Summary of contract

• Negotiation, representation, and other relevant context

  This umbrella agreement is the basis for sharing benefits from the LNG Gas agreement signed between Papua New Guinea and LNG Project Companies. The parties to this agreement are the National Government, four Provincial Governments, ten Local Governments, and the project area Landowners (Preamble). The agreement was developed following a process of consultation culminating in a forum. The agreement provides the basis for subsequent license-based development forums leading to the signing of license-specific benefit-sharing agreements. Consultative group meetings were held in the forum over a period of 3 to 4 weeks leading to the execution of the agreement (Preamble, Art. 1). The timing of benefits accruing from equity is detached from the timing of actual development and gas production, but if the production and sale of gas by the LNG Project is interrupted, all of the benefits in the agreement will also be interrupted until the project resumes production and sale (Art. 1). Article 4.2 lists the licenses to which this agreement applies. The agreement follows a process of consultation with landowners in all licensed areas. The Landowners were represented by their representatives at the forum. The parties acknowledge that at least one woman from each license area was selected (Art. 5). Each Provincial Government is represented by its governor or his delegate. Each Local Governments is represented by its president or an authorized nominee, accompanied by a ward councilor or councilors (Art. 5). Each Local Government shall also be respresented by the female nominated member of the Local Government (19.1). The Provincial Governments and Local Governments affirm that they support the LNG Project and shall assist the National Government in addressing threats against LNG Project personnel or property (Arts. 15, 16, 17, 18 and 19).

• Governance, implementation, dispute resolution

  The National Government shall provide to all of the parties to the agreement a benefits package to be distributed in accordance with Art. 6.1 (Art. 6). Trustee companies will manage the benefits of the agreement for the project area Landowners, the Local Governments, and the Provincial Governments. The trustee companies shall have an independent audit every 6 months, regularly rotate their directors, issue half year and full year financial statements, publish their investment policy and dividend policy, and file full financial statements with the annual returns (Art. 9). The National Government, in consultation with the Provincial Governments and the Local Governments, will draw up development programs and projects and will get assistance in drawing up business plans and budgets, and operating and maintenance costs (Art. 14). All communication between the parties to the agreement will be in writing (Art. 21). The agreement is governed by the laws of Papua New Guinea and the disputes arising will be submitted to the exclusive jurisdiction of the Courts of the State (Art. 22).

• Fiscal obligations: content

  The Provinces, Localities, and Landowners that are parties to this agreement will receive the following benefits (Art. 6.1). (a) An estimated 7% equity participating interest in the LNG project consisting of: (i) an estimated 2.78% interest denominated "CDOA equity", which is formed by “free equity” and “paid equity”, and (ii) an estimated 4.22% interest by virtue of a commercial option, called "equity option", for an undivided and fixed 25.75% shareholding in the company Kroton, granted by the State and denominated "Kroton equity" (Arts. 6.1, 6.2.2 and 6.3). The equity option is exercisable between 1 January, and 30 June of 2016. The equity option has among its conditions a lump sum payment by the Provincial Governments and the Local Governments to Independent Public Business Corporation of Papua New Guinea as established by the Independent Public Business Corporation of Papua New Guinea Act 2002, at the rate of US$240 million per percentage point of projects interest (Art. 6.2.1); (b) A royalty of 2% calculated as specified in the Oil and Gas Act of 1998 and the LNG project agreement. (c) A development levy of 2% calculated as specified in the agreement. (d) An amount of Kina 1.2 billion allocated equally over two 5 year periods, to be spent on infrastructure development and maintenance in the affected provinces. (e) An amount of Kina 120 million made available by the State to assist landowner companies in business development activities. (f) Development of specified high-impact infrastructure worth Kina 460 million as outlined in the agreement, but the actual amount will be subject to the costs of the specific projects. The distribution of these benefits will be made as detailed in Article 6 of the agreement (Art. 6). The parties agree that 30% equity and royalty benefits will be for future generation trust fund and a further 30% will be for investment trust fund (Art. 6.6). The interpretation of all the parties, except the Provincial government of Southern Highlands, is that the development levy is payable to all 4 provinces covered by the footprint of the project. The Provincial government of Southern Highlands has a different interpretation, so the agreement establishes that if a conclusive judicial interpretation is issued, the parties shall meet in good faith to review the provisions of the agreement as required by such judicial interpretation. Pending a conclusive judicial resolution, the development levy will be kept in an escrow account controlled by the National Government (Arts. 6.10, 6.11). Paid equity will be held by a corporate trustee. The benefits of the LNG Project will be kept separate and will be separately accounted for each group of beneficiaries (Art. 9).

• Community development obligations: Local content

  LNG Project Companies have to prepare a local business development program. The government will use its best endeavors to ensure that LNG Project Companies implement a local business development program providing opportunities to project area Landowners and other citizens to participate in business spin-off activities provided by the LNG Project (Art. 10). Papua New Guinea will use its best endeavors to encourage LNG Project operators to hold meetings to consult the Landowners on the development of a national content plan to enable them to participate in early works (Art. 10.2). LNG Project Companies shall consult with the local and national authorities in relation to the local procurement of goods and services and the progress of the local business plan developed by the operator of the LNG project. The Department of Commerce and Industry shall provide a detailed annual report on the activities and implementation of the business plan (Art. 10.4). LNG Project Companies are required to prepare a training and development program to be approved by the Department of Labor and Employment. The foreign personnel will be replaced progressively and as expeditiously as possible with Papua New Guinea citizens. Papua New Guinea shall provide LNG Project Companies assistance as required in the formulation of the training and development plan. After consultation with the LNG Project Companies, the National Government may require those companies or their contractors to take the employees of the government or its nominee for managerial, professional or technical training. The National Government will use its best endeavors to ensure that citizens originating from the LNG project area are given preference in employment, provided they have the required skills (Art. 11).

• Community development obligations: Infrastructure and social services

  The National Government will developed specified high-impact infrastructure projects in the Southern Highlands Province as outlined: (a) Kikori-Kutubu-Tari-Koroba-Kopiago North Coast road (Tax Credit Scheme) Kina 100 million; (b) Komo to Tari road sealing Kina 90 million; (c) Hela City Development (first phase) Kina 100 million; (d) International Airport at Tari (first phase) Kina 90 million; (e) Komo Township Kina 15 million; (f) Magarima Township Kina 15 million; (g) Kutubu Township Kina 15 million; (h) Koroba Township (including hospital) Kina 20 million; (i) Nagoli Growth Centre Kina 15 million; (Art. 6.1(f)). The National Government shall procure all land needed for the infrastructure proposals provided in the agreement and customary landowners will give full cooperation in ensuring free access to governmental officials and to representatives of the LNG Project Companies and their contractors in undertaking all tasks relating to such infrastructure. Project area Landowners, Provincial Governments and Local Governments recognize that fair land compensation will be made for the acquisition of land from the Project area Landowners. The Expenditure Implementation Committee (“EIC”) is the authority responsible for the implementation of infrastructure projects approved under each benefit sharing agreement. The projects submitted for EIC funding will only be approved if they are compatible with the EIC guidelines and the medium term development strategy administered by the Department of National Planning and District Development (Art. 13.1). The EIC will be succeeded by the Economic Corridor Implementation Agency that will have a broader role than the EIC (Art. 13.2). The Provincial Governments and Local Governments agree to collaborate with the EIC to apply any available development levies to implement approved projects under this agreement (Arts. 15, 16, 17, 18 and 19). The parties agree that the development efforts by various agencies- the National Government, donor agencies, LNG Project Companies, affected PGs and LLGs- will be coordinated to deliver economic infrastructure, social infrastructure and empower people to carry out gainful economic pursuits (Art. 14.3). Project area Landowners, Provincial Governments and Local Governments acknowledge that LNG Project Companies will not be liable for claims which may arise from or be incidental to the use of the roads or other infrastructure by any person in any way whatsoever (Art. 12).

• Reference to investor-state contract

  The agreement refers to the LNG Gas agreement of May 22, 2008, between LNG Project companies and the State of Papua New Guinea, which provides commercial and fiscal terms for the project (Preamble). The agreement lists all the petroleum development licenses to which the agreement applies (Art. 4.2).

• Other noteworthy clauses

  Access to land for project development shall be provided by landowners in accordance with the Section 122 of the Oil and Gas Act of 1998 and shall not obstruct or interfere with lawful project development activities. The project area Landowners acknowledge the significance of the uninterrupted project operations and pledge to support the advancement of the LNG Project and will assist in the removal of any obstructions of blockades or assemblies formed to obstruct project equipment or facilities (Art. 20(a)(c)).