Tonga's SOE framework among Pacific's best, but reforms should continue—ADB PSDI report
NUKU’ALOFA, TONGA (16 March 2023)—Tonga has one of the strongest governance and monitoring frameworks for state-owned enterprises (SOEs) in the Pacific region, but its government should continue to seek out new commercialization opportunities, a new Asian Development Bank (ADB) report says.
Finding Balance 2023: Benchmarking Performance and Building Climate Resilience in Pacific State-Owned Enterprises compares the performance of SOEs in nine Pacific island countries—Fiji, Kiribati, the Marshall Islands, Palau, Papua New Guinea, Samoa, Solomon Islands, Tonga, and Vanuatu—and tracks the progress of SOE commercialization in the region.
The report’s findings were discussed by government, business, and civil society representatives at a Finding Balance 2023 launch event today in Nuku’alofa.
Attendees of the Finding Balance 2023 launch in Nuku'alofa, including the Hon. Hu'akavameiliku, Prime Minister of Tonga (seated, fourth from left).
“Tonga’s SOE governance and monitoring framework is robust, but maintaining commercial returns requires the continued participation of the private sector, as well as ongoing political commitment,” ADB Pacific Liaison and Coordination Office’s Officer-in-Charge Matt Hodge said.
The average returns among the country’s 12 surveyed SOEs have dropped sharply since 2018 as escalating costs, exacerbated by COVID-19, outpaced revenues. The average return on equity (ROE) for Tonga’s SOEs fell from 4.7% (2010–2018) to 3.1% (2019–2020), while the average return on assets (ROA) fell from 2.9% to 1.6% over the same period.
However, the Government of Tonga’s endorsement of skills-based SOE director selection guidelines in 2020, as well as the amendment of Tonga’s Public Enterprises Act in 2020 and regulations in 2021, augurs well for future performance.
From left to right: PSDI SOE Reform/PPP Specialist Laure Darcy, Tonga Prime Minister the Hon. Hu'akavameiliku, and PSDI Consultant Christopher Russell.
Finding Balance 2023, produced by the Pacific Private Sector Development Initiative (PSDI), 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 shows that SOEs in the Pacific have improved their returns, but are still failing to cover their cost of capital.
Tonga Ministry of Public Enterprises employees at the Finding Balance 2023 launch in Nuku'alofa.
PSDI is an 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.
FINDING BALANCE 2023 KEY FINDINGS FOR TONGA:
- Number of SOEs: 12
- Dominant industries: Power, aviation, telecommunications
- Book value of assets (2020): T$531 million
- Contribution of SOE fixed assets to Tonga’s capital stock (2020): 23–30%
- Average portfolio contribution to GDP (2010–2020): 6%
- Average return on assets (2010–2020): 2.6%
- Average return on equity (2010–2020): 4.4%
TONGA SOE REFORM HIGHLIGHTS, 2015–2022:
- Three public-private partnership (PPP) contracts have been established since 2016, providing valuable PPP structuring experience to the Ministry of Public Enterprises and signaling that Tonga is open to foreign investment and PPPs.
- Skills-based SOE director selection guidelines endorsed by Cabinet in 2020.
- Amended the Public Enterprises Act (2020) and incorporated regulations under the Act to codify a director selection and appointment process.