The Executive Director of the Institute of National Affairs, Paul Barker, considers the repercussions from the Papua New Guinea government’s decision not to renew the special mining lease on the Porgera gold mine.

The Porgera gold mine in Enga Province. Credit: Barrick

There will certainly be some repercussions from this move.

When global markets are in turmoil and there’s severe economic and social disruption and uncertainty, and when PNG is suffering from a severe shortfall in revenue and economic activity, one might have expected a move to avoid potential disruption to operations, the workforce and revenue.

The Porgera valley is a very complex place, with communities long vying for control. Anyone treading in it should do so lightly, with thorough consultation and knowledge of that situation and avoiding disruption.

Barrick and its predecessor, Placer Pacific, had their difficulties over the years, with criticisms on social and environmental grounds, most of which the company denied. However, the company effectively became the authority and the provider of jobs and all government services in the valley, which had a small population when it started over 30 years back and is a burgeoning community now.

The 30-year special mining lease concluded last year and the operating company and the two main owner companies could have expected virtually an automatic renewal for a further 20 years – if they put forward a sound proposal and had not committed undue failures in the past.

Taking back Porgera

The Institute of National Affairs’ Paul Barker.

Whatever the merits of the PNG government takeover or transfer plans for the Porgera mine, they will require very considerable preparation, capital, staffing and logistics to put into effect, all of which will take time and effort, and resources, which are not in great supply right now.

And, in the meantime, the mine would be effectively mothballed, deteriorating and subject to illegal mining operations – and a higher recommencement cost.

The situation is quite dissimilar to that of Ok Tedi, where the landowner situation is simpler and less confrontational, and where there was already a smooth transition to becoming a nationally-owned company nearly 20 years back, before it was also nationalised away from the Western Province ownership.

‘It’s understandable that there’s some frustration in the PNG government.’

There’s no question that there is considerable PNG expertise accumulated over the decades in mining, from management to technical and operational tasks. But bringing them together and making a transfer from an existing operation would be very disruptive, unless it was being done through amicable arrangements with the current owners/operator, which clearly is not the case right now.

Barrick (Niugini) Ltd are the operators, own the plant and equipment and employ the Porgera workforce but cannot sustain operations on some interim basis unless they have a formal lease and right to extract.

Aspirations

The Government’s aspiration for taking control of PNG resources and the economy is understandable, in terms of the major overseas (and some local) resource grabbing over forests, land, marine resources, and even small businesses and jobs over recent years, and in the face of the major disappointment over the surprisingly low revenue from the extractive sector by the mid-2010s, when the government envisaged major revenue flows and planned major public expenditure.

Low commodity prices, high costs of development and rehabilitation, droughts and earthquakes disrupting production and undermining returns can substantially explain this low revenue; however, gold prices remained firm and have appreciated in times when capital has fled from more volatile markets. It’s understandable that there’s some frustration in the PNG government.

‘It seems critical that a lot more dialogue is needed and an amicable outcome that does not jeopardise the limited harmony in the Porgera Valley.’

Porgera is the third largest mine in PNG and the second largest gold producer, contributing over K200 million in revenue to Government and landowners in 2018 (substantially from group tax, but also from company tax, tax credits, royalties, etc).

There may be an aspiration to secure greater revenue, and to distribute it differently, including more to landowners, which was also in the companies’ proposal.

It seems critical that a lot more dialogue is needed and an amicable outcome that does not jeopardise the limited harmony in the Porgera Valley, does not disrupt operations, employment of revenue unduly in 2020 and which does not further undermine shaky investor confidence in PNG at a time when global capital is tight (especially regarding developing countries) but investment, job creation and revenue desperately needed.

The government in PNG does not have a good track record in running businesses, with a few exceptions, like the ENB provincial government.

The government really needs to focus its efforts on securing revenue to deliver its core functions more effectively in infrastructure, health, law and order, education, promoting economic diversification and regulating standards (labour, health, environment, etc).

It should avoid being unduly deflected into trying to take on the task of running risky and demanding businesses itself, except those it must, and particularly avoid further borrowing or diverting needed funds away from its core services into acquiring or recapitalising commercial ventures, including mining projects.

Paul Barker is the Executive Director of think-tank, the Papua New Guinea Institute of National Affairs.