Photo credit: PNGEITI - Lukas Alkan
An undertaking by state owned Kumul Petroleum Holdings Limited (KPHL) to increase its PNGLNG equity through a conditional arrangement between PNGLNG partner Santos has raised concerns over the lack of transparency surrounding the whole arrangement and the partial financial transaction that already took place between the parties involved, according to the PNG Extractive Industries Transparency Initiative. (PNGEITI).
KPHL has offered to acquire five percent (5 %) of Santos equity in the PNGLNG Project with asset valued at US$ 1.4 billion. This includes a proportionate share of project finance debt of approximately US$ 0.3 billion which is the condition upon which this commercial arrangement that has been made.
PNGEITI Head of National Secretariat Mr. Lucas Alkan said following publication of this arrangement in the media this week .
“While it is understood that the compromise between two major players in the PNGLNG project as purely commercial, the PNGEITI is concerned at the opaque nature of the environment in which such arrangements are being made, particularly when substantial amount of money belonging to the people of PNG entrusted under the stewardship of KPHL is involved.
This deal can easily be likened to the controversial UBS transaction which recently ended up being investigated by a Royal Commission of Inquiry that cost the State millions of Kina in tax payers' money.
We understand KPHL had already made partial payment of US$55 million and subsequent payments to finalise the transaction are expected to be made before the end of December this year.
KPHL has a moral and corporate reasonability to be transparent and accountable to Parliament and the people of this country when conducting its business in this sector” Mr Alkan said.
“The PNGEITI, a global best practice standard for the good governance of the extractive sector that PNG is a member of takes the position that KPHL must inform the public on where financing is being sourced to secure the purchase of the 5% additional equity for the State.
The details of this transaction, whether it is being funded from KPHL’s budget, any external borrowing by KPHL on behalf of the State (if so, what asset is being used as collateral) or through the National Government Budget (this is not in the 2022 supplementary budget). Further, it is not clear as to whether NEC had approved for KPHL to execute this transaction to acquire additional equity from Santos. The public has the right to know these details and understand as to how KPHL’s balance sheet would be affected given that a US$ 0.3 billion debt would be inherited from Santos.
The PNGEITI is not against KPHL’s proposal to acquire an additional 5% equity from Santos as it is consistent with the Government’s policy objective of having a greater equity interest in resources developments however, Santos’ intention to deal exclusively with KPHL regarding the sale raises a lot of questions.
We strongly urge KPHL and Santos who are both active members of the PNGEITI Multi Stakeholder Group (MSG) to demonstrate good corporate citizenship and uphold the principles of the EITI Global Standard by disclosing the commercial and economic nature of this transaction for the sake of transparency and accountability in this planned sale of Santo’s 5 percent share in the PNGLNG to KPHL,” Mr. Alkan said.
