EITI in Papua New Guinea: pros and cons

Background

Papua New Guinea was admitted as an Extractive Industries Transparency Initiative (EITI) Candidate country on 19 March 2014. This came about as part of a condition for an ADB loan the Papua New Guinea Government wanted to take out as a partial credit guarantee to participate in the Papua New Guinea to Queensland Gas Pipeline Project (PNG Government, EITI Annex 1, 2013). As a commitment to this process, the Government on 28 March 2011 through National Executive Council (NEC) Decision No. 47/2011 directed the establishment of the State Working Group (SWG) with technical support from the World Bank to investigate the potential to implement the EITI. Then on 14 March 2013 the NEC, through Decision No. 90/2013, approved Papua New Guinea’s implementation of the EITI process. The NEC also appointed then Treasurer Hon. Don. Polye to be the Political Champion of Papua New Guinea’s EITI effort and the NEC endorsed his public announcement of the Government’s commitment to implement the EITI.

Later, on 1 November, 2013 the Papua New Guinea Multi Stakeholder Group (Papua New Guinea MSG), comprising members representing various sectors, was formed at the invitation of the Treasurer with the consequent signing of the MoU between Government and the MSG after the first Papua New Guinea MSG meeting (PNG Government, EITI Annex 1, 2013). The country is expected to produce its first EITI Report within two years from becoming a candidate and Validation will start within three years. The MSG for the Papua New Guinea EITI has published an annual activity report for 2014 in 2015 as required to fulfil membership requirements (Secretariat, 2014). At the government level the Papua New Guinea Treasurer leads EITI implementation in the country. The EITI Secretariat through the government is chaired by Mr Manu Momo, First Assistant Secretary of the Economic Policy Division of the Department of Treasury and the Head of the Papua New Guinea-EITI Secretariat is Mr Lucas Alkan (PNG Government, EITI Annex 1, 2013).

What is the EITI?

The EITI is a process that seeks to ensure the transparency of payments by extracting (oil, gas, gold, copper, etc) companies to governments and on revenues received by the government from these companies. It also seeks to encourage greater transparency and accountability in countries dependent on oil, gas and mining to mitigate the potential negative impacts of mismanaged revenues and ensure revenues become an important engine for long term economic growth that contributes to sustainable development and poverty reduction (PNG Government, EITI Annex 1, 2013). It provides the opportunity to step back from the prevailing extractive industry landscape and ensure the underlying paradigm driven by individual interests and the quest for profit oriented wealth accumulation also contribute to meaningful development. The EITI clearly has the capacity to assist the government and the country to set out a clear growth strategy that provides the development platform for Papua New Guinea to develop into a competitive and advantageous position globally hence the government’s commitment to the EITI is very critical.

Potential impact in Papua New Guinea

Given the growth and impact of the extractive industry in the country the step taken by government is encouraging. Almost all Government plans allude to safeguarding and ensuring equal and maximum distribution of benefit to the masses. Much of what the EITI envisions is captured in the various Government policies and plans. According to the Minister for National Planning Hon Charles Abel, the Government sees the necessity for a shift in the value placed on the natural resources and a renewed emphasis on sustainable and responsible development (Department of National Planning & Monitoring, 2014). The consequential happenings noticed over time in the extractive sector is adequate to inform the Government to consider the EITI and ensure a revision of the development thinking and models and take an approach that stands for the long term benefit. This view encapsulates the nation’s strategic assets which includes the mineral resource sector which the EITI process is concerned with to ensure the sector contributes to the country achieving its vision to become a smart, wise, fair and happy society (Department of National Planning and Monitoring, 2010). Importantly how this sector is preserved for the future generation will be determined by how the Government values and seriously implements the EITI as captured in the various Government plans of present (Department of National Planning & Monitoring, 2014). The present trend in the country is that there is an over dependency on non-renewable energy and resource use, but whether the benefits of such are flowing through to the small people is hard to tell. Hence the Minister states that a policy examining the staging and general approach to future large scale extractive projects needs to be developed. This should capture the EITI as a core policy component of the new development road map described by the National Strategic Plan 2030 (PNG Government, MTDP2 2016-2017, 2015).

The Government’s Sustainable Responsible Development Strategy (STaRS) aims to attain the goal of Papua New Guinea becoming a prosperous middle income country by 2030 and be among the top 50 countries on the Human Development Index (HDI) by 2050. The Government also realises that the medium term development challenges require some reliance on the exploitation of primary resources to fund the investment needed for inclusive and innovative economic growth (Department of National Planning & Monitoring, 2014). Thus the requirement for the EITI is essential to ensure the proceeds of resource exploitation is appropriately channelled to Government for investment in inclusive economic growth. However such potential can only be realised through the prudent management of socio-economic development affairs of the nation including the EITI. Although the Papua New Guinea LNG project in the country is expected to produce K75 billion in income over its 30 year life time the fund is only expected to build up significant reserves from the start of the next decade. This means the project has a ten year tax concession that was extended by the Government as incentives for the project backers to invest (Oxford Business Group, 2014). It also states that concessions can often deprive the Government of significant amounts of revenue. While economic signs continue to be positive for the country, a major issue facing the Papua New Guinea Government is delivering quality services to the country especially in health care and education as well as quality infrastructure.

Government commitment and weaknesses

Experiences of the past have shown that inappropriate policy regimes, poor governance and ineffective administration, among many other constraints, have contributed to the inefficient translation of the economic gains into broad based gains and development (Department of National Planning & Monitoring, 2014). Thus the danger of sustained Government commitment to EITI implementation eroding in the long run is because the EITI has not been a planned government initiative. Instead, it was part of the condition for a sovereign loan and a partial credit guarantee to the Papua New Guinea Government (PNG Government, EITI Annex 1, 2013). The Government did not choose to implement the EITI process of its own accord but was obliged to accept a condition that would allow the government to source the funds it was seeking. This can determine the extent of the government’s participation in the process. Examples lack of Government commitment and of timely achievement of similar undertakings can be found in the non-fulfilment and partial achievement of the United Nations Millennium Development Goals (MDG) during its initial five year period. This was due to the fact that on occasions the Government provided inadequate funding and activities relied heavily on donor funding (Department of National Planning and Monitoring, 2010). Some factors that contributed to the non-achievement of the MDGs identified in the 2006 and 2009 country reports were “low level of education and literacy” and “lack of good governance” (Department of National Planning and Monitoring, 2010). These issues are cross-cutting with the potential to impinge on successful implementation of the EITI. An early sign showing lack of government commitment, as found in the 2014 EITI annual activity report, is the poor participation by government officials in scheduled EITI meetings for the year reported (PNGEITI MSG, 2015).

Gaps and Challenges to Progressing the EITI process in Papua New Guinea

In Papua New Guinea the EITI scoping study noted that there were several information gaps, and where information was provided by Government agencies, they were not up to date. This early assessment saw the critical requirement for information to be kept electronically rather than manually and for timely and comprehensive reporting. It was envisioned that this would improve information and data accuracy and contribute to improved regulatory management by Government. Participation by CSO members and some Government representatives during discussions on technical issues at MSG meetings has been weak due to limited literacy on key EITI components. Representation of senior government officials from key departments and agencies at the MSG meetings has been poor. Some government departments have attended one or two meetings with others not having participated in any of the MSG meetings in 2014. The absences of key government agencies in these meetings has limited the MSG’s ability to effectively address and engage on the spectrum of EITI issues and requirements pertaining to the Papua New Guinea context (PNGEITI MSG, 2015).

A study into the Business Investment Environment for Papua New Guinea in 2012 by the Institute of National Affairs shows that generally companies investing in the country have a low and unsatisfactory level of confidence in the implementation of policies announced by government. Hence such factors can affect how companies can respond to the EITI initiative. Study respondents from transport, agriculture and the mining and petroleum sector indicated that they were either sometimes or seldom confident in the implementation of policies announced (Institute of National Affairs, 2013).

A question aimed at getting a nsight into government and business relationships showed that the private sector views the government as being very unhelpful and that their businesses are often highly affected by serious levels of official corruption by government officials, which is a major factor in undermining business in some industries. Given this perspective by the private sector, the government needs to increase its commitment to the EITI process if we want to see some success in the years ahead. Otherwise industry stakeholders will play along without being serious about the need to disclose information as required by the EITI process. Such reports illustrating the low levels of confidence suggest that industry participants can get their way if government is not fully or equally committed to the EITI.

The Medium Term Development Plan 2 (MDTP2) for 2016-2017 highlights that although the country has world class mining projects, some key challenges encountered are the better utilisation of mining revenue for broad based development and diversification of the economy. Hence a key priority under the MTDP2 is to ensure equitable distribution of benefits from proceeds of mining (PNG Government, MTDP2 2016-2017, 2015).

However to ensure this happens the Government acknowledges the need to strengthen the capacity of state institutions that are responsible for policy, administration, regulation, compliance and enforcement. Therefore the appointment of an EITI focal point in each relevant Ministry, department or agency at no less than First Assistant Secretary level to secure the full and timely fulfilment of the tasks required from the Ministry, department or agency in question will display Government commitment to meaningful implementation of the EITI process in the country (EITI Annex 1, 2013).
The Oil and Gas Act provides for the establishment of an Expenditure Implementation Committee (EIC) that is responsible for monitoring budgets and expenditures of monies from the extractive sector. The committee is composed of the National Government, respective Provincial and Local Level Governments and the operator. Although established by legislation the EIC has only met occasionally and has not performed its assigned function.
Government reporting on Oil and Gas revenues are by way of the Minister for Finance reporting each year through the budget the expected revenue to accrue to Government over a five year term. It is also done through a yearly report by the Department of Petroleum and Energy detailing the amount of royalties paid to beneficiaries but such reporting is sometimes overdue by two or more years and cannot be relied upon (PNG Government, EITI Annex 1, 2013). With the alluded management and oversight inconsistencies it is envisioned that the EITI process may encounter difficulties in its operations.

Insights from EITI in the Philippines and the Papua New Guinea EITI

Governance of resources and attaining maximum benefit by people affected by the extractive sector is quite challenging in many countries including. Partly because decisions for mineral extraction are done by government with very minimal consultation and consideration for people in the affected areas. Scenarios such as environment and livelihood destruction are common. Resource governance is a daunting task for resources owners particularly in Papua New Guinea because most often affected people are either marginalised or included in the later stages of the development agreements or are forced to accept and sign agreements with very minimal/limited understanding on what they are signing off on. In the Philippines examples of similar negligence by government to environment and livelihood destruction were quite obvious in certain areas. Resource owners are marginalised and their interests are often disregarded resulting in long term effects felt by the people. This was evident in the Philippines even after mines were forced to shut down by CSOs and interest groups collaborating and working together. Similar scenarios abound in Papua New Guinea, however the EITI concept is new in Papua New Guinea hence more effort is required to mobilise collective action that is driven by a common view.

The successful implementation of the Papua New Guinea EITI hinges on a number of things. One that sticks out and needs to be corrected in order to get the full participation from civil society and the NGO sectors is the fragmented nature of Integrated Land Groups (ILG) and CSOs and their views and interests relating to them being affected by the resource sector. All such groups in mining affected areas in the provinces and the districts have to work together to address issues surrounding their rights. Some issues that affect the different groups as a result of Government not fulfilling its obligations are very similar. Hence networking driven by a common goal to support each other raise cross cutting concerns is essential. Issues like lack of land owner identification exercises in mining areas, agreement signings bulldozed by government, employment opportunities given off to foreigners, accessing royalties, infrastructure development grants and campaigning against environmental impacts or damages are all similar to those affected in the Papua New Guinea resource extraction sector. Some encouraging EITI experiences in the Philippines illustrated significant outcomes that resulted from CSOs and interest groups networking and carrying out coordinated activities to get Government attention on the impacts on livelihood resulting from extractive activities. Banding and working together driven by common interests, needs or shared visions is important to ensure that the peoples’ expectations and aspirations are mainstreamed and respected. Only then will real development be realised, otherwise it will only be partial when centred on Government and other interests. The Philippines case is that through collective efforts CSOs and interest groups were able to achieve some outcomes including closing a mine in the interest of affected people. The Philippines experience is that concerned Government agencies starting from provincial and municipal Governments just do things the way they should be done and this allows for transparency and accountability to be lifted at the levels where it matters.

Hence with a bigger network the CSOs have the upper hand to call on Government to address their grievances as required and they have seen some progress so far. A case in South Kotabato on the island of Mindanao, local alluvial miners and the mining company use the same mining tunnels. They have an understanding so the locals benefit equally and respective CSOs in the area are working to introduce mercury free mining to local alluvial miners. This is something unheard of in the Papua New Guinea resource sector. In Papua New Guinea there is a requirement to get people in affected areas represented at the MSG by association or ILG leaders rather than CSOs who has no direct connection to the local groups. The Papua New Guinea EITI MSG membership is all high level without adequate representation from landowner participation through ILGs or associations. The current representation through the Papua New Guinea Resource Governance Coalition (Papua New Guinea RGC) is inadequate and may seem foreign, given that the initiative is driven by government without wider consultation and participation at the lower level. Their participation through landowner companies or associations has the potential to improve governance, increase transparency and knowledge of revenues which will in turn empower them to hold Government to account (PNG Government, EITI Annex 1, 2013).

The reality is that the EITI is a fairly new concept to people affected by the extractive sector. With communication difficulties and low levels of literacy, it will take time for the concept to be absorbed, appreciated and value the intension and requirement for representation at the MSG. How this fares will depend on the level of awareness and dissemination of information executed by the Papua New Guinea RGC. Membership of CSOs in the Papua New Guinea RGC should slowly allow the inclusion of ILG representatives from the various areas. This process should hopefully shed light and understanding on the requirement for networking among similar groups in the country and for them to form a group to act as their mouth piece to address cross cutting across issues mentioned above. By way of coordinating civil society to support efforts to improve governance and financial transparency in the resources sector the Papua New Guinea RGC through the road shows or other means has to educate landowners to think outside of royalty and equity payments and form groups or identify umbrella companies to represent and be part of the MSG to address cross cutting issues.

Way Forward

Given the requirement for Government commitment to the EITI, members of the MSG which includes the Papua New Guinea RGC need to step up their participation and keep Government committed. It has been recognised that engagement of civil society in the Papua New Guinea EITI process is essential for the required and appropriate representation of civil society in the local EITI governance structure thus achieving a balance on stakeholder interests (EITI Annex 1, 2013). Given the many experiences and levels of inefficiency and difficulty displayed by the Government in maintaining and reporting statistics, the inclusion and participation of CSOs through the Papua New Guinea RGC is critical to ensure the EITI is not a rationale for growing another non-performing Government bureaucracy. The inclusion of sectoral stakeholders is the essence to ensure the EITI is implemented accordingly. However there is significant absence of people or representative groups directly affected by the extractive sector and their inclusion is critical over the course of EITI implementation. Making information about the benefits available by an independent entity such as the Papua New Guinea RGC will assist the industry to demonstrate to Government and the public the significant contributions the sector makes. This will allow people to see that hundreds of millions of kina from the extractive sector are being channelled through respective bodies like the three levels of Government who then have the mandate to provide services using the proceeds. Equity and justice is enhanced through making information widely and publicly available for extensive consumption while empowering the affected majority to hold Government to account. And the EITI will also be invaluable to Government agencies and others as a data source on the industry. The non-participation of Government and industry players in sanctioned EITI process activities have to be made public to ensure Government and industry commitment is sustained from all levels to fully achieve the intended outcome.

In Papua New Guinea there is limited connection between CSOs representing people affected by mining and their Integrated Land Groups (ILG), associations or land owner companies. CSOs were nominated to represent the affected people through the MSG considering that the work done by the CSOs somehow related to the EITI process. However, ILGs and associations in respective mining areas have varied interests and their focus does not go further than being a mouth piece for mobilising the accessibility of royalties, infrastructure development grants and other benefits. So if CSOs really have to represent people in the affected areas then more awareness needs to be done for the people to understand their interest is being represented in the EITI process. Otherwise the membership needs to be relooked and ILGs and land owner companies have to be invited to join so that there is more engagement and empowerment at the provincial and local levels so people participate meaningfully to hold Government to account for service delivery using extractive sector proceeds and fulfil EITI requirements.

References

Department of National Planning & Monitoring. (2014). National Strategy for Responsible Sustainable Development for Papua New Guinea. Port Moresby: Papua New Guinea Government.

Department of National Planning and Monitoring. (2010). Millennium Development Goals. Port Moresby: UNDP.

Institute of National Affairs. (2013). The Business and Investment Environment in Papua New Guinea in 2012. Port Moresby: Institute of National Affairs.

Oxford Business Group. (2014). The Report Papua New Guinea. Oxford Business Group.

Papua New Guinea Government. (2013, August 23). EITI Annex 1. Port Moresby, NCD, Papua New Guinea: Papua New Guinea Government.

Papua New Guinea Government. (2015). MTDP2 2016-2017. Port Moresby: Department of National Planning and Monitoring.

Papua New GuineaEITI MSG. (2015). Papua New GuineaEITI 2014 Annual Activity Report. Port Moresby: Papua New Guinea EITI.

Secretariat, E. I. (2014, January). Papua New GuineaEITI website. Retrieved from EITI: https://eiti.org/papua-new-guinea/implementation