Tag Archives: Papua New Guinea

Institutions Should Include Alluvial Mining Training, Says Basil

alluvial miners at work

Alluvial miners at work on Bougainville

Jerry Sefe | Post Courier | August 17, 2018

Major tertiary institutions in the country must be given the opportunity to involve facilitating trainings and safety regulation in the alluvial mining sector.

Member for Bulolo and Minister for Information and Communications Technology and Energy Sam Basil made the call to the Mineral Resources Authority on Tuesday during day one of its 4th Alluvial Mining and Tradeshow convention held in Lae.

“I want to encourage MRA involve our research and tertiary institutions including University of Papua New Guinea, PNG University of Technology and University of Natural Resource and Environment in our collaborative efforts in alluvial mining and the environmental impacts and safety,” said Mr Basil.

Basil said these institutions are academically and professionally equipped with knowledge, expertise and innovations to expand the sector and in this partnership the country can make a difference in challenging times when resource scarcity and sustainability is concerned.

He said the challenges of the alluvial mining observed from in Bulolo district is the safety aspects that needs to be more regulated when unsafe practices are becoming an increasing concern especially with miners using the underground mining techniques where they dig through tunnels.

“This has resulted in numerous deaths over the years. This is because of the alluvial resource knowledge has always been a barrier in advancing the alluvial mining operations” said Mr Basil.

Basil said it is a must that all concerned stakeholders join forces and embrace the new developments in this era of alluvial mining because the alluvial mining sector is owned by Papua New Guineans using downstream processing.

“This area must be carefully considered because it has a high potential to enhance multiple revenue streams through maximum participation of our rural populace.”

He said MRA as the concerned regulator must strive in its efforts in maintaining safety practices within the alluvial mining communities.

Basil added that environmental compliance is another issue that must be strictly regulated by the Conservation Environment Protection Authority (CEPA) however mentioned that CEPA are yet to be fully aware of what is happening within the alluvial mining sector.

“I am aware of the financial requirements of the sector in supporting alluvial miners therefore as local MP for Bulolo we will be fully supporting our local miners through our district development authority” he said.

Meanwhile, the minister also commended MRA’s initiative in the alluvial resource mapping programs currently taking place in Bulolo to build the resource inventory of the district.

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Mine LOs Upset Over Change In Meeting Venue

Jerry Sefe | Post Courier | August 17, 2018

The landowners of Yanta and Hengambu in the Wafi-Golpu mining have agreed to work with the district and province to do what is right for the benefit of the mine.

The landowners, who did not attend the consultative meeting in Kokopo, described the forum as political maneuvering that was not in their interest.

Landowner representative Being Sombe alleged that there were suspicious deals made during the meeting.

Mr Sombe said since the closure of the meeting, they were not briefed or informed by their landowner association leaders on the discussions at the meeting.

“We are waiting for them to tell us why the meeting was taken to Kokopo and what was discussed and passed for the benefit of the impacted communities,” said Mr Sombe.

The landowners also questioned Bulolo MP Sam Basil and Morobe governor Ginson Saonu on why the consultative meeting was moved.

The leaders told landowners they were not happy with the move in meeting venue.

The leaders after discussions on the Kokopo forum assured the landowners to work with the provincial government to protect their interests.

Mr Basil said the authorities in mining areas will be engaged as stakeholders to represent the landowners’ issues and spearhead positive drive for landowners benefits in the mine.

They also admitted they were not properly consulted on the meeting to be held in Kokopo but were surprised to be invited.

“We must not repeat what has happened at Hidden Valley, whatever meetings for Wafi-Golpu mining in future must be held in Lae,” the leaders said.

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Alluvial Miners Concerned Over Lack Of Financial Backing

Government failing to support alluvial miners with access to loans

Benny Geteng | Post Courier | August 15, 2018

Concerns have been raised by alluvial miners on their inability to borrow money from financial companies to fund their operations.

They said when they approached banks or other financial institutions for assistance, they were usually turned down.

The Alluvial Mining Sector in 2017 generated over K300 million and that figure can double if good financial backing is provided for them to boost their operations.

Edward Buasin of EDHI Limited said they sometimes lacked financial capacity and borrowed from local loan sharks who ended up making huge returns on their finances significantly marginalizing the land or resource owners driving them below the poverty scales.

“Because the banks see us as an unpredictable source of income so we are usually left out to be funded when seeking loan assistance.

“I had been an illegal miner in the past, but now with the support of MRA have registered a fully recognised SME in alluvial mining and have a mining lease as well,” Mr Buasin said.

Mr Buasin highlighted several impediments that developers face in illegal mining:

  • Difficult to contain costs due to competition;
  • The exposure was great, could not take out insurance on equipment or personnel as there was no legitimate documentation to substantiate our activity;
  • Increased idle time due to ongoing complaints ranging from disputed boundaries to all sorts of social issues; and
  • For those who knew the Mining Act they were constantly on the guard.

Another leaseholder of Sandy Creek in Wau said he had tried to access a loan from a bank but was turned away.

“My brother a coffee farmer applied for a loan was approved, but me as an alluvial miner, I was rejected.

“My plea to the Government, is please put money where your mouth is as we the alluvial miners have the potential to make a significant contribution to our economy.

“Any policy change must start from ground zero which is the lease holders or through its Associations such as the Morobe Goldfields Small Scale Miners Association,” he said.

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Morobe Leaders Unite On Wafi-Golpu Project

Benny Geteng | Post Courier | August 15, 2018

Several Morobean MPs including Governor Ginson Saonu have taken a united stand in calling for more Morobean presence in the Wafi-Golpu Mine Project.

This is first time ever for Morobe leaders to come together to show their concerns on the technical advisory and spinoff benefits from negotiations, construction phase, and the development of the Wafi-Golpu Project located between Bulolo district and Huon Gulf district.

The MPs – Morobe Governor Ginson Saonu, Bulolo MP Sam Basil, Huon-Gulf MP Ross Seymour, Tewae-Siassi MP Dr Kobby Bomareo, Nawaeb MP Kennedy Wenge and Lae MP John Rosso.

The emerging Morobe position aims to address lessons from the Bougainville Copper Limited and the crisis it ignited, the Ok Tedi Mining environmental issues that fueled the exit of BHP Billiton, landowner issues affecting the PNG LNG Project and the Hidden Valley Mining Project including other mines that will all be captured in a memorandum of agreement.

They have called for disclosure of pertinent information and engagement instead of limiting Morobe Provincial Government and the landowners to positions on Extractive Industries Transparency Initiative, special support grants and cooperation and assistance to the State and the developer.

“As leaders and stakeholders, we need to have in-depth information and knowledge to formulate our positions on matters of equity, royalties, business development grants, employment and training, compensation payments and infrastructure developments.

“We also need to know the source and independent checks that formed the basis of the figures used in the financial model and benefits by Department of Treasury. Inclusion of future ore discovery prospects, its implications on mine life and related financial benefits,” the leaders said.

Governor Saonu has expressed further concern that the recent second Wafi-Golpu Mining Development Forum in Kokopo has sparked criticism from Morobeans and said that from now on all meetings will be held in either Lae or Morobe.

“If we hold meetings outside of Lae and or Morobe we will fuel unnecessary suspicions among Morobeans that we have things to hide.

“Mining Minister Johnson Tuke has already taken note of this matter and has told Mineral Resources Authority and the Department of Mineral Policy and Geohazards Management in Kokopo to take note and not hold Wafi Golpu Mining Project related meetings outside of Lae and Morobe,” he said.

The MPs have taken the strong stance that the MOA to be signed must be right, and that as stakeholders and host province they demand access to the draft mining development contract before it will be signed by the Head of State and developers.

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Papua New Guinea’s disappearing resource revenues

Foreign owned mining companies are raping PNG – in 2017 the government received just K400m from exports worth K25 billion.

 Glenn BanksMartyn Namorong | Devpolicy Blog | August 15, 2018

Government revenues from Papua New Guinea’s mining, oil and gas sector have essentially dried up. With the ongoing effects of the devastating earthquake in Hela province, the eruption of election-related violence in the Southern Highlands, a significant budget shortfall, and a foreign exchange crisis driving business confidence down, the resources of the government are severely stretched… and the massively expensive APEC meeting looms in November.

In this context, the drop in government revenue from the resource sector is staggering, and accounts in significant part for the growing fiscal stress. Figure 1 shows the extent of the issue: in 2006-2008, according to BPNG figures, the government collected more than K2 billion annually from the sector by way of taxes and dividends, on mineral exports that had just topped K10 billion for the first time. In 2017, the figure is just K400 million on exports of K25 billion – a revenue reduction of more than 80% in the same time that exports have increase by 150%! Government dividends and corporate taxes made up just 1.6% of the value of exports in 2017 (and that was a significant increase over 2015 and 2016). If we take the long-term average share of the value of exports that the government has received (at a little over ten percent), this points to a potential ‘hole’ of at least K8 billion over the past four years, an amount that would go a long way to covering the current fiscal deficit.

Figure 1

Source: BPNG. Resource revenues are defined as “MRSF receipts,” that is, the receipts that used to go into the Mineral Resource Stabilisation fund. Even though the MRSF no longer exists, BPNG still records resource revenues, which include corporate tax and dividend payments from resource companies.

There are some precedents for the rapid drop in government revenues from the sector, as Figure 1 show. In 1990 and 1991 – just as the ‘resources boom’ triggered by the Porgera gold mine and oil production at the Kutubu oilfield began – revenues collapsed, largely due to the closure of the Bougainville copper mine in 1989; and again, briefly in 2009 due to the onset of the global financial crisis in 2008. But neither of these has been as deep or as sustained as the current hole.

A full explanation of the precipitous decline in resource revenues is beyond the scope of this analysis. Clearly, a number of factors are involved, including a fall in commodity prices, major construction and expansion costs (which attract accelerated depreciation provisions) and generous tax deals. The revenue dry-up of the past four years also reveals that the State bears a disproportionate share of the risks associated with resource projects and investments. If we go back to the original intent of the post-Independence mineral policy, it was to translate mineral wealth into broad-based development across the whole country:

‘…known mineral resources should be developed for the revenue they can provide to the Government’ (PNG Department of Finance 1977: 2).

This clearly has not happened in the last four years. And certainly the Treasurer can’t be critiqued for commissioning yet another fiscal review: this seems appropriate, although whether it effectively addresses broader issues of a ‘fair share’ of mineral wealth remaining in PNG remains to be seen.

While there is much less money coming from the resources sector, there is at least better data than there used to be. The Extractive Industries Transparency Initiative (EITI) is a global initiative begun in 2002 to give transparency to what were regarded as often opaque flows of resource revenues from multinational companies in the extractives sector (especially oil) to the state in the countries in which they were operating. It is a voluntary initiative in which countries (and companies) can elect to become a ‘candidate’ country, and so long as they are able to be compliant with EITI standards, they can be admitted as a full member of EITI. The key requirement is to be able to report in a reliable way (through third party audits) on the revenues paid by companies, and reconcile these with payments received by the different arms of the state. The involvement of all parties – companies, governments and civil society – and public communication around the event and its products is also seen as central to both transparency and raising awareness of the nature of resource revenues and their destination.

PNG initiated its involvement in EITI in 2012. Four annual EITI reports have so far been produced (for the years 2013 to 2016). These reports provide an increasingly rigorous and transparent set of data on flows from the sector to the government, and identify additional revenue streams to the government than what BPNG use (and have used for the past 40 years). When all the additional revenue streams that EITI identify are included, the total share of the value of mineral exports rises to around 6.5% for 2017, up from the 1.6% based on the BPNG data. EITI is not without its problems and the most recent PNG country report identifies areas where it needs to be strengthened in PNG, and a focus on companies rather than operations can lead to the obfuscation of total flows and payments from each mine, oil and gasfield. In the PNG context, an examination of the sub-national flows and audit trails is also significant, and an initial study into this is underway.

One surprising revelation from EITI is that the single largest revenue stream from the mining, oil and gas sector to the government for at least the last two years has been so-called “group taxes”: the taxes paid on the wages and salaries earned by employees in the sector (Figure 2). These were worth more than K500 million in both 2016 and 2017, and in 2016 represented 34% of the revenue streams from the sector to the government, as identified by EITI. This is significantly more than the K46-88 million in corporate income taxes, K200 million in dividends paid to the State, or the almost K200 million paid in royalties in 2017. These group taxes are likely to be a more stable revenue stream than taxes or dividends – the workforce is unlikely to expand and contract to the extent that it impacts on the taxes they pay (leaving aside construction phases), or at least not as much as global commodity prices and profitability. But – and here we come back to the issue of PNG securing a fair share of its mineral endowment – this is a tax on the labour used to extract the resource, not a means of necessarily securing a direct share of the value of the resource itself.

Figure 2

The second area where EITI has revealed some interesting questions is around the operation of the Infrastructure Tax Credits (ITC). ITC originated in the sector in 1992 when the Porgera Joint Venture negotiated with the state to use a portion of their taxable income to directly provide infrastructure for surrounding local and provincial governments in exchange for a tax credit on this spend. Over the years the value and the uses of the ITC have varied, including at times supporting various national projects, and has been the subject of debates in various reviews as to its value. In 2016, four companies reported expenditures of K135 million in tax credit projects to DNPM[i], a significant amount that could well have contributed significantly to local and provincial development aspirations… but we don’t really know given the relatively poor reporting of the outcomes of these expenditures. More significantly, though, it is difficult to reconcile the size of these expenditures with the actual taxes paid by the four companies, which come in at well under K100m in total. That tax credits have come to exceed tax payments should ring alarm bells, and would explain why the government has in fact put a temporary stop on them.

Going forward, we would suggest two additional areas of focus, based on the above analysis. This first is local procurement. What is clear from the EITI reports (and earlier work by Banks (1990) on BCL) is that extraction of minerals is an expensive process, and a significant amount of the value of the mineral resource is spent by the companies on the labour, machinery, fuel, food, and the multitude of other costs needed to extract and export the mineral resource. An analysis from the last year of the Bougainville Copper Ltd mine at Panguna revealed that an estimated two thirds of the value of the mine accumulated directly outside Papua New Guinea, and indirect or second round spending would increase this (Banks 1990: 108). Imported materials and services made up 23% of the total value of the gross revenue of the minerals exported, cost of sales (all spent offshore) another 13%, depreciation 8% and dividends to non-PNG shareholders 12%. Local content spend on materials and services sat at just 5.5%, less than a quarter of the equivalent imported costs, while in total local wages and salaries were around two-thirds of the expatriate salary costs, despite the much greater numbers of local employees.

A long-standing objective and challenge for the State has been to find ways to ensure a larger proportion of these capital and operating costs are spent on PNG-based labour and other inputs. Plans at most of the major operations have been successful in localising the workforce significantly, hence reducing imported labour (and costs) at operations over time, although foreign labour continues to be important during construction. In terms of the goods, services and materials used to construct and operate a mine though, there appears to be scope to increase the proportion that is spent and retained locally. In large part this is tied to corporate and state support for a stronger local small business sector that can effectively service these mines (and potentially service the growing extractives industry across the Pacific).

The second area to which attention needs to return is the Sovereign Wealth Fund (SWF). This Fund, which would serve the dual function of saving a component of the resource revenues and having a portion committed to developmental needs through the budget, is in place (in terms of the legislation for it) but has not yet been implemented by the government. This well-proven mechanism for translating immediate resource revenue into a long-term sustainable fund can play a critical role in reducing the volatility of flows to the government. Ironically it may be that the factor holding back the government from moving on its implementation is the dire need for all the resource revenues right now. But neither is it sensible to wait for revenues to return to high levels before initiating the SWF: it will almost be certain that political and bureaucratic processes would delay the first flow of revenue to such an extent that several years’ worth of revenues that could kick start the fund would be lost. In other words, in many ways this period of low revenue is an excellent time for the Fund to begin.

So, the answer to the question of where have all the resource revenues gone, is not a simple one. The EITI reports show that a range of factors at the different operations (accelerated depreciation, tax holidays, ITC and re-capitalisation in plant expansions etc), have impacted on the revenue flows to government. To this we can add global commodity price drops, a compromised fiscal regime and some less-than-transparent governance structures and processes. The fact remains though, that over the past four critical years in its development, Papua New Guinea has missed out on a ‘fair share’ of the value of its mineral resources that have been extracted.

[1] Although confusingly there are different figures recorded as tax credits claimed by the companies from IRC – where the total credit offset against tax from three of the four companies come to K54million.

References:

PNG Department of Finance (1977), Financial Policies Relating to Mining and Mining Tax Legislation: Statement of Intent. Waigani: October.

Banks, G. (1990), Minerals and Development in Papua New Guinea. Unpublished MSc Thesis, Department of Geography, University of Canterbury.

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Mayur set to drill Feni Island

Field mapping at Matakangkaka Creek

PNG Industry News | 13 August 2018

MAYUR Resources says it is ready to mobilise a team do begin a drill program at its Feni Island copper-gold project in New Ireland Province.

This follows the completion of a detailed field mapping and sampling programme within the Matangkaka Creek area at Feni Islands EL2096.

The company says Matangkaka Creek is an eastern tributary of the Nanum River and is rated as one of the top three gold bearing streams in the Feni Island group. It is also near and upstream from the Kabang structure that hosts a 650,000 ounce gold resource.

“The trip was undertaken by Dr David Lindley, Mayur’s veteran expert geologist who has decades of experience on Feni,” Mayur said.

Mayur has correlated this new information with historical data to finalise a drilling programme of up to 2400m. The programme of up to seven holes is focusing on the gold mineralisation in structures beneath and along strike of the Matangkaka Creek.

Mayur managing director Paul Mulder said the company was essentially ready to mobilise and execute the drilling programme at Feni.

“This is particularly exciting as Feni Island sits between Lihir, one of the largest gold mines in the world, and Bougainville, one of the world’s great copper-deposits. You could not ask for a more prospective postcode location of the Feni prospect being the situated island between these two world-class giants.

“This, coupled with historic attractive copper and gold mineralisation from near surface (continuing at depth), provides an attractive backdrop to conduct a drilling campaign, which will be the first in many years on the island,” Mulder said.

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As Gas Boom Falters in Papua New Guinea, China Steps In

A plant at the Exxon Mobil-led natural-gas project in Papua New Guinea. Government revenues from the $19 billion project, which began production in 2014, have fallen far short of estimates.

Faced with revenue crunch, country is relying on Chinese loans to develop ports, airports, roads and power stations; Beijing expands influence in Pacific

 Rob Taylor and Rachel Pannett | Wall Street Journal | August 11, 2018

When Papua New Guinea joined the ranks of the world’s significant energy exporters four years ago, the government was betting on a revenue windfall it hoped would transform the impoverished South Pacific nation better-known for jungles, violence and corruption.

But the payday from a $19 billion Exxon Mobil Corp. -led natural-gas project has so far been a trickle, crimped by a downturn in gas prices that allowed Exxon and its partners to claim losses against royalty payments.

To bridge the revenue gap and revive its slowing economy, Papua New Guinea has increasingly turned to China. The government now owes the state-owned Export-Import Bank of China close to $1.9 billion in low-cost loans for infrastructure and other construction projects, almost a quarter of its total debt. That has raised concerns the country’s growing indebtedness is allowing Beijing to further expand its influence in the Pacific.

China’s stamp on Papua New Guinea will be on show in November when Pacific Rim leaders, including President Donald Trump and China’s President Xi Jinping, gather in the capital, Port Moresby.

Delegates attending the Asia-Pacific Economic Cooperation forum will meet in a convention center built by Chinese workers and paid for with a Chinese grant. Official motorcades will travel on a six-lane boulevard constructed and financed by Chinese loans.

Papua New Guinea Prime Minister Peter O’Neill meeting with China’s President Xi Jinping in Beijing on June 21. Almost a quarter of the country’s debt is owed to the state-owned Export-Import Bank of China. PHOTO: POOL/GETTY IMAGES

“We took on APEC knowing it would be a massive challenge for such a small country,” said Charles Abel, Papua New Guinea’s treasurer and deputy prime minister. “It is a bold undertaking by our small country to introduce ourselves to the world.”

A former Australian colony of eight million, Papua New Guinea has long relied on foreign aid. The country has minimal infrastructure outside Port Moresby and companies typically negotiate terms with local landowners to gain access to resources—a knotty problem in a country with hundreds of ethnic groups.

The government has historically looked to Australia for assistance. The country, along with other APEC members, is also chipping in for the summit, covering about a third of the cost. Australia’s foreign minister, Julie Bishop, said the country wants to be the “natural partner of choice” for Papua New Guinea and other Pacific countries.

But China’s presence is becoming much more visible. Chinese loans have helped redevelop a port and airport in the second largest city, Lae. In November, China promised to build $3.5 billion of roads, a commitment that if realized would make it the country’s biggest aid donor, according to the Sydney-based Lowy Institute’s Pacific program. It also imports natural gas from Papua New Guinea and has invested in nickel mines, power stations and other projects.

During a visit by Prime Minister Peter O’Neill to Beijing in June, Papua New Guinea became the first Pacific country to sign up to China’s One Belt One Road, an initiative to build a global network of ports, railways, roads and pipelines. For Beijing, the program is a way to expand business and trade and extend strategic influence, in part by distributing loans.

Mr. Xi said during the visit that relations between the two countries had “entered a fast track, and political mutual trust and mutually beneficial cooperation have both reached a new level in history.” In July, Mr. O’Neill invited Pacific leaders to a meeting with Mr. Xi in Papua New Guinea ahead of APEC.

But China’s infrastructure push in the region has raised some alarms. A Chinese-financed building spree in Pakistan has been dogged by concerns about the country’s growing debt burden to Beijing. Sri Lanka’s government, unable to repay a Chinese loan for a port, last year granted a Chinese state company a 99-year lease on the facility.

The International Monetary Fund said Pacific nations including Tonga, Samoa and Vanuatu have significant debts to China and face repayment pressures. Papua New Guinea is no exception.

“The speed and scale with which China is acquiring natural resources and amassing debt raise long-term concerns,” foreign-policy scholars Gabrielle Chefitz and Sam Parker wrote in a May paper for Harvard Kennedy School’s Belfer Center for Science and International Affairs.

Standard & Poor’s in April lowered Papua New Guinea’s credit rating to B from B-plus, citing slower economic growth and expanding government deficits. It expects the ratio of government debt to gross domestic product to reach 40% by 2021 from 30% now.

Papua New Guinea’s Treasurer, Mr. Abel, said he has been closely following the loans offered by China to small Pacific nations. “There remains some concerns about the way that they do conduct business,” he said. “But in PNG’s case, we quite strictly manage our debt.”

A road damaged by a February earthquake near Mendi in Papua New Guinea’s highlands region. The earthquake killed more than 100 people. PHOTO: MELVIN LEVONGO/AFP/GETTY IMAGES

China’s Ministry of Foreign Affairs said its assistance to Papua New Guinea and other Pacific Island nations has been welcomed by their governments. “China has provided assistance, especially assistance without any political conditions, to the Pacific Island nations, including Papua New Guinea,” the ministry said. “It is not targeting on any third party.”

Mr. Abel, speaking of the Exxon-led gas project, conceded that for the hundreds of millions the government paid for its stake — through a state-owned oil company — “we have not had the corresponding revenue growth.”

Before production began in 2014, the country’s Treasury department estimated the project would boost government revenue by roughly $600 million, or two billion Kina, a year through 2021, rising to more than $1 billion, or 3.5 billion Kina, a year between 2022 and 2030. Instead, as of September 2017, roughly $45 million in royalties and development levies had been paid, according to the IMF.

“When commodity prices are depressed like they have been for the last few years, revenues to all joint venture participants, including government, are reduced,” Exxon said in a statement.

The shortfall has weighed on the commodity-dependent economy. The IMF in a December report estimated GDP grew 2.2% in 2017, down from 2.4% in 2016, far below the government’s predictions a few years ago that the country would grow 21%.

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