Monthly Archives: August 2018

Institutions Should Include Alluvial Mining Training, Says Basil

alluvial miners at work

Alluvial miners at work on Bougainville

Jerry Sefe | Post Courier | August 17, 2018

Major tertiary institutions in the country must be given the opportunity to involve facilitating trainings and safety regulation in the alluvial mining sector.

Member for Bulolo and Minister for Information and Communications Technology and Energy Sam Basil made the call to the Mineral Resources Authority on Tuesday during day one of its 4th Alluvial Mining and Tradeshow convention held in Lae.

“I want to encourage MRA involve our research and tertiary institutions including University of Papua New Guinea, PNG University of Technology and University of Natural Resource and Environment in our collaborative efforts in alluvial mining and the environmental impacts and safety,” said Mr Basil.

Basil said these institutions are academically and professionally equipped with knowledge, expertise and innovations to expand the sector and in this partnership the country can make a difference in challenging times when resource scarcity and sustainability is concerned.

He said the challenges of the alluvial mining observed from in Bulolo district is the safety aspects that needs to be more regulated when unsafe practices are becoming an increasing concern especially with miners using the underground mining techniques where they dig through tunnels.

“This has resulted in numerous deaths over the years. This is because of the alluvial resource knowledge has always been a barrier in advancing the alluvial mining operations” said Mr Basil.

Basil said it is a must that all concerned stakeholders join forces and embrace the new developments in this era of alluvial mining because the alluvial mining sector is owned by Papua New Guineans using downstream processing.

“This area must be carefully considered because it has a high potential to enhance multiple revenue streams through maximum participation of our rural populace.”

He said MRA as the concerned regulator must strive in its efforts in maintaining safety practices within the alluvial mining communities.

Basil added that environmental compliance is another issue that must be strictly regulated by the Conservation Environment Protection Authority (CEPA) however mentioned that CEPA are yet to be fully aware of what is happening within the alluvial mining sector.

“I am aware of the financial requirements of the sector in supporting alluvial miners therefore as local MP for Bulolo we will be fully supporting our local miners through our district development authority” he said.

Meanwhile, the minister also commended MRA’s initiative in the alluvial resource mapping programs currently taking place in Bulolo to build the resource inventory of the district.

Advertisements

Leave a comment

Filed under Financial returns, Papua New Guinea

How Gold Mining Companies Stifle Opposition in Peru

Police line up during a massive protest against the extractive economic model in Lima, 2015 (Photo by Michael Wilson Becerril)

Multinational mining corporations in northern Peru have devised a number of strategies for suppressing environmental activism and protest, from strategic investment to media relations to outright intimidation and repression.

It is not hard to find examples of many of the same tactics being used in Papua New Guinea.

Michael Wilson Becerril | NACLA | August 7, 2018

The glitter of gold conceals ugly realities in Peru, one of the world’s largest gold producers. While the treasured commodity promises to bring jobs and economic development to extraction sites, its production involves exorbitant water consumption, leaves behind massive amounts of toxic waste, and has led to deadly social conflicts. Harassment and intimidation, propaganda, criminalization, and targeted assassinations of environmental activists characterize everyday life across the world’s mining regions.

Peru’s economy is heavily dependent on mineral extraction, which represents about two-thirds of its national export income. The world price of gold peaked at $1,800 an ounce in 2011 after a 12-year period of rapid growth—enticing the state and mining companies to increase investment and expand mining operations. As the mining business expanded, so did conflicts. Peru’s human rights commission recorded well over 200 active conflicts each year between 2008 and 2017—most of which were related to mining.

Beyond health and environmental risks, extractive projects are often also linked to corruption and underdevelopment. People around the mining sites I’ve studied contest the companies’ false promises, their deception, their arrogance, and the unequal distribution of the benefits and burdens of mining.

For these reasons and more, conflicts around mining often escalate into violence. However, most analyses of these situations tend to focus on explosive conflict eventsrather than what leads to them. Particularly, the tactics that transnational companies use to stoke the fires of these conflicts are often left out. Activists involved in these conflicts want others to understand how corporate representatives gain support and suppress dissent among communities near mining projects, including through corporate social responsibility programs, media partnerships, and repression.

Corporate Social (Ir)responsibility

Extractive industries in Peru have pacified the public and specific groups who oppose mining projects through the adoption and promotion of Corporate Social Responsibility (CSR), which refers to the development of a philanthropic or charitable arm of a for-profit business. CSR is at once a public demand, a marketing strategy, and a byproduct of the diminished role of the state in the provision of public services.

CSR often takes the form of short-term philanthropy, such as handing out petty gifts to gain support for mining projects. CSR also appears as long-term investments in local development, for example through sponsoring scholarships or alternative industries like agriculture. Investment in development projects, like education, reforestation, and agricultural projects, is newer and less common than philanthropic gifts, but its results may be more enduring. The Johannesburg-based company Gold Fields, for example, has funded scholarships as well as dairy pasteurization training and infrastructure around its Cerro Corona mine in the Hualgayoc district of Cajamarca, Peru.

Like other corporate strategies, CSR has become more sophisticated over time. For example, around 2001, a Vancouver-based mining company, then called the Manhattan Minerals Corporation, offered kitchen and school supplies to crowds in downtown Tambogrande, according to local interviewees. More recently, the Toronto-based Barrick Gold set up a so-called “medical campaign” in towns around its Lagunas Norte mine, although one municipal official described this effort as nothing more than “a tent and two doctors pitched downtown for a week.” The U.S.-Peruvian joint venture La Zanja, owned by Newmont Mining, similarly sponsored an optometry campaign in 2011 and has offered basic medical services in nearby districts. Other companies have sponsored town fairs, given away free hot chocolate, and arranged other low-cost compensation activities. La Zanja has also sponsored local organizations, such as by providing t-shirts and hats, emblazoned with the company’s logo, to a local soccer club and an elders’ association.

Barrick Gold, the largest gold company in the world, is partly funding this hospital in Santiago de Chuco, La Libertad, the provincial capital nearest to its Lagunas Norte mine (Photo by Michael Wilson Becerril).

In some cases, companies fund local development projects under the banner of CSR, which may involve reaching agreements with individuals or groups, including people who are outspoken company opponents and present a risk to the company, due to their institutional authority, their organizing power, or both. In addition to financing their preferred candidates’ electoral campaigns, companies have offered cash handouts, construction equipment, contracts for basic services like food and sanitation, and employment—to mining supporters as well as to their opponents and their family members.

Such increasingly sophisticated strategies are on display in the case of the La Zanja mine. Tensions there escalated since the project proposal and construction stage, between 1998 to 2004, when locals burned down the company’s compound. La Zanja left the area and laid low for a few years, but they were not deterred. In 2007, the company returned with a new strategy, involving heavy CSR including hiring sociologists, contracting local opponents into seasonal work, and funding a development-oriented NGO.

These tactics help explain the opposition’s slow demobilization and the company’s successful installation into the community by 2008. In a province where over 60% of the population was classified as impoverished in 2007, the company presented powerful incentives. According to one interviewee who wished to remain anonymous for safety reasons, the opposition was essentially bribed into silence. Many in town blamed the movement leaders, accusing them of being merely self-interested or corrupt.

Critics of CSR broadly agree that the practice is a voluntary and insufficient substitute for strict regulations and adequate corporate practices, such as respecting public referenda on the projects, addressing their environmental risks, or truly redistributing the benefits of mining activities to locals. In some of its most common forms, CSR entails companies working with local authorities to fund public infrastructure en lieu of paying some corporate taxes. For example, companies fund the construction of electrical lines and roads—which mining companies need anyway—as well as water reservoirs and treatment facilities, stadiums, parks, and look-out points. Gold Fields, La Zanja, and Barrick tout their contributions to these kinds of construction and infrastructure projects. Meanwhile, residents and local government authorities in mining areas complain that these gifts attract positive attention to distract from corporate tax evasion and environmental degradation.

The Two Faces of Corporate Media Tactics

Gold mining companies collaborate extensively with local and national media to contain opposition to mining projects. Peru’s mining companies work with sophisticated, industry-specific public relations firms and advertising contractors to build strong online presences, open their own news outlets, and build personal relationships with journalists and news editors. These partnerships serve both to promote the firms’ brand and to discredit their opponents.

On the one hand, they curry positive public opinion, highlight their excellent rapport with local communities, and exploit photo opportunities. On the other hand, their publications and statements smear and delegitimize any opposition by portraying it as ignorant, backwards, corrupt, violent and even terroristic, and as an unrepresentativeradical fringe. In Peru, the use of criminalizing frames against “antiminers” and loose accusations of terrorism are particularly salient, given the country’s recent history of internal armed conflict. Words such as terrorism weigh heavily on those who survived the 20-year war, only partially resolved with a return to democracy in 2001.

These discourses have contributed to the pervasive perspective that mining represents an unquestionable path to development and widespread prosperity, that mining companies are socially responsible and environmentally sustainable, and that people who protest mining projects are either misinformed or purposely manipulating the public for self-gain. Such narratives are diffused through official rhetoric, established media, and even social media—for example, Facebook pages operated by mining companies, public relations firms, independent journalists, and other mining supporters—and they are latent in everyday conversations and public debates.

For example, in 2007, former Peruvian president Alan García published two essays that portrayed Indigenous populations—who were organizing a mass movement against extractive projects in their territories, at the time—as “prairie dogs” who were culturally backwards and opposed to “national” progress. In 2015, police detained and beat Antonio Coasaca Mamani, a farmer from Arequipa, for participating in a protest against the proposed Tía María copper mine, owned by the conglomerate Grupo México. During his capture at a protest, the Special Operations Division of the national police attempted to plant weapons on and incriminate Coasaca as a violent “antiminer,” and with the full complicity of the nationwide daily newspaper El Correo, as an investigation and videos of the event revealed. The state-sponsored attempt to frame Coasaca as violent, with the help of a national newspaper, is just one of countless examples of the state and mainstream media’s common practice of framing protest as illegitimate and dangerous.

Repression and Intimidation

The most coercive forms of quelling opposition to mining projects involve repressing and criminalizing opposition through state armed forces and the judicial system, and even intimidating them privately. Criminalizing dissent to protect extractive projects is well-documented in Latin America, where it is known to disproportionately harm womenIndigenous peoples, and Afro-descendent peoples. In each of the cases I studied, I heard countless stories of activists detained or otherwise processed through the court system, and about the distrust and trauma sowed by the armed forces, “always arriving to harm protesters and protect companies,” even during peaceful rallies, as a young activist in La Libertad told me. In Cajamarca alone—Peru’s top gold producing region alongside La Libertad—there were more than 300 protesters with open court cases as of mid-2016, according to Grufides, a regional human rights and environmental NGO.

Most companies often try to put down protests by working with the police, who they call for backup protection during demonstrations, assuming that the police will protect private property and restore order. Indeed, numerous companies have signed private protection contracts with the Peruvian National Police. On the other hand, a manager at the Cerro Corona mine claimed in our conversations that when his company called for police assistance, his supervisors instructed police chiefs to avoid using violence on peaceful protesters. Indeed, there has not been evidence of violence taking place at Cerro Corona. But this is not representative of the majority of cases. Mining companies are likely well aware of the widespread abuses committed by the state armed forces in the country. In assigning the work of quelling protest to the police, extractive companies are effectively transferring responsibility for any violent acts of repression that may occur.

Powerful and well-established mining corporations have ample influence over the state’s own actions, both through formal lobbying and in subtler ways. Yet companies tend to wash their hands from any responsibility when violence breaks out at mining-related protests with police presence.

Outside the realm of protests, dozens of activists I interviewed alleged that companies have also relied on private harassment and intimidation. Activists reported intimidation in the form of threatening phone calls, stalking, or surveillance by private security. Others spoke of physical damages to their homes or workplaces, or attacks on family members. A lawyer who leads the social movement against mining in La Libertad said he received threatening phone calls from a company manager, and claimed to local media that assailants showed up at his house and cut his sister’s face to intimidate him and dissuade his leadership. (He remains anonymous for safety precautions.)

An elected official I interviewed, who strongly opposes a large mining company in Cajamarca, said he could not even answer the phone anymore, given the frequency of the death threats he received, which he said have caused him psychological distress. Several mining company managers at one firm, who asked to remain anonymous, told me they had deeply infiltrated and “kept intelligence” about activist organizations. As one said to me, “In Tía María, protest leaders were recorded accepting bribes, then blackmailed and exposed by companies. The same thing happened here in town. We had to show their true face.” For most activists who reported these kinds of experiences, such tactics have strengthened their resolve to fight the companies. But others have seen the threats as a good reason to demobilize and keep quiet.

Activists have also blamed company actors of plotting the murders of environmental protesters in Piura and Cajamarca. Human rights activists claim that the frequent murder of environmental activists in Latin America cannot be considered coincidental or isolated. More than 270 people were killed in Peru’s social conflicts between 2006 and 2016, with about 70% of these conflicts related to extractive industries, according to the country’s human rights commission. However, in the majority of cases, deaths occurred at the hands of police and military forces, not private actors.

When I asked company representatives and police about assassinations of local leaders, many of them said execution orders are not corporate decisions, but that these actions are generally perpetrated by people with vested interests in silencing detractors. In some extreme cases, however, company managers and employees have directly armed their local supporters and their private security. For example, in the case of the Vale Do Rio Doce company’s Miski Mayo project in Cajamarca, the company formed and armed “defense groups.” The practice has also been documented in other parts of the Americas.

Channeling Conflict

These methods serve to suppress conflict, as opposed to resolving or transforming it. Moreover, even forms of community engagement strategies that purport some benefit, such as CSR investments, usually go hand-in-hand with cooptation, repression, and delegitimation strategies. While such strategies allow companies and the state to keep conflict at bay, they merely create a smokescreen of peace. Ultimately, they postpone and may exacerbate the tensions that underlie company-community relations. This often can lead to a boiling point, when affected peoples can resort to increased militancy. As such, eruptions of violent conflicts are merely symptomatic of underlying everyday tensions.

Though the majority of residents I talked to in mining districts said they were offended by the arrogance and impunity of mining operations in their towns, most claimed that they are not anti-mining or anti-development. Rather, they wanted results from the promise of development: they wanted companies to tighten their environmental standards, expand community participation, and invest more in sustainable economic activities like agriculture. Moreover, they demanded that companies stop cheating the population with inflated-valued buildings or free hot chocolate.

If they want to do more than create a façade of peace, companies must provide communities with meaningful consultation. They should be required to gain informed consent by a democratic majority, as verified by the state and independent monitors. They should promote participatory monitoring opportunities for the communities that accede to their projects. And finally, they should be ready to pay their hosts: for example, through paying higher taxes aimed at promoting local wellbeing, sustainable resource management, and alternative development.

Leave a comment

Filed under Environmental impact, Human rights

Mine LOs Upset Over Change In Meeting Venue

Jerry Sefe | Post Courier | August 17, 2018

The landowners of Yanta and Hengambu in the Wafi-Golpu mining have agreed to work with the district and province to do what is right for the benefit of the mine.

The landowners, who did not attend the consultative meeting in Kokopo, described the forum as political maneuvering that was not in their interest.

Landowner representative Being Sombe alleged that there were suspicious deals made during the meeting.

Mr Sombe said since the closure of the meeting, they were not briefed or informed by their landowner association leaders on the discussions at the meeting.

“We are waiting for them to tell us why the meeting was taken to Kokopo and what was discussed and passed for the benefit of the impacted communities,” said Mr Sombe.

The landowners also questioned Bulolo MP Sam Basil and Morobe governor Ginson Saonu on why the consultative meeting was moved.

The leaders told landowners they were not happy with the move in meeting venue.

The leaders after discussions on the Kokopo forum assured the landowners to work with the provincial government to protect their interests.

Mr Basil said the authorities in mining areas will be engaged as stakeholders to represent the landowners’ issues and spearhead positive drive for landowners benefits in the mine.

They also admitted they were not properly consulted on the meeting to be held in Kokopo but were surprised to be invited.

“We must not repeat what has happened at Hidden Valley, whatever meetings for Wafi-Golpu mining in future must be held in Lae,” the leaders said.

Leave a comment

Filed under Human rights, Papua New Guinea

Alluvial Miners Concerned Over Lack Of Financial Backing

Government failing to support alluvial miners with access to loans

Benny Geteng | Post Courier | August 15, 2018

Concerns have been raised by alluvial miners on their inability to borrow money from financial companies to fund their operations.

They said when they approached banks or other financial institutions for assistance, they were usually turned down.

The Alluvial Mining Sector in 2017 generated over K300 million and that figure can double if good financial backing is provided for them to boost their operations.

Edward Buasin of EDHI Limited said they sometimes lacked financial capacity and borrowed from local loan sharks who ended up making huge returns on their finances significantly marginalizing the land or resource owners driving them below the poverty scales.

“Because the banks see us as an unpredictable source of income so we are usually left out to be funded when seeking loan assistance.

“I had been an illegal miner in the past, but now with the support of MRA have registered a fully recognised SME in alluvial mining and have a mining lease as well,” Mr Buasin said.

Mr Buasin highlighted several impediments that developers face in illegal mining:

  • Difficult to contain costs due to competition;
  • The exposure was great, could not take out insurance on equipment or personnel as there was no legitimate documentation to substantiate our activity;
  • Increased idle time due to ongoing complaints ranging from disputed boundaries to all sorts of social issues; and
  • For those who knew the Mining Act they were constantly on the guard.

Another leaseholder of Sandy Creek in Wau said he had tried to access a loan from a bank but was turned away.

“My brother a coffee farmer applied for a loan was approved, but me as an alluvial miner, I was rejected.

“My plea to the Government, is please put money where your mouth is as we the alluvial miners have the potential to make a significant contribution to our economy.

“Any policy change must start from ground zero which is the lease holders or through its Associations such as the Morobe Goldfields Small Scale Miners Association,” he said.

Leave a comment

Filed under Financial returns, Papua New Guinea

Morobe Leaders Unite On Wafi-Golpu Project

Benny Geteng | Post Courier | August 15, 2018

Several Morobean MPs including Governor Ginson Saonu have taken a united stand in calling for more Morobean presence in the Wafi-Golpu Mine Project.

This is first time ever for Morobe leaders to come together to show their concerns on the technical advisory and spinoff benefits from negotiations, construction phase, and the development of the Wafi-Golpu Project located between Bulolo district and Huon Gulf district.

The MPs – Morobe Governor Ginson Saonu, Bulolo MP Sam Basil, Huon-Gulf MP Ross Seymour, Tewae-Siassi MP Dr Kobby Bomareo, Nawaeb MP Kennedy Wenge and Lae MP John Rosso.

The emerging Morobe position aims to address lessons from the Bougainville Copper Limited and the crisis it ignited, the Ok Tedi Mining environmental issues that fueled the exit of BHP Billiton, landowner issues affecting the PNG LNG Project and the Hidden Valley Mining Project including other mines that will all be captured in a memorandum of agreement.

They have called for disclosure of pertinent information and engagement instead of limiting Morobe Provincial Government and the landowners to positions on Extractive Industries Transparency Initiative, special support grants and cooperation and assistance to the State and the developer.

“As leaders and stakeholders, we need to have in-depth information and knowledge to formulate our positions on matters of equity, royalties, business development grants, employment and training, compensation payments and infrastructure developments.

“We also need to know the source and independent checks that formed the basis of the figures used in the financial model and benefits by Department of Treasury. Inclusion of future ore discovery prospects, its implications on mine life and related financial benefits,” the leaders said.

Governor Saonu has expressed further concern that the recent second Wafi-Golpu Mining Development Forum in Kokopo has sparked criticism from Morobeans and said that from now on all meetings will be held in either Lae or Morobe.

“If we hold meetings outside of Lae and or Morobe we will fuel unnecessary suspicions among Morobeans that we have things to hide.

“Mining Minister Johnson Tuke has already taken note of this matter and has told Mineral Resources Authority and the Department of Mineral Policy and Geohazards Management in Kokopo to take note and not hold Wafi Golpu Mining Project related meetings outside of Lae and Morobe,” he said.

The MPs have taken the strong stance that the MOA to be signed must be right, and that as stakeholders and host province they demand access to the draft mining development contract before it will be signed by the Head of State and developers.

Leave a comment

Filed under Financial returns, Mine construction, Papua New Guinea

Alluvial Gold, Silver Production Up

Benny Geteng | Post Courier | August 15, 2018

The alluvial gold and silver production for the year 2017 achieved the second highest revenue figure of K356 million since the records were reviewed this year.

Mining Minister Johnson Tuke said this placed the alluvial sector in 5th place by revenue when compared to major mines operating within PNG.

“This is evidence of both the status and potential for the alluvial sector within PNG.”

Mr Tuke spoke to delegates during the 4th Alluvial Convention and Trade Show in Lae yesterday stressing that while it was unfortunate that the price of gold is ever reactive to world events, trade, and political influences such as the prospect of a full blown international trade war currently has dropped off its highs of the first six months of 2018.

“Despite this, production in the alluvial sector was recorded as 93,080 ounces of gold and will be exceeded and revenue forecasts suggest revenue over K400 million in a calendar year.”

Mr Tuke said last month the Mineral Resources Authority Act 2017 was gazetted.

He said amongst other policy changes this revised legislation has raised alluvial levy to 0.5 per cent from 0.25 per cent.

“The additional levy funds will enable further policy development within the sector and a wider reach for the small scale mining training.

“Every alluvial mining operation is a small or medium enterprise whether it be a simple panning and sluicing operation or a more complex and sophisticated mechanised development supported by an alluvial mining lease for alluvial purposes and a tribute agreement,” Mr Tuke said.

He further highlighted MRA shares his desire to see the mining SMEs grow and prosper and develop into productive business.

Mr Tuke said the mining advisory council at its last meeting in 2017 approved a trial of a newly established alluvial lease and tributer monitoring committee.

“This committee with additional funding available is to assist failing tenement holder and tributer joint venture arrangements to re-establish trust and confidence, provide fiscal advise and facilitate resolution of disputes.”

He said the outcome is hoped to be successful ventures which in turn lead to transparent, well managed, and productive operations with profits available for distribution in the communities supporting the alluvial venture.

“Furthermore the proposal for development and tribute agreement templates developed by MRA to assist alluvial miners to lodge an application have been reviewed this year.”

The process he said was undertaken to capture common issues faced by applicants and to give them greater control of their mining operation and fairer and more transparent commercial terms.

Leave a comment

Filed under Financial returns, Papua New Guinea

Papua New Guinea’s disappearing resource revenues

Foreign owned mining companies are raping PNG – in 2017 the government received just K400m from exports worth K25 billion.

 Glenn BanksMartyn Namorong | Devpolicy Blog | August 15, 2018

Government revenues from Papua New Guinea’s mining, oil and gas sector have essentially dried up. With the ongoing effects of the devastating earthquake in Hela province, the eruption of election-related violence in the Southern Highlands, a significant budget shortfall, and a foreign exchange crisis driving business confidence down, the resources of the government are severely stretched… and the massively expensive APEC meeting looms in November.

In this context, the drop in government revenue from the resource sector is staggering, and accounts in significant part for the growing fiscal stress. Figure 1 shows the extent of the issue: in 2006-2008, according to BPNG figures, the government collected more than K2 billion annually from the sector by way of taxes and dividends, on mineral exports that had just topped K10 billion for the first time. In 2017, the figure is just K400 million on exports of K25 billion – a revenue reduction of more than 80% in the same time that exports have increase by 150%! Government dividends and corporate taxes made up just 1.6% of the value of exports in 2017 (and that was a significant increase over 2015 and 2016). If we take the long-term average share of the value of exports that the government has received (at a little over ten percent), this points to a potential ‘hole’ of at least K8 billion over the past four years, an amount that would go a long way to covering the current fiscal deficit.

Figure 1

Source: BPNG. Resource revenues are defined as “MRSF receipts,” that is, the receipts that used to go into the Mineral Resource Stabilisation fund. Even though the MRSF no longer exists, BPNG still records resource revenues, which include corporate tax and dividend payments from resource companies.

There are some precedents for the rapid drop in government revenues from the sector, as Figure 1 show. In 1990 and 1991 – just as the ‘resources boom’ triggered by the Porgera gold mine and oil production at the Kutubu oilfield began – revenues collapsed, largely due to the closure of the Bougainville copper mine in 1989; and again, briefly in 2009 due to the onset of the global financial crisis in 2008. But neither of these has been as deep or as sustained as the current hole.

A full explanation of the precipitous decline in resource revenues is beyond the scope of this analysis. Clearly, a number of factors are involved, including a fall in commodity prices, major construction and expansion costs (which attract accelerated depreciation provisions) and generous tax deals. The revenue dry-up of the past four years also reveals that the State bears a disproportionate share of the risks associated with resource projects and investments. If we go back to the original intent of the post-Independence mineral policy, it was to translate mineral wealth into broad-based development across the whole country:

‘…known mineral resources should be developed for the revenue they can provide to the Government’ (PNG Department of Finance 1977: 2).

This clearly has not happened in the last four years. And certainly the Treasurer can’t be critiqued for commissioning yet another fiscal review: this seems appropriate, although whether it effectively addresses broader issues of a ‘fair share’ of mineral wealth remaining in PNG remains to be seen.

While there is much less money coming from the resources sector, there is at least better data than there used to be. The Extractive Industries Transparency Initiative (EITI) is a global initiative begun in 2002 to give transparency to what were regarded as often opaque flows of resource revenues from multinational companies in the extractives sector (especially oil) to the state in the countries in which they were operating. It is a voluntary initiative in which countries (and companies) can elect to become a ‘candidate’ country, and so long as they are able to be compliant with EITI standards, they can be admitted as a full member of EITI. The key requirement is to be able to report in a reliable way (through third party audits) on the revenues paid by companies, and reconcile these with payments received by the different arms of the state. The involvement of all parties – companies, governments and civil society – and public communication around the event and its products is also seen as central to both transparency and raising awareness of the nature of resource revenues and their destination.

PNG initiated its involvement in EITI in 2012. Four annual EITI reports have so far been produced (for the years 2013 to 2016). These reports provide an increasingly rigorous and transparent set of data on flows from the sector to the government, and identify additional revenue streams to the government than what BPNG use (and have used for the past 40 years). When all the additional revenue streams that EITI identify are included, the total share of the value of mineral exports rises to around 6.5% for 2017, up from the 1.6% based on the BPNG data. EITI is not without its problems and the most recent PNG country report identifies areas where it needs to be strengthened in PNG, and a focus on companies rather than operations can lead to the obfuscation of total flows and payments from each mine, oil and gasfield. In the PNG context, an examination of the sub-national flows and audit trails is also significant, and an initial study into this is underway.

One surprising revelation from EITI is that the single largest revenue stream from the mining, oil and gas sector to the government for at least the last two years has been so-called “group taxes”: the taxes paid on the wages and salaries earned by employees in the sector (Figure 2). These were worth more than K500 million in both 2016 and 2017, and in 2016 represented 34% of the revenue streams from the sector to the government, as identified by EITI. This is significantly more than the K46-88 million in corporate income taxes, K200 million in dividends paid to the State, or the almost K200 million paid in royalties in 2017. These group taxes are likely to be a more stable revenue stream than taxes or dividends – the workforce is unlikely to expand and contract to the extent that it impacts on the taxes they pay (leaving aside construction phases), or at least not as much as global commodity prices and profitability. But – and here we come back to the issue of PNG securing a fair share of its mineral endowment – this is a tax on the labour used to extract the resource, not a means of necessarily securing a direct share of the value of the resource itself.

Figure 2

The second area where EITI has revealed some interesting questions is around the operation of the Infrastructure Tax Credits (ITC). ITC originated in the sector in 1992 when the Porgera Joint Venture negotiated with the state to use a portion of their taxable income to directly provide infrastructure for surrounding local and provincial governments in exchange for a tax credit on this spend. Over the years the value and the uses of the ITC have varied, including at times supporting various national projects, and has been the subject of debates in various reviews as to its value. In 2016, four companies reported expenditures of K135 million in tax credit projects to DNPM[i], a significant amount that could well have contributed significantly to local and provincial development aspirations… but we don’t really know given the relatively poor reporting of the outcomes of these expenditures. More significantly, though, it is difficult to reconcile the size of these expenditures with the actual taxes paid by the four companies, which come in at well under K100m in total. That tax credits have come to exceed tax payments should ring alarm bells, and would explain why the government has in fact put a temporary stop on them.

Going forward, we would suggest two additional areas of focus, based on the above analysis. This first is local procurement. What is clear from the EITI reports (and earlier work by Banks (1990) on BCL) is that extraction of minerals is an expensive process, and a significant amount of the value of the mineral resource is spent by the companies on the labour, machinery, fuel, food, and the multitude of other costs needed to extract and export the mineral resource. An analysis from the last year of the Bougainville Copper Ltd mine at Panguna revealed that an estimated two thirds of the value of the mine accumulated directly outside Papua New Guinea, and indirect or second round spending would increase this (Banks 1990: 108). Imported materials and services made up 23% of the total value of the gross revenue of the minerals exported, cost of sales (all spent offshore) another 13%, depreciation 8% and dividends to non-PNG shareholders 12%. Local content spend on materials and services sat at just 5.5%, less than a quarter of the equivalent imported costs, while in total local wages and salaries were around two-thirds of the expatriate salary costs, despite the much greater numbers of local employees.

A long-standing objective and challenge for the State has been to find ways to ensure a larger proportion of these capital and operating costs are spent on PNG-based labour and other inputs. Plans at most of the major operations have been successful in localising the workforce significantly, hence reducing imported labour (and costs) at operations over time, although foreign labour continues to be important during construction. In terms of the goods, services and materials used to construct and operate a mine though, there appears to be scope to increase the proportion that is spent and retained locally. In large part this is tied to corporate and state support for a stronger local small business sector that can effectively service these mines (and potentially service the growing extractives industry across the Pacific).

The second area to which attention needs to return is the Sovereign Wealth Fund (SWF). This Fund, which would serve the dual function of saving a component of the resource revenues and having a portion committed to developmental needs through the budget, is in place (in terms of the legislation for it) but has not yet been implemented by the government. This well-proven mechanism for translating immediate resource revenue into a long-term sustainable fund can play a critical role in reducing the volatility of flows to the government. Ironically it may be that the factor holding back the government from moving on its implementation is the dire need for all the resource revenues right now. But neither is it sensible to wait for revenues to return to high levels before initiating the SWF: it will almost be certain that political and bureaucratic processes would delay the first flow of revenue to such an extent that several years’ worth of revenues that could kick start the fund would be lost. In other words, in many ways this period of low revenue is an excellent time for the Fund to begin.

So, the answer to the question of where have all the resource revenues gone, is not a simple one. The EITI reports show that a range of factors at the different operations (accelerated depreciation, tax holidays, ITC and re-capitalisation in plant expansions etc), have impacted on the revenue flows to government. To this we can add global commodity price drops, a compromised fiscal regime and some less-than-transparent governance structures and processes. The fact remains though, that over the past four critical years in its development, Papua New Guinea has missed out on a ‘fair share’ of the value of its mineral resources that have been extracted.

[1] Although confusingly there are different figures recorded as tax credits claimed by the companies from IRC – where the total credit offset against tax from three of the four companies come to K54million.

References:

PNG Department of Finance (1977), Financial Policies Relating to Mining and Mining Tax Legislation: Statement of Intent. Waigani: October.

Banks, G. (1990), Minerals and Development in Papua New Guinea. Unpublished MSc Thesis, Department of Geography, University of Canterbury.

1 Comment

Filed under Financial returns, Papua New Guinea