Transparency initiative reveals PNG’s extractive industries a big contributor to the economy

The fourth Extractive Industries Transparency Initiative (EITI) report, compiled by consultants Ernst & Young, shows that the sector dominates exports and is a major part of the nation’s GDP. But it is less of a contributor to employment and government revenue.

PNG extractive industry exports in 2016, in million kina. Source: EITSI

The report says the extractive industries make up the majority of PNG’s exports, and the commencement of the PNG LNG project has been ‘the primary driver of GDP growth in recent years’.

But it adds that ‘extractives contribute a smaller proportion of Gross Domestic Product, government revenue and employment.’

The EITI report estimates that extractives accounted for 84 per cent of exports, 42 per cent of GDP growth and 28 per cent of GDP.

‘Extractive companies were not a great provider of government funds.’

The sector generated 7 per cent of employment in 2016.

Revenues

Extractive companies were not a great provider of government funds. In 2016, according to the report, they only accounted for 3.2 per cent of government revenues, a surprisingly low figure given that the sector creates more than a quarter of the nation’s GDP.

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It suggests that the government has to rely heavily on other areas of the economy to balance its budget.

The EITI report found that 43 per cent of the state revenue from the sector came from taxes, 12 per cent from dividends, 11 per cent from resource sales or well head value, 19 per cent from equity distributions and 14 per cent from levies and fees.

‘Revenue flows to the government from the extractives industry can be volatile.’

Not only are the amounts going back to government small, they are also unpredictable, according to the report.

‘Revenue flows to the government from the extractives industry can be volatile, as the financial performance of the individual operations can fluctuate due to factors including commodity prices, and impacts of severe weather events such as drought and flood,’ the report says.

‘This was evident in 2016, with receipts significantly lower than previous years due partly to lower commodity prices and temporary cessation of production from some major resource projects.’

LNG

Oil and gas production. Source: EITSI

Citing Oil Search estimates, the EITI report says PNG’s proven crude oil and condensate reserves are 62.3 million barrels.

Oil production in PNG has been in slow but steady decline since the mid-1990s.

‘Gas production, by contrast, is increasing due to the PNG LNG project,’ the report says.

‘During 2016, eight mines were operating in PNG.’

‘The project has exceeded its original design capacity of 6.9 million tonnes of LNG per annum, and despite current suppressed prices, is expected to have a significant long-term positive impact on the economy and government revenues.

‘However, falling global LNG prices have already negatively impacted project returns, with potential ramifications for the government’s financial position.

‘The project has had significant impacts on affected communities, both positive and negative.’

Mining

The report found that during 2016, eight mines were operating in PNG, distributed over a number of provinces. The biggest exports came from gold at the Lihir mine.

It estimates that there were about 80,000 small-scale alluvial miners.

Major miners in 2016. Source: EITSI

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