Resource centre boosts growth

There is little doubt the resources sector has steamrolled PNG’s rapid economic growth and high levels of job creation since 2005.
It was funding from the resources boom, along with dissatisfaction with previous development trends, that led the Somare government to im­plment its District Services Im­provement Programme or DSIP as it is popularly known.
The government of Peter O’Neill has decided to imple­ment a different strategy by at­tempting to provide free education and free health servi­ces.
This brings us back to the role of the resources sector, which is much maligned for a variety of reasons – from lack of enhancing local and regional development to divisive landowner, environment and health-related issues.
It is difficult to focus on the sector-wide impacts in all its forms, but nevertheless a scenario can be provided from the recent performances of the two most high profile resources companies – Ok Tedi Mining Ltd and Oil Search.
It is not widely understood that despite its extremely difficult history, Ok Tedi is pre­sently making a huge financial contribution, providing the bedrock for the big budget surpluses enjoyed since 2005 by the national government.
It was no different last year. As reported in The National last Friday, Ok Tedi mining operations faced its share of difficulties especially after a slurry pipeline handling waste
was ruptured. This halted oprations for a month amid planning for possible mine closure within the next two years.
Ok Tedi reported that it paid the national government K604.3 million in company tax last year, down from the previous year’s K840 million.
This is only a part of its financial contribution. A much larger sum flowed through to the nation in various other ways, including dividends and
royalty.  The mine has been 100% PNG-owned since February last year.
Dividends paid to its two owners – PNG Sustainable Development Program Ltd (63.4%) and the national go­vernment (36.6%) – amounted to an additional K773.6 million.
This would have been considerably more if not for the K880.8 million used to buy back the 18% equity previously held by Canada’s Inmet.
The Fly River provincial government and mine area landowners each received an additional K42.9 million, and Ok Tedi says it spent K988 million purchasing goods and services from local PNG providers.
Oil Search, for its part, paid the government K509 million in company tax last year in addition to payments to landowners and others­.
The corporate tax paid to the government by these two companies, amounting to K1.1 billion, or around K160 for every Papua New Guinean, could go a long way in underwriting the government’s free education policy if it was directly used in this manner.
Ok Tedi commenced mi­ning of copper-gold in 1984 and Oil Search did the same eight years later from Kutubu in Southern Highlands.
Large-scale mining pro­jects can take a long time before they start paying company taxes because of huge development costs, sig­nificant operational expenditure and the volatile nature of commodity prices.
In the case of Ok Tedi, the first company tax payment was made 11 years after the start of exports and 14 years after development commenced.
The Ok Tedi and Kutubu operations can be regarded as first generation resource ventures post-independence. If not for the lease of life provided by the PNG LNG project, both would be in their twilight years.
It should be recalled that until 2002 the virtual demise of PNG’s resources sector was taken as a certainty by the middle of this decade.
Although the benefit streams from the policy changes made in 2003 are today being felt throughout the nation, it will probably take another decade before the full impact of the newer operations at Ramu nickel and the yet-to-be developed Yandera, Frieda River and others will make comparable contributions.
But then again sudden and inexplicable policy shifts can make this promise an ephe­meral reality – just as it did from the mid-1990s to 2002.
We are encouraged and emboldened by the assuran­ce by Prime Minister Peter O’Neill following his party convention in Goroka and the party has included economic stability as one of its five pillars.
This will require strong political commitment as well as stable politics; good, transparent and stable fiscal and monetary policies, a taxation policy that is comparable with others in the region and a legal regime that can make PNG the investment destination of choice for investors.
In this last area of le­gislation, there are far too much talk that is unsettling for investors who need political reassurance that the goalposts are not going to shift overnight.