Overview:
A performance review requested by the Senate Ways and Means Committee finds no misuse of public funds in KASP debt servicing. However, auditors point to gaps in financial transparency and recommend clearer reporting in future national budgets.
By: L.N. Reklai
Koror, Palau – (November 27, 2025) A government audit has determined that the Ministry of Finance and the Palau Public Utilities Corporation complied with legal requirements prohibiting the use of public funds for payments on the Asian Development Bank–funded Koror–Airai Sanitation Project (KASP). The report, released in response to a request by the Senate Ways and Means Committee, concludes that the loan installments were suspended as required by law and only resumed after conditions set by the Olbiil Era Kelulau were met.
The performance review examined the handling of KASP loan payments between Oct. 1, 2023 and Sept. 30, 2024, during which work on the project remained partially incomplete. The audit focused specifically on compliance with RPPL No. 11-31, Section 36 — a provision that halted public funding for debt service until Palau, ADB and PPUC reached agreement on issues linked to the unfinished Malakal component of the project.
According to the findings, loan installments due on Oct. 1, 2023 were not remitted on schedule, reflecting adherence to the statutory prohibition. Payments were released only on Jan. 11, 2024, following the signing of a tripartite memorandum of understanding on Dec. 29, 2023. Soon after, RPPL No. 11-32 repealed the funding restriction and appropriated $3 million to resume debt servicing on the two ADB loans.
The audit also reviewed compliance on the budget reporting side and found that although payments were properly disbursed under the new appropriation, the FY2024 Unified National Budget did not disclose KASP-related debt obligations as required by RPPL No. 11-13. That law mandates full reflection of borrowings and repayment responsibilities in annual national budgets.
Despite the omission, the separate appropriation under RPPL No. 11-32 authorized expenditures for loan repayment, allowing four payments totaling approximately $2.434 million to be processed during the fiscal year. These covered the October 2023 and April 2024 installments for both ADB loans, which together finance more than $28 million in KASP works. While most major components of the project have been completed, the Malakal segment remains outstanding, with roughly $1.3 million in loan funds unspent and additional ADB grant support expected to carry the work to completion.
The Office of the Public Auditor recommended that the Ministry of Finance strengthen oversight of PPUC’s remaining project activities and include all borrowings, projected revenues and repayment schedules in future annual budgets. The ministry agreed with the findings and signaled willingness to improve reporting practices, noting that historically relent loans such as KASP had not been reflected in the national budget. Officials said they support broader publication of debt information going forward, including public debt reports to improve transparency in financial planning.
The audit concludes that while loan payment procedures adhered to statutory requirements, full disclosure of debt obligations remains a key area for future compliance and government oversight.
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