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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1 Comment

Filed under Financial returns, Papua New Guinea

One response to “Academic Urges Govt To Revisit Tax Regime

  1. Richard Manfredi

    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.
    YES ENVIRONMENTAL LUDITES , KNOW NOTHINGS , AND GENERAL MORONS , KILLED A GREAT OPPORTUNITY TO PROVIDE LOADS OF MONEY TO GoPNG. SEA WATER AND SAND ( BASICALLY ) UP THEN SQUIRTED BACK , NO CHEMICALS , SEDIMENT SETTLES. WAIT FOR ONE OF YOUR PERIODIC EARTH QUAKES , SEE HOW MUCH OCEAN FLOOR SEDIMENT IS KICKED UP, COME BACK IN MONTH TO SEE HOW MUCH HAS SETTLED. WHEN YOU REALIZE NATURE SELF HEALS, SEND YOUR PRESIDENT, SOME GUARDS WITH GOLD,AND BRING NAUTILUS OUT OF BANKRUPTCY, AND BE SOLVENT .

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