This supplement was produced by World Report Limited Inc, who are solely responsible for the content

Transcription

1 World Report PAPUA NEW GUINEA A DIVER S PARADISE Down among the finest coral reefs in the world PICK OF THE CATCH Becoming the tuna capital of the region DIGGING DEEP Tax breaks boost exploration of minerals and oil This supplement was produced by World Report Limited Inc, who are solely responsible for the content

2 CONTENTS 4 INTERVIEW Prime Minister Michael Somare on PNG s need for greater self-reliance 5 RECOVERY AND PROGRESS Aiming for medium term growth of 5 percent 8 MINING Tax incentives bring in more investment Partnership with the people OIL SEARCH 12 FORESTRY Moves towards value-added products and forest plantations 14 FISHERIES Duty-free access to EU raises export hopes Printed by Quebecor, Northamptonshire Reproduction by F. E. Burman, London This supplement was produced for The Independent by World Report Limited Inc, who are solely responsible for the content. World Report Limited Inc. is not connected or associated with any company registered in the United Kingdom bearing the same or similar name. For more information contact: World Report Limited Inc, PO Box 2339, London, W1A 2NX. Fax: (020) Cover image: LOLOATA ISLAND RESORT This report can also be read online: 31 JANUARY 2004 EDITORIAL NOTE Political changes could have occurred by the time this report is published, according to The National, January 15. When it comes to natural resources, Papua New Guinea has it all gold, copper, oil, forests, fish and fertile land. Yet its people depend on subsistence farming to live. Export-driven growth, reform and empowerment of local communities are the keys to a brighter future Papua New Guinea is a country defined by diversity. Located to the north of Australia and bordered by Indonesia to the west, PNG comprises a mainland and an archipelago of some 600 islands scattered across the South Pacific Ocean. The largest and most populated country in the Pacific after Australia, PNG is home to almost 5 million people, an ethnic mix of Melanesians, Papuans, Micronesians and Poly nesians, most of whom live in isolated rural communities with their own unique traditions and cultures. Some 800 distinct languages have been identified. This human diversity echoes the extraordinary range of flora and fauna on land and of marine life in PNG s waters. The landscape itself is spectacular and beautiful, comprising mountains, volcanoes, mangrove swamps and islands, atolls and coral reefs, much of it difficult of access. PNG is extraordinarily rich in natural resources. It has gold, copper and oil, tropical forests to provide timber, fertile agricultural land and waters full of fish, notably tuna. The country has a varied, dualistic economy. Cash crops such as oil palm, coffee, cocoa and copra are an important source of revenue, as are forestry and fishing, but the mining and oil industries established by foreign the majority of which are Canadian and Australian resource companies are the chief earners, accounting for more than 70 percent of foreign exchange earnings. Most of PNG s population, however, depend on traditional subsistence farming and fishing for their livelihood. Land use is a complex and sensitive issue in PNG, where only 3 percent of the total land mass is owned by the state. The remaining 97 percent is in the people s hands through customary land LOLOATA ISLAND RESORT secessionist revolt in the 1990s, and external factors such as the Asian financial crisis and lower prices for gold and copper combined to slow growth. Since then, however, the government has taken decisive and effective action to put the nation back on course. Its strategy has three main aims: to ensure good governance, promote an export-driven economic growth strategy and to foster rural development, poverty reduction and empowerment of the people. We need more investment, more jobs and a productive rural community that can support its population adequately, says the Prime Minister. Sir Michael acknowledges that it will take time to create the right environment to generate the economic and social development the country needs. We have to get down to a lot of basic housekeeping and maintain our political resolve and efforts over the medium and long term. The government has embarked on a drive to improve the country s economic performance, stabilise and revitalise the system of government and create a peaceful law and order. Greater fiscal discipline has been introduced and a process of progressive administrative and political reform is under way to bring about a more cost-effective government. An independent state since 1975 ownership. One of the biggest challenges faced by the government is how to reconcile the need to use the land as an economic asset for the national good while treating the customary landowners in an equitable manner. For some years before the present government led by Prime Minister Sir Michael Somare was elected in 2002, PNG s economy had been performing well below its potential. Weak governance, the aftereffects of the Bougainville Continued on page although it retains the Queen as its formal 4 2 World Report PAPUA NEW GUINEA

3 Papua New Guinea s National Fisheries Authority is successfully developing and implementing plans to ensure the country s fisheries are managed to obtain maximum benefit on a sustainable basis, carefully considering environmental impact, social factors and economic development issues. The nation s fisheries zone is the largest in the South Pacific and covers 2.4 million square kilometres, including an extended reef system, numerous islands and a long coastline. A diverse fleet including artisanal fishermen, medium-sized domestic operators and large international groups capitalise on these abundant marine and freshwater resources, and the Fisheries Authority is keen to further develop the significant potential of the sector and increase the economic returns to the country through better management programmes. The NFA also collects aquatic resource data, invests in research facilities aimed at the assessment of fish stocks and their commercial potential for marketing, and prepares and implements public investment programmes to further the future of Papua New Guinea s fisheries. PO Box 2016, Port Moresby, National Capital District, Papua New Guinea Tel: (675) Fax: (675) nfa@fisheries.gov.pg

4 INTERVIEW: SIR MICHAEL SOMARE We want to establish the conditions for the creation of greater national wealth Sir Michael Somare was Papua New Guinea s first Prime Minister after independence and is currently holding the office for the third time. In this interview he declares that greater self-reliance is essential for the country to advance What are the main priorities on the government s agenda? Our main priority is good governance, and we have embarked on the strengthening of the public service system to make it work. We also want to make sure that we can encourage private investment in the country. We have had investments from Malaysia, Australia, New Zealand, China, Japan, the UK and the European Union. Our aim is to be less dependent on imports and to place greater emphasis on exports. This will create a more vibrant domestic economy, saving money on unnecessary imports and involving our people in more productive employment and positive social development. We want to establish the conditions to enable the creation of greater national wealth. The foundations of this enabling environment will be improved education and law and justice systems. Our vision and strategies are pragmatically based on a combination of both economic and social development. We are positioning people and communities to be more effective in helping them- head of state PNG has a constitution based on the Westminster model and is a robust parliamentary democracy with many political parties and independent MPs. The downside of this political diversity has been a series of coalition governments, with no government managing to stay in office for its full 5-year term. Changes introduced in 2000, however, have tightened up the constitutional rules to ensure greater political stability. The government s strategy for reform in the public sector is focused on achieving a clear sense of direction, affordable government, improved performance, compliance and accountability, and improved service delivery. Decentralisation is regarded as the key to fostering self-reliance among the communities that make up the nation, empowering them to contribute to economic production and social development. The nation cannot afford the costly political structure it has and the over-centralised and expensive use of public sector resources to deliver basic services, says Sir Michael. Political and administrative reforms need the people behind them. To have this cooperation from the people, they must be empowered to participate in the reforms. selves. That is our objective: an improved way of life and greater self-reliance. We are also very aware that we must invest in this growth in a way that will benefit future generations. We need to ensure that we have a position in the global economy and that we are not dominated by bigger trading or political partners and neighbours. We are therefore strengthening our regional partnerships so that there is a mutual and fair exchange of products and services. We can no longer afford to be a dependent country, but must strive to obtain the leverage to be interdependent with other economies. What is the government s position on the privatisation of Papua New Guinea s state-owned companies? We inherited the privatisation concept from the previous government. The wholesale sale of core assets is not the solution and indeed not what our people want. In a country like ours, where more than 85 percent of the population is living in traditional villages, the government has a responsibility to provide essential services such as transport, communication, health and education. Private enterprise cannot possibly serve the many little islands and atolls that we have; only the government agencies can do that. The government is tackling the problems head on by cutting costs, improving revenues, rationalising and enhancing services and arranging much improved private partnership arrangements that will bring in expertise and capital. We will ensure that these partnerships will not result in a loss of all control and, importantly, not at the cost of the delivery of important services to our people. What support have you received from the United Kingdom? We have a long established association with the British people. We are members of the same community, and we look forward to increased bilateral cooperation. Under our constitution, the Queen of England is also the Queen of Papua New Partnership with the people continued from page 2 The government is committed to improving law and order and stamping out corruption. One of the strengths of its programme is the focus on building a partnership with the community in the fight against crime, which has handicapped the country's development. The administration has carried out the most extensive and detailed review of the law and justice sector and the courts since the 1990s. The government is fostering closer ties with the private sector, which it recognises as an important engine of growth, but has rejected the full-scale approach to privatisation of state companies adopted by its predecessor. Minor assets have been sold but core entities such as communications company Telikom PNG, the national airline Air Niugini and PNG Harbours are deemed more suitable for public- private partnerships following restructuring and rehabilitation. PNG s leading development aid partners are Australia, the Asian Development Bank, the World Bank, Japan and the European Union. The government wants to ensure that aid and investment is targeted to make a lasting impact on the country s development, and, in the longer term, is aiming for less long-term dependence on outside assistance. Guinea and we maintain this, unlike other countries, where after three to five years of independence of British rule, they have forgone the monarchy in favour of the republican model. We have had support through technical assistance from the Commonwealth Secretariat and from private enterprises such as the Commonwealth Development Corporation (CDC), which has invested in the oil palm industry. The Commonwealth Secretariat has conducted seminars and fellowships and brought people together, particularly in education by training our people abroad and offering them scholarships. British investment goes back to the 1960s. We would like to see more, in infrastructure development for example. A British investor, Mabey & Johnson, is behind the Yumi Yet bridge building programme. They have introduced a concept that is now helping us to link up the districts and villages. The support in investments that we ve had through the European Union is also quite considerable; this year it has been estimated at 700 million kina ( 117 million). What message would you like to send to investors about the opportunities in PNG? Have confidence in the people of Papua New Guinea. We can stand side by side and work together. We proved ourselves through independence, although a lot of people thought we would be just another third world country that would collapse. We have managed to sustain ourselves and stand on our own. What would you most like to be remembered for in your political career? I would like to be able to say that I set a pace, starting the call for freedom for the people of Papua New Guinea, and that I was instrumental in the early days of the country s history. I would like to be remembered for the contribution I made to the development of this country and the changes that have brought it to where it is today. 4 World Report PAPUA NEW GUINEA

5 ECONOMY A budget for recovery and progress The government of PNG is aiming to build on the foundations of stability and growth achieved last year and is confident of success Fiscal discipline and an aggressive export-driven strategy led to economic recovery in 2003, with improved performance in the agriculture and mining sectors assisted by favourable commodity prices on world markets. This impressive turnaround is forecast to continue in 2004, with growth predicted at 2.8 percent. Minister for Finance and the Treasury Bart Philemon says the economy and national finances are in far better shape than they were a year ago. The government has fully accepted responsibility for the independent management of the nation s financial and economic affairs and positive results have started to flow. Increased independence and responsibility in approach is clearly working, and we intend to stay the course, not just for 2004 but for the full five-year term of the government, says the Minister. The government is taking a mediumterm approach aimed at achieving higher sustained growth over time. We are not simply operating in a short-term vacuum. We have developed a clear vision of where we wish to see Papua New Guinea go over the next five to ten years. Mr Philemon adds, We have turned the corner. All of our social and economic policies are being geared to attainment of at least 5 percent growth over the medium term. A strong performance by PNG s leading export producing sectors, agriculture and mining, lifted the economy in 2003 Prime Minister Sir Michael Somare says, PNG has proved its resilience over the last 15 months and the government is confident that with the continued strict fiscal discipline and spending in growth areas the economy will continue to grow. Indeed, he explains, Five percent could turn out to be a conservative estimate. Indications are that we would be heading towards much higher growth. Consolidating and building on what has been achieved so far is the objective of the budget for 2004, introduced in December. The Prime Minister describes it as a budget of real growth and progress. When the present administration took over in 2002, the government s fiscal position was in a state of crisis. Following three years of negative growth, the new administration inherited a huge debt, rapidly declining foreign reserves and rampant inflation, with the national currency, the kina, falling rapidly in value against all major currencies. The administration took firm action to re-establish fiscal discipline and restore all sectors of the economy to growth. Immediately after we took office the projected K800 million ( 135 million) deficit in the 2002 budget was reduced by half to a manageable level of K400 million ( 67.5 million), Sir Michael recalls. Steps were taken to promote private sector activity, particularly in the productive and export-oriented sectors. The private sector responded favourably to the initiatives we introduced in the 2003 budget and by the first quarter of last year there was a general rise in business confidence in response to the way in which the government was addressing the issues of macroeconomic stability and growth. Last year saw a significant turnaround in the current account, which moved from Continued on page 6 NAVUETA OVERSEAS EXPORT AGENCY Get away to a new civilisation Make a tropical island getaway. Trans Niugini Tours offers you the wildest experiences. Stay in our world famous wilderness lodges located off beaten tracks, by a picturesque seaside, or in the jungle. Float on a water-lodge and expel the sense of adventure. Let us give you the experience you deserve. Seeing is believing - visit For more information, we also can be contacted at: 27 Silverdale Ave., Oxshott, Leatherhead, Surrey. Tel/Fax: (01372) World Report PAPUA NEW GUINEA 5

6 FINANCE Gross domestic product is predicted to increase by 2.8 percent this year Continued from page 5 a deficit in 2002 to a surplus of almost 10 percent of GDP. Gross international reserves rose to nearly 270 million, almost the strongest since the country gained its independence. Improved inflows of foreign exchange allowed the kina exchange rate to continue its appreciation against the US dollar in the first half of 2003 and to remain stable in the second half of the year. The stability of the kina helped fuel investor confidence. Inflation began to recede sharply in the second half of the year and there is confidence that the trend will continue. Wilson Kamit, Governor of Bank of Papua New Guinea, the independent central bank, describes the country s performance in 2003 as encouraging. He attributes the improvement in economic activity to the fiscal discipline introduced by the government and improved performance in both the agricultural and mining export sectors. Mr Kamit stresses the importance of the government continuing its present policies. The Bank is encouraging the government to continue to prioritise expenditure in order to correct the imbalance between fiscal expenditure and revenue, and refinance its domestic debt with external financing to free up domestic resources for greater private sector participation. A continuation of prudent management of the budget by the government will sustain stability and investor confidence, says Mr Kamit. It will send a strong signal of the government s determination to consolidate the gains made recently, and lay a foundation for sustainable economic growth. Bart Philemon acknowledges that the government s fiscal position remains fragile. Improving the structure of our debt portfolio and financing profile are amongst the most important of our medium term challenges, he says. Mr Philemon says the budget proved a tougher challenge than the previous year s because more foreign debt repayments are becoming due. The budget made provisions for an offshore loan of 27 million to close the financing gap. According to Sir Michael Somare the government wants to reduce PNG s reliance on development partners and make the country more independent. PNG receives about 125 million in foreign aid from Australia, the majority of which supports project work being done by Australian companies. Other major donors include the World Bank, the International Monetary Fund and the Asian Development Bank (ADB). Banking on firm ground With regulatory requirements equal to the world s best and a promising new stock exchange, PNG s financial sector is ready for business Asound, market-based financial system operates in Papua New Guinea under the supervision of the Central Bank. The sector, which includes commercial banks, licensed financial institutions, savings and loan societies, superannuation funds and life insurance companies, is regulated under legislation introduced in 2000 in line with international standards. There is also a stock exchange at Port Moresby (PoMSoX) and a new stock index, the Kina Stock Index (KSI). Leading banks providing retail banking services and finance include the Australian-owned Westpac and ANZ, but dominating the sector is the locallyowned Bank South Pacific (BSP), which currently holds approximately 60 percent of the nation s banking assets. The major change of recent years in the banking industry has been BSP s takeover in April 2002 of the formerly state-owned Papua New Guinea Banking Corporation (PNGBC), which was sold off by the present government s predecessor as part of its privatisation programme. The merger has transformed BSP into the largest commercial bank in the country, with more than 1,900 staff and 43 branches spread across the country. Since then the bank has been consolidating its position and introducing a new international banking system throughout its network. It has posted steady growth with GARTH MCILWAIN MANAGING DIRECTOR OF BANK OF SOUTH PACIFIC We understand the potential and the local environment net profits of almost K58 million ( 9.7million) and last year it was listed on PoMSoX. Managing Director Garth McIlwain says that one of Bank South Pacific s strengths is that it is locally owned. Our decisions are made onshore, where our board is located. We don t have to send submissions for credit to Australia or other countries. We pride ourselves on a fast turnaround of decision making. The bank boasts a wealth of local experience and knowledge of use to potential investors. Through its extensive branch network it has an awareness of what is happening around the country that extends well beyond the main centres like Port Moresby and Lae. Mr McIlwain says: We understand the frustrations, but we also understand the potential and the local environment, and can point investors in the right direction as A wide network of local branches helps Bank South Pacific dominate the sector Port Moresby in PNG s National Capital District, is the political, financial and commercial centre of the country far as licensing, statutory and bureaucratic requirements are concerned. BSP prides itself on meeting international standards of disclosure. Mr McIlwain points out that, in terms of regulating the sector, the Central Bank has adopted the world s best practice through its affiliation with the IMF, the World Bank and the Basel Committee in Switzerland. Our regulatory requirements are now equal to the world s best practice as far as the banking system is concerned. He regards PNG s banking industry as well served and competitive. Personally, I would not like to see any shrinkage in the market because competition creates better practices in the industry and better opportunities for the people and companies who wish to start or increase their business here. There are long-term ambitions to expand the bank s operations beyond PNG. Mr McIlwain says: In the longer term, the directors feel there will be opportunities for the bank to go to neighbouring islands or to open a representative office in Brisbane, Australia, and perhaps in New Zealand and even Asia. Bank South Pacific is one of just a dozen companies which have listed so far on PoMSoX, which commenced trading in Listing rules on the exchange are the same as those for the Australian Stock Exchange (ASX). Syd Yates, CEO and founder of Kina Securities, one of the two stockbroking firms currently licensed to operate, says that after a slow start the exchange is doing well. We have got companies here that have shown very good growth, such as New Britain Palm Oil, Ramu Sugar and InterOil, and we are pushing to get the government securities listed, which I think will happen soon. MRDC 6 World Report PAPUA NEW GUINEA

7 PETROLEUM Incentives give a boost to oil exploration Tax breaks introduced by the government are encouraging companies to extend the search for discoveries to new areas Incentives introduced to attract investment into the petroleum sector have given a major boost to exploration in Papua New Guinea. Exploration spending has increased from 53 million to 187 million in the last year, says Sir Moi Avei, Minister for Energy and Petroleum. Incentives include a reduction in the corporate tax rate from 45 to 30 percent and removal of an additional profits tax on new petroleum developments before The search for oil is being extended to areas outside the Southern Highlands, where oil sector activity has been concentrated up to now. Interest is also being expressed by companies from countries other than Canada, which has been at the forefront of exploration in PNG in recent years. In November last year, SIR MOI AVEI MINISTER FOR ENERGY AND PETROLEUM Exploration spending has risen to 187 million in the last year China signed a memoranda of agreement to explore investment opportunities in both petroleum and mining. Papua New Guinea s biggest oil and gas company, Oil Search, plans to spend more than 112 million on exploration and development activities this year, an increase of 67 percent. This will enable the company to drill several new exploration wells and to make a start on the North West Moran and South East Manada fields, which are believed to have recoverable oil reserves totalling approximately 90 million barrels. Last year, Oil Search became the operator of all the oil producing projects in PNG, following its acquisition earlier in the year of Chevron Niugini Ltd., the PNG subsidiary of US energy giant ChevronTexaco. Oil Search, which is percent state owned, is also the operator of the Hides Gas Project, which it has managed since Papua New Guinea s crude oil sold at an average price of US$28 ( 15.2) per barrel in This has increased the government s collections of petroleum taxes and, together with increased production from Moran, has stimulated growth in the petroleum sector in Papua New Guinea for the first time in four years. The launch of the Napa Napa oil refinery PNG s first is expected to give a significant boost to the country s overall economic performance. Built by InterOil Corp. of Canada, which is also involved in oil exploration in PNG, it is the single largest investment project undertaken in the country. Positioned close to Port Moresby, the only sheltered, deep-water harbour in the region, the refinery will process 32,500 barrels of crude oil per day once in full production. Its fuel products, including petrol, diesel, kerosene and aviation fuel, will be sufficient to supply PNG s entire domestic market, removing the need for expensive importing from Singapore and Australia. More than a third of the volume will be left over for export. Shell Overseas Ltd. Holdings is contracted to purchase the majority of the refinery s production and BP Singapore is the exclusive agent for all crude oil supply to the refinery. PNG has many undeveloped gas fields with proven and probable reserves of 14 trillion cubic feet. A plan to construct a New refinery will process 32,500 barrels of crude oil per day 1,800-mile gas pipeline linking PNG with Australia would bring a number of these fields into commercial production. If it goes ahead, the pipeline will be the longest in the southern hemisphere. The Highlands Gas Project aims to transport huge quantities of natural gas from PNG s Southern Highlands to a processing facility for LPG extraction and then on to customers in Australia. The project is operated by Esso Highlands Limited, a subsidiary of ExxonMobil The number of new exploration wells has increased sharply over the past year Corporation, Oil Search and Mineral Resources Development Company (MRDC) and Nippon Oil Exploration Ltd. ExxonMobil has been pursuing potential customers in Queensland and Australia s southern states and several conditional agreements have been signed. Sir Moi Avei has expressed confidence that the project will soon prove commercially viable. According to the Minister, an American/ Indonesian consortium has expressed interest in building another proposed gas pipeline, from the central highlands to Wewak on PNG s northern coast. Bank of Papua New Guinea Papua New Guinea boasts a stable banking system with a wide range of sophisticated local and international banking services the ideal framework for any company wishing to do business on any one of the hundreds of islands that make up Papua New Guinea. Opportunities exist in many areas, including financing, banking, mining, petroleum, agriculture, tourism and manufacturing. Many international companies are already taking advantage of the nation s extensive and wide-ranging resources, and are benefiting from the archipelago s close proximity to the South Pacific s financial and capital markets, as well as its excellent telecommunications infrastructure. With over 30 years of a solid financial foundation in a growing nation, the Bank of Papua New Guinea is working for development and stability. Douglas Street, PO Box 121, Port Moresby Papua New Guinea, Tel: (675) , Fax: (675) World Report PAPUA NEW GUINEA 7

8 MINING A mountain of gold floating on a sea of oil PNG is richly endowed with deposits of gold, silver and copper. Much of it remains untouched but new incentives are attracting outside investment to develop the industry The mining industry plays a pivotal role in Papua New Guinea s economy, accounting for three-quarters of the country s export income and almost a third of its GDP. Rich in mineral resources and petroleum, PNG has been described as a mountain of gold floating on a sea of oil. As in the oil sector, tax incentives have been brought in as part of an aggressive campaign to attract international companies with the necessary capital, expertise and technology. The effect, too, has been the same significant growth in exploration raising hopes of new discoveries and increased production. Spending on mining exploration almost doubled in 2003 to more than K60 million ( 10.5 million) compared to K33 million ( 5.7 million) in In 2002, only five mining exploration licences were issued while 14 new licences were issued in the first 10 months of A gold exporter since the 1930s, PNG is the world s 11th largest producer. It also boasts the largest known supply of low-grade copper, all of which is exported to Western Europe and Japan. Four world-class, open pit mines are currently in operation: Ok Tedi and Porgera on the mainland, and Lihir and Misima at island locations. Ok Tedi, the largest mine in PNG, is ranked the eighth largest copper mine and twentieth largest gold mine in the world. The Lihir gold SAM AKOITAI MINISTER FOR MINING Only a third of discovered resources have been mined mine has one of the world s largest known undeveloped gold deposits. Developing the industry poses a number of challenges. Some of the most valuable resources are to be found in the most inaccessible places. Ok Tedi, Porgera and the medium-sized Tolukuma mine are all Production levels have risen dramatically at the Tolukuma gold and silver mine in remote mountainous terrain, while the Lihir mine is located within the rim of an extinct volcano. According to Minister for Mining Sam Akoitai, only a fraction of the country s gold and copper has been exploited. So far in PNG, we have mined perhaps one third of the resources that have already been discovered, he says. The Minister believes the industry has a bright future now that the government has created a more favourable climate for investors and is promoting the industry abroad. When we came to power there was a decline in exploration and production. Since we have provided the incentives there has been a good response. The process of developing PNG s full potential for mining is being backed by the European Union, which is contributing to the creation of a new geological map of PNG. With the assistance of the EU, we are conducting airborne surveys in parts of mainland PNG, where there has been no previous exploration, says Mr Akoitai. We know we have approximately 3,000 tonnes of gold, 3,000 tonnes of silver and 15 million tonnes of copper. These figures will increase by the time we have completed the survey. Full production at a major new gold mine at Kainantu in the Eastern Highlands province is expected to be under way early in The 21 million project by the Australian company Highlands Pacific is the first major mine development since construction started on the Lihir gold mine eight years ago. Other gold mining projects are awaiting development, including the Simberi gold project in New Ireland Province and Ramu nickel project in Madang Province. The latter, fully licensed and under development by Highlands Pacific and Oil Search, has been seeking a major international partner. Tolukuma Gold Mines, owned by South African giant Durban Roodepoort Deep Ltd. (DRD), operates an underground gold mine in Central Province, 60 miles north of Port Moresby. Since acquiring the mine from an Australian firm in 2000, the company has increased production dramatically. Designed to produce 6,000 ounces of gold and around 150,000 ounces of silver per annum, the mine was in the doldrums under the former ownership. Since DRD moved in, production levels have increased dramatically and the mine has become the most profitable in the DRD group and its biggest generator of cash. We drew up a new business plan and within two months we were making a profit, explains Richard Johnson, DRD s Divisional Director for Australasia. He says the success of the mine demonstrates that it is not only very large compa- 8 World Report PAPUA NEW GUINEA

9 MINING Making provision for the future nies that can do business in PNG s mining sector. We are a small mine, compared to others, and this forces us to work closely with the people here. Local ownership and having confidence in the locals makes us competitive. Other mining operations in PNG have required very large sums of capital and could only be developed by large international companies with huge financial resources. We are showing that it can be done on a much smaller scale. Mr Johnson feels the government is providing the kind of backing the industry RICHARD JOHNSON DRD DIVISIONAL DIRECTOR FOR AUSTRALASIA We are showing that mining can be done here on a smaller scale needs. The government is very keen to attract foreign investment and is very supportive of companies such as DRD coming to PNG. Mining legislation is largely based on Australian law, so mining tenure has been demonstrated to be secure. DRD recently acquired Oil Search Limited s 20 percent stake in the Porgera mine, which is 75 percent owned and operated by Placer Dome, for 40 million. WHILE sustaining and developing the mining industry is crucial to the economy, account also has to be taken of the social, economic and environmental impact on local communities. Ninety-seven percent of the land in Papua New Guinea is tribally owned and the land from which the minerals are extracted is part of their cultural and spiritual heritage. The law gives the government the option of acquiring up to 30 percent equity in mining projects and up to 22 percent equity in petroleum projects. Ownership of 5 percent and 2 percent respectively is passed to the traditional landowners. The custodian of the people s wealth from mining activities is the Mineral Resources Development Company Ltd. (MRDC), which plays a crucial role in the development of PNG s mining and petroleum resources. MRDC s role and responsibility is to manage the equity given to project landowners by the state, explains Francis Kaupa, MRDC s Managing Director. The company acquires shareholdings in mining projects for the government, then on-sells the state s share to Orogen Minerals Limited (OML), a part-state, part-private company. The landowners share is retained and managed by FRANCIS KAUPA MANAGING DIRECTOR OF MRDC We disseminate information so people know their rights MRDC. The firm works in partnership with the international investors to ensure that each development is as efficient and cost effective as possible, and to protect the rights of the traditional owners. In its role as trustee of the people, MRDC oversees the distribution of dividends from ownership of the projects back to the community. Through a tax credit scheme, it supports community projects that benefit the development areas and other villages with provision of local facilities. The scheme ensures that communities have basic social infrastructure such as water supplies and educational and medical facilities, says Mr Kaupa. MRDC also acts as mediator between the government and the landowners to ensure that concerns are raised with the project operators and acted upon. Our primary and most sensitive role is to disseminate information so that the various landowners, as well as the provincial governments, are able to understand all their rights. MRDC has shares in Ok Tedi mine, the single largest contributor to PNG s economy An important part of MRDC s work is helping communities to plan for after the mines have gone. Mr Kaupa says: We set up trust companies for the landowners to invest the money that flows from the projects in, for example, real estate and shares in well-established PNG companies. This way, they can continue to earn an income when the mining and petroleum projects are over. The mining companies themselves are also involved in providing for the future of the areas they have worked in. PNG Sustainable Development Program Limited (PNGSDP) is an independent trust set up by the world s largest mining company, Australian-based BHP Billiton, to oversee sustainable development programmes around the Ok Tedi copper and gold mine in Western Province. The company was established in agreement with the PNG government, with BHP Billiton transferring its controlling 52 percent equity stake in Ok Tedi Mining Limited (OTML) to the new company in February Millions of pounds in future dividends from OTML, which would formerly have gone to BHP Billiton, will now be invested in a fund to support long-term development. The Ok Tedi mine is the single largest contributor to PNG s economy, representing 10 percent of the nation s GDP; exports from the mine account for 20 percent of PNG s foreign exchange. OTML is PNG s largest corporate employer providing more than 2,000 jobs, with a further 1,500 people employed by contractors servicing the company. BHP Billiton had taken a decision to close the mine by 2004 following criticism of damage to the environment. However, although the government and the Western Province communities wanted the environmental concerns addressed, they regarded early closure of the mine as a potential economic disaster and wanted it to continue producing to the end of its natural life. There were substantial social and economic benefits to the people of PNG, and particularly the Western Province, deriving from the mine s operation, says Ross Garnaut, PNGSDP s Chairman. Accordingly, BHP Billiton decided to withdraw from the project in a way that would maximise the social benefits of continued operation. The establishment of PNGSDP allows the mine to continue operating until it runs out in Sustainable development projects are being carried out in consultation with the government, the private sector, churches and other non-governmental organisations. Initiatives are being considered in the agriculture, forestry, fisheries, tourism, infrastructure, education and health sectors. Tolukuma Gold Mines Committed to Safety, Community and Growth More than just the jewel in the crown of Durban Roodepoort Deep (DRD), Tolukuma Gold Mine is a cornerstone for DRD s continued commitment to Papua New Guinea. Tolukuma Gold Mines Limited - info@tgm.com.pg PO Box 5043, Boroko, Papua New Guinea Mine site - Tel: (675) , Fax: (675) Port Moresby Office Tel: (675) , Fax: (675) World Report PAPUA NEW GUINEA 9

10 Milne Bay Province lies at the most south-eastern tip of the paradise island chain of Papua New Guinea. In addition to a burgeoning niche tourism market, Milne Bay Province takes pride in a thriving export industry based on palm oil, coffee, grey and white pearls, coconut, vanilla and rosewood. The Provincial Government invites foreign interested parties to further explore this attractive investment landscape. MILNE BAY PROVINCIAL GOVERNMENT Free Mail Bag, Alotau, MBP, Papua New Guinea Tel: (675) Fax: (675)

11 MILNE BAY PROVINCE boasts one of the richest cultural heritages in the Pacific, with 48 ethnic groups speaking 7 different languages. The area is being developed as a village-based eco-tourism model for the rest of the country, combining the area s deep-rooted traditions with a modern view of the future. The Province was the stage for the Battle of the Coral Sea, and one can scuba-dive around famous World War II wrecks and on one of the world s most beautiful and naturally diverse coral reefs. If the underwater world is not your scene there is a multitude of opportunities to fish, birdwatch, trek on rainforest-covered mountains, or just wander between hot springs and tranquil beaches discovering Milne Bay Province s many hidden surprises. MASURINA BUSINESS CENTRE (ground floor), PO Box 337, Alotau 211, Milne Bay Province, Papua New Guinea Tel: (675) Fax: (675) info@milnebaytourism.gov.pg

12 FORESTRY Moves towards value-added products Forestry makes an important contribution to PNG s economy. The challenge is to combine development of the industry with sustainable management of a valuable natural resource Dense tropical forest extends over more than 70 percent of Papua New Guinea, sustained by high levels of rainfall. With some 26 million hectares covered, PNG boasts one of the largest expanses of rainforest in the world. The forestry sector is expected to play a significant part in the government s exportdriven economic recovery drive. The sector is PNG s third largest revenue earner and a major contributor to the overall economic and social development of the country in terms of infrastructure development, employment and income to resource owners in the form of royalties, premiums and project development benefits. The main thrust of the government s policy is to move the industry towards downstream processing and the creation and export of value added products. Minister for Forestry Patrick Pruaitch says, We have natural species that are among the best in the world. We are slowly but surely moving into the area of downstream processing and we want to attract investors to help us. The Minister believes forestry holds enormous potential for generating revenue for the government, landowners and investors. I am very positive about the sector. We are pursuing a number of new policy initiatives to realise the full potential of the sector, and over the next five years it will bring enormous benefits to our country. At present, the industry is predominantly oriented to the export of logs. Twenty-five projects of various sizes are currently in operation, most of them dedicated to log export. Of ten forestry projects announced last year, at least three are expected to come on line by mid 2004 in the East Awin, Rotok Bay and Asengseng timber concession areas. A further 32 projects are at various stages of planning and development. At the same time, exports of value added products have been increasing. The export of sawn wood rose from 32,000 cubic metres in 1998 to more than 42,000 cubic metres in 2002, and plywood and veneer production will increase with the establishment of Panakawa Mill in the Western Province. Incentives are being provided to attract investment into the processing of other forest products. Huge potential is seen in developing non-timber products such as rattan, eaglewood, orchids, sandalwood, resins, essential oils, mushrooms and medicinal plants. The government s aim is to ensure that the timber industry maintains a log export level of 2 million cubic metres per annum. At present, the chief markets for PNG s logs are Japan, South Korea, China, the Philippines, Taiwan and India. The Minister says additional customers need to be found. The industry needs to diversify its export market to remain competitive and contribute meaningfully to the development of the country. New markets such as PATRICK PRUAITCH MINISTER FOR FORESTRY The industry needs to diversify its export market to remain competitive Thailand and the Middle East countries will be sought out, as they offer alternative destinations for the export of round logs and processed timber products. Terry Warra, Acting Managing Director of the National Forest Service, says the aim is to gradually shift the emphasis from round logs to finished products. We have been concentrating on the round log export but there is more money involved in finished products. We hope to be able to reduce the ratio from 80 percent round log export to 75 percent or 70 percent, and we are looking at providing incentives to attract investors into downstream processing. Foreign aid, particularly from the Australian government through AusAid, has made a significant contribution to the development of the sector and is helping PNG to sustainably manage its forest resources. Other donors are the World Bank, the Japanese International Cooperation Agency (JICA), the EU, including the UK, New Zealand and the United States. The EU is currently funding a K22.5 million ( 3.7 million) five-year eco-forestry project aimed at assisting landowners with small-scale sawing projects and export of certified timber. PNG is a signatory to the International Tropical Timber Agreement, which emphasises the importance of sustainable development, and has also received assistance from the International Tropical Timber Organisation. The importance of reforestation is recognised by the government. Harvesting of natural forest resources must go hand-inhand with a programme of reforestation by 12 World Report PAPUA NEW GUINEA

13 AGRICULTURE both the timber industry and landowners, says Mr Pruaitch. The government will be doing all it can to assist. The National Forest Authority has been working on a reforestation policy, spelling out the role of landowners, investors and the government in the development of forest plantations. Sites are being investigated for the creation of new forest plantations The government says forest plantations have a huge potential in PNG. According to Mr Pruaitch, wasteland and other available land is being looked at for development of plantations on a large scale. The government is looking at promoting forest plantations to complement the natural resource. While we have vast resources still available in terms of natural forest, it is the government s ultimate aim to ensure that we continue their sustainable management. Forest plantations can make a major contribution. Farms have big potential for growth AGRICULTURE remains the mainstay of Papua New Guinea s economy, but its potential is far from being fully exploited. The sector currently accounts for 14 percent of the country s foreign exchange earnings and 25 percent of gross domestic product, but with major investment could further improve the sector. The government believes that agriculture could become the cornerstone of the country s export drive, and has called for a green revolution. The aim is to encourage greater private sector participation and expand commercial and smallholder production. In the longer term, PNG needs to develop its agricultural resources to prepare for the time when it can no longer depend on its mineral resources as a major source of earnings. On the Prime Minister s initiative, a package of tax breaks has been introduced to attract investment into the sector. These include a 150 percent deduction for suppliers of primary production extension services, a 150 percent tax deduction for research and development expenses, and a special tax rate of 20 percent for primary agriculture projects started within the next three years. The government has also ordered the agricultural commodity boards to spend less time and money on regulation and red tape, and more on promoting production and exports and encouraging private sector investment. Last year, the agriculture sector saw increased production of all major export commodities, including oil palm, coffee, cocoa, copra and coconut oil. PNG also produces tea, rubber, vanilla, sweet potatoes, fruit, vegetables and livestock. Coffee has long been regarded as PNG s green gold and, until recently, was the most important cash crop in terms of foreign exchange. Ideal climatic conditions enable PNG to produce both Arabica and Robusta beans, and the naturally-grown, naturally-processed beans produced in PNG s thousands of small villagebased coffee gardens are tailor-made for the increasing market for an organically-grown product. In recent years, levels of coffee production have declined, however, and in 2001, oil palm exports overtook coffee exports for the first time. Oil palm is one of the country s fastest-growing agricultural exports, currently accounting for around a third of the total value of the sector s foreign sales and around 5 percent of all exports. The total value of oil Production of many of PNG s major agricultural export commodities such as oil palm, cocoa and copra increased last year palm exports has more than doubled to over K302 million ( 50 million) since 1995, with the volume of oil palm exports up by almost 80 percent. The EU is PNG s sole export market for oil palm, with the UK as the largest importer. NEW BRITAIN PALM OIL LIMITED Some 100,000 hectares are cultivated for oil palm, almost half of which are managed by smallholders, with the rest being estate plantations. The government wants to extend the area under cultivation and increase production. There are four major oil palm projects in PNG, situated in the provinces of West New Britain: Oro, Milne Bay and New Ireland respectively. The leading palm oil producer in PNG and the largest private sector employer is New Britain Palm Oil, which produces approximately 200,000 tonnes of crude palm oil per annum. In 2002, the company built a refinery, designed to take around half of its annual capacity to produce a wide range of value added oil palm products, both for export and the domestic market. The cane estate and sugar milling operation Ramu Sugar is also moving into oil palm production as part of its diversification strategy. The company, which supplies PNG s domestic market and exports to the United States and Pacific islands, is planning for oil palm to eventually account for more than 50 percent of its revenues by Ramu Sugar is also the largest single cattle operation in the country, owning 25 percent of the national herd. PNG s beef cattle industry, which is based on large-scale ranching and more than 1,000 smallholder cattle farms, has been in existence for more than 40 years, and demand for exports of live cattle from the country is increasing. The livestock sub-sector accounts for around 13 percent of the total agricultural production. Vanilla, which has been grown in PNG for a number of years, is also experiencing a boom, stimulated by increasing demand from North America for the unique qualities of the PNG product. The spice industry reported a record K35 million ( 6 million) in revenue earnings from vanilla exports for the first six months of last year, an increase of 54 percent on the year before. We Keep It Flowing PNG WATERBOARD PO Box 2779, Boroko, NCD, Papua New Guinea Tel: Fax: World Report PAPUA NEW GUINEA 13

14 FISHERIES Processing the bounty Rich pickings for fishing industry as EU opens its markets to duty free tuna exports and new developments increase value-added production from the sea The waters of Papua New Guinea are teeming with fish, including approximately one fifth of the tuna stock of the entire Pacific fishery. Up to 10 percent of the global catch of the main market species of tuna is taken within the PNG fisheries zone and the potential sustainable harvest of tuna is estimated at around 250,000 tonnes a year. Fishery exports from PNG include fresh, frozen and canned tuna, prawns, lobster and shark meat, and the potential exists for the fisheries industry to make a huge contribution to the national economy, both in terms of exports and domestic food supply. In 2002, the total value of fishery-related exports rose by 20 percent to a record 34 million. Chilled tuna is exported mainly to Australia and Japan, frozen tuna to the Philippines, Japan and Taiwan, and canned tuna to the United States and European markets. A major breakthrough came when PNG was granted duty-free access to the huge tuna market of the European Union at an Asia Caribbean Pacific-European Union (ACP-EU) meeting last year. Previously, duty-free access had been denied because the tuna were caught and processed by non-acp and EU companies. PNG applied successfully to the EU for tuna caught in the waters of the archipelago to be treated as being of PNG origin, thus enabling its processed tuna to be exported to the EU duty free. The scope for making fisheries a major component of the export drive in the wake of the ACP-EU decision is enormous, and is expected to boost export earnings from tuna to 40 million this year. Large-scale deepwater fishing is carried out by foreign fleets of purse seine vessels from China, Korea, Taiwan and the Philippines, with the bulk of the revenues of the National Fisheries Authority (NFA) coming from bilateral access agreements and interim agreements with locally-based foreign vessels. Longline tuna fishing is restricted to Papua New Guineans and the NFA is keen to increase the size of the domestic fleet. Ten years ago, there were hardly any PNG-owned and operated tuna longline vessels. Since then the number in operation has increased significantly. The high-value yellowfin and bigeye tuna they catch currently earn around K30 million ( 5 million) per annum in the Japanese sashimi market, with potential MOLEAN CHAPAU MANAGING DIRECTOR OF THE NATIONAL FISHERIES AUTHORITY We are moving towards becoming the tuna centre of the region for considerable growth. Domestic vessels have also been increasingly targeting shark. As part of the government s exportdriven growth strategy, investment in onshore tuna processing is being strongly encouraged. The government wants to see as much as possible of the national catch processed before being sold abroad. Foreign and domestic access by purse seine vessels is increasingly linked to commitment to value added activities. The government wants to see increasing national involvement in the industry and has been working to create a conducive environment for both foreign and Fishery exports range from prawns to shark meat, but the most important is tuna, sold fresh, frozen or canned local investors. The challenge is to make PNG an equal partner in the fishing industry, says a spokesman for the Ministry of Fisheries. Consideration is being given to loan guarantee schemes for small fisheries projects and to ways of acquiring equity for provincial governments and other participants in larger projects. Molean Chapau, Managing Director of the NFA, believes that over the next 10 years PNG could become the tuna centre of the Pacific region. We are moving towards it. We just need the right approach and support from the funding agencies. We want to attract the fishing nations that have vessels out in the region to get them to come here and either unload their catches or have their vessels serviced here, he says. We need to be able to attract them by providing incentives such as reduced fuel costs. The main emphasis will be on the ports at Manus and on Kavieng. We want to try to compete with some of the traditional ports in the Pacific like Guam and other places, adds Mr Chapau. Donor assistance has been provided for development of the sector by Australia, Japan, the European Union and the Asian Development Bank. The volume of unprocessed tuna will decrease with the opening of new loining plants/canneries that will process tuna caught both within PNG s waters and elsewhere in the Pacific. A 11 million loining plant at Wewak, in East Sepik Province, a joint venture between FCF (Taiwan), the provincial government of East Sepik, Bank of South Pacific and Jaczon of the Netherlands, is expected to produce up to 200 tonnes of cooked tuna for export per day. The plant, whose operator is South Seas Tuna Corporation, is one of the biggest in the southern hemisphere. Its estimated contribution to the national economy is K100 million ( 16 million) per year. Duty-free access to EU market will generate exports and employment Other new plants have been under construction at Lae, in Morobe Province, and in Madang, where RD Tuna of the Philippines has been operating PNG s first cannery since With donor support, new purposebuilt longline wharves are being built for the delivery of the fish for processing and there are plans to develop a series of local fish markets. The new wharves include complexes at Lombrum in Manus Province and Kavieng, in New Ireland Province. Lombrum is seen as a potential key transshipment port for fishing vessels operating in the western and Central Pacific Ocean, while Kavieng, 14 World Report PAPUA NEW GUINEA

15 UTILITY Safe drinking water is a priority already home to the National Fisheries College, is the location for a major new seafood processing facility, funded by the Australian government. Built to meet stringent European standards, the plant will operate both as a commercial entity, processing tuna and other fish species, and as a training facility. Further wharves are planned at Lae, Daru and Alotau, and an airport chiller facility has been under construction at Port Moresby. The government is mindful of the need to protect such a valuable resource and monitoring, control and surveillance procedures have been tightened. Since 1999, development of tuna fishing has been controlled under a National Tuna Fishery Management Plan, which is currently being revised. The Fisheries Ministry emphasises that every care is taken to ensure that PNG s fish stocks are well managed and remain at a sustainable level. Thanks to our very productive waters and the resilience of the tuna themselves, present catches should continue to be sustainable and will continue to be closely monitored, says the Ministry spokesman. Coastal fisheries development projects aimed at benefiting rural coastal communities are being supported by the European Union and the Asian Development Bank. The projects involve funding of locally built vessels, and training in fishing, marketing and small business skills. Aquaculture is also being promoted to increase the food supply, generate income and involve small rural communities in the economy, and has become a major activity in some coastal areas. SOPAC ALTHOUGH Papua New Guinea is blessed with a plentiful water supply enormous rivers and abundant rainfall most of the population is unable to access this vital commodity. The explanation lies in PNG s geographical location, which is among the most vulnerable to events of extreme climate variability, the technical term for natural disasters such as floods and droughts. Supplying fresh drinking water to the majority of the people of PNG is the long-term aim of the Papua New Guinea Waterboard. Managing Director Patrick K. Amini says, Under the public health plan, something like 50 percent of our population are targeted to have access to safe drinking water, and that is the area we are focusing on. Of course we are not going to achieve that over the next ten years, he adds. It is a long-term objective. The current level of access is around 20 percent, and the board s objective is to make provision for PNG s 20 provincial centres and then move on to the 89 district towns in the rural areas. These can then act as bases from which water can be provided to the villages. Ahead of its upcoming privatisation, the PNG Waterboard s financial situation has been overhauled as it faces the challenges of balancing the need for serving the general interest with those of a profit-minded entity. It has received funding from the Asian Development Bank which has provided technical assistance and loans to develop the water and sewerage programmes. Help has also come from the Japan International Cooperation Agency (JICA) and the EU, and there is plenty of grant financing for water projects. Mr Amini says, The board and management agree fully that in our industry we should develop public-private partnerships, and whether we can be fully privatised is another issue altogether. Our market is very small, with a customer base of only about 22,000, and our business centres are geographically separated. All the financial issues have to be taken into account. Technical issues do not feature that much because technically we can provide services at a certain cost, but of course the main issue when you want to bring in a private operator is usually money. The board is looking to develop closer links with Europe, for example by setting up pre-paid water meters in line with a British-developed system, in order to give the responsibility to customers of being able to buy to a certain value. Mr Amini explains the government is paying close attention to areas of infrastructure such as water that impact on the effectiveness of the economy. Water, electricity and telecommunications, they are being addressed very closely. At the Waterboard we Plentiful natural resources, but getting safe drinking water to everyone is a challenge The PNG Waterboard is looking for international expertise and technical options want to be able to assist the government by corporatising our entities much more than in the past. We have to get to a state where we have a mixed objective but focus primarily on providing good clean water; that is a public health priority. If, in the process we want to improve the business and provide water and sewerage, we will do so to the business or PATRICK K. AMINI MANAGING DIRECTOR OF PNG WATERBOARD We need international expertise and technical options commercial sector. That is the uniqueness of our industry and that is the way we want to be able to develop it. As part of government policy, a Water Resources Board has been established, providing services to eleven districts so far. The board is particularly interested in groundwater resources, where potential exists for development in district water supply. Business opportunities for the UK are good on the island, not only in the water and sewerage service but in other utilities such as electricity, where the access level is presently around 30 percent. Mr Amini believes that the UK can provide expertise and experience. We want to be able to accommodate not only international expertise but also up-to-date practices in terms of technical options that we can utilise to provide water and sewerage services to our people, he says. World Report PAPUA NEW GUINEA 15

16 TELECOM Telecoms company steps up a gear STATE-owned telecommunications company, Telikom PNG was scheduled to be sold off to the private sector by the previous government. The current government, however, judged it a core national asset that was in danger of being offloaded for less than its real value, and promptly reversed the process. The company is now in line for partial privatisation and is a far healthier prospect in terms of its efficiency and its finances. Thus the government s decision to hold off and rehabilitate before seeking a private partner has proved justified. The aim has been to improve both the performance of Telikom PNG and its asset value, and the company s strong performance to date is exactly what the government had been hoping for. Telikom s profit for last year was in excess of 8 million, after paying a dividend to the government and reducing debt run up in the 1990 s. Dr Florian Gubon, Telikom PNG s Chairman, believes there is still plenty of scope for improvement, FLORIAN GUBON CHAIRMAN OF TELIKOM PNG We are keen to spread communication to the rural areas however. Telikom can become better than it is today and we can make the changes that are necessary to improve the financial state of the company. There is no doubt in my mind that we can achieve that, we just need time, he says. There are plans to bring in foreign consultants to help make sure the networks are operating well, solve problems and further improve management. Telikom PNG operates a fixed network and provides a cellular service and internet access through its wholly-owned subsidiary, Pacific Mobile Communications. The difficult terrain of PNG s highlands, valleys and islands makes installing telecommunications infrastructure a difficult and Telikom PNG has the right to operate as the only telecommunications company in the country until 2007 costly enterprise. Dr Gubon says, For the moment, our efforts are concentrated on the provincial capitals, but we are very keen to spread communication to the rural areas. The company launched its mobile network last May, and the challenge now is to expand it to other major centres. The mobile service can penetrate into areas where we cannot provide fixed line services, says Dr Gubon. It complements the fixed line services we provide in the city, but it does more than that. It is a new product, it is prepaid and anybody can go and buy one. Telikom PNG s other main priority is to replace the ageing sea cable between PNG and Australia that carries the island s major international link from Port Moresby to Cairns. Dr Gubon says, We have highly trained engineers compared to other developing countries. A lot of our staff have been trained overseas in Australia, the United States and the UK. There are also trainee programmes carried out by the Commonwealth Telecommunications Organisation (CTO) that many of our staff have undergone. So we do have the skill and manpower to take care of the network. Telikom has the right to operate as the only telecommunication company in PNG until Dr Gubon regards the prospect of deregulation as a challenge rather than a problem. It should be a good thing, he says. Competition always puts the price down, and it s good for the customers. Export drive needs better roads National Transport Development Plan will improve market access for productive sectors and give the population greater freedom of movement Aprerequisite for increasing Papua New Guinea s levels of exports, employment and wealth is the maintenance and rehabilitation of the country s transport infrastructure. Infrastructure is an indispensable aspect of development and it is one step we must take before any other development programmes, states Minister of Transport and Civil Aviation Don Pombpolye. Eighty-five percent of PNG s five million people depend on land transport. The existing road network totals some 13,000 miles, and much of it is in a poor state of repair. Some of the national routes are in good condition, thanks to funding support from the World Bank, AusAid, Asian Development Bank (ADB) and the European Union. PNG s geography and mountainous terrain present difficult logistical problems for infrastructure development that require high construction expenditure and technological capacity to overcome. More than 90 percent of total transport sector costs are being focused on roads under the National Transport Development Plan ( ). The objective of the plan is to provide community-wide transport services that are safe, reliable and cost efficient. This involves maintaining, rehabilitating and improving the existing infrastructure, developing new infrastructure, and promoting private sector expansion of transport facilities and transport safety. New roads need to be constructed in the rural areas and repairs made to ones that are in poor condition to ensure that agricultural produce can be efficiently brought to market. Main roads need to be built into the most isolated areas of the country; the Highlands region, for example, has yet to be linked with the two major cities of Port Moresby and Lae, as does the remote Southern Province, where oil and gas activity is centred. If all goes to plan, by 2010, links between agricultural, mining and industrial production districts and markets will have been improved and the population will have greater freedom of movement, including better access to services such as health and education. Given the limited resources available, the government is focusing first of all on improving the roads the country already has. Our primary objective is maintenance and rehabilitation of the existing facilities, says the Transport and Civil Aviation Minister. With the exception of the Malalaua-Kerema road, there will not be any new major road construction in the medium term. The Malalaua-Kerema project, which will include the upgrading of 43 miles of road and nine bridges, is expected to be completed by 2005 at a cost of 14 million. Direct construction costs of the project will be funded through the Export-Import Bank of Malaysia, with the state providing counterpart funding. 16 World Report PAPUA NEW GUINEA

17 INFRASTRUCTURE Progress is ahead of schedule on a programme to build 200 bridges in remote rural areas on the remainder has been awaiting promised funds from development partners, although the government is ready with its share of the funds. Despite its concern about the effect on the national budget, the government has pledged to continue the national Yumi Yet bridge building programme in partnership with the British firm Mabey and Johnson under a 31 million loan agreement signed by its predecessor. Funded by the British Export Credit Guaranteeing Department (ECGD), to be repaid over 13 years, the programme has had a hugely beneficial effect on the lives of communities in the remote rural areas where the bridges have been constructed. So far around 70 of an intended total of 200 bridges have been built through the scheme. The programme involves using easy to build long-lasting Compact 200 bridge modules supplied by Mabey and Johnson, with construction carried out by local contractors and labour. Progress is well ahead of schedule and the project is expected to be completed within less than three years. Increased tax credit arrangements are being introduced by the government to encourage agricultural companies to sustain local infrastructure, especially access roads to oil palm plantations. Work has also started, with the support of the ADB, on upgrading the country s wharves, jetties and ports, which are in poor condition, and a community water transport programme has been launched. In addition, AusAid have been putting out tenders to upgrade and extend some of the airports. PNG currently has no rail network, but the Transport Ministry is looking into the possibility of establishing one in the long term. I want to see railways established in the country in the next years, says Mr Pombpolye. Last year, the government halted moves to sell both the national airline, Air Niugini, and the state-owned port regulator, PNG Harbours Board, because it was confident that both could make money for the country. All seagoing trade is facilitated by PNG Harbours Board, which oversees the country s 17 operational ports, grouped in the administrative regions of Port Moresby, Madang, Rabaul and Lae. The harbours of Papua New Guinea are host to millions of tonnes of cargo shipped annually, with direct seagoing links to worldwide destinations. Some 4.5 million tonnes of cargo can be transported quickly and efficiently, around half of it through Lae, one million tonnes through Port Moresby and the rest through smaller ports such as Kimbe, Rabaul, Madang and Alotau. Cargo such as petroleum products and logs is also transported. An important recent initiative by the government is the creation of a National Roads Authority to manage the maintenance of the country s major roads, secure adequate finance and establish and operate a road fund. The authority s board will consist of a majority of private sector members with representatives from the public sector. Its priority will be the continuing rehabilitation of the Highlands Highway. Assistance for this project is being provided by the World Bank, the Asian Development Bank and the Australian overseas aid organisation, AusAid. Maintenance work has commenced on the highway from Lae up to the border of Eastern Highlands and Simbu. Work Papua New Guinea s telecommunications network, due for imminent liberalisation, comprises an extensive, well-established and rapidly evolving network of microwave radio, satellite and intra-city optical fibre transmission systems. The network links via three international carriers to 162 countries in the world. The privatisation of Telikom PNG, currently running B-mobile, Papua New Guinea s mobile telephone operator, also coincides with the modernisation and digitalisation of its infrastructure network. Millions of tonnes of cargo are shipped annually from PNG s harbours Telikom PNG Limited PO Box 1349, Boroko, NCD, Papua New Guinea Tel: (675) Fax: (675) webadmin@telikompng.com.pg World Report PAPUA NEW GUINEA 17

18 TOURISM Discovering an underwater paradise On dry land, PNG is the land of a thousand cultures, rich in flora and fauna, while beneath its waters are some of the finest coral reefs in the world Papua New Guinea is probably one of the most attractive holiday destinations in the Asia/Pacific region and the tourism industry could become a major income earner for the country. The strength of the country s appeal lies in its extraordinarily varied and beautiful natural environment. PNG is a country of huge variety and natural wildness, with a landscape that ranges from rugged mountains and smoking volcanoes to low-lying coral atolls, from freezing glaciers to humid tropical forests, raging rivers and warm, sandy beaches. This remarkable natural environment is home to an abundance of flora and fauna. PNG harbours more than 5 percent of the world s biodiversity in less than 1 percent of the world s land area. There are almost 9,000 species of plants, hundreds of different kinds of mammals, reptiles, insects and butterflies, and 700 species of birds, including 38 of the 43 known species of birds of paradise. The 16th century Portuguese explorer Jorge de Meneses named the country Ilhas dos Papuas (Island of the Fuzzy Hairs). New Guinea was added later by Spanish navigator Ortiz Retes, because the people reminded him of the inhabitants of the Guinea coast of Africa. Since then, the extraordinary multiplicity of languages, tribal dress styles, dances, customs, traditions and beliefs to be found in PNG has earned the country the sobriquet of land of a thousand cultures. On land, PNG offers ideal opportunities for trekking, climbing, white water rafting and experiencing village life. However, it is PNG s marine environment that gives the country its strongest appeal. The coral reefs extend over an area of 15,000 square miles and offer some of the best snorkelling and scuba diving in the world. PNG s waters are an underwater wonderland, reckoned to contain up to five times as many marine species as the Caribbean, including manta rays, sharks, dolphins and Minki whales. Some 3,000 species of fish live among the 300 kinds of coral, whose pristine condition contrasts favourably with that to be found in more exploited diving destinations in other parts of the world. Wreck sites feature ships, aircraft and submarine wrecks from fighting in the Second World War between allied forces and the Japanese. Despite having so much going for it, PNG s tourism industry remains small, contributing only 2.5 percent to the country s GDP. Visitor arrivals have registered only a marginal increase over the last ten years and a high percentage of those who travel to the country do so for business purposes rather than for a holiday. This is a situation the present government is working to change by spending more on niche marketing. PNG is unlikely ever to become a destination for mass tourism, but that is another contributing factor to its appeal. At present entry to the country by air can only be made via Port Moresby, but the government is looking at opening three more international airports at Rabaul, Mount Hagen and Alotau, each of which has much to offer as a tourism destination within the country. LOLOATA ISLAND RESORT Scuba divers can swim with thousands of fish species in a pristine submerged landscape Small and selective development is the way ahead AT the forefront in trying to attract more visitors is Trans Niugini Tours, the leading inbound tour operator for vacations in Papua New Guinea. The company offers wilderness lodges, scuba diving resorts, snorkelling holidays, ecotours and birdwatching trips. Managing Director Bob Bates says that tourists come to Papua New Guinea for two reasons: the cultural experience and its nature. We have snow-capped mountains, steamy tropical jungles, and everything in between. The largest market for Trans Niugini Tours is the United States,which counts for 60 percent of visitors, with 30 percent coming from Europe, chiefly Italy and Germany. The small number of British tourists are generally those with a specialist interest such as birdwatching. The company works very much on an in-house basis, operating mainly in rural areas with its own buses, boats, and BOB BATES MANAGING DIRECTOR OF TRANS NIUGINI TOURS Tourism should develop along the lines of small resorts lodges. This enables it to offer a high standard and consistency of service. Our strategy was based partly on what tourists do in Africa, namely travel from lodge to lodge, staying in each for a day or two, says Mr Bates. In Africa the main attraction is the animals, in Papua New Guinea it is the culture. The company is always planning new adventure trips, such as a six-day walk recently pioneered from the Jimi Valley to the Chimbu Valley in the highlands a trek never before done in living memory, most of which is 3,500 metres above sea level. Trans Niugini Tours provides accomodation that is sympathetic to the local ecology and culture The Ambua Lodge is the ultimate wilderness accommodation. Situated at 7,000 feet above sea level in lush mountain rainforests overlooking the magnificent Tari Valley, it has been praised as a superb example of culturally sensitive and ecologically responsible tourism. Mr Bates says, We have Ambua Lodge in the Highlands, the Karawari Lodge in the Sepik, the MV Sepik Spirit expedition boat, Malolo Plantation Lodge, and Bensbach Wildlife Lodge on the South coast near the Indonesian border. We should be trying to attract tourists to come and see our culture and nature, practice diving and go on some adventure trips. Papua New Guinea should develop along the lines of small resorts in selected areas. He adds, Papua New Guinea is a destination where mass tourism has no role to play. A land where the conservation of the Wetland, bird habitat, rainforest, rich fauna and flora and the traditional cultural lifestyles of the local people should always be paramount. 18 World Report PAPUA NEW GUINEA

19 MILNE BAY Bay province is promising holiday area One of the country s most attractive destinations for visitors, Milne Bay, is developing a local economy based on agriculture and tourism Located at the southeastern tip of the mainland of Papua New Guinea, Milne Bay Province is the largest and one of the least populated of Papua New Guinea s 19 provinces. The total land area totals approximately 5,400 square miles and includes more than 160 islands extending almost 6,000 square miles across the Solomon Sea. Milne Bay s population is just 205,000, only 25 percent of whom live on the mainland. Like the rest of PNG, the province is notable for its extraordinarily rich natural environment. Most remarkable of all, however, is the extensive and complex system of coral reefs. Conservation International has made Milne Bay s shorelines and archipelagos the focus of its marine conservation efforts in the region. The Governor of the province, Timothy Neville, has ambitious plans for Milne Bay s future. These centre mainly on agriculture and tourism, both of which have huge potential that has so far been relatively untapped. Economic activity centres on mostly subsistence agriculture, with only a third of the population engaged in income generating activities. Exports include oil palm, fish and other marine products, gold and copper, as well as cocoa and timber. Currently the largest single business and employer in Milne Bay is the Misima gold mine, which was established in the province in 1997 and is moving towards winding down and closure. The most commercially successful agricultural activity is the oil palm industry, which began twenty years ago with the establishment of a joint venture between the government of PNG and the Commonwealth Development Corporation. Today, some 14,000 hectares are under cultivation, but Mr Neville wants to see this expanded to a minimum of 150,000 hectares. He believes the high quality of the oil gives the province a major commercial resource, which could easily be more fully exploited. Another area with potential is the farming and export of vanilla. We are looking at vanilla in a very big way and at other tropical plants that are grown here, Mr Neville says. Coconut production is to be developed with the building of a coconut mill as a joint venture with an investor, and there are plans to promote the cultivation of vegetables and rice. We have brought in a rice expert here and the idea is to source out places to grow different types of rice. We have big rivers and sloping lands that can be irrigated. The focal point for the province s economic development, however, is tourism, with the emphasis on ecotourism. Unquestionably, diving is seen as the main attraction. In terms of marine diversity, the province s reef system is one of the richest in the world. More than 1,000 species of fish have been identified, and a recent survey found more than 429 species of coral, 14 of which were new to science. People are looking for fresh destinations, declares Mr Neville. We have hundreds of reefs that are untouched and have never been dived on. TIMOTHY NEVILLE GOVERNOR OF MILNE BAY PROVINCE People are seeking new destinations, and we want them to come here In addition to aquatic pursuits, Milne Bay provides excellent opportunities for trekking, bush walking and bird watching, in addition to the chance to experience the diverse local cultures. Tourism infrastructure development in the province includes resorts being constructed on the north coast, and a marina to cater for up to 100 boats. With a strong emphasis on law and order, the province is one of the safest for visitors. The Governor has launched a campaign against litter and introduced the Milne Bay Beautification Programme, with prizes for the best kept commercial, residential and industrial areas. There are plans to build a university for the study of marine biology and marine engineering, and for training local people to work in the tourism industry. One million tonnes of nickel, 100,000 tonnes of cobalt, 3,000 tonnes of gold, 3,000 tonnes of silver, 15 million tonnes of copper, 6 trillion cubic feet of proven gas, and vast amounts of oil have been discovered and are as yet undeveloped... At Mineral Resources Development Corporation, our mission is to help both your company and Papua New Guinea make the most out of the great potential of our land. Extending from the mainland over the Solomon Sea, Milne Bay is one of the largest and least populated provinces Mr Neville says, We want to bring the tourists here and train our people to provide world-class services. MINERAL RESOURCES DEVELOPMENT CORPORATION First Heritage Centre, level 1, Waigani Drive P.O. Box 1076, Port Moresby, Papua New Guinea Tel: (675) , Fax: (675) info@mrdc.com.pg TOURISM PROMOTION AGENCY This supplement was produced by World Report Limited Inc, who are solely responsible for the content World Report PAPUA NEW GUINEA 19

20 An open invitation to foreign investors: harvest the best returns from Papua New Guinea s forestry sector Papua New Guinea s forestry industry is exploring a new growth area. The sector is already the country s third largest revenue earner and a major contributor to the development of the nation, providing 159 million of the annual GDP. Now the National Forests Service is building on this success by diversifying into the production of finished products, with an open invitation to foreign investors interested in the downstream processing of the country s vast forestry resources. Traditional areas within the sector are showing phenomenal growth, with a significant increase in the exportation of a variety of forest products. Sawn timber exports soared to more than 42,000 cubic metres in 2002, and plywood, veneer and wood chip are experiencing similar trends. The Forest Authority is now using sector diversification to increase the stability and sustainability of the industry, and has sophisticated processes in place to smooth the path for investors. Foreign direct investment is particularly welcomed to develop downstream domestic processing through the production of value added goods such as quality wooden furniture. Papua New Guinea knows what s growing fastest in its forestry industry. Be a part of it and watch your investments flourish too. Office of the Managing Director, National Forest Service, PO Box 5055, Boroko, NCD, Papua New Guinea Tel: (675) , Fax: (675) , forest_minister@pngfa.gov.pg