Kumul Structure | The Managing Entity of Papua New Guinea

Minister for Public Enterprise and State Investment, Hon. Ben Micah, MP, has addressed the standing performance of Papua New Guinea’s State Owned Enterprises (SOEs) yesterday during the Mining and Petroleum Conference in Port Moresby.

He also brought to light prospects the PNG government has in place to boost the performance of the SOEs.

Here are eight points summing up Micah’s address:

1. SOE’s Contribution to 2015 GDP

Given the drop in commodity prices, the performance of SOEs has improved greatly, considering past outcomes.

Under the watch of Minister Micah, cumulative asset value of all SOEs vested within the General Business Trust managed by the Independent Public Business Corporation (IPBC) has expanded significantly from K5 Billion in 2012 to over K20 Billion presently.

Reports have shown the increased contribution of SOEs towards PNG’s Gross Domestic Product have risen from 12 per cent in 2012 to 42 per cent in 2013, to over 50 per cent in 2014; and is anticipated to have contributed over 60 per cent this year.

This is an improvement that Micah has applauded.

2. Reform for SOEs

In line with the government’s refurbishment of several operations taking place within the country, a reform of SOEs is another agenda raised by Micah.

The focal point of this approach is to address the “failing state” of our SOEs and bring in needed reform and change to improve our SOEs to become the drivers of economic development and wealth creation for Papua New Guinea.

 “…the big picture is to reform our state companies to be commercially orientated and manage with corporate efficiency and with business focus…”

3. Establishment of New Companies

Micah announced Kumul Consolidated Holdings (formerly IPBC) as the new company that is to chart the way forward to reform our SOEs.

A new and independent entity to ensure business and resource taxation regimes are consistent, and that SOEs delivering utilities, will lift their performance, and lift it considerably.

Another legislation passed by parliament is the renaming of the National Petroleum Company (NPCP) to Kumul Petroleum, and the establishment of Kumul Mining.

These companies will be internationally competitive. The new Kumul Consolidated Holding company will venture into business on its own initiative or in partnership with private interests.

4. SOE Policy Document

After 40 years of operating State Corporations, the PNG government has passed a new legislation policy on State Ownership and Participation in Business. This is the first of its kind and will be tabled in the next parliament sitting. The policy, according to Micah, defines the government’s intent in a coherent defensible framework to move forward with clarity, particularly in the mining and petroleum developments.

5. Reasons For State Participation In Business

Of course the idea of the government taking an interest in business seems unruly to most men and women.

What guarantee is there that services will not be held paramount to the development of the nation?

The State owns 13 SOEs and several investments. Prior to 2012, their combined total fixed asset in the economy excluding NPCP and DataCo, is around 15 per cent but they contribute only 1.9 per cent to the GDP. This indicates that SOEs hold fixed asset that are “under-utilised and landlocked”.

Shareholder returns were moderate. Average return on equity is around 10 per cent and return on assets is 7 per cent; comparatively lower then expectable, further indicating the lack of asset employment undertaken by the management.

With performance records barely meeting the expected outcomes, principally pertaining to untenable corporate governance arrangements and inconsistencies in the IPBC Act 2002, the government has introduced the Kumul Legislations as an avenue to address these deficiencies.

This being said, the participation of the state in business, as stated by Micah, will prove favourable in boosting the economy through the SOEs active engagement.

6. Considerations for SOE Improvement

With reference to the previous performance of the SOEs, the expectations for all state-owned companies are in essence; service delivery and profit generation.

Other considerations highlighted by Micah are:

  • Maximise shareholder values
  • Improve operational efficiencies
  • Improve customer focus
  • Improve corporate governance
  • Restructure ownership
  • Attract and retain qualified management
  • Improve community service obligations
  • State’s active participation in the extractive industries
  • Improve transparency in financial disclosures
  • Rehabilitate SOEs through recapitalization
  • Expected rate of return
  • Dividend policy
  • Environmental stewardship
  • Health and safety at workplace
  • Ethics and compliance
  • Combating corruption
  • Anti-Discrimination Policy
  • Research, Development and Competence building

 7. Kumul Management Control System (KMCS)

Ensuring proficiency, efficiency and quality output from the government, set to take effect through the companies proposed, requires monitoring and evaluation systems in place.

Micah brought to light an effective Management and Control System that is to be adopted by these newly formed companies; this is the Kumul Management and Control System.

The KMCS will be based on the following:

  • Decentralisation of management
  • Segregation of duties and responsibilities
  • Documentation
  • Supervision and Review
  • Timeliness
  • Relevance to risk
  • Minimum inter-dependence of controls

8. The Way Forward

Partnership between state business and the private sector to enhance business and increase the revenue base of the country is the favourable way forward for PNG.

It has been a long time coming, however, Prime Minister, Peter O’Neill, has instructed to make effective as early next year, mandatory for private sector companies to engage and partner with Landowner companies in all aspects of business. Landowners will be given the opportunity to form equal business partnerships with major projects around the country. 

Related Article:

10 Things You Need To Know From PNG Prime Minister’s Keynote Address At 2015 PNG Mining Conference

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