The Asian Development Bank is looking to provide as much as US$800 million (K2.8 billion) in new funding to support Papua New Guinea, according to its Country Director, David Hill. He told Business Advantage PNG that the bank is increasing its assistance due of the impact of COVID-19.

The cost of COVID-19 may linger in PNG long after the virus has vanished.

The Asian Development Bank is currently working on three funding initiatives aimed at supporting Papua New Guinea’s national budget. The money is attached to reforms in key areas of PNG’s economy.

Speaking during Business Advantage PNG’s recent PNG Infrastructure Update, the ADB’s PNG Country Director David Hill said that the first initiative was a likely increase to its existing US$300 million (K1.07 billion) policy-based loan aimed at building community health clinics and hospitals.

This health services support program, now in its third year, was supposed to distribute the final US$100 million (K349 million) in 2020, but that amount has been increased to US$150 million (K523 million).

‘[The aim] is to make the whole business environment more enabling and transparent and accountable in terms of how the SOEs perform in their service provision.’

‘This is Budget support in exchange for reforms in the health sector,’ Hill said. ‘It is concentrated on the expenditure side of the ledger. I think that would be of great assistance to the government in this period of [its] financial issues, as well as [helping it] coordinate its response to COVID-19.’

State-owned enterprises

Kumul Consolidated Holdings. Credit: Twitter

The second ADB initiative is a proposed policy-based loan focused on the reform of PNG’s state-owned enterprises. This is to be for a period of three years (2020-2022) and the amount will be US$500 million (K1.754 billion).

Hill said the intention is to reform the SOEs to make them more competitive.

‘[The aim] is to make the whole business environment more enabling and transparent and accountable in terms of how the SOEs perform in their service provision. And bring returns to the government because the government is the principal shareholder for these SOEs.’

He added this would entail looking at who gets appointed to SOE boards and revising regulations in the Public Private Partnership Act, the Independent Consumer and Competition Commission Act, and the Kumul Consolidated Holdings Act.

‘We expect there will be greater focus on particular SOEs to support improvements in business operations. That could include the selling of assets and include private participation in the SOEs.

‘It doesn’t necessarily mean full privatisation but moving in that direction to bring in the private sector and support efficiency gains in the operations. We need to try to enable these SOE entities to provide a positive return to the government coffers, rather than being a drain on those resources.’

Hill said the ADB is not proposing ‘drafting any new legislation’ but is supporting current amendments and the operationalisation of existing legislation that he said has been approved but not ‘acted upon as per the designs’.

‘There is nothing terribly new. It is more about trying to make what was agreed upon in 2014, or 2016, actually be implemented,’ he told the briefing.

COVID-19 mitigation

ADB’s David Hill.

Hill said that the third proposal is an ‘inexpensive’ concessional loan to help with COVID-19 mitigation and countercyclical economic support. PNG is eligible for up to $250 million (K872 million).

Hill said the ADB has to determine how the funds are disbursed, the transmission mechanisms and how the economic effects are measured once the money is spent. The ADB is working with the PNG Treasury, UN cluster agencies, Australia’s Department of Foreign Affairs and Trade and the PNG Department of Health to define this.

‘Whether in the airport sector, or the water sector, or the energy sector, there is on-going discussion between Treasury and the SOEs on who is going to assume this debt.’

‘We hope to get it across the line in November. It is very much like Budget support because, if and when it gets approved, it doesn’t go to contractors or consultants as per our typical infrastructure projects. It goes to the government’s budget for them to spend on their plans to mitigate COVID-19.’

Priorities

The ADB is also helping analyse whether debt accumulated by the SOEs is the responsibility of the central government or the enterprises.

‘A lot of SOEs are under the pump in terms of financial viability. Under the Marape administration, there has been much closer scrutiny on the debt,’ said Hill.

‘Whether in the airport sector, or the water sector, or the energy sector, there is on-going discussion between Treasury and the SOEs on who is going to assume this debt. Eventually, it is the people of PNG but in the near term we want to ensure that the debt that is taken on is effective for addressing the development needs of the people and government’s national economic plans.

‘There is only so much debt the government and the SOEs can take on at one time so, given those constraints, what are the priorities?’