By Glenn Banks and Martyn Namorong in Port Moresby

Government revenues from Papua New Guinea’s mining, oil and gas sector have essentially dried up.

With the ongoing effects of the devastating earthquake in Hela province, the eruption of election-related violence in the Southern Highlands, a significant budget shortfall, and a foreign exchange crisis driving business confidence down, the resources of the government are severely stretched… and the massively expensive APEC meeting looms in November.

In this context, the drop in government revenue from the resource sector is staggering. And accounts in significant part for the growing fiscal stress.

In 2006-2008, according to Bank of Papua New Guinea figures, the government collected more than K2 billion (NZ$0.9 billion) annually from the sector by way of taxes and dividends, on mineral exports that had just topped K10 billion (NZ$4.6 billion) for the first time.

In 2017, the figure is just K400 million (NZ$180 million) on exports of K25 billion (NZ$11.5 billion) – a revenue reduction of more than 80 percent in the same time that exports have increased by 150 percent.

Government dividends and corporate taxes made up just 1.6 percent of the value of exports in 2017 (and that was a significant increase over 2015 and 2016).

If we take the long-term average share of the value of exports that the government has received (at a little over 10 percent), this points to a potential ‘‘hole’’ of at least K8 billion over the past four years, an amount that would go a long way to covering the current fiscal deficit.

Some precedents
There are some precedents for the rapid drop in government revenues from the sector. In 1990 and 1991 – just as the ‘‘resources boom’’ triggered by the Porgera gold mine and oil production at the Kutubu oilfield began – revenues collapsed, largely due to the closure of the Bougainville copper mine in 1989; and again, briefly in 2009 due to the onset of the global financial crisis in 2008.

But neither of these has been as deep or as sustained as the current hole.

A full explanation of the precipitous decline in resource revenues is beyond the scope of this analysis.

Clearly, a number of factors are involved, including a fall in commodity prices, major construction and expansion costs (which attract accelerated depreciation provisions) and generous tax deals.

The revenue dry-up of the past four years also reveals that the state bears a disproportionate share of the risks associated with resource projects and investments. If we go back to the original intent of the post-Independence mineral policy, it was to translate mineral wealth into broad-based development across the whole country:
“…known mineral resources should be developed for the revenue they can provide to the government” (PNG Department of Finance 1977: 2).

This clearly has not happened in the last four years. And certainly the Treasurer cannot be critiqued for commissioning yet another fiscal review: this seems appropriate, although whether it effectively addresses broader issues of a “fair share” of mineral wealth remaining in PNG remains to be seen.

While there is much less money coming from the resources sector, there is at least better data than there used to be. The Extractive Industries Transparency Initiative (EITI) is a global initiative begun in 2002 to give transparency to what were regarded as often opaque flows of resource revenues from multinational companies in the extractives sector (especially oil) to the state in the countries in which they were operating.

Voluntary initiative
It is a voluntary initiative in which countries (and companies) can elect to become a “candidate” country, and so long as they are able to be compliant with EITI standards, they can be admitted as a full member of EITI.

The key requirement is to be able to report in a reliable way (through third party audits) on the revenues paid by companies, and reconcile these with payments received by the different arms of the state.

The involvement of all parties – companies, governments and civil society – and public communication around the event and its products is also seen as central to both transparency and raising awareness of the nature of resource revenues and their destination.

Papua New Guinesa initiated its involvement in EITI in 2012. Four annual EITI reports have so far been produced (for the years 2013 to 2016). These reports provide an increasingly rigorous and transparent set of data on flows from the sector to the government, and identify additional revenue streams to the government than what BPNG use (and have used for the past 40 years).

When all the additional revenue streams that EITI identify are included, the total share of the value of mineral exports rises to around 6.5 percent for 2017, up from the 1.6 percent based on the BPNG data.

EITI is not without its problems and the most recent PNG country report identifies areas where it needs to be strengthened in PNG, and a focus on companies rather than operations can lead to the obfuscation of total flows and payments from each mine, oil and gasfield.

In the PNG context, an examination of the sub-national flows and audit trails is also significant, and an initial study into this is underway.

This article was originally published in the PNG Post-Courier.

By Sylvester Gawi in Singapore

I hope you are reading this with ease and a positive mindset to help change the course of this beautiful country of ours – Papua New Guinea. My first time experience here has made me  raise questions about how our economy has been mismanaged over the last 40years.

I’ve come to know this place from reading books, magazines, watching videos, documentaries and even looking it up on the internet.

From the countless travel magazines in secondhand shops in Lae in the 1990s to the LCD screens of the most sophisticated smartphones accessed by almost all school age kids in PNG today, Singapore has literally changed in front of our eyes.

I read with much interest about how Singapore has transformed itself from a small island nation to become one of the most developed countries in the world.

Singapore’s rise to power
Singapore has a rich history of civilisation. It was once colonised by the British empire. During the Second World War it was invaded by the Japanese, and later taken over again by the British after the war when Japan surrendered to the Allies.

The failure of Britain to defend Singapore during the war forced the people to cry for merdeka, or self governance. It 1963, Singapore became part of Malaysia, ending  144 years of British rule on the island.

Since gaining independence from Malaysia on August 9, 1965, Singapore has since progressed on to be the host of one of the biggest and busiest air and sea ports in the world.

Lessons for PNG
Papua New Guinea has some of the world’s largest natural resource deposits in gold, copper, timber and now the Liquefied Natural Gas (LNG) or the PNG LNG Project which is worth US$19 billion.

Papua New Guinea’s GDP per capita in 2017 was US$2401. The highest so far was in 2015 when our GDP per capita was US$2402.

Singapore’s GDP per capita continues to grow annually and it is now US$55,235.

Singapore has been able to made its way to becoming a developed country in just under 53 years of Independence. Its government subsidises housing, medical bills, education, public transport and so on, and increases economic opportunities for middle to low income earners.

It is an island country without any gold, copper, nickel mines, LNG project, organic coffee, timber or any other natural resources. It is a very strategic port of transition where goods and raw materials are brought here first then transported elsewhere across the world.

We also have the Lae port in PNG, which is one of the the most most strategic ports in the Southern Hemisphere. It is where cargoes from across the world transit into the Australia and even the Pacific.

The Lae port and the production line of businesses operating in Lae generates well over K111 million for the national government coffers annually as internal revenue. The Lae port serves as the only seaport that controls import of raw materials and exports of organic coffee, cocoa and other organic products for international markets.

Better roads, schools
We could have better roads being built, good schools, hospitals and life improving facilities for every tax payer in the city. Our SME sector should have fully flourished by now if we have the government putting its paper policy to work.

Squatter settlements and law and order won’t be major impediments for growth and development. People’s mindset would have changed and people’s movement in search for better service delivery would have been narrowed down.

Everyone here in Singapore respects each other despite their color, ethnicity and religion. There is no littering, loitering or even people sleeping on the streets. You will get caned by the police if you don’t dispose your rubbish in the right place.

The Singaporean government has made it its responsibility to ensure every citizen learns to appreciate and look after the environment. There are separate rubbish bins for biodegradable and non-biodegradable. No smoking in public or even spitting as you will be fined and dealt with accordingly.

All this boils down is a need to for a change in attitude in Papua New Guinea. If we change our attitude and start respecting each other and the environment we live in, we will create a good future for our children.

Since we don’t change ourselves, we have kept on voting self-centered individuals to represent our interest in Parliament for the last 40 years.

A politician once told me, he has plans and dreams to reclaim the beauty of the city he grew up in the early 70s. But he added that that dream would only be achievable if the people changed their mindset. Also one member of Parliament won’t make the change happen, it needs the majority to stand up for the people’s needs.

Last generation
“represent the last generation of Papua New Guinean kids who have used a kerosene lamp, a payphone, drank from a Coke bottle and listened to music on cassette players while growing up. We have anticipated so much to change for the better, but we are seeing it the other way around.

Life is getting tougher.

Our politicians should stop coming to Singapore for medical treatment alone, they should start focusing on making PNG become the next Singapore.

A wise man once said, if we continue to tell lies, it will surely become the truth. If the government can fool us for 40 years, they might continue to sell PNG’s resources for their own interest.

Sylvester Gawi is a Papua New Guinean journalist who blogs at Graun Blong Mi – My Land.

“On almost every measure of economic welfare, the PNG economy would have been better off without the PNG LNG project.”

Pacific Media Centre Newsdesk

Papua New Guinea’s massive PNG LNG project is one of “broken promises” that has largely failed the country, according to a major study released yesterday by Jubilee Australia.

Entitled Double or Nothing: The Broken Economic Promises of PNG LNG, this report, co-authored by Paul Flanagan and Dr Luke Fletcher, compares the projected economic benefits of the PNG LNG project with actual outcomes.

The new study uses PNG government data to examine the predictions of the 2008 project report commissioned by ExxonMobil and promoted by Oil Search.

This examination finds that the positive predictions for the PNG economy were largely incorrect.

Key findings:

• Despite predictions of a doubling in the size of the economy, the outcome was a gain of only 10 percent and all of this focused on the largely foreign-owned resource sector itself;
• Despite predictions of an 84 percent increase in household incomes, the outcome was a fall of 6 percent;
• ●Despite predictions of a 42 percent increase in employment, the outcome was a fall of 27 percent;
• ●Despite predictions of an 85 percent increase in government expenditure to support better education, health, law and order, and infrastructure, the outcome was a fall of 32 percent; and
• ●Despite predictions of a 58 percent increase in imports, the outcome was a fall of 73 percent.

30-year span
PNG LNG is an Exxon-led project which supplies about 8 million tonnes of LNG a year to Japan, South Korea and China.

It is projected to run for 30 years. In 2009, Australia’s Export Credit Agency, Efic lent A$500 million to Exxon, OilSearch, Santos and the government of PNG.

Efic’s decision was based on advice from the Department of Foreign Affairs and Trade (DFAT) provided to the then-Minister for Trade, Simon Crean, on advice from DFAT. This is the largest loan ever made by Efic.

Paul Flanagan writes in PNG Economics:

Specifically, growth in the resource sector has matched the confident predictions even with the fall in oil prices in 2014.

However, all other parts of the PNG economy have not done as well as predicted.

This is a major “broken promises” gap. This is the basis for the title of the latest report – the PNG LNG project promised to double GDP, but the outcome of 10 percent is close to nothing (especially when the size of PNG’s GDP is facing a major downgrade in the latest NSO 2015 update).

Revenues to the budget are only one-third of expected levels, and after allowing for project costs, will continue having a net negative impact on the budget (so below nothing) until around 2024.

Economy gone backwards
Of even greater concern, the examination finds that the PNG economy, apart from the resource sector, has actually gone backwards relative to its underlying growth path.

The most likely explanation for this sad outcome is PNG has slipped again into poor policies associated with the resource curse. The temptations of the rosy PNG LNG promises were too strong for politicians despite warnings from PNG Treasury, BPNG and outside academics.

During the O’Neill/Dion government, PNG descended into very damaging economic policies of a bloated budget and PNG’s largest deficits ever, fixing the exchange rate at an over-valued level, making foolish investments in areas such as Oil Search and harming the independence of PNG’s economic institutions.

With the focus being so strongly on getting the PNG LNG project operational, there was a lack of policy emphasis on other parts of the economy.

This is the “resource curse” gap.

Third time
PNG needs to learn the lessons from this experience. This is the third time that PNG has suffered from the resource curse:

• the first was with Bougainville Copper and the experience of the late 1980s;
• the second was the Kutubu/Porgera expectations that crashed so badly in the mid-90s;
• and the PNG LNG period is the third resource crisis.

The benefits of PNG’s resource wealth could in theory be tapped without damaging the rest of the economy.

But it would require very different choices by PNG’s politicians. PNG probably lacks the strong governance and institutions required to deal with the powerful resource sector lobby.

Even in Australia, the power of vested interests around the resource sector is blocking sensible options for sharing resource benefits more equitably and efficiently.

The Oil Search facility near Lake Kutubu in Hela province, Papua New Guinea’s Southern Highlands. Image: Damian Baker/Jubilee Australia