by
Brian Gomez
PNG starts to enjoy
benefits
For some considerable time, Bottom
Line has argued that the Somare Government had done a good job
managing the economy since it came into office in 2002, arguably
the best of any government since the early 1990s.
To put this into perspective, one has to accept that such
comparisons are dependent on perceptions about performance in
different periods of time and to bear in mind that good policies
usually take many years to bear fruit.
Bottom Line will try to explain why and how some good policies
will only be bearing fruit in the coming five-year period and
beyond, just as bad and indecisive policies will hamper progress.
The clearest example comes from policy changes to the Mining Act
in early 2003 that ended the silly policies of the previous decade
where PNG basically told the world: “Sorry, we are not interested
in new mining investments.”
A new and more welcoming climate began with the ending of dual
taxation on mining and introduction of a range of incentives such
as increased tax deductibility and ending of “ring fencing”, where
mineral exploration spending can only be deducted from relevant
mine revenues.
These policies are common in many resource-rich countries around
the world, including Australia.
The new mining legislation represents good policy that will bring
significant benefits to this and future generations.
Let me explain this with the help of some statistics.
According to figures published by the Bank of Papua New Guinea,
PNG last year produced 55.8 tonnes of gold.
This was the lowest in nine years and contrasts with 44.3 tonnes
produced in 1997.
PNG’s highest gold production was 72.8 tonnes in 2000, closely
followed by 70.5 tonnes in 2005.
The same major mines have contributed to these figures – Ok Tedi,
Porgera and Lihir with smaller quantities from Tolukuma and from a
steady flow of alluvial gold produced by landowners.
The big drop in gold production last year was due to lower
production from the four major producers and a big fall at Porgera
due to stability problems at the west wall of its open pit mine.
This clearly shows that the positive policy changes of early 2003
have had no effect on gold production since then, with the
situation about to change four years later.
Two new gold mines will start-up this year.
The relatively small Sinivit mine, close to Rabaul, recently began
to produce about one tonne of gold annually.
In October, Simberi, on an island not far from Lihir, will begin
producing three tonnes annually.
Towards the latter part of next year, the Hidden Valley mine of
Harmony Gold will produce at an equivalent rate of around 10
tonnes of gold annually, taking into consideration the value of
the large quantities of silver it will produce.
The seven-year-old 72.8 tonne record gold production figure will
soon be dwarfed, almost certainly by around the turn of this
decade.
These three mines will make royalty payments to several thousand
landowners, enabling them to afford school fees for their children
or medical expenses when someone in the family is ill.
The gains can be lost, and the investment climate adversely
affected, because of sudden policy reversals or if law and order
problems suddenly affect mining operations and scare off
investors.
Otherwise, steady growth will occur over the medium term at least.
The impact of the new mining laws has been even more dramatic for
copper, today’s glamour export where Ok Tedi has been the only
producer since closure of the Bougainville mine in the late 1980s.
As a consequence of the favourable mining laws, Marengo Mining is
at an advanced stage of proving up its Yandera copper-molybdenum
deposit, which could be brought into production in 2011.
This is also the case for Frontier Mining’s excellent Kodu
copper-gold deposit, not too far from Port Moresby.
It was the Somare Government that directly attracted developers
from China for Ramu nickel after Highlands Pacific had spent
several years, including the hiring of expensive consultants, in a
futile search for joint venture partners.
A similar story has been repeated on PNG’s important forestry
front, where time lags are a significant factor as well.
When it took office in 2002, the Somare Government announced that
it wanted to see at least 10 forest projects start up as soon as
possible after a period of more than 10 years where not a single
major new venture was started.
But because stringent regulations have to be met and projects
approved by the National Forest Board, only one such project is
now in full production at Cloudy Bay, where PNG Sustainable
Development Program Ltd is a major owner of the 100% timber
processing operation.
Six other major forestry projects in various parts of the country
are also being developed.
Together they will raise PNG’s export capacity for forest products
by 20% or more and create many jobs while paying significant
royalties to thousands of landowners.
None of these projects would have been started if the World Bank
had continued to interfere in forestry issues and its Forest
Conservation Project had not been cancelled.
The on-off-on again problems with a new fisheries project in East
New Britain suggests that little progress may have been made in
the fisheries sector even though there have been claims that a
third cannery has commenced operations.
BPNG’s marine export data presents a fairly dismal picture, but
one that is still much better than agriculture, where the only
bright spot had been palm oil and, to a lesser extent, cocoa.
