Company Profile

PNG Sustainable Development Program Limited is a unique and valuable addition to Papua New Guinea's development opportunities.

The company is the result of an agreement between the world's largest mining company, BHP Billiton, headquarters in Australia, and the Papua New Guinea Government.

BHP Billiton, as the majority shareholder in the mine had become increasingly concerned about the projected environmental impacts of continuing to operate the mine. At the same time, BHP Billiton understood the view of the PNG Government that there were substantial social and economic benefits to the people of PNG and particularly the Western Province deriving from the mine's operation. Billiton's preferred response, including early mine closure, was not, however, acceptable to the PNG Government and the Western Province communities and accordingly, BHP Billiton decided to withdraw from the project in a way that would maximise the social benefits of continued operation. Mutually agreeable governance arrangements were essential considerations in the subsequent negotiations.

The result was long negotiations and an agreement that was highly favourable to Papua New Guinea's development. BHP Billiton agreed to cooperate in the encouragement of OTML employees to continue at Ok Tedi for as long as they were needed. It provided a large line of credit to assist Ok Tedi in managing the periodic shutdowns that accompany drought and low levels of the Fly River. It agreed to support the marketing of minerals from Ok Tedi if this were necessary. And it agreed to transfer its majority shares in the Ok Tedi mine to a new company, PNG Sustainable Development Program Limited, that would have the role of spending profits from the mine wisely on development in Papua New Guinea.

In return, the Papua New Guinea Government agreed to arrangements that BHP Billiton thought would lead to responsible governance of the large asset that it was transferring to support development in Papua New Guinea.

Under the agreement between BHP Billiton and the Papua New Guinea Government, all of the dividends from OTML that would once have gone to BHP Billiton now go to PNG Sustainable Development Program Limited. The mining company and PNG Sustainable Development Program Limited pay the same taxes to the Papua New Guinea Government, including dividend withholding tax, that would have been paid by the mine and BHP Billiton if the Ok Tedi mine had continued to operate under the old arrangements.

Under the agreement, two thirds of the dividends, after paying withholding taxes to the Papua New Guinea Government and after meeting the administrative costs of the company, are to be invested in a Long Term Fund, to ensure that the amount of resources available from PNG Sustainable Development Program Limited to support development in the Western Province and Papua New Guinea are about the same during the life of the mine and after the mine eventually closes. This "Long Term Fund" will be used to ensure that the infrastructure that supports the lives of so many people in the Western Province does not disappear completely after the closure of the mine. It will also be used to maintain a substantial development effort in Papua New Guinea for at least four decades after the mine closes. The remaining one third of dividends after meeting company costs is to be spent on current development programs in the Western Province and the rest of Papua New Guinea. Out of this, one third of all the development expenditure will be in Western Province and two thirds in the remainder of Papua New Guinea.

The Board of Directors of PNG Sustainable Development Program Limited is required to place the Long Term Fund in "low risk investments". Only in that way can we be sure that the Long Term Fund can make a maximum positive contribution to Papua New Guinea development after the mine closes.

The new company is incorporated in Singapore. The main reason why BHP Billiton and the Papua New Guinea Government agreed on the Singapore location is that this allows the Long Term Fund to be invested in profitable investments anywhere in the world without attracting any taxation in Singapore or anywhere else. As a result, much more money will be available to support development in the Western Province and elsewhere in Papua New Guinea after the mine closes.

Under the agreements between Papua New Guinea and BHP Billiton, three Directors are appointed by BHP Billiton. This is the only continuing role that BHP Billiton plays in the governance arrangements. BHP Billiton has appointed Patricia Caswell, Jim Carlton and myself to these positions.

Under the agreements, three Papua New Guinea institutions - the Treasurer, the Papua New Guinea Chamber of Commerce and Industry, and the Bank of Papua New Guinea - each appoint one Director to the Board. The Treasurer has appointed Sir Ebia Olewale. The Chamber of Commerce and Industry has appointed Don Manoa and the Bank of Papua New Guinea has appointed Jakob Weiss.

These six Directors appoint one Singapore Director. This is Mr. Lim How Teck who was appointed after an extensive search by an international executive search firm.

The Board of Directors engaged a major international executive search firm to assist in its search for a Papua New Guinea Chief Executive Officer with appropriate qualifications and experience. Mr. Robert Igara was appointed in November with the advice of Downing Teal, the external advisers. In the months since then, Robert Igara has put together an excellent small team of Papua New Guinean professionals to support him in managing the affairs of the Company from Port Moresby headquarters.

PNG Sustainable Development Program Limited has already played an important role in Papua New Guinea development, as its establishment allowed the Ok Tedi mine to continue operating for its normal life.

The Company will play another important role in future, as the money that would have gone as dividends to BHP Billiton in Melbourne comes back to support development in Papua New Guinea. The role will be especially important after the eventual closure of the mine, when the wise investment of the Long Term Fund will support the continuation of infrastructure and development in Western Province and other parts of Papua New Guinea for at least forty years after the closure of the mine.