Improving PNG’s business environment


Many of the success stories in this publication have occurred against significant odds. Papua New Guinea’s producers face many challenges in developing their businesses, although things are looking up.

Traffic through PNG's ports rose by 46% in 2011 [source: PNG Ports]. Pic: Pacific Islands Trade and Invest

Traffic through PNG’s ports rose by 46% in 2011 [source: PNG Ports]. Pic: Pacific Islands Trade and Invest

As a developing country, Papua New Guinea lacks much of the infrastructure that businesses in developed nations take for granted: ubiquitous and well-maintained roads, reliable power supply, capacious sea ports, and modern airports. Government services in PNG, including those related to law and order, business regulation, education and training, are also significantly restricted in many areas due to a lack of resources and qualified personnel.

It’s not just a problem money can fix, either; the country’s extreme terrain and high rainfall makes even the maintenance of existing infrastructure a constant labour, while the dispersed population, the largest portion of which is based in its remote Highlands, presents unique challenges for the delivery of services.

Inevitably, where there has been a lack, the private sector has filled the gap as best it can. Thus, private power plants, wharves, roads, water supplies and training facilities are a feature of PNG’s business landscape.

Survey reveals critical issues

Throw in a decade growing domestic demand, and you have a business environment under significant stress.

This was amply demonstrated by the inaugural PNG 100 CEO Survey, conducted by Business Advantage International in early 2012, which asked CEOs in PNG to name the critical issues facing their businesses. Top of the list were:

• A shortage of skilled personnel and necessary expertise

Story continues after advertisment...

• Security and law and order problems

• Unreliable utilities

• Logistical challenges

Given it is such a vital source of long-term employment, many manufacturers believe the government should do more to assist the sector. According to Ian Chow, CEO of the Lae Biscuit Company: ‘PNG’s manufacturing sector can provide stable employment opportunities but we face so many challenges. We’d like to see the new government make a real effort to assist local manufacturers.’

Positive signs

While no-one believes the business environment can be improved overnight, there are encouraging developments.

Firstly, improved revenues are allowing the PNG Government to address long-term under-investment in essential infrastructure. In its December 2011 Budget, it made its largest allocation ever for development, including 187 million kina for the development of PNG’s 89 districts, 170 million kina for infrastructure and other projects related to the PNG LNG project, 231 million for roads (including the Highlands Highway), 44 million for water and sanitation programs and 41 million for rehabilitation of hospitals.

Secondly, a newly-instituted Sovereign Wealth Fund, to be funded through the State’s interests in major resources projects (most notably the ExxonMobil-led PNG LNG project), will enable the Government to recapitalise some of its ailing state-owned enterprises (SOEs), which have suffered from a lack of investment in recent times. Indeed, a portion of the fund has already been flagged for expressly such a purpose, while the creation of an Independent Infrastructure Authority to oversee investment in the country’s infrastructure has been mooted.

This, accompanied by regulatory reforms that look set to enable more private sector involvement in the SOE space (mirroring reforms that have transformed the Information and Communications Technology sector), are likely to deliver more investment, more redundancy in infrastructure and, ultimately, more reliability.

The new PNG Government, elected in July 2012, also has a Public-Private Partnership Bill ready in draft form to consider, which could enable, for example, the construction of privately-built power stations. (However, as Deloitte PNG Managing Partner Lutz Heim observed in the 2012/13 edition of Business Advantage Papua New Guinea,‘it is likely that the more successful partnerships will take account of the PNG preference for retaining ownership of its assets, at least in part.’)

External investment and donor support

Another positive factor is the investment PNG is receiving from international sources of finance such as the Asian Development Bank and aid organisations such as Australia’s AusAid.

Ports have been a consistent bottleneck in recent years, with the situation exacerbated by the need to import a huge inventory of materials to not only build the massive US$16.5 billion PNG LNG Project but other future resources projects. PNG Ports, which runs PNG’s 16 gazetted ports, recorded a staggering 46% increase in volumes through its ports in 2011 alone.

The ADB is financing a major expansion of PNG’s major port, Lae. The 800 million kina (US$376 million) Lae Tidal Basin Project will increase capacity significantly. According to now-retired Public Enterprises minister Sir Mekere Morauta, the new facility, which is expected to be completed in 2015 ‘will … spur other economic development in the region, including agriculture, by helping to lower the cost of taking goods to local and international markets as well as reducing the transport costs of inputs.’

Vital roads

PNG’s 9000km of roads, in particular the vital Highlands Highway that connects PNG’s rural Highlands to the port of Lae, are in continuous need of repair.

The PNG Government has signalled its intent to eventually seal all roads, while the ABD has committed US$400 million to assist with construction and maintenance over the next 10 years. In early 2012, the Asian Development Bank announced contracts worth US$120 million for road improvements in the Highlands region.

Meanwhile, AusAid’s A$65 million (US$68 million) Transport Sector Support Program helped to maintain 2000 km of roads in 2011.

Finally, with only small parts of the country traversable by road, PNG is more reliant on air services than possibly any other country in the Asia-Pacific region. A 10-year US$640 million program supported in part by the ADB is currently rehabilitating and maintaining PNG’s 21 airports.

Power generation

Load shedding by power stations in PNG is common, with demand for electricity often outstripping supply, particularly in Lae, PNG’s industrial hub. Power capacity is being built, however, with the Independent Public Business Corporation—the body that overseas PNG’s state-owned enterprises, including PNG Power—pushing through plans to rehabilitate the Ramu Hydro Scheme, which provides much of Lae’s Morobe Province with power.

The project, which would involve rehabilitating and expanding the major Yonki hydroelectric dam as well as building a new ‘Ramu 2’ dam and power station, would increase output from 45 MW to over 180 MW. State utility PNG Power also added a further 20 MW to Port Moresby’s electricity grid in early 2012, but in the medium term is looking to gas-generated electricity as a major source of power for the nation’s capital.

This article first published in Made in PNG 2012

Leave a Reply