PATRICK PRUAITCH SAYS SHIFT TO PRODUCTION SHARING DOES NOT FOLLOW DUE PROCESS

"No expert recommendation or government position paper has recommended shift from concession system to production sharing."

The shift from a concession-based petroleum system to production sharing is being contemplated almost like the illegal UBS loan deal, without due process being followed,National Alliance Party leader Patrick Pruaitch said.

“As far as I am aware there has been no significant study or position paper on this historic shift either by the Department of Treasury or the Department of Petroleum,” Mr Pruaitch said.

The NA leader questioned why Cabinet has endorsed a shift to production sharing for petroleum projects without the benefit of expert studies or clear strategies on how such a dramatic transition can occur.

“Is the PNG Government going to nullify existing petroleum exploration licences and renegotiate production sharing agreements? This would have an adverse impact on PNG’s petroleum exploration which is dominated by a dwindling number of companies,” Mr Pruaitch said.

The NA leader, who recently joined government from his previous position as Opposition Leader, said that until he saw evidence to prove otherwise, he believed the current system continues to serve PNG well.

He said: “PNG has developed a unique system that contains features of the traditional exploration and production concessions and production sharing agreements, and some of these features have been adopted by overseas countries.

“The concession system in Australia allows fully foreign owned companies to explore and produce oil and gas from discoveries such as the huge Gorgon gas project, off Western Australia, and relies mainly on corporate tax for the national benefit.

“In the case of oil and gas projects in PNG, the government has the right to buy-in a 22.5% stake at sunk cost, placing them on even footing with companies making a discovery.

“Once we include the equity stake with the country’s 30% share of gross profits, along with royalties, the development levy and, in the case of Papua LNG, a 2% production levy the total net benefit accruing to the government and people of PNG exceeds 60%.

“Before such major policy changes are contemplated, a responsible government would have assessed quantitative and qualitative differences to make a rational judgement on the best outcome. That was also the problem with the UBS loan when the government-of-the-day decided to jump in and buy Oil Search shares at their own whim.”

Mr Pruaitch complimented Mining Minister Johnson Tuke for being more circumspect by remaining silent on the question of introducing production sharing for mining projects.

He said: “This is so impractical no country has adopted production sharing for mining.

“When this proposal was first mooted by Commerce and Industry Minister Wera Mori, at a recent conference in Sydney, the share price of a Canadian-listed company with a small gold mine in PNG saw its share price plummet overnight.

“Although Minister Mori has an expert view as a professional geologist, I doubt there are mines around the world that would remain viable if they gave 40% or 50% of their gold output to the government.

“Why would any private investor want to invest in such a mine?” Mr Pruaitch asked. “When the government makes policy changes it needs to be done in a rational manner to ensure there are positive outcomes.”

September 25, 2019