SPEECH BY OPPOSITION LEADER, HON. PATRICK PRUAITCH CMG MP

 

The topic today presents a dilemma. As someone who entered politics after a career in the private sector, my instincts suggest it is impossible to legislate for prosperity. Good legislation and stable regulatory environments are prerequisites for a thriving and confident private sector that drives a well-performing economy. But even with the best legislation, fortunes can turn sour without sound policies and good governance.

In Asia, we see good economic performances under different legal systems and regimes. The world’s third-biggest economy, Japan, has a Japanese-style capitalist regime; Singapore carved out a first world economy with “democratic socialist” principles and China prospers under a centrally-controlled Communist government.

Ideological pathways are different for every nation and linked to leadership styles, national aspirations, and differences based on cultural and religious factors.

From this perspective, I fear PNG has veered into “wrong” directions in recent years. We, in Opposition, have viewed some of these trends, particularly strongly rising public debt at a time of record revenue, with a sense of dismay. It will not be easy to change direction, like a rudderless ship making a sharp turn at sea.

It can be done but will require strong will and discipline. PNG is fortunate today to have a new leader, the nation’s eighth Prime Minister, who wants to prioritize the core values of the people and, in this way, to turn around an ailing economy. Many lives have been shattered by falling incomes and job losses in the past six years.

Since the election of Prime Minister Marape, there has been an outpouring of public support. However, people will make their judgment after seeing outcomes that flow from promises made by the new government. Can the ship of State be turned around quickly enough? That is the issue at hand.

I am hopeful and optimistic. Prime Minister Marape has acknowledged the importance of constructive criticism in paving the way for his goal of making PNG ‘the richest black Christian nation, where no child is left behind’.

The Opposition was hopeful it could forge a Government of National Unity and contribute to the economic turnaround but, in his wisdom, the Prime Minister has entrusted this task to former P-N-C colleagues.

 

PNG LEADERS AND LEGISLATIVE ENVIRONMENT

Lately, I have been thinking of our founding fathers. They trod a difficult and lonely road unimaginable to most of us today. Grand Chief Sir Michael Somare took the political helm in 1975 just five years after the first PNG citizens graduated from the University of Papua New Guinea. Today we have people who boast doctorates in almost every field of human endeavor, and our collective intellectual capacity and worldly experience is far superior, a tribute to the wisdom of our founding fathers.

The early years must have been tough for PNG leaders and policymakers. Oil price hikes in the 1970s led to global recession through most of the 1980s. A strong kina policy worked against the interests of farmers and fishermen. By all accounts, PNG managed reasonably well in those difficult years.

It has become commonplace for Papua New Guineans to accuse national leaders of adopting Australian laws that are allegedly do not conform fully to the national interest.

Another illustrious leader, Autonomous Region of Bougainville President John Momis, is the respected ‘Father of the PNG Constitution’. For this task he traveled by air, sea, road and on foot to communities and villages throughout the nation, to consult and draw up a unique Constitution that has stood the test of time. These humble leaders did not go around bragging about their achievements, as they strived for the betterment of society.

Long before resource nationalism became an international catchcry, Sir Michael chose to revise a pre-independence agreement with Bougainville Copper by adding a clause on an Additional Profits’ Tax regime in the face of high world copper prices.

A quarter-century later this Additional Profits Tax, and other regulatory requirements, caused the PNG resources sector to shrink dramatically. Exploration spending plummeted and mining and oil activities were anticipated to be almost wiped out by the current decade.

It was the Grand Chief, who, after he became Prime Minister for the third time in 2002, rewrote the legislation to once again attract foreign investors into the PNG resource sector. The new rules resulted in the ensuing boom.

Australian Prime Minister Kevin Rudd in 2009 stated that the PNG economy would grow from K29 Billion at that time to K60 Billion in 2015 with the start of the PNG LNG Project, directly attributing this to PNGs Growth Agenda. He was not far wrong. According to the latest data from the Bank of Papua New Guinea GDP, at current prices, has risen from K32 billion in 2008 to K60.14 billion in 2015.

Foreign investment has played a crucial role in the economic fortunes of countries around the world, from the United States and China to our closest neighbours in Southeast Asia.

With the passage of legislative changes in 2003 and rising commodity prices, PNG enjoyed its best period of substantial economic growth and increased prosperity.

This period of strongly rising employment came to a halt in 2014, when the PNG LNG Project commenced exports.  Under the O’Neill Government’s damaging impacts on the economy, mineral exploration spending has crashed to an eight-year low. Against the US dollar, the kina this year plunged to its lowest level in 16 years.

When I was invited to chair the annual general meeting of the World Bank and the International Monetary Fund in Washington in 2014 the invitation had come because of international confidence the PNG economy would continue to power ahead, as it had done in the previous decade. In 2011 multilateral agencies, like the Asian Development Bank, projected that PNG would be an ‘economic tiger in the Pacific’.

Unfortunately, what happened after 2014 is very much a pattern of PNG’s modern development history. Big upward spikes in GDP growth fuelled by major resource projects, have been followed by a slide into lethargy and poor performance, and self-entrapment in a ‘boom and bust cycle’. Besides poor cash management, this trend has been worsened by elite capture mechanisms, masked as trusty State corporations supposedly established in the national interest.

Under the O’Neill Government, this slide occurred because caution was thrown to the wind and unnecessary risks and foolhardy expenditures made the order of the day.

 

LEGISLATING FOR PROSPERITY

Let me return to the theme of this Leaders’ Summit, ‘Legislating for Prosperity’.

I am unhappy about the constant harping that PNG laws have been copied from overseas jurisdictions and that they are undermining the national interest. In recent days these views have generated an outcry along resource nationalism lines, fuelled by the failings of the O’Neill Government.

In reality, PNG laws are not overly generous to investors. The authoritative Canadian-based Fraser Institute’s global ‘Investment Attractiveness Index’ places PNG’s minerals sector about the mid-way mark. Falling any lower would make PNG less attractive to investors.

In terms of taxation and other domestic benefits, PNG laws are not that different from most other countries. We have innovations not seen elsewhere that are being adopted by countries in South America.  

In virtually all Commonwealth countries, resource project royalties accrue to the State. In PNG, they go directly to landowners, an initiative that was directly driven by the late Hon. Anderson Agiru, a true son of Hela.

Unlike PNG, Australia does not require national ownership in resource projects. Big LNG projects in Western Australia and Queensland are mostly fully foreign-owned. Indonesia’s newest LNG project, the US$15 billion Abadi Project, is owned exclusively by Shell and a Japanese company.

PNG’s Oil & Gas Act enables the PNG Government to buy a 22.5% stake in any oil or gas development. It includes provisions not seen anywhere else in the world. Besides royalties paid to landowners, a development levy provides additional revenues to Provincial and Local Level Governments.

Since resources in the ground belong to the State, in other words to the people of PNG, the Act has a clause that up to 20% of net benefits – after costs – can flow to landowners and local communities.

For the PNG LNG Project, this effectively means that 20% of net benefits would flow to less than 1% of the population, while 80% is distributed via the National Government to 99% of the population. Can anyone argue that this is intrinsically unfair to people who reside where the resource has been developed?

The late Anderson Agiru spearheaded the 1998 Special Parliamentary Committee on Oil and Gas and made recommendations for changes to the then Petroleum Act. Agiru put his heart and soul into carving out the Oil & Gas Act, and it is a grave injustice to credit the work of this great Papua New Guinean to an unknown foreigner. It was Agiru himself who, subsequently in Kokopo, spearheaded the goal of acquiring additional equity in PNG LNG for project landowners.

Communities near mining townships derive considerable benefits from mining projects, in addition to royalty payments.

At Ok Tedi, people in Tabubil and Kiunga receive free power. The Tabubil hospital, funded by Ok Tedi and the Provincial Government, is among the best in the country. The Hospital CEO and specialist doctors are well qualified Papua New Guineans.

I am not aware of any part of the world where mining and petroleum companies deliver education, health, and social services. Yet many people believe that resources companies in PNG are to blame for poor delivery of public services!

In the four weeks after the devastating February 2018 earthquake hit the Highlands, it was Oil Search that delivered 80% of food and relief supplies required by affected communities. If we add what had been done by ExxonMobil and others one has to wonder whether it really was their responsibility.

It is unimaginable that government has little or no role in these circumstances.

 

FACING AN ECONOMIC CRISIS

Honourable Prime Minister, distinguished guests, ladies and gentlemen, just this week my colleague the Shadow Treasurer, Hon. Ian Ling-Stuckey, noted that PNG is in a “deep economic crisis”.

I like to reflect on this. As a former Treasurer in the O’Neill Government, I had warned about excessive levels of public debt at least since 2014, as Prime Minister Marape well knows.

At that time the O’Neill Government was running huge and unprecedented budget deficits, leading to my sacking from Cabinet after I raised the concurrent issue of debilitating economic mismanagement.

According to the 2018 Final Budget Outcome released a few weeks ago, government revenue and grants last year hit an all-time record of K14.1 billion. So how can we, in the Opposition, believe the nation faces an economic crisis when Government revenue was K1.3 billion more than projected revenues in the 2018 Budget and K2.6 billion more than it was in 2017.

When the O’Neill Government took office in 2012 it managed a record K9.7 billion National Budget. In the intervening period to 2018, government revenue and grants increased by an amazing 45%. Virtually any country in the world would have been over the moon with such windfall revenues. In PNG’s case, the country got deeper into debt and the government failed to pay for goods and services it purchased.

The heart of this crisis is simple. The O’Neill Government was incapable of living within its means. It squandered unsurpassed revenues and borrowed and spent an additional K17.1 billion. Debt in 2018 hit a record K25.6 billion, rising from K8.5 billion in 2012.

The previous NA-led Government had lowered the debt burden while progressing significant economic growth and diversification. By contrast, the O’Neill Government has overseen falling employment and incomes and a lack of capacity to deal with natural disasters and economic downturns.

 

FINAL REMARKS AND CONCLUSION

Unfortunately, the Marape Government faces potential headwinds. In the past month, crude oil prices for Brent, similar to PNG’s crude and condensate prices, have fallen by US$11 a barrel to US$62 a barrel. It hit a low of US$60 last week. Falling oil prices will impact on LNG revenues in the final quarter of this year.

There is a danger that current plans, which is driving away foreign investment, will hurt government revenues in the year ahead amidst fears regarding a slowing of the world economy.

In its latest PNG Economic Update, the World Bank warns that “persistently low net inflows of Foreign Direct Investment (FDI) indicate a largely unfavourable business environment”. Recent policies, the World Bank warned, will further erode PNG’s image to foreign investors.

Massive debt servicing costs are one of the burdens the 2020 budget will bear. This will constrain what the government can, and should, be doing in other parts of the economy.

Regardless of government actions, there will be no economic recovery unless the private sector is enabled to invest, grow and prosper especially in non-resource sectors such as agriculture and small and medium enterprises.

The time for change is now. We do not have the luxury that the O’Neill Government should have enjoyed. No tweaking of resources projects – and legislation – can make a difference.

The Opposition is convinced the time is ripe for a reality check by the Marape Government.

Do we squeeze the private sector, through legislative changes that make investments dry up, as happened during the ‘lost decade’ in the 1990s?” And do we chase away the scarce and elusive Foreign Direct Investment and capital that pursues competitively positioned resource projects on the world stage?

The government, the community, and business sector should work cooperatively in a win-win strategy. This will underpin economic recovery, along with economic diversification and sustainable medium-and longer-term growth.

Such a strategy will reduce widely experienced poverty levels and keep alive ‘the richest black Christian nation’, aspiration to which Prime Minister Marape subscribes.