Benefits from mining in Papua New Guinea – where do they go?

Monday, 10 September, 2012

The National Research Institute (NRI) has published an interesting study of the economic benefits from the Porgera Gold Mine over its lifetime, see NRI Discussion Paper No 124, Peter Johnson, Lode Shedding: A Case Study of the Economic Benefits to the Landowners, The Provincial Government, and the State from the Porgera Gold Mine, Background and financial flows. Report can be downloaded here.

The report sets out to shed light on the perennial question of why Papua New Guinea is resource rich yet its citizens are poor. It concludes that for the communities who are supposed to be the beneficiaries of PNG’s mining wealth, the legal and payments system is complex, opaque and one-sided, and there remains a lack of transparency at both national and sub-national levels of government. The report also notes weaknesses in the national government — failure to report the details of payments from and to mining project stakeholders, and lack of a system that tracks how stakeholders under its control operate.

Benefit flows
The Porgera gold mine in Enga Province has been producing gold for over 20 years. This research identifies the benefits distributed from Porgera’s operations from 1990 to 2009 at Kina 6.4 bn (at 2009 exchange rates, USD2.3 bn). Of this total, Kina 4.8bn was distributed to groups and institutions in PNG in line with the mine’s Memorandum of Agreement and Kina 1.6 bn was distributed to international stakeholders.

According to calculations in Table 1 of this report, the share of total PNG benefits accruing to various parties amount to: national government Kina 1.7bn, landowners Kina 1.2bn, ‘PNG nationals’ Kina 1.1bn (mainly wages and contracts), Enga Province Kina 424m, Enga Provincial Government Kina 279m and Porgera Development Authority Kina 130m. In 2009 alone, K56 million in royalties, compensation and dividends was injected into the Porgeran economy, equivalent to approximately Kina 3935 per person, a contribution substantially higher than PNG’s 2009 per capita income of Kina 2337 (US$850).

Johnson analyses Porgera’s benefit flows by type of benefit as well as beneficiary. Wages and taxes have each accounted for 31 per cent of financial benefits from the mine, with business contracts close behind at 29 per cent. By contrast, royalty and compensation payments, while large kina payments, accounted for only 4 per cent and 3 per cent respectively of total benefits paid.

However you cut them, it is clear that the Porgera mine has delivered massive resources to the national government, provincial authorities, development authorities and the people of Enga province. With what results?

Impact and Accountability
Johnson finds a ‘complete lack of transparency and accountability in many of the institutions associated with the Porgera mine’ (p88). Over a billion kina in cash and benefits have been spread through the Porgera region but it is almost impossible to know where the money has gone.

The report includes a number of recommendations to improve the transparency and accountability of responsible institutions. It identifies implementation of the Extractive Industries Transparency Initiative (EITI) as the first step. But it argues a more important step would be to increase transparency through creating an audit trail of payments from national and provincial governments to other institutions such as the Porgera Development Authority, the Porgera Landowners Association and local-level governments. Such a second-tier transparency initiative would increase the accountability of these institutions. The report argues that current mining policy debates in PNG are being conducted in an information vacuum and risk missing the larger issue of whether monies meant to improve development outcomes in Porgera have been spent appropriately.

Adapted from an overview by Margaret Callan on Sep 10, 2012.
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.