World Report

MRDC has shares in Ok Tedi mine, the single largest contributor to PNG’s economy

HILE sustaining and developing the mining industry is crucial to the economy, account also has to be taken of the social, economic and environmental impact on local communities. Ninety-seven percent of the land in Papua New Guinea is tribally owned and the land from which the minerals are extracted is part of their cultural and spiritual heritage.

The law gives the government the option of acquiring up to 30 percent equity in mining projects and up to 22 percent equity in petroleum projects. Ownership of 5 percent and 2 percent respectively is passed to the traditional landowners.

The custodian of the people’s wealth from mining activities is the Mineral Resources Development Company Ltd. (MRDC), which plays a crucial role in the development of PNG’s mining and petroleum resources.
“MRDC’s role and responsibility is to manage the equity given to project landowners by the state,” explains Francis Kaupa, MRDC’s Managing Director.

The company acquires shareholdings in mining projects for the government, then on-sells the state’s share to Orogen Minerals Limited (OML), a part-state, part-private company. The landowners’ share is retained and managed by MRDC. The firm works in partnership with the international investors to ensure that each development is as efficient and cost effective as possible, and to protect the rights of the traditional owners.

In its role as “trustee of the people”, MRDC oversees the distribution of dividends from ownership of the projects back to the community. Through a tax credit scheme, it supports community projects that benefit the development areas and other villages with provision of local facilities. “The scheme ensures that communities have basic social infrastructure such as water supplies and educational and medical facilities,” says Mr Kaupa.

MRDC also acts as mediator between the government and the landowners to ensure that concerns are raised with the project operators and acted upon. “Our primary and most sensitive role is to disseminate information so that the various landowners, as well as the provincial governments, are able to understand all their rights.”

An important part of MRDC’s work is helping communities to plan for after the mines have gone. Mr Kaupa says: “We set up trust companies for the landowners to invest the money that flows from the projects in, for example, real estate and shares in well-established PNG companies. This way, they can continue to earn an income when the mining and petroleum projects are over.”

Francis Kaupa
Managing Director of MRDC
‘We disseminate information so people know their rights’

The mining companies themselves are also involved in providing for the future of the areas they have worked in. PNG Sustainable Development Program Limited (PNGSDP) is an independent trust set up by the world’s largest mining company, Australian-based BHP Billiton, to oversee sustainable development programmes around the Ok Tedi copper and gold mine in Western Province.

The company was established in agreement with the PNG government, with BHP Billiton transferring its controlling 52 percent equity stake in Ok Tedi Mining Limited (OTML) to the new company in February 2002. Millions of pounds in future dividends from OTML, which would formerly have gone to BHP Billiton, will now be invested in a fund to support long-term development.

The Ok Tedi mine is the single largest contributor to PNG’s economy, representing 10 percent of the nation’s GDP; exports from the mine account for 20 percent of PNG’s foreign exchange. OTML is PNG’s largest corporate employer providing more than 2,000 jobs, with a further 1,500 people employed by contractors servicing the company.
BHP Billiton had taken a decision to close the mine by 2004 following criticism of damage to the environment. However, although the government and the Western Province communities wanted the environmental concerns addressed, they regarded early closure of the mine as a potential economic disaster and wanted it to continue producing to the end of its natural life.

“There were substantial social and economic benefits to the people of PNG, and particularly the Western Province, deriving from the mine’s operation,” says Ross Garnaut, PNGSDP’s Chairman. “Accordingly, BHP Billiton decided to withdraw from the project in a way that would maximise the social benefits of continued operation.”

The establishment of PNGSDP allows the mine to continue operating until it runs out in 2010.
Sustainable development projects are being carried out in consultation with the government, the private sector, churches and other non-governmental organisations. Initiatives are being considered in the agriculture, forestry, fisheries, tourism, infrastructure, education and health sectors.