My The PNG Woman column that appeared in the Sunday Chronicle, 11 June 2017
The Sir Reuben Taureka Highway was opened with much fanfare as the O’Neill Government blew its own trumpet on building a world class white elephant at the cost of K167 million stretching 11.2 km. That works out at an average cost of K14.9 million per kilometre over flat terrain that already had a road there.
If you think that is too expensive, so do I. I am not sure if we should feel heartened that it is more cost efficient than the Gordons Industrial Road, which reportedly cost K86 million for just less than a kilometre. The Gordons road went one-tenth the distance of the Taureka Highway but cost half as much. The gratuitous excess defies logic and beggars belief but the O’Neill Government has never let facts get in the way of its fantasies.
There has been much public discussion on the big contracts for the NCD (National Capital District) roads being excessive and inflated. I don’t have the expertise to verify this but the simple mathematics of average costs suggests that this would be a good initial investigation for the ICAC (Independent Commission Against Corruption), if ever established, to cut its teeth on – if only to verify the costings and test the probity of the procurement process.
In Figure 1, total revenue received by provincial governments and NCD is plotted; ARB (Autonomous Region of Bougainville) is not included as it has a different intergovernmental fiscal arrangement. The revenues appear as bars whilst the selected road costs are shown as horizontal lines. The provincial revenue includes conditional recurrent grants received from the National Government for staffing costs and fiscal equalization but doesn’t include the service improvement program grants (DSIP and PSIP).
A number of things are apparent from Figure 1. NCD, which does not receive fiscal equalization grants, has revenue streams far in excess of the other provinces and this is mainly from GST (goods and services taxes). Morobe has the second largest revenue level but is dwarfed by NCD which is nearly 3 times greater still. Clearly, cities matter as hubs of economic activity and thus revenue generation especially with the benefits from economies of scale.
The divide between urban (cities) and rural (the rest) is large. NCD and Morobe, two governments, account for a third of total sub-national revenues. The average revenue of the other 19 provinces (excluding ARB) is only K41 million. The cost of the selected NCD roads exceeds the annual revenue for all those provinces outside NCD and Morobe. This is clearly seen in Figure 1 where the lines lie above the bars. For instance, the 1 kilometre Gordons Industrial Road cost more than the annual revenue of the provinces without big cities. This gives perspective to the gross inequity and misallocation of resources.
As reports increasingly emerge of hospitals and clinics facing difficulties with a lack of drugs, so the realities of the severe cash flow problems accentuate the uneven distribution of resources amongst our people. Our people that are outside our two big cities comprise the bulk of our population. The greatest challenge for delivery of goods and services to our people is the remoteness of many scattered low density villages. Establishing the main arterial roads throughout the provinces sets a foundation for inclusive rural development by allowing for the branches of smaller road networks to connect to our rural population.
It is a Government without a moral compass that can build a completely unnecessary new road for K167 million, on top of an existing road which only required maintenance and perhaps a small upgrade, whilst our people suffer without drugs and access to other key services. The human cost of such wastage is unfathomable.
The government promises more debt to build infrastructure. This makes sense if the infrastructure is productive, is equitable in its geographic distribution and if the return on investments are greater than the true borrowing costs. The BPNG’s financing of government deficits has helped keep government’s domestic interest rates low leading to distorted investments and the transfer of purchasing power from the superannuation contributors to the O’Neill Government.
What drives sustained economic growth is not the level of public investment in itself but the stock of physical capital. The level of physical capital is determined by maintenance, the replacement of wear and tear, and is added to by public investment. The Department of Works has stated that the costs of not maintaining road infrastructure in good condition results in costs for rehabilitation, effectively reconstruction, that are four times higher.
We see that whilst new road infrastructure is being constructed, maintenance of existing roads suffers and so it is an investment in future costs of major rehabilitation. We even see that new roads are being constructed over old ones instead of mere maintenance. Higher economic returns are obtained from ensuring routine maintenance is funded and implemented regularly than from reconstruction.
The stark reality is that not all of the money reported as public investment is translated into new stock of physical infrastructure. There seems to be a lot of wastage so that not every Kina spent on investment results in an equivalent Kina increase in capital stock. Now this doesn’t mean that the returns are negative, given the low level of capital infrastructure there are still high gross returns to be made. What is of most concern is the money that is wasted could have been applied to better use or more public investment generating even higher net returns (gross returns less the cost) for our people. Reduced costs means funds saved to apply to essential goods and services, it, means less borrowing and less interest payments. This prudent use of public funds can raise the quality of life for our people.
For public investments there needs to be a ranking of the different investment opportunities. The Government’s National Transport Strategy explicitly recognizes this by pointing out that a screening process will be applied to ensure the best projects are ranked in order of returns. This ensures that scarce public money goes where it is most needed. This infrastructure pipeline and selected project list should be published with the computed economic rates of return as well as the other non-economic factors that drive the ranking and selection of these projects. It should be available to our people to allow scrutiny of public investments to ensure that they result in physical capital that is productive.
Our people should demand that the O’Neill Government should provide independently verified evidence that the economic returns of the large NCD infrastructure projects generates better economic returns than maintenance of existing infrastructure and investments in needed major infrastructure in provinces like the Okuk Highway.
The O’Neill Government’s spending on “awe and envy” NCD infrastructure with poor net returns whilst allow our rural people to languish in hardship from drying funds for much needed goods and services betrays the deficit of the O’Neill government not only in public finances but also in its morals.