THE Fiji Ports Corporation Limited has been rated as the best performing in a study that looked at the performance of the port sector state-owned enterprises (SOEs) in six Pacific countries.
The new ADB study, Finding Balance, Benchmarking the Performance of State-Owned Enterprises in Papua New Guinea assessed the impact of SOEs on the PNG economy and compared this to the impact of SOEs on the economies of five other Pacific countries – Fiji, Marshall Islands, Samoa, Solomon Islands and Tonga.
FPCL, achieved the best results against the five other countries in terms of the average return on equity – 2.44 per cent – and average return on assets – 4.33 per cent.
“In relation to revenue per employee, PNG Ports Corporation Limited (PPCL) is the standout performer, which could be driven by the fact that a number of activities, such as stevedoring, are contracted out. This would also explain why PPCL’s cost per unit of cargo processed is $5.44, second only to Wellington’s CentrePort at $2.64,” the report said.
“While FPCL’s performance may be partly explained by economies of scale, size does not tell the whole story. Indeed, FPCL’s 2.44 per cent average return on assets (ROA) is equivalent to the 2.51 per cent average return on assets of the Port Authority of Tonga, which is 26 times smaller than FPCL.”
Wellington’s CentrePort, which is an efficiently run port with three times the asset size of FPCL, showed only a slightly healthier 4.34 per cent ROA in 2007-2008.
The report was of the view that both Wellington’s CentrePort and the Port of Napier provided useful benchmarking data for Pacific island ports. And while these two New Zealand ports handled greater volumes of cargo than five of the six Pacific island ports included in the study, their operational and financial ratios remained instructive. CentrePort and the Port of Napier achieved average ROEs of 7.16 per cent and 9.52 per cent respectively for the 2007-2008 period compared with 3.33 per cent for FPCL; 4.52 per cent for the Port Authority of Tonga; 1.22 per cent for the Samoa Port Authority (SPA); and 5.72 per cent for PNG PPCL.
“From this comparative review, size appears to have only a marginal impact on profitability. Other factors such as the degree of private sector participation, the efficient use of the asset base, and governance arrangements play a larger role.
“The degree of contracting out of port operations varies among the six Pacific island countries.
“In Samoa, SPA is a pure landlord port with all of the stevedoring, container handling, and major maintenance contracted out to the private sector, with SPA retaining pilotage and dredging as core services.
“FPCL, however, undertakes many functions at its port, including stevedoring and pilotage; and it will soon own and operate several replacement pilot boats,” the study said.
It added that all of the port companies suffered the negative effects of poor governance.
FPCL, it said, which appeared to have robust governance practices, had high director turnover rates, which may adversely impact board performance.
In Samoa and Tonga, the port boards have allowed management to undertake investments in non core activities at investment rates well below the target ROE set by shareholders.
In the Republic of the Marshall Islands (RMI) and Solomon Islands, there were no effective owners as monitors and performance targets set by the shareholder ministers; and they generally had weak governance practices. In PNG, the owner of the port company, the Independent Public Business Corporation (IPBC), appeared to have had little interest in the performance of its SOE subsidiaries for a number of years, including PPCL.
“Because the economies in all of the Pacific island countries depend on trade with other countries for virtually everything they consume and much that they produce, high-cost and inefficient ports negatively impact every sector of the economy and can create a significant drag on growth and productivity.
“Reform, which is therefore crucial, will require a combination of initiatives: improved governance, improved accountability, a greater commercial focus with hard budget constraints, sale of non core assets and business lines, better asset utilisation, and clearer management goals and consequences for non achievement,” the study said.