A Kumul Arises

Over the years I’ve covered all types of animals, from Pato’s to Elephants to Octopuses but now all that is to change as we expectantly wait for the rise of the Kumul. The one truly Papua New Guinean animal that represents us on our government crest, our national rugby league team, on our K1 coin and all types of prestigious items like Universal Access Cards from Telikom.

But before getting back to this rising Kumul, I have to say that I’ve always been a huge fan of the business sensibilities of countries like Singapore and the UAE. Singapore with it’s US$161 billion sovereign holding company Temasek (Ben Micah is also a fan) and the UAE and even countries like Qatar, in how they have decidedly taken control of their economic futures through proper management of their oil and gas resources. The thing is we’ve always asked ourselves, how is it that PNG with so much wealth can be so poor? And not just poor in the sense of international poverty indicators etc etc, but in terms of economic participation? The answer will always lie in the execution of our plans.

My hope is that Peter O’Neill’s move to close down IPBC and State resource companies to merge them into one entity, Kumul Holdings, will be a huge step towards securing the  economic future of PNG.

Mekere Morauta’s IPBC (and other economic reforms) were the first steps for the Government commercializing it’s business interests but when he left what ensued after 9 years was a disaster which he termed as being analogous to an ‘Octopus‘. One perfect example was the ridiculous power play between Petromin and the National Petroleum Company of PNG (NPCP). Morauta did return in 2012 for one last time to IPBC before his retirement and appointment as Chairman of PNGSDP, but in his short 9 month return  he was able to oversee some K77m in dividends to the State and commencement of key infrastructure projects. As he stated:

The lesson is clear: A capable professional team, with a clear plan, propelled by honest and determined political leadership, can turn things around. Here are just a few of the projects that are being delivered by IPBC working in partnership with public enterprises and the private sector:

  • A one billion kina redevelopment of the Lae port to underpin economic development in Morobe and the Highlands region;

  • Examination of options to re-locate Port Moresby port;

  • Rehabilitation of Port Moresby power;

  • A two billion kina expansion to the Yonki hydro project to provide cheap and reliable power to Lae, Madang and the Highlands;

  • A K500 million National Transmission Network that will connect provincial centres throughout PNG with fast and reliable internet services, paving the way for an information revolution.  Our Government has already established the first base for this, with IPBC, PNG Power and Telikom collaborating to complete an optic fibre connection from Madang to Lae, which I will switch on next week.  This will open up high speed internet services to businesses and residents in Lae.

It is therefore not surprising with Morauta’s influence that O’Neill and his government have now embarked on a consolidating exercise to step up on what Morauta had started. Listening to O’Neill on the radio yesterday he explained that one entity would ensure that there is accountability and transparency and one legal entity that the pubic can see and understand. He added that it would also streamline the management of all the State’s interests.
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What will this Kumul Look Like?
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Initially of course Organic Laws and Acts of Parliament will have to leaglise the whole policy and judging from what O’Neill was saying on radio and from the current organizations’ legal structures, my guess is that there maybe an ultimate Kumul Trust which will have the Prime Minister as the Trustee Shareholder on behalf of the people of PNG. This is not a new concept and has been used in MRDC and Petromin.
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From the Kumul Trust I am assuming that there will be 3 key entities:
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  • 1) Kumul Corporate Holding Ltd, which all IPBC interests will be transferred to,
  • 2) Kumul Mining Holding Ltd, which Petromin will change into with interests in OK Tedi, BCL, Tolekuma, etc and
  • 3) Kumul Petroleum Holding Ltd, which NPCP (Kroton) will change into with interests in PNG LNG, etc.
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Where Does the Kumul Sit On Our Money Tree?
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We will in effect then have 3 major funds for development in PNG:
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  1. The PNG Sovereign Wealth Fund (SWF),
  2. Consolidated Revenue from Tax, and
  3. the PNG Sustainable Development Program (PNGSDP)
Now I’m not sure where the SWF is placed, but it I assume it will be placed beside the Kumul Trust to collect dividends from revenues flowing through, especially from the PNG LNG project. Keep in mind that the SWF is comprised of two funds: a stabilisation fund and a development fund.
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The Stabilisation fund will manage any swings in revenue from the state’s mineral and gas resources, while the Development Fund will provide funding for social and economic development within PNG. The SWF’s plans before this Kumul policy was launched was that the Stabilisation fund would receive all mineral and petroleum revenue, while the Development Fund would receive dividends from PNG LNG. My guess would be that the Kumul Trust will now determine the split in dividends to either fund in the SWF.

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Our Consolidated Revenue will feed the National Budget as always with the hope that the SWF will iron out any shocks or fill in any financial gaps, so the interesting issue now will be where PNGSDP stands on this branch of funds?
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Previously PNGSDP had operated, to some degree, independently of Government policy, but now with O’Neill’s intentions for Kumul Mining Holding Ltd to take over the remaining shares of the OK Tedi mine, it will be interesting to see what O’Neill wants to do by placing PNG government nominees on the PNGSDP board.
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Although my hope is that the Government focuses only on its revenues from OK Tedi, in how it feeds into the SWF, it might not be such a bad idea if  the SWF’s Development Fund were to be managed by PNGSDP. PNGSDP already manages two funds since 2002 called the Long Term Fund and PNGSDP Development Fund worth US$1.4 billion collectively. So with O’Neill’s proposed Government Nominees on the PNGSDP board, a closer alignment with Government Development policies could be achieved. This is just a suggestion however and may not be how it turns out.
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Can We Execute On Our Plans?
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With the above funds emerging and still in development, there is much hope now for establishing proper structures for us to execute on our plans. But as you can see for example with issues like PNGSDP, there are still many issues to resolve and more public and private discussion to engage in.
We still have no formal information as yet on how the Kumul policy will play out and what I’ve written here are just my assumptions.
The other key determination of a successful execution will be the people employed to manage these new entities. As Morauta said, “a capable professional team, with a clear plan, propelled by honest and determined political leadership, can turn things around.” Note also that none of the above funds will replace bureaucratic responsibilities, which are another issue on its own yet equally as important, because the public service ultimately must ensure that all this extra money creates better service delivery.
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So we have the billions, the people, the infrastructure and the laws to truly soar beyond anything we have ever achieved in PNG before. Although there are still many questions to answer before we can truly fly, the one true question is whether we really believe we can.
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