Tuesday, June 02, 2009

Resource ownership law review before Parliament

By HENZY YAKHAM

 

Twice Prime Minister and New Ireland Governor Sir Julius Chan introduced during the May session of Parliament a motion seeking comprehensive review of the Mining Act 1992 - to transfer all natural resources ownership from State to Papua New Guinean landowners.

The motion is a most revolutionary change and opens the gateway for majority citizens, which if gets the blessing of Parliament and subsequent changes to the law, will enable the resource owners to be meaningful  partners with rights protected and become real PNG citizens of the 21st Century.

Since the idea of the motion was mooted and its eventual introduction in Parliament, overwhelming support has been received from law makers, customary landowners and resource owners from new project areas.

On Thursday May 14, 2009, Sir Julius articulated the reasons why resources ownership must be removed from the State and given to the landowners in a well presented speech delivered to his colleague legislators.

The motion was introduced while State negotiators and landowner representatives were struggling desperately to break the impasse over equity participation in the multibillion PNG Liquefied Natural Gas (LNG) project Benefit Sharing Agreement (BSA) in Kokopo, East New Britain province.

Sir Julius has, on a number of occasions warned that “the agreement you sign is not worth the paper you’re signing on, if the State is not going to honor its obligations,” making reference to over K350 million owed to the New Ireland Provincial Government by the National Government in outstanding payments as per the Lihir Memorandum of Agreement (MOA) they signed in 1995.

That MOA specifies for among others the National Government to allocate each year major infrastructure grants, SSG and major infrastructure projects. The major infrastructure projects include an international airport, an international seaport, a modern well equipped hospital at Namatanai and major redevelopment and sealing of the Bulminski Highway. To date, none of the major projects have been undertaken.

Speaking on his motion in Parliament, Sir Julius told an attentive audience that times have changed since PNG’s existing resource laws were legislated and time was right for some radical changes to conform to the wishes and aspirations of the resource owners in the 21st Century.

“We must shift the wealth of the nation from the Government to the hands of the individual - the resource owners. The wealth of our nation must be in hands of our people. This truly then is the pinnacle of what democracy defines - the people’s government. For too long those who own the land where resources are extracted have suffered far too many of the negative impacts and received far too little of the benefits of such activities,” the House heard.

The motion is a follow-up of Resolution No. 6 on Mining Benefits of the Governor’s Conference held at Lombrum, Manus province on June 2 2008. The conference unanimously approved and tasked Inter-Government Relations Minister Job Pomat to bring to the National Government to produce a comprehensive review of the Mining Act 1992. 

Sir Julius’ motion is aimed at assisting Minister Pomat to speed up that process and the National Parliament to push to reality. The motion has been referred to the Parliamentary mining committee to deliberate and report to Parliament for consideration.

Whilst stressing the need for landowners to have greater share of benefits from resources on their land, Sir Julius also noted the substantial negative environmental and socio-economic impacts of major resource extraction activities.

He told Parliament that people in affected areas suffered the greatest negative impacts, and since they would realise the financial benefits of the mine for only a limited time, it was only fair that they received a greater share of the benefits.

Currently, the main benefits the people receive are:

•           Royalties which amount to only 2% of the F.O.B. annual revenues of the resource extraction activity;

•           Special Support Grant’s which the National Government has now tried to reduce to only one-quarter of 1% of F.O.B. annual revenues; and

•           Some infrastructure benefits in projects such as schools and health centres.

This Sir Julius was very critical of the huge imbalance because although the province and local communities suffered huge negative impacts, they received only about 2¼% of the financial benefits. 

“This imbalance cannot be allowed to continue, especially since most of the negative impacts of the mine will last for generations.  So, despite the fact the land belongs to Mama Graun and despite the fact that they feel the negative effects more than anyone else the people themselves receive an insultingly small amount of the financial benefits of the mine. The people must benefit more and suffer less from the exploitation of their land.  If they do not, then the people will refuse to allow further mining on their land.  Why should they allow outsiders to come in and take their wealth for such a small payment?  Government should protect the people.  Instead it has been protecting the mining companies and sharing in their profits while denying those benefits to the people,” he said.

Sir Julius suggested for an independent statutory authority, such as the Mineral Resource Development Corporation, will be formally legislated as the first recipient of all payments for which the mining company is liable under the Mining Contract, including corporate tax, PAYG tax, dividends and any other payments due.

The Statutory Body would then be legally responsible to distribute the funds it receives in the following way and in the following order:

•           Distribution 1 - All funds owed to the province, LLG(s) and landowners under the MOA or similar agreement with the State;

•           Distribution 2 - Fifty percent (50%) of all remaining funds are to be deposited into a Reserve Fund to be independently managed by a reputable financial institution outside Papua New Guinea for use for future generations; and

•           Distribution 3 - The remaining fifty percent (50%) of funds are to be transferred to the State on the condition that one third of that total is to be used for PIP (development) activities inside the province in which the resource extraction activity is occurring and two-thirds of the total is to be used for development activities in the rest of Papua New Guinea.

Under this proposal, the province, Local Level Government and landowners will continue to receive payments of royalties directly from the mining company, but the State would receive no funds directly from the company. The State would be the last of the payees to receive funds.

The State would then keep all funds received under mining or related agreements separate from all other income, and strictly dedicate those funds in the way outlined for development activities under the Public Investment Programme (PIP).

Sir Julius called for a reversal of the current imbalance by turning the tide and take a bold step forward in a new path, leading to a new level of opportunity for the majority of our rural population.

“I hope we can stand together today to support this motion and get the government to move swiftly to introduce the changes proposed to revolutionise our economic vision providing a new beginning for greater participation of the majority of our people and resource owners,” he urged the MPs.

The motion before Parliament is calling on the National Government to review the ownership of minerals as part of a comprehensive review of the Mining Act 1992.

The review calls for among others:

•           Review the decisions by the State to reduce the rate of Special Support Grant (SSG) calculations from 1% to 0.25% and demand the state to immediately restore the 1% special support grants (SSG) will full compensation to be paid to affected provinces retrospectively to the date of the Governments unilaterally, without consulting the stakeholders or invoking settlement of dispute under Terms of the MOA;

•           SSG calculation be increased from 1% to 10% of annual FOB sales revenue and that SSG be given untied;

•           The principle of derivation revenue (5%) paid to provinces be applied also to mineral exports;

•           The rate of mineral royalty payment be increased from 2% to 5% of annual FOB sales revenue;

•           The 10% equity option offered to Provincial Government and the landowners be fully carried by the State;

•           The supply and procurement of goods and services from within PNG be transferred from within the province where the mining operation is located so that GST to the provinces is maximised;

•           Tax credit scheme be supplemented with more favourable arrangements to enable linking infrastructures to be established right from day one of the mining operations;

•           Mining companies contribute at least 10% of the value of further expansion costs not originally planned for that many prolong the payment of corporate tax;

•           Mining companies committed to support infrastructure as recommended by the Provincial Government and this commitment must from part of the mining contract;

•           National Government immediately settle all outstanding MOA by 30 June 2009; and

•           Amendment to the Mining Act 1992 and transfer all natural resources, (Timber, Fish and Underwater Mining, Oil and Gas), ownership to resource owners with clear and agreed sharing formula.

Since Post-Courier published the first write-up about the introduction of this motion on May 4 2009, there have been overwhelming supports from all sectors.

Among them was former Okapa MP Castan Maibawa, a former Minister for Petroleum and Energy, who said time has come for Papua New Guineans to take higher skate in resource development, particularly from the country’s abundant gas reserves.

“I believe we have come to a stage where we, as a country need to seriously take stock of our natural resources and the decisions of the past. For far too long we have allowed foreigners to come and exploit our natural resources. The basis of inviting foreign investment into PNG in the past was that the country was young and did not have the expertise, capital and know-how to develop these resources, while the government concentrated on collecting tax revenue while promoting employment and spin-off benefits

“Thirsty four years have passed since PNG's independence and in the light of changing time and nationals graduating of highly specialised skills and expertise, time has come for greater change in resource ownership and management by Papua New Guineans. We must not allow our remaining natural resources to be exploited without land owners meaningfully benefiting from,” he said.

Mr Maibawa explained that 30 years ago, the gas market was almost zero, but in the past 12 years there has been great interest in gas development because it is was a multibillion dollar industry.

“Landowners must demand for higher stakes than the current 22.5% for the Government and a mere 2% for resource owner. Instead we demand 30%, of which the State gets 20% and the landowners 10% from any gas development project. Let us forget the infighting for the crumbles and demand for 30% skate in all gas development projects. No 30% no gas,” Mr Maibawa when supporting Sir Julius’s for taking a bold initiative for benefit of the majority landowners.

For comments and full text of speech delivered by Sir Julius on his motion, contact nstar@datec.com.pg

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