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
4.2.1 Industry snapshot 51
4.2.2 Governance and legislation 52
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
4.3.2 Governance and legislation 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
4.6.1 Industry snapshot 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
4.7.1 Industry snapshot 61
4.7.2 Markets 61
4.7.3 Governance and legislation 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
ABOUT PAPUA NEW GUINEA
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.
10 THE PNG INVESTORS’ MANUAL - THIRD EDITION
ABOUT PAPUA NEW GUINEA
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,
12 THE PNG INVESTORS’ MANUAL - THIRD EDITION
ABOUT PAPUA NEW GUINEA
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.
14 THE PNG INVESTORS’ MANUAL - THIRD EDITION
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
AND iNvesTmeNT eNvirONmeNT
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17THE PNG INVESTORS’ MANUAL - THIRD EDITION
PAPUA NEW GUINEA’S ECONOMY AND INVESTMENT ENVIRONMENT
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
18 THE PNG INVESTORS’ MANUAL - THIRD EDITION
PAPUA NEW GUINEA’S ECONOMY AND INVESTMENT ENVIRONMENT
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
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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%
Source: Bank of Papua New Guinea
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Source: Bank of Papua New Guinea
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%).
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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
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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.
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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
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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.
further information:
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.
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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.
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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.
further information:
The Manager
Money Market Unit, Financial Markets Department
Bank of Papua New Guinea
Email: [email protected]
Telephone: +675 322 7342
www.bankpng.gov.pg
28 THE PNG INVESTORS’ MANUAL - THIRD EDITION
PAPUA NEW GUINEA’S ECONOMY AND INVESTMENT ENVIRONMENT
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
Bank of Papua New Guinea
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
Bank of Papua New Guinea
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.
further information:
The Manager
Money Market Unit, Financial Markets Department
Bank of Papua New Guinea
Email: [email protected]
Telephone: +675 322 7342
www.bankpng.gov.pg
2.13 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.
30 THE PNG INVESTORS’ MANUAL - THIRD EDITION
PAPUA NEW GUINEA’S ECONOMY AND INVESTMENT ENVIRONMENT
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
PAPUA NEW GUINEA’S ECONOMY AND INVESTMENT ENVIRONMENT
3.0PNG’s LeGAL sysTem AND LAws
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33THE PNG INVESTORS’ MANUAL - THIRD EDITION
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
34 THE PNG INVESTORS’ MANUAL - THIRD EDITION
PNG’S LEGAL SYSTEM AND LAWS FOR FOREIGN INVESTORS
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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36 THE PNG INVESTORS’ MANUAL - THIRD EDITION
PNG’S LEGAL SYSTEM AND LAWS FOR FOREIGN INVESTORS
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.
37THE PNG INVESTORS’ MANUAL - THIRD EDITION
PNG’S LEGAL SYSTEM AND LAWS FOR FOREIGN INVESTORS
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.
38 THE PNG INVESTORS’ MANUAL - THIRD EDITION
PNG’S LEGAL SYSTEM AND LAWS FOR FOREIGN INVESTORS
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
39THE PNG INVESTORS’ MANUAL - THIRD EDITION
PNG’S LEGAL SYSTEM AND LAWS FOR FOREIGN INVESTORS
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:
40 THE PNG INVESTORS’ MANUAL - THIRD EDITION
PNG’S LEGAL SYSTEM AND LAWS FOR FOREIGN INVESTORS
> 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
41THE PNG INVESTORS’ MANUAL - THIRD EDITION
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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.
42 THE PNG INVESTORS’ MANUAL - THIRD EDITION
PNG’S LEGAL SYSTEM AND LAWS FOR FOREIGN INVESTORS
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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45THE PNG INVESTORS’ MANUAL - THIRD EDITION
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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
46 THE PNG INVESTORS’ MANUAL - THIRD EDITION
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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:
48 THE PNG INVESTORS’ MANUAL - THIRD EDITION
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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.
49THE PNG INVESTORS’ MANUAL - THIRD EDITION
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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.
50 THE PNG INVESTORS’ MANUAL - THIRD EDITION
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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.
further information:
www.pnginvestment.com
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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
52 THE PNG INVESTORS’ MANUAL - THIRD EDITION
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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
department of Environment and Conservation
www.dec.gov.pg
PNG Chamber of Mines and Petroleum
www.pngchamberminpet.com.pg
National Petroleum Company of PNG
+675 321 3680
53THE PNG INVESTORS’ MANUAL - THIRD EDITION
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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.
54 THE PNG INVESTORS’ MANUAL - THIRD EDITION
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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.
55THE PNG INVESTORS’ MANUAL - THIRD EDITION
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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
56 THE PNG INVESTORS’ MANUAL - THIRD EDITION
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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.
57THE PNG INVESTORS’ MANUAL - THIRD EDITION
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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
58 THE PNG INVESTORS’ MANUAL - THIRD EDITION
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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.
further information:
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.
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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
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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
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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
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> 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.
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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.
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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.
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5.0PNG TAX Overview/
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69THE PNG INVESTORS’ MANUAL - THIRD EDITION
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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
70 THE PNG INVESTORS’ MANUAL - THIRD EDITION
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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
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> 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
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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.
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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.
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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
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> 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.
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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
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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
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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.
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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.
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> 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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6.1 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
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> 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,
> 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:
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> 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
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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
www.workpermits.gov.pg
Employers federation of Papua New Guinea
+675 325 8266
www.efpng.org.pg
PNG International Education Agency
+675 321 4720 or +675 321 4712
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.
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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
Civil Aviation Safety Authority
+675 324 4525
department of Agriculture and Livestock
www.agriculture.org.pg
department of Commerce and Industry
+675 327 7350
department of Environment and Conservation
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
www.workpermits.gov.pg
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
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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
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
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
www.apngbc.org.au
business Council of PNG
+675 320 0700
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
www.efpng.org.pg
95THE PNG INVESTORS’ MANUAL - THIRD EDITION
PAPUA NEW GUINEA BUSINESS DIRECTORY
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
New Zealand Pacific business Council
www.nzpbc.co.nz
PNG Chamber of Commerce
www.pngcci.org.pg
PNG Chamber of Mines and Petroleum
+675 321 2988
www.pngchamberminpet.com.pg
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
Email: [email protected]
7.7 Professional bodiesCertified Practising Accountants of PNG
+675 321 2105
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
PNG Law Society
+675 321 7344
PNG Institute of Architects
+675 321 4499
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
Email: [email protected]
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/
96 THE PNG INVESTORS’ MANUAL - THIRD EDITION
PAPUA NEW GUINEA BUSINESS DIRECTORY
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.
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.
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