Papua New Guinea is planning to move to a production sharing regime for petroleum and gas by the middle of the decade. Business Advantage PNG caught up with Minister for Petroleum Kerenga Kua, to better understand why the reforms are happening – and what industry can expect.

Kerenga Kua. Credit: PNG Chamber of Mines and Petroleum

Business Advantage PNG (BAPNG): The Marape Government has flagged its desire to have a new regulatory framework for petroleum and gas by 2025. What do you expect the reforms to address?

The Hon. Kerenga Kua MP (Kua): Ultimately, we want to remove some of the pain and mischief the current regime is labouring under, while also bringing about greater benefits.

BAPNG: Where do you see most of the pain and mischief within the existing framework?

Kua: Under the current scheme, we are effectively giving mining and petroleum resources away for free and borrowing to buy them back. Then, there is the requirement for the State to contribute to construction costs, which requires further borrowing.

There are already two huge loans sitting on the State’s shoulders, which need to be serviced for many years, before these projects start returning revenue.

‘We are effectively giving mining and petroleum resources away for free, and then borrowing to buy them back.’

The dilemma is twofold: our people don’t accept that we’re paying loans and receiving no immediate revenue on resources we’re supposed to own. As a government, we don’t have money to frolic around in commercial enterprises, especially when more immediate pressures must be addressed, including infrastructure, education, healthcare and law and order.

BAPNG: Exactly how will the policy landscape change?

Kua: Taking the State out of the dilemma means leaving the investment cost to the investors. While the State will get its normal royalty, development levies, and taxes, every project will be based on its own dynamics.

Industry had until February 2023 to make submissions to the proposed Bill before Parliament, and we expect a final draft two months later, which should go before Parliament by mid-2023.

BAPNG: What’s your message to investors now?

Petroleum Minister Kerenga Kua, Governor General Sir Bob Dadae, Esso PNG P’nyang Limited’s Peter Larden and Santos’ Brett Darley signing the P’nyang Gas Agreement on February 2022. Credit: ExxonMobil PNG

Kua: First, the reform we’re talking about isn’t really focused on them per se, it’s focused on rescuing the State from its own dilemma.

Second, when it comes to sharing the benefits of a project, that will now be a matter for contract negotiation. We will have some minimum prescriptions, as we already do for the development levy and royalty, but we cannot prescribe on taxes.

Third, within the new regime, we expect the first cab off the rank for investors to be the recovery of royalties and development levies. Only then will the developers be able to take their cost of production out.

Once costs and margins are dealt with, profit is where the big negotiations will take place and, when it comes to profit on oil, the State will expect a bigger share going forward.

Overall, investors shouldn’t be alarmed by our transition from a post-World War II concession-based licensing system to Production Sharing Arrangements. Investors can continue their activity, based on what drives their financial investment decisions.

BAPNG: It’s nearly a decade since PNG became an LNG-producing nation. How has this helped the country?

Kua: Without mining and without LNG, PNG would not have made all the economic progress, development and improved livelihoods that we have done.

While we have a lot of problems and issues, we cannot bury the remarkable progress we’ve made.

If any credit is to be shared, we must all share it together: governments, companies and the people.