Sonia Becks

November 18. 2022

PNGEITI calls for Transparency mechanisms to be built into the Sovereign Fund Wealth Arrangement

Transparency mechanisms built into the topical Papua New Guinea Sovereign Wealth Fund (SFW) will enable an effective functioning of the fund, according to the PNG Extractive Industries Transparency Initiative.

PNGEITI welcomed the announcement of an initial injection of K5.6 million into the fund making it operational more than five years after the enactment of its enabling legislation. However, the PNGEITI raised concern over the lack of transparency around the operational and structural se-up of the fund.

“While PNGEITI commends the operationalization of the fund, the status quo raises transparency questions that needs to be answered by way of building in transparency mechanisms into the SWF arrangement”  Head of PNGEITI National Secretariat Mr Lucas Alkan said.
“The PNGEITI which has been implementing the global best practice standard on transparency around revenues generated from the mining and petroleum sectors of the economy strongly holds the view that international best practice standard is also built into the SWF arrangement for better governance of the SWF operation, derived from the Santiago principles to be adhered to,” Mr. Lucas Alkan said.

“One of the key objectives for SWF under the Santiago principle underpins a transparent and sound  governance structure that provides for adequate operational controls, risks management and accountability- PNGEITI strongly encourages that this objective be fully met in the PNG SWF set-up.

“SWF are  regarded as important players in the international monetary system and for Papua New Guinea to have one requires due diligence in ensuring the fund stands out well in the international monetary system and is credible” Mr Alkan commented.

“Consistent with the Santiago principles, the PNG SWF must bear economic and financial benefits for Papua New Guinea and the international financial system.

“We welcome the first SWF payment and hope to capture more payments and distributions of funds in the EITI Reports, particularly those taken from our lucrative extractive industry.

While commenting on the Government’s effort to operationalise the long-awaited SWF which is a positive step Mr Alkan said the Government needed to seriously conclude its pending dividend policy review and address the current parallel arrangements or set ups through the Kumul entities that have been empowered through their respective boards as to how much windfall revenues from the extractive sector could be paid to the Treasury or the SWF. He said to ensure the SWF operates on a strong financial footing to perform what it was set up to do, it needs to have access to all the windfalls that come out from extractive sector.

“The opportunity cost of parking such funds (which may be significant in the long run when commodity prices are good) in entities of State that are playing duplicate functions will not assist in using such windfalls to pay down current high levels of public debt.

We would be better off using the windfalls to pay off current high levels of debt than parking money in such arrangements that may be tempted to use for other purpose than what was intended for originally. Therefore, transparency mechanism is highly encouraged in the SWF set up”, Mr Alkan suggested.

“We have had similar experiences in the 1980s and 1990s where the so-called commodity stabilisation funds that were established for similar purpose that never worked and we need to learn from these and ensure the SWF is properly established and operationalised,” Mr Alkan said.

 

Photo caption: 2019 file photo – PNGEITI during a meeting with its stakeholders and international development partner. 

November 11, 2022

EITI INTERNATIONAL MISSION CONCLUDES PNG VISIT ON A POSITIVE NOTE

An EITI International mission led by its Executive Director Mark Robinson to Papua New Guinea concluded today on a good note.

The EITI International team comprised of the EITI Executive Director, the Director for Asia and the Pacific and the Country Lead for Papua New Guinea arrived this week for a 3 days consultation with the Stakeholders that included the PNGEITI Multi-Stakeholder Group including the development partners.

The mission’s main objective was to  meet and discuss the outcome and findings of Papua New Guinea’s second EITI Validation (country assessment report) with various players in the extractive consisting representatives from extractive companies, government departments, extractive SOEs and civil society bodies which provided leadership and guidance in guiding the implementation of the EITI Global Best Practice Standard in PNG’s mining and petroleum sector.

Head of the PNGEITI National Secretariat Mr. Lucas Alkan said “The visit by the international team to Papua New Guinea just under a month after they have issued their verdict on Papua New Guinea’s progress in implementing the EITI Standard  last month recognizes the important role  the EITI  plays in promoting transparency and addressing governance issues in the extractive industry ” PNGEITI head of National Secretariat Mr. Lucas Alkan said.

“The world is in a transitional phase, moving away from carbon dependent fuels to address climate change. In this transition, minerals will play an important role in putting companies and government alike under pressure to mine more as the demand for minerals increase to build carbon neutral machines like electric vehicles.

This means Papua New Guinea will be under pressure to undertake mining and petroleum development activities where there is potential for illegal practices and corruption to creep in given such circumstance.  EITI will play in important role in this transition period to hold authorities and companies accountable for their conduct in managing the sector and to abide by the rules and regulations governing the extractive sector in our jurisdiction.

Photo caption: L-R: Emanuel Bria, Country Officer – Asia, Mark Robinson EITI Executive Director and Lucas Alkan Head of PNGEITI National Secretariat during a press conference held on the last day of the mission, Friday November 11, 2022.  

October 31, 2022

PAPUA NEW GUINEA ACHIEVES MODERATE RATING IN ITS SECOND EITI VALIDATION (COUNTRY ASSESSMENT ON EITI IMPLEMENTATION) 

Following Papua New Guinea first Extractive Industries Transparency initiative (EITI) validation in 2018, the EITI international governing body has issued its second assessment on the country’s progress in implementing the EITI Standard.

The assessment suggests that Papua New Guinea has not made any significant progress from its first validation in 2018 where it achieved ‘meaningful progress’ (satisfactory achievement). The second validation undertaken this year demonstrated that PNG had made ‘moderate progress’ which is basically an average middle score. Though the first validation was based on the 2016 EITI and the second validation was based on the 2019 EITI Standard, the bottom line scoring granted was an average or a median score in the overall EITI global assessment score card.

Released by the EITI Board on 4^th October, 2022, the Papua New Guinea EITI Validation report provides a critical and independent opinion and assessment on the role EITI should play in enhancing transparency and good governance in the extractive sector to derive the best outcome for the economy and its citizens from the development of PNG’s rich mineral wealth.

PNGEITI Head of National Secretariat Mr. Lucas Alkan welcomed the EITI Board’s candid assessment and decision on PNG’s effort to implement the EITI, describing it as fair assessment, taking into account the efforts put in by the PNGEITI Multi-Stakeholder Group over the years since 2013 when the Government signed up to implement the EITI.

“The implementation of the EITI Standard in Papua New Guinea had its own set of challenges but steady and improved progress had been made to ensure the quality and comprehensiveness of EITI reporting improved over time by addressing the gaps that were identified in the first validation for PNG to meet all the requirements of the EITI Standards with the objective of becoming a compliant  country,” Mr. Alkan said.

“We consider the second country assessment as consolidating the corrective actions that have been taken and the work currently in progress. PNG has made significant progress in implementing the EITI relative to other economies around the world that are implementing the same EITI Standard.

“Domestically, credit must go to all stakeholders particularly the tripartite body, the Multi Stakeholder Group (PNGEITI MSG) Chaired by the Treasurer. This ensured that the information required by the EITI International Secretariat and the independent validators for this assessment were transmitted with efficiently.

The information and data supplied were highly verifiable which provided the confidence required for the EITI International Secretariat and its independent validators in conducting and delivering the second EITI Validation assessment,” Mr. Alkan said.

“Papua New Guinea has fully met ten, mostly met twelve and partly met seven requirements, with three requirements assessed as not applicable.

I am very optimistic that PNG will soon become one of the leading EITI implementing countries in the world, attributed to the commitment that have been put into the EITI implementation activities over the years by the PNGEITI Multi Stakeholder Group. This level of commitment had grown from strength to strength, influenced by such reviews and independent country assessments” he said.

The EITI is a global standard for reporting company payments and government receipts as revenues from the extractive sector. These payments and receipts are reconciled by an independent auditor and the information is disclosed through the annual EITI reports for public debates.

PNG operationalized EITI implementation in 2015 and published its first report in 2016.  Since then it has so far published seven country reports covering successive financial years. The 2021 and 2020 reports are now being worked on and are expected to be published by December this  year.

Download Full Validation Report: PNG Final Validation report 2022

Photo caption: Members of the PNGEITI Multi-Stakeholder Group, during the first quarter meeting this year. 

Date: 29^th September, 2022

MEDIA RELEASE

 PNGLNG PARTNERS IMPLORED TO DISCLOSE NATURE OF TRANSACTION

An undertaking by state owned Kumul Petroleum Holdings Limited (KPHL) to increase its PNGLNG equity through a conditional arrangement between PNGLNG partner Santos has raised concerns over the lack of transparency surrounding the whole arrangement and the partial financial transaction that already took place between the parties involved, according to the PNG Extractive Industries Transparency Initiative. (PNGEITI).

KPHL has offered to acquire five percent (5 %) of Santos equity in the PNGLNG Project with asset valued at US$ 1.4 billion. This includes a proportionate share of project finance debt of approximately US$ 0.3 billion which is the condition upon which this commercial arrangement that has been made.

PNGEITI Head of National Secretariat Mr. Lucas Alkan said following publication of this arrangement in the media this week .

“While it is understood that the compromise between two major players in the PNGLNG project as purely commercial, the PNGEITI is concerned at the opaque nature of the environment in which such arrangements are being made, particularly when substantial amount of money belonging to the people of PNG entrusted under the stewardship of KPHL is involved.

This deal can easily be likened to the controversial UBS transaction which recently ended up being investigated by a Royal Commission of Inquiry that cost the State millions of Kina in tax payers’ money.

We understand KPHL had already made partial payment of US$55 million and subsequent payments to finalise the transaction are expected to be made before the end of December this year.

KPHL has a moral and corporate reasonability to be transparent and accountable to Parliament and the people of this country when conducting its business in this sector” Mr Alkan said.

“The PNGEITI, a global best practice standard for the good governance of the extractive sector that PNG is a member of takes the position that KPHL must inform the public on where financing is being sourced to secure the purchase of the 5% additional equity for the State.

The details of this transaction, whether it is being funded from KPHL’s budget, any external borrowing by KPHL on behalf of the State (if so, what asset is being used as collateral) or through the National Government Budget (this is not in the 2022 supplementary budget). Further, it is not clear as to whether NEC had approved for KPHL to execute this transaction to acquire additional equity from Santos. The public has the right to know these details and understand as to how KPHL’s balance sheet would be affected given that a US$ 0.3 billion debt would be inherited from Santos.

The PNGEITI is not against KPHL’s proposal to acquire an additional 5% equity from Santos as it is consistent with the Government’s policy objective of having a greater equity interest in resources developments however, Santos’ intention to deal exclusively with KPHL regarding the sale raises a lot of questions.

We strongly urge KPHL and Santos who are both active members of the PNGEITI Multi Stakeholder Group (MSG) to demonstrate good corporate citizenship and uphold the principles of the EITI Global Standard by disclosing the commercial and economic nature of this transaction for the sake of transparency and accountability in this planned sale of Santo’s 5 percent share in the PNGLNG to KPHL,” Mr. Alkan said.

ENDS/

Authorised by:

Lucas Alkan

Head of PNGEITI National Secretariat