Official: Minerals not yielding for PNG

 

The National aka The Loggers Times | January 13, 2020

A SENIOR official says Papua New Guinea has missed out on a lot of the potential benefits that should have flowed to the State from mineral revenue.

Secretary for Department of Mineral Policy and Geoharazd Management Harry Kore said this was unfair.

“Assessments and comparative analysis of other countries of similar standing as PNG has demonstrated that PNG has missed out on a lot of the potential benefits that should have flowed to the State,” he said.

“Our people need to understand these facts.

“The numbers don’t lie.”

Making reference to Extractive Industry Transparency Initiative (EITI) 2017 Report, Kore said information on the EITI report was “very valid”.

“The diagram of the percentage of the benefit, a mere seven per cent is a major paradigm shift in PNG’s perception of the benefits we’ve been deriving from the extractive sector over the years,” he said.

“This just does not equate to a fair share.

“We have always thought the extractive sector was the major contributor to the economy, which is very true with the volume of export (86 per cent); but when you look at the EITI Report, only a mere seven per cent out of the total is Government revenue.

“The figures per se of the actual kina value may seem quite significant but it is the percentage contribution against these other measures that is our focus to ascertain whether we are getting value for the minerals exported.”

Pruaitch Says PAC Faces Daunting Task On KPHL

Post Courier | September 23, 2019

National Alliance Party leader Patrick Pruaitch says the Parliament’s Public Accounts Committee will face a daunting task when it looks into the financial a airs of Kumul Petroleum, which holds the government’s 16.57 per cent stake in the PNG LNG Project.
Mr Pruaitch said the Marape government has taken a responsible stance by rejecting claims by Kumul Petroleum that it is not answerable to the PAC inquiry chaired by Sir John Pundari.

“I have raised several issues with regard to the financial affairs of Kumul Petroleum, which is the only state-owned enterprise that operates as though it is not accountable to anyone even though every toea that it has rightfully belongs to the people of PNG,” he said.

“The financial accounts released by Kumul Petroleum, covering the period from 2014 to 2017, indicates that it has been in receipt of over K5 billion as a result of government equity in the PNG LNG Project. Only a tiny portion has been returned to the government as dividends and corporate tax.

“It has now come to my attention that the 2017 annual accounts of Kumul Petroleum, which have been endorsed by the Auditor-General, discloses that total revenue it received from PNG LNG in 2017 was US$411 million, or approximately K1.37 billion.

“However, the 2017 annual report from the Government’s Extractive Industries Transparency Initiative (EITI) shows that it received K2.097 billion from PNG LNG, suggest- ing under-reporting of 2017 revenue by over K700 million.

“Has there been an accounting problem or has this money simply vanished? An additional discrepancy is that the Kumul Petroleum 2017 accounts show the company paid US$56.74 million in corporate tax in 2017, while EITI only records a payment of K13.3 million, as confirmed by the Internal Revenue Commission.”

Mr Pruaitch said it was notable that key agencies that have not cooperated with the government mandated EITI process have been Kumul Petroleum and the Bank of Papua New Guinea, which has been recipient of landowners’ royalty payments from the PNG LNG Project.

Mr Pruaitch, who recently left his position as opposition leader to join government, said it was praiseworthy that Prime Minister Marape has shown a determination to ensure that government bodies, such as Kumul Petroleum and Mineral Resources Development Company, were transparent and accountable.
Former prime minister Sir Mekere Morauta has raised a series of issues regarding the operations of MRDC and Prime Minister Marape has agreed to hold a public inquiry into MRDC.

The National Executive Council has also instructed Kumul Petroleum to appear before the PAC inquiry.

Govt Not Receiving Fair Share: Study

Sources of revenue from extractive sector to government. Source: EITI

Post Courier | August 5, 2019

A recent study based on the PNG Extractive Industry Transparency Initiative (PNGEITI) Reports have found that the PNG Government is not receiving its share of resource benefits and recommended government broaden its economic base in order to increase its bargaining power in current and future extractive projects.

The research study titled: Does the PNG government get its fair share from the resource sector? -was presented at a public seminar at the Institute of National Affairs in July to an audience representing Government, Industry and Civil Society stakeholders.

It focused on the Government’s ability to increase its bargaining power in its current and future planned resource projects.

The study was undertaken by Economists, Associate Prof Martin Davies at the university of Washington and Lee and Dr Marcel Schroder economics lecturer at Lebanese American University.

Both researchers are also guest lecturers at the University of Papua New Guinea and the Institute of National Affairs.

The researchers constructed a new database based on the PNG EITI annual reports that documents fiscal resource revenues for a large set of resource rich countries from 2006 to 2017.

“Using this dataset, we analysed the PNG governments’ take from the resource sector and study its determinants through a simple game-theoretic model as well as regression analysis.

This allowed us to make comparisons between Papua New Guinea and other resource rich developing countries,” said Prof Davies.

“Salary and wage tax is largest payment received. Papua New Guinea is the only country in our database of 50 countries where this is the case. Corporate income tax and royalties seem unusually low,” said Dr Marcel Schroder.

The study provided potential Fiscal Regime recommendations.

“PNG is a developing country which means funds for crucial spending such as infrastructure, health and education are needed today rather than tomorrow. Therefore, avoid deals with MNCs that lead to extreme back-load of fiscal take,”

They also recommended avoiding giving too many incentives (loss carry forward arrangements, tax concessions, treating royalties as advance income tax, etc.) and recommended that the State reconsider zero rating GST.

“Many resource rich countries derive significant revenue through GST.

It is also relatively easy to administer. Consider relying more on royalties on sales.

“They have many advantages with Revenue flows today vs tomorrow, they are more stable than income tax and other payments and they are relatively easy to administer,” said Prof Davies.

The study encouraged the audience to understand reasons behind low income tax payments. Is it only due to fall in commodity prices.

“There seems no mechanism for government to benefit from exceptionally high commodity prices (e.g. additional royalty, excess profit tax). Therefore, in future, if deal offered by MNC isn’t attractive, valid to leave resources in the ground for later,” said Dr Marcel Schroder.

The researchers further provided economy-wide policy recommendations.

Researchers investigate PNG government’s share of revenue from resource projects

‘We advise that PNG and other developing countries should raise more from royalties and less from company income tax because royalties come up front’

Liam Fox | Pacific Beat | Radio Australia | 30 July 2019

Listen to the Audio: Researchers investigate government’s share of revenue from resource projects (2.23 MB)

A new research project indicates the PNG government gets significantly less revenue from resource projects than other developing countries.

Two economists, Dr Martin Davies and Dr Marcel Schroder, are drawing on information published by the Extractive Industry Transparency Initiative, EITI, to see whether the PNG government gets its fair share of revenue generated by the resource sector.

They’re examining the break-up of the different sources of the revenue; corporate income tax, royalties, government equity and social contributions, that is taxes on the wages of workers in the resource sector.

In 2017 corporate income tax accounted for just 5% of resource-related revenue, royalties contributed 11 per cent, government equity brought in 28% and a third of government revenue was derived from social contributions.

“What that demonstrates is that PNG is getting a small amount of revenue, abnormally relative to our sample of EITI countries, from corporate income tax, royalties and government equity,” Dr Davies said.

In comparison Mongolia gets 37 per cent of its resource revenue from royalties, Chad 38% and Timor Leste 58%.

Dr Davies says the figures show the deals the PNG government has struck with multinational mining and energy companies to develop resource projects are “back-loaded”.

“Which means that you don’t get revenue for a period of time while the companies recoup their development costs,” he said.

“So we advise that PNG and other developing countries should raise more from royalties and less from company income tax because royalties come up front.”

Wafi-Golpu Could Be First To Incorporate EITI Provisions

Matthew Vari | Post Courier | November 30, 2018

The Wafi-Golpu Mine is set to be the very first gold project to incorporate the Extractive Industries Transparency Initiative provisions included in the agreements for the Wafi-Golpu Joint Venture projects set for the Morobe province.
PNG EITI National Secretariat head Lukas Alkan said this early this month when commenting on the push by government and the PNG EITI secretariat to ensure the initiative is rooted in current and future project prospects to ensure effective transparency on revenues in the extractive sector.
“Some of these projects are new projects where the forums are being conducted like Wafi-Golpu and the Freida River.
“The transparency mechanism has been, we are trying to build into those agreements. We started off with Wafi-Golpu project.
“The MoA negotiation that is ongoing there is a provisions there for EITI for reporting purposes in terms of disclosing project agreements,” Mr Alkan said.
He said the secretariat was also looking at the reviews being conducted with Pogera and the other mines.
“We also look at ensuring that transparency mechanisms are built into those revised agreements.
“This is the first time that we are trying to tie in the EITI mechanism into a project that is yet to start.
He said, on the same token, project agreements that have already been signed, the secretariat continues to have difficulties getting disclosure.
“The need for work on certain legislations and the requirements that prevent bodies such as EITI from having access will need to be done in order to have access,” Mr Alkan said.
A learning curve the secretariat will ensure the country maintain transparency with the country’s new major projects earmarked within the next decade.
“This time around we have been proactive to ensure that when the new project is coming on-stream we are making sure that EITI mechanisms are built into those MoAs or agreements so that triggers the disclosure of the agreements when they are signed,” he said.

Industry to reveal real owners of mining companies by 2020

The National aka The Loggers Times | October 30, 2018

Papua New Guinea is set to reveal real owners of extractive companies.

This comes after the conclusion of an Extractive Industries Transparency Initiative (EITI) roadshow on beneficial ownership disclosure in Madang recently.

A beneficial owner in respect of a company means the natural person(s) who directly or indirectly owns or controls a corporate entity.

A beneficial owner is always the living, breathing human being who ultimately profits from the company’s activities, or controls the company’s activities. It is never a company, other legal entity, or a nominee/proxy.

A roadmap is being executed by KPMG – the roadmap implementation manager – to develop a reporting matrix to feature beneficial owners in PNGEITI reports starting 2020, as required by the EITI global standard.

Head of National Secretariat of EITI Lucas Alkan said: “By 2020, companies applying for or holding a participatory interest in an exploration or production of an oil, gas or mining license or contract in an EITI country must report the details of the beneficial owner, (ie the human beings who own, control or substantially benefit from these companies and interests), as well as identifying any ‘politically exposed persons’ with a direct engagement in regulating, setting laws, tax rates, negotiating contracts etc.

“More than 50 EITI member countries have published their plans for how to disclose the real owners of companies in their extractive industries, which will require establishing legal and institutional arrangements for application, including establishing registers of such real owners.

“The Madang roadshow was part of implementation of a BO roadmap to identify an appropriate reporting process to enable PNGEITI name beneficial owners in its reports.

“We had presentations from Mineral Resources Authority, Department of Petroleum, Bank of Papua New Guinea, Investment Promotion Authority, PNGEITI National Secretariat, Institute of National Affairs and the BO Roadmap Implementation Manager KPMG.

“I commend the MSG constituents and other relevant State agencies for their presentations and discussions on issues relating to revealing beneficial owners in EITI reports and the approach going forward.

“As required by the EITI global best practice standard – to report the ‘beneficial owners’ in 2020 like other EITI implementing countries – I am positive that PNG will have been fully prepared by then to meet this important reporting requirement.”

Owners Of Extractive Companies To Be Identified

Post courier | 10 July 2018

Work is underway to identify beneficial owners of extractive companies operating in Papua New Guinea, says the PNGEITI multi stakeholder group (MSG).

The PNGEITI is cooperating with an international auditing firm KPMG as the implementation manager to execute a beneficial owners (BO) roadmap.

The roadmap is aimed at establishing a reporting matrix to feature beneficial owners in PNGEITI reports starting 2020- as required by the EITI International.

A beneficial owner in respect of a company means the natural person or persons who directly or indirectly owns or controls a corporate entity. A beneficial owner ultimately profits from the company’s activities, or controls the company’s activities. It is never a company, other legal entity, or a nominee or proxy, says PNGEITI.

“By 2020 companies applying for or holding a participatory interest in an exploration or production of an oil, gas or mining licence or contract in an EITI country must report the details of the beneficial owner (persons who own, control or substantially benefit from these companies and interests), as well as identifying any ‘politically exposed persons’ – these are politicians or officials or their family members or agents, with a direct engagement in regulating, setting laws, tax rates, negotiating contracts etc.”

“More than 50 EITI member countries have published their plans for how to disclose the real owners of companies in their extractive industries, which will require establishing legal and institutions arrangements for application, including establishing registers of such real owners,” said PNGEITI head of National Secretariat Mr Lucas Alkan.

PNG Sweats On Meeting EITI Global Reporting Standards

Lucas Alkan and the 2016 EITI Report

Post Courier | May 1, 2018

Officials from the Extractive Industry Transparency Initiative (EITI) International Secretariat in Norway will be in the country today to begin a week-long consultation with relevant stakeholders for Papua New Guinea’s EITI validation.

PNGEITI head of National Secretariat Lucas Alkan said the officials will meet and consult with government agencies, extractive companies, civil society organisations, journalist and academics to gauge their feedbacks on EITI implementation to prepare PNG’s Validation report.

Mr Alkan said, “The purpose of validation is to drive reforms in the extractive sector, access performance and promote dialogue, identify opportunities to increase the impact of EITI implementation, identify opportunities for mainstreaming EITI implementation in government systems and safeguard the integrity of the EITI.

The validation will determine whether PNG has made meaningful progress in implementing EITI global reporting standards or have little or no progress at all.

“On behalf of the members of the PNGEITI multi stakeholder group and its chair Charles Abel, I am happy we have made progress in terms of inducing reforms either directly or indirectly through the EITI process,” Mr Alkan said.

Other government initiative such as the review of the Infrastructure Tax Credit Scheme and the Department of Finance review of Government trust accounts goes hand in hand with PNGEITI recommendations.

“These are the progresses so far and we want to see more done to bring about global best practices into the mining and petroleum sector for better management and use of revenues derived by the sector.

“Our desire for EITI in Papua New Guinea is long term- to making sure that EITI serves a useful function in the extractive dependent PNG economy,” Mr Alkan said.

Transparency Initiative report calls for improved systems in extractive sector in Papua New Guinea

Sources of revenue from extractive sector to government. Source: EITI

Business Advantage | EMTV | 4 April 2018

The 2016 Papua New Guinea Extractive Industries Transparency Initiative report has found that improvements are being made to registry and payment systems in Papua New Guinea, but more needs to be done. It notes that budgeting for government revenues remains difficult because of the resources industry’s volatility, and the relatively small number of companies paying full tax.

The EITI report, which is produced by Ernst & Young, says that ‘in some cases, the absence of a robust system for managing government revenue payments in PNG leaves the system vulnerable to fraud, corruption, and human error.’

It found that the problem of transparency is amplified when payments to sub-national [provincial and district] governments are taken into consideration, noting that the Asian Development Bank has called for greater transparency in sub-national government resource revenue flows.

Budgeting

Budgeting for government revenues, the report says, from the extractive sector is ‘complex due to the revenue being subject to fluctuations in quantities produced and global commodity prices’.

A further issue is the high number of extractive companies that have some form of tax exemption.

‘Medium-term projections anticipate that corporate income tax (mining and petroleum tax) will come mainly from Ok Tedi, Porgera and the oil fields.

‘The Ramu Nico mine has a 10-year exemption from corporate income tax. The Lihir mine continues to undertake high capital expenditures which reduce its taxable income.

‘Low LNG prices, together with an accelerated depreciation allowance, means there may not be corporate income tax from the PNG LNG project.

‘In addition, key mines are claiming Infrastructure Tax Credits (ITCs).’

PNG oil and gas production. Source: EITI

Recommendations

The EITI report makes a number of recommendations. One was the implementation of a reliable electronic registry system to supersede the current paper ledger system.

The report noted that scanning of all documents has begun, but it will require additional resources to adhere to the EITI Standard.

‘The Department of Petroleum and Energy will need to provide information regarding licences awarded and transferred in previous reporting periods.’

Another recommendation has been that the Mineral Resources Development Company (MRDC) reports on the equity distribution and all other funds it holds in trust and invests for the landowners and for future generations.

It notes that there has been better information on payments and receipts, especially from the MRDC.

Making electronic payments, rather than using cash or cheques, is identified as a priority. The lack of a ‘robust system for managing resource payments leaves the system vulnerable to fraud, corruption and human error,’ the report says.

‘There were specific financial instructions from the Finance Minister for government agencies to heed this change and transition into electronic payments system where possible.’

Two other areas of focus are improving reporting on sub-national payments and ensuring that Memorandums of Understanding (MOAs) are made public.

Positive prospects

The EITI report says the medium-term economic outlook for PNG ‘remains positive, with foreign investments in the pipeline’.

It anticipates 2.8 per cent GDP growth in 2018, pointing to:

• A gradual pick-up in the global economy, which is expected to boost commodity prices and stimulate activity in sectors outside resource extraction.
• Increased output in mining.
• Forecast growth in agriculture, forestry and fishery output of 3 per cent, with increases in both price and production.
• PNG’s hosting of the Asia-Pacific Economic Cooperation Leaders’ Meeting in 2018.
• Legislative changes introduced on 1 January 2017 on taxation of the extractive sector.

EITI Report Launched

Mathew Vari | Post Courier | March 19, 2018

The PNG Extractive Industries Transparency Initiative (EITI) national secretariat launched its 2016 and 2015 reports last Friday.
Treasury Minister Charles Abel was on hand to launch both reports as the head of the secretariat Lucas Alkan delivered the progress of the country to the global initiative.
In launching its fourth report, Alkan said the Multi Stakeholder Group (MSG) agreed to publish the reports together as both reports will be used by the EITI International Secretariat to assess PNG’s progress in implementation the initiative in the country.
“EITI International started taking this thing up to make sure that companies that are operating in the countries we should know who is the owner, the shareholders, these are the things that EITI international has made a requirement for us to take on board as an implementing country,” Mr Alkan said.
“We are also conducting sub national payments. We have been concentrating at a national level of payments and transfers taking place.
“But we are all aware that a lot of the transactions happen down the line past the national level to provincial local and district resource revenues so we need to put some light into what is happening, accountability, transparency got onboard,” he said.
The PNG EITI national secretariat was established NEC when PNG applied for membership 2014 and the international secretariat accepted the country as a candidate.
“The reports have been covering the revenue streams and reporting entities. Reporting revenue streams like corporate income tax, group tax, mining and petroleum tax all these things are being reported in this reports.
“We are reporting on companies that are in production and exporting these commodities and not exploration activities.
“There is a section on legal framework and fiscal regimes tax arrangements and taxation legislation governing the extractive sector activities in the country management and distribution of revenues, how the money from the resource sector gets into the budget.”
Mr Alkan said the documents are not just reports but need to be translated to actual reforms that matter to the country as far as transparency, accountability and governance is concerned.