Good governance, transparency can grow a SWF for PNG
News that matters in Papua New Guinea
PORT MORESBY: According to interviews conducted by The National, most professionals opine that a Sovereign Wealth Fund (SWF) will benefit Papua New Guineans and the country.
However, the SWF must be managed with good governance and transparency for it to really grow financially and succeed.
That, they say, can be achieved by the SWF board by adhering strictly to the Santiago Principles that has been embraced by all resource-rich countries with such a fund in place.
SWFs from all over the world manage a total of US$7.45 trillion (K25.18 trillion) in assets, up 13% from last year, according to a new report from research firm Preqin.
Such state-backed investment funds have amassed an unprecedented amount of influence in global capital markets.
PNG Cyber Monitor readers who missed the earlier reports by The National can read this for context: https://pngcybermonitor.blogspot.com/2019/04/can-swf-propel-png-into-wealthy.html
We reproduce below the interviews by The National:
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| https://www.top1000funds.com/2018/09https://www.top1000funds.com/2018/09/santiago-principles-turn-10-years-old//santiago-principles-turn-10-years-old/ (Santiago Principles turn 10 years old) |
Good governance, transparency can grow a SWF for PNG
PORT MORESBY: According to interviews conducted by The National, most professionals opine that a Sovereign Wealth Fund (SWF) will benefit Papua New Guineans and the country.
However, the SWF must be managed with good governance and transparency for it to really grow financially and succeed.
That, they say, can be achieved by the SWF board by adhering strictly to the Santiago Principles that has been embraced by all resource-rich countries with such a fund in place.
SWFs from all over the world manage a total of US$7.45 trillion (K25.18 trillion) in assets, up 13% from last year, according to a new report from research firm Preqin.
Such state-backed investment funds have amassed an unprecedented amount of influence in global capital markets.
PNG Cyber Monitor readers who missed the earlier reports by The National can read this for context: https://pngcybermonitor.blogspot.com/2019/04/can-swf-propel-png-into-wealthy.html
We reproduce below the interviews by The National:
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.
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.”
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.”
Trust funds poorly managed: Barker
INSTITUTE of National Affairs executive-director Paul Barker says an ideal time to have started Papua New Guinea’s Sovereign Wealth Fund (SWF) was 2008 when commodity prices were high and good.
“From 2007-2008, the prices were high, revenue was high, PNG was getting very good revenue. We should already have had a well-designed SWF,” he told The National.
Barker recalls that in the 1990s, PNG had quasi-SWFs through Agriculture Commodity Stabilisation Funds and the Mineral Resources Stabilisation Fund (MRSF).
“The agriculture funds were all there from the 1970s through to the 1980s, when commodity prices went really down. They were all exhausted around 1990-1991.
“They were designed to ensure that when prices went down, there were premiums to be paid out. What we did is we actually borrowed for those funds with the idea of continuing to be able to pay out and then get something back.
“The European Union provided some grant money to help sustain them for a while. The MRSF was a SWF of sorts … which we didn’t manage well because we drew against it. Its stabilisation function was undermined.”
“From 2007-2008, the prices were high, revenue was high, PNG was getting very good revenue. We should already have had a well-designed SWF,” he told The National.
Barker recalls that in the 1990s, PNG had quasi-SWFs through Agriculture Commodity Stabilisation Funds and the Mineral Resources Stabilisation Fund (MRSF).
“The agriculture funds were all there from the 1970s through to the 1980s, when commodity prices went really down. They were all exhausted around 1990-1991.
“They were designed to ensure that when prices went down, there were premiums to be paid out. What we did is we actually borrowed for those funds with the idea of continuing to be able to pay out and then get something back.
“The European Union provided some grant money to help sustain them for a while. The MRSF was a SWF of sorts … which we didn’t manage well because we drew against it. Its stabilisation function was undermined.”
Barker … trust funds poorly managed in the past
Barker said it would have been really good for PNG to have had the SWF in some form of operation from the mid-2000s.
“We would have been able to set aside, some of the ‘windfall revenues’ from the very high commodity prices in 2007 and 2008 … therefore be able to stabilise expenditure. But we didn’t. We put it into many little trust funds, and of course, the rest is history.
“We had all those trust funds … but because the supervision, planning and design of those trust funds were not good, inevitably, there was a lot of abuse.
“In many of those trust funds, the money shifted from the trust funds into other accounts, and the accountability really wasn’t there. Much expenditure occurred.
“There is something called the Santiago Principles and all resource-rich countries with SWF interests came together with organisations like the International Monetary Fund (IMF), the World Bank and others to talk on how best to be prudent and competent to manage natural resources and wealth,” he added.
Barker said while the Treasury and the central bank wanted the SWF to be in place with the laws as mentioned in Budget 2019, there was no revenue.
“We’re still borrowing money under the sovereign bond, treasury bills and so on and so forth. But you could have a bonanza.
“It’s still possible that you could have a conflict in the Middle East, insecurity of supply, a cold winter comes and everyone needs a lot more power.
“Suddenly you can have a big increase in oil and gas prices. You need then to have the SWF in place, functional, and a portion of those funds being set aside.
“Obviously, you’ve got to first of all pay off some of your existing debts, in accordance with debt management plans.
“You don’t want to miss out on the scenario of 2006, 2007, 2008 when prices shot up. You want to capture some of the revenue from that and set aside for the future.”
Barker admitted that he was “not totally confident” about the success of a SWF in PNG. Two smaller countries in the Pacific – Nauru and Kiribati – have SWFs built up from phosphate mining.
“While Nauru has mismanaged its SWF, Kiribati has prudently managed its fund and is now benefitting, while the larger PNG has nothing to its name.
“As I said, in the 1990s we had many new resource projects, and we had a MRSF. Two years after Kutubu oil commenced (in 1991), we had a balance of payments crisis, a fiscal crisis, a big devaluation, we had all these crises.
“We had to go and get the IMF and everyone to come in and bail us out, have a structural adjustment programme. We stabilised things a bit. Then things went chaotic again. “That time PNG had friends – Australia, World Bank and others – who assisted by providing credits to help stabilise things. In the 1990s, although we had Kutubu Oil, Lihir and all these projects, including Ok Tedi and Porgera.
“We were overspending, we were being unrealistic. By the mid to late 1990s, we didn’t have the funds to recruit young teachers and nurses. We had a lot of crises then. Past experience wasn’t that great,” he said.
Barker said the Government in recent years had been spending rather than saving, “which is a cause for concern”.
It is all the past experiences that make Barker not too confident about a SWF in PNG.
Ling-Stuckey … PNG needs a robust and transparent SWF
Shadow Minister for Treasury and Finance Ian Ling-Stuckey says PNG needs a robust and transparent SWF.
Ling-Stuckey said: “The booms-and-busts of the resource sector have damaged our economy for too long.”
“There are ways that can minimise these damages by smoothening the ups-and-downs of revenue and foreign exchange flows from resource projects.
“One effective way is to have a good SWF. This can help save excess revenues in boom years and then release the funds in years when commodity prices and revenues are low.
“However, and this is a very major condition, any SWF must be robust and transparent. There are good SWFs, and there are bad SWFs.”
Ling-Stuckey added that SWFs, where political leaders can raid PNG’s resource flows and divert the money, should not be the case. “PNG has been burnt in the past through the abuse of PNG’s first so-called SWF.
“While this fund worked well initially, it had a loophole that meant its funds were raided in the late 1990s. We should never make this mistake again.” Ling-Stuckey said Prof Satish Chand, writing for the National Research Institute, had highlighted “serious defects” in the SWF passed by Parliament in July 2015.
“Chand concludes that ‘the withdrawal formula fails to achieve the stipulated aim of macro-economic stabilisation and could do the very opposite’. “He also concludes ‘the opaqueness of the formula for withdrawals from the SWF is at the cost of transparency that is necessary for public scrutiny’. “These are major defects of the current SWF that (Prime Minister Peter) O’Neill is so keen to put in place but could do more damage to PNG than good.
“The fund allows Kumul Petroleum Holdings Ltd to retain half of the dividends and other moneys from the PNG LNG project and any future Papua LNG project.
“These funds don’t come into the budget process. Unfortunately, the revised SWF pushed through by O’Neill allows for him to divert funds away from budget priorities such as health, education and infrastructure.
“This was highlighted as a major concern in earlier analysis by the National Research Institute and other independent observers,” he added.
Barker said it would have been really good for PNG to have had the SWF in some form of operation from the mid-2000s.
“We would have been able to set aside, some of the ‘windfall revenues’ from the very high commodity prices in 2007 and 2008 … therefore be able to stabilise expenditure. But we didn’t. We put it into many little trust funds, and of course, the rest is history.
“We had all those trust funds … but because the supervision, planning and design of those trust funds were not good, inevitably, there was a lot of abuse.
“In many of those trust funds, the money shifted from the trust funds into other accounts, and the accountability really wasn’t there. Much expenditure occurred.
“There is something called the Santiago Principles and all resource-rich countries with SWF interests came together with organisations like the International Monetary Fund (IMF), the World Bank and others to talk on how best to be prudent and competent to manage natural resources and wealth,” he added.
Barker said while the Treasury and the central bank wanted the SWF to be in place with the laws as mentioned in Budget 2019, there was no revenue.
“We’re still borrowing money under the sovereign bond, treasury bills and so on and so forth. But you could have a bonanza.
“It’s still possible that you could have a conflict in the Middle East, insecurity of supply, a cold winter comes and everyone needs a lot more power.
“Suddenly you can have a big increase in oil and gas prices. You need then to have the SWF in place, functional, and a portion of those funds being set aside.
“Obviously, you’ve got to first of all pay off some of your existing debts, in accordance with debt management plans.
“You don’t want to miss out on the scenario of 2006, 2007, 2008 when prices shot up. You want to capture some of the revenue from that and set aside for the future.”
Barker admitted that he was “not totally confident” about the success of a SWF in PNG. Two smaller countries in the Pacific – Nauru and Kiribati – have SWFs built up from phosphate mining.
“While Nauru has mismanaged its SWF, Kiribati has prudently managed its fund and is now benefitting, while the larger PNG has nothing to its name.
“As I said, in the 1990s we had many new resource projects, and we had a MRSF. Two years after Kutubu oil commenced (in 1991), we had a balance of payments crisis, a fiscal crisis, a big devaluation, we had all these crises.
“We had to go and get the IMF and everyone to come in and bail us out, have a structural adjustment programme. We stabilised things a bit. Then things went chaotic again. “That time PNG had friends – Australia, World Bank and others – who assisted by providing credits to help stabilise things. In the 1990s, although we had Kutubu Oil, Lihir and all these projects, including Ok Tedi and Porgera.
“We were overspending, we were being unrealistic. By the mid to late 1990s, we didn’t have the funds to recruit young teachers and nurses. We had a lot of crises then. Past experience wasn’t that great,” he said.
Barker said the Government in recent years had been spending rather than saving, “which is a cause for concern”.
It is all the past experiences that make Barker not too confident about a SWF in PNG.
Ling-Stuckey … PNG needs a robust and transparent SWF
Shadow Minister for Treasury and Finance Ian Ling-Stuckey says PNG needs a robust and transparent SWF.
Ling-Stuckey said: “The booms-and-busts of the resource sector have damaged our economy for too long.”
“There are ways that can minimise these damages by smoothening the ups-and-downs of revenue and foreign exchange flows from resource projects.
“One effective way is to have a good SWF. This can help save excess revenues in boom years and then release the funds in years when commodity prices and revenues are low.
“However, and this is a very major condition, any SWF must be robust and transparent. There are good SWFs, and there are bad SWFs.”
Ling-Stuckey added that SWFs, where political leaders can raid PNG’s resource flows and divert the money, should not be the case. “PNG has been burnt in the past through the abuse of PNG’s first so-called SWF.
“While this fund worked well initially, it had a loophole that meant its funds were raided in the late 1990s. We should never make this mistake again.” Ling-Stuckey said Prof Satish Chand, writing for the National Research Institute, had highlighted “serious defects” in the SWF passed by Parliament in July 2015.
“Chand concludes that ‘the withdrawal formula fails to achieve the stipulated aim of macro-economic stabilisation and could do the very opposite’. “He also concludes ‘the opaqueness of the formula for withdrawals from the SWF is at the cost of transparency that is necessary for public scrutiny’. “These are major defects of the current SWF that (Prime Minister Peter) O’Neill is so keen to put in place but could do more damage to PNG than good.
“The fund allows Kumul Petroleum Holdings Ltd to retain half of the dividends and other moneys from the PNG LNG project and any future Papua LNG project.
“These funds don’t come into the budget process. Unfortunately, the revised SWF pushed through by O’Neill allows for him to divert funds away from budget priorities such as health, education and infrastructure.
“This was highlighted as a major concern in earlier analysis by the National Research Institute and other independent observers,” he added.
SWF designed to protect PNG’s economy
PAPUA New Guinea (PNG) is setting up a resource-funded Sovereign Wealth Fund (SWF) as confirmed in the 2019 National Budget, Volume 1.
According to the Budget, the resources responsible for financing the SWF are minerals and petroleum.
The SWF has been designed to protect the PNG economy from external shocks by supporting macroeconomic stabilisation, prudent asset management of financial assets accrued by the State and to spread the country’s wealth more equitably across generations.
The government is in the process of appointing the inaugural SWF chairman and board members and the National Executive Council (NEC) is also expected to approve the Organic Law on the Sovereign Wealth Fund (OLSWF) via a notice in the National Gazette by the Head of State.
According to the Budget, the resources responsible for financing the SWF are minerals and petroleum.
The SWF has been designed to protect the PNG economy from external shocks by supporting macroeconomic stabilisation, prudent asset management of financial assets accrued by the State and to spread the country’s wealth more equitably across generations.
The government is in the process of appointing the inaugural SWF chairman and board members and the National Executive Council (NEC) is also expected to approve the Organic Law on the Sovereign Wealth Fund (OLSWF) via a notice in the National Gazette by the Head of State.
Bandara … Santiago Principles makes SWF more transparent
University of PNG senior lecturer in business and public policy Panditha Bandara says PNG’s new SWF, when established, will be more transparent and better managed under the international guidelines of the Santiago Principles and the OLSWF.
“Objectives are clearly spelt out there. According to the act, the SWF of PNG will have two components: one is the stabilisation fund and the other is the savings fund.
“When the stabilisation fund reaches US$1 billion (K3.38 billion), then the (excess/surplus) funds will be diverted to the savings account.
“Once this builds up to a certain level, the SWF will start investing in foreign assets. The previous stabilisation funds invested in the domestic market. So there’s a difference in SWF,” he said.
University of PNG senior lecturer in business and public policy Panditha Bandara says PNG’s new SWF, when established, will be more transparent and better managed under the international guidelines of the Santiago Principles and the OLSWF.
“Objectives are clearly spelt out there. According to the act, the SWF of PNG will have two components: one is the stabilisation fund and the other is the savings fund.
“When the stabilisation fund reaches US$1 billion (K3.38 billion), then the (excess/surplus) funds will be diverted to the savings account.
“Once this builds up to a certain level, the SWF will start investing in foreign assets. The previous stabilisation funds invested in the domestic market. So there’s a difference in SWF,” he said.
Minji … trust funds should be managed by central bank
Jiwaka-based accountant Joseph Minji says the concept of SWF was first mooted in 2017 for various reasons.
“It was to get all the excess windfall revenue funds held onshore into trust accounts in PNG with domestic commercial banks earning nominal interest whilst the central bank was compelled to issue central bank bills to these local commercial banks at much higher interest rates as and when required, thus costing central bank a premium in interest payments.
“The management in these trust accounts were also bogged down by issues of accountability, transparency and corporate governance.
“Perhaps these accounts should be opened and maintained with the central bank,” Minji said.
He added: “During the construction phase of the PNG LNG project from 2011, the Kina started gaining directly from the operator, ExxonMobil, and its major contractors, marshalling their resources into PNG to service the project.
“This situation tapered off from late 2014. The trust accounts were not properly managed.
“A hyperinflation from domestic demand for consumable items increased due to more disposable income for workers at the PNG LNG project and the landowners, causing total neglect of our agriculture sector, not to mention the declining produce prices.
“Bottom line: the central bank balance sheet was erratic and was not able to provide a good return to the State. From late 2014, PNG had acute foreign currency reserve shortages.
“Small businesses had to wait weeks to pay overseas suppliers for amounts from US$5,000 (K16,900).
“For wholly-owned PNG based subsidiaries and associate companies of multinationals, they can survive using inter-company current accounts – no pressure on them to pay up.”
Minji suggested that SWF monitoring agencies like the economic sectoral committee, the ministerial economic sectoral committee, and the National Executive Council reported its performance periodically.
Saonu … SWF must benefit future generations
Morobe Governor Ginson Saonu, whose province hosts the giant multi-billion kina Wafi-Golpu gold and copper mine, says benefits must flow on to future generations through the SWF.
He said billions of kina worth of gold had been taken out of Morobe since the gold rush days of the 1920s up to today with the Hidden Valley Mine, but the province and country had nothing to show for it by way of savings.
“For example look at Wau-Bulolo. So much was taken out in the colonial days. If some money was set aside, we wouldn’t have to worry about the historical mining towns of Wau and Bulolo,” he added.
Saonu said: “The glaring mistakes of the past must not be repeated in Wafi-Golpu.
“Funds from Wafi-Golpu must be used for the future good of Morobe and the country. We want to approach the Wafi-Golpu mine in a different way so that we do not repeat the mistakes of the past.
“We are going to come up with our provincial position paper to be presented to the national government. We are going to ask the government and the developer for something better than Wau and Bulolo, as well as Hidden Valley.”
Jiwaka-based accountant Joseph Minji says the concept of SWF was first mooted in 2017 for various reasons.
“It was to get all the excess windfall revenue funds held onshore into trust accounts in PNG with domestic commercial banks earning nominal interest whilst the central bank was compelled to issue central bank bills to these local commercial banks at much higher interest rates as and when required, thus costing central bank a premium in interest payments.
“The management in these trust accounts were also bogged down by issues of accountability, transparency and corporate governance.
“Perhaps these accounts should be opened and maintained with the central bank,” Minji said.
He added: “During the construction phase of the PNG LNG project from 2011, the Kina started gaining directly from the operator, ExxonMobil, and its major contractors, marshalling their resources into PNG to service the project.
“This situation tapered off from late 2014. The trust accounts were not properly managed.
“A hyperinflation from domestic demand for consumable items increased due to more disposable income for workers at the PNG LNG project and the landowners, causing total neglect of our agriculture sector, not to mention the declining produce prices.
“Bottom line: the central bank balance sheet was erratic and was not able to provide a good return to the State. From late 2014, PNG had acute foreign currency reserve shortages.
“Small businesses had to wait weeks to pay overseas suppliers for amounts from US$5,000 (K16,900).
“For wholly-owned PNG based subsidiaries and associate companies of multinationals, they can survive using inter-company current accounts – no pressure on them to pay up.”
Minji suggested that SWF monitoring agencies like the economic sectoral committee, the ministerial economic sectoral committee, and the National Executive Council reported its performance periodically.
Saonu … SWF must benefit future generations
Morobe Governor Ginson Saonu, whose province hosts the giant multi-billion kina Wafi-Golpu gold and copper mine, says benefits must flow on to future generations through the SWF.
He said billions of kina worth of gold had been taken out of Morobe since the gold rush days of the 1920s up to today with the Hidden Valley Mine, but the province and country had nothing to show for it by way of savings.
“For example look at Wau-Bulolo. So much was taken out in the colonial days. If some money was set aside, we wouldn’t have to worry about the historical mining towns of Wau and Bulolo,” he added.
Saonu said: “The glaring mistakes of the past must not be repeated in Wafi-Golpu.
“Funds from Wafi-Golpu must be used for the future good of Morobe and the country. We want to approach the Wafi-Golpu mine in a different way so that we do not repeat the mistakes of the past.
“We are going to come up with our provincial position paper to be presented to the national government. We are going to ask the government and the developer for something better than Wau and Bulolo, as well as Hidden Valley.”
Weiang … why no SWF in place today?
Lawyer Veronica Weiang says she does not know why PNG did not have an operational and rewarding SWF in place today.
“As I recall from memory, the SWF was set up to capture the revenue derived from oil and gas around 2014. Since then, we have not heard much about the SWF. So what’s happened to it?” she asked when interviewed by The National.
“I lost track of the progress on SWF after 2014. Is it still active? How many LNG shipments have left our shores since 2014?
“We don’t hear anything about the SWF that was to be established to thwart the ‘Dutch Disease’ and propel PNG to an era of greater wealth creation and management for a brighter future.
“Actually, around 2012 to 2014, there was much talk, the legislation was passed in Parliament, then revised.
“And then, what happened?”
Lawyer Veronica Weiang says she does not know why PNG did not have an operational and rewarding SWF in place today.
“As I recall from memory, the SWF was set up to capture the revenue derived from oil and gas around 2014. Since then, we have not heard much about the SWF. So what’s happened to it?” she asked when interviewed by The National.
“I lost track of the progress on SWF after 2014. Is it still active? How many LNG shipments have left our shores since 2014?
“We don’t hear anything about the SWF that was to be established to thwart the ‘Dutch Disease’ and propel PNG to an era of greater wealth creation and management for a brighter future.
“Actually, around 2012 to 2014, there was much talk, the legislation was passed in Parliament, then revised.
“And then, what happened?”
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