Papua New Guinea to increase take in LNG deal with ExxonMobil, Total ...but APNU+AFC Govt. refuses to do same

Papua New Guinea to increase take in LNG deal with ExxonMobil, Total …but APNU+AFC Govt. refuses to do same

Aug 10, 2019 News

In April last, three of the world’s leading oil majors, ExxonMobil, Total and Oil Search, were able to clinch a most profitable LNG deal with Papua New Guinea. But following the installment of a new government in May, the new Prime Minister, James Marape, said, “Not so fast!”

Prime Minister of Papua New Guinea, James Marape

The new leader, who also served his country as a Finance Minister, said that he wants to relook at the oil deal to ensure there is maximum local participation and the country gets what it deserves. Even though concerns were expressed that the move by the new PM would delay the project by some two years, Marape insists that it is his right to “look into maximising gain from what God has given this country…”
He also acknowledged that while the US$13B project is critical and could double its exports of gas, the country could not go forward with same when there are outdated laws. He said that this has to be corrected first, while noting that there must be equitable distribution of the nation’s spoils.
In the case of Guyana, President David Granger has taken a different approach. Despite unrelenting criticisms of the Stabroek Block contract and calls for renegotiation, the Head of State made it clear that the lopsided deal will be honoured.

President, David GrangerW

Since the release of the Guyana-ExxonMobil contract, many industry analysts have said that there are numerous weaknesses, which Guyana should address at the earliest opportunity, with the renewal period for the deal being one of them.
The paltry two percent royalty is just one of the many provisions considered by industry analysts to be abnormal and in urgent need of regularization.
Specifically, University of Houston Instructor, Tom Mitro, recently pointed to absurd provisions which allow expatriates and sub-contractors’ salaries or income to not be subject to tax. The Petroleum Consultant noted that under Section 15.12 of the PSA, expatriates’ salaries are not subject to Income tax if they don’t spend more than 183 days in country.
Mitro said that this is an old trick in the book as the company simply gets many expats to be in rotation to avoid going over the 183 days. The Consultant stressed that most countries have plugged this tax avoidance loophole that companies have been abusing, while noting that Guyana should too, in all of the existing PSAs.
With respect to subcontractors’ income, Mitro highlighted that Section 15.10 of the PSA allows for it to be exempted from Corporate Income tax during the exploration period. The Consultant categorically stated that this is somewhat bizarre and should be corrected in Guyana’s model PSA.
Mitro had also told Kaieteur News that many countries have recognised how much they are losing in this regard, and are already imposing the tax. He recommended that Guyana do the same.
Other issues Mitro said must be corrected include paying the contractor’s income tax out of the country’s share of profits, rectifying the unusually large size of the blocks, upgrading the work obligations contractors have to meet as licensed holders, increasing the size of signing bonuses, implementing ring-fencing provisions to prevent costs of unsuccessful wells being carried over to that of successful wells, removing clauses which allow insurance premiums to be recoverable, and removing the troubling provision that allows the operators to fully recover interest and financing costs.

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