PNG GIVES CHINESE FIRM 10-YEAR TAX BREAK

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By Robert Palme

PORT MORESBY, Papua New Guinea (The National, Jan. 6) – The Chinese company developing the PGK2 billion [US$685 million] Ramu Nickel/Colbalt Project in Papua New Guinea’s Madang province has been given a 10-year tax holiday by the Government.

The NEC gave the tax holiday for the Metallurgical and Construction Corporation (MCC) of China because there was lack of interest in the project, according to industry sources.

[PIR editor’s note: According to its website, China Metallurgical Construction (Group) Corporation is a conglomerate under the authority of the Chinese central government with total assets of RMB 32 billion yuan (US$3.9 billion), more than 56,000 employees about 70 fully owned or controlled subsidiaries.]

NEC documents obtained by The National say: "The Council (NEC) approved 10 years tax holiday from the day of production of the first saleable product from the mine, and that depreciation on assets to be simultaneously reported on the company’s accounts. "In addition, each joint venture must lodge income tax returns for each of the years in which Section 8.4 applies, showing a calculation of notional taxable income as if no income tax holiday had been granted."

The documents also said that the notional calculations must include all deductions for any expenditure incurred by joint ventures under Part 111 division 10 of the Income Tax Act.

The NEC noted that the development of the Ramu project had been delayed in the past due to lack of interest by a third party coming into the project with the financial strength and technical expertise and that the commencement of the project would boost gains from the country’s mining resources.

Attempts to get comments from acting Mining Secretary Stevie Nion were unsuccessful as he was on a two-week break but a source said: "Highlands Pacific tried everywhere and failed to secure development partners."

The source said that the 10-year tax holiday was an incentive by the Government to MCC.

The source also said current world prices for nickel were not that encouraging and therefore the government had to attract the developer.

Meanwhile, according to a briefing by Mr Nion to the Mining Minister Sam Akoitai, the initial capital investment of US$650 million (K2.031 billion) would have been paid off in the 10 years.

Mr Nion also said in his brief that the State team’s position was that the exemption was limited to the period of construction and ramping phase of the project, when most of the expenditure occured, and therefore remained unchanged.

This position came about after the joint ventures maintained that they be given exemption for the life of the mine.

January 9, 2006

The National: www.thenational.com.pg/

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