Policy quagmire may ensnare SOEs

FURTHER signs are emerging of a policy quagmire that may entangle government planning procedures and threaten an inclusive economic recovery that helps to embrace the long-suffering majority rural populace. by Wantok

On the surface, it seemed Prime Minister Peter O'Neill was showing his credentials as an economic rationalist with a well-meaning call that all state-owned enterprises should improve their efficiency, and reduce charges to businesses and the general public.

This is certainly the way to go for SOEs and is a sentiment that no one can find fault with. O'Neill went on to state that it was with this in mind that the National Executive Council had blocked the 5.9% tariff increase imposed by PNG Power on January 1.

O'Neill went on to state that a wider government policy would be implemented to get SOEs to cut costs and become more efficient.

These are admirable goals that ought to be pursued by any government. In the case of Papua New Guinea, these plans go directly against the country's institutional framework and the dire need for virtually all SOEs to greatly expand their operations.

PNG Power, for example, only services a dismal 10-12% of PNG's 7 million population, mainly because of technical and financial constraints. Almost 90% of the population has no access to safe, secure and affordable electricity, probably the worst case among nations in the Asia Pacific.

As the nation entered the new millennium, PNG Power had been a bankrupt SOE, described as insolvent by no less than the World Bank.

One of the key reasons for that dismal state of affairs were the decisions of former prime minister Sir Mekere Morauta to refuse to allow the state utility to set higher tariffs in the face of rising costs.

As fortunes of entities such as PNG Power, Post PNG, Telikom PNG and others went into a tailspin, Mekere implemented institutional reforms to make amends for policy mistakes of the past.

One of these was the establishment of the Independent Consumer and Competition Commission (ICCC), which was provided the role of monitoring the costs and operations of entities such as PNG Power to enable responsible tariff increases that would enable the entity to become a viable business entity capable of raising raise adequate capital for rehabilitation, maintenance and growth and to manage its own affairs.

By overriding the ICCC, the National Executive Council was setting a precedent and undermining a rational basis for the SOEs to move forward.

A case could also be made that the government had failed to make adequate presentations to the ICCC on why the latest tariff increase should not have been approved and passed on to consumers, leaving the final decision to the ICCC.

In retrospect, it probably could even have challenged the ICCC decision, which arguably was questionable given the deterioration in service provision over the past two years by PNG Power.

Under its previous chairman, the ICCC had in fact forced PNG Power to make a refund to customers because it had failed to meet performance standards that had been set. Few would doubt that these standards had not been met again in recent times, making the ICCC approval for tariff increases highly questionable.

In good times and bad, successive PNG governments have failed to provide adequate financial support to PNG Power to enable it to satisfactorily increase the scope and scale of its service provision.

During the period from 2003 until the parliamentary coup in August 2011, a great deal of internal reform had taken place within PNG Power and other SOEs within PNG's regulatory framework.

There was little provided through capital injections from government and SOEs were forced to undergo a path of internal reform.

Once it got its house in order, PNG Power was able to commercially raise around K300 million from local banks and rehabilitate its key unit at the Rouna hydropower station, just outside Port Moresby.

It subsequently built an additional 30MW of diesel-fired power at its Moitaka power station and successfully fended off the threat of major power disruptions, as the Port Moresby grid for the first time ever saw peak electricity demand exceed 100MW in December 2011.

Sadly, in the past two years the utility has been on a downhill track as politicians returned to the political infighting and instability that marked much of PNG's modern history since independence in 1975.

The worsening of PNG Power's performance seems to also have coincided with the sudden, virtually overnight decision of its former chief executive, Tony Koiri, to resign from his position and the government's intervention in the recent tariff increase initiative could spell further trouble in the years ahead.

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