Tuesday, September 27, 2011

InterOil failed to honour agreement, says department head

IN a double-pronged charge, the go­vernment has launched a direct attack against PNG's only oil refi­ner and promoter of the second LNG project, InterOil, The National reports.
While Petroleum and Energy Mi­nister William Duma announced a cabinet decision to "reject the Gulf proposal", department head, Rendel Rimua expressed concern at InterOil's "inability to comply with the requirements and obligations set out in the InterOil refi­nery project agree­­ment for NapaNapa refinery".
Rimua said the refinery was set up to produce refined petroleum products for the Port Moresby's market with provisions to extend to other parts of PNG.
He said: "Big companies like Shell and BP exited the retail petroleum industry in late 1990s and early 2000s while InterOil set up the refinery to fill the gap created by the departure of these companies to continue supplying refined petroleum products.
"The national government saw the need for a refinery to address the above situation; hence it nego­tiated and subsequently entered into a project agreement with InterOil to set up the refinery.
"The primary objective of the re­finery project agreement was for InterOil Ltd to buy crude oil from the Kutubu oil fields operated by Oil Search Ltd, then process the crude oil to produce and supply refined petroleum products for Port Moresby and the rest of the country.
"The department has reason to believe that InterOil Ltd is not complying with the intent of the project agreement signed between the company and the state.
"The department is concerned that InterOil Ltd has not been able to provide details of the volume of refined petroleum products produced at its refinery at NapaNapa since it commenced operations in 2004 des­pite numerous requests for them to provide the information.
"In light of the above, the department understands InterOil Ltd has not been buying crude oil from the Kutubu oil fields and the department believes InterOil has been importing refined products and is possibly reblending them again for distribution in the country, away from the agreement signed."
Rimua also said InterOil Ltd refinery project was not complying with the pricing mechanism esta­blished by the National Executive Council for Import Parity Pricing (IPP) formula.
According to Rimua, InterOil sought a review of IPP formula in 2007 claiming it was making losses on its refinery business.
The state undertook a review and came up with an interim IPP formula but InterOil Ltd had issues so it was revised again and the state finalised the formula for implementation in 2010 but Rimua said he was informed that InterOil "has not been complying with the revised IPP formula".
The InterOil refinery operates under Petroleum Processing Facility Licence (PPFL) No. 1 under the Oil and Gas Act.
"When the department issues directions or requests for information in relation to Licence conditions or as required by the Oil and Gas Act and a Licence holder does not comply, this is non compliance and this is undermining the laws of the country," Rimua said.
"The department also expects that any investor that has a contractual obligation with the State must ensure it honours its obligations.

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