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An Analysis of How Political Governance of Liquid Fuels Contributes to Energy Security in Papua New Guinea

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AN ANALYSIS OF HOW POLITICAL GOVERNANCE OF LIQUID FUELS CONTRIBUTES TO ENERGY SECURITY IN
PAPUA NEW GUINEA

BY FRANCIS HUALUPMOMI
A thesis submitted to the Victoria University of Wellington in the fulfilment of the requirements for the degree of Doctor of
Philosophy in Public Policy

Victoria University of Wellington
(July 2019)
Abstract

This study examines how political governance of liquid fuels at the institutional level contributes to energy security in Papua New Guinea (PNG) from a political economic perspective. An interpretive methodology and critical case analysis design were used to analyse LNG energy governance regime (policies, legislation, and institutions) and its

relationship with energy security. The research design involved analysis of participants’

observations and documents in relation to the critical cases (instances) in the practice of the

energy regime under the Somare and O’Neill governments between 2002 and 2017.

By using the characteristics of the Quality Energy Governance Framework (QEGF) which emerged from the analysis of the literature on energy governance and energy security, this study shared a new policy insight that energy security is actually created through the interactions that occur between political actors and the institutions and processes of energy governance. The study found that energy governance is a system of interacting institutions, policies and legislation created by the political institutions for the purpose of achieving economic efficiency in order to produce public value. The effective functioning of this system depends on the quality of the political institutions. A strong political institution constructs a quality policy regime which, in turn, translates into operational and adaptive qualities of an energy regime that enhances energy security. Alternatively, where a political institution is weak, the operational and adaptive qualities of the energy governance system are also incrementally diminished, thus generating energy insecurity, which, in turn, affects development outcomes.

Accordingly, the study concludes that in PNG the qualities of the energy governance system did not seem to effectively function efficiently as a whole due to the politicaleconomic interests and non-compliance to the institutional qualities. This, in turn, has had the effect of generating energy insecurity rather than enhancing energy security. In effect, the practices associated with the formal governance arrangements have failed to deliver a consistent and predictable governance system for PNG LNG and development outcomes have suffered as a result. The social interaction of political and economic actors and their interests in the energy governance system is complex and quite difficult to predict, resulting in an unstable energy regime. Given the unpredictability of this energy regime, political reform should assume primacy as a first order priority to withstand emerging energy governance issues and challenges that might contribute to energy insecurity.

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Acknowledgments

This thesis would not have been possible without the contribution of several individuals and organisations. Firstly, I am extremely grateful to the 20 participants whose perspectives contributed to this thesis. I also would like to appreciate the invaluable contribution of my two supervisors, Associate Professor Graham Hassall and Dr Elizabeth Eppel. I’m greatly thankful for your constructive feedback along the way. I would like to extend my sincere appreciation to Professor Cecilia Nembou, President of the Divine Word University and Mr Solomon Wanis Tapura, Master of Law Student at the Victoria University of Wellington for reviewing my thesis from a Papua New Guinean perspective.

I acknowledge the Victoria University of Wellington, the Office of the Assistant Vice Chancellor (Pasifika), in particular Dame Winnie Laban Luamanuvau and the School of Government; the Papua New Guinea High Commission in New Zealand and the PNG Department of Higher Education Research Science & Technology for the administrative support during my three years of study. My appreciation is also extended to my friends and colleagues for moral support.

Finally, I thank my immediate family members for all the support accorded to me. This thesis is dedicated to my parents, late Pitawa Hualupmomi and Martina Yavingy Hualupmomi.

I give Glory and Honour to God Almighty for His infinite Wisdom, Understanding and Knowledge! Without Him, I would not have come this far.

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Table of Contents
Abstract .......................................................................................................................... i Table of Contents .........................................................................................................iii Abbreviations or Acronyms......................................................................................... vi List of Figures, Tables, Appendices, Map and Pictures.............................................. ix CHAPTER 1: CONTEXT OF THE RESEARCH..................................................... 11

A. Research Purpose and Questions ........................................................................... 12 B. Scope and Approach.............................................................................................. 12 C. Contribution of this Study ..................................................................................... 13 D. Ethical Considerations........................................................................................... 15 E. My Place in this Research...................................................................................... 15 F. Organisation of the Thesis ..................................................................................... 16

CHAPTER 2: LITERATURE REVIEW ................................................................... 18

Part 1. Review Strategy.............................................................................................. 18 Part 2. Definitions of Energy Security and Energy Governance.................................. 19 Part 3: A Survey of Energy Security Literature .......................................................... 23 Part 4. Energy Security in OECD Countries and Resource-Rich Developing Countries ................................................................................................................... 28

Part 5. Political and Economic Contributions to Governance of Energy Security........ 32 Part 6. Governance and Accountability Reports ......................................................... 37 Part 7. Theory and Concept........................................................................................ 40 Part 8. Summary – Research gap in this study............................................................ 43 Part 9. A Quality Energy Governance Framework (QEGF) ........................................ 44

CHAPTER 3: BACKGROUND.................................................................................. 48

Part 1. Political and Economic System of Papua New Guinea .................................... 48 Part 2. Papua New Guinea Petroleum and Energy Context ......................................... 57

iii
Part 3. Institutions and Policy and Legislation.............................................................61 Conclusion .................................................................................................................67

Chapter 4: Research Design and Methodology...........................................................68

Part 1. Research Strategy............................................................................................68 Part 2. Research Design..............................................................................................69 Part 3. Research Methods ...........................................................................................70 Part 4. Levels of Analysis ...........................................................................................76 Part 5. Data Analysis ..................................................................................................77 Part 6. Managing Research Challenges .......................................................................79 Conclusion .................................................................................................................80

CHAPTER 5: LNG ENERGY GOVERNANCE FRAMEWORK ............................81

Part 1: Legislation.......................................................................................................81 Part 2. Policies..........................................................................................................117 Conclusion ...............................................................................................................126

CHAPTER 6: IMPLEMENTATION OF LNG ENERGY GOVERNANCE FRAMEWORK..........................................................................................................127

Part 1: Participants’ Perspectives ..............................................................................128 Section 1: Political Governance of Energy Security ..................................................128 Section 2: Policies, Legislation and Institutions ........................................................131 Section 3: Management of Energy Security ..............................................................141

Section 4: Government’s Responses to Energy Security............................................149

Section 5: Best Approaches to Energy Security.........................................................153 Summary of Participants’ Responses ........................................................................161 Conclusion ...............................................................................................................162

CHAPTER 7: THE CONTRIBUTION OF POLITICAL GOVERNANCE OF LIQUID FUELS TO ENERGY SECURITY IN PNG: A SYNTHESIS ..................163

Part 1: Enabling Environment...................................................................................164 Part 2: Revenue Management ...................................................................................177 iv
Part 3: Value Realisation.......................................................................................... 182 Part 4. Security ........................................................................................................ 186 Conclusion............................................................................................................... 191

CHAPTER 8: IMPLICATIONS AND CONCLUSION .......................................... 193

Part 1: Implications to Public Policy Theory and Practice ........................................ 195 Part 2: Conclusion.................................................................................................... 200 Part 3: Recommendations for Further Research........................................................ 202 Concluding Statement.............................................................................................. 203

REFERENCES.......................................................................................................... 205 APPENDICES ........................................................................................................... 226

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Abbreviations or Acronyms

Australian Agency for International Development Benefit Sharing Arrangement
AusAID BSA

  • CSO
  • Civil Society Organisations

  • CSR
  • Corporate Social Responsibility

DFID DMO DPE
Department for International Development Domestic Market Obligation Department of Energy and Petroleum Department of Public Enterprises and State Investment Extractive Industry Transparency Initiative Foreign Direct Investment
DPESI EITI FDI

  • GDP
  • Gross Domestic Product

GoPNG IDA
Government of Papua New Guinea International Development Agency International Oil and Gas Company Independent Public and Business Corporation Kumul Petroleum Holdings Limited Liquefied Natural Gas
IOGC IPBC KPHL LNG MNCs MPE
Multinational Corporations Ministry of Energy and petroleum Ministry of Public Enterprises and State Investment Medium Term Development Plan National Alliance Party
MPESI MTDP NA

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  • NEC
  • National Executive Council

NGDP NGO NOGC NPC
National Goals and Directive Principles Non-Government Organisations National Oil and Gas Company National Petroleum Corporation Organisation for Economic Cooperation and Development Organic Law on Integrity of Political Parties and Candidate Organisation of Petroleum Exporting Countries Power-based Theory
OECD OLIPAC OPEC PBT

  • PNC
  • Peoples’ National Congress Party

  • Papua New Guinea
  • PNG

PNGDSP PNGNEP PPL
Papua New Guinea Development Strategic Plan Papua New Guinea National Energy Policy Papua New Guinea Power Limited Quality Energy Governance Framework Rentier State
QEGF RS

  • RST
  • Rent-seeking Theory

  • SoE
  • State-owned Enterprises

STaRS SWF
Strategy for Responsible Sustainable Development Sovereign Wealth Fund

  • Tcf
  • Trillion Cubic Feet

UBSA UN
Umbrella Benefit Sharing Agreement United Nations

vii
UNDP USAID WB
United Nations Development Program United States Agency for International Development World Bank

viii

List of Figures, Tables, Appendices, Map and Pictures
Figures

1. Quality Governance Framework for LNG Energy Governance........................... 46 2. Changes in Petroleum & Energy Ministers under the Somare and O’Neill governments ...................................................................................................... 51
3. LNG shareholders.............................................................................................. 59 4. Proposed Kumul Consolidated Holdings structure.............................................. 63 5. Summary of research methodology.................................................................... 69

6. Timeline on petroleum and energy governance under Somare & O’Neill

governments from 2002-2017 ............................................................................ 76

Tables

1. Themes and subthemes and frequency of participants’ responses ..................... 129 2. Themes and subthemes and frequency of participants’ responses ..................... 132 3. Themes and subthemes and frequency of participants’ responses ..................... 142 4. Themes and subthemes and frequency of participants’ responses ..................... 150 5. Themes and subthemes and frequency of participants’ responses ..................... 155

Appendices

1. List of Interviewees ......................................................................................... 227 2. Semi-structured Interview Guiding Questions .................................................. 229 3. Letter on Request for an Interview ................................................................... 232 4. Letter to the Participant’s CEO (or Delegate)................................................... 233 5. A. Participation Information............................................................................. 235 6. B. Participation Information Sheet ................................................................... 237 7. Policies, Legislation and Reports selected for Content and Thematic Analysis . 239 8. Codes of Participants ....................................................................................... 241 9. NVivo Map tree of themes and subthemes ....................................................... 242 10. Anecdotes of accountability reports ................................................................. 246

Pictures

1. Map of LNG and Plant in PNG ............................................................................ x ix
Picture 1. Map and Pictures of LNG and Plant in PNG

This content is unavailable. Please consult the print version for access.

Source: (LNG World News staff, 2014) x

CHAPTER 1: CONTEXT OF THE RESEARCH

Governance of energy resources is a major policy problem in PNG’s extractive industry.

According to the Papua New Guinea Human Development Report of 2014 (PNGHDR), there has been little change in poverty levels in PNG despite a 40-year history dominated by the extractive industries and 14 consecutive years of economic growth (UNDP, 2015). The oil and liquid petroleum gas sector in PNG has been estimated by the Bank of Papua New Guinea to be worth at least K37 billion since 1992 (UNDP, 2015). Yet it is not uncommon for people in the PNG cities and the countryside to have no electricity. The statement from the PNGHDR 2014 underscores the need to better understand how in the availability of such richness from the extractive industries, which include oil for petroleum and natural gas, could have resulted in such unsatisfactory development outcomes in PNG.

This same report found that the most pressing issue in PNG’s extractive sector has been

good governance, transparency and accountability in the management of resources. This study examines how energy resources are governed in PNG and how that governance

contributes to energy security. I am using the term ‘governance’ to refer to processes and

outcomes of the interactions between actors (organisations, institutions, and indivduals). These processes may or may not observe formal rules, but they are not the rules themselves. Thus energy governance refers to the manner in which a set of formal and informal rules and institutions are used to shape political and economic behaviour in the energy sector to ensure long-term energy security for development. This definition is further elaborated in chapter three. Energy security is generally understood by many as the supply of and demand for energy in an energy market. As a multi-disciplinary concept shown in the literature (Chester, 2010), energy security1 is broadly defined as an object for security threats or as a subject generating or contributing to insecurity in society. Where the energy system is regarded as an object for security, threats are related to security of supply and security of demand; however, the energy system when defined as a subject could pose threats to human, national and societal security (Johansson, 2013). It is this latter subjective dimension that I am interested in and will discuss in Chapter three. Studies into energy security in PNG are rare yet essential to understanding how it affects development outcomes and national security. This study, therefore, is an important step towards

1 It is important to note that security in the context of energy security refers to Johansson’s (2013) definition,

that is absence of threats or simply being secure. This will be used throughout the thesis.

11 understanding the relationship between energy governance, energy security and development in resource-rich countries such as PNG (Barma, et al., 2012).

A. Research Purpose and Questions

The aim of this study is to explore how energy governance contributes to energy security in PNG. To achieve this aim, these key questions guided the research:

Main question:
1. How   does governance of energy at institutional level contribute to energy security?
Secondary questions:

Critical events in energy governance and energy security in PNG between 2002 and 2017 led me to the following subsidiary questions:

How has energy security been managed? Have any actions been particularly successful in achieving energy security? How might we improve governance of energy in terms of decision-making, policy- making and regulatory (legal) aspects of energy security?

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    ASIA PACIFIC ENERGY RESEARCH CENTRE APEC ENERGY OVERVIEW 2005 DECEMBER - 2005 Prepared by ASIA PACIFIC ENERGY RESEARCH CENTRE (APERC) THE INSTITUTE OF ENERGY ECONOMICS, JAPAN Inui Bldg.-Kachidoki 16F, 1-13-1 Kachidoki, Chuo-ku, Tokyo 104-0054, JAPAN Tel: +81 (3) 5144-8551 Fax: +81 (3) 5144-8555 E-mail: [email protected] APERC Website: http://www.ieej.or.jp/aperc/ For the ASIA-PACIFIC ECONOMIC COOPERATION (APEC) SECRETARIAT 35, Heng Mui Keng Terrace Singapore 119616 Tel: (65) 6775 6012 Fax: (65) 6775 6013 E-mail: [email protected] Website: http://www.apecsec.org.sg 2004 APEC Secretariat APEC#………… ISSN ………… PAGE II FOREWORD Securing energy’s future remains the primordial concern for all APEC member economies. Rising energy prices, particularly oil, had driven pressures on energy policies; shifting demand/supply sources and the pursuit of energy alternatives. Constraints on upstream and transportation infrastructure have remained a virtual challenge as investments continued to tighten the growth of most developing economies in the region. Despite the bleak future however, economies maintained a positive outlook as more new energy technologies are developed and frontier areas are discovered. Individual APEC economy energy policy initiatives and notable developments particularly on energy security, upstream and downstream development, transformation and transportation, market reform, efficiency and conservation, alternative energy development, renewable energy deployment, environmental protection, and international/regional cooperation are compiled in this report. We extend our special thanks to the efforts of APEC member economies in improving the accuracy and currency of the information provided. We also acknowledge the expert contributions of the APERC researchers, EDMC staff and a special note of appreciation to the guidance and provision of basic energy data by EGEDA members.
  • PIPE DREAMS the PNG LNG Project and the Future Hopes of a Nation This Is a Publication of the Jubilee Australia Research Centre

    PIPE DREAMS the PNG LNG Project and the Future Hopes of a Nation This Is a Publication of the Jubilee Australia Research Centre

    PIPE DREAMS The PNG LNG Project and the Future Hopes of a Nation This is a publication of the Jubilee Australia Research Centre. First Author: Luke Fletcher Second Author: Adele Webb Research: Scott Hickie Editing: Michael Otterman Publication Co-ordinator: Carmelan Polce ACKNOWLEDGEMENTS ABOUT JUBILEE AUSTRALIA With thanks to the Revenue Watch Institute and Jubilee Australia is an independently funded non- Oxfam Australia for the support of this project, and government organisation committed to addressing the with grateful acknowledgement of our colleagues root causes of global poverty. in Australia, PNG and elsewhere whose time and We undertake research to expose the policies of the expertise assisted in the development of this report. Australian government and practices of Australian James McIlraith, Sarah Robinson, Suneeta Kaimal, business that perpetuate long term impoverishment in Rebecca Morse, Paul Barker, Effrey Dademo, Colin the Asia Pacific, and we call for changes to the global Filer, Mick McWalter, Aaron Batten, Emily Taule, economic rules of engagement that foster fairness and Michael Avosa, Charles Andrews, Ron Anderson, sustainability. We are driven by our solidarity with civil Glen Armstrong, Bryan Cussen, Antony Lowenstein, society groups, networks and people’s movements in Matthew Richardson, Doug Norlen, Antonio Tricario, the Global South who are fighting for justice and their Alphonse Gelu, Christina Hill and Serena Lillywhite. right to a better future. The authors thank members of the larger Jubilee Jubilee Australia emerged out of the international Australia family who have provided indispensable Jubilee 2000 movement, which saw 24 million people feedback on the many drafts, and helped prepare the from around the world sign a petition calling for ‘Third final report for publication.