All that glitters is not gold; PNG's gold reforms stall

Introduction

The Marape Government has recently taken a significant step back on the potential implementation of the National Gold Corporation Bill 2023 (Bill). The PNG Government has agreed after public outcry that at least six months of further public deliberations and substantial amendment to the Bill would be required.

We thought it would be prudent to cut through the noise and provide you with as concise a summary as possible on what the Marape Government was trying to implement and just some of the problems that may have arisen if it were to implement the Bill.

Please note that the Bill is 506 pages long and so hides thousands of pitfalls, inconsistencies and issues for the operation of a free market, justice and other regulatory functions. We have made every effort to highlight the key points in a reader friendly way - but if you want to discuss the Bill, its problems or the future of gold reform please contact us.

The basics

The Bill provides for wide ranging reforms that would affect Papua New Guinea’s gold industry and currency minting market. The impacts (many of which are negative) of the Bills implementation to PNG’s economy, regulatory framework and sense of justice are evident from the key reforms being made. Here are some of the key reforms:

Establishment of Key Entities

National Gold Corporation (NGC): The bill establishes the NGC, which will oversee the gold industry operations. A foreign corporation, established outside the laws of Papua New Guinea.
National Gold Refinery: All gold mined or recovered in Papua New Guinea will be refined here.
National Gold Bank: Responsible for issuing gold-backed instruments.
National Mint: Will manufacture and mint gold products including bullion bars and investment-grade coins.
National Gold Authority (NGA): A regulatory body to oversee the gold industry and ensure compliance with national standards.

Shareholders Agreement Implementation

The bill provides for the implementation of a Shareholders Agreement between the State and Refinery Holdings, establishing the roles and responsibilities of founding shareholders.

Legal Tender and Gold-backed Instruments

The National Gold Bank will issue gold-backed instruments, such as National Gold Notes.

Regulation and Oversight

The NGA will have extensive powers to regulate the gold industry, including granting authorizations, issuing directives, and overseeing compliance. The NGA can request information from entities, grant exemptions, and enforce regulations with retrospective effect.

Protections and Immunities

Officers and agents of the NGC, subsidiaries, and NGA are protected from legal actions for acts done in good faith within their official duties. Liabilities related to searches, seizures, and detentions conducted in good faith are also limited.

Legislative Instruments

The bill details the creation and application of legislative instruments, which include authorizations, rules, procedures, and orders related to gold refining, minting, and market operations. These instruments are binding and enforceable by law.

Legislative instruments that facilitate the operation of the NGC or its subsidiaries are not subject to disallowance.

Penalties and Enforcement

The bill prescribes severe penalties for non-compliance, including fines up to K10,000,000 and imprisonment for up to five years. Default penalties for continuing offences are also established.

Courts are empowered to order the forfeiture of assets involved in contraventions, reinforcing the stringent enforcement mechanisms.

The legal issues

The Bill raises several significant legal issues that could have far-reaching implications for Papua New Guinea's legal and economic landscape. Some of the major legal issues include:

(Sovereignty and National Control) The bill grants extensive powers to the National Gold Corporation (NGC) and its subsidiaries, including the National Gold Refinery and the National Gold Bank, which are majority-owned by a foreign entity, Refinery Holdings Pte Limited. This raises concerns about national sovereignty, as crucial aspects of the gold industry and financial system could fall under foreign control.

Arguably this undermines the state's control over its resources and economic policies, potentially compromising national interests in favour of a foreign corporation.

(Monopoly and Market Restrictions) The bill establishes a monopoly over gold refining and marketing by mandating that all gold mined or recovered in PNG be processed exclusively by the National Mint. This prohibition on other entities from operating gold refineries within PNG could stifle competition and disrupt existing gold marketing arrangements and contracts.

Such a monopoly could negatively impact the financial sustainability of existing mining operations and deter investment in new projects, as alluvial miners and major mining companies would be unable to seek competitive prices for their gold.

(Regulatory and Oversight Concerns) The bill proposes the creation of the National Gold Authority, which would regulate the refined gold industry. However, the extensive powers granted to the NGC and its subsidiaries could override existing regulations and weaken the oversight capabilities of state agencies such as the Bank of Papua New Guinea and the Mineral Resources Authority.

This concentration of regulatory and operational powers in a single entity poses significant risks of regulatory capture and conflicts of interest.

(Transparency and Accountability) There are significant transparency concerns regarding the undisclosed shareholder agreement between the state and Refinery Holdings. The lack of full disclosure has already led to apprehensions about potential conflicts of interest and accountability.

The PNG Law Society and other stakeholders have called for more transparency to ensure that national interests are prioritized over private or political interests.

(Legal and Constitutional Challenges) The bill's provisions granting extraordinary powers to the NGC and its subsidiaries could face legal challenges on constitutional grounds. For example, limiting the Central Bank's authority in certain respects may conflict with existing constitutional mandates and the principles of separation of powers.

The establishment of the Gold Police with broad enforcement powers raises concerns about potential abuses and the undermining of existing laws related to police conduct and public safety.

We will continue to provide information regarding this legal reform as it is likely to have wide reaching impacts on Papua New Guinea and Papua New Guineans. For further information concerning the National Gold Corporation Bill and other legal reforms in Papua New Guinea contact us here.