The Papua New Guinea government is deeply concerned about ongoing fuel supply in the country, after declaring a snap 30-day national emergency on Monday.

Just last week, the country’s two largest airline carriers halted their domestic operations temporarily and cancelled dozens of flights for the second time since December 2022.

They did so in response to an announcement that one of the country’s main fuel suppliers, and only supplier of aviation fuel, Puma Energy, was about to ration its supply.

At the heart of this issue is a protracted disagreement between Puma Energy and PNG’s central bank, Bank of Papua New Guinea (BPNG) over the company’s need to exchange foreign currencies (forex).

While the energy minister says a “truce” has been brokered for now, there remains serious fears in PNG about the future of fuel supply for airlines and at the bowser.

How did we get here?

Puma Energy, previously InterOil, entered into a contract with the PNG government in 1997 to develop and operate the country’s first oil refinery.

The company is a large purchaser of foreign currencies in the country and it says it needs to do so to operate its business, importing crude oil for processing at its refinery.

But in recent years, PNG has been grappling with a forex shortage, which has wide-ranging impacts for many businesses.

According to documents in a civil case between Puma Energy and BPNG, in March last year Puma Energy wrote to the central bank highlighting its unfilled forex orders.

BPNG began a special purpose audit of Puma Energy, which led to court proceedings last year and has now turned into a long-running dispute over its forex requirements.

At one point, the company’s country manager and a senior regional manager were prevented from leaving PNG.

What will happen during the state of emergency?

The energy minister, Kerenga Kua, said the government will be investigating allegations the central bank has raised against Puma Energy.

Meanwhile, Bank South Pacific (BSP) wrote to Puma Energy in June indicating that it would close its operating accounts in September — effectively meaning the company couldn’t operate its business in PNG.

In a statement, BSP said it “has an obligation to strictly comply with all regulatory requirements”.

“The reasons for BSP’s decision are known to the Bank of Papua New Guinea and the Financial Analysis and Supervision Unit (FASU) and have been communicated to members of government,” BSP said.

Mr Kua has said “BPNG, ANZ bank, Westpac bank, BSP bank, they are all not happy with Puma’s methodologies of transactions”.

“In short, it’s got something to do with the way Puma organises its banking and finance, purchases and reporting, importing and exporting and reporting on its finances through the responsible authorities, including privately to its own licensed banks in Papua New Guinea.”

Puma Energy Papua New Guinea’s chairman Hulala Tokome said the “allegations” referred to “largely historic matters that range from administrative to operational practices”.

“In fact, we have already responded last October and believe to have resolved many of these matters already with BPNG,” he said.

“If questions remain and more clarity is needed, then we strongly recommend that an independent Big 4 audit firm with knowledge of PNG be brought in to inform the process.”

He also said he’s “not yet entirely sure” why BSP has decided to close Puma’s accounts.

Following the emergency declaration, Bank South Pacific has agreed to not close Puma Energy’s bank accounts until March next year.

What does this mean for flights?

Before an arrangement was struck there were concerns Puma Energy would not be able to conduct its finances in the country once the September deadline passed, which would have likely grounded flights and led to disaster at the bowser.

The minister has said BSP isn’t happy with the concession, but the bank “doesn’t want to be taking a course of action that brings about hardship to the public”.

“There’s some level of normalcy for now … I hope this holds until we have some more permanent solutions,” he said.

The government says it will use the next 30 days to look into its contract with Puma Energy and see if it can introduce competitors into the market.

What happens from here?

Under the emergency declaration, the government has ordered the central bank to allow authorised banks to supply necessary foreign exchange to Puma Energy.

The declaration also directs Puma Energy to “refrain from reducing or stopping the supply of fuel and other petroleum products to its customers”.

The minister has flagged significant fines for non-compliance.

If the parties follow that direction, it avoids a fuel rationing disaster — for now.

Roundtable talks are getting underway, as the government urgently tries to navigate a pathway out of the situation.

Extracted in full from: A national emergency has been declared in PNG over the country’s fuel supply. What does this mean, and could petrol run out? – ABC News