Papua New Guinea: Lae Port Development Project

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Lessons

Approval of project financing should not be based on preliminary designs.

The actual total project cost was 102% higher than the appraisal estimate, due to design changes, price increases, and the depreciation of the US dollar against the kina. The design changes stemmed from the need to align the physical components of an earlier ADB-financed Lao port project to the goal of developing the Lae Port into a regional transshipment hub that caters to port-related industries. To determine these changes, additional geotechnical investigations, funded by the Papua New Guinea Ports Corporation Limited (PNGPCL), were undertaken. Findings of these investigations were however not yet available during project appraisal and the preparation of bidding documents. With the recognition that design changes would be necessary during implementation, preliminary designs based on the earlier project were thus used in calculating the project cost. While the design changes accounted for only 20% of the $89.12 million Asian Development Bank (ADB) additional financing, the experience highlights the importance of detailed designs in generating reliable cost estimates. Including the package of loans and grants approved in December 2007, ADB project financing totaled $243.12 million.

A thorough assessment of impacts and monitoring of outcomes help ensure the effectiveness of resettlement plans.

During project design stage, the government prepared a plan to relocate the residents in the area to be dredged for the tidal basin. However, this original resettlement plan was not implemented because of land ownership issues, cultural differences, and the absence of an affordable alternative area. A supplementary resettlement plan, involving the provision of a cash assistance package and in-kind transitional support, was instead carried out. An updated audit, conducted during the supplementary plan preparation, indicated that the original count of displaced households was 13% lower than their actual total. While the supplementary resettlement plan successfully covered all the 544 households, or more than 3,200 persons included in the last count, its effectiveness cannot be completely assessed due to the lack of up-to-date information. While underscoring the importance of a thorough impact assessment in resettlement planning, the experience has also emphasized the need for post-implementation monitoring and evaluation to ensure the effectiveness of the resettlement activities.

Careful selection of the executing agency (EA) improves a project’s success potential.

As the entity responsible for the development, management, and maintenance of all the declared ports in Papua New Guinea (PNG), the PNGPCL, a state-owned enterprise, expected that it would be the project EA. However, the government decided that the Independent Public Business Corporation (IPBC), PNG’s trustee of all state assets and state-owned enterprises, was better equipped to serve as EA, more so because the facilities were envisioned to be operated under a public-partnership arrangement. This caused the PNGPCL to limit its participation in the project. As it could affect project implementation, it would be advisable for ADB to have a more active role in EA selection. To boost a project’s success potential, relevant sector responsibilities and experiences should be among the key criteria for EA selection.

Background

In 2007, the port sector of Papua New Guinea (PNG) comprised 22 declared ports and many small wharves, jetties, and landing stages. However, only 5 of these ports had appropriate infrastructure and received international and coastal traffic. Lae Port was the most important port for international and domestic trade. To address the increasing congestion and ship waiting times, a feasibility study requested by the government from the Asian Development Bank (ADB) recommended the urgent expansion of Lae Port.

The Lae Port Development Project evolved against this backdrop. Financed by ADB initially with a $154 million package of loans and grants approved in December 2007, the project built on an earlier Lae port project, which was reduced in scope due to unresolved land ownership issues and lower-than-expected traffic levels. It had 3 key components: (i) port facilities improvement, (ii) resettlement and livelihood support, and (iii) gender-responsive HIV/AIDS prevention programs.

Completed as planned, the port facilities reflected a vision for Lae Port to become a regional transshipment hub that caters to port-related industries. They comprised: (i) a 700 x 400 meter (m)–tidal basin, with a dredged depth that can accommodate vessels with an overall length of 200 m, a beam of 32.2 m, and a fully laden draft of 12 m; (ii) a multipurpose berth, 240 m long and 45 m–50 m wide; and (iii) a container terminal, complete with all ancillary facilities.

Defects in the slope protection works were however detected prior to the closure of the defects−liability period. Corrective actions were undertaken by the contractor at its expense. Higher-than-expected siltation levels were also observed, but this had stabilized after a year.

Other shortcomings or deviations from the appraisal plans were also noted. For instance, an alternative small-craft landing site for the Labu people affected by the project was not developed because of unresolved land issues. As an interim measure, the existing small-craft landing area was upgraded, and a new basin was constructed. Instead of relocating the residents of the area dredged for the tidal basin, a cash assistance package and in-kind transitional support were provided to allow people to self-relocate to their chosen areas. The livelihood program for displaced persons was subsequently streamlined and focused on teaching income-generating skills. An HIV/AIDS awareness campaign was undertaken but only 2 of the 5 planned clinics had been established.

A coastal shipping services has been using and operating the facilities on a 3-year lease. Nevertheless, a long-term arrangement is being worked out for the PNG Ports Corporation Limited to engage in a public–private partnership to operate the container terminal under a concessional agreement.

The project encountered a 2.5-year completion delay and a 102% actual cost increase from the appraisal estimate. It was rated less than successful by ADB’s Pacific Department. The Independent Public Business Corporation was the executing agency. A project management unit implemented the project, in association with the Morobe Provincial Government, the implementing agency for livelihood, and the Lae Chamber of Commerce, the implementing agency for HIV/AIDS.

Project Information

Project Name:

Lae Port Development Project

Report Date:

April, 2017

Main Sector:

Transport

Country:

Papua New Guinea

Project/Modality:

Loan

Grant