K500mil paid to shareholders

The National Business
More than K500 million was paid as dividend by Kumul Petroleum Holdings Ltd to the State this week. From that, more than K250 million was announced as dividend payment for the landowners and five provincial governments within the PNG LNG project impact areas. This was from the Kroton equity that the 60,000 landowners and their provincial governments have shares in. Here is a brief on the Kroton equity and the first payments that was made on Tuesday.

Prime Minister
This is our effort to ensure we retire outstanding commitments of Governments of past.
It doesn’t matter (whether) commitments were made 20 years ago, five years ago or a year ago, we must honour commitments that are outstanding.
Let me place on record my appreciation to the KPHL board for ensuring the management stayed on course.
When we came on board as a new government with a clear view of what must take place, you did not offer secondary thoughts.
You tried your best to find solutions.
The 4.27 per cent dividend distribution this morning (Tuesday) is also symbolic.

Background
I’ll just go back in history to when the 4.27 per cent was structured to pass onto the five provinces and the 60,000 landowners.
Let me appreciate the late Grand Chief, Sir Michael Thomas Somare.
I was there outside Kokopo Beach Bungalow Resort one evening when he called the then governor for Southern Highlands Anderson Aigiru and asked us to be there.
He said, well this is a big project, our first gas project.
Including the two per cent equity as given by law, we will request for additional five per cent.
But when calculations were done, it got reduced to 4.2 per cent.
All in all, the landowners of the five provinces should have seven per cent of equity in the PNG LNG project.
That was how it was made at that evening dinner meeting.
He announced his government’s policy, of which I was part of.
Since then, on the back of 4.27 per cent that was arrived at the Umbrella Benefit Sharing Agreement (UBSA) meetings in Kokopo, it was settled as additional equity and was passed.
I can remember the final moments in which discussions were taking place for the price.
Minister (William) Duma said ‘why don’t we give them free? Those are benefits that should be passed on to landowners and provincial governments.’
Because the project was 70 per cent bank financed, it was an issue that was beyond a free equity.
So it was agreed that one per cent would be valued at US$240million (about K823.21 million) and by 2014, landowners and provincial governments would exercise their options to buy the 4.27 per cent.
Seven years on, I want to say thank you to the Somare government for the kind gesture, for what is a very complicated pioneer project as far as the LNG business is concerned.
This project is not an easy feat.
Managing the various petroleum development license (1-9), and then the pipeline that runs along 780km from upstream Hides/Gigira mountains right down past Moran oil fields, past Kutubu oil fields and Gobe oil fields, into the Gulf waters and all the way here to Caution Bay (Central).
All in all, it covers 60,000 landowners and five provincial governments.
Let me specifically appreciate Hela and Southern Highlands.
The two governors were able agree about the equity splits that was not clearly defined in the Ubsa agreement of 2009.
They came onboard and discussed as matured provinces.

KPHL
A total preferential dividend of K251.82 million of which K62.635 million will be paid to the five project impacted provincial governments was announced on Tuesday.
The five provincial governments are Hela, Southern Highlands, Western, Gulf and Central.
This is the first dividend payment after the Kroton equity beneficiary groups exercised the Kroton equity option (KEO) in 2016.
The dividends have been accumulating since 2017 and have been held in trust by KPHL.
Respectively, each provincial government received their dividend payments in proportionate to their shareholding as determined in the 2019 Kokopo UBSA:

  • K28.5 million to Hela government (11.4 per cent shares);
  • K19 million to Southern highlands government (7.6 per cent);
  • K2.52 million to Western government (1 per cent);
  • K6.306 million to Gulf government (2.5 per cent); and,
  • K6.306 million to Central government (2.5 per cent).

The five provincial governments and landowners from the well head, pipeline and LNG plant site areas along the footprint of the project, together constitute the Kroton equity beneficiary group.
Under the 2009 Kokopo UBSA, the Government granted the Kroton equity beneficiary group an option an indirect 4.27 per cent interest in the PNG LNG project by buying 25.75 per cent of the shares in Kumul Petroleum Kroton Ltd (Kroton Ltd), which then was known as Kroton No.2 Ltd and was the special purpose subsidiary of Kumul Petroleum that held the State’s 16.57 per cent interest in the Papua New Guinea LNG project.
The KEO is an indirect 4.27 per cent interest in the project – it is not a direct equity in the PNG LNG project.
The KEO was a commercial option, meaning all the beneficiaries were required to raise finance and pay for their respective equities.
With that in mind, the national government also offered to provide vendor finance (VF) to the beneficiary groups through KPHL and further discounted the offer price from US$1.2 billion (about K4.1 billion) to US$640 million (about K2.19 billion) and now to US$400 million (about K1.37 billion).
The VF was first offered as a ‘safety net’ to assist those beneficiaries that might not have been able to raise their share of the purchase price within the option window.
As it later turned out, KPHL’s vendor finance became the only solution for the beneficiary groups.
The vendor finance arrangement also enabled the beneficiaries to be paid a preferential dividend at different oil price above US$45 (about K154) per bbl (barrel of crude oil) regardless of profitability, and further offers to forgive any outstanding debt that might remain at the end of project financing agreement in 2026.

Southern Highlands’ Governor William Powi
As a senior public servant before in the province, witnessing the development of the PNG LNG project, separation of Hela and Southern Highlands and the political events that have taken place, to seeing and witness the payment of the first lot of dividends from Kroton equity of the PNG LNG project, I would like to commend the Government.
This is one of the thing that we have been fighting over in the recent past.
We’ve had confrontations and for me to stand here and witnessing payment of this dividend is a dream come true.
In fact, it was the fight of the 4.27 per cent between Hela and Southern Highlands, in the recent political events and of course we brought Governments down.

Gulf Governor Chris Haiveta
We have come to what we hope will be a smooth flow of dividend declaration. Most of the stranded fields are in my province, which Kumul Petroleum now has the licenses.
And I’m looking forward to working with you.

Prime Minister James Marape
What I can ask of the governors, our project areas remain very much not serviced by government services. It’s unfair that we have roads from Poroma to Kutubu totally rundown, yet millions have come out of that road.
A place like Bosavi is still not linked with road, places like roads leading to Hides gas fields, those areas still remain unsealed.
Government will work on its commitments and projects, but funding that come to provincial government’s budget in this manner, please retire commitments to landowners, wards, LLGs and provinces.