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Huris, Manmantinut in New Ireland Province is the final resting place of Papua New Guinea’s last living founding father, the late Right Sir Julius Chan, who was buried on Thursday, February 7. Amid news of his passing, leaders from across the country expressed their admiration and gratitude for Sir Julius Chan’s immense contributions during the ‘National Haus Krai,’ a week of national mourning. PNG Business News gathers the words of historic recall and inspiration in memory of Sir Julius Chan: Prime Minister James Marape: Sir Julius was “a towering statesman, whose service to Papua New Guinea spanned decades of political and economic transformation.” “As PNG’s second Prime Minister, he shaped the trajectory of our nation’s economy and governance. His contributions will never be forgotten.” Opposition Leader Douglas Tomuriesa said: “Serving as Governor till his final days is a testament to his life of service. The Opposition is grateful that he chose to be in the Opposition throughout this term of Parliament. We have always valued his advice, thoughts, and suggestions on how we can serve our nation better.” East Sepik Governor Allan Bird: “They are a rarity in the birth and life of a country. Sir Julius was the last of his kind, men set apart by destiny to do things no one else can. On behalf of the Sepik people, I thank you, Papa, for your service to our country and more so for the special relationship you had with the Sepik people through Sir Michael.” Kandep MP Don Polye: “I am indebted to Sir Julius, who was a father figure to my son. I will miss him in Parliament; he was a friend, a wise leader who was firm and focused.” West New Britain Governor Sasindra Muthuvel: “Sir Julius’s life is a testament to service, commitment, and the pursuit of a brighter future for our people.” Hon. Thomas Opa, MP for Kerema and Minister for Energy: “Sir Julius was a builder of dreams, a bridge between tradition and modernity, and a steadfast advocate for the people of New Ireland and Papua New Guinea. (Highlighting the impact of Sir Julius’s Trans-Island Highway project, which connected Bereina to Malalaua) For that, we the people of Kerema and Gulf Province are forever grateful. This vital infrastructure was more than just a highway—it was a lifeline.” Hon. Jimmy Maladina, MP for Esa’ala and Minister for Petroleum: “Sir Julius was a mountain of a man, a river of wisdom, and a visionary who shaped our nation’s finance and economy.” He recalled first meeting Sir Julius in 1993 as a young lawyer and praised his commitment to national unity and progress. Hon. Wake Goi, Minister for Mining: (Reflecting on the profound influence Sir Julius had on him as a child) “I was inspired when Sir Julius visited Kol Station in Jimi District in a helicopter. That moment shaped my desire to become a politician. His fine legacy will be our beacon of hope.” Hon. Francis Kikin Siune, MP for Kerowagi and Vice Minister for Public Services: (Acknowledging Sir Julius’s remarkable 50-year career in politics) “His unwavering commitment to PNG’s development is something we will always remember and honor. A great void has been left in PNG’s leadership with the passing of Sir Julius Chan. His generation built the foundation of the country, now, the torch must be carried forward.” Hon. Belden Namah, Minister for Tourism, Art and Culture, and MP for Vanimo-Green: (Calling for a new generation of leaders) “All the men of this land have now left! And it is up to the sons that remain to continue the legacy. Either we find the next fathers of PNG, or the flicker succumbs to fate and fades into the annals of history.” “Where are the next lot of Papua New Guineans who will lay the cornerstones, chart the course, and set the sails for the next 50 years as we head to our 100th anniversary as a nation? The meaning of leadership and duty must be re-found. In our haste, we seem to have dropped it along the way. Purpose and sacrifice must rekindle and guide our efforts like the North Star. We are truly at the threshold of a defining moment. All hands must labor together in service.” MP Namah added: “When PNG reflects in later years, perhaps on the eve of its 100th year, it must look back and celebrate the sacrifice and ingenuity of leaders today who forged the way. Sir Julius Chan’s journey has ended, but his vision and legacy remain alive. His impact is etched in the roads we travel, the currency we use, and the policies that continue to shape our nation. May his memory inspire future generations to lead with courage, serve with dedication, and build a stronger PNG.”

The Community Development Agreement (CDA) for the Central Cement and Lime (CCL) Project located in the Hiri-Koiari District of Central Province was initialed on February 6, in Port Moresby, the parties involved said in a statement. A CDA is a government process and is basically a mine-derived benefits package, negotiated between concerned parties in any given mining project. The agreement, which outlines the distribution of benefits and responsibilities among CCL’s stakeholders, was signed by the following parties: Kido Landowners Association – CDA initialed by Chairman Hegoi Igo Rearea Landowners Association – initialed by Chairman Vai Aia Hiri Rural Local Level Government - initialed by the LLG President Hon Haoda Rogea Central Provincial Government - initialed by Governor Hon Rufina Peter State – initialed by Officer-In-Charge of the Mineral Resources Authority (MRA), Nathan Mosusu Mayur Resources Limited – initialed by the company’s Managing Director Paul Mulder.  The initialing follows a week of negotiations, which began on January 30 in Port Moresby. Local landowners, government representatives, and the project developer, Mayur Resources Limited, engaged in discussions to finalize benefit-sharing agreements. During the negotiations, Governor Peter and Hiri-Koiari MP Keith Iduhu reaffirmed their support for the project, emphasizing its potential economic impact on the district, the province, and the nation. They assured stakeholders of their commitment to securing benefits for the local people. The CDA, a government-mandated process for mining projects, ensures that landowners and impacted communities receive equitable benefits from resource extraction. Key benefits negotiated include: Royalties Special Support Grants (SSG) Tax Credit Scheme Business Development Plan – spin-off benefits and contracts for landowners Infrastructure Development Next Steps: Government Clearance and NEC Approval The initialed copy of the CDA document will be put through the government process, where the various responsible government departments will give clearance. The Department of Commerce and Industry will give clearance on Business Development and Supply & Procurement plan. The Department of Labour & Industrial Relations will give clearance on Training & Employment. The Departments of Treasury and the Office of the State Solicitor will give fiscal and legal clearances respectively, before it is submitted to the National Executive Council (NEC) for final approval.  Once approved by the NEC, the agreement will be formally signed, and all parties will begin implementing their respective commitments. The National Government has indicated that the formal signing of the CDA is expected within the first quarter of this year. It is set to be a significant milestone alongside other major projects, such as the Porgera Gold Mine and Wafi-Golpu mining developments, as PNG celebrates 50 years of independence.

The long-standing dispute over the Kutubu Petroleum Development License 2 (PDL 2) benefit-sharing structure has reached a critical point, with landowners issuing a 14-day ultimatum to the national government to reinstate the original benefit-sharing arrangement. In response, the Minister for Petroleum, Hon. Jimmy Maladina, assured all parties that the government is actively working toward a lawful and peaceful resolution. Government’s Position on Kutubu PDL 2 Dispute: In a media conference held on February 11 in Port Moresby, Minister Maladina acknowledged the growing tensions surrounding the project, and reaffirmed the government’s commitment to addressing the concerns of all stakeholders. “As you are aware, the issue of Kutubu PDL 2 has become quite significant, and we as a government are very concerned. We believe that we should try to resolve this issue. The government is not sitting back; we are on the forefront of this matter,” he said. The dispute traces back to a Ministerial Determination issued in 2022 under former Petroleum Minister Hon. Kerenga Kua, which altered the distribution of royalties and benefits from the project. The determination shifted the previous equal-sharing arrangement among all landowners to a more impact-based model—allocating 80% of benefits to the most impacted landowning groups and 20% to others. It led to multiple court proceedings between 2022 and 2024. Minister Maladina clarified that while the Supreme Court upheld the 2022 determination, one faction of landowners remains opposed and has now given the government 14 days to reverse the decision. “We as a government have to respect the Supreme Court’s decision and the ministerial determination, as it is a legal instrument,” Maladina explained. “However, we also recognize that some landowners feel aggrieved. We will engage with them and explore lawful ways forward to resolve this matter peacefully.” The Secretary for Petroleum, Mr. David Manau, provided background context to the Kutubu project, which began oil production in 1992, predating the Oil and Gas Act. He outlined the previous benefit-sharing agreements, including the 1990 and 1996 Kutubu Memoranda of Agreement (MOAs), which governed benefit distribution before the 2022 determination. He explained that the new arrangement was based on landowner impact assessments and aimed to ensure a fairer distribution of benefits to the most affected landowners. However, the changes sparked resistance from groups who argue that the original formula, which ensured equal distribution across all licensed blocks, should remain intact. Landowners hold separate presser At a separate media conference held at the Hilton Hotel in Port Moresby, Kutubu landowner leaders expressed frustration over the 2022 Ministerial Determination and demanded its immediate reversal. The landowners delivered a petition to the current Marape-Rosso government, calling for the reinstatement of the original benefit-sharing structure. Mr. Johnny Yawari, Chairman of the Foe Association Inc. and Director of Petroleum Resource Kutubu (PRK), strongly criticized the landowner benefit identification (LOB-ID) exercise introduced by the Department of Petroleum in 2013 and the subsequent 2022 determination. “Our country faced an economic crisis in the late 1980s due to the Bougainville conflict, and the Kutubu project helped sustain the PNG economy,” Yawari stated. “From 1992 to now, we have worked with successive governments, and all have respected the original Kutubu benefit-sharing structure. This government must do the same,” added that the determination was made without proper consultation with Kutubu landowners. He called on Prime Minister James Marape and his government to immediately revoke the decision and uphold the original agreements. “The Kutubu people were generous enough to give 70% of the benefits to the Southern Highlands Provincial Government while receiving only 30%,” Yawari said. “Instead of further dividing our entitlements, the government should be talking about increasing our benefits, not reducing them.” Yawari warned that if the government fails to meet the landowners’ demands within 14 days, they will take action, including shutting down the Kutubu PDL 2 project. ‘Complex Situation’ Minister Maladina acknowledged the complexity of the situation, noting that the government faces a dilemma between upholding the Supreme Court’s decision and addressing landowner grievances. “One faction wants the previous equal-sharing arrangement to continue, while another supports the new 80-20 and 70-30 distribution model,” Maladina explained. “Both sides have valid arguments, but the law as it stands upholds the new determination. We will carefully consider our next steps and announce a way forward by next week.” He appealed to all parties to remain calm and refrain from disrupting operations at the Kutubu project. “I ask all landowners to re-engage with the government and my office. We are committed to finding a peaceful resolution within the framework of the law,” the minister emphasized.

Prime Minister Hon. James Marape has recently (11.12.24) announced his government’s decision to partially privatise PNG Power Ltd amidst Government’s further decision to open up other parts of the country to independent power suppliers. Prime Minister Marape told the PNG CORE Investment Week in Sydney that Cabinet has approved the decision in one of its final meetings this year the partial privatization of the State-owned enterprise to improve its operations and efficiency of power supply to Papua New Guinea. The partial privatization means the State will continue to maintain its interest in PNGPL with the investor taking over management of the enterprise and equity - assets worth over K4 billion in the company. This will be the second decision Cabinet has made on PNGPL, where an earlier decision was made to look at the company’s power generation, retail and distribution status. The Prime Minister urged investors to keep an eye out for Expressions of Interest soon to be advertised, pointing out the advantage in PNG Power’s “first right to supply power” monopoly in Papua New Guinea. “Power supply is a strategic asset and investment, and PNG Power has two important assets. It has asset that is K4 billion in total, and more importantly it has monopoly in first right of supplying power with its community service obli-gation that it still holds,” said the Prime Minister. Prime Minister Marape said reforms in the energy sector have begun with the government ministry responsible ready to issue licenses to investors willing to partner his government to take power supply to parts of PNG that are out of reach of PNGPL, as up to 70 percent of the country still remains without elec-tricity supply. The Prime Minister also highlighted Government’s long-term decision to move into clean, green energy in the next 20 years, while pointing out PNG’s numer-ous clean energy potential in hydro, thermal, wind and solar sources. He urged investors to seriously consider this space and to look further down the line to selling power over the borders to Indonesia and Australia. “We want to unlock power in our country by bringing cheaper reliable and cleaner power to our people at the earliest. We have more than enough sources of clean energy where hydro remains the biggest available source. “I encourage investors to think big and take up these opportunities that are available in our country,” said PM Marape.

One of the most pressing issues raised by Papua New Guinea’s Minister for Foreign Trade and Investment, Hon. Richard Maru, is the state of the oil palm industry, which he described as being in “a mess.” MP Maru revealed that the government has commissioned an independent investigation to address regulatory gaps, pricing disparities, laws, and policy, including the industry structure and land acquisition issues that have plagued the sector for decades.   “We must ensure that our people benefit from their land. Right now, they get very little, while foreigners who acquire their land make huge profits. It’s time to clean up this mess,” he stated. The Oil Palm Investigation Team is the first of its kind and has already arrived in Port Moresby, Minister Maru told the media on Jan. 31 in Port Moresby.  He reassured the public that the investigation team consists of independent experts, including an economist, an accountant, and a legal advisor, to provide unbiased recommendations.   Given the timeframe of the investigation of about three weeks, the team’s findings would be submitted to the National Executive Council (NEC) and debated in Parliament to establish a new regulatory framework, the MP said. Minister Maru expressed his frustration over PNG’s reliance on foreign loans, emphasizing that a strong oil palm industry could transform the nation’s economy. Oil palm is the country’s leading agricultural export, generating over K2.8 billion in exports in 2022. “If we develop the oil palm industry properly, we could increase our revenue from K2.5 billion to K25 billion or more. We need to support our people to get fair prices for their produce, which will encourage them to expand cultivation,” the minister said. “The oil palm industry has been self-regulating for the last 50 years because the government does not have a policy or law to regulate it,” Maru explained. He highlighted extreme pricing discrepancies, noting that farmers in different oil palm provinces such as in Kimbe, West New Britain Province and in Rabaul, East New Britain receive different purchasing amounts. “This investigation will bring to light the differences in lease-leaseback arrangements, land dealings, and price formulas,” he said. “Our interest as a government is that there should be one price for everybody. When the world market price is high, our farmers must benefit,” he said, noting that implementing a national pricing formula ensures fair compensation for landowners and farmers. While he admitted this should have been done earlier, MP Maru said his Ministry are taking up the responsibility to ensure the oil palm industry in PNG gets the attention it deserves to grow and boost the economy. “It’s never too late. It's better to do it now. I've taken the initiative to do it. I thank the government, Prime Minister Hon. James Marape and the Cabinet for agreeing with me that we need to sort out this industry and set it on a growth path,” he said. “The oil palm industry is the most important agricultural sector in PNG, yet it lacks a proper regulatory framework. We need policies that protect our landowners and ensure that foreign investors do not exploit our resources while paying our people very little,” he added. MP Maru has declared 2025 as a pivotal year for his ministry, setting ambitious targets to drive economic growth, employment, and industry reform, particularly in the oil palm industry, vowing to “deliver as best as they can in the course of this year.” He underscored the need for tangible outcomes and directed ministry heads to meet specific targets that have not been achieved since PNG’s independence. Minister Maru cited Indonesia’s oil palm sector, which employs over four million people, as a model for PNG to follow. “One oil palm mill with 10,000 acres can create 5,000 jobs. The PNG LNG project only employs 3,500 people. We need to focus on industries that will create real employment for our young people,” he stressed. He made a strong call to action, saying that PNG has the potential to achieve economic independence. “I want to see the day when we no longer borrow money. I want to see the day when we have enough revenue to pay for our children’s education, maintain our universities, and develop our country,” the MP said. Minister Maru affirmed that the Marape government is committed to taking the necessary steps to reform the oil palm industry and drive economic growth, as his ministry is working with other departments, government regulators, and the Minister for Oil Palm Hon. Francis Galia Maneke in “ensuring a smooth flow of the investigation and implementation is done accordingly.” “The success of this industry will determine the future of our country. We are building an industry that will provide jobs, grow our economy, and secure our financial independence,” he said.

Prime Minister James Marape has announced a bold tax reform strategy aimed at fostering investment, increasing consumer spending, and driving local industry growth. The reforms will take effect once Papua New Guinea’s economy reaches a K150 billion milestone, a target expected to be achieved within the next three to four years. He announced this at the Back to Business Breakfast in Port Moresby today. The Prime Minister emphasised that these changes will create a business-friendly environment, ensuring that economic expansion benefits both investors and citizens. Prime Minister Marape outlined key tax initiatives that will come into effect once PNG reaches the K150 billion economic threshold: Lowering corporate tax to encourage business expansion and attract further investment. Reducing personal income tax to increase disposable income and boost domestic consumption. Implementing stricter capital outflow regulations to ensure funds are reinvested locally rather than leaving the country. “These tax reductions will create the conditions necessary for businesses to thrive, ensuring that investment remains in Papua New Guinea and continues to support employment, infrastructure, and industry growth,” said Prime Minister Marape. To further strengthen PNG’s economic position, the government is focusing on Special Economic Zones (SEZs), including a tax-free business hub in Manus Province, designed to attract regional trade, investment, and industrial development. “Our vision is to position Manus as a strategic trade hub, opening up new economic opportunities and fostering partnerships with businesses seeking to expand in the Asia-Pacific region,” said the Prime Minister. Prime Minister Marape also called upon leading business organisations, including the PNG Chamber of Commerce, the PNG Business Council, the Manufacturers Council, and the Chamber of Resources and Energy, to collaborate with the government in identifying growth opportunities and shaping investor-friendly policies. He highlighted import replacement and local manufacturing as key government priorities, urging multinational and domestic firms such as Trukai Industries and those in the food sector to invest in local production to reduce PNG’s dependence on imports. “With the right incentives, streamlined regulations, and stronger industry collaboration, we can transform PNG into a regional centre for manufacturing and downstream processing,” the Prime Minister added. The government is committed to: Reducing bureaucratic barriers to make investment easier and more efficient. Encouraging foreign and domestic businesses to scale their operations in PNG. Developing an industrial and manufacturing base to create jobs and reduce reliance on imports. “This is a defining moment for Papua New Guinea’s economy,” said Prime Minister Marape. “We are restructuring our fiscal policies to ensure PNG remains an attractive destination for investment while delivering tangible benefits for businesses, workers, and the wider population.” The Marape-Rosso Government remains focused on building a robust, sustainable economy that supports private sector growth, employment creation, and long-term prosperity for Papua New Guinea.

The Papua New Guinea Tourism Promotion Authority (TPA) and the Australian Government-funded Kokoda Initiative Partnership (KIP) have signed an MOA to boost tourism infrastructure and services along the Kokoda Track. The MOA, signed at Owens Corner on Tuesday 4 February, launches the “Kokoda Sanitation Project”. The Kokoda Sanitation Project is part of a broader effort to strengthen sustainable tourism development in Papua New Guinea. It will address inadequate and poor sanitation along the Kokoda Track, which have been longstanding challenges for both tourists and locals. TPA’s CEO Eric Mossman Uvovo said that the primary objective of the MOA is to strengthen tourism development along the Kokoda Track. "This partnership marks a significant step forward in our efforts to not only preserve the historical importance of the Kokoda Track, but to enhance the visitor experience by improving facilities and services," said Uvovo. Uvovo also emphasized the importance of upgrading campsite facilities and improving working conditions for porters. "The Kokoda Track is a national treasure. By improving the amenities and ensuring that local operators are better equipped to serve tourists, we are ensuring that the benefits of tourism reach the communities directly involved. Local communities are at the heart of our tourism industry. This partnership ensures that they will directly benefit from the development projects along the trail,” said Uvovo. The MOA will be in effect until 2026, with between three and five major projects planned for implementation. Success will be measured by the timely delivery of projects, the positive impact on local trekking facilities, and the subsequent benefits to the communities involved. The core focus of this partnership is the promotion of sustainable tourism development and the utilization of local resources and knowledge. The TPA, with the support of KIP, aims to enhance the tourism infrastructure along the Kokoda Track while preserving its cultural and historical significance. The partnership is expected to deliver many benefits, including improved services and facilities, which will enable local businesses to charge higher campsite fees and increase revenue for the communities along the Track. Future capacity-building initiatives for local tourism operators and associations will strengthen the Kokoda trekking industry, making it more competitive and sustainable, while environmentally, the introduction of upgraded sanitation services will support a healthier and safer environment for both locals and visitors. Daniel Wells, Counsellor for Kokoda and Bougainville at the Australian High Commission, emphasized the significance of the Kokoda Track to the Australia-Papua New Guinea bilateral relationship. “The Kokoda Track remains one of the most important people-to-people links between PNG and Australia, with nearly 3,000 people, most of them Australian, walking the Track each year. This is an investment by Australia in PNG’s most important tourism asset. Australia, through the Kokoda Initiative Partnership, is proud to have invested in measurable improvements to livelihoods outcomes for Kokoda Track communities, including through sustainable tourism initiatives,” said Wells.

 Michael McWalter picks up his prior discussions of petroleum sector reform (Issue No. 3 2024) and describes in more detail exactly what a Production Sharing Contract, or what a PSC, is all about. In my commentary of PNG Business News, Issue 2, 2023 entitled: Petroleum Sector Reform for Papua New Guinea, I wrote about the need to apply better governance to the sector to achieve optimal outcomes for the State. In particular, I spoke of the need for the petroleum revenues arising from petroleum resource development to be deployed wisely for the benefit of the people of PNG on capital formation activities like: education, health, social welfare, infrastructure, etc. – all of which should promote the National economy to grow, and thus improve livelihoods.  This translation of the value of resources with appropriate management into sustainable development is often called the value chain, and each aspect of the chain needs most serious and competent management.   There is little point in mobilising one’s natural resources to make an income for the State, if that money is not put to good purpose, but rather wasted one way or another by folly or malady.  Those resources may only be produced once, and not again; they are finite and have value now at such time as that kind of resource is sought after in global markets. We must remember that there may come a day when oil and gas are no longer consumed with such avid demand as today. This might eventuate as more investments are poured into the development of renewables sources of energy and advancements are made with cleaner nuclear fission and sustainable thermonuclear fusion. Oil and gas might become a quixotic, antiquated and outmoded source of energy, and thus attract considerably less value.  So, if a government is going to foster investment in petroleum exploration and development, it needs to embrace such grave and important responsibility to ensure that the Nation’s petroleum business is conducted most professionally and with total accountability. Government must ensure that the resultant revenues from subsequent production are appropriate, reasonable and respected as being derived from the overall patrimony of the people of the Nation.  This requires investment by the State in professional excellence to manage, moderate, administrate and regulate the sector and its operations firmly and fairly.  The oft cited National Petroleum Authority (NPA), which was first defined in the Government’s 1976 White Paper on Petroleum Policy and Legislation by two of our greatest leaders, Sir Michael Somare and Sir Julius Chan, has been repeatedly conceived, only to be still born. Into that vacuum, Kumul Petroleum Holdings Ltd, PNG’s de facto National Oil Company (NOC) has steadily and bravely taken the lead and embraced National development in the oil and gas sector, and all that it entails. Meantime, the Department of Petroleum and Energy has valiantly tried to keep up with ever increasing core and essential petroleum sector functions, like licensing, operational approvals, and data collection, whilst otherwise becoming absorbed, and perhaps overwhelmed, in the peripheral though, absolutely essential tasks of dealing with project area landowners, their benefit claims and their many other concerns and worries. Plans for a NPA have been formulated in great detail several times over in the last few decades, only to be forsaken, lost, sidestepped, and derailed time and time again. The whole notion of the NPA was to bring together a cadre of PNG excellence to lead the petroleum sector as the guardian of PNG’s petroleum resources. The members of that cadre were to have been well-paid for their experience and important responsibility, and as an Authority of the Government, the NPA might have been able to retain and attract some of PNG’s finest graduates in such exciting and challenging work.   I also discussed the vital need for the commerciality of petroleum developments without which investment by the industry in field development would be withheld.  I discussed how the 2020 amendments to the Oil and Gas Act imposed a test on a proposed petroleum development project that the applicant’s proposals should reflect a minimum expected return to the State over the life of any recovery of petroleum. However, that minimum expected return to the State is not specified in law and is only examined and determined by the Petroleum Advisory Board (PAB), and then considered by the Minister at the time of application for a development licence.  This leaves investors with great uncertainty and unnecessary risk throughout the period of exploration, appraisal, development planning and the application phase of petroleum resource development.  There is thus now no absolute certainty of development if a discovery of commercial extent is made. Either the PAB or the Minister may set a threshold minimum expected return to the State during the consideration of an application for development. This is at a very late stage in the cycle of petroleum resource development investment and comes just before the investing companies have to elect to develop their discovered petroleum accumulation, or not. If a field development is marginally economic, the setting of such a minimum expected return to the State might in some circumstances make corporate consideration of development uncommercial, and as a consequence the field might be left undeveloped. In any normal distribution of petroleum accumulations, there are a few large fields, a fair number of medium size fields and many smaller fields. It would not be wise to disadvantage the development of smaller and often smaller marginally economic fields, which tend to be developed after the larger fields have been found and produced, and which can readily sustain a domestic petroleum industry populated by smaller, and likely, local companies with smaller investments.  Oddly, as I said in 2023, the potential introduction of Production Sharing Contracts (PSCs) would obviate such a risky situation because the terms of development are normally locked into a PSC when originally negotiated and agreed between the State and the investing companies as contractors to the State at the outset. Being a contract, any capricious demand by the State for unexpected returns on petroleum development pursuant to a PSC would end up with the contract being the substance of legal proceedings.  I now want to pick up on my themes of a year ago and discuss optimal and necessary arrangements for petroleum development in the light of some creeping petroleum policy change in recent years, and a keen desire by the Government to change the PNG petroleum regime and to adopt the use of PSCs. I particularly wish to demystify PSCs. Figure 2: Much has been written on PSCs. Celebrated analyst, Daniel Johnston, is prominent with his simplified mapping of fiscal and commercial regimes. King & Spalding, an American multinational corporate law firm, has also written a most comprehensive book on the topic, ex libris McWalter.   WHAT ARE PRODUCTION SHARING CONTRACTS?   The notion of a Government sharing the production of oil and gas arising from the development of a successful petroleum exploration campaign by companies as part of a commercial venture was first developed and employed in Bolivia in the 1950s. A Production Sharing Contract (PSC) is an arrangement between a host Government and an international oil and gas company (IOC) for the division and allocation of the oil and gas produced between those two parties under a contract which provides for the exploration for and the development and production of petroleum resources. The allocation of a share of the production to the IOC serves to recompense the IOC for its investment and to provide a reasonable reward for its success. The Government, as owner of the resources, also provides a mechanism called a cost recovery allowance to the contractor for its work, but keeps the rest of the petroleum produced. The PSC was introduced in Indonesia in 1966, and PSCs of this kind or variants of the same are used extensively to agree the arrangements for oil and gas exploration, development, and production with oil and gas companies. PSCs of one kind or another are used in over 40 countries, throughout the world.   The PSC is not the only manner by which a government may grant oil and gas exploration, development and production rights to commercial investors and gain a share in the value of successful petroleum production.  Prior to the development of the PSC, exploration and production of oil and gas was typically governed by way of a licence or a concession agreement, and such regimes still remain in effect in many different places around the world. In many developing nations, the PSC is now the most common means by which a government allows corporate investment in the oil and gas industry. It provides a company or consortium of companies the right to explore and produce oil and gas.  In many jurisdictions, there are political or nationalistic reasons for the adoption of PSCs as they perceptibly provide the Government with greater and more direct control over its resources and the ability to exert National sovereignty over the industry more readily.   After gaining independence in 1945, Indonesian’s concessions regime came under attack by certain nationalist groups leading to the nationalisation of Royal Dutch Shell’s assets. Indonesian Law 44/60 abolished the old concessionary system and specified that: “Oil and gas mining shall only be carried out by the State and implemented by State enterprises,” and further that, “the Minister may appoint other parties as contractors of the State enterprises.” Alas, a decline in foreign investment in Indonesia’s oil and gas sector inevitably ensued. To mitigate this decline, the government eventually negotiated and agreed in 1962 with the Pan American Indonesia Oil Corporation, a subsidiary of Standard Oil of Indiana (later to become Amoco), a new contract based on legislation that was much more favourable to the Government.  The other large foreign petroleum investors, Caltex (a venture of Chevron and Texaco), Shell, and Stanvac (a venture of Socony [Standard Oil of New York] and Vacuum Oil and Standard Oil of New Jersey, later to become Exxon) followed by signing Contracts of Work in September 1963. These early PSCs were widely considered to be less controversial than the previous concessions system, as they enabled the government to maintain formal ownership of the resources until sold, while permitting the IOCs to exploit them for and on behalf of the Government. These contracts provided for the recovery of the costs of the contractor up to an agreed percentage of overall production plus an agreed, but often scaled, share of the produced oil and gas as a reward for its investment. Although often cited as the example of the use of PSCs, in 2017, in a somewhat odd twist, the Indonesian Government established a new form of PSC called the Gross Split PSC. This completely abolished cost recovery systems pioneered in the classic PSCs of the 1960s. Instead, this new arrangement simply relies on an agreed split of the actual production between the Government and the IOCs, typically 43% to the contractor for oil and 48% to the contractor for gas production, with the balance of production going to the Government. Due to a loss of faith in Pertamina (Indonesia’s national oil company) in the late 1990s (an audit had shown that Pertamina had allegedly lost about US$6.1 billion from inefficiency and corruption in 1997 and 1998) the Indonesian Government took steps to rein in control of the industry at the Ministry level, but they had no financial ability to manage the proceeds of the sale of oil and gas which were remitted to the revenue account of the National government.  Without any retained funds, this then entailed the Ministry having to seek parliamentary appropriations to pay the cost recovery allowances to the IOCs, but then the Indonesian Parliament questioned these payments. This brings home the need to think through the implications of changes in regime and the management of any given regime, especially if one is contemplating changing from a licence or concessionary regime to a contractor-based one. What is a PSC? In a PSC, a government makes a contract with an IOC to provide the necessary and requisite financial, technical, management, environmental, social, planning and logistical skills in order to explore for, and hopefully, if successful in finding oil and gas accumulations, to produce the oil and gas. The host State (that throughout most of the world, normally owns the subterranean resources) will usually be represented by the Government or a Government Petroleum Ministry, Department, Authority or quite often some other type of agency of the State, such as its National Oil Company (NOC), which will take delivery of the State’s share of production and generally manage the commercial aspects of the PSC. The IOC is typically granted an exclusive time-limited right to explore for petroleum accumulations, appraise any discovery, plan and execute development and produce oil and gas within a defined area, generally known as the contract area. Under the PSC arrangement, the IOC bears the entire risk of the project, both technical and financial. If a commercial discovery is declared, the IOC becomes entitled to a portion of any subsequent petroleum produced as an effective payment for its efforts, in addition to recouping all its costs from the production. Conversely, if no discoveries are made, the IOC receives nothing. The Government retains ownership of all the oil and gas produced, save for what oil and gas is allocated to the IOC as cost recovery petroleum, or is the subject of sharing between the IOC and the NOC as profit petroleum. This causes the Government to be involved in selling its share of the produced oil and gas.  In some jurisdictions, the IOC is allowed to keep the physical oil for itself, and the IOC makes just cash payments only to the NOC, based on the sale of the NOC’s petroleum entitlements; in others, physical oil and gas allocations are used to reward the IOC. The extent to which the NOC is involved with the exploration, development and production process varies from country to country with some NOCs seeking to take a significant lead in the business other than a just managing the PSC, whilst other NOCs take only a small participating interest in the commercial venture, so as to be within the operating consortium and to learn from it. There are commonly four key financial aspects to a PSC: royalty, cost recovery petroleum, and profit petroleum, though many other relevant matters are agreed in the PSC. Figure 3: Contents of a PSC: A sample from Equatorial Guinea, after the Republic of Equatorial Guinea, 2006    Royalty Most often and foremost, the IOC is typically expected to pay a prescribed or agreed royalty as a percentage of the gross value of oil and gas production to the State as valued at the point of export from the contract area. The royalty is often, at the State’s option, taken as a physical share of production, or alternatively by way of a payment by the IOC equivalent to the sale price of the State’s royalty share of production. Sometimes, the percentage rate of royalty may be the subject of bids for a contract area by competing oil and gas companies when bidding for the same or similar areas.  Royalty is a payment made in kind or related to produced volumes and price without regard to the profitability of the business. Therefore, in times of low petroleum commodity prices it has the effect of digging deep into profitability.  However, for a host Government, royalty is an assured payment regardless of profitability, but proportionate to the value of the produced oil and gas. Cost Recovery Petroleum Following payment of any royalty, the IOC is normally entitled to a pre-determined maximum percentage of gross production from which it may recover all its genuine costs, with any costs not recovered being carried forward to the next accounting year. Such production is known as cost oil and cost gas, and again may be taken in cash or kind. Obviously, the IOC attempts to maximise cost recovery early in the cycle of production up to the agreed maximum percentage limit, so as to recoup its expenses soonest, and likewise the Government will scrutinise the costs submitted to it for recovery as to their genuine eligibility. That scrutiny involves approval of all procurements and sub-contracts of the IOC, and represents an enormous accounting burden for the Government.   Profit Oil The oil and gas remaining after the payment of royalty to the Government and the cost recovery allowance to the IOC by the host Government is known as profit oil and profit gas, and it is generally divided between the IOC and the Government in accordance with the production sharing provisions agreed and defined in the PSC. Quite often the Government’s share of profit oil and profit gas increases as the production rates increase. Income tax Finally, the IOC is quite often required to pay income tax on its share of net benefits which should strictly amount only to profit oil, as cost oil and cost gas represent only a recoupment and recovery of costs. However, the application of income tax varies from jurisdiction to jurisdiction and in some cases the IOC’s notional income tax due is often paid by the NOC, or the State on behalf of the IOC, such that there is no financial impact on the IOC, there being just a journal entry between different parts of the Government. An income tax superposed on the PSC regime without appropriate tax deductions can rapidly make a fair PSC regime become a very hostile one.  In the calculation of the net take to the State under a PSC, one has to include the results of any Corporate Income Tax and all and any other taxes, levies or imposts that affect the outcome of the overall PSC.  In some PSCs, there is simply no tax, and the royalty, cost oil and gas, and production share are deemed to be final fiscal devices. Figure 4: It must be noted that the production or profit oil split is not the same as the overall net take to each party, after Daniel Johnston in International Petroleum Fiscal Regimes and Production Sharing Contracts      Government Involvement The objectives of the parties when negotiating a PSC and its terms will generally be diametrically opposed.  An IOC will strive to negotiate for itself as much independence and control as possible over operations, and it will want any State intervention in the running of the project to be kept to a minimum. Naturally, it will be keen to keep its costs low, by negotiating the highest cost recovery allowance and the largest production share it can, and it will seek the full recovery of all its costs. The Government will wish to have an overall say in the development of its resources in an orderly and systematic manner that creates synergies for future development. The Government will also wish to make as much money as possible, reduce cost recovery allowances, and have access to an IOC’s resources and relevant expertise, without spending much time and money. The Government may also have economic priorities for domestic petroleum supply to its economy to mitigate energy import requirements and obviate foreign exchange requirements. Throughout the contract from exploration to development to production, the Government will want to ensure that the IOC is undertaking a technically appropriate exploration work programme with appropriate levels of investment and that the exclusive right to access land or the offshore area is being used efficiently. In addition, the Government will typically be concerned to secure as many rights and benefits for the people and local businesses, including affected local communities, as possible.  This is generally accomplished by the optimisation of jobs and training for local workers through requirements to use local goods, services and contractor and subcontractor services as far is feasible and practical – this is what is typically called local content. Figure 5: The main elements of a PSC, after Hassan Harraz, Tanta University, Egypt, 20106   Why the PSC Model? The obvious advantage of the PSC model for a government is the minimal risk on its part throughout the value chain of the enterprise. It is thus able to reap the benefits of its natural resources without having to spend its own time and money even for development. This is not to say that the State does not pay. It inevitably pays for its share of all and any costs of exploration, development and production through the cost recovery process payable to the Contractor. In most cases, the Government will not have the technology needed to explore for and produce oil and gas, and so contracting the help of an IOC that has the appropriate skills, capacities and technology is usually necessary in order for the Government to exploit its natural resources optimally, especially in the offshore areas. The same is, however, also true for licence and concessionary arrangements where even if the host Government has an equity option to take up a participating interest in a petroleum development project it will still pay for at least its pro rata percentage share of sunk and past exploration, appraisal and development planning costs up to the point of the establishment of facilities for development and the commencement of the recovery of the petroleum. As and when exploration proves to be successful, the Government can secure long-term supplies and/or exports of oil and gas in a PSC regime, which it can trade as it sees fit. The long-term nature of a PSC enables the Government to predict future levels of oil and gas for domestic use, export and to make provisions in the national budget accordingly. Alternatively, the PSC model can be most lucrative for the State, if it takes the option of taking its share of production as a cash payment, rather than in kind. It is also very common for PSCs to contain provisions that as the production rate increases, the proportion of the production attributable to the Government may also increase, meaning that a significant and increasing proportion of the value of profit oil is paid to the host Government and its representative entity defined in the PSC. In all cases, at the initial stage of petroleum resource development, the IOC bears substantially all the financial risk. If, and only if, exploration proves successful and the discovered oil and/or gas accumulations are developed and produced, the IOC may be able to recover its costs through cost oil and/or cost gas and an agreed share in the profits of the remaining quantity of oil and gas. As to whether the PSC model is more favourable to the State than to IOCs in contrast to the licence or concessionary system, ultimately depends on the rates used for the various fiscal and commercial parameters in each system. In a concessionary regime, costs are only recovered slowly as depreciation allowances against assessable income. The speed of the recovery of costs depends entirely on the terms set by law and those allowed to be negotiated in the framework of a PSC. It may or may not be possible for an IOC to negotiate the terms of a PSC with more, or less financially and commercially attractive terms for petroleum development than a licence or concession arrangement might otherwise have offered under a prior regime. It is all about the terms of the selected regime, whichever is applied. Figure 6: Some terms of the petroleum regime may still be contained in legislation whilst others will be negotiable depending on the particular regime, after Daniel Johnston in International Petroleum Fiscal Regime and Production Sharing Contracts.     One possible negative aspect of the PSC model is that it is an agreed and contractual arrangement, and not the product of binding and enforceable legislation. Thus, any breach of the PSC by either party will constitute a breach of contract for which civil relief may be obtained.  Pursuant to the PSC model, the State always remains the owner of the resources, with the contract establishing the applicable compensation arrangements and level of NOC or Government involvement in the asset. The negotiation of a PSC is up front before any investment is made in exploration by the IOC, so the terms are locked in.  PSCs tend to afford IOCs less freedom to run an asset, with Contractors being subject to restrictions and required approvals in addition to those contained in the applicable legislation and regulation. Commonly Used Alternatives to the PSC There are several substantial alternatives to the PSC model. The differences in these alternatives are mainly in relation to the level of control granted to the IOC, the level of involvement of the NOC, and the compensatory arrangements for the investment made. Licences Generally, under a licence arrangement, there is normally little scope for an IOC to negotiate specific fiscal or commercial terms in relation to its exploration and production rights. Licensing regimes and their terms and conditions are typically standardised and embedded in legislation, such that the terms of each licence are near identical. This regime is most common in developed countries, e.g. UK, Norway, the Netherlands, and Australia. The terms of licences may change from time to time as the Government seeks to restrain or encourage sector investment.  The IOC is typically granted complete control over the contract area and complete ownership over any oil and gas that it successfully produces. Unlike PSCs, where ownership of the resources always remains with the State, in licence regimes ownership generally passes to the IOC at the wellhead, with the IOC’s profits from the sale of the oil and gas produced being the subject to general tax legislation, or specific petroleum taxation legislation. Like in PSCs, if the IOC fails to find commercially producible oil and gas within the limited terms and periods of their licence, they go home empty handed.  In some jurisdictions, the Government has an entitlement to join in at the development stage when the risks of finding oil or gas have been mitigated and it may either chose to pay its proportionate share of costs of exploration and development and participate alongside the IOCs, or be carried in some form or another. This can be a very profitable feature for the Government, but it essentially takes a slice of the venture away from the IOC venture at the proportionate sunk costs only, without any regard or compensation for the commercial value of any oil and gas discovered by the IOC. Concessions A concession arrangement is generally subject to a greater level of negotiation than a licence. The IOC is typically granted proprietary rights over the contract area and complete ownership over any oil and gas that it successfully produces, subject to the payment of a royalty and income tax, each of which may vary in rate depending on the level of production as negotiated and agreed. There may be specific taxes like the Additional Profits Tax (APT) which progressively applies further amounts of tax, the greater the rate of return of the production project. In some jurisdictions, licences have become more concession-like as the terms and conditions of the licences have increasingly become the subject of Agreements with the Government defining those agreed terms which are supplementary to or adjust the current and applicable legislation as sought by and agreed by both the Government and/or the IOCs. Service Contracts Under a service contract, the IOC provides its technical services to the State to explore and develop oil and gas resources, and therefore in so many ways, it is similar to a PSC. However, remuneration to the IOC is usually by way of a service fee or payments based on the value of oil produced in US$ per barrel for oil and other hydrocarbon liquids, or per million British Thermal Units (BTU) of energy for natural gas. The term of a service contract is often very short, leaving an IOC with considerable risk and no guarantee of a long production period Services contracts are common in Iran, Iraq and Kuwait and have also been used from time to time in Indonesia and the Philippines. The Overall Picture By and large, about half the world’s petroleum prospective Nations use licence/concessional systems and about half use PSC arrangements, though many of each of these are strictly hybrids involving features of one regime and the other. No particular petroleum regime is superior to any other and much depends on the degree to which the host Nation wishes to promote or reduce exploration investment according to the terms applied. Sometimes, the IOC will tolerate a slightly tougher regime, if they know that it will be stable and well-implemented in a professional and organised manner. Good subsurface prospectivity and a consequent high chance of finding accumulations of oil and gas can often be spoilt by self-imposed surface risks. Factors that may induce surface risk are Governments that: successively make petroleum regime changes, politically drive or make unqualified determination of fiscal and commercial terms without regard to the ultimate take to each party in the case of success, and the poor governance of the sector in general leading to untimely and late decision making. Indeed, a good regime whether it be a PSC-type or a licence/concessional one, will depend on the enforcement of its terms and conditions and the values agreed for those terms and conditions that determine economic outcomes.  The great difference between PSCs and other arrangements is that PSCs keep control over the produced oil and gas and its sale and disposal with the State, whereas licences and concessions leave such matters and the fate of the industry more to the will and imperatives of the corporates.  The intrinsic control of a contractor by the NOC under a PSC means the Government has to be better equipped, more efficient and more knowledgeable to operate such a regime than under a licence or concessionary regime. The State or its representative (usually its NOC) needs to make the PSC work in its favour as it is the manager of the entire enterprise and needs to lead the way. Any failure to step up to such challenges will result in a poorly planned development of the industry with delays, unrealised synergies leading to lost production, and overall loss of value from the resources. No matter what regime is applied to the development of petroleum resources, there is no doubt that resolute and appropriate petroleum policy formulation and firm and fair administration of the sector will pay dividends for any host Government willing to invest in such. The definition of a petroleum regime is not a new game; it has been done many times across the world by many Governments and there is very sound collective advice on the subject which is relatively inexpensive to access compared to the enormity of the task and the value of managing a Nation’s petroleum resources optimally. Figure 7: The IMF has some excellent specialists in its Fiscal Affairs Department who advise Governments on resource regimes and it has often commissioned books and studies on such matters as in the excellent handbook on Administering Fiscal Regimes for Resource Industries by Jack Calder, formerly of the Oil Taxation Office of the UK, ex libris McWalter.    

Conveniently located in the central business area, the new premise will enable Swire Shipping to be closer to its customers, partners and the community Swire Shipping has announced its move to a new office location in the central business area, at Gordons Business Centre, commemorating this milestone with a celebration attended by over 70 guests comprising of key customers, business partners and suppliers. The move to a new, enhanced office space demonstrates Swire Shipping’s commitment to the Papua New Guinea (PNG) market in the long-term. In addition, the new premise is strategically located in the proximity of local businesses, enabling Swire Shipping to be closer to its customers, partners and the community. Guests were welcomed with a traditional dance performance. Swire Shipping’s Chief Executive Officer, Jeremy Sutton and Chief Commercial Officer, Randy Selvaratnam commemorated the official opening of the new office with a ribbon-cutting ceremony. Opening the event, Jeremy underlined Swire Shipping’s commitment to the South Pacific region. “Swire Shipping has been in business in the Asia-Pacific for over 150 years,” he said. “Over the years, we have established ourselves as a leading shipping company in the Asia-Pacific, with a reputation for safety, integrity, and reliability. This has been made possible by our dedicated teams on the ground, and a relentless focus on service and reliability that resonates with our customers. “In the South Pacific, today Swire Shipping has over 20 offices strategically located throughout the region. We expanded our presence over the years to provide even better support to our customers and the communities here. Most recently, in 2022, we opened a new branch office in Tonga,” he added. “Our teams on the ground have worked tirelessly to create better experiences for our customers by offering fixed-day weekly and fortnightly on-time services. Through these efforts, we are delighted to be the most reliable carrier on the trade lanes between Asia and Oceania in 2024, according to SeaIntelligence. We look forward to building stronger relationships and creating lasting value for our customers and all whom we work with.” Expanding on the significance of the PNG market, Country Manager – PNG, Isabel Maguire said, “Swire Shipping has deep roots in PNG; we have been shipping into and out of the country for more than 80 years. Today, we have nine offices in PNG, having opened our latest in Wewak in 2023. Throughout the years, we have built a strong reputation in PNG as a consistent and dependable company that prioritises safety and sustainability, and cares about its people, its partners and the local communities. We have lasting relationships with many customers and partners here. PNG is an important market for us, and we look forward to growing our business here, leveraging our presence on the ground to enable our people, customers and partners to succeed. Guests were taken on a tour of the new office. One of the highlights of the new workspace is the addition of improved collaboration areas and breakout spaces, designed to encourage interaction between teams and provide room for brainstorming and idea generation. Workstations are also equipped with ergonomic furniture to enhance employee wellbeing and safety. “People are our greatest assets,” explained Isabel. “By providing a conducive environment and opportunities for collaboration and improved communication between teams, we want to make work more efficient and productive for our people. This in turn will enable us to shorten turnaround times for customer requests and thus help to save our customers’ time. “We look forward to creating even better experiences for our customers and nurturing a collaborative and inclusive work environment for our people out of the new office.” The celebration concluded with mingling over canapes and drinks.

The Papua New Guinea Chamber of Resources and Energy (PNG CORE) is proud to announce its Highly Commended Recognition in the Best Use of Technology (500+ category) at the 2024 EventsAir Innovation Awards. This year’s awards saw a record number of high-quality submissions, making the judging process highly competitive. Despite the strong field, PNG CORE stood out for its exceptional use of the EventsAir platform, which has greatly enhanced event management and engagement across its operations. “We are grateful to receive this recognition,” said Mrs. Pansy Taueni-Sialis, Chief Operating Officer of PNG CORE. “This award highlights our commitment to leveraging technology to connect stakeholders and in streamlining our operations. The events Air platform has been integral in delivering more efficient, engaging, and impactful events that drive growth and innovation in Papua New Guinea’s mining, oil and gas sectors.” “The platform has played an enabling role in organizing and managing successful conferences, workshops, and seminars, enhancing communication, data management, and real-time engagement for more dynamic events.” “We thank the Innovation Awards organizers, our dedicated team led by Manager Events Sheryl Peter, and partners who continue to drive our digital transformation,” Taueni-Sialis added. “This recognition encourages us to keep adopting new technologies to strengthen the resources and energy sectors and contribute to the sustainable development of Papua New Guinea.” “PNG CORE remains committed to advancing the industry and promoting innovation and collaboration in the nation’s resources and energy sectors.”