Pacific Plan Review: Secretariat's New Direction & Strategic Framework

1. The Secretariat’s new Direction Leaders’ Decisions • 2013 Pacific Plan Review

2. The Secretariat’s refocused direction Strategic Framework • 4 Strategic Outcomes informs

3. FutureOrganizationalCapability Implement & review Policy Process Political vision FPR Decisionmaking Policyformulation Policy choices

4. PIFS Organizational Capability Enabling Environment • Key elements for action on regionalism

5. PIFS Organizational Capability Change in Business model  

6. Key capabilities • To support PIFS policy adviser role • Service Delivery • Governance • Service development • Delivery of Services NB Not a role closely linked with PIFS policy adviser role

7. Forum Secretariat - Core Capability Senior Management Team 1 SG/CEO, Dep-SG/Dep-CEO, 4 Senior Managers (+ 1 Professional staff & 4 Support staff) • Regional Policy Advisory Capacity • Economic Policy • Public Finance • Climate Finance • Microeconomic Reform & Infrastructure • International Development • Natural Resources • Social Policy (Gender, Youth, Aged, Disability) • International Relations • Security • Governance • Elections • Law Enforcement • Trade Negotiations • Business Policy • International Law & Treaties • Legislative Drafting • International Negotiations & Global Conferences • Other Capacities • Stakeholder Engagement • Meeting & conference organisation(venue, facilities, papers & travel) • Tendering & Procurement • Administration of Funds & Donor Programmes • Media & Publications • Depository & Archive 11 Support staff Primary Budget 6  Internationally recruited Senior managers 46   Internationally recruited Professional staff 44   Locally recruited Support staff Policy Development 32 Professional staff (18 Generalists 14 Specialists) 5 Economists Policy Advice 1 Climate Change finance specialist Political Neg & Settlements 2 International Trade specialists 3 Social Policy experts Communication 2 Security specialists • 14 Generalist advisers • International relations • Development • Trade & Business • Resources & Environment Implementing Decisions Advisory Support1(where part of implementing decision) 3 Lawyers 3 Public Affairs specialists 29 Support staff 13 Professional staff Marshalling Resources 4 Accountants 2 HR practitioners 3 ICT professionals 3 Project Management professionals  Headquarters, Conference Centre & Vehicles Information Technology & Communications Systems  Office Administration & Business Information Systems 1. Both Advisory Support & Service Delivery will generally be funded by Extra Budget resources. While Service Delivery has been omitted from this diagram, Advisory Support has been included to cover the administrative costs of this capability as well as those instances where it is an explicit Primary Budget funded component of a Leaders’ Decision.

8. Strategic Outcomes Regional Policy Advisory Capacity Forum Secretariat Strategic Framework • Enabling Environment Other Capacities

9. Organizational Capability - recommendations Past reviews & audits with relevant ongoing recommendations

10. Funding Models Membership fees option • Cover the majority of the costs with some supplementation from other income (such as interest, sales of publicationsand rents) • Amount each member pays usually depends upon capacity to pay • Fund all activities; untied & ongoing 1 2 3 4 5 6 Misc Y

11. Funding Models (2) Externally funded option • The majority of funds are provided through tied funding for specific purposes • Funding linked to cost of projects or programmes • Lumpy, finite term funding for life of project or programme D1 D2 D4 D5 D3 D6

12. Background – Economic & Funding Principles • Economic Principles • Public goods • Private goods • Club good • Merit goods Funding Principles General principles: • Adequacy • Stable • Produce incentives consistent with goals of organisation Additional principles: • Equity - those that benefit should pay • Authority - to collect funds • Accountability – for the use of funds • Efficiency - ensure Value for Money • Do the right things • Doing them effectively • With inputs at the best price possible

13. Background - Past FOC Decisions Dec 2012 May 2012 Review of the Secretariat Assessed and Voluntary Contributions • Rec 11) Member states commit to increased multi-year regular budget contributions in order to adequately fund the core business of the organisation. (agreed by FOC) Extra Budget Funding • Rec 6) Leaders agree that, for matters outside its core business, the Secretariat can have a possible role as a facilitator of funding from development partners, including through co-ordination with member states and CROP agencies, but should not undertake a project delivery role. (Leaders deferred in 2012 to allow PPR) • Rec 20) The FOC clarify the financial delegations to the Secretary General and that steps be taken to ensure that future decisions in relation to significant non-regular budget revenue be made by the FOC. (agreed by FOC)

14. a. Assessed Contributions (1) General Assessments • Constitutes approximately 22-25% of funding for core operations • Allocated between members in the shares set out in the Annex to the 2000 Establishment Agreement - Forum Leaders may amend this under Article X.2 • Original formula determined in 1996 • 37% each for Australia & New Zealand • 1% maximum for SIS • Balance allocated to remaining states according to GDP (in 1999) • Until this year the assessment has remained constant for about 20 years and is still well below the below rate of cost increases (CPI) for the period

15. a. Assessed Contributions (2)

16. b. Voluntary Contributions (1) • Constitutes approximately 64-66% of funding for core operations • While historically stable, the funding is discretionary and thus is not assured • Also subject to Foreign Exchange variations • Provided by Australia and New Zealand on a long standing basis through grant funding documents • Australia entered into a three year funding agreement in 2014 that has been extended and now expires at the end of 2017 • New Zealand enters into recurring one year funding agreements, with the current one expiring at the end of 2017 • In recent years voluntary funding (through donations) has also been provided by: PNG | China

17. b. Voluntary Contributions (2)

18. c. Extra Budget (1) • Approx 37% of funds used to support the KRAs in 2017 • Also supports Technical Cooperation & Associated Functions ($15.8M) • Provided according to donor priorities • Funding tied to specific purposes • Uses Donor funding documentation and conditionality

19. c. Extra Budget (2) 1 2

20. c. Extra Budget (3) Uses • Supplementation of activity costs can be straightforward to secure • Significant projects and programmes: • require large investments of Secretariat time: • To document and apply for the funding • To meet and maintain donor funding conditions – especially organizational assessments, which are increasingly sought by donors before funding • Can only be spent when the money has been received • Have time limits for spending the funds • Are often subject to heavy audit burdens, which can result in repayment of the funds where stringent documentation requirements are not fully met.

21. Attributes of the Secretariat’s funding sources

22. Application of the Economic principles

23. Sustainable Funding Strategy Funding Model • Independent advice for Sovereign members – requires a sovereign PIFS with independent funding Fixed Costs Member Contributions (Primary Budget) Policy Development Policy Advice Political Neg & Settlements Communication Marshalling Resources Voluntary Contributions (Primary Budget) Variable Costs Implementing Decisions Advisory Support Service Delivery Donor/User funded (Extra Budget)

24. Membership Options Membership fee Options • The two submitted to FOC by the SCPF after considering 4 main options & various sub-options Preferred Option A – Increased FIC ownership Fallback Option B – Modified status quo • Retains current minimums 1% SIS & 2% non SIS • Incorporates French Polynesia and New Caledonia as full members • Balance is allocated on the basis of GDP (average over last six years) • Australia & New Zealand fund 65% • Increase the 16 Forum Island members proportion to 51% • Decrease Australia & New Zealand’s portion to 49% (ie 24.5% each) • Minimum of 1.5% for SIS • Minimum of 3.0% for other members • Balance is allocated on the basis of GDP (average over last six years)

25. Membership Options - Assessment

26. Increasing the portion of the Primary Budget funded by Assessed Member Contributions over time Membership income Current 2017 2020 2023 Assessed Member Contributions 27% Assessed Member Contributions 39-40% Assessed Member Contributions 60% Voluntary Contributions Voluntary Contributions Voluntary Contributions Other Income Other Income Other Income

27. 2017 membership contribution Adjustment of funding for Forum Island Members, Australia & New Zealand How the proportion of Australia & New Zealand’s voluntary contribution will decline as the assessed membership increases Post 2018 membership contributions (increasing over time) Forum Island member funding Voluntary Contribution Volunma 2017 membership contribution Post 2018 membership contribution (increasing over time) Total New Zealand funding(2016 funding NZ$2.1M) Post 2018 membership contribution (increasing over time) 2017 membership contribution Voluntary Contribution Total Australian funding (2016 funding A$5.05M)

28. Extra Budget funding Parameters for PIFS use • Proposed by the SCPF in recognition of PIFS role as a policy adviser rather than a development agency • Use 2: Advisory Support (as part of capacity building) • Where funds are needed to support the capacity of individual members to meet the objectives of a regional policy decision – for example to make or implement laws or develop specific strategies or frameworks for their country. • Use 1: Support of Regional policy development • To supplement policy formulation where specific activity costs can be identified. • To provide dedicated funds to support the implementation of a Leaders Regional Policy initiative – eg to support the political management role side of the policy process or develop a guidance/template that can be used by a number of members to help them implement the decision in their country. • Use 3: Service delivery • Where other services or benefits are being provided to a wide range of identifiable users, economic funding principles would indicate that the cost of providing these should be funded through direct charges.

29. Transition & Implementation Phase in The new arrangements will be phased in over several 3 year periods • One of the causes for the Secretariat's recent financial challenges has been static membership contributions over several decades • the last major review was way back in 1998 • The SFS proposes regular 3 year review periods • These will ensure that the Secretariat regularly assesses and balances its available income & work priorities • whilst at the same time providing adequate notice to members of membership increases, so these can be budgeted for well in advance. • also seeks to align voluntary contributions with this 3 year period • The changed membership fees will be introduced over the next 6 years – ie two 3-year periods

30. For Leaders’ decision Proposed Recommendations The SCPF recommend FOC propose that Leaders: • adopt proposed option A for determining membership assessments for the Secretariat’s budget under Article X.2 of the 2000 Agreement; • increasethe proportion of Member contributions to the Primary Budget to 60% progressively over the next 6 years through pre-determined, incremental adjustments; • endorsethe proposed methodology for determining phased increases in membership assessments for 2018 to 2020, noting current figures are maximum or ‘up to’ and that actual figures will be confirmed at the budget FOC meeting in December 2017; • institute a three-yearly review of the level of assessed member contributions and voluntary contributions, with the first review to be undertaken in 2020; • request that Voluntary Contributions be made on a three-yearly basis, and aligned to the same planning period as assessed membership contributions; and • approve the parameters for use of Extra Budget funding (see Table 7 of Attachment A), agree that administration fees from donor funding not be used to fund regional policy advice functions, and agree that Service Delivery functions be funded by user fees or special member assessments, to cover any shortfall from donors, effective from 1 January 2019;