PNG prioritses upgrades in roads and airports to bolster transport connectivity

Developing Papua New Guinea’s infrastructure has long been a challenge due to its diverse terrain and unevenly distributed population. However, increased public investment is expected to boost the transport sector. Long-term projects, such as the Sustainable Highlands Highway Investment Programme (SHHIP), being executed by the Asian Development Bank (ADB) in partnership with the government, and the Civil Aviation Development Investment Programme (CADIP) should also bolster domestic and international connectivity, as well as the expansion of key industries.

Isolated rural communities struggle to access urban markets as a result of inadequate road networks, which reduces the potential for inclusive growth and expansion of agri-business. While various flagship projects can help transform the national transport system, the execution of major infrastructure works faces obstacles: tendering delays, foreign exchange (forex) fluctuations, a limited construction and administrative capacity, and the nation’s rugged terrain restrict the design and implementation of effective cost-recovery models. As a result, some transport agencies are engaged in activities that consistently operate at a loss.

Spending Strategy

The government has prioritised road network development in recent years, with this spending increasing from PGK1bn ($312.2m) in 2014 to PGK2.1bn ($655.6m) in 2017. The general transport budget increased by 2.1% in 2018 and accounted for 6.4% of planned public outlays. However, other departments have allocated further funds, including for extensive agriculture-related roadworks – such as a PGK50m ($15.6m) grant for small and medium-sized enterprises – and PGK3m ($937,000) per district as part of the District Services Improvement Programme. Government figures show that the transport budget was six times larger in 2017 than in 2011, and the official 2018 budget statement from the Department of Treasury shows that 62% of the PGK18.7m ($5.8m) Department of Transport and Infrastructure (DTI) budget is for road services.

While a lack of funding previously restricted the development of an efficient transport network, it is now mainly constrained by limited implementation capacity, which weighs on budget execution. For the most part, there is only limited coordination between transport budget submission requests and the approved results from the Cabinet. To add to this, the sector has struggled to introduce cost-recovery models that adequately cover investments due to a number of long-standing issues, such as an inefficient tendering process and limited construction capacity.

As it stands, the National Maritime Safety Authority is one of few departments with an effective cost-recovery model. On the contrary, fuel taxes received by the National Roads Authority (NRA) cover less than one-fifth of its annual maintenance costs. Similarly, while the National Airports Corporation (NAC) and PNG Air Services charge for their services, both struggle to cover their operating costs. To alleviate the strain of loss-making activities, the National Transport Strategy (NTS) was adopted in 2013, prioritising certain transport investments while emphasising the importance of asset maintenance and the restoration of the road network. The NTS has also empowered the Department of Works (DoW) by giving it the responsibility to manage lower-level government roads. In addition, the initiative aims to clarify institutional roles, increase capacity, and outline cost-recovery mechanisms.

Improvement Plans

In an effort to mitigate existing bottlenecks and fulfil its role in executing the goals of the NTS, the DTI established a Corporate Plan 2016-20 to support service delivery across the sector. Under the plan, the department aims to not only establish effective policy responses as well as improved monitoring and implementation measures, but also devise legislative and institutional reforms to allow the sector to be responsive to the next cycle of economic growth. By the first quarter of 2018, the DTI had already undertaken an Agency Capacity Diagnostic, which is expected to result in structural changes to improve service delivery and the allocation of responsibilities.

Major plans to improve the public transport system in Port Moresby were awaiting approval from the Road Transport Authority in mid-2018. Westly Nukundj, the minister of transport, told local press in late 2017 that the findings of the Port Moresby urban transport study would determine the new allocation of buses, route restrictions and limits on taxi numbers.

Road Works

Dilapidated roads have long weighed on the economy, with inadequate infrastructure contributing to the high cost of agricultural products, which have difficulty competing in domestic and international markets. To the benefit of local industry and rural households, significant investments are being made to create a safe and integrated transport network, with an emphasis on improving connectivity, while reliably moving people and goods at a low cost.

In terms of oversight, the DoW and the NRA are responsible for the maintenance and rehabilitation of national roads, a top priority of the NTS. Access to communities outside of cities has been very limited, with approximately 68% of the rural population living within 2 km of a road that is not subject to weight restrictions in 2016, the most recent year for which figures were available from the ADB. PNG had around 22,000 km of roads that year, with 8738 km belonging to the national road network. The NTS aims to increase full-year road accessibility to 95% throughout the country by 2050.

While there has been an improvement in maintenance in recent years, estimates from the ADB suggest that more than 75% of national, provincial and district roads become impassable due to weather conditions at some point during the year. According to market studies in 2016, a highway trip between the agriculture-dominated Highlands region and Port Moresby took from seven to 10 days, while a trip from the Highlands region to the country’s busiest port in Lae took two to three days, weighing heavily on the profitability of perishable goods (see Agriculture chapter).

However, significant investments are set to galvanise the national road network. With $1bn of investment, the SHHIP will link major urban centres and the hinterlands, which is expected to facilitate the expansion of key industries across the Highlands region while boosting exports (see analysis). “The rehabilitation of highways and upgrading of feeder roads is critical to the economy,” Bashirullah Khpalwan, infrastructure specialist at the ADB, told OBG. “The SHHIP will provide better access to markets and promote the development of key industries, such as mining and agriculture.”

In addition to the ADB-funded SHHIP, PNG is set to benefit from the Belt and Road Initiative, China’s ambitious strategy to expand trade relations and investment opportunities across Eurasia, Africa and the Pacific through infrastructure development. In November 2017 the PNG government signed an agreement with state-owned China Railway Group to create the first domestic modern road network. Consisting of three projects collectively worth $4bn, the funds will help upgrade 1600 km of roads and highways. The high-priority project plans to upgrade 10 routes that will help connect the whole country, including the Ramu Highway between Watarais and Madang, the Gulf-to-Southern Highlands Highway, the Sepik Coastal Highway between Wau to Bulolo, the Magi Highway between Hoskins and Kimbe, and the Bougainville Road between Tari and Pori.

Sea Ports

PNG Ports, the state-owned national port facilities provider, operates 16 ports that collectively handle more than 5.8m tonnes of cargo per year. However, according to the ADB, only three of these locations operate at a profit. Lae Port dominates this trade, handling almost half the country’s maritime freight, followed by Port Moresby and Kimbe, which operate under a cost-recovery model.

While domestic ports generally have low cargo-processing costs, PNG’s international shipping fees are among the highest in the Pacific, hindering trade. Although PNG shares a border with Indonesia along a relatively well-travelled maritime corridor, costs remain elevated, weighing on international competition. Expensive transport is largely due to underinvestment in infrastructure – particularly highways and ports – as well as a lack of supporting services. Given the high shipping rates, local businesses struggle to import machinery, which is exacerbated by forex fluctuations and a lack of hard currency (see Economy chapter).

In order to reduce costs and improve efficiency, PNG Ports signed a 25-year agreement in September 2017 with International Container Terminal Services for the operation, management and development of the international ports in Motukea and Lae (see analysis).

In 2017 PNG Ports processed 212,400 twenty-foot equivalent units (TEUs) of overseas containers, of which 51.5% were imported and 48.5% were exported. Meanwhile, there were 61,297 TEUs of coastal imports and 59,408 TEUs of coastal exports. That same year saw a decline in vessel throughputs compared to 2016: the number of overseas and coastal vessels decreased from 2669 to 2553, and from 2967 to 2535, respectively.

Airports

In 2018 PNG had 22 international and regional airports under the management of the NAC, in addition to dozens of small rural runways. While there have been upgrade efforts, most NAC airports are not in line with international standards. To help remedy this, the ADB launched the CADIP in 2009, which initially rehabilitated facilities at the domestic terminal of Jacksons International Airport, as well as airports in Wewak, Hoskins, Gurney and Mount Hagen.

The CADIP was rolled out in three phases, with the final one launched in December 2016. The first tranche committed $95m to improving pavement and fencing, as well as providing technical assistance for the engineering and design of facilities. The funds were also used for bid documentation and procurement frameworks, preparation of investment proposals for subsequent projects, and improvements to air traffic management and navigation services. A further $25m was used for a reform programme that split the Civil Aviation Authority into three separate entities: the NAC, PNG Air Services and the Civil Aviation Safety Authority.

The second tranche of CADIP had a $130m budget to establish a sustainable civil aviation network and strengthen operations at the NAC and its counterparts, as well as improve the infrastructure at the Goroka, Girua, Chimbu and Vanimo airports. The third and final phase, entailing $248m of construction works at nine airports, is scheduled for completion by the end of 2019.

To support the CADIP initiatives, the ADB also signed a transaction advisory services agreement with the PNG government in early 2017. The agreement, under a public-private partnership framework, aims to develop a new international passenger terminal at Jacksons International Airport, which will serve as a regional air traffic centre in the Pacific (see analysis).

While there have been improvements in safety at NAC-owned airports, there is still a lack of supporting services. As a result, local airlines have struggled to maximise their use of assets, with aircraft sitting idle through the night. “Infrastructure shortfalls reduce the operating window and lead to a limited utilisation of aircraft,” Paul Abbot, acting CEO of PNG Air, told OBG. “Furthermore, airports are often a considerable distance from the nearest town. Once we drop passengers off, there is a lack of supporting transport services.”

NAC Growth Strategy

In a bid to increase economic opportunities, the NAC plans to transform 15 of the country’s 22 airports into smart airports by 2030, while bringing them in line with the minimum International Civil Aviation Organisation’s Standards and Recommended Practices. In August 2017 the NAC launched its 2030 Growth Strategy to achieve these goals.

A key component of the initiative is implementing modern airport management systems and processes that offer greater reliability and assurance to passengers. The terminal buildings of each of the smart airports will be operational 24 hours per day, which will increase the utility of aircraft, and thus the profitability of airlines. The NAC also plans to automate and integrate their internal processes, which is expected to boost reliability and efficiency.

In addition to increasing the utility of domestic aircraft, the 2030 Growth Strategy aims to assist with rural connectivity by adopting a “rural centres and spokes route” concept, which should encourage more inclusive growth. Since the launch of the programme, the NAC has announced plans to accelerate the completion of 12 of the 15 smart airports, with these anticipated for delivery by 2022 rather than 2030.

Outlook

While there are persistent obstacles to address, the transport network is gearing up for improvements in efficiency. Access to rural communities is still a challenge, but substantial investments in roads, ports and airports are set to bolster logistics in the long run, with strategic partnerships gradually transforming the transport system. In the meantime, however, PNG will remain an expensive market for imported products, while domestic goods will be constrained by limited connectivity. In terms of growth, the ADB’s multi-tranche finance facility will be a key driver of infrastructure development The transport network is also set to benefit from China’s Belt and Road Initiative.

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The Report: Papua New Guinea 2018

Transport chapter from The Report: Papua New Guinea 2018

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