Port Moresby Chamber of Commerce and Industry PO Box 1764, Port Moresby 6th Floor, Monian Tower, Douglas St. Port Moresby Ph: +675 3213077 or +675 3213254 Fax: +675 321 3251 Email: pomcci@global.net.pg

Welcome  to the October edition of our monthly newlsetter . It will as usual be posted on the  website, but if you are unable to receive it in this format or would just like a hard copy  for sentimental reasons please contact the Secretariat  and a copy  will be sent out.

POMCCI were represented  at the PNGCCI Quarterly Mtg in Madang by Fabian Chow and a wide range range of issues were discussed, but focused on infrastructure, Elcom and Telikom services. A new constitution has yet to be ratified as we try to resolve the issue of "individual" members. Our Secretary Ray Clark has offered to review  the document and reach a solution on this long-standing issue. Our thanks to Ray for his time in this matter.

The website  continues to go from strength to strength with over  3000 hits last month from countries around the world. I encourage all members to participate in the online surveys so we can have some firm figures when we argue a case on behalf of our members. lst months survey on  the issues of price control  showed 79% did not agree with extension of price control in our market place . This month's survey will attempt to find out just how  our members are faring in these difficult times. Please cooperate, all information is kept strictly confidential .

The burning issue this month has been price control  and the matter came to a head with businesses being asked for K20-30,000 security bonds to ensure they stayed within bounds of price control . We are ably represented on a Steering Committee which meets regularly with the Price Controller by Danny George from Steamships. A recent survey done showed quite clearly that large supermarkets were often charging well below levels allowed by price control while many smaller outlets were consistently in breach of the rules. POMCCI maintain that the best method of price control is competition in the market  place. Good  news  at the PNG 2000 Economic Update jointly hosted by NCDS from ANU and INA . A remarkable turnaround  within 12 months and this has clearly not gone un-noticed by World Bank and IMF with release of news that the second tranche of funds will be available soon.

POMCCI has been  represented this month in discussion with Cairns Chamber of Commerce to establish reciprocal rights and this was agreed this week . Executives have also been involved in the PNG/Qld Business Council meetings, discussions with SGS on customs issues, meeting with Motor Traders on  new emission control  devices and the matter of the 406   reconditioned vehicles which have been  on board a vessel in the harbour for over 5 weeks now. Also in early November, we will facilitate discussions with  representatives from EBAS in Europe. And do not forget our monthly luncheons, last month we heard from Sir Anthony Siaguru on privatisation and this month from Elcom . Please support these functions .

David A. Conn , MBE  (President 2000-2001)

A gathering of Experts attended a Technical Session on Road Safety held at the Port Moresby Chamber office on Thursday 27th July.  The Technical Session formed an integral part of the First National Road Safety Forum.  (The first day of the conference was Wednesday, with the full day for the public and other institutions to have an opportunity to hear and contribute to the issues.)  The second day consisted of a Technical Session at the Chamber office.

The session was designed to approach the issue at more depth and formatted as a smaller specialized meeting to allow more benefit for the experts attending.  It was attended exclusively by persons working full-time on issues of Road Safety.  Private companies were responsible for the presentations.

The first presentation was given by Shell Oil PNG Ltd. Robert Leo and Lausi Kaipu gave a talk, and gave out several papers and indicated some posters being published in the near future.  It was extremely professional with clear goals and measurements.  A detailed two-year timetable of implementation of goals was given.

Currently, Papua New Guinea ranks last in the Shell group worldwide.  PNG has the worst record of accidents per kilometer traveled.  Part of this is due to the rugged terrain and bad condition of the Highlands Highway.  There is a lot of room of improvment for tanker drivers in PNG.  It wont happen just by complaining about the Highlands Highway and other factors.  Shell Oil is tackling the problem full-on and has been unrolling a very detailed strategy to reducing this.

At the end of this timetable you can be sure that Shell Oil would have the most professional set of safe drivers within PNG.  The seriousness and commitment of the Shell organization is to be congratulated.

The second presentation was given by Ok Tedi Mining Ltd (OTML).  Their approach in ensuring safe driving practices was top class.  They also interacted and sent drivers to the driving course for professionals run by Port Moresby Rotary Club.

The work of Florian Dati, Daniel Walter and Andrew Wanya at the Ok Tedi Mine Site including visiting the whole length of the route used by company drivers, mapping out danger spots, recommending correction spots and rest stops along the way.

The work at Ok Tedi was quite advanced and was already showing results.  Accidents per kilometer traveled had dropped significantly by the beginning of 2000.  It had taken about three years of high level commitment for very positive results to be showing.

The results show that Ok Tedi's expenditures on Road Safety education on its drivers is going to save the company a lot more than twice its up-front investment.

All participants left very well satisfied with the Technical Session.  A free exchange of experiences proved extremely valuable to develop ideas and strategies on this work.  The presenters also learned a lot from the others.  All left with a greater appreciation and enthusiasm for the unfinished job on the road ahead.

Thanks go to AUSAID for its sponsorship.

The mail at Boroko Post Office was moving speedily.  All postal boxes had been cleared and the mail sorted.  Only small piles of current incoming mail were present.  The staff were clean, neat and working at their posts.  Especially surprising no one was on smoko or coffee break.  That was the situation discovered at Boroko Post Office last June 1st.

Post PNG had obviously put in a lot of effort to ensure that everything was ready and shipshape for the Port Moresby Chamber of Commerce and Industry.  No wonder the mail was moving well in the second half of May going into June.  Some business persons independently questioned afterwards acknowledged that mail was being received quickly within Port Moresby at that time.

Representing the POM Chamber were David Conn, Joe Kaiyo, Ray Clark, Fabian Chow and Heni Goro.  We were greeted by Mr Peter Yaki, managing director of Post PNG and the staff.

The inspection tour covered the Boroko Post Office from top to bottom.  There was no evidence of any backlog of mail for Boroko or any of the other Port Moresby Post Offices.  Any reputed existence of such backlog had been cleared without the hiring of any extra staff in time for the inspection.  We do note that Post PNG did have four weeks advance notice of the visit.

The basic facilities needed supplementing with some simple technology standard in other countries.  Automatic electronic scales and franking machines, of which there were two, were obsolete and had broken down beyond economic repair.  Due to economic constraints some sort of supplementary funds will have to be found in the medium term to enable this upgrading of the service.  Possibly some donor could be found if a proper proposal was prepared by Post PNG.

Better division of duties and rostering of staff had improved staff productivity over the last twelve months.  The Chamber hopes that the improvements and speedy service seen on June first will continue.

Some complaints about the method of raising postal box fees was delivered to the management.  It was noted that once a subscription and Post PNG was obliged to honour it.  Businesses which refused to pay the increased fee before their annual renewal were perfectly within their rights.  Post PNG were strongly advised to respect this.

Another concern raised was about the speed of delivery of mail to other centres in PNG especially the low priority surface mail.  It was felt that budgetary difficulties could be affecting the service quite severely.  This matter was being looked into.  (Less expensive payouts of managing directors has to be one of the first fiscal changes to be introduced.  Recent payouts had been grossly exhorbitant by general PNG standards.)

An exchange of experiences and possible service delivery options were talked over with the senior management.  Besides the Managing Director Peter Yaki, several of the managers were present including Casper Banian, customer services manager, and Mr Martin Gil.

Reforms were in the system.  A possible follow-up to check on progress was an option given to the POM Chamber.

Addressing business needs and infrastructure developments means constant liaision with city authorities to ensure that infrastructure developments keep up to Port Moresby's growth.  A joint POM chamber and NCDC tour on 18th August 2000 was organised to check on current progress of some developments.

The POM Chamber was represented by the President Mr David Conn, Executive committee Members Mr Fabian Chow and Joe Kaiyo and Acting Executive Manager Mr John Kamblijambi.  They met the NCDC Acting City Manager Mr Bernard Kipit and his Deputy Mr Nick Kuman.

The inspection tour commenced at the Acting City Manager's Office at the City Hall.  Following a short briefing about NCDC policies and actions the party visited the following project sites:-

Wards & Cameron Road Upgrade - this project commenced in May 2000 and is expected to be completed in December 2001.  The project undertaken by a company - Global Construction costs about K24.60 million.

Malaoro Market Korobosea - the market set up inspected was found to be relatively clean.  Mr Bernard Kipit advised the Members of the Chamber that the market will be improved by building overhead shelters, the cost to be met by TST Trading Company, which operates the adjoining supermarket.

Boroko East Shopping Centre - the next stop was the Boroko East Shopping Centre.  The Acting City Manager and his deputy informed the delegation that plans are advanced and under consideration to set up a mini market next to the shopping centre which would provide easy accessibility and services to east Boroko community.

Gabaka Street Reconstruction - an industrial area, quite a lot of business houses operate in and around Gabaka Street and this project commenced in May 2000 and is expected to be completed in May 2001.  The contract was awarded to Hebou Construction and is expected to cost about K11.80 million.  Once completed the business activities around the area should increase with better accessibility.

Kennedy Road - this project will link the Poreporena freeway with the National Parliament, Government Department Offices and Foreign Mission establishments.  Hebou Construction was awarded the contract at the cost of K6.50 million, it commenced in August 1999 and is expected to be completed in October 2000.  Following complaints and concerns from the local business establishments the members of the Chamber were concerned that businesses along the side of the road may be affected if pavements and driveways are not attended to and completed, properly.  The City Manager gave the undertaking that concerns expressed are noted and complete jobs will be done.

Gordons Market - the next visit was to the six week old newly reopened Gordons Market where the party held media interviews with "City Hall" TV programs.  The inspection of the market showed that excellent work had been done by the NCDC, the market being very clean and this was shown by comments made by buyers and seller of local food and vegetables.  This was later shown on the Saturday night programme on August 19th.

Gordons drainage works behind Boroko Motors to Niuford to Gordons High School.  Adequacy of drainage works were discussed during the inspection and aspect of construction and design were noted.  Drainage works are now receiving more attention that they have receieved in the past.  Chamber representatives stressed previous experiences of flooding in Port Moresby roads due to insufficient drainage.

The President on behalf of the Port Moresby Chamber of Commerce and Industry delegation thanked the Acting City Manager, Deputy Administrator and staff for spending their time to show us around the City.  The Acting City Manager, Mr Bernard Kipit also extended his appreciation to the POMCCI delegation for their time and hope that both the Port Moresby business community and NCDC will work together in the future to see the development and progress of Port Moresby city go forward.

The Acting City Manager, Mr Bernard Kipit also extended his appreciation to the POMCCI delegation for their time and hope that both the Port Moresby business community and NCDC will work together in the future to see the development and progress of Port Moresby city go forward.

The period January - September 2000 has been extremely disappointing in terms of economic performance.  Interest rates have been high for most of this period but has been creeping down.

There has been one disappointment after another as the expected recovery for 2000 has not kicked in.  Some regional factors such as depressed coffee prices and copra prices have had a role to play.

During September one Rabaul businessman expressed the view "it'll be depressed conditions for another twelve months".  That view represents the more pessimistic side of the spectrum.

Government studies and reports about this period will need to target why disposable income has dropped.  No single factor can account for the general downturn so far for 2000.  No major business doubts the strength of the downturn.

Available figures from the Harbours Board show that the volume of incoming cargo has dropped 30%, which is a fair indication of the general trend of business.  Reports from several food producers confirm that even basic commodities have felt the impact.

At this time the Harbours Board has been able to cover revenue shortfall by increasing its charges.  They have declared that it should affect prices only by 2.5%.  The problem is that it isn't the only increase in costs.  The Price Controller just has not complained at the massive hikes in fees from semi-government institutions.  Perhaps inefficiency has become a justification to increase prices.

The efficiency of the Private sector has seen stability in prices since the stabilisation of the kina this year.  This is quite creditable as businesses have had to absorb several shocks.  Add up a few 1% or "only2.5%" imposts along with high interest rates and low turnovers and its remarkable how much the business community has had to absorb.

With privatisation on the way there will definitely be an improvement in the business environment.  The current situation is an enormous drag on the economy that operates as a hidden "QUANGO tax"  (QUANGO = Quasi-autonomous government organisation).  The 'QUANGO tax" is worse than an excise or other tax as nothing is spent productively as it is disappearing into institutional inefficeincy.  If the full impact was understood lots of the public would be upset to see how much kinas it was taking out of their fortnight pay.

Executive Members.

Members and Guests of the Port Moresby Chamber of Commerce and Industry.

I hope you are not too disappointed because you did not get your first choice of speaker today.  Nor did you get Joe Tauvasa, your second choice.

I am here in place of Ben Micah who asked me to stand in for hime and the Privatization Commission.

Before the speech, I have two declarations of interests to make.

I have an interest in the Port Moresby Stock Exchange which stands to benefit both directly and indirectly from the privatization process.

Equally, I have an interest in promoting the transparency of the privatization process.

The Chamber requested a speech about privatizing a specific entity.  I do not propose to provide one.  Instead, I shall talk on the Privatization Policy in general and cover some key implementation issues.

I shall be brief.

You will all have heard that privatization is a major part of the Government's economic reform programme.  The Privatization Commission has the job to develop and implement the Government's privatization policy.

Privatization Policy

The objectives of the privatization policy are to:

(i)  maximize sale proceeds;
(ii) improve economic eficiency;
(iii) develop national capital markets; and
(iv) involve PNG citizens.

With respect to the first two objectives, it is important to recognise the need to achieve the right balance between the maximization of sale proceeds on the one hand and the achievement of economic efficiency on the other hand.

Maximization of sale proceeds on its own does not make much sense if it means the creation of an unregulated private monopoly.  This is where the pursuit of economic efficiency is important; for example through introducing competition where practicable and through the design and implementation of an effective regulatory framework.

The development of capital markets is seen as an important prerequisite for general economic development.  Capital market development will be pursued in the privatization to programme by developing arrangements which make it easier for PNG citizens to invest in the SOEs that are privatized.

To ensure that opportunities to invest in privatized enterprises are widely available to PNG citizens, consideration is being given to the creation of a listed unit trust.  The unit trust would hold a portion of each of the public enterprises that are sold.

The unit trust would entitle every PNG citizen to own shares in the trust on a discount basis.  This would facilitate wide-spread local ownership in PNG companies and wide-spread sharing of the financial benefits by PNG citizens from the Privatization programme.

PNG has a number of public enterprises which have experienced governance and performance problems.  The privatization of enterprises will reduce governance problems and improve performance.

This will be achieved by a better delineation of the role of government, by reducing the involvement of government in business activities and by harnessing the profit incentives of the private sector with respect to commercial activities.

Privatization is an important policy because it addresses two key weaknesses associated with public enterprises.

The first weakness is that under public ownership there are multiple, poorly defined and at times, conflicting objectives.  The resultant conflicts and accountability problems inevitably mean poor performance with respect to the multiplicity of objectives which sometimes all too clearly clash with each other.

The second weakness is that public enterprises are vulnerable to government intervention for political reasons.

Provided privatization is accompanies by the introduction of effective competition and/or effective regulation the weaknesses of public involvement in business activities will be eliminated.  Improved incentives and effective competition will in turn be the source of improved performance.

Improvement in economic performance of major financial institutions, utilities and infrastructure will improve the competitiveness of other industries and the economic generally.

This will naturally benefit all PNG citizens by enhancing income and job prospects.

However, the realisation of benefits on a widespread basis can take time and while such general benefits are being generated there will inevitably be some costs and adjustment pressures.

It is well recognised by the Government and the Privatization Commission that major public enterprises fulfil important social and community service functions.

It is therefore, government policy to ensure that community service obligations will be effectively addressed in the privatization process.

In this respect privatization will provide an opportunity for developing and implementing a better approach to specifying and delivering community service obligations.

In the past, Community service obligations have been neither well defined nor effectively delivered.

The Government has established a separate Central Agencies Working Group to develop a framework for community service obligation policy.

The Working Group could end up recommending that community service obligations be an integral condition in the contract of sale or arranged through separate competitive tenders to provide from the Government budget.

Ove the long term, privatization should lead to economic growth and increased employment opportunities.  However, in the short term, there is likely to be redundancy for some employees.

This issue has to be addressed with great sensitivity.

The individual position and prospects of all employees effected have to be carefully assessed.

Appropriate arrangements for training and re-deployment have to be made.
Fair and timely redundancy payments may have to be made.

Programmes should be developed to give employees preferential rights to purchase shares in privatized enterprises.

As noted, the Privatization Commission has been established to develop privatization policy and oversee its implementation.

An International Advisory Group, consisting of international experts, has been established to provide independent technical advice.

A Central Agencies Working Group has been established to develop eht regulatory framework for monopoly enterprises and the policy for community service obligations.  This Working Group consists of staff from the Departments of Finance and Treasury, National Planning and Monitoring and Trade and Industry.

The Commission will be contracting out most of the technical advice required to prepare and implement in the privatization programme.  In other words, it will be "privatizing the privatization process" ........ an appropriate philosophy in the circumstances.

In-house staff will be kept to the minimum needed to be able to contract and supervise technical work and to undertake administrative tasks.

A team has already been selected through a competitive process to prepare for a trade sale of a majority interest in the Finance Pacific Group.  The present plan is to implement the trade sale in the first quarter of 2001.

This means developing the best options for a sale strategy with respect to the structure and functions of the Group and arrangements for ensuring appropriate regional branch services continue to be delivered.

Some 12 - 18 months after the trade sale the remainder of the Finance Pacific Group will be publicly floated.

The public offer will be designed to achieve widespread PNG national participation including specifically, employee participation.

A terms of reference has also been prepared for strategic and project management assistance for Air Niugini.  Advertisements have very recently been placed in local and international newspapers.

The immediate tasks will be to identify and evaluate suitable options for a trade sale with an appropriate management agreement arrangement with an experienced privately owned airline.

Yesterday, the Commission started advertising for tenders for "period contracts" to provide accounting and financial services and separately, legal services on a range of issues.

Such contracts will run for a fixed period, say 2 years with a 1 year option.

Winners are to be selected on assessments which combine both the technical expertise and the daily rates charged.  These period contracts will only apply for work below a certain threshold.

Under a period of contract, firms or individuals will be selected for specific tasks from the data base of those who have a period contract.

A terms of reference would be specified, the time required for the task would be negotiated and work would be undertaken at the rates specified in the winning tenders.

Once a period contract has been awarded there would be no need to seek several quotes for work under a predetermined threshold as an effective competitive process would ahve already been followed to determine competitive rates.

The Commission is aware of the need to effectively communicate the privatization programme to a range of stakeholders.  To this end it is preparing an information paper on privatization policy and implementation issues that is will circulate and promote widely.

This paper should be available in about a month.  Once the paper is prepared an appropriate communications strategy will be devised and implemented.

The Commission is open to suggestions from the business community on key issues it would like canvassed and addressed in the implementation of Privatization and feedback on its communication efforts.

The Commission looks forward to the support of the business community in implementing this important and difficult policy.

Thank you.
19 September 2000

Monday 02 Oct. 2000
Major Currencies
USD
The USD has fallen against the EUR as continued speculation about joint G7 intervention has seen the EUR, hold predominantly about USD0 8800.  The USD gained against the JPY pushing back over JPY108.
This week sees the Fed meet on October 3 and no policy change is expected by the market.  Other key data releases include September NAPM and September non-farm payrolls
Expected Range this week: JPY 106.50 to 109.50  EUR 0.8600 to 0.9000

AUD
AUD BRACES FOR RBA TIGHTENING
The AUD initially suffered on the back of a weaker Euro, but managed to claw back some loses as commodity prices improved with gold gaining USD4/oz in one trading session.    The AUD weakened early on Friday with the euro, maintaining its recent correlation with the single currency unit after Denmark voted against adopting the currency.  The AUD fell to a low of USD0.5386 before finding its way back over USD0.54 cents.
Westpac are of a strong view that RBA will raise cash rates by 25 bps on October 4.  This will push cash rates back to the US level of 6.5% and eliminate an ongoing negative for the Australian dollar against the USD.
In addition to the RBA meeting this week, we see Retail Sales figures and Building Approvals released on October 3 which are both expected to show a reversal of last months declines.
Expected range this week:   USD0.5300 to 0.5600

Papua New Guinea Kina
NO NEWS ON IMF FUNDING
Month end import pressure contributed to the kina's recent decline as evidenced by the increase in interbank market trades and total market turnover.
The kina was down 50 points at one stage of the week before Interbank activity and Central Bank buying helped the0.3620.
Market sentiment now questioning whether the Government has met the criteria needed to receive the second
kina close off its lows, at USD0.3620.
Market sentiment now questioning whether the Government has met the criteria needed to receive the second tranche of IMF funding.  This uncertainty will keep the exporters out of the forward market until fresh lows are achieved.  Mining sector quarterly tax instalments should add some support to the kina this week.  However, the downside is likely to be tested towards the middle of the week unless positive news on IMF funding is received; or BPNG step in and support the kina from falling below USD0.3600.

On the crosses the PGK is up against the AUD, NZD and JPY, but down slightly against the EUR.
T-Bill rates continue to ease slightly with the 90-day term coming under 15% and 180 day term falling under 14%.

Expected range this week: USD0.3550 to 0.3700
PGK/AUD0.6400 TO 0.6750

Markets Summary (Week ended 29/09/00)
Major Currencies

 High Low Latest

AUD/USD 0.5494 0.5447 0.5433
USD/JPY   107.76   107.26   108.13
NZD/USD  0.4158   0.4114   0.4086
GBP/USD  1.4630   1.4544   1.4766
EUR/USD  0.8831   0.8740   0.8840

Kina Cross Rates

 High Low Latest
PGK/USD 0.3620 0.3580 0.3580
PGK/AUD 0.6563 0.6468 0.6563
PGK/NZD 0.8706 0.8512 0.8706
PGK/GBP 0.2479 0.2420 0.2420
PGK/JPY 38.74 38.09 38.38
PGK/HKD 2.8189 2.7871 2.7871

Commodities   Latest

Gold USD per ounce 277.25
Coffee US cents per pound 83.00
Oil USD per barrel 30.85

Share Markets Friday Close

Australia   All Ordinaries  3246.1
United States  Dow Jones   10650.9
Japan    Nikkei    15747.3
 

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