Investing in PNG from South East Asia: managing the risks
Investment into Papua New Guinea from the ASEAN region, especially Singapore and Malaysia, continues to grow. Erik Andersen considers the tools for managing risk available to investors from the region.
One important issue for new investors is comfort that any dispute with local counterparts will be resolved by law in a trustworthy process capable of being enforced. Arbitration provisions (such as through the Singapore International Arbitration Centre) are one effective way of achieving this, but an additional option is now available.
Singapore International Commercial Court
The establishment this year of the SICC as a division of the Singapore High Court opens another dispute resolution avenue.
SICC may exercise jurisdiction in international commercial disputes, even if the dispute is entirely offshore (even if neither of the parties are Singaporean and it does not concern a Singaporean investment), provided that both parties submit to it.
The advantages of being able to access the Singaporean system are significant. The current World Bank survey of 190 countries’ enforcement of contracts rated Singapore number one in the world, so accessing the world’s best rated contract enforcement system now provides an excellent alternative for investors perhaps concerned about efficiencies in PNG’S court system.
An SICC judgement would be enforceable in PNG in the normal fashion of Singapore High Court judgments under PNG’S Reciprocal Enforcement of Judgments Act.
Double taxation agreements
To properly protect international investors from paying tax on the same income in more than one country, Papua New Guinea has DTAS with both Singapore and Malaysia. The protections are available to tax residents of both countries, as set out in each country’s particular treaty.
Investment protection treaties
Internationally, the consensus is that when a nation state exercises its power to expropriate property it must only do so in accordance with some variation of the formula that it is in accordance with law, is for public purposes, and results in payment of compensation. That protection is available to investors into PNG.
One version of that formula is part of PNG’S domestic law under the Investment Promotion Act and is available to all foreign investors who properly comply with that Act’s certification requirements.
The ability of an investor from a country not party to a bilateral investment treaty to enforce that provision in the International Centre for Settlement of Investment Disputes has recently been called into question and, at the time of writing, is before an ICSID arbitral panel.
Given ICSID jurisdiction under PNG’S domestic laws is unresolved, it is sensible to consider alternatives.
There is a bilateral investment treaty between PNG and Malaysia containing protection from acts of expropriation, so inward investment from Malaysia can automatically take advantage of the protection provided by that treaty, and that treaty also includes an explicit agreement to have disputes settled at the ICSID.
Structuring a PNG investment to qualify for that treaty would, of course, need to be carefully thought through, based on the particular facts of the proposed investment.