PNG Sustainable Development Program Ltd : : PNG Sustainable - - PowerPoint PPT Presentation

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Emerging Pacific Leaders Emerging Pacific Leaders’ ’ Dialogue Conference, Dialogue Conference, Brisbane Brisbane 28 June 2006 28 June 2006 PNG Sustainable Development Program Ltd PNG Sustainable Development Program Ltd :

:

“ “Promoting development Promoting development that meets the needs of the present generation and establishes t that meets the needs of the present generation and establishes the he foundation for continuing progress for future generations of foundation for continuing progress for future generations of Papua New Guineans Papua New Guineans” ”

Robert Igara Robert Igara Chief Executive Officer Chief Executive Officer PNG Sustainable Development Program Ltd PNG Sustainable Development Program Ltd

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Introduction Introduction

• Thank you for invitation and for opportunity to speak about PNGS

Thank you for invitation and for opportunity to speak about PNGSDP DP Ltd and share experience. Ltd and share experience.

• The basic challenge facing PNGSDP

The basic challenge facing PNGSDP – – How to promote sustainable How to promote sustainable development in Western Province based on the revenue streams development in Western Province based on the revenue streams derived from the operations of the Ok Tedi Mine. derived from the operations of the Ok Tedi Mine.

• Some EPLD participants will visit several major resource project

Some EPLD participants will visit several major resource project sites including the Ok Tedi mine, the Lihir Gold mine, and Oil sites including the Ok Tedi mine, the Lihir Gold mine, and Oil Search Search’ ’s Oil and Gas field operations in PNG next week. These visits s Oil and Gas field operations in PNG next week. These visits will highlight the challenges of developing and managing resourc will highlight the challenges of developing and managing resource e projects and of promoting sustainable development within local projects and of promoting sustainable development within local communities, provinces and in nation communities, provinces and in nation-

• building.

building.

• The strategy adopted by PNGSDP highlights application of a

The strategy adopted by PNGSDP highlights application of a business/capitalist model, raises questions about role of major business/capitalist model, raises questions about role of major resource enterprises in promoting development as well as questio resource enterprises in promoting development as well as questions ns about current international development aid delivery model. about current international development aid delivery model.

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Ok Tedi Mine Western Province Lihir Gold Mine Port Moresby Oil & Gas Fields Porgera Gold Mine Bougainville Copper Mine* Ramu Nickel Mine Kainantu Gold Mine Misima Gold Mine* Tolokuma Gold Mine Major mining and petroleum project sites

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Western Province

Largest province in land area. Land Area: 97,000 km2, Landform: 0-3,000m, Fly River – 700 kms. Population: 106,000 (2000 census), Population Density: 2 person per Sq Km. Urban population – 35,000 Per Capita Income: >70% less than US$ 20 p.a Annual Rainfall: 1,500-8,000mm Economy: copper, gold, timber, rubber, fish, and crocodile skin Gross Forest Area: 7.8 mill. Ha with 4.9 m Ha production forest. Borders Indonesia province of Papua and northern border of Australia. Second largest beneficiary of national government resource transfers and very heavily dependent of Ok Tedi mine revenue Very poor infrastructure, health and education services. Very weak provincial government. Immediate closure of mine would create a crisis in the province.

Ok Tedi Mine DARU Kiunga Australia

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Background Background

• In 1994 and 1995 legal action was taken against Ok Tedi Mining L

In 1994 and 1995 legal action was taken against Ok Tedi Mining Ltd td and BHP in the Victorian Supreme Court and National Court of PNG and BHP in the Victorian Supreme Court and National Court of PNG seeking compensation for environmental damage. seeking compensation for environmental damage.

• In August 1999 OTML released a report acknowledging mining

In August 1999 OTML released a report acknowledging mining activity had caused serious environmental damage to the Ok Tedi activity had caused serious environmental damage to the Ok Tedi and Fly River systems. and Fly River systems.

• In 1999 PM Morauta invited World Bank to provide independent

In 1999 PM Morauta invited World Bank to provide independent

• advice. The WB stated:
• advice. The WB stated: “

“From an environmental standpoint, the From an environmental standpoint, the best option is to close the mine immediately. But from a social best option is to close the mine immediately. But from a social standpoint this would result in a potentially disastrous situati standpoint this would result in a potentially disastrous situation

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because there was no preparedness for mine closure because there was no preparedness for mine closure” ”. .

• BHPB decided to exit OTML. PNG Government, WP Government and

BHPB decided to exit OTML. PNG Government, WP Government and Communities wanted mine to continue. Agreements signed in Communities wanted mine to continue. Agreements signed in December 2001 and came into effect early 2002 addressed BHPB December 2001 and came into effect early 2002 addressed BHPB’ ’s s exit, Ok Tedi Mine exit, Ok Tedi Mine’ ’s continuing operation, provided for mine closure s continuing operation, provided for mine closure from 2010, and created PNGSDP. from 2010, and created PNGSDP.

• Agreements required Community Consent under Community Mine

Agreements required Community Consent under Community Mine Continuation Agreements (CMCAs). Continuation Agreements (CMCAs).

• BHPB

BHPB “ “gifted gifted” ” its 52% interest to PNGSDP under certain conditions. its 52% interest to PNGSDP under certain conditions.

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Ok Tedi Mining Ltd Ok Tedi Mining Ltd

• Now 82% owned by PNG interests with Inmet Mining Ltd of Canada

Now 82% owned by PNG interests with Inmet Mining Ltd of Canada having 18% interest. State interest of 30% consists of: 15% having 18% interest. State interest of 30% consists of: 15% National Govt,10% Western Province (under control of National National Govt,10% Western Province (under control of National Govt), 2.5% Western Province Government, and 2.5% Mine Lease Govt), 2.5% Western Province Government, and 2.5% Mine Lease Landowners Landowners

• Contributes >10% of GDP and >18% of total PNG Exports

Contributes >10% of GDP and >18% of total PNG Exports

• Total sales revenue from copper, gold and silver exports of US$

Total sales revenue from copper, gold and silver exports of US$ 1.077 billion in 2005 making it largest single contributor to PN 1.077 billion in 2005 making it largest single contributor to PNG G revenue. revenue.

• Production

Production – – copper: 200,000 tonnes per annum; copper: 200,000 tonnes per annum; gold: 500,000 ounce per annum. gold: 500,000 ounce per annum.

• Comprehensive environment monitoring. New strategies to address

Comprehensive environment monitoring. New strategies to address sedimentation and Acid Rock Drainage under consideration. sedimentation and Acid Rock Drainage under consideration.

• Ok Tedi Financial Assurance Fund for Mine rehabilitation and

Ok Tedi Financial Assurance Fund for Mine rehabilitation and restoration liabilities at mine closure restoration liabilities at mine closure – – required to be US$ 100m. required to be US$ 100m. Balance of US$ 40 m as at 31 Dec05. Balance of US$ 40 m as at 31 Dec05.

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Ok Tedi Mine Ok Tedi Mine… …2 2

• Economic benefits to PNG

Economic benefits to PNG – – about US$ 400 m about US$ 400 m consisting of consisting of -

• Tax to Govt of $ 90.5 m, $ 11.8 m as

Tax to Govt of $ 90.5 m, $ 11.8 m as payments to CMCAs and others, $ 246 m as dividends to payments to CMCAs and others, $ 246 m as dividends to PNG Shareholders (PNGSDP, PNG Govt, WP and PNG Shareholders (PNGSDP, PNG Govt, WP and Landowners), plus salaries and other goods & services. Landowners), plus salaries and other goods & services. 1,974 employees of which 1,856 (94%) are PNG 1,974 employees of which 1,856 (94%) are PNG Nationals. Nationals.

• CMCA Payments

CMCA Payments -

• From 2001

From 2001-

• 2005, total US$ 47 m

2005, total US$ 47 m paid to Community Trusts paid to Community Trusts

• WP Government Revenue

WP Government Revenue -

• Around 95% of revenue

Around 95% of revenue for WP Government derived from OTML of about K 20 m for WP Government derived from OTML of about K 20 m per year since 2002 (excluding dividend income) per year since 2002 (excluding dividend income)

• Mine life

Mine life -

• now extended to 2012. Possible to 2016.

now extended to 2012. Possible to 2016. Substantive extension would subject to addressing Substantive extension would subject to addressing environmental impact and stakeholders approval. environmental impact and stakeholders approval.

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About PNGSDP About PNGSDP Ltd. Ltd.

• PNGSDP owns 52% of OTML, but does not control or

PNGSDP owns 52% of OTML, but does not control or manage mine. manage mine.

• Incorporated in Singapore 21 October 2001 as

Incorporated in Singapore 21 October 2001 as “ “not for not for profit profit” ” Company with head office in PNG. Company with head office in PNG.

• Not subject to direction or control by BHPB or PNG

Not subject to direction or control by BHPB or PNG Government Government

• Three main functions

Three main functions-

• –

– Shareholder of OTML Shareholder of OTML – – ensure responsible management and ensure responsible management and

• perations
• perations

– – Prudent & wise investment of Long Term Fund and Development Prudent & wise investment of Long Term Fund and Development Funds Funds – – Promote & Support Sustainable Development especially for Promote & Support Sustainable Development especially for Western Province to mitigate impact of mine closure. Western Province to mitigate impact of mine closure.

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FUNDS STATUS and ALLOCATIONS FUNDS STATUS and ALLOCATIONS

Funds Status Funds Status

• Since 2002 to end Dec 2005, total dividends received from OTML:

Since 2002 to end Dec 2005, total dividends received from OTML: approx. approx. US$ 292.9 m. US$ 292.9 m.

• Two

Two-

• thirds of Dividend to Long Term Fund, and One

thirds of Dividend to Long Term Fund, and One-

• third to Development

third to Development Fund. Fund.

• Long Term Fund:

Long Term Fund: US$ 175 m US$ 175 m

• Development Fund: US$ 82 m

Development Fund: US$ 82 m

– – Western Province Program Fund Western Province Program Fund US$ 28 m US$ 28 m – – National Program Fund National Program Fund US$ 54 m US$ 54 m

Purpose of Funds: Purpose of Funds:

• Long Term Fund

Long Term Fund -

• “

“low risk low risk” ” investments mainly off investments mainly off-

• shore. Some for
• shore. Some for

strategic strategic “ “low risk low risk” ” investments in PNG. Use for sustainable development investments in PNG. Use for sustainable development projects projects after after mine closure for 40 years. Funds Managers mine closure for 40 years. Funds Managers -

• Newton

Newton Investment Management Ltd, and Schroders, both out of London. Investment Management Ltd, and Schroders, both out of London.

• Development Fund

Development Fund – – for sustainable development projects for sustainable development projects before before mine closure.

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Considerations for Delivering Development and Considerations for Delivering Development and Investment Initiatives Investment Initiatives

• Sustainability Issues

Sustainability Issues – – economic, commercial, financial, social (land, economic, commercial, financial, social (land, labour, services, participation), environmental, infrastructure labour, services, participation), environmental, infrastructure (physical), technology, human resources (workers, managers, (physical), technology, human resources (workers, managers, entrepreneurs, public service adaptation to promotion vs entrepreneurs, public service adaptation to promotion vs regulation), and competitiveness. regulation), and competitiveness.

• International Standards and Expectations

International Standards and Expectations, WB/IFC, APEC, Banks , WB/IFC, APEC, Banks ( (“ “Equator Principles Equator Principles” ”), EU/ACP Agreement, the NGO and Green ), EU/ACP Agreement, the NGO and Green lobby, international media especially impact of information lobby, international media especially impact of information superhighway and TV. superhighway and TV. UN UN also highlighted also highlighted “ “poor implementation poor implementation” ” most important constraint for development strategy. most important constraint for development strategy.

• Country Risk Issues

Country Risk Issues – – Managing political instability, Rule of Law, Managing political instability, Rule of Law, negative perceptions, prejudice and ignorance. negative perceptions, prejudice and ignorance.

• Business Partner

Business Partner -

• Identifying business partner, securing

Identifying business partner, securing development and investment finance, exporting to overseas market development and investment finance, exporting to overseas market

• Papua New Guinean Participation

Papua New Guinean Participation -

• as employees, business owners,

as employees, business owners, entrepreneurs, for present and future generations. entrepreneurs, for present and future generations.

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Strategy on Sustainable Development Strategy on Sustainable Development Project Investments Project Investments

• Board considered effective approach to delivery and

Board considered effective approach to delivery and sustainability is through the sustainability is through the ‘ ‘Business investment Business investment’ ’ model model along lines of successful along lines of successful “ “nucleus estate nucleus estate – – outgrower

• utgrower”

”

• model. This involves confirming the core business
• model. This involves confirming the core business

investment to be operated as a commercial enterprise, investment to be operated as a commercial enterprise, and then identify the outreach in the form of village and then identify the outreach in the form of village-

• holder production or service delivery.

holder production or service delivery.

• The core commercial investment will be funded from

The core commercial investment will be funded from equity and loans, and the development component out equity and loans, and the development component out

• f development funds in partnership with government
• f development funds in partnership with government

and other development partners. and other development partners.

• For a new venture

For a new venture – – Establish proposed company to own Establish proposed company to own and operate venture, and Company will then proceed to and operate venture, and Company will then proceed to

• perate business as an independent entity
• perate business as an independent entity

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Strategic Programs and Initiatives Strategic Programs and Initiatives

Community Community-

• level Target Programs

level Target Programs

• Community Sustainable Development Program (CSDP)

Community Sustainable Development Program (CSDP) – – want to support community economic want to support community economic initiative initiative

• PNG Microfinance Ltd

PNG Microfinance Ltd – – first first ‘ ‘commercial mf company commercial mf company’ ’. Bank of South Pacific and IFC as partners. . Bank of South Pacific and IFC as partners. First direct equity investment by IFC in PNG. EIB and BASIX. First direct equity investment by IFC in PNG. EIB and BASIX. Major Projects & Investments Major Projects & Investments

• Economic Projects:

Economic Projects:

• Agriculture

Agriculture – – Rubber, Oil Palm, Cashew Nut and Coconut Rubber, Oil Palm, Cashew Nut and Coconut

• Forestry

Forestry – – model sustainable forestry development and plantation forestry model sustainable forestry development and plantation forestry

• Fisheries

Fisheries – – barramundi habitat conservation, and restocking barramundi habitat conservation, and restocking

• Tourism

Tourism – –community and high value market community and high value market – – N.Aust/W.Papua/PNG region market N.Aust/W.Papua/PNG region market

• Infrastructure:

Infrastructure:

• Electricity, communications, transport, water and sewerage

Electricity, communications, transport, water and sewerage – – Study of WP and interested Study of WP and interested nationally if invited by Government nationally if invited by Government

• Technical Education

Technical Education – – Star Mountain Technical Training Institute Star Mountain Technical Training Institute Delivery Model and Vehicles Delivery Model and Vehicles

• Community Programs

Community Programs – – Churches, NGOs, Business enterprises, and Local Churches, NGOs, Business enterprises, and Local-

• level Government

level Government

• Major Programs

Major Programs – – Subsidiary companies Subsidiary companies – – PNGMFL, PNGSEL, PNGSIL, PNGSIEL, PNGSFL PNGMFL, PNGSEL, PNGSIL, PNGSIEL, PNGSFL

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Example One Example One -

• Community

Community Development Programs Development Programs

• This program enables PNGSDP to work with communities

This program enables PNGSDP to work with communities – – to to support village organisation, provide small but valuable contrib support village organisation, provide small but valuable contribution, ution, strengthen confidence and enable hope. strengthen confidence and enable hope.

• Same time, while we must address the future, we also support

Same time, while we must address the future, we also support immediate needs and life & death issues including through medica immediate needs and life & death issues including through medical l equipment supply, community empowerment, community primary equipment supply, community empowerment, community primary education, rural water supplies, communications and power. education, rural water supplies, communications and power.

• Dr Daniel Priest

Dr Daniel Priest…” …”It made a big difference to us to know we had It made a big difference to us to know we had good surgical suction, good anesthetic suction and suction for t good surgical suction, good anesthetic suction and suction for the he

• baby. This lady needed blood urgently. We had to transfuse blood
• baby. This lady needed blood urgently. We had to transfuse blood.

. We tested (cross We tested (cross-

• matched) at least 7 people and of those we found

matched) at least 7 people and of those we found that 2 were HIV positive that 2 were HIV positive… …giving her HIV infected blood would be a giving her HIV infected blood would be a disaster! disaster!” ”

• “

“When we arrived one lady was in labour. The whole village had ju When we arrived one lady was in labour. The whole village had just st lost another the previous week. The lady delivered in total dark lost another the previous week. The lady delivered in total darkness ness … … a baby girl. a baby girl.” ” Dr M Wainetti Dr M Wainetti

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Example 2 Example 2 -

• Promoting Access to Financial

Promoting Access to Financial Services Services – – PNG Microfinance Ltd PNG Microfinance Ltd

• Savings and credit form basic pre

Savings and credit form basic pre-

• requisites of

requisites of modern economy. Majority of population have modern economy. Majority of population have no access to banking and financial services. no access to banking and financial services.

• 24 December 2004 secured license as a

24 December 2004 secured license as a “ “Commercial Microfinance Company Commercial Microfinance Company” ” and and

• pened first branch mid January 2005. Now 6
• pened first branch mid January 2005. Now 6

branches, plus another to open next month. branches, plus another to open next month.

• Services & Products: Passbooks, school fee

Services & Products: Passbooks, school fee savings, business start up loans, project loans, savings, business start up loans, project loans, and consumer credit. and consumer credit.

• Methodology

Methodology – – Outreach programs including Outreach programs including training and advisory service. IDs provided. training and advisory service. IDs provided. Visits to settlements and schools. With internet, Visits to settlements and schools. With internet, can increase out can increase out-

• reach into rural communities.

reach into rural communities.

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Promoting Access to Financial Services Promoting Access to Financial Services – – PNG Microfinance Ltd PNG Microfinance Ltd… …2 2

• As end April 2006, 51,578 deposits with savings value of US$ 3.7

As end April 2006, 51,578 deposits with savings value of US$ 3.7 m, m, and 3,890 loans valued at US$ 1.6 m. Interest rate for loans app and 3,890 loans valued at US$ 1.6 m. Interest rate for loans approx rox 28% p.a. (major banks charge approx 15 28% p.a. (major banks charge approx 15-

• 17% p.a)

17% p.a)

• Partners

Partners – – PNGSDP (34%), BSP (24%), IFC (19%), EIB (19%) and PNGSDP (34%), BSP (24%), IFC (19%), EIB (19%) and Basix (4%) Basix (4%)

• Agent of PNGSDP

Agent of PNGSDP -

• Agricultural credit facilities.

Agricultural credit facilities.

• Provide financial services for rural workers

Provide financial services for rural workers – – teachers, health teachers, health workers and public servants, and to landowner communities for workers and public servants, and to landowner communities for royalty and compensation payments. royalty and compensation payments.

• No client is asking to be given a

No client is asking to be given a “ “hand hand-

• out
• ut”

”. Costs are higher than . Costs are higher than commercial banks. They are prepared to pay. They just want to be commercial banks. They are prepared to pay. They just want to be treated fairly, with respect and the same opportunity that we treated fairly, with respect and the same opportunity that we demand. demand.

• Vision: 2015

Vision: 2015 – – 1 million depositors and a branch in all provinces of 1 million depositors and a branch in all provinces of

• PNG. (Note
• PNG. (Note –

– second largest commercial bank in Cambodia began second largest commercial bank in Cambodia began as a microfinance institution). as a microfinance institution).

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PNGSDP Governance PNGSDP Governance

• Singapore Company subject to international standards.

Singapore Company subject to international standards.

• Board

Board – – 3 BHPB appointees, 3 PNG institution appointees 3 BHPB appointees, 3 PNG institution appointees – – Bank of PNG, PNGCC, and Minister for Treasury; and 1 Bank of PNG, PNGCC, and Minister for Treasury; and 1 Singapore director. Singapore director.

• Annual Report Meetings by the Board to PNG

Annual Report Meetings by the Board to PNG Stakeholders in Port Moresby. Since 2005, Board has Stakeholders in Port Moresby. Since 2005, Board has also undertake public stakeholder meetings in each of also undertake public stakeholder meetings in each of the 3 districts of Western Province. Purpose of Meetings the 3 districts of Western Province. Purpose of Meetings – – to present report and consult on program initiatives. to present report and consult on program initiatives.

• First institution in PNG to undertake such public

First institution in PNG to undertake such public reporting. reporting.

• Funds are subject to

Funds are subject to “ “low risk low risk” ” investment rules and fully investment rules and fully accounted for and publicly reported. accounted for and publicly reported.

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Conclusion Conclusion

• Early to say we have succeeded .

Early to say we have succeeded .

• PNGSDP case study highlights several points

PNGSDP case study highlights several points – – – – Need for sound governance structures Need for sound governance structures – – Appointment of credible persons with both PNG and Appointment of credible persons with both PNG and international experience international experience

• Delivery of development programs through

Delivery of development programs through – – – – Community organisations, especially church agencies Community organisations, especially church agencies and NGOs and NGOs – – business model in partnership with business business model in partnership with business enterprises and through business enterprises and through business

• Major resource companies and shareholders need to

Major resource companies and shareholders need to embrace sustainable development as core business embrace sustainable development as core business

• bjective and not as a
• bjective and not as a “

“public relations public relations” ” function. function.

• Business, Capitalism and Development involving

Business, Capitalism and Development involving communities as equal participants is possible. Need to communities as equal participants is possible. Need to re re-

• examine current international aid delivery.

examine current international aid delivery.

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Wawoi Falls, Western Province

Thank you