2010 two thousand and ten - pngsdp

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L736 - ACA PNGSDP AR2010 Covers 1/7/11 10:05 AM

C O R P O R AT E D I R E C T O RY

OUR MISSION

PNGSDP promotes development that meets the needs of the present generation and establishes thefoundation for continuing progress for future generations of Papua New Guineans.

OUR VALUES

We recognise the significant onus of trust, responsibility and challenge that has been placed uponPNGSDP.

We will be honest, fair and accountable in all our dealings, while promoting equality and efficiency inour conduct and activities.

We commit ourselves, through the activities of PNGSDP, to promote and improve the quality of lifeof current and future generations of the people of Papua New Guinea, especially of Western Province.

COMPANY BACKGROUND

Mandate

Under the agreements establishing PNGSDP, the Company has three main functions.

To support and promote sustainable development through projects and initiatives to benefit thepeople of Papua New Guinea, especially the people of Western Province during the period afterclosure of the Ok Tedi Mine.

Another main function of PNGSDP as a substantial financial institution is the prudent and wiseinvestment of the Long Term Fund and Development Fund, so that it can support a high level ofdevelopment expenditure in Western Province and Papua New Guinea in general.

The Company’s other substantive responsibility is as majority shareholder of Ok Tedi Mining Ltd(OTML). Through its representative on the Board of OTML, PNGSDP seeks to ensure soundcommercial operations of OTML, responsible management of environmental and social issues, andseeks to sustain the infrastructure established by OTML for broader social and economic developmentbeyond mine closure.

Incorporation and governance framework

PNGSDP is a Papua New Guinean institution incorporated in Singapore as a not-for-profit limitedliability company, registered and operating in PNG as an overseas company.

PNGSDP is governed by its Constitution, which is comprised of the Memorandum and Articles ofAssociation and Program Rules.

An independent Board, consisting of seven international and Papua New Guinean Directors, controland manage the affairs of PNGSDP and reports to PNG stakeholders annually.

PNGSDP commenced operations in Port Moresby Papua New Guinea in November 2002.

Assurance and indemnification

PNGSDP indemnifies the State and BHP Billiton against environmental claims related to activities ofOTML and provides indemnity over the Independent Directors on the Board of OTML.

HEAD OFFICE

PNG Sustainable Development Program Ltd7th Floor, Pacific PlacePO Box 1786, Port MoresbyPapua New Guinea

Tel (675) 320 3844(675) 320 3845

Fax (675) 320 3855

WESTERN PROVINCE OFFICES

KIUNGA

PNGSDP Regional OfficePost Office KiungaWestern Province

Tel (675) 649 1222

Fax (675) 649 1223

TABUBIL

PNGSDP OfficePO Box 24, TabubilWestern Province

Tel (675) 649 4600 / 9600

REGISTERED OFFICE

Drew Corp Services Pte Ltd10 Collyer Quay #10-01Ocean Financial CentreSingapore 049315

Tel (65) 6531 4187(65) 6531 2266

Fax (65) 6533 1542(65) 6533 7649

L736 - ACA PNGSDP AR2010 Covers 1/7/11 10:05 AM

L E T T E R F R O M T H E C H A I R M A N

TA B L E O F C O N T E N T S

PNG Sustainable Development Program Ltd.Port Moresby, Papua New Guinea

6 APRIL, 2011

The Independent State of Papua New GuineaBHP Billiton Ltd.Ok Tedi Mining Ltd.

In accordance with Clause 20 of the Company's Program Rules under the Articles of Association of the PNGSustainable Development Program Ltd., I submit to the Independent State of Papua New Guinea, BHP Billiton Ltd.,and Ok Tedi Mining Ltd., the Annual Report 2010, covering the financial year ending 31 December 2010.The Annual Report also includes the financial statements and the report of the Auditor.

Furthermore, in accordance with Clause 19.3 of the Program Rules of the Company, the key elements of the AnnualReport will be presented for discussion at the Annual Report Meeting of the Company, to commence at 9.00 amon Friday 10 June 2011 at the Conference Room, Crowne Plaza Hotel, Port Moresby.

Sincerely,

ROSS GARNAUT AOChairman Board of Directors

Mission, Values and Company Background ............IFCLetter from Chairman ...............................................1Table of Contents......................................................1

CHAIRMAN'S REPORT .............................................2

CEO'S REPORT ........................................................4

PNGSDP STRATEGY.................................................7

TRANSFORMATIONAL PROJECTS..........................11

INFRASTRUCTURE .................................................13

INDUSTRY..............................................................18

SOCIAL INVESTMENT............................................24

MINE IMPACTS......................................................30

FINANCIAL STRATEGY...........................................32

FINANCIAL STATEMENTS ......................................36

Directors' Report .....................................................36 Statement by Directors ...........................................37Independent Auditor’s Report .................................38Statement of Comprehensive Income .....................40

Balance Sheet .........................................................41

Statement of Changes in Equity..............................42

Statement of Cash Flow ..........................................44

Notes to the Financial Statements...........................45

MANAGEMENT REPORT........................................94

Corporate Services Report.......................................94

- Management Organisational Structure .................95

Advisory Council Report..........................................96

Corporate Governance Report ................................97

- Board of Directors ................................................97

- Corporate Governance Statement.......................101

- Subsidiaries and Joint Ventures ...........................105

MAPS ...................................................................106

National Program..................................................106

Western Province Program ....................................108

Glossary of Abbreviations ......................................109

Corporate Directory...............................................IBC

1A N N U A L

R E P O R T 2010

C H A I R M A N ' S R E P O R T - A m e s s a g e f r o m R o s s G a r n a u t

PNG SUSTAINABLE DEVELOPMENT PROGRAM LTD

2010 saw strong progress on the nationally importantprojects that PNGSDP is building to underpineconomic development in Western Province after theOk Tedi mine.

The Star Mountains Institute of Technology is animportant educational institution preparing to play alarge local and national role in technical and Universityeducation. Important steps have been taken inteaching trades and in medical skills. Environmentalmanagement and conservation, and agriculturaltraining, will be an additional focus of attention in theyear ahead.

The Star Mountains Institute of Technology will also bean increasingly important source of income andemployment in Tabubil and the North Fly. It will playan important role in sustaining the economic life ofTabubil as the Ok Tedi mine reduces and one day endsproduction.

The easing back of production at the mine provides ahelpful context for the building up of other activities atTabubil. Tabubil has excellent town infrastructure,services and community culture. PNGSDP is working toensure that the town and its community culture do notgo back to bush after mine closure, but becomeimportant permanent assets for development amongstpeople in the North Fly and Papua New Guineagenerally. PNGSDP and Ok Tedi Mining Limited areworking together gradually to convert the governancearrangements of a mining company town intoarrangements that can allow peace, order and goodgovernment in the town without the mine.

The transformative infrastructure projects in WesternProvince are making good progress. The deepwaterport at Daru will provide essential services to a local

industrial area that draws on Western andneighbouring provinces’ power and natural gas. It willprovide links with more distant places for WesternProvince, its neighbouring provinces in Papua NewGuinea, and neighbouring parts of Australia andIndonesia. The port and other transport infrastructurehave contributed to the growth in interest in gas andother export production in Western Province.

PNGSDP aims to provide the great majority of peoplein Western Province access to goodtelecommunications, power, financial and transportservices by the time that the mine was once scheduledto close at the end of 2013. The PNGSDP modelprovides for capital grants to introduce services, withlater recurrent costs being funded by charges on usersof the services. We have taken big steps over the pastyear in telecommunications and power in particular,through the work of PNGSDP’s subsidiary, WesternPower. Most Western Province residents now havemobile phone connections, and many of these alsohave access to the internet, following PNGSDP’sestablishment of telecommunications towersthroughout the province. All but a few percent areexpected to have good mobile phone access by thetime of next year’s Annual Report Meeting.

A traveller by road from Tabubil to Kiunga by night,and down much of the Fly River, will now see electriclights shining from many villages and settlements. Ouraim is for all but a few percent of Western Provincehouseholds to have access to electricity by the time ofthe Annual Report Meeting in 2014. Village incomestoo have been boosted by PNGSDP support for ruralindustries, with the rubber programmes making a largecontribution.

PNGSDP’s community programmes, in which ourpartners set the priorities, continue to make largecontributions to local development in Western and allother provinces.

PNGSDP’s transformational projects extend wellbeyond the Western Province. Two large-scalerenewable energy projects to utilise Papua NewGuinea’s hydro-electric potential are currently thesubject of feasibility studies by PNG EnergyDevelopments Limited, PNGSDP’s joint venture withOrigin Energy. Subject to these studies and localconsents and Government approvals, the massivePurari resource will be used for large-scale industrial usein Gulf and Western Provinces, as well as for sale intothe Papua New Guinean and Australian electricity grids.The Ramu resource will be used to supply Papua NewGuinea Power and so to alleviate acute electricity

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Dr Ross Garnaut AO - Chairman

C H A I R M A N ' S R E P O R T - A m e s s a g e f r o m R o s s G a r n a u t

bottlenecks in Morobe and Madang Provinces and theHighlands.

Beyond its current development programmes,PNGSDP places two thirds of its income into a LongTerm Fund for use after the closure of the Ok Tedimine. The top priority of the Long Term Fund is tomaintain services in the region of the mine afterclosure to levels available prior to closure. There is nowover one billion dollars in the Long Term Fund. Withcontinued good governance and management, thefunds will be available to make substantial contributionsto the maintenance of basic infrastructure in the regionand to development in perpetuity.

The balance of the Long Term Fund rose from $US0.81billion at the beginning of 2010 to $US1.04 billion atthe end. The rate of return on the Fund in 2010 was3.55%. Weighted average returns sincecommencement of the Fund in 2002 are 5.26%.

There have been important developments in Ok TediMining Limited since the beginning of 2010, some ofthem early this year.

The mine has continued to perform well commercially.PNGSDP received dividends of $US338 million during2010. The Ok Tedi mine continued as by far the largesttaxpayer in Papua New Guinea. Its taxation paymentshave been a major factor in the Papua New GuineaGovernment’s sound budgetary position over recentyears, and in the country’s economic stability andgrowth. The mine makes provincial revenue per personhigher in Western Province than anywhere else in thecountry.

Work is at an advanced stage on a feasibility study onthe extension of the life of the Ok Tedi mine into the2020s. Community and Government consultations inthe period immediately after PNGSDP’s Annual ReportMeeting will decide whether the extension willproceed.

Early in 2011, Ok Tedi Mining Limited bought backand cancelled for a sum of $US335 million the 18percent equity interest in the mining company that hasbeen held for many years by the Canadian companyInmet. Papua New Guinea interests are now thebeneficial owners of the entire Ok Tedi mine.

Jim Carlton retired from the Board of Directors at theend of 2011. Jim has been a BHP Billiton-appointedDirector since the formation of the company in 2002.He made an immense contribution to the companywith his interest and knowledge of development,management, as well as his insights into the human

condition and character. The Company’s Directors andsenior executives thank Jim for his good and hard workand excellent company. Jim agreed to accept aposition as a Director of PNGSDP’s micro-financesubsidiary, PNG Microfinance Limited.

Our deeply missed colleague, Sir Ebia Olewale, wasfarewelled in our 2009 Annual Report. With officers ofthe company, I participated in a moving ceremony tolay the headstone for Sir Ebia in his home village ofKunini in Western Province on 6 November 2010. Tohonour the memory of a great Western Province andPapua New Guinean leader, PNGSDP has sponsoredthe preparation of a book on Sir Ebia’s life and times.

Many people in governments all over the country havehelped the work of the company. The ProvincialAdministrator in Western Province has worked closelywith us for success on many Western Province projects.In the National Government, I would especially like tothank the Right Hon Grand Chief Sir Michael T. SomareGCL CGMG CHCF KStJ, Prime Minister and Minister forClimate Change, the Deputy Prime Minister andMinister for Works and Transport, the Hon Don Polye,the Treasurer, the Hon Peter O’Neill, CMG, and othersenior Government Ministers and Members ofParliament for help over the past year. And thanks toHon Bob Danaya, the Governor of Western Provinceand the three local members of Western Province fortaking an interest in our work.

I would like to thank David Sode and his dedicatedteam of senior executives for the persistence anddedication that lie behind the company’s growingachievements. They have maintained the highstandards of integrity and good governance uponwhich this company has been built. The Board ofDirectors was delighted that Mr Sode in early 2011accepted a new contract to March 2014.

A famous American development economist said a fewyears ago that no good deed goes unpunished inPapua New Guinea. Certainly there are manyoccasions when the reward for hard work, honesty anddedication to Papua New Guinea development iscriticism from people who do not value hard work,honesty and dedication to Papua New Guineadevelopment. But there are great rewards in seeing thedifference that many of PNGSDP’s programmes aremaking to the lives of many Papua New Guineans.Thanks to my fellow Directors for contributing somuch, for so little recognition, and for carrying a heavyload with good spirits.

Ross Garnaut Chairman

3A N N U A L

R E P O R T 2010

C E O ' S R E P O R T - A m e s s a g e f r o m D a v i d S o d e


The year 2010 has seen PNG Sustainable DevelopmentProgram Ltd again putting in a huge effort to deliver arange of small to large projects, consistent with ourmission of promoting development that meets theneeds of the present generation and establishes thefoundation for continuing progress for futuregenerations of Papua New Guineans.

In this CEOs report I briefly index the Company’s 2010achievements and what it will set itself to achieve in2011. I am glad that we are held accountable for ourproductivity and if one cares to look in detail in thebody of this report, one will congratulate andappreciate the difficulty the Company has overcome indelivering projects in the most rural, isolated andneglected parts of PNG. The Board, staff and I neverfail to admire those stakeholders of PNGSDP who arestill struggling to hold a place of service out in thoserural areas in the face of considerable difficulty andalmost impossible circumstances. It has been ourdelight that our funds, delivered through careful andaccountable structures, have given life to thoseorganisations to persevere. I acknowledge andappreciate the gratitude of the thousands of silentpeople who knowlingly or unknowingly receive ourassistance.

In 2010 we delivered various projects, to a total valueof US$46.1 million (K126.0 million), which directlyimpacted a substantial number of people in some ofthe remotest communities, and double that for anindirect effect.

Progress on 2009 stated priorities

In 2009 I stated that we would prioritise certainactivities. Progress has been made on each count and Irestate and explain the progress below:

• Daru International Airport upgrade - work isunderway, with the contractor mobilised to siteand one third complete.

• Daru Water and Sewage upgrade - PNG WaterBoard and PNGSDP have entered into a mutualworking arrangement to commence work.

• Western Province Communication Network -project delivered.

• Daru Deep Sea Water Port – work commencedwith geotechnical contractor mobilised to site.

• OTML Mine Life Extension – project is underwayand continuing progress has been made.

Based on the information above I commend our Board,and staff and stakeholders for aiding the Company inmeeting its 2010 targets.

What we delivered in 2010

As you look through this report you will notice that,consistent with our mandate to disburse two thirds ofour development funds to the rest of PNG and onethird to the Western Province, we have completed anumber of highly valued projects:

Nationally in PNG(excluding Western Province):

1. Tente Primary School Double Classroom Project,Mendi District, Southern Highlands.Partner: United Church Mendi Circuit

2. Kompiam Rural Hospital Double Storey New WardComplex, Kompiam-Ambum District, Enga.Partner: Enga Baptist Health Services

3. Wesley High School Male and Female Students’Dormitory Project, Esa’ala District, Milne Bay.Partner: United Church Papuan Islands Region

4. Mt. Hagen Anglicare StopAIDS VCT CentreExtension and Refurbishment Project, Mt. HagenDistrict, Western Highlands.Partner: Anglicare StopAIDS

5. Tonu High School Staff House Project, SouthBougainville, Autonomous Region of Bougainville.Partner: United Church Education Agency,Bougainville Region

6. Mabiri Technical High School InfrastructureSupport Project, Central Bougainville,Autonomous Region of Bougainville.

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David Sode - Chief Executive Officer


Partner: Catholic Education Agency, Diocese ofBougainville

7. Homaria Community Road Project, Komo-Magarima District, Southern Highlands.Partner: Catholic Diocese of Mendi

8. St. Lawrence Simbai Primary School, MiddleRamu District, Madang.Partner: Anglican Diocese of Aipo-Rongo

9. Completed road infrastructure under the NationalRoad Maintenance Rehabilitation Project (RMRP) –rehabilitation of 2 roads in Central Province, 1road in Oro Province, 2 roads in West New BritainProvince and 1 road in East New Britain Province.

10. Funded social infrastructure projects in CloudyBay, Central Province – completion of 22kilometres highway into the Forest ManagementArea, opened up village access roads, delivered 4teachers’ houses and 8 classrooms and completeda Health Clinic treating 7,000 people fromsurrounding villages.

In Western Province:

1. Kewa Aid Post and Community Health Worker’sHouse, Kewa Village, Western Province.Partner: ECPNG

2. 2 teachers’ houses and a double classroom, KewaPrimary School, Kewa Village, Western Province.Partner: ECPNG

3. Kenewa Aid Post and Community Health Worker’sHouse, Kenewa Village, Western Province.Partner: ECPNG

4. Kimama Aid Post and Community HealthWorker’s House, Kimama Village, WesternProvince. Partner: ECPNG

5. Head Teacher’s House and Double Classroom ,Gutula Primary School, Kimama Village, WesternProvince. Partner: ECPNG

6. Saewase Aid Post and Community HealthWorker’s House, Saewase Village, WesternProvince. Partner: ECPNG

7. National and District Health Secretaries’ Houses,Balimo, Western Province. Partner: ECPNG

8. Education Secretary’s House, Balimo, WesternProvince. Partner: ECPNG

9. Lake Murray Rubber Project – completed plantingof 1960 ha by 1,640 growers in 21 villages[PNGSDP: 15.5 million] Partner: North Fly RubberLtd and PNG Microfinance Ltd.

10. Completed 28 kilometres of road rehabilitation onthe Gre to Drimgas Road [PNGSDP: 34 million]

11. Upgraded the airstrips of Bak, Oksapmin,Golgobip, Eliptamin, and Telefomin [PNGSDP: 5.5million]

12. Completed the construction of the BarramundiHatchery in Daru

CEO’s special focus report – WesternProvince Telecommunication

A very significant project this year is thecompletion of our Western ProvinceCommunication project at the cost of US$26.0million (K70.2 million). We believe that ifyou give people tools like sustainablecommunication, energy and infrastructurethey will advance themselves down the roadof sustainable prosperity. With PNGSDPcommissioning 47 strategically locatedcommunication towers Western Province willenjoy in excess of 90% communication to itspopulation. This is indeed a great gift to thesmall isolated remote communities, as such aservice would have been commerciallyimpossible to access. The ripple effect is that thebordering Telefomin and Gulf areas will alsobenefit from this coverage.

We believe that this makes telecommunicationand internet accessibility equal to or higher thanany other province in PNG. We expect thisfacility which is fully owned and maintained byPNGSDP to assist development and efficiency ofadministration.

The towers have a capacity for multiusers toencourage competition and we note thatDigicel is the first telecommunication operatorto commit to put up its equipment. The towersare not Digicel towers; they are PNGSDP towersconstructed by Digicel who won an open tenderfor construction.

PNGSDP has commissioned a study team tocover the impacts of this project and what

5A N N U A L

R E P O R T 2010



happens when communication is madeavailable to a population which would notnormally have such access apart from a willingand caring sponsor.

We expect:

• Health services delivery to improvedramatically

• Education delivery to improve dramatically

• Law and Order coverage to increase

• Commerce to grow

• Banking to be widespread and accessible

• The cost of current telecommunication todecrease and coverage greatly improve

• Logistics to the Province to be greatlyenhanced

• Stronger social networking as people areable to keep contact with relatives inremote and urban areas

We also expect a few challenges from thisproject, which we are keen to understand andmanage going forward.

What we will deliver in 2011:

• Daru Deep Sea Water Port: First phaseconstruction

• Daru International Airport Upgrade: to becompleted

• Daru water and Sewage rehabilitation

• Assist in Kiunga Airport Upgrade

• Assist in restructure of OTML

• Continue joint project delivery with OTFRDP

• Continue in delivery of Health projects

• Continue in delivery of Education projects

In 2011, PNGSDP will continue to pursue projects ithas commenced, in supporting the country in itsgrowing sustainable energy demands, sustainableforestry, microfinance and other large scalecommercial and infrastructure projects to underpin thelocal Western Province economy.

PNGSDP Staff and Structure

There have been changes within PNGSDP over thesix months leading to April 2010, during which wecompleted a vigorous restructure exercise, includingthe appointment of 13 new staff and the appointmentof Ms Tamzin Wardley to the position of ChiefOperating Officer on 11 January 2010. We thank staffwho have moved on in the year and wish the best forthem, knowing that the PNGSDP experience will haveadded tremendous value to their future.

The PNGSDP Board has given direction that we build apresence in Western Province and so two of our PortMoresby based divisions have commenced relocationto Kiunga and Tabubil.

Conclusion

I thank the political leadership of the Chief, The RightHon Grand Chief Sir Michael T. Somare GCL CGMGCHCF KStJ, Prime Minister and Minister for ClimateChange, the Deputy Prime Minister and Minister forWorks and Transport, the Hon Don Polye, theTreasurer, the Hon Peter O’Neill CMG, other seniorGovernment Ministers, Governors, members ofParliament, and heads of government departmentswho have contacted or visited us at our offices andaccompanied me on several project planning andopening trips. Their co-operation was outstanding.

Our stakeholders are also to be congratulated for theirdedication to meet the Company’s demands of partialequity and in seeing that the projects are finished ontime and the funds fully acquitted.

My gratitude also goes to the PNGSDP Chairman andthe Board who have served the Company andsupported my executive team with distinction.

David SodeChief Executive Officer

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7A N N U A L

R E P O R T 2010

P N G S D P S T R AT E G Y

PNGSDP’s strategy has two dimensions, coveringNational and Western Province programs.

Two thirds of PNGSDP’s Development Fund isallocated to activities and investments that are ofsignificant national impact or benefit the people ofPapua New Guinea, and the remaining third isallocated to activities and investments that benefit thepeople of Western Province.

National Strategy

The centrepiece of the National Strategy is ourPartnership Development Model, which means wesupport other organisations to achieve theirdevelopment goals.

PNGSDP recognises that to effectively enabledevelopment across Papua New Guinea we mustsupport our partners to do what they do best, andfund delivery of their strategies. PNGSDP is partneringwith a large and diverse number of organisations toimprove the lives of Papua New Guineans.

Western Province Strategy

A significant proportion of PNGSDP’s effort is investedon the ground in Western Province. Our mandate inrelation to the communities in Western Province meansthat PNGSDP has assumed greater responsibility toinitiate and facilitate projects in the province.

The centerpiece of the Western Province Strategy is thedevelopment of Multi-sector Economic DevelopmentHubs. Industry development in Western Province iscentral to cultivating these hubs of economic activity.Identified hub locations are based on differenteconomic activities and include Balimo, Daru, Kiunga,Lake Murray, Morehead, Nomad and Tabubil.

Western Province is PNG's largest province, covering97,300 square kilometres, or approximately one-fifthof PNG's land mass. The Province borders Indonesia inthe west and Australia in the south, and also Sandaun(West Sepik) Province, Southern Highlands Provinceand Gulf Province.

OUR NATIONAL VISION

The lives of the people of Papua New Guineaare improved through the promotion ofdiversified and balanced socio-economicdevelopment which is driven, directed andowned by our strategic partners.

OUR WESTERN PROVINCE VISION

By 2020 people achieve equitable socio-economic development so that WesternProvince is recognised as a model fordevelopment in PNG. By mine closure, newindustries that support improved equitabledevelopment will replace the positivecontributions of Ok Tedi Mine.

TransformationalProjects

Infrastructure

Industry

SocialInvestment

Preparation forMine Impacts

INTRODUCTION

PNGSDP’s approach is to focus our work infive areas:

1. Transformational Projects

2. Community Level Infrastructure

3. Community Level Industry

4. Community Level Social Investment

5. Preparation for Mine Impacts

PNG SUSTAINABLE DEVELOPMENT PROGRAM LTD8

Support establish and rehabilitate:

• Appropriate transport networks that link people to markets and services.

• Infrastructure that will contribute to development in PNG.

• Infrastructure where commitments in terms of operation and maintenance are demonstrated.

Infrastructure

Industry

SocialInvestment

NATIONAL STRATEGY

The lives of the people of Papua New Guinea are improved through the promotionof diversified and balanced socio-economic development which is driven,

directed and owned by our strategic partners.

OUR VISIONFOR PAPUA

NEW GUINEA:

PartnershipDevelopment Model:

We partner with government,communities, NGOs and private

sector to deliver.

We support our Partners deliver their strategic directives.

Development:We support development

activities that meet the needs of the present generation and establish

the foundation for continuing progress for future generations of

Papua New Guineans.

APPROACH

STRATEGICCOMMITMENTS

WE

WIL

L:

Effective and efficient Corporate and Financial Services serving all PNGSDP offices, programs and partners.SUPPORTED BY:

WE

WO

RK

:

• To support our partners deliver key development priorities that can be sustained for future generations of Papua New Guineans.• Alongside all levels of government and its donors and provide counterpart funding assistance to selected development projects..• In consultation with government, and through NGOs and Churches to empower local communities to determine their own way forward.

Impact and Effectiveness: We practice and promote good governance and accountability.We plan and evaluate program impact.

Deliver through WESTERN POWER and ENERGY DEVELOPMENT LIMITED commercially sustainable electrification projects and develop alternative renewable energy projects.

Support build and develop:

• Long term sustainable industries that employ Papua New Guineans.

• Papua New Guinean industry expertise and leadership particularly in Forestry, Agriculture and Banking.

SMIT will provide international quality education, training and research that will support sustainable development for the benefit of the people.

CLOUDY BAY SUSTAINABLE FORESTRY LTD will demonstrate that sustainable forestry best practices can operate on a commercial basis in PNG.

PML will provide rural banking services throughout PNG.

Support bring about changes in communities through:• Building capacity of local delivery agents. • Community based programs, • Accessible and reliable health and education services; and • General improvement of social infrastructure.

Mainstream HIV prevention through all activities.

Deliver our small grants program which supports a diverse range of social initiatives.

Identify high value conservation areas and establish a management structure to preserve and protect the areas in partnership with land owners and communities.

9A N N U A L

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Infrastructure

Industry

SocialInvestment


WESTERN PROVINCE STRATEGY

By 2020 people achieve equitable socio-economic development so that Western Province isrecognised as a model for development in PNG.

By mine closure, new industries that support improved equitable development will replacethe positive contributions of Ok Tedi Mine.

OUR VISION FOR WESTERN

PROVINCE

Multi-sectorEconomic DevelopmentWe support alternative industries that directly benefit and generate

income for the peopleof Western Province.

PartnershipDevelopment Model:

We partner withgovernment, communities,

and private sector todeliver.

Impact and Effectiveness: We practice and promote good governance and accountability. We plan and evaluate program impact.

APPROACH

Appropriately resource the Transformational Projects Unit and build a presence in Daru.

Develop a multi-sectordevelopment hub perspectiveand build presence in Kiunga

and Tabubil.

Drive delivery and partnering with OTML and build presence

in Tabubil.

Develop key economic drivers facilitating the establishment of:

• Daru as a major trans-shipment port utilised by OTML

• Cross Border economic trade links with Indonesia and Australia

• Gas commercialisation and large scale power generation by multinationals

• Oriomo Industrial Centre

Support and establish a communication network by 2013 and other appropriate transport networks, both with commitments in terms of operation and maintenance.The networks will:• connect people to health and education services, markets and industry development opportunities; and• open up access to strategic and economic locations in WP.

Deliver through WESTERN POWER commercially sustainable electrification projects and develop alternative renewable energyprojects for all communities by 2013.

Support and establish a new range of industries across Agriculture, Aquaculture, Forestry, Trade and Tourism that equitably employ local people, and which provide food and income security with minimum impact on the environment and social systems.

Ensure a range of financial services are offered for micro business operators and individuals.

SMIT will provide international quality education, training and research that will support sustainable development for the benefit of the people.

2011 STEPCHANGES

STRATEGICCOMMITMENTS

WE

WIL

L: • Support accessible and reliable health and education services with appropriate technology.• Deliver access to safe water and sanitation to all communities by 2013.• Assist build capacity of local delivery agents.

Mainstream HIV prevention through all activities.

Identify high value conservation areas and establish a management structure to preserve and protect the areas in partnership with land owners and communities.

• Minimise the dislocation of people from socio-economic and environmental impacts of the mine.• Empower communities to sustain and improve their food security and livelihoods.

• Develop TABUBIL from a mining town to a mixed user residential town of choice.• Facilitate transfer of OTML subsidised services and owned assets to third parties.

Effective and efficient Corporate and Financial Services serving all PNGSDP offices, programs and partners.SUPPORTED BY:

P N G S D P S T R AT E G Y ( C O N T I N U E D )


The official population of Western Province, accordingto the 2000 census, was 153,304 (3% of the totalofficial PNG population), although more recent figuresestimate the population to be in excess of 200,000people. Population density in Western Province is lessthan two persons per square kilometre, reflectinglimited availability of arable land.

STRATEGIC APPROACH

Impact and Effectiveness

Impact and delivery on the ground were key prioritiesfor PNGSDP during 2010.

Both the National Strategy and Western ProvinceStrategy are complemented by our approach toImpact and Effectiveness:

• We practice and promote good governance andaccountability.

• We plan and evaluate program impact.

Partnership Development Model

We partner with government, communities, NGOs andthe private sector to deliver.

Government as partner PNGSDP will work alongside alllevels of government. PNGSDP will work hard todeliver on joint priorities of PNGSDP and government.

Community as partner PNGSDP will work throughNGOs and Churches to empower local communities todetermine their own way forward.

Business as partner PNGSDP recognises theimportance of working alongside businesses. Businesshas the expertise and experience that will enable thedelivery of projects more effectively and efficiently.

In 2010 our increased presence in Western Provinceassisted PNGSDP to strengthen its partnerships andrelationships with a range of partners, in particular theWestern Province Administration, Ok Tedi MiningLimited (OTML) and Ok Tedi Fly River DevelopmentProgram (OTFRDP), and the Community MineContinuation Agreement (CMCA) Trusts, as well asother private, non-government and community basedorganisations.

Key

� WP - Project is located in Western Province

� NI - Project has significant National Impact

In 2011 a number of initiatives are included in our strategy:

• Continue to increase PNGSDP presence in Western Province.

• Development and assessment of Multi-sector Economic Development Hub Conceptin Western Province.

• Mainstream HIV prevention through all our activities.

• Identify and support key conservation activities in Papua New Guinea.

11A N N U A L

R E P O R T 2010

T R A N S F O R M AT I O N A L P R O J E C T S

PNGSDP believes the lives of the people in WesternProvince will be improved by successful large scaleinvestment in industry and infrastructure.

The construction of suitable port and road facilities inWestern Province is critical for economic growth andwill stimulate the development of mineral, timber,agriculture, marine, oil and gas industries in the region.

Daru Port

� WP � NI

The port development will encompass 1,700 hectaresof reclaimed land linked to the island of Daru by acauseway.

Significant progress was made on the development ofthe port during 2010. An Australian company withconsiderable PNG experience, Canstruct Pty Ltd, wasawarded the contract to undertake a detailedgeotechnical survey of the port area and accesschannel. The survey is anticipated to be completed bythe end of 2011 and will include the assessment of

suitable rock material and drinking water availability inthe surrounding areas.

The survey work covers the ocean floor around Daru,Mabudawan and Parama Island areas and the resultswill assist in the design of the most suitable shippingroute and vessel access to the port site.

By mid 2011 it is anticipated that the necessary drillingworks and assessments will have been finalised in orderfor PNGSDP to make decisions whether to progress theinitial dredging and reclamation work for the port site.

Oriomo Industrial Centre

� WP � NI

The 70 hectares of the proposed industrial centre havebeen included in the geotechnical survey beingundertaken for the port. The area will be fenced andbasic utility infrastructure will be provided to attractindustrial development to the area, in connection withthe Daru port development and potential access tohydro power.

Cross Border Economic Trade Links

� WP � NI

Negotiations continue with a number of industrialcompanies from the neighbouring countries ofAustralia and Indonesia to maximize the potential ofboth the Daru port and Oriomo Industrial Centredevelopment.

Comm. LevelInfrastructure

CommunityLevel

Industry

SocialInvestment



STRATEGIC ACTION

Develop key economic drivers facilitating theestablishment of:

• Daru as a major trans-shipment portutilised by OTML.

• Oriomo Industrial Centre

• Cross Border Economic Trade Links withIndonesia and Australia.

• Infrastructure Corridor

• Gas commercialisation

• Large scale power generation bymultinationals.

Detailed geotechnical survey of the port area and accesschannel, Daru, Western Province

T R A N S F O R M AT I O N A L P R O J E C T S


Infrastructure Corridor, Western Province

� WP � NI

Investigations and design work for the InfrastructureCorridor took place in 2010. The road corridor wasdivided into three sections for the survey and designwork; being Kiunga to Nomad in the North Fly region,Nomad to Ali through the Middle Fly region, and Ali toOriomo in the South Fly region.

The detailed physical survey and design work for eachsection of the road will be tendered and awardedduring 2011.

Gas Commercialisation

� WP � NI

Western Province has a number of stranded gas fieldsand these are currently the focus of a number ofexploration studies. PNGSDP is assisting theexploration companies wherever needed with the aimof commercialising these gas deposits.

Large Scale Power Generation byMultinationals

� NI

In 2009, PNGSDP established a joint venture (JV)company with Origin Energy Ltd, a major publicallylisted regional energy company in Australia. The JV iscalled PNG Energy Development Ltd. Its main purposeis to undertake feasibility studies for the establishmentof sustainable energy projects in PNG to provide badlyneeded power for towns, cities and major projectsbeing developed in PNG.

The JV is working very closely with PNG Power Ltd(PPL) and the Independent Public BusinessCorporation Ltd (IPBC) on a number of large scalepower generation projects to increase the hydrocapacity of PNG.

The JV is a member of the Yonki Dam Hydro SteeringCommittee which is investigating the construction ofthe Ramu2 hydro power house and the refurbishmentof the existing Ramu1 power house. The additionalpower is to be fed into the PPL northern grid for Laeand surrounding major projects.

The JV is also undertaking a major feasibility study intothe Purari Dam hydro scheme, located in GulfProvince, and possible transmission of power to boththe PNG and Australian grid systems.

12

For 2011 PNGSDP will appropriately resource the Transformational Projects Unit and builda presence in Daru.

A site office alongside the port project development area will be constructed during 2011.This office will cater for the port engineers and visiting PNGSDP program officers.

13A N N U A L

R E P O R T 2010

I N F R A S T R U C T U R E

contracted to construct the network following anextensive international tender process.

The tower network is being constructed to hold twotelecommunication service providers to promotecompetition within the region. Digicel are the first totake up one of the two positions on the towers.Television and radio service providers can also beaccommodated through the network. The towernetwork will be owned and managed by WesternPower, with space on the towers leased to serviceproviders.

Tower site acquisition has been undertaken sinceOctober and construction of the towers commenced inDecember 2010.

The project involves the construction and connectionof a network of 58 towers with constant power supply,to allow for mobile phone companies to installequipment on the towers to providetelecommunication and data services to the populationof Western Province.

Western Province Communication Network

� WP � NI

2010 saw the commencement of PNGSDP’s largestand most important project to date - the WesternProvince Communication Network.

The project will deliver mobile phone communicationaccess to over 90% of the population of WesternProvince by mid 2011. This is a large impact project forWestern Province and will remove barriers tocommunication, reduce the isolation of the people ofWestern Province and open economic marketopportunities.

PNGSDP finalised a partnership with Western ProvinceSustainable Power Ltd (Western Power) and Digicel inmid 2010 to construct and connect atelecommunication tower network across the province.Voice and data services will be provided through thenetwork. PNGSDP is the project funder, Western Poweris the project manager, and Digicel have been


Comm.Level

Industry

SocialInvestment


CommunityLevel

Infrastructure

STRATEGIC ACTION

Support and establish:

• A communication network in WesternProvince by 2013.

• Other appropriate communication andtransport networks that link people tomarkets and services, wherecommitments in terms of operation andmaintenance are demonstrated.

Lake Murray Towers

C O M M U N I C AT I O N S



R O A D S

National Road Maintenance RehabilitationProject (RMRP)

PNGSDP continued its partnership with GoPNG andthe World Bank to rehabilitate priority National andProvincial roads throughout the country under theRoad Maintenance Rehabilitation Project (RMRP).

The project supports the upgrade of National andProvincial Roads in various provinces throughout thecountry.

In 2010 the project completed the rehabilitation of:

• Northern Highway from Girua Bridge to Oro Bay,Oro Province;

• New Britain Highway from Bilomi to Koriri Bridgeand from Kokoi Bridge to Balaha culvert, WestNew Britain Province;

• Ormond Bridge to Bukuku along the MagiHighway, Central Province;

• Baliora Road from Baliora Junction to TokoronganJunction, East New Britain Province;

• Hiritano Highway from Aropokina to Buioto,Central Province; and

• Selected sections of the Hiritano Highway, CentralProvince.

Due to the success of the project the partnership hasbeen extended for an extra year and is now scheduledto be completed in December 2011, by which time thefollowing projects will be completed:

• Alepa Junction to Ormond Bridge, Magi Highway,Central Province;

• Kwikila Culverts 1 & 2, Central Province; and

• Reconstruction of East West Highway betweenTingou and Mundrau, Manus Province.

14

Gulf Province Communication Network

� NI

2010 also resulted in the approval to extend theWestern Province telecommunications network to theGulf Province. This is anticipated to be operating forthe people of the Gulf Province by the end of 2012.

Documentary Series - Impact of Communicationson Rural Communities

� WP � NI

PNGSDP is developing a documentary series to recordthe gradual impact of telecommunications on the livesof people of the Western Province. The series willcapture expectations of people before and during theconstruction phase of the project, and will showcasethe impact of communications on their lives postconstruction.

Completion of clear and grub, Magi Highway, Central Province

Completed section of road, Ormond Bridge to Bukuku alongMagi Highway, Central Province

15A N N U A L

R E P O R T 2010


Magi Highway Rehabilitation, CentralProvince

In addition to the RMRP, PNGSDP also commenced therehabilitation of the Magi Highway from Bukuku toUpulima in Central Province. A 12 month contract wasawarded to Global Construction Limited and therehabilitation works will be completed early 2011.

Gre to Drimgas Road Rehabilitation Project

� WP

The K34 million rehabilitation of the 28 kilometre Greto Drimgas Road in Western Province was completed in2010.

The impact of the project included:

• Reduced travel time for people betweenDrimgas and Kiunga from one day byfoot to less than one hour by vehicle.

• Reduced travel time for people on thewestern side of the Fly River from two tothree days paddling to Kiunga to lessthan an hour by road transport.

• Providing incentives for communities torehabilitate previously abandoned rubbertrees and blocks. Rubber is now beingtapped along the road and sold to NorthFly Rubber Limited in Kiunga for export.

• Recommencement of regular medicalpersonnel visits from Kiunga to the onlyrural aid post at Drimgas village.

PNGSDP has committed to maintaining theroad and will continue to work with theWestern Province Administration to develop amaintenance solution.

Damaged culvert that will be replaced

Preparing formwork for lined drain construction

Completed line drain, Bukuku to Upulima, Magi Highway,Central Province


Comm.Level

Industry

SocialInvestment


CommunityLevel

Infrastructure

In 2011 PNGSDP will develop a Multi-sector Development Hub perspective and buildpresence in Kiunga and Tabubil.



The impact of the project included:

• A cash income benefit to communitiesfor rehabilitation work undertaken;

• Opening up opportunities to transport cashcrops to Kiunga or Tabubil for sale; and

• Provision of air access to these remotevillages, who otherwise travelled up to twoweeks by foot to reach the nearest airstrip tocatch a plane.

W H A RV E S

Daru Trestle Wharf

� WP

The Daru Trestle was redesigned in partnership withPNG Ports Corporation Limited (PNG Ports) in 2010.

The trestle wharf will be constructed in 2011 and willreopen as the central point of trade for Daru.

16

Trestle Wharf, Daru, Western Province

A I R S T R I P S a n d A I R P O R T S

Daru Airport Rehabilitation

� WP

Rehabilitation of the Daru Airport in partnership with theMember for South Fly and National Airports Corporation(NAC) commenced in 2010 with the finalisationof agreement and funding commitments. The projectis on schedule to be completed by the first quarter 2012.

Rural Airstrips Rehabilitation

� WP

Five airstrips at Bak, Oksapmin, Golgobip, Eliptaminand Telifomin in Western Province were completed inpartnership with OTML during 2010.

PNGSDP contributed K5.5 million to the project whichutilised a capacity building approach throughoutimplementation.

The project trained, employed and equipped localpeople to rehabilitate their local airstrips withsupervision and approval from National AirportsCorporation.


17A N N U A L

R E P O R T 2010

Loading steel poles to dugout canoe, Obo, South Fly district,Western Province

Erecting steel poles to provide electricity to a village in Obo,Western Province

E N E R G Y a n d R U R A LE L E C T R I F I C AT I O N

� WP � NI

PNGSDP is focused on developing investment inelectrification projects and small urban and ruralenergy projects in Western Province, along with thedevelopment of alternative renewable energy projectsfor electrification of remote communities and villages.

In pursuit of PNGSDP's mission, electricityinfrastructure is critical to underpinning socio-economic development across PNG. Western Powerpursues the development of rural electrification andinfrastructure in Western Province and throughoutPapua New Guinea.

Licenses’ to be involved in Generation, Transmissionand Distribution of Electricity have been granted byrelevant Government authorities. Western Power is theonly non-statutory organisation in PNG to hold suchlicenses.

In 2010, Western Power completed and commissioned29 out of the 31 minigrids (small standalone ruralpower plants) which Western Power had commencedinstalling in 2007 along the Tutuwe Corridor from OkMenga to Kiunga in the North Fly District.

Western Power is currently in the process of preparingan agreement with the Fly River Provincial Governmentto retail electricity in Kiunga on behalf of the ProvincialGovernment. The task involves fitting prepaymentelectricity meters to 600 consumers in the township ofKiunga and surrounding areas. This project scheduledto commence in the first quarter of 2011.

STRATEGIC ACTION

Deliver through WESTERN POWERcommercially sustainable electrificationprojects and develop alternative renewableenergy projects for rural communities.

I N D U S T RY


(3) Smallholder Credit Facility

The Smallholder Credit Facility was established withagreement between PNGSDP, PNG Microfinance Ltd(PML), and OPIC in 2010.

Roll out and implementation of the credit facility tosmall holders working with Hargy Oil Palm Ltd,Higaturu Oil Palm Ltd and New Britain Palm Oil Ltd isa key priority for 2011.

Lake Murray Village Rubber

� WP

By the end of 2010 the Lake Murray Village Rubberproject had planted 1,960 hectares of rubber. 1,646growers from 21 villages in Lake Murray haveparticipated in the project since 2004. The reach of theproject has exceeded the target number of 840growers, and the planting phase of the project hasbeen extended to June 2011 in order to reach theproject target of 2,200 hectares planted.

The project has been a successful partnership betweenPNGSDP and North Fly Rubber Limited (NFRL). Thetotal value of the project is K15.5 million split betweena development grant of K9.8 million and sustenanceloans of K5.7 million.

The second half of 2010 resulted in an improveddistribution structure for the grower sustenance loans.

The impact was immediately evident:

• 314 hectares of rubber was planted in thelast quarter of 2010 in response to thefinancial distribution structure.

It is expected that the benefits of this improveddistribution structure will carry forward into 2011.

With the rubber industry strengthening in Lake Murray,this region will be a key Multi-sector DevelopmentHub for PNGSDP.

Western Province Rubber IndustryDevelopment

� WP

Agreement between the Western ProvinceAdministration, NFRL and PNGSDP was reached in2010 to expand rubber development to the areas ofAgrim in the North Fly, Balimo in the Middle Fly andSuki in the South Fly.

18

A G R I C U LT U R E

Smallholder Agricultural DevelopmentProject (SADP) – Oil Palm

� NI

The SADP is a collaboration between GoPNG, Oil PalmIndustry Corporation (OPIC), World Bank and PNGSDPto increase oil palm smallholder production in Oro andWest New Britain Provinces.

PNGSDP’s support is channelled through threecomponents of the project:

(1) Oro Province Road Construction and Rehabilitation

During 2010 the pilot road project was scoped and willbe undertaken with PNGSDP’s K7.8 million fundingcommitment in 2011.

(2) Sustainable Road Maintenance

PNGSDP has pledged K2.97 million seed capitaltowards a sustainable road maintenance program forthe smallholder oil palm sector, pending the results ofan OPIC study to design a road maintenancearrangement.



SocialInvestment


CommunityLevel

Industry

STRATEGIC ACTION

Support and establish a new range ofindustries across Agriculture, Aquaculture,Forestry, Trade and Tourism that equitablyemploy local people, and which provide foodand income security with minimum impacton the environment and social systems.

I N D U S T RY

Waria Waria Oil Production

� WP

In 2010 the PNGSDP joint venture company, WariaWaria Oil Company Ltd (WWOL) began testingsamples of the Waria Waria oil from Morehead,Western Province.

Tests of the oil samples for quality and consistency ofthe product were gradually performed over a series ofmonths throughout 2010. The tests indicated positiveresults and the final results assessment of the oil isexpected in 2011, which will confirm its suitability forsupply to identified export markets.

The business will focus on twenty villages around theMorehead area, initially harvesting from the wild andprogressing to longer term plantation development.

S U S TA I N A B L E F O R E S T RY

Cloudy Bay Sustainable Forestry Ltd

� NI

Cloudy Bay Sustainable Forestry Ltd (CBSFL) is asubsidiary of PNGSDP. It is a demonstration companyfor sustainable forestry practices in PNG. CBSFL hasapplied for Forest Stewardship Council certification forits forestry operation in Cloudy Bay, Central Province.

In September 2010 CBSFL commissioned therefurbished large scale saw mill purchasedfrom Australia in 2008. The commencement ofoperations in this mill quadruples the output of sawnboards from the Forest Management Area in Cloudy

19A N N U A L

R E P O R T 2010

STRATEGIC ACTION

CLOUDY BAY SUSTAINABLE FORESTRY LTDwill demonstrate that sustainable forestrybest practices can operate on a commercialbasis in PNG.

Rubber production, North Fly Rubber, Western Province

Waria Waria seeds

Waria Waria coppicing, Morehead, South Fly District,Western Province

I N D U S T RY


Bay. The boards are shipped by coastal barge to theWood Processing Centre owned by CBSFL in PortMoresby.

This additional milling capacity will enable CBSFL toachieve sustainable economical growth into the futureand significantly alters the availability of dressed, driedand treated hardwood timber processed domesticallyin PNG. Further investment has been approved for theexpansion in early 2011 of the Wood Processing facilityin Port Moresby to cope with the increased productionfrom the new saw mill. The older temporary saw millwhich was used in Cloudy Bay previously wasdecommissioned and staff have been relocated to thenew mill. Previous problems with land owner disputeshave reduced during the year and CBSFL now hassufficient log supplies to feed the new saw mill.

Impact of Cloudy Bay Social InfrastructureProject, funded by PNGSDP:

• 22 kilometres of highway into the FMA wasconstructed.

• Village access roads constructed.

• 8 new classrooms and 4 teachers’ housesbuilt.

• Technical High School andaccommodation commenced.

• New Health Centre at Bam Village underconstruction with handover expected inmid 2011.

• Health Clinic treated 7,000 people fromsurrounding villages.

Afforestation of grassland areas

The Afforestation project aims to develop a sustainablesupply of timber.

PNGSDP established a series of 2 year trials to matchsuitable tree species across the varying grasslandconditions within Rigo District, Central Province(20,000 hectares). Tree species being trialed includeAcacias, Eucalyptus and Teak species. The trial willprovide the baseline information for the mostappropriate tree species for planting in Rigo District fora sustainable forestry industry.

The current trial is scheduled to conclude by mid 2011,with survival count and refilling of dead seedlings to becompleted in early 2011.

During 2010 PNGSDP appointed CBSFL as thepreferred development partner to manage andimplement the project from 2011 onwards.

Sustainable Eaglewood

� WP

PNGSDP spent a significant amount of 2010 searchingboth nationally and internationally for a suitablecommercial partner to manage the SustainableEaglewood project. However, enticing suitable partnersto work in Western Province continues to be achallenge.

Eaglewood is one of the world’s most valuable forestproducts, treasured for its exclusive high-end aromaticand medicinal properties.

PNGSDP in collaboration with UPNG continued testingthe quality of PNG eaglewood oil samples throughout2010. Progressive tests of the distilled eaglewood oilsamples, resulting from a fifteen month inoculationtrial, revealed that PNG’s oil is unique and of highestinternational quality.

Eaglewood seeds imported from Vietnam in August2010 were successfully propagated and over 30,000seedlings are now ready for field planting inpartnership with PNG Forest Authority's Kuriva ForestStation, Central Province.

20

New classroom being built at Cloudy Bay, Central Province

I N D U S T RY

These plantings are to form the basis of potentialplantation development and small holder distribution.The Daru-Kiunga Catholic Diocese's Emmaus Farm isconsidered the key distribution point and trainingcentre for Western Province small holder growers.

21A N N U A L

R E P O R T 2010

F I S H E R I E SWestern Province Sustainable Aquaculture(WPSA)

� WP

25,000 barramundi fingerlings survived in the firstsuccessful school and will be part of the base stockfrom which restocking of the Fly River and sustainablebarramundi fishery practices will be generated.

The WPSA has been developed as a world class bio-filtration and aeration facility with water supplyequipment customised to the hatcheries productionneeds of up to 500,000 fingerlings per annum. Thefacility site includes a barramundi hatchery, housing,storage and an administration facility on Daru Island.

E D U C AT I O NStar Mountains Institute of Technology

� WP � NI

Providing research, education and training thatsupport sustainable development for the benefit of thepeople of Tabubil, the Western Province and PapuaNew Guinea

2010 was a year of mobilisation in Tabubil for the StarMountains Institute of Technology (SMIT).

The newly formed SMIT team focused on strategicplanning, relationship management with OTML,Tabubil campus development, establishment ofpartnerships with a variety of educational organisationsand key stakeholders and creation of SMIT businessprocesses and systems.

Agreement was reached with OTML on the future siteof the Tabubil Campus. The concept and design work

Eaglewood seedlings

Eaglewood inoculation

STRATEGIC ACTION

SMIT will provide international qualityeducation, training and research that willsupport sustainable development for thebenefit of the people.

I N D U S T RY


on the campus was completed and includes a learningcentre, library, conference centre and residentialaccommodation and dining facilities. Construction willbe tendered in early 2011.

B A N K I N G S E RV I C E SPNG Microfinance Ltd

� WP � NI

PNG Microfinance Ltd (PML) offers a range of depositfacilities, business loans for micro business operators,working capital loans for small and medium businessoperators, asset purchase loans for small to mediumbusiness operators and agri-business loans for farmersand business operators involved in agricultural-supporttype businesses.

In 2010, PML continued to operate and expandfinancial outreach from its seven Western Provincebranches. Plans have been made to also establish abranch at Morehead. Service Centres have beenestablished at Obo, Lake Murray, Balimo, Daru andTabubil focused on savings mobilisation.

Many changes occurred in 2010 that improved theoperational efficiency of PML. Improved policies andprocedures have been implemented. As a resultlending picked up in terms of volumes in 2010 with aquality portfolio. PML’s new MIS system has greatlyimproved the payments for CMCA communities byallowing PML to automatically process paymentsdirectly to customer accounts. Plans are currentlyunderway to enhance the customer base during 2011.

22

Officer explaining to customers services offered by PML

PML supporting small business

PMV Operator using loans from PML to operate a bus service

Artist’s impression of an aerial site view, Star Mountains Instituteof Technology, Tabubil, Western Province

I N D U S T RY

23A N N U A L

R E P O R T 2010

PNG Microfinance Ltd (continued)

Summary: Savings Services - Western Province

Year 2007 2008 2009 2010

NO. OF DEPOSITORS 45,183 47,995 31,747 24,660

VALUE OF DEPOSITS 12,269,200 15,862,149 12,499,935 11,709,772

Summary: Lending Services - Western Province

Year 2007 2008 2009 2010

LOANS APPROVED 3,493 1,482 609 687

VALUE OF LOANS 6,901,756 3,709,979 1,537,672 4,040,753

Summary: Savings Services – National (excluding Western Province)

Year 2007 2008 2009 2010

NO. OF DEPOSITORS 82,666 72,140 45,604 36,731

VALUE OF DEPOSITS 14,782 16,498,145 24,041,366 27,284,445

Summary: Lending Services - National (excluding Western Province)

Year 2007 2008 2009 2010

LOANS APPROVED 5,651 3,108 1,889 3,024

VALUE OF LOANS 12,166,466 7,599,303.00 4,801,318 15,272,939

S O C I A L I N V E S T M E N T


PNGSDP continues to explore opportunities to assisthealth authorities in containing the disease spread andpromote improvements in water and sanitationservices in Daru.

H E A LT HWestern Province Health Working Group

� WP

PNGSDP has adopted an approach to health whichsupports the priorities of health service providers.There are a number of priority areas being investigatedby the Working Group including:

• Infrastructure Development;

• Human Resource Development;

• Water Supply/infrastructure; and

• Drug Supply and Distribution.

Recognising the health challenges facing the provincePNGSDP continues to support efforts to address theseby facilitating meetings of provincial health authorities,representatives of the churches and others with directinvolvement in health to examine opportunities forPNGSDP to contribute more effectively. Sponsored byPNGSDP the Health Working Group was establishedand chaired by the Provincial Health Advisor. It meetsin consultation with the National Department ofHealth and other health related programs - GlobalFund, Asian Development Bank, WHO and the OTFRDPsponsored Middle and South Fly Health Programdiscussions.

In 2010 the Working Group:

• Delivered surgical equipment to Daru GeneralHospital;

• Delivered new sterilising equipment for theKiunga hospital (with a new incinerator due toarrive during 2011);

• Improved drug storage at Kiunga Hospital;

• Commenced a mobile phone assisted datacollection trial as a contribution to the Province’shealth infrastructure scoping study; and

• Approved funding for improved medical suppliesstorage facilities in Kiunga.

2 0 1 0 E M E R G E N C YC H O L E R A R E S P O N S E � WP

When news of the devastating disease outbreak inWestern Province broke, PNGSDP offered and, at therequest of provincial authorities, provided K500,000 infinancial support for logistics to the Cholera ResponseTeam.

PNGSDP supported the Cholera Response Committeeto combat the disease. PNGSDP’s assistance hasfocused on logistics such as:

• Rations for response teams;

• Fuel supplies for the response teams;

• Fuel supplies for the PNG Water Board to run 24hour water supply and pumping system in Daru;

• Charter of helicopter to drop off medical supplies;and

• Hire of vessel for delivery of emergency medicalsupplies.



CommunityLevel

Industry


SocialInvestment

STRATEGIC ACTION

• Support accessible and reliable healthand education services with appropriatetechnology.

• Deliver access to safe water andsanitation to all communities by 2013.

• Assist build capacity of local deliveryagents.

25A N N U A L

R E P O R T 2010


Apart from the major program areas, PNGSDP has alsoagreed to fund several health projects in WesternProvince such as the Community Health Workers’College Dormitory at Rumginae and auditing of theaccounts of the Kiunga Hospital.

Western Province Health ImprovementProgram

� WP

The Western Province Health Improvement Program isa K10.5 million partnership with the EvangelicalChurch of PNG (ECPNG), Catholic Church and theUnited Church to improve health services as directedby each agency.

In 2010 the program resulted in 20 new buildings forECPNG health posts:

• New aid post buildings and community healthworkers’ houses in Kewa, Saiwase, Kenewa, andKimama, and two houses in Balimo; and

• New aid post buildings and community healthworkers’ houses in Dewara, Lewada Suame,Upiara and Kondombol along the Fly River.

Bougainville Health Rehabilitation Program

In mid 2008, PNGSDP committed K2 million towardsrehabilitating health centres in Bougainville inpartnership with the United and Catholic Churchagencies.

14 health centres have been maintained or built at acost of K1.4 million during 2010 and 4 more are dueto be completed in 2011.

Kunini Rural Health Centre RehabilitationProject

� WP

The Kunini Health Centre was rehabilitated at a cost ofK456,800, in partnership with the Western ProvinceHealth Division. The project delivered the rehabilitationof two staff houses, a maternity ward, the health clinicand the construction of new nursing quarters.

The project has been handed over to the WesternProvince Administration which now has adequatefacilities to permanently station health workers andprovide regular health services to the people insurrounding communities. This reduces the need for

community members to unnecessarily travel over anhour by dinghy to Daru in search of health services.

Community Health Projects

Community Health Projects completed in 2010include:

• Health and Education Transport Support project inpartnership with the Evangelical Church of PNG(ECPNG) Mogulu, Nomad;

• Community Mental Health Clinic in partnershipwith Calan Services;

• Provision of general hospital surgical equipmentand supplies to the Daru Hospital

Health Projects Nationally

Several health related projects were approved in 2010valued at over K1.6m including:

• A new wing at the Kompiam Health Centre, EngaProvince;

• A new building at the Community HealthWorkers’ training school in Kumin, SouthernHighlands Province;

• A ward and staff housing at Wiliame in the PangiaDistrict, Southern Highlands Province;

• An Aid Post and staff housing at Hobe in theKaramui District, Simbu Province;

• A pediatric ward at Koibuka Health Centre inTambil-Nebyiler District, Western HighlandsProvince; and

• A maternity ward at Mugil in the Sumkar District,Madang Province.

New wing constructed at Kompiam Health Centre, Enga Province



H I V a n d D E V E L O P M E N T � WP

In 2011 PNGSDP’s strategy is to mainstream HIV anddevelopment throughout the Company’s programactivities.

Community Conversations

PNGSDP and its partner Caritas Australia have beensupporting the structured Community Conversationsapproach in an ongoing and evolving process witheight different partner organisations around thecountry. Within the eight organisations are 19 trainedCommunity Conversations teams working in 27different communities.

Rural communities need to be able to discuss theircultural norms and practices in conjunction withunderstanding 'what the driving forces' of HIV are. It isclear that some of the driving forces are critical issuesthat will be appreciated only through open andmeaningful dialogue in communities where communaldecisions are made about what needs to change.

As with all other HIV and community based programs,the Community Conversations Initiative has its share ofchallenges. A documentation, monitoring andevaluation (DME) system to measure the outcome andimpact of this approach has been developed by theHIV Development Team in an effort to assess the effectof this community response to HIV, in encouraging thefundamental behavioural adjustments needed insocieties if they are to protect themselves againstinfection.

WAT E R a n d S A N I TAT I O N Daru Water and Sewerage

� WP � NI

Following five years of negotiation PNGSDP achievedagreement from the PNG Water Board to restructure

management of the Daru Water and Sewerage Facility.

PNGSDP has committed K52 million to support thePNG Water Board re-build its deteriorating water andsewerage system in Daru.

Rural Water Supply and Sanitation

� WP

PNGSDP has been actively seeking new deliverypartners for water supply and sanitation throughoutWestern Province.

2010 saw an agreement finalised with Nupmo CMCATrust for:

• Community water supplies in Korkit Villages; and

• Continuation of the Awaba Secondary Schoolwater and sanitation project.

In support of improved community health conditions,PNGSDP supported water and sanitation improvementprojects that delivered:

• Rainwater catchment systems in Ambunti/DrekikirDistrict, East Sepik Province in partnership withPacific Island Ministries;

• Rainwater collection and distribution system inIalibu, Southern Highlands Province, inpartnership with the PNG Bible College and ATProjects; and

• New water bores at Emmaus Farm and St Gabriel’sTechnical Secondary School in Kiunga, WesternProvince.

E D U C AT I O N One Laptop Per Child Program (OLPC)

� WP

The OLPC trial reached 7 of the 8 schools originallytargeted.

Laptops and school wireless networking systems havebeen provided to teachers in at least one class at CallanServices, Rumginae, Matkmonai, Dome, Yenkenai,Kungim and Tapko.

The project remains reliant on external technicalsupport.

26

STRATEGIC ACTION

Mainstream HIV prevention through allactivities.


27A N N U A L

R E P O R T 2010

Western Province Overseas ScholarshipsProgram

� WP

Six young people were selected from the 2010graduating class to commence study at RoyalMelbourne Institute of Technology in Melbourne,joining those who successfully completed studies therein 2010.

Students who successfully completed their foundationstudies in 2010 are continuing on to complete degreestudies in Australian tertiary institutions.

Western Province Education ImprovementProgram

� WP

The Western Province Education ImprovementProgram is a K13.5 million partnership with theEvangelical Church of PNG (ECPNG), Catholic Churchand the United Church. This program assists theseagencies to identify their priority areas for servicedelivery improvement.

In 2010 the program contributed to the constructionof:

• A new transit accommodation facility andextensions to the education agency office inKiunga; and

• New facilities at the Bomana Teachers’ Collegewhere remote area school teachers areundertaking their teacher training in partnershipwith the Catholic Church.

In 2010 the program resulted in 14 new buildings forECPNG schools being:

• New double classroom buildings and teacher’shouses in Kondombol, Dewara and UpiaraPrimary Schools.

• New double classrooms and teacher’s houses inKewa and Kimama Primary Schools and a house inBalimo for the ECPNG education secretary;

The United Church Education agency made thetraining of 10 student teachers at Gaulim Teachers’Training College their priority and PNGSDP funded thefirst year of their studies there.

Bougainville Education RehabilitationProgram

In mid 2008, PNGSDP committed K2 million towardsrehabilitating high schools in Bougainville inpartnership with the United and Catholic Churchesagencies. Since its commencement the program hasfunded the construction and rehabilitation of:

• Buildings in 3 of the 5 high schools;

• 6 staff houses completed in Tonu United ChurchHigh School and, at Mabiri St. Joseph’s College;and

• Staff house, technical training workshop, doublestory dormitory and high set double class roomand water supply improvement at Asitavi Girls’High School.

In 2010 the Mabiri High School and Tonu High SchoolConstruction Projects were officially opened.

Student learning by using a laptop

Opening of Tonu High School staff houses, Tonu, Bougainville



Community Education Projects

Community Education Projects completed in 2010included:

• Autonomous E-District Centre project inpartnership with Divine Word University, MadangProvince;

• Science and Computer Laboratory in partnershipwith the Santa Maria Watuluma High School,Milne Bay Province;

• Upgrade of the Bawii Community Learning andDevelopment Centre, Banz, Western HighlandsProvince;

• Simbai Primary School Double Classroom andStaff House in partnership with the AnglicanDioceses of Aipo Ronga, Madang;

• Wesley High School Dormitories in partnershipwith the United Church, Milne Bay Province; and

• Tente Primary School double classroom inpartnership with the United Church, SouthernHighlands Province.

S M A L L G R A N T S

PNGSDP’s Community Sustainable DevelopmentProgram (CSDP) supports a diverse range ofcommunity driven initiatives.

K4 million is allocated annually for small grant projectsnationally. To date a total of over K21 million has beencommitted in support of 134 projects across 57districts and 19 provinces.

Western Province

� WP

K2 million is allocated annually for small grant projectsin Western Province. The churches, provincialgovernment, CMCA trusts and Ok Tedi Fly RiverDevelopment Program continue to be the mainpartners in the province. To date a total of K11.2million has been committed in support of 53 projectsacross the province.

During 2010, PNGSDP participated in:

Capacity Building

� WP

• Computer facility access for University of PapuaNew Guinea Fly River students.

• PNG Careers in Development Program 20 monthcadetship program training 27 young Papua NewGuineans in management and leadership skills inpartnership with a range of development agencies

28

STRATEGIC ACTION

Deliver our small grants program whichsupports a diverse range of social initiatives.

Ginia Siaguru and Simbai Primary School staff opening thedouble classroom and staff house, Simbai, Madang Province

Students in front of new dormitory, Wesley High School, MilneBay Province


including AusAID, NZAid, World Vision, Save theChildren and the UN.

• Business and Professional Women's Club for theannual scholarship program throughout PNG.

• Construction of the Urban CommunityDevelopment Facility in partnership with the ElaUnited Church, Port Moresby.

Agriculture

• M'buke Island Improved Agricultural Technologiesproject in partnership with NARI; and

• Emergency reconstruction of the Pindi YaundoTrout Farm and Hatchery, Simbu Province.

Community Roads

• Homaria Community Road in partnership with theCatholic Diocese of Mendi and the community inSouthern Highlands Province.

Rural Communication

• Tekin Community Radio Extension projectdelivered radio services to the community inpartnership with the Baptist Union, SandaunProvince.

C O N S E RVAT I O N

In 2010 PNGSDP’s investment into conservationincluded:

• A conservation management project of barramundiin partnership with Fly River communities, WPSA,and The Nature Conservancy;

• Investigations into ecotourism opportunities inLake Murray; and

• Delivery of Turtle and Dugong WildlifeConservation Education and Training in partnershipwith the Sea Turtle Foundation of PNG.

29A N N U A L

R E P O R T 2010

STRATEGIC ACTION

Identify high value conservation areas andestablish a management structure to preserveand protect the areas in partnership withland owners and communities.

Improved agricultural technologies aimed at assisting M’bukeIslanders to become self-reliant, Manus Province

Happy villagers at the opening of Homaria Road, SouthernHighlands Province

M I N E I M PAC T S


environment impact studies undertaken and providedthe opportunity to express their opinions in responseto the proposed MLE.

Environmental Management andMonitoring

The mine life extension provides PNGSDP theopportunity to understand the impacts, both positiveand negative, on communities in the mine impactedcorridor, with the view to minimising the negativeimpacts and facilitating the continuation of thosepositive impacts.

Participation in the mine closure planning and mine lifeextension consultation process with other stakeholdershas enabled PNGSDP to continually incorporate itsresponses to mine closure and possible mine lifeextension into its strategic planning, which hasresulted in a number of key project initiatives beingundertaken in 2010. In particular the followingactivities have been project initiatives that PNGSDP hasinitiated during the year in response to the mineclosure planning and mine extension.

Key projects that PNGSDP has initiated and supportedin 2010 include:

• Riverine Impact Assessment;

• Small Scale Mining Project; and

• Partnership with OTFRDP and CMCAs.

Riverine Impact Assessment

2010 saw the establishment of a working groupbetween PNGSDP, OTML and OTFRDP to jointlyundertake a Riverine Impact Assessment to investigatethe social impacts of mine impacts at the village level,and define and deliver strategies to alleviate long termimpacts.

The Riverine Impact Assessment is anticipated tocommence during the first half of 2011 with keytopographical studies of the Fly River between Bigeand the Strickland Rivers being undertaken to assist indefining key social impacts that will need strategicresponses.

Small Scale Mining

PNGSDP continued to work with the Mineral ResourcesAuthority, Ningerum and Star Mountains local levelgovernments, OTML and community representativesto progress project design for the pilot project in theLower Ok Tedi region. It is anticipated that theimplementation phase commence in early 2011.

30

PNGSDP’s long term presence and investment inWestern Province seeks to provide an alternativeeconomy after the closure of the Ok Tedi Mine.

OK Tedi Mine Ltd (OTML)

OTML continued to be the largest business contributorto the PNG economy in 2010.

Increased metal prices coupled with strong mineperformance saw significant distribution of dividendsto shareholders in 2010. PNGSDP received US$338million (K924 million) during the year.

A feasibility study into the proposed Mine LifeExtension (MLE) was carried out throughout 2010.The findings of the study were still being compiled atthe end of 2010 with expected presentation to allstakeholders in April 2011. The MLE could see themine continue operations, from the original mineclosure date of 2013, through to 2020.

Mine Life Extension

During 2010, PNGSDP actively participated in themine life extension (MLE) community consultations aspart of the Prior Informed Consent process required toextend the operations of the Ok Tedi Mine inpartnership with OTFRDP, the State and FRPG. Most ofthe 156 villages along the impacted corridor of themine were visited, informed of the feasibility and



CommunityLevel

Industry

SocialInvestment


STRATEGIC ACTION

• Minimise the dislocation of people fromsocio-economic and environmentalimpacts of the mine.

• Empower communities to sustain andimprove their food security andlivelihoods.

M I N E I M PAC T S

OTFRDP and CMCA Partnership

OTML, through the Ok Tedi Fly River DevelopmentProgram (OTFRDP), delivers development projects andadministers nine Community Trusts.

OTFRDP has been responsible for overseeing theimplementation of CMCA projects since the beginningof 2010. PNGSDP holds a 25% share in the OTFRDPand oversees the management and governance of theProgram.

PNGSDP contributes K21.5 million annually to theCMCA region to partner with the CMCA projectinitiatives. PNGSDP in keeping with its obligations inthe 2007 CMCA MoA has facilitated for better projectdelivery within the nine CMCA Trusts, as well asbroadening potential implementing partners toinclude Western Power, Cloudy Bay SustainableForestry and PNG Microfinance. Outcomes includeddesigns for women resource centers; draft MoA withPML and rural power supply for Highway villages. It isanticipated that OTFRDP will develop into the keymanagement partner for overseeing implementationof essential CMCA projects.

During the year 2010 PNGSDP disbursed K0.9 millionunder the CMCAS program, with a cumulativedisbursement of K23.2 million since commencementof operations in 2007.

It is hoped that 2011 will see a greater number ofindividual projects approved under the guidelines, asapproved by OTFRDP and the nine trusts during 2010.

CMCA 10% Women and Children’s Fund

� WP

Women leaders participated actively at forums as aresult of recognition given to them through theirspecific 10% share of the benefits package under the2007 CMCA MoA, enabling them to participate indecision making where relevant.

In 2010 PNGSDP and the Manawete Trust completedand launched the Women's Resource Centre atTeapopo, to which PNGSDP had contributedK127,400.

TA B U B I L F U T U R E S 2010 resulted in the establishment of the TabubilFutures Transition Team comprised of staff fromPNGSDP and OTML. The team is responsible for anumber of Tabubil Futures strategic projects that wereidentified as a result of the 2010 study that wereconsidered fundamental to the PNGSDP Boardachieving its vision.

PNGSDP commissioned the independent TabubilFutures Study in 2010. The project was completed inAugust 2010 and was presented around the themes ofCommercial Activities, Education, Governance, Health,Security, Law and Justice, Settlements, Transport,Urban Planning and Utilities. Each theme wasaddressed by individual research teams and then acollective analysis of the research was performed. Theresearch itself involved many interviews with a widerange of stakeholders, the review of key documentsand previous research and continuous consultationwith OTML, resulting in the production of over fiftyreports.

31A N N U A L

R E P O R T 2010

For 2011 Mine Impacts are driving delivery and partnering with OTML and buildingpresence in Tabubil.

STRATEGIC ACTION

• Develop TABUBIL from a mining town toa mixed user residential town of choice.

• Facilitate transfer of OTML subsidisedservices and owned assets to thirdparties.

Vision for Tabubil, Western Province

F I N A N C I A L S T R AT E G Y


THE COMPANY

Funds Status

PNGSDP is a company registered in Singapore and“limited by guarantee,” which means that it has noshare capital, debentures, share options or unissuedshares. The Program Company’s operations aregoverned by a set of rules and agreements that pertainto its unique structure and circumstances.

Under its Constitution, the Program Company may doall such things to achieve the objects for which it wasestablished. The Rules of PNGSDP specify proceduresfor the application of income received and thedetermination of contractual obligations, as well asinvestment policy and guidelines.

The total net assets of PNGSDP in 2010 amounted toUS$1.34 billion (K3.57 billion) [2009: US$1.06 billion(K2.8 billion)]. In accordance with the Rules ofPNGSDP the assets of the Program Company arerepresented by the Members’ Subscription, the LongTerm Fund, the Development Fund and the GeneralFund as documented in the table below.

PNGSDP is party to a number of agreements, dated 11December 2001, which confer both actual andcontingent liabilities on the Program Company.Obligations arising under these agreements aresecured by an equitable charge over the dividendstream attached to PNGSDP’s shares in OTML. Thischarge is held by a security trustee, Insinger Trust(Singapore) Ltd.

The PNGSDP Group also includes subsidiaries and jointventures of the Program Company, namely OTML,PNG Microfinance Ltd, PNG Energy Developments Ltdand Cloudy Bay Sustainable Forestry Ltd. Thecontribution of OTML to the PNGSDP Group isaccounted for as an investment in a jointly controlledentity by the Program Company. The assets of the

PNGSDP Group do not appear on the balance sheet ofthe Program Company.

Contractual Obligations

PNGSDP has contractual obligations arising out of anumber of agreements dated 11 December 2001, withimplications for the balance sheet of the ProgramCompany.

Under the Deed of Indemnity with BHP Billiton, theProgram Company has agreed to indemnify BHPBilliton against any liability under claims for bothenvironmental damage arising out of the operation ofthe mine after 7 February 2002, and breach ofenvironmental laws in relation to mine operationsbefore 7 February 2002.

Under the Deed of Indemnity with the State, PNGSDPhas agreed to indemnify the State against all liabilityarising under a claim for environmental damagecaused by the operation of the mine before 7 February2002 resulting from an act or omission by BHP Billitonin breach of its obligations under its managementagreement or in breach of environmental law.

Under the Option Deed, the Program Company hasagreed at the request of OTML to indemnify theindependent Directors of OTML in respects of claimsagainst them arising out of their acting as suchdirectors, to the extent that appropriate insurance isnot available on commercial terms.

Under the Subsidy Deed, PNGSDP has agreed to payas a non-refundable subsidy an amount equal toincreased borrowing costs and charges incurred byOTML as a result of not being a subsidiary of BHPBilliton. The amount of this subsidy is restricted up toan average weighted increase of all rates, costs andcharges of 2.5% and on a maximum loan commitmentof US$120 million.

32

Total Net Assets of PNGSDP in 2010

USD PNG Kina

Current Assets 641,172,226 1,709,792,603

Non Current Assets 708,401,037 1,889,069,432

Liabilities (10,114,897) (26,973,059)

Net Assets 1,339,458,366 3,571,888,976

Representation of PNGSDP Assets in 2010

USD PNG Kina

Members Subscription 17 45

General Fund 2,903,581 7,742,883

Long Term Fund 1,044,803,634 2,786,143,024

Development Fund 291,751,134 778,003,024

Total Funds 1,339,458,366 3,571,888,976


INCOME AND EXPENDITURE

Income

The Company is required by its rules to apply itsincome to the Long Term Fund and the DevelopmentFund. The Long Term Fund represents 2/3 of netincome received from OTML after deducting operatingexpenses and all other legal contractual obligations,and the Development Fund represents the remaining1/3.

The Company received gross dividend income ofUS$338.0 million (K924.0 million) from OTML during2010. In 2009, the amount of US$182.0 million(K500.7 million) was received from OTML.

Total investment income from funds investedamounted to US$34.8 million (K95.1 million) [2009:US$48.7 million (K134.1million)]. Return oninvestments represents an increasing source of incometo the Company.

PNGSDP pays the same taxes to GoPNG that wouldhave been paid by BHP Billiton if the Ok Tedi Mine hadcontinued to operate under its previous ownership. A10% dividend withholding tax of US$33.8 million(K92.4 million) was deducted in respect of dividendincome from OTML and paid to the PNG InternalRevenue Commission during 2010. No Singaporeincome tax is payable on the basis that none of theProgram Company’s dividend or interest income isremitted to Singapore.

Expenditure

Expenditure on projects under the SustainableDevelopment Program accounted for over 81% of theProgram Company’s expenditure in 2010, amountingto over US$46.1 million (K126.0 million) [2009:US$40.9 million (K112.7 million)].

The Company spent US$6.7million (K18.4million)[2009: US$10.1 million (K27.8 million)] onAdministration during 2010, comprising exchange lossUS$0.5 million with the rest spent on staff costs, travel,insurance, financial expenses, professional services andinformation services, amongst other costs.

The Company spent US$2.1 million (K5.8 million)[2009: US$1.5 million (K4.1 million)] on governance in2010 This comprised of Directors’ fees, Boardadministration, the annual report and stakeholdermeetings, the Company Audit, the Advisory Counciland the Company Secretary.

In accordance with its rules a yearly budget ofadministration costs is approved by the Board ofDirectors. Expenses attributable to the operation of theCompany cannot exceed 15% of the average annualincome of the Company during the immediatepreceding three years.

33A N N U A L

R E P O R T 2010

INCOME IN 2010

USD PNG Kina

Dividend OTML 338,000,000 924,002,187Investment Income 34,795,974 95,122,947

372,795,974 1,019,125,134

EXPENDITURE IN 2010

USD PNG Kina

Governance 2,116,083 5,784,809 Administration 6,749,416 18,451,110 Contractual Obligation 94,445 258,188 Investment Program

Costs 1,859,393 5,083,086 Development Costs 46,098,111 126,019,986



FUNDS MANAGEMENT

Investment Funds of the Program Company

The Long Term Fund (LTF) represents 2/3 of netincome received from OTML after deducting operatingexpenses and all other legal contractual obligations asspecified in the Rules of the Program Company relatingto the application of the income received. Under theRules of the Program Company, funds from the LongTerm Fund must be invested in ‘low risk’ investments.

The primary objective of the investment program ofPNGSDP is to increase the size of the Long Term Fundthrough interest rate earnings, dividend income,capital gains and foreign exchange gains. As the size ofthe LTF builds up before mine closure, annualinvestment income will ideally increase to the pointwhere investment earnings can meet the annualexpenditure requirements of the Program Companywithout materially reducing the real capital of theFund.

Whilst the Development Fund is primarily utilised bythe Sustainable Development Program to makeexpenditures on projects, each year the balance of theDevelopment Fund which has not been disbursed isinvested through the Investment Program, with theobjective that it will be available with interest forexpenditure on projects in later years.

The Board of Directors has established an Investmentand Finance Committee to oversee the ProgramCompany’s Investment Policy and Guidelines.

In 2010, the Long Term Fund increased fromUS$817.9 million (K2.2 billion) to US$1.04 billion(K2.8 billion) mainly due to dividend received fromOk Tedi Mine in 2010.

Rate of Return

The weighted annual rate of return for the LTF in 2010was 3.55%, while the weighted average rate of returnover the life of the fund is 5.26%.

Apart from External Fund Managers, we also haveinvestment in Papua New Guinea. This includes:

Our PNG Investments US$

Bank of South Pacific Limited 82,414,030

Newcrest Mining Limited 890,802

New Britain Palm Oil Limited 19,382,634

Oil Search Limited 14,022,541

BPNG Inscribed Stocks 9,750,008

Air Niugini 50,523,762

176,983,777

34

Value of the Long Term Fund (US$ millions)

2004 2005 2006 2007 2008 2009 2010

Value at the end of financial year 79.4 175.5 376.6 594.2 677.8 817.9 1044.8

Annual rate of return 2.14% 4.44% 7.80% 14.08% -2.62% 5.01% 3.55%


THE DEVELOPMENT FUND

The Development Fund is used to supportdevelopment projects under the SustainableDevelopment Program. PNGSDP works together withproject partners in order to identify, develop andfinance projects that meet our sustainabledevelopment criteria.

The Development Fund receives one third of dividendincome from OTML after deducting operatingexpenses, contractual and other legal obligations.Between now and mine closure, one third of theDevelopment Fund is allocated to the WesternProvince Fund and two thirds is allocated to theNational Fund. After mine closure, income from OkTedi Mining Ltd to the Development Fund will ceaseand the Long Term Fund will be utilised to supportongoing activities of the Sustainable DevelopmentProgram, which PNGSDP should be able to sustain for40 years or more after mine closure.

Following Board approval, PNGSDP managementmust conclude a Project Funding Agreement withproject partners in order for financial resources to be

allocated for implementation of the project. Onlyfunding which has been approved through this processcan be disbursed from the Development Fund.

Development Fund project allocations andexpenditures in 2010

New projects approved in 2010 amounted to K173million. This is higher than the K132.1 million of newprojects approved during 2009.

The Development Fund disbursement was slightlyhigher in 2010 with K126 million disbursed during2010 compared to K111.5 million in 2009.

Cumulative approved project funding

Since 2002, cumulative approved project funding fromthe Development Fund amounts to over K704.2million. Cumulative disbursements on WesternProvince and National Projects have been K144.5mand K327.6m respectively. Cumulative approvedproject funding for Western Province is over 80% ofthe National Fund and this reflects the priority that thePNGSDP continues to place on supporting sustainabledevelopment in Western Province.

35A N N U A L

R E P O R T 2010

Project Funding Approvals and DisbursementsSince 2002

US$ K

Cumulative Approved ProjectFunding 2002-2010 263.5m 704.2m

National Fund 145.2m 389.2m

Western Province Fund 118.3m 315.1m

Total CumulativeDisbursements 2002-2010 175.6m 472.1m

National Fund 122.1m 327.6m

Western Province Fund 53.5m 144.5m

Project Funding Approvals and Disbursements

2009 US$ K

New Approved ProjectFunding 48.9m 132.1m

Disbursements 40.9m 111.5m

2010 US$ K

New Approved ProjectFunding 64.0m 173.0m

Disbursements 46.1m 126.0m

P N G S D P LT D F I N A N C I A L S TAT E M E N T SFOR THE F INANCIAL YEAR ENDED 31 DECEMBER 2010

DIRECTORS’ REPORT

The Directors present their report to the members together with the audited financial statements of the Group forthe financial year ended 31 December 2010 and the balance sheet, statement of comprehensive income andstatement of changes in equity of the Company for the financial year ended 31 December 2010.

Directors

The Directors of the Company in office at the date of this report are as follows:

Ross Gregory GarnautJakob WeissPatricia Joy CaswellDonald Wabirao ManoaLim How TeckLawrence Samogoto Acanufa

Arrangements to enable Directors to acquire shares and debentures

Neither at the end of nor at any time during the financial year was the Company a party to any arrangement whoseobject was to enable the Directors of the Company to acquire benefits by means of the acquisition of shares in, ordebentures of, the Company or any other body corporate.

Directors’ interests in shares, debentures and share options

The Company is limited by guarantee and has no share capital, debentures, share options or unissued shares. Noneof the Directors holding office at the end of the financial year had any interest in the shares, debentures or shareoptions of any related corporations.

Directors’ contractual benefits

Since the end of the previous financial year, no Director has received or become entitled to receive a benefit byreason of a contract made by the Company or a related corporation with the Director or with a firm of which he isa member or with a company in which he has a substantial financial interest, except as disclosed in theaccompanying financial statements, and except that Dr. Ross Gregory Garnaut is a nominee Director of Ok TediMining Limited and receives remuneration in this capacity, which is payable by the Company.

Independent Auditor

The independent auditor, PricewaterhouseCoopers LLP, has expressed its willingness to accept re appointment.

On behalf of the Directors

ROSS GREGORY GARNAUT DONALD WABIRAO MANOADirector Director

LIM HOW TECKDirector (Audit Committee Chairman)

5 April 2011

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STATEMENT BY DIRECTORS

In the opinion of the Directors,

(a) the statement of comprehensive income, balance sheet and statement of changes in equity of the Companyand the consolidated financial statements of the Group as set out on pages 40 to 93 are drawn up so as togive a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2010 andof the results of the business and changes in equity of the Company and of the Group and cash flows of theGroup for the financial year then ended; and

(b) at the date of this statement, there are reasonable grounds to believe that the Company will be able to pay itsdebts as and when they fall due.

On behalf of the Directors

ROSS GREGORY GARNAUT DONALD WABIRAO MANOADirector Director

LIM HOW TECKDirector (Audit Committee Chairman)

5 April 2011

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37A N N U A L

R E P O R T 2010


INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PNG SUSTAINABLE DEVELOPMENTPROGRAM LIMITED

Report on the Financial Statements

We have audited the accompanying financial statements of PNG Sustainable Development Program Limited (the“Company”) and its subsidiaries (the “Group”) set out on pages 40 to 93, which comprise the balance sheets ofthe Company and of the Group as at 31 December 2010, the statement of comprehensive income of the Companyand of the Group, the statement of changes in equity of the Company and of the Group, and the consolidatedstatement of cash flow of the Group for the financial year then ended, and a summary of significant accountingpolicies and other explanatory information.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation of financial statements that give a true and fair view in accordancewith the provisions of the Singapore Companies Act (the “Act”) and Singapore Financial Reporting Standards, andfor devising and maintaining a system of internal accounting controls sufficient to provide a reasonable assurancethat assets are safeguarded against loss from unauthorised use or disposition, that transactions are properlyauthorised and that they are recorded as necessary to permit the preparation of true and fair profit and lossaccounts and balance sheets and to maintain accountability of assets.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted ouraudit in accordance with Singapore Standards on Auditing. Those Standards require that we comply with ethicalrequirements and plan and perform the audit to obtain reasonable assurance as to whether the financial statementsare free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in thefinancial statements. The procedures selected depend on the auditor’s judgement, including the assessment of therisks of material misstatement of the financial statements, whether due to fraud or error. In making those riskassessments, the auditor considers internal controls relevant to the entity’s preparation of financial statements thatgive a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not forthe purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also includesevaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates madeby management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our auditopinion.

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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PNG SUSTAINABLE DEVELOPMENTPROGRAM LIMITED (continued)

Opinion

In our opinion, the statement of comprehensive income, the balance sheet and the statement of changes in equityof the Company and the consolidated financial statements of the Group are properly drawn up in accordance withthe provisions of the Act and Singapore Financial Reporting Standards so as to give a true and fair view of the stateof affairs of the Company and of the Group as at 31 December 2010 and the results, changes in equity of theCompany and of the Group and cash flows of the Group for the financial year ended on that date; and

Report on Other Legal and Regulatory Requirements

In our opinion, the accounting and other records required by the Act to be kept by the Company have beenproperly kept in accordance with the provisions of the Act.

PRICEWATERHOUSECOOPERS LLP

Public Accountants and Certified Public Accountants

Singapore, 5 April 2011

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39A N N U A L

R E P O R T 2010


STATEMENT OF COMPREHENSIVE INCOMEThe Group The Company

Note 2010 2009 2010 2009US$ US$ US$ US$

RevenueDividends from investment in a

joint venture 4 - - 338,000,000 182,000,000Sale of goods 4 7,840,266 2,879,563 - -Other investment income/(loss) 4 34,958,978 47,479,134 34,795,974 48,729,134

42,799,244 50,358,697 372,795,974 230,729,134ExpensesGovernance 5 (2,116,083) (1,512,610) (2,116,083) (1,512,610)Administration 5 (22,762,523) (25,496,709) (6,749,416) (10,101,545)Contractual obligation 5 (94,445) (76,382) (94,445) (76,382)Investment program costs 5 (1,859,393) (2,335,610) (1,859,393) (2,335,610)

Operating surplus before developmentprogram costs 15,966,800 20,937,386 361,976,637 216,702,987

Development program costs 5 (46,098,111) (46,428,875) (46,098,111) (40,978,874)

Operating (deficit)/surplusfrom operations (30,131,311) (25,491,489) 315,878,526 175,724,113

Share of results of joint ventures 13 386,109,232 295,239,643 - -Share of results of associates 14 - - - -

Surplus before income tax 355,977,921 269,748,154 315,878,526 175,724,113

Income tax expense 7 (43,420,274) (30,099,280) (34,927,270) (18,796,248)

Surplus from operations 312,557,647 239,648,874 280,951,256 156,927,865

Other comprehensive surplus:Currency translation difference arising

from consolidation 23,830,935 (170,968,503) - -Share of hedge reserve in joint venture 13 (24,901,639) 4,303,204 - -

(1,070,704) (166,665,299) - -

Total comprehensive surplus: 311,486,943 72,983,575 280,951,256 156,927,865

Surplus from operations attributable to:

Equity holders of the Company 312,583,247 240,659,409 280,951,256 156,927,865Non-controlling interests (25,600) (1,010,535) - -

312,557,647 239,648,874 280,951,256 156,927,865

Total comprehensive surplus attributable to:

Equity holders of the Company 310,450,943 73,865,372 280,951,256 156,927,865Non-controlling interests 1,036,000 (881,797) - -

311,486,943 72,983,575 280,951,256 156,927,865

The accompanying notes form an integral part of these financial statements.

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BALANCE SHEETThe Group The Company

Note 2010 2009* 2008* 2010 2009US$ US$ US$ US$ US$

ASSETSCurrent assetsCash and cash equivalents 8 363,369,707 209,818,616 315,942,510 353,216,651 208,111,297Financial assets at fair value

through profit or loss 9 163,543,174 150,212,179 91,646,619 163,543,174 150,212,179Finance lease receivables 10 7,162,417 1,340,015 1,231,881 - -Other receivables 11 35,130,477 10,086,313 1,204,185 124,412,401 41,642,393Inventory 3,048,382 1,192,427 796,112 - -

572,254,157 372,649,550 410,821,307 641,172,226 399,965,869

Non-current assetsFinancial assets at fair value

through profit or loss 9 699,904,931 602,070,476 480,970,985 699,904,931 602,070,476Finance lease receivables 10 45,181,125 3,909,586 5,000,000 - -Other receivables 11 - 50,000,000 5,570,747 - 50,000,000Financial assets available-for-sale 12 - 6,000,000 - - 6,000,000Investment in joint ventures 13 535,325,686 487,987,386 367,676,241 2,903,581 2,903,581Investment in associated company 14 - - - - -Investment in subsidiaries 15 - - - 5,450,001 5,450,001Property, plant and equipment 16 19,651,735 12,167,225 410,583 142,524 213,042Intangible assets 17 - - - - -Goodwill on consolidation - - - - -

1,300,063,477 1,162,134,673 859,628,556 708,401,037 666,637,100Total assets 1,872,317,634 1,534,784,223 1,270,449,863 1,349,573,263 1,066,602,969

LIABILITIES Current liabilitiesSundry creditors and accruals 18 21,052,551 4,249,248 5,505,029 9,768,098 7,869,370Provisions for employee benefit costs 1,020,094 269,933 304,694 346,799 226,489Bank overdraft - - 685,206 - -

22,072,645 4,519,181 6,494,929 10,114,897 8,095,859

Non-current liabilitiesDeferred income tax liability 19 44,062,044 35,569,040 24,266,008 - -

Total liabilities 66,134,689 40,088,221 30,760,937 10,114,897 8,095,859

NET ASSETS 1,806,182,945 1,494,696,002 1,239,688,926 1,339,458,366 1,058,507,110

CAPITAL EMPLOYED AND RESERVESMembers’ subscriptions 20 17 17 17 17 17Funds, comprises of: 1,724,358,667 1,411,775,420 1,171,116,011 - -- General Fund 21 2,903,581 2,903,581- Long Term Fund 21 1,044,803,634 817,890,515- Development Fund 21 291,751,134 237,712,997Share of hedge reserve of a

joint venture – Ok TediMining Ltd (13,606,710) 11,294,929 6,991,725 - -

Foreign currency translation reserve 95,276,768 72,507,433 61,581,173 - -1,806,028,742 1,495,577,799 1,239,688,926 1,339,458,366 1,058,507,110

Non-controlling interests 154,203 (881,797) - - -Total equity 1,806,182,945 1,494,696,002 1,239,688,926 1,339,458,366 1,058,507,110

* Refer to Note 2.1.1 for details of comparative figures.The accompanying notes form an integral part of these financial statements.

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COMPANY STATEMENT OF CHANGES IN EQUITY

Members’ General Long term DevelopmentThe Company Note subscription fund fund fund Total

US$ US$ US$ US$ US$

2010

Beginning of financial year 17 2,903,581 817,890,515 237,712,997 1,058,507,110

Total comprehensive income 21 - 296,102,222 29,511,637 (44,662,603) 280,951,256

Transfer from General Fund 21 - (296,102,222) 197,401,482 98,700,740 -

End of financial year 17 2,903,581 1,044,803,634 291,751,134 1,339,458,366

2009

Beginning of financial year 17 2,903,581 677,772,696 220,902,951 901,579,245

Total comprehensive income 21 - 155,618,923 36,371,870 (35,062,928) 156,927,865

Transfer from General Fund 21 - (155,618,923) 103,745,949 51,872,974 -

End of financial year 17 2,903,581 817,890,515 237,712,997 1,058,507,110

The allocation of revenues and expenses and transfers from the General Fund to the Long Term Fund and theDevelopment Fund are determined in accordance with the rules of the Company [refer Note 2.1.15].

The accompanying notes form an integral part of these financial statements.

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CONSOLIDATED STATEMENT OF CASH FLOW2010 2009

Note US$ US$

Cash flows from operating activitiesSurplus from operations 312,557,647 239,648,874Adjustments for:

Income tax expense 43,420,274 30,099,280Depreciation 1,984,285 935,571Amortisation – inscribed stock premium 43,084 42,812Impairment of available for sale financial asset 6,000,000 -Fair value gains on financial assets at fair value through profit or loss (6,554,071) (30,503,562)Interest income (22,506,855) (15,485,892)Share of results of joint ventures (386,109,232) (295,239,643)Loss on re-measurement of subsidiary - 1,250,000Other dividend income (5,898,052) (2,739,680)Currency translation differences (2,658,261) -

Operating cash flow before working capital changes (59,721,181) (71,992,240)

Change in working capitalOther receivables and finance lease receivables (1,111,054) (7,329,101)Sundry creditors and accruals 4,457,952 (1,290,542)Inventory (1,855,955) (396,320)

Cash used in operations (58,230,238) (81,008,203)Interest received 3,701,861 3,021,722Dividends received 338,000,000 182,000,000Withholding tax paid on dividends received (33,800,000) (18,200,000)

Net cash provided by operating activities 249,671,623 85,813,519

Cash flows from investing activitiesPurchases of financial asset at fair value through profit and loss (1,430,238,468) (784,252,461)Purchase of available for sale financial asset - (1,000,000)Loans to a third party - (50,000,000)Repayment of loans from a third party 50,000,000 -Payment on finance lease arrangement (49,350,000) -Acquisition of a subsidiary (net of cash acquired) 8 9,082,973 (5,142,853)Other dividend received 5,898,052 2,739,680Withholding tax paid on dividends received (1,127,270) (596,248)Proceeds from sale of financial asset at fair value through profit or loss 1,328,050,042 654,521,876Proceeds from sale of intangible assets - 5,450,000Purchases of property, plant and equipment (8,435,861) (12,972,201)Net cash used in investing activities (96,120,532) (191,252,207)

Net increase/(decrease) in cash and cash equivalents 153,551,091 (105,438,688)Cash and cash equivalents at the beginning of financial year 8 209,818,616 315,257,304Cash and cash equivalents at the end of financial year 8 363,369,707 209,818,616

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NOTES TO THE FINANCIAL STATEMENTSThese notes form an integral part of and should be read in conjunction with the accompanying financial statements.

1. General information

PNG Sustainable Development Program Limited (“PNGSDP”) is incorporated and domiciled in Singapore.The address of its principal place of business is Level 7, Pacific Place, Champion Parade, PO Box 1786, PortMoresby, Papua New Guinea. The address of its registered office is 10 Collyer Quay, #14-01 OceanFinancial Centre, Singapore 049315.

The principal activity of the Company is to promote sustainable development within Papua New Guinea,and advance the general welfare of the people of Papua New Guinea, particularly those of the WesternProvince of Papua New Guinea, through supporting programs and projects in the areas of capacitybuilding, health, education, economic development, infrastructure, community self-reliance, localcommunity leadership and institutional capacity and other social and environmental purposes for thebenefit of those people.

The principal activities of the subsidiaries are stated in Note 15.

2.1 Significant accounting policies

2.1.1 Basis of preparationThese financial statements have been prepared in accordance with Singapore Financial ReportingStandards (“FRS”). The principal accounting policies applied in the preparation of these financialstatements are set out below. These policies have been consistently applied to all years presented.Comparative information have also been consistently applied except as disclosed in Note 13.The financialstatements have been prepared under the historical cost convention, except as disclosed in the accountingpolicies below.

The preparation of financial statements in conformity with FRS requires management to exercise itsjudgement in the process of applying the Group’s accounting policies. It also requires the use of certaincritical accounting estimates and assumptions. The areas involving a higher degree of judgement orcomplexity, or areas where assumptions and estimates are significant to the financial statements aredisclosed in Note 3.

Interpretations and amendments to published standards effective in 2010On 1 January 2010, the Group adopted the new or amended FRS and Interpretations to FRS (“INT FRS”)that are mandatory for application from that date. Changes to the Group’s accounting policies have beenmade as required, in accordance with the transitional provisions in the respective FRS and INT FRS.

The adoption of these new or amended FRS and INT FRS did not result in substantial changes to theGroup’s and Company’s accounting policies and had no material effect on the amounts reported for thecurrent or prior financial years except as disclosed below:

• FRS 103 (revised) Business Combinations (effective for annual periods beginning on or after 1 July2009)

Please refer to Note 2.1.3(a)(ii) for the revised accounting policy on business combinations which theGroup has applied for its acquisition of additional shareholding in PNG Microfinance Limited on 26May 2010 (Note 26).

At acquisition, the non-controlling interest in the acquiree was measured at the non-controllinginterest’s proportionate share of the acquiree’s net assets.

As the changes have been implemented prospectively, no adjustments were necessary to any of theamounts previously recognised in the financial statements.

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2.1 Significant accounting policies (continued)

2.1.1 Basis of preparation (continued)• FRS 27 (revised) Consolidated and Separate Financial Statements (effective for annual periods

beginning on or after 1 July 2009)

The revisions to FRS 27 principally change the accounting for transactions with non-controllinginterests. Please refer to Note 2.1.3(a)(iii) for the revised accounting policy on changes in ownershipinterest that results in a loss of control and 2.1(b) for that on changes in ownership interests that donot result in loss of control.

As the changes have been implemented prospectively, no adjustments were necessary to any of theamounts previously recognised in the financial statements. In the current year the Group increasedits shareholding in Cloudy Bay Sustainable Forestry Ltd from 80% to 100% and this transaction isdeemed to be a transaction with non-controlling interests. The effect of this transaction has beenrecorded in equity.

• Amendment to FRS 7 Cash Flow Statements (effective for annual periods beginning on or after 1January 2010)

Under the amendment, only expenditures that result in a recognised asset in the balance sheet canbe classified as investing activities in the statement of cash flows. Previously, such expenditure couldbe classified as investing activities in the statement of cash flows.

2.1.2 Revenue recognitionRevenue comprises the fair value of the consideration received or receivable for the sale of goods andrendering of services in the ordinary course of the Group’s and Company’s activities. Revenue is presented,net of value-added tax, rebates and discounts, and after eliminating sales within the Group.

The Group and the Company recognises revenue when the amount of revenue and related cost can bereliably measured when it is probable that the collectability of related receivables is reasonably assured andwhen specific criteria for each of the Group’s and Company’s activities are met as follows.

(a) Dividend incomeDividend income is recognised when the right to receive payment is established.

(b) Interest incomeInterest income, including income arising from finance leases and other financial instruments, isrecognised using the effective interest method.

(c) Surplus on sale of a financial assetOn sale of a financial asset, the difference between the net sale proceeds and its carrying amount istaken to the profit or loss. Gains or losses arising from changes in fair value of investment in securities[Note 2.1.17] that have been designated as “Financial assets at fair value through profit and loss” areincluded in revenue as other income from investments in the financial year in which the changes infair value arises.

(d) Sale of timber productsThe Group harvests, mills and sells timber products. Sales of goods are recognised when a Groupentity has delivered the products to the customers, the customers have accepted the products andthe collectability of the related receivables is reasonably assured.

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2.1.3 Group accounting

(a) Subsidiaries (i) Consolidation

Subsidiaries are entities (including special purpose entities) over which the Group has power togovern the financial and operating policies so as to obtain benefits from its activities, generallyaccompanied by a shareholding giving rise to a majority of the voting rights. The existence andeffect of potential voting rights that are currently exercisable or convertible are considered whenassessing whether the Group controls another entity. Subsidiaries are consolidated from thedate on which control is transferred to the Group. They are de-consolidated from the date onwhich control ceases.

In preparing the consolidated financial statements, transactions, balances and unrealised gainson transactions between group entities are eliminated. Unrealised losses are also eliminated butare considered an impairment indicator of the asset transferred. Accounting policies ofsubsidiaries have been changed where necessary to ensure consistency with the policiesadopted by the Group.

Non-controlling interests are that part of the net results of operations and of net assets of asubsidiary attributable to the interests which are not owned directly or indirectly by the equityholders of the Company. They are shown separately in the consolidated statement ofcomprehensive income, statement of changes in equity and balance sheet. Total comprehensiveincome is attributed to the non-controlling interests based on their respective interests in asubsidiary, even if this results in the non-controlling interests having a deficit balance.

(ii) Acquisition of businesses

The acquisition method of accounting is used to account for business combinations by theGroup.

The consideration transferred for the acquisition of a subsidiary comprises the fair value of theassets transferred, the liabilities incurred and the equity interests issued by the Group. Theconsideration transferred also includes the fair value of any contingent considerationarrangement and the fair value of any pre-existing equity interest in the subsidiary.

Acquisition-related costs are expensed as incurred.

Identifiable assets acquired and liabilities and contingent liabilities assumed in a businesscombination are, with limited exceptions, measured initially at their fair values at the acquisitiondate.

On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in theacquiree at the date of acquisition either at fair value or at the noncontrolling interest’sproportionate share of the acquiree’s net identifiable assets.

The excess of the consideration transferred, the amount of any non-controlling interest in theacquiree and the acquisition-date fair value of any previous equity interest in the acquiree overthe fair value of the net identifiable assets acquired is recorded as goodwill. Please refer to Note2.1.5(a) for the subsequent accounting policy on goodwill.

(iii) Disposals of subsidiaries or businesses

When a change in the Company’s ownership interest in a subsidiary results in a loss of controlover the subsidiary, the assets and liabilities of the subsidiary including any goodwill arederecognised. Amounts recognised in other comprehensive income in respect of that entity arealso reclassified to profit or loss or transferred directly to retained earnings if required by aspecific Standard.

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2.1.3 Group accounting (continued)

(a) Subsidiaries (continued)

(iii) Disposals of subsidiaries or businesses (continued)

Any retained interest in the entity is remeasured at fair value. The difference between thecarrying amount of the retained investment at the date when control is lost and its fair value isrecognised in profit or loss.

Please refer to Note 2.1.6 for the accounting policy on investments in subsidiaries.

(b) Transactions with non-controlling interestsChanges in the Company’s ownership interest in a subsidiary that do not result in a loss of controlover the subsidiary are accounted for as transactions with equity owners of the Group. Any differencebetween the change in the carrying amounts of the non-controlling interest and the fair value of theconsideration paid or received is recognised in a separate reserve within equity attributable to theequity holders of the Company.

(c) Joint venturesThe Group’s joint ventures are entities over which the Group has contractual arrangements to jointlyshare the control over the economic activity of the entities with one or more parties. The Group’sinterest in joint ventures is accounted for in the consolidated financial statements using the equitymethod of accounting.

Equity accounting involves recording investments in joint ventures initially at cost, and recognisingthe Group’s share of its joint venture post-acquisition results and its share of post-acquisitionmovements in reserves against the carrying amount of the investments. When the Group’s share oflosses in a joint venture equals or exceeds its investment in the joint venture, the Group does notrecognise further losses, unless it has incurred obligations or made payments on behalf of the jointventures.

In applying the equity method of accounting, unrealised gains on transactions between the Groupand its joint ventures are eliminated to the extent of the Group's interest in the joint ventures.Unrealised losses are also eliminated unless the transaction provides evidence of an impairment ofthe assets transferred.

When the Group sells assets to a joint venture, the Group recognises only the portion of unrealisedgains or losses on the sale of assets that is attributable to the interest of the other venturers. TheGroup recognises the amount of any loss when the sales provides evidence of a reduction in the netrealisable value of current assets or an impairment loss.

When the Group purchases assets from a joint venture, it does not recognise its share of the profitsof the joint ventures arising from the Group’s purchase of assets until it resells the assets to anindependent party. However, a loss on the transaction is recognised immediately if the loss providesevidence of a reduction in the net realisable value of current assets or an impairment loss.

Accounting policies of joint ventures have been changed where necessary to ensure consistency withthe accounting policies adopted by the Group.

Please refer to Note 2.1.6 “Investments in subsidiaries, joint ventures and associated companies” forthe accounting policy on investments in joint ventures.

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2.1.3 Group accounting (continued)

(d) Associated companiesAssociated companies are entities over which the Group has significant influence, but not control,generally accompanied by a shareholding giving rise to voting rights of 20% and above but notexceeding 50%. Investments in associated companies are accounted for in the consolidated financialstatements using the equity method of accounting less impairment losses, if any.

Investments in associated companies are initially recognised at cost. The cost of an acquisition ismeasured at the fair value of the assets given, equity instruments issued or liabilities incurred orassumed at the date of exchange, plus costs directly attributable to the acquisition. Goodwill onassociated companies represents the excess of the cost of acquisition of the associate over theGroup’s share of the fair value of the identifiable net assets of the associate and is included in thecarrying amount of the investments.

In applying the equity method of accounting, the Group’s share of its associated companies’ post-acquisition profits or losses are recognised in profit or loss and its share of post-acquisition othercomprehensive income is recognised in other comprehensive income. These post-acquisitionmovements and distributions received from the associated companies are adjusted against thecarrying amount of the investment. When the Group’s share of losses in an associated companyequals or exceeds its interest in the associated company, including any other unsecured non-currentreceivables, the Group does not recognise further losses, unless it has obligations or has madepayments on behalf of the associated company.

Unrealised gains on transactions between the Group and its associated companies are eliminated tothe extent of the Group’s interest in the associated companies. Unrealised losses are also eliminatedunless the transaction provides evidence of an impairment of the asset transferred. The accountingpolicies of associated companies have been changed where necessary to ensure consistency with theaccounting policies adopted by the Group.

Gains and losses arising from partial disposals or dilutions in investments in associated companies arerecognised in profit or loss. Investments in associated companies are derecognised when the Grouploses significant influence. Any retained interest in the entity is remeasured at its fair value. Thedifference between the carrying amount of the retained investment at the date when significantinfluence is lost and its fair value is recognised in profit or loss.

Please refer to Note 2.1.6 for the accounting policy on investments in associated companies.

2.1.4 Property, plant and equipment

(a) Measurement(i) Land and buildings

Land and buildings are initially recognised at cost. Buildings and leasehold land aresubsequently carried at their costs less accumulated depreciation and accumulated impairmentlosses.

(ii) Other property, plant and equipment All other items of property, plant and equipment are initially recognised at cost andsubsequently carried at cost less accumulated depreciation and accumulated impairment losses.

(iii) Components of costsThe cost of an item of property, plant and equipment initially recognised includes its purchaseprice and any cost that is directly attributable to bringing the asset to the location and conditionnecessary for it to be capable of operating in the manner intended by management.

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2.1.4 Property, plant and equipment (continued)

(b) DepreciationDepreciation on plant and equipment is calculated using a straight line method to allocate theirdepreciable amounts of plant and equipment over their estimated useful lives. The annual rates usedfor this purpose are as follows:

Annual Rates %Computers and computer software 331/3 - 100 Motor vehicles 20Fixtures and fittings 331/3

Plant and equipment 331/3

Leasehold improvements 331/3

Buildings 2Leasehold land 2

The residual values, estimated useful lives and depreciation method of property, plant and equipmentare reviewed, and adjusted as appropriate, at each balance sheet date. The effects of any revisionare recognised in the profit or loss when the changes arise.

(c) Subsequent expenditureSubsequent expenditure relating to property, plant and equipment that has already been recognisedis added to the carrying amount of the asset only when it is probable that future economic benefitsassociated with the item will flow to the Group and the Company and the cost of the item can bemeasured reliably. All other repair and maintenance expense are recognised in profit or loss whenincurred.

(d) DisposalOn disposal of an item of property, plant and equipment, the difference between the disposalproceeds and its carrying amount is taken to profit or loss.

2.1.5 Intangible assets

(a) Goodwill on acquisitionsGoodwill represents the excess of the cost of an acquisition over the fair value of the Group’s shareof the identifiable assets, liabilities and contingent liabilities of the acquired subsidiaries, jointventures and associated companies at the date of acquisition.

Goodwill on subsidiaries is recognised separately as intangible assets and carried at cost lessaccumulated impairment losses. Goodwill on joint ventures and associated companies are includedin the carrying amount of the investments.

Gains and losses on the disposal of subsidiaries, joint ventures and associated companies include thecarrying amount of goodwill relating to the entity sold, except for goodwill arising from acquisitionsprior to 1 January 2001. Such goodwill was adjusted against retained earnings in the year ofacquisition and not recognised in profit or loss on disposal.

(b) Acquired licensesLicenses acquired are initially recognised at cost and are subsequently carried at cost lessaccumulated amortisation and accumulated impairment losses. These cost are amortised to profit orloss using the straight-line method over the shorter of the estimated useful lives or period ofcontractual rights.

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2.1.6 Investments in subsidiaries, joint ventures and associated companies Investments in subsidiaries, joint ventures and associated companies are carried at cost, less accumulatedimpairment losses in the Company’s balance sheet. On disposal of investments in subsidiaries, jointventures and associated companies, the difference between disposal proceeds and the carrying amountsof the investments are recognised in profit or loss.

2.1.7 Impairment of non-financial assets

(a) GoodwillGoodwill is tested for impairment annually and whenever there is indication that the goodwill maybe impaired. Goodwill included in the carrying amount of an investment in an associated companyor joint venture is tested for impairment as part of the investment, rather than separately.

For the purpose of impairment testing of goodwill, goodwill is allocated to each of the Group’s cash-generating-units (“CGU”) expected to benefit from synergies arising from the business combination.

An impairment loss is recognised when the carrying amount of a CGU, including the goodwill,exceeds the recoverable amount of the CGU. The recoverable amount of a CGU is the higher of theCGU’s fair value less cost to sell and value-in-use.

The total impairment loss of a CGU is allocated first to reduce the carrying amount of goodwillallocated to the CGU and then to the other assets of the CGU pro-rata on the basis of the carryingamount of each asset in the CGU.

An impairment loss on goodwill is recognised in profit or loss and is not reversed in a subsequentperiod.

(b) Intangible assets

Property, plant and equipment

Investments in subsidiaries, joint ventures and associated companiesIntangible assets, property, plant and equipment and investments in subsidiaries, joint ventures andassociated companies are tested for impairment whenever there is any objective evidence orindication that these assets may be impaired.

For the purpose of impairment testing the recoverable amount (i.e. the higher of the fair value lesscost to sell and the value-in-use) is determined on an individual asset basis unless the asset does notgenerate cash flows that are largely independent of those from other assets. If this is the case,recoverable amount is determined for the CGU to which the asset belongs.

If the recoverable amount of the asset (or CGU) is estimated to be less than its carrying amount, thecarrying amount of the asset (or CGU) is reduced to its recoverable amount.

The difference between the carrying amount and recoverable amount is recognised as an impairmentloss in profit or loss, unless the asset is carried at revalued amount, in which case, such impairmentloss is treated as a revaluation decrease. Please refer to Note 2.1.4 “Property, plant and equipment”for the treatment of a revaluation decrease.

An impairment loss for an asset other than goodwill is reversed if, and only if, there has been achange in the estimates used to determine the assets’ recoverable amount since the last impairmentloss was recognised. The carrying amount of an asset other than goodwill is increased to its revisedrecoverable amount, provided that this amount does not exceed the carrying amount that wouldhave been determined (net of amortisation or depreciation) had no impairment loss been recognisedfor the asset in prior years.

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2.1.7 Impairment of non-financial assets (continued)

(b) Intangible assets (continued)

Property, plant and equipment (continued)

Investments in subsidiaries, joint ventures and associated companies (continued)A reversal of impairment loss for an asset other than goodwill is recognised in profit or loss, unlessthe asset is carried at revalued amount, in which case, such reversal is treated as a revaluationincrease. However, to the extent that an impairment loss on the same revalued asset was previouslyrecognised in profit or loss, a reversal of that impairment is also recognised in profit or loss.

2.1.8 Leases(a) When the Group is the lessee:

The Group leases motor vehicles, office space and warehouses under operating leases from non-related parties.

(i) Lessee - Finance leases

Leases where the Group assumes substantially all risks and rewards incidental to ownership ofthe leased assets are classified as finance leases.

The leased assets and the corresponding lease liabilities (net of finance charges) under financeleases are recognised on the balance sheet as plant and equipment and borrowings respectively,at the inception of the leases based on the lower of the fair value of the leased assets and thepresent value of the minimum lease payments.

Each lease payment is apportioned between the finance expense and the reduction of theoutstanding lease liability. The finance expense is recognised in the profit or loss on a basis thatreflects a constant periodic rate of interest on the finance lease liability.

(ii) Lessee - Operating leases

Leases of motor vehicles, office space and warehouses where substantially all risks and rewardsincidental to ownership are retained by the lessors are classified as operating leases. Paymentsmade under operating leases (net of any incentives received from the lessors) are recognised inprofit or loss on a straight-line basis over the period of the lease.

Contingent rents are recognised as an expense in profit or loss when incurred.

(b) When the Group is the lessor:

The Group leases aircraft under finance leases to non-related parties.

Lessor - Finance leases

Leases where the Group has transferred substantially all risks and rewards incidental toownership of the leased assets to the lessees, are classified as finance leases.

The leased asset is derecognised and the present value of the lease receivable (net of initialdirect costs for negotiating and arranging the lease) is recognised on the balance sheet andincluded in “finance lease receivables”. The difference between the gross receivable and thepresent value of the lease receivable is recognised as unearned finance income.

Each lease payment received is applied against the gross investment in the finance leasereceivable to reduce both the principal and the unearned finance income. The finance incomeis recognised in profit or loss on a basis that reflects a constant periodic rate of return on thenet investment in the finance lease receivable.

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2.1.8 Leases (continued)(b) When the Group is the lessor: (continued)

Initial direct costs incurred by the Group in negotiating and arranging finance leases are added tofinance lease receivables and recognised as an expense in profit or loss over the lease term on thesame basis as the lease income.

2.1.9 InventoriesInventories are carried at the lower of cost and net realisable value. Cost is determined using the weightedaverage method. The cost of finished goods and work-in-progress comprises raw materials, direct labour,other direct costs and related production overheads (based on normal operating capacity) but excludesborrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, lessapplicable variable selling expenses.

2.1.10 Income taxesCurrent income tax for current and prior periods is recognised at the amount expected to be paid to orrecovered from the tax authorities, using the tax rates and tax laws that have been enacted or substantivelyenacted by the balance sheet date.

Deferred income tax is recognised for all temporary differences arising between the tax bases of assets andliabilities and their carrying amounts in the financial statements except when the deferred income taxarises from the initial recognition of goodwill or an asset or liability in a transaction that is not a businesscombination and affects neither accounting nor taxable profit or loss at the time of the transaction.

A deferred income tax liability is recognised on temporary differences arising on investments insubsidiaries, associated companies and joint ventures, except where the Group is able to control the timingof the reversal of the temporary difference and it is probable that the temporary difference will not reversein the foreseeable future.

A deferred income tax asset is recognised to the extent that it is probable that future taxable profit will beavailable against which the temporary differences and tax losses can be utilised.

Deferred income tax is measured:

(i) at the tax rates that are expected to apply when the related deferred tax asset is realised or thedeferred income tax liability is settled, based on tax rates and tax laws that have been enacted orsubstantively enacted by the balance sheet date: and

(ii) based on the tax consequence that will follow from the manner in which the Group and theCompany expects, at the balance sheet date, to recover or settle the carrying amounts of its assetsand liabilities.

Current and deferred income taxes are recognised as income or expenses in profit or loss for the period,except to the extent that the tax arises from a business combination or a transaction which is recogniseddirectly in equity. Deferred tax arising from business combination is adjusted against goodwill onacquisition.

2.1.11 ProvisionsProvisions are recognised when the Group and the Company has a present legal or constructive obligationas a result of past events, it is more likely than not that an outflow of resources will be required to settlethe obligation and the amount has been reliably estimated. Provisions are not recognised for futureoperating losses.

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2.1.12 Employee compensation or employee remunerationThe Group’s and the Company’s contributions are recognised as employee compensation expense whenthey are due, unless they can be capitalised as an asset.

(a) Defined contribution plansDefined contribution plans are post-employment benefit plans under which the Group and theCompany pays fixed contributions into separate entities such as National Superannuation Fund andwill have no legal or constructive obligation to pay further contributions if any of the funds does nothold sufficient assets to pay all employee benefits relating to employee service in the current andpreceding financial years. The Group’s and the Company’s contribution to defined contributionplans are recognised as employee benefit expense when they are due.

(b) Employee leave entitlementsEmployee entitlements to annual leave and long service leave are recognised when they accrue toemployees. A provision is made for the estimated liability for annual leave and long service leave asa result of services rendered by employees up to the balance sheet date at the future expected cost.

2.1.13 Currency translation

(a) Functional and presentation currency Items included in the financial statements of each entity in the Group and the Company aremeasured using the currency of the primary economic environment in which the entity operates(“functional currency”). The financial statements are presented in United States Dollars (“US$”).

(b) Transactions and balancesTransactions in a currency other than the functional currency (“foreign currency”) are translated intothe functional currency using the exchange rates at the dates of the transactions. Currencytranslation differences from the settlement of such transactions and from the translation of monetaryassets and liabilities denominated in foreign currencies at the closing rates at the balance sheet dateare recognised in profit or loss, unless they arise from borrowings in foreign currencies, othercurrency instruments designated and qualifying as net investment hedges and net investment inforeign operations. Those currency translation differences are recognised in the currency translationreserve in the consolidated financial statements and transferred to profit or loss as part of the gain orloss on disposal of the foreign operation.

Non-monetary items measured at fair values in foreign currencies are translated using the exchangerates at the date when the fair values are determined.

(c) Translation of Group entities’ financial statementsThe results and financial position of all the Group entities (none of which has the currency of ahyperinflationary economy) that have a functional currency different from the presentation currencyare translated into the presentation currency as follows:

(i) Assets and liabilities for each balance sheet presented are translated at the closing rate at thedate of that balance sheet;

(ii) Income and expenses for each income statement are translated at average exchange rates; and

(iii) All resulting currency translation differences are recognised in the currency translation reservein equity.

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2.1.14 Cash and cash equivalentsFor the purpose of presentation in the consolidated cash flow statement, cash and cash equivalents includecash and bank balances, treasury bills, commercial papers and certificates of deposit, which are subject toan insignificant risk of change in value, and bank overdrafts. Bank overdrafts are presented as currentborrowings in the balance sheet.

2.1.15 Long Term Fund, Development Fund and General Fund The Company is required by its rules to apply its income from Ok Tedi Mining Limited (“OTML”) and othersources to a Long Term Fund, the Development Fund and General Fund attributable to the operations ofthe Company.

In pursuing its object, the Company is able to invest and utilise its available resources from the Long TermFund, the Development Fund and General Fund in accordance with the Rules of the Company.

Long Term FundThe Long Term Fund represents 2/3 of net income received from OTML after deducting operatingexpenses and all other legal contractual obligations as specified in the rules of the program relating to theapplication of the income received.

Funds from the Long Term Fund must be invested in low risk investments.

Before the mine closure date, the funds will be used in the following order of priority:

(a) To the extent the amounts under Rules clauses 9.2 (b) and 9.3 (b) and that part of the commitmentwhich is undrawn are insufficient, to meet contractual obligations.

(b) To the extent the amount under clause 9.2 (c) is insufficient, if determined by the Board, to meet acall by OTML in accordance with clause 12 (further capital requirements by OTML).

After mine closure the funds will be applied in the following order of priority:

(a) Operating expenses for next 6 months in accordance with the budget approved by the Board fromtime to time.

(b) To the extent that distributions and investment income received after the mine closure date areinsufficient to meet contractual obligations as they fall due for payment.

(c) Calls from OTML (on Shareholders).

(d) To fund Sustainable Development Purposes in proportions to be determined by the Board ofDirectors in accordance with Rules clause 10.4.

Development FundThe fund is to be used to support and fund programs and projects which promote sustainabledevelopment in accordance with the “Rules for the PNG Sustainable Development Program” scheduled toand forming part of the Articles of Association of the Company.

The Development Fund represents 1/3 of income received from OTML after deducting operating expensesand all other contractual obligations as specified in the rules relating to the application of income received.

In accordance with Rules clause 9.2 (e), the funds are to be applied as follows:

(a) 1/3 of these funds to be used in accordance with the Objects of the Articles of Association of theCompany and at the discretion of the Board for the benefit of the people of Western Province; and

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2.1.15 Long Term Fund, Development Fund and General Fund (continued)

Development Fund (continued)

(b) 2/3 of these funds to be used in accordance with the Objects of the Articles of Association of theCompany and at the discretion of the Board for the benefit of the people of Papua New Guinea.

These funds will be used mainly to fund projects covering core areas in health, education, capacitybuilding, economic development, infrastructure community self-reliance, local community leadership andinstitutional capacity and other social and environmental purposes for the benefit of the people of PapuaNew Guinea, in particular, the people of the Western Province.

General FundIn accordance with clause 14 of the “Rules for the PNG Sustainable Development Program”, a yearlybudget of administration costs must be prepared and approved by the Board of Directors.

The budget prepared for each year after the third year of the Program must reflect that the portion of theoperating expenses attributable to the operation of the Company (but not to the running of the Program)should not exceed 15% of the average annual income of the Program during the immediate preceding 3accounting years.

The administration costs cover the normal operating expenses of the Company and of the Programincluding (without limitation) establishment costs, Directors’ fees, the cost of Directors’ and officers’liability insurance, expenditure of the program manager and the program manager’s remuneration, andany tax payable by the Company.

2.1.16 Grants Grants provided to subsidiaries, joint ventures and third parties are expensed in the period in which thegrants are released.

2.1.17 Financial assets

(a) ClassificationThe Group and the Company classifies its financial assets in the following categories: at fair valuethrough profit or loss, loans and receivables, and available-for-sale. The classification depends on thepurpose for which the assets were acquired. Management determines the classification of its financialassets at initial recognition. The designation of financial assets at fair value through profit or loss isirrevocable.

(i) At fair value through profit or lossThis category has two sub-categories: financial assets held for trading, and those designated atfair value through profit or loss at inception. A financial asset is classified as held for trading if itis acquired principally for the purpose of selling in the short term. Financial assets designated asat fair value through profit or loss at inception are those that are managed and theirperformances are evaluated on a fair value basis, in accordance with a documented Group andthe Company investment strategy.

Derivatives are also categorised as held for trading unless they are designated as hedges. Assetsin this category are presented as current assets if they are either held for trading or are expectedto be realised within 12 months after the balance sheet date

Investments in debt and equity securities are designated by management as ‘financial assets atfair value through profit or loss’ upon initial recognition. They are included in non-currentassets unless management has the expressed intention of holding the investment for less than12 months from the balance sheet date or unless they will mature within that period, in whichcase they are included in current assets.

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2.1.17 Financial assets (continued)

(ii) Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable paymentsthat are not quoted in an active market. They are presented as current assets, except for thosematuring later than 12 months after the balance sheet date which are presented as non-currentassets. Loans and receivables are presented as “other receivables”, “finance lease receivables”and “cash and cash equivalents” on the balance sheet.

(iii) Available-for-sale Financial assets, available-for-sale are non-derivatives that are either designated in this categoryor not classified in any of the other categories. They are presented as non-current assets unlessmanagement intends to dispose of the assets within 12 months after the balance sheet date.

(b) Recognition and derecognitionRegular way purchases and sales of financial assets are recognised on trade-date – the date on whichthe Group and the Company commits to purchase or sell the asset.

Financial assets are derecognised when the rights to receive cash flows from the financial assets haveexpired or have been transferred and the Group and the Company has transferred substantially allrisks and rewards of ownership. On disposal of a financial asset, the difference between the carryingamount and the sale proceeds is recognised in the profit or loss. Any amount in the fair value reserverelating to that asset is transferred to profit or loss.

(c) Initial measurementFinancial assets are initially recognised at fair value plus transaction costs except for financial assetsat fair value through profit or loss, which are recognised at fair value. Transaction costs for financialassets at fair value through profit and loss are recognised immediately in profit or loss.

(d) Subsequent measurementFinancial assets, both available-for-sale and at fair value through profit or loss are subsequentlycarried at fair value. Loans and receivables and financial assets are subsequently carried at amortisedcost using the effective interest method.

Changes in the fair values of financial assets at fair value through profit or loss including the effectsof currency translation, interest and dividends, are recognised in profit or loss when the changesarise.

Interest and dividend income on financial assets, available-for-sale are recognised separately in profitor loss. Changes in the fair values of available-for-sale debt securities (i.e. monetary items)denominated in foreign currencies are analysed into currency translation differences on theamortised cost of the securities and other changes; the currency translation differences arerecognised in profit or loss and the other changes are recognised in the fair value reserve. Changesin fair values of available-for-sale equity securities (i.e. non-monetary items) are recognised in the fairvalue reserve, together with the related currency translation differences.

(e) Impairment The Group and the Company assesses at each balance sheet date whether there is objective evidencethat a financial asset or a group of financial assets is impaired and recognises an allowance forimpairment when such evidence exists.

Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy, anddefault or significant delay in payments are objective evidence that these financial assets areimpaired.

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2.1.17 Financial assets (continued)

(e) Impairment (continued)

The carrying amount of these assets is reduced through the use of an impairment allowance accountwhich is calculated as the difference between the carrying amount and the present value of estimatedfuture cash flows, discounted at the original effective interest rate. When the asset becomesuncollectible, it is written off against the allowance account. Subsequent recoveries of amountspreviously written off are recognised against the same line item in profit or loss.

(i) Loans and receivables The allowance for impairment loss account is reduced through profit or loss in a subsequentperiod when the amount of impairment loss decreases and the related decrease can beobjectively measured. The carrying amount of the asset previously impaired is increased to theextent that the new carrying amount does not exceed the amortised cost, had no impairmentbeen recognised in prior periods.

(ii) Available-for-sale Significant or prolonged declines in the fair value of the security below its cost and thedisappearance of an active trading market for the security are objective evidence that thesecurity is impaired.

The cumulative loss that was recognised in the fair value reserve is transferred to profit or loss.The cumulative loss is measured as the difference between the acquisition cost (net of anyprincipal repayments and amortisation) and the current fair value, less any impairment losspreviously recognised in profit or loss on debt securities. The impairment losses recognised inprofit or loss on equity securities are not reversed through profit or loss.

2.1.18 Trade and other payablesTrade and other payables are initially recognised at fair value, and subsequently carried at amortised cost,using the effective interest method.

3. Critical accounting estimates, assumptions and judgement

Estimates, assumptions and judgements are continually evaluated and are based on historical experienceand other factors, including expectations of future events that are believed to be reasonable under thecircumstances.

(a) Financial asset at fair value through profit or lossThe Group and the Company uses market or quoted price to fair value its financial assets. In caseswhere market or quoted prices are not used, fair value is determined by using valuation techniquesand a set of key assumptions that are subject to change depending on the market conditionsprevailing at the time in which fair value is determined. Furthermore, the Group and the Companyfollows guidance of FRS 39 to classify financial assets as financial assets at fair value through profit orloss. The current classification is based on the premise that these financial assets are managed on aportfolio basis and traded accordingly. Prevailing market conditions could change resulting inreassessment of the current classification.

(b) Fair value estimation of available for sale financial assetsThe Group impaired its US$6,000,000 investment in an unlisted equity security that was classified asavailable for sale. In 2009, the Group made a judgement that the fair value of this securityapproximates its carrying value. In making this judgement the Group has taken into considerationthe cost to the Group, the timing of the acquisition of the investment and the outlook of the investee.

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4. RevenueThe Group The Company

2010 2009 2010 2009US$ US$ US$ US$

Dividends from investment in joint venture - - 338,000,000 182,000,000

Sale of goods 7,840,266 2,879,563 - -

7,840,266 2,879,563 338,000,000 182,000,000

Other investment income/(losses)

Other dividends 5,898,052 2,739,680 5,898,057 2,739,680

Fair value gains/(loss) on financialassets through profit or loss 6,554,071 30,503,562 6,554,071 30,503,562

Interest income from commercialpapers, certificates of deposits,bonds and cash balances 22,506,855 15,485,892 22,343,846 15,485,892

Loss on re-measurement of equityinterest - (1,250,000) - -

34,958,978 47,479,134 34,795,974 48,729,134

Total revenue 42,799,244 50,358,697 372,795,974 230,729,134

The Company received gross dividend income of US$338,000,000 (2009: US$182,000,000) from itsinvestment in a joint venture, OK Tedi Mining Limited, during the financial year. A 10% dividendwithholding tax of US$33,800,000 (2009: US$18,200,000) was deducted in respect of this dividendincome and paid to the PNG Internal Revenue Commission during the financial year (see Note 7).

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5. ExpensesThe Group The Company

2010 2009 2010 2009US$ US$ US$ US$

GovernanceBoard of Directo’r fees 712,204 595,168 712,204 595,168Board administration 443,956 389,075 443,956 389,075Advisory council 9,715 7,869 9,715 7,869Annual report 131,112 135,451 131,112 135,451Annual report meeting expenses 88,290 63,133 88,290 63,133Audit 574,073 286,806 574,073 286,806Company secretary 156,733 35,108 156,733 35,108

2,116,083 1,512,610 2,116,083 1,512,610

AdministrationProfessional services 1,003,576 2,538,595 441,845 1,638,316Employee compensation (Note 6) 9,816,868 6,166,351 3,435,077 2,896,257Depreciation (Note 16) 1,984,285 935,571 173,704 285,746Information services 415,349 330,063 211,066 243,623Office rent 770,910 398,617 192,400 216,294Insurance 586,646 472,129 338,125 260,083Travel 979,929 794,162 540,738 526,366Net foreign exchange loss 751,131 2,512,987 495,536 3,335,863Amortisation – premium on

inscribed stock 43,084 42,812 43,084 42,812Motor vehicle expenses 215,138 212,709 150,017 132,929Advertising and promotion 28,152 78,853 17,256 72,612Others 6,167,455 11,013,860 710,568 450,644

22,762,523 25,496,709 6,749,416 10,101,545

Contractual obligation 94,445 76,382 94,445 76,382

Investment program costsFund management fees 1,859,393 2,335,610 1,859,393 2,335,610

1,859,393 2,335,610 1,859,393 2,335,610

Development program costsWestern Province 21,717,562 13,659,625 21,717,562 13,659,625National 24,380,549 32,769,250 24,380,549 27,319,249

46,098,111 46,428,875 46,098,111 40,978,874

Total expenses 72,930,555 75,850,186 56,917,448 55,005,021

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6. Employee compensationThe Group The Company

2010 2009 2010 2009US$ US$ US$ US$

Wages and salaries 7,852,460 4,596,393 2,946,803 2,406,143

Other employee benefits and costs 1,485,238 1,300,721 325,102 374,194

Employer's contribution to definedcontribution plans 479,170 269,237 163,172 115,920

9,816,868 6,166,351 3,435,077 2,896,257

Key management remuneration is disclosed in Note 26(a).

7. Income taxes

Income tax expenseThe Group The Company

2010 2009 2010 2009US$ US$ US$ US$

Tax expense attributable to the operating surplus is made up of:

Current income tax - Foreign 34,927,270 18,796,248 34,927,270 18,796,248

Deferred income tax 8,493,004 11,303,032 - -

43,420,274 30,099,280 34,927,270 18,796,248

The foreign tax is comprised of:

• US$33,800,000 (2009: US$18,200,000) dividend withholding tax deducted from the dividendincome that the Company received from its investment in a joint venture (Ok Tedi Mining Limited);

• Dividend withholding tax on the retained earnings of Ok Tedi Mining Limited of US$8,493,004(2009: US$11,303,032) representing withholding tax on the expected future dividends fromretaining earnings;

• US$995,917 (2009: US$438,176) dividend withholding tax deducted from Papua New Guineaequity investments; and

• US$131,353 (2009: US$158,072) interest withholding tax deducted from Bank of Papua NewGuinea Inscribed Stocks.

The dividend withholding taxes have been paid to Inland Revenue Commission (“IRC”) of Papua NewGuinea during the financial year. No Singapore income tax is payable on the basis that the dividend andinterest income is not remitted to Singapore.

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7. Income taxes (continued)The tax expense on results differs from the amount that would have arisen using the Singapore standardrate of income tax due to the following:

The Group The Company

2010 2009 2010 2009US$ US$ US$ US$

Surplus before income tax 355,977,921 269,748,154 315,878,524 175,724,113

Tax calculated at Singapore rateapplicable to surplus inPapua New Guinea at17% (2009: 17%) 60,516,247 45,857,186 53,699,349 29,873,099

Effect of different tax rates inother countries 30,354,369 18,926,750 (23,660,000) (12,609,498)

Income not subject to tax (8,014,389) (7,818,207) (4,912,646) (7,818,207)

Expenses not deductible fortax purpose 17,709,612 12,021,258 9,800,567 9,350,854

Tax calculated on share of resultsof jointly controlled entities (65,638,569) (50,190,739) - -

Tax recognised on retained earningsof joint venture 8,493,004 11,303,032 - -

Tax charge 43,420,274 30,099,280 34,927,270 18,796,248

Comprising of:

Dividend/interest withholding taxpaid to the Internal RevenueCommission (Papua New Guinea) 34,927,270 18,796,248 34,927,270 18,796,248

Tax recognised on retained earningsof joint venture 8,493,004 11,303,032 - -

43,420,274 30,099,280 34,927,270 18,796,248

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8. Cash and cash equivalentsThe Group The Company

2010 2009 2010 2009US$ US$ US$ US$

Cash and bank balances 288,573,901 44,297,465 278,420,845 42,590,146

Funds under management:

Cash held in investment funds 46,794,407 159,522,508 46,794,407 159,522,508

Commercial papers and certificatesof deposit 28,001,399 5,998,643 28,001,399 5,998,643

74,795,806 165,521,151 74,795,806 165,521,151

363,369,707 209,818,616 353,216,651 208,111,297

For the purpose of presenting the consolidated cash flow statements, the consolidated cash and cashequivalents comprise the following:

The Group

2010 2009US$ US$

Cash and bank balances (as above) 363,369,707 209,818,616

Less: Bank overdraft - -

363,369,707 209,818,616

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8. Cash and cash equivalents (continued)

Acquisition of additional shares in an associated company

On 26 May 2010, the Group acquired an additional 32% share in PNG Microfinance Limited, anassociate company. This transaction effectively resulted in PNG Microfinance Limited being an 81%owned subsidiary. The effects of the acquisition on the cash flows of the Group were:

The GroupAcquisition

At fairvaluesUS$

Identifiable assets and liabilitiesCash and cash equivalents 9,118,873

Trade and other receivables 2,872,057

Property, plant and equipment 1,104,582

Total assets 13,095,512

Trade and other payables 13,095,512

Total liabilities 13,095,512

Identifiable net assets acquired -

Non-controlling interests -

Investment held prior to acquisition -

Net of identifiable net assets acquired -

Cash consideration paid (35,900)

Less: Cash and cash equivalents in subsidiary acquired 9,118,873

Net cash inflow on acquisition 9,082,973

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8. Cash and cash equivalents (continued)

On 10 August 2009, the Group acquired the share capital of PNG Sustainable Energy Limited, resultingin PNG Sustainable Energy Limited becoming a wholly-owned subsidiary. Prior to the acquisition, PNGSustainable Energy Limited was jointly controlled by the Company and Snowy Mountain EngineeringCorporation (SMEC). The effects of the acquisition on the cash flows of the Group were:

The GroupAcquisition

At fairvaluesUS$

Identifiable assets and liabilitiesCash and cash equivalents 307,147

Trade and other receivables 1,490,101

Inventories 9,613

Property, plant and equipment 389,313

Intangible assets 5,450,000


Trade and other payables 2,132,901

Provision for other liabilities and charges 63,273

Total liabilities 2,196,174

Identifiable net assets acquired 5,450,000

Investment held prior to acquisition -

Net of identifiable net assets acquired 5,450,000

Cash consideration paid (5,450,000)

Less: Cash and cash equivalents in subsidiary acquired 307,147

Net cash inflow on acquisition (5,142,853)

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9. Financial assets at fair value through profit or loss


2010 2009 2010 2009US$ US$ US$ US$

CurrentFunds under management:Bonds 129,037,677 119,696,664 129,037,677 119,696,664Commercial papers and

certificates of deposit 34,505,497 29,479,561 34,505,497 29,479,561Accrued interest - 1,035,954 - 1,035,954Total Current 163,543,174 150,212,179 163,543,174 150,212,179

Non-currentFunds under management:Bonds 455,262,294 320,177,351 455,262,294 320,177,351Equity securities 70,255,229 59,529,124 70,255,229 59,529,124Funds 47,640,282 78,593,025 47,640,282 78,593,025Accrued interest - 2,838,992 - 2,838,992

573,157,805 461,138,492 573,157,805 461,138,492

Inhouse Managed Funds:Bonds 10,037,119 9,971,062 10,037,119 9,971,062Equity securities * 116,710,007 130,960,922 116,710,007 130,960,922

126,747,126 140,931,984 126,747,126 140,931,984Total Non-current 699,904,931 602,070,476 699,904,931 602,070,476

Total 863,448,105 752,282,655 863,448,105 752,282,655

* Investments in locally listed equity securities.

Funds under management

The financial assets that are externally-managed comprised funds placed with the various professionalfund managers pursuant to investment management agreements. The Group can, pursuant to the terms,terminate the agreements by giving the requisite prior notice in writing to the fund managers. Thesefund managers are given discretionary powers within certain guidelines to invest the funds and thesefinancial assets are managed on a portfolio basis and their performance evaluated on a fair value basis.

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10. Finance lease receivables

The Group leases aircrafts to a non-related party under a finance lease arrangement. The initial agreementon the first aircraft terminates in 2013.

New finance lease arrangements for two more aircrafts were finalised in October 2010. These agreementsterminate in 2017.

The Group

2010 2009

US$ US$

Gross receivables due

- Not later than one year 10,591,394 1,653,411

- Later than one year but within five years 47,307,820 4,684,663

- Later than five years 7,448,337 -

Total 65,347,551 6,338,074

Less: Unearned finance income 13,004,009 1,088,473

Net investment in finance leases 52,343,542 5,249,601

The net investment in finance leases is analysed as follows:The Group

2010 2009

US$ US$

Not later than one year 7,162,417 1,340,015Later than one year

- Between one and five years 37,966,325 3,909,586- Later than five years 7,214,800 -

45,181,125 3,909,586

52,343,542 5,249,601

The fair value of lease receivables at 31 December 2010 amounted to US$59,911,121(2009: US$5,693,221). The fair values are based on cash flows discounted using a rateof 2.7% (2009: 2.2%).

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11. Other receivables


2010 2009 2010 2009US$ US$ US$ US$

CurrentLoans receivable from subsidiaries - - 86,970,444 25,191,977

Other debtors 35,130,477 10,086,313 37,441,957 16,450,416

35,130,477 10,086,313 124,412,401 41,642,393

Non currentLoan receivable - 50,000,000 - 50,000,000

- 50,000,000 - 50,000,000

Other debtors (excluding prepayments and interest receivable) are denominated in PNG Kina. The carryingamounts of interest receivable, and other debtors approximated their fair values.

The Company entered into a Facility Agreement with Lihir Gold Limited, a global gold mining company,on 11 September 2009 for a five year term. The agreed funding of US$50,000,000 was drawn down fullyon 7 October 2009. The agreement was terminated in October 2010 and the lump sum funding ofUS$50,000,000 was fully repaid during the financial year.

Loan receivable from subsidiaries

The Company

2010 2009US$ US$

CurrentWestern Province Sustainable Power 7,805,283 -

Champion No. 34 50,523,762 -

Cloudy Bay Sustainable Forestry 28,641,399 25,191,977

86,970,444 25,191,977

The loans receivable from Champion No. 34, Western Province Sustainable Power and Cloudy BaySustainable Forestry are interest-free, unsecured with no fixed repayment period and will be called uponwhen these subsidiaries have the capacity to repay the loans.

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12. Financial assets, available-for-sale


2010 2009 2010 2009US$ US$ US$ US$

Beginning of financial year 6,000,000 5,000,000 6,000,000 5,000,000Additions - 1,000,000 - 1,000,000Impairment (6,000,000) - (6,000,000) -End of financial year - 6,000,000 - 6,000,000

Available-for-sale financial assets are analysed as follows:


2010 2009 2010 2009US$ US$ US$ US$

Unlisted securities - 6,000,000 - 6,000,000

The Company maintains a 10% interest in a telecommunication carrier in Papua New Guinea acquired ata cost of US$6,000,000 (an initial investment of US$5,000,000 was established on 3 November 2008and a further US$1,000,000 in 2009). Based on fair value assessment at balance date, the investmentwas fully impaired.

13. Investment in joint ventures


2010 2009 2010 2009US$ US$ US$ US$

Investment in OTML at cost 2,903,581 2,903,581Investment in PNGSEL at cost - 5,029,913Impairment of investments in PNGSEL - (5,029,913)Investment in PNGEDL, at cost -* -Total Investment 2,903,581 2,903,581Beginning of the financial year 487,987,386 367,676,241Investment in PNGEDL at cost -* -Disposal of investment in PNGSEL (1,250,000)Share of results after tax 386,109,232 295,239,643Share of hedge reserve (24,901,639) 4,303,204Dividends received (338,000,000) (182,000,000)Foreign currency translation

differences 24,130,707 4,018,298End of the financial year 535,325,686 487,987,386

*Less than US$1.

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13. Investment in joint ventures (continued)

The summarised financial information of joint ventures are as follows:

The Group

2010 2009US$ US$

- Assets 828,815,544 740,984,584

- Liabilities 285,283,576 270,496,020

- Revenue 967,252,324 758,712,293

- Net results 385,368,753 295,239,643

Share of contingent liabilities incurred jointly with other investors - -

Ok Tedi Mining Limited (“OTML”)

The investment in a joint venture is accounted for at cost in the Company’s financial statements. The costof US$2,903,581 represents stamp duty paid to the Papua New Guinea Government and legal feesincurred relating to the transfer of shares in the joint venture to the Company.

In accordance with the Funding Facility Deed dated 22 November 2001 and the Equitable Mortgage ofShares dated 7 February 2002 between the Company and Insinger Trust (Singapore) Limited, there is anequitable charge over the OTML shares which creates an interest in the dividend stream from the sharesheld in OTML (but not the shares themselves).

Restatement of comparative figures

The foreign currency translation reserve relating to the investment in OTML was restated during the yearto transfer amounts included in equity that should more appropriately have been presented as acomponent of the equity accounted investment in OTML. This resulted in an uplift of carrying value of theinvestment in joint ventures and foreign currency translation reserves by US$186,588,688 as at31 December 2008 (refer to Group statement of changes in equity for restated balances). The adjustmentresults in an increase in assets and equity and has no profit or cash flow impact. The adjustment has beenapplied retrospectively. The impact to the foreign currency translation reserve is included in the statementof changes in equity.

PNG Energy Development Limited (“PNGEDL”)

Pursuant to a shareholder agreement, PNGEDL is equally owned by PNGSDP and Origin Energy Ltd. Theprincipal activity of PNGEDL is to implement and manage electricity and energy projects which in line withthe overall goals and objectives of PNGSDP. Origin Energy Ltd provides technical expertise whilst PNGSDPLimited provides the funding for the projects.

Sunset Shipping Limited

Pursuant to a shareholders’ agreement, Sunset Shipping Limited is to be equally owned by PNGSDP andthe Fly River Provincial Government.

Sunset Shipping Limited has been established to own and operate a shipping business from Port Moresbyand other parts of Papua New Guinea to Western Province. The joint venture’s operations commenced inDecember 2009.

On 12 March 2010, the Company transferred its 50% interest in Sunset Shipping Limited to the Fly RiverProvincial Government, for no consideration.

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14. Investment in associated companyThe Group

2010 2009

US$ US$

Beginning of the financial year - -Share of results after tax - -End of the financial year - -

2010 2009

US$ US$

- Assets - 14,959,187- Liabilities - 13,921,172- Revenues - 2,139,525- Net loss - 1,204,499

The principal activity of the associated company is to provide financial services designed to meet the needsof low income households and small business operators across Papua New Guinea.

PNG Microfinance Limited has been accounted for as a subsidiary in 2010 in accordance with theaccounting policy Note 2.1.3(a)(i), subsequent to the acquisition of additional 32% interest during thefinancial year.

15. Investment in subsidiariesThe Company

2010 2009

US$ US$

Investments (unquoted at cost)

Cloudy Bay Sustainable Forestry Limited 16,930,639 16,930,639Impairment of Cloudy Bay Sustainable Forestry Limited (16,930,639) (16,930,639)PNG Sustainable Infrastructure Limited 1 1Impairment of PNG Sustainable Infrastructure Limited (1) (1)PNG Sustainable Energy Limited 5,450,000 5,450,000Champion No. 34 Limited 1 1PNG Microfinance Ltd 1,940,787 -Impairment of PNG Microfinance Ltd (1,940,787) -

5,450,001 5,450,001

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15. Investment in subsidiaries (continued)

Details of the subsidiaries are as follows:Country

of Effective Interest Name of company Principal activities incorporation

2010 2009% %

Cloudy Bay Sustainable Harvest, mill and sell Papua New 100 80Forestry Limited timber products and Guinea

also promote sustainable forestrymanagement practices.

PNG Sustainable Infrastructure Develop and Papua New 100 100Limited construct infrastructure Guinea

projects in PapuaNew Guinea.Inactive since 2008.

PNG Sustainable Energy Limited Develop, produce Papua New 100 100and distribute Guineaelectricity andmanageenergy projects. Inactive in 2010.

Champion No. 34 Limited Leasing of aircraft. Papua New 100 100Guinea

Western Province Implement and Papua New 100 100Sustainable Power Limited manage electricity Guinea

projects in theWestern Province.

PNG Microfinance Ltd Financial institution Papua New 81 49Guinea

Cloudy Bay Sustainable Forestry Limited

During the financial year, the Company acquired the 20% non-controlling interest in Cloudy BaySustainable Forestry Limited after an agreement was effected with Constant Investments Limited (theother shareholder) to legally transfer their 20% interest to the Company. There was no exchange of cashor other assets.

PNG Microfinance Ltd

On 26 May 2010, the Group acquired additional 32% of equity interest of PNG Microfinance Ltd, anassociate to the Company prior to the transaction. As a result of the acquisition, the Group increased itsshareholding to 81%.

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16. Property, plant and equipment (continued)

The Company

Computers Officeand computer Motor furniture and Leasehold

software vehicles equipment Improvements TotalUS$ US$ US$ US$ US$

2010Cost

Beginning of financial year 752,890 224,160 402,713 97,998 1,477,761

Additions 89,301 51,102 7,129 15,908 163,440

Disposals - (112,976) - - (112,976)

End of financial year 842,191 162,286 409,842 113,906 1,528,225

Accumulated depreciation


Disposals - (52,722) - - (52,722)

Depreciation charge 82,951 24,732 53,940 12,081 173,704


Net book value

End of financial year 23,316 85,179 17,272 16,757 142,524

2009Cost


Additions 67,088 18,820 2,297 - 88,205


Accumulated depreciation

Beginning of financial year 570,914 74,997 274,303 58,759 978,973

Depreciation charge 165,010 30,100 64,327 26,309 285,746


Net book value

End of financial year 16,966 119,063 64,083 12,930 213,042

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17. Intangible assets

Intangible assets consist of timber permits and research and development and intellectual propertyacquired.


2010 2009 2010 2009US$ US$ US$ US$

Beginning of financial year - - - -

Acquisition of subsidiary - 5,450,000 - -

Amortisation - - - -

Impairment - - - -

Disposal - (5,450,000) - -

End of financial year - - - -

Cost 12,554,500 18,004,500 - -

Accumulated amortisation (526,808) (526,808) - -

Impairment (12,027,692) (12,027,692) - -

Disposal - (5,450,000) - -

Net book value - - - -

The carrying value of the timber permits (i.e. timber permits for Cloudy Bay Sustainable Forestry) hasbeen fully impaired as management has estimated that the recoverable amount is less than its carryingamount.

The intangible assets in 2009 relate to research and development and intellectual property intangiblesacquired through the acquisition of PNGSEL. Immediately following acquisition these intangibles weredisposed to PNG Energy Developments Limited.

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18. Sundry creditors and accruals


2010 2009 2010 2009US$ US$ US$ US$

Amounts due to:

- Subsidiaries (non-trade) - - 5,450,000 5,450,000

- Non-related parties 21,052,551 4,249,248 4,318,098 2,419,370

21,052,551 4,249,248 9,768,098 7,869,370

The non-trade amount due to subsidiaries is unsecured, interest-free and repayable on demand.

19. Deferred income tax liability

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to set offcurrent income tax assets against current income tax liabilities and when the deferred income taxesrelate to the same fiscal authority. The amounts, determined after appropriate offsetting, are shown onthe balance sheets as follows:


2010 2009 2010 2009US$ US$ US$ US$

Deferred income tax liabilities:

- to be settled after one year 44,062,044 35,569,040 - -

44,062,044 35,569,040 - -

Deferred income tax liabilities are recognised on the retained earnings of Ok Tedi Mining Limitedrepresenting withholding tax on the expected future dividends from retaining earnings.

20. Members’ subscriptions

As a Company “limited by guarantee”, the Company does not have any issued shares or shareholders. At31 December 2010, there were 3 (2009: 3) members of the Company.

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21. General, Long Term and Development Funds

General Fund

The General Fund is accounted for in accordance with the policy set out in Note 2.1.15.

The Company

2010 2009

US$ US$

Beginning of the financial year 2,903,581 2,903,581Dividends from investment in joint venture 338,000,000 182,000,000Other income 225,075 -Governance and administrative expenses (8,322,853) (8,181,077)10% Withholding tax paid to IRC of Papua New Guinea (33,800,000) (18,200,000)Transfer to Long Term and Development Funds (296,102,222) (155,618,923)End of the financial year 2,903,581 2,903,581

Long Term Fund

The Long Term Fund is accounted for in accordance with the policy set out in Note 2.1.15.

The Company

2010 2009

US$ US$

Beginning of the financial year 817,890,515 677,772,696Investment income 32,989,803 42,624,186Investment expenses (1,713,805) (2,146,608)Withholding tax paid to IRC of Papua New Guinea (1,127,270) (596,248)Administration expenses (637,091) (3,509,460)Transfer from General Fund 197,401,482 103,745,949End of the financial year 1,044,803,634 817,890,515

The weighted average rate of return on investment for the Long Term Fund for the year was 3.55%(2009: 5.01%)

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21. General, Long Term and Development Funds (continued)

Development Fund

The Development Fund is accounted for in accordance with the policy set out in Note 2.1.15, and isallocated between the Western Province Program Fund and the National Program Fund as follows:

WesternProvince NationalProgram Program

Fund Fund Program Program

2010 2010 2010 2009

US$ US$ US$ US$

Beginning of the financial year 92,034,173 145,678,824 237,712,997 220,902,951

Investment income 527,032 1,054,064 1,581,096 6,104,948

Investment & Development expenses (21,762,627) (24,481,072) (46,243,699) (41,167,876)

Transfer from General Fund 32,900,247 65,800,493 98,700,740 51,872,974

End of the financial year 103,698,825 188,052,309 291,751,134 237,712,997

The weighted average rate of return on short term investments for the Development Fund for the yearwas 0.49 % (2009: 2.98%).

22. Commitments

(a) Operating lease commitments

The Group leases office space and motor vehicles from non-related parties under non-cancellableoperating lease agreements. The leases have varying terms, escalation clauses and renewalrights.

The future aggregate minimum lease payments under non-cancellable operating leasescontracted for at the reporting date but not recognised as liabilities, are as follows:


2010 2009 2010 2009US$ US$ US$ US$

Not later than 1 year 201,258 230,501 201,258 230,501

Later than 1 year but notlater than 5 years 558,083 230,292 558,083 230,292

759,341 460,793 759,341 460,793

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22. Commitments (continued)

(b) Project commitments

The commitments for projects with signed funding agreements, excluding expenditures alreadymade for the projects, are as follows:


2010 2009 2010 2009US$ US$ US$ US$

Western Province 61,356,241 10,295,942 61,356,241 10,295,942

National 98,226,373 7,335,675 98,226,373 7,335,675

159,582,614 17,631,617 159,582,614 17,631,617

(c) Capital commitments

Capital expenditures contracted for at the balance sheet date but not recognised in the financialstatements, excluding those relating to investments in associated companies (Note 14) andinvestment in a joint venture (Note 13), are as follows:


2010 2009 2010 2009US$ US$ US$ US$

Property, plant and equipment - 1,192,913 - -

- 1,192,913 - -

(d) Compensation commitments

The Group has signed various compensation agreements with landowners and othersurrounding communities affected by the mine. Compensation packages are denominated in thelocal currency and, in the majority of instances, are payable over the life of the open pit mine.

PNGSDP has an annual commitment to spend at least US$7.9 million (PGK21.5 million) or 2.5%of dividends declared each year, whichever is greater, in mine affected communities until mineclosure date, which is 2013 under the current mine plan.

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23. Contingencies

Contingent liabilities

The Shareholder Agreement between PNGSDP, PNGMF and International Finance Corporation (IFC) wasamended and restated on 22 May 2006 to cater for a subscription agreement between PNGMF andInternational Finance Corporation (IFC) dated 24 June 2005. IFC has agreed on the terms and conditionsset out therein and subscribe for approximately 2,900,000 shares ("option shares") of PNGMF during theyear. As a condition for investing in PNGMF the IFC entered into a Put Option Agreement with PNGSDPon 22 May 2006. The Put Option Agreement binds PNGSDP to acquire the option shares when IFCexercises the right to require PNGSDP to purchase any or all of the option shares. The Put OptionAgreement specifies that the put option can be exercised by IFC when a "Put Triggering Event" occurs, suchas default or non-compliance by PNGSDP or PNGMF with any of its respective obligations, or anymisrepresentation or breach of warranty by PNGSDP or PNGMF under the Shareholders Agreement.

24. Financial risk management

The Group’s and the Company’s activities expose it to a variety of financial risks: market risk (includingcurrency risk, interest rate risk and price risk), credit risk and liquidity risk. The Group’s and the Company’soverall risk management program focuses on the unpredictability of financial markets and seeks tominimise potential adverse effects on the Group’s and the Company’s financial performance.

The Board of Directors is responsible for setting the objectives and the underlying principles of financial riskmanagement for the Group and the Company. The Investment and Finance Committee then establishesthe detailed policies such as authority levels, oversight responsibilities, risk identification and measurement,exposure limits, and in accordance with the objectives and underlying principles that are approved by theBoard of Directors.

The Group and the Company has appointed five professional investment managers to carry out theinvestment activities in accordance with the investment policies and guidelines approved by the Board ofDirectors. An Investment and Finance Committee of the Board has been established to monitor investmentand risk management and the performance of the investment managers.

(a) Market risk

(i) Currency risk

The Group operates internationally and is exposed to foreign exchange risk arising fromvarious currency exposures, primarily with respect to the PNG Kina, Euro and UnitedStates Dollar. Currency risk arises from future commercial transactions, recognised assetsand liabilities and net investments in foreign operations.

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24. Financial risk management (continued)

(a) Market risk (continued)

(i) Currency risk (continued)

The Group’s currency exposure based on the information used by key management is as follows:

PGK EUR USD Other Total

US$ US$ US$ US$ US$

2010

Financial assets

Cash and cash equivalents 10,395,078 83,275 352,891,354 - 363,369,707

Financial assets at fair valuethrough profit or loss 125,856,324 58,094,047 666,373,091 13,124,643 863,448,105

Other receivables andfinance lease receivable 52,921,934 - 34,552,085 - 87,474,019

189,173,336 58,177,322 1,053,816,530 13,124,643 1,314,291,831

Financial liabilities

Sundry creditors andaccruals (22,072,645) - - - (22,072,645)

Net financial assets 167,100,691 58,177,322 1,053,816,530 13,124,643 1,292,219,186

Less: Net financial assetsdenominated in therespective entities’functional currencies - - (1,053,816,530) - (1,053,816,530)

Currency exposure 167,100,691 58,177,322 - 13,124,643 238,402,656

2009

Financial assets

Cash and cash equivalents 1,680,680 226,139 200,886,640 7,025,157 209,818,616


Financial assets available-for-sale - - 6,000,000 - 6,000,000

Other receivables andfinance lease receivable 17,286,313 - 48,049,601 - 65,335,914

159,898,977 16,681,241 798,394,166 58,462,801 1,033,437,185

Financial liabilities


Net financial assets 155,649,729 16,681,241 798,394,166 58,462,801 1,029,187,937

Less: Net financial assetsdenominated in therespective entities’functional currencies - - (798,394,166) - (798,394,166)


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The Company’s currency exposure based on the information used by key management is asfollows:

PGK EUR USD Other Total

US$ US$ US$ US$ US$

2010

Financial assets

Cash and cash equivalents 241,999 83,275 352,891,377 - 353,216,651


Other receivables 89,860,316 - 39,515,098 - 129,375,414

215,958,639 58,177,322 1,058,779,566 8,161,630 1,341,077,157

Financial Liabilities


Net financial assets 205,843,742 58,177,322 1,058,779,566 8,161,630 1,330,962,260

Less: Net financial assetsdenominated in theCompany’s functionalcurrency - - (1,058,779,566) - (1,058,779,566)


2009

Financial Assets

Cash and cash equivalents - 226,139 200,860,001 7,025,157 208,111,297


Financial assetsavailable-for-sale - - 6,000,000 - 6,000,000

Other receivables 36,174,280 - 55,468,113 - 91,642,393

177,106,264 16,681,241 805,786,039 58,462,801 1,058,036,345

Financial Liabilities


Net financial assets 169,236,895 16,681,241 805,786,039 58,462,801 1,050,166,976

Less: Net financial assetsdenominated in theCompany’s functionalcurrency - - (805,786,039) - (805,786,039)






If the PGK changed against the USD by 5% (2009: 5%) with all other variablesincluding tax rate being held constant, the effects arising from the net financialliability/asset position will be as follows:

2010 2009Increase/(Decrease)

Surplus from Surplus fromoperations operations

US$ US$The GroupPGK against USD

- strengthened 7,868,790 6,383,913

- weakened (7,868,790) (6,383,913)

The CompanyPGK against USD

- strengthened 12,005,437 6,383,913

- weakened (12,005,437) (6,383,913)

If the EUR change against the USD by 2% (2009: 2%) with all other variables includingtax rate being held constant, the effects arising from the net financial liability/assetposition will be as follows:



US$ US$The GroupEUR against USD

- strengthened 1,164,081 333,717

- weakened (1,164,081) (333,717)

The CompanyEUR against USD

- strengthened 1,164,081 333,717

- weakened (1,164,081) (333,717)

(ii) Price riskThe Group is exposed to equity securities price risk because of investments held by theGroup and classified on the consolidated balance sheet as at fair value through profit orloss. To manage its price risk arising from investments in equity securities, the Groupdiversifies its portfolio. Diversification of the portfolio is done in accordance with thelimits set by the Group.

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(ii) Price risk (continued)

The Group and the Company is exposed to equity and bond securities price riskbecause of investments held by the Group and the Company and classified on theconsolidated balance sheet as at fair value through profit or loss. To manage its pricerisk arising from investments in equity and bond securities, the Group and theCompany diversifies its portfolio. Diversification of the portfolio is done in accordancewith the limits set by the Group and the Company.

If prices for equity and bond securities reported by the Fund Managers and thosemanaged internally by management in PNG change by 5% (2009: 5%) with all othervariables including tax rate being held constant, the effects on profit after tax will be:



US$ US$The GroupManaged by Fund Managers

- increased by 27,785,926 24,970,157

- decreased by (27,785,926) (24,970,157)

Managed in-house

- increased by 6,337,356 6,447,179

- decreased by (6,337,356) (6,447,179)

The CompanyManaged by Fund Managers

- increased by 27,785,926 24,970,157

- decreased by (27,785,926) (24,970,157)

Managed in-house

- increased by 6,337,356 6,447,179

- decreased by (6,337,356) (6,447,179)

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(iii) Interest rate risk

As the Group and the Company has interest-bearing assets, the Group’s and theCompany’s income and cash flows are affected by changes in market interest rates.

The Group’s and the Company’s interest rate risk arises from term deposits, commercialpapers and bonds. The Group’s and the Company’s risk management policy is to limitinvestment in commercial papers to not more than 1% per institution and no morethan 20% of the investment portfolio exposure to any single country.

(b) Credit risk

Credit risk refers to the risk that counterparty will default on its contractual obligations resultingin financial loss to the Group and the Company. The major classes of financial assets of theGroup and of the Company are cash and bank balances, receivables and financial instruments.For trade receivables, the Group and the Company adopts the policy of dealing only withcustomers of appropriate credit history, and obtaining sufficient collateral where appropriate tomitigate credit risk. For other financial assets, the Group and the Company adopts the policy ofdealing only with high credit quality counterparties.

Credit exposure to an individual counterparty is restricted by credit limits that are approved bythe Investment Committee based on ongoing credit evaluation. The counterparty’s paymentprofile and credit exposure are continuously monitored at the entity level by the respectivemanagement and at the Group level by the Investment Committee.

Credit risk arises from cash and cash equivalents, financial instruments and deposits with banksand financial institutions. For banks and financial institutions, the Group only transacts withindependently rated parties with high credit ratings.

As the Group and the Company do not hold any collateral, the maximum risk for each class offinancial instruments is the carrying amount of that class of financial instruments presented onthe balance sheet.

The investment in commercial papers and bonds are restricted to institutions in OECD membercountries.

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(b) Credit risk (continued)

(i) Financial assets that are neither past due nor impaired

Bank deposits, commercial papers and bonds that are neither past due nor impaired aremainly deposits, commercial papers and bonds with banks with high credit-ratingsassigned by international credit-rating agencies. Other receivables that are neither pastdue nor impaired are substantially companies with a good collection track record withthe Group.

The Group’s and Company’s other receivables not past due include receivablesamounting to US$91,598 (2009: US$182,194) and US$Nil (2009: US$66,136)respectively that would have been past due or impaired if the terms were not re-negotiated during the financial year.

(ii) Financial assets that are past due and/or impaired

There is no other class of financial assets that is past due and/or impaired except fortrade receivables.

The age analysis of other receivables past due but not impaired is as follows:

Group Company

2010 2009 2010 2009US$ US$ US$ US$

Past due < 3 months 195,133 248,330 - -

Past due 3 to 6 months 570,466 26,059 - -

765,599 274,389 - -

(c) Liquidity risk

Prudent liquidity risk management includes maintaining sufficient cash and marketable securities,the availability of funding from an adequate amount of committed credit facilities and the abilityto close out market positions. The Group maintains sufficient funds in cash and cash equivalentsto meet its operating commitments.

(d) Capital risk

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue asa going concern and to maintain an optimal capital structure so as to promote sustainabledevelopment within Papua New Guinea, and advance the general welfare of the people of PapuaNew Guinea.

(e) Fair value measurements

Effective 1 January 2009 the Group and the Company adopted the amendment to FRS 107 whichrequires disclosure of fair value measurements by level of the following fair value measurementhierarchy:

(a) quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);(b) inputs other than quoted prices included within Level 1 that are observable for the asset

or liability, either directly (ie. as prices) or indirectly (ie derived from prices) (Level 2); and(c) inputs for the asset or liability that are not based on observable market data

(unobservable inputs) (Level 3).

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(e) Fair value measurements (continued)

The following table presents our assets and liabilities measured at fair value at 31 December 2010.

Level 1 Level 2 Level 3 Total2010 US$ US$ US$ US$

The GroupAssetsFinancial assets at fair value through

profit or loss

Bonds 515,409,907 78,927,183 - 594,337,090

Equity securities 170,158,905 16,806,331 - 186,965,236

Commercial papers and certificatesof deposits and accrued interest - 34,505,497 - 34,505,497

Funds 30,757,449 16,882,833 - 47,640,282

Total assets 716,326,261 147,121,844 - 863,448,105

The CompanyAssetsFinancial assets at fair value through

profit or loss

Bonds 515,409,907 78,927,183 - 594,337,090

Equity securities 170,158,905 16,806,331 - 186,965,236


Funds 30,757,449 16,882,833 - 47,640,282

Total assets 716,326,261 147,121,844 - 863,448,105

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The following table presents our assets and liabilities measured at fair value at 31 December 2009.

Level 1 Level 2 Level 3 Total2009 US$ US$ US$ US$

The GroupAssetsFinancial assets at fair value through

profit or loss

Bonds 449,845,077 - - 449,845,077

Equity securities 190,490,046 - - 190,490,046


Funds - 78,593,025 - 78,593,025

640,335,123 111,947,532 - 752,282,655

Available-for-sale financial assets

Equity securities - - 6,000,000 6,000,000

Total assets 640,335,123 111,947,532 6,000,000 758,282,655

The CompanyAssetsFinancial assets at fair value through

profit or loss

Bonds 449,845,077 - - 449,845,077

Equity securities 190,490,046 - 190,490,046


Funds - 78,593,025 - 78,593,025

640,335,123 111,947,532 - 752,282,655

Available-for-sale financial assets

Equity securities - - 6,000,000 6,000,000

Total assets 640,335,123 111,947,532 6,000,000 758,282,655

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The fair value of financial instruments traded in active markets (such as trading and available-for-sale securities) is based on quoted market prices at the balance sheet date. The quoted marketprice used for financial assets held by the Group is the current bid price. These instruments areincluded in Level 1.

The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. The Group uses a variety ofmethods and makes assumptions that are based on market conditions existing at each balancesheet date. Other techniques, such as estimated discounted cash flows, are used to determine fairvalue for the remaining financial instruments. In infrequent circumstances, where a valuationtechnique for these instruments is based on significant unobservable inputs, such instruments areincluded in Level 3.

The carrying value less impairment provision of trade receivables and payables are assumed toapproximate their fair values. The fair value of financial liabilities for disclosure purposes isestimated based on quoted market prices or dealer quotes for similar instruments by discountingthe future contractual cash flows at the current market interest rate that is available to the Groupfor similar financial instruments. The fair value of current borrowings approximates their carryingamount.

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25. Business Combinations

On 26 May 2010, the Group acquired additional 32% of equity interest of PNG Microfinance Ltd. Theprincipal activity of PNG Microfinance Ltd is to provide financial services designed to meet the needs oflow income households and small business operators across Papua New Guinea. As a result of theacquisition, the Group has increased its shareholding to 81%.

US$

(a) Purchase consideration

Cash paid 35,900

Consideration transferred for the business 35,900

(b) Effect on cash flows of the Group

Cash paid (as above) (35,900)

Less: cash and cash equivalents in subsidiary acquired 9,118,873

Cash inflow on acquisition 9,082,973

At fair value

US$

(c) Identifiable assets acquired and liabilities assumed

Cash and cash equivalents 9,118,873

Property, plant and equipment 1,104,582

Trade and other receivables (Note (d) below) 2,872,057


Trade and other payables (13,095,512)

Total liabilities (13,095,512)

Total identifiable net assets -

(d) Acquired receivables

The fair value of trade and other receivables is US$2,872,057. The gross contractual amount fortrade receivables due is US$3,936,469 of which US$1,064,412 is expected to be uncollectible.

(e) Non-controlling interests

The Group has chosen to recognise the non-controlling interest at the proportionate share of thenet assets which is nil.

(f) Revenue and profit contribution

The acquired business contributed revenue of US$2,532,644 and a loss of US$1,172,985 to theGroup for the period from 1 June 2010 to 31 December 2010. Had PNG Microfinance Limitedbeen consolidated from 1 January 2010, consolidated revenue and consolidated profit for the yearended 31 December 2010 would have been US$48,209,745 and US$301,579,958 respectively.

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26. Related party transactions

Other than disclosed elsewhere in the financial statements, the following transactions took place betweenthe Company and related parties during the financial year:

(a) Key management personnel compensation

The key management personnel compensation is analysed as follows:


2010 2009 2010 2009US$ US$ US$ US$

Directors – fees 986,518 887,477 712,204 595,168

Management salaries and othershort-term benefits 2,578,107 1,494,586 1,152,386 765,586

3,564,625 2,382,063 1,864,590 1,360,754

There has been a Consumer Price Index (CPI) adjustment in the amount of remuneration payable toindividual Directors. In addition, a Director received US$77,899 (2009: US$65,818) from the Company inrespect of his services provided to a joint venture, Ok Tedi Mining Limited, as a Director of that entity.

Directors are not entitled to other benefits.

27. Events occurring after the balance sheet date

Ok Tedi Mining Limited (OTML) entered into a Share Buy-back Agreement with Inmet Mining Corporation(Inmet) on 28 January 2011 to buy-back 42.3 million shares (i.e. 18% shareholding) with the consent ofthe other shareholders, including PNGSDP. The consideration agreed with Inmet in exchange for theshares was US$335,000,000. This was settled on 28 January 2011

The restated shareholding effective from the date of the share buy-back is as follows:

Pre-acquisition Post-acquisition

PNGSDP 52% 63.4%

Inmet 18% -

The Independent State of Papua New Guinea 20% 24.4%

Mineral Resources Ok Tedi 10% 12.2%

Total 100% 100%

The Shareholders Agreement was amended on 28 January 2011 to reflect the change in shareholding (5thRestated Shareholders Agreement). The technical accounting interpretation of the agreement continuesto classify OTML as a jointly controlled company despite PNGSDP owning majority of the shares.Accordingly, PNGSDP’s share of OTML’s retained earnings and reserves brought forward from 31December 2010 will increase by 11.4% in 2011. Going forward, PNGSDP’s share of OTML net profit,increases or decreases in reserves and dividends declared by OTML will be calculated at 63.4% (previously52%).

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28. New or revised accounting standards and interpretations

Below are the mandatory standards, amendments and interpretations to existing standards that have beenpublished, and are relevant for the Group’s accounting periods beginning on or after 1 January 2011 orlater periods and which the Group has not early adopted:

• Amendments to FRS 24 – Related party disclosures (effective for annual periods beginning on orafter 1 January 2011)

• Amendments to FRS 32 Financial instruments: Presentation – classification of rights issues effectivefor annual periods beginning on or after 1 February 2010)

• Amendments to INT FRS 114 – Prepayments of a minimum funding requirement (effective forannual periods commencing on or after 1 January 2011)

• INT FRS 119 Extinguishing financial liabilities with equity instruments (effective for annual periodscommencing on or after 1 July 2010)

The management anticipates that the adoption of the above FRSs, INT FRSs and amendments to FRS in thefuture periods will not have a material impact on the financial statements of the Group and of theCompany in the period of their initial adoption, except for the amendments to FRS 24 – Related partydisclosures.

The amendment removes the requirement for government-related entities to disclose details of alltransactions with the government and other government related entities. It also clarifies and simplifies thedefinition of a related party. However, the revised definition of a related party will also mean that someentities will have more related parties and will be required to make additional disclosures.

Management is currently considering the revised definition to determine whether any additionaldisclosures will be required and has yet to put systems in place to capture the necessary information. It istherefore not possible to disclose the financial impact, if any, of the amendment on the related partydisclosures.

29. Authorisation of financial statements

These financial statements were authorised for issue in accordance with a resolution of the Board ofDirectors of PNG Sustainable Development Program Limited on 5 April 2011.

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M A N A G E M E N T R E P O R T


Corporate Services Report

In line with the development and implementation ofthe operational strategy a number of new positionswere created during the year, bringing the totalnumber of staff at 31 December 2010 to 71. The newpositions strengthened existing support services andthe new divisions of Mine Impact and Tabubil Futures.

• Ms Tamzin Wardley was appointed as ChiefOperating Officer.

• Mr Aloysius Aihi, Ms Patricia Kila and Mr Mark Soiwere promoted to the roles of Head of Division fortheir respective divisions of TransformationalProjects, Mine Impacts and Corporate Services.

• Offices were established in Tabubil for the StarMountains Institute of Technology and PNGSDP.

• Training for all staff coordinated by the HR teamand included attendance at relevant seminars andworkshops.

• Staff corporate uniforms launched in December2010 featuring the company’s corporate coloursand logo.

• Office renovations carried out to ensure supportservice delivery to the operations team werestreamlined.

• The IT team successfully upgraded the company’sservers and operation systems.

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Visit to South Fly District led by Director Patricia Caswell to openWomen’s Learning and Resource Centre, Eniyawa Village, Suki,Western Province

Program staff attending a participatory Program ManagementCycle workshop

Staff and their families participate in the Charity Cup Soccer heldduring Easter

Ms Tamzin WardleyChief Operating Officer,

commenced January 2010

P N G S D P M A N A G E M E N T C H A R TM a n a g e m e n t O r g a n i s a t i o n a l S t r u c t u r e

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Chief ProgramOfficer

Chief FinancialOfficer

Head of CorporateServices

Director, MineClosure

Head ofTransformational

Projects

Director, SMITRegistrar

Facilities Manager

Sustainable ForestryProgram ManagerProgram Officer

CommunityInfrastructure

Program ManagerEngineering Project

ManagerProject Manager(Comms. Towers)

SustainableAgriculture

DevelopmentProgram ManagerProgram Officer

CommunitySustainable

Investment ProgramProgram Manager

Senior ProgramOfficer (HIV &Development)Senior ProgramOfficers (CSIP)

Program Officers(CSIP)

Program Assistant

AuditingAuditors

FinanceFinancial ControllerFinancial & Projects

AccountantAssistant Accountant

Accounts OfficersData Officer

Errands & Filing Clerk

InvestmentsInvestment Analyst

Travel andAccommodationTravel & Accomm.

CoordinatorTravel & Accomm.

Officer

Human ResourcesHR Officer

InformationTechnology

IT Team LeaderProgrammer/AnalystIT Support Officers

AdministrationAdmin Coordinator

ReceptionistDrivers

Office Attendant

Public RelationsPublic Relations

Manager

Mine ClosureProject Leader,Mine Closure

CMCA CoordinatorCommunity Relations

OfficerProgram Officer

TabubilProject Leader,Tabubil Senior

Program Officer,Social Impacts

Projects Manager,Infrastructure

Daru PortProject Leader

Contract ManagerMaster Planning

Lands Officer

Cross-BorderDevelopment

Program Manger

InfrastructureCorridor

Program LeaderProject Manager

(Roads)Project Manager

(Oil & Gas)

Regional OfficeRegional ManagerCMCA Coordinator

Community RelationsOfficer

Admin AssistantDriver/Logistics

CorporateGovernance

Manager - CorporateGovernance

Fund ManagersNewton Investment

LtdSchroder’s & Co Ltd

Philips CapitalDeutsch Bank

HSBC

Chief OperatingOfficer

Office of the COOEconomist

Legal Counsel

Chief ExecutiveOfficer

Advisory Council

A D V I S O RY C O U N C I L R E P O R T


ADVISORY COUNCIL

The Company’s Program Rules provide for the Board to appoint up to seven eminent and appropriately skilledPapua New Guineans, each for a term of two years, to serve on the Advisory Council. They are to provide impartialadvice and comment on the Program of the Company. The Council reports to the Chief Executive Officer.

The members of the Council are:

Member Background

• Dr. Betty Lovai (Chairperson) Academic, Social Work, Education, From Western Province

• Ms. Felecia Dobunaba OBE Social Planning, Public Policy formulation,Development and implementation

• Reverend Samson Lowa Education, Pastoral and Community Development,Moderator of the United Church

• Mr. Paul Songo Education, Public Sector Reform, Capacity Building,Performance Monitoring of Provincial Administration and Local Level Government

• Mr. Blassius Iwik Landowner Representative Western Province,Education, Pastoral and Community Development

• Mr. Shadrach Himata Dept of Mining Nominee, Deputy SecretaryDepartment of Mineral Policy and Geohazards Management

Members of the Council represent key sectors of the wider community and provide the Company with access toindependent monitoring and advisory support. Two members, Dr. Betty Lovai and Mr. Blassius Iwik, are from theWestern Province, ensuring that the Company maintains its special focus on the province. Ms. Susil Nelson is theSecretary to the Advisory Council.

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The Advisory Council and itsResponsibilities

The Advisory Council provides the CEOwith strategic advice on the developmentand implementation of the SustainableDevelopment Program, including adviceon the integration of the Company'sinitiatives with overall developmentobjectives of PNG.

The Advisory Council also providesassistance with sharing and disseminatinginformation about the SustainableDevelopment Program to Project Partnersand Stakeholders.

Two additional functions of the AdvisoryCouncil are to provide feedback onparticular project proposals and to assist inmonitoring and reviewing projects thatare supported by the Company.

The Advisory Council meets quarterlyto consider papers presented byManagement.

Advisory Council members: LR Front - Dr Betty Lovai (Chairperson),Mr Blassius Iwik, Ms Felecia Dobunaba. LR Back – Mr Paul Songo,Mr Shadrach Himata, Rev Samson Lowa.

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Dr Ross Garnaut, AO

Chairman, Non-Executive Director

BA, PhD, FASSA, D.Litt

Skills, experience and expertise

Dr Garnaut is Vice-Chancellor’s Fellow and ProfessorialFellow in Economics at the University of Melbourne.He is also Distinguished Professor of Economics at theAustralian National University, where he has alsopreviously held the positions of Head of theDepartment of Economics and Director of the AsiaPacific School of Economics and Management.

Dr Garnaut was Senior Economic Advisor to theAustralian Prime Minster Robert Hawke and AustralianAmbassador to China. Dr Garnaut has a longconnection with PNG since serving as First AssistantSecretary in PNG’s Department of Finance, responsiblefor financial and economic policy at the time ofindependence. He has authored numerous books,manuscripts, monographs and articles, particularly inrelation to East Asia and the Southwest Pacific. He isthe author of several major reports for the AustralianGovernments, including the Garnaut Climate ChangeReviews of 2008 and 2011.

Dr Garnaut was the Chairman of Lihir Gold Ltd (1995-2010) and a board member and Chairman of theInternational Food Policy Research Institute inWashington DC, USA (2003-2010). Dr Garnaut alsohas wide-ranging experience in industry including asformer Chairman of the Bank of Western Australia Ltd.

Residence: Melbourne, Australia

Mr Lawrence Acanufa, OBE

Non-Executive Director


Mr Acanufa, a lawyer, has extensive legal and businessexperience both within PNG and overseas.

Mr Acanufa was the principal lawyer and owner of theLaw firm Acanufa & Associate Lawyers which hadoffices based in Port Moresby, Goroka and Madang.His company specialises in matters relating to theprovision of legal consultancy to the Government ofPapua New Guinea.

Aside from his legal experience, Mr Acanufa also bringsto his role of Director many years businessdevelopment experience in Papua New Guinea. Priorto establishing his legal business he held the roles ofExecutive Director Corporate Affairs with the Collinsand Leahy Group and Company Secretary for AirNiugini. During this time Mr Acanufa establishedhimself as a strong leader capable of achievingsignificant business transformation and expansionactivities. Mr Acanufa has also worked for GadensSolicitors both in Port Moresby and Sydney, Australia.

Mr Acanufa also served on the Boards of Turner DavyElectrical, Avis Rent-A-Car and Collins & Leahy Groupof Companies. In September 2010 he was appointedas the Executive Director of National Capital Limited.

Residence: Goroka, Eastern Highlands and PortMoresby, Papua New Guinea



Honourable Jim Carlton, AO

Non-Executive Director BSc

(Retired 31 December 2010)

Skills, experience and expertiseMr Carlton’s expertise spans leadership roles inmanufacturing industry, management consulting,government and the non-profit sector. Currently he isa Senior Adviser to the Boston Consulting Group.

Mr Carlton has served as Chairman of the AustralianInnovation Association, a Council Member of theAustralian Strategic Policy Institute and a BoardMember of the Australia and New Zealand School ofGovernment.

Mr Carlton was a Member of the Federal Parliament inAustralia, serving as Minister for Health, and MinisterAssisting the Minister for National Development andEnergy. He also held a number of Shadow Ministrypositions in Opposition, including Treasury, Defenceand Sustainable Development & Environment, and hascompleted the Senior Managers in GovernmentProgram at the John F. Kennedy School ofGovernment, Harvard University.

He also brings to his role as Director extensiveexperience in international development, serving as aCommonwealth observer at the return of Zambia todemocracy, on the Australian Foreign Minister’s AidAdvisory Council, and on the Australian NationalAdvisory Council on Peace and Disarmament. MrCarlton has also had experience in the non-profitsector, including seven years as Secretary General ofthe Australian Red Cross. He has also served on theAustralian National Commission for UNESCO, and asChairman of the Advisory Council of the NationalArchives of Australia.


Mr Donald Manoa, MBE

Non-Executive Director; Chairman NationalCommittee


Mr Manoa has a broad range of experience and skillsin industry and as a Director. He is Chairman ofNGIP/AGMARK Group of companies, Chairman of KinaFund Management and he is also a Director on theBoard of First Investment Finance Ltd.

Mr Manoa brings to his role as a Director many yearsof business experience in Papua New Guinea. He wasGeneral Manager of the Papua New Guinea ElectricityCommission, and General Manager of Shell Company(PNG) Ltd and Shell Company Ltd, Solomon Islands.He was Chairman of Shell Company (PNG) Ltd, andGazelle Restoration Authority, (GRA). Mr Manoa wasalso a member of the Board of Directors of ANZBanking Group PNG Ltd, Barclay Brothers (PNG) Ltdand Air Niugini.

Mr Manoa has also served in a number of charity andcommunity services in PNG including as Commissionerin the Commission of Enquiry into the NationalProvident Fund (NPF), and the Commission of Enquiryinto the Department of Finance.

He has also served as Honoury Counsel of theNetherlands.

Residence: East New Britain Province, Papua NewGuinea

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Ms Patricia Caswell

Non-Executive Director

BA (Hons), BEd


As Director of Tricia Caswell and Associates, Ms Caswellspecialises in sustainability for business and industrywith environmental, social, economic and governancedimensions.

Ms Caswell is involved in sustainable developmentinside and outside Australia. As well as her role as aBoard Director of PNG Sustainable DevelopmentProgram Company she is a Director of KeeptheHabitat,a new company involved in reforestation and carboncapture in Indonesia. She has a number of projects inthe private sector in Australia and is a member ofGovernment advisory committees.

Ms Caswell has long standing experience, related tosustainability in mining, forestry, building and propertydevelopment, renewable energy, the arts, as well aseducation and training.

Ms Caswell has been a leader in the Australian TradeUnions and a number of other organisations: TheTechnical Teachers’ Union of Victoria, the ACTUExecutive, the Australian Conservation Foundation,Plan International Australia, Global SustainabilityInstitute at RMIT University, and The VictorianAssociation of Forest Industries.

Over time she has been a representative on public andprivate organisations in Australia and internationally.These include the National Commission for UNESCO,The Australia Council, Uluru-Kata Juta National ParkBoard, RMIT University Council and Chair of Circus Oz.


Dr Jacob Weiss

Non-Executive Director; Chairman Investment andFinance Committee

BA, MBA, PhD


Dr Weiss is Dean Emeritus of the Department ofEconomics at the College of Management in Tel Aviv,Israel. He was also Adjunct Professor of Economics atBen Gurion University in Israel, Georgetown University,USA and the State University of New York, USA.

Dr Weiss was a long-serving official with the Bank ofIsrael and for three years with the US Federal ReserveBank. He served as a member of the Board of theMercantile Discount Bank of Israel, and on the Boardand as Chairman of the Investment Committee of alarge pension superannuation fund with operations inthe United States, Europe and Israel.

Dr Weiss also has many years of experience working inPNG. Between 1988 and 1994, and again between1999 and 2002, he was seconded from the IMF to theBank of Papua New Guinea, where he has continued toact as an advisor. He has also worked as an advisor inseveral former Soviet Republics.

Dr Weiss was appointed as the Honorary ConsulGeneral of Papua New Guinea to Israel in 1977. For allday to day operations, he acts as the DiplomaticRepresentative of Papua New Guinea to Israel.

Residence: Ramat Hasharon, Israel

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Mr Lim How Teck, PBM

Non-Executive Director; Chairman AuditCommittee

BACC, FCPA (Singapore)/Australia), FCMA(UK), FSID,AIBA


Mr Lim, a certified public accountant, has extensivefinancial experience and serves on several boards inSingapore and corporations around the world.

Mr Lim is Chairman of Redwood International Pte Ltd,Chairman of Certis CISCO Security Pte Ltd, HeliconiaCapital Pte Ltd, ARA-CWT Trust Management (Cache)Ltd, ACAL Holdings Ltd and Deputy Chairman of TuasPower Ltd. He is also a Board Director of Jurong PortPte Ltd, Rickmers Maritime, ARA Asset Management

Ltd, Accuron Technologies Ltd, ACAL Holdings Ltd,Mizuho Securities (Singapore) Pte Ltd, Public UtilitiesBoard, Mewah International Inc, Swissco Holdings Ltd,I Nuovi Pte Ltd and Foundation of Development Co-operation.

Until his retirement in 2005, Mr Lim was a Boardmember, Executive Director and Group Chief FinancialOfficer of Neptune Orient Lines Ltd of Singapore.

Mr Lim has been honoured with a PBM by theSingapore Government for his contribution toSingapore. He has also been awarded the EducationMedal from the Singapore Ministry for Education andthe Good Services Medal from the Singapore CivilDefence Force.

Residence: Singapore

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CORPORATE GOVERNANCE STATEMENT

As a Company “limited by guarantee”, PNGSustainable Development Program Ltd does not haveshareholders. The objectives and operations of theCompany are governed solely by the Memorandumand Articles of Association of the Company and by theProgram Rules, which together comprise theConstitution of the Company. The Company isregistered at 10 Collyer Quay #10-01, Ocean FinancialCentre, Singapore and has a Company Secretaryoperating at that address. The Company’smanagement office is located in Port Moresby, PapuaNew Guinea.

This report reflects PNGSDP’s corporate governancepractices as at 31 December 2010.

The Board, its key duties and responsibilities

The Board must independently oversee the operationsand projects of PNGSDP in accordance with theArticles of Association and the Program Rules.

The Board is not subject to the direction or control ofthe Independent State of Papua New Guinea or BHPBilliton. However, in accordance with theMemorandum and Articles of Association, changes tothe Program Rules and structure can only be madewith the consent of those parties.

The Board reserves certain functions for itself. Broadly,the duties of the Board include:

• Oversight and review of the overall strategy of theCompany to ensure it is consistent with thestrategic objectives and that adequate riskmanagement procedures are in place;

• Periodic review of PNGSDP’s structures andoperations to ensure they are conducted inaccordance with the Rules;

• Appointment and evaluation of the ChiefExecutive Officer and review of the function andperformance of other key senior management;

• Determination of which projects are funded bythe Company;

• Review periodically the development outcomesand achievements of PNGSDP in terms of theCompany’s strategic direction;

• Consideration of the income and expenditureaccounts and balance sheet;

• Appointment and evaluation of the Auditor;

• Meet at least annually with the Advisory Council;and

• Provide accountability at least annually on theperformance and operations through publisheddocuments and an Annual Report Meeting.

Board composition and appointment

The Articles of Associate require that the Board has aminimum of four and at all times no more than sevenDirectors.

As at the date of this report, the Board of Directorsconsists of seven members. The appointment of theDirectors is made in accordance with the Articles: threenon-executive Directors including the Chairmanappointed by BHP Billiton; the Minister for Treasury,the PNG Chamber of Commerce and Industry and theBank of PNG each appoint one non-executive Director;and an independent Singapore-resident non-executiveDirector is also appointed.

As at 31 December 2010, the Board consisted of:

Dr R Garnaut, Chairman, Non-Executive Directorappointed by BHP

Honourable J Carlton, Non-Executive Directorappointed by BHP

Ms T Caswell, Non-Executive Director appointed byBHP

Mr Lawrence Acanufa, Non-Executive Directorappointed by the Minister of Treasury, PNG

Mr D Manoa, Non-Executive Director appointed bythe PNG Chamber of Commerce and Industry

Dr J Weiss, Non-Executive Director appointed by theBank of PNG

Mr L How Teck, Non-Executive Director, Singaporeresident

Conflicts of interest

PNGSDP is aware of the importance of managingconflicts of interest. Directors continually monitor anddisclose any potential conflicts of interest that arise. Inaddition, any Director with a material personal interestin a matter being considered by the Board mustdeclare this interest and must not vote on any matterwhich relates to that interest.



Board meetings

The Board holds three meetings a year at a minimum.It also meets whenever it is necessary between theseformal meetings, to carry out its responsibilities.

In carrying out the business which is to be transactedat a Board meeting, Directors are required to raise anyquestions they may have, request further information ifneeded, raise concerns and vote on matters before theBoard according to their own judgement.

As stipulated in the Articles of Association, a quorumrequires one BHP appointed Director and one PNGDirector. Decisions are made by majority, but mustinclude at least one BHP appointed Director and onePNG appointed Director.

During 2010, the Board had five scheduled meetingsin Singapore and a varying number of BoardCommittee meetings during the period to 31December 2010. All Board members were inattendance for each meeting and, in addition, regularinformal teleconferences were held to discuss progresswith the Sustainable Development Program. The Boardcontinued its policy to visit Papua New Guinea everythree months prior to its scheduled meetings. Detailsof attendance are contained later in the CorporateGovernance Statement.

Access to information and independent advice

All Directors are given unrestricted access to allrecords and information relating to PNGSDP.Directors are encouraged to speak with members of

senior management at any time to request relevantinformation.

Directors are entitled to seek independent advice onany matter which relates to PNGSDP at the Company’sexpense, but must ensure that costs are reasonableand advise the Chairman before obtaining the advice.

Role of Board Committees

The Board has established a number of expertCommittees to assist in its duties and responsibilities.Board Committees allow matters to be discussed andconsidered in greater detail. The Board Committeestructure utilises the skills and experience of thePNGSDP Directors to a maximum advantage for thebenefit of all stakeholders. Board Committees areformed in response to the needs of the Company andthe Board may appoint further Board Committees as itsees fit.

Current Committees of the Board

In order to assist it with its work, the Board has createdfive main Committees from amongst its members.These are the Audit Committee, RemunerationCommittee, the Investment and Finance Committee,the National Program Committee and the WesternProvince Program Committee.

The Board appoints the Chairman of the Committeewho cannot also be the Chairman of the Board.

Each Committee receives reports from Managementand independent external experts and makesrecommendations to the Board based on the reports.

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PNGSDP Board Committee Membership – from 1 January 2010 – 31 December 2010

Investment Western Province Audit Remuneration and Finance National Program Program

Lim How Teck (C) Ross Garnaut Jacob Weiss (C) Donald Manoa (C) Donald Manoa (Acting C)

Jim Carlton Donald Manoa Ross Garnaut Jim Carlton Jim Carlton

Jacob Weiss Lim How Teck Lim How Teck Patricia Caswell Patricia Caswell

Lawrence Acanufa Lawrence Acanufa Ross Garnaut (ex-Officio)

Ross Garnaut (ex-Officio)

C - Chairman

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Company Secretary

Ms Madelyn Kwang, Senior Manager of DrewCorpServices Pte Ltd, has the chief responsibility for thecompany secretarial requirements of the registeredcompany, PNG Sustainable Development Program Ltd.

Ms Kwang, through the appointment of DrewCorpServices Pte Ltd by the PNGSDP Board, is responsiblefor:

• monitoring Board policy and ensuring thatprocedures are followed;

• distribution of the Board agenda and briefingmaterials before each meeting;

• recording, maintaining and distributing theminutes of all General Meetings of the Company;

• notifying the Directors of Board meetings; and

• assisting in oversight of the Company’scompliance.

Stakeholder Communication and MemberMeetings

The Board of Directors reports regularly to theMembers, the Government of Papua New Guinea, BHPBilliton, Ok Tedi Mining Ltd., and to other Papua NewGuinea stakeholders.

Annual General Meeting of Members was convened on1 May 2010 in order to adopt the 2009 Directors'

Report and Accounts. Representatives of theCompany’s auditor for 2010, PriceWaterhouseCoopers,were present at the meeting.

No extraordinary meetings were held during thisperiod by the Members of the Company.

Under the Rules, the Company must hold an AnnualReport Meeting every year. The 2009 Annual Reportwas presented at the eighth PNGSDP Annual ReportMeeting convened at the Crowne Plaza ConferenceRoom in Port Moresby on 25 May 2010. The Meetingwas officially opened by the Deputy Prime Minister andMiniste for Lands and Physical Planning, Hon. Dr. PukaTemu and was attended by representatives of keystakeholders. The Chairman and all Non-ExecutiveDirectors of the Board, the Chief Executive Officer, andall senior program staff were present to represent theCompany at the meeting as well as representatives ofthe Company’s auditors.

Board Delegation to Management

The Board has delegated authority to the ChiefExecutive Officer to manage the day-to-day leadershipand operations of PNGSDP within the delegation limitsthat are set out in the Program Rules and those set bythe Board from time to time. The CEO may sub-delegate responsibilities within these limits; howeverthe CEO remains accountable for all authority that hasbeen delegated to management.

Directors’ meetings in 2010

The number of Board meetings and meetings of Committees during the year the Director was eligible to attendand the number of meetings attended by each Director were:

Board Audit Investment & National WesternCommittee Finance Committee Committee Province Committee

Ms Patricia Caswell 5/5 -/- -/- 4/4 4/4

Hon Jim Carlton 5/5 5/5 -/- 4/4 4/4

Dr Ross Garnaut 5/5 5/5 5/5 4/4 4/4

Mr Lim How Teck 5/5 5/5 5/5 4/4 4/4

Mr Donald Manoa 5/5 -/- -/- 4/4 4/4

Mr Lawrence Acanufa 5/5 5/5 -/- 4/4 4/4

Dr Jacob Weiss 5/5 5/5 5/5 4/4 4/4

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Board of Directors of PNGSDP Limited

Dr. Ross Garnaut Chairman

Hon. Jim Carlton Mr. Don ManoaMs Patricia Caswell Mr. Lawrence AcanufaMr Lim How Teck Dr. Jacob Weiss

BHP BILLITON GOVERNMENT OF PAPUA NEW GUINEA

Members of PNGSDP Ltd

Hon. Jim CarltonMr. Don Manoa

Mr. Lim How Teck

Auditors

PricewaterhouseCoopers

Board of Directors ofSubsidiary Companies

PNG Microfinance Ltd

PNG Energy Developments Ltd

Western Power SustainablePower Ltd

Cloudy Bay SustainableForestry Ltd

Investment Program Sustainable Development Program

Company Secretary

Ms. Madelyn Kwang

Chief Executive Officer

Mr David Sode

Funds Managers

NewtonInvestment Ltd

Schroders & Co Ltd

Philips Capital

Deutsche Bank

HSBC

Advisory Council

Dr. Betty Lovai(Chairperson)

Rev. Samson Lowa

Mr. Shadrach Himata

Mr. Paul Songo

Ms. Felecia Dobunaba

Mr. Blassius Iwik

Manager - Corporate Governance

Ms Susil Nelson

C O R P O R AT E G OV E R N A N C E R E P O R T O r g a n i s a t i o n a l C h a r t



PNGSDP SUBSIDIARIES & JOINT VENTURES

PNGSDP’s relationship with Ok Tedi Mining Ltd isunique in many respects given the responsibilitiesvested in PNGSDP by the State and BHP Billiton asdisclosed earlier in this Annual Report. PNGSDP has a52% shareholding in OTML, however it does not haveabsolute control over the investment in OTML butshares control with the two other shareholders – TheState and Inmet.

PNGSDP has established four companies to undertakeinvestments and provide services which improve thequality of life of communities, especially in rural areas.These companies are Cloudy Bay Sustainable ForestryLtd, PNG Microfinance Ltd, PNG Energy DevelopmentsLtd and Western Province Sustainable Power Ltd.

Through this strategy significant resources andexpertise can be brought to specific investments,including infrastructure and social services above thefunding support available from PNGSDP. Eachcompany is an independently run, registered businesswith shareholders, a Board of Directors and aprofessional management team.

PNG Energy Developments Limited is a joint venturebetween PNGSDP and Origin Energy Ltd. PNGEDL hasbeen established to implement and manage energyprojects in line with the overall goals and objectives ofPNG Sustainable Development Program Limited.

Western Province Sustainable Power Limited is awholly owned subsidiary company trading as “WesternPower” to pursue the development of ruralelectrification and infrastructure in Western Provinceand throughout Papua New Guinea.

PNG Microfinance Limited is a 81% owned subsidiaryof PNGSDP. International Finance Corporation holds19%. It was established as a vehicle to provide financialservices to low income households and villagecommunities throughout Papua New Guinea. PML wasone of the Company’s first major investment initiativesthat pioneered PNGSDP’s sustainable developmentbusiness model.

Cloudy Bay Sustainable Forestry Ltd is a wholly ownedsubsidiary of PNGSDP; located in Central Provinceit promotes sustainable forestry practices.It harvests, mills and sells finished timber productsincluding furniture.

These companies are subsidiaries of PNGSDP becausethey are entities over which PNGSDP has power to governfinancial and operating policies accompanying ashareholding of more than half of the voting rights.

The relationship between PNGSDP and the companies ithas established is on two levels: both on the basis of anowner/investor or shareholder relationship, as well as aclient/project partner or development agencyrelationship.

As an owner/investor PNGSDP nominates one Director toeach subsidiary Board. As set out in the constitution ofeach company, these Directors can be sourced internallyfrom the PNGSDP Management team or externally.

The PNGSDP-nominee Director reports to the CEO ofPNGSDP on all matters discussed at Board level. The CEOof PNGSDP is responsible for reporting to the Board ofPNGSDP on the activities of all three companies at eachBoard meeting.

As previously noted, all four companies are implementingSustainable Development Projects on behalf of PNGSDPunder management services arrangements.

The client/project partner relationship with subsidiarycompanies is managed in the same way as all otherrelationships with project partners. Project proposals areappraised with the same criteria for economic,environmental, social and institutional sustainability asany other project. Each project must be presentedindividually to the PNGSDP Board by PNGSDPmanagement for endorsement.

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M A P S - W E S T E R N P R OV I N C E

G L O S S A RY O F A B B R E V I AT I O N S

CBSFL Cloudy Bay Sustainable Forestry Ltd

CMCA Community Mine Consultation Agreement

CSDP Community Sustainable Development Program

CSIP Community Social Investment Program

FRPG Fly River Provincial Government

ECPNG Evangelical Church of PNG

LTF Long Term Fund

MOA Memorandum of Agreement

MLE Mine Life Extension

NAC National Airports Corporation

NGO Non-Government Organisation

OPIC Oil Palm Industry Corporation

OTDF Ok Tedi Development Foundation

OTFRDP Ok Tedi and Fly River Development Program

OTML Ok Tedi Mining Ltd

PFA Program Funding Agreement

PNG Papua New Guinea

PNGEDL PNG Energy Developments Ltd

PNGSDP PNG Sustainable Development Program Ltd

PML PNG Microfinance Ltd

RMRP Road Maintenance and Rehabilitation Project

SADP Smallholder Agriculture Development Program

SMIT Star Mountains Institute of Technology

VCT Voluntary Counselling and Testing

WP Western Province

WPSPL Western Province Sustainable Power Ltd

WPSA Western Province Sustainable Aquaculture

WWOL Waria Waria Oil Ltd

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C O R P O R AT E D I R E C T O RY

OUR MISSION

PNGSDP promotes development that meets the needs of the present generation and establishes thefoundation for continuing progress for future generations of Papua New Guineans.

OUR VALUES

We recognise the significant onus of trust, responsibility and challenge that has been placed uponPNGSDP.

We will be honest, fair and accountable in all our dealings, while promoting equality and efficiency inour conduct and activities.

We commit ourselves, through the activities of PNGSDP, to promote and improve the quality of lifeof current and future generations of the people of Papua New Guinea, especially of Western Province.

COMPANY BACKGROUND

Mandate

Under the agreements establishing PNGSDP, the Company has three main functions.

To support and promote sustainable development through projects and initiatives to benefit thepeople of Papua New Guinea, especially the people of Western Province during the period afterclosure of the Ok Tedi Mine.

Another main function of PNGSDP as a substantial financial institution is the prudent and wiseinvestment of the Long Term Fund and Development Fund, so that it can support a high level ofdevelopment expenditure in Western Province and Papua New Guinea in general.

The Company’s other substantive responsibility is as majority shareholder of Ok Tedi Mining Ltd(OTML). Through its representative on the Board of OTML, PNGSDP seeks to ensure soundcommercial operations of OTML, responsible management of environmental and social issues, andseeks to sustain the infrastructure established by OTML for broader social and economic developmentbeyond mine closure.

Incorporation and governance framework

PNGSDP is a Papua New Guinean institution incorporated in Singapore as a not-for-profit limitedliability company, registered and operating in PNG as an overseas company.

PNGSDP is governed by its Constitution, which is comprised of the Memorandum and Articles ofAssociation and Program Rules.

An independent Board, consisting of seven international and Papua New Guinean Directors, controland manage the affairs of PNGSDP and reports to PNG stakeholders annually.

PNGSDP commenced operations in Port Moresby Papua New Guinea in November 2002.

Assurance and indemnification

PNGSDP indemnifies the State and BHP Billiton against environmental claims related to activities ofOTML and provides indemnity over the Independent Directors on the Board of OTML.

HEAD OFFICE

PNG Sustainable Development Program Ltd7th Floor, Pacific PlacePO Box 1786, Port MoresbyPapua New Guinea

Tel (675) 320 3844(675) 320 3845

Fax (675) 320 3855

WESTERN PROVINCE OFFICES

KIUNGA

PNGSDP Regional OfficePost Office KiungaWestern Province

Tel (675) 649 1222

Fax (675) 649 1223

TABUBIL

PNGSDP OfficePO Box 24, TabubilWestern Province

Tel (675) 649 4600 / 9600

REGISTERED OFFICE

Drew Corp Services Pte Ltd10 Collyer Quay #10-01Ocean Financial CentreSingapore 049315

Tel (65) 6531 4187(65) 6531 2266

Fax (65) 6533 1542(65) 6533 7649

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