Papua New Guinea sends team to Singapore to improve poor LNG deal -Meanwhile, Guyana unmoved on lopsided Exxon contract

Aug 16, 2019 News

Newly appointed Prime Minister of Papua New Guinea, James Marape, is demonstrating that he means business when he commented last month, that he will do what it takes to improve natural resource deals signed with international companies.

President, David Granger

Prime Minister of Papua New Guinea, James Marape

Just yesterday, a team from Papua New Guinea’s Ministry of Petroleum was sent to Singapore to renegotiate the terms of the Papua New Guinea (PNG) LNG Gas Agreement that was signed with ExxonMobil, Oil Search, Total and the former Papua New Guinea administration in April last.
Even though this deal could double the country’s gas exports, the new PM says it is disadvantageous and needs to have more participation and profits going to the locals.
Furthermore, PNG’s Petroleum Minister noted in a statement that success in the discussions could lead to an early progress of the project. But by the same token, failure could have very serious ramifications. He also said that the team is expected to return next week.
In the meantime, President David Granger continues to maintain that the lopsided deal with ExxonMobil and its partners for the Stabroek Block will not be renegotiated.
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.
The paltry two percent royalty is just one of the many provisions considered by industry analysts to be abnormal and in urgent need of regularisation.
Specifically, University of Houston Instructor, Tom Mitro, recently pointed out 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 may countries have recognised how much they are losing in this regard and are already imposing the tax. He recommended that Guyana does 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 licence 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.