Tag Archives: LNG

Sovereign Wealth Fund Is Our Security

Barney Orere | Post Courier | August 22, 2017

Concepts such as Dutch Disease are risks that threaten macroeconomic stability and consequently the long term development of the economy. This requires a forceful and comprehensive response from Government at all levels.

Given the fact that there is heavy dependence on the non-renewable sector; that is, petroleum and minerals, the current generation arguably has clear obligations to ensure that the benefits from their exploitation is available to generations that will come later.

Of importance will be the manner in which the State manages the increase in economic activity and resulting fiscal flows. The implementation of large scale projects such as the PNG LNG in a small economy such as PNG poses considerable challenge in terms of macroeconomic management also.

To minimize the potential negative impact of the considerable increase in financial flows and economic activity on the national economy, the Government policy was to ensure that a Sovereign Wealth Fund structure was implemented in the lead-up to increase in fiscal flows.

A Government submission says that whilst PNG LNG Project forms the backdrop of the implementation of Sovereign Wealth Fund (SWF) in PNG, it was to be expected that the SWF, upon establishment, was likely to be the recipient of financial flows from a range of projects or sources.

The submission which had its cover page removed was found in a warehouse quite by chance. Although some progress could have been made on the SWF, the lack of conversation has prompted the matter to be brought out into the open and there are insights which, hopefully, will get the conversation going.

The idea behind a Sovereign Wealth Fund (SWF) was to secure PNG’s future by putting away savings from major resource projects. Parliament passed the enabling law and five years later conversation on SWF needs to come out stronger.

Time has become of profound essence because earnings from PNG LNG will be flowing in a less than three years from now and without a SWF in place, where will we put the money?

The country is at a critical crossroad because without a management mechanism in place, the synergy effects of vast earnings in a small economy will be the cocktail for the dreaded Dutch disease.

What is more troubling than ever is the lucrative nature of SWF; the nation’s future security will need to be conducted at the most highest level of integrity and that means transparency and accountability. Hopefully this isn’t one of our greatest obstacles because we mess it up now and there’s nothing for future generations.

On February 22, 2012, Parliament passed the Organic Law on the Sovereign Wealth Fund; a high profile initiative that has the potential to be a significant contributor to the welfare of the people, stability and growth of the Independent State of Papua New Guinea for generations to come.

The statutory objectives of Sovereign Wealth Fund are:-

  • TO support macroeconomic stabilization,
  • TO support the development objectives of the Government, including long-term economic and social development, and,
  • TO support asset management in relation to assets accrued from natural resource revenue.

The SWF was to consist of:-

(a) A Stabilisation Fund, to manage the impact of fluctuation of mineral and petroleum revenues on the economy and on the national budget, and,

(b) A Development Fund, to provide definite and ongoing funding for economic and social development in accordance with the development plans of the Government.

The author/s of the submission noted that the organic Law on Sovereign Wealth Fund creates the following stakeholders to be involved in running the SWF:-

  • SWF Board to oversee the SWF (Section 16 of the Organic Law on SWF)
  • Minister responsible for Treasury matters to determine the investment mandate for the SWF board and receive and consider reports from the board (section 6),
  • SWF Appointment Committee to appoint members of the SWF board (section 22)
  • Independent Probity Auditor to consider probity issues associated with the operation of the SWF (section 39), and ,
  • Secretariat to assist with the operational aspects of the SWF (section 31).

Certain matters regarding the composition, functions and governance of each of these stakeholders are set out in the Organic Law. However, details of how these stakeholders will manage the SWF and interact with each other have not been fully provided for in the Organic Law.

Section 42 of the Organic law provides for regulations to be passed in future which are necessary to give effect to the Organic Law on SWF.

The submission recommended that in advance of the start of revenues being ready for deposit, the National Executive Council should take action to implement the Organic Law on SWF with the view to ensuring that it was fully operational prior to operations starting at the PNG LNG Project. To this end a working committee was suggested to take charge of implementing the Organic Law.

PNG has already made dozens of LNG shipments.

When the Post-Courier raised the dangers of Dutch disease in a feature, Treasury Secretary, Dairy Vele made a statement a day or two later, that tax revenue from the PNG LNG Project would not be seen until 2020 (or thereabouts). He took the trouble of explaining how complicated the project was and made no mention of proceeds from any shares that might be held in the project; only the tax component.

PNG borrowed about K14 billion to get the PNG LNG Project off the ground.

When Prime Minister Peter O’Neill took office after the 2012 General Election, he spoke of starting the Sovereign Wealth Fund but the conversation gradually faded as he got embroiled in the tussle over the Independent Commission Against Corruption and other legal squabbles that confronted him.

The aim of the Organic Law on SWF was the establishment of the appropriate structures for the management of PNG’s increased resource wealth.

We see now from the submission that we’re dealing with a very lucrative organization. But it is the decisions that will be made that will protect the future of PNG.

With the earnings from the PNG LNG coming up, as indicated by the Treasury, work on SWF must begin because there are still some outstanding bits and pieces to attend to. Time is of essence because this is the entry point for Dutch Disease to set in. We will have so much money to throw around we will wreak havoc in our small economy; that is the danger.

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Benefits Delivery From PNG LNG Must Improve

Oil Search Managing Director Peter Botten Has Called For An Improvement On The Disbursement Of Funds Owed To Landowners Of The PNG LNG Project

Post Courier | August 21, 2017

Oil Search managing director Peter Botten has called for an improvement on the disbursement of funds owed to landowners of the PNG LNG project.

The calls are in light of the ongoing debate pertaining to the benefits being derived from the oil and gas business.

Speaking at a business breakfast last week hosted by the Business Council of Papua New Guinea (BCPNG), Mr Botten told business and government leaders including the Prime Minister Peter O’Neill, that he believed there is a broad feeling that the recent developments have delivered little over the last few years.

“Benefits delivery from PNG LNG must improve. Landowners must be paid.

“The money is there, some have already been paid but barriers to revenue distribution must be removed,” he said.

“Over K3billion has been paid by the project in royalties, development levies and equity distributions to the State and landowners since 2014.

“Maybe not as much as some people expected but still it’s a considerable sum,” the managing director said.
Prior to these statements, Mr Botten had told the business and government leaders that with the right environment oil and gas production can more than double over the next five to seven years.

“Potential investment over K60billion in developments, appraisal and exploration are possible in this time frame. Construction can lead to over 20,000 new jobs with significant other spin off economic activities,” he said.

However he stressed there were many issues to resolve to make this happen.

He said a prerequisite to success is developers engaging with government, landowners and indeed the whole country to demonstrate fair value distribution for all parties must be achieved from existing projects.

“One that people feel is right value for resources extracted, one where developers work with state to deliver infrastructure address service delivery and support both economic and social development of the country,” Mr Botten said.

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PNG LNG Willl Not Be Another Bougainville Crisis: Duban

The Mention Of Another Bougainville Civil War , As A Result In The Delay In The Payment Of The PNG LNG Project, As Speculated In The Debates In Australia In The Past Few Days “Is Nonsense And Unwarranted”.

Post Courier | June 14, 2017

The mention of another Bougainville civil war , as a result in the delay in the payment of the PNG LNG project, as speculated in the debates in Australia in the past few days is nonsense and unwarranted.
Petroleum Minister Nixon Duban was responding to questions put to him by the Post-Courier, on Tuesday, pertaining to reports carried in the overseas media on this issue.
While also in light of reports that had surfaced over the weekend of a planned protest by aggrieved landowners from the Central Province.
The protest did not eventuate at the plant site outside of Port Moresby.
However, the issue of royalty payouts to landowners came under the spotlight in Australia when questions were raised, by one of its senators as to why the Australian government through its Export Finance Insurance Corporation (EFIC) had not taken measures to ensure royalty payments were made.
The minister had expressed disappointment that some senior politicians had joined in the chorus inciting fear in the whole debate, reminding them that they were part of the O’Neill government until recently.
He had reiterated that the main reason for the delay of payment in the early payment of landowner benefits, was that many legitimate landowners had not been identified in the project area in Hela.
Mr Duban said PNG LNG project has a lifespan of over 50 years.
He said the landowners were fully aware and would not destroy something that would sustain their livelihood and that of the generation to come.
“Bougainville stemmed out from serious discontentment over what was poorly structured landowner benefits package.”
“PNG LNG landowners are given a much better deal with the foundation LNG project showing significant signs of expansion.
“I believe the growth potential will come with new opportunities and improved better deals for PNG and our landowners,” he said.
He assured investors and stakeholders that the project was in safe hands.

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Spotlight on Australian govt financing role in LNG Project

“So the Australian tax payer’s getting paid and the population of PNG is not”

Radio New Zealand | 13 June, 2017

The Australian government’s Export Finance Insurance Corporation has been questioned in the senate about its role in Papua New Guinea’s LNG Project.

EFIC’s US$350 million loan to the PNG LNG Project was the biggest ever foreign loan made by Australia’s government.

There’s been particular scrutiny applied to EFIC’s response to the non-payment of royalties to LNG Project landowners.

PNG’s LNG Project, lead operated by ExxonMobil, has been successfully shipping annual exports worth billions of dollars since 2014.

However landowners in the project area say they have not been paid royalties promised them under the project’s founding agreement, estimated to total US$300 million.

Western Australia’s Senator Scott Ludlam took EFIC to task over why it had not taken measures to ensure payments were made.

“So I understand that, May 2017, the 300th shipment of LNG left Port Moresby, but the payment of royalties owed to landowners under benefit sharing arrangements hasn’t even begun,” he said.

EFIC’s director of environmental and technical review, Jan Parsons, told the senator royalties were not its responsibility.

“It’s the benefits, the royalties as you say, which only started flowing after LNG gas started being exported.”

“That is the part which is managed by the government, and the project has no role in that, legally or morally, if you like,” he said.

“And my understanding of the problem that’s holding up the distribution of those payments is identifying the actual people who should be receiving the payments.”

Senator Ludlam sensed EFIC was trying to distance itself from its project obligations, by identifying royalties as strictly a government matter.

“It’s easy to say that it’s not a project matter. But landholders have been dispossessed. They’ve been told that they’d be paid out.”

“There’s an amount of benefits which I understand is in the range of 400 million Australian dollars which hasn’t actually hit the ground. And this thing is busy exporting PNG LNG over the horizon.”

According to PNG’s Treasurer for the past three years, Patrick Pruaitch, the identification process Mr Parsons referred to, or clan vetting, should have been completed well before the first LNG shipment left PNG’s shores.

Mr Pruaitch admitted the Peter O’Neill-led government, of which he had been a key member until recent weeks, had failed to resolve this issue.

Jan Parsons would only offer that the Project was trying to help the government in identifying the landowners who should receive the royalties

“And in speeding up the payments, because it’s in the Project’s interests. But that’s something the project is doing, not as a legal matter, but being a good neighbour, if you like.”

Senator Ludlum mentioned reports of an arms build-up and escalating tensions among landowners in the region where LNG Project’s well heads are based, the Highlands province of Hela.

“When does the Commonwealth start to get its money back?

EFIC”s chief credit officer John Pacey stepped in to answer the question

“Repayments have already commenced.”

“So the Australian tax payer’s getting paid and the population of PNG is not. That seems a little peverse,” Mr Pacey said. 

“What are the risks to Australia being repaid if we end up with another Bougainville on our hands through civil unrest, armed or otherwise, in the impact area where people are likely pretty pissed off that they’re 400 million dollars short of the royalties that they’re owed?”

Export Finance Insurance Corporation wouldn’t be drawn on impacts of a “hypothetical” situation, telling the senator it had evaluated risks of the project, but not specifically about the potential for armed conflict in relation to the project.

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Landowners threaten to shutdown LNG Operations

NBC News | PNG Today | June 12, 2017

Landowners in the Central Province are set to close down the PNG LNG site on today over unpaid compensations demands since 2014.

They held a meeting with representatives from operator ExxonMobil, Department of Petroleum and Energy, PNG Ports and Police yesterday.

The meeting was to stop the people, comprising four beneficiary villages of Papa, Lealea, Boera and Porebada from staging their protest.

However, landowner spokesman and Association Secretary, Robert Kauga said, their minds are made up and they won’t back down on their decision to carry out the protest until the government pays them their outstanding royalties and equities.

Mr. Kauga said the people are already fed up with the continuous lies and promises of payment by the government.

“They are admonishing us not to stage the protest but we cannot back down now, we have already prepared everything,”he said.

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Government Given 14 Day Ultimatum

Lynette Kil | Post Courier | June 7, 2017

The four LNG landowner villagers – Papa, Boera, Rearea and Porebada have given the government  a 14 day ultimatum to response to their petition.

“The government must address the issue of royalty and equity payments, the land mobilisation funds and the alleged illegal appointment of chairman of PNG LNG Plant Site,” said Boera Heritage Association president Muri Henao.

The landowners in the PNG LNG Project plant site have urged the government to start campaigning on changes for itself then for the people.

Henao made this remark during a press conference organised by the LNG Plant Landowners Association Inc .

Henao said the people have not experienced any changes in the community and landowners are still suffering.

“I really don’t know what the government is campaigning about as we have been betrayed.

“Our money was used to host the Pacific leader’s summit and cater for the 2018 Asia Pacific Economic summit, what will the government give to its people,” he said.

Henao expressed disappointment over non compliance from the office of the Chief Secretary Isaac Lupari of numerous letters concerning the landowner’s grievances.

Other representatives from the affected landowners’ villagers share the same sentiments and are demanding that the government respond to their petitions within 14 days.

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ExxonMobil employee held hostage in PNG’s Hela province

Extractive industries bring upheavals to Papua New Guinea communities: earth-moving underway for the ExxonMobil-led Liquefied Natural Gas project in Hela Province. Photo: RNZI / Johnny Blades

Radio New Zealand | June 5, 2017

A scientist working for ExxonMobil in Papua New Guinea was held hostage last week by armed tribesmen in Hela Province who wanted police to release a local warlord.

The men, who were carrying home-made firearms, abducted the woman from the vicinity of the Komo airfield on Friday as they were on their way to the Tari police station to demand the release of their kinsman.

The police commander for Hela province Michael Welly said the woman was held for two hours at the most before being released.

“The hostage takers went into the camp, got this female employee and held her hostage and demanded that police release the suspect so my men had to give in to their demand and release the suspect who initially had the home-made firearm on him,” said Superintendent Welly.

“We know those suspects involved in the hostage situation. We know their identity. We will have them arrested soon.”

Superintendent Welly confirmed that the woman, an employee of Exxon Mobil, is an environmental scientist with the Liquefied Natural Gas (LNG) project and that she was from coastal PNG.

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

Exxon Mobil praised the police handling of the incident.

“Exxon Mobil is taking very seriously the abduction of one member of its staff in the vicinity of Komo airfield on Friday,” said an ExxonMobil spokesperson.

“We are relieved to say that the incident was resolved quickly and that all our staff are safe.”

The company said the issue was not directly related to PNG LNG activities.

“We continue to encourage constructive dialogue as the means to resolving tensions.

“Exxon Mobil PNG is committed to maintaining a positive relationship with landowners, the government and the wider community,” said the company spokesperson.

PNG security forces parade at the launch of the election security operation in Mt Hagen. Friday 26 May 2017. Photo: PNG EMTV online

Michael Welly said it was an isolated incident and not related to the upcoming national elections, which have prompted a beefing up of security in the province in recent months.

He said there were strategies in place to deal with aniticipated security issues in Hela during and after polling which starts on 24 June and is scheduled to run over two weeks.

“I am hoping that the response unit that is going to be deployed into Hela province is done soon enough so that I can strategically locate them in the hot spot areas that I think we need to maintain for the smooth running of the elections,” said Michael Welly.

Mr Welly said the response unit had been gearing up in Mt Hagen over the weekend in preparation for deployment from Tari.

He said he was hoping to get two police mobile squads and two platoons of defence force personnel for the election period.

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