Page 4 - GLNG Week 28

GLNG CommEntaRy GLNG
Port Moresby pressures
The new PNG government is seeking more from its hydrocarbon industry
PoliCy
WHat:
The new pNG premier had some pointed words for Oil search during a recent speech.
WHy:
There is a sense that the country has not bene ted as much as had been expected.
WHat nExt:
with fid targeted for 2020, both sides of the negotiations are under pressure.
NEw pressure is being brought to bear on Papua New Guinea’s (PNG) LNG industry as political troubles bubble up. PNG Prime Minister James Marape took the opportunity of a party hosted by Oil Search to drive the point home that the country feels it has not benefited sufficiently from the hydrocarbon industry.
“Going into the future we will not be asking much of you in terms of community service obligation, but we will be asking you to pay your fair share of tax,” Marape told Oil Search in Port Moresby last week. He went on to say companies would have to play a greater role in “downstream processing. we’ll be asking you for a clearer, bet- ter de nition of what local content is.”
e prime minister was speaking at a party to celebrate Oil Search’s 90 years of operations. e ExxonMobil-led PNG LNG project, in which Oil Search is a partner, has been extremely suc- cessful, operating above capacity. But locals have repeatedly made it clear that the project has not bene ted them su ciently. Royalties to land- owners have been slow in coming, which has led to sporadic demonstrations – and the interrup- tion of production.
Resignations and loans
Marape became prime minister following the resignation of Peter O’Neill, who bowed out at the end of May. O’Neill had held the top spot since 2011, but le rather than face a no-con dence vote. Marape had been part of the ruling party but le in April. Following O’Neill’s resignation, Marape – and a number of other parliamentari- ans – returned to the ruling party, which elected the new premier with an overwhelming majority.
One particular black mark on O’Neill’s record was his decision in March 2014 to take a loan from Switzerland’s UBS bank in order to purchase shares in Oil Search. e country had borrowed A$1.2bn ($830mn) to buy a stake in the company. It was forced to sell o the interest in 2017 for a major loss.
The PNG ombudsman produced a report in December 2018 that was critical of the gov- ernment’s conduct. is was leaked in May and revealed that the government may have breached a number of laws through this process. It should have been approved by Parliament and may have breached various lending provisions.
Marape ordered an inquiry into the UBS loan in June and has pledged to stand down should the inquiry nd him guilty of improper conduct. Marape was the nance minister at the time the loan was taken out, with the ombudsman’s report said to have implicated him in breaking two laws.
Although the terms of the inquiry are unclear,
and some have expressed concern that the process will be a long one, Petroleum Minister Kerenga Kua has sought to allay some of those concerns. In an interview with the Australian Financial Review on July 8, Kua said the inquiry would be established this month. Kua was appointed to his position on June 6 and has been a vocal critic of the controversial Papua LNG agreement the gov- ernment signed with Oil Search, Total and state- owned Kumul Petroleum.
Oil Search noted the launch of the inquiry, saying that it “was not involved in, or a party to, the UBS loan, and no allegations have been made against Oil Search or Oil Search o cers, [but] we welcome the inquiry”.
Expansion plans
Against a background of political and nancial friction, Oil Search and its partners are work- ing towards a nal investment decision (FID) on Papua LNG, targeted for 2020. A gas agree- ment was signed in April on the proposed two train development, with total capacity of 5.4mn tonnes per year (tpy).
Adding further pressure to plans has been an escalation in tribal violence in the Hela province, which holds a number of gas elds. Reports this month have noted at least 24 deaths. Marape repre- sents a part of Hela and has warned that he would use the “strongest measures” allowed by law to tackle the violence. He has promised to increase security through the provision of additional forces.
At the same time, however, the government is working towards completing its review of the April gas agreement, with Kua saying it should be wrapped up before the end of this month. He added that once the review was over, the government would examine the “entire legisla- tive framework” for the mining and petroleum sector.
Oil Search, in its recent quarterly report, noted PNG’s “excellent track record of scal sta- bility, o ering a predictable operating environ- ment which has brought signi cant investment intotheresourcesector”.InJune,companyCEO Peter Botten spoke more bluntly, saying the new deal for Papua LNG would be in line with the PNG LNG project.
Marape’s comments at Oil Search’s birthday party couple with Kua’s statements in the Aus- tralian press do suggest a tougher line from Port Moresby on the plans, which may hold up the new project. while PNG has every right to do so, the LNG investment cycle is likely to dip a er 2020 making new construction projects less likely. Pressure is on both sides to reach an accommodation.™
Visiting:
The pNG prime minister is to visit Australia next week. China and Australia are seen as competing for in uence in the region.
DEtRimEnt:
last week, the leader
of the opposition,
patrick pruaitch said
the loan had “caused
the state to commit the people of [pNG] to an intolerable debt burden, as well as erode and strip signi cant PNG LNG project value and bene ts to the detriment of the people and the country.”
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w w w . N E W S B A S E . c o m Week 28 17•July•2019