Business Advantage Papua New Guinea 2014 by Business Advantage International

BUSINESS AND INVESTMENT GUIDE

Business Advantage

PAPUA NEW GUINEA 2014

• 2014 PNG 100 CEO Survey results • Special mining and petroleum supplement • Infrastructure, construction and services • Economic update

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CONTENTS Features

12 Port Moresby’s next growth corridor Major industrial projects seem likely to create an industrial and logistics corridor north-west of Port Moresby. We examine the progress.

Papua New Guinea’s economy finds itself in a hiatus, ahead of what will be a watershed moment its economic history— delivery of its first gas exports. In his annual appraisal of business conditions in the Pacific nation, Andrew Wilkins talks exclusively to some of PNG’s top executives.

14 The Papua New Guinea Advantage Summit 2013 We report on PNG’s third annual international investment summit, held in Port Moresby in September 2013.

13 Papua New Guinea Sovereign Wealth Fund imminent

ECONOMIC UPDATE

The PNG 100

CEO survey

The 2014 PNG 100 CEO Survey

Our annual survey of PNG’s major companies indicates that the Papua New Guinea economy is undergoing a contraction, although there is still significant confidence in its future.

17 R D Tuna: a pioneer in PNG’s fisheries industry 19 Nation building Papua New Guinea’s building and construction industry is being freed up to work on the next wave of non-resources projects, including much-needed infrastructure.

Opinion and analysis 22 Perspectives on PNG 23 Legal issues: ‘My shipment hasn’t been paid for! Now what?’

Taxation 24 Business prepares for Papua New Guinea tax review

Industry Sectors 37 Infrastructure and transport 44 Services 47 Fisheries 48 Manufacturing 50 Agribusiness 51 Forestry 52 Tourism

Mining and Petroleum in PNG: a special supplement

Exclusive interviews with the biggest players in PNG mining and gas, plus updates on some of the country’s key resources projects.

Directory 54 Who’s Who in PNG 55 Business travel guide to Papua New Guinea

Business Advantage Papua New Guinea was made possible by the support of the following organisations:

RD TUNA CANNERS LIMITED

GUARD DOG

SECURITY SERVICES

Welcome

Welcome to the ninth annual edition of Business Advantage Papua New Guinea, PNG’s flagship business and investment guide.

ince 2006, Business Advantage Papua New Guinea has provided an annual overview of the Pacific’s ‘tiger’ economy and the opportunities for doing business there. In the course of our research, we interview dozens of PNGfocused business leaders each year, bringing you their insights, wisdom and experience. This is the main reason Business Advantage Papua New Guinea has become the most respected resource for PNG-focused business people the world over. In February 2013, we expanded the resource in a major way by launching a companion online business magazine on PNG and the region, www.businessadvantagepng.com. Far from replacing the need for a printed annual publication, the online service is designed to provide a wide variety of content that we could never fit into our annual print edition—

news, features, analyses, opinion and a wide range of tools and resources for business people. The online magazine publishes all year round, providing a weekly email update, and it’s free—no logins, no paywall. Combined with our annual Papua New Guinea Advantage International Investment Summit—which we will co-host again with the Port Moresby Chamber of Commerce and Industry on 9 and 10 September 2014— www.businessadvantagepng.com will make it even easier for you to keep abreast of the business and investment opportunities in one of the Asia-Pacific region’s fastest-growing economies.

Business Advantage Papua New Guinea 2014 is published by Business Advantage International Pty Ltd Level 23, HWT Tower, 40 City Road, Southgate, Victoria 3006, Australia Tel +61 3 9674 7129, fax +61 3 9674 0400.

Project Director: Robert Hamilton-Jones (rhj@businessadvantageinternational.com) Publishing Director: Andrew Wilkins (aw@businessadvantageinternational.com) Editorial: Kevin McQuillan, Ben Creagh, Paul Howell, Jacqueline Bennett Design: Alicia Freile Cover images: ExxonMobil, Business Advantage International, R H Group, R D Tuna Canners Ltd

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

A digital edition of this publication is available free online at www.businessadvantagepng.com. Additional printed copies can be purchased for AUD$35 (incl GST and postage) from the above address or by emailing info@businessadvantageinternational.com. © Copyright 2014 Business Advantage International Pty Ltd and contributors ISSN 1836-7895 (print)/1836-7909 (online)

Andrew Wilkins Publishing Director, Business Advantage International

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

Credit: Kramer Ausenco

ECONOMIC UPDATE

Port Moresby’s Ela Beach is the site of several residential and hotel developments, including the expansion of the Ela Beach Hotel and the Windward Apartments.

Maintaining momentum Papua New Guinea’s economy finds itself in a hiatus, ahead of what will be a watershed moment its economic history—delivery of its first gas exports. In his annual appraisal of business conditions in the Pacific nation, Andrew Wilkins talks exclusively to some of PNG’s top executives. Over the past decade, Papua New Guinea has achieved, and continues to achieve, economic growth that would be the envy of most countries. However, its economy enters 2014 in a hiatus, with the construction of the massive US$19 billion ExxonMobil-led PNG LNG gas project now in its final stages. Andrew Wilkins The revenues from this project, which has been the major driver of economic growth over the past four years, will transform the country, delivering an expected 21.2% leap in gross domestic product in 2015 alone. Until then, however, business is having to live with reduced economy activity.

Outstanding growth ‘Growth has been astounding in the last five years,’ affirms Garry Tunstall, Chief Executive Officer of Papua New Guinea’s largest superannuation fund, Nambawan Super. ‘That has really been about the PNG LNG project largely, and the infrastructure that’s required to support it, as well as other investors then seeing the opportunity to develop and build commercial and residential property. ‘I think the country still will grow, but we have seen an easing of support for residential housing prices and rentals. We’ve seen commercial rents starting to ease off a bit too.’ ‘Everyone has been benefitting from super-normal profits over the last three-to-four years. It does revert to a norm, but that 6

norm is still higher than many other countries in the region,’ says Robin Fleming, Chief Executive Officer of PNG’s largest bank, BSP. Wayne Dorgan, Managing Director of PNG’s largest insurer, Pacific MMI Insurance, agrees: ‘There’s been a contraction, but we’re still well ahead of where we were … nevertheless, our budgets for the next 12 to 36 months will be conservative.’ As well as a downturn in construction activity, lower yields and prices for soft commodities such as coffee, cocoa and palm oil have affected PNG’s dominant rural economy, reducing retail revenues by 20% or more in some instances. While some of the impact of lower commodity prices was ameliorated in the second half of 2013 by a rapid depreciation of the kina, that in turn has put pressure on PNG’s manufacturers, who have found themselves paying more for imported inputs. Following Prime Minister Peter O’Neill’s 2013 ‘year of implementation’, 2014—to repeat a phrase used by David Purcell, outgoing Chief Executive Officer at Ela Motors—will be a ‘year of consolidation’.

Government stimulus Buoyed by its great LNG expectations, the PNG Government has stepped in to keep the economy ticking over. In November 2013, PNG’s Treasurer Don Polye announced the country’s largest-ever budget of K15.1 billion (US$5.93 billion). At the same time, he announced a second successive budget deficit. ‘It maintains the momentum of the 2013 budget, focusing on

Economic update

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AUSTRALIA

PAPUA NEW GUINEA IN BRIEF Population: 7.167 million (2012, source: World Bank) Capital: Port Moresby Surface area: 463,000 sq km People: Melanesian, Papuan, Negrito, Micronesian, Polynesian Time zone: GMT +10 hrs Business language: English Political status: parliamentary democracy GDP: US$15.65 billion (2012) GDP growth: 6% (2014 projected, source: Asian Development Bank) Inflation: 7.5% (2014 projected, source: Asian Development Bank) Currency: PNG kina Major industrial mining, crude oil petroleum sectors: refining, palm oil, coffee, plywood and wood chip production, construction, fisheries, tourism, manufacturing Exports: oil, gold, copper ore, logs, palm oil, coffee, cocoa, seafood Major export markets: Australia, Japan, Philippines, China Imports: machinery and transport equipment, manufactured goods, food, fuels, chemicals Major import markets: Australia, Singapore, China World Bank Ease of 113 out of 189 economies Doing Business Ranking 2014:

infrastructure, health, law and order, education and the districts [sub-provincial areas],’ notes Paul Barker, Executive Director of industry think-tank, the Institute of National Affairs. Neither is the deficit considered foolhardy in business circles. ‘It’s a reasonable, normal thing to do,’ observes Richard Borysiewicz, Group General Manager of BSP Capital, the stockbroking and funds management arm of Bank of South Pacific. ‘The total size of the deficit is K2.3 billion (US$1.02 billion), which is about 5.9% of GDP,’ notes Aaron Batten, the Asian Development Bank’s Country Economist for PNG. ‘I think they’ve done quite a commendable job to keep spending at that level, which is generally sustainable by PNG standards.’

The holy grail of infrastructure Infrastructure is seen as central to the country’s future development and finally there appears to be at least some money to pay for it. Around K2.7 billion (US$1.06 billion) has been budgeted for infrastructure in 2014, and plans have been announced to create an Infrastructure Development Authority to oversee its development. With Business Advantage International’s annual PNG 100 CEO Survey (see page 10) indicating that under-performing state-owned utilities are the number one challenge facing PNG’s largest businesses, reform in this area is clearly well overdue and welcome. Of course, public money alone can’t be expected to finance all of the country’s infrastructure needs, and PNG’s institutional investors say they would relish the opportunity to invest further in the infrastructure sector.

‘We’d like to see appropriate investment opportunities in infrastructure,’ says Andrew McGrath, General Manager Finance & Investments at superannuation fund, Nasfund. ‘But they’d have to be opportunities that stack up.’ To effectively involve the private sector will take time, however, as Troy Stubbings, Managing Partner at KPMG in Port Moresby, explains: ‘The Government is working to put the building blocks in place but there are key requirements in regard to long term regulatory

Economic update

Stubbings believes investment will flow once the right certainty and control fundamentals are in place, and sees PNG’s state-owned enterprises as attractive opportunities for private sector involvement. In early 2014, the government flagged the partial privatisation of national airline Air Niugini to help finance an upgrade of its fleet. Meanwhile, state electricity company PNG Power is actively partnering with private sector power suppliers to augment its own energy output. The Government has also re-capitalised mobile telecommunications company Bemobile. The improvement in the way state enterprises are being run, under more experienced and qualified boards, has been noticed. ‘State-owned enterprises are actually getting cleaned up,’ observes Pacific MMI’s Wayne Dorgan. ‘These businesses will start operating as businesses.’

Some unease about reforms

An Australian Federal Policeman patrols downtown Port Moresby. Under an agreement with the PNG Government, Australia is supplying up to 50 police officers to PNG to help tackle the country’s law and order problems.

certainty and the capacity to exercise control which need to be in place to enable the private sector to take risk and participate beyond being a supplier or contractor or lender relying on the State’s credit—the whole architecture needs to be worked out. Infrastructure is a complex asset class.’

The political stability that followed the election of the broadly pro-business O’Neill Government in August 2012 was generally welcomed. While the Government has taken steps through legislation to ensure that political stability is maintained, it has also initiated a number of reviews of important existing legislation—notably, PNG’s long-standing Mining Act and the taxation system. While such reviews inevitably engender at least some feelings of uncertainty (business is also steeling itself for the results of a review of PNG’s minimum wage), the reviews are taking place against a background of government dealings with investors, which have created what one senior mining industry source has called ‘a feeling of unease’.

Economic update

The forced acquisition in 2013 of PNG’s largest mine, Ok Tedi, from its majority owner without compensation raised eyebrows at home and abroad, while the failure of the Government—even after arbitration—to keep to its agreement with Nautilus Minerals over its Solwara I undersea mining project puzzled many. Meanwhile, the Minister for Trade, Commerce and Industry’s personal intervention to amend the Takeover Code and thus prevent Kulim Malaysia from acquiring a majority stake in New Britain Palm Oil Limited also came as a surprise. With the government also flagging the introduction of a list of business activities reserved solely for Papua New Guineans, and a foreign investment review board, there are some concerns about its attitude towards overseas investment.

Indigenous participation Underlying much of the government rhetoric in this area is the laudable desire to see greater Papua New Guinean participation in the domestic economy. While landowner companies have emerged as a successful new class of indigenous business, only a vibrant SME sector will provide adequate employment for PNG’s fast-growing population. Indeed, the country’s national long-term blueprint—Vision 2050— aspires to have 70% of business in local hands by the middle of this century. As President of PNG’s Indigenous Business Council, Sir Nagora Bogan, observes, this might require the creation of 500,000 small businesses. Andrew Wilkins is Publishing Director at Business Advantage International

Notwithstanding a slump in sales in 2013, there has been considerable investment in PNG’s retail sector over the past few years, as retailers have rushed to meet the needs of PNG’s rising middle class.

Survey

The 2014 PNG 100 CEO Survey

The PNG 100

CEO survey

Our survey of PNG’s major companies indicates that the Papua New Guinea economy is undergoing a contraction, although there is still significant confidence in its future.

his is the third year in a row that Business Advantage International has run its exclusive survey of executives in PNG’s largest companies—the PNG 100 CEO Survey. Designed to gauge business confidence, the survey seeks to uncover profit, investment and recruitment expectations for the coming year. It also encourages PNG’s leading businesses to identify the key issues they are facing. Looking back on your business’s performance in 2013, did your profits

43.7% expecting an improvement on those of 2013. While this is around double the number of those who were expecting lower profits, suggesting an overall positive picture, it is down notably on last year’s survey, when just over half (53%) of respondents said they were expecting better profits in the year ahead. Meanwhile, the number of CEOs expecting a drop in profits has doubled from last year’s survey, up from 11.8% to 22.1%. How much investment (e.g. in plant, equipment, land or other assets) are you planning in 2014?

12.5%

18.8%

Greatly exceed expectations?

15.6% 25.0%

Slightly exceed expectations?

A substantial increase on 2013?

9.4% 21.9%

Meet expectations? Fall slightly short of expectations?

31.3%

15.6%

About the same as 2013?

18.8%

Slightly less than 2013?

Substantially fall short of expectations?

Substantially less than 2013?

31.3%

Profits below expectations The survey clearly indicates that PNG’s largest companies experienced a downturn during 2013, with almost half—46.9%— reporting profits below expectations (last year, only 15.2% reported such disappointment). Notably, too, last year no respondents reported a ‘substantial’ drop in profits; in this year’s survey, however, 15.6% did. The picture was not unremittingly gloomy: 12.5% reported profits had substantially exceeded expectations, and a further 25% said profits in 2013 had been slightly above expectations. 2013 was the year when PNG lived up to its reputation as the land of the unexpected—just 15.6% of our respondents reported profits at expected levels, compared to 24.2% in our last survey. In 2014, do you anticipate that your profits will

Investment and employment intentions The PNG 100 CEO Survey is designed to capture investment and employment intentions in PNG’s largest companies over the coming year, and it is in these two areas where we see a marked difference between this and previous surveys. Last year, almost 70% of respondents were planning to increase their investment in plant, equipment and other assets during 2013. One year later, that figure has fallen to just over 40%, with 28.2% of respondents planning to reduce their investment expenditure. Nevertheless, the picture is not too harsh: almost a third of respondents intend to invest a similar amount in 2014 as they did in 2013. What level of recruitment are you planning in 2014?

15.6%

31.3%

3.1% Substantially exceed 2013?

18.8%

28.1%

Somewhat exceed 2013?

A substantial increase in staff?

6.3%

A slight increase in staff?

Be about the same as 2013? Be slightly less than 2013?

34.4%

A slight increase on 2013?

Enough to maintain 2013 staffing levels?

21.9% 40.6%

Be substantially less than 2013?

A slight reduction in staff? A substantial reduction in staff?

Lower confidence

Expect lay-offs

In spite of the downturn, a decent proportion of business leaders were still bullish about the prospects for profits for 2014, with 10

In our last two surveys, the number of employers planning to reduce their workforce has been negligible—7.4% in 2012

Survey

and 5.8% in 2013. In addition, in both surveys around 50% of respondents said they were planning to increase their headcount over the coming year. This year, expect lay-offs: the number of CEOs planning to increase staffing levels has fallen to 31.3%, and almost as many—28.2%—are planning staff reductions in 2014, a five-fold increase in just one year. What are the critical issues facing your business in 2014? Unreliable utilities Security/law and order Currency exchange rates Shortage of expertise/skills High employment costs Lack of Government capacity Government red tape Logistics Corruption Competition All Other Responses 0

Issues affecting business The issues facing PNG’s largest companies have changed little over the three years of our survey, although the top issue has changed each year. In 2012, at the peak of the LNG construction boom, it was the skills shortage. In 2013, it was security and law and order—a perennial, mission-critical concern for our respondents, and one that shows only marginal signs of improvement. In this year’s survey, the top concern was the unreliability of state-owned utility services, which place an immense cost burden on business. Our survey indicates PNG’s largest businesses are still awaiting the benefits of the PNG Government’s increased infrastructure investment. There was one major new issue to appear on this year’s list of concerns—currency exchange rates. PNG’s currency, the kina, lost almost 14% of its value against the US dollar in the four months leading up to the commencement of our survey in November 2013. The high rating for this issue among CEOs indicates just what an impact that fall had on business. The PNG 100 CEO Survey 2014 was conducted by Business Advantage International between late November 2013 and early February 2014. The survey included senior executives from a representative sample of Papua New Guinea’s largest companies across all sectors of the economy.

Features The AES-owned Ravuvu Business Park overlooking Fairfax Harbour, with Curtain Brother’s PNG Dockyard in the distance.

Port Moresby’s next growth corridor Major industrial projects underway or in the pipeline north-west of Port Moresby seem likely to create an industrial and logistics corridor over the next five years. Business Advantage examines the progress.

he presence of ExxonMobil’s giant PNG LNG gas plant 20 kilometres north-west of Port Moresby, combined with plenty of available land, has made the area in Central Province just outside the National Capital District ripe for a new industrial corridor. With gas exports from the plant due to continue until at least 2030, the area has long-term potential not only for petrochemicalrelated activity, but wider business and residential development. Existing infrastructure in the area already includes InterOil’s 10-year-old Napa Napa oil refinery, the recently-expanded Kanudi power station, Curtain Brothers’ PNG Dockyard on Motukea Island and the recently-opened Kavuvu Business Park, operated by Avenell Engineering Systems Ltd (AES). But that’s just the start.

Edai Town A modern, gated 500-unit executive K250 million (US$100 million) housing estate called Edai Town is being designed to house as many as 2000 people, mainly executives, expected to be working in this new industrial corridor. ‘It’s a new concept for this country, with a mix of housing, industry, shopping, police station, fire station, a market, a CBD, including hotel. It will cater for PNG nationals,’ says Kym Yong, Director of landowner company Portion 11 (Management) Ltd, the estate’s developer.

Private ports expand Further south, the two private ports in the area, Curtain Brothers’ PNG Dockyard and AES’s Ravuvu Business Park, are both planning to expand. 12

Already operational, the 72-hectare Ravuvu park aims to offer a full range of facilities including accommodation, office space, commercial and industrial lots, workshops, a licensed dangerous goods area, holding yards and lay down areas, as well as recreational and catering facilities. ‘I want to give companies a fully-serviced platform on which they can build their business,’ Dominic Avenell, Managing Director of AES. tells Business Advantage. Across Fairfax Harbour, Curtain Brother’s PNG Dockyard will open a new dry dock facility, valued at K500 million (US$198 million), in 2014. This will enable vessels to be repaired in PNG instead of having to travel to Singapore, China or the Philippines. Looking further into the future, PNG's Independent Public Business Corporation is working on plans to relocate the port of Port Moresby, possibly into Fairfax Harbour, as part of stateowned PNG Ports’ 2012–2032 strategic plan.

Petrochemical plant The as-yet undeveloped site of the proposed Konebada Petroleum Park—set aside by PNG’s government for the development of a local petrochemical industry—is adjacent to the PNG LNG plant. In June 2013, Prime Minister Peter O’Neill announced he had met executives from Mitsubishi Gas Chemical Co and Itochu Corporation to discuss their proposal—first raised in 2006—to build a petrochemical plant in the park. If the project goes ahead, O’Neill said at the time, it could create 5000 jobs during construction and afterwards.

Features

Papua New Guinea Sovereign Wealth Fund imminent Papua New Guinea’s new Sovereign Wealth Fund (SWF) is due to receive its first revenues next year.

oi Bakani, Governor of the Bank of Papua New Guinea, says he is happy with laws setting up PNG’s proposed Sovereign Wealth Fund, which will receive the state’s expected income from resources ventures, most notably the ExxonMobil-led PNG LNG project. Legislation to establish the fund was passed in February 2012, while the precise administration of the fund, which will be managed in PNG but invested offshore, was being finalised at the time of writing.

Preventing ‘Dutch Disease’ ‘I am very comfortable with the new Organic Law because it meets the internationally recommended Santiago Principles of governance and maintenance,' Governor Bakani told the 2013 Papua New Guinea Advantage investment summit. ‘My assessment is that, after several iterations, we have reached a state in which it will be of great value in stabilising the economy and preventing the “Dutch Disease” phenomenon from occurring and, if it does, to counteract it.’' Previous government estimates expect the fund to receive about US$30 billion (K75 billion) over the life of the PNG LNG

project. These funds would make PNG’s SWF the 26thlargest such fund in the world, based on today’s values.

Sub-funds The fund will contain four ‘sub-funds’. They are the Sovereign Wealth Futures Fund; the Sovereign Wealth Savings Fund; the Sovereign Wealth Stabilisation Fund and the Sovereign Wealth Management Fund. It will be overseen by an independent board. The fund will be invested Bank of PNG Governor, Loi M Bakani offshore but managed onshore, with investments undertaken by experienced investment managers. It will be full integrated with the national budget.

Features

The Papua New Guinea Advantage Summit 2013 The annual Papua New Guinea Advantage investment summit, held in September 2013 in Port Moresby, revealed a wealth of opportunities for investors.

ow in its third year, the summit drew over 300 international and local delegates, plus a healthy media contingent, to focus on a wide range of business opportunities right across PNG’s economy, from gas and mining through to agribusiness, technology, fisheries, services and education.

PNG’s economy is still forging ahead ‘If this year we achieve GDP [growth] somewhere between 5 and 6 per cent, as we project, then I believe that will be an excellent outcome, and a real sign our economic management is on track,’ Prime Minister Peter O’Neill told delegates, reminding them that this was in spite of low global commodity prices for many of PNG’s main exports. As Australian ‘airport economist’ Tim Harcourt reassured delegates, there is plenty of life left in the Asian economic boom, with urbanisation and food consumption rising sharply in both China and India, and PNG well-placed to benefit. ANZ PNG’s Managing Director Mark Baker agreed that the long-term forecast for the country is overwhelmingly positive, with

PNG’s Prime Minister, Peter O’Neill, opened the summit.

ANZ-funded research predicting a doubling of the economy by 2030.

PNG isn’t just mining and gas The summit was remarkable for the sheer range of opportunities discussed. Andrew McGrath, Nasfund’s General Manager Finance & Investments, said he was ‘bullish’ about agriculture and Kramer Ausenco’s Chief Executive Officer, Frank Kramer, spoke of opportunities in training and services, while R D Tuna’s Pete Celso (see page 17) spoke enthusiastically of an expected trebling of processed fish production in PNG and the 13,500 new jobs that will come with it. Meanwhile, Sundar Ramamurthy, shortly before his appointment as CEO of Bemobile, spoke of the range of new services that could be built around PNG’s new National Transmission Network, currently under construction, and CPL Group’s Mahesh Patel confirmed he was already planning for tablets and WIFI in his new supermarkets. PNG Power’s newly-confirmed Chief Executive Officer John Tangit spoke of tangible progress in private sector involvement in energy supply (see page 38), while Public Enterprises Minister Ben Micah flagged the 10,000–12,000 MW Purari River hydropower project as his ‘nation building’ energy project.

The digital economy is on its way Digicel PNG’s John Mangos estimated that 1.5 million Papua New Guineans could now access a form of the worldwide web through their mobile phones. 14

Features

Delegates heard from 25 speakers over the two-day event.

Risks can be controlled, good returns delivered As Johnson Kalo, Deputy Chief Executive Officer of BSP (the country’s biggest mover of cash) noted, many risks in PNG were predictable and could be managed with appropriate strategies. A special panel discussion on equity investment had Nambawan Super’s Michael Block and Nasfund’s Andrew McGrath setting out their funds’ cautious approach to choosing the right companies in which to invest, while Syd Yates outlined the investment policy of PNG’s only listed managed fund, Kina Asset Management Ltd.

Summit now a fixture ANZ’s Mark Baker, Dr John Hewson and Kramer Ausenco's Frank Kramer discuss opportunities in PNG’s post-PNG LNG economy

With both Digicel PNG and Telikom PNG investing heavily in 3G and 4G mobile and broadband infrastructure, speeds are going up and prices are coming down. Data costs were almost on a par with Australia, said Mangos, with 1 gigabyte of data costing AUD$40 in Australia and K85 in PNG. As a glimpse of things to come, Twitter Australia digital strategist Marie Sornin briefed delegates on how the social media company was building the participation of business on its platform.

First held in Brisbane in 2011, the Papua New Guinea Advantage Summit is a co-production of the Port Moresby Chamber of Commerce and Industry and Business Advantage International. ‘The goal was to set up an annual event open to business people from any sector and any country, which focused on delivering good market intelligence and business opportunities,’ explains POMCCI’s Chief Executive Officer, David Conn. The next Papua New Guinea Advantage investment summit is tentatively scheduled to be held in Port Moresby on 9 and 10 September 2014. www.pngadvantageconference.com

Features

Stock prices fall, but domestics add confidence 2013 was a mixed year for PNG stocks. The Kina Securities Index fell by 14.9% over the year, but was largely influenced by the massive fall in value of the dual-listed Newcrest Mining, the largest company on the Port Moresby Stock Exchange (POMSoX). The Kina Securities Home Index, which excludes overseas stocks, fell only 2%. Dominic Beange, Investment Fund Manager with Kina Funds Management, says New Britain Palm Oil shares had one of the most turbulent years on the exchange. Its major shareholder, Malaysian company Kulim, had hoped to increase its holding from 50% to 70%. However, the PNG Securities Commission stepped in to block the purchase. The shares fell below both the offer price, and the pre-offer value, ending the year down 11.8%. ‘Truly domestic companies had a pretty good year,’ Beange said, adding that the beginning of LNG production in this year would most likely improve related international stocks in 2014. Geoff Mason, general manager of POMSoX, says the exchange is hoping to further expand its reach over the next 12 months. As well as encouraging new listings— Niuminco Group and Indochine Mining—he is also hoping to see a wider range of investors parking their funds with the exchange in 2014. He says POMSoX is looking at domestic sources of capital in particular, with many local landowner and village groups looking to invest mining royalties and other community funds.

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PNG's stock exchange performance since 2006. The red line indicates market capitalisation; the blue the Kina Securities Index (KSi).

'It’s like having a whole lot of small investor clubs around the country. They can get a good return by investing their pooled funds into the market.’ International emerging market funds are also being targeted; with Mason saying the lower-priced kina is giving international investors a cheaper entry into PNG stocks. ‘PNG is still a frontier market, primarily for those who are prepared to step outside the mainstream markets. There is reluctance among international investors to invest due to an over-perception of risk,’ says Richard Borysiewicz, Group General Manager at BSP Capital. ‘However, the huge amount of press ExxonMobil, Oil Search, and InterOil are receiving is sharpening focus on this market.’

Credit: R D Tuna

Feature

Madang Harbour, home to R D Tuna Canners

R D Tuna: a pioneer in PNG’s fisheries industry Starting from scratch in 1997, R D Tuna Canners has lead the way towards value-adding in PNG’s fisheries sector, turning a greenfield site in Madang into one of the region’s major sources of canned tuna.

‘I

think the fishing industry has always been underrated, especially in terms of the contribution to the economy and its potential,’ said R D Tuna Managing Director Pete Celso in his address the 2013 PNG Advantage international investment summit. Celso was talking about the creation of PNG’s first and only integrated tuna fishing and canning operation, which the Philippines-owned company started in Madang on PNG’s northern coast almost 20 years ago, along with its sister company, R D Fishing. Now employing 3,500 people and with an annual turnover of K271 million (US$106 million), the venture represents a huge success story for PNG. Celso estimates that RD Tuna has boosted the economy by roughly K600 million, while working at some point with 90% of local businesses.

Costs benefits Operating from Madang provides vital geographical and cost benefits to R D Tuna. Most importantly, it provides easy access to PNG’s fishing grounds, which are just a half-day’s sail away, thereby lowering fuel and transportation costs and ensuring maximum freshness in the fish. Madang is also sufficiently populous to provide an affordable workforce. However, there were also obstacles to overcome, such as inadequate and inconsistent infrastructure, which has affected the cost of doing business. To address the issue of inconsistency, R D Tuna invested in its own comprehensive infrastructure, based around a cannery complex capable of processing up to 200 metric tonnes of fish per day. The complex is served by its own steam plant, waste water treatment plant, ice-making facilities, cold storage facilities,

Credit: R D Tuna

Feature

R D Tuna now employs around 3500 workers.

microbiology and chemistry laboratories, fishmeal plant, can making plant, carton making plant—even a six-colour printing press for labels. The company has also invested heavily to protect its own energy supplies by establishing a 5.2 megawatt power plant—a plant that might one day sell excess power to state utility, PNG Power. R D Fishing complements these facilities by operating a fleet of 17 purse seine fishing vessels from a privately owned wharf, which is supported by a small dockyard and slipway facility.

Transformational investment Despite having massive tuna resources, accounting for between 12% and 17% of the world’s tuna catch, PNG had historically imported a large amount of the canned product, worth about K100 million a year. While PNG still imports some canned tuna, import volumes have dropped substantially as R D Tuna, and other new entrants, have developed the industry. Local R D Tuna brands such as Dolly and Diana now proliferate on local supermarket shelves as market leaders. The company’s export market, however, is its primary source of trade and makes up 63% of company sales. The bulk of this trade is with the European Union, which has an Interim Economic Partnership Agreement with PNG that allows for tariff-free imports. Much of the exported tuna is branded under the labels of R D Tuna’s overseas customers.

R D Tuna Canners’ Pete Celso

Celso believes R D Tuna will continue to grow, especially on the back of the PNG Government’s proposed construction of an industrial zone north of Madang, which, he explains, will further improve infrastructure and deliver a lower cost base for industry. ‘For the manufacturing sector, one of the major challenges in a place like PNG is the high cost of doing business, and the lack of economies of scale is one of the reasons you cannot achieve low costs,’ says Celso, who is also Chairman of the PNG Fisheries Industry Association. ‘This exercise has a lot of merit for the industry to continue to be competitive.’ 18

Credit: R D Tuna

Future directions

R D Fishing currently holds 17 fishing licenses in PNG.

Feature

Nation building With the PNG LNG gas project now almost complete, Papua New Guinea’s building and construction industry is being freed up to work on the next wave of non-resources projects, including much-needed infrastructure.

t the height of the construction phase of the ExxonMobilled PNG LNG project in 2012, the construction sector contributed 16% of PNG’s GDP. But with the completion of the project, the building and construction industry sector expected to fall by 8% in 2014, according to PNG Treasury estimates.

Quiet in mining and petroleum ‘The one disappointing area is the inactivity in the mineral space. It’s of concern to everyone here,’ says Frank Kramer, CEO of Kramer Ausenco, one of the largest engineering and project management firms in the South Pacific region, which has around 120 staff members based in Australia, Solomon Islands, Vanuatu, Fiji, Samoa and Tonga, as well as PNG. ‘The PNG LNG project is now about 95-to-100% complete … the minerals sector is also quiet. Newcrest’s Lihir gold project in the New Ireland province has downsized and the timeline for WafiGolpu in Morobe Province has been pushed back, so there’s a very scarce level of activity in the construction or engineering space.’

Housing and public sector works In the absence of work in the resources area, PNG’s building and construction companies are looking elsewhere.

Steamships’ new Harbour Office, currently under construction in Port Moresby.

‘The only sectors driving the economy would be the housing sector, which is sporadic because of funding and land tenure issues, and public sector works, coming through since the new budget,’ Brett McDonald, President of Red Sea Housing’s Australasian Division, tells Business Advantage. The Saudi-based company has been heavily involved in the construction of the Australian-government funded Manus Island Detention Centre, receiving an A$35 million (K79.2 million) contract.

Feature

Credit: Kramer Ausenco

PNG’s construction companies also work across the region. As well as working on the new K90 million Treasury Building in Port Moresby, Lamana Development Ltd is currently building the new K18.5 million PNG Chancellery in the Solomon Islands and has hotel projects in Samoa and Fiji. The latter, the Grand Pacific Hotel in Suva, is expected to open in the first half of 2014. Artist’s impression of Western Highlands Development Corporation’s complex in Mt Hagen

‘I still think there’s plenty of work out there,’ says Dominic Avenell, Managing Director of Avenell Engineering Systems (AES), a construction business with its origins in the rebuilding of Rabaul following the 1994 volcanic eruptions. ‘We tend to spread ourselves out. We go looking for contracts and I think having our sort of experience gives us an advantage.’ AES has recently completed construction of the muchneeded tuberculosis ward at Daru General Hospital, residential dormitories at Port Moresby Technical College and new buildings for the Pacific Adventist University in Port Moresby— three Australian Aid-funded projects.

Quiet, but not too quiet Meanwhile, Frank Kramer reports a ‘very good year in terms of overall revenue. Our bottom line has been well and truly over budget’. The firm has a number of major projects just finished or about to finish in early 2014, including Stage Two of the Windward Apartments complex at Ela Beach, while the new harbourside office building for Steamships is 70% complete. Among its new projects are the new K250 million (US$98 million) 300-bed Enga Hospital, expected to start in the second half of the year; the K85 million (US$33 million) refurbishment of Marea House in Waigani, a K100 million (US$39 million) complex for the Western Highlands Development Corporation in Mt Hagen and several hundred million kina's worth of roads and bridges for the Ok Tedi Development Foundation. ‘I think construction activity will be quiet for the better part of this year and we can expect to see some level of activity starting to ramp up again in 2015,’ says Kramer. Despite his ‘quiet’ year, he estimates that the firm has already secured about 85% of budgeted revenue for 2014.

Increased government spending In 2014, the National Government will inject K2.7 billion (US$1.06 billion) of spending into infrastructure such as roads, ports, and power and water treatment facilities. Major transport projects include a four-lane highway connecting PNG’s industrial hub Lae to its airport at Nadzab, the Highlands Highway, funding of the expansion of Lae’s port and the K30 million upgrade of Port Moresby’s Jacksons International Airport. The government has also allocated K180 million (A$78 million) for infrastructure and other requirements to host the 2015 Pacific Games. This includes the construction of facilities including refurbishment and construction of stadia in Port Moresby.

More competition Many international companies who worked on the construction phase of the LNG project have stayed on. ‘The cost of doing business, the cost of services, has gone down. Now there are more people capable of getting the job done,’ observes Dominic Avenell. Frank Kramer agrees, and sees it as a big plus for PNG: ‘Quite a lot of them are looking around for more work. There is now much more construction capacity in PNG. This is good, but we must always ensure there is significant national content in the industry.’ One international company looking to extend its work in PNG is the China Railway Company, which will commence work on the construction of the Waigani Convention Centre by the end of this month. In the longer term, the sector is also waiting eagerly for the InterOil/Total SA LNG project to explore and develop the Elk and Antelope fields in Gulf Province. Kramer expects it will be another three or four years before ‘serious construction on the ElkAntelope fields begins’.

opinion & analysis

Perspectives on PNG Business leaders provide their own take on Papua New Guinea’s economy. 'One really interesting thing is the increase in trade flows between PNG and Asia. The trade flow between Singapore and PNG, for example, has increased something like 5000% over the last five years—at a much, much higher rate than between PNG and Australia. Probably our top fifteen customers in PNG are now headquartered out of Singapore. So there’s been quite a move of PNG businesses into Asia and vice versa.' —Greg Pawson, General Manager Pacific Banking, Westpac. 'You’ve three segments to the retail, banking market—high net worth, middle market and the mass market. Where we see growth is in that middle sector, which is what we cover with our Priority Banking services. Typically, you’re seeing a lot of interest in home ownership—one of classic symbols of an emerging middle class. Obviously, there still remain challenges here in terms of land title, but we’ve just revamped our own staff home ownership scheme to try and pull it back into line with the realities of modern Papua New Guinea. Less than 20% of our staff own their own homes, and our staff would be your classic emerging middle class in many respects. So, if that’s reflective of the wider economy, therein lies the opportunity. I think an emerging middle class is always encouraging because they demand things, including stability.' —Mark Baker, Managing Director—Papua New Guinea, ANZ

‘Investment in infrastructure will have enormous benefits for everyone who does business in PNG. If we can have cost-efficient telecommunications, power and ports, it reduces the cost of doing business, gives PNG the capacity to increase its level of business activity and provides opportunities for PNG to become more of a Pacific hub. If we get infrastructure right, the opportunities are significant.' —Robin Fleming, Chief Executive Officer, Bank of South Pacific ‘All this talk about the property sector falling away is misleading. It’s still simply a case of location, location , location. Commercial properties in good locations with quality tenants are still seeing growth.' —Andrew McGrath, Nasfund, General Manager Finance & Investments ‘Something I’ve always been committed to is the nationalisation of expatriate roles. The commercial benefits in cost savings to an organisation can be significant but more importantly, we have PNG nationals who are in key roles, management positions, making key decisions for that business. There are some amazing PNG nationals living and working here. The mums and dads of today have sacrificed and got their kids educated, and to see them coming through now, that’s very encouraging.’ —Andrew Cooper, Country Manager, Cardno (PNG) Ltd

opinion & analysis

‘My shipment hasn’t been paid for! Now what?’ For companies doing business across borders, questions of the applicable law and the methods for enforcing contracts can be critical. Erik Andersen outlines the options in Papua New Guinea should a deal hit problems.

or companies doing business across borders, questions of the applicable law and methods of enforcement of contracts can be critical. For transactions large enough to have lawyers advising on the deal as it is being put together, it will be one of the first issues considered, but the issue can be just as important for the small or medium-sized Gadens lawyers’ business (SME), whether you’re shipping Erik Andersen goods to buyers in PNG or providing services to PNG resident entities without the protection of a lengthy contract. Where something goes wrong enough to need court action and you need to consider the question of where to commence proceedings, it is important to think about whether or not any judgment you obtain in your home country will be able to be enforced in PNG and, if so, how much trouble and cost doing so will entail. As many business people will be aware, there is a network of international linkages that allows judgments in one country to be enforced in another with relatively little procedural difficulty, and PNG is not excluded from this process. But the legislation in PNG is now of considerable age and has not kept pace with the development of court systems in many countries. The current Reciprocal Enforcement of Judgements Act (shall we be lawyerly and call it the ‘REJAct’) dates from 1976, with an update in 1980. To be captured by the REJAct, two principal requirements must be satisfied. First, the country in which the judgment was originally given must be listed by gazette in PNG. The list of countries for which this recognition is given is limited, and largely reflects trading patterns from the 1950s (when the original legislation was enacted) and PNG’s colonial past as part of the British Commonwealth. It also contains various inclusions and omissions from the wash of history or other quirks of fate. (For example, Singapore is in but Hong Kong is not; Manitoba is in but Canada as a whole is not.) The list can be accessed from Gadens Lawyers’ website at: www.gadens.com.au/publications/ Pages/Reciprocal-Enforcement-of-Judgements.aspx. The second principal requirement is that the judgement emanate from a ‘superior’ court of that foreign country. In the Australian context, that would mean the Supreme Courts of the various states. The limitation of the rule to ‘superior’ courts can have important repercussions, as in many foreign jurisdictions significant amounts are claimable nowadays from statutory courts, which aren’t ‘superior’ courts in this context. For example, the New South Wales District Court has a jurisdiction up to the equivalent of nearly K2.0 million (US$0.78 million)—a fairly material sum for an SME—but it is not enforceable in PNG under the REJAct. That isn’t the end of the options, however, as judgements that are outside the REJAct can still be enforced by the PNG Courts by the much more cumbersome processes that existed

'Where something goes wrong enough to need court action and you need to consider the question of where to commence proceedings, it is important to think about whether or not any judgment you obtain in your home country will be able to be enforced in PNG' in the days before formal reciprocal enforcement arrangements between nations became the norm. Consequently, a company considering proceedings in, say, NSW against a PNG defendant would be well served to give thought to the trade-off between ease of process in getting a judgment in the NSW District Court versus the Supreme Court, and the ease of enforcing any resulting judgment in PNG. As ever, it comes back to being thoughtful about your choices and getting good advice at the time. Erik Andersen is a partner at Gadens Lawyers and has practised in PNG for more than 20 years.

taxation

Business prepares for Papua New Guinea tax review Business in Papua New Guinea is now focusing on the country’s taxation review—one that could have major implications for business, including the country’s resources sector.

ith the PNG Government planning for additional revenue of K585 million (US$229 million) to be collected by the PNG Internal Revenue Commission (IRC) this year, the pressure is on to improve the way the country is taxed. PNG’s taxation review is looking at competitiveness and efficiency in PNG’s current tax system and non-tax revenues, and identify opportunities for greater fairness and simplicity. It will also look at ways of improving compliance and will outline possible changes to the country’s tax mix. The review, undertaken by a committee of distinguished Papua New Guineans and headed by Chairman Sir Nagora Bogan, is being supported by the Department of Treasury, PNG Customs, the IRC and the IFC. It will incorporate the long-awaited review of the taxation regime for the mining and petroleum industry, PNG’s most lucrative industry sector. Business bodies such as the PNG Chamber of Mines and Petroleum, the Manufacturers Council of PNG and the PNG Chamber of Commerce and Industry have advised Business Advantage they are currently planning submissions to the review. While he says it’s too early to anticipate the review’s recommendations, Bouke Wagenaar, Partner Taxation Services at Deloitte PNG, tells Business Advantage that the Government will be looking to collect more tax from business to fund tax breaks for the masses.

Sensible rules Instead of new taxes, an improved focus on the efficient application of existing tax rules would be desirable. ‘This isn’t a legislative issue. PNG has a lot of sensible rules but they’re not necessarily applied effectively. If they can ramp up the IRC, make it more efficient and make sure people who should be registered to pay tax are registered, that would make a big difference.’ Wagenaar says the IRC has already taken some steps to improve matters, through the introduction of new technology and an internal reorganisation, but there is a way to go before the tax system benefits fully from technology. ‘At present, the new system only covers withholding tax, and only the largest tax payers are on it,’ he says. Technology can have a downside too, however: there are concerns that automated work processes at the IRC could lead to penalties being applied much more often than is the case today.

Expert submissions Deloitte and KPMG are just two accounting firms currently consulting with clients and considering making their own expert submissions to the review, while PricewaterhouseCoopers has already lodged a number of submissions, according to Partner David Caradus. Wagenaar’s advice to business people is to provide feedback to the review on the experience of complying with the current tax system: ‘As a community, there’s an opportunity to let government know our perception of how things work and what’s important to us. We can’t just expect them to know. We need to make sure business is taken into account.’

PNG’s current tax rates at a glance Corporate income tax rate Capital gains tax rate Branch/non-resident company tax rate Dividend withholding tax Interest withholding tax Royalty withholding tax Foreign contractors tax Management fee withholding tax Superannuation funds Trusts Goods and services tax (GST)

30% 0% 48% 17% 15% 10% 12% 17% 25% 30% 10%

Personal income tax thresholds: K0-K10,000 0% K33,000 K10,000 22% K70,000 K18,000 30% K250,000

35% 40% 42%

Source: The PNG Investors’ Manual, 3rd edition (POMCCI)

Mining and Petroleum in PNG

Credit: ExxonMobil/Richard Dellman

A special supplement

The Hides gas conditioning plant under construction in PNGâ&#x20AC;&#x2122;s Highlands, part of the US$19 billion ExxonMobil-led PNG LNG project. First gas is on schedule to be exported in the second half of 2014.

Sector overview

A tale of two sectors There is the increasing divergence in fortunes of PNG’s mining and petroleum sectors, according to Greg Anderson, Executive Director of the Papua New Guinea Chamber of Mines and Petroleum.

hile the country’s petroleum and gas sector is moving from strength to strength on the back of the ExxonMobil-led PNG LNG project, mining is in the

doldrums. ‘For the past 10 years, we’ve had solid growth in both sectors,’ Anderson tells Business Advantage. ‘Gas is still very positive, whereas mining is facing a lot of questions.’ ‘The mining industry is facing difficult times. Globally, prices have fallen, there are productivity declines and financing has dried up for exploration and for producers.’ ‘We’ve been trying to take the message to the PNG Government that we’re facing challenging times.’ There is some good news, with PanAust a welcome new player due to its interest in the Frieda River project, and Indochine Mining and Numinco Group increasing their commitment to PNG by listing locally in the past year. However, existing mines such as Ok Tedi and Lihir have cut jobs, while ‘exploration has come to a stop, except for a few exceptions.'’ One positive development is the massive Wafi-Golpu gold project, being jointly developed by Newcrest Mining and Harmony Gold in Morobe Province, which is entering feasibility study stage.

New Mining Act Against this background, the industry is awaiting a revised Mining Act from the PNG Government, currently in draft form. Anderson remains hopeful the new Act can deliver an environment that encourages mining investment. ‘We’ve been trying to take the message to the PNG Government that we’re facing challenging times. It’s not PNG’s fault; it’s cyclical.’ There’s no knowing how long the current mining slump will last, although there are some encouraging signs out of China on the demand side, and Newcrest, after posting significant losses in 2013, is already reporting a profit turnaround.

The PNG Chamber of Mines and Petroleum’s Greg Anderson

French major Total SA as its partner for what looks like being PNG’s second LNG project (see page 27). The presence of a second major in PNG’s petroleum sector is a major coup for PNG.

Meanwhile, Anderson says, ‘there are lots of great stories in oil and gas’: not only the imminent completion of the ExxonMobil-led PNG LNG project (see page 28), which he describes as a ‘huge achievement,’ but also promising work being done by Talisman Energy, Horizon Oil and Heritage Oil. The industry is also still buzzing from the news that InterOil has chosen 26

Credit: InterOil

Huge achievement

Petroleum & gas

InterOil chooses Total SA for second LNG project InterOil Corporation has announced it is teaming up with France’s Total S.A. to develop Papua New Guinea’s second LNG gas project at the Elk and Antelope fields in Gulf Province. How will the new project fit into PNG’s existing LNG landscape?

n December 2013, InterOil finally selected a development partner for its Elk and Antelope gas fields in PNG’s Gulf Province. French major Total SA will pay up to US$3.6 billion (K9.01 billion) for a 61.3% stake in the fields. The final price will depend on the extent of the reserves, which will be known after a US$325 million (K816 million) drilling program. A company statement said the drilling campaign will take between 12 and 15 months. The France-based conglomerate is the fifth-largest publiclytraded oil and gas company in the world. Its deal with InterOil represents its first entry into the PNG petroleum development industry. Oil Search Limited, one of the key players involved with PNG’s existing LNG project, the ExxonMobil-led PNG LNG project, has also joined the venture, acquiring 23% of Elk and Antelope fields from Pac LNG in March 2014. Oil Search managing director Peter Botten told investors he paid beyond the ‘resource value’ of Pac LNG’s stake to have the ability to leverage more value. ‘With us sitting where we’re at in both joint ventures, and having a range of other gas resources, we’re uniquely situated to drive the future of LNG in PNG,’ he said.

Integration with the PNG LNG project? ‘The Elk/Antelope field is the largest undeveloped gas field in the region and it would certainly be advantageous for Oil Search to have a significant say in the development of that field,’ David Lennox, senior analyst with stockbrokers Fat Prophets, tells Business Advantage. ‘They have a significant interest in the PNG LNG project that will soon be coming into production and they will be wanting to shore up the supply of product into those [two] trains, and have the potential ability to perhaps build an additional train on site with extra gas that could be supplied from Elk/Antelope.’ ‘It would be a little difficult at this point in time to predict who will have the biggest say when it comes to developing Elk/ Antelope. It’s not at that stage. It’s got to get there yet and until it is actually proven to be commercial, everyone’s going to remain pretty quiet.’' Petromin Holdings chairman Sir Brown Bai welcomed the Total deal. Petromin is the state nominee for the Elk/Antelope project, although Prime Minister O’Neill flagged in early 2013 that the organisation may be re-named Kumul Petroleum under a major reorganisation of State-held assets.

Credit: ExxonMobil

Petroleum & GAS

PNG LNG project prepares for first shipments As PNG’s largest resources project reaches the point of completion, Business Advantage speaks exclusively with the man who has lead the project since day one: Peter Graham, Managing Director of ExxonMobil PNG. Business Advantage: (BA) At what stage does the PNG LNG project find itself, at the start of 2014? Peter Graham (PG): Different aspects of the project are more advanced than others, but the project overall is more than 95% complete. Starting from the Highlands area and working down: the drilling is going exceptionally well. Two wells are being drilled on each of four well pads. So far, we have successfully completed five of eight planned production wells at Hides. Coming down the pipeline from the Highlands: construction of the pipeline is also doing very, well. Construction has been particularly challenging as the pipeline runs right along the top of ridges, up some very steep terrain and then back down into the valleys. The contractor has done an outstanding job in getting through very difficult conditions. Finally, the LNG plant located close to Port Moresby is also doing very, very well Power is being generated on site, and we’re progressively commissioning the various components on Train One of the LNG plant, then we’ll progress across to Train Two. ExxonMobil PNG’s Peter Graham 28

Gas is also now also moving from Kutubu north to start the commissioning of the Hides Gas Conditioning Plant. When that’s complete, we’ll start flowing gas from the Hides wells to the Hides Gas Conditioning Plant and down to the LNG Plant to start the production of LNG. The first cargo of LNG will be in the third quarter of this year, and we’re confident of meeting that schedule. At steady-state production, we need the equivalent of six ships in total to ship the cargoes. BA: You must be very excited at this stage PG: Everyone is. The finish line is very clear at this point in time. Now, it’s a matter of being sure that all of the components of the Project come together for a safe start-up. The operations and maintenance team are now onsite at both plants, ‘walking down’ the procedures and getting ready progressively to take control of the facilities. At the LNG Plant, they have already taken care, custody and control of the utilities area, so they now manage the power supply and the water and other utilities, and will progressively take over the entire facility. The transition from construction to operations involves a major effort on training, including competency assessments to validate that the operations team is ready for start-up. BA: I’m presuming the project’s head count is now starting to come down now. What will happen to those workers leaving the project?

Petroleum & Gas

PG: It’s starting to come down, yes. Our best estimate of the direct employment on the project once it’s operational is 1000 to 1200 people—plus contractors, supply services and so on. We have about 14,700 people currently working on the project, of which about 5,600 are Papua New Guineans. In the first quarter of this year, we’ll see the next tranche of workers leave.. To that end, we’re actively working with Hela Province and Central Province to get Infrastructure Development Grant (IDGs) projects under way so that, as we phase down, those same skilled people are picked up for community infrastructure work. The government has committed 120 million kina (US$51.68 million) a year for ten years for IDGs. You often hear the criticism that a certain business has been in operation for years, and

‘You often hear the criticism that a certain business has been in operation for years, and that there is little evidence of improvements in infrastructure for the local communities. I don’t want that to be said about our project.' that there is little evidence of improvements in infrastructure for the local communities. With so much money committed by the government to infrastructure projects under the Benefit Sharing Agreements for the PNG LNG Project, I don’t want that to be said about our project.

BA: Another way the country’s benefiting from the PNG LNG project is with the National Transmission Network, which is using your pipeline … PG: Yes, the fibre optic cable has now been laid from the LNG plant site to Hides. As the pipeline is buried, so too is the fibre optic cable. This is a modest investment on the part of the State to essentially open a backbone of fibre optic cable right across the country, from Port Moresby across to Gulf Province up to Hides. The government may choose to connect up the cable from Hides across to Madang and Lae, which would provide a national communications backbone. It’s a great example of private enterprise working with government to find synergies where it’s a win/win for everyone. BA: Now that ExxonMobil is firmly embedded in the country, what other opportunities are there for you? PG: We have an active exploration programme at this point in time, predominantly in the same general areas as existing oil and gas licenses. We’ve been active in working on seismic programmes with our license partners in recent past to define opportunities, and we’ll just see how that plays out. BA: What are your thoughts on the potential development of industries around gas production in PNG? PG: Proving up new reserves is the key for that next phase of development. For any new development, proved reserves are needed for long term sales contracts to underpin major investment. Downstream development will come in time but will require the addition of uncommitted reserves – that’s time and money.

PNG's mining and petroleum projects Lorengau

MANUS

Vanimo

WEST SEPIK (SANDAUN)

Wewak

Bismarck Sea EAST SEPIK

I R I A N J AYA

Frieda Ok Tedi Tabubil

Pnyang Stanley Elevala

Ketu

MADANG

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

Pukpuk 1 Douglas

Kimu

Madang

WEST NEW BRITAIN

Mt. Hagen

Kainantu

CHIMBU (SIMBU)

Gobe Lehi Barikewa

Bwata Elk 2 Elk 1 &4 Antelope 1 Uramu

Kandrian

MOROBE

EASTERN HIGHLANDS

GULF

WESTERN PROVINCE

Hoskins

Ramu Yandera

WESTERN HIGHLANDS

Lae

Wafi Edie Creek Hidden Valley/Hamata

Kerema

Kumui Terminal

CENTRAL

Tolukuma Daru

Port Moresby

Gulf of Papua Torres Strait

AUSTRALIA

Popondetta

Pandora Laloki

ORO

MILNE BAY Alotau

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

Simberi

Kavieng

Lihir Solwara

Namatanai

Rabaul

NEW IRELAND

Sinivit

Mining Projects NORTH SOLOMONS

EAST NEW BRITAIN Kieta

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

Petroleum Projects

Solomon Sea

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

Woodlark

Imwauna

Coral Sea

Map data © Copyright 2014, Papua New Guinea Chamber of Mines and Petroleum (www.pngchamberminpet.com.pg), used by kind permission. Map © Copyright 2014, Business Advantage International Pty Ltd (www.businessadvantageinternational.com)

Mining

Credit: PNGSDP/Rocky Roe

The Ok Tedi mine.

Ok Tedi CEO looks to the future 2013 was a ‘momentous’ year for Ok Tedi Mining Limited, according its CEO, Nigel Parker. Business Advantage’s Andrew Wilkins spoke to him about the status of Papua New Guinea’s largest mine—and its likely future.

n something of understatement, Nigel Parker describes 2013 as the most ‘interesting’ of the seven years he has spent with Ok Tedi Mining Limited (OTML), the company that runs the massive Ok Tedi mine in Papua New Guinea’s Western Province.

Price falls First of all, global prices for the copper, gold and silver the mine produces have fallen dramatically this year. ‘It’s just like riding a tiger,’ he observes. ‘World metal prices have been all over the place since March 2013. Our budgeted copper price was $3.50 a pound in 2013, but the copper price has been US$3.00 to US$3.20 a pound. Our budgeted gold price was US$1650 an ounce, and it’s languishing between US$1300 to US$1350, while our silver budget was US$32.00 an ounce and that’s been languishing between US$18 and US$22. ‘The difference between what we budgeted for and what we’ve been achieving has had a big cash impact going straight through the business.’

‘Unlike other mining companies, Ok Tedi has no balance sheet debt. We have no leasing commitments. We don’t hedge our product. We’re not beholden to anybody, except the board and shareholders. So, that puts us in quite a unique situation.’ 32

Operational issues Global factors aside, the mine has also been faced with major operational issues that have slowed production. ‘One of our processing mills split its ends back in May, so we lost two months while that was all rewelded and re-set up. This pushed us into our low-grade stockpiles of ore and that impacted output as well, big time … Our primary crusher Ok Tedi Mining’s Nigel Parker had an unscheduled re-build too, and that took us another month.’ Then there has been the rain. High rainfall at Tabubil, where the mine is situated, is not unusual—it averages between ten and 11 metres a year—but Parker describes this year’s rainfall as ‘extraordinary’. The mine suffered landslides and a bridge collapse, while its hydro power plant is still undergoing rehabilitation. ‘Our job is to run this business, and keep it operating. Whatever the shareholders do, the shareholders do.’ The weather affected the mine in another way too. Ok Tedi’s largest customer, the Philippine Associated Smelting and Refining Corporation (PASAR), suffered heavy structural damage in Super Typhoon Haiyan, leaving one of OTML’s ships unable to unload its cargo. ‘It’s been quite a momentous year!’ admits Parker.

mining

State takeover

Credit: PNGSDP/Rocky Roe

The other major issue for OTML has been its effective nationalisation, an event Parker says hasn’t actually had an impact on business: ‘The Prime Minister has made a consistent commentary that the mine will be independently managed with an independent board. ‘From management’s point of view, that’s a shareholder matter and that’s the approach we’ve taken all through this year. Our job is to run this business, and keep it operating. Whatever the shareholders do, the shareholders do.’

Extending the life of the Ok Tedi mine Twelve months ago, Parker had just completed an exhaustive schedule of community meetings to get up the landowners to agree to extending the mine’s life. Twelve months on, is the extension still moving ahead? ‘We submitted a Change Notice to the State in September 2012, saying we wanted to continue mining … but we needed to change essentially two things—widen the pit shell and change the way we discharge the waste,’ says Parker. ‘The Department of the Environment wanted a third party consultant to have a look at the environmental aspects of the feasibility study. That study has now just been completed. We think that we’ll get the final clearance early in 2014, which will extend the mine life up to 2025.' As part of the changes, OTML’s controversial disposal of mine tailings into the Ok Tedi River may cease. ‘Within two years, we’ll know whether or not we’ve got an engineered solution for a tailing storage facility,’ says Parker. ‘There is still a lot of work to be done on that, but we’re well advanced in our initial positioning on it.’

‘We’re just in the process of doing our budget for the next three years. We’re settling on copper at US$3.00 a pound, gold at US$1300 an ounce and silver at US$20 an ounce. The treatment and refining contracts [with metal smelters], of course, are a big unknown at this point.’ For all 2013’s challenges and the uncertainty ahead, Parker feels OTML remains well-placed: ‘Unlike other mining companies, Ok Tedi has no balance sheet debt. We have no leasing commitments. We don’t hedge our product. We’re not beholden to anybody, except the board and shareholders. So that puts us in quite a unique situation. ‘That being said, of course you still have to manage the cash in these tough times.’ Andrew Wilkins is Publishing Director at Business Advantage International.

Down-sizing Meanwhile, the mine is undergoing a transition to a smaller operation that has been years in the planning, with its original ore reserves in decline. In 2010, the mine produced 160,000 tonnes of copper; in 2013 it produced 100,000. ‘We’ll be producing about two-thirds of what our traditional output’s been, which means we have to adjust our cost structures to match,’ Parker explains. To save money on vessel charter costs, OTML is having four cargo boats built to ship ore. It has also decided to start owning and maintaining its own mining and exploration equipment from mid-2014. Reducing the cost of the mine’s workforce is the next task. While some jobs will be lost, Parker says ‘it’s not just the actual labour cost itself, it’s all about rosters, accommodation, terms and conditions … we’re taking a holistic view on our workforce costs.’ ‘We’re only looking at about a 12% reduction in the workforce, but cost-wise it’s about 33%.’ Another casualty has been OTML’s exploration program, which has been cut back significantly to focus only on areas within the mine lease. ‘Strangely enough, we’re falling over small pockets of ore that were not in our resource statement,’ says Parker. ‘We’re actively engaged in exploring near-mine, as we call it … It’s a highly prospective area.’

More uncertainty to come? So, does Parker foresee more riding of tigers over the coming year? 33

Mining

Credit: MMJV

The Hidden Valley gold mine

Joint venture moves forward on Wafi-Golpu Morobe Mining Joint Venture has committed to a feasibility study at the promising Wafi-Golpu project, aimed at guiding the prospect into its next phase of exploration.

orobe Mining Joint Venture (MMJV) is on track to make a crucial investment decision that would secure the next phase of exploration at the massive Wafi-Golpu gold and copper project in Papua New Guinea. Despite the impact of external factors, such as the reduced price of gold, MMJV has maintained its commitment to advancing the highly prospective project over the past year.

In December 2013, MMJV—an evenly split venture between Australia’s Newcrest Mining and South Africa’s Harmony Gold—committed to a feasibility study into an exploration shaft to further evaluate the underground potential of the project. ‘Underground access to the ore body through the exploration shaft would generate essential ore body knowledge required

Credit: MMJV

mining

The Morobe Mining Joint Venture camp at Wafi

to support a future development decision,’ MMJV said in a statement. MMJV is studying a smaller start-up operation than it had previously envisaged, and has engaged engineering consultant Worley Parsons to explore lower cost development options. A final investment decision for the proposed exploration shaft is expected during the second half of 2014. In conjunction with the feasibility study, MMJV intends to finalise an agreement with the PNG Government to provide a framework for the underground exploration phase, ongoing technical and economic studies and, ultimately, the future development and operation of the project.

exploration target for the project has been set at 40 million ounces of gold and 15 million tonnes of copper. Newcrest has budgeted to spend between A$18 and A$20 million on exploration at Wafi-Golpu during the 2014 financial year. Meanwhile, the joint venture’s Hidden Valley mine in the Wau Bulolo district of Morobe continues to be a solid contributor to the production profiles of both companies. In the December 2013 quarter, the mine produced 24,792 ounces of gold and 272,710 ounces of silver, a slight rise in output against the September quarter.

‘Wafi-Golpu has a combined resource of 28.5 million ounces of gold and 9.06 million tonnes of copper.’ A prefeasibility study completed into the Golpu deposit in 2012 estimated development costs of US$4.8 billion for an underground operation that would annually produce 400,000 ounces of gold and 250,000 tonnes of copper over its first 15 years. Wafi-Golpu has a combined resource of 28.5 million ounces of gold and 9.06 million tonnes of copper. The joint venture’s 35

mining

Newly-listed Indochine Mining revives Mount Kare gold mine After a troubled history, the gold and silver mine at Mount Kare in Enga Province is now back on track.

Credit: Indochine Mining

Gold samples taken from Mount Kare

Mining Minister Byron Chan speaking at the 2012 PNG Mining and Petroleum Investment conference

Credit: Xstrata

ollowing his company’s listing on the Port Moresby Stock Exchange (POMSoX) in September 2013, Indochine Mining Chief Executive Officer Stephen Promnitz expressed the hope that gold production of between 170,000 and 200,000 ounces per annum could commence as early as 2015. He said Indochine’s listing was the culmination of much work since it acquired 100% of Mount Kare in 2011. He said the company had worked hard to secure the support of local communities PanAust—a new player in Papua New Guinea’s mining sector—acquired an 80% stake in the giant Frieda River gold and copper mining project in East Sepik Province at the end of 2013. and had assembled an experienced team to manage community expectations. In January 2014, the company Investment conference to take completed a Landowner Investigation Study (LIS) of the mine place in December 2014 area. ‘The completion of the LIS marks a major milestone for the local people, relevant government officials and our shareholders, The 13th biennial Papua New Guinea Mining and and is arguably one of Indochine’s most significant achievements Petroleum conference will take place at the Hilton to date,’ said Promnitz in a statement. Hotel, Sydney on 1 and 2 December 2014. The company plans to make a final investment decision, Hosted by the PNG Chamber of Mines and Petroleum, estimated to require capital expenditure of around AUD$100 the event is the highlight of the PNG resource industry’s million, in the middle of 2014. calendar. It drew over 1000 delegates in 2012, including The subject of a chaotic gold rush in 1988–89, the Mount representatives from nearly all the country’s current mining and petroleum projects. Kare project was abandoned by then-CRA (now Rio Tinto) before changing hands a number of times. 2014 will be a watershed year for the industry, with first LNG exports due, a new Mining Act and resources tax The POMSoX listing was a personal milestone for Promnitz, regimen expected, and restructuring occurring in the who worked for CRA as a geologist on the original Mount Kare mining sector against a background of lower global metal project. prices. It will also represent a chance for the industry to hear from new Petroleum and Energy Minister Nixon Duban, who replaced longstanding minister William Duma in February 2014. Further information: www.pnginvestment.com

infrastructure & transport

Papua New Guinea turns to the private sector for electricity Power outages may become a thing of the past, with Papua New Guinea’s power generation capacity set to double in coming years, largely due to increased investment from the private sector. Business Advantage surveys the wave of new and potential developments set to transform the sector.

Benefits all around Public-private power deals are not without precedent in PNG. A plant run by Korea’s Hanjung Power Ltd has been selling electricity to PNG Power in Port Moresby since 1999 (in a deal currently being re-negotiated). There are clearly benefits to both seller and buyer under such arrangements, if the New Britain Palm Oil Limited (NBPOL) power project in West New Britain is any measure. Under a contract with PNG Power, NBPOL has been using methane derived from the processing of waste water in two of its palm oil mills to generate power both for its own use and for the town of Kimbe. NBPOL’s General Manager in West New Britain, Harry Brock, tells Business Advantage that the two plants are supplying 1.5 MW of power—ranging from 40% to 60% of Kimbe’s current power needs—and that the company has plans to build two more 1 MW plants—attached to its remaining mills—over the next three-to-six years. ‘We’re selling biogas electricity to PNG Power for about half the cost of diesel-generated power,’ he says. ‘It’s part and parcel of our company-wide commitment to sustainability. It’s been a huge game changer for everyone here.’

Oil change Buying oil to fuel PNG’s Power’s power stations soaked up K140 million—a massive 40% of PNG Power’s entire budget in 2012, according to John Tangit, Chief Executive Officer of PNG Power. Clearly, reliance on imported oil fuel for power generation is going to be problematic in the future. ‘Our long-term aim is to convert some of the gas that we’ve got into generating power for the country,’ Prime Minister Peter O’Neill told the April 2013 Australia–PNG Business Forum. Estimates suggest replacing diesel with gas could halve PNG Power’s annual fuel bill. There’s no shortage of gas in PNG, of course, subject to a deal being cut with either the ExxonMobil-run PNG LNG project or the second LNG project being run by InterOil and France’s Total SA. As Peter Graham, Managing Director of ExxonMobil PNG, suggests in his interview on page 28, additional gas reserves will need to be found if gas is to be used for power generation.

Credit: PNGFP

n May 2013, state utility PNG Power announced it was negotiating with Hong Kong-based power company, Energy World Corporation, to build a new power plant in Port Moresby, with a second private provider being sought for Lae (see box on page 38)). These two larger projects indicate clearly that PNG’s Government is determined to use Independent Power Producers (IPPs) to supply part of its future energy needs. ‘IPPs are the model we’d like to see going forward, where the investor has agreed a price to sell power to the grid,’ Thomas Webster, Chairman of the Independent Public Business Corporation tells Business Advantage PNG. PNG Forest Products’ power plant in Morobe Province is now supplying power to state utility, PNG Power.

While the two new plants in Port Moresby and Lae are being future-proofed with this in mind, both will initially use diesel, but the plan is for them to diversify their fuel sources, with Port Moresby’s plant using gas and Lae’s using some form of biomass.

Renewables Geothermal power, already used at Newcrest Mining’s Lihir gold mine, is also a future power option, with PNG sitting in the Pacific’s ‘ring of fire’. Hydropower, which already meets about 45% of PNG’s power needs, will also be a major contributor to PNG’s future energy needs. The Yonki ‘toe of the dam’ project will is adding 18 MW to the Ramu distribution network (which services Lae and Madang), while a feasibility study is currently under way for a 80 MW plant at the convergence of the Naoro and Brown rivers near Port Moresby. Technical assistance will be provided to PNG Power and the Department of Petroleum and Energy for the Naoro Brown project by the World Bank, as part of its PNG Energy Sector Development Project, which was signed-off today.

Major hydro PNG has three potentially transformational hydro projects on the drawing board.

Infrastructure & transport

Credit: PNGFP

Why PNG needs independent power producers

The 240 MW Ramu 2 project is currently at feasibility stage, with a funding model yet to be announced, but would clearly make a major difference to communities and business along PNG’s northern coast. The biggest of all by far, however, is the 1800 MW Purari River project currently being considered by PNG Energy Developments Ltd (a 50/50 joint venture between PNG Sustainable Development Program and Australia’s Origin Energy). Indeed, the project is so large, it could turn PNG into a power exporter, with opportunities to supply northern Australia. The project is at a crucial phase, according to Parkop Kurua, Senior Portfolio Manager, IPBC, who oversees the energy sector. The government’s powerful Ministerial Economic Committee is currently reviewing the feasibility study, which was completed in December 2012 by PNG Energy Development Ltd (PNGEDL),

> Total installed capacity in PNG right now is around 500 MW, yet average peak demands for power in PNG are scheduled to grow to over 1500 MW by 2030, as presented in the Government’s Strategic Development Plan 2010-2030. > Yet, PNG Power is struggling even to meet the current needs of power users, in a country where only 13% of the population has access to mains power. > This is in spite of PNG Power investing K692 million (US$313 million) over the past five years and having a K476 million (US$215 million) debt facility for further investment. > Power supplies in PNG are sufficiently unreliable for every business of any size to need its own power generation capability. Indeed, many major mineral and agribusiness projects exist completely off-grid. > Under current regulations, PNG Power has the exclusive right to sell electricity within 10 km of 25 designated centres nationwide, leaving space for a private energy sector to develop beyond these population areas. and is now considering how to proceed with the next phase—the scoping and design of the dam project. This 1800 MW proposal could increase to a massive 10,000 MW, Kurua told Business Advantage. The commercial structure will be critical.

Infrastructure & transport

Telecommunications price falls will continue in Papua New Guinea, say Digicel and Telikom Corporate and residential telecommunications prices in Papua New Guinea should fall over the next year as infrastructure improves, according to senior representatives of PNG’s two leading telecommunications companies, Telikom PNG and Digicel PNG.

‘But if you really look at it, it’s all about data, it’s all about smartphones, tablets, how people remain connected, so that’s really where all the investment’s going.’

hen John Mangos, Chief Executive Officer of Digicel PNG (PNG’s largest provider of mobile services) and Mahesh Patel, Chairman of state-owned Telikom PNG (which has monopoly on fixed-line services in PNG), sat side by side to answer questions at the Papua New Guinea Advantage international investment summit in Port Moresby in September 2013, the high cost of phone and data services in PNG was the big issue on the minds of delegates. Both men had good news, however: new infrastructure, they said, was delivering lower prices and better services. ‘I think this year alone we’ve spent about K200 million (US$82 million), and the majority of that is on 3G upgrades,’ said Mangos.

Digicel PNG’s John Mangos (left) with Telikom PNG Chairman Mahesh Patel, in conversation at the September 2013 Papua New Guinea Advantage international investment summit in Port Moresby

Infrastructure & transport

Bemobile upgrade has begun, says new CEO With money finally in the bank and an experienced hand at the helm, are the fortunes of PNG’s troubled mobile phone company Bemobile about to turn? Business Advantage spoke with its new CEO, Sundar Ramamurthy, to find out. Few people know Papua New Guinea’s information and communications technology sector better than Sundar Ramamurthy. As founder of Data Nets in the early 1990s, he helped pioneer the development of information and telecommunications technology services in PNG before selling his company to Digicel Group in 2010. Biggest challenge Now, Ramamurthy faces arguably his biggest challenge: turning around Bemobile, which has struggled to compete with its main rival, Digicel PNG, since the latter’s arrival in the country back in 2007. ‘It’s a significant challenge,’ agrees Ramamurthy. ‘The government had the option of shutting Bemobile down. They chose not too. I thought: let’s try and help out and see what we can do.’ ‘The short-term priorities are critical. We need to understand where the network is at, what products we can sell and market and whether they work, and finally our in-house capabilities—what efforts we need to do in terms of recruitment and right-sizing.’ ‘The key things are to have a reliable and robust network, good customer service, and to have an offering that provides a credible choice to the consumer.’

Data usage rising ‘When we started rolling out our networks six or seven years ago, the demand really was for voice and SMS services, and we started with low speed data. All we’ve seen from there is just a huge take-up in data usage. ‘So, of the 730-odd sites that we have out there, we’re upgrading 300 of those to 3G cell and also going to be trialling LTE [Long Term Evolution, also called 4G] shortly. ‘Most of the investment is going straight into data and there has also been a doubling of the voice capacity over the last couple of months as well.'

Telikom stabilising infrastructure Mahesh Patel said Telikom PNG’s focus is currently on improving an old infrastructure. ‘The fixed-line infrastructure has really deteriorated while revenues are going down. So, it’s a bit of a dilemma whether we spend and how much do we spend on that. The first priority will be to stabilise the infrastructure. ‘Second, we’ll be looking at going into fixed-line broadband. ‘With the major centres, we’re looking at 4G, so the plan has started. By November 2014, we’ll be up and running.’

Pricing comparable to Australia Both said they wanted PNG pricing to be similar or lower than that in Australia. ‘If you go back to say two, two-and-a-half years when there wasn’t any 3G across the operators, Telikom and Bemobile, data was about two kina (US$0.82) per megabyte,’ said Mangos. 40

Cash injection The PNG Government has invested US$85 million (K220 million) in the company. With a previous deal involving Hong Kong-based GEMS also failing to produce results, many might see this as Bemobile’s last chance. ‘The new money goes towards building a new network,’ says Ramamurthy. The work is already under way, with the first stage being stabilisation of Bemobile’s Bemobile’s Sundar Ramamurthy existing networks in Port Moresby and Solomon Islands, to be followed by expansion. ‘We’ll need more,’ he acknowledges, suggesting options are being considered for further capital raising. In the meantime, ‘it’s enough to get started and start making an impact’. Re-engaging with the market Ramamurthy also flags a need for the telco to re-engage with both business and consumers, with the expansion of 3G and 4G services and an increased focus on data, once voice and SMS services are stabilised and robust. ‘Mobile carriers these days are really data carriers, rather than just providing voice calls and SMS,’ he notes.’

‘Fast forward to now—it’s 10 toea (US$0.04) per megabyte. So, there’s actually a mobile parity and it’s fallen significantly in the last two-and-a-half years. I think we’re seeing in the corporate end and down at the SME (small and medium-sized business) end, you’re seeing prices actually lower than that again.' Patel agreed PNG pricing is getting close to international prices. ‘The ultimate goal really is just to concentrate on keep dropping prices, as affordability is an issue in PNG’s remote areas. Ideally, we’d like to be cheaper than Australia really.'

Limited scope for new players Both Patel and Mangos agreed there is limited scope for a fourth player, the re-capitalised Bemobile being PNG’s third telco (see box above). ‘PNG is not even four per cent of what the Australian market is,’ said Patel. ‘So it’s not a big market. ‘From my perspective, for further competition, if we had a couple of telcos in mobile, a couple in fixed line, that should really bring the prices down and give the service to the people.’ Mangos predicted the high cost of providing access would be a hindrance to any new national telco, but the entrants would be voice, ISP and data providers. ‘For the whole industry to develop, you need to actually get all those value-added services—ISPs, call centres, data centres—on top of what we’ve already done,’ Mangos said. ‘It’s not about connecting the [regional] areas any more, it’s about: once a customer is connected, what do they require on top of that?’

Lorengau

MANUS

infrastructure & transport Kavieng

Vanimo

WEST SEPIK (SANDAUN)

NEW IRELAND Wewak

Bismarck Sea

EAST SEPIK

INDONESIA

M OMASE

Kokopo

MADANG

ENGA Wabag

HELA

Madang

WESTERN HIGHLANDS JIWAKA

Kimbe

Mount Hagen Mendi

Kundiawa Goroka

HIG HLAN DS WESTERN PROVINCE

PNG’s planned National Transmission Network

SOUTHERN HIGHLANDS

CHIMBU (SIMBU)

WEST NEW BRITAIN

Yonki

EASTERN HIGHLANDS

EAST NEW BRITAIN

N E W

G U I N E A

IS L A N D S

Buka

BOUGAINVILLE (AUTONOMOUS REGION)

Lae

MOROBE

PPC-1

GULF

Solomon Sea

SO UTHE RN Kerema

Microwave Domestic Fibre

Gulf of Papua

International Fibre

Popondetta

CENTRAL

Satellite

Daru

NORTHERN (ORO PROVINCE)

Port Moresby

Torres Strait

Coral Sea

NATIONAL CAPITAL DISTRICT Alotau

MILNE BAY

APNG-2

Progress on Papua New Guinea’s national broadband network AUSTRALIA Construction of Papua New Guinea’s national broadband network is progressing, with major milestones set be reached by mid-2015, according to Bemobile CEO Sundar Ramamurthy, who is assisting the PNG government’s Independent Public Business Corporation on the project.

amamurthy told delegates at the Papua New Guinea Advantage investment summit in September 2013 that the National Transmission Network (NTN), which aims to connect major population centres on PNG’s mainland via a cross-country network of fibre-optic cables, was progressing to the timelines agreed. ‘The aim is to create a reliable, high speed, transparent and low-cost backbone network for domestic and international access,’ Ramamurthy told delegates. A significant part of the project is the completion of a fibreoptic link along the length of the PNG LNG gas project’s 700 km pipeline, from the Hides gas field in the Highlands to the PNG LNG plant near Port Moresby, and then on to the capital. Ramamurthy advised that the Hides-to-LNG plant link was expected to be commissioned in early 2014, with the additional 50 km to Port Moresby already complete.

Future links Meanwhile, the link between the Yonki power station in Morobe Province and Mount Hagen in PNG’s Highlands is expected to be ready by mid-2015. Additional cable connecting Wabag and Mendi will then be completed a few months after this. The final connection between Port Moresby and the PPC-1 cable (which connects PNG to the world wide web via Guam) is expected to be complete in late 2014. The jointly commissioned cable will also allow the Solomon Islands to connect to the PCC-1 international cable near Alotau, giving PNG’s neighbour a fast connection to the worldwide web for the first time.

At that stage, the game will change for PNG, with connections to more remote locations such the New Guinea islands, Alotau, Wewak, Vanimo and Daru possible. The NTN will also mean PNG will no longer have to rely on the APNG2 cable which currently connects Port Moresby to Sydney, Australia, although the IPBC is considering additional international connections to the worldwide web to ensure the NTN has redundancy.

New data wholesaler The completed NTN will be run by PNG Dataco, which will wholesale bandwidth to network license holders such as Digicel, Telikom PNG and Bemobile, and ISPs such as Datec and Daltron. It will be a ‘carrier to the carriers’—with the goal of encouraging greater retail competition and allowing new entrants (PNG citizens and SMEs), while increasing bandwidth and reducing the cost of access for consumers and businesses. Ramamurthy said that the current K300 to K500 (US$120 to US$200) monthly cost of ‘normal family use’ of the internet in PNG was far beyond the means of most Papua New Guineans. If costs could be reduced dramatically, there would be a tremendous boost to the already growing economy of PNG. A completed NTN, he said, would enable PNG to host call centres, enable the movement of large data files and foster the online delivery of private and public sector services, including e-commerce.

infrastructure & transport

Private wharf to relieve Port Moresby congestion Avenell Engineering Systems is developing a new private wharf and business park just outside Port Moresby..

ork began in 2012 on the 180-metre berth at the Ravuvu Industrial Park, 20 km north-west of central Port Moresby. The new wharf will help ease traffic at Port Moresby’s main port, as well as boost employment and trade in the capital. The International Finance Corporation (IFC) has provided Avenell (AES) with a US$4 million (K8.9 million) loan to help the company complete the project. ‘IFC’s support provides us with the certainty of stable, longterm financing and advice,’ said Dominic Avenell, a director of AES. ‘IFC will also help us establish a comprehensive environmental and social management system for our entire operation, which will boost our competitiveness when we seek contracts with international and local firms that demand global best practices in this area.’

AES has interests in housing construction, wharf and port operations, storage, and other services that support the mining sector. The new wharf will service smaller vessels with a draught of less than six metres. It will concentrate on servicing the oil and gas industry. The AES wharf is the latest addition to a growing number of private port facilities surrounding the nation’s capital. As well as the massive facilities built to support the shipping of gas from the ExxonMobil-led PNG LNG project, Curtain Brothers’ Motukea Island wharf was completed at the end of 2010, while Steamships has its own wharf for coastal shipping adjacent to Port Moresby’s main port facility.

Infrastructure & transport

New port in Gulf Province to be built by joint venture The Gulf Provincal government has set up a 50/50 partnership with the United States-based cargo transportation company, Teras America LLC, to build a port to service Papua New Guinea’s second LNG project and other industries. Details of the port project, including its location, have yet to be determined, according to the PNG Regional Manager for Teras America subsidiary PNG Project Services Ltd, Amanda Sprang. Sprang told Business Advantage that her company will be providing ‘all the finance and will be the operating partner’. ‘We believe that for [the] long-term partnerships we are participating in, this is the way to proceed.’ Sprang said it makes sense to build a port in the Gulf Province, rather than Lae. It would mean not having to transport goods over the PNG Highlands’ two mountain ranges to reach project sites. Relationship with LNG projects Gulf Province Governor Havila Kavo said he expects the Total SA–InterOil Gulf LNG Project, which is in its planning stages, to use the new port. The Governor has put Total SA and InterOil on notice that

Gulf province Governor Havila Kavo

he intends a joint venture between the Gulf Provincial Government and Teras America, Gulf Teras Services Ltd, to manage all cargo transport for the LNG Project to the Gulf. The intention of Gulf Teras Services Ltd is to bring a modern fleet and best practices to the marine operations in the Gulf Province, he said. Additionally, such consolidation of cargoes will save the Total–InterOil Gulf LNG Project cost and time and will benefit both the developer and the National Government of PNG.

Opening up trade In addition to bringing benefit to the Gulf LNG Project, the port would open up trade and agricultural exports, Sprang said, and bring down business costs throughout PNG. ‘This is a new concept because we are not looking for funding from the National Government,’ she said. ‘We will be sourcing and providing financing.’ She said it was not possible to say how much the port would cost until after a feasibility study was carried out, but said the port would be built within four years.

Port workers at Ravuvu

R D Tuna Canners

services

Employment agencies optimistic about job outlook Recruitment agencies servicing Papua New Guinea say the employment of expatriates has fallen over the past year. However, as our survey of the sector suggests, there is optimism about employment in 2014.

xxonMobil employed about 17,000 workers during the construction phase of its PNG LNG project, with twoto-three times that many being employed by service providers to the project. But the number of directly employed personnel at the plant could fall to as low as 1000 as the project comes on stream. A drop in employment is thus inevitable. Mark Turner, Director at Enigma International Resourcing, quantifies the fall-off in expatriate employment at 11%, but says the PNG LNG plant is not the sole reason for the fall. ‘Secondly, 2013 has been a disappointing year for the price of gold seeing a drop of nearly 30 per cent, before a recent rally, and being one of PNG’s core mineral resources this has had a major impact on a number of projects and hence employment with many resources companies,’ he observes. ‘Finally, 2013 was a poor year for commodity prices in PNG, impacting their key markets of coffee, palm oil, subsistence and cash crops.’

New projects With the PNG LNG construction largely completed, recruitment companies are moving on to the new opportunities. ‘We’re now into the recruitment of personnel related to the production phase of the PNG LNG project,’ says Calum Smith, Regional Manager, Air Energi Pacifica Ltd, which specialises in recruiting for the oil and gas industry. Like several recruiters Business Advantage spoke to for this article, Scott Roberts, Managing Principal of Brisbane-based Cadden Crowe, predicts other projects and ventures are just waiting around the corner. They include the Lae Highway Air Energi Pacifica’s Calum construction, the road linking the LNG Smith

services

Private companies boost Papua New Guinea’s health sector Developing health care standards and foreign investment in Papua New Guinea are expanding the business opportunities available to private sector healthcare providers. Since setting up in PNG nearly 20 years ago, International SOS has grown to become a major provider of medical and security assistance. It has are more than 400 staff in the country, with facilities including an international standard clinic, a medical response and evacuation team, and an emergency medical facility. International SOS PNG General Manager Bruce Clark said the company’s growth was backed by the increase in resources and related services companies entering the country. ‘Many of our global energy, mining and infrastructure clients were moving into PNG to invest in the country’s vast resources,’ Clark tells Business Advantage PNG. ‘In a country where healthcare standards are still developing, we have worked with companies to ensure the health and safety of their staff.’

Not just for specialists In PNG, private sector involvement in healthcare is not the sole preserve of healthcare specialists. Construction company Hornibrook NGI, for instance, owns a 56% share in the Lae International Hospital, which it founded 2009, providing services ranging from accident and emergency to obstetrics and paediatrics. In Southern Highlands Province, Oil Search Limited has achieved impressive results in malaria control, and has established a foundation to extend its health contribution to PNG.

Global trend ‘Private partnerships, where companies work with existing health providers to support and strengthen their operations, are part of a global trend,’ says Geoff Scahill, General Manager Private Sector Development, at Abt JTA. Abt JTA facilitates public-private programs between mining companies, government agencies and health care providers, offering health impact assessments, scoping studies, onsite health services, employee medical testing and hospital management.

Public and private sector join forces A new initiative launched in late 2013 involves the private sector joining with health departments and provincial governments in a public health campaign to eradicate malaria in PNG by 2050. The PNG Industry Malaria Initiative (PIMI) brings together major resource operators to create public-private partnerships with their host provinces. Companies involved include ExxonMobil, New Britain Palm Oil, St Barbara, W R Carpenter and Newcrest Mining.

What of the public sector? While there is no question that private services have grown partly due to the poor quality of PNG’s public health sector, the public system is making progress. The PNG Government has committed itself to free public healthcare in 2014, while major hospitals such as Port Moresby General Hospital are receiving more funding, with K1.4 billion committed to health spending in the country’s 2014 budget.

services

Q&A with John Bellinger, CEO of Guard Dog Group Security is one of the largest employers in PNG’s services sector. Business Advantage spoke with John Bellinger, Chief Executive Officer of the country’s largest security company, Guard Dog, to find out more. Your company is well-known not just for its guard dogs, but also for your security personnel and the airport shuttle service in Lae. How wide is the scope of your activities? The companies under our umbrella provide a comprehensive range of services, ranging from manned security, customised electronic solutions, armoured vehicles, UPS equipment, communications and security training. We actually have our own accredited National Security Training College, where training is provided by an experienced team of instructors and support staff. With manpower now exceeding 5000 men and women nationwide, the Guard Dog Group is a major employer, not just in the security industry but in PNG’s economy as a whole. Security is certainly a major industry in PNG and you are the largest operator. What do you see as the company’s key strengths? The company was founded by Dennis Bux in Madang in the early 1980s. That means we have three decades of experience, combined with a truly nationwide presence and an outstanding mix of local know-how and international expertise. As our name suggests, guard dogs are a particular speciality: we have around 400 trained dogs in PNG and one of the largest training facilities in the southern hemisphere. What has the company learned from participating in a world-class project like the PNG LNG project? Collaborating with one of the world’s biggest companies obliged us to review our internal processes. We made a big effort to improve our training and operational manuals, as well as implement a Quality Management System. This was a big challenge and I am pleased to say that we have succeeded in meeting the high standards expected of us. You formed two ground-breaking joint ventures with local landowner companies to provide security to the PNG LNG Project. How have those worked? While Guard Dog has provided the expertise, training and ongoing management, our landowner partners have provided the manpower. With the construction phase at its peak in 2013, each joint venture was employing in excess of 500 staff.

provinces to the capital, Port Moresby, and the Manus Island detention centres.

Confidence There appears to be two reasons for the continuing strong employment trend: confidence in the O’Neill Government, and a rise in living standards as a result of the PNG LNG project’s impact on the economy. Enigma International Enigma’s Mark Turner says future Resources’ Mark Turner planned resources projects will create jobs in engineering, construction, logistics, hospitality and transport sectors. 46

Guard Dog’s John Bellinger

On the one hand, the opportunity to develop businesses with Hides Gas Development Company and Laba Holdings has been most rewarding and satisfying. On the other, the experience we have gained, together with our long history of providing services to oil, mining and gas projects, leaves us ideally placed to participate in future projects. Looking ahead, what are your major plans? Where will the growth come from in the aftermath of the PNG LNG Project? We want to be recognised as the best service provider in the security industry, such recognition can only be good for growth. We actively review our Corporate Strategy to ensure KPI’s are achieved and communicate with our key clients to ensure service delivery is the best. The Group has established a sound platform from which it can continue to expand. With strong internal governance and direction we expect our growth to come from, without being too specific, ongoing existing market penetration and new market development of existing products and services, new product options and diversification into other areas. In addition, with more large projects in the resource sector being a distinct possibility we hope we will be considered as serious contenders to provide security services by the project owners.

’In general, our clients in PNG are very positive about the future of the region,’ he says. ‘Perhaps the phrase to use would be “quietly confident”.’ ‘Enigma continues to work with commercial PNG companies looking for their expats to make a long term commitment to PNG, with most employed on a residential status rather than FIFO [fly in, fly out],’ says Turner. ‘Our clients are looking for managers who’ll not only make a positive contribution to the company but also, through training and developing the people they manage, to help develop PNG economically, socially, and culturally.’ Smith says Air Energi Pacifica processed about 1000 work permits and visas last year. ‘It may increase incrementally but we don’t see it dropping, which is a good indication of market activity.’

Fisheries

The Pacific’s biggest catch With its vast fishing grounds populated by some of the world’s largest tuna stocks, PNG is well-placed to develop a strong on-shore fish processing industry.

Credit: R D Tuna Canners

ore than 10,000 fish species have so far been identified in the waters around PNG, but commercially, the most important is the migratory tuna. Between 12% and 17% of the world’s tuna is caught in PNG’s 2.4 million square kilometre Exclusive Economic Zone. With the opening of one massive new cannery, the commencement of construction for another, and more on the drawing board, Lae is set to become the South Pacific’s main fish-processing centre,. Sylvester Pokajam, outgoing Managing Director of PNG’s National Fisheries Authority, told Business Advantage PNG there will be six processing plants within the next few years, potentially employing 50,000 workers.

Region’s biggest processing centre The Thailand fishing company, Thai Union, opened the region’s biggest fish-processing centre, Majestic Seafoods, in 2013, which will eventually be able to process 600 tonnes of tuna per day. Majestic Seafood joins two existing processing plants run by International Food Corporation and Frabelle. The Chinese-owned Zhoushan Zhenyang Deep-Sea Fishing Company plans to build a tuna loin plant to process 250 to 300 metric tonnes per day, employing 3000 local workers. The Korean firm Dongwon is also seeking to build a tuna loin plant, while Nambawan Seafood, a joint venture between Trans Pacific Journey Corporation, TSP Marine of the Philippines and a Taiwanese company, is also on the drawing board. In Madang, R D Tuna Canners’ Managing Director Pete Celso says his company expects to double production after opening a second cannery there in early 2014 (see page 17).

Tuna stocks But the depletion of fishing stocks continues to be of concern to the industry across the region, after the Western and Central Pacific Fisheries Commission (WCPFC) meeting in Cairns, Australia, at the end of 2013 agreed to reduce the longline bigeye tuna catch by 10 to 30 % for foreign fishing nations. Limits on purse seine fishing will be considered by the WCPFC during 2014. By contrast, small-scale coastal commercial fishing focuses on prawns, crayfish, barramundi, bêche-de-mer, trochus shells, pearl shell and green snail.

Manufacturing

Credit: Prima Smallgoods

Prima Smallgoods new factory in Lae

Manufacturers invest for the future While Papua New Guinea’s economy has slowed in the past year, many of the country’s manufacturers continue to see growth as the longer-term trend, and are investing in new plant, new products and new marketing approaches.

ith many inputs imported  from overseas, the decline in the value of the kina in the second half of 2013 increased many manufacturers’ costs. Indeed, Manufacturers Council of PNG Chief Executive Officer Chey Scovell described the weaker kina as a ‘real kick in the guts’ for local manufacturers. ‘We’ve seen a flattening off of rice imports over the last four months,’ observed Gregory Worthington-Eyre, Chief Executive Officer of Trukai Industries, at the end of 2013, although he noted it’s ‘still 30% up on what it was five years ago’. ‘Business and demand across our manufactured products and imported industrial equipment is significantly down on previous years,’ confirms Michael Kingston, General Manager of Lae-based industrial and household supplies manufacturer, K K Kingston.

Another local food manufacturer, Paradise Foods, is building a major new bottling plant in the city, as part of its ongoing plans to re-launch the Pepsi-Cola drink brand in PNG.

Necessary upgrades PNG’s major brewer, S P Brewery, is also upgrading its Lae and Port Moresby plants, based on increased consumer demand. ‘If you don’t replace equipment every now and again, it becomes inefficient. So there are efficiency gains, there’s a greater diversity of products and of packaging configurations,’ says General Manager, Stan Joyce.

The company ‘returned to our core business’ in 2013, Kingston says, but it will still be bringing at least six new products to market in 2014, an initiative that has required significant investment. Meanwhile, food manufacturer Goodman Fielder is about to finalise the construction of a brand new snack plant in Lae, consolidating its manufacturing sites in that city into one location. Other companies to open significant new plants in Lae (PNG’s industrial hub) in the past year include meat processor Prima Smallgoods and fish-canning joint venture Majestic Seafoods. Chicken producer Tablebirds, part of the Mainland Holdings, is currently certifying its processing plant to meet international standards. 48

Credit: Tablebirds

New products and plants

Tablebirds is upgrading its plant to reach international standards.

manufacturing

‘Made in PNG’ publication reveals wealth of PNG produce

Credit: Trukai

PNG’s productive sectors—manufacturing, agribusiness, fisheries and forestry—are the special focus of Made in PNG 2014, the third edition of the publication designed to highlight PNG’s produce and the companies that produce it. The publication is produced by Business Advantage International in association with the Manufacturers Council of PNG, and features the results of many interviews with PNG’s leading producers. ‘PNG has enormous natural advantages when it comes primary produce such as palm oil, cocoa, coffee, tuna and timber products,’ says Council Chairman Murray Woo in his foreword to the publication. ‘While these continue to be major exports, PNG is increasingly finding ways to add value to its primary products—a process that creates jobs and increases revenues for the country.’ Further information: www.madeinpng.com

Trukai rice being packaged for sale.

The new edition of Made in PNG is available now.

Agribusiness

Credit: Tablebirds

The fertile Markham Valley in Morobe Province, a major agribusiness centre.

A growing business Agriculture is a mainstay of PNG’s economy, a major employer, and a vital source of export revenue.

Cocoa concerns Despite growing demand for cocoa around the world, the cocoa industry in Papua New Guinea is in crisis, with production in East New Britain alone plummeting by 82% between 2008 and 2012. The cause is the cocoa pod borer (CPB) pest, which has hit many cocoa-producing regions around the world. According to the PNG Cocoa Board, production in East Sepik Province and the Autonomous Region of Bougainville ‘will likely crash’ over the next two years, all due to the pest. But programs are in place to mitigate the effects of CPB. Just over 1,000 of East New Britain’s 23,000 growers are taking part in a trial and training program through the PNG cocoa buying 50

and exporting company, Agmark, and the PNG Cocoa Coconut Institute. Most of them are getting higher yields now than they were even before the pest arrived, according to George Curry, from Curtin University, Perth. ‘Typically, before CPB they were getting 300-400 kilograms of dry bean per hectare. ‘And then with CPB hitting, it almost went down to zero but under the Agmark strategy, a lot of growers are getting a tonne per hectare; some a good bit higher than that.’ The World Bank is carrying out similar recovery programs.

PNG’s top agricultural exports 1. Palm oil 2. Coffee 3. Cocoa

4. Copra 5. Rubber 6. Tea

Source: Bank of PNG and commodity boards

Credit: R H Group

hile agriculture accounts for about 25% of PNG’s GDP, about 85% of nationals are engaged in food production at a subsistence level. Palm oil is the country’s most valuable crop, followed by cocoa, copra, rubber, spices and tea. Between 2001 and 2010 PNG’s soft commodity exports grew in value by 12.8% per annum to almost K4 billion for the first time, with forestry being a significant contributor to this growth. The key commercial livestock in PNG are pigs, poultry and cattle, with livestock contributing 13% of total domestic food production. The PNG kina’s fall of about 14% in the second half of 2013 provided a ‘parachute’ to some of the agricultural industries suffering from lower commodity prices, according to Paul Barker, the Executive Director of the Institute of National Affairs. However, he sounded a note of caution: ‘For those industries requiring substantial imported inputs, whether plant and equipment, or livestock feed and fertiliser, the weaker kina imposes costs as well as providing gains.’

Oil palms growing in East New Britain

Forestry

The wood and the trees Despite recent controversies, PNG’s forestry sector is on a path towards greater sustainability practices and value-adding.

Credit: Cloudy Bay Sustainable Forestry

ew Guinea is now the second-largest exporter of tropical hardwoods in the world, with about 15 million hectares of the country’s 30 million hectares of total land mass considered suitable for forestry development. Products include raw log exports, sawn timber, veneer sheets, logs, plywood, processed timber and woodchips. The PNG Forest Industries Association says PNG has a number of competitive edges over other timber-producing countries, including substantial wood and labour resources, and close proximity to world markets, including China and Japan for low-end products; and to Australia and the United States for high-value and value-added forestry products.

Credit: PNG Forest products

Ensuring export readiness After an embarrassing government enquiry into Special Agricultural Business Leases (SABLs) in 2013, which showed some forestry operations were operating illegally, PNG’s foresters have been responding to a European Union ruling (EU Timber Regulation No.995/2010), which bans the importation of illegally harvested and produced timber products into EU markets. PNG’s direct exports of forest products to the EU are modest— just 0.2% of the exports in 2011. Of this, plantation-grown Towards value-adding: a kit home made with PNG balsawood is the timber single largest export.

Loading logs for processing.

However, the bulk of PNG’s timber finds its way into overseas markets via China, which bought 78% of PNG forest exports, mainly round logs, in 2011. Much of this timber ultimately finds its way into the EU in manufactured products. While any lasting effect of the EU ruling is likely to be on these particular exports, the industry is confident it is taking the right steps to mitigate the risk. ‘PNG is the only country in the world with 100% independent third-party monitoring of its log exports [by Swiss company SGS], so we are well placed to meet these emerging regulatory requirements,’ says Bob Tate, Executive Director of the peak industry body, the Papua New Guinea Forest Industries Association.

Credit: PNGTPA/Kirklandphotos.com

Tourism update

Rabaul Volcano in East New Britain.

Tourism sector receives much-needed attention Several new developments—the creation of a tourism hub at Kokopo (and new direct international flights to service it) and the start of cruise liners visiting remote Milne Bay—indicate progress is being made to develop Papua New Guinea’s tourism industry.

Credit: PNGTPA/Kirklandphotos.com

n 2013, Prime Minister Peter O’Neill announced that Kokopo in East New Britain Province would be designated a tourism hub. Coupled with direct Air Niugini flights from Cairns to the nearby Tokua Airport, this concept has been welcomed by tourism operators. Sydney tourism operator Ruth Dicker of Niugini Holidays says Kokopo would be ‘a great destination hub’ but, as Nick Lyons, President of the East New Britain Chamber of Commerce warns, improved infrastructure and an improvement in the country’s image overseas will be required if the province is to reap the benefits of ‘huge’ tourism potential. The PNG Government appears to understand this: it has re-established a consulate in Cairns to provide visa and other services to potential visitors to PNG, including tourists to East New Britain. It has also backed up the announcement with K58 million for essential infrastructure in its 2014 National Budget.

Cruise liners

Cruise passengers visit an island market

PNG has long been visited by cruise ships but the first of a series of visits by Carnival Australia/P&O Cruises’ Pacific Dawn to Milne Bay in October 2013 marked a ramping up of cruise ship business. Over the next 15 months, P&O will bring six superliners to Alotau and a total of nearly 12,000 tourists. To accompany the new service, Carnival Australia signed with a three-year deal with AusAID to help boost local business

tourism opportunities in Papua New Guinea and Vanuatu. The two organisations will also examine options for improving access facilities in the Trobriand Islands and Alotau port. PNG tourism officials hope the range of ports will expand. ‘Areas where the cruise ships go will continue to develop. Any of these cruise locations will really start to put PNG on

Tourism

Facts and figures: PNG tourism While over 182,000 people visited PNG in 2013, only 41,000 of these, or 22.5%, came to PNG as tourists. While this is a small figure, it was an encouraging 8% increase on the previous year. To put this in context, regional tourism leader Fiji reported

the map with Australians, as word of mouth spreads,’ says Stuart Thompson, Sydney-based Australia-New Zealand Representative for the PNG Tourism Promotion Authority (TPA). ‘Island areas such as Kavieng in New Ireland and the Conflict Islands in Milne Bay are so stunning and remote. Australians will soon be looking to explore these areas more than ever.’ Other cruise lines operate in PNG, including Hapag-Lloyd Cruises, Japan’s NYK Cruises and the specialist North Star Cruises Australia, which carries only 36 passengers to Kavieng or Alotau and provides specialist talks from ecologists and biologists.

Kokoda Track

Credit: PNGTPA/Kirklandphotos.com

For around 3000 Australians annually, the Kokoda Track is provides the main reason to visit PNG. ‘One of the main promotional focuses of 2014 will be the ‘Do Kokoda’ campaign (, which has been designed to encourage more Australians to trek Kokoda and raise awareness of the benefits trekking the track has on local communities,’ says Thompson. The official launch of the www.dokokoda.com website and campaign will take place on ANZAC Day 2014. Outdoor activities, such as trekking, diving, surfing and kayaking, and eco-tourism continue to be the mainstays of tourism activity in PNG, serviced by small owner-operators. Surfing and diving will the focus of additional TPA’s promotional campaigns in 2014. PNG’s industry is also reaching out to international travel agents and wholesalers, holding an well-attended inaugural trade event, Lukim PNG Nau (see box on right), in September 2013.

visitor arrivals in 2011 totalling 675,050, while Vanuatu had 248,868 tourists. PNG is still a niche destination by comparison. Around half of all tourists visiting PNG came from Australia, while the USA was the next largest source, followed by the United Kingdom, Germany, Japan and Indonesia.

Essential infrastructure While Australia remains a primary market for PNG’s tourism sector, the national carrier Air Niugini now flies to destinations such as Indonesia, Hong Kong, Japan, the Philippines, Solomon Islands, Fiji and Singapore. Recent investment has seen the number of hotel rooms increase in both Port Moresby and Lae. Port Moresby, has a number of quality hotels, including Airways Hotel, which has won numerous international awards. R H Group’s new five-star Raintree Hotel and Suites at the Vision City shopping complex is due to be finished in 2015 and a smaller airport hotel is also being built. Meanwhile, the Holiday Inn in Waigani is being substantially expanded. In Lae, Hornibook NGI has recently opened a new 45room hotel aimed at business people and tourists.

International visitors experience PNG first-hand Lukim PNG Nau 2013, a Papua New Guinea tourism promotion event designed to attract national and international operators and agents, was a huge success, according to both the PNG Tourism Industry Association and PNG Tourism Promotion Authority. Around 30 overseas travel agents and tourism operators came to the exhibition, which ran in from 5 to 7 September 2013. PNG tourism operators from airlines, resorts, small, medium to the large hotel groups, tour operators, lodges, tourism associations, provincial tourism authorities and the Tourism Promotion Authority (TPA) attended. TPA overseas managers also brought in travel agents for the first time, according to Linda Honey, a board member of both the PNG Tourism Industry Association and PNG TPA. ‘Not only did they attend as buyers but they got to also experience PNG in their family trips around the country—a wonderful way to get the buyers to sell PNG.’

The Kokoda Memorial

Credit: PNGTPA/Kirklandphotos.com

Directory: Who’s who in PNG

This directory provides contact details for organisations featured in this edition, plus other key contacts. AGRIBUSINESS/MANUFACTURING Coca-Cola Amatil PNG +675 472 1033 www.ccamatil.com Goodman Fielder International (PNG) +675 308 2200 www.goodmanfielder.com.au K K Kingston +675 472 2745 www.kingston.com.pg Lae Biscuit Company +675 475 9988 www.lagaindustries.com.pg Mainland Holdings/Tablebirds +675 472 3499 www.tablebirds.com.pg New Britain Palm Oil +675 985 2177 www.nbpol.com.pg

Paradise Foods Limited +675 325 0000 www.paradisefoods.com.pg Ramu Agri Industries +675 474 3299 S P Brewery +675 302 8200 www.sp.com.pg Trukai Industries Ltd +675 472 2466 www.trukai.com.pg

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

BSP (Bank of South Pacific Limited) +675 320 1212 www.bsp.com.pg BSP Capital Limited +675 321 4333 www.bspcapital.com.pg Kina Group of Companies +675 308 3800 www.kina.com.pg Nambawan Super Ltd +675 309 5200 www.nambawansuper.com.pg National Superannuation Fund Limited (NASFUND) www.nasfund.com.pg Pacific MMI Insurance +675 321 4077 www.pacificmmi.com

Useful online resources for Papua New Guinea www.businessadvantagepng.com Business Advantage International’s online business magazine for PNG and the region. www.ipa.gov.pg PNG’s Investment Promotion Authority. www.pomcci.com The PNG Chamber of Commerce and Industry. Information on networking, PNG business generally, useful links and POMCCI’s training workshops. www.pngindustrynews.net Online/email news service—subscription required for full access. www.thenational.com.pg www.postcourier.com.pg PNG’s two daily newspapers, The National and The Post-Courier. 54

www.pngchamberminpet.com.pg The PNG Chamber of Mines and Petroleum (see page 56) produces a number of useful publications including Profile magazine, which coincides with its major biennial conference.

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

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

Directory: Who’s who in PNG

THE PNG Investor’s Manual The PNG Investors’ Manual is a handbook for investing and doing business in Papua New Guinea. Co-published by the Port Moresby Chamber of Commerce and Industry (POMCCI), the PNG Investment Promotion Authority and the Asian Development Bank, the third edition of the guide is designed to provide an in-depth guide for new and existing investors. Topics covered include PNG’s legal and tax system, profiles of PNG’s key economic sectors and information on living and working in PNG. To obtain the printed manual, email bizcentre@pomcci.com or view it online at www.pomcci.com.

Port Moresby Stock Exchange Limited +675 320 1980 www.pomsox.com.pg Westpac Bank PNG Limited www.westpac.com.pg

BUSINESS & GOVERNMENT ORGANISATIONS Asian Development Bank +675 321 0400 www.adb.org Australian Trade Commission (Austrade) +675 325 9150 www.austrade.gov.au Australia–Papua New Guinea Business Council www.apngbc.org.au Business Council of PNG +675 320 0700 www.bcpng.org.pg Business & Professional Women’s Club of Port Moresby www.bpwpng.org Enterprise Centre +675 320 0445 www.ibbm.com.pg Independent Public Business Corporation (IPBC) www.ipbc.com.pg Institute of National Affairs (INA) Industry-funded think-tank. +675 321 1045 www.inapng.com International Finance Corporation (IFC) +675 321 7111 www.ifc.org Investment Promotion Authority (IPA) +675 308 4444 www.ipa.gov.pg Lae Chamber of Commerce & Industry +675 472 2340 www.lcci.org.pg Manufacturers Council of PNG +675 321 7143 Ministry of Commerce & Industry +675 327 7350

New Zealand Pacific Business Council +64 9 270 3746 www.nzpbc.co.nz Pacific Islands Trade & Invest www.pacifictradeinvest.com Port Moresby Chamber of Commerce & Industry (POMCCI) +675 321 3077 www.pomcci.com

BUSINESS SERVICES Air Energi Pacifica +675 320 3095 www.airenergi.com BSP Capital +675 321 4333 www.bspcapital.com.pg Datec +675 303 1222 www.datec.com.pg Deloitte PNG +675 308 7000 www.deloitte.com/pg DHL Express (PNG) +675 325 9866 www.dhl.com Ela Motors +675 322 9500 www.elamotors.com.pg Gadens Lawyers T +675 321 1033 www.gadens.com.pg Guard Dog Security Services +675 325 9653 (POM)/475 1069 (Lae) www.GuardDogSecurityPNG.com KPMG +675 321 2022 www.kpmg.com Lynden Air Cargo www.lyndenpng.com Maersk Line www.maerskline.com Peddle Thorp Architects +675 321 4688 www.peddlethorp.com.au PVM Advertising +675 325 7419 www.pvm.com.pg

CONSTRUCTION & ENGINEERING Avenell Engineering Services (AES) +675 320 3288 www.aespng.com Cardno (PNG) +675 325 4606 www.cardno.com/emergingmarkets Hebou Constructions (PNG) +675 325 3077 www.hebou.com.pg Hornibrook NGI +675 472 3599 www.hornibrook.com.pg Kramer Ausenco (PNG) +675 321 7333 www.KramerAusenco.com Lamana Development +675 323 4791 www.lamdev.com.pg Monier (PNG) +675 325 3344

FISHERIES RD Tuna Canners Limited www.rdtunacanners.rdgroup.com.ph

FORESTRY PNG Forest Authority +675 327 7919 www.forestry.gov.pg Cloudy Bay Sustainable Forestry +675 328 1189 www.cloudybay.com.pg PNG Forest Products www.pngfp.com

MINING & PETROLEUM Barrick Gold +675 322 4800 www.barrick.com Exxon Mobil PNG Ltd (PNG LNG Project) www.pnglng.com InterOil +675 309 9100 www.interoil.com Marengo Mining Ltd +61 8 9429 0000 www.marengomining.com 55

Directory: Who’s who in PNG

Online business register will improve ease of doing business Small business operators will be the main beneficiaries of a new online registration process, which they can use to register new businesses, update information and conduct company searches. The Investment Promotion Authority of PNG has developed the tool, with support from the International Finance Corporation and the New Zealand Aid Programme.

Mineral Resources Authority (MRA) +675 321 3511 www.mra.gov.pg Nautilus Minerals +675 321 1284 www.nautilusminerals.com Newcrest Mining +675 321 7711 www.newcrest.com.au Oil Search Limited www.oilsearch.com Ok Tedi Mining Ltd www.oktedi.com PNG Chamber of Mines and Petroleum +675 321 2988 www.pngchamberminpet.com.pg Talisman Energy www.talisman-energy.com Total www.total.com Xstrata Copper +617 3295 7500 www.xstrata.com

TOURISM/TRANSPORT Airlines PNG +675 325 2011 www.apng.com

‘We are using it to drastically improve our current low World Bank ranking for ease of doing business in Papua New Guinea,’ says Clarence Hoot, Head of Business and Investment Promotion at the IPA. The tool, available on the IPA website, was launched at the end of 2013. Further information: www.ipa.gov.pg

Air Niugini +675 327 3444 www.airniugini.com.pg Tourist Promotion Authority +675 320 0211 www.pngtourism.org.pg

UTILITIES/TELECOMMUNICATIONS Bemobile www.bemobile.com.pg Digicel www.digicelpng.com PNG Ports Ltd +675 308 4200 www.pngports.com.pg PNG Power +675 324 3200 www.pngpower.com.pg PNG Waterboard +675 323 5700 www.waterpng.com.pg National Information and Communications Technology Authority (NICTA) +675 303 3202 www.nicta.gov.pg

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

LANDOWNER COMPANIES/FUNDS Hides Gas Development Company (HGDC) +675 321 4360 www.hgdcpng.com LABA Holdings +675 710 01810 www.laba.com.pg Ok Tedi Development Foundation +675 649 5550 www.otdfpng.org Trans Wonderland Limited (TWL) +675 321 8077 www.transwonderland.com

DIVERSIFIED INDUSTRIAL GROUPS Rimbunan Hijau (R H) Group +675 325 7677 www.rhpng.com.pg Steamships Trading Company Limited +675 322 0400 www.steamships.com.pg

Business Travel Guide to Papua New Guinea Port Moresby’s Jacksons International Airport, viewed from Airways Hotel

Practical tips and advice for the business traveller. CLIMATE With the exception of the Highlands, PNG has a warm tropical climate. The wet season in Port Moresby is from December to April.

COMMUNICATIONS Internet: Web access in Port Moresby has improved immensely in recent years. Although it remains costly, all the Port Moresby hotels listed on page 58 now provide a fast-speed internet service. In other urban centres, you may still be relying on dial-up. For those staying longer, wireless internet, via a USB modem, is now available although download speeds can vary considerably depending on your location. Phone: International mobile phone roaming is possible in PNG but it is costly. A cheaper option is to buy a local SIM card and pre-paid credit (including data packs for smartphones). It is much cheaper to make international calls from PNG than vice versa.

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

GETTING TO PNG National airline Air Niugini has direct flights between Port Moresby and Australia (Brisbane, Cairns, Sydney), the Solomon Islands, Fiji and an increasing number of Asian destinations (current schedule available from www.airniugini.com.pg). Virgin Australia (www.virginaustralia.com) also operates on the Brisbane route (www.virginaustralia.com) while Qantaslink provides its own flights from Cairns and codeshares with Air Niugini on other Australian routes (www.qantas.com).

GETTING AROUND As a general rule in PNG, you need to plan your travel carefully. Taxis: Recommended firms in Port Moresby are Ark (323 0998/7122 5522), Red Dot (+675 311 3257) and Scarlet Taxis (+675 323 4266), although availability can vary and they do not operate late at night. Ark also operates in Lae. Car hire: Deal with one of the international names and ask them to provide a driver (around K400 per day). With the poor state of roads, especially in Lae, 4WDs/SUVs are recommended. Airport transfers: For arrival/departure in Port Moresby, any of the hotels listed on page 58 will provide a complimentary transfer.

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

HEALTH Serious medical conditions typically require treatment outside the country. Travellers should ensure they have adequate health cover (the cost of medical evacuation alone can reach US$30,000), while foreign companies operating in PNG should have a comprehensive health plan in place. Visitors should also note that malaria is prevalent in PNG.

MONEY PNG’s currency is the Kina. ANZ and Bank of South Pacific (BSP) have branches at Port Moresby’s international airport. ATMs are located around Port Moresby, Lae and other urban centres.

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

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

VISAS Business travellers require a business visa to enter PNG. There are two types of business visa: single entry (for one visit of up to 30 days) or multiple entry (visits totalling up to 60 days over a 12-month period). Single-entry business visas can be obtained on arrival and cost K250*. However, a multiple entry business visa must be applied for from a PNG diplomatic mission before you travel, at a cost of K500. In both cases, a letter from a ‘business associate in PNG’ outlining the purpose, duration, location and frequency of your visit(s) is required, as is a return ticket. * In March 2014, the PNG government instituted a ban on issuing nontourist Australian visitors with visas on arrival. For more information, and to locate your nearest PNG diplomatic mission, visit www.immigration.gov.pg.

Business Travel Guide to Papua New Guinea

EATING, DRINKING, SOCIALISING IN PORT MORESBY (see also hotels below) Town: The coffee shop at the Crowne Plaza Hotel remains a convenient daytime option, as are the two cafés on the ground floor of Deloitte Tower. Duffy Café, Gabaka St: this newcomer has rapidly become very popular among the expat community, with excellent coffee and homemade café-style food. Royal Papua Yacht Club: relaxed, spacious and open to non-members. Comfort food, draught beer and an open-plan bar area showing sport on large screens. If it’s too busy, try the Aviat Club in nearby Konedobu. Vision City: PNG’s first major shopping mall houses an increasing array of eateries. The cavernous Dynasty (Chinese) and the Ten (Japanese) are stand-outs.

HOTELS Airways Hotel PNG’s only top-tier hotel, Airways, is located within a large, secure compound next to Jacksons International Airport. An inspiring setting, luxurious rooms and amenities and excellent service make for a memorable stay. Among an attractive selection of bars and restaurants, the deli/pizzeria is always popular. Tel +675 324 5200. www.airways. com.pg Grand Papua Port Moresby’s newest large hotel opened in late 2011. The hotel features 156 suite rooms (short and long stay), an executive floor, gym and conference facilities. The separate restaurant and bar areas are popular venues for business meetings in town. www.grandpapuahotel.com.pg Crowne Plaza Upmarket rooms and suites in the heart of the CBD. Decent gym, business centre, undercover parking, thriving café and Mediterranean restaurant. Tel +675 309 3329.

Holiday Inn Located in the government district of Waigani. Large grounds with walking track, in a tropical garden setting. Outdoor restaurant dining and bar area, business centre and gym. Two adjacent sister properties are close to completion. Tel +675 303 2000. Lamana Hotel Also in Waigani, this modern hotel’s facilities include the popular Palazzo restaurant (steaks, pizzas and Indian cuisine), business centre, conference facilities and fashionable nightspot, the Gold Club. Tel +675 323 2333. Ela Beach Hotel and Apartments On the fringe of the CDB, this constantly-expanding hotel/apartment complex is part of the Coral Sea Hotels group. Its main eatery is popular at lunchtime. www.coralseahotels.com.pg Gateway Hotel Another member of Coral Sea Hotels, located next to the airport. A range of amenities include Port Moresby’s largest dedicated meeting space. Lae In PNG’s industrial hub, the Lae International Hotel has a secure, central location, pleasant grounds, cable TV and several dining options. Tel +675 472 2000, www.laeinterhotel.com.pg . The smaller Lae City Hotel has quickly established a good name since opening in 2013, but be sure to make a reservation well in advance. (www.laecityhotel.com). The Melanesian Hotel, part of the Coral Sea Hotels group that also provides business-standard hotels in several other urban centres.