Business Advantage Papua New Guinea 2013 by Business Advantage International

BUSINESS AND INVESTMENT GUIDE

Business Advantage

PAPUA NEW GUINEA 2013

• 2013 PNG 100 CEO Survey results • Special mining and petroleum supplement • Papua New Guinea’s fisheries boom • Economic update

businessadvantagepng.com/annual 1

CONTENTS

FEATURES

13 Papua New Guinea’s investment advantage

We report on PNG’s first ever international investment summit.

ECONOMIC UPDATE Papua New Guinea enters 2013 with a new government, a major gas project nearing completion and some ambitious development goals, reports Andrew Wilkins.

17 Papua New Guinea’s fisheries boom

The northern coast of PNG is experiencing a boom in international investment. We examine why.

OPINION & ANALYSIS

The PNG 100

CEO survey

THE PNG 100 CEO SURVEY At a time when some are wondering if PNG’s boom is coming to an end, its largest companies still have an appetite for investment, according to our exclusive annual survey.

Mining and Petroleum in PNG: a special supplement

20 Business leaders’ perspectives on PNG 21 PNG’s services sector: the next wave of opportunities 23 Commercial disputes in PNG 24 Doing business in PNG

INDUSTRY SECTORS 37 Financial services 41 Infrastructure & transport 47 Manufacturing 48 Agribusiness & trade 50 Forestry 52 Tourism

DIRECTORY 54 Who’s who in PNG 57 Business travel guide to PNG

With the ExxonMobil-led PNG LNG gas project close to completion, we look ahead at what’s next for hydrocarbons in PNG. Meanwhile, the mining sector has some major projects of its own.

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

RD TUNA CANNERS LIMITED

Credit: PNG TPA

Welcome

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

esigned to provide a snapshot of the country’s economy and the business opportunities it offers, this publication spreads the good news about what is now being described as the Pacific’s tiger economy, while at the same time providing a realistic assessment of business conditions on the ground. Papua New Guinea has achieved levels of economic growth over the past decade unparalleled in its brief history as an independent nation. The best way of understanding what it’s like to do business in a country is to hear from people who are already doing business there. In the course of our research, we interview dozens of PNG-focused business leaders each year, giving you access to their insights, wisdom and experience. This is the main reason why Business Advantage Papua New Guinea has become the most respected resource for PNG-focused business people wherever in the world they are. With this edition, we are embarking on the most significant expansion in our coverage of PNG business since our launch in 2006.

In addition to this annual publication and its sister publication Made in PNG, we are launching an entirely new type of business media for PNG—a free online business review service at www.businessadvantagepng.com. This online service follows the country’s economy all year round, providing analysis, commentary, expert opinion, context and a wide range of tools and resources for business people. The site will be updated daily, with weekly email bulletins delivering insight and understanding to your inbox. Together with our highly successfully 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 2013, www.businessadvantagepng.com will make it even easier for you to keep abreast of the business and investment opportunities in one of the world’s fastest-growing economies.

Business Advantage Papua New Guinea 2013 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, Samantha Magick, Rod Myer, Tim Coronel, Jacqueline Bennett, Helen Clark Design: Alicia Freile

www.businessadvantageinternational.com

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

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.

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.

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.

ECONOMIC UPDATE Port Moresby Harbour, viewed from ‘Town’. Steamships’ multi-storey office and marina development—which will open up the waterfront to the CBD for the first time—is under construction in the foreground.

Papua New Guinea’s year of implementation Papua New Guinea enters 2013 with a new government in place, a major gas project nearing completion and some ambitious development goals, reports Andrew Wilkins.

he Independent State of Papua New Guinea, the Pacific’s largest and most populous economy, has now completed a decade of positive economic growth, peaking in the last two years at around 10% GDP growth per annum. Having successfully navigated its way through national elections in mid-2012, it now looks set for a period of consolidation. Economic growth is expected to slow (to 4.5% in 2013), and political attention is shifting to the bottlenecks and impediments that are holding the country back.

Political stability restored A new government led by Prime Minister Peter O’Neill was elected in August 2012, providing a welcome return to political stability after a period of constitutional uncertainty. The stability has been consolidated by a new law extending the period before a new government can be challenged by a vote of no confidence to 30 months. The O’Neill Government, seen as broadly pro-business, has since made a series of strong commitments: to the reform of state-owned enterprises, to increased support for indigenous business and, crucially, increased expenditure on education, health and much-needed infrastructure. Indeed, its National Budget for 2013—at 13.03 billion kina (US$6.22 billion), the largest in PNG’s history—will go into deficit by 2.55 billion kina (US$1.28 billion) in order to fund additional expenditure in these crucial areas. It is expected that the nation’s future earnings from resources projects will cover any shortfalls over the next few years. In addition, the O’Neill Government has negotiated a six billion kina (US$2.86 billion) loan with the Export-Import Bank of China to help fund its investments in roads and ports. 6

‘I’ve an open mind on the deficit,’ says Garth McIlwain, a former banker who is Chairman both of national airline Air Niugini and finance company Credit Corporation. ‘PNG’s fiscal position is not onerous, although you wouldn’t want the deficit to go on continuously.’

The year of implementation Prime Minister O’Neill has been keen to emphasise the ‘can do’ approach of his government, suspending overseas travel for ministers and bureaucrats while declaring 2013 ‘the year of implementation’. An increased amount of government expenditure will be disbursed not at a national level or through PNG’s 20 provinces but at the lower district level of government—a response to concerns that the benefits of PNG’s resources boom have yet to reach many ordinary Papua New Guineans.

How far can PNG go? Construction of the US$19 billion ExxonMobil-led PNG LNG gas project will be completed in 2014 and, anecdotally, there is already evidence of a slowdown, as construction tasks are completed. Indeed, Peter Graham, Managing Director of ExxonMobil subsidiary Esso Highlands, has flagged demobilisation of the PNG LNG project workforce as a major challenge for his organisation over the coming year (see our interview with Graham on page 29). This slowdown is reflected in recent Bank of Papua New Guinea figures, which reported a slowing of employment growth in the September 2012 quarter, although employment growth of 7% in the previous 12 months was encouraging. (Only about 15% of Papua New Guineans work in the formal sector.)

Economic update

ADM

IRALIT Y ISLAN DS

BISM

ARCK

NEW

SEA

IRE

LIHIR GROUP LAN

RABAUL

MADANG

KIM

BA BE

KIMBE GAIN BOU

MT HAGEN

PAPUA NEW GUINEA

EI VILL

NEW B RITAIN

N SLA

LAE

TOR

RES STRAIT

D’ENTR ECAS TEAU

TR OB RIA ND

X IS LA

ISLA

ON SEA

NDS

ND S

PORT MORESBY ALOTAU

CAPE YORK

SOLOM

KEREMA

HUON GULF BALIMO

L S EA

AUSTRALIA

Other sectors compete for resources

PAPUA NEW GUINEA IN BRIEF Population Capital Surface area People Time zone Business language Political status GDP GDP growth Inflation Currency Major industrial sectors Exports Major export markets Imports Major import markets World Bank Ease of Doing Business Ranking 2013

‘There is a mild stabilisation in the market currently, nothing more,’ notes David Purcell, Chief Executive Officer of local Toyota subsidiary Ela Motors. ‘There will be a decline but when and by how much remains to be seen.’ Any decline is certainly not deterring Ela Motors’—and many other larger companies’—investment plans. The company is building a new service centre in Lae, and new training and pre-delivery centres in Port Moresby, with demand so high that most vehicles are sold before they are taken into inventory. Eugene David, who heads Pacific operations for global food manufacturer Nestlé, explains the thinking of many of PNG’s larger companies: ‘It’s slowing down a bit but you don’t want to be too cautious. If anything, I think the view is it’s the time to invest ahead of the curve.’

7.01 million (2011, source: World Bank) Port Moresby 463,000 sq km Melanesian, Papuan, Negrito, Micronesian, Polynesian GMT +10 hrs English parliamentary democracy US$12.94 billion (2011) 4.5% (2013 projected, source: Asian Development Bank) 8% (2013 projected, source: National Budget) PNG kina mining, crude oil petroleum refining, copra crushing, palm oil, plywood and wood chip production, construction, fisheries, tourism, manufacturing oil, gold, copper ore, logs, palm oil, coffee, cocoa, seafood Australia, Japan, Philippines, China machinery and transport equipment, manufactured goods, food, fuels, chemicals Australia, Singapore, China 104 out of 185 countries

Another reason for slower economic activity was the considerable drop in the prices of commodities such as coffee and palm oil in 2012, combined with sluggish demand from Europe and North America, which affected export revenues for PNG’s agricultural and forestry sectors in 2012. While the Coffee Industry Corporation expects 2013 to be a better year, there is concern among many business leaders we talked to for this publication that PNG’s success in minerals is overshadowing the need to develop other sectors of its economy. Manufacturers and agribusinesses, for example, have struggled to compete for skilled workers and other resources in a business environment in which the costs of doing business are already high.

Economic update

‘Markedly greater attention is needed than over recent years to safeguard and improve the prospects of domestic agriculture,’ observes Paul Barker, Director of industry think-tank, the Institute of National Affairs. (For more on agribusiness, see page 48.) One non-mineral industry sector that is moving ahead in spite of the many challenges is onshore fish processing, with thousands of jobs being created along PNG’s northern coastline (turn to page 17 for our in-depth article).

Pizza to go In addition to cranes on Port Moresby’s skyline and previously unheard-of traffic jams, another feature of PNG’s recent economic boom has been the emergence of a monied and aspirational middle class. ‘The market is definitely changing,’ confirms Mahesh Patel, Chairman of CPL Group, which experienced a ‘healthy increase’ in its bottom line performance in 2012. Having introduced PNG’s consumers to Port Moresby’s first multiplex cinema and the Boncafé chain of coffee shops, Patel has plans to launch PNG’s first pizza chain, and to open both a second cinema and a showcase supermarket in Port Moresby’s Waigani suburb. CPL is one of a number of retailers expanding and upgrading their operations, with PNG’s only shopping mall, Vision City in Waigani, significantly expanding its list of tenants since opening in 2010. Where once service was ‘one size fits all’, PNG’s banks too have developed premium services to cater for a more prosperous customer base. Another indicator of an expanding consumer market is the rapid growth of PNG’s first and only credit bureau (see box on page 9).

Challenges facing business As our annual PNG 100 CEO Survey reveals (see page 10), operating in PNG is not without its challenges. Security and law and order are ongoing problems. According to Chris De Silva, Chief Operating Officer at G4S Secure Solutions (PNG), crime in PNG is typically opportunistic rather than organised and the security situation has neither deteriorated or improved in the past year. It is hoped that initiatives like Port Moresby’s Safe City project, which will see cameras installed in key parts of the capital over the next three years, may improve the situation. The PNG Government itself has announced a major new initiative to deal with another issue affecting businesses in PNG—corruption. An anti-corruption task force has been in operation for the past year while the Government has announced plans to establish a ‘well-resourced’ Independent Commission Against Corruption in 2013.

Well-placed for the Asian century Even if growth slows somewhat, PNG is still looking a good bet. ‘I’m optimistic,’ said Mike Smith, Chief Executive Officer of ANZ during a February 2013 address to the Port Moresby Chamber of Commerce and Industry. ‘Not only because of the size of the opportunity in resources and agriculture and the opportunity this presents for sustained economic growth and improved living standards, but also because I sense there is also an increasing focus on the major issues PNG needs to overcome to ensure it takes advantage of the Asian century.’ Andrew Wilkins is Publishing Director of Business Advantage International.

Economic update

Credit bureau a sign of PNG’s growing consumer market One indication of Papua New Guinea’s expanding consumer base is the growth of the country’s first and only credit bureau, Credit & Data Bureau (CDB). CDB provides credit histories on almost 150,000 Papua New Guineans and more than 16,000 local businesses to a membership that includes the country’s major financial institutions.

While the majority of Papua New Guineans still operate outside the formal economy, Mackinlay feels that, with microfinance and mobile phone banking expanding, the need for reliable information on consumer credit can only increase in the future. ‘The sky’s the limit here,’ he says.

‘The number of individual credit histories on our database is increasing on a daily basis, and now covers around 150 million kina (US$71 million) in listed debt,’ says Bruce Mackinlay, CDB’s Managing Director.

‘Consumers now have an incentive to have a clean credit record. It’s put a stop to a lot of scams. Also important, although harder to measure, are the savings our members make when they turn away someone with a bad credit history,’ says Mackinlay.

Credit: CDB

The Bureau has been in operation since 2008 and already has helped members recover more than 35 million kina (US$16.7 million), much of it from consumers who have found it hard to get further credit until existing debts are settled.

CDB’s Bruce Mackinlay (left) with Michael Koisen of founding member, Teachers Savings & Loan Society.

Survey

The PNG 100 CEO Survey 2013

The PNG 100

CEO survey

At a time when some are wondering if PNG’s boom is coming to an end, its largest companies still have an appetite for investment, according our exclusive annual survey.

n last year’s edition of Business Advantage Papua New Guinea, we launched a unique survey for PNG: the PNG 100 CEO Survey. Designed to gauge business confidence among PNG’s largest companies, the survey seeks to uncover their profit, investment and recruitment expectations. It also encourages the nation’s leading executives to identify the key issues facing their businesses. One year on, we’ve repeated the exercise, allowing us to compare the results year-on-year and identify trends where they emerge. Looking back on your business’s performance in 2012, did your profits

So, do they feel 2013 will be a more profitable year than 2012? In 68% of cases they do—a remarkable vote of confidence in Papua New Guinea’s economy, even though this year we had 12% of companies predicting lower profits for 2013. Last year, there were no companies predicting this. How much investment (e.g. in plant, equipment, land or other assets) are you planning in 2013?

25.7%

A substantial increase on 2012

17.1% 5.7%

24.2%

8.6%

Greatly exceed expectations?

15.2%

About the same as 2012 Slightly less than 2012

Slightly exceed expectations?

30.3%

A slight increase on 2012

Substantially less than 2012

42.9%

Meet expectations? Fall slightly short of expectations? Substantially fall short of expectations?

30.3%

Profits exceeded expectations in 2012 Overall, 2012 was a good year for PNG’s largest companies. An impressive 60% of those surveyed reported their 2012 profits had exceeded their expectations. In 30% of cases, profits had ‘substantially’ exceeded expectations. By contrast, only 15% reported that profits had fallen short of expectations, and then only ‘slightly’ short. Significantly, no company we surveyed said its profits had missed the mark by a ‘substantial’ margin. In our previous survey, conducted one year ago, there was a more polarised result: while more businesses reported doing better than they had expected (67%), more also reported that profits had fallen short of target (22%).

Investment set to grow even further It seems as though increased profits are encouraging PNG’s major businesses to invest further in Papua New Guinea. Almost 70% (compared to 57% in our last survey) told us they were planning to spend more on plant, equipment and other assets in 2013 than they did in the previous year, with a further 17% saying they would match last year’s investment. Only 14% said they were planning to reduce their investment during 2013, a similar number to last year. What level of recruitment are you planning in 2013?

45.7%

A slight increase in staff Enough to maintain 2012 staffing levels

In 2013, do you anticipate that your profits will 37.1% 11.4%

20.6%

11.8%

Be about the same as 2012? Be slightly less than 2012?

26.5%

2.9% 2.9%

A slight reduction in staff A substantial reduction in staff

Substantially exceed 2012? Somewhat exceed 2012?

41.2%

A substantial increase in staff

Be substantially less than 2012?

What will 2013 bring? In our last survey, PNG’s business leaders were extremely bullish about their profit expectations for 2012, with a massive 89% anticipating they would surpass the profits they made in 2011. 10

Jobs growth, but maybe slower Last year, 52% of PNG’s major companies said they intended to take on more staff in 2012. This evidently proved to be the case: the Bank of Papua New Guinea’s September 2012 Quarterly Economic Bulletin reported employment growth of 7% over the 12 months preceding. This year, we have more good news for new graduates and those hoping for a new job once the PNG LNG project construction phase comes to an end. Just under half of employers we surveyed said they were again expecting to increase their headcount this year.

Survey

Existing jobs seem safe, too: only 6% of companies surveyed were expecting to lay off staff. Significantly, though, only 11% of employers surveyed said they were planning a ‘significant’ increase in staff in 2013—much less than last year. If these expectations tally with national statistics, we might anticipate a slight slowing of employment growth in 2013. What are the critical issues facing your business in 2013? 4.37

Security/law and order

4.11

Unreliable utilities

4.09

Shortage of expertise/skills

3.89

Logistics High employment costs

3.86

Lack of Government capacity

3.83 3.63

High real estate rental costs

3.49

Inflation Competition

3.34

Government red tape

3.29 2.67

All Other Responses 0

Issues affecting business Which issues are affecting PNG’s largest companies the most? There are certainly plenty of them, according to our CEOs, and they affect almost all companies to a greater or lesser extent. Top of the list were security and law and order concerns, with every company we surveyed ranking them as either ‘very important’ or ‘mission critical’ to their business. This is a similar result to last year’s survey, suggesting the situation is not improving.

Is PNG’s widespread skills shortage getting slightly less chronic? Last year’s top issue was rated marginally lower by companies in this year’s survey: it is now in third place behind the unreliability of PNG’s state-owned utilities, which received a similar rating from CEOs as it did last year. Corruption received a marginally lower rating this year for its impact on business, as did access to overseas markets, government red tape, high real estate rental costs, lack of available office and warehouse space, and lack of market research/intelligence. Meanwhile, competition, access to capital, lack of available land, lack of government capacity and high employment costs received a slightly higher rating in this year’s survey. Another issue canvassed by some respondents, particularly those involved in manufacturing, was the impact of lowering tariffs. Finally, last year we asked CEOs about their concerns surrounding PNG’s 2012 national elections. Most were not that worried about the possible disruption to their businesses, despite some sensationalist headlines in the international media, and their confidence appears to have been well-founded.

Positive year ahead With strong profits recorded, and expectations for further profit, investment and employment growth in the year ahead, PNG’s largest companies seem set for another good year in 2013. At a time when some are wondering if PNG’s boom is coming to an end, it’s a positive sign for the country and for those planning to do business and invest there. The PNG 100 CEO Survey 2013 was conducted by Business Advantage International between late November 2012 and January 2013. The survey included senior executives from a representative sample of Papua New Guinea's largest companies from across all sectors of the economy.

Feature

How will the Pacific’s economy fare in 2013? Business Advantage PNG spoke with the region’s three most senior bankers to get their thoughts on the year ahead.

‘T

here will be some slowness in the year ahead based on global economic factors, but on the whole I’m reasonably positive,’ says ANZ’s CEO Pacific, Vishnu Mohan. ‘I think the good news for the Pacific is that our trade is mainly within the [Asia-Pacific] region.’ While Australia and New Zealand will remain the Pacific’s dominant trading partners, Mohan notes that China’s influence will inevitably increase, with regional investment by the Asian giant growing at 25% per annum over the past five years. Indeed, as ANZ’s Chief Economist for Asia-Pacific Paul Gruenwald has previously observed, the Pacific is now a net exporter to China thanks to its resources sector, having exported US$1.2 billion in 2011, which is up 10% from 2010. ‘The Pacific as a whole is already being affected by the global economy but PNG continues to defy trends and is performing strongly,’ says Westpac’s Pacific General Manager, Greg Pawson. Although he expects the Pacific’s largest economy will slow somewhat over the next two or three years, he remains optimistic: ‘A lot of people think PNG will slow down a lot as the PNG LNG project construction phase comes to end, but I think there are sufficient other major resources projects in the pipeline for us to remain confident.’ Also helping to sustain high growth is the remarkable expansion of the banking system itself. At the end of 2012, PNG’s largest bank, BSP, passed one million active bank accounts for the first time, part of the banking industry’s push towards greater financial inclusion across the region. ‘Four years ago, when I came here, we had about 550,000 accounts, of which 100,000 were inactive,’ Ian Clyne, BSP’s Chief Executive Officer, tells Business Advantage PNG (for our interview with Clyne, turn to page 40).

‘I think the good news for the Pacific is that our trade is mainly within the [Asia-Pacific] region.’ BSP is using tablet technology to deliver banking services to some of the most remote regions in the country. ‘This technology enables us to open new accounts within five minutes wherever there is mobile phone coverage,’ says Clyne. The solution was recognised as the best bank-led mobile money program in the 2012 Connected World Mobile Money Awards.

Fiji All three banks are also increasing their activities in Fiji, which is projecting growth of between two and three per cent in 2013. BSP has continued to invest since its 2009 acquisition of the National Bank of Fiji and Colonial Fiji Life Insurance Limited, introducing new core systems for its bank and life insurance businesses, opening premium banking facilities and expanding both its ATM and EFTPOS network. (Over 1000 merchants in Fiji now carry BSP’s EFTPOS facilities.) 12

Credit: Swire Shipping

Papua New Guinea

‘Fiji’s an exceptionally competitive market from a lending perspective,’ says BSP’s Clyne, who suggests it may be overserviced (France’s Bred Bank entered the Fiji market in 2012). Fiji has been a regional services hub for ANZ for some years but at the end of 2012 the bank decided officially to base its Pacific regional head office there, with Mohan at the helm. ‘We wanted to bring our Pacific regional headquarters and therefore decision making closer to our customers in the region. Fiji was considered the most logical location for the position largely because of the skill sets we have here,’ says Mohan. While he observes that there had not been lot of new investment in Fiji recently, Westpac’s Greg Pawson considers Fiji has a big opportunity to become the advanced regional hub for business.

Solomon Islands Meanwhile, the region’s true ‘shining star’, according to Greg Pawson, is the Solomon Islands, PNG’s Melanesian neighbour: ‘There’s a significant opportunity to really capitalise on their mining and resources prospects. They had a good year last year.’ ‘Gold production in the Solomons is clearly helping the country,’ observes ANZ’s Mohan. ‘The Solomon Islands has proved an excellent investment for BSP since our 2007 acquisition of the National Bank of the Solomon Islands,’ concurs BSP's Ian Clyne.

Tourism-dependent economies With mineral production in countries such as PNG and the Solomons driving the bulk of the region’s 4.2% projected growth for 2013, those countries without mineral wealth to exploit will again be looking to tourism. ‘We are seeing some upturn in tourism activities in Vanuatu and Fiji and to a lesser extent the Cook Islands and Tonga,’ observes Vishnu Mohan. ‘Vanuatu is expecting 130 or 140 cruise ships in 2013, which is lucrative.’

Feature

Papua New Guinea’s investment advantage The first international summit dedicated entirely to investment in Papua New Guinea showed the way for investors in 2012.

hile Papua New Guinea regularly hosts industryspecific conferences and bilateral events with neighbouring Australia, it had not hosted its own international investment summit before September 2012, when more than 300 local and international delegates assembled at Port Moresby’s Gateway Hotel for the inaugural Papua New Guinea Advantage Conference. The two-day summit, designed to encourage business and investment in the Pacific’s ‘tiger’ economy, was the brainchild of the Port Moresby Chamber of Commerce and Industry and Business Advantage International (publisher of this publication).

A bullish view Day One provided delegates, officially welcomed by National Capital District Governor Powes Parkop, with briefings on PNG and its place in the wider Asia-Pacific economy. High-profile Australian business journalist Michael Pascoe presented a bullish view of the region’s economic future,

PNG’s Public Enterprises Minister Ben Micah samples some Boncafé coffee with (from left) Warren Dutton (North Fly Rubber), Mahesh Patel (CPL Group) and Ian Clyne (BSP).

Over 300 delegates attended the two-day Papua New Guinea Advantage investment summit 2012.

suggesting that China’s continued growth would only be to PNG’s advantage, while ANZ’s Chief Economist for the Asia-Pacific region, Paul Gruenwald, backed up that assertion with a range of encouraging statistics. PNG’s strong position as a commodity exporter (accounting for almost 80% of Pacific exports by volume) was a positive, he said, as was its low correlation with volatile global markets.

All about opportunities A range of local business leaders, including Esso Highlands Managing Director Peter Graham, City Pharmacy Limited’s Mahesh Patel, Deloitte PNG’s Lutz Heim and the Office of Higher Education’s David Kavanamur, then outlined the opportunities for business and investment across sectors as diverse as mining and petroleum, retail, business services, agribusiness, forestry, education and training. The IFC, the World Bank’s private sector arm, is already actively investing in some of these sectors, and IFC’s Resident Representative for PNG, Carolyn Blacklock, spoke about its private equity investment experiences, offering advice to investors looking to invest in an emerging market. There was an increasing demand for equity and venture capital in PNG, she noted, with ‘well-governed companies producing a great internal rate of return’. However, she cautioned that firms capable of taking on such investments typically required a high level of support. The conference organisers were keen to emphasise that there is more to PNG than its capital city Port Moresby, and Day One ended with a panel of speakers outlining business opportunities in PNG’s Gulf, Morobe and Western provinces.

Private sector gets into infrastructure

Business journalist Michael Pascoe

Day Two was all about infrastructure, and followed on aptly from one of the highlights of Day One: the announcement by Ben Micah, the Minister for Public Enterprises and State Investment, of wide-ranging reforms to PNG’s stateowned enterprises. ‘The Government alone is incapable of meeting legitimate development expectations,’ he told delegates. ‘Therefore, 13

Feature

the private sector will be a partner with us—in infrastructure projects as well as in service delivery.’ Thomas Abe, then-Managing Director of the Independent Public Business Corporation, went into more detail about what this might mean in practice. He indicated the planned K2 billion (US$960,000) Ramu 2 power plant and the upgrade of Port Moresby’s power generation, for instance, would be covered by public–private partnerships. Day Two also saw presentations by the Asian Development Bank’s Country Director for PNG Marcelo Minc on the bank’s US$1.145 billion investment in PNG’s infrastructure, mostly in transport, and the World Bank’s Robert Aiello, who outlined the massive potential of hydropower in PNG. He told delegates that hydro could produce over eight times the nation’s current total installed capacity. (For more on infrastructure, see page 41.)

Animated discussion Break-out sessions on ports and shipping; roads and aviation; information and communications technology; and energy allowed delegates to discuss these areas of infrastructure in detail. A highlight was Australia’s Dr John Hewson talking up the potential of private sector involvement in power generation in an animated panel discussion. Hewson told organisers he thought the summit had ‘an excellent agenda, as well as providing a unique opportunity to do business.’

An annual summit ‘We set out to create an investment summit of genuinely international standards for PNG,’ said David Conn, Chief Executive Officer of co-host the Port Moresby Chamber

Newcrest Mining’s Greg Robinson and Esso Highlands' Peter Graham

of Commerce and Industry. ‘The enthusiastic feedback we received from delegates confirmed we achieved that.’ Preparations are now well under way for a ‘bigger and better’ second PNG Advantage investment summit, to take place on 9 and 10 September 2013, again at the Gateway Hotel in Port Moresby.

Link: www.pngadvantageconference.com

Feature

A tough year for stocks but positive signs ahead The Port Moresby Stock Exchange (POMSoX) had another challenging year, with the overall value of stocks dropping markedly over the course of 2012, although local stocks provided some resilience. The Kina Securities Index (KSi), which measures the overall health of listed stocks, reported a 20.7% fall in 2012 (following a 22.2% fall in 2011)—a sign perhaps of its heavy weighting towards overseas-listed resources stocks. The Kina Securities Home Index, which excludes overseas stocks, proved more resilient however, falling by 9.5%. Indeed, local stocks on POMSoX have outperformed international stocks in recent times, suggesting that Papua New Guinea’s domestic economy has developed its own momentum. Notably, while stock exchange indices were down, Kina Asset Management Limited (KAML), PNG’s only listed investment company, reported an 11% gain for its investors in its three-quarter-year results to September 2012. ‘Unfortunately, the global financial scene continues to have an adverse overarching impact on the regional markets, but despite the continuing dismal global economic instability and caution, local equities continue to provide sound investment opportunities,’ said KAML Chairman Sir Rabbie Namaliu of the results. There are currently 18 active stocks listed on POMSoX. Mining and petroleum companies dominate its listings, with financial services, agribusiness, retail and aviation also represented.

A surplus of cash in PNG’s economy has meant there has been little incentive for local companies to list in recent times, although General Manager of POMSoX, Geoff Mason, expects that to change as the boom times associated with the construction phase of the ExxonMobil-led PNG LNG gas project comes to an end in 2014. Anecdotally, several notable local companies are preparing for initial public offerings over the next two or three years. The new O’Neill Government has also signalled its interest in encouraging more local companies to list on the exchange. In the meantime, POMSoX is continuing a process of modernisation, with an electronic trading platform coming in 2013. Billion Kina

Kina Securities Index

120

8000

100

7000

80 6000 60 5000

40 20

2006

2007

2008

2009

2010

2011

2012

4000

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

Dr John Hewson (far left) discusses PNG's energy needs at the 2012 Papua New Guinea Advantage investment summit with Lawrence Solomon (PNG Power), consultant David McDougall and Michael Ryan (BSP Capital).

update

Papua New Guinea visas and work permits Australian Government announcement raises hopes of reducing PNG red tape.

n November 2012, the Australian Government announced a radical overhaul of visa processing for Papua New Guineans visiting Australia, including the introduction of a special electronic visa arrangement. The move, to be implemented in the middle of this year, was welcomed by the Australian Papua New Guinea Business Council (APNGBC), which had been lobbying for some time for an end to the long wait times prospective visitors from PNG currently experience. ‘Facilitating applications by Papua New Guineans for travel to Australia for business, employment, medical and other reasons will bring our communities even closer together,’ said Peter Taylor, the APNGBC’s President. It also raises hopes that the PNG Government may simplify its own immigration procedures. PNG has the most stringent visa regulations of any Pacific Island Forum country, with business visitors needing a letter from a sponsoring host company for even the shortest visits and even tourists needing to pay a fee. For the many requiring work permits, Scott Roberts, Vice President of the APNGBC, knows only too well just how challenging the process can be. He is Managing Principal of Brisbane-based HR firm Cadden Crowe, which assists companies through the painstaking process. ‘Non-nationals need to obtain a work permit from the Department of Labour and Industrial Relations and an Employment Entry Permit/Visa issued by the Immigration Department. The

process should take 15 working days and, in fairness, it often does, but if there are any issues then applications can appear to disappear and it takes considerable effort to ascertain status. The relevant departments are under-resourced and it is very hard to find out exactly what stage an application has reached..’ But Roberts is also in no doubt that long-held resentment over the treatment of Papua New Guineans visiting neighbouring Australia has played a major role in shaping current regulations. Therefore it is no surprise that just a month after the Australian Government’s conciliatory announcement, the following proposals to improve access of business people to PNG were apparently received sympathetically at the 21st Australia Papua New Guinea Ministerial Forum: • Taking action to streamline the current standard work permit/visa process • Introducing a new type of short-term work visa to avoid the current work permit process • Advance visa processing to be undertaken in Cairns, to reduce queues at Jacksons Airport in Port Moresby and facilitate direct flights from Cairns to other destinations around PNG. It is likely that the implementation of such measures would benefit not just Australian visitors to PNG, but many other nationalities as well.

Feature

Papua New Guinea’s fisheries boom The northern coast of Papua New Guinea is experiencing a boom in investment from international companies looking to process fish onshore. Samantha Magick examines why. > Papua New Guinea is one of the world’s major producers of tuna. > Major foreign investment is expanding the onshore processing industry.

‘This is not the end, as we still have further growth in processing planned, with thousands more jobs to be created.’

> PNG given preferential access to European Union.

Room for expansion Much of the growth in the fisheries sector is taking place near Lae, where four new plants are planned for Malahang, with broad support from the provincial government and landowners. Among them is Majestic Seafood, a joint venture between Frabelle Fishing Corporation of the Philippines, Philippinebased Century Canning Corporation and Thailand’s Thai Union

Credit: R D Tuna

round 18% of the world’s total tuna stock is found in PNG’s 2.5 million sq km Exclusive Economic Zone (EEZ). The fishing industry has grown from a dependency on access fees in the early 1980s to a more diversified sector, with significant downstream processing today. Frozen tuna accounts for about half of PNG’s tuna exports. It also produces canned tuna, cooked loins, fish meal and chilled tuna. Annually, about three-quarters of a million tonnes of tuna is caught in PNG waters. In late 2010, about 30% of the PNG fleet catch was processed onshore; the remainder was sent to facilities in Thailand, the Philippines and, to a lesser extent, Japan and Taiwan. The Pacific Tuna Forum estimates the raw value of PNG’s annual catch at about US$1.5 billion and says this figure could more than double if more value-added activities were implemented. Indeed, PNG has a long-term goal of processing in-country 100% of the tuna catch from within its EEZ. Domestic sales account for 20–30% of production by local canneries.

Between 20% and 30% of tuna processed onshore is for domestic consumption in PNG.

Corporation (a subsidiary of Thai Union Frozen Products—the largest tuna canner in the world). Majestic Seafood’s K80 million (US$38 million) tuna canning plant, scheduled to commence operations in June 2013, is expected to create as many as 5000 local jobs when in full production. Others planning tuna loining plants in Lae include the South Korean company Dong Wong, Nambawan Seafoods and Haili Sheng from mainland China. Two other operators, Malaysia’s International Food Corporation and Frabelle already have canneries in Lae. Meanwhile, Managing Director Pete Celso says R D Tuna— currently PNG’s largest canner—is about to begin construction of another cannery in Madang, which will double its production and employ 3000 people. The cannery is expected to be operational in early 2014.

Madang Industrial Centre The proposed Pacific Marine Industrial Zone (PMIZ) has been the flagship project of PNG’s fisheries industry for several years. Planned for a 215-hectare site 30 km north of Madang, it is designed to create greater economies of scale and greater efficiency for fish-processing factories, port facilities, power generation and waste water processing. A Chinese contractor has already been selected for the construction work—the state-owned enterprise, Shenyang International Economic and Technical Cooperation Company. In recent months, the PMIZ has undergone a name change and a shift in focus. It is now known as the Madang Industrial Centre and activities will be broadened beyond fisheries, according to National Fisheries Authority (NFA) Director Sylvester Pokajam.

Niugini Tuna Limited—a partnership between R D Corporation of the Philippines, Fairwell Fishery Group of Taiwan and Tri Marine International of the US—plans to operate at the zone, while the PNG Government recently held discussions with the French Sapmer-Piriou joint venture, which is considering a fisheries wharf, tuna processing plant, dry dock and shipyard in the zone. The zone is being funded by a loan of US$72 million from China Exim Bank—a matter of contention among some landowners that is now being challenged in the courts. Political support for the project remains strong, however, with Madang MP and Police Minister Nixon Duban saying it is important for the province and must be progressed.

Feature

Sylvester Pokajam at the National Fisheries Authority says the planned doubling of domestic tuna-processing capacity for early 2013 is only the start of a new expansionary phase. ‘This is not the end, as we still have further growth in processing planned, with thousands more jobs to be created.’ Credit: R D Tuna

Marketing sustainable tuna

Why PNG, why now? The surge in investment is motivated in part by the advantages of bringing the canning process closer to the Pacific’s fishing grounds. R D Tuna’s Pete Celso says PNG’s duty-free access to the European Union (EU) has also been a plus. Under its Economic Partnership Agreement with the EU, ratified in 2011, PNG can not only enter the European market duty-free but it has also been permitted to export processed fish to the EU from any vessel fishing outside its territorial waters, thus exempting PNG from the usual Rules of Origin compliance, provided the fish is processed in PNG. Germany, the United Kingdom and the Netherlands are PNG’s main European markets for canned tuna. Loin exports to Spain and Italy are also significant, and increasing. The increased emphasis on the fisheries industry also reflects national government priorities. The country’s Vision 2050 strategy makes frequent reference to the fisheries sector as an area of the economy requiring more development if PNG is to diversify beyond its oil and gas revenue base. The EU estimates that by 2016 some 53,000 jobs will be created in the PNG tuna industry if planned projects go ahead.

Looking ahead The industry faces several challenges, including the need to improve productivity, achieve greater scale, and deal with high operating costs and infrastructure constraints. R D Tuna’s Pete Celso says reducing the cost of freight is a major challenge, as export is a ‘volume game'.

PNG is also looking to export sustainably caught tuna to retailers in Europe and Australia. In 2011, PNG and other Pacific Island states achieved the first Marine Stewardship Council (MSC) certification for free school skipjack caught sustainably by purse seining methods. Retailers, who expected their first shipment of this tuna under the Pacifical label in late 2012, are still waiting. They include Switzerland’s Coop, SPAR of Austria, Dansk Supermarked from Denmark, Dutch seafood distributor Anova Seafood and Australian chain Coles. In late 2012, they raised concerns about the delay in securing ‘chain of custody’ certification, urging tuna purse seine operators to meet the demand for sustainably sourced tuna. Pokajam says this proves demand for the product: ‘This should put to rest any question of the actual demand globally for MSC tuna through Pacifical, and under the terms agreed.’ Pokajam adds that negotiations over the site of processing, and whether Parties to the Nauru Agreement control that or whether it is in the ambit of international retailers, are also continuing.

Incentives The PNG Government extends a number of incentives to fishing industry participants. Expenditure on new plants or articles for commercial fishing activities qualifies for a 100% accelerated depreciation deduction. Profits for the export sale of canned, loined and smoked fish are exempt from company income tax for the first three years of export. Additional concessions apply for a further four years. Investors may also qualify for double deductions for export market development costs and staff training. R D Tuna’s Pete Celso, who is also President of the PNG Fisheries Industry Association, says the government should consider extending tax holidays to smaller projects such as those in the fisheries sector, and not just to large initiatives like the PNG LNG gas project.

Feature

Key players in PNG’s fisheries sector PNG’s largest tuna canner, R D Tuna first entered PNG in 1997. RD Tuna is Philippines-owned and Madang-based. It operates 45 vessels and sells tuna under the Diana and Dolly brands. Managing Director Pete Celso says R D Tuna is about to begin construction on another cannery in Madang, which will double its production and employ 3000 people. The cannery is expected to be operational in early 2014. R D Tuna invested in improvements to its boats and processing faciltiies in 2012. The new Madang cannery is a joint venture partnership with Fair Well Fishery Group and Tri Marine International. With an annual turnover of US$1 billion, Tri Marine’s core business is tuna trading, but it is involved in all aspects of the canned tuna supply chain. It is one of the founding members of the International Seafood Sustainability Foundation. Fair Well Fishery Group has signed a MOU with the National Fisheries Authority and environmental group WWF to trial the use of circle hooks, which are believed to be effective in reducing sea turtle bycatch. Two fishing vessels will be involved in the trial. Malaysia’s International Food Corporation (IFC) is based in Lae and produces Besta canned mackerel. It produces its own cans, and dresses, cans and pressure-cooks its own

fish. IFC is adding a tuna-processing line to its factory, with most of the product to be exported to Europe. Frabelle Fishing Co is Philippines-owned, with a tuna loining and canning plant in Lae. Frabelle also owns and leases purse seine vessels, and exports canned tuna mainly to Europe, although some product is sold locally under the Isabella brand name. With Thai Union of Thailand and Century Canning of the Philippines, Frabelle is setting up the Majestic Seafoods cannery in Lae. Some fish will be from existing sources, with additional licences to be sought when 75% of construction is completed. Operations are scheduled to begin in June 2013. Other operators include South Pacific Seafood, a PNG– Philippines joint venture with plans to invest in fishing port facilities in Central, West New Britain, Morobe, Milne Bay and Manus provinces, and Ailan Seafoods Ltd in Kavieng, which exports reef fish, snapper, mackerel, crayfish and other marine products in chilled form. Zhoushan Zhenyang Deep-Sea Fishing Company has also announced its desire to build a tuna-processing plant in the Pacific Industrial Marine Zone, which it says would employ 3000 locals and process 250 to 300 tonnes of fish per day. It reflects growing Chinese interest in PNG’s fisheries sector.

opinion & analysis

Perspectives on PNG Business leaders provide their own take on Papua New Guinea’s economy. 'I was here about 20 years ago … When I left, there was a lot of uncertainty and people basically planned for the short term. I feel now there’s an increasing amount of confidence about the future, and a feeling that tomorrow should be better than today, which is something I experienced in China as well. Many other markets can’t claim that. The challenge now is converting that optimism into reality, and that’s what makes Papua New Guinea so exciting and challenging.' —Geoff Cundle, Chief Executive Officer, Steamships 'PNG is still a very fragile economy, but I think there are good signs that the fundamentals are moving in the right direction, with better political stability. From the Nestlé standpoint, we’d like to think we could approach it still with a lot of optimism—albeit more cautious—just by focusing on new opportunities where we can be of better value and service to the Papua New Guinean consumers. 'It’s slowing down a bit but you don’t want to be too cautious. If anything, I think the view is it is the time to invest ahead of the curve. I think a lot of companies were caught in a situation

where they were chasing their tails over the last two or three years. Yes, there could be a little bit of a slow down, but it’s also anticipated to peak in 2015, so what are you going to do? And it’s a choice—it’s a strategic choice, I think.’ —Eugene David, Managing Director, Nestlé Pacific Islands ‘A lot of people think PNG will slow down a lot as the [ExxonMobil-led] PNG LNG project construction phase comes to end, but I think there are sufficient other major resources projects in the pipeline for us to remain confident.’ —Greg Pawson, General Manager Pacific Banking, Westpac ‘PNG has entered a new phase of maturity as an economy. I think the Government is to be congratulated on the way it’s managed the PNG LNG project. There were always going to be issues, but I feel the Government and Papua New Guinea as a nation have come out of this with a better skill set.’ —David Purcell, Managing Director, Ela Motors ‘The 2013 National Budget focuses on restoring and upgrading infrastructure, extending basic education and primary health services, with an emphasis on decentralising funding to the subnational levels. It also provides substantial funding for small-tomedium enterprises, and the reinforcing of nationally owned businesses, which have been marginalised over recent years. ‘The Government has also had discussions on simplifying a variety of impediments to business and investment, including the process of issuing working visas in PNG. ’ —Paul Barker, Director, Papua New Guinea Institute of National Affairs ‘We currently have a number of investments in agriculture projects such as palm oil as well as a small but developing presence in PNG’s energy sector. As with construction and development, the energy, mining and agriculture sectors still have a great deal of potential for PNG’s broader economy. ‘RH has always been and remains optimistic about the PNG economy. Yes, the end of the LNG construction phase will mean a decline in activity related to that project and economic growth is forecast to slow somewhat in the next two years, but overall we firmly believe that operating conditions will remain good. PNG is the key hub for trade and investment in the Pacific.’ —James Lau, Managing Director, Rimbunan Hijau (PNG) Group

opinion & analysis

PNG’s services sector: the next wave of opportunities Papua New Guinea’s economy is generally under-serviced, offering opportunities to provide a wide range of services to both businesses and consumers. Lutz Heim looks at how PNG’s services sector is likely to develop.

apua New Guineans are great early adopters of technology. Although there is still a relatively small group of middle-class Papua New Guineans, they are well-travelled, literate and very comfortable with technology. Despite very low internet penetration, cell phone usage is high and growing. Cell phone usage stands Deloitte’s Lutz Heim at 27.8% of the population, but internet penetration is only 1.3%, with cost remaining the main hurdle. At our office in the Port Moresby CBD, 140 gigabytes a month currently costs US$11,000 (whereas at my home in Australia I pay $80 for 500 gigabytes!). While this high cost has been addressed by the PNG Government in its policy initiatives, a fall in the price of internet access is a prerequisite for the viability of a lot of potential new services.

‘As the country develops more of the population will need specialised training of various kinds, not just a basic education.’ Opportunities based on ICT Bandwidth permitting, some of the global trends I see developing in Papua New Guinea are: • Data analytics (that is, the ability to draw conclusions from a huge range of data). For instance, in retail that means making decisions based on analysing purchasing patterns at different times of the day, the demographics of the suburb, the weather ... • Cloud technology and software development/ implementation • Online delivery of business services • Online advertising.

opinion & analysis

Education and training services are likely to be in demand in the future in PNG.

Government and financial services There have been significant gains in transparency in the financial sector over the past decade. Since 2002, the superannuation sector has been well-run and successful. One of the reasons for this is that superannuation companies are required to outsource their investment advisory functions to third parties. Given how well outsourcing has worked in the development of a workable

superannuation sector, it would be good to see that model extended across a number of other areas of government. Sooner or later, the Government may conclude that outsourcing may help deliver more efficient public services—for example in healthcare. Likewise, the PNG Government is responsible for a huge amount of funds that have to be distributed to landowners, but at the moment there simply is not the mechanism to do so efficiently. Although the financial sector is itself likely to grow over the next few years, this will require more outsourcing given the current dearth of financial managers and advisors. Right now, there are very few personal financial advisors in the country, although companies are already outsourcing some work to overseas companies.

Education and training Another key sector will be education and training. We’ve already seen that Papua New Guineans can compete—many hold down jobs in the Australian mining industry. But, as the country develops, more of the population will need specialised training of various kinds, not just a basic education. So I think there’s going to be a significant market in PNG for many years in vocational and other types of professional training.

Supporting agribusiness Despite its growing urban middle class, 87% of Papua New Guineans are rural-based, and rural economies still tend to revolve around agriculture. Although this is an area with potential growth, most farmers are still smallholders. Government assistance in the development of the sector is important and this may be another area for expansion of outsourcing or third-party involvement. That may consist of consulting, extension or export market development services to transform the agricultural sector into something larger and more commercially viable. Lutz Heim is Managing Partner of consulting firm Deloitte Touche Tohmatsu PNG. 22

opinion & analysis

Commercial disputes in Papua New Guinea Regardless of your field of business in Papua New Guinea, you need to know what to do when there is a dispute over a contract. Veteran commercial disputes lawyer Erik Andersen looks at the major avenues for dispute resolution in PNG.

he rapid increase in economic activity in PNG over the past several years has inevitably resulted in countless contracts, understandings, dealings and agreements, including those strange PNG creatures—the MOU (memorandum of understanding) and MOA (memorandum of agreement). These contractual dealings could arise Gadens Lawyers’ in any form, from major project document Erik Andersen suites a metre high that have taken armies of lawyers to construct, to the most apparently casual conversation between relatively new acquaintances. Equally inevitably, a proportion of those dealings will become contentious, and it is probably fair to say the proportion that becomes contentious is likely to be higher in environments such as PNG, where getting things done can take a degree of persistence and flexibility unfamiliar to people and organisations only recently drawn to the country.

Commercial court The National Court is PNG’s original court of unlimited jurisdiction, and the court’s form and format would be familiar to practitioners in Australia. Two particular aspects of the court process should be noted. The first is that there is a ‘Commercial Track’, which equates with the Commercial Lists maintained in Australian jurisdictions. Unsurprisingly, the judges in this track tend to have both wider and deeper commercial experience than many on the bench (who may have come from a primarily criminal-law background) and generally speaking commercial matters, even quite difficult ones, can be progressed satisfactorily in this track. PNG court lists contain a larger number of nuisance claims than are likely to be found elsewhere and inevitably some quite fierce contests arise when nuisance claimants desperately seek to avoid this track.

mediation is too often simply another expensive and timeconsuming hoop that must be negotiated.

Arbitration Arbitration is the other principal mode of dispute resolution. Domestic arbitration is all but defunct. The Arbitration Act is of very elderly vintage and while there have been attempts to develop a stronger local arbitration capacity, those efforts have generally been ineffectual to date. International arbitrations are preferred, and many larger contract documents submit the parties to arbitration under one or other international rules such as UNCITRAL. The selection of an arbitral body and process at the time of contract negotiation is not necessarily straightforward as there are some peculiarities in PNG’s enforcement regime which need to be understood and appropriately finessed at that time. Failure to do this can lead to considerable difficulties if the parties do become antagonistic. By way of final observation, effective dispute resolution in PNG depends upon the advisor having a long and deep appreciation of PNG. Erik Andersen is a Partner in Gadens Lawyers Litigation Group and has practised in PNG for more than 20 years.

Compulsory mediation The second point I would mention is that mediation rules have been introduced prima facie, requiring all matters to go through a mediation process before trial. The reasoning behind the introduction of compulsory mediation is not necessarily unsound, and to an extent it reflects a Melanesian dispute resolution methodology. (For anyone interested, there is an excellent exposition of traditional tribal dispute resolution and the differences between common law and customary law in Francis Fukuyama’s The Origins of Political Order.) However, for the National Court in 2013 mediation is very much a work in progress. Judges’ attitudes to mediation vary considerably, from some who will absolutely insist on it to others who are very happy to bypass it—and everything in between. Further, there is not yet a reasonable pool of qualified mediators, nor are many practitioners genuinely helpful or practised in guiding their clients through mediation. At present 23

opinion & analysis

Doing business in Papua New Guinea David Caradus, a Partner at PricewaterhouseCoopers, whose PNG practice has been in operation for more than 50 years, provides answers to common questions about doing business in PNG. Does a foreign company have to register in PNG? If a foreign company is ‘carrying on business’ in PNG, it is required to register as an overseas company in PNG and obtain certification to carry on business in PNG. When is a foreign company required to register in PNG? A foreign company is required to register PWC’s David Caradus as an overseas company within one month of commencing to carry on business in PNG under the Companies Act. This includes appointing a resident agent. The term ‘carrying on business’ is given an extended meaning by the Companies Act but otherwise has its ordinary meaning. It is noted that a foreign company that enters into a contract for work to be done in PNG and undertakes work in PNG for a period of more than 30 days would be regarded as carrying on business in PNG for the purposes of the Companies Act. When is a company required to be certified to carry on business in PNG? Companies with foreign shareholdings of 50% or more (held or controlled by non-citizens of PNG) are required to be certified by the Investment Promotion Authority (IPA) before they can carry on business in PNG. The meaning of ‘carrying on business’ for the purposes of the Investment Promotion Act is substantially similar to the meaning of carrying on business for the purposes of the Companies Act. It follows that this requirement applies whether an overseas company intends to carry on business in PNG through a PNG incorporated company or through a company incorporated outside PNG.

'The commercial banks in Port Moresby will only allow a company to open and operate bank accounts where it can demonstrate that it is registered with the Companies Office.' What are the other benefits of registering in PNG? Aside from mitigating the adverse consequences of not being duly registered (eg fines) and ensuring compliance with the Acts above, there are several other factors that will lead a company to register and obtain certification to carry on business in PNG. Firstly, the commercial banks in Port Moresby will only allow a company to open and operate bank accounts where it can demonstrate that it is registered with the Companies Office and, where relevant, certified to carry on business by the IPA. Similarly, only a company registered with the Companies Office and, where relevant, certified to carry on business in PNG by the IPA, can obtain work permits and entry visas for its non-citizen employees. 24

Also, where an overseas company elects to undertake the work in PNG itself it will be required to register for goods and services tax (GST) purposes if it will make taxable supplies exceeding 100,000 kina (US$47,750) in the following twelve months. The Internal Revenue Commission (IRC) will not register an overseas company for GST purposes unless it is provided with a copy of the certificate of registration of the overseas company under the Companies Act and, where required, a copy of the certificate to carry on business under the Investment Promotion Act. Until it is formally registered in this way, the company will not be issued with the GST registration number, and thus cannot issue valid tax invoices to customers. What are the corporate tax rates in PNG? The general corporate income tax rate is 30%. The rate of income tax for non-resident companies, other than those engaged in mining, petroleum or gas operations, remains 48%. As discussed below, some companies may be taxed as ‘foreign contractors’. Where the company’s gross salary or wages exceeds 200,000 kina (US$95,500), the company will also be liable to a training levy at the rate of 2% (with the liability reduced by the costs incurred in training PNG citizen employees). How are foreign contractors taxed in PNG? Many foreign companies providing services in PNG will be subject to taxation in PNG under the ‘foreign contractor’ provisions of the income tax law. As a general rule, the rate of tax applicable to income of a foreign contractor is 12% of the gross contract income unless the foreign contractor is granted permission to lodge an income tax return and be assessed on an annual basis. Where the foreign contractor provisions apply, the employees of the foreign contractor will be liable to salary or wages tax in PNG. Where gross salary or wages exceed 200,000 kina (US$95,500), the foreign contractor will also be liable to the aforementioned 2% training levy. If the foreign contractor is resident in a country with which PNG has a double taxation agreement, such as Australia, Canada, China, Korea or Singapore, PNG may be prevented from taxing the income or the rate of income tax may be reduced. In 2012 a double taxation agreement was signed with New Zealand and this is expected to come into force in 2013. The taxation of foreign contractors should not be confused with the taxation of management or technical fees paid to a non-resident for services rendered outside PNG. Broadly, management fee (withholding) tax applies to management fees paid for services rendered outside PNG and foreign contractor’s withholding tax is payable in respect of services rendered within PNG. The rate of management fee (withholding) tax is 17% of the gross management fee unless reduced by the operation of a double tax agreement. David Caradus has over 25 years’ experience advising on taxation and investment in PNG and is the author of 2012 PNG Tax Facts & Figures and Papua New Guinea Resource Project Taxation: PWC’s Guide for Investors and Operators.

Mining and Petroleum in PNG

Credit: ExxonMobil

A special supplement

An aerial view of the new liquefied natural gas plant for the massive US$19 billion ExxonMobil-led PNG LNG project. LNG exports are scheduled to start in 2014.

Credit: ExxonMobil

Petroleum & GAS

The PNG LNG plant from the air.

PNG closes in on its first LNG exports Papua New Guinea is making serious steps in the transition from a nation with rich oil and gas potential to becoming a fully-fledged liquid natural gas (LNG) exporter of global significance, as its major gas project moves towards its production phase.

he PNG LNG behemoth that has made the petroleum world take notice of PNG is ‘75% through the construction phase and will achieve a 2014 startup,’ according to Peter Graham, Managing Director of ExonMobil subsidiary Esso Highlands, the project leader. All has not been easy for the project’s partners—which include ExxonMobil, Oil Search, Santos, the PNG Government and landowners—as cost blowouts of $US3.3 billion were announced late last year, bringing the project cost to $US19 billion. Graham says causes of the blowouts included currency fluctuation, inflation in PNG and rainfall that exceeded records ‘of 20 years or more’ delaying work. But on the positive side, output projections are up from 6.6 million tonnes to 6.9 million tonnes per year and the experience gained in the process has built the capacity of both the private sector and the state in managing mineral development. (See page 29 for our interview with Peter Graham.) ‘If you’d asked me three years ago if we could have delivered a project of this size, I wouldn’t have been sure. Now, I can confidently say PNG is capable of delivering such projects,’

‘If you’d asked me three years ago if we could have delivered a project of this size, I wouldn’t have been sure. Now, I can confidently say PNG is capable of delivering such projects.’ William Duma, PNG’s Minister for Petroleum, told the PNG Mining and Investment Conference in December 2012. PNG, with its massive untapped resources, will get the chance to ride the expected boom in LNG. Already between 2000 and 2010 global trade in LNG has doubled, and demand for natural gas is expected to rise 60% by 2040, driven by increases in population and living standards. By 2025, PNG is expected to be exporting over 10 million tonnes of LNG per annum.

New projects Late in 2012, InterOil, which plans the country’s second LNG export project, won conditional approval from PNG’s National

Petroleum & gas

InterOil: towards PNG’s second LNG project InterOil has a 15-year history in PNG, having developed upstream exploration and production assets. It built PNG’s only oil refining operation and recently processed its 100th cargo of crude oil at the refinery, with over 10 billion litres of product sales. It also distributes about 60% of the country’s petroleum products.

producer and exporter in PNG. Last year’s conditional approval from PNG’s National Executive Council gives the project a kick along and includes a unique arrangement under which the state can take its 22.5% equity return in gas, which will be used to fuel much-needed electricity generation infrastructure, bringing a reliable power source to the Gulf region.

The New York-listed group has looked to the future, building enough refining capacity to cover expected demand for the next 15 years. It also deals with customers at the grassroots level, being the country’s largest distributor of refined petroleum products.

The project, which will be built on gas from the Elk and Antelope fields, has the advantage of simplicity, according to InterOil CEO Phil Mulacek:

Now it is stepping up the food chain with the development of its Gulf LNG project that aims to be the second major LNG

InterOil’s Phil Mulacek

‘It requires about 120 kilometres of pipeline (compared to over 700 km for the PNG LNG project) and is situated in less severe terrain,’ he told Business Advantage PNG. Proving work has shown likely gas volumes of approximately 10 trillion cubic feet and potential export LNG capacity of up to 8.8 million tonnes per year over 15 years. The initial plan certified by the Government aims at a more modest 3.8 million tonnes per year and estimates development costs for the gas field and pipeline at US$2 billion, while the LNG plant will cost between US$450 and US$850 per tonne of LNG production capacity. InterOil is securing partners for the project and has investment bankers running a selection process. A new discovery in 2012 known as Triceratops has boosted available gas and a farm-in deal has been signed with Pacific Rubiales Energy.

Petroleum & gas

Executive Council for its Gulf LNG gas development for the Gulf of Papua. The approval covers initial LNG production of 3.8 million tonnes a year and sees the state agree to take 22.5 per cent of gas output in kind. The third potential LNG export project, driven by Talisman Energy’s ambition to aggregate a number of fields in Western Province, made further progress during 2012. First there was the formalisation of its US$280 million strategic partnership with Japanese giant Mitsubishi, then there was internal approval with partner Horizon Energy for the US$300 million liquids recovery scheme at the Stanley field. Drilling and seismic work is continuing to pay dividends for Talisman and partners, with the company expecting to prove reserves of between two and four trillion cubic feet of gas by 2015. That will underpin a planned three million tonne per year in LNG exports.

Future potential The rich petroleum provinces in PNG’s Highlands continue to attract exploration dollars from industry players, with some 70 oil and gas exploration licences currently making their way through the approvals process. French oil major Total has bought 50% of a number of Oil Search Limited’s exploration licenses, both on- and off-shore, and the two have plans to look for further opportunities. Oil Search, a major partner in the PNG LNG project, is also working on the prospect of another independent gas project in the Gulf of Papua and plans to boost drilling there over 2013. It is also looking for opportunities in the Highlands that would feed into the PNG LNG project.

PNG’s new petroleum company In February 2013, the Papua New Guinea Government revived the National Petroleum Company of PNG (NPCP), a state-owned entity that will be the custodian of the nation’s 16.8% stake in the ExxonMobil-led PNG LNG Project and other future gas projects. A previous version of the NPCP was shelved by the O’Neill Government in November 2011, but now it has clear ambitions for the company. ‘We want NPCP to become the single biggest petroleum company in the Pacific,’ Finance Minister James Marape is reported to have told the company’s incoming board, which is chaired by experienced PNG businessman, Frank Kramer, who is CEO of engineering firm Kramer Ausenco.

Meanwhile, Larus Energy is in its fourth year of a six-year exploration both on- and off-shore in the Torres Basin and is readying for a float on the Australian Stock Exchange. Another junior, Kina Energy, now listed on both the Australian exchange and PNG’s own POMSoX, is expanding its operations at a number of sites across the country and has just completed successful appraisal wells at Elevala and Ketu.

Government review

Credit: ExxonMobil

The resources boom, which is helping to drive PNG's economy impressive economic growth, is leading to concerns about the level of benefits to the wider community. In response, the Government has announced a review into mining and petroleum taxes and charges, and a new Petroleum and Energy Authority to help manage the sector. Reforms are also in the wings to clarify the rights of landholders regarding mining on their lands.

The PNG LNG project required over 700 km of pipeline to be laid, often across extreme terrain.

Petroleum & gas

Interview: Peter Graham, Esso Highlands With gas production from the US$19 billion PNG LNG project due to start next year, Managing Director of Esso Highlands Limited Peter Graham talks to us about the long-term impact of the project. Business Advantage PNG (BAPNG): What are your key challenges for 2013? Peter Graham (PG): At this stage, we are 75% or thereabouts through the project, and the challenges looking forward are really much the same as we’ve been dealing with to date, law and order being the major concern. Most of the construction work at this point in time has already been contracted out, the contractors are selected and it’s basically heads down now to complete the construction and get the gas to customers in 2014. BAPNG: With your project getting close to production, workers who have been engaged in its construction are coming back onto the labour market ... PG: One of the opportunities and challenges we do see going forward is the impact of demobilisation of the construction phase work force. What we’d like to see is the capacity we’ve built in our workforce—workers who have done a fantastic job for

us—move across to Government projects or other projects elsewhere in PNG. BAPNG: The long-term prospects for LNG seem to have improved somewhat since the PNG LNG project started. Does that make the prospect of new developments in PNG more likely? PG: PNG is well positioned regionally Esso Highland’s Peter Graham to access growing markets. The PNG LNG project has served to strengthen infrastructure in the country and also the Government capacity to deal with major projects. If you wrap those things together, it does bode well for PNG to access growth in the LNG market. For everyone, it’s really about aggregating sufficient gas to underpin those next steps. That’s the challenge in front of all players in the gas sector—to progress further exploration and hopefully record successes. Realistically, you can’t access the market without sufficient proved gas reserves to underpin sales. We have an active exploration program underway in PNG and are in the early stages of evaluating potential expansion options.

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 Ketu Elevala

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

Data © Copyright 2013, Papua New Guinea Chamber of Mines and Petroleum (www.pngchamberminpet.com.pg), used by kind permission. Map © Copyright 2013, Business Advantage International Pty Ltd (www.businessadvantageinternational.com)

Credit: Ramu Nickel/PNG Chamber of Mines

MINING update

Ramu NiCo’s Basamuk refinery in Madang Province exported its maiden shipment of nickel cobalt hydroxide in late 2012. The project represents the first Chinese investment in PNG’s minerals sector.

High prices drive mining activity The end of the international mining boom that has helped to drive the Papua New Guinea economy in recent years is much predicted but shows no signs of coming to pass. Indeed, early in 2013 the Chinese dragon began breathing more strongly, with its economy showing renewed life after a period of relative weakness.

ineral prices continue to give confidence to investors and producers. Copper is sitting at about US$3.80 a pound, slightly off 2012 highs but still a happy place for miners. Gold is around US$1700 an ounce, close to the top of its trading range in recent years. Nickel at around US$17,000 a tonne is 20% below February 2012 highs but is almost double the lows plumbed during the Global Financial Crisis. There is no doubting the importance of the mining industry to Papua New Guinea. In 2011, it accounted for 71% of the country’s export receipts. The PNG Government is eyeing off the profits being won by miners and has announced a major review of legislation governing taxes and charges in the resource sector. The sensitive question of landowner rights regarding resource projects is also up for review in a process that includes mapping the boundaries of landowner interests, an issue that can induce tensions both in landowner and mining circles. In a world of rising resource nationalism, PNG Prime Minister Peter O’Neill has moved to quell concerns among mining interests

‘The investment and ingenuity directed into the sector in recent years is achieving major goals.' over future governance in the sector. He promised the review, while not likely to result in ‘massive cuts in taxes’ will be ‘open and transparent’ and its results will not ‘act as a significant disincentive to international competitiveness.’ In fact, the entire resource regulatory regime is under the spotlight with new Mining Minister Byron Chan announcing a World Bank-assisted review of the country’s mining legislation in December 2012. It is likely to result in reforms to exploration lease regulations, mine closure rules and encouragement of downstream processing. An efficient and effective resource regulatory regime could make a big difference to PNG. A survey of resource regulatory regimes by the Frazer Institute pegs PNG at 66th out of 93 in the study. Lutz Heim, Managing Partner with Deloitte Touche

MINING update

Mining services The mining and petroleum boom is helping grow the capacity of PNG’s economy as a range of local companies move into providing the services that enable resource development to go ahead. One notable example is Trans Wonderland, the landownerowned trucking business that came into being to service the PNG LNG project. It is now among the country’s largest transport businesses with a fleet of 100 trucks and 380 employees (see page 35).

loading facilities for the PNG LNG project. It is also doing upstream infrastructure on the US$19 billion project including road and bridge construction and other critical infrastructure. Clough has been in PNG over 30 years, has completed over 70 projects and today employs more than 1500 Papua New Guineans.

Of course, traditional business is playing a huge role in mining services and one of the best known is Clough Services. Its sophisticated offer includes engineering services such as project feasibility studies, plant design and procurement, and process optimisation. Clough is a market leader in ports and port development, and designs and provides petroleum and minerals loading facilities. In PNG it is developing support infrastructure for the WaifiGolpu project and providing major infrastructure including

Credit: UMW

Another landowner company, Anitua, grew up around the Lihir gold mine and has become one of the largest providers of services to mine owner Newcrest. Its impressive service offer includes contract mining, road construction, property and investment management, camp management and catering, and hospitality and hotels.

Tohmatsu PNG, said the country could move into the top ten with well-designed and implemented reform.

Sector update—majors The investment and ingenuity directed into the sector in recent years is achieving major goals. The $US1.5 billion Ramu nickel and cobalt project in Madang Province moves to full commercial operation during 2013. Ramu is the first major PNG resource project with Chinese investment to come to fruition. Metallurgical Corporation of China, which currently holds 85% of the mine, will use the mine output to produce stainless steel. Ok Tedi The giant Ok Tedi mine in the remote Star Mountains of Western Province will see its life extended from 2015 to 2025 under a US$822 million development plan that will facilitate extra production of 1 million tonnes of copper and 3.3 million ounces of gold. CEO Nigel Parker says the mine extension is ‘extraordinarily important’ to local communities as its continued presence will allow it to keep working on environmental remediation of damage caused by tailings in the Fly River during the 1980s. Lihir Newcrest Mining’s rich Lihir mine in New Ireland Province will see significant gains in output mid-decade after rectification of what Newcrest describes as ‘long-term underinvestment’ in plant under previous owners. Output is expected to more than double in five years. Porgera Significant exploration work is being undertaken at the rich Porgera gold mine in Enga Province, with owners Barrick Mining drilling 41,000 metres of test holes in 2012. However, the company says law and order remains a problem at the site with employees feeling unsafe. 33

MINING update

Ok Tedi’s planned expansion NP: That’s very much on our agenda: what we will leave for the natural owners. The hospital in Tabubil is a very clear example of that. We’ve made the first tentative move this year, bringing in Madang’s Divine Word University. They are now the managers of the hospital.

Mining Minister Byron Chan (left) speaks with Ok Tedi Mining’s Nigel Parker at the 12th PNG Mining and Petroleum Investment Conference.

In November 2012, Ok Tedi Mining Limited (OTML) submitted a feasibility plan to extend the Ok Tedi mine’s life to 2025. With the mine’s continuation now before the PNG Government, we spoke with OTML’s CEO Nigel Parker about the US$822 million extension project and likely changes to PNG’s mining laws. Business Advantage PNG (BAPNG): Can you talk a little bit about the opportunity presented by the mine, not just to OTML, but also to the community? Nigel Parker (NP): It’s extraordinarily important to the communities because it gives the company a continued presence in Western Province to continue to deal with the environmental issues that we have and it also gives us time to work with the communities to actually get them to start to invest the benefits from the mine wisely. The river vessels Fly Warrior, Fly Explorer and Fly Hope are good examples. We manage them, but they’re the community’s vessels and we charter them. We went into aircraft with the same concept: that Ok Tedi would charter aircraft off the communities, therefore displacing our use of commercial aircraft. The people can actually say they’re leveraging their association with OTML to a far, far greater extent by actually having physical assets. BAPNG: OTML also has some significant assets of its own. What is the process of handing these over once the mine closes?

Bougainville What some see as the ‘Holy Grail’ of PNG mining, the reopening of the Panguna gold and copper mine on Bougainville Island, is firmly on the agenda. Negotiations are underway to transfer responsibility for mining regulation on the island to the Autonomous Bougainville Government, which favours reopening. The mine was closed in 1989 following social unrest. ‘What’s fundamental is the desire of local landowners for the mine to be open. I’m encouraged that more and more landowners are saying they want it,’ says Peter Taylor, Managing Director of Bougainville Copper and Executive Director of Rio Tinto Australia. 34

As part of this program, they are going to establish a teaching arm, whereby they will be teaching nurses, health education officers and village midwives. At the end of 2013, all being well, OTML will divest the assets of the hospital into the Ok Tedi Development Foundation, and it will become the owner of the hospital. There’s a whole range of assets that we have to transfer to the natural owners, such as power generation facilities, and we want to do that sooner rather than later. BAPNG: Some of the changes to mining laws being proposed by new Mining Minister Byron Chan seem to feature community and environmental schemes you already have in place … NP: Absolutely. The Government is very proactive in looking at this. Minister Chan mentioned a financial assurance fund— we have a US$230 million financial assurance fund that’s off balance sheet. This was set up at the time BHP exited the Ok Tedi mine. If one was to study it, you’d actually see at that time they put world leading concepts in place, which the then-government embedded into the enabling legislation for Ok Tedi. Minister Chan is now looking to embed that learning into industry-wide mining legislation. BAPNG: Are you comfortable with the process that’s been outlined to revise current mining laws? NP: I’m very comfortable because the Government is looking at a very mature, balanced approach to some very complex issues. The mining industry shouldn’t be worried about the culture of Papua New Guinea. We have to learn how to work with them, understand them, and assist in the development of their economy. What I think the Government is doing is walking a line between a lot of cultural issues and I firmly believe we will get a very balanced outcome, particularly if we start looking at some of the learning from Ok Tedi in what Minister Chan has outlined: financial assurance funds, women and children’s funds, having environmental impact studies done well, and establishing mine closure funds.

Mining Haus, the headquarters of the Mineral Resources Authority in Port Moresby. The authority is not only responsible for licensing mining exploration but also provides data and support to exploration companies.

MINING update

Land owner company transports success The success of the nation’s largest trucking company may seem unusual. But it’s a perfect example of how melding international business practices with local culture and tradition can pay off. The ownership structure of Trans Wonderland (TWL) is noteworthy. It is Trans Wonderland’s owned by a consortium of 25 landowner Larry Andagali companies (‘lancos’), half from Southern Highlands and half from Hela Province. Created to benefit from resource projects in the Highlands, these lancos provide support to the resources sector in civil construction, labour hire, security, catering and maintenance. Larry Andagali estimates they distribute monies to a total of 60,000 beneficiaries. In the past three years, TWL (named after explorer Jack Hides’ 1930s book Papuan Wonderland) has gone from a moderate turnover of 15 million kina (US$7.1 million) to an impressive 100 million kina (US$47.9 million). It now has over 100 trucks in operation and 380 staff.

Keys to success Infrastructure, training and transparency are all key to TWL’s ongoing success, according to Andagali.

Development

‘This is a 24 hour operation; we monitor everything,’ says Andagali. The company recently installed satellite tracking in all trucks so cargo and vehicles can be pinpointed at any time.

A post-LNG world The construction phase of the US$19 billion ExxonMobil LNG project will finish in 2014 and a lot of work may dry up for companies providing services to the project. TWL is already looking ahead; there are plans to establish a presence in Port Moresby and to turn TWL into ‘a one-stop shop for transportation and logistics operation in the country'. Social projects are also within TWL’s ambit. In January 2011, TWL helped a collective of 200 women, the Hela Women’s Upstream Limited, buy and operate a Western Star semitrailer, part of a consortium of ten such trucks. ‘I think the future is bright,’ Andagali tells Business Advantage. ‘There will be a lot of revenue coming in with the LNG project and all these other mines. That money needs to be reinvested; it needs to be recirculated in the country.’ impact study. It had planned to mine gold, copper and silver 1600 metres down on the Bismarck seabed. The Newcrest-Harmony Gold joint venture continues to be productive with a pre-feasibility study and further development work completed at Wafi-Golpu. Their Hidden Valley mine is averaging 250,000 ounces of gold and 3.6 million ounces of silver annually. Kula Gold has boosted its estimates of gold reserves at Woodlark Island deposit to 3.1 million ounces and has applied for mining permits after a successful feasibility study. Exploration activity remains strong with Coppermoly Ltd signing a farm-in agreement with Barrick Gold over eight years on three sitess in West New Britain. Indochine Mining is working on its Mount Kare deposit near Porgera, where it plans to spend US$60 million on exploration drilling.

Credit: MMJV/PNG Chamber of Mines/Rocky Roe

Xstrata Copper and Highlands Pacific continue to invest in their Frieda River gold and copper deposit, completing a feasibility study and signing a benefit-sharing agreement with local landowners. A green light on the project will see a capital spend of US$5.3 billion. Marengo Mining is moving towards production at its Yandera gold/copper-molybdenum project, where it has spent US$150 million since 2005. It recently completed a feasibility study and has applied for environmental and mining approvals. Production is expected in 2016 in partnership with China Nonferrous. Canadian group Nautilus Minerals has halted work on its Solwara undersea mining project after a dispute with the PNG Government over development costs and an environmental

The company has spent six million kina (US$2.8 million) on workshops, training and development. Trainers from Australia and New Zealand have worked with local drivers to improve skills, often taking long journeys with them along the Highlands Highway in company trucks.

An aerial view of the Hidden Valley mine.

MINING & Petroleum

Conference attracts 1350 delegates PNG Mining Minister Byron Chan used the conference to announce the World Bank-assisted review of the nation’s mining legislation. He demonstrated the importance of resources to the national economy, saying the industry provides over 70% of export receipts, and observed PNG has attracted new resource players including Total, St Barbara, Vale, Mitsubishi, Rio Tinto and Indochine Mining in recent times.

Prime Minister Peter O’Neill (right) with Dr Ila Temu, President of the Papua New Guinea Chamber of Mines and Petroleum.

The 12th PNG Mining and Petroleum Investment Conference was held in Sydney in December 2012, hosted by the PNG Chamber of Mines and Petroleum. It was the largest conference to date with a wide range of presenters and 1350 delegates. ‘There has never been a better time to invest and participate in the resources sector,’ PNG’s Prime Minister Peter O’Neill told the assembly, saying his government would ‘get serious about the cost of doing business in PNG.’

Presenters at the conference included PNG Chamber of Mines President Dr Ila Temu and industry leaders including Esso Highlands Managing Director Peter Graham (leader of the PNG LNG project), Ok Tedi Mining Ltd Chief Executive Officer Nigel Parker and Oil Search Ltd Chief Executive Officer Peter Botten. The conference also marked the publication of the 12th edition of the biennial Profile mining and petroleum investment magazine, which documents PNG’s resource sector.

Link: www.pnginvestment.com

Financial services

Innovation drives financial services growth Papua New Guinea has traditionally been a cash economy, but that is changing quickly, as PNG’s banks deploy technology to reach out to the next generation of banking customers.

f there are two statistics that give a clear picture of how fundamentally PNG’s banking system is changing, it’s these: when Chief Executive Officer Ian Clyne started at BSP, the country’s largest bank, in 2008, the bank had 450,000 active bank accounts. As of the end of 2012, it had one million. Indeed, the bank added over 250,000 accounts during 2012 alone. This remarkable growth is a symptom of a ANZ’s Mark Baker major re-engineering of PNG’s banking sector and a drive from the country’s three major banks—BSP, ANZ and Westpac—towards greater financial inclusion for PNG’s population. This activity is part of a concerted strategy by the central bank, the Bank of Papua New Guinea, to increase Papua New Guineans’ access to financial services through the development of greater financial literacy, the deployment of mobile and electronic banking, and improved access to microfinance.

Meanwhile, Westpac is rolling out its own enhanced merchant terminals to trade stores, while investing in a new operations centre and branch in Port Moresby, and its own new commercial centre in Lae. ‘We have an aspiration to grow at a faster rate in PNG,’ says Pawson.

Finance and microfinance In addition to the banks, the Bank of Papua New Guinea also licenses 10 financial institutions, including Kina Finance, PNG Home Finance (both part of the Kina Securities group), Credit Corporation, and a number of microfinance lenders. ‘There’s been a significant increase in the financing of trucks and heavy equipment,’ observes Garth McIlwain, Chairman of Credit Corporation, which supplies finance to most of PNG’s landowner companies, among others. ‘It’s not so much due to new customers but to existing customers expanding.’ The firm, at the time of writing the subject of a takeover bid from BSP, has opened a new expanded operation in Lae to handle the expanded business and has recently upgraded back office systems across its operations in PNG, Fiji, the Solomon Islands and Vanuatu. Microfinance remains a major policy focus, with the National Development Bank‘s People’s Micro Bank Ltd the latest institution to enter this market.

Long-term development outcomes may be the motivation for such a push, but there are good business reasons for the banks to respond to their regulator’s encouragement. Banking in PNG is a demanding exercise. With the bulk of the country’s population living in remote areas, often in the Highlands, traditional bricks-and-mortar branch networks are hard to establish and costly to maintain. The need to fly millions of kina in cash around the country by plane is just one reason. With traditional retail banking proving unprofitable outside of PNG’s main towns and cities, banks have been driven to innovate in order to bring the majority of Papua New Guineans into the formal economy in a cost effective way. ‘For us, it’s not about putting in branches anymore,’ says Mark Baker, who arrived in PNG in mid-2012 to head up ANZ’s PNG and north-west Pacific operations. The answer, in the words of Westpac’s Pacific General Manager Greg Pawson, is ‘making banking electronic from end-to-end.’ BSP is already offer mobile phone banking, while ANZ and Westpac are expecting to launch their own services in 2013. It is worth noting that much of this investment is enabled by an increasingly robust telecommunications network, mostly owned and operated by Digicel. ‘Mobile phone banking is profitable over the longer term, although it can be quite complex at the bank’s end,‘ notes Mark Baker.

Credit: ANZ

Good business reasons

‘Banktainers’—fully-functioning brand branches housed in portable shipping containers—are increasingly being deployed to service remote commercial centres in PNG. In December 2012, ANZ opened a container branch in the Hides gas field in remote Hela Province. The branch will service gas field workers and surrounding communities and was created in partnership with landowner company, Hides Gas Development Company.

Heavy investment Underpinning these services, therefore, is major ongoing investment. Having built a new state-of-the–art cash centre in the Port Moresby suburb of Gordon and expanded its EFTPOS and ATM network, BSP currently has 200 million kina (US$95 million) worth of building projects under way, including a 7800-square metre Pacific operational hub in Waigani, a three-storey commercial centre in Lae and the transformation of its iconic building in Port Moresby’s CBD into a financial services training college. It will also deploy a new trade finance platform in 2013. 37

Financial Services

Managing risk in PNG Optimism in PNG’s insurance sector is high with companies seeking to expand amid the strong economic growth of PNG.

Most growth in the insurance sector has been by Papua New Guinean-owned companies, rather than foreign ones. ‘We have far more domestic companies than international companies,’ says Giddings, ‘which is actually good for the economy.’ One of the areas of growth, says Wayne Dorgan (pictured far right), Managing Director of Pacific MMI Insurance, is the expanding SME (small-to-medium enterprise) market and the opportunity to develop products specifically for local businesses. ‘The National Development Bank and Nationwide Microbank have taken up a couple of schemes we’ve come up with,’ he told Business Advantage PNG. While sold by the banks, these life and general insurance products are underwritten by Pacific MMI. For overseas companies looking to move into the PNG market things are relatively straightforward:

Credit: Mary Johns

‘The economy is very healthy,’ says Chris Giddings of Pacific Re, a Port Moresby-based reinsurance firm, and President of the PNG Insurance Council, the peak body for the insurance industry.

Extreme weather conditions in PNG can have unexpected results.

‘There’s no restriction; foreign companies can come in provided they’re licensed by the insurance commissioner and stick to the rules and have the correct capital,’ says Giddings. ‘There are certainly opportunities coming into PNG.’

Changes in the sector The Independent Consumer and Competition Commission gave regulatory approval for QBE to buy Mitsui Sumitomo in late 2012. ‘Initially, the ICCC was concerned the take-over was going to lessen competition,’ ICCC Commissioner and CEO Dr Billy Manoka told media. However, the ICCC eventually determined that market concentration would only increase

Financial Services

What insurance should you buy in PNG? at a moderate level and that laws allow companies to set up with relative ease.

Business Advantage PNG asked Pacific MMI Insurance MD Wayne Dorgan for his recommendations.

Revisions or even an overhaul of the 1995 Insurance Act, which has not been revised in 18 years, are anticipated this year. In particular, a strengthening of Sections 36 and 37, which cover exemptions to PNG’s insurance laws whereby all companies domiciled within PNG must purchase insurance locally. The PNG LNG project was granted an exemption at government level and did its insurance dealings offshore and many companies associated with the project rode on its coat tails, gaining exemptions in a number of areas. ‘We’re hoping that will be tightened up,’ says Giddings.

PNG idiosyncrasies ‘In the Pacific, we have a lot of idiosyncratic problems,’ says Dorgan, explaining that thanks to, say, poor responses by the fire brigade, buildings will be insured at higher premiums as there is a higher chance of their burning to the ground. Poor internet services and infrastructure also mean that many of the calculations that are usually done online to work out costs must be done manually in PNG. However, with internet services slowly improving, such things may not be the irritation they are for much longer.

Pacific MMI Insurance’s Wayne Dorgan

All companies domiciled within PNG must have third-party motor vehicle insurance bought via the governmentowned Motor Vehicles Insurance Ltd and workers’ compensation supplied via a licensed PNG insurer.

For SME’s, a business pack (a selection of varied covers that provide businesses more wide-ranging cover in one policy) which can include property, liabilities, burglary cover, motor vehicle fleet insurance, money insurance and financial lines insurance. For those moving stock, marine cargo transit insurance is important, given the problems and delays in shipping and logistics. Remember that the type of insurance you need depends very much on your industry but health insurance is also recommended for all. When you analyse a business, one of its greatest assets is its staff. If you’re not protecting your staff, you’re really exposing your business.

Financial Services

BSP’s Ian B Clyne: Technology is the key BSP, PNG’s largest bank, is being recognised globally as a major innovator with mobile technology. In our exclusive interview, Group CEO Ian B Clyne reflects on a momentous year for the bank and its plans for future growth. Business Advantage PNG (BAPNG): I gather BSP opened a record number of new accounts last year. How was this achieved? Ian B. Clyne (IBC): When we did a project three years ago to streamline the account opening process, we found that it could take up to an hour and a half for a teller to open a new account. But now that we have the right systems in place, after investing in state-of-the-art technologies, we have the capacity to go out and really start to open accounts. Thanks to the Galaxy Tablet we now use, which has wireless Bluetooth connectivity, we can open up a bank account anywhere around the country in five minutes, giving you a working debit card, issue a PIN, and take a deposit. Technically, you could then walk to the nearest EFTPOS terminal or ATM and withdraw that deposit immediately. BAPNG: And congratulations on winning the Connected World Forum Award for the ‘Best Bank-led Mobile Money Programme’ in recognition of the technology you have used ... IBC: BSP is one of the first banks in the world to utilise this cutting-edge technology to reach more customers in the most remote areas, to open new accounts and increase financial inclusion. Winning this globally-recognised award is an amazing achievement and one in which all staff of BSP have contributed. It recognises that BSP is a world-class, innovative bank and also very clearly puts PNG and BSP on the world banking map for all the right reasons. BAPNG: They say necessity is the mother of invention. Would you say you had to be so innovative because PNG provides such a challenging environment for retail banking? IBC: Yes, you have no choice. If you look at the nature of the PNG retail market, it is unprofitable in the traditional format. Only 15 of our 41 branches used to cover direct and indirect costs. Today, nearly all cover their direct costs. The only way we could make a branch network profitable was to actually re-engineer or refocus it to service the high-income customer and the lending customer. In short, every time a mass market person goes to our teller, we lose money. Every time that same customer goes to an ATM or an EFTPOS terminal, we make money. So we had to motivate people to move away from cash as the source of doing their business and into electronic banking. Our whole strategy had to be built around how to service each customer segment, and that’s why we set out some time ago looking at electronic solutions. But to do that you also need to have the bandwidth and the capability of processing. Historically, PNG has had very poor telecommunications infrastructure, based on satellite, but in recent years Digicel has revolutionised banking in Papua New Guinea. Thanks to their network, we’ve got ten times more bandwidth between the main towns.

BSP’s Ian B Clyne holds the Connected World Award for Best Bank-led Mobile Money program. BSP beat banks from all over the developing world to win the award.

BAPNG: The program must be having a massive impact on the rural economy? IBC: We did a pilot project with agribusiness Agmark in Kokopo (East New Britain Province). There was a woman who had been a grower for 20 years, but when she got paid cash all her wantoks [relatives] came and she had no cash left. If, instead, she gets a cheque, then it just goes to the local trade store. Since we’ve done that pilot she’s been saving a thousand kina (US$475) a month and now she’s talking about going into chickens and pigs, you name it. We’re also working with all the major commodity buyers, so the commodity buyer is now using a wireless EFTPOS unit or an electronic solution. We actually have a mobile phone solution coming shortly, and we go out with the tablets and we open accounts for all the growers. BAPNG: You’re opening all these new accounts and accepting all these deposits. Who are you going to lend this money to? IBC: BSP has been working for some time on building a new lending platform because you cannot cost-effectively do retail lending on a manual basis. Therefore, BSP’s strategy is to automate the whole retail lending process—both for retail and for small-to-medium business lending. We now do an enormous amount of data mining. We’re building a scoring model, based on seven years of data on defaults. The idea is: the client will come in to the loans office, our staff will input the data into the computer—obviously, we have to have the correct data—and they’ll get a decision on the spot about whether their application is referred for review.

Infrastructure & transport

Credit: Lynden

With most of PNG impassable by road, air services are a critical form of transportation for businesses and consumers.

Solving PNG’s infrastructure challenges 2013 has been dubbed ‘the year of implementation’ by the PNG Government, with infrastructure one of its major priorities. This is not before time, since it is widely accepted that PNG’s crumbling infrastructure is constraining all levels of its economy.

he Government’s budgeted development and capital investment expenditure for 2013 is 30.6% higher than 2012, increasing to K5.8 billion (US$2.75 billion). ‘The large increase reflects the Government’s commitment to investing in projects that will further development opportunities for Papua New Guineans,’ according to budgetary analysis by PricewaterhouseCoopers PNG. In terms of power, water and roads, major projects either underway or under consideration include the following:

The Yonki Dam Project This aims to eliminate the constant and widespread power blackouts suffered in Lae and Madang. Its scope includes:

• The refurbishment and upgrade of the Ramu 1 power station by PNG Power, at a cost of K58 million (US$27.5 million), which will return the station to full operational capacity by late 2013. A second phase, estimated to cost about K55 million (US$ 26 million), will be required to complete the refurbishment. • The second project is a mini-power station. The Toe of Dam project is designed to generate 18 megawatts (MW) of electricity from water flowing down the dam spillway that would otherwise not be harnessed. PNG Power expects the plant to be commissioned sometime in 2013. • The third project is the construction of a new powerhouse, Ramu 2, which would generate an additional 120 MW to

Infrastructure & transport

180 MW, bringing the total power generated at Yonki from 45 MW to between 180 MW and 240 MW.

The Purari River hydro project This is estimated to be worth up to K25 billion (US$11.86 billion) and would be the biggest power project in the Oceania region and one of the biggest projects of any sort in PNG’s history. PNG Energy Developments Limited, a 50/50 joint venture between PNG Sustainable Development Program and Australia’s Origin Energy, has signed a Memorandum of Understanding with the PNG Government’s Independent Public Business Corporation (IPBC) to undertake a K250 million (US$118 million) final feasibility study.

The Port Moresby Sewerage System Upgrade Project This project is a joint venture between IPBC, the Japan International Cooperation Agency/Japan Bank for International Cooperation and the National Capital District’s water company, Eda Ranu. It will cost an estimated K285 million (US$135 million). It consists of a new trunk sewerage main and branch sewers, new pump stations and refurbishment of existing stations, a new treatment plant, a new ocean outfall and new sludge drying beds.

Highlands Region Road Improvement and Investment Program The Asian Development Bank has allocated US$100 million to rehabilitate 115 km of road in the most densely populated part of PNG over next two to three years.

Opportunities for THE private sector in infrastructure The PNG Government has made it clear that it sees increased cooperation with the private sector as essential to achieving its infrastructure objectives. The Asian Development Bank has singled out these areas of particular interest: > PNG is encouraging greater private sector involvement in the transport sector. The Department of Works and National Roads Authority now contracts all design and civil works to private sector contractors. > There are opportunities for shipping franchises to offer passenger transport and cargo handling. > There are increased opportunities for shipping and port operations services surrounding the Lae Port Development. > Public–private partnerships in the civil aviation sector, including for performance-based management contracts and operation of the Jackson’s International Airport in Port Moresby. Source: ADB

Infrastructure & transport

Interview: Maersk Line puts PNG on the shipping map BAPNG: What kind of customers are you are targeting? NN: We target customers that put a premium on being able get a transparent service when placing an order from anywhere in the world. For example, goods like tools and spare parts are very well suited for containerisation. We’re targeting the kind of customer who says ‘I need to have that spare part on my shelves all the time. I cannot run out because the alternative is having to fly iit in at great expense.’ In developing countries, it is not unusual for companies to need a stock factor of maybe six, seven, eight or nine weeks’ worth of sales, while in countries with more reliable supply chain they can get away with maybe a week or two’s worth of stock. At the end of the day someone has to pay for that extra stock—the end customer—so it becomes more costly as a country when you don’t have efficient logistics.

Maersk Australia’s Nicolaj Noes

Business Advantage PNG spoke to Nicolaj Noes, Australian Managing Director of global shipping company Maersk Line, about its new level of operations in Papua New Guinea. Business Advantage PNG (BAPNG): Maersk is a global player in the shipping industry but you are a new entrant in the PNG market. How did this come about? Nicolaj Noes (NN): It was a case of Maersk Line spotting an opportunity; where the product we offer wasn’t that readily available in the PNG market.

BAPNG: How frequent are your services at present? NN: Taking into account the operational constraints that we have in the ports here, the frequency is a little over two weeks.

Credit: Maersk

We felt that PNG services were dominated by what we call a sort of a ‘semi-tramp’ approach, meaning that PNG was a stopover on services coming down from Asia and then maybe continuing out to other Pacific islands. However, we also believed that, as PNG was maturing and the customers in its logistic chains were also maturing, there was suddenly a requirement for a different kind of service in container transportation in PNG. So we said: let’s put PNG on a global network with a shuttle service that goes straight into an Asian hub (Malaysia, in our case), and try to differentiate ourselves as a more reliable service. By removing all the variations, we can really focus on servicing PNG and I think that has allowed us to have the best reliability in the market.

Infrastructure & transport

Ports expansion With port traffic growing exponentially over the past five years, Papua New Guinea’s ports have become a bottleneck for both importers and exporters. The situation is set to improve, however. Lae is the most important port in PNG, accounting for 60% of the nation’s trade, and has become one of the busiest in the south-western Pacific, receiving about 850 vessels in 2012. The Lae Port Development Project, started in 2010, is expected to be completed by the end of 2014. Works currently underway include the construction of port facilities, including a tidal basin, a multipurpose berth and terminal works, including buildings, storage areas, roads, drainage, water, electricity and sewerage services.

Reforms to improve port efficiency PNG Ports Ltd's K200 million (US$93.6 million) program of investment to improve efficiency at its two busiest ports had been completed by the end of 2012. It is minimising storage congestion and also decreasing ship berthing times with mobile harbour cranes and rubber-tyred gantry cranes complete with modern terminal operating systems.

Relocation of Port Moresby’s port? Finally, plans are moving ahead that may ultimately see Port Moresby’s port move away from the main ‘town’ precinct. Engineering studies are currently under way, as well as investigations into land-tenure issues.

Credit: PNGFP

It is being funded by US$100 million from the Asian Development Bank and a further US$45.75 million from the PNG Government.

PNG’s first privately built hydro electricity power station has opened in Bulolo, Morobe Province. The US$50 million Upper Baiune power project was built by PNG Forest Products. It is the first commercial venture to supply electricity to state-owned utility, PNG Power.

Infrastructure & transport

Pacific Games 2015 offers opportunities for business

On 4 July 2015, 4000 athletes and officials from 22 countries across the Pacific region will assemble in Port Moresby for the Pacific Games 2015. The work to prepare for the quadrennial Games has already begun, with a K760 million (US$362 million) budget allocated, of which K200 million (US$96 million) has already been granted. The bulk of this budget—about K700 million (US$335 million)—has been earmarked for essential infrastructure projects, including the major redevelopment of Sir John Guise Stadium (itself built and donated by China for the 1991 Games), a new sports complex, new halls of residence at the University of Papua New Guinea campus (which will serve as athlete accommodation) and 20 other redevelopments.

through to pots and pans, cleaning and waste services, TVs, fencing … and fireworks. Stewart, a veteran of the 2010 Commonwealth Games and the 2000 Sydney Olympics, advises the Games will conduct ‘best practice’ purchasing, buying first from sponsors on a preferred-supplier basis, and then from those companies who have registered as suppliers. If anything else is needed, it will go to the market, with big ticket items, such as office fit-outs, legal services and insurance, advertised. ‘This is a games for PNG and we’d like as much money as possible to stay in PNG,’ he says.

Credit: PeddleThorp Architects

Papua New Guinea business is set to receive a major boost from supplying the Pacific Games 2015, as Games CEO Peter Stewart explains.

Infrastructure building has already started and will be overseen by the Games’ Venues, Infrastructure and Equipment Committee. All work will go to tender via the PNG Government’s Central Supply and Tenders Board. However, Games Chief Executive Officer Peter Stewart also expects to spend a further K120 million on ‘small things’— everything from fleet vehicles, flights, catering and staff

Architect’s impression of Port Moresby’s Sir John Guise Stadium, which will be renovated for the 2015 Pacific Games.

Infrastructure & transport

Will 2013 be the year of broadband in PNG? Hopes are high in Papua New Guinea’s telecommunications industry that internet services are finally about to become more accessible and more affordable. ‘Mobile phone usage stands at 27.8% of the population, but internet penetration is only 1.3%, with cost the main issue,’ lamented Managing Partner of Deloitte PNG Lutz Heim at the Papua New Guinea Advantage Investment Summit in September 2012. The main reason for this is that, while the mobile phone sector in PNG has benefited from deregulation, internet thus far has not. As a result, state-owned Telikom PNG has retained an effective monopoly on international access, leaving it free to charge whatever it pleases to local internet service providers (ISPs) and its own customers.

Prices down, speeds up This is finally changing, though, and a dozen ISPs have now applied for their own Individual Network (Gateway Service) Licenses. With competition imminent, there is also pressure on Telikom to reduce its own prices:

‘We think that in the next twelve months there’ll be quite a boom in broadband, quite a boom in business connectivity' ‘It’s our absolute priority to get prices down and speeds up this year,’ newly appointed Chairman of Telikom PNG, Mahesh Patel, told Business Advantage PNG. If deregulation alone can bring prices down, significantly improving speeds will require tangible capital expenditure, however. ‘Even though most customers can use wireless internet services, you still need fibre in the towns and fibre between the towns,’ explains John Mangos, Chief Executive Officer of telecommunications company Digicel PNG.

National transmission network In recognition of this, PNG’s new Government announced a major project to upgrade PNG’s telecommunications backbone shortly after taking office last year. At a cost of 500 million kina (US$239 million), the National Transmission Network (NTN) ‘is essentially an integrated optical fibre network, to be controlled by a new company called PNG DataCo Limited,’ according to Thomas Abe, Managing Director of the Independent Public Business Corporation, the government agency responsible for its implementation. DataCo will own and operate the network as a wholesale provider of telecommunications, with Telikom PNG to be restructured into a retail-focused service provider. 46

‘The aim with the network plan is to avoid duplication of backbone network transmission and to allow retail service providers to concentrate on services to the people rather than building and maintaining expensive backbone networks,’ says Sundar Ramamurthy, a consultant on the project (and original founder of IT services company DataNets, now owned by Digicel). ‘Consumers should see the benefits of lower prices and better access by mid-2014, although everyone should keep in mind that rolling fibre across PNG does pose a non-trivial engineering challenge.’ Indeed, the first stage of the NTN, a new fibre-optic link from Madang to Lae, does not appear to have made much impact so far, in Lae at least: ‘I believe there have been technical issues and our members are frustrated,’ reports Alan McLay, President of Lae Chamber of Commerce and Industry.

Unstoppable momentum Nonetheless, the process does seem to have gained unstoppable momentum and Digicel’s John Mangos is convinced broadband’s time has finally come in PNG: ‘We think that in the next 12 months there’ll be quite a boom in broadband, quite a boom in business connectivity. If the Government wants to get a million people on broadband over the next two years, then we can help them achieve it.’ Given the leading role played by Digicel in the exponential growth of PNG’s mobile phone sector over the past five years, few would disagree.

Manufacturing

Serving the Pacific's largest market PNG’s manufacturing sector has expanded rapidly in recent years, but the operating environment for local producers remains challenging.

Exports In global terms, PNG’s manufacturing sector lacks scale and production costs are high. Though this constrains exports, local producers have found niche overseas markets, particularly in the neighbouring Solomon Islands and other Pacific Islands, and to a limited extent in Australia and New Zealand.

Jobs and high-quality goods PNG’s manufacturing sector reportedly employs around a quarter of the formal workforce, while its contribution to GDP is estimated at between six and 11.5%. Much of PNG’s existing manufacturing sector is centred around Lae and, to lesser extent, Port Moresby. ‘We employ about 500 people and that number rose by 80 last year,’ Phil Kelly, General Manager of the diversified food and condiments manufacturer Laga Industries, told Business Advantage PNG in mid-2012. The range of goods made in PNG is also broader than many would believe. Given PNG’s wealth of natural resources, it is not surprising that downstream processing plays an important role in the manufacturing sector. Examples include the loining and canning of fish, converting local timber into plywood, roasting coffee and even the refining of gold. At the same time, the potential exists to significantly expand the scale and scope of such processing. The PNG Government is seeking to encourage local production by offering incentives and concessions to manufacturing enterprises. Incentives include export sales exemptions and wage subsidies.

Credit: K K Kingston

lthough there have been few new investors in Papua New Guinea’s manufacturing sector during the past decade, most of the established players have invested heavily in new capacity to meet soaring demand. One of the country’s largest and most diversified manufacturers, K K Kingston, is consolidating its various Lae production units into a brand new manufacturing and distribution hub on the outskirts of the city. The industrial supplies company hopes to move into the 26,000-square metre facility sometime in 2014. Meanwhile, S P Brewery—which celebrated 60 years of operations in PNG in 2012—is in the midst of a K150 million (US$71 million) expansion that will add 40% to its output. With growing national income and beer consumption rates still only half of the south-east Asian average, there appears plenty of room for growth. Other significant recent investments include Lae Biscuit Company’s K65 million (US$31 million) investment in a new factory in Lae, while Coca-Cola Amatil PNG opened a K34 million (US$16 million) production facility in Port Moresby in early 2012, to complement its existing plant in Lae.

One of K K Kingston’s factories in Lae. The company is in the process of consolidating its various sites in Lae into one large operational facility.

‘Given that PNG has the largest domestic market in the Pacific region, its manufacturing sector enjoys certain economies of scale that provide opportunities for our manufacturers to export products to smaller markets in the region,’ explains Murray Woo, President of the Manufacturers Council of PNG (MCPNG). In particular, neighbouring Solomon Islands represents a quasi-domestic market for PNG goods. Paradise Foods sells its biscuits and snacks across the Pacific Islands—one of several PNG manufacturers (including K K Kingston, Woo Textile and PNG Taiheiyo Cement) to do so. S P Brewery now exports its signature S P Lager to Fiji, as well as Australia.

PNG Made Over the past three years, the MCPNG has stepped up its ‘PNG Made’ campaign to encourage PNG consumers to buy locally made products. The scheme deploys a ‘PNG Made’ logo that acts as a mark to give consumers confidence that the local goods they are buying are of good quality. To use the ‘PNG Made’ logo, 50% of a particular product’s cost of production must have been incurred in PNG. A wide range of locally produced goods display the logo, ranging from food and beverages, to garments and industrial products.

Challenges The absence of new entrants is probably due to the fact that PNG is just such a tough place to set up and operate a manufacturing operation. Poor infrastructure in areas such as ports, roads and power reduces efficiency and pushes up costs, while a lack of skilled labour remains a significant constraint for industry development in PNG. Moreover, falling tariffs on imports, a strong local currency and limited government assistance to the sector are also drawbacks, says Chey Scovell, Chief Executive Officer of the Manufacturers Council of PNG: ‘We’re expecting to see a continued erosion of market share for local manufacturers due to a rise in smallholder corner shops selling cheaply imported goods and the downturn in the LNG project that will see lower outputs for many members, especially those providing inputs for the [project’s] construction phase.’ 47

Agribusiness & trade

Credit: NBPOL

Palm oil is now PNG’s number one agricultural export, thanks to an increase in global demand for sustainable, traceable palm oil. Pictured is a first for PNG: a fractionation plant in West New Britain built under a joint venture agreement between local producer New Britain Palm Oil Ltd and global confectioner Ferrero.

A natural aptitude Good environmental conditions, a strong history of agriculture and rising global demand has helped expand the agribusiness sector in PNG in recent years, producing important cash crops such as palm oil and cocoa.

griculture has always been an important part of life in PNG, and 85% of the population works in food production in some capacity, usually at subsistence level on smallholder farms. Agriculture accounts for 25% of PNG’s gross domestic product. Competitive advantages such as good soil quality, good seasonal rainfall and low-intensity farming methods are all factors, as are cash crops that are seeing rising global demand, such as sustainably produced palm oil. Together, coffee, palm oil and cocoa make up 80% of PNG’s agricultural exports. There are also smaller export markets for rubber, copra, spices and tea, while poultry, livestock and sugar are supplied to meet local demand.

Palm oil Palm oil is PNG’s largest agricultural export by far, with its major market at this stage being the European Union—including the United Kingdom, where PNG’s main producer, New Britain Palm Oil Limited (NBPOL), has processing operations. NBPOL’s success with palm oil has been underpinned by its commitment to producing certified sustainable and traceable product, for which buyers will pay a premium. While palm oil exports were worth US$700 million in 2011, up 44% from the year before, 2012 was a weaker year, with lower international prices and poor weather conditions leading to lower than expected profits for the sector. NBPOL, for instance, reported 2012 profits were down by 70.4%. Jamie Graham of Ramu Agri Industries, a subsidiary by NBPOL, told Business Advantage PNG that it is not just weather that has been affecting profits but also the general cost of 48

‘Since 1976, palm oil exports have grown exponentially from a low base and it now outpaces all other main agricultural areas combined.’ doing business: employment costs, high cost of services, congested ports, poor roads, a strong local currency and falling commodity prices.

Price volatility While palm oil prices are volatile, there is no question of palm oil’s viability in PNG over the longer term (indeed, diversified Malaysian investor R H Group is also making significant investment in palm oil production in PNG). Copra is another crop that had a hard 2012: worldwide prices dropped 78% from 2011. Similar problems were the root cause, although competition from a rising soy product market was also a factor.

Coffee and chocolate Although PNG’s overall cocoa production is only about one per cent of the worldwide market, it holds a larger share of the high-end, or fine and flavour, cocoa market (as opposed to the bulk cocoa market). Much of the crop goes to big chocolate producers who want to use sustainable, traceable ingredients for their products. The largest markets are the United States, Belgium, Malaysia, Singapore, Germany, United Kingdom, China, Netherlands, Switzerland, France and Australia.

agribusiness & trade

Opportunities to sell to Papua New Guinea

Here are just some of the areas of key expenditure and demand: > Machinery and transport equipment > Mining and petroleum project-related services

Credit: Mainland Holdings

Large-scale agribusiness NGIP Agmark exports 70% of PNG’s cocoa crop, although there are another 24 smaller exporters. PNG’s single-origin cocoa has a reputation for particular richness of flavour and is grown in New Britain, Bougainville, Sepik, Kokoda, Madang and Morobe provinces. PNG is a member of the International Cocoa Organisation (ICCO) and has its own cocoa board, which regulates quality control, licensing and export registration. The PNG Government has targeted 100,000 tonnes of cocoa exports by 2016. Smallholders are heavily involved in cocoa production, with the average yield per family plot just 300 kilograms per year. Investment in technology, pest and disease management, and shade management could expand that figure. PNG has exported up to a million bags of green coffee beans annually (both arabica and robusta varieties), much of it to Europe. However, in 2012, production fell markedlty and only 808,000 bags were exported. ‘The lower volume was mainly attributed to an off-year biennial production cycle as well as election-related activities that disrupted farmers to bring coffee out onto the markets,’ said Coffee Industry Corporation Chief Executive Officer Navi Anis. 2013 is expected to be a better year.

> Construction supplies and contracting > Food and beverages > Health products and services > Education and training products and services (K–12, tertiary, technical and professional) > ICT products and services.

Coffee beans bagged and ready for market.

Key production areas are the Western and Eastern Highlands, which produce about 80% of the country’s coffee. While most coffee leaves PNG with minimal processing, there is an increasing number of companies that roast and package coffee in PNG, both for export and domestic consumption. While a limited shelf-life for roasted coffee mitigates against large scale exports, organic and ‘fair trade’ certification have been identified as one way of raising the yield from PNG’s coffee crop.

The usual obstructions

Domestic demand for chicken is soaring in PNG.

Agribusiness faces the same issues that are problematic for many of PNG’s productive sectors: poor infrastructure, law and order issues, and poor marketing and organisation. For some smallholders, even getting the crop to market can be hard, although more are now turning their produce over to larger agribusinesses. PNG’s most profitable and much-vaunted mining and petroleum sector has in fact been something of a drain on the agricultural sector; labour cost availability has been a major concern, as has basic infrastructure. ‘Infrastructure is considered a government obligation in many economies but has to be provided by manufacturers in PNG. PNG must fund and nurture these services if we are to become a serious producer and a viable economy,’ Bob Hansen, Chief Executive Officer and Managing Director of diversified agribusiness Mainland Holdings, told the September 2012 Papua New Guinea Advantage international investment summit in Port Moresby. 49

Credit: Mainland Holdings

While Papua New Guinea’s commodities are exported all over the world, the country also imports goods worth some K10 billion (US$4.74 billion) annually.

Credit: Cloudy Bay Sustainable Forestry

Forestry

PNG’s expanding sustainable forestry industry Papua New Guinea’s forestry sector has largely bounced back from its 2008–09 slump, and is looking to value-adding, together with sustainability and traceability practices, for its growth.

‘Rising domestic demand has also driven major new resources projects, plantations, and forest enhancement.’

hile round log exports were down, the value-adding and processing sectors of the industry saw robust growth in 2012, with more opportunities to come: Mike Janssen, Managing Director of Cloudy Bay Sustainable Forestry, told Business Advantage PNG that not only would Papua New Guinea’s growing local economy put more disposable income into the pockets of people wanting to build houses but that ‘the record 2013 National Budget also has a big allocation of funding for infrastructure, which includes schools and housing, so one would expect demand to grow.’ Round log exports—which account for the bulk of PNG’s forestry exports—were lower in the first two quarters of 2012 and, although the second half of the year saw improvement, exports stayed below 2011’s high. Bob Tate, Executive Director of the PNG Forest Industries Association, suggests the export downturn was caused by international factors rather than domestic ones: ‘If China or Japan has a particularly harsh winter, things slow down; there’s no domestic reason for the drop.’ International market conditions were also important, according to Tate, with the depressed housing sectors in the United States and Australia meaning less demand for supplies from China.

monitoring firm that tracks log exports for the PNG Government. Exports were 3 million cubic metres in 2010. There are 29 forest concessions covering 3.5 million hectares and 84%of the country’s landmass is forest; 14 million acres of this are potential production forests, with 60 commercial species of timber, including valuable species such as rosewood. Ninety-five per cent of export comes from round logs but there is a growing domestic production sector. China is by far PNG’s largest market, accounting for an 89% share, followed by Japan, Taiwan, Vietnam, South Korea and India. Australia and New Zealand take much of PNG’s processed timber, as do Pacific nations. The sector is also a source of employment, with about 13,000 people employed directly, and it also generates millions of kina in taxes, landowner royalties and infrastructure development.

Tropical hardwoods

SABL enquiry

PNG’s forestry sector contributes four to seven per cent of the country’s GDP, and PNG exported 3.5 million cubic metres of tropical hardwoods in 2011, according to SGS, the Swiss

With land customarily owned in PNG, acquiring land for forestry use can be complex. Under Special Agricultural and Business Leases (SABLs), customary owners lease

forestry

land to the Government, which then issues leases to commercial operators. The industry is awaiting the outcome of a Commission of Enquiry into SABLs, following claims that certain tracts of forest had been leased out for 99 years without the full knowledge and consent of landowners. The report, originally due in mid-2012, has been delayed.

Plywood in storage

Credit: Cloudy Bay

Importantly, sustainable and traceable forest products are a growing industry and five major PNG producers are already certified, or in the process of becoming independently certified, for legal origin and chain of custody, meaning new export opportunities should arise in the growing number of markets requiring third-party verification. Rising domestic demand has also driven major new resources projects, plantations and forest enhancement under climate-change protocols and they, in turn, have helped spark and drive local demand as availability grows. The PNG Forest Authority plans to develop 240,000 hectares of commercially viable and sustainable forest plantations by 2030. Approximately 4000 hectares are expected to be developed by private investors, including possible new entrants to the sector. There are growing opportunities for companies looking to invest in timber production as the Government has instituted policies requiring downstream processing. Producers already generate sawn timber, veneer sheets, plywood and processed timber exports, but these sectors will receive greater emphasis.

Credit: R H Group

Sustainability is key

A house made from prefabricated PNG timber

Tourism Looking at the Owen Stanley Ranges from the award-winning Airways Hotel in Port Moresby.

A land of unexpected opportunity Papua New Guinea’s tourism industry may still be in its infancy but it has been growing steadily over the past several years. Although primarily a ‘soft adventure’ destination, a growing cruise ship sector and award-winning luxury hotels are offering new and varied options, reports Helen Clark.

ccording to the South Pacific Tourism Organisation’s (SPTO) second-quarter report for 2012, PNG received the second-largest number of international arrivals in the South Pacific, after tourism hub Fiji. Australia remains the biggest market for incoming visitors, with ‘Other Asia’ the second. Both the United States and Japanese markets remain small but are seeing growth, according to the SPTO report. However, statistics can be deceiving: only a quarter or less of those arrivals were for holiday purposes. Business and employment are the number one and two reasons for visits, respectively. Of the 38,000 arrivals recorded in 2012’s second quarter only some 6000 came for holidays. Visits were down overall compared to the same period in 2011, mostly due to fears of instability in the lead-up to PNG’s national elections. Yet, the large number of expats on business visas, and their families, who often work in the booming extractive sector, do provide varied opportunities for local tourism operators to offer short-term breaks or other trips, especially as capital Port Moresby and manufacturing hub Lae, where most expats live, are not known for their diverse, family friendly activities. 52

‘Although only possessing one per cent of the world’s landmass, PNG accounts for five per cent of its original and untouched ecosystems.’ Flying in Air Niugini, the nation’s flag carrier, is looking at more routes and increasing its existing ones. At the time of writing, the airline was planning an advertising campaign in Australia for March and April 2013 to grow PNG’s strongest market. The United States Marine bases in Darwin and Guam are also possible future target markets. Air access to PNG continues to improve from other carriers also. Both Qantas and POMSoX-listed Airlines PNG have regular flights connecting PNG to Australia’s major east coast airports.

For the adventurous traveller Despite PNG being a relatively ‘unknown’ destination, travel guide publisher Lonely Planet produces a surprisingly detailed listing of sights and things to do in most provinces, proving that indeed there is plenty for tourists to see.

What are considered barriers to doing business by many companies—namely, low levels of development, poor infrastructure and hard-to-get-to locations—are actually drawcards for many of PNG’s more intrepid visitors, who look forward to exploring somewhere ‘authentic,’ far from large crowds of tourists. Diving, trekking, fishing and bird watching are popular tourist activities. Surfing is also a small but growing niche market. PNG’s exceptionally varied cultures—the nation is home to an estimated 800 languages—and friendly people are also tourist drawcards. Many lodges offer ‘homestays’ in traditional villages as part of trekking packages. Trekking has grown beyond the typical Kokoda Trail trek, mostly taken by Australians, to take in more areas. Places such as the Tufi Resort in Oro Province provide trekking options of varying degrees of difficulty as well as fishing, bird watching and all-year diving. PNG is known for its rich biodiversity. Though only possessing one per cent of the world’s landmass it accounts for five per cent of its original and untouched ecosystems. The country is unique for being home to both marsupials more commonly found in Australia and also creatures common to Southeast Asia. Its birdlife is also largely endemic.

Expanding hotel sector For a long time, hotel accommodation in PNG was inadequate to meet demand. However, inventory has gone up significantly in Port Moresby. Last year, the recently extended Airways Hotel won Best Airport Hotel at the World Travel Awards for the third year in a row, beating 14 other nominees from the United Arab Emirates, Australia and the United States. Steamships Trading Company’s Grand Papua Hotel—the first newly built hotel to open in Port Moresby in more than 20 years and a 200 million kina (US$97

Credit: PNG TPA

Tourism

A cruise ship visits Madang

million) investment—opened in November 2011. More inventory is on its way from other operators such as Holiday Inn. In 2013, Malaysian investor R H Group will commence construction of the Raintree Hotel and Suites at Vision City, as well as a new hotel at Jacksons International Airport. At the other end of the accommodation spectrum is Villagehuts, an online service launched in March 2012 that lists hundreds of accommodation options, deals, tours and flight information, and provides a secure reservation system. While some of the offerings are four-star hotels in major cities, the majority are guesthouses and lodges that are particularly attractive to the growing adventure market. Rustic yet high-end accommodation is also available. The Conflict Islands, a privately owned set of islands in Milne Bay reached via seaplane from Alotau, has six bungalows. An onsite chef cooks or visitors can prepare their own meals from local produce or whatever they’ve caught during a day’s fishing.

Cruising in

A new Holiday Inn under construction in Port Moresby’s Waigani district.

Papua New Guinea has also seen an upswing in cruise ship visits, with more than 1000 tourists visiting aboard four cruise ships in early 2012 alone. Those numbers are set to remain steady this year. Operators with cruise ships visiting PNG in 2013 include Carnival Australia/P&O (which launches its first dedicated Papua New Guinea itineraries in 2013), Hapag-Lloyd Cruises and Japan’s NYK Cruises. The PNG Tourism Promotion Authority reports that cruise ships are responsible for 90% of the revenue earned by PNG’s coastal tourism operators. Alotau, Rabaul, Madang and the Sepik coastlines are strategically convenient destinations for cruise ships from Asia. Cruise ship visits are especially helpful and lucrative for the burgeoning industry as visitors can enjoy all PNG has to offer—including gorgeous bays, stunning mountain scenery and cultures that are welcoming and fascinating—without the headaches the nation’s infrastructure and visa regulations can give to domestic operators. 53

Credit: PNG TPA

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 Dulux PNG +675 325 4555 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 Laga Industries +675 475 7344 www.lagaindustries.com.pg Mainland Holdings +675 472 3499 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 +675 321 3530 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

Useful online resources for Papua New Guinea www.businessadvantagepng.com The online edition of this publication, plus other business resources for the Asia-Pacific region. www.ipa.gov.pg PNG’s Investment Promotion Authority. www.pomcci.org.pg The PNG Chamber of Commerce and Industry. Information on networking, PNG business generally, useful links and POMCCI’s training workshops. www.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

PNG Investor’s Manual by Port Morebsy Chamber of Commerce The PNG Investors’ Manual is a handbook for those investing and doing business in Papua New Guinea. Co-published by the Port Moresby Chamber of Commerce and Industry (POMCCI), the PNG Investment Promotion Authority and the Asian Development Bank, the guide is designed to provide an in-depth guide for new and existing investors. Topics covered include PNG’s legal and tax system, profiles of PNG’s key economic sectors and information on living and working in PNG. To obtain the printed manual, email bizcentre@pomcci.org.pg or view it online at www.pomcci.com. The Port Moresby Chamber of Commerce & Industry (POMCCI) is PNG’s largest Chamber and has been an active, memberbased business chamber in PNG’s capital city since the 1920s. It is a member of the International Chamber of Commerce (ICC) and a Lifetime Member of the Confederation of Asia-Pacific Chambers of Commerce and Industry (CACCI). As well as representing its members’ interests to Government, POMCCI provides a wide range of support services to its membership.

BSP Capital Limited +675 321 4333 www.bspcapital.com.pg Kina Group of Companies +675 308 3888 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 www.pacificmmi.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 www.nzpbc.co.nz +64 9 270 3746 Pacific Islands Trade & Invest www.pacifictradeinvest.com Port Moresby Chamber of Commerce & Industry (POMCCI) +675 321 3077 www.pomcci.org.pg

BUSINESS SERVICES Air Energi Pacifica +675 320 3095 www.airenergi.com BSP Capital +675 321 4333 www.bspcapital.com.pg Cadden Crowe +675 656 0477 www.caddencrowe.com.au Pacific-wide executive recruitment. Daltron +675 302 2200 www.daltron.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 G4S Secure Solutions (PNG) +675 325 6377 www.g4s.com.pg Gadens Lawyers +612 9035 7103 www.gadens.com.au Guard Dog Security Services +675 325 9653 (POM)/ 475 1069 (Lae) Golder Associates PNG Ltd +675 7211 5454 www.golder.com International SOS +675 323 2033 www.internationalsos.com

Maersk Line www.maerskline.com Media Partners +675 323 9160 www.mediapartners.com.pg Peddle Thorp Architects +675 321 4688 www.peddlethorp.com PricewaterhouseCoopers +675 321 1500 www.pwc.com/pg Pacific View Multimedia +675 325 7419 www.pvm.com.pg RdL Management Consultants +613 9756 7331/+675 715 73562 www. rdlmanagementconsultants. com.au Remington Technologies +675 312 3400 www.remington.com.pg

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

FISHERIES Frabelle +675 472 7663 www.frabelle.com RD Tuna Canners Limited www.rdtunacanners.rdgroup. com.ph 55

Directory: Who’s who in PNG

PNG’s Investment Promotion Authority Foreign investment in PNG is regulated by the national government through its Investment Promotion Authority (the IPA). The IPA’s approach is to promote and assist foreign investment. The IPA consists of five key divisions. These are the Business Investment and Export Promotion, Business Information and Facilitation, Business Registration and Regulation, the Intellectual Property Office of PNG and the Securities Commission of PNG.

approach the IPA during the early stages of considering investing in PNG (along with relevant industry bodies such as a chamber of commerce). The IPA will assist in facilitating the proposals, identify relevant government departments and assist investors in obtaining the required approvals, licences and permits. www.ipa.gov.pg Extract from The PNG Investor’s Manual (2nd edition)

The IPA has been designed as the first point of contact for a potential new investor in PNG. A foreign investor should

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

MINING & PETROLEUM Barrick +675 322 4800 www.barrick.com InterOil +675 309 9100 www.interoil.com Marengo Mining Ltd +61 8 9429 0000 www.marengomining.com 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 Petromin PNG Holdings Ltd +675 325 2743 www.petrominpng.com.pg PNG Chamber of Mines and Petroleum +675 321 2988 www.pngchamberminpet. com.pg PNG LNG project/Exxon Mobil www.pnglng.com

Talisman Energy

LANDOWNER COMPANIES/FUNDS

Xstrata Copper +617 3295 7500 www.xstrata.com

Anitua Group +675 986 4633 www.anitua.com.pg Hides Gas Development Company (HGDC) +675 321 4360 www.hgdcpng.com IPI Group www.ipigroup.com.pg LABA Holdings +675 710 01810 www.laba.com.pg PNG Sustainable Development Program Ltd +675 320 3844 www.pngsdp.com Trans Wonderland Limited (TWL) +675 321 8077 www.transwonderland.com

www.talisman-energy.com

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

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

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 W R Carpenter Group +675 302 4200 www.carpenters.com.pg

Credit: Steamships

Business Travel Guide to Papua New Guinea

Steamships’ Windward 2 apartments under construction in Port Moresby.

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

COMMUNICATIONS Internet: Web access in Port Moresby has improved immensely in recent years. Although it remains costly, all the Port Moresby hotels listed below now provide a fast-speed internet service. In other urban centres, you may still be relying on dial-up. For those staying longer, wireless internet, via a USB modem, is now available, although download speeds can vary considerably depending on your location. Mobile: Roaming is possible in PNG but it is costly. It is simple to buy a local SIM card and pre-paid credit. Landlines: Service is inconsistent outside Port Moresby and outages do occur. Rates for domestic calls are fairly modest. 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

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 below will provide a complimentary transfer. Domestic Flights: Travelling within PNG often means taking an internal flight (for instance, you cannot drive between Port Moresby and Lae). There are regular services from Port Moresby to Lae. While the price of domestic fares has fallen, they are still on the high side. Air Niugini now offers passengers the chance to book online but make sure you print out a copy of your receipt to show at the check-in counter. Airlines PNG 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.

National flag carrier 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 ). Airlines PNG (www.apng.com) flies from Cairns and operates a codeshare with Virgin Australia on the Brisbane route (www.virginaustralia.com). Qantaslink offers flights from Cairns to Port Moresby (www.qantas.com.au ).

MONEY

GETTING AROUND

TIME ZONE

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.

VISAS

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 act cautiously, especially at night. PNG has a single time zone, 10 hours ahead of UTC/GMT. 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

Business Travel Guide to Papua New Guinea

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.

EATING, DRINKING, SOCIALISING IN PORT MORESBY (see also hotels below) Town: Asia Aromas in the Steamships arcade, CBD is a Port Moresby institution serving excellent Thai and Chinese food. Reservations recommended at lunchtime. 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 popular 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 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. Tel +675 303 2000.

Duffy Café is proving a hit with expats.

Lamana Hotel Also in Waigani, this modern hotel’s facilities include the popular Palazzo restaurant (excellent steaks, pizzas and Indian cuisine), business centre, conference facilities and the PNG’s most trendy nightspot, the Gold Club. Tel +675 323 2333. Ela Beach Hotel and Whittaker Apartments On the fringe of the CDB, this hotel/apartment complex has been renovated by Coral Sea Hotels. Its main eatery is popular at lunchtime. Tel +675 321 2100. Gateway Hotel Another member of Coral Sea Hotels, located next to the airport. Recent renovations added a large conference centre. Other urban centres Lae’s best hotel, Lae International Hotel, has a secure, central location, pleasant grounds, cable TV and several dining options. Tel +675 472 2000, www.laeinterhotel.com.pg . Its main competitor is the nearby Melanesian Hotel, part of the Coral Sea Hotels group that also provides business-standard hotels in other urban centres. www.coralseahotels.com. Note also the Alotau International Hotel in Milne Bay Province (www. alotauinternationalhotel.com.pg) and the Gazelle International Hotel in Kokopo (East New Britain Province; www.gazelleinternationalhotel.com).