JAMES MARAPE'S KUMUL TAB

by PAUL L. KEBAIJA

The Prime Minister counts an option on a further 2.5 per cent of Papua LNG among the State's gains from last week's bills. An option to buy is not a gain until someone works out who pays, how, and at what price. On those questions the Government has said nothing.

The State's existing entitlement is already large. Under the 2019 gas agreement, Kumul Petroleum holds the right to 22.5 per cent of the project, with 2 per cent of that carried on behalf of landowners. At a project cost of about US$14.5 billion, 22.5 per cent of capital spending is roughly US$3.3 billion. In 2019 the partners agreed to carry Kumul's share, meaning they fund it up front and recover it, usually with interest, from the State's share of production. A carried stake is not free. It is a loan secured on the gas.

Add another 2.5 per cent and, pro rata, roughly US$360 million more of construction cost attaches to the State's side. Whether the option comes at cost, at a premium or with its own carry has not been disclosed. Nor has when Kumul could exercise it, or how long it lasts.

Kumul's recent record on equity is a warning, not a reassurance. In 2023 it bought a further 2.6 per cent of PNG LNG from Santos, paying US$576 million in cash and assuming about US$160 million of project debt. It financed the purchase with a syndicated loan that included Bank of China, ICBC and the Bank of Communications, and took a call option on another 2.4 per cent for US$524 million. At the time, Kumul's managing director said the borrowing would not affect its ability to take up the State's full 22.5 per cent of Papua LNG. The public has no way to check that, because Kumul's borrowing, repayment schedule and dividend capacity are not reported in enough detail.

Every dollar Kumul borrows is a contingent liability for the nation. If gas prices fall or production disappoints, the State company still owes its lenders, and the shortfall lands on the budget through lower dividends or direct support. The price-linked incentive already exposes the Treasury when prices are low. A bigger equity stake, financed with debt, exposes it twice.

There is a case for State equity. It gives the country a share of the upside and a seat at the joint venture table. But equity pays only if the project performs and the State's costs are controlled. PNG's record with State investment in petroleum, including the 2014 UBS loan to buy Oil Search shares that a Commission of Inquiry later examined, does not inspire confidence that the second condition holds without scrutiny.

Before any option is exercised, Parliament should require three disclosures. First, the terms of the carry on the existing 22.5 per cent, including the interest rate and repayment profile. Second, the price and financing plan for any extra 2.5 per cent. Third, Kumul's total borrowing and debt-service schedule across PNG LNG and Papua LNG. The landowners' 2 per cent deserves its own line: who holds it, who pays for it, and when the people it belongs to will see a toea from it.

Without those, the 2.5 per cent option is a headline, not a benefit. The Government should not be credited in press releases for a promise to borrow more.