The Pato that Laid the Golden Eggs

By Emmanuel Narokobi

Bipo Bipo tru lo wanpela lilik ples klostu long Tabubil, wanpela man na meri bin hamamas stret long wonem ol i bin gat wanpela kain special pato. Dispela pato save karim ol golden kiau long olgeta dei. Tasol tupela marit yah ol wok lo tingting planti na ol tok, “ating sopos yumi katim dispela pato na opim insait blong em bai yumi ken kisim planti moa gold” Tasol sore turu long ol, long wonem taim ol kilim pato na opim bel blong em, ol i lukim olsem pato nogat gold insait, bel blong pato i wankain tasol olsem ol narapela pato.

Tupela sore nau na sindaun stap, nogat moa gold lo hamamas nau.

Over the weekend I was super lucky to have been sent on a trip to Tabubil by a website client of mine. This involved visiting their operations and the nearby villages and as many will tell you about Tabubil, the first thing that strikes you is how clean and safe the town is. You have to understand I’m a city slicker from Port Moresby so when I was told that walking at night in certain unlit parts from my accomodation to the Golf Club was safe, I was a bit sceptical. But I thought hey I’m big and ugly enough so I’ll give it a go and anyway I have an umbrella in my hand so I can use that as a weapon if the rain doesn’t get to me first. As I walked down to the Golf Club I passed several children and women and then some white lady doing her evening walk, so I can confirm now to the whole world (and myself) that Tabubil is perhaps the safest town in PNG.

So on my first night I had some beers with the media faces of Tabubil plus one notorious AAP journalist whom I will not name. As usual the chatter at the table started with how peacful the town was, how rich the landowners were and then the PNG Sustainable Development Programme (PNGSDP) and its track record thus far. It’s no secret the grumblings in government about what they would like to do with the billion kina development fund. PNG Treasurer Peter O’Neil has been the latest critic of how slow PNGSDP has been in delivering on projects. In PNGSDP’s defence though Opposition Leader Mekere Morauta responded with the following statements:

“The Prime Minister, Treasurer and Planning Minister should be reforming the institutions that have become dysfunctional in the last eight years, the[re are] scores of institutions that are in intensive care, requiring resuscitation…Don’t kill others that are working.”
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“Their real interest is getting their hands on the money, not on solving environmental issues in the Western province…and since when has the Government proved itself an efficient spender of development funds?… why should the Department of National Planning have access to PNGSDP money, when it can’t spend its own money properly?”
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I do understand Peter O’Neil’s frustrations and perhaps he is right about dissatisfaction on the ground. My visits to the villages were certainly revealing. Although they were living in permanent houses with electricity and running water, I couldn’t help but wonder if they could be living 500% better than this considering the billions of US dollars that have been made from the OK Tedi mine over the last 30 years. Tabubil is a mining town controlled by OK Tedi but just outside Tabubil you can see the settlements that have been growing rapidly over the last 2 years alone and then the rest of the highway down to Kiunga which is all the same village style living that has not changed much since the mine started. I also wondered as I stared at a run down school if there would be any children from Western Province who will be educated enough to one day manage big businesses or large government bodies one day in their own Province.
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Who is to blame for this lack of development in Western Province? PNGSDP is pretty much a new kid on the block, so what has the National and Provincial Government been doing all this time?  Or is it the fault of state entities managing landowner money?
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Being a landowner doesn’t mean you become an instant millionire and this is something that our new landowners from the PNG LNG project need to learn. The truth is landowners don’t really have that much money and so we have all these people running around killing each other over unrealistic expectations. For example for the OK Tedi mine, the landowners interest are held in a body called Mineral Resources Star Mountain (MRSM) which is managed by Mineral Resources Development Corporation (MRDC).  MRSM’s interest in OK Tedi is only 2.5%. Now note that this 2.5% does not get to the landowners yet, it has to be invested by MRDC before dividends can then flow to the landowners. So how much money are we talking about? Well in 2005 MRSM was only worth K29.7 million and from latest reports in 2009 it is now worth about K141 million. Total dividends from all the projects and handed out by MRDC to landowner companies in 2006 was only K25.6 million. So where has all the money gone in the last 20 years?
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MRDC management has seen some new blood in recent years so I have better hopes for the future of MRDC compared to its rocky past. A great example of the standard our landowner companies should be at is Petroleum Resources Kutubu (PRK), again a landowner company managed by MRDC. The late John Kapi Natto and family managed PRK and with their recent success in diversified projects like the Hekari football team and investments in blue chips like a 10% stake in Bank South Pacific, you can see why their portfoilio grew to K476.15 million in 2008.  I’d say they’d be apporaching a billion kina by now.
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So it seems to me that Government has let down landowners by not bringing services into these development areas. MRDC is only an investment company, not a development fund or a government for that matter. So if the government had to tap on PNGSDP’s shoulder then what good reason would there be for PNGSDP giving government access to its funds?
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The plain and simple answer is absolutely none. It was by pure accident or short sighted thinking that BHP and the National Government stumbled into the waste dumpings mess. So by the luck of the stars and planets an opportunity arose for Sir Mekere Morauta to steer BHP’s shares towards the creation of the PNGSDP. So the truth is PNGSDP is a happy accident (to a small degree). None of the National Government’s business deals, policies and laws ever allowed for the people of Western Province to prosper beyond their villages and this was despite the fact that OK Tedi still contributes to 20% of PNG’s GDP. Even MRDC did not now show any progress in the MRSM portfolio value until just recently.
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So back to PNGSDP. Yes it has its grey areas, like the recent reports on its Chairman Ross Garnaut defending his Lihir mine. Yes the company is registered in Singapore, yes the board’s accountability to the people of the Western Province is  highly questionable. Not to mention that perhaps the current board is a bit old and stale and a more managers then entreprenuers with a vision. But unfortunately in PNG issues are never straight out black and white and so among the various shades of grey, one will have to go with the lighter greys. One important shade of grey that stands out to me in PNGSDP is its Governance and Transparency. You would be hard pressed asking any government development entity to be able to produce an annual report with consistent financials up to 2009. So yes PNGSDP is abit slow, but at least we know where the billions are, so we can still discuss and plan for the future. Think of it which is easier to prod and poke for change the PNG National Government or the PNGSDP board?
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My belief is that PNGSDP is the only working model we have now for effectively converting financial wealth into social developmment. Why not give PNGSDP and MRDC direct equity in the projects. The National Government can then simply collect tax from all the economic activity. Why does the National Government want to get involved in day to day business? More importantly how can we trust the National Government?
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In Mekere Morauta’s Contract in 2000 with Highlands Pacific, the National Governenment reserved the right to take up to 30% equity in the Ramu Nickel project once operational. However in 2006, Sir Michael Somare in his wisdom amended the agreement this time with the Chinese Metallurgical Group Corporation (MCC), to never take up that option so that we could stay with the whopping 6.3% equity.
 
In addition, Mekere’s contract had a two tier tax scheme to give an incentive for a developer. In 2000 the nickel price was suppressed – at about $7000 per tonne – the contract provided for a corporate tax rate of about 15% for the first 5% profit and then for all profit, after that tax would be at the normal rate of 30%.  Somare’s beautiful contract work removed that tax clause and replaced it with a 10 year tax holiday to kick in whenever MCC feels the need to be generous.  On 2000 prices we could estimate that this masterstroke “amendment” cost PNG K162 Million but now that the nickel price is about US$23,000 per tonne, the mind boggles at how much was really given away.
 
Further more, there is a nice transfer pricing clause in the new contract, which was not even in Mekere’s – the new clause states that the parties recognise that MCC will sell nickel to related companies in the Chinese domestic market.  Full stop.  It doesn’t say “at international market price”.  So if you are a buyer in new York who is willing to pay $23,000 per tonne and one of MCC’s brother or sister companies in China want to pay $7000 a tonne – MCC can just sell to the one in China and the parent company gets $23,000 worth of benefits per tonne for only $7000. Which all means that MCC would never have to declare a profit or tax for that matter, ever and for our measly 6.3% we will undoubtedly never get a declared dividend.
 
With all our new projects coming online in the next 10 years, have we or will we learn anything from the Ok Tedi experience? Why do you think Ramu Nico is having such a hard time with the landowners. Why do you think we lost Bougainville Copper Limited (BCL)? So I have to ask, with Peter O’Neil and friends sharpening their knives in the house-cook, can we afford to slice open this slow waddling pato?