Article Review: Privatisation in Papua New Guinea – where at and where to?

 This article is concerned with the idea, practice, advantages, disadvantages, and lessons that privatization has brought to PNG since its introduction. It thoroughly discusses why privatization was introduced and how it affected the economic landscape of government businesses and the public interest. However, its main focus is on the process involved in privatization. Also, it focuses on where it has led us and where it may lead us, depending on how it is managed. Essentially, this article is an overall analysis of how privatization has operated in PNG.

This paper was written by Research Specialist Matthew Devlin, who is currently engaged with Innovations for Successful Societies (ISS). Devlin holds a bachelor’s degree in history from Yale University.  Before engaging with ISS and specializing in historical works and government history, he was engaged with the Council on Foreign Relations, where he initiated and led the coordination of the council’s Religion and Foreign Policy initiative. Before joining the Council on Foreign Relations, Devlin engaged with other non-government organizations and wrote widely about corruption, colonial governments, and their effects, as well as about general political ideologies. At present, he is pursuing a degree at Harvard’s Kennedy School of Government and simultaneously pursuing a law degree at the Yale School of Law.

This article is an analysis of privatization in PNG. Manning (2000) defines privatization as the process of legally transferring assets and business functions from the public to the private sector. More simply, it is when shares (all or some) of state businesses are sold to private businesses and individuals. This paper weighs out all the possibilities that may arise as a result. In doing so, it presents useful examples of how other counties have encountered and managed privatization.

Oftentimes, corporatization is misunderstood with privatization. However, corporatization refers to the structure and function of the management levels of a business. This means that once a state-owned enterprise (SOE) is privatized, it now operates for the sole purpose of profit generation, its directors are recruited based on merit, and the government will have little to no involvement in its internal affairs—this is corporatization.

Privatization was introduced to PNG in the 1900s. Before this, the government provided basic social needs and services such as roads, power, water, postal, and telephone services through its SOEs at subsidized prices that every citizen could afford. However, this was considered ineffective for several reasons. First, these SOEs faced profit-generation issues because, in addition to production costs, the government subsidizes prices. Through its business arm, the government also wanted to achieve developmental goals, but this conflicted with its economic goals of profit generation. Additionally, if SOEs incurred too much debt, the government would be responsible. The Garamut (2011) reported that in 2002, Air Niugini was unable to pay its long-overdue debt to the Bank South Pacific, and thus the state guaranteed a settlement. Second, politicians constantly influence business agendas for their personal benefits. And third, the appointment of directors is coerced. And a reflection of this is ineffective management and low economic performance. As a result, upon consultation with international expert Michael Trebilcock, privatization was recommended as a solution. The notion entered policy debates and was successful when PNG Shipping Lines, the first SOE to be privatized, was sold to Steamships in the mid-1980s. The two reasons the government used to push forward the idea were to generate profit in order to settle existing debt. And it considered that the continuation of state ownership was an ineffective way of delivering services. All of which naturally led to arguments for and against privatization.

The most central debate is how the introduction of privatization will affect the people of PNG. And whether factors such as prices, quality of service, and employment levels will be affected as ownership changes. Other arguments concerned the process of privatization and how transparent it should be. In a 2012 report, the Asian Development Bank revealed that accountability and transparency were major problems that SOEs in PNG continuously faced. Hence, there are concerns about corrupt practices that will allow public assets to be sold cheaply to certain individuals who could create monopolies in that sector.

All of these have led the government into a state of dilemma. The government has acknowledged privatization as a solution to its problems. However, now it has to impose a policy that will ensure several things before selling SOEs to private hands. First, SOEs should be bought at profitable price ranges. Second, ensure that service accessibility and quality, prices, and employment levels remain the same. Third, establish a transparent system of selling asset shares so that every citizen and interested individual can take part in the process. From these, the following conclusions were reached: A privatization Commission would oversee the transfer process to ensure accountability and transparency. Further, the government would ensure that private businesses pledge to uphold some form of social obligation to the people so that the mentioned concerns are met.

Although the topic concerned is broad, this article was written in a concise way that captured all the main ideas that one needs in order to understand the introduction of privatization in PNG. The use of simple English indicates the writer’s targeted audience, which is the PNG populace. Manning had spent many years in PNG’s public sector and has a wealth of knowledge and experience in the economic sphere of PNG, all of which makes his research and findings much more influential. In this article, Manning can be referred to as the people’s representative between the government and private business entities.

Manning does not necessarily present any arguments of his own; rather, he evaluates the existing conditions in PNG under which privatization was introduced and had been operating. He takes his typical and admirable stance as a corruption fighter and evaluates all areas concerning the public interest. My main concern is the lack of transparency regarding the transfer of ownership from the public to the private. And the direct effects that the public may face as a result. Manning’s analysis paints a grand picture for all to see because he writes from an ordinary citizen’s point of view.

I think Manning has done a great favor for the people of PNG. By highlighting these areas without bias or influence, the people are informed and also aware of the entire process of privatization. Also, this article is provocative in the sense that it urges the reader to think and pose new questions, especially about the existing conditions of privatization and SOEs in PNG.

Moreover, when connecting Manning’s 22-year-old thesis to present events, many great improvements have occurred, especially with policy formulation in regards to the management of SOEs and profit generation. For instance, the establishment of the Independent Public Business Corporation (IPBC), which manages the portfolio of SOEs, In a review of the SOE Benchmarking Report by the ADB in 2012, Darcy (2012) highlighted that for the first time in a decade, the government is undertaking a grand reform of SOEs, and steps taken to achieve this include the first ever publication of accounts and IPBC annual plans, the first ever preparation of SOE annual plans, and an amendment of the IPBC Act to strengthen accountability.

All in all, comparing Manning’s concerns to the most recent improvements by the government, some of his concerns have been addressed, but there is still more to be done. Particularly because PNG is politically driven, a new government means new policies and new management for most SOEs.

 

Reference

Asian Development Bank (2012). Finding Balance: Benchmarking the Performance of State-         Owned Enterprises in Papua New Guinea. https://www.adb.org/sites/default/files/publication/29988/finding-balance-benchmarking-performance.pdf

Darcy, L. (2012, September 27). Benchmarking the Performance of State-Owned Enterprises in PNG. [Blog Post]. Development Policy Blog. https://devpolicy.org/benchmarking-the-performance-of-state-owned-enterprises-in-png-20120927/

The Garamut. (2011, April 9). Air Niugini’s Ambiguous Ticket Prices and Taxes.             https://garamut.wordpress.com/2011/04/09/air-niuginis-ambiguous-ticket-prices-taxes/

Manning, M. (2000). Privatisation in Papua New Guinea – where at and where to? Pacific            Economic Bulletin, 15 (2), 91-105. Retrieved March 11, 2022, from  https://devpolicy.org/PEB/2019/05/29/privatisation-in-papua-new-guinea-where-at-       and-where-to/

PNG farewells corruption fighter. (2008, August 26). Sydney Morning Herald.             https://www.smh.com.au/world/png-farewells-corruption-fighter-20080826-42tz.html