Authority to take charge of Act

The National Business

PETROLEUM and Energy Minister Kerenga Kua says a bill to establish the National Petroleum Authority will be introduced in Parliament before the end of the year.
Kua told participants at the Petroleum and Energy conference in Port Moresby yesterday that the authority would be charged with the administration and management of the Oil and Gas Act.
He explained that the Government plan, in regards to the development and implementation of its reform in the oil and gas sector.
“We are nearing the end of what has been a long journey of constitutional and legislative reform starting in 2013,” he said.
“We will see our ownership and management of petroleum resources move from its current concession-based arrangement to a fiscal regime known internationally as petroleum production sharing.”
It involves an agreement between a petroleum investor and a state oil company to split petroleum revenues after exploration and extraction costs are covered.
The petroleum investor has commercial objectives and it takes on the financial, technical and resource risks associated with a given development.
The state oil company retains ownership of the resource for the benefit of its people.
Kua said the authority would eventually administer and manage petroleum production sharing.
The authority is expected to fully operational by the end of the first quarter in 2024.
The other legislative components of the petroleum production sharing reform agenda to be developed by the Government are:

  • A PETROLEUM Production Sharing Act which will provide the implementation of petroleum production sharing;
  • A NATIONAL content (petroleum) act which will strengthen PNG’s capacity in the petroleum sector to become internationally competitive; and,
  • A DOMESTIC market obligation act which will set out Government’s expectations of projects to supply energy into the domestic market on terms in accordance with government policy.

He added that one of the fiscal benefits that the petroleum production circuit-breaker would bring was the opportunity to “increase our royalty take from our petroleum projects”.
“Recipients of royalty – and particularly landowners and provincial and local level governments – will be much better off,” he said.
He advised investors that “there is nothing to fear through us taking these steps.
“Our actions would at all times be reasonable and justifiable in the context of our petroleum sector,” he said.
“So let me turn to the world of production sharing and make some observations to you:
Kua pointed out that one of the key drivers for production sharing was that the Government would avoid the “crippling debt burdens imposed through our participation in petroleum projects under the concession regime”.
“This includes the requirement that we take equity on behalf of our people, and contribute to construction costs where we are forced to borrow money to pay back our share of the developer party’s historic costs and to meet the construction commitments,” he said.
“As we have seen with recent projects in the petroleum and mining sectors, Papua New Guinea simply cannot continue to afford to incur this expensive debt.
“Raising unnecessary debt effectively comes as an opportunity cost, because it prevents the Government from borrowing other funds for national and social benefit projects such as hospitals, schools, roads and other socially important infrastructure.”