Transcript
PAUL FLANAGAN: Well certainly in terms of the economic impacts, the promises of a doubling of the size of the economy, massive increases in employment and government expenditure, those items just haven't happened. Even on the measure of GDP - instead of doubling the results indicate there has been a 10 percent improvement or a negligible improvement and all of that has gone to the oil and gas extraction sector. The rest of the economy has actually gone backwards since this promised project, as you say, was to be a turning point in the PNG economy, was to be transformational. Now look at the figures. It was a technical success, exports have gone up but the impacts on the economy, if anything, have been negative.
DON WISEMAN: How can they get it so wrong. There has been a lot of blame attributed to the low returns on commodities over the last few year, but is that the reason? Why has the return been so poor?
PF: There are three reasons for this. Number one the promises were too big in the first place. The modelling that was behind those estimates for such massive increases in the economy - that's poor modelling. It's a model that's still used in PNG unfortunately, the PNG Gem. It's not very transparent, it's a black box. It produces numbers that just aren't realistic and we have seen that in subsequent plans also. So one of this is this sort of modelling gap, this excessive promises gap. The second reason is that this project has allowed PNG once again, and I would argue for the third time, for PNG to go down into what's known as a 'resource curse.' It's where a country has the promise of good resources but if you don't handle the impacts of that economically, then it can actually have an adverse impact on the rest of the economy. And we see that with poor budget decisions. There would never have been a 50 percent planned increase in government expenditure from 2013 to 2015 if this project wasn't in place, and that has put massive strains on the economy. The exchange rate is overvalued. That would not have happened without this particular project. There has been an undermining of institutions and again this would not have happened without the projects, so the negative impacts we see it was poor policies associated with the resource curse. In terms of commodity prices, the actual model itself, modeled three scenarios and at this stage, when looking at the tax revenues, we would have expected about kina 1.4 billion a year, given where oil prices currently are. So they had a range, we are looking at the range they are in, which is between the low and the mid case, they should be getting 1.4 billion, they are only getting 500 million, but by the time you include other costs that figure is minus 200 million kina.
DW: They were meant to be getting 1.4 billion kina. Why are they not getting that?
PF: So it is very very hard to explain. So this is on the basis of the current lower oil prices, when they were midcase, so yes, revenues are lower than expected. They were hoping for three, the model would have then said two, there have been changes since, which would say now you expect 1.4 billion. So the question is, so why are they only getting 500 million indeed, and it's hard to explain that, unless you are looking at aggressive tax minimisation from the actual key players. ExxdonMobil in 2016 paid 3.2 million kina in company tax - one thousandth of the export revenue they received in 2016. This is according to the Extractive Industries Transparency Initiative.
DW: Is there a solution, I mean the LNG project is going to be around for, well, 30 years. There are plans now to extend it and there are other ones on the drawing board. Is it possible with this current deal to get a better return out of it?
PF: Probably not in fiscal terms, in terms of the tax arrangements. Maybe more transparency and better resourcing into the IRC [Internal Revenue Commission] to deal with these large companies and some of their legal but tax minimisation arrangements, there could be some effort there. But the biggest things are starting to look and turning around those 'resource curse' policies that PNG has moved into. And they can be fixed in terms of exchange rate and budget policy. There are fixes that are available there. Resources are an opportunity to improve the economy if they are well managed, and there is still a lot of scope for upside from the PNG LNG project. For the new projects coming on, PNG should be much tougher on the fiscal terms, to get a fairer share of the tax, or a higher level of tax and receive those returns earlier. And before they go ahead they shouldn't believe some overly optimistic sort of modelling. They should make sure there are much more realistic predictions for the benefits and the costs associated with such projects.
