Renewed investment in PNG's aviation infrastructure to boost capacity

 

Capacity constraints at the increasingly busy Jacksons International Airport (JIA) have made expansion of passenger facilities and runways an important priority for aviation stakeholders. Although the airport has already undergone recent renovations to expand its existing international passenger terminal, authorities are directing their efforts at building a new international terminal building. While the project’s original delivery date has been pushed back beyond the 2018 APEC Summit, years of growth in international passenger volumes have already left JIA’s existing facilities operating at more than three times their maximum capacity, meaning upgrades remain an urgent priority outside of APEC considerations.

The financing framework for JIA’s proposed new international terminal also lends an optimistic outlook to increased private sector participation in aviation development. The new terminal will be financed under a public-private partnership (PPP), which will see private players play a significant role in the new terminal’s design, construction, financing and operation. This framework should also support timely project delivery and operational efficiency, paving the way for future private sector involvement in aviation and wider transport infrastructure development.

Aviation Hub 

The country’s primary international hub, JIA is located just outside of Port Moresby, and operated and managed by the state-owned National Airports Corporation (NAC). A redeveloped Second World War-era military base, the JIA complex includes a 10,000-sq-metre international passenger terminal, a 73,000-sq-metre domestic terminal and a cargo warehouse with a storage capacity of 162,000 tonnes, including facilities for meat and produce inspection, animal quarantine and hazardous goods storage. JIA has two 2750-metre runways and two 2065-metre runways.

The airport is a hub for national carrier Air Niugini, as well as PNG Air, which serves 23 domestic routes and one international route to Jayapura, Indonesia. Air Niugini offers domestic and international services, flying to Singapore, Kuala Lumpur, Hong Kong, Manila and Indonesia. Qantas, Virgin Airlines and Philippines Airlines also service JIA. Although Air Niugini maintains a partial monopoly on the aviation sector, it has been active in expanding its services and several new routes – to Manila, Micronesia, Bali and Townsville, Australia – have been launched since 2016.

International Passengers 

International passenger volumes have also risen steadily at JIA since the country’s first significant oil production began in 1986. According to Japan International Cooperation Agency data, international passenger volumes rose from 165,000 in 1988 to 205,000 in 1992, 234,000 in 1995 and 237,000 in 1997, before moderating to 209,000 by 2001. In the lead-up to completion of ExxonMobil’s massive PNG LNG project international passenger volumes rose significantly, jumping from 406,857 in 2010 to 437,257 in 2011 and more than 450,000 in 2012. According to data from PNG Customs, a total of 485,722 passengers were processed at JIA in 2016, compared to 483,082 total international passengers in 2015 and 510,000 in 2014. Including domestic travellers, JIA now handles more than 1.5m passengers annually, exceeding its maximum design capacity of 400,000 by a factor of three.

Improvements 

With air passenger volumes rising, authorities have moved to upgrade JIA’s existing facilities to meet new demand. A number of improvements have been made in recent decades, including construction of a food court and duty-free retail facilities, a new domestic car park, a new public concourse and domestic terminal, and new parking areas.

More recently, the airport’s existing international terminal underwent a renovation and expansion project in order to host the 2015 Pacific Games, which extended its total area by 20 metres to the southeast and 30 metres to the north-west. The terminal also received new Customs and passenger-handling upgrades aimed at reducing passenger processing times from between seven and 10 minutes, to just three minutes. The PGK100m ($31.7m) project wrapped up in 2015. With the airport continuing to operate well above capacity, construction of a new international terminal has become an important priority, particularly given the upcoming APEC Summit, which will be hosted in Port Moresby in 2018.

New Terminals 

In February 2017 the Asian Development Bank (ADB), one of PNG’s most significant partners in transport and infrastructure development, announced it had signed a transaction advisory services agreement with the NAC, which will see the two collaborate on a new international terminal at JIA. Notably, the project will be developed and financed under a PPP framework, one of the first large-scale aviation projects in the country to use this model, as well as the ADB’s first PPP transaction advisory engagement in both PNG and the Pacific region.

Under the proposed framework, the private sector will design, build, finance, operate and maintain the new airport facilities. In addition to the new terminal building, the project also involves extending JIA’s main runway, as well as unspecified “infrastructure enhancements”, enabling the airport to meet anticipated demand until 2040. A feasibility study will give the NAC the information it needs to best determine the concession period and other contract parameters.

PPP Experience 

Although authorities’ original target to have JIA’s new international terminal constructed by 2018 will not be met, the project nonetheless offers stakeholders an important opportunity to trial the development of successful transport finance frameworks in partnership with the private sector. Indeed, the ADB notes that the JIA project is expected to create templates and frameworks that can be used for future PPPs in the region, in addition to offering valuable knowledge transfer in PPP management and execution.

This is a particularly critical given budget constraints, with macroeconomic growth stagnating following a collapse in commodity and oil prices, and subdued growth in 2016. According to a 2016 Deloitte analysis, public spending on transport is forecast to fall from PGK1.03bn ($326.5m) in 2016 to PGK813m ($257.7m) in 2020. Although the Infrastructure Development Authority launched in 2014 with a mandate to fund priority infrastructure projects valued at more than PGK50m ($15.9m), the authority has not been endowed with revenues from LNG production, making PPPs the most viable model. The authority has identified PGK120m ($38m) in aviation works among 50 projects that could fall under its remit, worth PGK4.1bn ($1.3bn).

As such, the JIA project will be an important test for the country’s PPP Act, which went into effect in 2014 but has found limited success in the transport sector so far (see overview). While JIA’s new international terminal will open later than planned, its development under a PPP model, combined with ongoing investment in secondary airports, bodes well for increased private sector participation and could see PPPs expand beyond airports and into road transport and ports projects.

National Upgrades 

Ongoing upgrades at JIA will dovetail with improvements to five secondary airports under a separate ADB initiative. The bank launched its Civil Aviation Development Investment Programme (CADIP) in 2009, which aimed to upgrade and rehabilitate facilities at JIA’s domestic terminal, as well as airports in Wewak, Hoskins, Gurney and Mount Hagen. CADIP is being rolled out in three tranches, with the third having launched in December 2016.

Tranche one provided $95m for improvements to pavement and fencing, technical assistance for engineering, design, bid documentation and procurement frameworks, and preparation of investment proposals for subsequent projects. It also included improvements to air traffic management and navigation services, bringing JIA in line with international standards, as well as a $25m reform programme that split the Civil Aviation Authority into three separate entities: the NAC, PNG Air Services and the Civil Aviation Safety Authority. The NAC reports that PGK234.14m ($74.2m) worth of projects were completed under tranche one, including installation of a PGK2.73m ($865,000) instrument landing system at JIA; a PGK68.4m ($21.7m) upgrade of Hoskins Airport; a PGK40.9m ($13m) expansion of JIA’s domestic apron; and a PGK70.1m ($22.2m) upgrade of Mount Hagen’s airport terminal.

Tranche two of the ADB’s investment project focused on establishing a sustainable civil aviation network with the goal of strengthening operations at the NAC and its counterparts, as well as additional improvements to airport infrastructure, air traffic management and navigation services. Tranche two’s $130m budget was allocated to the NAC, which is responsible for design, supervision of civil works and project implementation. The ADB also reported that eight contracts were awarded under the second tranche, including five civil works and three goods contracts, which were used for improvements in runways, terminal buildings and security fencing around the five airports.

Progress Updates 

Tranche two projects also included: upgrades to Goroka Airport, scheduled for completion in April 2017; works at Girua Airport, which wrapped up in September 2016; upgrades to Chimbu Airport, which finished in March 2016; and developments to Vanimo Airport, which were completed in July 2016. The NAC reported that aviation stakeholders have begun preparations for projects funded by tranche three, which will include construction works at nine separate airports that are to be completed within the next two-and-a-half years. Airports in Momote, Mendi, Mount Hagen, Madang, Vanimo, Wewak, Gurney, Kavieng and Buka are scheduled for upgrades under the third tranche, which is valued at $248m.

Under CADIP, these airports will undergo works including pavement strengthening, runway extensions, security fencing, apron extensions, fire stations, and improvements to traffic control towers and terminal buildings. Combined with JIA’s new international terminal, these projects should enable PNG to meet new demand in the years to come, creating new opportunities for private investors, aviation firms and contractors.

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The Report: Papua New Guinea 2017

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