INTRODUCTION

Papua New Guinea, with a population of 4 million and a land area of some 463,000 sq km, is the largest of the Pacific island countries. The country is well endowed with large reserves of renewable and non-renewable natural resources. The former include timber, which covers about 75 per cent of the land area, as well as agricultural and marine resources. The marine and coastal resources of Papua New Guinea are the most extensive and diverse in the South Pacific subregion. The country has a coastline of over 10,000 km and the marine area inside the 200-mile declared fisheries zone covers 2.3 million sq km of ocean. Non-renewable resources include gold, copper, oil and gas.

Agriculture is the dominant sector, accounting for about one-third of the gross domestic product (GDP) (table 1) and providing wage employment for 75 per cent of the working population (Economist Intelligence Unit, 1988). However, since the early 1980s, mining has made an increasingly significant contribution to the national income. Table 1 shows that the GDP share of the minerals sector increased from 9.3 per cent in 1989 to about 25 per cent in 1996. The manufacturing sector, which comprises mainly assembly-type and processing industries, contributes about 10 per cent of GDP; the sector has remained static over the past five years. In terms of foreign exchange earnings, the minerals sector can be considered as the economic backbone of Papua New Guinea. Table 2 shows that minerals account for about two-thirds of total exports while agriculture and forestry account for the remaining one-third. Since 1992, petroleum exports have grown in significance and now account for a third of all mineral exports. The agricultural sector has been in decline as a result of a combination of external and internal factors. Average world market prices for the main Papua New Guinea agricultural exports of coffee, copra and palm oil have fallen by between 50 and 60 per cent in real terms.

Table 1. Papua New Guinea: economic activity by sector

(Million kina;, 1983 constant prices)

Source: Department of Finance and Planning, 1995.
^a Includes government services.

Table 2. Papua New Guinea: value of exports by sector (Kina million; nominal prices)

Source: Department of Finance and Planning, 1995.

^a Projected figures.

The minerals sector has played a pivotal role in the development of Papua New Guinea to date and will continue to do so in the foreseeable future. Since gold was first discovered in 1880, mining has contributed to infrastructural development in remote areas of the country. Although mining is capital intensive and is often referred to as an enclave activity, there are significant backward and forward linkages between that sector and the other sectors of the Papua New Guinea economy. The government receives significant taxation, royalties, duties and dividends from gold industry revenue. As shown above, mineral and petroleum exports account for the majority of exports and hence constitute major sources of vital foreign exchange earnings. The severe dislocation of businesses in many parts of the country following the closure of the Bougainville copper mine is evidence of the significant impacts that mining has on the economy.

Following recent discoveries of oil and gas deposits which culminating in the development of the Kutubu oil and Hides gas projects, large resources of gas and condensate have been discovered in several areas in the Gulf of Papua, and Southern Highlands and Western provinces. Those deposits are currently being examined as the potential basis of a liquefied natural gas industry in Papua New Guinea. The rich Lihir Island gold-mine located north-west of Rabaul is currently under construction and is expected to begin production in late 1997. The smaller Tolukuma mine near Port Moresby and the Wapolu mine in Milne Bay province started production in 1995. A number of other significant deposits have been discovered but not yet developed (annex table 1). Gold production from Papua New Guinea mines averages close to 60 metric tons per year, placing Papua New Guinea as the ninth largest gold producer in the world (table 3), while copper production averages over 200,000 metric tons per year. The commencement of production from the Lihir gold mine at a rate of 21-31 metric tons per annum should push Papua New Guinea into seventh place above Brazil. The combined production from all likely mineral resources in Papua New Guinea in the next 10 years is expected to result in production rates exceeding 90 metric tons per annum.

Table 3. World gold production, 1991-1993

(Tons)

Source: Moaina, 1996.

Despite the immense potential, Papua New Guinea's development record since independence from Australia in 1976 has been rather disappointing. Life expectancy and adult literacy rates are well below those of neighbouring countries in the South Pacific and South-East Asia. Papua New Guinea was ranked 126 out of 174 countries, based on the human development index (United Nations Development Programme, 1995), which is a composite measure of per capita income, life expectancy and literacy rates. The per capita income for Papua New Guinea (figure I) is less than US$ 900, which puts the country into the "lower middle income" category by international standards.

Source: GDP figures taken from table 1 (the Papua New Guinea population of 4 million is assumed to be growing at a rate of 2.3 per cent per annum).

The economy grew rapidly prior to independence and levelled off during the late 1970s. However, economic growth in the 1980s was very low. In 1989, the economy suffered two major shocks. The first was the closure of the Bougainville Copper Limited (BCL) mine which had, in 1988, contributed 8 per cent of GDP, 35 per cent of the export revenue and 12 per cent of total government revenue. The second shock was a rapid deterioration in the terms of trade as a result of a severe slump in world commodity prices. The effect of those shocks was a rapid decline, in 1990, in the per capita GDP to an all-time low of K 665 (figure I). The government responded to the crisis with a package of stabilization measures which were successful in restoring macroeconomic balance. Between 1990 and 1993, there was a rapid surge in economic growth mainly as a response to a boom in mining and petroleum outputs. During that period, per capita GDP grew by 33 per cent. However, it proved impossible to sustain that rapid economic growth; ballooning budget deficits caused by expansionary government programmes and the secessionist rebellion in Bougainville led to another major macroeconomic crisis in early 1994. The government instituted tough fiscal and monetary measures which included a 12 per cent devaluation of the kina in September 1994, followed by a float of the currency in October 1994. In 1995, the government introduced an economic reform programme with the backing of international agencies including the World Bank, the International Monetary Fund (IMF) and the Asian Development Bank (ADB). The tight expenditure controls have been successful in constraining the budget deficit.

In the lead-up to the development of the Papua New Guinea Constitution, extensive public consultations and debates were held. Concerns about the environment and the management of the natural resources in the country featured prominently in those discussions. The five national goals expressed in the Papua New Guinea Constitution reflect those concerns:

• Integral human development;
  
  
• Equality and participation;
  
  
• National sovereignty and self-reliance;
  
  
• The preservation of natural resources and the environment;
  
  
• The preservation of the culture and traditions of Papua New Guinea.

The Directive Principles supporting the Fourth Goal state:

The Directive Principles accompanying the first and fifth national goals emphasize the use of "Papua New Guinean forms" and the need for public participation in the decision-making processes.

Following the United Nations Conference on Environment and Development ( Earth Summit), held in Rio de Janeiro in June 1992, the government adopted the concept of a national sustainable development strategy for Papua New Guinea. The aim of the national sustainable development strategy is to "better integrate economic, environmental and social policy objectives, sustain renewable resources and Papua New Guineas diverse cultural traditions, and capitalize the yield from non-renewable resources to sustain benefits per head for a rising population" (Department of Finance and Planning, 1995). The government convened a committee comprising government and the non-government organizations (NGOs) representatives which was given the task of assessing the options for the national sustainable development strategy. The committee concluded that the existing patterns of resource use were not sustainable and would seriously reduce future development options. The committee further concluded that the national sustainable development strategy was a necessary requirement and not an option.

The challenge facing the government is how to maximize the net economic benefits while maintaining (or increasing) the stock of economic, ecological and sociocultural assets over time and provide a safety net to meet the basic needs. As indicated above, the contribution by the minerals sector is crucial to the survival of the Papua New Guinea economy since it faces dire economic circumstances. Yet there are environmental risks associated with the mining operations. Those risks pertain mainly to the disposal of untreated mine waste and tailings into the river systems and the sea. A notable example is the disposal of waste from the Ok Tedi gold mine into the Fly River system.

As is the case with most other developing countries, Papua New Guinea faces enormous challenges for incorporating environmental considerations into policy decisions in the minerals sector, especially in the light of the current adverse economic conditions. Substantial trade-offs exist between the maintenance of strict environmental guidelines and the promotion of mineral development. For example, the government allowed the Ok Tedi mine to go ahead without a tailings dam partly because it was not in a position to further defer income from the mine. Although it has not been explicitly stated, the high cost of constructing an effective tailings dam in the mine area remains at the centre of the mine operator's reluctance to construct such a facility. In contrast, trade-offs in other sectors such as agriculture and forestry are not as high. For example, the forest industry share of total exports in 1993 was 15 per cent, or K 400 million compared with 70 per cent or K 1,768 million for minerals (Department of Finance and Planning, 1995).

Following several years of often violent disputes with the landowners over the environmental damage and the provision of compensation for mining operations, the government has shown a willingness to adopt environmentally responsible mining practices. The government has acknowledged that "damaging social and environmental impacts of mining may trigger social unrest in the vicinity of the mines, in turn causing mining activities to be disrupted" (Department of Finance and Planning, 1995). In the light of that concern, a Mine Monitoring Unit was established within the Department of Environment and Conservation to audit the environmental monitoring and mitigation programmes of

Te mining companies in order to ensure that mining activities are properly regulated, thus minimizing any adverse impacts.

At present, both the financial and technical assistance (in the form of capacity-building) are needed to enable the Mine Monetary Unit to carry out its duties effectively. The lack of financial resources is a major constraint to implementing sustainable development strategies. For example, although the 1996 budget allocation for the Department of Environment and Conservation was almost double that of 1993, it was still a mere 0.3 per cent of total government expenditures.

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