Brief on Frieda- December 2014- 0n Issues of Ownership and Control and the Pre Emptive rights of the State in Resource Projects.

BY GABRIEL RAMOI

As  the Market awaits the Decision of the International Tribunal to be handed down early next year  in London in the case  referred  by Oil Search Ltd against Interoil on its rights  as an existing  Partners in the Elk LNG project  to be offered the first right of refusal to purchase any shares on offer by the project developer ,  the States own interest  relating to pre emptive rights   needs to be clearly   stated to avoid the situation  that has landed the Prime Minister  before the Leadership Tribunal  with respect to the UBS K3 Billion loan from ever rising again.

All Hydro Carbon  resources  found  beneath the  surface of the earth and on our sea bed belongs to the State.  Mining Exploration Licences and  petroleum  Retention  Licences  are the property of the State  which reserve the right  to  enter into  and to invest in this  licences if it chooses too. While the Mining Act  and the Oil and Gas Act  allows the State to exercise its rights to take up to 30% Equity in Mining Projects and 22.5% in all hydro carbon Projects , these Acts do not prohibit  the State from making  commercial investment decisions  for the National Good.

There is  a misconception  that the Government of PNG cannot enter into any  major resource project until  after the completion  of the Bankable Feasibility study  by the licence holder  and only at the commencement of negotiations  on Mine or  Petroleum Development Contract  between the Developer and the State . This view is not only  misconceived  but  is dangerous as it perpetuates   neo colonialism.

 With respect to  the case of Elk neither the State or its proxy  Oil Search  were made an offer to  inject additional capital into the Elk LNG project  and  ultimately on whether Total of France  should  be  the development  Partner in the Elk and Antelope Gas Fields .While Oil Search has  gone for Arbitration the Government of PNG has been forced  to enter into a Commercial  decision to enter into  the UBS  loan to participate in the Elk Project via Oil Search Ltd.  The important question that  will still be dealt with is the State’s 22.5% interest  in Elk and the value of that interest and  for the State  to enter the project now and participate in the decision as to whether Exxon or total is made the developer of the PNGs second LNG project.

On this note  we also remind  our own senior Bureaucrats heading down to Sydney for  the biannual shopping and Mining Conference at the Sydney Hilton not to mislead the  Australian Mining  Community  in Particular on another similarly large project , the Frieda Gold and Copper Project and the intent of the Government of PNG with respect to the issue of Ownership and Control of  our  country’s  biggest mining project . We remind  our  Sydney Mining Conference  Participants to be aware of  NEC decision  265/2014  and to take note in particular to the contents of NEC Policy Submission 242/2014 which gives rise to the said decision.

Let me  again caution our leading citizens that while making the case for  Foreign Direct  Investment in the PNG resource sector in a foreign land  that they be mindful  of the growing disillusionment   by the  majority of our people and  our Land owners in particular about the way we have  dealt with the exploitation our non renewable resources  which continues  to treat our people as mere  spectators in this sector  and  not to concede too much to  investors whose main driver for investment is guided only by profit motive  and not the improved quality of life for our people.

It would appear that while Total has been endorsed as the preferred developer of the second LNG project  no such endorsement has been given to Pan Aust Ltd to take on the responsibility of developing  the Frieda Gold and Copper project  on the contrary the State is desirous of owing and developing this massive deposit itself  jointly with  Land owners and the two Provincial

Governments  of East and West Sepik  Province and that  Pan Aust Ltd  and Xstrata-Glencore  would do well in accepting the offer made by the State to Xstrata Glenocre to acquire their interest in EL58 on the same terms as  reached between Xstrata and Pan Aust  Ltd on the 30th of September 2013 and that this is the position of the PNG Government unless overturned by Cabinet.

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