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Promise of 'a better deal for the people'

Prime Minister Peter O'Neill pledges that the country will benefit from the Total-led Papua LNG project

The newly-elected government in Papua New Guinea will have its hands full balancing the needs of its landowners and citizens with the needs of the upstream oil and gas industry, which is keen to proceed with the next round of gas developments.

Before last month’s national election, which saw Peter O’Neill re-elected as Prime Minister, PNG’s Chamber of Mines & Petroleum — the peak body for the petroleum and mining companies — said it was looking forward to working with the new government on addressing concerns about tax changes and the establishment of the Petroleum Resources Authority to replace the Department of Petroleum & Energy.

There are also concerns about a revised Mining Act and the Mineral Resources Authority Act for PNG’s substantial mining business.

“We cannot emphasise enough the importance of the resource industry to the PNG economy and why it is paramount that PNG maintains its investment attractive­ness, and ensure we have globally competitive fiscal, legislative and regulatory regimes that will help drive further economic growth,” says the chamber’s president Gerea Aopi.

The chamber had voiced its concerns to the previous government about the “substantial realignment of taxes for the mining and petroleum sectors” contained in the 2017 National Budget, which the chamber says will increase the tax burden on the resource industry significantly.

“Let me emphasise that the cham­ber and the industry will support tax reforms, provided it is applied equitably across all companies and investors, and that it does not impose unintended impacts for individual entities and does not re­duce the attractiveness of PNG as a place to invest and do business,” Aopi says.

It is understood the widespread furor around tax is related to the government’s initiative to standardise petroleum and corporate taxes which, as they stand, have raised the effective income tax rate.

The main changes relating to upstream petroleum bring down the corporate income tax rate to 30%, introduce dividend and interest withholding taxes, and bring down oilfield tax rates from 50% to 30%.

The changes would effectively raise the corporate rate applying to gas developments to 41.65%, which is a big change from the previous 30% applying to gas projects without the new withholding taxes.

As for the conversion of the Department of Petroleum & Energy (DPE) into the Petroleum Resources Authority, this is an initiative that has been pursued by the chamber on behalf of the petroleum sector for years.

The regulator for the mining industry is an independent statutory authority, and the petroleum business wants the same type of structure, especially given that the DPE’s below-par performance has been the subject of industry criticism for years.

It is understood the main differences between the current regime and the statutory authority system are that industry players pay a levy to fund the authority, and that an independent board and managing director provide oversight and expertise without compromising regulatory authority.

Importantly, the new authority will be able to pay much higher salaries than the DPE.

Correcting bad decisions

In last month’s PNG election, the former Minister of Petroleum & Energy, Nixon Duban, lost his seat. His replacement is William Duma, who previously held the portfolio for about seven years until he was removed in early 2014 by O’Neill.

Duma had been minister during a period of enormous growth in PNG’s upstream business, but it was during that time that the oil and gas sector became critical of the DPE’s inefficiencies.

Duban had reportedly said before the election that the conversion was back on the government agenda.

Duban was quoted as saying there had been budgetary allocation for the change in the 2017 budget, but the ball would seem to be back in Duma’s court again.

The chamber’s Aopi was quoted pre-election as saying that PNG holds world-class petroleum assets and what was required was “an effectively functioning agency that managed these assets for the people of PNG”.

Meanwhile, O’Neill made two significant pledges to landowners in the pre-election period.

The first was that the nation's second liquefied natural gas project — the Total-operated Papua LNG — will deliver better benefits to the people of Gulf Province than the country's first LNG project, the ExxonMobil-led PNG LNG development, did to the Highlands.

“The second LNG project will make a big difference in the Gulf, and our government will negotiate a better deal for our people,” said O'Neill.

“We have learned a great deal from the time when the previous government negotiated the first LNG project. I promise you that when we negotiate the arrangements for the second LNG project, landowners will receive greater benefits than came from the first project.”

The second pledge was that the government “will negotiate” to transfer 4.2% of the state's interest in the PNG LNG project to landowners and provincial governments as a free carry.

“The shares to be transferred to landowners and provincial governments in Hela, Southern Highlands, Gulf, Western and Central Province are valued at 3.5 billion kina (US$1 billion),” O'Neill said.

“These shares will enable the landowners and communities and the provinces to secure a better future and to be more self-sufficient.

“This government has made it our business to correct bad decisions from the past, particularly when this relates to land ownership,” he said, adding that poor decisions had been made in the past by previous governments regarding benefit sharing agreements.

“We are correcting the bad decisions of previous governments, and we are giving our people the opportunity to advance their own lives,” he said.