After the 1983 NEC decision on CSAs, the government began to turn its attention to its commercial investments. In some cases its hand was forced when many of its wholly-owned commercial enterprises either became defunct or sank into bankruptcy (e.g. Sea Park, the Food and Fish Marketing companies, Energy Development Company, Baiyer River Alcohol, and Kagamuga Natural Products) and were not bailed out. In 1987 the Wingti government initiated privatization of the wholly state-owned National Insurance Corporation (NIC) and a few of its minority shareholdings in joint ventures. The sale of NIC to Malaysian interests in 1988 was aborted at the last minute after a change of government, and no action was taken on the minority shareholdings. NIC remained a public entity until absorbed by PNGBC in 1998.
The first comprehensive privatization policy paper was overseen by a committee of officials chaired by the governor of the central bank but largely drafted by Jakob Weiss, an adviser to the central bank, and presented to the cabinet in 1991, after prompting by the World Bank in the context of its initial Structural Adjustment Programme in Papua New Guinea (World Bank 1992, 52–54; Millett 1993, 12). The Weiss paper stopped short of proposing privatization of either the CSAs or the state-owned commercial bank, PNGBC. It also failed to address the incomplete implementation of the 1983 decision. Instead, its main recommendations were establishment of a unit trust into which the government’s shares in mining projects would be placed, and further sales of the state’s minority equity holdings in plantations and the like to the national public — which overlooked the pre-emptive rights of the foreign shareholders that managed most of these concerns.
These proposals were superseded when the return to government of Paias Wingti after the elections in 1992 led to a much higher profile for privatization. The government’s first act set up the Papua New Guinea Holdings Corporation as a statutory body under the prime minister with capital of K5 million, replacing the previous government’s costless Privatization Committee of officials. The corporation became the statutory owner of all the government’s non-mining enterprises, with full powers to proceed with privatization and retain all proceeds for its own purposes (Millett 1993, 40).
The Wingti government also moved to raise the state’s involvement in the mining industry. The policy from 1980 until 1992 had been for the government to take up to 30 per cent of the shares in mining projects, and 22.5 per cent in oil projects, but in each case only when the projects — including their financing plans — had been approved. This meant that the government avoided the exploration and pre-development risks it had incurred between 1975 and 1980 at Ok Tedi. Payment for its equity in mining was paid up-front pro rata with its share of developers’ previous exploration and pre-development costs. In the case of oil projects, the developers were obliged to ‘carry’ (i.e. finance) the state’s equity, with recovery of their costs plus interest from the state’s forgoing of its 22.5 per cent share of oil production until paid for.
In 1979 the joint venture of three mining companies (Placer Dome of Canada, and MIM and Goldfield Ltd of Australia) formed to develop the Porgera gold deposit had asked the government to determine the size of its equity in advance of the more intensive drilling program they proposed to undertake. The government chose to limit its holding to 10 per cent and signed the 1979 Shareholders Agreement on that basis, despite the precedent of its 20 per cent stake in Bougainville Copper Ltd and its intention to take 20 per cent in Ok Tedi. The large burden on the government’s resources of financing its share of the Ok Tedi project explains its decision to limit itself to 10 per cent at Porgera, but the private joint venture partners were evidently keen to be sure of retaining at least 30 per cent each before embarking on a major exploration program.
The new drilling was successful in proving the existence of a larger and richer ore body than had been expected, and in 1985 the managing director of Placer’s Australian subsidiary, Robert Needham, wrote to the prime minister seeking confirmation that the government would honour the Shareholders Agreement and limit itself to 10 per cent of the project. Sir Michael Somare replied in the affirmative. Placer Dome floated its Australian subsidiary, Placer Pacific, in 1986, and amidst controversy some of the government’s ministers (including the new prime minister, Paias Wingti, and the minister for Finance, Julius Chan) acquired shares at what proved to be a heavily discounted float price, despite the restrictions of the Leadership Code.
By the time the second Wingti government took office in 1992, Porgera had begun production and proved for a few years to be the most profitable gold mine in the world. In September 1992 Wingti secured cabinet approval for removal of Mel Togolo, the chief executive of the Mineral Resources Development Company (MRDC), the government’s holding company for its mining equity stakes, and his replacement by Robert Needham, the same Needham who, when managing director of Placer Pacific, had written to the prime minister about the government equity in Porgera the year before its float in 1986. Needham prepared demands presented by the prime minister to Placer and its partners claiming that the government had been ‘misled’ as to the potential richness of Porgera in 1979 and again in 1985 when it limited itself to only a 10 per cent stake and that therefore the companies should grant the government an extra 20 per cent stake in the mine, at a price based on the original cost rather than the current market value, taking it to 30 per cent. This demand looked to many to be akin to nationalization or even expropriation, but an agreement was eventually reached whereby the companies provided the government with an extra 15 per cent (for a total of 25 per cent), at a price based on market valuations rather than original cost, and payable from the future profits earned by the government’s extra holding (World Bank 1993, 91).
The appearance of a new phase of direct state involvement in mining was strengthened when Wingti’s and Needham’s next move was to demand that Rio Tinto should grant the government an extra 20 per cent equity stake in the new Lihir gold project, taking it to 50 per cent, to be held on behalf of the government by the Malaysian Mining Corporation. Rio Tinto rejected what was seen as a move to replace its management by a team led by Needham — and the government’s minister for Mining, John Kaputin, then refused to proceed with Rio Tinto’s application for a special mining lease. In mid 1994 a faction of the government led by the then Finance minister, Masket Iangalio, succeeded in having Needham dismissed from MRDC while Kaputin was abroad, and this was soon followed by the resignation of Wingti in August 1994 after loss of a court case on the validity of his purported resignation and re-election by parliament in 1993. The new government quietly dropped the demand for extra equity in the Lihir project, and the project was approved in March 1995. The subsequent international share float of Lihir Gold Ltd provided an opportunity for the government to finance its share of the development costs from the proceeds of selling 40 per cent of its holding in the float — and its residual 17.6 per cent holding was in effect further privatized by assignment of half (6.8 per cent) to a trust on behalf of the Lihirian landowners.
Before Wingti was obliged to resign, his government had set in train what became the notorious purchase of the Cairns Conservatory, concluded in October 1994 under the direction of the next government, by the Public Officers Superannnuation Fund. The Ombudsman’s Report (Ombudsman Commission 1999) on this money-laundering transaction provides a graphic account of the departure by ministers (led by Prime Minister Chan himself), and the most senior officials of the Department of Finance, from the high-minded principles that in the early years of independence they had advanced as justifications for public ownership.