Weekly Commentaries

This is Sunday Chronicle's weekly commentaries on various issues of interest affecting the country. All individual commentators are done by elite Papua New Guineans from diverse educational backgrounds.

Friday, August 23, 2013

PNG resource extraction law at stake

Sunday Chronicle PNG Commentaries: PNG resource extraction law at stake

PNG resource extraction law at stake

Sir Julius Chan
Former Prime Minister and New Ireland Governor Sir Julius Chan explains why we need to correct PNG's mining laws as captured in his address to the recently concluded regional stakeholder meeting on the “Review of the Mineral Policy and Legislation And Development of Mining Sector Policies” in Kokopo, East New Britain province.
The review of Mining Legislation is long overdue in Papua New Guinea.  It is something I have advocated for a number of years, and I am pleased to see it finally on the agenda of National Government.
My only questions are this:  how serious Government is about this review?  It seems to have been carried out with very little urgency.  I have seen very little in the way of radical suggestions for changes in the way mining is done in Papua New Guinea.
That will change today, for I must tell you that we need radical changes.  I am not going to mince words.  I am going to spend some time spelling out exactly what problems we face and exactly how to correct, to address those problems. 
For the truth is that our country is at a crisis point.  If we do not correct some very serious faults and failures in how we approach the extraction of resources such as minerals, gas and oil we will not only continue to fail to deliver progress to our people, we will put the very survival of our country at peril. 
We need a new vision for resource extraction.  We need to make some hard decisions, not just make little changes around the edges.  For example, we need to decide that the people own the resources.  Not the government.  Not outsiders.  It’s the people.  And we need to ensure that there is an equitable distribution of the benefits – not only to landowners, the affected areas, provinces and government, but to the entire nation.  This is what our country cries for today, and this is what we must provide.
But to develop a strategy of sustainable prosperity, we must first understand the mistakes we have made in the past and continue to make.  Someone must tell this story or we will never correct our mistakes.  Today, I will correct myself and tell that story.  Today, I will tell the truth.  And the truth is that we - the State, the people – have been duped.  I know it is uncomfortable, but we must face the truth.  If we do not admit the truth, we will never correct our errors.
We all know Papua New Guinea is fortunate in having great stores of natural wealth.  PNG has been described as a “mountain of gold floating on a sea of oil.”  We are blessed as few other nations have been blessed.  Yet we have squandered this wealth, and in so doing condemned our people to poverty, to being left behind while others prosper. 
Without mincing words:  our country has been systematically giving away its birthright.  That is not rhetoric.  It is literally true.  We may be pardoned for having done this at Self-Government, at Independence.  But after 38 years we should have no excuses.  We should have matured-we have not. But time is overdue for correction.
After all, Papua New Guinea has had major resource extraction projects since before Independence.  But if we are honest we will admit that all of these projects have failed.  They have failed not because the resources have not been extracted.  They have failed because they have resulted in no improvement in the lives of our people.  This is the truth. 
How has this happened?  Well, the heart of the Problem is the very Law we are discussing today:  The Mining Act 1992.  That Act declares:
‘All minerals existing on, in or below the surface of any land in Papua New Guinea, including any minerals contained in any water lying on any land in Papua New Guinea, are the property of the State’.
The Oil and Gas Act 1998 makes a similar declaration in respect of oil and gas reserves throughout PNG.
The State has unilaterally wrested ownership of all wealth on or below the ground from the people who owned those resources for forty thousand years.  Today, I want to examine how we got to this position, the consequences and outcomes of this development and, most importantly, how we can correct the problems.
This situation arose mostly by historical accident.  During the colonial period Mining and Petroleum laws were based on Australian precedent and placed ownership of resources in the Administrator.  Papua New Guineans were not consulted, did not know, and did not understand this was the case.  When copper and gold were found on Bougainville in the 1960s, the Australian Administrator sent an Anglo-Australian company, Rio Tinto (CRA) to open a mine.  No consultation was ever considered necessary with the traditional landowners.
However, the people of Panguna protested and fought against the Colonial Administration and Rio Tinto. In 1969, a Bougainvillean, in an article titled “Bek Long Bougainville:  Gavman I Pulim Mipela Long Wanpela Rot Tasol”, neatly expressed what the people wanted when he said:
‘We thank CRA for discovering our copper, and if they wish to help us mine it, it is right that they should share in the profits.  But the copper belongs to us.  It is a tradition, a law throughout Bougainville, that the people own the things in the ground, as well as those on top of it.’
“It is a tradition, a law...” And this was not the opinion of a simple Bougainville villager alone.  Percy Chatterton, a member in the House of Assembly, supported the landowners’ position.  He argued:
‘The principle of State ownership is a figment of the imagination.  No such principle exists.  Under the common law of England we are told minerals belong to the owner of the land under which they are found…’
I want to emphasise what Percy Chatterton said.  “The principle of State ownership is a figment of the imagination….”
And he is not alone.  Professor Michael Crommelin, an authority on Australian resource laws, supported this position of landowner ownership.  He said:
 ‘British common law, inherited by Australian colonies upon white settlement, included a presumption that the owner of the land is entitled to all that lies above and below the surface.  Natural resources such as minerals were regarded as part of the land in which they naturally occurred and accordingly passed into private ownership upon Crown grant of the land.’
Despite these arguments, in the end the Australian Statutory Law in place during colonial times prevailed over both Papua New Guinea customary law and British common law, and this was formalised in the Mining Act 1992.
But let me be very clear.  State ownership of minerals violates both traditional PNG law and British Common Law.  And the consequences have been disastrous and irrefutable. 
The consequences of the arrogation of all mineral, oil and gas resources by the State have been a massive giveaway of the national wealth of our country.  This is no exaggeration. 
The State says it is the owner of all these resources.  Not only is this counter to British Common Law, it results in an absurd situation.  Why?  Because the State, having stolen the minerals, then gives away all that wealth and then buys it back at an exorbitant price.  The Independent State of Papua New Guinea has been incredibly inept.  Let me explain.  It is important that everyone understand what has been going on.
First, the State cedes exploration and production rights to foreign companies for next to nothing.  Insignificant license fees are charged – often as little as K10, 000 – and royalties of 2% are levied.  But for this pittance the foreign developer gets full control of all the wealth that can be taken from the ground.  When a Mining Lease is granted, the company effectively is given ownership of all the minerals in the ground covered by the lease.
The next step is for the State to seek equity in the project, usually 30% in a mining project and 22.5% in an oil or gas project.  But think clearly about this.  The State has just given away the entire resource to a foreign company, and now returns to buy what was already legally its own property by spending K200 million or K300 million or even more for a 30% interest in the project.  And to do so the State usually takes out a commercial loan that puts the country further into debt, often at high interest rates.  This increases our debt and the cost of debt servicing each year.  To pay for what we already owned, we have borrowed.  What a mess.  What a mockery. 
Worse, if the State chooses not to take up equity, it is effectively giving away for nothing the wealth that it claims to own, as it did in Lihir when I came to power in 1995, for the first time, I insisted on the introduction of free-equity for Landowners. Not only this, but the State, by law, limits itself and the people of PNG from owning majority shares in their own mineral resources.
To compound the situation, the State goes further and creates conditions such as financial capacity and technical experience for a mining exploration license or development lease that prevent young Papua New Guinean companies from competing with well-established foreigners for exploration and development leases within our own country.  Basically it deprives national companies because they neither have experience nor capital.    How exactly they are to develop either without being given a chance to operate is never explained.
The results of all this are devastating.  Today, thirty-eight years after Independence, we have completely failed to realise the aims of the Second National Goal, which is to achieve equitable distribution of incomes and other benefits of development among individuals and throughout the various parts of the country.  Ownership in the mineral, oil or gas is given away freely to outsiders.  If the State and the landowners want a share they have to buy it from the licensee since the licensee has become the new owner.  Even then they get nothing until a profit is declared, which, as Lihir demonstrates, might take ten or twenty years. Meanwhile, the State and the people of PNG subsidise foreign corporations extracting our resources by meeting their part of the operational costs and debt and through all forms of tax incentive schemes. 
The result is clear: Waigani has grown fatter each year, prices have skyrocketed, but the average citizen has not really benefitted at all.  Electricity, water and sewerage, roads, housing, schools, public parks, and recreational facilities all deteriorate.  Unregulated employment arrangements from extractive project sites have caused capital flight draining both rural areas and the nation of much needed funds generated by the resource projects.
I said I would tell the truth.  We have seen that the State gives away our wealth, then pays exorbitant amounts to buy back what was already ours. We have seen that the State put up barriers to preventing Papua New Guineans from exploiting their own resources.  But these actions have even more far-reaching effects.
The entire structure the State has created not only squanders our wealth, it causes deep problems in our economy and leads to the loss of huge amounts of capital every year in addition to the value of the resources exploited.  To understand the full consequences of these actions I need to speak a bit about foreign aid, foreign development assistance and the resource curse.
Eminent scholars such as Professor Richard Auty and Professor Jeffrey Sachs have shown clearly that resource rich countries – such as Papua New Guinea – actually tend to slow down, and sometimes even reverse, their rate of development when their resources are exploited, while the resource poor countries – such as Singapore or South Korea - have seen miraculous growth.  For some reason the existence, and exploitation, of abundant mineral and oil and gas resources hurts the people of the countries in which those resources exist.  This is the Resource Curse.  Why does it happen?
One reason is the ownership structure of natural resources. Professors Luong and Weinthal discuss four kinds of ownership regimes, including:
·                     State ownership with control;
·                     State ownership without control;
·                     Private domestic ownership; and
·                     Private foreign ownership.
Of the four ownership regime types it was found that private domestic ownership does not cause the resource curse.  That is, if citizens of the country in which the resources are located own the resources, then internal development and improvements in people’s lives occur.  It is that simple, because the stakeholders can prepare and plan beyond the life of the mine.
On the other hand, private foreign ownership causes the worst case of the Resource Curse.  This is PNG’s ownership regime type.  All the smaller mineral projects - Simberi, Wild Dog, Hidden Valley, Kainantu, Misima - have been wholly foreign-owned with no landowner or State ownership.  Large projects like Bougainville, Porgera, Ok Tedi and Lihir are also under private foreign control, though the State and landowners may have a little equity.  
So the question is, if private ownership is the best way to beat the resource curse, why has this form of ownership been so rare?  And why has private foreign ownership been so prevalent?
Professor Wenar says that international law firmly establishes the resources of a country belong to the people of the country, and no one can sell this property without authorization.  But he also says “Whoever can maintain coercive control over a country’s population…is recognized internationally as legally authorized to sell off that country’s resources.”   Essentially, a government monopolizing the legitimate use of force can exercise control over the peoples’ wealth.  Wenar argues that this anti-market practice of ‘might makes right’ is a legacy of colonialism and imperialism, and is not justifiable in today’s globalized world.
The simple fact is that Waigani’s might has apparently made it right for the customary landowners’ rights to minerals and other natural resources to be taken by the State for transfer to outside corporations.  But this is colonial thinking, and the colonial justification upon which State ownership sits is no longer valid in the modern world.  The people – the real owners of the resources – are being impoverished while foreigners steal their wealth. 
But it is not just the ownership structure that causes problems in the resource extraction industries in PNG.  I said the truth would set us free.  This is the truth.  The entire “game” of foreign aid, of development aid is not designed to help us.  Foreign aid is designed first and foremost to aid the country providing the aid.  This may sound harsh, but we cannot begin to play the game until we understand the rules.
The most basic rule is that the entire game is designed to benefit corporations and companies in the lending country.  This should not surprise us.  It is called good business.  But we cannot continue to bury our heads in the sand and not see what is in front of us.  For proof I offer the following.
In most “developed” countries no foreign company can own a majority in resource extraction activities.  When Chinalco tried to buy 19% in Rio Tinto of Australia, the Australian Foreign Investment Review Tribunal refused, saying it was ”national interest” that Australians owned a majority of shares in domestic natural resource projects.  Other countries regularly do the same.
But those same countries apply different rules to developing countries.  International investors and donors regularly persuade resource-rich developing countries like PNG to take huge loans for major development projects, which are both carried out and owned by major corporations from the developed countries.  The host countries are told the projects will cause a ‘big push’ in economic development and speed up industrialisation efforts.  In reality, only the ruling elites get richer, bolstering their political power.  Most of the money goes to the foreign owners, and the poor remain as poor and impoverished as ever, and are sometimes even worse off after the life of the project.  And the nation ends up owing more and more money, which it has borrowed at high interest rates in order to purchase equity in resources we have given away.
This build up of debt is encouraged by Export Credit Agencies, arms of foreign governments that provide government-backed loans, guarantees and insurance to domestic corporations for investments in developing countries.  Their purpose is not to provide development for the recipient countries, but to promote their own country’s exports and foreign investments.  These include the U.S. EX-IM Bank, the British Export Credit Guarantee Department, and the Australian Export Finance and Insurance Corporation (EFIC). 
ECAs account for 80% of gross capital market financing in the world’s seventy poorest countries.  They account for the single largest source of Third World Debt; their interests are the interests of corporations in the US, UK or Australia, not PNG.  And ECAs structure the loan agreements in ways designed to improve the ability of companies from their country to penetrate and benefit from the economies of the developing countries.  They have clearly been very successful in this in PNG, where they gain near-total ownership of projects for their companies for a mere token payment of licensing and related fees.  Again, this should not surprise us.  It is part of the international game of business and capital.  But don’t you think it is tine we stop being amateurs and learn to play the game?
This is the real situation we face.  We are engaged in a massive international competition for capital and wealth.  The players are the most powerful governments, the largest multinational corporations.  They are wealthy, sophisticated and ruthless.  We have some strength, namely our natural wealth.  But to this point the State has played the game as if we were amateurs who do not know or care about the rules.  And we have allowed the professionals to cheat us mercilessly.  It is time for PNG to learn to play the game.
What can we do to change the situation?  We need to develop a strategic approach to resource exploitation in Papua New Guinea that does four things. 
First, it must return control of the resources to the people. 
Second, we must develop a professional and effective organisational structure to manage and oversee the minerals and oil and gas sectors in PNG. 
Third, we must devise ways to ensure the benefits of resource extraction flow to all the people of PNG – not just the State and the landowners.  
Fourth, we must ensure that those equitably distributed benefits continue to flow long after the mines have closed, that there is sustainable prosperity for the people of Papua New Guinea.
The first step is to insist on majority ownership of all resource extraction projects in the country.  This is already done in countries with what are recognised as “advanced” resource extraction regimes and legislation – like Norway and Botswana and Chile.  It should be done in Papua New Guinea.  The Mining Act must be revised to return ownership to the people who live on the land or to the provinces in whose territory seabed extraction is done.   
Second, we need to replace the current confused structure of control of mineral and oil and gas activities with a rational and professional organisation.  MRA, MRDC, Orogen, Petromin and others are all working at cross-purposes.  We need two central bodies.  One body should be responsible for managing the process of mapping and identification of resources, negotiation with companies for licenses and monitoring of the operations once they are underway.  The other body should be a kind of Mining Investment Haus that professionally manages all State incomes from mining activities and ensures that the use of those funds work to the benefit of all the people of Papua New Guinea. 
The body that controls the granting of licenses and is responsible for monitoring extraction activities needs to be given specific powers under legislation that will strengthen the position of the State and people of PNG in the resource sector, including the following:
·         First, all contracts should include state control over levels of exploration and rates of extraction.  We have allowed exploration whenever companies propose it, and we have allowed companies to determine without consultation the rate of extraction (for example, the expansion of Lihir under the Million Ounce Plant Upgrade).  We need to control these factors.  This is regularly done in other countries.
Therefore, we should revise the Mining Act 1992 and Oil and Gas Act 1998 to give the state control over the rate of exploration and extraction.  We should allow only enough extraction to guarantee sufficient income to meet our development needs.  Too much income invites misuse and exhausts our resources more quickly than if we moderate the pace.  Slowing the pace of exploration and extraction will reduce the negative economic effects from huge infusions of income as well as damage to other sectors of the economy.
·         Second, the state should shorten the duration of licenses in general.  This will give greater control over the resource and force the companies to come to us more frequently if they wish to continue to operate. 
·         Third, the state should legislate its right to participate in any future licenses including a carried interest in each license until commercial discoveries are made.  This is standard practice in Chile and Norway. In Norway this includes a  “sliding scale” allowing a greater share in future if fields prove commercially viable and this has led to the local interests controlling nearly 80% of all commercial oil operations and associated revenues.
·         Fourth, this body should be responsible for closely monitoring and auditing the operations of mining companies to ensure they are reporting earnings, profits and expenses accurately.  Failure to do this has cost the State, and the people, billions.  It is simply incomprehensible to me that Lihir Gold was able to operate for over ten years without declaring a profit, yet the company overall made billions.  This is a fundamental failure of the State to effectively monitor the operations of the mine.
Once the people and the State have control over ownership of resource extraction activities, we need to give careful attention to the ways in which the funds realised are used.  This is for two reasons. 
First, if we use the funds properly we will ensure the benefit flow goes to all the people of the country, and not just to a privileged few or not just to the landowners.  Second, if we make expenditures in the right areas we will avoid the worst effects of the resource curse.  We know the greatly expanded incomes from resource extraction can have a number of negative effects.  They can cause severe contraction of other sectors, such as agriculture and manufacturing; they can lead to the wasting of income on corruption and patronage, the weakening of export competitiveness in agriculture and other sectors, and they can lead to the ignoring of the real needs of the people.  If we are wise we can control these negative effects.
Therefore, the second body, controlling the use of the revenues from mining and oil and gas activities, needs to be able to control both the level and the use of income.  How can we do this?  There are a number of strategies.
·         We already discussed one way of controlling levels of income – control the level of exploration and extraction so not too much extraction occurs at once.  However, even then incomes will still be high with potential negative effects.
·         A second strategy for controlling income flows is to control the revenues available to the state by “ring-fencing” most of them.  In Chile, Norway and Botswana the state places – by law – most of the income into an independently managed sovereign fund.  By law the state can use only 5 – 10% of the total income for budget purposes.  The rest is placed in the fund for the post-resource generations.  We need to use such an approach, replacing the present ineffective and politically controlled MRDC with a more efficient and independent body.
We also need strategies for the use of those revenues.  Again, there are several things we can do:
·         First, we should increase the direct returns to the landowners and provinces where operations are located.  Part of this will be done through ensuring local ownership of mines.  We should also dramatically increase royalties and ancillary benefits paid to landowners and provinces. Royalties paid in Norway and Botswana, for example, are at least ten percent while in PNG the level is a mere 2%.
·         Another way to improve use of revenues is to even out expenditures on major public works. Governments tend to fund huge public works programs when resource prices and incomes are high.  These levels cannot be sustained when prices drop, and they have the unintended consequence of increasing prices for key goods.  Major public works should be carried out, but they should be done gradually in a long-term development plan, not all at once in a way that floods the market, driving up prices.  Effective long term planning is critical.
·         A final improvement in the use of revenues is to ensure the entire population benefits from the revenues.  The most efficient way of using large sums of income without putting upward pressure on prices of goods and services is to fund social areas of expenditure.  Free health care, free education and old age and disabled payments are some ways of doing this.  We can also provide funds for training and retraining of people for productive jobs.
If we design these two agencies properly we will meet the goals I discussed above:  to ensure the benefits of resource extraction flow to all the people of Papua New Guinea, and to ensure those benefits continue to flow even after mine closure, thereby at last bringing sustainable prosperity for all our people.
The key to all of this is to return ownership of the resources to the people.  Once that is done we have the potential to establish a mining and oil and gas regime in PNG that is progressive, works to all our benefits and provides sustainable prosperity for all the people long after the mines and oilfields are exhausted. 

To achieve the goals I have discussed above we need to make the following changes to the Mining Act 1992:
1.      A declaration that property in all minerals and hydrocarbons existing on or under the land or water throughout PNG belong to the customary owners of the land or to the provinces in the case of the sea, to be developed, owned, extracted, processed and exported by national companies, the majority of whose non-transferable shares are held by Papua New Guinea citizens.
2.      That the landowners on or under whose land the minerals are found, and the Provincial Government in whose province the resource is located, hold at least 51% interest in the resources, with the remaining 49% shared between National Government and a national mining or hydrocarbon company such as Petromin or National Petroleum Company of PNG.
3.      That the current structure of regulation of mining in the country and of the management of incomes from mining be radically revised to establish two bodies, one for the former function and one for the latter.  The first body, to take the current functions of MRA, should be given the following powers:
a.       The ability to regulate the levels of exploration and the rates of extraction.  Only sufficient extraction should be allowed to provide income to meet our development needs as contained in a sound long-term development plan.  This should include the ability to vary the levels of extraction on an ongoing basis even during the life of a specific mining lease.
b.      The ability to shorten the duration of licenses in general. 
c.       The ability of the state to participate in any future licenses including a carried interest in each licence until commercial discoveries are made. 
d.      The responsibility to closely monitor operations to ensure that financial statements accurately reflect actual earnings, profits and expenses.
The second body, the one to manage the use of incomes from resource extraction, should be tasked to carry out the following functions:
a.       “Ring-fencing” the majority of income realised from resource extraction activities.  Most income should be placed in a dedicated fund and by law the State should be able to use only a specific proportion of those funds for current expenditure.  The rest should be maintained in the fund for use of future generations.
b.      Use of revenues should be “evened out”.  Expenditures levels should be determined by a pre-established long-term development plan.  Large public works or other programmes should not be “added on” during periods of high prices for minerals or oil and gas because these activities will not be sustainable when prices drop.
c.       A formula should be developed by which the revenues realised from resource extraction activities are distributed to all the people of the country.  The revenues realised by the State should be returned to the provinces and landowners from which they originated, but a certain proportion – perhaps 50% - should be distributed to other parts of the country that do not have active resource extraction projects.  These funds should be distributed only in line with development plans and strategies formulated for long-term development. 
4.      The management and operation of a mining project should be contracted to a foreign company for an annual contractual fee only if operational and managerial experience or expertise is needed and not available in-country.
5.      The discovery of a commercial mineral field by a foreign or PNG company with a majority of shares held by foreigners does not entitle the discoverer to apply for development licence, but a right to a minority holding and first preference in managerial or operational services.
6.      All exploration and development costs incurred by a foreign company be reimbursed from the gross profit of the operation at a rate of interest to be established by law. 
7.      Townships must form part of a project development program and the use of temporary camps and fly-in-fly-out arrangements should be regulated so capital generated by the project remains within the local economy
I know that this sounds like a complex approach.  But the simple fact is that mineral extraction is a complex industry.  And we in Papua New Guinea have failed to recognise this, and in the failing we have failed our country, our people. 
We must return control of the fruits of the earth to those who have lived and died, worked and sweated on that land.  Failure to do so will only continue the shameful practice of sending our wealth to other countries for their enrichment while we impoverish our own people.  If we do nothing, we will remain amateurs trying to play in a game with professionals.
There is one more step we can take to strengthen our position in this high stakes international contest and ensure the wealth of our land works to the benefit of our people and not some group of outsiders.  There is one more way to put power back in the hands of those who should rightfully have power over the wealth of our land.
National Goal and Directive Principle No. 2 calls for all citizens to have an equal opportunity to participate in, and benefit from, the development of their country.  Accordingly, it calls for -
·                     an equal opportunity for every citizen to take part in the political, economic, social, religious and cultural life of the country; and
·                     the creation of political structures that will enable effective, meaningful participation by our people in that life, and in view of the rich cultural and ethnic diversity of our people for those structures to provide for substantial decentralization of all forms of government activity
This is clear.  This is our Constitution.  Therefore, the New Ireland Provincial Government and People of New Ireland demand substantial decentralization of all forms of government activity, beginning with the power to own all natural resources within New Ireland and control, regulate and manage their extraction, production and marketing.  This should be the goal for all provinces in PNG.  The State must relinquish and decentralize substantial control over natural resources to the provincial level.
The people of New Ireland claim that National Government in Waigani has failed since Independence to direct the development of the nation in line with the National Goals and Directive Principles. Development should take place primarily through the use of Papua New Guinean forms of social and political organization.  Instead development has taken place, and continues to take place, through outside companies with no concern for PNG social and cultural forms. Their motivation is their own profit, the power to control local economies for their benefit, and perpetual control over the wealth they find in the ground.  
The Papua New Guinea system, in contrast, is informed by community values, community survival, and community welfare.  The individual finds fulfilment, self-worth and self-satisfaction in aligning his or her interest with that of his or her community.  He or she is a part of the whole.

We argue that companies substantially owned by Papua New Guineans should be given preference to build our roads, bridges, wharves, or develop our forestry, harvest our marine products, or extract our minerals, oil and gas. A company wholly owned by the people and government of New Ireland will explore, extract and produce all natural resources on New Ireland.

Since decentralization is called for under National Goal No. 2 of the PNG Constitution, we ask for nothing new.  We demand powers to own, regulate and control the extraction of natural resources at the provincial level.

There are those who will argue that we do not have the capacity to do this.  There are those who argue that in order to exploit our resources we must give control to outsiders.  This is not an argument, it is an excuse.  If it takes time for us to develop capacity, so be it.  The minerals, the oil and gas, will remain in the land.  They will not be exhausted for the benefit of outsiders.  And as we develop our capacity we will develop our ability to exploit those resources for the benefit of our people, our country.

I know I have tried to cover considerable ground here today.  But this is our main opportunity to have input into a legislative regime that is central to the equitable development of our country.  We need to understand the origins of the perverse system by which the State has arrogated ownership of all minerals, oil and gas on and under the land and sea.  We need to understand that this flies in the face of traditional Papua New Guinea understandings and British Common Law.   We need to understand how the Mining Act of 1992 and the Oil and Gas Act of 1998 have violated not only traditional and British Common Law, but the Constitution itself. 

I have discussed the consequences of these violations of customary and Common Law.  I have shown how the wealth of this country is siphoned off to foreign centres with only scraps and garbage left behind.  I have detailed the flight of capital occurring every day, every week, every month and every year under the present regime.

And I have shown how we can correct this situation.  Above all we need to return control of the resource to those who live on the land.  We also need to establish professional and independent bodies to, on the one hand, regulate exploration, licensing and operations and, on the other hand, ensure the incomes realised are used effectively for all the people of the country, including future generations.  I have detailed the legislative changes we need to make to achieve these goals.
I want to be very clear.  This is not a protest.  My purpose is not to protest against the actions taken by outside countries and corporations.  No.  My purpose is to bring knowledge, truth to the discussion.  The truth is we have been involved in a high stakes contest for wealth and capital.  That is the game we are playing, and we have not even bothered to learn the rules of the game.   Unless we understand the rules, we have no hope of winning the game.  We will continue to be the laughingstock, the doormat of the league.
Ultimately what I am suggesting is that it is time for us to get smart.  We need to go to school, to learn what other countries have done to improve the outcomes for the State and for the people, and to become professional players of the game rather than amateurs.  Up to now we – the State, the provinces, the people – have never really been a team.  We have been a collection of self-seeking individuals and groups.  And the result has been that at the end of the game – every time - the foreign interests go home with the trophy and with the cash
I hope I have helped today to explain what is at stake.  More than this, I hope I have helped explain how we can all play a part in a radical transformation not only of mining and oil and gas, but of the very future of our country.  It has involved acknowledging some bitter truths, but we must clearly face our challenges.  I have done this for one reason only.  By accepting the truth, by gaining the knowledge we can transform Papua New Guinea- and the people of Papua New Guinea - into winners.  That is our task.  
And we should not think we cannot do it.  We need only open our eyes. We have people who can stand up with the best in the world, and when we do not we will take our young and bright minds and create such people.  In New Ireland we are already funding post-graduate scholarships for our best and brightest.  Every province in the country, and the State itself, should do the same.  We need take a backseat to no country.
We must not rest until Papua New Guinea becomes a side in this international contest for capital and wealth to be contended with, a side to be respected, a side to be feared.   Then, and only then, will we be able to look our people in the eye and restore trust in our leadership and government.


Monday, July 22, 2013

NRI Commentary
The e-ID card system for Papua New Guinea
By Esther Lavu*
FORMAL identification is a step towards development in the modern world. The inability to prove “who are you” and “are you who you claim to be” is a growing concern for many people in Papua New Guinea (PNG). Birth, death and marriage certificates, and work ID cards are formal identifications, and are evidences of proof. In the future, the right to enrol in schools or be included in the electoral roll to vote, and to seek health services and formal employment will progressively require formal identity. Unfortunately, these formal identifications are not possessed by many Papua New Guineans. The national e-ID card system aims to close this gap.
Benefits
PNG e-ID card system
At a personal level, this database will prevent identity theft. More importantly, the identity will provide identity verification for employment, opening a new bank account and using an electronic travel ticketing. The e-ID card becomes a form of formal identification and will be universally acceptable.
Experiences from other countries show that people enrol in a national population databases are issued with a unique number that is linked to only one individual. This unique number is linked to his personal information and no one else can use his identity for benefits. This is one way of reducing widespread corruption at the lowest level.
Generally, the national e-ID card system will address the lack of secured, simple and universal method for citizen identification. When the national e-ID system is fully established and is in operation, PNG will own a centralised live central database of all its citizens. This will reduce the duplication of efforts and resources in data collection by various government agencies. However, it is important that the e-ID is standardised rather than a one-off process.
The national e-ID card system is the identification service that will facilitate requirements for the government and private service providers. For example, the information from the Population Information Management System or PIMS will help PNG Electoral Commission to check and verify their voting population numbers as there is an increasing demand for inclusion in the Electoral role. The health planners will also use the numbers to plan for future immunisation programs so that all females in the ages of 15-45 can be vaccinated.
The aim is to enrol every Papua New Guinea (PNG) citizen in a computerised national population database, which will be known as the Population Information Management System. The PIMS will contain the identity information for all PNG living citizens. From the PIMS, eligible citizens will be issued with a citizen identification card (e-ID cards). The ID card with a photo of a face will be linked to biometrics of finger print scans and individual information. A person’s identity includes name, address, date of birth, gender, parent/guardian details and other information.
This is a development driven project that will support the government’s electronic governance system (e-governance). The e-governance is linking all national databases and only authorised groups can trace information in all relevant databases kept by the government. Although a number of electronic government databases exist, they are not linked in any way.
The system that must support an individual’s formal identification is the Civil Registration System. The registration of events such as births, deaths and marriages form an important database that can assist government and private entities. However, this government program registered only a fraction of the population. Others included in the minority are those employed in the formal workforce with issued work ID cards. The identity gap between those with formal identity and those with no formal identification is increasingly recognised as not only a sign of underdevelopment but as a reason that make development more difficult and less inclusive.
To help people with no formal identifications, there are programs in PNG that provide individuals with some official identity in the context of delivery of a particular service. The PNG telecommunication sector has introduced a cash transfer via the mobile phones system. The banking systems have also introduced identity free banking services for the citizens. Currently no fees are attached to the initiative but it is likely that in the long run, fees will be imposed to continue the administration of such services. The e-ID card system is important for the people as it will be fee free and will be beneficial in many ways.
Additionally, the national e-ID card system is a tool for development planning and service delivery. The government and the other partners must work together to strengthen the on-going PNG e-ID card system once it is established. By supporting the PNG e-ID cards system, the ID cards issued from the PNG e-ID card system will eliminate the different requirements demanded by various government and private agencies.
However, the privacy protection is a top priority in building the foundation of PIMS so that individual’s identity is protected. Citizens will provide personal information and it is the responsibilities of the government to safe guard their personal identity. Mass disclosure of information must remain strictly to only authorised groups. An individual can exercise discretion and disallow the disclosure of your personal information for certain purposes.
It is of great value that the government is creating the national e-ID system which will serve as the identity service provider. It is planning this service against the challenge of many unhappy people who have not benefited from basic services. But the current government approach of increased funding towards sub-national levels is an indication of improved provisions of services. The co-operation and support of the sub national level governments and the partners are essential in creating the PNG e-ID system.

*Esther Lavu is a Research Fellow, and leader of the Population Research program at the National Research Institute.


Justice delayed is justice denied


Sir Julius Chan

By HENZY YAKHAM

The Government of Prime Minister Peter O’Neill has adopted a hardline approach against corruption and crime in general since assuming office after the 2012 general elections.
With the zero tolerance on crime in any form or shape, Mr O’Neill has also has also announced 2013 as the year of implementation.
The tough government stance to rid crime and subsequent legislation of tougher penalties by parliament has received overwhelming public support.
While the Government is taking most appropriate action to address crime, there exits complacency in certain State law enforcement agencies.
A classical case is the apparent inaction or lack of it involving misuse of millions of kina in the New Ireland province between 2002- 2007.
The Ombudsman Commission, Police Fraud Squad, Public Employees Association and other State agencies have conducted their own investigations.
During 2010, the long arm of the law was catching up with certain individuals who are alleged to have unjustly enriched themselves under an illegal political pyramid structure that existed between 2002 and 2007 within the New Ireland Provincial Government.
Long awaited, but a much-welcomed move fully supported by majority law abiding  New Ireland people and their leaders, police fraud squad officers started charging individuals with offences ranging from stealing under false pretence, misappropriation and fraud.
During 2010, police charged eight individuals with one of them facing two charges.
The arrests were first of more expected, and was a follow-up action on the recommendations of an audit investigations carried out by RAM Business Consultants into the financial dealings of the New Ireland Provincial Government between 2002-2007.
That investigation revealed instances of systemic and blatant abuse of financial and administrative process, gross misuse and misappropriation of public funds totalling more than K64 million during the five years.
The investigation report confirmed the existence of an illegal financial and administrative system, known as the “Lemus Structure”.
The report said Lemus structure was a political network and did not come within the formal government framework, thus its involvement in conducting government business was illegal.
There existed a chaotic and unstructured administrative system famously called the Lemus structure which not only conflicted with established systems and structure of Government, but also promoted and environment of cronyism and lack of accountability and transparent,” the report highlighted.
It appears the established systems of governance were deliberately manipulated to suit vested political interest. The Provincial Government completely disregarded the public service machinery of New Ireland Province in policy formulation, strategic planning and budgeting as well as programme implementation,” it added.
The report highlighted that public service delivery system was highly politicised and made totally inefficient and ineffective.
The province’s annually provincial budgets were prepared outside of the Provincial Government machinery with no inputs from professional, experienced and career public servants.
It also established that there were enough evidences for both former and serving politicians and public servants to be charged with criminal offences as well as leadership and public service disciplinary charges.
On September 9 2009, the investigation report was tabled in the New Ireland Provincial Assembly by Governor Sir Julius Chan.
Sir Julius called for a comprehensive probe by the Ombudsman Commission (OC) into the leadership culture under the previous regime.
 The report made strong recommendations for appropriate criminal, civil and leadership action against the former Governor and former Provincial Administrator.
Powers and functions of the public servants were performed at the Governor’s office. As a result, most public servants remain idle for the whole five years, but were still on full pay.
The report referred to a Provincial Executive Council (PEC) decision No: 11/2002 which directed the then PA to withdraw all lawfully delegated financial powers from all public servants except the First Secretary to the Governor’s office.
Since the date of that PEC decision all requisitions for expenditure for Public Investment Programme (PIP) were initiated at the Governor’s office.
The First Secretary signed as Section 32 officer while the PA signed as Financial Delegate for claims to be committed and payments made.  
Financial powers were vested with the PA as the Chief Accounting Officer thus the direction from PEC was an unlawful act. The PA should have refused to accept the PEC direction or could have advised the PEC that the direction was unlawful.
The report also stated that funds for PIP had no proper project appraisals. Projects were not monitored and valued.
It was apparent that under the pretext of project funding, public funds were disbursed without much regard for the requirements of the land principles of transparency and accountability creating an environment of fraudulent acts and cronyism,” the RAMS report stressed.
Capital assets such as motor vehicles, out boat motors, water tanks, generator sets, office equipment including computers and accessories, were bought under the PIP and given to individuals and groups without proper assets register and record.
An amount of K100,000 was expended annually from the PIP funds for a Mansava Oval Redevelopment Project. Payments were made to suppliers and individuals in relation to this project. In 2004 two political staff members received cash advances totalling K85,500 to carry out community development forums.
There were no proper acquittals and reports of the exact work done.
The report also highlighted discrepancies in the Tender Process. The New Ireland Provincial Supply and Tender Board did not meet between 2002-2007. There were not many minutes and tender documents available to indicate otherwise. Yet between 2003-2004 fixed assets to the value of K4,029,603 including motor vehicles, boats, engines and water tanks were bought.
These were also highlighted in a separate report by the Auditor General’s office.

Also in 2004, road works projects costing of K2,005,808 were awarded to contractors without following tender processes.