by BRIAN GOMEZ
Resources boom a long-term reality

When economists discuss Papua New Guinea’s current macroeconomic situation, they generally provide a warning that the recent earnings windfall is not sustainable.
We are told about the ‘Dutch Disease’ or the ‘Resources Curse’ where resource-rich countries over-commit anticipated windfall revenues from high commodity prices.
This problem eventually leads to increased
domestic and foreign public sector debt and a hardening currency that makes it difficult for local industries and exporters to compete and export.
There is a grain of truth in this.
But this is also a good example of negativism.
Should unexpected good fortune always end up in creating a ‘disease’ or a ‘curse’?
The answer is most certainly not.
Commodity rich countries like Nigeria and Zaire are often cited to support the negative thesis.
PNG’s immediate neighbour, Indonesia, has been a shining example of how such revenues can be used for the greater benefit of its people.
The massive surge in per capita incomes enjoyed by Indonesia in the two decades prior to the 1997 crash was due to the ability of the Suharto government to utilise oil export revenues to promote its agricultural sector.
Indonesia is one of the few countries in the developing world to move from the ranks of a least developed countries to a less developed one so that per capita incomes that were a fraction of those in PNG are now significantly larger.
Sound macroeconomic policies, such as what we have seen from the current Government since 2002, is certainly important and windfall revenues from high commodity prices needs to be put to good long-term use.
Bottom Line would also like to refute suggestions that PNG’s current resources boom in terms of future activities and growth is not sustainable.
This is the case even though record prices for copper may only last another year or two and, Ok Tedi, the only current copper producer, faces possible closure after 2013 when it runs out of ore reserves.
Ok Tedi has, in fact, been the biggest single contributor to increased Government revenues with a significant role played by Oil Search, the country’s major oil producer.
PNG’s crude oil production of 50,000 barrels a day is expected to last another three years before going into decline.
Both are good examples of why PNG’s resources boom may not be sustainable, but exploration and development incentives put in place in 2003 has fostered what is shaping up as the nation‘s biggest ever resources boom.
Previous expectations of PNG’s resources sector were unrealistic.
From independence until the mid-1980s when Ok Tedi came on stream, much revolved around the country’s only significant copper mine in Bougainville.
Then came Kutubu and the start of oil exports in 1992.
Although this led to some level of government extravagance and poor planning, people tend to conveniently forget the debilitating impact of the Bougainville conflict when the biggest single export earner was snuffed out.
As a reflection of poor investor confidence, hundreds of wealthy Papua New Guineans busily bought properties in Cairns, Queensland’s Gold Coast and in Brisbane, ignoring higher returns on properties in Port Moresby and Lae.
But all that is the past. The incredibly improved fiscal outlook – foreign debt is now down to its lowest level in 1982 – and the tremendous boost in investor confidence augurs well for the future.
Only five or six years after its predecessor, Placer Niugini, wanted to pack up and leave PNG’s shores, Barrick Gold has firm plans to remain one of the biggest gold producers in Australasia at least till 2020.
Lihir Gold would be even bigger if it manages its plan to produce more than a million ounces of gold annually by the end of the decade, by which time it hopefully would be as large a corporate tax payer as Ok Tedi in more normal times.
And if things go to plan Nautilus Mining’s world-first deep water mining project, off Manus Island, will create a revenue flow that will be as strong as Ok Tedi’s but with a lower cost base.
Besides these giants, PNG is seeing for the first time the start of a variety of mining projects, including some of small to medium size and scattered through different parts of the country.
Each of these has thousands of landowners who will become direct beneficiaries of royalty payments, enabling many to be able to afford sending their kids to school and to pay for other goods and services.
This is one of the unique and positive aspects of PNG’s resources developments that one doesn’t find in Nigeria and most other countries, where gold and other minerals are considered to belong to the Crown or the government.
Smaller new mines include Sinvit and Simberi, both of which begin production this year, while Harmony Gold’s Hidden Valley project involves a medium sized gold mine.
By the end of the decade, Ramu nickel will also be a world-scale producer and the first miner to produce LME-grade nickel metal at a refinery at Basamuk, near Madang, prior to export.
These are projects that will employ several thousand people directly and create even more work indirectly for service providers, contractors and others. (When the Bougainville mine shut down, 10% of jobs were lost in Port Moresby.)
The two petrochemical projects being touted for Port Moresby towards the end of this decade are expected to create 4,000 direct jobs and a new community for some 20,000 people needs to be built in the hinterland from the Napa Napa oil refinery.
The liquefied natural gas (LNG) plant Oil Search is determined to see built by 2013 to export around six million tonnes a year, is expected to provide an even better returns than the petrochemical projects and will be as significant a corporate tax payer as oil in its hey day.
What PNG needs is a clear focus on ensuring the right climate for investment continues and that increased socio-economic spending is done in a carefully planned and coordinated way to ensure maximum local impacts.
Just as was the case in Indonesia from the mid-1970s onwards, Papua New Guinea needs to underwrite a massive boost in agricultural development and productivity to ensure the nation enjoys a ‘Resources Blessing’ rather than a ‘curse’.