With the PNG LNG project moving from its construction phase into production, a downturn in Papua New Guinea’s building and construction sector is underway, softened somewhat by the national government’s injection of infrastructure spending. But there’s still plenty of work to be done, as Business Advantage PNG reports.

An artist’s impression of Steamships’ new Harbour Office, currently under construction in Port Moresby. Credit: Kramer Ausenco

At the height of the construction phase of the ExxonMobil-led PNG LNG project in 2012, the construction sector contributed 16% of PNG’s GDP. But with the completion of the project, the building and construction industry sector expected to fall by 8% in 2014, according to PNG Treasury estimates.

Quiet in mining and petroleum

Kramer Ausenco’s Frank Kramer

‘The one disappointing area is the inactivity in the mineral space. It’s of concern to everyone here,’ says Frank Kramer, CEO of Kramer Ausenco, one of the largest engineering and project management firms in the South Pacific region with around 120 staff based in Australia, Solomon Islands, Vanuatu, Fiji, Samoa and Tonga, as well as PNG.

‘The PNG LNG project is now about 95-to-100% complete … the only tail end of construction that’s of any relevance at all is the land-based pipeline near the Hides area.

‘The minerals sector is also quiet. Newcrest’s Lihir gold project in the New Ireland province has downsized and the Wafi-Golpu in Morobe Province timeline has been pushed back there, so there’s a very scarce level of activity in the construction or engineering space.’

Housing and public sector works

In the absence of work in the resources area, PNG’s building and construction companies are looking elsewhere.

‘The only sectors driving the economy would be the housing sector, which is sporadic because of funding and land tenure issues, and public sector works, which is coming through since the new budget,’ Brett McDonald, President of Red Sea Housing’s Australasian Division, tells Business Advantage PNG. The Saudi-based company has been heavily involved in the construction of the Australian-government funded Manus Island Detention Centre, receiving A$35 million (K79.2 million) contract.

‘I still think there’s plenty of work out there,’ says Dominic Avenell, Managing Director of Avenell Engineering Systems (AES), a construction business with its origins in the rebuilding of Rabaul following the 1994 volcanic eruptions. ‘We tend to spread ourselves out. We go looking for contracts and I think having our sort of experience gives us an advantage.’

A science block under construction at Pacific Adventist University. Credit: AES

AES has recently completed construction of the much-needed tuberculosis ward at Daru General Hospital, residential dormitories at Port Moresby Technical College and new buildings for the Pacific Adventist University in Port Moresby— three Australian Aid-funded projects.

Meanwhile, Frank Kramer, Chief Executive Officer of engineering firm Kramer Ausenco, reports a ‘very good year in terms of overall revenue. Our bottom line has been well and truly over budget’.

‘There is now much more construction capacity in PNG. This is good, but we must always ensure there is significant national content in the industry.’

The firm has a number of major projects just finished or about to finish in early 2014, including Stage Two of the Windward Apartments complex at Ela Beach, while the new harbourside office building for Steamships is 70% complete.

Among its new projects are the new K250 million (US$98 million) 300-bed Enga Hospital, expected to start in the second half of the year; the K85 million (US$33 million) refurbishment of Marea House in Waigani, a K100 million (US$39 million) complex for the Western Highlands Development Corporation in Mt Hagen and several hundred million kina’s worth of roads and bridges for the Ok Tedi Development Foundation.

‘I think construction activity will be quiet for the better part of this year and we can expect to see some level of activity starting to ramp up again in 2015,’ says Kramer.

Despite his ‘quiet’ year, he estimates he has already secured about 85% of budgeted revenue for 2014.

Red Sea Housing’s Brett McDonald

PNG’s construction companies also work across the region. As well as working on the new K90 million Treasury Building in Port Moresby, Lamana Development Ltd is currently building the new K18.5 million PNG Chancellery in the Solomon Islands and has hotel projects in Samoa and Fiji. The latter, the Grand Pacific Hotel in Suva, is expected to open in the first half of this year.

Increased infrastructure spending

In 2014, the National Government will inject K2.7 billion (US$1.06 billion) of spending into infrastructure such as roads, ports, and power and water treatment facilities. Major transport projects include a four-lane highway connecting PNG’s industrial hub Lae to its airport at Nadzab, the Highlands Highway, funding of the expansion of Lae’s port and the K30 million upgrade of Port Moresby’s Jacksons International Airport.

One example of this government infrastructural spending is in Milne Bay Province, where the provincial and national governments are spending K30 million (US$11.78 million) on buildings, roads and bridges, education, health, communication and housing infrastructure. One of the main building projects is the two-storey Milne Bay provincial administration office complex, to replace the one gutted by an electrical fire in 2010.

The government has also allocated K180 million (A$78 million) for infrastructure and other requirements to host the 2015 Pacific Games. This includes the construction of facilities including refurbishment and construction of stadia in Port Moresby.

Increased competition

Many international companies who worked on the construction phase of the LNG project have stayed.

‘The cost of doing business, the cost of services, has gone down. Now there are more people capable of getting the job done,’ observes Dominic Avenell.

Frank Kramer agrees, and sees it as a big plus for PNG:

‘Quite a lot of them are looking around for more work. There is now much more construction capacity in PNG. This is good, but we must always ensure there is significant national content in the industry.’

One international company looking to extend its work in PNG is the China Railway Company, which will commence work on the construction of the Waigani Convention Centre by the end of this month.

In the longer term, the sector is also waiting eagerly for the InterOil/Total SA LNG project to explore and develop the Elk and Antelope fields in Gulf Province. Kramer expects it will be another three or four years before ‘serious construction on the Elk-Antelope fields begins’.