The new President of Papua New Guinea’s Chamber of Mines and Petroleum is concerned about the impact of falling commodity prices. Smaller profits may see some of PNG’s resources projects put on the backburner, he warns Business Advantage PNG.

Gerea Aopi, new President of the PNG Chamber of Mines & Petroleum

Business Advantage PNG (BAPNG):  What do you see as the priorities and challenges for the Chamber over the coming year?

Gerea Aopi (GA): The Chamber will continue to perform its core function of representing the industry-wide interests of the mining and petroleum sectors. Key priorities in the coming year will be to continue to nurture a positive environment for the successful completion of the US$19 billion PNG LNG project, on schedule for 2014.

This project has the potential to underpin the future prosperity of the nation and the continuing vibrancy of PNG’s oil and gas sectors.

The fall in the price of gold and other commodities has the capacity to stall activity in the minerals sector and the Chamber needs to be mindful of sudden shifts or changes in government policies.

BAPNG: Dr Ila Temu, the chamber’s previous President, noted the likelihood of future mining projects facing additional hurdles as a result of the drop in commodity prices. Which projects is the Chamber most concerned about?

GA: The Chamber is generally concerned about the health of the entire exploration and mining industry in PNG.

Falling prices have the potential to reduce the profitability of most mining projects and, indeed, in some cases companies may be faced with losses. This would be a difficult environment to operate in, given rising costs and onerous demands placed especially on mines in remote locations with high logistics and security costs and extensive community affairs challenges.

One of the key challenges facing the nation is to ensure that the extensive monetary benefits provided by the resources sectors … reaches the wider population and thereby raises the overall living standards of all Papua New Guineans.

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The pressures will be felt across the entire mining sector.

Of greatest concern is the likelihood that projects that are completing their feasibility studies could be stalled for long periods because of difficulties in raising capital and other considerations.

BAPNG:  The Chamber is clearly concerned that taxes may increase as a result of the Government’s taxation review on mining and petroleum. What would the likely impact of an increase in taxes be?

GA: Any increase in taxes would have an impact on the mining sector. With revenues and profits currently declining, a tax hike at this time would be an additional burden and make it that much more difficult for companies to raise finance for expansions or new ventures.

BAPNG: Prime Minister O’Neill has flagged the need for a fair sharing of the benefits of mining at the same time as lifting the competitiveness of the economy. Are these two things mutually exclusive?

GA: A more competitive economy would bring benefits to the mining sector through improved cost efficiencies that could potentially improve sectoral performance and contribute to more vibrant economic activity.

The PNG Government already has a good formula to ensure maximisation of benefits to the wider public with providing royalties and equity interests flowing to landowners and local level governments in project areas; other benefits are felt as a result of the implementation of tax credit schemes and the receipt of substantial company taxes by the National Government.

The PNG Government has a critical role to play in maintaining an attractive environment for foreign and domestic investments.

One of the key challenges facing the nation is to ensure that the extensive monetary benefits provided by the resources sectors, whether it is at national, sub-national or at landowner level, reaches the wider population and thereby raises the overall living standards of all Papua New Guineans.

BAPNG: What are the prospects in your view for developing a sustainable long-term industry around petroleum and gas in PNG?

GA: Oil and gas production in PNG already has a history going back for more than two decades. The PNG LNG Project itself is anticipated to have a 30-year life. Already plans are under consideration for expansion of the LNG plant and there are two advanced condensate extraction projects and one potential LNG project in advanced stages of planning.

These developments will ensure that PNG will have a sustainable long-term petroleum industry.

Support industries in the sector are already very active and in recent times have included landowner companies that have a high level of expertise in logistics, catering and in other areas. These latter activities can only expand in the future.

Certainty of the fiscal regime and quick licence approvals are also key considerations if we want long-term sustainability of the mining industry.

BAPNG:  Does the Chamber have a view on the recently announced reorganisation of state-owned resources assets under the Kumul name, and the closure of Petromin? How best can the PNG Government assist with the development of the sector?

GA: The reorganisation of state-owned assets under Kumul Petroleum and Kumul Mining is a matter for the National Government and Parliament. We would hope these organisations work in an efficient manner to ensure that maximum benefits are passed on to the National Government to bolster its annual budgets.

As entities that will eventually hold equity in PNG resource projects, it is important for these organisations to maintain a high level of expertise and professionalism.

In spite of the planned closure of Petromin, this restructure can be viewed as an effort to streamline and better manage government assets.

From the Chamber’s perspective, the PNG Government has a critical role to play in maintaining an attractive environment for foreign and domestic investments. It is also important that there is a level playing field for new investors.

The Government can play an important supportive role by providing good infrastructure and delivery of efficient public services, especially to communities that live near resource projects.