Robbery of the 21st Century

by GOVERNOR PHILIP UNDIALU
 
Some commentators think that this problem can be solved by me moving to the opposition. But my problem is, opposition is made up of people who signed this particular deal in 2008 & 2009.

Through this government, am pushing hard to secure the 4.27% free carry. It was initially agreed for a price of K3b. No responsible government will ever charge landowners K3b for the very resources they owned.

Kokopo UBSA and respective LBBSAs were signed without complying to Section 47 of OGAS or the requirement of full scale social mapping and landowner identification studies. This blunder has prevented us from releasing the royalty and equity funds. So far, Clan Vetting process completed from Portion 152/Plant Site, Pipeline, Angore to be completed this month, Juha in progress, and this year they'll complete Hides PDL1 & PDL7. Meanwhile, more than K600m in royalty and equity funds held on trust by MRDC & BPNG. I'm also pushing for the missing K1.2b with the project operator.

Certain provisions to the Oil and Gas Act need to be amended as proposed at Governor's Conference in Madang. Government support is needed for this exercise.

There are more reasons why I need support from both opposition and government so in the future, we avoid giving away too . Experience of PNGLNG project has to be shared with fellow leaders so future deals can be done for the best interest of the nation.

All in the name of fair return to landowners, affected provincial government and the country as a whole. Our laws were not too bad. What has gone wrong is, our then government and bureaucrats seen fit to give away what we already had. Following are some examples;

• 1. Oil and Gas Act provides for State Participation of 22.5% Equity. We decided to reduce to 19.4%. Image how much we stand to loose from 3.1% we lost?
• 2. Under the Kutubu and Moran oil project, State enjoyed 50% Tax regime. Came PNGLNG Project, we reduced to 30%. Monthly revenue ranges between K3b to K4b for Oil only. Again, 20% loose to the National.
• 3. We made amendment to the Oil and Gas Act to transfer liability of 2% Royalty Well Head Value to State. In practice, 2% Royalty is treated as Tax Credit. Industry is not paying royalty. It's the Government paying it. What a crazy concept we agreed to?
• 4. During the construction stage, project was exempted from duties. That exemption even extended to subcontractors which is not permissible in law but we did. We lost nearly K5b.
• 5. Oil and Gas was amended to allow cost deduction for 2% Royalty and 2 Development Levies. They are now deducting OPEX, CAPEX, Amortization and even charging Premium on CAPEX. Effectively, 1.6% dedicated and paying only 0.4%. Total lost for four years stands at K1.2b. A Notice was served to address this. Failing that, I will institute legal action.
• 6. During design and construction stages, we were told that they're building pipelines to carry 6.9 Million Tone annually (MTA) but only to discover 9MTA transported. A 25% increase. Exxon was not honest enough.
• 7. There's no Review Clause for 20 years.
• 8. Initial costs agreed was $15b but later increased to $19m. Exxon is yet to justify this increase.

All partners had to pay 30% of $19b or $5.7b whilst 70% or $13.3b will be paid for by our gas under 70:30 Depth to Equity ratio. So practically, shareholders invested only $5.7b only. Balance of $13.3b were borrowed from a syndicate of lenders that our own resources will repay.

So my proposal during the Governor's Conference was to inform the leaders that we made fundamental error on the first LNG Project. We need to take stock of what we lost and sign a better deal for at future projects. I am also taking the matter to court for this unfair deal.

I call this "Robbery of the 21st Century"