Papua New Guinea
1. Openness to, and Restrictions Upon, Foreign Investment
Policies towards Foreign Direct Investment
The PNG Government remains focused on fostering an enabling environment for businesses to grow and attracting foreign direct investment. PNG aims to increase Foreign Direct Investment (FDI) in mining and the petroleum/gas sector from USD 40.0 million in 2016 to USD 100.0 million by 2022. FDI stock reached USD 4.2 billion in 2016. The mining, oil, and gas sectors attract most of the FDI. There is a target to increase stock to USD 10 billion by 2022. The government also aims to increase FDI in the renewable sector.
The goal of the 2017-2032 PNG National Trade Policy (NTP) ( ) is to maximize trade and investment by increasing exports, reducing imports on substitute goods, and increasing FDI that generates wealth and contributes to growing the economy. The NTP envisions a future PNG with “an internationally competitive export-driven economy that is built on and aided by an expanding and efficient domestic market.”
The policy lays out numerous legal, regulatory, and administrative measures to be adopted by the Government of PNG in furtherance of these objectives. It also sets very ambitious economic targets, including the creation of over 100,000 new jobs, USD 10 billion in foreign investment, increased foreign exchange reserves, reduced government debt to GDP ratio, and a more diversified economy in the next five years.
Limits on Foreign Control and Right to Private Ownership and Establishment
PNG does not have any specific policy or law that promotes discrimination against foreign investors. However, the Foreign Investment Regulatory Authority Bill 2018 (FIRA Bill) prompted serious concern from businesses that the bill would impose restraints on foreign investment in the country, particularly by reserving investments below 10 million Kina for Papua New Guineans and by setting an extensive reserve activity list. In response to these concerns, the government maintains that the bill is more conducive to investments and growth of SMEs but suspended the bill for further review and wider consultation.
Soon after taking office in May 2019, the State Negotiation Team (SNT), made up of heads of various state-owned enterprises and government agencies secured additional concessions on the Papua Gas Agreement negotiated between the O’Neill Government and French multinational TotalEnergies. SNT ended negotiations, though, without an agreement with ExxonMobil PNG over investment returns for P’nyang, a major gas resource project. In April, acting at the behest of the Mining Advisory Council, the Government ended talks with Canadian firm Barrick Gold on renewing its lease on a major gold mine, pointing to environmental problems and the displacement of local residents. Barrick Gold expressed concern that the Government of Papua New Guinea’s position amounted to nationalization.
Given the important role that these resource sectors play, cabinet has set up strategic teams to lead dialogue and negotiations with relevant stakeholders. For gas resources, the State is represented by the SNT, while in mining, the Mining Advisory Committee, an independent committee established under the Mining Act, deliberates on the application process.
In addition, the government of PNG is an active partner in hosting regular resource sector forums that attract large numbers of international industry experts and investors. The government co-hosts the annual Petroleum and Energy Summit in Port Moresby and supports the bi-annual PNG Mining and Petroleum Conference.
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 that naturalized elsewhere. Additionally, it allows long-term residents to naturalize as PNG citizens with full legal rights and responsibilities. PNG does not have any specific policy or law that promotes discrimination against foreign investors.
Although the PNG government does not have a minimum investment requirement, the Investment Promotion Authority (IPA) may, however, pursuant to Section 28(7) of the Investment Promotion Act, require a potential investor to deposit the prescribed amount prior to IPA approval. The purpose of the screening mechanism is to assess the net economic benefit and alignment with national interest. The possible outcomes of a review are prohibition, divestiture, and imposition of additional requirements. The IPA and other regulatory bodies in their 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. 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-to-equity ratio of five-to-one is generally imposed with respect to overseas borrowing and a ratio of three-to-one is generally imposed on local borrowing.
Other Investment Policy Reviews
In the past three years, the government has not undergone any third-party investment policy reviews (IPRs) through a multilateral organization such as the OECD, WTO, or UNCTAD.
The IPA, through the Companies Office, is responsible for the administration of Papua New Guinea’s key business laws such as the Companies Act, Business Names Act, Business Groups Incorporation Act, and the Associations Incorporation Act.
The services provided by the Authority 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 regulating capital Markets (under the Securities Commission of PNG).
Service information is available at http://www.ipa.gov.pg/business-registration-regulation-and-certification.
The IPA is the lead agency for PNG’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 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 days.
Through the IPA, the government has a range of direct and indirect taxation-based incentives for large and small proposals. There are international treaties, agreements and pacts which give Papua New Guinea’s manufactured goods preferential access to various export markets, including duty free and reduced tariff entry to some of the largest markets in the world. These include access to the European Union (EU) under the Cotonou Agreement, and the United States Generalized System of Preferences Program (GSP). The GSP Program is a U.S. government arrangement that provides enhanced access to the U.S. markets, and designed to help countries grow their economies through trade. It provides duty-free treatment for almost 3,500 products from PNG and its neighbors.
The Multilateral Investment Guarantee Agency’s (MIGA) principal responsibility is promotion of investment for economic development in member countries through: * guarantees to foreign investors against losses caused by non-commercial risks; and
* guarantees to foreign investors against losses caused by non-commercial risks; and * advisory and consultative services to member countries to assist them in creating a responsive investment climate and information base to guide and encourage flow of capital.
* advisory and consultative services to member countries to assist them in creating a responsive investment climate and information base to guide and encourage flow of capital.
There are no explicit legal restrictions on outward investment. The most likely barrier for this type of investment would be securing sufficient access to foreign currency. There have been no recent large-scale outward investments originating from PNG.