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Papua New Guinea is now part of the prestigious global engineering community, as the country has officially been voted in as a new member of the International Tunnelling and Underground Space Association (ITA) during the recent World Tunnel Congress held in Sweden. Representatives from 80 countries gathered at the congress, where 46 voted in favor of PNG’s inclusion. Papua New Guinea joining the 50-year-old organization ushers in a new chapter for national development in tunnelling and underground infrastructure, both critical to the mining and petroleum industries that power most of its economy. The announcement comes as PNG rolls out infrastructure initiatives under the Connect PNG Programme, including the development of railway systems that will require advanced tunnelling through mountainous regions. Joining the ITA connects PNG to a network of international expertise in underground construction, safety protocols, and engineering innovation, crucial elements for the successful delivery of complex projects. "This membership is not just a win for PNG—it is a strategic step towards embracing global engineering standards and preparing our nation for the next 50 years of advanced transport infrastructure,” the PNG delegation said in a statement. The ITA guides member nations on best practices in underground construction, safety, and innovation in the tunnelling and railway sectors. The association extended congratulations to the team behind the Connect PNG Programme and “all stakeholders who helped bring Papua New Guinea into this prestigious global engineering community.” From 9 to 15 May, Stockholmsmässan was the ITA’s platform for the future of underground infrastructure. More than 3,000 experts from around 80 countries gathered at the world-leading congress and exhibition. The World Tunnel Congress (WTC) is an annual international congress and exhibition. For the first time, Sweden hosted the event, which was organised by the Swedish Rock Engineering Association with support from the ITA. “The World Tunnel Congress is a strategically important event that reinforces Stockholm’s position as a leading city for sustainable infrastructure and technological innovation,” says Karin Mäntymäki, Head of International Market Development at Stockholm Business Region.

Great Pacific Gold Corp.is providing an update on its exploration activities at the Wild Dog Project (“Wild Dog” or the “Project”), located on the island of New Britain, in the province of East New Britain, Papua New Guinea (“PNG”), Figure 1. Key Highlights: Dual purpose RC/Diamond drill arrived in late April and drilling has commenced. Phase I drilling program focused on a 3km length of the Wild Dog epithermal vein structure (Figure 2) now consists of up to 16 diamond drill holes, totaling approximately 2,500 meters of diamond drilling. A MobileMT survey geophysics helicopter-borne survey was flown by GPAC over 187km2 area (1,646 line-km) across the Wild Dog Project with 200-meter line spacing, infilled to 100-meter spacing in critical areas. The survey highlighted the Wild Dog epithermal vein structure over approximately 15km of strike length and a number of porphyry targets (Figure 3). Preliminary geophysics over planned Phase I drill program areas of Sinivit and Kavasuki shows known mineralized systems near surface extend to depths of >1,000m (Figure 4). “We are extremely pleased to begin drilling at our flag-ship Wild Dog Project after months of preparation including road refurbishment, environmental base line studies, camp and infrastructure establishment, geophysical surveys and community consultations,” commented Greg McCunn, CEO. “The geophysics has confirmed the tremendous potential of the epithermal vein system over a 15km strike length with depth potential to over 1,000 meters. This marks the first modern, systematic drill campaign at Wild Dog in over a decade and provides a rare opportunity to unlock the deeper potential of a proven high-grade system in a Tier 1 geological belt.” Wild Dog MobileMT Geophysics Survey A MobileMT geophysics helicopter-borne survey was flown by GPAC over 187km2 area (1,646 line-km) across the Wild Dog Project with 200-meter line spacing, infilled to 100-meter spacing in critical areas. The completion of the air-borne geophysical MobileMT survey is a critical step in advancing the Company’s understanding of the structural and lithological architecture controlling high-grade gold and copper mineralisation throughout the Wild Dog structural corridor. Originally the corridor was thought to be approximately 11km in length as mapped on surface, but the apparent conductivity trend over the epithermal vein structure extends for ~15km (Figure 2). Wild Dog is a hybrid high and low sulphidation epithermal gold-telluride system, with brecciated and vuggy silica veins hosted in Miocene andesitic volcaniclastics. The Project hosts several advanced high-sulphidation and low-sulphidation epithermal gold-copper targets, including the previously mined Sinivit deposit and the Kavasuki vein system. In addition, porphyry Cu-Au targets at Magiabe and Mt Regess have now been confirmed as high priority targets through the MobileMT survey. Phase I Drill Program Zenex Drilling has been contracted to provide equipment and drilling services to Wild Dog. A dual purpose (RC-Diamond) rig was mobilized to site in late April and has begun drilling in the Sinivit target area with hole WDG-01. The drill pads for the first eight holes have been fully constructed and drill ready. The first few holes will be targeting the sulphide mineralization below the historic oxide mining pits, near surface with open-pit potential. Historic drilling indicates a mineralized structure 6-10 meters in width, 15-20 meters below surface. The Phase I program, running from May through August, 2025, consists of 16 diamond drill holes for a total target of 2,500 meters. Samples from drilling will be transported to the Intertek Lab in Lae for processing. The Company expects to release ongoing drill results as they are received. “Following years of under-exploration at Wild Dog, GPAC’s 2025 campaign is planned to be the first modern program to systematically test the full vertical and lateral extent of this system,” said Callum Spink, VP Exploration. “Wild Dog is a rare opportunity: a historic high-grade gold producer in a proven belt, now being tested with modern techniques and deep geophysics for the first time.”   The official press release and figures can be found HERE

ExxonMobil recently appointed Dinesh Sivasamboo as its new Chairman and Managing Director of ExxonMobil PNG Limited. This appointment will be Sivasamboo’s second leadership position with ExxonMobil PNG Limited, having previously served in PNG from 2016 to 2019 as its Vice President for Production. Sivasamboo has held numerous, global senior leadership positions over the course of his 30-year career at ExxonMobil. Most recently, he held the position of Chairman and President of ExxonMobil Exploration and Production Malaysia Inc. Prior to that role, he was the President and Managing Director of ExxonMobil Kazakhstan Inc., and held positions in Qatar and the United States. “I am honored to be returning to PNG as Chairman and Managing Director of ExxonMobil PNG Limited. The PNG LNG Project has – through the strength of its partnerships – achieved so much during its first decade,” said Sivasamboo. “I look forward to both leading it into its second decade, as well as building upon its success to help deliver the next phase of LNG projects for this country.” Sivasamboo becomes the company’s fifth Chairman and Managing Director, joining an esteemed list that includes his immediate predecessor, Tera Shandro, as well as Peter Larden, Andrew Barry and Peter Graham.

Prime Minister Hon. James Marape has announced a key Cabinet reshuffle, following the swearing-in of Hon. Peter Isoaimo, Member for Kairuku, as the new Minister for Energy. Minister Isoaimo replaces Kerema MP Hon. Thomas Opa, who has been appointed as Minister for Finance, while outgoing Finance Minister Hon. Miki Kaeok retains his Transport portfolio. Prime Minister Marape thanked Minister Kaeok for his tenure at Finance Speaking after the swearing-in ceremony at Government House, Prime Minister Marape praised Mr Isoaimo as a seasoned leader and dedicated member of the government coalition, noting his long political service since entering the National Parliament in the 9th Parliament through a by-election and his earlier years in the Central Provincial Assembly. “Minister Isoaimo has been a loyal and humble servant of this government,” Prime Minister Marape said. “He brings with him a wealth of experience, having previously served as Vice Minister for Works and Highways, and has consistently demonstrated patience, loyalty, and sincerity—qualities we value as we build the next generation of Papua New Guinean leadership.” Mr Isoaimo’s appointment also restores Cabinet representation for Central Province following the departure of Hon. Walter Schnaubelt, National Alliance Party leader, who moved to serve as Governor of New Ireland Province. PM Marape acknowledged the continued partnership with the National Alliance Party, a coalition partner of Pangu Pati since 2019. “We are keeping faith with the coalition arrangement. This was not just about politics—it was the right choice based on experience, region, and merit,” said PM Marape. The Prime Minister emphasised the growing importance of Central Province in the national energy and development agenda, pointing to strategic projects including Papua LNG, the Wildebeest gas fields, and the reopening of Tolukuma Gold Mine. He highlighted the underutilised agricultural land across Central and Gulf provinces as a major frontier for national development. “Minister Isoaimo’s Kairuku electorate lies between Port Moresby and Gulf, at the heart of emerging LNG, mining, and agricultural corridors. He is well placed to drive the energy portfolio in this critical time,” the Prime Minister added. On the reshuffle, PM Marape explained that the changes were part of a broader performance review aimed at enhancing service delivery ahead of the 2025 Budget and beyond. “All departments and ministers are under review,” PM Marape said. “This is about ensuring the right people are in the right portfolios as we head into our 50th anniversary and beyond. We’re doing this for the country—not for our districts or friends.” Incoming Finance Minister Hon. Thomas Opa was praised for his integrity and capability. Mr Marape, himself a former Finance Minister, urged him to maintain strict financial discipline and ensure that public funds are managed transparently and effectively. In his first remarks as Energy Minister, Hon. Peter Isoaimo thanked the Prime Minister and the coalition for his elevation. “I did not see this coming,” Mr Isoaimo said. “But I am humbled by the trust placed in me. I thank the National Alliance Party and Governor Walter Schnaubelt for their confidence, and I pledge to serve the government and our people to the best of my ability.” Minister Isoaimo reiterated his commitment to the Marape-Rosso Government and the national development agenda, expressing readiness to support the country’s energy ambitions. “God bless Papua New Guinea,” he said. “This is a proud moment for me and the people of Kairuku.”

In a decisive address at the National Agricultural Industry Public-Private Sector Partnership Conference recently, Prime Minister Hon. James Marape, MP, reaffirmed  the Government’s commitment to prioritizing agriculture as a cornerstone of national development. This pivotal gathering underscored the Government’s ongoing efforts to enhance agricultural productivity as a means of sustaining economic growth and improving the livelihoods of Papua New Guineans. Prime Minister Marape highlighted the significance of the agriculture sector, which has been strategically divided into four vital components: the main Agriculture Department, Coffee, Cocoa, and Oil Palm. This restructuring aims to refine focus and boost the productivity of these subsets, integral to the nation’s economic framework. “For four consecutive years, we have witnessed a growth of four percent in the non-resource sector,” PM Marape stated. “This growth is a testament to the effective harnessing of economic activity and productivity that sustains our people.” The Prime Minister also addressed graduates in attendance, urging them to leverage their education and communal resources to foster agribusiness initiatives. “With your wealth of knowledge gained from learning institutions, you can utilize your lands and collaborate with your tribal clansmen to drive business success. This is your opportunity to make a profound impact,” he said. PM Marape committed to taking the insights and outputs from the conference back to his office to form actionable strategies to further advance the agricultural sector. He referred to the Government’s price support program launched in 2020, and emphasized the critical need for an established policy mechanism, particularly in light of six years without a robust agricultural structure from the Agriculture Department. “How can we progress without an established policy mechanism?” he challenged. Despite the visible improvements in infrastructure, PM Marape expressed concern over lagging productivity levels. Encouraging the agricultural community, he implored stakeholders to take full advantage of recent legislative changes, including the new income tax act, which offers reductions in taxes and enhanced incentives and tariff measures. “The government is also establishing access to Asian markets, particularly China, and we are actively working with bilateral partners to enhance food security,” Marape added, highlighting the Administration’s efforts to integrate Papua New Guinea’s agricultural sector into the global market. In conclusion, the Prime Minister reiterated his belief in agriculture as a vital driver for the nation’s economic future and a key element in enhancing food security and community well-being. The government remains committed to supporting the agriculture sector and its stakeholders, with a focus on ensuring sustainable growth for generations to come.

On April 23, 2025, The Centre for Excellence in Financial Inclusion (CEFI) and the Papua New Guinea University of Technology (Unitech) formally signed a Memorandum of Understanding (MoU) to establish a Fintech Incubation Centre at Unitech’s campus in Lae. The new Fintech hub will play an important role in supporting the development and growth of financial technology startups. It will provide mentorship, funding, networking opportunities, and access to industry expertise. The initiative aims to foster innovation within the financial services sector by assisting entrepreneurs to refine their business models, develop products, and navigate regulatory requirements. Furthermore, the hub will facilitate collaboration between fintech startups, the Bank of Papua New Guinea’s regulatory sandbox, and established financial institutions, thereby promoting the integration of new technologies into traditional banking and finance systems. The overall objective is to accelerate the growth of fintech entrepreneurs and to enhance the broader ecosystem of financial payments and service systems, ultimately expanding financial inclusion across Papua New Guinea. Unitech Vice-Chancellor, Professor Ora Renagi OL, stated that “learning transforms living standards.” He emphasized that this initiative would empower young IT professionals to develop innovative solutions capable of enhancing a wide range of industries throughout the country. Professor Renagi further elaborated that the University’s focus on teaching and research, as well as its five-year strategic plan, identifies the establishment of centres for innovation and incubation as a priority. He described the partnership with CEFI to establish the Fintech Incubation Centre as both timely and supportive. CEFI Acting Executive Director, Mr Peter Samuel, reiterated CEFI’s commitment to advancing financial inclusion by embracing innovation and technology. He noted that the partnership would not only improve financial services but would also create opportunities for students to become self-employed and contribute meaningfully to economic development. Mr Samuel also highlighted that fintech solutions developed through the Centre would be tested in the Bank of Papua New Guinea’s regulatory sandbox prior to their broader market introduction, ensuring compliance, safety, and effectiveness. Following the MoU signing, attendees visited the proposed site for the Fintech Incubation Centre, marking a significant step towards realising this transformative vision. Supporting this initiative are the PNG ICT Cluster and the National Information and Communications Technology Authority (NICTA). Key stakeholders are eager to collaborate to bring transformative changes to the financial services landscape, ensuring that financial systems become more efficient, inclusive, and accessible to individuals in both urban and rural areas.

The Pacific Tourism Organisation (SPTO), in collaboration with the Papua New Guinea Tourism Promotion Authority (PNGTPA), has released PNG’s first Business Confidence Index (BCI) report this month. This report offers valuable insights into the country’s business outlook and tourism sector recovery, providing a crucial tool for evidence-based policymaking and enhanced private sector engagement. It also signals the start of a data-driven approach to tourism development and recovery in PNG. The findings are set to inform future planning, guide strategic investment, and support initiatives to strengthen businesses across the sector, the organizations said in a statement. The collaboration between SPTO and PNGTPA “shows a shared commitment to building an inclusive and dynamic tourism industry.” PNG is one of ten Pacific Island countries participating in the Pacific Tourism Data Initiative (PTDI), joining the Cook Islands, Niue, Kiribati, Samoa, Vanuatu, Tonga, Solomon Islands, Timor-Leste, and FSM-Yap. Funded by the New Zealand Government, the PTDI plays a pivotal role in reinforcing regional tourism strategies through high-quality data collection and research. The initiative encompasses several key surveys, including the bi-annual International Visitor Survey (IVS), the annual Business Confidence Index (BCI), and the annual Community Attitude Survey (CAS). The BCI survey was conducted over a four-month period from November 2024 to February 2025. It gathered 299 responses, of which 206 were deemed valid for analysis. The success of this nationwide effort is credited to the strong partnership between SPTO and PNGTPA, who worked collaboratively to engage businesses across all four of PNG's regions: Southern, Momase, Highlands, and Islands. SPTO Chief Executive Officer Christopher Cocker commended the partnership, stating: “This achievement reflects the strong leadership of PNGTPA.” “Their close connection with the local business community and focus on data-driven planning were key to collecting valuable insights that will help shape the future of tourism in Papua New Guinea.” The survey primarily targeted tourism-related businesses in line with its objective of gauging recovery and confidence within the sector. As a result, 62% of respondents were from tourism enterprises, while the remaining 38% represented diverse sectors such as real estate, healthcare, media, engineering, and events management. The survey revealed that 90% of the participating businesses were PNG-owned, underscoring the local ownership and involvement in the economy. Geographically, 52% of surveyed businesses were in the Southern region, with 25% each in the Momase and Islands regions, and 22% in the Highlands. Revenue data showed a wide range of business sizes and financial outputs. Large tourism businesses reported an average annual revenue of PGK 10.3 million, whereas micro-enterprises recorded average revenues of PGK 15,594. Expenditure analysis indicated that businesses allocated 33% of costs to labour, 37% to inventory, and 31% to other operating expenses. Importantly, nearly half (47%) of goods and services used by these businesses were sourced locally, with the remaining 53% imported. Despite facing a range of operational and economic challenges, many businesses expressed cautious optimism about the future. About 59% of respondents indicated that they were actively hiring, though constraints around workforce availability (40%), recruitment challenges (33%), and financial limitations (19%) were identified as key barriers. Broader systemic issues such as security concerns (21%), inadequate infrastructure (19%), and limited government support (10%) were also highlighted. In terms of growth potential, many businesses pointed to several opportunities: 19% cited growing visitor demand, 16% saw promise in strategic partnerships, 15% aimed to expand their operations, and 14% emphasized the need for stronger government support to facilitate growth. PNGTPA CEO Eric Mossman Uvovo welcomed the report and praised the collaborative effort behind it. “The BCI report is an important step forward in understanding the real-time challenges and opportunities our businesses face. We thank SPTO for its technical leadership and are proud to have partnered in this effort,” Uvovo said. “This collaboration reflects our shared commitment to shaping a resilient, inclusive, and data-driven tourism sector for PNG.” SPTO CEO Mr. Cocker said: “The Business Confidence Index is a key part of the New Zealand-funded Pacific Tourism Data Initiative, designed to capture local perspectives and guide tourism development that truly reflects community needs. “We sincerely thank NZMFAT for funding this important survey, the PNGTPA team for their strong collaboration, and the businesses that contributed their time and insights.”

 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.    

Ok Tedi Mining Limited (OTML) is pleased to announce the appointment of Ms. Ruth Waram to the position of Manager Media & Public Relations, reporting to the General Manager People & Culture. Ms Waram commenced work with Ok Tedi this week and is based at its Port Moresby Office. For the next three months, Ms Waram will initially focus on supporting the PNG Chamber of Resources and Energy Team to deliver on the Chamber’s PNG’s 50th Independence Anniversary Grand Exhibition. She brings to OTML over three decades of experience in journalism, corporate communications, media relations, and stakeholder engagement and most recently serving as Manager Communications & External Affairs with Newmont Corporation at their Lihir Operations. Her extensive background includes key senior roles with Oil Search Limited, where she led communications during major national events such as the 2018 APEC Leaders’ Summit, the 2018 Earthquake Relief effort in Southern Highlands, and the Rugby League World Cup. She began her career as a journalist with Times Newspaper and Post Courier, later progressing into leadership positions in the media and public relations field. Ruth’s strength in strategic communications, event management, and public image development has earned her national recognition, including multiple journalism awards and roles in high-level industry forums. Ms Waram also brings her passion for community service, including voluntary leadership roles experiences with the Business and Professional Women’s Club of Port Moresby and the PNG Orchids Women’s Rugby League Team. “We are pleased to have Ms Waram join Ok Tedi and we are looking forward to her contributions to this great company,’’ said Kevin Russell, General Manager People and Culture at OTML. “I am excited at this opportunity to join Ok Tedi Mining Limited, a very successful Papua New Guinea company, that is thriving in the mining sector, and I look forward to working with the team,’’ Ms Waram said.

With only three months to go, the Australian and PNG resources industries are gearing up for PNG Industrial and Mining Resources Exhibition and Conference’s long-awaited return. Over two full days, the Stanley Hotel in Port Moresby will be transformed into a hub of networking, thought leadership and professional development. Alongside the crowded exhibition floor, visitors will have the opportunity to sharpen their industry knowledge and gain valuable insights at the comprehensive conference. The two-day conference will feature experts from across the PNG and Australian mining and resources sectors presenting on challenges and opportunities for the local industry. Some of the key topics that will be discussed include fuel and renewable energy, keeping up community relations and the significance of community development agreements, the importance of building and maintaining safer workspaces, and more. The conference will also explore key case studies of explorers and suppliers who have gone the distance in PNG, as well as unpacking some of the key takeaways from past and present projects in the country. Marketing manager of mining events at Prime Creative Media, Rebecca Todesco, said that the conference will offer an opportunity for delegates to learn about project developments and the latest trends across the sector. “The aim is to bring together individuals with shared interests or expertise to share their  expertise about the industry and potentially collaborate on specific topics or projects.” “We’re working closely with the PNG Mining team to deliver a conference program that will help our delegates stay informed and aware of industry advancements,” she said. “It’s our hope that everyone will be able to take away something new they’ve learned from the conference and share it with their workplace.” PNG Industrial and Mining Resources Exhibition and Conference will be held at the Stanley Hotel from 2-3 July. Secure your tickets before 30 April to lock in early bird prices: pngexpo.com/get-involved/