After the national election of 1992, Namaliu and Somare found themselves back on the opposition benches, as Wingti had the numbers to secure his second term as prime minister, appointing Julius Chan as his minister for Finance and Masket Iangalio as his minister for Mining and Petroleum. If the officials in Iangalio’s department thought they had done a reasonable job of protecting the industry from excessive political interference, they were soon to find that the loss of their ‘energy’ function was matched by a drastic loss of political influence. Wingti and Iangalio did not have an axe to grind with the oil industry, but did have their sights set on Porgera and Mount Kare. In that context, they took their advice from two of the characters who might have been the object of the previous prime minister’s disparagement — Australians Denis Reinhardt and Robert Needham.

Reinhardt’s role was to arrange alternative sources of finance to find and develop the rich prize still thought to lurk beneath Mount Kare, while Iangalio and other Engan politicians set about the task of prising CRA from its prospecting authority. This task was accomplished in March 1993, in circumstances which heralded the company’s later decision to abandon the whole country (Filer 1998). Needham had been the managing director of Placer Pacific at the time of its famous share float, and he had long since convinced Wingti that Placer had deliberately misled the government over the value of the gold reserves at Porgera in order to discourage the government from exercising the full extent of its option to take up equity in the project. In September 1992, Wingti had him appointed as managing director of the Mineral Resources Development Company, and in the following month, word of the government’s intention to renegotiate the Porgera Development Agreement reached the pages of the Australian press, from where it inspired a further loss of K450 million in the value of Papua New Guinea resource stocks (Papua New Guinea Post-Courier 12, 16 October 1992).

This was indeed a bad month for Porgera, because a member of the Rapid Deployment Unit which had been sent to guard the mine from the forces of darkness allegedly shot and killed a local landowner, thus provoking an armed assault on the company’s residential compound which cost about K1 million in repairs and improvements to security installations, and which also frightened a number of staff and workers into tendering their resignations. However, after five months of grumbling about the prospect of ‘expropriation’, each of the other three partners in the Porgera Joint Venture finally agreed on a price at which to sell the government an additional 5 per cent stake in the project, thus raising the government’s share to 25 per cent of the total equity.^[13]

Iangalio, Reinhardt and Needham then turned their attention to the Lihir gold prospect, whose development had been delayed by the persistent dithering of Kennecott and its eventual owner, Rio Tinto Zinc. Iangalio caused RTZ to dither even more when he announced that the state would take up its full entitlement to 30 per cent equity in the project and would take another 20 per cent at cost if the company failed to sell that 20 per cent stake to a third party. Reinhardt proposed that a separate company should be formed to develop the project in place of an unincorporated joint venture, while Needham was doing a separate deal with the Malaysian Mining Corporation, whereby it would acquire a 20 per cent stake in the project on the same terms as the government if it managed to arrange finance for the government’s own 30 per cent stake. This arrangement was apparently confirmed in talks between Wingti and the Malaysian prime minister, but Iangalio had now decided to support Reinhardt’s proposal, and used this as the basis for further talks with RTZ after the company had annoyed the government by selling off part of its equity without prior consultation. Meanwhile, the local landowners had decided that the ‘spare’ 20 per cent equity stake should belong to them, and made this the sticking point in the first Development Forum convened in November 1993 (Filer 1995).

Wingti moved Iangalio to the Finance ministry in January 1994. The new Mining and Petroleum minister, John Kaputin, decided to suspend talks with RTZ until the company’s chairman agreed to come to Papua New Guinea to talk to the prime minister. Needham produced an alternative development plan known as the ‘Lihir Mining Study’, but would not reveal its contents to other government officials. In April 1994, Iangalio used his own ministerial powers to have Needham fired from his position. Kaputin responded by attacking Reinhardt’s role as Iangalio’s adviser, but then hired another consultant to review Needham’s scheme. This consultant, who was formerly the managing director of OTML, told the minister that RTZ now had the better proposal, and supported Reinhardt’s idea of floating a separate company to develop the project. By the end of August, the RTZ chairman, Sir Derek Birkin, had finally agreed to the minister’s demand that he should come to Papua New Guinea in person, but before he could meet with the prime minister, parliament had voted to remove Wingti from office.

One of the first public undertakings made by the new prime minister, Sir Julius Chan, was to ‘fast-track’ the development of the Lihir mine. His interest in the project was partly due to its location in his own constituency, but partly also to his knowledge that the government was virtually bankrupt. ^[14]The appointment of John Giheno, a Pangu Pati pragmatist, as the new minister for Mining and Petroleum did much to relieve the siege mentality of the Mining Division staff who worked in General Macarthur’s wartime headquarters. Giheno was able to reconvene the Lihir Development Forum in February 1995, the Mining Development Contract was signed in March, and in April the leaders of the Lihir community were finally persuaded to accept an ‘integrated benefits package’ containing all the compensation and benefit-sharing agreements in which they had an interest.^[15] In October 1995, amidst great public fanfare, the partners in the Lihir Joint Venture each sold off more than half of their equity in the project through an ‘initial public offering’ of shares in the new development company, Lihir Gold Ltd, and this provided a large chunk of the finance required for construction of the mine. More to the point, it enabled the state to pay for most of its own share of the development costs, because the price at which it had exercised its option to take a 30 per cent stake in the project was considerably less than the price at which it had now sold part of that stake to the public.^[16]

The significance of this point was that the state had still not found the wherewithal to pay for the additional 15 per cent stake in the Porgera mine which it had demanded from the other joint venture partners in March 1993. From the earliest days of the Chan government, those officials who were privy to the scheme to develop the Lihir mine by means of a share float had persuaded their political masters to go one step further, and sell off a proportion of the equity already held by the Mineral Resources Development Company. The 1995 budget contained an undertaking to sell off a fairly modest proportion of the state’s equity in the Ok Tedi, Porgera and Kutubu projects, but the Mineral Resources Development Company Pty Limited (Privatization) Act of 1996 led to the flotation of another public company, Orogen Minerals Ltd, which was to take over all of the equity previously held by MRDC, except for those assets held in trust for landowners and provincial governments under Development Forum agreements.^[17] The state would retain a 51 per cent stake in Orogen, and Orogen would have first option on any equity which the state might choose to acquire in new mining and petroleum projects (if this were not reserved for landowners or provincial governments), but Orogen would not have the power to force the state to exercise its own equity option. By this device, the government was not only relieved of some of its existing debts, but also began to travel the path prescribed by most orthodox economists for more than a decade, which was to recognize that the state equity option was bad for business and bad for the state (see Goodman et al. 1985, 138; Tilton et al. 1986, 26).^[18]

Nevertheless, the government had been obliged to pay a price for insisting that it could not afford to ‘carry’ the 20 per cent equity stake in the Lihir mine which local community leaders had been demanding since 1993. The landowners were only persuaded to accept a smaller 15 per cent stake (which was then diluted by the flotation of Lihir Gold Ltd) in return for an increase in the royalty rate from 1.25 per cent to 2 per cent of the value of mine production, and hence an increase in the value of the 50 per cent share of these royalties which would return to the landowners or the local government of Lihir under the terms of the integrated benefits package (Filer 1995, 69). This increase in the royalty rate would apply to all mining and petroleum projects, including those already in production, and was included in a policy package unveiled at the Papua New Guinea Mining and Petroleum Investment Conference held in Sydney in March 1995. The other main feature of this package was an undertaking to grant landowners a ‘free’ 5 per cent equity stake in any major resource projects approved for development after the end of that year, the cost of which would be shared between the state and the developers in proportion to their own stakes in a joint venture.^[19]

Both measures would have sounded like very bad news to the investors at the conference if the government had not simultaneously promised to treat the extra royalty as a tax credit and to raise the total amount of expenditure which companies could claim as income tax already paid under the tax credit scheme from 0.75 per cent to two per cent of their gross income. Unfortunately for them, Treasury officials ‘forgot’ to include this latter measure in the 1996 budget, and although the extension was finally granted in the 1998 budget, this act of belated generosity was offset by the simultaneous requirement for companies to pay the full 2 per cent royalty out of their own pockets, rather than claim 0.75 per cent of it as an additional tax credit.^[20]

The looming destabilization of the fiscal regime was compounded by the implications of the Organic Law on Provincial Governments and Local-level Governments which came into effect shortly after the Lihir development agreements had been signed. While this law clearly endorsed and expanded the principle of the Development Forum by requiring all three levels of government to ‘liaise fully’ with local landowners in the development of any natural resources, the law makers also seem to have decided that the collection and redistribution of government revenues from all natural resource sectors should also be governed by a single set of principles.^[21] The organic law therefore proposed that 100 per cent of the royalties derived from any natural resource should henceforth be paid to local landowners, while the developer of any such resource should also pay, ‘out of its own cost’, an unspecified amount of ‘development levies’ to the provincial and local-level governments of the province or area hosting the development for the purpose of ‘infrastructural development’, ‘economic development and land use follow-up’, and ‘community and social development’. Government officials responsible for the mineral policy framework were quick to point out that these provisions were derived from the forest policy framework, that the royalty provision undermined the principle of state ownership of mineral resources, and that the purpose of imposing development levies was already covered by special support grants and the tax credit scheme. ^[22]Although subsequent amendments diluted the wording of the clause which related to royalties, they left the development levies intact, and even added a requirement for developers to provide all three levels of government with ‘expertise and professional advice’ about their use (Filer 1997a, 248–9).

Despite the air of additional uncertainty thus imparted to the mineral policy framework, the saving grace of the organic law was that none of the provisions relating to ‘benefits derived from natural resources’ would affect the substance of existing development agreements, and most could not come into effect until the Petroleum Act or the Mining Act had been replaced or amended. However, its more immediate effect was to threaten the abolition of the development authorities which had been established at Porgera and Lihir as vehicles for the collection and disbursement of mineral revenues for the benefit of the two local communities. The Porgerans were so incensed by this prospect that they threatened to close down the mine unless the preservation of the Porgera Development Authority was guaranteed by the Local-level Governments Administration Act which had to be passed before the new system of local government could be put in place. Their wishes were duly accommodated.^[23]

The wishes of the people living near the banks of the Ok Tedi River were not so readily accommodated, despite their longstanding aggravation over the effect of mine wastes on their livelihood. They were not in a position to close down the Ok Tedi mine by force, because their territorial domains do not embrace the mine site or the route through which the mine is supplied and its product is exported. They were not party to a compensation agreement with OTML, they had not participated in the Ok Tedi Development Forum, nor had they seen any noticeable benefit from the swollen revenue streams which had since flowed to the Fly River Provincial government. The new organic law would certainly not make any difference to the other swollen stream which was their daily companion. But they did have the services of an angry anthropologist (Kirsch 2002), and from this modest start, they acquired a larger group of well-heeled foreign sympathizers, including a team of Australian lawyers who acquired a mandate to sue BHP for damages in the Victorian Supreme Court. When news of this action broke out during the final months of the Wingti government, Chris Haiveta, then leader of the opposition, described it as the work of ‘foreign spivs, crooks and carpetbaggers’ (Papua New Guinea Post-Courier 5 May 1994) — a phrase which had now been firmly entrenched in the lexicon of national political debate. With the notable exception of Perry Zeipi, the Western Province MP who had once again become the minister for Environment and Conservation, most politicians on both sides of parliament expressed very similar views throughout the period of more than two years which elapsed before BHP finally agreed to an out-of-court settlement in June 1996.

In April 1995, cabinet approved an Eighth Supplemental Agreement in which a new compensation package was offered to those downstream landowners who would agree to dissociate themselves from the Australian court case, and a range of penalties was proposed for those who refused to do so. The Australian judge was not at all amused by the fact that BHP’s own lawyers had been party to the drafting of this piece of legislation, and found that this constituted contempt of his own court (Gordon 1997). While the company was greatly embarrassed by this finding, the Papua New Guinea government pressed on with a ‘restated’ version of the Eighth Supplemental Agreement, from which the penalty clauses had been largely removed, and a separate Compensation (Prohibition of Foreign Legal Proceedings) Act, which aimed to prohibit any further legal proceedings in foreign courts over claims for compensation against mining or petroleum projects in Papua New Guinea. However, once BHP had agreed to an out-of-court settlement, the government made no attempt to prosecute the former plaintiffs in the case, and allowed that they would still be eligible to receive the compensation offered in the Restated Agreement, despite the fact that they had failed to meet the original deadline for acceptance. In its capacity as a partner in OTML, the government also endorsed the Lower Ok Tedi Agreement which was concluded in May 1997, granting additional compensation to the people of fifteen villages in the area most seriously affected by the company’s waste disposal practices.

Although this process of litigation, legislation and compensation generated a great deal of public debate in PNG, and a good deal of negative publicity around the world, it did not make much immediate impact on the country’s wider mineral policy framework, precisely because the legal framework already treated the Ok Tedi project as a special case, and this latest episode simply underlined the government’s determination to keep it that way. The passage of the new Compensation Act was little more than a way for national politicians and bureaucrats to compensate for what most of them felt to be a serious affront to the sovereign powers of the state. However, the internationalization of the dispute was itself a significant milestone in the mineral policy process, because it showed the extent to which this had ceased to be an exclusive process of negotiation and consultation between the host government and the foreign investor, or even between the parties to the Development Forum, and was now exposed to the intervention of a multitude of ‘unofficial stakeholders’ (Filer 1997b, 85).

There was at least one corner of the mineral policy domain where official business was still being conducted in the customary manner, with minimal disturbance from the pressures of public political debate. The point at issue here was the need to amend the Petroleum Act and the fiscal regime to facilitate development of the very substantial gas reserves associated with the oil which was already being exported from various fields in the Kutubu complex. The technicalities of a national gas policy had been under discussion for several years (see Millett 1992), but this was not the sort of talk that could ignite the public imagination. The government issued a White Paper on the subject in September 1995 (PNG 1995), and that was also the year in which the Petroleum Division began to receive ‘technical assistance’ to carry the process forward under the terms of a $US11 million loan from the World Bank.^[24]

The complexity of the issues at stake was compounded by the appearance of two different proposals for development of the gas reserves. British Petroleum, the operator of the Hides Gas Project which already supplied electrical power to the Porgera mine, was investigating the feasibility of a liquid natural gas project with an onshore liquefaction plant (CIE & NCDS 1997), while Chevron, the operating partner in the Kutubu and Gobe oil projects, was proposing to build a pipeline across the Torres Strait and supply dry gas to industrial customers in Queensland. Discussion of these two proposals was primarily couched in terms of the projected economic costs and benefits to the nation as a whole, but ongoing arguments about the internal distribution of revenues and benefits from the oil industry were seen to constitute an additional political risk for the scale and duration of the investment which either of them would entail. So the government sought additional technical assistance from the Asian Development Bank to find new ways of dealing with the ‘landowner problems’ which were specific to the hydrocarbon sector (Taylor and Whimp 1997).

By the time that Bill Skate took over the reins of government after the national election of 1997, a decision had already been taken to split the Ministry and Department of Petroleum and Energy from the Ministry and Department of Mineral Resources. The new policy framework for the hydrocarbon sector was legislated in the Oil and Gas Act which replaced the Petroleum Act at the end of 1998. The new act, like the Mining Act of 1992, was an attempt to square two different circles — one of which was about the promotion and regulation of the industry itself, while the other was about the distribution and consumption of the national share of the wealth which might yet be derived from it. The second of these circles now also had to be squared in a manner that would be consistent with the Organic Law on Provincial Governments and Local-level Governments.

The puzzles contained in this second circle were addressed in a two-day seminar convened by the Department of Petroleum and Energy in January 1998. This led to the creation of a Petroleum Project Benefits Action Team, containing representatives of several government agencies and all the main industry players, which met on numerous occasions throughout the rest of the year. The deliberations of this body may well have constituted the most extensive process of consultation between the government and the private sector over any piece of sectoral legislation in the period since independence, although they did not rate a mention in the national press. By June 1998, the Action Team had come up with drafting instructions for a separate piece of legislation to be known as the Petroleum (Project Benefits) Act, but the Department then decided to incorporate some of the recommended measures into the Oil and Gas Act, while leaving others to be treated as matters of policy or regulation.

The Oil and Gas Act complies with the organic law to the extent of imposing a 2 per cent ‘development levy’ on the wellhead value of all petroleum products, but neutralizes the fiscal effect of this measure by extending the scope of the tax credit scheme to cover the 2 per cent royalty for which developers are also liable. While this device was designed to protect the industry’s bottom line, it also entails a substantial increase in the proportion of mineral wealth which is repatriated from the national coffers to the host province. The act seeks to limit the potential abuse of such revenue flows by regulating the distribution and use of the ‘royalty benefits’ and ‘equity benefits’ which the state sees fit to allocate to provincial governments, local-level governments and project area landowners, while apparently conceding that its right to regulate the distribution and use of development levies is constrained by the wording of the organic law.^[25] The proportions in which the royalty and equity benefits are distributed between the local landowners, local-level governments and provincial governments ‘affected by a project’ are themselves to be determined by negotiation between the parties in a Development Forum. However, the act allows the minister to determine the proportions in which the landowner benefits should be subdivided amongst the landowners by reference to the extent of their rights over the land leased to the developers or the extent of the project’s impact on their livelihood, and if there is more than one provincial or local-level government ‘affected’ by a project, the act says that their benefits shall be subdivided in accordance with the number of project area landowners in their respective jurisdictions. Furthermore, the act empowers the minister to decide who counts as a landowner, and who counts for how much of a landowner, on the basis of ‘social mapping’ and ‘landowner identification’ studies which have to be carried out before he convenes the Development Forum.

The act goes on to say that the package of royalty and equity benefits distributed through this process must not be worth more than 20 per cent of the ‘total net benefit’ which the State derives from any given project, and the package must be held in trust for the beneficiaries by a subsidiary of the Mineral Resources Development Company. The act then requires at least 30 per cent of the net income of a trust established on behalf of project area landowners to be spent on the provision of ‘social services or community development projects’, and at least as much again to be spent for the benefit of ‘future generations’, which means that landowners cannot access more than 40 per cent of the net income from the trust in the form of cash payments. The act also imposes a parallel form of control over the expenditure of any monetary benefits allocated to a provincial or local-level government, including that made by a developer under the tax credit scheme, by subjecting it to the oversight of an Expenditure Implementation Committee controlled by the national government.^[26]

If the Oil and Gas Act was meant to construct an appropriate policy framework for development of the country’s natural gas resources, it evidently failed to convince the moguls of British Petroleum, who decided to divest themselves of all their assets in Papua New Guinea and focus their attention on development of the Tangguh gas field in West Papua. This decision spelt the end of the proposal for a liquid natural gas project in Papua New Guinea, and thus left Chevron’s so-called ‘Gas-to-Queensland’ project as the only feasible development option on offer to the government. It is hard to assess the extent to which BP’s decision was motivated by its assessment of political risk in Papua New Guinea, rather than by wider strategic considerations, but it seems to have reduced the incentive for Chevron and its joint venture partners to expedite their own alternative proposal, while limiting the government’s capacity to push them further down the road to development.

The political risks of engaging with the Skate government were certainly not lost on the IMF and the World Bank, whose withdrawal of support was one of the factors which brought about that government’s downfall in July 1999. The new prime minister, Mekere Morauta, was seen in Washington as a ‘friend of the Bank’, just as he was seen in Canberra as a ‘friend of Australia’. The Bank was now able to move forward with a structural adjustment program which had the necessary appearance of ‘borrower ownership’, and under that general umbrella came the design and implementation of two more institutional strengthening projects. The Gas Development and Utilisation Technical Assistance Project was meant to facilitate the implementation of the Oil and Gas Act, while the Mining Sector Institutional Strengthening Project was a part of a broader push to reverse the prospect of diminishing returns from a mining industry which showed little interest in the discovery and development of new resources to replace the revenues derived from existing projects. Now, for the first time since independence, the Bank was set to become a key player in the reconstruction of the whole mineral policy framework, and that was because its officials now recognized that the national government and the national economy would sink or swim in the murky waters of mineral dependency.

In the report which accompanied and justified the structural adjustment program agreed at the end of 1999 (World Bank 1999), the Bank put the final nail in the coffin of the Mineral Resources Stabilisation Fund, observing that it had long since failed to prevent the national government from mortgaging its prospective mineral revenues to finance unsustainable levels of public expenditure, and should therefore be replaced by stricter rules for the investment of such revenues.^[27] The World Bank also encouraged the government to undertake a thorough review of the fiscal regime in the mining and petroleum sectors, to create additional incentives for investment in these sectors, and to restrict its own right to move the goal posts around the new playing field. The review was funded by the Asian Development Bank (Daniel et al. 2000), and some of its key recommendations were incorporated into the 2001 budget, including a promise to reduce and stabilize the effective rates of tax on both industries and to grant investors the right to negotiate fiscal stability clauses into their contracts with the state.^[28] The main target of these reforms was the investment climate in the mining sector, but the industry’s response was less enthusiastic than it might have been, first because the government had still failed to reduce effective tax rates to levels comparable with those found in many other developing countries, and secondly because these other countries were also given lower risk ratings by the likes of Standard and Poors.

In the absence of any new surge of enthusiasm for mineral exploration, the attention of government policy makers in the mining sector was now firmly focused on the question of how to close mines down rather than how to open them up (Jackson 2002). Although the ‘Basic Mining Package’ had included a commitment by the national government to fund the production of a ‘long-term economic development plan’ for the area affected by each major mining operation, this was one of the commitments which had largely been forgotten. Now that the closure of the Misima mine loomed within the government’s own five-year planning horizon, officials in the Department of Mining organized a process of consultation which led to the production of a Draft Mine Closure Policy in 2000, followed by the establishment of a Misima Mine Closure Committee in 2001. While the draft policy covered a number of technical issues involved in the rehabilitation of abandoned mine sites, it also called for the incorporation of a long-term ‘social and economic development plan’ within the mine closure plan to be submitted by the developer as part of the approval process for each major project. This was understood to be a plan to finance the provision and maintenance of benefits for local communities after the point of closure. Although the operator of the Misima mine had already produced its own mine closure plan, had paid for the ‘long-term economic development plan’ which should have been funded by the national government (Jackson 2001), and was now financing the meetings of the Mine Closure Committee, there was in fact no mechanism to ensure that the people of Misima would continue to receive the benefits to which they had become accustomed under the terms of the mine development agreements. Nor was there any obvious reason why the government or the developer should pay for these people, or the members of other mine-affected communities, to receive such benefits beyond the life of each mining operation if these benefits were in excess of those provided to all other communities in the country and could not be justified as a form of compensation for the legacy of social or environmental damage caused by the mine.

The Ok Tedi mine was one whose legacy of environmental, if not social, damage would indeed be very significant. BHP was now eager to remove this blemish from its own portfolio, and was therefore looking to transfer its majority shareholding in OTML to an institution that would manage this legacy on its own account, without further risk to the Big Australian’s global reputation. One of Mekere Morauta’s first actions as prime minister was to ask the World Bank to review OTML’s own assessment of the risks attached to its ‘Mine Waste Management Project’. The Bank recognized that the best option, from an environmental point of view, would be to close the mine down immediately, but the social and economic cost of doing so would be unacceptably high, precisely because there was as yet no clear plan or strategy for managing the closure process (World Bank 2000a). Since Ok Tedi was still regarded as a special case within the mineral policy framework, and BHP’s pursuit of an early exit strategy was now serving to underline its unique status, the government was obliged to respond by making further changes to the legislation under which it operated.

The Mining (Ok Tedi Mine Continuation [Ninth Supplemental] Agreement) Act of 2001 made provision for BHP Billiton to gift its shareholding to an entity called the ‘PNG Sustainable Development Program Company’ in return for a government guarantee that it would henceforth be immune to any more ‘environmental claims’ in respect of the damage caused by the mine. This new company was incorporated in Singapore, with a board comprising one Singaporean member, three representatives of national institutions (the Department of Treasury, the Bank of Papua New Guinea, and the Papua New Guinea Chamber of Commerce), and three people appointed by BHP Billiton.^[29] The new company’s basic mandate was to invest two thirds of its mining profits in a ‘long term fund’, and to spend the balance of its income, including the interest on this long-term investment, on the implementation of ‘sustainable development projects’ in both Western Province and the rest of Papua New Guinea, throughout and beyond the remaining life of the mine (PNGSDPL 2002).

The revenues available to the Program Company would be reduced by a separate clause in the Ninth Supplemental Agreement, which required OTML to establish and fund the Ok Tedi Development Foundation as a second instrument for the promotion of sustainable development in Western Province. This body would be responsible for spending K180 million on the mine-affected communities over the remaining life of the mine, of which 16 per cent was to be paid in cash to community members, 58 per cent to be provided in the form of development projects, and 26 per cent to be invested in trust for future generations. The 149 ‘mine-affected communities’ were divided into six areas, and community representatives from each area signed up to separate ‘community mine continuation agreements’ which were attached as schedules to the main agreement. These uniformly state that ‘the economic opportunities offered by the Company’s Commitments represent to the Communities an acceptable trade off for the environmental impacts of the future operation of the mine’, and this is ‘the complete, final and binding basis on which they agree to support the continuation of the Mine’. Section 8 of the main agreement states that the ‘signature or other execution of a Community Mine Continuation Agreement by a person representing or purporting to represent a Community or clan, or that person’s delegate, binds all members of that Community or clan’ to the agreement, including ‘children and persons who are subsequently born into, or who subsequently join, that Community or clan’, even if other members or representatives of the group are not party to the agreement.

If this device served to manufacture the appearance of popular consent for the continued operation of the mine, it did nothing to address the lack of government capacity to participate in the planning of mine closure or sustainable development in Western Province. In 2000, when the Fly River provincial government was in one if its periodic states of suspension, OTML was able to persuade the national government to establish a ‘Western Province Capacity Building Project’ whose staff would be directly accountable to a committee comprising representatives of several national government agencies, as well as OTML and the provincial government. This institution was to be funded through direct transfers of a 25 per cent share of the mining royalties and special support grant that would otherwise have been subsumed in the provincial budget, while its management and technical support costs were also meant to be covered by the government. By 2002, it was already evident that the national government could not or would not meet its own commitments, so the project’s funding was limited to the royalty stream which came directly from OTML. The mining company was also covering the project’s management and technical support, but was threatening to end this subsidy unless the national government abandoned the practice of placing all of its own contributions in the black hole otherwise known as the Provincial Operating Account (Simpson 2002).

When the World Bank finalized its appraisal of the proposed loan of $US10 million to the Papua New Guinea government for the Mining Sector Institutional Strengthening Project in May 2000 (World Bank 2000b), its primary aim was to strengthen the capacity of national government agencies to attract new foreign investment to the sector, rather than deal with the lack of capacity at lower levels of government or assist in the implementation of agreements already made for existing mines.^[30] However, by the end of that year, Bank staff were encouraging the national government to include a ‘sustainable development policy’ component in the project in order to establish a common planning framework for the local and regional development strategies which had evolved around each of the country’s major mine sites. This late addition to the suite of project activities was partly motivated by World Bank president Wolfensohn’s decision to commission an independent review of the Bank’s involvement in both the mining and petroleum sectors in response to the complaints of ‘civil society’ (EIR 2003). Although the Bank had not been in any way responsible for the development and impact of the Ok Tedi mine, the global notoriety of this one operation could easily lead the Bank’s critics to question the desirability of strengthening the government’s capacity to sustain the industry in which it was embedded.

As it happens, the contract to produce the Sustainable Development Policy and Sustainability Planning Framework for Papua New Guinea’s mining sector was awarded to a team of consultants headed by the designer of the Western Province Capacity Building Project. ^[31]During the course of 2002, team members engaged in an extensive process of consultation with national and local stakeholders in the mining industry, wrote eight working papers for the Department of Mining, and consolidated their findings in a Green Paper published by the Department itself (Department of Mining 2003). In the event, the Department of Mining did not have the strength required to complete the policy process initiated by the Green Paper, partly because it lacked the support of other government agencies and partly because the Bank’s efforts to strengthen it had only limited success (Mathrani 2003). Most of the Department’s functions were transferred to a newly established Mineral Resources Authority which certainly had more resources than its predecessor, but further progress in the reform of mineral policy would have to await the implementation of a second Mining Sector Institutional Strengthening Project whose design had not yet been finalised in 2007.