18 minute read
SIGNS OF FISCAL RECOVERY IN PAPUA NEW GUINEA?
TotalEnergies announces new milestone towards Papua LNG development
TotalEnergies, as operator, has announced the decision of the Papua LNG joint venture to launch the first phase of front-end engineering and design (FEED) studies for the Papua LNG project’s upstream production facilities.
In parallel, studies for the downstream liquefaction facilities are progressing in line with the overall project schedule, and the objective is to launch the integrated FEED in the fourth quarter of 2022.
The project is targeting a final investment decision (FID) around the end of 2023, and a start-up at the end of 2027.
“The commencement of upstream FEED studies is another significant step towards developing the Papua LNG project, which will increase Papua New Guinea’s LNG export capacity and thus contribute to its further development,” said Julien Pouget, Senior Vice President Asia Pacific for Exploration & Production and Renewables at TotalEnergies.
“The Papua LNG project is well positioned to contribute to growth in LNG supply worldwide, especially for customers in Asia seeking to decarbonize from coal to gas, in line with our strategy to lower global greenhouse gas emissions.”
The Papua LNG joint venture is committed to developing a landmark project in terms of sustainability, biodiversity, and low carbon emissions. Specifically, the project will incorporate a carbon capture and storage scheme for the fields’ native CO2, which will be reinjected into the reservoirs.
SANTOS: RECORD H1 FREE CASH FLOW, UNDERLYING EARNINGS, HIGHER SHAREHOLDER RETURNS
Santos has announced its halfyear results for 2022, reporting record free cash flow of US$1.7 billion and underlying profit of US$1.3 billion.
The results reflect significantly higher oil and LNG prices compared to the corresponding period due to stronger global energy demand combined with a higher interest in PNG LNG following the Oil Search merger.
Santos intends to return US$605 million to shareholders (equivalent to US18 cents per share) under the company’s capital management framework, comprising a 38 per cent increase in the interim dividend to US7.6 cents per share unfranked (US$255 million) and an increase in the previously announced on-market share buyback from US$250 million to US$350 million.
The US$350 million on-market buyback is inclusive of the US$250 million initial on-market buyback announced in April 2022, of which US$174 million had been completed by the end of June 2022. Santos intends to return the remaining US$176 million to shareholders via on-market share buybacks during the remainder of 2022.
Santos Managing Director and Chief Executive Officer Kevin Gallagher said Santos delivered record production, free cash flow and underlying earnings in the first half 2022 as the company benefited from strong customer demand for our products and higher commodity prices.
“Demand for our products has remained strong in both Australia and internationally, due to increased demand and shortages of supply from producing nations due global underinvestment in new supply,” Mr Gallagher said.
“We are seeing these issues play out in the significant shift in global energy policy towards energy security as a key priority.
“Our critical fuels not only play a key role in the energy security of Australia and Asia, but they also provide affordable and reliable alternatives to switch from higher emitting fuels.
“The results demonstrate the strength of Santos, with strong diversified cashflows and capacity to provide sustainable shareholder returns, fund new developments and the transition to a lower carbon future.
“Strong first half free cash flows mean we are in a position to deliver higher shareholder returns through an increase in the interim dividend and on-market buyback, consistent with our disciplined capital management framework.”
Santos also announced today a final investment decision has been taken to proceed with the Pikka Phase 1 oil project located on the North Slope of Alaska. Further detail is available in Santos’ separate ASX announcement on the project dated 17 August 2022.
Santos is also in advanced discussions with shortlisted counterparties for the sale of a five per cent interest in the PNG LNG project.
Throughout this process, there has been strong interest from reputable counterparties with expected proceeds in-line with market consensus valuation. Santos intends to retain a 37.5 per cent stake in PNG LNG.
Signs of fiscal recovery in Papua New Guinea?
By Kingtau Mambon and Stephen Howes
Papua New Guinea has been facing fiscal problems since the end of its economic boom almost a decade ago, with large deficits, increasing debt, falling revenue, and a rapidly growing salary bill. The COVID-19 pandemic has made things worse by depressing revenue. But the recently released 2021 Final Budget Outcome contains some promising signs.
First, interest payments and the salary bill, both of which have increased rapidly since the boom ended in 2013, have been brought under control, at least for now. As the graph below shows, they have both started to fall relative to GDP.
Second, after two years of negative growth, revenue grew strongly, by 9.7% after inflation, or from 14.2% of GDP in 2020 to 14.9% in 2021. This is more than the target in the government’s ambitious plan to achieve a balanced budget in 2027, which requires 7% annual revenue growth.
The revenue increase in 2021 was largely driven by mining and petroleum taxes, reflecting higher commodity prices. Grants (foreign aid) also increased by 47%, indicating strong support from foreign governments and multilaterals during COVID-19, including the first budget support grant after two decades from Australia.
Third, the fiscal deficit fell from 8.6% of GDP in 2020 to 6.7% in 2021. This reflects the revenue growth noted above, as well as expenditure restraint. Expenditure grew in 2021 by slightly less than the rate of inflation. As a share of GDP, expenditure fell from 22.7% in 2020 to 21.6% in 2021.
However, despite these promising indications, PNG is far from achieving a fiscal recovery. The basic budget problem that PNG faces is a structural gap between expenditure and revenue. As the next graph shows, expenditure now hovers above 20% of GDP, and revenue around 15% of GDP.
This is not only an issue for debt sustainability, but also for service delivery. PNG has a rapidly growing population. It is useful to divide revenue and expenditure by the population, as the next graph does. Adjusting for inflation, expenditure per capita in 2021 was around its long-term average of K2,200 (in 2021 prices). But revenue per capita was about K1,500, around its lowest level for three decades. With falling revenue per capita, it will not be possible to support expanded education, health, and roads spending.
A lot more work needs to be done. Revenue is still below its pre-COVID level. Adjusting for inflation, revenue in 2019 was K14.9 billion (in 2021 prices); in 2021, it was only K13.9 billion.
While recovery from the COVID-19 downturn will take time, reforms are also needed. The worst revenue performer is dividends from state-owned enterprises (SOEs). Outside of mining and petroleum, the SOEs paid no dividends at all for the 2021 fiscal year. This is not a new issue. The 2019 and 2020 fiscal years also saw zero dividends coming from SOEs.
With their poor performance and estimated consolidated debt of 5.1 billion kina, it is perhaps unrealistic to expect much more from the non-resource SOEs. But Ok Tedi Mining Limited (OTML) only contributed K81 million to the budget, down from K370 million the previous year. A note in the budget indicates that most of OTML dividends went to Kumul Minerals Limited rather than the budget, another case of questionable diversion of funds.
The National Fishery Authority also paid nothing to the budget against a target of K146 million, despite being flush with funds from the auctioning of fishing licences.
On the expenditure side, while, as mentioned earlier, the salary bill was under control relative to earlier years, expenditure on salaries still went over budget by K180 million. The salary bill for MPs’ salaries increased by K8 million from K71 million to K79 million. There was a spike in the unclassified or ‘other’ portion of the salary bill, which increased from K16 million in 2020 to K73 million in 2021, raising questions of transparency and accountability.
In conclusion, the final budget outcome for the 2021 fiscal year shows strong growth performance in revenue collection and constraint over spending with lower deficits compared to 2020 outcomes.
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Papua New Guinea’s financial sector accounts for K2.3 billion of its economy in 2022, Treasurer Ian Ling-Stuckey says. Ling-Stuckey said a healthy and modern financial sector was vital for development.
“This is a larger contribution than the size of the manufacturing sector (K1.705 billion), or even our transport and storage systems (K2.05 billion),” he said.
“We must ensure that this part of our economy works efficiently.
“It needs to serve the broader public interest as it helps mobilise savings into productive investment and support for SMEs (small to medium enterprises).”
The Independent Advisory Group (IAG) is conducting a review, and the second phase has begun, according to the newly re-elected Kavieng MP.
According to Ling-Stuckey, the first phase’s success prompted changes to the Central Banking Act, which were overwhelmingly approved by Parliament in December.
Robert Igara, chancellor of the University of Papua New Guinea, Sir Wilson Kamit, a former governor of the central bank, and Prof. Stephen Howes of the Australian National University are leading the independent inquiry. “International comparisons suggest there is much that can be done to improve our financial sector,” Ling-Stuckey said.
“We have some of the greatest differences in the world between interest deposit rates paid to savers and interest costs charged to borrowers.
“Fortunately, there are signs that this gap is narrowing as the Marape Government has been clear that changes are required.
“The interest rate gap decreased from 8.51 per cent in 2018 down to 6.51 per cent in 2020, the best performance since 1998.”
Ling-Stuckey said PNG’s financial sector lacked adequate competition which led to monopoly-style profit levels.
“There is a serious problem of excess liquidity in which savings are not turned into investments,” he said.
“There is a need to examine the use of technology and how it can improve access to finance and insurance for many more of our people.
“We also need to address inefficiencies in our payments system which see too many people not being able to deposit funds and too many cheques bouncing due to unnecessary and bureaucratic impositions from our financial sector.”
Public responses are being requested by IAG and are due on August 26.
Ling-Stuckey stated that the Terms of Reference had incorporated the significance of a thorough public engagement process and urged organisations and others to participate and share their opinions on how the financial system in PNG may be strengthened.
“This is an example of the major structural reforms underway by the Government to modernise the PNG economy and lift our economic growth rate.” Treasurer Ian Ling-Stuckey
PUMA GM: LACK OF FOREIGN EXCHANGE CONTINUES TO POSE A THREAT
For many of the country’s main importers, the problem of lack of foreign exchange availability continues to pose a danger to supply security in the nation.
According to Hulala Tokome, Country General Manager and Director of Puma Energy, they are hopeful that a strong framework in terms of government policies would be in place to address these concerns with the creation of the new government and the Minister leading the industry moving ahead.
“This is to ensure that we can be able to maintain fuel supply security and make sure we have the required foreign currency in the market to bring in the much-needed fuel products into the country,” he said.
He said that Puma has continued to collaborate effectively with the government, and they would do so in the future, with the relevant Minister and BPNG.
According to Mr. Tokome, having a solid foundation will be beneficial for the government programmes already in place.
“This is to instill investor confidence, that there are no surprises of increased fee structures and importantly the charges that are being levied through to businesses are value adding and can be recovered especially in a price-controlled market,” he said.
The Treasurer has stated that there is a chance the government’s current gasoline subsidy might be prolonged.
“It’s pleasing to have the government committed to continuing the fuel subsidy as a lot of discussions on making fuel cheaper for consumers continue to take place and it is important to keep on working with the government who are the policy/decision makers,” Mr. Tokome said.
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Despite these promising signs, it’s too early to say PNG has turned the fiscal corner. The large structural gap between revenue and expenditure existed before COVID-19 and closing it will not be easy.
The PNG Budget Database has been updated to reflect the 2021 Final Budget Outcome figures. (See devpolicy.org for hyperlinks to these).
Disclosure: This research was undertaken with the support of the ANU-UPNG Partnership, an initiative of the PNG-Australia Partnership, funded by the Department of Foreign Affairs and Trade. The views are those of the authors only. This article appeared first on Devpolicy Blog (devpolicy.org), from the Development Policy Centre at The Australian National University.
Kingtau Mambon is an economics tutor at the University of Papua New Guinea School of Business and Public Policy (SBPP).
Stephen Howes is the Director of the Development Policy Centre and a Professor of Economics at the Crawford School.
Kina continues strong revenue momentum supported by growth in core business
Kina Bank PNG has announced an NPAT of PGK 45.6m an increase of 15% compared to the prior corresponding period (PCP). Kina’s 1H22 results reflect strong revenue growth and ongoing progress against the key strategic priorities of the Group.
Kina remains committed to delivering improved returns by growing market share organically, disciplined expense management and a prudent approach to maintaining a resilient balance sheet. Revenue growth was evident across both net interest and non-interest income.
Net interest income grew by 8% against PCP due to solid lending performance in SME and home lending. In non-interest income, merchant facility fees and FX income contributed to the 34% increase against PCP.
In good news for shareholders, The Board has declared an unfranked half year dividend for the H122 of AUD 4.1 cents per share/ PGK 10.3 toea per share.
Kina’s CEO and Managing Director, Greg Pawson said the result demonstrates top line growth momentum, execution of our digital initiatives and a solid start to lending for the half.
“Over the past 6 months we have continued to build out our organic growth strategy. Increasing market share in our targeted segments remains the focus for 2022 supported by a robust balance sheet that ensures profitable growth.
“Underpinning revenue momentum is a disciplined approach to deliver customer-led digital solutions. The Launch of our ‘Single View’ is a market first in PNG. Single View enables customers to access their superannuation balances via Kina’s online banking channel.”
Other key achievements for the half were: • New customer segment propositions Kina PRIME PLUS (home loans), Kina Private (mass affluent), Kina Venture (SME) • Established a Corporate Advisory Services Unit • Expansion of Business Banking footprint to key provincial centres • Implementation of customer analytics and artificial intelligence for AML and transactions monitoring • Several Key payment partnerships such as Pei Beta and Xero, • Digital channels income up by 92% and scheme card growth of 138% • Implemented Environment and Social Management System for commercial loan origination (in partnership with Asian Development Bank) • Development of the ESG strategy and objectives for implementation over H2 2022 • Expansion of MiBank financial inclusion partnership including the first co-branded branch in Alotau, Milne Bay province
Performance snapshot:
• Increase in NPAT by 15% to PGK 45.6m. • Loan book growth of 5%, to PGK 2.05b. • Net Interest Income increased by 8% to PGK 92.5m, compared to PGK 85.4m in the PCP. • Foreign Exchange (FX) grew by 10%. • Fees and Commissions increased by 34% against PCP due to the ongoing expansion of Kina’s digital channel network. • Cost to income increased 2% compared to PCP due to non-recurring expenditure in capability projects and initiatives targeted to drive sustained efficiency. • Kina’s Funds Administration business recorded NPAT of PGK 4.4m, with revenue growth of 12%. • The Funds Management business grew by 5% in total funds under management (PGK 5m).
Banking – Lending growth of 5%
The lending portfolio delivered solid results across Home and Corporate Lending. Home lending grew by PGK84.3m, representing 10% growth on the PCP with housing loans contributing 41% of loan book growth.
Business lending experienced growth in Term and Asset Financing loans, Agriculture sector, with expectations for higher growth in the second half of the year – something is missing here.
Deposits grew 12% over the past 6 months largely attributed to an increase in fixed term deposits resulting in a lengthening of the balance sheet duration.
Net Interest Margin reduced to 6.2% due to a lower yield in government securities, strong growth in corporate deposits supporting a strong lending pipeline and acquiring additional share of customer transactional banking including FX and a deliberate strategy of participating in corporate lending.
Funds Administration - Revenue growth of 12%
Kina’s Funds Administration business recorded NPAT of PGK 4.4m, with revenue growth of 12% compared to PCP generated from improved value add services to superannuation clients.
The Funds Management business grew by 5% in total funds under management (PGK 5m), maintaining Kina’s market share in this sector.
Strategy and Outlook
Kina’s purpose is to constantly improve the prosperity of the people, communities, and markets it serves. The bank achieves this by being the most dynamic, progressive, and accessible financial services organization in the Pan Pacific. To deliver on our purpose the bank developed a series of priorities.
Kina is on track to deliver against its 2025 strategic plan. The plan will continue to drive organic growth in the core banking business and a leading-edge digital customer experience, focused on organisational sustainability and corporate responsibility.
Kina aims to continue its current trajectory of pursuing targeted market growth, customer service excellence, digital on-boarding and transactional processing, and strategic partnerships to extend our network coverage. These initiatives include: • Home loan and SME growth in key target segments • Digital onboarding through Electronic Know Your Customer (E-KYC) • Enhancing data capabilities to proactively manage risk • Building a workforce capability that reflects our strategic requirements. • Embedding our ESG strategy through our Environment and Social Management Systems.
Mr Pawson said the growth agenda remains our key focus in the second half.
“Our aspirations to be the most sustainable leader in PNG will drive our agenda. Our regional branch expansion and appointment of additional business advisors will support our growth targets, efficiency initiatives will improve our expense base and creating a dynamic workforce with a digital mindset will set Kina up to deliver prosperity for our communities.” Kina’s CEO and Managing Director Greg Pawson.
ADB: TOURISM BOOSTS PACIFIC ECONOMIC OUTLOOK
Arevival in tourism is expected to boost economic growth in the Pacific in 2022 and 2023, but the COVID-19 pandemic, rising commodity prices, and climate change continue to pose risks, according to the Asian Development Bank.
After an average economic contraction of 0.6% in 2021, ADB’s Pacific Economic Monitor (PEM), released today, says the Pacific is expected to grow by 4.7% this year and 5.4% next year.
The turnaround reflects rising visitor arrivals in the tourism-dependent economies of the Cook Islands, Fiji, and Palau, as well as expectations for Papua New Guinea’s minerals sector to benefit from the higher international commodity prices being driven by the Russian invasion of Ukraine.
But the PEM says the Russia–Ukraine war also poses a risk to the subregion through rising import and transport costs, accelerating inflation, and increasing trade and fiscal deficits across the Pacific.
Other risks to the Pacific’s recovery include community transmission of COVID-19 and some challenges in vaccine rollouts, as well as the region’s vulnerability to climate change and disasters.
“This outlook for the Pacific is welcome after more than 2 years of negative growth caused by COVID-19, but significant risks to this recovery remain,” said ADB Director General for the Pacific Leah Gutierrez. “It is vital that development partners, stakeholders, and policy makers work closely together to ensure the continued recovery.”
The latest PEM forecast represents an improvement on that seen in the Asian Development Outlook (ADO) 2022 released in April, which projected the Pacific’s economic growth to be 3.9% in 2022.
The PEM identifies Pacific economies as among the most vulnerable in the world to climate change and disasters, and that the impact of these shocks—compounded by the fallout from COVID-19 and commodity price spikes—has been sizable. Ensuring sustainable growth will hinge on investing in climate and disaster resilience, the cost of which can exceed the governments’ own resources.
The policy briefs in the issue of the PEM examine how the Pacific is pursuing climate financing from innovative sources, and how ADB is helping to respond to climate change and better manage disaster risk.
P. O. Box 5053 Boroko, 111 NCD. Papua New Guinea Telephone: (675) 308 4400 | Facsimile: (675) 3212818 Email: ipa@ipa.gov.pg | Website: www.ipa.gov.pg
www.ipa.gov.pg
