PNG budget stabilisation fund from LNG project

Updated June 24, 2009 16:56:38

PNG's ambassador to Australia has said his country might put profits from Exxon Mobil's planned liquefied natural gas project into a budget stabilisation fund. Charles Lepani said this in Canberra where policy heads have been meeting to discuss Papua New Guinea. But there's also some concern about the enthusiasm that some have shown to spend the money years before it's been earned.

Presenter: Linda Mottram reporting from Canberra
Speaker: Charles Lepani, PNG High Commissioner to Australia; Aaron Batton, Australian National University academic

MOTTRAM: Exxon Mobil's announcement that its agreed terms with more Asian LNG buyers this week increases the focus on Papua New Guinea's plans for handling the windfall it expects from the planned project. Economists speaking at the Papua New Guinea policy forum in Canberra agreed that the Papua New Guinea government's strategy, articulated in recent budgets, for dealing with the proceeds of commodities booms is good, and certainly better than notorious practices of the past. But there are plenty of warnings still. Bob Warner is diector of the Canberra based Centre for International Economics.

WARNER: I think a pretty good strategy has been articulated but its implementation has been patchy, and its not clear that politicians in the future will remember this strategy when the next commodity boom occurs. I hope that they will, but I think we'd have reason to be a little bit less than confident that when the rush of blood occurs again in four or five years time that they'll remember such a good strategy articulated in the budget.

MOTTRAM: And this from the Australian National University's Aaron Batten.

BATTEN: Politicians are now already spending the money from the LNG project even though its not definitely going ahead. They're looking at ways that they can leverage it so they can spend it now. There's obviously infrastructure constraints in PNG that need to be spent but they're not exactly displaying the attributes of fiscal discipline that you might want to see at this stage.

MOTTRAM: But while not denying the issues, Papua New Guinea's Ambassador to Australia, Charles Lepani, defended PNG's capacity to deal with anticipated LNG windfalls, based on past experience.

LEPANI: During the Bougainville days, because of the large anticipated large flows to the budget, it was a budget stabilisation fund. When the prices go up, you save some money, and when it goes down you supplement the budget.

MOTTRAM: Ambassador Lapani says its similar to a mechanism that's been used to stabilise the incomes of some crop growers in Papua New Guinea. Ambassador Lepani says it could easily be recreated to deal with the anticipated LNG income.

LEPANI: So its only a nudge from the Governor of Central Bank, Wilson Karmit, and Secretary of Treasury, I think that's all it takes to bring some of these institutions back in anticipation of the flows from the LNG project.

MOTTRAM: But in its day, the integrity of the fund the ambassador speaks of .. known as the Mineral Revenue Stabilisation Fund .. was undermined with increasing drawndowns by government to spend in areas other than vital infrastructure and capacity building. And it was in anticipation of future revenues.

Economists see the potential for the same mistakes to be made again. And the ANU's Aaron Batten says its against a backdrop of overly optimistic forecasts of a doubling, even a tripling of the size of the PNG economy as a result of the LNG project.

BATTEN: I know modelling that's been done by the Treasury department in PNG and stuff that we looked at at the National Research Institute suggests that that is incredibly optimistic. We very much doubt whether that's going to be the case. PNG also has to deal with the closure of the Ok Tedi mine coming up in 2013 and a couple of other smaller mines across the country so the idea that PNG is going to be swimming in revenues for the next 30 years isn't quite on the ball.

MOTTRAM: But even if the LNG income flows are not the so-called "sky money" some are hoping for, Papua New Guinea can take comfort in another prediction. It doesn't rely on remittances or tourism .. its banks aren't heavily exposed internationally .. so economist at the forum in Canberra say, its well positioned to weather the international economic storm, while others in the region, according to forecasts by the World Bank, are set to be hit very hard.