What can Papua New Guinea business look forward to in 2018?

As Papua New Guinea business gets back to work, Andrew Wilkins looks at some of the issues coming up in 2018. With APEC coming to Port Moresby and a second LNG project in the offing, this is a year when PNG is going to be the subject of international attention.

APEC Haus under construction. Source: BAI

The economy

Based on new Treasurer Charles Abel’s 2018 National Budget, delivered in late 2017, this is going to be a year of constraint and compliance.

Constraint because the government has to live within its means in order to keep within mandated debt-to-GDP ratios; and compliance, because it needs to lift its revenue from direct and indirect taxation in order to avoid making further cuts to its programs.

Last January, we asked if 2017 was going to be the year that PNG’s foreign exchange shortages came to an end. It was not, and 2018 looks like more of the same, although some days are going to be better than others for those seeking to convert their kina into dollars.

The big question will be to what extent the central bank and the government be ‘active’ or passive’ (to use the IMF’s parlance) in supporting the currency? A sovereign bond may be back on the agenda, we hear.

‘Businesses can expect to spend time in the foreign exchange queue.’

Matters are unlikely to improve significantly until final investment decisions are made on some of PNG’s promising resources projects (see below) and there is an end to the accelerated depreciation granted to investments in the PNG LNG project.

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In the meantime, businesses can expect to spend time in the foreign exchange queue. Growth will be low—around 2.4 per cent is predicted by Treasury—and inflation lower.

APEC 2018

This is PNG’s year to host APEC for the first time, and important meetings will take place over the whole year, culminating in the big one in November.

‘Port Moresby is being transformed for the event.’

While some will be pondering whether AirForce One will land at Jacksons, business will be looking for a dividend, both in terms of short-term cashflow and, more importantly, from long-term investment that could, and should, arise from more international business leaders visiting the country.

Port Moresby is being transformed for the event, with APEC Haus, Ela Beach, Paga Hill and a Hilton Hotel under construction.

Petroleum and gas

A gas rig at Antelope 6—one of the wells that will feed the Papua LNG project. Source: InterOil

A final investment decision is still some way away for PNG’s second LNG project, which is being managed by France’s Total.

But progress is being made. We can expect more details on how the project might dovetail into existing facilities this year, and also what sort of impact it may have on Gulf Province.

Meanwhile, additional exploration, by ExxonMobil and others, is embedding gas even further into the country’s economic future.

Business will be hoping PNG has learned the lessons from the PNG LNG Project as far as how future projects are structured.

Infrastructure

Infrastructure development will be key this year. Several of PNG’s state-owned entities have undergone significant management changes in the past 12 months too, as has their holding company, Kumul Consolidated Holdings (KCH).

Will KCH continue to be proactive or become a more passive holding entity? What will the implications be for the companies in its portfolio?

  • With a new Acting MD at the helm, all eyes will be on PNG Power to see if it can reach higher levels of service and performance. With more electricity generation coming online, things are looking more positive for Port Moresby and Lae, in particular.
  • While all the telcos are investing more on their domestic networks in 2018 (Digicel alone is spending US$50 million), we’ll be hoping for details of the recently-announced undersea fibreoptic cable between PNG and Australia this year. It can’t come soon enough for most businesses, who will also welcome further falls in data and call charges.
  • Meanwhile, expect more improvements to Jacksons International Airport this year, as the APEC Leaders’ Meeting approaches.
  • Air Niugini is set to start flights to Shanghai at the end of March. How ‘China-ready’ is PNG ? We may be about to find out.
  • Philippines-owned ICTSI takes over the running of PNG’s two major ports this year, with some exciting plans and ambitious targets. 

Finally, some tenders are already out for the 10-year, billion-dollar Asian Development Bank-funded Highlands Highway project—a critical piece of national infrastructure.

Mining

With Nautilus Minerals’ Solwara 1 project hitting obstacles, we’ll be hoping for more positive news from the Frieda River and Wafi-Golpu copper-gold projects.

Both have enormous potential but 2018 will be a year of preparatory work, both on the ground and in the boardroom.

Dare we ask if this is the year we’ll finally see reforms to the regulatory and taxation framework for mining?

Agribusiness

Agriculture is PNG’s biggest employer

There has been significant investment in dairy, rice, fruit and vegetable production in recent times and that looks set to continue—alongside staple commodities such as palm oil, coffee and cocoa.

Business is looking for more state and customary land to be released for agricultural development.

If the government can respond in a way that protects landowners, there is rich potential.

Fisheries

The fisheries sector is pondering the end of the discounting on the sale of vessel days and licenses for vessels associated with PNG processing in 2018.

Will it have the effect of encouraging onshore processing, as the government hopes? Only time will tell.

Climate

PNG and the Pacific region is currently under the influence of a weak La Niña weather pattern. In the past, La Niña conditions have brought wetter conditions to many areas of PNG.

According to the linked report above, ‘the chances of occurrence of floods, landslides, and cyclones are most likely and these hazards could affect the following sectors: agriculture, infrastructure, water resources and health.’

Finally, the Business Advantage Papua New Guinea Investment Conference, a unique forum for current and prospective investors, will take place at the Sofitel in Brisbane on the 6th and 7th of August this year.

Andrew Wilkins is Publishing Director of Business Advantage International

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