PNG govt to defend aggressive move
Rowan Callick | Islands Business
The Papua New Guinea government on September 18 nationalised through parliament the vast Ok Tedi copper-gold mine by 62 votes to none—a move which is expected to trigger the country’s biggest ever legal challenge.
This is likely to see the government defend its aggressive move in both Port Moresby and also in Singapore, where PNG Sustainable Development Program (SDP), the trust that owned 63 percent of the mine is legally registered. This structure was arranged to ensure that most benefits of the mine—which is the biggest single contributor to the PNG government revenues, A$543 million or about 16 percent of the total government income—flow to people in the Western province, where it is located. It was devised with Australian mining giant BHP-Billiton when it pulled out of Ok Tedi more than a decade ago, following environmental disasters.
At stake is not only the mine worth A$876 million, but also the A$1.5 billion in a long-term fund established by SDP to be used for the people of the province when the mine closes.
Prime Minister Peter O’Neill, proposing the takeover, said that SDP shareholders would be compensated—but the amounts have not been determined. This will be decided by the prime minister, according to the legislation, acting on Cabinet’s advice.
The act, which cancels SDP’s shares in Ok Tedi Mining Ltd and issues new shares to the government, giving it 100 percent control, also removes the immunity for BHP against action for compensation, which was granted at the same time as the trust was established.
In an explanatory memorandum attached to the legislation, the government says: “Any person who has any choice in action or right to pursue or enforce legal proceedings against or in relation to BHP in connection with the operation of the Ok Tedi mine will now have their full rights restored.”
The remaining connection of BHP with Ok Tedi is that it has retained veto power over changes to the constitution of SDP— chiefly in order to ensure that the long-term fund, which comprises a form of compensation for the environmental impact of the mine, remains fully available to benefit those affected.
The chairman of both Ok Tedi and SDP, former prime minister and former central bank governor Sir Mekere Morauta, said: “Where we can fight, we will fight. Why are we expropriating assets from our own people? Ok Tedi is a nationally-owned mining company.”
One of the issues that triggered the government takeover, was that it claimed it was not consulted earlier in the process by which Morauta became chairman of both entities.
The O’Neill government has received widespread support from the public and from politicians since making its unprecedented move. But leaders of the mine-affected area of Western province, almost all of whom signed the Community Mine Continuation Agreement to approve an extension of Ok Tedi’s operation beyond the end of this year in return for a flow of dividends and other benefits via SDP, have attacked the mine nationalisation.
The association of such communities wrote to O’Neill saying that they had agreed to the mine’s continuing operation in order to gain development benefits via SDP, but “we have not consented to the takeover of SDP shares in Ok Tedi by the government”. Morauta said these villagers “have been tricked by a ruthless prime minister focused on his own ambitions.”
Stephen Howes, director of the Development Policy Centre at the Australian National University, who co-wrote an independent review of SDP in 2011, said the government’s move “raises serious questions about government-business relations and the security of property rights in PNG.”
Morauta said the government’s assumption of ownership would be “the trigger forced on the company to start drawing down” the A$41.5 billion long-term fund, to which two thirds of the dividends from the mine has gone. The SDP chief executive David Sode said the trust in its first decade spent about A$450 million on 662 projects, focused on education and health from the other third of the dividend income in Western province and elsewhere in PNG.
O’Neill said however: “It is time to put the ownership of the mine and its future beyond doubt. The behind-the-scenes influence of BHP and its representatives and appointees has gone on for too long.”
The move underlines a trend towards economic nationalism in PNG. Mining Minister Byron Chan has told parliament “the government is looking at taking over” the A$5.6 billion Frieda River copper/gold project, 81.82 percent owned by Swiss-based GlencoreXstrata. And Commerce Minister Richard Maru earlier this month blocked the partial takeover of New Britain Palm Oil Limited (NBPOL) by Malaysian company Kulim Berhad—which wanted to increase its stake from 48.97 percent to 68.97 percent—saying that 90 percent of the economy is controlled by foreigners: “The government’s aspiration is to reduce that to 50 percent by 2030.” He said that not only was Kulim barred from increasing its stake in NBPOL, perhaps PNG’s most successful agricultural venture, but it would have to reduce its present stake by selling shares to provincial governments where the company operates. He said the government would restrict full foreign investment or participation in some sectors of the economy, including in agriculture and fisheries. Maru said: “We have to create two million jobs immediately, otherwise we’re going to continue to have social problems. And as a responsible government, we’re going to take some very drastic steps, including legislative changes to create more opportunities for own citizens to enjoy the wealth of our nation.”
The battle for control of Ok Tedi and SDP with its massive funds began almost a year ago when O’Neill told parliament that leading Australian economist Ross Garnaut—who was chairman of both entities and had chaired SDP since its establishment—was “no longer welcome” in the country.
O’Neill said after introducing the nationalisation bill to parliament that SDP “has collected money and parked it in the bank and hasn’t been investing it in helping every day issues.” Morauta said that “the risk of turning Ok Tedi Mining Ltd into a state-owned enterprise far outweighs the benefits. “It would destroy the mine and threaten the flow of dividends”—with “reliable sources estimating that at least billions of kina have gone missing from government coffers in the last few years.”
A multi-billion dollar scheme to bring hydro power from PNG’s Purari River to Queensland in Australia, via a joint venture between Origin Energy and SDP, would appear to be one of the casualties rippling out from this massive row enveloping PNG’s political and economic worlds.
It remains unclear how the government will pay for the takeover. The share of the mine owned by SDP alone is valued at the equivalent of 55 percent of this year’s originally budgeted deficit. Morauta said the parliamentary legislation “would undermine investor confidence at a time when a number of very large investments are on the horizon”.
PNG Treasurer, Don Polye revealed in parliament during the same week as the nationalisation of Ok Tedi, that the budgeted fiscal deficit for 2013 of 7.2 percent of gross domestic product—following a succession of balanced or near-balanced budgets—is expected to deteriorate to 7.7 percent. He attributed this in part to falling commodity prices, in part to large corrupt payments for “ghost workers”—staff who have died or moved or collect more than one salary—on government payrolls.