Pasca A deal transparent: Manau

Chairman of the State negotiating team David Manau has described the deal for the Pasca A gas project in Gulf as the “most transparent” compared to previous petroleum projects. Talks on the deal were concluded last week. Manau, also the Petroleum and Energy secretary, discusses negotiations on the deal with Business Editor SHIRLEY MAULUDU

Question: How different was this negotiation? What stood out for you compared to other previous discussions on petroleum projects in the country?

Manau: I was not involved in the PNG LNG or Papua LNG.
But from experience, and according to members of previous State negotiating teams (SNT), Pasca was a bit different because it was transparent.
Firstly, even though it dragged on for almost 10 months, what actually happened was that of all the information required for the project, the technical team did a very detailed technical assessment of the project.
All the requirements of the Oil and Gas Act (1998) were fully complied with in terms of the regulations and the various sections of the Act, in terms of following the application process, technical screening and all that.
If we compare that to Papua and the PNG LNG, that process was not fully exhausted.
So we would say that it was a plus, as a regulator of the Pasca offshore project.

Phases
Twinza was very descriptive, in terms of project definition.
It is a two-phase project.
The first phase will involve a two-year liquid stripping and gas re-injection.
It will then put the project into readiness for the second phase, which comes in after two years where gas will be extracted.
By then, there should be a floating LNG in place as well.
So in the whole construction period you would have two years of liquid production and then gas processing thereafter.
And then the floating LNG comes in the gas phase.
Cost
The cost was done out in detail.
And that enabled the regulator to do the assessments, and technical scrutiny of the project.
The application that went through the application process for the petroleum advisory board, is sound and solid for a good positive decision.
From that level, that was a good process that was applied.
Secondly, in terms of sharing of information, apart from earlier projects, it was difficult for Kumul Petroleum Holdings Ltd (KPHIL), as the State nominee which will take up the 22.5 per cent, to access the data room of the operators.
In the case of Pasca negotiations, an opportunity was given for Kumul Petroleum (to) have access to their data room, scrutinise their planning and all that and cost estimate the project.
For that level of planning and negotiations, you would pin down the estimate that would be realistic to both the State and Twinza.
From that, we could work out the cost estimate and also note carefully that certain aspects of cost estimates are clear to us in the near term, and certain aspects of cost estimate towards the back end of gas production, is subject to proper studies like front end engineering and design, to establish those.
In that aspect of planning, we would then assess the risk involved of terms of putting down the dollars for the investment, which was scrutinized properly by the SNT.
We got into that sort of transparent negotiation by Twinza.

Delay
We signed the term sheet at Loloata last year, on a good note. The only delay was the financing modelling that was used.
Twinza was using a discounted cash flow analysis.
The Treasury and Internal Revenue Commission (IRC), basically collectors of tax and revenues, were using a nominal.
Also at that time, Twinza was a non-domicile company in Papua New Guinea, meaning they are registered overseas.
So the issue of collecting one of the key components of the State benefit, the dividend withholding tax (DWT), was uncertain.
It was seen as if it will be so difficult for the State to collect that.

Representatives of Twinza Oil Ltd and members of the
State negotiating team for the Pasca A gas project yesterday.
– Nationalpic by SHIRLEY MAULUDU

The negotiations focused around, gaining the loss value of the DWT.
So the SNT looked at the legislative benefits that are under law cannot be changed.
Some of the figures like 2 per cent production levy, 2 per cent development levy, are legislative benefits under law.
We negotiated on one point of contention to forego the loss of dividend withholding tax, taxes for the country which IRC and Treasury rightfully stressed that should be collected, we negotiated the outcome of the production levy to be lifted up to 5 per cent, that will give a good deal to the State.

Deal
Twinza came good on July 6, and that settled the deal which on Treasury’s advice and IRC.
It’s a good deal.
It’s a good deal meaning that throughout the life of the project, the production levy, will a little bit higher than the foregone dividend withholding tax in terms of value, so we make access in terms of revenue in the life of the project.
But all in all, in comparison to PNG LNG and Papua, it was transparent and all the technical details were there for scrutiny which summed up to conclusion of what the financing would be like.
And the State could work out in terms of its benefits where it can lend.
We achieved the Government’s 55 per cent State take which achieved the Government’s objective as well as the other policy directives.

How much in terms of equity is the State looking at in this project?

It’s the normal 22.5 per cent under law (Oil and Gas Act (1998).
Kumul Petroleum Holdings Ltd will back in at the right time, at a financial investment decision around the time where the license grant, they have the option to back in.
But it’s under Kumul Petroleum Act.
It’s a commercial decision that they will make depending on the commercial risks that the company may take.
They may opt for a full 22.5 per cent, they may opt for something less.
And that will put the State into a position of inviting others they might want.
But the deal that is set at this stage is a good one for the country and it is a precedence for other projects that may come in the future.
It is a benchmark.