Benefit shortfalls of the PNG LNG Project: a response to Mark McGillivray

By Paul Flanagan

The PNG LNG project promised a profound and transformative impact on PNG, including a doubling in economic size. Four years after gas exports commenced, how has it gone?

Recent analysis by Jubilee Australia (JA) in the Double or Nothing report and PNG Economics (see here and here and here) indicates that there is a huge chasm between the early promises of the PNG LNG project and what has happened. This is not due to oil prices falling – gas export revenues are almost exactly as expected with falls in oil prices offset by higher export volumes.

The construction phase from 2010 to 2014 lifted the non-resource parts of the economy by around 8% above trend growth (more on this term later) – so about K3 billion extra in 2013. This was slightly higher than the 5% above trend growth initially expected.

Unfortunately, from about 2012, there were many poor policy decisions closely related to the PNG LNG project. These are examined is some detail in sections 5.3 to 5.6 of the Double or Nothing report – a public policy example of how technocratic advice can be overruled by entrenched resource interests and politics. Gambling on huge revenue inflows, the new O’Neill Government increased the PNG budget by over 50% in 2012 and 2013. As revenues did not flow, PNG suffered its worst budget deficits and a blow-out in government debt. Some extra expenditure was poorly spent on grandiose projects and building political support. Debt interest costs increased from K480m in 2013 to over K1,600m in 2017 – a major on-going budgetary drain. After a major appreciation of the Kina during the construction phase, the central bank intervened to stop it falling back to new market levels. This intervention has led to years of foreign exchange shortages which …read more

From:: Development Policy Centre – DEVPOLICY Blog

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