Decline in revenue projected

HEAVY concessions given to major resource project developments will impact revenue negatively next year.
These projects are the Ramu nickel, extension of Lihir gold operations and the LNG project.
There are questions over whether or not the LNG project will commence construction in next year which is largely contingent on the outcome of the licence-based benefits sharing agreements currently underway in time for the project to be signed next month.
While the increased mining activity in Lihir and Ramu nickel and, hopefully, PNG LNG will contribute to slight growth in GDP to 5.3%, direct revenue through taxes and dividends will not be possible given the concessions given to these projects.
In addition, substantial falls in commodity prices from last year and their high volatility throughout this year and drops in production from Ok Tedi and oil producing companies will cause real revenue shortfalls for next year’s budget.
These are considerations by the Government in preparation of next year’s budget to be handed down today.
According to the budget strategy, next year’s budget has been prepared on the basis that there will be a positive outcome for PNG LNG and that construction will commence next year.
If the project does not commence as scheduled, the Government expects a negative impact in overall confidence in PNG and the economy and further lower Government revenue by up to K200 million to the extent that big reductions in Government expenditure will have to be contemplated.
Should the LNG project commence, direct economic benefit will be negligible next year because most of the expenditure will take place overseas or will be paid in expatriate labour.
Six thousand out of the 7,500 workers expected for the construction phase will be expatriates.
At the most indirect impact on Government revenue from the LNG project through spin off business is estimated at K200 million for next year.
This indirect revenue will be overshadowed by direct Government expenditure in the project of more than K600 million – K216 million under the Kokopo Benefits Sharing Agreement for infrastructure and business development grants and K460 million for further unspecified infrastructure commitments.
The Government expects to meet this expenditure out of next year’s development budget and existing trust funds.
The total revenue next year is expected to be lower than this year’s projects.