After much neglect in the years since independence, the rehabilitation of Papua New Guinea’s transport infrastructure is now taking centre stage in national development planning. Led by Vision 2050, the PNG Development Strategic Plan (PNGDSP) has outlined an overhaul of national land, sea and air capabilities by 2030, to be implemented in four five-year medium-term development plans (MTDPs).

The first MTDP – signed off in 2010 and running from 2011 to 2015 – will see approximately PGK24.65bn ($11.7bn) invested in transport modalities alone, and efforts are being focused on tangible results in this first decade to 2020. If successful, PNG estimates that its transport investments will result in economic growth of 12.6% by 2030 and a 13.1% increase in GNI, providing more than 154,000 jobs and a PGK1.16bn ($552m) rise in tax revenues.

THE ROAD AHEAD: At the centre of the government’s development plans are the ideas of providing services and access to markets as catalysts for social and economic advancement. With some 40% of the population estimated to be living in poverty and around 85% residing in rural areas, this presents a formidable challenge, but one which the government is addressing through the development of 10 beltways in the most disadvantaged regions.

These economic corridors, under semi-autonomous corporate bodies, the Border Development Agency (BDA) and the Economic Corridor Implementation Authority (ECIA), will offer modern, efficient centres for land, water and air services by 2030. The BDA is set up to control the Border Corridor (Western, Southern Highlands and Sandaun provinces), the South Coast Corridor (East New Britain and West New Britain), the Solomons Corridor (autonomous region of Bougainville) and the Free Zone Corridor (Manus, New Ireland, East and West Sepik). The Petroleum Resource Area Economic Corridor (Southern Highlands and parts of the Enga, Gulf and Central provinces), the Central Corridor (Central, Milne Bay, Oro and Morobe), the Madang-Baiyer-Karamui-Gulf Corridor (Madang, Simbu, Gulf and Western Highlands), the Morobe-Madang Corridor, the Enga-Sepiks Corridor (Enga and East and West Sepik Provinces) and the Momase Corridor (Madang, East Sepik and West Sepik provinces) will fall under the mandate of the ECIA.

HIGH FINANCES: Into this, PNG’s $15.7bn ExxonMobil-led liquefied natural gas (LNG) project has emerged as the catalyst of the transport sector’s rehabilitation.

The demands of the project massively exceed the capacities of PNG’s existing and long-neglected infrastructure. Bottlenecks and shortages that are not expected to subside before 2014 have cascaded costs, not benefits, throughout the economy.

Now fuelled by massive investment, the transport sector is improving, albeit from a low base. Sector employment has risen approximately 38.5% from 2007 to 2011, and the transport, storage and communications sector is projected to grow by 16% in 2012, according to PNG’s 2012 budget. This is, however, down from 41% in 2007, and the government anticipates growth will plateau at 8% by 2016. Relative GDP contributions, while positive, are also shrinking as the economy fires up, with 2011’s contribution estimated to be 1%, projected to decline to 0.6% in 2012.

The commitment to transport in the 2012 budget is PGK1.28bn ($606.7m), up 9% on the previous year.

Principally directed toward the Department of Works (DoW), PGK1bn ($476.7m) is derived from a mix of direct financing, tax credits and loans, with PGK231.6m ($110.2m) from donor grants. Direct government expenditure accounts for 57% of this, underlining the considerable capacity deficits at the national level.

INSTITUTIONAL REFORM: Government revenues will likely improve with time, and donor support has also focused on capacity building and reform, led by AusAID’s 15-year Transport Sector Support Programme (TSSP), which enters its second phase in 2012. Worth an estimated $58m in 2012 alone, the TSSP has pursued a holistic legislative reform agenda through the Ministry of Works and Transport. Some 18 of 26 proposed reform projects are now complete and the government has candidly acknowledged the scale of the challenges it currently faces.

ISSUES: A lack and poor prioritisation of funding, procurement delays, a shortage of qualified technical personnel and engineering equipment, and land ownership issues have all hampered efforts to rehabilitate transport infrastructure. PNG’s 2012 budget notes, “Inadequate maintenance of vital transport infrastructure has led to a cycle in which major infrastructure is built, deteriorates and subsequently requires large amounts of funding to be rehabilitated, only to fall into a state of deterioration again.” Malfeasance and corruption remain widely acknowledged issues and are discussed among government and industry executives as well.

In a forthright and unprecedented account published in November 2011 Mekere Morauta, the former minister for public enterprises, outlined abuses by Michael Somare’s government of the nation’s stateowned enterprises (SOEs), which includes national airline Air Niugini and PNG Ports. Morauta alleged that the Independent Public Business Corporation (IPBC), the sole shareholder of all SOEs, had been treated as the “Somare family honey pot”, with the family’s financial advisor installed as managing director of the IPBC and their legal adviser as chairman.

Air Niugini was also handed the $180m bill for the purchase of two “vanity” projects by the former administration, an executive jet and a Boeing 787 Dreamliner in 2010, while a PGK33m ($15.7m) subsidy for routes to Tokyo had disappeared from Department of National Planning accounts. The jet is being sold and PNG is negotiating to delay delivery of the 787, given its unsuitability to national operations.

That these transport and communication SOE holdings represent 20% of the government’s portfolio has added extra impetus to Morauta’s efforts to clear house, yet the election in 2012 could derail progress. Moreover, industry reports the growing politicisation of SOE appointments under the current government, and it is almost certain that the sector will attract further political attention in the future.

However, PNG’s legal framework remains largely intact. This has provided for a free-market environment, supported by the Independent Consumer & Competition Commission (ICCC), the industry watchdog, which remains integral to attracting further donor and private-sector support.

The country’s landscape of mountains, dense tropical rainforests, rivers and wetlands, combined with the extreme climatic events, intense rainfall (up to 4000 mm per year in some regions) and earthquakes makes it susceptible to annual flooding, landslides and natural disasters. While maritime, riverine and air services all require support, PNG’s terrestrial capabilities are foremost in the government’s mind. They are also perhaps the country’s greatest challenge.

LIFELINES: PNG’s public road network is thought to amount to some 27,000 km, although in reality the exact figure is uncertain. This represents one of the lowest road densities throughout the globe and most of the national network is discontinuous, serving only the relatively well-developed areas around the main commercial or industrial centres.

Of the identified roads, the national road network (national routes, national main, district and institution roads), is just 8400 km. The network links the country’s provinces, provincial capitals and other main population centres. Falling under the central government’s financing and administration, just 29% was listed as in “good condition” in 2010 by monitoring agency Roads Asset Management System.

Provincial roads (provincial trunk, district feeder, local access and other unclassified routes), are estimated to total between 8100 and 10,000 km, and are managed and funded by the provincial governments. Only about 10% are sealed, according to the Asian Development Bank (ADB), and many of the provincial governments are dependent on the provincial branches of the DoW for assistance.

The Central, Western Highlands and Eastern Highlands, along with East Sepik, Madang and West New Britain have the most extensive road networks. The Highlands Highway, linking the critical gateway port of Lae with Goroka, Mount Hagen, Mendi and their hinterlands, is the only continuous road network, serving PNG’s industrial heartland, an area home to 40% of the country’s population of around 6.85m.

Overall, an estimated 40% of the national road network is considered to be in a condition that can be maintained in a cost-effective manner, according to the ADB, while the remainder is restricted to emergency repairs to ensure they remain “passable”. Road conditions further deteriorated due to falling fiscal and DoW resources from the 1990s, and with roads subject to faster, heavier traffic today, transport costs have increased 40-60% in real terms. In addition, 52% of the population has restricted or no access to roads, the World Bank has reported. As a result of all of this, PNG has developed an international reputation for poor infrastructure, and this is something that the government is determined to address.

LINKING IT ALL UP: By 2030 the state intends to triple the national road network to 250,000 km and construct or repair 16 important, “missing link” roads identified in the PNGDSP. These include the Highlands Highway, Buluminiski Highway, Koroba-Mendi Road, Porgera-Togoba Road, New Britain Highway (very high priority); the Sepik Highway, West Coast Road, Baiyer Road, Hiritano Highway, Coastal Highway (high priority); and Kokoda Road, Wau Road, Buka Road, Magi Highway, Ramu Highway and Northern Road, which are considered to be medium-priority.

Through 2015 and at an estimated cost of PGK21.35bn ($10.2bn), the government is planning to expand national roads to 10,000 km and upgrade 65% to good condition. It will also seal and maintain in good condition 2500 km of the 16 national priority roads and 1000 km of the national road network. It will also build one missing link road, with five of the remaining 15 allocated to each subsequent MTDP.

While the exact sequence of construction for these missing links remains undetermined, work is reportedly under way on the stretch from Baiyer River to Amele Road, connecting the Western Highlands to Madang. This would eliminate approximately 200 km from journeys to Madang, the proposed site of a new port and a welcome alternative to Lae’s congested port facilities. Ahead of the road’s completion, the potential economic savings from this new corridor have already attracted intense interest from companies that use the Highlands Highway (see analysis).

Additional missing links are proposed to connect the northern coastal highway between West Sepik, East Sepik and Madang; West Sepik and the Highlands to Western Province; East Sepik to Enga Province, north-west of the Western Highlands; the Gulf of Papua to the Southern Highlands; and Central Province to Milne Bay. Links are also on the agenda for the Momase and Southern regions, and on Bougainville and New Britain. These are in addition to four proposed development corridor roads in the Southern Highlands, Momase and Southern region.

URBAN CONFINES: Road construction and maintenance in PNG’s urban centres remain critical as well, as roads there have become dilapidated after years of neglect. Some PGK123.7m ($58.9m) was spent on road improvement projects in the National Capital District (NCD), Lae, Madang and Mount Hagen in 2011 alone, with 52% reserved for the NCD. Traffic volumes continue to increase, buoyed by the accelerating economy and inadequate public transport. However, with 10,896 vehicles imported in 2011, the greatest demand is for commercial goods vehicles, according to Martyn Dawson, the group general manager of Boroko Motors. “Market growth has been concentrated in the commercial vehicle segment of the market, which has remained buoyant and stable, accounting for up to 45-50% of monthly sales. This has been the case on the mainland and the islands, where commodity prices have driven sales, particularly amongst plantation operations. Passenger vehicles, however, are just 3-4% [of sales],” Dawson said.

Surface erosion of urban road networks has been worsened by inadequate maintenance of urban drainage systems, which has resulted in flooding, erosion and even collapsed sections of highway due to blocked culverts, which has increased demand for dual-purpose sport-utility vehicles.

Demand for these passenger transport and workhorse vehicles is only expected to grow, and the most popular model at present is the Nissan Navara D40, which costs PGK90,000 ($42,000). At one-fifth the price of PNG’s basic housing options (current prices for basic housing in Port Moresby have reached PGK500,000, or $237,950), this remains a comparatively attractive investment for PNG’s garages, which Boroko Motors, PNG Motors and Toyota, are expanding to meet. Noticeable by their absence, however, are motorbikes. The proverbial workhorse of developing economies, security considerations and restricted incomes may explain their absence across PNG.

ROAD SAFETY: Third-party insurance remains a legal obligation, and road safety is a problem. Registering 50:10,000 deaths from traffic accidents, PNG has one of the highest road casualty rates in the region; accurate figures are expected to be higher still, given the incomplete nature of available statistics.

The National Road Safety Council (NRSC) was established in 1997 to coordinate road safety activities. The council has actively pursued initiatives such as awareness campaigns. According to Nelson Terema, the executive director of the organisation, the NRSC has started to implement an accident database programme to significantly improve activities. “This new database is critical and will allow us to target and monitor hazardous locations, study problem areas and look for solutions,” Terema told OBG.

Currently there are few alternatives to road transport. While investment in urban transport capabilities is included as part of the Office of Urbanisation’s National Urbanisation Policy (2010-30), and a commuter-belt railway from Port Moresby south-east to Kerama and Alotau may be feasible further down the road, providing alternatives is not a priority in terms of government funding at this time.

ROAD BLOCKS: The government now faces three principal and potential obstacles in the execution of its national development plans: a paucity of state funding, which could potentially have negative repercussions on donor commitments, overall industry capacity and securing the necessary land.

Meanwhile, building material and personnel shortages continue to hamper construction at all levels of industry. Nor is this likely to dissipate until the completion of the construction phase of the ExxonMobil LNG project in 2014 (see Construction chapter).

Funding is the critical issue and the government remains dependent on both private sector and donor support in order to meet its planned budget demands. Corporate support remains integral to the Highlands Highway, which is recognised as PNG’s most important road transport corridor and is a heavy drain on state revenues given extreme climatic conditions and high traffic volumes. Companies that have been contracted to conduct emergency repairs on the government’s behalf are entitled to a 2% tax credit scheme on assessable income. Yet this remains only a partial solution; indeed, the ceiling was raised from 0.75% in 2012 after insufficient commitments and is expected to generate contributions worth an estimated PGK70m ($33.3m) in 2012.

Accounting for some 33% of budgeted expenditures through loans and grants in 2012, donor support remains integral to the rehabilitation of PNG’s road network. Led by AusAID, the ADB and the World Bank, alongside prominent contributions from the Japanese International Cooperation Agency and the Chinese government, around 17% of all donor support is directed at PNG’s transport sector, and 40%, or PGK458.9m ($218.4m), of combined development expenditure in 2011 was spent on the country’s roads.

DONOR SUPPORT: AusAID’s TSSP provided maintenance on more than 4000 km of national roads, including the entire trunk road network in Bougainville over 2010 and 2011, reducing travel costs and increasing spending power in some rural locales.

Having invested $1.3bn since 1971 and complementary to the TSSP, approximately 80% of the ADB’s $800m operational budget is directed to improving PNG’s road network. It will soon complete the cold sealing of 570 km of provincial roads in the Highlands core road network (HCRN), covering the Eastern, Southern, Western Highlands, Enga and Chimbun provinces. Running parallel to a $46m World Bank road maintenance project, the ADB is also upgrading bridges on five major highways (Hiritano, Magi, New Britain, Ramu and Sepik); around half of the 152 bridges surveyed are single-lane Bailey bridges, and a number date from the Second World War. These, alongside other ageing structures in PNG, are being replaced with permanent two-lane concrete designs. Due to the increases in material and labour costs the ADB missed its original construction target on the HCRN by 54%, requiring a supplementary disbursement of $53m in 2011. This underlies the capital cost challenges facing both the government and donors.

With the exception of key routes, building alternative transport infrastructure closer to the centres of demand may be more economical than completely new road construction projects.

PORT CALLS & SHORT FALLS: With large tracts of the country’s 5152-km coastline and interior solely accessible by ship, there are a number of plans to expand PNG’s 16 ports by 2030, with immediate priority awarded to industry centres and gateways.

The rapid acceleration of demand that has accompanied the LNG construction phase has created numerous bottlenecks at PNG’s principal gateway ports, Port Moresby and Lae. Both have experienced 30% growth in twenty-foot equivalent unit (TEU) throughput since 2007, according to PNG Ports, and ships in Lae are experiencing delays of up to a week to berth and an average of 2.8 days for formalities.

Legacy issues that have arisen from outdated and rapidly ageing port infrastructure inherited from Australian administration in 1975 are at the root of the problem, exacerbated by a lack of investment in the intervening period, a sea change in the global maritime industry that has rendered much of PNG’s port infrastructure obsolete, and a diversification in cargo from agricultural loose-bulk exports.

Tom Owen, the chief operating officer for logistics at maritime firm Steamships Trading Company, told OBG, “As the economy has been rapidly growing over the past few years, the country’s existing infrastructure has not kept pace with the growth and this has been further exacerbated by the increasing demands from the LNG project and other initiatives. The impact has been in the area of congestion.”

LAE UPGRADES: Lae, as the gateway to PNG’s LNG project, is acutely affected, with a throughput of 161,717 TEUs in 2011, 84% greater than Port Moresby. It is subsequently at the epicentre of national port modernisation efforts. With support from the ADB, ground was finally broken on a 200-metre expansion of its quay and dockside facilities in 2011, following a two-and-a-half-year delay. The $330m project is now expected to be complete sometime after 2014.

PNG Ports has also entered into discussions with a new international terminal operator for Lae that will overhaul and digitise operations, reducing delays. In parallel, the company’s investment in rubber-tyred gantry cranes at Lae and Port Moresby have tripled container movements from six to 18 per hour, according to PNG Ports, and quay-side storage capacities have increased from 350 to 1200 TEUs per ha.

Yet such investments are the “low-hanging fruit” in PNG Ports’ plans, according to its CEO, Stanley Alphonse, who is pushing for the development of a master plan that will accommodate projected annual GDP growth of 8%. Lae’s proximity to the Highlands, located in the eastern part of the country, as well as Port Moresby’s inadequacies in terms of transport infrastructure, may yet elevate it to become PNG’s international trade and logistics centre.

Sandwiched between the military installations and private developers adjacent to the congested central business district, PNG Ports’ facilities in the capital are already struggling, just managing to handle a throughput of around 88,000 TEUs in 2011. While plans to relocate have been the subject of ongoing discussion, constituting a potential real estate windfall for the SOE, executives acknowledge that a new facility remains a decade out, irrespective of location.

PIPELINE PORTS: Attention has instead turned toward the expansion of key mainland maritime facilities, which the government expects to fuel an estimated 3.7% GDP growth and create 54,000 jobs by 2030.

Demand grew by 43% and 200% in 2007 at PNG’s north coast ports, Wewak and Vanimo, respectively (the most recent figures available at the time of press). Adjacent to existing or forthcoming industrial projects, new ports have been proposed for both.

Madang’s existing port has seemingly reached its full capacity at approximately 6000 TEUs and the government intends to relocate it to a larger out-of-town facility by 2015. Its proximity to the Highlands and completion of the road link running from the Baiyer River to Amele should ensure substantial industrial growth in the area, perhaps alleviating pressure in Lae, but industry executives have raised concerns over large tidal swells in the region that would require substantial investments in harbour defences. There are, however, few short-term alternatives.

MANAGEMENT: Moreover, PNG Ports is facing more immediate operational concerns. “We are fully cognisant of the perception out there that we have serious execution risks and capacity shortfalls, and these are being addressed at the moment,” Alphonse said.

Public-private partnerships, which would facilitate the transfer of skills, are welcomed by PNG Ports, but it has shied away from privatisation plans that were first proposed in 2002, and then eventually dropped on the basis that it would have been cherry-picked by investors. The same risks remain today. “With the exception of Lae, Port Moresby and Kimbe ports, [PNG Ports] classifies all other ports as non-viable commercial operations,” Brian Riches, the former CEO, explained in 2009. This remains unchanged, with 84% of PNG’s throughput, equivalent to 266,509 TEUs in 2011, passing through these three.

Moreover, internal management issues continue to overshadow the SOE’s operations. PNG’s acting auditor-general identified serious internal financial control weaknesses and issues in his 2010 report, filed late in 2011, and the minister for public enterprises has expressed concerns at the delays and cost inflations related to the port expansion plans. Moreover, despite paying a PGK15m ($7m) dividend to the state from 2011 revenues, Riches was suspended in January 2012 in what could be a political decision to exert more control over PNG Ports’ operations.

SHIPPING FORECAST: Capitalising on demand growth, Maersk and ANL announced expanded services in 2011, connecting China, Australia and Indonesia to PNG. Yet these blue-water operations pose little apparent threat to PNG’s predominantly coastal operators, Steamships Trading Company, Carpenters and Bismark Maritime. However, competition is increasing, and Steamships’ 93-year market lead is being challenged by Maersk, P&O and Carpenters, leading the Swire Shipping subsidiary to invest millions in upgrading the capabilities of its transport and shipping businesses. Many firms are following suit, revisiting their core business models, and as PNG’s LNG project comes online, maritime services expansion is expected.

This sector represents a dynamic growth vector for PNG, with Curtain Bros’ subsidiary, PNG Dockyard (PNGD), in a prime position to benefit. Maritime facilities at the 71-ha, man-made Motukea Island in Port Moresby’s Fairfax Harbour has been the gateway for materials and equipment in the construction of the capital’s LNG plant, given its proximity to the site and specialised ability to handle equipment in excess of 50 metres. Yet PNGD has also undertaken an aggressive expansion plan, with its business now including ship repair and servicing. PNGD has been operating in these areas since 2009, and hopes that growth in these segments will surge post-2014, potentially turning the company into a regional player.

Able to accommodate vessels up to 120 metres in length and weighing some 5000 tonnes, the completion of a 6000-tonne dry dock in 2013 will increase the port’s capacity so that it can handle up to 260-metre, 6000-tonne vessels. Specialising in blasting, painting, tank cleaning, stern repairs, hatch covers and operating to ISO9000:2008, PNGD’s facilities are equal to those in Australia, but outperforms them on price, said its general manager, Kurt Behnke.

“From just one vessel per month three years ago, PNGD now sees about nine vessels per month. While this has been due to both the expansion of our operations and international accreditations, PNG’s proximity to Australian ports and its costs that are on a par with Singapore have meant that we have been able to tap into the regional market for ship repair facilities. Establishing such an operation in Australia today would be almost twice the price,” Behnke told OBG.

With the recent closure of facilities in Australia and PNGD reporting strong industry demand for maritime engineers and mechanics, it is possible that PNG may yet emerge as one of the Western Pacific’s maritime vessel service destinations.

MARITIME SAFETY: The National Maritime Safety Authority (NMSA) was established by an act of parliament in 2003 to raise the standards for maritime safety and prevent and control marine pollution from shipping services within PNG waters. Despite strong institutional support, capacity shortfalls in the shipping sector and within the NMSA were exposed in PNG’s worst maritime disaster in February 2012. The passenger ferry MV Rabaul Queen, sunk in rough seas approximately 9 nautical miles from its destination in Lae, was overloaded with passengers. Permitted to carry 301, an estimated 560 were on board, of whom 321 reportedly died in the disaster.

An official commission of inquiry, established the same month, is still ongoing but has already revealed that checks on the vessel by NMSA marine inspectors had not been conducted for some 18 months. In comments posted on the social networking site Facebook by the former CEO of PNG Ports, Brian Riches, it was further revealed that the ship owners, Rabaul Shipping, had never been compliant with the will of the NMSA. Utilising various litigation, the firm had been able to avoid regulatory compliance by blocking the NMSA’s access to its vessels and had even obtained a court order to stop PNG Ports from charging passenger fees at the ports at which they called.

The fallout from the disaster continued in March when its sister-ship, the MV Kimbe Queen, ran aground. While no lives were lost and the vessel saved, it had been confined to dry dock three weeks earlier and deemed unfit to sail. The shipping firm ultimately closed down in June after three of its vessels were arbitrarily towed from Rabaul’s Buka wharves, grounded on a reef and set on fire by demonstrators angered at the breakdown of compensation negotiations.

CAPACITY BUILDING: Public protests have continued and the commission of inquiry is intended to assuage much of the residual anger. However, deficiencies in the NMSA’s capacities to enforce regulation across PNG’s 5000 km of coastline have been exposed. Cargo and hydrocarbons disasters are also concerns. “Another levy that we want to push through the government is an oil pollution levy, because we don’t have the resources, capacity, technology and human resources to deal with any major spillages in our waters should it happen,” Chris Rupen, the general manager of the NMSA, told OBG.

While PNG continues to enjoy close cooperation with Australian maritime agencies, efforts have already been undertaken to create a more professional labour body within the sector. A joint collaboration between the NMSA and the National Training Council, the Pacific Maritime Training College (PMTC) was established in 2009, offering 10 courses that are compliant with the Merchant Shipping Act (1975). The college has seen a growing number of trained seamen entering the industry. Further collaboration with the Pacific Maritime Crewing Agency was more recently announced, in line with PNG’s intentions to provide citizens more domestic and international employment opportunities, but its principal partners currently remain government agencies, notably PNG Customs, the coast guard and the country’s fire departments.

AIR SERVICES: Air travel remains the sole means of access to many remote regions, a reality shown in the country’s more than 500 unpaved airstrips. However, flying remains prohibitively expensive, and for decades aviation has been in gradual decline, a period from which it only now stands to emerge.

In 2011, 18 of PNG’s 22 airports met international compliance requirements, up from seven in 2008, and all 22 are expected to be compliant by 2015. Yet the country’s airport infrastructure trails far behind that of its Pacific and South-east Asian neighbours.

Consecutive ADB programmes worth approximately $640m are already under way to rehabilitate airport infrastructure, notably runways, taxiways, aprons, terminals, communication, navigation, surveillance and emergency-response capabilities, alongside reform of the Civil Aviation Authority.

Port Moresby’s Jackson airport, Mount Hagen, Wewak, Hoskins and Gurney are the priority airports, with Lae, Alotau, Rabaul, Madang and Manaus in the second tier. All are struggling with obsolete and congested infrastructure. Many do not support night flights and in some cases has proven unable to handle the heavier modern aircraft that airlines are bringing into service as part of fleet modernisation.

MODERNISATION: Upgrades to PNG’s air traffic control and navigation facilities are also urgent necessities, with just five points in the country equipped with air traffic control. Most of PNG remains uncontrolled airspace in which pilots must simultaneously control the flight, navigate, and broadcast their movements on VHF and HF bands. This is causing problems, particularly in the Highlands, where fixed-wing aircraft and helicopters are concentrated in a confined space with high terrain and unpredictable weather.

Ted Pakii, the CEO and managing director of PNG Air Services, which provides air navigation services, told OBG, “Our modernisation programmes are critically important and if not implemented soon, we will fall further behind the rest of the world. The programme will embrace state-of-the-art satellite-based technology and when completed, it will enhance safety and efficiency for the industry.” According to Pakii, over the past two years the country has seen a 20-30% increase in traffic, and with new airlines coming in, a similar rise in domestic and international travel is expected in 2012. “Increasing numbers of passengers will provide some relief in terms of our revenue but not enough to fund the $95m modernisation programme. Therefore, we are seeking assistance from the government and other funding agencies to help fund this critical programme.”

With one international gateway, domestic regular passenger transport remains the foundation of PNG’s aviation sector, with Air Niugini reporting an estimated 1m domestic and around 300,000 international passengers carried in 2011. At Port Moresby, however, congestion is building in the domestic passenger terminal, which has a capacity of just 300,000, alongside 100,000 in the international terminal.

Wasantha Kumarasiri, the CEO of Air Niugini, said, “The majority of domestic movements are between Port Moresby, Lae, Mount Hagen and Southern Highlands regional airports. Generally, infrastructure has not been upgraded to cater for this growth, and urgent attention is required to remedy the situation.”

TAKING FLIGHT: Thanks to its legacy as a state monopoly, Air Niugini retains the greatest market share, although the aviation sector is becoming increasingly open and competitive, with Airlines PNG as the lead contender. As the passenger numbers have been inflated due to poor terrestrial infrastructure and domestic travellers expected to reach 3m by 2030, local routes have been the principal field of contention. Airlines PNG successfully launched both Island and Valley Run routes in 2011 to rival Air Niugini’s public service charter to more remote destinations.

Both of the country’s airlines maintain long-standing code-share agreements with Australia’s Qantas and Virgin Blue, respectively, to leverage international arrivals. “Port Moresby is the air transport centre for PNG,” explained Linda Honey, the sales manager at Airlines PNG. “Getting from A to B to C from other cities quickly and easily does not necessarily happen, as transportation is by and large facilitated by air.”

There is minimal competition on international routes, with Airlines PNG holding a 20% market share of seats to Australia, compared with the 69% Air Niugini recorded in 2011. A proposed Air Niugini-Qantas code-share agreement on the Port Moresby to Cairns route, Airline PNG’s principal gateway route, was blocked by the ICCC in November 2010 because it was “likely to produce strong anti-competitive outcomes”. Airlines PNG was also reported to be exploring code-share agreements with Philippine Air in 2011 that would enable it to tap into its immigrant workforce.

Fuelling the competition has been an aggressive expansion of fleets, led by Air Niugini, which has doubled its fleet from 11 to 23 aircraft in just three years. The firm expects to take delivery of two Boeing 737s later in 2012. Yet due to insufficient infrastructure, these will be limited immediately to just three airports (Port Moresby, Lae and Manus) – a fate similarly suffered by the airline’s new, heavier Dash8 Q400 aircraft that have damaged airport aprons elsewhere.

“In the coming years we are going to focus on air infrastructure to meet international certification requirements in safety and security for all our airports,” Wilson Sagati, the CEO and director of the Civil Aviation Safety Authority, told OBG. Maintenance and safety standards have been overhauled at Air Niugini, Tahawar Durrani, the general manager of engineering services at the airline, told OBG. “We now have the maximum five-year validity of certification for the Air Operator’s Certificate, the Air Maintenance Certificate read as Maintenance Organisation Certificate, the International Air Transport Association (IATA) Operational Safety Audit certificate, the IATA certificate and the Design Certificate for its maximum of three years. In the recent past it was six months to one year.” Despite two recent accidents in 2009 and 2011, the overall safety record is improving.

OUTLOOK: PNG is on the threshold of a shift in its transport capabilities. As a catalyst for socio-economic development, few sectors have been given as high a priority. The considerable challenges and immense costs are determining immediate priorities and development initiatives implemented to 2030 represent only the initial catalysts. Progress to date is commendable, but represents just the first step to rehabilitating PNG’s infrastructure and institutions. Yet with strong and sustained growth predicted for the country, the transport sector should be one of the economy’s most dynamic for several decades to come.