LNG tax revenue will be slow, says World Bank

THE World Bank warns that the much hyped tax revenue to the Government from the PNG LNG  project will not become available until towards the end of the next decade.
The bank said the current revenue from the “extractive projects” like Ok Tedi mine and the Southern Highlands oil fields would start declining and the Government would be faced with a “significant volatility” of its export and budget revenue base.
This then underscored the need for continuing prudent fiscal management and expenditure smoothing as implemented in recent years, it said.
“The PNG LNG project holds a major upside potential in terms of growth and revenues for the PNG economy, both during the construction stage (2010-13) and especially after production starts in 2014.
“As with other major natural resource projects, however, tax revenues from PNG LNG project are not expected to start flowing until the end of the next decade, several years after the start of production,” the World Bank said in Washington yesterday.
“Meanwhile, in the near term, PNG’s revenues from existing extractive projects were projected to start declining.
“In particular, the Ok Tedi copper mine and Southern Highlands oil fields, which together currently accounted for more than a half of merchandise export earnings and Government mineral revenue, are expected to come to natural depletion by around 2015,” it said.
The WB pointed out that translating of the strong macroeconomic performance and extractive industry revenues into a broad improvement in living standards remained a key challenge for the Government.
“Key policies need to include ensuring the integrity of the public financial management and adequate expenditures for sectoral service provision, improving efficiency of sectoral spending, strict control over the size and performance of the civil service, and transparency and accountability in budget management.
“Thinking also needs to start about setting up more robust institutional structures and mechanisms to save and use the windfalls from LNG and other commodities in the future,” it said.