PNG CHAMBER OF MINES AND PETROLEUMpngchamberminpet.com.pg/images/pdf_files/ed_agmrpt10.pdf · PNG CHAMBER OF MINES AND PETROLEUM First ... fulltime Chamber staff as we would like

PNG CHAMBER OF MINES AND PETROLEUM First Floor, The Lodge, Bampton Street, Port Moresby

P.O. Box 1032, Port Moresby, NCD 121, Papua New Guinea

Phone: (675) 321 2988 Fax: (675) 321 7107 Email: [email protected]

Website: www.pngchamberminpet.com.pg

EXECUTIVE DIRECTOR’S REPORT

ANNUAL GENERAL MEETING, 30 APRIL 2010 The Chamber staff currently stands at ten including three dedicated to the “Self Reliance Programs for Women in Remote Mining and Petroleum Communities” which finishes at the end of June. This project is largely funded by the Japanese Social Development Fund (JSDF) through the auspices of the World Bank. The Chamber has invited key members of the team to become fulltime Chamber staff as we would like to continue this project as a social contribution to our members and the country. We have experienced a healthy growth in membership in recent years which is a reflection of the buoyant conditions and our program of actively courting new members. Membership at the end of 2009 was another record for the Chamber 175 (43 full, 35 associate and 97 service members), and is a substantial increase over 2008 (169), 2007 (150), and 2006 (128).

The Chamber finances remain in a very robust state. The Profit and Loss Statement for 2009 shows a surplus for the year of K443,358 (K1,348,390 in 2008), and the Balance Sheet at year end indicates net assets of K4,686,405 (K4,243,046 in 2008). The budget for this year (attached) is based on total income of K6.33 million with a surplus of K1.19 million. Chamber income is

PNG CHAMBER OF MINES AND PETROLEUM

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strongly cyclical and the surplus increases markedly in Investment Conference years which is the situation this year. The Chamber made a K300,000 donation to tertiary education this year to assist UPNG Earth Sciences and Unitech Mining Engineering Department. Rather than seeking support from members, Council took the view that part of the 2008 Investment Conference surplus should be utilised for this purpose as this effectively represents a contribution from the many members who participated. The donations were extremely well received and this year’s budget contains a similar donation. Mining Engineering requested that the bulk of the funds be utilised to purchase a bus to transport students on site visits and field work.

INDUSTRY OVERVIEW The high level of exploration activity in both sectors is shown by the attached exploration maps. There are currently 50 Petroleum Prospecting Licences and over 30 applications pending, and in minerals, over 300 current Exploration Licences and renewals as well as 110 applications spread right across the country. The status of the current and potential projects is demonstrated in the bar diagram. There are a number of potential developments and project upgrades achievable over the next seven years if the country can maintain an environment conducive to growth. There is considerable increasing concern in the industry, and this is often discussed in Chamber meetings, regarding a growing number of major issues that are impacting on current projects and developments. These have the potential to stymie the developments of the future currently on the drawing board.



The principal concern is the deteriorating state of many government organisations and their chronic inability to provide basic support, advice and services to our industry and our affected communities. Many Government departments are failing to fulfill their responsibilities and statutory duties required under the laws which they are charged with implementing and managing. The most recent example of this is the appalling state of DPE which, judging by recent newspaper reports, has now become almost completely dysfunctional and has ground to a halt at the very time the PNG LNG is gearing up to commence construction. The infrastructure problems continue to impact many projects and the state of the Highlands Highway and the Lae – Wau Highway in particular have disrupted activity and increased transport costs. Exxon Mobil is now grappling with the many handicaps presented by the condition of the Highlands Highway. Essential services in urban centres, particularly power and roads, have also deteriorated, most notably in Lae. A heightened level of expectation and demand is apparent in many communities across the country which seems to have accelerated in recent times. I believe this is driven by the MP discretionary funds and other Government adhoc funds from trust accounts etc being spent across the country, the large payments that have been made or promised to landowner groups associated with the PNG LNG, and the unchecked corruption that seems to grow daily. Land issues are increasing and communities are becoming more litigious and more demanding which parallels the deterioration in government services and government representation in rural areas. The Land Titles Commission seems unable to function because of funding issues leaving us without this vital support for major land disputes. Furthermore, there is an intention to abolish the LTC and we have no assurance that the new Lands Court Division proposed to replace it can provide an improved service. The recent Ramu litigation raises new concerns as it calls into question the security of tenure of a project when the Environment Permit can be questioned by the court. The potential ramifications of this are enormous.



PROGRAMMES Conferences and Seminars

The 2009 Mining and Petroleum Seminars were convened from the 27 - 30 October and attracted very strong attendance, 430 for petroleum and 550 for mining. The events were considered by the Chamber to be a great success and we received positive feedback from delegates. The conferences were held at the Crowne Plaza and space was stretched to the limit but it was manageable. Financially, the Chamber made a modest surplus even though some of the costs were over budget due to sharp price increases at the hotel. A trade fair with 22 booths was held in the Rapala Restaurant and poolside. It attracted strong support and exhibits were diversified and of a good standard. The trade fair could have been much larger if space was available as we had a long waiting list. The programme was designed in the usual format to cover production, development, advanced projects and exploration. Professor Hugh Davis presented a paper on PNG geology at the end of the Mining Seminar and Santos hosted a 3 hour presentation on “What is LNG?” in the last session of the Petroleum Seminar. The Extractive Industries Transparency Initiative (EITI ) secretariat based in Onslow approached the Chamber to organise a roundtable of stakeholders in Port Moresby. This was held before the seminars on the 26 October and government, industry and civil society representatives were invited to explore the potential for applying the EITI methodology in PNG. EITI aims to strengthen governance by improving transparency and accountability in the extractives industries. The EITI sets a global standard for transparency and supports improved governance in resource-rich countries through the verification and full publication of company payments and government revenues from oil, gas and mining. The public reporting and documenting must be through avenues that are readily available to anyone. The Chamber has previously expressed publicly support for the EITI initiative stating that there is broad support in the mining and petroleum industry for greater transparency in regards to monetary payments between the different stakeholders involved. We have also highlighted at the same time a number of critical issues that will have to be addressed to achieve meaningful outcomes from the process. These sentiments were reiterated in our presentation at the roundtable. The Chamber believes that it is in the interest of all stakeholders for an independent party to publish details of the contribution that the resource industry makes to the Nation in a form readily available to the public. This will clearly demonstrate to the government and the public at large the very significant contribution that is made by the mining and petroleum industry. A PNG EITI will ensure that the auditing and reconciliation process will provide a high level of confidence in the data. It will also provide assurance to international agencies, financiers and bankers, and potential investors in the resources sectors that the country is willing to embrace internationally recognised systems of governance and transparency. The EITI process will also be invaluable to government organisations and others as a central data source on the industry that is in a consistent, reliable format. At present, various arms of



Government often utilise information on the industry that is drawn from sources which are unreliable or second hand. It is our understanding that the PNG Government has now accepted the value of EITI and has agreed in principle to pursue the endeavour and eventually become part of the EITI fraternity. The next, and very substantial step, is to determine the framework for a PNG EITI and establish a secretariat. The World Bank has advised that it will assist with this process. The Chamber again organised a delegation of mining members in association with the Mineral Resources Authority (MRA) and Department of Mineral Policy and Geohazards Management (DMPGM) to attend the Prospectors and Developers Association of Canada (PDAC) trade fair from the 7 – 10 March in Toronto. Our exhibition was six booths (four for industry) and eight companies were represented. The event attracted a record number of delegates of about 22,000 which attests to the broad recovery of the minerals sector. The Chamber and the MRA/DMPGM organised a special country presentation on the Tuesday afternoon which is the first time we have undertaken this at PDAC. This was booked well in advance and over 8000 presentation flyers were prepared and sent to PDAC in early February for inclusion in the delegate bags. The Deputy Prime Minister was originally scheduled to come and this was to be the highlight of the presentation but this did not eventuate because of Parliamentary sessions and the pending Cabinet reshuffle. The geophysical, geochemical and geological datasets from the EU Sysmin program were launched by the MRA and presentations were made by Nautilus and the eight companies in the trade exhibition. This three hour presentation was a fairly expensive addition to our normal programme but over 100 PDAC delegates attended and it was rated a success by our delegation. I believe we should give serious consideration to repeating the presentation next year with a different format based on our major players as they usually have separate large exhibits of their own at PDAC (XStrata, Barrick, Lihir, Harmony Newcrest).

The final component of the programme for the Women in Mining and Petroleum Project (WIMAP) requires the convening of a conference to promote the role of women in resource development and this was organised from the 23 – 26 March in Madang. WIMAP shaped the programme to more specifically focus on the progress, achievements, and initiatives made by women’s groups at resource projects across the country and explore the avenues for future support for women’s programmes. This was the third conference to be convened in PNG dedicated to the advancement of women in the PNG resources sector but the last one was five years ago (2005).



The WIMAP Conference was a huge success, a total of 350 delegates registered for the event from women’s groups and project Community Affairs departments right across the country and from interested Government departments and international agencies. The presentations clearly demonstrated the progress made by the respective women’s groups and the positive impact of our intervention. The Chamber WIMAP project received much acclaim and the work of the team was widely recognised. A key part of the conference was a session for breakout groups to discuss issues and concerns in a positive framework. The broad messages for industry from the outcomes was that women’s groups progressed much better at projects that supported a gender desk and a women’s resource centre. A common problem faced by the women’s groups even at the mature projects is access to funds which is denied them by landowner organisations controlled by the men. The Chamber believes that as an industry we should support the principle that all landowner benefit agreements (BSAs and MOAs) contain a provision guarantying that women’s organisations receive and manage at least 10% of the cash benefit streams. The blueprint for this is contained in the OTML Community Mine Continuation Agreements (CMCAs). As previously stated, permanent Chamber positions have been offered to key members of the project team. Recently, informal discussions have been held with the World Bank and the Japanese Government on ways to extend the project. The Deputy Ambassador of Japan was present for much of the conference and he was very impressed with the outcome of the WIMAP project which they supported. The last Community Affairs Seminar organised by the Chamber was at the end of 2007. As the norm is to convene these events every 2 or 3 years we have canvassed relevant members to gauge their interest. As the response has been very positive a seminar is to be hosted in Port Moresby on the 29 – 30 July. The event will incorporate eight sessions over the two days on Government issues, law and justice partnerships, benefits distribution, project closure and sustainability, communication and grievance management, and community development.

The University of QLD Centre for Social Responsibility in Mining (CSRM) approached the Chamber about collaborating to host a three day training course on “Community engagement and development in the PNG Resources Sector” for up to 30 of our CA practioners. As members also expressed support for this we are organising the course for the three days prior to the CA Seminar. The Chamber is hosting the Eleventh PNG Mining and Petroleum Investment Conference in association with a seminar series from 6 – 8 December 2010 at the Sydney Hilton Hotel. The theme for this year is “PNG in Focus”. As usual, the Conference will present a political and economic overview and a comprehensive overview of the major mining and petroleum projects, including developments, advanced prospects and discoveries but this year we propose to include a session on landowner business ventures for the first time. The technical seminars on the third day include a Seminar on Governance and Fiscal Management of Resources Revenues in the morning session and two parallel afternoon seminars featuring PNG Mineral and Petroleum Exploration Updates.



Industry Tertiary Education The Chamber has developed a partnership with AusAID to assist the two tertiary faculties most utilised by the industry – the Unitech Mining Engineering and the UPNG Earth Sciences. The first stage of this is an independent assessment of the two faculties and in July we signed a Funding Agreement with AusAID for AUD80,000 to implement this. The Chamber highlighted the programme in a paper entitled “A New Initiative To Provide Quality Graduates For the PNG Mining and Petroleum Industry” presented at the BC/APNG Business Forum in Madang on 17-19 May. The Terms of Reference for the Joint Capacity Assessment were completed by AusAID and the Chamber in close consultation with the two faculties. Due to delays in the TORs and the schedules of the proposed consultants we were not able to undertake the assessments until January and February of this year but both reports have now been completed. Earth Sciences was undertaken by Professor Tony Crawford from the University of Tasmania and Mining was done by Professor Don McKee (retired) formerly of the University of Queensland who were both in country for about 2 weeks. The major recommendations include proposals for: a long term support programme for delivery of courses by overseas lecturers, regular short term visits by international lecturers, external research funding, developing links with overseas universities and professional organisations, increase in overseas higher degree scholarships, industry placements for university staff, an industry – university committee, review of methods of staff appointment, selective curriculum review, training for technical officers, and funding for equipment maintenance. The Chamber sees these reports as providing a base for further joint programmes with AusAID and we plan to hold discussions on this in the near future. The reports have also provided very valuable input into the major review of the entire government university system currently being executed by a team headed by Sir Rabbie Namiliu and Professor Ross Garnaut, also funded by AusAID. The Chamber has also briefed this committee on the outcomes of our work. During the course of the review at Mining Engineering it was revealed that:

• the Department has an approved allocation of K1m for the purchase of new items, including a generator, during 2010. This is the first government funds that the Department has received for many years and apparently results from a one off appropriation of K30 million in the 2008 Budget for rehabilitation and replacement of laboratory and teaching equipment.

• Unitech has been allocated funding of about K13 million for a Petroleum Engineering

faculty. The funds are to construct and equip a building either as an addition to the Mining building or adjacent to it and the design phase is already underway. It is proposed that a petroleum engineering degree commence in 2011 or 2012 and a syllabus has already been drafted. This has been done without any input from industry or the Chamber.

The proposed new faculty presents an additional challenge to the Chamber and industry as it will face all the current problems that Mining Engineering is encountering and in regards to staff it will be even harder to recruit overseas or internally.



National Working Group

The Chamber in cooperation with the other peak industry groups tried again in 2009 to resurrect the National Working Group on Removing Impediments to Business (NWG) and this succeeded towards the end of the year with the new Chief Secretary, Mr Manasupe Zurenuoc. Two meetings were held in late August and October last year one so far this year. The agenda is now back on track and we have been able to reconvene the Subcommittee on Labour and Immigration (one meeting this year). This Subcommittee is addressing the Restricted Employment Visa (REV) which is still progressing but very slowly. A REV is a visa category that allows the holder to work for limited periods without a Work Permit. We understand it will be available up to four times a year with a maximum 30 day stay each entry. The conditions under which it can be granted is the key and the Chamber is endeavouring to make the REV as flexible as possible. The Department of Labour and Industrial Relations (DLIR) invited comment on an earlier version of REV in July and we made a submission which pointed out that:

• the proposed Visa category would greatly assist the conduct of business in PNG, and would not in our view compromise any of the requirements of government.

• mining and petroleum projects are significant national projects, and involve large fixed assets and high technology. We need rapid access to expertise to support and maintain our operations, and to ensure their effectiveness.

We recommended that REV cater for the specific needs of the mining and petroleum industry including the following:

1. Offshore service contractors/consultants required for regular or scheduled maintenance at a resource project.

2. Offshore service contractors/consultants required for emergency breakdowns or shutdowns at a project.

3. Offshore service contractors/consultants required for specialist services. 4. Offshore company employees required for short term onshore assignments on short

notice. Unfortunately the Maintenance Guarantee is another issue that has dragged on. Last year we established what we understood to be an agreement in principle with the PNG Immigration and Citizenship Services (PNGICS) to waive the need for a Maintenance Guarantee or at least modify its application to our industry. The Maintenance Guarantee relates to repatriation of expatriate employees and their dependents and is dealt with in Section 12 of the Regulations to the Migration Act. We are requesting that the Guarantee be waived or that a company guarantee in the form of a letter be accepted instead of an insurance bond which adds significant cost and administrative time to the Visa process. A company guarantee has been accepted in the past from the mining and petroleum projects. We have not received a formal response in writing from the PNGICS to confirm a policy change and this issue is being taken up through the Subcommittee on Labour and Immigration. The Chamber is also proposing to take the issue of the Land Titles Commission (LTC) and the serious deterioration in the State of the DPE (see below) to the NWG with a request that these



concerns be added to the agenda. The LTC is unable to meet its obligations at our projects due to a lack of operational funding. This is having a critical impact on projects such as Ramu where land disputes have remained unresolved for a long time causing considerable unrest which is now being exploited by outside groups who are funding landowner litigation. The future of the LTC is uncertain so this further complicates the issue. Public notices in May last year providing information on the reforms in the Government’s National Land Development Program advised that one of the intentions of the Program is to abolish the LTC and the National Lands Commission (NLC). Their juridical functions, responsibilities and jurisdictions would be transferred to a new Land Court Division to be merged with the jurisdictions of the Local and Provincial Land Courts currently administered by Magisterial Services (a single Land Court). The principal legislations that may have to be reviewed to make possible the establishment of the new Land Court Division with merged functions and responsibilities under Magisterial Services includes; Land Disputes Settlement Act; Land (Tenure Conversion) Act 1963; Land Titles Commission Act 1962 (Adopted); Land Act 1996; National Land Registration Act 1977, and Magisterial Services Act 1975. Department of Petroleum and Energy

The Chamber has for a long time been expressing concern over the state of the Department of Petroleum and Energy (DPE) which despite its growing importance has continued to deteriorate. The very recent newspaper report on the DPE indicates that the organisation is almost dysfunctional and hopefully the issue is coming to a head. In late August last year, the Chamber sent a letter to the Prime Minister over a number of critical issues in the Department most of which relate to the administration of the licencing system which is now widely considered by industry to have failed. The letter was copied to the Chief Secretary and the Economic Ministers. The letter referred to our serious concerns regarding the management of Petroleum Licences in the country. The situation has been progressively deteriorating in recent years to the present stage where very significant investment is now threatened or delayed by this issue. The country is gaining a reputation in the international oil and gas industry for inconsistent, irregular, and non transparent management and administration of petroleum licences, characterised by inordinate delays and hindrances. There is a lot of talk of what lies behind this and enormous bad feeling and frustration exists in the industry which is totally counterproductive to the promotion and development of a reputable internationally recognised industry in PNG. The industry is very concerned with the operations of the Petroleum Advisory Board (PAB) and the office of the Petroleum Registrar. Applications for new licences, applications for extension of licences, and work programme approvals submitted to the DPE often take an inordinate time to be processed by the Registrar, considered by the PAB, and decided on by the Minister.

We have made a number of recommendations which include:

i) The PAB must convene monthly regardless of other activities and a list of meeting dates released to the industry well in advance and strictly adhered to;

ii) No one should occupy the position of Registrar and concurrently hold a seat on the PAB, there should be a dedicated independent PAB secretariat;



iii) The Chairman of the PAB should be the Secretary for Petroleum and Energy who should be present for all meetings;

iv) Transparent procedures should be established and timelines incorporated into the Oil and Gas Act to ensure the timely processing of applications for all tenements including approvals by the Minister. All PPL applications should be dealt with in chronological order and should be processed within 140 days.

v) The Register maintained under Section 96 of the Act, and the operations of the office of the Registrar be audited by a reputable management and accounting firm to ensure that the Register is maintained to international standards.

Our letter had some collective impact on the Minister and a number of outstanding licence documents were dealt with at the time but the overall situation has continued to deteriorate. The recent media release advising that the Department was closed because it could not pay its utility bills was the finale. But we have still not seen any action from Government and we will be taking the matter up with the Chief Secretary through the National Working Group in the near future.

It seems that the only solution to this issue is to “start from scratch” with a new organisation, such as a Petroleum Resources Authority modelled on the MRA, and a new Minister. Mineral Ownership

Mineral ownership surfaced (again) as a serious issue about the middle of last year when a considerable amount of publicity and media hype appeared promoting private ownership of mineral, petroleum and even water resources as a simple recipe that will solve all the issues of resource development and benefit distribution. The issue centred on a Private Member’s Bill proposed by the Deputy Governor of Western Province, Hon. Boka Kondra, entitled the Mining (Amendment) Bill 2009. Further to this, public forums were held in Goroka and Madang under the banner of “Restoration of the property rights of Natural Resources” which had some support from landowner groups, NGOs and a number of politicians. In August, the Chamber issued a media release strongly opposing the private members Bill and setting out the enormous impacts and implications of changing to private ownership. We also wrote at length to every Member of Parliament and met with several Members supporting the Bill including the Hon Boka Kondra. The Chamber received feedback that our letters to MPs had some impact. Direct responses were received from Governor Sir Julius Chan of NIP and Governor Bob Danaya of WP who are both strong protanagists for the change. Detailed responses were sent to both. The Chamber has taken a very strong stance on this issue pointing out the enormous legislative, financial, social and political impacts that are inherent in the proposed change. State ownership of minerals is vital to the development of PNG as a Nation. State control of resources allows them to be developed for the benefit of all citizens as required by the Constitution. The resources are managed in an effective and orderly manner that is recognised internationally and accepted by the investor. Private ownership of minerals means that a few lucky individuals could expect to become rich at the expense of the rest. Papua New Guinea cannot develop as a Nation under these conditions, it would splinter into groups driven by self interest and the system would become completely inequitable and unworkable.



Whilst landowner support and agreement is integral to all current projects the State owns the resources and it issues a production licence over those resources for the benefit of all citizens. This situation provides the ultimate safeguard and provides a level of surety and confidence to the investor. PNG’s success in resource development speaks for itself. Because the proposed amendments remove the State as owner of minerals and remove the provisions relating to compliance with Section 53 of the Constitution, there would be very little of the current operative parts of the Act that would remain constitutionally valid. The State could not directly regulate the exploration and production of minerals and could not issue licences and leases, unless at the request and with the authority of the correct landowners. It is questionable whether the State could or would agree to do so, and any such licence would not have any real utility because it would always be subject to the fluidity of customary landowner arrangements. Without confidence in the existence of a legal right to obtain a mining lease, expenditure on exploration would be irrational. In reality, a change to the ownership of minerals would turn the existing regulatory system on its head. An entirely new policy would need to be devised and the existing legislation replaced with something quite different. This would bring the mining and petroleum industry into absolute chaos and gut the economy of the country overnight. It would take five years just to sort out the legislation and policies let alone the fallout of such a change. Papua New Guinea has one of the most equitable benefit sharing systems in the world for mining and petroleum developments. The country has developed a formula for benefit sharing which is unique on a worldwide basis. It includes the National Government, affected Provincial Governments and Local Level Governments, and the affected communities. Whilst the law states that the minerals belong to the State the benefit distribution clearly recognises the unique Melanesian cultural and traditional affinity to the land by prescribing a suite of benefits to the affected landowners. The Chamber has also emphasised the message that the real issue with resource development in PNG is the lack of governance and transparency associated with the use of the benefits generated from resource development. Change in ownership will not address this problem, it requires a fundamental shift in the way that governments and landowner leaders manage, utilise and distribute resource benefits and the way they report on this to their respective constituents. It requires a major shift towards transparency, integrity and openness. Our December 2009 issue of “Bulletin” had a long lead article on mineral ownership which incorporates strong statements from the Deputy Prime Minister and Minister for Mining, and the Petroleum and Energy Minister in their respective opening addresses at our October 2009 seminars. The Ministers statements strongly support the Chamber’s position and oppose the Private Member’s Bill. The Deputy Prime Minister and Minister for Mining the Hon. Sir Dr Puka Temu stated that:

“The proposed Bill is unconstitutional in the sense that it does not promote equal distribution of wealth to the rest of PNG but is focused on a very limited minority of people. It will require wholesome changes administratively, structurally, technically, legally and socially.



Accordingly the Government is against the proposed Bill to transfer mineral ownership from the State to landowners but will consider other means of dealing with the issue of benefit distribution and greater participation by landholders”.

The Minister for Petroleum and Energy, the Hon. William Duma, expressed similar sentiments: “The benefits of the State ownership of oil and gas resources are obvious and definitely outweigh any purported benefits accruing from private ownership. State ownership of all minerals and oil and gas resources is very crucial to the economic prosperity and development of PNG. As Minister responsible for oil and gas, and on behalf of the Prime Minister and Government, I would like to assure everyone that the current regime of State ownership will not change. Ownership of oil and gas resources will remain with the State. It is not the intention or policy of the Government or myself as Minister to change the ownership regime.”

The ownership issue has died down somewhat but will come back again particularly as we are entering the pre-Election period. The Private Members Bill has not progressed to the Parliamentary agenda stage but is still on the table. Recently a group calling itself the Federation of Resource Owners PNG Incorporated has emerged and is trying to drive the issue. It is likely to be another self serving organisation for the benefit of a few but it will no doubt surface from time to time and make pronouncements on certain issues including mineral ownership. Landowner groups may loosely affiliate with the organisation if they think there is something to be gained but is unlikely they are going to entrust this organisation with their mandate or their funds. Legislation The five Marine Pollution Bills – the Marine Pollution (Liability and Cost Recovery) Bill, Marine Pollution (Preparedness and Response) Bill, Marine Pollution (Sea Dumping) Bill, Marine Pollution (Ships and Installation) Bill, and the Marine Pollution (Ballast Control) Bill were finalised by October last year and it was our understanding they were ready for presentation to NEC. National Marine Safety Authority (NMSA) advised recently that they are still waiting authorisation from the State Solictor (Certificate of Necessity) before they can be presented to NEC for approval for them to proceed to the Legislative Draftsman. In July last year, the Chamber sent a letter to the Secretary for Labour and Industrial Relation requesting a review of the Explosive Act which is over fifty years old. We are concerned because members involved in the sales, transport and usage of explosives advise that the existing legislation does not relate to modern explosives and prescribes practices that in some cases are unnecessary and costly or even hazardous. We are also concerned about the security provisions in the existing legislation. We proposed that the DLIR seek assistance from the AusAID Advisory Support Facility to access an experienced professional from an Australian State Government authority responsible for



similar legislation. The Chamber would support the process by forming a small industry working group to consult with the review team. DLIR responded expressing support for the Chamber setting up an industry working group but without any commitment by the Department to a process or a timetable. We have also not been successful in convincing the Department to seek outside support to facilitate the review. Despite this, we are establishing a working group to make a start with the aim of preparing a new draft Act based on the current Queensland legislation. Taxation The Chamber 2009 Pre-Budget Submission lodged with the Department of Treasury in April last year was unsuccessful. We proposed an increase in the ceiling of the mining and petroleum Infrastructure Tax Credit Scheme (TCS) back to 2.00% of assessable income, to increase the capacity of the industry to undertake emergency repairs of the Highlands Highway and to ensure cost effective maintenance and reconstruction of Government assets in resource provinces and other areas of the country. The Chamber is arguing that the TCS is a successful, well established, private-public sector partnership. The Scheme has a proven track record of efficient delivery of infrastructure and services to rural communities in accordance with comprehensive guidelines and the respective District and Provincial Development Plans. The Chamber is preparing a submission for this year’s budget which needs to be submitted by 17 May. This will focus on the TCS again seeking the same amendments as last year and also the need for tax provisions to cater for project closure and rehabilitation costs. The Chamber presented a submission to Government in May last year on the impact of the Customs (Prohibited Imports – Certain Petroleum Products) Regulation which significantly changes the sulphur limits on imported high sulphur diesel and heavy fuel oil (HFO). This Regulation added fuel costs to Lihir, Porgera and Ramu of about USD39 million (K88 million) annually as it required them to utilise a different more expensive product. Early this year the NEC amended this Customs Regulation to limit its application to new projects. This was in response to an NEC Policy Paper recommending changes and a Court decision which declared the original Regulation null and void. It is our understanding that our submission was utilised in the preparation of the NEC Paper Compensation Schedules The Chamber’s Compensation Schedule for Land Use and Land Damage and Man Made Structures,and the Valuer-General’s Compensation Schedule for Trees and Plants, both dated January 2008, need updating and the Chamber will do this by means of a small working committee. Community Affairs managers around the country have been advised of our intention.



POLITICAL ISSUES Apart from the many infrastructure and government structural issues mentioned earlier in this report that are impacting on our industry, the Chamber sees the serious Constitutional dilemmas facing the Government as issues of national importance which have a potential to impact on our projects, especially the PNG LNG. They need to be dealt with urgently. The deteriorating overall government fiscal situation also presents a potential major concern. Constitutional Dilemmas The Constitutional issues were highlighted in the December issue of our Bulletin magazine and relate to the size and composition of the Parliament after the 2012 elections. Currently, Parliament is formed of 20 Provincial Seats and the range of 81 to 91 Open Electorates, with the current number at 89 Open Seats (total 109 Seats). Previous amendments to Section 35(1) of the Organic Law on National and Local-level Government Elections make major changes to the composition of Parliament. The range of Open Electorates increases to 110 to 120, the exact number to be recommended by the Boundaries Commission. Section 125(1) of the Constitution and the Organic Law on National and Local-level Government Elections requires the Boundaries Commission to recommend on both provincial and open electorates and their boundaries and this process is expected to take many months to implement. In the recent Lae Leaders Summit Forum, the Prime Minister stated that it was his Government’s intention to establish 22 Reserved Electorates and Reserved Seats in Parliament for women representatives. It is proposed that the women MPs would be provincial members, thus there would be two provincial MPs elected for each province. This necessitates amendment of the Constitution and the Organic Law on National and Local-level Government Elections (requires a three quarters absolute majority i.e. 82 members). The creation of the Reserved Electorates will also require a report from the Boundaries Commission. If government legislates to establish Reserved Seats for women representatives the Parliament will increase from the present 109 Seats to between 154 to 164 Seats in 2012 taking into consideration the proposed new Jiwaka and Hela Provinces – i.e. 22 Provincial Seats, 22 Reserved Seats and 110 to 120 Open Seats. The Government could decide to retain the present range of 81 to 91 Open Seats or reduce the increase from the designated range of 110 to 120 but this would necessitate an amendment to the Organic Law on National and Local-level Government Elections. This again would require a three quarters absolute majority in Parliament, or 82 MPs, to vote for it on three occasions. Retaining the present range would result in a Parliament of 133, being 22 Provincial Seats, 22 Reserved Seats and 89 Open Seats. This could be increased to 135 if the Boundaries Commission recommends creating an additional two Open Electorates in Jiwaka Province and/or Hela Province or elsewhere, thereby taking the number of Open Electorates to 91 which is the maximum within the range of 81 to 91.



Even if the Government retains the present number of Open Seats, a Boundaries Commission report will still be required as the Government has already amended the Organic Law on Provincial Boundaries to create the two new provinces. The Boundaries Commission will determine the altered Provincial Electorates for SHP and WHP and the new Provincial Electorates for Hela and Jiwaka Provinces plus the redistributed Open Electorates to fit within those Provincial Electorates. To be meaningful, the Boundaries Commission can best undertake its work after the 2010 National Census as the Commission uses a population averaging formula as the basis of its work. Given that the National Census is completed in 2010, the Commission is unlikely to have a report ready for Parliament until the end of 2011, leaving almost no time before the issue of writs for the 2012 Elections for Parliament to adopt the report. A separate issue is whether Parliament will accept a Boundaries Commission report. Parliament has rejected ever Commission report since 1977. Rejection of the report would leave the nation with electorates not ratified according to new numbers specified in amendments to the Constitution and Organic Law on National and Local-level Government Elections effectively creating a constitutional crisis. All these issues, summarised in the table below, present the Government with a number of dilemmas which need to be addressed urgently as the clock is ticking. The next Sitting of Parliament is in May 2010 which leaves less than 2 years before the issue of writs for the next General Election. It also needs to be borne in mind that all these discussions do not include the requirements of the Electoral Commission in preparing the Electoral Rolls.

CHANGES TO PARLIAMENT

CURRENT SITUATION

BOUNDARIES COMMISSION

GOVERNMENT STRATEGY

Increase in Open Seats from 89 to within new range of 110-120

New range of 110-120 now in OLNLLGE

Required before 2012

Unknown. To reduce or cancel the increase in Open Seats requires amendment of the OLNLLGE1

Create 22 Reserved Seats for 22 women provincial MPs

Proposal Required before 2012

Implement before 2012. This requires amendments to the Constitution and the OLNLLGE

Ratify Provincial Electorates and Seats for amended SHP and WHP and new Hela and Jiwaka Provinces

Commences in 2012. Interim Authorities established.

Required before 2012

Finalise before 2012. BC2 report needs to be adopted by Parliament

1 Organic Law on National and Local-Level Government Elections 2 Boundaries Commission



Fiscal Stability Last year’s AGM report recorded our concern that

“The Government will have to sharply reduce spending and outlays over 2009 as the surplus funds held in trust accounts are likely to be largely depleted during the year. Members of Parliament and Government organisations in general have become used to elevated levels of tax income and have developed a freewheeling attitude to spending”.

This prediction may come to pass in 2010 as it seems that the trust account monies have been rapidly depleted. This should be a big wake up call for government. Reining in expenditure will be painful for a government used to dipping into the “trust fund biscuit tin” and it will be all the more difficult to achieve as the elections approach. Without some major adjustments to expenditure there could be a serious budget deficit by next year. 2010 The Chamber has a very active year ahead. Apart from the seminar and conference program and the ongoing program issues discussed above, we are and will continue to face a growing number of adhoc issues. Some of these will be related to the growing demands and expectations of landowner groups that I referred to earlier. For example, we are already very much involved in the ongoing Ramu project issues. We continue to put considerable effort into government organisations where we have Board seats, particularly the MRA, to ensure that they operate well above normal government standards. We have a program of legislative reform in front of us but much of the timetable remains in the hands of government. Some major legislative changes come at very short notice such as the new National Economic Zone Authority Bill, which, amongst many very significant proposals, involves the annulment of the Konebada Petroleum Park Authority Act. In closing, may I thank you all for your continuing support over the last twelve months and we look forward to your support into the future. Most importantly, my gratitude and special thank you to my dedicated staff and to Councillors for their ongoing support. I would like to also express our special thanks to Jenni Lean who recently retired as a long serving Councillor. Jenni was a strong supporter of the Chamber and a very active member of our petroleum industry.

Greg Anderson Executive Director

Documents

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