The PNG Investors' Manual (3rd edition)

THE PNG INVESTORS’ MANUALA handbook for investing and doing business in Papua New Guinea

Third Edition

The size of Papua New Guinea’s economy has more than

doubled over the past decade, on the back of increased

economic activity across many sectors, most notably mining

and petroleum.

In 2014, PNG will join the exclusive club of nations that export

natural gas—an achievement that has put PNG on the map as

the Pacific’s tiger economy.

These are exciting times, but they are not without their

challenges.

My Government is committed to managing PNG’s growth in a

way that delivers sustainable, long-term returns for business,

and employment opportunities for our youthful population.

We are making major new investments in infrastructure,

health and education, as well as encouraging stronger

partnerships between the public and private sector for

service delivery.

This third edition published in 2013 by the Port Moresby Chamber of Commerce & Industry, PO Box 75, Port Moresby, Papua New Guinea. First edition 2010, second edition 2011.

Tel: +675 321 3077 or +675 7100 3077/7200 3077 Fax: +675 321 4203 Email: [email protected] www.pomcci.com

in partnership with

Investment Promotion Authority of Papua New Guinea

www.ipa.gov.pg

and

Asian Development Bank

www.adb.org

We are also committed to improving conditions for business

to flourish in our country. Business needs an educated, well-

trained workforce, reliable telecommunications and power,

a well-maintained road and port infrastructure and responsive,

well-managed government agencies.

PNG’s growth has brought many new investors into the

country, and we welcome them. I am also delighted to see

a new generation of indigenous businesses spring up to seize

the opportunities our expanding economy has to offer.

If they are to plan effectively for the future, business people

of all kinds need reliable, up-to-date information, which is why

The PNG Investors’ Manual is so important.

I congratulate the Port Moresby Chamber of Commerce and

Industry, the Asian Development Bank and the Government’s

own Investment Promotion Authority on this highly successful

initiative, now in its third edition.

I commend the publication to you, and wish you every success

with your business in PNG.

.

The Hon. Peter O’Neill CMG MP

Prime Minister

The Independent State of Papua New Guinea

FOREWORD

Produced for POMCCI by Business Advantage International Pty Ltd www.businessadvantageinternational.com

To obtain a copy of this publication, please contact POMCCI at the address on the left or view the online edition free at www.pomcci.com.

© Copyright 2013 Port Moresby Chamber of Commerce & Industry and contributors

Cover images: PNG Tourism Promotion Authority, Business Advantage International, Maersk International

ISBN 978-0-9871678-3-5

1.0 AbOUT PAPUA NEw GUINEA 7

1.1 Area 9

1.2 The region 9

1.3 Topography 9

1.4 Demography 9

1.5 Language 9

1.6 PNG’s culture 9

1.7 PNG’s history 10

1.8 Currency 10

1.9 Political and administrative structure 10

1.9.1 National government 10

1.9.2 Provincial governments 12

1.9.3 District governments 12

1.9.4 The judiciary 12

1.10 Social issues 13

1.10.1 Literacy 13

1.10.2 Health 13

1.10.3 Corruption 13

1.10.4 Women 13

2.0 PAPUA NEw GUINEA’S ECONOMy ANd INVESTMENT ENVIRONMENT 15

2.1 PNG’s economy 17

2.2 Employment 18

2.3 Foreign investment in PNG 19

2.4 Ease of doing business 20

2.5 Trade 20

2.5.1 Exports 20

2.5.2 Imports 20

2.6 National economic and development strategy 21

2.6.1 Vision 50 21

2.6.2 Papua New Guinea Development Strategic Plan, 2010–2030 21

2.6.3 Medium Term Development Plan, 2011–2015 21

CONTENTS

2.7 Key investment and development organisations 21

2.7.1 Mineral Resources Development Company Limited 21

2.7.2 PNG Sustainable Development Program (PNGSDP) 21

2.7.3 Petromin PNG Holdings Limited 22

2.7.4 Kumul Trust 22

2.7.5 Kula Fund II 22

2.7.6 Superannuation funds 24

2.7.7 Asian Development Bank 24

2.7.8 World Bank Group 25

2.7.9 International Finance Corporation (IFC) 25

2.8 Public–private partnerships 25

2.9 State-owned enterprises and the IPBC 26

2.10 Sovereign Weath Fund 26

2.11 Stock market 26

2.11.1 Buying and selling shares 26

2.11.2 Listing on POMSOX 27

2.12 Government securities 27

2.12.1 Government Treasury Bills 27

2.12.2 Inscribed stock 28

2.12.3 Central Bank Bills 28

2.13 Financial services 28

2.13.1 Banks 28

2.13.2 Finance companies 28

2.13.3 Insurance 30

3.0 PNG’S LEGAL SySTEM ANd LAwS fOR fOREIGN INVESTORS 31

3.1 Structure of government 33

3.1.1 National government 33

3.1.2 Provincial government 33

3.1.3 Local government 33

3.2 Legal system and dispute resolution 33

3.2.1 The law 33

3.2.2 The judicial system 33

3.2.3 Enforcement of foreign judgments 34

3.2.4 Arbitration 34

CONTENTS

3.3 Foreign investment law and policy 34

3.3.1 Investment Promotion Authority 36

3.3.2 Certification 36

3.3.3 Reserved activities 37

3.3.4 Certification criteria 37

3.3.5 Guarantees 37

3.4 Forms of investment 38

3.4.1 Sole trader 38

3.4.2 Partnership 38

3.4.3 Joint venture 38

3.4.4 Trust 39

3.4.5 Company 39

3.5 Registering as a foreign company in Papua New Guinea 41

3.6 Land 42

3.6.1 Customary land 42

3.6.2 Alienated land 42

3.6.3 Land Board and Land Titles Commission 42

3.6.4 Freehold land 42

3.6.5 Leasehold land 42

4.0 PNG’S kEy INdUSTRIAL SECTORS 43

4.1 Mining 45

4.1.1 Industry snapshot 45

4.1.2 Governance and legislation 48

4.1.3 Mining licences and leases 48

4.1.4 Process for approving an Exploration Licence 49

4.1.5 Exploration Licence reporting requirements and extensions 49

4.1.6 Mining and Special Mining Lease requirements and extensions 49

4.1.7 Tax incentives 50

4.1.8 Information resources 50

4.1.9 PNG Mining and Petroleum Investment Conference 50

4.2 Petroleum and gas 51



4.2.3 Licensing 52

4.2.4 Midstream/downstream processing 52

4.2.5 Tax incentives 52

4.2.6 Useful information 52

4.3 Agriculture 53

4.3.1 Industry overview 53


4.3.3 Coffee 54

4.3.4 Cocoa 54

4.3.5 Palm oil 54

4.3.6 Copra 54

4.3.7 Livestock 54

4.3.8 Other agricultural exports 54

4.3.9 Major players 54

4.3.10 Opportunities and challenges 55

4.3.11 Incentives 55

4.3.12 Resources 55

4.4 Infrastructure 56

4.4.1 Ports 56

4.4.2 Telecommunications and internet 56

4.4.3 Aviation and airports 57

4.4.4 Roads 58

4.4.5 Infrastructure tax credit scheme 58

4.5 Manufacturing 58

4.5.1 Overview 58

4.5.2 Manufacturers Council of PNG 58

4.5.3 Incentives for manufacturers 58

4.6 Forestry 59


4.6.2 Markets 59

4.6.3 Plantations 59

4.6.4 Regulations and legislation 59

4.6.5 Governance 59

4.6.6 Sustainability 60

4.6.7 Challenges and opportunities 60

4.6.8 Resources 60

4.7 Fisheries 61


4.7.2 Markets 61


4.7.4 Licences and permits 61

4.7.5 Pacific Marine Industrial Zone 62

4.7.6 Resources 62

4.8 Tourism 62

4.8.1 Overview 62

4.8.2 PNG Tourism Promotion Authority 62

4.8.3 Incentives 64

4.9 Building and construction 64

4.9.1 Overview 64

4.9.2 Acquisition of land for building 64

4.9.3 Physical Planning Approval 64

4.9.4 Building Board 64

4.9.5 Building workers and materials 65

4.9.6 Certification during and after construction 65

4.9.7 Further information/contacts 65

CONTENTS

6.2 Accommodation and real estate 88

6.3 Cost of living 88

6.3.1 Prices 88

6.3.2 Shopping 88

6.3.3 Communications 88

6.3.4 Banking 88

6.3.5 Motor vehicles 90

6.4 Employment of expat spouses and dependents 90

6.5 Education 90

6.6 Health 90

6.7 Useful contacts 90

7.0 PNG bUSINESS dIRECTORy 91

7.1 Stock market 93

7.2 Government 93

7.3 State-owned entities 93

7.4 Overseas missions 94

7.5 Investment organisations and funds 94

7.6 Business organisations 94

7.7 Professional bodies 95

7.8 Aid organisations and civil society 95

7.9 Miscellaneous 96

7.10 Useful resources 96

5.0 PNG TAx OVERVIEw/ MERGERS ANd ACQUISITIONS 67

5.1 Exemptions, incentives and concessions 69

5.2 PNG tax rates at a glance 69

5.3 Company tax tax 70

5.3.1 Company tax administration 70

5.3.2 Dividends 70

5.3.3 Foreign tax credit 70

5.3.4 Calculating taxable income 70

5.4 Personal income tax 72

5.4.1 Personal tax rates 72

5.4.2 Income subject to tax 72

5.4.3 Administration of personal income tax 72

5.4.4 Taxation of salary and wages 73

5.5 Withholding and other taxes 75

5.5.1 Foreign contractors tax (FCWT) 75

5.5.2 Interest withholding tax (IWT) 75

5.5.3 Dividend withholding tax (DWT) 75

5.5.4 Royalty withholding tax (RWT) 76

5.5.5 Management fee withholding tax (MFWT) 76

5.5.6 Other withholding taxes 76

5.5.7 Stamp duty 76

5.5.8 Customs and excise duty 76

5.5.9 Training levy 76

5.6 Double Tax Agreements 77

5.7 Goods and services tax 77

5.8 Tax incentives in summary 78

5.9 Tax clearance requirements 78

5.10 Mergers and acquisitions in PNG 80

5.10.1 Commercial issues 80

5.10.2 Taxation issues 80

6.0 LIVING ANd wORkING IN PNG 83

6.1 Employing people 85

6.1.1 Overview 85

6.1.2 Work permits 85

6.1.3 Visas 86

6.1.4 Employment contracts and industrial relations 87

6.1.5 Superannuation 87

6.1.6 Cultural factors 88

1.0ABOUT PAPUA New GUiNeA

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8 THE PNG INVESTORS’ MANUAL - THIRD EDITION

ABOUT PAPUA NEW GUINEA

9THE PNG INVESTORS’ MANUAL - THIRD EDITION


1.1 AreaPapua New Guinea (PNG) consists of the eastern half of New

Guinea island, the two large islands of New Britain and New

Ireland, more than 300 small islands and the autonomous

region of Bougainville.

PNG has a land area of 452,860 square kilometres, slightly

more than the United States’ state of California. The country

has 5152 kilometres of coastline. PNG has an Exclusive

Economic Zone of 3,120,000 square kilometres.

PNG shares a border with Indonesia’s Papua province to the

west and with Australia in the Torres Strait and Coral Sea to

the south. PNG shares a maritime border with Solomon Islands

to the southeast.

The capital city, Port Moresby, is situated on a spectacular

natural harbour on the south-west coast of PNG’s mainland.

1.2 The regionPNG is the largest country and the largest economy in the

Pacific Islands region.

The region is divided into three geographical groups:

Micronesia in the north, Polynesia in the east, and Melanesia

in the west. As well as PNG, Melanesia includes Fiji, Vanuatu,

New Caledonia and the Solomon Islands.

PNG is situated at 6° latitude south and 147° longitude east.

1.3 TopographyThe terrain of PNG is characterised by spectacularly jagged

mountain ranges, deep valleys and rivers in the highlands, and

coral reefs and mangrove swamps in coastal regions. Its more

than 600 islands are widely spread, and range from small coral

atolls to larger, mountainous and volcanic islands.

PNG’s principal rivers are the Fly, Purari, Kikori, Sepik, Ramu

and Markham.

Forest and woodlands cover about 70% of PNG’s total land

area, and permanent crops about 1.4%.

As a result of its topography and position on the volatile

seismic line known as the ‘Pacific Ring of Fire,’ PNG has

occasional natural hazards, including earthquakes and

mudslides.

1.4 DemographyPNG’s population is among the most ethnically diverse in

the world, although it can be very broadly geographically

divided into four groups: New Guineans, Papuans, Highlanders

and Islanders.

The most recent estimate of PNG’s population is 7.1 million

(World Bank, 2011).

The annual population growth rate is 2.7%. The majority

of PNG’s people—87%—live in rural areas, and the annual

rural population growth rate is 2.8%. This high growth rate

is creating challenges in some parts of PNG, including the

Highlands region, as food security becomes an increasing

issue.

Forty percent of PNG’s population is under 15 years of age.

According to the World Health Organization’s 2009 figures,

life expectancy at birth is 61 years of age for males and 65

for females.

1.5 LanguageMore than 800 different indigenous languages are spoken

throughout Papua New Guinea. The three official languages

are English, Tok Pisin and Hiri Motu.

English is widely spoken, and is the language of government,

the education system and business. Tok Pisin, which is also

known as New Guinea Pidgin, is widely spoken except in the

southern part of Papua, where Hiri Motu is more commonly

spoken.

1.6 PNG’s cultureThe hundreds of distinct and separate communities that

make up PNG’s indigenous population are divided by language,

customs and tradition. Despite these differences, traditional

PNG societies have key things in common: they generally

operate in a subsistence economy, recognise the wantok

system of social obligation, allow for status to be attained

rather than inherited, and have a deep attachment to

communally held land.

The wantok system is a complex arrangement of obligations,

which can require Papua New Guineans to assist other

members of their extended tribe through the redistribution of

income and wealth. This can mitigate against the amassing of

personal wealth.

The management of land is intrinsically linked to Papua

New Guinean culture. About 97% of PNG’s land is held under

customary ownership. This can provide a challenge for those

seeking to secure land for commercial ventures.



There is therefore an ongoing process of land reform in PNG.

In March 2009, PNG’s Parliament passed amendments to the

Incorporated Land Groups Act and the Land Registration Act

aimed at improving the system by which customary land-

owning groups can be legally recognised as landowners. The

legislation simplifies the process by which landholders can

lease out land for commercial development. There are some

encouraging examples of customary land being converted to

leased titles, particularly in Milne Bay Province.

1.7 PNG’s historyIt is believed that PNG’s first colonisers arrived some 500,000

years ago from the islands now comprising Indonesia.

Different groups of settlers arrived separately and lived in

isolation from one another, developing their own languages,

tribal cultures and rivalries. Archaeological evidence points to

the settlers in the Kuk Valley in the Highlands region being

among the first humans to develop agricultural systems,

around the same time that gardening was first evolving in

Mesopotamia and Egypt, and well before the famous rice

terraces of Luzon in the Philippines.

In the late 16th century, the Portuguese explorer Don Jorge

de Meneses sighted New Guinea Island and named it Ilhas

dos Papuas. The term ‘New Guinea’ was applied to the island

in 1545 by Spanish navigator, Íñigo Ortiz de Retes, due to

a perceived resemblance between the New Guinean people

and those found on the Guinea coast of Africa.

There is evidence of the presence of Chinese traders on the

Central Province coast in the 15th century. In the mid-1800s,

European missionaries and traders began to settle along the

coast of New Guinea Island. However, the Highlands region

was not explored by Europeans until the 1930s.

A German presence in the northern part of PNG grew in the

late 19th century as part of a trading network. In 1883, the

Queensland government in Australia annexed the south

portion of New Guinea Island, in a bid to pre-empt a German

annexation attempt. Great Britain then established the area

as part of the protectorate of British New Guinea. Australia

assumed administrative responsibility in 1901, and in 1906

the territory was named Papua. At the start of World War I,

Australia occupied the German north-eastern section of

the island.

New Guinea was also the site of territorial manoeuvring and

warfare during World War II. Japanese forces occupied the

northern half of New Guinea and got within 56 kilometres of

Port Moresby. However, by January 1943, Australian and United

States forces had driven Japanese soldiers out of New Guinea.

Following World War II, the United Nations gave Australia

a trusteeship over Papua and New Guinea, and united the

administration of the two areas.

The move towards independence began soon after the war.

On 1 December 1973, the territories of Papua and New Guinea

became the self-governing area of Papua New Guinea. The

country became an independent state on 16 September 1975.

In 1988, Bougainville attempted to secede from Papua New

Guinea. A nine-year conflict followed, with an estimated

20,000 people dying in the conflict. It ended with the

signing of a peace agreement in 1997. Bougainville now has

an autonomous government and four members in the PNG

National Parliament.

1.8 CurrencyPapua New Guinea’s major unit of currency is the kina (PGK).

There are 100 toea to a kina.

1.9 Political and administrative structure

PNG’s political system is a constitutional democracy modelled

on the Westminster system.

The head of state is Queen Elizabeth II, represented by a

Governor-General nominated by Parliament for a six-year term.

There are three areas of government under the constitution:

executive, legislative and judicial branches. Power is shared

between the National Government, which is headed by a Prime

Minister, and 19 provincial governments plus the National

Capital District. The Prime Minister is appointed by the

National Parliament on a simple majority vote and makes all

ministerial appointments.

1.9.1 National governmentPNG has a single house of parliament with 109 members who

are elected every five years. Eighty-nine members represent

‘open’ electorates, while 20 represent each of the provincial

electorates, Bougainville and the National Capital District

(NCD). Each voter has two votes, one for the member in the

open electorate, and one for the province, or NCD, under a

limited preferential voting system.

Since independence, governments have been formed by

coalitions, a product of the competitive and complex nature

of politics in PNG, and the ethnic and cultural diversity of

voters and candidates. To date, no single party has captured

enough of the vote to form its own government. There is a

large number of parties, but party allegiances can change,

and directly after elections there is typically much negotiation

between parties and independent candidates in the quest to

form a government.

Since 2001, there have been stricter regulations on the

formation, composition and funding of parties. This extends to

how parliamentarians may vote during no-confidence motions,



the circumstances of defections from political parties, and

restrictions on independent MPs.

Following years of frequent changes of government, PNG

governments are now protected under the Constitution

from no-confidence motions for the first 30 months of a

five-year term. A successful no-confidence motion after this

moratorium results in an alternative Prime Minister being able

to form a new government without calling an election—unless

the change occurs in the last year of the government’s term.

PNG’s National Executive Council (or Cabinet) is appointed by

the Governor-General on the recommendation of the Prime

Minister. The National Government is responsible for major

resource development, police, defence, foreign relations, trade,

higher education and hospitals.

The next national elections are scheduled for 2017.

1.9.2 Provincial governmentsPNG’s provinces consist of: Central, Chimbu, Eastern

Highlands, East New Britain, East Sepik, Enga, Gulf, Hela,

Jiwika, Madang, Manus, Milne Bay, Morobe, New Ireland,

Northern, Sandaun, Southern Highlands, Western, Western

Highlands and West New Britain. The National Capital District

(NCD) is an administrative district taking in Port Moresby.

Bougainville is an autonomous region.

The legislative assembly in each province is led by the

Governor, and includes the heads of local level government

bodies, the members of the National Parliament from

the province and appointed members. PNG’s provincial

governments are responsible for education, primary industry,

business development and provincial works. They can

levy indirect taxes, but rely on grants from the National

Government.

Funding from the National Government to the provinces

declined substantially in real terms in the 1990s. However,

with the recent solid growth in the economy, and the promise

of at least one liquefied natural gas (LNG) project by 2014,

this trend is being reversed. Legislation passed in March 2009

was designed to reduce the gap between each provincial

government’s revenue and the cost of delivering services.

Under the Intergovernmental (Financing and Functions) Act

2009, the National Government will help bridge this funding

gap and meet recurrent costs.

1.9.3 District governmentsDistricts form the level of government below the provinces,

with each province consisting of one or more districts. Each

district in turn has one or more local level government (LLG)

areas.

The single largest district it is the National Capital District,

which encompasses PNG’s capital city, Port Moresby.

Since the election of the O’Neill Government in 2012, greater

effort has been made to disburse more government revenues

through PNG’s 87 districts.

1.9.4 The judiciaryPNG law is based on English common law. PNG has three types

of courts: the Supreme Court, national courts and courts of

limited jurisdiction.

The Supreme Court is the country’s highest judicial authority.

It deals with constitutional matters and appellate cases.

The Chief Justice is appointed by the Governor-General on

the recommendation of the National Executive Council.

Other judges are appointed by the Judicial and Legal Services

Commission.

National courts have unlimited jurisdiction over all criminal

and civil matters. The national courts sit in a number of

population centres.

Courts of limited jurisdiction include district courts, local

courts and village courts, land courts, juvenile court and

coroner’s court.


PAPUA NEW GUINEA BUSINESS DIRECTORY

1.10 Social issuesPNG’s Millennium Development Goals relate to eradication

of hunger and poverty, and improvements in primary

education, gender equality, child mortality, maternal health,

combating HIV/AIDS, malaria and other diseases, and ensuring

environmental sustainability.

1.10.1 LiteracyPNG has an adult literacy rate of 62.4% according to UNESCO

figures for 2011. Enrolments in primary school are high,

according to UNESCO estimates (over 90%), with around

73% of eligible children enrolling in secondary school. The

PNG Government signalled its intention to make education,

at least at primary level, free as early as 2012. In early 2012,

the PNG Government abolished tuition fees for basic primary

and secondary education up to Year 10 and reduced fees for

older children.

1.10.2 HealthThere are positive signs that the feared generalised epidemic

of HIV/AIDS may have been checked. There were an estimated

76,000 people living with HIV at the end of 2008. This puts

the prevalence of HIV among the country’s adult population at

1.5%. There has been limited access to anti-retroviral therapy,

but this is changing with support from the World Health

Organization (WHO), the Global Fund, the Clinton Foundation

and the Bill and Melinda Gates Foundation. Public awareness

and education is being supported by active groups such as the

Business Coalition Against HIV and AIDS (www.baha.com.pg).

A new centralised health structure in the provinces is planned

to improve health standards in PNG and combat a shortage of

drugs, medical equipment and trained health professionals.

Notwithstanding the above, life expectancy in PNG continues

to rise.

1.10.3 CorruptionCorruption is a key issue in PNG, especially in the public

sector. The Business Coalition Against Corruption (BACA)—an

initiative of the Port Moresby Chamber of Commerce and

Industry, Transparency International PNG and the British High

Commission—provides business with a voice in this area.

The PNG Government has flagged its intention to create an

Independent Commission Against Commission (ICAC) to

succeed the temporary Task Force Sweep anti-corruption

body. Legislation for this was in draft form as of July 2013

and industry consultation was being sought.

1.10.4 womenAccording to the IFC’s 2010 Papua New Guinea Gender and

Investment Climate Reform Assessment:

‘Women in PNG derive limited benefit from the formal

economy, mainly operating small-scale informal businesses.

Women are held back by a male-dominated culture, limited

ability to control business income, exclusion from decision

making, and by violence directed against them. Women

are further constrained by a legal framework that does not

adequately protect their interests, particularly in relation

to property rights and employment. Customary law, which

frequently discriminates against women, is commonly applied.’

There has been an increased focus on improving the lot of

women in PNG in recent years. Penalties for violent crimes

towards women were significantly increased by the O’Neill

Government in 2013. Also in 2013, IFC and AusAid commenced

funding of the pilot PNG branch of the Pacific Women in

Business initiative, which offers mentoring and other support

to working women.

PAPUA NEW GUINEA’S ECONOMY AND INVESTMENT ENVIRONMENT

2.0PAPUA New GUiNeA’s eCONOmy

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2.1 PNG’s economyPapua New Guinea (PNG) is the largest Pacific Island economy. According to the PNG Department of Treasury, PNG’s gross domestic

product (GDP) was 29 billion kina in 2011 (US$12.94 billion).

Since 2003, its GDP has grown above population growth, reflecting an expansion in its key primary industries:

> Agriculture

> Mining

> Petroleum and gas

> Fisheries

> Forestry

> Manufacturing

and also an increase in activity in such sectors as building and construction, telecommunications, retail/wholesale, tourism and

business services. (See section 4 for more on PNG’s key industrial sectors.) This growth has also been achieved in spite of a gradual

decline in foreign aid levels since 1980.

Due largely to domestic factors, PNG’s economy remained remarkably buoyant throughout the global economic crisis of 2008/2009.

Unlike many other countries classified as ‘developing,’ the country has never defaulted on an overseas debt. Indeed, public debt

levels have been in decline in recent years, although the O’Neill Government did commit itself to a small budget deficit for the 2013

financial year.

As of June 2013, ratings agency Standard & Poors gave PNG a B+ ‘stable’ credit rating, while rival Moody’s own assessment of PNG

was an equivalent B1 ‘stable’ rating. (The third major ratings agency, Fitch’s, does not currently provide an assessment of PNG.)

29%Agriculture, forestry & fishing

Oil and gas extraction

Mining and quarrying

Manufacturing

Electricity, gas and water

Construction

Wholesale and retail trade

Transport, storage and communication

Finance, real estate and business services

Community, social and personal services

Other7%2%

20%

9%

4%

5%

9%2%

4%

11%

Source: National Statistical Office and Department of Treasury projections

PNG’s GdP by industry sector in 2012



LNG in PNG

A major factor in PNG’s predicted growth will be the development of a new resources industry based around liquefied natural gas

(LNG). The US$19 billion ExxonMobil-led PNG LNG project is expected to be ready for its first shipments of gas in 2014.

Some predictions suggest the 30-year project could double the country’s GDP. Additional major LNG projects led by InterOil and

Talisman Energy are also strong possibilities in coming years. For more on LNG, see Section 4.2.

2.2 EmploymentThe vast majority of Papua New Guineans are employed in the informal sector, mainly in subsistence agriculture. Participation in

the formal sector is estimated at about 15% of PNG’s total workforce.

That said, employment growth in the formal sector has been sustained, as the table below indicates.

There is an acknowledged shortage of skilled labour. In mid-2013, Office of Higher Education and the Department of Planning and

Monitoring estimates suggested PNG had a trade skills shortage of about 30%, with estimates putting the number of unqualified

people doing a trade job at one out of three.

2.5%

0.1%

0.2%

2.2%

2.7%

3.6%

2.6%

6.5%

7.2%

6.2%

8%

9.5%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

9.2%

4%*

PNG’s GdP growth, 2000 to 2013

* Bank of PNG prediction

Source: Statistical Digest 2008, PNG Department of Commerce & Industry, Bank of PNG

Source: Bank of Papua New Guinea

Retail 67.5%

Wholesale 104%

Manufacturing 96.5%

Building and Construction 97.8%

Transportation 70.3%

Agriculture/Forestry/Fisheries 70.2%

Financial/Business & other services 36.5%

Minerals 88.3%

Employment growth by sector, from 2002 to 2012



2.3 Foreign investment in PNGAccording to Bank of Papua New Guinea figures, Australia is PNG’s largest source of foreign investment (as it has been historically),

accounting for over half of all foreign equity investments in PNG in 2007. Australia is followed by China, the United Kingdom,

the Bahamas, Malaysia, Singapore and Japan.

From 2003 to 2008, investment from Australia, China, the United Kingdom, Canada, Singapore and Hong Kong increased,

while it decreased over the same period from Japan and South Korea. Investment from PNG’s other major investment sources

remained stable.

With the share of PNG’s six largest investor countries reducing between 2003 and 2007 from 80% to 75% of all foreign investment,

PNG is clearly developing a broader base for its foreign investment.

In 2012, the vast majority of foreign equity (87%) was invested in the minerals/petroleum sector, followed by manufacturing (4%).

foreign equity holdings by country of origin 2012, in million kina

58.1%

Australia 5690

United States 50

United Kingdom 206

Japan 1717

Canada 98

Singapore 165

Hong Kong 69

South Korea 24

Malaysia 164

Bahamas 189

Bermuda 3

Others 14170.5%

2.1%

17.5%

1.0%1.7% 0.7%0.2%

1.9%

1.7%

14.5%





Sector Value Annualgrowthrate

Agricultural exports 2676.5 -29.4%

Mineral exports 9306.1 -19.5%

Forestry exports 569 -25.9%

Marine exports 215.4 -17.1%

PNG exports in 2012, in million kina

2.4 Ease of doing businessPNG was ranked 104th overall in the World Bank’s 2013 Doing

Business rankings, out of 185 world economies. PNG’s 2013

rankings in the survey’s ten individual categories were as

follows:

The PNG Government has expressed its concern at PNG’s place

in the World Bank rankings and its Investment Promotion

Authority has embarked on a project with the assistance of the

International Finance Corporation to improve these standings.

One of the outcomes is online business registration, expected

in the second half of 2013.

2.5 TradePNG is a member of the Word Trade Organisation (WTO) and

Asia Pacific Economic Cooperation (APEC). It is also signatory

to a number of trade agreements, including the Pacific Islands

Countries Trade Agreement (PICTA), the Pacific Agreement

on Closer Economic Relations (PACER), the Africa, Caribbean

and Pacific/European Union Interim Economic Partnership

Agreement (EPA) and the Melanesian Spearhead Group (MSG)

free trade agreement.

2.5.1 exportsAccording to figures published by the Asian Development

Bank, the value of PNG’s exports grew from 40% to 51% of

GDP between 2000 and 2012. Exports of gold, copper, and

oil led this growth, and account for about two-thirds of total

export earnings.

Category 2013 2012 +/-

Starting a Business 91 87 -4

Dealing with Construction Permits 159 152 -7

Registering Property 88 84 -4

Getting Credit 83 97 +14

Protecting Investors 49 46 -3

Paying Taxes 106 101 -5

Trading Across Borders 120 117 -3

Enforcing Contracts 166 165 -1

Getting Electricity 23 25 +2

Resolving Insolvency 125 123 -2

According to Bank of Papua New Guinea figures, in 2012 the

value of PNG’s exports shrank dramatically by 22% on the

previous year to 12.76 billion kina (US$5.7 billion)—the lowest

figure since 2009’s global financial crisis—mainly due to falling

agricultural and forestry demand and prices.

Even so, the country enjoyed a positive balance of trade of 3.6

billion kina (US$2.697 billion). Indeed, PNG has had a positive

balance of trade since 1993.

In 2012, Australia was PNG’s number one export market,

taking 44.2% of its exports, followed by Japan (21%), Germany

(6.6%), the Netherlands (4.3%), China (4.6%), the Philippines

(3.1%), Singapore (1.8%), the United States (1.7%) and the

United Kingdom (1.7%).

2.5.2 importsAccording to Bank of Papua New Guinea provisional figures,

in 2012 the value of PNG’s imports was 9.17 billion kina

(US$4.1 billion).

PNG’s largest import market was Australia, which provided

40.8% of all PNG’s imports, followed by the United States

(19.5%), Singapore (14.6%), Japan (4.2%) and Singapore (3%).

The four largest categories of imports in 2012 were machinery

and transport equipment (35.5% of total import value),

miscellaneous manufactured articles (19.9%), mineral fuels,

lubricants and related materials (19.5%), and food and live

animals (9.2%).



2.6 National economic and development strategy

While government policies and priorities may vary from year

to year, there has been a broad commitment over the last two

governments to a development framework covering the period

until 2050.

This framework is owned by the Department of National

Planning.

2.6.1 vision 50The PNG Government has instituted a long-term national

strategic plan, Vision 50, with the vision of creating ‘a smart,

wise, fair, healthy and happy society by 2050’.

Vision 50 maps out PNG’s development initiatives for the

forthcoming 40 years, and identifies seven strategic focus

areas considered essential to the country’s economic growth

and development:

> Human Capital Development, Gender, Youth and

People Empowerment

> Wealth Creation

> Institutional Development and Service Delivery

> Security and International Relations

> Environmental Sustainability and Climate Change

> Spiritual, Cultural and Community Development and

> Strategic Planning, Integration and Control.

2.6.2 Papua New Guinea Development strategic Plan 2010–2030

The Papua New Guinea Development Strategic Plan translates

the seven strategic focus areas of Vision 50 into ‘directions for

economic policies, public policies and sector interventions with

clear objectives, targets and indicators’.

The plan’s target is for PNG to become a middle income

country by 2030.

2.6.3 medium Term Development Plan, 2011–2015

PNG’s economic direction is currently dictated by the Medium

Term Development Plan, 2011–2015 (MTDP). It is a ‘five-year

rolling development plan that sets the priorities, targets,

costs and deliverables for the country’s economic sectors’.

Released in October 2010, it implements the PNG

Development Strategic Plan, 2010–2030. The strategy

anticipates economic growth over the five-year period of

8.7%, and indentifies the implementation of economic

corridors and the development of core infrastructure in rural

areas as keys to sharing the benefits of that growth among

all Papua New Guineans.

Among the initiatives outlined in the MTDP, the areas that will

deliver the highest impact to jobs and economic growth in the

2011–15 period will be land, law and order, higher education,

transport and electricity infrastructure. The plan is designed

to create 290,000 new jobs over five years.

2.7 Key investment and development organisations

The following organisations are potential investment or

development partners for projects in PNG.

2.7.1 mineral resources Development Company Limited

The Mineral Resources Development Company (MRDC) is

trustee of the wealth that flows to landowners from PNG’s

rich natural resources. A 100% state-owned company, MRDC

manages landowner entities in petroleum and mining projects

and is custodian of their assets.

The MRDC has small stakes in the Lihir Gold Mine, the Ok Tedi

copper mine, the Porgera gold mine and the Kutubu oilfield,

among others.

As well as providing management of equity interests for

landowners, MRDC maximises shareholders’ wealth by

investing in economically attractive mining and petroleum

projects. It actively seeks growth and opportunities—both

for its landowner constituents and to improve its own

value. Acting for and on behalf of the people of PNG, it aims

to responsibly invest landowner royalties in projects that

will deliver profitable long-term returns for its landowner

constituents.

At the time of writing, proposals were being considered to

absorb the MRDC into the PNG Government’s proposed Kumul

Mining and Kumul Petroleum companies, which will act as

holding companies for the nation’s mineral assets. Draft

legislation was due in September 2013.

further information: www.mrdc.com.pg

2.7.2 PNG sustainable Development Program (PNGsDP)

The largest fund in the country, PNGSDP uses royalties from

the Ok Tedi copper mine in Western Province to develop long-

term infrastructure, construction and resources projects that

will benefit PNG—especially its Western Province. At the end of

2012, it had net assets of US$1.5 billion.

The aim is to minimise displacement after the Ok Tedi mine

closes (considered most likely to be in 2025, assuming a

US$822 million plan to extend the life of the mine beyond



2014 comes to fruition) by drawing down its US$1.3 billion

long-term fund over a period of up to 30 years.

Until 2012, PNDSDP plans have been based on the assumption

that it would retain its majority stake in Ok Tedi Mining

Limited until the mine’s life came to an end. However,

during the first half of 2012, it became clear that the O’Neill

Government was keen to legislate to remove PNGSDP as

an owner of Ok Tedi when the current mining licence ended

in 2014.

At the time of writing (July 2013), PNGSDP still held its main

asset but had signalled that, should it lose its main asset,

it would bring forward its planned disbursements from its

long-term fund.

PNGSDP has several subsidiaries, including Western Power,

PNG Sustainable Energy Limited, PNG Microfinance and

Cloudy Bay Sustainable Forestry Limited. It also has a 50/50

joint venture with Australia’s Origin Energy, PNG Energy

Developments Ltd, for the pursuit of the proposed 1800 MW

Purari River hydropower project.

further information: www.pngsdp.com

2.7.3 Petromin PNG Holdings LimitedBetween 2007 and 2013 (when it was wound up), Petromin

was a free-standing, state-owned commercial entity through

which the PNG Government sought to maximise national

ownership of mining and petroleum resources, as well as to

participate in the development and production of PNG mineral

resources.

Petromin had a stake in the InterOil LNG project and in 2008

bought the Tolukuma Gold Mine from Emperor Mines.

It was wound up in the first half of 2013 as part of the O’Neill

Government’s proposed re-organisation of state-owned

assets. Its hydrocarbon assets are expected to be absorbed in

Kumul Petroleum and its mining assets into Kumul Mining.

2.7.4 Kumul TrustIn early 2013, the O’Neill Government proposed a restructure

of all state-owned assets so that they fell under one of three

entities, themselves falling under an overarching Kumul Trust.

(The names of these organisations and other details may

differ once draft legislation expected in September 2013 is

tabled.)

kumul Petroleum Holdings

Kumul Petroleum would hold the state’s assets in

hydrocarbons, including those previously held by Petromin

Holdings, plus the National Petroleum Company of PNG (NPCP,

formerly Kroton #2), which was established in 2008 and in

2013 was assigned to hold the state’s 16.575% stake in the

ExxonMobil-led PNG LNG Project in 2013.

kumul Mining Holdings

It is the stated intention of the O’Neill Government that Kumul

Mining Holdings would incorporate all the State’s mining

interests, including its stakes in Bougainville Copper Limited,

Ok Tedi Mining Limited and the Ramu Nickel Project. This

would involve transferring assets currently held by the Mineral

Resources Development Corporation and Petromin Holdings.

kumul Corporations Holdings

As with the above, it is the stated intention of the O’Neill

Government that Kumul Corporations Holdings be established

as the holding company for all other State-owned enterprises

currently operated under the umbrella of the Independent

Public Business Corporation (IPBC—see section 2.9).

This is expected to include Air Niugini Limited, Vodafone

Bemobile, Eda Ranu, Motor Vehicle Insurance Limited, PNG

Ports, PNG Post, PNG Power, Water PNG and Telikom PNG.

At the time of writing, the ongoing status of the IPBC was

unclear.

2.7.5 Kula Fund iiLaunched in 2006 with contributions from the Asian

Development Bank, CDC Group Plc, European Investment

Bank, Fiji National Provident Fund and ANZ Banking Group

Limited, Kula Fund II is the only private equity fund operating

throughout the Pacific Islands.

Managed by Aureos Capital Limited, a wholly owned subsidiary

of the Abraaj Group, the fund has committed capital of about

US$20 million.

The Fund has made nine investments, two in the information

technology (IT) sector (PNG and Fiji), three in various segments

of retail (Vanuatu, Tonga and PNG), a security services provider

in PNG, a diversified manufacturing business in PNG, a primary

producer in Samoa and an organic manufacturer in Samoa.

The Fund’s investment period ended in June 2012, and two

investments have been fully exited. The Manager and Kula’s

investors are currently assessing the prospects of raising a

third fund under the Kula banner.

further information: www.aureos.com

The Asian Development Bank (ADB) based in Manila, Philippines is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth and regional integration. Established in 1966, it is owned by 67 members – 48 from the region. In 2012, ADB assistance totaled $US21.6 billion, including cofinancing of $US8.3 billion. ADB in partnership with its members, independent specialists and other financial institutions is focused on delivering projects that create economic and development impact.

Established in 2003, the Papua New Guinea Resident Mission (PNRM) is the representative office of ADB in Port Moresby, Papua New Guinea (PNG). PNRM staff plan and administer ADB’s financial and technical assistance to PNG, currently totaling approximately $US890 million in ongoing projects.

Contact Information:Marcelo MincCountry DirectorPapua New GuineaResident MissionLevel 13, DeloitteTower, P.O. Box 1992Port Moresby, NationalCapital DistrictPapua New GuineaTel: +675 321 0400/0408www.adb.org

The office also provides policy advice and knowledge sharing with the Government of PNG, and collaborates with other development partners, development stakeholders, and the public.

PNRM monitors and reports on ADB-supported projects in PNG and coordinates ADB support with other development partners, and fosters relations with the national and local governments, the private sector, non-government organizations (NGOs), think tanks, academia, and private individuals in PNG.

ADB’s current assistance program in PNG is focused on transport infrastructure in the highlands region road network, national ports, maritime safety, and civil aviation. ADB is also assisting PNG to mitigate the impacts of climate change by building climate-resilient roads. Together with the Government of Australia and other partners, ADB is helping PNG improve the quality and coverage of its health services.

ADB is a major financier of renewable energy and energy efficiency improvements for the power sector in the PNG, providing about $US131 million in seven approved and active projects.

ADB and the Governments of Papua New Guinea and Australia through the Microfinance Expansion

Project are strengthening the microfinance industry to deliver a wider range of financial services and products to rural areas, with a focus on women and micro and small enterprises.

Improving conditions for private sector investment and inclusive economic growth are central to ADB’s operations in PNG. In addition to public-private partnerships (PPP) transactions and access to finance, ADB helped the government write its PPP National Policy and PPP legislation, is supporting the reform of state-owned enterprises, and is strengthening the Independent Consumer and Competition Commission. Much of this work is co-financed by AusAID and New Zealand Aid Programme through the Private Sector Development Initiative (PSDI). ADB through PSDI offers a range of financial products and invests directly in high development impact private commercial operations in PNG, including telecommunications.

Since joining ADB in 1971, PNG has received 75 loans worth $US1.5 billion, as well as one Asian Development Fund (ADF) grant worth $US15 million, and 148 Technical Assistance (TA) projects worth $US62.8 million. PNG is ADB’s largest partner in the Pacific in terms of loans for public and private sector development.



2.7.6 superannuation fundsSuperannuation in PNG is compulsory for companies of 15

employees or more (although companies with smaller numbers

of workers may participate voluntarily).

The following companies are authorised by the Bank of Papua

New Guinea under the Superannuation (General Provisions) Act

2000 to provide superannuation services in PNG:

1. National Superannuation Fund (Nasfund)

2. Nambawan Super

3. Defence Force Retirement Benefit Fund (DFRBF)

4. OTML Superannuation Fund (OTMLSF)

5. Sios Workers Ritaia Fund (SWRF)

6. Aon Mastertrust

7. PEA Superannuation Fund (under Statutory Management) .

PNG’s two largest superannuation funds are Nasfund (www.

nasfund.com.pg), which reported net assets of 2.798 billion

kina as at December 2012, and Nambawan Super (www.

nambawansuper.com.pg), which had net assets of 3.743 billion

kina at the end of 2012.

Both funds performed strongly before, during and after the

global economic crisis of 2008/2009 and are major investors

in both in construction and development projects within PNG.

Both also have significant holdings in locally listed shares as

well as some offshore investments.

The Association of Superannuation Funds PNG (www.asfpng.

org.pg) was established in 2002 by interested industry

participants, with the goal of protecting superannuants’

retirement savings within a regulated environment while

fostering a competitive industry.

2.7.7 Asian Development BankEstablished in 2003, the Papua New Guinea Resident Mission

(PNRM) is the representative office of ADB in PNG. PNRM

staff plan and administer ADB’s financial and technical

assistance to PNG, currently totaling approximately US$890

million in ongoing projects.

The office also provides policy advice and knowledge sharing

with the Government of PNG, and collaborates with other

development partners, development stakeholders, and the

public.

ADB’s current assistance program in PNG is focused on

transport infrastructure in the highlands region road network,

national ports, maritime safety, and civil aviation. ADB is also

assisting PNG to mitigate the impacts of climate change by

building climate-resilient roads. Together with the Government

of Australia and other partners, ADB is helping PNG improve

the quality and coverage of its health services.

ADB is a major financier of renewable energy and energy

efficiency improvements for the power sector in the PNG,

providing about US$131 million in seven approved and active

projects.

ADB and the Governments of Papua New Guinea and Australia,

through the Microfinance Expansion Project, are strengthening

the microfinance industry to deliver a wider range of financial

services and products to rural areas, with a focus on women

and micro and small enterprises.

Improving conditions for private sector investment and

inclusive economic growth are central to ADB’s operations

in PNG. In addition to public–private partnerships (PPP)

transactions and access to finance, ADB helped the

government write its PPP National Policy and PPP legislation,

is supporting the reform of state-owned enterprises, and is

strengthening the Independent Consumer and Competition

Commission. Much of this work is co-financed by AusAID

and New Zealand Aid Programme through the Private Sector

Development Initiative (PSDI). ADB, through PSDI, offers

a range of financial products and invests directly in high

development-impact private commercial operations in PNG,

including telecommunications.

Since joining ADB in 1971, PNG has received 75 loans worth

US$1.5 billion, as well as one Asian Development Fund grant

worth US$15 million, and 148 Technical Assistance projects

worth US$62.8 million. PNG is ADB’s largest partner in

the Pacific in terms of loans for public and private sector

development.

further information:

Marcelo Minc, Country Director

Papua New Guinea Resident Mission

Level 13, Deloitte Tower, P.O. Box 1992

Port Moresby, National Capital District, Papua New Guinea

Tel: +675 321 0400/0408

www.adb.org



2.7.8 world Bank GroupThe World Bank Group (WBG) is building upon the recently

expanded portfolio of Bank and International Finance

Corporation (IFC—see section 2.7.9) investments to scale up

financial and analytical support to PNG as the country moves

towards middle-income status.

Reflecting a strengthened relationship with national

authorities, civil society and the private sector, as well as with

development partners beyond traditional ‘donors’, a diverse

range of WBG resources and competences will be deployed

through an intensively integrated Bank-IFC joint approach.

At the end of 2012, The Group recently signed a country

partnership strategy with the PNG Government for the period

2013 to 2016.

The first pillar of the strategy will focus on providing increased

access to inclusive physical and financial infrastructure in ways

that benefit women and girls as well as men and boys. The

second pillar will contribute to improvements in the quality of

life and the livelihoods of women and girls as well as men and

boys. The third pillar will sustain support to the prudent and

increasingly inclusive management of revenues and benefit

streams at national and community levels. The core program

includes investments in agriculture, transport infrastructure,

telecommunications, with energy chosen as a selectively

targeted ‘growth sector’, and IFC investments in private sector

and financial sector development.

further information: www.worldbank.org

2.7.9 international Finance Corporation (iFC)

As the private sector arm of the World Bank Group, IFC

supports small and medium enterprises and larger firms

in Papua New Guinea through innovative investments and

advisory services. It also works with government to create an

investor-friendly environment to allow businesses to formalise

easily and flourish.

IFC has scaled up its effort to create opportunity in PNG by

increasing its commitments from $1.2 million in 2006 to more

than $200 million in 2012.

IFC invests in financial institutions and advises them on how

to find innovative solutions to service those who are most

in need, particularly small to midsize businesses and rural

clients. Across PNG, IFC is supporting a local bank, BSP Rural,

to develop mobile banking, thereby providing farmers, small-

scale producers and rural women with a safe and secure way to

transfer money.

It has also been instrumental in improving the telecom sector

in PNG with its investment in telecommunications company,

Digicel. Investing in infrastructure, as well as advising

government on private sector participation in complex projects

remains a key priority for IFC in PNG.

IFC also advises government on developing business-friendly

laws and regulations—increasing transparency, cutting red

tape, and creating equal opportunities for all entrepreneurs,

particularly women.


Ms Carolyn Blacklock, Resident Representative

Level 13, Deloitte Tower Douglas Street, Port Moresby

Tel: +675 321 7111 Fax: +675 321 7730

E-mail: [email protected]

2.8 Public–private partnershipsThe Somare Government established a PPP (public–private

partnerships) Task Force in June 2008 and a National Public

Private Partnership Policy was subsequently adopted by the

National Executive Council in December 2008. Under the

policy, a PPP Centre was to be established under the Minister

for Treasury to determine whether a PPP is a suitable way to

deliver any particular project, and to ensure consistency in

project preparation and evaluation processes. A supervisory

committee, the PPP Steering Group would provide oversight

over the PPP procurement process.

While a law on PPPs was in preparation as late as 2012, it

has not yet been enacted at the time of writing (July 2013)

and there are signs that the O’Neill Government has since

taken a more pragmatic, ad hoc approach to public–private

partnerships.

For instance, in April 2013, the PNG Government sanctioned

the restructuring of mobile phone company Bemobile in

partnership with the Fiji National Provident Fund, which took a

40% stake in the company. As part of the deal, management

from Vodafone Fiji was brought in to manage the day-to-day

running of the Bemobile business.

Also, over 2012 and 2013, state utility PNG Power signed a

series of agreements to purchase electricity from independent

power producers (private companies who build and own power

generation infrastructure), as part of a strategy to increase

power-generation capacity in PNG.



2.9 State-owned enterprises and the IPBCPNG’s state-owned enterprises are:

> Air Niugini

> Eda Ranu

> Motor Vehicle Insurance Ltd

> PNG Ports Corporation

> PNG Power

> PNG Post

> Telikom PNG

> Water PNG

Since 2002, these entities have fallen under the auspices of

the Independent Public Business Corporation, a 100% State-

owned statutory corporation governed by the IPBC Act.

Effectively run as a de facto Ministry of Public Enterprises,

the IPBC has taken responsibility for policy regarding private

investment and partnerships with state-owned enterprises.

Under plans revealed by the O’Neill Government in the first

half of 2013, state-owned enterprises are due to be transferred

to a new entity likely to be called Kumul Corporations Holdings.

It was unclear at the time of writing (July 2013) what effect

this decision might have on the IPBC.

further information: www.ipbc.com.pg

2.10 Sovereign Wealth FundThe PNG Government has committed itself to establishing

a Sovereign Wealth Fund (SWF), administered according to

international standards of governance, to hold revenues from

its stakes in resources projects such as the ExxonMobil-led

PNG LNG Project.

The Organic Law on the Sovereign Wealth Fund was enacted in

March 2012.

The aims of the SWF are three-fold:

1. To support macroconomic stabilisation

2. To support the development goals of the PNG Government

3. To support the management of State assets accrued from

natural resources revenue.

The goal is to have the fund established and operational in

time for the first receipts from PNG LNG gas sales in 2014.

Much of the work of devising a structure for the fund has been

conducted by the Bank of Papua New Guinea, the country’s

central bank. While full details of its administration were not

available at the time of writing, legislation dictates it will

consist of two funds: a Stabilisation Fund and a Development

Fund. It is expected that some portion of the Development

Fund will be used to recapitalise state-owned enterprises and

expand infrastructure.

further information: www.bankpng.gov.pg, www.treasury.

gov.pg

2.11 Stock marketThe Port Moresby Stock Exchange Limited, or POMSOX, is

an established avenue for the raising of capital in PNG and is

PNG’s only stock exchange.

There are currently 18 companies listed on POMSOX, including

several dual- or triple-listed mining and petroleum companies.

Following a 2011 review of the exchange by KPMG, Listing

and Business Rules largely inherited from the Australian

Stock Exchange (ASX) are being updated and tailored more

specifically to PNG needs.

POMSOX runs regular ‘first time investor’ seminars in PNG,

aimed at raising the understanding of the stock market among

Papua New Guineans.

2.11.1 Buying and selling sharesShares listed on POMSOX can only be bought and sold through

authorised brokers. Two brokers are currently authorised to sell

shares in PNG: BSP Capital (a division of Bank South Pacific)

and Kina Securities.

Trading is conducted through the Port Moresby Stock

Exchange Electronic Trading System (PETS), which operates

from 10am to 4pm each business day. The system does not

operate on weekends and public holidays. Settlements are

currently manually processed and normally take place on the

third day after a trade.



2.11.2 Listing on POmsOXThere are three distinct admission categories for companies

seeking to list on POMSOX.

1. General admission

A company must pass a Net Tangible Assets Test or Profit

Test, under which it must demonstrate it has assets of at least

1.5 million kina or has achieved total profits of 600,000 kina

over the previous three full financial years.

2. debt Issuer Admission

For entities seeking to list and quote debt securities.

3. Exempt foreign Entity Admission

For foreign entities, which must pass a Net Tangible Assets

Test of 50 million kina in assets, or a Profit Test of 10 million

kina in total profits over the previous three full financial years.

Companies listed on the Australian Stock Exchange (ASX) or

New Zealand Stock Exchange (NSX) are exempt from these

tests.

Companies may list in two ways:

1. Compliance Listing

A listing without capital raising.

2. Initial Public Offer Listing

A listing with capital raising.

Every new listing must be approved by the exchange’s Board

of Directors.

Listed companies must adhere to the exchange’s Listing

Rules, which stipulate periodic and continuous disclosure

requirements. Full listing rules and fee schedules are provided

on the POMSOX website and in the booklet A Guide to Listing

on POMSOX, published by POMSOX in 2007.

Interested companies are urged to contact POMSOX’s listing

officers prior to making any move towards a listing.

Application forms are available from the exchange.

further information

Port Moresby Stock Exchange Limited

Level 4, Defense Haus, Corner of Champion Parade & Hunter

Street, Port Moresby, National Capital District

Mailing address

PO Box 1531, Port Moresby 121, National Capital District

Tel: +675 320 1980

Email [email protected]

www.pomsox.com.pg

BSP Capital www.bsp-capital.com

Kina Securities www.kina.com.pg

2.12 Government securitiesThe Bank of Papua New Guinea offers three investment

portfolios to the public, banks and other financial institutions.

These are:

> Government Treasury Bills

> Central Bank Bills

> Government Inscribed Stock.

An announcement is made for each auction with information

about the details of terms, amounts of bills offered and the

closing date for bids. The advice or Invitation to Bid is usually

faxed out on Tuesdays, with the Auction taking place on

Wednesdays, opening at 9am and closing at 11am. The total

maturity for the week and average rates for the previous

week’s auction are also provided to the invitee.

2.12.1 Government Treasury BillsBids will be received at the Money Market Operations Unit,

Financial Markets Department, Second Floor counter of the

Bank of Papua New Guinea, Port Moresby on the Bid Form

attached to the Terms and Conditions for the Auction of PNG

Government Treasury Bills.

Registered bidders may lodge bids by fax in the prescribed

format.

Original Bid forms must be delivered/posted to Money Market

Operations Unit of Bank of Papua New Guinea.


The Manager

Money Market Unit, Financial Markets Department

Bank of Papua New Guinea

Email: [email protected]

Telephone: +675 322 7342

www.bankpng.gov.pg



2.12.2 inscribed stockBidders must lodge bids in the prescribed form, placed in

sealed envelopes and deposited in the tender box located at:

2nd floor

Financial Markets Department counter


Port Moresby

Each bid must state the yield sought by the bidder. The yield is

expressed to the second decimal place (for example, 6.50%).

Decimal places beyond two will be disregarded.

The Bank of Papua New Guinea reserves the right to accept

bids for the full amount of an Invitation to Tender or any part

thereof and to reject any bid or part thereof on any grounds

whatsoever, notwithstanding if the full amount of stocks in an

Invitation to Tender has not been taken up.

The Bank of Papua New Guinea also reserves the right to

accept over-subscription of up to 25% of the amount offered

for the tender in any maturity.

Original bid forms must be delivered/posted to the Registry

Unit of the Bank of Papua New Guinea.

2.12.3 Central Bank BillsBids will be received at:

The Money Markets Operations Unit

2nd floor

Financial Markets Department counter


Port Moresby

Bids must be on the Bid Form attached to the Terms and

Conditions for the Auction of Papua New Guinea Government

Treasury Bills. Terms and conditions are posted on the Bank of

Papua New Guinea website.

Registered bidders may lodge bids by fax in the prescribed

format.


The Manager

Money Market Unit, Financial Markets Department



Telephone: +675 322 7342

www.bankpng.gov.pg

2.13 Financial services2.13.1 BanksPNG is well-serviced by banking services, and over the past

decade there has been good liquidity in the banking system.

The largest bank by assets and lending, BSP, is listed

on POMSOX and has an extensive branch network, and

subsidiaries in other Pacific territories such as the Solomon

Islands, Fiji and Niue. It has almost one million retail

customers and is the country’s leading lender of PNG’s

currency, the kina.

The other two main commercial banks in PNG are Australia’s

ANZ (which also manages its Solomon Islands and East Timor

operations from Port Moresby) and Westpac. All three banks

have branches in PNG’s key population centres and their own

network of automated teller machines.

Banks in PNG fall under the regulatory supervision of the

central bank, the Bank of Papua New Guinea. The central

bank introduced a National Payments System Development

program at the end of 2009, which will deliver over time

real time electronic clearing and settlement of all interbank

payments, a Central Securities Depository providing online

access to approved dealers and a National Payments Council to

advise the bank.

2.13.2 Finance companiesThe ten finance companies licensed by the Bank of Papua New

Guinea include the POMSOX-listed Credit Corporation (which

also has operations in Fiji, Vanuatu and the Solomon Islands),

Fincorp, Resources & Investment Finance Ltd, and Kina

Finance (part of the larger Kina Securities group).

A concerted effort towards financial inclusion, led by the

Bank of Papua New Guinea, has seen the rise of microfinance

in PNG. Microfinance is offered by such organisations as

the National Development Bank, PNG Microfinance and

Nationwide Microfinance.



2.13.3 insurancePNG’s insurance industry is regulated under the Insurance Act

1995 by the Office of the Insurance Commissioner, and under

the Life Insurance Act 2000 by the Bank of Papua New Guinea.

The PNG Insurance Council is the peak industry body.

The key insurers include Pacific MMI Insurance, QBE Insurance,

Chartis (AIG), Tower Insurance and Pacific Re.

The industry is also serviced by a number of insurance brokers,

which are licensed (by the regulator) to transact PNG domiciled

business in the local insurance market or offshore (by means

of exemption). The key insurance broking companies include

Marsh, Aon and Insurance Partners.

The PNG insurance industry is an ‘admitted insurance market’.

The sector benefits from regulations that make insuring

locally the norm rather than the exception. Formal permission

is required from the regulator to place PNG-domiciled risks

offshore.

Revisions or even an overhaul of the 1995 Insurance Act, which

has not been revised in 18 years, are anticipated in 2013—in

particular, a strengthening of Sections 36 and 37, which cover

exemptions to PNG’s insurance laws.

All compulsory third-party motor vehicle insurance is insured

by Motor Vehicles Insurance Limited (MVIL)—the statutory

insurer for this class of insurance. Workers’ Compensation

Insurance cannot be placed offshore due to the confines of the

Act on this class of insurance.

31PAPUA NEW GUINEA INVESTMENT GUIDE


3.0PNG’s LeGAL sysTem AND LAws

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PNG’S LEGAL SYSTEM AND LAWS FOR FOREIGN INVESTORS

3.1 Structure of governmentSince achieving its independence in 1975, the Independent

State of Papua New Guinea has been governed democratically

in accordance with its Constitution. It is a member of the

British Commonwealth and operates under the Westminster

system. Changes of government since 1975 have been peaceful

and democratic.

3.1.1 National governmentThe Constitution makes clear that PNG has a unitary system

of government. In other words, the country is a single unit

with a national parliament. The Head of State of PNG is the

British Sovereign, represented by the Governor-General, who

is a citizen of Papua New Guinea nominated by parliament.

The leader of the government is the Prime Minister.

Under the Constitution, the power, authority and jurisdiction

of the people of PNG are to be exercised by the national

government, which is made up of three principal arms:

the legislature, the national executive and the national

judicial system.

The national parliament has legislative power in connection

with foreign investment, exchange control, immigration,

trading and financial corporations, banking, most taxation,

customs and excise, shipping and overseas trade.

PNG has a robust political party system governed by the

PNG Registrar of Parties. The major political parties are the

National Alliance, the United Resources Party, the Papua New

Guinea Party, and the People’s Progressive Party. Ideological

distinctions between the parties tend not to be substantial,

and affiliations between the parties are flexible.

3.1.2 Provincial governmentWithin PNG, there are 19 separate provinces and a National

Capital District, which has a status similar to provincial

governments. Provincial governments have their powers

delegated from the national parliament and are subordinate

to the national parliament. Provincial legislatures can

pass laws on a limited, but important, range of matters,

including agriculture, fishing, trade and industry, land and

land development, forestry and natural resources. Provincial

governments also have certain limited powers to raise

revenue, including the right, subject to certain conditions,

to impose sales and services taxes.

3.1.3 Local governmentA local government system was introduced to the country by

the colonial administration. Generally, a council will represent

a number of villages and will manage and administer the

area under its control. Local-level government has legislative

power in connection with, among other things, labour and

employment, provision of water and electricity, local trading

and the local environment.

Depending on the location, size and nature of its enterprise,

a foreign investor may need to consider the acts, regulations

and policies of all three tiers of government operating in

the country.

3.2 Legal system and dispute resolution

3.2.1 The lawThe Constitution of PNG provides that the laws of PNG

consist of:

> the Constitution

> Organic Laws, which are Acts of Parliament, having

quasi-constitutional status and which are passed by

a special majority of Parliament

> Acts of Parliament

> Emergency Regulations, which are laws of limited duration

made by the executive in special circumstances

> Provincial Laws

> Laws made under or adopted by the Constitution and

> the Underlying Law.

The principles and rules of common law and equity in England

at the time of independence (16 September 1975), subject to

certain exceptions, were adopted by the Constitution. Those

principles and rules, together with custom (or customary law),

comprise the underlying law of PNG.

Contract law in PNG is very similar to and applies in much the

same way as in other common-law countries such as England,

Australia, Canada and New Zealand. It would, however, be

fair to say that there is considerably less statutory regulation

of the application and operation of contracts in PNG than in

those other countries.

3.2.2 The judicial systemThe Constitution provides that the National Judicial System

consists of the Supreme Court, the National Court and other

courts established by Acts of Parliament.

The Supreme Court is the ultimate appeal court in PNG. It has

original jurisdiction in matters of constitutional interpretation

and enforcement, and has appellate jurisdiction in appeals

from the National Court, certain decisions of the Land

Titles Commission and those of other regulatory entities as

prescribed in their own Acts. The Supreme Court is convened

as a bench of at least three National Court judges.

The National Court also has original jurisdiction for certain

constitutional matters and has unlimited original jurisdiction



for criminal and civil matters. Despite its unlimited civil

jurisdiction, few matters involving amounts of less

thanK10,000 are brought in the National Court. This is because

certain District Courts have jurisdiction in civil actions of up

to K10,000 and legal costs associated with National Court

proceedings can be substantial. The National Court has

jurisdiction under the Land Act in proceedings involving land in

PNG other than customary land. The National Court also has

jurisdiction in appeals from Local and District Courts and from

certain administrative tribunals.

In addition to the courts mentioned above, there is also a

system of Village Courts established under the Constitution

and the Village Courts Act. Matters involving customary law

claims are likely to arise at the Village Court level. However, as

the Constitution adopts custom as part of the underlying law,

there is no reason why customary law arguments cannot be

raised in the appropriate circumstances in other courts in PNG.

There is no jury system in PNG.

Lawyers operating in PNG are governed by the PNG Law

Society, and only lawyers registered with the Society should

be used.

3.2.3 enforcement of foreign judgmentsUnder the Reciprocal Enforcement of Judgments Act, certain

judgments of certain foreign courts are recognised and are

able to be enforced in PNG by a process of registration. The

Act establishes a system of reciprocity of recognition and

enforcement of foreign judgments of designated courts within

prescribed countries, including Australia, the United States,

the United Kingdom and New Zealand. Even if a foreign

money judgment is not from a designated court, it may still

be recognised and enforced in PNG by commencing a separate

action in the National Court to sue on the judgment under the

local rules of private international law.

3.2.4 ArbitrationAs an alternative to litigation, if a contract so provides or the

parties agree, disputes may be referred to an independent

third party for arbitration. In PNG, the Arbitration Act regulates

the submission of a matter to arbitration either by agreement

between the parties or by order of a court.

Submitting a dispute to arbitration has a number of

advantages, including confidentiality, possible savings in

time and money and use of the arbitrator’s expertise. The

arbitrator may be chosen on the basis of his or her particular

experience and qualifications relating to the subject matter of

the dispute.

The rules governing arbitration to some extent depend on the

arbitration clause or agreement. Therefore, it is important

at the pre-contractual stage for the parties to determine

which matters they consider to be important to the conduct

of arbitration. The Arbitration Act contains a set of rules that

govern an arbitration under that Act. Those rules will only

apply if the parties have not determined their own rules. An

arbitral award will be given the status of a judgment of the

National Court.

PNG is a party to the Convention on the Settlement of

Investment Disputes Between States and Nationals of Other

States, under which the International Centre for Settlement

of International Disputes was established. In agreements

with foreign developers, the government generally adopts

the Arbitration Rules of the United Nations Commission on

International Trade Law.

The National Court Act was amended in 2008 to provide

procedures for alternative dispute resolution (ADR) through

mediation and other related methods. The Act provides for

the powers of the Court in certain circumstances to order or

direct part of a proceeding or proceedings to be resolved by

way of mediation. The court may make orders or directions for

mediation with or without the consent of the parties.

Mediation (both private and court-directed)

The Alternative Dispute Resolution Courts were officially

opened on 4 September 2009 and facilitate this cost and time

effective method of dispute resolution. Many government

departments utilise mediations for conflict resolution as a

matter of course, and it is prescribed by a number of statutes.

Further, in 2010, the National Court made ‘Rules Relating to

the Accreditation, Regulation, and Conduct of Mediators’.

Mediation is now a compulsory step in National Court civil

proceedings, unless the Court can be convinced to dispense

with the process. Hundreds of mediations have already been

completed, saving parties millions of kina in legal costs,

avoiding the long delays of litigation and freeing resources to

get on with business.

Persons to conduct the mediation

Mediation has been enthusiastically embraced in PNG. There is

a growing body of accredited mediators.

A judge of the Court may, with the consent of the parties,

conduct the mediation; or with the parties’ consent, appoint

a mediator of their choice to conduct the mediation. If the

parties fail to consent to the Court conducting the mediation

or fail to consent to a mediator of their choice, the court

will appoint a mediator from the Court’s list of accredited

mediators, maintained under the Act.

3.3 Foreign investment law and policy

Foreign investment in PNG is regulated by the national

government with the assistance of the Investment Promotion

Authority (the IPA). The IPA’s approach is to promote and

assist foreign investment.

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3.3.1 investment Promotion AuthorityThe main powers and functions of the IPA are:

(a) To promote and facilitate investment in the country by

citizens and foreign investors.

(b) To provide for the grant of a certificate to a foreign enterprise.

(c) To define the activities open to a foreign investor.

(d) To provide for a register of foreign investment opportunities.

(e) To promote investments that will materially benefit

the country and its people and that contribute to economic

growth, create employment, utilise domestic resources and,

in particular, renewable resources, assist in skills acquisition,

increase the volume and value of exports, develop remote

areas of the country, facilitate increased ownership of

investment by citizens, promote import replacement or are

likely to effect any combination of the aims specified above.

(f) To monitor the impact of investment and the activities of

enterprises.

The IPA consists of five key divisions. These are the Business

Investment and Export Promotion, Business Information

and Facilitation, Business Registration and Regulation,

the Intellectual Property Office of PNG and the Securities

Commission of PNG.

The Board of the IPA and the Government are moving, with the

assistance of the International Finance Corporation, towards

more investment promotion and a much more streamlined

regulatory framework to encourage foreign investment. One

major project taking place is the development of a new online

registration system, based on the New Zealand system and

funded by the National Government.

first point of contact

The IPA has been designed as the first point of contact for

a potential new investor in PNG. A foreign investor should

approach the IPA during the early stages of considering investing

in PNG (along with relevant industry bodies such as a chamber

of commerce). The IPA will assist in facilitating the proposals,

identify relevant Government departments and assist investors in

obtaining the required approvals, licences and permits.

Meaning of ‘foreign’

A ‘foreign enterprise’ is an enterprise that is 50% or more

owned directly or indirectly by non-citizens, is controlled by

non-citizens or is declared by the Minister for Commerce and

Industry to be a foreign enterprise. An ‘enterprise’ is a person,

company, body or association of persons.

3.3.2 CertificationA foreign enterprise must first obtain certification from the

IPA before it:

(i) Establishes or uses a share transfer office or a share

registration office in the country.

(ii) Administers, rents, manages, or otherwise deals with

property in the country as an owner, agent, legal personal

representative, or trustee, whether by a servant or agent or

otherwise; or

(iii) Maintains an agent, employee, or officer for the purpose

of soliciting or procuring or entering into orders, arrangements,

agreements, or contracts (whether conditional or not),

whether or not the agent, employee, or officer is continuously

resident in the country.

(iv) Maintains an office, agency, or branch (however

described), whether or not the office, agency, or branch is also

used for one of those purposes by another enterprise; or

(v) Makes an application for, or is issued, any permit, licence,

lease or authority issued for commercial purposes by the State

or by the National Government or Provincial Government or

any other level of government or a unit, department, agency or

instrumentality of the State or of a Provincial Government or

any body, authority or instrumentality established by the State

or under an Act.

In the case of an unincorporated joint venture each foreign

participant must seek certification. Before the IPA will grant

certification, the foreign enterprise must complete a formal

application, provide specified information and pay the required fee.

Provided the foreign enterprise has properly completed its

application, the IPA will respond within 35 days. Certification

enables the foreign enterprise to carry on business in a

particular activity at a specific location within the country set

out in the certificate.

A foreign enterprise need not seek certification if its only

activities in PNG are:

(i) Being a party to a legal proceeding or settling a legal

proceeding or a claim or dispute.

(ii) Holding meetings of its directors or shareholders or

carrying on other activities concerning its internal affairs.

(iii) Maintaining a bank account.

(iv) Effecting a sale of property through an independent

contractor.

(v) Soliciting or procuring an order that becomes a binding

contract only if the order is accepted outside the country.

(vi) Creating evidence of a debt or creating a charge on

property.

(vii) Securing or collecting any of its debts or enforces its

rights in relation to securities relating to those debts.

(viii) Conducting an isolated transaction that is completed

within a period of one month, not being one of a number of

similar transactions repeated from time to time.

(ix) Investing its funds or holding property.



The IPA may grant certification subject to any terms and

conditions it considers appropriate. However, provided a

proposed investment does not fall within a list of investment

activities restricted to citizens of PNG, certification is usually

not conditional on maintaining a minimum level of local equity.

Foreign enterprises are restricted from going into restricted

activities regardless of local equity.

3.3.3 reserved activitiesCertain activities are presently reserved for PNG citizens under

what is called the Cottage and Business Activities List (CBAL).

These activities include traditional and small-scale agricultural,

forestry and fisheries activities, traditional arts and crafts,

alluvial mining, certain small retail and wholesale activities.

For more information, visit the IPA website, www.ipa.gov.pg.

3.3.4 Certification criteriaCertification conditions may be varied with the IPA’s

agreement and the IPA may suspend or cancel a certificate

if a foreign enterprise breaches its terms. The IPA must be

notified of certain changes in control of a certified foreign

enterprise(other than one that is a public company listed

on a stock exchange that is a member of the Federation

Internationale des Bourses de Valeurs) and ‘re-certification’

will need to be obtained. Certified enterprises wishing to

expand or diversify their operations must lodge an Application

for Variation with the IPA.

Failure to comply with the Investment Promotion Act (that

is, the Act which establishes and regulates the IPA) may have

serious consequences for a foreign investor.

The Act provides that, where a foreign enterprise and another

enterprise enter into a contract, arrangement or understanding

and:

> the foreign enterprise did not have a certificate at the time

> the contract related to business activities other than

those for which the foreign enterprise was certified the court

may, on the application

of the other enterprise

or the IPA, declare the

contract unlawful and

void. In evaluating a foreign investment proposal, the IPA may

consider a number of factors, including:

> the potential for positive development of human and

natural resources

> the investor’s past record in PNG and elsewhere

> the creation of additional employment and income-earning

opportunities

> the likelihood the proposal will generate additional

government revenue and contribute to economic growth

> the transfer of technologies and skills and the contribution

to training citizens of PNG; and

> the likely environmental impact.

3.3.5 GuaranteesThe Investment Promotion Act contains the following

investment guarantees for certified foreign investors:

> protection against nationalisation or expropriation other

than in accordance with law, for a public purpose and on

payment of compensation

> subject to taxation and exchange control laws,

acknowledgment that a foreign investor is entitled to

remit earnings, and certain other payments, overseas and

to repatriate capital

> acknowledgement that a foreign investor is entitled

to remit overseas, at the prevailing exchange rate, any

compensation it has received for nationalisation or

expropriation of its investment; and

> subject to law and any agreement between the state and

the foreign investor, assurance that no governmental

impost, procedure or practice will discriminate against

the foreign investor or its investment on the grounds

of its origin.

Similar types of guarantees may be available to some

investors under bilateral agreements for the protection of

investment. PNG has entered into such agreements with

Germany, Australia and the United States, for example.



3.4 Forms of investmentMost foreign investors will be familiar with the types of

structures through which business is most often conducted in

PNG. The key business structures in PNG are:

> sole trader

> partnership

> joint venture

> trust; and

> company.

This list is not exhaustive. For example, certain PNG legislation

makes it possible for citizens to form business and land groups

through which they may trade.

However, the structures listed above are those most

commonly used by foreign investors or are those a foreign

investor is most likely to come across in conducting its

business. Not-for-profit organisations from abroad normally

incorporate as associations.

The ultimate decision as to the most appropriate business

structure for the purposes of a particular foreign investment

proposal will depend on a number of factors, including the

extent of regulation, taxation, financing requirements and the

nature of the particular enterprise and industry.

3.4.1 sole traderA sole trader is an individual who carries on business on his

or her own behalf. A sole trader may carry on business either

under his or her own name or under an adopted business

name. If a business name is adopted, this name must be

registered under the Business Names Act.

The principal advantages of conducting business as a sole

trader are:

> It is comparatively easy to wind up or sell such a business

> The costs of establishing and operating the business are

generally less than those associated with other business

structures;

> Other than preparing an individual tax return, there are no

reporting or disclosure requirements.

The major disadvantage is that a sole proprietor has unlimited

personal liability for his or her business obligations and debts.

There may also be income tax disadvantages in operating this

way.

3.4.2 PartnershipA partnership exists where two or more entities agree to carry

on business in common with a view to deriving profit jointly.

A partnership is not a separate legal entity, and the liability

of the partners for the obligations of the partnership is joint

and unlimited. Often the rights of the partners as between

themselves are regulated by the terms of a partnership

agreement. However, matters not covered by a partnership

agreement may be regulated by the Partnership Act.

Partnerships are generally limited to 20 partners. However,

some professional partnerships are able to exceed this

number. Corporations and citizens of countries other than

PNG are able to conduct business in the country through a

partnership. The interest of a partner is not freely transferable

as the consent of the other partners is necessary before a

partnership interest may be transferred.

The principal advantages of a partnership are:

> The partnership arrangements need not be committed in

writing (although, for taxation reasons and so as to avoid

disputes, it is prudent to do so)

> The degree of control among the partners can be agreed

and management may be vested in a particular partner or

committee of partners

> Partnership losses can be offset against other income of

individual partners for income tax purposes

> Partnership accounts need not be made public

> The partnership agreement is a flexible document which

may be tailored to meet specific needs

> Partnership profits are only taxed once as income of the

individual partners (whereas the profits of a company are

taxed once as company income and again as shareholders’

income).

3.4.3 Joint ventureA joint venture is a contractual arrangement between two

or more entities to carry out a business undertaking in

common, otherwise than as partners. A joint venture may be

incorporated or unincorporated, and is usually entered into to

undertake a specific business activity.

An unincorporated joint venture is often appropriate for mining,

oil or gas projects, which generally involve high preproduction

costs. The parties to a joint venture usually enter into a detailed

agreement that specifies their respective rights and obligations.

A joint venture differs from a partnership in several respects,

the main one being that the participants do not carry on

business in common. Rather, each participant contributes funds

or other property to an agreed stage of a project, the fruits

of which are distributed directly to them in the manner and

proportions set out in the joint venture agreement.

Generally speaking, a joint venture is not required to lodge a

separate tax return and every participant may immediately

incorporate its share of the costs of the project into its general

income-producing expenses for tax purposes (other than

mining and petroleum development projects, for which such

costs must be incorporated into project income-producing

expenses). Furthermore, each participant is free to treat its

share of the cost of the project independently of the other



participants, thereby offering greater tax and accounting

flexibility than a partnership.

It is common for an unincorporated joint venture to be formed

and managed so that each participant’s liability is limited to

its agreed interest in the project.

3.4.4 TrustA trust may be established by deed empowering a trustee to carry

on business. In such circumstances, the trustee holds the assets

of the business and runs the business for the benefit of the trust’s

beneficiaries. It is possible for a trustee to be a company, thereby

attracting limited liability and ensuring perpetual succession of the

trustee. However, the trust itself must have a finite life.

The flexibility of available trust structures means that a deed

can be drawn to suit most circumstances. The beneficiaries’

entitlements under a trust structure may be in a fixed

proportion or variable at the discretion of the trustee.

A unit trust structure may be adopted where the beneficiary’s

entitlement to the income and capital of a trust depends on

the number of units the beneficiary holds in the trust. Units

are similar to shares in a company, although there are some

fundamental legal differences between the two. Where a number

of separate individuals or companies are involved in a particular

business activity, a unit trust structure can be used. The beneficial

ownership of the trust property is divided into a number of fixed

units. Unlike a discretionary trust, which is more commonly used

as a vehicle to conduct family businesses, unit trusts tend not

to allow the trustee a discretion to redistribute the beneficial

interest in income or capital among unit holders.

The principal advantages of a trust structure are that trusts

are relatively easy to form and are subject to relatively few

government controls on their formation and operation.

However, certain provisions of the Trustees and Executors

Act apply to trusts. Where a company acts as trustee, it will

need to comply with the requirements of the Companies Act.

Certain trustee companies will also need to comply with the

Trustee Companies Act.

Generally, trustees are

personally liable for

their actions as trustees

but they may have

a right of indemnity

against the trust assets

provided they act within

the scope of their

authority. However, in

recent years courts in

other jurisdictions have

become increasingly

concerned about this

state of affairs and have

held beneficiaries of trusts to be personally liable for trust

debts in some circumstances. The courts in PNG may follow

this lead.

The principal disadvantages of a trust structure are:

> There must be strict adherence to the terms of the trust deed

and, where the trustee is a company, it must also comply

with its constituent documents and the Companies Act

> Legislation relating to the powers and duties of trustees

must be adhered to

> The courts have developed a complex set of rules relating

to trusts

> A trust structure will not enable individual participants

to offset trust losses incurred in a year of income against

assessable income derived from other sources

> The taxation regime in PNG does not favour trusts.

3.4.5 CompanyWhile it is possible to conduct business in PNG through any of

the structures discussed above, most foreign investors use a

company as the vehicle for their investment.

The Companies Act 1997 provides for companies (and, therefore,

the liability of members) to be limited by shares or unlimited.

In general terms, the Companies Act 1997 regulates the

incorporation and management of a company in PNG including

such matters as legal capacity, the raising of debt and equity

capital, registration of security interests over corporate

property, shareholders’ meetings, the preparation of accounts,

appointment and functions of auditors, directors’ duties,

corporate arrangements and reconstructions, takeovers,

reductions of capital and winding up.

The principal advantages of conducting business through a

company are:

> A company is a separate legal entity from its members,

which enables investors to combine resources with the benefit

of limited liability,

> Acompany may purchase, hold and sell property, sue and

be sued and enter into

contracts

> a company has

perpetual existence

(unless it is wound up);

and

> a company may

raise money by issuing

additional securities.

The principal

disadvantages of

conducting business

through a company are:



> A company is subject to a number of disclosure, reporting

and record-keeping requirements

> A formal procedure must be complied with to incorporate

and to wind up a company

> Dividends are taxed once as company income and again as

shareholders’ income.

A foreign company seeking to conduct business in PNG has the

choice of either:

> Incorporating a subsidiary in PNG; or

> Registering itself as a foreign company in PNG.

Incorporation

A company may have one shareholder and one director. It is

not necessary to have a secretary as one person can now be

responsible. The name of the company must end with the

word ‘Limited’ or ‘Ltd’.

The steps involved in incorporating a company in PNG are:

> Reserve the proposed company name on a prescribed form

with the Registrar of Companies. It should be noted that

the reservation of the proposed company name can be

registered simultaneously with the application to register

a company. An application can be unsuccessful if the name

is likely to be confusing with a similar name which has

already been registered.

> An application must be made to the Registrar of

Companies on the prescribed forms, signed by each

applicant. The application must also state:

• the number of proposed directors

• the number of proposed secretaries (if any)

• the number of proposed shareholders; and

• the proposed address for service.

> The following must also accompany the application

inprescribed forms:

• each director’s consent to act

• each shareholder’s consent to being a shareholder and the

number and class of shares taken

• each secretary’s consent to being the secretary (if applicable)

• reservation of the name (if the proposed name of the

company was not previously reserved.

Constitution

It is not a legal requirement for a company to have a

Constitution. Where a company does not have a Constitution,

the company, the board, each director, and each shareholder of

the company have the rights, powers, duties, and obligations

set out in the Companies Act.

Where a company has a Constitution, the company, the

board, each director, and each shareholder of the company

have the rights, powers, duties, and obligations set out in the

Companies Act except to the extent that they are negated

or modified, in accordance with the Companies Act, by the

constitution of the company.

A Constitution is the rules governing the company, the

directors and shareholders in the company and their

relationship with each other. It may cover such matters as the

rights, duties and powers and obligations of the company,

directors and shareholders. The aim was to dispense with

the bulky documents like the Memorandum and Article of

Association.

Any change or alteration to the Constitution, directors or

person authorised to accept services, or the place of business,

must be notified to the Registrar within one month of the

change or alteration.

It is common to purchase ‘shelf’ companies from local firms

of lawyers, accountants or others. Such companies have

never traded and have been incorporated to enable persons

to commence business with a minimum of delay. Shelf

companies can generally be obtained within 48 hours.

Company officers

Under the Act, a company may or may not have a secretary.

If it does have a secretary, that secretary must be a natural

person ordinarily resident in PNG and shall have the rights,

powers and duties given to him by the Act, Constitution or the

Board of the company.

Every company must have at least one director who is

ordinarily a resident of PNG. Any company secretary must also

be ordinarily a resident of PNG.

Registered office

Every company must have a registered office in the country

that is identifiable and easily accessible to the public. The

registered office address must be notified to the Registrar.

If a company wishes to change its registered office, the change

and the date of change must be notified to the Registrar on

the prescribed form within one month of the change.

Address for service

Every company must have an address for service in the

country. This may be the same address as a company’s

registered office or it may be elsewhere, but it must not be

a postal address. The address for service must have a readily

identifiable street address and be at a place that is readily

accessible during normal business hours. A company’s address

for service must be notified to the Registrar on the prescribed

form lodged on application. If a company wishes to change

its address for service, the change must be notified to the

Registrar on the prescribed form within one month of the

change.

Reporting requirements

An annual return must be lodged every year with the Registrar

of Companies, within six months of the end of its financial

year. All companies are required to lodge an annual return



on a prescribed form with the Registrar within 14 days of the

annual general meeting being held, together with a prescribed

fee of K50.00.

The annual return must be made up to the date no later than

14 days of the date of the annual meeting.

Appointment of an auditor

At each annual meeting, a company must appoint an auditor

to hold office until the conclusion of the next annual meeting,

and to audit the financial statements of the company. These

companies need not appoint an auditor:

> an exempt company; and

> a company that is, or is of a class, that is exempted from

the requirements of appointing an auditor by the Registrar.

Accounting Standards board

The Accounting Standards Board (ASB) is established under

the Companies Act 1997 with the following functions:

> To develop, approve, amend and revoke financial reporting

standards for the purpose of the Act

> To make determinations on the applications of any

approved financial reporting standards; and

> To give directions as to the accounting policies which have

authoritative support within the accounting profession in

PNG.

Directions issued by the ASB as to accounting policies that

have authoritative support within the accounting profession

are to be termed as Accounting Standards Board Directives,

and form part of generally-accepted accounting practice

in PNG. Also, the ASB issues locally developed reporting

standards in place of those missing issued by the International

Accounting Standards Board or non-existent to meet local

needs, which are termed as Papua New Guinea Accounting

Standards. On a regulatory note, the ASB reviews all financial

statements lodged by the reporting companies to monitor

compliance with the approved reporting standards and to

ensure the duly qualified or registered company auditors carry

out audits in PNG for reporting companies.

Company records

A company must keep the following documents at its

registered office:

> the constitution of the company

> minutes of all meetings and shareholders’ resolutions

within the last seven years

> an interests register (of directors’ interests)

> minutes of all meetings, directors’ resolutions and

directors’ committees within the last seven years

> certificates given by directors under the Act within

the last seven years

> the full names of directors and secretaries

> copies of all written communications to all shareholders

of the same class of shares during the last seven years,

including annual reports made

> copies of all financial statements required to be completed

by the Act for the last seven years completed accounting

periods of the company; and

> the share register.

Notwithstanding the general requirements to keep the above

records at the company’s registered office, the records (except

the share register) may be kept at any other location in the

country provided that the location is notified to the Registrar

within one month of their first having been kept elsewhere.

Company name and business name

Company names and business names are quite different.

A company name is the name under which a company

is incorporated and ends with the word Limited or the

abbreviation ‘Ltd’, while a business name is a name under

which the business is carried on. A company (or individual)

carrying on business in PNG under any name other than its

own must register that business name with the IPA.

3.5 Registering as a foreign company in PNG

A body corporate that is incorporated outside PNG and wishes

to carry on business in PNG other than through a subsidiary

may register in PNG. To do so, the company must register with

the Registrar of Companies as a foreign company. To achieve

registration in PNG, a foreign company must lodge with the

Registrar of Companies an application in the prescribed form,

including certified copies of its certificate of incorporation and

constituent documents (its constitution or equivalent) and a

registration fee.

Registered foreign companies must annually lodge with the

Registrar of Companies an annual return together with a

certified copy of its audited financial statements. A foreign

company automatically falls under the category of a ‘reporting

company’ and therefore must present its audited financial

statements. However, a company may apply to be exempted

from certain requirements.

A foreign company must apply for certification under the

Investment Promotion Act 1992 before it may carry on business

in PNG.

A company which chooses to conduct business through a

branch registered in PNG can repatriate its profits without

being subject to withholding tax. On the other hand, the

dividends of a PNG incorporated subsidiary may attract

dividend withholding tax. A higher rate of income tax is

imposed on non-resident companies.



If a foreign company merely wishes to have a representative

office in PNG, it may be exempt from lodging tax returns if it

derives no income in PNG.

The Companies Act adopts similar principles and standards of

corporate regulation to those in place in New Zealand.

3.6 Land3.6.1 Customary landApproximately 97% of land in PNG is held by its traditional

owners under customary principles of land ownership. The

specific elements and rules of the system of customary land

tenure vary from place to place. However, customary land

ownership generally recognises the traditional users of land

and their personal and clan arrangements for land use.

A foreign investor can not purchase or lease customary land

directly from its traditional owners. If a foreign investor

requires access to customary land, it is the government that

has to acquire the land from its traditional owners and then

lease it to the foreign investor.

3.6.2 Alienated landThe balance of the land in PNG is known as alienated land.

Alienated land is land that has been acquired from customary

owners by the government either for its own use or for private

development. However, some alienated land is held as freehold

other than by the government. Most enterprises in which

foreign investors are involved are located on alienated land.

Alienated land in PNG can be held either as freehold or leasehold

from the state. However, freehold land makes up a small

proportion of alienated land in PNG. Both freehold land and

leasehold land are registered by the Registrar of Titles under

a Torrens-type system of land registration. Under this system,

an original certificate of title (for freehold land)or state lease

(for leasehold land) are kept on a register maintained at the

Titles Office. Dealings with land are carried out by means of

instruments that are perfected upon registration. A certificate

of title or state lease kept on the register maintained by the

Titles Office should reveal at any time the exact location of the

land in question, its dimensions, the present owner or lessee

and may also reveal sub-leases and mortgages to which the title

may be subject. Certain dealings in land may also require the

approval of the Minister for Lands.

3.6.3 Land Board and Land Titles Commission

The Land Act establishes a Land Board which deals with

applications for leases of state land.

The Land Titles Commission administers the Land (Tenure

Conversion) Act. The key functions of the Land Titles

Commission include:

> authorising registration of customary land

> determining whether land is alienated land; and

> ascertaining who the customary owners of land are.

The last of these functions can be critical for a foreign investor

whose development proposal involves business activities on land

that a variety of clans claim to own or to have the right to use.

In recent years the importance of landowner issues has been

highlighted at a number of resource projects, public highways,

educational facilities and other business operations in different

parts of the country. These incidents have reinforced the need

for a developer to establish and maintain a sound relationship

with landowners in the vicinity of any proposed project.

3.6.4 Freehold landUnder the Constitution of the Independent State of Papua

New Guinea and the Land (Ownership of Freeholds) Act, a non

citizen is precluded from owning freehold land in PNG. Certain

types of freehold land can be converted to leasehold land so

that it may be used and owned by a non-citizen.

3.6.5 Leasehold landLeasehold land may be more freely dealt with than freehold

land. Leasehold land is land which the government has

acquired from its customary owners and leased to a person or

company for a term of up to 99 years for a specific purpose.

The Land Act provides for:

> agricultural leases

> pastoral leases

> business and residence leases

> mission leases

> leases of government owned buildings

> special purpose agricultural and business leases; and

> urban development leases.

The Land Act also deals with the granting of licences,

disposal and acquisition of customary land, and regulates

compensation payments. PNGhas a Torrens-style system

of land registration, and a land title serves as a certificate

of full, indefeasible, and valid ownership and the Act also

specifies which dealings in land require ministerial approval.

Any dealings involving land being granted or transferred

to a foreigner or corporate entity require approval from the

Minister of Lands and Physical Planning prior to registration.

The Land Registration Act sets out the process and provides

forms required for the registration of any dealings of land.

Dealings include transfer, lease, surrender, mortgage, charge,

discharge, easement, and nomination of trustees.

This chapter prepared by Gadens Lawyers.

4.0PNG’s Key iNDUsTriAL seCTOrs

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PNG’S KEY INDUSTRIAL SECTORS

4.1.1 industry snapshotAccording to Mineral Resources Authority statistics, PNG’s mining sector was responsible for 65% of the country’s export revenue

in 2010. Principal mineral exports were gold (over 2.2 million ounces in 2010), silver (over 13.3 tonnes in 2010) and copper (150,000

tonnes produced in 2010).

4.1 Mining

PNG has three large mines: Ok Tedi (copper), Porgera (gold)

and Lihir (gold).

With Ok Tedi scheduled to close in 2014, a proposal to extend

the life of the mine for a further seven years was awaiting

government approval at the time of writing. A ‘million ounces

plant upgrade’ is significantly boosting production levels at the

Lihir mine.

PNG has been successful in progressing a number of resource

projects in recent years.

The Hidden Valley gold mine in Morobe Province is a joint

venture between Harmony Gold Mining Ltd and Newcrest

Mining Ltd. The mine had its first gold pour in June 2009.

For the financial year ending 30 June 2012, the site produced

177,602 ounces of gold and 1,715,080 ounces of silver.

With estimated reserves of 4.2 million ounces of gold and 42

million ounces of silver, Hidden Valley is the first major mine

development in PNG in 15 years.

The US$1.37 billion Ramu project in Madang Province (nickel

and cobalt) is being operated by China Metallurgical Group

Corporation in partnership with Highlands Pacific. The first

Chinese investment in PNG’s resources sector, the project

shipped its first exports at the end of 2012. It is expected to

produce 31,000 tonnes of nickel and 3,200 tonnes of cobalt

annually.

Exploration activity

Significant exploration is progressing in PNG. At the end of

March 2012, there were over 394 applications for exploration

licences.

There is also a significant informal alluvial mining sector,

estimated to employ up to 60,000 Papua New Guineans

on a full-time or part-time basis, with an estimated annual

production of four tonnes. Alluvial mining is reserved for local

businesses only.

Training and human resources

The industry in PNG is facing a serious shortage of experienced



Source: PNG Chamber of Mines & Petroleum

AdVANCEd PROSPECTS

1 Solwara 1 (Bismarck Sea) 2014 Nautilus Minerals’ Solwara 1 deep sea mining project is potentially the first of its kind in the world. It was licensed in early 2011, although final government approvals have been withheld pending arbitration scheduled for August 2013.

2 Frieda River (West Sepik Province) 2016 The Xstrata-led Frieda River Project is projected to start producing in 2016. It is one of the top 10 emerging copper–gold projects in the world. The resource estimate has recently been revised upwards by 26% to over one billion tonnes at 0.53% Cu. It has the potential to be developed as a low cost, large open-cut mine producing 200,000 tonnes of copper and 240,000 ounces of gold per annum for nearly 30 years.

3 Yandera (Madang Province) Feasibility stage Discovered in the 1950s, Marengo Mining’s project has an indicated resource of 315 million tonnes at 0.48% Cu equivalent (copper and molybdenum), plus and inferred resource of 352 million tonnes at 0.43% Cu equivalent. Feasibility study under way based on 25 million tonnes per annum throughput, with production scheduled to start in 2014.

4 Wafi/Golpu (Morobe Province) Pre-feasibiity Discovered in 1979, Wafi has a gold resource of 51.7 million tonnes at 1.88 g/t and Golpu a resource of 81.5 million tonnes at 1.08% copper and 35.4 million tonnes at 0.61 g/t. A joint venture between Harmony Gold and Newcrest Mining.

5 Mt Kare (Enga Province) Pre-feasibility Discovered in 1988. Contains a resource of 743,000 ounces at 5.04 g/t gold and 25.37 g/t silver. Project bought by Indochine Mining Limited in 2011.

6 Woodlark (Milne Bay Province) Pre-feasibility The Kula Gold’s Woodlark Island Project is expected to have its first production by 2013. Resource currently stands at 1.4 million ounces.

PNG MINING PROJECTS (June 2013)

CURRENT MINES

1 Ok Tedi (Western Province) 1984 to 2013/2025 The Ok Tedi copper-gold mine, 100% PNG-owned, is scheduled to cease operation at the end of 2013 but a feasibility study looking at extension to 2025 is currently awaiting approval.

2 Porgera (Enga Province) 1984 to 2020 Barrick Gold’s Porgera gold mine began production in 1984 and is projected to cease around 2020.

3 Lihir (New Ireland Province) 1997 to 2030 Gold mining on Lihir Island is scheduled to continue until 2021 at the current rates, with processing of lower-grade stockpiles to continue beyond 2030. By 2012, the mine is expected to be producing over one million ounces per annum. Newcrest purchased Lihir Gold in 2010.

4 Tolukuma (Central Province) 1995 to ?? Production began in 1995. Expected mine life unknown. Owner: Petromin.

5 Kainantu (Eastern Highlands Province) 2006 to 2008 The mine closed in late 2010, and further exploration is being undertaken.

6 Simberi (New Ireland Province) 2008 to 2018+ Production began in 2008 with an expected mine life of 10 years. Extensive drilling is underway with a view to increasing production to 200,000 ounces from a combined oxide/sulphide resource in 2012. Current production is 75,000–80,000 ounces a year.

7 Sinivit (East New Britain Province) 2007 to 2011+ Production began in 2007. Has approximately one year of life remaining.

8 Hidden Valley (Morobe Province) 2009 to 2019+ The Harmony Gold/Newcrest Mining joint venture gold mine commenced production in June 2009. Mine life: 10 years plus, with average annual production of 250,000 ounces of gold and 3.6 million ounces of silver.

9 Ramu (Madang Province) 2011 to 2040+ The Ramu nickel-cobalt project begind exports at the end of 2012. Designed to produce 31,500 tonnes of nickel and 3300 tonnes of cobalt per annum over a 20-year mine life, with potential for a further 15 to 20 years.

No. PROJECT PROdUCTION COMMENTS

Mining operations

Nine mines currently provide the majority of PNG’s mineral exports:



national professionals. This has resulted from the strong

growth in the industry in recent years and the exodus

overseas of mining engineers, geologists and other industry

professionals is testimony to the high standard of training and

experience embodied in the domestic market. On the other

hand, local training institutions tend to be viewed as under-

resourced and are in need of increased government funding for

facilities upgrade and new equipment.

In addition to industry-operated training centres such as

the Star Mountains Training Institute at Tabubil and the

Port Moresby and Juni Training Centres run by ExxonMobil to

provide skilled workers for the PNG LNG project, institutions

currently providing training relevant to PNG’s mining and

petroleum sectors include:

> Mining Engineering Department, Papua New Guinea

University of Technology (Unitech), Lae

> Division of Earth Sciences, University of Papua New Guinea

(Port Moresby)

> Australia Pacific Training College (Port Moresby)

www.aptc.edu.au

> Port Moresby Technical College (Pomtech)

> The Mineral Resource Authority’s (MRA) Wau training

centre, which trains 50–60 alluvial miners per training

period each year in various mining techniques and on

health and safety standards and issues.

4.1.2 Governance and legislationThe principal laws in PNG that regulate mining activities

are the Mining Act 1992 and the Mining Safety Act, which

stipulates safety requirements on mine sites. Copies of

these Acts are available on the Mineral Resources Authority

(MRA) website. The MRA is responsible for administering

both Acts.. The development of policy for the mining sector

is the responsibility of the Department of Mineral Policy and

Geohazards Management.

The MRA became operational in June 2007. It has several roles,

including:

> To promote PNG as a destination for exploration and mine

development;

> To facilitate and encourage exploration through the

provision of relevant exploration and geological data;

> To license all mining and exploration activity in the sector;

> To closely monitor mining projects and provide support to

operating companies, landowners and communities

> To encourage sustainable development.

As of July 2011, these two pieces of legislation were under

review. It is anticipated that revisions to the Mining Act may

include regulations for offshore mining and mine closures, and

standards for employing mine workers.

In addition, the Department of Environment and Conservation

administers a Code of Practice for Mining, which stipulates the

environmental responsibilities of mining projects in PNG.

Use of water resources within mining and exploration

tenements is governed by the Water Resources Act.

4.1.3 mining licences and leasesAll land in PNG, including the seabed beneath the country’s

territorial waters, is potentially open to mining activity. Under

the Mining Act, the State owns all minerals existing on, in or

below the surface of any land or in any water lying within the

territory of PNG.

The various types of mining tenements (licences and leases)

issued under the Mining Act on recommendation from the

Mining Advisory Council include:

Exploration Licence (EL)

A two-year licence that allows the licensee to occupy and

explore a specified area.

Mining Lease (ML)

A 20-year lease that allows the licensee to mine within

a specified area.

Special Mining Lease (SML)

A longer lease (typically 25 to 40 years), issued for larger, more

complex projects.

Alluvial Mining Lease

A five-year lease reserved for Papua New Guineans conducting

non-mechanised mining operations on their own land. This

can include joint ventures with overseas partners, provided the

project is at least 51% owned by Papua New Guineans.

Mining Easement and Lease for Mining Purposes

Issued explicitly for the development of roads, powerlines,

port sites and other associated infrastructure related to

a mining project.



4.1.4 Process for approving an exploration Licence

Licences are issued by the Tenement Management Branch

of the MRA. Application forms and a Schedule of Fees,

Rents, Security and Exploration Expenditure Requirements is

available from the MRA website or direct from the MRA head

office at Mining Haus in Port Moresby (see address below).

Once an application for an Exploration Licence (EL) has been

received, the MRA checks the Registry of Tenements to ensure

the land is available, and reviews additional information

provided by the applicant, such as the program of work set

out in the application (which should include plans for post-

exploration rehabilitation) and project finances. It also seeks

advice from the Department of Environment and Conservation

on environmental impact, as stipulated under the Code of

Practice for Mining.

The MRA will then host a Mining Warden’s Consultation Forum

between landowners and other affected people local to the

tenement and the exploration company. With 97% of land in

PNG held under customary laws, this process is critical.

Once the Warden’s forum has been held and all issues are

resolved, the application is received by the Mining Advisory

Council, which makes a recommendation to the Minister for

Mining, who is ultimately responsible for approving all mining

and exploration leases, with the exception of Special Mining

Leases. Special Mining leases are approved by the Governor-

General of PNG, on advice from the National Executive Council.

4.1.5 exploration Licence reporting requirements and extensions

Once an Exploration Licence (EL) is granted, the licensee

must submit biannual and annual reports to the MRA on its

progress. A brochure, Exploration Licence and Mining Lease

Reporting Requirements, is available from the MRA.

The MRA may ask for additional reporting at its discretion.

Penalties exist for late lodgement of reports, false reporting

and environmental breaches.

A licensee may apply for extensions to an EL using the

application process detailed above. Holders of Exploration

Licences are obliged to relinquish not less than half the

original tenement when renewing the licence.

4.1.6 mining and special mining Lease requirements and extensions

Under the conditions in Mining Leases and Special Mining

Leases, licensees must provide the following studies prior to

operations being given final approval:

> Bankable Feasibility Study

> Scoping Study

> Environmental Inception Report

> Environmental Impact Statement

> Compensation Agreement.

Guidelines and standard templates for these reports are

available from the MRA.

A development forum hosted by the MRA will then be

held between the licensee, the relevant provincial and local

governments and the local landowner association with the

purpose of negotiating a Memorandum of Agreement which

includes important clauses on benefit sharing. The State is a

co-signatory to this Memorandum.

In the case of a Special Mining Lease a Mining Development

Contract is also signed between the State and the licensee

which prescribes a number of obligations of both parties.

Once the Mining Lease or Special Mining Lease is granted, the

licensee must submit monthly, quarterly, biannual and annual

reports to the MRA on its progress. A brochure, Exploration

Licence & Mining Licence Reporting Requirements, is available

from the MRA.

The MRA may ask for additional reporting at its discretion.

Penalties exist for late lodgement of reports, false reporting

and environmental breaches.

Mining operations are subject to quarterly site inspections

by the Mines Inspectorate Branch of the MRA’s Regulatory

Division, which audits technical compliance with the Mining

Permit, other relevant agreements and regulations, and

internationally-accepted technical standards (eg United States

or Australian standards). The Inspectorate operates to enforce

the Mining (Safety) Act and Regulations and any other Act as

directed by law or statutory determination.

Application for extension of the term of mining tenements can

be lodged as per the Mining Act 1992.



4.1.7 Tax incentivesThere are a number of incentives for the mining sector,

including an income tax rate of 30% for mining projects,

dividend withholding tax of 10%, royalties of two percent and

interest paid by a resource project to a non-resident lender

being exempt from income tax and interest withholding tax.

A double deduction is available for certain mineral exploration

expenditure, and all development expenditure on a project

may be deducted on a 25% diminishing value basis.

Mining projects are also eligible to take advantage of PNG’s

Infrastructure Tax Credit Scheme, which deems eligible

expenditure on certain approved infrastructure to be tax paid.

The amount that may be claimed as a credit is either the total

eligible expenditure or 0.75% of the taxpayer’s total assessed

income, whichever is the least.

Athe end of 2012, Prime Minister O’Neill announced a ‘wide-

ranging’ review of the resources tax regime. While promising

‘no immediate changes’ and ‘no drastic or radical changes

to existing laws’, he did signal that his government wanted

to achieve ‘fair and equitable distribution of benefits to all

stakeholders’.

4.1.8 information resourcesMineral Resources Authority

www.mra.gov.pg

Ministry of Mining

Tel +675 327 768

department of Mineral Policy and Geohazards Management

Tel +675 322 7664

department of Environment and Conservation

www.dec.gov.pg

PNG Chamber of Mines and Petroleum

www.pngchamberminpet.com.pg

Usefulpublications

Profile: Mining and Petroleum Investment – Papua New Guinea

(ISSN 1813-3967), published biennially by the Papua New

Guinea Chamber of Mines and Petroleum

PWC Resources taxation guide, published by Pricewaterhouse

Coopers

PNG Minerals 2011 by D Saroa, published in 2012 by the

Minerals Resources Authority

PNG Report, quarterly magazine published by Aspermont

(www.pngindustrynews.net)

PNG Resources and PNG Resource Overview, published by

Energy Publications (www.energy-pubs.com.au)

Business Advantage PNG, weekly online business news and

commentary published by Business Advantage International

(www.businessadvantagepng.com)

4.1.9 PNG mining and Petroleum investment ConferenceTypically held in Sydney and run by the PNG Chamber of Mines

and Petroleum, this biennial event is the major gathering point

for those doing business in the country’s resources sector. The

12th conference, held over three days in December 2012, had

record attendances. The next event is scheduled for Sydney in

December 2014.


www.pnginvestment.com



4.2 Petroleum and gas4.2.1 industry snapshot

Petroleum exploration in Papua New Guinea started before

World War I. However, drilling only moved inland with

the advent of the large helicopter in the 1960s. The first

commercial oil discovery was made in 1986 and the first

production in 1992.

Currently there are nine Petroleum Development Licences

extant in PNG: Kutubu, SE Gobe, Gobe Main, Moran, NW

Moran, Hides-04, Angore, Juha, SE Mananda, and the Hides

gas-to-electricity project. All are located in the central

Highlands, mainly in the Southern Highlands Province. There

are many undeveloped gasfields in the country with proven

and probable reserves of over 14 trillion cubic feet of gas.

Oil production is in a slow but steady decline in PNG but this

will be compensated for when the PNG LNG Project comes on

stream in 2014. Total oil exports for 2010 were 10.01 million

barrels. Gas production in 2012 from the Hides field was 5266

million standard cubic feet.

By contrast, with the world demand for liquefied natural gas

(LNG) projected to soar over coming decades, LNG is a long-

term prospect for PNG. The US$19 billion PNG LNG Project led

by ExxonMobil is currently under construction, with first LNG

exports expected in 2014.

The project infrastructure extends over four provinces. It

involves commercialising the Hides, Angore and Juha fields and

the associated natural gas resources in the currently operating

oil fields of Kutubu, Agogo, Gobe and Moran in the Southern

Highlands and Western Provinces. The gas will be treated at a

gas conditioning plant at Hides then transported by pipeline

(284 km onshore and 407 km offshore) to a 6.6 million tonne

per annum LNG liquefaction and storage facility located 29km

north-west of Port Moresby.

The LNG Project represents the single largest investment ever

made in the country. It will be a great achievement for PNG to

join the exclusive club of LNG producing nations and, once a

core plant is established, additional trains can be readily added

in the future.

Two further LNG projects are in development. The InterOil-

led Liquid Niugini Gas Project is ongoing and, at the time of

writing, was negotiating with ExxonMobil to supply some



of the gas from its Antelope and Elk fields in the Southern

Highlands for the PNG LNG Project, while Talisman Energy is

undertaking an LNG Gas Aggregation Project in PNG’s Gulf

Province and Western Province. Horizon Oil’s Stanley gas

project is also based in the Western Province and could also be

a major LNG project.

Key players in PNG’s petroleum/gas industry include

ExxonMobil, InterOil, Mitsubishi, Mitsui, Nippon Oil, Oil Search,

Santos, Talisman Energy and Total SA.

As of December 2010, there was a record 78 Petroleum

Prospecting Licences (PPLs), compared to 52 in 2008 and just

12 in 2002. These PPLs blanket almost the entire onshore and

offshore Papuan Basin and most of the North New Guinea

Basin. Most of the tenements outside the Fold Belt are held

by junior explorers, and a number of these have signed joint

venture agreements to meet their drilling commitments.

The National Petroleum Company of PNG (first created in

2008 as Kroton #2) will hold the country’s 16.6% stake in the

PNG LNG Project. It is expected that, over time, the company

will take a role in the development of other petroleum/gas

projects. In June 2013, it signed its first memorandum of

understanding, with Indonesian state-owned oil company,

Pertamina.

4.2.2 Governance and legislationThe petroleum industry in PNG is governed by the Oil and Gas

Act 1998 under the administration and management of the

Department of Petroleum and Energy (DPE).

In late 2012, the PNG Government flagged its intention

to create a National Petroleum Authority, with similar

responsibilities to its mining equivalent, the Mineral Resources

Authority (see Section 4.1.2).

4.2.3 LicensingThere are two main licences governing petroleum activities

in PNG:

Petroleum Prospecting Licence

This licence is solely for exploration activity and is granted

for an initial term of six years. A five-year extension can be

granted if the work program has been satisfactory. If the

contract is extended, 50% of the original area of the tenement

must be relinquished. After 11 years, the contract area lapses

unless petroleum has been discovered.

Petroleum development Licence

This licence governs the development and production

phases of a petroleum or gas project. If petroleum is found

in commercial quantities, the prospecting company has two

years in which to conduct an appraisal program.

4.2.4 midstream/downstream processingCommissioned in 2005, InterOil’s Napa Napa refinery near Port

Moresby is PNG’s first and only oil refinery. In 2012, it produced

24,483 barrels per operating day.

As an adjunct to the massive PNG LNG Project, an area outside

Port Moresby has been set aside for the new Konebada

Petroleum Park. It is hoped that the park will become the site

for a nascent petrochemical industry for PNG, and incentives

may be offered to attract other businesses to the park. The

Konebada Petroleum Park Authority has responsibility for

governance and infrastructure at the facility.

It was announced in June 2013 that Japanese companies

Itochu and Mitsubishi were planning to build a methanol and

dimethyl ethylene plant at the Konebada Petroleum Park.

4.2.5 Tax incentivesThere are a number of incentives for the petroleum sector,

including an income tax rate of 30% for certain petroleum

projects, royalty of two percent, dividends paid from

petroleum income being exempt from income tax and dividend

withholding tax and interest paid by a resource project to

a non-resident lender being exempt from income tax and

interest withholding tax.

Petroleum projects are also eligible to take advantage of

PNG’s Infrastructure Tax Credit Scheme, which deems eligible

expenditure on certain approved infrastructure to be tax paid.

The amount that may be claimed as a credit is either the total

eligible expenditure or 0.75% (two percent in the case of the

PNG LNG Project) of the taxpayer’s total assessed income,

whichever is the least.

Athe end of 2012, Prime Minister O’Neill announced a ‘wide-

ranging’ review of the resources tax regime. While promising

‘no immediate changes’ and ‘no drastic or radical changes

to existing laws’, he did signal that his government wanted

to achieve ‘fair and equitable distribution of benefits to all

stakeholders’.

4.2.6 Useful informationdepartment of Petroleum and Energy

www.petroleum.gov.pg


www.dec.gov.pg



National Petroleum Company of PNG

+675 321 3680



Useful Publications

Profile: Mining and Petroleum Investment – Papua New Guinea

(ISSN 1813-3967), published biennially by the Papua New

Guinea Chamber of Mines and Petroleum

PWC Resources Taxation Guide, published by

PricewaterhouseCoopers

PNG Report, published by Aspermont

(www.pngindustrynews.net)

PNG Resources, published quarterly by Energy Publications

(www.energy-pubs.com.au)

Business Advantage PNG, weekly online business news and

commentary published by Business Advantage International

(www.businessadvantagepng.com)

4.3 Agriculture4.3.1 industry overviewMore than 29% of PNG’s Gross Domestic Product (GDP) is

derived from agriculture. The sector provides food, work and

income to most of PNG’s rural population. Approximately

85% of PNG’s population is estimated to be engaged in semi-

subsistence food production.

In 2012, PNG’s agricultural exports were worth 2.676 billion

kina (US$1.179 billion).

PNG’s climate and high seasonal rainfall, good quality soil

and low-intensity farming methods, make for a favourable

environment for agricultural activities. The PNG Government

estimates that, on average, 24% (23,080 square kilometres)

of the country is considered suitable for intensive agricultural

production without major soil-quality limitations.

However PNG’s agricultural sector has grown annually by an

average of just one percent over the past decade, and has

been far outstripped by population growth. Most crops have

seen either negative or stagnant growth except for palm

oil, although increased prices for agricultural products such

as coffee and cocoa on world markets have seen a slight

improvement in this situation in recent times.

The decline in agricultural productivity is the result of limited

information and education about agricultural practices

and markets, deteriorating and insufficient transport

infrastructure, pests and diseases, declining cash crop

prices and the impact of droughts caused by El Nino climate

conditions, among other factors.

Lae is the most important port in terms of PNG’s agricultural

exports, and while production is spread across many of the

country’s provinces, the Highlands region is particularly

important for some of the most lucrative crops, such as coffee.

Cash crops are generally produced on plantations, although

some local farmers operate on a small scale level, and sell

on to plantations. Some 600 plantations around PNG are

currently producing coffee, rubber, copra, cocoa, palm oil

and tea.

PNG government policy is focused on improving the quality

and quantity of traditional staple crops, marketing, rural

credits, food processing and downstream processing,

packaging and distribution.

4.3.2 Governance and legislationPNG’s Department of Agriculture and Livestock is responsible

for all agriculture and livestock industry matters. Its

departments and programs include policy planning, food

security, education and training, science and technology

services, and provincial and industry support. Its Strategic and

Corporate Plan 2013-2017 is the latest plan to encourage the

development of the agricultural sector.

Other quasi-government agencies with responsibilities in the

sector include the Oil Palm Research Association, PNG Cocoa

Board, Fresh Food Produce Association, National Agricultural

Quarantine and Inspection Authority and the National

Agricultural Research Institute.

PNG’s Department of Environment and Conservation also

holds responsibilities in the agricultural sphere. It administers

the Environmental Planning Act, conservation acts,

International Trade (Flora and Fauna) and Water Resources

Act among other relevant legislation. Efforts are currently

underway to amalgamate legislation (the Environment

Planning Act, Environment Contaminants Act and Water

Resources Act) to provide for an effective and efficient

environmental regulation process.



4.3.3 CoffeeCoffee is PNG’s second most lucrative crop, expected to

generate about 487.5 million kina (US$211 million) in exports in

2012, according to the Bank of PNG.

The peak body for the industry is the Coffee Industry

Corporation (www.coffeecorp.org.pg).

PNG produces about one million bags of green robusta and

arabica coffee beans annually. Only a small portion of this is

roasted prior to export. About 43% of all PNG rural households

are responsible for producing more than 70% of the crop, and

approximately 64,000 hectares are under coffee. About two

and a half million Papua New Guineans depend on coffee as

their main source of income. There are more than 10 coffee

exporters, including Monpi Coffee Exports, PNG Coffee

Exports, New Guinea Highlands Exports and Kongo Coffee. The

main buyers are Germany, United States, Australia and Japan.

4.3.4 CocoaPNG cocoa is of high quality and PNG is one of the few

countries where it can be grown organically. Cocoa accounts

for about 22% of the value of PNG’s agricultural exports,

although some recent production has been affected by the

cocoa pod borer. More than 65% of the crop is produced by

rural households, with the remainder coming from plantations.

Cocoa beans are marketed internationally by 25 private

companies, while the Cocoa Industry Board regulates quality

control, export licensing and registration. Continued expansion

of the industry is dependent on continued rehabilitation

on Bougainville and other potential crop sites, government

assistance, improved yields and farmers’ response to

international price movements. The Cocoa Industry Board

is exploring downstream processing—for example, for cocoa

liquor and cocoa butter—in line with government policies to

encourage value added production.

4.3.5 Palm oilPalm oil is now PNG’s most valuable agricultural export. It

covers an area of 58,000 hectares, with estates producing

about 65% of the output. Government figures put the

industry’s growth rate since 1997 at 15.5% per annum. New

Britain Palm Oil Limited is the country’s larger producer. Over

550,000 tonnes of palm oil was exported in 2012, mainly to

the European Union.

Three major schemes—Hoskins and Bialla (in West New

Britain Province), Popondetta (Oro Province) and Milne Bay

Oil Palm Estate (Milne Bay Province)—produce most of PNG’s

palm oil, and all operate their own mills. There are a number

of new projects in development, including Suwain Damasara

Sustainable Agro-forestry in Aitape, Vailala Purari Oil Palm

Development in the Gulf Province, the Morobe Gulf Oil Palm

project, Kaut Lokono in New Ireland Province, R H Group’s

Sigite Mukus project in East New Britain and Collingwood Bay

in the Oro Province.

4.3.6 CopraPNG copra exports were worth 33.1 million kina in 2012

and approximately 1.8 million of its people are involved in

the industry. PNG exports copra, copra oil and copra meal.

The main buyers are Australia, Germany, Philippines and

Singapore.

4.3.7 Livestock PNG’s livestock industry has grown substantially since

independence, and livestock contributes 13% of total domestic

food production. While poultry has reached virtual self-

sufficiency and the pig industry is following suit due to import

bans and tariffs, PNG’s beef industry has stagnated. The

government is trying to redress this through production of

small animals at the rural level. Negotiations are also occurring

with neighbouring Australia over live beef exports to PNG. PNG

has a low livestock disease risk status, and domestic meat

consumption is rising steadily. Other livestock being raised on

smaller scale include sheep, goats and rabbits.

4.3.8 Other agricultural exportsPNG’s other agricultural exports include rubber, tea,

cardamom, vanilla, chillies, spices and many varieties of

tropical fruits and vegetables. These crops all present

opportunities for expansion, and in many cases, processed

and downstream products. Rubber is PNG’s only state

controlled and managed industry. About 8000 households

currently grow the crop, and it is well suited to the village

farming environment. North Fly Rubber in Western Province

is a key exporter.

4.3.9 major playersTrukai operates a rice-processing mill in Lae, and exports rice

to Solomon Islands and Australia, while meeting most of the

domestic demand. Trukai also manages a 2500 hectare farm

which carries around 5000 head of Brahman cattle bred for

the PNG beef market.

Pacific Spices uses only organic methods to grow its spices,

and has been accredited in Australia and Japan. The spices are

grown mainly on the organically certified lands of the Komgi

people in New Britain.

A majority share in Mainland Holdings was acquired by

superannuation fund NASFUND in 2010. Products include flour,

fresh and frozen chickens, eggs and crocodile skins.

Paradise Spices recently received support from the Australian

Government’s Enterprise Challenge Fund to establish a Solvent

Extraction facility in Port Moresby to produce pure vanilla

extract, vanilla oleo resin and other spices. This facility will be

the first of its kind in PNG.



New Britain Palm Oil Limited (NBPOL) is PNG’s largest oil

palm plantation and milling operator. Its main activity is the

cultivation and processing of oil palm into crude palm oil, palm

kernel oil and palm kernel expeller for domestic and foreign

sales. NBPOL also operates in the cattle breeding industry and

has established a processing mill in Liverpool, England, to fulfil

demand for palm oil from food manufacturers in the United

Kingdom. NBPOL also acquired another major agricultural

company, Ramu Agri Industries Ltd, in 2008.

Carpenter Estates, operating as Pacific Trading Company,

is a tea and coffee growing, manufacturing and exporting

company situated in PNG’s Western Highlands Province. The

Company has 2100 hectares of tea with four fully automated

factories, and 1100 hectares of arabica coffee with four wet

factories. Carpenters is the largest producer and exporter

of tea in PNG with over 90% of the country’s exports, and

exports 1.6 million kilos of high-quality coffee per annum.

4.3.10 Opportunities and challengesThe expansion of PNG’s agricultural sector has been

hampered by the country’s difficult terrain, coupled with

an inadequate and erratically maintained road, sea, air and

transport infrastructure, marketing depots, and law and

order issues. The challenge of opening up the country for

commercial production of food needs to be balanced by

ensuring environmental integrity and meeting the needs and

expectations of landowners.

Constraints to efficient and effective land use have historically

been related to mobilisation and transfer. Laws governing

land use for development are complicated and cumbersome,

although the government is taking steps to address this,

at both national and provincial levels. The IPA reports that

government’s reform initiatives in land and land tenure aim

to contribute to economic growth and employment creation

through more productive use of land resources throughout

the country, while promoting economic participation and

social stability.

Nonetheless, PNG’s low-tech farming practices and the lack

of pesticide and artificial fertilisers mean PNG could position

itself as a leading organic producer. PNG is also developing

its Fairtrade credentials, in particular, moving towards

certification in the coffee sector.

Since 1988 the government’s Rural Development Incentive

Program has aimed to better spread development throughout

PNG. Forty-one under-developed districts have been identified.

Any new agricultural production activity in a designated

rural development area can gain a ten-year exemption from

corporate income tax.

The Investment Promotion Authority has identified specific

investment opportunities in coffee, oil palm, cocoa, coconut/

copra and all spice crops. A full list of business opportunities

can be found at the IPA website.

4.3.11 incentivesRural development Incentive

This scheme allows income tax exemption on the net income

of new businesses carrying on a rural development industry in

41 specified under-developed districts that are not dependent

on the exploitation of natural resources, for 10 years after the

commencement of the business.

Primary Production Investment Scheme

This incentive allows a deduction by shareholders against their

personal tax liabilities. A primary production company that has

incurred primary production development expenditure (defined

to include cost of assets used for agricultural production) may

surrender its available deduction in favour of its shareholders.

In addition, primary producers have outright deductions for

certain capital expenditure, initial accelerated depreciation

is allowed for new agricultural plant and losses in primary

production may be carried forward indefinitely.

New primary projects that commenced before 31 December

2011 had a special tax rate of 20% for 10 years instead of the

normal 30% rate. A 150% tax deduction is also available for

expenditure on primary extension services provided free of

charge to smallholder croppers.

deduction for research and development

A 150% tax deduction is available for expenditure on approved

research and development in primary production.

Accelerated depreciation for agriculture and fishing

Expenditure on new plant used in agricultural production may

be written off 100% in its first year.

4.3.12 resourcesdepartment of Agriculture and Livestock

www.agriculture.org.pg

Agricultural legislation

www.agriculture.org.pg/Plant Act.htm

PNG Investment Promotion Authority

www.ipa.gov.pg

Australian Centre for International Agricultural Research

www.aciar.gov.au



4.4 Infrastructure4.4.1 PortsPNG’s 16 declared ports are managed by the state-owned

company, PNG Ports Corporation Limited, which falls under

the auspices of the Independent Public Business Corporation

(IPBC). The Maritime Division of the Department of Transport

regulates other government and privately operated ports.

PNG’s declared ports are:

Aitape and Samarai are managed under agency.

Lae, in Morobe Province, is PNG’s busiest port. It is currently

undergoing a major expansion expected to be completed by

2015. Regular Lae port users are recommended to join its users

group at http://groups.google.com/group/lae-port-users.

Long-term plans exist to relocate PNG’s second-busiest port,

Port Moresby, to a larger site, as it currently sits adjacent to

the city centre. This relocation would place the port in closer

proximity to the engineering, procurement and construction

facilities for the PNG LNG project in the Kairuku–Hiri District of

neighbouring Central Province. Regular users of the port are

recommended to join its users group at http://groups.google.

com/group/pom-port-users.

Shipping schedules and other port information are available

from the PNG Ports website: www.pngports.com.pg.

A small number of private ports operate in PNG, including

Curtain Brothers’ dockyard on Motukea Island near Port

Moresby, Steamships’ wharf in Port Moresby and Ok Tedi

Mining’s inland port on the Fly River at Kiunga. Avenell

Engineering Services is currently constructing a new private

wharf outside Port Moresby, while there are long-term plans

to develop a port and related industrial centre at Daru in the

Western Province.

4.4.2 Telecommunications and internetPNG is the largest telecommunications market in the Pacific.

Its telecommunications sector is dominated by two players:

state-owned Telikom PNG and Irish-owned Digicel, which

competes directly with Telikom PNG in the mobile phone and

mobile internet areas. A third entity, Bemobile (now managed

under contract by Vodafone Fiji), competes in the mobile

phone space and is 51% owned by the PNG Government.

Telikom PNG provides nearly all fixed-line phone calls in PNG,

as well as most fixed internet services. In May 2011, it launched

1. Aitape

2. Alotau

3. Buka

4. Daru

5. Kavieng

6. Kieta

7. Kimbe

8. Lae

9. Lorengau

10. Madang

11. Oro Bay

12. Port Moresby

13. Rabaul

14. Samarai

15. Vanimo

16. Wewak

Citifon, a CDMA mobile phone service. Telikom is part of the

family of state-owned enterprises managed by the Independent

Public Business Corporation (IPBC—see Section 2.9).

The connection of PNG to two large international data cables,

from Australia and Guam, has greatly improved internet

speeds and network capacity in PNG in recent years. Another

major factor has been the deregulation of the sector.

Digicel’s arrival in PNG in 2007 followed the PNG Government’s

adoption of a pro-competition policy in telecommunications. This

was formalised in an Information and Communications Technology

Act, which heralded the introduction of a new regulator for the

industry, the National Information and Communication Technology

Authority (NICTA), established in 2010.

NICTA recently moved from a service-specific regulatory

regime to an open licence regime, which means carriers and

value-added service providers who were previously licenced to

provide specific mobile or internet services, can now migrate

their licences and offer all services. This is expected to increase

competition in the internet and fixed telecommunications

areas in PNG. Service providers such as Digicel, Telikom PNG,

Datec and Hitron have all migrated to the new regime, and it

is expected additional overseas operators will start to apply for

these licences in PNG.

The advent of competition in the telecommunications sector is

generally regarded as having delivered lower prices, improved

reliability, and the expansion of mobile network coverage for

business. Digicel estimates that up to 4.5 million people now live

in areas covered by its mobile phone network, while about 30% of

the population now use either Bemobile’s or Digicel’s network.

Accompanying this expansion has been the deployment of

several technologies new to PNG, including the introduction of

CDMA/3G services, wireless broadband internet and support

for Blackberry smart phones.

Telikom PNG is the main wholesaler of internet bandwidth.

Internet service providers (ISPs) in PNG include Datec, Daltron,

Global Technologies, Telinet, Hitron and Online South Pacific.

These offer a range of internet services including ADSL

broadband, wireless, leased line, HF/VHF radio and dialup

internet services for business and consumers, and also email

and web hosting.



It is expected that the broadband service space will improve

greatly in the next 12 months, as the Government seeks to

consolildate all the state fibre assets into one wholesale

body to create a 685 million kina (US$313 million) National

Transmission Network (see map).

further information

bemobile/Vodafone

www.bemobile.com.pg

datec

www.datec.net.pg

daltron

www.daltron.com.pg

digicel

www.digicelpng.com

Global Technologies

www.global.net.pg

Hitron

www.hitron.com.pg

Online South Pacific

www.online.net.pg

Telikom PNG

www.telikompng.com.pg

4.4.3 Aviation and airportsPNG’s 22 major airports are managed and owned by the

National Airports Corporation Limited, while the industry is

regulated by the Civil Aviation and Safety Authority.

PNG’s main airport is Jacksons International Airport in Port

Moresby. Other main airports include Lae/Nadzab, Madang,

Tokua (Rabaul), Kargan, Gurney, Wewak and Goroka. Mount

Hagen Provincial Airport has been declared an International Port

of Entry because of the mining activities in Highlands provinces.

In November 2009, the Asian Development Bank announced

a $640 million program to help develop PNG’s airport

infrastructure under the PNG Civil Aviation Development

Investment Program. The funds will support infrastructure

rehabilitation and upgrades; build the capacity of the PNG

Civil Aviation Authority to operate on a more commercial

footing; and establish 10-year, performance-based

maintenance contracts.

The Civil Aviation Authority also has plans to develop the lands

around Port Moresby’s Jacksons International Airport, and to

establish better terminal facilities.

PNG’s national airline is Air Niugini Limited (ANL), a state-

owned enterprise held under the auspices of the Independent

Public Business Corporation. ANL provides the bulk of PNG’s

domestic air services and has a codeshare arrangement with

Australian carrier Qantas, among other international airlines.

Internationally, ANL flies to several major international

airports, including those in Sydney, Singapore, Manila, Tokyo,

Hong Kong and Kuala Lumpur.

Air Niugini’s main local competitor is Airlines PNG, which listed

on the Port Moresby Stock Exchange in June 2008 after several

years in operation in PNG. Australia’s Qantas flies into PNG

from Cairns. Virgin Australia flies from Brisbane.

In addition to the above, there are several smaller companies

offering charter services to the mining and petroleum sector,

tourists and the general business traveller, including Tropicair,

Heli Niugini and Hevilift.

further information

National Airports Corporation Ltd

Tel +675 325 1919

Civil Aviation and Safety Authority of PNG

PO Box 684, Boroko NCD

Tel +675 325 1798

Air Niugini

www.airniugini.com.pg

Airlines PNG

www.apng.com



4.4.4 roadsPNG has an estimated 27,000 kilometres of roads and, given

the lack of a rail network and the country’s widely dispersed,

rurally based population, roads play a critical part in the PNG

economy. PNG’s major road is the 700-kilometre Highlands

Highway, which connects the provincial capitals of Lae,

Madang, Goroka and Mount Hagen.

With high rainfalls and challenging geography, road

maintenance is a continuing issue, as the condition of roads

can deteriorate markedly during floods and storms, especially

in the Highlands provinces.

While the PNG Government has an increasingly large budget

for road building and maintenance, much of the construction

and building work related to PNG’s roads is supported by

international development aid.

4.4.5 infrastructure tax credit schemeTax credit schemes allow for a fixed amount of investment

in non-business areas to be offset against income tax. These

schemes are usually used to encourage companies to invest in

public infrastructure. Since the cost of the investment can be

offset against any tax liabilities, it is of no cost to companies.

4.5 Manufacturing4.5.1 OverviewManufacturing in PNG is a small but fast-growing part of the

economy, contributing between 6% and 11.5% of GDP. The

sector has grown due to increased domestic demand despite

of a lack of infrastructure and high input tariffs.

Goods manufactured in PNG include beverages, building

products, food, handicrafts, furniture, industrial chemicals,

plastics, packaging, paint, textiles and personal care products.

The PNG Government is keen to encourage value adding and

downstream processing in all of its major primary industries,

including:

> oil and gas (e.g. petrochemicals)

> fisheries (e.g. canning and loining)

> forestry (e.g. plywoods, furniture and prefabricated buildings)

> agriculture (e.g. biofuel).

In addition, there are key manufacturers of consumer goods

in PNG such as Paradise Foods (snackfoods), Asia Pacific

Breweries’ S P Brewery (beer), Nestlé (noodles) and Coca-Cola

Amatil (beverages), which are involved in import substitution.

4.5.2 manufacturers Council of PNG The peak body for manufacturers in PNG is the Manufacturers

Council of PNG. As well as representing the interests of its

members, it also runs a ‘PNG Made’ scheme to promote PNG

manufactured goods. To qualify for use of the ‘PNG Made’

logo, 50% of a product’s cost of production must have been

incurred in PNG.


Manufacturers Council of PNG

PO Box 598

Port Moresby NCD

Tel +675 321 7143

Email [email protected]

www.madeinpng.com

4.5.3 incentives for manufacturersSeveral incentives exist to encourage the development of

PNG’s manufacturing sector, including:

Industrial plant depreciation

Industrial plants not previously used in PNG are eligible for

increased depreciation up to 100% of cost.

Initial year accelerated depreciation

The initial year accelerated depreciation allows the capital cost

of certain new assets to be written down at a faster rate than

would be otherwise possible.

double-deduction for export market

development costs

Expenditure on export market development for goods

manufactured in PNG or where PNG labour cost component

exceeds 10% of the sale price of the product qualifies for a

double deduction.

Export sales exemption

Under this incentive, profit made from the export sales of

qualifying goods manufactured in PNG are exempt from

company income tax for the first three years. For the following

four years, the profit on any increase in profit sales over the

average for the three years is also exempt. The exemption also

applies to any new manufactured products declared by the

Internal Revenue Commission.

Import duty drawback

Duty drawback is a rebate paid to exporting manufacturers,

when they export goods equal to the amount of duty

already paid on the raw material. It is offered so that locally

manufactured goods can compete effectively in overseas

markets.

wages subsidy

Companies manufacturing new products may receive a subsidy

payment of between 10% and 40% for up to five years based

on a percentage of the relevant minimum wage for each full

time citizen employee. The incentive is only available to those

firms with a new manufactured product certificate from the

Internal Revenue Commission.



4.6 Forestry4.6.1 industry snapshotApproximately 30 million hectares of PNG’s total land area

is covered by forests, and about 15 million hectares produces

high quality tropical hardwoods considered suitable for

forestry development.

PNG’s current forestry products are raw log exports, sawn

timber, veneer sheets, domestic log sales, plantation logs,

plywood, processed timber exports and woodchips. The

country is the second-largest exporter of tropical logs in the

world, following Malaysia. According to the Bank of Papua

New Guinea, PNG’s timber expoerts were worth 536 million

kina in 2012.

The PNG Forest Authority estimates 7000 people are directly

employed in the forestry sector.

There are 29 forest concessions in production, covering

3.5 million hectares. All commercial timber production is

controlled by private companies, with Malaysian multinational

companies currently dominant. Malaysian company Rimbunan

Hijau controls over 45% of log exports.

In recent years, downstream processing of forest products has

been PNG’s fastest-growing manufacturing sector. Exports of

this type of product have increased by more than 200% since

1997.

The industry currently has more than 40 sawmills, a plywood

factory, a woodchip mill and more than 25 furniture-making

factories and joinery shops. Downstream processing activities

include furniture making, plywood, flooring and other building

products.

4.6.2 marketsMost of PNG’s timber is exported. The main markets are in

Asia, with more than 80% of log exports going to China/Hong

Kong, Korea and Japan. China imported over 1.7 million cubic

metres of round logs from PNG in 2005, the equivalent of

74.6% of total log exports.

Key markets for processed timber products are Australia, New

Zealand and South Pacific countries, apart from veneer, which

is mainly sold to China and South Korea.

4.6.3 PlantationsPNG has 62,277 hectares of forest plantations. An AusAID-

funded valuation of plantations in 2005 put the investment

value of these plantations at 123.64 million kina (US$41.51

million) or about 10% of industry production.

The PNG Forest Authority plans to develop 240,000 hectares

of commercially viable and sustainable forest plantations by

2030. Approximately 4000 hectares of this goal is expected

to be contributed by private investors, including possible new

entrants to the sector.

PNG’s Government says the potential for plantation forestry is

significant, especially in large areas of deforested grassland.

4.6.4 regulations and legislationThe overarching legislation governing the forestry sector is the

National Forest Policy, which covers forest management, the

industry, research, training, education and forest organisation

and administration.

The PNG Forest Authority was established under the Forestry

Act 1991, and provides for regulations on the acquisition and

allocation of land for forest development.

There are several policy areas currently being reviewed and

formulated, including a downstream processing policy aimed

at increasing the value of forest exports and technological

transfer, a reforestation policy related to PNG’s international

commitments under the Kyoto Protocol climate change treaty,

and an eco-forestry policy, aimed at creating an environment

supportive of landowner participation.

Under Reducing Emissions from Deforestation and

Degradation (REDD), countries like PNG could receive funds for

cutting emissions that result from deforestation and land use

change, giving the country an incentive to maintain its forests.

The PNG Forest Authority also identifies forest research and

non-timber forest products, as likely subjects for future policy

reviews.

Forest resources of PNG are customary owned. There is a

34-step project development process for timber concession

areas, which includes national and provincial planning,

surveys of the timber resource, infrastructure and economic

potential, a tender process, formal stakeholder negotiations,

environmental planning, and annual and long-term working

plans.

The PNG Government issues two types of timber licences:

Timber Permits for big timber concession areas and Timber

Authorities for smaller operations. Companies and investors

new to PNG must register as a forest industry participant

or consultant with the Forest Authority in order to get the

permits and approvals necessary for beginning business of any

kind in the sector.

4.6.5 GovernanceThe Papua New Guinea Forest Authority (PNGFA) is

responsible for monitoring, controlling and managing

PNG’s wood and forest-based industries and resources. The

Authority has 19 provincial offices and three key arms:

> The National Forest Board, which advises the government

on forest policies and legislation, and provides directions



to the National Forest Service. Board members are

drawn from provincial governments, landowners, NGOs,

Chamber of Commerce and Industries, and the National

Council of Women.

> Provincial Forest Management Committees, which

provide forums for consultation and coordination on

forest management between national and provincial

governments.

> The National Forest Service, which is the operating arm

of the Forest Authority.

4.6.6 sustainabilityUnder the PNG Constitution, a national objective is to ‘ensure

the forest resources of the country are used and replenished

for the collective benefit of all Papua New Guineans now and

for future generations’.

About 97% of PNG land is owned and managed by customary

landowners. The forest growing on this land is controlled by

these landowners. As such, extensive consultation between

these resource owners, government agencies and forest

companies is necessary before any forest activity can take

place.

PNG’s government and its implementing authorities

understand their obligation to protect the nation’s

environmental heritage while developing its forest

resources. Each new project is scrutinised on the basis of its

environmental impact and the needs of resource holders as

well as investors.

The PNG Forest Authority has adopted International

Tropic Timber Organisation (ITTO) criteria and indicators of

sustainable forest management.

While PNG’s Department of Environment and Conservation

(DEC) is the primary agency charged with the conservation

and protection of PNG’s plant and animal species, protection

strategies are integrated in several pieces of legislation and

policy. The Forest Authority’s forest plans set aside areas

for protection, which are excluded from any forestry timber

harvesting operation.

PNG also has a robust NGO sector monitoring the industry.

The PNG Eco-Forestry Forum was established in 1999 and has

become an umbrella for many community groups and NGOs

concerned with creating a sustainable forestry sector.

4.6.7 Challenges and opportunities

The Forest Industries Association—an incorporated association

of companies involved in all levels of PNG’s timber industry—

identifies several challenges for operators in PNG’s forestry

sector. It says high tax and royalty payments limit the scope to

return profits to local areas of production, and could adversely

effect investment levels in future.

It also claims that government support for the sector—in

comparison to the mining industry—is neglible. Limited

transport infrastructure also creates high costs for forestry

companies.

However, the industry body says PNG has a number of

competitive advantages over other timber producing countries,

including substantive wood and labour resources, and close

proximity to world markets, including China and Japan for low-

end forestry products and Australia and the United States for

high value and value-added forestry products.

The PNG Forest Authority identifies non-timber forest

products—such as eaglewood and sandalwood, rattan and

medicinal plants—as having high potential for investors

seeking new opportunities. Another area of potential is carbon

trading under international climate treaties.

PNG’s Investment Promotion Authority says: ‘The potential

for converting … premium species, such as rosewood,

kwila, blackbean and taun, into high-quality furniture and

other wood products, is an investment opportunity with a

growing market. Stocks of premium wood species will be

maintained for wood products manufacturers, so the markets

they establish in the near future can be guaranteed of

a continued supply.’

4.6.8 resourcesPNG forest Authority

www.forestry.gov.pg

PNG forest Industries Association

www.fiapng.com

PNG Eco-forestry forum

www.ecoforestry.org.pg

PNG forestry Act

www.paclii.org/pg/legis/consol_act/fa1991139/

International Tropical Timber Organisation

www.itto.int



4.7 Fisheries4.7.1 industry snapshotThe waters around PNG contain large stocks of marine

resources. Within its 2.4 million square kilometre exclusive

economic zone are large varieties of fish including, most

importantly, migrating schools of tuna. Besides abundant

tuna and other pelagic species, several other commercially

important fish, shellfish, and sedentary species are found in

PNG’s waters. More than 10,000 species of fish, molluscs and

crustaceans have so far been identified.

Coastal commercial fishing is based primarily on prawns,

lobster and baramundi and a collection of sedentary fisheries

resources, including beche-de-mer, trochus shells, pearl shell

and green snail. The operations are carried out by small-scale

commercial fishermen, who sell their product to a range

of small-to-medium-sized fish processing and marketing

entrepreneurs. Sea cucumber is collected and processed for

export. The trade in shells with lustrous interiors is small, but

growing.

Domestic private investment in commercial fisheries in PNG is

small. Inland fish production is still very much underdeveloped,

but commercial farming of trout and carp has been undertaken

by a few farmers in the Highlands region of the country.

The PNG Government is exploring avenues for the privatisation

of various aspects of its coastal fisheries programme.

Private sector participation is to be promoted in the areas of

handling, processing and marketing of marine products, craft

construction, repairs and maintenance, engine sales and ice

and fishing equipment sales. The Government is also playing a

key role in the management of the fishing industry. The long-

term sustainability of the resources and the environmental

impact are the key factors for the long-term sustainability,

growth and development of the fisheries sector.

The major emphasis of the Government is the development of

industrial and commercial fisheries which can help to provide

the infrastructure and market necessary for small and medium

scale fisheries development.

The PNG Government is committed to encouraging more

value-adding in the fisheries sector. PNG’s tuna processing is

now a major employer in PNG, with processing plants located

in Port Moresby, Lae and Madang.

4.7.2 marketsPNG is responsible for approximately 10% of the world’s tuna

catch. According to Bank of PNG statistics, export income from

marine products was 215.4 million kina (US$94.8 million) in

2012. Major destinations for PNG’s marine products include

Hong Kong, Japan, Australia and the European Union (EU).

PNG exports tuna-based products to the EU under an

Economic Partnership Agreement that gives it tariff-free

access to the EU trading zone.

4.7.3 Governance and legislationThe PNG National Fisheries Authority (NFA) is the primary

regulatory and management body for the sector, and it

provides support and coordinates fishery development in the

country. It also facilitates export certification and regulation

and manages fisheries resources for sustainable growth.

The NFA is a non-commercial statutory authority established

in 2001 and operating under the Fisheries Management Act

1998 and related regulations. Its stated role is to regulate and

oversee the development of the fisheries sector for maximum

sustainable benefit for the people of PNG.

4.7.4 Licences and permitsThe following fisheries-related facilities require a licence to

operate from the NFA:

> fishing vessels

> fish storage facilities/fish factories

> fish factories

> fish export facilities

> fish buyers

> frial fishing

> aquaculture.

General Licence Information, a brochure stating the complete

requirements for the various licence applications and fees, is

available from the NFA. Vessel licence fees are dictated by the

length of the vessel.

Among other material, shore-based licences must be

accompanied by:

> a proposal/business plan (a Model Business Plan for

Coastal Fishing can be obtained the NFA’s Licensing Unit)

> endorsement from the Provincial Executive Council or

Appointee of the Province where the facility will be

situated

> an NFA audit/inspection report from an Authorised

Provincial Fisheries Officer (dry goods) or NFA Audit &

Certification Officer (wet goods)

> Plans and specifications for the facility.

Among other material, new chartered locally-based foreign

fishing vessel licence applications must be accompanied by:

> National Maritime Safety Authority Certificate of Survey/

Inspection



> Certificate of Registry in Port of Registry

> Forum Fisheries Agency (FFA) Certificate of Vessel

Registration on the Regional Register

> FFA Certification of Registration of ALC (VMS)

> Cargo Ship Safety Certificate.

All enquiries regarding licences should be directed to the NFA’s

Licensing and Data Management Business Group, National

Fisheries Authority, 11th Floor, Deloitte Tower, Douglas Street,

Port Moresby, tel +675 309 0444, fax +675 320 2069/320 2061.

4.7.5 Pacific marine industrial ZoneIn order to achieve some much-needed scale and value-adding

in the fisheries industry, the PNG Government has identified a

215-hectare area of land close to Madang in Madang Province

for the creation of a new US$161 million Pacific Marine

Industrial Zone (PMIZ).

Adjacent to existing tuna processing facilities, the PMIZ will

provide wharfing, berthing and processing facilities and other

infrastructure necessary for an export-focused onshore fish-

processing industry to develop. The zone will also be open to

non-fisheries-related businesses.

The PNG Government has invited other Pacific countries to

consider locating their tuna-processing facilities within the

PMIZ and is promoting the venture through its Department of

Commerce and Industry.

Businesses interested in setting up within the PMIZ should

contact the PNG Investment Promotion Authority or the

Department of Commerce and Industry.

4.7.6 resourcesdepartment of Commerce and Industry

www.dci.gov.pg

Investment Promotion Authority

www.ipa.gov.pg

National fisheries Authority

www.fisheries.gov.pg

National Maritime Safety Authority

www.nmsa.gov.pg

Pacific Islands forum fisheries Agency

www.ffa.int

western and Central Pacific fisheries Commission

www.wcpfc.int

4.8 Tourism4.8.1 OverviewWhile not a major contributor to GDP like the tourism

industries of some other Pacific nations such as Fiji and

Vanuatu, PNG’s tourism sector has nevertheless experienced

steady growth over the past decade, with both business

traveller and holidaymaker numbers increasing each year. In

2011, there was a 14% growth in visitors to the country, with

160,000 people visiting PNG. Of these, 21% visited for tourism

purposes.

PNG is characterised as a market for ‘soft adventure’ holiday.

Major attractions include the 96-kilometre Kokoda Track, with

its historic association with World War II, surfing and scuba

diving, while many eco-tourists come to view PNG’s virgin

rainforests with their unique flora and fauna, including rare

orchids, butterflies and birds.

While PNG still awaits five-star resorts and hotels owned

by the world’s leading hotel brands, it does have a variety of

accommodation solutions for the traveller, from the main

business hotels such as Airways Hotel and the Crowne Plaza to

remote mountain retreats and dive resorts. Many companies,

such as Steamships and the Constantinou Group, are actively

involved in extending existing properties or building new ones

(Steamships’ Grand Papua Hotel in downtown Port Moresby

opened in September 2011).

The peak body for businesses involved in the industry is

the PNG Tourism Industry Association (www.pngtia.com),

although individual sectors (e.g. surfing and diving) have their

own bodies.

It is commonly held that improved infrastructure, more reliable

air services and improved land tenure processes would assist

the industry in developing further.

4.8.2 PNG Tourism Promotion AuthorityThe government agency responsible for promoting and

developing the tourism sector is the PNG Tourism Promotion

Authority (www.pngtourism.org.pg). In September 2007,

it launched a new 10-year masterplan, the 2007-2017 PNG

Tourism Master Plan, recommending a ‘whole of government’

approach to developing the industry. The masterplan included

the recent international re-branding of PNG as a tourist

destination.



4.8.3 incentivesInvestors in PNG’s tourism sector can benefit from the

following incentives:

double income tax deductions

Eligible expenditure includes expenses incurred on publicity

and marketing, overseas trade shows and bringing travel

agents or other sales representatives to PNG for the purposes

of promoting PNG tourism.

Accelerated depreciation

Hotels, restaurants and recreational tourism facilities are

eligible to receive additional depreciation deductions to a

maximum of 55% of the cost price of capital investments.

Goods and services tax exemptions

The purchase of travel and accommodation by foreign tourists

prior to arrival in PNG is GST-exempt.

double deduction for staff training

A double deduction is allowed for tourism businesses for the

expenses of salaries paid to full-time training officers, PNG

nationals attending full-time courses at prescribed institutions

and the salaries and wages paid to registered apprentices.

New investment incentives for tourism accommodation

Where expenditure exceeds US$10 million and the facility has

at least 150 rooms, a concessional tax rate of 20% for 10 years

from the date of completion of the project applies. Investment

must be made within five years of 1 January 2007.

Infrastructure tax credits

These are available indefinitely but are limited in amount to

1.5% of gross income each year.

4.9 Building and construction

4.9.1 OverviewInvestment in construction has been fuelled by a sustained

and acute shortage of real estate since the mid-2000s, due

in part to the resources boom and the consequent increased

presence of expat workers in PNG.

Increased liquidity, especially from local superannuation

funds Nasfund and Nambawan Super Ltd, has freed up

capital for real estate development. Major office, retail and

accommodation developments in Port Moresby include

Steamships’ Grand Papua Hotel and office development,

Harbour City near the centre of Port Moresby and the

Malaysian Rimbunan Hijau Group’s Vision City in Waigani.

The advent of the ExxonMobil liquefied natural gas (LNG)

project is also expected to fuel continued growth in

PNG’s economy and construction sector, including a new

accommodation village for ExxonMobil project workers in

Port Moresby.

4.9.2 Acquisition of land for buildingThe majority of land in PNG is either leasehold or customary

land. To ascertain if land is zoned for building, developers need

to check the Subdivisional Code in their municipality.

The two largest municipal authorities in PNG are the National

Capital District Commission (Port Moresby) and the Lae City

Council (Lae).

Building developments in PNG must comply with the Building

Act and Physical Planning Acts. Major centres have their own

Building and Physical Planning Boards.

4.9.3 Physical Planning ApprovalBefore building can commence, a developer must obtain

Physical Planning Approval from PNG’s Department of Lands

and Physical Planning. Application forms and fee structures

are available from the relevant municipal council.

Material submitted should include architectural concept

drawings of the proposed development.

The Department of Lands and Physical Planning may stipulate

certain conditions for the development in its letter of approval.

4.9.4 Building BoardOnce Physical Planning Approval has been obtained, a

submission must be made to the local municipality’s Building

Board, including complete documentation on the project.

Outside municipal boundaries, applications should go the

relevant provincial building board.

Included in the submission must be stamped approvals

from the local fire department and water authority (in Port

Moresby, the local water authority is Eda Ranu). Developments

costing in excess of 50 million kina (US$18.82 million)

must also obtain additional approval from the Department

of Environment and Conservation, as stipulated by the

Environment Act 2000.

A Structural Adequacy Certificate issued by a PNG-registered

structural engineer is also required for Building Board approval.

Under PNG’s Engineers Act, all construction design work must

be done by a PNG-registered structural engineer.

Once Building Board approval is obtained, construction must

commence within 18 months, although extensions may be

obtained.

4.9.5 Building workers and materialsEmployment of building labourers should follow Department

of Labour and Industrial Relations guidelines.

There is no requirement to use PNG-produced material on PNG

building projects.

All foreign contractors must be registered with the Investment

Promotion Authority.



4.9.6 Certification during and after construction

It is a requirement to notify the Building Board’s inspectors

before pouring a building’s concrete footings, and a pre-pour

inspection may occur.

A Certificate of Occupancy must be issued by the municipal

authority before the building may be occupied.

A Certificate of Practical Completion must be issued by the

contractor prior to the owner taking possession, followed by

a Certificate of Final Completion.

4.9.7 Further information/contactsdepartment of Labour and Industrial Relations

www.workpermits.gov.pg

Eda Ranu

www.edaranu.com.pg

Lae City Council

http://morobepng.com/id13.html

National Capital district Commission Regulatory Services

www.ncdc.gov.pg

4.10 ServicesPNG has some established and well-respected service

providers across its economy.

Major consulting firms as Deloitte Touche Tohmatsu and

PricewaterhouseCoopers have well-established offices in PNG,

while PNG’s status as a leading commodity exporter has led

to the creation of a competitive logistics and transportation

sector. Similar competition exists in the human resources

and recruitment sector due to the country’s reliance on the

resources industry and expatriate labour, while law and order

concerns mean PNG’s security services industry is a major

employer.

While PNG’s economic expansion over the past decade has

been accompanied by a corresponding expansion of its services

sector, in many areas PNG is still an under-serviced economy.

This may be in part due to the perceived difficulty of

establishing a business in PNG, which traditionally has given

a natural advantage to a small number of established local

suppliers, and also those with a long specialisation in PNG

(such as PNG-based law and accounting firms).

However, such is the speed of PNG’s expansion, local services

are not able meet demand in a range of areas. This is opening

up opportunity for overseas companies to either set up

operations in PNG or to partner with local businesses to extend

capabilities.

This is especially true in information technology and

communications, health, education and training (primary,

secondary and tertiary education), legal services, management

consulting, construction contracting and engineering, and

mining and petroleum project-related services.

Similarly, an emerging PNG middle class is providing

opportunities for the provision of more sophisticated services,

such as financial advisory and private health.

5.0PNG TAX Overview/

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PNG TAX OVERVIEW/MERGERS & ACQUISITIONS

PNG boasts a mature and quite well defined tax regime.

The tax laws are administered by the PNG Internal Revenue

Commission (IRC) and customs laws by the PNG Customs

Services Commission (CSC).

The general company tax rate, at 30%, is comparable to most

of the country’s major trading partners. Individual taxpayers

who earn only salary or wage income are not required to

lodge annual tax returns. Though small, the number of formal

Double Taxation Agreements with selected other countries

provides a good level of certainty and commercial flexibility for

genuine investors.

In particular currently PNG has no capital gains, death

(probate) or gift taxes. While domestic personal tax rates can

be viewed as relatively high by world standards, rates for that

range of specific payments to non-residents that are taxable

are commensurate with many other jurisdictions and well

signposted for investors.

5.1 Exemptions, incentives and concessions

Successive governments have introduced and maintained a

significant range of measures designed to facilitate legitimate

domestic and foreign investment. These are focused in many

cases on key industry sectors. Some current examples, also

discussed further below, include:

> a three-year full exemption for certain export sales by

manufacturers, with a further 4-year partial exemption,

though this is due to be abolished by 1 January 2015.

> a 10-year tax holiday for new active business income

derived in prescribed rural development areas (of which

there are many)

> 100% depreciation for certain industrial, manufacturing or

agricultural plant

> double deductions for staff training of PNG citizens

> double deductions for export market development by

manufacturers and tourism operators

> 150% deduction for qualifying research and development

expenses

> tax credits for infrastructure expenses of resource,

agricultural and tourism ventures

> customs duty waivers on temporary importation of

significant equipment

> stamp duty exemptions for PNG-listed share transfers

through listed brokers and concessional rates on some

other share dealings.

In the following commentary, the most relevant aspects of the

PNG tax system, as they apply to companies and individuals in

particular, are examined in some level of detail.

5.2 PNG tax rates at a glance

%

Corporate income tax rate 30

Capital gains tax rate 0

Branch/non-resident company tax rate 48

Dividend withholding tax 17

Interest withholding tax 15

Royalty withholding tax 10

Foreign contractors tax 12

Management fee withholding tax 17

Superannuation funds 25

Trusts 30

Goods and services tax (GST) 10

Net operating losses (years)

Carry back 0

Carry forward 20

a) Special rates apply for some resource companies. So, while

gas operators and mining operations by PNG resident

companies are also taxed at 30%, those by non-resident

mining companies are taxed at 40% and petroleum

operations are taxed at rates ranging from a 30% incentive

rate to 45% or 50%, depending on the project itself.

b) In some limited cases, due to the operation of a relevant

non-discrimination clause in some of the Double Taxation

Agreements (DTA), also commonly referred to as a tax

treaty, that PNG has concluded with a partner country, the

rate of tax on PNG Branch operations of a non-resident

company is reduced to 30%.

c) In limited cases, dividend withholding tax (DWT) is

restricted to 15% for residents of certain DTA partner

countries. Dividends paid by gas or petroleum operation

companies are exempt from DWT, while mining company

DWT is only 10%.

d) Withholding tax on interest paid to residents of countries

with which PNG has entered into a DTA is restricted to 10%

in nearly all cases.

e) Royalties paid to all residents of DTA partner countries are

taxed at a maximum of 10% on gross income, where such

payments are on an ‘arms length’ basis.

f) The general domestic rate for taxation of foreign

contractors is set at 12%. However, again due to the

operation of a relevant non-discrimination clause in



some of the DTAs that PNG has concluded with a partner

country, the contractor may have the right to instead

lodge annual tax returns and be taxed at 30% on net

taxable income (rather than 12% on gross receipts).

g) Management fee withholding tax will not apply where the

fees are paid to residents of certain DTA partner countries.

h) Must be an authorised PNG resident fund.

(i) Trustees of both normal trusts and of unit or property

trusts are initially taxed at 30% on the net income of the

trust. For normal trusts, the beneficiaries then suffer

a further tax imposition, with the rate depending on

whether they are a resident or non-resident.

j) Primary production (agriculture etc) ventures and

resources companies have unlimited carry forward of

losses.

5.3 Company income taxA PNG resident company is subject to tax on its worldwide

income. A company not resident in PNG will only be subject to

PNG income tax on that income that is considered to have a

PNG source. A company is resident in PNG if it is incorporated

in PNG or its central management and control is in PNG. There

is no regime for the attribution or taxing of foreign income

earned by non-PNG resident companies.

Mining, petroleum and gas operators, collectively often

referred to as ‘resource companies’, are subject to their own

tax regime. Though that regime incorporates many of the

general treatments noted below, some of the important

differences include the fact that tax is often calculated on a

project-specific basis (i.e. ring-fenced) and such companies

have specific deductibility regimes available for allowable

capital expenditure (ACE) and allowable exploration

expenditure (AEE). These companies are subject to an Advance

Payments Tax regime, which approximates the Provisional Tax

regime that applies to non-resource companies. The scope

of this publication is not, however, sufficient to cover these

and other resource industry specific taxation treatments in

great detail.

Entities interested in such detail are advised to contact one

of the four major international accounting firms operating

in PNG.

5.3.1 Company tax administrationThe tax year is the calendar year ended 31 December. Rules

exist for adoption of substitute accounting periods and these

will often be granted where a PNG subsidiary wishes to adopt

the same balance date as its foreign parent company.

Payments for the estimated tax liability for the current year

are required. These are due on 30 April, 31 July and 31 October

of each year, and are called Provisional Tax payments. The tax

liability raised through notification of provisional tax is legally

enforceable but is adjusted when an income tax return is

lodged in the following year. When the final income tax liability

is notified, if there is one, then the tax is due and payable one

month after the issue of this assessment.

Income tax returns are due for lodgement on 28 February of

each year for the previous 31 December year end, but this date

may be extended if they are lodged by a registered tax agent.

Penalties apply both to the late lodgement of income tax

returns and the late payment of any income taxes.

5.3.2 DividendsDividends paid by PNG companies are subject to a dividend

withholding tax (DWT) of 17%, but this may be varied on

application of certain DTAs to 15%. DWT is payable regardless

of whether the dividend is paid to a resident or a non-resident

of PNG, subject to some limited exemptions. Any DWT

deducted and paid within a chain of companies can be credited

against DWT due higher up the chain.

Special provisions apply in the case of resource companies.

Dividends paid by companies engaged in gas or petroleum

operations are exempt from DWT, while those from mining

companies are subject to a 10% rate of DWT.

All dividends received by PNG resident companies are subject

to an inter-company rebate in the hands of those companies

and therefore not subject to further tax in the recipient

company.

5.3.3 Foreign tax creditForeign taxes paid on the foreign income of a PNG resident

company are subject to a foreign tax credit. This is limited to

the lesser of the foreign tax paid or the PNG tax payable on

this income.

There is no provision for the carry forward of foreign tax

credits not utilised in a particular year.

5.3.4 Calculating taxable incomeGeneral

Tax is charged on taxable income, which equates to accounting

profit as adjusted by specific tax requirements. Therefore the

PNG tax system will generally allow a deduction for expenses

incurred in carrying on a business provided they are not of a

capital nature. Allowable deductions include depreciation of

plant and equipment. The accounting profit of a company is

subject to a number of tax adjustments to arrive at taxable

income, and these may include that:

> provisions for expenses are not deductible (but expenses

actually incurred are)

> no deduction is available for formation expenses

> no income or deduction item results in the case of

unrealised foreign exchange gains and losses



> business entertainment expenses are not generally

deductible

> depreciation or amortisation of intangibles is not

deductible

> deductibility of management fees paid can be restricted

> various other concessions and exemptions exist which may

have a further impact.

Capital gains

There is currently no general capital gains tax in PNG. Capital

gains are only taxable if they have been realised as part of

a specific profit-making scheme or undertaking, or if they

are related to the ordinary business of the taxpayer, as for

example to that of a share trader.

Exempt income

There are a number of exemptions available in the PNG Income

Tax Act, including:

> certain qualifying export sales

> rural development income from a prescribed rural

development area

> unit trust after-tax distributions to unit holders.

Trading stock (inventory)

Movement in the value of stock on hand is assessable

or deductible as the case may be. Stock can be valued,

at the taxpayer’s option, at cost, market selling or

replacement cost.

Provision exists for the value of trading stock to be adjusted

where special circumstances, such as obsolescence, exist.

The Internal Revenue Commission (IRC) is the PNG tax

authority. IRC may vary the value of trading stock where it

considers that the transfer of trading stock did not take place

at a reasonable commercial value.

depreciation

Depreciation of plant and equipment is an allowable deduction

for income tax purposes. The annual deduction is calculated on

the basis of the cost of the particular item, plus any additional

costs required to put that item into place, spread over its

effective life.

The rates of depreciation allowable are determined in the first

instance by the IRC, although provisions do exist for a taxpayer

to gain approval from the IRC for adopting a different rate in

relation to a particular item.

Depreciation is allowable on either a prime cost (straight line)

basis or a diminishing value (reducing balance) basis. The

diminishing value rate is 150% of the prime cost rate. Where

plant is sold at a price exceeding its written down value that

excess, up to the amount of the depreciation claimed, is



treated as assessable income of the taxpayer. However, that

excess may be taken as a reduction in the written down value

of other depreciable plant owned by the taxpayer.

The depreciation of assets used in resource projects in PNG is

normally subject to a separate special tax regime applicable

only to those types of ventures. However, affected taxpayers

may elect that the normal depreciation provisions still apply, in

the case of assets with an effective life of under 10 years.

A number of depreciation incentives or concessions exist

including:

> Qualifying industrial plant not previously used in PNG is

eligible for a flexible rate of depreciation up to 100%, but

this deduction may not create a tax loss

> Certain eligible new plant, or expenses incurred in

conserving the use of fuel by that plant, may be subject to

an additional 20% depreciation loading in the first year of

use. For taxpayers in the tourism industry, that first year

additional loading for certain eligible new plant is 55%.

> Acquisition on non-oil fired plant, or the conversion

of existing plant to non-oil fired use, is subject to an

additional 30% depreciation loading in the first year of use

> A 100% deduction is available for the cost of qualifying

agricultural plant or equipment, including that used in

fishing, and for the cost of accredited dive boats

> 150% deduction for plant acquired and used solely for

research and development.

Trading losses

Tax losses may be carried forward for 20 years in PNG, with the

exception of the tax losses of primary production ventures and

resource companies, where unlimited carry forward of losses

is allowed.

The carry forward of tax losses by a company is subject to it

passing either a continuity of ownership test or a continuity

of business test. The continuity of ownership test involves

meeting a minimum 50% threshold and it also applies to

changes of ownership in holding companies higher up the

ownership chain. The continuity of business or ‘same business’

test is applied quite strictly.

Specific provisions exist in relation to the amalgamation of

companies under PNG law and similar tests apply to the tax

losses of the amalgamating entities.

Transfer pricing

PNG tax legislation contains provisions specifically related

to transfer pricing. The IRC has issued Taxation Circular

2011/2, which explains how it will generally administer these

provisions. This is very much in keeping with the published

OECD principles in this field and also with the broader

approach of the Australian Taxation Office, which has assisted

the IRC to build technical capacity in this field. In that sense,

the IRC will generally considers arm’s length or reasonable

commercial value as the only basis for determining the value

at which transactions between related commercial entities

should take place. That applies to relevant management fee

submissions, where PNG taxpayers seek to take advantage

of DTA protection against the domestic deduction limit of tow

percent that otherwise applies to management fees.

The tax laws allow the IRC to substitute what it considers

an arm’s length value for transactions which it believes have

taken place at either inadequate or excessive values. However,

there are no published safe harbour rules or values in relation

to the pricing of transfers of goods, services or intellectual

property.

The IRC has not to date concluded any advanced pricing

agreements with taxpayers in PNG, but does not preclude that

option being explored in the future.

5.4 Personal income tax5.4.1 Personal tax ratesThe current rates of income tax applicable to resident and non-

resident individual taxpayers, applying since 1 July 2012, are

shown in the table below. Earnings are expressed in PNG kina:

Resident Individuals

Threshold Rate

0-10,000 0%

10,000 22%

18,000 30%

33,000 35%

70,000 40%

250,000 42%

Non-resident individuals do not get the benefit of the tax free

threshold, nor of any rebates, and are thus taxed at 22% for

all earnings up to 18,000 kina annually and then at the same

marginal rate bands as for residents.

5.4.2 income subject to taxA PNG-resident individual is subject to tax on his or her

worldwide income. A non-resident of PNG will only be subject

to PNG income tax on that income that is considered to have

a PNG source. The concept of residency is normally related to

where the individual ordinarily lives, subject to certain other

statutory tests in the PNG domestic tax law and modified also

by provisions in the DTAs that PNG has concluded.

5.4.3 Administration of personal income tax

The tax year is the calendar year ended 31 December.

Alternative year ends are not granted to individual taxpayers.



An individual whose only PNG income consists of fully taxed

salary and wages is generally not required to lodge an income

tax return (unless specifically asked to by IRC). Persons in

receipt of any more than 100 kina in other income, excluding

taxed dividend income, are still required to lodge income tax

returns. Dividend withholding tax (DWT) is a first and final tax

for individuals resident in PNG as well as entities, including

individuals, which are non-residents of PNG for income tax

purposes. Thus dividend income that has been subject to DWT

does not need to be included in individual tax returns.

In respect of provisional tax and lodgement requirements for

individuals, these are similar to those noted in the company

tax section above.

5.4.4 Taxation of salary and wagesSalary and wage income

Salary and wage income is a separate subset of taxable

income in PNG which is subject to its own special rules. Those

rules include the legal imposition of an assessment period of

two weeks (one fortnight) instead of an assessment period of

one year. This is done for two main reasons:

> to ensure that individuals who are in receipt of only salary

and wages income do not need to lodge an income tax

return, unless specifically requested by the IRC to do so.

> to ensure that employees who leave PNG part way during

the financial year do not receive income tax refunds solely

for that reason.

Employees are required to complete declaration forms at the

beginning of their employment, and when their applicable

circumstances change, to assist employers and the IRC to

calculate the correct deductions of tax.

Employers are responsible for the deduction and remittance

of salary and wages tax to the IRC, and any shortfalls will be

recovered from them and not the employees. Employers remit

this tax on a monthly basis and lodge an annual reconciliation

with IRC.

Employee benefits and allowances

Most benefits and allowances, in addition to normal salary and

wage income, provided to employees, are taxed in the hands

of those employees directly. For a number of such employee

benefits the tax law provides either a maximum prescribed

value or an exemption.



Employee benefit Taxable value per fortnight

Accommodation

a. provided in PNG Nil to K700 depending on area and market value of rent or accommodation

b. provided outside PNG K700

c. mess/barracks Nil to K60 depending on area

Housing allowance Nil for employees on Approved Low Cost Housing Schemes. Other employees taxed

on prescribed values applicable to location and value of accommodation plus any

excess of housing allowance above allowable housing expenditure, such as rent paid.

Motor vehicles K125 if provided with fuel and K95 if no fuel provided

Annual leave fares Exempt where one annual leave fare is provided to point of origin or recruitment (for

employee and their dependants). Equivalent cost of travel within PNG also exempt.

School fees Nil if paid by the employer for annual school fees of dependant children at primary

or high school, but not tertiary-level education

Superannuation, pension contributions Nil but note employer contributions to a non-PNG resident fund are not deductible

to the employer

Cash allowances Taxable in full (subject to any formal substantiation of business usage) benefits the

law provides statutory taxable values which are used in this calculation.

Rebates

The PNG system allows certain rebates against the tax

imposed on salary and wages income. The most commonly

used of these is where a taxpayer fully maintains dependents

such as their spouse, a student child in primary or secondary

school or their parents. The level of dependent rebates is,

however, not high, with the total of all dependent rebates

limited to K1,050.

There is also a rebate for net education expenses at primary or

secondary school level (not for tertiary education). This rebate

is limited to a maximum of 750 kina per child. This contrasts

with the case of an employer meeting the education expenses

of an employee, where the full benefit is exempt. In that case

the tax saving to the employee is at his or her marginal tax

rate, which will often be far greater than the maximum rebate

above.

There is a mechanism whereby an employee may claim for

legitimate business related expenditure incurred directly by

them where no reimbursement from the employer is made.

This mechanism requires full documentary substantiation

to the IRC and works by means of a 25% rebate on total net

expenditure (less the first 200 kina). This rebate may not

exceed the total salary or wages tax deducted during the

relevant year.

Superannuation considerations

a) Contribution requirements

For PNG citizen employees, an employer must currently

contribute 8.4% of the employee’s gross wage to an

authorised superannuation fund in PNG. Such employees are

required to make their own contributions of six percent from

net salary and wage receipts. There is provision for additional

voluntary contributions to be made by either. However, in the

case of an employer no claim for a tax deduction as a business

expense is available for contributions they make that exceed

15% of the employee’s gross salary, plus that excess amount is

taxable to the superannuation fund.

There is currently a moratorium in place on any requirement

for superannuation contributions in PNG on behalf of resident

expatriate employees. The relevant government officials have

advised, this will remain in place for the foreseeable future.

b) Tax on superannuation (termination) payments

The PNG system also provides for concessional taxation

of superannuation payments made by authorised

superannuation funds to employees as a result of their

retirement or resignation. These concessions only apply where

the employer component falls within prescribed maximum

levels. A tax rate of two percent applies in some limited cases,

such as where:

> contributions have been made for 15 years or more

> contributions have been made for at least seven years and

the employee is at least 50 years of age



> contributions are paid on the death or disablement of

the taxpayer.

Other concessional rates apply. For example, distributions

where contributions have been made for more than ten years

but less than 15 years may attract a tax rate of eight percent in

the employee’s hand. Distributions where contributions have

been made for more than five years but less than ten years

may attract a tax rate of 15%.

5.5 Withholding and other taxes

5.5.1 Foreign contractors tax (FCwT)This tax is initially imposed at a flat 12% on the gross revenue

of contract work undertaken in PNG. This 12% figure is derived

by applying the non-resident company tax rate of 48% to a

deemed profit margin of 25%.

However, the FCWT regime also provides that foreign

contractors whose profit margins are below 25% may elect to

apply to IRC for approval to lodge annual income tax returns. If

such approval is granted, they will then be taxed at the rate of

48% of their taxable (net) income, or in some cases at 30% by

virtue of the operative terms in certain DTAs.

Where the contractor is subject to FCWT of 12% as a first and

final income tax, there are no other lodgement or payment

requirements in respect of that contractor’s own tax liability.

However, it should be noted that they will most likely still have

an obligation to deduct and remit salary and wages tax to the

Internal Revenue Commission (IRC) from the relevant earnings

of their staff engaged on the contract work in PNG.

Where the contractor elects to lodge income tax returns

then they are taxed in generally the same way as described

in the ‘Company Income Tax’ section on page 70. In all cases

it is the PNG entity making the payment who is responsible

for deducting and remitting the relevant FCWT amount to

IRC, within 21 days of month’s end (as is the rule for all other

withholding taxes noted below).

determination of fCwT liability

Contracts subject to FCWT are those that are defined to be for

‘prescribed purposes’. This broadly means contracts that are

‘for or in connection with’ the following:

> the installation, maintenance or use in PNG of substantial

equipment or machinery

> the construction in PNG of structural improvements

including: roads, bridges, culverts or similar roadworks;

buildings, fences or similar improvements; clearing or

draining of land; ports or port facilities; facilities for

the provision of water, light, power or communication;

transport facilities

> the use of, or right to use, in PNG any industrial,

commercial or scientific equipment including vehicles,

ships and aircraft

> the provision in PNG of professional services as an adviser,

consultant or manager.

This borad definition may draw an entire contract into the

FCWT net even where some of the functions covered in the

contract may not be for prescribed purposes. The IRC will on

occasion accept the segregation of contract activities into

separate ‘prescribed’ and ‘non-prescribed’ contracts, provided

this does not produce unworkable results and provided that

the revenue attached to each contract is commercially realistic.

As an example, the IRC has accepted in the past that

geophysical data analysis that takes place offshore may be

subject to a separate contract, and thus not subject to tax,

while the contract covering acquisition or capture of that data

onshore is subject to FCWT. It has also accepted the separation

of mobilisation and demobilisation costs from the base contract

to use certain substantial plant and equipment in PNG.

5.5.2 interest withholding tax (iwT)IWT is generally levelled on all payments of interest from

within PNG, regardless of whether the recipient is a resident

or non-resident taxpayer. The flat rate of withholding is 15%

though, as already highlighted, this is reduced to 10% for

residents of all DTA partner countries, except for Malaysia.

There are some limited IWT exemptions, such as for interest

derived by non-resident lenders to companies engaged in

mining, petroleum or gas operations in PNG or where the

interest is payable to a licensed PNG financial institution.

Where a taxpayer is required to include interest income in an

income tax return lodged with the IRC, they are entitled to

claim a tax credit for any IWT already deducted.

5.5.3 Dividend withholding tax (DwT)Imposition of DWT is generally made at a flat rate of 17%

under the PNG domestic tax laws. DWT is applied to dividend

income receipts of both resident and non-resident taxpayers.

This rate is reduced to 15% in the case of residents of

Singapore, China, Malaysia, Germany and Korea as a result of

a DTA PNG has with those countries. DWT is a final tax liability

on dividend income in the case of individuals and trusts

resident in PNG, as well for all non-residents of PNG.

Exemption from DWT applies for dividends paid by companies

engaged in gas or petroleum operations, while those from

mining companies are subject to a reduced rate of 10%.

Exemption also applies where dividends are received by

superannuation funds. As already noted above, at 5.3.2, where

dividends are received by other PNG resident companies, these

companies are also entitled to a corresponding income tax rebate.



5.5.4 royalty withholding tax (rwT)RWT applies only to royalty payments to non-residents. Where

the non-resident recipient of the royalty is an independent

third party, the tax law provides for the payment to be taxed

at the lesser of either 10% of gross income by means of RWT,

or if the royalty recipient elects to lodge an income tax return

with IRC, 48% of net taxable income. By contrast, royalty

payments to associated parties are prima facie taxed at a flat

30% of gross income by means of RWT. Certain exceptions

apply in cases where the royalty arises from a PNG resource

company.

As already noted, all residents of DTA partner countries are

taxed at a maximum RWT rate of 10% on gross income,

provided the royalty is an arms-length one.

5.5.5 management fee withholding tax (mFwT)

MFWT is imposed only on non-residents who receive

payments falling within the domestic tax law definition

of ‘management fee’. This term, and the interpretation of

it by the IRC, is quite broad in application. It includes all

payments in consideration for services of a managerial or

technical nature and for consultancy services. This tax applies

irrespective of whether the non-resident is an associated party

or an independent party, in relation to the PNG entity to whom

the services are rendered.

MFWT is imposed at a flat rate of 17% on all qualifying

payments, under the domestic law provisions. However, in the

case of genuine residents of certain countries with which PNG

has a DTA, no MFWT will be levied because the relevant DTA

prevents it. PNG also has a domestic limitation on the amount

of management fees that may be allowed as an income

tax deduction, when paid by a PNG entity to a non-resident

associate. This limitation is to two percent of the greater

of total income or total allowable expenses excluding the

management fees.

On formal application, IRC may allow amounts that exceed this

two percent threshold, but only if the recipient is resident in

a DTA partner country and the amount claimed can be shown

to equate to an arms length fee. Where tax deductions are

limited to the two percent threshold, MFWT is only imposed

on the amount that is so allowed.

5.5.6 Other withholding taxesIn addition to the particular withholding taxes mentioned

above, PNG has several other withholding taxes or withholding

tax equivalent imposts. These are imposed on payments to:

> PNG resident business entities providing certain defined

contract and consulting services and which are not in

possession of a current Certificate of Compliance from

the IRC, which is imposed at 10% on the gross payment

(known as ‘business payments tax’).

> non-resident insurers, where 10% of gross premium

income is subject to tax at the 48% non-resident company

rate (or 30% for unincorporated associations).

> overseas shippers, in some limited cases, where five

percent of receipts for the carriage of goods or persons

shipped in PNG is subject to the 48% non-resident

company tax rate.

5.5.7 stamp dutyStamp duty is essentially a tax on documents in PNG. It

applies on the following:

> transfers of real property

> leases or rental agreements

> deeds of settlement and deeds of gift

> transfers of marketable securities and of mining and

petroleum leases

> powers of attorney

> memoranda of agreement

> betting tickets and lotteries.

The rates of stamp duty vary widely between the types of

documents listed above. A number of exemptions may exist

under each of these categories and several have monetary

thresholds where either no duty applies or it is levied

progressively on a sliding scale. As an example, the general

rate of stamp duty (above 140,000 kina, below which reduced

rates apply) for the transfer of land or shares in a land-rich

company, being some of the most common transactions

subject to stamp duty in PNG, is five percent. The rate is only

one percent for the transfer of most other shares, but listed

shares traded on the Port Moresby Stock Exchange through a

registered broker are exempt.

5.5.8 Customs and excise dutyPNG has in recent years generally decreased the overall

number of imported items to which duties and excise apply,

as it has the rates of such impositions. However, there are

still a number of such items, both domestic and imported, to

which significant duties still apply. For significant items that

are to be re-exported within 12 months of import into PNG

(temporary imports), the duty otherwise applicable can be

waived provided suitable arrangements (in the form of a bond

or bank guarantee) are concluded in advance with Customs

Office. There is also domestic excise levied on some key

products, including alcohol and petrol. Notable among these

are motor vehicles, with rates for normal passenger and four

wheel drive type vehicles varying from between 40% to 110%.

5.5.9 Training levyThe PNG income tax legislation imposes a training levy, which

is a default tax imposed at the rate of two percent. In other

words, the levy is imposed to the extent that a taxpayer



over the threshold of the tax, being annual payroll costs

of K200,000, does not incur sufficient qualifying training

expenses. For that reason employers incurring significant

training expenditure on citizen employees generally do not pay

the levy. It should be noted that the training levy itself is not

deductible for income tax purposes, while training expenses

incurred are.

5.6 Double tax agreementsThe PNG Government has concluded nine bi-lateral tax

treaties, called Double Tax Agreements or DTAs. These

generally allocate taxing rights over specific types of income

derived by residents of the two respective treaty partner

countries. Such DTAs apply to income taxes and other like

taxes, such as salary and wages tax, but do not apply to

GST situations. PNG has concluded a DTA with each of the

following countries:

> Canada

> Australia

> Singapore

> United Kingdom

> Malaysia

> China

> Korea

> Fiji.

The Government has also recently concluded terms for new

DTAs with Indonesia and New Zealand, which it is hoped will

be ratified and in operation sometime during 2014.

Rates of tax applicable to residents of DTA countries, for the

types of payments listed below, are the lesser of the domestic

rates in the PNG tax law or the rates listed in each DTA. The

current rates of tax applicable are:

These DTAs also contain a range of rules as to how income or

payments derived by residents of the respective treaty partner

countries is to be treated. In the business income context,

they generally provide that income derived by a resident entity

of one country, from sources in the other country, will not be

taxable in that other country unless the entity is considered to

be operating through a permanent establishment (or branch)

in that other country. This general proposition is then subject

to a number of important conditions and exceptions. Each

DTA also contains its own unique definitional rules as to what

constitutes a permanent establishment for these purposes.

The operation of the DTA framework has another practical

application in everyday PNG tax administration. Many PNG-

based businesses engage foreign contractors and consultants

to assist their businesses for short or even extended terms.

A specific tax regime, called the foreign contractor tax

provisions (see section 5.5 above on withholding and other

taxes), applies to such engagements and some of these DTAs

provide exemptions from this tax regime for short term and/or

low value assignments.

5.7 Goods and services tax (GST)

The PNG tax system includes a goods and services tax (GST)

that is imposed at the rate of 10%. It operates as a GST does

in most parts of the world, where GST is imposed on taxable

sales or supplies made by a registered business, and a credit is

allowed for any GST paid by that business for its inputs.

All entities, including foreign contractors, whose taxable

supplies exceed 250,000 kina in any 12-month period must be

registered for GST, regardless of whether they are required to

lodge an income tax return or not.

The following supplies may be zero rated, or GST free, under

the GST laws:

> the sale of a business as a going concern

> medical supplies, including prescription drugs

> supply of new fine metal

> goods and services provided to a prescribed foreign aid

provider

> goods and services, other than cars, provided to resource

companies

> goods and services supplied to an approved charitable

body

> sales of exported goods

> certain exported services

> travel or accommodation within PNG purchased by

a person outside PNG.

Country dividends Interest Royalties

Canada 17 0 10

Australia 17 10 10

Singapore 15 10 10

United Kingdom 17 10 10

Malaysia 15 15 10

China 15 10 10

Korea 15 10 10

Fiji 17 10 15



78

The following services may be exempt from GST, or input

taxed, under the PNG GST:

> financial services

> medical services

> educational services

> public road transport

> accommodation and motor vehicles supplied by an

employer to their staff

> retail supply of newspapers

> lotteries and other games of chance plus postage stamps.

GST returns must be lodged monthly by registered persons.

The IRC does allow for business entities that are in refund

positions to apply relevant GST credits to offset other tax

liabilities of the business, such as income tax or salary and

wages tax.

Import GST, also at 10%, is payable on the majority of

items imported commercially into PNG, subject to relevant

exceptions as noted above. It is also noted that the PNG

legislation contains reverse charge provisions whereby GST

may be imposed on certain supplies made to a PNG resident

from outside PNG.

5.8 Tax incentives in summary

A majority of the tax incentives and concessions that might

be relevant or important to intending investors and business

operations in PNG have been dealt with in the various sections

above. However, for ease of reference, a number of these are

now summarised in the list that follows.

In many cases availability of these incentives will depend on

the entity claiming them meeting certain qualifying conditions

or obtaining formal approval in advance from the IRC. In this

regard, it is recommended that entities interested in getting

full details for any of these incentives, contact one of the four

major international tax and accounting firms operating in PNG.

Such tax incentives include:

> a double deduction for qualifying export market

development expenditure for manufacturers and tourism

operators

> a double deduction for staff training of PNG citizen

employees

> a 150% deduction for approved expenditure undertaken on

specific research and development activities.

> a 10-year tax holiday for income from certain active

business activities commenced in prescribed rural

development areas within PNG (of which there are many)

> up to 100% annual depreciation possible for plant and

equipment used in certain industrial, manufacturing or

agriculture activities

> infrastructure tax credits, where expenditure on approved

infrastructure projects by resource companies, primary

producers and tourism operators qualifies as a credit

against tax payable, at varying rates up to a maximum of

1.5% of assessable income

> Community service obligation tax credits, where banks

that incur expenditure on providing extended and new

banking facilities or services in non-urban areas obtain

significant tax credits for that expenditure

> exemption from dividend withholding tax for profit

distributions by gas and petroleum operators and a

reduced rate of 10% for mining operators

> tax deductions for gifts to accredited political parties,

sporting bodies and prescribed charitable bodies

> double deductions for donations to specific bodies or funds

set up for purposes such as law and order, national or

world expos, sporting contests and global conferences.

5.9 Tax clearance requirements

By comparison, current requirements for Tax Clearance by IRC

on the limited range of transactions caught by this regime

are less rigid and cumbersome than those existing prior to

September 2007. This is due in part to major deregulation of

foreign exchange controls by the Bank of Papua New Guinea,

PNG’s central bank, at that time.

Normal payments to non-resident entities for the purchase

of goods, such as trading stock, or the provision of services

offshore are generally not subject to Tax Clearance

requirements. The type of overseas remittances that do still

require Tax Clearance approval by IRC in advance include:

> payment of dividends, royalties, licence fees,

management fees

> repayments on loans, both interest and principal

> transfer of capital funds such as accumulated savings

> payments for the sale or purchase of land, property or

securities, including the transfer of shares on a PNG Register.

Even here, clearance for remittances to the majority of

overseas destinations is only required when such payment

types exceed K200,000 annually. For payments to one of the

IRC listed ‘tax havens’, however, that threshold is not available

and all remittances require Tax Clearance.



5.10 Mergers and acquisitions in PNG

The business landscape in PNG has changed considerably over

the past few years with respect to mergers and acquisitions

(M&A) activity. In years gone by, there was a trite and well-

worn saying that ‘there is no such thing as goodwill in PNG’.

M&A activity over the past few years in particular has clearly

and conclusively put the lie to that statement.

Businesses with solid and identifiable track records and with

good growth prospects in PNG’s currently booming economy

clearly do command a price reflecting a multiple of their

maintainable earnings. That multiple varies with a number

of factors including the target’s financial performance,

management stability and history, infrastructure assets

available, market prospects and, often in the case of overseas

buyers, perceived country risk, to name but a few factors.

Some industries have been quick to attract foreign

competitors while others exhibit higher barriers to entry for

various reasons. At the same time a number of business

opportunities are opening up because business persons

who set up now successful ventures around and before

independence was granted to PNG are now considering their

succession and exit plans. All these factors make the PNG

market place, which is traditionally a high operating cost but

high profit margin environment, one well worth looking at.

5.10.1 Commercial issuesThe PNG commercial environment is one which exhibits a

wide variety of operating styles and practices. Successful

management of PNG commercial enterprises requires

flexibility, focus on results and lateral thinking in a regulatory

environment that can sometimes be hit and miss in its

enforcement practices. When considering an acquisition of

any reasonable sized commercial entity in PNG it is usually

critical to perform due diligence on the target to understand

the manner in which it has been operated in the past and the

risk and reward profile of the business going forward. This

point cannot be emphasised too strongly. Below are some of

the commercial issues which acquirers of businesses in PNG

should be aware of when considering an acquisition in PNG:

> Foreign ownership of PNG businesses, whether through

a branch or a locally incorporated company, requires

certification from the Investment Promotion Authority

(IPA). Areas of business open to IPA certification are

very wide and unlikely to be restrictive but this is a step

that must be completed to successfully acquire a business

in PNG.

> Only a small proportion of PNG land is available to foreign

ownership through a long-term lease tenure but happily

this land exists in most PNG urban centres. The ownership

of land can very often be problematic with disputes

affecting the ownership of particular areas of land, so legal

due diligence is well advised.

> Ongoing management and other human resources

post-acquisition are important determinants of the

attractiveness and viability of any business acquisition in

PNG and the competition for capable qualified PNG citizen

employees is intense. There can also be delays in recruiting

and putting in place foreign labour which need to be

managed.

> Businesses often operate in PNG without long-term

contracts in place where one might expect them, and a

review of an entity’s contractual and legal position is also

well advised.

> There are relatively few experienced and capable

accounting firms in PNG and a number of operators do not

have their accounts audited so financial due diligence is a

necessity.

> In the PNG environment, where some companies are

experiencing substantial growth, influx of competitors,

changing regulatory environments and competition for

their capable human resources it is vital to apply realistic

forecasts in any analysis of a business acquisition.

5.10.2 Tax issuesThe tax environment in which PNG M&A activity takes place

can briefly be summarised as follows:

> There is currently no capital gains tax in PNG.

> Sales of capital assets will generally only produce an

assessable gain if they have been acquired through some

profit-making scheme or undertaking or if those gains can

fairly be described as being income of the owner.

Knowledge of the PNG Internal Revenue Commission’s (IRC)

attitudes in these areas is an important part of tax planning in

such transactions.

> Stamp duty on transfers of shares in real estate and

shares in land-rich companies will most often be imposed

at a rate of five percent, otherwise the stamp duty on

transfer of shares is generally one percent.

> Business assets that are sold at a price above their tax

written down value will generally attract an assessable

gain to the extent of any depreciation claims recovered

and a non-assessable capital gain if sold above their

original purchase price.

> PNG has a relatively benign foreign exchange control

regime but a number of remittances from PNG overseas

do require taxation clearance. Central bank approval is also

required for a limited range of transactions.



> PNG tax and corporate legislation makes provision for

the amalgamation of companies which, subject to certain

tests being satisfied, can preserve the tax attributes of

the companies which disappear.

> PNG has a relatively limited range of import, including

excise, duties but does impose GST widely (including on

imported goods). Foreign entities seeking to acquire,

capitalise or equip PNG entities need to bear this in mind.

PNG businesses are almost invariably owned through a

corporate structure, so any business acquisition can be

accomplished by acquiring the ownership of the company(ies)

holding the assets or the assets themselves.

The decision as to which route to take is often not just an

outcome of analysis of tax issues such as the potential

imposition of stamp duty on real estate, but also a number

of commercial issues such as the relative ease of transfer

of licences the target might operate under. Often, PNG

business owners, particularly individuals, have a preference

for disposing of the companies owning the assets, rather than

the assets themselves, to capture the benefit of there being

no capital gains tax on disposal of those shares. Otherwise,

there can be tax leakage if the corporate entity disposes of the

assets and must then be dismantled by the original owner.

Business acquirers on the other hand, may wish to acquire the

business assets to simplify their due diligence requirements

and reduce their perceived business and tax risks attached to

the previous operating entity.

In addition to these issues, there is no substitute for the

‘housekeeping’ elements in a due diligence process because it

is not uncommon for PNG businesses to be behind with their

various tax lodgement and payment responsibilities and other

regulatory approval requirements, or to have unresolved tax

payment or dispute issues with the IRC.

In conclusion, it is fair to say that, because of the myriad

special circumstances and fast-moving changes to the PNG

business and regulatory environment that exist in PNG, it is

often more effective to acquire a local business operation with

a track record than to attempt to set one up from a zero base,

particularly where the establishment of the business operation

is time critical. Intending parties wishing to set up operations

in PNG should seriously consider this option.

This chapter prepared by Deloitte Touche Tohmatsu’s

PNG office.



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6.0LiviNG AND wOrKiNG iN PNG

CREd

IT: R

d T

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LIVING AND WORKING IN PNG

6.1 Employing people6.1.1 OverviewLike all nations, PNG has laws pertaining to operating a

business and employing its citizens and non-citizens. Thus

it is important that organisations intending to operate and

employ Papua New Guineans and non-citizen residents and/

or expatriate personnel should take the time to familiarise

themselves with the relevant laws of the Independent State

of Papua New Guinea (PNG).

PNG is a developing and relatively young nation and, as a

result, may not have a large supply of the array of skilled

personnel your business venture or project may need. On

the other hand, PNG does have an educated elite and produces

its own graduates and trainees across a range of disciplines.

Most are educated in PNG tertiary institutions however a

significant number have international qualifications. Thus,

you may be able to fill a number of your key roles with Papua

New Guineans.

To help new businesses understand where required personnel

may come from, the PNG Government has published

information that details the roles that are restricted to

citizens, those that are open to both citizens and non-citizens,

and those that must be advertised seeking PNG candidates in

the first instance.

If you are intending to employ non-citizens of PNG we

recommend you purchase the Department of Labour and

Industrial Relations (DLIR) publications Work Permit Guidelines

A General Guide to the Foreign Employment System in PNG

(Version 1, 01/01/09), and Work Permit Guidelines: A guide to

the Foreign Employment Industrial Divisions and Classification

of Occupations (Version 1, 01/01/09). These publications

cost 25 kina each, or they can be downloaded from the

Department’s website at www.workpermits.com.pg.

It is also important to appreciate that if your organisation

intends to employ non-citizens then you must also complete

and submit a Training and Localisation Plan that outlines the

initiatives your organisation will take to develop PNG citizens

and over time build capability to enable PNG citizens to work

in the roles currently requiring expertise of non-citizens. For

more information, we recommend you contact the DLIR.

In essence, each non-citizen you employ to work in PNG will

need both a Work Permit and a Visa. The Work Permit and

Visa are unique to the role, employer and person, and any

variation of role, employer or person will require a new Work

Permit and Visa application.

While not legally required, we recommend you engage a

registered employment agent to assist you with interfacing

with the DLIR. These are regulated under the Employment

Act 1978 and licensed by the Department on an annual basis.

Information on licensing and regulation of employment agents

can be obtained from the DLIR’s National Employment Service

(tel +675 325 2546).

In the following paragraphs we give an overview of the

regulations and procedures and then provide an opinion of

living in PNG.

6.1.2 work permitsRegulations

As indicated above, all non-citizens who seek employment

in PNG must possess a valid work permit before they can

commence employment. The work permit must be granted

by the Secretary, DLIR, in accordance with the Employment of

Non-Citizens Act 2007.

There are two types of work permit:

> A general work permit for commercial employment

> A volunteer work permit for work performed for other than

financial reward

Short-term work permits are valid for up to six months and

are non-renewable. Long-term work permits can last for up

to three years, or five if the employer is designated a Good

Corporate Citizen under the Act.

All employers who employ non-citizen workers must keep a

Register of Work Permits.

A non-citizen who works in PNG without a valid work permit

commits an offence.

Work permits are non-transferable; that is they are issued for:

• a specific person,

• a specific employer, and

• a specific job.

Any changes to any of the above, even changing jobs within

the one organisation will require a new work permit to be

applied for.

Application procedures

For each non-national you seek to bring into PNG or employ in

PNG your registered Employment Agent will need to submit

the appropriate application form with following documents to

DLIR in Port Moresby on your behalf:

> Copy of photo page or bio page of employee’s passport

> Curriculum vitae

> Copy of Job Description

> Certified evidence of education qualifications (witnessed

by a JP)

> Copy of employment contract signed by both employee

and employer on company letterhead

> Copy of application for Entry Permit



> Two recent, clear, colour passport sized photographs

of employee

> Employee’s right thumb print

> Evidence of membership of professional association

> Evidence of English language proficiency

> Employer’s Certificate of Incorporation from Investment

Promotion Authority (IPA)

> Evidence of payment of fee for Work Permit

(non-refundable)

> Administration fee.

If the applicant does not hold a valid work permit, the

applicant must apply from outside of PNG.

If all of the documentation is correct, the Department will

usually process a work permit application within three weeks.

Once the approval has been granted by the Secretary, the Work

Permit and work permit card is available for collection.

Renewing work permits

An existing holder of a work permit may apply to renew the

work permit prior to its expiry. A renewal only applies if the

application is for the same position in the same company. If

there is likely to be a delay in processing the renewal such that

the work permit could expire before a renewal is granted, a 60-

day Renewal Extension Letter can be applied for.

If the employer wishes to transfer the employee to a new

position, or the worker is changing companies, then a new

work permit must be applied for.

Exemptions

The following non-citizen employees do not require work

permits:

> Non-citizen employees of the Diplomatic Corps

(however, locally engaged non-citizen employees of

foreign diplomatic missions in PNG are not exempted)

> Non-citizens appointed as Official Personal Staff

> Non-citizens employed by certain aid organisations such

as AusAid and JICA (again, locally-engaged non-citizen

employees are not exempted)

> Non-citizens granted Permanent Residency status.

Professional registration

It is necessary for certain non-citizen employees in PNG

to register with a professional body before taking up

employment. These bodies include:

> Institute of Engineers PNG Inc (www.iepng.org.pg)

> Certified Practising Accountants of PNG (+675 321 2105,

[email protected], www.cpapng.org.au)

> Nursing Council of PNG (+675 301 3803,

[email protected], www.health.gov.pg)

> Maritime Safety Authority (www.nmsa.gov.pg)

> PNG Law Society (+675 321 7344, [email protected])

> Medical Board of PNG (+675 301 3813/301 3784,

www.medicalboard.gov.pg)

> Pharmacy Board of PNG

> PNG Association of Surveyors (+675 321 5925,

www.aspng.org)

> PNG Institute of Architects (+675 321 4499,

[email protected])

> PNG Civil Aviation Safety Authority (+675 324 4525,

www.casapng.gov.pg).

6.1.3 visasRegulations

Once a non-citizen has been issued with a work permit, he or

she must apply to Department of Foreign Affairs, Trade and

Immigration (DFATI) in Port Moresby for the appropriate Entry

Permit (Visa). A visa allows a non-citizen to enter PNG and to

remain for a specified period. Any decision with respect to a

visa application will be made in accordance with the Migration

Act 1978 and regulation.

Non-citizen employees who have been issued with a work

permit are granted a specific visa called the Working Resident

Entry Permit. DFATI issues many other types of Visas, such as:

Visitor Visa, Business Visa and Student Visa. DFATI also issues

Permanent Resident Visas and Papua New Guinean passports.

DFATI is responsible for monitoring the entry, stay and exit

of non-citizens, including foreign workers, to PNG. Where

a noncitizen is found breaching the provisions of their visa,

DFATI may deport them from the country.

While foreign directors or shareholders of PNG-based

companies may visit PNG under a business visa (see below),

they will not be granted residency or employment visas

without proof that the company has been registered with the

Investment Promotion Authority.

Application procedures for work visa

Your registered employment agent must take the following

documents to the DFATI in Port Moresby:

> Letter of sponsorship from client requesting approval

of the work visa

> Completed Application for Entry Permit form with

passport photo

> Copy of Work Permit approval letter from DLIR

> Copy of applicant’s passport bio page

> Original Maintenance Guarantee Bond issued by a PNG

insurance company

> Finance receipt for migration services.

For collection of the visa, the following requirements need to

be lodged at the Diplomatic Mission in the Country of Origin of

the candidate themselves:



> Applicant’s passport—must have at least 12 months

validity

> Completed, signed, Application for Entry Permit with

passport photo attached

> Completed PNG DFATI medical forms, including HIV test

results and chest x-ray results.

> Police check clearance from country of origin

The time this will take can vary significantly depending on

an array of variables. Most visas are processed within three

weeks.

NOTE

Please note that it will take time to get both your work permit

and visa, that is, approximately six weeks, and if forms are not

completed correctly or detail missing there maybe significant

delays.

Therefore, account for this in your business planning. If you

believe this timeline is a problem that may be of national

significance to PNG, we recommend you enter into dialogue

with the relevant departments for the alternative steps that

you may be allowed to take while work permits and visa are

being processed.

business visas

A Business Visa may be granted by DFAI for persons

entering PNG to attend business meetings, board meetings,

conferences, exploratory business visits or participate in

business negotiation. Employment is strictly prohibited.

This type of visa is valid for 12 months, has multiple entry with

60 days each visit.

Application for Business Visas can be made at the PNG

diplomatic mission in the country of origin of the candidate

themselves. The following documents are required:

> Completed Application for Entry Permit form, with

passport photo attached

> Passport with at least six months validity

> One passport photo

> Copy of itinerary, including return journey)

> Business sponsorship letter stating precise nature of

business and PNG business contact, duration of stay

and proposed frequency of visits.

> Fee of AUD$220.00.

Alternatively, Business Visas can be obtained on arrival in Port

Moresby with the necessary documentation.

APEC business visitors

PNG is also part of Asia-Pacific Economic Cooperation body

(APEC) and recognises and encourages those eligible to

obtain an APEC visa card for business entry into PNG for

non-employment business activities.

This visa is a great option to consider especially if you visit

PNG regularly: it is less expensive, covers multiple countries

and is valid for five years of multiple visits. Applications

should be made in your home country if your home country

is an APEC member.

6.1.4 employment contracts and industrial relations

It is not appropriate or smart to assume that what works

in your own country or in other developing countries will

work in PNG. Employers therefore are advised to research

relevant legislation and join the Employers Federation of

Papua New Guinea (www.efpng.org.pg). The Federation is a

very helpful organisation with reasonable annual fees and can

provide excellent advice to member companies on relevant

awards, employment contracts, labour laws and industrial

relations issues.

Employment contracts are expected for most roles, and advice

from the Employers Federation or from one of the many

quality legal firms in PNG is recommended.

Unions exist in PNG, and there is an active Papua New

Guinea Trade Union Congress. Union labour may apply to your

situation. Again, research is recommended.

The National Wages Board sets the National Minimum Wage

for the country.

6.1.5 superannuationSuperannuation is only compulsory in companies that employ

15 workers or more, although employers with smaller numbers

of workers may participate voluntarily.

Employees must have worked for at least three months to be

eligible for superannuation.

Superannuation contribution consists of two components:

the employee’s contribution (currently seven percent of pay)

and the employer contribution (currently 8.4% of pay).

PNG’s superannuation industry is governed by the

Superannuation (General Provisions) Act 2000.

For more on Superannuation, see Section 5.4.4.

6.1.6 Cultural factorsEmployers are encouraged to appreciate the cultural

uniqueness of PNG and to show awareness of this in human

resources policies and procedures.

PNG is a very diverse nation with more than 850 languages:

it is quite possible that every person you pass in the street

may speak a different language, look different and have



different deep-seated views on how things are to be done. It is

important to respect people and their cultures and traditions.

However, workplace standards and rules can be made and

enforced.

Like all workplaces, well thought-out and well-communicated

policies are usually very successful.

English is the language of formal business. However, there

are three official languages: Tok Pisin, Motu and English. Tok

Pisin is the most widely and commonly used language, and

efforts to learn this language will definitely enable broader

communication with a wider range of Papua New Guineans.

Non nationals from non-English backgrounds are expected to

be able to communicate well in English.

6.2 Accommodation and real estate

Accommodation standards vary widely in PNG. Choice

is reduced the further you travel from the main centres

of Port Moresby and Lae. Company-provided, funded or

partiallyfunded accommodation is expected for non-citizens

who are recruited externally to work in PNG and it’s a real cost

to business in PNG.

In recent times the price of accommodation in Port Moresby

and elsewhere has increased considerably. Non-citizens tend

to seek more upmarket housing options in Port Moresby. Stock

is growing but remains limited, demand is falling for higher

standard stock, however, and demand continues to be very

high. Thus, prices continue to remain high.

Preferred accommodation tends to be blocks of fully furnished

units (two- or three-bedroom) with water, power and 24-hour

security included in the rental price. We recommend you make

contact with real estate companies such as L J Hooker, Century

21, The Professionals and Strickland in the first instance to

gauge rental prices. There are a number of other real estate

businesses in the large centres and research is needed.

Cheaper secure and comfortable options do exist, usually

farther from the popular main suburbs in which most Western

non-nationals tend to live.

Accommodation assistance is also a key issue for PNG

citizens, and some employers are responding. PNG citizens are

demanding better quality housing and population growth in

major cities is such that pressure on housing stock will remain

for the foreseeable future.

The assistance offered by employers to National staff will vary

widely. Again, research and tax advice is recommended when

developing salary package policies for your employees.

6.3 Cost of living6.3.1 PricesLiving in PNG is not cheap. While most standard Western

groceries are available in Port Moresby and Lae, the pricing

reflects the costs of transport and importation—as a rule of

thumb, a basket of typical supermarket goods purchased in

Australia, for example, might be around twice the price in

PNG. In Port Moresby, fresh vegetables from the markets are

quite expensive and there is little difference from the price of

vegetables in local supermarkets. In Lae and other centres,

market produce is more readily available and is cheaper.

The National Statistics Office and the Bank of Papua New

Guinea maintain Consumer Price Indices (CPIs), which are

published on the Bank’s website at www.bankpng.gov.pg.

6.3.2 shoppingIn general, shopping in all main centres is limited, basic and

quite expensive. There are only a few white good, clothing and

accessory, sporting or other specialist outlet options. In major

centres new shopping centres continue to be developed and

have become popular shopping destinations.

6.3.3 CommunicationMobile roaming is possible in PNG but it is costly. You are

better off to buy a local SIM card from local operators Digicel

and Bemobile

Mobile phones are widely used and deals are available from

both Bemobile and Digicel, and other providers and retail

outlets for phones and phone credit are readily available in

main centres, airports and supermarkets.

Internet access in Port Moresby has improved in recent years.

Fast-speed internet service and wireless via a USB modem are

now available in PNG.

6.3.4 BankingA normal range of banking services is available from the

big three banks in PNG—BSP, ANZ and Westpac—and all

have branches in major provincial centres. Automated teller

machines (ATMs) are also available in the main centres.

All banks have implemented technology based strategies to

take banking facilities to people outside main centres, and this

evolution is continuing.

6.3.5 motor vehicles New motor vehicles are very expensive to buy and hire in PNG.

Imported secondhand vehicles are popular, and procuring

vehicles via private sale from those leaving PNG is a common

way to obtain vehicles.

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There are a range of international well recognised brands of

hire car companies operating in most centres. There are also

local companies offering similar services. Do your research and

confirm bookings by phone, especially if you have made your

booking on line.

6.4 Employment of expat spouses and dependents

Dependent employment is permitted provided the dependent

has their own independent work permit. The dependent will

need to leave the country to have the work permit issued by

the PNG diplomatic mission in their country of origin.

Many people in dependent circumstances involve themselves

in home duties and or a range of voluntary work options that

exist in all centres.

6.5 EducationWithin PNG there are currently 20 International Education

Agency schools (www.iea.ac.pg), National/provincial primary

and high schools and other private education providers. There

are virtually no facilities for children with special needs. Most

external observers would comment that education standards

have dropped over the years. Research is recommended.

Some employers support education for all employees in PNG

and may even support off shore education for non-citizens

and citizen employees. A significant number of children of

citizens and non-citizens alike choose to send their children to

overseas educational institutions.

6.6 HealthThe public health situation in PNG is of concern. Tuberculosis,

HIV/Aids and malaria are all problems within PNG. Public

Hospitals lack funding and, as a result, care is very limited.

There are a number of private hospitals that offer adequate

care. For most non-citizen employees Medivac is part of

most contracts and involves evacuating employee or their

dependents to an Australian medical facility for any serious

illness or injury.

Naturally, this is a growing issue for Papua New Guineans

and an increasing number of citizens in the main centres

are seeking medical insurance and accessing private health

options. Packaging around health care is seen as important

by a growing number of PNG employees and the value of a

healthy workforce is recognised by many major employers.

6.7 Useful ContactsMineral Resources Authority

www.mra.gov.pg

department of foreign Affairs, Trade and Immigration

(Immigration and Citizenship division)

Tel +675 323 1500 Fax +675 325 5206

www.immigration.com.pg

department of Labour and Industrial Relations (foreign

Employment division)

+675 325 2911/321 1847

[email protected]


Employers federation of Papua New Guinea

+675 325 8266

[email protected]

www.efpng.org.pg

PNG International Education Agency

+675 321 4720 or +675 321 4712

[email protected]

www.iea.ac.pg

This chapter prepared by Scott Roberts (Managing Principal)

and George Griffin (Director CC Pacific and Business

Development Manager) at Cadden Crowe.

7.0PAPUA New GUiNeA BUsiNess DireCTOry

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The following directory provides contact details for

organisations mentioned in this publication, plus some other

key contacts.

7.1 Stock marketPort Moresby Stock Exchange Limited

+675 320 1980

www.pomsox.com.pg

7.2 Governmentbank of Papua New Guinea (Central bank)

+675 322 7200

www.bankpng.gov.pg

Central Supply and Tenders board

+675 311 3777

[email protected]

Civil Aviation Safety Authority

+675 324 4525

department of Agriculture and Livestock

www.agriculture.org.pg

department of Commerce and Industry

+675 327 7350


www.dec.gov.pg

department of foreign Affairs, Trade and Immigration

(Immigration & Citizenship division)

Tel +675 323 1500

Fax +675 325 5206

department of Labour and Industrial Relations

(foreign Employment division)

+675 325 2911/321 1847

[email protected]


department of Lands and Physical Planning

www.lands.gov.pg

department of Mineral Policy and Geohazards Management

+675 321 4011

department of Petroleum and Energy

+675 321 5253

department of Transport

+675 325 7500

Independent Public business Corporation

+675 321 2977

www.ipbc.gov.pg

Internal Revenue Commission

+675 3226600

Investment Promotion Authority

+675 321 7311/+675 308 4444

www.ipa.gov.pg

Lae City Council

http://morobepng.com/id13.html

Mineral Resources Authority (MRA)

+675 321 3511

www.mra.gov.pg

National Capital district Commission (Port Moresby)

www.ncdc.gov.pg

National Employment Service

+675 325 2546

National fisheries Authority

+675 309 0444

National Information and Communications Technology

Authority

+675 303 3202

www.nicta.gov.pg

National Maritime Safety Authority

www.nmsa.gov.pg

Papua New Guinea forest Authority

+675 327 7800

www.forestry.gov.pg

Papua New Guinea Immigation & Citizenship Service

+675 323 1500

www.immigration.gov.pg

Tourism Promotion Authority

+675 320 0211

www.pngtourism.org.pg

7.3 State-owned entitiesAir Niugini Limited

www.airniugini.com.pg

bemobile

+675 325 9400

www.bemobile.com.pg

Eda Ranu (water)

+675 312 2133

www.edaranu.com.pg

Motor Vehicles Insurance Limited

+675 3217333

PNG Ports Ltd

+675 321 1400

www.pngports.com.pg

PNG Power

+675 324 3200

www.pngpower.com.pg



Post PNG

+675 300 3714

www.postpng.com.pg

Telikom PNG

+675 300 4000

www.telikompng.com.pg

water PNG

+675 323 5700

www.waterpng.com.pg

7.4 Overseas missionsAustralian High Commission

www.png.embassy.gov.au

Australian Trade Commission (Austrade)

+675 325 9150

www.austrade.gov.au

british High Commission

www.gov.uk/government/world/papua-new-guinea

Chinese Embassy

pg.chineseembassy.org/eng/

fiji High Commission

+675 3211 914

[email protected]

french Embassy

www.ambafrance-pg.org/-English-

Indian High Commission

hcipom.gov.in

Indonesian Embassy

+675 325 3544

Japanese Embassy

www.png.emb-japan.go.jp

Malaysian High Commission

www.kln.gov.my/web/png_port-moresby/home

New Zealand High Commission

www.nzembassy.com/papua-new-guinea

Pacific Islands Trade and Invest

Sydney: +61 2 9290 2133

Auckland: +64 9 302 0465

www.pacifictradeinvest.com

Beijing: +86 10 6532 6622

www.pifto.org.cn

Tokyo (Pacific Islands Centre):

+81 3 3268 8419

www.pic.or.jp

Embassy of the Philippines

http://pompe.comxa.com

Taiwanese Trade Mission

[email protected]

United States Embassy

http://portmoresby.usembassy.gov

7.5 Investment organisations and funds

Asian development bank

+675 321 0400

www.adg.org/pnrm

International finance Corporation

+675 321 7111

www.ifc.org

kula fund II

+61 7 3303 0894

www.aureos.com

Mineral Resources development Company (MRdC)

+675 325 5822

www.mrdc.com.pg

Nambawan Super

+675 309 5200

www.nambawansuper.com.pg

NASfUNd (National Superannuation fund Ltd)

www.nasfund.com.pg

PNG Sustainable development Program Ltd

+675 320 3844

www.pngsdp.com

world bank

+675 321 7111

www.worldbank.org

7.6 Business organisationsAustralia–Papua New Guinea business Council

+61 7 3348 5142

[email protected]

www.apngbc.org.au

business Council of PNG

+675 320 0700

[email protected]

www.bcpng.org.pg

Consultative Implementation and Monitoring Council (CIMC)

www.inapng.com/cimc/index.html

Employers federation of Papua New Guinea

+675 325 8266

[email protected]

www.efpng.org.pg



Enterprise Centre for LNG

c/– Institute of Banking and Business Management (IBBM)

PO Box 1721, Port Moresby, NCD

Institute of National Affairs

+675 321 1045

www.inapng.com

Lae Chamber of Commerce and Industry

www.lcci.org.pg

Manufacturers Council of PNG

+675 321 7143

[email protected]

New Zealand Pacific business Council

www.nzpbc.co.nz

PNG Chamber of Commerce

www.pngcci.org.pg


+675 321 2988


PNG forest Industries Association

+675 325 9458

www.fiapng.com

The Port Moresby Chamber of Commerce & Industry (POMCCI)

+675 7200 0000, +675 7200 3077 or +675 321 3077

Fax: +675 321 4203


7.7 Professional bodiesCertified Practising Accountants of PNG

+675 321 2105

[email protected]

Institution of Engineers PNG Inc

www.iepng.org.pg

Maritime Safety Authority

www.nmsa.gov.pg

Medical board of PNG

+675 301 3813/301 3784

Nursing Council of PNG

+675 301 3803

[email protected]

PNG Law Society

+675 321 7344

[email protected]

PNG Institute of Architects

+675 321 4499

[email protected]

7.8 Aid organisations and civil societyAnglicare

+675 325 1855

AusAId

www.ausaid.gov.au/countries/pacific/png

business Against Corruption Alliance

+675 7200 0000, +675 7200 3077 or +675 321 3077

Fax: +675 321 4203


Papua New Guinea business Coalition Against HIV and AIdS

(bAHA)

+675 325 9228 or +675 7200 2242 (hotline)

www.baha.com.pg

Care

www.care.org.au/papua-new-guinea

EuropeAid

http://ec.europa.eu/europeaid/where/acp/country-

cooperation/papua-new-guinea/papua-new-guinea_en.htm

Japan Economic Cooperation Agency

www.jica.go.jp/png/english/



New Zealand Aid Programme

www.aid.govt.nz/where-we-work/pacific/papua-new-guinea

Transparency International PNG

www.transparencypng.org.pg

UNICEf

www.unicef.org/png/

United Nations development Program

www.undp.org.pg

US Aid

http://pacificislands.usaid.gov/country/papua-new-guinea

world Vision

wvi.org/papua-new-guinea

7.9 MiscellaneousPNG International Education Agency

www.iea.ac.pg

PNG Trade Union Congress

+675 325 7642

National Research Institute of PNG

www.nri.org.pg

7.10 Useful resourcesOnline

www.austrade.gov.au

Of special interest is Austrade’s up-to-date country profile of

PNG, found by clicking on the ‘Export Markets’ link.

www.businessadvantagepng.com

Online business news and commentary on Papua New Guinea

and the region, and other business resources.

www.ipa.gov.au

PNG’s Investment Promotion Authority’s website contains

information relevant to new and existing investors.

www.islandsbusiness.com

Regular business news service for the South Pacific region,

including PNG.

www.png-gossip.com

An informal and sometimes irreverent source of information

and news.

www.pngindustrynews.net

Online/email news service from Aspermont—subscription

required for full access.

www.pomcci.com

The Port Moresby Chamber of Commerce and Industry’s

website provides information on networking, PNG business

generally, useful links and POMCCI’s regular training

workshops and breakfast briefings.

https://twitter.com/POMCCI

POMCCI also publishes a useful business news feed on Twitter.

www.bankpng.gov.pg

The Bank of Papua New Guinea’s Quarterly Economic Bulletin.

www.whitepages.com.pg.

PNG’s online telephone directory, includes business and

government phone numbers.

Print

business Advantage Papua New Guinea

PNG’s international business and investment guide, also

online at www.businessadvantagepng.com.

Made in PNG

Annual guide to PNG’s manufacturing, agriculture, forestry

and fisheries sectors, produced by Business Advantage

International in partnership with the Manufacturers Council

of PNG.

The National

PNG’s national daily newspaper, which also has an online

edition at www.thenational.com.pg. The National also

publishes the annual Papua New Guinea Yearbook (ISSN 1726-

121X), a useful reference.

Pacific Economic Monitor

Thri-annual economic bulletin on the Pascific countries,

prepared by the Asian Development Bank.

PNG Report

Bi-monthly mining and business publication on PNG, produced

by Aspermont.

The Post Courier

PNG national daily newspaper, which also has an online edition

at www.postcourier.com.pg.

Profile magazine

Published by the PNG Chamber of Mines and Petroleum, this

magazine coincides with the Chamber’s major biennial mining

and petroleum investment conference.

PNG Resources (www.energy-pubs.com.au)

Quarterly magazine on PNG’s resources sector.

PNG Exporters directory

Produced by the Investment Promotion Authority, outlining

the overview of the investment sectors in PNG and who’s who

in the exporting arena.

welcome to Port Moresby

Publication produced by Bank of South Pacific especially for

expat visitors to Port Moresby.

The PNG Investors' Manual (3rd edition)

Documents

Transcript of The PNG Investors' Manual (3rd edition)