Pressure on MRDC to come clean on LNG revenue

Isaac Lupari chairs MRDC where “everything it does is shrouded in secrecy”

Mekere Morauta | PNG Attitude | 25 September 2019

The Mineral Resources Development Corporation (MRDC) needs to publish up-to-date audited details of its group finances since PNG LNG gas production began in mid-2014.

MRDC manages landowner equity interests in both mining and petroleum projects and is chaired by chief secretary Isaac Lupari.

It is estimated that almost K1 billion in landowner royalties has flowed into its coffers since then, but virtually none of that money has reached its rightful owners.

And, contrary to claims by MRDC last week, I am advised that the company has not paid any dividends on the investments it has made on behalf of landowners from their royalty payments.

Hundreds of millions of kina have been invested, but are these profitable, sound investments?

MRDC can make flowery statements, empty promises and false and irrelevant denials, but the fact is that, without publishing its accounts, it cannot prove what it says is true.

It cannot demonstrate that it is operating according to the law, or that landowners are receiving a fair return on their funds.

MRDC’s independent auditors have refused to sign off financial statements. The auditor-general has refused to sign off financial statements. And MRDC has not supplied financial statements to the auditor-general or the Investment Promotion Authority as required.

This is why it is so important that the public inquiry into MRDC proposed by prime minister James Marape goes ahead as soon as possible. In the meantime MRDC should immediately come clean on the state of its finances.

It is in the landowners’ interests that current information verified by independent auditors and the auditor-general is made available.

Failure to supply that information will only heighten public suspicions that all is not well at MRDC. Has there been waste, abuse and mismanagement? The public, as owners of this state corporation, has a right to know.

The information required includes details of trust accounts and other accounts holding landowner funds, the cost and current value of MRDC’s investments, returns on those investments to landowners, withdrawals of landowner funds and details of board approvals for them, payments to all directors and management, fees charged by MRDC to subsidiary companies, and payments to suppliers.

A media release issued last week by MRDC consisted of spin and misinformation. The dividends the company claimed to have been paid are not dividends from MRDC’s investment of landowner funds. They are dividends paid from underlying resource projects as a result of equity participation negotiated by the State.

Nor can MRDC legitimately claim any increase in asset values because its financial statements have been called into question by its independent auditors and the auditor-general.

The value of MRDC’s investments using landowner funds is singled out for criticism by its auditors and the auditor-general. There are other question marks over short term deposits, receivables, related party balances, income tax and financial statement disclosures.

Other comments made by MRDC have an equally unsound basis – none of the documents or processes it refers to in its media release are open to public scrutiny. MRDC, unlike most other state-owned enterprises, does not even have a website.

Everything MRDC does is shrouded in secrecy. It has not provided up-to-date information or full information or even correct information for years.

Now is the time to provide it.

Mountain of allegations & many questions about MRDC scandals

Mekere Morauta | PNG Attitude | 12 September 2019

New information about the scandal-plagued Mineral Resources Development Corporation has become available, reinforcing the urgent need for an inquiry into its operations and the status of the hundreds of millions of kina it manages on behalf of landowner companies.

There is now a mountain of allegations about MRDC and its landowner subsidiaries. I expect that in the coming weeks more will be revealed about their dubious activities and the real value of the investments they have made, purportedly in the interest of landowners.

The latest revelations affirm prime minister James Marape’s decision to hold an inquiry into MRDC, and add substance to existing allegations of possible fraud, misappropriation, abuse of office and breaches of various laws including the Public Finances (Management) Act, the Companies Act and the Auditor-General’s Act.

It is in the public interest that these allegations are fully tested in a formal inquiry.

The new allegations came within a matter of hours of public comments in defence of MRDC and their own operations by Gulf Governor Chris Haiveta, the interim chairman of MRDC landowner company Petroleum Resources Gobe, and John Natto, the chairman of MRDC’s Petroleum Resources Kutubu.

They covered a wide range of activities by MRDC and its subsidiaries, including the expenditure of landowner trust funds I identified in parliament on 4 September.

One example is K30 million that was allegedly withdrawn from an MRDC subsidiary’s account in November last year.

Landowners have an absolute right to know the details of the processes involved in its use, the people responsible, the purpose of the expenditure, and the ultimate destination of the funds.

There are some important questions the prime minister’s inquiry should consider in this specific instance:

Where did the K30 million come from – was the ultimate source an account held by Petroleum Resources Gobe?

Was the K30 million drawn down in November 2018, and was approval granted by the PRG board at that time?

Was a board meeting, not attended by landowner directors Philip Kende (then chairman) and George Kisi, held in January this year to restrospectively ratify the draw-down?

Is it true that the K30 million was then split between Petroleum Resources Kutubu and Mineral Resources Star Mountains then shifted out, purportedly to pay for a shortfall in finances for the construction of the Hilton Hotel/Star Mountains Plaza?

On what authority did PRK and MRSM accept the transfer of funds to their accounts and is there any documentation to support the transfer?

Can the MRDC, PRK and MRSM boards demonstrate with documentation that the money was actually used on the Hilton, and not for some other purpose?

These are just some of the concerns about MRDC and its landowner subsidiaries raised by credible sources. Other allegations have been made about MRDC’s involvement in HeviLift, Dirio Gas and Power, resorts in Samoa and Fiji, the Four-Mile Casino, Ela Beach land and Moran Haus in Lae.

It is clear from the reaction of MRDC that it is terrified of being exposed to the disinfectant of sunlight – it would much rather its activities remain hidden from scrutiny.

I have been reliably informed that extraordinary measures have been taken by board and management to cover up their activities, including IT measures and video surveillance of staff members.

In the face of this MRDC campaign against transparency and accountability, I encourage members of the public with information about MRDC and its activities to contact the Police Fraud Squad

The decision by the MRDC group not to publish all its audited accounts means that public suspicions and questions will not go away.

So I urge Governor Haiveta and Mr Natto to use their influence and involvement to ensure that MRDC publishes all the group’s outstanding audited financial statements.

It is the lack of verified information, and the refusal of auditors and the Auditor-General to sign off on many financial statements, that give credence to the public’s fear that all is not well within the MRDC group.

Marape holds Singapore talks over PNG trust fund

Radio New Zealand | 19 June 2019 

Papua New Guinea’s prime minister has led a delegation to Singapore to find a way in to a trust fund the government has been locked out of.

In his first overseas trip since taking office last month, James Marape met with officials from the PNG Sustainable Development Program on Sunday.

The company manages about $US1.4 billion of assets through a long term fund which was set up to hold profits from the Ok Tedi copper mine in Western Province.

Since the government of Peter O’Neill expropriated the mine from the SDP in 2013, it had been in a protracted court fight to gain control of the long-term fund parked in Singapore.

Singapore’s High Court ruled against the government’s claim in April. Following this, and a change in government leadership, PNG’s new prime minister Mr Marape is seeking a different approach.

He said on Facebook the aim of his trip was to find common ground with the company managing the fund.

The prime minister was accompanied by MPs from Western Province whose constituents are intended to be direct beneficiaries of the SDP’s projects and long-term fund.

Mr O’Neill, who indicated that the government would appeal the Singapore court ruling, portrayed the government’s aim in the case as being to ensure the company’s funds were given to the people of Western Province.

It remains to be seen whether that appeal will proceed, with Mr Marape advocating a discourse-based approach to dealing with Sustainable Development Program.

The SDP was established in 2001 when BHP Billiton divested its majority share in the lucrative Ok Tedi copper mine in Western Province to SDP.

The divestment followed legal action by Western Province landowners over extensive and long lasting environmental damage caused by the mine operations, particularly its riverine tailings disposal system.

April’s court decision was welcomed by the four Western MPs, who said it would ensure SDP was protected from political interference and that its assets went to the people.

However, the money in the fund is intended to be disbursed by SDP within Western Province when the Ok Tedi mine closes. The mine is still operational.

O’Neill’s rushed Papua LNG deal could cost taxpayers $45 billion

“Analysis of the gas agreement seen by the Financial Review claims that this missed condensate income, along with a fleet of exemptions from goods and services taxes, could cost the PNG exchequer $US20 billion-$US30 billion over the life of the project. The same analysis values exemptions from dividend and interest withholding tax at upwards of $US15 billion“.

Oil Search gas play a target in latest PNG power play

Matthew Stevens | Australian Financial Review | May 7, 2019

A former prime minister of Papua New Guinea has claimed that a technical study prepared for the government has raised doubt over the quality of a Papuan Basin gas and liquids discovery that has so far lured $4.5 billion of acquisition investment by Total, Oil Search and Exxon.

Sir Mekere Mourata said on Friday that a study “available” within the PNG Department of Petroleum says the Elk-Antelope gas and condensate discovery that has lured investment by two super majors and the Australian-listed Oil Search could prove a marginal and excessively risky investment for the state.

The study that has fired up Sir Mekere was written by a consultancy called Sarkal Energy and it was delivered on December 31. According to the widely respected former PM, the review reveals “five major problems” at Elk-Antelope. The most profound of them is the claim that there is less recoverable gas than had been stated in past communications with the government and that the gas is of poorer quality than assumed.

“The report suggests that progress on the project should cease until a detailed independent assessment of the Elk-Antelope field is carried out,” Sir Mekere said in the latest of a recent flood of his bellicose “public statements”.

“It says the financial risk to Papua New Guinea is too high not to conduct such an inquiry. If the project fails, according to the report, the cost to PNG could be up to K20 billion ($8.5 billion),” Sir Mekere advised.

Given the wild political times being lived in PNG and Sir Mekere’s standing as an MP opposed to the present leadership, these are claims that need testing. So, naturally, we asked Oil Search people to respond. They did not.

Not every expert’s view

Certainly though, it needs to be noted that this gloomy view of Elk-Antelope’s prospectivity stands in violent contrast to those of two rather better-known independent experts and of the usually equally informed internal technicians at Oil Search.

And the idea that gas majors both super and regional that are steering a $16 billion growth story might have so thoroughly and consistently overlooked the potential that recoveries at Elk-Antelope will be sub-standard is, frankly, a little hard to accept.

Separate assessments of Elk-Antelope in 2016 by sector-leading independent experts Netherland Sewell & Associates and Gaffney, Cline & Associates certified the fields’ contingent resources at 6.1 trillion cubic feet (tcf) and 6.9 tcf respectively. And Oil Search’s internal reserve modelling puts the gross resource near 6.45 tcf.

While that is not quite the potential that was marketed by the discoverer of the novel Elk-Antelope play, a Singapore listing called InterOil, it is certainly enough to justify its acquisition by Exxon for $US2.5 billion in 2017.

To secure that deal Exxon had to fight off Oil Search, which bid for InterOil after earlier acquiring a 22.84 per cent slice of the Elk-Antelope concessions. That 2014 deal cost $900 million. And it was funded from the proceeds of the $1.24 billion that was raised in delivering a 10 per cent stake in Oil Search to the PNG government.

PNG funded its recovery of a 10 per cent stake in Oil Search through a debt raising led by UBS that has been the subject of domestic and regional controversy pretty much ever since.

As The Australian Financial Review reported back in 2014, the then treasurer, Don Polye, lost his job after objecting to the debt raising on the grounds that it was unconstitutional and a breach of budget debt law.

In March the Financial Review reported that Swiss authorities were investigating the circumstances of the UBS loan to assess whether it breached local regulations.

Gas heats O’Neill dissent

PNG’s Prime Minister back in 2014 was Peter O’Neill. And, for the moment at least, the hardest man of PNG politics still has that job. O’Neill has successfully stared down frequent challenges over recent years, but this week his grip on power seems as vulnerable as at any point since his rise to the top in 2011.

One of the trigger points for a threatened no-confidence motion against O’Neill is the April 5 agreement the government signed with the proponents of $16 billion worth of expansions to PNG’s most successful resources developments, the PNG LNG project.

This is an expansion of two parts that involves adding three new liquid natural gas trains to the two that began their campaign back in 2014. One of those new trains will be fed by gas provided by the current joint venturers. The other two are supposed to be filled by gas from the Total-led Papua New Guinea joint venture, which will draw its gas from Elk-Antelope.

High among the issues of contest triggered by the April agreement is that it appears to preclude the usual free-carry arrangements that are offered to host governments of small nations that own equity in capital-heavy resources projects.

It seems, instead, that the agreement assumes that the state will borrow from the other joint venturers whatever funds are necessary to cover its 22.5 per cent equity participation in the expansion.

This prospect has created anxiety in some corners of government not least because there is no indication as to the potential interest rate on the lending nor, indeed, what appetite there may be among the partners to offer funding.

There is concern, too, that marketing rights for the entirety of PNG equity share of the expansion gas has been passed to Total, which is the major owner and operator of the Elk-Antelope play.

Through successive public statements of complaint about the content and processes of the April agreement, Sir Mekere has made particular complaint about the way the expansion gas project is to be taxed.

The expansion trains have been deemed a gas project. They attract a 30 per cent tax take in PNG. But the project will produce maybe 92 million barrels of condensate. It is light oil. Sir Mekere reckons this is extracted through a separate process and it should be taxed at the same 45-50 per cent rates that were demanded of the Kutubu oil development.

Analysis of the gas agreement seen by the Financial Review claims that this missed condensate income, along with a fleet of exemptions from goods and services taxes, could cost the PNG exchequer $US20 billion-$US30 billion over the life of the project. The same analysis values exemptions from dividend and interest withholding tax at upwards of $US15 billion.

“On most of the country’s standard fiscal terms we have exempted the developers of the two important projects, the PNG LNG and Papua LNG,” the analysis complains.

“The critical issue is will a project of such magnitude and size ever be developed in the country again where PNG will have chance to negotiate better deals for the country?

“The gas resources we have discovered left for future development account for smaller volumes if each discovery is to be developed along like the case of Papua LNG.”

Total go slow?

Now, separate to that, we understand there is growing frustration at the lack of urgency of Total’s efforts to procure development approval for Elk-Antelope.

An internal petroleum ministry briefing note written as recently as March 27 complains that the documentation so far presented by Total lacks the “technical detail that the department requires in order to make a decision” on the application for a development licence.

The note, which was written by the acting secretary of the department, Lohial Nuau, made its way into the public arena via Facebook.

“Based on the fact that none of the required documents have been submitted and the Department of Petroleum has no ability to verify any of the important economic parameters provided by Total in the economic analysis,” Nuau wrote.

The point about the complaint is that the department was being asked to make assessment of the terms of the landmark PNG LNG-Papua LNG gas agreement.

The acting secretary noted that the want of Total’s development application and its supporting technical data made it difficult for the department to make informed input to the landmark gas agreement. The agreement was signed just nine days after Nuau’s briefing note was written.

Would it be too cynical to imagine that, with the PNG LNG-Papua LNG agreement now a done deal, Total’s deeply informed application will now land with a thump with the acting secretary?

Doubt Over Value Of Elk Antelope Gas Field

Post Courier | May 6, 2019

The secrecy and haste surrounding Prime Minister Peter O’Neill’s approval of the gas agreement for the Papua LNG Project may be hiding a multi-billion kina problem for Papua New Guinea – the value and viability of the Elk-Antelope gasfield that underpins the project.

A report available in the Department of Petroleum suggests that the field has five major problems, according to former prime minister and Northwest MP Sir Mekere Morauta.

He said the gas may not be anywhere near as extensive as first thought, nor as easily extractable, there is a high water content, the gas is of low quality, requiring expensive treatment, and the geology of the field is suspect.

“Mr O’Neill’s haste and secrecy, and his sidelining of the State negotiating team and the department of petroleum, may result in a multi-billion kina loss for the nation,” he said.

“These questions should have been resolved prior to the approval of the Gas Agreement by Mr O’Neill.

“Instead we have the acting secretary of the Department of Petroleum telling us that a large number of critical documents have not been filed by the project partners, and critical processes have not been completed.

“I do not have a view one way or the other about the veracity of the doubts being expressed.

“But they are sufficiently serious to warrant a comprehensive and independent investigation, which would be in the national interest.

“Something smells very fishy here. It goes right back to Mr O’Neill’s decision to take out the UBS loan to buy 10 per cent of Oil Search, enabling the company to buy a share of Elk-Antelope from the discoverers, InterOil.”

He said the report suggests that progress on the project should cease until a detailed independent assessment of the Elk-Antelope field is carried out.

It says the financial risk to Papua New Guinea is too high not to conduct such an inquiry. If the project fails, according to the report, the cost to PNG could be up to K20 billion.

PM must come clean on Papua LNG

Logo at French oil and gas company Total gas station in Marseille. REUTERS/Jean-Paul Pelissier

PNG Blogs | April 29, 2019 

The Member for Moresby North-West, Sir Mekere Morauta, today questioned the legitimacy of the Gas Agreement the O’Neill Government has signed with the Papua LNG partners, saying the Prime Minister and his cronies have hijacked the approval process and put State and landowner interests at risk.

“I have seen evidence from a variety of sources that suggests we are heading for a repeat of the PNG LNG model which has brought few benefits to the state and landowners,” he said. “Peter O’Neill has shut out the State Negotiating Team and gone with a Gas Agreement that is largely the work of Total, ExxonMobil and Oil Search.

“The Department of Petroleum and other Papua New Guinean experts have been sidelined in favour of shadowy participants in the O’Neill Government’s corruption, waste and mismanagement. Why?”

Mr O’Neill’s interference in due process opens PNG to another financial disaster, as it did with PNG LNG and the UBS-Oil Search loan, Sir Mekere said. It risks resource owners not being paid their royalties and development levies, as has happened with PNG LNG. Mr O’Neill has still not provided answers as to where he has secreted the money, whether it is still there, and when resource owners will be paid.

It means that once again foreign resource giants have been granted huge financial and tax concessions that will cost the nation billions of kina in lost revenue. Mr O’Neill’s mismanagement of PNG LNG means the operation is still paying virtually no tax.

It means that questions remain about the actual technical and financial viability of the project. “Will it become another financial and social burden on ordinary Papua New Guineans that PNG LNG has become because of Mr O’Neill,” Sir Mekere asked

“Mr O’Neill and Total and its partners have many questions to answer. For now, I want to know why the State Negotiating Team and the Department of Petroleum have been sidelined. Who is advising Mr O’Neill?

“A potentially expensive and dangerous failure of due process has resulted from Mr O’Neill and his cronies taking over the negotiations. These failures are outlined in a letter to the Chief Secretary from the Department of Petroleum immediately before the Gas Agreement was initialed by Mr O’Neill and then signed by the participants.”

Acting Secretary Lohial Nuau wrote on March 27 that at least 11 critical documents have not been provided by Total which are required before any commercial and financial terms can be agreed to, nor has the Department received the required Application for a Petroleum Development Licence.

“The APDL, as per the Oil and Gas Act 1998, will require supporting technical documentation that will give confidence to the Department of Petroleum of proven gas and oil reserves, investment cost, project schedule and environmental compliance,” he wrote. “These are key parameters in the economic model and therefore form the basis for the commercial and fiscal negotiations.

“The department has received and reviewed from Total preliminary documents … for the purpose of discussing the APDL application process. These documents have shown little progress on the Papua LNG project and are NOT at the level of technical detail that the Department requires in order to make a decision on an APDL. In addition in the letter from Total of February 8, Total committed to an APDL application on March 15, 2019. Until today the Department has not received such application.

“Based on the fact that none of the required documents have been submitted and the Department of Petroleum has no ability to verify any of the important economic parameters provided by Total in the economic analysis, I come to the following recommendations to the SNT:

1. Because no Application for an APDL and associated licenses have been submitted. On January 29 2019, I requested Total, as required by the Oil and Gas Act 1998, to apply for these permits and provide the Department of Petroleum with the supporting documentation urgently.

2. As the Department of Petroleum has not received the application for the APDL including any of the Technical documentation required by the Oil and Gas Act 1998, the Department cannot review and endorse any of the key economic parameters provided by Total in their economic model. Therefore the Department recommends for Total to urgently submit the APDL and all supporting documents before input can be provided to the Gas Agreement.

3. Social Mapping and Landowner Identification process still has to be completed. Therefore there is no proper due diligence by the stakeholders on the Gas Agreement. The Department recommends for Total to urgently complete the SMLIS. “

Sir Mekere said: “These are damning comments from the department. They are supported by evidence from other experts who have been following Papua LNG progress, and are alarmed at the multi-billion-kina risks that Mr O’Neill has exposed the nation to.

“I am also concerned about reports of visits to China by O’Neill officials in the company of Total executives. I am surprised at Total’s willingness to associate itself so closely with Mr O’Neill and his cronies. I would hate to hear any suggestion of a special sale of an interest in Papua LNG.

“A new Government must review the agreements personally entered into by Peter O’Neill to make sure that the State, the landowners and the developers share the risks and the benefits fairly,” Sir Mekere said.

O’Neill’s lies show he still wants to get his tentacles on $1.4 billion

War of Words Over PNG SDP Gets Even Hotter

Mekere Morauta | April 25, 2019

The Member for Moresby North-West, Sir Mekere Morauta, said today that Peter O’Neill’s statement that BHP Billiton and I created PNGSDP as a private company with four shareholders, one of whom is me, is a deliberate lie manufactured by a man desperately trying to repair his public face following the comprehensive win by PNGSDP in the Singapore Supreme Court.

“Peter O’Neill also lied to the Singapore Court, through the State’s affidavit, saying he had a document giving the State the power to control PNGSDP,” Sir Mekere said. “He failed to produce the document as evidence to the Court, and the court decision exposed him as the liar he is 

“Why did he not produce such a document? Because no such document exists. He made it up, hoping this would convince the Singapore Court.”

“Why is he still lying? Because he wants to get his tentacles on the $1.4 billion in PNGSDP’s Long Term Fund.”

PNGSDP was established by the State of Papua New Guinea, BHP Billiton and Inmet, the shareholders of Ok Tedi Mining Ltd in 2000, to hold the BHP shareholding (then 52%) gifted by BHP.

The object of PNGSDP was to invest two-thirds of the future dividend flows from the shares into a Long Term Fund to be used after mine closure for sustainable development in Western Province. One-third of the dividend income was spent on development projects throughout the country, including Western Province.

PNGSDP was established as a not-for-profit company, limited by guarantee. It has no shareholders. In such company structures, used by charities, NGOs, sporting groups and other similar organisations, shareholders are replaced by members. I am a member of PNGSDP, not a shareholder.

Members do not derive any benefit from a limited guarantee company, as shareholders would from a limited liability company. The Program Rules, set jointly by the Government of PNG and BHP, prescribe that the benefits from PNGSDP flow only to PNG and Western Province.

Singapore documents purportedly showing I am a shareholder are pro-forma documents that do not provide for companies limited by guarantee. They do not provide for members instead of shareholders, as happens in many jurisdictions.

“The statement that I am a shareholder of PNGSDP is a naked, diabolical lie,” Sir Mekere said.

“Increasingly, it seems that the Prime Minister is fabricating stories to cover his own misdeeds. If he actually believes his own lies, we should all be worrying about not only his level of intelligence, but also his sanity.

“The man is not fit to be Papua New Guinea’s Prime Minister.

 “Peter O’Neill’s ceaseless attacks on PNGSDP and on me are due to his failure to gain access to the Long Term Fund – which is what he wants, desperately.

 “He was not satisfied with the extremely valuable shareholding PNGSDP had in Ok Tedi, which he expropriated in 2013. He also wants the Long Term Fund, which now stands at over $1.4 billion. He wants the lot.

 “I want to assure the people of Western Province that their money in the Long Term Fund is safe, and will continue to be safe, whilst it is managed by an independent PNGSDP. 

“It was my instruction to the advisory team when PNGSDP was established that the company was to be protected from political influence – from the tentacles of octopuses.

“The Singapore Court decision proved the independence of PNGSDP. I am proud that I led the fight and won it for the people of Western Province.”

O’Neill Loses in High Stakes Battle for Control of US$1.4b PNGSDP

Papua New Guinea state fails to wrest control of US$1.4b stake in PNGSDP

K.C. Vijayan | The Straits Times | 5 April, 2019

The government of Papua New Guinea (PNG) has lost its protracted battle in the Singapore High Court to wrest control of an entity with assets worth about US$1.4 billion (S$1.8 billion) that were spawned from a deal inked with the “largest mining company in the world”.

Justice Vinodh Coomaraswamy has ruled in favour of PNG Sustainable Development Program (PNGSDP) company, saying the state of PNG had failed to prove it had a deal with PNGSDP’s co-founder BHP Minerals Holdings, for joint control to develop PNGSDP assets.

It also failed to prove that there was a charitable trust that allowed the state to intervene.

“I have found that neither the agreement nor the trust exists. The pleaded breaches of the agreement and the trust must correspondingly fail,” Justice Vinodh said in decision grounds on Tuesday.

The outcome means PNGSDP is free to carry out its objectives under the control of its independent board according to the 2001 contractual framework, without interference from the state.

Justice Vinodh, in his 149-page judgment, addressed each of the arguments made as he explained why the state had failed in its bid to wrest control of PNGSDP from its independent board.

“I acknowledge I found the state’s narrative compelling and its logic attractive. But the essential problem… is that this narrative stands alone and is unsupported by the evidence,” he said.

The court examined each key plank of the state’s case and found in addition that none of the state’s witnesses pointed to the existence of a partly oral agreement, much less to the terms of that agreement.

The court found that in the context of a “sovereign nation” and “the largest mining company in the world”, it was likely that the parties would have entered into written contracts “definitively and exhaustively setting out the precise terms actually agreed, instead of exposing their minds to the vagaries of memory and ambiguity inherent in a partly oral agreement”.

The high-stakes court battle involved law heavyweights on both sides. Defending PNGSDP was a team led by Senior Counsel Philip Jeyaretnam from Dentons Rodyk & Davidson while WongPartnership’s Senior Counsel Alvin Yeo led the team representing the PNG government.

PNGSDP was incorporated in Singapore in 2001 with two shareholders: the state of PNG and BHP Minerals Holdings and was meant to enable BHP to divest its shares in mining company Ok Tedi Mining to PNGSDP.

Both parties intended PNGSDP to hold BHP’s shares in Ok Tedi Mining and apply the derived income to promote sustainable development in PNG.

BHP owned 52 per cent and the state 20 per cent of the mine, which was rich in gold and copper and highly profitable.

The judge noted there were several reasons PNGSDP was incorporated in Singapore and these include its robust corporate governance regime.

In 2012 and 2013, PNGSDP made material changes to its corporate governance framework which diluted the state’s powers of control and oversight over the company.

The PNG government sued to reverse the changes.

It argued, among other things, that it would not have agreed to form PNGSDP if the company was free to cast off the state’s rights of control and oversight.

PNGSDP countered that the structure of the parties’ written agreement left no scope for such a critical aspect of PNGSDP’s corporate governance framework to be left “entirely undocumented in that suite of contracts and to be the subject of an oral agreement”.

It added that the common intention in PNGSDP’s formation was to eventually make it a self-run and self-perpetuating organisation and the changes made in 2012 and 2013 were the next step in effecting the common intention.

Justice Vinodh said the dispute is “about corporate governance of PNGSDP”.

He added: “For all the reasons set out, I hold the state fails entirely in its claim against PNGSDP. It is not entitled to the relief sought.”

‘Reform PNG’s Resource Ownership Laws’

Henzy Yakham | Post Courier | September 12, 2018

The conversation on ownership of natural resources has intensified in recent times with the issue moved from the simmer-back to hot-and the front-burner.

In the forefront and pressing for revolutionary reforms in the resource ownership regime are two of PNG’s founding statesmen – Sir Julius Chan and Sir Mekere Morauta.

Both Sir Julius and Sir Mekere played very significant roles during pre-independence years as architects to craft the foundations of PNG’s currency, banking and financial institutions, which in succeeding years underwent further reforms to improve their service delivery.

Today, the two former prime ministers are calling for changes to the resource ownership laws so that the original inhabitants of land and sea where the natural resources are found have fair and equitable benefits. In November 2013, despite not attending a Madang meeting of governors from maritime provinces due to prior confirmed official engagements, Sir Julius provided a brief paper to his colleagues on the development of PNG’s extractive industries, ownership of natural resources and related issues. Included in the brief was Sir Julius’ stance that land/resource owners’ rights to own natural resources on and under their land and sea as his proposed remedies in the mining industry.

The brief highlighted a number of aspects in which PNG has failed to structure the mining industry for maximum value to PNG and its citizens. With the brief were comparisons of mineral royalty rates of PNG (which are among the lowest in the world), and other countries which include:

Poland: 10 per cent contained metal value
Ghana: 3 -12 per cent sliding with price
Canada: 15 per cent (British Columbia) taxable income; 18 per cent (Ontario) of taxable income 20 per cent; (Quebec) of taxable income
Mozambique: 10 -12 per cent diamond; 5-8 per cent precious metals
Mexico: 8 per cent gold
Botswana: 10 per cent diamonds; 5 per cent precious metals
United States: 12.5 – 16 per cent Oil; 8 – 20 per cent precious metals
Papua New Guinea: 2 per cent gold; 2 per cent copper

Sir Julius maintains that PNG’s mining regime is grossly distorted and unfair because billions of kina are earned, but the real land, and resources owners simply do not realise their fair share of the benefits.

In a nutshell, he has been pushing for among others:

– Royalties raised to 10 per cent f.o.b. annual revenues;
– SSG raised to 10 per cent f.o.b. annual revenues and SSG payments should be made directly from the company to the province;
– Tax Credit raised to 10 per cent of assessable income and funds should be placed in an account the year of eligibility with no time limit on the use of funds;
– The State receive at least 30 per cent equity in all mining projects free of charge, and should convey a significant portion of this equity to the province, the LLG and the landowners;
– Twenty per cent (20 per cent) of all royalties, special support grants, tax credit and dividends from equity holdings be placed in a separate account to be used for development projects in non-mining provinces; and
– The Mining Act 1992 be comprehensively reviewed and amended, specifically such that ownership of all minerals on and below the sea is vested in the province in whose waters minerals are located.

PNG’s Mining Act 1992, states that all minerals existing on, in, or below the surface of any land in PNG, water lying in any land in PNG, are the property of the State. During colonial rule, the mining and petroleum laws of PNG were adopted based on Australian precedents, giving the powers of ownership of resources in the Administrator. Under the common law of England, minerals belong to the owner of the land under which they are found.

The British Common Law, inherited by Australian colonies upon white settlement, included a presumption that the owner of the land is entitled to all that lies above and below the surface.

Natural resources such as minerals were regarded as part of the land in which they naturally occurred and accordingly passed into private ownership upon Crown grant of the land. Despite these arguments, in the end the Australian Statutory Law in place during colonial times prevailed over both PNG law and British Common Law, this was formalised in the Mining Act 1992. However, it is very clear that State ownership violates both traditional PNG law and British Common Law.

In April 2013, Sir Julius told the Parliamentary Referral Committee on Minerals and Energy inquiry into the review of Mining Act 1992 that under current laws, PNG simply gives away all its wealth and then buys it back at an exorbitant price.

On August 19, 2013, Sir Julius was the Keynote Speaker at the Department of Mineral Policy and Geohazards Management (DMPGM) organised regional consultation meetings in Kokopo, East New Britain Province on the proposed changes to Mining Act 1992. There, he outlined the way in which the mining regime in PNG has failed the people and the way it should be changed for the greater benefit of the people and provinces.

On May 14, 2009, Sir Julius proposed reforms in natural resource ownership laws in a motion tabled in Parliament.
The underlying intention of the motion was for the transfer of the resource ownership to landowners of where the resources are found. As well, the motion proposes for increased benefits for landowners, provincial governments and the country in general.

Sir Julius argues that as a direct consequence of the arrogation of all mineral, oil and gas reserves on land and below the land and sea by the State have been a massive give-away of the national wealth of PNG.

On September 4, 2018, Sir Mekere asked Prime Minister Peter O’Neill a series of questions based on important national issues raised by Sir Julius in his reply to the inaugural address of the Governor General in opening this Parliament.

Sir Mekere prefaced his question to Mr O’Neill by quoting Sir Julius “to remember that in our democracy the final power is the power of the people. We are here for one reason only – to serve the people”.

“I want to take a wider view of the challenges we face. For though we have some short-term problems to tackle, I fear there are even more grave problems looming over us.

“I have never known a time when our country was in greater peril.”

After quoting Sir Julius, Sir Mekere asked Mr O’Neill what the government position on Sir Julius’ recommendations among others to:

– Increase the level of royalties from the current 2 per cent to 10 per cent;
– Increase the level of Special Support Grant and the Tax Credit Scheme;
– Establish a Trust Fund in which 20 per cent of revenues of mining provinces would be paid to distribute to non-mining provinces;
– Revise the Mining Act 1992 and the Oil and Gas Act 1998 to vest ownership of resources in the people;
– Introduce a Derivation Grant for mining and petroleum provinces of 5 per cent of the value of resources originating in that province;
– Increase Autonomy of Provinces, provinces “that demonstrate capacity to manage their own affairs. The autonomy was to cover administrative and financial autonomy and autonomy over non-renewable and renewable resources.

Answering Sir Mekere’s questions, Mr O’Neill said “the Mining Act is under review at present and I will not pre-empt the discussions and the outcomes of that review that is taking place.

“The Mining Minister and his team are already well advanced in those discussions. There will be an opportunity for this Parliament to look through that review and the new Mining Act, which will address all these issues, including royalties, the powers of the provinces with respect to the mining activities in those provinces and the management of the trust funds.

“There has been a gross abuse in the management of some of the trust funds and we are all aware and are trying to correct that as we move forward.

“I can assure you, that the people of Papua New Guinea, particularly the landowners will get a better share of the benefits of the resource development in this country.

“That is the priority of this government and we will continue to pursue it through the mining review which is now being conducted and is still continuing.”

PNG government to sue BHP Billiton over alleged environmental damage

Children playing in tailings downstream from the Ok Tedi Mine in Papua New Guinea, 2009. (Brent Stirton/Getty Images)

ABC News | 11 April 2018

Papua New Guinea’s government says it will sue Australian mining giant BHP Billiton for alleged environmental damage in the Western Province when the company was operating the country’s largest copper mine in the 1990s.

It’s not the first time legal action has been touted.

In 2004, a massive law suit representing thousands of PNG landowners, was dropped after settlement was reached, which included compensation.

PNG’s Prime Minister Peter O’Neill says the government will also initiate an independent commission of inquiry into the PNG sustainable development program, which has been a subject of a court case in Singapore.

Former PNGSDP Chairman and Opposition member of Parliament Sir Mekere Morauta says Mr O’Neill doesn’t understand the purpose of the project.

Bethanie Harriman has the story: Listen Here