International events in PNG spur airport expansion

Although Papua New Guinea’s public infrastructure investment has focused more on road upgrades until recently, the country’s dual hosting duties for the 2015 Pacific Games and 2018 APEC Summit have made airport upgrades a top priority. Ongoing construction is expected to see the number of airports offering international connections in the country increase from just one to three, easing congestion at the over-crowded Port Moresby International Airport (PMIA), while Nadzab Airport of the secondary city, Lae, is also set for a major facelift and the construction of a new airport city that will boost multi-modal connectivity.

Funding presents the most serious challenge to planned expansion efforts, and budgetary allocations to airport projects have been declining. The recently established Infrastructure Development Authority (IDA) will not be financed using new liquefied natural gas (LNG) revenues, raising questions about the feasibility of carrying out all the planned upgrades with public funds. While support from the Asian Development Bank (ADB) has significantly bolstered aviation investment in PNG, private participation in airport projects stands as the most viable option for future expansion, and the government is increasingly targeting foreign investment in airport upgrades under a public-private partnership (PPP) model. The PPP Act, promulgated in 2014, is expected to see a surge of new foreign investment in high-priority air infrastructure projects.

Recent Investment

PNG’s government has increasingly targeted infrastructure investment in recent years, bumping expenditures on this segment by one-third in 2014 to reach PGK2.7bn ($1bn) for major projects, including the Lae and Port Moresby City Roads, Lae Port Tidal Basin, schools and hospitals. However, airport spending has been lagging behind the budget allocations for roads and the 2014 budget only allocated PGK217.2m ($82.2m) to airport upgrades, compared to PGK1.4bn ($537.3m) for roads and bridges. Of this, PGK30m ($11.6m) was allocated for upgrades to PMIA and PGK15m ($5.7m) for the Tokua Airport in Kokopo.

However, both airport and total infrastructure spending declined in 2015, to PGK151m ($57m) and PGK2.3bn ($870m), respectively, and donor funding remains a critical source of support for PNG’s airport upgrades. The ADB has played the most significant role in ongoing aviation reforms, signing a host of successive country partnership strategies with PNG, with the latest iteration, running from 2016 to 2020, allocating 68% of $436m in funding to transportation projects, split evenly between land transport and civil aviation.

Investment Options

The bank’s Civil Aviation Development Investment Programme (CADIP), launched in 2009, targets upgrades at airports including Burns Peak, Radar Hill, Mount Robinson, Mount Nauwein, Mount Kegum, Lorengau, PMIA, Nadzab, Hoskins, Madang, Goroka, Mount Hagen and Tokua. A $25m reform and restructuring programme which split the Civil Aviation Authority into three separate entities – the National Airports Corporation (NAC), PNG Air Services and the Civil Aviation Safety Authority – was also launched under the programme. In the first tranche of CADIP, ADB allocated $112m to airport upgrades, including investments in a new instrument landing system and airport apron extension at PMIA, as well as upgrades at Mount Hagen Airport and Hoskins Airport, aimed at bringing them in line with International Civil Aviation Organisation standards. These security upgrades are expected to be finished by the end of 2015, while the programme’s second tranche, which will close in September 2017, includes $130m of new investment.

PMIA

Upgrades to PMIA, PNG’s sole international airport at present, have been a priority in light of the country hosting two high-profile international events — the 2015 Pacific Games, which took place in July, and the upcoming APEC 2018 Summit. The two-terminal airport serves as the primary hub of Airlines PNG and Air Niugini, PNG’s national carrier, both of which provide domestic and international connectivity to Singapore, Kuala Lumpur, Hong Kong and Tokyo. Air Niugini is currently in the midst of a $253m fleet upgrade and is expanding its services regionally, most recently launching a route to Vanuatu in June 2015. Qantas and Virgin Australia also offer service to PMIA.

As work on the PNG LNG project saw a surge of new residents enter the country over the previous decade, PMIA has struggled to meet rising demand; the airport handled 1.6m passengers in 2013, and the NAC forecast traffic would rise to 1.69m in 2014, despite the fact that its maximum capacity is just 400,000.

Recognising the constraints, the government is in the midst of an ambitious $400m expansion plan, launched in partnership with ADB under CADIP. Works completed so far include construction of a new food court, parking lot, public concourse, walkways and retail facilities, and in May 2014 workers began building a 30-metre extension to the airport’s north end, a 20-metre extension on the south end, and improvements to Customs and handling facilities, which will reduce the processing time for air passengers to three minutes, from 10.

In the same month the NAC announced that the expansion project’s first phase was 30% complete and it wrapped up in June 2015. The next phase will entail construction of a new 35,000-sq-metre, three-storey building connecting the international and domestic terminals at PMIA. The NAC is aiming to complete the new building and facilities by the end of 2017, although it had not announced tenders for a PPP as of mid-2015.

Lae & Mount Hagen

Outside of PMIA, developments at the Lae Nadzab Airport represent the most significant boost to PNG’s air transport sector. In November 2014 Ben Micah, minister of public enterprises and state investment, announced plans to build a new Nadzab International Airport, as well as an expansive Airport City offering multi-modal connectivity. Stakeholders have set the ambitious target of launching international connections to Australia and Japan by the second quarter of 2016, and later to Beijing, bringing the total number of international airports in the country to three. In April 2015 the office of Prime Minster Peter O’Neill announced that the PGK60m ($22.7m) upgrade of the Kagamuga Terminal at Mount Hagen Airport was progressing well and would see the airport begin offering international flights shortly after a domestic launch planned for August 2015.

Finance & IDA Concerns

With infrastructure spending recording a modest decline in 2015 and subdued hydrocarbons prices affecting government revenues, funding constraints stand as the primary obstacle to new infrastructure projects. The government established the long-awaited IDA in 2014, which targeted rehabilitation projects using revenues from the PNG LNG project. Under a draft bill finalised in May 2014, IDA will oversee procurement and implementation of projects requiring capital investment in excess of PGK50m ($19m). Fifty such projects worth a cumulative PGK4.1bn ($1.6bn) have been identified under this scheme, including further upgrades to PMIA, as well as nearly PGK120m ($45.4m) in unspecified civil aviation projects. The government’s draft Organic Law on the Sovereign Wealth Fund did not include plans to fund these projects with LNG revenues, and IDA is to be funded from annual budgetary allocations, which have been described by Australia’s Development Policy Centre as “inadequate”.

In light of these developments, the PPP Act stands as the most promising means to advance new airport projects. The act aims to reduce barriers to market access and bolster foreign investment, and it will see the establishment of an ADB-supported PPP centre to assist the government in developing, tendering and implementing PPPs. These reforms are expected to help improve PNG’s air network in the coming years.

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