Production levy introduced for Papua LNG

A production levy has been introduced in the fiscal arrangement of the Papua LNG Project to ensure that PNG benefits from gas sold even if gas prices drop.

Treasury Secretary Dairi Vele said this during a recent media conference.

The Treasurer also announced several other components of the fiscal terms of the Papua LNG Project which he said equal or are better than the PNG LNG Project.

“Production levy is just an extra tax, as it comes out of the ground, that’s where we tax you. Unlike the profitability of the company where we have to wait and see if the price is good and if the company has done good and if they paid their debts.

“In relation to production levy, that’s not an issue, it comes out of the ground, they sell it and we take a percentage of it flat, which means that when prices are down at least Papua New Guinea can be assured that it takes a level of taxation that was not there previously.

“It also is applicable from day one, so whilst for some of the other taxes we have to wait 10, 11, 12 years, for this particular one, it applies on day one. So again we’ve met our goal of having earlier taxes,” said Vele.

He said while a production levy is not included in the PNG LNG Project it does not mean it was not pursued.

“That’s not too say under PNG LNG we did not ask for those things, we did ask for those things, but the negotiation balance was such that we didn’t have the strength to achieve those things. Now that we’ve got the next project, we are able to get some more, and in the future projects we also expect that we will get some more,” said Vele.

The Secretary said the current fiscal terms equal or are better than the PNG LNG Project.

Among them include:

  • Corporate tax rate of 30 percent
  • A foundation volume of 10.3 trillion cubic feet of gas with an option to renegotiate tax rates when that volume of gas is processed out
  • 5 percent of production for Domestic Market Obligation at $4.50 per unit.
  • Sunk cost loan facility of 50 percent by Papua LNG Project partners with a 7 percent interest rate over five years
  • Additional profits tax with a threshold of 15 percent
  • Investment allowance incentive
  • National content plan
  • Third party access and strategic pipeline
  • Project marketing, where unlike PNG LNG, all partners under Papua LNG will sell their own gas.

Kikori MP Soroi Eoe said this was a good deal for the Province.

“This is a better deal than what has happened in PNG LNG,” said Eoe.

Gulf Governor Chris Haiveta said negotiations are ongoing to finalise extra benefits not contained in the Oil and Gas Act.

“The Provincial Government has been seeking extra benefits and that’s the reason why we have been negotiating an MOU or head of agreement and these are extra benefits over and above what is contained in the oil and gas act and gives 2 percent. The extra 5 percent, which is a policy we’d like to be applied under a Head of Agreement,” said Haiveta.

The media conference was hosted by Deputy Prime Minister and Treasurer, Charles Abel, and attended by Minister for Community Development, Youth & Religion and Kikori MP, Soroi Eoe and Gulf Governor, Chris Haiveta.

(Treasury Secretary Dairi Vele)

Cedric Patjole