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					                                             NASFUND E-Newsletter:
                                        April 2010 Edition
In This Edition:

1. Editorial: Infrastructure Financing - A Developing Story    4. Risk Management Part 2 - By James Gore
2. NASFUND Membership Discount Program                         5. City Pharmacy Life Insurance
3. Steamships Valuation Report                                 6. BSP SMS Banking: Bank Anywhere, Anywhere - Part 1




1.Editorial:
  Public Infrastructure Financing – A Developing Story
NASFUND became interested in
infrastructure financing in 2002 when
it advocated tax free incentives to
induce long term investment in
public infrastructure. At the time
such discussions failed to gain
traction in an economy in early
recovery from the financial crisis of
1998-1999. Interest in infrastructure
financing was however not new. The
predecessor to NASFUND, the
National Provident Fund, had
engaged in major loan funding (in
excess of K60 million) to fund the
Poreporena Highway, a public works
programme that owes itself to the
then public private partnership that
included both the NPF, the State and contractor Curtain Brothers. What we learned from that early dabble in financing public
infrastructure was that the success of that programme was largely due to the strength of a partnership that allowed for a
major project to be completed without political interference. The other valuable lesson was that any infrastructure loan had to
be wrapped in a recognized instrument of State – That is, a Treasury note or Bond. A simple borrowing which was the case
with the original NPF loan to build the Highway was always fraught with danger of repayment, because it was cocooned in
just a loan document. In terms of debt rankings, loans, as opposed to Government Bonds and Treasury Notes are less
secure and more arduous to recover in the unlikely event of default.

Wind the clock forward to recent history and we have seen many development projects earmarked for the Provinces become
stymied in red tape and incapacity within the public sector to deliver. A common cycle is that Funds are raised but because
of incapacity or political interventions, the money instead is deposited in Trust accounts. The monies deposited for projects
in Trust accounts are then used at a later date for purposes other than what was originally intended, including bolstering
recurrent budgetary expenditure over development. Even worse, as espoused recently by the Parliamentary Accounts
Committee “The Public Service is patently and demonstrably incapable of lawful managing Trust Accounts and officers of
that service are clearly incapable of understanding or performing their duties as Trustees.”

The recent announcement of K125 million to fund road and sewage works in Kopopo of which NASFUND purchased a
treasury note from the State is a recognition that a new way has to be developed to provide direct infrastructure in an
accountable framework. The K125 million capital raising was the largest onshore capital raising for infrastructure in the
nation’s history. The Treasury note has the following characteristics

1. It is issued by the Treasurer under the Treasury Bill Act using National Capital Limited (40% owned by NASFUND) as the
   Agent, Registrar and holder of the monies raised.
2. The Treasury Bill is guaranteed by the State in line with all T Bills issues
3. National Capital and another party will disperse the monies on invoices from the developers of the infrastructure project
   and only on review of all tender documents, works completed and the like. National Capital has the right to refuse
   payment if it seen to be outside the parameters of the programme. This is but a variation on a theme developed for
   electoral funding under the Morauta Government of which the accounting firm Deloittes was used to monitor the
   expenditures and administer payments on a bill of works for electoral funds.
4. NASFUND can elect at the end of the 364 day period to redeem the Bill with a further one year Sovereign Community
   Infrastructure Treasury Bill, with a rolling of the SCITB being the preferred option of both the State and NASFUND.
5. Within the Infrastructure Bond, monies raised include three years interest which means that the burden of State allocation
   of funding for the project occurs end of year four, - adequate time for Treasury to incorporate in budgetary flows and
   closer to when the revenues from the LNG project allow for more budgetary flexibility for the State.


The over all aim is to ensure development that is accountable and funded. The question and it is a valid one - is why Kokopo
and not some other Province - after all basic infrastructure is in desperate need everywhere? This was also raised recently
in a newspaper letter to the editor with some loose connection asserted that a few Tolais on the NASFUND Board meant
that it was obvious that that is where the money would be directed. That sought of sophistry and or “dot joining” can be
rejected on the following grounds

1. The funding project was instigated by the Treasurer of Papua New Guinea, where the Member for Kokopo and the Joint
   Budget and Economic Committee of Kokopo had been through all of the requirements to develop a strategic plan for the
   regions infrastructure needs, and this had been delivered to the Department of Treasury more than 6 months prior to the
   finalization of the SCITB
2. The Project was introduced to NASFUND by the National Capital Managing Director, who is an Australian and was
   reviewed by proper process.
3. The project was originally to be funded by Asian Development Bank and through Chinese concessional funding. That
   funding fell through because of the Global Financial Crisis.
4. The project fitted within both the 2020 MTD strategy and the 2050 strategy as espoused by the Somare Government.

While there will always be “noise” associated with any new concept or approach, the really important point to this discussion
is that we have to move from just the “talk talk” and actually start somewhere in reviving infrastructure in Papua New Guinea.
In developing as well as developed countries that have superannuation industries, there is a large expectation that
Superannuation Funds have a major a role in nation building because of their ability to harness capital. Further the argument
not only is that infrastructure spending can expedite growth and national development but it can also deliver strong returns to
Members.

Currently in Australia there is a push for superannuation funds to assist in the development of infrastructure expenditure by
way of debt investment thereby taking the equity risk out of such investments. But having said this, equity in the right
infrastructure projects at a later date could be considered. Only recently, the Chair of one of Australia’s largest
Superannuation Funds, John Fraser of Victorian Funds Management Corporation touched on this when he stated that “For
long term investors like ourselves – and particularly for sovereign wealth funds – I think [infrastructure] is a very sensible
investment”.

Two issues can be derived from this from a Papua New Guinean perspective

1. It leaves the door open for possible equity financing of some future infrastructure under a Pubic, Private Partnership
   (PPP) arrangement as assisted by recently introduced guiding principles that put “meat on the bones” around the whole
   PPP concept and
2. The model currently being developed through NASFUND’s venture into the SCITB for infrastructure financing could also
   be the basis of frame work used once PNG establishes its own Sovereign Fund for similar developments.

The SCITB in PNG does not provide an equity position, nor would NASFUND look for one on this project, but it allows an
infrastructure development to take place that will provide for local and required development with employment opportunities
in the region being a focus that will account for tax collection and trade to occur. The NASFUND SCITB investment also
carries the prescribed level of withholding tax in relation to the coupon upon payment, so the State will collect its tax revenue
from this structure.

Currently engineers are in Kokopo finalizing matters for work to begin immediately and have met with the Member and also
the required parties in ensuring that the work starts now for delivery of the infrastructure.

We can not be 100% sure that this new approach to infrastructure development will be an entire success as indeed it is not
possible to be 100% sure about most things in life. The NASFUND Board had some very robust discussion as to
accountability and trust – two core ingredients for a successful private-public infrastructure project like the one just
undertaken. At the end of the day, the Board was of the view that with proper controls, this was an experiment worthy of
support on the basis that it could be a blue print for infrastructure development going forward or at worst further knowledge
gained on the road to an even better programme perhaps later on.

The real risk going forward is some overriding political agenda or interference that renders this programme a failure. To
NASFUND, our K125 million is guaranteed by the State whether the programme fails or not. It would however be a national
shame having gone this far, that this programme gets derailed by unwarranted political interventions. It will turn the clock
back on the development of infrastructure funding and send a message to all superannuation participants that government
as a partner is fraught with difficulty, distrust and risk. We remain of the view that with proper independent oversight, there
can be a partnership and we can create a “win win” for both the nation and the members of NASFUND.

- Rod Mitchell


2. NASFUND Membership Discount Program
By Turaho Morea, Team Leader, Business Development Division

The NASFUND Membership Discount Program this year welcomes Lae International Hospital to its large group of discount
providers. The hospital is co-owned by NASFUND through it shareholding in construction company Hornibrooks NGI.

It opens 7 days a week and offers services ranging from a fully functional medical laboratory and blood bank, X-ray and ultra
sound machines, 24-hour emergency department, brand new ambulance, dedicated children’s ward, two operating theatres,
on-sight pharmacy, male & female wards, 7 private suites, on-sight morgue and autopsy facility. Members with NASFUND
ID cards will be given 5% discount on consultation fess, treatment and medication.

The Membership Discount Program has enabled NASFUND members to enjoy great savings since it inception 7 years ago.
The partnership with reputable retailers and service providers continues to strengthen and expand as the program provides
increased patronage and good business for participating companies.

The program ensures that partner companies also provide a good range of essentials such as building materials, household
appliances, furniture, and office and school stationery. Some of the country’s most popular hotels and resorts offer good
discounts on accommodation and there are also hair stylists and barbers for the image conscious on the program.

All this can be enjoyed by any member who presents a NASFUND membership ID card at ‘point of purchase’ at any of the
retailers and service providers featured on the poster (right). If you don’t have a membership identification card, arrange for
one at a cost of K10.00 through your nearest NASFUND branch so you too can enjoy great discounts!
3. Steamships Valuation Report
Disclosure: NASFUND owns 1,844,097 shares in Steamships Ltd.


4. Risk Management - Part 2
The Process of Risk Management

The risk management process starts with risk identification, followed by risk assessment and the development of risk
management strategies in response to the identified risk. Risk assessment entails the determination of the likelihood of the
risk event occurring and the magnitude of the consequences should the risk event occur. Based on the risk assessment,
responsible individuals or functions determine one of or a combination of following to deal with the risk:

•   Eliminate the risk through avoidance
•   Mitigate the risk through established control mechanisms
•   Risk sharing, e.g. take insurance against the risk
•   Accept the risk and budget for any potential losses (self insurance)

Given the limitation on resources, organisations must prioritise risks and allocate resources accordingly – i.e. more
resources to risks with the most severe consequences and high likelihood of occurrence and less resources to risks with
insignificant consequences and low likelihood of occurrence. For example, in 2008 there was a threat to a reliable gas
supply to generate power in Western Australia (WA). There were suggestions to store some gas reserve in anticipation of
similar future threats to a reliable gas supply. The WA State Government disagreed with this suggestion. Their argument
was – “Why spend billions of Dollars now to build up emergency gas reserve when the event is likely to occur once in 25
years?” They believe that the risk to reliable gas supply will be gradually mitigated as the pipe network increases over
time. This illustrates that risk management requires a rationale and practical approach given costs and limited resources.

Having a risk management plan is well and good but it is only a plan and does not provide assurance that it will work when
needed if not regularly tested. Therefore, specific risk management plans must be tested regularly to ensure they are
effectively operating when the risk event occurs. A good example of testing risk management plan is the fire drill that
happens at most of our workplaces to ensure that in the event of fire the loss of lives will be prevented as much as possible.

More and more organisations tend to prepare risk management strategies as part of their annual business plan and
budgeting process. However, my general observation based on my work experience in PNG is that whilst the budgets and
business plans are revisited regularly throughout the year the risk management plans are not looked at in a structured
manner until the budgeting process recommences in the subsequent year. It is best practice to at least furnish to the Board
or an equivalent body a summary of the major risks as an agenda item or included in Board papers to remind them of the
significant risks to the organisation on an on-going basis as they make decisions. The changes in the risks (e.g. upgrading
or downgrading of severity or likelihood of occurrence) should be updated to the Board, including any occurrence of risk
incidences, the consequent losses suffered and the effectiveness of the relevant risk management plan meant to deal with
the risk incidence. This can be an abstract from a Risk Register.

Risk Register

As the name suggests, a risk register is a register of all risks an organisation is potentially exposed to. It is an output of the
process of risk identification and assessment, including the organisation’s responses to the risks. This can be a very useful
document as it contains all the risks in one place for risk analysis and decision making purposes.

The risk register should be updated on a regular basis and the key decision makers should review it on an on-going basis to
ensure effective risk and performance management.

Proposals

Proposals – investments, projects, etc. – put forward to the relevant decision makers for consideration should also clearly
articulate the risk profile and not just the potential return. This is will assist the decision makers to consider whether the risk
level and risk management plan is acceptable. Should the proposal be approved any risks not already on the risk register
should be registered for monitoring purposes.

                James Popo Gore
                NASFUND Trainee Director
                He is a self employed business consultant
                Phone: +675 340 7063
                Email: jim27_75@hotmail.com
                Postal: PO Box 1368, Boroko
                                                              5. City Pharmacy Life Insurance
                                                              Are you worried about the financial welfare of your family in your
                                                              absence?

                                                              Do you want them to be financially secure in the event of your
                                                              death?



City Pharmacy Life Insurance is a life insurance policy that guarantees to pay out death benefits to your nominated
beneficiaries in the event of your death within the policy period.

The policy is very affordable to the ordinary Papua New Guinean citizen and gives a sense of assurance that your loved
ones will be financially secure after your death.

This policy is not a savings plan or a funeral benefit plan. The main purpose of this policy is to support the kith and kin of the
life-insured person by providing lump sum benefits to those selected beneficiaries.

What is covered and how long for?

Death by any cause may be covered (conditions apply). This policy is renewable every 12 months until you reach the age of
55 years.

How much do I pay?

Life Insurance premium is very affordable. It is City Pharmacy’s desire for every family to be covered and to make this
possible, we have come up with three very affordable premium charge options for the average Papua New Guinean. The
premium is a one off payment which guarantees the person insurance cover for a 12-month period.

There are three different policy options based on the sum-insured amount.
You will pay (depending on the opted plan that you choose) to the beneficiary (ies) nominated, the following:




How can one claim after death?

Should the insured person die within the period of policy cover, the beneficiaries should provide valid identification,
complete a claims form which can be taken from City Pharmacy and Pacific MMI Insurance and attach the original death
certificate.
Pacific MMI Insurance Ltd will then organize and pay out the sum assured to the next of Kin(s) or beneficiary(ies) declared
by the insured in the policy (refer payment options above)

How long will it take before my beneficiary (ies) receives my claim?

Processing time is subject to availability of all required documents in order, which may take up to 8 weeks. It is advisable
that all documents such as Death Certificate should be in order before a claims form is submitted.

City Pharmacy Life Insurance can be bought at any City Pharmacy outlet within the country. Customers can enquire with
their Pharmacist or call the Life Line on 7120-0000.

Disclosure: NASFUND owns 11,193,188 shares in City Pharmacy Ltd.
                            6. BSP SMS Banking: Bank Anywhere, Anytime - Part 1
                            By Barnabas Pondoros, Public Relations & Communications Officer
                            Marketing, Banking of South Pacific (BSP)


BSP, Papua New Guinea’ s leading and largest bank, through SMS Banking has made banking easier, safer and much
more convenient.

SMS Banking, the latest in banking innovation in PNG was launched by BSP Chief Executive Officer Ian B. Clyne last April
2009.

SMS Banking has grown significantly over the last one year and now there are more than 40,000 customers and growing.
With BSP’s SMS Banking customers can bank anywhere and anytime. SMS Banking offers customers a flexible and
convenient way to do your banking.

What you need to know

BSP SMS Banking uses your mobile phone to conduct certain banking functions by sending SMS message to BSP.
Customers may do your banking without visiting a branch or ATM. It allows you to do the following, directly from your mobile
phone 24 hours a day, 7 days a week.

With BSP SMS Banking your account information is at your fingertips. BSP SMS Banking is flexible and convenient, where a
customer can access account information and/or transfer funds simply by sending an SMS.

With BSP SMS banking you can:

- Find out your account balance on your linked accounts
- Obtain details of the last three (3) transactions on your linked accounts
- Transfer funds between your linked accounts
- Transfer funds to nominated 3rd party accounts.

With this service, only BSP Accounts can be registered as “transfer accounts” i.e. your own accounts, or other BSP
customers accounts, e.g. accounts are identified by tags such as mum, dad, bro sis and so forth.

To use BSP SMS Banking, you must:

- Be aged 16 years or older
- Have a compatible mobile phone capable of SMS messaging and which is for your exclusive use
- Be authorised to use and incur charges on the mobile device you will be using for BSP SMS Banking.

You can use more than one phone

Customers can also use SMS Banking on more than one mobile phone.
With BSP SMS Banking customers can register more than one mobile phone number and for each additional phone, you
must:

- Ensure it is for your exclusive use
- Be authorised to use and incur charges on each additional mobile phone
- Register each phone number with BSP for use with BSP SMS Banking.

BSP SMS BANKING coverage

BSP SMS Banking can be used as long as the mobile phone network you use is available.
Access to SMS Banking will be limited to areas of PNG where your mobile service provider has network coverage and
where SMS services are available.

For more information on coverage areas customers should contact mobile service provider for details of their coverage area.

For use overseas, customers may still have access to BSP SMS Banking.

Customers should also check with mobile service provider that their mobile device will be able to use the mobile network in
those countries to which they are travelling and SMS messages are supported and obtain information on associated fees
and charges.

Fees

BSP SMS Banking also charges no fees when you use SMS Banking to check your balances or view your account history.

However, transactions completed via BSP SMS Banking may be subject to normal account fees and charges.

There may also be a fee when using a mobile service provider other than the one that provides your service, to send and
receive SMS messages from BSP.

Your mobile service provider may also charge you for sending messages to BSP SMS Banking and you should check with
them for details.

If you pay for SMS messages you will incur this cost from your mobile phone service provider when sending SMS messages
to BSP SMS Banking.

You should refer to your mobile phone service provider to get advice about SMS usage costs.

This is the end of part one. Part two will cover technical issues and using SMS Banking and part three will look at security
issues.

For more information on BSP SMS Banking please ask at any BSP Branch nationwide, call 180 2333 or visit
www.bsp.com.pg.

Also feel free to contact BSP Public Relations and Communications Manager Rosemary Mawe on email
rmawe@bsp.com.pg or PR/Communications Officer Barnabas Pondros on bpondros@bsp.com.pg.
                                           www.nasfund.com.pg
                    "PNG Institute of Directors 2009 Innovative Company of the Year"


            Leader in Superannuation

				
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