The PNG economy stands to make a quick recovery and growth can pick up this year if the Government acts early to facilitate recovery in a fragile environment as the country slowly recovers from the Covid 19 challenges, according to the PNG EITI.
Head of the PNG Extractive Industry Industries Transparency Initiative Mr Lucas Alkan was commenting on a recent Word Bank Report, which projected the PNG economy to grow by around 4 per cent this year- largely driven by growth in the extractive sector. The projection was made in its Economic Update for PNG released in March this year. The Bank’s projection stems from its estimate of the economy returning to positive growth of 1 per cent in 2021 after contracting by 3.5 per cent in 2020.
“The economy is currently in fragile state, particularly when it is emerging from the aftermath of the Covid 19 pandemic induced disruptions that had devastating impact across all sectors of the economy. The pandemic has created room for complacency and brought about new approaches to living and conducting business as we have been introduced to the ‘new normal’ way of living and doing business in recent times” Mr. Alkan commented.
He indicated that the Bank’s growth forecast is dependent on a number of risks factors that are at play relating to the extractive sector. He said some of these are external risks such as the rising fuel prices brought about by the Russian and Ukraine war which “we have little or no control over”
.”However, there are other risks that can be managed in the remaining months of this year” he observed
“Firstly, the Porgera Mine needed to be re-opened immediately to contribute to the growth projected. The prolonged delay in re-opening the Mine has resulted in significant revenue loss to the State and loss of employment and benefits to local communities. The shutdown of the Mine is having direct impact on the current foreign exchange shortage in constraining business operations domestically. Porgera Mine had been a good source of foreign exchange inflows and its continued shutdown is not assisting PNG to achieve the 4% growth projected by the World Bank,” Mr. Alkan said
Mr Alkan said the growth was projected almost 4 months ago, assuming that the Government would conclude negotiations and re-open the Mine before June, however this has not eventuated. Reopening the Mine anytime soon seems not feasible in light of the current national general elections that will take us up to August for a new government to be in place.
“If all in order the Mine can be re-opened but then the lead time required for mobilizing resources and the significant start-up capital needed to get the mine back to its full operating capacity is a big challenge. Realistically, we may be looking at around October or November for the start-up but then it will be almost end of the year so for Porgera to contribute to the projected 4% economic growth seems unlikely”, Mr Alkan said.
“Secondly, the inherent political risk associated with the current national general election and the formation of a new government is likely to delay any efforts to start up new resource projects currently in the pipeline. The commencement of at least one or two of these projects at the earliest possible time will have positive impact on the economy, and in as far as contributing to the 4% growth projected. Unfortunately, election activities have generally stalled things until a new government arrives but this may not be too soon until around August or September for the new regime to pursue with outstanding negotiations to reach agreements to bring these projects on-line. These projects include; Wafi-Golpu, Frieda and the Papua LNG project that have the potential to contribute positively to the economy during their construction phases.
Thirdly, there is a real risk for the Covid-19 pandemic to surge again, disrupting economic activities in this very fragile environment, especially given the vaccination rate is very low. This is highly likely due to large gatherings taking place right across the country since political campaigns commenced following the issue of writs in May,” he said.
Mr Alkan indicated that some of the above risks and challenges could be minimized if the current or incoming government takes immediate actions within the remaining months. It is understood that the final agreement for Porgera reopening will be sanctioned soon by Mineral Resources Enga (MRE), the remaining party to sign the recommencement agreement.
‘We hope this agreement will be sealed at the earliest for the next phase which is the application of the Special Mining Lease (SML) to recommence the mine.
PNGEITI commends the transparent negotiation process that has taken substantial amount of time and effort to ensure the interests of all parties are reflected in those agreements. We believe the re-opening of Porgera Mine will live up to the expectations of institutions such as the World Bank that predicated PNG’s positive economic growth to be driven strongly by the extractive sector this year.
It would be very critical for the incoming government to also engage with the developers to bring the new projects already in the pipeline on-line at the earliest which will contribute positively to the economy.
We re-echo the World Bank’s sentiment that the PNG economy is navigating a fragile recovery period and if the Government does not act decisively and fast to re-open the Porgera Mine and bring on-line new projects in the pipeline in the next few months then it will be highly likely that the Bank’s projected growth for the extractive sector will not be achieved,” Mr. Alkan said.
ENDS..
