PORT MORESBY, PAPUA NEW GUINEA – Engaging the private sector through public-private partnerships and privatization can improve the performance and service delivery of state-owned enterprises (SOEs), according to a new Asian Development Bank (ADB) report.
Finding Balance 2014: Benchmarking the Performance of State-Owned Enterprises in Island Countries, will be launched in PNG at a breakfast today hosted by the Port Moresby Chamber of Commerce. It was produced by the Pacific Private Sector Development Initiative (PSDI), a regional technical assistance facility, cofinanced by the governments of Australia and New Zealand, and ADB.
“When SOEs operate commercially, they reduce the costs of doing business, create opportunities for private investment, and improve basic service delivery,” said Andrea Iffland, Regional Director of ADB’s Pacific Liaison and Coordination Office in Sydney. “Finding Balance 2014 shows the importance of increased private sector engagement in implementing these reforms.”
The report shows that while the average return on equity (ROE) of PNG’s SOEs at 5.8% was the best in the region for the period 2002-2012, the portfolio’s performance has declined in recent years and in 2012 was outperformed by Fiji, the Solomon Islands, and Tonga. In 2012, the Solomon Islands recorded an SOE portfolio ROE of 14.6%—almost 3 times higher than PNG’s at 4.7%.
SOE reforms can bring immediate benefits: the report shows how the Solomon Islands reversed an average ROE of -11% from 2002-2009 to 10% in 2010–2012. The turnaround is attributed to increased privatization, public-private partnerships, financial restructuring, and sustained efforts to place SOEs on a sound commercial footing.
In PNG, recent developments such as the enactment of the PPP law; endorsement of a community service obligation policy; and plans for increased competition in telecommunication, aviation, and energy should contribute to improved SOE performance, but more needs to be done.
Keynote speaker at today’s breakfast is Richard Prebble, who, as New Zealand’s first Minister of State Owned Enterprises, oversaw an SOE reform program that has been internationally recognized as one of the most comprehensive and successful ever undertaken.
The report, ADB’s fourth comparative study of SOE performance, involves nine countries—Cabo Verde, Fiji, Jamaica, the Marshall Islands, Mauritius, Papua New Guinea, Samoa, Solomon Islands, and Tonga. This is the second time PNG has participated in the Finding Balance study, having participated in Benchmarking the Performance of State-owned Enterprises in Papua New Guinea, published in 2012.
PSDI is working with ADB's 14 Pacific developing member countries to improve the enabling environment for business and support inclusive, private sector-led economic growth.
ADB’s active portfolio in PNG totals $1.1 billion, including 22 ongoing loans for 11 projects.
FACT BOX: PNG’s SOE Portfolio:
- comprises of 8 SOEs: Air Niugini Limited, Eda Ranu Limited, National Development Bank, PNG Water Board, PNG Ports Corporation, PNG Power Limited, Post PNG Limited, Telikom PNG Limited
- had a total asset value of K5.8 billion (FY2012)
- had the highest average return on equity (ROE) in the Pacific between 2002 and 2012, at 5.8%
- has seen financial performance decline since 2007
- was outperformed by the SOE portfolios in Fiji, Tonga, and the Solomon Islands in 2012
- operates under a confused legislative and governance framework with weak transparency and accountability
- should see improved performance following positive developments such as a community service obligation policy; enactment of the Public-Private Partnership Act in 2014; and plans for increased competition in telecommunication, aviation, and energy
- still urgently needs more reforms to match the turnarounds seen in other Pacific countries.
Source: Finding Balance 2014: Benchmarking the Performance of State-Owned Enterprises in Island Countries