LNG hedging on Australian aid for Governance, Transparency

From Industry News Newsletter

GOOD governance and transparency is at the core of Papua New Guinea’s discussions with Australia on aid for developing the PNG LNG project.

“We have held official and ministerial-level discussions on Australian assistance for development of a robust and transparent governance regime covering taxes and dividends from LNG received by the PNG government,” PNG Minister for Public Enterprises Arthur Somare said.

Somare, National Planning and Development Minister Paul Tiensten and Public Services Minister Peter O’Neill had met their Australian counterparts in Canberra last month for talks on the Australian government’s Export Finance Insurance Corporation providing loan finance for PNG LNG in the form of tied concessional loans to purchase Australian goods and services.

Australia had sought reassurances on the commercial risks of the PNG project and was seeking clarity on its potential to transform the PNG economy and the bilateral relations between the two nations.

Somare also noted the National Executive Council would consider establishing a sovereign wealth fund as a sustainable long-term vehicle for the 19.4% the PNG government held in the liquefied natural gas project through the Independent Public Business Corporation.

“With the help of Australian government experts, the PNG Parliament will be able to enact sovereign wealth fund legislation that will determine optimum use of LNG project dividends with an eye to maximising infrastructure spending through the development budget.”

Australian technical experts are also helping the PNG Ministry for National Planning and Development with economic modelling that will provide guidelines for the ideal use of government revenues from LNG, resource tax administration, implementation of a revenue stabilisation funds, creation of a sovereign wealth fund and other relevant areas.

Australia is also offering to support training and skills development to complement ExxonMobil’s plans for the Port Moresby Technical college by helping the college management administer the facilities.

Somare said major revenues from PNG LNG will begin to flow in 2015-16 and the current government wanted to make sure the government of that time would use the funds to improve infrastructure and service delivery through the nation.

“I believe this is the first time in our history that a PNG government has sought to have in place specific governance regimes to cover a major resource development.

“These measures will minimise corruption and ensure that the additional $US50 billion in taxes and dividends that will flow to the PNG government over a 20-year period will transform every aspect of life in PNG.”

Somare added that PNG was also holding discussions with the World Bank on the best ways to avoid the so-called “Dutch Disease” where a sharp upsurge in resource revenues can negatively impact on other segments of the economy.

Meanwhile, PNG’s National Superannuation Fund (Nasfund) said an independent and accountable sovereign wealth fund was essential to ensure part of the revenue from PNG LNG and other resource projects was preserved for future generations.

It said PNG remained largely unprepared for the proceeds of such enormous resource generated revenues pointing to a public sector that was unable to deliver basic services and infrastructure even with the 3-4 billion kina ($A1.2-1.6 billion) locked in a government trust account.

Nasfund said that by collecting part of the tax revenue stream from a project and investing it for future generations, a sovereign fund would, over time, reduce reliance on natural resources.