Tag Archives: LNG

Gas project pressure rising for PNG’s government

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

Johnny Blades | Radio New Zealand | 16 April 2019

Papua New Guinea’s government is under pressure over its handling of the country’s burgeoning gas sector.

The government last week agreed terms for the $US13-billion Papua LNG project, based on the Elk / Antelope gas field in Gulf Province, to be led by French company Total.

Two days later, PNG’s Finance Minister James Marape resigned, citing a breakdown of trust in prime minister Peter O’Neill and the government’s handling of landowner participation in oil and gas developments in the Highlands.

Along with claims about feasibility, the resignation adds to a sense of uncertainty over the Papua LNG developer which traces right down to the grassroots.

A village leader in Gulf Province said local people had not been briefed yet on what having the project on their land meant for them.

For Solomon Lae, a chief in Kapai Aikavalavi village, the lack of consultation reflects how the nation’s political leaders have long milked the benefits of the country’s resources.

“We have never had the opportunity to be clear on exactly what is going to happen in the province,” he said.

“There are no public servants who can be able to tell the people, the illiterate, the silent majority, what’s going to happen in the gas and oil industry. It’s a new elephant for us.”

Mr Marape, the former finance minister, is the MP for Tari in Hela province, the hub of the PNG LNG Project the country’s first gas development.

Ten years after its project agreement, many of Mr Marape’s constituents are frustrated with the government because they are yet to see promised benefits from the venture.

ExxonMobil officers receive a petition from landowners in Hela Province, Papua New Guinea. Photo: Supplied

Meanwhile, the ‘clan vetting’ process in Gulf Province to establish the rightful landowners to receive benefits and royalties is still not complete.

According to opposition MP and the member for Kerema in Gulf Province, Richard Mendani, instability in the government’s ranks is linked to the way it is rushing through the new gas project without properly consulting all stakeholders.

“The current government is under pressure to improve on this performance. There’s a lot of talk and a lot of political movements within Waigani,” Mr Mendani said.

“I’m so surprised that the current government, the PM and Total have, without any proper consultation, gone in and signed off the project agreement.”

But PNG’s Treasurer Charles Abel said the agreement was only one part of the process and that landowners would later be part of discussions for the Benefit Sharing Agreement.

“The signing of the gas agreement, it just establishes the broad fiscal terms to enable the developer to obtain financing and give them comfort to spend a bit more money into the Front End Engineering Design process,” he explained.

“In the intervening period, they’ve got to complete all the landowner registration and more of that work has been done.”

The state has a 22.5 percent interest in the Papua LNG Project, of which two percent is on behalf of landowners, with a two percent development levy for the provincial government and local level administrations.

According to Mr Abel, other features of the project’s terms include a corporate tax rate of 30 per cent, and obligations to supply PNG’s domestic gas market at a discount price.

Compared to the PNG LNG Project, which began exports five years ago, there are significant improvements from a landowners’ perspective, Mr Abel said.

LNG Project facility, Hela Province, Papua New Guinea Photo: RNZI / Johnny Blades

This time the government has been granted a waiver on immediate payment of its share of project costs, while the venture’s benefits are carefully structured, ensuring revenues even when commodity prices are low, he said.

“The landowners are getting a better benefit but the state is not unduly putting itself into a difficult financial situation,” the treasurer said.

“When the oil price collapsed, there was very little benefit from the PNG LNG Project, and yet we were lumped with all the obligations to meet all the obligations we made to the landowners and then we hadn’t even done the (clan) vetting exercise properly. So, we’ve learnt from this process.”

Chief Solomon Lae, however, is doubtful the government has changed its approach from other resource extraction projects.

“Our people in this country, they never learn from the previous experiences. Southern Highlanders are waiting ten years and are yet to receive royalties,” Mr Lae noted.

“The leaders of this country, they’re elected to represent our people. But that is never the case. They’re milking us. Daylight robbery.”

But Prime Minister Peter O’Neill has said the Papua LNG Project’s expected investment of nearly $US13 billion will benefit local communities and create jobs.

He told local media that the domestic supply obligation was an important step for resources development in the country.

“The petroleum and energy sector looks very bright in PNG,” Mr O’Neill said.

Papua New Guinea Prime Minister, Peter O’Neill, meets Total’s Vice-President Mr. Arnaud Breavillac. Photo: Supplied

However, explosive claims have surfaced from a former senior technical officer at the Department of Petroleum that the Elk / Antelope gas field is a very marginal resource, lacking gas volumes to sustain a major project.

This was related in a review by a team of geoscientists and engineers, presented to the O’Neill government and its Papua Project partners, Total, ExxonMobil and Oil Search, in 2017.

Despite this, the government is proceeding with the Papua LNG Project, in which it has a significant financial stake. For over five years, the prime minister has been determined for the venture to go ahead.

The government’s controversial purchase of a ten percent stake in Oil Search in 2014 was an executive decision said by cabinet members to have been made Mr O’Neill without their support.

It sparked a fallout at the time with his former Treasurer, Don Polye, who was sacked for opposing the decision. Mr O’Neill is facing a potential motion of no-confidence next month in parliament, and will be looking to stem the tide of discontent within his government.

Pressure over this gas project is rising, as is the political heat in PNG.

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Donald calls on govt to review oil, gas act

The National aka The Loggers Times | April 11, 2019

NORTH Fly MP James Donald, pictured, has called on the Government to review the Oil and Gas Act before it signs agreements on petroleum resource development.

Donald said certain provisions of the Oil and Gas Act 1998 did not serve or protect the interests of Papua New Guineans, especially the project area landowners, and should be amended.

For example, he said the legislation failed to provide for the landowners, provincial governments and local level governments to be involved in the consultations and negotiations right up to the finalisation of the agreement.

Donald said they were key stakeholders even though they only owned a 2 per cent stake in equity when it came to benefits distribution.

“The landowners are given 2 per cent under the current act, which is less when what they should be rightfully getting – 10 to 12 per cent equity or more,” Donald said.

“So really when you look at it closely, it (the current Act) is of no real benefit to Papua New Guinea landowners, the host provincial governments and local level governments.”

He said the 2 per cent equity for landowners should be increased.

“Why continue to keep a law that does not serve our people’s interest?” Donald said.

He called on the ministers for petroleum and energy to work on amending certain sections of the legislation before going ahead with agreements on gas development. He said if not amended, the current legislation would only cause problems for future projects.

“In my view, our government should review and amend the law to give better deal for our people in terms of resource ownership by law because they deserve better from their government,” he said.

Meanwhile, Donald has written to the Constitutional and Law Reform Commission to support him in sponsoring a Private Member’s bill to review and amend certain provisions of the Oil and Gas Act.

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Bank of Papua New Guinea urges tougher stance on new resources projects

PNG’s economy has surged but tax revenue has not. Source: Department of Treasury and BAPNG

Implicit in the Central Bank’s criticism is that those who negotiated and signed off on the Exxon-Mobil LNG and Ramu nickel mine agreements etc, were NOT acting in PNG’s national interest.

So who are these people and where is the accountability? 

David James | Business Advantage | 10 April 2019

The March Monetary Policy Statement from the Bank of Papua New Guinea has urged the government to rethink the way it negotiates tax concessions and exemptions with new resources projects. Adopting a strong stance, it points to how previous agreements have been a factor in foreign exchange shortages and adverse trends in government finances.

The statement says that the ‘current policies in relation to the extractive industries give a lot of tax concessions to the project partners for the development of major projects in PNG.’

These tax concessions, it says, has resulted in less availability of foreign exchange and has not strengthened tax revenues.

PNG in 2018 had a large current account surplus, indicating greater trade and finance outflows than inflows. This would normally result in strong demand for the kina, but it ‘did not translate into sufficient increase in inflows to the foreign exchange market’.

A trade performance that normally would have meant foreign exchange was easy to obtain, did not have that effect because of exemptions and concessions to resources projects.

‘If a significant portion, or all, of the export receipts were brought into the country, it would more than adequately cater for all the demand for foreign currency in the foreign exchange market,’ the Monetary Policy Statement (MPS) said.

‘This is not happening because most of the export earnings in foreign currency are held in offshore foreign currency accounts.’

Mineral GDP has risen, but tax from mining has fallen. Source: Department of Treasury and BAPNG

Backlog

The statement does note, however, that the situation in the foreign exchange markets is improving.

‘The outstanding backlog declined significantly from K1.739.3 billion in December 2017 to K445.4 million at the end of 2018, and to K320.1 million in February 2019.

‘The average time taken for the orders to be served has declined from 5 months to less than 3 months over the same period.’

But it says that the State Negotiation Team (SNT) should ‘push for the country’s national interest’ when negotiating with developers, pointing especially to the Papua LNG and Wafi-Golpu projects.

The Bank of PNG proposes:

  1. The introduction of a Capital Gains Tax on real property including mining and petroleum licenses
  2. Reform of the current Extractive industries fiscal regime
  3. Review of tax incentives
  4. Meeting of Domestic Market Obligations (DMOs) to secure gas for domestic uses
  5. Third Party Access to allow development of other resources

The MPS points to ‘serious concerns’ about the ‘broad exemptions and concessions’ given to the PNG LNG Project.

The report said it ‘rendered the Central Bank ineffective in the enforcement of certain provisions of the Exchange Control Regulation, and consequently the PNG economy has missed out on foreign exchange inflows, tax receipts, and other matters of national interest.

PNG is in the black on trade flows (current account) but in the red on financial flows (Capital and Financial account). Source: BAPNG

Budget deficit

In 2018, there was a budget deficit of K2.048 billion or 2.5 per cent of nominal GDP, according to the reportwhich expressed concerns about the level of public debt.

‘Over the last seven years, the budget deficits under the Government’s expansionary fiscal policy have been financed by increased borrowing, as revenue did not grow sufficiently to meet increased expenditures.

‘As a result, total public debt continued to increase in 2018 to K25.606 billion, or 31.1 per cent of GDP, and is planned to increase further in 2019.

‘The continued high budget deficits and debt level are a cause of concern for fiscal sustainability and its impact on macroeconomic stability.’

Annual headline inflation has declined from an average of 5.4 per cent in 2017 to an average of 4.5 per cent in 2018.

It is forecast to be 3.5-4 per cent for 2019.

The Bank said it expects to keep interest rates steady for the next six months.

The kina depreciated against the US dollar from US$0.3095 at the end of December 2017 to US$0.2965 in the March quarter, reflecting high import orders.

Against the Australian dollar, the kina appreciated from A$0.3967 at the end of December 2017 to A$0.4195 in the first quarter of 2019.

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Scott Waide: Will PNG project reviews mean more benefits for landowners?

This year is a crucial year for Papua New Guinea’s mining industry as important players – in Hela, Porgera and Madang – are being examined over their performance. 

Scott Waide | April 7, 2019

Just into the fourth month of 2019, and resource projects in Papua New Guinea have come under scrutiny.

Early last month, senior ministers of government, including Petroleum Minister Fabian Pok, traveled to Komo in Hela for meetings with landowners of the gas project.

After 15 years, there is some progress. Or at least that’s the positive spin to it.

There appears to be some indication that royalties locked away due to legal battles and tangled by bureaucratic red tape were going to be paid – but only after landowner identification processes.

Finance Minister James Marape told the media three months ago, that K300 million (NZ$132 million) is parked at the Central Bank ready to be released. But landowners or people claiming to be landowners had to follow a process of “landowner identification” in order to be paid the money.

There is some hope of an end to disputes. However, the final settlement is still a long way off. That’s the reality. Many of the elders died waiting for the royalty payments they were promised.

Since becoming a new province, there is still a lot that needs to be ironed out. The Hela provincial government still has to work its way through layers of bureaucratic processes that continue to favour the Southern Highlands in terms of royalty payments from the gas project.

It’s all that and a lot more.

Background to complexities
Understanding the background to the complexities of the resource project in Hela means going back some 20 years when oil extraction ended and the promise of Papua New Guinea becoming the Saudi Arabia and Dubai of the Pacific faded as the crude oil taps shut off.

It is against that backdrop that the neighbouring Enga province is now looking at the Porgera mine’s renegotiation through a wardens’ hearing. This is a process that is reopened after the end of a mining lease.

Landowners and the Enga provincial government are looking at a bigger slice of revenues and benefits.

What did they get over the last 30 years? That’s a point of contention for pro-mining and anti-mining proponents.

What is visible to the international community is the campaigns against alleged atrocities committed against local people in Porgera and the desperate push by locals to get what little crumbs they can from a mine that has existed for 30 years on their land.

For the first time in more than three decades, it appears the national government is speaking a different language: One that calls for greater benefits into government coffers and landowner pockets.

This rhetoric has come after 30 years of gold extraction, 500 shipments of liquefied natural gas and billions of dollars worth of round log exports.

Production-based tax
In Lae, during the opening of the Central Bank’s Currency Processing Facility, Deputy Prime Minister Charles Abel talked about a production-based tax. Instead of a profit-based tax for resource projects which will be signed from 2019 onwards.

The general thinking from the national government is that a profits based tax can be deceptive leaving the government with very little to collect if a mining company declares losses or breaks even.

While Porgera discusses mine benefits, a similar process is happening in Madang. Triggered by an agreement between the Chinese and the PNG Governments, Ramu Nickel’s expansion is in discussions ongoing between the government and the developer.

The processes are long and drawn out. The risk is that without proper representation, landowners could be left with another raw deal for several more decades before another opportunity for renegotiation presents itself.

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Seems politicians are selling PNG

Concerned Taxpayer | Post Courier | 25 March 2019

Papua New Guinea is heavily reliant on revenues from the development of its abundant natural resources, which are owned by the country and its people.

Prudent management and development of the resources is the key to achieving sustained economic growth and development of this nation and its citizens. It will enable PNG to progress and achieve the status of a developed country.

Some of the obvious cases where politicians and their associates have made very poor decisions and sold the interest of this nation are in the development of mineral, petroleum, and gas resources.

The favourable and generous tax and other concessions granted to the PNG LNG Project and Ramu Nickel project, and the fast-tracking of project agreement negotiation and conclusion for some of the large gas and mining projects by way of signing of memorandum of agreements (MOUs) in recent times, is a clear demonstration that politicians are selling this nation very fast without due care.

The fast rate of growth in the nation’s debt in recent years is mainly a result of declining revenues from natural resources, and is a consequence of the poor judgment and decisions by our politicians and their associates.

This debt will consume all future revenues and the current and future generations of PNG will struggle to make ends meet.

There will come a time when PNG will deplete its natural resources and the nation will decelerate into poverty and despair, with all sort of social and economic problems, if our politicians continue to make poor judgment and decisions on economic policy and commercial interest of our country.

They key issues resulting in the on-going poor judgment and decisions are following:

– Politicians do not have the experience and technical skills for dealing with complex policy matters and commercial operations, which lends them easily susceptible to strong influence and control of interested parties and project developers;
– Government institutions lack institutional capacity and technical skills for dealing with complex policy matters and commercial operations, which lends them easily susceptible to strong influence and control of interested parties and project developers; and
– The lack of good governance resulting in the lack of transparency and accountability in dealing with complex policy matters and commercial operations. This compounds poor judgment and decisions made by Government bureaucrats and politicians.

The solution is to make the negotiation and decision making process of natural resources development in PNG become a fully transparent and accountable process. This also means that any relevant documents will become publicly available and accessible for use by the public. It will assist improve the quality of judgment and decisions made by the politicians and their associates.

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Landowner identification in PNG: a job for government

Credit: Celine Rouzet

Peter DwyerMonica Minnegal | Devpolicy Blog | March 21, 2019

The Papua New Guinea Liquefied Natural Gas (PNG LNG) project commenced exporting gas to China, Korea and Japan in May 2014. Under agreements reached in 2009, landowners of eight petroleum licence areas, eight pipeline licence areas and a liquefaction plant site near Port Moresby were to receive royalties. By February 2019, payments had been made to people in only the last of these areas. The identification of landowners has been a major difficulty, and assigning responsibility for completing the task has been a matter of debate.

At the close of 2018, social mapping and landowner identification studies carried out by consultants to petroleum companies, clan-vetting exercises carried out by officers of the Department of Petroleum and Energy, and alternative dispute resolution processes implemented by the judiciary had failed to solve the problem. By this time too, agreements for two other LNG projects (in Western Province and Gulf Province) were under discussion. In January 2019, Petroleum Minister Fabian Pok told parliament that the government would not repeat the mistakes of the first LNG project. He wanted the companies to be responsible for identifying landowners in the new LNG project areas and he wanted this done before those projects moved to production. On January 23rd, referring to the Gulf Province LNG project, Prime Minister Peter O’Neill said that the government “had tasked the developer to do the landowner identification process” and Minister Pok reported that Total – the developer – had agreed to do this.

The small print is not yet to hand so we cannot be sure just what the government has requested or what Total has agreed to do. Here, however, we argue that ceding responsibility for landowner identification to the petroleum companies is a seriously bad idea – bad for the companies, the government and for the people of Papua New Guinea.

Under the Oil & Gas Act 1998, final determination of landowner beneficiaries for a petroleum licence area is to be made by the responsible minister and gazetted as a Ministerial Determination. Recent determinations provide a record of landowner beneficiary identification for specified licence areas or pipeline segments. Those determinations name clans (variously ‘major clans’, ‘stock clans’, ‘beneficiary clans’) but do not name individuals within those clans. With reference to differential benefit-sharing arrangements they may subdivide clans as ‘highly impacted’, ‘least impacted’ and ‘invited’.

The diagram below shows some categories of landowner beneficiaries appearing in recent determinations and in clan-vetting exercises that precede and feed into those determinations. On the diagram, the boundaries of the lands of clans A to G are shown relative to a Petroleum Development Licence (PDL) area. Clans A, B and C are classed as landowner beneficiaries on the basis of long-term residence and use. Clans D and E are ‘invitees’ initially recognised as landowner beneficiaries on the basis of boundary-sharing with A, B or C with the possibility that they are subsequently granted equivalence with those clans. Clan F is classed as a landowner beneficiary on the basis of asserted ancestral connection and an ideology of rights to land being held in perpetuity. Clan G is an ‘invitee’ recognised as a landowner beneficiary on the basis of assistance rendered to A, B and C. H is a private citizen, or group, that holds registered title to a portion of the PDL area and, on this basis, under the Act is a landowner beneficiary.

The concept of ‘landowner’ is being used here in a broad and fluid sense. It is not used in agreement with any likely academic definition, with any detectable legal rigour or in conformity with a pan-PNG ideology of tenure because, of course, there is no pan-PNG ideology of tenure. The Oil & Gas Act requires that a company applying for a PDL must submit a “full-scale social mapping study and landowner identification study of customary land owners” of that licence area. Under the Act, customary landowners are persons whose relationship with the land has to do with “rights of proprietary or possessory kind”. Not all clans identified as landowner beneficiaries in Ministerial Determinations satisfy this definition. And the status of others, both the included and the excluded, as members of this category will be always amenable to contention. Several possibilities are implied in the diagram.

For example, a judgement that clan C was ‘more impacted’ than A or B because all land attributed to C is within the PDL area while portions of land attributed to A and B lie outside that area, could be challenged by the latter clans on the basis of area or numbers of people affected. Similarly, members of A, B or C could well have different opinions regarding acceptance of D or E as ‘invitees’ and their possible upgrading to the status of landowner is even more problematic in being politically, rather than empirically, motivated. Inclusion of F as landowner will be dependent on assessing the validity of accounts of ancestral connections from claimants who may well have competing agendas. Finally, inclusion of G could elicit claims from other clans that assert that they too provided assistance to A, B and C. Resolving problems of these kinds cannot be achieved by an anthropological study of ‘in situ’ land ownership. These sorts of problems are ultimately resolved only by facilitated negotiation with those charged with identifying landowners, or by litigation.

No petroleum company can produce a list of clans that will conform to, or satisfy, the sorts of decisions that currently inform Ministerial Determinations. They did not do so in the past and they cannot do so in the future. If companies now assume responsibility for producing a definitive list of landowner beneficiaries, there will no longer be any ambiguity about who to blame or who to take to court when the list is considered defective. The fault will be theirs. On these counts, the desire to shift responsibility – or at least the perception of responsibility – to the petroleum companies might, in the short term, prove beneficial to the government in domains of financial management and public relations.

There is, however, another reason why responsibility for identifying landowners should remain with the government. Only Papua New Guineans – the PNG government, courts, and the landowners themselves – can determine who owns the land in Papua New Guinea. This responsibility should not be ceded to outsiders. It should not be ceded to American, Australian, Chinese or French companies. Papua New Guinea is not their country. They are guests. Only Papua New Guineans can determine what is right for Papua New Guinea. The petroleum companies should recognise and acknowledge this and step back from this area of decision-making. The government should also recognise and acknowledge this and step forward to ensure that the rights of all Papua New Guinean woman and men are guaranteed by Papua New Guineans.

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Exxon Mobil tops list of Australia’s top 10 tax dodgers

Exxon Mobil have topped the list of Australia’s biggest tax dodgers and has ‘dudded the poor people of Papua New Guinea’

Michael West | The New Daily | March 20, 2019

Whether it is misleading the Parliament of Australia, cutting its workers’ wages, paying zero tax while racking up $33 billion in income, sending gas prices into the stratosphere or dudding the poor people of Papua New Guinea, Exxon has flair.

It is also a master of intrigue. You won’t find the financial reports for ExxonMobil Australia on its website, you won’t even find the name of its directors, despite the size of this operation. You certainly won’t find their photographs without Googling madly and paying for company searches.

You absolutely won’t find mention of 585 entities Exxon has in the Bahamas, or for that matter, any breakdown of related tax-haven associations.

How is it that this, the biggest of the US oil majors, a corporation that has been making fabulous profits in Australia for 50 years, can pay zero income tax? How does it skin its taxable income in this country back to zero?

In fact, ExxonMobil (under the trading name ‘Esso’) drilled Australia’s first offshore well through a joint venture with BHP Billiton, when it discovered the Barracouta gas field in the Bass Strait in 1965.

Two years later Kingfish was found, the first offshore oil field, which to this day remains the largest oil field discovered in Australia.

How is it that with record, eye-watering gas prices, Exxon pays no income tax?

Its financial statements provide a few clues: Massive “debt-loading” – its Australian companies borrow billions of dollars from other Exxon companies overseas and funnel hundreds of millions of dollars out via interest payments on the loans.

And finally it has been pinged for it. Its 2018 financial report discloses the Australian Tax Office has been investigating Exxon’s related-party loans and has busted it for being slippery, issuing amended income tax assessments for 2010 and 2011.

Exxon brazenly notes it might sue the tax office, or settle, as it continues to “negotiate” over what it claims is fair pricing. These fighting words are typical of a bullying multinational oil giant.

Yet. it also notes the fight with the ATO has implications for 2012 to 2017 and Exxon is acutely aware of what befell its peer, Chevron, which muscled up to the ATO and lost an historic case, for pretty much the same practice – aggressive “transfer pricing of money”.

Post the four-year ATO tax transparency figures, Exxon’s latest financial statements show more of the same – thanks to spiking gas prices, cashflow jumped from $8.2 billion to $11.3 billion. Profits were wiped out by massive related-party debt.

Tax rose from $341 million to $508 million. But guess what? Not in Australia. This tax booked in the Australian entity, although the accounts don’t specify it, and although Exxon executives refused to be interviewed about it, represents tax paid in other countries, namely Papua New Guinea and Indonesia.

Further, they have lobbed in petroleum resource rent tax (PRRT) as income tax, when it has the quality of a royalty for extracting non-renewable resources from the seabed.

And then there’s the monster debt, the monster weapon of tax avoidance: Some $1.8 billion in finance charges over the past two years on Exxon’s eye-watering debt of $17.6 billion – debt owed to itself, offshore, debt to suck the profits out of Australia along with the gas.

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