Reducing costs of land and maritime transportation a priority in PNG

 

Papua New Guinea continues to grapple with some of the highest transport costs in the Asia-Pacific region, which has negatively affected the country’s business environment and investment climate. Although aviation and maritime shipping costs are also elevated, one of the most significant obstacles to affordable transport is the country’s dilapidated roads network, with limited connectivity between Port Moresby and the highly populated Highlands Region standing as a significant challenge to economic growth. Recent budgetary shortfalls caused by depressed global commodities prices have further exacerbated the problem.

Kickstart 

Transport costs could moderate over the medium term, however, as the government rolls out a series of upgrades, including an expansive programme to repair and upgrade the Highlands Highway, an important arterial road serving an estimated 40% of the population. High transport costs will also be addressed at the upcoming APEC Transportation Ministerial Meeting, which will be hosted in Port Moresby in October 2017. Under an existing APEC transport strategy, public-private partnerships (PPPs) have been identified as the best framework through which to improve transport infrastructure. Expanding PPPs into highway maintenance and repair projects will create new opportunities for private sector investment, with mid-term upgrades set to reduce persistently high transport costs and kick-start regional and rural economic growth.

Historic Underinvestment 

Although it shares a border with Indonesia along a relatively well-travelled maritime corridor, PNG has long been characterised by elevated transport costs, owing in large part to decades of underinvestment in highways and ports, as well as lack of competition in international shipping. In 2015 the Asian Development Bank (ADB) reported that while the country’s domestic ports generally have low cargo processing costs and PNG’s national shipping market is competitive, international shipping to PNG is among the most expensive in the Asia-Pacific region. According to the ADB, it takes 23 days to export goods from the country, which is in line with the regional average. However, World Bank figures show that the average cost to export goods from the country stood at $1335 in 2014, the most recent year for which figures are available, compared to $460 from Singapore, $572 from Indonesia and $1200 from Australia.

Air transport costs are also elevated, and the ADB reported that international air traffic serving Port Moresby’s Jacksons International Airport is “very expensive, with unit costs (per passenger per nautical mile) on flights to Australia the most expensive in the Pacific”.

High costs are passed on to local businesses. “With the shortage of hard currency, the government is focusing on needs as opposed to wants. This is understandable, but at the end of the day we are not able to import crucial machinery and businesses are not able to operate,” Navin Raju, CEO of helicopter service company Heli Niugini, told OBG.

Road Less Travelled 

One of the most significant contributors to high transport costs is the country’s inadequate highway infrastructure and challenging terrain which make efficient overland transport nearly impossible. PNG spans some 600 islands with terrain altitudes ranging from sea level to over 4500 metres. In a September 2016 report APEC found that a highway trip between the Highlands Region and Port Moresby takes between seven and 10 days, while road transport from the Highlands Region to Lae takes two or three days. Refrigerated transport is not available to most Highland farmers, meaning spoilage rates are high, forcing them to transport goods at night despite elevated security risks. Although coastal shipping services and aviation offer a solution to land infrastructure gaps, the ADB reported that these services are not cost-effective outside of major regional centres.

Isolated by geography and poor transport infrastructure, PNG’s rural population also struggles to access regional urban markets as a result of inadequate road networks, significantly reducing their income-earning opportunities. According to the ADB, just 68% of PNG’s rural population lives within 2 km of an all-season road. While the country’s total road network spans 22,000 km, its national road network –roads that are maintained by the national government – is just 8738 km, of which just 40% is paved. The ADB also reported that more than 75% of national, provincial and district roads become impassable at some point during the year due to inclement weather or landslides.

Highlands Highway 

The Highlands Highway is a prime example of the challenges driving up transport costs in the country. An estimated 40% of PNG’s population lives in the Highlands Region, an area spanning seven land-locked provinces and characterised by smallholder agriculture and valuable cash crops such as coffee, tea, produce and cocoa. The area contributes a third of GDP, while its mineral and petroleum resources account for 80% of national exports.

The 1200-km, two-lane Highlands Highway is the sole arterial road and a lifeline for the area. It connects 1800 km of regional and feeder roads servicing remote rural areas, linking them to coastal provinces and PNG’s main port in Lae. According to the ADB, access to basic services and nearly all movement of goods and people in the Highlands Region is dependent on this highway, although mountainous terrain, poor highway conditions, washouts and landslides make the highway unreliable and often impassable.

Climate change is expected to further exacerbate the problem, and the ADB reported that more than 70% of the highway is classified as in fair or poor condition, while the safety rating for vehicle occupants and pedestrians is two stars and below for 90% of the highway’s length. As a result, high-potential agricultural products are subject to burdensome trade costs, limiting access to domestic and international markets and presenting a serious constraint on economic development. The Department of Works and Implementation (DWI) reported that a one-way trip by vehicle along the Highlands Highway from Lae to the hinterlands costs between PGK5000 ($1590) and PGK6000 ($1900).

Working Together 

In January 2017 Malakai Tabar, the minister of transport, said the government plans to address high transport costs at the upcoming 10th APEC Transport Ministerial Meeting in October 2017. According to Tabar, APEC transport ministers will collaborate on how to reduce costs across APEC-member countries and focus on the difficulties facing rural communities that are looking to enhance connections to urban centres. Existing APEC strategies, which emphasise increased private sector participation in transport development, could help reduce costs.

For example, the APEC Services Competitiveness Roadmap Implementation Plan, covering the 2016-25 period, has highlighted PPPs as an ideal framework through which to deliver major transport infrastructure. PPPs have also been highlighted under the ADB’s Country Partnership Strategy 2016-20 as critical to transport development, with the strategy calling for airport development under a PPP framework. Effectively delivering new transport projects in partnership with the private sector will be particularly important given challenging budget shortfalls that will limit expenditure on transport projects until at least 2020. PNG introduced its first PPP Act in 2014 and is moving to develop transport projects such as airport upgrades as PPPs.

New Loans 

Indeed, international lenders are set to play an increasingly important role in bringing down PNG’s transport costs in the years to come, in addition to helping the country expand PPPs beyond airport projects. In January 2017, for example, World Bank officials met with Prime Minister Peter O’Neill to discuss development of a new roads programme emphasising repair and maintenance, as well as new construction.

According to O’Neill, repairing and maintaining the country’s network of arterial roads will be a significant transport priority in the coming years, particularly along the Sepik, Hiritano, Magi, Ramu-Madang, New Britain, Buluminski, West Coast and Highlands highways. The government plans to work closely with both the World Bank and private sector to develop a robust maintenance and repair programme.

Support Programme 

The Australian government is also playing an active role in supporting infrastructure development, and thereby reducing shipping costs, launching its Transport Sector Support Programme (TSSP) in 2007. The TSSP is a long-term strategy to undertake road asset maintenance, as well as improve safety and security standards in the aviation and maritime sectors. Major TSSP projects completed since 2007 include the PGK11.6m ($3.7m) Arawa Principal Town Roads project to seal roads in Bougainville; the PGK139m ($44.1m) Oro Bridges Reconstruction Project, which repaired a bridge crossing at the Kumusi River that had been destroyed by a cyclone in 2007; and a PGK3.2m ($1m) Visual Road Condition Survey conducted between January and October 2015, which will provide critical data for new roads projects.

Highway Upgrade

Outside of PPPs, new international finance arrangements could also bring PNG the investment it needs in roads infrastructure, particularly for the Highlands Highway. In March 2017 the ADB announced it had endorsed a PGK3.5bn ($1.1bn) loan for the rehabilitation of the Highlands Highway. The government will use a 10-year, multi-financing arrangement, paid to the DWI, to rehabilitate and upgrade the highway, with work carried out in three phases. The bank’s multi-partner financing facility calls for a rehabilitation of 455 km of the Highlands Highway connecting the Lae Nadzab Airport to Mount Hagen Airport, as well as improvements to road safety along a stretch of highway linking Lae to Mendi. The ADB has also committed $400m to the broader Highlands Region Road Improvement Investment Programme. Movement of goods, people and services, particularly in rural areas, will also benefit from new intersection improvement controls, signage, road surface marking, pedestrian crossings and protected footpaths. The bank anticipates that improved infrastructure along the highway will strengthen cross-border trade and movement of goods to Mount Hagen Airport and Lae’s port.

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The Report: Papua New Guinea 2017

Transport chapter from The Report: Papua New Guinea 2017

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