Papua New Guinea’s Prime Minister, James Marape, has insisted that the country’s proposed LNG projects, Papua LNG and P’nyang, will be dealt with as separate projects. It is part of his government’s wide-ranging changes to negotiating resources projects, which include seeking a sharp increase in the State’s share.

Credit: Oil Search

In a move that is likely to further shake the confidence of resource investors, Prime Minister James Marape has announced that he will no longer consider the proposed P’nyang gas project as integrated with the Total-led Papua LNG project. The two resources projects would be negotiated individually, he said, with a view to getting more revenue for the PNG government.

Addressing PNG’s Parliament last week, Marape said that the government should receive 60-65 per cent of the revenue from resources projects. ‘We can do the simple mathematics,’ he said.

‘For too long we have been denied a fair and equitable share of the benefits from the development of our natural resources.’

The current share from one of the recent petroleum projects’ Marape said, is just under 35 per cent after ‘deducting tax credits and millions of kina spent by the Government to fulfil social obligations’.

‘In other cases, it is even worse. The State receives just 10-20 per cent. This is an injustice and totally unfair to our country. For too long we have been denied a fair and equitable share of the benefits from the development of our natural resources.’

Marape said the government’s poor budgetary situation, lack of downstream processing and landowner unrest were some of the results of what he described as ‘poor historical decision making.’ He said this is why he has adopted his policy of Take Back PNG, in an effort to ‘get a fair and equitable share of the benefits’.

Papua LNG

Prime Minister Marape. Credit: Department of Prime Minister and NEC/Facebook

Marape said that the Papua LNG project, signed on April 2019, has similar terms to the earlier ExxonMobil-led PNG LNG project – 1.2 per cent for royalty and development levy and five per cent gas for domestic market obligation.

He said PNG will receive ‘46 per cent of the project benefit, a mere six per cent increase against the 40 per cent share from the PNG LNG project.’

He said the Papua LNG project had been delayed for two reasons: the COVID-19 pandemic and the insistence by ExxonMobil and Oil Search that the P’nyang project be included as part of the agreement. Marape rejected this, insisting that Papua LNG is not conditional on it being integrated with P’nyang.

‘The country has been unfairly held to ransom, so to speak, by these two companies. Our government will not tolerate such behaviour.’ He did, however, say that the government is committed to ensuring the project will be developed as soon as possible.

Regarding the P’nyang project, Marape said the total cost would be US$9.2 billion (K32.5 billion) and it is expected to generate pre-tax cash flow of US$23.3 billion (K82.3 billion) over 20 years.

‘A lot of external analysts and big groups that should know better don’t count the Kumul stake as state take.’

He said the government’s position included claims for a 30 per cent tax rate, production levy of 10 per cent, a two per cent royalty and development levy, a two per cent social levy, a five per cent import duty, additional equity for Western Province, a 15 per cent withholding taxes and no foreign exchange exemptions.

He said negotiations broke down in January, in spite, he said, of the  government removing 13 of the 27 items in its term sheet. He said he had also thereafter written to ExxonMobil Chairman Darren Wood making additional concessions and that Wood had said he would respond after consulting the joint-venture partners.

State take

Santos’s John Chambers.

John Chambers, General Manager of Santos PNG, speaking at an industry webinar this week, said that investors will always need to recover their costs in a project first. He said that K5.6 billion had gone to Kumul Petroleum from the PNG LNG project since production started in 2014, although this did not necessarily go into the government’s consolidated revenue to help with Budget finances.

‘A lot of external analysts and big groups that should know better don’t count the Kumul stake as state take,’ he said. ‘Our view in the investment community is that this is very much state take.

‘That is where a lot of the misinformation is given on PNG – when they look at the take and they just look purely at the taxation and royalty take. So, they get a very low figure and a lot of politicians get misinformed that their system is not particularly efficient and the state take is low.

‘But when you include Kumul as being state take, and include it in your calculations, you will see that state take in PNG is very close to 50 per cent at the moment, which is pretty competitive by world standards. In Australia, for example, the state take is around 40 per cent.’