Split decision: Papua New Guinea government will not consider Papua PNG and P’nyang together

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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’.

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Papua LNG

Niupela pasin Marape

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.’

Comments

  1. Cloudlands says

    Way to go PMJM. This country is riddled with corruption at every levels of our society.
    Corrupt individuals and groups are still running around freely in this country. Many have already left with their take over the years while others are finding ways to come in.Only through a thoroughly and properly legislated law targeting areas to address this would we start seeing greater controls and rein of the sick culture for the better.
    Please continue with this Initiative. Their is light at the end of tunnel.
    God bless team PMJM and team PANGU!

  2. Joseph Ken says

    K5.5b has done alot of good to PNG.

    Our debts (sunk costs) footed by developers during the construction phase needs to be cleared and that is where K5.5b has gone to.

    Educated people need to understand this let alone the illiterate.

    The State is a partner in the PNG LNG project. At start State never thrown in money for the project but signed agreement for other partners boot our bills and later recoup it from our revenues from the sales.

    This is it there is nothing hidden in there.

    But my comments do not mean there is no corruption in the Government.

    The State Negotiating Teams have been corrupted over and over by Project Developers.

    It happened and it will happen.

    Watch out for it!

  3. PNG is known to be a blessed country filled with all kind of valuable resources. But yet we fall a way, way back while some of our neighbouring countries are way ahead of us. Though some of those countries took their independence after us, they are more civilized and settled while we are still fighting for a better governance. Men, women, and children are suffering every day without realizing, thinking that life is normal. If we compare ourselves in terms of resources with other countries, we are more than enough… Where does the problem lies?.. If that was God’s plan for us to be like this then it’s acceptable. Otherwise we are in the 21st century and we need strict, reasonable and caring governance… A big word of thankyou goes to our Prime minister James Marape for restructuring the system for the greater good of this country…Just a concern student

  4. Franko Agerenga says

    Thanks PM JM for that please stay a little bit more to change things the way it was so we can run the show our selves….☝️💪👍❤️

  5. Stanley Tekilan Kati says

    I think PMJM is doing fine by turning things around into the right way.

  6. Teddy Ningi says

    I think most of those funds where used to settle debts from LNG borrowings by PNG government….Teddy

  7. Leslie Tikil says

    K5.5b into Kumul already and we are still begging for more..how have we used the 5.6b in the last 8 years or so?

    Gas under the earth or Gold in the rocks is nothing if nobody puts a value to it. Imagine all developers pullout and none shows interest to come here…our oil and gold would be nothing…

    Its beneficial to negotiate for a bigger cut but let’s look back and start investing our share wisely …

    • Not quite correct. Gas, gold, oil, timber, coffee and other “crops” have a market value. This value is equivalent to what someone else values what you have. If the big players cannot get what they want at their valuation of your asset, created by market forces that are driven by those same players then either look around for new players or do your own value addition to what you have.

      If you grow potatoes, you take them to the market to sell, and sell more if your price is better than other vendors. Over time you will accumulate better returns. A basis of trade is if you keep your price below what other sellers are charging, you will get more customers.

      Another way is value addition. You can get good money by exporting mixed timber flitches. You get better money by sorting them into varieties. You get very much better returns using a 7 head planer to produce a container of broom handles. You also use less trees and create more employment in your country of origin.

      We need to go back to basics, and bypass those who want all the profits at prices engineered by controlled markets.
      Whether you are referring to broom handles, gas, coffee or gold, the same tenets remain.

      • Simon Gabriel says

        Thats the idea. It’s common sense at a closer look. But you don’t know that because people mess it up for greed/or for the need to make a living themselves.
        They make a life out of what other people have. Out of what you and I have, out of the resources of our land.

        If I knew theres a good market out there somewhere, where you cannot go, because you do NOT KNOW WHERE or HOW or even the MEANS to get there, and I have, I will buy your potatoes at a lower price and sell to that market at a much higher price…or make chips out of it and sell at another market. (I make money from what you have).

        PJM Govt’s ” Take Back PNG” simply wants us not to be ignorant of these facts and to be aware of the suppression out there, it’s to “bring us out of our comfort zone” Empower us to know WHERE markets are, HOW to get there, and the MEANS to get there by ourselves.

        In terms of natural resources, we are the ‘HAVES’ the ‘HAVE NOTS’ are those without.

        In this rough sea of PNG politics,
        I hope our leaders become real leaders, AND HUMBLE THEMSELVES FOR PNG,
        lay down differences and pride and share their brilliant ideas to realize this dream because there is truth and potential in it.

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