So PNG, what is a fair deal?
Bad governance & lots of tok gris

Getting it right in energy deals

Pnyang-lng
P'nyang gas field - Is PNG squeezing energy companies too hard when it should be fixing a leaking pipe?

IAN RITCHIE

PORT MORESBY - "A fair deal is not merely squeezing a large slice of ice cream out of our development partners and then losing most of it through a horribly broken and hopelessly leaking pipe," wrote David Kitchnoge in PNG Attitude yesterday.

A clear and pragmatic observation.

I have read quite a lot of  'holier than thou' comment about how great it is that prime minister Marape has walked away from the P'nyang gas deal.

Is it really that great? And I actually wonder who did the walking?

The P'nyang partnership, of which Exxon is but one member, consists of experienced and formidable players who are negotiating this development to make money.

They are very used to negotiating at the very pinnacle of top tier energy projects.

Papua New Guinea has come a long way over the decades since independence and has learned a great deal, but the simple reality is that corruption and jobs for the boys are still par for course.

A great deal of suspicion was raised by an article late last year in the Post-Courier claiming that a US$100 million success fee (that’s K340 million) was demanded by the PNG negotiating team.

The prime minister rejected the article as a baseless fabrication, however I was always told by my dear old granny that where there is smoke, there is fire.

Despite a lot of the big corporate media bashing that tends to occur whenever a name like Exxon-Mobil is mentioned, the reality is that these corporate Goliaths do have very strict codes of conduct including not buying into corrupt demands.

At the end of the day, these corporations are there to make money, however they are not fools.

They fully understand that, in order for them to profit from extractive industry, they need to extract. And to extract, they need an agreement with the owners of the resource.

In this case, I noted an earlier PNG Attitude post stating that "the government was seeking terms on P’nyang that would give the state more than the 45%-50% take that PNG is set to reap on the returns from the Papua LNG project".

Really! More than 50% of the project for taking absolutely no risk? I almost fell off my chair.

The same article quoted Oil Search as saying "the terms the government had sought would have made the project unprofitable".

If the government is demanding greater than 50% of the take (by take I'm assuming it meant profit after all expenses), then it does cast the Oil Search statement in a believable light.

I think what PNG as a whole (public and government) needs to ponder, is whether it wants income from extractive industry or not.

If the answer is no, then that is perfectly acceptable and in fact admirable stance to take which could bolster PNG's potential as a world leading organic, green and environmentally sustainable nation.

I have a sneaking suspicion, though, that most Papua New Guineans would like the profits to flow and to be shared fairly among the population for the benefit of all.

In that case, sustainable extractive industry is possible and PNG does need to partner with someone.

Whether the P'nyang partnership is the right choice is not for me to muse, but whoever it is will expect to make a profit.

A large profit.

That is a given and it is reasonable given considering the amount of investment, the degree of risk, the remote localities, the previous hostilities from time to time and, of course, the volatile gas market.

Comments

Feed You can follow this conversation by subscribing to the comment feed for this post.

Eric Schering

An excellent article by Ian Ritchie! The government wants a 50% stake and take in P'nyang?

Let me guess, they aren't contributing anything to the cost of developing the project. Instead they are likely going to be "carried along" by Exxon Mobil, just like they did in the PNG LNG project, and they still want a 50% stake.

Exxon Mobil invested $US20 billion (K50 billion at the time) to get the PNG LNG project going. The landowners did very well, getting K2.26 billion already back in 2013.

The PNG government also did very well, taking in many billions through taxes and through ownership of 16.6% of the project. Absolutely no risk for the landowners and no risk for the government. All the risk fell on Exxon Mobil.

The government is becoming much more greedy, wanting 50% of the new project. And still no risk. Very unfair.

Verify your Comment

Previewing your Comment

This is only a preview. Your comment has not yet been posted.

Working...
Your comment could not be posted. Error type:
Your comment has been saved. Comments are moderated and will not appear until approved by the author. Post another comment

The letters and numbers you entered did not match the image. Please try again.

As a final step before posting your comment, enter the letters and numbers you see in the image below. This prevents automated programs from posting comments.

Having trouble reading this image? View an alternate.

Working...

Post a comment

Comments are moderated, and will not appear until the author has approved them.

Your Information

(Name and email address are required. Email address will not be displayed with the comment.)