Monthly Archives: July 2012

South Korea wins right to mine Indian Ocean


South Korea said on Monday it has won the exclusive right to exploit a deep-sea mine in the Indian Ocean that could produce more than $300m worth of minerals a year.

The 10,000-square kilometre site contains hydrothermal vents that could yield metals including gold, silver, copper, zinc and lead, the maritime ministry said in a statement.

The general assembly of the International Seabed Authority last Friday voted to give Seoul the exclusive right to develop the area – around 2,500 kilometres southwest of Sri Lanka – from 2013 to 2027, it said.

The ministry estimated production would reach about 46,000 tonnes, worth $320m, a year.

“This is the result of aggressive efforts by the government and related agencies on investment, research and international diplomacy… amid fierce global competition to secure resources,” it said.

Hydrothermal vents are areas on the ocean floor where water heated by volcanic activity under the seabed gushes out.

Seoul officials and scientists explored the area from 2009 to 2011.

The resource-scarce South has strengthened efforts in recent years to secure raw materials overseas. Including the new mine, it has the right to develop four deep-sea mines totalling 112,000 square kilometres.


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Newcrest output sinks 15% in gold’s record-breaking year

 “Hidden Valley is not where we need it to be – every component of that mine needs to improve”

Rhiannon Hoyle | The Wall Street Journal

Heavy rain and operational difficulties pushed Newcrest Mining’s annual gold output 15% lower, keeping Australia’s largest gold producer by market value from capitalizing fully on a year in which the precious metal’s value climbed to record highs.

Newcrest, which twice revised its production guidance lower during the year through June 30, grappled with bad weather at its Papua New Guinea mining operation as well as a prolonged plant shutdown. A deluge in Australia’s New South Wales state late last year also triggered a landslip at its Cadia open pit, halting mining and temporarily restricting access for heavy vehicles.

“Operations have been put under stress, and there have been hiccups along the way, as miners have tried to capture the rising gold price,” said Tim Schroeders, portfolio manager at Pengana Capital. “This is not a Newcrest-specific issue, though, and is more symptomatic of industry trends globally.”

The spot price of gold rallied to a record high above US$1,920 a troy ounce last September on Europe’s debt crisis and concerns over the U.S. economic recovery. Rising prices prompted miners to ramp up output of the precious metal, widely seen by the market as a safe haven investment.

Newcrest said its full-year production totaled 2.29 million ounces–close to the mid-point of its revised guidance of between 2.25 million and 2.35 million ounces.

Last August, however, the miner had aimed to produce as much as 2.925 million ounces, following total output of 2.7 million ounces in its 2011 fiscal year.

Investors welcomed the production results, which analysts said were largely in line, or slightly above, market expectations. At 0339 GMT, shares in the miner were up 3.1%, outperforming an 0.5% rise in the S&P/ASX 200.

“We believe that Newcrest’s share price has been factoring in a worst-case production and cost scenario for all of its assets for some time,” Macquarie said in a note.

Shareholders are likely to welcome a recent uptick in production, which suggests momentum may be building, said Mr. Schroeders. Gold output rose to 587,310 ounces in the final quarter, up from 532,237 during the previous three months.

“Its fortunes, though, hinge on the gold price and whether it can make continued improvements over the next 12 months,” he said.

Chief Executive Greg Robinson declined to provide much detail on the miner’s expectations for the year ahead–an update on which will be given in next month’s financial results. He said Newcrest is, though, sticking with its 2013 guidance range of 700,000 ounces to 900,000 ounces for its Lihir mine, as announced in April. Lihir produced 604,000 ounces last year.

“We will have a broad range because of the commissioning [of a new processing plant at Lihir]. But we expect more reliability, and we have definitely seen that in the [last] quarter,” Mr. Robinson said in a conference call with analysts.

The miner also retained a forecast that its Cadia Valley operations will produce up to 500,000 ounces of gold, compared with 473,000 ounces last year.

Mr. Robinson said there needed to be improvements at Newcrest’s operations in the year ahead, singling out its Hidden Valley mine in Papua New Guinea.

“Hidden Valley is not where we need it to be–every component of that mine needs to improve,” he said.

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NAMIBIA: Seabed phosphate mining threatens marine life


Two Australian companies, Minemakers and UCL Resources, acquired an 85% share in the Sandpiper project, which plans to mine phosphate from the sea-bed near Walvis Bay.

They plan to dredge five million tonnes a year from the sea-bed for 20 years. The prospect has environmentalists and critics up in arms. They claim mining phosphate from the ocean will destroy the marine environment and jeopardise the fishing industry. In Australia the Government of the Northern Territory considers all seafloor mining such a threat that a moratorium has been imposed until 2015, while further environmental and risk assessments are conducted.

Marcia Stanton, Director of the Earth Organisation Namibia, says,

“Marine phosphate mining has never been done anywhere else in the world and Namibian coastal waters are now facing the threat of being the testing ground. These concerns have not yet been adequately considered in Namibia.”

She says to date, public and scientific consultation as part of the Environmental Impact Assessment process has been inadequate and not in accordance with Namibian law, International Seabed Authority guidelines, or International Best Practice standards. The Environmental Commissioner of Namibia has also asked for more consultation before consideration of such assessments.

Marine scientists and international experts have expressed concern that the dredging of 3-meters of the sea floor, will cause destruction to the basic building blocks of the marine ecosystem (benthos layer). Scientists are also concerned about the release of hazardous substances, including radioactive materials, which will directly kill off wildlife and cause many commercial fish stocks to be unmarketable and not sale quality.

Stanton says,

“It is extremely important for serious studies to be conducted on all of these major impacts.”

According to Namibian law, damage to the environment must be prevented and activities which cause such damage must be reduced, limited or controlled. Stanton says,

“The fishing industry alone brings in N$4.8 billion dollars in foreign currency and directly employs 13 380 people. Simply put, in no way mustan unsustainable short-term option be adopted at the expense of the sustainable long-term option.”

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FIJI: NJV launches iTaukei language website

Elenoa Turagaiviu | Fiji Broadcsating Corporation

The Namosi Joint Venture (NJV) has launched its i-Taukei language website – becoming one of the first institutions in the country to have a fully fledged website in the native Fijian language.

The website has the same content and complements as NJV’s English language website

Country Manager Greg Morris says it is important that landowners and the Fijian people have access to reliable and accurate information about the project in a language they best understand.

A highlight of the website is the Frequently Asked Questions section where queries and questions that have been raised with NJV are answered and clarified.

NJV says it welcomes feedback from the public with regards to information available on the site.

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No experimental seabed mining for Jamaica

By Petre Wiliams-Raynor | Jamaica Observer

Jamaica is unlikely to join the global race for nature’s treasures at the bottom of the ocean, including nickel, copper and cobalt anytime soon.

These are found in deposits of polymetallic nodules and sulphides, formed over millions of years, on the ocean’s floor.

“Jamaica has no plans at the moment to enter into deep seabed mining (DSM), but through its participation in the finalisation of the mining codes and regulations, it is ensuring that the interests of SIDS (small island developing states) are taken into account in the event that there is further interest on our part in this activity,”

said the Ministry of Foreign Affairs and Foreign Trade, in a written response to Environment Watch queries.

The ministry said that Jamaica is, instead, interested in taking advantage of the International Seabed Authority (ISA) Endowment Fund.

The fund — which received an initial investment of US$3 million — is designed to promote collaborative marine scientific research in the international seabed area.

It does so through its support of qualified scientists and technical personnel from developing countries in marine scientific research programmes and activities. It also provides opportunities for them to participate in relevant initiatives.

“What is of more immediate relevance (than DSM) is the potential for Jamaica to be involved in scientific research afforded by activities in the deep seabed… Regrettably, not many persons from Jamaica or the wider Caribbean have expressed an interest in this type of activity, which would be useful ‘groundwork’ as it were, if Jamaica were to become involved in deep seabed mining,” the ministry said.

Still, it said the University of the West Indies is playing an active role as a member of the island’s delegation to the annual sessions of the ISA — one of which is currently underway in Kingston, where the Authority has its headquarters.

“But,” the ministry said, “there is scope for the involvement of more institutions as well as for more tertiary-level students to pursue interests in issues relevant to the law of the sea, such as environmental engineering, maritime sciences and so on so as to take advantage of such opportunities.”

Meanwhile, other small islands — through partnerships with private companies — are seeking to get involved in DSM, which many believe could be worth billions, given the untapped potential of the ocean to give up its metals.

Counted among them, according to information from the ISA website, is the Republic of Kiribati in the Pacific Ocean. Kiribati was one of the five new applicants for seabed exploration who made oral presentations to the Legal and Technical Commission of the ISA on July 10. The application came through Marawa Research and Exploration Ltd, a state enterprise of that country.

The other applicants were UK Seabed Resources Ltd, which was sponsored by the Government of the United Kingdom of Great Britain and Northern Ireland; G-TECH Sea Mineral Resources NV, sponsored by the Government of Belgium; the Government of the Republic of Korea, and IFREMER, sponsored by the Government of France.

The applications are being considered by the Council of the ISA, which opened its 18th session in Kingston last Tuesday. If approved, they will bring to 17 the number of active contracts issued by the ISA.

It was not immediately clear why Jamaica would not pursue partnerships with a private organisation to engage in deep seabed mining, which is a hugely expensive venture, requiring specialised equipment and technical expertise.

Meanwhile, the ministry stopped just short of saying whether it shares the environmental concerns of groups, such as the Deep Sea Mining Campaign, about DSM.

“Given our intrinsic link to oceans and the sea, through our location in the Caribbean Sea, Jamaica has a vested interest in ensuring that any activities in these areas, including the deep seabed, are undertaken in an environmentally sustainable manner,” the ministry noted.

“Part XII of the Convention does speak to the Protection and Preservation of the Marine Environment which in Article 192 indicates that States have the obligation to protect and preserve the marine environment,” it added.

In addition, it said that the island has a “robust legislative framework which addresses the various issues that can result from deep seabed mining”.

“Jamaica implemented the Maritime Areas Act and the Exclusive Economic Zone Act (1991) which cover most of the aspects of the Convention. In addition, some aspects of the Convention are covered in the Shipping Act and in the Fisheries Law,” the ministry said.

Of concern to groups, such as the Deep Sea Mining Campaign — which last October released the report Out of Our Depth: Mining the Ocean Floor in Papua, New Guinea — is the potential for the destruction of the “habitat for thriving communities of organisms” including some 500 species, which, up to a few years ago, were unknown to man.

Notwithstanding its lack of interest in pursuing deep seabed mining, the ministry said that Jamaica’s participation in ISA Assembly meetings is critical.

“…Given that the provisions of the Convention (United Nations Convention on the Law of the Sea) — the constitution of the ocean which safeguards and designates the resources of the Area as the “common heritage of mankind” — it is important for Jamaica as a small island developing state, to maintain an active interest in these issues,” the ministry said.

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Indochine Mining ‘hits heights in PNG’

Proactive Investors

Indochine Mining says it is currently discovering high grade gold in almost every drill hole from drilling at the company’s Mt Kare gold silver project in Papua New Guinea.

They say comparisons are odious, however intervals of almost an ounce per tonne gold are strikingly similar to the initial grades at the nearby highly controversial Porgera, one of the world’s Top 10 gold mines.

Porgera is a 28 million gold ounce mine and owned by Barrick Gold.

Highlights of drilling include; 53.9 metres at 8.2 grams per tonne (g/t) gold and 18g/t silver from 30 metres, including 13 metres at 29.0g/t gold and 19g/t silver; and 35 metres at 8.1g/t gold and 19g/t silver from 11 metres.

The importance of the continued flow of discoveries is that they provide the basis for the Pre‐Feasibility Study due for completion at the end of August – with the public release towards the end of September after discussions with the regulatory authorities in Papua New Guinea.

Considering these intersections are just from the ninth and tenth drill holes – the results from an additional 40 holes are certainly highly anticipated – which will be delivered to the market in coming months.

These holes are part of a much broader campaign of over 400 diamond holes for around 67,000 metres, which has helped to delineate a JORC Resource of 28 million tonnes at 1.9g/t gold for 1.8 million ounces and 20 million silver ounces, with a higher grade zone of 3.7 g/t gold for 700,000 ounces.

Comparisons to Porgera, a 28Moz mine

Barrick’s 28 million gold ounce Porgera mine is one of the tenth largest gold mines in the world, having produced 17 million ounces in the past 21 years.

Another plus for Indochine, is that Mt Kare is hosted in the same host rocks / ore types as Porgera.

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Stevie Nion Marengo’s PNG country manager

Post Courier

Marengo Mining Limited has appointed Stevie T.S. Nion as PNG Country Manager, as it moves towards possible development of its Yandera Copper-Molybdenum-Gold Project in the country

Mr Nion is a geologist by profession and has more than 30 years experience in the PNG mining industry. During that time he has held a number of senior government positions, including Chief Government Geologist and Director of the Geological Survey, Deputy (and Acting Secretary) with the Department of Mining, and since 2007, inaugural Deputy General Manager – Minerals for Petromin PNG Holdings Limited. He holds a Bachelor of Science (Geology) from the University of PNG, a Master of Science (Geology) from Sydney University and a Master in Management Studies from the PNG University of Natural Resources and Environment.

Commenting on Mr Nion’s appointment, Marengo’s Managing Director and Chief Executive Officer Les Emery, said “we are very pleased to have Stevie join the Marengo management team at a crucial phase in the Company’s development, as it moves to complete the Feasibility Study on its Yandera Project. With extensive experience in the PNG mining industry, particularly as a senior public servant in the mining sector, Stevie will add a new dimension to the skill base of Marengo’s management,” he added.

Reporting to Marengo’s MD, Mr Nion is based in the Company’s recently opened office in Port Moresby. He will be responsible for managing Marengo’s corporate affairs in PNG, including progressing matters with National and Provincial Government departments, and agencies, strategic partners, and other stakeholders.

The opening of an office in Port Moresby complements Marengo’s other PNG bases at the Yandera Project and Madang, both located within the Madang Province.

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Bougainville Landowners speak out on latest moves with Rio Tinto mine

Radio Australia

Landowners are meeting on Papua New Guinea’s island of Bougainville to pave the way for the return of mining giant Rio-Tinto.

Rio’s Panguna copper mine was the spark that ignited a decade-long civil war which left thousands dead and the economy of the island on its knees.

Two decades on, there is a growing consensus among landowners about re-opening the mine.

Presenter:  Jemima Garrett
Speakers:  John Momis, President of the Autonomous Government of Bougainville
Chris Damana, interim chairman of the Panguna Landowners Association
Bernadine Kiraa, Chairwoman of the Panguna Lower Tailings Landowers Association

GARRETT: Reconciliation is now the name of the game between landowners and Bougainville Copper – the Rio Tinto subsidiary that owns the Panguna copper mine.

It has been a long hard road.

Landowners have been holding talks among themselves and with the Autonmous Bougainville government for more than 2 years.

Earlier this month, there was something of a breakthrough – a three-way meeting between landowners, the Autonomous Bougainville government and Bougainville Copper.

Bernadine Kirra, is Chairwoman of the 3000 strong landowner group that suffered most during mining – the lower tailings landowners.

KIRAA: The meeting with BCL was a step forward. it was a very good meeting because we agreed at once some decisions that BCL has to meet before it decides to come to Bougainville.

GARRETT: And what is thew feeling amongst the women and the other landowners. do they want to see the mine re-opened, eventually?

KIRAA: Uh, yeah! Most people in mine-affected areas and all of Bougainville, we would very much want BCL to come back.


KIRAA: To help us with our economical recovery on Bougainville.

GARRETT: Bougainville’s President John Momis says the meeting with BCL was very significant.

MOMIS: It was the first time that all the landowners were represented in the group that talked with us. In the past we had other big meetings but not all landowner groups were represented. But this time it was good.

GARRETT: And did the landowner groups include mekamui and some of the landowner groups that have been hostile to Bougainville copper?

MOMIS: The landowner groups represented all the groups that have been listed as the legitimate landowners, which includes Mekamui, of course, yes.

GARRETT: Were you surprised at the broad representation of landowners that turned up for the meeting?

MOMIS: I was not completely surprised. I was very happy because we had been doing a lot of work, the administration has been doing a lot of work liaising and talking with the landower groups and insisting that landowners must come to an agreement to work together.

GARRETT: Bougainville President John Momis.

Landowners took charge of the agenda at the meeting with Bougainville copper.

Chris Damana, Interim Chairman of the key umbrella group, the Panguna Landowners Association, says the BCL representative aquitted himself well.

DAMANA: Mr Paul Coleman, during our 13 agendas that we presented, gave us a positive ..all of them positively answered us. BCL will come and re-open the mine but need to tidy up a lot of things before they come and re-open the mine. We all agree that BCL will come back because they have learned their mistake. We have learned our mistake and, maybe, we can start on a new slate.

GARRETT: So the landowners want to see the mine re-opened?

DAMANA: Of course we need Panguna mine to re-open, definitely!

GARRETT: Landowners told Bougainville copper that before any more moves could be made towards formal negotiations for the re-opening of the mine the company must take part in a reconciliation ceremony and pay what is known as belcol money.

Respecting tradition is crucial to the success of future talks.

This week, landowners have been holding a series of meetings to draw up some instructions so that BCL gets it right.

DAMANA: We are discussing it now, this morning, in a meeting. we want to put it in black and white to BCL because as you know BCL will see it from the Western cultural perspective. we see it from the Melanesian cultural perspective so we need to explain properly to BCL what this belcol money is and what will meet our purpose, that BCL will do before we go into serious talkings with BCL.

GARRETT: Chris Damana, interim Chairman of the umbrella organisation, the Panguna landowners Association.

Landowners are still discussing exactly what the belcol should entail.

Bernadine Kiraa, from the lower tailings landowners association does not want to pre-empt the outcome, but she is clear on what her people want.

KIRAA: We really want something that will benefit the whole of Bougainville but, especially myself, I am really looking for BCL to build maybe some good schools for a better standard and maybe better hospitals for Bougainville for a start because we really have a problem with good standard of education and the health facilities here on Bougainville at the moment is very low.

GARRETT: If the mining does go ahead, would all of Bougainville benefit or would it only be the landowners from around the mine?

KIRAA: No, No, this time we are looking from a different perspective. All people of Bougainville should benefit because they have all suffered due to the landowners conflict so we are looking forward to a new complete agreement that will benefit all of Bougainville.

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Why has the report on fish deaths not been released?

Martyn Namorong | The Namorong Report

The Morobe Provincial administration has received the report from the University of Technology, inquiring into the suspicious deaths of aquatic creatures earlier this year. The report is yet to be released to the public. Below is an opinion piece written by a concerned scientist who wishes to remain anonymous.

When large numbers of dead fish littered the banks and mouth of the Markham River, the Labu people brought the issue to the media to demand answers from the Department of Environment and Conservation (DEC), Morobe Provincial Government (MPG), Morobe Mining Joint Venture (MMJV) and other appropriate authorities. Sometimes later, the people of Gabansis found some dead fish in the Zansam tributary to the Markham River and also demanded for investigation by appropriate authorities.

DEC responded to the Labu people’s demand and carried out an aerial investigation to find answers to this mysterious dead of fishes in the Markham River. However, the answers given by DEC were unconvincing and did not go down well with many NGO groups and right thinking citizens.

Oseah Philemon reported in the Post-Courier on the 21st of January, 2012 that DEC attributed the cause of the dead fish to large landslips near the Kumalu, Langimar and Banir rivers. The logic behind that assumption was that the landslips may have released large amounts of soil into the river systems which depleted dissolved oxygen levels, thus the fish died due to lack of oxygen.

Nevertheless, photographs posted in the newspapers showed that the dead fish in the Markham River were mostly carp, tilapia and eels. Carp, tilapia and eels are known to survive in stagnant water bodies, which usually contained low levels of dissolved oxygen. Moreover, eels are known to burrow into mud banks and live out of the water for some time, as they can breathe oxygen directly from the atmosphere. Therefore, the reasoning that the dead fishes found in the Markham River died from lack of oxygen does not add up because these fish species tolerate low levels of dissolved oxygen under natural conditions. Something more than landslips caused fish in the Markham River to die.

DEC mentioned that the department relied on MMJV to supply them with mine water discharge data on a weekly basis. This information not only gave away the department as an ineffective regulator of the environment in PNG, but it also showed how easily DEC could have been fooled by mining companies through the manipulation of mine water discharge data. It does not require rocket science for any ordinary Papua New Guinean to understand this logic.

Two types of water permits are usually administered by the DEC, the Water Extraction Permit and the Water Discharge Permit. In the case of dead fish in the Markham River the most important permit is the mine Water Discharge Permit. This is the permit that allows for MMJV to discharge water and contaminants into the Watut and Markham rivers.

Section 82 of the Environment Act 2000 confers the right to any person or organization to release water or contaminants under prescribed conditions and standards into the environment. However, there is no indication in the Act as to what those prescribed conditions and standards are. But the same section of the Act states that the permit confers the right to any person or organization to release water or contaminants into the environment subject to any prescribed conditions or conditions endorsed on it. Therefore, since the Director of DEC is the ultimate authority on the issuance of environmental permits, this suggests that the Director of DEC sets the prescribed conditions and standards on environmental permits.

Several NGO groups have asserted that environmental permits are classified documents and it has been frustrating to obtain copies of these documents from DEC. Consequently, the water permits that were granted to MMJV are classified information as well, so the prescribed conditions and standards on those permits are also classified.

Since water permits are classified information and the issuance of permits is the prerogative of the Director of DEC, it was not possible for the public to know the types of water permits that were granted to MMJV. Nevertheless, David Wissink of MMJV confirmed in the Post-Courier of 14th May, 2012 that the company operated on a permanent and a temporary permit, and a copy of that temporary permit is also posted on the Papua New Guinea Mine Watch website. The permit showed that MMJV was actually allowed to increase its water discharge per hour.

That temporary increase in water discharge obviously increased the contaminant level. Thus the dead fish in the Markham River were obviously killed due to a sudden increase in the level of contaminants in the river for a specified period only.

It was also reported in the Post-courier of 28th May, 2012 that more dead fish were found at Zansam, and Unitech scientists were tasked by the MPG to investigate the matter. After investigating the scientists stated that their findings were inconclusive because DEC had not done any studies in the area therefore there was no baseline data to qualify their investigation.

The Unitech scientists are professionals in their own right and they know that there are many ways to skin a cat, and scientists are trained to use both orthodox and unorthodox methods to conduct scientific investigations. Thus the lack of baseline data should have not been an issue for these scientists, as unorthodox methods could have been used to derive data that would have qualified their findings. Nevertheless, the scientists decided to keep mum and strike a deal with MPG to continuously monitor discharge from the Markham and Watut rivers so that they could be paid for consultancy services.

The Unitech scientists downplayed the possibility of fish poisoning from MMJV’s operations. They admitted there was cyanide in the water samples they collected, but they suggested that the cyanide was possibly washed off from surrounding rocks and soil and attributed the cause of the dead fish to bacterial infection. However, there were no qualifying statements given by the scientists as to why they believed bacterial infection and naturally occurring cyanide could have been responsible for the dead fish. Therefore, bacterial infection and poisoning by naturally occurring cyanide are remote possibilities and could not have been responsible for the dead fish in the Markham River.

It is well known that MMJV has a mutual relationship with the MPG, therefore the study carried out by Unitech scientists may have been a censored investigation. Thus the scientists may have been instructed to carry out the investigation as a matter of formality and to appease public outcry, but not to communicate the findings.

From the investigations carried out and the responses given by DEC and the Unitech scientists on the dead fish in the Markham River, it was obvious that impartiality was absent in the environmental investigations that were carried out. MMJV provided helicopter for DEC to do its aerial investigations and the MPG, which has a mutual relationship with MMJV, contracted Unitech scientists to investigate the cause of dead fish in the Markham River. So how could there be impartiality when the investigator was sponsored by the perpetrator of the environmental destruction or its cronies?

Dead fish in the Markham River and the non-impartial investigations carried out are typical of the many environmental issues and investigations this country has experienced since the year 2000. Nonetheless, lack of impartiality in environmental investigations and the downplaying of environmental disasters perpetrated by multinational corporations are just branches to a more deeply rooted issue.

The root cause to non-impartial environmental investigations and the pollution of the Markham, Watut, Angabanga and many other rivers by multinational corporations lies in the Environment Act 2000. This is the unleashed animal that has compromised the integrity of environmental protection in this country and has granted immunity to perpetrators of environmental destruction, while rendering customary landowners and other citizens powerless in the fight for their basic human rights.

The Environment Act 2000 is totally flawed and provides loopholes for which perpetrators of environmental destruction can escape prosecution, and the fines to be imposed for environmental destruction are pathetic. Therefore, the only viable solution to improving environmental investigations and to resuscitate environmental protection in this country is to repeal the Environment Act 2000 in its entirety. Unless and until this monster is repealed in its entirety, citizens and the environment of this country will continue to suffer in the guise of economic development.


Filed under Environmental impact, Human rights, Papua New Guinea

Will PNG follow Venezuela’s lead on windfall tax for social programs and education?

Fabiola Sanchez

Venezuela is imposing a windfall profits tax on royalties from oil projects when crude prices are above $40 a barrel, seeking to squeeze as much as $16 billion mostly out of foreign oil companies, the government said Tuesday.

Energy Minister Rafael Ramirez said the tax, which was decreed by President Hugo Chavez last week, will allow the government to collect between $9 billion and $16.3 billion this year.

A 20 per cent tax will be in effect when the price of a barrel of Venezuelan oil is between $40 and $70 a barrel, Ramirez said. When the price is between $70 and $90, the tax rises to 80 per cent. Between $90 and $100, the tax reaches 90 per cent, and if the price tops $100 a barrel, a 95 per cent tax will be imposed.

The price of Venezuela’s heavy, sulfur-laden crude reached $94.60 a barrel Tuesday, Ramirez said.

The tax will be imposed on Venezuela’s state-run oil company as well as foreign oil firms operating in Venezuela’s crude-rich Orinoco Belt, Ramirez said.

If Venezuelan crude remains above $90 throughout 2011, an estimated $9 billion will be funneled into a development fund, Ramirez said. If Venezuela’s oil prices top $110, an estimated $16.3 billion could be collected.

Ramirez said revenue from the tax will not used for investment in the oil industry, but rather will be funneled into the government’s social programs and projects aimed at improving health care, education, housing, agriculture and infrastructure.

“It’s a powerful tool the state has designed to acquire windfall income,” Ramirez said.

He denied the fund would exclude projects launched by state governors and mayors as some government critics have alleged.

Ramirez told journalists that the tax won’t be imposed on “the development of new oil fields,” projects aimed at boosting oil production and agreements such as Petrocaribe program, which provides oil and natural gas to some Latin American and Caribbean nations at preferential prices.

It also will not apply to a deal signed last year between Venezuela and China, under which Venezuela ships oil to the Asian giant in exchange for goods and services, Ramirez said. Under that agreement, China lent $20 billion to Venezuela in exchange for shipments of 100,000 barrels a day over a 10-year period.

Ramirez, who is also president of Venezuela’s state-run oil company, known as PDVSA, said the company has a $4 billion debt owed to contractors.

PDVSA is negotiating with the owners of 74 oil service firms for compensation after the government expropriated the companies in 2009. Ramirez said negotiations have been slow because authorities believe some of the companies failed to pay taxes. If talks break down, the disputes will be settled in Venezuelan courts, he said.

PDVSA is awaiting a ruling from the World Bank’s International Center for Settlement of Investment Disputes in a dispute with Exxon Mobil Corp. The case was brought by the Irving, Texas-based company in 2007 over the government’s nationalization of the Cerro Negro heavy oil project.

Exxon Mobil has also sought to recoup increased royalties and taxes imposed by the government starting in 2004. Exxon Mobil’s oil project was one of four taken over by Chavez’s government in May 2007 as he brought the oil industry under majority state control.


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