‘Fundamental change’ needed with Papua New Guinea state-owned enterprises

Welcome,

Kumul Consolidated Holdings, the holding company for Papua New Guinea’s state-owned enterprises (SOEs), has released its Year in Review. It says that 2018 has been ‘particularly difficult and challenging’ for the country’s SOEs and that a fundamental change is necessary if the enterprises are to expand.

Workers at PNG Power, one of Kumul Consolidated Holding’s SOEs Source: KCH

Kumul Consolidated Holdings (KCH)’s review states that, at the end of 2017, PNG’s nine state-owned enterprises had net assets of K5.06 billion, employing 7117 people.

Collectively, they paid K103 million in dividends to the State in 2017. However, the slowness of PNG’s economy has had an impact on revenues.

‘The past 12 months have been particularly difficult and challenging as greater emphasis has been placed on mergers, labour rationalisation, reduction to operating expenses, and budget-focused micro-management to deliver profitable outcomes,’ the report states.

‘Not all our planned outcomes have been achieved and realised in 2018.

‘A fundamental change in the way the SOEs perform is necessary to ensure they are appropriately positioned for expansion.

‘This is not hiding the fact that our assets in some cases are simply not performing to expectations.’

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The report provides financial information on some of PNG’s biggest SOEs.

Air Niugini

Air Niugini is expected to increase its revenues this year by K51 million to K1.096 billion, a rise of 4.5 per cent. Profit after tax is budgeted at K14.4 million, also up from a loss of K45.5 million in 2017.

The dividend it pays to the State is forecast at K7.2 million, down from K10 million in 2017.

The KCH report says the company is ‘reviewing all areas of the current structure.’

PNG Power

PNG Power is expected to marginally improve revenues, from K865 million in 2017 to K923 million in 2018.

Earnings, however, are stronger. EBITDA is budgeted to more than double from K57.1 million in 2017 to K125.2 million this year.

Key projects

The report identifies four key projects currently being undertaken by KCH:

  • The K410 million Port Moresby Sewerage System Upgrade, which was handed over to Eda Ranu in October
  • The 180MW Ramu 2 hydropower project, which will be built, owned and operated by a consortium headed by China’s Shenzhen Energy Group, with early works starting in 2019. The asset will be transferred to state ownership after 25 years of operation.
  • The K879 million (US$270 million) domestic Kumul Submarine Cable System and international Coral Sea Cable System, set to be commissioned in late 2019.
  • The Port Moresby Port Redevelopment Project, which will involve turning 38.4 hectares of land no longer in use as the result of the port moving to Motukea Island. The proposed redevelopment will include residences, hotels, serviced apartments, recreational areas, commercial buildings, a cruise ship terminal, retail and dining outlets, an ‘innovation centre,’ and a museum, all under a public-private partnership.

Net operating profits after tax are budgeted to rise from a loss of K15.4 million in 2017 to 34.8 million in 2018.

Having paid no dividend to the State in 2017, PNG Power is budgeted to pay K17.4 million this year.

Kumul Telikom

Kumul Telikom performance. Source: KCH

The state-owned telecommunications company, Kumul Telikom, is looking to reduce costs, according to the KCH report.

It is budgeted to generate a turnover of K414 million in 2018—an 12.5% increase on 2017—but still make a K20.3 million net operating loss due to higher costs.

Cost reductions will be partly achieved by the merger of the three entities within the group—Telikom PNG, PNG Dataco and Bmobile—into a ‘one communications service provider’.

Water and agriculture

The KCH report says Water PNG and Eda Ranu will be merged, with one entity serving all centres in the country.

PNG’s newest SOE, Kumul Agriculture, will where viable ‘invest in the development of sustainable agriculture projects across PNG from coffee to cocoa, palm oil to copra.’ Kumul Agriculture projects include the Central Dairies fresh milk project on the outskirts of Port Moresby and the Sepik Plains Agricultural Development Project.

Ports

PNG Ports is anticipated to have slightly lower cargo volumes this year, but revenues are budgeted to be up by 7.4 per cent to K281 million.

Profits are also budgeted to be up slightly, with EBITDA expected to rise by 6.2 per cent to K135.5 million. Capital expenditure is expected to increase sharply to K400 million, up from K150.8 million in 2017.

Comments

  1. State owned entities should be the cash source for the govt and should be self-reliant yet they rely on government subsidies. The govt should put in qualified business minded CEOs

  2. George Tipping says:

    The overall return on investment of K5.06 billion assets with K103 million income to GoPNG shows 2.036% returns on what are in reality monopolies. Fundamental changes are obviously needed but it is not a matter of increasing prices, but running these SOE’s on true business principles with efficiencies.

  3. Marsh Narewec says:

    So what is the Fundamental Change needed to happen for SOEs to outperform?

    Obviously, the change of government needed to happen because since the Reform of Sir Mekere back in 2000-2002, there was no successful reforms in the SOEs since then that will make them free from Political influence and become profitable like Nambawan Super, Nasfund and BSP.

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