Tag Archives: Michael Somare

The inside story of a gas deal gone bad

Australian Financial Review | February 15, 2020

Along the Fly River in the remote Western Highlands province of Papua New Guinea, a region best known for coffee plantations and tribal headwear, a gas boom was taking hold.

Chancers and prospectors mixed it with the world’s oil majors, all seeking to transform this region of waterfalls and dense jungle into a new jurisdiction for liquefied natural gas (LNG).

ExxonMobil, France’s Total and Australia’s Oil Search had all staked a claim as the new decade began in 2010. Less well known, but no less ambitious was the ASX-listed Horizon Oil, which was looking to thread together a series of smaller development licences to support a new pipeline and LNG plant.

The pay-off would run to at least eight digits, at a time when natural gas billionaires were being minted from central Queensland to south Texas. For a company like Horizon, which saw its market value hit $550 million as the gas boom peaked, getting to first production in the Pacific nation was always going to be a sizeable task.

Then the politics of PNG intervened.

After early attempts to resist “the bad guys”, as one of its lawyers put it, Horizon chose to engage with the then minister for petroleum and local powerbroker, William Duma – a decision that has come back to bite it nine years later.

The company, which saw its stock price drop 30 per cent this week, is now confronting allegations it repeatedly ignored corruption warnings and paid $US10.3 million ($15.4 million) to a politically exposed shell company.

That company, Elevala Energy Ltd, listed its sole director and shareholder as Simon Ketan, a man with close personal and business links to Duma.

The documents, obtained by The Australian Financial Review and which reveal in granular detail how Horizon operated in PNG, are now being examined by the Australian Federal Police, which said it takes “allegations of foreign bribery very seriously”.

See also: WILLIAM DUMA: FROM MANU MANU TO HORIZON OIL

Point of no return

Horizon has also stood aside its chief executive Michael Sheridan, a 17-year veteran of the company, as it conducts an independent investigation.

It has all the makings of a grubby little scandal.

But at the same time, it’s hard to see how it could have played out any differently from the moment Horizon wrote to then petroleum minister Duma, in November 2010, saying it was “open to any suggestion” on how the “current tension might be defused”.

At that point there was no turning back.

The files document in tropical colour the narrow line Horizon was already walking in PNG, with a seemingly endless list of paid political consultants and community affairs managers, who were chasing rumours about shifting power structures, seeking “per diems” for provincial staff and arranging drinks with the then prime minister Sir Michael Somare and his daughter Betha at Port Moresby’s Airways Hotel.

Then came the task of managing warring villagers, joint venture partners, feasibility studies, and chartering helicopters for access to remote locations.

It was high finance and geoscience meets local politics and the everyday challenges of PNG, a country the World Bank ranks as poorer than Sudan.

Into this environment strode the former investment banker Brent Emmett, who had taken over as Horizon chief executive in 2000 and been joined three years later by Michael Sheridan, as chief financial officer.

Together they had refocused the company’s attention on PNG and by mid-2008 were running hard at this emerging LNG jurisdiction with stakes in three prospective oil and gas licences.

Their timing was good.

By 2009 Morgan Stanley was reporting that land under lease in PNG had increased fivefold over the previous seven years and it predicted a rush of deals and ballooning asset values.

But Emmett was unsure how best to play this boom.

Tricky terrain to navigate

In one email he pondered whether he should prove up the resource and commercialise slowly or go for the land grab.

To make such a call, Horizon, which also had assets in China, New Zealand and the United States, needed to better understand the local political terrain, which was notoriously tricky around licence transfers and renewals.

In an attempt to smooth out these wrinkles, Emmett organised to introduce himself to Duma, while Sheridan was charged with meeting Sir Michael Somare and daughter Betha at the Havanaba bar within the Airways Hotel, famous for its leather armchairs and antique cabinets.

“It was a pleasure to meet you and welcome you as yet another investor in our country even though you have been here before,” Betha wrote to Sheridan in June 2008.

From that point, Horizon began to get serious: the company set up an office in Boroko and hired a country manager.

By October 2008, Morgan Stanley’s prediction was already being realised when AGL sold its 3.6 per cent interest in the giant pipeline and processing plant known as PNG LNG for $1.1 billion.

It was a reminder of how much was at stake.

Vulnerable to political pressure

By May the next year, Horizon was also in on the action – selling half of its interests in two licences, PRL4 and PRL5, to Thailand’s P3 Global Energy Co for $US55 million, almost three times more than analysts believed the assets to be worth. The company’s share price soared.

But things weren’t as rosy as they appeared.

Behind the scenes, the Thais were questioning their investment, and Horizon was working overtime to get someone else – Canada’s acquisitive Talisman Energy – on the hook.

At the same time, with increasingly larger amounts at stake, the local politics started to get complicated. And unlike the big diversified players, Horizon couldn’t simply threaten to walk away. Its big bet was in PNG.

The company’s big pay day was contingent on firming up its gas resources to build its own pipeline and LNG-processing plant or tap into one of the existing projects. Even then its resources were on the marginal side, which meant any loss of acreage was potentially fatal for its ambitions.

That left it exposed to political pressure and everyone knew it. Enter PNG’s former petroleum minister and deputy prime minister, Sir Moi Avei, who Horizon hired as an adviser to the board, despite one industry contact warning he may be “implicated in some dubious licence deals etc”.

Those claims were never tested, but the public record shows just a year earlier, Sir Moi was found guilty on three counts of “misconduct in office”. He was fined $1500 and forced out of parliament.

‘You scratch my back …’

That was apparently no obstacle for Horizon as Sir Moi set about working the corridors and securing the company’s licences. In outlining his role to Emmett and Sheridan, he stressed the importance of face-to-face meetings and not stepping on the “turf” of other fixers, managing relationships within the department and at the village level. And when it came to handling Duma, he was clear how the minister operated.

“I’ve been helping Minister Duma out for the past 6 weeks because the LNG project is in my backyard. You know how the system works ???you scratch my back and I’ll scratch yours’,” he wrote.

But Sir Moi, who one source described as the epitome of PNG’s “big man culture”, quickly came to see the political winds shifting against Horizon.

“With regards to the minister [Duma] I can sense he is up to something. He did call me two weeks ago but somehow we have yet to meet in person. I’m still chasing him,” he wrote in November 2009.

He was right. Duma was indeed “up to something”. The trigger for the minister to make his play was a move by Horizon‘s joint venture partner, the South Australian energy giant Santos, to sell out of its interest in one licence. That suddenly became a road-block.

Sir Moi characterised these as “basic” issues, that could be untangled once Horizon understood the “process”. He warned the company’s failure to stay with the “process” would see it become a “political pawn”.

“We need to avoid [this] at all cost. I will elaborate when I see you and Brent,” he said.

Licence in jeopardy

By July, those fears were out in the open, and rumours were swirling. One engineer warned Duma “has done this before”. “[He] rescinded a licence and resold to someone else,” the company was warned. “Duma has a buyer.”

As the reality of losing a licence worth more than $100 million grew, a series of heated emails were exchanged. The Department of Petroleum and Energy accused the operators of failing to keep the site in “good standing” and not having spent the agreed amount.

Horizon and joint venture partner Santos responded with strongly worded legal letters. But on June 28, 2010, Duma served a notice that PRL5 was to be cancelled. Horizon countered by taking the unprecedented step of suing the minister, the department and the Petroleum Advisory Board for an unfair loss of licence. It was taking on a corrupt and broken system.

“I want to convey a message to Minister Duma, that’s he’s got a real dog fight in [sic] his hands,” Sir Moi emailed.

Horizon‘s lawyers at Blake Dawson said the company had strong support in the industry for its stance. “The good guys are all pretty stirred up by these goings on,” the company was told.

Then the company abruptly changed tack with a grovelling letter.

“Minister, we very much regret that this issue [the revoked licence] has led to the current situation [the litigation],” Emmett wrote to Duma. “As always, we remain open to any suggestion from you as how the current tension might be defused.”

The message got through and by March 2011, a sealed settlement had been negotiated and approved by the court. Horizon would keep 70 per cent of PRL5 (now known as PRL21), and the minister would award the other 30 per cent at his discretion.

From the minister’s discretion a 10 per cent stake in PRL21 would be given to the shell company Elevala Energy Ltd, a company without the experience or capital to develop such a complex asset and whose sole shareholder, Simon Ketan, had close personal and professional links to the minister.

In the weeks following this grant, Horizon would ignore repeated corruption warnings and buy out Elevala for $US10.3 million, a price tag which was revealed on Monday by the Financial Review after remaining secret for nine years.

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New investor for Frieda welcomed by Somare

The National aka The Loggers Times

EAST Sepik Governor Sir Michael Somare has welcomed PanAust as the new investor in the Frieda River project.

Sir Michael met with PanAust external affairs general manager Richard Taylor early this month and was briefed on the agreement with Glencore/Xstrata to take a majority interest in the project.

The former prime minister urged the company to replicate the success and sustainability performance it had achieved in Laos.

He acknowledged that PanAust would have the advantage and the benefit of so many years of collective exploration data and the extensive drilling of the Frieda resources which is now very well understood, having a better definition of the resource and what the resource or ore bodies actually look like.

“There is little doubt that it is a fantastic resource and as such a fantastic opportunity for all those who will be involved in this project,” Sir Michael said in a statement.

The governor favoured the PanAust proposal to commence the project on a revised scale as this would improve the project economics and potentially reduce the impact of the project in the early stages.

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PNG’s mine grab is not OK with BHP

Darryl Daté-Shappard | Channel Nine news 

Doing business in other countries always has that element of uncertainty that business calls “sovereign risk”, and it deals with how a host government may use its power to influence, control or, in extreme cases, take over, companies or industries.

You usually hear about a government “nationalising” a company, which is a euphemism for grabbing total control with no fair compensation to the company. Usually, you see this in developing countries that want more control, power and/or money from a business that is legitimately operating in the country.

Then comes the news that the Papua New Guinea government has passed a parliamentary resolution that it will basically rescind the 63% ownership of the Ok Tedi copper and gold mine, held by a company set up in the wake of an environmental disaster caused by BHP Billiton, and issue new shares that it will own and control. They owned the other 37% already, so this makes the government now 100% owners of the mine and its earnings.

The original disaster occurred in the 1980s and early 1990s when mining waste material, “tailings”, were not contained properly, and were flushed into the region’s river and water system, affecting the environment and ecosystem of 50,000 people who lived downstream of the mine.

A deal was struck between BHP and the PNG government that in exchange for giving BHP immunity to a damages or civil suits, BHP would surrender its 63% ownership of the mine, and have a custodial company set up to administer the mine. Any earnings would be held, invested and used for the local populace as compensation for the industrial accident.

Twelve years on, the PNG government, led by Prime Minister Peter O’Neill, has now moved to take over the mine and income stream, causing controversy in PNG itself because the local populace around the mine and its landowners were receiving money from the revenue the mine was generating, as well as a fund was set up to invest sales proceeds as an ongoing compensation system.

Now, under the newly ratified scheme, the PNG government will be the recipient of earnings, and will administer how those funds are appropriated and invested. The charitable trust that has been managing funds, PNG Sustainable Development Program, estimates that the mine generates in annual dividends about 450 million kina (AU $180 million), and the mine itself may be worth 2 billion kina (AU $804 million).

Along with taking control of the mine, the PNG government has also rescinded the immunity against industrial and civil suits that BHP had agreed to in lieu of giving up its controlling shareholding in the mine. BHP is trying now to downplay liability that it may have in any potential legal suits.

The former Prime Minister of PNG, Sir Michael Somare, has voiced his opposition to this legislative move, and performed a walk-out of the parliament before the vote was taken. He feels that this is sending a very bad message to international companies that work in PNG or are looking at starting business there.

He said,” If there was to be any move by Mr O’Neill to bring everything in to Papua New Guinea there should be proper dialogue with people who have so much confidence in this country, they invested so much here, and there should be a dialogue of discussion. You discuss it before you take a drastic decision like this. Parliament are keen to take over an asset it gives a strong message, wrong message, to the international world.”

Foolish takeway

Sovereign risk has been involved in Rio Tinto’s negotiation battles with the African nation of Guinea’s government over control of its Simandou mine project.  Also, as we have reported, working with governments as part-owners can cause its own headaches even if they don’t try to take over.

When companies propose plans for overseas business and development, they must also project and estimate costs and probabilities of sovereign risk into their budgeting. It’s pointless to invest millions and billions into a new venture only to have it taken over or diminished by host governments’ need for control or extra income.

As an investor,  you too have to factor this credible expense and threat into your own reasons for or against investing in a company.

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PNG government takes control of Ok Tedi mine, orders BHP Billiton to pay for pollution in the Fly River

Liam Fox | ABC Radio Australia

The Papua New Guinea government has rammed legislation through parliament giving it complete ownership of the controversial Ok Tedi mine.

Standing orders in parliament were suspended late yesterday so prime minister Peter O’Neill could pass a bill for the state to take complete ownership of the Ok Tedi copper and gold mine on the Fly River in Western Province.

Ok Tedi Mine spewing waste into the Ramu river

Ok Tedi Mine spewing waste into the Fly river

Tailings from the BHP mine caused widespread damage to the Fly River in the 1980s and 90s.

In a deal with the then government in 2001, BHP divested its majority share of the mine to a charitable trust called the PNG Sustainable Development Program, and in return was granted legal immunity.

The mine has continued to operate with the profits being used to promote development in communities affected by the pollution.

Mr O’Neill says the decision to grant immunity to BHP was a bad one and must be corrected.

He has told parliament the deal is unfair and BHP Billiton must own up to its responsibilities resulting from the mine tailings washing down the river.

“This parliament has done gross injustice to our people, denying their right to have access to have their say and have their claims against the damage that was done to the environment and themselves,” he said.

“This proposed bill now removes that waiver for BHP Billiton, meaning that the land owners or any other affected party are free to bring any action or enforce any right.”

The PNG Sustainable Development Fund had owned 63 per cent of the mine, with the state owning the rest.

The bill cancels PNGSDP’s shares and issues new shares to the state, giving it complete ownership.

Mr O’Neill says the government is not taking the shares and PNGSDP will be provided “some” compensation.

In a separate bill, parliament passed legislation making the BHP Billiton now liable for environmental damage caused by the Ok Tedi mine.

Mr O’Neill says corporate entities must own up to their responsibilities and pay compensation.

Mr O’Neill has run a long campaign against BHP and the PNG Sustainable Development Program or PNGSDP as its known.

He believes PNGSDP has failed to live up to its development mandate and is still operating under the influence of BHP.

Former prime minister Sir Michael Somare was the only MP in the house to urge caution.

“Interpretation of the outside world will say this is the country that is moving towards nationalisation of major companies in the country. Let us not give that impression please,” he said.

The current chairman of the PNGSDP is another former prime minister, Sir Mekere Marauta.

He says the government’s move to forcibly take ownership of the mine amounts to theft.

“This is very important legislation. For the first time expropriating assets without payment from the people of Papua New Guinea, not from foreigners,” he said.

It is likely the battle for Ok Tedi will go to court, meaning it will probably be some time before the government takes ownership of the mine, if it ever does.

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Beware Bougainville of the Enemies Within

The Autonomous Bougainville Government needs to get its history books out. According to the ABG, the Panguna mine was ruthlessly imposed on the people of Bougainville by Rio Tinto and the Australian colonial administration, without consultation. This time it will be different, we are told, this time Rio Tinto will have to deal with the ABG, a government of the Bougainvillean people.

What they fail to acknowledge is that nothing the scale of Panguna could have been imposed purely from the outside – there were a range of Bougainvillean and Papua New Guinea collaborators who championed the mine throughout its operation.

These were men who took the top jobs, got the fat contracts to supply services, and who seized the compensation for themselves; and it was these men who told their wantoks that without the mine there would be no development – sound familiar?

It was not only the foreign enemy which Francis Ona and Perpetua Serero rose up against with the Panguna Landowners Association in 1988, it was also the enemy within.

It was John Momis, Michael Somare, Julius Chan, Paias Wingti, Rabbie Namaliu and other fat-cat politicians who had welcomed in the company and protected its interests. It was traditional landlords like Michael Pariu and Severinus Ampaoi who had grown rich from compensation payments, lucrative business contracts, and steering the landowner trust. It was company men like Joe Auna and Philip Mapah, who acted as BCL’s Bougainvillean face before the media, while enjoying all the executive perks.

Lets see ten years from now if those ‘courageous’ voices coming out in support of the mine today are the ones who grow rich from jobs, consultancies, and contracts, while their relatives and friends bear the burden of the environmental and social harms the mine will inevitably produce.

Self-interest always comes disguised as national-interest – watch as today’s nationalists become tomorrow’s millionaires!

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Ramu case Supreme Court Judge has political aspirations

Updated 31 December

Justice Sawong, one of the two Supreme Court judges who ten days ago approved the dumping of 100 million tons of toxic waste from the Ramu mine into the sea off the coast of Madang, has a rather strong connection to the contested politics of Papua New Guinea and links to the discredited Somare regime and Chinese miner, MCC.

In 2007, Justice Sawong resigned from the judges bench to contest the Kabwum seat in Morobe Province in the National Election. Sawong fought the election as a member of the New Generation Party. Despite the electorate having one of the smallest candidate lists in the election, Sawong finished second to Bob Dadae and after the election he returned to the bench.

It will be interesting to see if Sawong again resigns to contest the 2012 election and, if he does, lets keep a close eye on who funds his campaign.

Somare and the NA coalition have a strong 'Look North' policy

MCC, the Chinese state owned corporation that operates the Ramu mine is known to be an enthusiastic funder of the Somare’s and their National Alliance party, with their strong ‘Look North’ focus. Although Sawong’s New Generation Party is an arch rival to the Somare camp having been set up by Bart Philemon when he broke with Somare, one NGP MP has been a loyal supporter of the NA led government.

New Generation Party MP Francis Potape is, according to the Somare camp, the current Energy Minister in the Somare government sworn in by the Governor General on December 14. This is despite Potape having been charged in November with fraud and misappropriation in a case first exposed on the PNGExposed blog in Oct 2010.

Lets hope that politics did not sway Justice Sawong’s judgement in the recent case.

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East meets West in PNG’s political crisis

By Martyn Namorong

Mrs Obama and Mrs O'Neill

The two economically dominant classes in PNG are the Agents of the West represented by mining and hydrocarbon exploiters on one hand, and the Agents of the East represented mainly by logging and oil palm exploiters.

The struggle between the West (US) and the East (China) is played out in the current political crisis.

When O’Neil was elected Prime Minster, he was congratulated by Australian Prime Minister Julia Gillard, on behalf of the Western Nations. O’Neil was able to meet Gillard in Canberra and even Mrs. O’Neil had her picture taken with US First Lady Michelle Obama during the recent APEC Summit in Hawaii.

Somare on the other hand has been the darling of the East. He was given red carpet treatment in Beijing and was responsible for bringing the Chinese Miners to Madang. Indeed the Ramu mine is majority owned by the Chinese Government through the Metallurgical Corporation of China (MCC). The National Newspaper owned by Malaysian Loggers, has also been openly supporting Somare.

Papua New Guineans may also recall that Sam Basil was a Guest of the United States Government when he was sent to witness the inauguration of Barack Obama. The United States Ambassador was present at the Grand Hall of Parliament when Powes Parkop launched he’s political Party. Both men are in the O’Neil Camp.

It is therefore hardly surprising that both Somare and O’Neil are willing to play brinkmanship. Both men would not be so adamant about being in power unless they were both confident that the international community would recognize their leadership should they ascend to power.

The current antagonism between the politically dominant classes is fuelled by the antagonism between the economically dominant classes i.e. the US aka Exxon Mobil LNG Project and China aka Ramu Nickel Mine. Guess who the politicians are referring to when they talk about assuring investors – the Governments of the East and West.

Our politicians, being the manipulative psychopaths they are, cannot realize that they are just making the rest of us cannon fodder for the Big Boys in the region. Papua New Guineans must not take sides in the struggle between two world powers. Don’t end up being used by these two Super Powers and their two political puppets.

The Cold War between the former Soviet Union and the United States was fought in foreign territories such as Vietnam and Afghanistan. Today’s Cold War between an increasingly Capitalist China’s and an increasingly Fascist America will be fought in an increasing Fragile Region. Obama’s recent announcement of basing troops in Darwin was met with stiff opposition from China. The power struggle between the US and China is being played out in the Pacific and PNG appears to be feeling the effects.

This isn’t our war to fight. It doesn’t make any difference to a villager in Josephstaal, Madang Province, whether O’Neil or Somare is in Power. That villager will wake up tomorrow and will still have NO school, NO road and NO aid post. That is the reality for 80% of the country and that reality will not change regardless of who is in power for the next 5-6 months until the next elections.

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MRA insider talks about how the Environment Act amendments came to pass

MRA insider

Ramu Nico [the subsidiary of Chinese State owned company MCC that operates the Ramu nickel mine along with Highlands Pacific] was the instigator of these quite improper amendments.

The company, thinking it had the suppport of the then Prime Minister, [Michael] Somare, and, putting its own interests and those of Somare before the National Interest, and having made certain arrangements with the Big Man himself, instructed the Prime Minister to instruct the government to agree to the amendments, which were dfrafted by the Prime Ministers solicitors.

This was completely contrary to the National Interest.

Ramu Nico acted completely against PNGs National Interest and corrupted due process in any debate on the legitimacy or otherwose of these (then) proposed laws.

In overturning these provisions PNG will reclaim democracy

______________________

See also:
Government-in-shocking-move-to-shut-down-environment-law-debate
Somares-lies-dont-add-up
PNG-law-to-shield-resource-giants-from-litigation
Fridays-act-was-a-low-act: Post-Courier
Government-puts-foreign-interests-above-the-law-and-demolishes-an-important-democratic-principle

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Thank the Ministers responsible for reversing Environment Act amendments

Community activist group ACT NOW! has set up an email action on its website where. with the click of a button, you can send emails thanking each of the PNG government Ministers responsible for the decision to reverse the 2010 amendments to the Environment Act.

http://www.actnowpng.org/content/congratulate-government-its-decision-reverse-environment-act-amendments

In denouncing the Amendments this week the O’Neill / Namah led government has described the changes as unwelcome and unnecessary and revealed the Department of Conservation did not support the amendments which it viewed as unconstitutional.

The amendments were bulldozed through Parliament in a single afternoon with no prior disclosure by the government of Michael Somare as a response to traditional landowners in Madang who had just secured a temporary injunction preventing the construction of a marine waste disposal pipeline at the Chinese owned Ramu mine.

At the time the Post Courier nespaper described the amendements as a “low act” that “swept aside the interests of the 109 MPs’ constituents around the country”.

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ACT NOW! welcomes decision to reverse Enviro Act amendments

Community advocacy group, ACT NOW! has publicly welcomed an announcement by the O’Neill / Namah government that it will reverse controversial amendments to the Environment Act passed in 2010.

“We congratulate the Prime Minister and his Deputy for this decision. The whole nation will celebrate when these undemocratic amendments that were bulldozed through Parliament by the previous Somare regime to satisfy the demands of the foreign owned mining industry, are repealed”, says ACT NOW!

In making its announcement the government has described the changes to the Environment Act as “unnecessary and undesirable” and revealed the Department of Conservation had informed the government the changes were unconstitutional.

The amendments removed the rights of customary landowners and gave immunity to foreign companies for the environmental damage they cause. The previously unpublished amendments were rushed through Parliament in a single afternoon after landowners from Madang were granted a temporary court injunction stopping the Chinese owned Ramu nickel mine from building its controversial marine waste dumping system.

ACT NOW! has been actively campaigning against the amendments and over the last month its members have sent over 1,700 emails to government Ministers calling on them to reverse the amendments.

Last year ACT NOW! also helped collect 18,000 signatures on a public petition opposing the amendments, which the Somare government then arrogantly refused to even accept.

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