Resource ownership needs strategic steps

The National Letters

THE passing of the Mining (Amendment) Bill and Oil and Gas (Amendment) Bill on June 10 heralds the culmination of the call by the landowners, provincial governments and the general populace to amend the laws governing the mining and petroleum sectors to secure more benefits.
True to his word Prime Minister James Marape has heeded the peoples’ call by doing exactly what he intended to do upon taking office on May 7 last year.
However, the PNG Chamber of Mines and Petroleum President Gerea Aopi said the amendments to the Mining Act 1992 has created investment uncertainty as investors, both foreign and locally owned, who have expanded huge resources in the mining industry, faced the possibility of losing their investments as government favours Kumul Minerals and other state-owned entities.
Despite the concerns raised by the PNG chamber of mines and petroleum one thing is certain, as mentioned by the minister for petroleum and energy during his presentation of the Oil and Gas (Amendment) Bill 2020, is that “a wholesale change will be made later by this Government if it still remains in office”.
In other words, the Government is just starting and it plans to make sweeping changes to the Oil and Gas Act and the Mining Act as well in the future.
It is interesting to see what transpires ahead, however, the government’s philosophy of undertaking these changes is underpinned by Malaysia’s experience in managing its petroleum industry over the past 46 years.
In 1974, Malaysia passed the petroleum development act, which shifted away from a concession-based licensing system to a production-sharing arrangement and vested the entire oil and gas resources in its state owned entity, Petroliam Nasional Berhad (Petronas).
By doing so, Petronas was entrusted with the responsibility of developing and adding value to the entire oil and gas resources in Malaysia.
In addition to utilising the production sharing arrangement, Malaysia was the first country to introduce the risk sharing contracts which have been recently revised as enhanced oil recovery (a special kind of benefit sharing arrangement under the production sharing arrangement).
Although the journey has been challenging, Malaysia was able to build one of the most successful state owned entities in the world over the past 46 years with an impressive record of Petronas being ranked among fortune global 500’s largest corporations in the world.
It has been ranked the 158th largest company in the world last year.
Moreover information about Petronas are quite amazing and they include:

  • having more than 100 subsidiaries and around 40 joint venture companies in which Petronas has at least 50 per cent stake in these companies;
  • having business operations around the world;
  • having a diversified business portfolio including upstream exploration and production of oil and gas to downstream oil refining, marketing and distribution of petroleum products, trading, gas processing and liquefaction, gas transmission pipeline network operations, marketing of liquefied natural gas, petrochemical manufacturing and marketing, shipping, automotive engineering, and property investment;
  • having total asset value of more than US$100 billion (K345.7); generating revenues above US$40 billion (K138.3) annually;
  • employing more than 40,000 people; and,
  • consistently funding half of the national government’s budget annually.

Therefore the final amendments especially to the oil and gas sectors will ultimately result in the Government vesting the exclusive ownership including the rights for development, production and selling of these resources with its nominated State-owned entity.
Under these arrangements, provision can be made for foreign companies to participate in certain areas in the upstream and downstream activities with excellent rewarding system in order to ensure transfer of knowledge, expertise and sophisticated technologies to the country.
Hence, if the Government is serious in traversing down a similar path as Malaysia, it needs to come up with an effective transition strategy of how the current tenement holders will be paid off to surrender their concessions and it needs to put in place rigorous transparency and accountability systems to combat corruption in these arrangements.
Ultimately, the best thing that will happen under this move is that, since the ownership rights of all the oil and gas resources will be vested with a State-owned entity on behalf of the country and its people, when commercially viable gas and oil reserves are found, these reserves will provide the guarantee to secure finance to develop them accordingly.

Eugene Kambut