Papua New Guinea’s Somares—father and son political combination—is causing dismay as they checkmate various moves to delay the trailblazer ExonMobil led US$10-US$13 billion gas project.

FEED decision for the US$10-US$12 billion Liquified Natural Gas Project, Papua New Guinea’s greatest onshore investment, is just a few months away.

But while FEED (for front-end engineering design) and the financial investment decisions are yet to be reached by project stakeholders (ExxonMobil with Esso Highlands Limited as operator—41.5%, Oil Search Ltd—34.0%, Santos—17.7%, AGL—3.6%, Nippon Oil—1.8%, Landowner Interests—1.2%, and Eda Oil—0.2%), waves of controversy are coming onshore.

The stakeholding will change once Independent Public Business Corporation mobilises and manages the 19.4 percent PNG stake likely to cost A$1.6 billion.

Beginning with the domestic conflict over the negotiation and agreement signing, technocrats claim (now defused) their advice was ignored, landowners’ court case which is still pending, and now the latest wave—over the state’s nominee to manage its interests.

The government paved the way for this latest turmoil in the dying days of the last Parliament before the 2007 elections when they established PNG Petromin (Holdings) Ltd for such eventuality.

Aware that multilateral donors like World Bank and International Monetary Fund would have first call on PNG assets as collaterals, Petromin (Holdings) Ltd with the Prime Minister as the sole shareholder held in trust for the state, was created to house and manage PNG’s interests in oil and gas.

As a company, Petromin would be able to borrow funds using the shares it houses as collaterals to fund the state’s other interests. In focus then was the multi-billion LNG Project.

The delay in announcing the state’s nominee caused Petromin Ltd to send a less subtle signal through the press that it was ready to assume the role.

Their fears were well-founded when Prime Minister Sir Michael Somare announced his cabinet’s decision that the state nominee would be the Independent Public Business Corporation (IPBC).

In statement issued on October 26, 2008, Somare said: “After studying options by IPBC and the Treasury Department, the Ministerial Economic Committee endorsed for NEC’s approval IPBC as the ideal vehicle for the government stake in this multi-billion dollar endeavour.

“The Ministerial Economic Committee and NEC have both noted that the work led by IPBC to secure finance for the state’s equity in the project is being raised without any sell down of the state’s 19.4% stake. The state will not go into debt to finance its equity and will not need to provide any state guarantees.”

 

Petromin was not the only one shocked. Leader of Opposition Sir Mekere Morauta, father of IPBC, was miffed too on two fronts: first, that Petromin created for such purposes should be bypassed for IPBC, created to warehouse state assets and prepare them for sale; secondly that the Department of Treasury would be marginalised in its role as a state loan negotiator.

“In all my days as Secretary for Finance, Governor of the Bank of Papua New Guinea and indeed as Prime Minister and Treasurer, cabinet ministers and senior officials of functional departments were never allowed to negotiate state loans,” Morauta said.

“It was unthinkable. It seems that under Somare, it is now common practice for ministers to jet around the world directly negotiating loans.

“I urge the Prime Minister to put a stop to this immediately. It is not the role of ministers to negotiate loans—that role belongs to the Treasury Department.”

Morauta highlighted how in 2004 during the last Somare Government, it had engaged an US citizen Mr Michael Z Mathew and granted him ‘exclusive mandate’ signed by Prime Minister Somare to negotiate bonds for Papua New Guinea. 

“The only result of that ridiculous saga is a court case and huge fees and legal costs to be paid by the government,” Morauta said, referring to the US$150 million lawsuit. 

“But the scale of money involved in raising state equity for PNG LNG is hundred times the amount that Mr Mathew was authorised to produce with his bonds. What is going to be the result of this borrowing escapade?” 

Petromin’s chief executive Joshua Kalinoe—a former chief secretary in the previous Somare Government—took the legal recourse and filed a lawsuit through Loani Henao of Henao Lawyers for the court to intervene and award the state nominee role to Petromin.

Prime Minister Somare had to abort one of his regular overseas trips and return home to defuse it. As the sole shareholder/director, he directed Petromin to withdraw the lawsuit—giving his son and State Minister to be incharge of IPBC.

Somewhere along the way, Inter-Oil also decided to have its own LNG Project—and Petromin was consoled with the appointment to be the state’s nominee for its interest.

But Leader of Opposition is not to be consoled so easily. His creature, IPBC’s role was to be a beautician of Papua New Guinea’s state assets reading them for sale.

In Morauta’s hands, privatisation, first initiated by his predecessor (now deceased) Sir William Skate with former Tambul-Nebilyer MP Vincent Auali as first chairman of the Privatisation Commission, bloomed.

Instead of the Privatisation Commission, he established the Independent Public Business Corporation with an independent board, whose role it was to trim, groom and adorn public enterprises for sale outside of government.

IPBC orchestrated the first sale/merger of Papua New Guinea Banking Corporation with Bank South Pacific including shareholding from National Superannuation Fund, Public Officers Superannuation Fund, now Nambawan Super Ltd, and Defence Retirement Benefits Fund.

The sale/merger ensured that social obligations were accommodated and people's unit trust to hold shares in trust for Papua New Guineans to buy in future included.

Probity and transparency were of the highest order and investments by the superannuation funds have brought the most lucrative returns to their members.

Morauta can’t stomach the idea of IPBC playing Petromin’s role and as a former prime minister and former treasurer who designed PNG’s structural reforms, he wants borrowing of any form to be initiated and managed from the one government agency.

 

He has already orchestrated moves to talk with lawyers about taking over Petromin’s case against the state.

In a recent statement, Morauta said any external commercial borrowings to pay for the state’s 19.4% equity in PNG LNG project should be led by the Treasury and the Bank of Papua New Guinea, not IPBC.

“The state is the owner of the public debt and is responsible for its repayment, whether it is debts for Telikom, PNG Ports, Air Niugini, University of Papua New Guinea, Department of Health, Agriculture or IPBC.

“Any borrowings by any state organisation are public debts, and the government is responsible for their repayment.

“For Minister Arthur Somare to say, as reported in The National of 28 October that ‘IPBC has provided an option where funds would be raised without adding to government debts’ is sheer nonsense.

“It is shallow and reflects his lack of understanding of public finance.”

Morauta is adamant that the younger Somare should explain his statement properly, and tell the public what he actually means even if it means going by way of court.

“Officials in Treasury and BPNG have the expertise, official contacts and knowledge of the international market to ensure that state borrowings are on fair terms. BPNG must have the role of monitoring the terms negotiated—interest rate, maturity and fee structure—to ensure they reflect current international conditions and protect the nation’s interests.

“Analysis of the fee structure is particularly important to prevent ‘hidden’ fees and payments being included. 

“Only the Central Bank has access to the information to undertake that oversight role, not IPBC,” he said.

He questioned who in IPBC had the training, expertise and knowledge to commit the nation to this massive borrowing, with its huge implications for the future of the nation and for future generations.

“Can the Minister also tell us why he and his MD are frequently jetting to the Middle East? Does it mean they have actually negotiated a loan?” Morauta added.

But whatever Morauta’s court outcomes will be, the Somares are one step ahead again with the introduction of amendments to the IPBC Act that will give it a legal standing to be the state’s nominee as well as to negotiate financing for PNG’s 19.4 percent stake in the gas project.

Deputy Prime Minister Dr Puka Temu has announced PNG would need up to A$1.6 billion. 

Meanwhile, the ExonMobil driven LNG Project has opened the floodgates for LNG projects with interest announced already by Inter-Oil as well as another firm to develop the gas resources further.

 

- Peter Niesi