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The Bank of Papua New Guinea (BPNG) has submitted its 2024 Annual Report and Financial Statements to the Minister for Treasury, in accordance with the Central Banking (Amendment) Act of 2024. The report captures a pivotal year marked by structural reform, digital innovation, monetary tightening, and renewed focus on institutional integrity. The timely submission of the report reflects the Bank’s commitment to transparency, discipline and legal compliance. It outlines the central bank’s operational performance, policy direction and audited financial results for the year ending 31 December 2024. “Publishing our Annual Report is more than a legal obligation. It is an important mechanism for communicating the work of the Bank and being accountable to the people of Papua New Guinea,” Governor Elizabeth Genia said. The Bank recorded a net operating profit of K242.2 million (approx. US$65 million), a significant increase from K44.2 million (approx. US$11.8 million) in 2023. Operating income rose to K770.1 million (approx. US$207 million), largely due to stronger returns from foreign currency investments, while total expenditure was contained at K527.9 million (approx. US$142 million). The distributable profit remains under Retained Earnings, pending a decision by the Board. In a separate press release, the Bank confirmed a dividend payment of K48.5 million (approx. US$13.1 million) to the National Government as part of its reporting process. This transfer reflects the allocation of distributable profit from the net operating profit of K242.2 million (approx. US$65 million), in accordance with statutory requirements following independent audit and review. The process is consistent with international central banking and accounting standards, and forms part of the Bank’s annual financial cycle, the bank said. Under the amended Central Banking Act, 80 percent of distributable profit is retained in the General Reserve Account until minimum capital thresholds are met. The Bank also recorded K837.8 million (approx. US$225 million) in unrealised gains transferred to the Unrealised Profits Reserve, and K114.1 million (approx. US$30.6 million) to the Gold Reserve, in line with international accounting standards. No funds were transferred to the General or Building Reserve accounts in 2024. A major development during the year was the passage of the Central Banking (Amendment) Act 2024, which followed Phase II of the Independent Advisory Group (IAG) review. The legislation restructured the Bank’s governance and formally established a new Monetary Policy Committee (MPC), which will take over responsibility for setting monetary policy from 2025. Throughout 2024, the Bank maintained a tightening monetary stance to address foreign exchange imbalances, contain inflation, and absorb excess domestic liquidity. Key reforms under an IMF-supported programme included the implementation of an interest rate corridor, adjustments to the cash reserve requirement (CRR), and the launch of weekly foreign exchange auctions. By year-end, BPNG had conducted 26 foreign exchange auctions totalling more than US$1 billion, significantly reducing order backlogs and enhancing transparency. The kina depreciated by 6.8 percent against the US dollar during the year, under a managed "crawling peg" strategy intended to restore currency convertibility while managing inflation risks. Despite currency depreciation, inflation remained contained. The trimmed mean inflation rate rose by just 3.3 percent over the year. However, the Bank noted that deposit and lending rates in the private sector were largely unresponsive to policy adjustments — highlighting continued weaknesses in the interest rate transmission mechanism. Institutional reforms progressed in parallel. A new executive structure, aligned with the Bank’s Vision 2050 strategy, was approved by the Board. Each executive position is now explicitly linked to strategic priorities and key performance indicators. Board Chair David Toua OBE commended the Bank’s operational discipline and ethics reforms. He acknowledged the dismissal of a number of staff involved in the manipulation of employee benefits, calling the swift action essential for maintaining the Bank’s credibility. “Ethics is equally vital to governance,” Mr Toua said. “The integrity of BPNG must be beyond reproach.” The Bank also continued to expand financial inclusion and digital innovation. It issued commercial banking licences to three new institutions: TISA Bank, Credit Bank PNG, and the state-owned National Banking Corporation (formerly People’s Micro Bank). These approvals marked the most significant expansion of PNG’s banking sector in years. In March 2024, the Bank launched the Green Finance Centre in partnership with the Global Green Growth Institute (GGGI), the New Zealand Ministry of Foreign Affairs and Trade, and other development partners. The Centre supports the implementation of the Inclusive Green Finance Policy and aligns with PNG’s Third National Financial Inclusion Strategy. The Bank also completed major technological upgrades, including enhancements to the Kina Automated Transfer System (KATS), expansion of mobile and digital payment services, and support for fintech development under its Regulatory Sandbox framework. Regionally, BPNG maintained strong partnerships through forums such as the South East Asian Central Banks (SEACEN) group and the Pacific Islands Central Bank Supervisory College. It also contributed to PNG’s second Mutual Evaluation under the Asia Pacific Group on Money Laundering, which identified critical reforms needed to avoid grey-listing by the Financial Action Task Force (FATF). Governor Genia reaffirmed the Bank’s long-term focus on inclusive growth, financial soundness, and institutional renewal. “None of this progress would be possible without the tireless work of our staff, the strategic guidance of the Board and the trust of the people of Papua New Guinea,” she said. With the Monetary Policy Committee set to assume policy-making duties in 2025, and Vision 2050 implementation gaining momentum, the Bank of Papua New Guinea enters the new fiscal year with stronger financial, operational, and governance foundations, the report added.

K92 Mining Inc. has announced the retirement of Philip Samar from his role as vice president, government and community affairs. Samar will continue to support the company as a senior advisor in a consulting capacity. Samar joined K92 in January 2019 as vice president, external and corporate affairs, later retitled vice president, government and community affairs. He brought with him a distinguished career spanning more than two decades in Papua New Guinea’s mining sector. Prior to joining K92, he served as managing director of the Mineral Resources Authority (MRA) from 2012 to 2018, where he played a pivotal role in shaping PNG’s mineral policies, engaging international partners, and overseeing the licensing of major mining projects. At K92, Samar has been instrumental in establishing and strengthening relationships with government, communities, and key stakeholders, significantly advancing the company’s permitting and external affairs strategy. His leadership has been critical in supporting the development of the Kainantu Gold Mine, including the Stage 3 expansion currently under way. John Lewins, K92 chief executive officer and director, said that Philip has played a key role in strengthening the business in Papua New Guinea since joining K92 in 2019. “ He has helped deepen our engagement with government and community stakeholders, supported important permitting processes, and provided valuable guidance on regulatory and strategic matters. His experience and understanding of PNG’s mining sector has contributed meaningfully to the advancement of the Kainantu Gold Mine,” Lewins said. “What has always stood out about Philip is his passion for seeing Papua New Guinea prosper, and his belief in K92’s role as a responsible partner in that journey. His work has reflected a strong commitment to sustainable development, local capacity-building, and long-term value creation for the country and its people,” he added. Lewins added that K92 is grateful for the professionalism and insight Samar brought to his role, and pleased that he will continue to support the Company in a senior advisory capacity. “With a strong team in place and a well-established framework for external engagement, we are confident in a smooth transition and continued positive momentum. On behalf of the K92 team, we extend our thanks to Philip for his service and wish him all the best in this next chapter,” Lewins said. The company will announce Samar’s successor for the community affairs and external relations function in due course. K92 remains committed to strong engagement with PNG’s communities and government, building on the solid foundations Samar helped establish, the executive added. K92 Mining Inc. is engaged in the production of gold, copper and silver at the Kainantu Gold Mine in Papua New Guinea’s Eastern Highlands province, as well as in the exploration and development of nearby mineral deposits. The company declared commercial production from Kainantu in February 2018 and is in a strong financial position. It is working to become a Tier 1 mid-tier producer through ongoing plant expansions. A maiden resource estimate for the Blue Lake copper-gold porphyry project was completed in August 2022. K92 is operated by a team of mining professionals with extensive international mine-building and operational experience.

ExxonMobil recently appointed Dinesh Sivasamboo as its new Chairman and Managing Director of ExxonMobil PNG Limited. This appointment will be Sivasamboo’s second leadership position with ExxonMobil PNG Limited, having previously served in PNG from 2016 to 2019 as its Vice President for Production. Sivasamboo has held numerous, global senior leadership positions over the course of his 30-year career at ExxonMobil. Most recently, he held the position of Chairman and President of ExxonMobil Exploration and Production Malaysia Inc. Prior to that role, he was the President and Managing Director of ExxonMobil Kazakhstan Inc., and held positions in Qatar and the United States. “I am honored to be returning to PNG as Chairman and Managing Director of ExxonMobil PNG Limited. The PNG LNG Project has – through the strength of its partnerships – achieved so much during its first decade,” said Sivasamboo. “I look forward to both leading it into its second decade, as well as building upon its success to help deliver the next phase of LNG projects for this country.” Sivasamboo becomes the company’s fifth Chairman and Managing Director, joining an esteemed list that includes his immediate predecessor, Tera Shandro, as well as Peter Larden, Andrew Barry and Peter Graham.

Minister for International Trade and Investment Richard Maru has declared his full support for the proposed 90-megawatt Kaugel Hydropower Project in the Southern Highlands Province, calling it a “transformational project of highest national priority.” “The proposed K2.5 billion (USD 625 million) project, which will take four years to construct, has my highest support. This is a transformational project. We have a very high demand for cheaper, clean and reliable electricity in our country not only for our people but importantly to drive economic growth,” Maru said. The minister called on all stakeholders to collaborate with the project’s proponents — including Kaugel Hydro Limited, landowners and the respective Provincial Governments of Southern Highlands, Enga and Western Highlands — to unlock the project’s potential and prioritise it for development. “The Kaugel Hydropower Project is precisely the scale and quality of foreign direct investment PNG must prioritise. This hydro can provide long-term electricity to Porgera Mine, the proposed Baiyer and Ruti SEZ, Mt Hagen City and parts of Southern Highlands Province,” he said. Maru also underscored the need for reliable electricity in the Highlands region, citing the deteriorating condition of the existing grid infrastructure including the Yonki hydro scheme, which is no longer able to meet demand. “Persistent power outages stifle growth, deter investment and hold our people and country back from progress and development,” he said. The minister also stressed the importance of securing broad community support and equitable benefits, especially for landowners and provincial governments involved. “Clearly, we have to secure a social license for the project by securing clear landowner equity participation and business spin-off benefits, the participation in equity by the respective Provincial Governments and other benefits. These are critical issues that must be handled carefully and sensitively,” Maru stated. According to the minister, the Kaugel Hydropower Project aligns with national goals for rural electrification, industrial development and the shift to low-emission energy systems. He thanked Kaugel Hydro Limited Managing Director Karl Yalo and his team for their continued efforts to progress the project. “We wish them every success to secure anchor customers to make the project bankable and we also hope that they can secure license from the National Energy Authority,” said Maru. He added that his ministry and department remain fully committed to supporting the project. “My Ministry and Department stands ready to champion this potential high impact and transformational project to demonstrate the unwavering commitment of the Marape-Rosso Government to renewable energy transition, equitable distribution of benefits and setting the foundations for a better and brighter future for our people and country as we celebrate 50 years of independence and chart our way forward for the next 50 years,” he said.

Prime Minister Hon. James Marape has commended the National Agricultural Research Institute (NARI) for unveiling plans to establish a state-of- the-art Information and Data Centre at its Bubia headquarters in Morobe Province. This initiative aligns with the government’s commitment to modernise Papua New Guinea’s agriculture sector through innovation, data-driven decision-making, and inclusive development. Announced during the 14th NARI Agricultural Innovations Show on 28 May 2025, where Prime Minister Marape delivered the opening address, the proposed two-storey facility will serve as a national hub for agricultural knowledge, data management, and public access to research materials. It aims to support farmers, researchers, policymakers, and development partners by providing timely and relevant information to enhance productivity and resilience in the agriculture sector. Prime Minister Marape stated, “As we celebrate 50 years of independence, initiatives like NARI’s Information and Data Centre exemplify our nation’s progress towards a smarter, more innovative future. This facility will empower our farmers with the knowledge and tools necessary to transition from subsistence to commercial agriculture, fostering economic growth and food security.” The Morobe Provincial Government has pledged K2 million in seed funding for the project, with an additional K4 million requested to support full implementation. The centre will feature modern amenities, including accessibility features for persons with disabilities, and will house archives, a library, meeting rooms, and offices dedicated to publications and visual resources. NARI Director-General Dr Nelson Simbiken emphasised the centre’s role in transforming PNG’s agriculture sector, stating, “This is more than just a building; it’s a commitment to evidence-based planning and smart farming. By centralising agricultural information and data, we aim to support better decision-making and drive innovation across the sector.” Prime Minister Marape reaffirmed the government’s support for such transformative projects, highlighting their importance in achieving the nation’s Vision 2050 goals. “Investing in agricultural research and infrastructure is crucial for our country’s sustainable development. We will continue to support initiatives that enhance our farmers’ capabilities and contribute to our national prosperity,” he said.

Westpac Banking Corp. has lowered Papua New Guinea’s economic growth forecast for 2025 from 5.1 percent to 4.7 percent, attributing the revision to a stronger-than-expected 2024 base. But despite the downgrade, the Australian bank remains broadly upbeat about the country’s economic trajectory, underpinned by sound fundamentals, improving liquidity and resilience in key sectors. In its latest PNG Economic Update, released 7 July, Westpac pointed to notable developments across various sectors that have shaped its forecast adjustments. These include a strong first half of the year, significant improvements in foreign exchange (FX) market liquidity, supportive commodity prices and continued progress on fiscal reforms. Analysts say these factors have bolstered sentiment across both the private and public sectors. “The fact PNG can grow at a pace comparable to China, without a major resources project, suggests the country has the fundamentals to build its self-sufficiency,” the report stated. Growth backed by resources, agriculture Westpac revised its estimate for 2024 economic growth upward to 4.3 percent, up from 3.7 percent. The change was driven by revised government data showing stronger output in petroleum and gas, particularly from the Angore project and better-than-expected performance in the mining sector. While the 2025 growth forecast has been lowered to 4.7 percent, this is mainly due to statistical base effects rather than weakening activity on the ground. The agricultural sector continues to benefit from elevated global prices, especially for coffee, cocoa and vanilla. The first air shipment of Morobe-grown specialty coffee to Dubai in June marked a milestone for PNG’s agri-export ambitions. The shipment, organised by AFIA PNG, was hailed as a turning point in showcasing PNG’s potential to compete in premium global markets. Prime Minister James Marape described the export as a “landmark for PNG’s economy” and reaffirmed support for smallholder farmers. Marape said this model would soon be applied to other commodities such as vanilla, cocoa and oil palm. He pledged that earnings from agricultural exports would be reinvested in infrastructure, market access and price stability. “We are building a new economy from the ground up,” he said during a recent address in Port Moresby. The government’s National Agriculture Sector Plan, focused on commercialisation and traceability, is central to this vision. Inflation Still Uneven, Regionally Split Headline inflation remains volatile, despite easing underlying pressures. According to Westpac, underlying inflation dropped to 3.1 percent in March 2025 from 5.4 percent the previous quarter. However, headline CPI rose 5.3 percent year-on-year, fuelled by sharp increases in betel nut prices and broader costs in food and beverages, transport and communication services. Price pressures remain uneven across regions. The Goroka–Hagen–Madang corridor reported headline inflation of 8.4 percent, significantly above Port Moresby’s 5.1 percent and Lae’s 1.7 percent. The sharp spike in the Highlands was attributed to localised supply issues, transport disruptions and seasonal factors. The report notes that Lae has now emerged from the deflationary trend it experienced throughout 2024. Westpac said telecommunications and competition in digital services helped contain cost increases in urban areas. However, continued depreciation of the kina remains a key inflationary risk. As commodity-driven revenues rise, analysts stress the need for stronger monetary coordination to avoid a sustained cost-of-living crisis, especially in rural areas. Budget Discipline Begins to Show The government’s 2024 Final Budget Outcome (FBO) presents a cautiously optimistic picture of public finances. Total revenue increased by 5.1 percent to K20.83 billion (US$5.14 billion), while expenditure was contained at K24.76 billion (US$6.11 billion). As a result, the budget deficit narrowed to K3.93 billion (US$971 million), equivalent to 3.2 percent of GDP. This marks a notable improvement from 4.3 percent the previous year. Much of the fiscal improvement came from higher-than-expected collections of personal income and mining taxes, buoyed by strong earnings in the resources sector. However, corporate tax receipts and GST collections underperformed due to disruptions from fuel shortages and January unrest. Donor support from Australia, ADB and the IMF also helped ease cash flow pressures during the first half of the year. Debt sustainability has improved, with total public debt standing at K60.48 billion (US$14.93 billion), or 49.4 percent of GDP. This remains within the government’s medium-term debt strategy. Officials have prioritised concessional borrowing, shifting away from high-interest domestic debt. Reforms including payroll verification, trust fund drawdowns and the adoption of a Single Treasury Account are seen as critical to improving budget transparency and discipline. “We are seeing steady progress in fiscal consolidation, service delivery and growth-oriented investment,” Westpac’s analysts wrote. FX Liquidity Improves, Investor Appetite Grows Papua New Guinea’s FX market has shown dramatic improvement in recent months. Orders for essential imports, once subject to weeks of delays, are now being processed and filled within the same day under current guidelines. This turnaround has injected momentum into the retail and wholesale trade sectors and reduced pressure on businesses dependent on imported goods. The Bank of Papua New Guinea conducted four FX auctions in May, injecting K165.3 million (US$40.8 million) into the system. This helped stabilise supply and meet trade-related demand. The kina–US dollar exchange rate eased from 0.2452 to 0.2438 in May, and Westpac expects it to weaken further to 0.2402 in the third quarter. A meaningful recovery in the currency is not anticipated until 2026. Domestic capital markets also showed signs of investor confidence. In a May auction, the 9-year government bond attracted K40 million (US$9.88 million) in bids—double its K20 million (US$4.94 million) offer—at a weighted average yield of 9.46 percent. The longer tenor indicates growing appetite for stable, long-term returns as PNG’s macroeconomic picture improves. Major Investments Signal Confidence Kumul Consolidated Holdings is doubling down on local industrial capacity. It committed K200,000 (US$49,400) to sponsor the second Papua New Guinea Special Economic Zone (SEZ) Summit and confirmed a K160 million (US$39.5 million) tuna cannery will open this month. The facility is expected to create hundreds of jobs and support the government’s ambition to process all fish domestically. Meanwhile, K92 Mining continues to expand its footprint, reporting a 134 percent increase in financial contributions to PNG. The company paid US$62.6 million in taxes and royalties, supported nearly 1,800 jobs and spent over US$96 million on local procurement. It also recorded more than 643 days without a lost-time injury, reflecting its focus on worker safety and community engagement. Prime Minister Marape has also announced the partial privatisation of PNG Power Ltd, signalling a shift in strategy to attract private capital into underperforming state-owned enterprises. Marape said PNG’s energy potential—especially in hydro, solar and geothermal—could power exports to regional markets like Indonesia and northern Australia. “We are unlocking our energy for growth and trade,” he said. Outlook: Stable, But Watch the Risks Despite growing optimism, analysts warn that global headwinds remain. Westpac flagged persistent uncertainty surrounding US tariff policy and recent geopolitical flare-ups, including conflict between Iran and Israel, which briefly pushed up oil prices. Although markets have stabilised, any deterioration in global trade conditions could spill over into PNG through energy and import costs. That said, domestic fundamentals remain strong. Imports are now growing at an annualised pace of 4 percent, indicating rising confidence and improved capacity to meet consumer demand. FX constraints that once stifled trade and investment are easing, creating new opportunities for business expansion and job creation. Without the boost of a new large-scale resource project, PNG’s growth this year will come largely from internal drivers—household consumption, agriculture and services. That, according to Westpac, is a promising sign of resilience. “With improving fundamentals, PNG continues to grow,” the report said.

Barakau, a picturesque Motuan village just 25 minutes outside Port Moresby in Papua New Guinea, is making waves in environmental conservation through the Eda Davara Marine Sanctuary Project. Named after the phrase “Our Sea” in the local language, the initiative is driven by passionate youth advocating for traditional indigenous practices and sustainable marine conservation. Founded by Dikatauna Kwa and her university colleagues, Eda Davara began with mangrove research and restoration before expanding into broader ecological and community engagement efforts. With visits to Barakau Primary School, the village ward councilor and a strong network in several universities in Port Moresby, the sanctuary project grew from strength to strength throughout the years. Over the years, it has flourished into a multi-faceted program with six specialized teams: Administration, Marketing, Science, Policy and Governance, Tourism, and Community Projects. A key achievement of the initiative is the EcoScholars Internship Program, which currently involves 13 students from universities across PNG -- University of Papua New Guinea, Pacific Adventists University, and the Institute of Business Studies University. These young leaders bring expertise from fields such as economics, law, science, and tourism, ensuring a holistic approach to conservation. Beyond its local impact, the Eda Davara Marine Sanctuary Project has established international partnerships that enable Papua New Guinea to participate in global environmental dialogues. Its recent selection as a recipient of the Young Pacific Leaders (YPL) Small Grants highlights its growing influence in the region. Eco-tourism plays a crucial role in supporting the project and the local community. Monthly Kohua Beach Tours offer visitors guided hikes, mangrove cruises, and opportunities to engage with conservation activities. Locals serve as tour guides and vendors, selling arts, crafts, and food, making eco-tourism a sustainable source of income. To further its mission, the project organizes an annual Gala Night to raise funds for conservation efforts, including building a Research Wet Laboratory in Kohua. Last year’s event was a success, and organizers are looking forward to another impactful year. For those interested in supporting the Eda Davara Marine Sanctuary Project, contact them via email at edadavara@gmail.com or call 675 7835 4067. With a busy six months ahead, the team continues its dedication to marine conservation and community empowerment, solidifying Barakau as a beacon of sustainable development in Papua New Guinea.

 Michael McWalter picks up his prior discussions of petroleum sector reform (Issue No. 3 2024) and describes in more detail exactly what a Production Sharing Contract, or what a PSC, is all about. In my commentary of PNG Business News, Issue 2, 2023 entitled: Petroleum Sector Reform for Papua New Guinea, I wrote about the need to apply better governance to the sector to achieve optimal outcomes for the State. In particular, I spoke of the need for the petroleum revenues arising from petroleum resource development to be deployed wisely for the benefit of the people of PNG on capital formation activities like: education, health, social welfare, infrastructure, etc. – all of which should promote the National economy to grow, and thus improve livelihoods.  This translation of the value of resources with appropriate management into sustainable development is often called the value chain, and each aspect of the chain needs most serious and competent management.   There is little point in mobilising one’s natural resources to make an income for the State, if that money is not put to good purpose, but rather wasted one way or another by folly or malady.  Those resources may only be produced once, and not again; they are finite and have value now at such time as that kind of resource is sought after in global markets. We must remember that there may come a day when oil and gas are no longer consumed with such avid demand as today. This might eventuate as more investments are poured into the development of renewables sources of energy and advancements are made with cleaner nuclear fission and sustainable thermonuclear fusion. Oil and gas might become a quixotic, antiquated and outmoded source of energy, and thus attract considerably less value.  So, if a government is going to foster investment in petroleum exploration and development, it needs to embrace such grave and important responsibility to ensure that the Nation’s petroleum business is conducted most professionally and with total accountability. Government must ensure that the resultant revenues from subsequent production are appropriate, reasonable and respected as being derived from the overall patrimony of the people of the Nation.  This requires investment by the State in professional excellence to manage, moderate, administrate and regulate the sector and its operations firmly and fairly.  The oft cited National Petroleum Authority (NPA), which was first defined in the Government’s 1976 White Paper on Petroleum Policy and Legislation by two of our greatest leaders, Sir Michael Somare and Sir Julius Chan, has been repeatedly conceived, only to be still born. Into that vacuum, Kumul Petroleum Holdings Ltd, PNG’s de facto National Oil Company (NOC) has steadily and bravely taken the lead and embraced National development in the oil and gas sector, and all that it entails. Meantime, the Department of Petroleum and Energy has valiantly tried to keep up with ever increasing core and essential petroleum sector functions, like licensing, operational approvals, and data collection, whilst otherwise becoming absorbed, and perhaps overwhelmed, in the peripheral though, absolutely essential tasks of dealing with project area landowners, their benefit claims and their many other concerns and worries. Plans for a NPA have been formulated in great detail several times over in the last few decades, only to be forsaken, lost, sidestepped, and derailed time and time again. The whole notion of the NPA was to bring together a cadre of PNG excellence to lead the petroleum sector as the guardian of PNG’s petroleum resources. The members of that cadre were to have been well-paid for their experience and important responsibility, and as an Authority of the Government, the NPA might have been able to retain and attract some of PNG’s finest graduates in such exciting and challenging work.   I also discussed the vital need for the commerciality of petroleum developments without which investment by the industry in field development would be withheld.  I discussed how the 2020 amendments to the Oil and Gas Act imposed a test on a proposed petroleum development project that the applicant’s proposals should reflect a minimum expected return to the State over the life of any recovery of petroleum. However, that minimum expected return to the State is not specified in law and is only examined and determined by the Petroleum Advisory Board (PAB), and then considered by the Minister at the time of application for a development licence.  This leaves investors with great uncertainty and unnecessary risk throughout the period of exploration, appraisal, development planning and the application phase of petroleum resource development.  There is thus now no absolute certainty of development if a discovery of commercial extent is made. Either the PAB or the Minister may set a threshold minimum expected return to the State during the consideration of an application for development. This is at a very late stage in the cycle of petroleum resource development investment and comes just before the investing companies have to elect to develop their discovered petroleum accumulation, or not. If a field development is marginally economic, the setting of such a minimum expected return to the State might in some circumstances make corporate consideration of development uncommercial, and as a consequence the field might be left undeveloped. In any normal distribution of petroleum accumulations, there are a few large fields, a fair number of medium size fields and many smaller fields. It would not be wise to disadvantage the development of smaller and often smaller marginally economic fields, which tend to be developed after the larger fields have been found and produced, and which can readily sustain a domestic petroleum industry populated by smaller, and likely, local companies with smaller investments.  Oddly, as I said in 2023, the potential introduction of Production Sharing Contracts (PSCs) would obviate such a risky situation because the terms of development are normally locked into a PSC when originally negotiated and agreed between the State and the investing companies as contractors to the State at the outset. Being a contract, any capricious demand by the State for unexpected returns on petroleum development pursuant to a PSC would end up with the contract being the substance of legal proceedings.  I now want to pick up on my themes of a year ago and discuss optimal and necessary arrangements for petroleum development in the light of some creeping petroleum policy change in recent years, and a keen desire by the Government to change the PNG petroleum regime and to adopt the use of PSCs. I particularly wish to demystify PSCs. Figure 2: Much has been written on PSCs. Celebrated analyst, Daniel Johnston, is prominent with his simplified mapping of fiscal and commercial regimes. King & Spalding, an American multinational corporate law firm, has also written a most comprehensive book on the topic, ex libris McWalter.   WHAT ARE PRODUCTION SHARING CONTRACTS?   The notion of a Government sharing the production of oil and gas arising from the development of a successful petroleum exploration campaign by companies as part of a commercial venture was first developed and employed in Bolivia in the 1950s. A Production Sharing Contract (PSC) is an arrangement between a host Government and an international oil and gas company (IOC) for the division and allocation of the oil and gas produced between those two parties under a contract which provides for the exploration for and the development and production of petroleum resources. The allocation of a share of the production to the IOC serves to recompense the IOC for its investment and to provide a reasonable reward for its success. The Government, as owner of the resources, also provides a mechanism called a cost recovery allowance to the contractor for its work, but keeps the rest of the petroleum produced. The PSC was introduced in Indonesia in 1966, and PSCs of this kind or variants of the same are used extensively to agree the arrangements for oil and gas exploration, development, and production with oil and gas companies. PSCs of one kind or another are used in over 40 countries, throughout the world.   The PSC is not the only manner by which a government may grant oil and gas exploration, development and production rights to commercial investors and gain a share in the value of successful petroleum production.  Prior to the development of the PSC, exploration and production of oil and gas was typically governed by way of a licence or a concession agreement, and such regimes still remain in effect in many different places around the world. In many developing nations, the PSC is now the most common means by which a government allows corporate investment in the oil and gas industry. It provides a company or consortium of companies the right to explore and produce oil and gas.  In many jurisdictions, there are political or nationalistic reasons for the adoption of PSCs as they perceptibly provide the Government with greater and more direct control over its resources and the ability to exert National sovereignty over the industry more readily.   After gaining independence in 1945, Indonesian’s concessions regime came under attack by certain nationalist groups leading to the nationalisation of Royal Dutch Shell’s assets. Indonesian Law 44/60 abolished the old concessionary system and specified that: “Oil and gas mining shall only be carried out by the State and implemented by State enterprises,” and further that, “the Minister may appoint other parties as contractors of the State enterprises.” Alas, a decline in foreign investment in Indonesia’s oil and gas sector inevitably ensued. To mitigate this decline, the government eventually negotiated and agreed in 1962 with the Pan American Indonesia Oil Corporation, a subsidiary of Standard Oil of Indiana (later to become Amoco), a new contract based on legislation that was much more favourable to the Government.  The other large foreign petroleum investors, Caltex (a venture of Chevron and Texaco), Shell, and Stanvac (a venture of Socony [Standard Oil of New York] and Vacuum Oil and Standard Oil of New Jersey, later to become Exxon) followed by signing Contracts of Work in September 1963. These early PSCs were widely considered to be less controversial than the previous concessions system, as they enabled the government to maintain formal ownership of the resources until sold, while permitting the IOCs to exploit them for and on behalf of the Government. These contracts provided for the recovery of the costs of the contractor up to an agreed percentage of overall production plus an agreed, but often scaled, share of the produced oil and gas as a reward for its investment. Although often cited as the example of the use of PSCs, in 2017, in a somewhat odd twist, the Indonesian Government established a new form of PSC called the Gross Split PSC. This completely abolished cost recovery systems pioneered in the classic PSCs of the 1960s. Instead, this new arrangement simply relies on an agreed split of the actual production between the Government and the IOCs, typically 43% to the contractor for oil and 48% to the contractor for gas production, with the balance of production going to the Government. Due to a loss of faith in Pertamina (Indonesia’s national oil company) in the late 1990s (an audit had shown that Pertamina had allegedly lost about US$6.1 billion from inefficiency and corruption in 1997 and 1998) the Indonesian Government took steps to rein in control of the industry at the Ministry level, but they had no financial ability to manage the proceeds of the sale of oil and gas which were remitted to the revenue account of the National government.  Without any retained funds, this then entailed the Ministry having to seek parliamentary appropriations to pay the cost recovery allowances to the IOCs, but then the Indonesian Parliament questioned these payments. This brings home the need to think through the implications of changes in regime and the management of any given regime, especially if one is contemplating changing from a licence or concessionary regime to a contractor-based one. What is a PSC? In a PSC, a government makes a contract with an IOC to provide the necessary and requisite financial, technical, management, environmental, social, planning and logistical skills in order to explore for, and hopefully, if successful in finding oil and gas accumulations, to produce the oil and gas. The host State (that throughout most of the world, normally owns the subterranean resources) will usually be represented by the Government or a Government Petroleum Ministry, Department, Authority or quite often some other type of agency of the State, such as its National Oil Company (NOC), which will take delivery of the State’s share of production and generally manage the commercial aspects of the PSC. The IOC is typically granted an exclusive time-limited right to explore for petroleum accumulations, appraise any discovery, plan and execute development and produce oil and gas within a defined area, generally known as the contract area. Under the PSC arrangement, the IOC bears the entire risk of the project, both technical and financial. If a commercial discovery is declared, the IOC becomes entitled to a portion of any subsequent petroleum produced as an effective payment for its efforts, in addition to recouping all its costs from the production. Conversely, if no discoveries are made, the IOC receives nothing. The Government retains ownership of all the oil and gas produced, save for what oil and gas is allocated to the IOC as cost recovery petroleum, or is the subject of sharing between the IOC and the NOC as profit petroleum. This causes the Government to be involved in selling its share of the produced oil and gas.  In some jurisdictions, the IOC is allowed to keep the physical oil for itself, and the IOC makes just cash payments only to the NOC, based on the sale of the NOC’s petroleum entitlements; in others, physical oil and gas allocations are used to reward the IOC. The extent to which the NOC is involved with the exploration, development and production process varies from country to country with some NOCs seeking to take a significant lead in the business other than a just managing the PSC, whilst other NOCs take only a small participating interest in the commercial venture, so as to be within the operating consortium and to learn from it. There are commonly four key financial aspects to a PSC: royalty, cost recovery petroleum, and profit petroleum, though many other relevant matters are agreed in the PSC. Figure 3: Contents of a PSC: A sample from Equatorial Guinea, after the Republic of Equatorial Guinea, 2006    Royalty Most often and foremost, the IOC is typically expected to pay a prescribed or agreed royalty as a percentage of the gross value of oil and gas production to the State as valued at the point of export from the contract area. The royalty is often, at the State’s option, taken as a physical share of production, or alternatively by way of a payment by the IOC equivalent to the sale price of the State’s royalty share of production. Sometimes, the percentage rate of royalty may be the subject of bids for a contract area by competing oil and gas companies when bidding for the same or similar areas.  Royalty is a payment made in kind or related to produced volumes and price without regard to the profitability of the business. Therefore, in times of low petroleum commodity prices it has the effect of digging deep into profitability.  However, for a host Government, royalty is an assured payment regardless of profitability, but proportionate to the value of the produced oil and gas. Cost Recovery Petroleum Following payment of any royalty, the IOC is normally entitled to a pre-determined maximum percentage of gross production from which it may recover all its genuine costs, with any costs not recovered being carried forward to the next accounting year. Such production is known as cost oil and cost gas, and again may be taken in cash or kind. Obviously, the IOC attempts to maximise cost recovery early in the cycle of production up to the agreed maximum percentage limit, so as to recoup its expenses soonest, and likewise the Government will scrutinise the costs submitted to it for recovery as to their genuine eligibility. That scrutiny involves approval of all procurements and sub-contracts of the IOC, and represents an enormous accounting burden for the Government.   Profit Oil The oil and gas remaining after the payment of royalty to the Government and the cost recovery allowance to the IOC by the host Government is known as profit oil and profit gas, and it is generally divided between the IOC and the Government in accordance with the production sharing provisions agreed and defined in the PSC. Quite often the Government’s share of profit oil and profit gas increases as the production rates increase. Income tax Finally, the IOC is quite often required to pay income tax on its share of net benefits which should strictly amount only to profit oil, as cost oil and cost gas represent only a recoupment and recovery of costs. However, the application of income tax varies from jurisdiction to jurisdiction and in some cases the IOC’s notional income tax due is often paid by the NOC, or the State on behalf of the IOC, such that there is no financial impact on the IOC, there being just a journal entry between different parts of the Government. An income tax superposed on the PSC regime without appropriate tax deductions can rapidly make a fair PSC regime become a very hostile one.  In the calculation of the net take to the State under a PSC, one has to include the results of any Corporate Income Tax and all and any other taxes, levies or imposts that affect the outcome of the overall PSC.  In some PSCs, there is simply no tax, and the royalty, cost oil and gas, and production share are deemed to be final fiscal devices. Figure 4: It must be noted that the production or profit oil split is not the same as the overall net take to each party, after Daniel Johnston in International Petroleum Fiscal Regimes and Production Sharing Contracts      Government Involvement The objectives of the parties when negotiating a PSC and its terms will generally be diametrically opposed.  An IOC will strive to negotiate for itself as much independence and control as possible over operations, and it will want any State intervention in the running of the project to be kept to a minimum. Naturally, it will be keen to keep its costs low, by negotiating the highest cost recovery allowance and the largest production share it can, and it will seek the full recovery of all its costs. The Government will wish to have an overall say in the development of its resources in an orderly and systematic manner that creates synergies for future development. The Government will also wish to make as much money as possible, reduce cost recovery allowances, and have access to an IOC’s resources and relevant expertise, without spending much time and money. The Government may also have economic priorities for domestic petroleum supply to its economy to mitigate energy import requirements and obviate foreign exchange requirements. Throughout the contract from exploration to development to production, the Government will want to ensure that the IOC is undertaking a technically appropriate exploration work programme with appropriate levels of investment and that the exclusive right to access land or the offshore area is being used efficiently. In addition, the Government will typically be concerned to secure as many rights and benefits for the people and local businesses, including affected local communities, as possible.  This is generally accomplished by the optimisation of jobs and training for local workers through requirements to use local goods, services and contractor and subcontractor services as far is feasible and practical – this is what is typically called local content. Figure 5: The main elements of a PSC, after Hassan Harraz, Tanta University, Egypt, 20106   Why the PSC Model? The obvious advantage of the PSC model for a government is the minimal risk on its part throughout the value chain of the enterprise. It is thus able to reap the benefits of its natural resources without having to spend its own time and money even for development. This is not to say that the State does not pay. It inevitably pays for its share of all and any costs of exploration, development and production through the cost recovery process payable to the Contractor. In most cases, the Government will not have the technology needed to explore for and produce oil and gas, and so contracting the help of an IOC that has the appropriate skills, capacities and technology is usually necessary in order for the Government to exploit its natural resources optimally, especially in the offshore areas. The same is, however, also true for licence and concessionary arrangements where even if the host Government has an equity option to take up a participating interest in a petroleum development project it will still pay for at least its pro rata percentage share of sunk and past exploration, appraisal and development planning costs up to the point of the establishment of facilities for development and the commencement of the recovery of the petroleum. As and when exploration proves to be successful, the Government can secure long-term supplies and/or exports of oil and gas in a PSC regime, which it can trade as it sees fit. The long-term nature of a PSC enables the Government to predict future levels of oil and gas for domestic use, export and to make provisions in the national budget accordingly. Alternatively, the PSC model can be most lucrative for the State, if it takes the option of taking its share of production as a cash payment, rather than in kind. It is also very common for PSCs to contain provisions that as the production rate increases, the proportion of the production attributable to the Government may also increase, meaning that a significant and increasing proportion of the value of profit oil is paid to the host Government and its representative entity defined in the PSC. In all cases, at the initial stage of petroleum resource development, the IOC bears substantially all the financial risk. If, and only if, exploration proves successful and the discovered oil and/or gas accumulations are developed and produced, the IOC may be able to recover its costs through cost oil and/or cost gas and an agreed share in the profits of the remaining quantity of oil and gas. As to whether the PSC model is more favourable to the State than to IOCs in contrast to the licence or concessionary system, ultimately depends on the rates used for the various fiscal and commercial parameters in each system. In a concessionary regime, costs are only recovered slowly as depreciation allowances against assessable income. The speed of the recovery of costs depends entirely on the terms set by law and those allowed to be negotiated in the framework of a PSC. It may or may not be possible for an IOC to negotiate the terms of a PSC with more, or less financially and commercially attractive terms for petroleum development than a licence or concession arrangement might otherwise have offered under a prior regime. It is all about the terms of the selected regime, whichever is applied. Figure 6: Some terms of the petroleum regime may still be contained in legislation whilst others will be negotiable depending on the particular regime, after Daniel Johnston in International Petroleum Fiscal Regime and Production Sharing Contracts.     One possible negative aspect of the PSC model is that it is an agreed and contractual arrangement, and not the product of binding and enforceable legislation. Thus, any breach of the PSC by either party will constitute a breach of contract for which civil relief may be obtained.  Pursuant to the PSC model, the State always remains the owner of the resources, with the contract establishing the applicable compensation arrangements and level of NOC or Government involvement in the asset. The negotiation of a PSC is up front before any investment is made in exploration by the IOC, so the terms are locked in.  PSCs tend to afford IOCs less freedom to run an asset, with Contractors being subject to restrictions and required approvals in addition to those contained in the applicable legislation and regulation. Commonly Used Alternatives to the PSC There are several substantial alternatives to the PSC model. The differences in these alternatives are mainly in relation to the level of control granted to the IOC, the level of involvement of the NOC, and the compensatory arrangements for the investment made. Licences Generally, under a licence arrangement, there is normally little scope for an IOC to negotiate specific fiscal or commercial terms in relation to its exploration and production rights. Licensing regimes and their terms and conditions are typically standardised and embedded in legislation, such that the terms of each licence are near identical. This regime is most common in developed countries, e.g. UK, Norway, the Netherlands, and Australia. The terms of licences may change from time to time as the Government seeks to restrain or encourage sector investment.  The IOC is typically granted complete control over the contract area and complete ownership over any oil and gas that it successfully produces. Unlike PSCs, where ownership of the resources always remains with the State, in licence regimes ownership generally passes to the IOC at the wellhead, with the IOC’s profits from the sale of the oil and gas produced being the subject to general tax legislation, or specific petroleum taxation legislation. Like in PSCs, if the IOC fails to find commercially producible oil and gas within the limited terms and periods of their licence, they go home empty handed.  In some jurisdictions, the Government has an entitlement to join in at the development stage when the risks of finding oil or gas have been mitigated and it may either chose to pay its proportionate share of costs of exploration and development and participate alongside the IOCs, or be carried in some form or another. This can be a very profitable feature for the Government, but it essentially takes a slice of the venture away from the IOC venture at the proportionate sunk costs only, without any regard or compensation for the commercial value of any oil and gas discovered by the IOC. Concessions A concession arrangement is generally subject to a greater level of negotiation than a licence. The IOC is typically granted proprietary rights over the contract area and complete ownership over any oil and gas that it successfully produces, subject to the payment of a royalty and income tax, each of which may vary in rate depending on the level of production as negotiated and agreed. There may be specific taxes like the Additional Profits Tax (APT) which progressively applies further amounts of tax, the greater the rate of return of the production project. In some jurisdictions, licences have become more concession-like as the terms and conditions of the licences have increasingly become the subject of Agreements with the Government defining those agreed terms which are supplementary to or adjust the current and applicable legislation as sought by and agreed by both the Government and/or the IOCs. Service Contracts Under a service contract, the IOC provides its technical services to the State to explore and develop oil and gas resources, and therefore in so many ways, it is similar to a PSC. However, remuneration to the IOC is usually by way of a service fee or payments based on the value of oil produced in US$ per barrel for oil and other hydrocarbon liquids, or per million British Thermal Units (BTU) of energy for natural gas. The term of a service contract is often very short, leaving an IOC with considerable risk and no guarantee of a long production period Services contracts are common in Iran, Iraq and Kuwait and have also been used from time to time in Indonesia and the Philippines. The Overall Picture By and large, about half the world’s petroleum prospective Nations use licence/concessional systems and about half use PSC arrangements, though many of each of these are strictly hybrids involving features of one regime and the other. No particular petroleum regime is superior to any other and much depends on the degree to which the host Nation wishes to promote or reduce exploration investment according to the terms applied. Sometimes, the IOC will tolerate a slightly tougher regime, if they know that it will be stable and well-implemented in a professional and organised manner. Good subsurface prospectivity and a consequent high chance of finding accumulations of oil and gas can often be spoilt by self-imposed surface risks. Factors that may induce surface risk are Governments that: successively make petroleum regime changes, politically drive or make unqualified determination of fiscal and commercial terms without regard to the ultimate take to each party in the case of success, and the poor governance of the sector in general leading to untimely and late decision making. Indeed, a good regime whether it be a PSC-type or a licence/concessional one, will depend on the enforcement of its terms and conditions and the values agreed for those terms and conditions that determine economic outcomes.  The great difference between PSCs and other arrangements is that PSCs keep control over the produced oil and gas and its sale and disposal with the State, whereas licences and concessions leave such matters and the fate of the industry more to the will and imperatives of the corporates.  The intrinsic control of a contractor by the NOC under a PSC means the Government has to be better equipped, more efficient and more knowledgeable to operate such a regime than under a licence or concessionary regime. The State or its representative (usually its NOC) needs to make the PSC work in its favour as it is the manager of the entire enterprise and needs to lead the way. Any failure to step up to such challenges will result in a poorly planned development of the industry with delays, unrealised synergies leading to lost production, and overall loss of value from the resources. No matter what regime is applied to the development of petroleum resources, there is no doubt that resolute and appropriate petroleum policy formulation and firm and fair administration of the sector will pay dividends for any host Government willing to invest in such. The definition of a petroleum regime is not a new game; it has been done many times across the world by many Governments and there is very sound collective advice on the subject which is relatively inexpensive to access compared to the enormity of the task and the value of managing a Nation’s petroleum resources optimally. Figure 7: The IMF has some excellent specialists in its Fiscal Affairs Department who advise Governments on resource regimes and it has often commissioned books and studies on such matters as in the excellent handbook on Administering Fiscal Regimes for Resource Industries by Jack Calder, formerly of the Oil Taxation Office of the UK, ex libris McWalter.    

NiuHomes, from PNG Forest Products, manufacture premium designed, quality kit homes in ranges to suit every budget and lifestyle. Perfect for those starting out on a tight budget, the Baset Range starts at K73,000 and provides low-cost 3 & 4 bedroom (BR) kit homes that are designed to lock-up stage only, with no internal fixtures or fittings apart from flooring and wall frames.  This allows you to complete the inside of the house within your own timeframe and budget, making it truly your home. With 2, 3 & 4 BR options, the Residential and Suburban ranges are complete kit homes with a huge range of quality inclusions, right down to the kitchen sink. In fact, many models have everything you need including electrical wiring and fittings; full plumbing kit including toilet and shower; ceramic tiles; joinery kit; ceiling fans; solar hot water heater, even paint, all included in the price of the kit home! Prices range from K97,000. The Contemporary Range sets a new standard in modern kit home designs with the Komoa and Pacifica models. Their sleek, modern designs uniquely complement the PNG urban landscape whilst providing spacious, elegantly comfortable homes for the extended family. The Komoa starts at K310,000 while the top-of-the-range Pacifica is just over K600,000. For village living, the Haus Ples range offers a choice of high-set and low-set kit homes that start from a low K73,500 for a 2-bedroom Lewa model, up to K107,800 for the 3-bedroom, split-level Namo with bathroom, laundry and kitchen. All prices stated are ex-GST and ex-Lae.  When it comes to quality, NiuHomes are PNG's only preservative pressure treated kit-homes engineered to the most stringent PNG and Australian building code standards. All timber is randomly and rigorously tested in Australia and the Timber Training Institute in Lae to ensure compliance with the relevant Australian and PNG building standards. PNGFP’s ability to produce pressure-treated timber at their certified and international standard compliant plant in Bulolo, ensures quality, durable kit-homes that are protected from termites, rotting and fungal decay. Employing over 1,500 Papua New Guineans, PNGFP is committed to building a better future through sustainable manufacturing practices.  All timber is sourced from renewable pine plantations in Bulolo and Wau, which are managed by the PNG Forest Authority. The manufacturing facilities are powered by PNGFP’s own hydro power stations. All sawdust, woodchips and offcuts are then used to fuel the biomass boiler, which generates heat for the dryers and kilns.  PNGFP’s combination of renewable timber resources processed with sustainable hydro power and biomass heat energy, makes PNGFP’s NiuPine timber truly and uniquely green. So, when you’re investing in a PNGFP NiuHome, you are not only investing in the best quality kit homes in the country, you are also investing in 1,500 local jobs and supporting the PNG economy whilst also supporting the environment. That’s an investment in everybody’s future.

More than 350 human resources professionals in Port Moresby have received much-needed financial literacy training through a partnership led by PNGX Group Ltd, Comrade Trustees Services Ltd (CTSL) and the PNG Human Resources Institute (PNGHRI). The most recent session, held on Friday, 4 July, drew over 220 PNGHRI members from various industries. It followed an earlier workshop attended by 140 participants just three weeks prior. The initiative is part of PNGX’s wider push to promote financial inclusion, responsible investing and economic empowerment across the country. The full-day training covered practical financial topics such as saving, budgeting, superannuation, estate planning and investing in the stock market. Delivered in collaboration with CTSL and PNGHRI, the sessions build on the financial literacy programme already being offered to CTSL members of the PNG Defence Force. Participants were also introduced to the superannuation services offered by CTSL, underscoring the importance of long-term planning and secure retirement strategies. “PNGX is proud to be a leader in investor education across the country,” said Elizabeth Wamsa, General Manager of PNGX. “We believe that a well-informed investment community is the backbone of sustainable economic growth. By equipping HR professionals with these vital skills, we are creating a ripple effect — empowering organisations to support the financial wellbeing of their employees, families and communities.” In developing economies like Papua New Guinea, financial literacy can be a game-changer. It enables individuals to take control of their money, build household wealth and participate meaningfully in the capital market. For PNGX, these training sessions are just the beginning of a long-term vision to build a financially savvy generation. Feedback from participants has been overwhelmingly positive. Many said the training not only improved their personal financial skills but also gave them practical tools they could apply in the workplace. Several said they were now confident in introducing financial wellness components into HR policies and staff support programmes. That shift, they said, could boost employee satisfaction, improve retention and lift productivity — all vital outcomes in a competitive labour market. The training initiative also aligns with PNGX’s long-term plans to roll out certificate and diploma-level courses for investors, finance professionals and company directors. It’s part of a broader commitment to help more Papua New Guineans access and thrive in the country’s growing investment economy. PNGX Group is a diversifying business services company based in Port Moresby. Its wholly owned subsidiary, PNGX Markets Ltd, operates the national stock exchange. PNGX Markets is licensed and regulated by the Securities Commission of Papua New Guinea and is also the country’s designated National Numbering Agency. The company is responsible for ensuring that securities trading is conducted in an orderly and fair market, and is committed to acting in the public interest with a strong focus on protecting investors.