First Air Niugini, then PNG Power … then PNG Ports and the National Airports Corporation? The Papua New Guinea government is embarking on a grand plan to reinvigorate state-owned enterprises. But privatisation is not the only option to ensure SOEs function as viable entities.

State Enterprises Minister, Ben Micah. Credit: Stephen Rae, Media Haus Productions

A White Paper will be released next month, outlining how the sell-offs will proceed, the Public Enterprise and State Investment Minister, Ben Micah told last week’s Papua New Guinea Advantage Investment and Infrastructure Summit in Port Moresby.

‘The policy will further define the role of SOEs and will determine the manner in which SOEs are managed,’ he said.

‘Let me assure you there will not be a wholesale privatisation or partial privatisation of state businesses,’ he added.

Rationale

Prime Minister, Peter O’Neill outlined the rationale:

‘There is a mountain of evidence available now and I know many of you can attest to it, that the state’s involvement in many areas of business has been incompetent, wasteful to the extreme and in some areas, corrupt’.

‘There are plenty of examples throughout the world where poor structuring as well as uneven risks sharing have led to stalled projects or projects whose economics have become unviable, necessitating restructuring.’

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The Asian Development Bank (ADB) concurred in its 2014 analysis of SOE performances across the Pacific: ‘They absorb scarce capital, suffer low productivity, and often provide high cost and low quality services. SOE reform is vital to create private investment opportunities, reduce the costs of doing business, and improve service delivery’.

ADB Vice-President Lakshami. Credit: Stephen Rae, Media Haus Productions

‘Papua New Guineans aren’t even getting revenues from SOEs that would be a real goal to have, so you think some of them should be sold off because they’re not best left in the hands of government,’ the IFC’s Carolyn Blacklock tells Business Advantage PNG.

‘And that frees up government to focus on what they need to be focusing on.’

New PPP Act

The passing of the Public Private Partnership Act in early September has drawn wide praise from the government’s aid sponsors, with ADB Vice-President Lakshami describing it as a ‘milestone… which would create a transparent and robust process for PPP project development.’

She says however, the structuring of deals is critical.

‘There are plenty of examples throughout the world where poor structuring as well as uneven risk-sharing have led to stalled projects or projects whose economics have become unviable, necessitating restructuring.’

One size doesn’t fit all

Blacklock points out not all SOEs are the same and each must be treated on their own merits.

‘Within PPPs, there are probably 12 different methods.

‘So we do agree with the concept of involving the private sector but we wouldn’t say that it has to be privatisation, or it has to be corporatisation, or it has to be a public-private partnership.’

Blacklock says the overseas experience shows the need for feasibility studies to uncover what’s needed, followed by financial modelling.

‘So, you could take an institution that has a situation where it needs more expertise.

‘It needs someone to come in and really operate the institution, what you could do there is a PPP which is an operating model. You could do the concession which is basically the contract for say, 10 or 15, 20, 25 years and at the end of that, the operating model reverts back to the state. In that instance, you are transferring ownership for a period of time but not forever.’

Order of sales

IFC’s Carolyn Blacklock

First cab off the rank is Air Niugini which, says Micah, is scheduled for part-privatisation in December, via a 49 per cent offering, preferably to ‘our superannuation funds’.

Blacklock says PNG Ports is one SOE which could take on a PPP-type model, while the National Development Bank could take on some private ownership to help it expand.

She points out the National Airports Corporation is moving towards a more corporatised model and suggests Telikom ‘should be ripe for private sector investment, possibly part-privatisation’.

Micah agrees, saying a review will look at bringing together Telikom PNG and bmobile/Vodafone, adding ‘the government acknowledges and welcomes the robust and energetic push of Digicel’.

PNG Ports

Micah noted the extension of the Lae International Port and the commissioning of the Lae Tidal Wharf project, which will allow ships carrying up to 5000 containers to use the wharf, making Lae one of the busiest ports in the region outside Australia and New Zealand.

‘If the numbers don’t stack up’, Nambawan Super would not be investing in PPPs.

He said these initiatives, combined with the moving of the Port Moresby port to Motukea Island, have triggered the review of the operations and administration of PNG Ports Ltd.

‘It will undergo the same exercise as all other SOEs to identify areas that can be privatised, or partially privatised and for PPP schemes.

NAC’s Joseph Tupiri

He also indicated the future of water and sewerage companies will be reviewed.

Airports

Joseph Tupiri, Acting Managing Director of the National Airports Corporation told the PNG Advantage Summit that Port Moresby and Lae airports ‘will be considered’ for some form of public-private partnership.

The first note of caution about managing expectations came from Michael Block, Chief Investment Officer, Nambawan Super, who told the summit that ‘if the numbers don’t stack up’, Nambawan Super would not be investing in PPPs.