Reference a recent letter to the Editor of the Post Courier under the  caption “Kumul Petroleum,  Petronas in the making” published on June 12,  2019, authored by one “ BUSH COMMERCIAL LAWYER OF PORT MORESBY”.

The timing of this letter is quite uncanny. It was obviously timed to pre-empt and cuff the hand of Hon. James Marape MP, the new Prime Minister, who is the trustee shareholder of Kumul Petroleum Holdings Limited and associated companies (“Kumul”). However, its timing betrays a tinge of fear
our bush lawyer obviously harbours in the new government having its own ideas of just what role, if any,  Kumul Board and its current CEO, Mr Wapu Sonk could play, in the greater campaign to take back PNG.

For information of the Bush Lawyer, the Kumul Petroleum Trustee has the power to sack any or the entire Board(s) and the CEO, if he pleases. But that is too simplistic. The fact that someone high up in Kumul obviously prompted such a letter to be written is itself something of intrigue. What
was going through, say,  Wapu Sonk’s mind, if it was him behind the pre-emption of the Prime Minister’s hand?

  Mr Sonk need have no fears if he has been playing with a straight bat for the nation, diligently serving the national interest. Fear and trepidation is for political lap dogs and men without talent.

The author of the letter tries almost too hard to promote Kumul as a politically independent organisation, which ought to be the only State owned entity dealing with oil and gas resources in this country for the State just like Petronas is for Malaysia. In other words Kumul should be a State owned monopoly in the oil & gas industry, purrs the Bush Lawyer.

  The author further argues that the enabling legislation makes it the “National Oil Company” or “NOC” of PNG.  But on close reading of the law, it says no such thing at all. It is a deliberate mis-interpretation of the State Nominee provision in Section 14 of the Kumul Petroleum Holdings
Limited Authorisation Act by the bush lawyer.  That provision, given liberal interpretation,  makes it the discretion  of the Petroleum Minister, if he so wishes, to nominate Kumul to be the exclusive (or
non-exclusive) nominee for the State, to hold the State’s participating interest in any petroleum project arising under the Oil & Gas  Act 1998.

The power to nominate implies the power not to exercise that power, and the exercise of Ministerial discretion, also necessarily implies to do or not to do,(ie to nominate Kumul exclusively or inclusively with another State owned entity or entities). Further, Kumul’s participation under Section 14 is not automatic, as it needs to satisfy other pre-conditions set implicit in Section 14, which includes paying sunk costs, and only for projects arising under the Oil & Gas Act 1998.

Accordingly, Kumul is not the National Oil Company (“NOC”), as a matter of law, notwithstanding few self serving NEC papers submitted by Kumul executives in last few years.

For the record, the Kumul Petroleum Holdings Limited Authorisation Act does not anywhere expressly exclude other State owned companies, or partly State owned companies, from being the national oil companies of Papua New Guinea.

But that aside, even if the law did make Kumul a NOC, that does not automatically mean a sovereign State’s arms and legs are tied up into a Kumul monopoly. Parliament, and the State being a sovereign can pass any law as it deems fit for good government.

This being the case, why would the bush lawyer seek to deliberately muzzle the government? Would a Kumul monopoly be in the overall national interest?

Monopolies, anywhere, exist in restraint of trade.  Trade restrictions run contrary to the spirit and essence of GATT, WTO, and other International Free Trade Treaty Obligations we, as a nation, have signed up for.

State owned monopolies in PNG have not worked. They have become the den of thieves, and inefficient self serving public service, quite ineffective in service, halting the march of progress and profit alike, surviving only by their sheer necessity.

Yet in blind support the bush lawyer promotes Kumul as a monopoly, by employing the old trick of name dropping, referencing some of the most successful State owned oil & gas companies in the region such as Petronas of Malaysia, and Pertamina of Indonesia.  He could have gone on to talk
about Petrobras of Brasil, SASOL of South Africa or PTET of Thailand, etc; but he didn’t. There is nothing like pulling oneself up by someone else’s bootstraps!

The power of brand association, or being named in the same breath as someone rich, famous or successful, is a very old psychological ploy employed by freshman marketing students. Why pull that stunt on the new Prime Minister, and his Cabinet? Why has the the bush lawyer taken us all the way to Malaysia, and then back through Indonesia, just to talk about PNG’s own Kumul?

The answer is plain. In business, you talk about the successful, and the profitable to paint a blue sky. Most people speak of the sublime to conceal their own mediocrity. Here the bush lawyer is trying to hide an elephant in the desert, so to speak. To this, you may rightfully ask what elephant is
he trying to hide?

The elephant, with its trunk in the air, staring right back at the Bush Lawyer is called the UBS Loan Fiasco (Over K1 Billion Loss to this country) at the hand of Wapu Sonk, the CEO, and his directors (except then Chairman, Mr Frank Kramer OBE,  who refused to endorse the UBS deal).  Kumul has been involved in the biggest financial fiasco (loss of over K1Billion) in PNG’s history since Paias Wingti’s Cayman Island Raggianna scandal with the very same UBS Bank.

Ladies and gentlemen, this here is the elephant that the bush lawyer is trying so hard to hide by pointing us away from Kumul, diverting our attention to Malaysia’s Petronas.

On this dubious UBS Loan Fiasco and purchase of OSL  Shares, Kumul , its CEO and Board, need to answer many serious questions; some of which are:

1.  What level of political influence, if any, exerted on Kumul, and by who?

2.   What were the commercial justifications, and assumptions underpinning
        the UBS Borrowing?

3.      What proper governance, legal compliance, and probity tests were
observed and adopted prior to approval of this loan by Kumul?

4.      What comparative biddings done between possible lenders to arrive at
most competitive terms founded in the UBS deal?

5.      What valuations, if any, done on the 10.1 % of Oil Search Shares, and by

6.      What technical information evaluated at that time on Oil Search, its
reserves, its projected future share performance,  and value of its shares?

7.       What assumptions were relied upon for oil & gas market prices  over
what pay back period for 10.1%  Oil Search shares, and their performance in
the short to medium term?

8.      Who did all these evaluations and due diligence for Kumul to acquire the
UBS Loan and then the chunk of 10.1% OSL shares by way of private
placement, and what are their credentials?

9.      Who were the brokers and intermediaries and what were the commissions
and fees paid, if any?

10.     How were the brokers, agents and intermediaries appointed, and through
what transparent process?

11.     Who were the professional financial and legal advisors engaged by Kumul
on both the UBS and OSL deals, and what were the nature and extent of those

12.     What specific advice was received by Kumul Board on the proportionality
and fairness of the price paid for 10.1% of the OSL shares?

13.     Were the Directors or CEO of Kumul aware in anyway that they were
financing OSL to acquire 40% of Interoil’s interest in the Elk Antelope
Papua LNG?

14.     Why didn’t Kumul acquire 40% of Interoil interest in the now Papua LNG
directly, instead of buying Oil Search shares?

15.      To what extent was Kumul aware, or ought to have been aware of the
highly likely adverse impact of the UBS loan on the PNG economy?

16.     Is there any logical reason why the government should not carry out a full Commission of Inquiry into Kumul, the UBS Loan, and the OSL Share purchase, and re-sale fiasco resulting in the biggest ever singular financial loss in this country’s history?

The CEO and the entire Board, if they had any strength of character, professional mettle, and above all, the interests of the nation at heart, should have joined the then Chairman Frank Kramer, in declining to support the borrowing, advised Peter O’Neill that the UBS loan was not in the best
interests of Kumul, and of the nation.

Any thinking Papua New Guinean could see, even fleetingly, that borrowing USD$1.2 Billion from UBS Bank to hand to Oil Search Limited in return  for a paper script of 10.1% of shares in Oil Search Limited without proper valuation, and in lieu of (and sacrificing) a direct and immediate income
stream from the PNGLNG project,  was absolute madness!  It is clear cut commercial nonsense for an oil company like Kumul, and spells economic suicide for a country like PNG. But that’s exactly what they did. Our people did not deserve this from Peter O’Neill, or his lap dogs in Kumul Petroleum.

Our people deserve a higher degree of probity, governance and commercial acumen than Wapu Sonk and his Board were prepared to provide.

What is even more commercially disturbing, something Mr Sonk can throw some light on is, why hand over USD$1 Billion to Oil Search for a piece of paper representing 10.1% of its share capital, when Kumul could have bought 40% of Papua LNG Project at a lesser negotiated price, knowing already what Total had just spent to buy 60%?

  If Total spent USD$400 Million to buy 60% of Interoil’s interest in Papua LNG, why was Kumul borrowing, and investing over USD$1.2 Billion in a company (OSL) that was going to spend almost USD$1 Billion to buy the remaining 40% of interoil’s interest in the Papua LNG? What is the pricing
logic, and why did OSL pay a massive premium? You would think an incoming shareholder would want to know the pricing matrix.

The elephant is standing right there staring at the Bush Commercial Lawyers, who does not make any commercial sense at all speaking of Kumul in the same vein as Petronas or Pertamina.  Kumul does not have the commercial acumen, or its moral compass pointing in the right direction to be a
monopoly or to be the only State owned Petroleum Company.  It has not earned the place to be regarded as a serious oil and gas company, let alone the National Oil Company of PNG.

A closer and indepth study or Petronas and Pertamina, their structure, their beginnings, their charter, and how they work and relate to political interests, is required before we can emulate them.

Correct me if I got the historical sequence wrong, but Kumul is a bastardization of what Grand Chief Sir Michael Somare created in Petromin. The visionary Grand Chief created Petromin, which as the name suggests, was to deal with both Petroleum and Mineral interests of the State.  Arthur
Somare presided over creation of Kroton as a post office box operation to hold the States interest in the PNGLNG project. Kroton later became Kumul, which swallowed up Petromin and negated Somare’s vision. Then Peter O’Neill and Ben Micah, added their flavour by creating Kumul Consolidated Holdings Limited in aligning the SOEs previously under IPBC.

Kroton was a post office box operation to receive State dividends, and distribute same, and Kumul is no different, except it is doing so under an enabling Act of Parliament. The Grand Chief’s name is mentioned here, (name dropping again), to attract some credibility to shroud current Kumul CEO
and Board in the Grand Chief’s credibility and authority.

Of course, the Bush Lawyer knows well the Prime Minister and current Petroleum Minister Kerenga Kua’s deep veneration for the Grand Chief Sir Michael Somare. But it is just as well the Grand Chief is not dead. He will tell the Bush Lawyer, Kumul and what it has become, is not what he intended
and created in Petromin.

It makes no commercial, or logical sense to even consider Kumul to be the only State owned oil & gas Company, because:

1.      It clearly lacks commercial acumen, clear judgement and commercial credibility as clearly evident in the UBS scandal.

2.      It lacks Political independence by statutory design. It must be totally independent in its major business dealings and absolutely commercial to succeed.

3.      The notion of having a monopoly in a NOC is against the GATT and WTO Treaty Obligations of PNG.

4.      The PNG Constitution upholds the directive to all governments to ensure fair and equal participation by all citizens in the development of this nation, and its resources. That means that a Petronas or Pertamina can be created by any individual in this country, or by any authorised State owned entity with the right mix of personal talent, commercial acumen, moral strength, strategic innovation, financial creativity, and having the nose for taking advantage of market opportunities to develop our vast resources, to propel our nation forward.

5.      Our leaders cannot and must not suppress talent and entrepreneual spirit among our indigenous cadre of educated and experienced operators in the industry. The doors must be thrown open for all State owned entities in the same fields to compete and become profitable. We must not promote
protectionism, which will in the end become the death of us, like we are seeing in PNG Power, Telikom and Air Niugini.  How can we take back this nation if the State becomes an obstacle by playing favouritism with Kumul against our people participating and developing our resources freely?

6.       The State must allow the best indigenous talent to rise in more than one oil & gas company, so that Papua New Guineans can take ownership of this nation, build a middle class that will cement our nation and  place as the citadel of Melanesia, the centre for all Melanesians now spread as far
as Northern Luzon and Mindinao in the Philippines, our people in the Andaman Islands in the Indian Ocean, Taiwan, Borneo, Indonesia, West Papua, Torres Strait, right across the Pacific to Solomon Islands, Vanuatu, New Caledonia, Niue, and to the Fijian Islands.

7.      We must learn from successful models of development companies as practised by China.  China has at least five (5) large State owned Oil & Gas Companies. Companies like SINOPEC, SINOCEM, CNOOC, CNODC, and holding companies like CITIC, to name but some. These companies not only compete and operate internally, but they all operate overseas, in various aspects of oil & gas business. This is the preferable model for PNG to operate, if it is going to have maximum participation of its citizens in all their resources, to take back the nation.

8.      Many major oil & gas companies have site specific, or license specific oil & gas operating companies, and country specific companies, reporting to one parent or holding company. In similar vein there is nothing to prevent the Independent State of Papua New Guinea owning several site specific or License specific or resource specific companies, all reporting to the State through various Ministers or the Prime Minister.

9.      It is prudent that we must not put all our eggs in one basket, so to speak. One moral or financial scandal hitting one company can easily sink the fortunes of a nation as we have seen recently with the massive Kumul loss of over K1 Billion UBS Loan Fiasco. It is important that Papua New Guinea has several entities operating in the oil & gas space.   That is not to say, Kumul cannot continue to operate as the State’s post Office box operator in PNGLNG and Papua LNG projects, but it cannot and must not be managed by the same people with the same corporate culture.

10.     Kumul has failed to operate commercially in failing to independently hold the PNGLNG project to account in terms of volumes of gas exported. There is no independent monitoring of all our oil and gas going out. Kumul has no way of verifying export volumes. It therefore is operating in gross neglect of its duties, even as a Post Office Box operator.

11.     Kumul has failed to independently monitor oil & gas prices and sales, conduct regular audit of its operator’s performance, so as to keep them honest.   So to this date we don’t know whether the State is in effect getting a fair and honest return on its investments, and for its resources.

12.     Kumul has no idea at any given time what funds the project operators keep offshore on sale of PNG oil & gas, and cannot verify the necessity and legal authority under which those funds parked offshore by the PNGLNG Operator, and oil exporters such as Oil Search.

Kumul’s failures have become Papua New Guinea’s downfall, and continue to disadvantage the State. It is a sombre reminder to all that its structural weaknesses allowing political interference and a weak board and management, and continuing lack of confidence and competence in its dealings, has
brought down a Prime Minister, and almost bankrupted a nation.

The bush lawyer must know the relative adage adapted from that famous speech by Martin Luther King, that a man must be judged and known by the content of his character, not purely by his dreams of grandeur.  Kumul has not proven the content of its character, its commercial mettle, or acted in
a manner fitting of a truly State owned company.

We cannot become a truly rich black Christian nation, if we limit the possibilities and opportunities of participation for our people in the oil & gas resources, and in all other resources, of this God given and richly blessed piece of earth that is our home.

The elephant is no longer hiding in the desert. It is right there, in the Kumul Board Room. It is vitally important  that sages, poets,  bards, bush rangers and bush lawyers alike, must properly advise our leaders and our people, how to avoid the snares of the past and shed light on the right path for a positive and prosperous future.

  The nation needs NOT just Kumul, BUT several Petronas and Pertaminas, thereby to forge a new beachhead in innovation utilizing our ownership status, to “take back” the resources of this nation for ourselves. This needs to happen not just in Oil & Gas, but in all our resources sectors and

God Bless you all, and God Bless our home Papua New Guinea.



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