Canberra, 19 May 1967
I refer to your letter of 4th May, regarding the proposed agreement on mining copper on Bougainville lsland.1
In your letter and subsequent discussion with me you expressed concern about the placing of royalty payments outside the tax ceiling.2 I have given further thought to your representations but see no possibility of a change in the Government’s position on this question.
There are strong political reasons in the Territory context for dissociating royalty payments from tax payments. Apart from those reasons, however, I fail to see grounds for concern in view of the provision in the agreement for a guaranteed royalty rate of 1¼% fixed for 42 years. Moreover, the royalty rate is only one of several important existing provisions in the Territory law which are bound to be under the agreement in their application to the company. In all such commitments the assumption must be that future Territory governments will honour them.
In my letter of 24th April I stated the Government’s view on the proposed 20% option on equity capital. I should add that if the offer is taken up it will be for the ultimate purpose of giving Territory residents the opportunity to hold shares in the project. The Government in reaching its conclusions on this question decided that the Administration or an approved agency would take up initially the whole of the option or that part of it which is not taken up by eligible Territory residents.
To the extent that the equity is initially taken up by the Administration or an approved agency, the benefits derived from it will be used in the best interests of the people of the Territory.
Moreover, if the offer is taken up, it is the Government’s intention that arrangements will be made to ensure that stock units of the operating company, which represent this equity, cannot at any future stage be transferred to anyone except eligible Territory residents. The question of who is an eligible Territory resident will, at the appropriate time, be decided by the Territory legislature.
I have given careful thought to C.R.A.’s wish that the company should have first rights to mine copper ores in relevant areas subsequent to termination of rights during either the prospecting or construction phases.
While I recognise the unusually heavy expenditures made and proposed by your company and the conditional nature of the additional rights which you propose, I consider that the precedent set by such a proposal would invite adverse political reaction. In view of this and of other safeguards already included in the agreement I would have difficulty in accepting a proposal along these lines. If, however, you still consider that some provision along these lines is essential to your project I could accept a provision limiting the right of first refusal to a period of up to ten years and to a situation where the inability of the company to proceed with the project were demonstrably based on economic grounds.
I understand that it is now your company’s wish to change the description of the proposed special additional tax. This has raised some difficulties for me as the earlier decision was reached by the Government in the light of my advice of what the company required. However, in view of the importance to you of having the description varied I have been able to obtain my colleagues’ agreement to dropping the word ‘special’ so that it will now be called simply ‘additional tax’.
I am hopeful that the matters yet outstanding in the draft agreement, including those referred to in this letter, can shortly be resolved so that the relevant legislation can be presented to the House of Assembly for early ratification.
[NAA: A452, 1967/3211]
1 Document 107.
2 For background, see footnote 13, Document 106.