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Rod Mitchell Supports ANG APNG Merger and resigns from NASFUND

The Papua New Guinea government has announced a merger of the country's two main airlines, Air Nuigini and and Airlines PNG.

These are among the main business and economic developments in PNG this week.

Presenter: Geraldine Coutts
Speaker: Rod Mitchell, joint CEO of PNG's NASFUND 

MITCHELL: Sir Mekere Morauta, who was the former prime minister of PNG is now Minister for State Enterprises and his first, I guess key announcement has been the merger of the two airlines, which is Airlines PNG and Air Nuigini. Air Nuigini is the government airline and Airlines PNG is a private airline, which is listed on the Port Moresby stock exchange. The view there is that a merged entity could provide better service to more outlying regions and also engage in reduction in cost to make a single airline more efficiently and more cost-effective. The problem has been like a lot of duopolies in PNG is that there's a big business and a small business and the small business peters along. The big business, which in this case is a government business is continually being funded by government, so that it basically has an unfair market advantage, and the government has got to the stage where they don't want to keep putting money into Air Nuigini and the basically want to merge and basically put on the stock exchange.

COUTTS: Well, how much is that to do with the big business coming their way shortly with the airlines being I would assume use more often because of the mining contracts and stuff that are going ahead, but also in there isn't it counter-intuitive that if you only have one airline, that it won't make more money, that it will be more pricey for passengers because of the monopoly, and the better services, they might not be capable of better services because of a single airline?

MITCHELL: Yeah, I fully understand that argument. I think the problem is we have at the moment two airlines sort of just breaking even with huge cost structures which could be rationalised and actually make the airline far more cost-effective and less a drain on the public purse. And if it gets listed and there's more private sector management involved, it's got a chance of greater, long term profitability. But I guess one of the problems of any monopoly or any large entity is the ability to price fix.

COUTTS: Alright, moving on, because I'm sure that's something that's going to develop as time goes on when it happens and that's to you as joint CEO of NASFUND. You're stepping away from NASFUND and your job there?

MITCHELL: That's correct. I made that decision in May this year and told the board. The board asked me again in August whether I'd reconsider, and I said no and I'll be leaving as joint CEO of NASFUND at the end of the year. It's been a great nearly 13 years and Ian Terte the other joint CEO is totally able now to take up the challenge and I'll certainly help in any way I can.

COUTTS: How much has it to do with or was it the straw that broke the camel's back when you had that unpleasant time a little while ago with defamation charges, a blog and then you putting up a $50,000 reward to find out who the accusers were?

MITCHELL: I guess those sort of things play in the back of your mind, but you move on from all that stuff. PNG's a pretty rough place politically and there's all sorts of agendas going down from time to time, but really I think it came down to I had worked very hard for the last 12 years, I was getting tired, I was getting medical issues and sitting down with my doctor one day. He said do you want to live to retirement or what's your plans and I chose basically that it's time to sort of ease back a bit.

It's been a great time, ten years. We've averaged 15.7 return per annum to members over that period. Now that's been an extraordinary return. We've been able to capitalise on the growth in the Port Moresby-PNG economy, assets have grown something like 30% per annum, and we've really changed the face of superannuation in PNG. So I feel in some ways my major job is done.

COUTTS: Well, what about the outlook for the fund beyond 2011 and beyond Rod Mitchell?

MITCHELL: Two thousand and eleven is a very interesting year. I think it's going to be tough for all super funds in PNG. The reason I say that is that the property market, which has been boiling along has now stalled and when I say stalled, I'm not saying it's falling back in value, but it's just levelled off. Equity markets in PNG they're really at the top of their price earnings ratio. I don't see any sort of major growth in prices there and, of course, economy was very resource-reliant. I think resources are starting to pull back a bit. We've seen it overseas and the economy may change or slow over the next couple of years. So there's probably not much additional return to be expected in the coming years. And, of course, the kina has appreciated quite dramatically over the last three or four months. So overseas investments held by super funds are going to fall back in value.

COUTTS: Alright Rod, once again, thank you so much. Is this the last time we say thank you or are we going to speak to you again?

MITCHELL: Oh, I'm sure I'll be speaking to you right up to the end of the year.

COUTTS: So have you got an exit date?

MITCHELL: I'm leaving on the 31st. December.