AS an avid follower of PNG politics, I would like to share my view on the final signing stages of the LNG project.
In my opinion, international trade missions are eyeing Papua New Guinea’s LNG.
The US, being the major player in this project through ExxonMobil, offered words of appreciation to PNG for powering its homes.
In retrospect, the Government must measure up to standards it set for itself when it delivered the 2010 budget.
It must avoid ongoing and increasing budget deficits. It must not raise the level of debt through commercial borrowing to fund the LNG project.
With the LNG expected to fetch good prices, we can expect a steady windfall of revenue consistently above the projected income for a number of years only if our Government can keep a tight lid on the temptation to go on a spending spree.
On the proposal to create off-shore trust account, I call on the Government to forget that idea. It will just end up like the Cayman Islands deal.
The Government should created a trust account within PNG, not outside, to capture the additional mineral revenue over and above 4% of GDP and this is where the excess revenue would be parked for any emergencies such as inflation, exchange rate, etc.
In order to keep inflationary pressures at bay, the Government must be disciplined to spend only up to 4% of GDP on one-off infrastructure projects whist keeping the rest for rainy days.
Production in some mines like Ok Tedi and oil producing areas are slowing down.
Next year, Lihir gold is expected to expand while Ramu nickel will go into full production.
However, with the Government granting these companies substantial incentives by way of concessions, there will be no taxes or dividends flowing into its coffers.
For the same reason, there will be no direct income from the LNG project until the projected revenue-outflow in 2014.
Hence, if the Government is not careful, there would be excessive borrowings and large budget deficit blowouts, thus the budget and the economy will be further impacted negatively for the next two to three years.
Although the non-mining sector is expected to grow, revenue from it will be insufficient to fund increased Government commitments next year.
PNG’s growth is being inhibited because of the way it conducts trades.
As such, the Government should think about liberalising trade, open capital accounts and deregulate labour markets and prices.
The dilemma facing the Government is whether the benefits are worth bearing against the political cost of overcoming the numerous vested interests which the policies in place now have created.
The challenge is to tap into potentially vibrant source of trade with more internationally competitive private sectors benefits, not just a situation where output increases, while the returns declines.
Let’s wait and hope for the best.
Mehrra Minne Kipefa