Sunday, March 25, 2012

K67 Trillion Taken Out of PNG by Resources Industry

Click on map to see large version or download pdf version here.
My company through our website and software services has benefited directly from the resource sector in PNG. In the last 3 years we would have almost reached K200,000 in invoiced work. While I am grateful for this position, one has to wonder how big this resources industry in PNG is? What does it really mean for me? My immediate thoughts would be that if this industry is going to grow then I want to be a part of that growth.
But how much is the industry getting out of PNG?
Well at last someone has put a figure to it and it stands at a hefty, mind boggling K67 Trillion. I don’t even know how many zeros that is, but in comparison the U.S. Federal debt is US$14 Trillion and here we are a relatively small developing nation making turn overs in the trillions.
With those sort of amounts it’s no wonder why everyone would be asking about who actually benefits the most from all this activity. On the one hand placing ownership in the hands of the resource owners may do some good for the long outstanding basics such as health and education and so on, but even landowners have a bad reputation for spending big on non essentials in Port Moresby and elsewhere. Perhaps some balance in between would be of benefit and ultimately the government after the elections will have this responsibility.
The Governments of our last 30 years can take full responsibility for the financial shape of our resources industry, but what of the future? Well just this month a Ferid Belhaj, World Bank Director for PNG, Timor-Leste, Pacific Islands and Vivek Suri, World Bank Lead Economist for the same region presented, at ANU, the new World Bank publication Pacific Futures.
The report among other things stated that low business costs were not a prerequisite for attracting business in the Pacific Islands. Companies would come anyway and this was already evident in the history of PNG’s resources. What seemed more important they noted was that a stable business environment was provided. For example lower taxes were not attractive if they were subject to volatility. Ultimately it becomes obvious that if our governments ran their institutions effectively then the Boka Kondra Bill would never have been born.
But since we have arrived to where we are now in history, anyone pushing the Boka Kondra Bill needs to show some more detail as to how it would work. On the other end of the spectrum the Government has to start showing some intelligence as to how they deal with the resource sector. Some examples are below, but my main point being we need more details for everything:
  • Looking into whether we really need to pursue some resource exploitation projects, just because they are there. An example being the experimental undersea mining by Nautilus? How much will it cost to clean up environmental damage and compensate people if things go wrong?  Would the cost of damage outweigh the immediate incomes?
  • Looking at using Tax in a smarter way to finance the government instead of relying too much on lump sum Sovereign Wealth Fund payments. This builds into the industry set incomes for whatever level of activity and reduces the need for drawings from Sovereign Wealth Funds.
  • Financial literacy and education on wealth management and planning for resource owners.
  • Government investment in integrated information systems between Government departments, so for example the Department of Environment can advise on the Impact Assessment of a Mining Lease. Another example could be providing for a Government wide Geographic Information System so we can better manage and plan the usage of our resources.
  • Looking at how we can inject new resource incomes into our other industries like Agriculture and Tourism.
We are at a very important time in out history and we have much to gain in the coming years. Even across to Australia Gillard’s recent Mining Tax only adds to the discussions here in PNG. It is good that finally PNG is standing up for itself but none of that will be worth anything until our discussions begin moving into the details of how our positions can be carried out and the possible outcomes in the next 50 to 100 years.

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