Sustainability of Mining Impacted Communities in Papua New Guinea

Transcription

1 Sustainability of Mining Impacted Communities in Papua New Guinea Fiscal Revenue Sharing Mechanisms: Status and Practice Workshop on Sustainability and the Governance of Mining Revenue Sharing 4-5 April 2001 Dr Graeme Hancock Director, Project Coordination and Implementation Unit World Bank Mining Sector Technical Assistance Project

2 The Fiscal Regime for Mining in PNG Fiscal regime wider than just taxation when referring to distribution mechanisms in PNG Basic constituents of the fiscal regime Royalties 2% Income taxes 30% Additional profits tax 2 tier 20% at 15% IRR 25% at 20% IRR Dividend withholding tax 10% VAT Zero Rated Import Duties/Mining Levy 11% duty rate

3 Main Benefit Streams Royalties Special Support Grant (SSG) Compensation and relocation Infrastructure Tax Credit Scheme Equity Participation Prescribed Infrastructure Preferred Area Status, Education, Employment and Business Development Assistance Miscellaneous Grants

4 Fiscal Distribution Measures Royalties The Mining Act 1992 specifies a minimum of 20% of royalties received must be paid to the landowning communities of the mining lease area, the balance is paid to provincial governments The percentage is negotiable between provincial government and landowners. Percentages range from 20% up to 80% paid to landowners Most is distributed in cash to affected peoples, or used by provincial governments for infrastructure and services Sustainability measures include a percentage of royalties being invested in future generations trusts, childrens and young persons trusts and investments in real estate

5 Fiscal Distribution Measures Special Support Grants SSG is a form of derivation grant established under a constitutional organic law which determines that a value equivalent to 1% of the gross value of sales (effectively equivalent to a 1% royalty) is paid to the Provincial Government as a grant from the National Government in the National Budget By agreement a portion of this grant is channeled to the Local Level Government in the mine area (usually 20%) By agreement some may also be channeled to Sustainable Development Foundations established by the mine developer

6 Fiscal Distribution Measures Compensation Communities are required by law to be compensated for loss of assets and loss of access to land. Some also receive compensation for inconvenience or loss of lifestyle and/or relocation housing Continues throughout mine life Concerns exist over creating dependence as most of the money leads to consumption not investment However some is used for education and business development Some packages (such as the Ok Tedi river compensation package) include provision of infrastructure development and housing in lieu of cash

7 Fiscal Distribution Measures Tax Credit Scheme Infrastructure Tax Credit Scheme (ITCS) Established in recognition of limited capacity of local level governments to implement infrastructure projects Enables the mine developer to spend up to 0.75% of the value of gross sales on approved infrastructure projects and receive a tax credit when paying company income tax, i.e. the amount expended is considered as tax paid Project identification and approval process involves consultation with communities, local level and provincial governments and the national government Mostly targeted at education, health and community services such as water supplies, roads, policing etc.

8 Fiscal Distribution Measures Equity Participation Landowners have the right to take up 5% of project equity free carried to point of development on Special Mining Leases This has both potential benefits and liabilities and exposes communities to project risk Benefits to projects include increased community support and loyalty Benefits to communities from successful projects include cash for other developments. Most communities reinvest profits into other business development activities or real estate for growth of future opportunities Range of equity interest spread from 0% to 6%

9 Fiscal Distribution Measures Prescribed Infrastructure Each Mining Development Contract specifies what type of community facilities and infrastructure is to be constructed by the developer for general public access. These may include: Roads Schools Hospitals or health centres Government administration offices and housing Community facilities infrastructure and services Reticulated water supply Electric power supply Waste water treatment Management and maintenance of the above

10 Fiscal Distribution Measures Preferred Area Status Agreements provide for the developer to ensure local area communities receive preferential treatment in terms of: employment opportunities Preferred area applicants must be employed first Education and training Preferential secondary and tertiary scholarships Preferred entry to apprenticeships business development assistance Preferred supplier status given to local businesses in order to promote capacity and local business activity Assistance with arrangement of Joint Venture businesses

11 Fiscal Distribution Measures Other Grants National Government provides other assistance such as: Business establishment grants Bank guarantees to local business enterprises Assistance with financing landowner equity Management assistance with equity holdings Management assistance with business development activities and trust investments

12 Mining Agreements 1 MDC Mining Development Contract Executed between the Developer and the State Specifies prescribed infrastructure developments, facilities and roads which are essential to both operations and community, such as education and health The agreement details public access rights and obligations of the company with respect to operations, maintenance and management of agreed infrastructure and services Specifies the nature of local employment priorities Business development and local procurement obligations of the developer Specifies environmental and closure conditions

13 Mining Agreements 2 MoA s Memorandum of Agreement (MoA) Executed between the developer, the project area landowners, and the National and Provincial governments following a Development Forum consultation process. MoA s set out: Distribution mechanisms and percentages of royalties Amount and timing of special grants (if any) for business development Extent of additional budgetary support to Local Level Government Distribution of special support grant between provincial and local level governments Any infrastructure development commitments by Government Business development activities detailed Nature and role of Sustainable Development Foundations

14 Sustainability Challenges Recognition by both government, developer and landowners that cash in hand leads to dependency not independence from the mine Large sums of money are injected into provincial and local communities through the mechanisms outlined, on average each year over K120 million (US$40 million) Directly to local level government and communities is K47 million (US$16 million) per year The challenge is to ensure sustainable outcomes from the application of these large sums of money Major challenge to ensure effective long term management and transparent application of accumulated funds

15 Sustainability Opportunities Opportunities being pursued are the establishment of Sustainable Development Foundations at mine sites as a cooperative venture between Government, Developer and Community to ensure developments are carefully planned and transparently implemented Foundations are proposed to have long term trusts to ensure funds are available for ongoing public services and maintenance of community infrastructure beyond mine life Foundations to have training and capacity-building focus for Local Government development Proposed Foundations to have a focus on poverty alleviation, healthy diet, food security and agricultural development, and promote the welfare of women and the community at large

16 Sustainability Opportunities The use of Trusts for protection and investment of community funds such as royalties and dividends for future income generation are being increasingly utilised Some communities are now recognising that cash is not the best form of compensation and are opting for development packages that include infrastructure, housing etc.

17 Conclusions PNG took the path to structured income distribution following tragedy and forced closure at the Bougainville copper mine Systems need to be flexible enough to take into account local needs and cultural variations The secret to success lies in extensive community consultation and inclusion of all agreed provisions into formalised agreements and contracts ITCS has been very successful in developing infrastructure in remote areas where government has limited capacity to implement. Has side benefits in improving community relationships with developers Are foundations the answer for ensuring a lasting positive legacy from the mining sector?