PNG Tax Reform, Not Overseas Aid

In the PNG news, there is an article by Isaac Nicholas that quotes the
results of a European Union funded geological survey. The survey data
apparently revealed potentially large mineral deposits in the PNG Highlands. The minerals mentioned were copper, gold, silver, zinc, chromium and nickel.

“The mineral potential is very high based on the results we have so far,” GEOMAP chief geologist Dr John Aspden was quoted as saying. “Eight mining companies, including Barrick, BHP and Rio Tinto have bought the data which is strategic information needed to mine the resources.”

EU acting head of delegation Dr Ray Beese said the project was to help the PNG government identify the mineral potential of the country.

In a news article in January 2010 written by journalist Mohammad Bashir, geologist Jerry Barry is quoted as claiming he estimates the Ramu Nickel mine is worth more like $US34 billion and not $US1.7 billion the mine’s 85% ownership was reputedly sold to foreign owners for, by the PNG government.

On the 4th of February 2010 the website Ramu Mine Watch claimed The Lihir Gold Mine profited by US$500 million in one year alone yet paid no taxes to Papua New Guinea. “The Ramu Nickel operation which is owned and operated by the Chinese will dwarf the Lihir gold mining operation in its size but all
the signs are that it will be an even bigger financial disaster for Papua
New Guinea”, the article said.
In an article by Probe International dated 11th of May 2010, it repeated a claim by African leaders that “the African continent lagged behind most other parts of the world when it comes to tax collection.”

African Development Bank President Kaberuka is quoted as saying, “Tax to GDP percentage in Africa is still the lowest at only 7 per cent.”

The Probe article also highlights “Other leaders in the developing world have made similar remarks. Late last year, Pakistan’s Federal Minister for Finance and Revenues Shaukat Tareen admitted that if the government fixed the nation’s broken tax system, it would not be forced to accept foreign aid from Western countries.”

Finally the Probe reports says:”Their remarks also echo those of Dambisa Moyo, the former Goldman Sachs economist and author of the last year’s best-selling book “Dead Aid”. Moyo argued that foreign aid is not only ineffective in promoting development, it is an impediment to it. In regards to taxation, she said that foreign aid displaces domestic revenue from taxation-and does so with terrible results.

“Foreign aid programmes, which tend to lack accountability and checks and balances, act as substitutes for tax revenues,” she wrote. “The tax receipts this releases are then diverted to unproductive and often wasteful purposes rather than productive public expenditure (education, health infrastructure) for which they were ostensibly intended.”

The breakdown of the tax system, Moyo wrote, can have serious political ramifications, as “the absence of taxation leads to a breakdown in natural checks and balances between the government and its people.”

So where does that leave the people of Papua New Guinea and their taxation
system?

Sadly lacking for want of government scrutiny and at the apparent mercy of the impact of overseas aid, one would assume.

______________________________________________________________

Probe International African leaders call for tax reform, not foreign aid

Probe International Tuesday, May 11, 2010
A number of African leaders are now saying that foreign aid is no longer the only answer to economic development of the continent. Instead, they are calling for reform of the tax system, pointing out that Africa currently has one of the lowest tax-to-GDP ratios in the world.

Speaking at a conference at the World Economic Forum on Africa, South African Finance Minister Pravin Gordhan, Mozambican President Armando Guebuza and African Development Bank President Donald Kaberuka, admitted that the African continent lagged behind most other parts of the world when it comes to tax collection.

The former Rwandan Finance Minister and now African Development Bank President Kaberuka stressed that, although the continent needs to find ways to attract more foreign investments, it must also learn to finance its own operations and development programmes through tax collection.

“Tax to GDP percentage in Africa is still the lowest at only 7 per cent,” he said.

Tax-to-GDP ratio is the ratio of tax revenues to gross domestic product, and is widely used as a measure of the state involvement in national economies.

A very low tax-to-GDP makes it difficult for countries to raise funds
internally to pay for government operations, forcing them to rely on outside financial assistance such as aid, which hampers public accountability and, ultimately, economic growth.

Reforming the tax system, said Mr. Guebuza, would help to ease the continent’s dependence on handouts from foreign donors.

“We know what we want.we know how to get it,” he said, stressing that a heavy reliance on foreign aid can no longer be the continent’s solution to development.

Other leaders in the developing world have made similar remarks. Late last year, Pakistan’s Federal Minister for Finance and Revenues Shaukat Tareen admitted that if the government fixed the nation’s broken tax system, it would not be forced to accept foreign aid from Western countries. His comments came in the wake of street protests by citizens and heated debates by lawmakers in the country against a $7.5-billion aid package from the US, known as the Kerry-Lugar bill.

Their remarks also echo those of Dambisa Moyo, the former Goldman Sachs economist and author of the last year’s best-selling book “Dead Aid”. Moyo argued that foreign aid is not only ineffective in promoting development, it is an impediment to it. In regards to taxation, she said that foreign aid displaces domestic revenue from taxation-and does so with terrible results.

“Foreign aid programmes, which tend to lack accountability and checks and balances, act as substitutes for tax revenues,” she wrote. “The tax receipts this releases are then diverted to unproductive and often wasteful purposes rather than productive public expenditure (education, health infrastructure) for which they were ostensibly intended.”

The breakdown of the tax system, Moyo wrote, can have serious political ramifications, as “the absence of taxation leads to a breakdown in natural checks and balances between the government and its people.”

—————–

Ramu Mine Watch

February 4, 2010…11:08 am
Will the Ramu mine be another big rip off – just like Lihir?

With community outrage over revelations about the true size and value of the Ramu nickel deposit still simmering, figures released by the Lihir gold mine in New Ireland province Papua New Guinea, which delivered a US$500 million profit in 2009, reveal the extent to which other mining companies are profiting from their extraction operations.

The Lihir gold mine produced a record 853,000 ounces of gold in 2009 – boosting Lihir Group Ltd’s global production to over one million ounces for the first time (LGL also mines gold in Queensland, Australia and in Cote d’Ivoire in Africa, although the Lihir mine accounts for some 75% of total gold production).

The Lihir mine is also one of the lowest cost mines in the world, according to the company. Total cash costs of the Lihir groups mining operations in 2009 were US$397 per ounce.

With the gold selling price averaging at US$1,000 per ounce during 2009, the company figures reveal that the mine was delivering a profit of over US$600 per ounce of gold produced – over US$500 million in total.

A profit of over US$500 million in one year from one mine – yet the company pays no taxes in Papua New Guinea.

Perhaps it is no surprise that PNG is ranked as one of the poorest and least developed nations in the world – despite its enormous natural resources which include oil, gas, copper, timber and tuna as well as gold, silver and nickel – when it allows overseas companies to quite literally steal its gold.

The Ramu Nickel operation which is owned and operated by the Chinese will dwarf the Lihir gold mining operation in its size but all the signs are that it will be an even bigger financial disaster for Papua New Guinea.

January 29, 2010…2:57 pm
Ramu Nickel mine “broad daylight rape” of PNG

A leading Papua New Guinea geologist says the Ramu Nickel mine has been massively undervalued and is another example of the “broad daylight rape” and exploitation of Papua New Guinea’s resources.

He claims the US$34 billion mine has been sold to the Chinese for just 5% of its true value.

“Sadly, the [PNG] government is continuously under selling
multi-billion-dollar resources because it lacks analytical skills” says geologist Jerry Barry in a story by Mohammad Bashir in today’s Post Courier newspaper. This lack of knowledge and skills is further compounded by greed and ignorance says Barry.

Mr Barry calls on the government to “act radically and swiftly in changing the current trends in order to maximise realisation of the natural resources for PNG” he says.

Mr Garry estimates the Ramu Nickel mine is worth $US34 billion and not $US1.7 billion as is commonly reported..

“For brevity, Ramu laterite deposit contains 1.44 million tons of nickel and 0.143 million tons of cobalt . At today’s buoyant prices of 9US$/lb for nickel and 20US$/lb for cobalt, the in-situ value of contained nickel and cobalt in the Ramu project stands at about $US28 billion and $US6 billion, respectively. So the actual value of Ramu nickel cobalt project is $US34 billion or K92 billion at today’s prices”.

Mr Garry, who has worked with many international exploration companies added that the mine will produce in excess of 31,000 tons of nickel and 3300 tons cobalt annually for a period of 20 years (with the potential for up to 30 years).

“The worth of these metals produced annually may exceed $US750 million subject to fluctuating metal prices and production capacity. This is
somewhat equivalent to well over K2 billion every year at today’s exchange rate and metal price,” he said.

Mr Garry said sadly, 85 per cent of the ownership of the Ramu mineral
resource was sold to MCC, the Chinese state owned enterprise for a mere 5 per cent ($US1.7 billion) of the total value of this mega resource.

“To set the record straight, the present value of Ramu mine is worth about $US34 billion (K92 billion) and not $US1.7 billion (K4.6 billion) at today’s price but unfortunately very little if not none will be reflected in long-term tangible development in PNG”

__________________________

Post Courier: Wednesday 16th June, 2010

Firm for LNG cash

Govt sets up company, separate from IPBC to control LNG windfall

By ERIC TAPAKAU

LOBBYING is intensifying for the positions of chairman and chief executive officer of Papua New Guinea’s newest state entity -­ Kroton No.2 Limited.

The National Executive Council recently approved the separation of Kroton No.2 Limited from the Independent Public Business Corporation (IPBC) entity to manage the country’s windfall from the Liquified nATURAL gAS PROJECT.

The Government’s view is that its LNG equity is too large and important to remain within the normal IPBC portfolio and that it needed an independent board and management so it could contribute effectively in its role as the joint venture partner as well as looking after the Government involvement in the project.

It is likely Papua New Guineans will be appointed to these two top positions however, with the significance of the PNG LNG project active consideration is being given to these positions before to their appointments are announced.

LNG projects are new to the country and the top management teams of the company will have to properly understand the operations of such a project.

The State has a 19.6 per cent interest in the PNG LNG project led by Esso Highlands Limited, a subsidiary of ExxonMobil and 16.6 per cent will be held by Kroton No. 2; an additional 2.8 per cent is held on behalf of landowners by the Mineral Resources Development Company (MRDC) Ltd; and 0.2 per cent by Petromin PNG Holdings Ltd through its subsidiary Eda Oil Ltd.

The overall $US15 billion (K40 billion) cost of developing the PNG LNG project, which excludes shipping costs, will enable PNG to export 6.6 million tonnes of LNG annually to customers in China, Japan and Taiwan.

Prime Minister Sir Michael Somare said cabinet recently endorsed the
establishment of Kroton No. 2 Ltd as the fully functional petroleum company with the appropriate resources to adequately represent the State’s interest in the PNG LNG project.

Total revenue to the country through different interests would be in the vicinity of K25 billion over the 30 year life of the project and this will
increase if the project reports an additional profit after an agreed period of time.

Sir Michael said since Kroton No.2 Ltd was wholly owned by the State,
through the General Business Trust, it was imperative that Kroton played the leadership role in the commercial development of the hydrocarbon industry in the country.

“To facilitate this, cabinet has endorsed the functional separation of Kroton No.2 Limited from the Independent Public Business Corporation (IPBC) to allow the former to develop into a national hydrocarbon development corporation while IPBC focuses on value-adding and management of the General Business Trust,” Sir Michael said.

“IPBC will remain as shareholder in Kroton No.2 Ltd until the maturity of the existing funding arrangements with the International Petroleum
Investment Company (IPIC) of Abu Dhabi. Thereafter, the shareholding will be reviewed.”

Minister for Public Enterprise Arthur Somare, the Department of Public
Enterprise and IPBC have been directed to speed up the necessary logistical requirements to enable the office to be fully functional and report back to the NEC. Landowners from Hides and Portion 152 yesterday called on the Government to consider them directly on the board of Kroton and they also wanted the chairman of the board to come from the landowners.

“The Government has been unfair on us all this time and we are requesting the Government to seriously consider us by allocating up to 50 per cent of the seats on board if possible,” they said yesterday.
_______________

The National 16 Jun 10

Highlands boasts high mineral content: Survey
Source: By ISAAC NICHOLAS

A EUROPEAN Union (EU)-funded geological survey has found relatively high mineral potential in the country’s highlands region.

The survey, covering Eastern Highlands, Chimbu, Western Highlands, Enga and Southern Highlands, was conducted by GEOMAP and the Mineral Resources Authority (MRA).

GEOMAP is a five-year EU-funded project that is part of the mining sector support programme (MSSP) launched in 2006.

The survey data, presented by EU officials to Foreign Affairs Minister Sam Abal, showed 48 elements including copper, gold, silver, zinc, chromium and nickel among other minerals.

EU acting head of delegation Dr Ray Beese said the project was to help the PNG government identify the mineral potential of the country.

He said the project also included certain parts of Sepik and Madang,
covering 40,000sqkm the last four years.

Beese said the geological survey in the Wabag area revealed quite
interesting potential of copper and other minerals.

GEOMAP chief geologist Dr John Aspden said the survey was to help provide information to the mining sector.

“Eight mining companies, including Barrick, BHP and Rio Tinto have bought the data which is strategic information needed to mine the resources.

“The mineral potential is very high based on the results we have so far,” Aspden said.

“Because of Porgera, Yandera and Frieda mines, the survey worked in between these areas to identify new potential mineral deposits,” he said.

Abal, who is also Wabag MP, said he was alarmed by the number of prospects available in the highlands.

“We want to participate in mineral wealth and this kind of information is vital.

“The geological survey map gives the people and government a big advantage to plan ahead on how to participate in the projects,” Abal said.

“We welcome the EU support that will give investors the opportunity to do desk-top analysis on the data.”

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One thought on “PNG Tax Reform, Not Overseas Aid

  1. My heart aches for PNG. Somare needs to go, and the country needs to be run by people who have enough education to operate outside tribal culture. As long as every decision made by the politicians is designed to benefit their lain, their wantoks, at the expense of others… then the country will continue to suffer.

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