USAID INVEST
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USAID INVEST

How a Unique Trilateral Partnership Is Bringing Stronger Internet to Palau

INVEST is providing project management support for the U.S. Government’s Infrastructure Transaction and Assistant Network’s Transaction Advisory Fund to bring a second submarine cable to the Pacific Island country of Palau. The cable will make internet access cheaper, faster, and more reliable, with the potential to spur economic growth and provide more citizens access to information.

Construction of cable landing site in Ngardmau, Palau. Photo credit: McCann Consulting International

By Natalie Alm, INVEST Communications Advisor

About 600 miles east of the Philippines and north of Papua New Guinea, you’ll find the small Pacific Island state of the Republic of Palau. Most of the country’s territory is aquamarine water speckled with over three hundred islands, though only a fraction of the islands are inhabited.

Palau’s small size, low density, and geographic isolation make it an attractive tourist destination, but also limit its potential for steady and sustainable growth. Similar to other Pacific Island states, it is vulnerable to natural disasters and the increasing impacts of climate change. Despite having one of the higher GDPs in the region, its small economy is sensitive to economic shocks, and it has historically depended on large amounts of foreign aid. Infrastructure, key to both economic production and quality of life for residents, is more expensive to build and maintain, since investments can’t take advantage of economies of scale.

According to the Asian Development Bank, the Pacific region has a higher infrastructure investment need, as a percentage of GDP, than any other region in Asia, requiring investments valued at 8.2% of GDP. The Pacific needs an estimated $400 million in regional infrastructure investment in information and communications technology (ICT) alone.

What might this investment look like?

Take the PC2 — the Palau Cable 2, a submarine fiber optic cable that will connect Palau with the world’s longest undersea cable, which runs from Singapore to California. Palau’s first cable, the PC1, was completed in 2017. It increased bandwidth sevenfold, and now most households in Palau have internet access. However, the second cable is important in ensuring the country’s continued digital connectivity, especially in the event of a failure.

More than 430 of these fiberoptic cables, only as wide as a garden hose, crisscross the ocean’s floor, stretching over 800,000 miles in total. However, they can cost hundreds of thousands of dollars to repair in the event of a problem, risking plunging entire countries into “digital darkness” for weeks at a time. The new 70-mile cable in Palau will further raise the speed and lower the cost of internet services in Palau, with the potential to spur economic growth and provide more citizens access to information.

Map of submarine cables in the Pacific. Photo credit: submarinecablemap.com

However, projects like this aren’t cheap. The PC2 project is valued at $30 million — more than 10% of Palau’s gross domestic product (GDP). Palau was able to install the first cable thanks to a loan from the Asian Development Bank, but it needed additional financing to even start thinking about the second cable.

Fortunately, the United States, Japan, and Australia had signed a memorandum of understanding in November 2018 to establish the Trilateral Infrastructure Partnership, with the goal to promote prosperity in the Indo-Pacific region through support for infrastructure projects. As the first project under this partnership, the PC2 secured a mix of grant, loan, and equity financing from public and private partners in each country, including $4.6 million from the United States, $10 million from Australia, $8 million from Japan, and $7 million from Palau through its Compact Review Agreement with the United States. Belau Submarine Cable Corporation (BSCC), the Palauan state-owned enterprise that built the first cable, was already tapped to construct the PC2, and committed over $1 million of its own to the project.

With plans for the project, partners, and financing in place, the biggest need was now project management — someone to coordinate among the myriad partners, investors, and implementers involved. Palau was able to apply for assistance under the U.S. Government’s Infrastructure Transaction and Assistance Network (ITAN), a whole-of-government initiative established in 2018 “to advance sustainable, transparent, high-quality infrastructure across the Indo-Pacific region.”

USAID INVEST manages ITAN’s Transaction Advisory Fund (TAF), which provides legal and technical assistance to help boost partner governments’ capacity to evaluate and assess the impacts of potential infrastructure projects. Support can range from legal services to feasibility studies to bid and proposal evaluation — as well as the specific project management that the PC2 needed.

Navigating different requirements, timelines, approvals, and priorities across three countries, numerous government agencies, and private sector partners is no small feat. INVEST brought on Australian company McCann Consulting International Pty Limited (MCI) to take on this task. MCI, with a presence on the ground in Palau, is managing procurement and delivery, as well as ensuring that required safeguards and funding conditions are met. For instance, they handled the procurement for the construction of the cable landing station and associated civil works, including reviewing proposals, selecting the winners, and drafting contracts. Construction began last summer, and the cable is expected to be fully operational by the end of 2023.

While there have been challenges over the project so far, including COVID travel restrictions making it more difficult for project stakeholders to meet or visit the construction site, the PC2 project is still one to watch. “For INVEST,” says Senior Investment Advisor Nadia Dawood, who’s overseeing the project from INVEST, “this is the first instance where we’ve seen a trilateral partnership of this sort, with American, Japanese, and Australian money all supporting the same project. It’s actually pretty cutting edge.” In addition to bringing together three different countries, the United States’ involvement through ITAN is a massive inter-agency effort, including the Departments of State, Commerce, Treasury, Energy, and Transportation, as well as USAID, the U.S. Trade and Development Agency (USTDA), the Development Finance Corporation (DFC), and the Export-Import Bank (EXIM).

Ultimately, it’s a win-win for all the stakeholders involved. Palau gets quicker, cheaper, and more reliable internet, facilitating their access to information and economic growth. Australia, Japan, and the United States can support that growth, in alignment with their own development objectives — including increased trade, economic activity, job creation, and livelihoods. “You’re connecting people, through technology, to world markets,” Dawood notes. “And, at the end of the day, you’re supporting U.S. technology companies, by facilitating their access to this part of the world.”

And this is not the end of this unique collaboration. The PC2 has proven to be a model for effective partnership to support infrastructure, as other Pacific Island states have expressed interest in replicating this project.

“It’s often hard to get multiple donors on the same page regarding projects, let alone different countries,” says Dawood. “But here we can all see the benefits economically, socially, and from a development perspective.” So while this is the first of this particular type of partnership, odds are it won’t be the last.

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