Transparency mechanisms built into the topical Papua New Guinea Sovereign Wealth Fund (SFW) will enable an effective functioning of the fund, according to the PNG Extractive Industries Transparency Initiative.
PNGEITI welcomed the announcement of an initial injection of K5.6 million into the fund making it operational more than five years after the enactment of its enabling legislation. However, the PNGEITI raised concern over the lack of transparency around the operational and structural setup of the fund.
“While PNGEITI commends the operationalization of the fund, the status quo raises transparency questions that needs to be answered by way of building in transparency mechanisms into the SWF arrangement” Head of PNGEITI National Secretariat Mr Lucas Alkan said.
“The PNGEITI which has been implementing the global best practice standard on transparency around revenues generated from the mining and petroleum sectors of the economy strongly holds the view that international best practice standard is also built into the SWF arrangement for better governance of the SWF operation, derived from the Santiago principles to be adhered to,” Mr. Lucas Alkan said.
“One of the key objectives for SWF under the Santiago principle underpins a transparent and sound governance structure that provides for adequate operational controls, risks management and accountability- PNGEITI strongly encourages that this objective be fully met in the PNG SWF set-up.
“SWF are regarded as important players in the international monetary system and for Papua New Guinea to have one requires due diligence in ensuring the fund stands out well in the international monetary system and is credible” Mr Alkan commented.
“Consistent with the Santiago principles, the PNG SWF must bear economic and financial benefits for Papua New Guinea and the international financial system.
“We welcome the first SWF payment and hope to capture more payments and distributions of funds in the EITI Reports, particularly those taken from our lucrative extractive industry.
While commenting on the Government’s effort to operationalise the long-awaited SWF which is a positive step Mr Alkan said the Government needed to seriously conclude its pending dividend policy review and address the current parallel arrangements or set ups through the Kumul entities that have been empowered through their respective boards as to how much windfall revenues from the extractive sector could be paid to the Treasury or the SWF. He said to ensure the SWF operates on a strong financial footing to perform what it was set up to do, it needs to have access to all the windfalls that come out from extractive sector.
“The opportunity cost of parking such funds (which may be significant in the long run when commodity prices are good) in entities of State that are playing duplicate functions will not assist in using such windfalls to pay down current high levels of public debt.
We would be better off using the windfalls to pay off current high levels of debt than parking money in such arrangements that may be tempted to use for other purpose than what was intended for originally. Therefore, transparency mechanism is highly encouraged in the SWF set up”, Mr Alkan suggested.
“We have had similar experiences in the 1980s and 1990s where the so-called commodity stabilisation funds that were established for similar purpose that never worked and we need to learn from these and ensure the SWF is properly established and operationalised,” Mr Alkan said.
