2019 Investment Climate Statements: Papua New Guinea

Policies Towards Foreign Direct Investment

The PNG Government remains focused on fostering an enabling environment for businesses to grow and attract foreign direct investment.

PNG aims to increase Foreign Direct Investments (FDI) in mining and the petroleum/gas sector from USD40.0 million in 2016 to USD100.0 million by 2022. FDI stock reached USD4.2 billion in 2016. The mining, oil, and gas sectors attract most of the FDI. There is a target to increase stock to USD10.0 billion by 2022. The government also aims to increase FDI in the renewable sector.

The 2017-2032 PNG National Trade Policy (NTP) policy goal is to maximize trade and investment by increasing exports, reducing imports of substitute goods, and increasing FDI that generates wealth and contribute 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 fifteen-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 the SMEs into trade deals by negotiating clear terms of 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.

All these plans’ and priorities’ effectiveness remain to be seen, as plans in PNG can be well set out but lack the Government’s political will and commitment to be implemented.

While investment and labor restrictions have been floated by the government and private sector, there are presently no such restrictions in place.

The Investment Promotion Authority was established by an Act of Parliament in 1992 with the primary mandate to promote and facilitate investment in Papua New Guinea and also to regulate the business industry in the country. 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 remain key to the economy of PNG. PNG’s mineral, petroleum, and gas resource projects are owned and operated by foreign investors.

With the important role that the above-mentioned sectors play in the economy, the Cabinet appointed a State Negotiating Team (SNT) in May 2018, comprising heads of various state-owned enterprises, government departments. The SNT leads negotiations between developers and PNG’s key national stakeholders.

In addition, the government of Papua New Guinea (PNG) is a key partner in hosting the annual Petroleum and Energy Summit in Port Moresby. This is the country’s premium petroleum and energy investment forum that brings together international industry experts and investors.

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. Another change allows long-term residents to naturalize as PNG citizens with full legal rights and responsibilities.

There are no sector specific restrictions, limitations, or requirements applied to foreign goods.

The Government of Papua New Guinea (GoPNG) screens foreign direct investment. When reviewing an FDI proposal, the Investment Promotion Authority (IPA) may consider a number of factors, including the:

• Potential for positive development of human and natural resources;
• Investor’s past record in Papua New Guinea and elsewhere;
• Creation of additional employment and income-earning opportunities;
• Likelihood the proposal will generate additional government revenue and contribute to economic growth;
• Transfer of technologies and skills and the contribution to training citizens of Papua New Guinea.

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 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

The government has not undergone any third party investment policy reviews through a multilateral organization.

Business Facilitation

The Investment Promotion Authority (IPA) through the Companies Office is responsible for the administration of Papua New Guinea’s key business laws. These include 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).

There is comprehensive service information published online (http://www.ipa.gov.pg/business-registration-regulation-and-certification/).

The Investment Promotion Authority (IPA) is the lead agency for GPNG’s business facilitation efforts. It can be reached online at http://www.ipa.gov.pg/. The new “Do It Online” section allows both overseas and domestic business registration. Previously, the processing times were substantial, but the current processing time for IPA is seven (7) days. A foreign company must first register under the Companies Act of 1997. Foreign companies have two options for registration in PNG: to incorporate a new company in PNG or to register an overseas company under the Companies Act of 1997. In practice, most foreign companies incorporate a new PNG subsidiary when entering the PNG market.

Once incorporated and registered with the IPA, a newly incorporated PNG company or overseas company should also register with the Internal Revenue Commission for tax and employment purposes. Typically, this process takes nine (9) days.

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.

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 sufficient access to foreign currency. There have been no recent large-scale outward investments originating from PNG.

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.

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 works more towards the regulation of existing monopolies and does little to foster competition. Tax, labor, environment, health, and safety and other laws do not distort or impede investment. However, the lack of implementation of existing laws by some government entities frustrates some investors. For example, there are long bureaucratic delays in the processing of work permits and frequent complaints about corruption and bribery in government departments.

The IPA and the Government are moving, with the assistance of the International Finance Corporation, towards 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 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.

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 overall fiscal transparency practices in PNG lack coordination and consistency.

The Government through the Department of Finance has ongoing legislative and procedural reforms to strengthen the country’s public finance management capacity and systems. The government indicated strong outcomes with the implementation of its 2018 Public Money Management Regularization Act PMMR Act, aimed at centralizing all financial activities of the government bodies to stop unauthorized financial transactions outside of the official budgetary process.

However, the government needs greater coordination amongst 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.

In addition, the content structure of budget documents remain unclear for many ordinary citizens due to low financial literacy levels, and the lack of proper public /civic awareness programs on the budget.

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 applied in PNG, the government most often references Australian models due to their bilateral history and continuing close economic ties.

The government notified the WTO Committee on Technical Barriers to Trade once for regulations issued in 2006 that covered food safety issues.

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 contract law 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, the Constitution and the Village Courts Act established the Village Court system. 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 slow, the judiciary system is widely viewed as independent from government interference.

The Supreme Court is the ultimate appeals 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 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.

Yes.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.

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

Since 1978, Papua New Guinea has been a member of the International Centre for Settlement of Investment Disputes (ICSID Convention). In agreements with foreign investors, GPNG traditionally adopts the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL model law).

Papua New Guinea is one of the few UN Member states that has not signed the New York Convention (formerly known as the United Nations Convention on the Recognition and Enforcement of Foreign Arbitration Awards).

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.

International Commercial Arbitration and Foreign Courts

According to the Port Moresby Chamber of Commerce & Industry, the usual way for local and foreign parties to settle a dispute in Papua New Guinea is through the local court system. Litigation in PNG is perceived to be an expensive and drawn-out process, with years for a decision to be handed down.

There are no such mechanisms 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 respected in PNG.

There have been no such cases.

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.

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 a public purposes defined by law or in payment of compensation as defined by law.

Accelerated depreciation rates are available for new manufacturing and agricultural plants, generous deductions are available for capital expenditure on land used for primary production, and accelerated deductions are available for mining and petroleum companies. For more details, see Price Waterhouse Cooper’s Global Tax Solutions page (http://www.pwc.com/gx/en/tax/index.jhtml).

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

• Agricultural production of any kind;
• Manufacturing of any kind;
• 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

Papua New Guinea has not established geographically defined duty-free export zones.

Performance and Data Localization Requirements

All non-citizens seeking employment in PNG must have a valid work permit before they can be hired. The work permit must be granted by the Secretary of the Department of Labor and Industrial Relations (DLIR) in accordance with the Employment of Non-Citizens Act of 2007. It can take weeks or even months to obtain both a work permit and visa for non-citizens to work in Papua New Guinea, and delays are common due to a lengthy bureaucratic clearance process. In the past, the government has used its immigration powers to block visas for personnel to come to Papua New Guinea to fill positions that it believes can be filled by Papua New Guineans.

There are no government/authority-imposed conditions on permission to invest.

Papua New Guinea does not follow forced localization policy.

National Information & Communication Technology Authority (NICTA) Data Integrity Act called CCE (Controlled Customer Equipment) is strictly enforced.

There are no measurements that prevent or unduly impede companies from freely transmitting customer or other business-related data outside the country’s territory? Only illegal transmission of state/military data will be charged against the state or military.

There are two Acts that enforce data integrity: Data Interference and System Interference. The fine is an amount not exceeding K100,000.00 or 10 years in prison. NICTA and Cyber Crime Division enforce rules on local data storage within the country.

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 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

The IPA through the Intellectual Property Office of PNG (IPOPNG) administers the Trade Marks Act, Chapter 385, Copyright and Neighbouring Rights Act (2000) and the Patents and Industrial Design Act (2000).

Protections for intellectual property rights relating to the reproduction and sale of counterfeit and pirated products, particularly music and movies, are insufficient. Such counterfeit products are openly sold on the streets and in shops. Sales persist despite sporadic law enforcement action. Other counterfeit products that infringe on copyrights, patents, and/or trademarks are often imported from Asian countries and sold in Papua New Guinea. Customs periodically seizes such shipments, but there are significant gaps in their enforcement regime. Adequate protection for trade secrets and semiconductor chip layout design exist in law, and minimal infringements appear to occur. For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/

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 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 the largest bank in the country, recording 59 percent of lending in 2017. 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.

The Deputy Prime Minister and Treasurer of PNG recently indicated that much remains to be done in terms of financial inclusion. Speaking at the opening of the Central Bank’s Currency Processing Facility, he highlighted that 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 (USD 1.2bn) in that year to reach PGK20.3bn (USD 6.3bn) in 2011. Growth has been slower in recent years, however, with total assets rising from PGK22.7bn (USD 7.1bn) in2012 to a high of PGK29.8 million.

According to BSP’s Board Chairman, total assets of the bank at the end of 2018 are at K20.696 billion. Loans and advances to customers has seen net growth of K1.138 billion to K11.233 billion.

Branches/subsidiaries of two Australian banks represent the number two and number three largest financial institutions operating in the country. While the Australian banks do not provide reports of PNG-specific assets, the Australia and New Zealand (ANZ) Bank had total global assets of USD 889.9 billion at year’s end 2015, and Westpac Bank had USD 812.2 billion in total global assets at the end of 2015. The banking system in Papua New Guinea is sound.

The Bank of Papua New Guinea is to act 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

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 repatriation time consuming or impossible.

No. 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 appeals 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.

PNG’s SWF is not yet operational.

State-owned enterprises (SOEs) in PNG continue to dominate critical public utilities. PNG’s total state assets stand at K9.3 billion with staff strength at 7000 employees. Papua New Guinea’s nine SOEs altogether comprise 4.8 per cent 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 government minister. Recent reports highlighted the rapid growth in the assets of the nine largest SOEs; however, asset use has been inefficient and with their profitability steadily declining since 2005.

The structural reform in 2015 established Kumul Consolidated Holdings (KCH), with the government’s stated purpose to give SOEs greater autonomy and accountability, but this still lacks in the day-to-day operations of the SOEs. The main hindrance has been linked to yet too much cabinet authority allowed by the SOE governing law, the Kumul Consolidated Holdings Act 2015. The law gives the cabinet the powers to appoint SOE directors to granting approvals for corporate plans, remuneration levels, tenders, engagement of consultants, among others, 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, as elected member of the cabinet exert their authority over the operation of the SOEs. It was also noted that PNG’s SOEs currently lacked transparency, accountability and autonomy and a robust legal framework that requires the SOEs to operate commercially. 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.

http://www.kch.com.pg/portfolio/ provides a list of SOEs in PNG.

There is no privatization program in place and thus no guidelines or structure on when and how foreign investors are allowed to participate in privatization programs. The government has funding available for privatization and is currently using the Public Private Partnership (PPP) structure as a model for privatization. The trend has been towards growing SOEs. The cumulative asset value of SOEs grew from USD1.58 billion in 2012 to USD6.32 billion by the end of 2015.

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 a social license to operate is pervasive in the extractive industries and guides 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.

The government has not put in place corporate governance, accounting, and executive compensation standards to protect shareholders

There are currently no non-governmental organizations 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 Extractive Industries Transparency Initiative (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.

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.

Yes. The Leadership Code extends to family members of officials.

Yes, but enforcement is insufficient.

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

Most of the larger domestic companies and international firms from Europe, North America, Japan, Australia, and New Zealand have effective internal controls, ethics, and compliance programs to detect and prevent bribery. Many firms from elsewhere in East and Southeast Asia, particularly those in the resource extraction sectors, lack such programs.

Papua New Guinea has signed and ratified the UN Convention against Corruption. Papua New Guinea is not a party to the UN Convention against Transnational Organized Crime or the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

No specific protections are provided to NGOs involved in investigating corruption.

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

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. The majority of disruption and damage caused to projects is due to disputes between landowners and the central government, which are fueled by a perception in certain cases that the central government has failed to uphold its financial commitments to landowners. Landowners in these disputes have taken out their frustration with the central government by damaging the infrastructure or disrupting the operations of foreign projects in their regions.

The central bureaucracy is increasingly politicized, which has eroded the capacity of government departments and allowed nepotism/political cronyism to thrive in parts the public service. Civil disturbances have been triggered by the government’s failure to deliver financial and development commitments, particularly to landowners in the resource project areas. They have also occurred in major urban areas based on disputes between long-term residents and newly arrived migrants and/or between competing criminal networks.

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.

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 the 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 continue 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.
2. 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.
3. 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. Worker unions in 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:

1. Settling of minor complains;
2. Conciliation and mediation; and
3. 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 2018.

No new labor related laws or regulations were enacted in 2018.

There is a Draft National Occupational Safety & Health (OSH) Bill that 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.

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 reported 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.

There is an OPIC agreement between PNG and the U.S.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Table 3: Sources and Destination of FDI

PNG is not a reporting country for CDIS data.

Table 4: Sources of Portfolio Investment

PNG is not a reporting country for CPIS data.

Wendy Kolls
Economic Officer
U.S. Embassy Port Moresby
P.O. Box 1492, Douglas Street, Port Moresby, Papua New Guinea
Office: +675-321-1455, ext. 2116| Mobile: +675-7020-1257| Fax: +675-321-1593|