John Leahy, Partner at Leahy Lewin Lowing Sullivan, on proposed reforms to Papua New Guinea’s land use regulations: Viewpoint

Viewpoint: John Leahy

Benny Allan, the minister of Lands and Physical Planning, has proposed a number of amendments to the Land Act. The key points include administrative reform, including restructuring of the Land Board, the abolition of special agriculture business leases, the foreign ownership restrictions on state leases and land administration matters. The minister is embarking on a range of initiatives to automate various registries, to allocate resources to train officials on land management issues.

These matters have been welcomed by the business and legal communities as administration in the Lands Department has been an impediment to doing business in PNG. A related measure concerns restructuring the Land Board. The expressed objective has been to remove political and administrative interference. Based on early drafts of the legislation, businesses are concerned that there would remain a strong presence of proposed board members from the Lands Department without sufficient independence. The business community has proposed an alternative aimed at creating a genuinely independent and objective land board.

The proposal to abolish the provisions providing for special agriculture business leases (SABLs) have been strongly criticised by business. SABLs have been the subject of considerable controversy. The proposal to provide, as a transitional measure, that the existing SABLs should remain until their terms expire ( generally at the end of a 99-year period) seems paradoxical given that there have been questions raised about the process under which they were granted.

The business community would prefer SABLs to remain. There is a great deal of commerce conducted pursuant to SABLs. For example, it is understood that over 30,000 oil palm growers and small and medium-sized enterprises benefit from the presence of New Britain Palm Oil’s SABL presence in their locality. A further illustration of the importance of SABLs can also be observed on the investment undertaken by PNG Forest Products in two hydro-power stations in Bulolo, Morobe Province. The company has reported that it not only supplied the operation for their project but also provides 12% of the Ramu power grid, which includes their operations and the Hidden Valley mine. Both hydro stations are held on SABLs.

The business community has therefore proposed to the government maintain the current legal arrangements of the SABL, however consider amending Section 102 of the Land Act so that SABL titles can only be issued to Incorporated Land Groups. They would also suggest the government consider developing appropriate arrangements for residential leases and deal as a matter or priority with any questionable SABLs and not amend the law to entrench them.

It was proposed to amend the Land Act so that a state lease may only be granted to a citizen. Any PNG company which is partly owned by non-citizens would be treated as a non-citizen for this purpose. The private sector associations in PNG are opposed to this proposal and have identified the following negative impacts: the valuation of properties will significantly diminish securities in the banking sector; the valuation of properties will significantly diminish in the superannuation sector; and there will be lending market disruptions. Restricting the acquisition of state leases by non-citizens will have a significant impact on the ability of businesses to borrow. Non-citizen customers will be disadvantaged from obtaining bank financing for their business needs which will hinder investment in PNG where certainty of land tenure is critical to any long-term investment decision.

Furthermore, banks will be required to undertake an assessment of all title deeds currently being held as security to determine the extent to which equitable mortgages will be affected, causing significant administrative challenges including debt restructuring or even securing full repayment in the absence of any alternative security. It is anticipated that a large portion of their security will be affected.  Similarly, banks will need to renegotiate alternative security arrangements.