibility for the operation and maintenance.

  1. DBM: Design-Build-Maintain

A DBM is similar to a DB except the maintenance of the facility for some period of time becomes the responsibility of the private sector partner. The benefits are similar to the DB with maintenance risk being allocated to the private sector partner and the guarantee expanded to include maintenance. The public sector partner owns and operates the assets.

  1. DBO: Design-Build-Operate

A single contract is awarded for the design, construction, and operation of a capital improvement. Title to the facility remains with the public sector unless the project is a design/build/operate/ transfer or design/build/own/operate project. The DBO method of contracting is contrary to the separated and sequential approach ordinarily used in the United States by both the public and private sectors. This method involves one contract for design with an architect or engineer, followed by a different contract with a builder for project construction, followed by the owner’s taking over the project and operating it.

A simple design-build approach creates a single point of responsibility for design and construction and can speed project completion by facilitating the overlap of the design and construction phases of the project. On a public project, the operations phase is normally handled by the public sector under a separate operations and maintenance agreement. Combining all three passes into a DBO approach maintains the continuity of private sector involvement and can facilitate private-sector financing of public projects supported by user fees generated during the operations phase.

  1. DBOM: Design-Build-Operate-Maintain

The design-build-operate-maintain (DBOM) model is an integrated partnership that combines the design and construction responsibilities of design-build procurements with operations and maintenance. These project components are procured from the private section in a single contract with financing secured by the public sector. The public agency maintains ownership and retains a significant level of oversight of the operations through terms defined in the contract.

  1. DBFOM: Design-Build-Finance-Operate-Maintain

With the Design-Build-Finance-Operate-Maintain (DBFOM) approach, the responsibilities for designing, building, financing, operating and maintaining are bundled together and transferred to private sector partners. There is a great deal of variety in DBFOM arrangements in the United States, and especially the degree to which financial responsibilities are actually transferred to the private sector. One commonality that cuts across all DBFOM projects is that they are either partly or wholly financed by debt leveraging revenue streams dedicated to the project. Direct user fees (tolls) are the most common revenue source. However, others ranging from lease payments to shadow tolls and vehicle registration fees. Future revenues are leveraged to issue bonds or other debt that provide funds for capital and project development costs. They are also often supplemented by public sector grants in the form of money or contributions in kind, such as right-of-way. In certain cases, private partners may be required to make equity investments as well. Value for money can be attained through life-cycle costing.

  1. DBFOMT: Design-Build-Finance-Operate-Maintain-Transfer

The Design-Build-Finance-Operate-Maintain-Transfer (DBFOMT) partnership model is the same as a DBFOM except that the private sector owns the asset until the end of the contract when the ownership is transferred to the public sector. While common abroad, DBFOMT is not often used in the United States today.

  1. BOT: Build-Operate-Transfer

The private partner builds a facility to the specifications agreed to by the public agency, operates the facility for a specified time period under a contract or franchise agreement with the agency, and then transfers the facility to the agency at the end of the specified period of time. In most cases, the private partner will also provide some, or all, of the financing for the facility, so the length of the contract or franchise must be sufficient to enable the private partner to realize a reasonable return on its investment through user charges.

At the end of the franchise period, the public partner can assume operating responsibility for the facility, contract the operations to the original franchise holder, or award a new contract or franchise to a new private partner. The BTO model is similar to the BOT model except that the transfer to the public owner takes place at the time that construction is completed, rather than at the end of the franchise period.

  1. BOO: Build-Own-Operate

The contractor constructs and operates a facility without transferring ownership to the public sector. Legal title to the facility remains in the private sector, and there is no obligation for the public sector to purchase the facility or take title. A BOO transaction may qualify for tax-exempt status as a service contract if all Internal Revenue Code requirements are satisfied.

  1. BBO: Buy-Build-Operate

A BBO is a form of asset sale that includes a rehabilitation or expansion of an existing facility. The government sells the asset to the private sector entity, which then makes the improvements necessary to operate the facility in a profitable manner.

  1. Developer Finance

The private party finances the construction or expansion of a public facility in exchange for the right to build residential housing, commercial stores, and/or industrial facilities at the site. The private developer contributes capital and may operate the facility under the oversight of the government. The developer gains the right to use the facility and may receive future income from user fees.

While developers may in rare cases build a facility, more typically they are charged a fee or required to purchase capacity in an existing facility. This payment is used to expand or upgrade the facility. Developer financing arrangements are often called capacity credits, impact fees, or extractions. Developer financing may be voluntary or involuntary depending on the specific local circumstances.

  1. EUL: Enhanced Use Leasing or Underutilized Asset

An EUL is an asset management program in the Department of Veterans Affairs (VA) that can include a variety of different leasing arrangements (e.g. lease/develop/operate, build/develop/operate). EULs enable the VA to long-term lease VA-controlled property to the private sector or other public entities for non-VA uses in return for receiving fair consideration (monetary or in-kind) that enhances VA’s mission or programs.

  1. LDO or BDO: Lease-Develop-Operate or Build-Develop-Operate

Under these partnerships arrangements, the private party leases or buys an existing facility from a public agency; invests its own capital to renovate, modernize, and/or expand the facility; and then operates it under a contract with the public agency. A number of different types of municipal transit facilities have been leased and developed under LDO and BDO arrangements.

  1. Lease/Purchase

A lease/purchase is an installment-purchase contract. Under this model, the private sector finances and builds a new facility, which it then leases to a public agency. The public agency makes scheduled lease payments to the private party. The public agency accrues equity in the facility with each payment. At the end of the lease term, the public agency owns the facility or purchases it at the cost of any remaining unpaid balance in the lease.

Under this arrangement, the facility may be operated by either the public agency or the private developer during the term of the lease. Lease/purchase arrangements have been used by the General Services Administration for building federal office buildings and by a number of states to build prisons and other correctional facilities.

  1. Sale/Leaseback

This is a financial arrangement in which the owner of a facility sells it to another entity, and subsequently leases it back from the new owner. Both public and private entities may enter into sale/leaseback arrangements for a variety of reasons. An innovative application of the sale/leaseback technique is the sale of a public facility to a public or private holding company for the purposes of limiting governmental liability under certain statues. Under this arrangement, the government that sold the facility leases it back and continues to operate it.

  1. Tax-Exempt Lease

A public partner finances capital assets or facilities by borrowing funds from a private investor or financial institution. The private partner generally acquires title to the asset, but then transfers it to the public partner either at the beginning or end of the lease term. The portion of the lease payment used to pay interest on the capital investment is tax exempt under state and federal laws. Tax-exempt leases have been used to finance a wide variety of capital assets, ranging from computers to telecommunication systems and municipal vehicle fleets.

  1. Turnkey

A public agency contracts with a private investor/vendor to design and build a complete facility in accordance with specified performance standards and criteria agreed to between the agency and the vendor. The private developer commits to build the facility for a fixed price and absorbs the construction risk of meeting that price commitment. Generally, in a turnkey transaction, the private partners use fast-track construction techniques (such as design-build) and are not bound by traditional public sector procurement regulations. This combination often enables the private partner to complete the facility in significantly less time and for less cost than could be accomplished under traditional construction techniques.

In a turnkey transaction, financing and ownership of the facility can rest with either the public or private partner. For example, the public agency might provide the financing, with the attendant costs and risks. Alternatively, the private party might provide the financing capital, generally in exchange for a long-term contract to operate the facility.

Public Private Partnerships (PPPs) have become a popular tool for funding new infrastructure projects around the world. Using PPPs to develop infrastructure gives Governments the opportunity to move large upfront capital spending off their near term financing commitments. PPP schemes can also play a further role in promoting economic diversification and foreign direct investment.

In 2004, Papua New Guinea passed the PPP Act which it had tabled the bill in 2011. This Act guides the Government on using PPP models in building partnerships with private firms for Infrastructure development in Papua New Guinea.

http://www.treasury.gov.pg/html/misc/Special%20Projects/PPP/PNG%20PPP%20Act%202014.pdf
https://www.pwc.com/m1/en/publications/documents/adopting-ppp-and-its-role-in-attracting-fdi-dubai.pdfhttp://www.ifc.org/wps/wcm/connect/Industry_EXT_Content/IFC_External_Corporate_Site/PPP
https://home.kpmg.com/content/dam/kpmg/pdf/2015/09/demystifying-public-private-partnership-paradigm.pdf

 

 

 

 

Political Stability Vs Economic Development

By Professor Gangu Yang

The Namibian General Election 2014 was conducted peacefully. This is an important sign of political stability. Political stability requires that the public interact freely and openly with legislators on a regular basis. Granting individuals a say in how a nation is run enhances the stability of the region. A stable political scene is one where the ruling government is favoured by the population and does not experience strong indicators of social unrest.

slide_57Political stability and economic development are deeply interconnected. The relationship between economic growth and stability refers to the manner in which the political stability of a nation can lead to its economic growth. The common denominator and the most obvious relationship between economic growth and stability is the fact that a stable environment fosters economic growth.
The uncertainty associated with an unstable political environment may reduce investment and the speed of economic development. On the other hand, poor economic performance may lead to government collapse and political unrest. A politically unstable environment usually means that the government is misusing or mismanaging the country’s resources: resources are not being used to their full capacity, or in a manner whereby economic development could be maximized. It is also right that if a country’s political environment is volatile, this will deter investors, foreign trade and economic development.

One of the ways in which economic growth and political stability are related is in the area of investment. No company or individual, whether local or international, will feel comfortable making any kind of capital investment in any country where the political climate is characterised by upheavals and a lot of uncertainty. This is because such a risky investment would go against the main aim of making profits since there would be a marked lack of guarantee as to the safety of the investments. When local businessmen refrain from making any significant investment in their economies, such a situation will affect the economy as a whole.

Foreign direct investment also plays an important role in the development of an economy. This shows a link between economic growth and stability because a country with a low rating in terms of stability will not be a source of attraction for investors looking for international markets in which to invest. An example can be seen in the area of tourism, because when there is a lack of stability in the economy there will be little investments in the form of hotels, tourist attractions and commercial airlines. The result of this is a reduction in the number of employed people and a lower turnover rate for much-needed finances to facilitate economic development.

Namibia enjoys political stability for the past 25 years, which encouraged many foreign investors including Chinese ones. A typical example of this is the rapid growth of the town Oshikango where foreign investors, mainly Chinese, contributed to fast infrastructure development and prosperity of the border town.

China’s political stability attributes to the great social, economic and cultural development. The first thing the Chinese did in 1949 when Chairman Mao’s Communist Party took over was to create political institutions to cater for one unitary state out of all the diverse populations in the country. The communist political ideology was paramount to build that unitary state. The Chinese ruling Communist Party and other political parties (China doesn’t have opposition parties as in Namibia or elsewhere) work together for the same goal to establish a prosperous and stable society for the benefit and wellbeing of the people. To the Chinese government, unity and a politically stable environment are always first items on their agenda. Chinese as a culture value more than any other nations unity, stability and integrity. Building stable political institutions and environments make it possible for China to concentrate on economic development resulting in it being the largest economy in the world now.

In Africa in general, political instability is the biggest challenge to African governments and people. Many African countries are rated low in terms of stability. There are types of political instability in Africa: revolutionary movements to change the rules of the political game and redistribute power and property, separatist movements, political assassinations, mass murders, kidnappings, extortion and violence, strikes, especially politically motivated strikes, demonstrations for regime change or specific issues, complete political breakdown and civil wars. The leading causes of such instability include ethnic fragmentation and/or historic friction; ethnic dominance and historic friction; the strength of “primordial loyalties” (kinship and clan); secessionist impulses; conflict over resource wealth; ineffective or predatory government actions; political inexperience and worsening economic difficulties.

African instability itself explains why Africa still lags far behind other parts of the world in terms of economic development. Thus we need to develop political institutions in such a manner that there is an even playing field and accountability.

Where stability prevails, economic development prospers as we witness in Namibia. Since political instability has a major impact on development, policy formulation should therefore attempt to be “stabilizing”. That is, policies should not disrupt political stability; policies should be fair and equitable across regions, ethnic and income groups; implementation of policies must be careful and politically wise. This done, we will lay a solid foundation for potential economic development

https://www.newera.com.na/2015/03/13/political-stability-economic-development/

Getting the Basics Right – Invest in Agriculture

By Jonny Andrew

Since 1960, the world population has more than doubled, from approximately 2.9 billion in 1960 to more than 6.7 billion today. The demands placed on global agricultural production arising out of population and income growth almost tripled. Global agriculture has been successful in meeting this increase in demand. Steady growth in agricultural output and a long-term decline in real commodity prices attest to this success. While the 820 million undernourished people in developing countries must not be forgotten, it should also be recognized that the proportion of people suffering from hunger has fallen by half since the 1960s, from more than on-in-three to one-in-six, even as world’s population has doubled. Progress is possible

Agricultural growth contributes directly to food security. It also supports poverty reduction. And it acts as an engine of overall economic growth in much of the developing world. The success of the agricultural sector has not been shared uniformly across regions and countries, however, and it is unclear whether this success can be sustained much less extended to those left behind. Many of the least developed countries, particularly in sub-Sahara Africa and in marginal production environments across the developing world, continue to experience low or stagnant agricultural productivity, rising food deficits, and high levels of hunger and poverty.

Papua New Guinea is not an exception to this and according the National Agricultural Research Institute Corporate Plan 2002-2004, “PNG has been identified by FAO as a country with poor food security. This is evident with increasing volumes of food imports, declining purchasing power and indicators of malnutrition.”

Rice is a staple for nearly half of the world’s seven billion people. However, more than 90% of this rice is consumed in Asia, where it is a staple for a majority of the population, including the region’s 560 million hungry people.

The success of the Green Revolution in the early 1960s witnessed a steady rise in Asia’s rice consumption. Outside Asia, rice consumption continues to rise steadily, with the fastest growth in sub-Saharan Africa. In the past two decades, per capita rice consumption in sub- Saharan Africa (SSA) has increased by more than 50%. Similarly, rice consumption continues to grow steadily in both the United States and the European Union as consumers diversify from protein to more fiber-based diets and also because of rising Asian immigrants. In Papua New Guinea, rice continues to be the main food for many consumers.

According to ADB Working Paper on ASEAN and Global Rice Situation and Outlook 2012, Rice output is expected to grow more with the ever increasing population growth.

Slide1

Source: ADB Sustainable Development Series Working Paper Series – August 2012
The World Bank has already supported Rice Sector Development as a poverty Reduction tool in Greater Mekong Sub-region and even in the African countries. Yet it has turned a blind eye on Papua New Guinea and its fight for food security.

The question we should all be asking now is……..why hasn’t Papua New Guinea investing more into Agriculture and in particularly Rice?

 

 

 

BHP Billiton behind Protests 

By Noah Ariku
WAKE UP EVERYONE: BHP IS THE PUPPET MASTER TODAY!!

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I do not Condone anything against the rule of law. 

PNG is bigger than any one single person including Peter O’Neill who he is capable of defending himself so I am not speaking for him.

Same time I do not support Mining Giants like BHP manipulating everyone in this nation today like they did to defeat us NGOs and pass the 8 Ok Tedi Supplemental Act over 20 years ago making it illegal for Ok Tedi and Fly River Landowners to sue them for environmental damages.

They did the same to Panguna Mine landowners forcing them to take up their case overseas.

All our mines and petroleum resource extraction projects cannot sue for damages too.

University students. Wake up, you are not fools. What happened to the 122.2 million OTML shares on the day the 10th OK Teki Supplemental Act was gazzatted?

This is a hell of alot of money embezzled through capital flight!!

The Puppet Master has been doing it and wants to continue doing it.

Therefore he must divide and rule PNG.

Wake up! BHP and Rio Tinto are using naive and gullible university students to protect their selfish interest. 
Stupid pea brain politicians are making it all the more worse driven by their self interests.

All this protest and change of government hogwash is not in the interest of PNG but for the capitalist interest of BHP!! 

Wake Up. There is more to it than what you hear or see!!

BRING BACK LEADERSHIP CODE

By John Peleu

I wish to remind everyone first and foremost that no one is above the law, even the Prime Minister.

However, having said that, we must take into consideration that our current PM, Hon. Peter O’Neill swore an oath to protect the Office of the Prime Minister and its function when elected in 2011, and again after the elections in August of 2012.

At current we face division amongst our own people, including our law enforcement officers. Many support a warrant of arrest that was signed by the Chief Magistrate Ms. Nerrie Eliakim in 2014 to have our PM arrested over allegations of his involvement with the Paraka scandal.

I agree that our peoples’ voice must be heard, however since independence, no Prime Minister has handed himself into Police for questioning over allegations on corruption, until tried by the Leadership Tribunal.

Why because there is a process in this country we have always followed when leaders were suspected of, or found to have breached the leadership code.

According to the Constitutional Planning Committee Report 1974, Chapter Three (3) under the Leadership Code gives definition and also examples of the LC.

2. Our notion of a “leader” is not confined to the Ministers, the Speaker, the Leader of the Opposition and other members of the National Parliament, since they are not the only people who hold official positions of significant power, authority or influence in our
country. Senior public servants, senior Police and Defence officers, constitutional office- holders (including judges and magistrates), senior officers of statutory bodies and boards, government nominated directors and general managers of corporations, members of provincial assemblies and senior officers employed by provincial governments, senior staff of Ministers and Opposition leaders, members of the Advisory Committee on Citizenship Matters, and presidents, chairmen and mayors of local bodies exercising governmental functions (e.g. local government councils and associations such as Warakarai na Gunan and Greater Toma “Council”), senior administrative officers of these bodies, academic and senior administrative staff of tertiary institutions, office-holders of registered industrial organizations, ambassadors, high commissioners and senior diplomatic officers, and office-holders at the national level of registered political parties –
all of these people, we believe, should be regarded as leaders for the purposes of this Chapter.

When a complaint is made through the Office of the Ombudsman Commission, a case is presented to the Public Prosecutor who then recommends for hearing by a special court, known as the Leadership Tribunal.

And for every leader investigated, a Leadership Tribunal carries out an important function to pursue its investigations and findings before instituting court proceedings before passing judgement over a leader’s conduct in office.

That is the process we practice in our democratic country, and not subject to normal investigations by officers within the police force who operate on their own accord.

The Leadership Tribunal are assisted by the findings from our police.

Whilst there is growing support for investigations carried out by our National Fraud & Anti-Corruption Directorate, we must also let the investigations follow a proper process that adheres to the Leadership Code.

And of all people, it is fair that the Police Commissioner understand the repercussion by setting a very dangerous precedent if he does not control his officers at this juncture.

We must also take into consideration how the entire investigations was influenced by a group of politicians in 2013, who visited the Office of the Police Commissioner who at the time was Mr Thomas Kulunga, and made an official complaint. They also visited the Office of the Ombudsman Commission and the National Fraud & Anti-Corruption Directorate.

Take note that a formal complaint to investigate the current PM was done by politicians. Therefore the investigations is politically tied and can be seen as a means in overthrowing the current government.

If so, then the victors will be politicians and not our people.

This trend is a very dangerous trend and sets a dangerous precedence where future Prime Ministers can be overthrown through the same notion.

We must always remember that leaders, even though are subject to law, must be tried by a Leadership Tribunal.

Every citizen is subjected to the rule of law, however the rule of law currently practiced, promotes a vigilante style noted as unprecedented and canny.

We cannot allow a precedence to be set whereby a Prime Minister is subjected to a vigilante police investigation without observing proper processes in place.

Therefore, we have an obligation to support our current Prime Minister in making sure, a similar incident never occurs in the future.