Forestry and timber company PNG Forest Products is expanding its diversification program as it prepares to build a fourth hydro power station. CEO Tony Honey tells Business Advantage PNG that its plan to build timber bridges and decking for export and domestic clients is also starting to get traction.

PNGFP’s intake dam. Credit: PNGFP

PNG Forest Products already operates three hydro power stations with a combined installed capacity of 14.9 MW at Baiune, 20 minutes from Bulolo, 110 km from Lae.

They supply energy for all the company’s production, commercial and residential power requirements, as well as to PNG Power’s Ramu grid and to Wau.

A fourth power station, with 11.4 MW capacity, is planned to be up and running by late 2019. The source of power is to be the Baiune River.

‘Long-term we’re looking to develop our power division—more so,’ CEO Tony Honey tells Business Advantage PNG.

‘It’s a good business to be in. Our fourth station will supply power solely to the Ramu grid.

‘Management thinkers call it ‘vertical integration’, which simply means that we control most, if not every, stage of the process.’

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‘PNG has a lack of capacity and there’s going to be another gold mine developed in the next two-to-three years [Wafi-Golpu], which will require probably the total amount of power supplied to the grid at present. So, there’s opportunity for us,’ he explains.

PNG Forest Product’s Tony Honey

The feasibility study for the station has been carried out by engineering company SMEC. The total cost of the project is estimated to be about K140 million.

Vertical integration

‘The development of our hydro power scheme also reflects the way many businesses operate in PNG,’ says Honey. ‘Management thinkers call it ‘vertical integration’, which simply means that we control most, if not every, stage of the process.

‘The trend in many Western countries is to sub-contract stages of development, but that doesn’t guarantee quality. And quality is the secret to running a successful business.

‘PNGFP’s core business remains adding value to forestry and timber products.’

New products

New products underway from the company include local housing, and modular engineered wood product bridges and decking, which are for either export or domestic use.

Honey says the NiuBridge System is a comprehensive Engineered Wood Product bridge building system that is a cost-effective solution for refurbishment of existing structures, as well as new bridge construction.

‘We’re also actively involved with the government’s Affordable Housing scheme.’

Clients include both private and government customers in PNG, Australia and New Zealand.

Housing

Honey says the company is looking to generate more momentum.

‘There are two or three housing programs which we’re involved in; however, our main focus is on the Gerehu project, situated alongside the newly opened Gerehu-to-9 Mile highway. This development has the opportunity to provide up to 1700 houses at affordable prices for the people of Port Moresby.

‘Because foreign exchange is difficult to access, exports are important.’

‘It’s now an important part of our business. Traditionally, the majority of our business has been with the mining sector and agriculture—more commercial work rather than residential style buildings. We’ve moved into residential through necessity.

‘One of the issues we all struggle with here in PNG, as a domestic producer of housing, is competition from kitset imports from China. They’re very hard to compete with.’

Exports

PNGFP’s exports of plywood to Australia have been better this year than in 2016, says Honey. ‘It’s an area that is strengthening.’

Because foreign exchange is currently difficult to access, exports are important. It allows the company to fund the purchase of imports such as glue, bandsaws and steel.

‘Because we have a foreign exchange account, we are not adversely affected like others. Most large, long-term exporters would have those; we have a lot more flexibility in covering those costs.’

PNGFP employs 1300 people. Its timber is sourced from sustainable pine plantations in the Bulolo and Wau area, which are managed by the PNG Forest Authority. Harvesting is carried out by PNGFP.

The plantations were established in the 1950s and cover an area of approximately 10,000 hectares. The company intends to establish its own plantation in the next few years to increase the area by a further 5000 hectares.