Another good fund management practice adopted in the project was the use of investment income gains from Australian financing in meeting ADB’s administration fee and bank charges. This helped in fully disbursing all grant financing for eligible contract payments and reduced the level of actual financing gap.
Funding and disbursements for the project were made in several currencies, and this had potential and real negative impacts due to adverse shifts in foreign exchange rates. To mitigate the risks, ADB did not convert cofinancing grant funds it received in the euro and Australian dollar into United States dollars. Instead, by twice reallocating the originally assigned use of grant proceeds between the contracts, funding in each currency was disbursed as much as possible to make payments required by contracts denominated in the same currency, thus avoiding extra costs or losses due to foreign exchange conversions or fluctuations. This innovative approach to managing and mitigating foreign exchange risks in projects funded in more than one currency is a good practice worthy of adoption in future projects. However, it requires careful management of funds throughout project implementation and prompt reallocation of grant proceeds to avoid payment delays to contractors.
The Asian Development Bank’s (ADB) good relationship management and the positive interactions and high degree of trust between ADB staff and the government were important in reaching an agreement on the additional government financing. This financing was needed to award the generator contract with no change in the planned scope despite higher-than-expected costs.
Nauru’s extremely remote location; poor port facilities; and limited accommodation, equipment, and human resources can drive up project costs. Despite wide circulation of the invitation for bids, the Nauru Utilities Corporation (NUC) received only two bids for the respective contracts, and the bid prices were higher than anticipated. Additional funds had to be found to deliver the expected outputs. When processing a project in Nauru and countries with similar specific challenges, it is important to factor the increased likelihood of comparatively high bid prices into contingencies.
The success of the NUC reforms, which are focused on sustainability, can best be measured over time. Especially as several of these reforms address the need for changes in organizational behavior, they cannot be expected to have immediate results. The introduction of tariffs may also take a long time to materialize amid the public pushback on increased costs of services. Fitting reforms to the issues and contexts they are seeking to address is essential to the success of future reform programs.
A limited number of policy actions, focusing on the most important measures, concentrated program resources on where they were needed and would matter most. This focus also ensured that all reforms were of high quality and delivered within the appropriate timeframes.
Strong coordination with the Government of Australia was essential to the program’s success. Australia provided in-line support to the Government of Nauru to implement many of the program−related reforms within the Ministry of Finance and the Nauru Utilities Corporation (NUC).
Large shifts in the political and economic contexts can create significant challenges in the implementation of policy reforms. To address this situation, reform programs should be anchored in long−term country development strategies and plans. For instance, this program succeeded because it was strongly aligned with Nauru’s National Sustainable Development Strategy that provides the framework for its long−term policy agenda.