ExxonMobil, Landowners & The State: Taking a closer look at a Defective Partnership

ExxonMobil’s corporate slogan, “Taking on the world’s toughest energy challenges“, is being severely tested in PNG as we speak.

Yesterday, The National carried the blaring headline “Esso Pulls out of LNG Area!“, causing online finance forums specializing in investment and stockbroking to go haywire with dooms-day warnings and advice from forum members based around the world to sell stock, and sell quickly.

It is no wonder that Esso Highlands, the subsidiary of ExxonMobil Corporation in charge of constructing and operating the PNG LNG Project on behalf of its co-venture partners, responded quickly by hosing down suggestions that Esso was pulling out of the PNG LNG Project.

Instead Esso’s lead media and communications adviser Rebecca Arnold, (who must now be the second-most quoted female in PNG after Opposition Leader Dame Carol Kidu – that says quite a bit), explained that some workers had been withdrawn from the Hides 4 PNG LNG site and redistributed to other sites, because they were unable to work as a result of a group of landowners closing down operations at the project site.

In fact, the US oil giant had been forced to stop work in the Hides region of the Southern Highlands on March 16, after locals demanding additional compensation from the company for their land allegedly threatened workers at the project site. This prompted Esso to withdraw staff and suspend operations in the area indefinitely.

The landowner group in question is the PDL 7 Hides 4 Landowners Umbrella Association Inc, chaired by Chris Payabe. Payabe, on behalf of the group of landowners, has demanded that Esso Highlands immediately do the following:

• Pay K99 million as compensation for the different PNG LNG projects happening in the area
• Upgrade the Para Health Centre to a referral hospital
• Upgrade the Para Community School building
• Start construction on the Hides-Komo road immediately
• Establish a permanent water supply
• Increase local employment in the Hides area
• Increase the outsourcing of sub-contracts to locals in the Hides area

Payabe’s demands, and the preceding actions of the PDL 7 Hides 4 Landowners Umbrella Association Inc in shutting down Esso’s Hides 4 operations, came about as a direct result of a lack of progress on delivering agreed outcomes from the signatories of the Hides 4 APDL 7 License Benefit Sharing Agreement.

And this is where the defective partnership between ExxonMobil, landowners and the State reveals itself.

The signatories to the Hides 4 APDL 7 License Benefit Sharing Agreement include the Independent State of Papua New Guinea, the Southern Highlands Provincial Government, the Komo Local Level Government and the PDL 7 Hides 4 Landowners Umbrella Association Inc.

Esso Highlands is not a signatory to this benefit sharing agreement. In fact, Esso Highlands is not a signatory to any benefit sharing agreement concerning provincial government, local government, or project area landowners. These responsibilities have been taken on board by the national government and endorsed by the formalizing of the Umbrella Benefits Sharing Agreements (UBSA) signed in Kokopo in May 2009.

ExxonMobil, through its subsidiary Esso Highlands, as well as the LNG project companies, have signed the PNG LNG Agreement with the State which provides the commercial and fiscal terms for the PNG LNG Project.  The LNG project companies have also signed the PNG LNG Coordinated Development and Operating Agreement (CDOA) amongst themselves which provides the essential commercial framework for the PNG LNG Project.

Under the UBSA signed in Kokopo, the parties acknowledged that the State has the stewardship for working with the LNG project companies to progress the PNG LNG project to fruition.

So it is no wonder why Chris Payabe has said landowners wanted the government to immediately take ownership of the project and address their concerns. Most of the demands made by Payabe and his landowner group do fall inside the Licensed Based Benefits Sharing Agreement (LBBSA).

Payabe, after presenting a petition to Esso Highlands and the national government, today told media that:

“In my capacity as the Chairman, I make the decision on behalf of my people who are members of the association. What I have raised through the petition are the concerns of my people. I will not give up until we address them in an amicable manner. I am now calling on the government to take ownership of the LNG project.

What is happening is that the project developer is working in isolation without any government support. If the state and the project developer think that the shut-down is illegal, then I recommend that we review the umbrella benefits sharing agreement that was signed in Kokopo in 2009 and the consequent licence-based benefits sharing agreement so that Esso Highlands Ltd, on behalf of its joint venture partners, can also be a party to the agreement.

In that way, Esso Highlands does not have to wait for the government and it can address the issues on its own”.

It seems the inability of the State to meet the conditions of UBSA and LBBSA has inadvertently threatened the success of Esso Highlands and its partners on delivering the PNG LNG Project.

Hides landowners are now calling on Prime Minister Peter O’Neill to sack Minister for Petroleum and Energy William Duma as a result of the failings of the State to keep up with deadlines being driven by Esso Highlands.

Ironically, landowner groups like Payabe’s, after observing little or minimal progress made by the State, will always influence the discourse by doing what they are capable of doing, and more often than not, that includes the destabilizing of projects, even ones as important to the country as the multi-billion dollar PNG LNG Project.

The State has responded to Payabe’s PDL 7 Hides 4 Landowners Umbrella Association Inc’s actions by suggesting that the National Executive Council will convene to consider the possibility of introducing a State of Emergency into the Southern Highlands.

Naturally, this has been met with criticism by Payabe. It has also had the added result of uniting landowners in the Southern Highlands with Sir Alred Kaiabe, a former MP of SHP, stating that:

“It will definitely get worse. Far worse than the Bougainville crisis. We are Highlanders and we are known for fighting. Fighting is a way of life and we will fight to the day to protect what is theirs if they have been cheated”.

I recently wrote a post about how PNG is the world’s most challenging place to operate a mine in terms of social issues affecting mining in the country.

As we wait to see what the National Executive Council decides regarding introducing a State of Emergency in the Southern Highlands, it is only natural to ask whether ExxonMobil has severely underestimated the legal, political, cultural, social and environmental complexities associated with a large-scale resource operation in PNG.

Yes, it is important to keep to the commercial timetable and ensure that the project is completed on time, but surely not at the expense of landowners and the risk of destabilizing the success of the entire project – the jewel in the crown of PNG’s extractive industry.

~ by Tavurvur on March 28, 2012.