Reforming State-Owned Enterprises Will Benefit PNG Economy - ADB Study

PORT MORESBY, PAPUA NEW GUINEA – Reforming state-owned enterprises (SOEs) in Papua New Guinea (PNG) - by placing them on a fully commercial and transparent footing, - will enable SOEs to make a positive contribution to inclusive economic growth, says a study released today by the Asian Development Bank (ADB).

The new ADB study, Finding Balance, Benchmarking the Performance of State-Owned Enterprises in Papua New Guinea assesses the impact of SOEs on the PNG economy and compares this to the impact of SOEs on the economies of 5 other Pacific countries (Fiji, Marshall Islands, Samoa, Solomon Islands, and Tonga). ADB conducted the benchmarking study at the request of the Independent Public Business Corporation, and it is the first time that PNG has participated in a SOE benchmarking study. The analysis identifies the key SOE performance drivers and reform strategies that may influence future policy action.

SOEs are identified as public enterprises that are majority-owned owned by the government. This study confirmed that the best performing SOEs are those that operate with private sector discipline and under competitive market pressures.

Governments typically subsidize SOEs to deliver community service obligations such as water, electricity, telecommunications and transport services, because the fees collected from users are insufficient to cover the cost of delivery. When these services are delivered by SOEs without adequate compensation from the government, the financial performance of the SOEs suffers. This approach forces SOEs to focus on their core mandate of operating as successful businesses, meet their costs of capital, and undertake community service obligations on a commercial basis.

“The active participation of Papua New Guinea in the study must be commended as a demonstration of their governments’ willingness to identify and address core issues within their SOE portfolio, as transparency is an essential precursor to successful reform” said Andrea Iffland, Regional Director of ADB’s Pacific Liaison and Coordination Office in Australia. “Important progress has been made but much more needs to be done.”

The ADB study reveals that while PNG’s SOEs have produced profits, they have done so at high cost to the government in terms of ongoing fiscal transfers and other subsidies, and to the detriment of the rural population who continue to have limited access to basic social services.

The study also suggests that significant economic benefits may be gained if SOEs are managed more transparently and held accountable for results. PNG has made important progress over the past 12 months in placing the SOEs on a more commercial footing, the study notes.

SOE reform is one of the key focus areas of ADB’s Private Sector Development Initiative (PSDI) which started in 2006 with cofinancing from the Australian Government. The initiative supports efforts by developing member countries in the Pacific to encourage private sector-led, sustainable economic growth.