Papua New Guinea plans infrastructure improvement and rural road rehabilitation to attract investors

Roads are critical for economic growth and inclusive development in Papua New Guinea. By providing access to employment, health and education services, roads stimulate economic activity and enhance competitiveness, while poor roads isolate communities and compromise national security. Road infrastructure is therefore considered to be both a key strategic asset and essential for the public good.

National Roads 

The total road network in PNG is estimated to be 30,000 km. The government’s Medium-Term Development Plan (MTDP) 2018-22 outlines the strategy to expand it and prioritises connecting remote rural areas. The MTDP envisions expanding the National Road Network (NRN) from 8738 km to 12,000 km by 2022. The NRN is crucial to the economy, carrying 89% of all passenger and freight traffic in the country, however, only 38% of the network is reported to be in good condition, with 31% in a poor state. Missing links totalling 4557 km have left the NRN fractured. The National Road Network Strategy (NRNS) includes plans to fix 1279 km of these missing links by 2022, with an estimated total construction cost for rehabilitating the entire length currently sitting at PGK5.5bn ($1.7bn) with annual expenditure of PGK245m-250m ($74.3m-75.8m). At the behest of donors, the NRNS has adopted a “maintenance first” policy in order to avoid spreading the budget too thin.

According to the government, every PGK1 ($0.30) spent on road maintenance per year saves PGK3 ($0.91) in future expenditure. Some 4217 km of priority roads have been identified for urgent maintenance work, categorised into core and non-core roads in order to prioritise the allocation of funds. Core roads make up a 2300-km stretch that includes the Ramu Highway. The government expects that turning the NRN into a good condition network would add PGK2.2bn ($667.3m) to the national income and create 120,000 jobs.

Provincial Roads 

PNG has over 21,000 km of provincial roads, managed mostly by regional or local authorities, with only 68% of the rural population living within 2 km of an all-season road. The Department of Works (DoW) estimates that 64% of these roads may be in poor condition, with nearly 75% of them becoming impassable at some point during the year. Funding for the improvement of these roads is jointly provided by the Provincial Support Investment Programme and the District Services Improvement Programme (DSIP). DSIP is the equivalent of a constituency development fund that is given to a member of parliament, but it has a higher value, at PGK10m ($3m) annually per member. The capacity of district development authorities to use it effectively, however, is limited. Given that the majority of the population lives in rural areas, the need to upgrade these roads is urgent. The DoW is consulting with provincial governments to develop a strategy proposal for the recovery and maintenance of such roads.

The DoW relies heavily on the government to fund road rehabilitation and construction, which is sourced first from annual budget appropriations and second from tax credits, donor funds and fuel levy. From 2012-17 the government made a record investment of PGK3.8bn ($1.2bn) in road maintenance and construction. Over the years, however, government appropriations to the DoW have been unpredictable. The actual amount released is often less than the approved budget, and delays in disbursement may mean that the DoW gets little time to use the allocated funds. In 2019 it is expected that the DoW will need an additional PGK146.7m ($44.5m) in funding to tide over its required maintenance expenditure of PGK887.2m ($269.1m).

Tax credit schemes could be another option. “These schemes, traditionally used in the mining sector, could help companies in remote areas build infrastructure,” Tony Honey, managing director at PNG Forest Products, told OBG. “At the moment, these schemes are barely being used, which is to no one’s advantage.”

Economic Corridor 

Roads take centre stage in the government’s long-term plan, and the rehabilitation of the national road is seen as a catalyst for development. The Development Strategic Plan (DSP) 2010-30 has envisaged the establishment of 10 economic corridors that straddle the national road network. The government has promised to provide efficient transport networks, reliable electricity, water, internet and sewerage along these corridors. The objective is to alleviate poverty and spur economic activity by linking the hinterland with key economic centres and ports.

The centrepiece of the DSP is improvement of the petroleum resource area economic corridor, which is located in the Southern Highlands and covers the Enga, Gulf and Central Provinces. With the $13bn Papua LNG project expected to significantly boost export values, this economic corridor holds promise. The government of former Prime Minister Peter O’Neill established the Border Development Authority, which is responsible for coordinating the development of the four border corridors. His government planned to introduce legislation establishing an economic corridor implementation authority for each of the remaining economic zones, but it is unclear where the government of his successor, Prime Minister James Marape, stands on this plan.

Assistance 

The government has sought to align development partners around key strategic road corridors. The World Bank is supporting the rehabilitation of the Madang-Ramu Highway, which links the town of Madang with the Lae Port. The PNG Resilient Transport Project will rehabilitate the highway link from the Highlands Highway to Madang, complementing the Sustainable Highlands Highway Investment Programme (SHHIP), funded by the Asian Development Bank (ADB).

As of June 2018 the World Bank had also assisted with the rehabilitation of 129.4 km of rural roads. Its engagement on this route aligns with the government‘s plans for the Enga Sepik economic corridor. The World Bank has also invested in the Hiritano Highway, connecting Port Moresby to Kerema. The country has also received assistance from a number of other international partners. Australia and Japan have continued to support road maintenance activities by providing technical and financial assistance, meanwhile, China has delivered large-scale road improvement works bidding for competitive tenders and contracts.

Highlands Highway 

Spanning 1200 km and passing through some of the most rugged terrain in the country, the Highlands highway stretches from Mendi to Lae. However, it is in poor condition, and thus the ADB is funding the single most ambitious road infrastructure project in PNG. The $16bn SHHIP project to rehabilitate and upgrade a two-lane, 430-km highway connecting Lae Nadzab Airport with Kagamuga Airport in Mount Hagen, as well as with 1800 km of local feeder roads. Once complete, it is expected to boost agri-business and open up the remote Highlands Region, which is home to 40% of the population. It is a flagship project, for which the ADB has committed $700m. The rest will be funded by the government and other partners. The financing gap for the SHHIP remains around $900m.

Feeder roads will need to be resistant to difficult climatic conditions. For example, the road from Kundiawa to Gembogl is a one-lane dirt track that winds along limestone cliffs and the Chimbu (Simbu) river.

According to local media, depending on the weather, the trip along a mere 29-km stretch of road can take up to three hours. At times it is only accessible by fourwheel-drive vehicles, says the report. Currently, under the SHHIP, a Chinese firm is constructing a two-lane sealed thoroughfare that will connect this section with the coastal town of Madang. Contractors who win tenders to construct such roads are also obliged to maintain it – typically for up to five to eight years after the actual completion of the job.

“These are long-term, performance-based contracts,” Gabriel Tomtai, director of roads and infrastructure at the DoW, told OBG. The standards of maintenance are spelled out in the contract packages, which may also include a 365-day maintenance guarantee, however, contracts are not always sufficient to get the job done. The condition of the entire 57-km stretch of the Chimbu section, for example, can be difficult. “It is prone to frequent landslide and flooding. There are also other crucial sections that would require unique design solutions,” Bashirullah Khpalwan, infrastructure specialist at ADB, told OBG. The DoW is discussing how to work this out with supervision consultancy firm Bonifacio and Renardet to provide the details design. The SHHIP is being carried out in three phases and is expected to conclude in or around 2027.

Risks 

The road expansion programme looks set to create a wealth of opportunities for foreign investors. However, these opportunities may come with technical, financial and even risks to reputations. The inaccessibility of the terrain means costs can sometimes be difficult to predetermine. Furthermore, the hands of the government can be tied by political pressure or budgetary constraints. Environmentalists and civil society could also start to campaign against construction of a number of these highways if they threaten to accelerate deforestation and natural resource extraction.

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The Report: Papua New Guinea 2019

Transport & Logistics chapter from The Report: Papua New Guinea 2019

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