Thomas Abe, Managing Director, Kumul Consolidated Holdings (KCH): Interview

Interview: Thomas Abe

How does KCH reconcile the need to be competitive and profitable with meeting social obligations within state-owned enterprises (SOEs)?

THOMAS ABE: KCH has a number of objectives. Apart from the objective of holding and enhancing the value of SOEs and investments, KCH also has the more general objective of entering into arrangements which further the development of Papua New Guinea as a whole. There is no doubt that SOEs must be efficient and competitive to fulfil their overall functions. The SOE sector is simply not performing adequately in a financial sense, and this is a major concern for the country. This cannot continue. Without commercial discipline, those enterprises will ultimately fail, and this is not in the interest of KCH, the government or the people of PNG.

KCH will focus heavily on improving the performance of these SOEs. That’s not to say social obligations are not important. Community service obligations are a fact of life in the PNG landscape. It needs to be recognised that PNG is not a developed economy. There are many areas that are underdeveloped, and which must and will grow substantially in the coming years, both in economic terms, as well as in social metrics such as health and education. It would be inappropriate for SOEs to operate solely for profit-making purposes when support of community service obligations will further the development of PNG as a whole.

However, SOEs must be efficient and deliver a certain level of profits to be able to pursue these social objectives. KCH is an investment entity that will pursue efficiency and returns from its SOEs, because without those factors, SOEs will ultimately not be able to deliver the required returns to the state, or deliver on their community service obligations either.

To what extent can the private sector take more of a development role within national projects?

ABE: While development is not always necessarily aligned with the private sector objective of delivering returns to shareholders, KCH believes there is scope for a greater role for the private sector in development.

In recent years business has taken a much greater interest and role in corporate social responsibility because it is good for business. KCH sees considerable potential in public-private partnership (PPP) structures, whereby the private sector can deliver some project outcomes and partner with the government or KCH to deliver projects that boost development in PNG.

There are many areas in which foreign investors in PNG take comfort in the presence of KCH or the government in a project, because it is seen as adding to the stability and attractiveness of the investment, and this is a factor that should not be ignored. What are the government’s plans and strategies regarding privatisation policy?

ABE: The directive of the current government drives the development of official privatisation policies. There was a clear realisation in the previous government that SOEs were not performing up to standard financially. While the current economic environment undoubtedly was a factor, there is no doubt that SOEs as a group were not performing efficiently enough.

The success of Bank South Pacific in recent years – where the government, through KCH, has a substantial but passive and non-interventionist shareholding – was not lost on policymakers. It is clearly better to have a minority interest in a successful enterprise than 100% of an entity that loses money and fails.

Some in government believe that government should not be in business at all, but operate instead as a shareholder demanding acceptable returns. Whether that will be the position that the new government adopts moving forward remains to be seen.

For its part, KCH sees the potential value of private sector involvement in some of its enterprises as a way to improve their culture and service delivery, and will work towards investigating how this might occur.