PM Congratulates PNG LNG Project on reaching Financial Close

The Prime Minister Sir Michael Somare today congratulated Esso Highlands Limited for successfully concluding financial arrangements that enables the US$15 billion PNG LNG Project to proceed to “full execution”.
The conclusion of sales and purchase agreements with four Asian LNG customers and the completion of financing arrangements represent a major milestone in the government’s ongoing efforts to build a vibrant economy.
Sir Michael said: “My government needs to work in partnership with ExxonMobil and build public sector capacity and better service delivery so that tight project schedules can be met so that we may receive dividends and company taxes sooner in our efforts to meet our development aspirations.
“Government projections suggest that company tax proceeds from this project will average around K5 billion to K7 billion annually during the 30-year life of the project.
“Before we get to the stage when LNG exports will commence much work needs to be done in various parts of the country to successfully build and commission this vast project.”

ExxonMobil and its co-venturers have reaffirmed that under the Benefits Sharing Agreement the landowners, Provincial Governments and Local Level Governments in the project footprint area will receive K15 billion to K20 billion during the 30-year project life from royalties, the development levy and equity dividends.
Sir Michael said: “As Papua New Guineans we should take some pride in the formula we use to spread benefits from a large project like this throughout our nation.
“The BSA formula, which we understand is a unique mechanism worldwide, ensures landowners receive a fair share of returns within a context where benefits can flow through every corner of this nation through the National Budget.”
As operator of the PNG LNG Project, ExxonMobil has advised the PNG government that this LNG project financing agreement represents the biggest loan funding ever provided for any oil or gas project worldwide.
Sir Michael said: “This is indeed a big honour for our nation. I call on all stakeholders to join hands in ensuring smooth progress during project construction to enable the LNG export operation to be commissioned by the end of 2013.
“As the third largest equity owner with a 19.6% stake, the National Government anticipates that dividends will start being earned soon after LNG sales commence in 2014. Company taxes will commence about four years later in 2018.
“In negotiating the PNG Gas Agreement with ExxonMobil, this Government did not provide any tax concessions and it has reintroduced the Additional Profits Tax, which had been abandoned in early 2003.
“We have had positive economic growth every year since then and I am especially thankful that the PNG LNG Project will push this nation’s economic performance to an even higher level.
“The challenge for my government is to convert the benefits of this Project to meaningful development that would improve the lives and living conditions of every Papua New Guinean.
“The co-venturers in this project will spend US$15 billion during construction. This has to be managed in an effective and efficient manner to avoid cost blow outs that will negatively impact on profitable operations and potential returns to the National Government.”
The National Government’s 19.6% equity stake includes 16.6% held by the Independent Public Business Corporation, as the State Nominee. An additional 2.8% is held on behalf of landowners by the Mineral Resources Development Company and 0.2% by Petromin PNG Holdings Limited.
The overall US$15 billion cost of developing the PNG LNG Project, which excludes shipping costs, will enable PNG to export 6.6 million tonnes of LNG annually to customers in China, Japan and Taiwan.
This would involve the processing of more than 9 billion cubic feet of natural gas from gas fields in Southern Highlands and Western Province over the 30-year project life. The gas will be piped some 700km via Gulf to the LNG plant site in Central Province, just outside Port Moresby.




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