Digicel says PNG tax could impact Australian buyout of Pacific mobile networks

By Kirsty Needham

SYDNEY (Reuters) -Digicel Group said it is considering legal options after Papua New Guinea (PNG) imposed a tax of almost $100 million that the telco said could affect its planned A$2.1 billion ($1.57 billion) sale of the Pacific's biggest mobile network to Australia's Telstra.

Telstra Corp Ltd said last October it would buy the Pacific operations of Jamaica-headquartered Digicel in a deal largely funded by the Australian government and seen by observers as a way to block China's rising influence in the region. The operations include 2.5 million mobile phone subscribers across PNG, Fiji, Vanuatu, Tonga, Samoa and Nauru.

Digicel's Irish founder, Denis O'Brien, met with PNG Prime Minister James Marape last week to try to resolve the matter, Digicel said in a statement emailed to Reuters on Monday.

"In parallel with these discussions, Digicel is also considering its legal options in the event that this discriminatory tax is not removed," Digicel said.

Its statement said a "new arbitrary, company-specific tax" was introduced on March 25, which was "perplexing not just for Digicel, but also for the Papua New Guinea economy given the reputational and credit rating implications of this sudden, bizarre and unprecedented tax".

The act imposes a one-time tax liability on Digicel of 350 million kina ($96.43 million) with a further penalty of 50 million kina for non-payment, the statement said.

"This matter requires urgent resolution given its implications for the sale of Digicel's Pacific operations to Telstra but also given the knock-on consequences for all foreign direct investment exiting Papua New Guinea," Digicel said.

The statement said the prime minister in the meeting assured Digicel the tax would not proceed and that "Digicel is now engaged in discussions with the Papua New Guinea Government and other relevant stakeholders."

Marape's office did not immediately respond to a request for comment.

Papua New Guinea treasurer Ian Ling-Stuckey told parliament last month it would impose a "fair tax" on Digicel Pacific as part of national budget repair measures, in recognition of the company's high historic level of profitability. The tax was half the rate of an ongoing levy on the company proposed last year, he said.

An official in Ling-Stuckey's office told Reuters on Monday there had been no announced change in this position, although "they have been deliberating over the past week on the tax".

Telstra has not changed its business plan for the deal since the new tax was announced. A Telstra spokesperson said in an emailed statement that the PNG tax was a matter for the current owner of Digicel Pacific. In response to Reuters' questions it said it was still awaiting PNG regulatory approvals for the deal.

"The acquisition of Digicel Pacific by Telstra in partnership with the Australian government has not yet received all of its regulatory approvals and has not (been) completed yet," it said.

The ongoing levy on Digicel Pacific, flagged by the government last November, would be dropped if the sale to Telstra went ahead, Ling-Stuckey told parliament in March. Telstra had agreed to invest in infrastructure including 115 mobile towers in Papua New Guinea, and other taxes worth more annually, he said.

“Telstra is committed to investing to improve connectivity in the areas that Digicel Pacific operates in, including remote areas of PNG," Telstra said in a statement.

($1 = 1.3358 Australian dollars)

($1 = 3.6298 kinas)

(Reporting by Kirsty Needham; Editing by Kenneth Maxwell and Sam Holmes)