Panguna, Frieda & OK Tedi - Three mines that can change PNG for the better.

by GABRIEL RAMOI LLB

Panguna

The  decision  by Rio Tinto to vacate Panguna and to transfer its 53.8%  shareholding in the mines to the National  and the Bouganville  Government  is  welcomed  although it  cannot by  any measure  adequately compensate for the pain and sufferings  and loss of life   sustained by Families during the Bouganville Crisis. Let  me  state  for the benefit of the post Bouganville Crisis Generation  that the Bouganville crisis was brought about as a result of a dispute over  the adequacy of the Royalty payment of two and a half Percent [2.5%]  calculated on the basis of the total value of exportable ore paid as rent to the National Government for copper ore exported from the Panguna Mine. The amount was paid by CRA [ Rio Tinto Australia] into  a pool and shared between the national Government [ 50% ] the Bouganville PG [25%]  and the Panguna Land owners Association[25%]. Annually no more then K10 million was received every year  as rent and shared by all the parties.  This formula incidentally is the same  currently applied in the PNG-LNG Project and will also be applied to the Papua LNG Project   unless there are changes to the Oil and Gas Act [1998] and the Mining Act  as proposed by Minister Byron Chan . This  issue is sensitive and may yet again raise its ugly head posing  a security threat to the long term viability of the  PNG  LNG Project and the Proposed Papua LNG Project  and all other major resource project in the country unless immediately changes to the  two  Acts are brought before this parliament before it rises.

Now that CRA has transferred its interest in the mine to the People of Bouganville and PNG the way is now opened   for Oneill and Momis to work  together towards creating a better future for all our People by unleashing the full Potential of  our Mineral Wealth to  lift  6 million of our 7 million people out of Poverty . If  the way forward would  mean allowing Bouganville and by inference all  other Provincial Governments to own majority control over resource projects located in Provinces in the future as proposed by President Momis  then so be it.

OK TEDI

The Decision by RioTinto stands in contrast to the Trojan Horse left behind BHP in OK Tedi  and particularly with the clever way that BHP has gone about using PNG Compradors to  fight their  own Government over a mine that should rightfully revert  back to the Nation  considering  the massive destruction of  the Fly River System irrespective of the indemnity  offered by Sir Mekere to BHP when he was Prime Minister in exchange for what now seems as the  cosy nest that Sir Mekere now finds himself occupying as Chairman of PNG Sustainable ltd.  It is indeed a sad day for PNG to see a former Prime Minister of our country being used in the way Sir Mekere is being used  as  proxy for BHP to fight BHP,s  battle in our high Court. I would urge Sir Mekere to desist from what he is doing and instead  use his vast experience to assist his people of the Gulf Province negotiate a better outcome from the Papua LNG Project and better  the deal negotiated by Arthur Somare and Anderson Agiru in the PNG LNG Project for the People of Hela.  It is inconceivable to think that after 40 years of Independence and one civil war, that  as a nation we are unable to rise up to the challenge  of constructing a  future for our People better  then  the one we found ourselves  with at Independence and of which we seem unable to break free from. Again with the very progressive view put forward by President Momis, the Fly River Provincial Government and the affected land owners need to enter into a new compact with the National Government on the benefit sharing arrangements with respect to the OK Tedi Mine.

Lessons from the Past

It was in 1972 that the Panguna Mine was negotiated and the terms of its development imposed on a Colonial People. The conditions were so bad that the native resource owners were left with a 2 &1/2 % of Royalty as rent from their resources that they would have to share with their Provincial Government and the rest of PNG and that with the increase in Population among the land owners would cast the dice for the eruption 17 years later of the Bouganville Crisis. Past  Prime Ministers   continue to be white washed with the view that a better formula cannot be negotiated with Multinational Resource Companies for want of scaring off Direct Foreign Investment .This Colonial Legacy continues to find currency  today and god forbid may find its way  into the Frieda negotiations if our elected Leaders do  not take a more proactive  and hands on approach in the negotiations not only on Frieda but important also on the PNG LNG and the Papua LNG Project. Looking in retrospect , the Bouganville conflict should have been avoided  if the National Government under  the Leadership of Prime Minister Chan, Namaliu , Wingti and Somare had not drag their feet during their tenure as Prime Ministers to address  the demands of the land owners of Panguna and the Bouganville Provincial Government.  My  Cabinet colleague in the 1985-88  Wingti Government  and the most competent  Mining minister since Independence   Sir,John Kaputin [ a member of the then Fr.Momis’s Melanesian Alliance Party] did not in my view rise to the occasion to address the issue of resource ownership and benefit sharing arrangements effectively then and  in my view no other Prime Minister or Mining and Petroleum Minister may be able to address this issue effectively today accept perhaps, Oneill himself  and the leaders of his current Coalition. For all his fault it would be tragic to see Peter Oneill fall as Prime Minister as his Coalition may be the best ever assembled  since Independence to address the future of Resource development in  our country and  in particular with the issue of  benefit sharing arrangements with Landowners and Provincial Governments . While the country debates  the future on Panguna ,  of immediate concern is the application for a Special Mining lease submitted by Pan Aust Ltd for the Freida Deposit and what  this would mean with respect to the continuing debate on Resource Ownership and models of resource exploitation in our country going forward.

Frieda

On the  2nd of September 2014  Cabinet in  decision 265/2014 , the GoPNG   exercised its rights under our laws  to prevent the sale of  Frieda Mine to Pan Aust Ltd by Glencore Xstrata Ltd and authorised the State Negotiating Team to open dialogue with Glencore for the purchase of its interest in Frieda Mine. This decision remains valid and needs to be acted on. The value put on the sale of Frieda is at US$125m.  Decision 265/2014 begins    a  paradigm shift in the way we develop our extractive Industries  from a rent based regime to  being resource Owners and Developers. The Frieda river deposit is the largest undeveloped proven mineral ore body in the Country valued at over US$80 Billion that  would require a capital investment of US$ 6 Billion  to realize. NEC  decision 265/2014   allows the Government of PNG to  take over control and development of the Frieda Mine making it the First Mine to be developed using our own expertise   since  large scale mining   was established in Panguna  in 1972 .  The GoPNG must now   follow through with its decision and take  a more proactive role on Frieda and not wait for  another disaster  such as the destruction of the Sepik River System to occur  before it takes over a  “ hand me down mine” after the fact. This issue becomes more pressing as Pan Aust  despite its attempt to pull wools over our eyes remains a company that does not have the resources to develop the world class Frieda deposit. Its revised  and recycled  mine development plan that it has now resubmitted as the  Special Mining lease application is  a cut and paste work initially proposed to the Government by Xstrata Mining in 2012  and  is  short by US$2.5 Billion and does not include any environmental impact Statement nor does it include the building of a tailings dam to mitigate against compromising the integrity of the pristine and delicate Sepik River Eco System. The fact that no proposal was made on the subject of constructing a Road to the coast to prevent copper being shipped down the Sepik River System provides all the reason for those technocrats responsible for the  vetting  and approval process to reject outright  the Pan Aust application and for the State to revisit its decision on September 2014 with respect to the future of the Frieda Mine Project.

Rent  vrs Production Sharing and or Contract Mining

Panguna, OK Tedi and Frieda  provides a unique opportunity to correct everything that is wrong about  Mining in PNG. The three  mines provides an opportunity for the GoPNG and the affected Provincial Governments of East & West Sepik, Bouganville and Fly River to look at newer models of Mining Development Contracts and  renegotiate a new compact on Mine  development in PNG with the National Government.   PNG can now choose to   joins a number of emerging economies  such as  Indonesia, Malaysia, Jordan, Qatar, Egypt, Libya, Peru, Guatemala, China and Russia who now embrace both a rent and PSC [ Production Sharing Contract ] as the way forward in dealing with their  extractive resources . PNG cannot continue on the path we have travelled over the last 40 years which has seen little benefit accruing to the nation in real terms  from  enclave mining developments  which continues to  have little  or no linkages to the rest of the  economy.  Many readers will be aware that all earlier mining and hydro Carbon projects in PNG were negotiated  under a rent based regime as opposed to Production sharing Contracts [ PSC] .This means that the resources while under the ground belongs to the Government and that we issue licences for  developers to explore and bring the resources from under the earth for export .Once the resources are brought up to the surface of the earth the ownership transfers to the Developers  and we charge a rent for the developer to pay the state before the developer exports the  products. Of cause if the State wants to be a partner in the development then it must pay its share of the Project cost. With Production Sharing Contract the ownership remains with the State and the Developer and the State share in the sale of the product of up to 80/20  in favour of the State as is the case in Indonesia which has a  production sharing contracts since 1966 and which explains why Indonesia is able to transform it’s economy from a poor third world country to a Industrialised Nation in less then three Decades. The Fact that PNG has not been able to enter into Production sharing contracts  until now is more a product of our Colonial Legacy and that PNG should not be afraid to meet the new challenges and change the way we do Business or it will find itself unable to provide unemployment for the burgeoning and frightening multitude that is emerging from our universities which now poses a real security threat to the nation as recent events demonstrate never mind the Governments continuing struggle to provide Free Education and Health & eventually electricity , running water and  housing from all our people.