Papua New Guinea
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Improving the management and distribution of benefits flows to landowners in resource development projects

A recurring statement about the Papua New Guinea (PNG) economy is that the country is blessed with natural resources in terms of minerals, forestry, and fisheries and marine resources.

Despite these abundance of resources (with large potential financial and economic benefits), development outcomes have lagged behind as evidenced by unsatisfactory social development indicators.

However, if done in the right way and proceeds are shared properly and managed and used prudently, the development of natural resources can be the cornerstone for economic and social advancement of Papua New Guineans.

As reflected in typical Memorandum of Agreements for resource development projects, financial proceeds from development projects flows to the following beneficiaries: National Government; local workers and their families; local businesses and contractors; Provincial Governments and LLGs; and landowners.

The types of financial benefits that are generated by the resource projects and shared by the recipients include: royalties; compensation payments; taxes; salaries and wages from employment; and business spin-off benefits.

Of particular concern in the nature resource development space is the lack of development for land-owning communities and villages within the vicinity of the natural resource development projects such as mining and petroleum project sites.

Key research findings on benefit sharing
Based on research carried out by the PNG National Research Institute on benefit sharing in Porgera Mine (by Johnson) and Hidden Valley Gold project in Bulolo (by Sanida, Yala and Mako), the current benefit-sharing arrangements within the landowning communities appear to be deficient, despite financial benefits flowing from the resource development projects.

The main problem is that financial proceeds are largely spent on consumption goods and very little is spent on investment for sustainable development for landowners.

A key contributing factor to the above issue is the organisational structure of the flow of benefits, where the linkages between landowner associations or landowner companies and landowning communities is deficient in its structure and operations.

Moreover, with the state agencies, there are a number of players at the national, provincial and district levels and collectively, they raise coordination and transaction costs.

In addition, when no one takes responsibility to ensure that all landowners benefit from financial flows, it raises a typical “common pool problem, whereby the few that have access to the financial benefits do benefit at the expense of all the remaining landowners.

To address the structural weaknesses in the organization and flow of benefits to resource development land-owning communities, it is recommended that:

All financial flows accruing to the landowning community (including royalties and business spinoffs) should be pooled into one fund which is divided into the following three parts:

  • Long-term (40 per cent);
  • Human capital formation (40 per cent for health insurance, education and improved housing); and
  • Cash (20 per cent as direct cash or shopping vouchers).


The recommended arrangement addresses both investment and consumption.

The 40 per cent for long term investment will provide sustainable benefits for both current and future generations.

The 40% for human capital formation will benefit both current and future generations by investing on health insurance, education and housing for the landowners.

The 20 per cent cash or voucher provides freedom for landowners to spend on their immediate wants and needs.

Depending on the total size of benefits flows, this 20 per cent could be substantial.

Conclusion
As we negotiate for new development projects such as Wafi-Golpu, Papua LNG, and any other new project, how we negotiate for benefits for the country is crucial.

But more importantly are the benefits that flow to the landowners on whose land the projects are hosted and the mechanism for landowners to obtain optimum benefits, not for now only via consumption but also for the future through investment.

The recommended options for structuring the financial benefits that flow to the landowners in this article, aims to address that issue by ensuring that funds received from development projects are used for both investment and current consumption.