PNG

PNG

Wednesday, September 19, 2012

What would become of PNG after LNG?

With an expected budget deficit of K500+ million for 2012 and the intent to borrow K6 billion from China, the O’Neil Government intends to STEAL MORE FROM FUTURE GENERATIONS from the anticipated LNG benefits.

The national debt from foreign and domestic lenders accrued over the last few decades already tips the scales at K9 billion. The K6 billion from Exim Bank will close to double the national debt overnight to a whopping K15 billion.

Sovereign investment funds generate economic security for future generations by converting “endowments” of natural resources into financial endowments.

Some of them are so-called “permanent funds,” born of the philosophy that benefits from a country’s nonrenewable resources belong to all future generations, not just to the generation that discovered them.

National laws should be made to ensure the current and future governments don’t use up the principle from the LNG cashflows but only live off the interest from these funds so the value of principle amounts are not depleted. As it is there are no national laws, policies or strategies enacted to protect revenue from LNG cashflows putting future generations in a precarious and disadvantagous position.

The O’Neil Government should tell the nation how it intends to service the K6 billion loan. Will it be financed from agricultural commodities? Will it be financed from mineral and petroleum resources? Will it be financed from State-Owned-Entities?

Today’s soft loans totalling K15 billion at 3% interest will result in total repayments of K50 billion in the next 40 years (principle + interest). In other words PNG will pay K50 billion over the next 40 years to service today’s soft loans hovering on or above K15 billion.

This is a terrifying scenario as K50 billion is the total anticipated revenue flow to the state during the life of the LNG Project over the next 40 years.

Should the government go ahead and borrow the K6 billion, we will have used up all the juice from the anticipated LNG revenue even before we realise it.

It seems the current national debt of K9 billion has already jeopardised  the future proceeds from the LNG cashflows as PNG is paying K500 million per annum to service this mamoth debt. Raising the total national debt to K15 billion would see PNG paying K1 billion per annum as repayment for these soft loans amounting to K50 billion in total repayments by 2050 - zeroing out all the benefits from LNG.

Well done Peter O’Neil & the current Government. Your borrowing of K6 billion will be an accomplishment to be remembered by Future Generations.


PNG FREAKONOMICS