Kumul power grab

THE long-flagged sovereign wealth fund to manage windfall government revenues from the PNG LNG project may fall under the control of the Kumul Trust – a proposed entity to control state-owned assets with former prime ministers on its board as shareholders.
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Bills over the formation of the Kumul Trust - which will have Papua New Guinea Prime Minister Peter O'Neill as trustee, plus its Kumul Mining, Kumul Petroleum and Kumul Holdings subsidiaries - are expected to be tabled in parliament in September.

While the sovereign wealth fund proposal was passed by parliament last year, some issues with the legislation have created a need to make amendments and these are also expected to be tabled in September.

Institute of National Affairs PNG executive director Paul Barker told PNGIndustryNews.net that cabinet is talking about tabling all of these proposals together and "making a link up".

"I'm not sure they've really fully clarified in their minds of how that is going to occur," Barker said.

"The Kumul Trust should certainly not be managing the sovereign wealth fund and I think that's what some people have in mind - the management of Kumul Holdings would have a say in the board and administration of the sovereign wealth fund.

"That would severely run against the governance criteria that are essential for the sovereign wealth fund to have credibility and to perform."

With state-owned Petromin struggling to keep the Tolukuma mine operational or have any success with hydrocarbons exploration, the government plan to restructure its mining assets into a new Kumul Mining entity and its petroleum assets into a new Kumul Petroleum entity has won industry support.

However, there are concerns over the proposed structure of the overarching Kumul Trust.

"They are using a model that comes from Singapore but PNG isn't Singapore," Barker said.

"The governance and administrative structures that exist in Singapore do not yet exist in PNG. And we know that there has been extensive abuse of public funds and institutions in PNG. For example, one might ask are those past and present prime ministers the greatest investors and managers of corporations?

"Do they have some particular skill in corporate governance, some particular expertise that other people don't have?"

Barker further said conflicts of interest were likely as many political figures have equity and board positions with other companies in PNG.

The Kumul-related state-owned restructuring is based on draft policy and cabinet discussions so far. It's not yet clear what procedure an ex-PM, who was appointed to the Kumul Trust through a piece of legislation, might use to step down, for example if he feels there is a conflict of interest.

As for Kumul Holdings, the proposed new entity for the myriad of non-mining or petroleum state assets including PNG Power, PNG Ports and Air Niugini, Barker is concerned the progress made under their existing administration of the Independent Public Business Corporation will be lost.

He credited former Public Enterprises Minister Sir Mekere Morauta with making useful reforms at IPBC which related to reporting systems, transparency and senior appointment procedures.

"It's probably a good idea to continue those reforms rather than go into this new structure which is all a little bit uncertain. Consolidate what they were doing rather than go back to square one."

Before retiring from politics ahead of the 2012 election, Morauta said he feared that the sovereign wealth fund will become mired by financial mismanagement at the government level.

"Transforming resource wealth into better living standards is the biggest single challenge facing our country," he said in June 2012.

"If we can set up the Sovereign Wealth Fund properly, keep sticky fingers off the money and channel funds into the right public investments, then the future is bright."

The PNG LNG project is on track for first exports in 2014, while there are plans to expand it beyond the 6.9 million tonnes per annum of capacity which is under development.

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