PAPUA New Guinea is playing a waiting game. It is waiting for the long-anticipated construction phase of the country’s second major LNG development, the TotalEnergies-led and US$10-billion-plus Papua LNG project.

Commencement of the construction phase was initially proposed for 2023, pushed back to 2024, and up until only a few weeks ago considered quite likely for 2025. Holding up the construction phase is the delayed signing of the final investment decision. Only recently was an announcement made that the FID would not be signed off on until the final quarter of 2025 or the first quarter of 2026. Construction cannot begin without the FID; hence PNG continues to wait. 

PNG’s economy is heavily reliant on the resources sector. Major mining developments such as those of Ok Tedi Mining, Porgera Joint Venture and Newmont, and in the last decade or so, oil and gas projects such as the country’s first LNG project (PNG LNG) have underpinned the nation’s economy.

The next big boom

As with all major resource developments, the logistics sector will play an integral role in the Papua LNG construction phase (once it receives the green light). Logistics operators will see a huge increase in service demand, and this is particularly so for sea freight companies and those providing associated maritime services and, of course, ports.

Companies such as Steamships Group (a subsidiary of Swire), through its Logistics Division, have made substantial capex investments in readying themselves to service the anticipated demand upswing. New cargo vessels, tugs and barges have all been purchased.

In addition to capex investments made in preparation for the Papua LNG project have been the investments in strategic new partnerships and ownership models. In 2023, local logistics company, Trans Wonderland Ltd teamed up with international crane rental, heavy lifting, and engineered transport company Sarens to form the new joint venture: Sarens PNG. Another new joint venture partnership struck in 2023 was between Steamships, local logistics provider GFS, as well as the Gulf Provincial Government to form Gulf Maritime Services.

Port operators have also been preparing themselves for the next “big boom” that the Papua LNG construction phase will bring. Most of the equipment needed for the Papua LNG construction phase will be sourced internationally and arrive at one of PNG’s two international port terminals – Lae and Port Moresby.

Much of the imported construction-phase cargo will not be immediately despatched to site. Instead, it will be stored and staged, either at the international ports owned by PNG Ports Corporation, a state-owned enterprise, or at one of several private ports or industrial parks.

The port landscape

PNG has 23 declared ports, and an estimated 200 small wharves scattered around its coastline and along its rivers.

PNG Ports, the largest owner and operator of the nation’s ports, is responsible for 15 of PNG’s declared ports. In addition to providing berthage, wharfage, storage and staging facilities, PNG Ports provides regulatory oversight in conjunction with the National Maritime Safety Authority and is the country’s largest supplier of marine pilotage services.

Most of the nation’s private ports are operated by resource companies – their primary purpose to support company operations and service their small footprint communities. Examples of these ports include Kiunga Port on the Fly River which services the Ok Tedi gold and copper mine, as well as Basamuk Port to the southeast of Madang which services the Ramu NiCo nickel and cobalt mine. Other private ports service the interests of PNG’s considerable oil palm industry. The Vidar Port north of Madang specifically caters to the tuna fishing industry.

Private ports not operated by resource or agricultural companies are few in number but include those at the AES Business and Logistics Park on the outskirts of Port Moresby, as well as Portside Business Park, a facility currently being developed by Steamships. Both of these operations are targeting major resource developers, as well as big business in their supply chains.

Despite being the country’s biggest port operator, and with large swathes of prime real estate at its international ports in both Port Moresby and Lae, to date PNG Ports does not appear to have actively pursued this extremely attractive market segment. This is set to change.

Matters of business

PNG Ports, under new leadership as well as with a new strategic direction, is “hungry for business” according to CEO Neil Papenfus.

“We’re particularly hungry to grow our market share when it comes to project staging, warehousing, laydown and other storage requirements associated with major resource projects, especially with regard to the Papua LNG construction phase but also in terms of PNG’s pipeline of additional projects such as the expansion of the PNG LNG project [commonly referred to as the P’nyang development], Wafi-Golpu, Woodlark, and so on.”

PNG Ports has ample space at its international port terminal in Port Moresby for project staging. Although, much of the 300 hectares of land it owns on the opposite side of the mainland at the Lae port requires additional civil works, it is the ideal location for the development of Lae’s much needed industrial park, and Mr Papenfus reported that several hectares with immediate proximity to port infrastructure are ready for commercial tenants.

Lae port is particularly well positioned to support the logistics and project staging requirements that will be associated with the Wafi-Golpu and Frieda River projects.

In early August, Prime Minister James Marape announced progress being made on finalising the Mine Development Contract for Wafi-Golpu, a joint venture between Newmont (previously Newcrest) and Harmony.

PNG Ports’ appetite for new business, especially lucrative business associated with major resource developments, can be understood in terms of its need to secure new revenue streams.

As a state-owned enterprise, PNG Ports is mandated to pay a significant percentage of its profit to the government. PNG Ports is also mandated to operate and maintain 12 of the nation’s ports that do not make a profit – these ports are referred to as Community Service Obligation (CSO) ports and provide essential services (freight and travel) to their remotely located communities.

The profitable ports of Port Moresby, Lae and Kimbe essentially subsidise the 12 unprofitable CSO ports. Although state-owned enterprises are often perceived to have an unfair competitive advantage in that they are “backed by government”, the requirement for PNG Ports to prop up unprofitable ports, is a distinctly disadvantageous requirement.

It is not known whether government would ever consider introducing a CSO tariff for the nation’s private port operators. However, such a mechanism would result in a more equitable sharing of the cost of running and maintaining the nation’s CSO ports. Payment of this tariff would also contribute towards private ports’ social license to operate.

No doubt private port owners will argue that a percentage of the taxes they already pay can be earmarked for CSO ports. However, as long as PNG Ports is the sole financier of the CSO ports, its success and hence the extent it can contribute to PNG’s prosperity cannot be fully realised.

Ports infrastructure program

In 2022, the Australian and Papua New Guinean governments signed off on the PNG Ports Infrastructure Program, a $621.4 million investment comprising a $521.4-million loan and $100-million grant to repair and upgrade seven key ports (Daru, Kavieng, Kimbe, Lorengau, Oro, Vanimo and Wewak) and the Lae Tidal Basin. Financing of this project is through the Australian government’s Australian Infrastructure Financing Facility for the Pacific (AIFFP) program.

Rabaul Port has also been earmarked for refurbishment under a separate donor assisted program led by the European Union.

Progress on the port upgrades has been hampered by costings having been done pre-covid which resulted in several of them needing to be re-scoped. The preparatory work, including comprehensive seismic studies, was also considerable.

The project that is progressing best is the upgrade of Kimbe Port. Mr Papenfus confirmed that the company which has won the tender would be announced in the coming weeks (at the time of writing in early August) and that construction will commence in the first quarter of 2025.

Once we have trained our own pilots and cadets on the simulator, we will invite all competitor pilots to receive training.

Joji Takape, PNG Ports

Although half of all ports owned by PNG Ports have attracted refurbishment financing, it is salient to note that the bulk of this financing is in fact on a loan basis and needs to be repaid.

In an increasingly competitive market, for its core business of port operations, PNG Ports is tasked with pursuing greater efficiencies across its operations, maximising asset utilisation, continuing to cut costs and seeking new revenue streams – all of which will assist it to pay down debt and achieve its mandate and public expectation that it will drive the development and facilitate the prosperity of PNG.

Local pilotage

There are 11 marine pilotage providers in PNG. The largest provider by far is PNG Ports Corporation with an estimated 70% market share, followed by Niugini Pilots and then Bismark Pilot Services. The remaining pilotage services primarily assist logging and palm-oil vessels.

Nationwide, PNG Ports’ team of 18 pilots handles an average of 430 pilotage movements per month, or about 5000 movements annually. This includes pilotage at its LNG operation at Caution Bay, approximately 20 kilometres northwest of Port Moresby.

Two of the challenges facing PNG’s pilotage sector include a small percentage of mandated ports (only six of PNG’s 23 declared ports are “compulsory” pilotage ports) and a lack of accessible, affordable and quality training.

Chief pilot for PNG Ports, Joji Takape, said that an increase in the number of mandated ports will not only generate additional business for the entire pilotage sector but will improve vessel, crew, port infrastructure and environmental safety.

For example, the unmandated ports of Aitape and Wewak in the country’s north have had their wharves damaged by vessel impact. Due to vessel owners’ inadequate insurance combined with a lack of government resources to legally pursue the vessel owners, the cost of wharf repair in both instances has fallen to PNG Ports.

Mr Papenfus said that the need to mandate additional ports is not about raising revenue but about improving the safety and quality of pilotage across the country and reducing the risk – including financial and environmental risk linked to infrastructure damage.

“If we [PNG Ports] can cut the significant costs associated with port maintenance we can invest in our nation’s ports and their communities in other ways, such as helping the CSO ports, as well as the businesses they support, become more sustainable.”

Another challenge is that good quality and affordable training is difficult to access across many sectors in PNG. Although membership of the Australasian Marine Pilots Institute affords pilots with access to its online continuous professional development program to help them maintain minimum standards of training, only the pilots of PNG Ports and Niugini Pilots hold full membership.

A worrying percentage of PNG’s marine pilots – especially those of the smaller operators – are believed to have undergone minimal or no additional training or professional development after receiving their pilot licence.

Elevated training

PNG Ports is in the process of consulting with AMPI over a range of training initiatives. The company has plans to purchase a simulator in 2025, the first for not just PNG’s pilotage sector but also broader Melanesia’s. It is also in the process of purchasing additional portable pilot units so that they can be utilised across all of the ports its services. Currently PNG Ports has five PPU and utilises them primarily for berthing tankers. No other pilotage company in PNG uses PPU.

Captain Takape described the purchase of the simulator in particular as “game changing” for not just PNG Ports’ pilots but the entire industry.

“Once we have trained our own pilots and cadets on the simulator, we will invite all competitor pilots to receive training,” he said.

“We will also open up simulator training access to our colleagues in Fiji, Solomon Islands, and Vanuatu.”

Although PNG Ports has long been able to fly its pilots down to Australia for training, the majority of its competitors can’t afford to do so. With better training equating to safer pilotage, access to the simulator training is in the entire country’s best interest; a poorly piloted fuel tanker, for example, could do considerable damage to the environment or port infrastructure.

Mr Papenfus is adamant that simulator training and PPU should be compulsory for all pilots to maintain their licenses and operate. He is actively discussing this with the National Maritime Safety Authority.

“It is a matter of safety and sustainability, not just when it comes to lives and the environment but also to our business and the nation’s budget,” he said.

“PNG simply can’t afford to risk poor pilot decisions and skill execution resulting in major infrastructure damage at our ports.”

This article appeared in the August | September 2024 edition of DCN Magazine