Roused by an adrenaline shot from the $19bn Papua New Guinea liquid natural gas (LNG) project that kicked the country’s construction sector into overdrive from 2009, the industry must now prove it has the staying power to sail smooth in the years after the boom, when the sector made up as much as one-fifth of real GDP.

So far, the state looks to be taking the lead in filling the spending gap. Its annual capital expenditures have increased sharply in the 2013 and 2014 budgets, and a host of big-ticket items are listed in the 2014 budget of PGK15.3bn ($6.2bn), which is 15.7% larger than the revised 2013 appropriation, according to the Treasury Department. These include PGK1.4bn ($577m) to construct and maintain roads and bridges, PGK375m ($152m) to finish facilities for the 2015 Pacific Games, PGK61m ($25m) for housing and land development, PGK222.8m ($91m) for university infrastructure, and PGK267.2m ($109m) for hospital redevelopments. Major transport outlays include PGK170m ($69m) for city roads in Port Moresby, PGK100m ($41m) for those in Lae, PGK40m ($16m) for town roads in Mt Hagen, PGK150m ($61m) for Highland Highway maintenance, and PGK30m ($12m) to expand the Jackson Airport.

Though the sector is expected to keep expanding, the heady days of the LNG project are now drawing to a close. This should yield less explosive but more sustainable growth going forward.

Sugar-Rush Years

Since 2007 high double-digit growth has been the norm. In consecutive years from 2008 to 2012, the construction sector posted real growth of 15%, 19.8%, 17.1%, 26% and 24%, according to the Treasury Department. The real value of construction projects in 2013 was estimated at PGK3.4bn ($1.4bn), up from the PGK3bn ($1.2bn) in 2012, PGK2.4bn ($984m) in 2011 and PGK1.83bn ($744m) in 2010. For 2014 budgetary reports project a contraction of 6.4%, to PGK3.15bn ($1.3bn), before the sector settles into a period of constant growth – just under 4% annually through 2017 – when it will reach a value of PGK3.5bn ($1.4bn) and make up 17.5% of real GDP.

Oil & Gas

The construction industry’s main engine for the past four years, the LNG project, is downshifting. Only follow-up work remains at the Hides oil and gas fields and on the new pipeline. Although there has been some promising forward motion on plans for two (maybe three) new export-scale natural gas projects, even the most developed of these is years from breaking ground. This means that 2014 will be a calmer year for energy-based building.

The only such project still undergoing significant work is the ongoing development of a mid-sized LNG project, focused initially on the Stanley gas field in PNG’s Western Province. Headed by Talisman Energy and Horizon Oil, the outfit could begin producing by 2015 and is proceeding with construction accordingly. Initial works are focused on building an oil terminal at the town of Kiunga along the Fly River, along with a supporting pipeline linking the terminal to the fields.

Another site could soon see major activity. The Totalled efforts to develop the Elk-Antelope petroleum plays into a second large-scale LNG project is still in the early stages, but initial exploration has shown promise and, once approved, the project is likely to result in another multi-billion-dollar investment. Front-end design contracts for a condensate stripping plant were signed by Japan’s Mitsui in 2010, and a host of other big building projects will eventually be required, including 120-km natural gas pipelines (both condensate and dry), storage tanks, an export terminal, office buildings and other support infrastructure.


The global slowdown in the mining sector has also affected PNG. Lower commodity prices and a shortage of capital have led Newcrest to downsize its Lihir gold mine, in the province of New Ireland, and prompted delays at the Wafi-Golpu, Frieda River and Yandera mines. Vale and Glencore Xstrata, two deep-pocketed mining multinationals, both dumped their PNG projects in 2013: the former firm pulled out of the porphyry copper-gold tenements in the Owen Stanley Ran, and the latter one sold its 80% stake in the Frieda River mine.


Led by increased state spending on infrastructure, sales in the construction industry in 2013 rose by 22.5% in the first quarter and by 43.8% in the second, according to the national bank. These rises were attributed primarily to wharf expansion projects in the ports of Alotau and Davieng, to upgrades and maintenance of the Highlands Highway and its feeder roads, and to road and building projects in the National Capital District (NCD). These latest increases contributed to annual sales growth from the end of June 2013 of 233.1%.

While infrastructure projects will continue to prop up sales of raw materials like cement and steel, sales of heavy equipment have begun to slow in 2014, as demand for the machines used in agricultural, energy and mining projects declines along with sector growth. The world’s two largest producers of such equipment, Caterpillar and Komatsu, are well represented in PNG and compete not only with each other but also with cheaper imports shipped in from China for work contracts awarded to Chinese companies. The slowdown in resource extraction has compounded the problems equipment providers are already suffering from rising import costs due to the weakening kina. The result is a tough year for these companies: sales are expected to drop by at least 10-15% in 2014.


Jobs in construction have been riding the coattails of resource investments for a decade. From a base of 100 in March 2002, the employment index for the industry bottomed out at 91.5 in Q4 2004, according to the central bank. Over the next few years, expansion at resource projects, as well as urban growth, saw the index rise to 167.4 in the first quarter of 2009, the first year of PNG LNG construction. As building ramped up both for that project and for spin-off businesses in Port Moresby and its environs, the index climbed from an average of 163.2 in 2008 to 173.7 in 2009 and 187.5 in 2010, before dipping to 172.1 in 2011 and rebounding to 188.18 in 2012. The 2013 figure, at 206.6, leads all employment categories in the country, higher than wholesale trade (205.1), manufacturing (200.5) and minerals (172.9), and well above the overall employment index of 172.9.

As PNG LNG construction works wind down, jobs growth has slowed but not yet declined, partly because increased state and private-sector outlays have offset those losses. Employment in the sector rose 3.3% in the year to September 2013, and tailed off in the next quarter to 2.9% year-on-year. Growth hit zero in the year to June 2014 following completion of road infrastructure projects in the Highland provinces and Vanimo on the northern coast, and a scaling-down of the AusAID project for educational infrastructure in the province of Morobe. According to the government’s Medium Term Development Plan 2011-15, another 51,300 construction jobs will be created in 2014 and 64,300 more in 2015, with much of the demand coming from increased state spending on infrastructure.


The population explosion that has occurred in the NCD in recent years as citizens migrate to the city is now creating a secondary construction spike as officials steer spending into infrastructure to keep up with the influx. While the private sector has been quick to capitalise on rising demand for housing – especially the high-end accommodations preferred by new expatriate workers and the rising middle class – public utilities and state agencies responsible for infrastructure development have been overwhelmed by the growing demand for services in Port Moresby. To meet the higher capacity required of transport, water, sewage and electricity, the government has launched a number of large construction projects. “2013 has been very big year for civil construction in NCD following the Exim Bank of China soft loan,” Mark Shepard, CEO of Hebou Constructions PNG, told OBG. “2014 will be much more modest, but there are still some interesting projects coming up that will help sustain the industry, like the Pacific Games in 2015.”


Contractors have been especially busy in Port Moresby. Over the past few years, myriad detours have rerouted traffic around various street construction projects across the NCD. Much of this activity is meant to put a fairer face on the city before visitors arrive in the thousands for events such as the 2015 Pacific Games and the 2018 APEC summit.

The government has put a large chunk of its 2014 budget towards expanding road capacity in the capital city. Starting with the PGK170m ($69m) earmarked for upgrading and maintaining existing roads, as well as building new ones, these outlays mark the beginning of a much larger PGK700m ($285m) expansion project to upgrade six primary roadways in the NCD over the next few years. Of this, the government is to fund PGK400m ($163m), the rest being covered by a soft loan from China’s Exim bank.

The first and third largest of these six tenders went to China Harbour Engineering Company (CHEC), owned by the Chinese state. The first is a PGK196m ($80m) contract to construct a 10.7-km four-lane highway from Gerehu to Hanuabada. The second, at PGK122m ($50m), is for an 8-km, four-lane road from Gerehu to 9 Mile. CHEC won out over a number of other bids despite being blacklisted by the World Bank until 2017 due to corruption charges (mostly stemming from bribery allegations) in Bangladesh, Jamaica and the Cayman Islands.

The second-largest contract, at PGK160m ($65m), was awarded to Hawkins PNG for the construction of Kookaburra Road, a four-lane highway linking Sir John Guise Drive to the Hubert Murray Highway. Tendered in August 2013 and the first PNG contract landed by the New Zealand-based firm, the project will include nearly 2.5 km of four-lane road, a 600-metre concrete flyover at the Erima Junction, roundabouts, drainage and associated streetscape. At its completion, scheduled for 2015, the new roadway should ease heavy congestion between Jacksons Airport and the commercial suburb of Waigani.

The remaining three tenders went to local firms. In April 2013 Global Construction, a contractor based in the Southern Highlands province, won the PGK85m ($35m) contract to complete phase two of the Gordons Industrial Road project. In June 2013 Dekenai Construction signed a PGK77m ($31m) deal to build a 4.3-km stretch of four-lane road (including a bridge) between Erima and 9 Mile. Also in June, Hebou Constructions was awarded a PGK57m ($23m) contract to carry out works on the Morea Tobo Road, including 3.5 km of rehabilitation, a four-lane stretch between mile six and mile seven, 4.7 km of two-lane strips for Saraga St and Kittyhawk St, and a slip road.


Port Moresby’s utilities are also expanding capacity to take on new demand. The largest such undertaking is the $135m Port Moresby Sewerage System Upgrading Project to revamp the city’s coastal sewage system, which is run by state-owned operator Eda Ranu. Partly funded by an $81.8m Japanese ODA loan (low-interest, in yen) from the Japan International Cooperation Agency (JICA), the project will also receive PGK47.8m ($19.4m) from the state in 2014, on top of the PGK51.6m ($21m) allocated in 2013 after ground broke in January. As a joint venture between the JICA and the Independent Public Business Corporation, which owns Eda Ranu, the project will construct a new trunk sewage line and branch lines; install new pump stations and refurbish existing ones; and build a new treatment plant, ocean outfall and sludge-drying bed. All of this is to be completed by the second quarter of 2018.

Efforts to expand the NCD’s fresh water supply are also under way. In 2013 Water PNG, the national water utility company, acquired rights to a significant water source that can serve as backup for the capital district. A project to bring that source on-stream in case of a shortage is now in the early planning stages.


The electricity industry is particularly well-primed for expansion. PNG has one of the region’s lowest electrification ratios, no national transmission network and relatively low power generation capacity, leaving much room for growth. The firm currently responsible for most power generation is state-owned PNG Power Limited (PPL); however, the National Electricity Industry Policy (NEIP), ratified in 2011, provides a roadmap to more private sector construction and operation of electricity projects though greater use of independent power producers. The aim is to hasten the building of new power plants across the country.

New demand is expected to be substantial. To keep pace, the country’s Strategic Development Plan 2010-30 calls for a near quadrupling of generation capacity from 500 MW currently to 1970 MW by 2030. In line with this, the government has therefore increased PPL’s annual budget almost ninefold, from PGK14m ($5.7m) in 2013 to PGK125.2m ($50.9m) in 2014, and expenditures are projected for at least PGK124.3m ($50.5m) a year for the next three years.

PPL is already upgrading a number of existing plants. One such project, the PGK75m ($30.5m) Yonki Toe of Dam hydropower plant, is set to boost the site’s output by 18 MW. Construction is being carried out by the Daiho Corporation of Japan, which in 2011 replaced the original, underperforming contractor selected in 2008. With civil construction works having wrapped up in early 2013, Daiho contractor Nippon Koei, and Andritz Hydro, a large Austrian hydropower firm, expect the installation of the final electrical and mechanical components to be finished in 2014. Andritz Hydro has also been contracted to refurbish the Ramu Power 1 station by upgrading installed capacity by one-third, from 45 MW to 60 MW. Work on the five generation units, begun in 2013, is scheduled for completion by September 2015, according to PPL.

Several new construction projects are also in the works. Most notable among them is the 80-MW Noaro Brown hydroelectric power plant, a PGK570m ($232m) PPL project that completed pre-feasibility in 2013 before moving on to the full feasibility stage in 2014. Another project, the 130-MW Ramu 2 power station, was likewise in the feasibility stage as of mid-2014.

One NEIP goal that looks further afield is that of eventually exporting power to Australia. To this end, the government intends to build an 1800-MW hydropower plant along the Purari River, which could be the largest infrastructure project the country has ever seen. Though the plan is still in the early phases of feasibility study, a joint venture between Origin and PNG Sustainable Development Program, called PNG Energy Developments, is looking into building the plant at Wabo, around 350 km north-west of Port Moresby. The power potential of this mega-project would be enough to supply the entire domestic market, with any excess electricity transferred and sold to Australia via 250-km lengths of undersea cable.

A number of grid reinforcements are also under way. These include the Port Moresby Grid Development project, the Ramu Transmission System Reinforcement Project (RTSRP) and various others at the provincial, district and local levels. The Port Moresby package, for its part, will total $83m and consists of six separate projects of new power lines, substations and power-station upgrades, for which PPL hired the German firm Fichtner in early 2014 to run the project, oversee procurement and select the contractors. Funding for these various projects will come from both the state and from donor loans and grants, including PGK12.6m ($5.1m) from New Zealand Aid in 2014, a PGK28m ($11.4m) concessional loan from Japan and ongoing funding from the Asian Development Bank (ADB). Government outlays for PPL in the 2014 budget include PGK75.8m ($30.8m) for the PNG Town Electricity Investment Project (TEIP), PGK28m ($11.4m) for the RTSRP and PGK12.6m ($5.1m) for other electricity development.

The biggest of these, the TEIP, is a multi-year scheme by the PPL, totalling PGK150m ($61m) and co-funded by the ADB. In two stages, the project will construct six run-of-the-river hydropower plants and transmission systems to connect provincial centres to generation sources. Funding in 2014 amounts to PGK75.8m ($30.8m), including PGK49.8m ($20.2m) from the ADB.


The flurry of investment in recent years has led the private sector to channel much of its excess onshore liquidity into property development. The result has been a boom in commercial, retail and residential projects within NCD. While construction of new urban projects is much slower in 2014 than in years past due to the volume of new stock hitting the market, a number of large-scale developments are pressing on.

In the residential sector, the finishing touches are being put on stage two of the Windward Apartments complex at Ela Beach, a development of 13 storeys and 40 units. Work is also ongoing at the 69-unit Avara Apartments Complex and Square following completion of the Avara Office Annex in 2013. A third development, the Seaview International Garden project, will bring to the market another 76 apartments, 36 duplexes, four townhouses and four villas.

To accommodate the country’s growing business interests, an assortment of new office space is going up. Steamship’s new 18,864-sq-metre Harbourside Office Complex – the first Green Star rated building of its kind in PNG – was about 75% complete as of April 2014, with tenants expected to be able to move in by early 2015. Construction on the 10-storey OPH Commercial Tower, on the waterfront in the central business district, is scheduled for completion in 2014.

One ambitious development, the 7-ha mixed-use JW Park City, could completely transform the city’s Erima district, located between Jacksons Airport and Waigani. With its self-contained services, manifold amenities, retail and entertainment centre, leisure facilities, hotel, villas, apartments and office buildings, the complex would be the first of its kind in PNG.

Some municipal buildings are also being revamped. The 12-storey Marea Haus, also known as the “pineapple building”, began renovations in August 2013 on the edifice that houses the Department of the Prime Minister and the National Executive Committee. LNA Constructions, a local outfit, is executing both this PGK75m ($30.5m) project and another PGK23m ($9.3m) contract to renovate the National Parliament building. In July 2013, a further deal was signed with China Railways Construction Engineering, a Chinese state-owned company, to build a new NCD Commission headquarters in Port Moresby. This new five-storey city hall, which is being built adjacent to the current one at a cost of PGK53m ($21.5m), is to be completed by mid-2015.

Heavy Industry

As construction on many resource projects winds down, a different subsector of large-scale building – heavy industry – could help fill the void by exploiting the downstream applications of these natural resources. Current industrial expansion is centred on the Pacific Marine Industrial Zone in the Madang province, which is adding new fish canning facilities and related support infrastructure. The Ravuvu Business Park in Fairfax Harbour, which has been used extensively by ExxonMobil over the years, acts as a warehousing, logistics and staging area.

The country’s first true heavy industrial area could soon open in the form of the long-discussed Konebada Petroleum Park, on a large plot next to the PNG LNG plant. The notion of building a petrochemical industry using domestic natural gas as feedstock, first floated at the inception of the LNG project in 2006, has since stalled, as the entire production run of gas is already parcelled out to long-term export contracts. But with new gas prospects likely to be exploited in coming years, interest has been rekindled by a $1bn proposal by Mitsubishi Gas Chemical Co (MGCC) and Itochu Corporation to build and operate an industrial chemical plant at the site, producing methanol and dimethyl ether. As of May 2014, no formal agreements have been announced confirming the venture, though the government’s 2014 budget did include a PGK5m ($2m) allocation to the Konebada Petroleum Park Authority.

Sports Venues

The Pacific Games, set to kick off in July 2015, will be hosted by PNG for the second time, attracting some 4000 athletes from 22 nations in 28 sports. The showcase event will come on the 40th anniversary of the country’s independence, and will serve as something of a trial run for the hosting of the APEC summit to be held in Port Moresby in 2018. As the capital city prepares to be drawn into the international spotlight, the government is rolling out a number of improvements to ensure that the impression it sends to the world is positive.

Preparations for the games are projected to cost PGK760m ($309m), 92% of this going to infrastructure, primarily in the Waigani and Boroko neighbourhoods. Among the biggest of these projects is the PGK106m ($43m) refurbishment of Sir John Guise Stadium, which will increase its capacity from 900 to 15,000, along with construction of an athletics track, indoor sports centre and playing fields, and a resurfacing of existing surfaces. A second key venue will be the PGK200m ($81.3m) Taurama Aquatic and Indoor Complex, which involves demolishing its precursor facility and building 25- and 50-metre swimming pools, as well as offices, a gymnasium and indoor volleyball and basketball courts. Other projects include the PGK200m ($81.3m) Games Village at the University of PNG campus, the Hubert Murray stadium being built by CB Builders, renovation of the 25,000-seat PRL stadium, the PGK50m ($20.3m) rebuilding of the Rita Flynn Courts, and a golf course. In all, construction works for the games are spread over 16 sites near the NCD, each of which will need supporting transport and utilities infrastructure.

It is doubtful, however, that all of this will be completed in time for the opening ceremony. Although the tenders for these projects were issued starting in 2013 and work was under way at all sites by mid-2014, Emma Waiwai, the chairperson of the organising committee, said in an April 2014 radio interview that, while the Taurama complex was on track, it was unlikely that all 10 blocks of the new Athletes Village would be completed in time for the commencement of the games.

Public vs Private Contracts

International contractors operating in PNG generally fall into one of two categories. Public works projects – especially for large-scale infrastructure – have been mostly awarded to Chinese construction companies, who typically undercut the bids of their local and Western counterparts. Big Western firms, conversely, have had more success winning tenders from large private corporate clients, such as ExxonMobil with the PNG LNG project: Australia-based Leighton Contractors, for instance, has built a number of projects for ExxonMobil, including their headquarters. For smaller local companies, this tendency requires them to either increase specialisation in niche competencies, or become subcontractors for parts of the larger projects awarded to international players.

As 2014 sees a shift towards more public spending in construction, large Chinese companies, which already have a significant international presence, are snapping up an increasing share of the construction business. This trend will be further reinforced by a PGK6bn ($2.4bn) loan to PNG approved in 2013 (though not yet final as of May 2014) from China’s Exim Bank, which has historically tied loans for infrastructure implicitly to the tendering of construction works to Chinese companies. Although such firms are often able to bid lower than foreign rivals on projects, ostensibly saving money for the state, there is concern in the industry that safety, quality control and local employment ( companies often ship in their own workforce) all suffer under this system. Another worry is the danger of circumventing legal tendering processes.

Aided by these factors, Chinese companies have gained a strong foothold in PNG, with more than 20 of them now active in the country. The most prominent of these are among the world’s largest construction firms – state-owned enterprises such as China Railways Construction Corporation, China Railway Construction Engineering, CHEC, Chinese Overseas Engineering Group Company, China Shenyang International, and China Jiangxi Corporation for International Economic and Technical Cooperation. Many of these companies have advantages not only of scale and low margins, but also of access to cheaper labour and materials sourced from China. They have therefore been very successful in recent years at outbidding their competitors for some the largest infrastructure projects in the country. These include: a $285m project to build Phase I of the Tide Terminal project in Lae, the $95m Pacific Marine Industrial Zone, the $19.2m International Convention Centre in Port Moresby, the OPH Tower in Port Moresby, and numerous road projects.


With work on the PNG LNG project all but finished, and developments in mining and private-sector building also curtailed, the construction sector is heading towards a slowdown. Some of this deceleration is being offset by a substantial surge in government outlays for infrastructure starting in 2014, as the country prepares to host international events in 2015 and 2018. In the medium to long term, however, the sector should once again benefit from multi-billion dollar mega-projects in resource extraction, kicking off yet another wave of spin-off investment and building.