LNG - not a ‘quick fix’

Paul Barker - Institute of National Affairs

We all need to dream. Dreaming perhaps of an ideal Utopia, or with films or books carrying us away from perhaps more mundane lives or encouraging us to think outside the box. Many have been inspired by dreams or encouraging words from teachers or mentors, to develop their talents or pursue opportunities which they might have thought unavailable.
Australia’s often been called the lucky country, but PNG is also a land of opportunity for many young people to go and pursue dreams unavailable to many of their parents. Sadly for many in PNG opportunities remain limited or cut short, by lack of education or good health, or access to income opportunities.

Nevertheless, for governments, businesses and NGOs alike, dreams must be grounded in practical and achievable objectives, plans and strategies, which are then implemented and carefully monitored to ensure the objectives are being achieved, and if not why not. In 1837 the Danish storyteller, Hans Christian Andersen, wrote a short fairytale “the Emperor’s new Clothes” about an emperor who was conned into paying some weavers big money for a new costume, which they said could only be seen by those smart enough to see it. The emperor couldn’t see it, but didn’t want to admit it. His courtiers couldn’t see it, but didn’t want to upset the emperor or feel stupid themselves, and it was only when a kid cried out that the emperor was naked that everyone faced the truth. Once everyone starts facing reality it’s much easier to plan realistically, but we should strive for those practical dreams and commitments, notably those asserted in the Constitution and its National Goals and Directive Principles, Millennium Development Goals and others realistic visions, at national, local and personal levels. 

LNG will generate positive prospects for PNG, as well as posing major challenges.
These challenges have already started, and will change form as the project progresses from construction to production phases. Some, including the Planning Minister and some of his team, naively see LNG as addressing PNG’s infrastructure and other development needs, with a great burst of government expenditure. The Treasury’s analysis, as highlighted in Volume one of the 2010 Budget, provides more realistic analysis, even if Treasury tends towards more sober, cautious or fiscally conservative forecasts. What must be recognised is how rundown the country’s public infrastructure and services are and what a major restoration and catch up exercise is needed before we even conceive most grander projects for new road construction envisaged by Planning. The cost of rehabilitation rises each year we severely under-fund ongoing tasks like road, port or infrastructure maintenance; likewise, years of underfunding for technical training, including for service providers, like nurses and other health workers, and under-recruitment a new generation of replacement skilled staff , then the bigger the task or gap.

It’s true that in future, assuming everyone keeps cool heads, the Government will see a substantial increase in revenue from LNG. The increase will initially be relatively modest, but increase after about 2017, once corporate tax commences. The revenue should be long term, around 30 years, able to contribute constructively to the country’s development , if used wisely. However, we have several year’s gap until that revenue commences, when government revenue remains dependent substantially upon two major mining projects now in their mature/declining phases (Ok Tedi and Porgera), with risks from major supply or market fluctuations. For example, we’re now overdue a major drought, which, as well as badly affecting agricultural production, might disrupt shipping on the Fly river. Once LNG revenue commences, it must be managed in the country’s best interests. Recent experience has not been good. 

The so-called “windfall” revenue from the strong commodity prices of 2006-8 provided some stability to help the PNG economy through the Global Financial and Economic Crises, but then much of this “windfall” appear to have been inexplicably wasted in 2009. The big opportunity it provided to restore infrastructure, particularly in districts, seems to have been largely wasted, with funds possibly siphoned off widely into private accounts.
The Planning Department and police can be commended for last week’s successful apprehension of characters siphoning thousands of kina when ‘delivering’ government cheques, but the apparent drawdown from the Trust Funds runs to hundreds of millions, drained from public accounts. It’s good to catch some corrupt middlemen/women, but who is halting the massive apparent leaks, nationally or in some resource rich provinces, where false claims have prevailed for years.The Finance Inquiry was meant to clarify where some problems lie, as an essential step to addressing them, but that report is subject to an Injunction, with the files reportedly now missing from the National Court. Does the Court investigate such disappearances, or recognise its responsibility for their safekeeping? 

Similarly, we’ve had a major review of Lands and land management laws and processes, but the legislation, whilst passed, is not yet certified and gazetted, and in any case we continue to see valuable land portions allocated discretionally, including reportedly to retiring Lands officials, plus multiple titles, allocations on land zoned for other purposes and more Special Purpose Agricultural Leases, without landowners’ informed consent (despite commitments that this abuse had halted); so, although we know what’s going on, malpractice continues regardless, often apparently condoned, or at least not addressed.
It will continue until some strong penalties start being applied, not just on minor officials or agents, but on the senior perpetrators. That’s why people are so frustrated when they see Parliamentarians apparently dismantling some of the remaining operational checks on leaders, provided by the Ombudsman Commission, particularly leading up to another National Election (when public funds are most at risk, deals with logging companies struck and other malpractice prevalent). 

Leaders are perceived to be either safeguarding their own interests, or securing what in the Monopoly game is call a ‘get out of jail free’ card, or living like the emperor in a state of unreality, misguided or manipulated or simply removed from the practical issues facing the country. So, now, and especially when the LNG revenue finally flows, there will be a backlog of restoration and upgrading to undertake, before any or many new initiatives can be conceived. The country certainly requires the right balance between directly investing in infrastructure, education and training, health and other priorities, whilst avoiding overheating the economy, triggering severe inflation and currency appreciation.
These would undermine the prospects for investment and job creation in other sectors, which generate the broad-based employment and income earning prospects. The recent track record with public expenditure, both recurrent and development, has shown severe wastage, with recurrent funds sucked into administration and overheads, rather than core services, and projects substantially unaccountable, or in some cases non-existent, according to observers.
 

The message is plain: the country and leaders should certainly dream, but everyone should be clear of the prevailing situation and needs (which also requires better ongoing data collection and analysis) and policies and expenditure should be focussed on real priorities (not pipedreams), with effective mechanisms and management in place to deliver core functions effectively:- namely, ensuring the basic functions of government work effectively and transparently to meet the needs of the public and a vibrant and competitive private sector, whilst enabling the private sector to perform its functions driver of growth, whilst abiding by the country’s social, environmental and revenue requirements, administered fairly and impartially.