Business Advantage PNG looks to the year ahead and considers what Papua New Guinea-focused businesses can expect in the coming 12 months.

Steamships’ new Harbourside South development in Port Moresby, which will include PNG’s first Marriot-branded executive apartments as well as retail and office space, is due to open this year. Credit: BAI

Economic growth

According to the National Budget, delivered last December, Papua New Guinea’s economy is expected to grow by 4.0 per cent in 2023, with non-resources and resources growth at 4.6 per cent and 2.0 per cent respectively.

For context, the Asian Development Bank’s latest Pacific Economic Monitor, projects 4.9 per cent growth for the Pacific region this year, while the International Monetary Fund is predicting 2.7 per cent growth globally.

Underpinning PNG’s growth is budgeted capital expenditure from the government of K9.796 billion. The challenge for government agencies will be to actually disburse what represents a record investment for PNG’s government.

Inflation is expected to run at 5.7 per cent this year.

Porgera’s reopening

The CEO of Barrick, Mark Bristow, addressing landowners, church and community representatives last year. Credit: Barrick (Niugini) Limited

Twelve months ago, we observed that the government’s GDP projections relied on the reopening of the Porgera gold mine in Enga Province.

Twelve months on, that remains the case.

As ANZ economists Kishti Sen and Tom Kelly warn in the latest ANZ Pacific Insight, ‘delays in the next cycle of projects will weigh on economic prospects and deteriorate debt serviceability.’

While recent recruitment activity at Porgera has generated some excitement, the gold mine remains closed. Indeed, current operator Barrick Niugini has been trying to hose down expectations, emphasising this month that current hiring ‘is only to assist with ongoing “care and maintenance” work at the mine’.

With revenue from Porgera budgeted to start flowing through to the State in the second quarter of this year, the challenge for the government will be to resolve the final issues related to a new Special Mining Lease, so that the mine can recommence under new operator, the New Porgera Limited joint venture.

Meanwhile, there was no announcement about an agreement on the Wafi-Golu mine in Morobe Province at last month’s PNG Mining and Petroleum Investment Conference. With negotiations ongoing and objections from the Morobe provincial government seemingly addressed, business will be keenly watching for progress this year.

Petroleum and gas

Pasca A. Credit: Twinza Oil

One project for which there appears more clarity is TotalEnergies’ US$10 billion Papua LNG project – PNG’s second gas project. Business briefings on the project started in the second half of 2022 and early works are due to start this quarter, ahead of a final investment decision at the end of this year.

Given high global demand for LNG, business circles are bullish about Papua LNG, yet ambiguity about the future of PNG’s first offshore gas project, Pasca A, lingers. This year, developer Twinza Oil hopes to finally execute a gas agreement for the project, after negotiations broke down in mid-2021.

Forex

Prime Minister James Marape. Credit: Office of the Prime Minister

Port Moresby Chamber of Commerce and Industry President, Rio Fiocco, recently told Business Advantage PNG that ongoing foreign exchange shortages was the primary issue facing the business community in 2023.

Highlighting the need for both government and the Central Bank to stay on top of this issue is the grounding earlier this month of Air Niugini’s fleet due to its main fuel supplier, Puma Energy’s inability to obtain sufficient foreign exchange to purchase aviation fuel.

The severity of this issue required Prime Minister Marape and Petroleum Minister Kerenga Kua to fly to Singapore to discuss it with Puma Energy’s senior executives.

‘This is not just a Puma-Central Bank issue, but one of FX required by our business community, especially for the import of products into PNG … we need to relook at how Central Bank regulates and controls flow of FX to commercial banks and traders,’ Marape said.

While he flagged measures to address forex shortages and energy security, the consensus among business leaders Business Advantage PNG has spoken with recently is that forex shortages are likely to continue this year.

‘2023 is likely to be a disappointing year for PNG’s banks and their shareholders, following the introduction of a 45 per cent tax on bank profits in the 2023 Budget.’

Infrastructure spending

Progress on the new Nadzab Airport in Lae. Credit: Beatus Kili/Linkedin

For the second consecutive year, increased government spending on infrastructure is expected in 2023, notably money for roads and bridges through the Connect PNG infrastructure project, plus funds to upgrade the nation’s ports.

Equally positive, the new K700 million Lae-Nadzab airport is set for completion by March this year and the second phase of the ADB-supported Civil Aviation Development Investment project, worth US$162.9 million (K572 million), was finally given the green light last month. This will see upgrade works at five regional airports, plus Port Moresby’s Jacksons International Airport.

What’s unclear is how the pressing issue of unreliable electricity in PNG will be addressed. Outages persist, state utility PNG Power owes Independent Power Producers millions of kina and even the nation’s Parliament is relying on backup power generators.

On the subject of state-owned enterprises, last year discussions were held on privatising state telco Telikom PNG. Greater clarity on the government’s policy on non-performing SOEs could be expected this year.

Taxation

2023 is likely to be a disappointing year for PNG’s banks and their shareholders, following the introduction of a 45 per cent tax on bank profits in the 2023 Budget. With BSP Financial Group’s challenge to the special tax levied on it in 2021 still before the courts, and the government signalling it is open to revising arrangements for 2024, more change to the fiscal regime for banks cannot be ruled out.

Those financial institutions that had been in the process of acquiring banking licences prior to the new tax’s introduction will be watching with interest.

This year, we should also expect to see more details on the expected new Income Tax Act and capital gains tax. Businesses are also reminded that the temporary removal of fuel excise duties is due to end on 30 June.