The resource industry in Papua New Guinea (PNG) is experiencing an unprecedented period of activity and growth. This has now reached a level where PNG is the envy of many other mineral-producing nations, and the country has gained the confidence and respect of the international markets. Given that the level of exploration fell sharply following the Asian financial crisis in 1997, this is a great tribute to the efforts of industry and government in promoting and nurturing the sector over the past 10 years.
Exploration is at all-time high, resulting in widespread benefits as exploration funds are spent in the provincial centres and towns and on grassroots employment across the nation. The informal mining sector is thought to have grown to 80,000 part-time and full-time artisanal miners across the country, producing gold with a value estimated at K550 million to K600 million a year.
Since the current surge began in 2003, PNG has successfully added two major mining projects to the country’s portfolio and it will also shortly become the world’s first deep-sea mining nation. Formal employment in the mining and petroleum sectors has grown to over 30,000.
If the welcoming environment for investors is maintained, there is every chance PNG will see the development of several additional mining projects in the next five years, as well as several gas projects, including at least one more LNG development. This is a wonderful success story that few nations of similar size have achieved.
The benefits provided by the resources projects are diverse and substantial and include:
- Taxes (company tax, royalty, dividend withholding tax, salary and wages tax, duties, production levy)
- Dividends (equity)
- Tax Credit Scheme
- Special Support Grants and Development Levies
- Education and training
- Public health
- Business and agricultural development
- Community infrastructure
Royalties and taxes
PNG’s mining and petroleum industry contributes over one third of government tax revenue. The industry paid K9.7 billion in corporate tax, over K1.2 billion in dividends, K1.3 billion in royalties and K0.54 billion in dividend withholding taxes to the National Government from 2005 to 2010. This totals K12.7 billion, an average of more than K2.1 billion a year. In addition, the industry contributes significant amounts in salary and wages tax, duties and levies and the tax credit scheme, as well as dividends to some host provincial governments and landowners.
Royalties received by the National Government are paid to the host provincial and local-level governments and project landholders in accordance with the legislation and the respective project agreements. Landowners and the four provincial governments hosting the larger mature projects (Ok Tedi, Porgera, Lihir and the oil fields) are the main beneficiaries. From the commencement of the Ok Tedi mine in 1982, until the end of 2011, the Fly River Provincial Government received K1.65 billion in benefits and the Ok Tedi mine area landowners K1.22 billion.
Linkages to the non-resources economy
It is often stated that, because the resource projects are established as a rule in very remote localities, they are enclave developments. This definition sustains the myth that linkages to the rest of the economy are minimal. The mineral and petroleum industry in Papua New Guinea is an integrated one, comprising exploration, evaluation, development and production. It has many linkages to a wide range of service industries all over the country and much of the business and commerce in urban centres is driven by the resource sectors. These include:
- Drilling and drilling supplies
- Seismic contractors
- Analytical laboratories
- Technical services of all types
- Expediting and logistics
- Earthmoving, sales and contractors
- Trucking, sales and contractors
- Shipping of all types, port services
- Supply of motor vehicles and tyres
- Wholesaling and retailing of fuel
- Wholesaling and retailing of general merchandise, white goods, equipment and tools
- Wholesaling and retailing of food supplies and catering
- Maintenance and servicing contractors of all types
- Accounting, legal, engineering, surveying and other professional services
- Provision of accommodation including hotels, office, and private rental accommodation
- Technical and vocational training
- Grassroots employment
Direct employment in the mining and petroleum industry, including project employees and contractors and exploration is currently estimated to be over 30,000. This does not include the many short-term grassroots employees employed on a casual basis in exploration or the 80,000 artisanal and grassroots alluvial miners around the country.
Exploration in its own right is a major sector and employs large numbers of village people across much of the country. It is a grassroots activity that impacts directly on the rural areas unlike many other business sectors, or indeed government activities. Significant employment and compensation benefits are provided and whilst they may be of limited duration they are often the only opportunities for many village groups to participate in the cash economy. Advanced mineral exploration sites and petroleum seismic and drilling camps often offer the only opportunity for isolated communities to access reliable and well supplied medical services, even though it may be on a temporary basis.
The contribution of mining and petroleum to downstream business and employment opportunities in associated industries, contractors, suppliers and retailers has not been quantified but is estimated to have a multiplier of the order of 4 to 5 times. Evidence for this is indicated by the severe dislocation of businesses in many parts of PNG following the major decline in exploration from 1997 to 2002, as a result of the Asian financial crisis.
The largest proportion of the technical manpower being trained in PNG is generated from the mining and petroleum industry, and dates from the days of Bougainville Copper, through to the current projects. PNG has, and still is, exporting professional manpower which has been generated by the domestic mining and petroleum industry, to resource nations all over the world.