Extracting more from Papua New Guinea’s resource sector

Successive Papua New Guinean (PNG) governments have adopted different policy stances towards the resource sector, but its benefits to citizens remain limited. As former Prime Minister Peter O’Neill and the incumbent James Marape emerge as favourites for the upcoming July election, the incoming government must ensure that more gains from the resource sector are channelled into development.

PNG’s resource sector grew from 11.8 per cent in 1980 to 23.5 per cent of GDP in 2020. Throughout the 1980s, the resource sector grew steadily with only a slight decline in 1989 due to the closure of the Panguna gold mine. It grew again throughout the 1990s with the opening of more gold mines, and the Kutubu oil field.

The 2000s saw some volatility but posted generally higher growth than the 1990s at an average of 21.1 per cent of GDP. When liquefied natural gas (LNG) production commenced in 2014, the resource share of the economy grew to a high of 27.9 per cent in 2018. The resource sector comprised 23.5 per cent of GDP in 2020.

Despite its growing significance, the resource sector’s main connection to PNG’s broader economy is through the government’s resource revenue which it uses to finance expenditure including capital expenditure or the development budget. This is largely because of the foreign-owned and capital-intensive nature of resource projects. When the government fails to meet its revenue targets, development budgets are slashed as it struggles to maintain expenditure.

Though resource GDP has grown, resource revenue as a share of resource GDP has fallen in the past 10 years. Growth in the non-resource sector has also languished as subsequent development budgets have been slashed. Annual growth in average non-resource GDP per capita has been 1.4 per cent since 2003, which is positive but lower than average annual GDP per capita growth of 1.9 per cent.

Non-resource GDP, which excludes output from both the mining and petroleum sectors, is the closest measure of income for the average Papua New Guinean because it accounts for over 80 per cent of Papua New Guineans (in both formal and informal employment). Gross National Income would be a better measure, but this data is unavailable. GDP per capita is another misleading measure of average living standards given the enclaved nature of the resource sector.

But lacklustre growth in the non-resource sector seems to have little bearing on resource agreements. Under Peter O’Neill’s administration (2011–2019), the 2019 negotiations for the Papua LNG Project with TotalEnergies had already improved on the terms of the 2014 PNG LNG Project with ExxonMobil. One particular improvement was a new production levy on top of royalties, earmarked for the national government at 2 per cent of wellhead value — the expected value from commercial sales less deductable costs.

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