Despite positive growth forecasts for Papua New Guinea from key lenders, the Asian Development Bank and World Bank, there are warnings that energy reforms are urgently needed to improve economic prospects. Business Advantage PNG takes a closer look at the numbers.

Port Moresby Town. Credit: BAI

Papua New Guinea’s economy will accelerate this year on the back of the Porgera gold mine reopening, but recent civil disorder and ongoing power disruptions could stunt further growth. That is the view of the Asian Development Bank’s latest Asian Development Outlook annual report and the World Bank’s 2024 Papua New Guinea Economic Update, both released in the past month.

Porgera resumed operations at the start of 2024 after almost four years of closure and is expected to reach full production in the third quarter of this year. The reopening came after New Porgera Limited, a joint venture between PNG stakeholders and Barrick Niugini Limited, was issued a new lease in October 2023.

“Persisting forex restrictions will cause delays and higher costs for businesses”

The ADB outlook says the Porgera reopening – along with increased output at the Ok Tedi copper-gold mine and Lihir gold mine in 2025 – will spur an increase in GDP growth from an estimated 2 per cent in 2023 to 3.3 per cent in 2024 and 4.6 per cent in 2025.

Meanwhile, the World Bank projects the economy will grow from its 2023 estimate of 2.7 per cent to 4.8 per cent in 2024 and 3.1 per cent in 2025.

Both banks expect inflation to increase in 2024 after a temporary drop last year. Inflation rose by 2.2 to 2.3 per cent in 2023, down from 5.3 per cent in 2022, mostly due to a one-off decrease in education costs after the government implemented a tuition fee subsidy. But the banks see inflation rising by 4 to 4.5  per cent in 2024 and 4.8 per cent in 2025 (see charts below).

Headwind warnings

Despite the upbeat growth forecasts, both banks warned that the civil unrest seen at the beginning of 2024 could have a prolonged impact on the economy.

Police and public sector employees went on strike over wages in Port Moresby on 10 January, leading to looting and public disorder which caused about US$310 million (K1.2 billion, or 1.2% of GDP) of damages in the ADB’s estimation.

The World Bank analysts, citing the Business Council of Papua New Guinea, said the loss to the economy was not only from physical losses of assets and property but also in forgone business revenue, which could lower tax collections and reduce the appetite to invest.

The ADB analysts, Marcel Schroder and Magdelyn Kuari of its PNG Resident Mission, also flagged the impact of foreign exchange restrictions and power disruptions on the economy.

"Energy reforms ... are urgently needed to improve power generation and promote economic growth"

“Persisting forex restrictions will cause delays and higher costs for businesses in rebuilding lost capacity, replenishing stocks, and expanding operations,” they said.

The analysts added that disruptions to power and water supply in the main urban centres - especially in Lae, the country’s manufacturing and logistics hub – will also affect business operations in key sectors.

“Businesses face frequent blackouts and power fluctuations, forcing them to rely on generators to maintain operations, escalating operational costs and affecting competitiveness,” they said.

Puma Energy’s decision to limit fuel supplies over forex issues in February and March also affected mobility across the country, they said.

Energy reforms needed

The ADB analysts argue that energy reforms in three key areas are urgently needed to improve power generation and promote economic growth.

The first reform would be the restoration of the financial sustainability of the power sector by adjusting tariffs and improving the utility’s operations.

“The regulator needs to establish a process and methodology for independent annual tariff adjustments, while considering the effects on poor and vulnerable households. PPL [state-owned PNG Power Limited] also needs to develop a comprehensive revenue strategy to reduce commercial losses and public sector payment arrears, and to connect more commercial customers,” they say.

Second would be a national transition plan to a low-carbon power sector, including guidelines to prioritise and fund power sector infrastructure.

“The government further needs to issue national regulations related to planning, implementation, and monitoring. This includes removing legal barriers and restrictions to renewable energy installations.”

Third would involve reforms to enable efficient private sector involvement in the power sector.

“This requires issuing regulations on the process of competitive bidding for IPP [Independent Power Producer] investment. Open, transparent, and competitive tenders with bankable power purchase agreements will attract private sector investment, while promoting technical efficiency and cost-competitiveness,” the ADB analysts said.