Papua New Guinea begging to amend “parasitic” gas deal with ExxonMobil

Mar 24, 2021 News

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– Country had relied on company’s studies

 

Kaieteur News – In addition to conducting comprehensive studies to ensure the financial feasibility of the intended gas-to-shore project, transparency advocates also want Guyana’s government to ensure that those studies are independent. Presently, the Government has said that it would rely on ExxonMobil to conduct the environmental and other technical studies for the project. Vice President, Dr. Bharrat Jagdeo has said that the financial viability of the gas-to-shore project is a “no-brainer”. As critics call on him to justify the project, Kaieteur News will show how Papua New Guinea failed to conduct its own studies, and fell face-first for optimistic projections from a study done for ExxonMobil. The project became an “economic parasite”, according to one Australian senator Scott Ludlam, and the government is now begging for a better deal.

Optimistic Projections
More than a decade ago, ACIL TASMAN (Now ACIL Allen), an Australian economics and policy-consulting firm, conducted a study for ExxonMobil to model the impact of the proposed gas project on Papua New Guinea.

This study was critical in the duping of the people of Papua New Guinea. It used a series of optimistic assumptions to come up which projections, telling the PNG public that the project would revolutionise the economy and the lives of the people.
It is titled ‘PNG LNG Economic Impact Study: An assessment of the direct and indirect impacts of the proposed PNG LNG Project on the economy of Papua New Guinea’.
Here is an excerpt from the executive summary of that report:
“The PNG LNG project offers a means of unlocking value from the extensive gas resources of the Southern Highlands region. The project has the potential to transform the economy of Papua New Guinea, boosting GDP and export earnings, providing a major increase in government revenue, royalty payments to landowners, creating employment opportunities during construction and operation, and providing a catalyst to further gas-based industry development. The benefits from the project would spread throughout the economy as the government applies the earnings from its substantial share of the project revenues to social and economic programs. These programmes have the potential to improve the quality of life of Papua New Guineans by providing essential services and enhancing the country‘s productivity. Benefits would also flow through the economy as the wages and salaries of project staff are spent and as suppliers provide a range of goods and services to the project. Landowners stand to benefit from direct payments of royalties on production of gas and associated petroleum products, as well as improved social and economic infrastructure.”

The reality when the project started
The US$19bn project has been supplying LNG to Japan, South Korea and China since 2014, using gas production and processing facilities connected by 700km of onshore and offshore pipeline across PNG.
A 2018 report by the Jubilee Australia Research Centre titled “Double or Nothing: The Broken Economic Promises of PNG LNG” reveals how the results the LNG project produced for the State fell way below expectations, with one author positing that the country would have been better off if the project didn’t happen at all.
“Despite predictions of a doubling in the size of the economy, the outcome was a gain of only 10 percent and all of this focused on the largely foreign-owned resource sector itself.”
“Despite predictions of an 84 percent increase in household incomes, the outcome was a fall of six percent.”
“Despite predictions of a 42 percent increase in employment, the outcome was a fall of 27 percent.”
“Despite predictions of an 85 percent increase in Government expenditure to support better education, health, law and order, and infrastructure, the outcome was a fall of 32 percent.”
“Despite predictions of a 58 percent increase in imports, the outcome was a fall of 73 percent.”
It is stated that the results only exceeded the projection in one area: the export sector. While the prediction was a 106 percent increase, the outcome was 114 percent, the report noted.
“This reflects the technical success of the project – starting earlier than expected and producing at above design specifications.”
Yet, with this success, the authors held that the shortfall in the other economic predictions is even more remarkable. It went on to add that the extremely low revenues got by the government could not be attributed to low gas prices because the actual revenues collected by the government were one-third of the projections of low gas prices. Furthermore, it is stated that the project has had a negative impact on the country’s budget, and that that is not likely to change until 2024.
And what’s worse is that Jubilee Australia’s study states that the total net revenues covering the 30-year life of the project is estimated by the advocacy body to be a quarter of the scenario sold to the people with a low oil price scenario.
One former Australia senator, Scott Ludlam several years ago criticised the current Exxon-led operations as “economic parasitism”.
Why is it that the Exxon PNG LNG project failed to deliver on the results, which the people thought it would?

Papua New Guinea begs for a better deal
Plans for the expansion of the project led by ExxonMobil have stalled for over a year, as ExxonMobil refuses to offer fair terms to the State. The government has demanded a bump up from 40 percent in existing deals to 60 percent for newer projects.

PNG Prime Minister James Marape, who gained popularity for condemning unfair exploitation by extractive companies, decried the lopsided deals the poverty-stricken nation had signed with several foreign companies.
The PM said that the country has been “unfairly held to ransom” by Exxon and its partners, and told the Parliament his administration would forge ahead with plans to increase the State’s take.
Energy Minister, Kerenga Kua said that ExxonMobil is determined to exploit the vulnerable people of the economically impoverished nation of Papua New Guinea.
“Parties need to ensure they are prepared to do a deal in good faith,” Kua told ABC Australia Journalist, Richard Ewart last year.

“Exxon came in to exploit our weak economic circumstances. How could we ever strike a deal with that kind of mindset?”
After years passed, expectations set in that the PNG government could secure terms that granted the country a fair share. So, when talks started on the expansion of the $13B P’nyang venture, with intent to double the country’s gas exports in just a few years, PNG set out to negotiate for more. Kua told ABC Australia that the government saw it necessary to use the experiences of neighbouring nations in Southeast Asia as guidance during negotiations.
From other nations’ experiences, PNG learnt of the parameters ExxonMobil operated in, and noted that what PNG was offered was not enough.
“When you look at that and you compare it to Papua New Guinea, the total State take is far, far lower than what you’re offering for those other countries,” Kua told ABC Australia.
He said that when they went to the negotiating table, the State showed ExxonMobil what it was willing to offer other countries, and said: “Why don’t you bring it up so that there is parity?”
ExxonMobil did not appreciate that. Minister Kua said that the response the State got from ExxonMobil’s representatives is that they are obligated to stick to the terms they already set out, and that Papua New Guinea is not entitled to any more than what was being offered.
Kua stressed that the offer was the lowest in comparison to anything else in the neighbourhood of Southeast Asia. A spokesman for ExxonMobil told Reuters the company was disappointed an agreement could not be reached. Though talks broke down, Kua did not allow it to down his spirits.
“This exercise” he said, “has restored the dignity and pride of all of us as a nation, and that means a lot more to us.”
Asked whether the country is willing to let the gas stay in the ground if the terms for the State do not improve, Kua said: “We are happy to wait for a few weeks, months, years. If it happens, it happens. But it’s going to be on our terms.”
He said that Papua New Guinea has grown and changed; that the people have become educated professionals who are advising the government to demand more.
“We are taking a position based on proper advice from our own people.” He said. “It’s their country. That’s the way they want us to run it, and that’s how we will run it for them.”
Reuters reported in February that the PNG Government allowed French oil major, Total SA, to expand a gas project it leads alongside Exxon’s. There were plans for Total’s and ExxonMobil’s projects to undergo a joint expansion. But because Exxon would not agree to a larger government share, Total was allowed to add production units to its operation alone, Reuters reported.

Guyana’s plight
“Due to the country’s poor electrical infrastructure and vulnerable energy supply, Guyanese people experience an average of 31 days of power outages per year despite recent efforts to improve reliability,” Institute of the Americas, an independent policy institute said about Guyana’s electricity woes, last year. “In the hinterland, the interior region of the country outside the coastal area, there is little to no access to the electricity grid. To compound the problem, energy demand in Guyana is only forecast to increase in coming years. Future required generation capacity is estimated to double by 2035, without accounting for the power needs of oil production. The high cost and unreliability of electricity has slowed economic development and private sector investment in the country.”
Gas appears to be the cure-all, but Guyana has a lot to learn from countries that, in the past, moved to quickly develop their gas fields, and got duped by oil companies and their partners.
During a February press conference, Vice President, Dr. Bharrat Jagdeo told reporters that four studies would be conducted on the intended project: namely a geotechnical study, a geophysical study, a light detecting and ranging (LIDAR) study, and an environmental impact study.
This, the VP had revealed, while noting that there have been adverse comments in the press that the government may be rushing forward without ensuring the project’s feasibility. Of concern to some transparency advocates is the fact that the government is relying on ExxonMobil to conduct those studies, instead of contracting independent firms to conduct the studies on the government’s behalf.
Dr. Jagdeo has grown irritable with critics who are calling on the government to show how this project will work. There are concerns that if Guyana is not careful, the project may end up making Guyana’s energy sector financially unsustainable. The Vice President appears to hold the view that a financial viability study is unnecessary.
“The financial aspect is a no-brainer,” he said, during a GlobeSpan appearance, days ago. “Any sensible person with a modicum of sense, a tiny brain, even a residual brain, would understand that.”
“If you are generating power at $12 or $13 per kilowatt hour with the current price of fossil fuel…if you can supply power at $7 or $8 per kilowatt hour,” Dr. Jagdeo said, “a mad man would make the decision to do so and that is what this opportunity offers…to cut the cost of generation by 50 percent from its current level.”
“What else do you need,” he asked, adding, “If you can get power at half the price at which you are generating? That would allow us to cut the cost that you sell it at so it is a no-brainer. You just have to think it through for a couple of minutes.”

 

 

 

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