Mining Agreements in Papua New Guinea

In Papua New Guinea (PNG), a mining agreement is the social contract entered into when a tribal people grants permission for mining on its land. The three basic elements of an agreement are:

  • Free, prior and informed consent (FPIC)—the decision to allow mining and the negotiation of mining agreements are arrived at in a fair manner, following the principles of FPIC.
  • Stakeholder identification—customary owners and other stakeholder groups are properly identified and written into the various sections of an agreement with accuracy, clarity and safeguards to ensure that recognition shifts do not occur over time.
  • Agreement governance—processes are specified, and their costs underwritten, that ensure: benefits (royalties, compensation for loss, lease payments, employment, business spin-offs, improvements to local infrastructure, commitments to social programs) will be appropriate and divided fairly among stakeholder groups; beneficiaries receive what the agreement says without hidden transaction costs throughout the mine life; there are appropriate protections for vulnerable people; monitoring and evaluation is carried out to professional standards; and reviews are held following an agreed timetable and to the same standard as used in the original agreement-making process, or better.

A local innovation to try to achieve parts of the above is the ‘development forum’, first used in the negotiations for the Porgera gold mine in 1988–89. Today, the Mining Act 1992 lays out the specifications of a forum and sets out a list of parties the mining minister should consider inviting.

At Hidden Valley, a forum was launched on 4 August 2004. The provincial administrator, Manasupe Zurenuoc, praised the cultural appropriateness of the talks, saying that ‘in a country such as PNG the Melanesian approach was the secret to success’. However, the participants were not the six sets of communities, labelled Stakeholder Groups A–E, in the impact area that were identified in the company’s social impact assessment, the document that should have guided the minister. Only Group A—represented by the mine lease landowners’ Nakuwi Association—participated in them.

The process ceased to be referred to as a ‘forum’ after two weeks. Sporadic media reports referred to ‘talks’ until a year later, when the Hidden Valley memorandum of agreement (MOA) was signed. After the mine construction period, emergency negotiations had to be held with Group B, an omitted stakeholder group made up of the Watut River communities, when their land was impacted by the discharge of waste rock.

On these counts, the process cannot be described as a ‘forum’ or, for that matter, be said to reflect an inclusive, ‘Melanesian’ approach. What in fact happened was that decisions were made over the interests of the unrepresented stakeholder communities without their consent.

A surprising inclusion in the MOA was that the six local-level governments (LLGs) surrounding the mine in Bulolo District were allocated royalty shares amounting to 20 per cent of the total. But, here again, the body created to plan the expenditure of funds by LLGs under the Organic Law on Provincial Governments and Local-Level Governments, the Joint District Planning and Budget Priorities Committee (JDPBPC), was excluded from the agreement-making process.

In short, the MOA process was deficient: in respect of stakeholder identification because it did not properly represent the parties that should have been involved; in respect of FPIC because of the closed-door nature of the talks; and in respect of agreement governance because it handed money to government entities in a way that bypassed the coordinating body established to guide district development.

This was evident at the time, but it was not until 2015 that any agency reported on the effectiveness of the MOA. This was in the form of research privately commissioned from the PNG National Research Institute (NRI) by the Bulolo District JDPBPC. The NRI’s report authors concluded that, while the financial flows to MOA parties were largely as set out by the MOA, the systems in place for managing them were ineffective and their impacts on development were ‘minimal’. The Nakuwi Association, the ‘link between the mine and customary landowners’, was described as ‘defective’ and its business subsidiary had not submitted a tax return for ten years (ibid.: 48). This is not a surprise: the pathologies can be traced back to the 1980s, when a previous business subsidiary delivered little to its community owners.

These things flow on to agreement governance as a whole—the technical work of seeing that what agreements say is actually implemented. The former Department of Mining noted the ‘isolation of the development forum from the process of planning for sustainable development’ more than a decade ago, and we can widen this to say that the more the state leaves most of the work of agreement-making to local parties, the less likely it is that attention will be paid to agreement governance, frustrating the broader national and international objectives of poverty reduction.

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