Commercial focus crucial for Palau state-owned enterprises — ADB report
KOROR, PALAU (5 June 2023)—The absence of a clear commercial focus and monitoring framework for Palau’s state-owned enterprises (SOEs) has complicated efforts to improve their financial performance, a new Asian Development Bank (ADB) report has found.
Finding Balance 2023: Benchmarking Performance and Building Climate Resilience in Pacific State-Owned Enterprises compares the performance of SOEs in nine Pacific island countries—Fiji, Kiribati, the Marshall Islands, Palau, Papua New Guinea, Samoa, Solomon Islands, Tonga, and Vanuatu—and tracks the progress of SOE commercialization in the region.
The report’s findings were discussed by government, business, and civil society representatives at a Finding Balance 2023 launch event today in Koror.
Palau Minister of Finance the Hon. Kaleb Udui, Jr. addresses the Finding Balance 2023 launch.
“Palau’s government is prioritizing the commercialization of its largest SOE, the Palau Power Utility Corporation, which is an important step in improving services and the performance of the portfolio as a whole,” ADB Pacific Liaison and Coordination Office Regional Director Shane Rosenthal said. “The government could consider extending these reforms to the remaining three SOEs to facilitate monitoring and establish clear lines of accountability.”
Palau is one of two countries in Finding Balance 2023 that does not yet have an SOE law to govern the relationship between the country’s legislature, minister of finance, SOE boards, and SOE management, resulting in a lack of clarity on roles and responsibilities.
The average return on equity for Palau’s four SOEs from 2015–2020 was –3% per annum, while the average return on assets was –1% over the same period. This was among the lowest portfolio returns of Finding Balance 2023’s nine study countries.
Finding Balance 2023, produced by the Pacific Private Sector Development Initiative (PSDI), has a special focus on the risks posed by climate change, and how Pacific governments and state-owned utilities can manage its effects and build resilience.
The report finds that state-owned utilities that are more commercialized may be more inclined to respond to incentives to decarbonize and invest in protecting their assets. It also shows that SOEs in the Pacific have improved their returns, but are still failing to cover their cost of capital.
PSDI is an ADB technical assistance program undertaken in partnership with the governments of Australia and New Zealand. PSDI supports ADB's 14 Pacific developing member countries to improve the enabling environment for business and to achieve inclusive, private sector-led economic growth.
ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.
FINDING BALANCE 2023 KEY FINDINGS FOR PALAU:
- Number of SOEs: Four
- Dominant industries: Power, water, telecommunications, banking
- Book value of assets (2020): US$198 million
- SOE total fixed assets in economy (2020): 19–23%
- Average portfolio contribution to GDP (2015–2020): 4%
- Average return on assets (2015–2020): –1%
- Average return on equity (2015–2020): –3%
PALAU SOE REFORM HIGHLIGHTS, 2015–2022:
- Established Belau Submarine Cable Corporation in September 2015 to own and operate Palau’s only communications cable under a clear commercial framework.
- A series of corporate planning and governance reforms in 2021 for the Palau Public Utilities Corporation, including the preparation of a 3-year corporate plan; a statement of corporate intent; and a skills-based director selection process.
- National Public-Private Partnership (PPP) Policy and Transparency Guidelines issued in 2021, which stipulate rigorous cost-benefit analysis of proposed infrastructure investments to assess potential PPP procurement.