Landholders will still have to wait for LNG dividend payments

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No immediate dividend payment, says Sonk

Shirley Mauludu | The National aka The Loggers Times | January 19, 2017 
DIVIDENDS “will not be paid right away” to the beneficiary groups which have signed agreements to acquire Kroton equity in the PNG LNG project, an official says.
Kumul Petroleum Holdings Limited managing director Wapu Sonk made the statement on Tuesday when PDL (petroleum development licence) 4 from Gobe in Southern Highlands signed their unit application form to buy their share of the Kroton equity.
“What we are doing will maybe go through two steps. After the signing, it does not mean that we will release the dividends right away,” he said.
“We will wait for all the green field areas to go through the normal process of clan vetting, ADR (alternative dispute resolution), to properly identify and register all the landowner groups, ILGs (incorporated land groups), landowner representatives of the ILGs.
“We will allow for that to complete and then we will release dividends. That will take some time.”
Ten (10) groups had signed their share transfer documents as well as the vendor finance offered by KPHL.
“After their signing of the PDL, KPHL will work with these beneficiary groups to complete the corporate or statutory aspect of the transaction for their shareholding interest in KPHL to be registered,” Sonk said.
He assured the landowners that KPHL’s board and management were committed to ensuring that all landowners and provincial governments receive their entitlements under the Umbrella Benefits Sharing Agreement which was passed in 2009 at Kokopo, East New Britain.

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MRA says mine MoAs should be public and independently audited every year…

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… so what are Philip Samar and MRA doing to make sure that happens? 

Freddy Mou | Loop PNG | 18 January 2017

The Mineral Resources Authority (MRA) is calling for an improvement on how revised mining projects Memorandum of Agreements (MoA) are administered.

MRA Managing Director Philip Samar made this call when presenting six revised MoAs to the Mining Minister Byron Chan on Monday.

The revised MoAs are for Hidden Valley, Tolukuma, Ok Tedi, Simberi and Sinivit. The only new mining project MoA is for Woodlark.

Samar said that there is definitely a need to improve on how these MOAs are administered.

“The negotiations, as difficult and challenging as they might be, is actually the easy part.

“The real challenge is, and has always been, for the various parties to these MOAs to fulfil and deliver on their various commitments.”

Samar added that the MRA is proposing that an open and transparent process be built into these respective MoAs.

He said this is to enable each MoA to be self-administered where an independent party is engaged under the respective MoAs to conduct an annual audit of how each of the parties have performed in terms of fulfilling their various commitments and to have this report made available publicly to the various stakeholders and the general public.

“A complimentary initiative given PNGs participation in the EITI protocols is for these MOAs to be made public documents.

“The MoA review process itself is a public process involving various stakeholders in numerous public forums and as such the final product itself should therefore be a document that the various stakeholders and the general public can have access to.”

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Ok Tedi Trust funds frozen by court case: OTML

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Gynnie Kero | The National | January 17, 2017

TRUST funds for Community Mine Continuation Agreement (CMCA) villages in the South Fly district of Western are still frozen by a court case, according to Ok Tedi Mining Ltd (OTML).
But despite that, OTML continued to contribute money into the trust every year, deputy chief executive officer and general manager employee and external relations Musje Werror said.
As at December last year, the company paid more than K9.8 billion in benefits to the people of Western since 1982.
He revealed that 50 per cent of these funds were currently tied up in court.
Addressing people at a village in South Fly last Friday, Werror said the village was among others in the district whose projects would be delayed.
The Sepe/Auti village in South Fly was the final village in the CMCA corridor to sign the CMCA Extension Agreement (CMCAEA) last Friday.
“Your benefits start today (last Friday) after signing of the agreement.
“But your name (Sepe/ Auti) is among all South Fly villages, project delivery will be delayed. Until the (court) case is over, we cannot draw down from the trust,” he said.
Werror also told the locals that the compensation package for the 158 CMCA communities in Western was reviewed over the years.
“In 2001, the compensation package at that time was K175 million.
“That was revised in the 2006 memorandum of agreement (MOA) to close to K1.2 billion and now the CMCA extension agreement nearly K600 million.”
Werror urged Sepe/ Auti locals to cooperate with the miner and the Ok Tedi Development Foundation and the provincial government if they wanted to see real change in the village.
“To achieve sustainable development is not easy but it can and will happen if we all work together. I encourage the people of Sepe/Auti through your leaders to work closely with OTML, OTDF and the Fly River Provincial Government (FRPG),” he said.
“There will be disagreements along the way but we must never lose focus of our dream and our desire to develop our village, our region and our province.”
Ok Tedi Mining Ltd also presented two outboard motors and sporting equipment worth K70,000 to the village last Friday.
It is understood that two 23-foot dinghies would be delivered to Sepe/Auti later.

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Solomon Islands PM defends leaked texts

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Manasseh Sogavare Photo: RNZI

Radio New Zealand | 17 January, 2017

Solomon Islands prime minister Manasseh Sogavare has defended a leaked sms conversation he had with an official of a bauxite mining company about tax exemptions.

The leaked texts which were published in the Sunday Star reportedly were sent on the 15th and 16th of November.

In the published parts of the sms conversation Mr Sogavare reassured an official of Bintan Mining SI Ltd that cabinet was preparing to remove all export duty on bauxite.

Bintan is the mining firm contracted by Asia Pacific Investment Development (APID) to mine bauxite on Rennell Island in the Rennel and Bellona Province.

The prime minister yesterday told the newspaper, The Island Sun, the conversation was completely above board and had been taken out of context.

He said the public was mistaken if it thought a prime minister should not be speaking with investors about matters of government policy.

Mr Sogavare said it related to an earlier government decision to impose a 20 percent tax penalty on illegally mined bauxite stocks which he says has been implemented.

Mr Sogavare said he was simply informing the investor of a cabinet decision that the 20 percent tax was not be applied to legally mined bauxite stocks and that this would be backdated to cover legally mined bauxite that had been exported before the cabinet decision.

The prime minister also said he was offended at insinuations that he had been bribed to remove the 20 percent tax penalty and pointed out that there has never any export duty on bauxite to begin with.

The sms leak and the later posting of a word for word conversation between the prime minister and Island Sun reporters about the issue could result in an official investigation into a possible security breach within the Prime Minister’s office and telecommunications.

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13,700 have a say on NZ seabed mining application

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Wanganui Chronicle | 17 January 2017

Environmental Protection Authority staff have finished counting all the submissions made on Trans-Tasman Resources’ applications to mine the South Taranaki seabed for ironsand.

There are 13,733 submissions, now listed alphabetically on the authority’s website, but not yet analysed.

A note from the authority says the Te Runanga o Ngati Ruanui submission included a petition. Its signatories were not counted as individual submitters.

It also says some submitters did not include all the information required on the authority’s online submission form. In some cases the need for that information has been waived, and those submissions will be considered.

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‘Urban mining’: Engineers say e-waste richer than ore pulled from the ground

Amit Kumar has been grinding up LEDs at UBC in Vancouver to recover valuable metals. Arlen Redekop

Amit Kumar has been grinding up LEDs at UBC in Vancouver to recover valuable metals. Arlen Redekop

Urban mining is a much better and cleaner alternative to experimental seabed mining. RIP Solwara 1! 

Randy Shore | Vancouver Sun | January 16, 2017

Electronic waste is proving to be a far richer source of valuable metals than any ore pulled from the ground, according to mining engineers at the University of British Columbia.

PhD student Amit Kumar and professor Maria Holuszko have succeeded in “mining” copper and silver from LED lights, and they are certain that rare earth metals such as europium, cerium and lutetium can also be recovered.

Light Emitting Diodes are gaining popularity as a highly efficient alternative to incandescent and fluorescent lights and represent an increasing proportion of e-waste and a potential source of metal pollution, said Holuszko.

“We believe that within three years there will be enough LEDs in the waste stream to make this viable,” said Kumar. “And if we don’t do it, they will all end up in the landfill.”

What makes the LED recycling process tricky is that lights are made of fused composite materials that blend plastics and metals with a variety of other compounds that cannot simply be pulled apart.

But if LEDs are ground up fine enough, the material isn’t much different from a high quality ore, though one with a variety of metals and industrial materials to be recovered.

“We are using techniques like the ones employed by the mining industry, mainly physical processes that exploit the weight, density and conductivity of the metals to separate them from other materials,” said Kumar. “So far we haven’t needed to use any chemicals, so it’s a very clean process.”

The researchers employ gravity, electrostatic separation, and other non-chemical methods to separate metals from each other and from binding materials. 

Processed samples contain up to 65 per cent recoverable copper — far higher than processed ore — along with 4.5 per cent zinc and 1,640 parts per million of silver.

“Eventually, we also hope to use this workflow to find a way to recover gold in significant amounts,” said Holuszko.

Recovering rare earth metals will likely be accomplished with a chemical process, but only the small amount of material that remains after the common metals are removed would need to be treated, said Kumar.

A successful test run of the process with Richmond’s Contact Environmental recovered copper, zinc, lead and silver, according to Holuszko. The next step is to find an industrial partner interested in investing in a real-world pilot program.

“We have a grant from (non-profit innovation funding agency) Mitacs, but it’s not enough without a private partner,” she said.

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Who actually pays for the PNG LNG royalty and project development levy benefits?

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PNG taxpayers picking up the bill for LNG royalties and development levies!

Kessy B. Sawang | The Papua New Guinea Women | January 15, 2017

There has been agitation over the non-payment of royalties (see here for example). In the discussion around the furore, royalties and project development levies are deemed to be part of the benefits from the massive PNG LNG project. For instance, Loi Bakani, Governor of the Bank of Papua New Guinea, in a 2015 statement advised that “[in] addition to  royalties and development levies the State is directly benefiting from the PNG LNG project through equity dividends … and direct and indirect taxes” (see here).

Whilst Bakani points out that the royalty and development levy benefits arises as a consequence of the PNG LNG Project, it does not give cognizance to the fact that the costs of these are not actually fully borne by the project.

The value of royalty benefits from resource projects is considerable. The PNG Chamber of Mines and Petroleum on its website (see here) outlines benefits from resources projects include: “company tax, royalty, dividend withholding tax, salary and wages tax, duties, production levy”. The Chamber then states that the industry it represents (before the PNG LNG project started producing) paid “K1.3 billion in royalties … from 2005 to 2010”.

However, it is the people of PNG that are effectively paying the royalty to the PNG LNG landowners and a significant share of development levy that goes to the PNG LNG provinces.

What is a gas and oil royalty?

Royalty payments are made to the minerals and petroleum resource owner for the right to extract the resource. The term royalty payment has its genesis in the history of England when their Kings were the ultimately owners of land and granted rights to the use of their land for a return of his “royalty” as a share in the profits.

The Papua New Guinea Extractive Industries Transparency Initiative Report 2013 (see here) points out that according to the “…Oil and Gas Act, subsoil assets belong to the State” (page 38).

Whilst a label of royalty may be applied to this benefit stream it is anything but. Papua New Guinea does not have a true royalty system for the PNG LNG project as it is not the developers who exploit the gas resources that bears the burden of royalties but the taxpayers of Papua New Guinea.

Legal framework

The Organic Law on Provincial and Local Level Government (section 98) sets out the legal basis for development levies and states that that an Act of Parliament shall provide details for its application. For the petroleum sector this law is the Oil and Gas Act (sections 2 and 60).

The legal basis for royalty payments is provided for in the Oil and Gas Act (section 159).

For both benefits the value is equivalent to 2% of well-head value of oil and gas extracted. A regulation made under the Oil and Gas Act sets out the precise calculation, which allows certain deductions to the gross value of hydrocarbons extracted. The Tax Review Committee proposed a change to the method of this calculation (Final Report, Volume 2, page 103).

“The hardest thing to understand in the world is the income tax” – Albert Einstein

Under the Oil and Gas Act both royalties and development levies can be claimed as tax deductions. If, as in the PNG LNG Project, both are paid then the royalty can be claimed as a tax credit. This can be confirmed on the IRC website (see here).

For the PNG LNG Project, and generally, the company income tax for each project participant is determined by taking its gross income subtracting any exempt income and allowable deductions and multiplying  this against the applicable tax rate, which is 30%. If there are any tax credits this is then offset to give the income tax payable.

The PNG LNG Project has secured fiscal stabilization but was not required to pay an additional company income tax rate of 2 percentage points for this as required under the Resource Contracts Fiscal Stabilization Act. That is a company income tax rate of 30% is applied though normally it would be 32% with fiscal stability. Fiscal stability is protection given to the project by the government that the fiscal regime (the applicable taxes especially) for the project will remain unchanged.

So a tax deduction delivers a tax saving for the project participants of 30 toea for each K1 of the total amount of allowable deductions whilst a tax credit delivers complete tax savings of the corresponding amount of the eligible tax credit expenses. These amounts are offset from their tax bills.

So let’s put this into perspective for these are large valued benefits. For example, Bakani advised (see here) that there was an accumulated amount of K108 million in royalty payment to landowners of the PNG LNG Project as at September 2015. Bakani further advised that the first development levy payment of K73.8 million had been made on 27 March 2015. Since then with continued and uninterrupted oil and LNG production the cumulative amounts of the benefits will have increased.

Let’s for the purposes of illustration examine how each K100 million of both benefits work with the tax system. You can choose any hypothetical amount you wish but remember that the value of both benefits are computed the same way and will be the same at any given moment.

Now I pose the question: Who is actually bearing the first round cost of these benefits that are made to those fortunate project landowners and project provinces? There is an incorrect perception that the costs of the royalty and development levy are wholly borne by the PNG LNG Project – this is not the case.

exhibit-a-incidence

Source: Author’s calculations

Tax credits and tax deductions are what are termed “tax expenditures”. Tax expenditures have first call on budget revenue as these imply foregoing revenues that would have otherwise come to the government to be available for funding for priority areas for our people. There are a number of advantages of tax expenditures as there are a number of drawbacks – I leave that discussion for another day.

Exhibit 1 shows that the State, which is effectively the taxpayers of Papua New Guinea:

  • bear the burden completely (that is 100%) of the cost of the royalty;
  • bear the burden of 30% of the cost of the development levy; and
  • bear the burden of 65% of the combined cost of the PNG LNG royalty and development levy.

For each K100 million of development levy paid by the PNG LNG project co-joint venturer companies, they can claim K30 million as a tax deduction. For each K100 million of royalty paid by the PNG LNG project co-joint venturer companies they can claim K100 million as a tax credit. These are amounts that will be offset from their tax liability.

Whilst each K200 million paid by the PNG LNG project imposes a cash flow burden on the project it is more than offset by the saving of K130 million it receives on its tax bill. So the project effectively only pays K70 million for each K200 million of both benefits.

So who then foots the bill for the K130 million? It is the Government!

Where does the Government get its income from ultimately? Taxpayers!

There is a gross unfairness that is imposed on Papua New Guineans that aren’t from the “gas provinces”.

So whilst we spare a thought for those landowners that await in frustration the payment of their royalty, we should also spare a thought for the tax payers of Papua New Guinea who are effectively paying  for the complete cost of these royalty payments and 65% of the combined amount of royalty and development levy.

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