Political calm vital for gas
Post-Courier (PNG), Copyright 2000
November 13, 2000
POLITICAL stability in Papua New Guinea over the next three months would be very crucial for the billion kina PNG Gas project, Oil Search Ltd managing director Peter Botten said.
Mr Botten said in Port Moresby last week that proponents of the project were in the middle of intense negotiations with potential customers and the Federal Government in Australia for financial support towards the PNG Government’s participation in the project. Mr Botten made the comments in light of recent political events and a possible leadership challenge within Prime Minister Sir Mekere Morauta’s Peoples Democratic Movement party scheduled for today.
Mr Botten spoke after attending the launch of a comprehensive report on refining the tax system in Papua New Guinea.
The review was commissioned by the Government in September last year and was conducted by a committee chaired by PNG’s former chief tax collector and current Ambassador to the United States Sir Nagora Bogan.
He said the gas project was at a “very, very critical stage’’ as they were “very actively engaged with our markets down South (in Australia)’’.“An active engagement on the financing side, especially for support of the project and PNG’s participation in the project by the Federal Government in Australia.“
A very, very critical time from my own perspective and certainly Oil Search’s perspective.
“It is absolutely essential to see government stability through this period of time and if we do not see government stability, the gas project will be flushed away and it will be flushed away for a long time.
“So, the next three months are absolutely critical. “Obviously, stability in government and some good initiatives like the Bogan review are ones that we are looking for, our customers are looking for and obviously other governments are looking for down South.
“If that gets blown away through various processes in the next few weeks, we can say good bye to the gas project.
“So, in real terms stability of government is absolutely critical.’’Mr Botten made the comments before members loyal to Sir Mekere announced an urgent parliamentary caucus meeting yesterday to counter moves to challenge his leadership.
A group led by former deputy prime minister Mao Zeming gave notice to Sir Mekere that they would challenge his position as the leader of the PDM party today before Parliament resumes.
They are nominating Mr Zeming as the alternate party leader.
“This plan of action is necessary to seek the party’s confirmation of his action and to verify if he has the mandate to lead the party in this manner,’’ Mr Zeming and the six other sacked ministers said in a statement when they gave notice of the leadership challenge.
Asked if the Timor Gas pipeline project, which has moved into pre-feasibility study phase was a threat to the PNG gas project, Mr Botten said they obviously were keeping an eye on potential competitors.
However, Mr Botten said: “We don’t believe that the Timor Sea is a direct competitor into some of our key markets because I do not think they can compete.
“But they are clearly, as I would be doing in their shoes, mounting a good challenge.
“Again, if we drop the ball then we have a problem in getting our own project up.
“But no, we see them as a competitor but we also see that we have our own niche and our own markets, which they can not get, but if we drop the ball either within the project or within a country then we’ll have a problem but at the moment we are still ahead’’.
Mr Botten was also looking to seek further clarification from the tax review committee regarding certain aspects of their recommendations relating to both the oil and gas sectors.
But he congratulated the Government for initiating the review, the first since independence although there have been adhoc reviews relating to certain sections of the fiscal regime.
“I think the overall initiative and review that has gone on is a very good piece of responsible government,’’ Mr Botten said.
“It is probably the first time it’s been reviewed as a package really since independence and we applaud the government’s review process.’’He said there were clearly some issues which concerned them, but said they would seek clarification and may find it would only be to do with lack of availability of information.
Mr Botten said one particular concern was the two-tiered application of additional profit tax (APT) on various oil and gas projects.
“We fully recognise the government’s desire and ability to take, if a project grows more then people see right now that they should take their fair share,’’ Mr Botten said.
“However, the actual setting of those numbers at 15 per cent is a low number. “From a global basis, it is also very important to have clarification about what costs are carried into the projects.
“So, for instance, there are substantial costs already expanded in Hides for instance, to find reserves that go into the gas project.
“We would hope that the costs associated with that effort to find the reserves can be carried into the gas project and be counted against an APT obligation.’’
Mr Botten said the other important change that was recommended was the tax rate under the tax credit scheme. The committee had recommended that the tax be changed from the current 2 per cent to 0.75 per cent.
Tax credits traditionally had been a successful way of delivering services to project areas and meet landowners and other group expectations that schools get built.
“The tax credit process has been one good way of doing that, so reducing that number means that it puts greater onus on provincial governments and others to provide those services instead of the project participants.” He said they were encouraged by the overall results, but needed clarification in some areas.