Boards’ roles in
regulation of minerals and oil and gas
Mining
and petroleum businesses are regulated activities. Key laws are the Mining Act
1992 and Oil and Gas Act 1998.
There
are different licences for different activities in the two industries. Mining
Act 1992 has 6 licences whilst Oil and Gas Act 1998 has 5 licences.
In
mining they are;
·
Exploration
licence;
·
Mining
Lease;
·
Special
Mining Lease;
·
Alluvial
Mining Lease;
·
Lease
for Mining Purposes; and
·
Mining
Easements.
Role
of the Mining Advisory Board or the Council is very critical for advice to the
Minister for Mining and in the case of Special Mining Lease report to assist
the National Executive Council and the Head of State.
Who
comprises the Mining Advisory Board or Council and how it conducts its business
is very important for probity and fairness taking account of all affected
interests such as applicant’s technical, financial and environmental
capacities. Landowners’ right to land surface ownership, occupation or use.
Government’s overriding desire to turn its mineral ownership into value for
money.
In
oil and gas industry the licences are;
·
Petroleum
prospecting licence;
·
Petroleum
retention licence;
·
Petroleum
development licence;
·
Pipeline
licence; and
·
Petroleum
processing facility licence.
Like
for mining, the role of Petroleum Advisory Board is very important. It advises
the Minister for Petroleum and Energy to, grant licences, enter into agreements
and it provides reports to the National Executive Council for development
licence purposes.
In
1997 a study was undertaken by The Centre for International Economics that was
initiated by BP Exploration Operating Company Limited, Esso Highlands Pty Ltd
and Oil Search Limited which had collaborated to develop a Liquefied Natural
Gas (LNG) in PNG. That study used a base case of 1 train LNG facility with
Wewak as the point of processing and export to Asian markets. Investments at
Hides and elsewhere would have cost K3.3 billion over 4 years from 2001 – 2004.
Income
to PNG would have increased by as much as 14% at the price at the time of
study. Jobs to PNG was estimated at 4 450 jobs directly with 2 450 jobs for PNG
citizens at construction. There are many other gains which were identified by
the study appropriately titled; Gaining from Gas; the economic contribution of
the Papua New Guinea LNG project.
Today
PNG LNG project has 2 trains. BP has left PNG. Oil Search is the biggest
petroleum company in PNG in terms of assets in PNG. But it is Esso that is the
leader. Under its leadership the 2 train LNG project cost has gone up to USD 19
billion. Large part of this cost would
have been project financed. Assuming a 4:1 debt-t-to-equity ratio the debt
would be USD 15.2 billion whilst equity contribution of the proponents would be
USD 3.8 billion. LNG has created more debt for PNG.
Against
such a massive debt how could we call LNG “a national interest project”?
Looking at our leaders boasting about benefits from LNG and handing down a K3
billion deficit budget for 2013 before the first LNG export is a mortgage on
PNG’s national sovereignty. We have harvested a garden when the garden was just
being made.
We
regret to say the Petroleum Advisory Board that comprises key agencies of
government let PNG to be a debtor nation-to-be with LNG. Saying this is not easy
for any public servant. Arrogance of leadership at the time did not allow any
advice contrary to popular wisdom that LNG would miraculously heal all the
financial and social ills of PNG.
Petroleum
Advisory Board may not have had political support. The least it could have done
was to give proper technical advice to the Minister for Petroleum and Energy.
Probity and fairness demanded that the Petroleum advisory Board should have
done proper due diligence on the LNG project proposal led by Exxon Mobil. Exxon
Mobil is the parent of Esso Highlands. What intercompany loans and what
management fees were built in as cost of PNG LNG? In terms of Gas Income Tax
which entity would be taxable entity?
Apart
from these technical issues the Petroleum Advisory Board has not advised the
government through the Minister for Petroleum and Energy why Exxon Mobil as
lead promoter of the PNG LNG project did not want to undertake social mapping
and land investigation as required under the Oil and Gas Act 1998? We know that
two agreements were entered into. Agreement before licensing provided a path
outside of the Oil and Gas Act 1998. How could not the Petroleum Advisory Board
not provided advice against this plot? What was the “national interest” that
overrode legal requirements?
God
bless leaders and lawyers who are probing LNG deal.
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