The Highlands Highway – Linchpin to PNG’s Development?

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Presentation at the 2015 PNG Update Conference

Christopher Edmonds, Senior Economist; and

Yurendra Basnett, Country Economist (PNG)

ASIAN DEVELOPMENT BANK

Presentation Outline Why improving the Highlands’ transport links is

vital to PNG’s efforts to promote inclusive growth? ► and reduce poverty and improve its performance toward the Millennium Development Goals.

Why have past efforts to develop the Highlands Highway fallen short?

What is needed to improve the Highlands Highway?

► The plan for overcoming past challenges

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Highlands Region of PNG

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4

Proposed Highlands Highway Project

1,100 km from Lae port to the Taro, covering 5 provinces in the Highlands region and 2 coastal provinces

What’s planned—1,100 km from Lae port to the Taro, 5 Highlands region & 2 coastal provinces.

ADB financing of US$500 million.

Multi-Partner Financing Facility (MPFF): Arranging/Coordinating Govt. and other partners.

Private sector investment sought down the road –through development of “bankable” sections)

Total cost being assessed (existing assessment from a WB study done more than a decade ago).

Timeline 10 years, ADB TA US$1.5 mil. for design + Project Development Assistance available.

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Modality and Scope of the proposed Highlands Highway project

#1: Why improving the Highlands’ transport links is vital to PNG’s efforts to promote inclusive growth?

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Geographic distribution of poverty (one dot = 500 people) Poverty by region (number)

Where are the poor in PNG?

Gibson, 2005.

543

402

288 301

189

373

1942

1214

1078

1376

1095 1181

0

250

500

750

1000

1250

1500

1750

2000

NCD Papuan Highlands Momase UrbanMomase Rural Islands

Kin

a p

er

adult e

quiv

ale

nt

per

year

Poverty Lines (Nominal)

Food '96 Food 09/10

$1.80 per day

Definition of poverty…

PNG off track to meet MDG targets

Poverty rate stable at around 36% (1996–2010)

High gender disparities and gender-based violence

Poverty and Human Development

PNG Upper Poverty Line Estimates (%, population)

Majority of poverty remains in the most remote and densely populated regions…

0

5

10

15

20

25

30

35

40

45

NCD Papuan Highlands Momase Islands

1996

2010

(Contribution to national poverty by region, %)

The number of poor people in the Highlands has increased by about 100,000 since 1996.

Estimated number of people below upper poverty line, 2011

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

NCD Papuan Highlands Momase Islands

Remote regions tend to perform poorer than average in educational attendance…

(% population that never attended school)

0

5

10

15

20

25

30

35

40

45

50

National -1996

National -2006

National -2011

Southern Rural

Highlands Rural

Highlands Urban

Momase Rural

Islands Rural

Lack of connectivity to markets and social services

and literacy rate…

0

10

20

30

40

50

60

70

80

90

National -

1996 National -

2000National -

2011Southern

Rural Highlands

Rural Momase

Rural Islands

Rural

(% population that can read and write above age ten)

..and on health and nutrition outcomes (Prevalence of childhood stunting - %)

0

10

20

30

40

50

60

70

National -2011

National -1996

Southern Rural

Highlands Rural

Highlands Urban

Momase Rural

Islands Rural

Pacific DMC2014 Population

(thousands)

Share

(%)

Poverty

Rate (%)

Estim. No. of

Poor

Share

(%)

Cook Islands 13.5 0.13 0.284 3,834.00 0.10

Fiji 863.1 8.15 0.352 303,811.20 8.02

Kiribati 111.1 1.05 0.218 24,223.57 0.64

RMI 54.5 0.52 0.527 28,747.75 0.76

FSM 102.9 0.97 0.314 32,313.11 0.85

Nauru 10.7 0.10 0.251 2,673.15 0.07

Palau 21.0 0.20 0.249 5,237.52 0.14

Papua New Guinea 7,067.9 66.75 0.360 2,544,453.32 67.19

Samoa 187.4 1.77 0.269 50,403.04 1.33

Solomon Islands 575.0 5.43 0.227 130,525.00 3.45

Timor-Leste 1,205.0 11.38 0.499 601,319.53 15.88

Tonga 103.3 0.98 0.225 23,253.12 0.61

Tuvalu 11.1 0.10 0.263 2,919.30 0.08

Vanuatu 262.6 2.48 0.127 33,345.00 0.88

Total 10,589.2 3,787,058.6

Highlands - about 60% of PNG's total population 4,241

Highlands poverty rate - about 37% 1,569

Share of Pacific poor in PNG Highlands 41.4%

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National and Regional Importance of the Highlands Region

Benefits of Improved Connectivity

• Better transport connectivity Outcome

• Improved network logistics (land, air, sea)

• Focus on lagging Highlands Outputs

• 2/3 of lending resources

• Knowledge: O&M, procurement, budget Inputs

Lack of connectivity to markets and social services poses a major barrier to more inclusive economic growth.

#2: Why have past efforts to develop the Highlands Highway fallen short?

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0%

5%

10%

15%

20%

0

250

500

750

1,000

1974 79 84 89 94 99 04 09 14

Land transport expenditure (constant2000 Kina), lhs

Land transport expenditure (% total), rhs

Source: National Budget Documents (various years), authors calculations.

Kina, millions % total budget

Weak implementation capacity:

Limits benefits of rising public investment

Opportunities for corruption

Creates political pressure for ‘unproductive’ expenditure and reform

Growing Implementation Challenges

0

2,000

4,000

6,000

8,000

2010 2011 2012 2013 2014

Capital spending by quarter (cumulative)

Capital budget (annual appropriation)

Capital spending by quarter (Kina, million)

0%

25%

50%

75%

100%

0

750

1,500

2,250

3,000

2006 2007 2008 2009 2010 2011 2012 2013

Quarterly spending (kina, million), lhs

% of full year spending in quarter (% total), rhs

Source: Similar, original, version of chart can be found in World Bank, PNG Economic Briefing Note, November 2013.

Department of Works and Implementation Budget (Kina, million)

0%

5%

10%

15%

20%

0

500

1,000

1,500

2,000

2004 05 06 07 08 09 10 11 12 13e 14p

Capital spending, lhs Recurrent spending, lhs Personnel costs (% total), rhs

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Piecemeal approach Rehabilitation and upgrading of portions of

the highway Patchwork of partners and institutional

arrangements Poorly integrated implementation Operation and maintenance challenges The nature of pavement deterioration and

asset maintenance needs Cost of reconstruction vs avoided costs

through proper maintenance o For every $1 spent on maintenance -- $4 to $16 savings

on reconstruction

#3: What is needed to improve the Highlands Highway?

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Factors accounting for success:

Alignment

Sector, geographic focus

Programmatic approach

Simple design

Local presence

Performance of ADB Projects

0

50

100

150

200

250

300

2002 03 04 05 06 07 08 09 10 11 12 13 14f 15f

Other

Water supply

Private sector development

Education

Agriculture and fisheries

Health

Public sector management

Energy

Transport

Disbursements by year to PNG ($US, 2002–2015f)

Extensions and delays in ADB loan projects in PNG

0

1

2

3

4

5

1998 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

Average project delay (years)

Average no. extensions per project

Source: ADB.

Resource dependency—challenge for inclusive growth

Need for long-term, predictable, financing to build capacity and improve governance

Safeguards—proactive approaches

Women’s empowerment—fundamental to improving social indicators

Resilience—natural disaster and climate change preparedness

Lessons from ADB Experience

Comprehensive, Concerted, Credible approach

Avoiding piecemeal efforts through collaboration with many institutions

Timeline 10 years, ADB TA US$1.5 m for design, Project Development Assistance program opens opportunity for additional funds

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Proposed Implementation approach for the Highlands Highway project

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• Expanding partner funding, including from sub-national governments.

• Lending through MPFF’s to provide predictable finance, long-term capacity development, and support for policy reform.

• Emphasis on private sector engagement and involvement.

• Focus on large contracts that privatize sub-contracting, with strengthened local employment and training incentives for contractors.

• Expand beneficiaries through community based initiatives.

• Strengthen gender-sensitivity of project designs, i.e. bridge access, community roads.

Proposed Implementation approach (continued)

Hope this presentation has— Helped to convince you that improving

Highlands’ transport links is vital to PNG’s efforts to promote inclusive growth?

Explained some of the causes for shortcomings in in past efforts to upgrade the Highlands Highway

Provided insight into how ADB, the PNG Government, and other development partners are planning to improve the Highlands Highway

o The plan for overcoming past challenges

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Tel + 632 632 4444