TRANSPARENCY INTERNATIONAL PAPUA NEW GUINEA CORRUPTION RISKS IN MINING AWARDS COUNTRY REPORT Cover image: Programme Lawyer from TIPNG’s Advocacy and Legal Advice Centre (ALAC) speaking to a community in Sinivit LLG of Pomio District in the East New Britain Province of Papua New Guinea in 2015 as part of a lands right awareness outreach programme. TRANSPARENCY INTERNATIONAL PAPUA NEW GUINEA CORRUPTION RISKS IN MINING AWARDS COUNTRY REPORT Authored by Prof. John Burton 30 June 2017 John Burton, PhD Professor of Papua New Guinea Studies Centre for Social Research Divine Word University P O Box 483, Nabasa Road Madang 511, Madang Province Papua New Guinea [email protected] The research, language, views, conclusions and strategies outlined in this document have been created by the Transparency International National Chapter in Papua New Guinea and are not necessarily endorsed by Transparency International, Transparency International Australia or BHP Billiton Foundation. The material set out in this publication is intended for general information only. To the extent permitted by local laws, Transparency International, Transparency International Australia or BHP Billiton Foundation exclude liability for and are not liable to any person with respect to the accuracy or completeness of the information set out in the publication. Copyright 2017 by Transparency International PNG, all rights reserved. Materials may not be reproduced or stored in a retrieval system without prior written permission of the publisher and in no case for profit. ISBN 978 9980 89 909 5 EXECUTIVE SUMMARY This report examines risks associated with mining awards in Papua New Guinea, a country with a resource dependent economy. Papua New Guinea’s principal mining products are gold, silver, copper and nickel. In the 2010s the country has averaged around 60 tonnes Au/year, or about 2% of world production. Many analysts refer to Papua New Guinea having a ‘resource curse’ because the country has found it difficult to translate high mineral incomes into tangible progress with development. International ranking agencies score Papua New Guinea as having a high level of general corruption. In Bohre Dolbear’s ‘Where to invest in mining’ survey, Papua New Guinea was ranked 24th out of 25 countries with large mining sectors in 2015. In this report, petty corruption in the regulatory agencies that vet applications for licences and permits is assessed as having a low likelihood. A form of administrative laxity amounting to collusive corruption is found in the way award processes frequently act to the advantage of the ensemble of several levels of government, privileged officials in local representative bodies, and the applicants for licences and permits, at the expense of poor rural people on whose land mining takes place, or who suffer preventable environmental impacts, and for whom social development indicators have not improved as they should have. There is a danger of regulatory capture by political elites in Papua New Guinea and this has from time to time affected mining projects. The symptoms of state capture by ruling parliamentary factions have been much debated during the 2000s, with no firm conclusions to date. A form of state capture may be playing out in the oil and gas sector; its only symptom in the mining sector in manifested in the form of the 2013 nationalisation of the Ok Tedi mine. However, the ramifications of this move are unclear. The report follows a methodology supplied by Transparency International’s Mining Awards Corruption Risk Assessment (MACRA) tool. Seventeen of 89 ‘common risks’ in the tool have likelihood x impact scores that class them as ‘red’ risks. Ten country-specific ‘additional risks’ are added; five of them are classed as ‘red’ risks. The conclusions group recurrently high corruption risks into seven thematic areas. They are: 1. Risks concerning cross-institutional capacity 2. Risks concerning the human resources of regulatory agencies 3. Risks concerning the coherence of feasibility studies and MOAs 4. Risks concerning the lack of a national geospatial agency 5. Risks concerning consultation, representative bodies and associated business entities 6. Risks concerning the lack of CSR reporting requirements 7. Risks concerning women, vulnerable persons and marginalised groups Recommendations are given in the seven thematic areas. iv CONTENTS EXECUTIVE SUMMARY ..................................................................................................... iv PRINCIPAL TERMS AND ABBREVIATIONS .......................................................................... x TIMELINE OF PRINCIPAL MINES BY PHASE OF OPERATION ............................................. xii RISK MATRIX OF WORKSHEET ASSESSMENTS SCORED ‘RED’ .......................................... xiii CHAPTER 1 PAPUA NEW GUINEA: DEFINING THE SCOPE ................................................... 1 Introduction ........................................................................................................................... 1 Types of corruption ............................................................................................................... 2 State capture and regulatory capture ................................................................................... 7 Regulatory capture ............................................................................................................ 8 The relationship between regulatory capture and state capture ................................... 10 Methods used and nature of the evidence ......................................................................... 11 Translating the literature on mining in PNG into a corruption risk assessment ............. 11 Links between abuses of entrusted power and private gains ......................................... 12 Collusion between the holders of public office and mining companies as corruption ... 13 Assessing risk likelihood .................................................................................................. 14 Risk impacts for whom?................................................................................................... 14 CHAPTER 2 MAPPING THE PROCESS AND PRACTICE ........................................................ 17 The current award process .................................................................................................. 17 Exploration Licence .......................................................................................................... 17 Mining Lease / Special Mining Lease ............................................................................... 18 Mining awards made before the 1977 Act .......................................................................... 21 Panguna ........................................................................................................................... 21 Ok Tedi ............................................................................................................................. 22 Ok Tedi – the question of whether there was ever a completed ‘mining award’ ........... 24 Mining awards made under the 1977 Mining Act ............................................................... 25 Misima ............................................................................................................................. 26 Porgera ............................................................................................................................ 26 Mining awards made under the 1992 Mining Act ............................................................... 30 Limitations of the Mining Act 1992 ................................................................................. 30 Tolukuma ......................................................................................................................... 30 Kainantu ........................................................................................................................... 31 Simberi ............................................................................................................................. 32 Lihir .................................................................................................................................. 32 Hidden Valley ................................................................................................................... 35 Ramu ................................................................................................................................ 37 Solwara1 .......................................................................................................................... 37 CHAPTER 3 THE MACRA COMMON RISKS – LONG-FORMAT DISCUSSION ......................... 39 01-REGULATORY-STATE Corruption risks in administration and legislation ....................... 39 v CF01 ................................................................................................................................. 40 CF03 ................................................................................................................................. 41 CF07 ................................................................................................................................. 42 PD01 ................................................................................................................................. 43 PD20 ................................................................................................................................