What professionals say about SWF

BANK South Pacific (BSP) chief executive officer Robin Fleming says it is very important that a Papua New Guinea Sovereign Wealth Fund (SWF) is established within a year.
The boss of the biggest bank in PNG and the Pacific, however, adds that it will take time for the fund to grow and join established SWFs of countries like Norway in Europe, and even Timor Lese closer to PNG.
“Much of the supporting legislations have already been passed. From a legal perspective, our understanding is that all the key instruments to enable PNG to formally establish a SWF are in place.
“I know for certain that the Bank of PNG is now looking to put in place a formal structure to be in the best position to take advantage of the cash flows into the SWF in two or three years’ time.
“That includes selecting appropriate directors of the SWF, making sure that fund management structures are in place, and all the Government’s legislative requirements are fully implemented and established. When the funds swell into a sizeable magnitude, we would have already got an experienced board, the proper structures, the proper allocation approaches for the SWF,” he added.
Fleming … important that PNG’s SWF be set up within a year
Fleming said: “It has to be taken into context why the SWFs of countries like Norway and Timor Leste are doing very well.
“Timor Leste’s resources on which the SWF benefitted were quite historical legacies. There’s been oil to a large degree in Timor-Leste, and gas, which have enabled it to have the funds to flow to the SWF.
“I think, at the current stage in Timor-Leste, because it is such a mature SWF, with resources and revenues which come from very mature oilfields, they’re now starting to draw into their SWF for operational expenditure and support for the government.
“Norway has larger scale mature resources which have been swelling the SWF many decades. Whereas, in PNG, we’ve just gone through the construction phase of the (PNG) LNG.
“Even if it (PNG LNG construction phase) had been completed four or five years ago, you still don’t get significant flows into the SWF until you start to get to the stage of the project which starts to produce cash.
“PNG LNG has probably got 40 to 45 years of gas reserve. The cash flows will probably start ballooning the SWF in 10 years.
“The peak period over a 45-year LNG project, for example, where the SWF is going to benefit, is probably from about year 10 to year 25 or 30, and then it starts to diminish.
“You can’t expect the SWF to be fully funded, fully implemented, in the first five years of production.”
Fleming said it was now more important for PNG to get the governance in place, to get the proper fund management in operation to work and monitor the next LNG project that was inked on April 9.
“We’ll probably end up with a final investment decision in quarter three or quarter four next year. Again, that’s another 40-year project, 40-year gas resource, on top of existing projects.
“So, in first five years, we will not necessarily see a lot (of SWF funding built-up), but we’re going to get gas projects that are going to extend for another 50 years or so.
“Don’t expect to see the SWF fully operational in the first five years as it’s a 40 to 50 years project,” he added.
Fleming said: “I understand the Bank of PNG is now putting in place the governance, funds management and the operations of the SWF. Clearly these top the central bank’s agenda.
“It is crucial that the long-term benefits of gas resources extend beyond the projects (to ensure the SWF’s sustainability).
“Some of the SWF’s cash will be allocated for budgetary support, some for long-term investments and some for infrastructure projects.”
He said it was expected that there would be more governance outside of the Government’s own budgetary allocations to determine how certain infrastructure components of the SWF had benefited Papua New Guineans and the country.
While expressing optimism for SWF’s success, Fleming reiterated: “Significant revenues from resource projects may not be seen for a couple of years.
This is why we must now put in place all the structures for the SWF’s management foundation.
“Get the structures right, get the proper governance and Bank of PNG’s guidelines and fund management solidified.
“Take the next two years to do that properly, then when we start to get the revenues, we will be in a much better position to ensure that the objectives of such a fund are achieved.”
So can BSP help the Government in managing the SWF?
“Not so. The Government already have in place the necessary structures. Bank of PNG is very well placed. It’s taken independent advice, it’s made its own management decisions.
“Bank of PNG is best positioned and fully capable of being able to take the leading role as is contemplated in the legislation. We’ve got confidence in the (Bank of PNG) Governor (Loi Bakani) who has the necessary competent capacity.

Aitsi … SWF can generate extremely good returns for PNG
Credit Corporation PNG Ltd chief executive officer Peter Aitsi lauds the government’s initiative to set up the SWF for the people and country.
“We hope that the recent signing of the Memorandum-of-Understanding (MoU) between the State and developers for the Papua LNG project will lead to strong nation-building activities, both domestic and foreign,” he told The National.
“Also encouraging is the indication that State and JV partners for Wafi-Golpu may also be heading toward signing a similar MoU in June. That should provide the framework of understanding to kick start the flow of investment to financial and economic development.
“The revenue opportunities presented by both major resource developments cannot be allowed to be squandered.
“We must draw lessons from our first LNG project, and quarantine these ‘windfall’ income in a well-established, arms-length fund that can support PNG to meet the demands and expectations of our future generations.,” he added.
Aitsi said: “A properly-functioning SWF will help stablise our foreign currency flows and better manage exchange rate fluctuations. If managed and invested well, the SWF can generate extremely good returns for PNG.
“Taking the existing SWFs as an indicator, many are delivering five per cent-plus annual returns and some, like the New Zealand Super Fund, are delivering double digit returns,” he said.
Kombuk … use SWF proceeds to develop agriculture
Acting Secretary for Agriculture and Livestock Daniel Kombuk says a significant portion of SWF proceeds should be used to develop agriculture.
“There had been much talk about agriculture benefitting from the SWF, especially when it was first mooted, but these have not materialised.
“We want to see it (SWF) translated into agriculture because land has been taken over by extractive industries.
“This is agricultural land that our tumbunas (grandfathers) had been farming for their sustainability. “When we have the SWF, a good portion of money must be made available for agricultural work to be carried out,” he added.
Kombuk said: “Agricultural projects should be developed in areas where there are major extractive projects.
“There must be ongoing programmes that stimulate income-generating opportunities and interest for horticultural crops.
“The recent signing of the Papua LNG project was the beginning of many more to come, including P’nyang gas, Stanley gas and others.
“When you look at these, we will have huge demand for horticultural crops like fruits and vegetables, and tubers like taro, kaukau (sweet potato) and bananas like never before.”