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As Gas Boom Falters in Papua New Guinea, China Steps In

A plant at the Exxon Mobil-led natural-gas project in Papua New Guinea. Government revenues from the $19 billion project, which began production in 2014, have fallen far short of estimates.

Faced with revenue crunch, country is relying on Chinese loans to develop ports, airports, roads and power stations; Beijing expands influence in Pacific

 Rob Taylor and Rachel Pannett | Wall Street Journal | August 11, 2018

When Papua New Guinea joined the ranks of the world’s significant energy exporters four years ago, the government was betting on a revenue windfall it hoped would transform the impoverished South Pacific nation better-known for jungles, violence and corruption.

But the payday from a $19 billion Exxon Mobil Corp. -led natural-gas project has so far been a trickle, crimped by a downturn in gas prices that allowed Exxon and its partners to claim losses against royalty payments.

To bridge the revenue gap and revive its slowing economy, Papua New Guinea has increasingly turned to China. The government now owes the state-owned Export-Import Bank of China close to $1.9 billion in low-cost loans for infrastructure and other construction projects, almost a quarter of its total debt. That has raised concerns the country’s growing indebtedness is allowing Beijing to further expand its influence in the Pacific.

China’s stamp on Papua New Guinea will be on show in November when Pacific Rim leaders, including President Donald Trump and China’s President Xi Jinping, gather in the capital, Port Moresby.

Delegates attending the Asia-Pacific Economic Cooperation forum will meet in a convention center built by Chinese workers and paid for with a Chinese grant. Official motorcades will travel on a six-lane boulevard constructed and financed by Chinese loans.

Papua New Guinea Prime Minister Peter O’Neill meeting with China’s President Xi Jinping in Beijing on June 21. Almost a quarter of the country’s debt is owed to the state-owned Export-Import Bank of China. PHOTO: POOL/GETTY IMAGES

“We took on APEC knowing it would be a massive challenge for such a small country,” said Charles Abel, Papua New Guinea’s treasurer and deputy prime minister. “It is a bold undertaking by our small country to introduce ourselves to the world.”

A former Australian colony of eight million, Papua New Guinea has long relied on foreign aid. The country has minimal infrastructure outside Port Moresby and companies typically negotiate terms with local landowners to gain access to resources—a knotty problem in a country with hundreds of ethnic groups.

The government has historically looked to Australia for assistance. The country, along with other APEC members, is also chipping in for the summit, covering about a third of the cost. Australia’s foreign minister, Julie Bishop, said the country wants to be the “natural partner of choice” for Papua New Guinea and other Pacific countries.

But China’s presence is becoming much more visible. Chinese loans have helped redevelop a port and airport in the second largest city, Lae. In November, China promised to build $3.5 billion of roads, a commitment that if realized would make it the country’s biggest aid donor, according to the Sydney-based Lowy Institute’s Pacific program. It also imports natural gas from Papua New Guinea and has invested in nickel mines, power stations and other projects.

During a visit by Prime Minister Peter O’Neill to Beijing in June, Papua New Guinea became the first Pacific country to sign up to China’s One Belt One Road, an initiative to build a global network of ports, railways, roads and pipelines. For Beijing, the program is a way to expand business and trade and extend strategic influence, in part by distributing loans.

Mr. Xi said during the visit that relations between the two countries had “entered a fast track, and political mutual trust and mutually beneficial cooperation have both reached a new level in history.” In July, Mr. O’Neill invited Pacific leaders to a meeting with Mr. Xi in Papua New Guinea ahead of APEC.

But China’s infrastructure push in the region has raised some alarms. A Chinese-financed building spree in Pakistan has been dogged by concerns about the country’s growing debt burden to Beijing. Sri Lanka’s government, unable to repay a Chinese loan for a port, last year granted a Chinese state company a 99-year lease on the facility.

The International Monetary Fund said Pacific nations including Tonga, Samoa and Vanuatu have significant debts to China and face repayment pressures. Papua New Guinea is no exception.

“The speed and scale with which China is acquiring natural resources and amassing debt raise long-term concerns,” foreign-policy scholars Gabrielle Chefitz and Sam Parker wrote in a May paper for Harvard Kennedy School’s Belfer Center for Science and International Affairs.

Standard & Poor’s in April lowered Papua New Guinea’s credit rating to B from B-plus, citing slower economic growth and expanding government deficits. It expects the ratio of government debt to gross domestic product to reach 40% by 2021 from 30% now.

Papua New Guinea’s Treasurer, Mr. Abel, said he has been closely following the loans offered by China to small Pacific nations. “There remains some concerns about the way that they do conduct business,” he said. “But in PNG’s case, we quite strictly manage our debt.”

A road damaged by a February earthquake near Mendi in Papua New Guinea’s highlands region. The earthquake killed more than 100 people. PHOTO: MELVIN LEVONGO/AFP/GETTY IMAGES

China’s Ministry of Foreign Affairs said its assistance to Papua New Guinea and other Pacific Island nations has been welcomed by their governments. “China has provided assistance, especially assistance without any political conditions, to the Pacific Island nations, including Papua New Guinea,” the ministry said. “It is not targeting on any third party.”

Mr. Abel, speaking of the Exxon-led gas project, conceded that for the hundreds of millions the government paid for its stake — through a state-owned oil company — “we have not had the corresponding revenue growth.”

Before production began in 2014, the country’s Treasury department estimated the project would boost government revenue by roughly $600 million, or two billion Kina, a year through 2021, rising to more than $1 billion, or 3.5 billion Kina, a year between 2022 and 2030. Instead, as of September 2017, roughly $45 million in royalties and development levies had been paid, according to the IMF.

“When commodity prices are depressed like they have been for the last few years, revenues to all joint venture participants, including government, are reduced,” Exxon said in a statement.

The shortfall has weighed on the commodity-dependent economy. The IMF in a December report estimated GDP grew 2.2% in 2017, down from 2.4% in 2016, far below the government’s predictions a few years ago that the country would grow 21%.

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Hides Landowners Unhappy Over K15M Disbursement

Hides Gas Conditioning Plant

Post Courier | August 1, 2018

The Hides Petroleum Development Licence 7 area facility owners in the Hela province are disgruntled over the manner in which the K15 million was paid out by the PDL 7 Local Level Government Special Purpose Authority.

The legitimate landowners on the ground claim to have missed out on the project security funds delivered by the national government to the PDL 7 landowners. The landowners said that the Hides Gas Conditioning Plant and the pipeline facility owning clans have missed out on their share of the funding where the funding had disappeared in the hands of the PDL 7 authority board members.

“The funds delivered by national government has gone to the Hides PDL 7 LLG Government SPA and its executives and not to the affected landowners”, said Mr.  Alembo Paliawe of the principal facility owning Tuguba Tagobali clan. The PNGLNG project facility landowners namely, Alembo Pliawe, Chief Mathew Yape, Chief Tara Paliwa, Chief Tiki Juli, Chief Parapu Mukani, Chief Enopi Haralu and Henry Parila, said that the funds were paid by the government to the government itself and not to the legitimate landowners.

They said that this approach taken by the government is a wrong precedence and that the clan vetting exercise should be put on hold until funds are made available to the legitimate landowners.

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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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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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Exxon halts work on PNG gas pipeline amid civil strife in highlands

Construction equipment in flames in Angore. Image courtesy of ATALA.

Reuters | 6 July 2018

Exxon Mobil Corp stopped construction on its Angore gas pipeline in Papua New Guinea’s strife-hit highlands late last month after building sites were vandalized, the company said on Friday.

“All work at the Angore wellpads and pipeline construction has been suspended and all impacted personnel are in the process of being demobilized or reassigned,” an ExxonMobil PNG spokeswoman said by email, adding it was halted late in June.

The 11-km (7-mile) pipeline is being built to connect the Angore gas field with the Hides gas conditioning plant, and the stopwork does not affect production there, she added.

Papua New Guinea’s government declared a state of emergency in the region last month and sent in troops after rioters went on a rampage protesting a failed court challenge to a provincial governor’s election.

Pictures on PNG’s EMTV Online in June showed burnt out heavy machinery and a fire burning in a shipping container at the site in Angore, which suffered “significant vandalism,” Exxon’s statement said. It gave no timeframe for the resumption of work.

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Tensions mount at PNG gas project as landowners threaten to close plant for good

Armed civilians at the Angore blockade, courtesy of ATALA.

Lucy EJ Woods | Mongabay | 4 July 2018

  • On June 21, a dispute over royalties led heavily armed civilian groups to set fire to construction equipment at the ExxonMobil-led PNG LNG project in the Papua New Guinea highlands.
  • Negotiations with the government on June 26 failed to ease tensions. All wellheads have now been closed down and ExxonMobil personnel are being evacuated.
  • The landowner group has set a new deadline of July 18 for a resolution with the government, after which they threaten PNG LNG will be “closed permanently.”

Landowners in Papua New Guinea’s Hela province have threatened to expand and escalate their blockade of a natural gas project there, after an attempt at negotiation fell through.

Plant operator ExxonMobil PNG confirmed to Mongabay that all wellheads and the Angore pipeline have been shut down and personnel evacuated.

On June 21, to “show frustration” over a decade-long, unresolved landownership dispute, heavily armed civilian groups set fire to construction equipment and blockaded a wellhead site in Angore.

The $19 billion PNG LNG (Papua New Guinea Liquefied Natural Gas) project is the largest resource extraction project to ever be developed in the country.

As a result of the unrest, all three of the wellheads in Angore and the pipeline have now been suspended “and all impacted personnel are in the process of being demobilized or reassigned,” a spokesperson from ExxonMobil PNG told Mongabay. This is “due to unacceptable acts of vandalism.”

The safety of “staff and the community is our first priority,” the spokesperson added.

The spokesperson also confirmed that the neighboring Hides gas conditioning plant was operating as normal.

Armed protesters at the blockade of the Angore LNG pipeline. Image courtesy of ATALA.

Stalled negotiations

On June 26, representatives from landowner group Angore Tiddl Appa Landowners Association Inc. (ATALA), including Marlex Au from the Jangali clan and Eric Mondoro of the Telia clan, traveled to the national parliament in Port Moresby to negotiate with Prime Minister Peter O’Neill.

ATALA is demanding from the government an “infrastructure development grant” of 32 million kina ($9.7 million), 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.

Instead, ATALA were met by public servants, offered 20 million kina ($6.1 million) and told to halt the protesting and unrest in Angore and to lay down their weapons. This meeting was “to stall,” says Gary Juffa, governor of Oro province and a prominent opposition leader.

ATALA manager Benson Pajilah confirmed to Mongabay that ATALA had notified the government that it must resolve the dispute by July 18 or the PNG LNG project would be “closed permanently.”

“If the government don’t listen to ATALA Inc., we have capacity to shut down Hides Gas Conditioning Plant and Komo Airport. That will shut down all of PNG LNG’s operations,” Pajilah said.

“We will shut [PNG LNG] down forever, we will burn everything,” said David Hayabe, a founding member of ATALA. “We will blow [up] the gas conditioning plant at Hides.”

Both Palijah and Hayabe have said ATALA can “raise all of Hela” to shut down PNG LNG. Papua New Guinea anthropologist and Hela expert Michael Main said ATALA had “an incredible amount of support” and was recruiting people to join the group, including by offering money.

With the support of the population of Hela, it would be possible for ATALA to blockade and shut down the Hides conditioning plant, Main said, as PNG soldiers “are outnumbered and outgunned.” Juffa told Mongabay separately that ATALA was better equipped than the PNG military and police.

If a resolution is not found soon, the dispute “could be the end game [for PNG LNG],” Main said.

In response to rumors that ExxonMobil PNG could exit the country, a spokesperson told Mongabay that the company was “committed to Papua New Guinea for the long term.”

The Angore Tiddl Appa Landowners Association Inc. (ATALA) says it represents 150 clans in Hela, numbering some 100,000 people. Image courtesy of ATALA.

Sending a delegation

In an attempt to quell the continued civil unrest and prevent the suggested closure of PNG LNG, a government delegation will head to Angore.

Although a date has not yet been confirmed, Hayabe said it was likely the meeting would be held in Angore on July 13, before the July 18 deadline imposed by ATALA on the government to respond.

If the government fails to meet the deadline, “There will be no PNG LNG gas project,” Hayabe said.

Juffa said the government was sending “a heap of people, public servants, to meet with [ATALA], but as of yet there are no firm commitments.”

For the use of its land to develop PNG LNG, the government owes ATALA “millions,” according to Juffa. To resolve the dispute, the government “will have to find that money somewhere,” he said. He also suggested the government delegation’s response appeared to be the result of pressure from ExxonMobil PNG in a bid to prevent further damage to its infrastructure.

Construction equipment in flames in Angore. Image courtesy of ATALA.

Demands center on the government, not ExxonMobil

ATALA says it wants to work together with ExxonMobil.

“We have no issue with Exxon employees, they can go home to their families. This is not their fight,” Palijah said.

Hayabe said he did not trust the government, and that it should have responded quicker.

“We gave the government two more weeks to respond,” he said, referring to the deadline extension to July 18.

An ExxonMobil PNG spokesperson previously told Mongabay it was encouraging “all parties to work together to ensure issues are being worked through in a peaceful and constructive manner.”

That may not be the case if the dispute remains unresolved by July 18, according to Hayabe. “Let the government come and kill all of us,” he said. “Still we will fight and die on our land, we are ready and fully armed.”

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Landowners attack gas project site in PNG again

Landowners blockaded a main road in Hela province, 19 June 2018. Image: Michael Passingan/PNG News

Radio New Zealand | 25 June 2018

Police in Papua New Guinea’s Hela province say landowners have again attacked a LNG gas project site. 

The project’s camp near its wellheads at Angore was reportedly badly damaged by fire at the weekend, as a main access road remained blockaded.

It comes days after landowners vandalised earth-moving equipment at the Angore site.

The landowners are frustrated that they haven’t been paid promised project royalties, four years after the project began exports.

Confirming the latest attack, the police station commander in Hela’s provincial capital Tari, Thomas Levongo, said the landowners are demanding around $US10 million in outstanding payments.

“They set fire to the camp. And all the houses and rigs were all burnt. There’s no houses left around the Angore area. Also the road, from Angore to Hides area, the main road is blocked.”

Thomas Levongo, who said there were no reported injuries from the latest attack, indicated that the landowners are waiting on a government response before they lift their blockade.

The project’s lead developer, ExxonMobil has not responded for comment on the latest attack at Angore.

Six days ago, it said it was investigating reports of vandalism relating to the Angore pipeline construction project.

It said host government security forces are in the area and also investigating.

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