Conflict over mining profits

Papua New Guinea

Robin Bromby reports on the financial, legal and political battles that have seen resources firms increasingly unwilling to risk investing in PNG’s minerals boom.

THE Papua New Guinea Govern ment has defused, at least for the moment, simmering land owner discontent over the question of

royalties from mining by foreign com

panies and has managed to convince the Enga provincial government to forgo part of its share of the payment coming from Placer Pacific Ltd’s $A10()0 million Porgera gold mine.

Landowners formerly received just

5 per cent of the royalty, with the pro vincial governments pocketing 95 per cent. Now the split which is ex pected to set a guideline for future mine deals is to be 20 per cent to the landowners and 80 per cent to the provincial government. As compensa tion, provincial governments will re ceive 1 per cent of the total export value of minerals from mines in tneir areas this money to come from general revenue but will be more tnan adequately covered by the central

government’s dividend receipts from

its share of the mines.

PNG Finance Minister Paul Pora says the new ratio will also apply to

the Bougainville Copper Ltd project,

the subject of drawn-out landowner attacks and even sabotage (see Pacific

Islands Monthly, January).

However, it is yet to be seen whether (or rather how long) this new deal will satisfy the people whose land is being used for mining. Indicative of just how great the demands could be come is the recent call from the Wau people for K 4 million and free equity in CRA Ltd’s Hidden Valley gold pro ject. The cash is seen as compensation for environmental damage, while free equity is a new development; not even the central government receives free

equity in a mining project.

While the claim is still modest com pared with the K 10,000 million being asked by traditional landholders from

the Bougainville project. The mining

companies must be hoping that the latest government move to adjust the royalty payments will silence those people making new demands; no min ing company would countenance handing over a percentage of shares free of payment. Even the national government has either to pay for its shares or forgo its proportion of a project’s income until that lost money equates with the value of the shares

being purchased.

But the politicians and landowners

who are arguing for a greater share of the country’s mining wealth have been

given new respectability by the presi

dent of the PNG Law Society, Peter Donigi, who last year wrote a paper arguing that the country’s constitution could be interpreted to the effect that landholders have claim to the own ership of the minerals beneath their land. Mr Donigi wrote at the time that his paper would shock the govern ment and private sector, but “we must not be accused by future generations of being imbeciles, unable to protect what is rightfully theirs.

“We must not be like the Canadian or American Indians or the Australian Aborigines” and allow the people’s re sources to be confiscated for the be nefit of non-citizens.

Mr Donigi’s argument is based on the fact that the Constitution makes no specific provision that all the land belongs to the State of PNG. He cites section 53 (1), which states explicitly that no property could be compulsori ly acquired except by act of Parlia ment, and that grounds exist for chal

lenges to the acquisition through the

courts. That means that no interest or right over property could be compul

sorily acquired by the State.

More recently, Kisakui Posman, a former mining law lecturer now work ing in Mr Donigi’s Port Moresby law firm, has issued a paper that attempts to rebut Donigi. Mr Posman puts tne case that the Mining Act, which gives the state authority to allocate mining rights, is constitutional, and that com pared to ownership by the people or

the provinces, ownership by the state

is more conducive to an orderly de

velopment of the mining industry.

According to Mr Posman,

by the people or provinces, whicn

would invite more cnaos than order, would render control and regulation of the industry less effective.”

Pre-independence mining ordi nances, including that of 1937,

drafted in public ownership of gold,

silver and all other minerals; gold and silver are covered by the 1966 ordi nance, which also makes provision for

acquiring mining leases.

The 1977 Mining (Amalgamated)

Act states that “all gold and minerals in or on any land in the country are the property of the State”. Mr Posman argues that Section 2 (2) of the Con stitution specifically gives the State

sovereignty over natural resources, and that the Constitution clearly leaves the ownership of minerals and other resources to Parliament to resolve.

Mr Posman argues that mining com panies will only invest the millions of kina necessary for exploration if the investment climate is stable and pre dictable, and there is already uncer tainty over many areas of customary land. “This uncertainty has been a source of tribal fights and tensions,” he says. “Instability and unpredictabil ity of ownership of land within PNG’s customary land tenure [do] not make for an investment climate that renders itself attractive to mining investors these problems are greatly minimised by the State’s ownership of minerals.”

Just how great is the commitment

required by mining companies was

illustrated in February, when the Syd ney-based Kundu Petroleum Ltd had its shares suspended in Australia while it restructured. It had spent |AIO mil lion sinking one well three times the cost of equivalent drilling in Au stralia. These high costs are borne be cause of the potential riches to be found, but new demands from land owners could raise questions of viabil

ity for some projects.

There is no Question that the indus try is alarmed by the demands is re

gard to the Hidden Valley prospect

and the Bougainville mine, and that the Donigi argument if it gained wide currency could just encourage more, even more inflated, demands.

There are questions about just how equipped the landowners are, or even the provincial governments, when it comes to negotiating with internation

al mining companies.

The National Government is acutely aware of the dangers, and the loss of confidence such demands could bring.

Many of the landowners would have little idea of the enormous costs in volved in the exploration of Papua New Guinea. As reported previously in PIM, Westpac PNG Ltd has warned

against companies believing they can

move quickly in the country, and that mining companies have to contend with mountainous or swampy terrain, high rainfall, earthquakes and a lack of infrastructure. Helicopter charters cost from SUS6OO a day, consultants SUS3OO a day: a seismic survey costs $A60,000 a kilometre compared with $7OOO a kilometre in Australia. □