Monthly Archives: August 2016

President Obama to Discuss Pacific Issues Including Climate Change

The Prime Minister of Papua New Guinea, Hon. Peter O’Neill CMG MP, will meet with the President of the United States, H.E. Barak Obama, at the conclusion of the 10th Pacific Islands Conference of Leaders (PICL).
The conference began today with PM O’Neill Chairing a Special Meeting Of The Pacific Islands Conference of Leaders Standing Committee where key issues on the agenda were finalised.
The number one issue on the minds of Pacific Leaders is climate change,” the Prime Minister said at the end of the Committee Meeting.
“People and communities in the Pacific are in grave danger and countless lives threatened by extreme weather brought about by climate change and our Leaders are demanding action,” Prime Minister O’Neill said, as the Chair of the Conference.
“President Obama understands the position of Pacific nations and he made this very clear during my last meeting with him in Paris in last December and APEC in November.
“While President Obama is nearing the end of his term he is still the President and has a great deal of influence in the global community.

eight_col_obama_pacific_leaders
“Climate change is no longer solely a political issue, it is now very much a political issue in how we save communities, and an economic issue because this carries great cost.
“The economic cost is not the responsibility of the victims, but is a cost that has to be met by the countries that caused climate change.
“Pacific Island nations greatly appreciate the support that President Obama extends to our people and we look to furthering these discussions.”
The Prime Minister said there was consensus among Pacific Island nation leaders at the committee that a regular Pacific dialogue with the United States is of great importance for the region.
“The United States is the largest economy in the world, has important trading and historical links and has a great deal to offer our countries in terms of development, technology and trade.
“Regardless of who is the President next January, and in the term after that, we have to maintain strong and open relations.
“As well as meeting with President Obama, Leaders will meet with the United States Secretary of the Interior, and other elected representatives and Government officials.
“These relations are essential in advancing matters that matter to our people in the Pacific to create jobs and help small business.
“I will propose that this dialogue between Pacific Island nations is deepened and becomes more regular.”

 

 

2016 SUPPLEMENTARY BUDGET SPEECH by Hon. Peter O’Neill, PM

 

AUGUST 26th 2016

 

These are processes that have been ongoing for 40 years since our independence. The government does not go and consult the opposition about budgets, unlike what the good opposition leader is trying to say. Budgets are key important policy documents for governments and as a result of that Mr Speaker it certainly does have a bit of secrecy about it because you don’t want to argue about the economic position of the country on gossip columns and the press on a daily basis.

Mr Speaker it does not give confidence to anyone. What it states basically is that what you present to parliament must be taken seriously and that the business community and the investors and all the other stakeholders will have confidence. Mr Speaker coming to this parliament in 2002 under the Somare government, we inherited an economy that was in fact projected to be in surplus by the previous governme7652154-3x2-940x627nt. We inherited a government that was having a minus K800 million deficit. The strategy at that time was to try and return to a surplus budget as quickly as possible. So the good honourable treasurer, Mr Bart Philemon and Mr Speaker let me say that in the last 15 years there has only been four treasurers in our country. Fortunately three of us are still in this parliament and our good treasurer is the longest serving treasurer among all of us. Myself and the opposition leader are the shortest serving treasurers in between, so Mr Speaker we are quite familiar with the strategies that we have put in place and let us say that when we took government in 2002, the idea and the strategy was to get back to surplus quickly and credit to the good honourable treasurer then. He ran a very tight ship. And as a result we produced so many surplus budgets. We had surpluses for many many years Mr Speaker. But at the expense of what? We had a surplus budget at the expense of cutting services everywhere. We eventually shut down departments that were not functioning. We had provinces that were not operating. We had districts that had never seen their government. Yes we were having surplus budgets. Internationally we were looking good. The budget figures were excellent. But the reality on the ground was absent.  That is the fact Mr Speaker. Mr Speaker so as a result of that when we came into government in 2012, we changed the strategy. And that was to get into a deliberate deficit budget. And the good treasurer then was the current opposition leader. When we introduced the budget, we that projected a deficit of 6 per cent, 6 per cent at that time in 2012. We came under when we had the final year outcomes, Mr Speaker we came under almost 5.9 percent. In 2013 we came under 5. 2014, 2015 we came under 4. We ended up with 3.9 percent.

This year this budget and these supplementary adjustments are trying to make sure that we continue that decline all the way down but in a structured manner Mr Speaker. So the outcome that we are projecting for 2016 is under 3 percent deficit for our economy. And next year in 2017, we hope to bring the budget deficit down to 2 percent and eventually we’ll get down to a balanced budget.

Mr Speaker we are doing it in a structured manner and avoid cutting services.  Our key policies and our key promises to our people remain same. We have not cut free education, we have not cut free health care, we have not cut the support that we are going to give to the churches and all our partners. We are continuing to invest in capital works and infrastructure throughout the country. We’re still maintaining good support for the judiciary and in the law and order sector Mr Speaker.

We are supporting the districts through the DSIP without any cut. Through the PSIP, all those key programs across the country Mr Speaker it is being maintained and are producing results today. Four years of steady results with a declining deficit budget that is coming down, we need to continue to stay focused. We need to stay on track Mr Speaker. I guarantee you that we will get down to a balanced budget. And this will give confidence to even our international partners who now understand. It is a strategy that the Opposition leader himself was party to. However, all of a sudden there is fear about debt about budget deficits Mr Speaker.

Mr Speaker, even United States of America, the most powerful nation in the world, Japan is 3rd most biggest economy in the world, Australia, Britain, and most of the countries around the world are in deficit budgets Mr Speaker even though they have advanced infrastructure, better roads, better hospitals, better schools, unlike us; they are running a deficit budget because they need to stimulate their economy. Mr Speaker, if we do not invest in infrastructure after the LNG construction has lapsed, we will see more people on the unemployment line than what the member for Goroka is saying today. The construction investments that we have made in the construction industry throughout the country are keeping people employed. It is keeping as a means of functioning Mr Speaker. Yes there are tough times there.  There are some businesses who are struggling. And that is admitted Mr Speaker, but Mr Speaker the global challenges are not new to us, we don’t have to have a political grand standing. It’s not a contest of who is the brightest and who is the smartest. Mr Speaker it is about making our country work and putting food on the table for our people.  And that is the priority of this government Mr Speaker.

Mr Speaker, let me say that the growth projections that the treasurer is now saying just close to global growth projections that has been stated by IMF and the World Bank, Mr Speaker that is extra conservatives that the treasurer has made. I know that we will finish higher than that at the end of the year Mr Speaker. We will finish higher than that. Last year Mr Speaker it was projected to be around 6 percent or so, we finished at 9.9. These are independently verified figures of the economic growth for the country. So Mr Speaker, you can see that our economy is transforming since 2011-12. Our GDP for the entire country has doubled. We must continue to maintain prudent management of our economy and offcourse that is not an evil thing Mr Speaker. Many successful countries, many successful companies go into debt to grow their businesses, grow their economies and likewise we must follow. The strategy for Lae MP Bart Philemon used was that all the surpluses that we made in 2002 onwards were diverted into paying back all the debts, which looked very good. The debt levels were coming down but we were not investing in infrastructure. Lae city was in potholes, Port Moresby city was breaking down; even all our provinces were not functioning as expected. That is a fact. I know that now there’s a little bit of improvement in many of these services within the provinces.

Yet we tend to forget 4 or 5 years ago where we were. The fact is because we are investing in the right sectors and things are starting to look promising. We need to continue to maintain that level of activity.

Mr Speaker one other thing is that it is quite evident that when we set budgets, it is the educated  professionals and experts working within treasury and the country who set this forecast for us. They make assumptions about commodity prices. For example, when we were experiencing 110 dollars per barrel for the oil prices in the budget figures, they estimated 70 or 80 dollars per barrel. They reduced it down to an acceptable level so our country could counter for any shocks on the drops of prices. And offcourse if the prices remained high, we were able to raise more revenue. But Mr Speaker when you have an economy that collapses from 110 dollars price down to 27 per barrel that’s a huge drop in anybody’s language. And obviously the revenue coming into the country gets affected. That is why our revenue for this year is down by almost 2 billion dollars, which we used to get from mining and petroleum taxes almost that accounts to about K2 billion a year for PNG. This year we will be lucky if we get K200 million. That is a huge drop. I know there are many fortune tellers around but you know nobody tells that what the global prices will do over time, or when the war will be declared in the Middle East somewhere, nobody knows. You and I have no control over that. We are price takers so we have to live within reality Mr Speaker. And the fact of the matter is Mr Speaker supplementary budgets are a necessary tool for us to adjust our budget. I know there has been calls, many experts, and so called experts who sit behind computers around the country and give their expert advise and critic on supplementary budgets or readjustments to 3 or 4 months after we have introduced it. The truth is that you have to allow the activity in the economy to continue so you have a reasonable assumption. You can’t change your budget everyday or when the price of oil drops. You have a long-term average that is why after the mid-year economic physical outcomes were produced by law, it was published publically by treasury in June. We are able to assess our economy’s tracking. There is no other way to assess how anyone can predict where the economy is going unless you have the figures to tell you how the economy is performing. After that the outcome we have been able to see it. I know the good member for Goroka has got a copy of it he can pass on one to the good opposition leader but you know these are public information that is available out there. Every international donor agency, every multilateral partner have access to it. Mr Speaker, based on that, the treasurer is able to frame the supplementary budget. And that is what we are discussing today. It is painful because we are cutting some basic service, basic expenditure items that are going to cut costs, limits of activities for some of our national departments. But we tried our very best Mr Speaker to maintain no cuts in the districts, no cuts to the provinces, no cuts to education, free education policy, free health policy, no cuts to the infrastructure and I know that the good opposition leader talks about cuts to the worst. Mr Speaker after discussions with the department of works, the management there, they are saying that these are some of the projects that are budgeted for this year but will not start yet until next year. Mr Speaker, ADB and offcourse all the other donor partners are working closely. Some of these ADB funded projects will continue. It’s not as if we are saying that the economy is not ferrying well so we shut down shop and go on holiday. The economy is still functioning, it’s still standing. Mr Speaker we have got mines that are now starting to produce well. Offcourse mining projects like Lihir and Porgera and because of physical terms that were given to them, we didn’t collect much in our revenue for many years. Only now they are starting to pay taxes. Mr Speaker, we will start seeing some increase in the revenue that we will get from companies like Ok Tedi who will start paying dividends because it is now operating very profitable.  Finally, Mr Speaker there has been a lot of talk about inflation. Prices of goods are going up. Mr Speaker, again the international economy functions itself on US dollar as the primary currency. Over the last 2 years, the US dollar has been gaining strength against all currencies. We are not exempted from that. That means the real value of kina is continuously going down. And when it goes down, offcourse the import costs go up and as a result it is passed onto the consumers. That is why we are trying all our best to make sure that we buy Papua New Guinea made products only Mr Speaker. So that we can promote Papua New Guinea industries. We can promote agriculture in PNG. Mr Speaker these are areas that we want to focus on because our problem in the past is that we have not learnt from the mistakes made previously. That is that why we have not broadened our economy. We have been overly dependent on mining and petroleum Mr Speaker so as a result when the boom and bust cycle goes, we ride with that boom and bust cycle. Going up and down, up and down. So it is very important that we broaden the economic base. And I think the new reports that are coming out from National Statistical Office; the new GDP data that the Minister for Planning shows that these sectors are slowly starting to carry the economy.

It means that we are not overly dependent on the mining and petroleum sector and I think that when we continue to invest in these industries, we will do our best despite limited resources.

You know Mr Speaker, most important is free education. The school fee savings is what the parents will have in their pockets. It is savings them. That is an increase to their household income Mr Speaker. When you have funds going to the districts and the PSIP and DSIP, they are spending money in the districts. we also have K10 million in the districts, K10 or K15 million in the provinces. Mr Speaker, what are DSIPs and PSIPs employing?

They are employing local businesses or small to medium enterprises to carry out government work in the districts. Mr Speaker, so money has been translated into key sectors that are starting to produce results. We must continue to stay on the key policies we agreed to until the elections Mr Speaker.

Let the people judge us on the outcomes and I commend the treasurer for presenting an excellent supplementary budget.

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**** GOVT TO PAY WHEN LANDOWNER IDENTIFICATION PROCESS IS COMPLETE ****

A Government delegation team is scheduled to travel up to Hides tomorrow to meet with disgruntled landowners and address the current situation in Hela province.

The government delegation team will be led by Minister for Petroleum, Hon. Nixon Duban, Minister for Finance, Hon. James Marape, Chief Secretary, Isaac Lupari, Petroleum Acting Secretary David Manau, MRDC Managing Director Augustine Mano and Kumul Petroleum Holdings Managing Director, Wapu Sonk will travel up to Hela Province to meet with disgruntled landowners.

Minister for Finance, Hon James Marape said landowners’ equity totaling K350 million will be paid in royalty payments to respective landowners once the landowner identification process is complete.

The landowners will get their money from the national government and also state owned agencies. The current government under Peter O’Neill is putting systems in place to address landowners and their issues.

Demystifying the Private Public Partnership Paradigm

by Government Observer

Infrastructure investment is critical to Papua New Guinea’s continued economic success. Our nation must modernize and maintain our roads, bridges, and water systems to help ensure that Papua New Guinea remains a place for businesses to operate productively and grow, which will, in turn, create economic opportunity for Papua New Guineans. Yet years of underinvestment in our public infrastructure have imposed massive costs on our economy. 40 years of underinvestment and neglect in our infrastructure has resulted in a stagnant economic growth.

The need to reverse years of underinvestment in infrastructure, despite tighter budgets at every level of government, calls for us to rethink how we pay for and manage infrastructure investment. Some state and local governments have entered into public-private partnership (PPPs) to provide and manage infrastructure that has traditionally been provided by the public sector. PPPs bring private sector capital and management expertise to the challenges modernizing and more efficiently managing such infrastructure assets.

What is Private Public Partnership (PPP)

The World Bank defines PPP as “a long-term contract between a private party and a government entity, for providing a public asset or service, in which the private party bears significant risk and management responsibility, and remuneration is linked to performance

And from Wikipedia “PPP involves a contract between a public sector authority and a private party, in which the private party provides a public service or project and assumes substantial financial, technical and operational risk in the project. In some types of PPP, the cost of using the service is borne exclusively by the users of the service and not by the taxpayer.[1] In other types (notably the private finance initiative), capital investment is made by the private sector on the basis of a contract with government to provide agreed services and the cost of providing the service is borne wholly or in part by the government. Government contributions to a PPP may also be in kind (notably the transfer of existing assets). In projects that are aimed at creating public goods like in the infrastructure sector, the government may provide a capital subsidy in the form of a one-time grant, so as to make the project economically viable. In some other cases, the government may support the project by providing revenue subsidies, including tax breaks or by guaranteed annual revenues for a fixed time period. In all cases, the partnerships include a transfer of significant risks to the private sector, generally in an integrated and holistic way, minimizing interfaces for the public entity. An optimal risk allocation is the main value generator for this model of delivering public service.”

Under a PPP, a government contracts with a private firm to design, finance, construct, operate, and maintain (or any subset of those roles) an infrastructure asset on behalf of the public sector. When the private sector takes on risks that it can manage more cost-effectively, a PPP may be able to save money for taxpayers and deliver higher quality or more reliable service over a shorter timeframe compared to traditional procurement. When sponsors contract with private partners that support strong labor standards, PPPs can also provide local economic opportunity and create good, middle-class jobs that benefit current and aspiring workers alike. Just as there is a range of roles that a private firm or firms can take on in a PPP, the nature of risk-sharing and compensation arrangements for bearing and managing risk can vary substantially from project to project and is governed by contract.

Models of Private Public Partnership (PPP)

1. O&M: Operations and Maintenance

A public partner (federal, state, or local government agency or authority) contracts with a private partner to provide and/or maintain a specific service. Under the private operation and maintenance option, the public partner retains ownership and overall management of the public facility or system.

2. OMM: Operations, Maintenance & Management

A public partner (federal, state, or local government agency or authority) contracts with a private partner to operate, maintain, and manage a facility or system proving a service. Under this contract option, the public partner retains ownership of the public facility or system, but the private party may invest its own capital in the facility or system. Any private investment is carefully calculated in relation to its contributions to operational efficiencies and savings over the term of the contract. Generally, the longer the contract term, the greater the opportunity for increased private investment because there is more time available in which to recoup any investment and earn a reasonable return. Many local governments use this contractual partnership to provide wastewater treatment services.

3. DB: Design-Build

A DB is when the private partner provides both design and construction of a project to the public agency. This type of partnership can reduce time, save money, provide stronger guarantees and allocate additional project risk to the private sector. It also reduces conflict by having a single entity responsible to the public owner for the design and construction. The public sector partner owns the assets and has the responsibility for the operation and maintenance.

4. DBM: Design-Build-Maintain

A DBM is similar to a DB except the maintenance of the facility for some period of time becomes the responsibility of the private sector partner. The benefits are similar to the DB with maintenance risk being allocated to the private sector partner and the guarantee expanded to include maintenance. The public sector partner owns and operates the assets.

5. DBO: Design-Build-Operate

A single contract is awarded for the design, construction, and operation of a capital improvement. Title to the facility remains with the public sector unless the project is a design/build/operate/ transfer or design/build/own/operate project. The DBO method of contracting is contrary to the separated and sequential approach ordinarily used in the United States by both the public and private sectors. This method involves one contract for design with an architect or engineer, followed by a different contract with a builder for project construction, followed by the owner’s taking over the project and operating it.

A simple design-build approach creates a single point of responsibility for design and construction and can speed project completion by facilitating the overlap of the design and construction phases of the project. On a public project, the operations phase is normally handled by the public sector under a separate operations and maintenance agreement. Combining all three passes into a DBO approach maintains the continuity of private sector involvement and can facilitate private-sector financing of public projects supported by user fees generated during the operations phase.

6. DBOM: Design-Build-Operate-Maintain

The design-build-operate-maintain (DBOM) model is an integrated partnership that combines the design and construction responsibilities of design-build procurements with operations and maintenance. These project components are procured from the private section in a single contract with financing secured by the public sector. The public agency maintains ownership and retains a significant level of oversight of the operations through terms defined in the contract.

7. DBFOM: Design-Build-Finance-Operate-Maintain

With the Design-Build-Finance-Operate-Maintain (DBFOM) approach, the responsibilities for designing, building, financing, operating and maintaining are bundled together and transferred to private sector partners. There is a great deal of variety in DBFOM arrangements in the United States, and especially the degree to which financial responsibilities are actually transferred to the private sector. One commonality that cuts across all DBFOM projects is that they are either partly or wholly financed by debt leveraging revenue streams dedicated to the project. Direct user fees (tolls) are the most common revenue source. However, others ranging from lease payments to shadow tolls and vehicle registration fees. Future revenues are leveraged to issue bonds or other debt that provide funds for capital and project development costs. They are also often supplemented by public sector grants in the form of money or contributions in kind, such as right-of-way. In certain cases, private partners may be required to make equity investments as well. Value for money can be attained through life-cycle costing.

8. DBFOMT: Design-Build-Finance-Operate-Maintain-Transfer

The Design-Build-Finance-Operate-Maintain-Transfer (DBFOMT) partnership model is the same as a DBFOM except that the private sector owns the asset until the end of the contract when the ownership is transferred to the public sector. While common abroad, DBFOMT is not often used in the United States today.

9. BOT: Build-Operate-Transfer

The private partner builds a facility to the specifications agreed to by the public agency, operates the facility for a specified time period under a contract or franchise agreement with the agency, and then transfers the facility to the agency at the end of the specified period of time. In most cases, the private partner will also provide some, or all, of the financing for the facility, so the length of the contract or franchise must be sufficient to enable the private partner to realize a reasonable return on its investment through user charges.

At the end of the franchise period, the public partner can assume operating responsibility for the facility, contract the operations to the original franchise holder, or award a new contract or franchise to a new private partner. The BTO model is similar to the BOT model except that the transfer to the public owner takes place at the time that construction is completed, rather than at the end of the franchise period.

10. BOO: Build-Own-Operate

The contractor constructs and operates a facility without transferring ownership to the public sector. Legal title to the facility remains in the private sector, and there is no obligation for the public sector to purchase the facility or take title. A BOO transaction may qualify for tax-exempt status as a service contract if all Internal Revenue Code requirements are satisfied.

11. BBO: Buy-Build-Operate

A BBO is a form of asset sale that includes a rehabilitation or expansion of an existing facility. The government sells the asset to the private sector entity, which then makes the improvements necessary to operate the facility in a profitable manner.

12. Developer Finance

The private party finances the construction or expansion of a public facility in exchange for the right to build residential housing, commercial stores, and/or industrial facilities at the site. The private developer contributes capital and may operate the facility under the oversight of the government. The developer gains the right to use the facility and may receive future income from user fees.

While developers may in rare cases build a facility, more typically they are charged a fee or required to purchase capacity in an existing facility. This payment is used to expand or upgrade the facility. Developer financing arrangements are often called capacity credits, impact fees, or extractions. Developer financing may be voluntary or involuntary depending on the specific local circumstances.

13. EUL: Enhanced Use Leasing or Underutilized Asset

An EUL is an asset management program in the Department of Veterans Affairs (VA) that can include a variety of different leasing arrangements (e.g. lease/develop/operate, build/develop/operate). EULs enable the VA to long-term lease VA-controlled property to the private sector or other public entities for non-VA uses in return for receiving fair consideration (monetary or in-kind) that enhances VA’s mission or programs.

14. LDO or BDO: Lease-Develop-Operate or Build-Develop-Operate

Under these partnerships arrangements, the private party leases or buys an existing facility from a public agency; invests its own capital to renovate, modernize, and/or expand the facility; and then operates it under a contract with the public agency. A number of different types of municipal transit facilities have been leased and developed under LDO and BDO arrangements.

15. Lease/Purchase

A lease/purchase is an installment-purchase contract. Under this model, the private sector finances and builds a new facility, which it then leases to a public agency. The public agency makes scheduled lease payments to the private party. The public agency accrues equity in the facility with each payment. At the end of the lease term, the public agency owns the facility or purchases it at the cost of any remaining unpaid balance in the lease.

Under this arrangement, the facility may be operated by either the public agency or the private developer during the term of the lease. Lease/purchase arrangements have been used by the General Services Administration for building federal office buildings and by a number of states to build prisons and other correctional facilities.

16. Sale/Leaseback

This is a financial arrangement in which the owner of a facility sells it to another entity, and subsequently leases it back from the new owner. Both public and private entities may enter into sale/leaseback arrangements for a variety of reasons. An innovative application of the sale/leaseback technique is the sale of a public facility to a public or private holding company for the purposes of limiting governmental liability under certain statues. Under this arrangement, the government that sold the facility leases it back and continues to operate it.

17. Tax-Exempt Lease

A public partner finances capital assets or facilities by borrowing funds from a private investor or financial institution. The private partner generally acquires title to the asset, but then transfers it to the public partner either at the beginning or end of the lease term. The portion of the lease payment used to pay interest on the capital investment is tax exempt under state and federal laws. Tax-exempt leases have been used to finance a wide variety of capital assets, ranging from computers to telecommunication systems and municipal vehicle fleets.

18. Turnkey

A public agency contracts with a private investor/vendor to design and build a complete facility in accordance with specified performance standards and criteria agreed to between the agency and the vendor. The private developer commits to build the facility for a fixed price and absorbs the construction risk of meeting that price commitment. Generally, in a turnkey transaction, the private partners use fast-track construction techniques (such as design-build) and are not bound by traditional public sector procurement regulations. This combination often enables the private partner to complete the facility in significantly less time and for less cost than could be accomplished under traditional construction techniques.

In a turnkey transaction, financing and ownership of the facility can rest with either the public or private partner. For example, the public agency might provide the financing, with the attendant costs and risks. Alternatively, the private party might provide the financing capital, generally in exchange for a long-term contract to operate the facility.

Public Private Partnerships (PPPs) have become a popular tool for funding new infrastructure projects around the world. Using PPPs to develop infrastructure gives Governments the opportunity to move large upfront capital spending off their near term financing commitments. PPP schemes can also play a further role in promoting economic diversification and foreign direct investment.

In 2004, Papua New Guinea passed the PPP Act which it had tabled the bill in 2011. This Act guides the Government on using PPP models in building partnerships with private firms for Infrastructure development in Papua New Guinea.

http://www.treasury.gov.pg/html/misc/Special%20Projects/PPP/PNG%20PPP%20Act%202014.pdf
https://www.pwc.com/m1/en/publications/documents/adopting-ppp-and-its-role-in-attracting-fdi-dubai.pdfhttp://www.ifc.org/wps/wcm/connect/Industry_EXT_Content/IFC_External_Corporate_Site/PPP
https://home.kpmg.com/content/dam/kpmg/pdf/2015/09/demystifying-public-private-partnership-paradigm.pdf