Solomon Islands leads the Pacific island region in terms of SOE profitability, according to the findings of a newly released ADB report
(ADB/SolStar) SOLOMON Islands’ robust legal framework for State-Owned Enterprises (SOEs) has contributed to the financial success of its largest SOEs and generated the highest portfolio returns among nine Pacific island countries, a new Asian Development Bank (ADB) report says.
Finding Balance 2023: Benchmarking Performance and Building Climate Resilience in Pacific State-Owned Enterprises compares the performance of SOEs in Fiji, Kiribati, the Marshall Islands, Palau, Papua New Guinea, Samoa, Solomon Islands, Tonga, and Vanuatu, and tracks the progress of SOE commercialisation in the region.
The report’s findings were discussed by government, business, and civil society representatives at a Finding Balance 2023 launch event yesterday in Honiara.
“Solomon Islands’ SOE framework requires SOEs to operate profitably, appoint suitably-skilled directors, and adhere to robust corporate planning and reporting standards,” ADB Pacific Liaison and Coordination Office Regional Director Shane Rosenthal said. “This will ensure Solomon Islands’ SOEs remain on a strong financial footing in the future.”
The average returns among Solomon Islands’ 11 surveyed SOEs improved markedly from 2010, driven by improved collections, tariff setting, and the implementation of the 2007 SOE Act and its 2010 regulations. These regulations required SOEs to operate as commercial businesses.
The average return on equity for Solomon Islands’ SOEs from 2010–2020 was a Pacific-leading 10 percent, while the average return on assets was 7 percent over the same period.
Finding Balance 2023, produced by the Pacific Private Sector Development Initiative (PSDI), has a special focus on the risks posed by climate change, and how Pacific governments and state-owned utilities can manage its effects and build resilience.
The report finds that state-owned utilities that are more commercialized may be more inclined to respond to incentives to decarbonise and invest in protecting their assets. It also shows that SOEs in the Pacific have improved their returns, but are still failing to cover their cost of capital.
Finding Balance 2023 Key Findings for Solomon Islands:
- Number of SOEs: 11
- Dominant industries: Power, aviation, ports, water
- Book value of assets (2020): S$3.1 billion
- SOE total fixed assets in economy (2020): 16–28 percent
- Average portfolio contribution to GDP (2010–2020): 3 percent
- Average return on assets (2010–2020): 7 percent
- Average return on equity (2010–2020): 10 percent
Solomon Islands SOE Reform Highlights, 2015–2022:
- The adoption of an SOE Ownership Policy in 2018, committing the government to review the rationale for SOE investments; actively explore public-private partnerships (PPPs); and strengthen SOE oversight by consolidating responsibility in the Minister of Finance;
- The preparation of amendments to the SOE Act to strengthen governance and ownership oversight;
- The establishment of the Solomon Islands Airport Corporation under the Companies Act and SOE Act. This is a positive step towards commercialization of Solomon Islands’ airports; and
- Reaching financial close on the country’s first large PPP project, the Tina River hydroelectric plant, in 2019.
PSDI is an ADB technical assistance program undertaken in partnership with the governments of Australia and New Zealand. PSDI supports ADB’s 14 Pacific developing member countries to improve the enabling environment for business and to achieve inclusive, private sector-led economic growth.