Oddities in the proposed gold law

The National Focus

By FRANK SENGE KOLMA
[email protected]

THE Great Gold Debate, as we call it, is coming to a head today with a much-anticipated public consultation by the Government.
It is appropriate, therefore, that we conclude the series we have run on this debate with a look at the proposed legal arrangements now before Parliament in the form of two bills, namely the National Gold Corporation Bill (2022) and the National Gold Corporation (Project & Shareholders’ Agreement) Bill 2022.
The proposal has its beginnings in the time of the first O’Neill Government after the 2012 elections when it was first brought to cabinet (the National Executive Council).
A private company purpose-built for just this project and registered in Singapore, called Refinery Holdings Limited, is behind this project.
The proposal suffered a setback midway through the O’Neill government, around 2015, when it was dropped and was resurrected by the Marape administration in 2021 with the signing of a National Gold Corporation Project & Shareholders’ Agreement.
A Gold Bullion Policy was force-marched through 2022 mainly to give policy backing to the agreement but serious backlash from stakeholders about the lack of consultation delayed it until May 12 last year before it was launched.
The gold bills, which were ready to go before Parliament in 2022, were pushed further back until they were finally introduced to Parliament in February 2022.
With the Government’s Gold Bullion Policy and the two Gold Bills, which are the property of National Parliament, it is a only matter of time before they are debated and carried into law.
The carriage into law is a matter on course because these are government bills and the Government has the numerical strength to pass the law. Only strong opposition from within government can stop these bills from being passed in their current form, or, at all.
Deputy Prime Minister John Rosso, to his credit, has broken ranks with Government to say he will not support the bill in its present form. This is most welcome news for the resources sector which has been opposing this proposal right from the start through the PNG Chamber of Resource and Energy.
The groundswell of opposition to this bill from the private sector, particularly the PNG Chamber of Resource and Energy, has been loud and sustained.
Why are these laws attracting so much vitriolic opposition?
The irregular path that the National Gold Corporation agreement and the laws have made their way to Parliament invites part of this opposition and the contents of the bills invite the other part.
We have touched on the irregular path in the earlier pieces in this debate.
We touch now on the contents of the bills, particularly the National Gold Corporation Bill 2022, and the offending parts of it.
The National Gold Corporation Bill 2022, if passed, will do the following:

  •  PROVIDE for the implementation of the Shareholders Agreement between the State and Refinery Holdings as the foundation shareholders of the National Gold Corporation and pursuant to which agreement the National Mint (including the National Gold Refinery), the National Gold Bank and the National Gold Marketing will be established as subsidiaries;
  • ESTABLISH a State Equity Corporation which will hold shares in the National Gold Corporation on behalf of the State;
  •  ESTABLISH a new refined gold industry regulator called the National Gold Authority;
  •  ALL gold mined or recovered in the country would be refined by the National Gold Refinery; and,
  • INTERNATIONAL standard gold bullion bars, legal tender investment grade gold coins and other gold products will be manufactured and minted by the National Gold Refinery and the National Mint and National Gold Notes and other gold backed instruments will be issued by the National Gold Bank.

This Act is not limited in its binding (section 12) and binds the State and any public authority in Papua New Guinea.
The Act prevails over any other law (section17) in force in the country or to be made yet and where a law, other than the Constitution and the National Gold Corporation (Project & Shareholders Agreement) Act, those other laws or regulations are held to be inferior.
If any law is inconsistent with the Gold Law “then this Act (Gold Law) necessarily amends, repeals, extinguishes or modifies any such rule or provision…”.
Another of the issues that has raised the ire of gold traders are exclusive powers granted under section 72.
Under this section, the National Gold Bank is the exclusive gold and precious metals commercial bank in PNG and is the exclusive maker and issuer of the National Gold Notes; the exclusive holder of gold reserves held in the National Gold Notes Reserve Account; and the exclusive supplier, directly or through the company of any subsidiary to the Central Bank of National Gold Notes for the purpose of the international reserves of the Central Bank.
The National Mint is given similar exclusive powers:

  •  TO refine all gold mined or recovered from land in PNG;
  •  TO be the exclusive buyer of all refined gold in PNG;
  •  TO be the exclusive owner and user of certain marks, symbols and names in connection with the business;
  •  TO be the exclusive manufacturer and producer of gold bullion bars made from refined gold;
  •  TO be the exclusive maker and minter of currency coins (other than gold coins) and notes for the Central Bank and any such notes or coins issued by the Central Bank will be legal tender; and
  •  TO be the exclusive supplier to the Central Bank of gold coins and gold bullion.
    The National Gold Marketing is:
  •  THE exclusive agent of the National Gold Bank for marketing of, and market development for the National Gold Notes and the services of the National Gold Bank;
  •  THE exclusive agent of the National Mint for marketing of, and market development for gold bullion bars and other products, gold coins and other NGC gold securities produced by the National Mint; and,
  •  THE exclusive provider of market development services for gold refined by or through the National Mint.

The Overall Powers (section 77) of the NGC is extensive and provides it with the authority to “do all things necessary or convenient for the purpose of carrying out its functions”.
The NGC or any of its subsidiaries may borrow from the State (82) and repay on terms set by the Treasury.
Another curiosity arises in section 89 providing for a guarantee by the treasurer for the State.
Under this part the Treasurer may, in the name of the state, “unconditionally guarantee payment of the cash equivalent of all the gold due, payable or deliverable by the company, the National Gold Bank, the National Mint; National Gold Marketing or the National Gold Authority” and “all moneys due and payable by the company, the National Gold Bank, the National Mint…”
It is to be noted that the security for the State Guarantee are the various assets of the company or its subsidiaries.
The gold law at section 106 prohibits the Central Bank from doing anything to grant or issue a banking license to another person other after the National Gold Bank is given its license.
Under section 128 the Central Bank is compelled to consult, or otherwise, it cannot revoke the banking license under the Act or serve a notice of any kind to the NGB.
Other curiosities arise in the sections dedicated to the establishment of the National Mint.
The National Mint is the exclusive refiner of all gold mined or recovered in PNG (215) but no law can prohibit it (National Mint) from contracting a partnership, joint venture or other associations to smelter or refine gold or precious metals “including in any foreign country”.
Gold refining is mandatory for all who mine or recover gold in PNG (216) but all of that must be done through the National Mint.
Section 217 prohibits all other refineries operating in the country and the next section (218) puts it beyond doubt that the law also covers those that have been refining gold in any way or form prior to the signing of the Project and Shareholders’ Agreement in October 2021. This includes companies and individuals exporting gold to be refined overseas.
Section 219 prohibits the entry of new refining contracts. All existing and new contracts which do not have State exemptions are void and of no effect (section 220) and the exemptions, upon their expiry, will not be renewed.
The National Mint has exclusive rights, but not an obligation, to buy any or all refined gold from time to time or at any time (223).
The National Mint will exercise the first right of refusal for all refined gold under terms and conditions as authorized by the Direction – National Mint and as agreed with the owner of the relevant gold.
The purchase price for any refine gold sold and purchased under the National Mint option as authorized by the Director or as agreed with the owner or subject to the prevailing market price.
The most unfair cut in this, to conclude this conversation, is contained in Sections 255 and Section 256.
Section 255 (Central Bank not to mint or issue gold coins) provides that “the Central Bank shall not make, mint, issue or sell, or cause the making, minting, issue or sale, of a coin or series of coins comprised in whole or part of gold, whether intended to be issued as Papua New Guinea currency, and legal tender, in and for Papua New Guinea, or otherwise”.
And, in the section following: “This Act does not, and no other law shall, limit or preclude the National Mint, in its sole discretion from subcontracting the making and minting of any gold coins, or other coins under –
(a) Subcontract; or (b) A partnership, joint venture or other association with another refinery or mint wherever located, including in any foreign country.”

Next:
The existing laws that the proposed Gold Law displaces.