The PNG Investors' Manual by Business Advantage International

Second Edition

THE PNG INVESTORSâ&#x20AC;&#x2122; MANUAL A handbook for investing and doing business in Papua New Guinea

Second Edition

FOREWORD I’d like to thank the organisations whose sponsorship made this publication possible: the IPA, ADB, Gadens Lawyers, Digicel PNG, Deloitte Touche Tohmatsu PNG, Pacific MMI, Cadden Crowe and Remington Technologies. Our thanks too to all those who have supplied information for this publication, in particular those organisations that have helped compile key sections: Gadens Lawyers (Chapter 3.0 on PNG’s legal system and company law), Deloitte Touche Tohmatsu PNG (Chapter 5.0 on PNG’s tax system) and Cadden Crowe (Chapter 6.0 on living and working in PNG). The final document was collated, compiled and produced for POMCCI by Business Advantage International. On behalf of the Port Moresby Chamber of Commerce and Industry (POMCCI), the Investment Promotion Authority of Papua New Guinea (IPA) and the Asian Development Bank (ADB), I’d like to welcome you to the revised second edition of The PNG Investors’ Manual, the handbook for investing and doing business in Papua New Guinea. This manual has been designed to guide prospective and current investors through the process of doing business in the Pacific’s fast-growing and most dynamic economy. As well as providing a general introduction to PNG and its key economic sectors, the manual provides information on the country’s legal, taxation, immigration and employment systems, as well as information on key PNG Government and business organisations and advice on living and working in PNG. Wherever possible websites, email addresses, phone numbers and/or addresses are provided to guide investors to additional information.

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

The PNG Investors’ Manual is designed to be comprehensive but it is a living document, and this new edition includes much updated information as well as a new section on mergers and acquisitions in PNG. We invite you to keep letting us know where it can be improved or added to by emailing bizcentre@ pomcci.com. We look forward to welcoming you to Papua New Guinea. David A. Conn Esq, OL , MBE Chief Executive Officer Port Moresby Chamber of Commerce & Industry Inc.

To obtain a copy of this publication, please contact POMCCI at the above address or view the online edition free at www.pomcci.com. © Copyright 2011 Port Moresby Chamber of Commerce & Industry and contributors Cover images: POMCCI, Manufacturers Council of PNG, PNG Ports

Tel: +675 321 3077 or +675 7100 3077/7200 3077 Fax: +675 321 4203 Email: bizcentre@pomcci.com www.pomcci.com

ISBN 978-0-9871678-0-4

in partnership with Investment Promotion Authority of Papua New Guinea

www.ipa.gov.pg and Asian Development Bank Produced for POMCCI by Business Advantage International Pty Ltd www.businessadvantage.co www.adb.org

CONTENTS 1.0

About Papua New Guinea

2.10 Stock market

1.1 Area

2.10.1 Buying and selling shares

1.2 The region

2.10.2 Listing on POMSOX

1.3 Topography

1.4 Demography

1.5 Language

1.6 PNG’s culture

1.7 PNG’s history

1.8 Currency

1.9 Political and administrative structure

1.9.1 National government

1.9.2 Provincial governments

1.9.3 The judiciary

1.10 Social issues

2.11 Government securities

2.11.1 Government Treasury Bills

2.11.2 Inscribed stock

2.11.3 Central Bank Bills

2.12 Financial services

2.12.1 Banks

2.12.2 Finance companies

2.12.3 Insurance

3.1 Structure of government

3.1.1

3.1.2 Provincial government

National government

3.1.3 Local government

2.1 PNG’s economy

3.2 Legal system and dispute resolution

2.2 Employment

3.2.1 The Law

2.3 Foreign investment in PNG

3.2.2 The Judicial System

2.4 Ease of doing business

3.2.3 Enforcement of foreign judgments

3.2.4 Arbitration

2.5 Trade

2.5.2 Imports

2.6 National economic and development strategy

2.6.1 Vision 50

2.6.2 Papua New Guinea Development Strategic Plan, 2010–2030

2.6.3 Medium Term Development Plan, 2011–2015

2.7 Key investment and development organisations

2.7.1

Mineral Resources Development Company Limited (MRDC)

2.7.2

PNG Sustainable Development Program (PNGSDP)

2.7.3

Petromin PNG Holdings Limited

2.7.4

Kula Fund II

2.7.5

Superannuation funds

3.3 Foreign investment law and policy

3.3.1 Investment Promotion Authority

3.3.2 Certification

3.3.3 Reserved activities

3.3.4 Certification criteria

3.3.5 Guarantees

3.4 Forms of investment 21

2.8 Public private partnerships

2.9 State-owned enterprises and the IPBC

2.5.1 Exports

3.0 PNG’s Legal System and Laws for Foreign Investors

2.0 Papua New Guinea’s Economy and Investment Environment

3.4.1 Sole trader

3.4.2 Partnership

3.4.3 Joint venture

3.4.4 Trust

3.4.5 Company

3.5 Registering as a foreign company in Papua New Guinea

3.6 Land

3.6.1 Customary land

3.6.2 Alienated land

CONTENTS

3.6.3 Land Board and Land Titles Commission

3.6.4 Freehold land

4.6 Forestry

3.6.5 Leasehold land

4.6.1 Industry snapshot

4.6.2 Markets

4.6.3 Plantations

4.6.4 Regulations and legislation

4.0 PNGâ&#x20AC;&#x2122;s key industrial sectors 4.1 Mining

39 41

Industry snapshot

4.5.3 Incentives for manufacturers

4.1.1

4.6.5 Governance

4.1.2 Governance and legislation

4.6.6 Sustainability

4.1.3 Mining licences and leases

4.6.7 Challenges and opportunities

4.1.4 Process for approving an Exploration Licence

4.6.8 Resources

4.1.5 Exploration Licence reporting requirements and extensions

4.1.6 Mining and Special Mining Lease requirements and extensions

4.1.7 Tax incentives

4.1.8 Information resources

4.1.9 PNG Mining and Petroleum Investment Conference

4.2 Petroleum and gas

4.2.1 Industry snapshot

4.2.2 Governance and legislation

4.2.3 Licensing

4.2.4 Downstream processing

4.2.5 Tax incentives

4.2.6 Useful information

4.3 Agriculture

4.7 Fisheries

4.7.1 Industry snapshot

4.7.2 Markets

4.7.3 Governance and legislation

4.7.4 Licences and permits

4.7.5 Pacific Marine Industrial Zone

4.7.6 Resources

4.8 Tourism

4.8.1 Overview

4.8.2 PNG Tourism Promotion Authority

4.8.3 Incentives

4.9 Building and construction 49

4.9.1 Overview

4.9.2 Acquisition of land for building

4.9.3 Physical Planning Approval

4.9.4 Building Board

4.9.5 Building workers and materials

4.9.6 Certification during and after construction

4.9.7 Further information/contacts

4.3.1 Industry overview

4.3.2 Governance and legislation

4.3.3 Coffee

4.3.4 Cocoa

4.3.5 Oil palm

4.3.6 Copra

4.3.7 Livestock

4.3.8 Other agricultural exports

4.3.9 Major players

5.0 PNG tax overview/ mERGERS AND ACQUISITIONS

4.3.10 Opportunities and challenges

5.1 Exemptions, incentives and concessions

4.3.11 Incentives

5.2 PNG tax rates at a glance

4.3.12 Resources

5.3 Company tax tax

4.4 Infrastructure

5.3.1 Company tax administration

4.4.1 Ports

5.3.2 Dividends

4.4.2 Telecommunications and internet

5.3.3 Foreign tax credit

4.4.3 Aviation and airports

5.3.4 Calculating taxable income

4.4.4 Roads

5.4 Personal income tax

4.4.5 Infrastructure tax credit scheme

5.4.1 Personal tax rates

5.4.2 Income subject to tax

4.5 Manufacturing

4.5.1 Overview

5.4.3 Administration of personal income tax

4.5.2 Manufacturers Council of PNG

5.4.4 Taxation of salary and wages

CONTENTS

5.5 Withholding and other taxes

6.1.5 Superannuation

5.5.1 Foreign contractors tax (FCWT)

6.1.6 Cultural factors

5.5.2 Interest withholding tax (IWT)

6.2 Accommodation and real estate

5.5.3 Dividend withholding tax (DWT)

6.3 Cost of living

5.5.4 Royalty withholding tax (RWT)

5.5.5 M anagement fee withholding tax (MFWT)

5.5.6 Other withholding taxes

5.5.7 Stamp duty

5.5.8 Customs and excise duty

5.5.9 Training levy

6.3.1 Prices

6.3.2 Shopping

6.3.3 Banking

6.3.4 Motor vehicles

6.4 Employment of expat spouses and dependants

6.5 Education

6.6 Health

6.7 Contacts

5.6 Double Tax Agreements

5.7 Goods and services tax (GST)

5.8 Tax incentives in summary

5.9 Tax clearance requirements

7.0 papua new guinea business Directory

5.10 Mergers and acquisitions in PNG

7.1 Stock market

7.2 Government

7.3 State-owned entities

7.4 Overseas missions

7.5 Investment organisations and funds

7.6 Business organisations

5.10.1 Commercial issues

5.10.2 Taxation issues

6.0 Living and working in PNG 6.1 Employing people Overview

75 77

6.1.1

6.1.2 Work permits

7.7 Professional bodies

6.1.3 Visas

7.8 Miscellaneous

6.1.4 Employment contracts and industrial relations

7.9 Useful resources

credit: PNG Tourism promotion authority

1.0

ABOUT Papua New Guinea

ABOUT PAPUA NEW GUINEA

THE PNG INVESTORS’ MANUAL - SECOND EDITION

ABOUT PAPUA NEW GUINEA

1.1 Area

1.4 Demography

Papua New Guinea (PNG) consists of the eastern half of New Guinea island, the two large islands of New Britain and New Ireland, more than 300 small islands and the autonomous region of Bougainville.

PNG’s population is among the most ethnically diverse in the world although it can be very broadly geographically divided into four groups: New Guineans, Papuans, Highlanders and Islanders.

PNG has a land area of 452,860 square kilometres, slightly more than the U.S. state of California. The country has 5152 kilometres of coastline. PNG has an Exclusive Economic Zone of 3,120,000 square kilometres.

The most recent estimate of PNG’s population is 6.6 million (June 2009).

PNG shares a border with Indonesia’s Papua province to the west and with Australia in the Torres Strait and Coral Sea to the south. PNG shares a maritime border with Solomon Islands to the southeast. The capital city Port Moresby is situated on a spectacular natural harbour on the southwest coast of PNG’s mainland.

1.2 The region PNG is the largest country and largest economy in the Pacific Islands region. The region is divided into three geographical groups: Micronesia in the north, Polynesia in the east, and Melanesia in the west. Besides PNG, Melanesia includes Fiji, Vanuatu, New Caledonia and the Solomon Islands. PNG is situated at 6° latitude south and 147° longitude east.

1.3 Topography The terrain of PNG is characterised by spectacularly jagged mountain ranges, deep valleys and rivers in the highlands, and coral reefs and mangrove swamps in coastal regions. Its more than 600 islands are widely spread and range from small coral atolls to larger, mountainous and volcanic islands. PNG’s principal rivers are the Fly, Purari, Kikori, Sepik, Ramu and Markham. Forest and woodlands cover about 70% of PNG’s total land area, and permanent crops about 1.4%. As a result of its topography and position on the volatile seismic line known as the ‘Pacific Ring of Fire,’ PNG has occasional natural hazards, including earthquakes and mudslides.

The annual population growth rate is 2.7%. The majority of PNG’s people—87%—live in rural areas, and the annual rural population growth rate is 2.8%. This high growth rate is creating challenges in some parts of PNG, including the Highlands region, as food security becomes an increasing issue. 40% of PNG’s population is under 15 years of age. According to the World Health Organization’s 2006 figures, life expectancy at birth is 60 years of age for males and 64 for females.

1.5 Language More than 800 different indigenous languages are spoken throughout Papua New Guinea. The three official languages are English, Tok Pisin and Hiri Motu. English is widely spoken, and is the language of government, the education system and business. Tok Pisin, which is also known as New Guinea Pidgin, is widely spoken except in the southern part of Papua, where Hiri Motu is more commonly spoken.

1.6 PNG’s culture The hundreds of distinct and separate communities that make up PNG’s indigenous population are divided by language, customs and tradition. Despite these differences, traditional PNG societies have key things in common: they generally operate in a subsistence economy, recognise the wantok system of social obligation, allow for status to be attained rather than inherited, and have a deep attachment to communally-held land. The wantok system is a complex arrangement of obligations, which can require Papua New Guineans to assist other members of their extended tribe through the redistribution of income and wealth. This can mitigate against the amassing of personal wealth. The management of land is intrinsically linked to Papua New Guinean culture. About 97% of PNG’s land is held under customary ownership. This can provide a challenge for those seeking to secure land for commercial ventures.

THE PNG INVESTORS’ MANUAL - SECOND EDITION

ABOUT PAPUA NEW GUINEA

There is therefore an ongoing process of land reform in PNG. In March 2009, PNG’s Parliament passed amendments to the Incorporated Land Groups Act and the Land Registration Act aimed at improving the system by which customary landowning groups can be legally recognised as landowners. The legislation simplifies the process by which landholders can lease out land for commercial development. There are some encouraging examples of customary land being converted to leased titles, particularly in Milne Bay Province.

1.7 PNG’s history It is believed that PNG’s first colonisers arrived some 500,000 years ago from the islands now comprising Indonesia. Different groups of settlers arrived separately and lived in isolation from one another, developing their own languages, tribal cultures and rivalries. Archaeological evidence points to the settlers in the Kuk Valley in the Highlands region being among the first humans to develop agricultural systems, around the same time that gardening was first evolving in Mesopotamia and Egypt, and well before the famous rice terraces of Luzon in the Philippines. In the late 16th century, the Portuguese explorer Don Jorge de Meneses sighted New Guinea Island and named it Ilhas dos Papuas. The term ‘New Guinea’ was applied to the island in 1545 by Spaniard navigator, Íñigo Ortiz de Retes, due to a perceived resemblance between the New Guinea’s people and those found on the Guinea coast of Africa. There is evidence of Chinese traders on the Central Province coast in the 15th century. In the mid-1800s, European missionaries and traders began to settle along the coast of New Guinea Island. However, the Highlands region was not explored by Europeans until the 1930s. A German presence in the northern part of PNG grew in the late 19th century as part of a trading network. In 1883, the Queensland Government in Australia annexed the south portion of New Guinea Island, in a bid to pre-empt a German annexation attempt. Great Britain then established the area as part of the protectorate of British New Guinea. Australia assumed administration responsibility in 1901, and in 1906 the territory was named Papua. At the start of World War 1, Australia occupied the German north-eastern section of the island.

The move towards independence began soon after the war. On December 1, 1973 the territories of Papua and New Guinea became the self-governing area of Papua New Guinea. The country became an independent state on 16 September 1975. In 1988, Bougainville attempted to secede from Papua New Guinea. A nine-year conflict followed, with an estimated 20,000 people dying in the conflict. It ended with the signing of a peace agreement in 1997. Bougainville now has an autonomous government and four members in the PNG National Parliament.

1.8 Currency Papua New Guinea’s major unit of currency is the kina (PGK). There are 100 toea to a kina.

1.9 Political and administrative structure PNG’s political system is a constitutional democracy modelled on the Westminster system. The head of state is Queen Elizabeth II, represented by a Governor-General nominated by Parliament for a six-year term. There are three areas of government under the constitution: executive, legislative and judicial branches. Power is shared between the National Government, which is headed by a Prime Minister, and 19 provincial governments plus the National Capital District. The Prime Minister is appointed by the National Parliament on a simple majority vote and makes all ministerial appointments.

1.9.1 National government PNG has a single house of parliament with 109 members who are elected every five years. Eighty-nine members represent ‘open’ electorates, while 20 represent each of the provincial electorates, Bougainville and the National Capital District (NCD). Each voter has two votes, one for the member in the open electorate, and one for the province, or NCD, under a limited preferential voting system.

New Guinea was also the site of territorial manoeuvring and warfare during World War II. Japanese forces occupied the northern half of New Guinea and got within 56 kilometres of Port Moresby. However by January 1943, Australian and United States forces had driven Japanese soldiers out of New Guinea.

Since independence, governments have been formed by coalitions, a product of the competitive and complex nature of politics in PNG, and the ethnic and cultural diversity of voters and candidates. No single party has captured enough of the vote to form their own government. There are a large number of parties, but party allegiances can change, and directly after elections there is typically much negotiation between parties and independent candidates in the quest to form a government.

Following World War II, the United Nations gave Australia a trusteeship over Papua and New Guinea and united the administration of the two areas.

Since 2001, there have been stricter regulations on the formation, composition and funding of parties. This extends to how parliamentarians can vote during no-confidence motions,

THE PNG INVESTORS’ MANUAL - SECOND EDITION

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 Level 1, IPA HAUS, Munidubu Street (Corner of Lawes Rd & Champion Pde)

Konedobu, Port Moresby

Phone: (675) 321 7311 or 321 3900 Fax: (675) 320 2237 Email: ipa@ipa.gov.pg Website: www.ipa.gov.pg

ABOUT PAPUA NEW GUINEA

the circumstances of defections from political parties, and restrictions on independent MPs. Following years of frequent changes of government, PNG governments are now protected under the Constitution from no-confidence motions for the first 18 months of a five-year term. A successful no-confidence motion after this moratorium results in an alternative Prime Minister being able to form a new government without calling an election—unless the change occurs in the last year of the government’s term. PNG’s National Executive Council (or Cabinet) is appointed by the Governor-General on the recommendation of the Prime Minister. The National Government is responsible for major resource development, police, defence, foreign relations, trade, higher education, hospitals. The next national elections are scheduled for June 2012.

1.9.2 Provincial governments

1.9.3 The judiciary PNG law is based on English common law. PNG has three types of courts: the Supreme Court, national courts and courts of limited jurisdiction. The Supreme Court is the country’s highest judicial authority. It deals with constitutional matters and appellate cases. The Chief Justice is appointed by the Governor-General on the recommendation of the National Executive Council. Other judges are appointed by the Judicial and Legal Services Commission. National courts have unlimited jurisdiction over all criminal and civil matters. The national courts sit in a number of population centres. Courts of limited jurisdiction include district courts, local courts and village courts, land courts, juvenile court and coroner’s court.

PNG’s provinces consist of: Central, Chimbu, Eastern Highlands, East New Britain, East Sepik, Enga, Gulf, Madang, Manus, Milne Bay, Morobe, New Ireland, Northern, Sandaun, Southern Highlands, Western, Western Highlands and West New Britain. The National Capital District is an administrative district taking in Port Moresby. Bougainville is an autonomous region.

1.10 Social issues

In July 2009, PNG’s Parliament passed legislation to create two new provinces by 2012, Hela Province (currently part of Southern Highlands) and Jiwika Province (currently in Western Highlands)

PNG has an adult literacy rate of 57.3% according to UNESCO figures for 2004. Approximately 56% of primary school entrants reach the final grade of primary education. Around 25% of eligible children enrol in secondary school. However, the PNG Government has signalled its intention to make education, at least at primary level, free as early as 2012.

The legislative assembly in each province is led by the Governor, and includes the heads of local level government bodies, the members of the National Parliament from the province and appointed members. PNG’s provincial governments are responsible for education, primary industry, business development and provincial works. They can levy indirect taxes, but rely on grants from the National Government. Funding from the National Government to the provinces declined substantially in real terms in the 1990s. However, with the recent solid growth in the economy, and the promise of at least one liquefied natural gas (LNG) project by 2014, this trend is being reversed. Legislation passed in March 2009 was designed to reduce the gap between each provincial government’s revenue and the cost of delivering services. Under the Intergovernmental (Financing and Functions) Act, the National Government will help bridge this funding gap and meet recurrent costs.

PNG’s Millennium Development Goals relate to eradication of hunger and poverty, and improvements in primary education, gender equality, child mortality, maternal health, combating HIV/AIDS, malaria and other diseases, and ensuring environmental sustainability.

PNG has a generalised epidemic of HIV/AIDS. There were an estimated 76,000 people living with HIV at the end of 2008. This puts the prevalence of HIV among the country’s adult population at 1.5%. There is limited access to anti-retroviral therapy, but this is changing with support from the World Health Organization (WHO), the Global Fund, the Clinton Foundation and the Bill and Melinda Gates Foundation. Public awareness and education is being supported by active groups such as the Business Coalition Against HIV and AIDS (www. baha.com.pg). A new centralised health structure in the provinces is planned to improve health standards in PNG and combat a shortage of drugs, medical equipment and trained health professionals. Notwithstanding the above, life expectancy in PNG continues to rise.

THE PNG INVESTORS’ MANUAL - SECOND EDITION

PAPUA NEW GUINEA’S ECONOMY AND INVESTMENT ENVIRONMENT

2.0

credit: business advantage international

Papua New Guinea’s Economy and Investment Environment

PAPUA NEW GUINEA INVESTMENT GUIDE

PAPUA NEW GUINEA’S ECONOMY AND INVESTMENT ENVIRONMENT

2.1 PNG’s economy Papua New Guinea (PNG) is the largest Pacific Island economy. According to the Bank of Papua New Guinea, its reserve bank, PNG’s gross domestic product (GDP) was 28.72 billion kina (US$12.65 billion) in 2010. Since 2003, its GDP has grown above population growth, reflecting an expansion in its key primary industries: > Agriculture > Mining > Petroleum and gas > Fisheries > Forestry > Manufacturing and also an increase in activity in such sectors as building and construction, telecommunications, retail/wholesale, tourism and business services. (See section 4 for more on PNG’s individual industrial sectors.) This growth has also been achieved in spite of a gradual decline in foreign aid levels since 1980. Due largely to domestic factors, PNG’s economy remained remarkably buoyant throughout the global economic crisis of 2008/2009. Unlike many other countries classified as ‘developing,’ the country has never defaulted on an overseas debt. Indeed, public debt levels have been in decline in recent years. In their 2011 long-term foreign currency ratings for sovereign risk, ratings agencies Standard & Poors and Moody’s gave PNG a B+ and B1 rating respectively.

PNG’s GDP by industry sector in 2008, in million kina

499.5 1804.5 7500.2

648.0

Agriculture, forestry & fishing

440.2

Petroleum, mining & quarrying 1368.2

Manufacturing Electricity, gas & water Construction

2240.6

Wholesale/retail trade Transport, storage & communications

360.9

Finance, real estate & business services

1278.2

Community, special & personal services Import duties 5414.1

Source: National Statistical Office and Department of Treasury projections

THE PNG INVESTORS’ MANUAL - SECOND EDITION

PAPUA NEW GUINEA’S ECONOMY AND INVESTMENT ENVIRONMENT

PNG’s GDP growth, 2000 to 2011 2000 2001

2.5% 0.1%

2002

0.2%

2003

2.2%

2004

2.7%

2005

3.6%

2006

2.6%

2007

6.5%

2008

7.2%

2009

6.2%

2010

2011

9.5%*

* 2011 Bank of PNG Projection

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

LNG in PNG A major factor in PNG’s growth moving forward will be the development of a new resources industry based around liquefied natural gas (LNG). The US$15 billion ExxonMobil-led PNG LNG Project is currently under construction. Some predictions suggest the 30year project could double the country’s GDP. Additional major LNG projects led by InterOil and Talisman Energy are also strong possibilities in coming years. For more on LNG, see Section 4.2.

2.2 Employment The vast majority of Papua New Guineans are employed in the informal sector, mainly in subsistence agriculture. Participation in the formal sector is estimated at be about 15% of PNG’s total workforce. That said, employment growth in the formal sector has been sustained, as the table below indicates. Employment growth by sector, from 2002 to 2010

Retail

33.3%

Wholesale

68.2%

Manufacturing

56.8%

Building and Construction Transportation

90.6% 17.3%

Agriculture/Forestry/Fisheries Financial/Business & other services

50.6% 33.4%

Minerals

51.2%

Source: Bank of Papua New Guinea

THE PNG INVESTORS’ MANUAL - SECOND EDITION

PAPUA NEW GUINEA’S ECONOMY AND INVESTMENT ENVIRONMENT

2.3 F oreign investment in PNG According to Bank of Papua New Guinea figures, Australia is PNG’s largest source of foreign investment (as it has been historically), accounting for over half of all foreign equity investments in PNG in 2007. Australia is followed by China, the United Kingdom, the Bahamas, Malaysia, Singapore and Japan. From 2003 to 2008, investment from Australia, China, the United Kingdom, Canada, Singapore and Hong Kong increased, while it decreased over the same period from Japan and South Korea. Investment from PNG’s other major investment sources remained stable. With the share of PNG’s six largest investor countries reducing between 2003 and 2007 from 80% to 75% of all foreign investment, PNG is clearly developing a broader base for its foreign investment.

Foreign equity holdings by country of origin 2007, in million kina

17.7% 55.1%

1.6% 4.5% 4.1% 0.6% 1.7% 3.9% 2.3% 2.5% 4.9%

1.1%

Australia

2305

United States

United Kingdom

206

Japan

107

Canada

Singapore

162

Hong Kong

South Korea

Malaysia

170

Bahamas

189

Bermuda

Others

739

Source: Bank of Papua New Guinea

In 2007, the vast majority of foreign equity (73%) was invested in the minerals/petroleum sector, followed by manufacturing (9.1%), agriculture (5.2%), forestry (3.1%) and fisheries (1.2%). Foreign aid has been a significant contributor to the PNG economy and was 8% of GDP in 2010.

THE PNG INVESTORS’ MANUAL - SECOND EDITION

PAPUA NEW GUINEA’S ECONOMY AND INVESTMENT ENVIRONMENT

2.4 Ease of doing business

2.5 Trade

PNG was ranked 103rd overall in the World Bank’s 2011 Doing Business rankings out of 183 world economies. PNG’s 2010/11 rankings in the survey’s nine individual categories were as follows:

PNG is a member of the World Trade Organization (WTO) and Asia Pacific Economic Cooperation (APEC). It is also signatory to a number of trade agreements, including the Pacific Islands Countries Trade Agreement (PICTA), the Pacific Agreement on Closer Economic Relations (PACER), the Africa, Caribbean and Pacific/European Union Interim Economic Partnership Agreement (EPA) and the Melanesian Spearhead Group (MSG) free trade agreement.

Category

2011

2010

+/-

-4

2.5.1 Exports

Dealing with Construction Permits 120

118

-2

Registering Property

-1

Getting Credit

135

+46

According to Bank of Papua New Guinea figures, in 2010, the value of Papua New Guinea’s exports to the world grew by 26% on the previous year to 15.232 billion kina (US$6.52 billion).

Protecting Investors

-3

Paying Taxes

101

-3

Trading Across Borders

-5

Enforcing Contracts

163

Closing a Business

108

103

-5

Starting a Business

The PNG Government has expressed its concern at PNG’s place in the World Bank rankings and its Investment Promotion Authority has embarked on a project with the assistance of the International Finance Corporation to improve these standings.

In 2010, the country recorded a small trade deficit for the first time since 1993, due to imports related to the construction of the massive PNG LNG Project. The reserve bank has projected returns to surplus in 2011 and 2012. In 2010, Australia was PNG’s number one export market, taking 46.2% of its exports, followed by Japan (15.2%), the Philippines (7.3%), China (6.5%), Germany (4%), South Korea (3.8%) and the Netherlands (2.6%).

PNG exports by type in 2010, in million kina Sector

Value

Annual growth rate

Agricultural & other exports

2749.5

29%

Mineral exports

11,626.3

4.3%

Forestry exports

1362

15.6%

Marine exports

9.7

15.8%

Source: Bank of Papua New Guinea

2.5.2 Imports According to Bank of Papua New Guinea figures, in 2010 the value of PNG’s imports was 9.343 billion kina (US$4.0 billion). PNG’s largest import market was Australia, which provided 41% of all PNG’s imports, followed by the United States (20.2%), Singapore (15.2%), Japan (4.5%) and China (3.7%). The four largest categories of import in 2010 were: machinery and transport equipment (37.8%); mineral fuels, lubricants and related materials (18.5%); miscellaneous manufactured articles (14.9%); and food and live animals (11.4%).

THE PNG INVESTORS’ MANUAL - SECOND EDITION

PAPUA NEW GUINEA’S ECONOMY AND INVESTMENT ENVIRONMENT

2.6 National economic and development strategy 2.6.1 Vision 50 The PNG Government has instituted a long-term national strategic plan, Vision 50, with the vision of creating ‘a smart, wise, fair, healthy and happy society by 2050’. Vision 50 maps out PNG’s development initiatives for the next 40 years and identifies seven strategic focus areas considered essential for the country’s economic growth and development: > Human Capital Development, Gender, Youth and People Empowerment > Wealth Creation > Institutional Development and Service Delivery > Security and International Relations > Environmental Sustainability and Climate Change > Spiritual, Cultural and Community Development and > Strategic Planning, Integration and Control. Further information: National Strategic Plan Task Force c/- PNG Investment Promotion Authority PO Box 197 University, NCD 134, Papua New Guinea Tel +675 326 1065/344 2047 Fax +675 326 1064 Email nsptaskforce@gmail.com

2.6.2 Papua New Guinea Development Strategic Plan 2010–2030 The Papua New Guinea Development Strategic Plan translates the seven strategic focus areas of Vision 50 into ‘directions for economic policies, public policies and sector interventions with clear objectives, targets and indicators’. The plan’s target is for PNG to become a middle income country by 2030.

2.6.3 Medium Term Development Plan, 2011–2015 PNG’s economic direction is currently dictated by the Medium Term Development Plan, 2011–2015. It is a ‘five-year rolling development plan that sets the priorities, targets, costs and deliverables for the country’s economic sectors’. Released in October 2010, it implements the PNG Development Strategic Plan, 2010–2030. The strategy anticipates economic growth over the fiveyear period of 8.7%, and indentifies the implementation of economic corridors and the development of core infrastructure in rural areas as keys to sharing the benefits of that growth among all Papua New Guineans.

Among the initiatives outlined in the MTDP, the areas that will deliver the most impact to jobs and economic growth in the MTDP period will be land, law and order, higher education, transport and electricity infrastructure. The plan is designed to create 290,000 new jobs over five years. A copy of the plan can be downloaded from the PNG Department of Treasury website, www.treasury.gov.pg.

2.7 Key investment and development organisations The following organisations are potential investment or development partners for projects in PNG.

2.7.1 Mineral Resources Development Company Limited (MRDC) The Mineral Resources Development Company (MRDC) is trustee of the wealth that flows to landowners from PNG’s rich natural resources. A 100% state-owned company, MRDC manages landowner entities in petroleum and mining projects and is custodian of their assets. (The State’s interests in resources projects, with the exception of the PNG LNG Project held by the Independent Public Business Corporation, are typically held by Petromin.) The MRDC has small stakes in the Lihir Gold Mine, the Ok Tedi copper mine, the Porgera gold mine and the Kutubu oilfield, among others. As well as providing an efficient management of equity interests for landowners, MRDC maximises shareholders’ wealth by investing in economically attractive mining and petroleum projects. It actively seeks growth and opportunities—both for its landowner constituents and to improve its own value—acting for and on behalf of the people of PNG as it responsibly invests landowner royalties in projects that will deliver profitable long-term returns for its landowner constituents. Further information: www.mrdc.com.pg

2.7.2 PNG Sustainable Development Program (PNGSDP) The largest fund in the country, PNGSDP uses royalties from the Ok Tedi copper mine in Western Province to develop longterm infrastructure, construction and resources projects that will benefit PNG—especially its Western Province. In 2010, it had net assets of US$1.339 billion.

THE PNG INVESTORS’ MANUAL - SECOND EDITION

PAPUA NEW GUINEA’S ECONOMY AND INVESTMENT ENVIRONMENT

The aim is to minimise displacement after the Ok Tedi mine closes, most likely in 2013 or shortly thereafter (plans exist to extend the life of the mine until 2020–2021). From that time on, PNGSDP will invest in the Western Province only, with a long-term fund that will remain for the next 30 years. In addition to its funds, PNGSDP has three subsidiaries involved in joint ventures: PNG Sustainable Energy Limited, PNG Microfinance and Cloudy Bay Sustainable Forestry Limited. It is also involved in developing some transformational projects incuding in renewable energy and infrastructure. Further information: www.pngsdp.com

2.7.5 Superannuation funds Superannuation in PNG is compulsory for companies of 15 employees or more (although companies with smaller numbers of workers may participate voluntarily). The following companies are authorised by the Bank of Papua New Guinea under the Superannuation (General Provisions) Act 2000 to provide superannuation services in PNG: 1. National Superannuation Fund (Nasfund) 2. Nambawan Super 3. Defence Force Retirement Benefit Fund (DFRBF) 4. OTML Superannuation Fund (OTMLSF)

2.7.3 Petromin PNG Holdings Limited Petromin was established in 2007 by the PNG Government as a free-standing commercial entity through which to maximise national ownership of mining and petroleum resources, as well as to participate in the development and production of PNG mineral resources. Under the Companies Act 1997, it has specific powers as the State Nominee in mineral, oil and gas projects. Petromin has a stake in the InterOil LNG project and in 2008 bought the Tolukuma Gold Mine from Emperor Mines. It will also hold the State’s stake in Nautilus Minerals’ Solwara 1 undersea mining project It also has a Socially-Responsible Investment Program (SRIP) whereby it can invest in nonresources economic development projects such as tourism infrastructure. Further information: www.petrominpng.com.pg

2.7.4 Kula Fund II

5. Sios Workers Ritaia Fund (SWRF) 6. Aon Mastertrust 7. PEA Superannuation Fund (under Statutory Management) . PNG’s two largest superannuation funds are Nasfund (www. nasfund.com.pg), which reported net assets of 2.22 billion kina as at December 2010 and Nambawan Super (www. nambawansuper.com.pg), which managed net assets of 3.09 billion kina at the end of the 2010 financial year. Both funds performed strongly before and during the global economic crisis of 2008–2009 and are major investors in construction and development projects within PNG. The Association of Superannuation Funds PNG (www.asfpng. org.pg) was established in 2002 by interested industry participants with the goal of protecting superannuants’ retirement savings within a regulated environment while fostering a competitive industry.

Launched in 2006 with contributions from the Asian Development Bank, CDC Group Plc, European Investment Bank, Fiji National Provident Fund and ANZ Banking Group Limited, Kula Fund II is the only private equity fund operating throughout the Pacific Islands. Managed by Pacific Capital Partners (PNG) Limited, a whollyowned subsidiary of Brisbane-based Aureos Capital Limited, it has committed capital of about US$20 million. Generally, Kula Fund II takes significant minority equity stakes with board representation in unlisted businesses. Recent PNG investments include Data Nets Limited and Chemica Limited. Further information: www.aureos.com

THE PNG INVESTORS’ MANUAL - SECOND EDITION

Since 2000, the Asian Development Bank has significantly expanded its presence in the Pacific, establishing offices in Papua New Guinea, Timor-Leste, Fiji Islands, and Australia. he Papua New Guinea Resident Mission (PNRM) in Port Moresby is the Asian Development T Bank’s focal point for programming and administration of assistance in Papua New Guinea (PNG). PNRM is also involved in policy advice, infrastructure, private sector development, and social reforms. Some of ADB’s activities in Papua New Guinea include: > A $US480 million development investment program approved in December 2009, which will rehabilitate and improve PNG’s airports to strengthen safety and services, and open up new economic opportunities. > ADB is providing a $US25 million loan and a technical assistance grant of $US900,000 to expand cross-border trade between PNG and Indonesia that can benefit some of PNG’s poorest provinces. The project aims to encourage private sector investment and strengthen economic cooperation between PNG and Asia. > Ongoing ADB loans and technical assistance are helping to rehabilitate and maintain the Highlands Highway network and improve road safety nationally. > ADB has strengthened its support for private sector development in PNG, by providing assistance for the development and implementation of the national public-private partnership policy, including new legal and institutional arrangements to encourage private sector investment in infrastructure service delivery. An innovative ADB-supported project continues to pilot and demonstrate private sector participation in delivering rural health services, including HIV/AIDS prevention and control. > The ongoing Microfinance and Employment Project is supporting a programme of financial literacy training and village banking, carried out by Bogia Co-operative Society and Nationwide Microbank in rural areas of Madang province. Similar programmes are being implemented in Bougainville, Chimbu and East Sepik provinces. The project continues to strengthen the successful Nationwide Microbank, which has grown to twelve branches and more than 50,000 clients.

Contact Information: Charles T. Andrews Country Director Papua New Guinea Resident Mission Level 13, Deloitte Tower, P.O. Box 1992 Port Moresby National Capital District Papua New Guinea Tel: +675 321 0400/0408

www.adb.org

PAPUA NEW GUINEA’S ECONOMY AND INVESTMENT ENVIRONMENT

2.8 P ublic private partnerships The PNG Government established a PPP (public private partnerships) Task Force in June 2008, which comprised Department of National Planning & Monitoring (Chair), Department of Treasury, Department of Prime Minister & National Executive Council (NEC), and the Independent Public Business Corporation (IPBC). The National Public Private Partnership Policy was subsequently adopted by the NEC in December 2008. It is designed to comply with the PNG Government’s Medium Term Development Plan, Medium Term Debt Strategy and Medium Term Fiscal Strategy. It is also fully consistent with the Public Finances (Management) Act and Fiscal Responsibility Act. The policy can be downloaded from the website of the Department of National Planning and Monitoring. It aims to increase private sector participation in the provision of infrastructure goods and services. In addition to state-owned enterprises, other public bodies (eg Civil Aviation Authority, Department of Health) may also enter into PPPs in the future. As of mid-2011, a law on PPPs had been drafted but not yet enacted. A PPP Centre is expected to be established under the Minister for Treasury to determine whether a PPP is a suitable way of delivering any particular project and to ensure consistency in project preparation and evaluation processes. A supervisory committee, the PPP Steering Group will provide oversight over the PPP procurement process.

2.9 S tate-owned enterprises and the IPBC PNG’s state-owned enterprises are:

In 2008, the IPBC was also appointed state nominee for the PNG Government’s 19.6% equity stake in the ExxonMobilled liquefied natural gas project, making it the third-biggest equity holder in the project. Following the Bemobile transaction, Telikom PNG, PNG Power and Air Niugini could become early candidates for further private sector involvement. The IPBC welcomes enquiries regarding private investment in state-owned enterprises. Further information: www.ipbc.com.pg

2.10 Stock market The Port Moresby Stock Exchange Limited, or POMSOX, is an established avenue for raising capital in PNG and is PNG’s only stock exchange. There are currently 19 companies listed on POMSOX. While volumes were affected by the global downturn of 2008–2009, it is worth noting that in 2008 local shares listed solely on POMSOX outperformed the Kina Securities Index, which includes all listed shares, including those also listed on international exchanges. POMSOX runs regular ‘first time investor’ seminars in PNG aimed at raising the understanding of the stock market among Papua New Guineans. As of mid-2011, the rules of the exchange were under review, with the goal of making listings and share trading easier.

> Air Niugini > Eda Ranu

2.10.1 Buying and selling shares

> Motor Vehicle Insurance Ltd

Shares listed on POMSOX can only be bought and sold through authorised brokers. Two brokers are currently authorised to sell shares in PNG: BSP Capital (a division of Bank South Pacific) and Kina Securities.

> PNG Ports Corporation > PNG Power > PNG Post > PNG Water Board > Telikom PNG. Since 2002, these entities have fallen under the auspices of the Independent Public Business Corporation, a 100% Stateowned statutory corporation governed by the IPBC Act. The IPBC successfully sold 50% of Telikom’s B-Mobile subsidiary (now called Bemobile) to a consortium including

Hong Kong-based fund GEMS, US-based Trilogy Partners International, PNG superannuation funds, Nasfund and Nambawan Super, and PNG Sustainable Development Program Ltd, and is interested in private-sector participation in its other enterprises. Notably, in late 2009 the new-look Bemobile was announced as the successful candidate to provide the second mobile network in the neighbouring Solomon Islands.

Trading is conducted through the Port Moresby Stock Exchange Electronic Trading System (PETS), which operates from 10am to 4pm each business day. The system does not operate on weekends and public holidays. Settlements are currently still manually processed and normally take place on the third day after a trade.

THE PNG INVESTORS’ MANUAL - SECOND EDITION

PAPUA NEW GUINEA’S ECONOMY AND INVESTMENT ENVIRONMENT

2.10.2 Listing on POMSOX There are three distinct admission categories for companies seeking to list on POMSOX: 1. General admission A company must pass a Net Tangible Assets Test or Profit Test, under which it must demonstrate it has assets of at least 1.5 million kina or has achieved total profits of 600,000 kina over the last three full financial years. 2. Debt Issuer Admission For entities seeking to list and quote debt securities. 3. Exempt Foreign Entity Admission For foreign entities, which must pass a Net Tangible Assets Test of 50 million kina in assets, or a Profit Test of 10 million kina in total profits over the last three full financial years. Companies listed on the Australian Stock Exchange (ASX) or New Zealand Stock Exchange (NSX) are exempt from these tests. Companies can list in two ways: 1. Compliance Listing A listing without capital raising. 2. Initial Public Offer Listing A listing with capital raising.

Listed companies must adhere to the exchange’s Listing Rules, which stipulate periodic and continuous disclosure requirements. Full listing rules and fee schedules are provided on the POMSOX website and in the booklet A Guide to Listing on POMSOX, published by POMSOX in 2007. Interested companies are urged to contact POMSOX’s listing officers prior to making any move towards a listing. Application forms are available from the exchange.

Mailing address: PO Box 1531 Port Moresby 121 National Capital District Papua New Guinea Tel: +675 320 1980 Email pomsox@pomsox.com.pg www.pomsox.com.pg BSP Capital Kina Securities

www.bsp-capital.com www.kina.com.pg

The Bank of Papua New Guinea offers three investment portfolios to the public, banks and other financial institutions. These are: > Government Treasury Bills > Government Inscribed Stock > Central Bank Bills. An announcement is made for each auction with information about the details of terms, amounts of bills offered and the closing date for bids. The advice or Invitation to Bid is usually faxed out on Tuesdays, with the Auction taking place on Wednesday, opening at 9:00am and closing at 11:00am. The total maturity for the week and average rates for the previous week’s auction are also provided to the invitee.

2.11.1 Government Treasury Bills Bids will be received at the Money Market Operations Unit, Financial Markets Department, Second Floor counter of the Bank of Papua New Guinea, Port Moresby on the Bid Form attached to the Terms and Conditions for the Auction of PNG Government Treasury Bills. Registered bidders may lodge bids via fax in the prescribed format.

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

Further information Port Moresby Stock Exchange Limited Level 4, Defense Haus Corner of Champion Parade & Hunter Street Port Moresby, National Capital District Papua New Guinea

2.11 Government securities

Original Bid forms must be delivered/posted to Money Market Operations Unit of Bank of Papua New Guinea. Further information: The Manager Money Market Unit, Financial Markets Department, Bank of Papua New Guinea Email: bminig@bankpng.gov.pg Telephone: +675 322 7342 www.bankpng.gov.pg

2.11.2 Inscribed stock Bidders must lodge bids in the prescribed form, put in sealed envelopes and deposited in the tender box located at: 2nd floor Financial Markets Department counter Bank of Papua New Guinea Port Moresby Each bid must state the yield sought by the bidder. The yield is expressed to the second decimal place (eg 6.50%). Decimal places beyond two will be disregarded. The Bank of Papua New Guinea reserves the right to accept bids for the full amount of an Invitation to Tender or any part thereof and to reject any bid or part thereof on any grounds whatsoever, notwithstanding the full amount of stocks in an Invitation to Tender has not been taken up.

THE PNG INVESTORS’ MANUAL - SECOND EDITION

PAPUA NEW GUINEA’S ECONOMY AND INVESTMENT ENVIRONMENT

The Bank of Papua New Guinea also reserves the right to accept over subscription of up to 25% of the amount offered for the tender in any maturity. Original bid forms must be delivered/posted to Registry Unit of the Bank of Papua New Guinea.

2.11.3 Central Bank Bills

central bank, the Bank of Papua New Guinea. The central bank introduced a National Payments System Development programme at the end of 2009, which will deliver over time real time electronic clearing and settlement of all interbank payments, a Central Securities Depository providing online access to approved dealers and a National Payments Council to advise the bank.

Bids will be received at:

2.12.2 Finance companies

The Money Markets Operations Unit 2nd floor Financial Markets Department counter Bank of Papua New Guinea Port Moresby

The 10 finance companies licensed by the Bank of Papua New Guinea include the POMSOX-listed Credit Corporation, which also has operations in Fiji, Vanuatu and the Solomon Islands, Fincorp and Kina Finance, part of the larger Kina Securities group.

Bids must be on the Bid form attached to the Terms and Conditions for the Auction of Papua New Guinea Government Treasury Bills. Terms and Conditions are posted on the Bank of Papua New Guinea website. Registered bidders may lodge bids via fax in the prescribed format. Further information: The Manager Money Market Unit, Financial Markets Department, Bank of Papua New Guinea Email: bminig@bankpng.gov.pg Telephone: +675 322 7342 www.bankpng.gov.pg

2.12 Financial services 2.12.1 Banks PNG is well serviced by banking services and over the past five years there has been good liquidity in the banking system. The largest bank by assets and lending, Bank of South Pacific (BSP) is listed on the Port Moresby Stock Exchange (POMSOX) and has an extensive branch network, and subsidiaries in other Pacific territories such as the Solomon Islands, Fiji and Niue. It has over 530,000 retail customers and is the country’s leading lender of PNG’s currency, the kina.

2.12.3 Insurance PNG’s insurance industry is regulated under the Insurance Act 1995 by the Office of the Insurance Commissioner, and under the Life Insurance Act 2000 by the Bank of Papua New Guinea. The key insurers include Mitsui Sumitomo, QBE Insurance, Chartis (AIG), Tower Insurance, and Pacific MMI Insurance. The industry is also serviced by a number of insurance brokers which are licensed (via the regulator) to transact PNG domiciled business via the local insurance market or offshore (via exemption). The key insurance broking companies include Marsh, Aon and Insurance Partners. The PNG insurance industry is an ‘admitted insurance market’. The sector benefits from regulations that make insuring locally the norm rather than the exception. Formal permission is required from the regulator to place PNG-domiciled risks offshore. All compulsory third-party motor vehicle insurance is insured by Motor Vehicles Insurance Limited (MVIL)—the statutory insurer for this class of insurance. Workers Compensation Insurance cannot be placed offshore due to the confines of the Act on this class of insurance.

The other main commercial banks in PNG are Australia’s ANZ (which also manages its Solomon Islands and Timor Leste operations from Port Moresby) and Westpac. All three banks have branches in PNG’s key population centres and their own network of automated teller machines. Banks in PNG fall under the regulatory supervision of the

THE PNG INVESTORS’ MANUAL - SECOND EDITION

PAPUA NEW GUINEA’S ECONOMY AND INVESTMENT ENVIRONMENT

3.0

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PNG’S LEGAL SYSTEM AND LAWS FOR FOREIGN INVESTORS

PAPUA NEW GUINEA INVESTMENT GUIDE

PNG’S LEGAL SYSTEM AND LAWS FOR FOREIGN INVESTORS

3.1 Structure of government

employment, provision of water and electricity, local trading and the local environment.

Since achieving its independence in 1975, the Independent State of Papua New Guinea has been governed democratically in accordance with its Constitution. It is a member of the British Commonwealth and operates under the Westminster system. Changes of Government since 1975 have been peaceful and democratic.

Depending on the location, size and nature of its enterprise, a foreign investor may need to consider the acts, regulations and policies of all three tiers of government operating in the country.

3.1.1 National government The Constitution makes clear that PNG has a unitary system of government. In other words, the country is a single unit with a national parliament. The Head of State of Papua New Guinea is the British Sovereign, represented by the GovernorGeneral, who is a citizen of Papua New Guinea nominated by parliament. The leader of the government is the Prime Minister. Under the Constitution, the power, authority and jurisdiction of the people of PNG are to be exercised by the national government, which is made up of three principal arms: the legislature, the national executive and the national judicial system. The national parliament has legislative power in connection with foreign investment, exchange control, immigration, trading and financial corporations, banking, most taxation, customs and excise, shipping and overseas trade. PNG has a robust political party system governed by the PNG Registrar of Parties. The major political parties are National Alliance, the United Resources Party, the Papua New Guinea Party, and the People’s Progressive Party. Ideological distinctions between the parties tend not to be substantial and affiliations between the parties are flexible.

3.1.2 Provincial government Within PNG, there are 19 separate provinces and a National Capital District, which has a status similar to provincial governments. Provincial governments have their powers delegated from the national parliament and are subordinate to the national parliament. Provincial legislatures can pass laws on a limited, but important, range of matters including agriculture, fishing, trade and industry, land and land development, forestry and natural resources. Provincial governments also have certain limited powers to raise revenue, including the right, subject to certain conditions, to impose sales and services tax.

3.1.3 Local government A local government system was introduced to the country by the colonial administration. Generally, a council will represent a number of villages and will manage and administer the area under its control. Local-level government has legislative power in connection with, among other things, labour and

3.2 Legal system and dispute resolution 3.2.1 The Law The Constitution of PNG provides that the laws of PNG consist of: > the Constitution > Organic Laws, which are Acts of Parliament, having quasiconstitutional status and which are passed by a special majority of Parliament > Acts of Parliament > Emergency Regulations, which are laws of limited duration made by the executive in special circumstances > Provincial Laws > Laws made under or adopted by the Constitution and > the Underlying Law. The principles and rules of common law and equity in England at the time of independence (16 September 1975), subject to certain exceptions, were adopted by the Constitution. Those principles and rules, together with custom (or customary law), comprise the underlying law of PNG. Contract law in PNG is very similar to and applies in much the same way as in other common law countries such as England, Australia, Canada and New Zealand. It would however be fair to say that there is considerably less statutory regulation of the application and operation of contracts in PNG than in those other countries.

3.2.2 The Judicial System The Constitution provides that the National Judicial System consists of the Supreme Court, the National Court and other courts established by Acts of Parliament. The Supreme Court is the ultimate appeal court in PNG. It has original jurisdiction in matters of constitutional interpretation and enforcement and has appellate jurisdiction in appeals from the National Court, certain decisions of the Land Titles Commission and those of other regulatory entities as prescribed in their own Acts. The Supreme Court is convened as a bench of at least three National Court judges. The National Court also has original jurisdiction for certain

THE PNG INVESTORS’ MANUAL - SECOND EDITION

PNG’S LEGAL SYSTEM AND LAWS FOR FOREIGN INVESTORS

constitutional matters and has unlimited original jurisdiction for criminal and civil matters. Despite its unlimited civil jurisdiction, few matters involving amounts of less than K10,000 are brought in the National Court. This is because certain District Courts have jurisdiction in civil actions of up to K10,000 and legal costs associated with National Court proceedings can be substantial. The National Court has jurisdiction under the Land Act in proceedings involving land in PNG other than customary land. The National Court also has jurisdiction in appeals from Local and District Courts and from certain administrative tribunals. In addition to the courts mentioned above, there is also a system of Village Courts established under the Constitution and the Village Courts Act. Matters involving customary law claims are likely to arise at the Village Court level. However, as the Constitution adopts custom as part of the underlying law, there is no reason why customary law arguments cannot be raised in the appropriate circumstances in other courts in PNG. There is no jury system in PNG. Lawyers operating in PNG are governed by the PNG Law Society and only lawyers registered with the Society should be used.

3.2.3 Enforcement of foreign judgments Under the Reciprocal Enforcement of Judgments Act, certain judgments of certain foreign courts are recognised and are able to be enforced in PNG by a process of registration. The Act establishes a system of reciprocity of recognition and enforcement of foreign judgments of designated courts within prescribed countries including Australia, the United States of America, the United Kingdom and New Zealand. Even if a foreign money judgment is not from a designated court, it may still be recognised and enforced in PNG by commencing a separate action in the National Court to sue on the judgment under the local rules of private international law.

3.2.4 Arbitration As an alternative to litigation, if a contract so provides or the parties agree, disputes may be referred to an independent third party for arbitration. In PNG, the Arbitration Act regulates the submission of a matter to arbitration either by agreement between the parties or by order of a court. Submitting a dispute to arbitration has a number of advantages including confidentiality, possible savings in time and money and use of the arbitrator’s expertise. The arbitrator may be chosen on the basis of his or her particular experience and qualifications relating to the subject matter of the dispute.

the pre-contractual stage for the parties to determine which matters they consider to be important to the conduct of arbitration. The Arbitration Act contains a set of rules which govern an arbitration under that Act. Those rules will only apply if the parties have not determined their own rules. An arbitral award will be given the status of a judgment of the National Court. PNG is a party to the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, under which the International Centre for Settlement of International Disputes (ICSID) was established. In agreements with foreign developers, the government generally adopts the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL). The National Court Act (the Act) was amended in 2008 to provide procedures for alternative dispute resolution (ADR) through mediation and other related methods. The Act provides for the powers of the Court in certain circumstances to order or direct part of a proceeding or proceedings to be resolved by way of mediation. The court may make orders or directions for mediation with or without the consent of the parties. Mediation (both private and court-directed) The Alternative Dispute Resolution Courts were officially opened on 4 September 2009 and facilitate this cost and time effective method of dispute resolution. Many Government departments utilise mediations for conflict resolution as a matter of course and it is prescribed by a number of statutes. Further, in 2010, the National Court made ‘Rules Relating to the Accreditation, Regulation, and Conduct of Mediators’. Mediation is now a compulsory step in National Court civil proceedings, unless the Court can be convinced to dispense with the process. Hundreds of mediations have already been completed, saving parties millions of kina in legal costs, avoiding the long delays of litigation and freeing resources up to get on with business. Persons to conduct the mediation Mediation has been enthusiastically embraced in PNG. There is a growing body of accredited mediators. A judge of the Court may, with the consent of the parties, conduct the mediation; or with the parties’ consent, appoint a mediator of their choice to conduct the mediation. If the parties fail to consent to the court conducting the mediation or fail to consent to a mediator of their choice, the court will appoint a mediator from the Court’s list of accredited mediators, maintained under the Act.

The rules governing arbitration to some extent depend on the arbitration clause or agreement. Therefore, it is important at

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3.3 F oreign investment law and policy Foreign investment in PNG is regulated by the national government with the assistance of the Investment Promotion Authority (the IPA). The IPA’s approach is to promote and assist foreign investment.

3.3.1 Investment Promotion Authority The main powers and functions of the IPA are: (a) To promote and facilitate investment in the country by citizens and foreign investors. (b) To provide for the grant of a certificate to a foreign enterprise. (c) To define the activities open to a foreign investor. (d) To provide for a register of foreign investment opportunities. (e) To promote investments which will materially benefit the country and its people and which contribute to economic growth, create employment, utilise domestic resources and, in particular, renewable resources, assist in skills acquisition, increase the volume and value of exports, develop remote areas of the country, facilitate increased ownership of investment by citizens, promote import replacement or are likely to effect any combination of the aims specified above. (f) To monitor the impact of investment and the activities of enterprises. The IPA consists of five key divisions. These are Business Investment and Export Promotion; Business Information and Facilitation (Foreign Certification); Business Registration and Regulation (Companies Office of PNG); the Intellectual Property Office of PNG; and the Securities Commission of PNG. The Board of the IPA and the Government are moving, with the assistance of the International Finance Corporation, towards more investment promotion and a much more streamlined regulatory framework to encourage foreign investment. One major project taking place is the development of a new online registration system, based on the New Zealand system and funded by the National Government. First point of contact The IPA has been designed as the first point of contact for a potential new investor in PNG. A foreign investor should approach the IPA during the early stages of considering investing in PNG (along with relevant industry bodies such as a chamber of commerce). The IPA will assist in facilitating the proposals, identify relevant Government departments and assist investors in obtaining the required approvals, licences and permits.

Meaning of ‘foreign’ A ‘foreign enterprise’ is an enterprise which is 50% or more owned directly or indirectly by non-citizens, is controlled by non-citizens or is declared by the Minister for Commerce and Industry to be a foreign enterprise. An ‘enterprise’ is a person, company, body or association of persons.

3.3.2 Certification A foreign enterprise must first obtain certification from the IPA before it: (i) Establishes or uses a share transfer office or a share registration office in the country. (ii) Administers, rents, manages, or otherwise deals with property in the country as an owner, agent, legal personal representative, or trustee, whether by a servant or agent or otherwise; or (iii) Maintains an agent, employee, or officer for the purpose of soliciting or procuring or entering into orders, arrangements, agreements, or contracts (whether conditional or not), whether or not the agent, employee, or officer is continuously resident in the country. (iv) Maintains an office, agency, or branch (however described), whether or not the office, agency, or branch is also used for one of those purposes by another enterprise; or (v) Makes an application for, or is issued, any permit, licence, lease or authority issued for commercial purposes by the State or by the National Government or Provincial Government or any other level of government or a unit, department, agency or instrumentality of the State or of a Provincial Government or any body, authority or instrumentality established by the State or under an Act. In the case of an unincorporated joint venture each foreign participant must seek certification. Before the IPA will grant certification, the foreign enterprise must complete a formal application, provide specified information and pay the required fee. Provided the foreign enterprise has properly completed its application, the IPA will respond within 35 days. Certification enables the foreign enterprise to carry on business in a particular activity at a specific location within the country set out in the certificate. A foreign enterprise need not seek certification if its only activities in PNG are: (i) being a party to a legal proceeding or settling a legal proceeding or a claim or dispute. (ii) Holding meetings of its directors or shareholders or carrying on other activities concerning its internal affairs. (iii) Maintaining a bank account.

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(iv) Effecting a sale of property through an independent contractor.

enter into a contract, arrangement or understanding and:

(v) Soliciting or procuring an order that becomes a binding contract only if the order is accepted outside the country.

> the contract related to business activities other than those for which the foreign enterprise was certified

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

the court may, on the application of the other enterprise or the IPA, declare the contract unlawful and void. In evaluating a foreign investment proposal, the IPA may consider a number of factors, including:

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

(vii) Securing or collecting any of its debts or enforces its rights in relation to securities relating to those debts. (viii) Conducting an isolated transaction that is completed within a period of one month, not being one of a number of similar transactions repeated from time to time. (ix) Investing its funds or holding property. The IPA may grant certification subject to any terms and conditions it considers appropriate. However, provided a proposed investment does not fall within a list of investment activities restricted to citizens of PNG, certification is usually not conditional on maintaining a minimum level of local equity. Foreign enterprises are restricted from going into restricted activities regardless of local equity.

3.3.3 Reserved activities Certain activities presently reserved for PNG citizens under what is called the Cottage and Business Activities List (CBAL). These activities include traditional and small-scale agricultural, forestry and fisheries activities, traditional arts and crafts, alluvial mining, certain small retail and wholesale activities. For more information, visit the IPA website, www.ipa.gov.pg.

3.3.4 Certification criteria Certification conditions can be varied with the IPA’s agreement and the IPA may suspend or cancel a certificate if a foreign enterprise breaches its terms. The IPA must be notified of certain changes in control of a certified foreign enterprise (other than one that is a public company listed on a stock exchange that is a member of the Federation Internationale des Bourses de Valeurs) and ‘re-certification’ will need to be obtained. Certified enterprises wishing to expand or diversify their operations must lodge an Application for Variation with the IPA. Failure to comply with the Investment Promotion Act (that is, the Act which establishes and regulates the IPA) may have serious consequences for a foreign investor. The Act provides that, where a foreign enterprise and another enterprise

> the potential for positive development of human and natural resources > the investor’s past record in PNG and elsewhere > the creation of additional employment and income-earning opportunities > the likelihood the proposal will generate additional government revenue and contribute to economic growth > the transfer of technologies and skills and the contribution to training citizens of PNG; and > the likely environmental impact.

3.3.5 Guarantees The Investment Promotion Act contains the following investment guarantees for certified foreign investors: > protection against nationalisation or expropriation other than in accordance with law, for a public purpose and on payment of compensation > subject to taxation and exchange control laws, acknowledgment that a foreign investor is entitled to remit earnings, and certain other payments, overseas and to repatriate capital > acknowledgment that a foreign investor is entitled to remit overseas, at the prevailing exchange rate, any compensation it has received for nationalisation or expropriation of its investment; and > subject to law and any agreement between the state and the foreign investor, assurance that no governmental impost, procedure or practice will discriminate against the foreign investor or its investment on the grounds of its origin.

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Similar types of guarantees may be available to some investors under bilateral agreements for the protection of investment. PNG has entered into such agreements with Germany, Australia and the United States of America, for example.

PNGâ&#x20AC;&#x2122;S LEGAL SYSTEM AND LAWS FOR FOREIGN INVESTORS

3.4 F orms of investment Most foreign investors will be familiar with the types of structures through which business is most often conducted in PNG. The key business structures in PNG are: > sole trader > partnership > joint venture > trust; and > company. This list is not exhaustive. For example, certain Papua New Guinean legislation makes it possible for citizens to form business and land groups through which they can trade. However, the structures listed above are those most commonly used by foreign investors or are those a foreign investor is most likely to come across in conducting its business. Not-for-profit organisations from abroad normally incorporate as associations. The ultimate decision as to the most appropriate business structure for the purposes of a particular foreign investment proposal will depend on a number of factors, including the extent of regulation, taxation, financing requirements and the nature of the particular enterprise and industry.

3.4.1 Sole trader A sole trader is an individual who carries on business on his or her own behalf. A sole trader can carry on business either under his or her own name or under an adopted business name. If a business name is adopted, this name must be registered under the Business Names Act. The principal advantages of conducting business as a sole trader are: > it is comparatively easy to wind up or sell such a business > the costs of establishing and operating the business are generally less than those associated with other business structures; and > other than preparing an individual tax return, there are no reporting or disclosure requirements. he major disadvantage is that a sole proprietor has unlimited T personal liability for his or her business obligations and debts. There may also be income tax disadvantages in operating this way.

3.4.2 Partnership A partnership exists where two or more entities agree to carry on business in common with a view to deriving profit jointly. A partnership is not a separate legal entity and the liability of the partners for the obligations of the partnership is joint and unlimited. Often the rights of the partners as between

themselves are regulated by the terms of a partnership agreement. However, matters not covered by a partnership agreement may be regulated by the Partnership Act. Partnerships are generally limited to 20 partners. However, some professional partnerships are able to exceed this number. Corporations and citizens of countries other than PNG are able to conduct business in the country through a partnership. The interest of a partner is not freely transferable as the consent of the other partners is necessary before a partnership interest can be transferred. The principal advantages of a partnership are: > the partnership arrangements need not be committed to writing (although, for taxation reasons and so as to avoid disputes, it is prudent to do so) > the degree of control among the partners can be agreed and management may be vested in a particular partner or committee of partners > partnership losses can be offset against other income of individual partners for income tax purposes > partnership accounts need not be made public > the partnership agreement is a flexible document which can be tailored to meet specific needs; and > partnership profits are only taxed once as income of the individual partners (whereas the profits of a company are taxed once as company income and again as shareholdersâ&#x20AC;&#x2122; income).

3.4.3 Joint venture A joint venture is a contractual arrangement between two or more entities to carry out a business undertaking in common, otherwise than as partners. A joint venture can be incorporated or unincorporated and is usually entered into to undertake a specific business activity. An unincorporated joint venture is often appropriate for mining, oil or gas projects, which generally involve high preproduction costs. The parties to a joint venture usually enter into a detailed agreement which specifies their respective rights and obligations. A joint venture differs from a partnership in several respects, the main one being that the participants do not carry on business in common. Rather, each participant contributes funds or other property to an agreed stage of a project, the fruits of which are distributed directly to them them in the manner and proportions set out in the joint venture agreement. Generally speaking, a joint venture is not required to lodge a separate tax return and every participant may immediately incorporate its share of the costs of the project into its general income-producing expenses for tax purposes (other than mining and petroleum development projects, for which such costs must be incorporated into project income-producing

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PNG’S LEGAL SYSTEM AND LAWS FOR FOREIGN INVESTORS

expenses). Furthermore, each participant is free to treat its share of the cost of the project independently of the other participants, thereby offering greater tax and accounting flexibility than a partnership. It is common for an unincorporated joint venture to be formed and managed so that each participant’s liability is limited to its agreed interest in the project.

3.4.4 Trust A trust can be established by deed empowering a trustee to carry on business. In such circumstances, the trustee holds the assets of the business and runs the business for the benefit of the trust’s beneficiaries. It is possible for a trustee to be a company, thereby attracting limited liability and ensuring perpetual succession of the trustee. However, the trust itself must have a finite life. The flexibility of available trust structures means that a deed can be drawn to suit most circumstances. The beneficiaries’ entitlements under a trust structure may be in a fixed proportion or variable at the discretion of the trustee. A unit trust structure may be adopted where the beneficiary’s entitlement to the income and capital of a trust depends on the number of units the beneficiary holds in the trust. Units are similar to shares in a company, although there are some fundamental legal differences between the two. Where a number of separate individuals or companies are involved in a particular business activity, a unit trust structure can be used. The beneficial ownership of the trust property is divided into a number of fixed units. Unlike a discretionary trust, which is more commonly used as a vehicle to conduct family businesses, unit trusts tend not to allow the trustee a discretion to redistribute the beneficial interest in income or capital among unit holders. The principal advantages of a trust structure are that trusts are relatively easy to form and are subject to relatively few government controls on their formation and operation. However, certain provisions of the Trustees and Executors Act apply to trusts. Where a company acts as trustee, it will need to comply with the requirements of the Companies Act. Certain trustee companies will also need to comply with the Trustee Companies Act. Generally, trustees are personally liable for their actions as trustees but they may have a right of indemnity against the trust assets provided

they act within the scope of their authority. However, in recent years courts in other jurisdictions have become increasingly concerned about this state of affairs and have held beneficiaries of trusts to be personally liable for trust debts in some circumstances. The courts in PNG may follow this lead. The principal disadvantages of a trust structure are: > there must be strict adherence to the terms of the trust deed and, where the trustee is a company, it must also comply with its constituent documents and the Companies Act > legislation relating to the powers and duties of trustees must be adhered to > the courts have developed a complex set of rules relating to trusts > a trust structure will not enable individual participants to offset trust losses incurred in a year of income against assessable income derived from other sources; and > the taxation regime in PNG does not favour trusts.

3.4.5 Company While it is possible to conduct business in PNG through any of the structures discussed above, most foreign investors use a company as the vehicle for their investment. The Companies Act 1997 provides for companies (and, therefore, the liability of members) to be limited by shares or unlimited. In general terms, the Companies Act 1997 regulates the incorporation and management of a company in PNG including such matters as legal capacity, the raising of debt and equity capital, registration of security interests over corporate property, shareholders’ meetings, the preparation of accounts, appointment and functions of auditors, directors’ duties, corporate arrangements and reconstructions, takeovers, reductions of capital and winding up. The principal advantages of conducting business through a company are: > a company is a separate legal entity from its members, which enables investors to combine resources with the benefit of limited liability

... in our values, actions and the outcomes we deliver Contact Robert Riddell, Managing Partner — Port Moresby E rriddell@gadens.com.pg Ph +675 321 1033

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> a company may purchase, hold and sell property, sue and be sued and enter into contracts

PNG’S LEGAL SYSTEM AND LAWS FOR FOREIGN INVESTORS

> a company has perpetual existence (unless it is wound up); and > a company may raise money by issuing additional securities. The principal disadvantages of conducting business through a company are: > a company is subject to a number of disclosure, reporting and record-keeping requirements > a formal procedure must be complied with to incorporate and to wind up a company; and > dividends are taxed once as company income and again as shareholders’ income. foreign company seeking to conduct business in PNG has the A choice of either: > incorporating a subsidiary in PNG; or > registering itself as a foreign company in PNG. Incorporation A company can have one shareholder and one director. It is not necessary to have a secretary as one person can now be responsible. The name of the company must end with the word ‘Limited’ or ‘Ltd’. The steps involved in incorporating a company in PNG are: > reserve the proposed company name on a prescibed form with the Registrar of Companies. It should be noted that the reservation of the proposed company name can be registered simultaneously with the application to register a company. An application can be unsuccessful if the name is likely to be confusing with a similar name which has already been registered. > an application must be made to the Registrar of Companies on the prescribed forms, signed by each applicant. The application must also state:

• the number of proposed directors

• the number of proposed secretaries (if any)

• the number of proposed shareholders; and

• the proposed address for service.

> The following must also accompany the application in prescribed forms:

• Each director’s consent to act

• E ach shareholder’s consent to being a shareholder and the number and class of shares taken

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

• R eservation of the name (if the proposed name of the company was not previously reserved.

Constitution A Constitution is the rules governing the company, the directors and shareholders in the company and their relationship with each other. It may cover such matters as the

rights, duties and powers and obligations of the company, directors and shareholders. The aim was to dispense with the bulky documents like the Memorandum and Article of Association. Any change or alteration to the Constitution, directors or person authorised to accept services, or the place of business, must be notified to the Registrar within one month of the change or alteration. It is common to purchase ‘shelf’ companies from local firms of lawyers, accountants or others. Such companies have never traded and have been incorporated to enable persons to commence business with a minimum of delay. Shelf companies can generally be obtained within 48 hours. Company Officers Under the Act, a company may or may not have a secretary. If it does have a secretary, that secretary must be a natural person ordinarily resident in PNG and shall have the rights, powers and duties given to him by the Act, Constitution or the Board of the company. Every company must have at least one director who is ordinarily a resident of PNG. Any company secretary must also be ordinarily a resident of PNG. Registered Office Every company must have a registered office in the country that is identifiable and easily accessible to the public. The registered office address must be notified to the Registrar. If a company wishes to change its registered office, the change and the date of change must be notified to the Registrar on the prescribed form within one month of the change. Address for Service Every company must have an address for service in the country. This may be the same address as a company’s registered office or it may be elsewhere, but it must not be a postal address. The address for service must have a readily identifiable street address and be at a place that is readily accessible during normal business hours. A company’s address for service must be notified to the Registrar on the prescribed form lodged on application. If a company wishes to change its address for service, the change must be notified to the Registrar on the prescribed form within one month of the change. Reporting Requirements An annual return must be lodged every year with the Registrar of Companies within six months of the end of its financial year. All companies are required to lodge an annual return on a prescribed form with the Registrar within 14 days of the annual general meeting being held together with a prescribed fee of K50.00. The annual return must be made up to the date no later than 14 days of the date of the annual meeting.

THE PNG INVESTORS’ MANUAL - SECOND EDITION

PNG’S LEGAL SYSTEM AND LAWS FOR FOREIGN INVESTORS

Appointment of an Auditor At each annual meeting, a company must appoint an auditor to hold office until the conclusion of the next annual meeting, and to audit the financial statements of the company. These companies need not appoint an auditor: > an exempt company; and > a company that is, or is of a class, that is exempted from the requirements of appointing an auditor by the Registrar. Accounting Standards Board he Accounting Standards Board (ASB) is established under T the Companies Act 1997 with the following functions: > To develop, approve, amend and revoke financial reporting standards for the purpose of the Act > To make determinations on the applications of any approved financial reporting standards; and > To give directions as to the accounting policies which have authoritative support within the accounting profession in PNG. Directions issued by the ASB as to accounting policies that have authoritative support within the accounting profession are to be termed as Accounting Standards Board Directives (ASBD), and form part of generally-accepted accounting practice (GAAP) in PNG. Also, the ASB issues locally developed reporting standards in place of those missing issued by the International Accounting Standards Board (IASB) or nonexistent to meet local needs, which are termed as Papua New Guinea Accounting Standards (PNGAS). On a regulatory note, the ASB reviews all financial statements lodged by the reporting companies to monitor compliance with the approved reporting standards and to ensure the duly qualified or registered company auditors carry out audits in PNG for reporting companies. Company Records A company must keep the following documents at its registered office: > the constitution of the company > minutes of all meetings and shareholders’ resolutions within the last seven years > an interests register (of directors’ interests) > minutes of all meetings, directors’ resolutions and directors’ committees within the last seven years > certificates given by directors under the Act within the last seven years > the full names of directors and secretaries > copies of all written communications to all shareholders of the same class of shares during the last seven years, including annual reports made > copies of all financial statements required to be completed

by the Act for the last seven years completed accounting periods of the company; and > the share register. Notwithstanding the general requirements to keep the above records at the company’s registered office, the records (except the share register) may be kept at any other location in the country provided that the location is notified to the Registrar within one month of their first having been kept elsewhere. Company Name and Business Name Company names and Business names are quite different. A company name is the name under which a company is incorporated and ends with the word Limited or the abbreviation ‘Ltd’, while a business name is a name under which the business is carried on. A company (or individual) carrying on business in PNG under any name other than its own must register that business name with the IPA.

3.5 Registering as a foreign company in PNG A body corporate that is incorporated outside PNG that wishes to carry on business in PNG other than through a subsidiary may register in PNG. To do so, the company must register with the Registrar of Companies as a foreign company. To achieve registration in PNG, a foreign company must lodge with the Registrar of Companies an application in the prescribed form, including certified copies of its certificate of incorporation and constituent documents (its constitution or equivalent) and a registration fee. Registered foreign companies must annually lodge with the Registrar of Companies an annual return together with a certified copy of its audited financial statements. A foreign company automatically falls under the category of a ‘reporting company’ and therefore must present its audited financial statements. However, a company may apply to be exempted from certain requirements. A foreign company must apply for Certification under the Investment Promotion Act 1992 within 14 days of registering with the Registrar of Companies. A company which chooses to conduct business through a branch registered in PNG can repatriate its profits without being subject to withholding tax. On the other hand, the dividends of a PNG incorporated subsidiary may attract dividend withholding tax. A higher rate of income tax is imposed on non-resident companies. If a foreign company merely wishes to have a representative office in PNG, it may be exempt from lodging tax returns if it derives no income in PNG. The Companies Act adopts similar principles and standards of corporate regulation to those in place in New Zealand.

THE PNG INVESTORS’ MANUAL - SECOND EDITION

PNGâ&#x20AC;&#x2122;S LEGAL SYSTEM AND LAWS FOR FOREIGN INVESTORS

3.6 Land

whose development proposal involves business activities on land which a variety of clans claim to own or to have the right to use.

3.6.1 Customary land Approximately 97% of land in PNG is held by its traditional owners under customary principles of land ownership. The specific elements and rules of the system of customary land tenure vary from place to place. However, customary land ownership generally recognises the traditional users of land and their personal and clan arrangements for land use. A foreign investor cannot purchase or lease customary land directly from its traditional owners. If a foreign investor requires access to customary land, it is the government that has to acquire the land from its traditional owners and then lease it to the foreign investor.

3.6.2 Alienated land The balance of the land in PNG is known as alienated land. Alienated land is land which has been acquired from customary owners by the government either for its own use or for private development. However, some alienated land is held as freehold other than by the government. Most enterprises in which foreign investors are involved are located on alienated land. Alienated land in PNG can be held either as freehold or leasehold from the State. However, freehold land makes up a small proportion of alienated land in PNG. Both freehold land and leasehold land are registered by the Registrar of Titles under a Torrens-type system of land registration. Under this system, an original certificate of title (for freehold land) or State lease (for leasehold land) are kept on a register maintained at the Titles Office. Dealings with land are carried out by means of instruments which are perfected upon registration. A certificate of title or State lease kept on the register maintained by the Titles Office should reveal at any time the exact location of the land in question, its dimensions, the present owner or lessee and may also reveal sub-leases and mortgages to which the title may be subject. Certain dealings in land may also require the approval of the Minister for Lands.

3.6.3 L and Board and Land Titles Commission The Land Act establishes a Land Board which deals with applications for leases of State land. The Land Titles Commission administers the Land (Tenure Conversion) Act. The key functions of the Land Titles Commission include: > authorising registration of customary land

In recent years the importance of landowner issues has been highlighted at a number of resource projects, public highways, educational facilities and other business operations in different parts of the country. These incidents have reinforced the need for a developer to establish and maintain a sound relationship with landowners in the vicinity of any proposed project.

3.6.4 Freehold land Under the Constitution of the Independent State of Papua New Guinea and the Land (Ownership of Freeholds) Act, a noncitizen is precluded from owning freehold land in PNG. Certain types of freehold land can be converted to leasehold land so that it may be used by a non-citizen.

3.6.5 Leasehold land Leasehold land can be more freely dealt with than freehold land. Leasehold land is land which the government has acquired from its customary owners and leased to a person or company for a term of up to 99 years for a specific purpose. The Land Act provides for: > agricultural leases > pastoral leases > business and residence leases > mission leases > leases of government owned buildings > special purpose agricultural and business leases; and > urban development leases. The Land Act also deals with the granting of licences, disposal and acquisition of customary land, and regulates compensation payments. Papua New Guinea has a Torrensstyle system of land registration, and a land title serves as a certificate of full, indefeasible, and valid ownership and the Act also specifies which dealings in land require ministerial approval. Any dealings involving land being granted or transferred to a foreigner or corporate entity require approval from the Minister of Lands and Physical Planning prior to registration. The Land Registration Act sets out the process and provides forms required for the registration of any dealings of land. Dealings include transfer, lease, surrender, mortgage, charge, discharge, easement, and nomination of trustees. This section provided courtesy of Gadens Lawyers.

> determining whether land is alienated land; and > ascertaining who the customary owners of land are. The last of these functions can be critical for a foreign investor

THE PNG INVESTORSâ&#x20AC;&#x2122; MANUAL - SECOND EDITION

4.0

credit: lihir gold limited

PNG’s KEY INDUSTRIAL SECTORS

PNG’S KEY INDUSTRIAL SECTORS

4.1 Mining 4.1.1 Industry snapshot According to Mineral Resources Authority statistics, PNG’s mining sector was responsible for 65% of the country’s export revenue in 2010. Principal mineral exports were gold (over 2.2 million ounces in 2010), silver (over 13.3 tonnes in 2010) and copper (150,000 tonnes produced in 2010).

PNG has three large mines: Ok Tedi (copper), Porgera (gold) and Lihir (gold). There has been significant ongoing capital expenditure at the Ok Tedi mine (tailings scheme, drainage tunnel and second cleanup dredge), and a feasibility study is underway to evaluate extending the mine life by seven years to 2020 through a hybrid open pit/underground operation. Construction of the Lihir ‘million ounces’ plant upgrade has commenced and is expected to be commissioned in 2012. PNG has been successful in progressing a number of resource projects in recent years. The Hidden Valley gold mine in Morobe Province is a joint venture between Harmony Gold Mining Ltd and Newcrest Mining Ltd. The mine had its first gold pour in June 2009 and is set to produce an average of eight tonnes of gold and 112 tonnes of silver per annum. With estimated reserves of 4.2 million ounces of gold and 42 million ounces of silver, Hidden Valley is the first major mine development in PNG in 15 years. The US$1.37 billion Ramu project in Madang Province (nickel

and cobalt) is being operated by China Metallurgical Group Corporation in partnership with Highlands Pacific. The project is underway. It is expected to produce 31,000 tonnes of nickel and 3,200 tonnes of cobalt annually. Exploration activity Significant exploration is also progressing in PNG. In 2010, the Mineral Resources Authority (MRA) issued 150 exploration licences, compared to less than 100 in 2007. The MRA estimates that over US$100 million was spent on exploration in 2010. One of the current highlights of the PNG minerals sector is the country’s success in hosting the world’s first deep sea mining project. This is a major mining coup for PNG. In early 2011, Nautilus Minerals was granted a Mining Lease over its Solwara 1 project in the Bismarck Sea west of New Ireland and aims to be mining by 2012. Solwara 1 has an indicated mineral resource of 870,000 tonnes at 6.8% copper, 4.8g/t gold, 23g/t silver, 0.4% zinc.

THE PNG INVESTORS’ MANUAL - SECOND EDITION

PNG’S KEY INDUSTRIAL SECTORS

Mining operations Seven mines currently provide the majority of PNG’s mineral exports:

PNG MINING PROJECTS (June 2011) No.

PROJECT

PRODUCTION

COMMENTS CURRENT MINES

Ok Tedi (Western Province)

1984 to 2013 (?2020) The Ok Tedi copper-gold mine, 100% PNG-owned, is scheduled to cease operation by 2013 but a feasibility study looking at extension for another seven years to 2020 is currently under way.

Porgera (Enga Province)

1984 to 2020 Barrick Gold’s Porgera gold mine began production in 1984 and is projected to cease around 2020.

Lihir (New Ireland Province)

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

Tolukuma (Central Province)

1995 to ??

Production began in 1995. Expected mine life unknown. Owner: Petromin.

Kainantu (Eastern Highlands Province)

2006 to 2008

The mine closed in late 2010, and further exploration is being undertaken.

Simberi (New Ireland Province)

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

Sinivit (East New Britain Province)

2007 to 2011+ Production began in 2007. Has approximately one year of life remaining.

Hidden Valley (Morobe Province)

2009 to 2019+ The Harmony Gold/Newcrest Mining joint venture gold mine commenced production in June 2009. Mine life: 10 years plus.

Ramu (Madang Province)

2011 to 2040+ The Ramu nickel-cobalt project is in commissioning phase with full production expected at the end of 2011. Designed to produce 31,500 tonnes of nickel and 3300 tonnes of cobalt per annum over a 20-year mine life, with potential for a further 15 to 20 years.

NEW MINES

ADVANCED PROSPECTS

Solwara 1 (Bismarck Sea)

2013 Nautilus Minerals’ Solwara 1 deep sea mining project was licensed in early 2011 and production could begin as early as 2013.

Frieda River (West Sepik Province)

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

Yandera (Madang Province)

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

Wafi/Golpu (Morobe Province)

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

Mt Kare (Enga Province)

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

Woodlark (Milne Bay Province)

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

Source: PNG Chamber of Mines & Petroleum

THE PNG INVESTORS’ MANUAL - SECOND EDITION

PNG’S KEY INDUSTRIAL SECTORS

There is also a significant informal alluvial mining sector, estimated to employ up to 60,000 Papua New Guineans on a full time or part-time basis with an estimated annual production of four tonnes. Alluvial mining is reserved for local businesses only. Training and human resources The industry in PNG is facing a serious shortage of experienced national professionals. This has resulted from the strong growth in the industry in recent years and the exodus overseas of mining engineers, geologists and other industry professionals is testimony to the high standard of training and experience embodied in the domestic market. On the other hand, local training institutions tend to be viewed as underresourced and are in need of increased government funding for facilities upgrade and new equipment. In addition to industry-operated training centres such as the Star Mountains Training Institute at Tabubil and the Port Moresby and Juni Training Centres run by ExxonMobil to provide skilled workers for the PNG LNG project, institutions currently providing training relevant to PNG’s mining and petroleum sectors include: > Mining Engineering Department, Papua New Guinea University of Technology (Unitech), Lae > Division of Earth Sciences, University of Papua New Guinea (Port Moresby) > Australia Pacific Training College (Port Moresby) www.aptc. edu.au > Port Moresby Technical College (Pomtech) > The Mineral Resource Authority’s (MRA) Wau training centre, which trains 50–60 alluvial miners per training period each year in various mining techniques and on health and safety standards and issues.

4.1.2 Governance and legislation The principal laws in PNG that regulate mining activities are the Mining Act 1992 and the Mining Safety Act, administered by the newly established statutory body, the Mineral Resources Authority (MRA). The development of policy for the mining sector is the responsibility of the Department of Mineral Policy and Geohazards Management. The MRA became operational in June 2007. It has several roles, including: > To promote PNG as a destination for exploration and mine development; > To facilitate and encourage exploration through the provision of relevant exploration and geological data; > To license all mining and exploration activity in the sector; > To closely monitor mining projects and provide support to operating companies, landowners and communities > To encourage sustainable development. The principal laws under which the mining industry operates are the Mining Act 1992, which sets out how mining projects should be administered and regulated, and the Mining (Safety) Act, which stipulates safety requirements on mine sites. Copies of these Acts are available on the MRA website, which is responsible for administering both Acts. As of July 2011, these two pieces of legislation were under review. It is anticipated that revisions to the Mining Act may include regulations for offshore mining and mine closures, and standards for employing mine workers. In addition, the Department of Environment and Conservation administers a Code of Practice for Mining, which stipulates the environmental responsibilities of mining projects in PNG. Use of water resources within mining and exploration tenements is governed by the Water Resources Act.

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4.1.3 Mining licences and leases All land in PNG, including the seabed beneath the country’s territorial waters, is potentially open to mining activity. Under the Mining Act, the State owns all minerals existing on, in or below the surface of any land or in any water lying within the territory of PNG. The various types of mining tenements (licences and leases) issued under the Mining Act on recommendation from the Mining Advisory Council include: Exploration Licence (EL) A two-year licence that allows the licensee to occupy and explore a specified area. Mining Lease (ML) A 20-year lease that allows the licensee to mine within a specified area. Special Mining Lease (SML) A longer (typically 25 to 40 years) lease issued for larger, more complex projects. Alluvial Mining Lease A five-year lease reserved for Papua New Guineans conducting non-mechanised mining operations on their own land. This can include joint ventures with overseas partners, provided the project is at least 51% owned by Papua New Guineans. Mining Easement and Lease for Mining Purposes Issued explicitly for the development of roads, powerlines, port sites and other associated infrastructure related to a mining project.

4.1.4 P rocess for approving an Exploration Licence Licences are issued by the Tenement Management Branch of the Mineral Resources Authority. Application forms and a Schedule of Fees, Rents, Security and Exploration Expenditure Requirements is available from the MRA website or direct from the MRA head office at Mining Haus in Port Moresby (see address below). Once an application for an Exploration Licence has been received, the MRA checks the Registry of Tenements to ensure the land is available, and reviews additional information provided by the applicant, such as the program of work set out in the application (which should include plans for post-

exploration rehabilitation) and project finances. It also seeks advice from the Department of Environment and Conservation on environmental impact, as stipulated under the Code of Practice for Mining. The MRA will then host a Mining Warden’s Consultation Forum between landowners and other affected people local to the tenement and the exploration company. With 97% of land in PNG held under customary laws, this process is critical. Once the Warden’s forum has been held and all issues are resolved, the application is received by the Mining Advisory Council, which makes a recommendation to the Minister for Mining, who is ultimately responsible for approving all mining and exploration leases, with the exception of Special Mining Leases. Special Mining leases are approved by the GovernorGeneral of PNG, on advice from the National Executive Council.

4.1.5 Exploration Licence reporting requirements and extensions Once an Exploration Licence (EL) is granted, the licensee must submit biannual and annual reports to the MRA on its progress. A brochure, Exploration Licence and Mining Lease Reporting Requirements, is available from the MRA. The MRA may ask for additional reporting at its discretion. Penalties exist for late lodgement of reports, false reporting and environmental breaches. A licensee may apply for extensions to an EL using the application process detailed above. Holders of Exploration Licences are obliged to relinquish not less than half the original tenement when renewing the licence.

4.1.6 Mining and Special Mining Lease requirements and extensions Under the conditions in Mining Leases and Special Mining Leases, licensees must provide the following studies prior to operations being given final approval: > Bankable Feasibility Study > Scoping Study > Environmental Inception Report > Environmental Impact Statement > Compensation Agreement. Guidelines and standard templates for these reports are available from the MRA.

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A development forum hosted by the MRA will then be held between the licensee, the relevant provincial and local governments and the local landowner association with the purpose of negotiating a Memorandum of Agreement which includes important clauses on benefit sharing. The State is a co-signatory to this Memorandum.

eligible expenditure or 0.75% of the taxpayer’s total assessed income, whichever is the least.

4.1.8 Information resources Mineral Resources Authority www.mra.gov.pg

In the case of a Special Mining Lease a Mining Development Contract is also signed between the State and the licensee which prescribes a number of obligations of both parties.

Ministry of Mining Tel +675 327 768

Once the Mining Lease or Special Mining Lease is granted, the licensee must submit monthly, quarterly, biannual and annual reports to the MRA on its progress. A brochure, Exploration Licence & Mining Licence Reporting Requirements, is available from the MRA.

Department of Environment and Conservation www.dec.gov.pg

The MRA may ask for additional reporting at its discretion. Penalties exist for late lodgement of reports, false reporting and environmental breaches. Mining operations are subject to quarterly site inspections by the Mines Inspectorate Branch of the MRA’s Regulatory Division, which audits technical compliance with the Mining Permit, other relevant agreements and regulations, and internationally-accepted technical standards (eg US or Australian standards). The Inspectorate operates to enforce the Mining (Safety) Act and Regulations and any other Act as directed by law or statutory determination. Application for extension of the term of mining tenements can be lodged as per the Mining Act 1992.

4.1.7 Tax incentives There are a number of incentives for the mining sector, including an income tax rate of 30% for mining projects, dividend withholding tax of 10%, royalties of 2% and interest paid by a resource project to a non-resident lender being exempt from income tax and interest withholding tax.

Department of Mineral Policy and Geohazards Management Tel +675 322 7664

PNG Chamber of Mines and Petroleum www.pngchamberminpet.com.pg Useful publications Profile: Mining and Petroleum Investment – Papua New Guinea (ISSN 1813-3967), published biennially by the Papua New Guinea Chamber of Mines and Petroleum PWC Resources taxation guide, published by Pricewaterhouse Coopers PNG Resources and PNG Resource Overview, published by Energy Publications (www.energy-pubs.com.au)

4.1.9 PNG mining and petroleum investment conference Typically held in Sydney and run by the PNG Chamber of Mines and Petroleum, this biennial event is the major gathering point for those doing business in the country’s minerals sector. The 11th conference, held over three days in December 2010, had record attendances. The next event is scheduled for Sydney in December 2012. Further information: www.pnginvestment.com

A double deduction is available for certain mineral exploration expenditure and all development expenditure on a project can be deducted on a 25% diminishing value basis. Mining projects are also eligible to take advantage of PNG’s Infrastructure Tax Credit Scheme, which deems eligible expenditure on certain approved infrastructure to be tax paid. The amount that can be claimed as a credit is either the total

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4.2 Petroleum and gas 4.2.1 Industry snapshot

Petroleum exploration in Papua New Guinea started before World War I. However, drilling only moved inland with the advent of the large helicopter in the 1960s. The first commercial oil discovery was made in 1986 and the first production in 1992. Currently there are nine Petroleum Development Licences extant in Papua New Guinea: Kutubu, SE Gobe, Gobe Main, Moran, NW Moran, Hides-04, Angore, Juha, SE Mananda, and the Hides gas-to-electricity project. All are located in the central Highlands, mainly in the Southern Highlands Province. There are many undeveloped gasfields in the country with proven and probable reserves of over 14 trillion cubic feet of gas. Oil production is in a slow but steady decline in PNG but this will be compensated for when the PNG LNG project comes on stream in 2014. Total oil exports for 2010 were 10.01 million barrels. Gas production in Q1 of 2011 from the Hides field was 15.5 million standard cubic feet per day. By contrast, with the world demand for liquefied natural gas (LNG) projected to soar over coming decades, LNG is a long-

term prospect for PNG. The US$15 billion PNG LNG Project led by ExxonMobil is currently under construction, with first LNG exports expected in 2014. The project infrastructure extends over four provinces. It involves commercialising the Hides, Angore and Juha fields and the associated natural gas resources in the currently operating oil fields of Kutubu, Agogo, Gobe and Moran in the Southern Highlands and Western Provinces. The gas will be treated at a gas conditioning plant at Hides then transported via pipeline (284km onshore and 407km offshore) to a 6.6 million tonne per annum LNG liquefaction and storage facility to be located 29km north-west of Port Moresby. The LNG Project represents the single largest investment ever made in the country. It will be a great achievement for PNG to join the exclusive club of LNG producing nations and once a core plant is established additional trains can be readily added in the future. Two further LNG projects are in development. The InterOil-led Liquid Niugini Gas Project is aiming to start exporting LNG

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from its Antelope and Elk fields in the Southern Highlands in 2013–2014, while Talisman Energy is undertaking an LNG Gas Aggregation Project in PNG’s Gulf Province and Western Province. Horizon Oil’s Stanley gas project is also based in the Western Province. As of December 2010, there were a record 78 Petroleum Prospecting Licences (PPLs), compared to 52 in 2008 and just 12 in 2002. These PPLs blanket almost the entire onshore and offshore Papuan Basin and most of the North New Guinea Basin. Most of the tenements outside the Fold Belt are held by junior explorers and a number of these have signed joint venture agreements to meet their drilling commitments. In late 2010, the PNG Government created the National Petroleum Company of PNG to hold the country’s 16.6% stake in the PNG LNG Project. It is expected that, over time, the company will take a role in the development of other petroleum/gas projects.

4.2.2 Governance and legislation The petroleum industry in PNG is governed by the Oil and Gas Act 1998 under the administration and management of the Department of Petroleum and Energy (DPE).

4.2.5 Tax incentives There are a number of incentives for the petroleum sector, including an income tax rate of 30% for certain petroleum projects, royalty of 2%, dividends paid from petroleum income being exempt from income tax and dividend withholding tax and interest paid by a resource project to a non-resident lender being exempt from income tax and interest withholding tax. Petroleum projects are also eligible to take advantage of PNG’s Infrastructure Tax Credit Scheme, which deems eligible expenditure on certain approved infrastructure to be tax paid. The amount that can be claimed as a credit is either the total eligible expenditure or 0.75% (2% in the case of the PNG LNG Project) of the taxpayer’s total assessed income, whichever is the least.

4.2.6 Useful information

4.2.3 Licensing There are two main licences governing petroleum activities in PNG: Petroleum Prospecting Licence This licence is solely for exploration activity and is granted for an initial term of six years. A five-year extension can be granted if the work program has been satisfactory. If the contract is extended, 50% of the original area of the tenement must be relinquished. After 11 years, the contract area lapses unless petroleum has been discovered. Petroleum Development Licence This licence governs the development and production phases of a petroleum or gas project. If petroleum is found in commercial quantities, the prospecting company has two years in which to conduct an appraisal program.

4.2.4 Downstream processing Commissioned in 2005, InterOil’s Napa Napa refinery near Port Moresby is PNG’s first and only oil refinery. It has a nominal capacity of 32,500 barrels per day. In 2007, the value of PNG’s refined oil products was 503.5 million kina (US$188.3 million).

As an adjunct to the massive PNG LNG Project, an area outside Port Moresby has been set aside for the new Konebada Petroleum Park. It is hoped that the park will become the site for a nascent petrochemical industry for PNG, and incentives may be offered to attract other businesses to the park. The Konebada Petroleum Park Authority has responsibility for governance and infrastructure at the facility.

Department of Petroleum and Energy www.petroleum.gov.pg Department of Environment and Conservation www.dec.gov.pg PNG Chamber of Mines and Petroleum www.pngchamberminpet.com.pg National Petroleum Company of PNG +675 321 3680 Useful Publications Profile: Mining and Petroleum Investment – Papua New Guinea (ISSN 1813-3967), published biennially by the Papua New Guinea Chamber of Mines and Petroleum PWC Resources taxation guide, published by PricewaterhouseCoopers PNG Resources, published quarterly by Energy Publications (www.energy-pubs.com.au)

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4.3 Agriculture

4.3.2 Governance and legislation

4.3.1 Industry overview More than 25% of PNG’s Gross Domestic Product (GDP) is derived from agriculture. The sector provides food, work and income to most of PNG’s rural population. Approximately 85% of PNG’s population is estimated to be engaged in semisubsistence food production. In 2010, PNG’s agricultural exports were worth 2.75 billion kina (US$1.178 billion). PNG’s climate and high seasonal rainfall, good quality soil and low intensity farming methods, make for a favourable environment for agricultural activities. The PNG government estimates that, on average, 24% (23,080 square kilometres) of the country is considered suitable for intensive agricultural production without major soil quality limitations. However PNG’s agricultural sector has grown annually by an average of just 1% over the last decade, and has been far outstripped by population growth. Most crops have seen either negative or stagnant growth except for palm oil, although increased prices for agricultural products such as coffee and cocoa on world markets has seen a slight improvement in this situation in recent times. The decline in agricultural productivity is the result of limited information and education about agricultural practices and markets, deteriorating and insufficient transport infrastructure, declining cash crop prices and the impact of droughts caused by El Nino climate conditions, among other factors. Lae is the most important port in terms of PNG’s agricultural exports, and while production is spread across many of the country’s provinces, the Highlands region is particularly important for some of the most lucrative crops such as coffee. Cash crops are generally produced on plantations, although some local farmers operate on a small scale level, and sell on to plantations. Some 600 plantations around PNG are currently producing coffee, rubber, copra, cocoa, palm oil and tea. PNG government policy is focused on improving the quality and quantity of traditional staple crops, marketing, rural credits, food processing and downstream processing, packaging and distribution.

PNG’s Department of Agriculture and Livestock is responsible for all agriculture and livestock industry matters. Its departments and programs include policy planning, food security, education and training, science and technology services, and provincial and industry support. Other quasigovernment agencies with responsibilities in the sector include the Oil Palm Research Association, PNG Cocoa Board, Fresh Food Produce Association, National Agricultural Quarantine and Inspection Authority and the National Agricultural Research Institute. PNG’s Department of Environment and Conservation also holds responsibilities in the agricultural sphere. It administers the Environmental Planning Act, conservation acts, International Trade (Flora and Fauna) and Water Resources Act among other relevant legislation. Efforts are currently underway to amalgamate legislation (the Environment Planning Act, Environment Contaminants Act and Water Resources Act) to provide for an effective and efficient environmental regulation process. PNG’s National Agricultural Development Plan 2007–2016 sets out a strategic direction for developing the sector and projects that, with full funding and implementation, the tree crop sector alone would generate export revenue at K10,547.1 million (US$3,928 million) between 2006 to 2011, while marketed food crops, livestock, spices, rice and wheat would generate K1,000 million (US$372 million) over the period.

4.3.3 Coffee Coffee is PNG’s second most lucrative crop, expected to generate about US$250 million in exports in 2011, according to the Coffee Industry Corporation (CIC, www.coffeecorp.org.pg). PNG produces about one million bags of green robusta and arabica coffee beans annually. Only a small portion of this is roasted prior to export.About 43% of all PNG rural households are responsible for producing more than 70% of the crop, and approximately 64,000 hectares are under coffee. About 2.5 million Papua New Guineans depend on coffee as their main source of income. There are more than 10 coffee exporters, including Monpi Coffee Exports, PNG Coffee Exports, New Guinea Highlands Exports and Kongo Coffee. The main buyers are Germany, United States, Australia and Japan.

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4.3.8 Other agricultural exports

4.3.4 Cocoa PNG cocoa is of high quality and PNG is one of the few countries where it can be grown organically. Cocoa accounts for about 22% of the value of PNG’s agricultural exports. More than 65% of the crop is produced by rural households, with the remainder coming from plantations. Cocoa beans are marketed internationally by 25 private companies, while the Cocoa Industry Board regulates quality control, export licensing and registration. Continued expansion of the industry is dependent on continued rehabilitation on Bougainville and other potential crop sites, government assistance, improved yields and farmers’ response to international price movements. The Cocoa Industry Board is exploring downstream processing— for example for cocoa liquor and cocoa butter—in line with government policies to encourage value added production.

4.3.5 Oil palm Oil palm is now PNG’s most valuable export crop. It covers an area of 58,000 hectares, with estates producing about 65% of the output. Government figures put the industry’s growth rate since 1997 at 15.5% per annum. New Britain Palm Oil Limited is the country’s larger producer. Over 450,000 tonnes of palm oil was exported in 2010, mainly to Europe. Three major schemes—Hoskins and Bialla (in West New Britain Province), Popondetta (Oro Province) and Milne Bay Oil Palm Estate (Milne Bay Province)—produce most of PNG’s palm oil, and all operate their own mills. There are a number of new projects in development, including Suwain Damasara Sustainable Agro-forestry in Aitape, Vailala Purari Oil Palm Development in the Gulf Province, the Morobe Gulf Oil Palm project, Kaut Lokono in New Ireland Province and Collingwood Bay in the Oro Province.

4.3.6 Copra PNG exported an estimated 16,400 tonnes of copra in 2010 and approximately 1.8 million of its people are involved in the industry. PNG exports copra, copra oil and copra meal. The main buyers are Australia, Germany, Philippines and Singapore.

4.3.7 Livestock PNG’s livestock industry has grown substantially since independence and livestock contributes 13% of total domestic food production. While poultry has reached virtual selfsufficiency and the pig industry is following suit due to import bans and tariffs, PNG’s beef industry has stagnated. The government is trying to redress this through production of small animals at the rural level. PNG has low livestock disease risk status, and domestic meat consumption is rising steadily. Other livestock being raised on smaller scale include sheep, goats and rabbits.

PNG’s other agricultural exports include rubber, tea, cardamom, vanilla, chillies, spices and many varieties of tropical fruits and vegetables. These crops all present opportunities for expansion, and in many cases, processed and downstream products. Rubber is PNG’s only state controlled and managed industry. About 8000 households currently grow the crop, and it is well suited to the village farming environment.

4.3.9 Major players Trukai operates a rice processing mill in Lae, and exports rice to Solomon Islands and Australia, while meeting most of the domestic demand. Trukai also manages a 2500 hectare farm which carries around 5000 head of Brahman cattle bred for the PNG beef market. Pacific Spices uses only organic methods to grow its spices, and has been accredited in Australia and Japan. The spices are grown mainly on the organically certified lands of the Komgi people in New Britain. A majority share in Mainland Holdings was acquired by superannuation fund NASFUND in 2010, Products include flour, fresh and frozen chickens, tea, spices, crocodile skins and complementary businesses in transport, packaging and equipment servicing. Puritau-Pacific Spices recently received support from the Australian Government’s Enterprise Challenge Fund to establish a Solvent Extraction facility in Port Moresby to produce pure vanilla extract, vanilla oleo resin and other spices. This facility will be the first of its kind in PNG. New Britain Palm Oil Limited (NBPOL) is Papua New Guinea’s largest oil palm plantation and milling operator. Its main activity is the cultivation and processing of oil palm into crude palm oil, palm kernel oil and palm kernel expeller for domestic and foreign sales. NBPOL also operates in the cattle breeding industry. At the time of writing, NBPOL was in the process of establishing a processing mill—due to open in 2010—in Liverpool, England, to fulfil demand for palm oil from food manufacturers in the United Kingdom. NBPOL also acquired another major agricultural company, Ramu Agri Industries Ltd in 2008. Carpenter Estates, operating as Pacific Trading Company, is a tea and coffee growing, manufacturing and exporting company situated in PNG’s Western Highlands Province. The Company has 2100 hectares of tea with 4 fully automated factories, and 1100 hectares of Arabica Coffee with 4 wet factories. Carpenters is the largest producer and exporter of tea in PNG with over 90% of the country’s exports, and exports 1.6 million kilos of high quality coffee per annum.

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4.3.10 Opportunities and challenges

4.3.11 Incentives

The expansion of PNG’s agricultural sector has been hampered by the country’s difficult terrain, coupled with an inadequate and erratically maintained road, sea, air and transport infrastructure, marketing depots, and law and order issues. The challenge of opening up the country for commercial production of food needs to be balanced by ensuring environmental integrity and meeting the needs and expectations of landowners.

Rural Development Incentive This scheme allows income tax exemption on the net income of new businesses carrying on a rural development industry in 41 specified under-developed districts that are not dependent on the exploitation of natural resources, for 10 years after the commencement of the business.

Constraints to efficient and effective land use have historically been related to mobilisation and transfer. Laws governing land use for development are complicated and cumbersome, although the government is taking steps to address this, at both national and provincial levels. The IPA reports that Government’s reform initiatives in land and land tenure aim to contribute to economic growth and employment creation through more productive use of land resources throughout the country, while promoting economic participation and social stability. Nonetheless, PNG’s low tech farming practices and the lack of pesticide and artificial fertilisers mean PNG could position itself as a leading organic producer. PNG is also developing its Fairtrade credentials, in particular, moving towards certification in the coffee sector. Since 1988 the government’s Rural Development Incentive Program has aimed to better spread development throughout PNG. Forty-one under-developed districts have been identified. Any new agricultural production activity in a designated rural development area can gain a ten-year exemption from corporate income tax. The Investment Promotion Authority has identified specific investment opportunities in coffee, oil palm, cocoa, coconut/ copra and all spice crops. A full list of business opportunities can be found at the IPA website.

Primary Production Investment Scheme This incentive allows a deduction by shareholders against their personal tax liabilities. A primary production company that has incurred primary production development expenditure (defined to include cost of assets used for agricultural production) may surrender its available deduction in favour of its shareholders. In addition, primary producers have outright deductions for certain capital expenditure, initial accelerated depreciation is allowed for new agricultural plant and losses in primary production can be carried forward indefinitely. New primary projects which commence before 31 December 2011 will have a special tax rate of 20% for 10 years instead of the normal 30% rate. A 150% tax deduction is also available for expenditure on primary extension services provided free of charge to smallholder croppers. Deduction for research and development A 150% tax deduction is available for expenditure on approved research and development in primary production. Accelerated depreciation for agriculture and fishing Expenditure on new plant used in agricultural production can be written off 100% in its first year.

4.3.12 Resources Department of Agriculture and Livestock www.agriculture.org.pg Agricultural legislation www.agriculture.org.pg/Plant Act.htm PNG Investment Promotion Authority www.ipa.gov.pg

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4.4 Infrastructure 4.4.1 Ports PNG’s 16 declared ports are managed by the state-owned company, PNG Ports Corporation Limited, which falls under the auspices of the Independent Public Business Corporation (IPBC). The Maritime Division of the Department of Transport regulates other government and privately operated ports. PNG’s declared ports are: 1. Aitape 2. Alotau 3. Buka 4. Daru 5. Kavieng 6. Kieta 7. Kimbe 8. Lae 9. Lorengau 10. Madang 11. Oro Bay 12. Port Moresby 13. Rabaul 14. Samarai 15. Vanimo 16. Wewak

The connection of PNG to two large international data cables, from Australia and Guam, has greatly improved internet speeds and network capacity in PNG in recent years. Digicel’s arrival in PNG in 2007 followed the PNG Government’s adoption of a pro-competition policy in telecommunications. This was formalised in an Information and Communications Technology Act, which heralded the introduction of a new regulator for the industry, the National Information and Communication Technology Authority (NICTA), which was introduced in 2010.

Aitape and Samarai are managed under agency. Lae in Morobe Province is PNG’s busiest port. It is currently undergoing a major expansion expected to be complete by 2014. Regular Lae port users are recommended to join its users group at http://groups.google.com/group/lae-port-users. Long-term plans exist to relocate PNG’s second-busiest port, Port Moresby, to a larger site, as it currently sits adjacent to the city centre. This relocation would place the port in closer proximity to the engineering, procurement and construction facilities for the PNG LNG project in the Kairuku–Hiri District of neighbouring Central Province. Regular Port Moresby port users are recommended to join its users group at http:// groups.google.com/group/pom-port-users. Shipping schedules and other port information are available from the PNG Ports website: www.pngports.com.pg.

4.4.2 Telecommunications and internet PNG is the largest telecommunications market in the Pacific. Its telecommunications sector is dominated by two players: state-owned Telikom PNG and Irish-owned Digicel, which competes directly with Telikom PNG in the mobile phone and mobile internet areas. A third entity, Bemobile (formerly the mobile arm of Telikom), competes in the mobile phone space.

Telikom PNG provides nearly all fixed line phone calls in PNG, as well as fixed internet services. In May 2011, it launched Citifon, a CDMA mobile phone service. Telikom is part of the family of state-owned enterprises managed by the Independent Public Business Corporation (IPBC). The IPBC also holds about half the shares of Bemobile following its 2008 privatisation.

NICTA recently moved from a service-specific regulatory regime to an open licence regime, which means carriers and value added service providers who were previously licenced to provide specific mobile or internet services, can now migrate their licences and offer all services. This is expected to increase competition in the internet and fixed telecommunications areas in PNG. Service providers such as Digicel, Telikom PNG, Data Nets, Datec and Hitron have all migrated to the new regime and it is expected additional overseas operators will start to apply for these licences in PNG. The advent of competition in the telecommunications sector is generally regarded as having delivered lower prices, improved reliability, and the expansion of mobile network coverage for business. Digicel estimates that up to 4.5 million people now live in areas covered by its mobile phone network, while about 30% of the population now use either Bemobile’s or Digicel’s network. Accompanying this expansion has been the deployment of several technologies new to PNG, including the introduction of CDMA/3G services, wireless broadband internet and support for Blackberry smart phones. Telikom PNG is the main wholesaler of internet bandwidth. Internet service providers (ISPs) in PNG include Datec, Daltron, Global Technologies, Telinet, Hitron and Online South Pacific. These offer a range of internet services including ADSL broadband, wireless, leased line, HF/VHF radio and dialup internet services for business and consumers, and also email and web hosting. It is expected that the broadband service space will improve greatly in the next 12 months, as the Government seeks to consolildate all the state fibre assets in one body and enhance these to create a National Broadband Network.

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Internationally, ANL flies to several major international airports, including those in Sydney, Singapore, Manila, Tokyo, Hong Kong and Kuala Lumpur.

Further information Bemobile www.bemobile.com.pg

Air Niugini’s main local competitor is Airlines PNG, which listed on the Port Moresby Stock Exchange in June 2008 after several years in operation in PNG. It provides domestic services and also travel to Australia through a codeshare arrangement with Pacific Blue, the Pacific Islands division of Australia-based carrier Virgin Blue. In September 2009, it applied for the rights to fly to Asian destinations. Australia’s Qantas flies into PNG from Cairns.

Datec www.datec.net.pg Daltron www.daltron.com.pg Digicel www.digicelpng.com Global Technologies www.global.net.pg

In addition to the above, there are several smaller companies offering charter services to the mining and petroleum sector, tourists and the general business traveller, including Tropicair, Heli Niugini and Hevilift.

Hitron www.hitron.com.pg Online South Pacific www.online.net.pg

Further information National Airports Corporation Ltd Tel +675 325 1919

Remington Communications www.remington.com.pg Telikom PNG www.telikompng.com.pg

Civil Aviation and Safety Authority of PNG PO Box 684, Boroko NCD Tel +675 325 1798

4.4.3 Aviation and airports

Air Niugini www.airniugini.com.pg

PNG’s 22 major airports are managed and owned by the National Airports Corporation Limited while the industry is regulated by the Civil Aviation and Safety Authority. PNG’s main airport is Jacksons International Airport in Port Moresby. Other main airports include Lae, Madang, Tokua (Rabaul), Kargan, Gurney (in Milne Bay Province, scheduled to become PNG’s second international airport), Wewak and Goroka. Mount Hagen Provincial Airport has been declared an International Port of Entry because of the mining activities in Highlands provinces. In November 2009, the Asian Development Bank announced a $640 million program to help develop PNG’s airport infrastructure under the PNG Civil Aviation Development Investment Program. The funds will support infrastructure rehabilitation and upgrades; build the capacity of the PNG Civil Aviation Authority to operate on a more commercial footing; and establish 10-year performance-based maintenance contracts. The Civil Aviation Authority also has plans to develop the lands around Port Moresby’s Jacksons International Airport, and establish better terminal facilities. PNG’s national airline is Air Niugini Limited (ANL), a stateowned enterprise held under the auspices of the Independent Public Business Corporation. ANL provides the bulk of PNG’s domestic air services and has a codeshare arrangement with Australian carrier Qantas, among other international airlines.

Airlines PNG www.apng.com

4.4.4 Roads PNG has an estimated 27,000 km of roads and, given the lack of a rail network and the country’s widely-dispersed, rurally-based population, roads play a critical part in the PNG economy. PNG’s major road is the 700km Highlands Highway, which connects the provincial capitals of Lae, Madang, Goroka and Mount Hagen. With high rainfalls and challenging geography, road maintenance is a continuing issue, as the condition of roads can deteriorate markedly during floods and storms, especially in the Highlands provinces. While the PNG Government has an ongoing budget for road building and maintenance, much of the construction and building work related to PNG’s roads is supported by international development aid.

4.4.5 Infrastructure tax credit scheme Tax credit schemes allow for a fixed amount of investment in non-business areas to be offset against income tax. These schemes are usually used to encourage companies to invest in public infrastructure. Since the cost of the investment can be offset against any tax liabilities, it is of no cost to companies.

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4.5 Manufacturing

4.5.3 Incentives for manufacturers Several incentives exist to encourage the development of PNG’s manufacturing sector, including:

4.5.1 Overview Manufacturing in PNG is a small but fast-growing part of the economy, contributing between 6% and 11.5% of GDP. The sector has grown due to increased domestic demand in spite of a lack of infrastructure and high input tariffs. Goods manufactured in PNG include beverages, building products, food, handicrafts, furniture, industrial chemicals, plastics, packaging, paint, textiles and personal care products. The PNG Government is keen to encourage value adding and downstream processing in all of its major primary industries, including: > oil and gas (eg petrochemicals) > fisheries (eg canning and loining) > forestry (eg plywoods, furniture and prefabricated buildings) > agriculture (eg biofuel). In addition, there are key manufacturers of consumer goods in PNG such as Paradise Foods (snackfoods), Asia Pacific Breweries’ S P Brewery (beer), Nestlé (noodles) and Coca-Cola Amatil (beverages) which are involved in import substitution.

4.5.2 Manufacturers Council of PNG The peak body for manufacturers in PNG is the Manufacturers Council of PNG. As well as representing the interests of its members, it also runs a ‘PNG Made’ scheme to promote PNG manufactured goods. To qualify for use of the ‘PNG Made’ logo, 50% of a product’s cost of production must have been incurred in PNG. Further information: Manufacturers Council of PNG PO Box 598 Port Moresby NCD Tel +675 321 7143 Email pngmade@global.net.pg www.madeinpng.com

Industrial plant depreciation Industrial plants not previously used in PNG are eligible for increased depreciation up to 100% of cost. Initial year accelerated depreciation The initial year accelerated depreciation allows the capital cost of certain new assets to be written down at a faster rate than would be otherwise possible. Double-deduction for export market development costs Expenditure on export market development for goods manufactured in PNG or where PNG labour cost component exceeds 10% of the sale price of the product qualifies for a double deduction. Export sales exemption Under this incentive, profit made from the export sales of qualifying goods manufactured in PNG are exempt from company income tax for the first three years. For the following four years, the profit on any increase in profit sales over the average for the three years is also exempt. The exemption also applies to any new manufactured products declared by the Internal Revenue Commission. Import duty drawback Duty drawback is a rebate paid to exporting manufacturers, when they export goods equal to the amount of duty already paid on the raw material. It is offered so that locally manufactured goods can compete effectively in overseas markets. Wages subsidy Companies manufacturing new products may receive a subsidy payment of between 10% and 40% for up to five years based on a percentage of the relevant minimum wage for each full time citizen employee. The incentive is only available to those firms with a new manufactured product certificate from the Internal Revenue Commission.

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4.6 Forestry

or about 10% of industry production.

4.6.1 Industry snapshot Approximately 30 million hectares of PNG’s total land area is covered by forests, and about 15 million hectares is high quality tropical hardwoods considered suitable for forestry development. PNG’s current forestry products are raw log exports, sawn timber, veneer sheets, domestic log sales, plantation logs, plywood, processed timber exports and woodchips. The country is the second largest exporter of tropical logs in the world, following Malaysia. According to the Bank of Papua New Guinea, 2.86 million cubic metres of logs were exported in 2010. Forestry is a major contributor to the country’s Gross Domestic Product (GDP). In 2010, the value of PNG’s forest products exports was K700 million (US$300 million)—4.6% of the value of PNG’s main commodity exports. The PNG Forest Authority estimates 7000 people are directly employed in the forestry sector. There are 29 forest concessions in production, covering 3.5 million hectares. All commercial timber production is controlled by private companies, with Malaysian multinational companies currently dominant. Malaysian company Rimbunan Hijau controls over 45% of log exports. In recent years, downstream processing of forest products has been PNG’s fastest-growing manufacturing sector. Exports of this type of product have increased by more than 200% since 1997. The industry currently has more than 40 sawmills, a plywood factory, a woodchip mill and more than 25 furniture-making factories and joinery shops. Downstream processing activities include furniture making, plywood, flooring and other building products.

4.6.2 Markets Most of PNG’s timber is exported. The main markets are in Asia, with more than 80% of log exports going to China/Hong Kong, Korea and Japan. China imported over 1.7 million cubic metres of round logs from PNG in 2005, the equivalent of 74.6% of total log exports. Key markets for processed timber products are Australia, New Zealand and South Pacific countries, apart from veneer, which is mainly sold to China and South Korea.

4.6.3 Plantations PNG has 62,277 hectares of forest plantations. An AusAIDfunded valuation of plantations in 2005 put the investment value of these plantations at K123.64 million (US$41.51 million)

The PNG Forest Authority plans to develop 240,000 hectares of commercially viable and sustainable forest plantations by 2030. Approximately 4000 hectares of this goal is expected to be contributed by private investors, including possible new entrants to the sector. PNG’s Government says the potential for plantation forestry is significant, especially in large areas of deforested grassland.

4.6.4 Regulations and legislation The overarching legislation governing the forestry sector is the National Forest Policy, which covers forest management, the industry, research, training, education and forest organisation and administration. The PNG Forest Authority was established under the Forestry Act of 1991, and provides for regulations on the acquisition and allocation of land for forest development. There are several policy areas currently being reviewed and formulated, including a downstream processing policy aimed at increasing the value of forest exports and technological transfer, a reforestation policy related to PNG’s international commitments under the Kyoto Protocol climate change treaty, and an eco-forestry policy, aimed at creating an environment supportive of landowner participation. Under Reducing Emissions from Deforestation and Degradation (REDD), countries like PNG could receive funds for cutting emissions that result from deforestation and land use change, giving the country an incentive to maintain its forests. The PNG Forest Authority also identifies forest research and non-timber forest products, as likely subjects for future policy reviews. The National Forest Development Guidelines are being reviewed for the first time in 17 years. Drafts presented in August 2009 emphasise downstream processing and the carbon trade. Forest resources of PNG are customary owned. There is a 34-step project development process for timber concession areas, which includes national and provincial planning, surveys of the timber resource, infrastructure and economic potential, a tender process, formal stakeholder negotiations, environmental planning, and annual and long-term working plans. The PNG Government issues two types of timber licences: Timber Permits for big timber concession areas and Timber Authorities for smaller operations. Companies and investors new to PNG must register as a forest industry participant or consultant with the Forest Authority in order to get the permits and approvals necessary for beginning business of any kind in the sector.

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4.6.5 Governance

4.6.7 Challenges and opportunities

The Papua New Guinea Forest Authority (PNGFA) is responsible for monitoring, controlling and managing PNG’s wood and forest-based industries and resources. The Authority has 19 provincial offices and three key arms:

The Forest Industries Association—an incorporated association of companies involved in all levels of PNG’s timber industry— identifies several challenges for operators in PNG’s forest sector. It says high tax and royalty payments limit the scope to return profits to local areas of production, and could adversely impact investment levels in future.

> The National Forest Board, which advises the government on forest policies and legislation, and provides directions to the National Forest Service. Board members are drawn from provincial governments, landowners, NGOs, Chamber of Commerce and Industries, and the National Council of Women. > Provincial Forest Management Committees, which provide forums for consultation and coordination on forest management between national and provincial governments. > The National Forest Service, which is the operating arm of the Forest Authority.

4.6.6 Sustainability Under the PNG Constitution, a national objective is to ‘ensure the forest resources of the country are used and replenished for the collective benefit of all Papua New Guineans now and for future generations’. About 97% of PNG land is owned and managed by customary landowners. The forest growing on this land is controlled by these landowners. As such, extensive consultation between these resource owners, government agencies and forest companies is necessary before any forest activity can take place. PNG’s government and its implementing authorities understand their obligation to protect the nation’s environmental heritage while developing its forest resources. Each new project is scrutinised on the basis of its environmental impact and the needs of resource holders as well as investors. The PNG Forest Authority has adopted International Tropic Timber Organisation (ITTO) criteria and indicators of sustainable forest management. While PNG’s Department of Environment and Conservation (DEC) is the primary agency charged with the conservation and protection of PNG’s plant and animal species, protection strategies are integrated in several pieces of legislation and policy. The Forest Authority’s forest plans set aside areas for protection, which are excluded from any forestry timber harvesting operation whatsoever.

It also claims government support for the sector—in comparison to the mining industry—is neglible. Limited transport infrastructure also creates high costs for forestry companies. However, the industry body says PNG has a number of competitive advantages over other timber producing countries, including substantive wood and labour resources, and close proximity to world markets, including China and Japan for lowend forestry products and Australia and the United States for high value and value-added forestry products. The PNG Forest Authority identifies non-timber forest products—such as eaglewood and sandalwood, rattan and medicinal plants—as having high potential for investors seeking new opportunities. Another area of potential is carbon trade, under international climate treaties. PNG’s Investment Promotion Authority says: ‘The potential for converting … premium species, such as rosewood, kwila, blackbean and taun, into high-quality furniture and other wood products, is an investment opportunity with a growing market. Stocks of premium wood species will be maintained for wood products manufacturers, so the markets they establish in the near future can be guaranteed of a continued supply.’

4.6.8 Resources Papua New Guinea Forest Authority www.forestry.gov.pg Papua New Guinea Forest Industries Association www.fiapng.com The Papua New Guinea Eco-Forestry Forum www.ecoforestry.org.pg Papua New Guinea Forestry Act www.paclii.org/pg/legis/consol_act/fa1991139/ International Tropical Timber Organisation www.itto.int

PNG also has a robust NGO sector monitoring the industry. The PNG Eco-Forestry Forum was established in 1999 and has become an umbrella for many community groups and NGOs concerned with a sustainable forestry sector.

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PNG’S KEY INDUSTRIAL SECTORS

4.7 Fisheries

PNG exports tuna-based products to the EU under an Economic Partnership Agreement that gives it tariff-free access to the EU trading zone.

4.7.1 Industry snapshot The waters around PNG contain large stocks of marine resources. Within its 2.4 million square kilometre exclusive economic zone are large varieties of fish including, most importantly, migrating schools of tuna. Besides abundant tuna and other pelagic species, several other commercially important fish, shellfish, and sedentary species are found in PNG’s waters. More than 10,000 species of fish, molluscs and crustaceans have so far been identified. Coastal commercial fishing is based primarily on prawns, lobster and baramundi and a collection of sedentary fisheries resources, including beche-de-mer, trochus shells, pearl shell and green snail. The operations are carried out by small-scale commercial fishermen, who sell their product to a range of small-to-medium-sized fish processing and marketing entrepreneurs. Sea cucumber is collected and processed for export. The trade in shells with lustrous interiors is small, but growing. Domestic private investment in commercial fisheries in PNG is small. Inland fish production is still very much underdeveloped, but commercial farming of trout and carp has been undertaken by a few farmers in the Highlands region of the country. The PNG Government is exploring avenues for the privatisation of various aspects of its coastal fisheries programme. Private sector participation is to be promoted in the areas of handling, processing and marketing of marine products, craft construction, repairs and maintenance, engine sales and ice and fishing equipment sales. The Government is also playing a key role in the management of the fishing industry. The longterm sustainability of the resources and the environmental impact are the key factors for the long-term sustainability, growth and development of the fisheries sector. The major emphasis of the Government is the development of industrial and commercial fisheries which will help to provide the infrastructure and market necessary for small and medium scale fisheries development. The PNG Government is committed to encouraging more value-adding in the fisheries sector. PNG’s tuna processing is now a major employer in PNG, with processing plants located in Port Moresby, Lae and Madang.

4.7.2 Markets PNG is responsible for approximately 10% of the world’s tuna catch. According to Bank of PNG statistics, export income from marine products was K232.9 million (US$99.7 million) in 2009. Major destinations for PNG’s marine products include Hong Kong, Japan, Australia and the European Union (EU).

4.7.3 Governance and legislation The PNG National Fisheries Authority (NFA) is the primary regulatory and management body for the sector and it provides support and coordinates fishery development in the country. It also facilitates export certification and regulation and manages fisheries resources for sustainable growth. The NFA is a non-commercial statutory authority established in 2001 and operating under the Fisheries Management Act 1998 and related regulations. Its stated role is to regulate and oversee the development of the fisheries sector for maximum sustainable benefit for the people of PNG. The development of the PNG fisheries industry is guided by the NFA’s National Fisheries Corporate Plan, 2008–2012.

4.7.4 Licences and permits The following fisheries-related facilities require a licence to operate from the NFA: > Fishing vessels > Fish storage facilities/fish factories > Fish factories > Fish export facilities > Fish buyers > Trial fishing > Aquaculture. General Licence Information, a brochure stating the complete requirements for the various licence applications and fees, is available from the NFA. Vessel licence fees are dictated by the length of the vessel. Among other material, shore-based licences must be accompanied by: > a proposal/business plan (a Model Business Plan for Coastal Fishing can be obtained the NFA’s Licensing Unit) > endorsement from the Provincial Executive Council or Appointee of the Province where the facility will be situated > An NFA audit/inspection report from an Authorised Provincial Fisheries Officer (dry goods) or NFA Audit & Certification Officer (wet goods) > Plans and specifications for the facility. Among other material, new chartered locally-based foreign fishing vessel licence applications must be accompanied by:

THE PNG INVESTORS’ MANUAL - SECOND EDITION

PNG’S KEY INDUSTRIAL SECTORS

> National Maritime Safety Authority Certificate of Survey/ Inspection > Certificate of Registry in Port of Registry > Forum Fisheries Agency (FFA) Certificate of Vessel Registration on the Regional Register > FFA Certification of Registration of ALC (VMS) > Cargo Ship Safety Certificate. All enquiries regarding licences should be directed to the NFA’s Licensing and Data Management Business Group, National Fisheries Authority, 11th Floor, Deloitte Tower, Douglas Street, Port Moresby, tel +675 309 0444, fax +675 320 2069/320 2061.

4.7.5 Pacific Marine Industrial Zone In order to achieve some much-needed scale and value-adding in the fisheries industry, the PNG Government has identified a 215 hectare area of land close to Madang in Madang Province for the creation of a new Pacific Marine Industrial Zone (PMIZ).

4.7.6 Resources Department of Commerce and Industry www.dci.gov.pg Investment Promotion Authority www.ipa.gov.pg National Fisheries Authority www.fisheries.gov.pg National Maritime Safety Authority www.nmsa.gov.pg Pacific Islands Forum Fisheries Agency www.ffa.int Western and Central Pacific Fisheries Commission www.wcpfc.int

Adjacent to existing tuna processing facilities, the PMIZ, currently in its planning stage, would provide wharfing, berthing, processing facilities and other infrastructure necessary for an export-focused onshore fish-processing industry to develop. The PNG Government has provided K30 million (US$11.28 million) to kick-start the project, which early estimates suggest may eventually cost K300 million (US$112.8 million) or more. The Government has indicated a willingness to purchase the land from the existing owner, and develop the basic infrastructure of the site, which will include water, sewage, power and other utilities. Soft-loan financing from China is expected to pay for this. Fiscal incentives may also be forthcoming to attract investors. The PNG Government has invited other Pacific countries to consider locating their tuna processing facilities within the PMIZ and is promoting the venture through its Department of Commerce and Industry. Businesses interested in setting up within the PMIZ should contact the PNG Investment Promotion Authority or the Department of Commerce and Industry.

THE PNG INVESTORS’ MANUAL - SECOND EDITION

PNG’S KEY INDUSTRIAL SECTORS

4.8 Tourism

4.8.3 Incentives Investors in PNG’s tourism sector can benefit from the following incentives:

4.8.1 Overview While not a major contributor to GDP like the tourism industries of some other Pacific nations such as Fiji and Vanuatu, PNG’s tourism sector has nevertheless experienced steady growth over the past decade, with both business traveller and holidaymaker numbers increasing each year. In 2008, there was 30% growth in tourists visiting the country and an 8% increase in business travellers. PNG is characterised as a market for ‘soft adventure’ holiday. Major attractions include the 96 km Kokoda Track, with its historic association with World War II, surfing and scuba diving, while many eco-tourists come to view PNG’s virgin rainforests with their unique flora and fauna, include rare orchids, butterflies and birds. While PNG still awaits five-star resorts and hotels owned by the world’s leading hotel brands, it does have a variety of accommodation solutions for the traveller, from the main business hotels such as Airways Hotel and the Crowne Plaza to remote mountain retreats and dive resorts. Many companies, such as Steamships and the Constantinou Group, are actively involved in extending existing properties or building new ones (Steamships’ Grand Papua Hotel in downtown Port Moresby is the most prominent.) The peak body for businesses involved in the industry is the Papua New Guinea Tourism Industry Association (www.pngtia. com), although individual sectors (eg surfing and diving) have their own bodies.

Double income tax deductions Eligible expenditure includes expenses incurred on publicity and marketing, overseas trade shows, bringing travel agents or other sales representatives to PNG for the purposes of promoting PNG tourism. Accelerated depreciation Hotels, restaurants and recreational tourism facilities are eligible to receive additional depreciation deductions to a maximum of 55% of the cost price of capital investments. Goods and services tax exemptions The purchase of travel and accommodation by foreign tourists prior to arrival in PNG is GST-exempt. Double deduction for staff training A double deduction is allowed for tourism businesses for the expenses of salaries paid to full time training officers, PNG nationals attending full time courses at prescribed institutions and the salaries and wages paid to registered apprentices. New investment incentives for tourism accommodation Where expenditure exceeds US$10 million and the facility has at least 150 rooms, a concessional tax rate of 20% for 10 years from the date of completion of the project applies. Investment must be made within five years of 1 January 2007. Infrastructure tax credits These are available indefinitely but are limited in amount to 1.5% of gross income each year.

It is commonly held that improved infrastructure, more reliable air services and improved land tenure processes would assist the industry in developing further.

4.8.2 PNG Tourism Promotion Authority The government agency responsible for promoting and developing the tourism sector is the PNG Tourism Promotion Authority (www.pngtourism.org.pg). In September 2007, it launched a new 10-year masterplan recommending a ‘whole of government’ approach to developing the industry. The masterplan included the recent international re-branding of PNG as a tourist destination.

THE PNG INVESTORS’ MANUAL - SECOND EDITION

PNG’S KEY INDUSTRIAL SECTORS

4.9 Building and construction 4.9.1 Overview Investment in construction has been fuelled by a sustained and acute shortage of real estate since the mid-2000s, due in part to the resources boom and the consequent increased presence of expat workers in PNG. Increased liquidity, especially from local superannuation funds Nasfund and Nambawan Super Ltd, has freed up capital for real estate development. Major office, retail and accommodation developments in Port Moresby include Steamships’ Grand Papua Hotel and office development, Harbour City near the centre of Port Moresby and the Malaysian Rimbunan Hijau Group’s Vision City in Waigani. The advent of the ExxonMobil liquefied natural gas (LNG) project is also expected to fuel continued growth in PNG’s economy and construction sector, including a new accommodation village for ExxonMobil project workers in Port Moresby.

4.9.2 Acquisition of land for building The majority of land in PNG is either leasehold or customary land. To ascertain if land is zoned for building, developers need to check the Subdivisional Code in their municipality. The two largest municipal authorities in PNG are the National Capital District Commission (Port Moresby) and the Lae City Council (Lae). Building developments in PNG must comply with the Building Act and Physical Planning Acts. Major centres have their own Building and Physical Planning Boards.

4.9.3 Physical Planning Approval

Included in the submission must be stamped approvals from the local fire department and water authority (in Port Moresby, the local water authority is Eda Ranu). Developments costing in excess of 50 million kina (US$18.82 million) must also obtain additional approval from the Department of Environment and Conservation, as stipulated by the Environment Act 2000. A Structural Adequacy Certificate issued by a PNG-registered structural engineer is also required for Building Board approval. Under PNG’s Engineers Act, all construction design work must be done by a PNG-registered structural engineer. Once Building Board approval is obtained, construction must commence within 18 months, although extensions may be obtained.

4.9.5 Building workers and materials Employment of building labourers should follow Department of Labour and Industrial Relations guidelines. There is no requirement to use PNG-produced material on PNG building projects. All foreign contractors must be registered with the Investment Promotion Authority.

4.9.6 Certification during and after construction It is a requirement to notify the Building Board’s inspectors before pouring a building’s concrete footings, and a pre-pour inspection may occur. A Certificate of Occupancy must be issued by the municipal authority before the building can be occupied. A Certificate of Practical Completion must be issued by the contractor prior to the owner taking possession, followed by a Certificate of Final Completion.

Before building can commence, a developer must obtain Physical Planning Approval from PNG’s Department of Lands and Physical Planning. Application forms and fee structures are available from the relevant municipal council.

4.9.7 Further information/contacts

Material submitted should include architectural concept drawings of the proposed development.

Eda Ranu www.edaranu.com.pg

The Department of Lands and Physical Planning may stipulate certain conditions for the development in its letter of approval.

Lae City Council http://morobepng.com/id13.html

4.9.4 Building Board

National Capital District Commission Regulatory Services www.ncdc.gov.pg

Department of Labour and Industrial Relations www.workpermits.gov.pg

Once Physical Planning Approval has been obtained, a submission must be made to the local municipality’s Building Board including complete documentation on the project. Outside municipal boundaries, applications should go the relevant provincial building board.

THE PNG INVESTORS’ MANUAL - SECOND EDITION

5.0

credit: business advantage international

PNG Tax overview/ mergers and acquisitions

PNG TAX OVERVIEW/MERGERS & ACQUISITIONS

PNG boasts a mature and quite well defined tax regime. The tax laws are administered by the PNG Internal Revenue Commission (IRC) and customs laws by the PNG Customs Services Commission (CSC). The general company tax rate, at 30%, is comparable to most of the country’s major trading partners. Individual taxpayers who earn only salary or wage income are not required to lodge annual tax returns. Though small, the number of formal Double Taxation Agreements with selected other countries provides a good level of certainty and commercial flexibility for genuine investors. In particular PNG has NO capital gains, death (probate) or gift taxes. While domestic personal tax rates can be viewed as relatively high by world standards, rates for that range of specific payments to non-residents which are taxable are commensurate with many other jurisdictions and well signposted for investors.

5.1 Exemptions, incentives and concessions Successive Governments have introduced and maintained a significant range of measures designed to facilitate legitimate domestic and foreign investment. These are focused in many cases on key industry sectors. Some current examples, also discussed further below, include: > a three-year full exemption for certain export sales by manufacturers, with a further 4 year partial exemption > a 10-year tax holiday for new active business income derived in prescribed rural development areas (of which there are many) > a 10-year incentive company tax rate of 20% for new major agriculture projects commenced by the end of 2011 > a 15-year concessional company tax rate of 20% for new or significantly improved large scale tourism facilities commenced by the end of 2011 > 100% depreciation for certain industrial, manufacturing or agricultural plant > double deductions for staff training of PNG citizens > double deductions for export market development by manufacturers and tourism operators > 150% deduction for qualifying research and development expenses > tax credits for infrastructure expenses of resource, agricultural and tourism ventures

In the following commentary, the most relevant aspects of the PNG tax system, as they apply to companies and individuals in particular, are examined in some level of detail.

5.2 PNG tax rates at a glance

Corporate income tax rate (a)

Capital gains tax rate

Branch/non-resident company tax rate (b)

Dividend withholding tax (c)

Interest withholding tax (d)

Royalty withholding tax (e)

Foreign contractors tax (f)

Management fee withholding tax (g)

Superannuation funds (h)

Trusts (i)

Goods and services tax (GST)

Net operating losses (years) Carry back

Carry forward (j)

a) Special rates apply for some resource companies. So while gas operators and mining operations by PNG resident companies are also taxed at 30%, those by non-resident mining companies are taxed at 40% and petroleum operations are taxed at rates ranging from a 30% incentive rate to 45% or 50%, depending on the project itself. b) In some limited cases, due to the operation of a relevant non-discrimination clause in some of the Double Taxation Agreements (DTA), also commonly referred to as a tax treaty, that PNG has concluded with a partner country, this rate is reduced to 30%. c) In limited cases, dividend withholding tax (DWT) is restricted to 15% for residents of certain DTA partner countries. Dividends paid by gas or petroleum operation companies are exempt from DWT, while mining company DWT is only 10%.

> customs duty waivers on temporary importation of significant equipment

d) Withholding tax on interest paid to residents of countries with which PNG has entered into a DTA is restricted to 10% in nearly all cases.

> stamp duty exemptions for PNG listed share transfers through listed brokers and concessional rates on some other share dealings.

e) Royalties paid to all residents of DTA partner countries are taxed at a maximum of 10% on gross income, where such payments are on an ‘arms length’ basis.

THE PNG INVESTORS’ MANUAL - SECOND EDITION

PNG TAX OVERVIEW/MERGERS & ACQUISITIONS

f) The general domestic rate for taxation of foreign contractors is set at 12%. However, again due to the operation of a relevant non-discrimination clause in some of the DTAs that PNG has concluded with a partner country, this may be reduced to 7.5%.

liability raised through notification of provisional tax is legally enforceable but is adjusted when an income tax return is lodged in the following year. When the final income tax liability is notified, if there is one, then the tax is due and payable one month after the issue of this assessment.

g) Management fee withholding tax will not apply where the fees are paid to residents of certain DTA partner countries.

Income tax returns are due for lodgement on 28 February of each year for the previous 31 December year end, but this date may be extended if they are lodged by a registered tax agent. Penalties apply both to the late lodgement of income tax returns and the late payment of any income taxes.

h) Must be an authorised PNG resident fund. (i) Trustees of both normal trusts and of unit or property trusts are initially taxed at 30% on the net income of the trust. For normal trusts, the beneficiaries then suffer a further tax imposition with the rate depending on whether they are a resident or non-resident. j) Primary production (agriculture etc) ventures have unlimited carry forward of losses.

5.3 Company income tax A PNG resident company is subject to tax on its worldwide income. A company not resident in PNG will only be subject to PNG income tax on that income that is considered to have a PNG source. A company is resident in PNG if it is incorporated in PNG or its central management and control is in PNG. There is no regime for the attribution or taxing of foreign income earned by non-PNG resident companies. Mining, petroleum or gas operators, collectively often referred to as ‘resource companies’, are subject to their own tax regime. Though that regime incorporates many of the general treatments noted below, some of the important differences include the fact that tax is often calculated on a project specific basis (ie ring-fenced) and such companies have specific deductibility regimes available for allowable capital expenditure (ACE) and allowable exploration expenditure (AEE). These companies are subject to an Advance Payments Tax regime, which approximates the Provisional Tax regime that applies to non-resource companies. The scope of this publication is not however sufficient to cover these and other resource industry specific taxation treatments in great detail. Entities interested in such detail are advised to contact one of the three major international accounting firms operating in PNG.

5.3.1 Company tax administration The tax year is the calendar year ended 31 December. Rules exist for adoption of substitute accounting periods and these will often be granted where a PNG subsidiary wishes to adopt the same balance date as its foreign parent company. Payments for the estimated tax liability for the current year are required. These are due on 30 April, 31 July and 31 October of each year and are called Provisional Tax payments. The tax

5.3.2 Dividends Dividends paid by PNG companies are subject to a dividend withholding tax (DWT) of 17%, but this may be varied on application of certain DTAs to 15%. DWT is payable regardless of whether the dividend is paid to a resident or a non-resident of PNG, subject to some limited exemptions. Any DWT deducted and paid within a chain of companies can be credited against DWT due higher up the chain. Special provisions apply in the case of resource companies. Dividends paid by companies engaged in gas or petroleum operations are exempt from DWT, while those from mining companies are subject to a 10% rate of DWT. All dividends received by PNG resident companies are subject to an inter-company rebate in the hands of those companies and therefore not subject to further tax in the recipient company.

5.3.3 Foreign tax credit Foreign taxes paid on the foreign income of a PNG resident company are subject to a foreign tax credit. This is limited to the lesser of the foreign tax paid or the PNG tax payable on this income. There is no provision for the carry forward of foreign tax credits not utilised in a particular year.

5.3.4 Calculating taxable income General Tax is charged on taxable income, which equates to accounting profit as adjusted by specific tax requirements. Therefore the PNG tax system will generally allow a deduction for expenses incurred in carrying on a business provided they are not of a capital nature. Allowable deductions include depreciation of plant and equipment. The accounting profit of a company is subject to a number of tax adjustments to arrive at taxable income, and these may include: > provisions for expenses are not deductible (but expenses actually incurred are) > no deduction is available for formation expenses

THE PNG INVESTORS’ MANUAL - SECOND EDITION

PNG TAX OVERVIEW/MERGERS & ACQUISITIONS

> no income or deduction item results in the case of unrealised foreign exchange gains and losses > business entertainment expenses are not generally deductible > depreciation or amortisation of intangibles is not deductible > deductibility of management fees paid can be restricted > various other concessions and exemptions exist which may have a further impact. Capital gains There is no general capital gains tax in PNG. Capital gains are only taxable if they have been realised as part of a specific profit-making scheme or undertaking, or if they are related to the ordinary business of the taxpayer, as for example to that of a share trader. Exempt income There are a number of exemptions available in the PNG Income Tax Act, including: > certain qualifying export sales > rural development income from a prescribed rural development area > unit trust after-tax distributions to unit holders.

Trading stock (inventory) Movement in the value of stock on hand is assessable or deductible as the case may be. Stock can be valued, at the taxpayerâ&#x20AC;&#x2122;s option, at cost, market selling or replacement cost. Provision exists for the value of trading stock to be adjusted where special circumstances, such as obsolescence, exist. The Internal Revenue Commission (IRC) is the PNG tax authority. IRC may vary the value of trading stock where it considers that the transfer of trading stock did not take place at a reasonable commercial value. Depreciation Depreciation of plant and equipment is an allowable deduction for income tax purposes. The annual deduction is calculated on the basis of the cost of the particular item, plus any additional costs required to put that item into place, spread over its effective life. The rates of depreciation allowable are determined in the first instance by the IRC, although provisions do exist for a taxpayer to gain approval from the IRC for adopting a different rate in relation to a particular item. Depreciation is allowable on either a prime cost (straight line) basis or a diminishing value (reducing balance) basis. The

THE PNG INVESTORSâ&#x20AC;&#x2122; MANUAL - SECOND EDITION

PNG TAX OVERVIEW/MERGERS & ACQUISITIONS

diminishing value rate is 150% of the prime cost rate. Where plant is sold at a price exceeding its written down value that excess, up to the amount of the depreciation claimed, is treated as assessable income of the taxpayer. However, that excess may be taken as a reduction in the written down value of other depreciable plant owned by the taxpayer. The depreciation of assets used in resource projects in PNG is normally subject to a separate special tax regime applicable only to those types of ventures. However, affected taxpayers may elect that the normal depreciation provisions still apply, in the case of assets with an effective life of under 10 years. A number of depreciation incentives or concessions exist including: > qualifying industrial plant not previously used in PNG is eligible for a flexible rate of depreciation up to 100%, but this deduction may not create a tax loss > certain eligible new plant, or expenses incurred in conserving the use of fuel by that plant, may be subject to an additional 20% depreciation loading in the first year of use. For taxpayers in the tourism industry, that first year additional loading for certain eligible new plant is 55%. > acquisition on non-oil fired plant, or the conversion of existing plant to non-oil fired use, is subject to an additional 30% depreciation loading in the first year of use > a 100% deduction is available for the cost of qualifying agricultural plant or equipment, including that used in fishing, and for the cost of accredited dive boats > 150% deduction for plant acquired and used solely for research and development. Trading losses Tax losses may be carried forward for 20 years in PNG, with the exception of the tax losses of primary production ventures, where unlimited carry forward of losses is allowed. The carry forward of tax losses by a company is subject to it passing either a continuity of ownership test or a continuity of business test. The continuity of ownership test involves meeting a minimum 50% threshold and it also applies to changes of ownership in holding companies higher up the ownership chain. The continuity of business or ‘same business’ test is applied quite strictly. Specific provisions exist in relation to the amalgamation of companies under PNG law and similar tests apply to the tax losses of the amalgamating entities. Transfer pricing PNG tax legislation contains provisions specifically related to transfer pricing. The IRC at time of writing has issued no rulings or other formal statements on how it will generally administer these provisions. It is however understood that the IRC generally accepts the published OECD principles in this

field. In that sense it will generally considers arm’s length or reasonable commercial value as the only basis for determining the value at which transactions between related commercial entities should take place. With respect to management fees however, the IRC does require a formal annual application, as per Practice Statement PS 01/2005. This must include detailed and relevant substantiation where PNG taxpayers seek to take advantage of DTA protection against the domestic deduction limit of 2% that otherwise applies to management fees. The tax laws allow the IRC to substitute what it considers an arm’s length value for transactions which it believes have taken place at either inadequate or excessive values. However, there are no published safe harbour rules or values in relation to the pricing of transfers of goods, services or intellectual property. The IRC has not to date concluded any advanced pricing agreements with taxpayers in PNG, but does not preclude that option being explored in the future.

5.4 Personal income tax 5.4.1 Personal tax rates The current rates of income tax applicable to resident and nonresident individual taxpayers, applying since 1 January 2008, are shown in the table below. Earnings are expressed in PNG kina:

Resident Individuals

Non-Resident Individuals

Threshold

Rate

Threshold

7,000

22%

18,000

30%

18,000

30%

33,000

35%

33,000

35%

70,000

40%

70,000

40%

250,000

42%

250,000

42%

Rate

5.4.2 Income subject to tax A PNG-resident individual is subject to tax on his or her worldwide income. A non-resident of PNG will only be subject to PNG income tax on that income that is considered to have a PNG source. The concept of residency is normally related to where the individual ordinarily lives, subject to certain other statutory tests in the PNG domestic tax law and modified also by provisions in the DTAs that PNG has concluded.

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5.4.3 Administration of personal income tax The tax year is the calendar year ended 31 December. Alternative year ends are not granted to individual taxpayers. An individual whose only PNG income consists of fully taxed salary and wages is generally not required to lodge an income tax return (unless specifically asked to by IRC). Persons in receipt of any more than K100 in other income, excluding dividend income, are still required to lodge income tax returns. Dividend withholding tax (DWT) is a first and final tax for individuals resident in PNG as well as entities, including individuals, which are non-residents of PNG for income tax purposes. Thus dividend income that has been subject to DWT does not need to be included in individual tax returns. In respect of provisional tax and lodgement requirements for individuals, these are similar to those noted in the Company tax section above.

5.4.4 Taxation of salary and wages Salary and wage income Salary and wage income is a separate subset of taxable income in PNG which is subject to its own special rules. Those

rules include the legal imposition of an assessment period of two weeks (one fortnight) instead of an assessment period of one year. This is done for two main reasons: > to ensure that individuals who are in receipt of only salary and wages income do not need to lodge an income tax return, unless specifically requested by the IRC > to ensure that employees who leave PNG part way during the financial year do not receive income tax refunds solely for that reason. Employees are required to complete declaration forms at the beginning of their employment, and when their applicable circumstances change, to assist employers and the IRC to calculate the correct deductions of tax. Employers are responsible for the deduction and remittance of salary and wages tax to the IRC and any shortfalls will be recovered from them and not the employees. Employers remit this tax on a monthly basis and lodge an annual reconciliation with IRC. Employee benefits and allowances Most benefits and allowances, in addition to normal salary and wage income, provided to employees are taxed in the hands of those employees directly. For a number of such employee

THE PNG INVESTORSâ&#x20AC;&#x2122; MANUAL - SECOND EDITION

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Employee benefit

Taxable value per fortnight

Accommodation

a. provided in PNG Nil to K225 depending on area and market value of rent or accommodation

b. provided outside PNG

K225

c. mess/barracks

Nil to K45 depending on area

Housing allowance Nil for employees on Approved Low Cost Housing Schemes. Other employees taxed on prescribed values applicable to location and value of accommodation plus any excess of housing allowance above allowable housing expenditure, such as rent paid.

Motor vehicles K125 if provided with fuel and K95 if no fuel provided

Annual leave fares Exempt where one annual leave fare is provided to point of origin or recruitment (for employee and their dependants). Equivalent cost of travel within PNG also exempt.

School fees Nil if paid by the employer for annual school fees of dependant children at primary or high school, but not tertiary-level education

Superannuation, pension contributions Nil but note employer contributions to a non-PNG resident fund are not deductible to the employer

Cash allowances Taxable in full (subject to any formal substantiation of business usage)

benefits the law provides statutory taxable values which are used in this calculation. Some examples are provided in the table on page 68. Rebates The PNG system allows certain rebates against the tax imposed on salary and wages income. The most commonly used of these is where a taxpayer fully maintains dependants such as their spouse, a student child in primary or secondary school or their parents. The level of dependant rebates is however not high, with the total of all dependant rebates limited to K1,050. There is also a rebate for net education expenses at primary or secondary school level (not for tertiary education). This rebate is limited to a maximum of K750 per child. This contrasts with the case of an employer meeting the education expenses of an employee, where the full benefit is exempt. In that case the tax saving to the employee is at his or her marginal tax rate, which will often be far greater than the maximum rebate above. There is a mechanism whereby an employee can claim for legitimate business related expenditure incurred directly by them where no reimbursement from the employer is made. This mechanism requires full documentary substantiation to the IRC and works by means of a 25% rebate on total net expenditure (less the first K200). This rebate cannot exceed the total salary or wages tax deducted during the relevant year. Superannuation considerations a) Contribution requirements For PNG citizen employees, an employer must currently

contribute 8.4% of the employee’s gross wage to an authorised superannuation fund in PNG. Such employees are required to make their own contributions of 6% from net salary and wage receipts. There is provision for additional voluntary contributions to be made by either. However, in the case of an employer no claim for a tax deduction as a business expense is available for contributions they make that exceed 15% of the employee’s gross salary, plus that excess amount is taxable to the superannuation fund. There is currently a moratorium in place on any requirement for superannuation contributions in PNG on behalf of resident expatriate employees. The relevant Government officials have advised this will remain in place until at least May 2010. b) Tax on superannuation (termination) payments The PNG system also provides for concessional taxation of superannuation payments made by authorised superannuation funds to employees as a result of their retirement or resignation. These concessions only apply where the employer component falls within prescribed maximum levels. A tax rate of 2% applies in some limited cases, such as where: > contributions have been made for 15 years or more > contributions have been made for at least seven years and the employee is at least 50 years of age > made on the death or disablement of the taxpayer. Other concessional rates apply. For example, distributions where contributions have been made for more than ten years but less than 15 years may attract a tax rate of 8% in the

THE PNG INVESTORS’ MANUAL - SECOND EDITION

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employee’s hand. Distributions where contributions have been made for more than five years but less than ten years may attract a tax rate of 15%.

5.5 Withholding and other taxes 5.5.1 Foreign contractors tax (FCWT) This tax is initially imposed at a flat 12% on the gross revenue of contract work undertaken in PNG. This 12% figure is derived by applying the non-resident company tax rate of 48% to a deemed profit margin of 25%. This rate is reduced to 7.5% in the case of residents of some partner countries by virtue of the relevant DTA provisions. However, the FCWT regime also provides that foreign contractors whose profit margins are below 25% may elect to apply to IRC for approval to lodge annual income tax returns. If such approval is granted, they will then be taxed at the rate of 48% of their taxable (net) income, or in some cases at 30% by virtue of the operative terms in certain DTAs. Where the contractor is subject to FCWT of 12% as a first and final income tax, there are no other lodgement or payment requirements in respect of that contractor’s own tax liability. However, it should be noted that they will most likely still have an obligation to deduct and remit salary and wages tax to the Internal Revenue Commission (IRC) from the relevant earnings of their staff engaged on the contract work in PNG. Where the contractor elects to lodge income tax returns then they are taxed in generally the same way as described in the ‘Company Income Tax’ section above. In all cases it is the PNG entity making the payment who is responsible for deducting and remitting the relevant FCWT amount to IRC, within 21 days of month’s end (as is the rule for all other withholding taxes noted below). Determination of FCWT liability Contracts subject to FCWT are those which are defined to be for ‘prescribed purposes’. This broadly means contracts which are ‘for or in connection with’ the following: > the installation, maintenance or use in PNG of substantial equipment or machinery > the construction in PNG of structural improvements including: roads, bridges, culverts or similar roadworks; buildings, fences or similar improvements; clearing or draining of land; ports or port facilities; facilities for the provision of water, light, power or communication; transport facilities > the use of, or right to use, in PNG any industrial, commercial or scientific equipment including vehicles, ships and aircraft

> the provision in PNG of professional services as an adviser, consultant or manager. This wide definition may draw an entire contract into the FCWT net even where some of the functions covered in the contract may not be for prescribed purposes. The IRC will on occasion accept the segregation of contract activities into separate ‘prescribed’ and ‘non-prescribed’ contracts, provided this does not produce unworkable results and provided that the revenue attached to each contract is commercially realistic. As an example, the IRC has accepted in the past that geophysical data analysis which takes place offshore may be subject to a separate contract, and thus not subject to tax, while the contract covering acquisition or capture of that data onshore is subject to FCWT. It has also accepted the separation of mobilisation and demobilisation costs from the base contract to use certain substantial plant and equipment in PNG.

5.5.2 Interest withholding tax (IWT) IWT is generally levelled on all payments of interest from within PNG, regardless of whether the recipient is a resident or non-resident taxpayer. The flat rate of withholding is 15% though, as already highlighted, this is reduced to 10% for residents of all DTA partner countries, except for Malaysia. There are some limited IWT exemptions, such as for interest derived by non-resident lenders to companies engaged in mining, petroleum or gas operations in PNG or where the interest is payable to a licensed PNG financial institution. Where a taxpayer is required to include interest income in an income tax return lodged with the IRC, they are entitled to claim a tax credit for any IWT already deducted.

5.5.3 Dividend withholding tax (DWT) Imposition of DWT is generally made at a flat rate of 17% under the PNG domestic tax laws. DWT is applied to dividend income receipts of both resident and non-resident taxpayers. This rate is reduced to 15% in the case of residents of Singapore, China, Malaysia, Germany and Korea as a result of a DTA PNG has with those countries. DWT is a final tax liability on dividend income in the case of individuals and trusts resident in PNG, as well for all non-residents of PNG. Exemption from DWT applies for dividends paid by companies engaged in gas or petroleum operations, while those from mining companies are subject to a reduced rate of 10%. Exemption also applies where dividends are received by superannuation funds. As already noted above, at 5.3.2, where dividends are received by other PNG resident companies, these companies are also entitled to a corresponding income tax rebate.

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5.5.4 Royalty withholding tax (RWT) RWT only applies to royalty payments to non-residents. Where the non-resident recipient of the royalty is an independent third party, the tax law provides for the payment to be taxed at the lesser of either 10% of gross income by means of RWT, or if the royalty recipient elects to lodge an income tax return with IRC, 48% of net taxable income. By contrast, royalty payments to associated parties are prima facie taxed at a flat 30% of gross income by means of RWT. Certain exceptions apply in cases where the royalty arises from a PNG resource company. As already noted, all residents of DTA partner countries are taxed at a maximum RWT rate of 10% on gross income, provided the royalty is an arms length one.

5.5.5 Management fee withholding tax (MFWT) MFWT is imposed only on non-residents who receive payments falling within the domestic tax law definition of ‘management fee’. This term, and the interpretation of it by the IRC, is quite broad in application. It includes all payments in consideration for services of a managerial or technical nature and for consultancy services. This tax applies irrespective of whether the non-resident is an associated party or an independent party, in relation to the PNG entity to whom the services are rendered. MFWT is imposed at a flat rate of 17% on all qualifying payments, under the domestic law provisions. However, in the case of genuine residents of certain countries with which PNG has a DTA, no MFWT will be levied because the relevant DTA prevents it. PNG also has a domestic limitation on the amount of management fees that may be allowed as an income tax deduction, when paid by a PNG entity to a non-resident associate. This limitation is to 2% of the lesser of total income or total allowable expenses excluding the management fees. On formal application, IRC may allow amounts that exceed this 2% threshold, but only if the recipient is resident in a DTA partner country and the amount claimed can be shown to equate to an arms length fee. Where tax deductions are limited to the 2% threshold, MFWT is only imposed on the amount that is so allowed.

5.5.6 Other withholding taxes In addition to the particular withholding taxes mentioned above, PNG has several other withholding taxes or withholding tax equivalent imposts, these are imposed on payments to: > PNG resident business entities providing certain defined contract and consulting services and which are not in possession of a current Certificate of Compliance from the IRC, which is imposed at 10% on the gross payment (known as ‘business payments tax’).

> non-resident insurers, where 10% of gross premium income is subject to tax at the 48% non-resident company rate (or 30% for unincorporated associations). > overseas shippers, in some limited cases, where 5% of receipts for the carriage of goods or persons shipped in PNG is subject to the 48% non-resident company tax rate.

5.5.7 Stamp duty Stamp duty is essentially a tax on documents in PNG, it applies on the following: > transfers of real property > leases or rental agreements > deeds of settlement and deeds of gift > transfers of marketable securities and of mining and petroleum leases > powers of attorney > memoranda of agreement > betting tickets and lotteries. The rates of stamp duty vary widely between the types of documents listed above. A number of exemptions may exist under each of these categories and several have monetary thresholds where either no duty applies or it is levied progressively on a sliding scale. As an example, the general rate of stamp duty (above K140,000, below which reduced rates apply) for the transfer of land or shares in a land-rich company, being some of the most common transactions subject to stamp duty in PNG, is 5%. The rate is only 1% for the transfer of most other shares, but listed shares traded on the Port Moresby Stock Exchange through a registered broker are exempt.

5.5.8 Customs and excise duty PNG has in recent years generally decreased the overall number of imported items to which duties and excise apply, as it has the rates of such impositions. However, there are still a number of such items, both domestic and imported, to which significant duties still apply. For significant items that are to be re-exported within 12 months of import into PNG (temporary imports), the duty otherwise applicable can be waived provided suitable arrangements (in the form of a bond or bank guarantee) are concluded in advance with Customs Office. There is also domestic excise levied on some key products, including alcohol and petrol. Notable among these are motor vehicles, with rates for normal passenger and four wheel drive type vehicles varying from between 40% to 110%.

5.5.9 Training levy The PNG income tax legislation imposes a training levy, which is a default tax imposed at the rate of 2%. In other words, the levy is imposed to the extent that a taxpayer over the threshold of the tax, being annual payroll costs of K200,000,

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does not incur sufficient qualifying training expenses. For that reason employers incurring significant training expenditure on citizen employees generally do not pay the levy. It should be noted that the training levy itself is not deductible for income tax purposes, while training expenses incurred are.

5.6 Double tax agreements The PNG Government has concluded nine bi-lateral tax treaties, called Double Tax Agreements or DTAs. These generally allocate taxing rights over specific types of income derived by residents of the two respective treaty partner countries. Such DTAs apply to income taxes and other like taxes, such as salary and wages tax, but do not apply to GST situations. PNG has concluded a DTA with each of the following countries:

taxable in that other country unless the entity is considered to be operating through a permanent establishment (or branch) in that other country. This general proposition is then subject to a number of important conditions and exceptions. Each DTA also contains its own unique definitional rules as to what constitutes a permanent establishment for these purposes. The application of the DTA framework has another practical application in everyday PNG tax administration. Many PNGbased businesses engage foreign contractors and consultants to assist their businesses for short or even extended terms. A specific tax regime, called the foreign contractor tax provisions (see section 5.5 above on withholding and other taxes), applies to such engagements and some of these DTAs provide exemptions from this tax regime for short term and/or low value assignments.

5.7 Goods and services tax (GST)

> Canada > Australia > Singapore

The PNG tax system includes a goods and services tax (GST) that is imposed at the rate of 10%. It operates as a GST does in most part of the world, where GST is imposed on taxable sales or supplies made by a registered business, and a credit is allowed for any GST paid by that business for its inputs.

> United Kingdom > Malaysia > China > Germany > Korea > Fiji. Rates of tax applicable to residents of these countries, for the types of payments listed below, are the lesser of the domestic rates in the PNG tax law or the rates listed in each DTA. The current rates of tax applicable are:

All entities, including foreign contractors, whose taxable supplies exceed K100,000 in any 12 month period must be registered for GST, regardless of whether they are required to lodge an income tax return or not. The following supplies may be zero rated, or GST free, under the GST laws:

Country

Dividends

Interest

Royalties

Canada

> medical supplies, including prescription drugs

Australia

> supply of new fine metal

Singapore

> goods and services provided to a prescribed foreign aid provider

United Kingdom

Malaysia

China

Germany

Korea

Fiji

These DTAs also contain a range of rules as to how income or payments derived by residents of the respective treaty partner countries is to be treated. In the business income context, they generally provide that income derived by a resident entity of one country, from sources in the other country, will not be

> the sale of a business as a going concern

> goods and services, other than cars, provided to resource companies > goods and services supplied to an approved charitable body > certain exported services > travel or accommodation within PNG purchased by a person outside PNG. The following services may be exempt from GST, or input taxed, under the PNG GST: > financial services > medical services > educational services > public road transport

THE PNG INVESTORSâ&#x20AC;&#x2122; MANUAL - SECOND EDITION

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> accommodation and motor vehicles supplied by an employer to their staff > retail supply of newspapers > lotteries and other games of chance plus postage stamps. GST returns must be lodged monthly by registered persons. The IRC does allow for business entities that are in refund positions to apply relevant GST credits to offset other tax liabilities of the business, such as income tax or salary and wages tax. Import GST, also at 10%, is payable on the majority of items imported commercially into PNG, subject to relevant exceptions as noted above. It is also noted that the PNG legislation contains reverse charge provisions whereby GST may be imposed on certain supplies made to a PNG resident from outside PNG.

5.8 Tax incentives in summary A majority of the tax incentives and concessions which might be relevant or important to intending investors and business operations in PNG have been dealt with in the various sections above. However, for ease of reference, a number of these are now summarised in the list that follows. In many cases availability of these incentives will depend on the entity claiming them meeting certain qualifying conditions or obtaining formal approval in advance from the IRC. In this regard, it is recommended that entities interested in getting full details for any of these incentives, contact one of the three major international tax and accounting firms operating in PNG.

> up to 100% annual depreciation possible for plant and equipment used in certain industrial, manufacturing or agriculture activities > infrastructure tax credits, where expenditure on approved infrastructure projects by resource companies, primary producers and tourism operators qualifies as a credit against tax payable, at varying rates up to a maximum of 1.5% of assessable income > Community service obligation tax credits, where banks that incur expenditure on providing extended and new banking facilities or services in non-urban areas, before 2012, obtain significant tax credits for that expenditure > exemption from dividend withholding tax for profit distributions by gas and petroleum operators and a reduced rate of 10% for mining operators > tax deductions for gifts to accredited political parties, sporting bodies and prescribed charitable bodies > double deductions for donations to specific bodies or funds set up for purposes such as law and order, national or world expos, sporting contests and global conferences.

5.9 T ax clearance requirements By comparison, current requirements for Tax Clearance by IRC on the limited range of transactions caught by this regime are less rigid and cumbersome than those existing prior to September 2007. This is due in part to major deregulation of foreign exchange controls by the Bank of Papua New Guinea (BPNG), PNG’s central bank, at that time.

Such tax incentives include: > a three-year full exemption for export sales income from certain specified manufactured products, with a further four-year partial exemption

Normal payments to non-resident entities for the purchase of goods, such as trading stock, or the provision of services offshore are not subject to Tax Clearance requirements. The type of overseas remittances that do still require Tax Clearance approval by IRC in advance include:

> a double deduction for qualifying export market development expenditure for manufacturers and tourism operators

> payment of dividends, royalties, licence fees, management fees

> a double deduction for staff training of PNG citizen employees

> transfer of capital funds such as accumulated savings

> a 150% deduction for approved expenditure undertaken on specific research and development activities. > a 10-year tax holiday for income from certain active business activities commenced in prescribed rural development areas within PNG (of which there are many) > a 10-year reduced company tax rate of 20% for new major agriculture investments commenced before the end of December 2011

> repayments on loans, both interest and principal > payments for the sale or purchase of land, property or securities, including the transfer of shares on a PNG Register. Even here, clearance for remittances to the majority of overseas destinations is only required when such payment types exceed K200,000 annually. For payments to one of the IRC listed ‘tax havens’ however that threshold is not available and all remittances require Tax Clearance.

> a large scale tourism facility reduced company tax rate of 20% for fifteen years if commenced before the end of 2011

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5.10 Mergers and acquisitions in PNG The business landscape in PNG has also changed considerably over the last few years with respect to mergers and acquisitions (M&A) activity. In years gone by, there was a trite and well worn saying that ‘there is no such thing as goodwill in PNG’. M&A activity over the last few years in particular has clearly and conclusively put the lie to that statement. Businesses with solid and identifiable track records and with good growth prospects in PNG’s currently booming economy clearly do command a price reflecting a multiple of their maintainable earnings. That multiple varies with a number of factors including the target’s financial performance, management stability and history, infrastructure assets available, market prospects and, often in the case of overseas buyers, perceived country risk, to name but a few factors. Some industries have been quick to attract foreign competitors while others exhibit higher barriers to entry for various reasons. At the same time a number of business opportunities are opening up because business persons who set up now successful ventures around and before independence was granted to PNG are now considering their succession and exit plans. All these factors make the PNG market place, which is traditionally a high operating cost but high profit margin environment, one well worth looking at.

5.10.1 Commercial issues

of land can very often be problematic with disputes affecting the ownership of particular areas of land, so legal due diligence is well advised. > Ongoing management and other human resources post-acquisition are important determinants of the attractiveness and viability of any business acquisition in PNG and the competition for capable qualified PNG citizen employees is intense. There can also be delays in recruiting and putting in place foreign labour which need to be managed. > Businesses often operate in PNG without long-term contracts in place where one might expect them, and a review of an entity’s contractual and legal position is also well advised. > There are relatively few experienced and capable accounting firms in PNG and a number of operators do not have their accounts audited so financial due diligence is a necessity. > In the PNG environment, where some companies are experiencing substantial growth, influx of competitors, changing regulatory environments and competition for their capable human resources it is vital to apply realistic forecasts in any analysis of a business acquisition.

5.10.2 Tax issues The tax environment in which PNG M&A activity takes place can briefly be summarised as follows: > There is currently no capital gains tax in PNG.

The PNG commercial environment is one which exhibits a wide variety of operating styles and practices. Successful management of PNG commercial enterprises requires flexibility, focus on results and lateral thinking in a regulatory environment that can sometimes be hit and miss in its enforcement practices. When considering an acquisition of any reasonable sized commercial entity in PNG it is usually critical to perform due diligence on the target to understand the manner in which it has been operated in the past and the risk and reward profile of the business going forward. This point cannot be emphasised too strongly. Below are some of the commercial issues which acquirers of businesses in PNG should be aware of when considering an acquisition in PNG: > Foreign ownership of PNG businesses, whether through a branch or a locally incorporated company, requires certification from the Investment Promotion Authority (IPA). Areas of business open to IPA certification are very wide and unlikely to be restrictive but this is a step which must be completed to successfully acquire a business in PNG. > Only a small proportion of PNG land is available to foreign ownership through a long-term lease tenure but happily this land exists in most PNG urban centres. The ownership

> Sales of capital assets will generally only produce an assessable gain if they have been acquired through some profit-making scheme or undertaking or if those gains can fairly be described as being income of the owner. Knowledge of the PNG Internal Revenue Commission’s (IRC) attitudes in these areas is an important part of tax planning in such transactions. > Stamp duty on transfers of shares in real estate and shares in land-rich companies will most often be imposed at a rate of 5%, otherwise the stamp duty on transfer of shares is generally 1%. > Business assets which are sold at a price above their tax written down value will generally attract an assessable gain to the extent of any depreciation claims recovered and a non-assessable capital gain if sold above their original purchase price. > PNG has a relatively benign foreign exchange control regime but a number of remittances from PNG overseas do require taxation clearance. Central bank approval is also required for a limited range of transactions.

THE PNG INVESTORS’ MANUAL - SECOND EDITION

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> PNG tax and corporate legislation makes provision for the amalgamation of companies which, subject to certain tests being satisfied, can preserve the tax attributes of the companies which disappear.

Business acquirers on the other hand, may wish to acquire the business assets to simplify their due diligence requirements and reduce their perceived business and tax risks attached to the previous operating entity.

> PNG has a relatively limited range of import, including excise, duties but does impose GST (including on imported goods). Foreign entities seeking to acquire, capitalise or equip PNG entities need to bear this in mind.

In addition to these issues, there is no substitute for the ‘housekeeping’ elements in a due diligence process because it is not uncommon for PNG businesses to be behind with their various tax lodgement and payment responsibilities and other regulatory approval requirements or to have unresolved tax payment or dispute issues with the IRC.

PNG businesses are almost invariably owned through a corporate structure, so any business acquisition can be accomplished by acquiring the ownership of the company(ies) holding the assets or the assets themselves. The decision as to which route to take is often not just an outcome of analysis of tax issues such as the potential imposition of stamp duty on real estate but also a number of commercial issues such as the relative ease of transfer of licences the target might operate under. Often PNG business owners, particularly individuals, have a preference for disposing the companies owning the assets, rather than the assets themselves, to capture the benefit of there being no capital gains tax on disposal of those shares. Otherwise, there can be tax leakage if the corporate entity disposes of the assets and must then be dismantled by the original owner.

In conclusion, it is fair to say that, because of the myriad special circumstances and fast moving changes to the PNG business and regulatory environment that exist in PNG, it is often more effective to acquire a local business operation with a track record than to attempt to set one up from a zero base, particularly where the establishment of the business operation is time critical. Intending parties wishing to set up operations in PNG should seriously consider this option.

This article prepared by Deloitte Touche Tohmatsu’s PNG office.

THE PNG INVESTORS’ MANUAL - SECOND EDITION

6.0

credit: R D Tuna

LIVING AND WORKING IN PNG

6.1 Employing people 6.1.1 Overview Like all nations, PNG has laws pertaining to operating a business and employing its citizens and non-citizens. Thus it is important that organisations intending to operate and employ Papua New Guineans and non-citizen residents and/ or expatriate personnel should take the time to familiarise themselves with the relevant laws of the Independent State of Papua New Guinea (PNG). PNG is a developing and relatively young nation and, as a result, may not have a large supply of the array of skilled personnel your business venture or project may need. On the other hand, PNG does have an educated elite and produces its own graduates and trainees across a range of disciplines. Thus you may be able to fill a number of your key roles with Papua New Guineans. To help new businesses understand where required personnel may come from, the PNG Government has published information that details the roles that are restricted to citizens, those that are open to both citizens and non-citizens, and those that must be advertised seeking PNG candidates in the first instance. If you are intending to employ non-citizens of PNG we recommend you purchase the Department of Labour and Industrial Relations (DLIR) publications Work Permit Guideline: A General Guide to the Foreign Employment System in PNG (Version 1, 01/01/09), and Work Permit Guideline: A guide to the Foreign Employment Industrial Divisions and Classification of Occupations (Version 1, 01/01/09). These publications cost K25.00 each, or they can be downloaded from the Department’s website at www.workpermits.com.pg. It is also important to appreciate that if your organisation intends to employ non-citizens then you must also complete and submit a Training and Localisation Plan which outlines the initiatives your organisation will take to develop PNG citizens and over time build capability to enable PNG citizens to work in the roles currently requiring expertise of non-citizens. For more information, we recommend you contact the Department of Labour and Industrial Relations.

the Department on an annual basis. Information on licensing and regulation of employment agents can be obtained from the Department’s National Employment Service (tel +675 325 2546). In the following paragraphs we give an overview of the Regulations and Procedures and then provide an opinion of living in PNG.

6.1.2 Work permits Regulations As indicated above, all non-citizens who seek employment in PNG must possess a valid work permit before they can commence employment. The work permit must be granted by the Secretary, Department of Labour and Industrial Relations (DLIR) in accordance with the Employment of Non-Citizens Act 2007. There are three types of work permit: > A general work permit for commercial employment > A volunteer work permit for work performed for other than financial reward > A bridging work permit (see below). Short-term work permits are valid for up to six months and are non-renewable. Long-term work permits can last for up to three years, or five if the employer is designated a Good Corporate Citizen under the Act. All employers who employ non-citizen workers must keep a Register of Work Permits. A non-citizen who works in PNG without a valid work permit commits an offence. Application procedures For each non-national you seek to bring into PNG or employ in PNG your registered Employment Agent will submit the appropriate application form with following documents to DLIR in Port Moresby on your behalf: > Copy of photo page or bio page of employee’s passport > Curriculum vitae > Copy of Job Description > Certified evidence of education qualifications (witnessed by a JP)

In essence, each non-citizen you employ to work in PNG will need both a Work Permit and a Visa. The Work Permit and Visa are unique to the role, employer and person and any variation of role, employer or person will require a new Work Permit and Visa application.

> Copy of employment contract signed by both employee and employer on company letterhead

While not legally required, we recommend you engage a registered employment agent to assist you with interfacing with the Department of Labour and Industrial Relations. These are regulated under the Employment Act 1978 and licensed by

> Employee’s right thumb print

> Copy of application for Entry Permit > Two recent, clear, colour passport sized photographs of employee > Evidence of membership of professional association > Evidence of English language proficiency > Employer’s Certificate of Incorporation from Investment

THE PNG INVESTORS’ MANUAL - SECOND EDITION

LIVING AND WORKING IN PNG

6.1.3 Visas

Promotion Authority (IPA) > Evidence of payment of fee for Work Permit (nonrefundable) > Administration fee. If the applicant does not hold a valid work permit, the applicant must apply from outside PNG. If all of the documentation is correct, the Department will usually process a work permit application within three weeks. Once the approval has been granted by the Secretary, the Work Permit and work permit card is available for collection. Renewing work permits An existing holder of a work permit may apply to renew the work permit prior to its expiry. A renewal only applies if the application is for the same position in the same company. If there is likely to be a delay in processing the renewal such that the work permit could expire before a renewal is granted, a 60day Renewal Extension Letter can be applied for. If the employer wishes to transfer the employee to a new position, or the worker is changing companies, then a new work permit must be applied for. Exemptions The following non-citizen employees do not require work permits: > Non-citizen employees of the Diplomatic Corps (however, locally-engaged non-citizen employees of foreign diplomatic missions in PNG are not exempted) > Non-citizens appointed as Official Personal Staff > Non-citizens employed by certain aid organisations such as AusAid and JICA (again, locally-engaged non-citizen employees are not exempted) > Non-citizens granted Permanent Residency status.

Regulations Once a non-citizen has been issued with a work permit, he or she must apply to Department of Foreign Affairs, Trade and Immigration (DFATI) in Port Moresby for the appropriate Entry Permit (Visa). A visa allows a non-citizen to enter PNG and to remain for a specific period. Any decision with respect to a visa application will be made in accordance with the Migration Act 1978 and regulation. Non-citizen employees who have been issued with a work permit are granted a specific visa called the Working Resident Entry Permit. DFATI issues many other types of Visas such as: Visitor Visa, Business Visa and Student Visa. DFATI also issues Permanent Resident Visas and Papua New Guinean Passports. DFATI is responsible for monitoring the entry, stay and exit of non-citizens, including foreign workers, to PNG. Where a noncitizen is found breaching the provisions of their Visa, DFATI may deport them from the country. While foreign directors or shareholders of PNG-based companies can visit PNG under a business visa (see below), they will not be granted residency or employment visas without proof that the company has been registered with the Investment Promotion Authority Application procedures for work visa Your registered employment agent must take the following documents to the Department of Foreign Affairs, Trade and Immigration in Port Moresby: > Letter of sponsorship from client requesting approval of the work visa > Completed Application for Entry Permit form with passport photo

Professional registration It is necessary for certain non-citizen employees in PNG to register with a professional body before taking up employment. These bodies include:

> Copy of Work Permit approval letter from DLIR

> Institute of Engineers PNG Inc (www.iepng.org.pg) > Certified Practising Accountants of PNG (+675-321-2105, cpapng@cpapng.org.pg)

For collection of the visa, the following requirements need to be lodged at the Diplomatic Mission in the Country of Origin of the candidate themselves:

> Nursing Council of PNG (+675 301 3803, ncouncil@health.gov.pg)

> Applicant’s passport—must have at least 12 months validity

> Maritime Safety Authority (www.nmsa.gov.pg)

> Completed, signed, Application for Entry Permit with passport photo attached

> PNG Law Society (+675 321 7344, lawsoc@daltron.com.pg) > Medical Board of PNG (+675 301 3813/301 3784) > Pharmacy Board of PNG

> Candidate passport biopage > Maintenance Guarantee Bond > Finance receipt for migration services.

> Completed PNG DFATI Medical Forms including HIV test results and chest x-ray results. The time this will take does vary depending on an array of variables. Most are processed within three weeks.

> PNG Association of Surveyors > PNG Institute of Architects (+675 321 4499, pacpng@datec.net.pg)

Please note that it will take time—six weeks or more—to get

> PNG Civil Aviation Safety Authority (+675 324 4525).

THE PNG INVESTORS’ MANUAL - SECOND EDITION

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both your work permit and visa. If forms are not completed correctly there maybe significant delays. Therefore plan for this in your business planning. If you believe this timeline is a problem that may be of national significance to PNG we recommend you enter into dialogue with the relevant Departments for the alternative steps you may be allowed to take while work permits and visa are being processed. Business visas A Business Visa may be granted by DFAI for persons entering PNG to attend business meetings, board meetings, conferences, exploratory business visits or participate in business negotiation. Employment is strictly prohibited. This type of visa is valid for 12 months, has multiple entry with 60 days each visit. Application for Business Visas can be made at the PNG diplomatic mission in the country of origin of the candidate themselves. The following documents are required: > Completed Application for Entry Permit form, with passport photo attached

Employment contracts are expected for most roles and advice from the Employers Federation or from one of the many quality legal firms in PNG is recommended. Unions exist in PNG, and there is an active Papua New Guinea Trade Union Congress. Union labour may apply to your situation. Again, research is recommended. The National Wages Board sets the National Minimum Wage for the country.

6.1.5 Superannuation Superannuation is only compulsory in companies that employ 15 workers or more, although employers with smaller numbers of workers may participate voluntarily. Employees must have worked for at least three months to be eligible for superannuation. Superannuation contribution consists of two components: the employee’s contribution (currently 6% of pay) and the employer contribution (currently 8.4% of pay).

> Passport with at least six months validity

PNG’s superannuation industry is governed by the Superannuation (General Provisions) Act 2000.

> One passport photo

For more on Superannuation, see Section 5.4.4.

> Copy of itinerary, including return journey > Business sponsorship letter stating precise nature of business and PNG Business contact, duration of stay and proposed frequency of visits > Fee of AUD$220.00. Alternatively, Business Visas can be obtained on arrival in Port Moresby with the necessary documentation. APEC business visitors PNG is also part of Asia Pacific Economic Cooperation body (APEC) and recognises and encourages those eligible to obtain an APEC visa card for business entries in to PNG for nonemployment business activities. This visa is a great option to consider: it is less expensive, covers multiple countries and is valid for five years of multiple visits. Applications should be made in your home country if your home country is an APEC member.

6.1.4 Employment contracts and industrial relations

6.1.6 Cultural factors Employers are also encouraged to appreciate the cultural uniqueness of PNG and show awareness in Human Resources policies and procedures. PNG is a very diverse nation with more than 850 languages: it is quite possible that every person you pass in the street may speak a different language, look different and have different deep-seated views on how things are done. It is important to respect people and their cultures and traditions. However, workplace standards and rules can be made and enforced. Like all workplaces, well thought out and well communicated policies are usually very successful. English is the language of formal business however there are three official languages Tok Pisin, Motu and English. Tok Pisin is the most widely and commonly used language and efforts to learn this language will definitely enable broader communication with a wider range of Papua New Guineans. Non-nationals from non-English backgrounds are expected to be able to communicate well in English.

It is not appropriate or smart to assume that what works in your own country or in other developing countries will work in PNG. Employers therefore are advised to research relevant legislation and join the Employers Federation of Papua New Guinea (www.efpng.org.pg). The Federation is a very helpful organisation with a very reasonable annual fee and can provide excellent advice to member companies on relevant awards, employment contracts, labour laws and Industrial Relations issues.

THE PNG INVESTORS’ MANUAL - SECOND EDITION

LIVING AND WORKING IN PNG

6.2 Accommodation and real estate Accommodation standards vary widely in PNG. Choice is reduced the further you travel from the main centres of Port Moresby and Lae. Company-provided, funded or partiallyfunded accommodation is expected for non-citizens who are recruited externally to work in PNG and it’s a real cost to business in PNG. In recent times the price of accommodation in Port Moresby and elsewhere has increased considerably. Non-citizens tend to seek more upmarket housing options in Port Moresby, stock is limited and demand is at an all-time high. Thus, prices continue to rise. Demand is also expected to rise further in the short term. Preferred accommodation tends to be blocks of fully furnished units (two- or three-bedroom) with water, power and 24hour security included in the rental price. We recommend you make contact with real estate companies such as L J Hooker, Century 21 and Strickland in the first instance to gauge rental prices. There are a number of other real estate businesses in the large centres and research is needed. Cheaper secure and comfortable options do exist, usually farther from the popular main suburbs in which Western non-nationals tend to live. Accommodation assistance is also becoming a key issue for a lot of PNG citizens and some employers are responding. It should be noted that the stock of housing in most centres is low and PNG’s increasing population and increasing numbers of non-nationals in main centres is exacerbating the problem. The assistance offered will vary widely. Again, research and tax advice is recommended when developing salary package policies for your employees.

6.3 Cost of living 6.3.1 Prices Living in PNG is not cheap. While most standard Western groceries are available in Port Moresby and Lae, the pricing reflects the costs of transport and importation—as a rule of thumb, a basket of typical supermarket goods purchased in Australia, for example, might be around twice the price in PNG. In Port Moresby, fresh vegetables from the markets are quite expensive and there is little difference from the price of vegetables in local supermarkets. In Lae and other centres, market produce is more readily available and is cheaper. The National Statistics Office and the Bank of Papua New Guinea maintain Consumer Price Indices (CPIs), which are published on the Bank’s website at www.bankpng.gov.pg. Treasury projections expect inflation to run at 8.2% in 2011.

6.3.2 Shopping In general, shopping in all main centres is limited, basic and quite expensive. There are only a few white-good, clothing and accessory, sporting or other specialist outlet options. In major centres, new shopping centres continue to be developed. Mobile phones are widely used and deals are available from Bemobile, Digicel and Citifon. Retail outlets for mobile phones and phone credit are readily available in main centres, airports and supermarkets.

6.3.3 Banking A normal range of banking services is available from the big three banks in PNG—BSP, ANZ and Westpac—and all have branches in major provincial centres. Automated teller machines (ATMs) are also available in the main centres, while EFTPOS facilities are available in an increasing number of retail outlets. All banks are exploring and implementing technology-based strategies to take banking facilities to people outside main centres.

6.3.4 Motor vehicles New motor vehicles are very expensive to buy and hire in PNG. Imported secondhand vehicles are popular, and procuring vehicles via private sale from those leaving PNG is a common way to obtain vehicles. There are a range of internationally recognised brands of hire car companies operating in most centres. There are also local companies offering similar services. Do your research and confirm by phone, especially if booking online.

6.4 Employment of expat spouses and dependants Dependant employment is permitted provided the dependant has their own independent work permit. The dependant will need to leave the country to have the work permit issued by the PNG diplomatic mission in their country of origin. Many people in dependent circumstances involve themselves in home duties and or a range of voluntary work options that exist in all centres.

6.5 Education Within PNG there are currently 20 International Education Agency schools (www.iea.ac.pg), National/Provincial primary

THE PNG INVESTORS’ MANUAL - SECOND EDITION

Cadden Crowe Pacific Cadden Crowe is a professional Search and Recruitment Consultancy operating within five key sectors of Mining, Oil & Gas, Engineering & Construction, Energy, Water & Manufacturing with a specialisation focus. Cadden Crowe formed in Sydney in January 1996 and has established offices in Port Moresby, Brisbane, Melbourne, Perth and formal alliance partners in Noumea and Jakarta. With these strong local and international partnerships, Cadden Crowe are well placed to meet all your people requirements. We are able to offer our clients and candidates a professional approach to recruitment, knowledge of business development opportunities in the Pacific region and an appreciation of cross-cultural issues with the workplace. Cadden Crowe also has capabilities to perform major recruitment projects where a client requires rapid growth. For example a new mine start up or staffing for new plant. The Major Projects team have the processes, experience and focus to meet our client needs, no matter what industry sector they are and are able to deliver tailored and unique processes almost anywhere, domestically or internationally. Additionally Cadden Crowe has developed a Management Organisational Development capability to support various clients with their business issues. The following customer focused products are offered: • Advertised Search and Selection • Psychological Assessment • Database/Network Search • Executive Search and Market Mapping

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credit: business advantage international

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+67 5 7656 0477 +61 7 3003 0466 +61 7 3003 0466

Port Moresby

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ggriffin@caddencrowe.com.au santhonisz@caddencrowe.com.au sroberts@caddencrowe.com.au

Sydney

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SEARCH & SELECTION SPECIALISTS

Perth

LIVINGÂ AND WORKING IN PNG

and high schools and other private education providers. There are virtually no facilities for children with special needs. Most external observers would comment that education standards have dropped over the years. Research is recommended. Some employers support education for all employees in PNG and may even support offshore education for non-citzens and citizen employees. A significant number of children of citizens and non-citizens alike choose to send their children to overseas education institutions.

6.6 Health The public health situation in PNG is of concern. Tuberculosis, HIV/Aids and malaria are all problems within PNG. Public hospitals lack funding and, as a result, care is very limited. There are a number of private hospitals that offer adequate care. For most non-citizen employees Medivac is part of most contracts and involves evacuating employee or their dependants to an Australian medical facility for any serious illness or injury. Naturally, this is a growing issue for Papua New Guineans and an increasing number of citizens in the main centres seek medical insurance and access private health options.

Packaging around health care is seen as important by a growing number of PNG employees and the value of a healthy workforce is recognised by many major employers.

6.7 Contacts Department of Foreign Affairs, Trade and Immigration (Immigration and Citizenship Division) Tel +675 323 1500 Fax +675 325 5206 Department of Labour and Industrial Relations (Foreign Employment Division) +675 325 2911/321 1847 enquiries@workpermits.gov.pg www.workpermits.gov.pg Employers Federation of Papua New Guinea www.efpng.org.pg PNG International Education Agency www.iea.ac.pg

This article prepared by Scott Roberts (Managing Principal) and George Griffin (Director CC Pacific and Business Development Manager) at Cadden Crowe.

THE PNG INVESTORSâ&#x20AC;&#x2122; MANUAL - SECOND EDITION

credit: business advantage international

7.0

Papua New Guinea Business Directory

PAPUA NEW GUINEA BUSINESS DIRECTORY

The following directory provides contact details for organisations mentioned in this publication, plus some other key contacts.

7.1 Stock market

Department of Mineral Policy and Geohazards Management +675 321 4011 Department of Petroleum and Energy +675 321 5253 Department of Transport +675 325 7500

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

Independent Public Business Corporation +675 321 2977 www.ipbc.gov.pg

7.2 Government

Internal Revenue Commission +675 3226600

Bank of Papua New Guinea (Central Bank) +675 322 7200 www.bankpng.gov.pg

Investment Promotion Authority +675 321 7311/+675 308 4444 www.ipa.gov.pg

Central Supply and Tenders Board +675 311 3777 info@cstb.gov.pg

Lae City Council http://morobepng.com/id13.html

Civil Aviation Safety Authority +675 324 4525

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

Department of Agriculture and Livestock www.agriculture.org.pg Department of Environment and Conservation www.dec.gov.pg

Ministry of Commerce and Industry +675 327 7350 www.dci.gov.pg

Department of Foreign Affairs, Trade and Immigration (Immigration & Citizenship Division) Tel +675 323 1500 Fax +675 325 5206

National Capital District Commission (Port Moresby) www.ncdc.gov.pg

Department of Labour and Industrial Relations (Foreign Employment Division) +675 325 2911/321 1847 enquiries@workpermits.gov.pg www.workpermits.gov.pg

National Fisheries Authority +675 309 0444

Department of Lands and Physical Planning www.lands.gov.pg

Papua New Guinea Forest Authority +675 327 7800 www.forestry.gov.pg

National Employment Service +675 325 2546

National Maritime Safety Authority www.nmsa.gov.pg

THE PNG INVESTORSâ&#x20AC;&#x2122; MANUAL - SECOND EDITION

PAPUA NEW GUINEA BUSINESS DIRECTORY

Embassy of Japan +675 321 1800/1483/1305

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

7.3 State-owned entities

Pacific Islands Trade and Invest (PT&I) Sydney: +61 2 9290 2133 Auckland: +64 9 302 0465

Air Niugini Limited www.airniugini.com.pg Eda Ranu (water) +675 312 2133 www.edaranu.com.pg

www.pacifictradeinvest.com Beijing: +86 10 6532 6622 www.pifto.org.cn

Motor Vehicles Insurance Limited (MVIL) +675 3217333

Tokyo (Pacific Islands Centre): +81 3 3268 8419 www.pic.or.jp

PNG Ports Ltd +675 321 1400 www.pngports.com.pg

Embassy of the United States +675 321 1455 http://portmoresby.usembassy.gov/

PNG Power +675 324 3200 www.pngpower.com.pg

7.5 Investment organisations and funds

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

Asian Development Bank +675 321 0400 www.adg.org/pnrm

Post PNG +675 300 3714 www.postpng.com.pg

International Finance Corporation +675 321 7111 www.ifc.org

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

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

New Zealand High Commission + 675 325 9444 nzhcpom@dg.com.pg

Kula Fund II (c/- Pacific Capital Partners) +61 7 3303 0894 www.aureos.com Mineral Resources Development Company (MRDC) +675 325 5822 www.mrdc.com.pg

THE PNG INVESTORSâ&#x20AC;&#x2122; MANUAL - SECOND EDITION

PAPUA NEW GUINEA BUSINESS DIRECTORY

Nambawan Super +675 309 5200 www.nambawansuper.com.pg

Institute of National Affairs +675 321 1045 www.inapng.com

NASFUND (National Superannuation Fund Ltd) www.nasfund.com.pg

Lae Chamber of Commerce and Industry +675 472 2340 lcci@global.net.pg

Petromin PNG Holdings Ltd +675 325 2743

Manufacturers Council of PNG +675 321 7143 pngmade@global.net.pg

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

New Zealand Pacific Business Council www.nzpbc.co.nz

World Bank +675 321 7111 www.worldbank.org

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

Papua New Guinea Business Coalition Against HIV and AIDS (BAHA) +675 325 9228 or +675 7200 2242 (hotline) www.baha.com.pg PNG Chamber of Commerce +675 320 1988 pngcci@global.net.pg PNG Chamber of Mines and Petroleum +675 321 2988 www.pngchamberminpet.com.pg

Business Council of PNG +675 320 0700 executive@bcpng.org.pg www.bcpng.org.pg Consultative Implementation and Monitoring Council (CIMC) www.inapng.com/cimc/index.html Employers Federation of Papua New Guinea +675 325 8266 information@efpng.org.pg www.efpng.org.pg

PNG Forest Industries Association +675 325 9458 www.fiapng.com The Port Moresby Chamber of Commerce & Industry (POMCCI)/Business Against Corruption Alliance +675 7200 0000, +675 7200 3077 or +675 321 3077 Fax: +675 321 4203 Email: bizcentre@pomcci.com

Enterprise Centre for LNG c/- Institute of Banking and Business Management (IBBM) PO Box 1721, Port Moresby, NCD

... and it’s why we’re the law firm of choice for investors in PNG Contact Robert Riddell, Managing Partner — Port Moresby E rriddell@gadens.com.pg Ph +675 321 1033

port moresby

•

sydney

•

melbourne

•

brisbane

•

perth

THE PNG INVESTORS’ MANUAL - SECOND EDITION

•

adelaide

PAPUA NEW GUINEA BUSINESS DIRECTORY

7.7 Professional bodies

7.9 Useful resources

Certified Practising Accountants of PNG +675-321-2105 cpapng@cpapng.org.pg

Online www.anz.com.au/corporate/economics-markets-research/ international-economics/pacific-quarterly) ANZ Bank’s Pacific Quarterly economic bulletin.

Institution of Engineers PNG Inc www.iepng.org.pg Maritime Safety Authority www.nmsa.gov.pg Medical Board of PNG +675 301 3813/301 3784 Nursing Council of PNG +675 301 3803 ncouncil@health.gov.pg PNG Law Society +675 321 7344 lawsoc@daltron.com.pg PNG Institute of Architects +675 321 4499 pacpng@datec.net.pg

7.8 Miscellaneous PNG International Education Agency www.iea.ac.pg Papua New Guinea Trade Union Congress +675 325 7642 National Research Institute of PNG www.nri.org.pg

www.austrade.gov.au Of special interest is Austrade’s up-to-date country profile of PNG, found by clicking on the ‘Export Markets’ link. www.businessadvantagepapuanewguinea.com The online edition of PNG’s annual international business and investment guide, Business Advantage Papua New Guinea, and other business resources for the Pacific region. www.ipa.gov.au PNG’s Investment Promotion Authority’s website contains information relevant to new and existing investors. www.pacificbusinessonline.com Regular news service for the South Pacific region, including PNG. www.png-gossip.com An informal and sometimes irreverent source of information and news. www.pngindustrynews.net Online/email news service—subscription required for full access. www.pomcci.com The Port Moresby Chamber of Commerce and Industry’s website provides information on networking, PNG business generally, useful links and POMCCI’s training workshops. www.bankpng.gov.pg The Bank of Papua New Guinea’s Quarterly Economic Bulletin. www.whitepages.com.pg. PNG’s online telephone directory, includes business and government phone numbers.

THE PNG INVESTORS’ MANUAL - SECOND EDITION

Print Business Advantage Papua New Guinea PNG’s international business and investment guide, also online at www.businessadvantagepapuanewguinea.com. The National PNG’s national daily newspaper, which also has an online edition at www.thenational.com.pg. The National also publishes the annual Papua New Guinea Yearbook (ISSN 1726121X), a useful reference. The Post Courier PNG national daily newspaper, which also has an online edition at www.postcourier.com.pg Profile magazine Published by the PNG Chamber of Mines and Petroleum, this magazine coincides with the Chamber’s major biennial mining and petroleum investment conference. PNG Resources (www.energy-pubs.com.au) Quarterly magazine on PNG’s resources sector. PNG Exporters Directory Biennial publication by the Investment Promotion Authority outlining the overview of the investment sectors in PNG and who’s who in the exporting arena. Welcome to Port Moresby Publication produced by Bank of South Pacific especially for expat visitors to Port Moresby.

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