Manufacturers Council of PNG positions of Electricity, Highlands Highway, Minimum Wages, Telecommunications

The “Manufacturers Council of PNG - Position” reflects the official position of the Council for the noted subject.  The Council recognises the importance of a collective position on key issues relating to our manufacturing industry.  The Councils position shall endeavour to facilitate a collective voice and action to build and maintain an efficient and competitive PNG manufacturing sector.

Issue – Electricity Supply & Generation

Background

Power is an essential input for manufacturing.  The cost of power in PNG is substantially higher than in our neighbouring nations and even in comparison to our African, Caribbean, Pacific (ACP) partners.  The reliability of supply both in availability and quality is unsatisfactory.  PNG Power is the state owned entity that is responsible sole commercial supplier of electricity in PNG.

The state has a very poor record in both the provision and maintenance of power generation infrastructure and whilst PNG Power has an improvement program in place it has been noted that PNG will not have a sufficient and reliable solution in place for at least three to five years.

There are many impediments to doing business in PNG and each of these impediments increase the costs of doing business.  All of these impediments multiply the cost of conducting business in PNG as each member is affected by the sum of all the impediments. 

Issues

PNG Power is currently unable to provide sufficient power with redundancy (sufficient back up supply when there are outages).  To compensate for this Manufacturers are required to maintain alternative power supply arrangements (generators etc).  In addition to the capital outlay for back-up generators and maintenance the very high cost for fuel makes it very expensive.

The frequency of outages for members is high, over the past twelve months outages occur weekly if not daily.

There is a disparity of power availability between Port Moresby and Lae. It must be said that nationally the affordability and reliability of supply is inadequate, however Lae users are worse off with PNG Power having no redundancy and is only just able to meet the minimum load requirement.

The quality of the power supply is also of concern; the majority of members are required to outlay considerable amounts of money to install their own commercial power regulators to protect their plant from the frequent spikes.

The explanations for the majority of outages is understandable, however it does not alleviate the financial burden placed on members.

Several high energy using Members have entered into arrangements with PNG Power to self-supply throughout peak periods to ensure less outages overall.

Position

It is the official position of the Council that power supply must be readily available, affordable and of a satisfactory quality.

The Council has called upon the Government to ensure sufficient funds are made available to provide and maintain an acceptable baseline of power supply.  Rural electrification is important however it is considered that the rectification of commercial centres power supply must be prioritised.

GoPNG and PNG Power must recognise the contribution that manufacturing makes to the economy, in particular employment and note that the high cost of power in PNG constrains productivity of our Members.  Any options that improve the affordability, reliability and efficiency of power for manufacturers should be investigated and supported by all parties.

Issue – Highlands Highway Network

Background

The Highlands Highway is the generic term of reference given to describe the network of roads that connect a number of highlands and coastal centres. These roads are the main transportation routes for commerce between the majority of PNG’s commercial and provincial centres.

There are many impediments to doing business in PNG and each of these impediments increase the costs of doing business.  All of these impediments multiply the cost of conducting business in PNG as each member is affected by the sum of all the impediments.

Issues

Currently the Highlands Highway network presents major problems to all users. The road network is in a very poor state and is plagued with chronic law and order problems.  The maintenance and accessibility of the roads is severely impeded by landowner issues and the complexities of the management of this infrastructure falling under many levels of government (state, provincial and local).

It is acknowledged that vast amounts of money have been allocated for the maintenance, improvement and extension of the Highlands Highway network.  The combination of poor service delivery from contractors and volume of compensation payouts to landowners ensures that value for money from any funding is seldom evident.

All members that use the Highlands Highway report significant increases in the cost of their operations from theft and delays from the poor conditions of the roads.  It is common for goods to be transferred from truck to truck due to cut-off roads, as well as using door-to-door security escorts.

Not linked directly to the assets, it should however be noted that ongoing increases for the cost of fuel has further increased haulage costs.  The compounding affects of all the additional costs of doing business means that Members have little choice but to pass on the costs.

These issues have been ongoing for a long time now.  The increased costs of doing business causes upward pressures on gate prices and adversely affect both general inflation and the consumers’ purchasing power.

Position

It is the official position of the Council that there is exists a major, genuine need to immediately address and improve the operating efficiency of the Highlands Highway network.

It is vital that the access to Highlands Highway network be unfettered and that the entire network be maintained in accordance with PNG standards for commercial freight roads.  Members of the Council are also strongly encouraged to ensure that their goods are not transported on vehicles that exceed the maximum weights.

The Council encourages any measures to simplify the processes for the improvement and management of the Highlands Highway network and maintains a view that landowner claims should be both legitimate and minimal when claiming against the provision of basic, required public utilities and infrastructure (such as roads, power, water and telecommunications).  Any and all contracts awarded must be done in accordance with GoPNG procedures and roads should be built fit for purpose with the highest of recognised standards.

Issue – Minimum Wage Board Determination (Jan09)

The Manufacturers Council of PNG (MCPNG) has noted with interest the determination of the Minimum Wages Board (MWB) handed down on Friday 30th January 2009.

Whilst the Council and its members concur that a review of the minimum wage rate is long overdue, it notes its concern at the level of the increase (equivalent to 250% on wage cost alone) and the burden this will place on industry in PNG.

Under the Mid Term and Long Term Development Strategies, the Government of PNG has stated its aims of increasing output in downstream processing and value add industries with a view to increasing GDP and employment in the country.

The Council feels that such a substantial increase in the operating costs of businesses will lead to negative economic benefits in the following ways:

1.      Businesses will be forced to rationalise their workforces to reduce the impact of the additional cost leading to higher unemployment especially in the urban areas

2.      Companies currently exporting from PNG will lose competitive advantage due to higher costs, the level of export from PNG is already in decline due to falling global demand for commodities and the impact of the Kina’s strength with its trading partners

3.      As businesses costs rise, it would be not be unreasonable to expect a rise in the costs of goods and services leading to inflationary pressure negating any benefit from the increase in the base rate

In short, it is likely that such a severe increase in the minimum wage rate will lead to lower output, higher unemployment and increased inflation.

As mentioned, the MCPNG agrees that a review of the minimum wage is necessary; however that it should be in line with the economic realities during the current global crisis, and allows all participants in the business sector to gain.

Issue – Telecommunications

Background

Telecommunications refers to the provision of both voice and data services.

Until recently there has been a sole State-owned supplier for telecommunications in PNG, in 2007 the government opened completion in the mobile voice services market.

Landowner issues and vandalism have significantly hindered the State ability to supply reliable and affordable telecommunication services.

There are many impediments to doing business in PNG and each of these impediments increase the costs of doing business.  All of these impediments multiply the cost of conducting business in PNG as each member is affected by the sum of all the impediments.

Issues

The cost of voice and data services in PNG is acknowledged as being as one of the most-expensive in the world.  The introduction of competition in the mobile voice segment has brought about large cost savings; this has however been of limited benefit to most businesses due to their being no interconnectivity between carriers.

The quality of the state owned voice and data services has been severely unsatisfactory; the network suffers frequently from congestion and outages.

In terms of data services GoPNG officials recently announced that PNG was in the top 5% of the world of most-expensive data services, and it should also be noted that transfer speeds well below international standards.

Businesses and individuals are currently severely impeded by the quality, reliability and affordability of telecommunications.

Position

It is the official position of the Council that telecommunications must be readily available, affordable and reliable.  The Government must quickly address interconnectivity problems, and ensure that government policy does not hamper any improvements to the access of affordable and reliable telecommunications.

The Council notes the tremendous problems with vandalism to the networks and supports the strengthening of law enforcement agencies and judicial system to manage this problem and maintains a view that landowner claims should be both legitimate and minimal when claiming against the provision of basic, required public utilities and infrastructure (such as roads, power, water and telecommunications).

The Council is disappointed that GoPNG did not adequately consult stakeholders before endorsing the ICT Bill.  It is the view of the Council that the Government should actively seek and consider the views of the private sector when formulating policy, in particular policy that is tied directly to the effectiveness and profitability of businesses.

The Council shall accept GoPNG positions that endeavour to provide reliable, affordable telecommunications, and asks that GoPNG recognises that expensive and unreliable voice and data services restrict businesses.