Category Archives: Financial returns

O’Neill promises more delays for LNG payments

Landowners face more delays before receiving promised benefits

Royalty payments to be released after proper clan-vetting process done

The National aka The Loggers Times | 18 July 2018

PRIME Minister Peter O’Neill says royalty payments for landowners of the PNG LNG project will only be released after proper landowner identification is completed through the clan-vetting process.

O’Neill said this in Parliament yesterday when responding to questions from Sinasina-Yongomugl MP Kerenga Kua.
Kua said the Government had not honoured most of its landowner commitments under the umbrella benefit sharing agreement (UBSA).

That included non-payment of royalties and equities, infrastructure development grants, business development grants and the seven per cent equity participation.

Kua asked O’Neill whether Government had delivered all these commitments to the people of Hela and Southern Highlands.

The prime minister said his Government was committed to honour all commitments made by previous governments, “some of which are very misleading to landowners”.

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Ok Tedi funds not safe: MRDC a milking cow for people in Waigani

O’Neill clears air on K200m mine fund

The National aka The Loggers Times | 18 July 2018

PRIME Minister Peter O’Neill told Parliament yesterday that well over K200 million from OK Tedi Mine is currently accumulating in the Community Mine Continuation Agreement (CMCA) and non-CMCA trust accounts for the people of Western.

He said this in response to questions from Middle Fly MP James Donald on why Government had made a decision to transfer money in the CMCA and the non-CMCA trust accounts to Mineral Resource Development Company (MRDC).
Donald said he was very concerned because MRDC was a “milking cow” for people in Waigani.

“I asked the prime minister earlier on and he had given me and the people of Western province assurance that the funds were in safe hands,” he said.

“An NEC decision in June 2017 has stated that after the audits of the CMCA and the non-CMCA trust accounts, the balance of the funds, will be transferred to MRDC.

“I am very concerned that the prime minister has lied to me and the people of Western.

“MRDC is a milking cow for Waigani people and the funds are now in the wrong hands.”

O’Neill said what the Government tried to do was to correct gross mismanagement and misuse of funds in the CMCA and non-CMCA trust accounts over the past years.

He said hundreds of millions of kina belonging to Western people under CMCA and non-CMCA trust accounts had been mismanaged over the years.

“Those funds have never reached the people,” O’Neill said.

“That’s why we are trying to correct and stop this nonsense going on.

“The government has put a ban on the CMCA and non-CMCA trust accounts and conducted an audit.”

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Exxon’s Papua New Guinea Gas Project Is Dead In The Water

Tim Daiss | Oilprice | 16 July 2018

As liquefied natural gas (LNG) markets mature, trying to establish itself against decades of crude oil dominance, developments far removed from most of the action are taking unusual turns that could in time impact the entire LNG value chain.

Until recently, tiny Papua New Guinea (PNG) was the envy of the world’s LNG producers. Not only did its PNG LNG export project come online without much delay but it also avoided the quandary, affecting nearby Australia whose LNG development has been marred by budget over runs running into the billions, continual project start delays and industry troubling feuds between worker groups and project developers.

PNG LNG project loses its shine

The ExxonMobil-led $19 billion PNG project came online in mid-2014 and started shipping LNG to markets in the Asia-Pacific region, which accounts for 72 percent of all global LNG demand. By 2017, the project was producing some 8.3 million tonnes of LNG, an increase of 20 percent from the original design specification of 6.9 million tonnes per annum (mtpa).

By last year, ExxonMobil’s PNG project looked as if its success would be endless. However, that storied beginning has crashed and burned.

The first crack appeared just after a destructive 7.5 magnitude earthquake struck the country’s oil and gas rich interior, triggering landslides and flattening buildings, killing at least 100 people, prompting the PNG government to declare a state of emergency.

The quake also caused PNG LNG operators to stop operations to perform safety checks and repair damaged project infrastructure, which also impacted LNG markets in Asia at the time, particularly spot prices for the fuel.

PNG LNG swung back into operation by mid-April, but not without damage to the project partners’ reputation among villagers in the area which blamed gas drilling as either the main cause of the massive quake or at least as one of its main contributors. The region was also hit with a number of severe tremors in the weeks after the original earthquake.

PNG straddles the geologically active Pacific Ring of Fire, known for its geological volatility and earthquakes. Project partners, along with geologists, disputed the claims, but the goodwill that had been carefully won more than a decade ago has been lost and will be hard to win back, which has also leads to another point of contention.

Local angst

PNG government officials are now claiming that they received an unfair deal ten years ago when negotiating the terms of the PNG LNG project, and have vowed that any new projects going forward would not suffer the same fate. Peter Koim, head of the country’s Gas Project Coordinating Office and a member of the original negotiating team, said “there is a general view that Papua New Guinea gave away too much for the first LNG project. For the next round the country will not away concessions as was the case in the PNG LNG project.” 

Continuing the fallout, on July 5 Exxon Mobil said that it had stopped construction in late June on its Angore gas pipeline in the country’s strife-hit highlands, after building sites were vandalized.

“All work at the Angore well pads and pipeline construction has been suspended and all impacted personnel are in the process of being demobilized or reassigned,” an ExxonMobil PNG spokeswoman said. The 7-mile (11 km) pipeline is being built to connect the gas field with the Hides gas conditioning plant, and the stop work does not affect production there, she added.

Radio New Zealand also recently reported that Angore Tiddl Appa Landowners (a PNG landowners group) has advised the government that it must resolve a dispute over unpaid LNG gas project royalties by July 18 or the venture would be “closed permanently”.

The association is demanding from the government an “infrastructure development grant” of ($9.6 mn) 32 million-kina, equity shareholder certificates for traditional landowners, 2 percent royalties every month, and for the government to complete official clan vetting for the PNG LNG project.

The government has already offered 20 million kina to the land-owners and ordered the group to halt the protesting and unrest in Angore. The landowners, however, say that if their demands aren’t met they will permanently close the LNG project by blockades and destruction of its pipeline and other infrastructure.

The danger for ExxonMobil is not only how it will handle immense PR damage in the country, but also that local unrest and demands could spill over into future LNG development projects there. If PNG landowners can forge ahead and set a precedent, local landowners in other turbulent locations even globally, particularly in Mozambique, could follow, creating more difficult negotiations for affected oil majors and their projects.

In fact, not only do Western oil majors have to contend with landowners and decades of government bureaucracy and corruption in gas rich but still undeveloped Mozambique, casting doubt over the future of the country’s fledgling LNG sector, but Islamic militants are also striking back. The U.S. embassy in the country in late June said Americans should consider leaving a northeastern district close to a major gas field as imminent attacks are likely after suspected Islamist militants beheaded 10 people and killed seven others since May.

More than $30 billion is expected to be invested in Mozambique’s natural gas sector to build capacity to produce 20 million tonnes per year of LNG, with the first exports from the fields discovered seven years ago due to start after 2021.

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Australian miners in firing line of PNG law shake-up

The streets of Sydney are paved with Papua New Guinea’s gold

Jewel Topsfield | Sydney Morning Herald | 17 July 2018

Major Australian mining companies face the prospect of higher royalties, tough restrictions on fly-in fly-out workers and the potential nationalisation of assets under reforms under consideration by the cash-strapped Papua New Guinea government.

The proposed law changes have sparked warnings from the country’s peak mining body that they would pose “significant deterrents” to investment in future projects and “threaten the existing operations of current mines”.

Several Australian Securities Exchange listed companies including Newcrest, Highlands Pacific and St Barbara Limited operate mines in Papua New Guinea, which has significant resources including gas, gold, copper, cobalt and nickel.

Mineral exploration in Papua New Guinea

The PNG Chamber of Mines and Petroleum says the proposed changes to the Mining Act could clamp down on international fly-in fly-out workers, impose a right for the state to compulsorily acquire mining projects (on commercial terms) after 24 years and result in an increase in royalties.

It says some of the proposed changes – which have been under discussion for years – would have “severe negative impacts in the immediate and long term on both existing operations and proposed projects”.

But the Resource Owners Federation of Papua New Guinea claims existing laws are “primitive, unjust and self-harming”, and mining companies continue to reap benefits while keeping the landowners and citizens who own the resources poor.

PNG Deputy Prime Minister Charles Abel told Fairfax Media the government was concerned about a number of factors including increasing the share of benefits to landowners.

The Papua New Guinea resource industry is responsible for just 20,000 jobs in nation of over 8 million people.

“Any proposed amendment must address the underlying concerns and keep PNG competitive as an investment destination,” he said.

New copper and gold projects inlcuding the Newcrest-led Wafi-Golpu mine and PanAust’s Frieda River mine are currently awaiting special mining leases from the PNG government.

At an update last month Mr Abel said the PNG government was bringing on Wafi-Golpu, the expansion of a ExxonMobil-operated PNG liquefied natural gas plant and Papua LNG “under an improved fiscal template”.

The Wafi-Golpu project, a joint venture between Newcrest and Harmony Gold, is a key part of Newcrest’s future and is considered the company’s top growth asset.

Newcrest’s Wafi-Golpu joint venture mine in PNG.

Australian company PanAust holds an 80 per cent interest in the Frieda River copper-gold project, which has an estimated initial mine life of 18 years.

PNG Chamber of Mines and Petroleum executive director Albert Mellam said some of the proposed changes had undermined investor confidence in PNG.

“We are concerned that some of the draft amendments are internationally uncompetitive, are a serious deterrent to investment in future mining projects in PNG and will threaten the existing operations of current mines in the country,” he said.

Dr Mellam said the transitional arrangements were inadequate to protect existing operations and could affect permit applications that already been submitted. He also said businesses would have to wear increased royalties, fees and levies and “unreasonable penalties”.

He said the passing of legislation in February – which removed industry representation on the Mineral Resources Authority Board and doubled the production levy rate from 0.25 per cent to 0.5 per cent – had already created a “great deal of uncertainty in the minerals sector and for international investors watching PNG”.

“The industry has already observed a gradual decline of investment into mineral exploration over the past two years.”

Mr Abel, who is both the Treasurer and Deputy Prime Minister of PNG, told Fairfax Media the current system had yielded good returns to government from mining projects in the past but a number of circumstances had combined to greatly reduce these flows as a share of government revenue.

These included projects approaching maturation, tax concessions, low prices, PNG LNG and Lihir, the gold mine owned by Newcrest, accessing accelerated depreciation provisions and greater use of the tax credit scheme.

“The state is not necessarily seeking to increase its take but wants earlier returns and smoother flows at lower cost,” Mr Abel said.

The gold processing plant on Lihir Island in PNG. Photo: Reuters

“This may necessitate a tax regime that is more production based rather than profit, has longer depreciation periods, has an element of free carry equity and simpler, more transparent structural arrangements and doing away with tax concessions.”

Mr Abel said PMG also wanted to minimise international fly-in fly-out operations to retain more benefits in Papua New Guinea.

The proposal to reduce maximum mining licenses from 40 to 25 years was “still under consideration”.

Mr Abel said the government was determined to deliver Wafi-Golpu, the PNG LNG expansion and Papua LNG to early works and final investment decision by 2019.

“These and other imminent projects should be based on the current legal framework with negotiated terms to meet some of the requirements I mentioned.”

The Resource Owners Federation of Papua New Guinea said the Mining Act should be reviewed in its entirety, so the ownership of minerals was retained by customary landowners.

“Minerals can still be mined only after development agreements are reached between the landowners and mining companies,” it said in a statement.

“All parties then benefit from a project, in contrast to Papua New Guinea in the past and today, where the landowners are the ultimate losers.”

According to the 2018 PNG economic survey by the Australian National University and University of PNG, the country is experiencing an “urgent economic crisis” and a shortage of foreign exchange is worsening.

The economy is dependent on the resource sector, which makes up 30 per cent of GDP, but much of it is foreign owned and a large share of the benefits flow offshore.

“Since 2015, resources revenue (corporate taxes and dividends from mining and petroleum) have been at their lowest level since 1992,” the economic survey says.

It says accelerated depreciation and tax holidays meant new projects paid no or virtually no resource revenue but it was surprising that even older projects were paying very little revenue.

“On the one hand there are genuine concerns in PNG that the country and landowners haven’t been getting a good deal from resource projects and change is needed,” said Professor Stephen Howes, the director of the Development Policy Centre at ANU.

“On the other hand the economy is in a very precarious state and the government is desperately looking for stimulus from new resource projects. That’s the tension … I think the government is in a difficult position.”

Professor Howes said he did not believe big new projects would go ahead until the uncertainty was resolved.

“They want clarity on these issues because they are long-term investments and these issues are seen as very important.”

Austmine, the leading industry body for the Australian Mining Equipment, Technology and Services sector, said current macroeconomic conditions and mining regulations in PNG had proven to be “considerable roadblocks to investment, creating uncertainty and stifling exploration”.

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Morobe government eyeing 20pc stake in Wafi-Golpu mine

Junior Ukaha | The National aka The Loggers Times | 16 July 2018

THE Morobe government wants an equity of no less than 20 per cent in the Wafi-Golpu Mine.

Governor Ginson Saonu made this known last Wednesday during a two-day stakeholder forum in Lae regarding development of the proposed mine.

He said the Morobe government wanted to be an active partner in mine development.

“Apart from the legislated 2 per cent royalties, my government and people need better and attractive incentives in the form of equity,” Saonu said.

“We have made our position clear and have requested the National Government to acquire extra equity on top of the 5 per cent free carry.

“We are prepared to assist the Government to acquire this equity ourselves. We expect no less than 20 per cent equity in the project.

“We want to be a major partner with the Wafi-Golpu Joint Venture in the construction and operation phase of the project.”

Saonu also asked the Government to uplift the curfew on the tax credit scheme (TCS) programme so that money could be used to fund infrastructure projects in mine-impacted communities.

“In this case, we request that over 50 per cent of the TCS be used in Morobe alone and a further 20 per cent to be used in the SML areas of landowners and impacted communities,” he said.

He said the Morobe government remained committed to see this project get off the ground during this term of government.

Saonu thanked the project area and pipeline landowners for giving their land for the project.

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Basil wants Wafi-Gulpu not to repeat Hidden Valley mistakes

“Are they [Harmony Gold and Newcrest Mining] willing to admit the mistakes they have done up at Hidden Valley?” – Minister Sam Basil

Junior Ukaha | The National aka The Loggers Times | 13 July 2018

BULOLO MP Sam Basil says he does not want to see a repeat of problems faced by landowners of the Hidden Valley Mine to happen at Wafi-Golpu.

The Mineral Resources Authority, however, countered that the fault was with the landowners themselves.

Basil was speaking yesterday during the second day of the Wafi-Golpu Project Development Forum in Lae.

Basil, whose district hosts Hidden Valley Mine, said despite the mine operating for a number of years, living standards of the mine-area landowners had not improved.

He said the Biangai and the Watut people, traditional landowners of Hidden Valley, had not seen any tangible developments and benefits from the mine.

“We have not fixed the problems of Hidden Valley and now we are talking about Wafi,” Basil said.

“These two same companies that have mined Hidden Valley now want to mine Wafi. Are they willing to admit the mistakes they have done up at Hidden Valley?

“Is the Mineral Resources Authority willing to shoulder the blame so that we can forge a new way forward?

“Our landowners in Biangai and Watut are still walking around without money.

“They have not been given much.”

Basil said there was also the issue of environmental damage at Hidden Valley, which is now before the courts.

He said the two per cent royalty given to mine landowners was not enough and should be increased to five per cent.

“Before you present this document to us, you have to tell us the failures of the past mines,” Basil said.

“MRA needs to outline them and find a way forward.

“The benefits of the past projects, you have to tell us now?

“What steps are we going to take from here on?”

Basil urged landowners not to quickly sign the mine memorandum of agreement (MoA) but ensure they understood how it would affect their lives and those of their children.

Sean Ngansia, MRA’s executive manager of development coordination, said the problem was not with the authority but the landowner leaders.

Ngansia said Basil was referring to how royalties from Hidden Valley had been managed.

“We don’t necessarily manage royalties on landowners’ behalf,” he said.

“It (royalties) is usually given directly to the landowners through their landowner associations.

“The issue now is really about how these monies are managed.

“You will find that in Hidden Valley and all the other mines, the landowner association leaders are not managing their royalties well.

“There’s a lot of misuse and mismanagement. These leaders also do not report to their people and that’s where the problem is.”

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Fly-In-Fly-Out Causing Economic Loss

Post Courier | July 15, 2018

The PNG Resource Owners Federation has countered assertions made by the Chamber of Mines and Petroleum that the fly-in-fly-out employee commuter-based system employed by mining and petroleum projects in PNG is economically “balanced”, compared to the alternative of living on site.

According to the Chamber of Mines and Petroleum, FIFO provides the best balance of shared benefits to communities throughout PNG, not confined to host rural communities.

However, the PNG Resource Owners Federation maintains that it denies host rural communities of much need social and economic benefits.

Citing a 1997 study conducted by National Research Institute (NRI) on the economic impact of the FIFO of expatriate staff of one mining project in PNG, Federation president Jonathan Paraia said using the national income accounting equation, it is estimated that on average, the annual loss of national income is between K5.2 million and K13 million.

And considering the multiplier effect, the annual loss must be approximately K11 million and K29 million.

Mr Paraia said continuation of the FIFO system for a decade will cost the economy, including the multiplier effect, between K110 million and K300 million.

Mr Paraia said the economic benefits that could have been derived from a live-on-site arrangement would be employment in the informal sector, disposable income from FIFO employees, GST and other rates, taxes and fees, banking and financial services and trading, commerce and general business activity at all levels.

“The report further found that it was economically viable to build a township to accommodate the FIFO workers from this particular mine instead of the FIFO system.

“In that time, using the report’s formula, the country must have now lost between K253 million and K690 million over the period of the life of this particular project.

“The number would clearly run into many billions if all projects that practice the FIFO in the country are taken into account,” Mr Paraia said.

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