AS the stampede gathers momentum towards the LNG project, there seems little sense in even suggesting caution.
For the sake of filling this space, we suggest a quick walk down history lane of PNG’s own hydrocarbon industry. We might learn a lesson or two.
Furious debate raged in the late 1980s over ownership percentages, over refining possibilities, over pipeline ownership and participation in marketing when PNG was poised to enter the exclusive club of oil producing nations. In the end, PNG signed the Kutubu Oil agreement with most of the arguments nullified.
It was not feasible to have a local refinery, it was argued by the company, and so that idea was dropped by the State. The oil industry and world energy needs dynamics at the time might well have made it so, but we do have a local refinery today when production at all oil wells in-country is dropping. As a result we are a net importer of crude oil to feed the local refinery.
At that time, Indonesia and Malaysia had their own refineries to add value to their oil. So why it was not feasible in PNG, we can only leave that to conjecture. At the time too, a group of prominent Papua New Guineans put together a proposal called the Monticello Proposal. It basically suggested a structure for ownership of the oil pipeline from the Southern Highlands to the Gulf of Papua.
The proposal argued the economics for separate ownership of the pipeline so that Chevron, the operator, would rent the pipeline to transport oil. That, too, was swept aside in the rush to establish a local oil industry.
In the end, PNG sold its oil in crude form, most of it forward sold at a price that at the time appeared most attractive as it was some US$8 or so higher than the prevailing world market price for oil at the time but which turned out to be so many times lower when oil prices rose above US$20 per barrel and continued to rise until they peaked at over US$100 per barrel.
How much PNG must have lost in that exchange only historians and economists will be able to tell us and they haven’t yet.
This brings us to the present and the mad stampede to get the project signed at all costs. Yes, it is a stampede and, yes, Government is a knowing and willing co-conspirator in getting this project up and running at all costs.
As in all stampedes, living beings and the natural terrain will be trampled to dust. After the dust settles, it will be realised – too late – that the cost far exceeds the gains – or the realisation might hit that the country has been hard done by and that it could have come off far better had its leaders stopped to think.
We suggest that PNG is giving away far too much in concessions. Apart from taxation and tariffs and equity, the State is giving away billions of kina worth of business in the pipeline business. It is giving away billions of kina in the LNG production facilities at Konebada.
PNG will miss out on billions of kina in the freighting and marketing of LNG. How many LNG tankers, for instance, has the PNG Government planned on buying? We gather NIL.
We are being told time and again how much PNG is going to benefit from the LNG project. It would be fairer and a far more accurate picture if State economists can do a projection on the basis of the above foregone businesses and tell us just how much PNG is giving up on over the lifetime of the project. It might be an eye opening (popping) exercise.
We are told there will be jobs for 1,700 Papua New Guineans and 6,000 for expatriates at the construction stage of the project.
We have learnt that we do not have the skills for those jobs. Yet, there are no efforts to train Papua New Guineans for the jobs. Welding, for instance, is a skill that could be learnt within a fairly short time. The Government had two years but it has not targeted the technical colleges at all.
ExxonMobil, the mother company of PNG LNG operator Esso Highlands, has been engaged in national content development for decades all over the world. Its global strategy focuses on workforce development, which means training, on supplier development which we would refer to as spin-off businesses and on strategic community investments in health, education and others.
But there appears to have been no pressure upon the company to reveal its national content plan. Instead, the Government has been under pressure from the company all the time to get the project off the ground.
In all businesses, there is a trade-off but we suspect the State will be loser in this rush. The State will pay in the end. The question is HOW MUCH.