IPBC MD addresses the Business Advantage Conference

Speech by Mr Thomas Abe, Managing Director, IPBC, to the PNG Business Advantage Conference (Port Moresby, September 11 2012 / 20120731 PS-SP MD PNG Business Advantage Conf.)…

Good morning ladies and gentlemen.

Let me acknowledge the speech here yesterday by our new Minister for Public Enterprises and State Investments, the Honorable Ben Micah MP.

The Minister made two very important points that I want to reinforce.

The first is that it is not business as usual for Papua New Guinea any more. Business as usual has been a failure, and it is time to do things differently.

The second is that there needs to be far greater participation in national-building by the private sector.

Allow me to be blunt – the State has never had the financial, technical or physical capacity to deliver all the services and infrastructure the nation needs in the time frames required.

Today, we are even worse off.
Therefore IPBC has been engaging much more closely with the private sector during the past 12 months, and we expect to be building on that relationship in the future.

Ladies and gentlemen, the need is urgent.

Those of you from overseas who drove here to the Gateway Hotel for this conference, either from the airport or from Town, will have had a very realistic introduction to the state of our infrastructure.

Jackson’s Parade and Morea Tobo Road, whether you arrive at the gates from uphill or downhill, are in a very poor state indeed – there are probably more potholes than smooth road.

This is typical of most of the roads across the country, including our national highways.
Indeed it is typical of the condition of much of our physical and economic infrastructure.

Papua New Guineans have become resigned to it, and we compensate for the difficulties as best we can. But poor infrastructure imposes immense cost and time burdens on us all, and ultimately strangles social and economic
development.

In the past couple of years, even greater pressure than usual has been put on our infrastructure, and there is unlikely to be any let-up in the immediate future.

Most of that pressure has come from just one project – PNG LNG. It has stretched us to the limit, in particular our ports and our roads.

Further pressure will come from other proposed developments such as the Wafi and Frieda River mines, at least one more potential LNG project and several smaller but nonetheless significant gasfield developments, and large-scale energy projects such as the expansion of the Ramu Hydro scheme and a new hydro scheme on the Purari River.

Ladies and gentlemen, Papua New Guinea’s crumbling infrastructure could not cope BEFORE the PNG LNG project.
So unless we take urgent action now, we will face ever-increasing difficulties and miss out on many years of opportunity for national development.

This is where the Independent Public Business Corporation comes in.
IPBC was set up in 2002 as the umbrella organisation owning Papua New Guinea’s major Public Enterprises.
Our portfolio consists of:

  • Air Niugini, the national airline;
  • Bemobile, the national mobile phone service;
  • Motor Vehicle Insurance Limited, the national third-party vehicle insurer;
  • The National Development Bank, which provides access to development credit for income-generating activities, particularly in agriculture;
  • Eda Ranu, the Port Moresby water and sewerage utility;
  • PNG Ports Corporation, which operates the national’s ports;
  • PNG Post Limited, the national mail service;
  • PNG Power Limited, the national electricity utility;
  • Telikom PNG Limited, the national telecommunications utility; and
  • Water PNG, which supplies water and sewerage services to all areas other than Port Moresby.

We also own the State’s 19.4 per cent interest in the LNG Project itself, as well as shareholdings in leading PNG listed companies.

So you see we are responsible for some of the most significant providers of national infrastructure and services. In the past 12 months IPBC has embarked on a very significant program of infrastructure development that is designed to remedy the worst of the nation’s immediate shortcomings. Work is now well under way on a major expansion of the Lae port, with a K730-million tidal basin, berth and container terminal being built.

It is funded 30 percent by the State, through IPBC, and 70 percent by the Asian Development Bank.
Lae port is the most important port in the country, accounting for 60 percent of the nation’s trade, and has become one of the busiest in the south-western Pacific.

It cannot meet current demand, it is expensive to use and it is inefficient. It has become a severe impediment to the development of Lae itself, the Highlands-Momase region, and the nation.

It has posed huge logistical problems for the developers of the PNG LNG project, and added significantly to their costs. The expansion, once completed in 2015, will eliminate congestion, make the port much more efficient and will lower costs.

Development of new projects and businesses – in resources, industry and agriculture – in the Highlands-Momase region will be a much more attractive proposition.

I believe Lae and the Highlands-Momase hinterland will see a significant economic growth spurt from this IPBC project. Lae is also about to benefit from major work on the Yonki Dam, designed to eliminate the constant and widespread power blackouts suffered there and in Madang The Yonki project, partly sponsored by IPBC, has three stages. They are:

  • Phase 1 refurbishment and upgrade of Ramu 1 power station by PNG Power, at a cost of K 58 million, to return the station to full operational capacity, which is expected late this year. A second phase estimated to cost about K55 million will be required to complete the refurbishment.
  • The second project is the Toe of Dam mini-power station. The Toe of Dam project is designed to generate 18 megawatts of electricity from water flowing down the dam spillway that would otherwise not be harnessed. Construction began in 2009 but was suspended owing to problems with the contractors. PNG Power has now resumed construction work and expects the plant to be commissioned by the middle of next year.
  • The third project is the construction of a new powerhouse, Ramu 2, which would generate an additional 120 – 180 megawatts bringing the total power generated at Yonki from 45 megawatts to 180-240 MW. Our long-term aim is to greatly increase power supply to the region to allow the development of new resource projects, promote economic development and increase the standard of living of the people in the Momase-Highlands region.

I would like to highlight again to this conference the fact that IPBC is encouraging private-sector involvement in projects wherever possible.

It is clear that neither PNG Power nor the State has the capital or the borrowing capacity to fund and build Ramu 2, which has a preliminary cost estimate of K2 billion.

Therefore, if this and other large projects are to go ahead, private sector participation will be required across the board. IPBC is seeking private-sector partners for Ramu 2, for which a K45 million feasibility study is now under way.

We are also sponsoring a plan to rehabilitate and upgrade the Port Moresby power supply through a similar Public-Private Partnership model, although negotiations with the private sector have been put on hold for the time being. Port Moresby’s water and sewerage system and its port – which is also suffering from congestion and inefficiency – are in line for upgrades as well.

The Port is already working at maximum capacity and cannot keep up with the growth demands imposed by the surge in national economic activity over the past few years.

Like Lae port, it is holding back economic development. Expansion is urgently needed, but there is not enough room at the present location to provide the required operational life of 100 years, nor is large-scale expansion appropriate there because of social and environmental issues.

Therefore PNG Ports is moving ahead with a plan to relocate the port. Completion of critical engineering studies is now under way, as are investigations of land and water tenure issues. In the meantime, all efforts to make the existing port as efficient as possible are continuing. There is scope for one small expansion to meet short-term demand, and this is also being considered.

The Port Moresby Sewerage System Upgrade Project, a joint venture between IPBC, the Japan International Cooperation Agency/Japan Bank for International Cooperation and Eda Ranu, will cost an estimated K285 million. It consists of a new trunk sewerage main and branch sewers, new pump stations and refurbishment of existing stations, a new treatment plant, a new ocean outfall and new sludge drying beds.

It features a strong social development program, including sanitary/hygiene education and an HIV/AIDS awareness component. As part of capacity building, an operations and maintenance phase will follow for a year post-construction. Procurement of a supervising consultant has begun and a Project Management Unit is being put together.

Other proposals being investigated by IPBC include the giant Purari hydro scheme and smaller gas-fired generators at Stanley in the Western Province and South-East Mananda in the Southern Highlands Province.

All three proposals could transform the economics of the nation and the southern region especially, and lead to a big improvement in people’s quality of life through the creation of new opportunities for jobs and business and from a significant rural electrification component.

The Purari project is estimated to be worth up to K25 billion and would be the biggest power project in the Oceania region and one of the biggest projects of any sort in Papua New Guinea’s history.

This is a very significant project that has the potential to spur strong industrial and agricultural growth in Port Moresby and the broader Southern Region, bring power to hundreds of thousands of people in the Gulf, Western and Central Provinces, and create jobs in some very disadvantaged areas.

The project is being promoted by the Government through IPBC. PNG Energy Developments Limited, a 50-50 joint venture between PNG Sustainable Development Program and Origin Energy of Australia, has signed a Memorandum of Understanding with us to undertake a K250-million final feasibility study. The first phase of the study, under which PNG EDL is looking at the project’s technical, social and environmental feasibility, has been completed and the second phase is under way.

Preliminary studies show that the project could generate up to 2500 megawatts of electricity, almost four times the nation’s entire present generating capacity. Its huge output could feed into the Port Moresby and Highlands grids and allow for the development of new industries, particularly in the Southern Region, as well as the export of electricity to Australia.

Power from the scheme would also be used for rural electrification in the Gulf and Western Provinces. About 5000 local families could be supplied with power in the early stages, and up to 300,000 families when fully operational. Substantial equity will be offered to the Government if the project goes ahead.

The last of our major projects is the complete upgrade of Papua New Guinea’s telecommunications system through the creation of a National Transmission Network.

The first stage of the NTN became operational recently when an IPBC-financed optical fibre link between Madang and Lae was switched on.

Revamping the national telecommunications network will make a significant contribution to national economic development and to improved delivery of services, especially to rural and remote areas.

In the past the outdated and poorly maintained system has been a major hurdle to business, government and private households alike.

The revamped system will ensure that the telecommunications revolution that has been sweeping Papua New Guinea – largely reflected in the extraordinarily rapid take-up of the internet and mobile mobile phones in the last couple of years – continues.

It is recognised throughout the world that an efficient telecommunications system is a very powerful driver of economic growth and national development.

The NTN plan therefore will play a central role in our future for a comparatively modest capital outlay – estimated at present to be about K500 million.

The NTN is essentially an integrated optical fibre network with satellite and microwave elements, to be controlled by a new company called PNG DataCo Limited.

DataCo will own and operate the network as a wholesale provider of telecommunications. It will initially consist of:

  • Telikom’s existing domestic microwave, satellite and optical fibre network, as well as the international gateways (Port Moresby and Lae) and optical fibre submarine cable international links;
  • PNG Power’s Optical Fibre Ground Wire throughout Papua New Guinea (of which the Madang-Lae link is part) and;
  • The Government’s interest in a 750-kilometre optical fibre cable being built to support the PNG LNG project.

Other elements of the NTN plan will include upgrades of existing telecommunications infrastructure and investment in new infrastructure.

A feasibility study into how DataCo will manage the system has been completed and implementation begun. Telikom PNG will be restructured and refinanced to become a national telecommunications retail service provider.

This role will become increasingly important given the need to provide strong competition to Digicel, and to meet growing mobile phone demand in rural and remote areas. Ladies and gentlemen, at the same time as kick-starting infrastructure projects, the national Government has also begun reforming IPBC itself and its Public Enterprises.

The reforms focus on providing strong leadership from government by giving IPBC and SOEs a clear sense of direction, a robust policy and planning framework, and clear implementation guidelines through NEC decisions.

The IPBC Act has been amended to improve governance arrangements, increase transparency and accountability and place much greater emphasis on customer service levels and the delivery of affordable and reliable services by Public Enterprises. Since August last year IPBC has conducted reviews of all Public Enterprises and has begun assisting them with remedial action.

IPBC and Public Enterprises now have annual plans and budgets for the first time, approved by the IPBC Board and by Cabinet. The annual plans are firmly based on commercial discipline and practices.

Transparency and accountability have also increased dramatically – the annual plans are now published on the IPBC web site, as is the IPBC Act and the audited accounts.

I have no doubt whatsoever that this renewed focus on infrastructure development and Public Enterprise efficiency will bring lasting benefit to the nation and to the private sector’s capacity to operate effectively and profitably.

I assure you that we at IPBC are doing everything in our power to change the national and business landscape for the better. As the Minister said yesterday, I look forward to working with you.

Thank you.

ENDS

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