01/12/2025
PNG’s Fiscal Blindfold: How a 2% flat Royalty Rate Betrays a Nation
While hospitals close and schools collapse, billions in mining wealth slip offshore under outdated laws
By Sam J Kaupa
///////////////////////////////////////////////////////////
It is difficult to know whether to laugh or cry when looking at Papua New Guinea’s fiscal regime for mining. On paper, PNG is a resource powerhouse. In practice, it is a fiscal beggar. The government clings to a 2% royalty rate written into law more than three decades ago, as if the world has not changed since 1992. Meanwhile, hospitals close, medicines run out, children drop out of school, unemployment rises, and law and order collapses. And what does the government do? It plays dumb, blindfolded, congratulating itself for passing bills in parliament that do not contribute a single kina to the national budget. Here is a government that insists it is “taking back PNG,” while in reality it is giving it away — cheaply, embarrassingly, and legally.
The law is clear. Section 148 of the Papua New Guinea (PNG) Mining Act 1992, which falls under Division 7 – Fees, Rents and Royalties, entitles the State to royalties on net smelter return (NSR) or free‑on‑board (FOB) value. Nothing in the Act prevents the State from amending the rate or introducing progressive tiers. Comparative jurisdictions across Africa and Latin America have long adopted price‑linked royalties to capture extraordinary rents. PNG’s refusal to do so is not a matter of legal constraint; it is a matter of political paralysis.
Numbers strip away rhetoric. At “USD 3,000/oz (≈ PGK 12,450/oz),” royalties from Lihir, Porgera, K92, and Simberi under a tiered regime (3% baseline, 4% above USD 2,500, 5% above USD 3,000, plus a 1% windfall levy above USD 3,500) would deliver “USD 280 million (≈ PGK 1.16 billion).” Push the price to “USD 4,000/oz (≈ PGK 16,600/oz),” and that figure climbs to “USD 374 million (≈ PGK 1.55 billion),” plus a “USD 75 million (≈ PGK 311 million)” windfall levy. These are not speculative figures. They are the direct product of production volumes and market prices: Lihir at 1,000,000 oz per year, Porgera at 500,000 oz per year, K92 at 149,515 oz AuEq per year, and Simberi at 220,000 oz per year. Together, these four mines alone could deliver royalties that fund entire ministries.
Royalties are only part of the story. Taxes should be the other pillar. But here is where the manipulation begins. For two decades, Lihir paid no corporate tax at all. Only in 2025 did Newmont finally remit corporate taxes: “USD 55.8 million (≈ PGK 213 million) in July” and “PGK 330 million in October.” This sudden compliance was hailed as patriotic, but in reality it exposes the structural weakness of PNG’s tax regime. Companies exploit the absence of ring‑fencing laws, using “smart accounting” to offset profits across projects, inflate costs, and minimize taxable income. The result? Decades of production with negligible corporate tax contributions, while communities remain underdeveloped and the State starved of revenue.
Now imagine if the government acted like a shareholder. A 20% free carried equity stake in Lihir, Porgera, K92, and Simberi would transform the fiscal picture. At “USD 3,000/oz,” total NSR across the four mines is “USD 5.61 billion (≈ PGK 23.28 billion).” With a 35% margin, profits are “USD 1.96 billion (≈ PGK 8.13 billion).” A 20% equity stake with a 60% payout ratio delivers “USD 235.6 million (≈ PGK 978 million)” in dividends. At “USD 4,000/oz,” total NSR is “USD 7.48 billion (≈ PGK 31.0 billion).” With a 45% margin, profits are “USD 3.37 billion (≈ PGK 13.0 billion).” A 20% equity stake delivers “USD 403.8 million (≈ PGK 1.68 billion)” in dividends. Add these dividends to royalties and levies, and the State’s take from just four mines jumps to “USD 852.8 million (≈ PGK 3.54 billion).”
PNG’s 2026 National Budget is K30.9 billion. That is the total pot the government says it has to run the country — pay teachers, keep hospitals open, buy medicine, fix roads, and deal with law and order. Now look at what the mining sector could have delivered under reform. At USD 3,000/oz: “PGK 2.14 billion” from royalties and dividends across four mines. That is 6.9% of the entire budget. At USD 4,000/oz: “PGK 3.54 billion” from royalties, levies, and dividends. That is 11.5% of the budget. Add Ok Tedi, Ramu Nickel, and other mines, and the total contribution rises to “PGK 4.5–6.5 billion,” or 14.6–21% of the budget. In other words, one‑sixth to one‑fifth of the national budget could be funded by mining alone — if the government stopped playing dumb.
While billions march offshore, ordinary people suffer. Hospitals shut their doors. Patients die waiting for medicine. Schools are overcrowded and underfunded, leaving frustrated kids to drop out. Young people roam the streets unemployed, while crime and lawlessness escalate. And the government? It is busy playing politics, blindfolded, pretending it is “taking back PNG” while it is actually giving it away. Parliament debates motions of no confidence, reshuffles committees, and passes symbolic bills, while the real wealth of the nation slips through its fingers.
So let us call it what it is: the 2% royalty rate is a polite tip left on the table of multinational miners, while the State and its citizens watch the real wealth march offshore. It is a legal fiction masquerading as fiscal policy. It is a relic of 1992, preserved not out of necessity but out of political cowardice. The fix is not rocket science; it is political courage. Put Section 148 of the Mining Act to work. Legislate the 3%/4%/5% tiered royalty with a 1% windfall levy. Enforce ring‑fencing laws so “smart accounting” stops siphoning profits into thin air. Take 20% equity and act like a shareholder. Then watch “PGK 4.5–6.5 billion” flow into the 2026 Budget instead of excuses.
If this government wants to prove it is not blindfolded, here is its test: stop the theatrics, pass laws that actually fund the nation, and deliver on the basics — hospitals, schools, jobs, safety. Otherwise, do not tell us “there’s no money.” There is. You just refuse to collect it. Until then, the government remains what it has shown itself to be: lame, blindfolded, and obsessed with petty politics. It amends laws that do nothing, passes bills that contribute nothing, and refuses to touch the one law that could transform the nation’s fiscal future. It is a government that mistakes parliamentary theatrics for governance, that mistakes symbolic amendments for fiscal reform, that mistakes rhetoric for arithmetic. And it is a government that will be remembered not for taking back PNG, but for giving away its wealth under the cover of a 2% legal fiction.
Ends////////////////
Sam J Kaupa - Honiara - Solomon Islands
