PNG GAS PROFITS TO BE HELD IN OFFSHORE TRUSTS

admin's picture

Nation’s wealth to avoid unfavorable exchange rates

By John Pangkatana PORT MORESBY, Papua New Guinea (PNG Post-Courier, Dec. 22, 2010) – In Papua New Guinea (PNG), all proceeds from the liquefied natural gas (LNG) project will be held in offshore trust accounts. And that is official Government policy, as opposed to onshore investment.

Minister for Treasury and Finance Peter O’Neill made the clarification following what he said during a recent ABC Radio Australia interview which sought his views on the onshore investment of LNG proceeds.

The interview was held following the conclusion of the annual PNG Petroleum and Mining Conference in Sydney during the first week of December.

The topic of the interview concerned a recent visit to Papua New Guinea by David Murray, chairman of Australia’s Future Fund and previously Chief Executive Officer of Australia’s Commonwealth Bank. Mr. Murray had outlined the benefits of establishing sovereign wealth funds onshore and in promoting transparency and openness. From that interview, media reports in both Australia and PNG had indicated that the establishment of PNG’s Sovereign Wealth Fund was to be onshore rather than offshore. Mr. O’Neill said this would not be the case.

Yesterday in a media statement, Mr. O’Niell made some clarifications to what he described as misunderstandings that have arisen from those reports.

The Minister stated that he had welcomed the comments from Mr. Murray in the context of the setting up of the Sovereign Wealth Fund. In doing so, some misunderstandings arose in relation to the setting up and control of the fund and where the funds will be held, he said. He added it is very important for macro-economic stability purposes that PNG’s sovereign wealth funds are held offshore. This is to reduce the expected sharp appreciation of the exchange rate, which would have a detrimental impact on our agriculture exporters and tourism which support our rural communities as well as import-competing industries, he explained.

In addition, holding funds offshore is also important for the effective operation and cost of monetary policy so that liquidity in the system and inflation is controlled, he said.

While funds will be held offshore, I was emphasizing that the establishment, ownership and control will be onshore, he added. He made the point that it is envisaged the Government will set up an independent board that will set the investment mandates and other rules for the Sovereign Wealth Funds.

The board will be made up of individuals with relevant professional expertise and will affectively control the guidelines or rules concerning the operations of the fund from PNG, he stated.

Fund managers will undertake the actual investments of the funds held offshore in accordance with the guidelines determined by the board, he added.

He said provisions have already been made for the Government to set up a committee of departmental secretaries to be chaired by the Secretary of Treasury to work through all the details associated with the operation of the Sovereign Wealth Funds which will report back to the Government.

Rate this article: 
No votes yet

Add new comment