Implementation of key SOE reforms in PNG will improve commercial performance — ADB report
PORT MORESBY, PAPUA NEW GUINEA (25 July 2023)—The passage of significant reforms under Papua New Guinea’s (PNG) 2021 Kumul Consolidated Holdings (KCH) Authorisation (Amendment) Act will empower KCH to effectively monitor state-owned enterprises (SOEs) and promote better transparency and accountability, according to a new Asian Development Bank (ADB) report.
Finding Balance 2023: Benchmarking Performance and Building Climate Resilience in Pacific State-Owned Enterprises compares the performance of SOEs in nine Pacific island countries—PNG, Fiji, Kiribati, Republic of the Marshall Islands, Palau, Samoa, Solomon Islands, Tonga, and Vanuatu—and tracks the progress of SOE commercialization in the region.
The report’s findings were considered and discussed by government, business, and civil society representatives at a Finding Balance 2023 launch event today in Port Moresby.
PNG Minister for Public Enterprises, the Hon. William Duma, provides the keynote address at the Finding Balance 2023 launch event.
“The KCH Amendment Act has restored KCH’s powers to monitor SOE performance, manage the SOE director nomination process, and introduce greater transparency in SOE operations,” ADB PNG Resident Mission Country Director David Hill said. “The Government of PNG should support KCH in continuing to implement these reforms, which will improve SOE commercial outcomes.”
PNG’s SOE portfolio over the 2015–2020 period had one of the lowest rates of profitability of the nine countries surveyed by Finding Balance 2023, largely due to weaknesses in the governance framework.
The average return on equity (ROE) and return on assets (ROA) for the 12 PNG SOEs under KCH’s oversight were 2.5% and 1.2% respectively during the 2010–2015 period, dropping to –1.5% and –0.8% in 2016–2020. This yielded an average ROE and ROA of 0.6% and 0.3% respectively for the period 2010–2020.
Finding Balance 2023, produced by the Pacific Private Sector Development Initiative (PSDI), also has a special focus on the risks posed by climate change, and how Pacific governments and state-owned utilities can manage its effects and build resilience.
The report finds that state-owned utilities that are more commercialized may be more inclined to respond to incentives to decarbonize and invest in protecting their assets. It also highlights the leading reforms PNG has adopted to improve climate-related financial disclosures.
Left to right: Australian High Commission to Port Moresby Minister Counsellor Diane Barclay, PNG Minister for Public Enterprises the Hon. William Duma, PSDI SOE Reform and PPP Specialist Laure Darcy, and KCH Managing Director Professor David Kavanamur.
PSDI is ADB technical assistance program undertaken in partnership with the Governments of Australia and New Zealand. PSDI supports ADB's 14 Pacific developing member countries to improve the enabling environment for business and to achieve inclusive, private sector-led economic growth.
ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.
- Number of SOEs: 12
- Dominant industries: Telecommunications, aviation, ports, insurance, power, banking
- Book value of assets (2020): K10 billion
- SOE total fixed assets in economy (2020): 5–8%
- Average portfolio contribution to GDP (2010–2020): 1.3%
- Average return on assets (2010–2020): 0.3%
- Average return on equity (2010–2020): 0.6%
- The 2016 enactment of the Kumul Consolidated Holdings (KCH) Act, which transferred oversight responsibility for KCH and SOEs to the National Executive Council and was associated with a deterioration in SOE performance.
- Adoption of the 2020 SOE Ownership and Reform Policy, restoring KCH to its SOE oversight role and establishing a skills-based SOE director nomination process.
- Passage of the KCH Authorisation (Amendment) Act in August 2021, which restored KCH powers to monitor SOE performance, manage the SOE director nomination process, and review SOE corporate plans.
- Passage of the Public-Private Partnership (PPP) Amendment Act in 2022.