Overview of investment legislation in Papua New Guinea

Government Structure

There are three levels of government in Papua New Guinea: national, provincial and local. The legislative powers of these governments are regulated by the constitution and the Organic Law on Provincial Government and Local Level Government (Organic Laws). Each level has its own distinct law-making powers. The National Parliament’s legislative powers are outlined in section 41 of the Organic Laws; the powers of the provincial legislatures are covered in section 42; and local government powers are laid out in section 44.

The division of law-making powers across the three levels is based on the following principles:

• The national, provincial and local level each have specific powers.

• Powers that are not specified are assumed to remain with the national government.

• Where a level of government cannot exercise its powers effectively, such powers may be delegated to either of the other levels of government to exercise on behalf of the first government.

• Both the provincial and local-level government powers are subject to the national law of PNG, but only to the extent that the national interest so requires; otherwise, they have relative autonomy to operate.

• The powers of local-level governments are subject to the powers of provincial-level governments, but only to the extent that the provincial interest requires them to be made subject to the provincial laws.

• The general principles above are non-justiciable, but may be used in the interpretation and implementation of the Organic Laws (section 40). Provincial and local-level government laws deal with issues such as the sale, purchase and consumption of alcohol; cemeteries; the organisation of community sport; local roads; motor vehicle use; and the sale and purchase of local foodstuffs.

The Autonomous Region of Bougainville is a special case. The region, governed by the Autonomous Bougainville Government (ABG), retains some features of a provincial government but has greater governance and administration powers due to its distinct political status. The autonomy arrangement is embedded in several founding documents: the Bougainville Peace Agreement, the PNG constitution, the Bougainville constitution, and the Organic Law on Peace-Building in Bougainville-ABG and the Bougainville Referendum.

The founding documents acknowledge the ABG and allow the region to establish its own system of government, hold elections for its government, make its own laws and establish its own courts, public service and police. Bougainville has adopted a modified Westminster system with three principal arms of government: the legislature, the executive and the judiciary. A directly elected president appoints ministers. A 2019 referendum may see the region become an independent country, though the result was non-binding and is subject to negotiations.

Laws of PNG

The laws of PNG consist of:

• The constitution;

• The Organic Laws;

• The acts of Parliament;

• Emergency regulations;

• The provincial laws;

• Laws made under or adopted by the constitution or any of the above laws, including subordinate legislative enactments made under the constitution or any of those laws; and

• The underlying law (English customary and common laws and equity). All written laws, other than those which are found in the constitution, must be read and construed subject to:

• In any case, the constitution;

• In the case of acts of Parliament, any relevant Organic Laws; and

• In the case of adopted laws or subordinate legislative enactments, the Organic Laws and the laws by or under which they were enacted or made. So as not to exceed the authority to make them properly given, to the extent that where any such law would have been in excess of the authority given, it is nevertheless treated as a valid law to the extent to which it is not in excess of that authority. The constitution and the Organic Laws are the supreme law in the country. Subject to section 10 of the constitution (construction of written laws), all acts – whether legislative, executive or judicial – that are inconsistent with these documents are, to the extent of the inconsistency, invalid and ineffective. An Organic Law may be altered only by another Organic Law, or by an alteration to the constitution.

Common Law

PNG adopted the common law of England on the day it achieved independence ( September 16, 1975) as part of the law of the country. The principles and rules that formed immediately before independence, as well as the English customary and common law and equity, are applied and enforced except if, and to the extent that, they are:

• Inconsistent with a constitutional law or statute;

• Inapplicable or inappropriate to the circumstances of the country at a certain time; or

• Inconsistent with custom, as adopted by the constitution, in their application to any matter. The principles and rules of common law and equity have been adopted notwithstanding any subsequent revision of them by any statute of the UK that does not apply in PNG by virtue of chapter 2.6 of the constitution (adoption of pre-independence laws).

Concerning any particular question before a court in PNG, the applicability or appropriateness of a particular rule of English common law or equity is determined by reference to, among other things, the particular circumstances of the case in question, including the time and place of any relevant transaction, act or event.

Foreign Business Dealings

There are a variety of laws that may impact a foreign enterprise in its business dealings in PNG. As noted above, PNG has adopted principles and rules of English customary and common law. English common law deals with issues such as the law of penalties, rights of subrogation, estoppel, privity of contract, and guarantees and indemnities that may be relevant to a foreign enterprise conducting business in PNG.

The courts will enforce financial agreements and other documents governed by the laws of a country other than PNG. In international financing transactions involving a PNG party, it is common for the loan agreement, the security documents and other related instruments to be governed by English law or the laws of another foreign country.

Investment Promotion

The Investment Promotion Act (IPA) of 1992 provides for the promotion of investment in PNG in the interests of national, social and economic development. For that purpose, the IPA established the Investment Promotion Authority. All foreign enterprises, including PNG-based companies owned or controlled by non-citizens, must be certified under the IPA in order to conduct business in the country legally. As a general rule, an isolated transaction (broadly, one completed within 30 days) will not, in and of itself, amount to carrying on business in PNG and, accordingly, there is no need for a foreign enterprise carrying out an isolated transaction to be certified under the IPA.

However, if a particular transaction is the first in a series of transactions, this may amount to carrying on business in PNG. Subject to certain exceptions, if there is a change in the ownership, shareholding, or beneficial ownership or control of a foreign enterprise doing business in PNG, the enterprise must apply for a fresh certification under the IPA within 14 days of the change.

Where a contract, agreement or understanding is entered into between a foreign enterprise and another enterprise, the National Court of PNG may, upon the application of the other enterprise or the Investment Promotion Authority, declare the contract to be unlawful, and null and void if either of the following situations apply:

• The foreign enterprise was not certified under the IPA at the time at which the contract, agreement or understanding was entered into; or

• The subject matter of the contract relates to business activities outside of the activities for which the foreign enterprise is currently certified to conduct business.

Regulation of Companies

PNG has comprehensive companies legislation. The Companies Act of 1997 is based on legislative principles from New Zealand, and adopts a simple and fairly effective system for dealing with business operations. In 2014 the Companies Act was amended to simplify business registration and filing processes, raise corporate governance standards for capital management, and increase protection for the shareholders and creditors of companies that operate in PNG.

A company that is incorporated in PNG under the Companies Act must operate in PNG subject to that act. Similarly, a company incorporated outside PNG that is registered to do business in PNG must operate subject to the Companies Act. The Companies Act deals with the registration of charges and insolvency, as well as a host of other company-related matters. A foreign enterprise doing business in PNG may, on occasion, want to grant a third party security over some or all of the assets of the foreign firm. In this case, it is appropriate to consider those provisions in the Companies Act that deal with the registration of charges. For the purposes of the Companies Act, the term “charge” is defined to include a right or interest in relation to property owned by a company, by virtue of which a creditor of the company is entitled to claim payment in priority to creditors entitled to be paid under section 361. This does not include a charge under a charging order issued by a court in favour of a creditor.

Where a PNG company creates a charge to which part 8 of the Companies Act applies, the company must submit the following to the registrar within two months of the creation of the charge:

• A notice of registration of the charge in the prescribed form; and

• A certified copy of the document creating or evidencing the charge. When this requirement is not complied with, the charge is, so far as it grants security over the company’s property or undertaking, void against:

• The liquidator of the company; and

• Any creditor of the company. This does not prejudice any contract or obligation for repayment of the money secured by the charge, and when a charge becomes void under section 222(2), the money it secures becomes immediately payable. The charges to which part 8 of the Companies Act applies are as follows:

• Charges (other than charges solely on land) to secure any issue of debentures;

• Charges on uncalled share capital of a company;

• Charges or assignments created or evidenced by instruments (including those which create or evidence absolute bills of sale, or absolute assignments or transfers of book debts) that, if executed by an individual, would be invalid or of limited effect if not registered under the Personal Property Security (PPS) Act of 2011;

• Floating charges on the undertaking or property of a company;

• Charges on calls made but not paid;

• Charges on a ship or aircraft, or on a share in a ship or aircraft;

• Charges on goodwill, on a patent or on a licence under a patent, on a trademark, or on a copyright or a licence under a copyright; and

• Charges on the book debts of a company. Where a charge created in PNG affects property abroad, an application for the registration of the charge in the prescribed form and a certified copy of the document creating or evidencing the charge may be submitted in accordance with the procedures outlined here. Further proceedings may also be necessary to make the charge valid or effectual per the law of the country in which the property is situated.

Taxation

A variety of taxes, imposts and duties are imposed on individuals and business organisations in PNG, including income tax, a form of value-added tax known as the goods and services tax (GST), land tax, payroll tax, withholding tax, Customs duties and excise, mining and petroleum royalties, and stamp duty. The tax year runs from January 1 to December 31; however, a substituted tax year can be adopted subject to the approval of the taxation office.

Income tax returns, where required, should be lodged by February 28 of the following year, unless lodged through a registered tax agent. Losses may be carried forwards for up to 20 years for most businesses and indefinitely for businesses operating in the primary industry sector.

Companies incorporated in PNG, as well as companies that conduct business in PNG and whose central management is located within the country, are deemed to be resident companies. The worldwide income of resident companies is taxed, while only the PNG-sourced income of non-resident companies is taxed.

Income Tax

Income tax in PNG is administered under the Income Tax Act of 1959. The provisions of this act apply to income derived by individuals, corporations, trusts and partnerships. Tax liabilities arise for taxable income, which is defined by the act to mean the amount remaining after deducting all allowable deductions from assessable income. Assessable income includes not only salaries and wages, business profits, rent and dividends, but also a number of other items set out in the act.

In general, all losses and outgoings – to the extent they are incurred in gaining or producing assessable income, or are necessarily incurred in doing business for the purpose of gaining or producing income – are allowable deductions, except to the extent that they are losses or outgoings of a capital, private or domestic nature incurred in relation to the gaining or production of exempt income. However, taxpayers who live in PNG and are involved in mining or petroleum projects may be able to deduct from their assessable income certain items of capital expenditure, such as allowable exploration expenditure. Special capital allowances are also available for forestry and agricultural production.

Companies

Different rates apply to residents and non-residents. The company tax rate is 30% and the dividend withholding tax is 15%. A company that conducts business in PNG must appoint a public officer to represent the firm in all dealings with the tax office.

Partnerships & Joint Ventures

Partnerships are required to lodge a tax return, but income from a partnership is not taxed separately; it is included in the assessable income of each partner. Joint ventures do not have to lodge a separate return, although each participant is taxed on their income from the venture.

Tax Credits

Some tax credits are given for foreign tax paid on overseas income. PNG has a number of double tax treaties with nations including Australia, Canada, China, Indonesia, Germany, Malaysia, New Zealand, Singapore, the UK, South Korea and Fiji.

Goods & Services Tax

A GST of 10% is levied on the following in accordance with the GST Act of 2003:

• Supplies of goods and services by a registered person in the course or furtherance of a taxable activity (but not including an exempt supply); and

• Imports into PNG (except certain goods). Export tax is 0%, thus enabling input tax credits to be refunded where applicable. Transfers of land is deemed not to be a taxable supply. The transfer of improvements and structures on land, whether they be transferred with or without the transfer of land ownership, are not defined as transfers of land. Exempt supplies under the GST Act include:

• Financial services;

• Fine metal;

• Medical and related services;

• Educational services by an educational institution;

• Public road transport for passengers by a registered public motor vehicle or taxi;

• Newspapers;

• Betting, lotteries and games of chance;

• Postage stamps; and

• Housing and motor vehicles given to an employee by his employer in the course of employment.

Personal Property

Taking security over personal property – including goods, chattel paper, investment property, a document of title, an instrument, money or an intangible – has been simplified, and is now regulated by the PPS Act of 2011. The act applies to every transaction that creates a security interest in personal property (collateral) situated or which may become situated in PNG without regard to the form of the security interest (such as a mortgage, charge or lien) and without regard to the person who has title to the collateral.

Under the PPS Act, security interests include the rights of a secured party via a mortgage or charge, as well as the interest of a consignor who delivers goods to a consignee under a commercial consignment and the interest of a lessor under a lease for a term of more than one year.

The PPS Act establishes the conditions for the attachment of security interests to collateral under security agreements. The debtor and secured party can agree that obligations may be secured by collateral acquired by the debtor in the future, and that collateral may secure an obligation of the secured party to make advances of funds in the future.

Furthermore, the PPS Act details the methods by, and the circumstances under which, security interests are perfected. This enables the secured party to enforce the security interest against third parties, such as certain buyers of collateral as well as some other types of creditors. A security interest is perfected when it has attached to the collateral and a method of perfection authorised under the PPS Act has been completed, regardless of the order of occurrence.

PPS Registry

Registration of a notice in the online PPS Registry is the principal means – although not the only means – of perfecting a security interest. Registering a notice perfects a security interest in non-monetary collateral, except when that registration perfects a security interest in money that is the proceeds of the sale of the collateral. Perfection may also occur by taking possession of collateral or by taking control of deposit accounts and investment property. The PPS Registry receives notices of security interests in collateral and maintains them for public search. The notices alert prospective creditors and buyers of collateral (personal property) of the possible existence of a security interest in that collateral. The registration date of a notice may establish the date by which the priority of competing claims is measured. A notice may be registered before a security agreement is concluded, as well as before a security interest attaches to personal property. A notice that substantially complies with the requirements of the PPS Act is effective even if it is insufficient, unless its insufficiency makes the notice seriously misleading.

A notice may relate to one or more security agreements and is effective for a designated number of years. The notice lapses at the end of this period unless, before the lapse, a continuation statement is registered. Upon lapse, a notice becomes ineffective and a security interest that was perfected by the notice becomes unperfected, unless the security interest is perfected without registration. Where a security interest becomes unperfected upon lapse, it is deemed never to have been perfected against a purchaser of the collateral for value.

Securities over real property (i.e., land) will continue to be regulated by the Land Act of 1996 and the Land Registration Act.

Mercantile Act

The Mercantile Act, chapter 260 of the Revised Laws, contains various provisions that lenders in PNG need to be aware of. The act is a compendium of useful and sometimes odd provisions that have not been included in other legislation. All too often the provisions of the Mercantile Act are ignored to the detriment of lenders.

Power of Attorney

Power of attorney concerning an act or thing done or suffered in good faith continues in force until notice of the following:

• Death of the donor of the power; or

• Some other revocation of the power. Power of attorney is subject to any stipulation to the contrary in the instrument creating the power.

Assignment of Debt

A written absolute assignment under the hand of the assignor (not purporting to be by way of charge only) of a debt or of another legal thing in action, of which express written notice has been given to the debtor, trustee or other person from whom the assignor would have been entitled to claim the debt or thing in action, is always deemed effectual in law. This is subject to all equities being granted priority over the right of the assignee to pass and transfer from the date of notice of the following:

• The legal right to the debt or thing in action;

• All legal and other remedies for the debt or thing in action; and

• The power to give a good discharge for the debt or thing in action without the concurrence of the assignor (Mercantile Act section 3[1]). If the debtor, trustee or other person liable for a debt or thing in action has notice that the assignment is disputed by the assignor, a person claiming under them, or of any other opposing or conflicting claims to the debt or thing in action, they may:

• Call on the persons making claim to the debt or thing in action to interplead concerning it; or

• Take the debt or thing in action into court under the provisions of any act for the relief of trustees (Mercantile Act section 3[2]).

Conveyances

A conveyance of property made with intent to defraud creditors is voidable at the instance any person is prejudiced by it. This provision does not affect the operation of the law of insolvency (Mercantile Act section 7[2]). Additionally, this provision does not apply to an estate or interest in property conveyed:

• For valuable consideration; or

• For good consideration to a person not having, at the time of the conveyance, notice of the intent to defraud creditors (Mercantile Act section 7[3]). A voluntary disposition of land made with intent to defraud a subsequent purchaser is voidable at the instance of that purchase.

There is no voluntary disposition with intent to defraud by reason only that a subsequent conveyance for valuable consideration was made, if the subsequent conveyance was made after the commencement date (Mercantile Act section 8[2]).

A disposition includes every possible mode of disposition referred or referenced to in the Land Registration Act (chapter 191).

Customary Land

Approximately 95% of land in PNG is held by its traditional owners under customary principles of land ownership. Specific rules of the customary land tenure system vary from place to place, depending on the governance of a region; however, customary land ownership generally recognises the traditional users of land and their personal and clan arrangements for land use.

A foreign investor operating in PNG cannot purchase or lease customary land from its traditional owners. However, if a foreign investor requires access to customary land, it is possible for the government to acquire the land in question from its traditional owners and then lease it to the foreign investor. Previously, in order for customary land to be assigned or mortgaged, the government had to issue special agricultural and business leases (SABLs) to investors that were supported by a lease between the customary owners and the state.

Unfortunately, some developers utilised SABLs as a guise to harvest native forests for the purpose of selling round logs on the export market. As a result of those practices, the government set up a special commission of enquiry that made various recommendations in relation to granting a number of SABLs, including the recommendation that several of these leases be revoked.

In 2009 the government amended the Land Groups Incorporation Act and the Land Registration Act to improve the method of incorporation of land groups, and to include appropriate accountability and management processes for transparent and effective governance. The primary objective of the amended legislation is to empower customary landowners to utilise their land for development in a fair, equitable and convenient manner. The purpose of amending the legislation was to ensure that customary landowners do not divorce themselves from ownership of their land. They continue to have control of their land through the registration of incorporated land groups without alienating the parent title from ownership by the incorporated land group so that future generations of landowners will have a voice in how their customary land is utilised.

Incorporated Land Groups

Incorporated Land Groups (ILGs) are now the preferred entity for both the state and developers to conduct dealings with. The amendment to the Land Groups Incorporated Act and the Land Registration Act recognises the important role that ILGs play in development projects. ILGs are used for two purposes:

• Landowner identification to obtain the consent of customary landowners; and

• For benefit sharing (payment of rent, royalties, business development grants et al.). The following is a brief overview of the resource sector and how ILGs are utilised in those sectors: Forestry sector: The Forestry Act 1991 provides that the PNG Forest Authority (PNGFA) must acquire timber rights from the customary landowners under a Forest Management Agreement (FMA). PNGFA then assigns the timber rights to logging companies to log on the customary land.

Consequently, the act requires the landowners to organise themselves into ILGs to facilitate the landowners’ consent to the FMA. The PNGFA receives payments from the logging companies and pays the landowners pursuant to the FMA.

Because the Forestry Act also provides a process for cases in which it is impractical to incorporate an ILG, 75% of the adult landowners can give their written consent to the FMA. Prior to the amendment to the ILGs Act there had been numerous reports regarding the effectiveness and multiplicity of ILGs, contributing to various corruption allegations in the forestry sector. Oil & gas projects: The Oil and Gas Act provides that applicants for petroleum development licences must undertake social mapping and landowner identification studies as a precondition for a development licence. The Oil and Gas Act does not specifically require the landowners to incorporate an ILG, though in practice the state does encourage landowners to incorporate ILGs, with various state agencies, such as the Department of Lands and Physical Planning and the Department of Petroleum and Energy, to coordinate and facilitate the incorporation of such ILGs through the so-called Clan Vetting Process. Mining: The Mining Act 1992 does not make specific reference to ILGs but refers to a “landowner” being the owner of customary land (as per section 2 of the Mining Act 1992). The compensation agreement is with the landowner and the mining company, and the landowner or landowners are given the leeway of entering into a “compensation agreement”. Climate change: Climate change-related projects or activities – which include reducing emissions from deforestation and forest degradation, otherwise known as REDD+ – are regulated under the Climate Change (Management) Act 2015. The act provides specifically that the landowners must incorporate an ILG in order for the landowners to enter into any climate change-related project agreement with an entity or individual. If it is impractical to do so, then the climate change-related project agreement can be entered into by the express written consent of more than 85% of the adult landowners.

ILGs are increasingly becoming the preferred entity for the state and developers to engage with for projects occurring on customary land. There are still challenges in terms of the mechanics of the various pieces of legislation in terms of fully utilising ILGs for development projects on customary land. Due to the proliferation of ILGs, the Land Groups ( Amendment) Act 2009 introduced stricter requirements for applicants for ILGs, including a list of members together with the birth certificate of each individual member. Coupled with SABLs, mobilising customary land for development remains a challenge in light of the increasing scarcity of alienated land.

Alienated Land

Alienated land is land that has been acquired from customary owners by the government, either for its own use or for private development. However, some alienated land is held as freehold land and by entities other than the government. Most enterprises in which foreign investors are involved are located on alienated land. Alienated land can be held either as freehold or leasehold from the state, although freehold land makes up only a small proportion of alienated land in PNG.

Both freehold and leasehold land are registered by the Registrar of Titles under a Torrens-type title system of land registration. Under this system, an original certificate of title for freehold land or state lease for leasehold land is kept on a register maintained at the Office of the Registrar of Titles (ORT). All land dealings in PNG are carried out by means of instruments that are perfected upon their registration. A certificate of title or state lease kept on the register maintained by the ORT should reveal at any time the exact location of the land in question, its dimensions, and the present owner or lessee, and may also reveal subleases and mortgages to which the title may be subject. Certain dealings in land require the approval of the minister for lands and physical planning.

Freehold Land

Under the Land (Ownership of Freeholds) Act, a non-citizen is precluded from owning freehold land. However, freehold land can be converted to leasehold land for use by a non-citizen. Leasehold land can be more freely dealt with than freehold land. Leasehold land is land that the government has acquired from its customary owners and leased to a person or company for a term of up to 99 years for a specific purpose. The Land Act provides for several types of state lease, including the following:

• Agricultural leases;

• Pastoral leases;

• Business and residence leases;

• Mission leases;

• Leases of government-owned buildings;

• Special purpose leases; and

• Town subdivision leases. Also included in the act are the rules and procedures regarding the granting of licences, the transfer of customary land and compensation payments, as well as a list to specify which dealings require ministerial approval.

Patents & Industrial Design

The Patents and Industrial Design Act of 2002 came into effect on July 1, 2002. For the first time, it introduced legislation to protect the patents and industrial designs of companies and people in PNG.

Under the act, a patent for an invention expires approximately 20 years after the filing date of the application. Annual renewal fees are payable commencing one year after the filing date of the application. The act recognises the rights of priority under the Paris Convention for the Protection of Industrial Property. An invention is patentable if it is new or involves an inventive step on an existing creation, and is industrially applicable.

Resource Ownership

Relevant legislation in PNG vests the ownership of oil, petroleum, natural gas, gold, silver, copper and other minerals in the state. In 1990 and 1991 there was a constitutional challenge to the predecessor of the current Mining Act 1992. This was on the grounds that the government’s ownership of minerals on privately owned land was an unjust deprivation of property. The court determined that the reference had been made prematurely and dismissed it without making a decision as to its merits. The litigation was subsequently settled without a further reference being made. The point, therefore, has not been settled beyond a doubt.

Mining

The Mining Act 1992 is administered by the Mineral Resources Authority (MRA) and sets out a detailed regime dealing with types of mining tenements that can be granted by the state, including:

• Exploration licences;

• Special mining leases;

• Mining leases (for hard rock and alluvial);

• Alluvial mining leases;

• Leases for mining purposes; and

• Mining easements. The act also sets out terms for the following:

• Licences;

• Requirements for mining development contracts;

• Paying rents, fees and royalties;

• Compensating landowners; and

• Registering interests and dealings in tenements.

Tenement Registration

The MRA’s Tenement Register contains details of all applications, their grant or refusal, and other information. Any dealing in the legal or equitable interest of a mining tenement must be approved by the minister of mining and registered before it becomes effective.

Compensation

A tenement holder is liable to compensate the owners of the land on which the tenement is located, as well as any adjoining land or improvements, and land or improvements in the vicinity, for its entry onto or occupation of the land. The holder is also responsible for any loss or damage caused or foreseen to be caused by exploration, mining or related activities. Compensation arrangements must be finalised and registered as a compensation agreement before the tenement holder can enter the land for mining.

Hydrocarbons

The exploration and development of oil, petroleum and gas is regulated under the Oil and Gas Act of 1998. Like the Mining Act 1992, it vests ownership of petroleum, natural gas and helium at or below the surface of land in the state. Geothermal, however, is regulated under the Mining Act 1992. The act sets out a comprehensive regime for the types of petroleum licences that may be granted by the state:

• Petroleum prospecting licences;

• Petroleum retention licences;

• Petroleum development licences;

• Pipeline licences; and

• Licences for petroleum processing facilities. The Oil and Gas Act also sets out the terms and conditions of issue for the above, including:

• Registering interests and dealings in tenements;

• Compensating landowners; and

• Paying fees and royalties.

Forestry

The Forestry Act of 1991 regulates the forestry industry for the purposes of the following:

• Managing, developing and protecting the country’s forest resources and environment so as to conserve and renew them;

• Maximising citizens’ participation in the use and development of forest resources;

• Using the country’s forest resources to achieve economic benefits and create employment; and

• Encouraging study and research into forest resources so as to contribute to ecological balance. The Forestry Act covers the following:

• The establishment of a Forestry Authority and certain other entities involved in forest management and development, including the development of national and provincial forest plans;

• The approval of forest project proposals;

• The issue of timber permits, authorities and licences;

• The customary ownership of forest resources; and

• The payment of royalties and levies. A timber permit authorises the holder to carry out the operations specified in the permit within a certain area for a specified term and is subject to any conditions outlined, including compliance with project statements, five-year plans and annual logging plans.

Fishing 

The Fisheries Management Act of 1998 regulates the fishing industry and its aquatic resources and environment for the following purposes:

• To manage, develop and protect PNG’s fisheries resources, and marine, coastal and aquatic environments so as to conserve and replenish them;

• To maximise citizens’ participation in the use and development of fisheries resources;

• To use the country’s fisheries resources to achieve economic benefits and ecological balance, and to create employment; and

• To pursue effective strategies for managing fisheries resources, and national, provincial and local interests. The act deals with the following:

• Establishing the National Fisheries Authority;

• The management, development and regulation of fishing;

• The conservation of fisheries;

• Customary resource ownership; and

• The issuance of fishing licences.

Environment

The Environment Act of 2000 and other regulations established laws regarding the sustainable management of the country’s environment, while the Conservation and Environment Protection Act 2014 created the Conservation and Environment Protection Authority (CEPA), which takes over the role formerly undertaken by the Department of Environment and Conservation as PNG’s environmental regulator.

The CEPA grants permits to certain activities that are prescribed in the Environment Act as Level-A, Level-B or Level-C activities, with each level corresponding to the level of harm posed to the environment for which a permit is required. The levels are then categorised and further subcategorised into the specific type of activities. The permits are largely intended for projects and developments, but also extend to any activities that can potentially be harmful to the environment. The type of permits to be obtained are in their prescribed forms together with the prescribed fees.

Employment Conditions

The Employment Act regulates the conditions under which citizens of the country can be employed. Subject to certain exceptions, the legislation contains provisions relating to maximum daily hours and rest periods, overtime and overtime rates, recreation, sick leave, and the payment and protection of employee wages. A firm should take care in contracting with non-citizens, as these conditions may apply. Examples of common employment conditions in force include:

• A 40-hour work week with overtime;

• Three weeks of annual leave;

• A six-month service leave after a duration of 15 years of continuous service; and

• After three months of continuous service, a requirement of one week’s notice of termination of employment by either party, or, if the employer terminates the employment, one week’s wages in lieu of notice.

• These and other conditions of employment may be negotiated and varied in the contract between the employer and the employee, but some minimum entitlements are set by law. The act contains detailed provisions relating to contracts of employment.

• Minimum wage levels are set by a government-appointed Minimum Wages Board. The board, which includes representatives from labour unions, employers and the government, meets every three years and reevaluates the minimum wage. Some workers in major regional centres and major natural resource projects belong to a trade union – a right that is guaranteed to all workers. Other key regulations and laws relating to employment and working contracts in PNG are as follows:

• The Industrial Organisations Act, which provides for the registration and control of industrial organisations;

• The Industrial Relations Act, which established and operates the Minimum Wages Board, for the settlement of disputes and common rules; and

• The Workers’ Compensation Act, which provides for compensation to workers and their dependents in respect of injuries sustained in the workplace.

Insurance Act

With limited exceptions, the Insurance Act regulates coverage for all types of risk. The act is administered by the insurance commissioner, who is appointed by the minister of Treasury. A corporation intending to conduct general insurance business or undertake business as a broker, loss adjuster or agent must first apply to the insurance commissioner for a licence. The insurance commissioner will grant a licence subject to such terms and conditions as they consider to be appropriate. Licences are issued for one year and can be renewed. All risks that are situated in PNG for which insurance (including reinsurance) is required must be insured with licensed insurers. A person who arranges insurance – such as an agent, broker or insurer – of a risk situated in PNG with a person other than a licensed insurer is guilty of an offence. The act contains an exemption to this prohibition where the insurance commissioner is satisfied with the existing facilities, and available capacity of licensed insurers are fully utilised. An application for exemption must comply with certain formalities and provide certain information, including details of arrangements for the payment of income tax by non-resident insurers, as well as for approvals required under the Central Banking (Foreign Exchange and Gold) Regulation.

Stamp Duty

The Stamp Duties Act imposes stamp duty (a form of indirect taxation) on a variety of documents (instruments) and transactions at rates detailed in schedule 1 of the act. The duty is imposed as ad valorem duty – that is, on the value of the transaction – or as fixed duty.

Stamp duty charged on an instrument is payable:

• In the case of an instrument that is first executed outside PNG before January 1, 1995, when the instrument comes into the country; and

• In all other cases, when it is first executed. An instrument executed before July 1, 1953 is not charged with stamp duty. Duty is chargeable with respect to an instrument that is outside PNG if the instrument (irrespective of whether it was executed in PNG or otherwise) relates to property situated, or any matter or thing done or to be done, in PNG. An instrument containing or relating to several distinct financial matters is chargeable with stamp duty with respect to each of those matters as if each matter were expressed in a separate instrument.

The consequences of not paying the correct amount of duty when due are severe. In addition to the actual duty itself, interest, fines and other penalties are payable with respect to unstamped instruments liable to duty. However, the most important consequence of not paying the correct duty is that, subject to certain exceptions and qualifications, an instrument must not be pleaded or given in evidence – except in criminal proceedings or if admitted to be good, useful or available by law – unless it is duly stamped in accordance with the law in force at the time when it was first executed or came into PNG, whichever is later. Effectively, this makes an unstamped document that is otherwise liable to duty unenforceable until the duty is paid in full.

Stamp duty has been abolished in relation to loan agreements and loan securities (including mortgages) executed after January 1, 2008. There is currently no stamp duty levied on guarantees.

Foreign Exchange Control

The key legislation governing foreign exchange is the Central Banking (Foreign Exchange and Gold) Regulation. Until December 2004 PNG maintained a comprehensive regulated foreign exchange control regime with a variety of transactions requiring the approval of the central bank. Since then controls have been progressively liberalised; however, the central bank still retains control over the following:

• The opening of offshore and onshore foreign currency accounts, including offshore kina accounts;

• The licensing of gold exporters;

• The licensing of foreign-exchange dealers; and

• The removal from PNG of physical cash in excess of PGK20,000 ($5900) or foreign currency equivalent. Furthermore, approval from the central bank is still required for residents – broadly, any enterprise of whatever legal structure having an economic presence in the country – to give a guarantee or grant security over assets in PNG in favour of a non-resident, where such guarantee or security is part of a transaction that is not for the direct benefit of a person resident in PNG.

Additionally, only authorised dealers (banks authorised by the central bank) may conduct foreign currency transactions. Residents still require central bank approval to enter into or perform an agreement with another resident in a currency other than kina.

New Securities Legislation

In November 2015 the National Parliament passed the New Securities Legislation package, which includes the following:

• The Securities Commission Act of 2015;

• The Capital Markets Act of 2015; and

• The Central Depositories Act of 2015. The New Securities Legislation, excluding the Central Depositories Act, is now in force. Importantly, the Securities Commission Act of 2015 repeals:

• The Securities Act of 1997;

• The Securities Regulation of 1998; and

• The Takeovers Code of 1998. The legislative intention was that the minister for trade, industry and commerce would prescribe a new takeovers code based on the recommendation of the PNG Securities Commission and that this new legislation would come into force immediately after the Takeovers Code of 1998 was repealed. Unfortunately, this did not occur, and the previous code was repealed before a replacement was ready. As of mid-2019 the PNG Securities Commission was still working on the new takeovers code and no recommendation concerning the pending legislation had been made to the minister for trade, industry and commerce.

This means that until a new takeovers code comes into operation, the takeover of PNG-incorporated companies remains largely unregulated. The PNG Securities Commission was purported to have put takeovers on hold; however, as takeovers are dependent on the dynamics of the market, this is impractical. Therefore, the PNG Securities Commission has requested that interested parties liaise closely with the organisation, pending the introduction of a new code. Initial indications are that new regulations will not be based on New Zealand precedents, but rather are likely to follow a model that has been adopted by a number of South-east Asian countries.

The New Securities Legislation as a whole aims to bring securities regulation in PNG more in line with international standards in securities law, practice and procedure. For example, in relation to the prospectus requirements, the Capital Markets Act of 2015 does away with the concept of an offer to the public. Instead, subject to specific exceptions – classified as excluded offers, excluded invitations and excluded issues – no person in PNG will be permitted to issue or offer securities for subscription or purchase or to make an invitation to subscribe or purchase securities.

For an initial listing, making an application for the quote of securities on a stock exchange is not allowed, unless a prospectus relating to the securities has been registered by the PNG Securities Commission. In this case, the prospectus must comply with the requirements of the Capital Markets Act of 2015. An offer of, or invitation to subscribe for, securities in a takeover offer “which complies with the relevant law applicable to such offers” is specifically excluded.

OBG would like to thank Leahy PNG Law for its contribution to THE REPORT Papua New Guinea 2020