| Pearls & Irritations | Edited extracts
CANBERRA - The Marape government’s approach to foreign investment – and to governance generally – marks a significant, and welcome, shift away from the sometimes dubious deal-making that marked his predecessor’s approach.
In May 2019 James Marape succeeded Peter O’Neill as prime minister of Papua New Guinea. O’Neill had been under pressure for some time, over allegations of corruption and of his handling of issues associated with major resource projects and foreign borrowing.
In April 2019 Marape had a falling out with O’Neill over the signing of a $US13 billion agreement for the expansion of LNG operations with foreign venture partners Exxon-Mobil, Total and Oil Search, and subsequently resigned, precipitating a split in the coalition government which forced O’Neill to resign.
On taking over government, prime minister Marape announced there would be a “change of direction”.
“This leadership,” he said, “is about taking back our economy”, which he described as “bleeding and struggling”.
He foreshadowed a review of “several major resource projects” but assured investors that his government would not break legally binding agreements.
He described his government as “pro-investment and pro-business” but looking to shift focus from mining and petroleum to agriculture.
The government did not intend to chase away investors, he said, but would “look to maximising gain from what God has given this country … I truly want this country to be the richest black Christian nation on planet earth”.
One of Marape’s first moves was to initiate a review of the LNG agreement which precipitated his split with O’Neill in April 2019. The review was headed by petroleum minister Kerenga Kua, one of several MPs who had been appointed to cabinet from the ranks of the opposition, and an outspoken critic of the April agreement.
Papua New Guinea’s first LNG project, the ExxonMobil-led PNG LNG project (in which Oil Search held a 29% interest), was negotiated in 2008 and its first shipments of LNG were made six years later.
But the benefits to the government and landowners fell short of expectations, due largely to lower than forecast LNG prices, difficulties in identifying legitimate landowner claims, and what was seen by many as an agreement which favoured the petroleum companies.
The review was completed in September and an agreement was signed with Total. The government had honoured the earlier agreement, Marape said, while successfully pressing for some additional benefits, particularly in relation to local participation in the construction phase and domestic market obligation.
Negotiations with ExxonMobil over the P’nyang project began in November, but the State Negotiating Team was unable to conclude an agreement with ExxonMobil.
In January prime minister Marape issued a media release in which he said, “because of Exxon Mobil’s unwillingness to agree to reasonable terms in line with other international gas projects. We have stopped negotiations at this stage”.
In announcing the end of negotiations over the P’nyang gas field in January, Marape said his government would focus on other projects so that life in Papua New Guinea was not solely dependent on P’nyang and other LNG projects.
He specifically mentioned the Porgera and Wafi-Golpu mines. However, both these projects have also experienced difficulties in relations between the state and mine operators.
Gold and silver mining at Porgera in the Enga Province was initially developed by Placer Dome, which was taken over in 2006 by Canadian company Barrick Gold.
Subsequently Porgera was operated as a joint venture through Barrick (Niugini) Ltd. (BNL), in which the Barrick Gold Corporation and the Chinese Zijin Mining Group hold equal equity, with a 5% equity in the Porgera Joint Venture held by the PNG government, the Enga provincial government and the Enga Landowners’ Association.
Porgera has been one of the world’s top 10 producing gold mines and a major contributor to PNG’s exports and revenue, but it has had a somewhat chequered history, marred by industrial accidents, disputes with landowner groups, human rights abuses by security personnel, civil disturbances and environmental concerns over its tailings disposal. In August 2019 PJV’s special mining lease expired.
Negotiations over an extension of the lease were initially delayed by an ongoing court case, initiated by the Justice Foundation for Porgera Ltd which opposed renewal of the lease until BNL had addressed landowner grievances.
In April 2020, on the recommendation of its Mining Advisory Council, the government rejected the application for renewal of BNL’s lease, citing environmental and social concerns.
BNL described the move as “tantamount to nationalisation without due process” and appealed the decision, and also sought World Bank intermediation. Abd it offered local landowners an additional 15% stake in the project.
In July the National Court rejected BNL’s request for a review of the government’s decision; BNL has challenged this ruling and the appeal is currently before the Supreme Court. Meanwhile, in September, the government granted a special mining lease covering the Porgera mine to state enterprise Kumul Minerals Holdings Ltd (KMHL), a move which brought another challenge from BNL.
In a surprise move in October, prime minister Marape together with Enga Governor Sir Peter Ipatas (who had been pressing the government to re-open the mine), met with BNL’s chief executive to discuss resumption of mining.
In a joint statement, the two parties said that, under new arrangements, PNG would take a major equity in the project and BNL would remain as the mine operator, with a fair sharing of economic benefits.
Not surprisingly, Marape, like other leaders before him, has expressed a wish to shift focus from mining and petroleum to agriculture.
But agriculture does not offer the high returns of minerals projects, and the country’s record with respect to forestry and the Special Agricultural Leases system suggest that the difficulties of dealing with foreign investors are not confined to the minerals sector.
Nevertheless, the Marape government’s approach to foreign investment – and to governance generally – marks a significant, and welcome, shift away from the sometimes dubious deal-making that marked that of his predecessor.