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Budget Management Committee Meets with Department Heads to Resolve Issues
by PNG Business News - January 22, 2021
To work out outstanding issues with government payments, the Budget Management Committee (BMC) met with department heads, the Bank of PNG Governor, Loi Bakani, and BSP CEO, Robin Fleming.
The BMC is composed of Chairman and Treasurer, Ian Ling-Stuckey, Finance Minister John Pundari, Planning Minister Rainbo Paita and his Vice Minister, Dr Kobby Bomareo.
Ling-Stuckey said, “We have heard the frustrations of our local businesses, Members of Parliament and Government agencies, with late and declined government payments. This has to stop if we are to deliver services to our people. Extraordinarily, as the meeting explored deeper into the underlying issues, there were three main factors that contributed to the bouncing cheque’s issue.”
“First, over the last decade, with growing concerns about corruption and new anti-money laundering and counter-terrorist financing laws, there has been an increasing but seemingly, uncoordinated practice to double and triple check the authorisations of payments made by the government,” he said. “More and more of the underlying documentation to authorise payments has had to be sent to both commercial banks as well as BPNG. Second, the updated Kina Automated Transfer System (KATS) introduced by BPNG has modernised many elements of banking in PNG. Cheques used to take 14 days to clear. Now, if they are not cleared in 2 days, they are dishonoured. This means that if all the increased documentation is not provided in only two days, then the cheque will automatically bounce.”
He continued, “Third, from September last year, the meeting heard for the first time on Tuesday that the email from the Department of Finance that used to provide the necessary documentation within two days broke down since about September last year and for all of the 4th Quarter, and this was apparently, the primary reason for bounced cheques, according to frank advice tabled by the Deputy Governor of the Bank of PNG (BPNG). So the breakdown in the Finance Department email system, combined with the reduction in the cheque clearance time to two days, combined with the increased duplication of documentation requirements, appears to have contributed and resulted in the recent experience of bounced cheques,” explained the Treasurer.”
“In the month of December 2020, government cheques valued over K500,000 that were dishonoured totalled K200 million, of which K74 million were rewritten but dishonoured again. This is clearly unacceptable,” he added. “More needs to be done to deal with the underlying issues. The Budget Management Committee meeting on Tuesday resolved to modernise the government payment system and was advised that the primary solution to ending bounced cheques included adopting electronic transfers for all government payments. It was the view of all BMC ministers and their departments that the very long checklist, adopted by the Bank of PNG, should be reduced, if not, perhaps eliminated altogether, and that oversight of a checklist be transferred back to the Department of Finance and/or the originating source of the funds.”
He said, “It is embarrassing that the Government of PNG is unable to meet its bills reliably and on time. Our SME’s are crying out for money they are owed, and all they receive are bouncing cheques. The BMC meeting directed the Secretary of Finance to ensure that the documentation process from the email system does not break down again. I have also asked that a backup system, perhaps a consideration for an encrypted system like WhatsApp that is user friendly, is made to ensure information can get through to BPNG.”
“More fundamentally, we must address the underlying issues. Our meeting agreed the multiple document checklist culture must end,” Treasurer Ling-Stuckey said. “Our departmental heads have been tasked to work with the Bank of Papua New Guinea and the commercial banks to do away with outdated practices. We can do this while still maintaining the integrity of our Anti-Money Laundering Laws. Australia and New Zealand manage government payments and their international obligations successfully without needing additional oversight by third parties. It is time we modernised our systems to bring them in line with international best practice. Countries like Fiji have used electronic transfers for years. It is embarrassing that PNG is still stuck in 1975 issuing a very large share of payments through paper cheques. Cheques create opportunities for corruption and slow down our financial system.”
Meanwhile, Minister Pundari said the Department of Finance need to review the Financial Management System and come out with a plan to move towards electronic transactions.
He stated, “This will stop the perennial problem of bouncing cheques. You can’t electronically transact funds that you don’t hold. Our private sector relies on electronic transactions. It is time our public sector moved to a modern payment system suitable for a rapidly developing country like Papua New Guinea.”
PNG Business News - June 15, 2019
Improvements in most PNG export commodity prices
The latest international commodity price data published by the World Bank in April 2019, show improvements for most of PNG’s export commodity prices of energy, metals and non-energy commodities, compared to actual outcomes in December 2018. Bank of PNG Governor, Loi Bakani stated that price for Liquefied Natural Gas (LNG) based on imports to Japan increased by 0.7 percent to US$11.87 per one million British thermal units (btmu), while price of crude oil by West Texas Intermediate fell by 6.6 percent to US$54.9 per barrel. The prices of most metals and mineral increased, with price of silver increasing by 6.8 percent to US$15.6 per ounce, gold by 6.1 percent to US$1,304.0 per ounce and copper by 1.8 percent to US$6,226 per metric tonne (mt). For non-energy commodities, prices increased for palm oil by 5.8 percent to US$578 per metric tonne and coffee (Arabica) by 2.8 percent.to US$2.24 per kg, while cocoa fell by 5.1 percent to US$2.95 per kg. Governor Bakani encouraged the export sector to take advantage of some of the high commodity prices and increase production levels, especially for the agricultural export commodities. This also includes boosting local production for domestic consumption and replacing similar imported items. He noted the importance of a sustainable export sector as the main source of foreign exchange and reiterated that every support is needed from the private sector, growers and the Government to expand this sector. “Without the right policies and support from all stakeholders to grow this sector, the on-going issues confronting the foreign exchange market in terms of lower foreign exchange inflows and build-up of import orders will continue to persist. This will put pressure on the exchange rate and domestic inflation. While the Central Bank can intervene to support the market, its capacity to do so continuously is limited by its accumulated level of foreign exchange reserves,” he said. Large investment projects such as the Papua LNG and Wafi Gold projects are expected to increase foreign exchange inflows soon like many of these major projects in the past, however, these inflows are not sustainable in the long run. Therefore, growing the non-mineral export sector is critical for long term sustainable and inclusive growth because the majority of our people are engaged in this sector, especially the agriculture sector. During the March quarter of 2019, the average daily kina exchange rate depreciated against the Japanese yen by 2.6 percent to ¥32.6844, pound sterling by 0.3 percent to 0.2301 and the US dollar by 0.2 percent to US$0.2968. Against the Australian dollar and euro, it appreciated by 0.6 percent to A$0.4170 and 0.3 percent to €0.2613, respectively. w
PNG Business News - February 15, 2021
Foreign Exchange Liquidity Is Expected To Rise In 2021
The foreign exchange liquidity in the country is predicted to increase this year. According to the Bank South Pacific, this could happen although the first quarter may be tight. In the BSP Economic and Market Insight December 2020 quarter publication, group general manager treasury Rohan George said that the foreign exchange inflows were expected to decrease by 13 per cent with the support of the Bank of PNG (forex) intervention and 20 per cent without its forex support, from levels enjoyed in the last quarter of 2020. He predicted that these were all because of the effect of the fire at Ok Tedi, the Porgera mine shutdown, Government businesses and State-owned entities strong end-of-year inflows “are likely to be partially offset by increased forex intervention by the Bank of PNG”.“The Kina is likely to continue its gradual fall against the US Dollar (10bps/month), while persistent Australian dollar strength will see larger falls in the Kina against the Australian dollar cross-rate,” he said.The high import demand is also on downward pressure on the Kina exchange rate against the US dollar. “A look ahead into 2021 is promising,” he said. “For instance, Japan has committed to a K1 billion low-interest loan to help finance PNG’s budget deficit. Further, the Government has provided assurances regarding multi-billion Kina resource projects like the Wafi-Golpu, Papua LNG, Pasca offshore, and the re-opening of the Porgera mine. A successful conclusion of negotiations will provide foreign exchange relief.”
PNG Business News - February 09, 2021
Kina Drops By 2.9 Per cent Against the US Dollar
According to the Bank South Pacific (BSP) chief executive officer Robin Fleming, the kina depreciated by 2.9 per cent against the US dollar in 2020.“During the course of 2020, the Kina depreciated by 2.9 per cent against the USD, therefore, the cost of goods increase associated with the exchange rate for USD denominated imports would have been around 2.9 per cent,” he said. “For Australian dollar imports, this may have been somewhat higher as the Australian dollar appreciated by 16 per cent against the Kina from last June, predominantly due to movements in the USD and AUD cross rates. In respect to inflation, the most recent publication from the Bank of PNG (BPNG) released in January was that its September 2020 monthly economic review suggests overall inflation is still low.He added, “BPNG’s September 2020 monetary policy has inflation around 3.3 per cent and the Department of Treasury 2021 budget papers indicated inflation for 2020 around four per cent. The BPNG Sept 2020 monthly economic review showed that inflation annual headline retail price index (RPI) to Sept 2020 increased by 0.5 per cent.”This was driven by price increases in alcoholic beverages, among others. According to the BPNG statement, the annual headline inflation decreased from 4.8 per cent in December 2018 to 3.1 per cent in March 2020. This was due to stable or low-income prices in seasonal produce, low imported inflation and high competition. BPNG Governor Loi Bakani said that the import of costs was below 25 per cent.
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PNG Business News - April 08, 2021
Price of Oil Recovers in Spite of COVID
According to Oil Search, oil prices have risen steadily in recent months from the initial effect of the Covid-19 last year, when prices ranged about US$43 (K150) per barrel of oil (bbl), to levels above US$60/bbl (K210) since February this year. In response to questions, a group spokesperson said,“ To date, there has been no impact to production in our Oil Search operations in PNG as a result of the recent surge in the Covid-19 cases. The increase in confirmed Covid-19 cases in PNG has prompted Oil Search to enact its crisis and emergency management plans. The health and safety of our employees remain the company’s highest priority and teams have been assembled in PNG and Sydney to deploy additional support to protect our people and to ensure the safety and reliability of our operations. At our PNG field locations, we continue to operate under precautionary protocols established in 2020, which includes redeployment of non-essential personnel, restriction of access and travel to field locations and implementation of strict preventative measures and quarantine zones.” He added, “We have enacted additional risk mitigation measures include establishing ‘cocoons’ for our field teams and extending the quarantine period for employees and contractors. To date, there has not been a single positive case recorded in our operating sites outside of quarantine. We have also conducted more than 7,500 Covid-19 tests at our medical clinics and quarantine facilities in PNG. Beyond the safety of our own people and assets, Oil Search stands ready to work with relevant Government and health authorities to assist in PNG’s overall response to the Covid-19. This includes the dissemination of accurate information around the Covid-19 and vaccinations, supporting provincial health authorities to implement an effective vaccination programme, and providing logistics and cold chain support where required and as directed by the Government.”
PNG Business News - April 08, 2021
Lae Chamber Welcomes Green Energy
The Lae Chamber of Commerce and Industry (LCCI) said it welcomes any power plan that is long-term, environmentally friendly and creates jobs in the delivery of efficient, low-cost electricity in Lae and Morobe. President John Byrne referred to concerns regarding the PNG Biomass project in the province's Markham Valley when he said, “PNG Biomass has provided a solution which ticks most of these boxes, whether it fits the plan of PPL (PNG Power Ltd) is a decision beyond our scope. The recent Ramu 2 announcement is another such solution. Our people of Lae, Morobe, and PNG, not only expect but deserve, reliable, constant and cost-effective power solutions.” According to Byrne, the Lae business group praised the Lae PPL team for their commitment, hard work, and communication in maintaining an ageing and insecure grid infrastructure operational. He said many companies that had short or long-term contracts with the government were failing because of the long-standing outstanding Government bills owing to them. “The quantum of debt is not specified but very large and this added to the impact of the Covid-19, resource debates and a lack of forex is taking a toll on the business houses.,” he said.
PNG Business News - April 08, 2021
Businesses Concerned Regarding Government Debts
With the outstanding amount of government debt owed to the sector, pending landowner fees, and rising law and order woes, businesses are concerned about 2022. According to Chey Scovell, chief executive officer of the PNG Manufacturers Board, conversations within the business community revealed that the government owed companies more than K2 billion. “I don’t have an updated list, but from general conversations with business and what is being raised with the various chambers, it would exceed K2 billion,” he said. “We hear that contractors for the Department of Works have claims for this amount alone, so the number could be as high as K3 billion. No doubt they may have paid some, technically a K1 payment would be paying at least some. The Budget hasn’t been able to be implemented properly at all. Recurrent expenditure, monthly bills for things like water, power, security, rent, are not being paid in full or in many cases at all. We’ve suggested that the Government put up an online portal/list, for all creditors to register for the Government to show full or progressive payments.” Scovell compared what the government was doing to the private community to what would happen if everybody started paying taxes for one to five years but continued to use government programs. “They wouldn’t be able to survive, so how is it that they expect businesses to carry on?” he said. “It is also a bit of a cop-out that Treasury is taking a long time and in many instances taking extensive reviews of claims to see if they will pay them and by how much.” Scovell argued that the government was required to behave in good faith and to set a precedent, but that forcing or intimidating companies to make substantial reductions in compensation due for goods and services rendered was bad form. “We note there are many dodgy claims, but there seems to be little evidence that hires car firms, public works contractors and catering firms (reported as problematic areas) are having the same scrutiny,” he said. “BOC Gas waited years to be paid for medical gases such as oxygen supplied to PMGH (Port Moresby General Hospital), it was reviewed twice that I know of and not paid. The other item of note is that debt carried is a growing debt. The older it gets the more it has cost the businesses.” He added, “Also, our currency has been depreciating, many businesses based their fees on the foreign exchange rates at that time, some even had loans Just like our tax penalties, the longer they are overdue, the higher they should become. This Government isn’t doing to others as it does for itself. We still have micro, small and medium enterprises that have suffered duress due to non-payment of bills going all the way back to our 40th Independence, same goes for the 2015 Pacific Games, we hear from the regional chambers that there are many outstanding claims for the past two elections. Again, if we had a publicly available list, the Government wouldn’t be able to hide behind confusion and people could whistleblow on dubious claims.”