Home Shift in resource ownership

OP/ED

Former prime minister Sir Julius Chan asked three questions yesterday to the parliamentary referral committee on minerals and energy.

1.Can you buy what you already own?

2.Does it make economic or business sense to transfer title in property to someone freely or for a paltry payment of K10,000 and then buy back a 30% interest in that same property for K300 million?

3.Does it make sense for a country to earn billions in income and not be able to improve the lives of its people?

To all of these questions, Sir Julius, now governor of New Ireland, answered in the affirmative.

He elaborated: “First, the state cedes exploration and production rights to foreign companies for next to nothing. Insignificant licence fees are charged – often K10,000 – and royalties of 2% are levied.

“But, for this pittance, the foreign developer gets full control of all the wealth that can be taken from the ground.

“The next step is for the state to seek equity in the project, usually 30% in a mining project and 22.5% in an oil or gas project.

“The state has ‘given away’ the entire resource to a foreign company, and now returns to buy what was already legally its own property by spending K200 million or K300 million, or even more, for a 30% interest in the project. And, to do so, the state usually takes out a commercial loan that puts the country further into debt at high interest rates.”

However preposterous the prospect might seem, when you view it when it is presented as starkly as that, it has happened in Papua New Guinea, it is continuing to happen and will continue into the foreseeable future until and unless something is done about it. 

We agree entirely with Sir Julius:

“This is ludicrous.

“ It is reckless and stupid. It is a complete failure of the state to act as the sworn steward of its people.”

How did this happen?

What can we do about it? Sir Julius provided historical material, derived from extensive research into the history of resource extraction in PNG and abroad, in places as diverse as Norway in Europe, Botswana in Africa and Chile in South America in answer to the first question.

He drew on the desires enshrined in the preamble to the constitution which calls for equitable distribution (goal No.2), PNG ways and self-reliance (goal No.3) and how, 36 years on, PNG is as far away, if not further, from achieving these goals than it was at independence.

In answer to the second question, he made a series of proposals, principal among them being to amend the Mining Act (1992) and the Oil and Gas Act (1998) to reverse the ownership of all minerals and hydrocarbon reserves six feet under the ground from the state back to the landowners.

Along with this, Sir Julius has proposed strategies that will completely change the current resource development regime in the country.

He wants Waigani to transfer more powers to the provinces in relation to resource development.

He wants more Papua New Guinean companies to be in control of the development of resources from exploration to extraction activities.

Where foreign companies discover commercial quantities of minerals or oil and gas reserves, that company’s exploration expenses would be reimbursed by the state and it be given first right of refusal to manage the project if no expertise can be found onshore.

These are extreme measures proposed.

They will meet with plenty of opposition, we are certain, from those who enjoy life under the present regime. The National sees three weaknesses which must be addressed.

Equitable distribution might be far more difficult under Sir Julius’ proposal until and unless the land tenure system can be addressed meaningfully. Right now, we might take ownership away from the state but, then, we vest in a group whose membership is expanding all the time with inter-marriages and land boundaries that are uncertain.

The potential for inter-clan and tribal feuds mount exponentially. Unless the landownership issue can be addressed, attracting the huge financial commitments that is required for resources developments will be next to impossible from within and outside the country.

If that is somehow resolved, government will have a most difficult time trying to perform the equitable distribution trick, by trying to prise loose from landowners something to give to the rest of a province or the rest of the country.

There will be pockets of very rich Papua New Guineans and a lot of very poor ones as well.

And, finally, the provincial government experiment has shown us that not all provincial governments are ready or capable of managing their affairs well.

Thirty-six years on and this is another failed story. More responsibility is not going to, overnight, translate to efficient and smooth running of provincial governments. The administrative and financial management capacity of each province has to be reviewed thoroughly before any more power should be devolved.