Papua New Guinea Extractive Industries Transparency Initiative (PNGEITI)

Day: February 26, 2020

PNGEITI Prepares for PNG to undergo Second Country Validation

Work has begun on the corrective actions for PNG to be assessed for the second time on its efforts to implement the EITI Global best practice Standard to promote transparency and improve governance in the extractive sector.

The second country validation will commence on the 30th of April 2020.

The EITI Board granted PNG ‘Meaningful Progress’ overall in implementing the EITI Standard following the conclusion of the first country validation in 2018.

This means that PNG met some of the key requirements of implementing the EITI Standard. However, there remained a number of critical areas the Government needed to address in order to fully comply with the Standard.

One of the key recommendations is for PNG to publicly disclose licencing information related to award and or transfer of mining tenements and oil and gas licences. This information, including comprehensive information on the licences (mining, oil and gas) for all extractives companies operating in PNG should be made publicly accessible via registers or cadastre systems that are maintained by responsible government authorities.

Related to the above recommendation is for PNG to ensure that complete production and export volumes and values for all mineral commodities (including oil, condensate and gas), produced and exported during the year under review for each mineral commodity be made publicly accessible and disaggregated by commodities.

Another important recommendation was for PNG to improve transparency in the operations of its extractive State-Owned Entities (SOEs). This is to ensure that a comprehensive list of State participation in the extractive industries, including terms associated with State equity and any changes in the year under review be publicly accessible.

Other critical recommendations included increasing the comprehensiveness of all streams of extractive revenues collected by government, improvement in direct sub-national payments and transfers, and improving data quality for EITI reporting, and providing greater details on the distribution of extractive revenues for transparency purpose.

The EITI Board allowed PNG 18 months to undertake these corrective actions before the second validation.

EITI implementing countries are assessed or validated, consistent with the EITI Standard. The first validation commences 3 years after a country signs up to implement the Standard.

The PNG Government signed up to implement the Standard in 2013 and has been implementing it for the last 6 years to date.

The validation process is a tool used by EITI International to assess the impact that the EITI process makes at the country level, particularly the policy and legislative reforms to strengthen the systems of government for better management of its extractive wealth.

Through this validation process, there are 5 categories that countries can be ranked based on their progress ranging from; No Progress, Inadequate Progress, Meaningful Progress, Satisfactory Progress and Progress Beyond the EITI requirements.

PNG having attained ‘Meaningful Progress’ in the first validation is actually a good outcome in its efforts to improve transparency and governance of the sector. This outcome is only one step short of becoming a fully compliant EITI country.

Following the first validation, a Technical Working Group (TWG) was established by the Multi-stakeholder Group (MSG) to spearhead preparation for the second validation and the TWG held its first meeting last year.

Head of National Secretariat Lucas Alkan said the team would continue to meet and report to the MSG in the coming month as we prepare for the forthcoming validation.

“Our intention of setting up the committee is to engage the responsible entities, especially the concerned government departments and State entities to work on the corrective actions leading up to the April 2020 validation period,” said Alkan.

During the first meeting, a resolution was made to meet the requirement of public disclosure for areas under license allocation and register.

The government entities responsible for disclosure of licenses allocation and registers are working to get that information available on the website and accessible to the public.

Currently, these data are separately managed by respective entities in stand-alone databases.

Representatives of the responsible entities said to continue working on this requirement in the coming months.

Meanwhile, JICA Consultants engaged under the PNGEITI support project have been working with relevant government entities to establish a network where all relevant data-sets will be stored and accessed under one central point.

Once a website is up and running, especially at the Department of Petroleum, the stand-alone registers will be uploaded onto the central database, which can then be publicly accessible.

“The TWG also resolved to address data quality by working closely with relevant government entities to verify extractive revenue flows and for a possibility of auditing these figures for EITI reporting purposes. “This is to ensure the data they provide are reliable to be included in the annual PNGEITI Reports

“For EITI reporting purposes, PNGEITI and the TWG will explore possibilities of engaging reporting government entities and the Auditor General’s Office (AGO) to ensure timely audits. “The TWG through the PNGEITI National Secretariat will consider engaging an independent consultant to carry out a feasibility study, aimed at assisting the AGO to provide timely audit reports for government departments and state-owned entities that report to the EITI process,” Alkan added.

Scoping Study to be conducted on Extractive state-owned entities

The PNGEITI National Secretariat through its Multi-stakeholders Group (MSG) has already commenced preparation to engage a consultant to scope out the operations of State-Owned Entities (SOEs) including Trustees involved in the extractive sector or those that have an equity share (either on behalf of the Government or provincial governments).

Head of National Secretariat Lucas Alkan announced this week that the execution of the study on SOEs was an important undertaking in not only meeting the requirement of the EITI Standard as recommended in the country’s first validation but also, as part of the Government’s commitment to enhancing transparency in the operations of these entities.

“The scoping study will also include Trustees established by the Government for managing businesses arms established by provincial, local level governments and landowners using revenue flows from extractive activities in the country,” Alkan said.

“The study is intended to understand the relations between all SOEs and trustees and the transactions between extractive SOEs (and their subsidiaries) and to recommend possible policy and legislative reforms to improve transparency and accountability for EITI reporting requirements.

“Most importantly, to enable the Government to have a clear visibility and oversight on the operations of these entities,” Alkan said.

He said though the study will be confined to SOEs involved in the extractive sector only, the work will complement and support the Government’s overall SOE reform policy agenda being progressed.

A Technical Working Group made up of MSG members has been working to engage a consultant to execute the study. An announcement for expressions of interest for a consultant was advertised in the daily newspapers last week and also posted on the PNGEITI website.

The following recommendations were made for the study of SOEs;

  • PNG should clearly establish its definition of SOEs to delineate the SOEs within the scope of EITI reporting to ensure that a comprehensive list of state participation in the extractive industries, including terms associated with state equity and any changes in the year under review be publicly accessible.
  • PNG must clarify the rules and practices governing financial relations between all SOEs, including their subsidiaries, and the State, including the existence of any loans or guarantees extended by the State, or SOEs, to extractive companies or projects.
  • PNG should undertake a comprehensive assessment of transactions between extractives SOEs (and their subsidiaries) and mining, oil and gas companies, as well as between the extractive SOEs (including their subsidiaries) and government in its scoping for future EITI Reports.
  • All SOEs collecting material revenues or making material payments to government should be included in future EITI reporting.
  • PNG should undertake a comprehensive review of all expenditures undertaken by extractive SOEs (and their subsidiaries) that could be considered quasi-fiscal.
  • Furthermore, it was recommended through the validation process that PNG should develop a reporting process with a view to achieving a level of transparency commensurate with other payments and revenue streams, and should include SOE subsidiaries and joint ventures and their financing and equity arrangements in extractive projects.

The study is anticipated to take about 4 to 5 months and will commence in April, 2020. The MSG anticipates to implement the findings from this study in early 2021.

Background information on PNG’s implementation of the EITI Standard

The EITI implementation in PNG was validated against the EITI Standard by an independent validator in early 2018.

Subsequently, the EITI Board granted PNG ‘Meaningful Progress’ overall in implementing the EITI Standard following the conclusion of the first country validation. This means that PNG met some of the key requirements of implementing the EITI Standard. However, there remained a number of critical areas the Government needed to address in order to fully comply with the Standard.

The EITI Board therefore allowed PNG 18 months to undertake these corrective actions before the second validation in 2020.

One of the key recommendations was for PNG to improve transparency in the operations of its extractive SOEs. This is to ensure that a comprehensive list of State participation in the extractive industries, including terms associated with State equity and any changes in the year under review be publicly accessible.

EITI implementing countries are assessed or validated, consistent with the EITI Standard. The first validation commences 3 years after a country signs up to implement the Standard.

PNG Government signed up to implement the Standard in 2013 and has been implementing it for 6 years to date. The validation process is a tool used by EITI International to assess the impact that the EITI process makes at country level, particularly the policy and legislative reforms to strengthen the systems of government for better management of its extractive wealth.

Through this validation process, there are 5 categories that countries can be ranked based on their progress ranging from; No Progress, Inadequate Progress, Meaningful Progress, Satisfactory Progress and Progress Beyond the EITI requirements.

PNG having attained ‘Meaningful Progress’ in the first validation is actually a good outcome in its efforts to improve transparency and governance of the sector. This outcome is only one step short of becoming a fully compliant EITI country.

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