Tag Archives: Jubilee Australia

Australian-based company’s PNG mine could pose big environmental risk

The Sepik river in Papua New Guinea. Serious environmental and social concerns are being raised about a mining project by Australian-based company PanAust. Photograph: Emmanuel Peni

Gold and copper project for Sepik region also has potential to cause social conflict and unrest, report says

Lisa Martin | The Guardian | 15 June 2019 

A gold and copper mine proposed for the Sepik region in Papua New Guinea by an Australian-based company threatens to destroy the health of a major river system, poison fish stocks and cause violent unrest, a report has found.

The Chinese-owned company, PanAust, says the Frieda river project could have a 45-year life span and generate A$12.45bn in tax, royalties and production levies for the PNG government and landholders.

But the report, from research centre Jubilee Australia and Project Sepik, raises serious environmental and social concerns about the mine.

“The lack of information released by the company about its environmental management plans are continuing to cause uncertainty about whether the company’s environmental management plans will be fit for purpose,” it says.

“The potential for this project to lead to damaging social conflict and unrest is real and must be taken seriously.”

Papua New Guinea has a chequered mining history, including an environmental disaster when the BHP Ok Tedi copper mine’s tailings dam failed and the decade-long civil war on Bougainville, which was triggered by the Rio Tinto majority-owned Panguna copper mine and cost an estimated 20,000 lives.

The report notes that one of the PanAust project’s biggest challenges will be building a safe storage facility for the mine’s tailings (waste material left over after separating the valuable mineral from the ore) to prevent acid rock drainage.

That occurs when mine waste is exposed to oxygen and produces sulphuric acid, which dissolves heavy metals such as mercury from nearby rocks, which can then leach into rivers.

The report says the size of the ore body, combined with the relatively low grade of copper in the deposit, means the mine will generate substantial tailings.

Locals protest against the proposed mine project at the Sepik river in Papua New Guinea. Photograph: Project Sepik

“The inaccessibility of the terrain will pose challenges when it comes to finding a large enough site or sites for storage,” it says.

“The extremely high rainfall in the area and the fact that the area is a site of seismic activity add to the risks of a dam collapse. The technical complexity of the feat facing the mining engineers, the extremely large costs involved, and the weather and seismic situation all adds up to a very expensive environmental management problem and one with considerable risks.”

Locals also have concerns about environmental damage from an increase in the number of large vessels operating on the Freida river.

PanAust promised in April it would shortly release an environmental impact statement to nearby villages, but researchers say it has not done so.

In response to to questions from Guardian Australia, the company said PanAust had not received a copy of the Jubilee report and “as such, the company is not in a position to comment on its contents”.

It did however say that PanAust had submitted its plans and an environmental impact statement to PNG regulators and was working with them on its approval.

The report also accused PanAust of a flawed consultation process with indigenous communities downstream from the mine which has created an “atmosphere of animosity and lack of trust” and resulted in acts of sabotage.

“There are reports of official (mainly police) intimidation of anti-mine activists,” the report says.

Map showing the location of the proposed Frieda River mine. Photograph: Jubilee Australia

“In 2017 a youth leader from Oum 2 village led a group of young men to attack a tugboat and pontoon with homemade wire sling shots.”

In October researchers visited 23 nearby villages, where locals repeatedly raised concerns about river and fish health as a result of increased sedimentation from increased tugboat traffic connected with the project.

The Freida river joins the 1,126km Sepik river, which flows across the provinces of West Sepik and East Sepik provinces.

The local economy is built on the sale of sago (starch from a tropical palm stem), fish, freshwater prawn, eels, turtles and crocodile eggs. Crocodiles are also harvested for their skins and teeth. Locals are worried about the mine affecting their food security, the report says.

In a company announcement in December, PanAust characterised the mine project as a “nation building development”.

It has promised 5,000 jobs in construction and 2,100 in mining, and estimates there may be 30,000 more indirect jobs.

“Host communities, especially in rural areas, will benefit from access to improved transport, telecommunications, health, education and government services that will support a higher quality of life and greater social participation,” the company said.

“More broadly, training and employment of Papua New Guineans will provide the skills and capacity to support the nation’s future development and prosperity.”

The company said a final investment decision would be linked to financing and fiscal terms agreed with the PNG government during the approvals phase.

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PNG’S RESOURCE CURSE: DOUBLE OR NOTHING REVISITED

Paul Flanagan | PNG Economics | 12 June 2019

Executive Summary

Do the controversial conclusions of the “Double or Nothing: The Broken Economic Promises of the PNG LNG project” report still hold? The broad answer is “Yes” – indeed the conclusions are re-enforced by recent economic data. Fortunately, PNG’s new Marape/Steven government is seeking better terms for future projects. It is too early to tell if it will make even more important but politically difficult policy changes to reverse the “resource curse” approaches of the O’Neill government.

  • Recent PNG National Statistics Office figures have confirmed that PNG Treasury was over-estimating the health of the PNG economy in 2016. The new figures increase the gap between PNG LNG promises and actual outcomes relative to “business as usual” prior to the PNG LNG project (see “statistical details” section below for detail).
  • At a more detailed sectoral level, there is a mixed story with sectors such as health not doing as badly as thought (now ‘only’ minus 27%) but manufacturing doing worse (now minus 32%). The average outcome remains that PNG’s industries were just over one-fifth worse off in 2016 than if they had simply continued the “business as usual” growth prior to the PNG LNG project.
  • Overall, the PNG LNG project massively over-promised and then failed to deliver. This is not because of the fall in oil prices – indeed LNG export returns are higher than predicted.
  • Resource projects on good terms should be good for development – but this requires good policies. The PNG LNG project induced poor policies under the O’Neill government. These poor policies have overwhelmed the potential PNG LNG benefits.
  • The O’Neill government made little progress on the four recommendations from the report designed to address the broken promises of the PNG LNG project (see below). This probably contributed to its fall.
  • There are encouraging signs that the new Marape/Steven government is seeking better returns from its resources. Hopefully, it will also pursue better policies in other policy areas such as competition policy and devaluing the exchange rate to deal with the resource curse. But these will be politically difficult.

Details

The release of national accounts information by the NSO in April shows lower GDP and non-resource GDP (a proxy for household incomes) in 2016 relative to the PNG Treasury forecasts used in the earlier analysis. This has the effect of increasing the gaps between the PNG LNG modelling predictions, and actual outcomes. Specifically, the PNG LNG modelling had projected an increase in GDP of 97% two years after production had commenced. The actual outcome relative to the pre-PNG LNG “business as usual” case was a 6% increase – down from 10% in the initial report. For household disposable income, the prediction was an 84% improvement. The outcome is a decline of 9%, larger than the decline of 6% estimated in the earlier report. Using updated Bank of PNG figures on employment, the prediction was an increase of 42%. The outcome is now estimated as a fall of 26%, slightly smaller than the 27% decline in the earlier report. There is no new data on exports, imports and government expenditure.

The following graph updates that on page 6 of the Executive Summary of the initial “Double or Nothing” report. It contrasts PNG LNG predictions with actuals all relative to the pre-PNG LNG undergrowing growth path (or ‘business as usual’ growth case which was running at 5% growth per annum).

Of course, many people have benefited from the PNG LNG project such as local transport, catering and security firms, the support for local health and education facilities, the work of project partners in responding to the 2015 drought and 2018 earthquake, some tax and dividend revenues, and some landowner benefit payments (although see a related Jubilee Australia report “On Shaky Ground” (see here) which discusses some adverse local impacts and broken promises at the local level). However, taking a helicopter view of the entire economy, household incomes, government expenditures, employment and import levels were worse by 2016 than if the pre-PNG LNG underlying ‘business as usual’ growth trends had continued.

The reasons for failing to deliver had nothing to do with the fall in oil prices in late 2014 – see here (although a continuation of historically high oil prices would have helped). Indeed, as shown by the first columns in the above graph, the PNG LNG project is actually earning more in export incomes than initially projected. The reasons for failure are linked to the O’Neill government’s policy shortcomings in not addressing the well-known “resource curse” risks of a major resource project:

  • a 50% build-up in spending before revenues flowed that has led to the largest on-going budget deficits in PNG’s history;
  • crippling foreign exchange shortages due to poor exchange rate policies;
  • a failure to put enough policy effort into other critical sectors of the economy;
  • unwise state investments such as the Oil Search purchase funded by the UBS loan; and
  • growing corruption.

As documented in Chapter 5 of the earlier report, the O’Neill government continued to ignore local and international warnings that PNG LNG required appropriate policies to manage the possible adverse impacts on other parts of the economy once the construction phase was completed. PNG slid into classic resource curse policies. Indeed, those making such warnings were often attacked – a classic case being when Isaac Lupari accused me of being unprofessional and working for former Treasurer Don Polye when all I did was to correctly claim that the fall in oil prices in late 2014 would affect 2015 budget revenues. His claims that PNG would largely be sheltered from such falls was false as was his claim that I was still working for Don Polye (although I admired Don Polye including for his stand on the UBS loan and I did work for Polye as a public servant when he was Treasurer). If such warnings had been listened to, the O’Neill government could have made a more rapid fiscal response which would have lessened PNG’s current debt burden.

The “Double or Nothing” report was condemned as “utter nonsense” by former Prime Minister O’Neill (even though he subsequently admitted to the press that he hadn’t read it). Oil Search CEO Peter Botten promised to subject the report to “rigorous analysis” by an independent accounting firm to “demonstrate that there are some serious flaws in the Jubilee report”. This was not done, or at least the findings have not been released over the last year. Fortunately, former Treasurer Charles Abel did acknowledge that project returns were indeed below par. More recently, the Papua LNG project partners have been more cautious in selling the latest project and we do not have the black magic PNG-GEM model making more overly-optimistic promises. However, the PNG public still does not have access to the economic modelling behind such key claims that the Papua LNG fiscal agreement “divides the net free cash flow 50/50 between PNG and Total led developers”. More transparency is required.

It is encouraging that the new government appears to be taking a more balanced approach towards the resource sector and its potential contribution for inclusive development. Prime Minister Marape’s discusses PNG’s resources as going beyond minerals and gas to agriculture, forestry, fisheries and human resources. Given his strong legal background, including as a former Attorney General, appointing Kerenga Kua as the new Petroleum Minister should help address local concerns about current and prospective LNG agreements.

There is also positive language on gauging views on what needs to be done to create a healthy economy even if it means he doesn’t make many friends (see here). The strong stance on corruption is welcome. However, some policy corrections to move away from the resource curse will be extremely challenging politically. For example, PNG has an over-valued exchange rate which acts as a subsidy on all imports and a tax on all exports. It reduces incomes for rural households yet lowers the cost of living especially in urban areas (the latter because more consumption is imported). However, urban elites appear to have a stronger voice in PNG than the much more numerous rural poor. PNG has also moved away from competition and trade policies that would balance the resource sector and allow PNG to benefit from its strategic location in the Indo-Pacific region. Policies such as high tariffs to protect local manufacturing are understandable but economic history shows the costs for the many outweigh the benefits for the few. These are two examples of the vexed political economy challenges facing the new government. Addressing such policies are critical to addressing PNG’s resource curse. They are at least of equal importance as getting a better direct benefit return from resource projects. Time will tell if the new government will tackle such difficult political economy challenges, challenges that must be addressed to make PNG a much richer black Christian nation.

My next article will explore the different economic impacts of the construction phase and the production phase of large resource projects. The dramatically different economic impacts across these two phases could help explain why former Prime Minister O’Neill wanted to push through the Papua LNG project against the advice of his local team.

Recommendations Re-visited

The “Double or Nothing” report included four recommendations for the PNG government.  One year on, how have they gone? Following are the four recommendations, with some comments on progress shown in italics.

1. PNG should return to more inclusive development policies while better managing the resource curse. There is a need to address the overvalued exchange rate, ensure the new medium-term fiscal plans are implemented in a  transparent fashion, and re-design the SWF to ensure all resource revenues flow to the budget.

As noted above, there are some positive messages that the new government may consider action in such policy areas. Over the previous year, there had been no improvement in managing the exchange rate (the sovereign bond did not address the underlying issues), the medium-term fiscal plans faced major inconsistencies between the 2019 Budget Strategy and the actual 2019 Budget, and there was little progress on the SWF (which needs to be redesigned anyway).

2. PNG should establish a clear policy framework for all future resource projects (and extensions) that ensures PNG gets a better and earlier share of the resource pie than current agreements. No new resource projects should be approved until this framework is completed and publicly released.

This was not adequately done prior to the Papua LNG agreement. While the new deal has improved some elements of the PNG LNG deal, there clearly was a lack of internal agreement as to whether enough extra had been gained.

3. Projects should not be approved without the production and release of transparent, verifiable, contestable and independent economic modelling by the government; this modelling should include a completely new independent model that includes net costs to the budget.

Fortunately, there was little PNG-GEM spruiking of the new Papua LNG project. However, it did appear to be making claims of future revenues as well as benefit sharing that were not verified by transparent figures or modelling.

4. PNG should urgently clarify some of the confusing figures in the most recent EITI reports that royalties and development levies paid by ExxonMobil are not being received, and explanations provided as to why the level of what should be identical payments are so different.

EITI continues to do a good job in PNG given data limits. However, key information such as the Kumul Petroleum Holdings annual accounts have not been released. Recent data indicates that PNG Treasury had been claiming as “dividend revenues” funds that were actually just “advances” financed by loans from BSP.

Overall, progress against the four recommendations had been poor. That said, it is quite possible that the original report helped confirm and strengthen views in PNG that future projects needed considerably better deals. As stated a year ago “As the government considers this report, there are potential benefits for PNG in terms of encouraging public discussion about PNG’s future options and even supporting PNG’s negotiating hand with the LNG companies. Hopefully, with the benefit of hindsight, “fake news” comments will fade and true benefits will be understood.” Given developments over the last month, possibly the O’Neill government didn’t deal adequately with the broken promises of the PNG LNG. The new government appears committed to not repeating that mistake in terms of benefit sharing. Time will tell if it will also address the crucial underlying “resource curse” policy issues.

Statistical background

The PNG National Statistics Office released updated national account figures for the PNG economy on April 10 2019. This release included detailed figures for 2015 and 2016. The new numbers would be more robust that the earlier PNG Treasury estimates, although they are likely to still be too high. The release also provided consistent figures for 2006, but these did not include new growth rate figures for 2006. If it had, this would have allowed a re-estimation of underlying growth rates which had been based on the three years growth rates for 2007 to 2009. Given that 2008 was actually a year of recession according to the NSO (with growth falling by 0.3%) the inclusion of 2006 information is likely to have lifted the estimate of “business as usual” real GDP growth to slightly above 1.7% per annum in per capita terms, or 4.8% without taking population factors into account. More detailed justification around the “business as usual” growth rates are provided here. The next article will also provide some sensitivity analysis around “business as usual” growth rates.

Using the same methodology as outlined in appendix 2 of the earlier report, three actual 2016 values are updated (shown in green in the following table). These lead to three updated figures for the difference between what the 2016 value would have expected to be if “business as usual” pre-PNG LNG situation continued and the actual 2016 value.

The updated story at the sectoral level also produces slightly worse outcomes. The following table sets out the expected sectoral impacts from the PNG LNG modelling in the second column. The third column covers the gap between the underlying sectoral ‘business as usual’ growth path and the available PNG Treasury figures for 2016. The fourth column uses the recently released 2016 NSO data (except for agriculture exports which continues to use BPNG data). Some sectors have not done as badly as set out in the initial report. For example, the health sector has “only” declined by 27% when the original estimate was a decline of 33%. Other sectors have done worse. For example, the manufacturing sector has declined by 32% rather than the initial estimate of a decline of 23%. The overwhelming story remains – all sectors in the PNG economy outside of the petroleum and LNG sector have gone backwards relative to their underlying ‘business as usual’ growth performance prior to the PNG LNG project. The average decline is now 23%. This is an extraordinary missed opportunity with poor policies pushing PNG away from the “business as usual” pre-PNG LNG case. It is also a remarkable contrast to the foreshadowed gains averaging 36% from PNG LNG partners.

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NGO warns about Bougainville govt’s ‘land grab’

Site of the Panguna mine

Radio New Zealand | 18 February 2019

An NGO has warned that proposed changes by the Autonomous Bougainville Government to local mining laws constitute a reckless land grab.

The government is planning to set up a company to control all new mining on the island.

60 percent of Bougainville Advanced Mining would be owned by the government, while 40 percent would be in the hands of a foreign partner.

In order to do this, the government is seeking to pass amendments to the Mining Act.

Luke Fletcher, the executive director of the NGO Jubilee Australia, said the changes would cut out Bougainville landowners from having a say in mining.

“The principle of free, prior and informed consent is just totally denied to the landowners. Their say is just completely irrelevent. The executive can now essentially be responsible for all parts of the island that are not under lease,” Dr Fletcher said.

Following a public outcry over the plan, the proposed amendments have been referred to a parliamentary committee for further discussion.

Earlier, a number of landowner and community groups voiced alarm that Bougainville’s government was trying to rush through the changes without adequate public consultation.

“It is not clear to us that this legislation is even constitutional,” said Dr Fletcher, who described the government’s proposed changes as a “startling and dangerous move”.

“Given the disastrous history of the Panguna mine in Bougainville, which has caused irreparable environmental damage to the Jaba river and was the major cause of the Pacific region’s worst ever civil war, forcing through such enormous changes with very little consultation is a reckless and desperate ploy.”

Speaking to RNZ Pacific two weeks ago, Bougainville’s President John Momis described the mining deal as the best on the table for his people.

He also suggested the deal was a way to solve Bougainville’s lack of funding for its independence referendum later this year.

But Dr Fletcher said it was unlikely the proposed deal would create revenue through taxes and dividends for Bougainville for a number of years.

“So even if there was some sort of capital investment, that can’t go to the government for general revenue,” he explained.

“That has to be spent by the company on its own needs. So it just doesn’t really make any sense that all this could be useful for the referendum.”

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PNG Wants a Bigger Slice of Exxon’s Gas Profits

Hides Gas Conditioning Plant in Papua New Guinea. Photographer: Richard Dellman via Exxon Mobil Corp.

Dan Murtaugh and Aaron Clark | Bloomberg |May 23, 2018

  •  Papua New Guinea seeking bigger cut of gas-export revenues
  •  IMF says country got ‘quite limited’ benefit from initial deal

The tiny, impoverished nation of Papua New Guinea came out on the short end of a $19 billion development with Exxon Mobil Corp. to build one of Asia-Pacific’s biggest energy projects. But as the company pushes to expand the venture, the government is vowing that round two may require a much bigger payday for the locals.

By most accounts, the liquefied natural gas business that Exxon and partners built from scratch is an engineering and commercial success. The PNG LNG venture, which started operating in 2014, is delivering more fuel than expected to Asian economic giants Japan and China. It’s so promising that the U.S. company — with annual revenue 10 times larger than Papua New Guinea’s economy — declared the Pacific island a key building block for its future growth and plans to double output.

Trouble is, the original deal reached a decade ago has failed to deliver the windfall to Papua New Guinea that the government and an Exxon-commissioned study predicted. An International Monetary Fund analysis showed “quite limited benefits” for the country, which granted Exxon generous rights to recover certain costs before paying taxes or fees. While the initial investment was welcome, the government has formed a new team to negotiate better terms before it approves the proposed expansion.

“There is a general view that Papua New Guinea gave away too much for the first LNG project,” said Peter Koim, a member of the negotiating team who is also director of the country’s Gas Project Coordinating Office. For the next round “the country will not give away concessions as was the case in the PNG LNG project,” he said.

PNG LNG produces gas from wells in the forested mountains known as the Highlands, and sends it 700 kilometers (435 miles) southeast via pipeline to a processing plant on the shores of Caution Bay, near the capital, Port Moresby. The gas is super-chilled to liquid form and loaded onto special tankers for shipment overseas. Originally designed to process a maximum of 6.9 million metric tons a year, the plant produced more than 8.2 million in 2017.

Exxon last year spent as much as $3.9 billion buying access to additional reserves and drilling rights in the country and is working with partners including Australia’s Oil Search Ltd. and France’s Total SA on a separate $13 billion venture known as Papua LNG. The development would add 8 million tons of additional annual processing capacity at the existing PNG LNG plant, but tap gas deposits in a different part of the country and require a new pipeline.

The country will negotiate separately with Exxon and Total on the different projects that will contribute to an overall expected rise in the nation’s gas exports, Koim said.

Demand for the gas has been strong. Long-term supply contracts were signed with buyers including chemical makers and utilities that are as much as 4,500 kilometers across the sea from Papua New Guinea, which is located on an island just north of Australia’s Queensland state. With global consumption booming, analysts see a shortage of LNG coming in the early part of next decade, right when an expansion project would come online if work were to start soon.

Prospects are so promising that Exxon’s Chief Executive Officer Darren Woods said as recently as March that he is counting on Papua New Guinea and several other countries to help reverse declining output at the company, one of the world’s largest energy suppliers. Irving, Texas-based Exxon plans about $200 billion in capital expenditures through 2025, including in Mozambique, Brazil and Guyana, as well as America’s Permian Basin.

A more demanding Papua New Guinea could pose a hurdle to Exxon’s plans. Already, the company has been forced to defend its contract in Guyana, a small South American country that signed a deal two years ago to develop the world’s biggest new deep-water find in a decade. The IMF described that agreement as “favorable” for Exxon, compared with global norms. The company has said there’s no need to renegotiate because the contract already included several concessions to the government.

The Papua New Guinea government isn’t seeking to revise the old contract. But the tenor of talks over the expansion will be influenced by the public perception that the massive project simply didn’t deliver the benefits that were promised.

Unfulfilled Expectations

An April 2009 version of an economic impact study by ACIL Tasman (now ACIL Allen Consulting) for Exxon said the project “has the potential to transform the economy of Papua New Guinea, boosting GDP and export earnings, providing a major increase in government revenue, royalty payments to landowners, creating employment opportunities during construction and operation, and providing a catalyst to further gas-based industry development.”

And before production began, the government estimated PNG LNG would boost its revenue by 2 billion kina ($613 million) a year through 2021, the World Bank said in a December report.

Instead, the project’s partners paid only about 495 million kina in taxes, royalties, dividends and other payments in 2016, data from the Extractive Industries Transparency Initiative show. A “complex web of exemptions and allowances” effectively mean that little revenue from the project goes to the government and landowners, the World Bank said.

“It’s an extraordinarily low level,” said Paul Barker, executive director at the Papua New Guinea Institute of National Affairs. “If you are not getting much in the way of revenue, there is something a bit screwed up.”

A research and advocacy group, Jubilee Australia Debt & Development Research Centre, had an even harsher take, noting in a detailed report last month that by “almost every measure of economic welfare,” Papua New Guinea “would have been better off without the PNG LNG project.”

Of the total paid to the government in 2016 by PNG LNG partners, Exxon’s share was about 216 million kina, more than half of which was income tax, according to EITI data. By comparison, the company’s revenue from the project was more than ten times that, at about 2.56 billion kina, according to Bloomberg estimates using production figures and annual averages for crude prices and foreign exchange rates.

Papua New Guinea has a stake in the venture through its state oil company, Kumul Petroleum Holdings Ltd. It’s portion of the revenue was 1.28 billion kina in 2016, according to Bloomberg calculations. It contributed about 100 million kina to the treasury and gave the government an advance of 200 million kina, according to an EITI report.

Exxon says it is honoring all contractually required payments and that the project delivers more than just government revenue. PNG LNG has contributed about 14 billion kina to local businesses and the government, and employs 2,600 workers and contractors, about 82 percent of whom are locals, an Exxon spokeswoman said by email.

PNG Liquefied Natural Gas Plant near Port Moresby, Papua New Guinea.Photographer: Richard Dellman via ExxonMobil Corp.

To be sure, it’s not unusual for a country without its own natural gas industry or infrastructure to make concessions to secure the huge investments needed to develop untapped reserves. But often, citizens of poor or underdeveloped countries see little or no benefit from commodity extraction by foreign companies because their governments were inept, corrupt or both — a symptom of what economists call the resource curse.

Royalties and development levies came under particular scrutiny by the World Bank and IMF. That’s because the payments are calculated after deductions for operating costs, debt repayments and capital expenses. As a result, when LNG prices fall in line with oil, as they did when crude prices crashed shortly after the project started, the biggest impact is on the amount going to the government. In some cases the project can claim losses that offset future royalty payments, according to the World Bank.

The government’s “current level of revenue from the PNG LNG project is not sufficient due to the heavy concessions granted, loan repayments and subdued oil prices in the recent past,” Koim said.

Highlands Unrest

The distribution of royalties from the project have already caused unrest in the Highlands. Residents threatened violence against gas plants and pipelines in late 2016, after they didn’t receive payments. The government said the distributions were delayed because of a review of clan records and property rights to make sure the money went to the right people. The first 15 million kina in royalties was paid to villagers in late 2017, according to Exxon and Port Morseby-based The National newspaper.

Papua New Guinea has been through similar challenges before. Three decades ago, disputes over royalties from one of the world’s largest copper mines helped fuel an independence movement on Bougainville Island. The autonomous region is planning an independence referendum next year.

During the original negotiations, Papua New Guinea recognized that it needed to sweeten the deal with Exxon by allowing for things like tax breaks on infrastructure spending, according to Koim, of the Gas Project Coordinating Office, and Fabian Pok, the nation’s energy minster.

“Some incentives were given” during the original negotiations, Pok said. “These incentives may not be available” in talks over the expansion, he said.

Balancing Risk

The success of the initial project lowers the risk associated with future investments, which may give Papua New Guinea more leverage in negotiations, said Andrew Harwood, a research director with energy consultancy Wood Mackenzie Ltd. in Singapore.

“The government is entitled to seek a larger share of any expansion, but needs to balance potential higher government revenues against the risk of deterring future investment,” Harwood said.

One way to increase government revenue would be for state oil company Kumul to take a bigger stake in the expansion. Koim suggested a 30 percent share, compared with 16.8 in the initial project. (The state also has a 2 percent interest through its Mineral Resources Development Co.) Other government officials want drillers to sell a portion of their gas domestically to fuel power plants and spur industrial development.

“Everything is on the table for negotiations,” said Pok, the energy minister. At the same time, he said, the government realizes that Papua New Guinea isn’t the only country courting LNG investments, with competition coming from places like Qatar, Mozambique and the U.S.

“We need to remember that Exxon and Total are companies operating worldwide,” Pok said in a telephone interview. “They’ve come into PNG and built confidence in our oil and gas industry, and their investment is welcome. We will come to an agreement, but we need all the parties together and talking and focused on getting the best outcome.”

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Natural gas project that promised economic boom leaves PNG in ‘worse state’: report

Isabel Esterman | Mongabay | 17 May 2018

  • Proponents of PNG LNP, an ExxonMobil-led natural gas project in Papua New Guinea, predicted it would bring massive economic benefits to landowners and to the country as a whole.
  • According to two recent reports by the Jubilee Australia Research Centre, PNG’s economy is worse off than it would have been without the project.
  • Jubilee Australia also links the PNG LNG project to an upswing of violence in the areas around the plant.

In 2008, when a consortium led by ExxonMobil was drumming up support for a $19 billion natural gas extraction and processing project in Papua New Guinea, proponents of the development predicted it would underpin the country’s economy for decades.

Production began in 2014, and now reaches approximately 7.9 million tonnes of liquefied natural gas per year. However, according to two recent reports by advocacy group Jubilee Australia Research Centre, the PNG LNG project has not only exacerbated conflict and inequality in the Papua New Guinea highlands, it has also failed to produce the promised benefits. According to Jubilee Australia’s analysis, PNG’s economy would be better off if the gas had been left in the ground.

Predicted economic impacts of the PNG LNG project compared to actual impacts (based on Jubilee Australia’s analysis of underlying economic trends). While exports have exceeded expectations, GDP growth has been slower than forecast and income, employment and government spending have dropped. Image courtesy of Jubilee Australia.

Big promises

When pitching the project, developers made big promises about the economic and social benefits the megaproject would bring to the country.

One influential 2008 study, an economic impact analysis commissioned by ExxonMobil and authored by Australian consultants ACIL-Tasman (now ACIL-Allen), predicted the project would bring a tremendous windfall not only to shareholders, but also to the people of PNG. It forecast the overall size of the country’s economy would nearly double, household incomes would rise by 84 percent, and employment increase by 42 percent.

Backers of the project argued that these anticipated benefits would more than compensate for any adverse environmental or social impacts a giant natural gas facility might bring in its wake.

Instead, says Jubilee Australia, PNG is today worse off than it would have been if the country’s economy had simply continued developing at the same pace as prior to the launch of the project.

“Currently, on almost all economic indicators, the people of PNG would have been better off had the project not happened at all,” report co-author Paul Flanagen, who has served as a senior adviser to the Australian government and the PNG treasury, said in a press statement.

Jubilee Australia’s analysis found that instead of the 97 percent increase anticipated by ACIL-Tasman, PNG’s economy in 2016 was just 10 percent larger than its pre-LNG growth path would have predicted — most of that concentrated in the largely foreign-owned extractive sector. Instead of rising by 84 percent, household incomes fell by 6 percent in the same period, while employment fell by 27 percent.

Even with the moderate increase in the size of the economy, government expenditure to support better education, health, law and order, and infrastructure fell below the baseline by 32 percent, rather than the 85 percent increase anticipated by the ACIL-Tasman report.

Significantly, these decreases came even though production at the facility has exceeded expectations — an increase Jubilee Australia contends was more than sufficient to compensate for the impacts of falling gas prices.

The Tari Gap in Hela Province in the Papua New Guinea Highlands. Photographed in 2003 before the arrival of the PNG LNG project. Image by Ron Knight via Flickr, CC-BY

Falling short

The authors point to several factors.  First, they cite “serious flaws” in the economic impact analysis, describing the forecasts as “extraordinarily over-optimistic.”

Government revenue has also fallen short of expectations due to a combination of generous tax concessions offered to the project, and what the report describes as “aggressive tax avoidance” by the companies involved.

“Exxon and Oil Search” — the second-largest stakeholder in the joint venture — “should be paying half a billion [Australian] dollars [$377 million] to the PNG government every year, since the gas started to flow in 2014,” Jubilee Australia executive director Luke Fletcher said in a press statement. “Instead, they are paying a fraction of this amount, partly because of their use of tax havens in the Netherlands and the Bahamas.”

Drawing on an analysis by the Extractive Industries Transparency Initiative, the authors note that the PNG government received more money from personal income taxes paid by ExxonMobil employees than it did from corporate tax from the company.

Further, the report points to “poor policy decisions made by the PNG government in response to the gas boom.” Exuberant spending in the early years of the project led to debt and deficit when the anticipated revenue failed to flow into government coffers.

Landowners, too, have not received the royalties they expected, a problem Jubilee Australia attributes largely to a failure to vet and identify beneficiaries before production began. Clan boundaries were mapped, but the individuals entitled to payments were not specified as part of the original agreement. This, the reports argues, has been an ongoing source of conflict and uncertainty and has fed into violent unrest in the territories around the project.

“During the construction phase of the project landowners had jobs, families had money, and conflict between clans was minimal,” report co-author and anthropologist Michael Main said in a press statement“When construction ended and people lost their jobs, money stopped flowing, frustrations built up and violent conflict escalated to catastrophic levels.”

A Huli Wigman and youth. The majority of landowners around the PNG LNG site in Hela Province are from the Huli ethnic group. Image by Ron Knight via Flickr CC-BY

‘Utter nonsense’

PNG Prime Minister Peter O’Neill has challenged Jubilee Australia’s conclusions, as have ExxonMobil and Oil Search.

During a May 2 speech in Brisbane, Australia, O’Neill denounced the first of the Jubilee Australia reports as “fake news” and “utter nonsense.” He said he had not read the paper, but accused its authors of aligning themselves with his political opponents.

ExxonMobil and Oil Search, meanwhile, pointed to their royalty payment agreements as well as their corporate social responsibility initiatives, and noted it was the government, and not them, who was responsible for relaying payments to landowners.

“PNG LNG royalty payments due to the government began, and have continued, since the start of production operations in 2014. Payment and distribution of royalties and other benefits due to landowners in the Project is the responsibility of the PNG government and is based upon benefits sharing agreements previously executed between the government and Project area landowners,” ExxonMobil said in a statement to the Business and Human Rights Resource Centre. The company also pointed to its social investment program and its support for humanitarian relief in the aftermath of an earthquake that struck the project area in February.

Oil Search said royalty payments were distributed to the PNG LNG plant site and to traditional landholders in 2017, although it added that “significant payments” were still outstanding. “[W]hat is good for Oil Search is good for PNG. We have a strategic interest in ensuring that we maintain a stable operating environment based on strong and enduring relationships with local communities,” the company said.

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PNG told to think again about gas reliance

Exxon Mobil PNG’s LNG plant near Port Moresby Photo: (C)2014 Richard Dellman/AdvantagePNG

Radio New Zealand | 11 March 2018

There are calls for Papua New Guinea to re-think its emphasis on oil, gas and minerals.

The human rights NGO, Jubilee Australia, has published two damning reports on PNG’s ExxonMobil-led LNG project in the past month, saying it has brought few positives to the country.

In the latest report called ‘On Shaky Ground,’ Jubilee said the people of Hela province, where the project is centred, were angry and frustrated that the promised benefits had not been delivered.

Jubilee’s Luke Fletcher said the PNG government could re-negotiate the deal and improve the flow of royalties.

But the report also encouraged people to reconsider reliance on extracting resources, he said

“In a general sense I think the report is also encouraging PNG to think about gas as the answer to it solving problems in general.

“And in that sense, really, some long hard thinking about all these new LNG projects that are being mooted and whether they are going to cause the same sort of problems.”

Discontent with the LNG project was threatening unrest, Mr Fletcher said.

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PNG LNG project has not delivered on promise of infrastructure and services – new report

A new report on the adverse social impacts of a Papua New Guinea Liquefied Natural Gas project has found four years after the project has been operational, the majority of the promised infrastructure and services has not been delivered.

Jubilee Australia’s new report ‘On Shaky Ground: PNG LNG and the Consequences of Development Failure’ is the first independent comprehensive report of the social impacts of the PNG-LNG pipeline since it started operating in 2014.

PNG activist Lucielle Paru said:

“The Huli and all those who have been affected by the PNG-LNG project from Hela Province to Central Province have not benefited.  The decision by the leader of the People’s National Congress Leader and Prime Minister Peter O’Neill to proceed with this project has destroyed PNG’s economy. Peter O’Neill should apologize to the people of PNG especially those directly affected by the PNG LNG project. There is a growing call not only by the landowners in the Hela Province but within PNG for Peter O’Neill to resign as a result of the mismanagement of the PNG LNG project and non-payment of our royalties.

Summary of findings:

  • Although some royalties have been paid to communities near the LNG plant, no royalties have yet been paid to Hela communities.
  • The landowners of the resource in the areas of Hela Province are still living in conditions of abject poverty.
  • Despite warnings about the dangers of starting production before the completion of landowner identification and vetting, the companies proceeded into production phase before this was complete.
  • The majority of the promised infrastructure and services has not been delivered.
  • For the past two years, there has been a series of incidents of violence, sabotage and kidnapping that are clearly connected with frustrations and discontent about the project. Since August 2016, the violence has escalated in the Hela communities.

PNG LNG  is an Exxon-led project which supplies about 8 million tonnes of LNG a year to Japan, South Korea and China from the gasfields of the Hela region. It is projected to run for 30 years.  The project’s partners are Exxon, Oil Search, Santos and the Government of PNG.

Report co-author and anthropologist Michael Main said:

“During the seven months I spent living with Huli landowners I witnessed the abject development failure of the PNG LNG project. The landowners of the resource remained in conditions of dire poverty and promised development projects did not exist.

“During the construction phase of the project landowners had jobs, families had money, and conflict between clans was minimal. When construction ended and people lost their jobs, money stopped flowing, frustrations built up and violent conflict escalated to catastrophic levels. The devastating earthquake of 26 February has only compounded the frustrations of the Huli population and lack of development from the project has diminished their capacity to cope with natural disasters.

In 2009  Australia’s Export Credit Agency, Efic lent AU$500 million of taxpayers money to the project. This is the largest loan ever made by Efic. The Efic loan to the project has generated significant media interest in Australia over the years.  Last month Jubilee released an economic analysis of the project which confirmed that the PNG economy has indeed gone backwards as a result of the project. On the back of this report, Australia’s Assistant Trade Minister Mark Coulton said that there will have to be an ‘investigation’ into the decision to fund the PNG LNG decision.

Report co-author and Executive Director of Jubilee Australia Dr Luke Fletcher said:

“Although they have never been released, we know that Australian government agencies Efic and DFAT prepared risk analyses of this project before it was approved. It was known that that the project was to happen in an area with a long history of social and often violent conflict, within a system of complex landowner relationships.

“Efic and DFAT either rated the project as low or moderate risk, which was clearly incompetent. Or they rated the project as high risk, and recommended approval anyway, which is scandalous.

“Either way, Efic and DFAT must release all risk analyses at once, and the Assistant Trade Minister should make good on his commitment to a full inquiry into this matter as soon as possible, preferable in the Senate so that all Australians and people of PNG might be privy to it,” concluded Dr Fletcher.

This new report follows the publication last month of an economic analysis of the pipeline, Double or Nothing: The Broken Economic Promises of PNG LNG’  by Jubilee Australia.   

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