Toppling govt’s control over resources and equity

Peter Niesi

Whichever path Papua New Guinea takes, there’s bound to be outrage and outage as Parliament, landowners and the Executive Government, watched by foreign investors, grapple with radical moves in natural resources ownership and equity in benefit sharing from their extraction.
The nation has taken (what some see as) the plunge into stormy waters of poverty reduction efforts with landowners fighting for equity in the ExxonMobil-led US$11.5 billion Liquefied Natural Gas (LNG) Project from the bottom-up.
From the top-down, there is a revolutionary parliamentary motion introduced by former Prime Minister Sir Julius Chan that aims to topple Executive Government’s legalised ownership and dominance on collection and distribution of mineral.
Neither the landowners at the gas wells and along the proposed 400-kilometre pipelines nor Chan have related their initiatives directly to the United Nation’s Millennium Development Goal of reducing poverty by 2015. But the intention is there.
And benefit sharing is definitely the buzz phrase in this resource-rich but poor country with a mere 39 percent living above the poverty line, according to Australian National University’s Dr Mike Bourke.
PNG is host and beneficiary to what is the largest oil and gas investment in the world. This is spearheaded by ExxonMobil with partners OilSearch Ltd, Santos, Nippon Oil Exploration and the PNG State.
The project is at the Benefit Sharing Agreement (BSA) forum stage where landowners, provincial and local level governments and the state, represented by the National Government, determine how to share their 19.4 percent equity.
The state also holds a substantial stake in OilSearch Ltd—one of the joint venture partners which make up the 22.5 percent compulsory equity.
Southern Highlanders, owners of the land where the nation’s main oil and gas wells are located, began the BSA process in Kokopo early in May.
Kokopo is the new town developed after the twin volcanic eruptions of 1994 devastated and buried most of Rabaul
Some 2000 highlanders with landowners from the Gulf and (a few from) Central provinces along the 400-km pipeline— swarmed the island town in early May, stretching local authorities, police and the small hotel industry.
The irony is that the large numbers and natural volatility of Southern Highlanders was why this Benefit Sharing Agreement for the LNG Gas Project was taken across the waters to New Britain island.
After a chaotic start with the government floundering around looking for a chairperson for days, the meeting started—and was the government in for a stretching time?
Dominance and control: Traditionally, PNG has had—to use the words of Chan—an economic policy of dominance and paternalistic control where the state, through the Mining Act of 1992, has set itself up as the owner of all minerals on land (under six feet) or under the sea and assumed the sole and incontestable authority to grant exploration rights and extraction or development rights.
In terms of equity distribution, landowners have only been allowed a maximum of 2.5 percent out of the state’s first priority equity of 22.5 percent.
In the US$11.5 billion LNG Project, the state has a stake of 19.4 percent—and indications are that the developers led by ExxonMobil will not relinquish any of their shares in the project as they near finalising the markets for LNG Gas.
That leaves the National Government of Prime Minister Sir Michael Somare to deal with the landowners’ insistence on 10 percent equity.
Petroleum and Energy Minister William Duma’s attempts to drag his feet on behalf of the government has been a solo resistance against a might of 2000 plus, led by Southern Highlands Governor Anderson Agiru—and backed by high level advisors.
Reports from Kokopo indicate they have pulled past the 2.5 percent, past the 5 five percent and were in the vicinity of 8 percent (at the time of writing).
Duma and Agiru—on opposite sides of the negotiating table—are members of the United Resources Party—a partner in Somare’s National Alliance-led Coalition government.
The tug of war is being watched carefully by ExxonMobil, its partners and the Opposition, who recognise that the loss of this giant multi-national corporation may mean a delay in the exploitation of this gas resource—and other gas wells which may be discovered and flared.
But while ExxonMobil has been focusing offshore on the BSA tug of war, the fight has flared up in political quarters.
Hints of it first surfaced on June 2, 2008 at the Governors’ Conference in Lombrum, Manus, in the northern part of the country.
A reinvigorated Chan, after 10 years outside of national politics and as Governor of New Ireland, has begun to see that “the National Government of Waigani is too far removed from the people to take into account their real interests”.
Boosted by difficulties in drawing down some US$116 million in back payments from revenues drawn from the Lihir Mine direct to the National Government since 1999, Chan described the royalties of 2 percent of free on-board annual revenues of resource extraction activity; the special support grants which the government has tried to reduce to only one quarter of one percent of the f.o.b. annual revenues and delayed, ignored and abandoned infrastructure construction by extractors, as a “huge imbalance”.
Chan’s motion was tabled after the Opposition took the government to task for allowing a run-away, unplanned deficit of close to half a billion in the local Kina currency—50 times worse than their planned revised 2008 Budget deficit of K9.5 million. They had originally planned for a Budget surplus in 2008 but blamed the runaway deficit on drop in commodity prices—especially minerals and oil—due to the global financial meltdown. The Opposition maintains it was really a cover-up done in November for the blow-out additional priority expenditure.
That fuelled Chan’s comments that Waigani does not “feel” the negative impacts that mining and other extractive industries have on the people who live where extraction occurs, citing pollution along the Fly River by Ok Tedi Mining Ltd, the massive hole in the ground left by Lihir Gold Ltd and social disruption, increase in alcoholism, rising youth crime and increasing violence against women that comes with large scale developments.
Speaking in hindsight, Chan told Parliament on May 14 that the negative consequences had been accepted because past governments thought they would be outweighed by positive benefits.
The evidence, the former Prime Minister said, indicated macroeconomic growth but that has not been translated into better lives for the people.
“The present sharing of benefits is unjust and blatantly squandered by those in Waigani. Who do you think is paying for all the costs of embezzlement, misappropriations, thefts, commission of inquiries, and all the banquets and overseas travels, Christmas parties and excesses? The resource owners!” Chan said.
Resource owners: “Our nation’s wealth comes from rural resource owners and they remain the poorest of the poor.”
He said similar trends are experienced worldwide but PNG can make this revolutionary change opening the gateway to majority of our people with his motion and supporting amendments to the Mining Act of 1992.
Inter-Government Relations Minister Job Pomat has been tasked to table the amendment bill restoring ownership of minerals, oil and gas back to landowners.
Chan’s new formula, which already has the backing of 20 regional members/governors, aims to see the state removed as the intermediary and established as only one of a group of end-payees with an independent statutory authority as first recipient of all payments.
This authority would distribute all funds owed to the province, local level government and landowners under legally binding agreements as first priority.
Fifty percent of all remaining funds are to be deposited into a reserve fund to be independently managed by a reputable financial institution outside PNG for use for future generations.
Finally, the remaining 50 percent to be transferred to the state on the condition that one third of that total is to be used for development activities in the province in which resource extraction is occurring and the rest can be spent on development activities in the rest of the nation.
While LNG Gas Project resource owners may celebrate this potential support, this does not accommodate payments for resource extractions already completed in some provinces—and is bound to disadvantage provinces without minerals, oil and gas.
But worse then all that is the potential no win situation: If landowners have their way, ExxonMobil and its partners may reconsider their role as developers. If the government uses its muscles and halt the equity below 10 percent, the landowners may stop access to the gas wells and any pipeline or plant construction work.
Parliament has postponed debate on the motion pending a closer look by the Parliamentary Committee on Resources.