Business Advantage Papua New Guinea 2011/12

BUSINESS AND INVESTMENT GUIDE

Business Advantage

PAPUA NEW GUINEA 2011 / 2012

Your gateway to the Papua New Guinea economy

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www.businessadvantagepng.com

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CONTENTS

10 HUMAN RESOURCES

6 ECONOMIC UPDATE Our annual survey of business leaders in Papua New Guinea reveals a country now embarking on the most exciting and transformational period of economic activity in its history.

How firms are dealing with PNG’s exacerbating skills shortage.

12 PERSPECTIVES ON PAPUA NEW GUINEA

Key businesses leaders give their views on the opportunities in the Pacific’s largest economy.

18 DOING BUSINESS IN PNG

PwC’s tax expert David Caradus on PNG’s financial and tax system for business.

19 LEGAL CONSIDERATIONS

Experienced PNG-based lawyer John Leahy flags the key legal issues that confront businesses in PNG.

14 THE CHANGING FACE OF INVESTMENT IN PNG With PNG expected to grow faster than China in 2011, Business Advantage examines just who is investing in PNG and in what sectors, and asks where the best opportunities in the future.

20 STOCK EXCHANGE UPDATE/PROFILES POMSOX, PNG’s stock exchange, has grown strongly over

the past five years. Plus, we detail two key organisations of interest to investors.

22 EARNING A SOCIAL LICENCE TO OPERATE

Experienced PNG-based lawyer John Leahy flags the key legal issues that confront businesses in PNG.

35 FINANCIAL SERVICES

PNG’s financial institutions are developing increasingly sophisticated ways of servicing the unbanked and business customers alike.

36 INFRASTRUCTURE & TRANSPORT

As PNG grows, the development on its infrastructure becomes ever more critical.

23 MINING AND PETROLEUM IN PNG: SPECIAL SECTION PNG’s resources sector is busier than ever. We provide an update on the major new mining and gas projects and explore the services opportunities.

40 AGRIBUSINESS & TRADE

We focus on opportunities in agricultural commodities, while Austrade’s Kevan Dacey examine the PNG’s import requirements.

42 MANUFACTURING

PNG’s booming domestic market is driving substantial new investment in manufacturing.

43 FISHERIES

Intense investment in onshore processing facilities is turning PNG into a regional powerhouse.

44 FORESTRY

32 PNG’S ICT EVOLUTION Deregulation of PNG’s telecommunications and IT sector is providing new opportunities and encouraging some exciting innovation.

PNG’s forestry sector is beginning its transition from logging to producing processed products and plantation timber.

46 TOURISM DEVELOPMENT

More visitor arrivals and significant new investment is driving growth in PNG’s promising tourism sector.

47 WHO’S WHO IN PNG BUSINESS 48 USEFUL ONLINE RESOURCES ON PNG 49 BUSINESS TRAVEL GUIDE TO PORT MORESBY, PNG’S CAPITAL CITY

This publication is made possible through the support of the following organisations:

PNG Forest Authority

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FOREWORD

Foreword by Ivan Pomaleu, OBE Managing Director Investment Promotion Authority of Papua New Guinea

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‘While some countries continue to feel the after-effects of the global financial crisis, Papua New Guinea’s economy has forged ahead.’

elcome to the sixth annual edition of Business Advantage Papua New Guinea, the leading guide—both in print and online—to business conditions and opportunities in Papua New Guinea for executives around the globe.

While some countries continue to feel the after-effects of the global financial crisis, Papua New Guinea’s economy has forged ahead. We achieved strong GDP growth of 8% in 2010, and it is likely 2011 will go close to matching the 5.74% growth average PNG has achieved since 2006, with a projected growth rate of 8.5%.

The reasons behind this impressive performance are several.

Undoubtedly, investment in PNG’s resources sector is contributing significantly. The US$15 billion ExxonMobil-led PNG LNG project is now in its construction stage and is generating a flurry of activities across the economy. With further liquefied natural gas projects also planned, major new gold and nickel mines opening and exploration activities in mining, petroleum and gas surging, PNG’s resources sector has arguably never been busier.

This in turn is having a flow-on effect in other sectors, most especially building and construction, services and manufacturing. It is particularly encouraging to see major investments being undertaken in the latter sector, with several key manufacturers expanding their operations and attracting significant new investors. Products that display the ‘PNG Made’ logo are now commonplace.

Investment is also taking place in PNG’s recently deregulated telecommunications sector, where competition is driving down prices and leading to impressive innovation. The banking sector has experienced a surge in growth reflecting the expanding investment opportunities.

All this, and I am yet to mention the increased growth in three sectors where PNG has arguably its greatest natural advantages: agriculture, fisheries and forestry.

Business Advantage Papua New Guinea 2011/12 is published by Business Advantage International Pty Ltd, Level 27, Rialto South Tower, 525 Collins St, Melbourne, Victoria 3000, Australia, tel +61 3 9935 2977, fax +61 3 9935 2750. www.businessadvantage.co This publication is available free online at www.businessadvantagepng.com.

Additional printed copies can be purchased for AUD$35 (incl GST and postage) from the above address or by emailing info@businessadvantageinternational.com. © Copyright 2011 Business Advantage International Pty Ltd ISSN 1836-7895 (print)/1836-7909 (online) Project Director: Robert Hamilton-Jones (rhj@businessadvantageinternational.com) Publisher: Andrew Wilkins (aw@businessadvantageinternational.com) Editorial: Jacqueline Bennett, Samantha Magick, Rod Myer, Harbant Gill Design: Michael Renga Cover images: PNG Tourism Promotion Authority, InterOil, PNGSDP, Anitua, Ramu Agri Industries

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PNG continues to be a major producer of agricultural commodities such as coffee, cocoa, palm oil and spices, with value-adding increasing. Meanwhile, the northern coast of New Guinea is transforming into a major fish processing centre for the whole Pacific —a position that will be further cemented when the new Pacific Marine Industrial Zone in Madang is completed. Also, PNG’s forestry sector is now embarked on a concerted move towards downstream processing and certification that will ensure its long-term sustainability. The housing sector continues to grow, building a very robust domestic market for quality timbers.

Finally, I would like to draw your attention to the emergence of a new class of potential business partner in PNG—the indigenous landowner companies. Funded in part by royalties from PNG’s resources projects, landowner companies are increasingly active across sectors such as construction, transportation and services. From modest beginnings, they are now achieving levels of acumen and professionalism that make them genuine potential partners for anyone looking to do business here.

The Investment Promotion Authority of Papua New Guinea (IPA) is pleased to continue its partnership with Business Advantage for the sixth time. We are responsible for facilitating foreign investment and are your first port of call if you are looking to enter the Pacific’s fastestgrowing market. We look forward to assisting you.

Business Advantage would like to thank all at the PNG Investment Promotion Authority (especially Ivan Pomaleu, Clarence Hoot and Beverly Puton Piawu) and Penny Burns for their assistance with this publication.

Produced in partnership in the Papua New Guinea Investment Promotion Authority.

Printed in Australia. Both printer and paper manufacturer for this publication are accredited to ISO14001, the internationally-recognised standard for environmental management. This publication is printed using vegetable inks and the stock is elemental chlorine free and manufactured using sustainable forestry practices.

About this publication Business Advantage Papua New Guinea is produced annually to provide a guide to doing business in Papua New Guinea. It provides a reader-friendly overview of economic conditions, assesses business opportunities and imparts practical advice.

DISCLAIMER Business Advantage Papua New Guinea is a general guide to some potential business opportunities in Papua New Guinea and is not designed as a comprehensive survey. The opinions expressed herein are not necessarily those of the publisher and the publisher does not endorse any of the business or investment opportunities featured, nor does it accept any liability for any costs or losses related to dealings with entities mentioned in this publication. Readers are strongly advised to pursue their own due diligence and consult with investment advisors before making any investment decisions.

STRATEGIC PARTNERS AIM FOR GREATER PROSPERITY The Independent Public Business Corporation, which oversees the financial and operational performance of Papua New Guinea’s State Owned Enterprises (SOEs), is engaging with strategic partners to overcome infrastructure constraints and underpin unprecedented levels of economic growth.

IPBC has forged strategic partnerships with the aim of undertaking major investments in essential national infrastructure for telecommunications, power generation and transmission, water and sewerage facilities and the nation’s extensive port network.

Key strategic financial partners include the Asian Development Bank and domestic corporations with significant investment funds such as the PNG Sustainable Program Development Company, and the nation’s two largest superannuation/pension funds – Nambawan Super and NASFUND. The SOE investments will help transform the PNG economy and support PNG Government

efforts to improve the nation’s Human Development Indicators.

Ambitious plans that are proposed include: • T wo major hydroelectric projects – the 240MW Ramu-2 project and, in the longer term, the 1,800MW Wabo scheme on the Purari River in Gulf Province • D evelopment of a fibre optic telecommunications cable backbone network • M ajor port expansion activities in Lae, Port Moresby and elsewhere • A major upgrade of sewerage treatment facilities in the national capital, Port Moresby.

Strategic SOE investments will help sustain Papua New Guinea’s longest, uninterrupted period of economic growth that commenced in 2002.

CONTACT Independent Public Business Corporation (IPBC) Level 4, Pacific Place - Cnr Musgrave Street and Champion Parade PO Box 320, Port Moresby, National Capital District, Papua New Guinea Telephone: (675) 321 2977 - Facsimile: (675) 321 2916 / 321 0192 Email : ipbc@ipbc.com.pg

www.ipbc.com.pg

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Economic update

Credit: Pacific Islands Trade & Invest

Papua New Guinea's fast-growing capital, Port Moresby

No longer business as usual Our annual survey of business leaders in Papua New Guinea reveals it is embarking on the most exciting and transformational period of economic activity in its history, says Business Advantage's Andrew Wilkins.

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ositioned strategically between the fastgrowing economies of Asia to its north and west and Australia and the Pacific to its south, Papua New Guinea (PNG) is the Pacific region’s largest economy and most populous country.

Its geographic location (amid the Pacific’s rich fishing grounds), considerable mineral wealth and favourable climate and soils (ideal for growing a wide range of agricultural commodities), have meant that PNG has long been considered a country with strong potential. Now, finally, the country is starting to fulfil that potential.

Annus mirabilis The year 2011 is already looking like one of the biggest years economically in Papua New Guinea’s 36-year history as an independent state. There is such strong activity across the economy that the Bank of Papua New Guinea, the nation’s reserve bank, is projecting GDP growth of unprecedented 9.5%, which compares favourably with World Bank projections for 7.8% growth across the entire East Asia and Pacific region (which includes China).

In his March 2011 Monetary Policy Statement, Bank of PNG Governor Loi M Bakani attributed this growth to: ‘increased activity in the mineral sector and a pick up in construction of the LNG project and its spill-over effects to most sectors of the economy.’

LNG the catalyst The LNG project to which Bakani refers is the US$15 billion ExxonMobilled PNG LNG liquefied natural gas project—the largest single investment ever made in PNG. Now in a construction phase which will end in 2014 when the first gas should be shipped to waiting customers in Japan, China and Taiwan, the project is proving a catalyst for increased economic activity and employment growth, especially in the construction and services sectors.

It’s not the only show in town, however, as Zanie Theron, Partner at Deloitte Touche Tohmatsu PNG points out:

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‘By 2050, I honestly believe—subject to there being good governance and leadership—this could well be the richest country in the region after Australia in terms of per capita GDP’ ‘It’s worth saying that at least the equivalent amount of money is being invested in three new gold mines—Yandera (Marengo Mining), Wafi-Golpu (Harmony/Newcrest) and Frieda River (Xstrata). And then there’s the possible second major gas project from InterOil, worth about US$7 billion.’

All this is bringing more businesses from all over the world to PNG. ‘The benefit of the LNG project is that it has generated excitement about the country—investors are sitting up and taking notice. Hotels have been close to 100% full, even turning people away. It’s been very exciting,’ says Ivan Pomaleu, Managing Director of the PNG Investment Promotion Authority, the PNG Government’s investment promotion and business registration body. ‘Last year we had 350–400 new companies register, this year it’s close to 500 companies … We’ve never been so busy.’

Political and economic stability One reason given for the sustained economic growth has been the relative political and economic stability that PNG has enjoyed over the past decade. When Papua New Guineans go the polls in 2012 to elect PNG’s next government, it will be after two successive parliamentary terms without change of government—a phenomenon without precedent in PNG politics.

Such stability clearly enables businesses to plan their longer-term investments within a regulatory environment that will be reasonably

Economic update

predictable. Continuity of Government has also helped with fiscal management, as Syd Yates, Chief Executive Officer of financial services firm Kina Securities notes: ‘We’ve got strong foreign reserves, we’ve got good liquidity in the system, so things are okay. The biggest risk we have going forward is inflation, which is only natural, and we need to put more focus on how they keep that in tow. But as a risk generally, Papua New Guinea is a lot better off than it was a few years ago and I think the risk is very manageable going forward. The Government seems to be on the right track.’

One of the keys to the astute management of PNG’s growth will be the creation of a Sovereign Wealth Fund into which future LNG revenues will be sequestered. This measure is expected to help PNG avoid the dreaded ‘Dutch Disease’ that has plagued some other developing countries with rich mineral resources. While the exact nature of the fund is yet to be finalised, at this stage it looks as if it will have three components: a strategic stabilisation fund, a future fund and an infrastructure fund. These funds, likely to be managed by the Bank of PNG, can then be deployed to support the country’s long-term development plans in a way that minimises inflation.

Broadening the economic base ‘Fiscally, PNG’s in good shape,’ notes Charles Andrews, the Asian Development Bank’s Country Director for PNG. ‘However, it’s automatically at risk because of its narrow industry base.’

With its resources projects demanding so much of both the private sector and Government, there is a danger that other industry sectors may not receive the attention they need.

This is acknowledged by PNG’s National Government, which has made expansion of the country’s non-resources sectors—notably agriculture, manufacturing, fisheries, forestry and tourism—the priority of its two major national development documents, the Papua New Guinea Development Strategic Plan 2010–2030 and the more general Vision 50.

In a nutshell, the ambitious Develop Strategic Plan aims to set out ‘how PNG can become a prosperous, middle income country by 2030’, in imitation of other resource-rich countries which have made similar development progress, such as Malaysia and Botswana. While some of its growth targets have raised one or two eyebrows in business circles, there’s no doubting the document as a statement of national intent.

PAPUA NEW GUINEA IN BRIEF Population

6.7 million (2009)

Capital

Port Moresby

Surface area

463,000 sq km

People

elanesian, Papuan, Negrito, M Micronesian, Polynesian

Time zone

GMT +10 hrs

Business language

English

Political status

parliamentary democracy

Nominal GDP

US$8.16 billion (2010)

GDP growth

8% (2010, source: Bank of PNG)

Inflation 7.2% (2010, source: Bank of PNG) Currency PNG kina Major industrial sectors m ining, crude oil petroleum refining, copra crushing, palm oil, plywood and wood chip production, construction, fisheries, tourism Exports oil, gold, copper ore, logs, palm oil, coffee, cocoa, seafood Major export markets

Australia, Japan, China

Imports

achinery and transport equipment, m manufactured goods, food, fuels, chemicals

Major import markets

Australia, Singapore, China

World Bank Ease of Doing Business Ranking 2011:

103 out of 183 countries

www.pwc.com/pg

What would you like to grow?

2011 marks 50 years for PwC in PNG. Throughout this time PwC has been proud to support PNG businesses grow, accumulating deep knowledge and experience of a diverse and challenging market.

At PwC we provide industry-focused assurance, tax and advisory services to build public trust and enhance value for our clients and their stakeholders. We collaborate with our networks and share our thinking, experience and solutions to develop fresh perspectives and practical advice.

To discuss how you would like to grow your business and how we can support you in PNG, contact Jonathan Seeto , Managing Partner on +675 3211 500 or e-mail us at jonathan.seeto@pg.pwc.com.

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Credit: Airways

Economic update

Staff from Port Moresby’s Airways Hotel receive the award for World’s Best Airport Hotel at the 2010 World Travel Awards.

The plan also expresses a desire to encourage the development of indigenously-owned businesses so that Papua New Guineans themselves can fully participate in the country’s growth—a move supported by the recently-formed PNG Indigenous Business Council.

One initiative already under way is the Industrial Centres Development Corporation's establishment of regional business growth centres for local businesses—the first being in Minj in Western Highlands Province.

These small centres will complement larger industrial centres in Lae and Kokopo, and the planned Pacific Marine Industrial Zone in Madang.

Capacity constraints Business people surveyed for this publication nominated several challenges they faced in doing business in PNG. Increased demand for accommodation and office space is driving rental costs higher in both Port Moresby and Lae, although new properties coming onto the market in the next few years may alleviate this somewhat. The challenge of finding and retaining skilled workers in a tight job market was also mentioned (see page 10 for more on PNG’s human resources challenge), as was the need for further investment in education and training to build a more employable workforce (the formal sector still employs less than

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20% of workers). Meanwhile, security and law and order issues have not disappeared—one reason why the security sector is one of PNG’s largest employers.

Of course, all these challenges also reflect business opportunities— perhaps none more so than the current situation with infrastructure. The PNG Government’s 2011 supplementary budget released more money for road building, while the country’s ports and airports are also being upgraded and the telecommunications industry deregulated (see page 32). More power generation capacity is badly needed. While interim attempts are being made to fund this, it is expected that a new publicprivate partnership regime will soon be introduced to encourage private involvement in this sector. While it is still on the drawing board, Origin Energy and PNG Sustainable Development Program’s much-publicised 1800 megawatt Purari River hydroelectric project, which could see PNG export electricity to neighbouring Australia, is indicative of the kind of collaboration that could occur in future. (See page 36 for more on PNG’s infrastructure.)

Long-term optimism Regardless of the concerns many express about the undeniable need to invest more in infrastructure, Government capacity, education and health, there is currently a palpable air of excitement among business leaders that the country may finally be making the first steps to realising its rich potential.

Vishnu Mohan, ANZ’s Chief Executive Officer for PNG & Pacific North West Region, sums up the mood nicely: ‘By 2050, I honestly believe—subject to there being good governance and leadership—this could well be the richest country in the region after Australia in terms of per capita GDP. I think the potential is enormous, given the richness of the natural resources.’

ANZ’s Vishnu Mohan

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Investment

Strategy to lure top talent Business Advantage finds out how firms are dealing with PNG’s exacerbating skills shortage.

‘A lot of people say that security is the biggest challenge to doing business in PNG,’ says Ken Harvey, Managing Director of the LBJ Group of Companies. ‘But it’s not—it’s skills.’

Indeed, most senior managers you talk to in PNG at present have a story to tell about their human resources tribulations, whether it relates to hiring and retaining, or soaring wages.

As if PNG’s sustained growth was not putting enough strain on PNG’s sparse vocational training infrastructure, the enormous PNG LNG project has over the past two years acted as a magnet for the brightest and the best, impacting not just on the private sector but also on PNG’s public service.

‘And the LNG project has hardly started yet,’ says PNG recruitment veteran Scott Roberts, Managing Principal of Cadden Crowe, who observes other sectors such as mining, finance and manufacturing are also expanding significantly.

‘Many well-established firms are hiring more expats than they used to, and are also looking for quality local staff as they expand.’

Global rates

Expat skills

Cadden Crowe’s Scott Roberts

So what measures are companies taking to ensure they have the manpower to remain productive? The first is a concerted effort at employee retention, with larger firms providing more than just remuneration. Of the companies Business Advantage quizzed, those with the best retention rates attributed their success to an attractive working environment. Other incentives gaining in popularity include overseas travel for professional development.

But with local resources stretched so thin, the number of expats being employed in PNG has inevitably accelerated sharply, not just from traditional source Australia but increasingly from the Indian subcontinent and the Philippines. Interestingly, many of the new arrivals Business Advantage met had previous professional experience in PNG. Say Roberts: ‘many of the expats we’ve been bringing in recently have been “grey hairs”. They have the skills set needed, previous experience and a personal situation that makes it easier to return.’

Credit: Austrade

Although rising wages pose a problem for employers, Julian Counsel, the Country Manager of the UK-based international oil and gas recruitment specialist, Air Energi, reasons that in many respects PNG is just catching up with developed economies: ‘It’s just a case of globalisation finally reaching Papua New Guinea, meaning that Papua New Guineans are finally getting the chance to earn on an international scale.’

While firms such as Air Energi (formerly Pacifica HR) and Orion are preferred suppliers to the LNG project, Cadden Crowe is focusing on PNG’s traditional sectors.

‘Many well-established firms are hiring more expats than they used to, and are also looking for quality local staff as they expand,’ says Roberts.

Work environment

A recent Australian education and training promotion in Port Moresby was well-attended.

KEY HUMAN RESOURCES CONSIDERATIONS IN PNG 1. Skills Skills shortages are widespread in PNG, and likely to get worse in the short to medium term. As one expat manager told us: ‘If you have a trade in PNG, you are basically guaranteed a job.’

Larger firms are often obliged to source expats from overseas for specialised or highly skilled roles. Leadership development of middle to senior nationals is being used to close skills gaps.

‘The key with this development is to partner with a coaching program to ensure behavioural change back in the workplace,’ advises Robert de Loryn of RdL Management Consultants.

2. Permits & visas ‘An employer who wishes to employ a non-citizen to work in PNG must ensure the non-citizen has a work permit issued by the Department of Labour and Industrial Relations and an

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Employment Entry Permit/Visa issued by the PNG Immigration and Citizen Service,’ advises David Caradus, a partner at PricewaterhouseCoopers PNG. It can currently take up to six weeks to obtain both the work permit and visa.

3. Accommodation Rents can be astronomical and it is not only expats who are affected; many salaried nationals struggle to find affordable housing.

‘Company-provided, -funded or partially-funded accommodation is expected for non-citizens that are recruited externally to work in PNG and today many nationals expect the same. It’s a real cost to doing business in PNG,’ says Cadden Crowe’s Scott Roberts.

Further information: The PNG Investors’ Manual, published by the Port Moresby Chamber of Commerce and Industry (www.pomcci.com).

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It acts as either a development or investment partner in a rapidly-expanding portfolio of projects spanning a range of industries, from agriculture, fisheries and forestry to tourism, energy and infrastructure.

PNGSDP is actively seeking partners from Government, NGOs and the private sector to deliver development and commercial projects.

DEVELOPMENT

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INVESTMENT

Perspectives on Papua New Guinea Business leaders provide their own take on opportunities in PNG’s economy.

‘We are doing deals now for customers who need more equipment, more space and we’re continuing to lend to viable propositions in the property sector.

By and large, a lot of lending is to people with existing businesses needing more space or capacity for their operations. It’s great to be a banker in a country where the economy is strong and the vast majority of our customers are doing extremely well. ‘ —Ashleigh Matheson, Managing Director, Westpac Bank PNG Ltd ‘PNG is a country that wants to be number one, it really does. There’s a desire among the people who work there that they really want to make anything happen. So you can have the greatest challenge but you’ll always find people who are willing to roll up their sleeves, put their shoulder to the wheel and just do it, and that’s not something you see as much when you go across other markets in the Pacific. Sometimes there is an element of “Well, it’s just too difficult.” Here, that’s not the case. Here it happens. People make it happen and that’s hugely important.’

—Stuart Kelly, Chief Executive Officer, Bemobile

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‘PNG is poised to emerge from the low income group of developing countries and become a lower-middle income country.

We’re yet to see the fallout of the extractive industry’s growth. All the issues around labour shortage we’re seeing occur but, generally speaking, nothing has been as big or as bad yet as people feared. We definitely see the PNG Government’s development strategy as a positive and we’re hoping to support them on that.

The IFC has invested US$200 million in PNG so far, helping companies such as Digicel, PNG Microfinance, BSP and K K Kingston transform, and we’re currently looking at opportunities in agriculture, tourism and financial services.’

—Carolyn Blacklock, Country Coordinator—PNG, International Finance Corporation ‘The next few years in PNG will be very exciting—the LNG project has only just started and is likely to very lucrative for business. But businesses will need to be disciplined and well-organised to grow.

PNG’s quite progressive in its legislation—it’s easier to do business here than, say, Fiji, although the lacked of skilled workforce is a major challenge.

One area to look at is infrastructure. The country is looking to spend more money on transportation and power. While a standard portion of this expenditure is aid-funded, public–private partnerships are likely to play a stronger part—the telecommunications industry is the first experiment and is now looking better for it.

While a lot of the influx of new businesses coming to PNG has been in the resources sector, I see great opportunities in certain other niche areas for small and medium sized businesses. Take pathology, for example: at present all blood samples taken in PNG have to be sent overseas for testing.

Other areas of opportunity would include technology services (there is currently no secure data room in PNG) and retail. People in PNG are getting better salaries and have therefore got more disposable income— you can see they’re acquiring more luxury items.’

—Zanie Theron, Partner, Deloitte Touche Tohmatsu PNG "There’s a lot of talk about law and order problems.

We see a lot of stories in the Australian press, which are frowned upon here because some of the stories play things up worse than they are.

They don’t show the good news stories, which unfortunately for those offshore gives a slanted view. We don’t have a law and order problem in Papua New Guinea as such—the laws are quite good—it is the order that is the problem, and the enforcing of it, and the police force and judiciary is working towards that end now with Government support.'

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—Wayne Dorgan, Managing Director, Pacific MMI Insurance

Sydney

Melbourne

Brisbane

Perth

Port Moresby

SEARCH & SELECTION SPECIALISTS

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INVESTMENT

‘The economy continues to be strong. Ela Motors has experienced 30% year-on-year growth and has increased our market share. We’ve grown from 700 to 1000 employees too. Other companies that know how to do business in PNG are experiencing similar growth.

We’re continuing to invest in new facilities, spending significantly across all our locations. A new showroom and service centre in Port Moresby should be complete by November 2011 and we’re acquiring a massive new distribution centre in Lae too.

I expect demand to peak and then drop off as the LNG project reaches the end of its construction phase, but long-term foreign investment will continue. I attended the PNG Mining and Petroleum Investment in Sydney in December 2010 and was completely mesmerised by the opportunities. There’s a great deal of optimism that discoveries of resources will continue.

Given that, PNG’s scorecard over the next 10 years is very positive.’

Credit: Hela Transitional Authority

— David Purcell, Chief Executive Officer, Ela Motors

The Konedobu suburb in Port Moresby provides one of the clearest indications of increased economic activity in PNG. The location of just the Royal Papua Yacht Club and a lone supermarket five years ago, the foreshore now hosts apartments and office buildings, including the headquarters of two of PNG's major banks. Warehousing for the PNG LNG project is under construction in the foreground.

In July 2009, Papua New Guinea’s Parliament passed legislation to create two new provinces in the country by 2012: Hela Province (currently part of Southern Highlands Province) and Jiwika Province (currently part of Western Highlands). While the two areas are geographically remote, they host some of PNG's richest and most strategic gas, oil and gold reserves, including the Hides gas field which will supply the ExxonMobil-led PNG LNG Project.

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K K Kingston founder Keith Kingston with Lars Thunell, Executive Vice President and CEO of the International Finance Corporation. The IFC, part of the World Bank, became a major investor in the PNG firm in 2010.

The changing face of investment in PNG With PNG expected to grow faster than China in 2011, Business Advantage examines just who is investing in PNG and in what sectors, and asks where the best opportunities lie in the future.

‘We’re at the start of a very long term growth period—the outlook longterm is extraordinary,’ says Rod Mitchell, the joint-CEO of PNG super fund, NASFUND. With the construction phase of the US$15 billion PNG LNG project only just moving into overdrive, the PNG economy is already expected to grow at more than 9% in 2011.

The Exxon-led project appears set to have a profound and longlasting effect on the PNG economy. In investment terms, it is not only the largest ever investment in PNG by some margin, but is also putting PNG firmly on the map of the global investment community, showcasing PNG’s vast natural resources and broadcasting a confident message that PNG is open for business.

‘The PNG LNG project may be getting all the headlines, but it is by no means the only string to the PNG economy’s bow.’

Even under the sea there’s the Nautilus Minerals project.’ (Turn to page 28 for our special ‘Mining and Petroleum in PNG’ section).

Partnering to overcome challenges

Apart from the investment itself, the project is also acting as a trigger for other companies to follow in its slipstream, especially service providers, as Managing Director for Westpac PNG Ashleigh Matheson reports: ‘We are seeing project managers, architects and engineering firms looking to either establish a new business here or increase the capacity of their businesses to service the growth.’

Some, such as UK-based firms Orion (recruitment) and G4S (security), are entering PNG for the first time Others are increasing their presence and the scope of their activities, such as global healthcare services provider, International SOS. A preferred supplier to the PNG LNG project, International SOS has been in PNG since 1994 but had just five staff in the country at the end of 2008. By the end of 2011, it expects to have 200, and recently opened a new clinic within the Airways Hotel complex in Port Moresby.

But not all sectors are proving as attractive to foreign capital as mining and petroleum. In some ways, the sustained boom is actually constraining new foreign investors, as demand for business premises and skills outstrips supply. Westpac’s Ashleigh Matheson explains: ‘If you want to start up a business here you’ve got to find somewhere not only to work from, but also somewhere to live, and renting in both circumstances at the present time is extremely expensive. Then, there is the cost of security and the amount of time it takes to get work permits. That said, for those wanting to do business here; if they read the market right and deliver, the opportunities are here.’

Of course, one way of mitigating these challenges is to buy into an existing business or form a joint venture. In 2009, a clutch of such deals were done. Australian engineering firm Ausenco merged with leading PNG firm Kramer Group to form KramerAusenco, while another specialist recruiter from the UK, Air Energi, purchased Pacifica HR, forming Air Energi Pacifica. Finally, the Clough Curtain Joint Venture was established: a 65/35 joint venture between the local subsidiary of major Australian engineering firm Clough and the long-established Curtain Bros.

Not just LNG

Local businesses drive growth

The PNG LNG project may be getting all the headlines, but it is by no means the only string to the PNG economy’s bow. It is worth remembering that the PNG economy grew at 6.7% in 2008, before the PNG LNG deal was even signed.

Mining may have made the greatest contribution to the nation’s GDP in 2008, but its fortunes have actually picked up significantly since then with one mining commentator suggesting that PNG has ‘only begun to unveil its mineral wealth’.

Syd Yates, CEO of leading investment firm the Kina Group sums up the current state of play as follows: ‘If you’re in the mineral sector, PNG’s the place to be over the next five years. You’ve got Hidden Valley, Wafu-Golpu, Frieda River, Ramu Nickel, the possibility of the Bougainville copper mine opening up again.

In fact, much of the recent economic growth has been financed by existing locally-based businesses, both PNG- and foreign-owned, as well as PNG’s two powerful superannuation funds, Nambawan Super and NASFUND. ‘We’re recording strong growth in demand for our Advisory Service’ says Jonathan Seeto, Managing Partner of PwC (formerly PricewaterhouseCoopers), which celebrates its 50 year anniversary in PNG during 2011. ‘This is not just from new entrants to PNG, but also local firms who are transforming themselves to better service the country’s growing middle market.’

For example, in the manufacturing sector long-established firms such as K K Kingston, S P Brewery, Lae Biscuit Company, Coca-Cola Amatil PNG and Paradise Foods have implemented major expansion programs to accommodate sharply rising domestic demand.

Flow-on benefits

14

INVESTMENT

PNG LANDOWNERS DON THEIR ENTREPRENEURIAL CAP engaging with the operator to deliver local employment during the life of the project, as well as investing dividends to provide a livelihood post-project.

Perhaps the best-known example is NCS, one of 12 different business units gathered under the umbrella of the Anitua Group, owned by landowners on gold-rich Lihir Island. NCS has established a profitable core business in catering and mining camp management, and has now expanded into areas of construction and property development. The activities of the Anitua Group itself now employ around 1,500 people.

Credit: Anitua

Not only is NCS creating value in their own right but, by establishing a clientele ‘off-island’ (i.e. across PNG), they are ensuring they will continue to operate even after the Lihir mine eventually closes. In a similar vein, the IPI Group, owned by landowners in the Porgera Mine area, has created diverse portfolio of businesses capable of operating outside its own locality.

A new breed of PNG landowner company is making an increasingly significant contribution to the local economy.

In areas of PNG that play host to major mining and petroleum projects, landowner companies are typically created to ensure that local communities share the benefits. Their activities can include

Finally, a major landmark in what the Asian Development Bank’s PNG Country Director Charles Andrews terms ‘the professionalisation of landowner companies’ was reached in 2010 when Trans Wonderland Ltd (TWL), representing gas-field landowners in the Southern Highlands, won a USD$192 million contract to provide transport services to the ExxonMobil-led PNG LNG project, as part of a joint venture with international firm Agility Logistics.

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INVESTMENT

PROFILE: PNG SUSTAINABLE DEVELOPMENT PROGRAM (PNGSDP) PNG Sustainable Development Program (PNGSDP) is a unique organisation, even in global terms. Established in 2002, PNG’s largest fund uses royalties from the OK Tedi copper mine in PNG’s Western Province to develop long-term infrastructure, construction and resources projects that will benefit PNG—with particular emphasis on Western Province.

Part of its mandate is to minimise displacement after the mine closes. From that time on, PNGSDP will deal exclusively with the Western Province, with a fund that will be in place for the following 30 years.

Other sectors of interest > Retail. According to the Bank of PNG, this sector grew by around 30% in the 2009/10 financial year, yet still remains under-developed.

New developments in the capital such as Vision City Mega Mall and Harbourside should provide the ideal setting for outlets that cater to PNG’s emerging middle-class and rapidly-growing expat community. For instance, in April 2011 PNG retail group City Pharmacy Ltd announced that it would create a new cinema in Vision City with Fijian partners. > Services. PNG remains chronically under serviced in so many areas. Health care and education are expected to be major growth areas over the next decade. Furthermore, full deregulation of the telecommunications sector is likely to open the door to providers of niche services (see page 32).

16

Working exclusively with partners, its key projects have included the construction and upgrade of roads, a project to process the tailings from the Ok Tedi mine and the establishment of The Star Mountain Institute. Major initiatives currently underway in Western Province include the development of Daru’s port, a rural electrification programme and the establishment of telecommunications towers to enhance the region’s ability to access mobile, internet and radio services.

By the end of 2010, PNGSDP had been involved in 80 projects in Western Province and another 269 nationally. Cloudy Bay Sustainable Forestry (profiled on page 45) is one of its subsidiaries. > Agribusiness. NASFUND’s purchase of a major stake in diversified agribusiness Mainland Holdings in late 2010 underlined the potential for growth in this sector. Although land tenure often poses a challenge (see page 19 for more on PNG’s land law), the everexpanding New Britain Palm Oil Ltd has demonstrated obstacles can be overcome. > Property development. Although opportunities surely remain in the capital, a sustained construction boom coupled with sky-high rents means caution is presently being advocated by dealmakers.

Other urban centres such as Lae and Madang are starting to attract more attention however, with Nambawan Super CEO Leon Buskens describing Lae as being ‘where Port Moresby was three years ago’ in real estate terms.

INVESTMENT

PNG LOOKS NORTH FOR INVESTORS PNG’s current economic upturn has involved a notable increase in foreign direct investment from Asia. Most prominently, the Ramu Nickel project represents China’s first major investment in PNG, but there has also been major investment in forestry, fisheries and retail.

Malaysia for one has a range of substantial interests in sectors ranging from agribusiness and forestry to mining and IT services.

The best-known local Malaysian firm is R H Group, which has interests in forestry, shipping, media, retail and property development. In 2010, R H opened PNG’s first large-scale shopping mall, the US$350 million Vision City in Port Moresby.

An influx of Asian investment and know-how, mostly from the Philippines, has also transformed PNG’s fisheries sector in the past

decade, with new onshore processing facilities enabling PNG to derive greater value from its abundant fish stocks (see page 43 for more on PNG’s fisheries sector).

Like China, Japan’s primary interest in PNG is to source natural resources. Nippon Oil Exploration holds a 4.7% stake in the PNG LNG project and the two countries are currently negotiating a bilateral investment agreement.

Looking at a map, PNG’s most obvious Asian business partner is neighbouring Indonesia, with whom it shares an 820 km land border. In fact, commercial links between the two have been limited, but PNG’s recent growth spurt has finally attracted the interest of its larger neighbour.

Malaysian investor R H Group’s Vision City shopping mall is a first for PNG.

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17

Investment

Doing business in Papua New Guinea David Caradus, a partner of PricewaterhouseCoopers, whose PNG practice has been in operation for nearly fifty years, provides answers to common questions about doing business in PNG. Does a foreign company have to register in PNG? If a foreign company is ‘carrying on business’ in PNG, it is required to register as an overseas company in PNG and obtain certification carry on business in PNG. When is a foreign company required to register in PNG? PWC’s David Caradus A foreign company is required to register as an overseas company within one month of commencing to carry on business in PNG under the Companies Act. This includes appointing a resident agent. The term ‘carrying on business’ is given an extended meaning by the Companies Act but otherwise has its ordinary meaning. It is noted that a foreign company that enters into a contract for work to be done in PNG and undertakes work in PNG for a period of more than 30 days would be regarded as carrying on business in PNG for the purposes of the Companies Act. When is a company required to be certified to carry on business in PNG? Companies with foreign shareholdings of 50% or more (held or controlled by non-citizens of PNG) are required to be certified by the Investment Promotion Authority (IPA) before they can carry on business in PNG. The meaning of carrying on business for the purposes of the Investment Promotion Act is substantially similar to the meaning of carrying on business for the purposes of the Companies Act. It follows that this requirement applies whether an overseas intends to carry on business in PNG through a PNG incorporated company or through a company incorporated outside PNG. What are the other benefits of registering in PNG? Aside from mitigating the adverse consequences of not being duly registered (eg fines) and ensuring compliance with the Acts above, there are several other factors that will lead a company to register and obtain certification to carry on business in PNG. The commercial banks in Port Moresby will only allow a company to open and operate bank accounts where it can demonstrate that it is registered with the Companies Office and, where relevant, certified to carry on business by the IPA. Similarly, only a company registered with the Companies Office and, where relevant, certified to carry on business in PNG by the IPA, can obtain work permits and entry visas for its noncitizen employees.

Where an overseas company elects to undertake the work in PNG itself it will be required to register for goods and services tax (GST) purposes if it will make taxable supplies exceeding K100,000 in the following twelve months. The Internal Revenue Commission (IRC) will not register an overseas company for GST purposes unless it is provided with a copy of the certificate of registration of the overseas company under the Companies Act and, where required, a copy of the certificate to carry on business under the Investment Promotion Act. Until it is

18

‘A foreign company is required to register as an overseas company within one month of commencing to carry on business in PNG.' formally registered in this way, the company will not be issued with the GST registration number, and thus cannot issue valid tax invoices to customers.

What are the corporate tax rates in PNG? The general corporate income tax rate is 30%. The rate of income tax for non-resident companies, other than those engaged in mining, petroleum or gas operations, remains at 48%. As discussed below, some companies may be taxed as ‘foreign contractors’.

Where the company’s gross salary or wages exceed K200,000, the company will also be liable to a training levy at the rate of 2% (with the liability reduced by the costs incurred in training PNG citizen employees).

How are foreign contractors taxed in PNG? Many foreign companies providing services in PNG will be subject to taxation in PNG under the ‘foreign contractor’ provisions of the income tax law.

As a general rule, the rate of tax applicable to income of a foreign contractor is 12% of the gross contract income unless the foreign contractor is granted permission to lodge an income tax return and be assessed on an annual basis.

Where the foreign contractor provisions apply, the employees of the foreign contractor will be liable to salary or wages tax in PNG. Where gross salary or wages exceed K200,000 the foreign contractor will also be liable to the aforementioned 2% training levy.

If the foreign contractor is resident in a country with which PNG has a double taxation agreement such as Australia, Canada, China, Korea or Singapore, PNG may be prevented from taxing the income or the rate of income tax may be reduced.

The taxation of foreign contractors should not be confused with the taxation of management or technical fees paid to a non-resident for services rendered outside PNG. Broadly, management fee (withholding) tax applies to management fees paid for services rendered outside PNG and foreign contractor’s withholding tax is payable in respect of services rendered within PNG. The rate of management fee (withholding) tax is 17% of the gross management fee unless reduced by the operation of a double tax agreement.

David Caradus has over twenty years’ experience advising on taxation and investment in PNG and is the author of 2010 PNG Tax Facts & Figures and Papua New Guinea Resource Project Taxation: A Guide for Operators.

Investment

Legal considerations John Leahy outlines the legal matters business people need to bear in mind when doing business in PNG.

I

nvestors in PNG from common law countries will find the legal system both familiar and intriguing. It is familiar because it is a Westminster system albeit with its own characteristics, a modern written constitution with a large contingent of absolute and qualified rights (that need to be constantly borne in mind!) and a common law of its own having been developed since Independence, albeit with the common law and rules of equity of England (other than that part relating to the royal prerogative) as its starting point and not that of its colonial forebear, Australia.

Much legislation will have a familiar ring to it. The Companies Act and the Goods and Services Tax Act have been tailored locally from the New Zealand examples, the competition law bears a resemblance to the original Australian Federal Trade Practices Act. And, of course, many of the enactments that were in place at Independence and sourced from various Australian state and federal laws at that time are still in force.

But there is much that is unique or at least unusual.

‘Books have of course been written on the subject of customary land law, but as a first step it helps to know that the customary landowner cannot sell his or her land.’

Laws with a PNG flavour

John Leahy is a Partner at Leahy Lewin Nutley Sullivan Lawyers in Port Moresby (www.llns.com.pg) and President of the Papua New Guinea Chamber of Commerce.

The highly sophisticated and recently enacted Information Technology and Telecommunications Act is a home-grown product albeit with substantial assistance on the details from consultants familiar with the myriad of models in use worldwide. State agreements are used particularly, although not exclusively, in the resource sectors to define the fiscal and other terms upon which investments are to be made.

Fiscal stability legislation exists to ‘lock-in’ the tax rules for projects in the resource sector, albeit with a cost in terms of the tax rate.

the traditional landowners. Landowners in oil and gas projects are also entitled to a royalty interest. Complementing these entitlements there are statutory arrangements for the establishment of trusts and for Incorporated Land Groups created under special legislation. Moreover, a development agreement is required to share the benefits among the various entitled persons.

Judicial system Sitting alongside the legislation and the underlying law is a fiercely independent judicial system. Commercial interests can be asserted knowing that the judges will seek to follow the common law position.

The law in PNG. Familiar? Yes. Intriguing? Yes. Full of traps for the unwary? Definitely!

Land law The formalised land law builds on a base that has its roots in both English and German legal traditions. The formal system co-exists with the customary system that still applies to ‘unalienated’ land (that is to say, some 90% of the land mass). Even mines and petroleum projects are generally built on land that remains customary while subject to protection afforded to the developer by the issue of a lease under the Mining or Oil and Gas Acts, as the case may be.

Books have of course been written on the subject of customary land law, but as a first step it helps to know that the customary landowner cannot sell his or her land. That is the position in customary law and remains the position under the relevant legislation. So, the land is effectively held in perpetuity for future generations. Meanwhile, the landowners have certain rights of usage of the land. To add to the complexity, different groups may have different rights over the same land. So in real sense different groups may each be landowners in respect of the same land.

Against that background, elaborate mechanisms have been developed to accommodate the interests of the traditional landowners.

Oil and gas projects, for example, require social mapping and landowner identification studies to be undertaken at various stages from exploration through development. The State has an option to acquire equity in such projects and then effectively shares that equity with

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INVESTMENT

Resources drive stock exchange growth POMSOX’s rising market capitalisation, 2006–2010 Billion Kina

Kina Securities Index

120

8000

100

7000

80

5000

40 20

T

2006

2007

2008

2009

2010

4000

Source: POMSOX

6000 60

he largest of the Pacific’s two bourses, the Port Moresby Stock Exchange (POMSOX), had a strong year in 2010, recording a 118% rise in its total market capitalisation, due primarily to the listing of Newcrest Mining (also listed on the Australian and New York stock exchanges) in September 2010, and also growth in the resources sector and the economy generally.

While about half the companies listed on POMSOX are dual-listed, local stocks performed particularly strongly in 2010, growing by 9.8%.

‘As far as growth is concerned, the local exchange is right up there with some of the major exchanges in the world,’ notes Syd Yates, Chief Executive Officer of Kina Securities, one of PNG’s two licensed stockbrokers (the other is BSP Capital).

POMSOX itself is currently undergoing a full review by consultants KPMG aimed at simplifying and updating its business rules and procedures and therefore making it easier to both trade and list on the exchange.

‘The ultimate goal is to get to the stage were we have total electronic settlement of trades at “T+1” (ie the day after the trade),’ says Michael Ryan, General Manager Equities and Corporate at BSP Capital, and POMSOX board member.

PACIFIC INVESTMENT SUMMIT TO PRECEDE RUGBY WORLD CUP A Pacific Islands Investment Summit will take place on 6 September 2011, in the week preceding the Rugby World Cup in New Zealand.

Subtitled 'Oceans of Opportunity', the event plans to showcase bankable projects across the Pacific in sectors such as tourism, agribusiness, infrastructure, natural resources and social enterprise.

The event will take place in Auckland, in a week that will also include

20

the Pacific Islands Forum's 40th Anniversary and Leaders Meeting.

Business Advantage International is a media partner of the event, which is being run under the auspices of Pacific Islands Trade and Invest.

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Oceans of Opportunity

INVESTMENT

Key investment organisations in PNG Two organisations worth knowing about if you’re looking to invest in Papua New Guinea.

Investment Promotion Authority (www.ipa.gov.pg)

Independent Public Business Corporation (www.ipbc.com.pg)

The IPA is the first point of contact for any potential investor considering doing business in PNG. Not only is the IPA responsible for promoting PNG as a business and investment destination, including the facilitation of trade visits, but it is also the organisation with which foreign companies must register if they wish to set up in PNG. The IPA’s Managing Director Ivan Pomaleu advises Business Advantage that the organisation completed a new three-year strategic plan in 2010, designed to improve its response to the greatly increased business interest in PNG from overseas. The implementation of the plan, produced with the assistance of the International Finance Organisation, has already seen the launch of a new information website and will soon allow businesses to register online.

‘There’s a general acceptance that we are prepared to make the necessary changes to facilitate foreign direct investment,’ says Pomaleu. ‘We want to simplify Foreign Direct Investment.’

The Independent Public Business Corporation (IPBC) was set up in 2002 to hold the majority of state-owned commercial assets in trust and to manage those assets prudently to improve commercial performance.

This includes major entities such as Telikom PNG, PNG Power, PNG Ports Corporation, PNG Post, PNG Waterboard, Air Niugini, Motor Vehicle Insurance Ltd (MVIL) and Eda Ranu.

Since then it has enjoyed considerable success in overseeing the rehabilitation process of several of these organisations and sold 50% of Telikom’s Bemobile subsidiary.

In 2008 the IPBC was appointed as the state nominee for the Government’s 19.4% equity stake in the massive Liquefied Natural Gas (LNG) consortium led by ExxonMobil, making IPBC the third-biggest equity holder in the project consortium.

Its current priorities include assisting SOEs to increase their capacity in order to provide a platform for PNG’s rapid economic growth. A range of key infrastructure projects including water and sewerage treatment, port redevelopment and power generation have been identified as suitable for private sector involvement.

21

INVESTMENT

Earning a social licence to operate PNG veteran Peter Botten, Managing Director of Oil Search Limited, talks about the importance of engagement at a community level in Papua New Guinea.

T

here are few regions of the world where the operating environment is as complex and dynamic as it is in PNG. While most operators appreciate the importance of maintaining a social licence to operate, few engage with their host communities and offer an extensive breadth of social services and development opportunities.

A hands-on approach In addition to extensive formal and informal engagement with its local communities to monitor issues, Oil Search also espouses a hands-on approach to addressing these issues. It is here where operators really earn their social licence to operate.

It is one thing to carry out household surveys and assess the socioeconomic and political factors at play in a community, but it is another to understand these factors and to address significant issues as they arise.

Facing up to local issues Many operators make the mistake of assuming that dealing with local issues is not an integral part of business, but addressing these issues can have a significant impact not only on project longevity but also the bottom line.

With this in mind, Oil Search’s commitment to sustainability encompasses three aspects: an uncompromising focus on safety;

maintaining strong financial performance to ensure sustainable returns for shareholders; and a strong focus on stakeholder engagement, including employment of local landowners, a focus on community relations from the village to the heart of the operations, and delivery of effective health and development programs to ensure sustainable livelihoods for communities.

Oil Search has dedicated Community Affairs and Community Health teams delivering essential services in its project area communities. In addition, the company maintains strong partnerships with two locally active NGOs—the World Wildlife Fund (WWF) and the Community Development Initiative (CDI)—that run programs in environmental conservation and education respectively.

Public–private partnerships Being a Papua New Guinean company, Oil Search’s interests extend well beyond the boundaries of its project licence areas. These include engagement in public–private partnerships (PPPs) to increase the scope of development activities.

The Millennium Development Goals enunciate the importance of PPPs in achieving targets for poverty eradication, environmental conservation, and socio-economic development. For many years, PNG’s Tax Credit Scheme has enabled a portion of tax payments to be diverted from general revenue to approved infrastructure developments.

This PPP model has been successful in delivering vital infrastructure in rural communities, although much remains to be done.

Recognising the effectiveness of PPPs in accelerating socioeconomic development, the company recently entered into a longterm partnership with the Global Fund (whose goal is to fight AIDS, tuberculosis and malaria), serving as Principal Recipient in their current round of grants for HIV/AIDS programs.

Oil Search’s community health programs have been recognised by the World Health Organisation and other international authorities for their practicality and success in addressing core health issues in challenging, remote and disadvantaged communities.

In partnership with faith-based organisations and local and provincial government health providers, the company’s Public Health unit delivers services to communities that have long lacked access to fundamental medical support. Oil Search is looking forward to extending this model across PNG as part of its National Health Expansion Initiative, and is establishing a Health Foundation in 2011.

Ensuring a long-term legacy

22

The scope for operators to leave a long-term legacy is extensive, never more so than now with inexorable progress towards PNG’s first LNG project and the opportunity to double GDP. The relevant legislation provides a good platform for distributing benefits to local communities in the form of royalties, development levies, equity and dividends, and infrastructure.

In this era, where corporate social responsibility and philanthropy are facilitated by greater public awareness and ethical investment practices, operators have the opportunity to contribute to sustainable development in their zones of operation. Oil Search intends to maintain its social licence by promoting transparency in the distribution of benefits, by continuing to engage with local communities, and by supporting development initiatives to improve the country’s prosperity.

Credit: ExxonMobil

Mining and Petroleum in PNG

Aerial view of the Hides gas conditioning plant under construction in PNG’s Southern Highlands. The plant will be part of the ExxonMobil-led PNG LNG Project

23

Gas & petroleum

Credit: ExxonMobil

Part of the 700 km PNG LNG pipeline under construction in the Southern Highlands.

Leading national growth With its first LNG project under construction and other LNG discoveries showing potential, Papua New Guinea’s petroleum and gas sector is very much moving to the next level.

P

NG is on the cusp of being remade socially and economically as the massive infrastructure necessary to exploit the country’s rich gas reserves are being put in place.

The ExxonMobil-led PNG LNG project, the first of at least three potential developments, is now under construction and is likely to see a massive $A16.5 billion ($US17.32 billion) spent before it reaches completion, with a projected return of $A145.3 billion ($US152.5 billion) over 30 years from 2014.

‘We believed that there was one billion barrels of hydrocarbon potential in PNG …

We were wrong. There is much more than this.’

PNG LNG project The magnitude of the PNG LNG project is remarkable. Gas will be extracted from the Hides and surrounding fields of the Southern Highlands, where it will be treated then pumped through mountainous terrain to a shore base at Kopi. Then, it will travel under sea to an LNG production and export facility near Port Moresby. The pipeline, which is now under construction, will have a total length of over 700 kilometres and is expected to deliver nine trillion cubic feet of gas over its lifetime.

Fibreoptic communication lines along the pipeline are likely to be connected into PNG’s planned national broadband network (see page 32), improving communications in isolated areas.

The project stakeholders are ExxonMobil (33.2%), Oil Search Ltd (29%), the PNG Government’s National Petroleum Company (16.6%— see box), Santos Ltd (13.5 %), Nippon Oil Exploration (4.7%), Mineral Resources Development Company (representing PNG landowners, 2.8%) and the PNG Government’s Petromin (0.2%).

Work on the LNG processing and export plant 20 kilometres from Port Moresby began in April 2011. Esso Highlands Ltd, the Exxon Mobil subsidiary running the project, recently launched a training facility at

24

Port Moresby to train 5000 Papua New Guineans for the construction phase of the project. Overall, the LNG project is expected to employ 12000 to 150000 people during construction, 30% of whom will be Papua New Guineans.

Supply agreements have already been made with the Chinese Petroleum Corporation in Taiwan, Osaka Gas Company Limited and the Tokyo Electric Power Company Inc in Japan, and Unipec Asia Company Limited, a subsidiary of China Petroleum and Chemical Corporation (Sinopec).

Liquid Niugini Gas This is a joint venture between New York-listed InterOil and energy investor Pacific LNG Operations Ltd and has partnerships in place with Bechtel and ConcoPhillips for technical services in producing LNG. Smaller in scope than the PNG LNG project, it has permission from the national government to build a LNG plant expected to cost $US5 billion at Napa Napa near Port Moresby, where InterOil operates PNG’s only oil refinery. It is projected to produce four million tonnes of LNG annually from a single production train to be completed in 2015 with another production train to follow nine months later.

Late in 2010, the consortium signed a $US472 million financing deal with Mitsui and has recently estimated its Elke/Antelope gas fields to be the largest reserve in Papua New Guinea at around 9 trillion cubic feet.

The presence of oil in the deposits gives the group immediate revenues to help build the LNG trains.

Overall development costs for the project are expected to be $US7 billion and gas will be piped 350 kilometres to the LNG production site.

PNG’s oil and gas potential was highlighted by InterOil’s Chairman and Chief Executive Officer Phil Mulacek at the 2010 Papua New Guinea Mining and Petroleum Investment Conference.

‘We believed that there was one billion barrels of hydrocarbon potential in PNG,’ Mulacek told the conference. ‘We were wrong. There is much more than this.’

Gas & petroleum

A STATE OIL COMPANY FOR PNG The National Petroleum Company of PNG (NPCP) has been created to manage the PNG Government’s 16.56% stake in the PNG LNG project, but also has long-term aspirations.

As an active commercial partner in the PNG LNG project, NPCP is responsible for ensuring that the State is adequately represented in all aspects of the joint venture, ranging from social and environmental to commercial considerations. In a sense, the standalone entity needs to perform a delicate balancing act: on the one hand, seeking to maximise the benefits to PNG, but on the other ensuring that the project actually gets completed without undue delays.

In the long term, however, the newly-formed organisation believes that the experience it gains from playing a central role in the LNG

Talisman Energy Canada-based Talisman Energy is the driving force behind what could develop into PNG’s third LNG project. Since August 2009, when Talisman bought Rift Oil for $US171 million ($A162.3 million), it has put together a portfolio of gas deposits and exploration leases it hopes to aggregate into a major project. It now has interests in 12 development or exploration blocks covering 3.6 million hectares.

Talisman drilled two onshore wells in 2010, which both found gas and petroleum. In 2011, it plans to drill a development well and five more exploration wells and engage in feasibility studies aimed at monetising its gas aggregation strategy.

Talisman has partnership arrangements with New Guinea Energy and Horizon Oil and has also acquired Papua Petroleum. The possibility of using ‘floating LNG’ production facilities has been flagged for Talisman’s projects.

The future of LNG While the PNG LNG project alone will deliver massive quantities of gas, annual demand for gas on world markets is expected to grow by 1.8% until 2030. In Asia, the growth figure will be 3.7%, so there’s plenty of room in the market for other PNG producers.

project will provide the perfect springboard for it to become the engine of the future development of PNG’s hydrocarbon industry.

Such is the scale of the PNG LNG project that it provides a unique opportunity for NPCP to build substantial internal capacity, including a deep pool of industry specific skills (it is already the only company in PNG with the capability to perform detailed geological modelling). NPCP would then be in a position to take a more proactive role in driving future hydrocarbon projects in PNG. ‘This capacity is likely to make us into an industry powerhouse in future years,’ NPCP Chairman Karenga Kua told Business Advantage. ‘This in turn will result in an acceleration and optimisation of the development options for existing fields, as well as the discovery of new resources.’

PNG’s Petroleum and Energy Minister, William Duma, told the Papua New Guinea Mining and Petroleum Investment Conference last December that the number of petroleum prospecting licences held by the industry had jumped 33% in the last two years to a total of 78.

In 2010, the number of petroleum development licences jumped from five to nine as projects moved towards the production stage. Active explorers include Oil Search, Sasol and Eaglewood Energy.

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25

PAPUA NEW GUINEA'S MINING, OIL & GAS PROJECTS Lorengau

MANUS

Vanimo

WEST SEPIK (SANDAUN)

Wewak

Bismarck Sea EAST SEPIK

I R I A N J AYA

Frieda Ok Tedi Tabubil

Pnyang Ketu Elevala

MADANG

Porgera ENGA Mt. Kare Wabag Angore Juha Hides Moran S.E. Mananda Kutubu SOUTHERN HIGHLANDS

Pukpuk 1 Douglas

Kimu

Madang

WESTERN HIGHLANDS

WEST NEW BRITAIN

Mt. Hagen

Kainantu

CHIMBU (SIMBU)

Gobe Lehi Barikewa

Bwata Elk 2 Elk 1 &4 Antelope 1 Uramu

Kandrian

MOROBE

EASTERN HIGHLANDS

GULF

WESTERN PROVINCE

Hoskins

Ramu Yandera

Lae

Wafi Edie Creek Hidden Valley/Hamata

Kerema

Kumui Terminal

CENTRAL

Tolukuma Daru

Pandora Port Moresby

Gulf of Papua Torres Strait

Popondetta

Laloki

ORO

MILNE BAY Alotau

AUSTRALIA

Data © Copyright 2011, Papua New Guinea Chamber of Mines and Petroleum (www.pngchamberminpet.com.pg), used by kind permission Map © Copyright 2011, Business Advantage International Pty Ltd (ww

26

w w w. b us i ne s s a d va nta ge p ng . co m

Simberi

Kavieng

Lihir Solwara

Namatanai

Rabaul

NEW IRELAND

Sinivit

Mining Projects NORTH SOLOMONS

EAST NEW BRITAIN Kieta

Operating Mine Mine Under Development Possible Mine Large Scale Medium Scale Small Scale

Petroleum Projects

Solomon Sea

Oil Project Gas Project Possible Oil or Gas Project Oil Export Pipeline Proposed Gas Pipeline

Woodlark

Imwauna

Coral Sea

ww.businessadvantage.co)

Mineral Resources Authority

Website: www.mra.gov.pg Email: info@mra.gov.pg

27

Credit: UMW

MINING UPDATE

PNG’s mining boom

PNG basks in the glow of its rich reserves, which are driving a growth spurt in all sectors nationwide.

T

he mining sector is on a strong growth path in PNG, with exciting projects moving from development into production.

Last year the minerals and petroleum industry delivered the PNG Government tax revenue of K1.08 billion (US$0.4 billion) and dividends of K230 million (US$92 million). This year mining royalties to provincial and local government and landowner groups are expected to be in the order of K170 million (US$68 million).

With the copper price more than doubling in two years and gold breaking through $US1400 an ounce, there is no shortage of participants wanting to jump on the bandwagon. The number of exploration tenements issued in PNG jumped from 119 in 2006 to 311 in 2010, and tenements under application more than doubled to 143 in 2010 from the year before. Overall, exploration spending has doubled since 2006 and stands at US$89 million.

Current mines There are now nine active mining operations in Papua New Guinea: > Ok Tedi (copper, Western Province) > Porgera (gold, Enga Privince) > Lihir (gold, New Ireland Province) > Tolukuma (gold, Central Province) > Kainantu (gold, Eastern Highlands Province) > Simberi (gold, New Ireland Province) > Sinivit (gold, East New Britain Province) > Edie Creek (gold, Morobe Province) > Hidden Valley (gold, silver, Morobe Province)

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‘The last year has been amazing. There has been almost 100% growth in 12 months.’

New developments in the sector PNG’s latest gold mine is the Harmony Gold/Newcrest Mining Hidden Valley mine in Morobe Province, which was commissioned towards the end of 2010. The mine is expected to produce 250,000 ounces of gold and 3.4 million ounces of silver annually for the next 14 years.

2010 also saw Newcrest’s US$10 billion friendly takeover of Lihir Gold. The deal, worth around US$26 billion, has created the largest gold producer in the Asia–Pacific region, with 10 projects in five countries.

Newcrest has boosted its support for the $US1.23 billion upgrade commenced at Lihir in 2008. When completed at the end of 2011, gold production is expected to rise to as much as 240,000 ounces a year.

In early 2011, Nautilus Minerals was finally granted a mining lease on its pioneering Solwara I undersea deposit and hopes to have a copper and gold mining operation in production by late 2013. The PNG Government plans to take a stake through its Petromin company.

Chief executive Stephen Rogers tells Business Advantage the company has managed to drill up to 50 metres below the seabed to test the size of the deposit: ‘Because the ore body is very close to the seabed, far less overburden will have to be moved than in a typical land mine. When the deposit is exhausted, the ship mining operation will simply be moved to another deposit. You can move a mining vessel very cheaply.’

MINING UPDATE

Credit: Xstrata Copper

Expanding services

Xstrata's Frieda River gold project demonstrates clearly the challenges facing miners in Papua New Guinea's rugged environment.

The Ramu nickel-cobalt project, which will allow PNG to break away from its traditional reliance on gold and copper, is in its final development stage, although it has recently been hindered by a legal dispute over the proposed method of disposing of the mine’s tailings. The $US1.5 billion project in Madang Province, which has an ore resource of 143.2 million tonnes, is being led by the China Metallurgical Group Corporation and represents the first major Chinese investment in the mining sector.

Fresh potential Several other major projects are likely to be developed within the next seven years. These include the Xstrata-led Frieda River in Sandaun Province. Potentially one of the world’s largest copper and gold deposits, a feasibility study is due early in 2012.

Marengo Mining’s Yandera copper-molybdenum-gold project in Madang Province received a boost recently, with the company raising reserve estimates 32% after proving work.

Potential at Newcrest and Harmony Gold’s Wafi-Golpu deposit in Morobe Province is also on the rise. Work has shown it to contain 16 million ounces of gold and 4.8 million tonnes of copper, but the companies believe further work may show the reserve to be double this size. Feasibility studies at Wafi-Golpu could lead to a development decision in 2014.

The boom in the minerals industry is creating a commensurate boom for those who service the mining and petroleum sectors.

‘The last year has been amazing. There has been almost 100 per cent growth in 12 months,’ says Andrew Cooper, General Manager of equipment and services company UMW. ‘Turnover for 2010 will be close to K300 million (US$120 million). It’s not bad when in 2005 it was K30 million (US$12 million).’

Cooper says the growth in 2010 came from supplying equipment to existing projects and also the successful tender to supply construction equipment for the pipeline section of the massive PNG LNG project.

Meanwhile, NCS, which started life as a landowner joint venture providing catering services at the Lihir project, has grown into a national catering and camp management operation with more than 1500 staff at more than 15 sites. NCS recently celebrated the opening of a state-of-the-art kitchen and dining complex at Lihir and won a series of new contracts on the massive PNG LNG project as part of a new joint venture, The Alliance Group.

Other key players in the mining services sector include, Hastings Deering, which has three branches in PNG and Orica Limited.

Airlines lift Given PNG’s mountainous terrain, the airline industry is a vital partner in development. Local flyer Hevilift just added two new 45-seat fixed wing ATR 42-320 aircraft to its fleet.

Late in 2010, mining engineering group Golder Associates, which has provided mining engineering and related services in the country for 40 years, launched its first PNG company. Golder’s PNG Managing Director, Geoff Hurley, says the company would help meet growing demand, create opportunities and increase business efficiency.

Bright future Over the past two years there has been significant capital expenditure at Barrick Gold’s Porgera mine in Enga Province, and technical studies are being done at the massive Ok Tedi copper mine in Western Province to extend its life beyond 2013. Plans to extend the life of the once controversial mine would involve the adoption of a combined open cut/ underground operation and come following measures to remove sulphur from mining waste.

Industry regulation Mining in Papua New Guinea is regulated by the Mining Act of 1992 and the Mining Safety Act and is administered by the Mineral Resources Authority (MRA), a statutory body. The MRA’s activities are funded by a 0.25% industry levy on existing mining operations. Its role includes promoting exploration and development and providing exploration and geological data.

The PNG Government launched a review of mining regulation in 2009, and calls for public input were made in June 2010. Mining Minister John Pundari says the review encompasses all legislation and will develop policy for off-shore developments along with standards for mine closures and employment of mining workers. The review is scheduled to be finished in May 2011.

29

MINING UPDATE

CASE STUDY: HORNIBROOK NGI PNG’s largest steel fabricator, Hornibrook NGI, provides of a wide range of products and services to the country’s mining and petroleum industry.

Credit: Hornibrook

Hornibrook’s 6,400 square metre workshop in Lae has manufactured processing tanks for Tolukuma, conveyors for Porgera, pipe spooling for Kutubu, and what Managing Director Mal Lewis calls ‘probably our biggest job: hard ore hoppers for Lihir.’ The company also provides turnkey building services—right down to the furniture—such as accommodation it is currently building for Oil Search.

Lewis says Hornibrook has been involved in every mine project in PNG since the 1990s.

‘If you look at our business we had initially, steel fabrication, we used to have a fairly small building and construction entity because we used to sell the frames for the buildings…[then] six years ago suddenly everyone wanted to hire gear from us. Because we do it

well, that business started to grow.’

Its transport division provides trucks, tankers and trailers to the sector, building them to the ‘tough, heavy duty’ standards required to cope with PNG roads. Other elements of Hornibrook’s verticallyintegrated business model include bridge construction and labour hire.

PNG superannuation fund NASFUND’s 2007 investment in the company is opening up new opportunities, especially in property.

Hornibrook is developing a ‘satellite suburb’ outside Lae, which it expects to generate retail and commercial development, supporting Lae as the gateway to oil, gas and mining activity in the Highlands region.

‘We started off six years ago with some shareholders’ loans and a zero on the balance sheet and no assets, and now we’ve got in the order of K100 million on the balance sheet,’ says Lewis. ‘There are investment opportunities all over the place if you can do it right.’

30

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Credit: Bemobile

Feature

Telecommunications companies' marketing activities in PNG involve regular forays into remoter communities.

PNG’s ICT evolution Information and communications technology (ICT) reform in PNG is not only delivering cheaper prices and stronger competition: it is also helping businesses devise a new generation of innovative services.

A

s most companies that do business there will tell you, while it can be very rewarding, Papua New Guinea is a demanding environment in which to do business. One of the reasons for this is undoubtedly its infrastructure, which has struggled to keep pace with the country’s needs in recent years.

In the past five years, however, one area of infrastructure in particular has made significant progress—information and communications technology (ICT).

From 2007, when Irish-owned Digicel aggressively entered the local mobile market, the sector has experienced the benefits of increased competition. Prices have fallen for mobile calls, reliability has improved markedly and the mobile networks themselves have expanded to cover over 75% of the country’s population—quite some feat in a country with a population as widely distributed as PNG’s.

Some estimates suggest that more than 1.5 million Papua New Guineans—perhaps 25% of the population—now have mobile phones, compared to just 65,000 fixed line subscribers.

Opening up the sector The latest stage of the ICT reform process occurred in 2010, with the passing of a new ICT Act, the creation of a new industry regulator (NICTA—the National Information and Communication Technology Authority) and the commencement of a new regulatory regime on 1 November 2010.

The new regime is designed to remove Telikom PNG’s remaining monopolies in fixed line and broadband services and encourage greater competition, as Paul Tevlone, Acting Chief Executive Officer at Telikom PNG, tells Business Advantage: ‘The major change in the policy is that the retail market will be deregulated and opened up, and the market itself will dictate pricing.’

John Mangos, Chief Executive Officer of Digicel (PNG) Limited, explains what this means for Telikom’s competitors: ‘It effectively means that someone like Digicel will migrate our licence from a mobile-only licence to looking at all telecommunication services.

It has created a broader, more level playing-field, not just for ourselves but for anybody coming into the market.’

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Digicel has already made its first move to broaden its offering by acquiring specialist telecommunications systems integrator and internet service provider Data Nets Limited, which has operations in PNG and Fiji.

Rising to the PNG challenge For ICT companies, PNG presents several challenges for service delivery.

‘From our standpoint logistics are an enormous challenge,’ notes Stuart Kelly, Chief Executive Officer of Bemobile. ‘The cost of internal travel is high, so if you’re sending people goods—in our case handsets or cards—that is quite significant. Power is still a challenge, but it’s getting a lot better and the remoteness and topography of the land are also a challenge.’

Not that they can’t be overcome. In fact, the very nature of PNG’s exacting environment has driven innovation.

‘If you throw in the technology, which is going in leaps and bounds, it is the player who takes the initiative to look at new, innovative strategies and ideas who will obviously have the advantage,’ asserts Telikom’s Paul Tevlone.

The services initially deployed by the telcos themselves to keep their own customer service operations cost-effective in such a demanding environment—mobile credit and balance checking, for example—are now being offered to external parties in a range of sectors.

Retail customers of state utility PNG Power, for instance, can now pay for their electricity by mobile phone when their electricity metre runs out in the middle of the night (all power in PNG is prepaid).

Members of the country’s main superannuation funds, NASFUND and Namabawan Super, and of the Teachers Savings and Loan Society credit union can now check their balances by SMS. Mobile banking is one development currently under way, with the country’s largest bank, BSP, expecting to launch a mobile ‘e-account’ in mid-2011, to complement its rural banking initiative (see box on opposite page), and a new internet banking service. Mobile technology could well deliver new services in the insurance sector too.

Feature

BANKING SERVICES REACH PNG’S RURAL POPULATION PNG-based Bank South Pacific’s (BSP) new rural banking initiative is a fine example of how better IT and telecommunications infrastructure is enabling innovation in product and services delivery in PNG. The initiative, which is being rolled out progressively through 2011, is aimed at delivering banking services to the ‘unbanked’ of BSP’s Ian Clyne holds a new breed of EFTPOS terminal which will be PNG’s rural areas through a deployed by BSP on an exclusive basis combination of wireless-enabled across the Pacific. branches and phone banking. It aims to create at least 200,000 new BSP customers over the next three years.

statistics that some K900 million in cash is in circulation around the countryside, but only about K200 million of that is in banks. ‘Once people have a bank account, you start building a financial history.

Banks like information and in the absence of any information it is hard to make valid credit decisions. We think by placing these branches in the districts, money will circulate within the local areas and that will help develop small and micro-business opportunities for people.’

The project has the financial support of the International Finance Corporation, also an investor in BSP. The branch network will be extended by a range of phone banking services delivered via the network of telecommunications company Digicel.

‘To provide all these services manually is not economical,’ observes Ian Clyne, BSP’s Chief Executive Officer. ‘Modern technology is enabling BSP to take it to the people.’

‘[The aim] is really to get the money out from under the mattress,’ says BSP’s Head of Rural Banking Paul Thornton, citing Bank of PNG

Rising data usage

Increased demand for IT services

Such services are easy for the consumer to access using a basic handset and cost-effective to deliver—critical factors in PNG’s operating environment. All three telcos have business development teams working hard with the business community to further proliferate mobiledelivered services.

‘When you talk to corporate customers, they’re not talking voice services anymore, they’re talking data services,’ says Paul Tevlone.

One measure of just how much Papua New Guineans have embraced this new way of conducting their daily transactions is to consider the dramatic rise in data usage.

‘We’ve doubled our data usage in the last three months and that’s purely because it’s available to everyone,’ Bemobile’s Stuart Kelly told Business Advantage in February 2011. My view of the internet in PNG is that it’ll be successful through mobile phones.’

The rise in demand for data services in PNG has been accompanied by a parallel demand for greater reliability and quality in IT services, driven in no small part by the major resource projects currently under way in the country. Companies like Remington, Datec and Daltron are all IT service providers with offerings that range from computer hardware through to complex IT services and training.

‘There was a bit of a lag, but we started to see opportunities arising from the [ExxonMobil-led] PNG LNG Project from the last quarter of 2010 onwards,’ says David Macindoe, Commercial Manager with Steamships Trading Company, which owns Datec, also the country’s largest internet service provider. ‘There are now expectations for serious service delivery, with more systems analysts and systems engineers needed.

With IT services companies such as Australia’s MCR and Allcom PNG entering the market in recent years, Macindoe is anticipating a more competitive sector in future.

In addition to IT services, Remington also supplies satellite phone technology—a essential service for mining companies working in remote areas.

‘Mining companies need to be able to set up communications wherever they are. Increasingly, we’re dealing with small companies in isolated areas which are not serviced by Telikom,’ notes Ken Harvey, Managing Director of the LBJ Group of Companies, which owns Remington. Over the whole business, Harvey reports growth of between 15% and 25% per annum over the past three years.

‘As more people are pressing buttons, we’re doing better,’ he says with a smile.

A national broadband network Notwithstanding the popularity among consumers of handset-delivered data services, business is crying out for faster, more reliable and cheaper broadband internet.

The PNG Government has announced its intention to buy into the high-speed fibreoptic cable network being created to support the ExxonMobil-led PNG LNG gas project, creating in the process a national broadband network. The Government’s US$60 million investment through the Independent Public Business Corporation (which manages PNG’s state-owned enterprises) is likely to see the PNG LNG network integrated with existing broadband infrastructure run by Telikom PNG and PNG Power, together with the laying of new fibreoptic cable.

‘The ability to piggy back on the PNG LNG project has provided this country with an ideal opportunity to implement a national broadband strategy at a substantially lower cost than would otherwise be possible,’ announced State Enterprises Minister Arthur Somare in December 2010.

If all goes according to plan, the new network could be delivering high-speed internet services as early as the end of 2012.

Open to all comers While one might characterise what is happening in PNG’s ICT sector as an evolution rather than a revolution, there is no doubt that the market is growing strongly, and is likely to continue to do so as PNG’s economy expands.

‘The market’s open … more and more people are going to be looking at PNG and asking “How do I get involved in the marketplace? What can we deliver?”,’ says John Mangos. ‘I think you will see a lot more people deciding to compete in the market.’

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Feature

CASE STUDY: BEMOBILE Initially a wholly owned subsidiary of Telikom PNG, mobile phone operator Bemobile was put on a new footing in 2008 when half the company was acquired by Capital Way, a private sector consortium consisting of Hong-Kong-based private equity fund General Enterprise Management Services, telecommunications company Trilogy International Partners, and PNG investors NASFUND, Nambawan Super and PNG Sustainable Development Program Ltd capital.

While this level of private sector investment in a state-owned enterprise was a first in PNG, the capital injection that came with it was essential to enable Bemobile to compete with Digicel, the Caribbean–based mobile phone company which entered the PNG market in 2007 with all guns blazing and rapidly acquired market share.

Bemobile expands its customer base.

‘We’ve grown our active subscriber base by roughly 50% in the last ten months and they’re pretty impressive numbers for anyone working in a market like this,’ says Kelly.

Kelly adds that the company has also had particular success offering closed user groups to business, where perhaps 500 employees can be provided with centrally-managed handsets on a single bill and with free internal calls.

Bemobile is expanding outside PNG too. In late 2009, it was granted the second mobile operator licence in the neighbouring Solomon Islands and, after a slow start, is now the market leader there.

Finally, Kelly is bullish about the newly deregulated environment in telecommunications:

After a rebranding and the appointment of new management team with a strong experience in developing markets, Bemobile is starting to make some inroads.

‘The future long term plan of this company is to expand beyond traditional mobile telephone services and see what else we can do.’

‘We were always perceived as a cheap alternative, to be perfectly honest,’ says Chief Executive Officer Stuart Kelly. ‘Over the last year we’ve changed that dramatically. We’re now seen as the best value offering and there’s a big difference between best value and being cheap.’

Better handsets, more data services, better availability of top-up cards in the marketplace and competitive pricing have all helped

Bemobile's Stuart Kelly

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Financial Services

Expanding services Operators across PNG’s financial sector are making significant investments to deliver services to an expanding and increasingly sophisticated market.

A

ccording to Bank of PNG Governor Loi M Bakani, PNG’s financial system ‘remains resilient, well capitalised with adequate levels of liquidity, [a] low level of non-performing loans and is highly profitable.’

In 2010, total liquidity of the banking system increased by 1.4% to K6618.3 million (US$2622 million), due mainly to draw downs in trust account funds.

The Bank of PNG is now looking at the regulatory environment for mobile phone banking, and has carried out a review of the national payments system with a view to improving the timely clearing of transactions and reducing costs and risks.

Investment and expansion PNG’s banking sector continues to be dominated by three large banks: Bank South Pacific (BSP), Westpac and ANZ. The locally-owned BSP is the country’s largest bank, reporting an after tax profit of K283.15 million (US$112 million) for the financial year 2010.

‘Our business model is really looking at electronic channels,’ says BSP Chief Executive Officer Ian Clyne, including investment in wireless EFTPOS technology, and internet based products.

BSP is also investing in rural banking through BSP Rural, with the aim of establishing 100 agencies by mid 2012 (see page 33), and has developed a prototype ‘container’ branch—literally a branch in a shipping container—which can be set up and moved relatively easily.

It also investing in new operational infrastructure, spending over K200 million (US$80.7 million) on a new Pacific Operations Centre, data centre and executive offices.

Westpac PNG’s Managing Director Ashleigh Matheson says the bank is looking to double its customers over the next three years, primarily through electronic means. The bank is doubling its ATM network in 2011 and is well down the path of launching ‘smart’ EFTPOS machines.

ANZ’s Chief Executive Officer Papua New Guinea and Pacific North West Vishnu Mohan says ANZ has a major competitive advantage as a ‘super-regional bank.’

‘We have a footprint of offices in 32 countries and territories across the Asia–Pacific at this point in time, and it's still growing. We are able to connect those customers with this part of the world. We are actively selling that aspect of our business,’ he says.

Like its competitors, ANZ is running financial literacy programs (under the moniker ‘Money Minded’) and investing in technology.

We’re also looking at ways of banking the unbanked using modern technology,’ says Mohan.

‘We’re pre-empting that more and more people are going to come to PNG and we’re going to have more and more investment.’

Super funds continue to perform PNG’s two major superannuation funds performed well in 2010, and are now focused on consolidating their holdings.

Nambawan Super, had a portfolio return of 11% to its 124,000 members, and net profit of K263 million (US) in 2010.

Managing Director Leon Buskens says Nambawan Super is aiming for more balance in its investment portfolio.

‘We’ve just got to really tightly manage our ability to monitor and watch, and manage the opportunities and risk,’ Buskens told Business Advantage.

PNG’s other large superfund, NASFUND active membership of 140,545 contributors were credited with 15% return following strong net profit of K294 million ($US$119 million) in 2010.

Finance Several financial services companies operate in PNG, including Kina Securities. Its investment fund, Kina Asset Management Ltd, generated an investment gain of K7.4 million (US$ 7 million), representing a 17.25% return in 2010.

Kina Securities’ Chief Executive Syd Yates says PNG’s financial sector is ‘still really strong, probably because we’ve had good supervision, but also because we haven’t been exposed to the financial crisis like some of the other countries.’

Kina Securities has established its own risk management department.

‘We treat that as an investment in the future,’ says Yates. ‘We’re preempting that more and more people are going to come to PNG and we’re going to have more and more investment. You’ve got to provide a certain level of comfort to people especially coming from overseas.’

Insurance PNG’s insurance industry is facing a number of regulatory changes.

A Proceeds of Crimes Act, and Insurance Contracts Act—focused on domestic-style insurances—are in train. Existing insurance laws may also be changed to accommodate micro-insurance and to respond to current economic conditions, online quoting and other technological changes.

Wayne Dorgan, Managing Director of Pacific MMI, says the PNG insurance market is growing.

‘Ten years ago, PNG was quite an isolated insurance market; PNG today is a global insurance market. We have to buy reinsurance on a global platform and part of the risk management that’s involved in the insurance industry here is to spread the risk far and wide through the accepted channels.’

Like others in the financial sector, Dorgan foresees some opportunities for use of mobile applications in the insurance industry in future, given the very high level of mobile phone penetration in PNG.

35

INFRASTRUCTURE & TRANSPORT

Credit: PNGSDP

Volumes through Port Moresby’s port have increased by 4.5% over the past year, according to PNG Ports’ Brian Riches.

New investments to power economic growth

Papua New Guinea is charging ahead, particularly in the power sector, with the help of development banks and private investors, plus increased attention from the PNG Government.

P

Credit: Pacific Islands Trade & Invest

NG’s sustained economic growth has placed increasing demands on its roads, power and water supplies, ports and aviation networks. Several projects are helping to address this demand.

Major projects on the Asian Development Bank’s (ADB) books include port construction in Lae, ongoing support for the Highlands Highway, and the proposed Ramu II hydro-electricity project.

There is considerable activity in the power sector, with state entity PNG Power joining local superannuation fund Nambawan Super to fund investment in the Port Moresby electricity grid. A number of hydroelectric projects are also planned.

PNG is well connected to the Asia–Pacific, and improvements to ports through the ADB’s Tidal Basin project will bring tremendous improvements to the country’s most important port in Lae, the centre of export activity. PNG Ports is also investing in Lae and Port Moresby ports and, to a lesser extent, in several of the 16 other ports it manages.

Asian Development Bank Country Director Charles Andrews says a challenge in improving infrastructure is a lack of available contractors.

Power supply service connection to family houses in Western Province. Currently, only about 9% of PNG’s population has access to mains electricity.

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‘PNG’s busiest port, Lae, is undergoing a major expansion that should be completed by 2014.’

For example, only one compliant bidder tendered for the ADB’s K20 million (US$7.8 million) Community Water Transport project to build 19 jetties in smaller ports.

‘It takes a bold decision to set up here. What will be the real litmus test is how many tenders we receive for the Lae port project, which is a straight engineering contract,’ Andrews says.

Energy Energy in PNG is provided by the state utility, PNG Power, although its service is affected by problems particularly in Port Moresby and Lae. Most businesses have their own power generators as backup, and PNG Power chief executive Tony Koiri has said that power interruptions are expected until 2014 because of funding shortfalls for maintenance and upgrading work.

These problems have prompted the Independent Public Business Corporation (IPBC) to negotiate a memorandum of understanding (MOU) with Nambawan Super Ltd to fund system upgrades. Nambawan Managing Director Leon Buskens says the MOU is a strategic attempt to look at opportunities: ‘One is short term which is looking at an independent power producer and aligning with a reputable provider, and, on the wholesale side, to supply energy to PNG Power. It’s a win-win outcome.’

Andrews says power sector reforms are ‘going to be big’. The ADB has approved its first loan for the Towns Electrification Project, which involves small hydropower stations in six provincial towns. The ADB will also support a Port Moresby grid development project that will improve transmission and distribution. Andrews says the World Bank and Japan International Cooperation Agency (JICA) are also interested in this project.

INFRASTRUCTURE & TRANSPORT

‘PNG Power has the opportunity to perform if opened up to public– private partnerships,' says NASFUND's joint Chief Executive Officer, Rod Mitchell.

Discussion about a planned liquefied natural gas-powered power station as part of the LNG terminal for InterOil's LNG project is also causing excitement in the power sector.

Aviation

PNG’s busiest port, Lae, is undergoing a major expansion that should be completed by 2014.

The ADB says construction is expected to begin in Q4 of 2011.

Charles Andrews says project costs are already rising because of supply-side constraints.

State-owned PNG Ports Corporation Limited manages PNG’s 16 declared ports. PNG Ports Chief Executive Officer Brian Riches says their priority is ‘getting new equipment in and remodelling the two major ports, to improve efficiency and productivity, and working with our stakeholders to do that’.

PNG Ports is also looking to partner with resource developers ‘to see how we can support them, give them value and obviously give the ports, as an entity, value,’ Riches says (see box on page 38).

Shipping PNG is serviced by international shipping companies and smaller operators working its busy coastal network.

These include Swire Shipping, which operates four vessels between Australia, PNG and Solomon Islands. Consort Express Lines has 12 ports of call including Townsville in Australia. Consort specialises in basic sea freight and logistics support for the mining and petroleum sector. New Zealand-based Sofrana operates between Australia, New Zealand, PNG and other South Pacific Island destinations.

A newer entrant, Malaysian shipping company Hubline, has agreed to set up a joint venture with the Gulf Provincial Government and two Hong Kong-based investment firms to provide shipping and logistics support, mobilisation works and procurement of materials related to LNG and other resource-based projects in PNG Gulf Province. Hubline

Credit: PNGSDP

The ADB is implementing a 10-year US$640 million airport development project, including expansion at Jacksons International Airport in Port Moresby, new security systems at Kavieng, and improvements at Wewak, Alotau, Kimbe and Mt Hagen. Landing safety system upgrades are already complete under this program.

PNG has 20 major airports owned and managed by the National Airports Corporation Limited. The country is serviced by four main airlines: national carrier Air Niugini Limited (ANL), POMSoX-listed Airlines PNG, Virgin Blue subsidiary Pacific Blue and Qantas Airways. ANL flies to several Australian cities, Nadi, Tokyo, Honiara and Kuala Lumpur, and has plans to increase its existing services to Singapore, Manila and Hong Kong. It also has PNG’s most extensive domestic network.

ANL Chairman Sir James Tjoeng says the airline hopes to reach one million passengers in 2011, and that the business has benefited from the ExxonMobil LNG investment. ANL is upgrading its fleet, replacing F100s with Dash 8 Q400s. It is also looking to increase its air freight business— crucial to service the growth in PNG’s economy—out of Australia, the US, China and Japan. In March 2011, ANL began a weekly airfreight service from Cairns to Port Moresby using a 767 aircraft with capacity for 15 tonnes of freight.

Tjoeng says competition in the aviation sector has been good: ‘It’s made us pick up our game a bit. It also benefits consumers— there are more people travelling.’ He says the sector faces several challenges, including the generally poor state of airstrips, inadequate facilities at Jacksons International Airport, the cost of housing engineers in transit and rising labour costs.

Airlines PNG also flies domestically, and to Australia via a codeshare arrangement with Pacific Blue. The airline reported a 42% increase in operating revenue to K211 million (US$82 million) in 2010 because of new contracts with resource companies and increased domestic traveller numbers.

Qantas operates a code share arrangement with ANL and also runs 12 weekly services from Cairns to Port Moresby. There are plans to operate a service to and from Brisbane in competition with ANL. Aside from the big players, smaller companies provide air charter services for business, miners and tourists.

Ports

Upgraded roads and wharves are crucial for PNG’s development.

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INFRASTRUCTURE & TRANSPORT

PNG PORTS HEADS FOR PROFITABILITY expedite workflow. One crane will be assigned to Port Moresby and three to Lae. ‘We should increase productivity by at least 40% by the cranes alone. [Currently] most of it is done by ships’ gear, so it’s a massive change,’ says Riches.

Most of Papua New Guinea’s ports should be profitable within two or three years, according to PNG Ports Chief Executive Officer Brian Riches.

Riches says port growth has been consistently between 3% and 14%. ‘Over the last year Lae port has been relatively stable, but we’re gearing up for this to be the year that the LNG cargo and other cargo going through Lae will increase. Port Moresby has been above average by about 4.5% at least.’

PNG Ports is in the process of procuring gantry cranes for managing the container lay down areas, and harbour cranes to

was granted a domestic shipping licence in 2010, and operates three container ships and four break bulk vessels in PNG. Its expansion plans include investment in specialised tugboats and barges.

Roads Papua New Guinea’s 27,000 km road network is a crucial element of the country’s economy. The major artery is the 700km Highlands Highway, which connects the provincial capitals of Lae, Madang, Goroka and Mount Hagen, where gold, oil and gas and agricultural production are centred.

The ADB funds the rebuilding of 100–120km of road on the Highlands Highway annually. Charles Andrews says local contractors are performing better on this project, and that ‘the professionalisation of landowner companies is something to note’. He says while there is no government funding for routine maintenance of PNG roads, there are signs this is turning around.

In January 2011, PNG media reported Works Minister Sam Abal as directing that a program be presented to seal all 9,000 km of national roads. An estimated 36% of these roads are currently sealed.

'If we plan to seal 500 km each year though a phased program, we are able to cover the entire national roads adequately in a short period of time instead of spending billions of kina on upgrading and gravelling,' Abal said.

The PNG Government is also negotiating with oil and gas developers on the opening of five strategic road links: along the Highlands Highway from Lae to Morobe and Wabang; the Gulf to Kikori road link; Banz-Ruti to Madang; Bogia (Madang) to Angoram; and a New Britain Island connection between East and West New Britain.

Nambawan Super’s Leon Buskens says there should be consideration given to issuing bonds to fund infrastructure work such as maintenance of the Highlands Highway.

‘There are precedents for deploying capital this way,’ he tells Business Advantage.

He says the spin-off effect of the LNG project has already been very good. ‘We’re positioning ourselves as the port of choice—even though there is competition out there—in terms of productivity and attention to detail. We have a few little issues with organisations in the supply chain, customs, quarantine and a few others but we have a good relationship and we’re working on those issues.’

Riches says PNG Ports understands that to increase productivity, it needs to invest in shore cranes. ‘In the process of doing that we are rearranging our relationship with the stevedores, saying we all need to focus on productivity.’

Water PNG Waterboard manages water supply and sewerage services on a commercial basis. The Board operates 17 water and sewerage districts throughout the country, serving just 300,000 urban dwellers or less than 6% of PNG’s population. Full sewerage systems operate in Lae and Mt Hagen and limited systems in other urban centres.

In Port Moresby, urban water authority Eda Ranu provides water supply and sewerage services to some 250,000 residents.

In 2010, the Japanese Government signed an Overseas Development Agreement (ODA) with the PNG Government for up to 8.261 billion yen (US$97.5 million) for the Port Moresby Sewerage System Upgrading Project. The project will see construction of a sewer facility to control the outflow of untreated sewer water into the ocean.

Telecommunications and ICT Turn to page 32 for our feature on the evolution of PNG’s ICT sector, which is now being deregulated.

Credit: Hela Transitional Authority.

PNG Ports' Brian Riches

Repairs and maintenance work worth K$17 million (US$6.6 million) are ongoing in Port Moresby, and workflow improvements worth K$20 million (US$7.8 million) each in Port Moresby and Lae. ‘On our board for this year we’ve got about K$200 million (US$78.4 million) [in expenditure],’ Riches says.

A new road in PNG's Southern Highlands.

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39

AGRIBUSINESS & TRADE

Credit: NBPOL

Palm oil is the star of PNG's agribusiness sector

Harnessing PNG’s natural advantages PNG’s agricultural commodities are finding their way across the world.

P

apua New Guinea has a natural advantage in agricultural production. It has rich soil, a warm climate that includes high seasonal rainfall, and a population that lives largely on agricultural land and possesses a high level of farming expertise.

Agriculture is a major part of the economy, accounting for more than 25% of Papua New Guinea’s GDP and about 85% of PNG’s people are engaged in food production at the subsistence level.

Low-intensity farming methods, and the absence of pesticides and artificial fertilisers, present opportunities for PNG to position itself as a leading organic producer. PNG is also developing its Fairtrade potential, particularly in the coffee and cocoa sectors.

Oil palm, coffee and cocoa are the nation’s three most valuable cash crops, together representing almost 80% of PNG’s total agricultural export values. Other products include copra, spices, sugar and tea.

Livestock—especially beef, poultry and pigs—also plays a significant role, particularly in the local market. The bulk of PNG’s exports are raw or part-processed commodities, although there is an increased emphasis on value-adding before export.

Key opportunities With the exception of oil palm, plantation production of all cash crops has declined over the past 30 years, although, as the authors of the recent book Food and Agriculture in Papua New Guinea state, production of export crops by villagers has increased. This speaks to the potential of agriculture with improved management and investment.

This is where companies such as New Britain Palm Oil Limited (NBPOL) have found success. Papua New Guinea's largest oil palm producer has harnessed the nation’s natural agricultural advantage and applied economies of scale. The oil palm plantation and milling operator also exports unrefined produce to Europe but has taken the step of building its own palm oil refinery in the United Kingdom—close to its major European customers—to add value.

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‘Low-intensity farming methods, and the absence of pesticides and artificial fertilisers, present opportunities for PNG to position itself as a leading organic producer’ Major export markets PNG coffee’s major markets are Europe and the US, with the larger international coffee companies accounting for the bulk of green bean exports. Several PNG coffee companies, such as Kongo Coffee and Carpenter Estates, are exporting roasted beans to get higher prices.

PNG cocoa supplies around 2% of the global market and there is potential to increase production significantly. Meanwhile, spices such as vanilla, pepper and mace and are being processed and packaged for sale internationally by companies such as Paradise Spices and Pacific Spices.

Pacific Spices opened the first processing plant of its kind to produce oil of vanilla and pure vanilla extract in 2010.

‘The potential is quite huge with the market we’re looking at now and the new markets are opening to us,’ Pacific Spices’ Chief Executive Officer Mickey Puritau tells Business Advantage.

About 10% of tea produced in PNG is used locally, with the rest exported to Russia, Germany, the United Kingdom, the US and other markets.

Credit: Pacific Islands Trade & Invest

The six-year US$46.3 million Word Bank-sponsored Productive Partnerships in Agriculture Project will aid coffee growers and other smallholders in Papua New Guinea over the coming six years.

AGRIBUSINESS & TRADE

SELLING TO PNG Austrade’s Trade Commissioner in Port Moresby, Kevan Dacey, outlines the opportunities to supply goods and services to Papua New Guinea’s growing economy.

It is an exciting time to be working in Papua New Guinea. The largest components of the US$15 billion Exxon Mobil LNG project project are rapidly taking shape at the LNG plant site just outside Port Moresby, with other significant contracts also proceeding in the Southern Highlands and Western Province areas. The project continues to provide opportunities for Australian companies, with an estimated US$3 billion worth of contracts already won. Two further LNG projects, run by InterOil and Talisman Energy, are likely to bring further business.

In the mining sector, the plans to upgrade production at existing mines and planned new projects (see page 28) will also increase opportunities for specialist companies.

This growth in the resource and mining sectors is causing businesses to gear up to take advantage of the spill-over opportunities in the road, water supply, power, telecommunications, port and airport infrastructure required to support these projects.

The construction industry is extremely buoyant. Architects, developers, local stockist merchants and contractors are evaluating their traditional sources of supply and opportunities are available

to introduce new, innovative products into the construction sector. This sector requires a hands-on approach to marketing and a commitment from suppliers to study the market, meet with specifiers and end users and commit to regular market visits.

With the rapid population increase due to the construction phase of these major projects opportunities are emerging to supply a wide range of food and beverages as local production does not have the capacity to meet demand.

PNG is one of Australia’s largest aid recipients with AUD$457 million budgeted for 2010—around 12% of PNG’s overall revenue.

The aid program will focus on education and health, and roads maintenance. Overseas companies can access this funding either directly or by working with local companies.

There are also major opportunities in the education and training sectors and within the IT sector as PNG rapidly develops.

PNG currently imports around A$2 billion per annum of Australian goods and services: about 43% of its total imports. Given the close ties between the two countries, and the fact that PNG standards are written around Australian standards, importers are increasingly looking to Australia for supply.

Further information Austrade in Port Moresby can assist Australian companies to evaluate the market, develop a strategy to enter the market and undertake market visits in the most cost-effective manner. Contact the Australian Trade Commission in Port Moresby on tel +675 3259150/+61 2 6202 8341 or email kevan.dacey austrade.gov.au.

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LAE SALES OFFICE Phone: (675) 472 3555 Fax: (675) 472 7967

KOKOPO SALES OFFICE Phone: (675) 982 9861 Fax: (675) 982 9860

MT. HAGEN SALES OFFICE Phone: (675) 542 3994 Fax: (675) 542 3950

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MANUFACTURING

Credit: MCPNG

Goodman Fielder bakes bread for the local PNG market.

The rush to meet soaring demand PNG’s booming domestic market is driving substantial new investment in manufacturing.

P

NG produces a wide range of products, from beer and biscuits to industrial products and refined petroleum. These are aimed largely at a domestic market that is growing so rapidly that many local manufacturers are struggling to meet demand. Many producers also cater to the business-to-business market, especially the booming mining, petroleum and construction sectors.

PNG’s manufacturing sector employs around a quarter of the formal workforce, while its contribution to GDP is estimated at between 6% and 11.5%. Much of PNG’s manufacturing sector is centred around Lae and, to lesser extent, Port Moresby.

Downstream processing Given PNG’s wealth of natural resources, it is little surprise that downstream processing plays an important role. Examples include the loining and canning of fish, converting local timber into plywood, roasting coffee and even gold-refining. Local producers are also increasingly finding new markets, particularly in the neighbouring Solomon Islands and other Pacific Islands, and also in Australia and New Zealand.

The PNG Government aims to significantly expand the scale and scope of downstream processing by offering incentives and concessions including export sales exemptions and wage subsidies.

The Manufacturers Council of PNG runs a ‘PNG Made’ campaign that encourages PNG consumers to buy locally made products.

Growth spurt Many of PNG’s manufacturers are reporting robust growth and major expansions. S P Brewery, which dominates the PNG beer market, is close to completing a K94 million (US$37 million) expansion program, while Coca-Cola Amatil is building its CO2 plant in Lae and a plastic bottle production plant in Port Moresby for nearly K20 million (US$8

‘ This kind of blue-chip international interest in PNG’s productive sectors could scarcely have been imagined even a decade ago.’ million). Paradise Foods, which produces snack food and noodles, has aggressive plans to extend their wide product range.

‘We have experienced a growth rate of about 15% per annum over the past five years. As a result, we are now bursting at the seams and so have purchased 10 hectares of land to build a new production and distribution centre,’ says Michael Kingston, General Manager of manufacturing firm K K Kingston. When the company completes its relocation to Kamkumung on the outskirts of Lae, it will become neighbours with the Lae Biscuit Company, which inaugurated its K65 million (US$25 million) new facility in April 2010.

Blue-chip investors This wave of investment is being underwritten by an array of blue-chip institutions. S P Brewery’s largest shareholder is multinational Asia Pacific Breweries, while its largest local shareholder is one of PNG’s two powerful superannuation funds, Nambawan Super, which also owns 80% of Paradise Foods. Meanwhile, major agribusiness company Mainland Holdings has just sold a substantial stake to PNG’s other superannuation company, NASFUND. K K Kingston’s growth is being underpinned by significant investments it recently received from the regional Kula Fund and the private sector arm of the World Bank, the IFC. This kind of blue-chip international interest in PNG’s productive sectors could scarcely have been imagined even a decade ago. It also implies a widespread belief that strong growth will be maintained in the long term.

Edited extract from Made in PNG 2011 (www.madeinpng.com).

MAGAZINE GUIDE TO GOODS MADE IN PNG Made in PNG magazine recently made its debut as a guide to the wide range of goods and food grown, processed and produced in Papua New Guinea, as well as the people who produce them.

‘Made in PNG aims to raise awareness of PNG’s productive sectors among buyers and key decision-makers locally and around the world,’ says Murray Woo, Chairman of the Manufacturers Council of Papua New Guinea.

The publication is also available free online at www.madeinpng.com.

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FISHERIES

Credit: Manufacturers Council of PNG

PNG’s onshore fish processing industry has expanded considerably in the past 10 years.

Great catch for investors Intense investment in onshore processing facilities is turning PNG into a regional powerhouse.

A

bout 10% of the world’s tuna catch is caught in Papua New Guinea’s 2.4 million square km exclusive economic zone. Frozen and unprocessed tuna are mainly exported to the European Union, Japan, Thailand, Philippines and other countries where there are canneries. Canned and other processed tuna are exported to the European Union (EU). PNG has an Economic Partnership Agreement (EPA) with the EU that gives it tariff-free access to the EU trading zone.

‘The worldwide market for tuna is US$7 billion, and the EU as a block is the largest buyer of tuna,’ notes Pete Celso, Chairman of the PNG Fishing Industry Association. PNG hopes to ink an agreement similar to the EPA with the United States.

PNG’s coastal fishing industry focuses on prawns, lobsters, barramundi, beche-de-mer, trochus shells, pearl shell and green snail.

Some trout and carp farms are located in the Highlands region.

Growth in processing The bulk of the tuna catch is still exported in raw or frozen form, due to the lack of local processing facilities, although there is also a healthy local market for tuna in PNG. There is capacity for more onshore processing. Onshore tuna processing in Lae, Madang and, to a lesser extent, Wewak has drawn increasing interest from foreign investors, mostly from the Philippines, Taiwan and Thailand. The processing sector is likely to be transformed by the Pacific Maritime Industrial Zone in Madang on the northern coast of the country’s mainland.

In the zone The US$300 million Pacific Marine Industrial Zone, announced in June 2009, is set to be the flagship of PNG’s fisheries industry as well as a major processing centre for fish caught in the Pacific region. The 215-hectare site will provide wharfing, berthing, processing and other facilities and infrastructure to national and regional fishing operators.

Once the PNG Government develops infrastructure on the site, operations will be undertaken by the private sector. Proposed infrastructure includes auction halls, dry docks, an ice-making plant, cool rooms and blast freezers, net repair facilities, fuel depots, commercial buildings and residential facilities.

‘A lot of new players are coming in. There are vast opportunities to expand and achieve scale and thereby minimise the cost of production,’ says Pete Celso, who is also the Managing Director of R D Tuna, a key

‘Onshore tuna processing in Lae, Madang and, to a lesser extent, Wewak has drawn increasing interest from foreign investors.’ player in the fisheries sector. Its canning facility is located in Madang.

Incentives for investors Incentives being offered to investors in the fishing sector are currently being revised under the PNG Government's proposed Economic Zone law. While not finalised at the time of writing, these are likely to include such measures as accelerated depreciation of plant, double deductions for export market development costs and staff training, and tax holidays.

PNG’s Government is looking at privatisation opportunities in its coastal fishing sector, including handling, processing and marketing of fisheries products, craft construction, repairs and maintenance, engine sales, ice and fishing equipment sales.

Key players The growth in PNG’s fisheries sector is the result of robust foreign investment, particularly from Asia. Besides R D Tuna, a Philippinesowned fishing and cannery operator, the major players include the International Food Corporation, which has been making and distributing Besta canned mackerel in PNG since 1992. Chief Executive Rosedean Zaily Dzulkfli says IFC has embarked on an onshore tuna processing project under its diversification program. Production began in October 2010 with 5% to be sold locally, and 95% exported overseas as tuna loin.

There’s also the Frabelle Fishing Corporation, which is building a canning operation in Lae that is set to be the largest in the southern hemisphere. It will process a projected 350 metric tonnes per day and employ 6000 people once it starts operations at the end of 2011.

South Pacific Seafood, a 75% PNG-owned/25% Philippines-owned company, has announced plans to invest in fishing port facilities in Central Province, West New Britain, Morobe, Milne Bay and Manus. Ailan Seafood Ltd, a fish processing company based in Kavieng, New Ireland Province, is a smaller player.

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Credit: Cloudy Bay Sustainable Forestry

FORESTRY

Log-in for new growth Papua New Guinea’s forestry sector is poised for expansion as it begins a gradual transition from export logging to producing processed products and plantation timber.

E

ighty-four per cent of PNG’s landmass is covered by forest, and 5.6 million hectares are potentially production forests. The nation’s more than 60 commercial timber species fall into three broad categories: major hardwoods, commercial hardwoods and major conifers. Among the most valuable hardwoods are kwila and rosewood.

PNG produces a range of forest products, including furniture, plywood and prefabricated buildings, for domestic and export markets.

Processed products are exported to Australia, New Zealand and PNG’s South Pacific neighbours. Veneer is mainly sold to China and South Korea. Plantation products account for about 15% of exports.

For the time being, exports are primarily in the form of round logs. The Bank of Papua New Guinea reports that 1.8 million cubic metres of logs were exported in 2009, with an average export price of K212 (US$82) per cubic metre. The average price has continued to rise since then, to K263 (US$102) per cubic metre in the September quarter of 2010, driven predominantly by demand from China.

Most of PNG’s log exports go to 11 Asian countries: 89% to China, followed by Japan, Korea, India, the Philippines, Taiwan, Thailand and Vietnam.

New policy Since January 2010, government policy has dictated that all newly approved forest projects must contain a strong element of downstream processing. Producers already generate sawn timber, veneer sheets, plywood and processed timber exports, but these sectors will receive greater emphasis.

PNG Forest Authority (PNGFA) Managing Director Kanawi Pouru says companies will have five or six years to make the transition.

‘We’re reviewing what support the Authority can offer,’ he says. ‘The government has made it clear that institutions like the Timber Industry Training College in Lae need to also recognise the government’s policy shift and train people in all phases of processing, wood shedding, treatment operators and so on. All this training is being done but may need to increase in capacity to cope with the needs of the industry.

‘There is a lot of job creation now, and perhaps it now opens up more opportunities for cottage industries that can process wood to specifications.’

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‘Government policy has dictated that all newly approved forest projects must contain a strong element of downstream processing.’

Expansion plans Opportunities for the expansion of PNG’s forest industry include the rising domestic demand for timber and wood products driven by PNG’s major new resources projects, establishing plantations, and forest enhancement under climate change protocols.

With five major producers already certified or in the process of becoming independently certified for legal origin and chain of custody, new export opportunities should arise in markets requiring third party verification. These include Australia, the US and European Union.

Leading players Major industry participation includes Cloudy Bay Sustainable Forestry Ltd’s logging, sawmilling and timber sales in Port Moresby (see box); Innovision (PNG) Ltd at Makarpa, Western Province; Open Bay Timber Ltd’s export of logs and plantations in East New Britain; PNG Forest Products Ltd’s sawmilling plywood, and manufacturing at Bulolo, Morobe; Pac-Rim Hardwoods (PNG) Ltd’s sawmilling and timber exports in Port Moresby; Rimbunan Hijau (PNG) Ltd’s export logging, downstream processing and other interests PNG-wide; Stettin Bay Lumber Co. Ltd’s export of logs, sawmilling and plantations in West New Britain Province; and Turama Forest Industries Ltd’s log exports from the Gulf Province.

Rimbunan Hijau, a wholly owned subsidiary of Malaysian company Rimbunan Hijau, is by far PNG’s most influential forestry player, expanding from its inception as a small operator in 1989 to become the country’s biggest exporter and manufacturer of timber products, with interests in shipping, media, retail and property development. It employs close to 7500 people across the country, the majority of them in its forestry operations. The company has spent more than US$100 million on infrastructure in rural areas since 1993. This includes roads, bridges, community and education facilities and health facilities. Managing Director James Lau says the company is also exploring opportunities in timber plantations and carbon trading.

FORESTRY

Credit: Cloudy Bay Sustainable Forestry

CLOUDY BAY LEADS THE NEW WAY

Cutting wood at Cloudy Bay Sustainable Forestry is a high-tech affair.

Cloudy Bay Sustainable Forestry is paving the way for a new kind of forestry industry in Papua New Guinea, one based on valueadding to logs. The company holds the first 100% downstream processing licence to be issued by the PNG Forest Authority (PNGFA), and produces a range of value-added products.

While Cloudy Bay is the leader, this style of operation will be the norm. Since January 2010, the PNG Government has required that all newly approved forest projects are for processing-based operations.

Cloudy Bay’s 148,900-hectare Forest Management Area Project lies about 250 kilometres south-east of Port Moresby. Under the terms of its permit, the company can harvest 60,000 cubic metres of logs annually for its new saw mill in Bam. The timber is then sent to a wood processing centre on the outskirts of Port Moresby.

Wood harvested by Cloudy Bay is milled, dressed, moulded, kilndried and pressure-treated before being turned into a variety of products including processed timber, exotic furniture, kitchen units, pre-fabricated homes and offices.

Managing Director Mike Janssen says the company’s timber

framing and high-end joinery sections will drive its growth.

Under the company’s Project Development Agreement with the PNGFA, it must deliver a range of infrastructure over 20 years, including schools, health centres, churches, sports facilities, bridges, roads and a police station. This investment will be worth K48 million (US$18.6 million). The agreement also requires the company to actively support the socio-economic development of the local landowners, who number about 6000 in the concession area.

Janssen believes community forestry, where landowners cultivate and harvest their own trees, will also be an integral part of the sector’s growth.

The company has recently undergone independent environmental auditing aimed at acquiring Forest Stewardship Council (FSC) certification. PNG’s major markets for processed forest products increasingly require evidence of legal origin and chain of custody certification for timber products.

‘We’re now working through the non-compliances and expect the process to be complete by the end of 2011,’ says Janssen.

PNG Forest Authority The Papua New Guinea Forest Authority promotes the responsible use of our country’s natural resources and environment for the collective benefit of all Papua New Guineans as well as the conservation and replenishing of these resources for the benefit of future generations.

Working for today, PLANNING FOR TOMORROW

www.forestry.gov.pg

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Tourism development

A sector ripe for development More visitor arrivals and significant new investment is driving growth in PNG’s promising tourism sector.

P

apua New Guinea has a range of assets—a warm climate, picturesque islands, unique flora and fauna, magnificent mountain ranges and a rich Melanesian culture among them— that make it ripe for development as a tourist destination. A number of government and private sector initiatives are helping to boost the huge potential of its as-yet-underdeveloped tourism industry.

While there are no major international resort operators currently in PNG, the array of ‘soft adventure’ tourism options include birdwatching, surfing, scuba diving, eco-tours and walking the famous Kokoda Trail, which holds strong appeal for Australians (who represent 62% of PNGbound tourists). An increasing number of cruise ships also choose to visit PNG.

Improved connections & facilities

Tourism promotion

Pleasant surprises

The sector is supported by the active PNG Tourism Promotion Authority (TPA), which promotes the country at international tourism industry events, and is custodian of the country’s 10-year tourism master plan, launched in 2007.

A major focus of the TPA has been to re-brand PNG as a unique Pacific destination via a marketing campaign under the slogan, ‘A Million Different Journeys’.

The tourism master-plan has also focused promotion on those ‘model provinces’ most suitable for tourism development: National Capital District (Port Moresby), Morobe, Madang, East New Britain, New Ireland, Milne Bay, Southern Highlands, Eastern Highlands, West New Britain and Enga Provinces.

The PNG Government has put in place some attractive incentives for the sector, including double income tax deductions, accelerated depreciation, goods and services tax exemptions and infrastructure tax credits.

Track record of growth Efforts to promote PNG as a tourism destination appear to be paying off.

After a 12% dip in 2009, attributable to the global financial crisis, tourist traffic to PNG bounced back by 7% in 2010—part of the longterm upward trend. Moreover, the TPA estimates that the tourism industry contributed an estimated K1.4 billion (US$540 million) into PNG’s GDP in 2010—almost 17% more than it did the year preceding.

One thing that has improved markedly in recent times has been the increase in the frequency and range of air services to PNG, with competition keeping a lid on prices. Virgin Blue subsidiary Pacific Blue entered the PNG aviation market in 2008 via a codeshare arrangement with local airline Airlines PNG. National carrier Air Niugini Limmited (ANL) has responded to the competition and has added more services to its schedule. In February 2011, ANL’s Chairman Sir James Tjoeng advised Business Advantage that additional flights to Hong Kong, Singapore and Manila were also awaiting regulatory approval. Australia’s Qantas commenced flights from Cairns in mid-2010 and is expected to add flights from Brisbane in the future.

While the bulk of tourism accommodation in PNG is around the 3 to 3.5 star range, there are some pleasant surprises. PNG’s outstanding hotel, Airways, was voted the World’s Leading Airport Hotel in the 2010 World Travel Awards and is a genuine oasis of quality.

With more international business people coming to live and work in PNG, growth in domestic tourism is also anticipated. In Madang Province, soon to be home to the Pacific Marine Industrial Zone (PMIZ), plans are being drawn up for the Madang Tourism Growth Centre, a self-contained recreational resort complete with golf course adjacent to the PMIZ. This project, currently being coordinated by the PNG Industrial Centres Development Corporation, has already attracted expressions of interest from international resort developers.

Better hotels, more rooms Driven by an undersupply of hotel rooms in the capital, Port Moresby, major hotels such as Airways Hotel, Gateway Hotel and the Ela Beach Hotel have recently completed large expansion projects, with the Holiday Inn currently adding 200 rooms. Meanwhile, the CBD awaits the completion of Steamships’ new flagship Grand Papua Hotel in the second half of 2011 (see box), while a K200 million Korean-built casino hotel is currently being built in Boroko, a joint venture with local landowner companies. It is hoped that the increase in the number of rooms will bring down room prices—which are currently high by international standards—over the medium term.

Credit: Steamships

NEW FIVE-STAR HOTEL FOR PORT MORESBY

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Artist's impression of the new Grand Papua Hotel, opening in late 2011

With PNG in the grip of a resources and development boom, quality hotel rooms in its capital have been at a premium.

Soon, visitors to Port Moresby will have a new five-star option, however, with Steamship Trading Company’s Grand Papua Hotel set to open in the central business district in October 2011.

‘one of the most prestigious developments in our 90-year history in PNG’—will feature 156 suite rooms, an executive floor with a gym and health spa, conference facilities for up to 600 delegates, a bar and restaurant, and four levels of parking.

The much-anticipated 20-storey hotel— described by Steamships’ Corporate Development Manager Darren Young as

‘We hope that the Grand Papua will really change people’s experience of what a hotel can be, and enhance PNG’s image as a destination for the tourist and business traveller,’ says Young.

Young says that the hotel, built on the site of the old Papua Hotel destroyed by fire in 1991, will have a ‘contemporary colonial’ feel.

Guest rooms will have a modular, ‘three-key’ design, enabling reconfiguration at short notice.

Credit: PNG Tourism Promotion Authority

Who’s who in PNG

This directory provides contact details for organisations featured in this edition, plus other key contacts.

AGRIBUSINESS/ MANUFACTURING Coca Cola Amatil PNG +675 472 1033

BSP (Bank of South Pacific Limited) +675 321 1999 www.bsp.com.pg

Dulux PNG +675 325 4555

BSP Capital Limited +675 321 4333 www.bspcapital.com.pg

Goodman Fielder International (PNG) +675 308 2200 www.goodmanfielder.com.au

Kina Group of Companies +675 308 3888 www.kina.com.pg

KK Kingston +675 472 2745 www.kingston.com.pg Lae Biscuit Company +675 475 9988 Laga Industries +675 475 7344 www.lagaindustries.com.pg Mainland Holdings +675 472 3499

Nambawan Super Ltd +675 309 5200 www.nambawansuper.com.pg National Superannuation Fund Limited (NASFUND) +675 324 1819 www.nasfund.com.pg Pacific MMI Insurance +675 321 4077 www.pacificmmi.com

New Britain Palm Oil +675 985 2177 www.nbpol.com.pg

Port Moresby Stock Exchange Limited +675 320 1980 www.pomsox.com.pg

Paradise Foods Limited +675 325 0000 www.paradisefoods.com.pg Ramu Agri Industries +675 474 3299 S P Brewery +675 302 8200 www.sp.com.pg Trukai Industries Ltd +675 321 3530 www.trukai.com.pg W R Carpenter Group +675 302 4200 www.carpenters.com.pg

BANKING, FINANCE & INSURANCE ANZ +675 321 1079 www.anz.com/png Bank of Papua New Guinea +675 322 7200 www.bankpng.gov.pg

Business & Professional Women’s Club of Port Moresby maila@gadens.com.pg Independent Public Business Corporation (IPBC) +675 321 2977 www.ipbc.com.pg Institute of National Affairs (INA) +675 321 1045 www.inapng.com Industry-funded think-tank.

Investment Promotion Authority (IPA) +675 308 4444 www.ipa.gov.pg Lae Chamber of Commerce & Industry +675 472 2340 www.lcci.org.pg Manufacturers Council of PNG +675 321 7143 www.pngmade.com

Cadden Crowe +675 656 0477 www.caddencrowe.com.au Pacific-wide executive recruitment.

Coffey International Development +675 325 2031 www.coffey.com Daltron +675 302 2200 www.daltron.com.pg Data Nets +675 320 0633 www.datanets.com.pg Datec +675-303-1222 www.datec.com.pg Deloitte PNG +675 308 7000 www.deloitte.com/pg

Ministry of Commerce & Industry +675 327 7350

Ela Motors +675 322 9500 www.elamotors.com.pg

Westpac Bank PNG Limited +675 322 0870 www.westpac.com.pg

New Zealand Pacific Business Council www.nzpbc.co.nz +64 9 270 3746

International SOS +675 323 2033 www.internationalsos.com

BUSINESS & GOVERNMENT ORGANISATIONS Asian Development Bank +675 321 0400 www.adb.org

Pacific Islands Trade & Invest www.pacifictradeinvest.com Sydney: +61 2 9290 2133 Auckland: +64 9 529 5165 Beijing: +86 10 6532 6622 Tokyo: +81 3 3268 8419

Australian Trade Commission (Austrade) +675 325 9150 www.austrade.gov.au

PNG Sustainable Development Program Ltd +675 320 3844 www.pngsdp.com

Australia–Papua New Guinea Business Council +61 7 3348 5142 yourn@apngbc.org.au www.apngbc.org.au

Port Moresby Chamber of Commerce & Industry (POMCCI) +675 321 3077 pomcci@global.net.pg www.pomcci.org.pg

Business Council of PNG +675 320 0700 executive@bcpng.org.pg www.bcpng.org.pg

BUSINESS SERVICES Air Energi Pacifica +675 320 3095 www.airenergi.com

Leahy Lewin Nutley Sullivan Lawyers + 675 320 3333 www.llns.com.pg Media Partners +675 323 9160 www.mediapartners.com.pg Advertising agency and event organiser.

Moore Printing +675 321 000 www.moore.com.pg PwC (PricewaterhouseCoopers) +675 321 1500 www.pwc.com/pg RdL Management Consultants +613 9756 7331/+675 715 73562 www.rdlmanagementconsultants. com.au

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Who’s who in PNG

USEFUL ONLINE RESOURCES FOR PAPUA NEW GUINEA www.ipa.gov.pg – PNG’s Investment Promotion Authority. www.pacifictradeinvest.com – Pacific Islands Trade and Investment Commission’s trade and investment profiles, and regular updates on Pacific Island Countries, including PNG.

www.pacificbusinessonline.com – Regular news service for the South Pacific region, including PNG. www.thenational.com.pg / www.postcourier.com.pg – PNG’s two daily newspapers, The National and The Post-Courier.

www.pomcci.org.pg – The PNG Chamber of Commerce and Industry. Information on networking, PNG business generally, useful links and POMCCI's training workshops.

www.pngchamberminpet.com.pg – The PNG Chamber of Mines (see above) produces a number of useful publications including Profile magazine, which coincides with its major biennial conference.

www.businessadvantagepng.com – The online edition of this publication, plus other business resources for the Asia-Pacific region.

Quarterly economic bulletins – Informative quarterly bulletins are produced by the Asian Development Bank (Pacific Monitor; www. adb.org), and the central bank of PNG (Quarterly Economic Bulletin; www.bankpng.gov.pg).

www.pngindustrynews.net – Online/email news service— subscription required for full access.

MINING & PETROLEUM

Remington Technologies +675 312 3400 www.remington.com.pg

Anitua Group +675 986 4633 www.anitua.com.pg

CONSTRUCTION & ENGINEERING Constantinou Group PNG +675 323 2333 (c/o Lamana Hotel Hornibrook NGI Ltd +675 472 3599 www.hornibrook.com.pg

Barrick +675 322 4800 www.barrick.com InterOil +675 309 9100 www.interoil.com Marengo Mining Ltd +61 8 9429 0000 www.marengomining.com

FISHERIES Frabelle +675 472 7663 www.frabelle.com

Mineral Resources Authority (MRA) +675 321 3511 www.mra.gov.pg

RD Tuna Canners Limited +675 423 3259 www.rdtunacanners.com

PNG Forest Authority +675 327 7919 www.forestry.gov.pg Cloudy Bay Sustainable Forestry +675 328 1189 www.cloudybay.com.pg Rimbunan Hijau (R H) Group +675 325 7677 www.rhpng.com.pg

Petromin PNG Holdings Ltd +675 325 2743 www.petrominpng.com.pg

Tourist Promotion Authority +675 320 0211 www.pngtourism.org.pg

PNG Chamber of Mines and Petroleum +675 321 2988 www.pngchamberminpet.com.pg

UTILITIES/ TELECOMMUNICATIONS

PNG LNG project/Exxon Mobil +675 322 2111 www.pnglng.com Talisman Energy www.talisman-energy.com UMW +675 325 5766 www.umw.com.pg Xstrata Copper +617 3295 7500 www.xstrata.com

bemobile +675 7630 2222 www.bemobile.com Digicel www.digicelgroup.com PNG Ports Ltd +675 308 4200 www.pngports.com.pg PNG Power +675 324 3200 www.pngpower.com.pg

TOURISM/TRANSPORT

PNG Waterboard +675 323 5700 www.pngwater.com.pg

Nautilus Minerals +675 321 1284 www.nautilusminerals.com

Airlines PNG +675 325 2011 www.apng.com

Telikom PNG +675 300 4000 www.telikompng.com.pg

Newcrest Mining +675 321 7711 www.newcrest.com.au

Air Niugini +675 327 3444 www.airniugini.com.pg

Oil Search Limited +675 322 5599 www.oilsearch.com

Airways Hotel +675 324 5200 www.airways.com.pg

Ok Tedi +675 548 3311 www.oktedi.com

Steamships Trading Company Limited +675 322 0400 www.steamships.com.pg

National Petroleum Company of PNG +675 321 3680

FORESTRY

malumnalu.blogspot.com / www.png-gossip.com – Informal sources of information and news.

THE MANUAL FOR INVESTORS The PNG Investors’ Manual is a handbook for investing and doing business in Papua New Guinea.

Co-published by the Port Moresby Chamber of Commerce and Industry (POMCCI), the PNG Investment Promotion Authority and the Asian Development Bank, the guide is designed to provide an in-depth guide for new and existing investors.

48

Topics covered include PNG’s legal and tax system, profiles of PNG’s key economic sectors and information on living and working in PNG. To obtain the printed manual, email bizcentre@pomcci. org.pg or view it online at www.pomcci.com.

Business Travel Guide to Port Moresby Port Moresby harbour

Practical tips and advice for the business traveller.

Climate With the exception of the Highlands, PNG has a warm tropical climate. The wet season in Port Moresby is from December to April.

Communications Internet: Web access in Port Moresby has improved immensely in recent years.

Although it remains costly, all the Port Moresby hotels listed below now provide a fast-speed internet service. In other urban centres, you may still be relying on dial-up. For those staying longer, wireless internet, via a USB modem, is now available.

Mobile: Roaming is possible in PNG but it is costly. It is simple to buy a local SIM card and pre-paid credit. Mobile coverage has improved since the advent of competition, call rates have fallen sharply and reliability is improving.

Landlines: Service is inconsistent outside Port Moresby and outages do occur; rates for domestic calls are fairly modest.

Electricity The current in PNG is 240V AC 50Hz using Australian-style plugs.

Getting To PNG National flag carrier Air Niugini has direct flights between Port Moresby and Australia (Brisbane, Cairns, Sydney), Kuala Lumpur, Tokyo, the Solomon Islands and an increasing number of other destinations (www.airniugini.com. pg).

Airlines PNG flies from Cairns (www. apng.com) and operates a codeshare with new entrant Virgin Blue on the Brisbane route (www.virginblue.com.

au). Qantaslink commenced flights from Cairns to Port Moresby in mid-2010 (www.qantas.com.au).

Getting around As a general rule in PNG, you need to plan your travel carefully.

Taxis: Port Moresby has a new premium taxi service, Ark (323 0998/7122 5522).

Other options are Red Dot (+675 311 3257) or Scarlet Taxis (+675 323 4266). At night, drivers with these two services may be accompanied by a security guard. There are no taxis in PNG’s industrial hub of Lae, so make arrangements with the company you are visiting or with your hotel.

Car hire: Deal with one of the international names and ask them to provide a driver (around K400). With the poor state of roads, especially in Lae, 4WDs/SUVs are recommended.

Airport transfers: For arrival/departure in Port Moresby, any of the hotels listed below will provide a complimentary transfer.

Domestic Flights: Travelling within PNG often means taking an internal flight (for instance, you cannot drive between Port Moresby and Lae). There are regular services from Port Moresby to Lae. While the price of domestic fares has fallen, they are still on the high side. Air Niugini now offers passengers the chance to book online but make sure you print out a copy of your receipt to show at the check-in counter. Meanwhile, competitor Airlines PNG has been beefing up its domestic services. Aircraft and helicopter charter services are available for travel to remote locations.

Health Serious medical conditions typically require treatment outside the country.

Travellers should ensure they have adequate health cover (the cost of medical evacuation alone can reach US$30,000), while foreign companies operating in PNG should have a comprehensive health plan in place.

There is a malaria risk in Port Moresby although many expats based there do not take anti-malaria medication. If you are leaving urban areas, however, you should seek medical advice. In any case, bring strong insect repellent and use liberally if outdoors at night.

AustAsia Pacific Health Service provides services ranging from preemployment medical checks and executive check-ups to emergency healthcare (www.webbpacific.com.au).

Money PNG’s currency is the Kina. ANZ and Bank South Pacific have branches at Port Moresby’s international airport.

ATMs are located around Port Moresby, Lae and other urban centres.

Safety While the situation is not as bad as portrayed by some international media, you should always take precautions, especially at night.

Time zone PNG has a single time zone, 10 hours ahead of UTC/GMT.

Visas All foreign visitors to PNG require a visa, and business travellers theoretically

require a business visa. These can be obtained on arrival (K100 for one month, K500 for one year) but you should have a letter from your local ‘sponsor’ to explain the purpose of your business.

Eating, drinking, socialising In Port Moresby Restaurants (see also hotels below): Asia Aromas: in the Steamships arcade, CBD. A Port Moresby institution serving excellent Thai and Chinese food. Reservations recommended at lunchtime.

Royal Papua Yacht Club: relaxed, spacious and open to non-members.

Comfort food, draught beer and an open-plan bar area showing sport on large screens. If it’s too busy, try the Aviat Club in nearby Konedobu.

In Waigani, Jepello is a favourite among expats seeking Italian cuisine, while Palazzo (at the Lamana Hotel) serves excellent steaks, pizzas and Indian cuisine. Ideal for a quick business lunch (buffet option) or more formal dinner.

Cafés/snacks: The coffee shop at the Crowne Plaza Hotel is a convenient daytime option, as are the two cafes on the ground floor of Deloitte Tower.

For more information, it is worth keeping an eye on the Post-Courier for any special events and the Port Moresby: Gateway to Papua New Guinea tourist magazine.

Supermarkets/shopping: Most expats go to the comparatively wellstocked Boroko Food World, Boroko.

SVS Foodland Harbour City (formerly Andersons) is another option, located just outside the CBD. The newly opened Vision City shopping mall in Waigani is

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Business Travel Guide to Port Moresby

PNG’s largest retail development and contains a supermarket and specialty shops, while a multiplex cinema is also planned.

Hotels Airways Hotel Named World Airport Hotel of the Year in 2010, Airways is contained within a large, secure compound next to Jacksons International Airport, 15 minutes from ‘Town’. Elegant rooms and a luxurious gym and racket club combine with friendly, efficient service.

The complex also houses long-stay apartments popular with expats. Among an attractive selection of bars and restaurants, the European-style Deli is delightful while Bacchus offers PNG’s best fine dining experience. Tel +675 324 5200, www.airways.com.pg.

Crowne Plaza Upmarket rooms and suites in the heart of the CBD. Decent gym, business centre, undercover parking, thriving café and Mediterranean restaurant. Tel +675 309 3329.

50

Holiday Inn Located in the Government district of Waigani. Large grounds with walking track, in a tropical garden setting.

Outdoor restaurant dining and bar area, business centre and gym.

Tel +675 303 2000.

Lamana Hotel Also in Waigani, this modern hotel’s facilities include the popular Palazzo restaurant (see above), business centre, conference facilities and the PNG’s most trendy nightspot, the Gold Club.

Tel +675 323 2333.

Ela Beach Hotel and Whittaker Apartments On the fringe of the CDB, this hotel/ apartment complex has been renovated

by Coral Sea Hotels. Its main eatery is popular at lunchtime.

Tel +675 321 2100.

Gateway Hotel Another Coral Sea Hotel, this time located next to the airport. Recent renovations added a large conference centre.

Tel + 675 327 8100

Lae International Hotel, Lae Lae’s best hotel. Although the rooms could do with renovations, the hotel has a lot going for it, with a secure, central location, pleasant grounds, cable TV and several good dining options capped off by good service.

Tel +675 472 2000, www.laehotel.com. pg.

Loloata Island Resort A small resort in Bootless Bay, 20 km from Port Moresby. Offers diving, snorkelling, fishing. Transfers provided. Tel +675 325 8590, www.loloata.com.

Other urban centres For business-standard hotels in other urban centres, try the Coral Sea Hotels website at www.coralseahotels.com.pg.

Note also the Alotau International Hotel in Milne Bay (www.alotauinternationalhotel. com.pg) and the Gazelle International Hotel in Kokopo.

Port Moresby Road Runners A friendly group of expats and locals set off from a different location each Saturday afternoon (4.45pm). Check the Friday press for details.

Things to do around Port Moresby Botanical Gardens, Waigani This is worth a visit even if you have only an hour to spare. Follow the boardwalk trail though the jungle and see wild orchids and displays of wildlife, including the iconic tree kangaroo and cassowary.

Port Moresby Golf Club, Waigani A round of this well-maintained course, next to Parliament Haus, costs about K100 and clubs can be hired.

Port Moresby WAGS (Wednesday Afternoon Gentleman’s/person’s Sailing) Anyone interested in a leisurely late afternoon /sunset sail as a guest on a yacht should assemble at the wet bar of the Royal Papua Yacht Club by 5.30pm on a Wednesday afternoon (snacks and beverages not supplied). Sailing experience not required, but numbers are limited to participating boats.

AIRWAYS HOTEL would like to thank all our guests, business associates and travel agents for voting us to be: LEADING AIRPORT HOTEL OF THE WORLD 2010 World Travel Awards, November 2010, London

AUSTRALASIA’S LEADING AIRPORT HOTEL 2010 World Travel Awards, October 2010, New Delhi

PNG’S LEADING HOTEL 2010 World Travel Awards, October 2010, New Delhi

LUXURY AIRPORT HOTEL OF THE WORLD 2010 Luxury Hotel Awards, September 2010, Bangkok

www.airways.com.pg

www.worldtravelawards.com.pg

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www.luxuryhotelawards.com

YOUR FIRST POINT OF CALL TO DO BUSINESS HERE IN PAPUA NEW GUINEA

Investment Promotion Authority PO Box 5053, Boroko 111, NCD, Papua New Guinea

Phone: (675) 321 7311 or 321 3900 Fax: (675) 320 2237

Level 1, IPA HAUS, Munidubu Street Ministry of Commerce Industry & Labour. Level 4, ACC House, P.O. Box 862, Apia, SAMOA Email: ipa@ipa.gov.pg (Corner 52 of Lawes Rd & Champion Pde) Website: www.ipa.gov.pg Konedobu, Port Moresby