THE LARGEST CONTRIBUTION to national development by the big four mining companies in Papua New Guinea (Lihir Gold, Oil Search, Ok Tedi Mining and Porgera Joint Venture) was taxes and other statutory payments paid to the national government, K1568.4m.
This represents an average of 17.2% of the PNG government’s total revenue and grants over the period and confirms that mining companies have a big stake in the national government’s capacity to use revenue well to provide development benefits to Papua New Guinean citizens.
2. The next largest contribution to PNG’s development was company procurement of services from national suppliers. For three of the four companies who reported on this indicator, average annual procurement from suppliers in Papua New Guinea amounted to K1564.4 million (the fourth company did not separate goods and services procurement).
Over one-third of this, K563.7 million, was procurement from local landowner companies, other PNG companies or PNG joint ventures with overseas companies. So mining companies are a large market for other PNG businesses.
3. Dividends and royalties paid to development authorities amounted to K755.4 million. Over 80% of these were paid to PNG Sustainable Development Program (PNGSDP), the 63% owner of Ok Tedi Mining Limited. An independent review of PNGSDP in 2012 found that it had made worthwhile infrastructure investments in Western Province but needed better evaluation information to be able to draw broader conclusions about its development contribution (see more here).
In terms of other mining project development authorities, a recent study of benefit flows from the Porgera mine concluded that it was not possible to determine how the Porgera Development Authority had turned revenues into infrastructure or health and education services because of a lack of information.
4. Cash payments to landowners and communities from royalties and compensation payments are substantial, K196.7 million (note that this is an estimate based on information about company agreements with communities – company reports tend not to specify which payments are made in cash).
There is little hard data on how households and landowner groups use these payments and their development value. But many landowner organisations are not run in a transparent and accountable way, see for example Thomas Webster’s comments here.
And the benefits of payments to households need further study – according to one Asian Development Bank study of the impact of the Ok Tedi mine over 20 years, less than 1% of Ok Tedi landowners’ total annual household expenditure was invested in agriculture and about 6% was invested in nonagricultural enterprises.
From interviews with women in the South Fly district, Jo Chandler writes “… the women say the cash soon goes on food, fuel and school fees. Some see little of it – it vanishes in Daru or Port Moresby, with their husbands.”
According to World Bank J4P (Justice for the Poor) research in Western Province, mining company initiatives to make payments into family bank accounts to which women have access have assisted in increasing control over how money is spent.
5. Another large development contribution, K176 million, is the omnibus, ‘Payments to community trusts, spending on community programs, and donations’. These programs are often subject to intense negotiation with landowners, communities and provincial and district governments, all of whom have high expectations of potential benefits from mining projects.
But companies also retain some control over how much they spend and what programs they fund or implement. Reporting on the development benefits of these programs is mixed and often lacks reference to local, provincial and national development objectives, although there are exceptions.
6. Case study companies spent an average of K61.2 million per annum on local infrastructure investments funded by the national government under the infrastructure tax credit scheme (TCS). Three of the four companies participated in this scheme – one did not start to pay corporate tax until 2010 so was not eligible for the scheme.
Through the TCS, companies are granted a tax credit for approved infrastructure investments, and they manage and oversee the works, which included roads (construction, upgrading and maintenance), power supplies, government services (administration, policing, courts, education and health) and community facilities.
7. Concerning employment, only two of the four companies reported on the value of wages and other remuneration paid to employees – their estimated total remuneration to PNG nationals for one year was K169.7 million.
While this seems modest considering the size of mining operations, mining is not generally a large direct employer. Average total employment for the case study companies was 7791 — 7154 of these were PNG nationals. They represented 2.9% of the total estimated 2010 PNG formal sector employment of 250,000, see Colin Filer’s presentation [pdf] on the PNG case study for the ‘World Development Report (WDR) 2013: Jobs’.
The above employment data does not include contractors to mining companies. In his analysis, Filer estimated a multiplier as high as three, that is, three jobs created in the formal and informal sectors for each one in mining. In addition, mining generated significant remittances – up to half of all PNG nationals working in mining projects come from outside the mine area, and their remittances to relatives at home were estimated at K2 million in 2011.
The same research estimated that skilled PNG nationals sponsored by mining companies to work in Australia remitted up to K10 million in one year. Almost all of these skilled workers received significant skills training and experience in mining operations in Papua New Guinea.
This case study confirms the significant contributions to development in PNG of mining companies’ tax and other government payments.
Mining company procurement is also an important market for other PNG businesses. And although numbers directly employed in mining are modest, mining supports many jobs in other sectors, provides training and work force skills, and leads to remittances that are available for social and economic investments in communities across Papua New Guinea.
However, the potential development benefits from mining company contributions are undermined by poor government capacity to convert revenue into basic infrastructure and services, and weak accountability and often poor performance by development authorities and landowner organisations.
Margaret Callan is a visiting fellow with the Development Policy Centre at the Crawford School, ANU, researching the contribution of the private sector to development in Papua New Guinea