In Papua New Guinea, we have companies that made windfalls in billions of kina, and one wonders how much they’ve brought to this country. They may have come to this country with an empty briefcase, and we’ve filled them up bountifully. Sam Koim.
Submissions at Commission of Inquiry into Papua New Guinea UBS
By Sam Koim, OBE | 12 Aug 2021.
Commissioner General of Internal Revenue Commission of Papua New Guinea
You would note from my statement and the Stamp Duty is calculated on the land-rich asset, less the mining information.
The land-rich asset was valued at USD825m, and the stamp duty calculated at 2% is K40m, which was paid. The mining information was valued at about USD75m, and stamp duty is not chargeable.
The irony is, all that PAC LNG produced of worth, if anything, was the mining information – the discovery information acquired during the prospecting stage.
And for that matter, all that Inter Oil produced and was worth was the information they acquired during the prospecting stage over Papua LNG.
PAC LNG and Inter Oil, for that matter, had not done anything to add value to the land-rich asset. Whatever expenditures they incurred was to acquire information that is also valuable.
At the moment, there are no rules to govern how companies like PAC LNG and Inter Oil farm out or sell the information they acquired during the prospecting stage. They sell land-rich assets as well.
It now begs the question: whether, during the prospecting stage, they owned the land-rich asset as well as the mining information.
The Mining Act and the Oil and Gas Acts, respectively, vests ownership of subsurface resources in the Crown, the State.
At what stage does it get transferred to the Mining or Petroleum Company? Does the ownership get transferred during the prospecting stage or the Petroleum Development Stage?
Because this transaction sold not only the information PAC LNG and InterOil acquired but also the intrinsic value of the tenement itself.
So I guess the academic question now is: Did the State transfer the land-rich tenement to PAC LNG and InterOil, because they sold it to Oil Search and Total?
The next question that needs to be asked: “what is the compensation for transferring the ownership of our subsurface resources?” You transfer a land title and you get paid. We are giving away something of value, but what are we getting in return?
Is the compensation in equity participation? We pay for that equity so its not free! Is the Compensation in Taxes? Every business operating in the country pays taxes; hence it’s not unique to the Mining or petroleum sector.
The tax regime for mining and petroleum is profit-based and riddled with complex calculations, and very concessionary.
You see, we have companies that made windfalls in billions of kina, and one wonders how much they’ve brought to this country. They may have come to this country with an empty briefcase, and we’ve filled them up bountifully.
All the State made out of this transaction was lousy K40m in stamp duty. But that stamp duty was paid by the purchaser and not the seller. Oil Search paid it through the monies supplied by the State.
PAC LNG and Mulacek and Civelli’s laughing their way to the bank.
There was no Capital Gains Tax to tax them on the gains they made. We are therefore proposing the Government pass the Capital Gains Tax quickly.
We have not realized how precious the production of information has been until this transaction. We are learning costly lessons, and we need to address the policy and legislative gaps and extract adequate rents from our resource endowments.