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EXECUTIVE SUMMARY

Papua New Guinea (PNG) is the largest economy among the Pacific Islands and offers enormous trade and investment potential.  Key investment prospects are in infrastructure development, a growing urban-based middle-class market, abundant natural resources in mining, oil and gas, forestry, and fisheries.

Under the banner of “Take-Back PNG,” Prime Minister James Marape’s government endorsed a fair, open, and collective approach in its decision-making processes, especially decisions concerning the proper management of the country’s resources and investment returns.  Hoping to distance itself from a history of poor business and investment trade-offs that eventually triggered the ouster of Prime Minister Peter O’Neill in May 2019, Marape also announced that the government would increase its share of revenues from the country’s resources.

Under Marape, Papua New Guinea (PNG) reaffirmed its openness to trade and investment, is stepping up reforms to recover from high debt levels, and seeks to attract more foreign direct investments (FDIs) to stimulate its economy.  However, the Marape Administration’s inability to reach agreement with multinational companies on key energy and mining projects created a shadow over this strategy.

Since taking office, the Marape Administration– although comprised of many of the same officials as the O’Neill Administration – blamed the O’Neill Government for the country’s poor fiscal regime, lack of infrastructure development, the high cost of logistical services, the breakdown of law and order, a cumbersome public sector, and poorly performing state-owned enterprises.  To address these problems, the government regularly reaffirmed its need for foreign investment to stimulate its economy, particularly as the COVID-19 pandemic affects the PNG economy.

The PNG Electrification Project (PEP), signed during the PNG-hosted Asia Pacific Economic Cooperation (APEC) conference in 2018, is an ambitious five-nation program to bring electricity to 70 percent of PNG.  It was the last major achievement of the O’Neill government and has largely languished under the current administration, which has been more focused on negotiating new oil, gas, and mining agreements, or on renewals of existing agreements, to increase its revenue share.  These negotiations, principally with ExxonMobil and Barrick Gold, have largely fallen flat and both companies have effectively halted further development and operations on those projects.  In 2019, PNG’s top investment sectors were real estate, followed closely by the construction sector, the financial sector, and wholesale and retail sector.  In 2020, the country faces a severe economic downturn, related to both a massive government budget shortfall and the COVID-19 pandemic.  Foreign direct investment will play a significant role in PNG’s recovery and economic future, but at present has many barriers to overcome.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 137 of 180 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2020 120 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2018  N/A https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, stock positions) 2016 $234 http://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2017 $2,340 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

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 Investments (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 FDIs.  There is a target to increase stock to USD 10.0 billion by 2022.  The government also aims to increase FDIs 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 Foreign Direct Investment (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 15-year trade policy outlined the following eight policy objectives:

1) To send a strong signal to the international community that PNG is open for business.

2) To expand market access, inclusive of negotiations of terms that will result in market presence for PNG’s products and services in foreign markets, thereby sustaining trade surpluses on both the merchandise and services accounts.

3) To protect consumer welfare through strengthened enforcement of intellectual property rights and ensure national standards and compliance measures are respected.

4) To create an environment in PNG that is conducive for doing business and increasing employment, by ensuring that costs are reduced and are also transparent and predictable.

5) To identify markets where PNG can receive a cost advantage for products of strategic interest and create secure, predictable market access conditions through trade agreements.

6) To advocate for the elimination of large-scale subsidies provided by trading partners that distort international trading prices on products of strategic interest to PNG.

7) To mobilize resources to finance needs of the trade and trade-related sectors.

8) To mainstream Small and Medium-sized Enterprises (SMEs) into trade deals by negotiating clear terms regulating establishment of foreign firms in PNG’s markets in sectors of strategic interest through goods and services scheduling commitments.

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.

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 foreign investments would be disadvantaged. Then Minister for Commerce & Industry Mera Wori explained that the bill is intended to protect the rights of small national (Papua New Guinean) businesses in the micro-small-medium enterprise sector. The business community expressed concerns that the bill would impose restraints on foreign investment in the country, particularly by reserving investments below K10 million for Papua New Guineans and by setting an extensive reserve activity list.  Businesses also argued that the bill was developed without proper stakeholder consultation.

In response to these concerns, the government suspended the bill for further review and wider consultation.  The government maintain that the bill is not draconian but is more conducive to investments and growth of SMEs.  According to the government, the bill provided a clear demarcation of Reserved Lists of Businesses for Papua New Guineans from SMEs, with thresholds for business activities, especially in the SME space for Joint Venture Partnerships.

Some commentators see the FIRA Bill as the government’s efforts to promote local participation in economic activities and to diversify its economic base through Agriculture, Fisheries, SME, Manufacturing, Industrialization, and downstream processing of raw materials as it moves away from heavy reliance on the Extractive Sector.

Also under review are the government’s proposed amendments to the Mining Act of 1992.  The Government argued that proposed amendments will improve benefit arrangements over current practice.  The reforms would shift focus from regulating upstream mining processes to promoting downstream processing based on production sharing.  By contrast, the industry raised concerns that the amendments may deter further investments in mining projects and interrupting the operations of current mines in the country.  The industry also suggested that the government consider the impact of the proposed amendments on the broader fiscal regime.

The Marape Government stepped up its review of major petroleum resource agreements signed by the O’Neill Government as part of its use of “Take Back PNG” to steer the country to economic recovery and sustainable development.  Petroleum Minister Kerenga Kua stated that the current concession-based licensing system failed PNG in both the mining and petroleum sectors.  The government is also concerned that these agreements limited the return of export revenues to PNG, causing shortages of foreign exchange in PMG.  To remedy the situation, the Marape government will undertake legislative reforms to establish a Production Sharing Agreement or other contract-based licensing system.  The government believes that the approach would relieve the State of expensive loans and create early cash flows in all future mining and petroleum projects.

Soon after taking office in May 2019, the State Negotiation Team (SNT), led by Kua, secured additional concessions on the Papua Gas Agreement negotiated between the O’Neill Government and Total.  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.

The Investment Promotion Authority was established by an Act of Parliament in 1992 with the mandate to promote and facilitate investment in Papua New Guinea and to regulate the business. 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).

The mining, petroleum, and gas sectors are key economic portfolios in PNG.  PNG’s mineral, petroleum, and gas resource projects are operated by foreign investors.  In these resource sectors, the State has the right but not the obligation to acquire up to 22.5 per cent of a participating interest in a designated gas or petroleum project, and up to 30 per cent of a mining project, at par value, or ‘sunk cost’.

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 State Negotiation Team (SNT), comprising heads of various state-owned enterprises and government agencies.  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.

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.

PNG does not have any specific policy or law that promotes discrimination against foreign investors.

The Government of Papua New Guinea 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 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.  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.

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.

Business Facilitation

The Investment Promotion Authority (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 Investment Promotion Authority (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 (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.

Outward Investment

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, for example 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 (Vanuatu, Solomon Islands, Kiribati, Fiji, Samoa, Tonga, Indonesia, Philippines, etc.).

The Multilateral Investment Guarantee Agency’s (MIGA) principle responsibility is promotion of investment for economic development in member countries through:

* 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.

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.

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.

3. Legal Regime

Transparency of the Regulatory System

The Independent Consumer and Competition Commission (ICCC) is charged with fostering competition.  While there are transparent policies in place, the competition regime is oriented towards regulating 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.  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 a more streamlined regulatory framework to encourage foreign investment. One example of this trend is the IPA’s move to an online registration process for businesses.

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.

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.

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, though not all, are available online.  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.

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.

The Marape government successfully processed the 2019 supplementary and 2020 national budget plans, aided in large part by a AU$300 million infusion by the government of Australia.  The new Treasurer, Ian Ling-Stuckey, proactively conducted a due diligence exercise on the state of the country’s economy, which was led by a joint committee comprising international financial institutions and key government economic agencies.  The public was well-informed of the findings of a month-long review through press commentaries and debate on the floor of parliament during the tabling of the supplementary budget.

There is strong political will in PNG to restore public confidence and engagement in the government’s fiscal reporting systems.  However, greater action by reporting agencies is critical to realize full and timely reporting practices in PNG’s public finance management systems.

Overall, the government needs greater coordination among reporting agencies to deliver their mandated functions and responsibilities effectively.  This includes all government agencies consistently and fully reporting all required financial activities, with proper financial statements to the supreme audit institution.  The lack of full and timely reporting practices continues to undermine public finance management systems, and publicly available budget information.

At the same time, most budget documents remain incomprehensible to many ordinary citizens due to low financial literacy levels and the lack of proper public /civic awareness programs.

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 models due to PNG’s history under Australian colonial governance and their continuing close economic ties.

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.

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:

  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: 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 was not used to prevent ExxonMobil’s acquisition of InterOil or Chinese company Zijin Mining’s purchase of 50% of the Porgera Joint Venture gold mine.

The IPA website: https://www.ipa.gov.pg/  is the official online information platform to engage with the public on matters relating to the IPA’s mandated roles and function.

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 .

Interested parties may also want to go to the ICCC’s Facebook page for information on changes in policies and regulations: https://www.facebook.com/pngiccc/timeline .

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 growing concern over 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.  However, these concerns may return to the fore with Barrick Gold’s allegation that the result of the unsuccessful negotiations over Porgera Mine’s license renewal constituted nationalization.

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.

Dispute Settlement

ICSID Convention and New York Convention

PNG signed the instrument of Accession to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) on June 22, 2019.  The Instrument of Accession was deposited with the UN Treaties Depository in New York on July 17, 2019, and PNG became the 160th country to accede to the New York Convention.  As a signatory to the New York Convention, PNG’s National Executive Council endorsed reform to the country’s outdated Arbitration Act 1951 (Chapter 46 of the Revised Laws of PNG) through the adoption of new legislation based on international model laws to implement the New York Convention and to provide enhanced support for modern arbitration in PNG.

Prior to being a party to the New York Convention, PNG since 1978 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).

While no specific domestic legislation exists for enforcement of awards under the 1958 New York Convention or ICSID Convents, in early 2018, an Arbitration Technical Working Committee (ATWC) was formed to advance arbitration reform in PNG.  Consisting of members of the PNG Judiciary and representatives of the First Legislative Counsel and other relevant inter-governmental departments and agencies, the ATWC produced a draft Arbitration Bill 2019 in consultation with the United Nations Commission on International Trade Law (UNCITRAL), Asian Development Bank and internationally recognized arbitration experts.  The draft Arbitration Bill 2019 aims to conform with best modern international arbitration law practice.  The draft bill is subject to further vetting before its enactment.

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 GoPNG nor is there a recent history of extrajudicial action against foreign investors.

PNG does not have a Bilateral Investment Treaty (BIT) or Free Trade Agreement (FTA) with an investment chapter with the United States.

Over the last 10 years, there here have been no known disputes involving a U.S. person or other foreign investors, nor have the local courts heard cases to recognize or enforce foreign arbitral awards issued against the governments. There is no history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

According to the Port Moresby Chamber of Commerce & Industry, local and foreign parties settle disputes in Papua New Guinea through the courts.  Litigation in PNG is perceived to be an expensive and drawn out process, sometimes taking years for a decision to be handed down.

There is no domestic arbitration body outside of the courts and contract enforcement.

A 2015 international arbitration decision in favor of Interoil (which has since been acquired by ExxonMobil) and against Oil Search was reportedly respected in PNG.

To date, there have been no cases in which SOEs were involved in investment disputes.

Bankruptcy Regulations

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.

4. Industrial Policies

Investment Incentives

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 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;
  • 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 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

The creation of Special Economic Zones (SEZs) in PNG have been a policy initiative by the past two administrations, but continue to lack appropriate legislative framework.  The following geographical areas have been designated for SEZs:

  1. Ihu SEZs in Gulf Province
  2. Vanimo Free Trade Zone
  3. Sepik Special Economic Zone
  4. Manus Special Economic Zone
  5. Bana (AROB) SEZ
  6. Agriculture Province in EHP, WHP, Morobe, Sepik and others
  7. Paga Hill Special Tourism Economic Zone, NCD
  8. Nadzab Industrial SEZ
  9. Western Province SEZ
  10. Pacific Marine Industrial Zone (PMIZ)

For each SEZ, the government plans to operate Gold and Regional Value Chain Industries, maintain one-stop shop regimes, and grant fiscal and customs and operational incentives up to ten years. SEZs remain only a concept.

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 coming to Papua New Guinea to fill positions that it believes can be filled by Papua New Guineans.

There are no government/authority imposed conditions on permission to invest, nor forced localization imposed on foreign investors.

NICTA (National Information & Communication Technology Authority) Data Integrity Act called CCE (Controlled Customer Equipment) is strictly enforced. Only illegal transmission of state/military data will be charged against the state or military. These are the two Acts that enforce data integrity (Data Interference and System Interference) In any case the fine is an amount not exceeding K100, 000.00 or 10 years in prison.

5. Protection of Property Rights

Real Property

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%) is “customarily owned” meaning that there is little legal documentation.  The lack of documentation makes acquisition difficult as even after a transaction settles, as 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

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.

PNG primarily tracks seizures of counterfeit good through media reports, as no formal publication process exists. PNG does prosecute IPR violations.  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/.

6. Financial Sector

Capital Markets and Portfolio Investment

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

PNG has one stock market in Port Moresby, PNGX Limited (Formerly POMSoX).  Founded in 1999, it is closely aligned with the Australian Stock Exchange (ASX), and mimics its procedures.

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 shortage 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.

In its previous Article IV consultation in late 2017, the IMF found no restrictions on current international payments and no 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

PNG’s commercial banking sector comprises four commercial banks. Two are Australian institutions, Westpac and Australian and New Zealand Group (ANZ) banks, with local banks Bank of South Pacific (BSP) and Kina Bank.

BSP is both the largest bank and non-mining taxpayer in PNG. BSP operates 79 branches, 52 sub-branches, 351 agents, 499 ATMs, 11,343 electronic funds transfer at point of sale (EFTPOS) units and 4261 employees.

Official government sources indicate that much remains to be done in terms of financial inclusion, with nearly three quarters of PNG’s population do not have access to formal financial services and most of those excluded represent the low income population in rural areas, urban settlements, with women particularly excluded.

There are both domestic and international banks in PNG and all have reported profits in their most recent reporting. Based on the Oxford Business Group business update issue of 2018, assets in the commercial sector have recorded exponential growth since 2002, with the Bank of PNG reporting that total commercial banking assets rose from PGK3.9bn ($1.2bn) in that year to reach PGK20.3bn ($6.3bn) in 2011. Growth has been slower in recent years, however, with total assets rising from PGK22.7bn ($7.1bn) in2012 to a high of PGK29.8 million.

According to BSP’s official figures, total assets of the bank at the end of 2019 are at K21.891 billion.  Loans and advances to customers has a net growth of K587.3 million to K11.820 billion which has been mainly in PNG, Fiji and Samoa.  Customer deposits picked up in 2019 with growth of K1.023 billion to K17.982 billion.

BSP operates in PNG, Fiji, Solomon Islands, Samoa, Tonga, Cook Islands, Vanuatu and Cambodia. The Bank reported that across the region, most economies in which it operates maintained reasonable levels of growth.

The banking system in Papua New Guinea is sound.

The Bank of Papua New Guinea acts as the central bank for Papua New Guinea.  The Central Banking Act of 2000 outlines the powers, functions, and objectives of the Bank.

Foreigners are required to show documentation either of their employment or their business along with proof of a valid visa in order to register for a bank account.

PNG’s commercial banking sector comprises four commercial banks. Two are Australian institutions, Westpac and Australian and New Zealand Group (ANZ) banks, with local banks Bank of South Pacific (BSP) and Kina Bank.  They are listed on the Australian Stock Exchange are subject to the prudential measures and regulations of the Exchange.

Foreign Exchange and Remittances

Foreign Exchange

While there are no legal restrictions on such activities, a lack of available foreign exchange makes such conversions, transfers, and repatriations time consuming.

Bank of Papua New Guinea requires that all funds held in PNG be held in PNG kina (PGK).  This rule was announced with little notice and caught many businesses off-guard in 2016.  While there was an appeal process for businesses that wished to keep non-PGK accounts, none of the appeals were granted.

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).  Recently, the central bank has allowed PGK to slowly depreciate against the USD and other currencies.

Remittance Policies

There have been no recent changes or plans to change remittance policies.  Remittance is done only through direct bank transfers.  All remittances overseas in excess of PGK 50,000 (USD 15,340) per year require a tax clearance certificate issued by the Internal Revenue Commission (IRC). In addition, approval of PNG’s Central Bank – the Bank of Papua New Guinea – is required for annual remittances overseas in excess of PGK 500,000 (USD 153,420).  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 Papua New Guinea assets are not sold at an artificial value.

While there are no legal time limitations on remittances, foreign companies have waited many months for large transfers or performed transfers in small increments over time due to a shortage of foreign exchange.

Sovereign Wealth Funds

A Sovereign Wealth Fund Bill was passed in Parliament on July 30, 2015.  However, falling commodity prices have severely impacted government revenues.  Plans for the SWF have been put on hold indefinitely.

7. State-Owned Enterprises

SOEs in PNG continue to dominate critical public utilities ranging from electricity, water and sewerage, transport, and telecommunications.  PNG’s total state assets stand at K9.3 billion with staff strength of 7,000 employees.  Papua New Guinea’s nine SOEs altogether comprise 4.8 percent of GDP with a total revenue of K3 billion.

The SOEs operate and provide services in aviation, mobile services and telecommunications, water and sewerage, motor vehicle insurance, development banking and finance, petroleum sector, data service, port services, electricity, and postal and logistics services.  Each SOE has an independent board that is appointed by the cabinet which then reports to the Minister of State-Owned Enterprises.

Recent reports highlighted the rapid growth in the assets of the nine largest SOEs.  Asset use, however, has been inefficient and with their profitability steadily declining since 2005.

Structural reform in 2015 established Kumul Consolidated Holdings (KCH).  Purpose of the reform was to give SOEs greater autonomy and accountability, but this is still lacking in day-to-day operations.  The main hindrance is that, under the Kumul Consolidated Holdings Act 2015, the cabinet can appoint SOE directors, grant approvals for corporate plans, remuneration levels, tenders, engagement of consultants, and other powers, thereby reducing the autonomy of the SOE. It has also been reported that the Act allows the cabinet to direct governance control over the SOEs, a responsibility normally reserved for SOE boards. This increases the risk of political considerations overriding commercial targets.  PNG’s SOEs generally lack transparency, accountability, autonomy and a robust legal framework that requires the SOEs to operate as viable commercial entities. 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. This includes KCH’s failure to publicly report its audited financial statements to date.

A list of SOEs in PNG can be found at:  http://www.kch.com.pg/portfolio/ 

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

8. Responsible Business Conduct

PNG does not have a national action plan for responsible business conduct (RBC).  However, most multinational companies in PNG do operate with a set of standards.  The concept of social responsibility activities is pervasive in the extractive industries and guides conducive interactions with all stakeholders.

Due to limited resources and capacity, many human rights, labor rights, consumer protection, environmental protections, and other such laws to protect individuals from adverse business impacts go largely unenforced.  While there are occasional cases of government action in these situations, that action is the exception, not the norm.

There are currently no NGOs specifically monitoring RBC in PNG.

While PNG does not have specific policies, most large, international companies use international best practices as standards.

PNG is a member of EITI.  PNG EITI’s efforts have thus far been hampered by a lack of cooperation from relevant government ministries and a severe lack of data.

9. Corruption

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 government encourages companies to establish internal codes of conduct that, among other things, prohibit bribery of public officials.

However, overall enforcement of existing laws is insufficient.

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.  PNG’s Ombudsman Commission and the Police Fraud & Anti-Corruption Directorate are generally the main avenues to report and seek protection to matters pertinent to investigating corruption.  The Ombudsman Commission is mandated to investigate and recommend to concerned authorities to take action while the Police Fraud & Anti-Corruption Directorate has the powers to prosecute.

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.  In addition, the findings from the recent business survey, “Results of the 2017 Survey of Businesses in Papua New Guinea,” highlighted that “corruption is becoming an increasing problem with most firms reporting that they make ‘irregular payments’ to government officials.”  A considerable number of those surveyed indicated that problems lay in either Lands or Customs/Finance/Tax institutions.

Resources to Report Corruption

Twain Pambuai
Director of Corporate Services
Ombudsman Commission
Tower Building
Douglas Street
+675 308 2618
Twain.pambuai@ombudsman.gov.pg

Arianne Kassman
Executive Director
Transparency International
P.O. Box 591, Port Moresby, NCD
+675 320 2188
exectipng@gmail.com

Lawrence Stephens
Chairman
Transparency International
P.O. Box 591, Port Moresby, NCD
+675 320 2188
taubadasaku@gmail.com

10. Political and Security Environment

Periodic tribal conflicts occur, particularly in the Highlands and Sepik regions of the country, and election-related violence broke out 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.  Most of the 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.

Rampant political interference in the appointment process of the executive management and boards of state-owned enterprises (SOEs) have resulted in most SOEs suffering from poor management. The awarding process of government procurement contracts continues to lack competitive bidding processes due to excessive political influence.  In addition, the lack of proper consultation by the government on legislative and policy reforms have raised serious concern on the independence and effectiveness of due process.

11. Labor Policies and Practices

Papua New Guinea does not have a primary information system to keep track of the country’s labor market, according to PNG’s Department of Labor & Industrial Relations. PNG’s Department of Labor & Industrial Relations is responsible for labor and industrial matters in the country.  The absence of a proper information system hinders reliable and readily available labor data and statistics. In addition, the lack of specific legislative and policy guidelines has limited plans and exercises on collecting data on a regular and reliable basis over the years.

The Department confirmed the use of sectoral employment movements and trends to track PNG’s labor market.

A labor market survey for Papua New Guinea was last conducted in 2010, facilitated by the Department of Labor & Industrial Relation’s National Employment Division. The Department’s National Employment Division is responsible for registering the movement of national labor market. The Division collected basic employment information such specific roles and responsibilities through its statistical form and recorded as monthly (employment) returns. This method of collecting and sourcing data from the Department’s main employment programs has collapsed over the years due to the drastic fall in the number of its users. The Department’s employment programs are no longer effective channels to facilitate employment placements. Currently, Department of Labor & Industrial Relations rely on its administrative data, capturing records of issued work permits, agent and licensing permits for recruitment agencies as its basis for PNG’s labor (market) figures.

The Central Bank of Papua New Guinea’s quarterly employment index is the widely used reference for labor market statistics in the country. The index covers 500 private companies, which represent 80 per cent of the formal private sector, employing about 10,000 workers.  The Bank conducts periodic interviews with each company to verify their employment and revenue levels on a quarterly basis. The index generally represents employment levels by region and industry throughout the country.

With limited accountability in PNG’s labor market, most private businesses tend to have more bargaining power to determine the size and level of skilled workers for their operations. This has largely seen highly paid jobs dominated by mostly expatriate workers under contractual arrangements. It has also given rise to large numbers of skilled jobs occupied by expatriate workers. The lack of proper national labor market surveys continues to keep the actual availability of employment and workforce unchecked and open to displacement of national skilled workforce.

Youth unemployment is rampant throughout the country with fifty per cent of the population under the age of twenty-five years. The high unemployment figures reflect the small sector of formal business activities, as well as a downturn in the extractive resource sectors, which is heavily relied on to generate government revenue streams and create employment.

The country continues to see a shortage of highly skilled or specialized and experienced workforce in financial and industry management capacities. This is mainly due to high turnovers in national staff in organizations and the slowness in localizing roles in a business.

Discussions during the recent Foreign Employment Classification of Occupations Review Consultation workshop, facilitated by the Department of Labor & Industrial Relations included:

Transport Sector: Low supply of specialist heavy machinery operators.

Mining, Oil and Gas Sector: Low supply of specialists for engineering positions, and lack of Fitters and Turners.

Health Sector: Low supply of doctors, nurses, and pharmacists

Manufacturing and Distribution:

– Lack of Branch Managers with technical expertise and hand-on experience of operations.

– Lack of Facilities Managers with technical and occupational safety expertise.

– Lack of Fleet Managers with managerial and leadership expertise.

– Low supply of abattoir managers.

Manufacturing and Distribution, Construction, and Engineering Sector:

– Lack of Branch Managers with technical expertise and hand-on experience of operations.

– Lack of Facilities Managers with technical and occupational safety expertise.

– Lack of Fleet Managers with managerial and leadership expertise.

Department of Labor & Industrial Relations 2009 Work Permit Guideline. The Guideline explains the Papua New Guinea Classification of Industrial Divisions and the country’s Classification of Occupations, which are an integral part of the Work Permit System.

In practice, the Guideline is accommodative to industry labor demands. Permits are accessible by providing a simple justification suitable for hirer’s work requirements.

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.

The approach of regulating foreign employment in Papua New Guinea is open and accommodative. The country’s regulating practices are based on three broad principles:

  1. Due to local skills shortage, employers should be able to freely recruit non-citizens for Managerial, Professional, Skilled Trades and other occupations, which require a high skill level.
  1. For semi-skilled job requirements, these roles should be advertised in PNG first. If a suitable candidate cannot be found, then the employer is free to recruit a non-citizen for that position.
  1. Unskilled or low-skilled jobs should be reserved for PNG citizens.

Collective bargaining, while a common practice in the public sector, has declined in recent years. Workers union groups of mainly state-owned telecommunications and power companies were actively involved to some point under previous organizational structures, arrangements, and leadership.

The Government through the Department of Labor and Industrial Relations does intervene in labor disputes. In fact, one of its main/core functions is to deal with industrial relations and this is normally done through:

  • Settling of minor complaints;
  • Conciliation and mediation; and
  • Arbitrary tribunals.

These functions are undertaken by the Industrial Relations Division, the Industrial Registrar’s Office and the Office of the Industrial Arbitration Tribunal and Minimum Wages Board.

There were no reports of major industrial action that affected investment projects in 2019.

No new labor related laws or regulations were enacted in 2019.

The Draft National Occupational Safety & Health (OSH) Bill is under review. The Department of Labor & Industrial Relations began drafting this bill since 2011. The bill will undergo final legal vetting, and will require cabinet endorsement before tabled in parliament to pass into law.

12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance Programs

An OPIC representative visited Papua New Guinea in September 2018 and met with various government agencies.

In the meeting with PNG’s Investment Promotion Authority (IPA), IPA expressed the willingness to promote OPIC financing product options through its promotional networks such as its regular provincial awareness campaigns, and its official website.

IPA highlighted that Infrastructure financing in PNG is mostly arranged through Exim banks.

IPA identified Information, Technology, Communications, Value Chain, and Transportation sectors as potential areas for OPIC financing.

In addition, the Department of Finance identified the Transportation, Information, Technology and Communications, and Energy sectors as good areas for partnership through OPIC.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source USG or international statistical source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) N/A N/A 2017 $20.536 Billion www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) N/A N/A 2016 $234 BEA data available at https://www.bea.gov/international/
direct-investment-and-multinational-enterprises-comprehensive-data
 
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2017 $1.0 BEA data available at https://www.bea.gov/international/
direct-investment-and-multinational-enterprises-comprehensive-data
 
Total inbound stock of FDI as % host GDP N/A N/A 2017 20.9 UNCTAD data available at
https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx
 
 

Table 3: Sources and Destination of FDI
Data not available.

Table 4: Sources of Portfolio Investment
Data not available.

14. Contact for More Information

Chad Morris (optional)
Public Affairs and Economic Officer
US Embassy Port Moresby
+675 308-2100
MorrisCW@state.gov

2020 Investment Climate Statements: Papua New Guinea
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