We aspire to set the standard for private sector contribution to sustainable development through our activities in PNG.
- Our Board approved our 2020 Social Responsibility Strategy and our Climate Change Strategy.
- Our total socio-economic contribution in PNG was US$284 million, consisting of total payments to PNG suppliers, PNG shareholders, the PNG Government, PNG employee expenses and our PNG sustainable development investment.
- We spent US$32.2 million on infrastructure projects managed on behalf of the PNG Government under the Infrastructure Tax Credit Scheme.
- We paid US$148 million to local PNG suppliers, 43% of our total supplier contract expenditure in PNG.
- Nine students graduated from tertiary education institutions with support from Oil Search, including three women.
- We constructed 18 kilometres of road between Erave and Samberigi on behalf of the PNG Government under the Infrastructure Tax Credit Scheme.
- We spent US$2.3 million on upgrades to the Hela Provincial Hospital, coordinated by the Oil Search Foundation.
- We actively participated in the Extractive Industries Transparency Initiative (EITI) PNG Multi-Stakeholder Group, contributing data for PNG’s second EITI report, which is due in early 2017.
Support for education and basic literacy
Improving literacy and access to a quality education is a sustainable development priority for us in PNG because it underpins improvements in other key development areas such as health and women’s empowerment. Together with the Oil Search Foundation, we deliver several programmes aimed at improving literacy and education outcomes in our host communities.
In 2016, the Oil Search Foundation partnered with Buk bilong Pikinini to deliver early childhood development and literacy programmes in the Hela Province, including the launch of a new library and Early Childhood Development and Literacy programme at Kuluanda Primary School in Tari. This is the first initiative of this type in the province and we plan to expand into other locations in 2017.
During the year, we also:
- Partnered with the PNG Government to upgrade secondary school facilities. We commenced construction of six classrooms at Waro High School, Southern Highlands Province, and three new classrooms, two dormitories and a staff house at Bimai High School, Simbu Province. These projects were made possible by our partnership with the PNG Department of Education with funding through the Infrastructure Tax Credit Scheme (ITCS).
- Worked with local communities to upgrade primary school facilities. We worked with local community members to upgrade school and staff facilities at the Apeawa Primary School in Kikori and Tubo Primary School in the Southern Highlands, including classroom construction and the installation of water tanks.
- Donated over 4,000 library books to schools. Through an employee drive and the Buk bilong Pikini partnership, Oil Search staff contributed more than 4,000 new and used books to five schools in Tari and Pimaga.
We are planning to deliver more initiatives in 2017 to improve literacy and education opportunities for high school students. We will also develop a more holistic, targeted approach by Oil Search and the Oil Search Foundation to improving local education opportunities and leadership capabilities.
Promoting financial literacy and inclusion
Access to banking services and basic savings and bookkeeping skills is limited in host communities due to the remoteness of many villages. This severely inhibits the growth of the local economy and reduces the potential positive development impact of the resource industry royalties and other compensation paid directly to community members.
In 2016, to support the development of PNG Landowner Companies (Lancos) and other enterprises within our host communities, we connected more than 180 interested business owners with representatives from the Bank of the South Pacific (BSP) and the National Development Bank (NDB). In addition, we provided basic bookkeeping training to 15 business owners in host communities.
Our role included providing logistical support for bank representatives to visit our project sites in the Kutubu, Gobe and Hides areas and providing accommodation and transport for local people who needed to travel to attend. This is the second year we have facilitated these sessions and they will continue in 2017.
Over 100 local business owners participated in the 2016 sessions with the NDB. They were introduced to the types of loans available, loan application requirements and forms, and microfinance opportunities.
The loans can make a big difference. For example, a K20,000 loan from NDB in 2015 to a store owner from Erave allowed her to purchase a wider variety of products for sale, including fuel so she could become the village’s first fuel provider, and to enlarge and improve her old semi-permanent store building.
Over 85 people, mostly women, attended the sessions with BSP to learn about the importance and benefits of saving. Participants were introduced to cash and cheque accounts, mobile banking, basic budgeting, credit applications and bank accounts for children. Participants opened 168 bank accounts, including some for their children.
Working with Lancos to improve compliance
In 2016, we spent 15% (US$52 million) of our overall supplier and contractor spend in PNG with Lancos. Many of them struggle to source employees with suitable business experience so they lack robust systems and processes. By assisting them to comply with relevant legislation and practise good governance, we are helping to improve both their resilience and community stability, as Lanco shareholders are local landowners.
To improve their performance in 2016, we continued to facilitate awareness sessions around Lanco superannuation and tax compliance requirements with Nasfund, the largest Lanco superannuation fund in PNG, and the Internal Revenue Commission. The sessions we held in Kutubu were attended by 15 representatives from Lancos and smaller enterprises.
We also worked with 130 host community members to raise awareness of their rights and responsibilities as Lanco shareholders. This included facilitating visits to six villages in the Kutubu and Moran areas by representatives from the Investment Promotion Authority and Southern Highlands Commerce Department.
Our concerted efforts have led to an improvement in Lanco compliance performance and a decrease in complaints and concerns raised by Lanco staff. We plan to continue facilitating these sessions in 2017.
Helping women to grow sustainable businesses
Since 2012, we have been supporting over 300 Huli, Fasu and Foe women as they create and grow five small sustainable agricultural enterprises. Through their involvement, these women have developed new skills and relationships that are enabling them to earn an income and challenge the dominant perception of men as the only income earners.
Over the years, we have supported them by providing: start-up materials such as seeds and nurseries, technical advice on crop disease, rice and processing machinery, and basic business advice and training.
In 2016, we facilitated training in basic bookkeeping and in food handling standards and safe packaging for eggs. We also supplied building materials for chicken pens, installed solar power for egg incubation (removing the need for smoky fires and someone to watch over them), and assisted with transport to market.
The women have been supplying 40 cartons of eggs every fortnight to a local Lanco since 2015, resulting in revenue of approximately US$30,000 over the two years.
To help the women share costs and resources and pool their produce to achieve production levels that are attractive to commercial customers, during the year we worked with them to simplify their current structure into one umbrella entity. In 2017, we will continue to work with them to formalise their business structure, help them obtain funding, a vehicle and other assets, and connect them with customers.
Strengthening hospital services in the Hela Province
During 2016, Oil Search and the Oil Search Foundation played a critical role in transforming the hospital into a provincial level hospital offering a much wider range of critical services to over 300,000 people of the Hela Province.
We have undertaken this work in a way that complements, and helps strengthen, existing Government processes. We have amplified our efforts by drawing on the Oil Search Foundation’s networks and on the contributions of peers and other partners, as well as utilising our technical knowledge in areas such as infrastructure delivery and health staff capacity building.
Without our support, it’s likely the hospital would have failed after the withdrawal of Médecins Sans Frontières in 2015 and the people of Hela would have been without access to these critical services. This would have led to a significant increase in community members seeking health services directly from us — an unsustainable solution that could have increased local instability.
In March, at the request of the PNG Government, we signed a Health Service Partnership Agreement with the Hela Provincial Hospital. Under this agreement, we worked with the Oil Search Foundation on several key areas to upgrade Hela Provincial Hospital’s capabilities, resources and infrastructure during 2016.
In 2016 at Hela Provincial Hospital:
- 40,000 people presented to out-patients, with nearly 6,000 patients admitted.
- 1,000 survivors of family and sexual violence received specialised treatment.
- Almost 100 people were treated for tuberculosis (TB) in the new TB Ward.
- Over 1,000 babies were born under supervision and 70 women underwent emergency caesarean section surgery.
- More than 800 patients had surgery.
- Sourcing staff: We worked with relevant Government departments and a range of other international volunteer and health organisations and peers to identify and recruit a team of experts and health professionals in the following crucial areas: clinical service delivery, pharmaceutical management, human resources, financial management, capital works, community engagement, support for survivors of family and sexual violence, and project planning. Since 2016, more than 180 permanent staff, including a new CEO and executive team have commenced work.
- Strengthening support systems: To support ongoing service delivery and self-sufficiency, we assisted with the implementation of key systems such as basic Finance and Human Resources functions and drugs and medical supply management.
- Ensuring service standards: Clinical specialists from our Medical and Occupational Health Service supported the hospital management team with governance, programme and procedural development, staff training, guidance on clinical management of patients and infrastructure and equipment design and purchase.
- Improving hospital infrastructure: Since October 2015, Oil Search has delivered US$2.3 million worth of improvements to hospital facilities, including upgrades to medical, children’s and tuberculosis wards, dental clinics, X-ray and laboratory departments, hospital housing, fencing and water supplies. We have committed a further US$2.5 million in 2017 to continue this work through the Foundation.
- Supporting the Family Support Centre (FSC): We pay the salaries of 10 staff members and have donated a vehicle, to ensure the FSC continues to provide outreach, injury treatment, counselling, pregnancy prevention, vaccinations and HIV prevention services as the Hela Provincial Hospital management team is established. Staff are supported by a dedicated role in the Foundation team to ensure the service is supported adequately and to facilitate links with other partners to provide better referral pathways.
We already have in place a partnership agreement with the Hela Provincial Government for the work the Foundation does in rural areas. This agreement and the agreement with the Hela Provincial Hospital will be combined in 2017. The partnership model has been so successful in Hela that we are identifying opportunities to replicate the model elsewhere in PNG. In June 2016, through the Oil Search Foundation, we signed a Health Service Partnership Agreement with the Southern Highlands Provincial Health Authority to help strengthen the delivery of effective health services in that province.
For further information on the health care work of the Oil Search Foundation, visit Oil Search Foundation.
Improving women’s protection services and awareness
In September, as part of our Women’s Protection and Empowerment programme, the Oil Search Foundation introduced a Small Grants Scheme that empowers our staff and other community members to combat local social problems.
Grants of between US$700 and US$1,300 were approved in 2016. They facilitated four community groups and six individuals to deliver training, awareness and education initiatives focused on issues such as the legal rights of women affected by domestic violence. The delivery of these grant-sponsored initiatives commenced in 2016 and will continue in 2017. The sessions targeted both men and women throughout our host communities and elsewhere in PNG. The scheme will be run again in 2017.
In August, the Foundation signed a two-year partnership agreement with Marie Stopes PNG to work with the Provincial Health Administrations of Gulf, Hela and Southern Highlands Provinces to provide sexual and reproductive healthcare and family planning services. The partnership will provide an estimated 5,200 family planning services to men and women and training and mentorship for 30 frontline clinical staff in the three districts. Through the partnership, the Foundation aims to improve living conditions in target communities. The anticipated outcomes include improved child health, better education for women and children, increased employment opportunities for women and reduced family costs due to a smaller number of children. Already in 2016, over 130 men and women in Kikori and Kutubu have taken advantage of the services supported by this partnership in remote regions such as Mount Bosavi, Foroba and Turama.
Also during the year, more than 360 Oil Search employees participated in the 2016 Ending Violence Against Women Health Challenge for a shared prize of US$6,000. To take part, they had to monitor their activity and weight and achieve a minimum activity level. The most successful were then tested for their awareness of women’s protection. Over 20 weeks, participants walked a total of 101,390,881 steps, the equivalent to more than 77,000 kilometres – or twice around the planet. The winners, a team of five women and one man, recorded 3,605,053 steps and scored 100% on the women’s protection test. The initiative increased employee engagement, particularly in field locations, and achieved health and women’s protection awareness outcomes.
Consolidating our power business
PNG has one of the world’s lowest levels of access to power, with only approximately 13% of the population connected to the electricity grid. Those who are connected pay very high prices.
The multiple economic, health and educational benefits mean that energy supply improvements are essential if PNG is to achieve its development goals. The PNG Government has set a goal of connecting 70% of the population to the power grid by 2030, using multiple power solutions.
Our power strategy will help the PNG Government to meet this goal and its renewable energy target and commitments under the Paris Agreement. PNG has committed to transitioning to 100% renewable energy by 2030, if funding is available. Scalable renewable energy solutions will need to be rapidly introduced, with gas as a transition fuel.
To bolster our efforts, we consolidated our power-related activities into a new subsidiary, Oil Search Power Holdings, in mid-2016. Through our power business, we are working with PNG’s major energy companies and other stakeholders to build partnerships across the power value chain.
In May, we signed a Strategic Alliance agreement with PNG Power Limited (PPL) to work together to identify power solutions that support the PNG Government’s plans. One of the Alliance’s objectives is to provide gas for power generation to support the expansion of the Tari grid, providing power for many thousands of people in the Hela Province.
Under the terms of our agreement with PPL, we committed to:
- Continue to supply low-cost diesel to PPL to increase Tari Power Station generation volumes and expand operating hours.
- Be responsible for operational management of the appointed Tari Power Station maintenance contractor.
- Support connection roll-out planning, connection efficiency and optimised household connection costings as part of a hook-up trial with new customers.
- Work with PPL to develop a Highlands Power Strategy and implementation plan to provide low-cost connections to rural households in the Hela and Southern Highlands Provinces. This strategy will focus on connecting best available sources of fuel for power generation.
During the year, we acquired full ownership of the PNG Biomass Power project in Markham Valley, Morobe Province and entered the Front End Engineering and Design (FEED) phase in September. During the FEED study period, we will undertake the necessary technical and commercial work to allow consideration of a Final Investment Decision in the second half of 2017. During 2016, we completed a social mapping and environmental and social impact assessment of the proposed plantation and processing facility area, supporting our commitment to applying World Bank and Forestry Stewardship Council standards to the project.
Also in 2016, we progressed power initiatives for the Highlands, Lae and coastal areas and investigated potential domestic uses of LNG and other domestically produced fuels. These included shipping LNG to Lae and Lihir, with further small load distribution to regional coastal areas. We expect to decide on the potential commercialisation of this project in 2017. In addition, we signed a Study Agreement with Kumul Petroleum Holdings Limited in December, under which we will work with Kumul across a range of potential power projects in PNG, including domestic LNG.
Contributing to tax and other legislative reform
In May, the PNG Treasury sought industry contributions to help it prioritise the tax reform measures identified in 2015 to inform development of the 2017 National Budget. We designed our recommendations to improve productivity and competitiveness and sought to group the tax reforms into short-, medium- and long-term priorities.
Our recommendations were to:
- Continue, rather than close, the Infrastructure Tax Credit Scheme (ITCS) while a review of scheme governance and administration is conducted.
- Defer amendments to concessions that attract and retain skilled labour and conduct a holistic review of effective tax rate effectiveness, the implementation of capital gains taxes and the abolition of stamp duty.
- Retain fiscal stability agreements for high-value, long-life, capital-intensive projects.
- Maintain zero Goods and Services Tax rating for oil and gas exports.
- Defer thin capitalisation settings for resource projects such that an arm’s length debt test can be developed.
Following the 2017 PNG Budget announcements in November 2016, we have provided recommendations to address the unintended consequences of proposed changes to tax laws in PNG.
We also participated in a review of the ITCS Guidelines and attended an industry workshop in July. Our recommendations included: amending the distribution of ITCS projects to include inside and outside host community areas; aligning ITCS project approvals with National, Provincial and District Development Plans; improving hand-over at project completion; emphasising greater ownership by the end user for ongoing maintenance; and increasing the regularity and visibility of Department of National Planning and Monitoring visits during construction.
Through our involvement with the PNG Chamber of Mines and Petroleum, we also contributed to joint submissions on the National Energy Bill, Protected Areas Bill and the Conservation and Environment Protection Authority policy discussions paper on environmental bonds. Copies of the joint submissions are available from the PNG Chamber of Mines and Petroleum on request.
Working with PNG Government on national infrastructure projects
In 2016, we managed a US$226 million portfolio of infrastructure projects on behalf of the PNG Government, funded under various Infrastructure Tax Credit Schemes (ITCS).
We spent US$32.2 million to progress 12 projects for the Government, all of which are planned to reach Practical Completion in 2017. This included road infrastructure, hospital and school redevelopments in the Hela and Southern Highlands Provinces and housing for the Nipa Constabulary in the Southern Highlands.
Following their Practical Completion in late 2015, we finalised and handed over two key ITCS projects in 2016: Sir Manasupe Haus and the National Football Stadium. In February, the Department of the Prime Minister and National Executive Council moved into Sir Manasupe Haus, allowing them to centralise personnel and reduce their reliance on multiple leased spaces.
For the opening event at the National Football Stadium in February, the Australian Penrith Panthers played the PNG Hunters. During the year, the Stadium was the home ground for the Hunters throughout the Queensland Cup competition, as well as hosting the FIFA Women’s Under-21s World Cup and some Digicel Cup Games. It’s the only venue in PNG with the level of amenity and security to meet Australian National Rugby League standards. The Stadium is helping promote the pursuit of sporting achievement in PNG and is an excellent international showcase for the country. In 2017, it will host several matches during the Rugby League World Cup.
Also in 2017, construction will commence for APEC Haus in Port Moresby, a new function centre that will house the Asia-Pacific Economic Cooperation (APEC) Summit in 2018.
Helping to connect the north and south coast of PNG
In April, construction commenced on the Erave Samberigi Road Infrastructure Tax Credit Scheme (ITCS) project in the Southern Highlands, with 18 kilometres out of 44 kilometres completed by the end of the year. This project is important for PNG because it supplies the missing link in the national road infrastructure. When it’s completed, the road will allow continuous travel between the north and south coasts of PNG for the first time. This is likely to be a catalyst for infrastructure development in the south of PNG, including the development of a major port facility that will facilitate greater imports and exports from the Highlands regions.
As work on the road progressed, instead of bringing or building our own facilities, we refurbished existing facilities for community benefit once construction is completed, including:
- Refurbishing the Samberigi Health Centre, installing new water and sanitation facilities and an on-site electricity generator, and donating medical supplies. The Centre services over 10,000 people.
- Installing new water, sanitation and electricity generation facilities at the Samberigi Mission Station and Samberigi High School.
- Refurbishing CDI Haus, an office, conference and accommodation training centre used by local not-for-profit organisations.
- Constructing a small adjoining road to improve access from Pukuapeke.
During the project’s peak period of July-December, more than 120 workers from two Lancos were engaged in construction, 85% of them from the immediate area.