NB: This full unedited speech was delivered at the PNG Sustainable Development Program annual report meeting at the Crowne Plaza in Port Moresby on Tuesday, June 5.
I’d like to
thank the Chairman of PNG SDP, Ross Garnaut, for inviting me to speak at
today’s meeting.
 |
| Sir Mekere Morauta |
An incredible
mining and petroleum boom is driving rapid rates of economic growth. (The Bank
of Papua New Guinea estimates that growth last year was higher than the
projected 9.5%, and that growth this year will be around 8%.) And with a new
generation of resource projects in the pipeline, these high rates of growth are
likely to continue. There is extensive oil and gas exploration in the Southern
Highlands, Gulf and Western Provinces, and of course there’s the Gulf and PNG
LNG projects. And in the mining sector
there is the Wafi-Golpu project, Hidden Valley, Marengo and Frieda River
projects, to name just a few.
These projects
will deliver huge revenues to government that have the potential to transform
living standards in our country if the government can get incentives right,
fund the right mix of public investments, diversify the economy and integrate
effectively into the global economy.
Unfortunately,
the government’s record is lamentable. For example, the Somare Government spent
a staggering K60 billion during its nine years in office. Yet our national
infrastructure is crumbling around us. Our roads are full of potholes, our
ports are congested and our universities and hospitals are dilapidated. Our
people are suffering: there aren’t enough schools for our children, aid posts
for our communities or jobs for our youths.
One
government; political stability; revenue galore; but where did all the money
go? What can be seen for it? No dividend for our people. Why?
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.
Public money
is not being used properly; there is no budget discipline; the public service
lacks capacity; and there is no accountability for expenditure or for poor
results.
My biggest
fear is that if we do not find answers, then all the revenue which will be
generated from PNG LNG and other new projects, and ongoing revenue from Ok
Tedi, Lihir, Porgera and Kutubu will also produce little result for people.
I also fear
that the soon-to-be created Sovereign Wealth Fund will not solve the problem
either. Yes, it will help to insulate the economy from Dutch Disease and
inflation, and it will smooth out volatile revenue flows. And if it is
established properly, the Sovereign Wealth Fund will also keep sticky fingers
off the revenues and financial investments.
But if the
money to be drawn down from the Sovereign Wealth Fund flows into an unreformed
Budget, then we are likely to see a repeat of the same old story:
•
No discipline, no capacity to
implement, no accountability.
•
And thus no real development, no
improvement in services for our people.
If the Budget
disperses money as it does now over a million and one so-called “priorities”,
then what can we do to ensure that top priorities, such as maintaining national
infrastructure, don’t miss out?
If the public
coffers are vulnerable to corruption and theft, then what can we do to put in
place strong governance and accountability mechanisms and regimes?
If government
departments lack capacity and accountability, then what can we do to
restructure the service delivery model to deliver results?
I appreciate
that these are big questions, but rather than offering grand plans, I’d like to
share some practical solutions. I’d like
to offer some thoughts on this issue from a government perspective. I also look
forward to hearing more about how and what PNG SDP is doing - not just because
I think PNG SDP can offer some valuable lessons, but because I also think
government and state-owned utilities need to collaborate more with PNG SDP in
order to deliver better infrastructure and basic services and rural development.
The obvious
solution to a dysfunctional budget is to fix the budget. Over the years this
has led to large investments in diagnostic reviews, capacity building and new
accounting software - a whole governance industry.
But if the
solutions were that simple, then our financial management systems would have
been fixed by now and we’d all be reaping the benefits of better services.
Sadly the
solutions are not simple and the systems are not going to be fixed overnight.
If we continue
to hold national investments hostage to the same government processes and departments
that have failed us for so long, then we risk missing out on investing our
resource revenues wisely. The last 10
years can be seen as years of lost opportunity and waste of resources: we cannot afford to repeat the same mistakes
and lose the opportunity now dawning before us.
I believe that
we can make a difference now by locking in some sensible decisions on how
revenues from the Sovereign Wealth Fund will be allocated, while at the same
time putting in place strong organisations to spend the money effectively.
I’ve therefore
argued that the Sovereign Wealth Fund should earmark dividend flows from PNG
LNG - about K500m per year - for maintenance of national infrastructure (roads,
ports, airports, universities, hospitals), the provision of rural
infrastructure and the recapitalisation of public enterprises.
This
allocation of funds, though, is only the beginning of the story. We also need
delivery mechanisms that will translate the financial resources into better
infrastructure and services.
Unfortunately, the public sector has a poor record in the implementation of infrastructure
development and maintenance:
•
Less than a
third of the national roads are maintained in “good condition”, and provincial
roads are in a worse state of repair and continuing to deteriorate.
•
Airports
suffer runway damage and lack many basic security and safety features.
•
National
hospitals and universities also require urgent maintenance.
The reasons for poor performance
are well known. Much of the poor maintenance and inadequate conditions result
from weak institutional arrangements governing the delivery of infrastructure.
These include:
•
Unclear roles
and responsibilities among government infrastructure planning, funding and
implementing agencies;
•
Unsatisfactory
financial management, often related to unclear responsibilities;
•
Procurement of
any major civil works project is prolonged by a lengthy NEC approval process
(typically extending to six months).
These are complex issues
and the public sector cannot be rebuilt or reformed overnight. Reform efforts will take time to bear fruit.
In the meantime, we have to act to halt further deterioration of our stock of
infrastructure, and find ways to build new infrastructure effectively.
I have therefore proposed
that government should establish an Independent Infrastructure Authority. Specifically
the objectives are to:
·
Help solve the
capacity problems in the public sector and improve the maintenance and quality
of our assets;
·
Make
productive use of some of the funds flowing to the Sovereign Wealth Fund;
·
Integrate more
effectively the use of bilateral and multilateral funding with national
priorities.
The Independent Infrastructure Authority builds on
the National Roads Authority model, but with more funding, a bigger mandate,
and delivering maintenance of roads, airports, ports, hospitals, universities
through a world-class business model.
Most importantly, and like
the NRA and PNG SDP, the Independent Infrastructure Authority is “outside the
public sector box”, thus relieving the burden on the public sector, allowing it
to concentrate properly and more effectively on smaller, more manageable
assets.
The Independent
Infrastructure Authority would be overseen by a Board consisting of government
and independent nominees, but with a government majority.
Government would vest or
transfer selected infrastructure projects to the Authority to rehabilitate and
maintain. The Authority would only be responsible for physical maintenance. It
would not take away the management and policy responsibilities of the
functional departments and ministries.
Detractors might argue
that it is not possible to build strong institutions in the public sector, or
that reform takes too long. The experience of IPBC over the last nine months
shows that institutional reform is possible.
First,
it is absolutely essential to have a committed and capable board and a
professional management team to support them. This was my first priority in
August last year when I took over as Minister for Public Enterprises, and I
would like to commend Dr Thomas Webster, Thomas Abe and the other members of
the IPBC Board and management for their excellent work.
Secondly,
it is important to have a clear plan of action to improve performance and
instil discipline. In August last year, we did a quick stocktake of IPBC and
public enterprises to identify the key reforms.
We then followed this up with a more thorough review to put in place a
proper annual plan for IPBC and for all the public enterprises.
But the
delivery of services is about more than people and plans; it requires action
and accountability for getting things done; it requires more predictable and
enforceable processes. Since August last year:
•
IPBC has opened its books to public
scrutiny and published plans for fixing public enterprises.
•
IPBC has reintroduced commercial
discipline and has already paid 77 million Kina in dividends to the State.
•
Amendments to the IPBC Act have been
passed to strengthen the governance of public enterprises.
•
IPBC has begun making inroads on Port
Moresby and Lae ports, our water and sewerage systems, and the national
telecommunications network.
The lesson is
clear: A capable team, with a clear plan and strong 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 K1 billion redevelopment of the Lae
port to underpin economic development in Morobe and the Highlands region;
•
A K2 billion expansion to the Yonki
hydro project to provide cheap and reliable power to Lae; and
•
A K500 million optic fibre and
microwave network to provide high speed internet services to businesses and the
public.
These projects
and associated reforms, if continued by the next government, will transform
port, power and telecommunication services.
Concluding remarks
I’ve talked extensively
about the government’s challenge of institutional reform and investing its
income wisely. The stakes could not be higher for the government to get this
right.
I’ve not talked about PNG
SDP, the focus of today’s meeting, yet obviously there are lessons that can be
shared between government and PNGSDP. And in concluding I would like to
highlight a few.
Firstly, the Sovereign
Wealth Fund that is being established is a new venture for government, but is
not Papua New Guinea’s first major fund for resource revenues. PNG SDP’s Long
Term Fund is a kind of quasi-Sovereign Wealth Fund. It provides lessons for government on how
careful investment and conservative management can protect funds, even though
events such as the global financial crisis.
Secondly, PNG SDP also
faces the challenge of translating incomes from its resource revenues into
infrastructure and services for the people of Western Province and PNG. As I’ve
discussed in the government context, this isn’t an easy task. Unfortunately,
government can be slow to experiment with new approaches.
And this is an area where
government and PNG SDP should be swapping notes more.
Thirdly, the scale of
development challenges in PNG means that government cannot possibly do
everything. One of the approaches that we are adopting at IPBC is to create
special purpose vehicles for major projects, such as Lae port redevelopment,
the National Transmission Network and the expansion to Yonki hydro, and to seek
private partners with the requisite financial and technical capacity to help us
develop them.
IPBC is already working
with PNG SDP, through Energy Development Limited, to assess the feasibility of the
Yonki hydro project, and looks forward to continued collaboration.
Transforming resource
wealth into better living standards is the biggest single challenge facing our
country. If we can set up the Sovereign Wealth Fund properly, keep sticky
fingers off the money and channel funds into the right public investments, then
the future is bright.
We need leaders,
organisations and the will to make this happen.
Thank you.
