Morauta concerned about sovereign wealth fund

By MALUM NALU

Public Enterprises Minister Sir Mekere Morauta has expressed concern about how that the soon-to-be-created Sovereign Wealth Fund (SWF) will be managed, The National reports.

He told the PNG Sustainable Development Program (PNGSDP) annual report at the Crowne Plaza in Port Moresby on Tuesday that despite the incredible mining and petroleum boom in the country, the government’s record was lamentable.

The pothole-filled Baruni back road leading to the LNG plant site outside Port Moresby. Despite the incredible mining and petroleum boom in PNG, government’s record in maintaining infrastructure is lamentable.-Nationalpic by MALUM NALU

“Transforming resource wealth into better living standards is the biggest single challenge facing our country,” Morauta said.

“If we can set up the SWF properly, keep sticky fingers off the money and channel funds into the right public investments, then the future is bright.

“We need leaders, organisations and the will to make this happen.

“Yes, it (SWF) will help to insulate the economy from Dutch Disease and inflation, and it will smooth out volatile revenue flows,” Morauta said.

“And if it is established properly, the SWF will also keep sticky fingers off the revenues and financial investments.

“But if the money to be drawn down from the SWF flows into an unreformed budget, then we are likely to see a repeat of the same old story: No discipline, no capacity to implement, no accountability; and thus no real development, no improvement in services for our people.

“If the Budget disperses money as it does now over a million and one so-called ‘priorities’, then what can we do to ensure that top priorities, such as maintaining national infrastructure, don’t miss out?

“If the public coffers are vulnerable to corruption and theft, then what can we do to put in place strong governance and accountability mechanisms and regimes?

“If government departments lack capacity and accountability, then what can we do to restructure the service delivery model to deliver results?”

Morauta said government and state-owned utilities needed to collaborate more with PNGSDP in order to deliver better infrastructure and basic services and rural development.

“If we continue to hold national investments hostage to the same government processes and departments that have failed us for so long, then we risk missing out on investing our resource revenues wisely,” he said.

“The last 10 years can be seen as years of lost opportunity and waste of resources:  we cannot afford to repeat the same mistakes and lose the opportunity now dawning before us.

“I believe that we can make a difference now by locking in some sensible decisions on how revenues from the SWF will be allocated, while at the same time putting in place strong organisations to spend the money effectively.

“I’ve therefore argued that the SWF should earmark dividend flows from PNG LNG - about K500m per year - for maintenance of national infrastructure, the provision of rural infrastructure and the recapitalisation of public enterprises.”

Morauta said the SWF that was being established was a new venture for government, but was not PNG’s first major fund for resource revenues.

“PNGSDP’s long-term Fund is a kind of quasi-SWF,” he said.

“It provides lessons for government on how careful investment and conservative management can protect funds, even though events such as the global financial crisis.

“Secondly, PNGSDP also faces the challenge of translating incomes from its resource revenues into infrastructure and services for the people of Western province and PNG.

“As I’ve discussed in the government context, this isn’t an easy task.

“Unfortunately, government can be slow to experiment with new approaches.

“And this is an area where government and PNG SDP should be swapping notes more.”

InterOil denies meeting Chevron for Gulf LNG talks

InterOil has not made comments to media regarding Chevron or others that might be interested in the development of the Gulf LNG Project, as reported in The National yesterday.

Corporate communications officer Damaris Minikula said in light of recent media reports, InterOil was following normal government processes and was complying with protocol by responding accordingly through the government regulator, Department of Petroleum and Energy, regarding the recent notice to terminate the 2009 Liquid Niugini Gas Project Agreement.

“InterOil is waiting for the government, through the Department of Petroleum and Energy, to respond accordingly,” she said,

Meanwhile, Australian Financial Review reports that InterOil’s ambitions to develop PNG’second LNG project appear close to collapse after a flare-up in tensions with the government over the structure of the venture.

PNG Petroleum Minister William Duma last Thursday issued a notice warning of the termination of a 2009 agreement that InterOil had with the government covering the framework for the LNG project.

He said InterOil needed to sell a majority stake in its gas resources in PNG to a major LNG operator, which would also run the LNG venture.

Relations between US-listed InterOil and the PNG government have been deteriorating over the past months in an increasingly bitter dispute over the project, which would be the second LNG venture to be developed in PNG after ExxonMobil’s $US15.7 billion project currently under construction.

InterOil and its affiliate Liquid Niugini Gas planned to develop InterOil’s Elk and Antelope gas fields using two LNG projects: an small onshore one with Australia’s Energy World Corporation and a fixed-floating one with Norway’s Flex LNG.

But the government wants instead one world-scale onshore project of at least 7.6 million tonnes per year of production, run by an internationally recognised LNG operator, along the lines of ExxonMobil’s project.

It is now advising it will terminate InterOil’s project agreement within 180 days, on the grounds that InterOil has not complied with its obligations and has breached the agreement.

“Unfortunately InterOil has for too long insisted on a development structure which is designed to only meet its objectives of controlling the asset and the pace of developing it,” Duma said in a media statement last Thursday.

“In the face of continuing obstruction of the implementation of the 2009 project agreement by InterOil and Liquid Niugini Gas Ltd I have therefore been left with no choice but to issue a notice of intention to terminate the project agreement.”

InterOil and Liquid Niugini Gas are fighting the bid by the government to cancel the project agreement.

In a May 21 letter to Rendle Rimua, the secretary of the Department of Petroleum and Energy, Liquid Niugini Gas director Christian Vinson said the government’s attempts to cancel the agreement were highly damaging to PNG’s international reputation as an investment destination.

Ok Tedi mine posts K1.2 billion profit

By MALUM NALU
 

Ok Tedi Mining Ltd, now 100% owned by the people of PNG through the PNG Sustainable Development Program (63.4%) and PNG government (36.6%), made a net profit of K1.2 billion in 2011 from total sales revenue of K4.5 billion, The National reports.

This was a drop from the 2010 profit of K2 billion from sales revenue of K5 billion, managing director and chief executive officer Nigel Parker announced at yesterday’s PNGSDP annual report meeting at the Crowne Plaza in Port Moresby.

Parker…OTML now 100% PNG-owned.-Nationalpic by MALUM NALU

He said dividends totaling K1.65 billion were paid out to: PNG government (K141 million), Mineral Resources Ok Tedi (K23.6 million, equity representing Fly River provincial government), Mineral Resources Star Mountains (K23.6 million, landowners)  community mine continuation agreement villages (K47.2 million), non CMCA villages (K47.2 million), Inmet Mining (K877 million), and PNGSDP (K490.4 million).

The PNG government holds the people’s investment in OTML as direct account to the nation via Treasury (18.3%), Fly River provincial government (3.05%), landowners (3.05%), CMCA region (6.1%), and non-CMCA region (6.1%).

The PNGSDP holds 63.4% for the people of PNG.

Parker said OTML was now in a strong financial position with a strong balance sheet positioned for the future, no financial borrowings, no lease commitments, a small specific hedge programme, and shareholders’ funds totaling K2.4 billion.

“2011 was a difficult operating year due to failure of the pyrite concentrate pipeline that closed production down for four weeks, one week for a fatality in the mill and other plant reliability issues,” he told the meeting.

“Copper and gold prices remained strong in 2011, but Kina expenditures were impacted by the weak US Dollar.

“The cash operating cost were well within reasonable limits of the 2011 budget.”

Parker stressed that all Papua New Guineans should be proud because OTML was now 100% PNG-owned.

“OTML is now a PNG national asset arguably worth US$ 3 billion-plus on a commercial basis,” he said.

 “However, if valued from the perspective of the total cash return to the state, the value is far more substantial.”

Parker said 2011 heralded the beginning of a new era, as at the exit of BHP, the mine was expected to close in 2010.

“Subsequent years have seen significant growth in revenues driven by consistent concentrate production and metal prices,” he said,

“In January 2011, OTML bought back the Inmet Mining Corporation’s 18% shareholding for US$ 335 million and those shares were cancelled.

“The surviving shareholders equity increased proportionately as result of the cancellation of the Inmet shares: PNGSDP 63.40%, and the People of PNG 36.60% 

“The current mine life has been reassessed and is expected to close during 2015.”

InterOil's PNG plans on the ropes

InterOil's latest talks with the government of Papua New Guinea have begun to break down and it is looking more and more likely that the deal will fall through altogether.

 Minister for Petroleum and Energy William Duma has set a 180-day trigger for termination of their 2009 project agreement, in which InterOil is set to deliver between 7.6 million-10.2 million metric tonness of liquid natural gas per year from its Elk and Antelope gas reserves.

In 2009, the government and InterOil reached this agreement, and the company promised to use state-of-the-art technology and internationally-recognised operators with experience in similar-sized assets.

However, progress has been very slow, with the company only proposing a phased development of the reserves and no yet naming an operator.

ExxonMobil has been constructing a $15.7 billion physical and liquid natural gas plant, as part of PNG’s foundation project.

Duma said that the government had worked with InterOil to ensure that the Elk/Antelope assets were monetised in a manner consistent with these high standards.

 "InterOil has for too long insisted on a development structure, which is designed to only meet its objectives of controlling the asset and the pace of developing it.

“This has led to a proposal calling for a piecemeal, incremental and fractured development implementation operated by InterOil and its affiliates, rather than by large-scale international operators with experience and capital."

Minister Duma further called for InterOil to sell it at a minimum 50.5% stake in the Elk/Antelope reserves to a major company with experience operating a plant of this size.

He added that the upstream activities, which InterOil wanted to control under its plans, must be operated by the international company, not by InterOil or its affiliates.

The company's affiliate in the region, Liquid Niugini, recently wrote a letter to the Department of Petroleum and Energy, which claimed that the government's notice of intent to terminate the project agreement was invalid.

 The company claimed that, for the state to terminate the agreement, the state must prove that the company had failed to take certain steps, whereas it was currently just upset with intentions to take future actions.

Earlier this week, InterOil claimed to be in talks with Chevron to fulfill this operator role, although Chevron had yet to make a formal statement on the matter.

 Duma and the government has consistently hinted that they would like Shell to be the international operator.

Daru to get new water and sewerage system

By MALUM NALU

Daru’s ongoing water and sewerage problems, which have crippled business for many years, are set to be a thing of the past when the K52 million Daru water and sewerage project funded by PNG Sustainable Development Program (PNGSDP) is completed next April, The National reports.

Under the water agreement signed in April this year, PNGSDP will provide funding of K52 million to improve water and sewerage systems while Water PNG, which owns the systems, will provide the technical support for the project.

Project signboard in Daru.-Nationalpic by MALUM NALU

The project will take 12 months to complete from signing of the agreement.

The problem came to a head in November 2010 when 13 people died and more than 60 were admitted to hospital following a cholera outbreak,

The island is currently over-populated with more than 20,000 people, including public servants, who depend entirely on water piped from the mainland.

A few people and institutions, though, depend on well water and rain water.

“The current Daru water supply system is old, has become unreliable and is no longer capable of supplying the needs of the increasing population,” according to the PNGSDP.

“As well, there is no reticulated sewerage system on the island, which poses serious health risks for the island’s population.

“The proposed development of a port at Daru and associated industrial development will impose added pressure on the existing infrastructure and services in the town.

“PNGSDP has approved K52 million to rehabilitate the existing water supply and to build a reticulated sewerage system.”

Meanwhile, a tertiary sewerage treatment facility will be constructed at Tawo’o Point to replace the current system involving dumping of raw sewerage into the sea at Tawo’o Point.

This facility is expected to cost around K20 million and expected to be completed by end of 2012.