Oil Search fires back at PNG
Getting it right in energy deals

So PNG, what is a fair deal?

Exxon
"Our criticism of Exxon Mobil and other development partners in the resources sector is as much a criticism of ourselves"

DAVID KITCHNOGE

PORT MORESBY - The politics of bigman, the economy of wastage and a public service that has become 'private service for a tip' all combined to deliver prime minister James Marape's ground breaking announcement last Sunday rejecting the P'nyang gas deal.

Mr Marape’s speech rejecting the P'nyang gas deal had been written over the years. It was a speech really aimed at an audience close to home. And if we didn't get it, we have a problem. The irony is that I'm not even sure the PM himself gets it.

Our criticism of Exxon Mobil and other development partners in the resources sector is as much a criticism of ourselves. If we think we are fighting them for a 'fair deal', we are barking up the wrong tree.

So what is a fair deal?

From where I stand, a fair deal to me as a taxpayer is when my tax is spent in the right manner without caressing some bigman politicians’ egos, without the money disappearing into 'private service' pockets and without wasting it on nonsensical economic projects with no clear return to the community.

That is a fair deal to me.

And only the PNG government and its machinery are capable of delivering a fair deal to taxpayers and citizens.

Mr Marape is right that the developers are here for their shareholders and he (that is, the government) is here for the people.

But beyond the rhetoric, is the government really here for the people?

If the government was for the people, where has all my tax money gone and where have all the revenues generated by citizens, including these resources developers, gone?

The real issue here is that successive PNG governments have let the people down so many times over the years and still do not have the decency to face the people and own up to their failures.

Instead we are looking for someone to blame and Exxon and others happen to be the convenient scapegoats.

OK there may have been too many tax concessions given away, but we compete globally for a piece of the action in a unique local environment that is probably not directly comparable elsewhere. Cost structures, sovereign risk and other factors may be different.

So how come PNG says Exxon and its partners' position on P'nyang is “out of the money” when Oil Search says the PNG position is “uneconomical” for them as it would mean the project being operated at break-even with a high likelihood of loss?

I'd like to see PNG gain the fullest benefits from the extraction of our resources, but it must be done with respect for the commercial interests of our partners. We cannot chase them away by being too aggressive about 'our take'.

The indirect flow on benefits to the economy of having these projects operational is usually not well understood beyond those that are directly quantifiable.

And most of these indirect benefits are normally driven by the State making wise spending decisions and leveraging these projects in ways that over time grow, sustain and diversify the economy and the tax base.

So again, what's a fair deal for me as a citizen?

A fair deal is when my government utilises the current taxes it collects from me and other fellow citizens, including development partners, to make public investments that provide the greatest benefit to the nation.

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.

I ain't buying our prime minister's heroics until I am certain he will deliver a fair deal for me.

Fix the bigman politics, stop the economic wastage and change the culture of 'private service'.

Then your efforts in squeezing development partners would be worth your while, and all of our while.

Comments

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William Dunlop

Phil, you seldom see a politician of any persuasion without dollar signs in their eyes.

Philip Fitzpatrick

And William Duma is still a minister Ian.

I've had a longstanding suspicion that corruption and, in particular, bribery in PNG is a learned trait picked up initially from Malaysian logging companies like RH but later reinforced by the Chinese companies that have invaded the country.

Ted Diro, as Minister for Forests, was one of the first PNG politicians to demand bribes or, more likely, accept bribes offered to him.

Bribery and corruption is a natural part of doing business in Asia but as Bernard Corden reminds us is an integral part of capitalism.

The difference between Asian corruption and Western Capitalist corruption is just the degree of subtlety. PNG has taken the crassness of corruption to another level, hence its label as one of the most corrupt countries in the world.

A fair indicator of the level of corruption in a country is its resistance to setting up independent commissions against corruption.

O'Neill, and now Marape, have made noises about setting up an ICAC but it is yet to happen.

In Australia Morrison is resisting the idea of a federal ICAC while Labor is prevaricating. The only conclusion one can come to is that the Australian government is corrupt and so is the Opposition.

David Kitchnoge

"...without the blockage and the associated demand for a bribe, there is no corruption" - Ian Ritchie.

Spot on!

Hence my blurb here. Corrupt politicians and public officials have created the biggest diversion with the P'nyang no deal nonsense. Now they are running around acting like heros. They aren't!

We are yet to see tangible action to rid corruption in the system since Marape came to power.

They can fool some of the people some of the time but not all of the people all of the time.

Ian Ritchie

A recent article in the Australian Financial review had me thinking some more about the replies to this thread.

The article was about an alleged corrupt payment to a prominent PNG Politician by an extraction company and can be followed at this link https://www.afr.com/companies/energy/asx-oil-firm-mired-in-15m-png-bribery-scandal-20200207-p53ypj

Without wanting to pass judgement on the specific allegation above, the article made me wonder who is worse, the entity demanding a corrupt payment and blocking benefit to the general population until he/she/they receive it, or the entity paying the bribe to enable a project to proceed, to the benefit of many.

In my opinion, both are guilty of serious moral misconduct and illegality, but without the blockage and the associated demand for a bribe, there is no corruption. Hence in very simplistic terms, I tend believe the person/entity demanding a corrupt payment, is far more culpable than the person/entity paying it.

Philip Fitzpatrick

Ian is right Arthur.

To my knowledge Exxon Mobil has never paid anyone a bribe in PNG. It is one of their strictest rules. They just don't pay bribes, in PNG or anywhere else.

Their community aid projects are carefully planned so they are not seen as payoffs.

Understandably, this has upset a lot of people in PNG, especially local politicians and bigmen.

I imagine that they demand the same standards from Oilsearch.

This doesn't mean that they aren't ruthless in their dealings with government nor that they don't support right wing regimes or dictatorships.

Bernard Corden

Most of the socially autistic hatchet-faced martinets are rarely dismissed. They typically resign and are rewarded with a golden parachute and often bestowed with an order of chivalry.

Ian Ritchie

Arthur, I'm not so sure naivety is the correct word to use.

I am certainly not so naive that I believe corruption does not exist. It does.

When I mentioned Exxon, you searched for a generic list of bribes loosely associated with the oil industry.

Have a look at the results you posted. Individuals, Saudi companies, suppliers etc.

I have no doubt that there are many, many instances of bribes across many industries, but I can state that top tier companies do have very strict corporate governance policies which include dismissal of employees for corrupt dealings, biased decisions and/or illegal activities of many varieties (child exploitation as just one example).

The world has changed and continues to change. The public is very concerned with corporate bullies and many realise they have the power of purchase decisions which can place pressure on even the biggest of the Goliath's and those entities are very keen not be seen to be doing the wrong thing.

It is easy to attack these entities and I'd caution everyone to have a selective belief in what you read in the press. I've read many statements made in the press, which I know to be entirely untrue.

As an example, cast your mind back to January 16 when PNG Attitude picked up an article from Radio New Zealand that reported Human Rights Watch chastising the Marape government for doing "little to tackle rampant violence and corruption".

Most respondents to that post were united on their condemnation of that report.

Similarly, I mentioned prime minister Marape rejecting that Post Courier report on the US$100 million success fee, yet do a search on that. Many media outlets still have that reported, even although it appears that the Post Courier may have removed the original news article.

The conclusion. Bad news and scandal sells papers. Sometimes the truth is well hidden in news reports.

I stand by my claim that top tier extraction industry players have very strict corporate governance policies which include dismissal for bribery.

I'll also state that I am not in the oil and/or gas industry and my personal opinion is that I hope both those industries (along with coal) very quickly go the way of the dinosaur.

Bernard Corden

Regulatory capture is a fundamental tenet of neoliberal economics or free market fundamentalism and legislation merely preserves state and corporate interests.

Profit is privatised and loss is socialised. Corporations no longer have to lobby governments, they are the government.

The recent Boeing 737 Max disasters in involving Lion Air and Ethiopian Airlines provide ample substantive evidence.

Boeing repeatedly opposed requirements to develop an aircraft for servicing intermediate flight destinations over many years.

This was exacerbated by Federal Aviation Administration officials who merely rubber stamped subsequent reconfiguration or modification of aircraft design specifications.

Meanwhile, under a churlish US president the three most senior roles within the regulatory agency have remained vacant for several years and… You don’t need a weatherman to know which way the wind blows.

Two crashes in less than six months involving brand new aircraft was not pilot error. Boeing callously sacrificed protection over production via single sensor software, which misinterpreted pitch stability and usurped control of the aircraft from its pilots.

The corporate behemoth failed to provide pilots with amended flight manuals and advanced training, which left them operating in the dark and clutching at straws as the aircraft plummeted from the sky.

Moreover, self-regulation inevitably degenerated into deregulation, which enabled Boeing to control the aircraft certification process on behalf of the Federal Aviation Administration, whose budget was savaged by a republican congress.

"One of the necessary accompaniments of capitalism in a democracy is political corruption" - Upton Sinclair

Arthur Williams

Wondered at Ian’s naivety when he claimed, “ whenever a name like Exxon-Mobil is mentioned, the reality is that these corporate Goliath's do have very strict codes of conduct corrupt demands.”
I just typed in Oil Company Bribes in my computer and there are nearly 4 million entries. Ok many are repeats of the same story but here a few from top pages:

BBC NEWS | Business | Statoil fined over Iranian bribes
news.bbc.co.uk/2/hi/business/3849147.stm
29/06/2004 · Oil company Statoil has been found guilty of bribery and fined 20m Norwegian kroner (£1.6m; $2.9m). Norway's economic crime investigator Okokrim said consultancy fees were paid by Statoil to secure contracts in Iran.

British businessmen on trial over bribes for oil contracts in ...
www.theguardian.com/business/2020/jan/23/british...
Three British businessmen conspired to pay bribes totalling $6m (£4.6m) to win huge contracts in theoil industry, a court has heard. The trio are accused of using the bribes to secure contracts ...

Oil industry rocked by global corruption scandals | The Star
www.thestar.com/business/2018/02/02/oil-industry...
02/02/2018 · In the span of less than a month last year, the Houston-based subsidiaries of oilequipment giants Keppel Offshore & Marine and SBM Offshore both pleaded guilty to bribery charges stemming from a ...

Two Former Oil and Gas Company Executives Plead Guilty to ...
globeafrique.com/two-former-oil-and-gas-company...
13/11/2017 · Washington, DC – Two former executives at a Dutch oil and gas services company, Anthony “Tony” Mace and Robert Zubiate, pleaded guilty this week to conspiracy to violate the Foreign Corrupt Practices Act (FCPA) for their roles in a scheme to bribe foreign government officials in Brazil, Angola, and Equatorial Guinea.

Oil Executives Guilty for Roles in Bribery Scheme | News ...
www.coveringkaty.com/news/oil-executives-guilty...
These included Algeria, Angola, Azerbaijan, the Democratic Republic of Congo, Iran, Iraq, Kazakhstan, Libya and Syria. The company’s former business development director also pleaded guilty for his role in paying bribes in Libya.

Ex-Embraer Executive Pleads Guilty in Saudi Bribes Case ...
aviationvoice.com/ex-embraer-executive-pleads...
Prosecutors say Steven, a former executive in Embraer’s executive jets division with responsibility for sales in the Middle East, agreed in 2009 to funnel bribes to an official of Saudi Arabia’s state-owned oil company in return for help in securing the sale of three new jets to the company

Oil and Gas Bribery Case Settled for $236 Million - The New ...
www.nytimes.com/.../05/business/global/05bribe.html
WASHINGTON — Six oil and gas service companies and a prominent freight-forwarding company agreed to pay about $236 million in criminal and civil penalties in one of the largest corporate bribery cases ever to focus on a single industry, federal authorities said Thursday.
Most of the bribes were paid to circumvent local rules and regulations, allowing the oil service companies to import equipment and vessels into foreign countries, which included Angola, Azerbaijan, Brazil, Kazakhstan, Nigeria, Russia and Turkmenistan.

Former Elf oil chiefs jailed | Business | The Guardian
www.theguardian.com/.../nov/13/france.oilandpetrol
12/11/2003 · Gigantic sleaze scandal winds up as former Elf oil chiefs are jailed. Elf's former chairman, Loik Le Floch-Prigent, 60, was sentenced to five years in jail and fined €375,000 (£260,724); his principal bag-man, the former director Alfred Sirven, was given the same prison term and ordered to pay €1m.France's mammoth Elf corruption case, probably the biggest political and corporate sleaze scandal to hit a western democracy since the second world war

Also known in PNG is the Gulf LNG giant Total

Controversies –Source Wikipedia
Total SA has been involved in multiple controversies. Hereafter there is a list of the main ones.
Malta
Total is being implicated in a bribe commission scandal which is currently[when?] emerging in Malta. It has emerged that Total had told Maltese agents that it would not be interested in doing business with them unless their team included George Farrugia, who is under investigation in the procurement scandal. George Farrugia has recently been given a presidential pardon in exchange of information about this scandal. Enemalta, Malta's energy supplier, swiftly barred Total and its agents, Trafigura from bidding and tenders. An investigation is currently underway and three people have been arraigned.[citation needed]

Myanmar investments[edit]
Despite the European Union's sanctions against the military dictatorship Myanmar, Total is able to operate the Yadana natural gas pipeline from Burma to Thailand. Total is currently the subject of a lawsuit in French and Belgian courts for the condoning and use of the country's civilian slavery to construct the pipeline. The documentary 'Total Denial' shows the background of this project.[74][unreliable source?] The NGO Burma Campaign UK is currently[when?] campaigning against this project.

Italian bribes[edit]
On 16 December 2008, the managing director of the Italian division of Total, Lionel Levha, and ten other executives were arrested by the public Prosecutor's office of Potenza, Italy, for a corruption charge of €15 million to undertake the oilfield inBasilicata on contract. Also arrested was the local deputy of Partito Democratico Salvatore Margiotta and an Italian entrepreneur.[75][76]

UN Oil-for-Food Programme for Iraq[edit]
In April 2010, Total was accused of bribing Iraqi officials during former president Saddam Hussein's regime to secure oil supplies. A United Nations report later revealed that Iraqi officials had received bribes from oil companies to secure contracts worth over $10bn.[77] On 26 February 2016, the Paris Court of Appeals considered Total guilty and ordered the company to pay a fine of €750,000 for corrupting Iraqi civil servants. The court's ruling overturns an earlier acquittal in the case.

Bribery in Iran[edit]
In 2013, a case was settled that concerned charges that Total bribed an Iranian official with $60 million, which they documented as a "consulting charge," and which unfairly gave them access to Iran's Sirri A and Sirri E oil and gas fields. The bribery gave them a competitive advantage, earning them an estimated $150 million in profits. The Securities Exchange Commission and the Department of Justice settled the charges, expecting Total to pay $398 million.[78]

Western Sahara oil exploration[edit]
In October 2001, Total signed a contract for oil-reconnaissance in areas offshore Western Sahara (near Dakhla), with the "Moroccan Office National de Recherches et d’Exploitations Petrolières" (ONAREP). In January 2002, Hans Corell (the United Nations Under-Secretary-General for Legal Affairs) stated in a letter to the president of the Security Council that whenever the contracts are only for exploration they're not illegal, but if further exploration or exploitation are against the interests and wishes of the people of Western Sahara, they would be in violation of the principles of international law.[79] Finally, Total decided to not renew their license off Western Sahara.[80]

More recent we have read of Tillerson Worked Around Sanctions As Exxon Mobil CEO ...
www.opposingviews.com/world/tillersons-business...
President-elect Donald Trump's pick for Secretary of State, former Exxon Mobil CEO Rex Tillerson, did business with Iran, Syria, and Sudan through a European subsidiary to avoid U.S. sanctions against doing business with those countries, according to USA Today. Tillerson faces a confirmation hearing ..

Or
On January 9, 2017, it was revealed that Infineum, a joint venture of ExxonMobil and Royal Dutch Shell headquartered in England, conducted business with Iran, Syria, and Sudan while those states were under US sanctions

Even had the Oman 1954 War (Jebel Akhdar War)
Behind the war was a 1928 agreement signed by
Anglo-Persian Company (later renamed British Petroleum),
Royal Dutch/Shell,
Compagnie Française des Pétroles (later renamed Total),
Near East Development Corporation (later renamed ExxonMobil)
And Calouste Gulbenkian billionaire
Eventually in 1937, the companies of the earlier agreement formed the Iraq Petroleum Company and were concerned in the resulting almost five year armed conflict after IPC offered financial support to raise an armed force that would assist the Sultan in occupying the interior region of Oman, an area that geologists believed to be rich in oil. This led to the 1954 outbreak of the Oman War.

The mining companies along with the loggers all have their noses in nasty events too.

David Kitchnoge

Bernard, the trick is that whatever profit the project makes is not totally lost on PNG.

By virtue of our legislated 'back in rights' guaranteed by our laws, PNG will have 22.5% share of the profits when we exercise that right and own that proportion of the project as equity holders.

By extension then, any tax savings arising out of things like accelerated depreciation at the project level would also filter through to us in increased dividends.

PNG would not miss out totally. We are not merely rent collectors.

Bernard Corden

How can any corporation be ethical if its only social responsibility is to make a profit?

This relentless deification of the Friedman doctrine has generated a plutocracy and global inequity.

It is somewhat paradoxical that it emerged via the Chicago School of Economics in a city where another notorious gangster plied his trade during the Great Depression.

Al Capone was eventually jailed for tax evasion and officially diagnosed with syphilis and gonorrhoea.

In 1946, his physician and a Baltimore psychiatrist examined him and concluded he had the mentality of a 12-year-old child.

The final years of his life were spent at his mansion on Palm Island, Florida, with his wife and grandchildren.

"History repeats itself, first as tragedy then as farce" - Karl Marx

David Kitchnoge

Can all those politicians who are hugging each other and claiming victory over stalling of the P'nyang gas deal stand up and deliver the long awaited ICAC Act, the Whistle Blowers Act, the Sovereign Wealth Fund Act and amend the criminal code to make fraud punishable by death please?

And can all those citizens hugging and clapping on their leaders tell them to get all of the above laws passed and gazetted during this term of parliament please?

Get our house in order now in anticipation of the large chunk of 'our take' that will eventually get to us at whatever point in time that may be.

Fix the pipe. There's no point fighting for more water to be passed through broken pipes everywhere. Getting a large chunk of 'our share' is hardly a victory for anyone unless these make a real difference down here at ground zero.

We now know the result of their night job negotiating as tough businessmen. They now need to show us the results of their day job as legislators.

Ian Ritchie

David, I particularly like this paragraph you wrote ...

"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.".

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, consist of experienced and formidable players, who are negotiating this development to make money and they are very used to negotiating at the very pinnacle of top tier energy projects.

PNG has come a long way over the decades since independence and have learned a great deal, but the simple reality is that corruption and jobs for the boys is still par for course and a great deal of suspicion was raised by the article late last year in the Post Courier claiming a US$100m success fee was demanded by the State Negotiating Team.

The prime minister did reject 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 big corporate media bashings that tend to occur whenever a name like Exxon-Mobil is mentioned, the reality is that these corporate Goliath's do have very strict codes of conduct including not buying into (excuse the pun) corrupt demands and at the end of the day, these corporations are indeed there to make money.

However they are not fools. They fully understand that in order for them to profit from extractive industry, they do need to extract. To extract, they need agreement with the owners of the resource.

In this case, I've noted the PNG Attitude post https://www.pngattitude.com/2020/02/lng-treads-water-after-talks-collapse.html, which states "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 they want income from extractive industry or not. If the answer is no, then that is perfectly acceptable and in fact, an 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 more so, 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 that is reasonable given the amount of investment, the amount of risk, the remote(ish) localities and the previously demonstrated hostilities from time to time, not to mention the volatile gas market.

Philip Fitzpatrick

That's a very astute summary David.

Just who is ripping off the people of Papua New Guinea? Exxon Mobil, the government, or both?

There's not much point in getting a better deal out of Exxon Mobil if all the government does is squander it.

The government needs to get its own house in order before it does anything else.

Perhaps James Marape can explain what he would do with any increased revenue from a 'better' deal.

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