Average Papua New Guineans if not all should be made aware of the recent situation that the PNC-led Government has placed our country in from all decisions that were made so far under the mandate of the Prime Minister Peter O’Neil.
For every actions or inactions there are consequences, situations as described here are very real and very scary prospect for all of Papua New Guineans.
The Nautilus effect.
On 23 October 2013, the Government of PNG was to pay, by a court order in Australia under a contract dispute, USD118M for the State interest in the Nautilus project. The money was not paid and the State is in technical default. Sadly, PNG Government now has a reputation of a Government that cannot pay what it owes.
We have seen the PM come out this week and give all sorts of unfounded and inaccurate statements as to why this has not been paid, why the State has not abided by a binding court order. For the PM to ignore that on a global scale creates an underlying perception that PNG is a high risk country. We have seen this with the PNGSDP law changes and now a State default on its debt.
The effect of this default is massive for the everyday PNG citizen. The Nautilus effect will be that:
1. Direct Budget impact that was not in the 2013 Budget despite the knowledge of the arbitration which means an immediate deficit of USD118M or more than PGK330M negative impact in the 2014 Budget.
2. The Kina will slide further on the default and risk of PNG, causing greater pain for the average citizen
3. Inflation and cost of living will go up
4. The PNG credit rating will be affected where the Government cannot understand its payment requirements.
5. There may be an impact on the negative pledge issues as required under the World Bank funding programs
6. Any cost of capital for international funding, as announced by Treasury, will require more security or higher interest costs to be paid by the State
7. The State will have to absorb the exchange rate risk in repayments on a devalued PGK adding much more pressure to the budget and what can be delivered to the people.
But recent history has led to this fact and the PM, the Treasurer, the Secretary of Treasury, the Governor of BPNG and the MD of IPBC have all been participants in this growing massive problem that the country will be hit with unless rapid and decisive change occurs. Let me explain:
1. PM stated that the country will get its share in Oil Search back from the IPIC deal. There is less than 6 months until maturity of the IPIC bond and the PM has not done one thing to ensure that this matter is completed prior to the fire alarm ringing. This is despite reports of numerous funding offers and the MD of IPBC making comment that he will get this done. The Oil Search shares are a commitment to the people of ownership. By not repaying IPIC immediately the risk is massive for the loss of this equity – that is direct ownership by the people of PNG in Oil Search will be lost forever.
2. Treasurer and Secretary of Treasury will need to account for the AUD1.681 billion or PGK4.48 of asset give away in the IPIC transaction if it is not refinanced. That will mean that the asset value of the country will go down (even though the loan will be repaid as there is no ongoing future ownership or dividend flow) and that will have to be accounted for in the 2014 Budget.
3. The Treasurer has appointed a new Secretary. That Secretary previously oversaw and has not account for the K500M allocated for the PNGLNG project many years ago. Furthermore the new Secretary has employed his business partner as a strategic advisor to the Department where there is an obvious business relationship for the advisor to be given specific work whether qualified or not.
4. The Treasurer and the PM have either something to hide or have no judgement in terms of who they are providing the keys to the national budget too.
5. The 2014 Budget will need to absorb the IPIC transaction asset loss and any asset support that that asset was giving to the budget and the State
6. The PM was directly involved and made much of the BMobile transaction with the Fiji Super Fund and the PM of Fiji. That deal has fallen over and this cannot be blamed on any party other than the PM and the deliberate interference from the IPBC MD who in the end was instrumental in no deal being done. This will cost the Budget in 2014 and a proud asset is now on life support relying on IPBC doing some funding and more debt from ANZ bank.
7. It is understood that BSP is the major secured creditor for BMobile and is looking at ways to be repaid its money. Nambawan Super put in more than K20M into BMobile which is now effectively gone which will affect all the contributors.
8. If the BSP secured loan to BMobile is in default then the business will be gone. That will mean the State owes BSP more than K200M plus ANZ more than K100M and Nambawan will have to write off a loss of its BMobile equity. All of this has been done under the pressure and insistence of the PM and the IPBC MD without regard to the right Minister.
9. The Treasurer will have to then take more than another K300M deficit hit in the budget putting more pressure on the Kina.
10. PM is taking over all portfolios of the Coalition members and this can be seen where the PM has called for the PNG Power CEO to see him. Is the PM the responsible Minister and if not, why has the PM not looked at the IPBC structure and the other management to determine what is going on with the problems or does he try to take credit when it looks good and then gets it wrong and then says he will fix it. Again why is the PM not allowing the Minister to run this or deal with the Ministry to provide the right outcomes. Is the PM and the MD of IPBC trying to determine the best outcomes for the citizens or for other purposes.
11. The PM has a track record with this. He still holds the Police Ministry when that should have been passed to someone else in the Coalition Government but the PM cannot dictate as easily if that is the case.
12. BPNG and the Governor need to step up to their role with some authority which is a big ask. BPNG has talked a lot about the future and the SWF and how the Government should be spending the LNG revenue, but it cannot and has not implemented a monetary policy to assist PNG with the huge Kina devaluation.
13. BPNG will need to investigate Kina around the advice for Nambawan Super to invest in BMobile. It will need to provide an explanation as to its interpretation of the new Treasury Bill Act change and its application given that it failed to understand the previous Act. BPNG will also need to explain how it has allowed Kina and BSP Capital to resell Treasury Bills outside of the rules of Treasury Bill issuances where they were aware of the breaches and allowed these two groups to break the law without consequence.
All of these things have been happening under this PM. Most of the coalition partners are blind and stopped from acting. The PM is dictating what he wants as outcomes and that is going to result in much more hard times for the people.
The Nautilus Effect is what we the people of PNG will feel hurting more and more the man and woman and child on the street, as a result of the small but very significant inaction by this Government.
Hon. Sam Basil – Deputy Opposition Leader & Bulolo