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PNG National Executive Council should take a step back, says ADB

The Papua New Guinea National Executive Council (NEC) should reduce its control of State-owned enterprises (SOE) in order for those entities to better carry out their corporate roles, says the Asian Development Bank (ADB).

This would be through reforms that give Kumul Consolidated Holdings more independence, said ADB Pacific private sector development initiative (ADB PSDI) SOE reform team leader Laure Darcy.

“The Independent Public Business Corporation (Kumul Consolidated Holdings) (Amendment) Act 2015 could be strengthened to help establish such a governance framework,” she told The National.

“Key reforms would include transferring the current oversight responsibilities over the SOEs from the NEC to a commercial holding company, such as Kumul Consolidated Holdings, with the power to protect the Government’s investment in the State-owned enterprises.

“KCH, in turn, would then grant its SOEs the autonomy they require to achieve their agreed commercial targets.

“Other structures could also be considered, as long as they create similar autonomy and accountability.”
Darcy said international experience had proven that best-performing State-owned enterprises were those that were given autonomy to operate as commercial entities.

They were held accountable for commercial results.

Meanwhile, Partial privatisation of State-owned enterprises (SOE) allows for greater financial transparency while still retaining the interest of the State, says the Asian Development Bank.

This would also strengthen corporate governance, said ADB Pacific private sector development initiative (PSDI) SOE reform team leader Laure Darcy.

“Partial privatisation involves offering a portion of the shares of an SOE to private investors, who may be individuals or corporate entities,” she told The National.

“This can be expected to have a positive effect on performance in a number of ways.”

Darcy said the sale of shares would provide an injection of new capital to the SOE, depending on the nature of the investors.

“This can also provide access to new technology, expertise, and markets,” she said. “In addition, private investors will expect a commercial return on their investment, so will demand that the SOE maintain a board of qualified directors and operates on a fully commercial basis.”

Darcy said partial privatisation could also mean public listing of SOEs and timely updates to the public on the financial performance.

“It would immediately result in increased transparency, as all companies listed on the Port Moresby Stock Exchange must ensure timely disclosure of financial accounts and other material information affecting investors,” she said.

“Currently, very few of Papua New Guinea’s 100 per cent publicly owned SOEs prepare their financial accounts within the first quarter following the financial year, and only one publishes its accounts online. MiBank, which is partially privatised (MiBank is 41 per cent owned by private investors) prepares its financial accounts in a timely manner and publishes all of its annual reports online.

“Without up-to-date information on the performance of State-owned enterprises, it is impossible for lawmakers or the public to assess whether or not the State’s investment in the SOEs is providing value for money.

“Partial privatisation and the resulting increase in transparency is one way to remedy this.”.

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