State treading carefully on project talks

Reports by GYNNIE KERO
and Shirley Mauludu
PRIME Minister James Marape recently told Parliament that negotiations for the new multi-billion kina projects would be done carefully to ensure landowners and the State get their “fair share”.
“When we came into Government in May 2019, we made it absolutely clear to our people and the business community that the country must be entitled to a fair and equitable share of the benefits from the development of our natural resources.
“How the Government intends to achieve this outcome lies in our policy directives, which include:

•  that the State must take 60 to 65 per cent of the share of the revenue from these projects. This is inclusive of the exercising our back-in-rights, that is equity and taxes;
•  that the State must secure early revenues, not wait for 10 to15 years after the construction period;
•  provincial Governments and landowners must receive their royalty and development levy entitlement at 2 per cent minimum;
•  The State must secure 5 to 10 per cent of gas, oil and minerals for domestic market obligations and downstream processing;
•  All joint venture partners must share the cost of social obligations proportionate to their equity.
  “Let me give you an example of what the country receives from one or two of the current projects.
  “From one of the recent petroleum projects, the State receives only 40 per cent of the revenue. This represents State equity of 16 per cent taxes and royalties and the development levy.
  “No taxes will be paid until 2024 as all taxes legislated by law were exempted in the project agreement.
  “There is no early revenue. Landowners and provincial governments do not receive their full 2 per cent royalty and development levy entitlements. They receive less that 0.8 per cent after deductions.”
  He said the State assumed 100 per cent responsibility for social obligations.
  “In this example, the Government was spending millions of kina well before a single dollar was received from the project. And tax credits are applied for projects in the host provinces (that is still State’s tax revenue).
  “So after deducting tax credits and millions of Kina spent by the Government to fulfill social obligations, the net share of revenue earned by the State is just under 35 per cent.
  “In other cases, it is even worse. The State receives just 10 to 20 per cent. This is not good enough. For far too long, we have been denied a fair and equitable share of the benefits from the development of our natural resources.
  “We welcome all investors to our country. They are entitled to a good return on their investment. But likewise, we too deserve our fair share.”

Porgera
The Special Mining Lease for the Porgera mine was granted to Placer Dome and later Barrick Niugini Limited (BNL) in 1989. It expired in 2019.
BNL applied for an extension of the SML in 2017 for further 20 years. The Mineral Resources Authority (MRA) recommended to the Government to refuse or reject the application for extension.
“This simply means that by law, the SML (our land) is returned to the owner, which is the State. BNL therefore has no legal right to operate the mine. That right to operate the mine will be assumed by the new SML holder.
“All the assets at the mine site are intact and rightfully belongs to BNL. Only they will decide whether to sell or dispose of them. If they wish to sell, the Government is prepared to make an offer.”

Wafi–Golpu
“This will be a large-scale underground mining project situated between Huon Gulf and Wau-Bulolo districts in Morobe. The project is owned by Harmony Gold Mining Ltd and Newcrest Mining Ltd on a 50:50 shareholding basis.
“If the State decides to exercise its right to take 30 per cent equity, both companies will proportionately dilute their shareholding.
“The project will be developed in three stages over a total lifespan of 28 years at a cost of US$5.4billion (K154.91bil). The Wafi-Golpu Joint Venture (WGJV) partners have lodged a development plan for the project, which is being assessed by government agencies.”

Papua LNG project
“The Papua LNG project agreement was signed on April 9, 2019 with Total PNG Ltd and other joint venture partners ExxonMobil, Oil Search, Nippon Japan.
“The State will own 22.5 per cent of the shares if we decide to exercise our back in rights, as provided by the Oil and Gas Act.
“Its total capital outlay is estimated at US$13 billion (K44.75bil).
“It contains similar terms to that of the PNG LNG project, such as improved 1.2 per cent for royalty and development levy and 5 per cent gas for domestic market obligation.
“As a result, the country will receive close to 46 per cent of the project benefit, a mere 6 per cent increase against the 40 per cent share from the PNG LNG project.”

P’nyang
“P’nyang gas project is located in Western and currently owned by ExxonMobil and Oil Search.
“The petroleum retention licence (PRL) expired in August 2015 and is preserved by the lodgement of an application for petroleum development license (PDL) with the Department of Petroleum and Energy.
“The total capital cost of the project is estimated at US$9.2 billion (K31.67bil) and expected to generate a net (pre-tax) cash flow of US$23.3 billion (K80.21bil) over a period of 20 years.”

Pasca A Petroleum Project
“Pasca Petroleum Project is a marginal (small) project, but it will be the first off-shore project in the country. It is situated in Gulf, some 95km from Gulf province coastline and 265km west of Port Moresby.
“The project resources include a combination of condensate oil, LPG and gas. Gas resource is a very small 327 bcf and it will be re-injected back into the wells, as that is not commercially viable for development at this stage.
“The operator, Twinza Oil Ltd, is proposing a two-phase development process. The first phase is to develop the condensate and LPG, and the second phase is to harness gas resources.”
According to a development plan, a final investment decision is targeted for the end of 2021, with production to commence in 2024.
“We are committed to completing negotiations on all these projects by the final quarter of 2020.
“We have analysed the financial models of all these projects and if we can negotiate a better deal, the country will receive significant financial benefits in the next 20 years.”

Other projects
According to Mineral Resources Authority (MRA), the Frieda River copper and gold (West Sepik) and Woodlark projects (Milne Bay) are also in the pipeline.
MRA managing director Jerry Garry said Frieda would cost around K24 billion and expected to provide jobs for 4,000 people.
The Government is waiting for the operator PanAust to submit its proposal for the Frieda river project.
The Woodlark project to cost about K420 million will be operated by GeoPacific and is still in the preliminary stages. It is expected to provide up to 1,000 jobs.