Interview: Peter O'Neill
Considering the slump in commodity prices, what are the challenges facing Papua New Guinea in the current global economic environment?
PETER O’NEILL: PNG has had a challenging 2016, there is no secret there, as much as any other resource-based economy around the world. But I still think that there are good opportunities, even under the present economic conditions, as PNG has many engines of growth to tap into. Most likely we won’t see double-digit growth forecasts when it comes to GDP, which had a global resonance a couple of years ago, but still growth is slightly above the global average, which is an achievement as far as I am concerned. The return on initial investments in PNG is one of the highest in the world and this did not go unnoticed among international investors. We also boast a stable government and a judiciary system similar to any other commonwealth country in the world.
In any case the challenging time that we have experienced over the last couple of years has been a sort of blessing in disguise, giving us the chance to consolidate our efforts by taking stock of our resources and prioritising public sector programmes in order to improve service delivery. Most importantly we are cutting down on waste, while focusing on health, education, law and order, and infrastructure to assure that the national economy will continue to grow in a more sustainable way in the years to come.
How would you respond to the international ratings agencies that have downgraded PNG?
O’NEILL: Our administration actually inherited this state of affairs, as plenty of the programmes that were initiated in the past delivered little benefit to the wider population. I am referring, for example, to the National Agriculture Development Plan that spent close to PGK100m ($34.1m) a year, but didn’t deliver the desired effects to spearhead the sector’s growth, or the programme for education, which hardly delivered any new classrooms around the country. Our priority as an administration is to keep controlling expenditures while reigning in debt. That is why we are attentively monitoring how funds are utilised at the district level, with as much as PGK4m ($1.4m) per year spent on infrastructure, PGK3m ($1m) on education, PGK2m ($682,742) on health and PGK1m ($341,371) in supporting small to medium-sized enterprises.
Once you multiply that sort of investment throughout the country, we are talking about PGK70-80m ($23.9-27.3m) a year for district spending alone, on top of all the government programmes that we are rolling out at the moment.
To what extent could reforming state-owned enterprises rationalise spending?
O’NEILL: The idea behind the new Kumul Consolidated structure, for example, is to focus on the strengths of each sector and make sure that they engage in what they know how to do best, so that we can maximise the value of our assets while we continue to build capacity. A classic example of this was the acquisition of the Ok Tedi mine in Western Province by the state in 2013. Detractors predicted that the mine would have gone bankrupt within a couple of years because of mismanagement, but we proved them wrong, even if we were forced to close it for as much as seven months due to one of the most severe droughts we have experienced in recent history, which prevented the use of rivers for transport.
During this period not a single ounce of gold or copper was sold on the international market, which had a detrimental effect on our foreign currency reserves. We used this period to our advantage, though, and turned the mine into a much leaner and meaner organisation, and I am glad to say that it is now one of the most efficient in this part of the world and a major contributor to the PNG economy again.
How do you convince foreign enterprises to keep investing in PNG during these uncertain times?
O’NEILL: Patrick Pouyanne, chairman and CEO of Total, recently travelled to PNG to reassure the markets about his company’s commitment to our country, stressing that they will begin construction of a new liquefied natural gas (LNG) project – Papua LNG – by 2018. This follows on the heels of a major appraisal programme to assess the size of the field, which shows the seriousness of their intentions. Investing during counter-cycle periods is the way to go as far as I am concerned, so that the operator can start production when the price of oil would have recovered on the global markets. In fact, this is what any industry should do, provided that the fundamentals are right for future growth. PNG has only scratched the surface when it comes to exploring its natural resources, especially LNG, but also mining and agriculture. And considering that the fast-growing markets in Asia, including China, will be driving demand in the years to come, PNG could not be better placed to take advantage of that. In other words, while we are experiencing some short-term pains, nobody is doubting the long-term gains possible in this market.
How would you assess PNG’s diversification programme to assure sustainable growth?
O’NEILL: First of all we are trying to reduce the gap between waves of major energy projects, as this will create a sort of cushion to sustain economic development in the long run. For this reason we identified the expansion of the PNG LNG project through the P’nyang gas field. This should lead to a third train at the PNG LNG plant, taking advantage of the existing infrastructure and skills developed through the foundation project. Having said that, diversification remains high on our agenda and we are seriously exploring opportunities to boost other sectors of the economy, starting with agriculture. A number of state entities are already partnering with experienced international agricultural companies to develop plantations around PNG and we have budgeted as much as PGK100m ($34.1m) for the state to take equities in these projects. The idea is not for the government to get involved in the industry directly, but to provide an assurance to potential investors that we are serious about backing up greenfield projects for a period of at least three to four years, during which a potential investor could become familiar with PNG.
At the same time, the National Development Bank is supporting smallholders, giving them access to credit and management support. In the past we had similar experiences with the National Plantation Management agencies, which reached out to landowners who had land, but no previous experience in managing large-scale agriculture projects.
What measures is the government taking to address the lack of foreign currency in PNG?
O’NEILL: Low export-commodity prices, the temporary closures of two major mines and the effects of El Niño on the agricultural sector were the main reasons behind the shortage of hard currency in the system. As the mines reopen and the price of crude gradually recovers, the shortage of hard currency also recovers, but I understand the concerns of the business community – even though our foreign reserves are not as low as some people seem to believe. The central bank, which operates independently from the central government, has enough reserves to cover nine months worth of imports, and I know for a fact that many countries around the world operate under a much lower threshold, which sometimes can equal as little as three months worth of imports. Maintaining price stability continues to be our prerogative, which is why we are working out a financial arrangement that will replace domestic debt by borrowing in US dollars, meaning we will not increase our debt.
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