Solomon Islands

Country Operations Business Plan September 2015 Solomon Islands 2016 2018 This document is being disclosed to the public in accordance with ADB s Public Communications Policy 2011.

CURRENCY EQUIVALENTS (as of 1 August 2015) Currency unit Solomon Islands dollar (SI$) SI$1.00 = $0.1254 $1.00 = SI$7.9745 ABBREVIATIONS ADB Asian Development Bank ADF Asian Development Fund CPS country partnership strategy TA technical assistance NOTE In this report, $ refers to US dollars, unless otherwise stated. Vice-President S. Groff, Operations 2 Director General X. Yao, Pacific Department (PARD) Regional Director A. Iffland, Pacific Liaison and Coordination Office, PARD Team leader Team members H. Everett, Senior Country Specialist, PARD R. Adhar, Senior Project Officer, PARD N. Carandang, Social Development Specialist, PARD M. de Villa, Project Analyst, PARD P. Indrawansa, Senior Project Officer (Infrastructure), PARD S. Khan, Senior Transport Specialist, PARD A. Maxwell, Senior Energy Specialist, PARD S. Spohn, Private Sector Development Specialist, PARD C. Thonden, Education Specialist, PARD J. Williams, Senior Environment Specialist, PARD In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS Page I. CONSISTENCY OF BUSINESS PLAN WITH COUNTRY PARTNERSHIP STRATEGY 1 II. INDICATIVE RESOURCE PARAMETERS 1 III. SUMMARY OF CHANGES TO LENDING AND NONLENDING PROGRAMS 2 APPENDIXES 1. Updated Country Partnership Strategy Results Framework 3 2. List of Linked Documents 6 3. Indicative Assistance Pipeline 7 4. Assistance Program for Current Year 9 5. List of Indicative Knowledge Publications and Events 11

1 I. CONSISTENCY OF BUSINESS PLAN WITH COUNTRY PARTNERSHIP STRATEGY 1. The Solomon Islands country operations business plan is aligned with the strategic priorities of the country partnership strategy (CPS), 2012 2016, which was approved in March 2012. 1 The CPS of the Asian Development Bank (ADB) for Solomon Islands seeks to reduce poverty by promoting inclusive, environmentally sustainable economic growth through assistance in four core sectors: energy, information and communication technology, public sector management, and transport. In addition, private sector development is supported through the Pacific Private Sector Development Initiative. 2 The CPS addresses binding constraints to growth, and is consistent with the direction of ADB s Interim Pacific Approach, 2015, which extends the validity of ADB s Pacific Approach, 2010 2014; the Midterm Review of Strategy 2020; 3 and the government s Policy Statement and Policy Strategy. 4 An updated CPS results framework is in Appendix 1 and a list of linked documents is in Appendix 2. II. INDICATIVE RESOURCE PARAMETERS 2. The government has adopted a measured approach to increasing its use of concessional loans. It has set a ceiling for public debt at 30% of gross domestic product. The Medium Term Fiscal Strategy, 2013 2018 provides for an annual limit on new borrowing determined by undertaking a debt sustainability analysis each year as part of the budget process. 5 This has been set at SI$300 million for 2015. 3. Solomon Islands is a Group A developing member country, and eligible for Asian Development Fund (ADF) grants and concessional ordinary capital resources lending (COL). 6 The indicative ADF grant and COL resource allocation for 2016 2018 is $39.82 million. The final allocation will depend on the available resources, and the outcome of the country performance assessments. In addition, cofinancing and funding from other sources, including the subregional pool under concessional resources, will be actively explored. The 2014 debt distress classification of Solomon Islands was assessed as at moderate risk of debt distress. In accordance with the ADF grants framework, the country is to receive 50% of its country allocation in grants in 2015, subject to a 20% volume discount on the grant portion of the country allocation. 7 ADB will also provide technical assistance (TA), at an indicative average of $0.98 million per annum. 4. Energy. Access to clean and affordable power is needed to allow producers of commodities and other goods on the outer islands to diversify production and improve livelihoods. ADB support will complement the efforts of other partners in energy sector reform through sustainable power services. A project to build a small hydropower plant and increase access to modern energy services was approved in 2014, with effectiveness occurring on 1 ADB. 2012. Country Partnership Strategy: Solomon Islands, 2012 2016. Manila. 2 ADB. 2013. Technical Assistance for the Pacific Private Sector Development Initiative, Phase III. Manila. 3 ADB. 2015. Interim Pacific Approach, 2015. Manila; ADB. 2009. ADB s Pacific Approach, 2010 2014. Manila; ADB. 2014. Midterm Review of Strategy 2020: Meeting the Challenges of a Transforming Asia and Pacific. Manila. 4 Government of Solomon Islands, Office of the Prime Minister and Cabinet. 2015. Democratic Coalition for Change Government Policy Statement. Honiara; Government of Solomon Islands, Office of the Prime Minister and Cabinet. 2015. Democratic Coalition for Change Government Policy Strategy and Translation. Honiara. 5 Government of Solomon Islands. 2013. Medium Term Fiscal Strategy, 2013 2018. Honiara. 6 Terminology reflects combination of ADF lending operations with the OCR balance sheet that will take effect on 1 January 2017. For 2016, COL stated here should be understood as ADF lending. 7 The proportion of grants for the resource allocations in 2016 2018 will be determined by future annual debt distress classifications in accordance with the ADF grants framework.

2 16 June 2015. A solar power development project is planned for 2016, and a further energy project in 2018. 5. Information and communication technology. The Broadband for Development Project, which will be financed by both sovereign and nonsovereign investments, will deliver good-quality, high-speed internet services at affordable prices to Solomon Islanders in both urban and rural areas. The original project was approved in September 2012, with additional financing proposed for 2016. 6. Public sector management. Fiscal stability and a competitive business environment are essential to fostering private sector-led growth and development. In coordination with development partners and operating through the core economic working group, ADB will continue supporting the government-led public sector management reforms with policy-based programs. 8 The main goal of ADB s assistance in public sector management is to improve the enabling environment for private sector-led inclusive growth and development. In line with the core economic working group medium-term economic and financial reform program, a policybased program has been included for 2016. ADB will continue to provide TA, including through the Private Sector Development Initiative, to support public sector management reforms, including commercial legal reform, state-owned enterprise reform, and improving access to finance. 7. Transport. Building on the existing Transport Sector Development Project, ADB is supporting a sector-wide approach to management and development of a multimodal transport system. 9 The Sustainable Transport Infrastructure Improvement Program promotes transport sector development and will provide funding to the national transport fund for investment and capacity development activities according to the National Transport Plan, 2011 2030. 10 An additional transport sector project is proposed in 2018, with a potential focus on completing the remaining wharfs under ADB s existing Domestic Maritime (Support) Sector Project. 8. The proposed ADF program for 2016 2018 is summarized in Table A3.1 and the TA pipeline for 2016 2018 in Table A3.2 (Appendix 3). To complement the TA program and leverage TA resources, ADB will include Solomon Islands in regional TA activities where feasible. III. SUMMARY OF CHANGES TO LENDING AND NONLENDING PROGRAMS 9. The TA for customs reform implementation in the country operations business plan for 2015 2017 has been moved from 2015 to 2017, given the anticipated timing of the introduction of the customs legislation. The additional financing for the Broadband for Development Project has moved to 2016, while the government takes decisions about the routing for the cable. The Economic and Financial Reform Program, and the Sustainable Transport Infrastructure Improvement Program have also moved to 2016 to allow further consultation with the government over program design. The assistance program for 2015 is in Appendix 4, while a list of knowledge products and publications is in Appendix 5. 8 In March 2009, the government established the core economic working group comprising officials from the Central Bank of Solomon Islands; the Office of the Prime Minister; the Ministry of Development Planning and Aid Coordination; the Ministry of Finance and Treasury; and development partner representatives from ADB, Australia, the European Union, New Zealand, and the World Bank. 9 ADB. 2010. Report and Recommendation of the President to the Board of Directors: Proposed Grant and Administration of Technical Assistance Grant to Solomon Islands for the Transport Sector Development Project. Manila. 10 Government of Solomon Islands. 2006. National Transport Plan, 2011 2030. Honiara (revised 2010).

UPDATED COUNTRY PARTNERSHIP STRATEGY RESULTS FRAMEWORK (Board endorsement of the CPS: 2012; COBP September 2015) Country Development Goals (Government of Solomon Islands, Office of the Prime Minister and Cabinet. 2015. Democratic Coalition for Change Government Policy Statement. Honiara) 1. Sustainable and equitable economic growth 2. Enlarging investment opportunities for all Solomon Islanders 3. Availing of rural and customary land for commercial and agricultural development 4. Prevention and alleviation of poverty and hunger 5. Ensuring environmental sustainability and ownership 6. Provision of adequate, accessible, and quality social services, infrastructure, and utilities for all Solomon Islanders Sectors Selected by ADB Sector Outcomes that ADB Contributes to and Government Sector Objectives Indicators 1. Transport (Core Areas: Infrastructure, Environment) Priority will be given to economic infrastructure that will facilitate trade and economic development. These areas are the road network, ports infrastructure development, airstrip development, and telecommunications. In the area of the road network, priority will be given to building roads that will connect producers of commodities and other goods to economic growth centers. The ports of Honiara and Noro will be upgraded to meet international safety requirements, and extra port infrastructure will be established in Suava Bay, Bina Harbour, Graciosa Bay, and other investment sites. Well-maintained transport infrastructure Indicators: a Percentage of road network that is in maintainable condition Baseline: 35% (2010) Target: 60% (2015) Current value: 63% (30 June 2015) Percentage of maintainable roads under maintenance Baseline: 39% (2011) Target: 85% (2015) Current value: 71% (30 June 2015) Percentage of wharves that are in maintainable condition Baseline: 35% (2010) Target: >35% (2015) Current value: 41% (33 of 81 wharves as at 31 March 2015) Percentage of maintainable wharves that receive routine maintenance Baseline: 0% (2010) Target: 100% (2015) Current value: 33% (11 of 33 wharves as at 30 June 2015) Percentage of airstrips with scheduled traffic that receive routine maintenance Baseline: 100% (2011) Target: 100% (2015) Current value: 116% (19 with currently scheduled traffic, and 22 that receive maintenance as at 30 June 2015) ADB Areas of Intervention Multimodal transport and sector development; ports, waterways, and shipping; roads and highways Appendix 1 3 Changes from CPS or Last COBP Country development goals revised to align with government policy statement. ADB Indicative Resource Allocation in the Next Pipeline and Strategic Priorities $24 million for 2016 2018, 47% of total COBP envelope, of which: ESG 100%; GEM 100%; PSD 100%; RCI 0% Amount and percentage approved from year 1 of the CPS (2012) to present: $13 million, 27% of total CPS envelope, of which: ESG 100%; GEM 100%; PSD 100%; RCI 0% Changes from CPS or Last COBP No change

4 Appendix 1 Sectors Selected by ADB ADB Indicative Resource Allocation in the Next Sector Outcomes that ADB Contributes to and ADB Areas of Pipeline and Strategic Government Sector Objectives Indicators Intervention Priorities Percentage of reported asset condition that is rated poor Baseline: 62% (2010) Target: Poor rating reduced by 30% (2015) Current value: roads 46% reduction and wharves 11% reduction as at 30 June 2015 Number of franchise shipping schemes operational in outer islands Baseline: 0 (2010) Target: 8 (2016) Current value: 7 (30 June 2015) Number of wharves and landing ramps rehabilitated Baseline: 0 (2010) Target: 52 (2016) Current value: 34 (31 August 2015) 2. Information and Communication Technology (Core Areas: Infrastructure, Regional Cooperation and Integration) ICT access will be significantly improved. New ICT business opportunities Indicators: Number of internet service providers Baseline: 2 (2010) Target: 3 (2015) Current value: 3 (2015) b Number of ICT companies Baseline: 9 (2010) Target: 10 (2015) Current value: (2015) 3. Energy (Core Area: Infrastructure and Environment) Developing renewable energy resources to provide access to affordable electricity in rural areas through public support for a range of renewable energy resources. A revised master plan and improved Solomon Islands Electricity Authority operations Access to energy Indicator: Number of households with access to grid-connected power in provincial centers Baseline: 274 (2014) Target: 524 (2020) Current value: 274 (2014) Telecommunications and communications Renewable power generation Sector policy and capacity development $9 million for 2016 2018, 18% of total COBP envelope, of which: ESG 0%; GEM 0%; PSD 100%; RCI 100% Amount and percentage approved from year 1 of the CPS (2012) to present: $18 million, 38% of total CPS envelope, of which: ESG 0%; GEM 0%; PSD 100%; RCI 100% $13 million for 2016 2018, 25% of total COBP envelope, of which: ESG 100%; GEM 100%; PSD 0%; RCI 0% Amount and percentage approved from year 1 of Changes from CPS or Last COBP No change, but targets will need revising once Broadband for Development Project (additional financing) is processed No change

Sectors Selected by ADB Government Sector Objectives would guide energy investments. 4. Public Sector Management (Core Area: Other) Promote a development strategy anchored on the private sector as the engine for growth, wealth creation, employment generation, and poverty reduction. Adopt a corporate governance framework for SOEs to improve management and promote accountability. Strengthen governance institutions to promote greater transparency and accountability. Sector Outcomes that ADB Contributes to and Indicators Enhanced SOE corporate governance Indicator: Value of fiscal support to SOE funding made available outside the community services obligation framework Baseline: $60.9 million (2003 2009) Target: $0 (2015) Current value: $3.6 million (2012) c Improved regulatory business environment Indicator: Number of new companies registered Baseline: 270 (2011) Target: 284 (2015) Current value: 882 (296 in 2012, 232 in 2013, and 354 in 2014) d Improved public sector management and institutions Indicator: Country performance assessment score for D. Public Sector Management and Institutions Baseline: 3.1 (2011) Target: 3.1 (2015) Current value: 3.1 (2014) ADB Areas of Intervention Private sector development, microfinance, public finance and expenditure management, stateowned enterprise reform, business law reform ADB Indicative Resource Allocation in the Next Pipeline and Strategic Priorities the CPS (2012) to present: $12 million, 25% of total CPS envelope, of which: ESG 100%; GEM 100%; PSD 0%; RCI 0% $5 million for 2016 2018, 10% of total COBP envelope, of which: ESG 0%; GEM 100%; PSD 100%; RCI 0% Amount and percentage approved from year 1 of the CPS (2012) to present: $5 million, 10% of total CPS envelope, of which: ESG 0%; GEM 100%; PSD 100%; RCI 0% Appendix 1 5 Changes from CPS or Last COBP No change = data not available, ADB = Asian Development Bank, COBP = country operations business plan, CPS = country partnership strategy, ESG = environmentally sustainable growth, GEM = gender equity and mainstreaming, ICT = information and communication technology, PSD = private sector development, RCI = regional integration, SOE = state-owned enterprise. a Government of Solomon Islands. 2006. National Transport Plan, 2011 2030. Honiara (revised 2010). b bmobile, SATSOL, and Solomon Telekom. c ADB. 2014. Finding Balance 2014: Benchmarking the Performance of State-Owned Enterprises in Island Countries. Manila. 2012 data are most recent available. d Solomon Islands Company Haus. Sources: Asian Development Bank and Government of Solomon Islands.

6 Appendix 2 LIST OF LINKED DOCUMENTS http://adb.org/documents/cobp/?id=sol-2016 1. Interim Pacific Approach, 2015 2. ADB s Pacific Approach, 2010 2014 3. Solomon Islands: Country Partnership Strategy, 2012 2016

Appendix 3 7 Project/Program Name 2016 Firm Sector INDICATIVE ASSISTANCE PIPELINE Table A3.1: Lending and Grant Products, 2016 2018 Poverty Targeting Strategic Agendas and Drivers of Change Division Year of PPTA/ PDA Total Cost ($ million) ADB MOL COL Grants Solar Power Development PATE 2015 9.00 0.00 1.00 2.00 3.00 TBD 6.00 Project a ENE TI-G GEM, IEG, PAR Sustainable Transport TRA GI IEG, PAR, PATE 2014 75.10 0.00 14.00 0.00 14.00 35.80 25.30 Infrastructure Improvement Program b PSD Economic and Financial Reform PSM GI IEG, PSD PLCO 5.00 0.00 0.00 5.00 5.00 0.00 0.00 Program Broadband for Development ICT GI IEG, PSD PAUS 2011 9.40 0.00 6.00 3.00 9.00 0.40 0.00 Project (additional financing) 2016 Standby Sustainable Transport Infrastructure Improvement Program (additional financing) c TRA GI IEG, PAR, PSD Total Gov t Cofinance PATE 2014 30.00 0.00 0.00 0.00 0.00 0.00 30.00 Total 128.50 0.00 21.00 10.00 31.00 36.20 61.30 2017 No lending Total 2018 Supporting an Integrated Transport System TRA GI IEG, PSD PLCO 2007 10.00 0.00 10.00 0.00 10.00 TBD TBD Provincial Renewable Energy ENE TI-G GEM, IEG PATE TBD 10.00 0.00 10.00 0.00 10.00 TBD TBD Project, Phase 2 Total 20.00 0.00 20.00 0.00 20.00 ADB = Asian Development Bank; ADF = Asian Development Fund; COL = concessional OCR lending; ENE = energy; GEM = gender equity and mainstreaming; GI = general intervention; Gov t = government; ICT = information and communication technology; IEG = inclusive economic growth; MOL = market-based OCR lending; PAR = partnerships; PATE = Transport, Energy and Natural Resources Division, Pacific Department; PDA = project design advance; PAUS = Urban, Social Development, and Public Management Division, Pacific Department; PLCO = Pacific Liaison and Coordination Office, Pacific Department; PPTA = project preparatory technical assistance; PSD = private sector development; PSM = public sector management; TBD = to be determined; TI-G = targeted intervention geographic dimensions of inclusive growth; TRA = transport. a Potential cofinancing from the Scaling Up Renewable Energy in Low Income Countries Program. b Cofinancing from Government of Australia. c Potential cofinancing from the Green Climate Fund. Source: Asian Development Bank estimates.

8 Appendix 3 Assistance Name Sector Division 2016 Strengthening the Solomon Islands Maritime Safety Administration Table A3.2: Nonlending Products and Services, 2016 2018 Assistance Type Source ADB Sources of Funding Others Amount ($ 000) Source Amount ($ 000) Total ($ 000) TRA PLCO CDTA TASF 600.00 0.00 600.00 Strengthening Capacity of the Ministry of TRA PATE CDTA 0.00 Gov t of Infrastructure Development a Australia 2017 4,200.00 4,200.00 Total 600.00 4,200.00 4,800.00 Customs Reform Implementation PSM PLCO PATA TASF 800.00 0.00 800.00 2018 Total 800.00 0.00 800.00 Support to the Ministry of Development Planning and Aid Coordination PSM PLCO CDTA TASF 500.00 0.00 500.00 Total 500.00 0.00 500.00 ADB = Asian Development Bank; CDTA = capacity development technical assistance; Gov t = government; PATA = policy and advisory technical assistance; PATE = Transport, Energy, and Natural Resources Division, Pacific Department; PLCO = Pacific Liaison and Coordination Office, Pacific Department; PSM = public sector management; TASF = Technical Assistance Special Fund; TRA = transport. a Linked to Sustainable Transport Infrastructure Improvement Program. Source: Asian Development Bank estimates.

Appendix 4 9 Project/Program Name Firm Domestic Maritime Support (Sector) Project (additional financing) a Sector Poverty Targeting ASSISTANCE PROGRAM FOR CURRENT YEAR Table A4.1: Lending and Grant Products, 2015 Strategic Agendas and Drivers of Change TRA GI IEG, PAR, PSD Division Year of PPTA/ PDA Total OCR Loans Cost ($ million) ADB ADF Grants Total Gov t Co- finance PLCO 2007 0.30 0.00 0.00 0.00 0.00 0.00 0.30 Total 0.30 0.00 0.00 0.00 0.00 0.00 0.30 ADB = Asian Development Bank; ADF = Asian Development Fund; GI = general intervention; Gov t = government; IEG = inclusive economic growth; OCR = ordinary capital resources; PAR = partnerships; PDA = project design advance; PLCO = Pacific Liaison and Coordination Office, Pacific Department; PPTA = project preparatory technical assistance; PSD = private sector development; TRA = transport. a Approved on 28 April 2015 (Cofinancing from Government of New Zealand). Source: Asian Development Bank estimates.

10 Appendix 4 Table A4.2: Nonlending Products and Services, 2015 Assistance Name Sector Division Assistance Type Source ADB Sources of Funding Others Amount ($ 000) Source Amount ($ 000) Total ($ 000) None 0.00 0.00 0.00 Total 0.00 0.00 0.00 ADB = Asian Development Bank. Source: Asian Development Bank estimates.

Appendix 5 11 LIST OF INDICATIVE KNOWLEDGE PUBLICATIONS AND EVENTS Table A5.1: Knowledge Publications and Events for 2016 Title of Publication or Event Subject Type Department or Sector Group or Thematic Group Asian Development Outlook Solomon Economics Publication and documentation PARD Islands country write-up Asian Development Bank and Solomon Publication and documentation PARD Islands: Fact Sheet Pacific Economic Monitor (2 times per year) Solomon Islands country write-up Technical Assistance Economics Publication and documentation PARD TA 8565-REG: Pacific Economic Management (Phase 2) Total number of publications = 4 Total number of events = 0 PARD = Pacific Department, REG = regional, TA = technical assistance. Note: Publications may include databases, multimedia, and other forms of documentation. Events may include event organization and training or capacity development. Source: Asian Development Bank.

12 Appendix 5 Table A5.2: Additional Knowledge Publications and Events Delivered in 2015 Title of Publication or Event Subject Type Asian Development Outlook Solomon Islands Economics Publication and country write-up documentation Asian Development Bank and Solomon Islands: Publication and Fact Sheet documentation Pacific Economic Monitor (2 times per year) Economics Publication and Solomon Islands country write-up documentation Solomon Islands Development Planning knowledge product (The Solomon Islands National Development Strategy: A Case Study of Capacity Building and Participatory Policy Making in a Fragile, Post-Conflict State) Publication and documentation Department or Sector Group or Thematic Group PARD PARD PARD PARD Technical Assistance 8565-REG: Pacific Economic Management (Phase 2) 8065-REG: Enhancing ADB s Engagement in Fragile and Conflict- Affected Situations Total number of publications = 5 Total number of events = 0 PARD = Pacific Department, REG = regional. Note: Publications may include databases, multimedia, and other forms of documentation. Events may include event organization and training or capacity development. Source: Asian Development Bank.