Business Advantage Papua New Guinea 2012/2013

BUSINESS AND INVESTMENT GUIDE

Business Advantage

PAPUA NEW GUINEA 2012/ 2013

• Inaugural PNG 100 CEO Survey • The rise of the private sector • PNG: overcoming the challenges • Mining and LNG updates

businessadvantagepng.com 1

INVESTMENT PNG Sustainable Development Program Ltd (PNGSDP) promotes diversified and balanced economic development throughout PNG, especially Western Province, providing for improved well-being and self-determination of local communities.

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

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

DEVELOPMENT

www.pngsdp.com 2

email: enquiries@pngsdp.com

CONTENTS

INVESTMENT

6

ECONOMIC UPDATE

Managing the boom: halfway through the building of its major liquefied natural gas project, Papua New Guinea finds itself in a strong fiscal position but with some key challenges that only fast-paced economic growth can bring, reports Andrew Wilkins.

12

The PNG 100

CEO survey

THE PNG 100 CEO SURVEY

Senior executives of PNG’s largest businesses are predicting increased profits, investment and employment in 2012 in spite of major challenges, according to a major new survey.

23

GAS AND PETROLEUM UPDATE

PNG’s oil and gas sector continues to attract new entrants as its ExxonMobil-led PNG LNG liquefied natural gas project moves inexorably towards its production stage. We ask Esso Highlands' Peter Graham about progress.

12 PERSPECTIVES ON PAPUA NEW GUINEA 14 PNG’S CAPITAL MARKETS & REGIONAL OUTLOOK 16 THE RISE OF PNG'S PRIVATE SECTOR 18 DOING BUSINESS IN PNG 19 LEGAL CONSIDERATIONS

FEATURE 20 PNG: OVERCOMING THE CHALLENGES We take a closer look at some of the daily challenges faced by companies doing business in PNG and find out how they are overcoming them.

MINING AND PETROLEUM 26 MAP: PNG’S MINING AND PETROLEUM PROJECTS 28 MINING UPDATE

PROVINCE IN FOCUS 32 WESTERN PROVINCE

INDUSTRY SECTORS 34 FINANCIAL SERVICES 36 INFRASTRUCTURE & TRANSPORT 39 FISHERIES 40 AGRIBUSINESS & TRADE 42 FORESTRY 44 MANUFACTURING 45 TOURISM DEVELOPMENT

DIRECTORY 47 WHO’S WHO IN PNG BUSINESS 48 USEFUL ONLINE RESOURCES ON PNG 49 BUSINESS TRAVEL GUIDE TO PNG

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

RIMBUNAN HIJAU (PNG)

RD TUNA CANNERS LIMITED

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Credit: PNG Tourism Promotion Authority

Welcome

Since 2006, Business Advantage Papua New Guinea has provided business people around the world with an annual overview of the PNG economy, and the opportunities for doing business there.

T

his publication is the result of extensive research and dozens of interviews with business leaders conducted in PNG in the twelve months leading up to publication.

We aim to present PNG in the words of those who are doing business there, and reflect issues on the ground as fairly and accurately as we can.

This year, we are introducing a new feature: the PNG 100 CEO Survey (see page 12), in which we ask the executives of PNG’s top companies to give us their profit, employment and investment expectations for the coming year, and to reflect on the challenges they face in their businesses. As the survey continues from year to year, we hope it will become an essential barometer of business confidence.

As this year’s survey indicates, PNG is forging ahead. In the period since we started covering this economy, its GDP has grown steadily and continues to grow. With one major liquefied natural gas project halfway to completion and more resources

Business Advantage Papua New Guinea 2012/13 is published by Business Advantage International Pty Ltd, Level 27, Rialto South Tower, 525 Collins St, Melbourne, Victoria 3000, Australia, tel +61 3 9935 2977, fax +61 3 9935 2750.

www.businessadvantageinternational.com 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. Š Copyright 2012 Business Advantage International Pty Ltd and contributors ISSN 1836-7895 (print)/1836-7909 (online) Project Director: Robert Hamilton-Jones (rhj@businessadvantageinternational.com) Publishing Director: Andrew Wilkins (aw@businessadvantageinternational.com) Editorial: Jacqueline Bennett, Samantha Magick, Rod Myer, Harbant Gill Design: Michael Renga

4

projects on the horizon, PNG is finally becoming an economy of international interest.

However, there is a widespread acceptance among business and government in PNG that mineral resources alone will not build a healthy economy. PNG needs to build on its considerable natural advantages in agriculture, fisheries, forestry and tourism, as well as broaden its manufacturing and services base, if it is to fulfil its rich potential. This is happening: the challenge for all is to ensure growth benefits all Papua New Guineans, especially those in the informal part of the economy who constitute the majority.

We hope you find this publication useful and that it directs you to the people and organisations that can help you do business in PNG. Our coverage of the PNG economy continues (between editions of this publication) online at www. businessadvantagepng.com.

Cover images: ExxonMobil, Asian Development Bank, R D Tuna 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.

5

ECONOMIC UPDATE Port Moresby harbour

Managing the boom

Halfway through the building of its major liquefied natural gas project, Papua New Guinea finds itself in a strong fiscal position but with some key challenges, reports Andrew Wilkins.

A

fter ten straight years of economic growth, culminating in an impressive 8.9% increase in GDP in 2011 (compared to a world average of 4%), Papua New Guinea’s economy is in robust shape.

Corporate profits are strong, with corporate tax revenue budgeted to rise by a heady 19.9% in 2012, the country’s foreign reserves are at record levels and Government finances are in order, with the December 2011 budget not only balanced, but promising greater development expenditure than any budget in the country’s history.

The reasons behind PNG’s current performance were identified by the International Monetary Fund’s February 2012 mission to the Pacific democracy: ‘Elevated commodity prices, the construction of a liquefied natural gas (LNG) project and its spin-off effect to other sectors such as manufacturing, building and construction and transportation, and election-year government spending are boosting the economy.’

Mid-way through a construction boom At the start of 2012, PNG finds itself halfway through the construction phase of the US$16.5 billion ExxonMobil-led PNG LNG project.

‘Many small businesses in PNG are benefiting from the flow-on activities of the LNG project, and many of our business customers are experiencing prosperous growth,’ notes Greg Pawson, General Manager, Pacific Banking, Westpac.

While profits are high and formal employment is growing by 7.1% per annum, there are downsides to having such a large project in a small country. As well as creating a shortage of skilled workers and general capacity, the importing of materials for the project’s construction has made a dent in PNG’s current account deficit (riding at 35% of GDP). Capacity constraints have also driven inflation higher (officially expected to run at 7.6% in 2012, but anecdotally expected to be much higher), although it has 6

‘This place is very busy at the moment …

I think everybody’s just firmly focused on getting the business done.’ been tempered somewhat by an appreciably stronger kina against the US and Australian dollars.

Even as the economy pushes ahead at full steam, companies are already preparing for the inevitable slow-down once the construction phase of the LNG project is completed in 2014.

‘Yes, there will be some reduction in GDP,’ notes Ian Clyne, Chief Executive Officer of Bank of South Pacific, PNG’s largest retail bank. ‘But then ultimately I think Papua New Guinea, given its wealth, will continue to do well.’

Towards a diversified economy Internationally, PNG is often seen as a resources-based economy, but what is noteworthy about its economic performance in 2011 is that the country’s non-mining sectors actually outperformed its resources sector, growing by 10.8% compared to 7.4%. Indeed, as Bank of PNG Governor Loi M Bakani observed to an audience of Australian and Papua New Guinean accountants in November 2011, the non-mining sector has driven most of the country’s 5.4% GDP per annum growth over the past decade.

With its conducive climate, fertile soils and expansive exclusive economic zone, PNG has natural advantages in agriculture, fisheries and forestry, while it also possesses substantial manufacturing and services sectors. With major resources projects such as Hidden Valley (gold/silver), Ramu (nickel), Wafi-Golpu (gold/copper), Frieda River (gold/copper) and a second LNG project in the pipeline, the opportunity exists to develop a truly diversified economy in the future—a stated goal of the PNG Government’s Development Strategic Plan, 2010–2030.

Economic update

PAPUA NEW GUINEA IN BRIEF IRALIT Y ISLAN DS

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AUSTRALIA

Political instability Since April 2011, when then-Prime Minister Sir Michael Somare, was taken gravely ill, the political stability that has been a feature of Papua New Guinea for the past decade has given way to a period of political and constitutional instability. In August 2011, Somare’s National Alliance government was replaced by one led by former Treasurer Peter O’Neill, and constitutional arguments about the legitimacy of the new Government have continued ever since.

While the political and legal disputes, including a messy struggle with the judiciary, have been heated, it is worth noting that, up to the time of writing, they had still not engendered significant social unrest. Many of the business leaders Business Advantage spoke to for this publication expressed admiration for the calmness with which nearly all Papua New Guineans have reacted to the political situation. There is a consensus that national elections, scheduled for June 2012 but the subject of recent uncertainty, have probably acted as a circuit breaker.

(Prime Minister O'Neill is on record saying they will proceed as planned.) So too is the fact that, as one commentator put to us, ‘people have felt more comfortable with the new Government’.

6.7 million (2009) Port Moresby 463,000 sq km Melanesian, Papuan, Negrito, Micronesian, Polynesian Time zone GMT +10 hrs Business language English Political status parliamentary democracy Nominal GDP US$8.89 billion (2011) GDP growth 8% (2012 projected, source: Bank of PNG) Inflation 8.4% (2011, source: Bank of PNG) Currency PNG kina Major industrial sectors mining, crude oil petroleum refining, copra crushing, palm oil, plywood and wood chip production, construction, fisheries, tourism Exports oil, gold, copper ore, logs, palm oil, coffee, cocoa, seafood Major export markets Australia, Japan, China Imports machinery and transport equipment, manufactured goods, food, fuels, chemicals Major import markets Australia, Singapore, China World Bank Ease of 101 out of 183 countries Doing Business Ranking 2012:

Credit: PNG Tourism Promotion Authority

ADM

7

Economic update

Indeed, up to the time of writing, the political unrest seems to have caused more consternation outside Papua New Guinea than inside. At the end of January 2012, news came in to Papua New Guinea’s capital, Port Moresby, that international credit rating agency Standard & Poor’s had downgraded the country’s long-term sovereign credit rating from ‘stable’ to ‘negative’, following a widely reported but comically short-lived coup attempt.

IFC’s Resident Representative Carolyn Blacklock was in meetings when the news came through: ‘Everybody around the world was getting these reports before we did … and so the phone was running hot … and the meetings just continued,’ she tells Business Advantage. ‘This place is very busy at the moment … I think everybody’s just firmly focused on getting the business done.’

Standard & Poor’s had blinked, but those on the ground had their eyes on the main game. Indeed, other rating agencies failed to follow S&P’s suit and by mid-March rival agency Moody’s was

concluding that the political situation, while yet to be resolved, was ‘little threat to near-term drivers of economic growth’.

Addressing the challenges to business This view is supported by PNG’s senior business leaders, whom Business Advantage surveyed extensively between December 2011 and March 2012 for our PNG 100 CEO Survey (see page 12).

While they are keeping an eye on the political situation, they told us they were more concerned about skills shortages, law and order more generally, the unreliability of state-owned utilities, lack of government capacity, and the challenge of moving produce, goods and equipment into, around and out of an underdeveloped country. While PNG businesses are innovative in managing these challenges (see page 20), the business community is also looking to government to improve service delivery, address corruption and reduce red tape.

‘The challenge for the country is to take the windfalls and

RISE OF THE PNG CONSUMER A noticeable feature of today’s Papua New Guinea is the increasing affluence of its population and the emergence of the PNG consumer.

The increase in traffic on Port Moresby’s roads is just one indicator.

‘There are a lot more cars in the country, and a lot more affluent middle class,’ observes Wayne Dorgan, Managing Director of leading insurer Pacific MMI. ‘There are a lot more motor vehicle accidents too …’ he adds wryly.

As a sign of its confidence in the continued growth in the country, leading motor vehicle retailer, the Toyota-owned Ela Motors, is spending K32.5 million (US$15.2 million) on a new 4.2 hectare national distribution centre in PNG’s second city, Lae.

‘There was a lot of scepticism but now we’re looking for a second site,’ says Mahesh Patel, Chairman of the CPL Group, which is PNG’s largest retailer. CPL, whose interests include pharmacies, supermarkets, hardware stores and the Boncafé coffee chain, announced a 62% increase in profits in 2011.

Another major new landmark in Port Moresby is the 160room Grand Papua Hotel, the new flagship of Steamships’ Coral Seas Hotels chain, which opened for business in September 2011. According to Steamships Trading Group Chief Operations Officer—Logistics Tom Owen, the building of the new luxury hotel, part of series of hotel upgrades and real estate construction being undertaken by the group across the country, is ‘a statement of faith in the growth of the PNG economy.’

Credit: CPL Group

PNG’s emerging middle class now also has more places to spend its money. Malaysian investor Rimbunan Hijau’s impressive Vision City, PNG’s first large scale shopping mall, has expanded over the past year to include new restaurants,

cafés, and even a bookshop and the multiplex Paradise Cinema. The latter, which opened in February 2012, is a joint venture by locally-listed City Pharmacy Limited (CPL), broadcaster PNG FM and Fiji’s Damodar Group.

Vision City shopping mall in Waigani.

8

Port Moresby’s first multiplex cinema opened in February 2012.

Economic update

While it is generally agreed that the building boom has peaked, construction continues in Papua New Guinea's key urban centres.

really enhance the infrastructure, get real benefits to the population and obviously improve law and order and judicial systems to reflect the needs of what is going to be a very vibrant place to do business,’ asserts BSP’s Ian Clyne.

Future-proofing the economy There is some encouraging news in this respect. A Sovereign Wealth Fund is to be created to house state revenues from the PNG LNG Project and help prevent PNG succumbing to the ‘Dutch disease’ that has affected some other developing countries with major resources projects. This move, according to Moody’s, ‘augurs well for continued fiscal discipline’. A portion of this fund will be used to invest in badly-needed infrastructure, including re-capitalising of state-owned enterprises.

Ultimately, if PNG’s state-owned enterprises are to start

performing as the country needs, far-reaching reforms will be needed similar to those that have taken place in its deregulated information and telecommunications sector (see page 38).

Another welcome development in early 2012 was the abolition by the O’Neill Government of tuition fees for primary and secondary children up to Year 10 and the reduction of fees for older students.

Andrew Wilkins is Publishing Director of Business Advantage International

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9

SURVEY

The PNG 100 CEO Survey Senior executives of PNG’s largest businesses are predicting increased profits, investment and employment in 2012 in spite of major challenges, according to a major new survey.

T

he PNG 100 CEO Survey, conducted by Business Advantage International between December 2011 and February 2012, asked the CEOs of PNG’s major companies across all sectors of the economy to answer questions about how profits were matching expectations and their plans for future investment and job growth, as well as the key issues facing their businesses.

‘The country’s major employers are bullish about the year ahead, with almost 90 per cent of respondents expecting 2012 profits to exceed those of 2011.’

Higher profits expected

There is also good news on the employment front, which is especially welcome given PNG’s low levels of formal employment.

Just over 50 per cent of responding CEOs said they were expecting to increase their headcount during 2012, with a further 40 per cent saying their staff numbers would remain steady.

Its findings show the country’s major employers are bullish about the year ahead, with almost 90 per cent of respondents expecting 2012 profits to exceed those of 2011. Remarkably, none expected a decline. This statistic is all the more impressive when the companies’ 2011 performances are taken into account: two-thirds of respondents said their 2011 profits had exceeded expectations and only 22 per cent said profits had fallen short of expectations.

Greater investment There is evidence from the survey that these stronger-thanexpected profits are being ploughed back into business. More than 57 per cent of respondents indicated that their own investment in new plant, equipment and other assets would increase in 2012, with a further 25 per cent saying investment would at least match 2011 levels.

Looking back on your business’s performance in 2011, how did your profits perform against expectations?

More jobs

Critical issues While the survey reveals a positive picture of corporate growth, there are undoubtedly some major issues facing PNG’s corporates. We asked PNG’s top CEOs to rank various business issues on a scale from 1 to 5, where 1 meant the issue was not relevant to their business and 5 meant it was mission critical.

The four most critical issues were, in order, PNG’s skills shortage, security/law and order problems, getting access to necessary expertise and the lack of reliability of PNG’s stateowned utilities.

How much investment (e.g. in plant, equipment, land or other assets) are you planning in 2012?

11.1%

25.0% 11.1%

Greatly exceed expectations?

A substantial increase on 2011

14.3%

Slightly exceed expectations?

37.0% 11.1%

10.7%

Meet expectations?

About the same as 2011

7.1%

Fall slightly short of expectations?

29.6%

Substantially fall short of expectations?

Skills shortage Two of these, the skills shortage and the lack of expertise, could be seen as symptoms of the increased economic activity that has accompanied the construction of the $US15 billion ExxonMobil-led PNG LNG Project. Finding and retaining staff in an over-heated job market is proving a challenge for even PNG’s largest companies. These issues are also, as CEOs told us, indicators of the need for better-educated and trained school leavers, tradespeople and graduates. They also suggest there are opportunities in PNG for providers of business services.

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A slight increase on 2011

42.9%

Slightly less than 2011 Substantially less than 2011

Interestingly, while law and order remains a critical issue (the costs of providing security remain a major impost on business), most employers were not as concerned about the likely effect of PNG’s national elections, which take place in mid-2012 against a background of political and constitutional tension.

Elsewhere, government performance remains an issue, as does the performance of state-owned utilities, while the total cost of employing key personnel (which can often involve providing accommodation, meals, transportation and other extras) is clearly a pressure on the bottom line.

What level of recruitment are you planning in 2012?

In 2012, do you anticipate that your profits will…

37.0%

40.7%

Substantially exceed 2011?

A substantial increase in staff A slight increase in staff

Somewhat exceed 2011?

11.1% 51.9%

Be about the same as 2011?

25.9%

Enough to maintain 2011 staffing levels

3.7% 3.7%

Be slightly less than 2011?

Be substantially less than 2011?

Flying high Overall, the business issues uncovered by PNG 100 CEO Survey are not a big surprise to those familiar with PNG’s business environment. What may surprise many, however, is that PNG’s top corporates are flying high in the face of such challenges.

This suggests two things. Firstly, there’s very good money being made in PNG now, despite the occasional bad headlines in the international media. Secondly, should much-needed reforms to state-owned enterprises, law and order and government bureaucracy occur, the current strong growth in PNG’s private sector could continue for many years to come.

A slight reduction in staff A substantial reduction in staff

25.9%

What are the critical issues facing your business in 2012?

Skills shortage Security/law and order Access to necessary expertise Unreliable utilities Logistics High employment costs High real estate rental costs Lack of Government capacity Government red tape Corruption All other responses 0

1

2

3

4

5

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Investment

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

'Papua New Guinea is a very important market for us. We employ more than 400 staff across our PNG business. We have sixteen branches and we’re expanding, with new business centres in Lae and Port Moresby. We’re about to relocate our main branch in Port Moresby to a new centre and we’re investing in our technology and people. Particularly, we have expanded our team of experienced bankers in the commercial and the resources sector ... We’re PNG’s first bank and have been here for more than 100 years. PNG represents a significant portion of our business for the region. With great growth opportunities, it’s a critical market for us.'

—Greg Pawson, General Manager Pacific Banking, Westpac

'We have a tremendous workforce that are seriously, seriously committed to what we do and how we do it. It gives me a lot of encouragement to think that we’re heading in a direction where people are really seriously motivated and interested, and wanting to work and better their lives. I think that it’s indicative of what’s going on in this country that there is a greater awareness today of effort versus reward, investment confidence, taking a chance, doing something different.’

—David Purcell, Chief Executive Officer, Ela Motors ‘R H Group’s Vision City retail project is of huge significance to the country and to the region.

This is the first retail development of its size in the country. It sets a new standard for PNG’s retail industry. However, I think its significance is also symbolic. It shows that PNG is moving forward. It is often said that PNG is a difficult place to operate, and it is often criticised in the media as having social problems. However, people need to look beyond that and see the long-term prospects for PNG. It has a young, growing population and is resource-rich. In other words, it has potential—and that’s what people need to see in a project like Vision City. ‘ —James Lau, Managing Director, Rimbunan Hijau (PNG) Group

This bookshop at Vision City, the only one of its kind in PNG, opened in December 2011.

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I N T E R I O R D E S I G N

‘Steamships is completely committed to the country. We have been in PNG for 93 years and have a team of over 3,500 dedicated people behind our businesses. We’ve invested though the good times and the bad times and our fortunes are closely tied to that of the nation. We will continue to show this confidence going forward. Papua New Guinea has a chequered reputation for inward investment due I suppose to an external image problem. When people come and see for themselves however, they will see the longer term potential and will be pleasantly surprised at the situation here.’

—Tom Owen, Chief Operating Officer—Logistics, Steamships ‘PNG plays a critical role in our ANZ network and we are focused on growing and investing in our business there. While Australia and New Zealand have traditionally been the cornerstones of Pacific investment and support, we see more and more that investment and trade is coming out of Asia … We have customers in Asia who want to invest in the natural resources, infrastructure and agriculture, which are our three areas of specialisation. We can take them into Papua New Guinea; introduce them and bank them and establish them in Papua New Guinea or anywhere in the Pacific for that matter. That’s a key part of our strategy.’

—Michael Rowland, Chief Executive Officer Pacific, ANZ

INVESTMENT

Papua New Guinea is expected to remain the standout economy in the Pacific over the coming year, with its success having a knock-on effect on neighbouring Solomon Islands. Business Advantage summarises the outlook for the region’s larger economies.

Unsurprisingly, the region’s fastest-growing economies are those whose economies are based around exporting natural resources, especially to Asia.

'In Papua New Guinea (PNG), Timor Leste and the Solomons, local businesses are focused on wealth generation and are doing quite well,' says Michael Rowland, Pacific CEO of ANZ bank. 'We don’t think that the Pacific will see the full fall-out from what’s going on in Europe, but having said that, some of the small economies that are dependent on commodity imports have been impacted.'

While the resources boom continues, the global recession has inevitably had an impact on some sectors in Pacific economies. For those countries reliant on tourism, such as Fiji, Vanuatu, Samoa and the Cook Islands, it has dampened visitor demand from Europe and the US and made it harder to find new foreign investment, while falling remittances have particularly affected countries such as Tonga and Samoa.

Commodity exports from sectors like agribusiness, fisheries and forestry have also been constrained.

PNG’s sustained growth is having a flow-on effect in its closest neighbour the Solomon Islands, with a flood of PNG-based businesses setting up in the Solomons over the past five years. The Solomon Islands is also benefiting from higher agricultural prices, and could be on the verge of its own mining boom. Westpac Pacific Banking General Manager Greg Pawson sees the Solomons as an historic opportunity: 'Its got a population of close to one million people … it’s got one major mine and other prospects and it's firmly on the Ring of Fire [the highly prospective geological area].'

The established mineral exporters aren't the only ones garnering interest in the Pacific, however.

'The two biggest opportunities that we see out of the five locations that we’re in are Samoa ... and Vanuatu,' notes Pawson, citing not only tourism but also opportunities in mining, agribusiness and infrastructure.

One country we might start to hear more about in 2012 is Timor Leste. The new nation has had a period of consolidation and now 'they have the benefit of extensive natural gas reserves and a conservative and well managed government. Timor we’re very bullish on and we’ll be opening our second branch in the country this year,' says ANZ’s Michael Rowland. There are some parallels between Timor Leste and PNG, and many companies currently operating in PNG could find commercial opportunities in Timor Leste as its economy matures.

Guam is another worth keeping an eye on. Though the planned relocation of the US military base from Okinawa to Guam is proceeding more slowly than anticipated, there are likely to be commercial opportunities for companies operating in the Pacific sooner rather than later.

Though a report published by the IMF in February provided a sobering assessment of Fiji’s economic performance since the 2006 coup, visitor numbers to Fiji are nonetheless increasing at a resounding 7% per year.

'They’ve had incredible growth in tourism as a result of a strong Australian dollar,' comments Westpac’s Greg Pawson.

Several Fijian companies already have a presence in PNG, such as Damodar Group, partner in the new Paradise Cinema. This is likely to increase as a result of the recent relaunch of the Fiji–PNG Business Council.

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INVESTMENT

PNG’s capital markets After strong performances in 2009 and 2010, the Port Moresby Stock Exchange (POMSoX) experienced a tough 2011, as did many bourses around the world.

T

he Kina Securities Index, which measures the health of PNG’s stock exchange, reported a 22.21% fall in 2011, but this fall should be seen in context.

The region’s major exchanges—the Nikkei (-17.63%) and Hang Seng (-19.81%)—also fell over the same period.

With many POMSoX stocks dual- or tripleGeoff Mason, POMSoX General Manager listed on overseas markets, the Kina Securities Home Index, which records the performance of those companies listed only on POMSoX, arguably gives a better idea of what’s going on in Papua New Guinea itself. Over the year, home stocks lost only 1.86% value, showing much greater resilience than international stocks.

Similarly, Kina Asset Management Limited, PNG’s only listed investment company, reported positive growth in its domestic equities in its half-yearly results to June 2011, while its overseas investments experienced a decline.

‘Gone are those times where we were delivering high double digit returns to our members and experiencing exponential growth in our portfolio,’ observes Ian Tarutia, Chief Executive Officer of superannuation company NASFUND. ‘Having said that, there are growth opportunities in the PNG economy.’

Modernising the exchange There are currently 20 active stocks listed on POMSoX, with only one new listing during 2011, Kina Petroleum Limited. Mining and petroleum companies dominate its listings, with financial services, agribusiness, retail and aviation also represented. In some markets, the absence of new listings might be seen as a sign of negative business confidence, but General Manager of POMSoX, Geoff Mason, says that’s not the case in PNG. ‘While we would like to see more listings and we encourage

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Billion Kina

Kina Securities Index

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8000

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40 20

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2010

2011

4000

PNG's stock exchange performance since 2006. While 2011 was a tough year for POMSoX, the longer-term trend is encouraging.

companies to speak to us about the benefits of a listing, at present the existing good, non-listed companies are cashed up and don’t need to list to raise additional capital. So the lack of new listing should not be seen as as a sign of negative business confidence, it is more of a case that the need to list is currently not high on their agenda,’ he observes.

That said, POMSoX is putting in place measures that will make it easier and more attractive for local companies to list on the exchange, following a 2011 review of the exchange by KPMG. Listing and Business Rules largely inherited from Australia’s ASX are being updated and tailored more specifically to PNG needs.

‘We’re also upgrading the trading system and implementing an electronic settlement system, which should be operational by the end of 2012,’ says Mason.

The Exchange also sees education as a role it has to play in the market place. As such, POMSoX will continue to provide investment seminars to all regional areas of PNG to help the people understand the benefits of investment.

INVESTMENT

Secondary bond market?

Alongside the strengthening of the local exchange, the country’s central bank, the Bank of PNG, has a capital markets development program which aims to strengthen the governance of capital markets in PNG and possibly introduce a a long overdue secondary bond market. At present, the only bonds available are government bonds offered through the Bank of Papua New Guinea, and the absence of a secondary market is considered a constraint on the country’s credit rating.

‘Private bond issues would provide PNG companies with another way to raise capital in kina [PNG’s currency],’ explains Mike Ryan of BSP Capital, one of the two licensed stockbroking companies in PNG (the other being Kina Securities).

‘I think a secondary bond market would be good for the country,’ says Vishnu Mohan, Chief Executive Officer, Pacific Northwest for ANZ. ‘Some of PNG’s top companies are really blue chip companies by local standards. I see no reason why they can’t have their own bond issues. That’s what happens in most mature markets.’

EVENT BRINGS INVESTORS TOGETHER occurred in PNG's economy over the past decade, especially the growth of the business sector and the rise of a new middle class. Bank retail lending had doubled since 2006, Clyne said.

Delegates gather for the August 2011 PNG Advantage Conference in Brisbane. A second conference is scheduled to take place in Port Moresby in September 2012.

Investment was the focus of the inaugural Papua New Guinea Advantage Conference in Brisbane, Australia in August 2011.

Over 150 delegates attended the one-day conference, designed to give business people an introduction to doing business in PNG and highlight investment opportunities.

The day was divided into four sections, starting with an upto-date overview of PNG's economy. This was followed by a session on how to do business in PNG and another on the specific opportunities the country has to offer across several sectors. Finally, delegates received advice on the support available to companies seeking to enter the PNG market.

Bank of PNG Governor Loi M Bakani and Ian Clyne, CEO of BSP, provided an exciting overview of the changes that have

Delegates then heard from several PNG-based companies that have grown strongly over the past five years, including superannuation fund NASFUND, City Pharmacy Limited and telecommunications company Digicel PNG. This was followed by solid briefings from insurers Pacific MMI, Deloitte and Westpac PNG on doing business in PNG. Infrastructure development is a major area of focus for PNG and Laure Darcy of the Asian Development Bank (which has US$500 million in infrastructure investments in PNG), outlined some of the key projects and opportunities, including publicprivate partnerships. Likewise, Greg Anderson of the PNG Chamber of Mines and Petroleum gave the conference an overview of the exciting opportunities in PNG's booming resources sector.

The organisers, Port Moresby Chamber of Commerce and Industry and Business Advantage International, are planning an inaugural investment conference for international and domestic investors in PNG’s capital Port Moresby from 10–11 September 2012. For more information, visit www.pngadvantageconference.com.

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Discover how we can create value together, contact Jonathan Seeto, Managing Partner on + 675 321 1500 or email us at pwc.pom@pg.pwc.com

15

INVESTMENT

The rise of PNG’s private sector IFC, the private sector development arm of the World Bank Group, has increased its presence in Papua New Guinea. Business Advantage talks to IFC’s Resident Representative in PNG, Carolyn Blacklock, about taking PNG’s private sector to the next level.

What is the status of the IFC’s own investment portfolio in PNG? We continue to work with our existing clients, such as Bank South Pacific, K K Kingston, PNG Microfinance Limited.

We have a strong relationship with Digicel and a global relationship with an agribusiness trader called ECOM, which trades here as Monpi Coffee.

But we also have a number of Carolyn Blacklock potential partnerships, all of them Papua New Guinean-owned companies.

One is Lihir Integrated Livestock Limited, owned by Anitua, a land owner company on Lihir Island. It involves a piggery, poultry and egg production on Lihir, supplying NCS basically (see box opposite), but with an outgrower programme that will include Lihirans growing fodder. A very good project.

The other one is Kongo Coffee Limited, owned by a PNG national called Jerry Kapka, in Simbu Province, which is a very remote part of Papua New Guinea. With little else going on in the province, he supports up to 100,000 people from the province.

So we would look to help the company win a greater share of market share, basically.

What is your assessment of the development of the private sector in PNG? What trends do you see emerging?

A real strength is in landowner companies and PNG businesses that have been running ten to fifteen years as small-to-medium size businesses that are now ready to step up to the plate to be corporations. To me, these are absolutely right for investment because they’ve proven that they can manage the risk and the seasonality and everything else that comes with running big businesses in PNG. The natural entrepreneurial spirit of Papua New Guineans has for a long time not been able to emerge for whatever reason.

Now with the plethora of opportunities plus legislation, quite frankly, that supports Papua New Guinean business, particularly around natural resource companies, you’re just naturally seeing some of those ideas percolate and become attractive investments.

But will those companies actually have the ability to be sustainable in the long-term?

You would probably say it would be doubtful as things stand, because they do need to be able to do more than just be a payroll company or a local counterpart, so our job is to come in and help them up to that next level.

This is the land of the joint venture, so instead of them winning the full contract on a major project, they tend to partner 16

‘The natural entrepreneurial spirit of Papua New Guineans has for a long time not been able to emerge … Now, you’re just naturally seeing some of those ideas percolate and become attractive investments.’ because they can’t actually get access to that expertise, proof of environmental and social management or corporate governance—a whole range of things—without joint venturing with an international company.

I think where they particularly need us is around equity and quasi-equity—being able to actually take that next step up into a listed entity or at least an owned-from-outside entity. They need the rigour that comes with that. So, our job is to help them make sure that they can live up to global standards and really that comes down to basic things like ensuring that they’ve got the right financial structures to cope with that, the right workplace health and safety to pass audits, the right senior management engaged who can chase those markets.

PNG desperately needs investment in infrastructure. What kind of role should the private sector play?

I think what we need is for the Government to facilitate private sector engagement into what we might see as being traditionally government-only services. By that I mean Public Private Partnerships, but in their truest form where we actually have private procurement of services, or private provision of services.

For instance, there’s nothing to stop us having a private hospital that provides public services for a fee, while we have still got the same quantity of private schools in the country even though people’s affordability and desire for private schools has actually increased. So, we’re not seeing investments yet come through in the private sector for education and health. It’s partly because the Government has not necessarily got the right enabling environment, as the private sector may feel that this is too risky. The Government doesn’t have to carry the whole burden of delivering these services, but the Government needs to facilitate the environment so that the private sector can invest.

The fact is that this is a country that does have experience in private sector engagement. You’ve got the private sector building infrastructure, so mining and agribusinesses are putting in roads and bridges and so on. But that’s not happening where I think Papua New Guineans would see the most impact: in things that affect everybody’s lives, like education, healthcare, road maintenance, power and ports.

INVESTMENT

LANDOWNER COMPANIES AIMING HIGH PNG’s landowner companies have been around for a while, but the current resources boom—particularly the PNG LNG Project—has significantly increased their opportunities.

Perhaps the best-known landowner business is NCS, owned by landowners on Lihir Island (home to the Lihir gold mine).

NCS has established a profitable core business of catering and mining camp management, and has now expanded into areas of construction and property development.

companies’ was reached in 2010 when Trans Wonderland, representing gas-field landowners in the Southern Highlands, won a USD$192 million contract to provide transport services to the PNG LNG project, as part of a JV with international firm Agility Logistics. Furthermore, in early 2011 Trans Wonderland signed a joint venture with Alaska-based Lynden Logistics to provide integrated transport services in PNG, and ultimately international markets.

In fact, it is one of 12 different business units of the Lihir landowners, that are gathered under the umbrella of the Anitua Group. Activities range from mining services to security, retail and, more recently, agribusiness (see opposite). Its subsidiaries employ around 1,500 people.

A major milestone in what the Asian Development Bank’s Charles Andrews terms ‘the professionalisation of landowner

Credit: Anitua

Not only are these businesses creating value in their own right, but by establishing a clientele ‘off-island’ (i.e. nationwide) they will be able to continue to operate even after the Lihir mine eventually closes.

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Simply put, we want to improve people’s lives by helping them understand, plan, manage and enhance their financial security. Whether it’s stockbroking, corporate advice, finance facilities, fund management or superannuation services, our professional, pro-active team delivers an efficient and effective service. Always with a view to nurturing a long-term, financially beneficial relationship.

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17

Investment

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

18

What are the other benefits of registering in PNG? The commercial banks in Port Moresby will only allow a company to open and operate bank accounts where it can demonstrate that it is registered with the Companies Office and, where relevant, certified to carry on business by the IPA. Similarly, only a company registered with the Companies Office and, where relevant, certified to carry on business in PNG by the IPA, can obtain work permits and entry visas for its non-citizen employees.

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

What are the corporate tax rates in PNG? The general corporate income tax rate is 30%. The rate of income tax for non-resident companies, other than those engaged in mining, petroleum or gas operations, remains at 48%. As discussed below, some companies may be taxed as ‘foreign contractors’. Where the company’s gross salary or wages exceeds K200,000, the company will also be liable to a training levy at the rate of 2% (with the liability reduced by the costs incurred in training PNG citizen employees).

How are foreign contractors taxed in PNG? 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. If the foreign contractor is resident in a country with which PNG has a double taxation agreement (eg Australia or China), PNG may be prevented from taxing the income, or the rate of income tax may be reduced.

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

David Caradus has over 25 years’ experience advising on taxation and investment in PNG and is the author of 2011 PNG Tax Facts & Figures.

Investment

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

I

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

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

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

Laws with a PNG flavour

at various stages from exploration through development. The State has an option to acquire equity in such projects and then effectively shares that equity with the traditional landowners.

Landowners in oil and gas projects are also entitled to a royalty interest. Complementing these entitlements there are statutory arrangements for the establishment of trusts and for Incorporated Land Groups created under special legislation.

Moreover, a development agreement is required to share the benefits among the various entitled persons.

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

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

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

The highly sophisticated and recently enacted Information Technology and Telecommunications Act is a home-grown product albeit with substantial assistance on the details from consultants familiar with the myriad models in use worldwide.

State agreements are used particularly, although not exclusively, in the resource sectors to define the fiscal and other terms upon which investments are to be made. Fiscal stability legislation exists to ‘lock-in’ the tax rules for projects in the resource sector, albeit with a cost in terms of the tax rate.

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

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

Against that background, elaborate mechanisms have been developed to accommodate the interests of the traditional landowners. Oil and gas projects, for example, require social mapping and landowner identification studies to be undertaken

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Worldwide reach Human touch 19

Feature Office space in central Port Moresby is hard to come by.

PNG: overcoming the challenges As Business Advantage’s PNG 100 CEO Survey reveals, leading companies are performing exceptionally in spite of facing an array of severe impediments. We take a closer look at some of the daily challenges faced by companies doing business in PNG and find out how they are overcoming them.

Education and training conundrum At the root of the problem lies a decline in school education standards over recent years.

‘The generation entering the workforce now has a literacy rate of 48%,’ comments Carolyn Blacklock, IFC Resident Representative in PNG, ‘and those who cannot read and write are not necessarily in rural areas. That makes it pretty difficult to get a job.’

There is a also a paucity of vocational training places, especially geared towards the thriving natural resources sector, obliging many firms to provide extensive training in-house. ‘We are a training organisation in our own right in PNG,’ says David Purcell, CEO of Ela Motors. ‘A motor dealer shouldn’t be a training organisation, but we have to be.’

While the overall level of education is lower than in more developed countries, institutions such as Divine Word University in Madang and the Papua New Guinea Institute of Banking and Business Management, which runs the Enterprise Center for the PNG LNG Project, have developed good reputations.

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Finally, an increasing number of skilled Papua New Guineans are finding work overseas, particularly in neighbouring Australia that is enjoying its own mining boom. It is estimated that 1,000 Papua New Guineans work in the Western Australian mining industry alone.

‘Any Papua New Guinean with a globally-recognised qualification, like a mining engineer or metallurgist, can go and work overseas. We were recently asked to source diesel fitters from PNG to fill positions in Australia,’ says Scott Roberts, Managing Principal of Cadden Crowe.

Increased salaries It was in this environment that the PNG LNG Project started recruiting in earnest in 2009–2010, acting as a magnet for local talent and driving up the wages of skilled workers. Little data is available on just how much salaries have risen over the past few years but, as Air Energi’s Julian Counsel explains, ‘Our clients understand that they will often have to pay above the going rate in order to find the right person. The construction phase of the LNG Project will peak over the next 12 to 18 months, meaning there will be a rush for workers. But it is already very hard to find skilled Papua New Guineans as they are tending to avoid short-term contracts.’

Credit: International SOS

A

t the beginning of 2011, a well-known global fast-moving consumer goods (FMCG) company decided to open a sales office in Port Moresby in response to rapidly rising demand from PNG. It quickly realised this was going to be easier said than done: finding suitable premises at a reasonable rent proved impossible, while sourcing the personnel it needed was not much easier.

The commencement of the multi-billion dollar PNG LNG project has pushed the nation’s strong, sustained economic growth into overdrive. The consequence has been soaring inflation, severe capacity constraints in utilities and key government departments and, in the capital at least, an overheating property market. Little wonder PNG’s ranking in the IFC/World Bank Group’s benchmark ‘Ease of Doing Business Survey’ fell from 97 to 101 in 2012.

Property values and rents do at least appear to have peaked, as supply has started to catch up with demand (for instance, several major corporations have moved out of Port Moresby’s central business district to the new Harbourside complex at Konedobu), but when it comes to skills, PNG is currently facing something of a ‘perfect storm’.

Recruiting and retaining skilled staff in PNG is currently a challenge.

FEATURE—PNG: overcoming the challenges

'The construction phase of the LNG Project will peak over the next 12 to 18 months, meaning there will be a rush for workers.'

Larger firms are increasingly obliged to recruit expatriate workers in increasing numbers. While the traditional source for these has been Australia, there has been a clear shift towards the Indian subcontinent since 2009, while many short-term contractors for the LNG Project are coming from the Philippines.

Hiring expats is an expensive option (it is not uncommon for total cost of employing expat executives to be as much as one million kina—US$470,000) and obtaining their employment permit and visa anything but straightforward. Anecdotal evidence suggests it is getting more difficult to bring non-nationals into PNG on work visas due to capacity constraints in relevant government departments caused in part by the LNG project.

Finding a home For the record, the FMCG multinational referred to above ended up hiring only the most essential staff, then entered into an agreement with one of its existing PNG suppliers to accommodate them within its own building and take care of their administration requirements. In the same outsourcing vein, the Port Moresby Chamber of Commerce and Industry’s Bizcentre serviced office product has also enjoyed a rapid take-up since

its inception two years ago, while international serviced office provider Regus is rumoured to be setting up in PNG in 2013.

Traffic jams Unsurprisingly, PNG’s transport networks are also struggling to cope with the new paradigm. The number of vehicles on Port Moresby roads has increased exponentially since 2007. Traffic jams, formerly unheard of, are now commonplace in peak hour and, at the time of writing, traffic chaos prevails after heavy rain washed away part of the principal arterial road, the Poreporena Highway.

Meanwhile, PNG’s main trunk road, the Highlands Highway needs urgent attention, with traffic volumes set to double over the next two years due to the PNG LNG Project. A recent feature in PNG Report magazine quoted the President of the PNG Road Transport Association calling for AUD$2 billion to be spent on urgently repairing and upgrading the 800km road that links Lae to the Southern Highlands.

There is some good news from Lae, though. PNG’s industrial capital has been nicknamed ‘pothole city’ due to the state of its roads but a major investment program over the past 18 months is addressing the problem. Lae Chamber of Commerce and Industry President Alan McLay reports that ‘the project is 90% completed but work is currently stalled due to an enquiry into misuse of funds.’

Busy ports If existing roads can be upgraded relatively swiftly, funds and governance permitting, the same cannot be said for ports. The

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FEATURE—PNG: overcoming the challenges

ports of Lae and Port Moresby have simply been swamped as a result of the sharp upturn in economic activity, resulting in considerable delays in consignments being cleared (and associated demurrage costs). While PNG Ports has a monopoly over PNG’s 16 gazetted ports, some private companies, such as Steamships and Curtain Brothers, have their own. Curtain Brothers completed an impressive new international wharf at Motukea Island north of Port Moresby at the end of 2010.

Congestion at the ports is shifting more goods from sea to air freight. This can also result in delays, albeit in days rather than weeks, when there is simply not enough room on the plane for all the cargo destined for PNG. ‘We’re bursting at the seams,’ reports Mark Schell, Country Manager for DHL in PNG. The company plans to relocate to a new facility three times larger than its current one in 2013.

Law and order Naturally, PNG’s recent political upheavals have only served to heighten concerns in the international business community about the country’s law and order situation. Security is one of the largest private sector employers in PNG, and adds a major overhead to most businesses. If the expenditure is unavoidable then according to Mike Day, Managing Director of G4S, at least the risk can be significantly minimised with the right behaviour: ‘For instance, know how exactly you are going to reach your destination, avoid certain areas, don’t travel alone at night. We provide a detailed security briefing to our clients to help keep them safe.’

The UK-based company is in the process of building a new

head office complex in Port Moresby that will enable it to deploy state-of-the art technology to support its blue-chip clientele.

Outage outrage ‘Unreliable utilities’—specifically power, telecommunications and water—was one of ‘critical issues facing your business in 2012’ in the inaugural Business Advantage PNG 100 CEO Survey (see page 10). Not only is electricity costly by international standards, but power cuts are frequent. Large companies invariably invest in back-up generators, while SMEs simply factor resulting lost productivity into their business plans.

Interruptions in the supply of water and power and outages in fixed line telecommunications networks present a particularly tough operating environment for local manufacturers.

‘We go through about 30,000 litres a day of water and we had no option but to invest in a back-up supply system even though it represented a big investment,’ says K K Kingston’s Michael Kingston.

Improving internet access While new 3G mobile phone networks have provided a welcome alternative to landlines over the past four years, internet access remains costly and slow. This situation is likely to improve over the next couple of years, however, as a result of the deregulation of the ICT sector. Internet service providers such as Daltron and Remington are currently investing in new C-band satellite equipment that will increase download speeds and more reliable, expanded coverage in remote areas.

www.steamships.com.pg

22

Gas & petroleum

Credit: ExxonMobil

Construction of the massive PNG LNG plant is well under way.

The year of heavy lifting PNG’s oil and gas sector continues to attract new entrants as its ExxonMobil-led PNG LNG liquefied natural gas project moves inexorably towards a production stage.

P

apua New Guinea is highly prospective for oil and gas, with deposits being found across its Highlands provinces, Foreland Basin and even beneath the Gulf of Papua.

The most developed of its projects is the massive PNG LNG project led by ExxonMobil, which is expected to begin production in 2014. With development costs for the project totalling $US16.5 billion, it will produce 6.6 million tonnes of LNG per year for end users in Taiwan, Japan and China and will deliver at least nine trillion cubic feet of gas over its 30-year lifetime. Other partners in the project are Australian-listed Oil Search Limited, Santos, Merlin Petroleum, local landowners and the PNG Government, which recently transferred its share in the project to state-owned resources company Petromin.

A 700 km pipeline in being built to carry the gas from the Western Highlands gas fields to an LNG plant near Port Moresby.

Work has also begun on the LNG plant, and drilling rigs are being put in place on the Hides, Angore and Juha gas fields.

The PNG LNG partners are doing exploration work to see if they have enough gas reserves to support creating a larger project than originally planned. Oil Search chief executive Peter Botten, who has described 2012 as ‘the year of heavy lifting’ for PNG LNG, has said the consortium will form a preliminary view on whether there is enough gas to expand the project in late 2012 or early 2013.

Giants move in In a major vote of confidence, the world’s largest oil company, Royal Dutch Shell, recently signed a deal with PNG’s state resources company Petromin as part of a plan to deal itself into the booming gas sector. Shell has not said what its specific aims are but is studying the potential of all the major hydrocarbon basins in PNG. The Gulf LNG project (formerly Liquid Niugini Gas) currently being driven by New York-based InterOil is a potential second LNG project for PNG. Korea Gas (Kogas, the world’s largest gas

‘Shell recently signed a deal with PNG's state resources company Petromin as part of a plan to deal itself into the booming gas sector' importer) is a powerful addition to the InterOil camp and is putting together a consortium involving Japanese trading company Mitsui and Japan Petroleum Exploration. InterOil wants equity partners in a $US6 billion LNG production plant, which will liquefy natural gas for export, and is also interested in selling stakes in the Elk and Antelope Gulf Province gas discoveries that will fuel the plant. Mitsui and Kogas initially planned to deal separately with InterOil but the strength of the Asian gas market appears to have encouraged them to join forces so prices would not be pushed unnecessarily high.

Gulf LNG is targeting five million tonnes of LNG production in 2014 with three million tonnes coming from an onshore facility and a million tonnes from a floating plant. Ultimately, production is slated to be 7.6 million tonnes a year at the planned Gulf of Papua production facilities.

In another high-profile move, Japanese giant Mitsubishi has signed a $US280 million farm-in deal with Talisman Energy to develop gas fields in Western Province. The deal will give Mitsubishi a stake of around 20% in an investment covering nine exploration licence areas, leaving Canadian-based Talisman with 40% and the rest of the project with other joint venture partners including Horizon Oil, New Guinea Energy and Kina Petroleum.

Oil and gas drilling is continuing apace outside the three major LNG project areas. At least 10 miners are exploring offshore, and Toronto-listed Eaglewood Energy has hit gas in a drill hole in Western Province. There’s still plenty of untapped potential for the industry, with PNG having an estimated 22.6 trillion cubic feet of gas reserves and more gas and oil being discovered each year.

23

Gas & petroleum

BIG YEAR FOR PNG LNG PROJECT Business Advantage speaks to the man responsible for delivering the PNG LNG Project, Peter Graham, managing director of ExxonMobil subsidiary, Esso Highlands.

Do you foresee any issues with meeting the posted completion date for the PNG LNG project? What will be the major challenges and milestones over the next 12 months?

2012 is a big year for us. We expect to finish piling at the Hides Gas Conditioning Plant, start mechanical completion of Esso Highlands’ Peter Graham sections of the onshore pipeline, finish the LNG tanks and start hydrotesting them, energise Train 1 at the LNG Plant, finish the offshore pipeline, spud the first well, and land the first plane at the Komo Airfield. It’s also a big year for PNG, with elections due in June. We have developed plans to ensure business continuity through the election period in order to meet those milestones.

One of the challenges is around logistics, particularly with disruptions along the Highlands Highway because of road closures, weather impacts and roadblocks. The Government has done a lot of good work in upgrading parts of the highway, but it will continue to be a challenge.

Some of the work on the project is being allocated to local companies, many landowner-owned. How well are local businesses responding to the challenge?

We are getting great support from local businesses. So far, we’ve spent more than K3.6 billion (US$S1.8 billion) in PNG on goods and services. Of this, around K685 million (US$337 million) has been spent with landowner companies (‘lancos’).

Lancos are providing services such as camp maintenance, catering, security and labour recruitment.

The Project-initiated Enterprise Centre has played an important role in supporting local suppliers. It is run by the Institute of Banking and Business Management in Port Moresby and offers training, advisory services, coaching and mentoring, and facilitation services. At the end of last year, it had supported more than 10,600 PNG business entrepreneurs. The centre also conducts business assessments. These look at a company’s organisation in great detail to help identify gaps in their operations and develop plans to address those gaps. This is important so that companies can meet the challenge of supplying large projects such as ours.

With other parties now seriously looking at PNG as a source of LNG, what prospects are there that ExxonMobil will either expand the existing project or look for further LNG projects in PNG? We get this question a lot. Our priority is to deliver the commitments we already have. However, we do regularly assess opportunities as they arise. There are many opportunities in PNG. We are undertaking an appraisal drilling program and have started drilling the P’nyang South-1 well in the Western Province northwest of the Hides field.

Credit: ExxonMobil

There have been reports of increased costs on the project.

What's the real situation?

Since the participants made their final investment decision in December 2009, we have seen significant foreign exchange movement. The US dollar is substantially weaker. While our project utilises contractors from all over the world, the bulk of our work over the last two years has been nonUS dollar-denominated expenditure, resulting in a foreign exchange-driven increase in capital expenditure. Costs of project components often fluctuate and we’re managing these as part of our operatorship. We have a long history of successfully managing and executing complex, integrated, large-scale projects.

‘We have a long history of successfully managing and executing complex, integrated, large-scale projects.’

The PNG LNG Project includes a 450 km undersea gas pipeline from Kopi in Gulf Province to an LNG plant near Port Moresby.

24

Gas & petroleum

PROFILE: LABA HOLDINGS AND HIDES GAS DEVELOPMENT COMPANY profit for our shareholders,’ HGDC’s Chairman Libe Parindali tells Business Advantage.

Both companies have entered into joint ventures with established companies in each of the so-called mandated activities to access international expertise, as Executive Chairman Raho Kevau explains: Credit: HGDC

‘We are working with Air Energi on the labour hire side, the Alliance Group for catering, and also have a 50% JV with Guard Dog Security to form Laba Security Services.’

Hides Gas Development Company’s Libe Parindali (far right) meets with the operations team from ExxonMobil.

The PNG LNG Project has led to the creation of new landowner companies. During the construction phase the Hides Gas Development Company (HGDC), upstream (in the Southern Highlands), and Laba Holdings, downstream (in the area around the processing plant close to Port Moresby), have exclusive rights to carry out certain key activities such as labour hire, transport, security and catering. This not only guarantees local engagement in the project, but will hopefully lead to skills transfer and the creation of sustainable local businesses that can continue to operate into the future.

‘Our primary business at this moment is labour hire, both skilled and unskilled. We need to maximise the opportunity provided by the construction phase, of 3-4 years to make a

The goal is that the companies will be able to continue to operate on a sustainable basis thereafter.

‘We want to win the upstream maintenance contact from Exxon,’ says Libe Parindali. HGDC is also working on a commercial and residential development at Para in the project area, an hour from Tari, with MOUs already signed with joint venture partners for a trade store, hardware store and bank. Laba Holdings is also planning ahead.

‘We don’t have any natural resources in our area so we need to maximise our human resources,’ says Raho Kevau. ‘Our focus is to up-skill those people who are currently working on the site, as well as offering vocational training in trades and hospitality. We also want to encourage local people to undertake business ventures.’

25

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

MADANG

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

Tabubil

Pnyang Ketu Elevala

SOUTHERN HIGHLANDS

Pukpuk 1 Douglas

Kimu

Madang Hoskins

Ramu Yandera

WESTERN HIGHLANDS

WEST NEW BRITAIN

Mt. Hagen

Kainantu

CHIMBU (SIMBU)

Gobe Lehi Barikewa

Bwata Elk 2 Elk 1 &4 Antelope 1

Lae

Wafi

GULF

Uramu WESTERN PROVINCE

Kandrian

MOROBE

EASTERN HIGHLANDS

Edie Creek Hidden Valley/Hamata

Kerema

Kumui Terminal

CENTRAL

Tolukuma Daru

Popondetta

Pandora Port Moresby

Gulf of Papua

Laloki

ORO

Torres Strait

AUSTRALIA

Recruitment and Manpower Services “We are about people and knowledge”

Our People

We provide a full range of Recruitment, Workforce Services and Tailored Solutions to: Oil & Gas sector, Mining sector, Public & Private sector

Our Services

Recruitment: Permanent Recruitment | Contract Recruitment Workforce Services: Work Permit & Visa | Payroll Services | Temporary Workers | Meet & Greet Services

Contractual Terms & Conditions | Remuneration Advice & Guidance | Salary Benchmarking Discipline & Grievance | Performance Management | Training & Development Programs

Tailored Solutions:

Air Energi Pacifica Ltd – Level 1 Deloitte Tower | P.O. Box 571, Konedobu, NCD, Papua New Guinea Tel: +675 320 3095 | Fax: +675 320 3093 | png @ airenergi.com | www.airenergi.com

26

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

Mineral Resources Authority

Data © Copyright 2012, Papua New Guinea Chamber of Mines and Petroleum (www.pngchamberminpet.com.pg), used by kind permission.

Map © Copyright 2012, Business Advantage International Pty Ltd (www.businessadvantageinternational.com)

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

Credit: PNGSDP

MINING UPDATE

PNG defies world trends Minerals sector enjoys its winnings while industrialised world struggles with debt crises.

P

NG’s minerals sector has been sitting in a sweet spot in the past year, with prices for major commodities rising while much of the industrialised world is in a debtinduced funk. The gold price has risen from lows of $US1320 an ounce early in 2011 to sit around $US1800 in early 2012. Copper has recovered from lows of $3 per pound in the last quarter of 2011 to around $3.88 per pound in early 2012. The metal, which is a proxy for industrial production levels in China and elsewhere, is off its highs of $US4.50 a pound in early 2011 but is well up on lows of not much more than $US1 per pound three years ago.

Silver prices, at $US34 an ounce, are below the $US48 highs of 2011 but are well above levels of two years ago, and oil prices are also high. That’s all good news for PNG’s economy as mining and petroleum account for 80% of export income and employ around 30,000 people. The latest available figures have gold production at 2.15 million ounces, silver at 2.7 million ounces and copper concentrates at 160,000 tonnes.

Bougainville back?

One issue that has the mining industry talking is the indication from the president of the Autonomous Bougainville Government, John Momis, that the Panguna copper mine on Bougainville might be reopened in two or three years.

‘My view is …, the bulk of the people on Bougainville want the mine to be reopened,’ said Momis in a 2011 interview. ‘We want empowerment. Political power without economic power is 28

‘Mining and petroleum account for 80% of export income and employ around 30,000 people’ nothing. The Bougainville copper mine must open under a new regime.’ He said the Bougainville Government is working with landowners to form an umbrella association to start talks on the mine’s future.

The mine has been mothballed since its closure in 1989 following damage caused during a secessionist uprising; restarting it could cost upwards of $4 billion. But its owners, the Australian-listed Bougainville Copper (BCL, part of Rio Tinto) and the PNG Government, would be well rewarded for the investment as the deposit has a life of some 20 years and has a capacity to produce 180,000 tonnes of copper and 480,000 ounces of gold per year.

In a promising move, BCL’s Managing Director Peter Taylor visited Bougainville in May 2011—the first time a BCL executive has visited the island since the mine closure.

Morobe joint venture Australia Newcrest Mining has a 50/50 partnership with South Africa’s Harmony Gold over two major mining projects in Morobe Province: Hidden Valley (silver/gold), which commenced operations in September 2010 and Wafi-Golpu (gold/copper).

MINING UPDATE

BOOST FOR SERVICE PROVIDERS

Resource size at the Wafi-Golpu deposit has been boosted, with gold reserves jumping from 16 million ounces to 26 million ounces and copper reserves are up from 4.9 to 9 million tonnes. The mine has a potential life of 30 years, with production expected to start in about five years’ time.

The two companies also have a portfolio of exploration activities together under the Morobe Mining Joint Ventures banner.

Ramu to produce in 2012 The $1.5 billion Ramu nickel and cobalt project in Madang Province will begin production in 2012 after the PNG Supreme Court gave the go-ahead for its planned dumping of tailings into the ocean. The project is expected to yield 31,150 tonnes of nickel and 3300 tonnes of cobalt a year for at least 20 years.

Ramu is 85% owned by the state-owned Metallurgical Corporation of China and consortium partners that plan to use the production to manufacture stainless steel in China. The project is being run by 8.5 % stakeholder Highlands Pacific whose chief executive, John Gooding, says he looks forward to the impact the opening would have on his company and PNG. He says further exploration of the deposit could extend the life of the mine by 15 to 20 years.

Frieda feasibility Highlands Pacific, along with Xstrata, is also behind the development of the Frieda prospect, in Sanduan Province, which is one of the Asia Pacific’s largest copper and gold deposits.

Growth in the resources sector in PNG is driving parallel growth in the businesses that provide mining operations with the services they need to function.

LCR Group has been operating in PNG since 2009, providing crane services for engineering group Clough on the gas processors and docks that will service the PNG LNG project.

In response to the rising demand and skill shortages created by the continuing PNG resources boom, LCR Group is expanding operations from supplying cranes to training and providing PNG staff to operate and service the cranes. The training operations will involve the use of a virtual-reality crane simulator.

Clough and its partners in various contracts for PNG LNG won $209 million worth of work in 2011 and announced a further $145 million in new work early in 2012.

After a record year in 2010, the local branch of Malaysian heavy equipment supplier UMW is using a brief hiatus to consolidate its systems and processes and rebuild its facilities in order to take advantage of the next wave of opportunities in the mining sector.

‘Our strategy moving forward is to focus on service, planning, parts supply and training; to become the representative of the manufacturer in PNG,’ Andrew Cooper, Divisional Manager—PNG tells Business Advantage.

29

MINING UPDATE

OK TEDI'S NIGEL PARKER ON SOCIAL RESPONSIBILITY IN MINING

Credit: OTML

affected by our operations. More recently, the World Bank reviewed our Community Mine Continuation Agreement (CMCA) and, specifically, the processes we followed to bring about a movement towards gender equity in our social development programmes. We understand that the process we implemented to arrive at the CMCA and the ensuing development programmes we co-created with local people is unique, and we are very proud of this. Social responsibility for OTML means that we measure our commercial interests against our environmental legacy and the needs of society.

Nigel Parker, Managing Director and CEO of Ok Tedi Mining Ltd

Nigel Parker, Managing Director and Chief Executive Officer of Ok Tedi Mining Limited (OTML), shares his thoughts on corporate social responsibility, mine life extension and what it means to lead a major mining company in a global market.

I first came to Papua New Guinea in 2001. At the time, I had residential status in Lae and I looked on PNG as this place with enormous potential, as a true paradise. Then, one day, I had the good fortune to visit the Western Province and suddenly I found myself standing in the middle of that vision, in Tabubil.

In 2007, when I was asked to join Ok Tedi Mining Limited, first as the General Manager Commercial and then later as MD and CEO, it was easy for me to return to what is a true mountain paradise. The changes I have witnessed in this area have been tremendous, some as a result of OTML's mitigation programmes for its environmental legacy, others as a result of economic development in Tabubil, and Ok Tedi Development Foundation Limited’s (OTDF) social development programs. The company has always had a strong commitment to social development, indeed it is a requirement in this age of global markets, social media, and demands by society for increased transparency and reporting.

We have worked over the years to create a transparent dialogue and engagement process with the communities

30

An opportunity exists to extend the life of the Ok Tedi mine to 2025, beyond the previously stated mine life of 2013. We are currently in the process of completing studies to understand and thoroughly model the commercial, environmental, and social implications of this mine life extension. We believe that we can deliver a mine extension that is environmentally and socially acceptable, and technically and financially feasible, and we have chosen to pursue a plan that has a lower environmental impact and is both technically and financially feasible over one that is best in terms of commercial returns.

We are accountable to our stakeholders for our decisions and we need to demonstrate this through actions that honour their values and concerns. We wish to be able to continue to generate significant economic and social development opportunities for the people of the Western Province while assessing the overarching costs of mine life extension and closure to arrive at a place where we can reconcile the benefits against the effects.

In the years ahead, I would like to continue to steer OTML as a company 100% owned for the benefit of Papua New Guineans. I would like to see us achieve mine life extension, which will not only provide future economic benefits but also provide the opportunity to pursue additional projects directed towards mitigation of past legacies, such as an investigation into the possibility of establishing a secure tailings storage facility as an alternate to the current riverine discharge of tailings.

As Chairman of the OTDF, I would like to see the OTDF continue to promote and co-create life changing positive capacity building programmes among mine affected communities.

We have taken a giant leap in the past two years in our transparency and reporting. We are moving toward an integrated reporting format that brings together not only international accounting principles around financial disclosure but also the Global Reporting Initiatives’ (GRI) G3.1 guidelines for transparency around social, environmental, and governance processes. This is the way to do business moving forward. Fifty-one of the world’s top economies are not countries, they are companies; OTML is itself an economy within the PNG economy. We take our role as the key economic driver in PNG and the Western Province, as well as a leader in social program delivery, very seriously.

MINING UPDATE

Highlands Pacific CEO John Gooding told Business Advantage that the project could be in production by 2017 ‘but that is obviously subject to final feasibility study results’. The study was extended by 11 months last year to look at the possibility of providing power for the mine from nearby natural gas fields.

The study will be completed in 2012 and Highlands will continue exploring the surrounding areas following Xstrata’s recent move to include the Nene deposit in the Frieda joint venture with the payment of $US10.8 million to Highlands Pacific.

The company will also boost its exploration in prospective areas in the Star Mountains and ‘hopefully produce results which will illustrate the huge potential of this region to host a porphyry, copper, gold deposit,’ Gooding says. The Star Mountains prospects lie 20 km from the famed Ok Tedi mine.

Another China-PNG partnership Another exciting development moving towards the production phase is Marengo Mining’s Yandera copper-molybdenum-gold project.

‘We’re looking to complete our feasibility study mid-2012 and we’ll be looking to get the engineering, procurement and construction contract in place towards the end of the year,' Marengo’s Investor Relations Vice President Dean Richardson told Business Advantage.

Environmental and mining approvals should be in place by the third quarter of 2012 and ‘we’re looking at a two-year construction period, commissioning towards the end of 2015 and production in 2016’, Richardson says. Yandera’s resource estimate was boosted early in 2011 and Richardson says the

company completed another 30 km of drilling last year.

Yandera hopes to sign agreements in 2012 that will see China Nonferrous finance 70% of development costs, guarantee project construction at a fixed price and take a portion of the output of copper and molybdenum. That will allow Marengo to retain 70% of the project (with 30% going to the PNG Government) without carrying the risk of cost blowouts.

Challenges and breakthroughs Newcrest, owners of the Lihir gold mine, alerted investors to production cuts early in 2012, saying there were plant problems caused by ‘long term under-investment in fixed plant maintenance’ before its purchase by Newcrest in 2010. Lihir output is expected to be down 60,000 ounces for the rest of the year but production may be disrupted by further maintenance needs. An AUD$1.23 billion upgrade of the Lihir plant is expected to be completed in 2012.

Kula Gold has boosted the reserve estimate at its Woodlark Island prospect, 250 km off the PNG mainland, by 20% to 700,000 ounces.

‘This substantial increase in our proven and probable reserves at a robust gold grade clearly demonstrates the strength and attractive economics of the Woodlark Island project,’ Kula Gold managing director Lee Spencer says. ‘We are confident our existing reserve base will be upgraded (by further development work). Subsequent increases of project ore reserves will further strengthen our project.’

The Papua New Guinea Chamber of Mines and Petroleum is hosting the

Twelfth PNG Mining and Petroleum Investment Conference Including Finance and Technical Seminars on

3 - 5 December 2012 at the Sydney Hilton Hotel 1,200 delegates registered for the last conference which was an outstanding success. The Twelfth Conference will be bigger than ever and will showcase exciting developments in PNG’s vibrant resource sectors – including the PNG LNG project and other gas commercialisation, the world’s first deep sea mining project and PNG’s first nickel production.

www.pnginvestment.com 31

Credit: OTML

Province in focus

The river port of Kiunga on the Fly River

Western Province

The sky is the limit as PNG’s remotest province sets off on a remarkable course of sustainable development.

A

lso unofficially referred to as Fly River Province, PNG’s largest province by area is also one of its least developed.

Vast, remote and with a population density of less than two people per square kilometre (only slightly higher than the Western Sahara), it has been variously referred to as the country’s ‘wild west’ and its ‘final frontier’.

Dramatic change On a recent visit to the province, Business Advantage discovered dramatic change in the air. The commercial hub of Kiunga was bustling while the sleepy provincial capital of Daru was also busy. Flights and hotels were fully booked as a result of a raft of large-scale infrastructure projects and a sudden influx of companies involved in extensive hydrocarbon and mineral exploration (see page 23).

‘A range of transformational infrastructure and transport initiatives is underway that will finally enable the region’s potential to be tapped‘ towers across the Province, an upgrade of Daru airport and the introduction of a first passenger ferry on the province’s main artery, the mighty Fly River. It may be early days, but initial progress has already improved the lives of the province’s 185,000 inhabitants, about 70% of whom live in rural areas.

Stragically placed

Major industry The major economic driver of Western Province is the Ok Tedi copper and gold mine in its far north. Serviced by the mining town of Tabubil, the mine has been responsible for a large portion of PNG’s GDP for many years, and a project is underway to extend its life for another 10–15 years likely to be (see page 30).

What is less well known is that the province also also possesses significant rubber, aquaculture, forestry and fisheries sectors.

New infrastructure brings down barriers It has long been known that the province’s 98,048 square kilometres land mass and coastal waters were endowed with a wide variety of valuable natural resources, not only minerals and hydrocarbons but also spectacular biodiversity. Its outstanding flora and fauna make it a natural for tourism development.

However, the barrier to private sector development in the province has always been the immense logistical challenges that operating in the province posed.

Now, however, a range of transformational infrastructure and transport initiatives is underway, such as the Western Province Communications Project, which has placed communications 32

Western Province Governor, Dr Bob Danaya

Western Province also shares a land border with the Indonesian province of Papua and a sea border with Australia.

‘Australia is only 15 minutes across the water in a dinghy. Indonesia is also close and has a huge population. That’s why we want to encourage the border area for

KEY STATISTICS ON WESTERN PROVINCE Western Province population 185,000 (est.)

Land area 98,048 km2 Provincial capital Daru (pop. 13,496) % of population with (US$9) or less 36% annual income of K20 Annual population 3.5% growth rate % of population 45% under 15 years of age Major Industries Mining and petroleum, rubber, aquaculture, fisheries, forestry Sources: OTML/Business Advantage Papua New Guinea

Province in focus

KEY INDUSTRIES IN WESTERN PROVINCE petroleum leases in the province. See page 23 for more on petroleum and gas activity in PNG.

Rubber Rubber is particularly suited to the soils and climate of Western Province, with its high rainfall. There are 8721 hectares of rubber planted in Western Province, and almost 10,000 smallholder growers. China and Germany are major export markets. North Fly Rubber is the major rubber business in Western Province. Under its partnership with Papua New Guinea Sustainable Development Program, a further 2800 hectares of rubber will be added by 2020.

Fisheries Maru Marine in Daru exports lobster tails to Australia and the United States and also produces barramundi and jewelfish, mostly for domestic consumption. Also in Daru, the Western Province Sustainable Aquaculture Project owns a barramundi hatchery, which produces 500,000 ‘fingerlings’ a year.

Western Province lobster tails are exported to Australia and the United State

Credit: Darren Boyd Coombs Photography

Mining and petroleum The OK Tedi copper/gold mine in Western Province is PNG’s largest and looks likely to have its life extended beyond the scheduled close in 2013 (see page 30). Liquefied natural gas looks likely to dominate resources activity in the coming decades, with several companies now operating petroleum prospecting leases in Western Province, notably Canada’s Talisman Energy, which has an aggregation plan for its

trade,’ notes Dr Bob Danaya, Western Province’s Governor.

‘As a government, we are happy to work with business.

We have a very good dialogue with investors. We have an office in the Province and that is the stepping stone for companies doing business here.’

Danaya singles out the work of Papua New Guinea Sustainable Development Program (PNGSDP) in Ross Garnaut, Chairman of PNG Sustainable particular for its work in Development Program Ltd developing the province.

‘PNGSDP has already introduced modern telecommunications services throughout Western Province,’ says PNGSDP’s Chairman, Australian economist Ross Garnaut. ‘It is in the

Forestry Western province has a strong forestry sector, with wood exported to China, Taiwan and South Korea. The largest player is Malaysia’s Rimbunan Hijau group, which has a large plywood factory in Panawaka. Pilot projects are underway to develop exports in high value eaglewood (also called agarwood) and waria waria oil, a product similar to eucalyptus oil, which is obtained from the indigenous waria waria tree.

Tourism Western Province’s natural history makes it highly suitable for a range of eco-tourism activities, including sports fishing, recreational hunting, birdwatching, trekking, kayaking, cultural shows and village stays. Trans Niugini Tours already operates the popular Bensbach Wildlife Lodge on PNG’s largest lake, Lake Murray.

process of underwriting the provision of the infrastructure for water and land transport and the urban services that will facilitate investment in resource development, agriculture, sustainable forestry, sustainable fisheries, mineral processing and tourism. ‘

Sharing in PNG’s boomtime The economic fortunes of PNG as a whole have transformed the country over the past decade and Western Province is sharing in this new era.

With substantial proven reserves of oil, gas and minerals, Western Province itself is now experiencing a flurry of exploration activity, involving major international companies such as Talisman Energy and Highlands Pacific. The challenge is now to broaden its economy by developing further such economic activities as rubber production, aquaculture, forestry and tourism.

33

Financial services

Reaching out to the unbanked PNG’s strong financial services sector is becoming ever more sophisticated in servicing both the mass market and premium ends of the market.

‘P

NG continues to have a very, very strong banking sector. We are very lucky here to have the banks that we do. Investors want that, and they often don’t expect that there’s going to be this level of financial sector sophistication in PNG,’ says Carolyn Blacklock, IFC Resident Representative in Papua New Guinea.

There are three major banks in PNG: locally-based Bank of South Pacific (BSP) has the largest retail presence, while Australia’s ANZ and Westpac also have long-standing and significant branch and ATM networks. (A fourth bank, Malaysia’s Maybank, has a small presence in PNG.) 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.

‘The central bank is first class, in my opinion.’ says ANZ’s Chief Executive Officer, Pacific Northwest, Vishnu Mohan. ‘I think there are well qualified people running the governance of the financial institutions, so we have no issues.’

High liquidity There is a high level of liquidity in PNG’s banking system currently (about one billion kina, or US$468 million), as Mohan explains: ‘Corporates are doing well, so they’re recycling the cash that’s being generated in their businesses. Commodity prices have been high, commodity production and output has been good, and then you have the inflow of US dollars for the ExxonMobil PNG LNG project. The dollar inflow has been so healthy that the central bank has had to come into the market every now and then to absorb the US dollar liquidity, which means pumping back kina [PNG’s currency] into the market. So that creates a high level of kina liquidity.’

New services grow the market There appear to be two clear trends in PNG’s financial sector: firstly, a concerted drive to provide financial services to the majority of Papua New Guineans who presently do not have access to them and, secondly, the development of premium services for high net worth individuals and corporates.

Banking the unbanked Firstly, the ‘unbanked’: as Wayne Dorgan, Managing Director of insurer Pacific MMI puts it, 85% of PNG’s population is in the informal sector and therefore most financial services companies are only providing services to the remaining 15%. With more Papua New Guineans entering the formal sector each year (employment growth is currently around 6% per annum), and with financial inclusion and regional development being clear policy objectives in PNG’s medium- and long-term development strategies, the race is on to bring as many of the 85% as possible into PNG’s financial system.

‘Expanding financial services can encourage the participation of more people, especially those in rural and urban settlements, 34

BSP's premium banking suite, BSP First, in Port Moresby.

‘People just assume that PNG is a very mundane plain vanilla market, but only when you start offering products do you realise that there are customers here who are looking for fairly advanced products.’ in developing activities in both formal and informal sectors of the economy,' noted Bank of PNG Governor Loi M Bakani in a March 2012 speech.

Expanding reach PNG largest bank, BSP, has taken a multi-pronged approach, establishing a rural network of agencies under the BSP Rural brand, but also more than doubling its extensive national network of automatic teller and EFTPOS machines.

‘The cheapest and easiest way for a customer to access their money is clearly EFTPOS followed by ATM,’ notes BSP’s Managing Director, Ian Clyne. ‘It’s also the cheapest and easiest way for the bank to service these customers.’ BSP has set itself the goal of having a million retail customers across all its business lines by the end of 2012.

‘We’re up to 780,000 and we’re hoping to add another 20,000 each month during 2012—that would be the largest retail client acquisition in the history of the bank,’ Ian Clyne told Business Advantage in December 2011.

Westpac’s recently-launched Choice Basic account is also geared towards the retail mass market.

‘We’ve set a fairly bold aspiration to double the number of customers that we bank on the retail side of the business by 2013,’ notes Westpac’s General Manager—Pacific Banking Greg Pawson.

Financial services

Mobile phone banking With an estimated 12 million mobile phones in Papua New Guinea compared to only a million bank accounts, PNG’s expanding mobile phone network offers an opportunity for both existing and new players.

‘Papua New Guinea lends itself to mobile phone banking because of the rugged terrain, the fact that transportation is difficult, and that a lot of the places where the development is going on are a long way from the major centres,’ observes Michael Rowland, ANZ CEO Pacific. ‘We’re investing heavily in mobile phone banking and will be launching our service for customers later this year.’

Westpac is rolling out its mobile phone banking service now, part of a regional rollout that started in Fiji in 2011. BSP also offers a mobile phone banking solution, with 200,000 mobile banking accounts activated.

In March 2012, Bank of Papua New Guinea Governor Loi M Bakani presented a first mobile banking licence to Digicel Financial Services, a division of Digicel PNG. Digicel will offer a mobile or electronic wallet which can purchase with phone credit.

In awarding the licence, Bakani said the central bank would support three mobile banking business models: that offered by the banks (whereby a mobile phone is used to conduct bank account transactions), the mobile wallet favoured by Digicel, and also a mobile payments model such Post PNG's.

The mobile phone network is also being used by other financial services providers. For instance, Pacific MMI is planning to offering micro-insurance through PNG’s mobile phone network and enabled by a new central computer system. The service is due to be launched in the second half of 2012.

‘Micro-insurance is good business practice,’ asserts Pacific MMI’s Wayne Dorgan. ‘If we're having to work with very small margins and very small premiums, anything we do to create cost efficiency then flows through to regular insurance, and our clients get the benefit.’

Microfinance expands Microfinance is also expanding in PNG. Nationwide Microbank, which has been the recipient of support from the Asian Development Bank, announced its 100,000th customer in 2011, while PNG Microfinance and the National Development Bank also provide loans to small businesses and individuals who have yet to develop a credit history. (Since 2008, the Credit and Data Bureau has provided credit history data in PNG.)

Premium banking In parallel with mass market expansion, there is a concerted drive with all three major banks to provide premium services to high net worth individuals and corporate customers. BSP has been rolling out its own premium service, BSP First, with lounges and priority banking areas appearing in its Port Moresby branches in the first quarter of 2012. Meanwhile, ANZ last year introduced Signature Priority Banking in PNG, which is focused on helping affluent customers grow their wealth across the Pacific and connect with Asia.

‘People just assume that PNG is a very mundane plain vanilla market, but only when you start offering products do you realise that there are customers here who are looking for fairly advanced products and opportunities to have better investment income,’ observes ANZ’s Vishnu Mohan.

We’re the Pacific since 1901.

Westpac has the experience and local knowledge to offer banking solutions for business and personal customers right across the Pacific.

Since opening our first branch in the Pacific we have been more than just a bank, we’ve been part of the community – providing banking services and financial development to thousands of people.

For more information visit a Westpac branch or westpac.com.au/pacific Cook Islands +682 22014 Fiji +679 3300 666 Samoa +685 66100 Solomon Islands +677 21222 Tonga +676 23933 Vanuatu +678 22084 Papua New Guinea +675 3220 888 Westpac Banking Corporation ABN 33 007 457 141. The liability of its members is limited.

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14/03/11 1:59 PM

Infrastructure & transport

Credit: PNG Ports

New cranes on Port Moresby’s dock

PNG’s infrastructure challenge PNG requires significant investment in infrastructure. Deloitte’s Lutz Heim examines the opportunities and challenges in this sector.

P

NG’s infrastructure needs a substantial and urgent upgrade, in anticipation of increased stress and after a number of years of underinvestment, particularly during the lean years before 2004, and this is recognised by government and business alike. PNG policy makers have been working to address the massive investments needed in Deloitte PNG's Lutz Heim sectors such as roads, ports, power generation and telecommunications.

It is clear that the investment required is well beyond the Government’s current capacity to finance, particularly in light of the government’s open statements that they require hundreds of millions of US dollars to invest in the PNG LNG project to maintain their equity in the project. The Government has enlisted the support of various donor agencies such as AusAid, the European Union, Asian Development Bank and the International Finance Corporation in various projects but the scope of the investment required is still massive and may be beyond reach.

Changes in policy required If the required infrastructure investments are to be made then some fundamental changes are required and the policy makers have recognised this. The government has been grappling with

‘It is likely that the more successful partnerships will take account of the PNG preference for retaining ownership of its assets, at least in part.’ the concepts and challenges posed by various forms of Public Private Partnership (PPP) but no clear operating model for these has surfaced. It is likely that the more successful partnerships will take account of the PNG preference for retaining ownership of its assets, at least in part. It is also likely that projects that can carry their own external financing will have a greater chance of success.

One of the hindering factors has been the inability of the PNG state-owned enterprises (SOEs) to unilaterally find the capacity to vigorously pursue the required initiatives. For this reason, the Independent Public Business Corporation (IPBC) [the umbrella organisation which manages SOEs on behalf of the Government] has taken up a lot of the planning initiatives required. Even so, the construction of major infrastructure projects in key areas has been demonstrably slow and certainly not at the pace the Government or business would like to see. A snapshot of the position at the moment seems to be as follows.

Planning to meet future challenges PNG Ports Corporation understands the challenges of tomorrow and the change that is required to build world class port facilities. Our investments in key infrastructure are the testimony of this and we are committed to working with you to make this change happen.

For more information, visit us at www.pngports.com.pg 36

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Infrastructure & transport

RECENT DEVELOPMENTS IN INFRASTRUCTURE AND TRANSPORT > In its December 2011 budget, the PNG Government made its largest allocation ever for development, including K180 million for the 2015 Pacific Games, K187 million for the development of PNG’s 89 districts, K170 million for infrastructure and other projects related to the PNG LNG project, K231 million for roads (including the Highlands Highway), K44 million for water and sanitation programs and K41 million for rehabilitation of hospitals. > In early 2012, the Asian Development Bank announced contracts for road improvements in the Highlands region worth US$120 million. > The PNG Government has flagged the creation of an Independent Infrastructure Authority to oversee investment in the country’s infrastructure. > A portion of PNG’s new Sovereign Wealth Fund, to be created from the revenues from major resource projects, will be allocated to the recapitalisation of PNG state-owned enterprises. According the Minister for Public Enterprises Sir Mekere Morauta, the funds ‘will be used to steer public enterprises towards a more sustainable path, while at the same time facilitating the entry of private sector providers.’ > PNG Ports recorded a 46% increase in volumes through its ports in 2011. In response, the state-owned enterprise is commissioning new harbour cranes, introducing a new terminal operating system and extending Lae’s Berth 3. >

PNG's Independent Public Business Corporation signed the $285 million Lae Port Development Project civil works contract with China Harbour Engineering Company Ltd in March 2012, with $150 million funding from the Asian Development Bank.

National Information And Communications Technology Authority

Your one stop converged regulator and licensing authority for ICT services in PNG

Roads It is difficult to maintain existing roads in urban centres let alone build new ones. The nation’s life line, the Highlands Highway, stands to be the beneficiary of increased government budget allocations plus the benefit of an extended tax credit but this would not appear enough to ensure its longer term viability.

Ports Ports are still a logistical bottleneck despite increased attention and hard work in recent times. The ADB is assisting in a substantial improvement and expansion of PNG’s busiest port, Lae.

Power Power is likely to be the subject of government restructure to assist in substantial additions to generation capacity, which are essential for new resources projects and necessary social development, but which the government is unable to fund.

Ultimately, PNG’s ageing transmission and distribution structure will also require upgrade.

For further information please contact: Office of the Chief Executive Officer NICTA Headquarters, Frangipani Street, Hohola, Port Moresby.

PO Box 8444, Boroko, NCD, PNG Tel: +(675) 300 4009 / +(675) 303 3202, Fax: +(675) 325 6868

www.nicta.gov.pg

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Infrastructure & transport

Telecommunications PNG internet costs are some of the highest in the world and constitute a severe drag on development. SOEs [Telikom PNG and Bemobile] in this sector are struggling commercially and deregulation has not brought consumers substantial benefits.

A huge job ahead 2012 is an election year in PNG and that usually doesn’t bode well in terms of the timeliness in government decision-making,

both at the political and the bureaucratic levels, where a slowdown is often seen. There is clearly a huge job to be done by the SOE’s and IPBC but it may be that PNG will have to wait until the elections are over to get any real traction on these projects.

The long term continued stability of the PNG fiscal and legal investment base will also be critical to PNG, as will be a serious and successful upgrade of the delivery of government services.

Lutz Heim is Senior Partner at Deloitte PNG.

OPENING UP THE TELECOMMUNICATIONS MARKET

Papua New Guinea’s new regulatory regime for ICT is being credited with bringing about greater competition and an expansion of services. Business Advantage spoke with Charles Punaha (pictured above) of the National Information and Communications Technology Authority, the industry’s regulator, to discover how.

Can you explain the changes to the way Papua New Guinea’s ICT sector is being licensed?

In ICT, the Department of Communications and Information is responsible for the formulation of policy and NICTA is the regulator, so there’s a clear distinction in roles and functions.

NICTA is totally independent. In addition to licensing, it also allocates spectrum, slots for orbiting satellites, and the range of numbers for each of the operators who want to use numbering.

What we have been doing for the last twelve months, which we refer to as the Transition Period, is to migrate all the licences that were issued under the old regulatory regime into one of the new classes of licences. Under the old licensing regime, all licences were service-specific. For example, if you had a mobile licence, you were restricted to providing mobile services in the country. Now, there is no restriction on the type of service.

There are now three classes of licence. Companies and individuals can get what we call an Operator Class Licence, which grants rights to do anything you want provided it is for your own use. For a retail or wholesale operator, we have the two main licences: the Network Service Licence, which gives you the right to install infrastructure and ICT services, and the Network (Gateway) Licence, which allows for international internet connectivity. Previously, Telikom had the only gateway licence.

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What role does NICTA play in ensuring that the companies are not only licenced, but that they perform to expectations?

The Government policy requirement for the ICT sector is that ICT services must be accessible to all citizens of Papua New Guinea and at an affordable price. Every licence holder has a licence that contains conditions on coverage obligations and quality of service. Depending on location, it also contains the time in which operators are required to restore services. We have a consumer division that receives any complaints from members of the public. Where there’s a breach, notice is given and of course if there’s a serious breach there are processes that are specified in the Act, which I think are very transparent.

What potential is there for new companies to come into the market?

There is every opportunity for investors to come in. We believe there are still a lot of opportunities in the ICT sector in Papua New Guinea: there are a lot of un-serviced areas. The aim is to get one of the major reputable overseas companies in the country like Telstra or Singtel. If we can do that, that’s obviously going to contribute towards the objectives of the Government’s policy.

What do you see as the potential for the development of ICT services in PNG as a result of the deregulation that’s occurring?

At the moment we have only issued licences in the 900 and 200 spectrum bands and there are only 3G services.

One of the new initiatives is to make spectrum available in the 700 band, which is required for mobile broadband and Long Term Evolution (LTE)/4G services. We already have a public consultation in place. Spectrum in the 700 band will be available by the second half of this year and we will have mobile broadband available by the first quarter of 2013.

What role does NICTA have in ensuring that there is proper competition?

By June this year, to encourage competition, NICTA will be introducing true infrastructure sharing. This will provide for the operator who is already in a market to allow access to any intending operators coming in, at terms to be negotiated between them. And the Act provides that, where ICT access is available, the service must be provided at cost. It must not be uncompetitive. If it’s uncompetitive, then NICTA will step in.

Credit: R D Tuna

Fisheries

Fisheries industry takes new tack PNG’s fisheries sector is responding to the demands of its global market.

‘T

Economies of scale

Major player

Beyond tuna

una exporting is no longer a pricing game: it’s now all about sustainability and traceability,’ says the Managing Director of R D Tuna, Pete Celso. R D Tuna, PNG’s largest canning company, is currently being considered for accreditation under the Marine Stewardship Council’s sustainability and traceability policies, says Celso, also Vice Chairman of the Pacific Islands Tuna Industry Association.

‘From almost zero capability several years back in terms of monitoring and guarding fish stock activities, PNG has undergone major improvements and capabilities that can probably be considered the best so far in the Pacific Region,’ he says.

Papua New Guinea is the largest tuna fishery in the world, accounting for about 17% of the world’s tuna catch in 2010.

Frozen tuna made up 50% of exports, followed by canned tuna, cooked loins, fish meal and chilled tuna.

The main markets for PNG tuna are the European Union for canned tuna and cooked loins; and Thailand, the Philippines, American Samoa and Japan for frozen tuna. Chilled tuna goes to Japan, while fish meal goes mainly to Australia, Sri Lanka and Japan. Under an Economic Partnership Agreement, PNG has tariff-free access to the EU trading zone. Exports to the EU in 2012 are expected to be double 2010’s levels. There is also a healthy domestic market for tuna.

At the time of writing, PNG had just resumed talks with the United States over the South Pacific Tuna Treaty, which governs US access to fisheries in a number of Pacific Island EEZs. PNG wants an immediate increase in licence fees and a better pricing formula in the future, and was able to secure some concessions from the US in order for negotiations to resume. It is also lobbying for duty free access to the US market for its canned tuna and other tuna products.

RD Tuna Canners and Philippines-owned Frabelle PNG Ltd currently lead PNG’s canning industry, with both operating multimillion dollar plants in the Lae and Madang areas. Other major players include the International Food Corporation, which makes and distributes Besta canned mackerel, South Pacific Seafood, a PNG–Philippines joint venture, and Ailan Seafood Ltd, a fish processing company based in Kavieng, New Ireland Province.

Processing expands There are currently two major new onshore fish processing facilities being created on Papua's northern coastline. The 350 tonnes-per-day Majestic Seafoods cannery in Lae is a joint venture between Frabelle, Thai Union of Thailand and Century Canning from the Philippines, while Niugini Tuna Limited, a joint venture between R D Tuna, Tri-Marine International of the US and Fairwell Fisheries of Taiwan, will add 200 tonnes of daily capacity in Madang.

The planned Pacific Maritime Industrial Zone in Madang is expected to create economies of scale for the fish processing industry, by hosting more players and attracting investors from France, the Philippines, China and other countries. Funded by a US$71 million concessional loan from China and PNG Government funds, it is expected to host large tuna plants and employ thousands of people. The zone will provide wharfing, berthing, processing and other facilities and will be suitable not only for the fisheries sector but other industries too.

PNG’s coastal fishing industry focuses on prawns, lobsters, barramundi, beche-de-mer, trochus shells, pearl shell and green snail. A rising number of aquaculture farms are producing mainly tilapia and carp, while barramundi is also being farmed at the Western Province Sustainable Aquaculture Project.

Committed to World-Class Tuna Products.

RD TUNA CANNERS LIMITED Portion 1004, North Coast Road, Siar, PO Box 2113 Madang Province, Papua New Guinea Tel. No. (675) 423-3187/ (675) 423-1634 Fax No: (675) 423-3158 Email: info@rdtunacanners.com

www.rdtunacanners.com

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Credit: Mainland Holdings

Agribusiness & trade

A season of healthy growth Farming expertise, rich soil and high rainfall are behind PNG’s organic strength.

Food security, land security Development of the sector is also important for domestic consumption. PNG’s largest superannuation fund, NASFUND, bought into the diversified agribusiness Mainland Holdings partly in anticipation of this demand in late 2010. Outgoing Joint Managing Director Rod Mitchell noted in May 2011 that with PNG’s population growing at 3% and agricultural production at just 1%, food security would be an issue in the future.

There are other challenges. At the time of writing, a Commission of Inquiry into the issuing of Special Agricultural Business Leases (SABLs) was finalising its work. With the majority of land in PNG customarily owned, SABLs are the major mechanism by which land is made available for commercial use.

Customary owners lease land to the PNG Government, which then issues SABLs to commercial operators.

Around five million hectares of land have been leased out under SABLs over the past eight years. However, no new customary land has been made available for commercial use during the inquiry. Ramu Agri Industries General Manager Jamie Graham notes this is limiting the expansion plans of agribusinesses such as Ramu’s parent company, New Britain Palm Oil Limited (PNG’s most successful agribusiness). The Commission of Inquiry’s report was due to be presented to parliament in mid-2012.

Oil palm Palm oil is PNG’s most significant export crop, generating around 39% of agricultural export earnings over the past decade. The largest operator, New Britain Palm Oil Limited, announced a 69% increase in its revenue to US$780.1 million for 2011. NBPOL’s oil production was 23.5% higher than the preceding year.

Jamie Graham says the company is able to charge premium prices for quality sustainable products: ‘NBPOL’s commitment to sustainable and traceable palm oil is giving us the edge in European markets.’

NBPOL’s expansion plans include building a new bakery fats 40

‘PNG’s most valuable cash crops, oil palm, coffee and cocoa, generate almost 80% of the total agricultural export income.’ factory adjacent to its existing refinery in Liverpool, England. The Liverpool site will also double its refining capacity. NBPOL does face some challenges, says Graham, including the rising costs of inputs such as fertiliser and fuel and a shortage of skilled workers.

Coffee Across PNG, 2–2.5 million people depend on coffee for their cash needs, and it is the foundation of the Highlands’ rural economy.

About 85% of PNG’s coffee is produced by smallholders. The major export markets are Europe and the United States.

Challenges include the need to replant—as most of the trees are more than 40 years old—and constraints to market access.

The World Bank’s Productive Partnerships in Agriculture project seeks to help small coffee (and cocoa) farmers by increasing the amount of certified coffee produced and exported.

The International Finance Corporation (IFC), a member of the World Bank Group, will invest in the Chimbu-based producer Kongo Coffee, which has exported more than 24,000 tons to many international destinations including Germany, UK, USA, Hong Kong, Australia, New Zealand, Korea and Japan since late 1999.

Livestock The IFC has also agreed to investment in Lihir Integrated Livestock Ltd, which is part of Anitua, a company owned by Lihir Island landowners. The company produces pork, poultry, eggs and vegetables. Anitua subsdiary NCS supplies fresh produce to the Newcrest-owned Lihir gold mine for use in camp catering.

Mainland Holdings is PNG’s largest chicken producer, and is investing in chicken sheds and its growers’ network to meet a projected 25% increase in domestic demand. Other livestock producers include Ramu Agri Industries and Trukai.

Credit: Mainland Holdings

A

griculture accounted for more than 30% of Papua New Guinea’s GDP in 2011, according to World Bank figures. The sector expanded at a moderate pace in 2011, with many cash crops responding to high international prices.

PNG’s most valuable cash crops, oil palm, coffee and cocoa, generate almost 80% of the total agricultural export income.

Other agricultural products include rubber, tea, copra, spices, sugar and livestock.

Local environmental conditions are favourable for further growth. PNG has a large rural population possessing farming expertise, rich soil and high rainfall. Low-intensity farming methods mean PNG has the foundation to strengthen and market its organic and fair trade credentials.

Poultry and livestock are likely to become increasingly important as PNG addresses its own food security challenge.

Agribusiness & trade

Cocoa accounts for about 22% of the value of PNG’s GDP, with more than 65% of the crop being produced by rural households. While PNG supplies a modest 2% of the global market, the quality of its produce is high at between 75% and 85% fine cocoa flavour. There is potential to increase production significantly if the yield of smallholders can be improved, and to expand into downstream processing. Destination markets include the US, Belgium, Malaysia, Singapore, Indonesia, Thailand and Germany.

The Port Moresby stock exchange-listed NGIP Agmark is PNG’s largest producer and exporter of cocoa. It announced a K4.358 million ($US2.1 million) operating profit in the six months to 30 June 2011, with Chairman Don Manoa saying this was a ‘significant turnaround ... due to better cost control and increased revenue’.

OPPORTUNITIES TO SELL TO PAPUA NEW GUINEA When the final figures are available, they will most likely show Papua New Guinea’s spent about K10 billion (US$4.7 billion) in imports in 2011, up about 4% on the previous year.

These are some of the areas of key expenditure and demand: > Machinery and transport equipment > Mining and petroleum project-related services > Construction supplies and contracting > Food and beverages

Rubber

> Health products and services

Rubber is grown in seven of PNG’s provinces. About 74% is grown under plantation estates, with about 5150 smallholder growers producing the remainder. PNG's rubber is exported to the US, China, Australia and EU countries.

A successful model has been established with North Fly Rubber, a cooperative owned by around 3000 rubber-growing families from the Lake Murray, Balimo, Suki and Fly River areas in the Western Province. At the end of 2010, the Lake Murray Village Rubber project had 1646 growers from 21 villages planting 1960 hectares of rubber trees. An 2800 hectare expansion is planned by 2020.

> Education and training products and services (K–12, tertiary, technical and professional) > ICT products and services

Credit: NBPOL

Cocoa

Sustainable, traceable palm oil has become PNG's largest agricultural export

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Credit: Cloudy Bay Sustainable Forestry

Forestry

Making more from a sustainable resource PNG’s forestry sector contributes 4% of the country’s GDP, with significant room to grow as it responds to the rising demand for sustainable and traceable forest products.

W

hile most of its income is from the export of round logs, PNG also produces furniture, plywood, prefabricated buildings and other forest products for domestic and export markets. PNG has over 40 sawmills, a plywood factory, woodchip mill and more than 25 furnituremaking factories and joinery shops. The nation boasts more than 60 commercial species falling into the broad categories of major hardwoods, commercial hardwoods and major conifers.

At present, 29 forest concessions are in production across PNG, covering 3.5 million hectares. According to the PNG Forest Industries Association, about 13,000 people are directly employed the industry annually, and that in 2010 it generated export revenue of K756 million (US$368 million).

Most of PNG’s log exports go to Asia: 89% to China, followed

by Vietnam, India, and other markets. Processed products are exported to Australia, New Zealand and smaller South Pacific nations. Veneer is mainly sold to China and South Korea.

Plantation products currently account for about 15% of exports,.

SGS, the Swiss monitoring firm that tracks log exports for the PNG Government, assesses that PNG exported 3.5 million cubic metres of tropical hardwood logs in 2011—well above the previous record of 3 million cubic metres.

While there are many international investors and operators in PNG’s forest industry, Rimbunan Hijau PNG, a wholly owned subsidiary of Malaysian company Rimbunan Hijau, is by far the most influential forestry player (see box). Other key players include Cloudy Bay Sustainable Forestry, PNG Forest Products and Pacific Rim Hardwoods.

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

The International Tropical Timber Organisation (ITTO) is working with the PNG Forest Authority to enhance forest law 42

‘PNG exported 3.5 million cubic metres of tropical hardwood logs in 2011—well above the previous record of 3 million.’ enforcement in the country. Under a two year pilot project it will develop a timber tracking system at two timber concessions, develop a legality standard and industry code of conduct, and develop a forestry monitoring module for local stakeholders.

According to the ITTO, the project could lay the foundations for future initiatives such as national inventory, carbon sequestration monitoring and certification.

The industry is also being impacted by an ongoing Commission of Enquiry into Special Agricultural and Business Leases (SABLs), due to report in mid-2012. Under SABLs, customary owners lease land to the Government which then issues leases to commercial operators. The enquiry is examining claims that certain tracts of forest had been leased out for 99 years without the full knowledge and consent of landowners.

Challenges and opportunities Opportunities for the expansion of PNG’s forest industry include the rising domestic demand for timber and wood products driven

by PNG’s major new resources projects, plantations, and forest enhancement under climate change protocols.

Forestry companies have several years to transition to projects with a strong element of downstream processing, as outlined by government policy. Producers already generate sawn timber, veneer sheets, plywood and processed timber exports, but these sectors will receive greater emphasis.

The PNG Forest Authority plans to develop 240,000 hectares of commercially viable and sustainable forest plantations by 2030. Approximately 4000 hectares is expected to be contributed by private investors, including possible new entrants to the sector.

The industry is also closely watching the passage of new regulations for importing timber products based on legality and chain of custody through Australia’s parliament.

Forestry

INTERVIEW: JAMES LAU, RIMBUNAN HIJAU PNG created problems for most sectors, not just forestry. Future government policy will also determine the direction of the sector, particularly in areas such as resource allocation.

Credit: R H Group

Over the long term, PNG’s prospects for forest products are good. Exports to the major markets, particularly China, will continue as long as demand remains high. PNG currently has the capacity to increase exports if the demand is there.

There is great potential in niche markets, particularly for manufactured products, and we are currently examining those.

R H Group’s plywood factory in Panakawa, Western Province

Rimbunan Hijau PNG (R H) is PNG’s largest forestry business, accounting for about 45% of the country’s timber exports. Business Advantage spoke with Managing Director James Lau about his company’s strategy for growth and the sector’s future.

As PNG’s largest forestry operator, what is the strategy for your forestry division going forward?

R H has now been in PNG for more than 20 years. Forestry is a long-term investment. The forest resources that we have access to need to be managed with this long-term investment in mind. Our strategy is threefold. First, to remain efficient and cost effective in all aspects of our operations.

Second, to maintain good operational practices and adhere to environmental standards in all parts of our business. Third, to develop niche markets for our products, particularly in timber processing.

What is you assessment of the PNG forestry sector in general? In what direction is it moving?

The forest sector in PNG is like most other sectors, in that it is subject to fluctuating demand. One of the problems we have had of late has been an extended wet period. This has

How do you respond to criticism of PNG’s forestry sector in the international media?

Forestry, in any country, is an easy target for Green activists.

Criticisms of PNG’s forest sector first surfaced in the mid1980s, prior to R H establishing itself. Since then, the industry has been targeted unfairly by international activists, despite a comprehensive overhaul of PNG forest policy. The industry is now for the most part operating responsibly. Our company has implemented environmental assurance standards that are internationally recognized. We have also been working with intergovernmental organizations to improve forest practices and management across the board.

What often gets missed in the public debate is how important the forest industry is for local communities. We work in areas that are remote. The employment and services the industry provides are often not provided by governments in these areas. Green campaigners ignore the benefits that have accrued to these communities from our presence over the past two decades. Moreover, they ignore PNG’s development needs across the board.

We were originally accused of being a ‘fly-by-night’ operation.

The past two decades have shown this is not the case. The activists, on the other hand, come and go.

PORT MORESBY CHAMBER BIZCENTRE • Your first point of contact in PNGʼs Capital City • Port Moresby Chamber of Commerce has been serving the business community in the Nationʼs Capital since 1923 - General information and advice - Briefings and delegation support - Serviced and virtual office space right in the heart of the CBD.

• Visit our website on

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Address:

Level 3, United Church Building, Douglas Street, CBD, Port Moresby (opposite the Grand Papua Hotel) Tel: +675 7200 0000 / 321 3077 Email: bizcentre@pomcci.com

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Manufacturing

Made in PNG

Papua New Guinea isn’t just a producer of mineral and agricultural commodities; as its economy grows, so is a substantial manufacturing sector.

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any PNG manufacturers are undergoing strong growth and expansion. South Pacific Brewery opened its new K8.6 million (US$4.1 million) raw material warehouse in Port Moresby in September 2011, the latest step in a series of investments in PNG. ‘The Company's three-year investment plan has resulted in the latest technology being installed. The upgrade of the current operations and expansion of the brewery capabilities is world class and will provide us the extra capacity needed to meet market demand and growth. This structure is part of that investment,’ said S P Brewery Chairman Sir Joseph Tauvasa at the time of the opening.

Australia-based Coca-Cola Amatil is banking on strong growth in Indonesia and Papua New Guinea to drive its business in 2012.

The growth outlook for both these businesses continues to be very promising, said Coca-Cola Amatil’s Chief Executive Officer Terry Davis in a recent statement. Coca-Cola Amatil is building a CO2 plant in Lae and a plastic bottle production plant in Port Moresby for nearly K20 million (US$8 million).

Other manufacturers reporting growth in demand, product lines and investment include Paradise Foods, K K Kingston and the Lae Biscuit Company.

A WIDE RANGE OF GOODS Items manufactured in Papua New Guinea include > Beverages: beer, soft drinks, vodka > Building: pre-fabricated building (wood/steel), roofing materials, cement, plywood > Food: biscuits, snacks, noodles, baking products, canned meat/fish, smallgoods > Household items: furniture, beds, mattresses, cooking utensils > Industrial products: chemicals, water tanks > Packaging: aluminium cans, corrugated cardboard > Paints > Personal care products > Printing: offset and digital

Investment and its challenges

> Refined petroleum

Investment is being underwritten by a variety of institutions.

The two leading superannuation funds have stakes in the sector. Nambawan Super owns shares in S P Brewery and 80% of Paradise Foods, while NASFUND owns a major stake in agribusiness firm, Mainland Holdings. The regional Kula Fund and the World Bank’s private sector arm, the International Finance Corporation, have invested in K K Kingston.

Some logistical challenges faced by manufacturers include high start-up costs, high rents and reliable and cost-effective access to power and water. Skilled workers are often lost to the booming mining and petroleum sector. However infrastructure projects, including moves to increase port capacity in Lae, where the bulk of PNG’s manufacturing industries are based, are in train.

> Textiles: footwear, school uniforms

Credit: Manufacturers Council of PNG

For more information, read Made in PNG: Showcasing Papua New Guinea’s Produce and Producers, available at www.madeinpng.com.

Wide range PNG’s rapidly growing domestic market is driving demand for locally produced products, from paint and printed goods to refined petroleum. Local production also caters to the businessto-business market, especially in the mining, petroleum and construction sectors. And local producers are increasingly finding new markets, particularly in neighbouring Pacific Islands such as Solomon Islands, Australia and New Zealand.

PNG’s manufacturing sector employs around a quarter of the formal workforce, and contributes an estimated 6 to 11.5% of GDP. Downstream processing also plays an important role in the fishing, timber, coffee, petroleum and gold industries.

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Local pride The Manufacturers Council’s ‘PNG Made’ campaign encourages consumers to buy locally made products. The program enables locally-produced goods that meet with Council approval to display the ‘PNG Made’ logo.

'There is support for what we are doing and the reasons behind it. Papua New Guineans are very proud of their country and what they have done over the years. They are quite parochial about “PNG Made". I don't think we realise how powerful the brand and logo really is,' says Coca-Cola Amatil PNG’s General Manager Colin McVea.

Tourism Port Moresby’s Airways Hotel was voted World’s Coral Seas Hotels’ new Leading 160-roomAirport GrandHotel Papua Hotel central Port in the 2011opened World in Travel Awards.

Moresby in September 2011.

Adventure-seekers cruise in Greater access, improved accommodation and a unique culture lure greater numbers of visitors.

V

isitor arrivals to Papua New Guinea grew by 12.8% in 2011 over arrivals for 2010. While many travelled to the country on business, there was also a signifiant rise in holidaymakers. Australia provided 46% of PNG’s 165,059 visitors in 2011, but visitors are being increasingly drawn from Asia and Europe because of improved air access, more diverse accommodation and PNG’s reputation for unique cultural and soft adventure options.

‘When compared to its other Pacific neighbours, PNG's pristine wilderness, preservation of culture and the range of outdoor activities to be enjoyed make it a stand-out destination to visit for tourists with the urge to explore,’ says Executive Consultant Carla Ewin of Roaming Adventures, an adventure travel consultancy specialising in the Pacific.

The PNG Tourism Promotion Authority (TPA) focuses on the country’s untouched and wild landscapes, and diverse peoples and cultures in promoting PNG to prospective visitors.

‘The main strategy we use ... is tracking, diving, surfing and of course, cultures,’ said TPA’s Australia and New Zealand sales manager, Michael Woods, at a PNG tourism workshop in early 2012. The workshop brought together Online Travel Agents (OTAs) including Wotif, Travelocity, Booking.com, Zuji, World Hotel Link, and local hoteliers, to discuss how they can develop online strategies and increase international visibility. Similar workshops are planned for small business operators.

‘PNG's pristine wilderness, preservation of culture and the range of outdoor activities to be enjoyed make it a standout destination to visit for tourists with the urge to explore.’

Improved accommodation Steamships Trading Company’s Grand Papua Hotel—the first newly built hotel to open in Port Moresby in more 20 years and a K200 million ($US97 million) investment—opened in November 2011. ‘[It’s] our statement of faith in the future growth of PNG's economy,’ says Steamships’ Chief Operations Officer, Tom Owen.

The opening is part of a broader invigoration of the accommodation offerings in Port Moresby, which had been suffering from a shortage of hotel rooms. Beyond Port Moresby, Steamships has expansion plans for the Melanesian Hotel in Lae, while its Goroka, Mount Hagen and two Port Moresby properties—the Ela Beach Hotel and Gateway Hotel—have all recently undergone improvements. The Lamana Group, owner of the award-winning Airways Hotel, is expanding the hotel’s dining facilities and has plans to build a Jack Nicklaus-designed championship golf course near Jacksons International Airport.

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TOURISM

Better access by air and sea

Credit: MadNESS Photography

Air access to Papua New Guinea continues to improve, with national carrier Air Niugini now flying to Singapore four times a week, Manila three times, Hong Kong twice and Japan once.

Pacific Blue, Qantas and POMSOX-listed Airlines PNG have regular flights connecting PNG to Australia’s major east coast airports, while Air Niugini also has flight connections to Fiji and the Solomon Islands (Solomons Airlines has also recently resumed flights from Honiara). Air Niugini is also strengthening its alliances with other international carriers, recently signing an Interline E-ticketing Agreement with Air France and KLM Royal Dutch Airlines.

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. While some of these visitors took tours in Port Moresby, Madang and Rabaul, others flew to Mt Hagen and Goroka for day trips.

The TPA says 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, and Australian Expedition Cruises is looking at expanding its PNG offerings.

The TPA and PNG Ports Authority participated in the first Cruise Shipping Asia Trade Show and Conference in Singapore in late 2011 in a bid to spark further growth in this sector.

Beyond traditional markets Port Moresby's trailblazing Airways Hotel won the World's Best Airport Hotel Award in the 2011 World Travel Awards

Credit: PNG Tourism Promotion Authority

At the other end of the accommodation spectrum is Villagehuts, a new online company 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 guest houses and lodges that are particularly attractive to the growing adventure market.

The TPA has appointed Lee Travel Consulting to represent it in the European market. The company has offices in London and Munich, Germany, and specialises in advice and contract services to companies in the long haul sector.

‘We have recently had a steady increase in tourism from both the UK and Europe and feel strongly that this market will benefit from the services our own local office can offer,’ says Leith Isaac, TPA Director of Marketing.

The TPA also hosted a visit for Japanese surfers in late 2011.

The trip generated a 10-page feature in Surf Trip Journal, and it is hoped this will create a buzz around PNG’s small but established surf tourism industry.

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Credit: Xstrata Copper

Who’s who in PNG

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

AGRIBUSINESS/ MANUFACTURING

BANKING, FINANCE & INSURANCE

Coca Cola Amatil PNG +675 472 1033 Dulux PNG +675 325 4555 Goodman Fielder International (PNG) +675 308 2200 www.goodmanfielder.com.au KK Kingston +675 472 2745 www.kingston.com.pg Lae Biscuit Company +675 475 9988 Laga Industries +675 475 7344 www.lagaindustries.com.pg Mainland Holdings +675 472 3499 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

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) +675 321 1999 www.bsp.com.pg 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 Independent Public Business Corporation (IPBC) www.ipbc.com.pg Institute of National Affairs (INA) +675 321 1045 www.inapng.com Industry-funded think-tank.

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 Department 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 PNG Immigation & Citizenship Service +675 323 1500 www.immigration.gov.pg Port Moresby Chamber of Commerce & Industry +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.

USEFUL ONLINE RESOURCES FOR PAPUA NEW GUINEA www.businessadvantagepng.com – The online edition of this publication, plus other business resources for the AsiaPacific region. www.ipa.gov.pg – PNG’s Investment Promotion Authority. www.pomcci.com – The Port Moresby Chamber of Commerce and Industry. Information on networking, PNG business generally, useful links and POMCCI's training workshops and events. 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.

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

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.

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Who’s who in PNG

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

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

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.

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.pg.g4s.com Golder Associates PNG Ltd +675 7211 5454 www.golder.com International SOS +675 323 2033 www.internationalsos.com Leahy Lewin Nutley Sullivan Lawyers + 675 320 3333 www.llns.com.pg 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.rdlmanagement consultants.com.au Remington Technologies +675 312 3400 www.remington.com.pg

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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.com

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 www.talisman-energy.com UMW +675 325 5766 www.umw.com.pg Xstrata Copper +617 3295 7500 www.xstrata.com

TOURISM/TRANSPORT 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.pngwater.com.pg

National Information and Communications Technology Authority (NICTA) +675 303 3202 www.nicta.gov.pg Telikom PNG +675 300 4000 www.telikompng.com.pg

LANDOWNER COMPANIES/FUNDS 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 Transwonderland Limited +675 321 8077 www.transwonderland.com

DIVERSIFIED INDUSTRIAL GROUPS Rimbunan Hijau (R H) Group +675 325 7677 www.rhpng.com.pg Steamships Trading Company Limited +675 322 0400 www.steamships.com.pg W R Carpenter Group +675 302 4200 www.carpenters.com.pg

Business Travel Guide to Papua New Guinea Practical tips and advice for the business traveller.

Climate

Safety

With the exception of the Highlands, PNG has a warm tropical climate.

The wet season in Port Moresby is from December to April.

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

Communications

Time Zone

Internet: Web access in Port Moresby has improved considerably 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: International roaming is possible in PNG but it is very costly. It is cheaper 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.

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

Electricity

Eating, drinking, socialising in Port Moresby

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

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

Airlines PNG flies from Cairns (www.apng.com) and operates a codeshare with new entrant Virgin Blue on the Brisbane route (www. virginblue.com.au). Qantaslink commenced flights from Cairns to Port Moresby in mid-2010 (www.qantas.com.au).

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

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

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

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

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

Domestic Flights: Travelling within PNG often means taking an internal flight (for instance, you cannot drive between Port Moresby and Lae).

There are regular services from Port Moresby to Lae. While the price of domestic fares has fallen, they are still on the high side. Air Niugini now offers passengers the chance to book online but make sure you print out a copy of your receipt to show at the check-in counter. Meanwhile, competitor Airlines PNG has been beefing up its domestic services.

Aircraft and helicopter charter services are available for travel to remote locations.

Health Serious medical conditions typically require treatment outside the country. Travellers should ensure they have adequate health cover (the cost of medical evacuation alone can reach US$30,000), while foreign companies operating in PNG should have a comprehensive health plan in place. See box on page 50.

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

Visas Business travellers require a business visa to enter PNG. There are two types of business visa: single entry (for one visit of up to 30 days) or multiple entry (visits totalling up to 60 days over a 12-month period).

Single entry business visas can be obtained on arrival and cost 250 kina. However, a multiple entry business visa must be applied for from a PNG diplomatic mission before you travel at a cost of 500 kina. 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. Visit www.immigration.gov.pg for more. (see also hotels below) Town: Asia Aromas: in the Steamships arcade, CBD. A Port Moresby institution serving excellent Thai and Chinese food. Reservations recommended at lunchtime.

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

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

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

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 Named World Airport Hotel of the Year in 2011, Airways is contained 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 expanded European-style Deli KCs is delightful. 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.

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 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.

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Business Travel Guide to Papua New Guinea

KEEPING SAFE AND HEALTHY IN PNG Papua New Guinea is regarded as high risk country, both for medical and security issues. Risks to expatriates and travellers cover the full spectrum, from local medical risks and infectious diseases through to exposure to petty crime, violence and civil unrest.

No areas in Port Moresby are considered completely safe, with care needed to be taken at all times when moving around.

Medical services within Papua New Guinea vary considerably and clients are encouraged to contact International SOS for appropriate referrals based on their specific needs. Where illness cannot be treated locally, clients are referred offshore for either routine or emergency Gateway Hotel Another member of Coral Sea Hotels, this time located next to the airport. Recent renovations added a large conference centre.

Lae International Hotel, Lae Lae’s best hotel has a secure, central location, pleasant grounds, cable TV and several dining options. Tel +675 472 2000, www.laeinterhotel.com.pg.

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care. People are often surprised to learn snake bites are one of the biggest medical threats to employees. Other medical risks include insect-borne diseases such as malaria, dengue, filariasis and Japanese encephalitis. Diseases such as hepatitis, typhoid, STDs and blood borne diseases are also prevalent.

Poor pre-travel advice, not taking anti-malarial medication, a lack of control programs on sites and inadequate diagnostic and treatment capabilities are contributing to these unwanted and avoidable events.

Prepared by John Petersen, PNG Managing Director & Dr Dick Hooper, Medical Director, International SOS. International SOS has been operating in PNG since 1994 and manages site medical services at more than 30 locations across the country. Its emergency assistance services, clinics, on-theground medical services and managed health care solutions link in with its global capabilities to deliver solutions for organisations operating in PNG. Other urban centres For business-standard hotels in other urban centres, try the Coral Sea Hotels website at www.coralseahotels.com.pg. Note also the Alotau International Hotel in Milne Bay (www.alotauinternationalhotel. com.pg) and the Gazelle International Hotel in Kokopo (www. gazelleinternationalhotel.com).

An oasis of understated luxury in one of the Pacific’s most inspiring settings.

Airways Hotel is Papua New Guinea’s leading hotel, Australasia’s leading airport hotel and one of the most unique airport hotels in the world.

Nestled in its own botanical gardens, with stunning views from the crystal clear waters of Bootless Bay to the majestic mountains of the Owen Stanley Ranges, it is located just two minutes from Jacksons International Airport, Port Moresby.

Jacksons Parade, Port Moresby, Papua New Guinea Tel: +675 324 5200 Fax: +675 325 0759 Email: reservations@airways.com.pg

www.airways.com.pg

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