Tag Archives: corruption

ABG claims of financial independence if mine reopens ridiculed

Nasioi Writer responds to Member for Kokoda, Rodney Osioco’s claims the Bougainville government will be financially self reliant if BCL is allowed to reopen the Panguna mine.

Mr. Osioco I can probably forgive you for being so naive and sentimental. Where and when is this extractive industry madness going to end. Your little baby government cannot even account for funding it gets from National Government which ends up in your private accounts as we are being told. Is this how you are going to manage the millions you get from mining and pay tit bits to the landowners who to this day have never been compensated adequately for loss of everything from environment, rivers, and land which is the source of their livelihood?

We are fed up with ABG preaching that agriculture, tourism is not enough to run the economy of Bougainville. Coming from a government that is wasteful with buying fleets and of cars and staying at expensive hotels, I find this hard to believe.

I wonder how much these politicians carrying out awareness are being paid? Isn’t this work suppose to be given to others to do? Maski giaman nabaut kisim allowance na mekim awareness.

The introduction of mining into our midst is causing so much confusion and division among the people who should be united to vote in the forth coming referendum. ABG’s push for mining with BCL at it’s helm is now being challenged by another player RTG which supposedly has the cash and elaborate plans to deal with issues ahead. I don’t support mining in any form or shape because already these companies are sprinkling cash this way and that. This is where corruption takes root if is not already eating away at ABG.

Opposition to Mining is mounting and I think it is time Hon. Osioco and his colleagues started to look at alternatives otherwise we are going to face another catastrophe at the hands of mining companies.

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Sovereign Wealth Fund Is Our Security

Barney Orere | Post Courier | August 22, 2017

Concepts such as Dutch Disease are risks that threaten macroeconomic stability and consequently the long term development of the economy. This requires a forceful and comprehensive response from Government at all levels.

Given the fact that there is heavy dependence on the non-renewable sector; that is, petroleum and minerals, the current generation arguably has clear obligations to ensure that the benefits from their exploitation is available to generations that will come later.

Of importance will be the manner in which the State manages the increase in economic activity and resulting fiscal flows. The implementation of large scale projects such as the PNG LNG in a small economy such as PNG poses considerable challenge in terms of macroeconomic management also.

To minimize the potential negative impact of the considerable increase in financial flows and economic activity on the national economy, the Government policy was to ensure that a Sovereign Wealth Fund structure was implemented in the lead-up to increase in fiscal flows.

A Government submission says that whilst PNG LNG Project forms the backdrop of the implementation of Sovereign Wealth Fund (SWF) in PNG, it was to be expected that the SWF, upon establishment, was likely to be the recipient of financial flows from a range of projects or sources.

The submission which had its cover page removed was found in a warehouse quite by chance. Although some progress could have been made on the SWF, the lack of conversation has prompted the matter to be brought out into the open and there are insights which, hopefully, will get the conversation going.

The idea behind a Sovereign Wealth Fund (SWF) was to secure PNG’s future by putting away savings from major resource projects. Parliament passed the enabling law and five years later conversation on SWF needs to come out stronger.

Time has become of profound essence because earnings from PNG LNG will be flowing in a less than three years from now and without a SWF in place, where will we put the money?

The country is at a critical crossroad because without a management mechanism in place, the synergy effects of vast earnings in a small economy will be the cocktail for the dreaded Dutch disease.

What is more troubling than ever is the lucrative nature of SWF; the nation’s future security will need to be conducted at the most highest level of integrity and that means transparency and accountability. Hopefully this isn’t one of our greatest obstacles because we mess it up now and there’s nothing for future generations.

On February 22, 2012, Parliament passed the Organic Law on the Sovereign Wealth Fund; a high profile initiative that has the potential to be a significant contributor to the welfare of the people, stability and growth of the Independent State of Papua New Guinea for generations to come.

The statutory objectives of Sovereign Wealth Fund are:-

  • TO support macroeconomic stabilization,
  • TO support the development objectives of the Government, including long-term economic and social development, and,
  • TO support asset management in relation to assets accrued from natural resource revenue.

The SWF was to consist of:-

(a) A Stabilisation Fund, to manage the impact of fluctuation of mineral and petroleum revenues on the economy and on the national budget, and,

(b) A Development Fund, to provide definite and ongoing funding for economic and social development in accordance with the development plans of the Government.

The author/s of the submission noted that the organic Law on Sovereign Wealth Fund creates the following stakeholders to be involved in running the SWF:-

  • SWF Board to oversee the SWF (Section 16 of the Organic Law on SWF)
  • Minister responsible for Treasury matters to determine the investment mandate for the SWF board and receive and consider reports from the board (section 6),
  • SWF Appointment Committee to appoint members of the SWF board (section 22)
  • Independent Probity Auditor to consider probity issues associated with the operation of the SWF (section 39), and ,
  • Secretariat to assist with the operational aspects of the SWF (section 31).

Certain matters regarding the composition, functions and governance of each of these stakeholders are set out in the Organic Law. However, details of how these stakeholders will manage the SWF and interact with each other have not been fully provided for in the Organic Law.

Section 42 of the Organic law provides for regulations to be passed in future which are necessary to give effect to the Organic Law on SWF.

The submission recommended that in advance of the start of revenues being ready for deposit, the National Executive Council should take action to implement the Organic Law on SWF with the view to ensuring that it was fully operational prior to operations starting at the PNG LNG Project. To this end a working committee was suggested to take charge of implementing the Organic Law.

PNG has already made dozens of LNG shipments.

When the Post-Courier raised the dangers of Dutch disease in a feature, Treasury Secretary, Dairy Vele made a statement a day or two later, that tax revenue from the PNG LNG Project would not be seen until 2020 (or thereabouts). He took the trouble of explaining how complicated the project was and made no mention of proceeds from any shares that might be held in the project; only the tax component.

PNG borrowed about K14 billion to get the PNG LNG Project off the ground.

When Prime Minister Peter O’Neill took office after the 2012 General Election, he spoke of starting the Sovereign Wealth Fund but the conversation gradually faded as he got embroiled in the tussle over the Independent Commission Against Corruption and other legal squabbles that confronted him.

The aim of the Organic Law on SWF was the establishment of the appropriate structures for the management of PNG’s increased resource wealth.

We see now from the submission that we’re dealing with a very lucrative organization. But it is the decisions that will be made that will protect the future of PNG.

With the earnings from the PNG LNG coming up, as indicated by the Treasury, work on SWF must begin because there are still some outstanding bits and pieces to attend to. Time is of essence because this is the entry point for Dutch Disease to set in. We will have so much money to throw around we will wreak havoc in our small economy; that is the danger.

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Weak capacity and lack of accountability leaves mining sector ‘open for corruption’

Policy implementation in sector a challenge: Report

Loop PNG | 4 July, 2017

Implementing legislations and policies in the mining and petroleum sector is a challenge due to weak capacity and lack of accountability, points out a report.

The PNG Extractive Industries Transparency Initiative Report 2014 says:

“While the Government sets strong policy and has a relatively robust legislative regime and fiscal control, implementation is challenging due to weak capacity and a lack of accountability, particularly at local levels. The associated lack of transparency also leaves the way open for corruption.

“The principal laws that regulate mining activities in PNG are the Mining Act 1992 (MA), which sets out how mining projects should be administered and regulated, and the Mining (Safety) Act 1977, which stipulates safety requirements on mine sites, provides for investigations and inquiries into mine accidents and establishes a regime for certification of prescribed mining roles” the report said.  

The report noted that a revised MA will be presented to Parliament after 2017 election.

“It is anticipated this will include regulations for offshore mining, mine closure and rehabilitation, resettlement and geothermal resources and standards for employing mine workers. The Mining (Safety) Act is also under review,” it said.  

Matters relating to the environment within mining and exploration tenements is governed by the Environment Act 2000. The operation and development of mineral deposits in relation to the Ok Tedi mine is governed by the Mining (Ok Tedi Agreement) Act 1976 and the fourteen supplemental agreement Acts.

The Panguna mine on Bougainville is governed by the Mining (Bougainville Copper Agreement) Act 1967, although mining legislation for the Autonomous Region of Bougainville has now been passed.

“The relationship between those respective pieces of legislation is unclear as the former has not been repealed, nor have the references to it in the MA been amended,” it said.

The reports stated, the petroleum industry is governed by the Oil and Gas Act 1998 (OGA) and the Oil and Gas Regulation 2002 under the administration and management of the Department of Petroleum and Energy (DPE), headed by the Minister for Petroleum and Energy.

“The OGA specifies regulatory instruments for oil and gas development activities such as: Licensing, exploration, development, processing, storage, transportation, and sale of products.”

PNG EITI Head of National Secretariat, Lucas Alkan, said: “It is only fitting to have such a robust legislative and policy framework for a resource rich country like ours.

“The PNGEITI has already capitalised on such fiscal and legislative setting, in advancing transparency and accountability in the sector, through its annual reports and we hope to build on that progress.

“We are also of the view that there are upcoming legislations and policies to keep Papua New Guinea in par with world best mining and petroleum practices,” Alkan added.

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EITI to tackle mining industry links to money laundering, transfer pricing, corruption and tax evasion

Mining Companies Will Have Be Transparent About Owners

EITI: “The lack of transparency in this area often creates an environment for other illegal activities such as money laundering and transfer pricing. This affects other sectors of the economy and often create a conducive environment for corruption and tax evasion” 

Post Courier | July 4, 2017

Companies directly involved in the petroleum and mining sectors will be required to disclose information regarding their beneficial owners come 2020.

Beneficial owner(s) of resource projects (mine, oil and gas companies) refers to the natural person(s) who directly or indirectly owns or controls a corporate entity/ company.

This follows after a signing of contract between PNG Extractive Industries Transparency Initiative (PNGEITI) National Secretariat and KPMG yesterday.

KPMG is the successful bidder for the implementation of the Beneficial Ownership Roadmap that spells out how Papua New Guinea can develop a matrix to report beneficial owners.

The implementation of the roadmap was effected yesterday and will be rolled out until the final quarter of 2019. During this time a platform or matrix will have been developed for reporting -through the EITI reporting process in 2020.

Head of the PNG Extractive Industry Transparency Initiative National Secretariat Mr Lucas Alkan said it was the decision of EITI international board.

It wants all EITI implementing countries, including Papua New Guinea, to ensure that corporate entities that bid for, operate or invest in extractive assets disclose the identities of their beneficial owners by January 1, 2020.

Mr Alkan said this was done to identify the real owners of the companies who had acquired rights to extract oil, gas and minerals which, in many cases were not known and often hidden behind a chain of corporate entities.

“The lack of transparency in this area often creates an environment for other illegal activities such as money laundering and transfer pricing. This affects other sectors of the economy and often create a conducive environment for corruption and tax evasion,” Mr Alkan said.

He said people living in resource-rich countries such as Papua New Guinea risked losing out as revenues generated from resources exploitation in the extractive industry were often misallocated and wasted.

“The EITI requirement will ensure that beneficial ownership information is made available through public registers such as those collected and stored at the Investment Promotion Authority through company registration process,” Mr Alkan said.

Mr Alkan expressed confidence working with KPMG to successfully implement the roadmap.

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Frustrations over mining coming to a head in Temotu

Johnny Blades | Radio New Zealand | 27 May 2017

“There is good mining, and there is bad mining, and I’ve witnessed a lot of bad mining,” said the Australian man to the villagers of Noipe in Solomon Islands’ Temotu province. Given the anger among the local community about bauxite mining, the conversation was remarkably cordial.

He stood at a roadblock near their village, speaking to a handful of local adults, a teacher and a couple of dozens kids from Noipe’s primary school.

“We work really hard with the community,” said the man, “we have agreements with communities for good mining. We do everything we can to protect the land, the villages, the people.

“We provide education for the children, we provide training for the adults. Can I show you some photos?” he said, turning to get something from his nearby vehicle.

“Excuse me,” responded the teacher. “We don’t need photos…. we don’t need mining and we don’t need prospecting, that’s all. Our land is our heritage, our future for young generations.”

“Okay, alright, thank you very much” said the Australian politely, before leaving.

The villagers posted a video of the exchange, saying they do not agree with mining prospecting proceeding on their land.

Bauxite interests on Nende

The Australian man in the video is Mark Gwynne, the executive chairman of Pacific Bauxite.

This Australian company owns 50 percent of AU Capital Mining, the entity which in 2015 won a license to prospect for bauxite at Nende in Temotu.

Temotu is the most remote of Solomon Islands’ provinces. Ships only general visit once a fortnight, and the twice weekly scheduled flights from Honiara are often cancelled as there’s little money to have the grass on Temotu’s airstrip cut.

Yet there was a hotly anticipated visit to Temotu this month by Mr Gwynne and company.

Pacific Bauxite, formerly named Iron Mountain Mining, is coming in for increased criticism in Temotu over the way in which it gained a business licence to conduct its prospecting at Nende.

The license was granted soon after the Temotu provincial assembly voted in a new premier, David Maina, to replace Nelson Omar in late March.

Shortly in advance of this, there was a flurry of activity on the Australian stock exchange as people bought up shares in Pacific Bauxite.

Mr Omar said the basis for moves to oust him was to approve the business license.

“(But) the consent from the resource owners, the land owners, how it was conducted was not done in accordance with existing legislations which govern the mining and logging acts,” he explained.

NASA picture of Nende, known also as Santa Cruz, in Solomon Islands’ Temotu province. Photo: NASA

On its website, Pacific Bauxite insists it has consulted with locals.

“The Company is extensively engaged with the local community and is ensuring that all stakeholders are made fully aware of current and future activities regarding the Project.”

But its assertion that “meetings held with local parties to date have been extremely positive and much enthusiasm has been generated by the recent phase of exploration” contradicts comments from the local communities themselves.

In reality, there’s a groundswell of concern about the mining among the community on Temotu’s main island of Nende (Santa Cruz).

The concern stems partly from the feeling that local people weren’t adequately consulted in advance about the prospecting by either the company or government.

It’s also about fear of the potential environmental impacts of mining.

Grace Kava, who is from the west side of Temotu’s capital Lata, said most locals did not approve of bauxite mining due to fear it would devastate the soil.

“Because they already knew something like the bauxite mining up in Rennell (Rennell and Bellona) province up the road, getting into a big disaster. They think the same thing will happen to them.”

Ben Menivi, who is from Graciosa Bay, said mining posed a big threat to the water source from which the community gets much of its drinking water.

“So that’s my concern, that if the bauxite continues, they come and continue the work, they might destroy some of the top soils at the top of the mountain where the water source comes from.”

Ngadeli village in Temotu Province, Solomon Islands, is threatened by sea level rise. Photo: Britt Basel

Another local, Henry Kapu, explained that because Temotu was prone to natural disasters and sea level rise, people from smaller islands in the group flocked to Nende, the province’s main island, when they needed support, for food or other materials.

This support system, he explained, would be at stake once bauxite mining had disrupted then island.

“We will lose all our arable land, crops, ancestral land boundaries and this will further exacerbate land disputes,” he said, warning that this could lead to more ethnic tensions in Solomon Islands.

Beu comments controversial

But the Temotu provincial executive is firmly supportive of the project.

A provincial minister, and former Temotu Premier, Father Brown Beu said they had considered the environmental impacts, and had consulted with landowners who were largely in favour.

“The people who are against this prospecting are all working class, and they’re all in town (Honiara),” said Mr Beu.

“They should be assisting in some form, but they are not. Let me tell you that these people as far as we in Temotu are concerned, we’re not listening to them, full stop.”

He claimed that as a remote and under-developed province, Temotu needed the kind of investment the bauxite project will bring.

“Unlike other investors who are invested in Temotu Province, they (the mining company) will shortly after this be able to provide medical facilities that we will never – I don’t know, centuries to come – never have.

“Isn’t that something that’s worth looking forward to?” he said.

Vanikoro Photo: Supplied

Beu’s characterisation of those against mining as outsiders sparked an outpouring of frustration on Facebook.

“BB is our past parliamentarian. He says we are backwards in terms of development. Has he done any thing better for our province since his leadership to date?” commented one Temotu man, Desmond Nimepo.

When several personnel from the mining company turned up to Temotu in the past week, roadblocks were mounted by landowners to stop them moving around.

Mr Beu, who confirmed the miners were under police protection while in Lata, has been criticised by a former governor general of Solomon Islands.

Sir John Ini Lapli, speaking on behalf of Nende people, said Mr Beu’s comments were way off the mark, and that the provincial executive had not taken the impacts of mining into account.

According to Sir John, the issue had created tension in Temotu.

He indicated that the upper levels of government and the ministry of mines were essentially likely to proceed with the mining, no matter how people felt.

“You know they said in this law that certain feet below the ground it is not people’s land it is government’s so that is where the government is sort of proceeding with this.

“They came with some agent unknown, they didn’t come through the procedure and so they were able to pay some people to sign accepting this proposal they signed up and that is how they locked these landowners,” said Sir John.

Logging machinery being burnt by landowners in Vanikoro, 2016. Photo: Facebook

The provincial government’s involvement in this process echoes the murky experience around logging operations on Temotu’s Vanikoro Island.

These operations, which have proved deeply divisive among the local community, are run by a Malaysian company, Galego Logging, whose local partner is Vanikoro Lumber Limited.

VLL’s chief executive is Temotu’s deputy premier, Ezekiel Tamoa.

According to a Vanikoro native, Edward Pae, Mr Tamoa promised that the developer would come and build infrastructure like roads, clinics, wharves, even an airstrip.

“But up to now, they only cleared the land… There’s totally no infrastructure developments on the land at the moment,” said Mr Pae.

“After five years, there’s a lot of environmental damages done: rivers crossed, tabu sites illegally entered, and most of the water sources that villages or communities around Vanikoro used to use have been badly damaged. And now the people on the ground in Vanikoro are really affected.”

Mr Tamoa disagreed, saying an airstrip and roads were being developed.

He also denied there was any conflict of interest in him being the head of a company which got a license to log from the government he is part of.

“Overall I think most of the landowners are ok with these developments. They stand to benefit from it.”

Logging erosion, Vanikoro. Photo: Planet.com

Mr Tamoa disputed claims that in Vainkoro there had been no benefits from the logging, saying an airstrip and roads are being developed.

He insisted only a few locals had reservations about logging, but opposition to the project has already boiled over into unrest last year in the form of sabtoage of logging machinery, and has the potential to do so again.

Public momentum

Numerous moves are underway to press the provincial government to halt bauxite mining activities, including a public petition.

Furthermore, a paralegal officer and concerned landowner Ruddy Oti has been collecting affidavits signed by Nende landowners who feel they were misled by the mining company when it sought to get landowner consent.

Mr Oti said that earlier some individual landowners had been approached by the company and gave their consent.

“After OceansWatch (environmental NGO) did some awareness in Nende, there was some sense of realisation among these landowners who had previously given their consent, then they eventually agreed to have their consent revoked.”

A Nende local, Titus Godfrey, said developers coming to Temotu tended not to follow the full process for gaining consent, knowing some local people were interested in quick gains.

“I mean, people gave their signature because the guy who came, he came in December, when he came in at Lata they said if you want to survey our places to do the drilling you can pay two hundred dollars or something like that.”

OceansWatch ranger Titus Godfrey (left) and Nelson Nyieda, the NGO’s Solomon Islands Lata Office manager. Photo: Oceans Watch

It’s a theme echoed by Father Colton Medobu, an Anglican priest in Noole village.

“The situation like here is people wait for opportunities of money: money, money, money… And when people talk about these things, people resort to advances of big money. That’s why these people get caught up and use this as the basis for working with the people. And sometimes it extends to bribing people without explaining to people what they’re asked to do.”

He said that local people wanted development and were not strictly against resource extractive operators.

But he said there had to be proper consultation and a proper strategy to avoid potential displacement and negative health and environmental consequences from these developments.

While the provincial government appears unlikely to answer the petition’s call to revoke the mining company’s business license, it is under increasing pressure to respond to the community’s concerns.

Yet Brown Beu said that until the prospecting finished, it was premature to stop the project.

“Then, we’ll be able to ascertain as to whether there is enough minerals in the soil for mining later on,” he explained.

“And that of course depends on the people. Once the reports have come out and the people basically ‘no we don’t want mining’ then that’s it, it’s finished.”

This may not be the case – once a Surface Access Agreement is signed, there is most likely little way to stop the mining other than through the courts at the Development Consent stage.

However out of the current venting on Temotu has come an elevated level of public discourse about mining and logging.

Raising awareness about these areas was the aim of NGO Oceans Watch.

The co-director of Oceans Watch Solomon Islands, Chris Bone, said there had been a lack of awareness about not only the impacts of logging and mining, but also about what the better options were.

Of those options, eco-tourism is an area that Temotu has huge potential in.

“The place is absolutely gorgeous. It’s a very, very special and very treasured place, and one of the last places in the Pacific that has this wonderful primary rainforest,” he said.

Temotu locals want to protect their land against devastation from mining activities. Photo: Facebook

For now, Temotu’s leadership and the national government are being urged to be decisive about community concerns over the mining issue.

Sir John Ini Lapli and others have warned that frustrations among landowners and tribal groups could escalate to violence if nothing is done.

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Urgent application against Namibian seabed mining approval

namibia

LEGAL BATTLE: An urgent application has been filed in the High Court against phosphate mining in Namibia

See also: Nautilus Minerals linked to corruption allegations around Namibian seabed mining

Ellanie Smit | Namibian Sun | 02 November 2016

An urgent application has been filed in the High Court yesterday against the awarding of the environmental clearance for marine phosphate mining at the coast.

The application was filed by lawyer Sisa Namandje who is acting on behalf of the Confederation of Namibian Fishing Associations.

The urgent application follows after the environmental clearance certificate for Namibian Marine Phosphate’s Sandpiper Project was quietly issued on 5 September and it only came to light more than a month later.

At the time of going to print last night, it was not clear as to when the matter will be heard.

Affected parties had only 14 days to appeal the decision from the date of granting the certificate.

Namandje last week accused environmental commissioner Teofilus Nghitila of committing a number of irregularities and that he had not complied with the Environmental Management Act.

These accusations were contained in correspondence between Namandje and government attorney Mathias Kashindi, who is representing Nghitila after the fishing confederation, demanded through their lawyer, that Nghitila should provide detailed information on the processes followed with regard to granting the environmental clearance.

They wanted to know, among others, the date on which he had received the assessment report from the NMP, as indicated in Section 35 of the Environmental Management Act of 2007, the details and all particulars of the notifications made to the public and interested parties, as well as the closing date for submission contemplates, again in terms of Section 35 of the same Act.

However, after Nghitila provided the information to his lawyer, Kashindi in his correspondence with Namandje admitted that Nghitila had to a certain extent not complied with some of the requirements of the act.

Contradicting remarks

Nghitila has refuted claims of irregularities on his part and expressed concern over the fact that his lawyer had written to Namandje without his consent and provided contradicting information than what was discussed between them.

According to Nghitila, he answered all of the questions that Namandje asked on the process followed in the granting of the environmental clearance.

“I have dealt with questions posed by Namandje in my response as prepared for discussion with the government attorney. All evidence and documentation have been provided,” he said.

Nghitila has also expressed his concerns to the Attorney-General Sacky Shanghala and the Minister of Environment of Tourism, Pohamba Shifeta with regards to this misrepresentation by the government lawyer.

Some of the issues pointed out by Nghitila were that the issue of phosphate mining was discussed at a Special Cabinet Committee on Trade and Economic Development meeting of 15 February 2016.

He said that the environment ministry was given three months to pronounce itself on the matter with regard to the two mining licenses that have been issued for offshore phosphate mining.

According to him, at a meeting of 1 June, the environment ministry requested the deferment of the matter to allow technical consultation with the Ministry of Mines and Energy and the Ministry of Fisheries and Marine Resources.

At a meeting on 11 August Nghitila gave a presentation at which a notice was given of the decision as regard to ML 170 of Namibia Marine Phosphate.

He said that both ministers of mines and fisheries were part of this meeting.

The meeting agreed that Nghitila be granted the independence to decide on the matter as per the provisions of the Environmental Management Act.

“This served as notification to the competent authority, mines ministry and fisheries ministry,” said Nghitila.

He added that the notification of the application and requests for written comments were made through the company on 17 April 2012 and a number of notices were made inviting the public for public meetings.

With regards to the fact that Nghitila did not advise all interested parties, including fisheries associations of his decision to grant environmental clearance, he said Section 37 of the Act and Regulation 18 refer that only notifying the proponent and competent authority is required.

Nghitila also responded to claims about the review process that was not followed, saying that this already started in 2012 after the Environmental Impact Assessment report was submitted.

He said this review process included consultation with both the fisheries and mines ministries including ordering the company to do the verification study. After the submission of the verification studies, which forms part of the EIA Report, Nghitila satisfied himself with the report and consultation with the relevant ministries were undertaken which culminated in a workshop held on 27 April 2016 in Swakopmund.

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Risks for Mining Companies in PNG

PNG’s mining industry received a much-needed boost in March, when the giant Ok Tedi copper and gold mine resumed production

“PNG’s political environment has historically been characterised by volatility, executive dominance, rampant corruption and deficient institutions

 JLT Group | 24 October 2016

Richly endowed with natural resources, a decade ago Papua New Guinea (PNG) was set to become one of the fastest growing economies in the Asia-Pacific. Yet the end of the commodities supercycle has seen the country’s economy contract considerably, with serious implications for future political stability.

On account of PNG’s over-reliance on natural resources exports, the collapse of oil and precious metals prices in recent years has led to an increase in economic risks, and has further implications for future political stability as the economy struggles to readjust to reduced revenue streams and to diversify away from commodities based income.

Government spending has had to be, and will continue to be, cut back. These cuts, particularly as an election approaches in June 2017, will be highly contentious. The government has little room to manoeuvre; public spending increases before the oil price collapsed will be difficult to claw back, while ongoing debt servicing payments still make up nearly 10% of government expenditure.

The challenging economic conditions in PNG, combined with the upcoming election, only adds a further layer of complexity to investing. PNG’s political environment has historically been characterised by volatility, executive dominance, rampant corruption and deficient institutions. With an election approaching next year, political risks will increase.

The challenging economic conditions in PNG, combined with the upcoming election, only adds a further layer of complexity to investing in the country, which may see miners delaying investment.

PNG’s reputation as a viable destination for foreign investment has been repeatedly tarnished in recent years. The decision of Rio Tinto in June 2016 to relinquish its stake in the Panguna copper and gold mine (Bougainville Copper Ltd) following a dispute with the government stretching back to 2014, and decades of controversy surrounding the mine, is the second high profile exit of a major mining company from PNG.

While undoubtedly the mining sector holds considerable promise, the fact that two of the world’s largest mining companies have exited the country in the last three years demonstrates the sheer scale of the challenge.

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