ICRR 12641 Report Number : ICRR12641 IEG ICR Review Independent Evaluation Group 1. Project Data: Date Posted : 05/04/2007 PROJ ID : P066954 Appraisal Actual Project Name : Pg-gas Dev Ta US$M ): Project Costs (US$M): 7.5 7.6 Country : Papua New Guinea Loan /Credit (US$M): Loan/ US$M ): 7.0 7.0 Sector Board : EMT Cofinancing (US$M ): US$M): None None Sector (s): Central government administration (73%) Oil and gas (27%) Theme (s): Regulation and competition policy (50% - P) Other financial and private sector development (25% - S) Export development and competitiveness (25% - S) L/C Number : L7019 Board Approval Date : 06/01/2000 Partners involved : None Closing Date : 03/31/2006 09/30/2006 Evaluator : Panel Reviewer : Group Manager : Group : Sunil W. Mathrani Fernando Manibog Alain A. Barbu IEGSG 2. Project Objectives and Components: a. Objectives: The project aimed to build capacity in the Government for the efficient management of gas sector development through: a) the strengthening of policy and regulatory framework to promote investment in gas development; b) formulation and analysis of gas development schemes; c) promotion of investment opportunities in gas; and d) enhancing of monitoring and regulation capacity of the Government to ensure optimal gas development. b.Were the project objectives/key associated outcome targets revised during implementation? No c. Components (or Key Conditions in the case of DPLs, as appropriate): (a) Enhancement of the Petroleum Division's expertise through a needs-based training program ($4.5 million); (b) Technical and institutional studies ($0.9 million); (c) Promotion of investment opportunities for gas export and domestic utilization ($0.5 million); (d) Equipment to support the above activities ($0.8 million); and (e) Project management assistance ($0.5 million). d. Comments on Project Cost, Financing, Borrower Contribution, and Dates: The project was essentially completed on schedule in mid-2006, despite a 6-month extension to the closing date, agreed to coincide with the end of the academic year of beneficiaries attending training courses. The final cost was virtually identical to the appraisal estimate of $7.5 million. Training activities consumed $4.5 million, or 60% of the Credit, exactly as appraised. The main cost variations relate to studies, where only half ($0.4 million) the appraised amount was used, and project management costs ($1.4 million), which were more than double the appraised amount. These latter were in part covered by a bigger (+10%) than expected contribution of counterpart funds by GoPNG ($0.6 million), and by reallocations within the Credit. 3. Relevance of Objectives & Design: The objectives were fully relevant to PNG’s needs. Declining oil production and a heavy dependence on petroleum exports meant that it was vital to develop PNG’s large gas resources. The Bank had been closely involved in assisting the sector since the early 1980s, and the project was a continuation of the earlier efforts, but with much greater focus on gas. These issues remain central to both sectoral and macroeconomic policies today. The Project was designed to be needs-based, to ensure flexibility during implementation and this appears to have been a contributory factor in its successful outcome. However, the project would have benefited from the inclusion of assistance in dealing with social issues relating to natural resource extraction, legal rights of landowners, benefit sharing and greater local community participation. These issues were flagged in the PAD, but do not appear to have been addressed in the project. 4. Achievement of Objectives (Efficacy): The project substantially met its overall objective of enhancing the capabilities of the Petroleum Division of the PNG government. A total of 58 staff benefited from a diverse set of skill upgrading activities. The policy and incentive framework for exploration was improved, including by amendments to the legislation. Investment promotion activities were carried out on a larger scale than expected at appraisal and led to good results. Combined with the improved fiscal terms, exploration activity, which had almost ceased at the time of appraisal, has increased sharply. Alternative gas development schemes can now be analysed in-house and sector monitoring and regulation capacity has been enhanced. 5. Efficiency (not applicable to DPLs): Not applicable ERR )/Financial Rate of Return (FRR) a. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re -estimated value at evaluation : re- Rate Available? Point Value Coverage/Scope* Appraisal % % ICR estimate % % * Refers to percent of total project cost for which ERR/FRR was calculated. 6. Outcome: A fully satisfactory rating would have been merited if GoPNG had taken steps to improve remuneration in the Petroleum Division and if the latter had been converted into a statutory authority. Although the outcome rating is the same as that in the ICR, this review does not share the ICR’s justification for the rating. The collapse of the gas pipeline project to Australia cannot be attributed in any way to the project. Nor does this event detract from the project’s capacity building accomplishments. a. Outcome Rating : Moderately Satisfactory 7. Rationale for Risk to Development Outcome Rating: The main risk arises from the lack of financial autonomy of the Petroleum Division until such time it is converted to a statutory authority. At that point it will become less reliant of budgetary allocations from MOF and be in a position to offer better salaries and thus retain staff. a. Risk to Development Outcome Rating : Moderate 8. Assessment of Bank Performance: Ensuring Quality-at-Entry: Moderately satisfactory, due to the insufficient coverage of social issues (Section 3). Quality of Supervision: Highly satisfactory. Carried out thoroughly and regularly, with the right skill mix and with great continuity of staff. at -Entry :Moderately Satisfactory a. Ensuring Quality -at- b. Quality of Supervision :Highly Satisfactory c. Overall Bank Performance :Satisfactory 9. Assessment of Borrower Performance: Government Performance: Moderately satisfactory, due to a lack of timely action on remuneration, despite repeated calls for action and evidence of losses of highly skilled professional staff to the private sector, including some beneficiaries of training under the project. Implementing Agency Performance: Moderately Satisfactory. The Petroleum Division undertook the project in an efficient and timely manner, except with respect to the institutional studies that were needed to justify conversion to a statutory authority. Draft legislation to this effect was to have been presented to Parliament for consideration in the second half of 2001. This has not yet occurred, almost six years later, although the Credit included a covenant relating to this. Had action been taken earlier, this would also have helped deal with the attrition of staff due to poor remuneration (statutory authorities are not subject to civil service pay scales). With hindsight, more should have been done by the Petroleum Division to advance the preparation of alternative schemes for gas exports, rather than relying solely on the pipeline scheme to Australia, that ultimately failed to get off the ground. This has delayed gas exports by about 5 years. However, it has to be kept in mind that at the time the export pipeline appeared to be the most attractive option to investors and offered the best returns to PNG for its gas. Overall Borrower Performance: Moderately Satisfactory, (rather than fully, per the ICR), since two significant and related issues important for sustainability were not satisfactorily addressed: uncompetitive salaries and the legal status of the Petroleum Division. a. Government Performance :Moderately Satisfactory b. Implementing Agency Performance :Moderately Satisfactory c. Overall Borrower Performance :Moderately Satisfactory 10. M&E Design, Implementation, & Utilization: The project was well-designed for the internal monitoring of all activities undertaken, and this appears to have been implemented rigorously. Evaluation of technical assistance projects is necessarily difficult and largely subjective. Understandably there was little in the design to facilitate an ex-post evaluation of the results or impacts of the training portion of the project, apart from data on the number of beneficiaries and duration of training courses. a. M&E Quality Rating : Substantial 11. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): This TA project was classified as Category C and hence no Environmental Assessment was required under the Bank's guidelines. 12. Ratings : 12. ICR IEG Review Reason for Disagreement /Comments Outcome : Moderately Moderately Same rating, but for different reasons (see Satisfactory Satisfactory Section 6) Risk to Development Moderate Moderate Outcome : Bank Performance : Satisfactory Satisfactory Borrower Performance : Satisfactory Moderately Government and agency performance had Satisfactory shortcomings (see Section 9) Quality of ICR : Satisfactory NOTES NOTES: - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate . 13. Lessons: 1. In the implementation of TA projects that seek to enhance staff capacity in the context of uncertain and changing sector developments, rigidity of project design should be avoided. This project’ s design was made deliberately flexible, with all activities being defined as needs-based. 2. The collapse of the project to export gas to Australia by pipeline at a late stage shows the importance of not relying on a single outlet for gas and the advantage of preparing alternative schemes for gas utilization and exports in parallel. 14. Assessment Recommended? Yes No 15. Comments on Quality of ICR: Well written and thorough, but an unnecessary amount of detail was provided in the annexes, which could have been considerably reduced in length. a.Quality of ICR Rating : Satisfactory