Vele explains sovereign fund

TREASURY Secretary Dairi Vele says the Sovereign Wealth Fund (SWF) is a vital initiative of the Government. He says an important feature is the disclosure of information to Papua New Guineans, because it will demonstrate the Government’s commitment to manage the revenues for future generations in a transparent and accountable manner. Business Editor SHIRLEY MAULUDU talked to him about the current status of the SWF of PNG.

MAULUDU: Can you explain the establishment of the Sovereign Wealth Fund?
VELE: The State established a Sovereign Wealth Fund in response to the emergence of the LNG project and other resources in the extractive industry sector.
The SWF of PNG will manage the revenues from these developments to promote macroeconomic stability in supporting the budget, promote savings for the benefit of current and future generations in a way that does not adversely impact the economy.
The size and influence of the extractive industry sector potentially presents Papua New Guinea with significant economic opportunities as well as challenges.
The State in foreseeing these opportunities and challenges, decided to put in place a robust mechanism to support the management of windfall revenues with the fundamental objective to underpin social and economic development in Papua New Guinea.
The SWF is established by Section 212A of the Constitution, and consists of two separate and distinct sub-funds known as the Stabilisation Fund and the Savings Fund.
The legal ownership of the SWF is vested in the Independent State of PNG.
The Minister for Treasury (the Treasurer) is mandated with the responsibility to manage the administration and operations of the SWF of PNG.
The Organic Law on the Sovereign Wealth Fund (OLSWF) was passed in the Parliament in July 2015 and certified by the Speaker in January 2016.
The OLSWF specifies sections which must come into operation after certification by the Speaker of Parliament.
The rest of the provisions will come into effect following a gazettal notice by the Head of State upon the advice of the National Executive Council.
Treasury has commenced the implementation of the OLSWF with the preliminary work to establish the board for the SWF of PNG in mid – 2016.
This work is almost concluded and formal process for appointment of the board is expected to commence soon after the national election.

MAULUDU: Have people been appointed to the board and management of the SWF yet?
VELE: The establishment of the SWF Board of PNG and subsequent appointments of the chairman and members are contained in the provisions of the OLSWF, which come into operation immediately upon certification.
In line with the requirements of the certified law, Treasury has commenced the preliminary work on establishing the SWF Board of PNG by engaging an independent and reputable human resources firm.
The firm has already undertaken the search for potential candidates for possible appointment as the chairman and members of the SWF board in the labour markets in  PNG and abroad (mainly the Asia-Pacific region).
The report from the consulting firm will be presented to the screening committee as required by the OLSWF.
The committee will screen the applications and make recommendations to the appointments committee which will decide and advise the Head of State to make appointments through a notice in the National Gazette.
We expect to have the Sovereign Wealth Fund board and the management in place after the national election or by the fourth quarter of 2017.

MAULUDU: Are there processes which still need to be fulfilled before the SWF can fully function?
VELE: Upon certification of the OLSWF by the Speaker of Parliament, only certain parts of the law have come into operation including the requirement for the SWF Board to be established.
The full operationalisation of the OLSWF and subsequent establishment of the SWF requires a process and must proceed through certain requirements as required by the OLSWF.
The implementation of the OLSWF is a two-stage process.
The full operationalisation will only be realised after the gazettal of the OLSWF by the Head of State upon advice from the  National Executive Council, and the subsequent implementation of the relevant provisions which comes into operation.
These processes and the requirements including issues such as subordinate legislations and consequential amendments to existing laws, need time to be fully completed and all efforts are being made to address these.
The Department of Treasury is allocating its effort, time and energy to ensure the process reaches its conclusion successfully in line with the requirements of the OLSWF.

MAULUDU: Are there any additional comments on the matter?
VELE: The current situation faced by our economy, in terms of the fall in mineral and oil prices, is greatly affecting the revenue flows from the mining and petroleum sector.
Simultaneously, revenues from the PNG LNG Project are not expected to flow to the State for until around 2020 after payments have been made on the State’s investment costs.
As a result, the inflows are expected to be substantially lower than projected.
The Government however, expects some dividends to be paid by state-owned enterprises into the SWF.
While the decline in commodity prices is having a significant impact on the SWF, it presents the opportunity for us to properly consider all available administrative and operational structures or models and other necessary arrangements currently in existence and used by other sovereign wealth funds throughout the regions and internationally to an appropriate and practical structure for the SWF of Papua New Guinea to achieve its desired objectives.