Those colonial & kiap times: some coercion, but never repression
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Coke's coffers crammed with kina as dollar crunch hits PNG

PinterestTOM WESTBROOK | Reuters

SYDNEY - Coca-Cola has mastered the business of getting its sweet, fizzy drinks into even the most isolated of Papua New Guinea’s far-flung tropical islands and mountain villages.

But getting the proceeds out of the South Pacific nation is proving much more troublesome, undermining efforts by the host of this month’s APEC meeting to portray itself as an attractive destination for international investment.

Australian-listed Coca-Cola Amatil, which distributes Coke in the region, recently disclosed it was holding more of PNG's kina currency than it wanted due to foreign exchange restraints, a complaint echoed by other big businesses.

The restrictions, used to prop up the kina by fixing its value in a narrow band, have created a shortage of dollars and a weeks-long queue to buy them. That is stifling business investment and with it, the country’s economic prospects, business leaders say.

“For most customers, it has provided an impediment to the growth of their business,” said Robin Fleming, chief executive of Bank South Pacific, PNG’s biggest commercial bank and largest foreign exchange dealer.

“It’s really strained some of those relationships with their suppliers overseas,” he said on the phone from his office in the dusty seaside capital, Port Moresby.

Port Moresby is the venue for this week’s Asia Pacific Economic Cooperation summit of world leaders and PNG is hoping to use the high-profile event to showcase the nation and its investment credentials.

PNG prime minister Peter O’Neill said earlier this year that after APEC, “everyone will remember where Papua New Guinea is” and not confuse it with an African country.

Papua New Guinea has one of the largest economies in the Pacific Islands region, backed by mining, timber, fishing and huge energy reserves.

Riding booming commodity prices, the kina touched as high as $US0.47 in 2013 but fell as low as $0.33 the following year when the oil price plunged.

Demand for kina also dropped away sharply since the end of construction in 2014 of a giant LNG project led by Exxon Mobil Corp.

The dollar shortfall was exacerbated by lower-than-expected tax receipts from the PNG LNG project and disruptions to copper and gold exports.

Papua New Guinea’s central bank responded by fixing the currency to a 150 basis point band either side of about $0.41 in June 2014. That made dollars cheaper overnight, driving a spike in demand exceeding meagre supplies held locally by exporters.

Demand for foreign currency exceeded supply by about $500 million in August, according to Papua New Guinea’s central bank’s most recent policy update.

That has left businesses - even those earmarked for priority access to foreign currency such as food, fuel, aviation and medicine - pleading with suppliers to accept late payments.

“It does make it a challenge to get the currency you need to import materials,” such as sugar, aluminium tins and plastic bottles, Coca-Cola Amatil’s Sydney-based spokesman Patrick Low said.

Meanwhile, CCA’s stockpile of cash in kina jumped by more than a third over the 12 months to 30 June to K687 million ($200 million), half-year accounts show.

Other businesses find themselves similarly hamstrung.

“We need to minimise our purchasing in Australia,” said Ariel Sarangya, who manages a computer shop in the highlands and has cut back buying stock due to a lack of foreign currency.

“You need to wait up to three months, sometimes more than that, it’s up to the banks. We have to take whatever they give.”

Heineken subsidiary South Pacific Brewery Ltd has quit all non-essential capital expenditure since the crunch began and has struggled to remit dividends to its parent, managing director, Stan Joyce, told Reuters.

The company even briefly considered buying coffee and trying to sell that offshore to bring in some US dollars, he added.

Economists say the solution is to let the kina gradually fall to encourage dollars to flow.

But the government is staking its hopes on an anticipated $13 billion in foreign investment expected as part of an expansion of the PNG LNG project, and recovering commodity prices, to stabilise the currency.

It has also cut dollar-denominated imports of fuel and last month raised $500 million with its debut sovereign bond issue.

“Much work going into import replacement, bringing fishing and logging industries processing onshore, lowering transport, energy and communication costs,” Treasurer Charles Abel said in an email, adding the backlog should be cleared by year’s end.

Businesses and economists are less sure, and say restraints need to be dropped before investment flows again.

In the meantime, though, Coke is flowing just fine, with PNG revenue and earnings up for the half-year.

“The most popular drink here in Papua New Guinea is Coke,” said Raymond Yafus, a storeman at a supermarket in PNG’s second-largest city, Lae.


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Paul Flanagan

The irony of the Coca-Cola Amatil complaint is that the company has been massively benefiting from the new tariff levels on consumers imposed in last year's supplementary budget.

Tariffs on imported can drinks increased from 12.5% with an additional charge of K2.75 per litre. This was actually an illegal increase as it was larger than what PNG had committed to when it joined the World Trade Organisation.

So a previously imported one litre bottle of soft drink from Indonesia or the Philippines with a wholesale price of K4 had its tariff jump from around K0.50 (12.5%) to K3.25.

Of course, this has been a massive win for local manufacturers as it has eliminated competition from overseas and allowed them to lift local prices. The losers are PNG consumers.

What makes this slightly different from the usual issue of balancing the interests of the local manufacturing industry and PNG families is that Coke is judged by some as a less than healthy item - so less consumption due to higher prices has an upside of lower levels of obesity etc.

So the tariff is also acting as a rather blunt sugar tax - except that Coke is getting all of the extra revenues rather than it going to the government to support health education programs in nutrition.

Michael Lorenz

...Demand for foreign currency exceeded supply by about $500 million in August. ... and last month raised $500 million with its debut sovereign bond issue.

The bond issue covers just one month's worth of dollar demand shortfall.

I suspect the ... anticipated $13 billion in foreign investment capital won't amount to much in terms of demand for kina. Most of the material and equipment will be purchased offshore with probably no more than say $4 billion of kina expenses, which is only about 8 months of cover for the current monthly dollar deficit.

So I guess we shall have to keep our fingers crossed that those commodity price improvements materialize 'toute suite'. :-)

Gabriel Ramoi

Maybe its time Coca-Cola Amatil Australia started to consider buying PNG Ramu sugar to add value to the economy it's operating out off.

Philip Fitzpatrick

That's the impression I get too Arthur.

All these heavies coming to APEC will be sussing out what they can do to rip off PNG resources. Helped along by PM O'Neill of course.

Post APEC expect the illegal logging and mining extraction to increase as landowners get further trampled.

Arthur Williams

Would it have been a better situation if Exxon had not been allowed by the elite ex-spurts who arranged Hela LNG to receive income from its hundreds of LNG shiploads in overseas banks but rather had been made to pay into the Bank of PNG.

Indeed all exported PNG resource wealth should have been received by BPNG.

Even the government’s favourite loggers’ receipts should have flowed into the BPNG from the oft transfer priced undersized logs they had been allowed to clear-fell in the illegal SABL allowed by the same elite spivs of PNG government.

After all PNG was the seller and the companies the desperate very very eager buyer of the nation's riches. Since 1975 PNG has been in charge of its own destiny but corruption allowed too many billions to fill the pockets of outsiders.

Perhaps with such a compulsory financial route BPNG and interested anti-corruption investigators could have a truer picture of real values of the nations’ God given resources flowing by the billions every year from the nations’ ground, forest and oceans.

I have a feeling the current tokfest called APEC will not be much interested in helping PNG as its raison-d’être is freer trade with all the spivery that can mean for the ‘big sharks’ versus the minnows of the Pacific.

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