OFFICE OF THE OPPOSITION LEADER
1 May 2019
National Government statements that the Papua LNG Gas Agreement is superior to the landmark PNG LNG Project are a myth based on deceit and poor accountability, Opposition Leader Patrick Pruaitch said today.
The O’Neill Government has used revenue from the PNG LNG Project to settle the A$1.2 billion (K3 billion) UBS loan it raised to purchase a 10% stake in Oil Search. There are additional losses that have not been accounted for by Kumul Petroleum, Mr Pruaitch said.
These factors have erased much of the benefits that should have flowed from the PNG LNG Project to this country.
Mr Pruaitch said the reference by Prime Minister Peter O’Neill and Treasurer Charles Abel that additional benefits negotiated through the Papua LNG Project included a boast that Total Oil/Papua LNG had agreed to retain US$250 million within the country, along with 10% of their export revenue.
“This is total nonsense. I do not see any benefit in this aspect of the Papua agreement. The PNG Government, through Kumul Petroleum, directly own 22.5% of all Papua LNG export revenue but the country can only look forward to receiving 10%. This is just not logical, but sheer stupidity.”
Mr Pruaitch said that even when crude oil and LNG prices fell to low levels – it dropped to US$26 a barrel in February 2016 compared to over US$70 now – Kumul Petroleum reported a gross profit of US$289.6 million for the 2016 year.
“This contrasted with a record US$423 million profit in 2014 after PNG LNG exports had commenced in May of that year. Kumul Petroleum had a gross profit of US$411 million in 2017, the most recent year for which it has reported.
“All these money should have been repatriated to PNG, far more than the O’Neill Government wants Papua LNG to retain in PNG. This does not take into account the money Total, ExxonMobil and Oil Search will need to bring in to run their operations.”
In addition to the lack of accountability and transparency and losses caused by the UBS loan fiasco on the part of Kumul Petroleum, Mr Pruaitch said much of the impacts from PNG LNG had not been felt because royalties and development levies have been held back for almost five years.
“Just before the 2017 national election, the Prime Minister gifted 4.27% additional free carried equity to Provincial Governments and landowners but this has also not resulted in one toea of benefit for anybody,” he said.
Mr Pruaitch said although the Gas Agreement for PNG LNG Project was a first mover project, the final outcome involved some tough bargaining over a period of 11 months between the National Alliance-led PNG Government and the ExxonMobil led joint venture.
He said: “They kicked off negotiations by demanding that corporate tax be lowered from 30% to 25% because of the perceived high-risks of the venture, high capital costs and technical complexity.
“This was resisted by the government. Eventually the joint venture agreed to accept the normal 30% corporate rate and imposition of a two-tier Additional Profits Tax where windfall revenues were split 50:50 between the government and PNG LNG.”
The Opposition Leader said that over the life of the project the APT applying to the PNG LNG Project would derive far superior returns to the PNG Government and people of PNG than the purported gains for Papua LNG.
He said: “There has been a widespread perception that the Papua LNG should improve on the terms of the earlier venture, which had broken new ground and proved to the world that PNG provided a safe and robust environment for development of LNG projects.
“However, the O’Neill Government only requires Papua LNG to pay an additional 15% corporate taxes when windfall revenues occur, in contrast to the 50% rate applying to PNG LNG when the Return on Investment hits a 20% threshold.
“The additional profits generated by this APT regime are likely to be greater than the gains made from improving the way in which royalties and levies are calculated and the net benefits of buying gas from Papua LNG for domestic use.”