INSIGHT

PNG's ownership of minerals and hydrocarbons

Government Oil & Gas Papua New Guinea Resources

In brief

The Papua New Guinea Constitution will be amended to reflect the state's ownership of hydrocarbons and minerals, under proposals to be put before the PNG Parliament. Partner Vaughan Mills and Senior Associate Sarah Kuman report on the implications of these amendments.

Background

In February this year, a proposed Constitutional amendment and Organic Law were published in the National Gazette.

The proposed amendments and Organic Law relate to the State's ownership of hydrocarbons and minerals and involve a restructure and consolidation of the interest of the State in mining and petroleum projects in the country, as well as in State-owned enterprises, and the commercialisation of those assets.

In a statement issued in March last year by the Prime Minister, Peter O'Neill, it was stated that the restructure was a major decision of Mr O'Neill's government to provide more transparency and accountability and more focus in the way the State's investment in mining and petroleum assets, and State-owned enterprises are managed. It was further noted in Mr O'Neill's statement that the restructure and the consolidation of these State-owned assets are necessary 'to remove inefficiencies and duplication and overlapping of participation'.

Currently, ownership and management of State-owned entities and assets is spread among a variety of bodies, including the Independent Public Business Corporation of Papua New Guinea (as trustee of the General Business Trust), Petromin PNG Holdings Limited and National Petroleum Company of Papua New Guinea (Kroton) Limited.

The proposed law to alter the Constitution

The proposed Constitutional amendment will add a new section to the Constitution that provides that 'hydrocarbons and minerals in their natural state are, and always have been, the property of Papua New Guinea'.

This is confirmation of the present legal position under the Mining Act 1992 and the Oil and Gas Act 1998 but elevated to Constitutional status.

The proposed Constitutional amendment appears to be a response by the PNG Government to provide a higher level of certainty around the question of resource ownership and to confirm the existing law. This follows calls from some quarters for the ownership of PNG's resources to be vested in landowners, calls that have to varying degrees unsettled investors.

The amendments also provide for the creation of Organic Laws that may make further provision for:

  • PNG's interests in hydrocarbons and minerals, including the development of, disposal of, and dealing with the consolidation and commercialisation of those interests; and
  • PNG's business activities and interests, and may provide for the development of, disposal of, and dealing with the consolidation and commercialisation of those interests.

Proposed Organic Law

The proposed Law sets out the structure of what are called the 'Kumul Companies' through which the Government will be reorganising ownership of its interests in mining and petroleum projects, as well its ownership of State-owned entities.

It provides for the framework in which the Kumul Companies will be established and operate and make distributions, as well as around their management and corporate governance. There are provisions to the effect that the Kumul Companies are not to be regarded as the State – similar to provisions in the Petromin PNG Holdings Limited Authorisation Act 2007 in respect of Petromin.

The proposed Law also contains open ended non-prescriptive and non-specific provisions about the State's entitlement to participate in petroleum and mining projects, through nominated Kumul Companies. Provision is made for further Acts to give effect to these general provisions, including, if relevant, to the means by which the State's participation entitlements are exercised, setting out the terms on which costs may be reimbursed and the terms of ongoing participation. It is not clear whether this is intended to consolidate and confirm current arrangements and processes by which the State participates in projects, or it signals an intention for changes to come, perhaps following completion of, for example, the Mining Act and tax reviews currently underway.

Conclusion

The earliest that this proposed constitutional amendment and Organic Law may be presented in Parliament is at the next sitting commencing on 6 May 2014, and the earliest they may come into force after that is August this year, after the Parliament sitting scheduled for that month.

In order to pass the constitutional amendments and the proposed Law, a two-thirds majority vote in Parliament is required in both cases. The O'Neill government currently enjoys an overwhelming majority in Parliament.

The changes to the Constitution and the proposed Organic Law will be of particular interest to developers of projects currently in or about to reach production stage. Provisions in the proposed Organic Law suggest that existing mining and petroleum projects in respect of which the State's participation rights have been exercised or waived, will not be affected.