The Papua LNG tax break that James Marape left out

by PAUL L. KEBAIJA

Petroleum Minister Jimmy Maladina has now told the country what the Prime Minister's statement on last week's Papua LNG bills did not. Among the four amendments Parliament passed unanimously on 22 October is what he called a "limited advanced depreciation arrangement". It lets qualifying Papua LNG capital spending be deducted against PNG LNG income, within specified limits, from 2029 to 2032.

That is the most consequential line in the package, and it was missing from the Prime Minister's account. His release stressed that headline corporate income tax and production levy rates were not permanently cut, described a price-linked benefit-sharing mechanism, listed the extras the State secured, and said landowner royalties and levies remained "fully protected". It did not mention that PNG LNG's taxable income would shrink for four years to help pay for a different project.

Ring-fencing exists for a reason. Each petroleum project is normally taxed on its own income, so the State keeps collecting from a producing field while its owners build the next one. Letting Papua LNG's construction costs flow into PNG LNG's tax return breaches that wall. PNG LNG is the State's petroleum workhorse: Maladina told Parliament last year that it paid K14 billion in tax between 2015 and 2024. From 2029, part of that stream will instead help finance Papua LNG.

The deduction has clear beneficiaries. It is only worth something to companies that earn PNG LNG income. ExxonMobil, which now operates both projects, and Santos hold the two largest stakes in PNG LNG and are both partners in Papua LNG. TotalEnergies, which ran Papua LNG until this month, has no PNG LNG stake. The benefit flows mainly to the partners who sit on both sides of the ledger.

Nobody has said what it costs. Limits that have not been published are not limits the public can check. Parliament should have been told the cap on deductions, Treasury's estimate of tax forgone in each year from 2029 to 2032, and how that sits against the forward estimates. In effect, the State gives up revenue it can count on from a producing project in exchange for revenue it hopes to collect later from one not yet built.

The price-linked mechanism compounds the exposure. Below a neutral benchmark of US$81 a barrel, the State supports the project; above it, the State collects a premium; each side is capped at US$1.95 billion. The symmetry exists on paper only. The incentive costs the Treasury when prices are weak, and the premium pays only if prices rise. Combine that with a four-year cross-project deduction and the State is absorbing the developers' risk from two directions.

Maladina presents the PNG LNG extras as the return: better royalty calculations, domestic gas pricing, community power and an option on a further 2.5 per cent of Papua LNG. None has been given a kina value. The 2.5 per cent is an option to buy equity, which the State must find money for. An honest account would set the tax forgone beside the value of those extras and let the public judge the trade.

The unanimity should worry voters more than it reassures them. A fiscal stabilisation law freezes a project's terms for decades, and this one passed without a dissenting vote. The Government's accounts of the day record no debate on PNG LNG's tax base. PNG has been here before. In October 2019, Parliament passed ten Papua LNG amendment bills to enshrine the O'Neill government's gas agreement, terms later revoked and renegotiated. The House has now legislated a second set for a project that still has no final investment decision, with a 15 December deadline.

Landowners were told their royalty and levy entitlements are protected. Protected is not improved, and the questions still open in Gulf, from clan vetting to social mapping to consent, were not touched. In August, gasfield clans publicly withdrew their consent. The day after the vote, a government minister told the Bougainville debate that PNG's petroleum laws remain colonial. He did not explain why the House had just amended them without dissent.

Maladina says the bills secure a fair return for PNG. Then publish the evidence: the revised gas agreement, the deduction cap, Treasury's estimate of forgone PNG LNG tax, and the method behind the US$81 benchmark. If the deal is fair, the numbers will show it