LNG money seen to influence rates, final financing deal to determine how much dollars to stay in local economy
THE finalisation of
financing arrangements with lenders towards the PNG liquefied natural gas (LNG)
project is spreading some cloud over how the interest rates are going to
perform in the coming years. This is because the final agreement will determine
how much of the money lent would be retained in the local economy and how much
would go back overseas.
If more dollars
from the borrowings are retained in the local banking system, the play of the
existing rate would be affected. Generally, however, when the project gets
underway, the rates will increase, according to Paul Crimmins, the head of
Westpac’s relationship banking.
He said until
financial close happens, it was yet to know what would be the internal
contracts awarded to domestic and foreign companies on the US$15 billion (K40
billion) LNG project which was a US dollar denominated project.
These was part of
the discussions during yesterday’s economic outlook seminar, part of a series
of events marking Australian week cerebrations held at the Australian High
Commission in Port Moresby. Bank of PNG Governor Loi Bakani said: “Basically it
comes down to the flows in and out of the country. “At this stage, the
financial close coming up … we are not yet able to get a clear indication of
what contracts will be done locally and those in US dollars done overseas.”
He also said there
were exemptions given to companies under the project. “That is, where most of
the transaction is going to take place,” he said. ANZ’s Jim Yap said it all depended on the
currencies’ strengths, when at the moment, the Australian dollar was floating
on a high rate.
“Taking that into
account, whilst the kina may have the ability to appreciate because the demand
of the currency gets higher in view of the PNG LNG project … so there is an
underlying demand, but in terms of cross currency exchange rate, it may be a
bit of a challenge.” Mr Bakani also said
there was a working group putting together a submission for the proposed
offshore sovereign wealth fund.
The submission is
expected to be presented to the National Executive Council (NEC) in June.
“Once that is in
place, that will take care of Government inflows,” he said, adding the inflows
will be such that not everything will come into the country all at once.
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