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.

Business Advantage Papua New Guinea - - Opinion & Analysis -

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.

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