Changes to Papua New Guinea's oil, gas and mining laws that were passed last month could set back the country's economy for many years to come, according to analysis by PNG's representative body for the resources sector.

Two main changes to the Oil and Gas Act 1998 were passed in PNG's parliament on 10 June that boost the state's negotiating power on field development agreements.

At the time the changes were pushed through parliament, the PNG Chamber of Mines and Petroleum said it had not been consulted with by the government.

In failing to consult, the consequences of some of these amendments will not be to the benefit of PNG but will inadvertently set back the nation’s economy for many years to come by dis-incentivizing investors or making otherwise economic projects uneconomic, said the chamber.

The amendments would "severely impact" the bankability of future projects for developers, state equity participants and landowners.

"Financiers may choose not to proceed in view of the uncertainty or to add a significant risk premium on developer, state equity participant and landowner financing with higher borrowing costs to cover the perceived heightened political risk."

Chamber president Gerea Aopi reiterated that the changes had caused unintended consequences that would negatively impact PNG.

"We have all heard government claims that the country has not received adequate returns from major developments in recent years, including the PNG LNG project. However, one has to look at the actual data, which supports the assertion that since LNG production commenced in May 2014 the benefits to PNG have outweighed returns to project investors who have not yet recovered their investment as oil and gas prices have been lower than anticipated since exports commenced," said Aopi.

Since mid-2014, payments from PNG LNG to the PNG government totalled more than 10 billion kina (US$2.9 billion) through project equity cash distributions to state-owned Kumul Petroleum and MRDC, corporate taxes, development levies, royalties, employment taxes and licence maintenance fees, he added.

The government has expressed its keenness to further modify the Oil and Gas Act by moving to a production sharing contract fiscal system.

“We cannot afford to get this wrong, and for that reason the chamber will continue to offer up its expertise and advice so that government and the private sector can collaboratively shape the best policy outcomes for the future of PNG,” added Aopi.

Politics

Legal changes could be major setback for Papua New Guinea