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Port Moresby, Papua New Guinea

Papua New Guinea achieves moderate score in EITI implementation

Outcome of the Validation of Papua New Guinea

7 November 2022

The EITI Board concluded that Papua New Guinea has achieved a moderate overall score (70.5 points) in EITI implementation. Despite challenges related to COVID-19, the country has used the EITI to ensure that citizens have access to information about the extractive sector.

Papua New Guinea is a significant producer of natural gas and metals. The extractive sector accounted for 28% of the country’s GDP and 88% of total exports in 2019, representing a significant part of the economy. The sector, however, has also been at the centre of debates about the environmental impacts of mining, revenue sharing and state participation in extractive industries.

“Natural resources can be an important source of prosperity for Papua New Guinea,” said Helen Clark, EITI Board Chair. “Shedding more light on how revenues from the sector are managed can help ensure that citizens across the country benefit from the ongoing and planned oil, gas and mining projects.”

Setting the record straight

EITI reporting is the primary source of information on Papua New Guinea’s oil, gas and mining industries, and the EITI process plays a role in stimulating debate and formulating policy recommendations.

While the COVID-19 pandemic has made it difficult to engage with communities affected by extractive projects, PNG EITI adapted its outreach activities by producing online materials in local languages and organising virtual events. EITI implementation has also supported the government’s efforts to digitise its records, which until recently were partly paper-based. Some information on oil and gas licenses is now publicly available on the website of the Department of Petroleum and Energy.

Shedding light on state participation

State-owned enterprises (SOEs) play a significant role in Papua New Guinea’s extractive sector. In 2019, revenues received by state-owned Kumul Petroleum Holdings Ltd (KPHL) and Mineral Resources Development Company (MRDC) represented 27% of total government revenue from the extractive sector.

The Validation found that the SOEs’ management of these funds remains opaque. The 2019 EITI Report shows that KPHL received USD 345.5 million (PGK 1.17 billion) from its participation in the PNG LNG project and transferred USD 55.1  million (PGK 0.2 billion) to the Treasury in dividends. Improving transparency around the use of funds retained by SOEs would contribute to improved public financial management and trust. A recent amendment to Papua New Guinea’s SOE Law requires state-owned companies to publish their audited financial statements, which is a positive step towards reforming SOEs in the country.  

Going local

Papua New Guinea has made efforts to increase transparency around the benefits of oil, gas and mining activities for regions and communities, namely by undertaking a scoping study and initiating regional EITI focal points. While Validation revealed significant gaps in subnational reporting, stakeholders emphasised that this work will remain a priority.

Validation scorecard

Latest Validation: 4 November 2022
Year

Assessment of EITI requirements

  • Not met
  • Partly met
  • Mostly met
  • Fully met
  • Exceeded
Component View more
Score

The three components of Validation each receive a score out of 100, as follows:

Low 0-49
Fairly low 50-69
Moderate 70-84
High 85-92
Very high 93-100
View more

Outcomes and impact

73.5 Moderate
Scorecard by requirement
Assessment
Assessment of EITI Requirements

Validation assesses the extent to which each EITI Requirement is met, using five categories. The component score is an average of the points awarded for each requirement that falls within the component.

Outcomes and impact

Effectiveness and sustainability indicators

1.5

1.5 Work plan

60

The Secretariat’s assessment is that Requirement 1.5 is mostly met, which represents backsliding from the previous Validation. This reflects primarily changes to Requirement 1.5 that were introduced in the 2019 EITI Standard and relate to mainstreaming, contracts and beneficial ownership. Overall, the 2022 work plan mostly meets the objective of the requirement. The work plan addresses the required areas of EITI implementation, but does not lay out a path towards systematic disclosures of EITI data or the disclosures of, for example, contracts and beneficial ownership information. The 2022 work plan Includes six objectives, the rationale for each of them, as well as related governance challenges. Under each of the objectives, there are sub-objectives with expected outcomes. The work plan includes time-bound, costed activities with sources of funding. It is available on the PNGEITI website and was agreed by the MSG. It appears to reflect stakeholders’ priorities for the EITI process. The first objectives relate heavily to the EITI’s procedural aspects, while objective 4 on strengthening revenue collection is more clearly linked to national priorities. The work plan addresses contract transparency and beneficial ownership transparency, although activities mainly refer to other documents and reports, where the concrete actions are outlined. This may make monitoring the implementation of the work plan more challenging. The same applies to the objectives and activities related to follow-up on EITI recommendations. PNG relies heavily on EITI Reports produced by an Independent Administrator. The work plan addresses mainstreaming but does not establish a clear path with concrete activities towards comprehensive systematic disclosures of EITI data. There are activities related to strengthening government and company systems related to recording payments and revenues. Activities to introduce systematic disclosures of other information are not included. Annual work plans are drafted by the national secretariat, presented at the MSG meeting, discussed and approved by the MSG in principle. The national secretariat later refines the work plan and gives one week for the MSG members to provide further feedback. If there is no additional feedback within the timeframe, the annual work plan is considered final and published. Consulted stakeholders appeared satisfied with this approach. The MSG noted that outreach activities provided an opportunity for broader constituencies to provide input on the objectives of EITI implementation. However, capacity constraints have limited civil society’s ability to engage CSOs beyond Port Moresby (see Requirement 1.3). To better enable monitoring of the work plan’s implementation, the MSG could agree more concrete activities related to, for example, systematic disclosures, data quality and contract, BO and SOE transparency, clearly indicating the entity responsible for implementing each of the steps. These could be drawn from the recommendations from EITI reporting, scoping studies and Validation into a separate matrix accompanying the work plan.

7.1 Public debate

90

The Secretariat’s assessment is that Requirement 7.1 is fully met. Consultations suggest that stakeholders consider the objective of the requirement to be fully met, as PNGEITI has actively communicated relevant data to key stakeholders in ways that are accessible and reflect stakeholders’ needs. The COVID-19 pandemic restricted outreach activities in the period under review. However, the MSG has made efforts to ensure that information is comprehensible and widely accessible. Outreach events have been organised both virtually and in person in resource-rich provinces. PNGEITI has a communications strategy, the latest one covering 2022-2023. The strategy includes considerations for addressing the information needs of different genders and sub-groups of citizens. The geography and linguistic diversity of PNG create challenges for communicating data and inciting public debate. PNGEITI has published communication materials such as summary reports and brochures and organised events in different parts of the country, using local languages in addition to English. During the COVID-19 pandemic online communication tools and videos have been developed. PNGEITI also publishes a newsletter. Further information on events and materials is available in the Outcomes and Impact file. However, there is limited evidence of use of EITI data for research or analysis. Stakeholder consultations suggest that use of EITI Reports by decision-makers has reduced in recent years. Extractive companies consider EITI Reports useful for communicating the contribution of the sector. Some stakeholders noted that there is a need for public debate on revenue loss risks related to, for example, the Infrastructure Tax Credit scheme. The Secretariat did not encounter evidence of, for example, parliamentarians using EITI data in the period under review. There are some examples of news articles referring to EITI data.

7.2 Data accessibility and open data

60

The Secretariat’s assessment is that Requirement 7.2 is mostly met. The objective of the requirement is fulfilled regarding the availability of summary data, but comprehensive EITI data is yet to be made accessible in open format. This effects the fulfilment of the objective of the requirement, which is to enable the broader use and analysis of information on the extractive industries. PNGEITI’s Open Data Policy was agreed by the MSG in 2016. Summary Data templates are available up to 2019, but beyond them EITI data does not appear to be available in open format. The summary data for 2019 was in preliminary form at the time of this assessment, pending finalisation based on feedback from the International Secretariat.

7.3 Follow up on recommendations

60

The Secretariat’s assessment is that Requirement 7.3 is mostly met, which represents backsliding from the previous Validation. The Secretariat’s analysis and stakeholder comments suggest that the objective of the requirement has not been fully met. The MSG has documented the status of recommendations from EITI reporting and Validation, and the work plan refers to the follow-up on recommendations. However, there is limited evidence of systematic follow-up with responsible entities in the period under review. The Secretariat recognises that the COVID-19 pandemic has had an impact on this, as the MSG has met less regularly. The Outcomes and impact template documents the MSG’s follow-up on corrective actions from the 2018 Validation. It notes that implementation of the recommendations from the SOE and BO studies was delayed due to the COVID-19 pandemic. In early 2022, the MSG established working groups to follow up on these recommendations. Some of the recommendations are reflected in the reporting process for the upcoming 2020 and 2021 EITI Reports. The commissioning of the scoping studies on contract transparency, BO, subnational revenues and SOEs demonstrate a willingness to follow up on recommendations. Consulted stakeholders noted that follow-up on the recommendations from the subnational study has been limited. The 2019 EITI Report documents progress on addressing recommendations from earlier EITI Reports. Recommendations from the 2013 and 2014 EITI Reports were submitted by PNGEITI to the National Executive Council (NEC) for its consideration. The NEC directed responsible government agencies to act upon the recommendations (NEC Decision #91/2017). The 2021 APR documents progress in addressing the directives. Implementation of the recommendations appears to be mostly still ongoing and similar recommendations have been carried over from report to report.

7.4 Review of outcomes and impact of implementation

90

The Secretariat’s assessment is that Requirement 7.4 is fully met. The objective of ensuring regular public monitoring and evaluation of implementation is fulfilled. PNG has addressed the corrective action from the previous Validation, which focused on covering all required elements of the APR and on providing opportunities for stakeholders to provide feedback. PNGEITI publishes annual progress reports (APR), the latest one covering 2021. The APR comprehensively documents activities undertaken in 2021, media coverage, use of website, the status of EITI recommendations and NEC decisions related to the EITI process. There is less focus on monitoring and documenting the actual impact of the EITI improving extractive sector governance. However, the Outcomes and impact file includes an overview of impact, as well as opportunities provided to stakeholders outside the MSG to provide feedback on the EITI process.

Stakeholder engagement

75 Moderate
Scorecard by requirement
Assessment
Assessment of EITI Requirements

Validation assesses the extent to which each EITI Requirement is met, using five categories. The component score is an average of the points awarded for each requirement that falls within the component.

Multi-stakeholder oversight

1.1 Government engagement

60

The Secretariat’s assessment is that Requirement 1.1 is mostly met, which represents backsliding since the previous Validation. There are signs that government engagement in the EITI has weakened during the period under review, although operational engagement has remained strong. This has affected the fulfilment of the objective of the requirement, which is to facilitate all aspects of EITI implementation. Stakeholder consultations support the assessment. Consulted stakeholders from different constituencies raised concerns about the weakening of government engagement during the period under review. However, the MSG argued in its feedback on the draft Validation report that the requirement should be considered as Fully met. The MSG noted that the government had constantly provided funding to sustain the EITI process. As EITI implementation had matured and become institutionalised, high-level political engagement was no longer expected. The MSG highlights the strong operational engagement by relevant government officials. MSG meetings are mostly not attended by senior government officials. The MSG Chair continues to be the Minister of Treasury, but in practice meetings are chaired by the Deputy Secretary. Consulted stakeholders noted that lack of high-level engagement from the Treasury and the Prime Minister had affected implementation and the follow-up of recommendations. This is reflected in gaps related to disclosures, especially those related to extractive SOEs (see section on state participation) and contract transparency (see Requirement 2.4). Consulted stakeholders noted that previously eg the parliament had discussed information from EITI Reports, but that this was not the case with recent reports. Stakeholders pointed out that weaker high-level engagement may be partly related to the COVID-19 pandemic, as priorities have shifted. The Secretariat recognises that parliamentary follow-up of EITI recommendations is an exceptional practice that is not required from implementing countries in order to fully meet Requirement 1.1. The national secretariat, housed within the Treasury, continues to operate efficiently according to consulted stakeholders. They expressed satisfaction with the support the MSG received from the secretariat. The government also provides significant funding to the EITI process, which demonstrates commitment. Government agencies largely provided the requested data for the 2019 EITI Report. However, stakeholders noted that it was challenging obtaining information from SOEs, as well as data on subnational transfers from the Treasury. In 2019, the National Executive Council (NEC) adopted the PNGEITI National Policy, which reiterated commitment to the EITI and introduced a draft PNGEITI Bill that would establish a legal basis for the MSG. The Office of the State Solicitor provided feedback to the draft, and in 2022 PNG EITI addressed the feedback. Consultations with stakeholders were ongoing at the time of this Validation. The state is also considering several bills that would facilitate beneficial ownership disclosures. The Secretariat acknowledges the effective operational engagement of the national secretariat and many government officials, as well as the government’s continued financial support to EITI implementation. Considering the MSG’s support for assessing the requirement as Fully met, the Secretariat found it challenging to conclude the assessment of this requirement. The Secretariat balanced the weakening of government engagement, also acknowledged by the MSG in its feedback, against the level of engagement expected in the Validation Guide and other Validations. The Validation Guide highlights as evidence for assessing Requirement 1.1, inter alia, submission of data for EITI reporting and commitment to resolving bottlenecks, such as legal barriers. In light of available evidence and views expressed during stakeholder consultations, the Secretariat continues to consider that the objective of the requirement is mostly met. Some parts of government are fully and actively engaged in EITI implementation and facilitate EITI implementation, but this engagement is inconsistent. The Secretariat recognises that with the maturation of the EITI process, leadership of implementation is transferred to an operational level. However, many of the weaknesses in disclosures related to SOEs result directly from lack of willingness to disclose required data by either the SOE or the government agency overseeing it, even when there are no legal obstacles to it. There are also challenges in obtaining disclosures related to subnational transfers, although these may be more clearly linked to broader challenges in data management. There is little evidence of efforts by the government to effectively overcome legal barriers related to beneficial ownership or contract disclosure, or the disclosure of comprehensive, disaggregated production and export data on oil and gas. The Secretariat recognises that legal reforms take time. The MSG noted in its feedback on the draft Validation report that they also require a whole-of-government approach. This highlights the importance of continued high-level political engagement in EITI implementation.

1.2 Industry engagement

60

The Secretariat’s assessment is that Requirement 1.2 is mostly met, which represents backsliding from the previous Validation. The Secretariat’s assessment is that the objective of the requirement is mostly met, recognising that this assessment borders with fully met. Companies are actively and effectively engaged in the EITI, both in terms of disclosures and participation in the MSG’s work. More proactive engagement by extractive companies and coordinated efforts through the Chamber of Mines and Petroleum could facilitate resolving shortcomings in disclosures related to production and exports, contracts and beneficial ownership. The MSG argued in its feedback that the requirement should be assessed as Fully met. It noted that companies were actively engaging in all aspects of EITI reporting. The MSG’s feedback acknowledged that “the next step is for the industry companies to move away from their involvement in overseeing reports preparation to advocating for contracts and beneficial ownership disclosure, SOEs transparency and other shortcomings in the disclosure process.” The oil, gas and mining industry’s representation in the MSG is coordinated by Chamber of Mines and Petroleum. The Chamber’s representation and participation in the MSG’s work has been active during the period under review. The Chamber circulates EITI documents with the other companies for input. Other representatives from both mining and petroleum companies have been attending relatively regularly. Total, which is entering PNG as the operator of the Papua LNG project, is also actively engaging in the EITI process and received recognition from other constituencies for this. Representatives from state-owned Kumul Petroleum Holdings Limited (KPHL) and Mineral Resources Development Company (MRDC) attended meetings sporadically. Weaknesses in the engagement of KPHL are reflected under Requirement 1.1 on government engagement, as well as the module on SOE-related disclosures. Consulted company representatives noted that the EITI Report was a useful tool for demonstrating the sector’s contribution to the economy. Companies participated actively in the writing of the 2019 EITI Report and the summary report as part of the MSG’s technical working group. Apart from state-owned KPHL, companies provided comprehensive data. Company representatives noted that shifting the MSG’s focus from overseeing the reporting process to informing debate could make the EITI process more meaningful. Several companies expressed support for contract transparency, if the government was to enable disclosures. However, there is little evidence of companies actively advocating for contract disclosure. At least Newcrest also provided funding for the preparation of the thematic report on subnational revenue flows. There appear to be no major obstacles to industry participation in the EITI, although consulted company representatives noted that tight deadlines sometimes limited their engagement. Participation in online MSG meetings, which were organised in 2021 due to the COVID-19 pandemic, was challenging due to poor connections.

1.3 Civil society engagement

90

The Secretariat’s assessment is that Requirement 1.3 is fully met. Persistent challenges in CSOs’ capacity and resources to effectively engage with civil society beyond Port Moresby have affected civil society engagement in the EITI, exacerbated by the COVID-19 pandemic. However, civil society has made efforts to strengthen its coordination and seek external support. There is no indication of the enabling environment for civil society engagement having deteriorated since the previous Validation in 2018. In the previous Validation, PNG was assessed has having made ‘satisfactory progress’ on this requirement. Civil society representation in the EITI is coordinated by the PNG Resources Governance Coalition (PNGRGC). PNGRGC was founded in 2014 and formally established as an association in 2019. The first Annual General Meeting (AGM) was held in 2020. The AGM elected new members for a Council. PNGRGC also partly refreshed civil society representation on the MSG in 2020 (see Requirement 1.4). There are seven organisations represented in PNGRGC’s Council, most which are also active in the MSG. MSG meeting minutes and consultations suggest that civil society continues to engage actively in the MSG’s work. There Is little evidence of outreach to provinces affected by extractive activities, which seems to be a result of lack of resources. In 2020, the World Bank funded the preparation of a roadmap for PNGRGC. It is largely yet to be implemented. There is some evidence of PNGRGC members discussing coordination on EITI matters. Civil society is participating in outreach and communication activities, but there is little indication of CSOs undertaking analysis based on EITI data. Based on consultations with stakeholders, this appears to reflect both the lack of capacity and competing priorities. Indicators such as Freedom in the World and Civicus Monitor suggest that there haven’t been significant changes in the broader enabling environment for civil society participation since the previous Validation in 2018. Consulted stakeholders confirmed that civil society was free to operate, associate, express and engage on EITI-related matters. There appears to be lively media coverage and political debate around controversial issues, including corruption and the role of SOEs. The environmental and human rights impacts of mining have provoked controversy in the period under review. For example, the government revoked the license for the Porgera mine following reports of abuses and concerns that the state was not benefitting sufficiently from the project. The broader environment for citizen participation in the extractive sector is discussed under the Effectiveness and sustainability indicators.

1.4 MSG governance

90

The Secretariat’s assessment is that Requirement 1.4 is fully met. The MSG continues to exercise meaningful oversight of all aspects of the EITI process. The interests of the three constituencies are represented in a balanced manner. In the previous Validation, PNG was assessed has having made ‘satisfactory progress’ on this requirement. The MSG ToR (2017) and code of conduct (2016) appear to still be followed in practice, although fewer meetings were held in 2021 due to the COVID-19 pandemic. The national secretariat provides effective support to the MSG. As codified in the MSG ToR, MSG meetings take place on quarterly basis. However, due to COVID-19 pandemic, there were only three MSG meetings in 2021. The MSG has established technical working groups on Validation, policy and legislation, communications, and remuneration. Since Validation commenced, the MSG has also established a working group to follow up on recommendations from the thematic reports. The three constituencies appoint their own members to the MSG and are adequately represented, although government representatives often send proxies. This appears to signal weaker government engagement (see Requirement 1.1). Civil society representation is focused in Port Moresby (see Requirement 1.3). MSG membership is male-dominated, although in practice alternates and proxies attending meetings have a better gender balance. The selection of industry MSG members is coordinated by the PNG Chamber of Mines and Petroleum. There is no clear procedure for how the industry representatives are selected. In practice, industry representatives are nominated based on their seniority in their respective organisations or companies, knowledge, and experience about the industry. New entrants to the sector, including TotalEnergies have joined the MSG since the previous Validation. Civil society representation is coordinated by the coalition PNGRGC. There are currently five organisations represented on the MSG, rather than the statutory seven. In March 2020, PNGRGC’s Interim Council identified inactive CSO Members, namely PNG Mining Watch, PNG Eco-Forestry Forum and Business Coalition Against Corruption who were once members of the MSG. PNGRGC elected new Council members in July 2020. One of them, Center for Environmental Law and Community Rights (CELCOR), joined the EITI MSG as well. PNGRGC membership requires that the organisation is registered. There are no statutory limitations to organisations that are not members to nominate members for the MSG. However, difficulty in travel and lack of outreach in practice limit participation to Port Moresby-based organisations. CELCOR’s membership in the MSG strengthens the representation of affected communities.

Transparency

62.5 Fairly low
Scorecard by requirement
Assessment
Assessment of EITI Requirements

Validation assesses the extent to which each EITI Requirement is met, using five categories. The component score is an average of the points awarded for each requirement that falls within the component.

Overview of the extractive industries

3.1 Exploration data

90

The Secretariat’s assessment is that Requirement 3.1 is fully met. PNG was assessed as having made ‘satisfactory progress’ on the requirement in the previous Validation. The objective of this requirement is to ensure public access to an overview of the extractive sector in the country and its potential, including recent, ongoing and planned significant exploration activities. This information is presented in the 2019 EITI Report, which includes a clear summary of key extractive companies, a detailed overview of exploration activities, including project details, a list of non-reporting projects, and a breakdown of revenue streams and active exploration licenses. Project information includes information on reserves and commodities, as encouraged by Requirement 3.1. However, this information is yet to be systematically disclosed.

6.3 Contribution of the extractive sector to the economy

90

The Secretariat's assessment is that Requirement 6.3 is fully met. PNG was assessed as having made ‘satisfactory progress’ on the requirement in the previous Validation. The 2019 EITI Report includes key data on the contribution of the extractive sector to the economy, including Gross Value Added, and estimate of informal sector activity, government revenues, exports, and employment data. This information is mostly disclosed through the EITI Report, rather than systematically on government website.

Legal and fiscal framework

2.1 Legal framework

90

The Secretariat’s assessment is that Requirement 2.1 is fully met. PNG was assessed as having made ‘satisfactory progress’ on the requirement in the previous Validation. The objective of this requirement is to ensure public understanding of all aspects of the regulatory framework for the extractive industries, and the 2019 EITI Report provides a summary description of the fiscal regime that satisfies much of this objective. This includes an overview of relevant laws and regulations, a description of the different types of contracts and licenses that govern the exploration and exploitation of oil, gas and minerals, and information on the roles and responsibilities of relevant government agencies. The 2019 Report also complies with disclosures encouraged by Requirement 2.1, by providing extensive information on relevant legal reforms and reform processes. The 2019 EITI Report does not clearly describe the level and nature of fiscal devolution as required by the EITI Standard, although the legal framework sets out in broad terms which level of government collects each revenue stream. This issue is particularly important in the PNG context, given the prominence of extractives activities in provinces, and the exceptionally complicated nature of sub-national transfers and payments for the extractives sector. Shortcomings in disclosures related to subnational revenues are assessed in the module on Subnational contribution (Requirements 4.6, 5.2, 6.1).

2.4 Contracts

30

The Secretariat’s assessment is that Requirement 2.4 is partly met. This requirement is intended to ensure the public accessibility of all licenses and contracts underpinning extractive activities, and Phase 1 disclosures outlined in the Requirement apply to the period under review for this Validation. There have been some indications of government interest in contract transparency, including a 2017 letter from the Deputy Prime Minister suggesting that relevant ministers had been instructed to disclose Memorandum of Agreements, and a 2019 letter from the formal Acting State Solicitor advising that MRA could disclose project contracts and memorandum of agreements in accordance with recommendations in EITI Reports. The MSG noted in its feedback on the draft Validation report that the Mineral resources Authority had made efforts through the MSG to disclose a list of mining memoranda of agreement (MOAs) in recent EITI Reports. The PNGEITI National Secretariat has been involved in the State Negotiation Team attending Mining Development Forums for new projects and in the MOA reviews of existing mining projects that resulted in including EITI transparency clauses into the mining agreements (Woodlark Mine and K92 Mining would be the first to disclose parts of the agreement). Despite these indications, no extractives license or contract texts have been publicly disclosed in PNG. It is not possible to determine whether this represents a significant gap in compliance with Requirement 2.4.a, which requires the disclosure of all licenses and contracts entered into or amended after 1 January 2021, since there is no publicly available and comprehensive list of contracts and licenses entered into. As noted in the following section on licenses and property rights, while the mining cadastre maintained by MRA appears to be comprehensive, it does not clarify which tenements are pro forma and to which a mining agreement is associated. The DPE meanwhile has only disclosed information on licenses for the fiscal year 2019. Several obstacles to the disclosure of contract and license texts have been noted and the 2019 EITI Report makes particular note of privacy and confidentiality protections in Section 163 of the Mining Act, Section 52 of the MRA Act, and Section 149 of the Oil and Gas Act. These legal barriers were confirmed in stakeholder consultations and by the Contract Transparency (CT) Report commissioned by the MSG, which also noted cultural and capacity barriers, estimating that “there are approximately 118 active exploitation licences for oil, gas and minerals. Each licence could require the disclosure of several documents” (page 4). Consultations with government suggest that government systems for contract transparency are yet to be developed, and that even government agencies, such as the revenue administration, only have access to contracts upon request. Consultations nevertheless suggest that contract transparency would be welcome by many stakeholders, including several companies, as contract disclosure would be helpful in managing perceptions about the extractives industry in PNG. However, there appear to be diverging views within the company constituency about contract transparency, also among EITI supporting companies. Consulted government stakeholders noted contract transparency would facilitate monitoring of compliance with the terms of contracts, for both the public and the government. Both the 2019 EITI Report and the CT Report make specific recommendations on how to overcome these obstacles, and the latter includes a Roadmap by which PNGEITI could pursue compliance with Requirement 2.4. The 2019 EITI Report describes initial conversations regarding reforms with the State Solicitor, and openness for pursuing reforms within the MRA, though consultations suggest that these conversations have not progressed. Though contract transparency is mentioned in PNGEITI work plans, document review stakeholder consultations were not able to identify any planning or progress towards compliance with Requirement 2.4. This may in part be due to the perceived difficulty of overcoming obstacles, and consulted stakeholders noted that the process for legal reform is laborious in PNG and that the MSG had not yet developed a strategy for addressing this. The MSG argued in its feedback on the draft Validation report that the requirement should be assessed as Mostly met. The MSG noted that the legal reforms resulting in contract transparency requires a whole of government approach and takes time. The COVID-19 pandemic has slowed down follow-up on the contract transparency study, The MSG also flagged the efforts and progress made towards disclosing memoranda of agreement (MOAs) with local stakeholders. The Secretariat recognises the barriers identified by the MSG and the efforts made, but considers that the level of progress does not justify an assessment of Mostly met in accordance with the Validation Guide.

6.4 Environmental impact

Not assessed

The Secretariat's assessment is that Requirement 6.4 remains not assessed, given that several encouraged aspects of this requirement remain to be addressed by PNG EITI. The 2019 PNG EITI Report provides limited information on the environmental impact of extractive industries, except for noting relevant legal framework and including information on environmental permits as reported by CEPA (p.129). In its comments to the draft Validation report, the MSG provided clarifications related to the process for approving environmental permits. The MSG is encouraged to ensure that the information is made publicly available, for example, through the PNG EITI website and in upcoming EITI Reports.

Licenses

2.2 Contract and license allocations

45

The Secretariat’s assessment is that Requirement 2.2 is partly met with considerable improvements compared to the previous Validation. PNG has provided some additional information regarding the technical and financial criteria for awarding licenses, and stakeholders did not express doubts about the comprehensiveness of disclosures of license awards and transfers. The objective of this requirement is to allow stakeholders to identify and address possible weaknesses in the license allocation process. Stakeholder consultations suggest that there are shortcomings in the oversight mechanisms for license awards and transfers. Information about licenses awarded and transferred in 2019 is publicly available, as well as an overview of the process. However, there is no indication of an assessment of whether the the awards and transfers of mining, oil and gas contracts and licenses in 2019 deviated from the applicable legal and regulatory framework. The detailed technical and financial criteria for awarding mining licenses do not appear to be available on government websites, but in the Transparency template submitted by the MSG at the beginning of this Validation, the MSG indicated some questions that are considered in assessing a mining tenement application. For the oil and gas sector, licenses awarded and transferred in 2019 are listed on the DPE website. The process and criteria for awarding oil and gas licenses are described in Petroleum Policy Handbook section 2.5, which is publicly available, although how the assessment criteria is applied remains unclear. No licenses were awarded through a bidding process in 2019. Transfers of oil and gas licenses are registered by the DPE, but are regarded as private transactions between third parties, so no prior approval is required by the DPE. The DPE as regulatory authority has no insight or input into license transfers as such, and stakeholders consulted for this Validation described this as a regulatory gap for the extractives sector, noting that it inhibits any kind of oversight, and inhibits DPE’s ability to generate license fees and reporting. Stakeholders also noted specific examples of oil and gas licenses that had changed hands repeatedly without any regulatory oversight. For the mining sector, the 2019 EITI Report provides an annexed overview of tenements awarded or extended in 2019, as reported by the MRA. The 2019 EITI Report summarises the process for awarding mining tenements. However, the detailed process and technical and financial criteria for awarding tenements are not published. The MSG indicated in private correspondence in preparation for this Validation that awards are based on the MRA’s interpretation of the Mining Act. Stakeholder consultations thus suggest that there exists an assessment tool that the MRA applies that is not publicly disclosed. The Transparency file indicates the questions considered in the assessment. These are mostly related to financial criteria. Considering that the Mining Act (Part V) does not include details about the technical and financial criteria for awarding tenements and that it grants the Minister discretion in deciding on awards, the lack of clear publicly available criteria used in the process is considered a material gap by the International Secretariat. According to the 2019 EITI Report, no mining tenements were transferred in 2019. The EITI Report provides a summary description the process according to which the MRA transfers mining tenements. The MSG argued in its feedback on the draft Validation report that the requirement should be assessed as Mostly met. The MSG points to legal obstacles related to contract disclosure. MRA notes in the MSG’s comments that it could disclose additional documentation upon approval by its management. The MSG’s feedback does not address the gaps identified in the preliminary assessment. Therefore, the Secretariat continues to consider the requirement as Partly met with considerable improvements since the previous Validation.

2.3 Register of licenses

60

The Secretariat’s assessment is that Requirement 2.3 is mostly met. PNG was assessed as having made ‘meaningful progress’ on the requirement in the previous Validation. The objective of this requirement is to ensure the public accessibility of comprehensive information on property rights related to extractive deposits and projects. Consulted stakeholders commended progress in establishing a digital cadastre for oil and gas licenses but noted that progress was still partial. This objective is achieved for the mining sector, through the MRA’s mining cadastre, which includes names, application, award and expiry dates, and coordinates of mining tenements, and this does not include an overview of past tenements that are no longer active. This objective is far from achieved for the oil and gas sector, as licenses are only made available on the DPE website for the 2019 fiscal year, are only available through separate pdf documents, and lack information on coordinates, size, or location of licensed areas (see https://petroleum.gov.pg/dpe-eiti/). However, the availability of partial information online represents an improvement in the period under review. DPE has partly digitised its previously paper-based license register with support from JICA.

Ownership

2.5 Beneficial ownership

30

The Secretariat’s assessment is that Requirement 2.5 is partly met. The objective of the requirement is far from being fulfilled. Requirement 2.5 is intended to enable the public to know who ultimately owns and controls the companies operating in the country’s extractive industries, and requires disclosures and actions according to two phases. As of 1 January 2022, the requirement is assessed in accordance with Phase 2 (see Validation Guide). In regard to Phase 1, the MSG has agreed on an appropriate, publicly available definition of the term beneficial owner that is aligned with Requirement 2.5.f.i, as presented in the Beneficial Ownership Disclosure Report that was published December 2020 (page 53-54). This report also included a template form for requesting beneficial ownership information from companies, which was sent to all companies holding or applying for licenses, and which included all of the information required by the EITI Standard, including names, nationalities, countries of residences, and recommended information such as national identity numbers, dates of birth and means of contact. The BOD Report also identified several gaps, and implementation of the Report’s recommendations is included as an activity line in the PNGEITI work plans for 2021 and 2022, though no detailed activities are included. The content of the 2020 BOD report has not been matched by corresponding advances in government policy or practice. There is currently no government policy on beneficial ownership, and though definitions of beneficial owners have been proposed for inclusion in amendments to legal documents, the definitions included in the Income Tax Act amendment (9th draft) did not correspond with the definition required by the EITI 2019 Standard. Stakeholders consulted for this Validation consistently noted that PNG’s current regulatory framework is oriented towards shareholder information, and not beneficial ownership as understood in the EITI Standard. This also the case for the 2019 EITI Report, which discloses shareholder structure information of companies, not beneficial ownership. Though work is underway for a new company registry, stakeholder expect that this too will be oriented towards information on company shareholders, in keeping with PNG law. Comprehensive information about the legal owners of extractive companies is currently not publicly available in PNG. It is not clear which extractive companies are publicly listed or wholly owned subsidiaries of publicly listed companies, although the BOD Report and the 2019 EITI Report map the ownership structure of some companies. Though the disclosure form annexed to the 2020 Report had been shared with the IPA, no stakeholders consulted during this Validation were aware of any specific actions taken by the IPA towards using or adapting that form. In regard to Phase 2, no steps or disclosures have been made. The MSG has not developed a specific strategy for addressing legal obstacles to beneficial ownership in PNG, or implementing the action plan and recommendations of the 2020 Report more generally. The MSG argued in its feedback on the draft Validation report that the requirement should be assessed as Mostly met. The MSG noted that legal reforms enabling BO disclosure will take time and that the COVID-19 pandemic has slowed down follow-up on the BO study. It also noted that the MSG had established a technical working group to address beneficial ownership transparency and to follow up on the recommendations of the BO study. The Secretariat commends this forward-looking commitment. In light of available information and the Validation Guide, it continues to consider the requirement as Partly met.

State participation

2.6 State participation

30

The Secretariat's assessment is that Requirement 2.6 is partly met, which represents backsliding compared to the previous Validation. The Secretariat considers that there are significant omissions related to disclosures of the practices regarding the financial relationship between KPHL and the state, which impedes accountability and results in the objective of the requirement to be far from fulfilled. There is little information available about the rules governing the relationship between OTML and the state, although information on practices in 2019 is more readily available. In addition to the 2019 EITI Report, the Secretariat has considered the 2021 SOE scoping study and other publicly available sources in this assessment. According to the MSG’s definition, there were two material SOEs in 2019: Kumul Petroleum Holdings (KPHL) and Ok Tedi Mining (OTML). The Secretariat takes note of the MSG’s decision to classify MRDC as a trustee rather than an extractive sector SOE. The exceptional role of MRDC was reiterated in the MSG’s feedback on the draft Validation report. However, given MRDC’s significant role in managing landowners’ and provincial governments’ interest and revenues, disclosures related to MRDC’s finances in accordance with Requirement 2.6 are expected. The 2019 EITI Report only includes information related to the financial year 2016, and there is no indication of publicly available information on MRDC related to 2019. Kumul Mineral Holdings (KMHL) is an extractive SOE, but did not make material payments to the government in 2019 as defined by the MSG. In 2020, the state’s holding in OTML was transferred to KMHL. Kumul Consolidated Holdings (KCH) no longer appears to hold interests in extractive projects or companies. The 2019 EITI Report describes the legal framework enabling the state to acquire equity in extractive projects, as well as plans to clarify the policy on state participation. The level of state ownership in each extractive project is disclosed in the 2019 EITI Report, as well as in the SOE scoping study. The scoping study notes that KPHL’s interests are held as fully paid equity. OTML fully owns and operates the Mt Fubilan mine. It does not appear to hold interests in other extractive projects, apart from holding exploration licenses in the surroundings of the Mt Fubilan mine. The state of PNG owns 67% of OTML, while the rest is held by three different subsidiaries of MRDC on behalf of landowners. According to consulted stakeholders, the state and MRDC subsidiaries receive dividends according to the proportion of their shares. The Kumul Petroleum Holdings Limited Authorisation Act 2015 establishes rules related to the financial relationship between KPHL and the state. KPHL is free to engage in commercial activities, including raising third-party financing (debt, not equity). The state is not liable for KPHL’s debt or other obligations. KPHL’s planned expenditures (retained earnings, reinvestment) must be included in an Annual Plan that is submitted to the National Executive Council (NEC) for approval. The Board of KPHL determines dividends, which are paid to the Sovereign Wealth Fund (not yet operational). KPHL is responsible for meeting the state’s financial obligations arising from participation in projects. Consulted stakeholders noted that from 2022 onwards KPHL had been advised to retain part of its earnings to finance participation in future projects such as Papua LNG. Meeting financial obligations related to the project is likely to also involved debt from third parties, which further increases the importance of transparency around KPHL’s expenditures and loans. Related to KPHL, the 2019 EITI Report covers the “vendor financing” scheme through which KPHL lends to landowner beneficiary groups and provincial governments to enable them to buy an interest in the PNG LNG project. However, no information is provided on the sums lent by KPHL to each provincial government, nor on the loan tenor or interest rates. The vendor financing scheme could be considered a QFE, as it is not a loan to an extractive company (see Requirement 6.2). The 2019 EITI Report also describes the GloCo debt repayment scheme and KPHL share of remaining debt. The Secretariat was not able to locate KPHL’s 2019 audited financial statement. Information about KPHL’s retained earnings and reinvestment in 2019 does not appear to be publicly available. This is a significant omission considering that KPHL’s subsidiary holds the state’s 16.6% in the PNG LNG project and received in 2019 nearly PGK 1.2bn in equity distribution. Consulted stakeholders noted that the accounts for 2019 had been finalised but that their disclosure was at the discretion of the Prime Minister, which oversees KPHL. The Secretariat was not able to locate disclosures related to the prevailing rules related to the financial relationship between OTML and the state, including those governing transfers between the state and OTML, retained earnings, reinvestment and third-party financing. In the MSG’s comments on the draft Validation report, the Department of Treasury noted that a dividend policy applying to all SOEs was being drafted. Its annual report suggests that OTML did not provide loans or loan guarantees to any extractive companies in 2019. OTML’s 2019, 2020 and 2021 audited financial statements are available on the company website. OTML’s website also includes encouraged information about corporate governance. Similar information does not appear to be publicly available for KPHL or for MRDC. The MSG argued in its feedback on the draft Validation report that the requirement should be assessed as Mostly met. It referred to the publication of the SOE study, and highlighted that legal reforms related to SOE governance would take time. It noted that the MSG was planning to implement the recommendations from the SOE study and had established a technical working group on the topic. The COVID-19 pandemic had slowed down these efforts. The Secretariat commends the MSG’s forward-looking commitments. The MSG has not presented additional disclosures in its feedback that would support an assessment of Mostly met.

4.2 In-kind revenues

Not applicable

The Secretariat's assessment is that Requirement 4.2 is not applicable. There is no indication of the state or SOEs receiving revenues in kind in the period under review (2019).

4.5 SOE transactions

60

The Secretariat's assessment is that Requirement 4.5 is mostly met. PNG was assessed as having made ‘meaningful progress’ on the requirement in the previous Validation. The EITI Report discloses and reconciles dividends paid by KPHL and OTML to the Treasury and to MRDC, which holds equity on behalf of landowners (private) and provincial governments (subnational government entities). The report demonstrates that KPHL paid PGK 212m in dividends in 2019, while receiving PGK 1.2bn in equity distribution. KPHL’s share of project costs is deducted before equity distribution is paid out by GloCo. In addition, SOEs make other payments to the state that correspond to those made by non-state-owned companies (e.g. CIT, royalty, fees). These are covered under Requirement 4.1. KPHL receives “equity distributions” in accordance with its share of participation in the PNG LNG project, which it holds on behalf of the state. Equity distribution payments from GloCo to KPHL are disclosed in the EITI Report. The reconciliation of these payments was not possible due to restrictions in GloCo’s ability to disclose the information. The data was provided by KPHL and confirmed by the operator ExxonMobil. Based on stakeholder consultations, the Secretariat considers this approach to be adequate for ensuring the reliability of disclosures. Information on possible equity distribution received by KPHL from other extractive projects in 2019 does not appear to be publicly available. Through its subsidiaries, KPHL holds a 21.4% and 11.3% interest in the SE Gobe and Moran Unit oil projects, respectively. Apart from equity distributions, SOEs do not appear to collect any other revenue on behalf of the state. For the 2019 EITI Report, the MSG decided not to classify MRDC as an SOE (see Requirement 2.6). The 2019 EITI Report discloses equity distributions received by MRDC subsidiaries, but does note shed light on transfers from MRDC to local governments or landowners, on behalf of which it holds equity. Stakeholder consultations suggest that there are concerns over the management of funds by MRDC. Opacity prevents local governments and landowners from effectively monitoring the flow of funds to, from and within MRDC. Given the legal status of MRDC as an SOE, the authority of the PM’s office over its management and stakeholder concerns regarding the distribution of benefits, the International Secretariat’s view is that transparency of transaction related to MRDC should be ensured at the level required in Requirement 4.5. There is no indication of the state making transfers to SOEs or their subsidiaries in the period under review (2019), although this could not be confirmed by the International Secretariat.

6.2 SOE quasi-fiscal expenditures

45

The Secretariat's assessment is that Requirement 6.2 is partly met with considerable improvements since the previous Validation. Stakeholder consultations suggest that undisclosed quasi-fiscal expenditures (QFEs) are being undertaken by SOEs. PNG has recently made efforts to define QFEs. The MSG has agreed a definition of QFE as introduced in a recent scoping study on SOEs. The definition is based on PNG’s context and international standards. Some expenditures undertaken by SOEs in 2019 have been disclosed. It is unclear whether these expenditures meet the definition of QFEs, as latest disclosures (2019) predate the definition introduced in the SOE scoping study (2021). The Transparency file suggests that the MSG does not consider the requirement to be applicable for 2019. However, the 2019 EITI Report and the SOE scoping study document some expenditures by OKTL, KPHL and MRDC that could be considered as QFEs, including power subsidies, education programmes and infrastructure. Consulted stakeholders noted that the government requested KPHL to undertake development-related expenditures, sometimes on an ad hoc basis. There is strong indication that at least some of these expenditures would be considered as quasi-fiscal. This is supported by reports from, for example, the World Bank. Although MRDC is no longer defined as a material extractive sector SOE, it collects and manages revenues on behalf of provincial governments. MRDC’s possible quasi-fiscal expenditures should be considered in the scope of EITI reporting. The SOE scoping study includes a recommended definition of QFEs. The MSG plans to adopt this definition for future EITI reporting. In assessing the requirement as mostly met, the Secretariat has considered the efforts undertaken to define QFEs, as well as the existing disclosures related to expenditures that could be classified as QFEs. The broader objective of ensuring transparency in the management of SOE expenditures is considered to be partly met. The MSG argued in its feedback on the draft Validation report that the requirement should be assessed as Mostly met. It referred to information disclosed in the EITI Report and the SOE study, and highlighted that legal reforms related to SOE governance would take time. It noted that the MSG was planning to implement the recommendations from the SOE study and had established a technical working group on the topic. The COVID-19 pandemic had slowed down these efforts. The Secretariat commends these efforts, which are reflected in the assessment of Partly met with considerable improvements since the previous Validation. The MSG has not presented additional disclosures in its feedback.

Production and exports

3.2 Production data

60

The Secretariat’s assessment is that Requirement 3.2 is mostly met. PNG has partly addressed the corrective action from the 2018 Validation. The objective of this requirement is to ensure public understanding as a basis for addressing production-related issues in the extractive industries, which is not fully accomplished by the information included in the 2019 EITI Report or elsewhere publicly available. PNG exceeds the requirement when it comes to disaggregating production data by project and reconciling data reported by companies and government agencies. However, production values are not disaggregated between oil and gas. Previously, the value of oil and gas production was not publicly available even at an aggregate level. The MSG has sought to overcome confidentiality barriers, by calculating the aggregated value of oil and gas production by extrapolating production data from one MSG member to the entire sector. As described by the 2019 Report: “Oil and gas production value is not available on DPE’s reporting template nor to any public portals but has been recalculated by the Oil Search representative and forwarded to the Chamber of Mines and Petroleum. Amount was calculated by applying Oil Search’s net equity in each project and grossing up; using their quarterly average gas and oil prices (stated in the Quarterly reports); applying their gas conversion factor of 5,100 scf to one barrel of oil; and the high heating value of the sales gas as LNG at1140 BTU per mmscf. The same procedure is applied to all four quarters of 2019, resulting to a production value of PGK18,250,731,625.” This approach is considered endorsed by the MSG through the MSG approval of the 2019 Report. The 2019 Report includes project-level production information in tables 84, 8598, and 99, de facto disaggregated by commodity and company, as these are distinct per project. For mining, information includes both volumes and values. The tables on oil and gas production do not include values, however, limiting the utility of this information. The 2019 EITI Report notes that this information has been reported by both DPE and companies, with some variance, but does not provide detailed information on how the information is collected by DPE, and further notes that resource constraints inhibit the DPE from conducting detailed reviews or audits of this information. An aggregate estimate of the value of oil and gas production is provided for 2019 (table 2). Consulted civil society stakeholders noted that the government should improve its capacity to monitor and verify that companies provide accurate data on production. The 2019 EITI Report notes that MRA has the mandate to audit production data reported by companies, but in practice does not have the resources or capacity to do so. The added value of reconciling production data is unclear, given that the source of data from both sides is de facto the company, Additionally, the production information presented in the 2019 EITI Report is not disaggregated by region or province for either sector, though stakeholders consulted in preparation for this report note that this could be deduced by projects, which are generally associated with specific provinces. Disaggregation by region is not required. Most importantly, it is worth noting that the 2019 EITI Report identified several significant variances in the reconciliation of production reporting by MRA and companies, including a 100% variance in the Lihir project and 707% variance in the Kainantu project. Consultations conducted as part of this Validation suggest that the MSG has not taken steps to determine the cause or implications of this variance, in keeping with the objective of Requirement 3.2.

3.3 Export data

60

The Secretariat’s assessment is that Requirement 3.3 is mostly met. The objective of this requirement is to ensure public understanding as a basis for addressing export-related issues in the extractive industries, which is not fully accomplished by information included in the 2019 EITI Report. The 2019 Report includes information on mining exports according to value and volume, including a reconciliation of information reported companies and the MRA (tables 84-85). Export volumes and values are also presented by commodity and disaggregated by destination (table 86). Information on oil and gas exports is reported in volume by commodity and by destination country, but not in value (tables 99-100), which is likely related to the same confidentiality constraints discussed in regard to Requirement 3.2. However, an estimate of the aggregate value of oil and gas exports is provided (table 2). The report notes that there are inconsistencies in export data reported by the DPE and by companies.

Revenue collection

4.1 Comprehensiveness

90

The Secretariat's assessment is that Requirement 4.1 is fully met. The materiality decision is explained in the EITI Report (pp.31-40). It is based on information about total government revenues collected from all extractive companies. Excluded revenue streams represent in total 2% of revenue and excluded companies 0.6%. The report suggests that all material reporting entities provided comprehensive financial disclosures. There is no indication of material payments having been excluded from the scope of reporting or the actual disclosures. The government fully reported all revenues, including revenues below the materiality threshold by revenue stream. The EITI Report documents discrepancies and provides explanations for most of them. Consulted government stakeholders and the Independent Administrator noted that using project-specific tax identification numbers as the basis of reporting had helped reduce discrepancies significantly. A different methodology was used for reconciling the equity distribution payments from GloCo to KPHL (see Requirement 4.5).

4.3 Infrastructure provisions and barter arrangements

Not applicable

The Secretariat's assessment is that Requirement 4.3 is not applicable. The MSG considers that the requirement is not applicable. The Secretariat is not aware of any indication of infrastructure provisions or barter arrangements. However, reliably confirming this is challenging due to the confidentiality of extractive contracts. The Infrastructure Tax Credit scheme is not considered as an infrastructure provision as defined by Requirement 4.3, in line with the 2018 Validation. The MSG’s feedback on the draft Validation report notes that the MSG regularly reviews the applicability of the requirement.

4.4 Transportation revenues

Not applicable

The Secretariat's assessment is that Requirement 4.4 is not applicable. The MSG considers that the requirement is not applicable. The 2019 EITI Report notes that the Treasury has confirmed that revenues from transport are not collected, apart from pipeline fees, which are not material. Pipeline fees collected in 2019 were not disclosed to support the materiality assessment. The MSG’s feedback on the draft Validation report notes that the pipeline fees will be disclosed in upcoming EITI Reports, despite not being material.

4.7 Level of disaggregation

90

The Secretariat's assessment is that Requirement 4.7 is fully met. Each project has a specific tax identification number (TIN), which is the basis of reporting payments and revenues. Government representatives explained in stakeholder consultations that reporting based on TIN has helped decrease discrepancies in the 2019 EITI Report. Revenue streams related to the exploration stage, such as license fees, were not considered material for the 2019 EITI Report.

4.8 Data timeliness

90

The Secretariat's assessment is that Requirement 4.8 is fully met. The 2019 EITI Report was published in July 2021. The 2020 EITI Report is expected to be published in late 2022.

4.9 Data quality and assurance

60

The Secretariat's assessment is that Requirement 4.9 is mostly met. PNG has partly addressed the corrective action from the previous Validation. The MSG has taken appropriate measures to ensure data quality by requesting assurances from reporting entities in line with the Board-agreed standard procedures. Compliance with these measures has been partial, and a significant part of payments and revenues disclosed were not subject to credible, independent audit. The Secretariat finds that despite the MSG’s and IA’s efforts to ensure data quality, the broader objective of the requirement cannot be considered fully met. The 2019 EITI Report (tables 111-113) documents reporting entities’ compliance with agreed data quality assurances. While all reporting entities’ submissions were sent by authorised representatives, only approximately half had their 2019 financial statements audited. Government agencies were required to sign their reporting templates, which was not fully complied with. The IA has not clearly stated whether it considers the data reliable. However, the report addresses data reliability and notes the shortcomings in the availability of audited financial statements, as well as the lack of follow-up on previous recommendations (p.13). Consulted stakeholders noted that audits of government agencies and SOEs were delayed by several years due to capacity issues and a significant backlog. The Independent Administrator noted that there were plans to improve data reliability through eg the testing of revenues, but that this was yet to be realised.

Revenue management

5.1 Distribution of revenues

60

The Secretariat’s assessment is that Requirement 5.1 is mostly met. PNG has partly addressed the corrective action by explaining which revenue streams are recorded in the national budget and which are retained by collecting entities. Opinions of stakeholders consulted were split over whether the objective of traceability of extractive revenues to the national budget and ensuring the same level of transparency and accountability for extractive revenues that are not recorded in the national budget had been fulfilled. The 2019 PNG EITI report provides an overview of how extractive revenues are recorded and where relevant information on a particular revenue stream can be found (table 23). However, for many revenue streams not recorded in the national budget, further information such as financial reports is not available or it is outdated. The volume of off-budget revenues is not explicitly disclosed. Table 18 provides aggregated information on revenues recorded in the national budget. In addition, the report details the main recipients of the extractive sector revenues. At the same time, it appears that there is some confusion among stakeholders related to whether some revenue flows (for example, infrastructure development grants) are recorded in the national budget. KPHL appears to retain a significant proportion of revenues it collects from oil and gas projects. These retained or reinvested earnings are not disclosed for 2019. Only dividends paid by KPHL to the state are recorded in the national budget. This is reflected in the assessment of Requirement 2.6.

5.3 Revenue management and expenditures

Not assessed

The Secretariat’s assessment is that Requirement 5.3 remains not assessed in PNG in the period under review, given that PNG has made progress on some, but not yet all, of the encouraged aspects of Requirement 5.3. The 2019 EITI Report includes a summary of the budget process and a description of recent reforms and the status of the sovereign wealth fund. No information in provided on revenue sustainability or resource dependence, although the 2019 EITI Report includes some estimates of short-term developments in the sector. Increasing the availability of information on expected revenues in coming years is highly relevant in PNG’s context. The extractive sector represented 88% of PNG’s exports in 2019. The energy transition is likely to affect the demand for both petroleum and metals produced by PNG, which will impact government revenues.

Subnational contributions

4.6 Subnational payments

45

The Secretariat’s assessment is that Requirement 4.6 is partly met with considerable improvements since the previous Validation. The corrective action from the previous Validation has been partly addressed. Despite efforts to map subnational benefit streams through the thematic scoping study, the landscape of subnational payments and transfers remains opaque, with confusion among stakeholders on how different streams should be classified. This hinders the ability of citizens to track and monitor subnational payments. There were differing opinions among stakeholders consulted over whether the objective of enabling stakeholders to gain an understanding of benefits that accrue to local governments through transparency in companies’ direct payments to subnational entities and to strengthening public oversight of subnational governments’ management of their internally-generated extractive revenues had been fulfilled. At the same time, most stakeholders consulted noted the challenges related to the COVID-19 pandemic and funding that have affected the EITI implementation in the country, including progress on increasing transparency and accountability of subnational reporting. Stakeholder consultations confirmed the importance and materiality of subnational reporting in the PNG context, highlighted plans to increase data availability and noted considerable difficulties related to obtaining, systematising and publicly disclosing these data due to complexity of the issue and other factors. Annex B of the scoping study provides a detailed overview of these revenue streams (pp.128-139). Based on documentation provided and stakeholder consultations, the following revenue streams appear to be subnational payments (direct payments from companies to subnational government entities): Mining sector Mining royalties are calculated at 2% of gross revenue and paid via electronic funds transfer directly to provincial and local governments as well as landowners. The legislation does not seem to provide specific rules for how mining royalties should be distributed between provincial, local governments and landowners, but this information is usually specified in Memoranda of Understanding (MOAs) for specific projects. The scoping study notes that information on subnational distribution of royalties to provincial and local governments is usually specified in the National Economic Commission Fiscal Reports. However, stakeholders consulted flagged granularity issues related to these reports. The 2019 PNG EITI Report provides unilateral disclosures of subnational payments as reported by the following mining companies: Barrick Niugini Ltd, K92 Mining Ltd, Lihir Gold Ltd, MCC Ramu Nico, Morobe Consolidated Goldfields Ltd, Simberi Gold Limited (pp.84-89). However, the nature of such payments is not clearly described. In addition, the EITI reporting provides reconciliation of mining royalty payments (pp.190-191) for seven mining companies (as reported by companies and the MRA). Stakeholders consulted had differing opinions about the comprehensiveness of the presented data. Some stakeholders consulted also noted that in some cases share of mining royalties might appear to be subnational transfers. Oil and gas sector Based on provided documentation and stakeholder consultations, there appear to be no subnational payments related to the oil and gas sector. Some stakeholders argued that oil and gas royalties could also be classified as subnational payments, however, there seemed to be no mutual agreement on this aspect. The 2019 PNG EITI Report includes some unilaterally disclosed subnational payment data reported by ExxonMobil (p.90). However, it appears likely that the reported payments should be classified as social expenditure, as they constitute of in-kind expenditure on e.g., health. Summary Overall, the 2019 PNG EITI Report notes that “information relating to transfers and payments to subnational (provincial and local level) governments in PNG is difficult to obtain and reconcile” (p.80). It adds that ome relevant data can be found in the National Economic and Fiscal Commission (NEFC) budget fiscal reports. However, the Secretariat was not able to access NEFC reports covering 2019. No specific threshold for subnational payments has been included in the EITI reporting. The MSG agreed to include only the unilateral disclosures for subnational data. Despite this, the 2019 EITI Report seeks to reconcile some subnational payments, using data provided by companies and by MRA.

5.2 Subnational transfers

45

The Secretariat’s assessment is that Requirement 5.2 is partly met with considerable improvements since the previous Validation. The corrective action from the previous Validation has been partly addressed. However, the landscape of subnational transfers and payments remains opaque, and it is not possible for citizens to track how much revenues subnational government entities are receiving and whether this represents the statutory share. Stakeholder consultations suggest that the distribution of benefits from the extractive sector to the local level is a highly relevant and controversial topic, with demand for further public information. Stakeholders expressed diverging opinions on whether the objective of enabling stakeholders at the local level to assess if the transfer and management of subnational transfers of extractive revenues are in line with statutory entitlements had been achieved. Overall, there appeared to be no shared view among government, company and civil society representatives regarding the classification and categorisation of subnational transfers. Stakeholders consulted noted the importance and materiality of subnational revenue flows as well as flagged the 2019 scoping study on subnational payments and transfers as well as planned work to address the recommendations from the study. Currently, it is challenging or impossible for citizens to fully track whether subnational governments are receiving their statutory share of revenues. Based on documentation provided and stakeholder consultations, the following revenue streams could be considered to be subnational transfers (indirect transfers from companies to subnational government entities via national government): Mining sector Share of sales/equity dividends: Share of sales/equity dividends are paid by extractive companies to MRDC, which in turn transfers them to trust accounts held by the parties (provincial and local governments as well as landowners). The Mining Act 1992 provides some background on share of sales/equity dividends. However, more detailed terms are specified in MOAs and Trust Deeds. The 2019 PNG EITI Report doesn’t seem to include data for share of sales/equity dividends for the mining sector in 2019. Oil and gas sector Oil and gas royalties: Oil and gas royalties are calculated at 2% of wellhead value and paid to Department of Petroleum (DoP) or Department of Finance (DoF), which further distribute them to the local level. In case of oil search, companies pay oil and gas royalties to DoP, which transfers funds to MRDC, which in turn transfers/pays them to provincial and local-level governments as well as landowners. The 2019 PNG EITI Report includes information on ExxonMobil and PNG LNG, including some reconciled data (p.195); however, does not seem to cover the revenue-sharing formula. Share of sales/equity dividends: Share of sales/equity dividends in the oil and gas sector is executed in a similar manner as for the mining sector. The 2019 PNG EITI Report provides a framework for reporting on subnational transfers (pp.82-83). However, it appears that further clarity is needed to provide distinction between subnational payments, subnational transfers and social expenditures and their classification. The report includes reconciliation of equity distribution and share of sales (pp.192-193), but not a specific revenue-sharing formula for transfers from MRDC to local governments and landowners. Nonetheless, stakeholders consulted didn’t express any strong opinions related to comprehensiveness of these data. Development levies: Development levies are calculated at 2% of the wellhead value of all oil and gas products produced in a particular license area and paid to the national government through the DoP before they are redistributed to MoF and affected local governments. The main legal document governing the distribution of the development levies is the Oil and Gas Act 1998. The 2019 PNG EITI Report provides reconciliation of the development levy information. Stakeholders consulted didn’t express any particular views on comprehensiveness of data provided in the report. Some information on the revenue-sharing formulas for subnational transfers is provided in the scoping study on subnational payments and transfers. At the same time, as mentioned in the previous section (see Requirement 4.6), there appears to be differing opinions related to categorisation and classification of revenue flows on the subnational level. Moreover, several stakeholders stressed that reconciliation of data could be strengthened through disclosure of data sourced directly from provincial and local governments. Current disclosures rely on information collected from central government agencies.

6.1 Social and environmental expenditures

75

The Secretariat’s assessment is that Requirement 6.1 is mostly met with considerable improvements since the previous Validation. Stakeholders consulted did not express strong opinions whether the objective of enabling public understanding of extractive companies’ social and environmental contributions and providing a basis for assessing extractive companies’ compliance with their legal and contractual obligations to undertake social and environmental expenditures had been fulfilled. At the same time, it was noted that EITI reporting had become more granular and comprehensive with regard to providing data on social and environmental expenditures. Based on stakeholder consultations, it appears that no specific materiality threshold was set for social expenditures. At the same time, the 2019 PNG EITI Report states that environmental permit fees and environmental user charges were considered to be material environmental expenditures in the fiscal year under review (p.8). It was also confirmed that there are no social expenditures that are required by law, but there are some that are required by contracts. The 2019 PNG EITI Report includes unilateral disclosure of mandatory social payments, including information on whether they have been paid in cash or in-kind (pp.84-96). Stakeholders consulted noted that in some cases recipients are not available, therefore EITI reporting is based on information provided by companies. Considering the challenges related to contract disclosure, the International Secretariat notes the MSG’s efforts to provide more granular disclosures on social expenditures. At the same time, there appears to still be some confusion regarding categorisation and distinction between social and subnational payments that might require further work. Non-governmental beneficiaries of mandatory social payments are disclosed mostly in vague terms, with makes it difficult for community members to track these payments. According to the scoping study and based on stakeholder consultations, the special support grants (SSGs) under the public investments programs (PIPs) in the mining sector and infrastructure development grants in the oil and gas sector, as well as the Infrastructure Tax Credit scheme, might be also considered as social expenditures. Environmental permit fees and environmental user charges were considered to be material in the 2019 fiscal year (p.8) and were reconciled (p.14). Stakeholders consulted confirmed that there appears to be no other material environmental expenditures applicable in PNG in the fiscal year under review.

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