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NZ trade mission aims to boost infrastructure projects in PNG

Esso Highlands Limited

Esso Highlands Limited, operator of the PNG LNG Project, has opened the door to greater infrastructure development in Papua New Guinea. Image: LNGWorldNews.com

Poor infrastructure, poverty and taxation laws present significant challenges to New Zealand investors in Papua New Guinea. But a trade mission is this week looking at positive new opportunities, reports Greg Asciutto.

Pacific Scoop:
Report – By Greg Asciutto

New Zealand is poised to join Papua New Guinea’s development surge with a batch of new infrastructure projects, if a new trade delegation takes advantage of new opportunities.

A group of 30 New Zealand representatives with public and private-sector interests yesterday began a week-long mission to Papua New Guinea.

For the fifth time in the past two years, the NZ  Papua New Guinea Business Council has organised a mission that reflects the growing economic relationship between the Pacific nations.

APJlogo72_iconThis delegation – a joint venture between the NZPNG Business Council, the Ministry of Foreign Affairs and Trade and New Zealand Trade and Enterprise – will largely focus on infrastructure development.

“The challenge that PNG has is that its infrastructure is poor,” says Michael Greenslade, Pacific Trade Commissioner for NZTE.

According to Greenslade, PNG is developing around its natural assets of gold, oil and natural gas, but the country’s lack of roads and electricity have slowed extraction processes.

Michael Greenslade

Michael Greenslade, NZ’s Pacific Trade Commissioner … “poor infrastructure” in PNG. Image: NZGovt

“The opportunity for New Zealand companies is to not only assist in the exploitation of those three natural resources, but also to build the infrastructure that is necessary for that exploitation,” he says.

Last month, the Post-Courier reported that the PNG National Executive Council approved plans for six large road development projects around Port Moresby.

New Zealand-based Hawkins PNG Ltd was awarded a contract to develop one of the projects, the Kookaburra Flyover.

According to business development manager Seth Pardoe, Hawkins’ sole representative on the trade delegation, the project consists of designing and constructing a 2.2km, four-lane road with a 600m flyover.

“We have not undertaken any work previously in PNG, but have watched the region develop with interest for some time,” he says.

LNG project
The success of Exxon Mobil’s PNG Liquefied Natural Gas project is largely responsible for the growing interests of international developers looking to work in the country.

With an initial-phase investment of US$19 billion (NZ$23 billion) and an estimated total production of more than nine trillion cubic feet of gas, the project is stimulating growth in a range of economic sectors.

“The professional classes are growing in Port Moresby, the need for housing is growing in Port Moresby, the need for first-class hotels is growing, as is the need for better and more up-to-date supermarkets,” says Greenslade.

Impending royalties from Exxon Mobil in 2014 and concrete plans for two additional LNG projects have given the PNG government a significant amount of freedom to invest in such infrastructure, he says.

Additionally, PNG’s plan to host two major international events — the 2015 South Pacific Games and 2018 Asia Pacific Economic Cooperation summit — provides New Zealand businesses with major opportunities to secure development contracts.

“You’ve got the opportunities around supply of water, the processing of waste water, and you’ve also got opportunities around the development of an energy grid,” he says.

Poverty challenges
Though economic relations between the nations are improving, significant hurdles remain for investors in the country of seven million people.

“Widespread law and order problems pose a threat to locals, constrain investment and inhibit the growth of the private sector,” says Barbara Williams, director of the Ministry of Foreign Affairs and Trade’s Pacific Development Division.

Pervasive poverty and an overall lack of education have created a number of social and health problems that will provide significant setbacks to development, she adds.

“PNG has the highest rate of HIV prevalence in the Pacific, which carries serious implications for society and could reverse development achievements made in recent years,” says Williams.

“Gender inequality and violence restrict the ability of women to participate in economic, social and political life and is a contributing factor to many development challenges in PNG.”

Currently, New Zealand sends roughly NZ$35 million annually to PNG as part of its NZAid programme.

While much of the funding is used to address these issues, Williams says future projects will focus on economic stimulation.

“We’re slowly shifting our focus from health toward commercial agricultural activity and geothermal energy,” she says.

Tax complications
Taxation laws for international trade also complicate investment for New Zealand companies in PNG.

According to the NZ Statistics Office, New Zealand exports to PNG totaled more than NZ$17 million in February 2013, the last period from which data is available.

Fiji, with a population nearly 10 times less than that of PNG, took in $28.5 million that month — French Polynesia received $14 million with a population of only 270,000.

These low export numbers to PNG from New Zealand, says Greenslade, reflect the lack of a working double taxation agreement between the nations.

“The Australians have such an agreement, and that means that the Australians have a significant advantage over New Zealand companies,” he says.

Many large New Zealand corporations have been set up in PNG as Australian companies to benefit from the arrangement, he said.

“We’ve offered the view that PNG is New Zealand’s biggest market currently in the Pacific, yet that’s not reflected by the specific trade statistics.”

A double taxation agreement between New Zealand and PNG has been signed by both governments, but is awaiting formal implementation in PNG.

High priced
Exports from PNG to New Zealand totaled only $800,000 in February and just over $14 million in 2012.

Frances Hartnell, project coordinator of True Pacific, says one of the biggest challenges facing PNG exporters is the high price of transporting goods across the Pacific.

“The whole of the Pacific has the same problem – it’s the cost of freight to market,” she says.

True Pacific, a project of the Pacific Cooperation Foundation, assists regional companies in the food, beverage and spa industries with quality management and product marketing in New Zealand.

“We’re trying to raise the perception that the Pacific isn’t only white sands and a place to go and stay at a resort,” Hartnell says.

“There are people in these countries that actually grow produce and provide value-added products.”

PNG companies Banz Kofi, Goroka Coffee Roasters and South Pacific Brewery Limited are among those working with True Pacific.

According to Hartnell, the interest for Pacific-grown goods exists in New Zealand, but the exportation presents significant complications to market success.

“We export quite a lot of products to the Pacific, but not so many come back the other way,” she adds.

Greg Asciutto is an exchange student from the University of Southern California on the Asia-Pacific Journalism course at AUT University.

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