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20170728 PVR496 L2588 2589 and 2590 PNG Civil Aviation Dev. Inv

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20170728 PVR496 L2588 2589 and 2590 PNG Civil Aviation Dev. Inv Validation Report July 2017 Papua New Guinea: Civil Aviation Development Investment Program (Tranche 1) Reference Number: PVR-496 Project Number: 43141–023 Loan Number: 2588, 2589, and 2590 ABBREVIATIONS ADB – Asian Development Bank ADF – Asian Development Fund CAA – Civil Aviation Authority CADIP – Civil Aviation Development Investment Program DSC – design and supervision consultant EIRR – economic internal rate of return FIRR – financial internal rate of return ICAO – International Civil Aviation Organization ILS – instrument landing system MFF – multitranche financing facility MTDS – Medium Term Development Strategy PCR – project completion report PIU – project implementation unit PNG – Papua New Guinea PNGASL – Papua New Guinea Air Services Limited RRP – report and recommendation of the President NOTE In this report, “$” refers to US dollars. Director General M. Taylor- Dormond, Independent Evaluation Department (IED) Deputy Director General V. Salze-Lozac’h, IED Director N. Subramaniam, Sector and Project Division, IED Team Leader S. Palle Venkata, Evaluation Specialist, Thematic and Country Division, IED The guidelines formally adopted by the Independent Evaluation Department (IED) on avoiding conflict of interest in its independent evaluations were observed in the preparation of this report. To the knowledge of IED management, there were no conflicts of interest of the persons preparing, reviewing, or approving this report. The final ratings are the ratings of IED and may or may not coincide with those originally proposed by the consultant(s) engaged for this report. In preparing any evaluation report, or by making any designation of or reference to a particular territory or geographic area in this document, IED does not intend to make any judgments as to the legal or other status of any territory or area. PROJECT BASIC DATA Project Number 43141–023 PCR Circulation Date 23 Sep 2016 Loan Numbers 2588, 2589, and 2590 PCR Validation Date Jul 2017 Project Name Civil Aviation Development Investment Program (Tranche 1) Sector and subsector Transport Air transport Strategic Agenda Inclusive economic growth Safeguard categories Environment B Involuntary Resettlement B Indigenous Peoples B Country Papua New Guinea Approved Actual ($ million) ($ million) ADB Financing ADF: Total Project Costs 112.00 113.30 ($ million) 50.00 (Loan 2589) 20.00 (Loan 2590) OCR: Loan 95.00 25.00 (Loan 2588) 2588 25.00 89.70 2589 50.00 (SDR equivalent, million) (35.52) 2590 20.00 (SDR equivalent, million) (12.61) Borrower 17.00 23.60 Beneficiaries 0.00 0.00 Others 0.00 0.00 Cofinancier Total Cofinancing 0.00 0.00 Approval Date 1 Dec 2009 Effectiveness Date 28 Apr 2010 22 Mar 2010 Signing Date 28 Jan 2010 Closing Date 30 Jun 2013 15 Jul 2016 Project Officers Location From To A. Lee PNRM Dec 2009 Sep 2011 J. Peththawadu PNRM Sep 2011 Dec 2013 M. Ingratubun PNRM Jan 2014 Feb 2016 H. Haider PNRM Mar 2016 Jun 2016 D. Hill PNRM Jun 2016 Jul 2016 IED Review Director N. Subramaniam, IESP Team Leader S. Palle Venkata, Evaluation Specialist, IETC* ADB = Asian Development Bank; ADF = Asian Development Fund; IED = Independent Evaluation Department; IESP = Sector and Project Division; IETC = Thematic and Country Division, OCR = ordinary capital resources; PCR = project completion report; PNRM = Papua New Guinea Resident Mission; SDR = special drawing right *Team Members: L. Hauck (Senior Evaluation Specialist), F. De Guzman (Senior Evaluation Officer), L. Supangco (Consultant) I. PROJECT DESCRIPTION A. Rationale 1. Civil aviation is a major mode of transport in Papua New Guinea (PNG) because of the country’s difficult geography. PNG is an archipelago consisting of rugged mountain ranges, fertile upland valleys, coastal plains, and extensive swamps. It has a coastline of over 17,000 kilometers and 17 million hectares of reef-covered coastal waters. Of the 19 mainland provinces, 13 are coastal provinces. Mountainous terrain makes it difficult to connect distant communities through a safe road transport system. Coastal and inter-island shipping services are infrequent and involve long travel times. Thus, safe, efficient, reliable, sustainable, and affordable aviation services play a vital role in trade, tourism, business, mobility of communities, and the overall socioeconomic development of the country. 2 2. There are more than 450 airports, airfields, and airstrips in PNG with 21 designated national airports. Most major airports and terminal facilities are owned and operated by the government’s Civil Aviation Authority (CAA). The CAA is financed through airport and airspace fees, licensing and regulatory fees, and annual appropriations from the government, through its community service obligation policy, to provide aviation services even to destinations that are not commercially viable. Minor airports are owned by provincial governments, with some remote and district airfields and related privately owned and operated facilities. Three major airlines and more than 20 other operators provide international and domestic aviation services. In 2009, passenger traffic was estimated to grow by 3% yearly on average and freight demand by about 1%. 3. While aviation infrastructure facilities were extensive, capital investment remained inadequate. Recurrent expenditure failed to keep up with maintenance requirements resulting in deterioration of airside pavements, terminal buildings, equipment, and utilities. National airport facilities lacked safety and security compliance. Air navigation systems were unreliable and deteriorating due to old and obsolete equipment, lack of spare parts, theft and vandalism, unreliable power and communications, and logistics problems. 4. The poor infrastructure and air navigation services had resulted in canceled flights, restricted operations, and higher costs to airlines due to reduced payload and the need to divert flights. Public and private business costs also increased due to flight cancellations, rescheduling, and diversions. Weak and deteriorating infrastructure discouraged the airlines from investing in new aircraft types, potentially reducing their capacity to operate in regions of touristic and economic importance, with adverse implications for economic and social development. 5. Two key institutions administered, regulated, and managed the civil aviation sector. The Department of Works, Transport and Civil Aviation was in-charge of transport strategy and planning, monitoring of international obligations, negotiation of air service agreements, economic regulation, investigation of air accidents, and sector policy formulation and planning.1 The CAA is responsible for airports, air traffic management, and regulatory oversight.2 The National Transport Development Plan 2006–2010 sought to improve the aviation sector operations and to reform the CAA, which experienced difficulties in executing maintenance and investments needed for compliance with safety and security standards. The CAA had a well-articulated sector development plan to address the risks, but needed help in carrying out the plan. External funding to rehabilitate and upgrade the national airports was expected to support the government’s Medium-Term Development Strategy (MTDS) 2005–2010 objectives of (i) good governance, (ii) export-driven economic growth, (iii) rural development, poverty reduction, and empowerment through human resource development. 1 The Department of Works, Transport and Civil Aviation, after its reorganization, is now the Department of Transport and Infrastructure (DOT) that provides ministerial advisory services and policy and planning input to the air transport sector. 2 The CAA has been reorganized into the following: PNG Air Services Ltd is the state-owned enterprise responsible for providing, maintaining, and developing air navigation and airways services infrastructure, comprising ground and satellite-based navigation systems and management of the upper, middle, and lower airspace, including overflights. It also coordinates aviation search and rescue. The National Airports Corporation (NAC) is responsible for the provision, maintenance, and development of the 21 national government–owned airports, including aviation security, airport fire crash, and rescue services and control of ground movements of aircraft and other airport vehicles and equipment. The Transport Security Unit within DOT is responsible for developing security policy and ensuring that PNG complies with international conventions and agreements relating to aircraft, air service, air passenger, and air cargo security both externally and internally. The recently formed Civil Aviation Safety Authority is the principal regulatory agency in the sector and is responsible for safety certification of air operators, aircraft, aircrew, air traffic controllers, and airports. It ensures that PNG complies with international air safety conventions under ICAO. The Accident Investigation Commission is a recently formed body responsible for investigation of the circumstances of air accidents on a “no fault” basis with a view to future prevention. 3 6. In December 2009, the Board of Directors of the Asian Development Bank (ADB) approved a $480 million multitranche financing facility (MFF) to support a planned $640 million investment program for PNG’s aviation sector.3 The MFF was considered highly suitable for financing the investment program because of low commitment charges that would be levied on PNG and physical implementation would be slow based on previous experience in PNG projects. This financing
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