Business
PNG's Petroleum and Mining Industries in Trouble
But at least 3 new projects in the pipeline
Papua New Guinea, once described as a "mountain of gold floating in a sea of oil," is now in trouble with two of its industries - mining and petroleum. Enterprising foreign investors, who would race for a share in every new project in the early 90s, have stopped coming, while those who've settled in the country after striking it rich, are now planning to close shop and ship out.
And the news is not good for a country which gets almost a third of its revenue from mineral and petroleum exports. At one stage, mineral exports alone accounted for Kina 3.1 billion - 12 percent of Papua New Guinea¹s Gross Domestic Product.
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Initially, the country was so dependent on mineral exports that the closure of its first open pit mine, the Bougainville copper mine, threw the country into financial ruin.
At the time of the mine¹s closure in 1988, it accounted for nine percent of the country's Gross Domestic Product Compounding this, prices for a variety of agricultural commodities, central to its economy, tumbled on the world market. The result was a loss of foreign exchange earnings that halted the positive strides the nation's economy had been making.
Of particular concern among the two is the decline in the petroleum industry.
Figures released recently showed that petroleum production in 2000 averaged 69,540 barrels of oil per day, which will decline steadily to below 10,000 barrels per day by 2011, by which time oil fields will be sub-economic as their level of production will not justify the costs of operating them.
This will represent a loss in foreign exchange earnings of US$690 million at the current oil prices.
And there is no one more concerned than Prime Minister Sir Mekere Morauta. He warned the country could be in real economic danger if nothing substantial was done.
Speaking in Parliament, Morauta said: "I cannot tell you what the implications are. But I am told that if nothing happens of substantial nature in terms of revenue generation, we could be in trouble."
The problems in both industries came to light during a seminar in Port Moresby recently.
The Chamber of Mines and Petroleum, which represents the interests of mining and petroleum companies in the country, highlighted the problems faced by the industries.
Executive Director Greg Anderson said state revenue from the two sectors could dwindle reflecting the declining production curves in both industries. He said exploration was also at an all time low. The problems, according to the chamber, resulted from the tough taxation regime set by the government.
"The chamber understood that knowledge about this situation had led the government to institute last year¹s taxation review with the aim of creating a competitive, transparent and stable tax regime. We do not believe that this has been achieved.
"A number of the new provisions are inequitable, and several important taxation review recommendations that provide relief to the sector have not been implemented. This has eroded the industry's confidence in the new tax regime and created an atmosphere of uncertainty."
The chairman of the Port Moresby branch of the Australian Institute of Mining Metallury, Dr Graeme Hancock also shared the same view. Hancock said Papua New Guinea had the potential for many more mining developments, but exploration expenditure was at an all-time low. Government, he said, must ensure there was a conducive investment climate for mineral investment in order to attract more exploration companies.
"We all know that the mining industry as a whole has experienced a difficult period over the past few years due mainly to the protracted period of low gold and copper prices."
"However, the recent rise in copper prices, hopefully will restore some confidence in the sector and lift exploration activity," he told the seminar.
However, not all hope is lost.
Hancock said a number of projects were progressing towards ultimate development.
-The most advanced of these is the Ramu nickel project which has now reached the stage where it has received final development approvals.
Hancock said this is an exciting project and a particularly important one for Papua New Guinea.
If the project proceeds it will be the first mineral development project outside the normal focus on gold and copper.
-The Morobe Gold project, which includes the Hidden Valley deposit, is also in the process of completing a feasibility study.
A joint venture between Morobe Consolidated Goldfields and the Commonwealth Development Corpo-ration, it has been aggressively re-appraising the project over the past two years.
There is confidence, however, that the joint venture will continue to advance the project.
- The Frieda Copper/gold project, which received a setback in late 1999 with the withdrawal of Cyprus Amax Incorporation, following a merger with Phelps Dodge, is back on the drawing table. Highland Pacific Ltd is again looking for a joint venture partner to advance the project. Indications are that they are close to finalising an agreement with a new partner.
-Another project is the Kainantu gold project. This exciting new project is also held by Highlands Pacific Ltd. The high-grade gold prospect is on track for early development, Hancock said.
Each of these projects has the potential to contribute significantly to Papua New Guinea's economy. "We are very hopeful that each of these projects will reach full-scale development as soon as possible for the benefit of both the investors and the people of Papua New Guinea," Hancock said.
