It is 'unfinished business' for state-owned enterprises

12/07/2012 23:05

Public Enterprise Minister Sir Mekere Morauta KCMG MP




Eighteen years ago, at a function similar to this – a farewell dinner for me hosted by the Bank of Papua New Guinea – I made a speech entitled “Retired, Not Hurt, Not Out”.

It’s probably fair to say that I’ve scored a few runs since then, including knocking up a century as Prime Minister.

But now, after 42 years in public life, I am actually retiring, at least from Parliament.  I remain Not Hurt, and Not Out, and look forward to continuing to contribute as a lower-order, but still handy batsman.

Tonight I want to talk about Unfinished Business.

First, the Independent Public Business Corporation – IPBC – and state owned enterprises.

Rehabilitating state-owned institutions with the option, when and where appropriate, of bringing in private sector partners to them, were important reforms that my government introduced over a decade ago.

IPBC was created as the vehicle to manage and supervise these policies, while ICCC was created to ensure community and consumer interests were protected.

Eight fully state-owned enterprises were vested in a General Business Trust, with IPBC the trustee of the assets in the Trust.  A People’s Unit Trust was also created to allow Papua New Guinean companies, individuals, provincial authorities, landowner groups and so on to become shareholders in the businesses.

IPBC was built as a warehouse, furnished to rehabilitate state enterprises through capitalisation, strengthening management and instilling commercial discipline and practices.

The first business rehabilitated was PNGBC, which was then merged with the Bank of South Pacific. The success of this merger is indisputable.

The second, left semi-processed because of lack of time, was the PNG Electricity Commission. The commercially attractive assets of Elcom were transferred to a newly created PNG Power in preparation for a private partner to buy into the company to provide the needed technical and financial expertise.  The unproductive assets were left with Elcom to be buried or to die over time.

The third business, also half processed, was PTC.  It was massaged into a commercially attractive shape and Vodafone agreed to come in as a shareholder and manager. Again I ran out of time and the next government threw out the contract.

That is the IPBC I left in 2002.

When nine years later I was given the opportunity to oversee IPBC once again, what I found was very different from what I left, and shocking.

I found an octopus. Through a process of mutation IPBC had become a major business empire full of ailing, under-performing businesses, trapped in a vicious circle – lack of capital, lack of management expertise, lack of commercial discipline, and lack of accountability.

The empire was full of an overpowering political odour, thanks to changes to the original IPBC Act, changes which removed the accountability of IPBC. For example its financial operations were no longer subject to public scrutiny by the Auditor General or the Parliament.

Community service obligations and the participation of the people through the People’s Unit Trust had been shelved, while the only PPP of Somare, with Gems and others buying into BeMobile, was in a spot of bother, to put it mildly.  It still is.

My first task was to clean out IPBC and restore a clear purpose and direction to the organisation.  Central to the cleaning and strengthening exercise was amending the IPBC Act to restore proper governance and accountability to IPBC and to public enterprises.  The amendments came into effect two weeks ago. 

In 9 months IPBC has demonstrated that reform is possible.  Clear vision; political leadership able to navigate the political highways and byways; and a committed and capable board with a professional management team to support it, were the foundation. I would like to thank Dr Thomas Webster, Thomas Abe and the other members of the IPBC Board and management for their carriage of the reform.

Also required was a clear plan of action to improve performance. A quick stocktake of IPBC and public enterprises was taken to identify the key areas for reform.  This was followed up with a more thorough review to put in place a proper annual plan for IPBC and for each of the public enterprises.  Cabinet, for the very first time, approved the plans.

Improving the performance and governance of SOEs however takes more than people and plans.  It requires action and accounting for outcomes; it requires more predictable and enforceable processes. Since August last year:

  • IPBC has opened its books to public scrutiny and published plans for rehabilitating public enterprises;
  • IPBC has reintroduced commercial discipline and has already paid K77 million in dividends to the State – Air Niugini’s first dividend in more than 16 years, of K6.4 million was paid to IPBC yesterday;
  • IPBC has also made inroads on improving port services, electricity supply, water and sewerage systems, and the national telecommunications network.

The lesson is clear: A capable professional team, with a clear plan, propelled by honest and determined political leadership, can turn things around. Here are just a few of the projects that are being delivered by IPBC working in partnership with public enterprises and the private sector:

  • A one billion kina redevelopment of the Lae port to underpin economic development in Morobe and the Highlands region;
  • Examination of options to re-locate Port Moresby port;
  • Rehabilitation of Port Moresby power;
  • A two billion kina expansion to the Yonki hydro project to provide cheap and reliable power to Lae, Madang and the Highlands;
  • A K500 million National Transmission Network that will connect provincial centres throughout PNG with fast and reliable internet services, paving the way for an information revolution.  Our Government has already established the first base for this, with IPBC, PNG Power and Telikom collaborating to complete an optic fibre connection from Madang to Lae, which I will switch on next week.  This will open up high speed internet services to businesses and residents in Lae.

These projects and associated reforms are the Work in Progress I leave at IPBC.  I trust they will be continued by the next government, because their completion will help transform port, power and telecommunication services in the country.

Some of you may have heard me talk before about what I call the PNG paradox.  PNG - rich in natural resources, rich in government revenue; but poor in services and deteriorating or stagnant living standards for the majority of people.

Look at the record of the nine-year Somare regime. During its reign it appropriated and spent a staggering K68 billion.  Political stability; one government; revenue galore: but what can we see for them?

The discipline which should be (and once was) inherent in budget processes has disappeared. Billions of kina was parked by the last Government in trust accounts, and walked out, seemingly without trace.  The budget lacks discipline; the public service lacks capacity; the system lacks accountability for expenditure or for poor results.

Despite the enormous revenue available to the last Government, no improvement in the lives of ordinary people or in national infrastructure is visible.   Roads are full of potholes; ports are congested; universities and hospitals are dilapidated; there aren’t enough schools for our children, aid posts for our communities or jobs for our youth.

Why?  What is missing?  How can we resolve the paradox?

This question can partly be answered by having honest, competent leaders, but leadership alone is not sufficient.  Lying at the root of the problem is the breakdown of the structure, systems and processes of government.

As a result, good leaders are imprisoned by this fractured, corrupt system.  Unless steps are taken to repair and reform the system and processes of government, to rebuild the capacity of the public sector, good leaders will achieve and change little.

Reform takes time.  Reform does not happen overnight.  Reform does not happen without pain, or without incurring unpopularity.  But we have to attack, make a start, perhaps selectively rather than comprehensively, and find ways to improve services, and to halt the further deterioration of our stock of infrastructure and build essential new infrastructure.

SOEs require billions of kina as equity from their shareholder, the Government, to enable boards and management undertake the necessary expansion and modernisation required for them to provide the air, power, communication, port, water supply and postal services needed to improve living standards and to develop the nation.

We all think the LNG project is the national panacea, the cure-all.  It is not, nor is any other project that might follow it.  We all think the Sovereign Wealth Fund will be our saviour.  Again, on its own, it will not provide the answer. 

I want to state clearly that I support the creation of the Sovereign Wealth Fund.  Indeed I trust the next Government will make some amendments already approved by Cabinet to the Organic Law, to strengthen the governance of the Fund.

The Sovereign Wealth Fund is not only essential, but is the most effective way to smooth out revenue fluctuations and to insulate the economy from Dutch Disease.  If it is administered without political interference, it will also keep sticky fingers off the substantial financial resources flowing into it from mining and petroleum investments.

But if the money to be drawn down from the Sovereign Wealth Fund flows to an unreformed and fractured system, then we are likely to see a repeat of the past:  no discipline, no capacity to implement, no accountability, no real development, no improvement in services for our people.

Recognising the critical need to capitalise SOEs and rehabilitate and build infrastructure, I suggested a way forward to the Government.  It involves the earmarking of the expected dividend income from the LNG project to fund these two needs, but without compromising the structure and integrity of the Sovereign Wealth Fund.

But allocation of funds is only the beginning of the solution. We also need mechanisms to convert the financial resources into real public goods and services.

Hence my proposal to Government to establish an Independent Infrastructure Authority, to help reduce the capacity problems in the public sector and improve the maintenance and quality of our assets, integrating more effectively the use of tax credits and of bilateral and multilateral funding with national priorities.

The Independent Infrastructure Authority incorporates the National Roads Authority but the new structure is more comprehensive, with more funding, a certain funding source and a wider mandate.  Importantly, the Independent Infrastructure Authority would be “outside the public sector box”, managed by an independent trust with a majority from Government, including the chairmanship.

Cabinet approved my proposal, and the necessary supporting legislation has been drafted – both the amendments to the Sovereign Wealth Fund Organic Law and legislation to establish the Independent Infrastructure Authority.  Again I have run out of time for the legislation to come to Parliament.  I urge the next Government to follow this through.

The Unfinished Business that I leave involves reform.  Reform entails changes to the existing order.  Narrow vested interests will oppose it.

The biggest obstacle to progress and reform in Papua New Guinea has been the inability of politicians to make difficult decisions, decisions that are in the national interest, in the interest of the majority of people, but which might not be liked, for good, bad or no reason, by a small but vocal group of people. 

For reform to take place, we need leaders who do not occupy the political stage to compete in popularity contests.  We need leaders who are prepared to stick to their guns.  We need leaders who will listen to and weigh vested interests in the context of national interest and national benefits.

Leaders and the system must change; otherwise Papua New Guinea will not change.

  • This speech was given by the Rt Hon Mekere Morauta KCMG MP, Public Enterprise Minister in the O'Neill/Namah government, at a dinner hosted by the Independent Public Business Corporation (IPBC) to mark his retirement as a politician. For a PDF copy of this speech click on this link