Country Report Papua New Guinea December 2012

Country Report Papua New Guinea December 2012

Outlook for 2013-17

• Political stability in Papua New Guinea (PNG) is likely to improve in 2013-17, as the recent general election has ended the year-long impasse between the prime minister, Peter O'Neill, and his predecessor, Sir Michael Somare.
• The new government is protected from no-confidence votes for the first 18 months of its term, but Mr O'Neill's decision to leave his former deputy, Belden Namah, out of his cabinet could be a source of growing tension.
• The lay-off of some 8,000 employees from the liquefied natural gas (LNG) project led by ExxonMobil (US) as construction finishes in 2013 could pose risks to political stability if alternative job opportunities are not provided.
• The government will face a number of economic policy challenges in 2013-17, largely related to the impact of the ExxonMobil-led LNG project, which the Economist Intelligence Unit expects to start production on time in 2014.
• Real GDP growth will moderate to 5.5% in 2013, from an estimated 6.8% in 2012. Growth will pick up significantly in 2015, when LNG production reaches full capacity.
• The government's recent approval of a second LNG project, in Gulf province, could considerably boost economic activity in PNG further. Construction of the project is expected to start in the next five years.
• Inflationary pressures will persist in the forecast period, owing to strong growth in domestic demand. We expect consumer price inflation to average 6.3% a year in 2013-17.

Review

• ExxonMobil has announced that the estimated cost of developing its LNG project, which is based in the Western and Southern Highlands provinces, has soared by 21% to US$19bn, from US$15.7bn previously.
• By cancelling equipment orders in November 2012 for its seafloor production system, a Canadian firm, Nautilus Minerals, has signalled that it has in effect suspended work on a pioneering underwater mining project in PNG.
• The government has unveiled an ambitious budget for 2013-which will need to be financed out of increased borrowing-in an attempt to develop the country's infrastructure.
• The Gulf LNG project has been given approval by the government to proceed. The scheme will be jointly developed by a Canadian energy firm, InterOil, and the locally based Pacific LNG.

Do to the nature of this product there is no table of contents.