The writing is on the wall for Solwara 1

Former Attorney General of Papua New Guinea:
The writing is on the wall for Solwara 1 - PNG should withdraw its investment before it's too late.

Wednesday 17 January 2018
view online

PAPUA NEW GUINEA | Amid financial strife and looming litigation, Sir Arnold Amet, former Papua New Guinean Attorney General and Minister for Justice advises the PNG Government to terminate its joint partnership agreement with Nautilus, recoup its 15% stake in the Solwara 1 deep sea mining project and decline to renew the licences for Solwara 1.

For Nautilus Minerals a miserable Christmas has just flowed into an unhappy new year. A series of gloomy end of year investor updates confirmed Nautilus is unable to raise the funds necessary to complete equipment for its Solwara 1 deep sea mining project [1].

Then came the final blow for 2017 - affected communities launched legal proceedings in a bid to obtain key documents that will reveal to them and all Papua New Guineans whether Solwara 1 was approved lawfully and what the true environmental, health and economic impacts of the project will be [2].

Shortly after, Company Chair Russell Debney resigned [3]. This is in spite of his long association as a board member since the company listed on the stock exchange in 2006 and the chair of the company's predecessors, Nautilus Minerals Niugini Limited and Nautilus Minerals Oceania Limited.

Due to the high-risk nature of the project, financiers have declined to bail the company out [4], suggesting the efforts of Nautilus's two largest shareholders have been in vain [5]. The best they have been able to come up with are bridging loans of USD 7 million to meet immediate needs whilst desperately hunting for another USD 350 million [6].

Sir Amet stated, "Investors, financial institutions and even the former chair of Nautilus can see the writing on the wall for Solwara 1. By the company's own admission the project is an experiment with unknown environmental and social consequences and uncertain profits. The past few months have really shown the extent to which financiers and our own communities in PNG reject this project."

"This high-risk project is a foolhardy investment when our country has so many pressing needs. In order to acquire our 15% equity, the National Government obtained a loan in 2014 from the Bank of the South Pacific of almost PNG K400 million. It's also likely that the Government has provided Nautilus with generous incentives, which would further limit the potential to raise revenue from this project."

"This is irresponsible in the context of our country's ever-increasing debt bill", continued Sir Amet. There is little likelihood of a positive return from this project to the balance sheet of the economy. The recent bridging loans for the project are a drop in the ocean - only 1/50th of the total funds required. With an interest rate of at least 8% and a lucrative 5% cash commission going to a previous director of Nautilus, this loan represents yet another expensive debt burden for PNG - especially as the loan is secured against PNG’s equity."

"These bridging loans are from existing Board directors through a new private investment company incorporated in the British Virgin Islands. Such financial structures are commonly known as ways for minimising tax. And because the loan is from a related party, there was no need to even consult the PNG Government as the minority equity holder. If we stay in this deal, it will be the people of PNG who will have to pay."

"The best course of action now is for the PNG Government to terminate its joint venture agreement with Nautilus before our investment ends up sinking to the bottom of the ocean along with the company. In addition, Nautilus's licences are renewed every 2 years. The environmental uncertainties surrounding this project call for the Government to decline renewal. Indeed, given the poor financial record of the company, the government should consider suing Nautilus for the recovery of the full K400 million investment as its 15% equity stake is now virtually worthless."

© Scoop Media