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Barker Says Forex is Very Tight
by PNG Business News - February 04, 2021
According to Institute of National Affairs (INA) executive director Paul Barker, foreign exchange (forex) has stayed very tight since 2017, considered to be one of the major hindrances to investments and businesses in PNG.
He added that his concern was the imbalance in the markets, partly linked with rigidities in the setting of exchange rates, and the unusual scene of a strong positive current account balance where a section of exports get remitted to PNG.
“While servicing major commercial overseas debt prevails, it combines increasingly with the need for servicing the growing foreign public debt,” Barker said. “The foreign exchange that has been available has effectively been rationed, with priority expenditure taking precedence, including fuel, food and debt servicing, while remitting dividends overseas has largely been on hold for several years.”
On “certain privileged persons able to secure precedence, Barker said he won’t comment further on that.
He said that most businesses need foreign exchange for different reasons.
“Even exporters needed to pay for replacement plant and equipment, sometimes for technical inputs,” he said. “And undue constraint can also handicap their capacity to produce and export. It becomes a vicious circle.”
Although the situation was improving in 2018 and 2019, Barker said, “But 2020 saw the collapse in prices of several major export commodities. This included liquefied natural gas/oil, copper and vegetable oil at the start of the year. It was associated with the severe fall in demand linked to the Covid-19 pandemic and was not balanced by the strengthened gold prices, particularly following the closure of the country’s second-largest gold mine, Porgera.”
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.
PNG Business News - January 22, 2021
Budget Management Committee Meets with Department Heads to Resolve Issues
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 - July 22, 2021
Oil Search Considering Merging with Santos
Santos, an Australian oil firm, announced its plan to combine with Oil Search Limited. Santos proposed a non-binding indicative merger last month with the goal of making the two companies the regional energy champions. The proposed merged entity has a market capitalization of A$22 billion (K56 billion), putting it among the top 20 ASX-listed companies and the top 20 global oil and gas companies. This means, among other things, that the merger will have a diverse portfolio of high-quality, long-life assets spanning Australia and Papua New Guinea, a solid balance sheet with ample cash to support expansion choices, and an investment-grade credit rating. The merger plan, if approved, would be conducted through a Scheme of Arrangement in which Oil Search shareholders would receive 0.589 new Santos shares for each Oil Search share held, according to Santos in a market disclosure to the Australian Stock Exchange. Following the scheme's acceptance, Oil Search shareholders would control 37% of the combined company, while Santos shareholders would own 63%. Based on Santos' closing price on June 24, 2021, the ownership ratio suggested a transaction price of A$4.25 (10.92) per Oil Search share. This was a 12.3% premium to the Oil Search closing price of A$3.78 (K9.72) on June 24, 2021, and a 9.8% premium to the Mubadala block trade selling price of A$3865. (K9.92). Kevin Gallagher, managing director and chief executive officer of Santos, said the merger will bring more alignment to PNG, allowing for the development of important projects such as Papua LNG, as well as the creation of new employment and support for the local economy. Santos, according to Gallagher, has proposed a true merger in which ownership of the combined firm is based on proportionate contribution and value. “The strategic rationale for a merger is clear and offers superior value to Oil Search shareholders rather than continuing on a standalone basis. “Santos continues to believe that the Merger Proposal represents an extremely attractive opportunity to deliver compelling value accretion to both Santos and Oil Search shareholders.” Oil Search stated in its ASX market update that it is open to receiving and engaging with any proposal that is in the best interests of its shareholders. While the company's board of directors agrees with Santos that combining the two firms makes strategic sense, the conditions must be fair to the company's shareholders, which the terms proposed by Santos are not. Despite Santos shareholders holding 70% more shares than Oil Search shareholders, Oil Search maintains that the proposed conditions provide just a 6.8% premium based on Friday's closing share prices for Oil Search and Santos. According to the firm, no such proposal has been made at this time. Reference: Post-Courier (21 July 2021). "Oil Search Open To Merger with Santos".
PNG Business News - July 21, 2021
Study Says Sweet Potato Growers Have Received Significant Insights into Customers Buying Habits
In Papua New Guinea (PNG), sweet potato (kaukau) growers have received significant insight into customer buying habits, which is assisting them in identifying new market possibilities. The recent market analysis, which was supported by the Papua New Guinea-Australia Partnership and conducted by the Australian Centre for International Agricultural Research, revealed that an increasing number of consumers in Port Moresby prefer to buy fresh produce from supermarkets, citing convenience and safety as reasons. While this trend may result in fewer consumers at conventional farmer markets, PNG and Australian experts believe it may open up new marketplaces for rural people. “Farmers are looking for stable markets where they can receive more consistent prices for better-quality produce,” said Professor Philip Brown from Central Queensland University (CQU), who is leading the research project. “The research shows that consumer behaviour is likely to support an expansion in the supermarket sector in large urban centres and this is positive news for the farmers. This could allow commercial focused farmers to secure more stable market access.” The study of 353 customers was conducted as part of ACIAR-funded sweet potato research sponsored by CQU and the PNG National Agriculture Research Institute (NARI), which aims to improve sweet potato value chains by increasing the quality of harvested roots. Sweet potato quality and production are improving, resulting in increasing supplies to retailers eager to provide better fresh produce. “The project, with support from the Fresh Produce Development Agency and NARI, is helping farmers to build their business skills and connect with emerging supermarket opportunities,” said Professor Brown. Kirt Hainzer, a CQU researcher who collaborated on the survey alongside NARI researchers, said it was the first study to look at customer behaviour and see what role stores may play in the development of PNG's commercial sweet potato sector. “The research sought to better understand and compare how consumers buy staples from open markets and supermarkets and to explore the preferences for purchasing staple foods as supermarkets increase the availability of convenience staples like rice,” said Hainzer. “Although expanding formal sales represents a huge step forward in developing a commercial sweet potato industry, continued research on consumer preferences and the market for fresh produce will help better understand trends in staple food purchasing and what market opportunities exist for growers.” With over a hundred kinds of sweet potato in the nation, NARI economist Raywin Ovah said the study sought to find out which of these customers preferred. “Not all the varieties are preferred from a consumer point of view. There are only a few that consumers want to be based on the taste or health properties and that is what we want to also find out. Farmers can be provided with that information, so they produce those varieties that the market wants.” One of five initiatives under the Transformative Agriculture and Enterprise Development Program is a project to increase commercial sweet potato production and commercialization in the PNG highlands. The ACIAR program, which is funded by Australia in collaboration with the government of Papua New Guinea, aims to improve the livelihoods of rural men and women through private sector-led development, increased agricultural productivity and quality, and the development of individual and institutional capacity. Reference: Loop (20 July 2021). “Study looks into sweet potato industry”.
PNG Business News - July 21, 2021
Garry: MRA Evaluating K50 Billion Worth of Investments
According to managing director Jerry Garry, the Mineral Resources Authority is evaluating more than K50 billion in investments in the country. Wafi-Golpu, Frieda River, and Woodlark are among them. “We are also looking at the Central Lime and Cement,” he said. “If that project comes on-stream, it will be one of the first industrial mines ever built in the country.” Garry was speaking at a Port Moresby consultation session on the Mine and Works (Safety and Health) Bill 2021. PNG, he added, was home to some of the world's largest mines. “We have grown from strength to strength,” he said. “If you compare the Bank of PNG statistics, the mining sector alone, in terms of production, has exported over K17 billion in 2020 and 2019. “So it’s a huge industry that we are trying to regulate and manage.” Garry expressed gratitude to the industry for making safety a primary priority. “They have been taking health and safety at the workplaces very seriously,” he said. “We must not only consider (the workers) and the environment but also people living around the (areas) we operate in. “And if we are using any hazards, we must also take responsibility.” The newest mining methods in Wafi-Golpu, known as block cave mining, are one of the new things to expect, according to Garry. “New mining hazards will come with this new mining method,” he said. Reference: The National (20 July 2021). “Authority assessing investments worth K50bil”.