SWF designed to protect PNG’s economy

PAPUA New Guinea (PNG) is setting up a resource-funded Sovereign Wealth Fund (SWF) as confirmed in the 2019 National Budget, Volume 1.
According to the Budget, the resources responsible for financing the SWF are minerals and petroleum.
The SWF has been designed to protect the PNG economy from external shocks by supporting macroeconomic stabilisation, prudent asset management of financial assets accrued by the State and to spread the country’s wealth more equitably across generations.
The government is in the process of appointing the inaugural SWF chairman and board members and the National Executive Council (NEC) is also expected to approve the Organic Law on the Sovereign Wealth Fund (OLSWF) via a notice in the National Gazette by the Head of State.

Bandara … Santiago Principles makes SWF more transparent
University of PNG senior lecturer in business and public policy Panditha Bandara says PNG’s new SWF, when established, will be more transparent and better managed under the international guidelines of the Santiago Principles and the OLSWF.
“Objectives are clearly spelt out there. According to the act, the SWF of PNG will have two components: one is the stabilisation fund and the other is the savings fund.
“When the stabilisation fund reaches US$1 billion (K3.38 billion), then the (excess/surplus) funds will be diverted to the savings account.
“Once this builds up to a certain level, the SWF will start investing in foreign assets. The previous stabilisation funds invested in the domestic market. So there’s a difference in SWF,” he said.

Minji … trust funds should be managed by central bank
Jiwaka-based accountant Joseph Minji says the concept of SWF was first mooted in 2017 for various reasons.
“It was to get all the excess windfall revenue funds held onshore into trust accounts in PNG with domestic commercial banks earning nominal interest whilst the central bank was compelled to issue central bank bills to these local commercial banks at much higher interest rates as and when required, thus costing central bank a premium in interest payments.
“The management in these trust accounts were also bogged down by issues of accountability, transparency and corporate governance.
“Perhaps these accounts should be opened and maintained with the central bank,” Minji said.
He added: “During the construction phase of the PNG LNG project from 2011, the Kina started gaining directly from the operator, ExxonMobil, and its major contractors, marshalling their resources into PNG to service the project.
“This situation tapered off from late 2014. The trust accounts were not properly managed.
“A hyperinflation from domestic demand for consumable items increased due to more disposable income for workers at the PNG LNG project and the landowners, causing total neglect of our agriculture sector, not to mention the declining produce prices.
“Bottom line: the central bank balance sheet was erratic and was not able to provide a good return to the State. From late 2014, PNG had acute foreign currency reserve shortages.
“Small businesses had to wait weeks to pay overseas suppliers for amounts from US$5,000 (K16,900).
“For wholly-owned PNG based subsidiaries and associate companies of multinationals, they can survive using inter-company current accounts – no pressure on them to pay up.”
Minji suggested that SWF monitoring agencies like the economic sectoral committee, the ministerial economic sectoral committee, and the National Executive Council reported its performance periodically.
Saonu … SWF must benefit future generations
Morobe Governor Ginson Saonu, whose province hosts the giant multi-billion kina Wafi-Golpu gold and copper mine, says benefits must flow on to future generations through the SWF.
He said billions of kina worth of gold had been taken out of Morobe since the gold rush days of the 1920s up to today with the Hidden Valley Mine, but the province and country had nothing to show for it by way of savings.
“For example look at Wau-Bulolo. So much was taken out in the colonial days. If some money was set aside, we wouldn’t have to worry about the historical mining towns of Wau and Bulolo,” he added.
Saonu said: “The glaring mistakes of the past must not be repeated in Wafi-Golpu.
“Funds from Wafi-Golpu must be used for the future good of Morobe and the country. We want to approach the Wafi-Golpu mine in a different way so that we do not repeat the mistakes of the past.
“We are going to come up with our provincial position paper to be presented to the national government. We are going to ask the government and the developer for something better than Wau and Bulolo, as well as Hidden Valley.”

Weiang … why no SWF in place today?
Lawyer Veronica Weiang says she does not know why PNG did not have an operational and rewarding SWF in place today.
“As I recall from memory, the SWF was set up to capture the revenue derived from oil and gas around 2014. Since then, we have not heard much about the SWF. So what’s happened to it?” she asked when interviewed by The National.
“I lost track of the progress on SWF after 2014. Is it still active? How many LNG shipments have left our shores since 2014?
“We don’t hear anything about the SWF that was to be established to thwart the ‘Dutch Disease’ and propel PNG to an era of greater wealth creation and management for a brighter future.
“Actually, around 2012 to 2014, there was much talk, the legislation was passed in Parliament, then revised.
“And then, what happened?”