Papua New Guinea - Special Interventions Project

Document of The World Bank FOR OFFICIAL USE ONLY 4J.3 Report No. 9139-PNG STAFF APPRAISAL REPORT PAPUA NEW GUINEA SPECIAL INTERVENTIONS PROJECT JANUARY 3, 1991 Infrastructure Operations Division Country Department V Asia Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not c.herwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENT (As of January 1991) Currency Unit = Papua New Guinea Kina (K) $1.00 = K 0.96 K 1.00 = $1.04 FISCAL YEAR January 1 to December 31 WEIGHTS AND MEASURES 1 meter (m) = 3.28 feet (ft) 1 kilometer = 0.62 miles (ml) 1 cubic meter (n3) = 35.31 cubic feet (cu ft) 1 metric ton (mton) = 2,204.62 pounds (lbs) ABBREVIATIONS AND ACRONYMS AIDAB - Australian International Development Assistance Bureau ADB - Asian Development Bank BCL - Bougainville Copper Limited BPNG - Central Bank of Papua New Guinea CG - Consultative Group DEC - Department of Environment and Conservation DFP - Department of Finance and Planning DLPP - Department of Lands and Physical Planning DTI - Department of Trade and Industry DW - Department of Works EEC - European Economic Community ELCOM - Electricity Commission ERR - Economic Rate of Return GOPNG - Government of Papua New Guinea HLGS - Home Loan Guarantee Scheme HLISS - Home Loan Interest Subsidy Scheme HRF - Housing Refinancing Facility ICB - International Competitive Bidding IMF - International Monetary Fund LCB - Local Competitive Bidding NCDIC - National Capital District Interim Commission NHC - National Housing Corporation NTF - National Task Force on Shelter Policy and Planning PFI - Participating Finincial Institution PIP - Public Investment Program PTC - Posts and Telecommunications Corporation PPAR - Project Performance Audit Report RMU - Road Maintenance Unit SAC - Structural Adjustment Committee SBDC - Small Business Development Corporation SIP - Special Interventions Project SOE - Statements of Expenditure TA - Technical Assistance UNDP - United Nations Development Programme UNIDO - United Nations Industrial Development Organization UPNG - University of Papua New Guinea USPP - Urban Settlements Planning Project UHIP - Urban Housing Improvement Project  FOR OFFICIAL USE ONLY PAPUA NEW GUINEA SPECIAL INTERVENTIONS PROJECT Loan and Project Summary Borrower: The Independent State of Papua New Guinea (PNG) Beneficiaries: National Housing Corporation, National Capital District Interim Commission, Small Business Development Corporation. Amount: $30.0 million equivalent Terms: Twenty years, including five years of grace, at the Bank's standard variable interest rate. Onlending Terms: Part of the proceeds of the loan, equivalent to $12.0 million, will be onlent at the Central Bank's variable discount facility rate (currently 10.3 percent) for periods of 10 to 20 years to refinance mortgage loans made at market interest rates by commercial banks to eligible purchasers of serviced lots and houses. The Government of PNG would bear the foreign exchange risk. Project Objectives: They include: (i) enhancing employment opportunities among low income and unemployed urban workers through labor intensive work programs such as drainage and house construction; (ii) providing finance for mortgages for low and middle income houseowners; (iii) assisting small contractors and entrepreneurs; and (iv) strengthening project p'.anning, monitoring and management. Project Description: (a) Provision of housing and plot mortgages through a Housing Refinancing Facility (HRF) and commercial banks, (b) strengthening of the National Housing Corporation, (c) improvement of about 12,000 meters of side drainage along selected national roads, (d) carrying out a drainage masterplan study and an urban services study, (e) providing technical assistance to smiall industry, and (f) strengthening project planning, management and monitoring in the Department of Finance al,d Planning. Benefits and Risks: Increased employment opportunities (about 6,500 person years), for large numbers of skilled and unskilled workers at construction sites for drainage and housing throughout the country, will be created. About 2,000 households will benefit from the introduction under the project of long- term mortgages through the HRF. Also, a major source of future employment growth in PNG lies in the developmen' of 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 - small contractors and other entrepreneurs; this is to be fostered under the projects small industry TA component. The main risk would be that project implementation could be slow due to inadequate managerial capacity particularly in NHC and DFP. To alleviate this risk, Government has established, and will retain, a special committee in DFP for overseeing project implementation. Also institutional strengthening will be provided for NHC. Delays in land titling could also adversely affect new housing site development. However, this will not delay the project much since it depends mainly on the sale of existing serviced plots. Finally, their assurances notwithstand- ing, Commercial Banks could be slow or reluctant to finance mortgages for low- and middle-income applicants. This is mitigated by the fact that house and plot buyers will be allowed to use their accumulated savings in the National Provident (pension) Fund for their downpayments and that payroll deductions will be permitted for periodic payments. Government determination to improve housing must also be considered to be an overall risk mitigating factor. Estimated Project Costs: Local Foreign Total -(---^ ($ million) ------- A. Housing 8.93 14.17 23.10 B. Drainage 3.27 6.06 9.33 C. Industry 0.55 1.87 2.42 D. Management and Monitoring 0.3' 2.13 2.50 Base Cost 13.12 24.23 37.35 Physical contingencies 0.51 0.90 1.41 Price contingencies 0.60 0.97 1.57 Total Prolect Cost 14.23 26.10 40.33 Financing Plan: Local ForeiRn Total ------ ($ million) ------- Government of PNG 0.99 - 0.99 Participating Institutions 4.00 - 4.00 Homeowners 5.34 - 5.34 IBRD 3.90 26.10 30.00 Total Financing 14.23 26.10 40.33  _ $$$ - Estimated Disbursements: Bank FY 1991 1992 1993