Foreign investment in PNG - proposed changes

In brief 7 min read

The Papua New Guinea Government has revised proposed changes to PNG's foreign investment laws after concerns were raised about the potential economic effect of the initial reform package. The proposed amendments, if enacted, could still have far reaching consequences for PNG's foreign investment community, including: (1) the creation of a new register and Registrar of certified foreign investors; (2) clarification of the functions of the Investment Promotion Authority, its Board, Managing Director and the Registrar; and (3) the classification of restricted activities and introduction of new conditions of certification, along with a proposed introduction of minimum investment requirements for business-residence visas. Partner, Sarah Kuman, Senior Associate Chris Case and Lawyer Maddy Foote explain.

How does this affect you?

The Investment Promotion (Amendment) Bill 2019 (the Amendment Bill) will be of interest to all foreign enterprises carrying on business in PNG. Submissions on the Amendment Bill are due by 5pm Friday, 29 March 2019. Late submissions will not be accepted.

We encourage you to read this update and consider the manner in which the Amendment Bill may affect your activities in PNG, and whether it is desirable or necessary to make written submissions to the Minister on any aspect of the draft Amendment Bill.

Background

The controversy began in January 2019 when the Foreign Investment Authority Bill was tabled, providing for the creation of a new investment regulatory authority, restricting the investment activities in which foreign entities could be involved and extending the definition of 'carrying on business' to include all activities for which IPA certification has not previously been required. Following a brief but intense period of analysis and subsequent submissions to the PNG Government, the (first) bill package was promptly withdrawn. On 18 March 2019, the Government issued a new (second) bill package amending the Investment Promotion Act 1992 (the IP Act).

The Investment Promotion Authority

The Investment Promotion Authority (IPA) administers the IP Act and, therefore, regulates foreign investment.

The IPA helps foreign investors by: providing a system of certification to foreign enterprise and providing information on the certification process; facilitating PNG citizen and foreign investor introductions (ie promoting mutual benefit); advising the Minister on policy issues and maintaining a register of foreign investment opportunities.

The proposed laws

A brief history of the changes

• January 2019: the PNG Government tabled the Foreign Investment Regulatory Authority Bill (FIRA Bill). The FIRA Bill introduced amendments to PNG's foreign investment regulatory framework, including the transfer of many of the IPA's functions and powers to a new Foreign Investment Regulatory Authority. In addition, the FIRA Bill proposed further restrictions on foreign investor involvement in the PNG economy, and purported to remove certain protections for foreign investors against nationalism or expropriation of investments and discrimination.
• 13 March 2019 (on or about): the FIRA Bill was withdrawn due – in part – to concerns it 'will likely trigger a significant collapse of [PNG's] economy', according to the PNG Chamber of Commerce and Business Council of PNG.¹
• 18 March 2019: the PNG Government, through the Investment Promotion Authority, published a consultation draft of the IP Act containing proposed amendments that scaled back the first change attempt. It is proposed these amendments will be tabled during the next Parliament sessions, set to commence on 7 May 2019.  

What changes are now proposed?

The Amendment Bill contemplates several significant certification regime changes, including:

• introducing a foreign investment register and the position of Registrar, which will also be the Registrar of Companies;
• clarifying the mandate of the IPA and assigning separate responsibilities to the IPA Managing Director, Board and the newly-introduced Registrar;
• expanding the review requirements for the list of reserved activities, and introducing minimum investment requirements for business-residence visas; and
• amendments to the definition of 'carrying on business'.

Foreign investment register

The Amendment Bill introduces a new register of foreign investment certificate holders. The register will include the details of each holder and the activities to which the certificate relates.

Responsibility for the management of the register and associated administrative functions is assigned to a newly created position of Registrar. The Registrar's powers include the ability to request information from investors to ascertain their compliance with the IP Act.

IPA functions and powers

The Amendment Bill clarifies the IPA's powers and functions, and assigns these responsibilities amongst the IPA Board, the Managing Director and the Registrar:

• The Board will bear primary responsibility for advising the Minister and National Executive Council on all matters associated with foreign and domestic investment in PNG, including policy issues and recommendations.
• The Managing Director will be responsible for the promotion and facilitation of investment opportunities.
• The Registrar will be charged with the administration of the certification regime, including the maintenance of the foreign investment register (as noted above), and monitoring the activities of foreign enterprises.

Reserved and restricted activities

The IP Act currently prevents foreign companies from engaging in certain activities reserved for citizens or national enterprises by prohibiting the certification of those foreign companies engaging, or intending to engage, in reserved activities. Reserved activities include: alluvial mining, certain agricultural activities, particular forestry and logging activities, commercial fishing, hunting or collecting non-protected wildlife and wholesale and retail trade. The IPA is responsible for reviewing and amending the list of reserved activities.

The Amendment Bill may introduce a new, separate class of restricted activities. Unlike reserved activities, foreign enterprises will be permitted to engage in restricted activities, provided the foreign enterprise is certified in accordance with the IP Act.

Certification to carry on business in a restricted activity, however, may be subject to certain conditions to be prescribed in the Regulations. These conditions may vary based upon the activity, and may be determined with reference to:

• a minimum level of investment required to undertake the activity, including the form the investment must take;
• minimum levels of citizen or national enterprise equity ownership of the enterprise carrying out the activity; or
• any other condition prescribed.

These conditions will only be applied in respect of new foreign companies entering the market in PNG. Foreign companies currently certified to carry on business in PNG will not need to comply with these provisions, even where there is a change in ownership or shareholding of that foreign enterprise. The conditions to be applied in respect of restricted activities will apply in addition to current conditions of certification applicable under the IP Act.

The Amendment Bill excludes certain activities which may be classified as reserved or restricted. An activity cannot be included on the reserved activities list:

• unless at least one PNG citizen is involved in the business and carries out the activity in PNG;
• if fewer than 10 business operators conduct the activity in PNG; and
• if the activity involves the production or supply of goods or services which are important to the operation of other businesses in PNG.

In addition, the Amendment Bill introduces a new process for undertaking reviews of the list – now a function assigned to the IPA Board – which are to be undertaken at least once every three years. While the Board appears to have considerable discretion in the review of the reserved activities list, it must, however, consult with relevant private and government stakeholders and the public during the review process. The Board's recommendations will be issued to the Minister for final approval.

In light of the potential changes to the reserved activities list, the Amendment Bill provides that foreign enterprises undertaking activities in PNG, prior to the enactment of the proposed laws, will be protected from any changes by way of a grandfathering mechanism.

Further, the Explanatory Memorandum to the Amendment Bill indicates the Government will amend the immigration and citizenship legislation in conjunction with the Amendment Bill, requiring persons seeking business- or investor-resident visas to demonstrate a minimum level of investment in PNG.

Carrying on business

Under its certification mandate, the IPA certifies foreign enterprises that 'carry on business' in Papua New Guinea. 

Under the current IP Act, a number of activities qualify as carrying on business. The Amendment Bill extends the definition of carrying on business to include any activity carried on for profit or gain. The Explanatory Memorandum to the Bill explains the purpose of this addition is to clarify that the IP Act does not apply to charitable organisations, not for profits and similar entities.²

The Amendment Bill introduces a new exception to carrying on business, excluding persons engaged in occasional (ie not long-term) professional services consultation in PNG, being those persons 'engaged in the practice of accounting, architecture, engineering, law, dentistry, medicine or veterinary medicine'.