Be careful with investment deals

THE Government appears to be treading on a fine line in dealing with multinationals in the mining and hydrocarbon sectors.
It has only a year to see the successful conclusion of at least one major project agreement, if at all.
The protracted court battle and renegotiations with Barrick Niugini Ltd over the reopening of the Porgera gold mine has resulted in a positive outcome for a government that is determined to wrest the best possible returns for the country in resource projects.
While the processes are still ongoing in the possible development of the major mine in Morobe, the Government’s change of tack in the development of the Pasca A off-shore gas field in the Gulf of Papua has taken a negative twist.
The developer, Twinza Oil, has stood down some of its workforce in response to a last minute change by the Government to increase the production levy.
A production levy, at the rate of 2 per cent of the wellhead value, is payable from the production of petroleum and gas operations.
The same is applicable to mining operations as well.
So when the Government asked for a 6 per cent production levy, it was asking for an additional 4 per cent on top of that 2 per cent around which all previous negotiations between the developers and the State negotiating team had taken place.
A positive outcome was announced by Prime Minister James Marape last Sept 24.
Not surprisingly, Twinza Oil stood down some of its workforce after the Government requested a last minute change.
The company had inherited the off-shore gas fields from other players and put many years of hard work already. So it remains open to further talks with the State.
Petroleum and Energy Minister Kerenga Kua, in response to a statement from the company, said while he understood the developer’s concerns regarding the signing of the Pasca A agreement, it was the prerogative of the Government to seek better terms.
Granted, but tossing in an afterthought is not what is expected of a hard and fair negotiator. According to the company statement, the Government informed them on April 15 that it required a 6 per cent production levy in order to sign the agreement.
Twinza said this would be unattractive to any financier.
The Government’s stand is based on Marape’s mantra of “Taking back PNG”, but there are glaring lessons to be learnt from other nations, in Africa and South America for example, of what could go wrong when an ill-prepared regime takes control of a significant share of resource development projects.
We would do well to exercise some caution and prudence here.
Apart from taking back what it deems its fair share in resource development in the country, the Government should at the same time prepare its institutions and people well to manage whatever it has successfully gotten from multi-million kina investments.
What happened to the sovereign wealth fund talked about in days leading up to the start of the PNG LNG project?
Without any credible investment, management and oversight systems in place to handle the extra revenues flowing in through these better deals, the door would be still be open for abuse.
While the Government’s position is appreciated and commendable, is it able to manage well any negative impact to the extractive industry sector and the economy in general?
Moreover, with the fluid nature of PNG politics and an election looming, it may well be a different regime altogether facing investors 12 months on.
Will the rules change again then?