Nov 28 Bruce Hextall
Papua New Guinea's Treasurer Bart Philemon is expected to announce a range of fiscal measures designed to rekindle investment in the country's beleaguered mining industry in his budget speech to Parliament today.
The budget measures will be designed to stem the haemorrhaging of the economy by encouraging new expenditure in the minerals sector.
The PNG Government's revenue base is at risk because of the prospect of tax and royalty income streams drying up because of a lack of expenditure on new projects.
The budget is the first since 72-year-old Michael Somare regained the prime ministership in August, 27 years after he led the nation to independence.
Sir Michael will travel to Australia next week to talk up PNG's investment prospects, delivering the keynote address to a PNG Investment Conference in Sydney on Monday before a meeting with Prime Minister John Howard on Tuesday.
The managing director of PNG-focused Oil Search, Peter Botten, said there had been discussions between government and industry over what was needed to facilitate a greater level of investment.
"Certainly the attitude of the new government is to recognise the challenge of depleting resources and depleting revenue streams from taxation and royalties in coming years," Mr Botten said.
"It has spent quite a bit of time reviewing potential fiscal incentives and changes to the mineral and petroleum regimes."
The fiscal measures designed for the minerals sector will largely bypass the oil and gas sector, which will be dealt with when there is more certainty that the $6.8 billion PNG-to-Australia gas project will go ahead.
A consortium led by ExxonMobil hopes to sign up sufficient customers by the end of next month to allow development to begin. The deadline needs to be met to allow the project to start delivering gas to a key cornerstone customer, the Australian Gas Light Company, in 2006.
The project is viewed as having the potential to bring major economic benefits to PNG but the government is also anxious to rekindle interest in its mining sector.
Large-scale projects such as the Placer Dome-operated Misima and Porgera gold projects are at a mature stage but there is only a handful of new projects on the drawing boards.
The lack of exploration in recent years, since major groups including Rio Tinto and BHP Billiton largely exited the country, means there is little in the way of major deposits waiting funds for development. BHP Billiton has withdrawn from the OK Tedi copper project and Rio's only remaining major exposure is its 16 per cent stake in Lihir Gold.
High political risk and poor commodity prices have combined to shrink investment in PNG's mining sector.
The national currency, the kina, has collapsed, losing a third of its value, and a budget blowout has placed the nation on the brink of bankruptcy.
The mining incentive package comes two weeks after Australia rebuffed pleas from PNG to defer repayments on a $200 million loan because of its economic crisis.
An Australian ministerial delegation led by Foreign Minister Alexander Downer agreed to redirect about $40 million in aid into PNG's budget but refused to consider additional cash injections.
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