Commercial banks call for collaboration, communication and an awareness of risk if they are to help finance what could be an infrastructure boom in Papua New Guinea.

ANZ’s Mark Baker. Credit: BAI

With Australia seemingly ready to press start on its Australian Infrastructure Finance Facility to support PNG’s National Electricity Roll-out Plan, a new national road network strategy, and the government mooting a series of special economic zones, infrastructure investment is a hot topic in Papua New Guinea.

If all the country’s infrastructure needs are to be met, however, it will require significantly more funding than the PNG Government has available, which means private capital will be required. The Asian Development Bank estimates the Pacific needs US$3.1 billion (K10.5 billion) a year of infrastructure funding.

Speaking at Pacific Welkam, an Australian Government-supported Pacific infrastructure investment seminar held in Sydney last week, Mark Baker, CEO of ANZ in PNG and President of the Australia–Papua New Guinea Business Council, said said it was ‘clear that no one institution will be able to deal with this alone; it requires a collaborative approach’.

‘Corruption does remain a substantial burden and the government’s efforts to eradicate are increasingly important.’

But Baker warned that a government cannot simply outsource all of its nation-building needs.

‘Governments can sometimes view the involvement of the private sector as a way to transfer all risks to a third party but the government will always retain some risk,’ he said. ‘Thus, government should not seek to transfer as much risk as possible but to allocate risk to those best able to manage it.’

The ANZ CEO argued that commercial banks have a key role to play in infrastructure investment not only because they have an inherent understanding of the critical success factors but also of the dangers.

The challenges ahead

‘Corruption does remain a substantial burden and the government’s efforts to eradicate it are increasingly important,’ Baker said. His comments came as PNG’s Parliament passed a new law protecting whistle blowers and a bill was tabled to set up an Independent Commission Against Corruption.

But of a bigger concern to the commercial banks is PNG’s current foreign exchange situation.

‘Sharing information with respect to the pipeline deals that are currently under consideration would be a great start.’

‘In most cases the core funding [for infrastructure] is in US dollars or other international currency, whilst the underlying cashflow servicing the debt is in local currency,’ Baker said. ‘With the volatility of some of the thinly-traded currencies we have around the Pacific, this means we are exposed to significant foreign exchange risk.’

Bank South Pacific’s Robin Fleming. Credit: BAI

Robin Fleming, CEO of Bank South Pacific, echoed Baker’s forex concerns, saying that ‘with an absence of currency hedging in PNG, understanding and managing your currency movements are critical considerations in contract negotiations’.

He also called for clearer communication, information sharing and prioritisation when it comes to the current queue of planned infrastructure projects.

‘There does need to be real discipline to form a priority list. Again, this is to ensure that the finite resources that are available to structure and to execute these transactions are directed to the projects assessed as having the greatest impacts.’