Papua New Guinea - Petroleum Exploration Technical Assistance Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-3238-PNG REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE INDEPENDENT STATE OF PAPUA NEW GUINEA FOR A PETROLEUM EXPLORATION TECHNICAL ASSISTANCE PROJECT June 14, 1982 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency Unit - Kina (K) KI = US$1.48 Kl = 100 Toea (t) US$1 = K 0.676 WEIGHTS AND MEASURES 1 kilogram (kg) = 2.20 pounds 1 metric ton (ton) = 2,205 pounds 1 kilometer (km) = 0.62 miles 1 square kilometer (sq km) = 0.38 square miles 1 barrel = 159 liters 1 US gallon = 3.78 liters MW = Megawatt (1,000 kilowatts) GWh = 1,000,000 kilowatt-hours ABBREVIATIONS BCL - Bougainville Copper Limited DME - Department of Minerals and Energy ELCOM - Electricity Commission LPG - Liquefied Petroleum Gas OPEC - Organization of Petroleum Exporting Countries PAB - Petroleum Advisory Board PDL - Petroleum Development License PPF - Project Preparation Facility PPL - Petroleum Prospecting License PRAG - Petroleum Resources Assessment Group RR - Robertson Research (Australia/UK) GOVERNMENT OF PAPUA NEW GUINEA FISCAL YEAR January 1 - December 31 FOR OFFICIAL USE ONLY PAPUA NEW GUINEA PETROLEUM EXPLORATION TECHNICAL ASSISTANCE PROJECT Credit and Project Summary Borrower: Papua New Guinea (PNG) Beneficiary: Department of Minerals and Energy (DME) Amount: US$3.0 million (SDR 2.7 million) Terms: Standard Project Description: The proposed Project aims at accelerating petroleum exploration in Papua New Guinea by: (i) collecting and reassessing past exploration data with a view to identify- ing new exploration leads; (ii) strengthening the govern- ment entity in charge of petroleum exploration; and (iii) setting up an appropriate data base on PNG's petroleum geology and prospects. The proposed Project will also re-evaluate the commercial potential of past discoveries of natural gas reserves. Specifically the Project would comprise: (i) a geological/geophysical reassessment of past exploration data with the objective of preparing reports designed to generate interest in PNG's prospects by the oil industry; (ii) strengthening of the Geological Survey Division of the Department of Minerals and Energy by the provision of technical assistance, the acquisition of essential office facilities where all past exploration data would be assembled, and the training of PNG nationals; (iii) a promotional effort aimed at inducing oil companies to seek exploration licenses in PNG; (iv) a prefeasibility study of the development of a small gas-condensate field in PNG and a re-evaluation of the gas reserves from five earlier discoveries; and (v) other studies, the scope of which remains to be determined. Benefits: The main benefit of the Project is that, by acquiring adequate knowledge of its petroleum potential and pros- pects, PNG will be in a position to organize and accelerate the oil exploration effort on a rational basis to meet the Government's interest and objectives in the sector. Another benefit of the Project is that, through the re-evaluation of past gas discoveries and the training of key staff, PNG would be better able to plan the development of its energy sector. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. - ii - Risk: The main risk of this Project is that it would not lead to an acceleration of the exploration effort by the oil industry. In view of the interest expressed by the international oil industry in exploring PNG, this risk is considered to be small. In any event, PNG would acquire, through this Project, a basic appreciation of its petroleum exploration potential, which is not available at present. Local Foreign Total Estimated Cost :/a (US$'000) ---- Refinancing of Project Preparation Facility (PPF) - 250 250 Geophysical/geological reassessment - 2,140 2,140 Strengthening of geological survey 320 750 1,070 Promotional effort - 100 100 Gas development study 20 100 120 Other studies 150 570 720 Project base cost 490 3,910 4,400 Physical contingencies - 330 330 Price contingencies 90 760 850 Total Project Cost 580 5,000 5,580 Local Foreign Total Financing Plan: (US$'000) ---- IDA - 3,000 3,000 OPEC Fund 2,000 2,000 Government 580 - 580 Total 580 5,000 5,580 Estimated Bank Group FY FY83 FY84 FY85 Disbursements: --- ($ million) -- Annual 1.2 0.9 0.9 Cumulative 1.2 2.1 3.0 Rate of Return: Not applicable Staff Appraisal Report: No Staff Appraisal Report has been prepared. Map: IBRD No. 16390 /a The Project is exempt from customs duties and taxes. REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE INDEPENDENT STATE OF PAPUA NEW GUINEA FOR A PETROLEUM EXPLORATION TECHNICAL ASSISTANCE PROJECT 1. I submit the following report and recommendation on a proposed Development Credit to the Independent State of Papua New Guinea for the Petroleum Exploration Technical Assistance Project for the equivalent of SDR 2.7 million (US$3.0 million) on standard IDA terms. The OPEC Fund has '1 made a preliminary commitment to provide joint cofinancing in the amount of US$2.0 million. PART I - THE ECONOMY 2. The last economic report, "Papua New Guinea: Development Policies and Prospects for the 1980s" (Report No. 3544a-PNG), was distributed to the Executive Directors in December 1981. This report reflects the findings of an economic mission which visited PNG in February/March 1981; the following discussion of the economy of PNG is based on this work. Details of recent economic data can be found in Annex I. Structure of the Economy 3. Papua New Guinea is a land of rugged and sometimes impenetrable mountains, rich valleys and coastal plains, and numerous widely scattered islands. It is favored with abundant rainfall, considerable mineral resources, and forestry and fishery resources of good commercial potential. The capital city, Port Moresby, with a population of about 134,000, is an enclave, with no road links to other parts of the country, and is the largest urban settlement in what remains an overwhelmingly rural society. Per capita GDP in 1980 was US$780. The modern sector of the economy is dominated by the Bougainville copper mine and by the nonnational community which was previously part of the Australian administration and which still contributes significantly to both the public administration and the private sector. Mining contributes about 15% of GDP, and the government sector and a variety of small manufacturing and service establishments contribute about half of GDP. Agriculture, forestry, and fisheries, which employ about 85% of the labor force, largely in the rural areas, provide the rest of GDP, with about 40% of the sectoral output coming from subsistence agriculture. 4. PNG faced a critical period before and immediately following independence when, for three consecutive years (FY75-77), the economy failed to grow significantly. This resulted from the international recession as well as from acute uncertainties regarding the political future of PNG and - 2 - these factors compounded the difficulties faced by an emerging nation. In 1978 and 1979 GDP growth averaged over 4.4% p.a. in real terms, but the growth was weaker in the second year than in the first, and a small decline took place in 1980. Preliminary information suggests little or no recovery in 1981. The terms of trade effect was strongly negative in 1978, but not in 1979, and over the two years gross domestic income averaged nearly the same growth rate as GDP. Terms of trade fell again in 1980 (while remaining above their 1979 levels); and preliminary data suggest a further decline in 1981. Because of the political uncertainties of the mid-seventies, mismanagement of the plantation agricultural sector and economic management policies which strove to preserve stability, per capita income growth stagnated over the decade. While the growth rates are likely to improve somewhat as the Ok Tedi copper and gold mine comes on line, there is still a need to improve economic performance, particularly in the agricultural sector, which has lagged behind the rest of the economy. Investment appears not to have picked up in this sector as it has in the economy generally. Since agriculture is the major source of employment and income for the bulk of PNG's population, its failure to grow would result in a deterioration in the income and living standards of many people. 5. The large fluctuations in the performance of PX's economy result in part from its vulnerability to international economic conditions. The marginal propensity to import is very high, and international inflation is quickly passed on. Exports are dominated by four commodities - copper concentrate, coffee, cocoa, and copra - which contribute about 85% of total export earnings. Price fluctuations, particularly if they occur simulta- neously, as in 1980, can thus have a substantial impact on the economy. In addition, PNG runs a large structural deficit on its current account, the counterpart of the large budgetary grant from Australia, equivalent to about one-third of exports. 6. The Government has taken a number of steps to reduce the impact of variations in the international economy. A Mineral Resources Stabilization Fund smooths the impact of fluctuating copper prices on the budget, and stabilization funds for coffee, cocoa, and copra are designed to reduce the oscillations in prices received by producers. This has the effect of damp- ening price-induced supply responses and contributing to the stability of the economy, although it also has inevitable destabilizing effects on the balance of payments. To date the management of these funds has been very disciplined and has reduced the fluctuations in government spending that might otherwise have occurred. With the establishment and strengthening of the Minimum Wage Boards between 1972 and 1976, real minimum wages more than doubled in that period, making PNG the highest wage economy of the develop- ing countries in the region. Since then, two three-year wage agreements have limited the rise of both public and private sector wages to that of the consumer price index, subject to a present maximum of 11.75%, thus ending the sharp upward spiral of real wages that occurred during 1972-76. The - 3 - hard currency policy followed by the Government has helped to cut down inflation to an average of 8% p.a. in the last three years. At the same time this policy, by putting pressure on domestic profits and farm incomes, may have been in part responsible for the slow growth of the economy. In the area of foreign aid, the Government has worked out the principle of multi-year agreements with Australia, the major donor, which guarantee a steady, though declining, flow of grant aid. These agreements have helped the Government to proceed in an orderly manner with its budget planning. 7. The energy sector in PM is an important one, with per capita con- sumption being approximately 350 kg of oil equivalent per annum. Commercial energy consumption accounts for approximately 60 percent of total energy consumption. Ninety percent of commercial consumption is accounted for by oil imports; Bougainville Copper Ltd. alone took up 40 percent of this total. Domestic noncommercial consumption on the other hand, accounted for roughly half of total oil products imports of 646,600 tons (K144 million, or roughly 20 percent of merchandise imports). The bulk of this was consumed by expatriates; energy consumption by the Papua New Guinean population, 80 percent of whom live in rural areas, has been preponderately in the form of traditional fuels - wood charcoal and crop residues. As the latter becomes increasingly urbanized, however, consumption patterns are likely to shift to more modern forms of energy. Development Strategy and Planning 8. In the post-independence period a concerted effort was made to define a set ot economic and social policies according to which government resources were to be allocated. However, more weight has been given to developing a viable economic strategy and a decision-making process for the budgeting of government resources than to the preparation and implementation of a comprehensive development plan. While a "National Development Strategy" has been defined and strategic objectives identified as the basis for resource allocation, these have not represented a basis for a growth- oriented development strategy as such. 9. The National Development Strategy instead places a high priority on improving the quality of life of the rural population, focusing on rural development in the less developed areas of the country. A second objective is the development of a few large natural resource projects aimed at reducing the present very heavy reliance on aid and leading towards economic self-reliance. The first objective recognizes not only the agricultural potential of the country, but also the fact that the agricultural sector will be for quite a few generations the main source of income generation and employment. The second objective, while not directly benefitting the vast majority of the population, is intended to provide a resource base, thus allowing the implementation of development programs. The implementation of the second objective clearly entails the importing of foreign capital and expertise, for which PN has been very open, at least with respect to minerals investments. -4- 10. To carry out its development strategy, the Government established the annual National Public Expenditure Plan (NPEP), a rolling four-year plan for the public sector which focuses political decision making on nine strategic objectives and the tradeoffs between them. While the basic aims of the NPEP are to link the planning process with overall economic policy and to direct public spending to the activities that have the highest national priority, its impact is constrained by the limitation of its coverage to new projects as well as by the fact that forward planning is only carried out for one year. The first NPEP accounted for only 4% of the 1978 expenditures (K 20 million), but subsequent plans have been covering increasing portions of the budget as government revenues have grown, ongoing projects are being completed and a continuing review of existing expenditures leads either to their elimination or their reformulation and inclusion in the NPEP. In the 1981 budget, the NPEP encompassed nearly one-quarter of total expenditures. Implementation of NPEP projects has been delayed by lack of staff and experience, but the record is gradually improving. In effect, the NPEP process emphasizes the management of recurrent costs associated with capital projects - no mean achievement - but the NPEP is not, strictly speaking, geared to development. Development Issues 11. The major factors which will affect the Government's ability to promote economic development are the decentralization of government activities, the ability to achieve self-reliance in both staffing and tinancial resources, and the willingness to take new initiatives in policy formulation and investment in the agricultural sector. 12. Decentralization, which gives the provinces greater control over spending, reduces the central government's ability to pursue its priorities, while inadequate staffing interferes with the ability of the provinces to develop their own plans. PNG's topography has made it a country of scattered tribes, with no great sense of national unity, and a degree of political decentralization was a necessary response to secessionist pressures. Provincial governments are gradually assuming regulatory and financial control in some areas and will share power with the central Government in others. Provincial governments are financed through central Government conditional and unconditional grants, central government refunds of certain revenues, and to a very limited extent their own taxation measures. Unconditional grants, which allow provinces to spend according to their own priorities, are by far the most important source of finance; but while in the 1982 budget they comprised over 70% of the total receipts of the provinces, they amounted to less than one-quarter of total central government revenues. One of the most serious problems facing provincial governments is the shortage of trained and experienced staff, and the most urgent priority of the provinces is to develop the capability for budgeting, planning, and project identification and preparation. The central Government and other organizations assisting the provinces must make a concerted effort to orient inputs toward that goal. - 5 - 13. Self-reliance in PNG involves both availability of skilled manpower and financial resources. On the staffing side, the Government has made substantial progress in replacing expatriates with nationals, especially considering that the University of Papua New Guinea produced its first graduates as recently as 1972. However, the country still relies heavily on expatriates for many necessary services. In the public sector, localization has reached an overall level of 90%, compared to 80% in 1971, but at the higher levels of skill requiring post-secondary education, the proportion of nationals is still only around 40%. This situation has created a relatively high cost government and a dependence on the Austra- lian grant (now equal to about 10% of GDP) to help meet these costs. The shortage of qualified staff is reflected in the existing vacancies in government, and in some departments the shortages of professionals are critical. The establishment of provincial governments is adding to the pressures on existing staff, and the policy of localizing positions held by expatriates adds to the demand for trained Papua New Guineans. While various training programs have been established to fill these needs, they have thus far proved inadequate. 14. The Government's efforts to attain financial self-reliance emphasize modest but steady and sustainable growth in real public expenditure accompanied by a reduction of reliance on foreign aid from Australia. Domestic revenue accounted for only about 36% of government receipts in FY68, 60% of the total in FY76 (immediately after independence); and 68% in 1981. Over the past seven years, the Bougainville copper mine has been a major source of domestic revenue, averaging 18% of the total and reaching a peak of 27% in FY76. While mineral revenues have since fallen, they should be restored to their former levels when the Ok Tedi mine begins production in 1984. 15. Capital expenditures have grown faster than current expenditures in the last two years, and the estimated share of capital expenditures in the 1980 budget is about 20%. In any event, the Government recognizes that the level of current expenditures (over 40% of which is for wages and salaries), high at 28% of GDP, must be contained. However, the availability of the Australian grant and substantial revenues from copper exports has made it somewhat difficult to impose financial discipline in this area. A sharp drop in 1981-82 export earnings induced a budget providing for a 3% real reduction in outlays. 16. While economic management has been sound and a framework for planning economic development has been evolved, the country's growth perfor- mance has been disappointing, averaging little more than the rate of population growth over the 1970s. Of particular concern is a lack of growth in the agricultural sector, which will have to absorb the bulk of the additions to the labor force in the foreseeable future. Despite a great potential for agricultural development, investment in the sector remains low, and its prospects for the coming decade are not bright unless steps are taken to bolster its growth. The major constraints are inadequate extension services - 6 - for smallholders, a lack of finance, land laws which prevent the consolidation of holdings too small for economic redevelopment, a shortage of managerial talent, and legislation designed to encourage the transfer of foreign-owned plantations to Papua New Guineans, which has been a serious disincentive to reinvestment. The Government recognizes the gravity of the situation and has taken some initiatives to improve it, including suspension of the plantation redistribution legislation, measures to supply management skills to Papua New Guinean-owned estates, and preliminary discussions on a reorganization of extension services. Conservative economic management of all sectors of the economy, together with exchange rate policies emphasizing internal price stability and a heavily regulated economic environment more suited to a developed country, have not helped Papua New Guinea resolve the above problems in such a way as to achieve a growth path more in line with its potential. External Sector 17. PNG experienced huge trade deficits prior to the introduction of copper exports in FY73. The current account deficit was around one quarter of GDP in the early 1970s. Imports were over 50% of GDP, whereas exports were only about one-third as high. Since FY73, however, earnings from copper exports have dwarfed those from other commodities, and, except for small deficits in FY75/76 when copper and copra prices fell, the balance on current account, which includes the large Australian grant, remained positive despite large service payments, and reserves of foreign exchange reached ten months' worth of imports in mid-1979. However, falling commodity prices, a decline in the copper content in the output of the Bougainville mine, as well as rising imports and import prices all contributed to a large deficit in the current account in 1980. Reserves are still at a healthy level, but they can be expected to decline further. 18. The current account deficit in the balance of payments is likely to grow for the first few years of the decade, as the requirements for the construction of Ok Tedi cause imports to grow faster than exports, and as PNG's terms of trade remain adverse. By mid-decade, however, the growth rate of imports should fall below that of exports. The country is likely to require an average net capital inflow of over US$200 million p.a. (in 1981 prices) through 1990, but the bulk of it will come in 1981-86, when the copper sector will finance over half of the inflow through direct foreign investment and borrowing. If the rest of the capital requirement is met by concessional loans and through official borrowing on terms similar to those recently obtained by the Government in world capital markets, the result would be a small increase in debt service requirements, especially on account of present high interest rates. Assuming a small improvement in growth rates (to 3.5% p.a.), debt service ratios would rise to 6.5% by mid- decade (the 1981 level was 5.2%) to fall to around 3% in 1990. Total external public debt outstanding as of December 31, 1980 amounted to US$617 million, of which US$162 million (26%) was owed to the Bank Group. Debt service payments to the Bank group are only 9% of total debt service payments. - 7 - PART II - BANK GROUP OPERATIONS 19. As of March 31, 1982, Bank Group assistance to Papua New Guinea consisted of seven loans, nine development credits, and two loans/credits, totalling US$201.7 million. The first operation was a telecommunications loan of US$7.0 million approved in 1968; the most recent, a rural development project of US$8.0 million approved by the Board in April 1982. Project imple- mentation has been satisfactory, though the first rural development project in the Southern Highlands is experiencing some difficulties with recruitment of essential expatriate staff. The rapid turnover of expatriate staff and the transitional problems of recruiting and training their replacements have led to delays in project monitoring and auditing but physical implementation has progressed approximately on schedule. As of March 31, 1982, six credits and six loans were fully disbursed and the effective loans and credits to Papua New Guinea held by the Bank and IDA amounted to US$173.8 million. Annex II contains a summary statement of Bank loans and IDA credits as well as notes on the execution of ongoing projects. 20. In more recent years Bank Group lending has emphasized agriculture with strong support in education and transport. Two loans for hydroelectric power were made prior to 1976, and represented the first attempt to support the energy sector. The Project Performance Audit Report (PPAR) /1 for the first power loan (Loan 737-PNG) indicated the project had generally achieved its objectives. The more recent Project Completion Report for the second power loan (Loan 999-PNG) indicates that physical implementation was satisfac- tory but that the national power company (ELCOM) was performing poorly as an institution because of a attempt at rapid localization of technical staff. The Bank Group has been requested to reenter the energy sector and assist with resolving the long-term problems facing PNG not only in the hydropower sub- sector but in the energy sector as a whole. The first step in this direction has been an energy assessment mission financed by the joint UNDP/IBRD energy assessment program for the region which has served as the background for the next section of this report. The second step has been the technical assistance project proposed herein for the petroleum and gas subsector. A possible third step will be a comprehensive energy sector loan, building on the experience of a specific lending operation and improved sector knowledge. 21. Disbursement performance on Bank Group projects has been extremely varied. Shortly before and just after independence, disbursement rates were unusually high, reflecting the relatively small and simple pre-independence - projects and the fact that they were managed by an experienced expatriate civil service. While the disbursement rates for FY77-81 averaged 38.5%, almost double the regional average of 22.2% for the same period, the figures reflect periodic disbursements of substantial amounts against particular large projects rather than steady disbursements for all projects. This situation is the result at least in part of the move towards more complicated projects and the expected decline in civil service quality following independence. 22. Past Bank Group operations have averaged about one and a half per year which has been increased to two operations per year as from FY81. This level of activity will allow continuous emphasis on agriculture, education and training, transport, and energy. /1 Report No. 2687, October 5, 1979. - 8 - PART III - THE ENERGY SECTOR Background 23. PNG's annual overall energy consumption is currently estimated at about 1.1 million tons of oil equivalent (toe) or approximately 350 kg of oil equivalent per capita per annum, which is about the average for developing countries. Commercial energy consumption accounts for approximately 60% of total energy consumption and is made up of oil products (about 90%) and hydroelectricity (about 10%); noncommercial energy accounts for the balance of 40%, and includes mostly firewood, charcoal and crop residues. In recent years, consumption of petroleum products has been increasing at the relatively high rate of 5.5% p.a., in part because of the growth of the economy, but also because of a temporary increase in diesel-based power generation. In 1981 oil imports at approximately 646,600 tons amounted to K 144 million (US$213 million), which is roughly equivalent to 24% of merchandise exports and 20% of imports. 24. Against this background, PNG is currently undertaking a serious effort to develop its indigenous energy resources, particularly hydroelectric power and wood-based energy. However, the lack of adequate infrastructure in much of the country's interior, together with the relatively small size and dispersion of consumption centers renders the development of indigenous energy resources particularly costly and is therefore often uneconomic. Although petroleum has not yet been found in commercial quantities, PNG remains attractive for petroleum exploration, and even a modest commercial discovery would have a beneficial impact on the economy. Furthermore, following the large oil price increases, previously uneconomic gas-condensate reserves may now be worth developing. Energy Consumption and Resources 25. Traditional fuels (wood, charcoal and crop residues) are the main sources of energy for the rural population (approximately 80% of PNG's total population of 3.1 million). On the basis of limited studies carried out in certain areas, firewood consumption has been estimated at 1.2 kg/capita/day equivalent to 1.2 million tons annually. 26. Imported petroleum products totalled about 646,600 tons in 1981 or about 90% of commercial energy consumption in PNG. The breakdown by product is as follows: Product Thousand tons LPG 4.0 Gasoline 88.5 Aviation fuel 51.7 Kerosene 18.3 Diesel oil 260.1 Fuel oil 224.0 Total 646.6 - 9 - Over 1976-81, overall consumption increased on average by 5.5% annually; the increase was particularly high for diesel oil (12.5%) as a result of increased thermal power generation and a shift from gasoline to diesel oil in the trans- portation sector. On the other hand, consumption of fuel oil and gasoline increased at a slower rate (1.5% and 1.1% p.a., respectively). A single consumer, Bougainville Copper Limited (BCL), accounted for almost 40% of total consumption of petroleum products in 1981 (250,000 tons), including virtually the entire consumption of fuel oil (217,000 tons). There is no oil refinery in PNG, and a feasibility study carried out in 1980 concluded that it was not an economically viable proposition in view of the structure and size of the market, when compared with importing products from refineries in Australia and Singapore, as at present. 27. Electricity consumption in 1981 was approximately 1,200 GWh, of which 70% was used by BCL. ELCOM, the public utility, operates 2 major grids (Highlands and Port Moresby), in addition to 16 small systems. In the island of Bougainville, ELCOM buys electric power from BCL for public supply. In 1981, ELCOM supplied 388 GWh to 41,000 consumers of which 111 GWh were for domestic use and the balance commercial/industrial. As there are only 33,000 domestic connections, less than 5% of PNG's population currently has access to electric power. A large number of small diesel sets are operated in isolated areas by the Government and the private sector. 28. The energy resources of PNG have not been accurately inventoried. PNG has vast forestry resources, and use of firewood has not so far had any appreciable impact on these. The hydroelectric potential is significant, and has been estimated at about 14,000 MW. However, because of the characteristics of the sites, and the small size of the market, much of this potential would not be economic to develop in the foreseeable future. At present the hydroelectric power stations have a combined installed capacity of about 100 MW, and an additional 22 MW are to be developed by 1984. In addition, minor low-grade coal deposits have been identified in PNG, but they have not yet been investigated in detail. The Papuan basin in the south of PNG is generally believed to have good potential for petroleum, and although no commercial discovery has yet been made, several wells had interesting oil and gas shows and oil seeps are widespread. PNG's petroleum potential is discussed in more detail in paras. 37-42. 29. Prices of oil products are based on the c.i.f. cost of imports to which a 3.5% import levy on all products, and an ad valorem duty (32% for gasoline and 20% for diesel oil) are added. In addition, a provision is made for storage and distribution costs (up to K 0.16/liter or US$0.89/gallon) as well as a profit margin. Should the actual distribution cost from a main port exceed KO.16/liter, the Government subsidizes the difference. In 1981, the Government collected approximately K 28.6 million (US$42.13 million) in taxes, and paid K 0.65 million (US$1.0 million) under the subsidy scheme so that there was no net subsidization of oil products in PNG. Prices are revised monthly, on the basis of submissions made by the distributing - 10 - companies (British Petroleum, Shell and Mobil) to the Ministry of Finance. Prices for the main products in Port Moresby in January 1982 were as follows: International Domestic price c.i.f. price K/liter US$/US gallon US$/US gallon Gasoline 0.37 2.07 1.14 Kerosene 0.31 1.74 1.18 Diesel oil 0.33 1.85 1.12 In the case of electric power, new tariffs were introduced in January 1982; instead of a "declining block" type tariff, which reduces the unit cost as consumption increases, flat rate and "lifeline" rates have been introduced; the latter provide that the first 50 kWh are sold at a lower price (K 0.11/kWh or USol7.0/kWh) and any consumption exceeding 50 kWh at a higher price (K 0.16/kWh or USc23.2/kWh). The new tariffs are expected to improve ELCOM's financial performance which has not been satisfactory in recent years, inter alia, because of the increased reliance on thermal generation. Institutional Aspects 30. The Department /1 of Minerals and Energy (DME) has broad respon- sibilities covering the assessment and development of PNG's minerals and energy resources (so far mostly copper and gold), the monitoring of mining and petroleum companies under license, land surveys, water resources, mapping and cartography, geological surveys as well as the formulation of the national energy policy and the implementation of certain renewable energy projects. Under the Minister, a Secretary supervises five divisions in charge of: (a) Policy and Planning; (b) Geological Survey; (c) Meteorology; (d) Mines; and (e) Water Resources. No functional distinction is made between mining and petroleum activities. ELCOM, the national power company, comes directly under the responsibility of Minister of Minerals and Energy, but is a semi- autonomous public enterprise whose policies are formulated by a Board of Directors. 31. Responsibility for energy planning comes under the Energy Planning Unit of the Policy and Planning Division of DME; the Unit was established in 1978. The Unit so far has mainly provided advice on key energy projects, has initiated the collection and compilation of sector data, and promoted the use of renewable energy resources. /1 Departments in PNG are equivalent to Ministries elsewhere. - 11 - 32. The responsibility for petroleum exploration falls under two Divisions of DME. The Geological Survey (headed by the Chief Government Geologist, an Assistant Secretary rank) is responsible for the collection and review of past exploration data and provides technical advice to the Petroleum Advisory Board (PAB - see para. 33). The supervision of ongoing contracts is a responsibility of the Mines Division, which also monitors the safety aspects of the oil exploration activity. This division of duties has not created special problems in the past, but neither the Mines Division nor the Geolo- gical Survey have the staff and resources required to negotiate and monitor effectively the terms and conditions of the Petroleum Prospecting licenses for which they are responsible (paras. 34-35). It would be desirable in the future to consider merging the functions of the Mines Division and the Geological Survey, when it comes to oil exploration, under one unit. During negotiations, the Government agreed to carry out a study on the optimal institutional set-up for the administration and monitoring of petroleum exploration activities not later than July 1, 1983 and to implement those recommendations agreed upon by Government and the Association (draft Development Credit Agreement, Section 3.05). 33. The Petroleum Advisory Board (PAB) has been established under the Petroleum Act of 1977, and is constituted by the Secretary of DME, the Assistant Secretary of Mines of DME, and representatives of the Departments of Finance, Community and Family Services (representing provincial government interests), and NIDA (the National Investment Development Authority); the Department of Justice and (until recently) the Chief Government Geologist act as advisers to PAB. PAB is responsible for the review of applications for Petroleum Prospecting Licenses (PPL), and advises the Minister of Minerals and Energy on appropriate terms and conditions (including work commitments) for the award of licenses. The Petroleum Agreement which is negotiated usually at the time of award of the Petroleum Prospecting License is negotiated by an informal group chaired by the Secretary of DME, which also includes representatives of the Departments of Finance and the National Planning Office. The Chief Government Geologist is the main source of technical inputs on exploration on the PAB; he handles all overseas contacts and supervises the operations of the Petroleum Resources Assessment Group (PRAG) (para. 34). At the appraisal mission's recommendation the Government has upgraded the position of the Chief Government Geologist from advisor to full member of the PAB. 34. Until recently, DME had virtually no staff familiar with the various technical and business aspects of petroleum exploration because of: (a) higher priority given to the large mining projects in the country (in particular BCL and Ok Tedi); (b) budgetary constraints in the recruitment of new expatriates; and (c) the impossibility of accommodating petroleum personnel within the official salary scales. In 1978 DME suggested the creation of a Petroleum Resources Assessment Group (PRAG) under the Chief Government Geologist, consisting of two petroleum geologists, one petroleum geophysicist and four support staff. Although this initiative was approved by the Government, recruitment of qualified staff proved impossible because of inadequate salaries and the absence of active petroleum activity in PNG. - 12 - 35. In view of the scarcity of trained nationals, and the attractive salaries offered by the mining companies operating in PNG, DME has serious difficulties in hiring and retaining local staff, particularly geologists, therefore its reliance on expatriates will have to continue in the foreseeable future until a sufficient number of nationals gain appropriate experience to fill the key posts. Hydrocarbon-related Geology and Status of Oil Exploration 36. The Petroleum Act of 1977 governs petroleum exploration and development in PNG. Companies initially obtain a Petroleum Prospecting License (PPL) for a six-year period over an initial area of about 5,000 sq km. An initial two-year work program and expenditure commitment is agreed upon prior to issue of the PPL, and at two-year intervals the licensee has to submit an additional work program satisfactory to the Government. In the event of a commercial discovery, companies have the right to obtain a Petroleum Development License (PDL) for 25 years. The Government has a carried interest (which in recent contracts has been 22.5%) through both exploration and development with the "carry" repaid from the State's share of future production. The license pays a low 1.25% royalty, a 50% petroleum income tax and an additional profits tax payable after the investor has recovered his investment and a predetermined return on capital. Taking into account PNG's modest prospects and the high cost of exploring in PNG, the fiscal framework is satisfactory since it provides good incentives to develop small or high cost fields while ensuring that a larger share of profits accrue to the State from highly profitable fields. 37. There are basically i-r principal sedimentary basins in Papua New Guinea (see map attached, IBRD No. 16390). The largest and most explored thus far is the Papuan Basin occupying the area south and west of the Central Highlands/Owen Stanley Range. About one half of this basin lies in Papua New Guinea, the remainder in Irian Jaya, Indonesia. The smaller North New Guinea and Cape Vogel basins lie north and east of the Central Highlands. These basins have a common history and thus are similar in many respects. Minor sedimentary basins are associated with the New Britain/New Ireland basin in the Bismarck Archipelago and the North Solomons. 38. The Papua New Guinea portion of the Papuan Basin covers about 250,000 sq km, of which some 200,000 sq km are onshore and 50,000 sq km offshore, a small portion of which is in a water depth greater than 200 m. The NW-SE trending Papuan Basin has an asymmetric configuration with a broad, gently dipping southwest flank and a steep, partly overturned northeast flank in the foothills of the Central Highlands. The depositional axis of the sedimentary section occurs at or near the highly structured - 13 - northern flank. The basement fill consists of northward thickening Jurassic and Cretaceous clastics (sands and shales) overlain by a primarily limestone Tertiary section (principally Miocene). Total sediment thickness exceeds 10,000 m in the folded foothills belt. The thick Jurassic shale section has good source rock characteristics and prospective reservoirs include the thick, porous Upper Jurassic Toro Sandstone and the massive Miocene limestone sections. The northeast basin rim is highly structured with overturned folds and accompanying thrust faults. The southern flank is essentially unstructured as the amplitude of folds diminishes rapidly south of the disturbed belt. 39. The North New Guinea and Cape Vogel basins of northern Papua New Guinea are poorly defined. Thick Tertiary volcaniclastics and carbonates infill down-faulted grabens separated by NW-SE trending upfaulted blocks. The New Guinea basin occupies an area of 110,000 sq km, mostly onshore, while the Cape Vogel basin to the east lying between the Owen Stanley Range and the d'Entrecasteaux Islands has a size of about 45,000 sq km, mostly offshore. The basins appear to be structured but lack of data precludes as yet a determination of the size or amplitude of structures or the existence of mature source rocks and/or good reservoirs. 40. Past exploration has focussed very largely on the Papuan basin. Prior to 1942, some 41 shallow wells were drilled in the basin, all to depths of less than 1,000 m and all close to surface oil seeps. Since then an additional 60 exploratory wells have been drilled, many of them to test deeper levels. This work has resulted in seven noncommercial discoveries - five gas, one gas condensate and one very small oil deposit. The gas discoveries have not been fully evaluated but are estimated to contain possible reserves of 1-3 trillion cu ft. Despite the fairly extensive exploration history, the potential of the basin has not yet been adequately evaluated since: (a) there have been no valid tests in the complex foothills area where most recent data indicate source and reservoir rocks are likely to be juxtaposed; (b) drilling density in the region of lower amplitude structures has left many features untested; and (c) follow-up drilling around discoveries has been minimal to non-existent. 41. The North New Guinea and Cape Vogel basins have had very little exploration - the former because of the extreme difficulty of access. The existence of oil seeps, structures and the possibility of mature source rocks makes the petroleum potential moderately interesting. To date only four wells have been drilled in these basins. 42. Since Independence nine prospecting licenses have been signed in the Papuan basin and two in the New Guinea and Cape Vogel basins. Another six licenses have been applied for, all in the Papuan basin. The areas presently under license include only one third of the Papuan basin and about 10% of the other basins. Six exploratory wells will be drilled over the next two years (all in the Papuan basin) and about two wells a year - 14 - thereafter based on current work commitments. Despite this, there are good prospects for increasing the areas under license and the rate of exploration if an effective promotion program is implemented. 43. The fact that discoveries have been made plus the presence of hydrocarbons in other wells and at the surface, demonstrates that oil and gas generation has taken place in the Papuan basin. The same is likely for the northern basins although based on less substantial evidence. Both traps and reservoirs are also known to be present. Scores of known structures remain to be tested and the Government of Papua New Guinea is offering licenses on reasonable terms. The inhibition to accelerated exploration lies in four areas: (a) the structural environment is very complex (especially in the Papuan foothills); (b) knowledge of the basins outside Papua is very limited; (c) the cost of exploration is very high due to the remote environment, which is also harsh onshore, and the lack of suitable infrastructure; and (d) discoveries and shows to date indicate the basin to be gas-prone. In spite of this, there is a good prospect that, given sufficient exploratory drilling, Papua New Guinea will become at some point a producer of oil and/or natural gas. Exploration Strategy and Role of the Bank Group 44. The initiative to explore in PNG has come from the oil industry as minimal expertise was available within the Government in the oil exploration field (para. 34). While the Government is keen to maintain the key role of private oil companies in exploring PNG's prospects, it would like at the same time to be in a better position to negotiate firm work commitments and to monitor their activities from a technical and financial standpoint, as well as to promote greater interest in oil companies taking exploration concessions in open areas. This is not possible without: (a) a good understanding of the petroleum geology and the results of past exploration efforts; and (b) staff knowledgeable in the technical and contractual aspects of oil exploration. 45. The absence of petroleum expertise in PNG has also meant that the Government has not been able to assess independently the scope for developing proven gas and condensate reserves for domestic use, following the large petroleum price increases of recent years. The Pasca gas-condensate field in the Gulf of Papua, discovered by Phillips in the late 1960s and relinquished in 1975, was estimated to contain possible reserves of one trillion cubic feet of gas and up to 50 million barrels of condensate. Commercial development may be possible and gas production could provide a viable source of power for ELCOM in Port Moresby. Similarly, attention is being given to the possible utilization of the onshore gas in Papua as a source of power to supplement the Ramu hydro system in the Highlands. PNG recognizes that it does not have the expertise to evaluate the potential for development of these petroleum resources and is anxious to obtain technical assistance in these areas quickly since ELCOM must soon make major decisions regarding power system expansion. - 15 - 46. The Government's objectives are worthy of support, and the proposed Project will constitute a first attempt to provide high-level expertise to the Government in oil exploration, as well as a good grasp on PNG's prospects through a detailed re-examination of past exploration data. It will also permit a preliminary evaluation of the possibilities for domestic utilization of known gas reserves. The project would represent the first lending opera- tion in the petroleum subsector of PNG. By financing this Project, the Bank Group would be in a position to provide much needed support in the subsector, and in particular provide essential advice as results from * ongoing exploration activities become known. So far, the Government has been particularly responsive to suggestions formulated by the staff on exploration strategy in general, and the conceptual preparation of the project in particular. PART IV - THE PROJECT Introduction 47. The proposed Project was identified by the Government in 1978, prepared by consultants in the second half of 1981, and appraised in February 1982. Negotiations were held in Washington on May 3-6, 1982, and the Government delegation was led by Mr. Eliakim ToBolton, First Assistant Secretary, Department of Finance. Supplementary Project Data are given in Annex III. No Staff Appraisal Report was prepared. Project Preparation 48. In order to prepare the Project, the Government retained the services of Robertson Research (consultant, Australia/UK, referred to as RR), which was recruited in accordance with normal Bank Group guidelines. The services of RR were financed through a US$250,000 advance under the Project Preparation Facility (PPF). 49. During the second half of 1981, RR carried out an overall review of past exploration data available in Port Moresby, Canberra and Sydney, follow- ing which it recommended a program aimed at accelerating oil exploration in PNG. The Project was thus defined on the basis of RR's recommendations, and subsequent discussions of Bank Group staff with PNG officials and RR representatives. Project Objectives 50. This Project has four major objectives: (a) to generate an integrated picture of the petroleum potential and identify new exploration leads; - 16 - (b) to assemble all past exploration data in Port Moresby and organize a data base to enable the Government to design oil exploration strategies based on a continuous review of past and current exploration data; such a facility will also facilitate the familiarization process of new oil companies interested in exploring PNG's potential; (c) to strengthen the capacity of the Government to offer areas for industry using competitive bidding and to improve the review and monitoring of company activities and negotiating satisfactory work programs; and (d) to re-evaluate the potential for commercial development of known gas reserves, both for domestic power generation and for gas- based export projects. Project Description 51. In addition to the preparatory study, the Project would include the following components: (a) A geological/geophysical reassessment component consists of a detailed review, to be carried out by consultants, of the four main sedimentary basins of PNG, with the objective of preparing basin studies designed to identify new exploration targets and hence enhance industry interest. This component includes the reprocess- ing of approximately 1,000 line-km of past seismic data, interpre- tation of 33,000 line-km of seismic data and the analysis and interpretation of past geological and aeromagnetic data, together with a limited number of geochemical and palynological analyses of past wells. No new geophysical data acquisition is proposed, except for a short airmag survey (3,000 line-km) and a single offshore seismic line (80 km) both in the Cape Vogel basin, which would permit a more thorough understanding of basin characteristics. However, this data acquisition would normally be carried out when the necessary survey equipment was already mobilized in PNG by a foreign oil company so that, by avoiding payments of the high mobilization/demobilization costs, the data could be obtained cheaply. This component will also include a re-evaluation of six gas discoveries judged up to now as noncommercial. (b) The strengthening of Geological Survey component includes training of two nationals (a geologist and a geophysicist /1) at the facilities of the consultants referred to above, a building facility for the Petroleum Resources Assessment Group (PRAG), /1 Nationals to fill both posts have been identified. The geologist is completing his schooling and the geophysicist is to be transferred from the Mining Section of DME. - 17 - basic equipment for that facility, the services of a Project Manager and, as required, technical assistance for negotiations. PNG has successfully recruited two young (expatriate) petroleum geologists who would constitute the nucleus of PRAG. The Govern- ment has also agreed that appointment as Project Manager of a senior explorationist with the appropriate experience in the business side of oil exploration would be essential for the successful implementation of the Project. The Project Manager's role would be, inter alia: (i) to supervise, on Government's behalf, the geological/geophysical re-asssessment component; (ii) to build up the PRAG unit; (iii) to advise Government on exploration strategy in general and during negotiations in particular; and (iv) to help promote PNG's prospects. He would be appointed on a retainer contract with a commitment to visit Port Moresby 4-6 times a year for periods of 1-2 weeks. (c) The promotional efforts component provides for promotional trips of the geological/geophysical consultants, PNG officials and the Project Manager to Europe and North America in an effort to draw oil industry interest to PNG's prospects and thus accelerate the pace of oil exploration activities. (d) The gas development study component provides for a consultancy to undertake a prefeasibility study of the economics of developing the offshore Pasca /1 field to strip condensate from the wet gas and, possibly, to supply natural gas to Port Moresby. This study has high priority for the Government, as negotiations with Superior Oil, the current concession holder, are scheduled for mid-1982. It will be carried out by a specialized consultant in parallel with the reservoir studies on Pasca and five other discoveries, which are part of the geological/geophysical re-assessment. (e) The other studies component represents a provision for high priority studies related to the energy sector and which are not defined at this time, but for which the need may arise in the next two years; in particular, there could be a need, subsequent to the Pasca gas reservoir and development studies, to carry out a gas utilization study. These studies will only be initiated after the Association has agreed to their scope and terms of reference. Project Cost 52. The total cost of the proposed Project, including the refinancing of the advance under the PPF used to prepare the Project, is estimated at US$5.6 million, excluding duties and taxes from which the Project is exempt. /1 The offshore gas/condensate Pasca field was discovered in the 1960s by Phillips (US), and is currently in a concession held by Superior Oil (Canada and Australia). - 18 - The foreign cost is estimated at US$5.0 million. Details of project costs for each component and the financing plan are given in the Credit and Project Summary. The estimate is given in early-1982 prices, on the basis of the cost of international consultancy services in petroleum exploration. Physical contingencies at 15% were provided for the geological/geophysical reassessment component. Price contingencies for both the foreign exchange and local costs are at 8.5% for 1982, and at 7.5% for 1983 through 1985. Financing Plan 53. The proposed IDA Credit of US$3.0 million and the OPEC Fund loan of US$2.0 million would finance the full foreign exchange cost of the Project, equivalent to about 90% of the total Project cost. The local costs totalling US$0.6 million would be funded by the Government; appropriate provisions to that effect have already been made in the government budget. OPEC has made a preliminary commitment to cofinancing for this project but is not expected to present the project to their Board until November 1982. In the case that OPEC funds do not materialize, the Government has also agreed to finance the additional US$2.0 million from its own resources (draft Development Credit Agreement, Section 3.01(b)). In view of the urgency in appointing the Project Manager, and initiating the reservoir and development studies on Pasca (para. 51), it is proposed that up to US$275,000 of expenditures incurred after March 1, 1982 on those items be reimbursed on a retroactive basis. Consultant Services 54. The Project includes approximately 60 man-months of consulting services in the geological/geophysical reassessment component, as well as 25 man-months of services by the Project Manager and other technical specialists needed on a short-term basis, for the strengthening of the geological surveys component. The average cost per man-month is estimated at US$16,000 for the first category, and US$18,000 for the second one, including travel, subsistence and direct overheads. These rates reflect the high level of petroleum industry costs as well as the high cost of living structure in PNG. Project Organization and Management 55. The PRAG unit of the Geological Survey Division of DME would be in charge of Project implementation. It would be assisted in its work by the Project Manager (para. 51(b)). The geological/geophysical reassessment is expected to require approximately two years beginning in July 1982 while the assignment of the Project Manager would cover, intermittently, a three- year period. The early appointment of the Project Manager is considered essential for the successful implementation of the Project in general, and the geologist/geophysical re-assessment in particular. Appointment of the Project Manager is a condition of effectiveness (draft Development Credit Agreement, Section 6.01). - 19 - 56. At present, no adequate office facilities exist for the PRAG unit, but at the end of the second year of the geological/geophysical reassessment, much of the collected data, reports, samples, etc., are to be transported to Port Moresby for permanent storage. The Government has recently decided to provide such a facility in the vicinity of the offices of the Geological Survey Department. Assurances were obtained during negotiations that an adequate facility will be provided to the PRAG unit by January 1, 1984 (draft Development Credit Agreement, Section 3.06(a)). Procurement 57. Consultants will be selected in accordance with Bank Guidelines for the Use of Consultants, and employed under terms and conditions satisfactory to the Association. For computer processing, quotations are to be obtained from several firms. The acquisition of new geophysical data (para. 51(a)), will only be executed if attractive offers can be obtained from contractors already operating in PNG for foreign oil companies. Such services are not expected to cost over US$250,000 with a ceiling of US$150,000 on each contract. Equipment for the office facility will be procured on the basis of standard government procedures, which were examined during appraisal and found satisfactory. In view of the amounts involved, and the procedures proposed, the above arrangements are acceptable to the Bank. Disbursement 58. Since it is expected that the IDA credit will become effective before the OPEC loan has been approved, the intention is to begin to disburse first against the IDA credit. Upon effectiveness of the OPEC loan, disbursements will be made on a pro-rata basis, according to the amount remaining in the IDA credit account. Disbursement would be made against 100% of foreign expenditures for consulting services, geophysical surveys, acquisi- tion of data and directly imported equipment and materials, printing services, and 100% of total cost for overseas training and promotional activities, which would be fully documented. Accounts and Audits 59. It is expected that, during Project implementation, the DME will receive monthly progress reports from the consultants under contract. During negotiations, assurances were obtained that during Project implementation the Bank will receive quarterly technical progress reports from the DME and a Completion Report towards the end of project implementation (draft Development Credit Agreement, Section 3.04(c) and (d)(i). 60. The accounts of government entities in PNG are examined annually by the Auditor General whose report is submitted about seven months after the end of the fiscal year. A separate account has already been established - 20 - for the PRAG unit. During negotiations, assurances were obtained that the Auditor General will carry out an audit of the Project Accounts, and his report will be submitted to the Bank not later than nine months after the end of the fiscal year (draft Development Credit Agreement, Section 4.01(b)). These arrangements are satisfactory. Project Benefits and Risks 61. The main benefit of the Project is that, on its completion, PNG will: (a) have a well-equipped unit better able to monitor oil companies' activities on a sound technical basis; (b) have a petroleum geology data base, thus enabling the Government to have a good understanding of PNG-s prospects, and be in a better position to attract oil companies to take exploration licenses; and (c) have an assessment of past discoveries, and the potential for domestic gas utilization clarified so that their develop- ment could be integrated within PNG's development programs. 62. As the Project is essentially a technical assistance Project, there are no significant physical implementation risks attached to it. The main operational risk associated with it is that the consultants may not perform up to expectations. Therefore, special care will be given to the selection of consultants. The Project Manager is expected to provide essential support to the PRAG unit in supervising the consultants in charge of the geological/geophysical reassessment. In view of these precautions, this risk has been minimized. 63. Another possible operational risk of a longer-term nature is that, following project completion, recruitment constraints would prevent the PRAG unit from functioning up to expectations. In order to provide continuity, the Chief Government Geologist intends to recruit two more nationals to be trained to assist the local geologist and geophysicist (para. 51(b)). In the event the latter should leave for private industry, they could be replaced by the former. It is expected that towards the end of project implementation the Government will submit, along with the Project Completion Report, an evaluation report assessing the PRAG unit, outlining its future role and the nature and extent of Government's support towards the continuation of PRAG's activities (draft Development Credit Agreement, Section 3.04(d)(ii). PART V - LEGAL INSTRUMENTS AND AUTHORITY 64. The draft Development Credit Agreement between the Independent State of Papua New Guinea and the Association and the Recommendation of the Committee provided for in Article V, Section 1(d), of the Articles of Agreement of the Association, are being distributed separately to the Executive Directors. 65. A special condition of effectiveness is that the Project Manager will have been appointed (para. 55). Special conditions of this project are listed in Section III of Annex III. 66. I am satisfied that the proposed Credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 67. I recommend that the Executive Directors approve the proposed Credit. A.W. Clausen President Attachments June 14, 1982 Washington, D.C. - 22 - ANNEX 1 Page 1 of 5 TABLE 3A PAPUA NEW GUINEA - SOCIAL INDICATORS DATA SHEET PAPUA NEW GUINEA REFERENCE GROUPS (WEIGHTED AVERGES LAND AREA (THUUbAND SQ. KM.) - MOST RECENT ESTIMATE) TUTAL 461.7 MOST RECENT MIDDLE INCOME MIDDLE INCOME AIRIULTUKAL 4.7 1960 L 1970 /b ESTIMATE Lb ASIA & PACIFIC LATIN AMERICA & CARIBBEAN UNP PER LAPITA (LS$) 18U.0 360.0 780 1136.1 1616.2 ENERGY lUNSUMPTIUN PER LAlITA (KILOGRAM OF LUAL EQUIVAENT) 51.0 146.0 299.0 1150.6 1324.1 PUPULAIlUN AND VITAL STATSTICS POPULATION, MID-YEAR (THOUSANDS) 1932.0 2394.0 2939.0 URBAN POPULATION (PERCENT OF TOTAL) 2.7 9.8 17.0 40.8 64.2 POPULATION PROJECTIONS POPULATION IN YEAR 20UU (MILLIONS) 4.0 STAIIUARY POULATION (MILLIONS) 9.0 YEAR STATIONARY POPULATION IS REACHED 2125 FVPULAIIUN DENSITY PER Sq. KM. 4.2 5.2 6.4 373.1 34.3 PER SQ. KM. ARICULTURAL LAND 508.4 544.1 617.6 2382.8 94.5 POPULATION AGE STRUCTURE (PERCENT) 0-14 YKb. 40.5 42.0 42.0 39.8 40.7 1b-U4 YKS. 56.6 55.0 54.8 56.7 55.3 I) YRS. AND ABOVE 2.9 3.0 3.2 3.5 4.0 PUPULAllUN GROWTH RAIl (PERCENT) TOTAL 1.8 2.2 2.3/c 2.3 2.4 URBAN 15.3 15.2 8.7 3.8 3.7 LUUL BIRTH RAlt (PER IHOUSANU) 44.0 41.3 37.2 29.7 31.4 UKUDE DLATh KAIL (PER THOUSAND) 22.8 17.9 15.4 7.5 8.4 URUSb REPRUDUCTION RATE .. 2.9 2.6 1.9 2.3 FAMILY PLANNING ACEPTURS, ANNUAL (THOUbANDb) .. .. USERS (PRLNI OF MARRIE1 WOMEN) .. .. 3.0 44.1 FOUD ANJ NUTRI1uiq ItDEX UF FO PRuODUCTION ?ER CAPITA (1969-71100) 100.0 100.0 106.0 123.7 108.3 PER LAPITA SUPPLY OF LALORILS (PERLENT OF RLQUIREMENIS) 6.0 93.0 85.0 112.6 107.6 PRUILINS (GRAMb PER DAY) 40.0 46.0 46.0 62.5 65.8 UF WHILH ANIMAL AND PULSE 22.0 20.0 20.0 19.7 34.0 CHILD (AGES 1-4) MORTALITY RATE 28.5 2U.9 18.3 4.8 7.6 HEAL 1h LIFE LXIPECIANCY AT BIRTH (YEARS) 40.6 46.6 50.5 64.0 64.1 INFANT MORIALIt RATE (PER THOUbANU) 159.0 106.0 .. 50.2 70.9 ACCESS TO SAFE WATER (PERCENT OF POPULATION) UTOAL .. .. 20.0 45.9 65.7 URBAN .. .. 30.0 68.0 79.7 RURAL .. .. 19.0 34.4 43.9 ALLESS TO EXLRETA DISPOSAL (PLKCENT OF PvPULAILU) TOTAL .. 14.0 18.0 53.4 59.9 URBAN .. .. .. 71.0 75.7 RURAL .. 5.0 5.0 42.4 30.4 POPULATION PER PHYSICIAN 14390.0/d 11630.0 14040.0 4428.7 1728.2 PUPULAIION PER NURSING PERSON 245U.0/d 2370.0 1934.0 2229.7 1288.2 FUPULAflUN PEK HubPiIAL BLu fOlA. 170.0Ld 150.0/e 214.9 588.5 471.2 URbAN .. .. 101.1 579.6 558.0 RURAL .. .. 270.5 1138.5 ADMibbIUNS PLK HOSPITAL BED 36.7 8uUSiNl AVLKACE S1LE OF HOUSEHOLD rUIAL 3.1 .. 5.0 URSAN .. .. kURAL .. AVtRAGE SUMbER OF PERSONS PLK RNM IOYAL 0.7 .. URBAN .. .. RURAL .. .. ACLESb To LLECTKRICTY (PERLENT 06 D)ELLINGS) 101A.L 80.0 .. UKBAN .. .. RURAL .. .. . - 23 - ANNEX 1 Page 2 of 5 TABLE 3A PAPUA NEW GUINEA - SOCIAL INDICATORS DATA SHEET PAPUA NEW GUINEA REFERENCE GROUPS (WEIGHTED AVE ES - MOST RECENT ESTIMATE)- MOST RECENT M E OE MIDDLE INCOME 1960 ib 1970 /b ESTIMATE /b ASIA 6 PACIFIC LATIN AMERICA & CARIBBEAN EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 32.0 52.0 60.0 99.8 101.7 MALE 59.0 64.0 70.0 100.6 103.0 FEMALE 7.0 39.0 49.0 98.8 101.5 SECONDARY: TOTAL 1.0 8.0 13.0 53.5 35.3 MALE 2.0 11.0 18.0 58.4 34.9 FEMALE 0.5 4.0 8.0 48.6 35.6 1 VOCATIONAL ENROL. (Z OF SECONDARY) 16.0 19.0 26.0 21.1 30.1 PUPIL-TEACHER RATIO PRIMARY 35.0 30.0 30.0 34.2 29.6 SECONDARY 18.0 23.0 23.0 31.7 15.7 ADULT LITERACY RATE (PERCENT) 29.4 32.1 32.1 86.5 80.0 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 2.0 7.3 6.2 12.7 42.6 RADIO RECEIVERS PER THOUSAND POPULATION .. .. 44.5 174.1 215.0 TV RECEIVERS PER THOUSAND POPULATION .. .. .. 50.6 89.0 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION .. .. 8.9 106.8 62.8 CINEMA ANNUAL ATTENDANCE PER CAPITA .. 1.0 .. 4.3 3.2 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 1058.4 1244.9 1464.6 FEMALE (PERCENT) 41.4 41.3 41.0 37.4 22.6 AGRICULTURE (PERCENT) 89.0 86.0 82.4 50.2 35.0 INDUSTRY (PERCENT) 4.3 5.8 7.5 21.9 23.2 PARTICIPATION RATE (PERCENT) TOTAL 54.8 52.0 49.8 40.2 31.8 MALE 61.2 58.5 56.7 49.8 49.0 FEXALE 47.7 44.9 42.5 31.1 14.6 ECONOMIC DEPENDENCY RATIO 0.8 0.9 0.9 1.1 1.4 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS HIGHEST 20 PERCENT OF HOUSEHOLDS LOWEST 20 PERCENT OF HOUSEHOLDS LOWEST 40 PERCENT OF HOUSEHOLDS POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 400.0 248.6 RURAL .. .. 275.0 193.7 187.6 ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. .. 249.8 513.9 RURAL .. .. .. 234.3 362.2 ESTIMATED POPULATION BELOW ABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN .. .. 10.0 21.2 RURAL .. .. 75.0 32.2 Not available Not applicable. NOTES /a The group averages for each indicator are population-weighted arithmetic means. Coverage of countries among the indicators depends on availability of data and is not uniform. /b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1976 and 1979. c Indigenous population growth rate is 2.8%; /d 1964; /e 1966. * The updated 1980 GNP per capita and population My,1961 estimates to be shown in the 1981 World Bank Atlas are $780.0 (at 1978-80 prices) and 3,007.O thousands. ANNEX 1 -24- Page 3 of 5 DEFINITIONS OF SOCIAL INDICATORS Notes: Although the dato are drawn from ourcs generally judged tho most authoritative and rolioble, it shoold alecs bm otad thr they may not be inter- nationally comparable becase of tho lack of standardizod definitione and concepts used by difforent countries it collecting the data. The dato are, tore- theless, useful to decribe ordets of magnitude, indicate trends, and characterloo certaln major differences betreen countnrie. Tho referene group, are (1) the same country group of thesubject country and (2) a country group with somewhat highor average incoma than the country group of the aubjert country ecept for "Capital Surplas i Exportere" group where "Middle Inome North Africa and Hiddle Satt" im ritten borauoe of mtonger socio-cultural offiritieo). lo th reference group data the average tre $ polation oeighted arithmetic mears for each indicator ord shon only oket morimy of the countries in a group has data for t hat indiator. firce aba coverogr of counrrien aong the tndicators dryenda or tho ovailohility of data and is not uniform, coution muet be exercised in relating averages of ra indicator co ocother. Thoseoverags are orly useful incoparng chr value rf one indicor at a time among the country and reference groupa. LAND AREA (thusrnd Eq.km.) Pop'ulation per Hosyital led - total, urbot,and rural - Population (toal, Total - Total surfa areo omprising lord aretd inlad notera. urban, ord rural) divided hy thcer rempect number of hospital brdo Agricultural - timate ro agrirultural oroa used remporarily rr permanntly avalilbl it pul ord prirote generil tnd npecalerd ho.pital an re for crops, pastures, market ord kitchen gardera or to lie fallo 1 97 doa. bhlblitatiro enters. Hospitals are ettabliansent permanenti tstatd hp at leamt one .hysilian. Establishmento providirg principallyousto- GHP PIR CAPITA (InS) - TNP por ropita estimatts nt current norhen prices, caul- dil oarnorecot ircluded. Huao hopitole, hoerer, inoludo halth rulated by same conorrsion method at World Hoek Alao (1977-T9 bonoo); 1960, ord mediral cente non permaently otoffed by o phyoicitn (hot by 1970, ond 1979 data. medical assistan, nurme, mid,ife, ear.) whirh offer in-patienrcacoo- dation ond previde a linited range of medioal facilitis. Fot atnio- ENERGY CONSUMPTION PER CAPITA - Annual conaosption of conmerciol energy froal tical yurpoe urhar hosptalm inclde WHfo princoipl/general hospitals, ond lignine, petroleam, naral gasand hydre-, nucleor ord gootheal tior- and rural hoopitalr local orreol hoepitale ord medical and matrnity tricity) in kilogra of coal equirolen per capita; 1960, i970, ord 197H coateem. Specialired hompitole are inoluded onlp raden total. dona. Admissions per Hosoitol Bed - Total number of afisiont to nr diechargres fron hospinalo divided hy tho number of hedo. POPULATION AND VITAL STATISTICS Total PoPulation, Kid-Year (thouande ) - As of Jaly 1; 1960, 1970, ord 1979 HOUSING dato. Averae Sie af Hrusehold lpersons ner househoil - total, urhan, ond crol- Urban Porulatinn (percnt of toll - Rati of urban to total population; o household contiste of a group of individualm who ahore living quaters differet definitions rf urban areas may affott coporability of data ood aheir malm felo. A hoarder or lodIer may or may rot be includrd lo aong counries; 1960, 1970, ord 1979 dato. tha houmehoid for atatistical purposet. Populatinn Prolections Average number of nersonper roon - total. , ord ral - Arege nm- Population in yrr 2000 - Currena populaton projectiote are hased on 1980 ber of perso per rent in all urhan, ond rural occupiod convenional total populatiot by age and se ond their nortality and fertility rate. dwellingt, respectively. Daellirga excdsron-permnt structteand Projection parameter for .ortolty rat comprise of threo leve assue- anocoupied porte. ing life expectancy at birth inreag eick ountry'a per oapito Access to Electricity (percent of dwelling) - tonol, arban, ord rural - lerel, and fomale life exprctay ntabilizing et 77.5 eorm, The para- Conventional dnellicgs wftb rlecoricity Hr living quarteas percentage meters for feroility rate alan have three levels a.uing decline in of total, urbo, and roral dwellingsrrspeti ely. fertility according to income ltrel and past family planning perforeance. Eachncocnry im thon assigned one nf these nine comhinaton. of mornalty EDUCATION od fertility trerde fot projection puryoseo. Adusted E Erollneot Ratin Stationary population - sastaionary populotion the e no grooth aince Primary mchonl - tol, malm ood fomaln - Gosm totol, male tnd female the birth ratt it equal co the dooth rane, and also abeageas trtrr- enrollment of ol ages on nhr primary level at percentages of respeotire ain .coetant. This ha achiered nnly afeer fortility rate decline to primary mhool-age popalatiot; cormally inoludet obildren aged 6-11 tha replacemon level of cot neT rrproduction ra, ohen tach geoeratior year hu t adjused for differen len gt of primary education; for of romeo replaces intf enactly. Tho stationary popula ah a oa countriteirh universal educatio enrollment may exceed 100 percent estiated or the baois of chr yrojected characterintics of tho ppoulaon salce soom pupils oro belon or abore abe officIal school age. in chr year 2010, and the rate of decline of fertility rate te replace- Sondary nohool - antal, mabl and femal - Computed on abov; ecoodary nert lerl. ductlon requirerat least four years of approred primary instrction; Yearstcaionary Population is reached - The year when stationary population provides general, rocatioral, or teacher trilnig instructions for pupi tito has bee reached. uall1iy of 12 to 17 Yesoa of age; correapondence cures art grotraliy Porulation Desity exceldd. Per er. km. - rtid-year populatin pr square kli loeter (100 hectares) of Voctional enrollnot (percena of oacondary) - Votionol inoitutioos total area; 1960, 1970 ord 1909 dato. iclude trehnical, industrial, or other progrma which operate independ- Per nr. lot. agricultural lod - Computed as above for agricultural land ently or an departnenta of tocordary institutionm. orly; 1961, 1970 and 191 data. Pupil-teacher rotlo -- primary, ond econder - Total mtudents enrolled in Populatio Ae Structure (percent) - Childrer (0-14 years), working-age (15- yriary ord necoodary lorrla dirided by oumbero of teachert in chr 64 yeara), and retired (65 years and over) as percetagrs of etd-year popu- correspooding levele. latio; 1960, 1970, and 1979 data. Adult literocyrate (prroc) - Literate adots (able to read and writ) Population Crowth Rane (percent) - total - Anaal groeth ratos of total mid- as a percentage of utol adult population aged 15 years and ovr. year populalton for 1950-60, 196e-70, And 1970-9. Populattot Gronth Rate (percent) - urbn - Anual growth rates of urban popu- CONSUMPTION latiors for 1910-6, 1960-70, ond 1970-79. Passenger Sort (per thouoand opulation) - Pesoenger tore comprist notor Crude Birth Rate (per thousnd) - Arual live births per thousand of mid-year cars tooting Sens thor eight persons; excladte mbalanoes, ho ars ord population; 1960, 1970, ond 1979 data. military vhicles. Crude Death Rate (per thousood) - Anual deaths per thousands of mlid-year tadio tereirers (tor houanrd poltin) - bli types of receiveta for radio popution; 1965, 1910, and 1109 dato. broadoomte to general public per thouand of populatio; exclodat ro- Groas Reprodton Rate - Average number of daugheranomanll hear to licensedrectvr in cou.taries ad it years nhen registration of radio enormalrproductie period tf abe experienres preeentage-spocific for- orts wa. in effect; data for rtcent years may not be comparable titt tilityare;usually five-year averagese edig in 1960, 1970, and 1909. mt countries abolished licnesg. Family Plang - A cePtor. Anual ( rthoura - Anar-l umber of acceptors TV Rteee (or thousand population) - TV receiver tor broadcart in of birth-cotrol devioce under apices of natioal faily plancing program. generl publio per thousand population; excludea unlicersed TV receivers Family Planin -ser (percent of married women) - Prrcena.ge of married inountries ord in yers when regi=ation of TV sets was in effect. women of chld-bearingagr (15-44 years) who ute birth-orntrol devices co Nensparer Circulation (pr thousard nopulatio) - Rhone tho arrage cia- alt married omen onont age group. culation of "daily general interest neepaper", defied as a periodical publicion deroted primarily to recording genroal in. It ta considored FOO D NUTRITION to be "dolly" if in appears a let four tiren a neek. Inder of Ford Prodotion or Capita (1969-71-100) - Index of per caitaoannul Ciemo Annual Atteadane Ort ita Ya - BTo ..ased or t nmbr of production of all fond commodities. Productio excldesaod ad fred ond ticketa sold during chr ytor, including adai,sions to drlve-. ciomas in or alendar year basis. Commoditiesoover primary goods (t.. ugarcane und obile utics. instead of augor) which are edible ond cotainr utrts (eg. coffee and ta are excluded). Aggregate production of each country in based o LABOR FORCE ntonol average producer yrice wights; 1961-65, 1970, ond 1909 data. Total Labor Forte (thousands) - Eonomically active pornone, including Per canita suply of alorist (percent of requiraen) - Coputeod fro ard forten od unemplryed butexludtng housewives, students, etc., rnergy equivaen or net tod supplies avaflabl ect ry00 por capit co verng population of ol ages. Defintions it variou coun,tea re per day. Available supplier ompriae domesic profootion, irports leso not comparable; 1960, 1970 and 1909 data. exportn, ond changes in stock. Net supplie Clude onimal feed, seeds, Femle (prcent) - Female labor force ut peroentge of rtol labor foton. quatite used in tord proo.ssing, an d losnes io ditcriutibo. Requre- Agroclture (percent> - Labor force ta fareing, forenry, hunting ord mnts ore etimated by FAO bsed ro physiological aeeds for normal acti- fishing om percentagr of total labor force; 1960, 1970 atd 1909 dart . vity and hlh cooidring envirometal teperare, body winhts, ege Itdustr (prcet) - Laor for in niag, conruton, manufaoturing and met ditbuton of populatlo, and olloing 10 percet for waste at ord electcity, nater and gHa p n.tage of total lbor fotot; 1960, housrhold lev ; 1961-65, 1970, and 1977 data. 1900 and 1909 foto. Per cpita supply of protein (grams per day) - Pero content of per cpta Patcyatton Rte (percent) - total, maln, and female - Participaton or ne nupyly of ford par day. ren supply of food in def.Ind aa aove. Re- activity rates are computed an total, male, ord fenle labor forooro quirements fot all ocontrieseahlished by USDA provide for mlinu pereonae of total, rale ord femala ypyputron of ril agres reetively; allowance of 60 grann of ntol protein per day und 20 gram of oan ord 1960, 1970, ord 1909 duta. Theeare based on ILa yarticipation roa pulne prott, of whlch 13 grams shoald be aoisal yrot. These stand- rfleoting age-sex structure of the population, ord long time trend. lo orda are lotwer that thote of 01 grcms of tonal yrotein ord 23 groms of ten estimates are from natal sorurcen, animal proaten aroaerage for chr worold, yroyosed by FAol to chr Ttird Economic Dleorndenoy Ratio - Rautio of ypoleatior order St cnd hl ord otto Woold Food Srory; 1961-65, 1900 ond 1907 data. othn fotal l,o ':or. Par capita protein nruply fror onimat and plar - Protein supply of fond de- rired fron olmaln and pulsea le grms per day; 1961-il, 1970 ord 1977 datu' INCOME DISTRlhUTION Child (age 1-4) Monality ra fer tousand) - Ainnal death roT thouand in Pretaetg of Private Icomeo (both in csh rad bind) - ReotcId byl- riet agr group 1-4 yerst, co chlldrrn ir this uge group; for roat developtrg con- 5 percent, richent 20 percent, poorest 20 yrcent, ord pooret 40 percet trio fato derived from life nubIen; 1960, 1900 und 1909 dato, of houneholdi. HEALTH POVERTY TARGEST GROUPS Life E Prtancy antBrth (yea) - Arage onher of pea"a of life rematig The followng estimates arrrrry opproximatr asuren of povercy levelo, at birth; 1960, 1900 and 1679 dato. aod should bo inteproted wIth corsiderablo ctionn. Itfant Mortality Roto (pr thousnd) - Arnual deathn of infantooudar ort year Estinated Asolotr Poverty Irnoe Lerel (US$ ont caprita) - orban and total - of age per thousand live births• lboalute poety inomre level in that income level belowewhiobuatinml Sces to Saft Orter (percent of poulairon- total, rar, nd rrurl - Hum- ratritionally cdequate diet plon essential non-food reqoirrments is no her of people (total, urban, ord total) with neasoaleoaccess to nafe affordohir, noter supply (includes treated sonrface waters or untreated hot unconinated Estimated Reltive Poverry Inco Lovel (US$ per capita) - urban ord total - nwatrsuch asthatcfrom prtected boehole,springs, andosanitarywells)(as Ruralrelaivepovertylinome levelis one-rhirdof aerage perrcapita peroentoges of theroresptecie populations. Inaanrbhar oroa a publict preroal tono of tho country. Uirban level ie dorirod from the total fountaio or standpost located rot tore than 200 mecern from a house may hr lrrel nith adjustment fot high er ooa of livitg it uriun areat. considered ut being oithin reaonoable access of that hose. In rotral arton Estimated Poplation Below Aboalufe Poerty Iroome Level (percent) - urban reasoabloeacsou.old imply that the houtwor orebers of obe household ond rural - Percent of ypolation 7urban and roral) who ort "absota donot have top d a diproportonte part of te dayin7tcngthe 0000. famnly's nwater needs. Access no Excrto Disposaol (percent of poulato-otol, urbhan, and ural - Number of people (total, urhan, uno rural) served loy rxcrta ditsposal 0 pecnaenftherrepective proulatios. Exreta dinspol toy include ch ecollection and disposal, with or without treatmet, of bonanrexcreta Econoi und SocIal Data Dvision ord raste-water by oatr-bornt systems nr tho ose of put privies urand i-i Econoi Analysis ord Projecttions Deporomnt lur installationt•Ma.18 g~~~~tn 1131ch...edi PopulatIon ren PhyIian - Population divided by tomhet of precticing physi- rians qualified from a medtal nohool at univrsity level. Porulatior or sinn Perso- Populotion divided bp 0nbor of practing alanMdfealegraduater ses, practical nursetor ad assitant urses. ANNEX 1 - 25 - Page 4 of 5 COUNTRY DATA - PAPUA NEW GUINEA /a GROSS NATIONAL PRODUCT IN 1980 /b ANNUAL RATE OF GROWTH (at current prices) 1960- 1970- 1975- US$ 1969 1974 1980 Million % ------(Constant prices) -------- GNP at Market Prices 2,513.9 100.0 6.5/c 5.2/c 1.4/c Gross Domestic Investment 684.5 27.2 19.2 8.1 6.0 Gross National Saving 571.7 22.7 Current Account Balance -280.5 -11.2 Exports of Goods, NFS 1,127.4 44.9 9.9 25.3 0.3 Imports of Goods, NFS 1,329.0 52.9 16.5 -2.9 4.0 OUTPUT, EMPLOYMENT AND PRODUCTIVITY IN 1979 Value Added /d Employment V.A. Per Worker US$ Million % 1000 % US$ % of National Average Agriculture 771.1 34.9 996 87.6 774 39.9 Industry 678.8 30.8 27 2.4 25,141 1,295.3 Services 752.7 34.3 114 10.0 o,642 342.2 Total/Average 2,207.1 100.0 1,137 100.0 1,941 100.0 GOVERNMENT FINANCE Central Government (K Million) % of GDP 1980 1979 1976-1978 Current Domestic Receipts 347.8 17.5 19.7 Current Expenditures 475.3 32.7 32.2 Current Deficit 127.5 15.2 12.4 Capital Expenditures 123.2 5.1 4.5 External Assistance (net) 175.5 10.7 13.5 /a As of January 1, 1978, PNG changed its fiscal year from July 1 - June 30 to January 1 - December 31. All data have been adjusted to a calendar year basis. /b National accounts and balance of payments figures differ, since the first is on a flow and the second on a payments basis. /c Growth rates are calculated in line at end-points. 7d At factor cost. /e Preliminary. not applicable April 1982 ANNEX 1 "26 - Page 5 of 5 COUNTRY DATA - PAPUA NEW GUINEA March March MONEY, CREDIT AND PRICES 1977 1978 1979 1980 1980 1981 (Million K outstanding at end of period) Money and Quasi Money 428.5 449.0 571.7 553.1 611.6 545.7 Bank Credit to Public Sector, net 3.3 13.5 35.0 15.0 74.0 55.8 Bank Credit to Private Sector, net 136.7 193.8 227.5 301.9 246.5 308.0 (Percentages or Index Numbers) Money and Quasi Money as % of GDP 29.5 31.4 35.3 Consumer Price Index (1977 - 100) 100.0 - 105.8 111.9 125.4 121.0 134.3 Annual Percentage Changes in: Consumer Price Index 4.4 5.8 5.8 12.1 11.8 11.0 Bank Credit to Private Sector 22.4 41.8 17.4 32.7 24.7 24.9 BALANCE OF PAYMENTS MERCHANDISE EXPORTS (AVERAGE 1978-1980) 1978 1979 1980 /a US$ (US$ Million) Million % Exports of Goods, NFS 764.8 1,058.6 1,038.9 Coffee 168.2 18.8 Imports of Goods, NFS 878.7 1,028.5 1,288.4 Cocoa 80.2 9.0 Resource Gap (Deficit = -) -113.9 30.1 -249.5 Copra & Copra Products 68.3 7.7 Timber & Timber Products 52.1 5.8 Factor Services (net) -64.6 -109.8 -175.7 Copper Concentrates 226.7 25.4 Transfers (net) 184.6 157.9 162.0 Gold 212.1 23.8 Balance on Current Account 6.1 78.1 -263.3 All Other Commodities 85.2 9.5 Private Capital (net) -28.3 15.7 27.9 Total 892.7 100.0 Public MLT Loans (net) -7.8 37.5 68.9 Errors and Omissions /b 27.5 -21.7 85.7 EXTERNAL DEBT, DECEMBER 31, 1980 Increase in Reserves -2.5 109.6 -80.7 US$ Million Imports of fuel and related Public Debt, incl. Guaranteed 505.6 materials 65.3 76.4 108.7 Nonguaranteed Private Debt Total Outstanding & Disbursed 505.6 PUBLIC DEBT SERVICE RATIO FOR 1980 /c % RATE OF EXCHANGE Public Debt, incl. Guaranteed 7.2 1977 1980 Nonguaranteed Private Debt US$1.00 = K 0.79 US$1.00 = K 0.67 Total Outstanding & Disbursed 7.2 K 1.00 = US$1.26 K 1.00 = US$1.50 1978-1979 1981, Jan.-May IBRD/IDA LENDING (AS OF 3/31/82) US$1.00 = K 0.71 US$1.00 = K 0.67 US$ Million K 1.00 - US$1.41 K 1.00 US$1.50 IBRD IDA Outstanding & Disbursed 81.8 107.9 Undisbursed 28.8 43.4 Outstanding incl. UndLsbursed 110.6 151.3 /a Preliminary. 7-b Including capital n.e.i. 7c Ratio of debt service to exports of goods and nonfactor services. .. not available August 1981 -27- ANNEX II Page 1 of 4 THE STATUS OF BANK GROUP OPERATIONS IN PNG A. STATEMENT OF BANK LOANS AND IDA CREDITS (as of March 31, 1982) Loan or Amounts (US$ millions) Credit (less cancellations) Number Year Borrower Purpose Bank IDA Undisbursed Six credits and six loans fully disbursed 58.5 29.2 - 1333-PNG 1976 PNG Agriculture 12.0 5.81 677-PNG 1977 PNG Roads 19.0 1.12 841-PNG 1978 PNG Rural Development 20.0 10.89 1856-PNG 1980 PNG Third Highways 17.0 17.00 1030-PNG 1980 PNG Third Highways 13.0 4.44 1934-PNG 1981 PNG Primary Education 6.0 6.00 1087-PNG 1981 PNG Primary Education 12.0/a 12.00 1149-PNG /b 1981 PNG Agriculture Credit 15.0/c 15.00 Total 93.5 108.2 72.26 of which has been repaid 11.7 0.3 Total now outstanding 81.8 107.9 Amount sold 8.1 Repaid 7.1 0.9 Total now held by Bank and IDA 80.9 107.9 Total undisbursed 28.81 43.45 72.26 /a Credit amount is SDR 9.4 million. Its equivalent of US$12.0 million is expressed here. /b Not yet effective. /c Credit amount is SDR 12.3 million. Its equivalent of US$15.0 million is expressed here. - 28 - ANNEX II Page 2 of 4 B. PROJECTS IN EXECUTION /1 Loan No. 1333 Popondetta Smallholder Oil Palm Development Project; US$12.0 Million Loan of November 19, 1976; Effective Date: January 6, 1977; Closing Date: December 31, 1984. The project is designed to establish 9,600 ha of oil palms with processing facilities around Popondetta. It includes 4,000 ha nucleus estate and a factory to serve both estate and smallholder production, developed as a joint venture between the Government and the Commonwealth Development Corporation. The Bank-financed portion of the project includes: 5,600 ha of oil palm plantings, subdivided into 1,400 smallholder plots; long-term credit facilities for smallholders to be provided through the PNGDB; extension and visiting inspection services; and technical assistance for project management; social infrastructure and improvement of the road network. Project roads and most buildings have been completed. While most of the 1,400 participating smallholders are on site, it is expected that completion of the planting of 5,600 ha of smallholder oil palms will take an additional year. The nucleus estate area of 4,000 ha has been completed one year ahead of schedule. The mill is operating satisfactorily with the pre- sent extraction rate of 20-22%. Disbursements are behind annraisal estimates due in part to a slowdown in smallholders' subloan applications due to low crop prices and to delayed claims for the transport company component. The revenue sharing formula is being reviewed to make it more equitable for smallholders, especially in periods of low prices. Credit No. 677 Second Highlands Road Improvement Project; US$19.0 Million Credit of January 28, 1977; Effective Date: March 29, 1977; Closing Date: June 30, 1982. The project has improved and paved 68 km of the Highlands Highway. It also provided detailed engineering and feasibility studies of the same highway; rural development studies of the Enga and Chimbu Provinces, and technical assistance to domestic road construction contractors. All detailed engineering and feasibility studies have been completed. The rural /l These notes are designed to inform the Executive Directors regarding the progress of projects in execution and, in particular, to report any problems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the under- standing that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution. - 29 - ANNEX II Page 3 of 4 development studies and the technical assistance component have also been completed. Except for minor items and settlement of claims, civil works have been substantially completed. Credit No. 841 Rural Development Project I; US$20.0 Million Credit of November 7, 1978; Effective Date: March 7, 1979; Closing Date: June 30, 1984. Within the Southern Highlands Province, the project would provide for research into subsistence crops, nutrition and health of the people, expand coffee, tea, silk and cardamom production, build roads, schools and health subcenters; support adult education and agricultural extension services; and contribute to the general development of the province's people and economy. Except for the tea roads, civil works are nearing completion. The development of the council coffee and tea blocks is satisfactory but establishment of coffee clan blocks and smallholdings shows little progress. Recruitment of qualified staff (both national and expatriate) remains a major problem and is seen to affect adversely several project components, notably nurses training. Disbursements are only slightly behind schedule. Loan No. 1856 Third Highway Project; US$13.0 Million Credit and and US$17.0 Million Loan of May 27, 1980; Credit No. 1030 Effective Date: September 30, 1980; Closing Date: December 31, 1984 The project will assist the Government in completing its program to improve and pave the Highlands Highway from the main port at Lae through the Highlands region up to Togoba. It will, further, help strengthen central and provincial governments by assistance in formulating, through the help of consultants, a strategy for maintenance of national, provincial and village roads. The project also provides additional assistance for transport planning and project identification, preparation and implementation at the national and provincial levels. The civil works have been successfully tendered and construction is underway. Civil works are now about 40% complete with the work scheduled to be completed in August 1983. Due to the contractor's slow beginning, completion is likely to be delayed about six months. The consultants' work on rural transport studies is about 75% complete. Terms of reference for the improvement of road maintenance procedures and practices have been drafted by Government and are under review by the Bank. Tribal fighting, social unrest and poor security continue to cause delays and difficulties in the area. - 30 - ANNEX II Page 4 of 4 Loan No. 1934 Primary Education; US$6.0 Million Loan and and US$12.0 Million Credit of May 11, 1981; Credit No. 1087 Effective Date: August 28, 1981; Closing Date: December 31, 1987 The project is designed to assist the primary education system through (a) improving education management; (b) raising quality through improved textbooks, materials and teacher training; and (c) increasing access by assisting the provinces to expand and improve existing schools and to establish new schools. Initial implementation in civil works and recruitment of experts is progressing satisfactorily. Activities have commenced to strengthen provincial education planning in preparation for implementation of the provincial fund. No applications for reimbursement have been submitted due to the delay in recruitment of a project accountant. Credit 1149 Second Agricultural Credit Project; US$15.0 Million Credit of May 21, 1981; Effective Date: Not yet effective;/1 Closing Date: June 30, 1984. The project would finance over a period of three years a share of PNGDB's planned agricultural lending and also support the expansion of related agricultural services. The project has two principal components: (a) field development of about 8,000 ha of coffee, cocoa, oil palms and rubber, and establishment of piggery and poultry enterprises through subloans made by PNGDB; and (b) expansion of hybrid coconut planting materials supplies, and of other support services to agriculture, such as crop development teams, consultants and studies. Credit was signed on December 7, 1981. /1 This project became effective on May 26, 1982. - 31 - ANNEX III PAPUA NEW GUINEA PETROLEUM EXPLORATION TECHNICAL ASSISTANCE PROJECT Supplemental Project Data Sheet Section I: Timetable of Key Events (a) Time required to prepare project: 1 year (b) Project prepared by: Dept. of Minerals and Energy (c) First presentation to IDA: May 1980 (d) Departure of Appraisal Mission: February 1982 (e) Completion of Negotiations: May 1982 (f) Planned Date of Effectiveness: August 1982 Section II: Special IDA Implementation Actions None Section III: Special Conditions (a) Condition of effectiveness: The Project Manager will have been appointed (para. 55). (b) Other special conditions: (i) By July 1, 1983, a study will be carried out on the optimal institutional set-up for oil exploration and recommendations agreed upon by Government and the Association will be implemented (para. 32); (ii) The building facility for the PRAG unit will be provided by January 1, 1984 (para. 56); and (iii) Government will submit, towards the end of project implemen- tation, an evaluation report assessing PRAG (para. 63). DEPARTMENT OF MINERALS AND ENERGY Organization Chart Minister Petroleum Mining - - Secretary I Advisory Board - - - - Advisory Board Geological M ines Policy and Water Resources National Mapping Survey Division Division Planning Division Division Bureau Petroleum Resources Assessment Group Energy Planning (PRAG) [ Unit World Bank-23939 1 X- IBRD 16390 PETROLEUMi POTENTIAL STUDY ........... )f l0 0 --4 0 v ..._ .. : - - - - - - - . -- - - - - - - - --1 6 AUSTRALIA c,!Aj- - . ILS 20 4 0 1 15 0_