PNG Chamber Shoots Down PSA Regime Proposal

by PNG Business News - June 08, 2021

Prime Minister James Marape said the government could look at a hybrid tax regime for mining and oil and gas after members of the Papua New Guinea Chamber of Mines and Petroleum pointed out the flaws of a production sharing agreement (PSA) system.

John Chambers, the general manager of Santos in PNG, warned that PSA-style regimes had been detrimental to other countries such as Bangladesh, Indonesia and Brazil.

Speaking on behalf of the PNG Chamber, Chambers also warned that any changes to PNG’s current regimes would "impact near-term investment unless you can define how that new regime is going to be and articulate it properly."

In the PNG Chamber's webinar, Marape confirmed that changes to the country’s regulatory and fiscal regimes for PNG’s mining and petroleum sector were being drafted and would be circulated soon.

But he has also reassured the sector that the changes would be made "in consultation" with them and implemented by 2025, PNG's 50th year of independence.

To support Chambers' argument against a PSA, the group heard from two organisations on the regime's downside Chris Graham, Wood Mackenzie’s Vice-President for Energy Consulting, Asia Pacific, said successful PSAs placed a greater administrative burden on government.

Emma Beatty, Director of Research at MineHutte, said 99 per cent of countries with active mining industries had a royalty and tax-based system and that PSAs "made projects harder to finance for miners, because lenders didn’t understand them."

Due to their greater complexity, PSAs also could exclude smaller junior mining companies, Beatty noted.

The Marape government has been looking at introducing PSAs into its new resources laws, which the PNG Chamber and the industry has generally opposed .

Under a PSA, the State maintains ownership of its mineral resources but engages a developer to run a resources project, in return for a share of production.

That, however, is a shift away from the current regime, where a developer controls the resources in return for paying various taxes and rents, and granting the State a mandatory minority share in any project.

Following the Chamber's presentations, Marape conceded that PSAs "may not be the way to go" and suggested that a "hybrid" system might work better for PNG.

There was no change to the current regime as yet, the Prime Minister told the audience, but that the intention was there as he welcomed the "healthy debate and consultation."

"But, whatever form it [reform] takes, 2025 is the benchmark date," he said.



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