Close collaboration underpins PNG port reforms

Motukea
Motukea International Terminal (MITL) operation in Port Moresby
SPICTL
South Pacific International Container Terminal (SPICTL) operation in Lae

PNG has stepped into the world of modern port operations with a collaborative approach of involving local landowners as shareholders in two new terminal operating companies, Iain Macintyre reports.

Significant infrastructure upgrades complemented by the engagement of global terminal operator, International Container Terminal Services (ICTSI), are expected to deliver an efficient and prosperous future for the two largest ports in Papua New Guinea (PNG).

Through a K$1 billion investment from the Government of PNG, the Port Moresby operation was fully relocated across the bay to the newly-built Motukea Port International Facility during 2018. A K350 million investment to expand Lae Port, which includes the greater Lae Tidal Basin project and Huon Industrial Park development, is also due to be completed later this year.

Complemented by other significant transport infrastructure upgrades in the country, the two facilities are now “on par with the best ports in the region in terms of size and efficiency”, according to state-owned PNG Ports Corporation.

Seeking to “maximise the value to the nation of the investment,” PNG Ports signed 25-year terminal operating agreements with subsidiaries of global terminal operator, Philippines-based ICTSI, in late 2017 – South Pacific International Container Terminal (SPICTL) in Lae and Motukea International Terminal (MITL) in Port Moresby.

The public-private partnership sees PNG Ports responsible for the provision of infrastructure at the two ports, with the ICTSI subsidiaries providing cranes, berth and yard equipment as well as having responsibility for operational, management and development functions.

With this new arrangement having recently completed its first full year of operations in PNG, ICTSI South Pacific chief executive Anil Singh speaks positively about progress.

“We hope to extrapolate historical data to map mutually beneficial business and commercial plans,” he told Port Strategy, before adding, “These may indeed guide the PNG
Ports Corporation’s strategic plans for further efficiencies and improvement, and we are pleased that we can continue to those discussions for the future.”

He also remains positive about the relationship that has developed between both parties since the arrangement commenced. “We at ICTSI South Pacific are confident of the
Government of PNG’s commitment to the transport and infrastructure sector.”

In fact, Mr Singh describes the partnership and operational arrangement, which commenced after the infrastructure developments had advanced at the two ports, as both “typical”
and “unique”.

“This is a typically own, operate and transfer model that is prevalent globally. The ICTSI group also works with other concession models. For PNG, the ports were previously owned and operated by the Government though the PNG Harbours Board (later corporatised to PNG Ports Corporation). The latest step, putting in place concession arrangements, has given ICTSI South Pacific the opportunity to modernise the port operation though adopting international best practises,” he says.

The arrangement is already delivering significant efficiency improvements. At the time of the official opening of Motukea Port in June last year, it can be noted that the 25,483-GT
containership, mv Siangtan, was turned around in just 12 hours by SPICTL in Lae, compared to the “usual time” of two days.

Mr Singh is, rightly, very proud of this achievement. “Yes, it is very impressive when you think about efficiencies in terms of a day-and a-half saved from what was a standard 48-hour vessel discharge time."

He also believes that this level of operations is what the facility is looking to achieve regularly, with the help of ongoing investment. “We attribute this to our investment in modern
equipment, working closely with a key government agency like PNG Customs so our terminal operating systems (their ASYCUSA and our N4) are in sync, and our investment in human capital,” he stated, before adding further comments on the success of the relationship, to date.

“Many of our young men and women have never worked before, nor attained a decent level of education. But our commitment to their growth and their commitment to financial
independence has been a winning combination.”

Mr Singh says ICTSI South Pacific is continuing to invest in its operations at the two ports, specifying that “Acquiring state-of-the-art machinery, upgrading our digital platforms and training our human resource will ensure that we are ready for the growth forecasted for PNG by economists and the commercial and development banks.”

Although describing PNG as having similarities to other emerging markets in which ICTSI has experience, such as the Democratic Republic of the Congo and Mexico, he says PNG is the “most unique” and explains further.

“It is the most heterogeneous country in the world, where the people are deeply connected to their land. As such, it was important to engage with, and include, the indigenous people from the impacted communities to participate as requested in the Terms of Agreement (TOA) between PNG Ports Corporation and ICTSI South Pacific.

“A provision in the TOA calls for the involvement of local landowners by giving the impacted communities 30% equity as a loan repaid through dividends. In other words, a carry equity, allowing the impacted community to be involved as partners.

“For our MITL in Port Moresby, these are the indigenous people of Tatana and Baruni villages and for SPICTL in Lae, they are the indigenous people of Aahi and Labu villages. Our operations [share] a unique business model which is guided by the environment, social and governance criteria.”

Nonetheless, despite the progress already made and the positivity that has been generated, Mr Singh acknowledges that, “as with everything new”, there have been a “fair share of teething problems”.

“It was a well thought through partnership. Though a delicate balance, we each appreciate that our success hinges on our ability to looking out for each other. PNG really does draw its strength from its many cultures and languages.”

Looking ahead, Mr Singh says the Government’s decision to privatise this port infrastructure will take the country to “new heights in port development” and he thinks similar processes may occur moving forward.

“The model has been successful and might encourage the Government of PNG to consider privatising other smaller ports in the country. Modernisation, utilisation and optimisation are necessary to keep abreast of the world’s larger ports. In the fullness of time, we expect SPICTL/MITL to reach the level of modernisation status of Philippines, Singapore and the United Kingdom.”

He further understands the benefits that need to be derived, especially from a state perspective. “The Government’s investment in infrastructure is with the desire to unlock development potential. They appreciate that infrastructure is key to economic growth. But a return on their investment is equally important and that is why we are here.”

Singh concludes that he believes a port can only become a “true national asset” when each achieves efficiencies in its operating procedures.

“A sustained improvement in container moves per hour, reduced berth utilisation and optimising the deployment of equipment – and harnessing the will of a trained human capital
– is the pendulum shift an emerging economy like PNG needs. We at ICTSI globally and indeed in PNG are committed to achieving this.”


Port system upgrade to boost economy

At the official opening of the Port Moresby Motukea Port International Facility in June last year, PNG Ports Corporation chairperson, Sir Nathaniel Poya, said the new terminal
alongside the expanding Lae Port would improve the nation’s productivity and stimulate economic activity.

“The improved efficiencies will bring down the prices of key imported commodities,” he stated. “It is a fact that about 80%-90% of the items in the basket of commodities in the Consumer Price Index are shipped through the sea ports. These improved port efficiencies have the potential to significantly benefit exporters and importers using the Motukea and Lae terminals.”

Independent economic modelling has predicted productivity improvements in the terminal operations will increase real GDP growth for PNG by 0.1% (K199.8 million) this year, increasing to 0.62% by 2023 and reaching 2.69% (K3.88 billion) by 2027.

As an island nation, PNG’s economic growth and prosperity is highly dependent on the efficient flow of goods through its wharves – Lae Port and Port Moresby handling about 40% and 20%, respectively, of the country’s total trade.

“This growth performance is impressive and driven by improvements in the export competitiveness of exporters arising from their reduced operational costs, states Mr Poya.

He confirmed: “The productivity enhancements will also have downward pressure on the market prices of goods and services. As a result, consumers will benefit from lower final costs for imports that are shipped through the international terminals, given that there will be improvements in port productivity levels as well as ship and truck turnaround times."

He concludes, “Cost reductions in the transport of imports should be available to be passed on to the end consumers through the logistics chain.”

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