The country must revisit and drastically revise its approach to royalties, equity participation and taxation in the mining, oil and gas sector.
This was the remark from New Ireland Governor, Sir Julius Chan whilst speaking to an enthusiastic crowd of students at the IBS University in Port Moresby this week.
Sir Julius who was invited by the University to address the future leaders, spoke on the theme; “Dramatically increasing the Benefits stream from the Mining and Oil and Gas sector,” stating that implementing reforms in the Oil and Gas sector will have a positive outlook on PNG’s economy.
He said that the key areas of concern in structuring the legislation and regulation for any agreement for a natural resource project include;
1. The level and structure of royalties
2. The structure of equity participation by the State and
3. The structure of taxation system.
Sir J explained that the structure of mining, oil and gas regimes in PNG was established in the period 1958-1998 where legislations for negotiation were drafted at a time when PNG had little experience in the way countries from around the world structured their mining and gas laws. In PNG, legislations were flawed to provide a fair and dependable reform to respective stakeholders.
“The level of royalties paid in the Mining and oil and gas sectors in PNG are very low by international standard.”
The Mining Act 1994 establishes State equity at 22.5% of the project. Once a lease is issued the State gives away all the minerals, which is different from countries around the world, where the State receives automatic equity in any extraction project.
“Most of these International countries receive a carried Interest of between 30-50% in such projects. Under this approach, the company pays all exploration and development cost and when the project begins producing, the State receives a share of profit equal to its share of exploration and development cost. Sir J therefore, stated that PNG must insist on at least 30% Carried Interest in all mining, oil and gas projects in the country.
“In the taxation system, PNG still has so much to learn from the world; therefore, must implement reforms in the PNG tax laws to make Effective Tax Rate consistent with International Standards, which will result in additional income for the State.”
As one of the last founding father of the nation, Sir J urged for implementation of these reforms, for increase in the country’ revenues and to make our country financially independent and debt free.