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EXCITING TIMES YET CHALLENGES AHEAD FOR PNG EXTRACTIVE INDUSTRY SECTOR

by KOMBOL GIBSON

 PNG is endowed with a $19bn oil and gas industry. The size of this industry is set to double and almost triple. It’s an exciting prospect for PNG but challenges remain for delivering that blessing to every man, woman and child in PNG. In fact the opposite is happening. PNG should be concerned.

There is a large focus on Government-funded programmes in the Hela and Southern Highlands Provinces instead of a more equitable arrangement for all 21 Provinces in PNG. That is a story for another day and a subsequent article, but the upshot of this focus on Hela and SHP is that the vast majority of it ends up in the hands of elites from these Provinces that reside elsewhere, access health services in Port Moresby or overseas, send their children to school overseas, maintaining multiple wives and mistresses and invest in Port Moresby or overseas. So roughly 80% of funding that gets diverted to Hela and SHP ends up in the pockets of Ministers, MPs, senior public servants, advisors, consultants, Court appointed mediators, the judiciary, law firms, aviation companies, construction companies, satellite tv business and property developers.

The number of ‘overnight' millionaires from that part of PNG is astounding. It’s much more difficult to conceal now because the scale of the oil and gas industry hosted by those Provinces which supposedly justifies the direction of a significant portion of PNG’s Development Budget and discretionary recurrent spend to these Provinces and subsequently into the hands of elites. Commercial banks and the Central Bank do not question the source of funding. The IRC does not collect taxes from these businesses.

Australia promotes investment in its country by these elites through education for their kids and property investments. Singapore and the Philippines are now the investment destination of choice because of loose banking laws, strong Government to Government relationships which permit host Governments to accommodate the placement of funds by elites in those countries. The rest of PNG? Well, ‘mipela daunim spet stap long sait’. The justification for this largesse by our 3 arms of Government is project stability – but instead it will achieve the opposite – it will turn ‘hearts and minds’ against non-renewable resource projects because it is actively promoting and cultivating ineptitude, mismanagement and corruption. What role are the developers playing?

In the week of 23 April 2015, Rex Tillerson, Chairman and CEO of ExxonMobil was in Houston that week to deliver the opening keynote address at the oil-day session for this year’s IHS Energy CERAWeek conference. He said, in part,
“The shame is that our government policies aren’t keeping up with our technology and progress.
“Unfortunately, as much as our investments and technologies are shaping – and will shape – the 21st century, our industry continues to struggle under the weight of policies that are products of 1970s thinking,” said Rex. “We need policies that recognize the ‘turning point’ moment” in which we find ourselves.

In his view, that boils down to four things:
Governments need to recognize that our advanced technologies and techniques have been proven in some of the most delicate ecosystems and challenging environments on the planet;
Washington must promote free trade in oil and natural gas as it does for virtually every other American-made good or product;
Critical infrastructure projects like Keystone XL must be approved; and, Our regulatory process needs greater certainty and transparency.”

How does this corporate stance play out in PNG through its PNG affiliate? Consider the following.

Negotiating an extraordinary MOU directly with the Office of the Prime Minister in December 2014, ‘bulldozing’ it through Government approval processes that forced Government to give the developers, ownership over resources in PRL 3 P’nyang as soon as they switched on electricity to the Port Moresby grid from the LNG Plant at Caution Bay. One-sided because they extracted an undertaking from Government to grant a licence to own, extract and sell the gas resource even though they had not completed their appraisal programme. Appraisal is the drilling of additional wells to determine the nature and extent of an oil and/or gas discovery, following which you certify the resources you will own as soon as Government hands you ownership. Secondly, asserting the same fiscal terms as the foundation project were a fait accompli when the integration into the PNG LNG foundation project is a coordinated development, not unitisation.

Thirdly, effectively blocking any access by the owners of stranded gas resources in the Western Province, to an economically strategic pipeline that will run from the Western Province to Kutubu in the SHP and then through an existing pipeline onto the liquefaction plant in Port Moresby. On or around the same time, the South Pacific Employment Facility, formerly the ExxonMobil POMCTF Facility was handed by ExxonMobil PNG, to a consortium of the Enga Children’s Fund and the Orion Group. The reason for extraordinary pressure on the Office of the Prime Minister was the imminent expiry of PRL 3, a retention licence, with no extension periods remaining by law. A retention licence is granted once a licence holder makes a gas discovery. It runs for a term of 15 years and permits a licence holder to investigate the commercialisation of that discovery, including drilling more wells to establish the size of the gas discovery and to conduct studies to commercialise the discovery. The proper course would have been to entreat Parliament to fix the law to address the situation. As it was, the conclusion is of an overly aggressive and overbearing approach by developers, detrimental to national interest.

So the pressure to issue a development licence to the new owners of PRL 3 P’nyang is being applied daily by ExxonMobil. ExxonMobil employees are enrolled in performing the role of State agencies and the Minister. Despite the fact that NEC recently set up a State committee to review an application for a Petroleum Development Licence over PRL 3 P’nyang matter and to consider related public policy issues, the Secretary of the Department of Petroleum and Energy was awoken at 1am in the morning at his home in Koki on Thursday, 26th November 2015, by Police and his Dep Sec to accompany them to the Airways Hotel to draft, together with the Minister for State, Nixon Duban and ExxonMobil employees, a NEC Submission that approves the grant of a PDL to the licence-holders of PRL 3 P’yang. The NEC submission has been drafted by ExxonMobil.

The benefits sharing agreement between the ‘Independent’ State of Papua New Guinea and the landowners, Provincial and Local level Governments has been drafted by ExxonMobil. The benefits package to be offered by Government and expressed in the benefits sharing agreement has been drafted by ExxonMobil. The actual licence terms and conditions of the PDL granted to licence-holders of PRL 3 P’nyang has been drafted by ExxonMobil. This is extraordinary because the future owner of the resource is literally drafting the terms on which the current owner will give away that gas resource. It is a resource in which the Government will retain equity of 22.5%, for and on behalf of the people of Papua New Guinea and the local landowners. So who is really running this country, the institutions mandated by the people of all 21 Provinces in Papua New Guinea or some proxy?

So how is the above facilitated? Well, the interests of the owners of the PNG LNG Project have been entrusted to ExxonMobil to operate the project on their behalf. ExxonMobil has entered into contractual arrangements to perform services and supply goods for the PNG LNG Project. Who are these suppliers of goods and services? Whose properties do ExxonMobil rent? Who owns those suppliers? Do the owners of the PNG LNG Project publish the identities of those suppliers, the size of contractual arrangements and ownership details of those suppliers? ExxonMobil vigorously campaigned against the introduction of reporting on suppliers through its representation on the EITI PNG committee. The key lobbyist is an ExxonMobil employee whose home state is the same as CIA HQ. So PNG finds it difficult to institutionalize the checks and balances required to protect your national interest.

In Private Empire, Pulitzer Prize-winning investigative journalist Steve Coll investigates how ExxonMobil has used its money and power to wield significant influence in Washington, D.C., particularly during the Bush administration.
Executives at the company maintained close personal connections with members of the Bush administration — but Coll says the "cliched idea that Exxon-Mobil was just an instrument of the Bush administration's foreign policy — a kind of extension of the American government during the Bush years — is just wrong."

Coll has written extensively about Afghanistan and Pakistan and the uses of government power. But in Private Empire, he turns his attention to ExxonMobil, one of the largest private corporations in the United States.
Exxon, which merged with Mobil in 1999, descends from John D. Rockefeller's Standard Oil Co. and has ranked as one of the country's most profitable companies for the past 60 years. Each year ExxonMobil makes about $450 billion in revenue, exceeding the great majority of countries.

Coll says ExxonMobil executives "see themselves — ExxonMobil — as an independent sovereign with their own foreign policy," he says. "Sometimes their interests ally with the United States government, sometimes they find themselves in opposition to the United States — and sometimes they try to stay out of the way."
For Papua New Guinea, we need to examine how this approach by an oil super-major has manifested itself in our country on behalf of itself and its co-owners of PNG LNG. Then ask ourselves what we need to do to put our country and its people at the forefront of our consciousness. And keep this front and centre of our minds when we deal with P’nyang and yet another super major in the next big gas development in the Gulf Province