The quality of a destination’s transport infrastructure is key to attracting foreign investment. In Papua New Guinea this is an area with room for improvement. The poor condition of roads, ports and airports has raised the cost of doing business and rendered a number of sectors of the economy increasingly uncompetitive. Because of this, inland transport costs currently account for 10-15% of the on-board price at the port. Since potholed roads and poor connectivity can cause delays in fresh farm produce reaching the market on time, transport infrastructure also impacts the agriculture sector. Therefore, supermarkets in Port Moresby are stocked with imported fruits and vegetables, while many varieties produced in the Highlands go to waste.
“It is important to boost economic development in every province,” Robert Howden, managing director of Express Freight Management, told OBG. “Competitive pricing and better service efficiencies are hindered by deteriorating roads and aging port infrastructure, impacting the delivery cost of goods to end users,” he said. Furthermore, the state of transport infrastructure makes it difficult for welfare services to reach a large proportion of the population.
PNG’s transport infrastructure can also be characterised by unequal distribution. Roughly 80% of the population live in remote areas, and although the roads surrounding the capital are well maintained, the same cannot be said for those in more rural regions. It can often be impossible to drive between and throughout many provinces, leaving costly air travel as the only viable option for transportation. PNG is currently the only country in the world with a capital that remains unconnected by road to its secondary city.
The national road network also shows room for improvement. Lae, capital of the Morobe Province, handles almost half of all freight movement, and Port Moresby remains the only gateway for international flights into the country. As the country grows and unlocks its resource potential, the unequal distribution of transport infrastructure could potentially skew development and risk aggravating inequality.
Oversight & Policy
Government figures show PGK15bn ($4.6bn) of public expenditure on transport infrastructure between 2012 and 2018. It invested 6.4% of total capital expenditure, or PGK937.1m ($284m), on transport in 2018 and is projected to spend 8% of total expenditure, or PGK1.3bn ($394.3m), in 2019, with the majority of government investment spent on the transport sector.
Meanwhile, the government has set an ambitious target to triple the length of national roads from 8460 km in 2010 to 25,000 km by 2030. It also aims to triple water transport capacity by 2030, as well as bring its 21 provincial airports up to international certification standards. These efforts are supported by multilateral development institutions, such as the Asian Development Bank (ADB), as well as bilateral partners like Australia, Japan and China.
The Department of Transport (DoT) is the lead government body responsible for policy, planning and development of the transport sector. It is headed by a secretary who reports directly to both the minister of transport and the minister of civil aviation regarding air transport matters.
In 2013 the DoT created the National Transport Strategy (NTS) to help determine priorities, allocate funding and initiate steps to reach its long-term vision. NTS replaced the National Transport Development Plan and took a further-reaching, strategic view of the transport sector. Its goal is to restore the national transport network to good condition and bring 95% of the population within “easy reach” of all-weather transport services, using a five-year rolling plan for implementation.
Risks & Aid
A number of significant factors remain that inhibit expedited improvement of the transport sector. For example, procurement and contracting issues such as local contractors having insufficient capacity to implement large projects, cumbersome procedures and customary landownership rights can often result in project cost escalations and delays.
Recent years have seen some back-pedalling on financial incentives for investors. For instance, previously, firms could claim expenditure on prescribed infrastructure projects as credit against tax payable, but in 2018 this incentive suspended. Furthermore, the public sector lacks the capacity to successfully implement policy, and the processes that are in place are not always followed. In some cases, politically expedient projects may actually take precedence over those for which transport authorities have already made their budget submissions.
At the end of 2018 the ADB had emerged as a leading multilateral development partner in PNG, supporting 79 transport-related projects worth $1.82bn, such as the flagship Sustainable Highlands Highway Investment Programme (SHHIP) and the Civil Aviation Development Investment Programme. Australia, traditionally PNG’s most generous bilateral aid donor, has recently been overtaken by China, with Australia pledging $477m in aid in FY 2016/17 and China committing $3.9bn. More than two-thirds of China’s financing, or about $3.4bn, comes in the form of a loan for a national road project that connects the Ramu nickel mine with a new port at Basamuk Bay.
The private sector generates much of PNG’s road transport and shipping demand, while national airline Air Niugini dominates air transport service. Although private players compete headto-head with state-owned institutions, they are not on a level playing field. In practice, public sector transport service providers often receive support and market protection. Air Niugini, for example, currently receives state subsidies, while the privately operated PNG Air does not.
The government has sought the help of the private sector to improve transport infrastructure, using a public-private partnership (PPP) model to sign an agreement with the ADB in order to build a new international passenger terminal at Jacksons International Airport in Port Moresby. The new terminal is expected to serve as a template for other airport projects. Furthermore, in 2018 the government officially launched the country’s first privately run international port terminal on Motukea Island. The 250m port, run by Manila-based International Container Terminal Services, replaced the old colonial-era port in the capital and set a record for private sector participation in port operations. The Lae Port development, which is supported by the ADB connects directly with the Highlands Highway, could be an economically transformative project that prompts significant private sector participation. A feasibility study for the project, conducted by the ADB, has confirmed the potential viability of this PPP project.
The PPP model has also been adopted in the expansion and maintenance of road networks, and in 2018 three civil works contracts and two consultancy assignments were awarded to foreign firms under SHHIP. Effective PPP legislation is required to attract private sector participation in both the building and execution of transport infrastructure. Although the PPP Act was passed by Parliament in 2014, as of mid-2019 the legislation had not yet come into effect.
Road density in PNG is low, with roads typically beginning in provincial coastal centres before moving further inland. This pattern of development has resulted in the emergence of 12 distinct unconnected road networks. The total network is approximately 30,000 km in length, however, only about one-third of this roadway is considered to be in good, usable condition. Some 9000 km of the network is deemed important to the economy, and is thus classified as national road. Almost half of national roads and two-thirds of provincial roads required rehabilitation as of mid-2019. Roads are further classified into national routes, national main roads, national district roads and national institutional roads. According to government figures, between 2012 and 2018 it spent PGK3.3bn ($1bn) on roads and bridges. However, more than 70% of national roads remain unpaved and prone to frequent landslides. Although the Department of Works (DoW) is currently responsible for maintaining most national roadways, the responsibility is gradually being shifted to the National Roads Authority (NRA). The CEO of the NRA reports to the minister of works and, for certain financial matters, to the minister for treasury.
Land transport service is controlled by small private operators who try to meet market demand by running trucks, taxis, buses and vans. For most, public transport comes in the form of public motor vehicles that run scheduled stops along specific routes. There are an estimated 9000 of these types of vehicles distributed across the country.
Commercial goods transport services are regulated by a system of permits administered by either the federal land transport authority or provincial governments. Port Moresby has the largest urban street network in the country, followed by Lae. Express Freight Management is among the largest commercial transport firms operating in Port Moresby and Lae, while the Highlands Region is dominated by local logistics company Mapai Transport. On average, heavy vehicles account for one-third of highway traffic, while private vehicles make up about 65% of that on city streets.
In PNG an estimated 1.5m-1.8m people commute by air every year. On many routes, air transport remains the only way to access main towns and commercial centres. These areas are served by 28 key airports, four of which are run by mining and oil and gas firms, and two by a provincial authority. The National Airports Corporation (NAC) is in control of the remaining 22 airports, including Jacksons International Airport in Port Moresby. Furthermore, there are over 424 active rural airstrips and other airports, most of which are concentrated in the Western, Sandaun and Morobe Provinces.
Meanwhile, the Air Transport Division within the DoT is responsible for negotiating terms and issuing air service licences to carriers and the Civil Aviation Safety Authority (CASA) ensures that PNG complies with international air safety conventions. It is responsible for the safety certification of air operators, aircraft, air crew, air traffic controllers and airports. It is headed by a director, who is appointed by the prime minister and reports to an independent, seven-member CASA board. State-owned PNG Air Services provides satellite navigation systems which help authorities manage the airspace and coordinates search-and-rescue operations when necessary. The Transport Security Policy Unit within the DoT is responsible for developing security policy, while CASA, PNG Air Services and the NAC come under the purview of the Ministry of Civil Aviation.
Air Niugini has the largest fleet of aircraft in the country and flies over 1.2m passengers annually. It currently operates two Boeing 767s, two Boeing 737s, seven Fokker F100s, eight Fokker F70s, a Dash 8-100 and Bombardier Q400 aircraft on its international services. Its closest competitor, PNG Air, operates one ATR 72-600 and 10 Dash 8-100 vessels – one of which has been reconfigured into a cargo plane. The third-largest air service operator is Mission Aviation Fellowship, a church-sponsored airline based in Mount Hagen, which serves remote communities with a fleet of 16 aircraft, mainly DHC-6, Cessna 206 and GA8. Other small charter operators include Central Aviation (Mount Hagen), Hevilift, Islands Nationair, Niugini Helicopters, North Coast Aviation (Lae), Pacific Helicopters and Tropicair. Most of their work supports the extractive industries.
With PNG home to 14 maritime provinces, up to 59% of the population depends on water transportation. The Fly and Sepik rivers are the only two major rivers that allow access to ships of up to 3m draught. Other river ports with navigable accessible waterways are located in the Western, Gulf and Madang Provinces. The Habours Act 1963 listed 22 ports as declared ports, 16 of which are operated by state-owned PNG Ports. The two principal ports are at Port Moresby and Lae, together accounting for almost 80% of PNG’s cargo throughput.
Meanwhile, the government has set a target to reduce the average turnaround time at international ports from three days to one by 2030. Average turnaround time for ports in Lae and Port Moresby has already been reduced to 32 hours. A number of declared ports, such as those in Lihir and Misima, are operated by mining firms, while private ports in the country include Kiunga (Ok Tedi), Bialla (Hargy Oil Palms) and Basamuk (Ramu Nickel). There are also more than 200 smaller wharves and jetties that are run by provincial governments.
The maritime transport division of the DoT is the overarching regulatory authority for shipping and port operations in PNG. It is responsible for administering the coastal trading licences and permits required for vessels to trade. It also has responsibility for the ongoing coastal development of port facilities outside of any declared ports.
PNG is reasonably well served by shipping. However, its international shipping is among the most expensive in the region. It can take up to 23 days to export goods, which is in line with the regional average. Three large firms – Consort Express Lines, Steamships and Bismark Maritime – provide coastal shipping services between the main ports, while three others – Hub Line PNG, Rabaul Shipping and Lutheran Shipping – conduct scheduled services between major and minor ports. In addition, a number of mining and agricultural firms provide specialised shipping as part of their business offering and carry third-party cargoes on a commercial basis.
Container port throughput in 2017 was recorded at 276m twenty-foot equivalent units, and government projections predict cargo throughput to multiply five-fold between 2010 and 2030. Port infrastructure will need to expand at least three-fold to support that growth. At Lae, the country’s busiest port, work is already well under way to expand capacity. Meanwhile, it appears likely that second port will be built.
In 2018 the government allocated PGK40m ($12.1m) for the redevelopment of ports in Wewak, Vanimo, Manus and Kikori. Furthermore, the old port at Port Moresby has been closed and replaced by a modern one at Motukea. The current Madang Port may also need to be relocated. Meanwhile, the Community Water Transport Programme (CWTP) provides water transport to a number of remote and disadvantaged communities. There are four CWTP franchise routes currently in operation: Sepik, Huon/ Oro, New Britain and New Ireland.
The government has set ambitious medium- and long-term targets for the transport sector, and the extent to which these are achieved will depend on the amount of investment that can be mobilised. Prime Minister James Marape is seeking to refinance public debt through soft loans from multilateral institutions and donors. Until that happens, he has put a halt to any additional borrowing. Interest repayments take up to 15% of the government’s annual expenditure, which could stymie PNG’s plans for the transport sector if not properly managed.
A key policy goal is to improve cost recovery on the provision and operation of transport services and infrastructure. User charge mechanisms have been applied in the sector, but there is an understanding that full cost recovery is not possible. Activity in the extractive industries is another factor expected to generate robust demand for transport. Projected population growth will inevitably create an organic increase in demand for transport together with rise in income and prosperity. As PNG steps up efforts to improve its transport infrastructure, it presents an attractive opportunity for potential investors.
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