Monthly Archives: May 2019

New PNG leader aims to ‘maximise gain’ from resources sector

Despite the rhetoric of a leadership challenge is the new PM really going to change PNG’s addiction to elite politics and large-scale resource extraction?

Tom Westbrook | Reuters | 30 May 2019

  • Parliament elects ex-finance minister James Marape
  • Critic of major gas deal, plans to review resource management
  • Peter O’Neill resigned on Wednesday after weeks of turmoil
  • Concerns over benefits from resources not reaching the poor 

Former finance minister James Marape was elected prime minister of Papua New Guinea on Thursday, and the critic of a major global gas development deal vowed to review management of the nation’s resource riches.

Marape received 101 votes to eight in parliament in the capital, Port Moresby, a day after Peter O’Neill resigned having lost the support of the house after almost eight years in power.

Marape, who hails from the poor but gas-rich highlands of the South Pacific nation, said he would focus on “taking back our economy” and proposed an overhaul of mining, forestry and fishing laws.

“We will look into maximising gain from what God has given this country from our natural resources,” he said in his maiden address to parliament.

“I have every right to tweak and turn resource laws for my country, then it will empower my citizens as well,” he told the chamber to cheers and applause.

Political instability is not unusual in the poor but resource-rich country, but Marape’s resignation from cabinet in April tapped into growing concern over governance and resource benefits not reaching the poor.

Those concerns ultimately led to O’Neill’s downfall.

Marape told a news conference after he was sworn in at Government House that any changes to laws would not be retrospective.

But he has previously questioned an agreement with French oil company Total in April, which allows Total, Oil Search Ltd and ExxonMobil Corp to begin work on a $13 billion plan to double gas exports.

“We are not here to break legally binding project agreements,” he told reporters when asked if he would consider reviewing another gas deal with Exxon critics say has failed to benefit landowners and the government.

However, he added: “If we find any project agreement … that has not fully complied with proscribed provisions of law, then we are open to reviewing and scrutinising them,” he said.

“We are not about breaking laws. We are about honouring existing laws.”

Exxon has said it does not comment on politics. Oil Search and Total did not immediately respond to requests for comment.

Business leaders in Papua New Guinea offered cautious support for the new leader.

“He was finance minister so understands need for clarity and stability in policies,” Isikeli Taureka, chairman of Kinabank and a former oil and gas executive at Chevron and InterOil, said in a text message.

“I believe he is rational and seems to lean towards respecting and grandfathering current agreements,” he said.

The political uncertainty has knocked almost 6% from shares in Oil Search, an Australian partner in large liquefied natural gas developments in PNG, since the challenge to O’Neill gained traction last week.

Oil Search shares climbed in early trade, but turned negative after Marape’s election to trade 0.7 percent below Wednesday’s close in a falling broader market.

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Fisheries and environmental organizations issue joint call for moratorium on #DeepSeaMining

EU Reporter | May 29, 2019

Seas At Risk and the Deep Sea Conservation Coalition (DSCC) welcome the call for a moratorium on deep-sea mining in international waters by the Long Distance Fleet Advisory Council (LDAC) of the European Union. In calling for a moratorium, the LDAC highlighted concerns by scientists, the fishing industry and environmental organisations over the potentially severe impacts on fisheries, fish and other species in the oceans and inevitable loss of marine biodiversity from deep-sea mining. The Executive Committee of the LDAC adopted the advice to the European Commission and member states at its meeting in Poland last week and have publicly released.

The International Seabed Authority, an intergovernmental organization established under the UN Convention on the Law of the Sea, is in the process of developing regulations that would permit mining the international areas of the deep ocean seabed.

Matthew Gianni, co-founder of the Deep Sea Conservation Coalition, said: “Fishing industry representatives and NGOs in Europe are jointly raising concern with EU member states and the international community over the prospect of deep-sea mining and its likely impacts on fisheries and the marine environment. Scientists have warned that biodiversity loss will be inevitable and likely permanent on human timescales if the International Seabed Authority begins issuing licenses to mine the deep ocean seabed for metals such as copper, nickel, cobalt and manganese.”

The LDAC recommended that no deep seabed mining in the international areas of the ocean seabed under the jurisdiction of the International Seabed Authority should be permitted until:

  • The risks to the marine environment are fully assessed and understood;
  • a clear case can be made deep-sea mining is necessary and not simply profitable for companies or countries that want to mine, and;
  • international commitments to conserve and sustainably use the oceans, strengthen the resilience of marine ecosystems, and initiatives to transition to circular economies, sustainable methods of consumption and production and related efforts as called for the in the UN’s Sustainable Development Goals 2030 Agenda are recognized.

The LDAC further called on the European Commission and member states to stop funding, facilitating or promoting the development of deep-sea mining and deep-sea mining technology.

Seas At Risk Deputy Director Ann Dom said: “We count on the EU member states to take to heart the call for a moratorium by the European Parliament and the fisheries sector, and to put it firmly on the agenda of the upcoming annual session of the International Seabed Authority.”

The LDAC endorsed a European Parliament resolution adopted in 2018 which also called for a moratorium on deep-sea mining and reform of the International Seabed Authority (ISA). In January of this year, echoing similar concerns, the UK House of Commons Environment Audit Committee released a report stating that deep-sea mining would have “catastrophic impacts on the seafloor” and that the ISA stands to benefit from revenues from issuing mining licenses which the Committee viewed as “a clear conflict of interest”. 

John Tanzer, leader, Oceans Practice, WWF International, said: “A moratorium on seabed mining – given its inherent risks and how little is known about life on the sea floor – is just plain common sense, and particularly in light of recent global biodiversity assessments showing the planet is suffering unprecedented species loss that will have profound impacts on nature and humanity at large.”

The Long Distance Fleet Advisory Council (LDAC) is an EU fisheries body representing stakeholders of both the fishing sector (including catching, processing and marketing sectors, and trade unions), and other groups of interest (environmental NGOs, consumers and civil society). Several DSCC member organizations, including Seas At Risk, WWF, Oceana, Bloom Association, are members of the LDAC.

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Papua New Guinea turmoil puts LNG projects at risk

The government of prime minister Peter O’Neill appears to be in jeopardy with opposition MPs set to hold a no-confidence vote against him in parliament next week

Political crisis threatens to delay $12bn-$14bn expansion led by ExxonMobil and Total

Jamie Smyth | Financial Times | 28 May, 2019

ExxonMobil Corp and Total SA have become embroiled in a political crisis in Papua New Guinea that risks delaying a $12bn-$14bn expansion of the nation’s liquefied natural gas industry. 

The government of prime minister Peter O’Neill appeared to be in jeopardy with opposition MPs set to hold a no-confidence vote against him in parliament next week. Mr O’Neill on Tuesday applied to the Supreme Court seeking an injunction to block the move, which could bring an end to his eight years in charge.

The revolt by the opposition, which says it has the numbers to bring down the government, was sparked in part by allegations Mr O’Neill mishandled the financing of the LNG projects.

Analysts warn that if he is ousted, there could be a delay in finalising the requisite contracts for the multibillion-dollar expansion that is critical to the Pacific nation’s finances. The Supreme Court is due to hear Mr O’Neill’s appeal on Friday. 

David Low, an analyst at Wood Mackenzie, forecast that the prime minister’s resignation would delay first gas from the LNG projects by as much as two years, to beyond 2025. 

Any delay would be a blow to the oil majors, with Wood Mackenzie projecting 2019-20 will be record years for LNG investment decisions, unleashing 100m metric tonnes a year of new capacity. The risk is that the PNG projects miss out on this wave of investment and a new administration seeks to extract more taxes or royalties from the projects.

“While we still expect the project to go ahead, the political turmoil opens the door to competing projects and increases the risk of knock-on delays,” Mr Low said.

ExxonMobil and Total are spearheading the PNG LNG and Papua LNG projects, in partnership with Australian listed resources companies Santos and Oil Search, spending an estimated $12bn-$14bn on expansion.

The opposition MPs support development of the projects for the investment they would bring to the resources-rich but poverty stricken country. But they have demanded Mr O’Neill stand down after a report, drafted by the PNG Ombudsman and leaked to the press, that concluded Mr O’Neill acted improperly by securing a A$1.2bn ($831m) loan from UBS to buy shares in Oil Search in 2014 without seeking formal parliamentary approval.  

According to the Ombudsman — an independent body established under the constitution that protects citizens’ rights against administrative injustice — the PNG government used the loan to buy a 10 per cent stake in Oil Search, enabling the company to buy into a gasfield being developed by Total.

Oil prices subsequently crashed, and the government lost hundreds of millions of dollars when it sold the shares in 2017 during a fiscal crisis that forced widespread cutbacks.

“The A$1.2bn UBS deal represents all that is wrong with Peter O’Neill’s prime ministership,” Mekere Morauta, an opposition MP, told the Financial Times. “PNG did not benefit. It lost K1bn ($297m).” 

UBS declined to comment on the loan, on which the bank earned A$100m in interest and fees. Finma, the Swiss financial markets regulator, said: “It is familiar with the financing business mentioned, and we are in contact with the bank”. 

Mr O’Neill did not reply to a request for comment. He has previously denied that the loan was unlawful, saying the matter had been clarified in parliament and the ombudsman investigation was “flawed”. 

Oil Search said on Tuesday it had breached no laws, and no allegations had been made against the company or its officers. It said that contrary to the requirements of PNG law, Oil Search and others were not contacted by the Ombudsman Commission during its investigations or given any opportunity to provide evidence or comment. 

Kevin Gallagher, chief executive of Santos, said forecasts of a two-year delay were “pure speculation” and there was no indication the PNG government wanted to delay anything.

ExxonMobil and Total did not immediately respond to requests for comment.

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Academic Urges Govt To Revisit Tax Regime

Post Courier | May 28, 2019

The recent political tussle in PNG has emerged due to inconsistent resource development policies, mainly the disagreements on local fiscal contents associated with the extractive sector, explains an academic.

Senior Lecturer Dr Ken Ail Kaepai of PNG University of Technology said from Lae that PNG needs to critically revise the minerals taxation regimes to develop sound policies and innovative ways of capturing a significant share of the mineral wealth without placing tax burdens on the industry.

“The political tussle between the government and opposition is not new. During the mineral boom periods, Australia had its share of high political turnovers due to arguments over resource rent tax and royalty policies.”

“The idea of national ownership of resources has been People Progress Party’s (PPP) policy platform for maximizing the mineral wealth for PNG.

However, PPP has not pursued it for a policy shift. Currently, the political mindset thinks that equity participation is one way to accommodate national interests com- pared to allowing 100 per cent foreign ownership of PNG’s mineral resources,” he said.

He said that the lack of capital for exploration and project developments restrict the national ownership of mining, oil and gas. The State and landowners do not have the equity capital for procuring equity interests in resource projects.

Dr Kaepai explained that given the limitation, the State has agreed to acquire 22.25 per cent interests in the Papua LNG through a deferred payment of the equity capital, which includes the landowner’s 2 per cent interest.

“The State will bear landowner’s financial burden of their equity interest through KPHL. It means that the landowners will be free-riders at the expense of the State and the society at large.”

“Under this arrangement, the dividends will be delayed over more extended periods required for allowing the State to repay the equity capital sourced from external lending institutions or will enable the investor to recoup its equivalent equity capital cost internally using future positive cash flows from the project.”

Dr Keapai said that the deferred payment of the equity capital shifts the financial burden of providing the upfront capital cost of equity to the investor.

The State’s market capitalization of equity participation in minerals, petroleum and LNG is not clear, and landowner equity participation has been problematic,” he stressed.

Dr Kaepai said that the Panguna was the only mine that consistently paid equity dividends until its premature closure in 1988.

“Local equity participation in Porgera and Lihir gold mines have been problematic and unsustainable, while free-carried interest was offered to OK Tedi landowners under exceptional circumstances associated with the riverine tailings disposal system.”

Dr Kaepai said that a former mining minister, the DMPGM and the MRA misled the GoPNG to take the 30 per cent equity in the failed Nautilus Minerals’ under-sea mining development.

“It is a significant loss of public funds that could have been used to develop the deteriorating health and education infrastructures in rural PNG.”

“It appears that the GoPNG provides tax holidays as compensation for equity participation, and at the pretence of attracting foreign direct investment. “This strategy causes a fiscal dissipation where both tax concession and equity participation could lead to wasteful resource extraction.

“The State and landowners need to critically assess the financial viability of equity participation in Papua LNG, Wafi-Golpu and Frieda projects.

This includes the renegotiation of the Porgera gold mine on a case by case basis.

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Political disarray in Papua New Guinea rocks Oil Search shares

Tom Westbrook and Sonali Paul | Reuters | May 27 2019

Political turmoil in Papua New Guinea threatened to delay a $13 billion plan to double the country’s gas exports, sending shares in one of the project’s partners, Oil Search Ltd, down nearly 4% on Monday.

PNG Prime Minister Peter O’Neill said on Sunday he would resign after weeks of high-level defections from the ruling party. Sir Julius Chan, twice a former premier, would take over as the government’s leader, O’Neill said.

Political instability is not unusual in Papua New Guinea and has not held back mining and energy investments in the resource-rich country, however protests over benefits failing to reach rural areas have dogged the government and project owners.

It was not clear whether Chan could command a majority in parliament when it resumes on Tuesday.

“We will not choose him. It’s a really bad choice,” opposition lawmaker Allan Bird told Reuters in a text message.

“We want a complete break from O’Neill (and) Chan is just a proxy for O’Neill,” he said.

Chan said on Monday he had been approached by both the government and the opposition to take the role.

“This is not a position I am seeking,” he said in a statement. “However, I love Papua New Guinea, and there is a desperate need right now to unite the country … and to make the wealth of this country work to the benefit of the people of this country.”

O’Neill had resisted calls to resign for weeks but his opponents said on Friday they had rallied enough support in parliament to oust him over a range of grievances, including a gas deal agreed in April with France’s Total SA.

The deal with Total set the terms for developing the Elk and Antelope gas fields, which will feed two new liquefied natural gas (LNG) production units at the PNG LNG plant, run by ExxonMobil Corp.

At the same time, ExxonMobil and its partners are planning to build a third new unit at the PNG plant, to be partly fed by another new gas field, P’nyang.

Credit Suisse analyst Saul Kavonic said the political upheaval could put pressure on the government to negotiate tough terms for the P’nyang gas agreement, which is yet to be finalised, and affect talks on development costs.

“Both these factors heighten the risk of delay,” he said in a note to clients.

Any delays in the P’nyang agreement could hold up a final investment decision on the PNG LNG expansion, which is set to double the plant’s capacity to 16 million tonnes a year.

The uncertainty sent shares in Oil Search, a partner in PNG LNG and Papua LNG, down as much as 3.9% in early trading on Monday. Energy stocks rose 0.6%.

ExxonMobil and its partners had hoped to begin basic engineering planning for the expansion by mid-2019 and make a final investment decision in 2020.

They are racing against projects in Mozambique, Qatar, North America and Australia to produce LNG from the expansion by 2024 to fill an expected gap in the global LNG market. ExxonMobil and Total both have LNG projects elsewhere that could take priority if PNG politics delays them, Kavonic said.

RBC analyst Ben Wilson said he did not think a final investment decision in 2020 was at risk yet and played down the threat that the PNG opposition would seek to renegotiate the LNG agreement.

“Sanctity of contract is critical to ongoing investment in PNG and to the success of future potential sovereign bond issuances,” Wilson said.

Total and Oil Search representatives were not immediately available to comment.

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Kutubu LO’s See No Improvements Despite Oil Flowing For 26 Years

Kutubu LO’s Want Govt To Honour LNG Deal

Post Courier | May 27, 2019

The people of Kutubu have supported the economy of the country but the living conditions are still the same. The people who have never complaint before are now calling on the Government to help improve their lives.

Spokesman and young Kutubu landowner Asi Ibisubu say since 1989, the start of the Kutubu oil project, successive governments have ignored the plight of the people.

He said the wealth of Kutubu has and will continue to support the economy and improve the welfare of other Papua New Guineans so long as the oil and now the gas for the PNG LNG continues to flow.

Ibisubu says the Government should now consider the people of Kutubu and seal the road from Poroma to Moro and beyond so that the people travel on good seal road.

He said the Government should also consider running power (electricity) from Mendi to Kutubu so the people can use the opportunity to improve their lives.

“While we have oil flowing from Kutubu for 26 years, there is nothing to show for and what we ask is if the two project can be considered for the benefit of the people. We still live in Kunai thatched house and continue to live in our traditional way of life after 26 years. There is nothing to be proud of, unlike landowners in the Middle East who owns private jets. While we don’t aspire to be like them, at least we see improvements in our lives would make wonders. We would also appreciate if the laws are changed so it gives us a better deal to improve the lives of the people,” he said.

Ibusubu is also calling on the government to honour many of its commitment made to the PNG LNG project.

The said they have been quiet for a long time but they feel the road sealing and the electricity rollout projects are important for the people of Kutubu to help improve their lives.

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Scientists fear impact of deep-sea mining on search for new medicines

Microbes from deep-sea sponges could be a breakthrough in the fight against superbugs. Photograph: Office of Ocean Exploration and Research

Bacteria from the ocean floor can beat superbugs and cancer. But habitats are at risk from the hunger for marine minerals.

“On deep sea vents, scientists are clear – we don’t want mining on them. There are thousands of species of deep-sea animals living there and new species are being discovered all the time.”

Karen McVeigh | The Guardian | 20 May 2019 

When Prof Mat Upton discovered a microbe from a deep-sea sponge was killing pathogenic bugs in his laboratory, he realised it could be a breakthrough in the fight against antibiotic resistant superbugs, which are responsible for thousands of deaths a year in the UK alone.

Further tests last year confirmed that an antibiotic from the sponge bacteria, found living more than 700 metres under the sea at the Rockall trough in the north-east Atlantic, was previously unknown to science, boosting its potential as a life-saving medicine.

But Upton, and other scientists who view the deep ocean and its wealth of unique and undocumented species as a prospecting ground for new medicines, fear such potential will be lost in the rush to exploit the deep sea’s equally rich metal and mineral resources.

“We’re looking at the bioactive potential of marine resources, to see if there are any more medicines or drugs down there before we destroy it for ever,” says Upton, a medical microbiologist at the University of Plymouth. He is among many scientists urging a halt to deep-sea mining, asking for time to weigh up the pros and cons.

“We know sponges are a very good source of bioactive bacteria so I would say they would be a good source of antibiotics and anti-cancer drugs too. In sustainability terms, this could be a better way of exploiting the economic potential of the deep sea.”

Oceanographers using remotely operated vehicles have spotted many new species. Among them have been sea cucumbers with tails allowing them to sail along the ocean floor, and a rare “Dumbo” octopus, found 3,000 metres under the Pacific, off the coast of California.

Upton estimates it could take up to a decade for a newly discovered antibiotic to become a medicine – but the race towards commercial mining in the ocean abyss has already begun.

The deep sea, more than half the world’s surface, contains more nickel, cobalt and rare earth metals than all land reserves combined, according to the US Geological Survey. Mining corporations argue that deep-sea exploration could help diversify the supply of metals, including cobalt for electric car batteries, presently mined in the Democratic Republic of the Congo, where child labour is common. Demand for copper, aluminium, cobalt and other metals, to power technology and smartphones, is soaring.

So far, 29 licences for exploration activities have been granted by the International Seabed Authority (ISA), a UN body made up of 168 countries, to promote and regulate deep-sea mining. No commercial exploitation licences have been granted yet, but one firm, Global Sea Mineral Resources, has said it needs regulations in place by next year to start mining in 2026.

Last week the ISA’s legal and technical commission gathered in Pretoria, South Africa, for a workshop to develop environmental standards for a draft mining code, which will create the framework for exploitation. Michael Lodge, the organisation’s secretary general, has promised regulations will be finalised by 2020.

But many fear this is moving too fast. Mining could devastate fragile ecosystems that are slow to recover in the highly pressurised darkness of the deep sea, as well as having knock-on effects on the wider ocean environment. Critics have called for a 10-year ban on commercial mining.

Kristina Gjerde, a high seas policy specialist at the International Union for Conservation of Nature, is deeply concerned over the lack of environmental protections in the draft code. “We’re just blindly going into the dark, adjusting any impacts on the way,” says Gjerde. “We have no assurances, no evidence that they can avoid serious harm.”

A cross-party group of MPs wrote in January that deep-sea mining would have “catastrophic impacts” on habitats and species and concluded that the case for such activity had not yet been made.

A study published in January found that soft sediment in the Clarion-Clipperton Zone (CCZ) in the mid-Pacific, where most exploration licences have been granted, could take up to 10 times longer to resettle than previously thought, meaning sediment is likely to travel farther in the water column before it resettles, affecting marine life over a much larger area.

Dr Kerry Howell, a colleague of Upton’s at the University of Plymouth, is working on a model to try to predict where on the sea bed important species such as Upton’s sponge lie. “We don’t have all the information we need” says Howell, a deep-sea ecologist. “Our project will look at which species might be important and which may be impacted by mining. If the models work, we will know where they are and we will know what they can do, and we can make decisions about whether mining can go ahead.”

Her work is part of a £20m five-year programme, funded by the UK’s Global Challenges Research Fund. “We are writing regulations in a severe absence of knowledge of the ecosystem,” she warns.

Howell also receives funding, for separate research, from a deep-sea mining company, UK Seabed Resources, which is a subsidiary of the UK branch of the US aerospace and defence company Lockheed Martin. This is also important work, she acknowledges, but scientists simply do not know enough yet.

“Most deep-sea scientists are concerned at the speed at which the development of regulations is happening,” says Howell.

Britain’s partnership with UK Seabed Resources holds licences to explore a total of 133,000 sq km of the Pacific sea floor, more than any government apart from China, according to analysis by Unearthed, Greenpeace’s investigative arm. The licences are in the CCZ, the site of one of the world’s largest untapped collections of high-value metal ores. The area contains trillions of potato-sized black lumps called polymetallic nodules, containing cobalt, nickel, copper and manganese.

Dr Jon Copley, associate professor at the National Oceanography Centre Southampton and a contributor to the BBC’s Blue Planet II series on marine life, is studying hydrothermal vents. Formed when seawater meets magma, and the sites of massive sulphide deposits, these vents are one of three different resources of the deep sea being administered by the ISA.

“On deep sea vents, scientists are clear – we don’t want mining on them,” he says. “There are thousands of species of deep-sea animals living there and new species are being discovered all the time.”

Roughly 400 new species have been found at active hydrothermal vents since 1977.

Copley believes science has moved on since the ISA, whose members are parties to the 1982 UN convention on the law of the sea, began its work in 1994. He questions whether the agency is fit for purpose, when part of its mandate is to promote seabed resources “for the benefit of mankind”.

“The ISA was set up on a false premise – that there is a vast wealth down there that could be used to address social injustice. But it is quite possible the enterprise will increase the gap between rich and poor. At what point do we say: ‘Hang on, is this a good idea?’

“I can understand why the ISA doesn’t want to scare off investors by being heavy-handed on environmental protections. They have to deliver the benefits to the developing world. They have to be very careful.”

Environmentalists point to last year’s designation of the “Lost City”, an area under the Atlantic and one of the world’s most important sites of scientific interest, as part of a mining exploration zone, and are sceptical of the ISA’s environmental credentials.

Louisa Casson, an oceans campaigner for Greenpeace, says that the deep sea is comparable to rainforests in terms of carbon sinks, which are vital in combating climate breakdown. Casson says: “We haven’t heard any reassurances from mining companies or the ISA about how they might handle this potential risk. Last year, the ISA granted Poland an exploration licence in an area highlighted by Unesco. Right now, it seems to be serving the interests of the companies.”

The ISA has said there was no suggestion Poland was going to mine in this area and that part of the exploration licence was to conduct environmental studies.

In a statement to the Guardian, Lodge says that, where mining activities are concerned, the ISA is taking “all necessary measures” under the UN convention on the law of the sea “to ensure the effective protection of the marine environment, including marine biodiversity, from harmful effects”.

“An extremely important part of ISA’s mandate is ensuring appropriate environmental assessments and safeguards in the activities it regulates,” he says. “No seabed mining will take place until such elements have been agreed by all 168 member states.”

Lodge says the money the ISA receives from proposed royalties or other finances will be shared for the benefit of member states, particularly taking into account the needs of those that are “least developed and landlocked”.

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