PNG LNG landowner royalties – why so long?

Liquid Natural Gas tanker (Flickr/Lens Envy CC BY-NC-ND 2.0)
Written by Sam Koim, Stephen Howes

The recent protests by Hela landowners and their latest ultimatum in relation to their non-receipt of royalties and other benefits have the potential to derail PNG’s prestigious and important LNG project. But they also beg the question: how did it come to this? How is it that after more than 200 ships of LNG have left PNG’s shores no royalties have been paid to landowners? How can the situation be resolved, and what are the implications for future projects?

These are important questions on which there is little informed public discussion. This blog post seeks not to blame or to take sides, but simply to clarify the basic facts around these complex issues. Although we focus on royalties, some of the issues also apply to the distribution of other benefits associated with resource projects.

Social Mapping and Landowner Identification Studies (SMLISs)

One of the primary preconditions for the grant of a petroleum licence is for the licensee (developer) to undertake Social Mapping and Landowner Identification Studies (SMLISs) – see sections 47 and 63 of the Oil & Gas Act 1998. These studies need to be done before the Development Forum for the project – a convening of all parties who will be affected by the project (section 48). The SMLISs are not public documents, but there are various benefit agreements and government decisions dating back to 2009 making reference to these SMLISs for the various project license areas having been completed.

Landowner determination

The Act gives responsibility to the Minister to determine the local beneficiaries of a petroleum project (section 169). The SMLIS is one among a number of things that the Minister can take into account when making the determinations (section 169(4)). That determination is meant by law to happen before or during the Development Forum or Fora. At the PNG LNG Development Fora (there were various, held in 2009), it was agreed how the benefits would be divided within each license area between clans. However, this division of royalties was never gazetted. Rather, there was an agreement in the various benefit sharing agreements that the beneficiaries would become Incorporated Land Groups (ILGs) and that to facilitate the incorporation of groups the government would “establish an inter-agency task force to be known as the PNG LNG Land Group Incorporation and Clan Vetting Tax Force comprising officers from the Departments of Lands and Physical Planning and other relevant state agencies.” Thus was born the Clan Vetting Process.

Clan Vetting Process (CVP)

Clan Vetting is not mentioned in the Oil & Gas Act. According to the benefit sharing agreements, it is coordinated by the Department of Petroleum and Energy (DPE) with the aim “to identify, coordinate and facilitate incorporation of land groups for each affected clan or sub-clan identified within the license area in accordance with the Land Groups Incorporation Act 1974”, and with the work to be concluded by February 2010.

Yet so far only a few benefit determinations have been gazetted (late last year), relating to the pipeline license areas rather than the gas fields themselves. They are called “interim” determinations and make reference only to “beneficiary clans” not to ILGs. In hindsight, it would have been better, and in accordance with the law, not to consider the Development Fora concluded, and thus not to start construction, until the ILGs had been created, and the final determinations and gazettals made.

It is unclear why Clan Vetting has taken so long (almost seven years longer than expected, and counting), but two factors have now come into play making the CVP more difficult, and indeed making it unclear whether it will ever be concluded.

First, the requirements to register an ILG were tightened up in the 2009 Land Group Incorporation and Land Registration Acts. For example, to register an ILG you now need a complete membership list, and birth certificates for all members. That is a much higher bar for registration, and it is unclear how it will be met. (The SMLIS studies don’t have the names of individuals, and many of them will lack birth certificates.) The new rules came into force in 2012, meaning that they apply now.

Second, over the last few years the judiciary has got increasingly involved with the issue of beneficiary determination, and has started to challenge the CVP.

Judicial involvement

Some who claimed to be PNG LNG landowners appealed to the courts, as early as 2010, that there were wrongly missing out on benefits. We understand that these appeals related not to royalties, but benefits like land compensation and infrastructure development grants which are paid during the construction phase. These cases eventually led to a Consent Order of 21 April 2015 being signed by the lawyers of the PNG Government and the various landowners to submit to field-based mediation in a number of the license areas. This Alternative Dispute Resolution (ADR) approach commenced in 2015 under the leadership of Justice Kandakasi, but is not complete. We understand that it is now stalled or at least slowed down due to funding shortages. We are not aware of any landowner determinations being agreed to by the various parties as a result of mediation.

But the CVP is also stalled, because the Courts have ruled that it is “without statutory foundation and null and void”. The Courts also issued an order restraining DPE “from conducting any clan vetting exercise or landowner identification process”. (Both orders are mentioned in a 21 July 2016 Court Order, which refers to earlier Court Orders along these lines.)

Future LNG projects

The judiciary has already intervened in the P’nyang LNG project, referred to by some as the expansion project, which Exxon-Mobil is promoting. A landowner went to the court to stop the Development Forum for this project (presumably for fear that s/he would miss out on benefits).  The National Court provided the injunction and in a ruling of 27 May 2016 (Bernard v Duban [2016] PGNC 121; N6299 (27 May 2016)) Justice Kandakasi gave detailed guidance as to what an SMLIS should include, in particular a listing of individual landowners. (Earlier SMLISs had not been that detailed, and no regulations have ever been published defining the content of an SMLIS.) Indeed, the main grounds for the injunction on the Development Forum seem to be the lack of confidence on the part of the Court that the SMLISs meet its required standards. (The Court also referred a constitutional issue to the Supreme Court relating to the extent to which provincial governments need to be consulted in relation to resource projects under the provisions of the Organic Law on Provincial Governments and Local-Level Governments.) This ruling is now being appealed.

Stalemate

It seems that the state is prevented from deciding which landowners should receive how much royalties because the protracted CVP it has been undertaking to make such a decision has been stalled by the courts. But the court ADR process is also stalled due to lack of funding.

It is unclear how this stalemate will be resolved. It would appear that the government has lost faith in the ADR process, and that the courts have lost faith in the government CVP. Presumably, since the ADR process is voluntary, the government could withdraw from it. Moreover, whether the developer undertakes the SMLIS or the courts make a ruling, it is the Minister who ultimately discharges the statutory obligation by making a determination as to who the real project area landowners are. There is provision in the OGA that the SMLIS and court decisions are among the factors that should be taken into account when making the Ministerial determination (s.169(4)). There is also a provision for making a determination even at this juncture, that is, after the commencement of the project (s.169A). Presumably, a determination could be made now, without any further Clan Vetting. However, it is not clear how ILGs could be incorporated; and if the determination related to groups other than ILGs then the various project benefit sharing agreements would need to be re-written. Moreover, if a determination was made, it might be open to any landowner to go to courts to get an injunction on the basis that the courts have said that the CVP already undertaken is without legal foundation.

PNG is keen to pursue further LNG projects but they might well get delayed given the position that the courts have taken which make it impossible to hold a Development Forum unless much more detailed SMLISs are undertaken than have been to date. Even if these are undertaken, if they are challenged in the court, further delays could follow. Clearly, a much speedier process is needed for the creation of ILGs.

Going forward, it is not clear what the solution is. One suspects that the issues will have to be elevated to the Supreme Court. But even if the current round of issues before the courts is resolved, there is much work to be done by the government before determinations can be finalized and royalties flow. Such important issues of public policy would benefit from more public discussion. It is to that end that we have written this article. Much more analysis is needed. We invite your comments and feedback.

Sam Koim is the former Chairman of the multi-agency anti-corruption body Taskforce Sweep and Principal Legal Officer at the Department of Justice and Attorney General, Papua New Guinea. Stephen Howes is Director of the Development Policy Centre.

Sam Koim

Sam Koim is a Papua New Guinean lawyer whose career has focused on anti-corruption efforts. He was a Principal Legal Officer at the PNG Department of Justice and Attorney General, before becoming Chairman of Investigation Task Force Sweep, PNG’s multi-agency anti-corruption body. He led this body for five years and was involved in investigating and prosecuting corrupt offenders, penalising and recovering unpaid tax, identifying and recovering proceeds of crime, and working with other agencies. He is also a Council Member of the Papua New Guinea University of Technology. He is currently a Visiting Fellow at the Development Policy Centre.

Stephen Howes

Stephen Howes is the Director of the Development Policy Centre and a Professor of Economics at the Crawford School.

6 Comments

  • Sam Koim and Stephen Howes can find no solution to how the royalties from the export of gas by the PNG LNG Project can be paid to the “landowners” at Hides. This is because the situation at Hides and in Port Moresby is almost a perfect storm, in which, in addition to those they discuss, a number seemingly unrelated circumstances have come together in a way which may ultimately cause the LNG project and the PNG Government severe difficulties. These include Huli social organisation and land tenure, the fraudulent distribution and massive theft of public money from the benefits agreement grants paid in Port Moresby to individuals representing themselves as Huli leaders in conjunction with allegations of kick-backs to those who approved the payments, the general incompetence of public service staff and their deep reluctance to visit or stay in the Hides area, a deep distrust of the banks by individuals at Hides who allege theft of money from their accounts by bank staff and the unwillingness of banks to open branches in the project area. I will comment on the social organisation and land tenure issue.
    Koim and Howes raise the matter of Social Mapping and Landowner Identification Studies. They are much misunderstood documents. These studies were undertaken by a Huli speaking anthropologist with a great deal of experience with Huli culture and practice and were an extension of studies undertaken for the Kutubu oilfield developments by Oil Search Ltd where they have been used successfully. Primarily, they identify, not individual land owners, because that is not possible, but the landowning groups that are found within a Petroleum Development Licence Area (PDLA) within which the project will occupy land and extract gas. These groups have become known universally as “clans”, which raises problems itself, because within PNG there is much misunderstanding of what a clan is.
    The boundaries of the PDLAs are grid squares of the international Universal Transverse Mercator (UTM) coordinate system and are not congruent within Huli clan territory boundaries. Thus some clans may fall outside an area that is due to receive royalty payments by just a few meters. Huli landowners do not know where the PDLA boundaries fall in relation to their clan boundaries. This creates much anxiety among landowners. Oil Search Ltd community affairs staff mapped clan boundaries around its production gas well and gas-to-electricity facility at Hides in the 1990s. Esso Highlands Ltd did not accept that its field staff should do similar boundary mapping within the LNG area on the grounds that it was the government’s responsibility to do it (which it is).
    The Huli owners of the PDLAs within which the PNG LNG operates organise themselves in a way that many other PNGeans find difficult to grasp because it differs from what they are familiar with. Other PNG highlanders in particular, are commonly confused and even disparaging of, Huli social organisation and land tenure.
    The Huli “clan” is known as a hameigini. The Huli clan territory, that is the land, is also known as a hameigini. The boundaries of Huli clan land are usually clearly identified by deep ditches and are not often disputed. Where the land is disputed, the dispute is usually related to how the people who presently occupy the land are classified, how they classify themselves, or over what sort of rights they have to occupy the land.
    People can claim membership of a clan by direct descent from a male, their father or grandfather and so on. People who can do this are called tene. Tene are the primary clan members. As long as they can demonstrate their descent by citing genealogical evidence that is agreed to as being sound by other tene members, their membership and their occupation of land belonging to their clan cannot be contested. Tene clan members can make their land available to non-tenes to occupy or use, especially relatives from other parts of Hela.
    People may also claim membership of a clan through a female, their mother or grandmother for example, who will be the daughter of a tene clan member. Clan members who do this are known as yamuwine. An individual is yamuwine, even if he traces his descent from a very distant female ancestor. An individual yamuwine clan member who participates fully in clan activities such as fights and exchanges, who contributes generously pigs and food to funerals and compensations, and who proves to be a wise and strategic leader, can become known as “just like a tene”. Nevertheless, should he come into dispute over clan land with a tene clan member, he will remain at a disadvantage, because a tene member has primary rights which will usually not be able to be overridden by a yamuwine member.
    Over a number of generations, whole groups of people who trace their descent from a yamuwine ancestor, come to be known as yamuwine sub-clans or even yamuwine clans. Such groups cannot deal with their land without consulting with the tene clan that they emerged from a number of generations ago. A common cause of a dispute and sometimes vicious fighting is a yamuwine clan or sub-clan declaring itself tene and adopting tene rights over the land it occupies. On the other hand, a tene clan may decide to treat a yamuwine group as “just like tene”.
    A third level of clan membership are known as wali haga. They may be relatives wives or friends. A tene or a long time yamuwine clan member can invite such people to come and reside within the clan land and to grow food there.
    This sort of social organisation has a number of implications: an individual who is tene in one clan can be yamuwine in another. He can legitimately occupy and use land in more than one clan territory. In the past many men had more than one residence. A study of a clan near Tari in the 1950s found 40% of males had at least one additional residence outside the clan land. This had fallen to 20% by 1978. Two major advantages of more than one residence were first, the ability to make gardens in more than one environment and second, to have a place of refuge in the case of a fight gone wrong. Nowadays, an additional advantage is the ability to move to a clan territory within a PDLA that will receive payments from royalties from a clan territory that is outside a PDLA and so will receive nothing.
    The emergence of yamuwine clans has other implications when payments of royalties are considered. The tene landowners will attempt to be the recipients of the payments and will want to redistribute a share to the yamuwine sub-clans. The yamuwine members will resent this and may try to reclassify themselves as tene, often seen by tene members, as a very provocative thing to do.
    A very important implication of this situation is that it is all but impossible for an outsider to determine the clan membership of any particular individual. Even for clan members, membership of some individuals and groups is arguable, and the Huli spend a lot of time debating just such matters. In the circumstance of a large amount of money about to come to one group and not to another, to ask an individual which clan they are a member of is extremely unreliable. Clan and individual histories may be fabricated, clan leaders may not know the history of their occupation of particular land and individuals whose ancestors moved to a clan territory several generations ago may not be able demonstrate their rights to be in occupation, or may make them up. Other than long, drawn out public debates, many of which come to no agreement anyway, membership of Huli landowning groups cannot be determined. In addition, identifying land owners once is just the beginning of the task for outside administrators. Clan members are born and die or are adopted in, every day so to properly keep track of who are clan members will require continual monitoring.
    This situation has been understood by Lands and Community Affairs staff contracted to Esso Highlands Ltd since the beginning of the project but their advice that the government would almost certainly be unable to identify landowners to receive royalty payments was not understood by senior managers.
    If it is not possible to identify individual landowners, how can royalties be paid to landowners? Koim and Howes raise the possibility of using Incorporated Land Groups (ILGs). In addition to the requirements to register an ILG listed by them, an individual can only be registered as a member of one ILG, a restriction that is totally unsuitable to Huli. This is one reason why ILGs were not previously used to register Huli landowners.
    At Hides, landowners repeatedly say they will accept royalty payments made to clan representatives, (“clan agents”) as long as the payments are made in cash and in public, so that everybody can see who receives the money and can know how much they received. They say any other form of payment is open to fraudulent dealings and theft by public servants, clan leaders and politicians. The recent history of payments made in Port Moresby under the Development Grants and the Business Development Grants of the LNG USBA and LSBA suggests they are right to be concerned.
    This approach was used to pay a K243,000 deprivation grant to the landowners of the Komo airfield. The clans owning the land and their agents were identified by EHL community affairs staff as part of an extended mapping exercise before construction of the airfield began. The cash was placed in large envelopes and as the name of the clan was called out, the cash was removed from the envelope and shown to the watching clan members, then placed back in the envelope and given to the agent. By the end of the payment, clans members had formed groups and cash was being distributed to them by the agents. Lands and Community Affairs field staff visited the areas affected in the days after the payment and sought complaints from people who believed they had not received a fair share. The only complaint received was from a man in Port Moresby who demanded he be paid there. His clan agent said he had been away from Komo for many years and had not contributed to the clan’s affairs and so would not receive a share. Such payments are allowed under the O&G Act. This was a much smaller exercise than that which will be required to pay royalties, where many more clans are involved. The biggest problem with the Komo payment was the maintenance of security over a large amount of cash being moved within easy access of heavily armed criminal gangs located elsewhere in Hela, and in Southern Highlands and Western Highlands.

    • hi Bryant,

      Thanks for this extensive comment and analysis. A couple of reactions. Sam Koim and I don’t “raise the possibility” of using ILGs to pay royalties. We note that this mechanism is mandated by the 2009 benefit sharing agreements. More broadly, your analysis touches on many broader issues we were unable to cover in our post. It reminded me of Colin Filer’s excellent seminar on the PNG LNG landowner issues (see https://devpolicy.crawford.anu.edu.au/sites/default/files/events/attachments/2016-09/smli_seminar_sept_2016.pdf). As you know, Colin distinguished between three approaches: pragmatic, idealistic and individualistic. You are advocating a pragmatic approach (cash payments to clan representatives). PNG has taken the idealistic approach (payment to ILGs). But that now has an individualistic element to it since ILGs require listing of individual members to be constituted, and, as you say, each individual can only belong to one ILG. Put in these terms, your argument is that the indvidualistic, idealistic approach cannot work in the context of the PNG LNG project. I am not expert enough to judge one way or another. Clearly, these issues should have been resolved, as the law requires, prior to the commencement of construction. How they will be resolved now is very hard to see indeed.

      Regards,

      Stephen

      • Stephen,
        I was away for Colin’s seminar. It was be a joint effort but I was in PNG so we just talked about options before I left. I am not arguing for only one answer. Like you, I don’t have one. I think the Huli landowners have to come up with one but it has be sorted out at Hides, not in POM or anywhere else. – B

  • Excellent, as far as it goes (the full version of criminal misbehaviour, fraud, violence, deceit etc etc in the PNG resources sector would be longer than the Encyclopedia Britannica). However your reference to the judicial Alternative Dispute Resolution scam drew my attention. This is a very clear example of the judicial corruption evident in Papua New Guinea, and warrants investigation. There are a number of variations on the theme, and more than one judge is involved.

    • Very interesting to read some really good comments. I agree with Bryant Allen and his analysis of the land tenure system. Definitely ILG System will not work for Huli’s.

      The simple fact is that all the Huli’s are related to each other. It will be mind boggling to recall the names of your ancestors back to 18 generations by heart. Only Huli’s can do that. The issue of benefits and clan vetting is only with the Huli’s and not other ethnic groups (Kutubu, Gobe & Pipeline).

      Any efforts initiated by the government will be like a scam and will never solve the problem. Previous attempts were a waste.

      In Huli, everyone is a leader and may want to express his/her opinion in a meeting. Even if the person has a solution or not, he/she wants will say something to maintain the status of the family and clan lineage.

      What the PNG Government fails to do is to facilitate and allow themselves to talk for as long as they want. Huli’s understand themselves better than anybody else from outside. If we allow them to talk, they will sort themselves out.

      We need some Huli’s to provide real leadership on the ground and allow representatives and leaders from each License area to talk and they will eventually reach a solution.

      Government Officers and Consultants become impatient with time and rush things. Good resolutions will be reached when Huli’s are given enough time to talk among themselves even if it takes them 1 month of just talking.

      Michael

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