Partnership can deliver better infrastructure in PNG

Published on Wednesday, 04 October 2017

Published by Stephen P. Groff on Wednesday, 04 October 2017

Goroka Airport construction site in PNG.
Goroka Airport construction site in PNG.

I last visited Papua New Guinea (PNG) in 2013. Back then I highlighted the need for attention to inclusive growth, so that poor and remote communities were not deprived of access to electricity, basic education, health, and transport services.

Today, while there have been some improvements, much remains unchanged.

Furthermore, given the recent years of turbulent global commodity prices, the knock-on effect in budgetary resources, and a subsequent tightened economic environment, delivering inclusive growth has become even more challenging.

When times are tough, every kina counts.

  PPPs manage expenditures without compromising services

The government has taken a strong leadership role to better capture available sources of revenue, has provided reduced supplementary budgets, and prioritized expenditures to further improve its fiscal position. Efforts have been made to reduce discretionary expenditures in the areas such that economic development and growth are not hindered; although there is always a risk that expansionary capital expenditures for critical infrastructure will be constrained.

One way that expenditures can be managed without compromising services is through public-private partnerships, or PPPs.

A PPP is a partnership between the public sector and the private sector. Typical PPPs are designed to deliver services or infrastructure, bringing finance and technical skills the public sector may not have or need to direct elsewhere.

Non-government entities have provided and continue to provide social infrastructure and essential services before in PNG. Even before independence, churches were at the frontline of health and education service delivery, particularly in remote communities, and to some degree this role remains relevant today.

PPPs crucial to build infrastructure

However, more recently private companies in the extractive industries and agribusiness have provided social services. This enables the government to oversee service quality, through well-managed contracts, without having to retain specialist service delivery staff on the public payroll.

ADB sees an important role for PPPs in developing PNG’s infrastructure and meeting its development goals.

In February, ADB and the Papua New Guinea National Airports Corporation (NAC) signed a transaction advisory services agreement to develop a new international passenger terminal at Port Moresby (Jacksons) International Airport through a PPP. The new terminal will allow the airport to meet traffic demands over the next 30 years.

The project is the first PPP transaction advisory engagement undertaken by ADB in either PNG or the Pacific. ADB will develop a bankable commercial structure, tender the project to international investors, and help NAC award the concession and reach financial close.

  Lae Port is a potentially transformative infrastructure project

ADB will also provide support to help prepare the project and expand NAC’s capacity to implement it. As part of the agreement, ADB also aims to create document and contract templates that may be used for future PPPs in the region, and build local expertise in PPP management and execution.

This and future potential PPPs would be facilitated by an effective PPP Act. Legislation for a PPP Act was passed by the National Parliament in 2014, but has not been gazetted and is therefore not yet effective. A PPP unit is also needed to support the development and implementation of a pipeline of PPP projects.

The Lae Port is another potentially transformative infrastructure project with significant potential for private sector participation. The project, if developed as planned, will help transform Lae Port into a major regional hub serving the Pacific with improved capacity and efficiency. Working closely with the private sector will reduce the costs of doing business in PNG, while maximizing the benefits of the infrastructure upgrades.

The port also connects directly to the Highlands Highway, providing a link between the region and the highlands area. A feasibility study for the project conducted by ADB confirmed this could be a viable PPP project.

Lessons learned from APEC members

Additionally, as the Highlands Highway is rehabilitated and upgraded over the next ten years under recently approved ADB funding, and transport services begin to traverse the area between the highlands and Lae, there will be considerable opportunity for private sector investment in various agribusinesses.

Soon, PNG will have a golden opportunity to learn about PPPs from neighboring countries. Next year, leaders of the world’s largest economies including the USS, the People’s Republic of China and Russia, will travel to Port Moresby for the Asia-Pacific Economic Cooperation (APEC) Leaders’ Meeting – the biggest event ever hosted by PNG.

At the APEC meeting, PNG will showcase its rich culture and potential trade and investment opportunities. PNG will find that it can learn a lot Asian neighbors—especially member countries of the APEC forum—about how to spur growth and create jobs.

PNG’s growing links with other Asian economies will help the country to expand export opportunities and gain technical expertise to help businesses and government agencies, leading ultimately to job creation.

  PNG can learn from Sri Lanka’s PPP experience

Even now, PNG can learn from Sri Lanka’s PPP experience. The Sri Lanka Port Authority has developed terminals at Colombo Port using the PPP model and shifted its role from a port operator to a landlord and grantor of concession. As a result, Colombo Port has become one of the world’s largest transshipment hubs.

PNG can enjoy similar gains if the national government learns from such precedents, and acts swiftly to build a vibrant private sector and improve revenue flows. New sources of revenue will be particularly important in meeting national development objectives and the Sustainable Development Goals.

Over the past 50 years, the Asia-Pacific region has undergone significant transformation – boosting connectivity, preparing for climate change, supporting regional cooperation and integration and facilitating private sector-led growth.

PNG is part of this transformation, and has a willing partner in ADB. The country must continue to pursue PPP opportunities, help create conditions that enable the private sector to grow, and strengthen its links with growing economies in the region.

This blog was first published as an op-ed by The National.