Transparency of the Regulatory System
The ICCC (Independent Consumer and Competition Commission) is charged with fostering competition. While there are transparent policies in place, the competition regime works more towards the regulation of existing monopolies and does little to foster competition. Tax, labor, environment, health, and safety and other laws do not distort or impede investment. However, the lack of implementation of existing laws by some government entities frustrates some investors. For example there are long bureaucratic delays in the processing of work permits and frequent complaints about corruption and bribery in government departments.
The IPA and the Government are moving, with the assistance of the International Finance Corporation, towards more investment promotion and a more streamlined regulatory framework to encourage foreign investment. The IPA’s move to an online registration process for businesses is evidence of this.
Proposed laws and regulations are made available for public comment, but comments are not always taken into consideration or acted on by lawmakers or regulators.
There are informal regulatory processes managed by nongovernmental organizations and private sector associations. There are impediments to the licensing of skilled foreign labor that are imposed by local professional associations, such as the Papua New Guinea Institute of Engineers and the Law Society(both of which have their own regulatory processes), that foreigners must go through before they can work/practice in the country.
There are no private sector and/or government efforts to restrict foreign participation in industry standards-setting consortia or organizations.
Legal, regulatory, and accounting systems are transparent and consistent with international norms, but there are delays in the dispute resolution system due to a lack of human resources in the judiciary.
When possible, proposed laws are made available for public comment, but comments are not always taken into consideration or acted on by lawmakers. Frequently, important Parliamentary decisions, such as the annual budget, are taken with no hearings and little or no debate before voting. Many PNG government functions and documents are available online, but not all and they are not centralized.
Regulatory decisions can sometimes be capricious and opaque, but they do not specifically target foreign-owned businesses. Most regulatory decisions can be appealed to courts with jurisdiction. There are no regulatory reforms currently planned.
International Regulatory Considerations
PNG is a party to the Melanesian Free Trade Agreement. The agreement came into effect in 2017 and does address the need for competent regulatory authorities in each country (PNG, Solomon Islands, Vanuatu, and Fiji). However, the regulatory chapter is small and is designed to be strengthened and improved going forward. When international standards are used in PNG, they are most often Australian due to PNG’s colonial past and continuing close economic ties with Australia.
The government has notified the WTO Committee on Technical Barriers to Trade only once. That notification covered food safety issues and was issued in 2006.
Papua New Guinea accepted the Trade Facilitation Agreement (TFA) on March 7, 2018. As the acceptance has happened only recently, there have been no government efforts of note on implementing TFA requisites.
Legal System and Judicial Independence
The legal system is based on English common law. Contract law in Papua New Guinea is very similar to and applies in much the same way as in other common law countries such as Great Britain, Australia, Canada, and New Zealand. There is, however, considerably less statutory regulation of the application and operation of contracts in Papua New Guinea than in those other countries.
The Supreme Court is the nation’s highest judicial authority and final court of appeal. Other courts are the National Court; district courts, which deal with summary and non-indictable offenses; and local courts, established to deal with minor offenses, including matters regulated by local customs.
In addition to the courts mentioned above, there is also a system of Village Courts established under the Constitution and the Village Courts Act. Matters involving customary law claims are likely to arise at the Village Court level. There is no jury system in Papua New Guinea. Lawyers operating in Papua New Guinea are governed by the Papua New Guinea Law Society, and only lawyers registered with the Society should be used.
While often painstakingly slow, the judiciary system is widely viewed as independent from government interference. The Supreme Court is the ultimate appeal court in Papua New Guinea. It has original jurisdiction in matters of constitutional interpretation and enforcement and has appellate jurisdiction in appeals from the National Court, certain decisions of the Land Titles Commission, and those of other regulatory entities as prescribed in their own Acts. The National Court also has original jurisdiction for certain constitutional matters and has unlimited original jurisdiction for criminal and civil matters. The National Court has jurisdiction under the Land Act in proceedings involving land in Papua New Guinea other than customary land.
Laws and Regulations on Foreign Direct Investment
Foreign investors can either be incorporated in PNG as a subsidiary of an overseas company or incorporated under the laws of another country and therefore registered as an overseas company under the Companies Act 1997.
The 1997 Companies Act and 1998 Companies Regulation oversee matters regarding private and public companies, both foreign and domestic. All foreign business entities must have IPA approval and must be certified and registered with the government before commencing operations in PNG. While government departments have their own procedures for approving foreign investment in their respective economic sectors, the IPA provides investors with the relevant information and contacts. The regulations governing foreign investments in PNG include:
- Free Trade Zone Act 2000;
- Investment Promotion Act 1992;
- Papua New Guinea Companies Act 1997;
- Forestry Act 1991;
- Mining Act 1992;
- Fisheries Act 1994; and
- Oil and Gas Act 1998.
In 2014, the government amended the 1997 Companies Act to improve corporate governance and ease regulatory burdens. This amendment allowed IPA to begin using its online company registry. The main changes to the act are as follows:
- Increased protection and benefits for shareholders;
- Clarification of duties imposed upon directors;
- A more transparent and streamlined process of issuing shares;
- Increased protection of creditors, including a more disciplined liquidation process;
- A clearer process for filing annual returns; and
- Streamlined filing requirements in anticipation of implementing an online registration.
A summary of the changes to the Act can be found on the IPA website: http://www.ipa.gov.pg/wp-content/uploads/Changes-to-the-company-Act.pdf .
In 2013, the government amended the Takeovers Code to include a test for foreign companies wishing to buy into the ownership of local companies. The new regulation states that the Securities Commission of Papua New Guinea (SCPNG) shall issue an order preventing a party from acquiring any shares, whether partial or otherwise, if the commission views that such acquisition or takeover is not in the national interest of PNG. This applies to any company, domestic or foreign, registered under the PNG Companies Act, publicly traded, with more than 5 million PGK (USD 1.53 million) in assets, with a minimum of 25 shareholders, and more than 100 employees.
In recent years, this law has not been used to prevent ExxonMobil’s acquisition of InterOil or Chinese company Zijin Mining’s purchase of 50 percent of the Porgera Joint Venture gold mine.
Competition and Anti-Trust Laws
The 2002 Independent Consumer and Competition Commission Act, is the law that governs competition. It also established the Independent Consumer & Competition Commission (ICCC), the country’s premier economic regulatory body and consumer watchdog; introduced a new regime for the regulation of utilities, in particular in relation to prices and service standards; and allowed the ICCC to take over the price control tasks previously undertaken by the Prices Controller as well as the consumer protection tasks previously undertaken by the Consumer Affairs Council.
The Act’s competition laws, contained in Part VI of the Act, prohibit:
- Entering into, or giving effect to contracts, arrangements or understandings having the purpose, effect or likely effect of substantially lessening competition (Section 50);
- Arrangements between competitors that contain exclusionary provisions, which have the purpose of preventing, restricting or limiting dealings with any particular person or class of persons who are in competition with one or more of the parties to the arrangement;
- Price fixing agreements between competitors (but fixing prices of joint venture products, recommended prices and joint buying and promotion arrangements, are not absolutely prohibited, although they may still be subject to the prohibition on contracts, arrangements, and understandings that substantially lessen competition) (Sections 53-56);
- A person with a substantial degree of market power from taking advantage of that power for the purpose of restricting the entry of a new competitor into a market, preventing or deterring a competitor from engaging in competitive conduct, or eliminating a competitor from that market (Section 58);
- The practice of resale price maintenance, which occurs where a supplier tries to specify a price below which a reseller may not sell the supplier’s product. This prohibition also applies to third parties seeking to insist that products not be resold below a specified price (Sections 59-64); and
- Mergers or acquisitions that would have the effect or likely effect of substantially lessening competition in a market (Section 69).
The ICCC’s website is http://www.iccc.gov.pg .
There have been no significant actions taken by ICCC in the last 12 months that have affected international investors.
Expropriation and Compensation
The judicial system upholds the sanctity of contracts, and the Investment Promotion Act of 1992 expressly prohibits expropriation of foreign assets.
After years of environmental issues, in September 2013, the Government of Papua New Guinea nationalized the country’s largest taxpaying company, Ok Tedi Mining Limited. The nationalization raised concerns about the government’s policy. Some observers saw this event as a special case, given that much of the company’s profits are held in trust for the people of PNG, and its effective ownership by a company – the PNG Sustainable Development Program’s (PNGSDP) – would transfer benefits from the mine back to the people. By a unanimous vote in Parliament, the government annulled PNGSDP’s share in the mine and issued new shares to the state. This vote also removed BHP Billiton’s immunity from environmental liability and gave the state the right to restructure PNGSDP. As there have been no other expropriating acts since late 2013, the Ok Tedi Mining Limited nationalization does appear to have been a one-off.
The OK Tedi nationalization was an Act of Parliament considered and voted on in the regular order of business. There was no recourse or due process beyond the Parliament.
ICSID Convention and New York Convention
Since 1978, Papua New Guinea has been a member of the International Centre for Settlement of Investment Disputes (ICSID Convention). In agreements with foreign investors, GPNG traditionally adopts the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL model law). There is no specific legislation providing for enforcement of awards under the 1958 New York Convention or the ICSID Convention.
Investor-State Dispute Settlement
Investment disputes may be settled through diplomatic channels or through the use of local remedies before having such matters adjudicated at the International Centre for the Settlement of Investment Disputes or through another appropriate tribunal of which Papua New Guinea is a member. The Investment Promotion Act 1992 that is administered by the IPA also protects against expropriation, cancellation of contracts, and discrimination through the granting of most favored nation treatment to investors. PNG does not have a Bilateral Investment Treaty (BIT) with the United States, and no claims have been made under such an agreement. There is not a recent history of international judgments against GPNG nor is there a recent history of extrajudicial action against foreign investors.
There have been no investment disputes involving a U.S. person or other foreign investor within the last 10 years, and there is no history of extrajudicial action against foreign investors. Local courts have not recognized and enforced any arbitral awards issued against the government.
There are no alternative dispute resolution (ADR) mechanisms as means for settling disputes between private parties outside of the courts and contract enforcement. There is not a recognized domestic arbitration body/mechanism in PNG, and most recent arbitration has occurred in international jurisdictions. Local courts in PNG have previously recognized and enforced judgements of foreign courts, such as a 2015 international arbitration decision in favor of Interoil (which has since been acquired by ExxonMobil) and against Oil Search was respected in PNG.
Papua New Guinea’s bankruptcy laws are included in chapter 253 of the Insolvency Act of 1951 and sections 254 through 362 of the Companies Act of 1997, which covers receivership and liquidation. Bankruptcy and litigation searches can only be conducted in person at the National Court in Port Moresby.
According to the World Bank’s Doing Business Report, resolving insolvency in Papua New Guinea takes an average of three years, and typically costs 23 percent of the debtor’s estate. The average recovery rate is 25.2 cents on the dollar. Globally, Papua New Guinea stands at 141 out of 189 economies on the Ease of Resolving Insolvency.
The Credit Data Bureau (CDB) is used by commercial banks for making creditworthiness decisions.