If we’re smart Panguna, Frieda & Ok Tedi can transform PNG
09 July 2016
THE decision by Rio Tinto to vacate Panguna and to transfer its 53.8% shareholding in the mines to the national and the Bougainville 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 Bougainville crisis.
Let me state for the benefit of the post Bougainville crisis generation that the crisis was brought about as a result of a dispute over the adequacy of the royalty payment of 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 Conzinc Rio Tinto Australia into a pool and shared between the national government [ 50% ], the Bougainville provincial government [25%] and the Panguna Land Owners Association [25%].
Annually no more than 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  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 Rio has transferred its interest in the mine to the people of Bougainville and PNG the way is now open for O’Neill 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 Bougainville 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.
The decision by Rio Tinto 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.
There was massive destruction to the Fly River system, irrespective of the indemnity offered by Sir Mekere Morauta to BHP when he was prime minister in exchange for the cosy nest Sir Mekere occupies as chairman of PNG Sustainable Development Program Ltd.
It is indeed a sad day for PNG to see a former prime minister 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 to the challenge of constructing a future for our people better than the one we found ourselves with at independence and of which we seem unable to break free from.
The Fly River Provincial Government and 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.
On 2 September 2014, the PNG government exercised its rights under our laws to prevent the sale of Frieda mine to Pan Aust Ltd by Glencore Xstrata Ltd.
The government then authorised the State negotiating team to open dialogue with Glencore for the purchase of its interest in Frieda. This decision remains valid and needs to be acted on. The value put on the sale of Frieda is at US$125m.
The decision 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 will require a capital investment of US$6 billion to realise.
The decision 265/2014 allows the PNG government to control and develop Frieda making it the first mine to be developed using our own expertise since large scale mining was established in Panguna in 1972.
The government 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 the wool over our eyes, remains a company that does not have the resources to develop the world class Frieda deposit.
In my view, its revised mine development plan resubmitted as a special mining lease application is a cut and paste of work initially proposed to the government by Xstrata Mining in 2012, is short of the required funding by US$2.5 billion and does not include any environmental impact statement or building 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 to construct a road to the coast to prevent copper being shipped down the Sepik River provides good reason for the technocrats responsible for vetting and approval to reject outright the Pan Aust application and for the State to revisit its decision on the future of the Frieda mine project.
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 government and the affected provincial governments of East and West Sepik, Bougainville and Fly River to look at newer models of mining development contracts to renegotiate a new compact on mine development in PNG.
PNG can now choose to join 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 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 continue 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. This means that the resources under the ground belong 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 course if the State wants to be a partner in the development then it must pay its share of the cost.
With production sharing contracts the ownership remains with the State and the developer and the State share in the sale of the product up to 80/20 in favour of the State.
This is the case in Indonesia which has had production sharing contracts since 1966 and which explains why it has been able to transform its economy from a poor third world country to an industrialised nation in less than 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 emerging from our universities which now poses a real security threat to the nation.
I think we in the developed world are getting our comeuppance Peter and we're in no position to be critical of countries hell bent on cutting down all their trees and polluting their air with god-knows-what. If we are all going to destroy the planet anyway I guess they deserve their moment in the sun.
Except it doesn't seem to work that way in third-worlders like PNG, only the elite seem to benefit from the pillaging of the planet.
I got a serial email from Arthur Smedley with a copy of Richard Glover's article in last weekend's Sydney Morning Herald where he says Australians don't know how lucky they've got it. I think that was a view I developed shortly after arriving in PNG in the 1960s.
But it is comfortable in my psychedelic shell so I think I'll stay there for the time being.
Posted by: Philip Fitzpatrick | 12 July 2016 at 03:22 PM
I doubt the Indians would be as sanguine with your '60's take on the world, Phil - from what I understand they and others like them want a chance at autochthonous development through cheap power, the same way our parents and grandparents did - I see nothing wrong with helping them out, provided all involved benefit which clearly has not happened in PNG yet, hence my earlier remarks on governance
Posted by: Peter Sandery | 12 July 2016 at 01:08 PM
Posted by: Michael Dom | 10 July 2016 at 01:57 AM
Recent policy developments in PNG within the "capital market space" augurs well, not only for foreign capital investment but local institutional investments as well.
So the debate about purely foreign capital investment is getting balanced reactions now. The conversation is changing. Therefore, negotiation parameters around the composition of capital loan packages will definitely change as a result - hence a change in company board levels.
This may not seem palpable in the short-term, but will certainly happen.
Machinery and techniques will continue to be imported for a fair while,but there's a growing crop of national mining and engineering professionals with solid experience from the local industry and across the world, including Australia of course, who can comfortably handle most of the undertakings.
Beijing lends to Washington DC. So there shouldn't any wholesale questions about PNG dealing with them either.
Posted by: Corney Korokan Alone | 09 July 2016 at 01:24 PM
It is a self-evident truth that the world doesn’t need any more coal mines or oil wells if the planet is to survive the century. Renewable energy can take care of all our power needs.
When the big energy corporations say otherwise they are not really saying that we need those things to create energy to make things work but, rather, they need those things to make money to fund their lavish lifestyles.
What is less evident is the fact that we also don’t need any more copper and gold mines like Panguna and Frieda River.
Copper and gold are not the benign metals they appear to be. The main uses of copper is to make electrical circuitry to power all our electrical junk and to make brass for shell casings and as cladding and cores for bullets.
There is enough copper in the world already that can be recycled to power the latest must-have cell phone and a world without bullets might actually be quite pleasant.
Same story with gold. The gold standard whereby countries horde bullion so they can print money has long been superseded. Otherwise, its other major use is jewellery, which we can live without too.
There are, of course, legitimate uses for both copper and gold. Their use in medicine is a good example but, again, there is enough of the stuff around already so that we don’t need to dig more of it up and destroy environments in the process.
The same story applies to other minerals too. Why do we need five hundred new car models every year burning polluting fuels?
The answer is called greed and capitalism. Mindless growth for growth’s sake and to line the pockets of the fat cats.
Clean up the Panguna mine site and leave it be. Small scale mining will provide better livelihoods for the Bougainville people.
Why risk destroying one of the mightiest wild rivers in the world? Leave the Frieda River deposits in the ground.
Thus sayeth a grizzled old hippie.
Posted by: Philip Fitzpatrick | 09 July 2016 at 12:51 PM
I am not necessarily against re-thinking the whole nature of the extraction industry.
As I think I have mentioned before here, I was one of the first involved in the industry to put pen to paper, in 1988, about how, when adequately explained to Papua New Guinean landowners, none thought much of the idea of state ownership of minerals.
In the next 20 years I had absolutely no success in convincing any of the good and the great that the matter should be addressed.
Having said that, however, I think that such a re-think should include enquiry into really why the money earmarked for use within PNG, taxes, royalties, development levies, Tax Credit Schemes, dividend disbursements and community infrastructure and social development programs attached to all the projects from Panguna through to the LNG projects have not really had much affect in the project impacted areas and beyond.
I am sure that such an enquiry would come to the conclusion that the major problem was a decided lack of governance, National, Provincial and Local and that changing the extraction regime without addressing this problem would not resolve the issue at all - in fact it could exacerbate it.
Posted by: Peter Sandery | 09 July 2016 at 11:35 AM
Either way you look at development methods, the execution is dependent upon foreign capital, and foreign labour: hence the Maritime Silk Road initiative and China's likely inputs.
it would be almost impossible under the present administration for PNG to justify its needed financial contribution to such a project without selling its soul to the highest bidder.
The years of development leading to production will be accompanied by ever increasing poverty among disenfranchised locals leading to Bougainville like symptoms.
Until the "bikman" politics of today's PNG is overtaken by more statesman-like practice, and provincial needs be better taken into account, PNG will ever be vulnerable to corruption and manipulation.
Posted by: `Robin Lillicrapp | 09 July 2016 at 09:07 AM
Well said, Gabriel Ramoi,
This cut adds more insight and perspective into what has been happening in Papua New Guinea and what is possible considering the models adopted by other resource endowed countries.
You're educating a new generation of Papua New Guineans who would otherwise be misled by proxy salesmen and/or women who do not think for the rest of the citizenry but distinguishes themselves as wise men when in fact, they're peddling someone else's bidding.
The policy prescriptions you recommended are in deed the way forward for a 40 year old country that should not be a coward when and where it requires bold decisions need to be made.
Thanks again, Gabriel. Keep up the good job in educating our youngsters.
We appreciate your insights, given your backgrounds and understanding in these issues.
Posted by: Corney Korokan Alone | 09 July 2016 at 07:51 AM