Why double-digit growth rates can be anticipated towards end of this decade

PNG is enjoying boom conditions across all sectors of the economy and throughout the country, with mining and oil and gas poised to underpin double-digit growth rates in about three or four years time. By Brian Gomez

In bringing down his first budget, Finance and Treasury Minister Patrick Pruaitch said economic growth this year has been projected at 6.2% with 6.6% anticipated in 2008, making the two years together the best in about 15 years.

He said growth this year was revised upwards due to introduction of mobile phone competition and the social and economic benefits it brought.

Treasury Secretary Simon Tosali told journalists the intense competition provided by new mobile entrant Digicel had added 0.7% to gross domestic product this year. He said the Caribbean-based company had invested about 450 million kina ($US163.4 million) and generated 300 regular jobs and 4000 indirect jobs.

The 2008 budget unveiled by Pruaitch on Tuesday has a two-prong strategy to bolster economic growth.

Together with the recent supplementary budget, it has earmarked K890 million to be equally distributed to the nation's 89 districts; secondly, K537 million has been set aside for major public infrastructure maintenance. The latter includes K40 million for housing projects for public servants.

The Government has also allocated K196 for a national infrastructure development program, with funds held in trust until a five-year program is formulated and approved.

Thanks to the commodities boom, the Government for the first time since independence has adequate funds to cover most of its expenditure needs although the millennium development goals for universal primary education is still unlikely to be met.

In 2006 when the economy only grew by 2.6%, the oil and gas sector had experienced a small decline due to a one-month shut down at the Kumul oil export terminal, while mining and quarrying declined by 8.1% in real terms.

"For Porgera, 2006 was a disastrous year, with no output for almost three months as the main power supply from Hides was destroyed by lightning and continuous slips on the pit wall hindered production," Pruaitch noted.

Quite a different picture was painted of 2007 and 2008. Real growth in mining is projected at 5.5% following the start of gold production at Sinivit.

Growth of 14.2% is forecast next year with increased production from the big three mines - Lihir, Porgera and Ok Tedi - and full-year output from the smaller Simberi gold mine.

The budget papers forecast that oil production would decline by 8.2% next year with output falling from 17 million barrels to 10 million barrels in 2010, with oilfields depleted by 2015 if no new discoveries are made.

This forecast does not take into account the expectation that one of two liquefied natural gas projects, and possibly both, could be in production in this time frame.

The InterOil-Merrill Lynch-Pacific LNG joint venture remains confident of getting its project off the ground in 2012, with the ExxonMobil-Oil Search joint venture group looking at starting up a year later.

Both are looking at developing wet gas fields, with the Hides field for the latter group said to contain 200 million barrels of condensate, several times the level of current oil reserves.

Even though both ventures - these projects will cost US$10 billion apiece - will only commence front end engineering and design by early next year, the InterOil-backed project, under its fast-track plans, intends to start site works and to order some long lead items around the middle of 2008.

Conceivably one or both LNG ventures will be heading for peak periods of construction by 2010-11, each requiring a full-time labour force that will surpass that of any resource project in the past.

During this period full-scale exports of nickel and cobalt would also have commenced from Ramu Nickel with construction likely to have begun on the billion dollar Yandera project and-or the slightly less expensive Kodu copper mine near Port Moresby.

With such a scenario, double-digit economic growth levels will almost be a certainty.

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