Pasca A Project Discussions Resume
by PNG Business News - August 22, 2022
Photo credit: Twinza Oil
The Pasca A project's discussions will resume, according to Prime Minister James Marape.
Marape said that they would start dialogue with them after negotiations had been stalled for months.
“I assure resources licence holders for Wafi-Golpu, Pynyang, Papua, Pasca A, and Porgera that to enjoy the benefits of the current regime, we need to work together to make investment decisions on their current license now,” he said.
“We continue to work closely with them to get to that point that they make investment decisions. Our intentions are clearly demonstrated in the deal that we have agreed to for the new Porgera mine.
“We have gained more on the different benefit streams for the Papua New Guinea stakeholder, and provided much respect to the interest of the investor,” he said.
According to Marape, the government was devoted to ensuring that ongoing work on the pipeline was advanced.
“Porgera is the lowest-hanging fruit.
“Papua LNG goes into Feed (front end engineering and design phase) soon.
“We have a very good agreement with ExxonMobil on P’nyang and we will progress it in sequence with Papua LNG.
“Wafi-Golpu is undergoing negotiations but a landing is in sight.”
According to Marape, the government will also examine tax income and equity from resource developments.
“We have been fortunate to be part of the high prices in the last couple of months, which is likely to yield enormous benefits from both the taxes and the equity.
“We must make sure that projects are not disrupted in any way.
“We must finally settle all our commitments to landowners, and also ensure that the Sovereign Wealth Fund commences. We owe it to our future generation,’’ he said.
Reference: The National (15 August 2022). “Pasca A talks to resume: PM”.
PNG Business News - May 07, 2021
Pasca A Project now Expected to Start in 2025
The Pasca A offshore oil and gas project in Gulf faces further delay to its start-up which is now expected in 2025, says developer Twinza Oil Ltd. The project will continue to be postponed until a deal is signed, according to Roppe Uyassi, who added that the project's delay would likely be compounded by the project team's departure. “This is really unfortunate for PNG, following the lengthy delays we have already seen from resource projects in PNG such as Papua LNG and Wafi-Golpu,” Uyassi said. Only prior to signing the deal last month, the government made it clear that it wanted a 6% export tax before it could sign it. According to the developer, it was 4% more than what had been settled upon previously. While the window for negotiations was still open, Petroleum Minister Kerenga Kua said it was critical to secure the best offer for the region. Oil and gas discovery and production, according to Uyassi, is a "highly dangerous but potentially lucrative market." “There needs to be a balance that recognises the risk taken by private investors and the development goals and aspirations of PNG, and the best deal would be one that maximises revenues to PNG,” he said. “This could be in the form of payments to local businesses and employees, or taxes and royalties to the Government to fund the country’s development priorities in health, education, security, infrastructure etc. “Importantly, it must also provide an incentive for private investors from all over the world to provide their money to develop the Pasca A Project on the promise of profits that will reward them for taking the risk to invest in Papua New Guinea. “We firmly believe that the deal agreed to between the State and Twinza strikes the right balance and provides a win-win outcome for both parties, delivering the highest State take of any resource development in PNG, be it on a discounted or nominal project value going to the State. “We understand that the outcomes of over 65 per cent discounted and 52 per cent nominal State take were even verified and benchmarked independently by Deloitte after being consulted by the State. “The agreed terms also included domestic market obligation (DMO) for the supply of gas being provided from the first year of production for the first time in PNG’s history, plus an increased percentage of domestic market gas supply to 10 per cent of production.” According to Uyassi, the Pasca Project would need at least K5 billion in additional funding in the coming years. “Even the State nominee carrying the State’s 22.5 per cent equity on the project going forward would require project financing to move this project forward into production, meaning that whatever terms we agree with the State must also be viable for the State nominee to raise financing. “The worst-case scenario would see Twinza sign an unviable gas agreement deal, only for the project to fail as it can’t attract investment from financiers who are more conservative than oil and gas project proponents such as Twinza.” Twinza had already started standing down the Pasca Project team due to the continuing delays in signing the deal, according to Uyassi, as the timetable of the gas agreement's implementation remained unclear. “This will continue, however, I will point out that as a foreign investor, Twinza has invested more than K350 million in the Pasca field over the past 11 years and will remain committed to PNG long-term,” he said. “The Pasca Project is ready to move into the Feed phase of project development soon after a successful gas agreement signing.” According to Uyassi, the project has been on hold since 2020, pending the start of the Feed process. “We remain hopeful that the development of PNG’s first offshore oil and gas field will commence soon,” he said. “We are committed to Papua New Guinea and remain hopeful this is something PNG will have to address for the long-term good of the industry and the many local businesses that depend on the industry.”
PNG Business News - June 01, 2021
Pasca A First Shipment Expected in 2025
According to Petroleum Minister Kerenga Kua, the first cargo of the liquefied petroleum gas (LPG) from the US$1.6 billion (K5.5 billion) Pasca A project in the Gulf is expected to start in 2025. It will be the country's first offshore extractive resource project with infrastructure, located 95 kilometres offshore in seas 93 meters deep in the Gulf of Papua. Pasca A, according to Kua, is a modest gas condensate project in terms of reserves. The offshore production facilities, on the other hand, have the ability to combine tiny pockets of stranded gas deposits in the Gulf of Papua. “The project will evolve in a two-phased development plan. “In Phase One, rich liquids will be stripped and produced, namely liquid petroleum gas (LPG) and condensate while gas is re-injected. “In Phase Two, gas will be produced.” Phase One is estimated to take two years to complete and generate between 32 and 38 million barrels of LPG and condensates. In the third year of the project's manufacturing life, Phase Two will commence. During the project's ten-year lifespan, an estimated 330 to 400 billion cubic feet of gas (BCF) would be generated. Twinza Oil (PNG) Ltd, the operator, is concentrating on commercializing its "found but underdeveloped assets." Twinza Oil Ltd has a business relationship with Baker Hughes General Electric (BIIGE), which offers vendor finance for the company's drilling projects. Kua said in a statement that negotiations on the project began during the application stage for a petroleum development license in 2018. In 2020, the Cabinet established the State Negotiating Team (SNT) for the Pasca A project to negotiate a fair agreement for the state. “Last September, the Pasca A SNT and Twinza Oil Ltd initiated the term sheet for a Gas Agreement,” Kua said. “However, there were some misunderstandings on the financial analysis method used and the domicile status of the company. “These have been resolved through the SNT negotiations and offline discussions with Twinza. “In negotiating resource projects deals for the country, the State has taken an approach to tax from production rather than profits. “The Pasca A SNT has so far negotiated the production levy from the base case of 2 per cent (equal to Papua LNG Gas Agreement) from the Loloata initialled term sheet of last September, up to 4 per cent in April. “At a 5 per cent production levy that State would have reached 55 per cent state take on nominal cash flow analysis, which is what we want to achieve.”
PNG Business News - April 22, 2021
Government Increases Its Demand for Pasca A Deal
According to project operator Twinza Oil Ltd, the government has raised its demand for the Pasca A Gas agreement once again, ahead of the scheduled signing. According to a statement from Twinza, the government told the firm last Friday that signing the agreement now demanded a 6% production levy. It read: “This is 4 per cent higher than the production levy that was agreed as part of the comprehensive terms (agreed terms) for Pasca A, negotiated by the state negotiating team and announced by the Prime Minister James Marape last Sept 24. “The additional levy requested would make the Pasca A project un-financeable for any investor. “The agreed terms would have delivered the highest State take from any resource development in PNG and were widely regarded as meeting all of the demands of the State, including early revenues, full royalty and development levy entitlement and a domestic market obligation of 5 to 10 per cent while satisfying the requirements of project financiers.” it said that the State had also attempted to amend the negotiated terms through a letter from Petroleum Minister Kerenga Kua on February 4. “The Government’s demand to raise the fiscal take to (between) 55 and 60 per cent nominal share, which is 75 to 85 per cent of the actual project value, would make Pasca A unviable for investors and financiers alike,” it said. “Notwithstanding the changing State positions, Twinza remains committed to PNG and progressing the Pasca A Project on the agreed terms.” Twinza gave an extra concession to the negotiated terms, raising the production levy to 4%, with a further rise to 6% at higher oil prices, in an attempt to close the deal. “This will provide 65 to 70 per cent of project value to the State or 52 to 54 per cent of nominal take,” it said. “The State take has been independently verified by Deloitte in a comprehensive report commissioned by the Department of Petroleum and delivered to the minister this month.” Twinza has kept its project team for Feed (front-end engineering and design) – readiness in the hope that the gas deal will be concluded by the end of 2020 after the negotiated terms were confirmed by Marape in September. The Pasca A gas agreement reached this month would have required the project to enter the Feed process right away, with a final investment decision expected in 2022 and first production in 2025. “Given the continued delays, Twinza will now stand down the Pasca Project team until there is clarity on terms and execution of the gas agreement.” Chairman and chief executive Ian Munro said: “Twinza was awarded the Pasca license nearly 10 years ago as a foreign direct investor. Since then, the firm has invested over K350 million in cultivating a field that was discovered more than 50 years ago but overlooked by other industry players. “It is disappointing that at the closing stages of a drawn-out 10-month gas agreement process, the State is now seeking to again revise terms to ones that are demonstrably unacceptable to any investor. “Consequently, while Twinza remains committed to progressing the Pasca A project on a fair and equitable basis, the company will streamline its costs while awaiting a gas agreement signing on acceptable terms. “We remain focused on developing PNG’s first offshore oil and gas field and opening up the Gulf of Papua to much-needed investment as soon as circumstances allow.”
Paul Oeka - September 29, 2022
AGRICULTURE HAS HUGE ECONOMIC POTENTIAL
Photo credit: Oxford Business Group The creation of the new ministries by the current government for both major agricultural commodities, Coffee and Oil Palm is a huge step forward in achieving the agriculture sectors economic potential. For the past years the agricultural sector had not been fully utilized by consecutive governments as the focus had mostly been centered on the extractive industry and Mining & Petroleum sector. This important and vital sector is eventually and currently being recognized as an economic pillar to boost the state coffers. Prime Minister Hon. James Marape said the allocation and restructure of the four newly created ministries concentrating on Horticulture (Fresh produce), Coffee, Oil Palm, and Livestock to the agricultural sector is a complete paradigm shift to get agriculture moving again. The focus of the Marape Government on ‘Taking Back PNG’ is deeply rooted and aligned with the mechanisms and functions of the agricultural sector as most of the country’s population are situated in rural settings and largely depend on subsistence agriculture to sustain themselves. Coffee, Cocoa, Oil palm and Fresh produce have been a mainstay that this rural population rely on for income for so many years. As far as many Papua new Guineans can recall and relate, Agriculture has always been the foundation and backbone of the country and it can surely drive the economy forward. Although the agricultural does not match in monetary turnovers for the country, it is an economic foundation and is here to stay. In comparison over monetary benefits with other sectors, Agriculture had not been performing to expectation due to so many underlying issues concerned and faced with the value chain of agricultural commodities prompting a decline in agricultural activities over the years. The Prime Minister said it was no secret that agriculture had declined since independence in 1975, and the current allocation of the four agricultural ministries was to revive the sector for it to be a major income generator for PNG. PM Marape said this when explaining the concept and rationale for his allocation of four ministries to the agricultural sector. This direction by the Marape/Rosso Government to emphasize more on agriculture will boost agricultural activities in and around the country. Mostly the sector had not been given proper recognition for decades and had been lacking government intervention from past successive governments. Now with the current Government’s backing, the respective agricultural ministries and its industries are expected to flourish dramatically and are likely to bring more benefits. The new ministries will also empower provinces that currently do not have mining and petroleum resources. This will certainly build stronger local economic activities for future generations. “We want to see import replacement and more exports within the agriculture sector, which is why we have allocated four separate ministries to agriculture,” PM Marape said. The recognition of this agricultural industries will also ease and slowdown rural-urban drift. The number of people migrating from rural areas into towns and cities in search for better opportunities have risen in the past couple of years due to inequality in the distribution of wealth and lack of government services. Thus, the governments focus on agriculture will encourage many unemployed Papua New Guineans living in urban areas to go back to their home Provinces or villages and be self-reliant. As economic opportunities arise in rural areas from vibrant and innovative policy interventions within these newly created agricultural ministries, it will attract many to contribute meaningfully and be productive on their own customary land. Prime Minister Marape said over the last three years prior to the creation of the new agricultural ministries, his government has given millions of kina to support agriculture through price and freight subsidies and SME support. “We are now targeting specific commodities through the establishment of the four ministries. Over the next term of government, we will give specific production targets for Coffee, Oil Palm and all other major agricultural Commodities” he said. The government also plans to revive and rehabilitate once thriving agricultural hubs in the country such as Cattle farming in the Central Province and the Coffee plantations of the Highlands region that produced quality organic Coffee and grew the fledgling industry pre-independence in the 1960’s. Now that the agricultural sector has been categorized into four industries, there will be room for much improvement in economic activity within the agricultural sector as people will start contributing meaningfully to the economy.
Paul Oeka - September 28, 2022
TREASURER WANTS REVIEW OF ELECTION FUNDS
Treasurer Ian Ling-Stuckey is dismayed at how the 2022 National Elections were conducted and is now looking forward to a complete review of the allocated funds that were spent on the elections. Ling-Stuckey recently stated in parliament that the government had allocated and funded enough money for the election process to be conducted this year. “We provided a further K50 million to cover the costs for the 2022 election, bringing the total funding for the election to nearly double the level of expenditure in the 2017 national elections. There was enough money to support a much better election this year, so I look forward to the proposed parliamentary committee examinations of what went wrong and what can be done better” he said. The Treasurer also expressed concern that there was a decrease in the public servants’ salaries. He explained that “Once again there is a salary cost overrun. This is K201 million much lower than in previous years, and out of this, over 70 percent is related to teacher wage overruns. We contributed to bring this area under control. After no pay increases during the latest part of the Covid-19 crisis, it is now time to start increasing some salary payments”. “There is also the need to provide additional funding for the seven new districts that have been created and K3 million each has been provided. There are also new members in existing electorates, and it is appropriate that they be given some funds for commencing programs through to the end of the year. For equity reasons all districts and provinces needed to benefit the same so an additional 2 million per district and province have been allocated bringing the funding back to 10 million per districts and provinces” he said. Meanwhile there was an announcement on Thursday last week that the Department of personnel management, Treasury and Finance are working together to ensure that there will be a three percent pay increment in the salary of public servants. This pay increment is to be adjusted and effective by December this year, the welcoming news for public servants was confirmed by the Secretary of the Department of Personnel Management, Taies Sansan.
PNG Business News - September 28, 2022
PNG’s minimum wage
Commentary by Stephen Howes, Kingtau Mambon and Kelly Samof The urban minimum wage has been an important part of Papua New Guinea’s economic history. In the last few years before independence (in 1975), it was greatly increased. In the decade or so after independence, it was widely regarded as too high. In 1992, it was slashed, merged with the rural minimum, and hardly increased again for more than a decade. We can compare the minimum wage in PNG today with other Asia and Pacific developing countries using International Labour Organization (ILO) data. As Figure 1 shows, PNG’s minimum wage is 18% below the average of the 19 countries shown if the market exchange rate is used to compare minimum wages. It is 37% below the average if differences in cost of living are also taken into account (with conversions made on the basis not of market exchange rates but so-called purchasing power parities or PPPs). The greater difference in terms of PPPs reflects PNG’s relatively high cost of living. Of the countries shown, only Samoa and Kiribati have a lower minimum wage than PNG when a PPP comparison is made. This is very different to the past. Raymond Goodman, Charles Lepani and David Morawetz in their 1985 report The economy of Papua New Guinea compared minimum wages in PNG with a subset of the countries above back in 1978. Then, the PNG minimum wage was about twice as big or more than the other comparators. Today (using market exchange rates, and the earlier authors do), PNG comes in the middle of the pack, as Figure 2 shows. So far, we have shown that around the time of independence minimum wages were very high in PNG by international standards, and that they no longer are. Figure 3 shows how this change came about – also, for interest, comparing trends in PNG with those in Australia. Both the PNG and Australian weekly minimum wages are shown in Figure 3 measured in Australian dollars. The PNG minimum wage is converted into Australian dollars using the current exchange rate. Both wages are then adjusted for inflation and expressed in 2021 prices. The two series follow diametrically opposed paths. The Australian minimum wage fell with the high inflation of the 1970s and industrial relations reforms of the 1980s, and by the early 1990s was little more than half its value in the 1970s. It then increased in the late 1990s and 2000s during the resource boom, and has continued to increase. Adjusting for inflation, it is now almost back to where it was in the early 1970s. The PNG minimum wage does the opposite. It increased in the 1970s and was then held stable due to indexation, until the big bang reforms of 1992. Adjusted for inflation, PNG’s minimum wage continued to fall until 2004. There have since been some significant increases, but today PNG’s minimum wage is only about one-third of its value at independence, and below its value even in 1972, which is when the steep minimum wage increases began. The Australian minimum wage has always been significantly higher than the PNG one, but the ratio has changed a lot over time. The lowest that ratio has ever been is 2.2 in 1986, the highest 45 in 2004. The gap between the two wages is much higher now than at independence: the ratio of the Australian to the PNG minimum wage was 14.5 in 2021, compared to only 3.2 at independence (1975). This reflects PNG’s 1992 deregulation, and the faster growth in the Australian economy, which has enabled an increase in the Australian minimum wage. The solution to low wages in PNG is not necessarily to increase the minimum. In some sectors, where there is a lot of international competition, a higher minimum wage might lead to job losses. For example, in tuna processing, one of PNG’s main competitors is the Philippines. From Figure 1, we can see that PNG’s minimum wage is lower than the Philippines' on the basis of PPPs, but actually higher on the basis of market exchange rates. While the former is what matters for the welfare of workers, the latter is what matters for international competitiveness. Whether PNG’s minimum wage should be increased will require a lot more analysis. The point of this blog is simply that PNG’s minimum wage does not look high any more by international comparisons, as it has fallen a lot since independence. PNG is often described as a high-cost economy, and this is a fair description. However, with regards to unskilled labour, it is no longer a high-wage economy. Data note: The PNG Economic Database provides the weekly minimum wage of PNG going back to 1972, and the PGK-AUD exchange rate. Wikipedia provides the Australian weekly minimum wage data (hourly and weekly, on the assumption of a 38-hour week) starting from 1966. The Australian CPI is from the Australian aid tracker. There are some years where Australian minimum wage rates change more than once in a year. For such cases, we took the average as annual minimum wage rate. The data for Asia-Pacific comparisons are from the International Labour Organization and the World Bank. The different frequencies of minimum wages for each country in 2019 in the ILO’s report are adjusted to convert to weekly rates. World Bank data is used to obtain market exchange rates and PPP conversion factors. For the Goodman, et al., data go to Table 3.6 on p.61 in their report.\ Disclosure: This research was undertaken with the support of the ANU-UPNG Partnership, an initiative of the PNG-Australia Partnership, funded by the Department of Foreign Affairs and Trade. The views are those of the authors only. This article appeared first on Devpolicy Blog (devpolicy.org), from the Development Policy Centre at The Australian National University. Stephen Howes is Director of the Development Policy Centre and Professor of Economics at the Crawford School of Public Policy, at The Australian National University. Kingtau Mambon is currently undertaking a Master of International and Development Economics at the ANU Crawford School of Public Policy, for which he was awarded a scholarship through the ANU-UPNG Partnership. Kelly Samof is a lecturer in economics at the School of Business and Public Policy, University of Papua New Guinea.