A New Solution to Building Road and other Infrastructure in Papua New Guinea by NASFUND

With the growth of Papua New Guineas economy, we have seen an almost equal a reversal in the maintenance of all our major highways and roads. From the Highlands Highway to the Madang Highway and other major roads - pot holes, washed out bridges and roads in total disrepair are sadly all to common in this ludicrously resource rich democracy.

At the same, there are serious concerns about the standard of implementation and completion of new road infrastructure projects sponsored by the state.

This is because the current system to maintain existing infrastructure and develop new ones is a system rife with corruption, unprofessionalism and a culture of waste that has destroyed our roads, and though it has made a few very wealthy, this system has contributed to poverty in the country.

So how do we find a solution that guarantees work completed on schedule and to the required standard and the whole process from start to end is accountable?

Though some may say, the best solution is to overhaul how contracts are awarded and investigate the government departments responsible for awarding infrastructure contracts, another solution is to remove the function of awarding contracts from the State departments and instead hand it over to a private, PNG organizations to take care of this. Basically a private-public partnership model to drive road infrastructure development.

But in order to do so we must find an organization with the right corporate goals, ‘culture’ and motivation and a well thought out strategy.

Such an organization with a solution is NASFUND with its Public Infrastructure Financing model which will be put to the test in Kokopo.

The fund recently announced that it was committing K125 million to fund road and sewerage works in Kokopo.

The K125 million is the largest onshore capital raising for infrastructure in the nation’s history and is guaranteed through the purchase of a Treasury note from the State. The Treasure note has the following characteristics;

1. It is issued by the Treasurer under the Treasury Bill Act using National Capital Limit (which is 40 percent owned by NASFUND) as the Agent, Registrar and holder of the monies raised.

2. The Treasury Bill is guaranteed by the State in line with all T Bills issues.

3. National Capital and another party will disperse the monies on invoices from the developers of the infrastructure project and only on review of all tender documents, works completed and the like. National Capital has the right to refuse payment if seen to be outside the parameters of the program. This is a variation on a theme developed for electoral funding under the Morauta Government of which the accounting firm Delliotes was used to monitor the expenditures and administer payments on a bill of works for electoral funds.

4. NASFUND can elect at the end of the 364 day period to redeem the Bill with further one year Sovereign Community Infrastructure Treasury Bill, with a rolling of the SCITB being preferred option of both the State and NASFUND.

5. Within the Infrastructure Bond, monies raised include three years interest which means that the burden of State allocation of funding for the project occurs end of the year four – adequate time for Treasury to incorporate in budgetary flows and closer to when the revenues from the LNG project allow for more budgetary flexibility from the State.

This whole arrangement is important because of several reasons;

1. It removes the State from managing accountability issues in the project. NASFUND assumes responsibility for the accountability framework of this project. This framework is focused on deliverables. Contractors must adhere to what is stipulated in the project agreement in Kokopo. All expenses and costs are monitored. This is important because accountability is something that is missing from the State’s current system of issuing contracts.

2. NASFUND is a superannuation fund. NASFUNDS venture into infrastructure development in PNG could signify a change in the involvement of super funds in developing PNG. If this project delivers strong returns for NASFUND and its members, then we may see NASFUND and other Super Funds get more involved in funding infrastructure projects in the country, especially in the lead up to the production from PNG LNG.

3. According to NASFUND, the model being implemented in Kokopo could be the basis of framework used once PNG establishes its own Sovereign Fund for similar developments.

The biggest risks to the Kokopo project are political agendas and interference. However, even if the project is derailed, NASFUND is still guaranteed K125 million through the Treasury note.

However, NASFUND believes the project will go ahead and will be successful. Currently engineers are on the ground finalizing matters.

The Kokopo project is important because if it proves successful, more such infrastructure projects probably much bigger that this one will be funded by our super funds. These projects could include super highways as well as airports and ports.

Share your thoughts and comments.

This article was previously published on www.pngcars.com