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Emerging Pacific LeadersEmerging Pacific Leaders’’ Dialogue Conference, Dialogue Conference, BrisbaneBrisbane

28 June 200628 June 2006

PNG Sustainable Development Program LtdPNG Sustainable Development Program Ltd ::““Promoting development Promoting development

that meets the needs of the present generation and establishes tthat meets the needs of the present generation and establishes the he foundation for continuing progress for future generations of foundation for continuing progress for future generations of

Papua New GuineansPapua New Guineans””

Robert IgaraRobert IgaraChief Executive OfficerChief Executive Officer

PNG Sustainable Development Program LtdPNG Sustainable Development Program Ltd

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IntroductionIntroduction•• Thank you for invitation and for opportunity to speak about PNGSThank you for invitation and for opportunity to speak about PNGSDP DP

Ltd and share experience.Ltd and share experience.•• The basic challenge facing PNGSDP The basic challenge facing PNGSDP –– How to promote sustainable How to promote sustainable

development in Western Province based on the revenue streams development in Western Province based on the revenue streams derived from the operations of the Ok Tedi Mine.derived from the operations of the Ok Tedi Mine.

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

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

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Ok Tedi Mine

Western Province

Lihir Gold Mine

Port Moresby

Oil & Gas Fields

PorgeraGold Mine

Bougainville Copper Mine*

Ramu Nickel Mine

KainantuGold Mine

Misima Gold Mine*

TolokumaGold Mine

Major mining and petroleum project sites

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Western Province Largest province in land area. Land Area: 97,000 km2, Landform: 0-3,000m, Fly River – 700 kms.

Population: 106,000 (2000 census), Population Density: 2 person per Sq Km. Urban population – 35,000

Per Capita Income: >70% less than US$ 20 p.a

Annual Rainfall: 1,500-8,000mm

Economy: copper, gold, timber, rubber, fish, and crocodile skin

Gross Forest Area: 7.8 mill. Ha with 4.9 m Ha production forest.

Borders Indonesia province of Papua and northern border of Australia.

Second largest beneficiary of national government resource transfers and very heavily dependent of Ok Tedi mine revenue

Very poor infrastructure, health and education services. Very weak provincial government.

Immediate closure of mine would create a crisis in the province.

Ok Tedi Mine

DARU

Kiunga

Australia

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BackgroundBackground•• In 1994 and 1995 legal action was taken against Ok Tedi Mining LIn 1994 and 1995 legal action was taken against Ok Tedi Mining Ltd td

and BHP in the Victorian Supreme Court and National Court of PNGand BHP in the Victorian Supreme Court and National Court of PNGseeking compensation for environmental damage. seeking compensation for environmental damage.

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

•• In 1999 PM Morauta invited World Bank to provide independent In 1999 PM Morauta invited World Bank to provide independent advice. The WB stated: advice. The WB stated: ““From an environmental standpoint, the From an environmental standpoint, the best option is to close the mine immediately. But from a social best option is to close the mine immediately. But from a social standpoint this would result in a potentially disastrous situatistandpoint this would result in a potentially disastrous situation on because there was no preparedness for mine closurebecause there was no preparedness for mine closure””..

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

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

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

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Ok Tedi Mining Ltd Ok Tedi Mining Ltd

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

•• Contributes >10% of GDP and >18% of total PNG ExportsContributes >10% of GDP and >18% of total PNG Exports•• Total sales revenue from copper, gold and silver exports of US$ Total sales revenue from copper, gold and silver exports of US$

1.077 billion in 2005 making it largest single contributor to PN1.077 billion in 2005 making it largest single contributor to PNG G revenue. revenue.

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

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

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

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Ok Tedi MineOk Tedi Mine……22

•• Economic benefits to PNGEconomic benefits to PNG –– about US$ 400 m about US$ 400 m consisting of consisting of -- Tax to Govt of $ 90.5 m, $ 11.8 m as Tax to Govt of $ 90.5 m, $ 11.8 m as payments to CMCAs and others, $ 246 m as dividends to payments to CMCAs and others, $ 246 m as dividends to PNG Shareholders (PNGSDP, PNG Govt, WP and PNG Shareholders (PNGSDP, PNG Govt, WP and Landowners), plus salaries and other goods & services. Landowners), plus salaries and other goods & services. 1,974 employees of which 1,856 (94%) are PNG 1,974 employees of which 1,856 (94%) are PNG Nationals. Nationals.

•• CMCA PaymentsCMCA Payments -- From 2001From 2001--2005, total US$ 47 m 2005, total US$ 47 m paid to Community Trustspaid to Community Trusts

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

•• Mine lifeMine life -- now extended to 2012. Possible to 2016. now extended to 2012. Possible to 2016. Substantive extension would subject to addressing Substantive extension would subject to addressing environmental impact and stakeholders approval.environmental impact and stakeholders approval.

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About PNGSDPAbout PNGSDP Ltd.Ltd.

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

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

•• Not subject to direction or control by BHPB or PNG Not subject to direction or control by BHPB or PNG GovernmentGovernment

•• Three main functionsThree main functions--–– Shareholder of OTML Shareholder of OTML –– ensure responsible management and ensure responsible management and

operationsoperations–– Prudent & wise investment of Long Term Fund and Development Prudent & wise investment of Long Term Fund and Development

FundsFunds–– Promote & Support Sustainable Development especially for Promote & Support Sustainable Development especially for

Western Province to mitigate impact of mine closure.Western Province to mitigate impact of mine closure.

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FUNDS STATUS and ALLOCATIONSFUNDS STATUS and ALLOCATIONS

Funds StatusFunds Status•• Since 2002 to end Dec 2005, total dividends received from OTML: Since 2002 to end Dec 2005, total dividends received from OTML: approx. approx.

US$ 292.9 m. US$ 292.9 m. •• TwoTwo--thirds of Dividend to Long Term Fund, and Onethirds of Dividend to Long Term Fund, and One--third to Development third to Development

Fund.Fund.•• Long Term Fund: Long Term Fund: US$ 175 m US$ 175 m •• Development Fund: US$ 82 m Development Fund: US$ 82 m

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

Purpose of Funds:Purpose of Funds:

•• Long Term Fund Long Term Fund -- ““low risklow risk”” investments mainly offinvestments mainly off--shore. Some for shore. Some for strategic strategic ““low risklow risk”” investments in PNG. Use for sustainable development investments in PNG. Use for sustainable development projects projects afterafter mine closure for 40 years. Funds Managers mine closure for 40 years. Funds Managers -- Newton Newton Investment Management Ltd, and Schroders, both out of London. Investment Management Ltd, and Schroders, both out of London.

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

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Considerations for Delivering Development and Considerations for Delivering Development and Investment InitiativesInvestment Initiatives•• Sustainability IssuesSustainability Issues –– economic, commercial, financial, social (land, economic, commercial, financial, social (land,

labour, services, participation), environmental, infrastructurelabour, services, participation), environmental, infrastructure(physical), technology, human resources (workers, managers, (physical), technology, human resources (workers, managers, entrepreneurs, public service adaptation to promotion vs entrepreneurs, public service adaptation to promotion vs regulation), and competitiveness. regulation), and competitiveness.

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

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

•• Business PartnerBusiness Partner -- Identifying business partner, securing Identifying business partner, securing development and investment finance, exporting to overseas marketdevelopment and investment finance, exporting to overseas market

•• Papua New Guinean Participation Papua New Guinean Participation -- as employees, business owners, as employees, business owners, entrepreneurs, for present and future generations.entrepreneurs, for present and future generations.

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Strategy on Sustainable Development Strategy on Sustainable Development Project InvestmentsProject Investments

•• Board considered effective approach to delivery and Board considered effective approach to delivery and sustainability is through the sustainability is through the ‘‘Business investmentBusiness investment’’ model model along lines of successful along lines of successful ““nucleus estate nucleus estate –– outgroweroutgrower””model. This involves confirming the core business model. This involves confirming the core business investment to be operated as a commercial enterprise, investment to be operated as a commercial enterprise, and then identify the outreach in the form of villageand then identify the outreach in the form of village--holder production or service delivery.holder production or service delivery.

•• The core commercial investment will be funded from The core commercial investment will be funded from equity and loans, and the development component out equity and loans, and the development component out of development funds in partnership with government of development funds in partnership with government and other development partners.and other development partners.

•• For a new venture For a new venture –– Establish proposed company to own Establish proposed company to own and operate venture, and Company will then proceed to and operate venture, and Company will then proceed to operate business as an independent entity operate business as an independent entity

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Strategic Programs and InitiativesStrategic Programs and InitiativesCommunityCommunity--level Target Programslevel Target Programs•• Community Sustainable Development Program (CSDP) Community Sustainable Development Program (CSDP) –– want to support community economic want to support community economic

initiative initiative •• PNG Microfinance Ltd PNG Microfinance Ltd –– first first ‘‘commercial mf companycommercial mf company’’. Bank of South Pacific and IFC as partners. . Bank of South Pacific and IFC as partners.

First direct equity investment by IFC in PNG. EIB and BASIX.First direct equity investment by IFC in PNG. EIB and BASIX.

Major Projects & InvestmentsMajor Projects & Investments•• Economic Projects:Economic Projects:•• Agriculture Agriculture –– Rubber, Oil Palm, Cashew Nut and Coconut Rubber, Oil Palm, Cashew Nut and Coconut •• Forestry Forestry –– model sustainable forestry development and plantation forestrymodel sustainable forestry development and plantation forestry•• Fisheries Fisheries –– barramundi habitat conservation, and restocking barramundi habitat conservation, and restocking •• Tourism Tourism ––community and high value market community and high value market –– N.Aust/W.Papua/PNG region marketN.Aust/W.Papua/PNG region market•• Infrastructure: Infrastructure: •• Electricity, communications, transport, water and sewerage Electricity, communications, transport, water and sewerage –– Study of WP and interested Study of WP and interested

nationally if invited by Governmentnationally if invited by Government•• Technical Education Technical Education –– Star Mountain Technical Training InstituteStar Mountain Technical Training Institute

Delivery Model and VehiclesDelivery Model and Vehicles•• Community Programs Community Programs –– Churches, NGOs, Business enterprises, and LocalChurches, NGOs, Business enterprises, and Local--level Governmentlevel Government•• Major Programs Major Programs –– Subsidiary companies Subsidiary companies –– PNGMFL, PNGSEL, PNGSIL, PNGSIEL, PNGSFL PNGMFL, PNGSEL, PNGSIL, PNGSIEL, PNGSFL

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Example One Example One -- Community Community Development ProgramsDevelopment Programs•• This program enables PNGSDP to work with communities This program enables PNGSDP to work with communities –– to to

support village organisation, provide small but valuable contribsupport village organisation, provide small but valuable contribution, ution, strengthen confidence and enable hope.strengthen confidence and enable hope.

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

•• Dr Daniel PriestDr Daniel Priest…”…”It made a big difference to us to know we had It made a big difference to us to know we had good surgical suction, good anesthetic suction and suction for tgood surgical suction, good anesthetic suction and suction for the he baby. This lady needed blood urgently. We had to transfuse bloodbaby. This lady needed blood urgently. We had to transfuse blood. . We tested (crossWe tested (cross--matched) at least 7 people and of those we found matched) at least 7 people and of those we found that 2 were HIV positivethat 2 were HIV positive……giving her HIV infected blood would be a giving her HIV infected blood would be a disaster!disaster!””

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

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Example 2 Example 2 -- Promoting Access to Financial Promoting Access to Financial Services Services –– PNG Microfinance LtdPNG Microfinance Ltd•• Savings and credit form basic preSavings and credit form basic pre--requisites of requisites of

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

•• 24 December 2004 secured license as a 24 December 2004 secured license as a ““Commercial Microfinance CompanyCommercial Microfinance Company”” and and opened first branch mid January 2005. Now 6 opened first branch mid January 2005. Now 6 branches, plus another to open next month.branches, plus another to open next month.

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

•• Methodology Methodology –– Outreach programs including Outreach programs including training and advisory service. IDs provided. training and advisory service. IDs provided. Visits to settlements and schools. With internet, Visits to settlements and schools. With internet, can increase outcan increase out--reach into rural communities.reach into rural communities.

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Promoting Access to Financial Services Promoting Access to Financial Services –– PNG Microfinance LtdPNG Microfinance Ltd……22

•• As end April 2006, 51,578 deposits with savings value of US$ 3.7As end April 2006, 51,578 deposits with savings value of US$ 3.7 m, m, and 3,890 loans valued at US$ 1.6 m. Interest rate for loans appand 3,890 loans valued at US$ 1.6 m. Interest rate for loans approx rox 28% p.a. (major banks charge approx 1528% p.a. (major banks charge approx 15--17% p.a)17% p.a)

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

•• Agent of PNGSDP Agent of PNGSDP -- Agricultural credit facilities.Agricultural credit facilities.•• Provide financial services for rural workers Provide financial services for rural workers –– teachers, health teachers, health

workers and public servants, and to landowner communities for workers and public servants, and to landowner communities for royalty and compensation payments.royalty and compensation payments.

•• No client is asking to be given a No client is asking to be given a ““handhand--outout””. Costs are higher than . Costs are higher than commercial banks. They are prepared to pay. They just want to becommercial banks. They are prepared to pay. They just want to betreated fairly, with respect and the same opportunity that we treated fairly, with respect and the same opportunity that we demand.demand.

•• Vision: 2015 Vision: 2015 –– 1 million depositors and a branch in all provinces of 1 million depositors and a branch in all provinces of PNG. (Note PNG. (Note –– second largest commercial bank in Cambodia began second largest commercial bank in Cambodia began as a microfinance institution). as a microfinance institution).

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PNGSDP GovernancePNGSDP Governance

•• Singapore Company subject to international standards. Singapore Company subject to international standards. •• Board Board –– 3 BHPB appointees, 3 PNG institution appointees 3 BHPB appointees, 3 PNG institution appointees

–– Bank of PNG, PNGCC, and Minister for Treasury; and 1 Bank of PNG, PNGCC, and Minister for Treasury; and 1 Singapore director.Singapore director.

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

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

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

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ConclusionConclusion

•• Early to say we have succeeded .Early to say we have succeeded .•• PNGSDP case study highlights several points PNGSDP case study highlights several points ––

–– Need for sound governance structures Need for sound governance structures –– Appointment of credible persons with both PNG and Appointment of credible persons with both PNG and

international experienceinternational experience•• Delivery of development programs through Delivery of development programs through ––

–– Community organisations, especially church agencies Community organisations, especially church agencies and NGOsand NGOs

–– business model in partnership with business business model in partnership with business enterprises and through business enterprises and through business

•• Major resource companies and shareholders need to Major resource companies and shareholders need to embrace sustainable development as core business embrace sustainable development as core business objective and not as a objective and not as a ““public relationspublic relations”” function.function.

•• Business, Capitalism and Development involving Business, Capitalism and Development involving communities as equal participants is possible. Need to communities as equal participants is possible. Need to rere--examine current international aid delivery. examine current international aid delivery.

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Wawoi Falls, Western Province

Thank you