Wingti’s replacement as prime minister by his deputy Sir Julius Chan also led to the immediate departure (after being declared persona non grata) of the Holdings Corporation’s expatriate managing director (Peter Steele) and to its winding-up before any of its planned privatizations had taken effect, but not before some K2 million of budget funding had been spent on its staff and board. However, independently of the Holdings Corporation, the Finance Department had sold the government’s 70 per cent equity in PNG Forest Products (Pty) Ltd. to the 30 per cent shareholder and manager, Prime Group of Singapore.^[6]

The Chan government remained interested in privatization, partly due to renewed pressure to that end from the World Bank, to which it had applied for new loans after being forced to devalue and then float the kina in October 1994. Additional impetus came from Chan’s deputy and Finance minister, Chris Haiveta, who, however, hoped to avoid conformity with the World Bank’s conditions — especially those relating to forestry — for its offered second structural adjustment loan in support of the 1995 budget, by borrowing against the government’s share of oil exports from the Kutubu project. This borrowing (as proposed by merchant bankers Paribas Capital Markets and Salomon Brothers) would have involved a forward sale of the state’s oil to these bankers at a fixed price of $US15 per barrel, granting them any excess of actual oil prices, with the state’s net proceeds (after interest at around 15 per cent) used first to repay the state’s liability to its joint venture partners and then to fund the 1995 budget deficit. A team of officials from the Bank of Papua New Guinea and the Department of Finance successfully persuaded the cabinet that this quasi-privatization was potentially very high cost and that a float of part of the state’s 100 per cent equity in the Mineral Resources Development Company (MRDC)^[7] would be more cost effective (State Negotiating Committee 1995, 3). This cabinet paper marked the first occasion privatization was seen as a means of raising fiscal resources.

Haiveta subsequently took a close personal interest in this proposal for a partial privatization of MRDC by means of an initial public offering (IPO). In August 1995 Haiveta replaced the MRDC board’s chosen financial and legal advisers for the float (McIntosh Securities and Mallesons of Sydney) with his own appointees, Jardine Fleming of Hong Kong and Allens Arthur Robinson of Port Moresby, together with their Sydney partner firm (Allen, Allen and Hemsley, Australia’s largest law firm and leading specialist in mergers and acquisitions).

By 1995 the MRDC held on behalf of the government, landowners, and provincial governments, the state’s initial equity in the Porgera Joint Venture (PJV) (10 per cent), Misima Mines (20 per cent), Kutubu Joint Venture (KJV) (22.5 per cent) and Lihir Gold (30 per cent). The additional 15 per cent state equity in Porgera that had been forcibly acquired by the Wingti government in 1993 was held separately.

MRDC’s new advisers developed concepts whereby MRDC itself would remain wholly owned by the government, and would retain those portions of the state equity in mineral projects that had not been assigned to landowners and provincial governments, while the national government’s own residual equity would be placed in a new entity, Orogen Minerals Ltd. Orogen was assured that it would have an option to purchase from MRDC up to 20 per cent of the state’s usual 22.5 equity in future oil projects and 25 per cent of its 30 per cent in new mining projects. Orogen’s initial holdings included 15.75 per cent in the KJV, 20.5 per cent in the Gobe Joint Venture, 15 per cent in Porgera, 6.81 per cent in Lihir Gold Ltd, and 20 per cent in Placer Dome’s Misima Mine. Orogen would be floated both nationally and internationally, with the public able to take up 49.9 per cent, and with MRDC retaining 50.1 per cent on behalf of the government. Orogen was so constituted that MRDC would not have a majority on its board, and that the government’s majority would not be voted at general meetings of the company except in regard to its name and place of registration (Port Moresby) (Orogen Minerals Ltd 1996, 23–32).

The float took place in October 1996 and was remarkably successful, with a substantial over-subscription. The total proceeds from the sale of 49.9 per cent of its shares amounted to K304 million (about $A288 million in 1995), of which 13 per cent was subscribed in Papua New Guinea by its institutions and some 6,400 resident individuals. This partial privatization was wholly transparent by virtue of the public flotation process, which included a prospectus containing independent technical experts’ and accountants’ reports on the various projects, and did not require a World Bank loan or any up-front charge on the national budget. Instead, the float contributed over K100 million to the budget, after clearing MRDC’s debts, capitalizing Orogen, and meeting the float managers’ fees, totaling some K16 million (see also Dorney 2000, 98–99).

The float also enabled some thousands of Papua New Guineans to subscribe for shares that yielded capital gains to those who sold in good time — its price rose from the discounted float price of K1.75 for Papua New Guineans (overseas investors paid $A2 per share) to over $A2.50 in 1997. Orogen’s share price slumped to around $A1.00 during 2000–01, but recovered late in 2001 to $A1.90 when the Papua New Guinea government announced it was contemplating releasing its majority stake of 50.1 per cent, leading to Orogen's merger with Oil Search Ltd. Unlike the rest of Papua New Guinea’s public enterprise sector during the 1990s, Orogen yielded dividends both to the government in its role as shareholder and to the public at home and abroad at levels above the average rate on Australian mining shares.

The other notable privatization by the Chan-Haiveta government was its sale of the government’s 46 per cent holding in New Britain Palm Oil Ltd (NBPOL) to the Malaysian corporation Kulim in 1996. The British firm Harrison and Crosfield had established this very successful and profitable project near Kimbe in West New Britain in 1968 but had decided to divest its overseas operations in Papua New Guinea and elsewhere. The local management had persuaded Harrison and Crosfield to put its shares into a public international share offering, and the underwriters (McIntosh Securities) valued the firm at not more than K115 million (about $A110 million) of which the government would receive $A50 million for its shares. Chan and Haiveta were persuaded that a trade sale would realize more for the state’s shares, and used the negotiating skills of Jakob Weiss, adviser to the Bank of Papua New Guinea, to devise an arrangement whereby the government first exercised its pre-emptive rights to buy out Harrison and Crosfield’s 54 per cent at a price which valued the whole of NBPOL at K159 million (i.e. K1.59 million per 1 per cent), with funds provided by the ultimate purchaser, Kulim. The latter then bought the state’s now 100 per cent holding (less 10 per cent retained in trust for landowners and the provincial government) at a price valuing NBPOL at K171 million (National Executive Council 1996). The outcome was that the state sold its shares at a price per 1 cent of K1.71 million, considerably more than the K1.15 million per 1 per cent that it was likely to have realized from the McIntosh public float’s indicative pricing (where the price was heavily discounted because of the unfamiliarity of the Australian share market with tropical plantation businesses).

The government’s net receipt from these transactions was K68.04 million. One of the conditions imposed by the government was that Kulim would in due course arrange a flotation of NBPOL into which it would place part of its holding, and this has since taken place on the Papua New Guinea Stock Exchange (National Executive Council 1996).

Despite these commercial successes, which also provided significant injections of foreign exchange into the reserves of the Bank of Papua New Guinea, the Chan-Haiveta government proved less adventurous in tackling privatization of genuine public enterprises — both Orogen and NBPOL concerned sale of state shares in privately managed concerns. The CSAs were badly affected by the nearly continuous depreciation of the kina after it was floated in 1994, a trend that was exacerbated by the rise and rise of the US dollar and the Japanese yen, the main currencies in which the external debts of the CSAs had been incurred. Depreciation of the kina did not affect the external value of the debts, but raised the kina value, so at least equivalent increases in the CSAs’ tariffs and charges became essential (since unlike Orogen and NBPOL they were not protected by export earnings denominated in dollars).^[8] But the price controller when wearing his secretary for Finance hat was under constant pressure from his political masters to moderate the rate of inflation of the Consumer Prices Index (CPI) — and in this conflict of interest the CSAs’ requests for approval of electricity tariff increases and the like were usually the losers.

A precondition for privatization would have been substantial liberation of the CSAs from price controls, which was unthinkable (because of ministers’ concerns about aggravating the rising CPI) to both the Chan-Haiveta and the Skate governments (in 1998 the latter held out against allowing fare increases on domestic air routes to the point of the near-collapse of the private operators who were crippled by the rise in the kina cost of aviation fuel). Instead, these governments pursued a policy of ‘corporatization’ of the CSA sector, whereby they ceased to be statutory commercial authorities, each with its own act, but were registered as companies under the Companies Act. Ostensibly, this was to be a first step towards privatization, but no moves in that direction were discernible. Rather, the boards and management of the former CSAs used their new exemption from the provisions of the 1983 decision relating to terms and conditions of staffs to improve their personal positions. As companies, the former CSAs were also in effect freed from the 1983 NEC decision’s rate of return targets and minimum dividend payments, though as they all declined deeper into bankruptcy this was immaterial.

The government of Bill Skate (1997–1999) followed the Chan-Haiveta government’s example of milking the government-managed superannuation funds. The National Provident Fund as a result was by 1999 on the verge of liquidation (World Bank 1999, 187). Potentially even more serious was the spoliation of PNGBC by the Skate government’s restructuring, which had the effect of subjecting it to direct government direction. By 1996 PNGBC was already carrying relatively high staff costs, but these increased rapidly in 1997–99, by 31 per cent alone in 1999, and the bank was by then alone among Papua New Guinea’s banks with an average staff expense higher than the average operating profit per staff member. PNGBC’s efficiency ratio was well over 60 per cent in 1997–99, compared with the common less than 50 per cent of its competitors.^[9] By 1999 also, PNGBC was in breach of the central bank’s minimum liquid asset ratio (MLAR), and it probably also barely met the Bank of Papua New Guinea’s minimum 8 per cent capital adequacy ratio.

Iario Lasaro, the minister for Finance, instead of attending to his prudential supervision of the banking system, found time in his 1999 budget to announce privatization not of the remaining state entities (such as the now corporatized CSAs and financial institutions), but of large areas of the traditional public sector, such as research institutes and training colleges, using the novel technique of instant cessation of their budget funding (see Curtin 2000a, 3). This ‘sink or swim’ approach was as short-lived as the government, which fell in July 1999.

The new government of Sir Mekere Morauta (July 1999–July 2002) reverted to the more institutionalized approach of the Wingti government of 1992–94 (of whose PDM party Sir Mekere had become the parliamentary leader). Wingti's Holdings Corporation was revived as the Independent Public Business Corporation (IPBC), complete with board, well paid executives (K450,000 a year for the executive chairman), teams of consultants, and access to a large loan from the World Bank (Papua New Guinea Post-Courier 28 February 2001; Weise 2000). In addition, like the Holdings Corporation, the Commission was not obliged to remit net privatization proceeds to the government’s consolidated revenue (until its act was proposed to be amended in March 2002, see The National 28 March 2002).

But unlike all previous governments’ privatization exercises, which had treated the CSAs and state-owned financial institutions as sacrosanct, the Morauta government committed itself to meeting the World Bank’s requirement that at least major public enterprises should be ‘brought to the point of sale’ if not actually sold, during 2000, with PNGBC selected as the most feasible (see Curtin 2000b). This proved to be much easier said than achieved, given the need to bring PNGBC’s loans portfolio into reasonable shape after the period of large increases in its unsecured lending during the Skate government. PNGBC had also been placed by the Skate government under the umbrella of a holding corporation, Pacific Finance, as part of an asset stripping exercise, and this also needed to be disentangled (Weise 2000).

The government eventually met the World Bank’s extended deadline for bringing PNGBC to the point of sale in mid 2001, and then unexpectedly went one better by announcing on 29 November 2001 that a bidding process had been won by the smaller but nominally privately-owned Bank of South Pacific (BSP). Reportedly (Papua New Guinea Post-Courier 30 November 2001), the sale price valued PNGBC at K233 million, but with the government keeping a 25 per cent holding, proceeds would be K175 million, of which K22 million would be retained by the Privatization Commission (later IPBC), and the balance paid into the government’s consolidated revenue. The government also indicated that part of its retained 25 per cent would be placed in the proposed Privatization Unit Trust (see below) to which the general public would be invited to subscribe in due course.

The ‘trade sale’ model adopted for privatization of PNGBC was similar to that employed for the state’s shares in New Britain Palm Oil Ltd in 1996, and like that exercise suffered from some lack of transparency, in that the value of other bids was never disclosed. In the case of PNGBC, one of the other bidders was the ANZ Banking Group, already well established in Papua New Guinea. The prime minister’s announcement of the sale to BSP said it was the government’s ‘preferred bidder’ (Papua New Guinea Post-Courier 30 November 2001), implying that it was not necessarily the highest bid (it later emerged that all the other offers were nominally less than BSP’s).^[10]

In any event the government evidently preferred a domestic purchaser in which it already had large indirect interests (through the pension funds that have major shareholdings in BSP) to a foreign investor willing to pay in Australian dollars that would have boosted the frail kina’s exchange rate. Moreover, it is not clear that the BSP tail now about to wag the PNGBC dog (the latter is much the bigger of the two banks) will indeed have a capital base adequate for the new venture. As of October 2001 the combined capital and reserves of the two banks amounted to 7.2 per cent of their combined but non-risk-weighted total assets. On the face of it, this ratio falls below the Basle Agreement’s minimum capital adequacy rule of 8 per cent — but after risk weighting of its assets, the new bank just passed muster (cf. Rose 1999, 488). On the other hand, a take-over of PNGBC by a large if well-capitalized international bank like ANZ might well have reduced competition, with BSP reduced to minnow status by comparison.

Nevertheless, as the enlarged BSP's main shareholders included not only the government (25 per cent) but also government-controlled entities such as the Defence Force Retirement Benefits Fund, the National Provident Fund, the Public Officers Superannnuation Fund, and Motor Vehicles Insurance Ltd, there was some risk that the new bank would prove to be no more than a state-owned bank in disguise. However BSP’s own track record has been one of independence from government interference despite its publicly-owned institutional shareholders, especially since it has listed its shares on the Port Moresby Stock Exchange, enabling the general public to subscribe and share in its outstanding profits performance since 2002, and it has become by far the biggest bank in Papua New Guinea, with well over 50 per cent of total deposits of the banking system.

The Morauta government’s intention to set up a ‘Peoples’ Unit Trust’ harked back to the Weiss proposal in 1991 and was just another version of the failed Investment Corporation of Papua New Guinea (ICPNG, which manages a form of unit trust holding shares mostly in unlisted domestic companies) unless it is itself privatized; some of the latter’s assets disappeared during the Skate government’s tenure, with its headquarters building being sold cheaply to its chief executive, and it has paid no dividends since 1997 (Papua New Guinea Post-Courier 29 October 2001, 10 August 2005). Unit Trusts in other countries typically invest in a broad range of equities at home and abroad. A Papua New Guinea Peoples’ Trust, restricted perforce to holdings in at most one or two unlisted privatized companies could not offer local investors sufficient diversification to attract their support, as shown by the nil new investment in ICPNG since 1997.

The Somare government since 2002, like its predecessors, has been unduly concerned with the risks, first, that privatized ‘natural’ monopolies like Elcom and Telikom would be able to use their monopoly power to force up their prices or tariffs and earn ‘excessive’ profits, and, secondly, that when privatized the CSAs would fail to meet the so-called community service obligations that are ostensibly required of them by the constitution.

Successive governments have no doubt considered that if they addressed these issues it would at least in part head off the opposition to privatization by the unions, some students, and other members of the public. But that opposition will not be so easily fobbed off, and it is likely that the price controls still in place for future owners of Elcom (now PNG Power Ltd) and Telikom PNG will make it more difficult to complete the privatizations. Those putative owners will want to earn profits, the bigger the better from their point of view — and for the government and people of Papua New Guinea. Larger profits would deliver larger tax revenues, which the government could use to meet non-commercial community service obligations, in the form of subsidized power and communications. Moreover larger profits would in time attract new entrants to the industries in question, and end their so-called natural monopolies.

In that regard it should be noted that in reality there has been no evidence of the defining condition of falling marginal costs, not surprising given the small scale of the domestic market for power and telecommunications. These monopolies have always been protected in Papua New Guinea by legislation preventing new entrants (as, for example, in the cases of PNG Power and Telikom PNG, despite the nominal ‘sunset clauses’ opening access to them). In the event, the Somare government (2002–7) reneged on the Morauta government's almost completed sale of Telikom PNG to Fiji's privatized telecommunications corporation, and later refused to accept the larger offer by the African firm Econet (founded by a Zimbabwean but independent of the Mugabe regime in Zimbabwe). Evidently, like almost all previous governments, that of Sir Michael Somare was unwilling to forgo the ability to use state-owned enterprises as a means of rewarding its key supporters with directorships and executive posts even if this meant abysmal service standards. Far from Telikom PNG delivering the ‘service obligations’ that allegedly private sector management could not be trusted to fulfil, it has over thirty years increased the number of fixed lines only to 60,000, for a population of over 5.5 million, compared with Fiji's 100,000 for its population of only 800,000, while Fiji services more than double Telikom PNG's 50,000 mobile telephones. However, Telikom PNG eventually (2008) relinquished its monopoly control of the country's mobile and internet networks, which had resulted in one of the slowest and most costly services in the world (8 Mbps and K1.80 or $US0.60 per minute), according to a government minister (Sir Peter Barter, Papua New Guinea Post-Courier 17 May 2005).

Finally, the story of government equity in Papua New Guinea’s mining and petroleum sector, that had begun with such acrimony when local communities in Bougainville objected to the start-up of the Panguna copper mine in 1970–72 and were not appeased when the government was offered equity of 20 per cent (see Denoon 2000), ended in April 2002 with the take-over of the government’s 51 per cent owned Orogen Minerals by Oil Search Ltd. Apart from an enlarged — and de jure controlling — stake in Ok Tedi since 2002, and a minority (18 per cent) holding in Oil Search, the government’s involvement in the mineral sector has ended, except for MRDC’s role in administering the equity stakes of landowners and provincial governments in the Porgera, Lihir and Kutubu projects. The merger resulted in the government’s receiving $A0.45 per share by way of return of capital from Orogen (i.e. $A73.7 million) plus 1.2 shares in Oil Search for each of its shares in Orogen, an implied price of $A1.97 per share, above Orogen’s list price in Australia in 1996 of $A1.75 and well above its price of $A1.00 in October 2001 before the government disclosed it was reviewing its holding in Orogen. Time will tell whether the short-term gain offsets the government’s abdication from the strategic role in the industry that it sought in the period from 1975 to 1995, but the cash benefits of that role were far from impressive, and disengagement relieves the government of the conflicts of interest that created so many difficulties at Panguna and Ok Tedi.

There remained a final twist in the story of government involvement at Ok Tedi. In 2001 BHP-Billiton decided to divest itself of its 52 per cent controlling interest in OTML in favour of a special purpose new entity, the PNG Sustainable Development Program Ltd (SDPL) in order to reduce its exposure to its environmentalist critics in Australia (the other shareholders are the national and provincial governments and landowners, and Inmet of Canada). The SDPL has no shareholders as a company limited by guarantee, but is nominally subject to control by its seven directors (namely Ross Garnaut, Jim Carlton, Don Manoe, Patricia Caswell, Jakob Weiss, Sir Ebia Olewale, and Lim How Teck) of whom three each were appointed by BHP Billiton and the government of Papua New Guinea and the last by the Board itself.^[11] Thus SDPL could be seen as in part a de facto nationalization of the formerly private sector controlling ownership of OTML that had been exercised by BHP Billiton. SDPL is managed by its directors (of whom the chairman is Dr Ross Garnaut, who had been instrumental in bringing BHP into Ok Tedi on behalf of the Papua New Guinea government in 1975 — see Garnaut 2000) in accordance with the agreements by which it is charged with promoting sustainable development and the general welfare of the people of Papua New Guinea. SDPL derives most of its income from its 52 per cent share of dividends paid by its subsidiary, OTML, and its net income is placed in its long term and development funds, amounting to $US79.4 million and $US38 million respectively at the end of 2004. These funds have mostly been placed in offshore accounts earning less than 2 per cent in interest and other income in 2004. Time will tell whether the SDPL makes a genuine contribution to the development of Papua New Guinea relative to what might have been accomplished if OTML had itself assumed the BHP stake and become an independent Papua New Guinea mining company free to invest in probably more productive activities than those so far adopted by SDPL.^[12]