Kua responds to concerns

The Chamber of Mines raised concerns regarding the State’s announcement to transfer the ownership of minerals and hydrocarbon to Kumul Mining and Petroleum. Petroleum Minister KERENGA KUA responds to concerns raised by the chamber

The State intends to transfer ownership of minerals and hydrocarbons to Kumul Mining and Kumul Petroleum, both of which operate independently of government in pursuing exploration and development activities.
The PNG Chamber of Mines and Petroleum says the complexities and difficulties with implementing the Government’s proposed introduction of the production sharing contract regime will not just retard the growth of the economy but will ultimately retard the State’s tax take from resource projects.
Petroleum Minister Kerenga Kua says the Government expects the mining and petroleum industries to work together to ensure the regime is designed and engineered according to the law.
Kua, in a four-page newspaper advertisement in The National on Tuesday said the Government was compelled to set the record straight. He said developers or contractors should be able to make a fair return on their investment. Below is an extract of Kua’s response to some of the concerns raised by the PNG Chamber of Mines and Petroleum.

CHAMBER: Changing to a production sharing regime is not necessary to address the stated objectives.
KUA: The PSC regime will stop the financing of State participation through payment of “sunk costs” and contribution to development and construction costs by the Kumul companies- Kumul Petroleum Holdings (in oil and gas) and Kumul Mineral Holdings Ltd (in minerals) from adversely impacting the State’s debt ceiling and the State’s ability to borrow and finance its budget deficits.

CHAMBER: Production sharing is uncommon for minerals and has not worked where implemented. It has not been successful in petroleum basins with marginal economics and generally in such circumstances leads to low state take or no investment.
KUA: There is no substantial difference in the fiscal arrangements between the royalty/tax system and the PSC regime. Apart from ownership and control, both are fundamentally the same. The chamber is passing judgment based on what the proposed organic law says without having any idea about the exact legal mechanisms that would make the proposed PSC regime work in PNG.
As already stated, the proposed organic law only sets out the Constitutional framework from which consequential Acts of Parliament (setting out the legal mechanisms) would be passed.
The consequential Acts of Parliament (setting out the legal mechanisms for the PSC regime and how it will work in PNG) are being worked at and will be taken through the consultative process with different stakeholders that include the chamber, landowners, provincial and local level governments. It is therefore irresponsible of any person or entity to pass judgement without the benefit of having commented on and knowing what the exact legal mechanisms are.

CHAMBER: The existing tenements and licences will be affected.
KUA: There is no difference between the royalty/tax system and the PSC regime and given that is the case, all existing tenements and licences (excluding development licences) will be migrated from the royalty/tax system across to the PSC regime without the loss of any rights.
The legal mechanisms for doing so will be encapsulated in consequential Acts of Parliament that will be finalised after the consultation with different stakeholders that includes the Chamber, landowners and provincial and local level governments.

CHAMBER: The organic law will significantly change the royalty, equity and other benefits that support landowners, provincial governments and the local level governments.
KUA: The 2020 organic law protects and enhances the existing entitlements and rights of landowners, LLGs and provincial governments. In any event, royalty, equity and other benefits that support landowners, local level and provincial governments will be provisioned for in the consequential Acts of Parliament.
The legal provisioning will be in consequential Acts of Parliament which are being worked at and will be taken through the consultative process with different stakeholders that include the Chamber, landowners, provincial and local level governments. It is therefore irresponsible of any person or entity to pass jusgement without having commented on and knowing the exact legal mechanisms.

CHAMBER: The organic law will significantly increase the risks and uncertainties for the developer/contractor.
KUA: The chamber is passing judgement based on what the proposed Organic Law says without having any idea about the exact legal mechanisms that would make provision for risks and uncertainties that would be understandably concerning for the developer/contractor and how the PSC regime is intended to work in PNG.
As already stated, the proposed Organic Law only sets out the Constitutional framework from which consequential Acts of Parliament (setting out the legal mechanisms that deal with those risks) would be passed.
The consequential Acts of Parliament (setting out the legal mechanisms for the PSC regime and how it will work in PNG) will be taken through the consultative process with different stakeholders.

CHAMBER: The organic law will significantly reduce governance and transparency for the Kumul companies.
KUA: The people of PNG through the Government do not comment on governance and transparency issues for members of the chamber. This is a ‘no-go zone’ for the Government. Members of the chamber do not comment on governance and transparency issue, even the chamber does not comment on governance and transparency issues for its members. The fact that the Chamber sees fit to concern itself with governance and transparency for Kumul companies is breathtaking. Does it mean that the Government should make it its business to probe into the governance and transparency of all members of the chamber? In any e vent, the concerns raised by the chamber will be addressed in the consequential Acts of Parliament which will have input from all stakeholders through the consultation process.

CHAMBER: Resources are not lost by PNG under the current royalty/tax system.
KUA: The people of Papua New Guinea continue to lose two key factors under the royalty/tax system: retaining ownership of resource and retaining control throughout the exploration and production chain.
Under the royalty/tax system, ownership of oil and gas is lost by the people of PNG to the developers when minerals are dislodged and cease to exist in their natural state again- well before those resources are even processed and sold or exported. In the PSC regime, ownership of minerals will be retained by the people of PNG through their Kumul Minerals Company- throughout the exploration and development chain right through to point of sale or export. Loss of rights to ownership under the royalty/tax system continues to burden the people of PNG into having to buy-back the rights to participate in oil and gas projects and mining projects by having to pay for the required share of ‘sunk costs’. As if giving away ownership for free is not bad enough, the people of PNG are then required under the royalty/tax system to pay for a share of ‘sunk costs’ before they can be allowed to acquire ownership of a percentage of the resources that is extracted. The PSC regime allows the people of PNG to avoid making any upfront payment of ‘sunk costs’. It would be irresponsible of the National Government to allow such an adverse arrangement to subsist.

CHAMBER: But under the system proposed by the organic law, PNG will lose ownership of resources.
KUA: Not only is this a complete fabrication, but it is premised on the ill-conceived notion that the people of PNG are not only intelligent enough to appreciate that the Kumul companies are owned by the people of PNG (through the Prime Minister as trustee shareholder) and there will, therefore, be no loss of ownership of the resources. Under the PSC regime, the sovereign and constitutional rights of the people of PNG to ownership and control of oil and gas, and minerals throughout the entire exploration and production chain through to point of sale or export.
The Kumul companies will be constitutionally mandated to exercise the sovereign and constitutional rights of the people of PNG emanating from their ownership and control of oil and gas, and minerals. Legally, the Kumul companies will have direct 100 per cent ownership rights while the people of PNG will (though those Kumul companies) have direct 100 per cent ownership rights.