The mining industry needs government help to solve an exploration crisis, according to industry representatives. But government bodies are saying there needs to be a better sharing of the rewards in the national interest. Business Advantage PNG looks at the contrasting views of the industry and the state.

Wafi-Golpu is a joint venture between Newcrest Mining Limited and Harmony Gold Mining Company Limited. Credit: Wafi-Golpu Joint Venture

The mineral sector in Papua New Guinea is suffering from a serious and sustained decline of exploration activities, according to Gerea Aopi, President of the PNG Chamber of Mines and Petroleum.

‘This sector has been depressed. The decline brings into question the sustainability of the mining industry, which has been the backbone of our country’s economy for more than three decades.

‘Exploration is the life blood of a vibrant resource sector.’

The Executive Director of the PNG Chamber of Mines and Petroleum, Albert Mellam, commented in the Chamber’s newsletter that, although global mineral exploration expenditure has risen sharply since 2016 in PNG it shrank to its lowest point in almost a decade ‘as a result of investors’ concerns regarding the country’s fiscal and regulatory climate.’

‘Delays and uncertainty about mining leases could cause major interruptions to some of the big mines, and discourage any new investor.’

Global spending on exploration for non-ferrous metals rose from US$7.3 billion (K24.7 billion) in 2016 to US$8.4 billion (K28.4 billion) in 2017, the highest level since 2013, according to Standard & Poor’s (S&P) Global Markets.

By contrast, exploration activity in PNG in 2018 fell to K296 million—only slightly higher than the K283 million expenditure level eight years previously, according to the Mineral Resources Authority (MRA).

Establishing a regulator

The National Court of PNG has ruled that the 1992 Mining Act provision apply to Porgera. Credit: PorgeraJV

Aopi called for the establishment of a ‘strong, robust regulator’ that is financed by the government.

He said that security of tenure and continuation of mining leases ‘is essential’ to attract investment.

‘Delays and uncertainty about mining leases could cause major interruptions to some of the big mines, and discourage any new investor,’ he commented.

Another issue causing concern is the licence for the Porgera gold mine, which expired on 16 August, 2019. The National Court of Papua New Guinea has ruled that the provisions of the 1992 Mining Act apply to Porgera, which means it will continue operations while the extension of its Special Mining Lease is being considered.

The US$9 billion (K30 billion) Wafi-Golpu copper-gold project has also been put on hold while the National Court considers an application for leave for a judicial review.

There are also concerns in the industry about possible revisions of the Mining Act, with draft legislation expected as early as September. Previous revisions of the 1992 Act proposed by the previous O’Neill Government were not widely welcomed by industry.

Negotiating tax with resource projects

Meanwhile, the Bank of Papua New Guinea, in its March Monetary Policy Statement has urged the ‘government to rethink the way it negotiates tax concessions and exemptions with new resources projects.’

In the document, the Bank included the below graph showing mineral GDP more than doubling since 2008, but mineral tax declining.

Credit: Bank of PNG

The existing legislations and policies for the mining industry ‘do not clearly provide’ for national interest, it argues.

‘Over the years, the State Negotiating Team (SNT) have not fully pursued the national interest for all Project Development Agreements (PDAs),’ according to the Bank.

The Bank called for the introduction of a ‘capital gains tax on real property including mining licences’, reform of the current extractive industries fiscal regime, and a review of tax incentives.

How PNG compares

A comparison of PNG’s resource sector with other resource-rich developing nations, led by economist Martin Davies, from Washington and Lee University, and Marcel Schröder, economics lecturer at the Lebanese American University, found that the government’s take has declined substantially in recent years and that corporate income tax and royalties seem unusually low.

‘Human productivity index has not changed one bit in our country—in fact it has gone from bad to worse.’

‘Salary and wage tax is the largest payment received,’ Schröder reportedly said.

‘PNG is the only country in our database of 50 countries where this is the case.’

The study’s authors argued that other developing countries typically levy royalties on sales, which creates current, rather than delayed, revenues.

They said such a levy is more stable than income tax and other payments—and is relatively easy to administer.

PNG’s Prime Minister, James Marape, has questioned the effect of resources investment on the wider economy.

He said in a recent speech that, despite the major oil and mining companies presence in PNG, the ‘human productivity index has not changed one bit in our country—in fact, it has gone from bad to worse.’