Sir Mekere: SWF to stabilise revenue flows

Business, Normal

The National, Wednesday 4th January 2012

THE Sovereign Wealth Fund which will receive all government revenues from the PNG LNG project and other mineral and hydrocarbon developments will be managed independently by experts and invested prudently on the state’s behalf.
That was disclosed by Public Enterprises Minister Sir Mekere Morauta in an article he wrote for Australian National University’s website published on Monday.
“The primary purpose of the sovereign wealth fund, which recently gained parliament’s backing, is to stabilise potentially volatile revenue flows from the mining and petroleum sectors.
“Instead of flowing directly to government, mining and petroleum revenues will be paid into a separate fund, managed independently by experts and invested prudently on the state’s behalf,” Sir Mekere said.
He said the annual budgetary withdrawals from the SWF must not exceed the moving average of the last 15 years’ mining and petroleum revenues.
“This is a fairly conservative rule that has been designed to allow the fund to build up while at the same time allowing a smooth and predictable flow of funding into the national budget,” Sir Mekere said.
The National newspaper was unable to get annual export revenue going back 15 years, but only the 10 years from 2001 to 2010 wherein a total of K91.4 billion was earned in PNG by the mining and petroleum companies.
The total revenue earned by government for the 10 years could not be ascertained.
Sir Mekere said predictable funding for the national budget from the SWF should enable better planning of expenditure.
“This is important because many programs, such as free education, have large ongoing expenses – and previous national budgets have failed to allocate sufficient funding to meet these costs,” he said.
Sir Mekere said PNG’s proposed solution was to earmark a portion of mining and petroleum revenues for the maintenance of national infrastructure.
“This reduces the uncertainty that future budgets will be financed through unsustainable cuts to the maintenance of assets, which then require costly rehabilitation projects.
“The process enables government to enter into longer-term contracts with private-sector providers, reducing transaction costs and focusing on the delivery of quality outputs,” he said.
In his article, Sir Mekere did not acknowledge the efforts of his predecessor Arthur Somare, who was the main driving force behind the establishment of the SWF.
However, he said when he became minister for Public Enterprises, it “reignited hopes that critical reforms to safeguard PNG’s future wealth could be implemented and the benefits passed on to future generations” – the very reason Somare had pushed for the establishment of the fund.