Palm Oil Model: Agro Palm Oil Model: Agro-Nucleus Enterprise - - PowerPoint PPT Presentation

SLIDE 1

People- Planet - Profit

CIMC Workshop CIMC Workshop Impact of LNG on the PNG Agriculture Sector Impact of LNG on the PNG Agriculture Sector 1 April 2011 1 April 2011

Palm Oil Model: Agro Palm Oil Model: Agro-Nucleus Enterprise Nucleus Enterprise

SLIDE 2

People- Planet - Profit

Oil Oil Palm Palm

SLIDE 3

People- Planet - Profit

Oil Palm Oil Palm - grown by… grown by… Smallholders Smallholders Large Large Plantations Plantations

SLIDE 4

People- Planet - Profit

CPO CPO PKO PKO

Palm Palm Oil Oil

SLIDE 5

People- Planet - Profit

Palm Oil… made here Palm Oil… made here

x12 (and 2 more on the way)

SLIDE 6

People- Planet - Profit

x2

Downstream Downstream Refining Refining

SLIDE 7

People- Planet - Profit

Rainfall Rainfall 1800 1800 - 5000 mm / year 5000 mm / year Sunshine Sunshine min of 2000 h / year min of 2000 h / year Temperature Temperature between 22 between 22 – 32 32o C Altitude Altitude less than 500 less than 500 m m above SL above SL

Factors that affect growth Factors that affect growth :

Kimbe Kimbe

• Mt. Hagen
• Mt. Hagen

Rabaul Rabaul Kavieng Kavieng Wewak Wewak Vanimo Vanimo

1967 Hoskins oil palm project 1967 Hoskins oil palm project 1969 Bialla oil palm project 1969 Bialla oil palm project 1987 New Ireland oil palm project 1987 New Ireland oil palm project

Development of Oil Palm in PNG:

Daru Daru Port Moresby Port Moresby Lae Lae Alotau Alotau Popondetta Popondetta Gusap Gusap

1920’s observation plantings 1920’s observation plantings 1960’s WB study re recommendation 1960’s WB study re recommendation 1967 Hoskins oil palm project 1967 Hoskins oil palm project 1976 Popondetta oil palm project 1976 Popondetta oil palm project 1985 Milne Bay oil palm project 1985 Milne Bay oil palm project 2005 Ramu oil palm project 2005 Ramu oil palm project

SLIDE 8

People- Planet - Profit

Nucleus Estate/Smallholder model Nucleus Estate/Smallholder model (NES) (NES) Nucleus Estate/Smallholder model Nucleus Estate/Smallholder model (NES) (NES)

SLIDE 9

People- Planet - Profit

Smallholder

Plantation Smallholder Smallholder

SLIDE 10

People- Planet - Profit

Smallholder

Crop collection, transport Crop collection, transport & processing provided by & processing provided by a Milling Company a Milling Company Crop collection, transport Crop collection, transport & processing provided by & processing provided by a Milling Company a Milling Company

Plantation Smallholder Smallholder Mill

SLIDE 11

People- Planet - Profit

Smallholder

Crop is harvested Crop is harvested every 10 every 10-14 days 14 days all year round all year round Crop is harvested Crop is harvested every 10 every 10-14 days 14 days all year round all year round

Plantation Smallholder Smallholder Mill

Within 3 Within 3-days of days of cutting, crop must be cutting, crop must be transported to mill transported to mill Within 3 Within 3-days of days of cutting, crop must be cutting, crop must be transported to mill transported to mill

SLIDE 12

People- Planet - Profit

Smallholder Bulk Bulk Terminal Terminal

Palm oil is transported to Palm oil is transported to the the port bulking port bulking terminal terminal for export for export Palm oil is transported to Palm oil is transported to the the port bulking port bulking terminal terminal for export for export

Plantation Smallholder Smallholder Mill Mill

SLIDE 13

People- Planet - Profit

Smallholder Bulk Bulk Terminal Terminal

Nucleus Estate (or Major Integrated Producer): Nucleus Estate (or Major Integrated Producer):

Fully vertically integrated companies; R&D, seed production, Fully vertically integrated companies; R&D, seed production, plantations, transport, milling, refining, marketing and commodity plantations, transport, milling, refining, marketing and commodity trading. trading.

Via NES model they provide to smallholders: Via NES model they provide to smallholders:

• Seedlings

Seedlings

• Crop collection & transport

Crop collection & transport

• FFB purchasing

FFB purchasing

• Financial credit (usually interest free)

Financial credit (usually interest free)

• Pest & disease control operations

Pest & disease control operations

• Extension & support services (direct

Extension & support services (direct)

• Voluntary financial support for Government extension service

Voluntary financial support for Government extension service

• Repair & maintenance of transport infrastructure

Repair & maintenance of transport infrastructure

• Support for social infrastructure (education, health & police)

Support for social infrastructure (education, health & police)

• Future

Future – electricity from CDM methane power plants? electricity from CDM methane power plants?

Nucleus Estate (or Major Integrated Producer): Nucleus Estate (or Major Integrated Producer):

Fully vertically integrated companies; R&D, seed production, Fully vertically integrated companies; R&D, seed production, plantations, transport, milling, refining, marketing and commodity plantations, transport, milling, refining, marketing and commodity trading. trading.

Via NES model they provide to smallholders: Via NES model they provide to smallholders:

• Seedlings

Seedlings

• Crop collection & transport

Crop collection & transport

• FFB purchasing

FFB purchasing

• Financial credit (usually interest free)

Financial credit (usually interest free)

• Pest & disease control operations

Pest & disease control operations

• Extension & support services (direct

Extension & support services (direct)

• Voluntary financial support for Government extension service

Voluntary financial support for Government extension service

• Repair & maintenance of transport infrastructure

Repair & maintenance of transport infrastructure

• Support for social infrastructure (education, health & police)

Support for social infrastructure (education, health & police)

• Future

Future – electricity from CDM methane power plants? electricity from CDM methane power plants?

Plantation Smallholder Smallholder Mill Mill

Nucleus Estate (or Major Integrated Producer): Nucleus Estate (or Major Integrated Producer):

Fully vertically integrated companies; R&D, seed production, Fully vertically integrated companies; R&D, seed production, plantations, transport, milling, refining, marketing and commodity plantations, transport, milling, refining, marketing and commodity trading. trading.

Via NES model they provide to smallholders: Via NES model they provide to smallholders:

• Seedlings

Seedlings

• Crop collection & transport

Crop collection & transport

• FFB purchasing

FFB purchasing

• Financial credit (usually interest free)

Financial credit (usually interest free)

• Pest & disease control operations

Pest & disease control operations

• Extension & support services (direct

Extension & support services (direct)

• Voluntary financial support for Government extension service

Voluntary financial support for Government extension service

• Repair & maintenance of transport infrastructure

Repair & maintenance of transport infrastructure

• Support for social infrastructure (education, health & police)

Support for social infrastructure (education, health & police)

• Future

Future – electricity from CDM methane power plants? electricity from CDM methane power plants?

Nucleus Estate (or Major Integrated Producer): Nucleus Estate (or Major Integrated Producer):

Fully vertically integrated companies; R&D, seed production, Fully vertically integrated companies; R&D, seed production, plantations, transport, milling, refining, marketing and commodity plantations, transport, milling, refining, marketing and commodity trading. trading.

Via NES model they provide to smallholders: Via NES model they provide to smallholders:

• Seedlings

Seedlings

• Crop collection & transport

Crop collection & transport

• FFB purchasing

FFB purchasing

• Financial credit (usually interest free)

Financial credit (usually interest free)

• Pest & disease control operations

Pest & disease control operations

• Extension & support services (direct

Extension & support services (direct)

• Voluntary financial support for Government extension service

Voluntary financial support for Government extension service

• Repair & maintenance of transport infrastructure

Repair & maintenance of transport infrastructure

• Support for social infrastructure (education, health & police)

Support for social infrastructure (education, health & police)

• Future

Future – electricity from CDM methane power plants? electricity from CDM methane power plants?

SLIDE 14

People- Planet - Profit

Oil palm production & area in PNG Oil palm production & area in PNG

Area Estimates Dec 2009 (ha) Project Area Plantation Smallholder Total Hoskins (NBPOL, Mosa Group) 32,228 21,902 54,130 41.6% 82.3% Popondetta (NBPOL, Kula Group) 8,994 14,285 23,279 17.9% Milne Bay (NBPOL, Kula Group) 11,629 1,699 13,328 10.2% New Ireland (NBPOL, Kula Group) 5,689 2,613 8,302 6.4% Ramu (NBPOL, RAIL) 7,668 260 7,928 6.1% Bialla (Hargy Oil Palms) 9,906 13,163 23,069 17.7% TOTAL 76,114 53,922 130,035 58.5% 41.5% 58.5% 41.5% FFB Production in 2010 (tonnes) Project Area Plantation Smallholder Total Hoskins 965,911 425,358 1,291,349 51.4% 84.1% Popondetta 228,659 143,043 371,702 14.8% Milne Bay 235,998 12,426 248,424 9.9% New Ireland 105,485 16,638 122,123 4.9% Ramu 81,202 953 82,155 3.3% Bialla 205,871 192,669 398,540 15.9% TOTAL 1,723,206 791,087 2,514,293 68.5% 31.5%

SLIDE 15

People- Planet - Profit

700,000 800,000 900,000 1,000,000 1,100,000 1,200,000

Export Value (K'000, fob)

Value of Major Agricultural Exported from PNG - 1976 to 2009

Coffee Cocoa Copra Palm Oil

Palm Oil & Derivatives

100,000 200,000 300,000 400,000 500,000 600,000

1976 1980 1984 1988 1992 1996 2000 2004 2008

Export Value (K'000, fob) Year

Coffee

SLIDE 16

People- Planet - Profit

Exported Oil Palm Products in 2009 PGK Tonnes Crude Palm Oil (CPO) 729,791,292 445,227 Palm Kernel (PK) 9,913,584 15,420 Palm Kernel Oil (PKO) 61,873,379 34,425 Palm Kernel Expeller (PKE) 1,951,280 13,654 Refined Bleached Deodorized Palm Oil (RBDPO) 48,273,700 21,321 Refined Bleached Deodorized Palm Oil (RBDPO) 48,273,700 21,321 Olein 23,041,254 14,223 Stearin 24,085,339 11,370 Palm Fatty Acid Distillated (PFAD) 3,722,056 3,366 Waste acid oil 39,907 70 TOTAL VALUE OF EXPORTS 902,691,791

SLIDE 17

People- Planet - Profit

1,000 1,200 1,400 1,600 1,800 2,000

% Change relative to 1976 Change in Quantity of Agricultural Commodities Exported from PNG 2007 to 2009

Coffee Cocoa Copra Oil Palm

Palm Oil & Derivatives

• 200

200 400 600 800

1976 1980 1984 1988 1992 1996 2000 2004 2008

% Change relative to 1976 Year

SLIDE 18

People- Planet - Profit

National Oil Palm Organisations National Oil Palm Organisations

Palm alm Oil il Producers roducers Association ssociation P.O.P.A. P.O.P.A. Oil Palm il Palm Industry ndustry Corporation

• rporation

O.P.I.C. O.P.I.C. Oil Palm il Palm Industry ndustry Corporation

• rporation

O.P.I.C. O.P.I.C. Oil il Palm alm Research esearch Association ssociation O.P.R.A. O.P.R.A.

SLIDE 19

People- Planet - Profit

New Britain Palm Oil Group: New Britain Palm Oil Group:

• New Britain Palm Oil Ltd

New Britain Palm Oil Ltd (WNBP) (WNBP)

• Ramu

Ramu Agri Agri-Industries Ltd Industries Ltd

• Kula Palm

Kula Palm Oil: Oil: Higaturu Oil Higaturu Oil Palms, Oro Palms, Oro Milne Bay Milne Bay Estates, MBP Estates, MBP Poliamba Poliamba Ltd, NIP Ltd, NIP

POPA POPA - The Oil Palm Companies The Oil Palm Companies

New Britain Palm Oil Group: New Britain Palm Oil Group:

• New Britain Palm Oil Ltd

New Britain Palm Oil Ltd (WNBP) (WNBP)

• Ramu

Ramu Agri Agri-Industries Ltd Industries Ltd

• Kula Palm

Kula Palm Oil: Oil: Higaturu Oil Higaturu Oil Palms, Oro Palms, Oro Milne Bay Milne Bay Estates, MBP Estates, MBP Poliamba Poliamba Ltd, NIP Ltd, NIP Hargy Oil Palm Pty Ltd Hargy Oil Palm Pty Ltd

SLIDE 20

People- Planet - Profit

Oil Palm Industry Corporation Oil Palm Industry Corporation

SLIDE 21

People- Planet - Profit

Oil Palm Industry Corporation Oil Palm Industry Corporation

• Statutory Organisation established by the OPIC Act 1992 to

replace DPI/DAL Smallholder Oil Palm Extension Service

• OPIC’s sole responsibility is to provide extension & support

services to smallholder oil palm growers

• Managed at a local level through LPCs
• Principally financed by FFB levy (smallholders and voluntary

matching payment from milling Cos). No Government funding for extension services.

• All milling companies are also providing parallel extension

services to smallholder growers

• Statutory Organisation established by the OPIC Act 1992 to

replace DPI/DAL Smallholder Oil Palm Extension Service

• OPIC’s sole responsibility is to provide extension & support

services to smallholder oil palm growers

• Managed at a local level through LPCs
• Principally financed by FFB levy (smallholders and voluntary

matching payment from milling Cos). No Government funding for extension services.

• All milling companies are also providing parallel extension

services to smallholder growers

SLIDE 22

People- Planet - Profit

Number of smallholder blocks (Dec '09) Project Area # blocks Hoskins 7,126 Popondetta 5,707 Milne Bay 789

Oil palm smallholders in PNG: Oil palm smallholders in PNG:

Milne Bay 789 New Ireland 1,405 Ramu 130 Bialla 3,156 Total 18,313

~200,000 dependent for their livelihoods on oil palm blocks

SLIDE 23

People- Planet - Profit

Types of Smallholders: Types of Smallholders:

• Land Settlement Scheme (LSS);

– Alienated land, 99-yr State lease – Older project areas only (WNBP & Oro) – Settlers from other parts of PNG – Serious land pressure issues (already 3rd generation)

• Village Oil Palm (VOP);

– Development of own customary land – Lower productivity

• Customary Rights Purchase Blocks (CRPB);

– Recent trend esp in Hoskins area (ref CLUA)

Types of Smallholders: Types of Smallholders:

• Land Settlement Scheme (LSS);

– Alienated land, 99-yr State lease – Older project areas only (WNBP & Oro) – Settlers from other parts of PNG – Serious land pressure issues (already 3rd generation)

• Village Oil Palm (VOP);

– Development of own customary land – Lower productivity

• Customary Rights Purchase Blocks (CRPB);

– Recent trend esp in Hoskins area (ref CLUA)

SLIDE 24

People- Planet - Profit

PNG Oil Palm Research Association PNG Oil Palm Research Association

SLIDE 25

People- Planet - Profit

• A not-for-profit research association formed in 1980
• Owned by and operated for all oil palm growers
• Centres in all oil palm production areas
• Recognised by Government as being part of PNG’s National

Agricultural Research System (NARS)

• Financed by FFB levy from plantations & smallholders and

external research grants. No Government funding for oil palm R&D.

PNG Oil Palm Research Association PNG Oil Palm Research Association

• A not-for-profit research association formed in 1980
• Owned by and operated for all oil palm growers
• Centres in all oil palm production areas
• Recognised by Government as being part of PNG’s National

Agricultural Research System (NARS)

• Financed by FFB levy from plantations & smallholders and

external research grants. No Government funding for oil palm R&D.

SLIDE 26

People- Planet - Profit

• No apex body currently exists in the palm oil sub-sector.
• Need for such an entity identified by all stakeholders.

Also the need to avoid the governance, performance and accountability issues associated with public sector bodies is recognised.

• Palm Oil Council is currently in the process of being

formed

Palm Oil Sub Palm Oil Sub-sector Apex Body? sector Apex Body?

• No apex body currently exists in the palm oil sub-sector.
• Need for such an entity identified by all stakeholders.

Also the need to avoid the governance, performance and accountability issues associated with public sector bodies is recognised.

• Palm Oil Council is currently in the process of being

formed

SLIDE 27

People- Planet - Profit

The Road Ahead… The Road Ahead… The Road Ahead… The Road Ahead…

SLIDE 28

People- Planet - Profit

WHAT ARE THE ISSUES THAT WILL AFFECT SUSTAINABLILITY WHAT ARE THE ISSUES THAT WILL AFFECT SUSTAINABLILITY OF OIL PALM DEVELOPMENT IN PNG? OF OIL PALM DEVELOPMENT IN PNG? THE

HE TOP OP SPECIFIC PECIFIC ISSUES SSUES RAISED AISED BY BY STAKEHOLDERS TAKEHOLDERS...

...

• Shortage of skilled labour and experienced management staff

Shortage of skilled labour and experienced management staff

• Over

Over-population in oil palm development areas population in oil palm development areas

• Infrastructure

Infrastructure – development, support & maintenance development, support & maintenance

• Land issues

Land issues – accessibility & disputes accessibility & disputes

• Pests & disease

Pests & disease – increasing risk increasing risk

• Lack of Government support & services

Lack of Government support & services

• Cash management, rural financial services & high cost of living

Cash management, rural financial services & high cost of living

• Poor quality of political & public

Poor quality of political & public sector leadership sector leadership

• Public opinion and anti

Public opinion and anti-oil palm campaigns

• il palm campaigns
• Law & order, alcohol & drugs, HIV and other social issues

Law & order, alcohol & drugs, HIV and other social issues

THE

HE TOP OP SPECIFIC PECIFIC ISSUES SSUES RAISED AISED BY BY STAKEHOLDERS TAKEHOLDERS...

...

• Shortage of skilled labour and experienced management staff

Shortage of skilled labour and experienced management staff

• Over

Over-population in oil palm development areas population in oil palm development areas

• Infrastructure

Infrastructure – development, support & maintenance development, support & maintenance

• Land issues

Land issues – accessibility & disputes accessibility & disputes

• Pests & disease

Pests & disease – increasing risk increasing risk

• Lack of Government support & services

Lack of Government support & services

• Cash management, rural financial services & high cost of living

Cash management, rural financial services & high cost of living

• Poor quality of political & public

Poor quality of political & public sector leadership sector leadership

• Public opinion and anti

Public opinion and anti-oil palm campaigns

• il palm campaigns
• Law & order, alcohol & drugs, HIV and other social issues

Law & order, alcohol & drugs, HIV and other social issues

SLIDE 29

People- Planet - Profit

Road ahead Road ahead - focus and commitment to sustainability: focus and commitment to sustainability:

• All palm oil companies achieved ISO14,001 accreditation
• PNG a leader in development of RSPO
• All palm oil companies RSPO certified (or in the process of being)
• Large investment in sustainability

– A profound systems change - not an add-on – Increased cost of production (~8$ per tonne) – large capital investment (refining, fractionation & CDM)

A major driver is market access: A major driver is market access:

• All PNG’s palm oil is destined for Europe
• Highly sensitive market to issue of sustainability and traceability

Other Markets?: Other Markets?:

• Despite being a world leader in business & technical innovation…
• Production costs in PNG very high and timelines long
• PNG can’t compete on price Indonesian, Malaysia & others

Road ahead Road ahead - focus and commitment to sustainability: focus and commitment to sustainability:

• All palm oil companies achieved ISO14,001 accreditation
• PNG a leader in development of RSPO
• All palm oil companies RSPO certified (or in the process of being)
• Large investment in sustainability

– A profound systems change - not an add-on – Increased cost of production (~8$ per tonne) – large capital investment (refining, fractionation & CDM)

A major driver is market access: A major driver is market access:

• All PNG’s palm oil is destined for Europe
• Highly sensitive market to issue of sustainability and traceability

Other Markets?: Other Markets?:

• Despite being a world leader in business & technical innovation…
• Production costs in PNG very high and timelines long
• PNG can’t compete on price Indonesian, Malaysia & others

SLIDE 30

People- Planet - Profit

Industry Growth in next 10 Industry Growth in next 10-15 years? 15 years?

• Very little alienated land available for development (not that this is a

problem)…

• Expansion via;

– Smallholders – Lease leaseback sub-lease arrangement with customary land

• wners for plantation development
• RSPO Criteria 7.3 (primary forest & HCV)
• Carbon stock threshold to be adopted for land conversion
• Focus on yield intensification and planting on non-forest land
• Possibility of new viable and sustainable new projects in PNG?

– One per decade, max two!

Industry Growth in next 10 Industry Growth in next 10-15 years? 15 years?

• Very little alienated land available for development (not that this is a

problem)…

• Expansion via;

– Smallholders – Lease leaseback sub-lease arrangement with customary land

• wners for plantation development
• RSPO Criteria 7.3 (primary forest & HCV)
• Carbon stock threshold to be adopted for land conversion
• Focus on yield intensification and planting on non-forest land
• Possibility of new viable and sustainable new projects in PNG?

– One per decade, max two!

SLIDE 31

People- Planet - Profit

Government and palm oil development? Government and palm oil development?

• No support for the ‘real’ palm oil sub-sector
• Over 15-years of Government facilitation of new palm oil developments –

which has led to??

• DSP2030 & NADP – triple palm oil exports by 2030?
• Expressed strong desire for new investors
• Appears PNG is being advertised overseas as a large available ‘land bank’
• Departments & politicians courting any entrepreneurial proposal no matter

how little expertise, credentials or lack of financial capacity are exhibited

• BUT:

– No consultation with the country’s palm oil sector – No understanding of palm oil development and its requirements in PNG

Government and palm oil development? Government and palm oil development?

• No support for the ‘real’ palm oil sub-sector
• Over 15-years of Government facilitation of new palm oil developments –

which has led to??

• DSP2030 & NADP – triple palm oil exports by 2030?
• Expressed strong desire for new investors
• Appears PNG is being advertised overseas as a large available ‘land bank’
• Departments & politicians courting any entrepreneurial proposal no matter

how little expertise, credentials or lack of financial capacity are exhibited

• BUT:

– No consultation with the country’s palm oil sector – No understanding of palm oil development and its requirements in PNG

SLIDE 32

People- Planet - Profit

The ‘virtual’ palm oil industry!! The ‘virtual’ palm oil industry!!

• Emergence of many ‘oil palm’ agro-forestry projects

– All with a focus on securing FCAs!

• Land grab using SABLs

– Over 5.3 million ha LLB to third parties (i.e. land alienation, usually for 99-yrs) – Most profess to be for ‘palm oil’ development!!

• This poses a massive reputational risk for the country and its palm oil

exports; this will directly affect our market access; and

• Is blocking real development opportunities from real investors
• The ‘real’ palm oil industry must take (and is taking) an active role is

supporting awareness, opposition and mitigation activities to prevent these abuses of customary land & resource rights

MAJOR RISKS MAJOR RISKS

The ‘virtual’ palm oil industry!! The ‘virtual’ palm oil industry!!

• Emergence of many ‘oil palm’ agro-forestry projects

– All with a focus on securing FCAs!

• Land grab using SABLs

– Over 5.3 million ha LLB to third parties (i.e. land alienation, usually for 99-yrs) – Most profess to be for ‘palm oil’ development!!

• This poses a massive reputational risk for the country and its palm oil

exports; this will directly affect our market access; and

• Is blocking real development opportunities from real investors
• The ‘real’ palm oil industry must take (and is taking) an active role is

supporting awareness, opposition and mitigation activities to prevent these abuses of customary land & resource rights

SLIDE 33

People- Planet - Profit

LNG and the likely ‘Dutch Disease’ Effect: LNG and the likely ‘Dutch Disease’ Effect:

• Development phase (now):

– Damaging HR losses to the boom sector. Many mechanics, engineers, welders, HGV drivers etc leaving; new recruits not

• available. HR costs are being driven up.

– TVET suspended apprenticeship courses. Palm oil industry currently has >300 apprentices. Being asked to establish own equivalent facilities.

• Production phase:

– Lower PGK value of exports and greatly elevated production costs – severe bottom line impacts. – The existing crippling operating costs associated with the country’s failing transport infrastructure will become critical. – DD Mitigation? Priority must be unprecedented public investment (thru PPP?) in reconstruction & maintenance of ROADS ROADS ROADS, BRIDGES and PORTS and SOCIAL INFRASTRUCTURE – starting NOW – Also transport subsidies, fuel subsidies, enhance tax credit scheme…

MAJOR RISKS MAJOR RISKS

LNG and the likely ‘Dutch Disease’ Effect: LNG and the likely ‘Dutch Disease’ Effect:

• Development phase (now):

– Damaging HR losses to the boom sector. Many mechanics, engineers, welders, HGV drivers etc leaving; new recruits not

• available. HR costs are being driven up.

– TVET suspended apprenticeship courses. Palm oil industry currently has >300 apprentices. Being asked to establish own equivalent facilities.

• Production phase:

– Lower PGK value of exports and greatly elevated production costs – severe bottom line impacts. – The existing crippling operating costs associated with the country’s failing transport infrastructure will become critical. – DD Mitigation? Priority must be unprecedented public investment (thru PPP?) in reconstruction & maintenance of ROADS ROADS ROADS, BRIDGES and PORTS and SOCIAL INFRASTRUCTURE – starting NOW – Also transport subsidies, fuel subsidies, enhance tax credit scheme…

SLIDE 34

People- Planet - Profit

Palm Oil Palm Oil – – Papua New Guinea Papua New Guinea

Thank You Thank You

SLIDE 35

People- Planet - Profit Investment Costs: PGK Agricultural Field development, planting, roads etc (@K9,950/ha) 99,500,000 Capex (buildings, vehicles & facilities @ K6,000/ha) 60,000,000 General development charges yrs 1-3 (@K600/ha/yr) 12,000,000 Milling & Oil Storage/Handling 60t/hr CPO mill 45,000,000 Mill tank farm (4x 1,500 tonne tanks)+(pump hse, piplines, boiler etc) 7,000,000 Port tank farm (as above) 7,000,000

Minimum Viable Development: 10,000ha plantation and 60t/hr CPO mill Minimum Viable Development: 10,000ha plantation and 60t/hr CPO mill

Port tank farm (as above) 7,000,000 Port/harbour modification (assumes deep water port already exists) 3,000,000 TOTAL INVESTMENT COST 233,500,000 Notes:

• Estimates based on 2009 actuals at a favorable location
• From first field activity (nursery) all above incurred within 4-years
• Would employ ~1,300 people (management & professional salaries not included above)
• If smallholder are part of this development, the planted area (& cost) needs to be increased - ref

s/h yields ~50% of plnt)

• Emerging indications suggest CPO mill cost could to be higher (approach K50 million)
• Assumes adequate road & bridge infrastructure existsi in development area

SLIDE 36

People- Planet - Profit

CIMC Workshop CIMC Workshop Impact of LNG on the PNG Agriculture Sector Impact of LNG on the PNG Agriculture Sector 1 April 2011 1 April 2011

Palm Oil Model: Agro Palm Oil Model: Agro-Nucleus Enterprise Nucleus Enterprise

SLIDE 37

People- Planet - Profit

Oil Oil Palm Palm

SLIDE 38

People- Planet - Profit

Oil Palm Oil Palm - grown by… grown by… Smallholders Smallholders Large Large Plantations Plantations

SLIDE 39

People- Planet - Profit

CPO CPO PKO PKO

Palm Palm Oil Oil

SLIDE 40

People- Planet - Profit

Palm Oil… made here Palm Oil… made here

x12 (and 2 more on the way)

SLIDE 41

People- Planet - Profit

x2

Downstream Downstream Refining Refining

SLIDE 42

People- Planet - Profit

Rainfall Rainfall 1800 1800 - 5000 mm / year 5000 mm / year Sunshine Sunshine min of 2000 h / year min of 2000 h / year Temperature Temperature between 22 between 22 – 32 32o C Altitude Altitude less than 500 less than 500 m m above SL above SL

Factors that affect growth Factors that affect growth :

Kimbe Kimbe

• Mt. Hagen
• Mt. Hagen

Rabaul Rabaul Kavieng Kavieng Wewak Wewak Vanimo Vanimo

1967 Hoskins oil palm project 1967 Hoskins oil palm project 1969 Bialla oil palm project 1969 Bialla oil palm project 1987 New Ireland oil palm project 1987 New Ireland oil palm project

Development of Oil Palm in PNG:

Daru Daru Port Moresby Port Moresby Lae Lae Alotau Alotau Popondetta Popondetta Gusap Gusap

1920’s observation plantings 1920’s observation plantings 1960’s WB study re recommendation 1960’s WB study re recommendation 1967 Hoskins oil palm project 1967 Hoskins oil palm project 1976 Popondetta oil palm project 1976 Popondetta oil palm project 1985 Milne Bay oil palm project 1985 Milne Bay oil palm project 2005 Ramu oil palm project 2005 Ramu oil palm project

SLIDE 43

People- Planet - Profit

Nucleus Estate/Smallholder model Nucleus Estate/Smallholder model (NES) (NES) Nucleus Estate/Smallholder model Nucleus Estate/Smallholder model (NES) (NES)

SLIDE 44

People- Planet - Profit

Smallholder

Plantation Smallholder Smallholder

SLIDE 45

People- Planet - Profit

Smallholder

Crop collection, transport Crop collection, transport & processing provided by & processing provided by a Milling Company a Milling Company Crop collection, transport Crop collection, transport & processing provided by & processing provided by a Milling Company a Milling Company

Plantation Smallholder Smallholder Mill

SLIDE 46

People- Planet - Profit

Smallholder

Crop is harvested Crop is harvested every 10 every 10-14 days 14 days all year round all year round Crop is harvested Crop is harvested every 10 every 10-14 days 14 days all year round all year round

Plantation Smallholder Smallholder Mill

Within 3 Within 3-days of days of cutting, crop must be cutting, crop must be transported to mill transported to mill Within 3 Within 3-days of days of cutting, crop must be cutting, crop must be transported to mill transported to mill

SLIDE 47

People- Planet - Profit

Smallholder Bulk Bulk Terminal Terminal

Palm oil is transported to Palm oil is transported to the the port bulking port bulking terminal terminal for export for export Palm oil is transported to Palm oil is transported to the the port bulking port bulking terminal terminal for export for export

Plantation Smallholder Smallholder Mill Mill

SLIDE 48

People- Planet - Profit

Smallholder Bulk Bulk Terminal Terminal

Nucleus Estate (or Major Integrated Producer): Nucleus Estate (or Major Integrated Producer):

Fully vertically integrated companies; R&D, seed production, Fully vertically integrated companies; R&D, seed production, plantations, transport, milling, refining, marketing and commodity plantations, transport, milling, refining, marketing and commodity trading. trading.

Via NES model they provide to smallholders: Via NES model they provide to smallholders:

• Seedlings

Seedlings

• Crop collection & transport

Crop collection & transport

• FFB purchasing

FFB purchasing

• Financial credit (usually interest free)

Financial credit (usually interest free)

• Pest & disease control operations

Pest & disease control operations

• Extension & support services (direct

Extension & support services (direct)

• Voluntary financial support for Government extension service

Voluntary financial support for Government extension service

• Repair & maintenance of transport infrastructure

Repair & maintenance of transport infrastructure

• Support for social infrastructure (education, health & police)

Support for social infrastructure (education, health & police)

• Future

Future – electricity from CDM methane power plants? electricity from CDM methane power plants?

Nucleus Estate (or Major Integrated Producer): Nucleus Estate (or Major Integrated Producer):

Fully vertically integrated companies; R&D, seed production, Fully vertically integrated companies; R&D, seed production, plantations, transport, milling, refining, marketing and commodity plantations, transport, milling, refining, marketing and commodity trading. trading.

Via NES model they provide to smallholders: Via NES model they provide to smallholders:

• Seedlings

Seedlings

• Crop collection & transport

Crop collection & transport

• FFB purchasing

FFB purchasing

• Financial credit (usually interest free)

Financial credit (usually interest free)

• Pest & disease control operations

Pest & disease control operations

• Extension & support services (direct

Extension & support services (direct)

• Voluntary financial support for Government extension service

Voluntary financial support for Government extension service

• Repair & maintenance of transport infrastructure

Repair & maintenance of transport infrastructure

• Support for social infrastructure (education, health & police)

Support for social infrastructure (education, health & police)

• Future

Future – electricity from CDM methane power plants? electricity from CDM methane power plants?

Plantation Smallholder Smallholder Mill Mill

Nucleus Estate (or Major Integrated Producer): Nucleus Estate (or Major Integrated Producer):

Fully vertically integrated companies; R&D, seed production, Fully vertically integrated companies; R&D, seed production, plantations, transport, milling, refining, marketing and commodity plantations, transport, milling, refining, marketing and commodity trading. trading.

Via NES model they provide to smallholders: Via NES model they provide to smallholders:

• Seedlings

Seedlings

• Crop collection & transport

Crop collection & transport

• FFB purchasing

FFB purchasing

• Financial credit (usually interest free)

Financial credit (usually interest free)

• Pest & disease control operations

Pest & disease control operations

• Extension & support services (direct

Extension & support services (direct)

• Voluntary financial support for Government extension service

Voluntary financial support for Government extension service

• Repair & maintenance of transport infrastructure

Repair & maintenance of transport infrastructure

• Support for social infrastructure (education, health & police)

Support for social infrastructure (education, health & police)

• Future

Future – electricity from CDM methane power plants? electricity from CDM methane power plants?

Nucleus Estate (or Major Integrated Producer): Nucleus Estate (or Major Integrated Producer):

Fully vertically integrated companies; R&D, seed production, Fully vertically integrated companies; R&D, seed production, plantations, transport, milling, refining, marketing and commodity plantations, transport, milling, refining, marketing and commodity trading. trading.

Via NES model they provide to smallholders: Via NES model they provide to smallholders:

• Seedlings

Seedlings

• Crop collection & transport

Crop collection & transport

• FFB purchasing

FFB purchasing

• Financial credit (usually interest free)

Financial credit (usually interest free)

• Pest & disease control operations

Pest & disease control operations

• Extension & support services (direct

Extension & support services (direct)

• Voluntary financial support for Government extension service

Voluntary financial support for Government extension service

• Repair & maintenance of transport infrastructure

Repair & maintenance of transport infrastructure

• Support for social infrastructure (education, health & police)

Support for social infrastructure (education, health & police)

• Future

Future – electricity from CDM methane power plants? electricity from CDM methane power plants?

SLIDE 49

People- Planet - Profit

Oil palm production & area in PNG Oil palm production & area in PNG

Area Estimates Dec 2009 (ha) Project Area Plantation Smallholder Total Hoskins (NBPOL, Mosa Group) 32,228 21,902 54,130 41.6% 82.3% Popondetta (NBPOL, Kula Group) 8,994 14,285 23,279 17.9% Milne Bay (NBPOL, Kula Group) 11,629 1,699 13,328 10.2% New Ireland (NBPOL, Kula Group) 5,689 2,613 8,302 6.4% Ramu (NBPOL, RAIL) 7,668 260 7,928 6.1% Bialla (Hargy Oil Palms) 9,906 13,163 23,069 17.7% TOTAL 76,114 53,922 130,035 58.5% 41.5% 58.5% 41.5% FFB Production in 2010 (tonnes) Project Area Plantation Smallholder Total Hoskins 965,911 425,358 1,291,349 51.4% 84.1% Popondetta 228,659 143,043 371,702 14.8% Milne Bay 235,998 12,426 248,424 9.9% New Ireland 105,485 16,638 122,123 4.9% Ramu 81,202 953 82,155 3.3% Bialla 205,871 192,669 398,540 15.9% TOTAL 1,723,206 791,087 2,514,293 68.5% 31.5%

SLIDE 50

People- Planet - Profit

700,000 800,000 900,000 1,000,000 1,100,000 1,200,000

Export Value (K'000, fob)

Value of Major Agricultural Exported from PNG - 1976 to 2009

Coffee Cocoa Copra Palm Oil

Palm Oil & Derivatives

100,000 200,000 300,000 400,000 500,000 600,000

1976 1980 1984 1988 1992 1996 2000 2004 2008

Export Value (K'000, fob) Year

Coffee

SLIDE 51

People- Planet - Profit

Exported Oil Palm Products in 2009 PGK Tonnes Crude Palm Oil (CPO) 729,791,292 445,227 Palm Kernel (PK) 9,913,584 15,420 Palm Kernel Oil (PKO) 61,873,379 34,425 Palm Kernel Expeller (PKE) 1,951,280 13,654 Refined Bleached Deodorized Palm Oil (RBDPO) 48,273,700 21,321 Refined Bleached Deodorized Palm Oil (RBDPO) 48,273,700 21,321 Olein 23,041,254 14,223 Stearin 24,085,339 11,370 Palm Fatty Acid Distillated (PFAD) 3,722,056 3,366 Waste acid oil 39,907 70 TOTAL VALUE OF EXPORTS 902,691,791

SLIDE 52

People- Planet - Profit

1,000 1,200 1,400 1,600 1,800 2,000

% Change relative to 1976 Change in Quantity of Agricultural Commodities Exported from PNG 2007 to 2009

Coffee Cocoa Copra Oil Palm

Palm Oil & Derivatives

• 200

200 400 600 800

1976 1980 1984 1988 1992 1996 2000 2004 2008

% Change relative to 1976 Year

SLIDE 53

People- Planet - Profit

National Oil Palm Organisations National Oil Palm Organisations

Palm alm Oil il Producers roducers Association ssociation P.O.P.A. P.O.P.A. Oil Palm il Palm Industry ndustry Corporation

• rporation

O.P.I.C. O.P.I.C. Oil Palm il Palm Industry ndustry Corporation

• rporation

O.P.I.C. O.P.I.C. Oil il Palm alm Research esearch Association ssociation O.P.R.A. O.P.R.A.

SLIDE 54

People- Planet - Profit

New Britain Palm Oil Group: New Britain Palm Oil Group:

• New Britain Palm Oil Ltd

New Britain Palm Oil Ltd (WNBP) (WNBP)

• Ramu

Ramu Agri Agri-Industries Ltd Industries Ltd

• Kula Palm

Kula Palm Oil: Oil: Higaturu Oil Higaturu Oil Palms, Oro Palms, Oro Milne Bay Milne Bay Estates, MBP Estates, MBP Poliamba Poliamba Ltd, NIP Ltd, NIP

POPA POPA - The Oil Palm Companies The Oil Palm Companies

New Britain Palm Oil Group: New Britain Palm Oil Group:

• New Britain Palm Oil Ltd

New Britain Palm Oil Ltd (WNBP) (WNBP)

• Ramu

Ramu Agri Agri-Industries Ltd Industries Ltd

• Kula Palm

Kula Palm Oil: Oil: Higaturu Oil Higaturu Oil Palms, Oro Palms, Oro Milne Bay Milne Bay Estates, MBP Estates, MBP Poliamba Poliamba Ltd, NIP Ltd, NIP Hargy Oil Palm Pty Ltd Hargy Oil Palm Pty Ltd

SLIDE 55

People- Planet - Profit

Oil Palm Industry Corporation Oil Palm Industry Corporation

SLIDE 56

People- Planet - Profit

Oil Palm Industry Corporation Oil Palm Industry Corporation

• Statutory Organisation established by the OPIC Act 1992 to

replace DPI/DAL Smallholder Oil Palm Extension Service

• OPIC’s sole responsibility is to provide extension & support

services to smallholder oil palm growers

• Managed at a local level through LPCs
• Principally financed by FFB levy (smallholders and voluntary

matching payment from milling Cos). No Government funding for extension services.

• All milling companies are also providing parallel extension

services to smallholder growers

• Statutory Organisation established by the OPIC Act 1992 to

replace DPI/DAL Smallholder Oil Palm Extension Service

• OPIC’s sole responsibility is to provide extension & support

services to smallholder oil palm growers

• Managed at a local level through LPCs
• Principally financed by FFB levy (smallholders and voluntary

matching payment from milling Cos). No Government funding for extension services.

• All milling companies are also providing parallel extension

services to smallholder growers

SLIDE 57

People- Planet - Profit

Number of smallholder blocks (Dec '09) Project Area # blocks Hoskins 7,126 Popondetta 5,707 Milne Bay 789

Oil palm smallholders in PNG: Oil palm smallholders in PNG:

Milne Bay 789 New Ireland 1,405 Ramu 130 Bialla 3,156 Total 18,313

~200,000 dependent for their livelihoods on oil palm blocks

SLIDE 58

People- Planet - Profit

Types of Smallholders: Types of Smallholders:

• Land Settlement Scheme (LSS);

– Alienated land, 99-yr State lease – Older project areas only (WNBP & Oro) – Settlers from other parts of PNG – Serious land pressure issues (already 3rd generation)

• Village Oil Palm (VOP);

– Development of own customary land – Lower productivity

• Customary Rights Purchase Blocks (CRPB);

– Recent trend esp in Hoskins area (ref CLUA)

Types of Smallholders: Types of Smallholders:

• Land Settlement Scheme (LSS);

– Alienated land, 99-yr State lease – Older project areas only (WNBP & Oro) – Settlers from other parts of PNG – Serious land pressure issues (already 3rd generation)

• Village Oil Palm (VOP);

– Development of own customary land – Lower productivity

• Customary Rights Purchase Blocks (CRPB);

– Recent trend esp in Hoskins area (ref CLUA)

SLIDE 59

People- Planet - Profit

PNG Oil Palm Research Association PNG Oil Palm Research Association

SLIDE 60

People- Planet - Profit

• A not-for-profit research association formed in 1980
• Owned by and operated for all oil palm growers
• Centres in all oil palm production areas
• Recognised by Government as being part of PNG’s National

Agricultural Research System (NARS)

• Financed by FFB levy from plantations & smallholders and

external research grants. No Government funding for oil palm R&D.

PNG Oil Palm Research Association PNG Oil Palm Research Association

• A not-for-profit research association formed in 1980
• Owned by and operated for all oil palm growers
• Centres in all oil palm production areas
• Recognised by Government as being part of PNG’s National

Agricultural Research System (NARS)

• Financed by FFB levy from plantations & smallholders and

external research grants. No Government funding for oil palm R&D.

SLIDE 61

People- Planet - Profit

• No apex body currently exists in the palm oil sub-sector.
• Need for such an entity identified by all stakeholders.

Also the need to avoid the governance, performance and accountability issues associated with public sector bodies is recognised.

• Palm Oil Council is currently in the process of being

formed

Palm Oil Sub Palm Oil Sub-sector Apex Body? sector Apex Body?

• No apex body currently exists in the palm oil sub-sector.
• Need for such an entity identified by all stakeholders.

Also the need to avoid the governance, performance and accountability issues associated with public sector bodies is recognised.

• Palm Oil Council is currently in the process of being

formed

SLIDE 62

People- Planet - Profit

The Road Ahead… The Road Ahead… The Road Ahead… The Road Ahead…

SLIDE 63

People- Planet - Profit

WHAT ARE THE ISSUES THAT WILL AFFECT SUSTAINABLILITY WHAT ARE THE ISSUES THAT WILL AFFECT SUSTAINABLILITY OF OIL PALM DEVELOPMENT IN PNG? OF OIL PALM DEVELOPMENT IN PNG? THE

HE TOP OP SPECIFIC PECIFIC ISSUES SSUES RAISED AISED BY BY STAKEHOLDERS TAKEHOLDERS...

...

• Shortage of skilled labour and experienced management staff

Shortage of skilled labour and experienced management staff

• Over

Over-population in oil palm development areas population in oil palm development areas

• Infrastructure

Infrastructure – development, support & maintenance development, support & maintenance

• Land issues

Land issues – accessibility & disputes accessibility & disputes

• Pests & disease

Pests & disease – increasing risk increasing risk

• Lack of Government support & services

Lack of Government support & services

• Cash management, rural financial services & high cost of living

Cash management, rural financial services & high cost of living

• Poor quality of political & public

Poor quality of political & public sector leadership sector leadership

• Public opinion and anti

Public opinion and anti-oil palm campaigns

• il palm campaigns
• Law & order, alcohol & drugs, HIV and other social issues

Law & order, alcohol & drugs, HIV and other social issues

THE

HE TOP OP SPECIFIC PECIFIC ISSUES SSUES RAISED AISED BY BY STAKEHOLDERS TAKEHOLDERS...

...

• Shortage of skilled labour and experienced management staff

Shortage of skilled labour and experienced management staff

• Over

Over-population in oil palm development areas population in oil palm development areas

• Infrastructure

Infrastructure – development, support & maintenance development, support & maintenance

• Land issues

Land issues – accessibility & disputes accessibility & disputes

• Pests & disease

Pests & disease – increasing risk increasing risk

• Lack of Government support & services

Lack of Government support & services

• Cash management, rural financial services & high cost of living

Cash management, rural financial services & high cost of living

• Poor quality of political & public

Poor quality of political & public sector leadership sector leadership

• Public opinion and anti

Public opinion and anti-oil palm campaigns

• il palm campaigns
• Law & order, alcohol & drugs, HIV and other social issues

Law & order, alcohol & drugs, HIV and other social issues

SLIDE 64

People- Planet - Profit

Road ahead Road ahead - focus and commitment to sustainability: focus and commitment to sustainability:

• All palm oil companies achieved ISO14,001 accreditation
• PNG a leader in development of RSPO
• All palm oil companies RSPO certified (or in the process of being)
• Large investment in sustainability

– A profound systems change - not an add-on – Increased cost of production (~8$ per tonne) – large capital investment (refining, fractionation & CDM)

A major driver is market access: A major driver is market access:

• All PNG’s palm oil is destined for Europe
• Highly sensitive market to issue of sustainability and traceability

Other Markets?: Other Markets?:

• Despite being a world leader in business & technical innovation…
• Production costs in PNG very high and timelines long
• PNG can’t compete on price Indonesian, Malaysia & others

Road ahead Road ahead - focus and commitment to sustainability: focus and commitment to sustainability:

• All palm oil companies achieved ISO14,001 accreditation
• PNG a leader in development of RSPO
• All palm oil companies RSPO certified (or in the process of being)
• Large investment in sustainability

– A profound systems change - not an add-on – Increased cost of production (~8$ per tonne) – large capital investment (refining, fractionation & CDM)

A major driver is market access: A major driver is market access:

• All PNG’s palm oil is destined for Europe
• Highly sensitive market to issue of sustainability and traceability

Other Markets?: Other Markets?:

• Despite being a world leader in business & technical innovation…
• Production costs in PNG very high and timelines long
• PNG can’t compete on price Indonesian, Malaysia & others

SLIDE 65

People- Planet - Profit

Industry Growth in next 10 Industry Growth in next 10-15 years? 15 years?

• Very little alienated land available for development (not that this is a

problem)…

• Expansion via;

– Smallholders – Lease leaseback sub-lease arrangement with customary land

• wners for plantation development
• RSPO Criteria 7.3 (primary forest & HCV)
• Carbon stock threshold to be adopted for land conversion
• Focus on yield intensification and planting on non-forest land
• Possibility of new viable and sustainable new projects in PNG?

– One per decade, max two!

Industry Growth in next 10 Industry Growth in next 10-15 years? 15 years?

• Very little alienated land available for development (not that this is a

problem)…

• Expansion via;

– Smallholders – Lease leaseback sub-lease arrangement with customary land

• wners for plantation development
• RSPO Criteria 7.3 (primary forest & HCV)
• Carbon stock threshold to be adopted for land conversion
• Focus on yield intensification and planting on non-forest land
• Possibility of new viable and sustainable new projects in PNG?

– One per decade, max two!

SLIDE 66

People- Planet - Profit

Government and palm oil development? Government and palm oil development?

• No support for the ‘real’ palm oil sub-sector
• Over 15-years of Government facilitation of new palm oil developments –

which has led to??

• DSP2030 & NADP – triple palm oil exports by 2030?
• Expressed strong desire for new investors
• Appears PNG is being advertised overseas as a large available ‘land bank’
• Departments & politicians courting any entrepreneurial proposal no matter

how little expertise, credentials or lack of financial capacity are exhibited

• BUT:

– No consultation with the country’s palm oil sector – No understanding of palm oil development and its requirements in PNG

Government and palm oil development? Government and palm oil development?

• No support for the ‘real’ palm oil sub-sector
• Over 15-years of Government facilitation of new palm oil developments –

which has led to??

• DSP2030 & NADP – triple palm oil exports by 2030?
• Expressed strong desire for new investors
• Appears PNG is being advertised overseas as a large available ‘land bank’
• Departments & politicians courting any entrepreneurial proposal no matter

how little expertise, credentials or lack of financial capacity are exhibited

• BUT:

– No consultation with the country’s palm oil sector – No understanding of palm oil development and its requirements in PNG

SLIDE 67

People- Planet - Profit

The ‘virtual’ palm oil industry!! The ‘virtual’ palm oil industry!!

• Emergence of many ‘oil palm’ agro-forestry projects

– All with a focus on securing FCAs!

• Land grab using SABLs

– Over 5.3 million ha LLB to third parties (i.e. land alienation, usually for 99-yrs) – Most profess to be for ‘palm oil’ development!!

• This poses a massive reputational risk for the country and its palm oil

exports; this will directly affect our market access; and

• Is blocking real development opportunities from real investors
• The ‘real’ palm oil industry must take (and is taking) an active role is

supporting awareness, opposition and mitigation activities to prevent these abuses of customary land & resource rights

MAJOR RISKS MAJOR RISKS

The ‘virtual’ palm oil industry!! The ‘virtual’ palm oil industry!!

• Emergence of many ‘oil palm’ agro-forestry projects

– All with a focus on securing FCAs!

• Land grab using SABLs

– Over 5.3 million ha LLB to third parties (i.e. land alienation, usually for 99-yrs) – Most profess to be for ‘palm oil’ development!!

• This poses a massive reputational risk for the country and its palm oil

exports; this will directly affect our market access; and

• Is blocking real development opportunities from real investors
• The ‘real’ palm oil industry must take (and is taking) an active role is

supporting awareness, opposition and mitigation activities to prevent these abuses of customary land & resource rights

SLIDE 68

People- Planet - Profit

LNG and the likely ‘Dutch Disease’ Effect: LNG and the likely ‘Dutch Disease’ Effect:

• Development phase (now):

– Damaging HR losses to the boom sector. Many mechanics, engineers, welders, HGV drivers etc leaving; new recruits not

• available. HR costs are being driven up.

– TVET suspended apprenticeship courses. Palm oil industry currently has >300 apprentices. Being asked to establish own equivalent facilities.

• Production phase:

– Lower PGK value of exports and greatly elevated production costs – severe bottom line impacts. – The existing crippling operating costs associated with the country’s failing transport infrastructure will become critical. – DD Mitigation? Priority must be unprecedented public investment (thru PPP?) in reconstruction & maintenance of ROADS ROADS ROADS, BRIDGES and PORTS and SOCIAL INFRASTRUCTURE – starting NOW – Also transport subsidies, fuel subsidies, enhance tax credit scheme…

MAJOR RISKS MAJOR RISKS

LNG and the likely ‘Dutch Disease’ Effect: LNG and the likely ‘Dutch Disease’ Effect:

• Development phase (now):

– Damaging HR losses to the boom sector. Many mechanics, engineers, welders, HGV drivers etc leaving; new recruits not

• available. HR costs are being driven up.

– TVET suspended apprenticeship courses. Palm oil industry currently has >300 apprentices. Being asked to establish own equivalent facilities.

• Production phase:

– Lower PGK value of exports and greatly elevated production costs – severe bottom line impacts. – The existing crippling operating costs associated with the country’s failing transport infrastructure will become critical. – DD Mitigation? Priority must be unprecedented public investment (thru PPP?) in reconstruction & maintenance of ROADS ROADS ROADS, BRIDGES and PORTS and SOCIAL INFRASTRUCTURE – starting NOW – Also transport subsidies, fuel subsidies, enhance tax credit scheme…

SLIDE 69

People- Planet - Profit

Palm Oil Palm Oil – – Papua New Guinea Papua New Guinea

Thank You Thank You

SLIDE 70

People- Planet - Profit Investment Costs: PGK Agricultural Field development, planting, roads etc (@K9,950/ha) 99,500,000 Capex (buildings, vehicles & facilities @ K6,000/ha) 60,000,000 General development charges yrs 1-3 (@K600/ha/yr) 12,000,000 Milling & Oil Storage/Handling 60t/hr CPO mill 45,000,000 Mill tank farm (4x 1,500 tonne tanks)+(pump hse, piplines, boiler etc) 7,000,000 Port tank farm (as above) 7,000,000

Minimum Viable Development: 10,000ha plantation and 60t/hr CPO mill Minimum Viable Development: 10,000ha plantation and 60t/hr CPO mill

Port tank farm (as above) 7,000,000 Port/harbour modification (assumes deep water port already exists) 3,000,000 TOTAL INVESTMENT COST 233,500,000 Notes:

• Estimates based on 2009 actuals at a favorable location
• From first field activity (nursery) all above incurred within 4-years
• Would employ ~1,300 people (management & professional salaries not included above)
• If smallholder are part of this development, the planted area (& cost) needs to be increased - ref

s/h yields ~50% of plnt)

• Emerging indications suggest CPO mill cost could to be higher (approach K50 million)
• Assumes adequate road & bridge infrastructure existsi in development area

SLIDE 71

“Impact of LNG on the PNG Economy – Particular reference to the Agriculture Sector Contribution by PNG Sustainable Development Program Ltd.

March 31st 2011 .

“Impact of LNG on the PNG Economy – Particular reference to the Agriculture Sector Contribution by PNG Sustainable Development Program Ltd.

March 31st 2011 .

SLIDE 72

Governance Structure

• PNGSDP established by Agreement between BHP Billiton and the State in

October 2001 as a ‘not for Profit Company’

• Governed by its Constitution and Company Rules
• Governance structure – Board with 7 Directors (3 BHP

, 3 PNG, 1 Singapore)

• Investment and Audit Committees of the Board.
• The Board meets quarterly and reports Publicly annually through ARMs. Next ARM

in June 2011

• PNGSDP established by Agreement between BHP Billiton and the State in

October 2001 as a ‘not for Profit Company’

• Governed by its Constitution and Company Rules
• Governance structure – Board with 7 Directors (3 BHP

, 3 PNG, 1 Singapore)

• Investment and Audit Committees of the Board.
• The Board meets quarterly and reports Publicly annually through ARMs. Next ARM

in June 2011

2

SLIDE 73

PNGSDP Finances PNGSDP Finances

• Owns 63.4% of OK Tedi Mining Ltd
• From Dividend Incomes.
• 2/3 invested in Long Term Fund (LTF)
• 1/3 used for development purposes in PNG (DF)
• Long Term Fund (LTF)
• Invested globally by Fund Managers
• To be drawn down after mine closure to support the Western Province for a minimum of 40 years.
• Development Fund (DF)
• 2/3

Rest of PNG

• 1/3

Western Province

• Balances of Funds at July 2010
• LTF – US$910m (K2.49bn) – projected US$1.2bn (K3.2bn) by 2013.
• DF - US$129.5m (K359.8m))
• Owns 63.4% of OK Tedi Mining Ltd
• From Dividend Incomes.
• 2/3 invested in Long Term Fund (LTF)
• 1/3 used for development purposes in PNG (DF)
• Long Term Fund (LTF)
• Invested globally by Fund Managers
• To be drawn down after mine closure to support the Western Province for a minimum of 40 years.
• Development Fund (DF)
• 2/3

Rest of PNG

• 1/3

Western Province

• Balances of Funds at July 2010
• LTF – US$910m (K2.49bn) – projected US$1.2bn (K3.2bn) by 2013.
• DF - US$129.5m (K359.8m))

3

SLIDE 74

Guidelines for use of DF

• Projects supported must be sustainable in all respects.
• Implementation through partners. PNGSDP does not implement.
• Support rather than take over roles of Government and partners
• Where opportunities are available, support development through business model (eg, MF and

Energy)

• Main emphasis on economic projects and supporting infrastructure.
• Seek funding contributions from others.
• Require contributions from beneficiaries (cash/kind)
• As mine closure approaches, increased focus to the WP Program.
• Projects supported must be sustainable in all respects.
• Implementation through partners. PNGSDP does not implement.
• Support rather than take over roles of Government and partners
• Where opportunities are available, support development through business model (eg, MF and

Energy)

• Main emphasis on economic projects and supporting infrastructure.
• Seek funding contributions from others.
• Require contributions from beneficiaries (cash/kind)
• As mine closure approaches, increased focus to the WP Program.

4

SLIDE 75

Development Program

Funding Mechanisms

• DF can be given as grants or loans or a combination.
• DF supports large Projects > K250,000 and Community Projects <K250,000 per project.
• Projects must demonstrate wider community benefits. Will not fund political, church activities or

projects benefitting individuals or narrow interest groups.

• Investments are funded by DF initially to be refunded by the LTF as commercially viability are

achieved.

• All Project funding are approved by the Board and implemented through Project Funding

Agreements and progress reported to the Board quarterly.

• Overall performance reported publicly at ARMs

Funding Mechanisms

• DF can be given as grants or loans or a combination.
• DF supports large Projects > K250,000 and Community Projects <K250,000 per project.
• Projects must demonstrate wider community benefits. Will not fund political, church activities or

projects benefitting individuals or narrow interest groups.

• Investments are funded by DF initially to be refunded by the LTF as commercially viability are

achieved.

• All Project funding are approved by the Board and implemented through Project Funding

Agreements and progress reported to the Board quarterly.

• Overall performance reported publicly at ARMs

5

SLIDE 76

National Program

Approach Rely on receiving good project proposals from others. Objective To support to growth of economic activities and associated infrastructure as the means to improve community livelihoods.

• Projects
• Counterpart contribution of Roads rehabilitation in 6 Provinces – K48.2million
• Micro Finance Services (Branches in POM, Oro, WNB, MB) – K19.5 million in equity investment and

provides ongoing operational subsidy. Strong emphasis on provide financing facility for communities with no access to the formal banking system.

• SADP – support for Oil Palm smallholder in-planting scheme in Oro and WNB – K34.7 million, K9.8

million spent on rehabilitation of feeder roads to oil palm blocks

• Community Support Program covering other Provinces – K21.5million including support for community

agriculture projects.

• Discussion with commodity industries on focused programs of assistance.
• Ongoing discussion with CIMC agriculture sub committee on support for an Agriculture Innovation scheme.

Approach Rely on receiving good project proposals from others. Objective To support to growth of economic activities and associated infrastructure as the means to improve community livelihoods.

• Projects
• Counterpart contribution of Roads rehabilitation in 6 Provinces – K48.2million
• Micro Finance Services (Branches in POM, Oro, WNB, MB) – K19.5 million in equity investment and

provides ongoing operational subsidy. Strong emphasis on provide financing facility for communities with no access to the formal banking system.

• SADP – support for Oil Palm smallholder in-planting scheme in Oro and WNB – K34.7 million, K9.8

million spent on rehabilitation of feeder roads to oil palm blocks

• Community Support Program covering other Provinces – K21.5million including support for community

agriculture projects.

• Discussion with commodity industries on focused programs of assistance.
• Ongoing discussion with CIMC agriculture sub committee on support for an Agriculture Innovation scheme.

6

SLIDE 77

Western Province Program

Approach More proactive and take holistic approach in undertaking development programs Key Development Issue

• Mine will close and the impact on the Province will be massive
• Objective - to support projects that will mitigate impact of mine closure on

communities Strategies

• Develop a number of transformational projects to support WP economy in the long

term

• At the same time support projects to improve livelihoods of communities and prepare

them for life after the mine. Approach More proactive and take holistic approach in undertaking development programs Key Development Issue

• Mine will close and the impact on the Province will be massive
• Objective - to support projects that will mitigate impact of mine closure on

communities Strategies

• Develop a number of transformational projects to support WP economy in the long

term

• At the same time support projects to improve livelihoods of communities and prepare

them for life after the mine.

7

SLIDE 78

Western Province Program

Transformational Projects

• Daru Deep Water Port

 Transhipment centre for mining activities and other developments in

the region.

 Export of Agricultural and Forestry Products from the Western

Province

• Investigating opportunities for commercialisation of gas and

industrial development linked to Daru Deep Water Port and hydropower sources. Transformational Projects

• Daru Deep Water Port

 Transhipment centre for mining activities and other developments in

the region.

 Export of Agricultural and Forestry Products from the Western

Province

• Investigating opportunities for commercialisation of gas and

industrial development linked to Daru Deep Water Port and hydropower sources.

8

SLIDE 79

Western Province

Community Projects

• Rubber Development – to expand the industry to 10,000 ha by 2018 – K15.5million rising to

K30million in partnership with FRPG, OTML and NFRL.

• Infrastructure – support a number of roads, jetties and airstrip to improve accessibility for

communities to markets and services – K87.6million.

• Aquaculture – support the development and management of barramundi industry and other

fisheries into the future – Barramundi Hatchery K27.4million.

• Telecommunication – telecommunications towers to provide 90% communication coverage in the

Province – K77.8million. To be completed by early May 2011

• Community based projects through faith based organisations – supporting delivery of community

services through the Churches – K13.6 million.

• Going forward, develop a number growth centres to be led WP Rubber industry.

Community Projects

• Rubber Development – to expand the industry to 10,000 ha by 2018 – K15.5million rising to

K30million in partnership with FRPG, OTML and NFRL.

• Infrastructure – support a number of roads, jetties and airstrip to improve accessibility for

communities to markets and services – K87.6million.

• Aquaculture – support the development and management of barramundi industry and other

fisheries into the future – Barramundi Hatchery K27.4million.

• Telecommunication – telecommunications towers to provide 90% communication coverage in the

Province – K77.8million. To be completed by early May 2011

• Community based projects through faith based organisations – supporting delivery of community

services through the Churches – K13.6 million.

• Going forward, develop a number growth centres to be led WP Rubber industry.

9

SLIDE 80

Experiences

• Having a strong Board (independent of Govt) with extensive industry experience has

been fundamental to PNGSDP operation.

• PNGSDP represents an important development resource for PNG and the WP

which can be used to greater effect if there were genuine and closer collaboration with the Government.

• Delivery of projects are severely affected by implementation capacities – building

capacities of project partners including create delivery structures are important contributions.

• The use of commercial delivery model in Rubber industry in the WP is producing

promising results with good prospects for sustainability.

• Improvement to agriculture overall requires more than just investment various cash

crops, delivery systems, etc, it requires changes in attitudes of farmers towards agricultural activities as merely as subsistence activities but as commercial

• pportunities.
• PNGSDP has built or contributed funding to road infrastructure in PNG and the WP

which are government owned assets. Without maintenance, these investment are

• lost. Seeking agreement with National and FRPG on a dedicated maintenance

structure for the WP , eg, water and airports.

• Having a strong Board (independent of Govt) with extensive industry experience has

been fundamental to PNGSDP operation.

• PNGSDP represents an important development resource for PNG and the WP

which can be used to greater effect if there were genuine and closer collaboration with the Government.

• Delivery of projects are severely affected by implementation capacities – building

capacities of project partners including create delivery structures are important contributions.

• The use of commercial delivery model in Rubber industry in the WP is producing

promising results with good prospects for sustainability.

• Improvement to agriculture overall requires more than just investment various cash

crops, delivery systems, etc, it requires changes in attitudes of farmers towards agricultural activities as merely as subsistence activities but as commercial

• pportunities.
• PNGSDP has built or contributed funding to road infrastructure in PNG and the WP

which are government owned assets. Without maintenance, these investment are

• lost. Seeking agreement with National and FRPG on a dedicated maintenance

structure for the WP , eg, water and airports.

10

SLIDE 81

Thank you all

11