Prime Minister's address to the Australia / PNG Business Council Update Feb 12 2003

[aussie]

Wednesday, February 12, 2003 1:24 PM
Subject: PM's address to the Aust/PNg Business Council Update

ADDRESS TO THE AUSTRALIA/PNG BUSINESS COUNCIL BY
RT HON SIR MICHAEL SOMARE, GCMG, CH
Prime Minister

Brisbane, 12 February 2003

Mr. Ian Clarke, President of the Papua New Guinea/Australia Business
Council, Members of the Council, Ladies and Gentlemen.

It gives me real pleasure to address an important audience like this
today.

Last Tuesday, I had the honour of addressing the PNG Business Council in Port Moresby and giving them an overview of my Government's efforts to revitalise Papua New Guinea's depressed economy.

Today, I would like to leave you with the impression that Papua New Guinea may be down but not out - we are rebounding to a better future.

I want to assure you that the images often conjured up on television
screens and on newspaper editorials in Australia, or presented for example, by taxi drivers, which portray a land to the north where no-one is safe, corruption is universal, factionalism reigns and natural resources destroyed, is not what Papua New Guinea is all about.

Whilst we cannot deny that there are problems and major challenges facing Papua New Guinea, the negative image which seems to have become prevalent in parts of the Australian community belies the truth.

The country retains a bright future, so long as it addresses its problems
seriously and does not squander its opportunities.

To achieve that, it needs constructive support and partnership from our
friends in Australia and elsewhere, including the private sector.

My Government, which took office only six months ago, was faced with the task of rescuing a weak economy. Market confidence was the lowest and fiscal discipline was virtually non-existent.

The country was heading towards a fiscal disaster as the result of
unplanned and extravagant spending by the Morauta Government, especially in the last six months before the General Elections.

We promptly launched a Mini-Budget to re-stabilise the economy, whilst
consolidating or refining the reforms in the Structural Adjustment
Programme, and launching our own initiatives.

We have a lineup of dynamic Ministers, both young and experienced, who are determined to make necessary reforms stick, which will lead to sustainable economic development, wide participation in economic growth, and revitalised and extended access to basic services.

We have given priority to governance and export-led growth, but whilst we greatly appreciate the international support provided by our bilateral and multilateral donors and partners, including Australia, we are determined to make the necessary adjustments and avoid the easy option of further borrowing our way out of economic difficulties.

The export-driven strategy of economic recovery is an home-grown
initiative which the Government had to embark on if Papua New Guinea is to see meaningful and sustainable growth.

This broad-based recovery plan sets the framework for a medium to
long-term growth aimed at improving the poor economic and social indicators currently facing the nation.

It aims to create more jobs, especially in the rural areas where about 80
percent of our people live. At the same time, it aims to empower Papua New Guineans to be more competitive in improving their standards of living.

It attempts to ensure the provision of essential social services, such as
access to improved health and education facilities.

The strategy also targets the growth of the agro-forestry, fisheries and
manufacturing sectors where some level of value-adding to raw materials can be achieved. Tourism development and public sector reforms are also featured in the strategy.

Whilst job creation and skills development is the important target, the
strategy also aims to take advantage of development under the WTO and APEC initiatives, as well as to strengthen our Balance of Payment position.

Key elements of this strategy have been incorporated in the 2003 Budget
framework.

Again it is important to note that, unlike previous budget plans, the 2003
Budget was put together by Papua New Guineans under the leadership of a Ministerial Committee headed by the Treasurer, Hon. Bart Philemon.

The money plan is a project-driven document, which aims to facilitate a
structured and result-oriented process of development in all sectors of
the economy, including the agriculture, tourism and infrastructure sectors.

We are beginning to see signs of confidence developing in the Papua New Guinea business community as the result of the initiatives taken in the 2003 Budget.

Both the Mining and Petroleum sectors have responded positively to thincentives available. Oil Search and InterOil have announced increased
exploration in the oil and gas fields, whilst Highlands Pacific is ready
to commence production in the Kainantu mine.

Preparation for the development of the Ramu Nickel mine in Madang will
recommence soon as the dispute between Oil Search and Highlands Pacific has been satisfactorily resolved with the subsequent purchase of 31.5 per cent interest by MRDC.

The Kina has stabilised after a shaky ending in December last year.
The sudden fall to about 0.19 US Dollars was influenced by a combination of low minerals exports, largely as a result of a drought that temporarily halted shipping, and the high normal seasonal imports.

It has now stabilised against both the US and Australian dollars, at 0.24
and 0.41 cents respectively.

And so, after some uncertainty and nervousness in the market, there are
positive signs of confidence in the PNG economy developing.

This is due largely to the initiatives taken by my Government to date on a number of issues, including economic and political reforms.

PNG's economy is unusual in that it has sustained a consistently positive
balance of trade, running around three billion Kina in recent years, and a
positive overall current account.

However with lower export earnings from late 2001, combined with a higher deficit on the invisibles pushed the overall balance of payments into deficit during 2002.

Our level of indebtedness is already high enough, at 70 per cent of GDP,
and carries a major servicing burden, especially with the lower Kina value.

We cannot always go cup in hand to borrow for budget support, and my
Government is determined to concentrate upon living within our own means, whilst expanding those means.

In other words, tough measures are being taken to promptly cut our
excessive fiscal and quasi-fiscal deficit, ensure expenditure is more productive, and enable the private sector to better perform its role as the powerhouse of the economy.

We have launched a public expenditure and rationalisation review, with
support from international donors, including the World Bank.

Apart from cost reduction, the review intends to verify the current level
of debt, including outstanding arrears and contingent liabilities, and
establish a tight action programme of debt management.

This exercise will be a central function, run closely with the ongoing
Public Sector Reform Programme.

The Government has re-established the Parliamentary Public Accounts
Committee, with a strong mandate to oversee the operations and performance of Government bodies, and it has already been making an impact.

This reinforces the effectiveness of the Auditor-General and combines with the efforts of other watchdog bodies like the Ombudsman Commission to stamp out public sector corruption, which although not at the insidious level prevalent in parts of Africa and South America, has been eating at the fabric of our institutions and undermining the prospects for social and economic development.

We have also directed that the legislation for the establishment of the
long-planned Independent Anti-Corruption Commission (ICAC) be now tabled in Parliament for its second and subsequent readings, and that legislation to protect whistleblowers is also passed.

I must reiterate that such white-collar crime - in many regards - is far
more serious than crime carried out for need.

Crime by public officials sets the worst example, breaches the trust of
the community and causes major economic distortion, often diverting millions of Kina away from higher priorities.

My Government will not shirk its responsibilities in fighting this
scourge, wherever it appears, without fear or favour.

Law and order problems are complex. In PNG, they seem to be motivated more by economic considerations and expectations, linked to rapid population growth and urban drift, and the lack of economic opportunities in the rural areas and upon arrival in the towns.

Therefore, the response must in part be economic, notably through boosting economic opportunities.

A major effort in support of the informal sector, entailing skills
development and appropriate infrastructure and facilities will be
emphasised, but it also requires effective partnerships with the private
sector.

Increased crime levels, unfortunately are a worldwide problem, as you also know only too well here in Australia. We must all learn to tackle the
issue more effectively, sharing ideas and practical experience.

By giving law and order problems prominence in the (largely
overseas-owned) Papua New Guinea press, and with limited coverage of other relatively positive stories, unfortunately seems to encourage more negative coverage on PNG, here in Australia than on other less open societies.

We however welcome more positive features, like the recent introduction in one of the PNG dailies of a "Rural Industries Weekly".

We realize that law and order related problems have to be tackled head-on.

In this regard, we are taking every possible steps, including building
capacity in the law-enforcing agencies to minimize its impact on society.

We are reforming, and depoliticising the public service to ensure that it
is more cost-effective and run by the most able administrators available,
without the continual chopping and changing of senior staff, which has
been prevalent in recent years.

This has severely undermined performance. We have established a National Road Authority to better manage and channel funding into the restoration of our main highways.

With support from the World Bank and other parties, including AusAID, we have made a major commitment in the 2003 Budget to rehabilitating the Highlands Highway, which is the lifeline for many of our main mineral and agricultural industries and much of the country's population.

The poor state of the country's core infrastructure has been a major
constraint to economic development in recent years.

As evidence of redirecting our expenditure from recurrent to
infrastructure, the development budget has been increased by 8.6 per cent in 2003 to K1.2billion.

The Australian grant in aid to finance activities through our development
budget has been very useful.

In fact, we have seen tangible results in both economic and social
infrastructure. As well, we have seen gains in human resource development through the education process.

On the other hand, Papua New Guinea remains one of Australia's close and friendly trading partners. We continue to purchase millions of Kina worth of goods and services from Australia each year.

However, there is room for improvement in this relationship, especially in I personally would like to see that the project financing aid is
benefiting Papua New Guineans more effectively through skills development.

At present a majority of the Australian aid funds finds its way back to
Australia because the providers of goods and services, including costly
management agents, are still Australian dominated.

This personal observation is not intended as a criticism. Rather, it is
something which our two Governments may want to review so that at the end of the day, greater local capacity in Papua New Guinea, with funds stretching further, should meet both Papua New Guinea and Australia's best interests.

The privatisation policy of successive governments has been in place since the early 1990s, although very little has actually been sold since then, except shares in Orogen Minerals Ltd, some oil palm companies, and more recently the PNGBC and Ramu Sugar.

My Government has certainly not abandoned privatisation, but we intend to be more selective in the process.

We need the revenue to retire public debt, partly created by the
corporations themselves. We also need more efficient public utilities, and
see no reason for our consumers to pay through the nose for uncompetitive and inefficient services.

We fully appreciate the need for Government to focus upon its core tasks, whilst letting the private sector do what it does best , i.e. run
businesses and trade for profit.

However, in the case of Papua New Guinea, there is a case for Government ownership of enterprises which provide essential social services.

Transport, electricity, telecommunication, water, sanitation and postal
services are important. They have to be equitably made available to the
community but at low cost.

And so, the issue is really equity versus efficiency. Partial
privatization through a strong public/private partnership maybe the preferred option in some cases.

I think this model may be more appropriate for a developing economy like ours where a majority of our people dwell in small and scattered
communities, although it is recognized that the private partners would
need sound security and adequate share of control.

When I was in Sydney just two months ago for the PNG Mining and Petroleum Conference, I gave a detailed rundown on the Government's reforms, contained in the 2003 Budget, to improve the prospects for the mining and hydro-carbon sector.

This sector has been the mainstay of Papua New Guinea's formal economy, particularly since 1985 when it overtook the agriculture sector (including forestry and fisheries) as the main source of export earnings.

It provided some 80 per cent of the country's export earnings in 2001, and about 29.5 per cent of GDP.

Whilst agriculture, with an estimated 24.7 per cent of GDP in 2001, is the
mainstay of most households in PNG, providing subsistence and cash crop earnings for the majority of the population, the country's mineral and petroleum projects provide much of the foreign exchange earnings and revenue for running the machinery of the State, plus additional benefits for many provinces.

Most of the country's current mining and petroleum developments were the result of exploration going back into the 1980s and long before.

Exploration is clearly a precondition for further development, but during
the 1990s exploration - which was a major industry in itself -
increasingly dried up.

Although the withdrawal of AGL, a prospective major initial purchaser from the PNG to Australia gas pipeline, was clearly a disappointment, the gas consortium, led by Exxon, has stepped up its marketing effort, with cooperation from the Petroleum and Energy Ministry, and has made major progress in securing additional initial buyers for PNG gas.

I should however add that construction of the country's first commercial
oil refinery is now underway near Port Moresby.

It will supply refined products for the domestic market, whilst exporting
nearly half its output.

It is already providing a range of business opportunities during its
construction phase but will encourage further opportunities once
completed.

The provision of cheaper and more reliable power to the National Capital
in future, from gas and other hydrocarbon products, will increase reliability for other businesses.

It will also help reduce the current excessive power supply charges.

I am aware of concern by some existing mine operators that, although
investment conditions for new exploration and development are now
attractive, the continued application of the mining levy acts as an
impediment to existing mine operators, possibly shortening the life of
some mines and undermining the capacity of existing operators for continued exploration and development.

This concern is recognised and my Government will examine the prospect of re-phasing-out the levy, and dropping the planned 2 per cent fiscal stability tax.

I should add that support for the development of the mining and petroleum sectors is also provided by a technical support project, funded by the World Bank and a new European Union-funded project.

Over the next few years, the latter will undertake geophysical and further geological surveys in various parts of the country, as well as providing training and helping establish environmental standards, including for prospective sub-marine mining and waste management.

Further improvements will be needed with environmental standards and
monitoring of mineral projects, including transportation and processing,
to ensure that we never suffer the disastrous effects of further river
despoliation from mining operations, or the devastating impact of any oil
loss from tankers, barges, oil fields or processing facilities.

The recently passed Environment Act and its associated Regulations will
become effective within the next few months.

My Government's priorities last year were initially to stabilise the
economy, including the falling kina, and to re-establish lost confidence
in both governance and fiscal discipline.

The bigger task now is to promptly restore the longer-term prospects and confidence in the economy, by promptly tackling the fiscal issues and re-triggering new investment in all sectors of the economy including
agriculture.

Establishing the PNG to Australia gas project on acceptable terms, whilst
also developing other potential markets and uses, including within PNG,
for our major gas reserves will remain priority considerations.

At the same time we are concentrating, through the National Fiscal
Commission and our wider reform programme, upon improving the planning and administration of our current and future mineral revenue flows, both at the national, provincial and local levels.

This will ensure that income is not squandered, but really contributes to
the lives and opportunities of our wider population, through investment in
needed infrastructure, services and encouraging the diversification of the
country's economic base.

In agriculture, but also aqua-culture and agro-forestry, we are focusing
on the nucleus estate model, as a means to encourage dispersion of planting material, with the estate investor also providing support for production and processing and a market outlet for neighbouring smallholder producers.

This model has worked successfully in the oil palm industry, but also in a
range of more recent activities, from fish farming to balsa wood.

As far as forestry is concerned, we will continue to work together with
the landowners, donor agencies and NGO's to develop a sustainable industry.

The Forest and Conservation Project, already negotiated with the World
Bank and the Global Environment Facility, has been endorsed by the Government, with a few minor variations.

The project will fund an immediate review of ongoing forestry projects,
long sought by resource owners, which the respective authorities have not had the resources to carry out themselves.

The project will also support proper planning and monitoring of forestry
projects to ensure higher operational and environmental standards, and
assist the development of a viable plantation sector and improved
long-term landowner benefits.

As in Australia, the future of forestry in PNG lies with developing a
sound plantation sector, producing and processing commercial species.

In this regard the Government has commenced the preparation of a forest plantation development policy, which is expected to be launched this year.

In recent years, we have been concentrating upon ensuring more direct
benefits from our extensive marine resources, especially tuna.

Instead of just licensing distant-water vessels, we have now established a significant fleet of locally-owned long-liners and based various
overseas-owned operations onshore.

Our first fish cannery - using local produce - was established in the late
1990's in Madang, and recently we have launched two new tuna loineries in Wewak and Lae.

With support from the ADB and EU, new fish wharves are being considered for various centres, and local communities are being assisted to participate more actively in small-scale commercial fishery.

We will also give close attention, in collaboration with our regional
neighbours, to ensuring harvests are kept within sustainable levels and
minimising by-catch.

Our efforts to strengthen marine surveillance in recent years have been
marred by poor planning and administration, but we will step up efforts on this with international assistance.

Our aquaculture industry has also been developing in recent years with a
larger investor supporting local communities in producing barramundi for
the local and now overseas markets.

Trout farming is already underway, and it is hoped that investment in
other products, such as prawns, will occur shortly. The emphasis on value adding manufacturing is an important development.

In pursuing this strategy, we are mindful that we do not lose sight of the
need to be competitive in the manufacturing process.

However, compared to Australia and other developed countries, we still
enjoy the benefits of a low wage structure. The average minimum wage remains competitive.

There are opportunities therefore for Australian companies to produce in
PNG for the Australian market in certain areas where raw materials are
abundantly available.

Ladies and gentlemen, I will not go through all our economic activities
and prospects, but I will conclude with tourism. Ours is only a small industry compared with some of our neighbours, including Australia.

However, those who visit PNG, whether for diving, walking,
wildlife-watching or in search of culture are always amazed, and many fall in love with the place and return for many repeat visits.

As I stated earlier, Tourism development will feature prominently in the
medium term.

Those from Australia, who have plucked up the courage despite all the
negative reports, are often the most amazed.

They say "how come we didn't know about this place before, with all its
beauty, richness and friendliness of its people?" How indeed? Papua New
Guinea has its store of challenges, as have all developing and even
wealthy nations.

Please do not write us off, but rather provide your support.

We are trying to rise to these challenges, and take advantage of our many good economic and social opportunities and we certainly welcome
Australia's, and the international community's, assistance in our efforts.

We particularly welcome the commitment by Australians who are either
willing to invest in PNG, or provide their expertise, or who just want to buy our products and perhaps visit as tourists.

Before I conclude, I would like to express my great appreciation to our
organisers. It has been a great pleasure to have been here with you today.

Thank you.

[maria22hzn]

good job Prime Ministera good leader is a positive thinker
conflicts will surely arise as well as the rise and fall of the economic but with your help things will work for good

[myy]

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