At the end of December 2003, PNG Sustainable Development Program (PNGSDP) Ltd completed the first full year of operation. As previously reported, PNGSDP Ltd was established in February 2002 following the transfer to that company of our entire 52 per cent equity in Ok Tedi Mining Limited in Papua New Guinea. All of the dividends from Ok Tedi Mining Limited that would have gone to BHP Billiton now go to PNGSDP Ltd. Through the year, PNGSDP Ltd made solid progress in each of its areas of responsibility.
The central function of PNGSDP Ltd is to promote sustainable development in Western Province and Papua New Guinea more generally. PNGSDP Ltd has formed the view that it can make its most valuable contribution through support for sustainable income-generating activities in Western Province and in rural Papua New Guinea. Sustainability is understood to have governance, management, financial, environmental and social dimensions. Projects in agriculture, agro-forestry, economic infrastructure (including sustainable power generation) and micro-finance are at an advanced stage of preparation.
Decisions on the allocation of development funds among income-generating activities will be guided by the number of sustainable minimum family income units that are generated for each thousand kina spent. A common model for income-generating projects will be the ‘nucleus estate – outgrower model’, where an established business with appropriate experience manages a commercial enterprise and receives payments from PNGSDP Ltd development funds for delivering services for associated rural communities.
Funds activities
At 31 December 2003, the three funds of PNGSDP Ltd – the Long Term Fund, the Development Fund and the General Fund – totalled US$64.4 million. The Long Term Fund represents two-thirds of the income received from Ok Tedi Mining Limited and the Development Fund represents one-third of the income received from Ok Tedi Mining Limited (after deducting operating expenses and all other legal contractual obligations). The General Fund allows for an allocation to fund the administration costs of PNGSDP Ltd.
A main function of PNGSDP Ltd is to manage the Long Term Fund so that it can support a high level of development expenditure in Western Province in particular and Papua New Guinea in general for at least 40 years after the closure of the mine. Through 2003, the Long Term Fund generated an average return of 8.06 per cent and increased from US$3.6 million to US$42.1 million, including additions to the corpus from dividends. Part of the Long Term Fund will be invested in Papua New Guinea, where low-risk investments with satisfactory expected returns are identified. Evaluation of low-risk investments in companies that are operating commercial ‘nucleus estates’ and also supplying development services will be given priority.
Significant work has been devoted to several strategic initiatives that could be supported by PNGSDP Ltd under the Development Fund (which totalled US$20.9 million at 31 December 2003) and where they fulfill the ‘low-risk’ investment criteria of the Long Term Fund. A Sustainable Community Development Program Fund has been established to support the delivery of a wide range of services, not necessarily related to income growth, through community organisations. PNGSDP Ltd will work through specialised service delivery entities rather than develop its own delivery capacity. To this end, PNGSDP Ltd is establishing cooperative relations with a range of commercial and development organisations with service delivery capacity or with experience that can assist in the identification of suitable partners. The World Bank and its associate, the International Finance Corporation, have shown positive interest in working with PNGSDP Ltd on several substantial projects.
Under a Sustainable Community Development Program Fund, PNGSDP Ltd will provide a minimum of 50 000 kina and maximum of 250 000 kina per project in partnership with community organisations and development partners to support community-level development initiatives. It has committed 15 million kina over five years, consisting of one million kina a year for Western Province and two million kina a year for the rest of Papua New Guinea. PNGSDP Ltd also undertook feasibility studies of the expansion of the Western Province Micro-Finance Scheme into other parts of the province and nationally.
For Western Province programs, 11 million kina has been committed towards a rubber project in the Lake Murray area of the province. Agreement has been reached with a potential partner to undertake a feasibility study of a possible estate and village rubber project, which will cover the Lower Middle and South Fly areas of the province. A field study was conducted of the communications infrastructure in the province as the basis for a proposed rural communications system, preferably under a partnership agreement.
For national programs, PNGSDP Ltd has investigated possible support for village and smallholder oil palm expansions under partnership arrangements. A study of the Highlands Highway Rehabilitation Project was completed, which identified a section for possible co-financing with other development partners.
Further discussions with the Government will take place before progress can be made.
Annual Report Meeting
PNGSDP Ltd convened its first Annual Report Meeting with stakeholders in Port Moresby on 12 June 2003. Representatives of the Government of Papua New Guinea, the Western Provincial Government, Ok Tedi Mining Limited, international development partners and communities attended. A seminar on palm oil industry opportunities was held in conjunction with the meeting. The PNGSDP Ltd Advisory Council was appointed, consisting of seven Papua New Guineans with extensive experience in government, church and community organisations. The Council held its first meeting on 28 October 2003.
Looking ahead
PNGSDP Ltd’s first sustainable development projects are expected
to begin before the end of 2004. Substantial progress should also
be made in finalising the scope of development projects in rubber, palm
oil, power, micro-finance, road infrastructure rehabilitation and communications
within Western Province and other parts of Papua New Guinea.
PNGSDP Ltd will further strengthen relationships with stakeholders in Papua
New Guinea and partnerships established with key international development
and business partners.
PNGSDP Ltd is ready to take its place as a substantial participant in Papua New Guinea development, especially Western Province development.
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