INDICATIONS that the Government may consider setting up a sovereign wealth fund to capture revenue from the PNG LNG project were first made known to this newspaper during the 10th Mining and Petroleum Conference in Sydney last December.
National Planning Minister Paul Tiensten told The National in an interview in Sydney that a sovereign fund would be set up, through the Independent Public Business Corporation, to capture funds flowing in from the State’s equity interest in the project.
Then, Mr Tiensten said he wanted to see funds flowing into this fund invested directly in public works, infrastructure development, health, education and agriculture.
The idea, Mr Tiensten said, was that because the LNG project had a lifespan of only 30 years, he wanted to see a good portion of proceeds from this non-renewable resource invested in areas that in the long term would grow the economy on a sustainable basis after the oil and gas ran out.
He said then that PNG had to learn from countries, especially on the African continent, that had seen a lot of revenue from huge projects mismanaged or go to waste, often because of corrupt leaders.
With the announcement this week by Public Enterprises Minister Arthur Somare, the Government is moving ahead to set up this fund.
Discussions were held in Canberra, Australia, recently, involving key ministers including Mr Somare, Mr Tiensten, and Public Service Minister Peter O’Neill and their Australian counterparts.
Australia agreed to provide the expertise and assistance to set up this fund.
Legislation is now expected to be brought to Parliament for its approval. Because this is a first for PNG, some may wonder what a sovereign wealth fund is and how it will benefit PNG and its citizens.
A sovereign fund is essentially an investment fund owned by the State in which the nation’s wealth is captured and invested globally for its future generations.
The wealth is available to cushion the country when the bad times hit. The PNG LNG project is on track for a final investment decision in December, and the first shipment of LNG is expected to leave the shores of PNG in late 2013 or early 2014.
Over the life of this project, about 30 years, about US$50 billion in tax revenue and dividends are expected to flow into the country. That is an immense amount of money the country has not seen before.
The country’s annual budget is expected to grow 10-fold. We will be “flush with cash” if we can borrow that phrase.
But the Government’s record, and it is not just the Somare Government, in managing and spending surplus cash has been found wanting. In recent years, almost K7 billion in “windfall revenue” has been parked in trust accounts by the Government. These are monies that flowed in during the period when commodity prices were doing very well.
Most of these funds have now been depleted, and there is very little to show for them.
The Education Department says it needs K12 billion to rehabilitate all schools throughout the country.
The Government parked K230 million in RESI funds for this exercise, but allegations of corruption and stealing led to the Ombudsman Commission slapping a freeze on the trust account in which the RESI funds were kept. The freeze has recently been lifted, but Education officials are resigned to the fact that they have “lost” those funds.
For agriculture, K200 million was allocated through the National Agriculture Development Programme since 2007 to assist farmers in agriculture and to revive the cash crop industry.
But again the use of these funds is shrouded in controversy, with allegations of stealing and mismanagement rampant. Even Agriculture Minister John Hickey angrily pointed the finger at the National Planning Department, accusing it of dishing the money out to “paper farmers”.
Clearly, the Government needs to do a lot better than that to protect the wealth of the nation and its future generation. We commend the decision of the Government to set up the sovereign fund to invest proceeds of our equity in this massive project wisely.
We do not want to wake up one day with nothing to show for a huge project that had the biggest company in the world rushing to our shores.