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PNG Wants a Bigger Slice of Exxon’s Gas Profits

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Unfulfilled Expectations

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

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

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

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

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

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

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

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

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

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

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

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

Highlands Unrest

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

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

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

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

Balancing Risk

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

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

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

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

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

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

Isabel Esterman | Mongabay | 17 May 2018

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

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

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

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

Big promises

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

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

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

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

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

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

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

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

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

Falling short

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

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

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

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

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

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

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

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

‘Utter nonsense’

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

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

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

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

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

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Haiveta not happy with delay in paying landowners

The National aka The Loggers Times | May 16, 2018

Gulf Governor Chris Haiveta has called on Oil Search to own up to the fact that it fast-tracked processes in an effort to capitalise on the country’s resources while leaving the landowners stranded with little possibility of receiving royalties promptly.

He said company chairman Rick Lee was out of line during Friday’s annual general meeting in Port Moresby when discussing landowner groups and landowner identification processes.

“The entire reason we are now facing the issues with the delayed royalty payments is based squarely on Oil Search’s lack of ability to correctly communicate and inform both Exxon and the Government of their experience of the process and the requirements of the Oil and Gas Act,” Haiveta said in a statement.

“Oil Search must accept that they continue to generate enormous profits from PNG, they receive beneficial tax credits, yet they are trying to push the blame to the Government for their lack of corporate governance in managing the process when it comes to the landowner identification.

In a statement yesterday, Oil Search said an Australian Financial Review report which quoted Oil Search chairman Rick Lee as saying the PNG government was responsible for the payment of benefits from the PNG LNG venture was misleading and that the “words used in the articles also do not represent the views of Oil Search but those of the journalists concerned”.

Haiveta said: “The fast-track approach to commence the project then opened the doors to further confusion when they called for a new landowner identification process for existing brownfields petroleum development licences (PDLs) when there was already an existing gazetted landowner documentation in place. The determination was only required for the three new PDL’s including Hides 4, Angore, and Juha, plus three new blocks of Hides 1.

“The Government accepts that landowner identification process was always going to be complicated if this was not completed before the PNG LNG project commenced. The PNG LNG project should have never started without the gazetted landowners.

“Oil Search should not be concerned with how the royalties will be used and continuously calling for transparency.

“There is no issue with the transparency of funds; the Government will work closely with the correctly identified landowners to further improve the provinces and districts.”

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Oil Search denies blaming PNG govt for project problems

There have been complaints of a lack of benefits coming from the LNG project. Photo: RNZI / Johnny Blades project

Someone is not happy with Oil Search – but this kind of back-tracking is not going to fool anyone!

Truth is they are all to blame – Oil Search, Exxon Mobil and the PNG government…

Radio New Zealand | 16 May 2018

The oil and gas company Oil Search denies that it blamed Papua New Guinea’s government for non-payment of benefits from the LNG gas project.

This comes after statements by the Oil Search chairman at its Annual General Meeting last week acknowledging landowner frustrations over project payouts.

Oil Search claimed its chairman’s comments were mis-reported.

In a new statement it said that during the annual meeting, the company outlined the need to ensure royalty payments and other benefits owing to landowners were distributed as soon as practicable.

Oil Search said it was working closely with the PNG government and other stakeholders to ensure the project benefits owing were distributed as soon as possible.

The statement said that at no time had Oil Search accused the government of being responsible for the delay in the payment of these benefits, rather it had outlined to its shareholders that it had fulfilled all of its requirements under the Oil and Gas Act.

“We also stressed that substantial progress had been made by the Government in this area over the last 12 months and more was expected in the short term,” Oil Search said.

However, the Governor of PNG’s Hela province criticised developers of the LNG gas project, ExxonMobil and Oil Search, over lack of payments to his province.

Philip Undialu said when establishing the project, corporate giants bullied PNG politicians into a substandard agreement.

The Governor said Provincial Governments of the LNG Project area lost nearly $US240 million in Development Levies and Royalties over the last four years.

Mr Undialu said there were hundreds of millions more dollars in royalties which Hela people should have been paid.

“It is pathetic for Chairman of Oil Search to attack the Government after robbing it’s people through a flawed agreement the Somare Government facilitated between 2008 to 2010,” Mr Undialu said.

He called on lead developer ExxonMobil and its project partner Oil Search to admit this failure and pay Hela what belongs to its people, saying the province desperately needs money after February’s major earthquake.

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Oil Search calls for PNG government transparency on payments as frustrations build

Oil Search is grappling with disquiet among Papua New Guinea communities about the delayed distribution of benefits from PNG LNG. Alamy

Angela Macdonald-Smith | Australian Financial Review | May 11 2018

Oil Search chairman Rick Lee has upped pressure on the Papua New Guinea government to hand out the benefits from the PNG LNG venture owed to local land owners in a bid to head off escalating resentment about the problem just before a targeted $US12 billion expansion.

Grilled by several local land owners and a pressure group at the annual shareholder meeting in Port Moresby, Mr Lee acknowledged growing “frustrations” about a lack of transparency on the fate of royalties paid to government from the $US19 billion venture.

Among the 15 licences covered by the PNG LNG project, three are caught up in legal tussles and have seen no distributions of benefits to land owners almost four years after production started. Other payments are running late amid a complex process still ongoing to identify qualifying landholders.

Mr Lee said Oil Search recognised the problems and challenges and was “working hard” to get the benefits distributed.

But his argument that the issue is the responsibility of the PNG government, and that Oil Search and its PNG LNG partners have fulfilled their obligations on royalties, didn’t wash with disgruntled shareholders.

“The responses were predictable and didn’t assuage our concerns, especially in the context of Oil Search’s expansion plans,” said Brynn O’Brien, executive director of Australasian Centre for Corporate Responsibility, who posed questions of the board.

“The company doesn’t have a clear pathway through the benefits distribution mess, and regardless of whose fault that is it constitutes significant risk.”

Social impact

Chief executive Peter Botten told shareholders that PNG had received 14 billion kina ($5.7 billion) from the project since production started, with 3.9 billion kina paid to the state and land owner groups in royalties, development levies and equity payments. Some 708 million kina of land owner benefits are held in trust, awaiting the completion of the landholder identification process.

Mr Lee noted growing discontent within local PNG communities over the delays and said Oil Search is campaigning for “improved transparency around how these payments are received and spent”.

The comments came as the Jubilee Australia Research Centre, an advocate for economic justice in Asia-Pacific, released a report on the “adverse social impacts” from PNG LNG.

It said land owners near the gasfields in Hela province are still living in “conditions of abject poverty” and said most promised infrastructure and services have not been delivered, contributing to an escalation of violence in villages.

The intensification of the debate around the issue comes as Oil Search and its partners are negotiating with the PNG government on an agreement that would cover crucial fiscal terms, benefit sharing and national content for the expansion.

The partners, led by majors ExxonMobil and Total, are targeted this December half to start engineering and design work on three new LNG trains, each of 2.7 million tonnes a year. Preparations have not been derailed by the devastating earthquake in the PNG Highlands on February 26 that killed scores of villagers, destroyed houses and roads, and temporarily halted oil and gas production. 

Hayberry Global Fund portfolio manager Matthew Blumberg said he didn’t expect the land owner problems to cause issues for the LNG partners.

“It’s worth keeping an eye on the three licenses which are held up in court, but it’s important to remember the circa $1.5 billion which has already been paid to State and landowner entities,” he said.

“Oil Search and their partners have funded hospitals, women’s empowerment programs and many other initiatives. Ultimately, without Oil Search and their partners, its unclear where these land owners would get funding, so I think incentives between the parties should be aligned.”

Mr Botten also pointed to the “world class” quality of the oil assets secured in Oil Search’s $US400 million Alaskan investment. He said the acquisition assumed a resource of 500 million barrels, while some partners put it much larger, at 1.2 billion barrels.

The Alaskan venture is targeting a decision in 2019 to start engineering and design, ahead of a final go-ahead on the Nanushuk project in 2020 and start-up in 2023. The project could add 25,000-35,000 barrels a day for Oil Search based on its existing stake. Oil Search intends to exercise an option to double its interest and then to sell down to bring in another partner.

Mr Blumberg said he didn’t think investors are giving Oil Search full credit for its “well-timed” Alaskan acquisition.

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ExxonMobil gas project a disaster for Papua New Guinea’s people

John Braddock | World Socialist Website | 4 May 2018

The massive $US19 billion ExxonMobil-led liquid natural gas (LNG) project in the Hela region of Papua New Guinea (PNG) has failed to deliver a promised economic boom for the country, a non-government organisation report has found.

The Jubilee Australia report, titled “Double or Nothing; the Broken Economic Promises of PNG LNG,” says the project “has contributed to PNG going backwards on most economic indicators.” According to the author Paul Flanagan, a former Australian treasury official, the country’s impoverished population would have been better off “on almost every measure of economic welfare” without the project.

ExxonMobil, the lead operator, is supported by the Australian-PNG company OilSearch. Both have stakes of just under one third in PNG LNG. The PNG government also has a large stake, as does Australian gas company Santos. The project, expected to run for 30 years, ships liquefied gas to Japan, South Korea and China.

The operation was substantially financed by the US Export-Import Bank, backed by a $A500 million loan from the Australian government’s Export Finance and Insurance Corporation. ExxonMobil invested primarily in order to profit from low labour and start-up costs. The company began exporting LNG in 2014, amounting to 7.9 million tonnes per year, delivering an initial boost to the country’s output. In 2016, however, the global economic crisis saw a precipitous drop in LNG prices to $US6.45 per million British thermal units (Btu), from a peak of $19.70.

The facility remains vital to Washington’s geo-strategic interests in the Asia-Pacific. Speaking to a Congressional committee in 2011 following a visit to PNG, then US secretary of state Hillary Clinton declared: “We are in a competition with China … ExxonMobil is producing it [natural gas]. China is in there every day in every way trying to figure out how it’s going to come in behind us, come in under us.”

Donald Trump’s nomination of ExxonMobil’s former CEO and chairman Rex Tillerson as US secretary of state in 2016 was welcomed by PNG Prime Minister Peter O’Neill, who declared him to be a “very good and genuine friend” of the country.

PNG became nominally independent from Australian colonial rule in 1975. US and Australian-based banks and conglomerates, however, still dominate much of the country’s economic and social life. Almost 5,000 Australian companies do business there, with total investments worth $A5.8 billion. PNG’s military and police are funded through Australian grants and trained and advised by Australian forces.

Proponents of the LNG project boasted it would be a “transformational” initiative for the PNG economy, contributing to a doubling of gross domestic product (GDP). The Jubilee report, however, catalogues a litany of economic failures. These included a GDP gain of just 10 percent, all “focused on the largely foreign-owned resource sector.”

The decline in the social position of ordinary people has been stark. A “significant recession” hit the non-resource sector from 2015. By 2016, household incomes fell by 6 percent, employment by 27 percent and government services, including education, health and infrastructure, by 32 percent. Imports fell by 73 percent, and agricultural exports by 40 percent, due to exchange rate increases following the expansion of gas exports.

The report notes that the “extremely disappointing” government revenues from the project cannot be put down to low global gas prices or cost blowouts in construction. Revenue, predicted to be around 1.4 billion PNG Kina ($A567.8 million) per year in 2016, despite low gas prices, was less than K0.5 billion. Including the interest costs of buying the government’s equity share and direct payments to landowners, the project had a negative impact on the budget of at least K200 million in 2016 alone.

Several reasons are advanced for the project failing to deliver on its promises. There were serious flaws in the Exxon-commissioned modelling produced in 2008 by consultants Acil Tasman. The model failed to take into account, among other factors, generous tax concessions and the “aggressive tax avoidance methods” of ExxonMobil and OilSearch, including their use of subsidiaries, shell companies and tax havens.

Luke Fletcher, executive director of Jubilee, told the Guardian there was generally little or no transparency about the assumptions made by economic modellers hired by resource firms proposing large-scale projects.

The report claims the PNG economy performed worse than would have been expected without any new gas projects at all. “Poor policy decisions” were made by the PNG government in response to the gas boom. They included ramping up expenditure on what the Sydney-based Lowy Institute criticised as “prestige projects” as gas prices fell, contributed to the largest budget deficits in the country’s history.

The only beneficiary has been a corrupt layer of business leaders and politicians who operate in the interests of the US and Australian-based banks and corporations, looting the country’s extensive natural resources at the direct expense of working people. While O’Neill has been embroiled in corruption allegations, his government’s austerity measures have further impoverished the working class and rural poor.

With none of the promised benefits to improve living standards realised, the government has turned to police-state methods to suppress social tensions that have produced student protests, workers’ strikes and, in the remote Highlands region, armed unrest.

In April 2017, the government intensified a police and military operation, involving 300 personnel, to protect the ExxonMobil operations. Traditional landowners in Hela province carried out protests and blockades over the non-payment of promised royalties, development levies and dividends from the project, estimated at over K1 billion.

During 2017, ExxonMobil and OilSearch boasted sharp jumps in profits on the back of rebounding energy prices and cost-cutting. OilSearch reported a net profit rise of 405 percent to $US129.1 million, from $25.6 million, for the first half-year, mainly from its PNG operations. ExxonMobil’s quarterly global income spiked to $8.38 billion, up from $1.68 billion in the same quarter a year previously. The result included a $5.9 billion non-cash benefit from recent US tax cuts.

While the transnational energy corporations amass huge profits, PNG remains ranked at 154 out of 188 countries on the UN Human Development Index. Nearly 40 percent of the population live in grinding poverty, subsisting on less than $1.25 a day. PNG has one of the world’s highest rates of maternal deaths. Nearly half the people live in squatter settlements, and illiteracy is rampant. PNG has the highest percentage of its population in the world—60 percent—without access to safe water.

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O’Neill tells Papua New Guinea resources sector there will be no new taxes

Prime Minister Peter O’Neill announced no new resources sector taxes.  Source: Business Advantage International

David James | Business Advantage | 29 November 2017

Papua New Guinea’s Prime Minister, Peter O’Neill, told the PNG Mining and Petroleum Conference yesterday that there would be no new taxes for the resources sector. Meanwhile, presentations by the major industry players suggest the next 12 months will be critical in determining the future growth of the sector.

‘I believe we have emerged stronger,’ he said. ‘The global economy has turned the corner. We have maintained the faith and we can see light at the end of the tunnel.’

O’Neill claimed ‘it is time to invest in Papua New Guinea,’ pointing to the anticipated Total-run Papua LNG project, and the proposed Wafi Golpu and Frieda River mines.

‘This is not a time for us to make many changes but to maintain discipline.’

O’Neill said there is an upswing in the global economy and the commodity cycle, but he warned that the country cannot depend on it.

‘We cannot continue to over-rely on the mineral and petroleum sector to advance our goals,’ he said.

Cautious optimism

Business leaders presenting at the conference expressed cautious optimism about the prospects.

Andrew Barry, Managing Director of ExxonMobil PNG said the existing PNG LNG project is running above expectations. ‘We are on track to produce a total of 8.2 million tonnes of LNG this year, which is about 20 per cent beyond what we first thought the plant could achieve when the facilities were designed.

He said drilling at the Muruk field led to a new discovery near the Hides field. A K1 billion kina investment will be made next year ‘to tie the Angore field into the production system at Hides,’ he said.

Philippe Blanchard, Managing Director of Total E&P PNG said the company is well advanced in its engineering studies, field surveys and appraisals program for Papua LNG. He said the company has also begun to assess commercial viability, looking at the project structure, financing and the LNG market.

‘The environment is changing a lot,’ he said, adding that the company will need to see how to take advantage to get the best project.

Blanchard said integrating with established infrastructure is a complex task. ‘Our gas is very different from the gas in PNG LNG. We need to find the right elements between what is existing and what we want to build.’

Critical time

Peter Botten, Managing Director of Oil Search, observed that the ‘next 12 months is the most critical in all the years I have been here.’

‘The LNG market has never been more dynamic. We are also seeing some of the best exploration opportunities I have seen in PNG.

‘PNG LNG is a stellar world class project but there are legacy issues.’

Botten said the number of LNG-importing countries is expected to rise by 100 by 2020. He said there is strong demand in Asia, with demand in the first quarter of this year up by 37 per cent in China on the previous corresponding period, by 14 per cent in South Korea, by 12 per cent in Taiwan and by 9 per cent in Japan.

He said LNG is increasingly preferred to nuclear and coal.

Botten noted that there is a five-to-seven year investment horizon for new projects, and current planned activities are only likely to produce ‘about half of what is needed’.

‘The window is opening for new demand.’

New Mining Act

Botten added that about 30-35 per cent of LNG is now traded in the spot market, with large companies like ExxonMobil and Total building their own positions. He said it ‘changes the financing’ and the types of alliances that are formed.

Johnson Tuke, Minister for Mining, told the conference that a revised Mining Act is ‘now before the National Executive Council.’

Tuke said the mining sector has made ‘an impressive turnaround.’ The Wafi Golpu and Frieda River proposals remain a priority for the government, he said.

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