Papua New Guinea
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Toward Foreign Direct Investment
The PNG Government frequently and publicly commits to fostering an environment for businesses to grow and to attracting foreign direct investment.
PNG aims to increase FDI in mining and petroleum/gas sector from USD 40 million in 2016 to USD 100 million by 2022. FDI stock reached USD 4.2 billion in 2016. The mining, oil, and gas sectors attract the vast majority of PNG’s FDI. The government has set an FDI stock target of USD 10 billion by 2022. A new government focus for FDI has been in the renewable sector.
This goal was reiterated in PNG’s first-ever national trade policy, PNG National Trade Policy for 2017-2032, which was launched in August 2017. The policy set a goal to maximize trade and investment by increasing exports, reducing imports of goods that could be produced in PNG, and increasing Foreign Direct Investment (FDI).
The trade policy also sets very ambitious economic targets, including the creation of more than 100,000 new jobs, USD 10 billion in new foreign investment, increased foreign exchange reserves, reduced government debt to GDP ratio, and a more diversified economy in the next five years.
The success of this plan will be mostly determined by the dedication of the PNG Government to carrying it out, something that many prior policies and strategies have suffered from
There are no laws or practices that discriminate against foreign investors by prohibiting, limiting or conditioning foreign investment in a sector of the economy.
Papua New Guinea has the Investment Promotion Authority (IPA), which was established by an Act of Parliament in 1992. Its primary mandate is to promote and facilitate investment in Papua New Guinea and also to regulate the business industry in the country. The services provided by IPA include: business registration, regulation and certification (under the Business Registration and Certification or Office of the Registrar of Companies), investor servicing and export promotion (under the Investor Services and Promotion Division), protection of intellectual property rights (under the Intellectual Property Office of PNG), and regulation of capital markets (under the Securities Commission of PNG).
PNG regularly engages with investors through multiple high-level summits and conferences. Extractive industries dominate PNG’s formal economy, so most engagement is directed towards them. In the last year, the government, through the state-owned enterprise, Kumul Petroleum Holdings Limited (KPHL), helped host two forums: the annual PNG Mining and Petroleum Investment Conference, the inaugural PNG Petroleum and Energy Summit.
Limits on Foreign Control and Right to Private Ownership and Establishment
Foreign investment in Papua New Guinea is facilitated, regulated and monitored by the Investment Promotion Act.
Section 37 of the Act guarantees that the property of a foreign investor shall not be nationalized or expropriated except in accordance with law, for a public purpose defined by law and in payment of compensation as defined by law.
Foreigners are not allowed to own land in PNG. Most foreign businesses use long-term leases for land instead of direct purchases. There are no other specific requirements. PNG recently changed its citizenship laws to allow dual citizenship which had previously been a limiting factor for Papua New Guineans returning from overseas having naturalized elsewhere. Additionally, it allows long-term residents to naturalize as PNG citizens with full legal rights and responsibilities.
There are no specific sectors with restrictions, limitations, or requirements applied to foreign ownership and control.
The GOPNG screens foreign direct investment. When reviewing an FDI proposal, the Investment Promotion Authority (IPA) may consider a number of factors, including the:
- Potential for positive development of human and natural resources;
- Investor’s past record in Papua New Guinea and elsewhere;
- Creation of additional employment and income-earning opportunities;
- Likelihood the proposal will generate additional government revenue and contribute to economic growth;
- Transfer of technologies and skills and the contribution to training citizens of Papua New Guinea; and
There is no specific investment level. The IPA may, however, pursuant to Section 28(7) of the Investment Promotion Act require an applicant for Certification to deposit the prescribed amount prior to a Certificate being issued. The prescribed amounts are per Section 6B of the Investment Promotion Regulation:
- Individual – PGK 50,000 (USD 15,340);
- Partnership – PGK 50,000 (USD 15,340) per partner; and
- Corporate Body – PGK 100,000 (USD 30,680).
The purpose of the screening mechanism is to assess the net economic benefit and consistency with national interest. The possible outcomes of a review are prohibition, divestiture, and imposition of additional requirements. The IPA and other regulatory bodies in particular sectors make the decision on the outcome.
Appeal processes differ among the sectors. For IPA related matters, a company must submit its appeal to the Ministry of Commerce and Industry. An accompanying fee of PGK 200 (USD 61) is required. Appeals may be lodged in response to any decision made by the IPA, including rejection of an application or the cancellation of a registration.
The Bank of Papua New Guinea, PNG’s Central Bank, approves all foreign investment proposals. Such proposals include the issue of equity capital to a non-resident, the borrowing of funds from a non-resident investor or financial intermediary, and the supply of goods and services on extended terms by a non-resident. In its review, the Bank is mostly concerned that the terms of the investment funds are reasonable in the context of prevailing commercial conditions and that full subscription of loan funds are promptly brought to Papua New Guinea. A debt/equity ratio of 5:1 is generally imposed with respect to overseas borrowings and a ratio of 3:1 with respect to local borrowings.
U.S. investors are generally welcomed by the PNG government, and are not especially disadvantaged or singled out by any of the ownership or control mechanisms, sector restrictions, or investment screening mechanisms, relative to other foreign investors.
Other Investment Policy Reviews
The government has not undergone any third-party investment policy reviews (IPRs) through a multilateral organization within the past three years.
PNG has made efforts to make doing business easier. IPA has a website and is open and responsive. Despite these efforts, the IPA does not control all aspects of new business registration and operation of existing businesses. As such, government agencies that are less responsive can cause significant delays for businesses in need of government services.
The Investment Promotion Authority (IPA) is the lead agency for GPNG’s business facilitation efforts. It can be reached online at http://www.ipa.gov.pg/ . The new Do It Online section allows both overseas and domestic business registration. Previously, the processing times were substantial, but the current processing time for IPA is seven (7) days. A foreign company must first register under the Companies Act of 1997. Foreign companies have two options for registration in PNG: to incorporate a new company in PNG or to register an overseas company under the Companies Act of 1997. In practice, most foreign companies incorporate a new PNG subsidiary when entering the PNG market.
Once incorporated and registered with the IPA, a newly incorporated PNG company or overseas company should also register with the Internal Revenue Commission for tax and employment purposes. Typically, this process takes nine (9) days.
PNG’s government has made efforts to include women in the formal economy with forums, micro-lending, and training. These efforts have met with limited success.
There are no incentives for outward investment from PNG, and there are no explicit legal restrictions on outward investment. The most likely barrier for this type of investment would be sufficient access to foreign currency. There have been no recent large-scale outward investments originating from PNG.
2. Bilateral Investment Agreements and Taxation Treaties
PNG has Bilateral Investment Treaties (BITs) with Australia, China, Germany, Japan, Malaysia, and the United Kingdom. PNG has a free trade agreement (FTA) with the countries of the Melanesian Spearhead Group: Solomon Islands, Vanuatu, and Fiji.
PNG does not have a bilateral taxation treaty with the U.S. It currently has “double tax treaties” with the following countries: Australia, Canada, China, Fiji, Germany, Indonesia, South Korea, Malaysia, New Zealand, Singapore, and the United Kingdom. PNG also has a tax information exchange agreement with Australia.
PNG has long struggled to collect all taxes owed to the government. There have been recent efforts to step up tax collection due to a growing government budget deficit. In response to efforts to collect more from large companies, these large companies (including many nationwide retailers) have accused smaller companies, often owned by Chinese businesspeople, of evading taxes through incorrect accounting or bribery.
3. Legal Regime
Transparency of the Regulatory System
The ICCC (Independent Consumer and Competition Commission) is charged with fostering competition. While there are transparent policies in place, the competition regime works more towards the regulation of existing monopolies and does little to foster competition. Tax, labor, environment, health, and safety and other laws do not distort or impede investment. However, the lack of implementation of existing laws by some government entities frustrates some investors. For example there are long bureaucratic delays in the processing of work permits and frequent complaints about corruption and bribery in government departments.
The IPA and the Government are moving, with the assistance of the International Finance Corporation, towards more investment promotion and a more streamlined regulatory framework to encourage foreign investment. The IPA’s move to an online registration process for businesses is evidence of this.
Proposed laws and regulations are made available for public comment, but comments are not always taken into consideration or acted on by lawmakers or regulators.
There are informal regulatory processes managed by nongovernmental organizations and private sector associations. There are impediments to the licensing of skilled foreign labor that are imposed by local professional associations, such as the Papua New Guinea Institute of Engineers and the Law Society(both of which have their own regulatory processes), that foreigners must go through before they can work/practice in the country.
There are no private sector and/or government efforts to restrict foreign participation in industry standards-setting consortia or organizations.
Legal, regulatory, and accounting systems are transparent and consistent with international norms, but there are delays in the dispute resolution system due to a lack of human resources in the judiciary.
When possible, proposed laws are made available for public comment, but comments are not always taken into consideration or acted on by lawmakers. Frequently, important Parliamentary decisions, such as the annual budget, are taken with no hearings and little or no debate before voting. Many PNG government functions and documents are available online, but not all and they are not centralized.
Regulatory decisions can sometimes be capricious and opaque, but they do not specifically target foreign-owned businesses. Most regulatory decisions can be appealed to courts with jurisdiction. There are no regulatory reforms currently planned.
International Regulatory Considerations
PNG is a party to the Melanesian Free Trade Agreement. The agreement came into effect in 2017 and does address the need for competent regulatory authorities in each country (PNG, Solomon Islands, Vanuatu, and Fiji). However, the regulatory chapter is small and is designed to be strengthened and improved going forward. When international standards are used in PNG, they are most often Australian due to PNG’s colonial past and continuing close economic ties with Australia.
The government has notified the WTO Committee on Technical Barriers to Trade only once. That notification covered food safety issues and was issued in 2006.
Papua New Guinea accepted the Trade Facilitation Agreement (TFA) on March 7, 2018. As the acceptance has happened only recently, there have been no government efforts of note on implementing TFA requisites.
Legal System and Judicial Independence
The legal system is based on English common law. Contract law in Papua New Guinea is very similar to and applies in much the same way as in other common law countries such as Great Britain, Australia, Canada, and New Zealand. There is, however, considerably less statutory regulation of the application and operation of contracts in Papua New Guinea than in those other countries.
The Supreme Court is the nation’s highest judicial authority and final court of appeal. Other courts are the National Court; district courts, which deal with summary and non-indictable offenses; and local courts, established to deal with minor offenses, including matters regulated by local customs.
In addition to the courts mentioned above, there is also a system of Village Courts established under the Constitution and the Village Courts Act. Matters involving customary law claims are likely to arise at the Village Court level. There is no jury system in Papua New Guinea. Lawyers operating in Papua New Guinea are governed by the Papua New Guinea Law Society, and only lawyers registered with the Society should be used.
While often painstakingly slow, the judiciary system is widely viewed as independent from government interference. The Supreme Court is the ultimate appeal court in Papua New Guinea. It has original jurisdiction in matters of constitutional interpretation and enforcement and has appellate jurisdiction in appeals from the National Court, certain decisions of the Land Titles Commission, and those of other regulatory entities as prescribed in their own Acts. The National Court also has original jurisdiction for certain constitutional matters and has unlimited original jurisdiction for criminal and civil matters. The National Court has jurisdiction under the Land Act in proceedings involving land in Papua New Guinea other than customary land.
Laws and Regulations on Foreign Direct Investment
Foreign investors can either be incorporated in PNG as a subsidiary of an overseas company or incorporated under the laws of another country and therefore registered as an overseas company under the Companies Act 1997.
The 1997 Companies Act and 1998 Companies Regulation oversee matters regarding private and public companies, both foreign and domestic. All foreign business entities must have IPA approval and must be certified and registered with the government before commencing operations in PNG. While government departments have their own procedures for approving foreign investment in their respective economic sectors, the IPA provides investors with the relevant information and contacts. The regulations governing foreign investments in PNG include:
- Free Trade Zone Act 2000;
- Investment Promotion Act 1992;
- Papua New Guinea Companies Act 1997;
- Forestry Act 1991;
- Mining Act 1992;
- Fisheries Act 1994; and
- Oil and Gas Act 1998.
In 2014, the government amended the 1997 Companies Act to improve corporate governance and ease regulatory burdens. This amendment allowed IPA to begin using its online company registry. The main changes to the act are as follows:
- Increased protection and benefits for shareholders;
- Clarification of duties imposed upon directors;
- A more transparent and streamlined process of issuing shares;
- Increased protection of creditors, including a more disciplined liquidation process;
- A clearer process for filing annual returns; and
- Streamlined filing requirements in anticipation of implementing an online registration.
A summary of the changes to the Act can be found on the IPA website: http://www.ipa.gov.pg/wp-content/uploads/Changes-to-the-company-Act.pdf .
In 2013, the government amended the Takeovers Code to include a test for foreign companies wishing to buy into the ownership of local companies. The new regulation states that the Securities Commission of Papua New Guinea (SCPNG) shall issue an order preventing a party from acquiring any shares, whether partial or otherwise, if the commission views that such acquisition or takeover is not in the national interest of PNG. This applies to any company, domestic or foreign, registered under the PNG Companies Act, publicly traded, with more than 5 million PGK (USD 1.53 million) in assets, with a minimum of 25 shareholders, and more than 100 employees.
In recent years, this law has not been used to prevent ExxonMobil’s acquisition of InterOil or Chinese company Zijin Mining’s purchase of 50 percent of the Porgera Joint Venture gold mine.
Competition and Anti-Trust Laws
The 2002 Independent Consumer and Competition Commission Act, is the law that governs competition. It also established the Independent Consumer & Competition Commission (ICCC), the country’s premier economic regulatory body and consumer watchdog; introduced a new regime for the regulation of utilities, in particular in relation to prices and service standards; and allowed the ICCC to take over the price control tasks previously undertaken by the Prices Controller as well as the consumer protection tasks previously undertaken by the Consumer Affairs Council.
The Act’s competition laws, contained in Part VI of the Act, prohibit:
- Entering into, or giving effect to contracts, arrangements or understandings having the purpose, effect or likely effect of substantially lessening competition (Section 50);
- Arrangements between competitors that contain exclusionary provisions, which have the purpose of preventing, restricting or limiting dealings with any particular person or class of persons who are in competition with one or more of the parties to the arrangement;
- Price fixing agreements between competitors (but fixing prices of joint venture products, recommended prices and joint buying and promotion arrangements, are not absolutely prohibited, although they may still be subject to the prohibition on contracts, arrangements, and understandings that substantially lessen competition) (Sections 53-56);
- A person with a substantial degree of market power from taking advantage of that power for the purpose of restricting the entry of a new competitor into a market, preventing or deterring a competitor from engaging in competitive conduct, or eliminating a competitor from that market (Section 58);
- The practice of resale price maintenance, which occurs where a supplier tries to specify a price below which a reseller may not sell the supplier’s product. This prohibition also applies to third parties seeking to insist that products not be resold below a specified price (Sections 59-64); and
- Mergers or acquisitions that would have the effect or likely effect of substantially lessening competition in a market (Section 69).
The ICCC’s website is http://www.iccc.gov.pg .
There have been no significant actions taken by ICCC in the last 12 months that have affected international investors.
Expropriation and Compensation
The judicial system upholds the sanctity of contracts, and the Investment Promotion Act of 1992 expressly prohibits expropriation of foreign assets.
After years of environmental issues, in September 2013, the Government of Papua New Guinea nationalized the country’s largest taxpaying company, Ok Tedi Mining Limited. The nationalization raised concerns about the government’s policy. Some observers saw this event as a special case, given that much of the company’s profits are held in trust for the people of PNG, and its effective ownership by a company – the PNG Sustainable Development Program’s (PNGSDP) – would transfer benefits from the mine back to the people. By a unanimous vote in Parliament, the government annulled PNGSDP’s share in the mine and issued new shares to the state. This vote also removed BHP Billiton’s immunity from environmental liability and gave the state the right to restructure PNGSDP. As there have been no other expropriating acts since late 2013, the Ok Tedi Mining Limited nationalization does appear to have been a one-off.
The OK Tedi nationalization was an Act of Parliament considered and voted on in the regular order of business. There was no recourse or due process beyond the Parliament.
ICSID Convention and New York Convention
Since 1978, Papua New Guinea has been a member of the International Centre for Settlement of Investment Disputes (ICSID Convention). In agreements with foreign investors, GPNG traditionally adopts the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL model law). There is no specific legislation providing for enforcement of awards under the 1958 New York Convention or the ICSID Convention.
Investor-State Dispute Settlement
Investment disputes may be settled through diplomatic channels or through the use of local remedies before having such matters adjudicated at the International Centre for the Settlement of Investment Disputes or through another appropriate tribunal of which Papua New Guinea is a member. The Investment Promotion Act 1992 that is administered by the IPA also protects against expropriation, cancellation of contracts, and discrimination through the granting of most favored nation treatment to investors. PNG does not have a Bilateral Investment Treaty (BIT) with the United States, and no claims have been made under such an agreement. There is not a recent history of international judgments against GPNG nor is there a recent history of extrajudicial action against foreign investors.
There have been no investment disputes involving a U.S. person or other foreign investor within the last 10 years, and there is no history of extrajudicial action against foreign investors. Local courts have not recognized and enforced any arbitral awards issued against the government.
There are no alternative dispute resolution (ADR) mechanisms as means for settling disputes between private parties outside of the courts and contract enforcement. There is not a recognized domestic arbitration body/mechanism in PNG, and most recent arbitration has occurred in international jurisdictions. Local courts in PNG have previously recognized and enforced judgements of foreign courts, such as a 2015 international arbitration decision in favor of Interoil (which has since been acquired by ExxonMobil) and against Oil Search was respected in PNG.
Papua New Guinea’s bankruptcy laws are included in chapter 253 of the Insolvency Act of 1951 and sections 254 through 362 of the Companies Act of 1997, which covers receivership and liquidation. Bankruptcy and litigation searches can only be conducted in person at the National Court in Port Moresby.
According to the World Bank’s Doing Business Report, resolving insolvency in Papua New Guinea takes an average of three years, and typically costs 23 percent of the debtor’s estate. The average recovery rate is 25.2 cents on the dollar. Globally, Papua New Guinea stands at 141 out of 189 economies on the Ease of Resolving Insolvency.
The Credit Data Bureau (CDB) is used by commercial banks for making creditworthiness decisions.
4. Industrial Policies
Performance requirements/incentives are applied uniformly to both domestic and foreign investors. The investment incentives currently available are designed primarily to encourage the development of industries that are considered desirable for the long-term economic development of Papua New Guinea or specific underdeveloped regions within the country and are as follows.
The Investment Promotion Act contains guarantees that there will be no nationalization or expropriation of foreign investors’ property except in accordance with law, for a public purposes defined by law or in payment of compensation as defined by law.
Accelerated depreciation rates are available for new manufacturing and agricultural plants, generous deductions are available for capital expenditure on land used for primary production, and accelerated deductions are available for mining and petroleum companies. For more details, see Price Waterhouse Cooper’s Global Tax Solutions page (http://www.pwc.com/gx/en/tax/index.jhtml ).
A 10-year exemption from tax is available where certain new businesses are established in specified rural development areas. Businesses, resident or non-resident, engaged in the following activities qualify for this exemption:
- Agricultural production of any kind;
- Manufacturing of any kind;
- Transport, storage and communications;
- Real estate;
- Business services; and
- Provision of accommodation, motels or hotels.
The following have been specified as rural development areas:
- Central province – Goilala;
- Enga province – Kandep, Lagalp, Wabag, Wapenamunda;
- Gulf province – Kaintiba, Kikori;
- Eastern Highlands province – Henganofi, Lufa, Okapa, Wonenave;
- Southern Highlands province – Jimi, Tambal;
- Madang province – Bogia, Rai Coast, Ramu;
- Milne Bay province – Losula, Rabaraba;
- Morobe province – Finschaffen, Kabwum, Kaiapit, Menyamya, Mumeng;
- East New Britain province – Pomio;
- West New Britain province – Kandrian;
- East Sepik province – Ambuti, Angoram, Lumi, Maprik;
- West Sepik province – Amanab, Nuku, Telefomin; and
- Simbu province – Gumine, Karimui.
The exemption does not apply to businesses in areas in which a special mining lease or a petroleum development license is granted.
Businesses that commence exporting qualifying goods manufactured by them in Papua New Guinea are exempt from income tax on the profits derived from those sales for the first three complete years. For the following four years, the profit derived from the excess of export sales over the average export sales of the three previous years is exempt from income tax. The list of qualifying goods include, among other items, motor vehicles, matches, paint, refined petroleum, soaps, wooden furniture, dairy products, flour, chopsticks, artifacts, clothing and manufactured textiles, and jewelry.
A wage subsidy is payable to new businesses that manufacture new manufactured products. The business will receive a prescribed percentage of the value of the minimum wage paid by the business, multiplied by the number of Papua New Guineans permanently employed by the business.
The relevant percentages are as follows:
- Year 1 – 40 percent
- Year 2 – 30 percent
- Year 3 – 20 percent
- Year 4 – 15 percent
- Year 5 – 10 percent
Eligible products are, broadly, all products listed under division D of the International Standard Classification of All Economic Activities (Third Revision), provided the products are not subject to quota pricing without import pricing or to tariff protection.
Registered foreign companies must file an annual certification with the Registrar of Companies accompanied by audited financial statements. A foreign company must apply for Certification under the Investment Promotion Act 1992 within 14 days of registering. Any foreign company automatically falls under this category and therefore must complete the same process.
However, a company may apply to be exempted from certain requirements. A company which chooses to conduct business through a branch registered in Papua New Guinea can repatriate its profits without being subject to withholding tax. On the other hand, the dividends of a Papua New Guinea incorporated subsidiary may attract dividend withholding tax. A higher rate of income tax is imposed on non-resident companies. If a foreign company merely wishes to have a representative office in Papua New Guinea, it may be exempt from lodging tax returns if it derives no income in Papua New Guinea. The Companies Act adopts similar principles and standards of corporate regulation to those in place in New Zealand. Companies registered in Papua New Guinea must lodge an annual return every year with the Registrar of Companies within six months of the end of its financial year. Currently, the Papua New Guinea government is reviewing its structure.
There are no discriminatory or preferential export and import policies affecting foreign investors, and there are low levels of import taxes.
Foreign Trade Zones/Free Ports/Trade Facilitation
Papua New Guinea has not established geographically defined duty-free export zones.
Performance and Data Localization Requirements
All non-citizens seeking employment in PNG must have a valid work permit before they can be hired. The work permit must be granted by the Secretary of the Department of Labor and Industrial Relations (DLIR) in accordance with the Employment of Non-Citizens Act of 2007. It can take weeks or even months to obtain both a work permit and visa for non-citizens to work in Papua New Guinea, and delays are common due to a lengthy bureaucratic clearance process. In the past, the government has used its immigration powers to block visas for personnel to come to Papua New Guinea to fill positions that it believes can be filled by Papua New Guineans. There are no government imposed conditions on permission to invest in PNG.
Papua New Guinea does not follow forced localization.
Post is not aware of any requirements for foreign IT providers to turn over source code and/or provide access to surveillance. Likewise, Post is not aware of any rules on maintaining a certain amount of data storage within the country.
5. Protection of Property Rights
Property rights exist and are enforced. Mortgages and liens do exist. For non-customary land, the system is reliable. PNG’s legal system does not allow direct foreign ownership of land. To get around this limitation, long-term government leases are used. The legal system protects and facilitates acquisition and disposition of all property rights, but there are substantial delays particularly within the Department of Lands.
The majority of land (over 80 percent) is customarily owned meaning that there is little legal documentation. The lack of documentation makes acquisition difficult as even after a transaction settles, it can be challenged by an individual that also claims customary ownership. The government has been working to standardize and document customary ownership, but the problem persists. If property that is legally purchased is unoccupied, property ownership cannot revert to other owners, such as squatters.
Intellectual Property Rights
The IPA through the Intellectual Property Office of PNG (IPOPNG) administers the Trade Marks Act, Chapter 385, Copyright and Neighbouring Rights Act (2000) and the Patents and Industrial Design Act (2000).
Protections for intellectual property rights relating to the reproduction and sale of counterfeit and pirated products, particularly music and movies, are insufficient. Such counterfeit products are openly sold on the streets and in shops. Sales persist despite sporadic law enforcement action. Other counterfeit products that infringe on copyrights, patents, and/or trademarks are often imported from Asian countries and sold in Papua New Guinea. Customs periodically seizes such shipments, but there are significant gaps in their enforcement regime. Adequate protection for trade secrets and semiconductor chip layout design exist in law, and minimal infringements appear to occur. For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ . PNG does not track and report on seizures of counterfeit goods, nor does it prosecute IPR violations. PNG is not listed in USTR’s Special 301 report, and it is not listed in the notorious market report.
7. State-Owned Enterprises
The SOEs operate and provide services in aviation, mobile and telecommunication, water and sewerage, motor vehicle insurance, development banking and finance, petroleum sector, data service, port services, electricity, and postal services. SOE’s total state assets stand at K9.3 billion with 7,000 employees. There are eight SOEs down from eleven in 2017 due to recent mergers. Each SOE has an independent board that is appointed by the cabinet which then reports to the government minister.
SOE profitability has steadily declined since 2005.
In 2015, GPNG set up Kumul Consolidated Holdings (KCH) as the one organization to oversee all SOEs. Despite this supposedly separate holding company, politicians remain engaged in the running of SOEs. The law gives the cabinet the powers to appoint SOE directors and to grant approvals for corporate plans, remuneration levels, tenders, engagement of consultants, among others, thereby reducing the autonomy of SOEs.
The ability for government to have direct control over SOE boards has led many to question the independence of SOEs and to see political considerations involved in business decisions.
Most SOEs in PNG continue to fail to produce financial accounts in a timely manner to allow for more informed government and legislative decision-making. KCH itself has failed to publicly report its audited financial statements to date.
http://www.kch.com.pg/portfolio/ provides a list of SOEs in PNG.
There is no privatization program in place and thus no guidelines or structure on when and how foreign investors are allowed to participate in privatization programs. The government has funding available for privatization and is currently using the Public Private Partnership (PPP) structure as a model for privatization. The trend has been towards growing SOEs. The cumulative asset value of SOEs grew from USD 1.58 billion in 2012 to USD 6.32 billion by the end of 2015.
Corruption is widespread in Papua New Guinea, particularly the misappropriation of public funds, skimming of inflated contracts, and nepotism.
Giving or accepting a bribe is a criminal act. Penalties differ for Members of Parliament (MPs), public officials, and ordinary citizens. For MPs the penalty is imprisonment for no more than seven years; for public officials the penalty is imprisonment for no more than seven years and a fine at the discretion of the court; for ordinary citizens the penalty is a fine not exceeding PGK 400 (USD 123) or imprisonment of no more than one year. A bribe by a local company or individual to a foreign official is a criminal act. A local company cannot deduct a bribe to a foreign official from taxes. The Leadership Code extends to family members of officials.
The PNG economy currently has laws or regulations to counter conflict-of-interest in awarding contracts or government procurement, but enforcement is insufficient.
The government encourages companies to establish internal codes of conduct that, among other things, prohibit bribery of public officials.
Most of the larger domestic companies and international firms from Europe, North America, Japan, Australia, and New Zealand have effective internal controls, ethics, and compliance programs to detect and prevent bribery. Many firms from elsewhere in East and Southeast Asia, particularly those in the resource extraction sectors, lack such programs.
Papua New Guinea has signed and ratified the UN Convention against Corruption. Papua New Guinea is not a party to the UN Convention against Transnational Organized Crime or the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.
No specific protections are provided to NGOs involved in investigating corruption.
U.S. firms routinely identify corruption as a challenge to foreign direct investment. Some critical areas in which corruption is pervasive include budget management, forestry, fisheries, and public procurement.
No local industry or non-profit groups offer services for vetting potential local investment partners.
Resources to Report Corruption
Contact at government agency or agencies are responsible for combating corruption:
Director of Corporate Services
+675 308 2618
Contact at watchdog organization :
Director of Operations
2nd Floor, IPA Haus, Konedobu, NCD
P.O. Box 591, Port Moresby, NCD
+675 320 2182
10. Political and Security Environment
Periodic tribal conflicts occur, particularly in the Highlands and Sepik regions of the country, and there was election-related violence following the 2017 national elections. While foreign investors/interests have not been the target of these often violent confrontations, project infrastructure can occasionally be inadvertently damaged or their operations disrupted due to the prevailing security situation.
Incidents of damage to projects and/or installations over the past few years have not been specifically politically motivated. The majority of disruption and damage caused to projects is due to disputes between landowners and the central government, which are fueled by a perception in certain cases that the central government has failed to uphold its financial commitments to landowners. Landowners in these disputes have taken out their frustration with the central government by damaging the infrastructure or disrupting the operations of foreign projects in their regions.
The central bureaucracy is increasingly politicized, which has eroded the capacity of government departments and allowed nepotism/political cronyism to thrive in parts the public service. Civil disturbances have been triggered by the government’s failure to deliver financial and development commitments, particularly to landowners in the resource project areas. They have also occurred in major urban areas based on disputes between long-term residents and newly arrived migrants and/or between competing criminal networks.
11. Labor Policies and Practices
Papua New Guinea has a severe skilled labor shortage, which presents a major constraint to business and investment, as investors are often forced to recruit from abroad. Such recruitment is expensive given the very high cost of living in Papua New Guinea. The country spends up to PGK 750 million (USD 230.1 million) a year to bring in foreign consultants to fill gaps in the workforce. The government generally adheres to the ILO conventions protecting worker rights, and labor unions are very active in the country. The majority of the population works in the informal economy where problem areas persist, including child labor and trafficking in persons, though neither occurs in large numbers.
Skilled labor is in short supply. Most expatriate laborers are occupied in “white collar” work.
There are no specific legal requirements to hire national staff, but most foreign companies hire nationals to maximum extent possible due to the expense and paperwork requirements of bringing expatriate staff to PNG.
There are no seasonal adjustment restrictions in PNG. While companies do provide severance packages as a practice when conducting layoffs, there is no specific legal requirement to do so. There is no social insurance or other safety net programs for unemployed workers.
Labor laws are not waived in order to attract or retain investment.
The majority of PNG’s workers are not members of unions. The most active unions are at state-owned enterprises, not private businesses.
The Government through the Department of Labour and Industrial Relations does intervene in labor disputes. In fact, one of its main/core functions is to deal with industrial relations. Its main activities with labor disputes are:
- Settling of minor complaints;
- Conciliation and mediation; and
- Arbitrary tribunals.
The Industrial Relations Division, the Industrial Registrar’s Office, and the Office of the Industrial Arbitration Tribunal and Minimum Wages Board all work on labor disputes.
12. OPIC and Other Investment Insurance Programs
The Overseas Private Investment Corporation (OPIC) had a project worth USD 10.2 million to expand cellular phone service in Papua New Guinea in 2012.
PNG currently has an OPIC agreement and the United States.
The Chinese Export Import Bank is very active in PNG and provides millions of dollars in financing for Chinese firms, mostly in infrastructure.