Foreign investment in Papua New Guinea

Positive developments

Global Publication November 2020

Introduction

Canada enjoys a friendly and steady trade relationship with Papua New Guinea (PNG) and has more ties with PNG than with most other Pacific Island nations. Although there is limited publicly available data on Canadian foreign direct investment (FDI) in PNG, reports by Statistics Canada indicate total Canadian FDI in PNG reached approximately $272 million in 2018, much of which was in mining. PNG has considerable subsurface resources, including gold, silver, copper, nickel, petroleum and natural gas, and Canada is home to almost half of the world’s publicly listed mining and exploration companies. Around 700 of these companies are currently active in over 100 countries, including in PNG. According to Natural Resources Canada, the total value of Canadian mining assets abroad amounted to $169 billion in 2017. Over the past year, there have been a number of legislative changes in PNG that may benefit or further incentivize Canadian investment in PNG. This update tracks these local PNG developments.

 

Domestic legislative changes to promote international investment

PNG held consultations in March 2019 on proposed amendments to its Investment Promotion Act 1992 (IPA) that would, among other things, create a Registrar of Foreign Investment, introduce an improved and expedited foreign enterprise certification process and generally bring greater clarity to compliance with and enforcement of the IPA. (For further information, see also our related article What foreign investors need to know about the Investment Promotion (Amendment) Bill 2019. The Government of PNG is currently considering the proposed amendments and it is expected they will be tabled before Parliament once approved by cabinet.

More recently, on September 17, 2019, PNG acceded to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). The convention came into force for PNG on October 15, 2019. This is a welcome development, both for PNG and for companies investing or operating in PNG. With PNG’s accession to the New York Convention, companies are afforded greater certainty that agreements to arbitrate disputes and resulting foreign arbitral awards will be enforceable in PNG.

The New York Convention requires the domestic courts of contracting states to give effect to arbitration agreements and recognize and enforce awards made in other states. Courts may only refuse enforcement pursuant to a limited number of exceptions, such as an invalid arbitration agreement, incapacity of a party, or the tribunal lacking or exceeding its jurisdiction. The next step is for PNG to update its domestic Arbitration Act, 1951 to ensure its procedures appropriately integrate the New York Convention’s recognition and enforcement provisions. Adopting the UNCITRAL Model Law on International Commercial Arbitration, as part of this legislative update, would be a further welcome reform.

 

The Asian Development Bank’s role in encouraging legal reform

The Law and Policy Reform Program by the Asian Development Bank (ADB) assisted with bringing PNG and other South Pacific states into the New York Convention as part of a technical assistance project to improve rule of law and facilitate investment, trade and finance in the region. Introduced in 2016, the Promotion of International Arbitration for a Better Investment Climate in the South Pacific initiative aims to establish an effective commercial dispute resolution regime in the ADB’s South Pacific developing member countries, in part by introducing modern international commercial arbitration laws. It notes that the lack of a modern commercial dispute resolution and enforcement regime potentially impedes foreign investment in the Pacific Developing Member States (citing Pouget, Sophie. 2013. “Arbitrating and Mediating Disputes: Benchmarking Arbitration and Mediation Regimes for Commercial Disputes Related to Foreign Direct Investment.” Policy Research Working Paper 6632, World Bank, Washington, DC.). It also notes that the lack of an effective dispute resolution regime affects a country’s World Bank’s Doing Business rankings. 

Initiatives such as these has led to a significant number of other Asia-Pacific countries recently acceding to the New York Convention. These include the Cook Islands, Fiji, the Republic of Marshall Islands, the Maldives, the Seychelles, Tonga and Palau. Like PNG, many of these acceded to the New York Convention in an effort to boost their investment climates by making alternative dispute resolution mechanisms available to investors. 

Some of these, such as the Maldives, also became a party to the UN Convention on International Settlement Agreements Resulting from Mediation (Singapore Mediation Convention) when it opened for signature in August 2019. The Singapore Mediation Convention offers a global framework for businesses to settle disputes out of court and enables the enforcement of international mediated settlement agreements in member states. For more information on the Singapore Mediation Convention, see our recent article in the International Arbitration Report.

 

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