SOE chiefs, shape up or ship out

The chief executives officers (CEOs) of Papua New Guinea’s State Owned Enterprises (SOEs) are some of the most highly paid people in the South Pacific region. Many of these CEOs earn two to three times more than their counterparts in the region. Some even make more than the CEO of this country, the Prime Minister.
The average salary of a CEO is believed to be well over half a million kina per year. This is just the basic salary.

But if other “disguised income” such as entertainment and travel allowances and the unlimited use of credit cards are taken into account, the total income earned by a CEO could easily exceed one million kina per year. A case in point is the CEO of a small state-owned company who earns almost a million kina a year despite the fact that its cash-flow is guaranteed under legislations governing its operation. This particular person travels overseas regularly on “official business”. I’m sure the taxpayers would be interested to know what sort of business he conducts overseas on these regular trips. It is also alleged that during these trips all costs are paid through the company’s credit card although the CEO is paid all travel related allowances in advance. This is a fine example of “double dipping,” a common practice in the public sector.

The recent revelation by the Opposition Leader, Sir Mekere Morauta, of a senior CEO who literally resides in Australia and conducts the company’s business via remote control is another clear manifestation of the lifestyle enjoyed by the CEOs at the expense of the taxpayers. I totally agree with Sir Mekere that there is no economic justification for the establishment of this office in Australia. PNG will not receive any benefits by having such an office in Australia.
The company can conduct its business, including overseas interests, from PNG given the availability of modern communication technology. It is quite obvious the office was established in Australia merely to facilitate for the convenience of the CEO and his political masters.

If that’s not enough, the CEO gets his staff and senior managers of other SOEs to travel regularly to Australia for meetings. These overseas trips cost PNG taxpayers millions of kina a year. It makes no sense for the Government to allow a few people to enjoy such perks and privileges while the majority of our people continue to suffer as a result of inefficient management of these SOEs. The Government may or may not know that it is promoting these ways because many of these practices are carried out with the full collaboration, approval or knowledge of those in positions of authority. The Government’s inability to curtail these practices has directly affected the performance of all SOE. In the last eight years not a single SOEs has produced positive financial results.

Some SOEs claimed to have made profits but their balance sheets tell a completely different story. This is precisely the argument raised by Sir Mekere after Public Enterprises Minister Arthur Somare announced a operating profit of K68 million by our national airline, Air Niugini. The Minister has put his credibility on the line and it would be wise of him to publish the airline’s fully audited financial statement to remove any doubts about a “paper profit”.
If Minister Somare is serious about SOEs making real profits then he must understand and analyse the reasons why many of these SOEs continue to perform poorly despite having the monopolist in their markets.

For example Air Niugini has exclusive rights over major domestic and international routes. Therefore the airline should be the most profitable SOE and thus make dividend payments to the State every year. Instead, the State has had to bail out the airline a number of times and provide additional funds for recapitalisation of its ailing assets. Despite these financial injections there has been little or no improvement in Air Niugni’s performance and profitability.
Other SOEs continue to face similar situations and it is just a matter of time before they collapse. If that happens, the Government will pay a heavy price for ignoring the financial mismanagement of State assets.

It is time Minister Somare seriously addressed the issue of SOE performance and profitability.
First and foremost is to put in place a proper and balanced pay policy for the senior managers including the CEOs. The policy should clearly outline the perks and privileges. The policy should also include transparent monitoring and auditing processes whereby the Independent Public Business Corporation (IPBC) can police the administration of the employment contracts and the perks and privileges. This should stop the current practice where the terms and conditions of the CEOs are determined by their respective company boards. Secondly, the appointment process for CEOs should be transparent and free of political influence. This will prevent the appointment of political cronies, who lack appropriate qualifications and experiences for the job. Thirdly, a proper policy guideline should be established for the appointment of board directors. An independent body should be tasked to screen and recommend appointments to the board.

Boards of directors are vital organs of business entities because they provide the overall policy and management directions. It is imperative that board directors of SOEs have the appropriate commercial qualifications and industry experience. It is also crucial for Minister Somare to review the performances of all current CEOs with the view to replacing those who have performed under par. Indeed, it would be a grave injustice to taxpayers and the country if the Government continued to maintain these high flying non-performers.