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The EITI Board agreed that Papua New Guinea has made meaningful progress in implementing the 2016 EITI Standard.

Outcome of the Validation of Papua New Guinea

Decision reference
2018-55 / BM-41
Decision basis
2016 EITI Standard, Requirement 8.3 EITI Validation deadlines and consequences

Board decision

Following the conclusion of Papua New Guinea’s Validation, the EITI Board decided that Papua New Guinea has made meaningful progress overall in implementing the EITI Standard. 

The Board commended Papua New Guinea’s efforts to move from reports to reforms by ensuring, through high-level government directives, swift follow-up on PNG EITI recommendations. The Board encourages Papua New Guinea to sustain progress on key reforms, including systematic disclosures of license information through the digitization of the petroleum register, and to strengthen follow-up on recommendations related to improving accountability in the management of trust accounts holding resource revenues, in the oversight of subnational payments, and in the governance of state-owned enterprises.  

The Board recognised the MSG’s satisfactory progress in ensuring appropriate multi-stakeholder oversight of EITI implementation and aligning objectives for EITI with national priorities. It also lauds the country’s efforts to produce timelier EITI data and to actively disseminate the findings of EITI Reports to influence public debate. The Board welcomes the government’s commitment to strengthen government systems by using the EITI process as a diagnostic tool to support reforms. As part of improvements of such systems, the Board encourages Papua New Guinea to pursue efforts to systematically disclose data required by the EITI Standard as part of routine government and company disclosure systems.

The Board has determined that Papua New Guinea will have 18 months, i.e. until 30 April 2020 before a second Validation to carry out corrective actions regarding the requirements relating to License allocations (#2.2), License register (#2.3), State participation (#2.6), Production data (#3.2), Export data (#3.3), Comprehensiveness (#4.1), SOE transactions (#4.5), Direct subnational payments (#4.6), Data quality (#4.9), Distribution of revenues (#5.1), Subnational transfers (#5.2), Mandatory social expenditures (#6.1), SOE quasi-fiscal expenditures (#6.2), Outcomes and impact of implementation (#7.4). Failure to achieve meaningful progress with considerable improvements across several individual requirements in the second Validation will result in suspension in accordance with the EITI Standard. In accordance with the EITI Standard, Papua New Guinea’s MSG may request an extension of this timeframe, or request that Validation commences earlier than scheduled.

The Board’s decision followed a Validation that commenced on 1 April 2018. In accordance with the 2016 EITI Standard, an initial assessment was undertaken by the International Secretariat. The findings were reviewed by an Independent Validator, who submitted a draft Validation report to the MSG for comment. The MSG’s comments on the report were taken into consideration by the independent Validator in finalising the Validation report and the independent Validator responded to the MSG’s comments. The final decision was taken by the EITI Board.

Corrective actions and strategic recommendations

The EITI Board agreed the following corrective actions to be undertaken by Papua New Guinea (PNG). Progress in addressing these corrective actions will be assessed in a second Validation commencing on 30 April 2020:

  1. In accordance with Requirement 2.2, PNG is required to publicly disclose information related to the award or transfer of mining tenements and oil and gas licenses pertaining to companies covered in the EITI Report. This information should include the number of mining tenements and oil and gas licenses awarded and transferred in the year under review, a description of the award and transfer procedures, including specific technical and financial criteria assessed, and any non-trivial deviations from statutory procedures in practice.

  2. In accordance with Requirement 2.3, PNG should maintain a publicly-accessible register or cadastre system(s), including comprehensive information on licenses for all oil, gas and mining companies. In the interim PNG should ensure that information set out under EITI Requirement 2.3.b is publicly accessible for all mining, oil and gas companies.

  3. In accordance with Requirement 2.6, PNG should clearly establish its definition of SOEs to delineate the SOEs within the scope of EITI reporting and ensure that a comprehensive list of state participation in the extractive industries, including terms associated with state equity and any changes in the year under review, be publicly accessible. PNG must also clarify the rules and practices governing financial relations between all SOEs, including their subsidiaries, and the state, including the existence of any loans or guarantees extended by the state, or SOEs, to extractives companies or projects.

  4. In accordance with Requirement 3.2, PNG should ensure that the complete production volume for oil and gas, and production values for each of the extractives commodities produced during the year under review be publicly accessible, disaggregated by commodity.   

  5. In accordance with Requirement 3.3, PNG should ensure that export volumes and values are publicly disclosed for each mineral commodity (including oil, condensate and gas) exported in the year under review.

  6. In accordance with Requirement 4.1, PNG should ensure that the materiality threshold for selecting companies ensures that all payments that could affect the comprehensiveness of EITI reporting be included in the scope of reconciliation. The MSG should ensure that PNG’s next EITI Report includes the IA’s assessment of the materiality of omissions from non-reporting entities, an assessment of the comprehensiveness of the EITI Report and that full unilateral government disclosure of total revenues, including from non-material companies, is provided for each of the material revenue streams. In accordance with requirement 8.3.c.i, the MSG should develop and disclose an action plan for addressing the deficiencies in comprehensiveness of reporting documented in the initial assessment.

  7. In accordance with Requirement 4.5, PNG should undertake a comprehensive assessment of transactions between extractives SOEs (and their subsidiaries) and mining, oil and gas companies, as well as between the extractives SOEs (including their subsidiaries) and government in its scoping for future EITI Reports. All SOEs collecting material revenues or making material payments to government should be included in future EITI reporting.

  8. In accordance with Requirement 4.6, PNG should establish whether direct subnational payments (to government entities) by extractives companies are material. Where material, PNG is required to ensure that direct subnational payments are reconciled between company payments and subnational government entities’ receipts. Given widespread confusion yet vivid interest among stakeholders from all constituencies over extractives revenue flows accruing to subnational governments, PNG should consider mapping out subnational revenue flows associated with each individual extractive project, drawing on results from the scoping study on subnational revenue flows being prepared in 2018.

  9. In accordance with Requirement 4.9.a, the EITI requires an assessment of whether the payments and revenues are subject to credible, independent audit, applying international auditing standards. In accordance with requirement 4.9.b.iii and the standard Terms of Reference for the Independent Administrator agreed by the EITI Board, the MSG and Independent Administrator should:

    • Ensure that the Independent Administrator provides a clear and categorical assessment of comprehensiveness and reliability of the (financial) data presented, including an informative summary of the work performed by the Independent Administrator and the limitations of the assessment provided.

    • Ensure that the Independent Administrator provides an assessment of whether all companies and government entities within the agreed scope of the EITI reporting process provided the requested information. Any gaps or weaknesses in reporting to the Independent Administrator must be disclosed in the EITI Report, including naming any entities that failed to comply with the agreed procedures, and an assessment of whether this is likely to have had material impact on the comprehensiveness and reliability of the report.

In accordance with requirement 8.3.c.i, the MSG should develop and disclose an action plan for addressing the deficiencies in the reliability of reporting documented in the initial assessment.

  1. In accordance with Requirement 5.1, PNG should clarify which extractive revenues are recorded in the national budget. Where revenues are not recorded in the national budget, the allocation of revenues should be explained, with links provided to relevant financial reports.

  2. In accordance with Requirement 5.2, PNG is required to ensure that material subnational transfers of extractives revenues are publicly disclosed, when such transfers are mandated by a national constitution, statute or other revenue sharing mechanism such as benefit-sharing agreements. The MSG should also disclose any discrepancies between the transfer amount calculated in accordance with the relevant revenue sharing formula and the actual amount transferred between the central government and each relevant subnational entity on an annual basis.

  3. In accordance with Requirement 6.1, PNG should ensure that reporting of mandatory social expenditures be disaggregated by type of payment and beneficiary, clarifying the name and function of any non-government (third-party) beneficiaries of mandatory social expenditures.

  4. In accordance with Requirement 6.2, PNG should undertake a comprehensive review of all expenditures undertaken by extractives SOEs (and their subsidiaries) that could be considered quasi-fiscal. PNG should develop a reporting process with a view to achieving a level of transparency commensurate with other payments and revenue streams, and should include SOE subsidiaries and joint ventures.

  5. In accordance with Requirement 7.4, the MSG is required to review the outcomes and impact of EITI implementation on natural resource governance in PNG by ensuring that all the prescribed details of the annual progress report are mentioned in the next report. The MSG should ensure that all stakeholders, including those outside of the MSG, are given an opportunity to participate in the production of, and have their view reflected in, the annual progress report.

The government and the MSG are encouraged to consider the other recommendations in the Validator’s report and the International Secretariat’s initial assessment, and to document the MSG’s responses to these recommendations in the next annual progress report.

Background

Papua New Guinea submitted an application for candidature on 11 December 2013 and was accepted as an EITI Candidate by the EITI Board at its meeting in Oslo on 19 March 2014. PNG has annually published four EITI Reports covering four fiscal years, namely, 2013-16. The last two reports were published simultaneously on 30 December 2017, ensuring PNG is well ahead of its reporting deadlines

The Validation process commenced on 1 April 2018. In accordance with the Validation procedures, an initial assessment was prepared by the International Secretariat. The Independent Validator reviewed the findings and wrote a draft Validation report. Both papers were shared with the MSG for its feedback and comments are expected on 10 October. The Independent Validator will then review the comments and respond to the MSG, before finalising the Validation report.

The Validation Committee reviewed the case on 10 October 2018. Based on the findings above, the Validation Committee agreed to recommend the assessment card and corrective actions outlined below.

The Committee also agreed to recommend an overall assessment of “meaningful progress” in implementing the 2016 EITI Standard. Requirement 8.3.c. of the EITI Standard states that:

ii.    Overall assessments. Pursuant to the Validation Process, the EITI Board will make an assessment of overall compliance with all requirements in the EITI Standard.

iv.   Meaningful progress. The country will be considered an EITI candidate and requested to undertake corrective actions until the second Validation.

The Validation Committee agreed to recommend a period of 18 months to undertake the corrective actions. This recommendation takes into account that the challenges identified are relatively significant and seeks to align the Validation deadline with the timetable for Papua New Guinea’s 2017 and 2018 EITI Reports.

Scorecard for Papua New Guinea: 2018

Assessment of EITI requirements

  • Not met
  • Partly met
  • Mostly met
  • Fully met
  • Exceeded
Scorecard by requirement View more Assessment View more

Overall Progress

MSG oversight

1.1Government engagement

Government provides support and resources to the EITI process, actively participates in MSG meetings, and acts on the MSG’s recommendations. There is enough evidence to show that government representatives are able to follow-up on decisions made by the MSG and that they are sufficiently engaged in the design of the EITI process.

1.2Company engagement

The largest companies actively participate in MSG activities, and contribute to discussions of broader issues in the sector. While the same number of companies fail to submit signed reporting templates and tax waivers through the years, this does not seem to affect the quality of company engagement in general.

1.3Civil society engagement

There is an enabling environment for civil society participation and no known restrictions on the right to express, operate, associate and engage wider constituencies. There is no evidence to suggest that the government has attempted to restrict public debate in relation to EITI implementation. Civil society is able to fully participate in the EITI process.

1.4MSG governance

All constituencies regularly attend MSG meetings and actively participate in the design and implementation of the EITI, and engage in substantive conversations about the issues in the sector.

1.5Work plan

The 2017 and 2018 work plans contain objectives aligned with national issues, have measurable and time-bound activities, provide for plans to address capacity constraints, legal obstacles, and scope of EITI reporting, as well as plans for implementing recommendations. They are fully costed with indication of the sources of funding.

Licenses and contracts

2.1Legal framework

The 2016 EITI Report contains sufficient information on the governing laws in the sector and the roles of the regulatory agencies. It provides an overview of the applicable fiscal regime and the level of fiscal devolution. Policy reforms are also mentioned.

2.2License allocations

While the EITI Report provides a list of mining tenement awards and transfers, the list appears to be non-comprehensive. For oil and gas, specific licenses awarded in 2016 were not provided in the report. The report only describes the general process for awarding and transferring licenses, and does not include the technical and financial criteria used.

2.3License register

While the report covers all significant aspects of the requirement for mining tenements, there are significant shortcomings in the public availability and comprehensiveness of information on oil and gas licenses. Information on dates of application, award or expiry, coordinates, and commodity(ies) covered by oil and gas licenses were not provided.

2.4Policy on contract disclosure

The 2016 EITI Report sufficiently explains the government’s policy and actual practice when it comes to contract disclosure. It should be noted, however, that contracts in PNG are not publicly accessible due to confidentiality provisions in the contracts.

2.5Beneficial ownership

Not assessed

The 2016 EITI Report does not contain any information on beneficial owners, although it provides some information on legal owners of mining companies. No such information was given for oil and gas companies.

2.6State participation

The report provides a list of companies in which the government holds majority equity interest. However, the list of state participation does not appear to be comprehensive. The report clarifies the actual practice of financial relations between SOEs and the government, but does not describe the statutory rules governing the financial relations.

Monitoring production

3.1Exploration data

The 2016 EITI Report provides an overview of the mining, oil and gas sectors, including significant exploration activities.

3.2Production data

While PNG has made efforts to reconcile production volumes, the 2016 EITI Report does not provide the production values for minerals and oil and gas. The significant discrepancies in the reconciliation of production figures and the incomplete reporting by the government are also a concern, given that data are based on companies’ self-reporting.

3.3Export data

The 2016 EITI Report discloses export values for all minerals, oil and gas exported in 2016, but only provides export volumes for minerals, oil and condensate, not for LNG. While LNG export volumes for 2016 were published on the PNG EITI website in May 2018, there is no reference to the availability of this data in the 2016 EITI Report.

Revenue collection

4.1Comprehensiveness

The report does not provide an assessment of the materiality of non-reporting companies’ payments to government. The high value of unreconciled discrepancies is a concern, particularly given stakeholders’ lack of confidence in the explanations provided for discrepancies. There is also no evidence of full unilateral disclosure of government revenues.

4.2In-kind revenues

Not applicable

Although the report does not explicitly state that the government is not entitled to in-kind revenues as fiscal payments, there was consensus among stakeholders consulted that this requirement was not applicable to PNG under the current fiscal regime.

4.3Barter agreements

Not applicable

While the 2016 EITI Report categorises expenditures under infrastructure tax credit (ITC) mechanism as a form of barter arrangement, stakeholders confirmed that extractives companies were not required to undertake expenditures under the ITC scheme.

4.4Transportation revenues

Not applicable

The 2016 EITI Report confirms that according to Treasury, transport revenues do not exist in PNG except for pipeline fees, which are not material.

4.5SOE transactions

The 2016 EITI Report discloses, but does not reconcile, some revenues collected by SOEs from mining, oil and gas companies they hold interests in. While dividends paid by two SOEs to Treasury are disclosed and reconciled, it is unclear whether reporting of SOE transactions with other government entities is comprehensive.

4.6Direct subnational payments

The 2016 EITI Report provides vague and contradictory explanations of the structure and materiality of subnational direct payments linked to the extractives. There is also confusion between subnational direct payments, subnational transfers, SOE transactions with provincial governments and private-to-private transactions (with landowner groups).

4.7Disaggregation

The data is disaggregated to the levels required by the Standard, i.e., by individual company, revenue stream and government entity for all revenue streams.

4.8Data timeliness

PNG is ahead of the required reporting cycle, having published 2016 data on 30 December 2017. The 2015 data was also published on 30 December 2017.

4.9Data quality

The report does not provide a clear statement on the comprehensiveness and reliability of financial data, coverage of reconciliation, nor the materiality of payments from reporting entities that did not provide required quality assurances.

Revenue allocation

5.1Distribution of revenues

The report explains how extractive industry revenues are recorded in the budget. However, there are concerns regarding the accuracy of the information. Where revenues are not recorded, the allocation of revenues were not explained. The report also does not provide links to financial reports.

5.2Subnational transfers

The report does not clearly distinguish between subnational direct payments, subnational transfers, SOE dividends, earmarked revenues from the Consolidated Revenue Fund, social expenditures and private-to-private transactions not strictly covered by the EITI Standard. Also, the value of subnational transfers of extractives revenues is not disclosed.

5.3Revenue management and expenditures

Not assessed

It is encouraging that the MSG has made an attempt to include information on the budget-making process, as well as some information on revenue management in the 2016 EITI Report.

Socio-economic contribution

6.1Mandatory social expenditures

The report does not distinguish between mandatory cash and in-kind social expenditures. Comprehensive information as to the nature, value and beneficiaries of social expenditure projects is also missing from the report. Nevertheless, the MSG made efforts to disclose information on mandatory social expenditures despite confidentiality constraints.

6.2Quasi-fiscal expenditures

While the report notes that no SOE reported any quasi-fiscal expenditures (QFEs) for 2016, some stakeholders view that that material QFEs exist and should be disclosed. It is unclear whether the MSG’s approach to assessing the existence and materiality of QFEs was comprehensive of all types of expenditures that could be considered quasi-fiscal.

6.3Economic contribution

The report provides, in absolute and relative terms, estimates of the extractive industries’ contribution to GDP, government revenues, exports, employment and location of major extractive activities. While 2016 employment data provided is not comprehensive, the report is transparent about the constraints in sourcing reliable employment data for PNG.

Outcomes and impact

7.1Public debate

There is public dissemination of information and it can be seen from online articles and publications that EITI data is referred to in understanding the issues in the sector. There are efforts to engage the media and seek various platforms to promote EITI and contribute to public debate.

7.2Data accessibility

Not assessed

While EITI summary data templates are regularly published, there are no efforts to analyse and simplify data. It is not clear how revenues in the report correspond to the reference system adopted by government.

7.3Follow up on recommendations

The quality of the recommendations from PNG EITI Reports are remarkable. There is progress in some significant recommendations while the rest of the recommendations have been discussed with agencies. The MSG has adopted a formal mechanism to follow-up on these recommendations.

7.4Outcomes and impact of implementation

The MSG’s efforts to review outcomes and impact of EITI implementation are limited and feedback is not sought from other stakeholders outside of the MSG. Nonetheless, there is substantial information on progress against recommendations and against work plan objectives, as well as a good narrative of activities in the annual progress report.

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