Monday, December 22, 2014



In September 2013 in an ABC’s Four Corners program television interview with Peter O’Neill, Mr O’Neill was impeached with the allegation of his involvement with Parakagate and the NPF inquiries. He responded with the words “If there is evidence suggesting that in my dealing with anybody was corrupt, I am answerable to the same laws like anybody else. The challenge is on my critics….“

O’Neill was tested against his own public pronouncements when an arrest warrant was served on him in June 2014. Instead of living up to his promise, he wielded power, removing all persons involved in his arrest including the anti-corruption team he established. On the same day, he ran to court and obtained a temporary stay order, forestalling his arrest. The temporary stay order was immediately discharged and further applications to the District and Supreme Courts were refused, paving way for O’Neill to be arrested.

On 5th July 2014, considering that the court would not protect him, Mr O’Neill made a decision to withdraw all the court proceedings and pin his fate on his pawn police commissioner. The Post Courier newspaper of the following day reported him saying "I have always made myself available and I will answer questions that proper investigators put to me and I stand ready to do that," Mr O’Neill said when announcing this yesterday.
"At no stage have I tried to avoid being held accountable for my actions as Prime Minister since assuming office in August 2011.”


The Police Commissioner, PM’s anchor of fate, was however bombarded with multiple criminal and contempt proceedings by members of the Fraud Squad. As a result, the Police Commissioner was physically and emotionally distraught to such an extent where he admitted publicly that he was unable to perform his duties and functions as the police commissioner. Mr O’Neill’s refuge in Commissioner Vaki was therefore not promising.

Instead of owning up and turning up for a formal interview with the police just like anybody else, Mr O’Neill, with the aide of his highly paid team of expert lawyers (mostly from Australia), ran back to court and sought refuge. Mr O’Neill did so under the guise of raising constitutional questions. He was successful and obtained an order restraining police from executing the arrest warrant against him.

With respect to the recent referral for leadership tribunal hearing in relation to the controversial K3 Billion UBS loan, Mr O’Neill then welcomed the referral by the Public Prosecutor and said ““The Public Prosecutor’s referral is noted, and we welcome this decision,” the Prime Minister said. “It gives us an opportunity to go before the independent tribunal and the courts to determine the outcomes of these decisions based on real evidence that will be presented to the tribunal and can be cross-examined.”

How could the Prime Minister of our country welcome a decision and want the process to commence immediately yet runs to court to stop it? If he’s got nothing to hide, why running to court? Unless the appropriate tribunal decides otherwise, no amount of court restraining order will address the real questions hanging over PM O’Neill.

The Court is now a refugee camp for Peter O’Neill!
We Papua New Guineans have been fed with far too many lies by this Prime Minister that we are now accustomed to his lies. I think that is the reason why we are not taking it seriously. Peter O’Neill is now our esteemed “contradictory guru”.

Papua New Guinea’s vanishing LNG export boom

By  on December 20, 2014

PNG must adjust to lower LNG/oil prices to avoid a crisis. The PNG LNG project is still extremely important but many of the benefits of the production phase of the project have vanished because of lower prices – probably for at least a decade. This note outlines the impact of the recent oil price falls on PNG’s budget, growth rates, and balance of payments and international reserves. The broad conclusions are that: there will be no tax revenue from the PNG LNG project for many years; deficit and debt levels will become even more unsustainable; the 2015 growth rate will more than halve; the balance of payments will be in overall deficit even with the PNG LNG project coming to full capacity in 2016; and, without an exchange rate depreciation, PNG’s international reserves will be exhausted in two years.
A policy brief is available which provides the technical detail of this analysis. The key findings and policy recommendations are set out below.
LNG and oil prices
Figure 1 shows that oil prices are now more than 30% lower than the level forecast in last month’s 2015 PNG budget. LNG prices are directly linked to oil prices according to the IMF so the reduction in LNG prices will be similar. This price drop in a key commodity (LNG/oil) is a classic example of what economists call an “external shock”.
Figure 1: Oil prices – market prices, futures and PNG forecastsoil3Note: Author’s calculations for all graphs and figures available here.
Budgetary impact
The analysis of the policy brief predicts that with a 30% fall in LNG/oil prices there will be no taxes collected from the PNG LNG project for up to a decade. This is because a fall in gross revenues of 30% is greater than the expected pre-tax profit rate (after allowing for depreciation). LNG dividends are still expected but at a much lower level. Revenues from current petroleum fields such as Kutubu will also be much lower.
The net impact on the budget is a loss relative to the 2015 budget of about K1,400 million in revenue in 2015 and 2016 and above a billion in future years. This represents more than 10% of all PNG’s domestic revenue resources. In addition, there are off-budget impacts that will substantially reduce the net wealth of the PNG government. This includes a fall in the value of Oil Search shares (now estimated to be worth K600 million less than at the time of purchase) as well as a significant portion of the K3.3 billion in LNG dividends and mineral/petroleum taxes that “disappeared” in the 2015 budget, presumably earmarked for various off-budget expenditures, such as paying back the Oil Search loan.
As shown in Figure 2, resource revenues to the PNG budget have traditionally been volatile. The 2014 budget painted a rosy picture of expected revenues from the LNG project. By the 2015 budget, a significant part of these returns, especially LNG dividends, were moved off-budget (presumably held in the proposed Kumul Holdings). As noted above, these funds amounted to K3.3 billion between 2016 and 2018. The bottom line on the right is the estimate of resource revenues to the PNG budget given a 30% fall in LNG/oil prices. These revenues return to the levels of the late 1990s and early 2000s when PNG faced another major drop in commodity prices. At an aggregate level (including all PNG’s tax and non-tax revenues), 2016 revenues drop to K10.9 billion in nominal terms, K2.5 billion less than the K13.4 billion expected only thirteen months ago at the time of the 2014 budget. This is a very large fiscal hit of just under 20%.
Figure 2: Resource revenues over timeresource revenues
The direct result of these revenue losses is that there will be no revenue growth after inflation from 2014 to 2018. Without policy action, the deficit in 2015 will be not 5.3% as per the budget (using IMF guidelines, as explained here), but 8.8%. The debt to GDP ratio will stay about the legal cap of 30% and, on realistic expenditure assumptions, may rise to 75% by 2017 – two and half times the maximum level in the Fiscal Responsibility Act.
GDP growth impact 
The change in the value of PNG’s major new export inevitably also affects the measured size of the economy or GDP. The revised LNG and oil price estimates reduce growth forecasts to 7.0% in 2014 and 6.9% in 2015 (down from 8.4% and 15.5% respectively). The PNG LNG project is extremely important for PNG. However, its importance has been diminished by the new commodity price outlook.
Impact on balance of payments and international reserves
The forecast in the IMF’s 2014 PNG report is for an increase in PNG’s net international reserves from $US2,427 million in 2014 to $US3,845 million by 2016. But allowing for the fall in oil and LNG prices, net international reserves are in fact expected to fall to $US2,049 million in 2015, covering just over three months of imports of goods and services. Reserves would keep falling below this critical level and PNG would be out of foreign exchange by early 2017. This is because the fall in prices moves PNG to a substantial balance of payments deficit (not the surplus that was originally forecast). Clearly, given the need to have some level of import cover, something has to happen soon. Otherwise, PNG will be going to the IMF or another country seeking a large bail out.
Figure 3: Impact of oil price shock on net international reserves
Figure 3Conclusion
The PNG LNG project has often been thought of as transformative for PNG. But just at the time the country was to benefit from the revenue and foreign exchange flows from this major project, international markets have dealt a cruel blow. The decline in LNG prices also significantly reduces the viability of other LNG projects in the pipeline. With good policies, adjustments could be made to deal with such a drop in oil prices. However, PNG has moved to poor policies over the last six months such as moving away from a market based exchange ratestarting to print money to fund the deficit, and continuing with an unsustainable fiscal policy in the 2015 budget. PNG had set itself on a slippery slopetowards a crisis, and the world just gave it a great big shove.
But this is a problem that can be solved, provided that real changes are quickly made. At the end of its financial year for 2014, the PNG government should not spend any extra money, but instead pocket any savings from unspent allocations. In face of such a large shock, there is a need for an urgent public debate in PNG on other policy responses. This should cover how the 2015 budget should be rewritten to avoid a spiralling deficit. PNG also needs to move back to a market-based, floating exchange rate to provide a “shock absorber” for the economy, and find better ways to fund the deficit than printing money.
Paul Flanagan is a Visiting Fellow at the Development Policy Centre, ANU. He was formerly a senior executive in the Australian Treasury, and went on secondment as an advisor to the PNG Treasury from 2011 to 2013. This article was first published by Dev Policy Blog

The perilous state of Taskforce Sweep: an interview with Sam Koim

By  and  on December 19, 2014
The head of Papua New Guinea’s anti-corruption coordinating body, Taskforce Sweep, Sam Koim, was recently in Canberra to present the challenges of fighting corruption in Papua New Guinea. You can read an edited version of his speech here and listen to the podcast here. In between appointments Koim was interviewed about his work, politics and corruption in PNG.
Perhaps the most alarming news about Taskforce Sweep is just how close it is to ceasing operations. After the Prime Minister, Peter O’Neill, ordered Taskforce Sweep be shut down earlier this year, the National Court placed a permanent stay order on this decision. We asked how the Taskforce was faring in light of this decision. Koim replied that the court order allowed them to continue to operate, but they are in a perilous position.  He said that:
The government hasn’t given us a single Toea [the country’s smallest unit of currency] this year… [To operate] we brought forward a little bit of funding from last year. And I have managed those funds up to now.
While the Taskforce has continued its investigations by operating on the smell of an oily rag, if more funding is not forthcoming Taskforce Sweep will close by the end of this year. Koim believes this will undermine anti-corruption efforts in the country.
Still, he hopes that even if it is shut down, the Taskforce’s legacy will live on. Koim argued that the successes of Taskforce Sweep have led to a reinvigoration of anti-corruption efforts in PNG:
We have created a momentum and other agencies are now beginning to rise up…more and more we see prominent people are being called into question [recently 15 politicians were placed under investigation for corruption related offences] or referred … if Taskforce Sweep is disbanded, all the cases that we’ve been working on will still be [investigated by other government agencies].
Koim has often been accused of political fealty. When Taskforce Sweep was first set up many commentators said he was O’Neill’s attack dog. After he coordinated efforts to arrest the Prime Minister early this year (which is still being argued over in the courts), O’Neill accused Koim of conspiring with opposition MP, Sam Basil.
Koim noted that the National Court vindicated his political neutrality: “the National Court stated that this allegation about the investigation being politically motivated [was not supported by] evidence”. For Koim, these accusations come with the job. “You can’t separate corruption from political issues,” he said. And when he talks about these accusations you get the sense that water has rushed off of the proverbial duck’s back.
But he also noted that in his position you need to be smart about dealing with politics and politicians:
From practical experience I’ve realised you have to manage politics. Politicians will come up to you and say we want…indictments to be handed down. Do it and we will give you money…we survived and gained the respect of the community because of how we managed all of that.
Aside from the political challenges, there are the personal. Security risks are “inseparable” from the job, Koim says. These risks have restricted his movement, and his family has also been affected. Yet he spoke of being buoyed by wide public support.
…security is not guaranteed. You have to take measures to look after yourself. So I don’t go to public places…I don’t get to walk on the streets that much. But when I get to go into a shop or on my way to the airport or wherever, people come up and say thank you. People are very appreciative.
For example, on a recent trip back to his home in Western Highlands, a simple visit to the market to buy fruit spontaneously turned into a public event.
The moment I entered the market, everybody started sobbing and crying. The entire market came to a standstill. A crowd of about a thousand people, they just ran from all corners trying to hold my hands. Mothers coming and crying and weeping and saying thank you. And they made me cry. I wept. I took a walk around. I couldn’t stay that long. I just went in and shook hands with everybody. The crowd followed onto the road. They disturbed the road traffic… they said you are not going until you give a speech.
Perhaps hinting at what motivates his work, Koim spoke of seeing the struggle his own mother faces in earning enough to live by selling produce in the markets. He said that while she and others like her may not be able to articulate the problem as one of corruption, they feel the pain from the rising cost of living and lack of earning opportunities.
The majority of the people who live in the villages and on the outskirts of Port Moresby, they are suffering. They’re not on Facebook. They don’t read newspapers. They don’t see TV…. [Yet] these are people who are crying out their hearts, the pain that they’re feeling. [They] don’t know what it is, what is causing it. But they’re actually feeling the pain of their inability to sustain [themselves].
Sam Koim is Chairman of the multi-agency, anti-corruption body Taskforce Sweep and Principal Legal Officer at the Department of Justice and Attorney General, Papua New Guinea. Grant Walton is a Research Fellow with the Development Policy Centre. Ashlee Betteridge is a Research Officer at the Centre.