Super tax threatens Telstra’s acquisition of PNG telco Digicel

This billionaire Irish businessman is considering legal action over what he says is an ‘arbitrary’ new tax, affecting only an incoming Telstra subsidiary.

A new $US100m ($133m) super tax in Papua New Guinea is threatening a $2.5bn deal between the Australian government, Telstra and Digicel – with the billionaire founder of the business set to be acquired considering legal action to scupper the levy.

PNG’s parliament last week passed an amendment to the country’s tax act, creating new tax of for telcos that have a market share of more than 50.1 per cent – a tax that would only affect the Jamaica-headquartered Digicel.

Telstra, in late October, finalised a deal in partnership with the Australian government to buy Digicel’s Pacific operations in an acquisition that has been widely viewed as a political move to counter the rising regional influence of China.

Telstra is contributing $US270m in equity towards the acquisition, with Australia’s federal government paying $US1.33bn.

Digicel, founded by Irish billionaire Denis O’Brien, is the largest mobile phone carrier in the Pacific and operates 3G and 4G networks across Papua New Guinea, Fiji, Samoa, Vanuatu and Tahiti with about 2.5 million subscribers.

A Digicel spokesman on Monday described PNG’s new tax as “arbitrary” and “company-specific”. Companies impacted by the new tax would have to make a one-time payment of 350 million kina ($132m) and a further penalty of 50 million kina if they fail to pay.

“It‘s 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 spokesman said in a statement.

“At a meeting last week between Denis O‘Brien and Prime Minister (James) Marape and two of his regional Governors, the Prime Minister assured Digicel that the new tax would not proceed and Digicel is now engaged in discussions with the Papua New Guinea Government and other relevant stakeholders to ensure this commitment is honoured.”

The spokesman said the 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 and the wider reputational and credit rating implications for Papua New Guinea internationally.

Outgoing Telstra CEO Andy Penn. Picture: NCA NewsWire / Ian Currie

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

The PNG government was contacted for comment.

“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 completed yet,” a Telstra spokesman said.

“This PNG tax referenced is a matter for the current owner of the Digicel Pacific business. We look forward to finalising our acquisition in due course.”

Outgoing Telstra CEO Andy Penn late last year told The Australian in an interview that Telstra was initially approached by the Australian government to provide technical advice in relation to Digicel Pacific, and subsequently considered acquiring the business with financial and strategic risk management support from the government.

“We’ve been working on this for the last 10 months or so, something in that order, and it was initially in relation to strategic advice and that ultimately led us to thinking about a potential ­acquisition in partnership with government.“