NEWS AND PRESS STATEMENTS

The PNGEITI Head of Secretariat Mr. Lucas Alkan says all parties to the Pogera Mine must adhere to rules governing the extractive industry, particularly when dealing with fiscal matters that must be administered and observed according to law. His comments follow a news article on The National citing the Internal Revenue Commission (IRC) that unmet tax obligations of the Pogera mine stood in the way to expedite the mine re-opening process.  Mr. Alkan says a workable and timely strategy that does not impinge on basic laws is a way forward.   Below is the full comment on this issue. 

“The Papua New Guinea Extractive Industries Transparency Initiative (PNGEITI) commends The National newspaper for attempting to bring to light what appears to be the final outstanding issue (among others) in the Porgera Mine recommencement negotiations (more on this in footnote). We’ve noted from the reporting that taxation matters are legacy issues that appear to be standing in the way for the multi-million-kina Porgera Gold Mine to re-open.

We have observed that the Government was on track to conclude negotiations and re-open the Mine by June last year, however this did not eventuate as anticipated. Attempts to reopening the Mine in the second half of last year was not feasible due to the national general elections and the formation of government. It appeared that all negotiations were concluded and a new Porgera Mining Agreement Framework was in place for the Mine to be re-opened in the first quarter of this year.

Surprisingly, we learn that an old Porgera Tax liability dispute is standing in the way for the Mine to be re-opened. The early recommencement of the Mine, preferably within the first quarter of this year is critical for the country as the lead time required for mobilizing resources and the significant start-up capital needed to get the mine back into its full operating capacity would be a significant challenge. On this, we are aware there are also discussions going on with the developer and the government as to who is going to meet the startup cost but we understand Barrick Niugini Limited might meet the full cost of starting up the Mine and government would refund later but unsure as to whether this understanding has been reached or not yet.

With regards to the current standoff, the EITI based on its global best practice principles is of the view that the existing law governing taxation matters must dictate or take precedence over any political intervention. We do not know the specifics of the on-going tax matter but understand that it is related to a tax dispute concerning the ‘old Porgera Mine’. If it is a significant amount of tax owed by Barrick to the Government based IRC’s audit in 2013 then it is a legal tax obligation that Barrick and its joint venture partners need to settle as required by law.

We fail to understand as to why the old Porgera tax obligation/liability clause was inserted into the new Porgera Mining Framework Agreement making it a condition to resolve this legacy tax issue before reopening the Mine. If whatever was reported and commented by PM Marape recently is true then Barrick Niugini Limited and the State need to speed up the negotiation process and resolve this dispute immediately. Both parties should exercise good faith – Barrick Niugini Limited should not pull strings on this old Porgera tax liability matter and delay the re-opening of the Mine. It is understood the State (IRC) may not easily forego if there is a substantial amount of tax liability to be paid by the operator.

Whatever the parties decide to do, they should resolve the tax liability issue through the due process of law but allow the Mine to re-open immediately under the New Porgera Framework Agreement. Political intervention is not recommended to resolve this dispute as this can undermine investor confidence, set bad precedence for the Government and create an uneven playing field for project developers. Barrack Niugini Limited should not put undue pressure on the State to resolve this matter politically in order to re-open the mine as it is not a best business practice.

All stakeholders and the citizens have the right to know the specific issues or the nature of this tax liability issue between Barrick Niugini Limited (BNL) and the Internal Revenue Commission (IRC) as the continued delay in re-opening the Mine continues to have negative consequences on the economy.  The prolonged delay has not only resulted in significant revenue loss to the Government (including the provincial and local level governments in the impacted resource area) but also loss of employment, business opportunities and spin-off benefits to the landowners and the wider communities.

The shutting down of the Mine 3 years ago has had significant negative consequences on the economy including the current foreign exchange shortage that has constrained business operations in the other sectors of the economy. Porgera Mine had been a good source of foreign exchange inflows and its continued shutdown will definitely not going to contribute to the 4% economic growth (that was largely to be driven by the extractive sector) projected for by the World Bank for last year and the real GDP growth of 4% projected for this year in the 2023 National Budget.

PNGEITI commends the transparent negotiation process to date that took substantial amount of time and effort to ensure the interests of all parties were reflected in those agreements. We encourage all parties to continue to respect and observe the laws of the land in this dispute resolution process to address the tax liability issue. We believe that a win-win situation for both parties (Government and Barrick) is to re-open the mine first and work together to resolve the outstanding tax liability dispute later going forward.

ENDS.

Note: This article was initially written for The National newspaper as response note to media query.

November 18. 2022

PNGEITI calls for Transparency mechanisms to be built into the Sovereign Fund Wealth Arrangement

Transparency mechanisms built into the topical Papua New Guinea Sovereign Wealth Fund (SFW) will enable an effective functioning of the fund, according to the PNG Extractive Industries Transparency Initiative.

PNGEITI welcomed the announcement of an initial injection of K5.6 million into the fund making it operational more than five years after the enactment of its enabling legislation. However, the PNGEITI raised concern over the lack of transparency around the operational and structural se-up of the fund.

“While PNGEITI commends the operationalization of the fund, the status quo raises transparency questions that needs to be answered by way of building in transparency mechanisms into the SWF arrangement”  Head of PNGEITI National Secretariat Mr Lucas Alkan said.
“The PNGEITI which has been implementing the global best practice standard on transparency around revenues generated from the mining and petroleum sectors of the economy strongly holds the view that international best practice standard is also built into the SWF arrangement for better governance of the SWF operation, derived from the Santiago principles to be adhered to,” Mr. Lucas Alkan said.

“One of the key objectives for SWF under the Santiago principle underpins a transparent and sound  governance structure that provides for adequate operational controls, risks management and accountability- PNGEITI strongly encourages that this objective be fully met in the PNG SWF set-up.

“SWF are  regarded as important players in the international monetary system and for Papua New Guinea to have one requires due diligence in ensuring the fund stands out well in the international monetary system and is credible” Mr Alkan commented.

“Consistent with the Santiago principles, the PNG SWF must bear economic and financial benefits for Papua New Guinea and the international financial system.

“We welcome the first SWF payment and hope to capture more payments and distributions of funds in the EITI Reports, particularly those taken from our lucrative extractive industry.

While commenting on the Government’s effort to operationalise the long-awaited SWF which is a positive step Mr Alkan said the Government needed to seriously conclude its pending dividend policy review and address the current parallel arrangements or set ups through the Kumul entities that have been empowered through their respective boards as to how much windfall revenues from the extractive sector could be paid to the Treasury or the SWF. He said to ensure the SWF operates on a strong financial footing to perform what it was set up to do, it needs to have access to all the windfalls that come out from extractive sector.

“The opportunity cost of parking such funds (which may be significant in the long run when commodity prices are good) in entities of State that are playing duplicate functions will not assist in using such windfalls to pay down current high levels of public debt.

We would be better off using the windfalls to pay off current high levels of debt than parking money in such arrangements that may be tempted to use for other purpose than what was intended for originally. Therefore, transparency mechanism is highly encouraged in the SWF set up”, Mr Alkan suggested.

“We have had similar experiences in the 1980s and 1990s where the so-called commodity stabilisation funds that were established for similar purpose that never worked and we need to learn from these and ensure the SWF is properly established and operationalised,” Mr Alkan said.

 

Photo caption: 2019 file photo – PNGEITI during a meeting with its stakeholders and international development partner. 

November 11, 2022

EITI INTERNATIONAL MISSION CONCLUDES PNG VISIT ON A POSITIVE NOTE

An EITI International mission led by its Executive Director Mark Robinson to Papua New Guinea concluded today on a good note.

The EITI International team comprised of the EITI Executive Director, the Director for Asia and the Pacific and the Country Lead for Papua New Guinea arrived this week for a 3 days consultation with the Stakeholders that included the PNGEITI Multi-Stakeholder Group including the development partners.

The mission’s main objective was to  meet and discuss the outcome and findings of Papua New Guinea’s second EITI Validation (country assessment report) with various players in the extractive consisting representatives from extractive companies, government departments, extractive SOEs and civil society bodies which provided leadership and guidance in guiding the implementation of the EITI Global Best Practice Standard in PNG’s mining and petroleum sector.

Head of the PNGEITI National Secretariat Mr. Lucas Alkan said “The visit by the international team to Papua New Guinea just under a month after they have issued their verdict on Papua New Guinea’s progress in implementing the EITI Standard  last month recognizes the important role  the EITI  plays in promoting transparency and addressing governance issues in the extractive industry ” PNGEITI head of National Secretariat Mr. Lucas Alkan said.

“The world is in a transitional phase, moving away from carbon dependent fuels to address climate change. In this transition, minerals will play an important role in putting companies and government alike under pressure to mine more as the demand for minerals increase to build carbon neutral machines like electric vehicles.

This means Papua New Guinea will be under pressure to undertake mining and petroleum development activities where there is potential for illegal practices and corruption to creep in given such circumstance.  EITI will play in important role in this transition period to hold authorities and companies accountable for their conduct in managing the sector and to abide by the rules and regulations governing the extractive sector in our jurisdiction.

Photo caption: L-R: Emanuel Bria, Country Officer – Asia, Mark Robinson EITI Executive Director and Lucas Alkan Head of PNGEITI National Secretariat during a press conference held on the last day of the mission, Friday November 11, 2022.  

October 31, 2022

PAPUA NEW GUINEA ACHIEVES MODERATE RATING IN ITS SECOND EITI VALIDATION (COUNTRY ASSESSMENT ON EITI IMPLEMENTATION) 

Following Papua New Guinea first Extractive Industries Transparency initiative (EITI) validation in 2018, the EITI international governing body has issued its second assessment on the country’s progress in implementing the EITI Standard.

The assessment suggests that Papua New Guinea has not made any significant progress from its first validation in 2018 where it achieved ‘meaningful progress’ (satisfactory achievement). The second validation undertaken this year demonstrated that PNG had made ‘moderate progress’ which is basically an average middle score. Though the first validation was based on the 2016 EITI and the second validation was based on the 2019 EITI Standard, the bottom line scoring granted was an average or a median score in the overall EITI global assessment score card.

Released by the EITI Board on 4^th October, 2022, the Papua New Guinea EITI Validation report provides a critical and independent opinion and assessment on the role EITI should play in enhancing transparency and good governance in the extractive sector to derive the best outcome for the economy and its citizens from the development of PNG’s rich mineral wealth.

PNGEITI Head of National Secretariat Mr. Lucas Alkan welcomed the EITI Board’s candid assessment and decision on PNG’s effort to implement the EITI, describing it as fair assessment, taking into account the efforts put in by the PNGEITI Multi-Stakeholder Group over the years since 2013 when the Government signed up to implement the EITI.

“The implementation of the EITI Standard in Papua New Guinea had its own set of challenges but steady and improved progress had been made to ensure the quality and comprehensiveness of EITI reporting improved over time by addressing the gaps that were identified in the first validation for PNG to meet all the requirements of the EITI Standards with the objective of becoming a compliant  country,” Mr. Alkan said.

“We consider the second country assessment as consolidating the corrective actions that have been taken and the work currently in progress. PNG has made significant progress in implementing the EITI relative to other economies around the world that are implementing the same EITI Standard.

“Domestically, credit must go to all stakeholders particularly the tripartite body, the Multi Stakeholder Group (PNGEITI MSG) Chaired by the Treasurer. This ensured that the information required by the EITI International Secretariat and the independent validators for this assessment were transmitted with efficiently.

The information and data supplied were highly verifiable which provided the confidence required for the EITI International Secretariat and its independent validators in conducting and delivering the second EITI Validation assessment,” Mr. Alkan said.

“Papua New Guinea has fully met ten, mostly met twelve and partly met seven requirements, with three requirements assessed as not applicable.

I am very optimistic that PNG will soon become one of the leading EITI implementing countries in the world, attributed to the commitment that have been put into the EITI implementation activities over the years by the PNGEITI Multi Stakeholder Group. This level of commitment had grown from strength to strength, influenced by such reviews and independent country assessments” he said.

The EITI is a global standard for reporting company payments and government receipts as revenues from the extractive sector. These payments and receipts are reconciled by an independent auditor and the information is disclosed through the annual EITI reports for public debates.

PNG operationalized EITI implementation in 2015 and published its first report in 2016.  Since then it has so far published seven country reports covering successive financial years. The 2021 and 2020 reports are now being worked on and are expected to be published by December this  year.

Download Full Validation Report: PNG Final Validation report 2022

Photo caption: Members of the PNGEITI Multi-Stakeholder Group, during the first quarter meeting this year. 

Date: 29^th September, 2022

MEDIA RELEASE

 PNGLNG PARTNERS IMPLORED TO DISCLOSE NATURE OF TRANSACTION

An undertaking by state owned Kumul Petroleum Holdings Limited (KPHL) to increase its PNGLNG equity through a conditional arrangement between PNGLNG partner Santos has raised concerns over the lack of transparency surrounding the whole arrangement and the partial financial transaction that already took place between the parties involved, according to the PNG Extractive Industries Transparency Initiative. (PNGEITI).

KPHL has offered to acquire five percent (5 %) of Santos equity in the PNGLNG Project with asset valued at US$ 1.4 billion. This includes a proportionate share of project finance debt of approximately US$ 0.3 billion which is the condition upon which this commercial arrangement that has been made.

PNGEITI Head of National Secretariat Mr. Lucas Alkan said following publication of this arrangement in the media this week .

“While it is understood that the compromise between two major players in the PNGLNG project as purely commercial, the PNGEITI is concerned at the opaque nature of the environment in which such arrangements are being made, particularly when substantial amount of money belonging to the people of PNG entrusted under the stewardship of KPHL is involved.

This deal can easily be likened to the controversial UBS transaction which recently ended up being investigated by a Royal Commission of Inquiry that cost the State millions of Kina in tax payers’ money.

We understand KPHL had already made partial payment of US$55 million and subsequent payments to finalise the transaction are expected to be made before the end of December this year.

KPHL has a moral and corporate reasonability to be transparent and accountable to Parliament and the people of this country when conducting its business in this sector” Mr Alkan said.

“The PNGEITI, a global best practice standard for the good governance of the extractive sector that PNG is a member of takes the position that KPHL must inform the public on where financing is being sourced to secure the purchase of the 5% additional equity for the State.

The details of this transaction, whether it is being funded from KPHL’s budget, any external borrowing by KPHL on behalf of the State (if so, what asset is being used as collateral) or through the National Government Budget (this is not in the 2022 supplementary budget). Further, it is not clear as to whether NEC had approved for KPHL to execute this transaction to acquire additional equity from Santos. The public has the right to know these details and understand as to how KPHL’s balance sheet would be affected given that a US$ 0.3 billion debt would be inherited from Santos.

The PNGEITI is not against KPHL’s proposal to acquire an additional 5% equity from Santos as it is consistent with the Government’s policy objective of having a greater equity interest in resources developments however, Santos’ intention to deal exclusively with KPHL regarding the sale raises a lot of questions.

We strongly urge KPHL and Santos who are both active members of the PNGEITI Multi Stakeholder Group (MSG) to demonstrate good corporate citizenship and uphold the principles of the EITI Global Standard by disclosing the commercial and economic nature of this transaction for the sake of transparency and accountability in this planned sale of Santo’s 5 percent share in the PNGLNG to KPHL,” Mr. Alkan said.

ENDS/

Authorised by:

Lucas Alkan

Head of PNGEITI National Secretariat

 

The PNG economy stands to make a quick recovery and growth can pick up this year if the Government acts early to facilitate recovery in a fragile environment as the country slowly recovers from the Covid 19 challenges, according to the PNG EITI.

Head of the PNG Extractive Industry Industries Transparency Initiative Mr Lucas Alkan was commenting on a recent Word Bank Report, which projected  the PNG economy to grow by around 4 per cent this year- largely driven by growth in the extractive sector. The projection was  made in its  Economic Update for PNG released in March this year. The Bank’s projection stems from its estimate of the economy returning to positive growth of 1 per cent in 2021 after contracting by 3.5 per cent in 2020.

“The economy is currently in fragile state, particularly when it is emerging from the aftermath of the Covid 19 pandemic induced disruptions that had devastating impact across all sectors of the economy. The pandemic has created room for complacency and brought about new approaches to living and conducting business as we have been introduced to the ‘new normal’ way of living and doing business in recent times” Mr. Alkan commented.

He indicated that the Bank’s growth forecast is dependent on a number of risks factors that are at play relating to the extractive sector. He said some of these are external risks such as the rising fuel prices brought about by the Russian and Ukraine war which “we have little or no control over”

.”However, there are other risks that can be managed in the remaining months of this year” he observed

“Firstly, the Porgera Mine needed to be re-opened immediately to contribute to the growth projected. The prolonged delay in re-opening the Mine has resulted in significant revenue loss to the State and loss of employment and benefits to local communities. The shutdown of the Mine is having direct impact on the current foreign exchange shortage in constraining business operations domestically. Porgera Mine had been a good source of foreign exchange inflows and its continued shutdown is not assisting PNG to achieve the 4% growth projected by the World Bank,” Mr. Alkan said

Mr Alkan said the growth was projected almost 4 months ago, assuming that the Government would conclude negotiations and re-open the Mine before June, however this has not eventuated. Reopening the Mine anytime soon seems not feasible in light of the current national general elections that will take us up to August for a new government to be in place.

“If all in order the Mine can be re-opened but then the lead time required for mobilizing resources and the significant start-up capital needed to get the mine back to its full operating capacity is a big challenge. Realistically, we may be looking at around October or November for the start-up but then it will be almost end of the year so for Porgera to contribute to the projected 4% economic growth seems unlikely”, Mr Alkan said.

“Secondly, the inherent political risk associated with the current national general election and the formation of a new government is likely to delay any efforts to start up new resource projects currently in the pipeline. The commencement of at least one or two of these projects at the earliest possible time will have positive impact on the economy, and in as far as contributing to the 4% growth projected. Unfortunately, election activities have generally stalled things until a new government arrives but this may not be too soon until around August or September for the new regime to pursue with outstanding negotiations to reach agreements to bring these projects on-line. These projects include; Wafi-Golpu, Frieda and the Papua LNG project that have the potential to contribute positively to the economy during their construction phases.

Thirdly, there is a real risk for the Covid-19 pandemic to surge again, disrupting economic activities in this very fragile environment, especially given the vaccination rate is very low. This is highly likely due to large gatherings taking place right across the country since political campaigns commenced following the issue of writs in May,” he said.

Mr Alkan indicated that some of the above risks and challenges could be minimized if the current or incoming government takes immediate actions within the remaining months. It is understood that the final agreement for Porgera reopening will be sanctioned soon by Mineral Resources Enga (MRE), the remaining party to sign the recommencement agreement.

‘We hope this agreement will be sealed at the earliest for the next phase which is the application of the Special Mining Lease (SML) to recommence the mine.

PNGEITI commends the transparent negotiation process that has taken substantial amount of time and effort to ensure the interests of all parties are reflected in those agreements. We believe the re-opening of Porgera Mine will live up to the expectations of institutions such as the World Bank that predicated PNG’s positive economic growth to be driven strongly by the extractive sector this year.

It would be very critical for the incoming government to also engage with the developers to bring the new projects already in the pipeline on-line at the earliest which will contribute positively to the economy.

We re-echo the World Bank’s sentiment that the PNG economy is navigating a fragile recovery period and if the Government does not act decisively and fast to re-open the Porgera Mine and bring on-line new projects in the pipeline in the next few months then it will be highly likely that the Bank’s projected growth for the extractive sector will not be achieved,” Mr. Alkan said.

ENDS..