State equity in mining and petroleum projects in Papua New Guinea

The Mining Act (1992) and the Petroleum Act (1980) provide for the Government of Papua New Guinea (PNG) to take up equity holdings in mining and petroleum projects. The price the Government pays for its share is based on the historical cost of exploration and development on the project to the date of government equity acquisition. The equity level to be acquired is not fixed and ranges up to 30o for mining and up to 22.5s for petroleum at the discretion of the Government of the time.The objective of this paper is to examine the pros and cons of State equity holdings in PNG from the point of view of both the State and the developer. Using an economic model of the PNG mining taxation system an assessment is made of the effective return on investment received by the State from such equity holdings. The results are compared with government revenues from other taxation measures.