KPHL WAS ESTABLISHED WITH PROTOCOLS OF REPORTING TO THE STATE/PAC

By BEN MICAH - PNG blogs

I have been following with keen interest the debate on the call by the chairman of the public accounts committee Sir John Pundari for officials of KPHL to appear before the public accounts committee. I was the minister responsible for effecting the implementation of the O’Neil government’s Kumul Agenda between 2014 and 2015. I was entrusted with this responsibility by the prime minister after Kerenga Kua was dismissed as Attorney General since he was initially taking carriage of the matter since 2013. Many comments made about the legislative framework affecting the establishment of Kumul Petroleum Holdings Limited are relatively subjective and are not based on a deeper understanding of the background information considered by the NEC prior to establishing the Kumul Group of companies as State vehicles to participate in commercial activities within the economy of the country. The discussion is too long and which I am prepared to defend in any forum or seminar/workshop at any other time. In the meantime, I wish to contribute to the debate by putting into perspective the issue in contention.

It seems from comments I am reading from discussion groups on social media that KPHL was established with devious intentions as some kind of a sacred cow that is not accountable to the State that created it. The company is not a sacred cow and is subject to accountability and scrutiny by the state through its legislative mandate that also protects its operations in the commercial world. Remember Kumul Petroleum Holdings Limited (KPHL), Kumul Consolidated Holdings Limited (KCHL) and Kumul Minerals Holdings Limited (KMHL) were collectively created by the NEC and Parliament. The policy document and accompanying legislative framework that was presented to NEC and the Parliament by me as then Minister for State-Owned Enterprises and State Investments were given exhaustive discussion and debate before being approved.

When KPHL was established, the aim of the State was to create a corporate institution capable of commercial operation and profitability as any other privately owned commercial entity, taking into consideration the lessons and principles that created some of today’s powerful NOC’s like Malaysia’s Petronas, Indonesia’s Pertamina and Brazil’s Petrobras. In order to set KPHL on the path of growth, the State had to look at the key principles and lessons learned in countries that have successful NOCs or have failed, and based on these findings, the State intentionally excluded the application of the Public Finances (Management) Act 1995 (“PFM Act”) on KPHL. The exclusion of the PFM Act addresses key commercial considerations which are critical to enabling KPHL to become a successful NOC:

• to enable KPHL to become financially independent so that KPHL does not run back to the 

• State/Treasury to seek funds for its investment and operational requirements, 

• to ensure that the State’s liabilities and loan obligations do not affect or negatively impact KPHL’s ability to finance its investments and operations, and 

• conversely that KPHL’s liabilities and obligations do not affect or limit the State’s ability to raise external funding as and when the economy dictates, and 

• more importantly, to limit political interference in the commercial operation of KPHL (which is one of the main documented impediments to National Oil Company (NOC) growth) around the world. 

Notwithstanding the forgoing commercial considerations, section 216 of the Constitution which provides the primary authority of the PAC clearly does not extend to apply to KPHL. In short, section 216 says the PAC’s authority will be exercised through an Organic Law or an Act of Parliament. The
Parliament elected to use an Act, and that Act which clearly provides for the PAC’s inquisitive function is the PFM Act and not the Permanent Parliamentary Committees Act 1994.

KPHL’s governance and reporting principles were established in line with the commercial considerations mentioned hereinabove and it is in such light that each of the Kumul Petroleum Holdings Limited Authorization Act 2015 which is further strengthened by section 212B of the Constitution of PNG, and relevant provisions of the Organic Law on Papua New Guinea’s Ownership of Hydrocarbons & Minerals & the Consolidation and Commercialization of Papua New Guinea’s Business Law 2016, all make the clear position that KPHL’s accounts and finances do not qualify as “public accounts” of PNG or “the public monies and properties of” PNG.

In any case, most of the inquiries refer to documents and information which are confidential and that by disclosing them under the circumstances, KPHL will be in breach of its obligations of confidentiality to third and fourth parties. With respect to other queries relating to revenues from the PNG LNG Project KPHL’s investments, overheads, and remittances to the State as well as the set-up of Kroton Equity Option. These are information already presented to the NEC every year as part of the Submission of KPHL’s Annual Operating Plans since the first LNG Exports in 2014.
Finally to the oversight and accountability issues of the State raised by commentators over KPHL; There is already significant legislative provisions which hold it accountable to the people of PNG, through the following constitutionally mandated institutions of the State:
a) The office of the Prime Minister where the sitting Prime Minister is designated as and performs the function of the Trustee Shareholder,

b) The Auditor General’s Office which has contracted and worked with Deloitte Touche Tohmatsu and subsequently Ernst & Young to audit KPHL’s books, and has returned unqualified audit reports since first gas from PNG LNG Project in 2014, and

c) The National Executive Council (“NEC”) which considers and approves KPHL’s annual operating plan in November of each preceding year in line with the country’s National Budget process (to sync dividend and tax expectations) before KPHL incurs its expenditures and makes its investments and borrowings in the current year.
KPHL is a credible National Oil company (NOC) that was established to participate as a serious player in the emerging Oil and Gas industry and not just a passive conduit for receiving State revenue to be passed on to the Treasury Department. If there are evidence of irregularities identified by the trustee (PM), the NEC or the Auditor General then provisions for penalties are stipulated in the appropriate legislations. The call by the Public Accounts Committee may be misconstrued and misleading.

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