THE mining and petroleum sector is expected to contribute close to K2.5 billion in revenue which is more than 40% of total revenue in 2008.
The Government’s forecast was based on this year’s average price assumption of US$61.9 (K174.85) per barrel for oil and US$5,400 (K15,254) per tonne for copper, US$662 (K1870) per ounce for gold, and an exchange rate of US$0.34 (K0.96).
The forecast was also in line with the International Monetary Fund’s projections.
As per the 2008 economic outlook presented in 2008 National Budget in Parliament last Tuesday, movements in commodity prices and the exchange rates could have large effects on the Government’s revenue through the industry’s taxes, dividend withholding tax and mining dividend payments.
It was also projected that the country’s exchange rates may move in line with commodity price changes that could result in an offset to the effects on revenue of the commodity prices changes.
“Higher commodity prices will result in more revenue, while a higher exchange rate will result in less revenue,” the economic outlook stated.
These high commodity prices had been accompanied by increased volatility as since the beginning of 2006, oil and copper prices had shifted by more than 20% on at least six occasions, with some of these movements taking place over less than a week.
The economic outlook said that given the great difficulty of predicting commodity prices or exchange rates movements, the Government had been careful to use prudent price assumptions that went along with IMF advice and the budgeting practice of most other mineral producing countries.
Thus, the disruption at major mineral projects was among the risks to the economic outlook as pointed out by Simon Tosali, Secretary for Treasury.
Mr Tosali gave example of the landowner issues at Lihir, Porgera, Ramu Nickel and Sinivit that had led to loss of production at these various mine sites.
Other disruptions could include unforeseen shutdowns, the mining of lower ore grades, project costs, capital expenditures among others.
Apart from the mineral and petroleum industry other factors also added risk to the economic outlook that included loss of financial discipline and lack of progress on key reforms.