2017 Investment Climate Statements: Papua New Guinea

Policies Towards Foreign Direct Investment

On paper, PNG has a liberal investment regime, and the government has recently placed a priority on the downstream processing of its extractive resources to spur economic growth. Prime Minister Peter O’Neill is known for his business friendly-stance, and has been hailed for providing the political impetus to allow ExxonMobil massive LNG project to proceed and produce gas ahead of schedule. At almost every opportunity, Prime Minister O’Neill continues publicly to welcome international investment and business into the country. Many businesses in PNG are foreign-owned, although this has caused some PNG nationals – and politicians – to raise concerns that foreign investment engagement does not allow for a fair operating environment for PNG entrepreneurs.

ExxonMobil successfully acquired PNG-based InterOil in 2016 and early 2017. Early in the process, monopoly and competition concerns were raised by the Independent Consumer and Competition Commission. These concerns were allayed by ExxonMobil by pointing out that InterOil was solely an exporter of oil and gas with no “downstream” or retail presence in the PNG market.

GPNG has made progress by creating policies and systems to streamline the regulatory and administrative requirements for foreign investors. The 1992 Investment Promotion Authority (IPA) promotes and facilitates investment and acts as a one-stop shop for investors. Foreign investment does require government approval and the procedure is implemented by the government with the assistance of the IPA per the Investment Promotion Act. More information on the IPA can be found on IPA’s website .

The IPA facilitates investment proposals, identifies relevant government departments, and helps investors obtain the required approvals, licenses, and permits, all free of charge. Fees are however applicable for company registrations, foreign enterprise certification, and registration of intellectual property.

While delays in the IPA’s certification process have a direct effect on investment, this challenge is not unknown to foreign investors and it affects them all in the same manner. In December 2013, the IPA introduced an online registry system hoping that it would significantly speed up the registration of companies. The registry is now online  and available for use.

Certification conditions apply to IPA approval, and the IPA may suspend or cancel a certificate if a foreign enterprise breaches its terms. A certified foreign enterprise must notify the IPA of certain changes in control of the enterprise (other than one that is a public company listed on a stock exchange that is a member of the Federation Internationale des Bourses de Valeurs) and would need to obtain a re-certification. Certified enterprises wishing to expand or diversify their operations have to submit an Application for Variation to the IPA. Registering a new or overseas company takes between 24 hours to three weeks and costs Papua New Guinean Kina (PGK)500, which is approximately USD 157. Certifying a foreign company takes two to five weeks and costs PGK 2,000 (USD 629).

While there are no formal investor dialogues with the government, there are active chambers of commerce throughout the country that actively represent members’ interests to the government. PNG has recently improved its ranking in the World Bank’s Ease of Doing Business index. In 2017, it ranked 119^th, up from 133^rd in 2016. However, the increase was mostly due to better access to credit. Its ranking on “Starting a Business” remains 130^th.

Limits on Foreign Control and Right to Private Ownership and Establishment

While foreign individuals and foreign companies cannot own land, they are allowed all other aspects of owning and operating a business in PNG. Most businesses utilize long-term leases in order to build and retain facilities.

The GPNG is responsible for screening all foreign direct investment (FDI) proposals. When reviewing an FDI proposal, the IPA may consider a number of factors, including the:

• Potential for positive development of human and natural resources;
• Investor’s past record in PNG 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 PNG.

There is no specific capital requirements for investments. 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 15,725);
• Partnership – PGK 50,000 (USD 15,725) per partner; and
• Corporate Body – PGK 100,000 (USD 31,450).

The purpose of the screening mechanism is to assess the net economic benefit of a proposed investment and its consistency with the 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 specifically related matters, a company must submit its appeal to the Ministry of Commerce and Industry. An accompanying fee of PGK 200 (USD 63) 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.

In addition to the government’s approval, the Bank of Papua New Guinea, PNG’s Central Bank, also has to approve 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.

Other Investment Policy Reviews

PNG has not undergone any recent Investment Policy Reviews by UNCTAD or the OECD.

PNG has been a World Trade Organization (WTO) member since 1996. Its last Trade Policy Review (TPR) conducted by the WTO was in 2010, and that report can be found online .

The review found that PNG’s resource-rich economy remains heavily reliant on subsistence agriculture, heavily dependent on trade (both on primary exports and manufactured imports, including inputs), and deeply vulnerable to world commodity price movements.

The TPR found that PNG’s trade policy has been focused on domestication of value added across sectors, especially fishing, to promote processing, import substitution, and as an effort to diversify the economy. Although PNG adopted an Export Driven Economic Recovery and Growth strategy in 2002, reform of outdated trade-related laws has generally been slow and incoherent, somewhat handicapped by PNG’s limited institutional, and technical capacities. PNG controls certain imports predominantly for national health, safety, security, and environmental reasons. The review also found that government procurement, while reformed, is an important instrument of industrial policy. Contracts worth less than PGK 1 million (USD 315,000) are reserved for local suppliers, who also receive a preferential margin of 7.5 percent on larger contracts up to PGK 10 million (USD 3.15 million). SOEs dominate many key utilities and service industries such as power, telecommunications, aviation, water, sewerage, postal services, and the administration of ports.

More recently, PNG requested an external review of the five regulatory regimes covered by the Ease of Doing Action Plan launched at the APEC’s 21st Annual Ministerial Meeting in Singapore in November 2009. In response to this request, in 2013 an assessment was carried out through the APEC Technical Assistance Training Facility (TATF), a USAID-funded program.

Business Facilitation

The Investment Promotion Authority 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 is for IPA is seven days. A foreign company must firstly 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.

Outward Investment

The government does not maintain any incentives for outward investment from PNG. Similarly, there are no explicit legal restrictions. 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

PNG has signed Bilateral Investment Treaties (BITs) with Australia, China, Germany, Japan, Malaysia, and the United Kingdom. There is no BIT in place with the U.S. 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.

Transparency of the Regulatory System

The ICCC (Independent Consumer and Competition Commission) is charged with fostering competition across PNG’s economy. 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 GPNG are moving, with the assistance of the International Finance Corporation, towards more investment promotion and a much more streamlined regulatory framework to encourage foreign investment. The IPA’s implementation of an online registration process for businesses is evidence of this.

There are informal regulatory processes managed by non-governmental 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 or practice in the country.

Proposed laws and regulations are made available for public comment, but comments are not always taken into consideration or acted on by lawmakers. 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. The GPNG has tried to address this by appointing more judges in recent years.

There are no private sector and/or government efforts to restrict foreign participation in industry standards-setting consortia or organizations.

International Regulatory Considerations

PNG is not part of any regional economic block. When international standards are used in PNG, they are most often Australian due to PNG’s colonial past and the continuing close economic ties with Australia. PNG is a member of the WTO, but has only submitted one technical barrier to trade (TBT) notification. That notification covered food safety concerns and was issued in 2006.

Legal System and Judicial Independence

PNG’s legal system is based on English common law. 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. The judiciary system is widely viewed as independent from government interference.

Contract law in PNG 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 PNG than in those other countries.

The Supreme Court is the ultimate appeal court in the country. 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 PNG other than customary land.

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 PNG. Lawyers operating in PNG are governed by the Papua New Guinea Law Society, and only lawyers registered with the Society should be engaged for investment or other disputes.

Under the Reciprocal Enforcement of Judgments Act, certain judgments of certain foreign courts are recognized and enforceable in PNG by a process of registration. The Act establishes a system of reciprocity of recognition and enforcement of foreign judgments of designated courts within the prescribed countries, including the U.S., Australia, the United Kingdom, and New Zealand. Even if a foreign money judgment is not from a designated court, it may still be recognized and enforced in PNG by commencing a separate action in the National Court to sue on the judgment under local rules of private international law.

Laws and Regulations on Foreign Direct Investment

Foreign investors can choose to either incorporate their company in PNG as a subsidiary of an overseas company or 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 six changes to the act are as follows:

1. Increased protection and benefits for shareholders;
2. Clarification of duties imposed upon directors;
3. A more transparent and streamlined process of issuing shares;
4. Increased protection of creditors, including a more disciplined liquidation process;
5. A clearer process for filing annual returns; and
6. 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 .

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 1.6 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 in the area of 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).

Additional information is available on the ICCC’s website , however it is unclear whether that site is being maintained. Interested parties may instead want to go to the ICCC’s Facebook page  for information on changes in policies and regulations.. A paper by the ICCC on competition law in PNG is available online .

Expropriation and Compensation

Although the judicial system upholds the sanctity of contracts, and the Investment Promotion Act of 1992 expressly prohibits expropriation of foreign assets, the GPNG’s September 2013 nationalization of the country’s largest taxpaying company, Ok Tedi Mining Limited, 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 issue.

Dispute Settlement

ICSID Convention and New York Convention

Since 1978, PNG 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).

Investor-State Dispute Settlement

Investment disputes can 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 PNG 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. As PNG does not have a Bilateral Investment Treaty (BIT) with the United States, no claims can be 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.

International Commercial Arbitration and Foreign Courts

There is not a recognized domestic arbitration body or mechanism in PNG, and most recent instances of arbitration has occurred in international jurisdictions. A 2015 arbitration decision in London in favor of Interoil and against Oil Search was respected in PNG.

Under the Reciprocal Enforcement of Judgments Act, judgments from foreign courts are recognized and enforceable. The Act establishes a system of reciprocity of recognition and enforcement of foreign judgments of designated courts within prescribed countries including Australia, the U.S., the United Kingdom, and New Zealand. Even if a foreign money judgment is not from a designated court, it may still be recognized and enforced in PNG by commencing a separate action in the National Court to sue on the judgment under the local rules of private international law.

There have not been any recent investment disputes involving SOEs.

Bankruptcy Regulations

PNG’s bankruptcy laws are included in Chapter 253 of the Insolvency Act of 1951 and Sections 254-362 of the 1997 Companies Act, 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 PNG takes an average of three years, and typically costs 23 percent of the debtor’s estate. The average recovery rate is 24.9 cents on the dollar. Globally, PNG stands at 137 out of 189 economies on the Ease of Resolving Insolvency.

Investment Incentives

Performance requirements and 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 country’s long-term economic development or specific underdeveloped regions within the country. These incentives are for investments outside the mineral sector.

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 .

A 10-year exemption from taxes are available where certain new businesses are established in specified rural development areas. Businesses, residents, or non-residents, engaged in the following activities qualify for this exemption:

• Agricultural production of any kind;
• Manufacturing of any kind;
• Construction;
• 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 manufacture and export qualifying goods are exempt from income tax on the profits derived from those sales for the first three 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 PNG citizens permanently employed by the business.

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 PNG can repatriate its profits without being subject to withholding tax. On the other hand, the dividends of a PNG 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 PNG, it may be exempt from lodging tax returns if it derives no income in PNG. The Companies Act adopts similar principles and standards of corporate regulation to those in place in New Zealand. Companies registered in PNG must lodge an annual return every year with the Registrar of Companies within six months of the end of its financial year. GPNG made changes to the Companies Act in 2015 that included increased protection of shareholders, clearer guidelines on directors’ duties, quicker and easier process of issuing shares, increased protection of creditors, and a clearer process of filing annual returns. Full details on the changes are available on the IPA’s site .

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 any 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 up to six weeks to obtain both a work permit and visa for non-citizens to work in the country, 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 PNG to fill positions that it believes can be filled by Papua New Guineans.

PNG does not follow forced localization.

The U.S. Embassy is not aware of any requirements for foreign IT providers to turn over source code and/or provide access to surveillance. Likewise, the Embassy is not aware of any rules on maintaining a certain amount of data storage within the country.

Real Property

PNG’s legal system does not allow direct foreign ownership of land. To get around this limitation, investors will acquire long-term government leases. The legal system protects and facilitates acquisition and disposition of all property rights, but there are substantial delays in bureaucratic procedures, 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.

Intellectual Property Rights

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 PNG. 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 .

Capital Markets and Portfolio Investment

Portfolio investments are unregulated and limited to the availability of stocks.

PNG has one stock market in Port Moresby, POMSoX. It was founded in 1999. It is closely aligned with the Australian Stock Exchange (ASX), and its procedures are the same as ASX.

There is no factor market, and the free flow of remission of funds offshore is subject to approval by the Central Bank (Bank of Papua New Guinea) and the International Revenue Commission. Owing to a persistent lack of foreign currency at the Bank of Papua New Guinea, companies have struggled to make international remissions. In its most recent Article IV consultation, the IMF found multiple restrictions on current international payments and two multiple currency practices (MCPs) that are inconsistent with Article VIII of the IMF’s Articles of Agreement.

Credit is allocated on market terms, and foreign investors are able to get credit on the local market, much more so than in previous years due to the liberalization of policies, provided that foreign investors have a good credit history. Credit instruments are limited to leasing and bank finance.

Money and Banking System

There is no private bond market. In terms of sufficient liquidity in the markets, there is a considerable money supply but a limited pool of borrowers. Bank South Pacific is the country’s only nationally-owned bank and is the largest in the country with total assets of K18.2 billion (USD 5.7 billion) as of year-end 2015. Branches and subsidiaries of two Australian banks represent the other financial institutions operating in the country. The Australia and New Zealand (ANZ) Bank had total assets of USD 914.9 billion at year’s end 2015, and Westpac Bank had USD 839 billion in total assets at the end of 2015. While much of PNG is quite rural, banking penetration is geographically broad with bank branches in most major towns and cities. The banking system in PNG is sound.

Domestic banks in PNG have struggled to maintain correspondent banking relationships due to compliance concerns by U.S. correspondent banks.

Foreign Exchange and Remittances

Foreign Exchange

On June 4, 2014, the Central Bank introduced measures which have effectively pegged the kina at levels that led to foreign exchange shortages. While the kina does fluctuate somewhat in value, it only trades in a tight band as allowed by the Central Bank (Bank of Papua New Guinea). Falling commodity revenues have only worsened the foreign exchange situation. Many businesses have been increasingly unable to convert kina into foreign currencies to pay for imports or other services from foreign providers. Further, PNG-based subsidiaries of foreign companies have struggled to pay dividends to their parent companies. Foreign exchange and capital transactions face various documentation requirements and government approvals. The central bank recently required almost all businesses to convert their foreign currency accounts to kina. Even with an appeals process, almost all requests to maintain foreign currency accounts were denied. Under the country’s tax clearance system, certain payments require approval from the Central Bank and the Internal Revenue Commission. The tax clearance period is between two to four weeks, and routine payments take about two weeks. Additional delays may be encountered if companies are not financially up to date with the Internal Revenue Commission.

Remittance Policies

Remittance is done only through direct bank transfers. All remittances overseas in excess of PGK 50,000 (USD 15,725) per year require a tax clearance certificate issued by the Internal Revenue Commission (IRC). In addition, approval of the Central Bank is required for annual remittances overseas in excess of PGK 500,000 (USD 157,249). Remittances related to the payment of trade-related goods are not taken into account. There are no specific restrictions on the repatriation of capital owned by or due to non-residents. The Central Bank’s principal objectives in assessing applications for capital repayments are to ensure that the funds are due and payable to a non-resident and that PNG assets are not sold at an artificial value.

Sovereign Wealth Funds

In 2012, the PNG government passed legislation to establish a Sovereign Wealth Fund (SWF) to manage resource revenues. This fund was supposed to be held offshore and managed on-shore by an independent Board of Directors. However, in 2014, the government re-opened this draft, citing an error in how it was introduced and passed in Parliament. As of mid-2014, the government had also introduced new methods of managing the SWF, which deviated substantially from the original draft. The Sovereign Wealth Fund Bill was passed on July 30, 2015. Falling commodity prices have led to a dramatic decrease in government revenues meaning that the start of contributions has been delayed. While a legal entity, it is not currently operational.

State-owned enterprises (SOEs) are active in the airline, telecommunications, port facilities and management, power generation and transmission, water and sewerage facilities/management, and motor vehicle insurance industries/sectors. PNG’s SOEs are: National Petroleum Company PNG, Air Niugini, Eda Ranu (water/sewage company for Port Moresby), Motor Vehicle Insurance Ltd, National Development Bank, PNG Ports Corporation, PNG Power, Post PNG, PNG Water Board, BeMobile, PNG DataCo, and Telikom PNG with the last three companies being merged into one.

GPNG has increased the size and reach of SOEs. The overall value of its holdings increased from USD 1.58 billion in 2012 to USD 6.32 billion by the end of 2015. The SOEs have been consolidated and brought entirely under Kumul Consolidated Holdings, SOE holding company. Information about Kumul Consolidated Holdings is available through the Independent Public Business Corporation (IPBC), which manages PNG’s SOEs.

There are regularly concerns about unfair advantages given to SOEs. Recent examples include the awarding of international routes to Air Niugini and as opposed to granting them to a privately-owned airline. Further, the merger of BeMobile, PNG DataCo, and Telikom PNG has led to concerns that the wholesale data market will not treat all operators fairly.

Privatization Program

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 current trend has been towards growing existing SOEs as opposed to privatization. The cumulative asset value of SOEs grew from USD1.58 billion in 2012 to USD6.32 billion by the end of 2015.

PNG does not have a national action plan on responsible business conduct (RBC). However, most multinational companies in PNG do operate with a sense of standards. The concept of a social license to operate is pervasive in the extractive industries and guides interactions with all stakeholders. Due to limited infrastructure in the areas surrounding most resource projects, resource companies often build schools, hospitals, and other common infrastructure in and around resource project areas. Companies have also spent substantial money on projects that empower women and girls, provide for environmental conservation, and improve health outcomes.

There are currently no non-government organizations specifically monitoring RBC in PNG.

PNG participates in the EITI, but does not have a specific policy on the Voluntary Principles on Security and Human Rights. However, several companies in the extractive industry do use the principles.

Corruption is widespread in PNG, particularly the misappropriation of public funds and nepotism.

U.S. firms routinely identify corruption as a challenge to FDI. Some critical areas in which corruption is pervasive include budget management, forestry, fisheries, and public procurement. Giving or accepting a bribe is a criminal act, with penalties differing 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 126) 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.

While there are adequate laws, regulations and penalties for corruption, enforcement and implementation are weak due to a lack of political will. In addition, enforcement is further constrained by limited financial and human capacity within the bodies tasked with addressing corruption, including the Ombudsman Commission, the Police, the Auditor General’s office, the Audit Inspections Division of the Treasury Department, the Finance and Provincial Affairs Department, and the Public Prosecutor’s office. The Asian Development Bank (ADB) has repeatedly highlighted critical areas of concern including budget management, forestry, fisheries, and public procurement. Some foreign investors, particularly in the forestry and fisheries sectors, have been known to contribute to government corruption by bribing public officials either to fast-track paperwork, award discretionary concessions, or ignore illegal activities occurring at project sites.

The Ombudsman Commission, the Police, the Auditor General’s office, the Audit Inspections Division of the Department of Treasury, the Finance and Provincial Affairs Departments, and the Public Prosecutor’s office are responsible for combating corruption. Transparency International has a local PNG branch – Transparency International Papua New Guinea.

Prime Minister O’Neill initially made combating corruption a central focus of his administration following years of mismanaged public funds and failing services in PNG. Since its inception in August 2011, his Task Force Sweep has led to arrests for the misuse of government funds, including current and former government officials. However, O’Neill disbanded the task force for investigating his own allegedly corrupt activities and seeking a warrant for his arrest. As of July 2014, O’Neill had fired or suspended for their roles in pursuing the investigation into allegations of corruption against him, the Attorney General, Solicitor General, Deputy and Assistant Police Commissioners, and the chairman of Task Force Sweep. The former head of this task force has complained that recovering stolen government funds is complicated by the fact that tens of millions of dollars are transferred to Australian bank accounts or invested in Australian real estate, principally in Cairns.

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.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

PNG has signed and ratified the UN Convention against Corruption, however it 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.

Resources to Report Corruption

Contact at government agency or agencies responsible for combating corruption.

Dickson Morehari
Director of Corporate Services
Ombudsman Commission
1st Floor, Deloitte Tower
+675 308 2618<
Dickson.morehari@ombudsman.gov.pg

Contact at “watchdog” organization:

Jerry Bagita
Director of Operations
Transparency International
2nd Floor, IPA Haus, Konedobu, NCD
P.O. Box 591, Port Moresby, NCD
+675 320 2182
opmtipng@gmail.com

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 investments in their regions. Periodic tribal conflicts occur, particularly in the Highlands and Sepik regions of the country. While foreign investors or interests are not the target of these often violent confrontations, their project infrastructure can occasionally be inadvertently damaged or their operations disrupted due to the prevailing security situation.

The central bureaucracy is increasingly politicized, which has eroded the capacity of government departments and allowed nepotism and 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.

High levels of crime persist in PNG’s cities. These are generally crimes of opportunity and are often violent. Urban civil disturbances have resulted in looting and retail property destruction, which often targets Asian-owned retail businesses. The country’s police force, the Royal Papua New Guinea Constabulary, lack the capacity to prevent and respond to these incidents, and companies therefore have to devote significant resources to private security.

In addition to a lack of overall capacity, PNG’s capacity to respond to crime and other threats is also hindered by longstanding tensions between the police and military. For example, in early December 2014, police and military were involved in several armed clashes against each other in Port Moresby. Originating after police encountered a group of drunken soldiers and arrested them, several shots were exchanged and four soldiers were hospitalized with gunshot injuries on the first day of the conflict. On the second day, police and military troops set up defensive roadblocks against each other around the police station and barracks while opportunists took advantage of the tension and looted several supermarkets and other local stores. Tensions continued with roadblocks and sporadic fighting between the forces for another two days before a reconciliation ceremony was held to cool tempers. A joint task force of police and army officials was formed to investigate the violence but did not release their report on the specified deadline. A repeat of the violence occurred in January 2016 when a dispute between police and soldiers turned violent. Fortunately, the violence in 2016 was short-lived and contained. The most recent clash was on New Year’s Day in 2017 which saw one officer injured and shots fired into the air.

The situation in the Autonomous Region of Bougainville has improved dramatically since the signing of a peace agreement between the central government and separatists in 2001. Despite improvements, there remain regions of Bougainville that are essentially closed to outsiders, and foreign investment in the region’s mineral resources is viewed with suspicion by many. As the region approaches a possible referendum on its future, there is a possibility of renewed violence. There are no nascent insurrections, belligerent neighbors, or other politically motivated activities in PNG.

PNG has a severe skilled labor shortage, which presents a major constraint to business and investment, as investors are forced to recruit from abroad. Such recruitment is expensive given the country’s very high cost of living. The country spends up to PGK 750 million (USD 236 million) a year to bring in foreign consultants to fill gaps in the workforce. This figure represents 3.6 percent of the GDP. The government generally adheres to the International Labor Organization (ILO) conventions protecting worker rights, and labor unions are very active in the country. Problem areas that persist, however, include child labor and trafficking in persons.

In late June 2014, the PNG government raised the minimum wage from PGK 2.29 (USD 0.72) to PGK 3.50 (USD 1.10) per hour.

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. There have been no new OPIC programs announced in PNG.

Table 3: Sources and Destination of FDI

Data for the sources and destination of FDI in PNG are not available.

Table 4: Sources of Portfolio Investment

Data for the sources of portfolio investment in PNG are not available.

Brad Coley
Economic Officer
U.S. Embassy Port Moresby
P.O. Box 1492, Douglas Street
Tel: +675-321-1455, ext. 2116
Fax: +675-321-1593
econportmoresby@state.gov